15
Jan
2011
I Was Wrong About Krugman
I said yesterday in this post that he would never pay Scott Sumner an explicit compliment. And then he (sort of) did today in this post, ripping Tyler Cowen and the Austrians. (Krugman is half right. You guess which half.)
I will let Scott (or my readers) correct me, but I am pretty sure that is the first time in history Krugman has acted like Sumner is his peer.
So now I have to wonder whether Krugman is reading this blog, and I actually influenced his post. (I.e. he complimented Sumner either consciously to disprove my jab, or subconsciously.) I mean, this Canadian guy is as much a punk to me, as I am to Krugman, and I watched the Canadian guy’s video. So….
He called Richard Koo the anti-Scott Sumner. I thought that was sort of a compliment.
Do you have any idea where he’s gathering that Austrians are saying that unemployment is high right now because workers have zero marginal productivity?
I’m assuming it’s like this: “Austrians say the problem right now is real; workers shouldn’t have gone into construction. So the fact that those workers can’t get hired right now, proves that they must have zero marginal product. Austrians don’t believe in wage stickiness or anything like that; markets are perfectly flexible and can absorb workers. In the Austrian view, if workers had positive productivity, then an employer would offer them a small wage and get them to work.”
I confess I can’t do a good job on it, since I don’t think Austrians believe it and it’s therefore hard for me to imagine what he is thinking.
Sounds plausible.
It’s just so annoying that whenever Krugman explicitly refers to Austrians, he never bothers quoting anyone.
Bob,
So what is the Austrian explanation for the high unemployment we’ve been experiencing?
Ok, nevermind. I see you’ve answered this below.
Here’s Mario Rizza of approving of Cowen’s ZMP post in the comment’s section. He’s an Austrian, right?
“In his 1936 review of the General Theory, Joseph Schumpeter points out that for Keynes “the employment of labor is an ‘adequate’ index of the output resulting from it.” In other words, Keynes is assuming that there is a fixed relationship between aggregate demand, aggregate supply and employment. Therefore, he makes no room in his analysis for the phenomena described above. I believe that many modern day Keynesians do the same. So, for them, the failure of employment to recover is *necessarily* an aggregate demand failure.”
I’ve seen the ZMP meme spread around by libertarians of the Ron Paul variety in several other sites as well. Maybe he’s just just assuming that’s what Austrian economics says because of those people?
Yes Rizzo is an Austrian. There are at least 3 different perspectives in this debate, which sound equivalent at a superficial level but in reality are different:
(1) GDP is as high now as it was in 2007 (or whatever), even though employment is down. So those laid-off workers must have been useless. [Tyler Cowen]
(2) There are unemployed workers right now, and the market is perfect, so therefore these workers must not be good for anything. [Strawman view that Krugman appears to attribute to Austrians.]
(3) The economy is very complex, involving long chains of production and interlocking capital goods as well as labor. It’s very crude to use a model like Y=F(K,L). After the unsustainable boom period, it takes time for workers to figure out where to go, where they can best fit into the new, pared down economy. [Bob Murphy and Arnold Kling]
(3) The economy can neither be effectively centrally planned by, nor can the correct capital orientation be known by, any single individual. Each individual must find out for himself where his talents and experience can fit into the overall economic structure, given monetary and political uncertainty, and given the long chains of production and interlocking capital goods as well as labor. It’s very crude to use a model like Y=F(K,L). After the unsustainable boom period, it takes time for workers to figure out where to go, where they can best fit into the new, pared down economy. [Bob Murphy and Arnold Kling and Captain_Freedom]
I think this makes our position stronger. I don’t know about you, but when I hear people tell me “It’s very complex”, that sends signals to me that they are trying to convince me of something through ignorance.
After all, if the Bernank’s position is that printing $600 billion can solve our economic woes, and after challenging him with your best rebuttal, he responds with, “Well, the process is complex, so there”, I don’t think we would all bow down and agree that “complexity” is beyond the capabilities of our feeble minds so that we adopt his position.
Yes, the economy is complex, but if our case is going to be strong, we can’t pretend to display an understanding of it by claiming it is too “complex” for explanation.
Instead it may be better to say that the market is “too complex…for ANY ONE PERSON OR GROUP to effectively plan”. After all, it’s not too complex in a way that we refrain from giving our advice on how to best deal with economic problems!
The argument that workers have zero marginal productivity is absolutely pathetic. I cannot believe that two of my econ classes were taught with books from Cowen and Krugman. Krugman had a good eye to pick that one to rip on and characterize it as the Austrian point of view. Touche Krugman. Buy why can’t a reasonable argument get any mention? The Austrian case doesn’t seem that complicated to me; incorrect interest rate signals are misdirecting resources into channels that consumers don’t approve of. Add that to years of capital consumption and recovery will take a very long time.
Krugman publishes another of my snarky comments. This one ends with “Krugman, it’s all your fault”.
http://tinyurl.com/4znfh9a
If Krugman had the slightest familiarity with Austrian School thought, wouldn’t he already know that we think ZIRP is insane?
Both Yglesias and Krugman now agree that Friedman is “left of center” on monetary policy.
http://yglesias.thinkprogress.org/2011/01/the-great-coincidence/
That’s one of those “the sky is blue/cows can’t fly” kind of “truths”. Too bad the “progressives” just spent 4 or 5 decades debating it.
>Both Yglesias and Krugman now agree that Friedman is “left of center” on monetary policy.
This reminds me of the government perceiving a need to team up with the Taliban in 1980 in order to fight the Soviets.
Krugman has to call Friedman a lefty in order to align himself with as much intellectual muster as he can to make a case against the evil moralistic Austrians. He wants to isolate Austrians to make them appear as fringical and evil as possible, so that they can be better handled.
Hey, maybe Krugman should realize this is what society does with criminals and immoral people. These bad people are rounded up, collected, and called “the state”, so that evil is isolated, centralized, and hopefully more easily controlled. Kind of like how eating bad food culminates in a single large zit at the tip of your nose. Your body is saying isolate, control, and expunge.
Krugman is like the spokesman for facial grease.