After Further Review, Yes, Krugman Is Indeed a Big Meanie
Paul Krugman lately has been seemingly intentionally going out of his way to provoke free-market economists, first by saying Milton Friedman will some day be merely “an extended footnote” in the history of economic thought, and then by saying of Friedrich Hayek: “…back in the 30s nobody except Hayek would have considered his views a serious rival to those of Keynes…”
My simple response is this. Others, however, have done more.
==> Here’s Scott Sumner contrasting Friedman with the Keynesians of his day.
==> Alex Tabarrok quotes Alvin Hansen reviewing Hayek’s Prices and Production in that little-known journal, the American Economic Review, in 1933, where he wrote:
The present volume is, it seems to me, the only book of recent years which at all approaches Keynes’s A Treatise on Money in the impetus it has given to renewed interest and discussion of business-cycle theory. This in itself is high praise. Altogether aside from the soundness of its conclusions, the value of the book and its important place in the recent literature of cycle theory is unquestioned.
Tabarrok also quotes the Nobel Committee, since there was that whole Prize thing, which said: “von Hayek’s contributions in the field of economic theory are both profound and original. His scientific books and articles in the twenties and thirties aroused widespread and lively debate.” (And please don’t tell me there’s no such thing as the Nobel Prize in Economics. I know.)
==> Don Boudreaux quotes that nobody, John Hicks, who wrote in his 1967 article “The Hayek Story”:
When the definitive history of economic analysis during the nineteen thirties comes to be written, a leading character in the drama (it was quite a drama) will be Professor Hayek…. Hayek’s economic writings … are almost unknown to the modern student; it is hardly remembered that there was a time when the new theories of Hayek were the principal rival of the new theories of Keynes. Which was right, Keynes or Hayek?
==> Daniel Kuehn highlights a comment from Ryan Murphy (and clarified by Kevin Donoghue) that, according to Snowdon & Vane, from 1931-1935 Hayek was the third-most cited economist in the world, after Keynes and Robertson.
(However, before you at least give a gracious nod to Daniel Kuehn and Kevin Donoghue–both fans of Krugman–be aware that they are not prepared to say he was wrong. Daniel is turtles all the way down, as usual, in his parsing, whereas Kevin is still open to the idea that Krugman could be technically wrong because Hayek’s mother probably thought he was a rival to Keynes, but other than that Krugman might very well be right.)
==> And these guys actually wonder aloud, “Man, why do free-market economists get so riled up by Krugman? I guess they really don’t like rigorous economic models. Only thing I can think of.”
The inflationists are compelled to act up in this manner because they dare not actually address and engage the gist of Austrian analysis and concepts. If they did, they suspect that they would lose the debate right then and there. They are thus compelled to engage in name-calling and obfuscation.
Krugman sees the writing on the wall- when he dies, no one will remember him within a generation.
I think that’s an overstatement, but I think it’s true that he would be remembered as a minor contributor for his trade work. Dixit/Stiglitz will probably get a lot of the enduring credit for those advances because of the general applicability of their work (in fact, Krugman probably should have shared the Nobel with Dixit or perhaps Romer – although I think one day Romer may get one of his own).
But that’s the trade theory stuff. I think he will be remembered much more prominently for his Japan paper, and to a lesser extent his paper with Eggertsson and his popular writings, as the guy that brought our focus back to the liquidity trap (I almost wrote “the guy that ushered Keynes back in”, but I think that’s too much because the New Keynesian departure is so overwrought).
I will remember him for denying 100k$ to a food bank.
like
Krugman will be an extended footnote, and it will read that he used to be an economist before turning in to a hyper-partisan political hack.
I love how you try to spin me as being slimy just because I don’t completely agree with any of the belligerents here. What gives, Bob?
And you’re not alone. For some reason taking the perspective that for the most part there are reasonable points made on all sides is tremendously suspect in the econ blogosphere. I just don’t get it.
…and you wonder why you rile people up sometimes…
Hey, I recognize your name. Aren’t you the bonobo fancier who wants to carpet bomb Houston? How dare you suggest Bob uses hyperbole?
