Krugman Punk’d, Yet I Don’t See the Problem
[UPDATE below.]
So Krugman doesn’t have a Google+ account, and therefore did NOT post this: “People on twitter might be joking, but in all seriousness, we would see a bigger boost in spending and hence economic growth if the earthquake had done more damage.”
Krugman (naturally) is outraged that gullible right-wing pundits could have believed he’d say something so outrageous:
[T]he hoaxer was trying to make my (correct) assertions in the past that even useless spending can be expansionary sound as if I revel in disaster. Those who can’t argue rationally, resort to fakery.
Also, the gullibility on display was impressive. All these right-wing hacks knew it must be a genuine quote, because they all knew that I’m a terrible person — based on past distortions!
But hold on a second. The reason I thought the quote was legitimate, was that it didn’t “revel in disaster.” The fake quotation doesn’t say, “It’s too bad the earthquake didn’t do more damage.” No, the fake quotation gave neutral economic analysis–and didn’t conflate wealth with employment–in a manner entirely consistent with Matt Yglesias saying that breaking windows creates jobs/economic growth:
The fact that breaking windows would make a society poorer (fewer windows) is precisely why nobody ever proposes stimulating the economy by deliberately smashing windows. But the way the dialogue works is that first a Keynesian observes that fiscal stimulus can increase growth in a depressed economy. Second, as an attempted reductio, a conservative says “if that was true, then you could increase growth by breaking a bunch of windows.” Third, the Keynesian accurately points out that you could, in fact, increase growth by breaking windows. Fourth, the conservative accuses Keynesians of wanting to break windows or believing that window-breaking increases wealth.
Krugman endorses the above; notice that my link goes to Krugman, not Yglesias’ original post.
So yes, it’s bad that someone put up a fake Krugman quotation, but I don’t see what’s “wrong” with it from Krugman’s. perspective. That is an entirely accurate summary of his worldview. Just as he’s not calling for an alien invasion (though he arguably is calling for a hoax of an alien invasion), the fake-Krugman in the Google+ account wasn’t calling for a worse earthquake. He was just spitting out standard macro. (And hence, demonstrating that standard macro is nuts.)
UPDATE: Some commenters on this topic over at EPJ gave me the courage to voice my cynicism. When I read the original Google+ post (it’s now down), some of Krugman’s fans were defending him. And one of them said something like, “Good to know you actually post here, Dr. Krugman! I’ve been following you for weeks and thought a Times administrator handled this. I thought this was just an outlet for your columns and blog posts.”
Now maybe my memory is off, or maybe the person merely meant he was following Krugman on Twitter or something, but… is it true that this allegedly fake Google+ account was up for weeks, before this one-time “crazy” Krugman quote (which is actually totally consistent with everything else he’s said)?
Correcting the Keynesians on the Broken Window Fallacy
Lately our good friend Daniel Kuehn has been beside himself over the anti-Keynesians’ allegedly improper use of Bastiat’s broken window parable. The classic statement comes from this post, where Daniel declared, “Nothing convinces me you don’t understand what Bastiat wrote more thoroughly than accusing Paul Krugman of having committed a Broken Window Fallacy.”
Anyway, I bring it up now because this seems to be something that not only Daniel, but also Matt Yglesias, are hitting repeatedly. Perhaps sensing the rhetorical power in accusing Keynesians of falling prey to a fallacy exploded in the 1800s–after all, that’s why it stings so bad when Krugman accuses his opponents of ushering in a “Dark Age of Macro”–Daniel and Yglesias try to spin the whole thing as yet another example of sloppy thinking by the free-market guys. In the latest episode, Daniel praises Matt Yglesias for saying that shoplifting will create jobs. (See, we don’t need to fake alien invasions after all.)
I’ll let you go read the logic behind that one, but what interests me in the present post is how Yglesias introduces his post: “Conservatives persist on not understanding the point about broken windows…” In his earlier post on the same theme, Yglesias opened up by saying:
Few myths are as persistent as the idea that Keynesian and monetarist thinkers fail to appreciate Frédéric Bastiat point about broken windows. As even a cursory examination of efforts to apply Bastiat’s ideas to the conditions of a depressed economy will show, the so-called “broken windows fallacy” is not a fallacy at all, just a special case.
Where Daniel and Yglesias are coming from, is to make a distinction between wealth and employment. “Sure,” they concede, “everybody admits that breaking stuff makes us poorer. But it’s not a ‘broken window fallacy’ to say that breaking windows can boost employment.”
Well, regardless of your opinion on that claim, I want to point out that Bastiat didn’t agree. Here is his original (translated) discussion:
Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation – “It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”
Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.
Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade – that it encourages that trade to the amount of six francs – I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.
But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! your theory is confined to that which is seen; it takes no account of that which is not seen.”
It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.
Let us take a view of industry in general, as affected by this circumstance. The window being broken, the glazier’s trade is encouraged to the amount of six francs; this is that which is seen. If the window had not been broken, the shoemaker’s trade (or some other) would have been encouraged to the amount of six francs; this is that which is not seen.
