Scott Sumner Busts Krugman
Scott Sumner has been lighting it up at EconLog in his running commentary against Keynesians, notably Paul Krugman. (The two most recent examples are here and here, but it goes back further.) Scott’s running theme here is that guys like Krugman picked the U.S. austerity episode as the hill to die on, and then when they died, they not only didn’t see the problem, but instead ran around bragging about how awesome their model had performed!
Scott has made an analogy (one I made in the past, as well) with the Keynesian debacle over the Obama stimulus package, where the economy did worse *with* the stimulus than the Keynesians were warning would happen *without* the stimulus. Regarding the sequester, the opposite happened: The economy did better *with* the “austerity” than they predicted would happen *without* spending cuts and tax hikes. Summarizing his latest post, Scott writes: “Two grand Keynesian experiments and two abject failures. Followed by two times where the Keynesians started crowing about how they’d been right about everything. You can’t make this stuff up.”
I love it! Scott is really zinging Krugman on this one, and I’m glad he’s not dropping it because some of our prominent Keynesian bloggers were quite unambiguous in their description of how awful the sequester was.
If I might go beyond Scott’s remarks, isn’t it astonishing to see really sharp guys like Krugman, who watch officials follow their policy advice and run unprecedented deficits for years on end, and then when the officials finally throw in the towel because it’s not working, Krugman shrugs and says, “What are you doing?! There was no reason to stop! My plan would’ve worked if you just hadn’t been such a chicken about it! Not only are you idiots wrong, but in the long run you’ll end up with *bigger* deficits because of your stupidity!” Such amazing intelligence with a guy like Krugman, coupled with a major blind spot. Krugman really can’t see that his plan was fundamentally mistaken; he always comes up with excuses after the fact and truly doesn’t realize that running massive deficits isn’t the path to prosperity. It’s amazing to behold.
In completely unrelated news, back on December 21 Scott was pointing to the SNB’s peg as a great illustration of his point that once you firmly announce a policy rule and convince markets you’re serious, it’s a piece of cake to maintain. Nowadays he is complaining to everyone about what idiots the SNB officials were for abandoning the policy for no good reason. They thought they were protecting their balance sheet? Not so, Scott tells us they’ll end up inflating more, now that they dropped the peg. In any event, Scott can’t understand why critics of the peg are pointing to its abandonment, as if that has anything at all to do with whether it was a credible policy.
Burn
Yeah, he isn’t alone by a long shot. This is from three weeks ago:
http://www.theguardian.com/business/2015/jan/06/paul-krugman-got-it-wrong-austerity-jeffrey-sachs
And I can point out that Jeffrey Sachs is nowhere near a libertarian, Austrian economist; he’s more of a “save the third world, with lots of big government aid packages” kind of guy. He is a free market advocate, not a communist by any means, he just seems to think the UN is an important part of any capitalist society. At any rate, he knows how to call Krugman out.
Today, at least, Jeff Sachs is the proggiest of progs, arguing the U.S. should become more like the inferior nations in his Price of Civilization. His advice to Poland in the 1980s was mostly decent, though.
I’m sure that getting zingers from Sachs hurts Krugman a lot more than getting exactly the same zingers from Murphy and Sumner… but my point is that Krugman can’t even call ideological bias because everyone can see what he is doing.
“Two grand Keynesian experiments and two abject failures. “
Sumner’s narrative could not be more ridiculous.
On just his first alleged “failure” his argument falls part. The first “failure” was just the inability to predict that unemployment would not fall as much as they thought. This is a minor point given that you can’t make such quantitative predictions with certainty or even objective probability scores.
Meanwhile, around the world Keynesian stimulus was used in many places effectively reversing the worst recessions since the 1930s and stabilising unemployment and restoring real GDP growth. Those nations that pursued severe austerity — like Greece, Ireland, and Baltic states — are utter disasters.
Those countries that pursued strong stimulus — like China, South Korea, the US Germany, Australia — had the best recoveries. According to Scott Sumner and you, this is an “abject failure”, a laughable claim.
If you want to see “abject failure”, have a look at Weimar Germany in the depression when it pursued austerity. Austerity worked *really* well there.
“The first “failure” was just the inability to predict that unemployment would not fall as much as they thought. This is a minor point.”
Hahahahahahahahahahaha
1. Love it how you put quotes around failure, as if making a false prediction, and advocating for that prediction to be backed by trillions of dollars in government spending and regulations that affect hundreds of millions if not billions of people, is not really a failure.
