I could write a whole essay about the dirty tricks Paul Krugman employs in this Slate magazine article from 1998. Instead, I will focus on just one (okay, maybe a few more than one…).
Krugman insists that the Austrian theory of the business cycle is a pure misunderstanding of all the Keynesian and post-Keynesian economic “developments”. The misunderstanding, Krugman argues, is not based on a difference in perspectives or methods of prediction, but rather an intellectual short-coming that precludes economists like Hayek and his contemporary counterparts from doing the simple arithmetic! As Krugman would say, “Um, last time I checked, income = expenditures…” To make sure his readers understand just how much smarter he is than the Austrians, Krugman informs us that he regards the theory, “as worthy of serious study as the phlogiston theory of fire.” So how could so many serious academics still take thinkers like Hayek and Mises seriously? Krugman’s answer: To relieve themselves of conservative guilt, of course, associated with the desire to pay lower taxes.
“The hangover theory is perversely seductive–not because it offers an easy way out, but because it doesn’t. It turns the wiggles on our charts into a morality play, a tale of hubris and downfall. And it offers adherents the special pleasure of dispensing painful advice with a clear conscience, secure in the belief that they are not heartless but merely practicing tough love.”
That is a possible explanation for why a business tycoon might support a theory of less government regulation, but it is dubious with respect to serious academics like F.A. Hayek, who sacrificed his reputation and livelihood when he published The Road to Serfdom. I could easily choose not to argue Krugman on the content of his theories–after all, Keynesianism would be perversely seductive to a power hungry intellectual seeking to make a living peddling snake-oil to politicians looking for an easy cure to the problem of unemployment. In fact, economists like Krugman and Samuelson admit that they don’t care who is in power as long as they are allowed to write the state-run educational monopoly’s economics textbooks!
But let’s ask a seemingly silly question: Why should the ups and downs of investment demand lead to ups and downs in the economy as a whole? Don’t say that it’s obvious–although investment cycles clearly are associated with economywide recessions and recoveries in practice, a theory is supposed to explain observed correlations, not just assume them.
Krugman never mentions that Mises, Hayek, et al., offer a detailed explanation of the interplay between interest rates and the rest of the economy, and how that could lead to a recalculation that ripples through the entire economy. An interest rate set by the government will not accurately reflect individuals’ preferences to save and consume, which can result in malinvestment during the boom period. Steven Horwitz and Peter Boettke recently published an easy to understand explanation for the financial crisis and so-called “Great Recession.” The piece, titled The House that Uncle Sam Built, features a quote from Krugman in 2002, where he advocates the lowering of interest rates to replace the NASDAQ bubble with a housing bubble. The piece also rightfully heaps blame on President Bush for his support of an “ownership society” as well as Senator Chris Dodd and Rep. Barney Frank for their roles with Fannie and Freddie in distorting incentives for home-ownership. Extensive financial regulation passed before the financial crisis began is well-documented. The crash simply cannot be blamed on unfettered markets, because the market was heavily regulated all along.
Krugman writes with the confidence of an evolutionary biologist writing about the theory of evolution. Economists, however, have no such consensus when it comes to stimulus spending. Until they do, I would suggest that Krugman write in a more deferential tone, as Milton Friedman does when discussing highly politicized issues.
The Hangover Theory
Krugman insists that the Austrian theory of the business cycle is a pure misunderstanding of all the Keynesian and post-Keynesian economic “developments”. The misunderstanding, Krugman argues, is not based on a difference in perspectives or methods of prediction, but rather an intellectual short-coming that precludes economists like Hayek and his contemporary counterparts from doing the simple arithmetic! As Krugman would say, “Um, last time I checked, income = expenditures…” To make sure his readers understand just how much smarter he is than the Austrians, Krugman informs us that he regards the theory, “as worthy of serious study as the phlogiston theory of fire.” So how could so many serious academics still take thinkers like Hayek and Mises seriously? Krugman’s answer: To relieve themselves of conservative guilt, of course, associated with the desire to pay lower taxes.
That is a possible explanation for why a business tycoon might support a theory of less government regulation, but it is dubious with respect to serious academics like F.A. Hayek, who sacrificed his reputation and livelihood when he published The Road to Serfdom. I could easily choose not to argue Krugman on the content of his theories–after all, Keynesianism would be perversely seductive to a power hungry intellectual seeking to make a living peddling snake-oil to politicians looking for an easy cure to the problem of unemployment. In fact, economists like Krugman and Samuelson admit that they don’t care who is in power as long as they are allowed to write the state-run educational monopoly’s economics textbooks!
Krugman never mentions that Mises, Hayek, et al., offer a detailed explanation of the interplay between interest rates and the rest of the economy, and how that could lead to a recalculation that ripples through the entire economy. An interest rate set by the government will not accurately reflect individuals’ preferences to save and consume, which can result in malinvestment during the boom period. Steven Horwitz and Peter Boettke recently published an easy to understand explanation for the financial crisis and so-called “Great Recession.” The piece, titled The House that Uncle Sam Built, features a quote from Krugman in 2002, where he advocates the lowering of interest rates to replace the NASDAQ bubble with a housing bubble. The piece also rightfully heaps blame on President Bush for his support of an “ownership society” as well as Senator Chris Dodd and Rep. Barney Frank for their roles with Fannie and Freddie in distorting incentives for home-ownership. Extensive financial regulation passed before the financial crisis began is well-documented. The crash simply cannot be blamed on unfettered markets, because the market was heavily regulated all along.
Krugman writes with the confidence of an evolutionary biologist writing about the theory of evolution. Economists, however, have no such consensus when it comes to stimulus spending. Until they do, I would suggest that Krugman write in a more deferential tone, as Milton Friedman does when discussing highly politicized issues.