And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labour, is affected, whether windows are broken or not.[Bold added.]
There is no ambiguity in the passages I’ve put in bold. Bastiat is clearly saying that not only would it make the community poorer, but that it would not stimulate industry or boost overall employment, if somebody smashed a window. (Presumably repelling an alien invasion or replacing shoplifted goods wouldn’t give a different answer.)
So if Yglesias and Daniel Kuehn want to say, “Modern conservatives/libertarians should stop citing Bastiat’s broken window ‘fallacy’ because he was wrong; he assumes full employment which is the mistake all the classicals make when it comes to macro,” then OK fine. We can have that argument.
But they should stop accusing modern free-market folks of misapplying the lesson. To say that shoplifting or alien invasions can help employment is exactly the “broken window fallacy” as spelled out by Bastiat.
Lee Ohanian Explains Why Hoover Did More Than “Jawbone” Businesses
Mark Priddy (a student in my Keynes class) reminded me of this great paper by Lee Ohanian of UCLA. Some of you (Blackadder, in particular) never liked the currently fashionable Austrian move of blaming Herbert Hoover for propping up wage rates and thus exacerbating unemployment in the early 1930s. Ohanian gives the rest of the story.
Contrasting Views of the Great Depression
This was another talk I gave at Mises U this year. (The opening joke is a reference to an argument between Walter Block and Gary North.)
Greenspan Might Be a Little Too Frank
As longtime readers know, I am fascinated by “conspiracy theories” and cannot rule out the possibility that there is a cabal of lizard people running the world.
Anyway, if the cabal exists, I have to think they are upset at Alan Greenspan’s glibness in this interview. (HT2 EPJ) That’s always gotta be tough, when somebody has served you well for decades, then gets a little cocky and starts shooting his mouth off near his deathbed. (Incidentally, this is why I don’t think Paul Krugman will ever be in the inner circle. He is too pleased with his own wit to be trusted to keep a secret.)
Stephan Kinsella on Intellectual Property
This was his talk at Mises U this year. I didn’t watch it live, but just caught it while balancing my checkbook. (Feel free to steal my idea; I won’t sue.) The Q&A is really good.
More Evidence That Scott Sumner Is Insane
For a while I have confidently asserted that economist Scott Sumner is insane. (Believe it or not, Scott himself understands why I say this as a compliment. I’m not saying he’s flattered, mind you, just that he gets my weird sense of humor.)
Today I will not talk about his views that our current recession is largely due to Ben Bernanke’s tight-money policy, or that we didn’t go through a housing bubble. Instead, I will quote from two recent Sumner blog posts that need little comment from me to establish the insanity of our man in Bentley.
First, here’s Scott in a post titled, “Even if I’m wrong, I’m right,” showing that we dare not try to paint him into a reductio ad absurdum, because he’s already done it himself. Some key excerpts:
You might wonder how I can sleep at night knowing my policy proposal, if enacted, might simply lead to higher inflation, without creating any jobs at all. My answer is very simple. Even if I knew that dismal outcome would occur, I’d still favor monetary stimulus. I believe steady growth in NGDP is optimal, even if fluctuations in NGDP don’t affect employment. But let me explain my reasoning using the more familiar inflation targeting criteria.
As you know, the Fed has a dual mandate, stable prices and high employment. They’ve generally assumed that stable prices mean roughly 2% core inflation, for complicated reasons. And core inflation has been around 2% during recent decades…
But whatever your views, the Fed is in a position where if it does more monetary stimulus in an attempt to speed the recovery, and totally fails to create a single new job, the policy will still be smashing success. It will still move core inflation closer to its 2% target.
And that, my friends, is why I can sleep comfortably at night. I am proposing a policy that literally cannot fail.
I leave it as an exercise for the reader to point out one or two possible problems with the above argument.
Next, here we have Scott giving his general view of world events (and knowledge of predictions in the social sciences):
In 1989 Francis Fukuyama made a bold prediction. The world would become increasing democratic and market-oriented. Other political models would gradually wither away. He called this “The End of History.” Here are a couple facts about his prediction:
1. It would be difficult to find any other prediction in the humanities or social sciences that has proved more accurate. There are many more democratic countries than in 1989, and policy has become much more market-oriented in most countries.
2. When intellectuals discuss his prediction today, 99% assume it failed to come true. Indeed most utter the phrase “the end of history” with undisguised contempt.
The juxtaposition of these two realities has made a deep impression on me. How can we explain why so many brilliant people have failed to acknowledge Fukuyama’s prescience?
In the comments I asked Scott if he thought the US in particular was more market-oriented now than in 1989. Like a good believer in the Efficient Markets Hypothesis, Scott wouldn’t answer the question himself, but dished it off on the bond market Heritage Foundation.
An Open Letter to Mayor Bloomberg
He’s put up $30 million of his own money to supplement a NYC program to help blacks and Latinos enjoy American prosperity. I gave him some suggestions on things that would work better.
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