Paul Krugman’s jejune column querying Austrians on their view of money market mutual funds (MMMFs) — as if they have never thought or written about the subject — has been roundly skewered by Austrians here and here. But I have a question for Krugman: Why, Paul, would you be interested in the least about what Austrians think about anything?
To understand the significance of this question and the momentous implications of Krugman’s answer, we need to go back to Krugman’s typology of economists. This question is significant because, according to Krugman’s view in his book Peddling Prosperity (1994), “there are two different kinds of economists . . . professors and policy entrepreneurs,” and they are ”radically distinct species.”
The “professors” are academic economists. Like “ostriches and penguins” the professors are “slightly ridiculous.” They write papers that are densely packed with indecipherable mathematics and jargon, and “most of these papers are not worth reading.” In fact they are written not to be widely read but merely to impress the author’s colleagues with his cleverness. The ideas advanced in these papers are not original or definitive explanations of how the economy actually works, but rather “ingenious elaboration without fundamental innovation” — “old wine in new bottles, usually with fancier mathematical labels.” All of this Krugman freely concedes. Ah, but if one would only back up far enough and view the proceedings from a distance, he would see that the professors are engaged in an “enterprise that steadily adds to our knowledge.” The truth is that economics is a “primitive science,” akin to medical science at the end of the nineteenth century, when physicians knew basically how the body worked and not much more. True these primitive medical scientists were able to advise how to prevent some diseases and what quack procedures and medicines to avoid, but they could not cure very many diseases. So it is with economics professors today who know a lot about how the economy works. They can even definitively advise how to prevent hyperinflation and in most cases how to avoid depressions. But there is much that remains a mystery to these primitive practitioners of the dismal science. In particular, “they don’t know how to make a poor country rich or bring back the magic of economic growth when it seems to have gone away.”
Oh yeah, and one more thing about members of the professoriate: they mainly write for other professors and rarely make appearances on TV. When they do address the lay public they seldom make definitive pronouncements on policy issues. They are nothing if not humble in the face of their acute awareness of the limitations of knowledge imposed by the primitive state of their science. (By the way this hardly sounds like Krugman the New York Times “Conscience of a Liberal” columnist so beloved of the Democratic left — but that is a story for another day.)
“Policy entrepreneurs,” according to Krugman, are a different breed altogether. They write books mainly for the public and appear on TV. They strive to influence public opinion and economic policy. While many are journalists, financial pundits, and lawyers, some have PhDs in economics and jobs as economics professors, just not at the right kinds of academic institutions. For example, they may habitate at ”unorthodox environments like Harvard’s Kennedy School.” But the feature that essentially distinguishes a policy entrepreneur from a professor is the language that he speaks and the audience that he mainly addresses. When addressing the public, the former speaks plainly and offers “unambiguos diagnoses” where the latter is “uncertain.” The mind of the policy entrepreneur is unclouded by “existing economic theories,” while that of the professor is teeming with inhibitions imposed by these theories against expressing anything with certitude. Krugman points to supply-siders Arthur Laffer and Robert Mundell on the right and Lester Thurow, Robert Reich and John Kenneth Galbraith on the left as epitomizing the academic qua “policy entrpreneur.” He at one point refers to supply-side academics as “renegade professors.”
Now, in Krugman’s aforementioned column, it is clear that he regards Austrian economists as nothing more than the benighted “policy entrepreneurs” orchestrating Ron Paul’s campaign for sound money and a free market banking system. So to reiterate my question to Krugman in a slightly different form: Why would an eminent, Nobel laureate, Ivy League “professor” like youself care one whit about the views of putative “renegade professors” like the Austrians who reject modern macroeconomics root and branch and aggressively seek to disseminate this view to the public as well as to the rest of the economics profession?
However Krugman chooses to answer this question — and I hope that he does — it is clear that the “existing economic theories” that he so vehemently defended in the 1990s have failed abysmally in preventing or explaining the financial crisis. As a result Krugman and the rest of the establishment macroeconomic “professors” have been catapulted back in time to embrace the crude and discredited ultra-Keynesian policy of inflating our way back to prosperity. Indeed we renegade Austrian professors have the only correct diagnosis and cure for the present economic stagnation — and I am certain of that.