Daniel wrote:
I love how you try to spin me as being slimy just because I don’t completely agree with any of the belligerents here. What gives, Bob?
Daniel, what Krugman wrote is demonstrably wrong. It’s so wrong, the only plausible defense is to say, “Oh c’mon, he was exaggerating in his put-down, sorta like Brad DeLong’s ‘stupidest man alive.'” (You know, the defense you use when you’re defending DeLong when he calls people the stupidest man alive and telling us we shouldn’t take such insults seriously.)
Right! I said he was wrong! I don’t think he was exaggerating – I think he genuinely thinks that and he is wrong. I would just clarify that I don’t think it was “the” alternative – monetarism was the principal alternative, but Hayek was definitely an important one.
How does your brain manage to turn that into telling me how I ought to defend him? I have no interest in defending him. I thought he was wrong.
For reference – the “turtles all the way down” that Bob is referring to is that I said that probably the biggest alternative to Keynes at the time was monetarism, not ABCT, but that Hayek was definitely in the top five of contending theories.
Horrible, ain’t it!! Drama queens will be drama queens.
What are the other two in your view?
I mentioned long waves/secular stagnation/technological unemployment. It’s kind of a vague amalgam but those sorts of ideas that fit together. That was definitely a big contender too.
I didn’t mention who else would fill out the fifth… I almost mentioned Marxism but I’m not sure it was all that prominent at that point.
Ok, Long Wave Theory is specifically Kondratiev and more importantly Schumpeter. I have to dive in to this at some point as well.
Yes they will Daniel, Yes they will
I love how you characterize “Austrians/ hard money men” as FREE MARKET economists, Dr. Murphy, I just love it! (I hope you can feel the sarcasm) The reality is of course that the free market has nothing to do with “hard or easy money.” Gold would undoubtedly be used by some people, but there is no guarantee that it would be the ONLY or DOMINANT currency. A lot of cheap inflationary, electronic currencies would probably be used, side by side with more precious expensive ones. NGDP targeting is closest to a theoretical ideal. (And no, major Freedom, a productivity norm is not. Productivity is influenced by a lot of “real” factors, it would be akin to the CB targeting unemployment and RGDP, a bad idea. Also it would flunk miserably in a liquidity crisis
I disagree with Krugman on a LOT of things, but on “inflationism” and “credit expansion” I can only say I’m proud to be on his side. (Sort of, I’m more on Scott S’ side)
If the free market has nothing to do with “hard or easy money” what’s wrong with characterizing “hard money men” as being Free Market economists? They’d be a subset to be sure but by your words they aren’t contradictory.
Also, “hard money men” is fun to say.
Free market just means no state mandated monopoly or artificial subsidies. That’s all. If you are so sure that the vast majority of people would chose Fed dollars over say Liberty dollars or e-Gold or whatever then why make it so hard to compete with the government currency? In that case there is no harm for you for advocating competing currencies.
Contrary to you Keynes is well aware why there is a state mandated monopoly. Ever heard of liquidity preference or carrying costs? For Keynes or MM policies to work a monopoly on the currency is absolutely necessary.
Of course “hard” vs “easy” money has everything to do with whether or not there is a free market. “Free market Keynesian” is a contradiction in terms. “Free market” means free of violent third party intervention. Central banking, Keynesianism and monetarism all depend upon violent third party intervention.
On a slightly different topic, noted Central Planner and Big Boss of Bosses Keynes wrote:
Only experience, however, can show how far management of the rate of interest is capable of continuously stimulating the appropriate volume of investment.
