05 Mar 2012

Krugman Admits He Doesn’t Understand Econ 101 201

Economics, Krugman 13 Comments

I know this is a standard ploy–to decry your opponent not understanding undergrad economics–but how else can we interpret this recent statement from Krugman?

1. Even in microeconomics, we don’t insist on using models built up from maximizing behavior all the time. Exhibit A: supply and demand! I mean, we kind of know how something like the supply and demand curves can be derived from maximizing behavior, but it’s not all that easy, and nobody, nobody, insists that you do this derivation every time.

What in the world is he talking about, in the part I put in bold? I’m being dead serious; I have no idea what he can possibly mean. We literally derived supply and demand curves from maximizing consumer and producer behavior in my principles course. (It wasn’t actually 101, which is why I made the “mistake” in my post title.)

In case you think I’m taking an unfair shot at Krugman, let us not forget that a few months ago, he admitted that when he was writing up his textbook, he looked for a good example of supply curves that sloped upward in the real world, and he said he couldn’t find any. (!)

Hence I think it is literally an open question whether Paul Krugman understand Econ 201.

P.S. If anybody is a newcomer, here because you heard Tom Woods interview me on Peter Schiff’s show, here is the link to the Krugman Debate challenge.

13 Responses to “Krugman Admits He Doesn’t Understand Econ 101 201”

  1. Daniel Kuehn says:

    Ya – I thought that was weird too.

    If they don’t derive demand functions from utility functions, it’s only because the demand functions associated with a given utility function are so well known you don’t have to actually derive it.

    • Bob Murphy says:

      Oh my gosh, I can’t believe you didn’t defend him Daniel! 🙂 Seriously, what can he mean? I mean, if it weren’t for him saying a few months ago the thing about not coming up with a single good example for his textbook, I would’ve assumed he meant that in practice, nobody actually tries to come up with utility functions that “rationalize” real-world supply curves. But with that earlier comment, I’m truly not sure what he can mean by these statements.

  2. Bharat says:

    Haha, I’m taking an Adv. Microeconomics class right now and we learned just that a few weeks ago.

  3. Major_Freedom says:

    This is probably Krugman grasping at straws in order to call into question the micro-foundations of economic principles, in order to mentally safeguard his macro-worldview where the law of supply and demand has to be attacked in order to make room for the state to print and spend money.

    He has to cast doubt on micro foundations being able to FULLY explain the entire edifice of economics, because that’s the only way that he can then start with macro assumptions of “the state must print and spend money in the economy.”

    If there was no doubt in the micro foundation of economics, then there would be no room for any macro garbage, and Keynesianism would collapse, and so would Krugman’s efforts.

    Keynesians questioning or casting doubt on the law of supply and demand is a remnant of Keynes’ (flawed) attack on Say’s Law. Today’s Keynesians are just just trying to maintain that legacy, to justify their choice in adopting Keynesianism. From what Krugman has written before, it’s almost certainly because he hates the ethic of individual self-interest that accompanies methodological individualism, which is what the law of supply and demand is ultimately grounded in. What’s “not all that easy” for him is accepting methodological individualism as the basis of economics, and thus accepting the only ethic that has any room in such a methodology: individual self-interest.

    Hating the ethic of self-interest leads to the rejection of methodological individualism, which then leads to adopting methodological collectivism, which then makes room for the desired ethic of sacrifice of the individual, which is what is needed in order to make room for the state, which, finally, makes room for Keynesianism, and thus Krugman’s career as NYT pundit.

    • Watoosh says:

      That’s a lot of armchair diagnostics right there, MF.

      Who are you writing this to, by the way? Your analysis seems to come down to “Krugman is a collectivist, neener neener!”, but what good does that do exactly? You think pro-Krugman folks will come around now that you’ve provided an insulting and unfalsifiable hypothesis as to why he’s a poopyhead? Or is your soapbox directed squarely at the choir?

      • Major_Freedom says:

        It’s funny seeing you chastise me for allegedly engaging in armchair diagnostics, but then you go ahead and do an armchair diagnostic on me. I don’t mind it, but just to let you know, there is really nothing in your post for me to respond to in the substantive sense.

        I mean, your usage of childish name calling and playground discourse, even if you believe it’s an interpretation of what I am saying, makes me question if you are even emotionally mature enough to have a discussion on ethics.

  4. Sam says:

    Please include the link to to your website http://krugmandebate.com/ in all of your posts where you question Krugman.

    Also love the website. The face to face pics are hilarious. 😀

  5. StraT says:

    I Think maybe what krugman is referring to is market supply and market demand curves which is a bit different from individual demand and individual firm supply curves. (See SMD conditions below.)

    I’ll just quote abit, seen as I doubt anyone here really cares about the full story:

    “we prove that every polynomial … is an excess demand function for a specified commodity in some n commodity economy…” (Sonnenschein 1972 , pp. 549-550)

    paraphrasing from Steve Keene:
    SMD Conditions (Sonnenschein 1973; Shafer & Sonnenschein 1993;):
    -Market demand curves do not obey the “Law of Demand”
    -Even if summing “well behaved” individual demand curves

    Result: The only way that the market demand curve is always sloping down is to assume that all individuals have the exact same tastes (one consumer), and assume tastes don’t change with income (one good).

    Reason: The quick and dirty reason is because as prices change, individual incomes change and they change their preferences. Generally Resulting in squiggly downward lines after aggregation, but mathematically you could create whatever polynomial you want.

    • StraT says:

      But I agree that Krugman just isn’t as good as he lets everyone to believe, and he forgot just how straight forward individual hicksian derivation is.

    • Bob Murphy says:

      StraT OK maybe that’s what he means. I wasn’t being sarcastic; I really wanted to know what the heck he was talking about, because obviously Krugman is familiar with Econ 202.

      • StraT says:

        Reading his line over and over again:

        Either he knows what hes talking about and lacks language skills, or he forgot some pretty important topics in Econ201.

        I’m going with the latter, based on how many times he “nails” on people for not knowing basic economics, and then falls into basic traps himself repeatedly.

        Also I am of the belief that he has ghost-writers, or some sort of cognitive dissonance syndrome.

    • AC says:

      I’m not seeing the reason why a market demand curve needs such restrictive conditions in order to be downward sloping.

      • StraT says:

        Its not a straight up addition of individual demand curves like they teach in textbooks, because each additional actor completely changes every other actors income through price changes, which changes there demand, there then (almost always) becomes multiple equilibriums and generally messes up the whole always downward sloping scenario.

        Hence why I think the rothbardian approach is better than the hicksian approach.

        I learnt this in Intermediate Micro extension. A year or so ago at sydney university, but there has been a revival of it since steve keen started bashing on neoclassicals digging up alot of mathematical economists research from the 50’s through 70’s.



        I really am of the belief that mathematics in economics has really retarded proper thought, most mathematicians and physicists deal with these problems everyday in their own fields hence why there results are so much more complicated. Mainstream Economists for the last 20 years have basically given us half of the story to keep their mathematical models so nice and tidy and fit in a 3year course requiring only highschool math.

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