Am I Delirious, or Did Paul Krugman Just Say What I Think He Said…?
I am in bed all day–well, except for right now–because I’m pretty sick, and I’m trying to get over this runny nose/headache/fever/achiness before Freedom Fest (imagine the possibilities!).
So I thought maybe I was suffering from delirium, when I read Paul Krugman’s recent blog post on the paradox of thrift. It is hands down the most classic example of someone not seeing (and dealing with) an obvious objection to his theory that I have ever seen. (In contrast, when he claims that the rising unemployment rate is proof that the “stimulus” wasn’t big enough–rather than proof that the stimulus critics were right–I give him and DeLong a pass, because had things gone the other way, with unemployment rates falling amidst massive government spending on bridges and what-not, I wouldn’t have squirmed at all. After all, the whole Austrian theory of what happened with the housing boom is that Greenspan short-circuited the cleansing process after the dot-com crash.)
Anyway, the first comment at Krugman’s blog points out the nudity of the emperor, albeit the question is from a true believer who wants to see the fine garments and chides himself for his blindness. (Or maybe it’s actually a free market guy, who worried that the NYT would veto his comment if he just came out and said, “Duh, Paul, you’re missing the most obvious explanation of the data.”)
P.S. One final treat in Krugman’s post, apropos of the Wenzel/Murphy throwdown: Note that Krugman says matter-of-factly that savings=investment no matter what. The Keynesians actually don’t analyze things the way Wenzel (and I guess Rothbard?) think they do, on this score. There’s a distinction between ex ante and ex post, that might be behind the confusion. (I.e. if “planned savings” exceed “planned investment”–perhaps because of evil hoarding–then the Keynesian says national income falls until “actual savings” equal “actual investment.”) But anyway, just be careful if you go around saying, “Austrians like Rothbard know that savings must equal investment, whereas Keynesians don’t think so.” That’s not really accurate.
