|by Richard Ebeling*
On July 9th, Nobel economist and New York Times columnist, Paul Krugman, gave his read on the recently unearthed letters between J. M. Keynes and F. A. Hayek in the London Times in October 1932, which have been posted and discussed on ThinkMarkets. (and in the Wall Street Journal).
Krugman insists that Hayek is worse than he thought and that Keynes was better than he imagined. He attacks Hayek for insisting that the best cure for recovering from the Great Depression would be to free up markets both domestically and internationally, and to rein in government spending. This, Hayek said, would create the political and fiscal environment that would foster a positive private sector return to a job generating rebalancing of supply and demand, and a sustainable investment climate.
Not surprisingly, Krugman instead, hails Keynes as the advocate of fiscal stimulus that would “prime the pump” through deficit spending and government sponsored job creation.
He thinks it is all a great tragedy that the same battle has to be fought all over again for sound Keynesian policies, nearly eighty years after the exchange of these letters. But what, instead, is Krugman missing? Read the rest of this entry »
Posts Tagged ‘Paul Krugman’
by Mario Rizzo
Some time ago I wrote a post with this name.
Now Paul Krugman is at it again with his ex-cathedra pronouncements. He says that because of the recent planned move by European countries in the direction of austerity and the talk in the US about austerity, we are on the verge on a “third” great depression in American history.
It is hard to know how to respond. Krugman has no evidence. Read the rest of this entry »
by Mario Rizzo
Paul Krugman continues to invoke Keynes’s famous statement. I wish Krugman and others would give some serious thought about what it is supposed to mean and the errors it involves.
In the first place, Keynes was complaining about the “classical” economics, that is, the ideas of the economists before him who believed that the market, if unhampered after a recession, could reduce or eliminate the unemployment associated with the business cycle.
Of course, this puts many economists – with different ideas – in the same category and treats the issue of cyclical unemployment in a grossly simplified way. But this, in general, is how Keynes treated those who disagreed with him. Keynes, the polemicist, was without inhibition.
Some basic methodology is in order. When economists talk about “the long run” they do not mean calendar time. Yes, that’s right. Read the rest of this entry »
by Mario Rizzo
More than thirty-five years have passed since Friedrich Hayek said in his Nobel speech, “The Pretence of Knowledge” (1974):
“The theory which has been guiding monetary and financial policy during the last thirty years… consists in the assertion that there exists a simple positive correlation between total employment and the size of the aggregate demand for goods and services; it leads to the belief that we can permanently assure full employment by maintaining total money expenditure at an appropriate level.”
Paul Krugman, Brad DeLong and others are now calling for bigger and better stimulus in the hopes of decreasing unemployment more rapidly. Most of this is wishful thinking or, should I say, value-signaling. If you care about the poor and middle class, if you realize the irreparable harm that long periods (months, years?) of unemployment may cause, if you recognize the many unmet public sector needs we have, you would doubtless advocate more fiscal stimulus. In an equation: Good Person = Advocate of More Fiscal Stimulus. Read the rest of this entry »
By Chidem Kurdas
Headline topics like derivatives are part of the larger issue of how markets function. About this big question there’s been profound confusion in the past two years. Peter Boettke’s article in the Winter 2010 issue of the Independent Review clarifies the muddle.
A particular mathematical interpretation of what an efficient market is has hogged the limelight. Read the rest of this entry »
by Andreas Hoffmann and Gunther Schnabl*
In a recent New York Times column Paul Krugman is “Taking on China” again. He argues that the Chinese dollar peg contributes to global imbalances, depressing US and world growth perspectives. Bashing China’s fixed exchange rate is also fashionable in academics. Bernanke blames China’s dollar peg for contributing to a “savings glut” that contributed to the US pre-crisis excesses. Dooley argues that China and other East Asian economies engage in mercantilist trade strategies. Bergsten wants to label China a “currency manipulator.”
We find these arguments unbalanced. Read the rest of this entry »
by Chidem Kurdas
A big rate hike by an insurance company in California’s market for individually purchased health insurance provided a rationale for the new Obama care proposal. As Paul Krugman explains, the key issue is adverse selection: people who retain coverage tend to be those with high medical expenses.
Those with low expenses tend to drop out in hard times. That increases costs, causing premiums to rise, so even more people drop out—an insurance death spiral.
The solution proposed in the administration bill – as in previous Congressional bills – is to make insurance mandatory. With healthy people in the pool to share the costs, presumably premiums can be kept down. But even passionate proponents of compulsory insurance don’t really believe this, so the President proposes a new federal agency, the Health Insurance Rate Authority, to control price increases.
At this week’s NYU Market Institutions and Economic Processes colloquium, Gene Callahan made a comment that’s the best descriptor I’ve heard for the health insurance situation, though he was speaking of another topic: “However bad our current situation may seem, there is always some reform available that could make it even worse.”
Gene’s adage should be emblazoned on the walls of the room where the President’s health summit will take place this Thursday. Read the rest of this entry »
by Mario Rizzo
In recent months there has been a discussion both in the traditional media and in the blogosphere about why orthodox macroeconomics failed to predict or explain the financial crisis and the subsequent Great Recession. Some of that discussion focused around Paul Krugman’s criticism that economics mistook (mathematical) beauty for truth. Subsequently, there was a further discussion about the role of mathematics in economics.
Of course, this is a big topic. My task here is only to investigate, by means of a simple example, three claims made for the superiority of mathematics over ordinary (natural) language. Read the rest of this entry »
by Mario Rizzo
As we have been saying here, the claims that the fiscal stimulus has saved or created X number of jobs is not a simple empirical question. It must be an inference from a model that tells us what would have happened in the absence of that stimulus. Collecting reports from various firms or local governments about their job situations will not do. At best these individual reports are based on pop-theories on the part of the reporters about what would have happened. Read the rest of this entry »
by Mario Rizzo
There has been some important discussion emanating from Paul Krugman’s unoriginal question implicitly about the Austrian Business Cycle Theory (as well as other sectoral theories of employment shifts both during and outside of business cycles). (See Econbrowser, Marginal Revolution, Econlog, Angry Bear, for examples.)
His question, as Tyler Cowen states it: “…[W]hy, say, a housing boom – which requires shifting resources into housing – doesn’t produce the same kind of unemployment as a housing bust that shifts resources out of housing.” Read the rest of this entry »