Mary Theroux shows us how Krugman has decided to ignore the evidence (including the widely-respected academic work of Robert Higgs).
Justin Ptak already embedded the Paul Krugman video in a previous post. Krugman makes a similar argument in a recent blog post. Basically, Krugman echoes the notion that any spending is positive. This isn’t particularly new; DeLong explicitly made the point almost two years ago, “At this point, anything that boosts the government’s deficit over the next two years passes the benefit-cost test–anything at all.” It is, after all, what Keynes basically argues in The General Theory; even digging ditches and re-filling them would be beneficial.
An Austrian would tell you that no government spending passes the “benefit-cost test”. I argue as much in my article “Government Spending is Bad Economics“.
Some might think that we are wasting our time. Krugman, et. al., have basically fallen victim to the accusation they laid against us; as Krugman writes, “Nothing shakes the faith of a true believer.” I don’t think we’re wasting our time, though. The point shouldn’t be debunking “alien economics” for the sake of Krugman, rather for the sake of the students who run the risk of adopting an economic ideology which makes absolutely no sense. Our intellectual fight is not just for the present, but more so for the future.
{ 33 comments }
Krugman’s argument is basically another “Broken Window Fallacy” on steroids.
The worst rationale ever for denying the broken window fallacy…..Matt Yglesias claims that fiat currency makes the broken window fallacy inapplicable.
http://thinkprogress.org/yglesias/2011/08/16/296903/the-denial-of-money/
/tone of annoyance/
It’s ThinkProgress. If they don’t spend their time paying shocking obeisance to a bizarre, abhorrent jade statue of Great Obama (Ya! Ya!), they are putting out illogical stuff or pumping up the bogeyman-du-jour.
/end tone of annoyance/
Well ok, they have good attack mode on neocons.
Here is Daniel Kuehn’s note on Yglesias’ post.
Neither of them understand that the “Broken Window Fallacy” is really discussing opportunity cost, and that it’s not just the opportunity cost of using money necessarily, but the opportunity cost of the resources being allocated through the use of that money.
A good way of looking at it. So what’s our opportunity cost of debunking Krugman?
Daniel Kuehn says that we don’t understand what Bastiat really meant. Yglesias acknowledges what Bastiat meant, but says it’s irrelevant because the modern definition about money is different than it was in Bastiat’s time. So, Kuehn endorsing Yglesias’ argument is puzzling.
All of you here are way too obsessed with this Daniel Kuehn fellow. His entire theoretical framework is driven by personal motives and nothing more.
Every time Kuehn gets challenged, he replies with, “That’s not what I meant. If you go back and read my post…” blah blah blah. He does the same thing with his hero Krugman. I do respect Kuehn, however.
I neither know nor care about Daniel Kuehn’s character or personality. I’m not even sure what he’s best known for. I simply liked the idea of explaining the Broken Window Fallacy as an opportunity cost. Interesting idea, is it not?
It’s not puzzling. It’s a sign of someone driven by faith rather than reason. They will grasp at any straw to maintain the illusion. Kuehn just manages to come off as more fair-minded, which is why he gets so much attention here.
Yglesias needs to read more Bastiat, then. “What is money” in particular, since Bastiat exposed all of that nonsense over a century ago.
I found that money point strange too. I should have clarified that better in the post. I said that Yglesias put an “interesting spin on it”, by which I meant I didn’t quite get it but thought it sounded interesting. I explain that more in the comment thread.
Regardless of the money argument from Yglesias, the point remains that a lot of people accuse others of committing a Broken Window Fallacy when they haven’t, and a lot of that is due to the fact that many of Bastiat’s alleged fans don’t understand the Broken Window Fallacy.
The Broken Window Fallacy says we will be less wealthy if you break windows. It does not say that GDP will be hurt if you break windows. And the observation that GDP may benefit from breaking windows should never be confused with advocacy of breaking windows.
“The Broken Window Fallacy says we will be less wealthy if you break windows. It does not say that GDP will be hurt if you break windows. And the observation that GDP may benefit from breaking windows should never be confused with advocacy of breaking windows.”
A perfect summation of why GDP is a worthless measure of economic growth.
What do you think I think it is? Of course it’s an opportunity cost.
And I claim that you are a ham sandwich.
The real point about arming-up for an ET invasion relates to the need for additional illusion-creation within a “liquidity trapped” economy and not to the BWF (Broken Window Fallacy).
The essence of the BWF is the mundane physical/logical fact that you cannot create wealth by destroying it. Obviously this has nothing to do with money or opportunity costs.
Now that the low interest rate illusion is kaput our favorite fantasy-spinning Nobel laureate has been forced to go Hollywood.
The “unseen” (the spending that would have occurred otherwise) is the opportunity cost.
http://80.tc/boot Yes ah! Thank you for sharing! I recommend here!
It pains me as a liberal to see that one of our biggest media vehicles (the mises institute as a whole) can’t go beyond the classic views of Austrian Economics, and can’t understand the true logic of keynesianism. Evolve already! Liberalism and liberarianism goes way beyond that arcaic view. I feel ashamed to be associated with you guys, it’s kinda embarassing when my colegues do that. You should read more and write less. Don’t say things based on your close-minded first glimpse.
Sometimes I think it would be better if I just pretend you guys are playing dumb, even if I know deep inside that you are not.
In Marvel Comics’ Universe, Spiderman “evolved” by being bitten by a RADIOACTIVE SPIDER.
I don’t think that works in the real world. Radiation poisoning not only does not give you superpowers, it actually is actively harmful. So there is no immediate need to go out and let oneself be bitten by radioactive arachnids.
I’m sure there is a lesson in there somewhere.
