I Agree with Paul Krugman

In an unusually perceptive post, Krugman complains that “again and again, people on the opposite side prove to have used bad logic, bad data, the wrong historical analogies, or all of the above.” He points out that one side of the macroeconomic debate “is, in essence, political,” driven by “hostility to any intellectual approach” that might cast doubt on its preferred p0licies. “Too many influential people just don’t want to believe that we’re facing the kind of economic crisis we are actually facing,” leading to “the spectacle of famous economists retreading 80-year-old fallacies, or misunderstanding basic concepts.”

Of course, Krugman is talking about all non-Krugmanians — he doesn’t provide names, because he sees Not Krugman as an amorphous blob of evil and stupidity — but he’s really onto something, just with the players reversed. Old fashioned Keynesianism, as practiced by the likes of Krugman, resembles a set of religious dogmas, not scientific propositions. Austrians view economics as a science, a body of theory and application that helps us understand the world. Keynesians see economics as a set of political tools useful to rationalize and justify an a priori faith in unlimited government. Krugman, like Keynes himself, dislikes businesspeople, consumers, and especially entrepreneurs and investors, and prefers a world in which an elite cadre of intellectuals and bureaucrats controls most investment, production, and consumption decisions. Fine, everyone has a right to his personal belief system. But let’s not pretend there’s anything scientific about the multiplier, the marginal propensity to consume, the liquidity trap, and the other relics and sacraments of the Keynesian religion.

Engaging True Believers like Krugman on economic theory and policy is mostly a waste of time — one side uses reason and evidence, the other appeals to personal faith. (BTW this doesn’t apply to New Keynesians such as Mankiw and the Romers, whom I regard as reasonable and serious folks.)

Comments

  1. @ J Hansen: “You can take a macro-scale view and just talk about the volume of water flowing out of a pipe, but if you want to actually understand what happened to individual individual water molecules in the course of flowing through the pipe, and what happens as the water pressure is raised and lowered, the importance of viscosity, hydrogen-bonding, surface tension, flow turbulence, and even quantum mechanical effects all play important roles.” Cute, but Krugman’s analysis is at the level of Y = C + I + G. It’s not complex, subtle, or nuanced. It’s freshman-style Keynesianism. Sure, I’ll take Leijonhufvud or Clower or any New Keynesian over Krugman-style Keynesianism. At least then there’s something interesting to discuss.

  2. I know I’m not going to change any minds here, but having a testimonial or defense on record is useful even in a “court” where the conviction is sure.

    Your description of Krugman is simply wrong, and claiming Keynesian is just a politically motivated religion is, again, just plain wrong. After many debates with mises.org-worshipping siblings I’ve come to see that the main schism between Austrians and Keynesians is that Austrians consistently stop their analysis of feedback effects too soon. Probably for various reasons within many of their adherents (such as a rejection of consistent innate human preferences), Austrians do not clearly recognize that there are consistent feedback effects above and beyond the effects seen in discrete, individual transactions.

    This is, for instance, why Austrians see economics as “simple”, relative to Keynesians – and as Hermann Hans-Hoppe suggested you debate with a Krugman by asking “simpleton” questions because, allegedly, Krugman can’t actually provide the answers. The fact is that he (or I or any [new] Keynesian) can give you the answers, but just as when a 5-yr old opens a can of worms with, “Mommy, what is matter made of?” (and keeps probing through each layer of answers), a realistic description of economics (if you want one) requires more and more complex modeling to explain how the network-effect feedbacks interoperate.

    In the end, the “macro” effects can be generalized in more simple terms – which is what Keynes did. But getting from micro- to macro- requires considering every angle. It turns out that it is very, very much like a hydrodynamic flow problem. You can take a macro-scale view and just talk about the volume of water flowing out of a pipe, but if you want to actually understand what happened to individual individual water molecules in the course of flowing through the pipe, and what happens as the water pressure is raised and lowered, the importance of viscosity, hydrogen-bonding, surface tension, flow turbulence, and even quantum mechanical effects all play important roles.

    You may choose to see that level of science as religion, but as Arthur C. Clarke said, “Any sufficiently advanced technology is indistinguishable from magic.” It goes both ways.

    • “I know I’m not going to change any minds here, but having a testimonial or defense on record is useful even in a “court” where the conviction is sure.”

      No, you’re not, I guess, considering your post contains next to nothing resembling an argument.

      “Your description of Krugman is simply wrong, and claiming Keynesian is just a politically motivated religion is, again, just plain wrong.”

      Thanks for informing us.

      “After many debates with mises.org-worshipping siblings”

      Nothing seems to have stuck, so shall we call them arguments? Shouting matches?

      ” I’ve come to see that the main schism between Austrians and Keynesians is that Austrians consistently stop their analysis of feedback effects too soon. ”

      Laughable. What if I simply substituted Austrians for Keynesians? Sounds more accurate to me.

      “Probably for various reasons within many of their adherents (such as a rejection of consistent innate human preferences), Austrians do not clearly recognize that there are consistent feedback effects above and beyond the effects seen in discrete, individual transactions.”

      Which do you refer to? I know of no Austrian who is ignorant of such, be it Hayek, Mises, Kirzner, Lachmann etc. So who, specifically, are you referring to and which theories ignore ‘feedback’ effects?

      “This is, for instance, why Austrians see economics as “simple”, relative to Keynesians – and as Hermann Hans-Hoppe suggested you debate with a Krugman by asking “simpleton” questions because, allegedly, Krugman can’t actually provide the answers. ”

      Can you? I mean other than by retorting “it’s complex” or “need modelz pls”.

      “In the end, the “macro” effects can be generalized in more simple terms – which is what Keynes did. But getting from micro- to macro- requires considering every angle. ”

      If only Keynesians did that.

      “You may choose to see that level of science as religion, but as Arthur C. Clarke said, “Any sufficiently advanced technology is indistinguishable from magic.” It goes both ways.”

      I prefer the term voodoo. Technology and science are not the same thing, as an FYI.

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