For my own part I am now somewhat sceptical of the success of a merely monetary policy directed towards influencing the rate of interest. I expect to see the State, which is in a position to calculate the marginal efficiency of capital-goods on long views and on the basis of the general social advantage, taking an ever greater responsibility for directly organising investment[emphasis added]; since it seems likely that the fluctuations in the market estimation of the marginal efficiency of different types of capital, calculated on the principles I have described above, will be too great to be offset by any practicable changes in the rate of interest. TGT P.164
Henry Hazlitt brilliantly responded:
So there you have it. The people who have earned money are too shortsighted, hysterical, rapacious, and idiotic to be trusted to invest it themselves. The money must be seized from them by the politicians, who will invest it with almost perfect foresight and complete disinterestedness (as illustrated, for example, by the economic planners of Soviet Russia). For people who are risking their own money will of course risk it foolishly and recklessly, whereas politicians and bureaucrats who are risking other people’s money will do so only with the greatest care and after long and profound study. Naturally the businessmen who have earned money have shown that they have no foresight; but the politicians who haven’t earned the money will exhibit almost perfect foresight.
And Bob Roddis, for the 1,789,000,000,000,000th time, we understand Austrian concepts! We just dont agree with them! Especially, that they’re apodictic, and somehow flow from basic human action and M.U.
No you don’t. You don’t understand economic calculation and don’t understand that bureaucrats do not have the good information that market participants have as the result of unadulterated prices. You don’t understand that you have no evidence that the market fails in the absence of the interventions you insist upon and which cause those problems in the first place. And you don’t even understand the simple difference between intervention and non-intervention.
1,789,000,000,000,001</b
“You don’t understand economic calculation… etc.
So says the person who once happily confessed to us that he cannot even understand the concept of a market clearing price:
http://mikenormaneconomics.blogspot.com/2013/05/daniel-little-what-about-marx.html?showComment=1369144674917#c9135395801097278615
After that, why anyone would take what bob roddis says seriously must remain a most perplexing mystery.
Bob Murphy, I think you might need to fix the .. tags in this comment.
LK, you are not being very honest. For those of you with insomnia, we’ve been over this before:
http://mikenormaneconomics.blogspot.com/2013/05/daniel-little-what-about-marx.html
There’s no need to go over it again.
As to others such as Krugman, I can’t tell if he actually understands the basic concepts or not. All I know is that he does not want them expressed in a clear and fair manner so he instead engages in name-calling and obfuscation.
If you understand Austrian concepts, why did you just claim that Austrian “hard money guys” want to enforce a gold standard?
Because Austrians are never clear on this and create massive intellectual confusion. Some, like Ludwig von Mises, favored a full gold standard, which is just as much of a government imposed standard as fiat money. others, like Rothbard and Major Freedom on this site, favor completely privatized money, but Rothbard wrote idiotic things like “The Case for the 100 percent Gold Dollar.” To people who don’t know any better, that sounds like a government mandated gold standard. It also shows a profound lack of imagination, projecting one’s fetish for gold onto other people, and imagining that somehow, thats what everyone will choose.
I think your big problem is not being able to differentiate between economic theory and political philosophy.
” It also shows a profound lack of imagination, projecting one’s fetish for gold onto other people, and imagining that somehow, thats what everyone will choose.”
>> Right, because Rothbard never developed his thoughts on monetary theory around a theoretical framework and instead can be casually dismissed as imaginary fetishism. Now, that’s a profound take down of Rothbard.
The distinction to be made is between a “full gold standard” and a “government managed gold standard”, not between the former and “something else as the currency”.
That’s the context.
Remember, the Austrian view of money is that it begins as a commodity. Government is not the source of money.
Since people had already chosen gold and silver as the commodity to become money, he was arguing that it be a “full” standard, rather than a partial, government-mandated one.
So, no, the money doesn’t HAVE to be gold, but it does have to be a commodity (it will just naturally happen that way because people want things not paper).
Yes that’s an important point, gold and silver had historically been chosen as popular currencies many times over by people of every different culture and religion (except the Australian Aboriginals) so Rothbard was working from an already existing presumption, not imposing his own invention onto others.
I agree that Rothbard was a bit silly about gold. After all, everyone knows that the only real dollar is a coin containing one ounce of silver. However what Rothbard was trying to say is that if you write an IOU note for one of anything, then legally and morally you should pay that exact thing you originally promised.
