28
May
2011
Krugman and I Are Self-Hating Economists
I was reading this Krugman blog post on the numerous benefits of more inflation, and it occurred to me: A lot of today’s Austrians predict that big price inflation is going to hit, and this troubles them because they think it would be a bad thing. On the other hand, a lot of today’s Keynesians predict that big price inflation is not going to hit, and this troubles them because they think it would be a good thing.
Maybe none of this has to do with ideology at all. Maybe really grouchy people go into economics.
But of course, since so many price inflation predictions by Austrians have failed to materialize over and over, for me (a layman), all I can reasonably say is that some Austrians profit from false alarmism through regular television appearances, while many non-Austrians are just concerned with the facts – that high price inflation is just unlikely. Only for the latter can I say that – at least on this particular matter – they are not concerned with ideology.
And it hurts me to say this, as a person with Austrian sympathies.
I am sorry, but I think we need to take a prognosis success/failure record for Paul Krugman and any distinguished Austrian economist. Let’s see whose predictions are right most of the time, taking 10 major predictions of each.
Paul Krugman does not make bold or major predictions, because bold or major predictions always come to slap us in the face sooner or later, and he is too publicly well known for that. He sticks to what lies within three standard deviations of the most expected outcome, and does not make predictions that lie only on the tails.
Were these horrible inflation predictions driven by ideological differences at all?
Watch him pull that paper out when inflation starts to get out of control and say “see I told you so”.
Also, why don’t you pull this stuff out more when you got all these people calling you out for your calls of inflation the past couple years? It’s not like you called for inflation and then prices started dropping. Prices may have not yet zoomed but the trend is in your direction. The saddest part of this is even if you get everything right in the end they will say you were right for the wrong reasons. No chance Krugman will ever admit he is wrong as is obvious from that link you posted.
One point in your favour, but I am afraid saying your opponent is wrong is not the same thing as saying you are right. That’s a good find there, by the way.
Bob Roddis must understand I agree with him – human behaviour is too complicated and even moreso on a large scale, for anyone to predict it properly.
Isn’t that a good reason to either not make predictions or make heavily hedged predictions only?
I wasn’t speaking of Prof. Murphy, when I said Austrians, by the way, but about Peter Schiff,.etc and their hyperinflation predictions. I have read Austrian literature well enough to know that the rise in money supply may have effects other than price rise, such as poorer quality for the same price. I feel this is the reason Austrians must – for the sake of consistency given their own works – avoid making price level rise predicitons.
While Krugman turned out wrong back then, we must also remember that this was an **apolitical** Krugman. Krugman wasn’t even interested in politics until 2002, and earlier was totally out of political commentary or political allegiance. In this case, we only see being wrong as the reason for being wrong, rather than ideology being the reason for being wrong.
I agree with Roddis’ statements regarding prediction, but one can know what may transpire without knowing the extent or the timing. However, the future is always uncertain, and changes are inevitable.
I think that the biggest difference between Austrian and mainstream predictions is what the predictions purpose it. Austrians do not use their predictions as a means to control the economy, mainstream economists use their predictions as the basis of their interventionist policies. Big difference.
+1
Since I became an Austrian in 1973, I’ve heard lots of predictions of imminent hyper-inflation which I took with a grain of salt. I can remember driving to Detroit from Grand Rapids in 1983 with another libertarian who was predicting imminent hyper-inflation. I long ago decided that asset bubbles and inflation tend to play out over the long rather than the short term. The essence of the Austrian School is economic calculation and the pricing process which is distorted by funny money dilution and government debt. Price inflation is a secondary concern that may play out, if at all, only in various sectors of the economy. Predicting the future involves predicting human behavior, like predicting the results of sporting events. That a prediction of high inflation takes longer to come about than predicted says nothing at all about Austrian Theory. Since no Austrian critic who ever writes in these comments appears to have the slightest familiarity with basic Austrian concepts, I consider arguing about imminent inflation with them a waste of time.
