His newest pen pal, Bruce Bartlett, seems to have gone over to the Keynesian side, and now he has David Frum to join him. I have linked Frum's mea culpa article for those who wish to read it.
However, there are a number of people who also have been wrong, people that Krugman never will acknowledge because he already has attacked them as being wrong and stupid all of the time: the Austrians. For example, in 2001 -- that's right, 2001 -- Ron Paul on the floor of the U.S. House of Representatives declared that the Fed was in the process of engineering a housing bubble. However, since Rep. Paul subscribes to a theory that Krugman claims is no more credible than the "phlogiston theory of fire," then nothing Ron Paul says should have any veracity at all. (In Krugman's world, only Keynesians are right and everyone else -- even those that are right -- are wrong.)
Keep in mind that Krugman already has declared that the U.S. Government is not "broke," even though borrowing now is now out-of-control. Of course, Krugman's latest "scheme" is for the government to borrow obscene amounts of money, spend it, with the idea that the resulting spending will give the economy "traction" to move on its own. There is no causality other than Krugman's circular belief that spending will begat spending which will begat prosperity. In other words, he actually wants us to believe we can spend ourselves into prosperity.
Let us address his "confidence fairy" phrase for a minute. According to Krugman, business "confidence" is based solely on what business owners and managers perceive to be future spending. If someone will spend, business will build. Robert Higgs, however, notes that not only is Krugman wrong, economically speaking, but he also is contradicting his own guru, John Maynard Keynes:
The humor columnist for the New York Times, Paul Krugman, has recently taken to defending his vulgar Keynesianism against its critics by accusing them of making arguments that rely on the existence of a “confidence fairy.” By this mockery, Krugman seeks to dismiss the critics as unscientific blockheads, in contrast to his own supreme status as a Nobel Prize-winning economic scientist.Since Krugman's "confidence fairy" line is aimed at Higgs' "regime uncertainty" view, I include what Higgs says about it:
The irony in this dismissal, as others, including my friend Donald Boudreaux, have already pointed out, is that Krugman’s own vulgar Keynesianism relies on a much more ethereal explanatory force for its own account of macroeconomic fluctuations–namely, the so-called animal spirits. The master himself wrote in The General Theory: “Thus if the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but a mathematical expectation, enterprise will fade and die. . . . [I]ndividual initiative will only be adequate when reasonable calculation is supplemented and supported by animal spirits. . . .” (p. 162). Because Keynes conceived of his “animal spirits” as “a spontaneous urge to action rather than inaction” (p. 161), he of course had no way to explain their coming and going or to measure or evaluate them in any way. They are as surreal as a ghost–when and why they come and go, no man knows or can know. Such is the force that drives the ups and downs of private investment in Keynesian economic theory, and such theory unfailingly drives Krugman’s commentaries on the recession and on the possibility and effective means of recovery from it.
Regime uncertainty, however, has a much more grounded basis. In my own research on the topic, I have presented evidence derived from (1) a mass of testimony by investors, businessmen, and other contemporaries, (2) voluminous historical facts on the character of government actions that reasonable people had every reason to interpret as theatening the security of their private property rights, (3) variations in the structure of investment, especially as between short-term and longer-term projects, and (4) specific twists in the term-structure of returns on private corporate bonds, as well as other relevant evidence on the behavior of financial markets.So, this is what we have:
As against this varied and substantial evidence, what does the proponent of animal sprits have to offer? Well, nothing at all. The idea is purely fanciful, the product of Lord Keynes’s fertile imagination.
- Keynesians are right and Austrians are wrong (because Krugman says so)
- The Keynesians "doctrine" of "animal spirits" also is wrong because it contradicts Krugman's view of business confidence
- But Keynesian doctrine is right, even if it is not right.