2. You have got to be the biggest hypocrite ever to spoil the blogosphere. For years you have promoted Keynesianism and attacked Austrianism precisely on the grounds of prediction. Some Austrians made a false prediction about the CPI index, and you called that proof Austrianism is “fundamentally flawed.” But now, when Keynesians make a false prediction, you respond with a golly shucks guys, the future is like hard to predict ya know. You know, the whole objective probability scores. Not to mention the fact that you have repeatedly, over and over, a zillion times, referred to successful Keynesian predictions as proof the theory is right. So that means predictions when successful should be promoted on a pedestal and made an example of the awesomeness of Keynesian theory. But when the predictions are wrong, this is now all of a sudden not proof Keynesian theory is flawed, but now its reality that is the problem! That false predictions do not show the flaws of the theory, but rather shows the problems with making predictions in the first place.
For years I gave you the benefit of the doubt, but this post of yours has proved without a shadow of a doubt that you are an academic fraud of epic proportions.
“Not to mention the fact that you have repeatedly, over and over, a zillion times, referred to successful Keynesian predictions as proof the theory is right.”
Yes: qualitative predictions, but NOT quantitative ones which are falsely assumed to have certainty or objective probability scores
As we see here, the US unemployment rate stabilised and fell after stimulus was implemented, just as Keynesian qualitative prediction would have said:
.http://blogs.reuters.com/james-pethokoukis/2011/06/07/romer-bernstein-unemployment-chart-updated/But qua
We can fill in the graoh for actuall US unemployment:
Year | US unemployment rate
2008 | 5.8
2009 | 9.3
2010 | 9.6
2011 | 8.9
2012 | 8.1
2013 | 7.4
2014 | 5.8
Jared Bernstein and Christina Romer. were wrong on the quantitative prediction: this was false, but NOT on the qualitative prediction.
And the actual rate was only about 2 points higher than what they predicted with the stimulus. This confirms what I said.
“As we see here, the US unemployment rate stabilised and fell after stimulus was implemented, just as Keynesian qualitative prediction would have said:”
But, LK, they also predicted it would stabilize and fall without the stimulus. Anyone could have predicted that the unemployment rate was going to stabilize and fall soon; it’s the more in depth details that count. The actual results being worse than the predicted values for no stimulus is pretty bad.
LOL, more lies.
Predicting the rate of unemployment will rise if the government does not engage in at least $X of “fiscal stimulus”, during a period of time where there is this or that many idle workers and resources, which characterizes the entirety of your “Keynesianism = Yay, Austrianism = Boo!” history of posts, are quantitative prediction based.
What you really doing is claiming that the wrong predictions of Keynesian theory should be labelled as qualitative and not problematic, but the correct predictions of Keynesian theory should be labelled as quantitative and proof it’s right. In other words, when the predictions go your way, then treat them as evidence of Keynesian theory being right, but when the predictions do not go your way, then treat them not as evidence of Keynesian theory bring wrong.
You post a list of countries where “significant stimulus” was followed by “recovery”, thus confirming the validity of Keynesian theory, seemingly totally oblivious that it contradicts your other claim that such predictions cannot be made because “objective probability scores”.
It is hilarious that you cannot even SEE the obvious contradiction. And yes, there is a contradiction in what you are claiming.
You’re just digging the hole you have dug to be even deeper.
And you did not even engage Sumner’s argument by the way. His argument is that the recoveries are correlated with monetary stimulus in every instance you refer to that had “significant fiscal stimulus”. He is saying that the list of countries you referred to all have independent central banks that could inflate sufficiently (to bring about more unsustainable booms but that is another topic). That the “recoveries” had nothing to do with “fiscal stimulus” and everything to do with “monetary stimulus” because “monetary stimulus” can “offset” fiscal changes. That Europe and the US had roughly equal levels of austerity but the US had lower unemployment because unlike the ECB, the Fed inflated more and “offset” the austerity. I am not saying this is correct per se, o ly that you are completely dodging it and not even addressing it.
First rule of anti-austerity rhetoric: thou shalt always ignore tax and monetary policy.
“If you want to see “abject failure”, have a look at Weimar Germany in the depression when it pursued austerity. Austerity worked *really* well there.”
Ah, the Godwin. The recourse of having lost the argument.
Weimar deflation would not have occurred if it weren’t for previous Weimar hyperinflation. So the fault is the hyperinflation.
You continue to prove that no matter what happens, you believe Keynesian theory is correct. If stimulus and no recovery, then stimulus was insufficient and Keynesianism is correct. If little to no stimulus and recovery, then stimulus was sufficient and Keynesianism is correct.
You therefore regard Keynesian theory as a priori true. Even if Keynesian theory predicts rising unemployment due to austerity, but employment rises instead, then it is a “minor” blip that occurs in a world where we cannot predict the future “with objective probability scores”. LOL
Don’t you understand anything? Weimar austerity is to blame for Nazi Keynesian military stimulus.
