14 Jul 2011

Taking on the Confidence Fairy

Economics, Krugman, Shameless Self-Promotion 2 Comments

In today’s article at Mises, I am so bold as to challenge Krugman’s analysis even from the point of view of Keynesian international trade. (That’s like Krugman telling me how bald guys should dress.)

That part of the story is a bit complex, so I won’t reproduce it here. But on another note, I think I found yet another Krugman Kontradiction:

On the specific issue of the confidence fairy, Krugman is in a bit of a pickle. For one thing, it’s hard to see how the austerity talk of “confidence” is any less rigorous than John Maynard Keynes’s famous discussion of “animal spirits” when it comes to explaining business investment.

Even more troubling for Krugman is that he himself admits that private investors have been acting on the (alleged) myths of the anti-Keynesian economists. During his talk on Keynes, Krugman alludes to an investment bank making an apology for its erroneous predictions on interest rates (where the bad prediction was due to ignoring Krugman’s analysis). Several times, Krugman has criticized Pimco’s Bill Gross for saying that interest rates will rise because of the end of QE2, and Krugman often ridicules Peter Schiff and others for warning clients of hyperinflation. More generally — and I don’t remember if Krugman himself has done this — progressives have mocked the ads for gold pushed on conservative talk radio.

Krugman et al. can’t have it both ways. It can’t be the case that the world is (a) full of imbeciles who lose boatloads of their clients’ money because they listened to a Chicago School or Austrian economist give advice, while (b) investors aren’t influenced by their fears over Obama and Bernanke’s policies. Krugman and the other Keynesians need to pick one story and run with it.

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