I think what they are going for is an unrealistic presumption of innocence. Hold on now, hear me out: in a truly liberal society, a presumption of innocence will regulate every aspect of life, and everywhere crime will be unexpected (but hopefully prepared for).
Educating people about the virtues of a liberal and hopefully stateless society requires us to live those ideals so we may set an example for how society should be run. Among letting people act as they chose, presuming innocence is a cornerstone for having a respectful and free society, and therefore, also a cornerstone for anyone who wants to try to educate people about such ideals, in contrast to the modern world.
I understand that there is plenty of evidence that only the most thoughtless drug addict, let alone a tenured professor, would ever speculate that wasting society’s resources on such an absurd scheme would help people in the economy. But pointing that out and accusing the likes of Krugman and others for what they are, if you ask me, isn’t the most important thing in education. I think the most important thing is addressing his points respectfully and rationally, even in the face of an imbalance of respect, is how people will be influenced. Not just by our words, but by our tone and our actions, people will see what we have to offer.
Then what is the “true logic” then? Because, there’s been a significant amount of both reading AND writing done by the Austrian school over the years looking for it and they haven’t been able to find it.
True logic in Keynesianism?
Keynesianism is for the most part without logic.
Animal spirits? Really? How is that logical.
Sure they do a lot of math. But there in lies their fault. They believe that the economy is the sum of its parts. When in fact the economy is each individual person and their individual choices. You cannot account for that in a math problem.
That is a misconception. They don’t see the economy as the sum of its parts. In that matter, they are pretty similar to the marxists, focusing their analysis in the whole system itself. There is, I agree, some level of mathematics and formalization, but far less common than in the orthodoxy.
I seriously can’t understand why the majority of liberals take part in that Tea Party nonsense and why they blame keynesianism, when the system is clearly way, way apart from true keynesianism.
Keynesianism and keynesians bacame an escape goat to the neo-liberal agenda of the orthodoxy neoclassicism, whom are, by the way, the ones to be blamed for our current situation, and a big part of the liberals found that explanation plausible, without deeping themselves in further investigation. It was convenient.
We shouldn’t be putting them in the same bag. Except for a few successful cases in some developing countries (Brazil would be a close enough, but not entirely correct, exemple), Keynesian economics is substantialy fading away in the mainstream (that is, if they ever reached the mainstream for starters).
Keynesian “logic”:
My math works, except that reality refuses to change to fit my assumptions.
Okay, so all we need is a printing press (i.e., fiat money) and economic laws loose their validity. If someone can’t comprehend something as simple as the Broken window Fallacy, then he is a sad “economist”.
Convincing future generations is going to be very difficult. The object of Krugman and the rest of the punditry is to capture (or maintain) the narrative. You have seen over the last few weeks the recurring theme of everyone who disagrees with the grand Progressive notion of governance is an ignorant rube. Over and over again we hear about the unquestionable validity of John Maynard’s ideas, and that it is the only prescription for what ails us. It is simply the truth, no questions need be asked. Everything is an emergency, and they keep repeating the phrase “Great Depression” to conjure visions of 25% unemployment and bread lines if we don’t enact massive government spending programs right now. Facts and math do little to combat that imagery.
I spend some time mashing up the entire economic/political “intellectual” argument if anyone cares to check it out:
http://www.libertariansjustlikeyou.com/2011/08/were-you-born-this-stupid-or-is-it.html
The moral degradation of Mr. Krugman is appalling as the truism that identifies keynesianism with insanity is more and more evident, for a wider than ever audience.
But Mr. Catalán is absolutely right: “Our intellectual fight is not just for the present, but more so for the future”.
In my judgement, the future of that intellectual fight will be won (or lost) within the university walls.
It’s not just the broken window fallacy they don’t understand. They can’t think beyond the obvious. Sure, government spending on fortresses to protect from space aliens would pump money into the economy. But then what?
Rogoff and Krugman don’t want you to think beyond the obvious, beyond the short run.
If you pump money into military hardware, as we did in WWII, the newly employed workers will spend most of their wages on consumer goods. With no new production of consumer goods, prices will rise. They prevented that during WWII with price controls, but all that did was cause shortages.
In a few years you would end up with a situation like the latter days of the Soviet Union. People would have lots of paper money but nothing to buy.
Rogoff and Krugman forget that the USSR had no unemployment. Curing unemployment is not hard. As Krugman says, we can fix it in 18 months if we want. The cheapest way would be to simply re-instate the draft and force the unemployed into the military. But what kind of society would we have?
Or we could skip the killing involved in WWII and simply build ships and airplanes as fast as possible. Then sink the ships in the ocean and shoot down all of the planes. We would all be employed, but we would all be much poorer for it.
We’re entering the deepest financial hole in history and the man who is supposed to be the greatest economist in the world appears on network TV and babbles about space aliens and the economic benefits of world war.
Meanwhile the people who actually understand economics and who care whether millions of people starve to death or are incinerated in a Keynesian-prescribed holocaust are considered by most people to be kooks and extremists.
If that doesn’t scare the heck out of you then you’re not paying attention.
Space aliens? I think Krugman just let the cat out of the bag.
Now we know why Barack Obama has no birth certificate, no educational documents and no resume – too bad they didn’t send us Superman.
I know I’m a little late on this post but it would mean a lot to me if you guys would take a look at this and comment.
http://realfreeradical.wordpress.com/2011/08/18/my-god-lord-my-god-please-make-the-devil-keep-his-word/
You guys have problems. You still think in Austria vs. Keynes terms. In real terms we are dealing with an Austro-Russian issue: the Schumpeter-Kondratiev point of no return. Time you divorced yourself from narrow bandwidth dogma and started thinking bout practical solutions.
Comments on this entry are closed.