So therefore we all need a lot more Keynesian stimulus now, to protect us from austerity, in order to protect us from Keynesian stimulus. I can’t believe I have to spell this out, when it’s all so obvious.
Yep – because the part of Nazism everyone HATES is all those roads they built.
If we only think Nazis are bad because of anti-semitism and genocide, then we should all love the Italian Fascists, right? They were neither anti-semitic nor did they commit any genocides.
Surely there is more wrong with Fascism than things that were unique features of Nazism.
As if nothing was lost when they “built all those roads.”
Your history is a little off there Andrew, regarding the Italian fascists and genocide.
You are attempting to claim that the Nazi stimulus package was just about roads?
“Weimar deflation would not have occurred if it weren’t for previous Weimar hyperinflation.”
That is a laughable and blatantly false statement.
Weimar deflation occurred because (1) the world economy collapsed in 1929-1933 which was driven by the collapse of the US (but that US collapse had no causal relationship with Weimar hyperinflation) and (2) the Weimar government failed to take the necessary monetary and fiscal measures to stop it.
As we’ve noted before, the problems that began in 1929 were caused by prior central bank shenanigans beginning especially in WWI. Perpetual Keynesian failure to directly address that core Austrian observation amount to fraud by material omission.
The Great Depression thus did not represent the failure of capitalism or some inherent suicidal tendency of the free market to plunge into cyclical depression—absent the constant ministrations of the state through monetary, fiscal, tax and regulatory interventions. Instead, the Great Depression was a unique historical occurrence—the delayed consequence of the monumental folly of the Great War, abetted by the financial deformations spawned by modern central banking.
But ironically, the “failure of capitalism” explanation of the Great Depression is exactly what enabled the Warfare State to thrive and dominate the rest of the 20th century because it gave birth to what have become its twin handmaidens—-Keynesian economics and monetary central planning. Together, these two doctrines eroded and eventually destroyed the great policy barrier—-that is, the old-time religion of balanced budgets— that had kept America a relatively peaceful Republic until 1914.
http://davidstockmanscontracorner.com/keynesian-myths-monetary-central-planning-and-the-triumph-of-the-warfare-state-part-4/
And we’re still waiting and waiting for evidence of that time when the market actually failed.
You can listen to LK’s hero Steve Keen here at 2:15 explain his view of the Austrians….which leaves out any mention of economic calculation or miscalculation (surprise!). At 16:00, he explains his proposal for a “modern” debt jubilee where the central bank gives everyone a ton of new funny money and makes debtors pay off their debts with it.
http://socialdemocracy21stcentury.blogspot.com/2015/01/steve-keen-interview-on-economics.html
Steve Keen now blogs at Forbes and says brilliant things iike this:
For the non-bank public to finance the government surplus and to also have an increasing stock of money itself, this has to be bigger than NetGov. This expands the non-bank public’s holdings of money, which in turn allows economic growth to occur—since no economy has ever grown for any substantial period of time in real terms without also having a growing money supply.
http://www.forbes.com/sites/stevekeen/2015/01/14/beware-of-politicians-bearing-household-analogies-3/2/
“Weimar deflation occurred because (1) the world economy collapsed in 1929-1933 which was driven by the collapse of the US (but that US collapse had no causal relationship with Weimar hyperinflation) and (2) the Weimar government failed to take the necessary monetary and fiscal measures to stop it.”
That is a laughably, totally false, contemptible and risible assertion.
Weimar deflation occurred because it hyoerinflated prior.
If Weimar was instead already in massive deflation by the early 1920s, then the fiscal stimulus in the US and in Weimar would have been highly expansionary. But because Weimar was previously highly inflationary, the stimulus in both Weimar and the US was much smaller as compared to previous stimulus. And that RELATIVE austerity was necessary, because it is practically impossible for a country to run at all in hyperinflation.
If it weren’t for previous hyperinflation that made the economic structure distorted and dependent on it, then the NORMAL government operations by Germany in the early 1930s would have not seemed so deflationary.
If it weren’t for previous hyoerinflation, deflation would not have occurred.
“Regarding the sequester, the opposite happened: The economy did better *with* the “austerity” than they predicted would happen *without* spending cuts and tax hikes.”
Umm … Time out, guys:
Ron Paul: ‘The Sequester Is A Joke, There Are NO Cuts!’
http://dailybail.com/home/ron-paul-the-sequester-is-a-joke-there-are-no-cuts.html
“The proposed increase in spending the next 10 years is $2.5 trillion. If the sequester goes through, they will instead increase spending $2.4 trillion in the next 10 years. It means nothing.”