Not surprisingly, Krugman turns back to Keynes for inspiration:
The case for expansionary policies in the face of a slump is intellectually difficult; Keynes described the writing of the General Theory as a painful process of discovery, and so it is. The natural instinct of almost everyone is to think that tough times require tough measures, and that if the economy is suffering, the government should tighten its own belt. It would take a clear consensus from economists to overcome that natural bias.This is nuts. Keynes refuted NO errors 70 years ago. His so-called refutation of Say's Law was a joke. First, he created a straw man and then, second, refuted something no one believed.
And that consensus has, of course, been lacking — largely because a significant proportion of the economics profession has spent the last three decades systematically destroying the hard-won knowledge of macroeconomics. It’s truly a new Dark Age, in which famous professors are reinventing errors refuted 70 years ago, and calling them insights.
If anyone did any refutations, it was Henry Hazlitt in 1959 when he made mincemeat of The General Theory in his own book, The Failure of the New Economics. Hazlitt went through Keyne's "masterpiece" line by line, demonstrating how it was nothing but a tissue of fallacies.
There was no "hard-won" knowledge of macro, unless one believes that an economy is nothing but a bunch of aggregates, that prices are just numbers to go into an index, and that government creates wealth by printing money. Don't forget that this "hard-won" knowledge by 1980 was giving us double-digit inflation, high unemployment, and an economy in tatters.
So, Krugman wants us to believe that all we need is borrowing, spending, and lots of printing money. Oh, and costs are nothing but administrative numbers. This is not economics, folks, it is pure bureaucracy.
I just came accross your blog. Thanks for setting up a forum to bash Dr. Krugman. What fun. Now that George Bush is out of office there are very few larger than life characters to talk about at the water cooler at work.
ReplyDeleteKrugman is definately a character. You either love him or you hate him.
He is a smart man but unfortunately like everyone in our society he can't see the forest from the trees. Economists as much as anyone are blind to bubbles.
We are into our third bubble in the series with many areas of high end housing and the government bond market at unsustainable overvaluation again. In five years as interest rates rise these markets will get crushed. more money wasted that could create jobs. Oh Well.
We are attempting to increase our standard of living by borrowing money from our children and funneling it to the rich and the government. The government is not capable of creating private sector jobs and the rich are not motivated to do anything but speculate in the markets.
I am not sure why but watching our nation of financial incompetents borrow and waste the money is like watching one of those shows on TV that follows the Lotto winners from 'rags to riches then to rags again'. I feel I'm watching a slow motion train wreck. It's impossible to stop looking.
Thanks for the forum Dr. Anderson.
The most infuriating thing about Krugman's blog are the comments on this articles. The amount of flattery and blind obedience is disgusting.
ReplyDeleteI can agree with that, 7:42. Mindlessness and political partisanship.
ReplyDeleteThanks for the compliments, Charlie!
I managed to sneak in Comment #2 on the "Super-Asinine" post from 6/23/10.
ReplyDeleteIf Keynes meant to refute the Austrians, then why didn't he? Why did he meticulously avoid any mention of the ABCT?
ReplyDeleteAnd why won't Krugman debate an Austrian? With Keynesianism being routed, one would think that RIGHT NOW might be a good time.
Bob,
ReplyDeleteKeynes did not "meticulously avoid any mention of the ABCT". In fact, in The General Theory Keynes refers to the Austrian business cycle theory fairly frequently.
Just another vote toward this being a very interesting, apt, blog. Keep up the good work.
ReplyDeleteJonathan:
ReplyDeleteThank you for the correction. I think I should have said that Keynes seems to describe and critique briefly something like the ABCT but without really understanding it.
I don't feel that he made a point by point refutation of the basic principles of the Austrian School.
Is there any critic of the Austrian School who really understands it and has demonstrated such?
Bob,
ReplyDeleteWhile Keynes did address certain aspects of Austrian theory in The General Theory, you are right in arguing that he didn't really address it point by point. Besides, his counter arguments were rather poor (for example, he argues that an increase in the money supply would not have the effects the Austrians claim it would, because wages would rise proportionally [and therefore, so would other prices]). Keynes lacked, or ignored, capital theory.
As far as I know, there is no real refutation of Austrian theory. The closest thing comes from Bryan Caplan, although even Caplan's criticisms are surprisingly elementary (for a former Austrian).
Liquidity trap? Perhaps this is a problem in the US, but here in Germany we know of no such thing? So, if there is a "liquidity trap" it is a purely US thing and not world-wide.
ReplyDeleteAnd while some parts of the economy struggle (there was a financial crisis after all), most due parts work mighty fine here in Germany. We finally have gone on the road to recovery when it comes to manufacturing and I believe that if the Greek don't drag the euro down, then we will be in a real recovery till the end of the year.
I would prefer the US citizens would learn to save a lot more than just consume, but on the other side, if the Krugmans in the US will get their way at least Germany can reap some of the money by manufacturing subsidized tools... So, guess I should be grateful for your service... :/
Bob - I think you have to remember too that just because Keynes (and modern Keynesians) are considered the opposition by Austrians, it doesn't follow that the Austrians are considered the opposition by Keynesians. They generally aren't - then or now. That's probably the biggest reason why there wasn't a major confrontation. Keynes saw the biggest problem as being the lingering classicism in his mentor and colleague, Marshall and Pigou. The Austrians were largely a sideshow.
ReplyDeleteHe did cite Bohm-Bawerk and I believe even Mises in the General Theory, I think he just didn't prioritize engaging them. And it makes sense why - ABCT isn't really directly related to the issues that Keynes is interested in in the General Theory. I, for one, buy most of the General Theory and I buy a lot of ABCT. They don't really have to conflict. I can't buy the General Theory and classical economics simultaneously, so if I were writing a treatise I think I would spend most of my time refuting classicism too.
Wayne - We all know his Say's Law wasn't exactly Say's Law. It's the first thing they teach you when you read the General Theory. Say isn't exactly a monumental force in 20th century economics, so I don't think the point was to engage Say directly. You say "straw man", I say "hueristic device".
Daniel,
ReplyDeleteI think the major exception to that was the debate between Hayek and Keynes. It may not have been explicitly because Hayek was an Austrian, rather Keynes represented Cambridge and Hayek the LSE, but the two did debate until Keynes's death.
Definitely Jonathan. And that was part of why I liked your point that really, there was a lot of engagement.
ReplyDeleteWhat we didn't have was a clash of the theories in the General Theory itself, I think largely because it wasn't intended as a business cycle theory - and certainly not a cycle theory dealing with the same issues as ABCT. I also wonder the extent to which ABCT was really fleshed out at this point. I'm not as familiar with the literature - didn't Hayek's work on that come later? I think Hayek probably brought it to the English speaking world in a way that Mises hadn't.