16 Jul 2009

Krugman Tri-blechta

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I told Jeff Tucker (editor of Mises.org) that I would lay off Krugman for a while, since I don’t want the Austrians to be the Party of No. But I didn’t make any promises about Free Advice. Today Krugman has three contiguous blog posts that really set me off.

In this one Krugman says “Matthew Yglesias marvels at the extent to which stagflation in the 1970s — which was bad, but not remotely as bad as the Depression — was used to sell the idea Keynes bad, free markets good.” That’s right Prof. Krugman. The old-school Keynesian model said that you can’t have rising prices with excess capacity; you said it yourself earlier this year. (Update: Krugman actually didn’t mention excess capacity in this piece saying we have no inflation risk right now.) So stagflation is impossible, according to classic Keynesianism. Thus the observed stagflation of the 1970s blew up the theory. QED. (I’m sure Krugman would give some story that it wasn’t increased Aggregate Demand, but rather falling Aggregate Supply, causing the inflation. But then why is he blaming monetary policy in the latest post?) There was no liquidity trap in the 1970s; interest rates weren’t zero. So again, how does a Keynesian explain zooming prices amidst excess capacity?

Now on to post #2, which really got me going. Krugman takes a pompous swipe at Bryan Caplan–hey, that’s my job! Caplan is such a dumb economist, he actually thought raising the price of something would reduce the quantity demanded. Naturally this earned Caplan an “Um” from the laureate. And for good measure, at the end of the post Krugman said, “What’s striking here is the cynicism. Feldstein, in particular, is surely a good enough economist to know better. But he and Caplan and others are prepared to grab any argument they can to block progressive reform.” So not only is Caplan an idiot, but he’s such a bad economist that Krugman doesn’t really expect anything better from him; hating sick people is par for the course for such a lightweight.

The funny thing is, if you click through and read the post, part of Krugman’s (echoing Kevin Drum) complaint is that Capan and Feldstein are counting the negative impacts of the health care “reform” and Waxman-Markey bill, when those plans won’t kick in until after the recession. That’s what makes Caplan and Feldstein such liars (and/or morons); they are saying “at a time like this” we can’t raise labor costs. But at the end of April, Krugman had no problem saying the climate bill would help pull us out of the recession (because it would force businesses to invest on carbon-free techniques). So I guess businesses are forward-looking when it comes to capital costs, but not to labor costs. Presumably Feldstein (the good economist) learned that at his school, but Bryan and I missed that subtlety.

Finally, in this post Krugman says that the AMA has “played a consistently nefarious role” in health care reform. He notes that the AMA has endorsed the House plan, and then proceeds to rip the WSJ. So, does that mean the House health plan is nefarious? I don’t think that’s what Krugman is trying to say. But if it’s not nefarious, then the AMA’s endorsement of it means they aren’t nefarious anymore. So why then is their earlier (nefarious) history relevant? (Update #2: Upon further review, maybe Krugman is just being goofy in this post. He did rip the WSJ, but now I don’t think that was the main point.)

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