I don’t think keeping promises is entirely unreasonable, but as to the matter of currency, can you find any example of Rothbard demanding people be forced to use any particular item in their exchanges?
Hayek’s ABCT got traction at LSE and in the UK, but many Marshallian economists were critical from the start.
Then there seems to be no evidence it was influential in Germany or France. And despite interested reviews in the US, there’s no great evidence it was widely accepted there either.
LK wrote:
Hayek’s ABCT got traction at LSE and in the UK, but many Marshallian economists were critical from the start.
So there was only one economist at LSE at the time? Point Krugman.
I happen to agree that Krugman’s statement (“back in the 30s nobody except Hayek would have considered his views a serious rival to those of Keynes…”) is false and absurd.
However, certain Austrians are guilty of statements just as absurd about Hayek’s ABCT. That it was *the* mainstream theory of the cycle before Keynes and nonsense like that.
“Mainstream” has been redefined by a cabal with an agenda. If you look at the emaning back in 1652 ….
Bob Roddis,
Your position requires that the entrepreneurs are as dumb as rocks, in order to keep getting fooled over and over and over again. You don’t even get market clearing prices.
“As to others such as Krugman, I can’t tell if he actually understands the basic concepts or not. All I know is that he does not want them expressed in a clear and fair manner so he instead engages in name-calling and obfuscation.”
Whine, Whine, Whine, Whine, Whine, Whine, Whine, Whine, WHINE!!! Keynesian MEANIES! WAAH!
Of course I “get” the concept of “market clearing prices”. What a dumb and baseless thing to say. Picking up debate hints from LK is no way to go through life.
http://mikenormaneconomics.blogspot.com/2013/05/daniel-little-what-about-marx.html
I haven’t found many entrepreneurs who understand economic calculation. Of course, they have been subjected to people like you all their lives insinuating that the concept does not really exist.
My concern about the term “market clearing prices” is similar to my concern about the term “inflation”, including, but not limited to its application to both the growth in the money supply and to higher prices in general. “Prices ‘ do not have volition and a “market clearing price” should refer to a specific quantity, quality and style of goods at a particular time and place. My concern was about the use of the term without being as specific as I would prefer thereby allowing people like LK to take the use of the term out of context. The information provided by unadulterated prices is the best information for predicting in advance how much of what can be profitably sold. You don’t want to under-produce and throw away potential profits and you don’t want to over-produce and have unsold inventory.
“Your position requires that the entrepreneurs are as dumb as rocks, in order to keep getting fooled over and over and over again.”
Let’s say that a pool can vary in depth over time, but someone has put up a sign that doesn’t accurately notify people of the current depth. Would it be ludicrous to say that people might hurt themselves diving in, even if it has happened before, as they don’t know the depth? Maybe the first time it was off by 2 feet, and the second time it was off by 5, etc.
Your position requires that entrepreneurs magically know what the interest rates are supposed to be, not just that they know they are off. It also requires you to believe that there are no entrepreneurs that would short the system, or think their particular project is “recession-proof” (i.e. still profitable at higher interest rates).
So, Hayek’s views were responsible for the great depression in the U.S., right?
Without great evidence of Hayek being influential in the U.S. who was FDR following? Keynes – who was the obvious winner?
To Hayek, the great depression was the cure. That’s one reason why he’s lucky to get a paragraph in most economics text books.
Right, because Hayek believed in propping up prices and wages, tariffs etc.
As Larry White pointed out, the Real Bills Doctrine was responsible for the Fed’s post-Strong failure.
Bob Wenzel again emphasizes Krugman emphasizing that Friedman was a Keynesian.
http://www.economicpolicyjournal.com/2013/08/rand-paul-is-embarrassing-austrian.html#comment-form
Just like it’s always good for people to understand that libertarians are not “conservatives” or Republicans, it’s always good for everyone to know that Friedman was a Keynesian.
These days paleo conservatives call themselves libertarians. Ron Paul is a paleo conservative, not actually a libertarian.
Define what it is to be a libertarian, in your opinion.
Ron Paul has more libertarianism in his pinky finger then…
“So, Hayek’s views were responsible for the great depression in the U.S., right?