In 2009, Bob Murphy explained why super low interest rates would continue to be a horrible policy:
http://mises.org/daily/3327
Who else correctly made that prediction?
Glenn Stevens of the RBA made a good call by raising interest rates back in 2007, primarily to combat inflation and to discourage the housing bubble.
http://www.dailytelegraph.com.au/business/glenn-stevens-statement-on-interest-rates/story-e6frez7r-1111114819781
Note that the 6.75% rate was politically unpopular at the time, but turned out to be valuable when things turned pear shaped in 2008, and the RBA did drop rates quickly in response to recession. Having dropped those rates, Glenn started creeping them back up again — he does not feel comfortable leaving low interest rates for long periods of time.
http://www.theaustralian.com.au/business/in-depth/use-rates-to-curb-booms-stevens/story-e6frgagx-1111118814537
This seems to show that short term Keynesian monetary stimulus can work, if it’s done cautiously and sparingly. Keynesian stimulus does not work as a long term strategy. Most of the neo-Keynesians do understand this, in theory at least. The trouble is that for cyclic Keynesian economics to work, there must be equal parts of austerity as stimulus to make a cyclic balance.
That’s a great theory but the practical implementation can be summarized as “saving yesterday, saving tomorrow, but always spending today”. Keynesians intrinsically are tricksters, they depend on the creation of confidence by slight of hand. Once you work on that basis, the trick gets out of control, people start to believe the slight of hand is real and then they conclude that anything is possible.
That you have to go back 30 years to find something to pin on Krugman is a pretty good indication of the quality of his work. He has been very prolific since then and that’s the only thing you could find.
The level of inflation he is looking for is that which existed during the 80’s – hardly a catastrophe.
TimK, I don’t have to go back 30 years to find a bad Krugman prediction. That was the first one that popped up when I googled it and it was so incredibly relevant to my critic’s point that I used it.
I’ve been following Krugman since the early 90’s and the only mal-prediction of his I recall was thinking interest rates would go up with the Bush deficits – something I was thinking myself back then.
I didn’t factor in the huge “savings glut” around the world. I assume he didn’t either.
What other wrong predictions of his do you have?
And don’t I recall you predicting that runaway inflation was just around the corner – and that a number of times? And Krugman has accurately been saying that you and the others were wrong.
Are you still predicting runaway inflation? Want to make a bet?
That’s because he also thinks in terms of the non-existent loanable funds market that doesn’t apply to a monetarily sovereign country where the central bank can set interest rates at whatever level it wants to.
And this:
Ken Rogoff, a former advisor to John McCain, says that 6 percent inflation “for at least a couple of years” would be very good for the U.S. economy. It would help eliminate the debt overhang that he believes is hobbling the recovery.
And this from Krugman today:
May 31, 2011, 3:45 PM
Politics and the Stock Bubble
I’ve been getting some comments along the lines that I failed to see the Internet bubble, with the implication that I only see bad things when Republicans are in office.
Ahem. I was quite clear about that bubble, too. Here’s a piece I wrote back in 1998
http://money.cnn.com/magazines/fortune/fortune_archive/1998/05/25/242802/index.htm
that I’m still fairly proud of. Also, I was a big fan of Shiller’s work on irrational exuberance, and promoted it in the Times.
Actually, the political battle lines on the late-90s bubble were much the same as those on the housing bubble that followed. The WSJ insisted that it all made sense; it promoted “Dow 36,000″; it even, if memory serves, published editorials to the effect that if you don’t believe in current stock prices you must hate capitalism.
I’m sorry Bob; you just don’t hold a candle to him. He’s so often on the mark; it’s amazing.
Tim, just to be clear, I am not saying Krugman makes a lot of bad predictions, or even that he has a worse track record than I do. I am saying he makes horrible policy recommendations, like calling for the housing bubble. (I know, I know, he thinks that he never said that, but I think he did.)
There was a piece he wrote in the late 1990s that made a bunch of predictions about the new millenium and the majority of the trends he predicted were wrong. But I can’t find it now.