Over the years, some have suggested that I am overly sensitive to criticism. (Naturally, I don’t talk to those jerks anymore.) Because of this, I want to report on a running dispute Daniel Kuehn and I have had. I believe that Daniel has demonstrated a clearcut double standard with respect to Paul Krugman and me, but I am open to other thoughts.
It all began when Daniel linked to a “fascinating paper” that explored the difference between aggregate expenditures and aggregate income. In theory the two should be the same, but for whatever reason(s) they are measured differently in the real world. The authors of the paper took the difference between the two measures, and plotted it against the national unemployment rate. Lo and behold, the two series clearly moved together. Daniel suggested that this was consistent with Keynesian theory, saying:
We would expect these discrepancies to have pronounced cyclical qualities. Particularly, when the income measure is high relative to the expenditure measure (when more income is being earned than is being spent) we’d expect to see more unemployment, and when the income measure is low relative to the expenditure measure, we’d expect to see less unemployment.
There was just one problem: The graph showed the opposite of what Daniel was saying he “expected” based on Keynesian theory. In other words, the graph from the “fascinating paper” showed that when the income measure was high relative to the expenditure measure, then we saw less unemployment, and vice versa.
Naturally I pointed this out, and suggested it was a problem for Daniel and Keynesianism. He didn’t see what the problem was, so I spelled it out in a post and then in a particular comment of that post.
Daniel then came back with a new post entitled, “Bob Murphy sees economic science very differently from how I see it, I think.” Here are some key excerpts from that post:
When I was working off a misunderstanding of the graphic, I talked about what we “expect to see” according to Keynesianism, and I said it was an interesting graph (I still think it’s an interesting graph – it’s surprising these discrepancies would end up being anything other than noise). I didn’t say it was proof of Keynesianism. But I did have an expectation going into it, and that expectation ended up being wrong.
So is that a reason to discount Keynesianism? Maybe. But I don’t understand why Bob is so quick to jump on that. He jumped on it with 1920-21. He jumped on it with his recent Mises Daily article where he declared the Austrian school was right on the stimulus and Keynesianism was wrong. And he appears eager to tally this to the anti-Keynesian camp here. I don’t understand this perspective.
My reaction is to say “Huh – that’s weird. I wonder why that is happening?” (non-Keynesians might not find it quite as weird because their expectations weren’t dashed like mine were). It seems to me we oughta try to answer that question before considering this a mark against anyone. Commenters here offered some ideas (including Nick Rowe who just said it’s impossible to interpret). In Bob’s comment string, I suggested a life cycle consumption hypothesis explanation – an explanation Bob apparently came to forty comments after me. That seems like a pretty reasonable explanation to me, which solves our conundrum. Is life-cycle consumption inconsistent with Keynesianism? It wasn’t the consumption theory Keynes offered, but it is not inconsistent with Keynesian macroeconomics. Is it inconsistent with the Austrian school? Not that I’m aware of. So the best explanation that the crowd-sourced minds of my blog and Bob’s blog can come up with for this data is once again something that is consistent with multiple macroeconomic theories. That’s where I come out at the end of this, and that’s what I call scientific progress. We have a lot of ideas. We take it to the data. I make mistakes. I get my mistakes corrected by my peers. I get curious and confused. We figure out an explanation of the data, and we draw conclusions. For a scientific or an empirical mind, this has all been a great experience, and I am plenty happy to admit I was wrong.
But there seems to be this tendency in some corners – instead of doing science – to do proofs and falsifications. It makes sense, of course, that Austrians think in terms of “proving” things. That’s the deductive mindset after all. It shouldn’t surprise regular readers to learn that I really don’t think we’re equipped to do that. If you’re interested in abstract philosophy and epistemology, Popper is among the best. If you’re actually interested in doing something useful you can largely forget Popper (well – at least you can forget Popperian epistemology – I don’t want to rip on Popper himself, who may very well have agreed that epistemology is of limited use in the practice of science, except as a vague mirage). I have serious doubts that Keynesian theory is falsifiable. I have serious doubts that Austrian theory is falsifiable. I have serious doubts that any truly interesting theory, at least of a highly complex phenomenon, is falsifiable. This point is crucial for scientists to understand.
Now that is fine as far as it goes, but at this point in our debate I had already begun to suspect the dreaded double standard. So I said in the comments:
Daniel, can you point us to where you criticized Krugman’s deductionist viewpoint in the numerous posts he’s made, like this? If I didn’t know [any better], I would say Krugman feels vindicated since Keynesian theory predicted interest rate and inflation movements better than the Chicago School and Austrian guys. But surely Krugman isn’t a follower of non-scientific Austrianism.
(You can read Daniel’s reply here.)
There the controversy died away. It was rekindled today when Krugman ran a post containing yet another victory lap:
And here we are, two-plus years later, and the interest rate on 10-year U.S. Treasuries is only 2.94 percent. This should count as a triumph of economic analysis: the model was pitted against the intuitions of practical men, making a prediction many people considered ridiculous – and the model was right.
And nobody noticed; economic discourse – and even a lot of investment strategy — continues to rely on the supply-and-demand-for-bonds view, even though it has been thoroughly discredited by experience.
How is this possible?
One answer is that the Greeks muddied the waters…
More broadly, I guess it turns out that Hicks/Keynes analysis is harder than it looks, and that even smart people – many of them with economics PhDs – just can’t wrap their minds around the notion that sometimes just doing supply and demand isn’t enough.
The result – that one theory has been proved wrong, another proved right, yet the world continues to believe in Theory #1 – is frustrating. It’s also tragic, because that intellectual obstinacy is contributing to the “new normal” of permanently high unemployment.
Now the connection (to me) to my dispute with Daniel was so obvious, I sent the following email (in its entirety), subject line “krugman sounding like murphy,” to him:
“If I were completely petty, I would post a blog and this demanding that you chastise Krugman. But I’ll just send it to you instead.”
And then I pasted the link to Krugman’s blog. Here is what Daniel said in response. This is his full email, reproduced with his permission:
I’m happy to chastize, but what exactly would I be chastizing him for?
The strict “proven wrong/proven right” language? I could certainly note that it’s hard to absolutely dismiss arguments in macro… but if you soften that language a little I’m pretty sympathetic to the drift of the post. Is that what you were getting at?
I had actually requested that Brad repost that post that Krugman is refering to. I think it’s one of his best.
So, am I being touchy, or is this a jaw-dropping double standard? I am genuinely open to different opinions on this, since Daniel isn’t trying to be a jerk (and neither am I). Is this just a classic illustration of the fact that it seems worse when somebody on “their side” attacks “one of us”?