Without great evidence of Hayek being influential in the U.S. who was FDR following? Keynes – who was the obvious winner?”
Actually, neither,
FDR followed halfheartedly the VSP (very serious people) position of the day, left wing- austerianism (not Austrianism) balanced budgets, with a Democratic spin, tax the rich up the wazoo, and use that for social programs, there wasn’t an EXPLICITLY Keynesian program, in fact, FDR, didnt much like Keynes, because Keynes lectured him on the importance of more deficit spending.
“left wing- austerianism (not Austrianism) balanced budgets”
He only got close in 1938. His deficit spending was around 4% of GDP. That was compared to Coolidge, before the crash, who had a significant surplus in the 1930 budget.
Keynes may have wanted more, but that doesn’t mean that the policy wasn’t Keynesian. Krugman wanted a bigger stimulus, but the stimulus was a Keynesian program nonetheless.
But, really, FDR’s economic policies were haphazard, random, and informed heavily by Italian Fascism and Soviet Communism.
Krugman is a troll.
Try not to let him rustle your jimmies, I’m sure he feeds on it.
TO: Bob
FROM: Daniel
*high five*
All is well. Krugman was indeed wrong on this.
Why thank you! And “this” refers to countercyclical monetary and fiscal policy, right…?
See this is why I get confused when you tell me you’re “going into” standup.
The big question that no one is asking here is, “What in the world was Krugman high on when he wrote that nonsense?”
Come on, Milton Friedman merely a footnote? I mean sure, I have my own critique of Milton Friedman here (http://kenpruitt666.wordpress.com/2013/08/12/a-critique-of-milton-friedman-and-monetarism/) but to totally denounce all of his work as merely a footnote in the history of economic thought? Nobody except Hayek actually thought that Hayek’s ideas rivaled Keynes’?
Krugman is in dire need of a thorough, sound, public thrashing, like the one that Pedro Schwartz dealt him. You can find that here http://www.youtube.com/watch?v=EX55BH97quk
May the Schwartz be with you.
Yes Matt, this is why I get frustrated with arguments that the Austrians were wrong or caused the great depression:
1. Hayek was irrelevant in the 20’s and 30’s no one took him seriously. He was not even a footnote to Keynes
2. Hayek’s advice was followed religiously to liquidate everything and Hayek only allowed medium-level deficit spending. If he allowed more no great depression.
3. Hayek’s monetary policy caused the depression – yet no one even paid attention to him
4. Sticky wages were a problem. Hayek thought if you let the market adjust it would fix many problems. But, AD people thought that keeping wages high would get us going: AD, AD, AD…
So, we did the opposite of Hayek’s theory – Hayek’s fault
I think the only thing you peg on Hayek, and it is hard to peg Hayek down because he did not have a one size fits all approach, is the liquidation. But even here he is more nuanced: He did believe in liquidating oversupplied, misallocated, wasteful excesses of the boom but he did not believe in liquidating businesses that were to be victims of the secondary deflation – the collapse of MV that is. Now here is another layer of Hayek: Even though he admits that MV is important in theory, he introduces great skepticism due to knowledge issues as to whether we know MV is ‘off’ in real-time and if we can get MV ‘correct’ even if we know it ‘wrong’. This is not weaseliness, this is just not exhibiting hubris and warning we may cause more harm than good with activist monetary policy.
Hayek did not pay lip-service to knowledge problems. He lived and breathed them. His theory was much more one of the Boom. The bust was laid at his feet and he struggled with solutions as did everyone.
Monetarists claim that MV could of solved everything – fine. Keynes way late to the party in the GT ‘solved’ it with AD management. Hayek’s combination of nuanced MV policy, flexible prices, no tariffs, liquidation of misallocated capital, etc. was never even close to being implemented.
“==> And these guys actually wonder aloud, ‘Man, why do free-market economists get so riled up by Krugman? I guess they really don’t like rigorous economic models. Only thing I can think of.'”
You misspelled “rigor-mortis economic models.”