I thought fellow Austrians would be interested in an excerpt from Krugman’s 1997 paper in Foreign Affairs, “Is Capitalism Too Productive,”
Heterodox doctrines, in economics and elsewhere, often fail to get adequately discussed in their formative stages. Both the intellectual and the political establishment tend to regard them as unworthy of notice. Meanwhile, those doctrines can seem compelling to large numbers of people, some of whom may have considerable political clout, financial resources, or both. By the time it becomes apparent that such influential ideas — say, supply-side economics — demand serious attention after all, reasoned argument has become very difficult. People have become invested emotionally, politically, and financially in the doctrine, careers and even institutions have been built on it, and its proponents can no longer allow themselves to contemplate the possibility that they have taken a wrong turn.
Some people might be wondering why Krugman spends so much time (relatively speaking) on criticizing Austrian doctrines (even though his perception of Austrian economic theory is deeply flawed by his own misunderstandings). Krugman believes in squashing upstart economists at birth. In case of the Austrians, though, it seems as if Krugman’s strategy has backfired. If anything, all the attention on Austrian ideas has driven more people to research what they actually are, instead of taking Krugman’s word for it.
All the same, someone could probably level the same accusations against the economics of Krugman: namely, “[p]eople have become invested emotionally, politically, and financially in the doctrine, careers and even institutions have been built on it, and its proponents can no longer allow themselves to contemplate the possibility that they have taken a wrong turn.”
(Cross-posted at Economic Thought)
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Spot on!
Keynes did not create Keynesian Economics. Politicians and bankers created central banks with the power to expand money and credit. Decades later during the world-wide great depression, Keynes proposed his heterodox rejection of Say’s Law. Which has fueled the government intervention, debt and economic stagnation of the past century.
” People have become invested emotionally, politically, and financially in the doctrine, careers and even institutions have been built on it, and its proponents can no longer allow themselves to contemplate the possibility that they have taken a wrong turn.”
I think Krugman is guilty of projection.
The Mann-made Global Warming crowds attitude could also be described by the sentence above.
That’s a really odd reading of Krugman’s quote. I’d have read that as a sort of mea culpa, acknowledging that the economic establishment doesn’t pay attention to out-of-the-mainstream theories, and saying that at least some of them demand serious attention. I’d say the economics debate could use a lot more facts and figures and a lot fewer emotionally driven rhetorical contests, but I think that’s something that most people (at least abstractly) agree on.
Rory,
I think the reading is clear. Krugman is basically saying that bad heterodox ideas need to get discussed early, otherwise they gain foundation and then it’s almost impossible to get rid of them, because the people who hold them refuse to let them go.
Jonathan:
What is interesting is that Krugman uses the term heterodox. This term applies to a religion or a dogma (heterodox as opposed to orthodox). Is Krugman actually implying that Keynesian Economics is a religion or a dogma, not to be questioned?
Orthodox and heterodox are actually fairly commonly used in economics. The Neoclassical-Keynesian synthesis is the prevailing orthodoxy, and other marginal schools are the heterodox ones. The Austrians are heterodox; I can’t quote any Austrian calling themselves this (other than myself) off the top of my head, but I think Austrians have been open with calling themselves heterodox. Some Keynesians also consider themselves heterodox.
I can see that, though I think it would probably be the case that if heterodox ideas (good or bad) were engaged with early on, we’d be more likely to think clearly about them for exactly the reasons Krugman lays out. That would probably lead to more of them being refuted early, and more of them being accepted early.
I don’t really think that Krugman’s strategy has much to do with the situation with Austrian economics though, as a lot of Austrian thought seems to have at one point fit very well into mainstream economics. It seems to me that it was unseated by Keynes and his followers, and the primary debate since then has been a sort of micro-macro and monetary-fiscal discussion, with very little Austrian thought making it into mainstream economics. It’s not that it was never there, it’s just that it got ousted and never got back in. That’s just an armchair analysis of course, since I’m not terribly well versed in the economic history, but it captures the gist of what I’ve heard and read.
Rory,
I agree that if you approach heterodox early on we can more easily refute/accept them, like a funnel. I don’t think that was what Krugman was thinking though; Krugman was only considering the refuting part.
My point with regards to the Austrians is that the attention Krugman pays to the Austrians hasn’t really hurt the Austrians, and in fact I think has helped the Austrian School’s situation by bringing attention to it. I never said it was the only factor behind the growing popularity of the school, but whatever Krugman does is a factor behind something — whether a big factor or a small one.
Anyways, to Krugman (like Yglesias) Austrianism is not necessarily new, but was something that was refuted a long time ago and now resurgent by marginal economists.
You might have to read the whole article to get a better context, since the article is about refuting a heterodox economic idea.
To know why JMFC is right, just focus on “the doctrine” in ” People have become invested emotionally, politically, and financially in the doctrine,….” and ask yourself which doctrine he is referring to. There is no misinterpretation except yours.
What value would figures have in an economics debate?
Historical?
It seems to me the popularity of Keynesian economic dogma is derived not from its merits as an economic theory, but rather its merits as a justification for government interventionism, which makes the entire FRB/deficit financing appear to be founded on sound orthodox economic theory.
There is no reason to assume that economic debate on the merits will change this fundamental fact. The more rational objective is to make the adherence to it irrelevant by removing the means of employing it as a foundation for government policy.
If the federal government was a mere speck of its current self, the attempt to employ Keynesian justifications would be irrelevant, since the power to affect economic policy would be greatly reduced.
Therefore the focus of attention for AET is best directed at those who do not already have a strong vested interest in the status quo.
You are right – for politicians, Keynesian Economics is like “The All You Can Eat Diet” for a person who is overweight but who does not actually want to go through the difficult and painful process of losing weight.
Not to defend Keynes too much, but it seems like politicians only like the “deficit spending in a recession” half of his economic management strategy. Not too many politicians seem terribly excited about the “government should reduce debt and build up a surplus in times of plenty” side of the coin.
That’s because their constituencies aren’t interested in it.
The basic flaw of democracy…
MS:
You mean a basic flaw of certain citizens, don’t you?
We are interested…
You seem to be mixing up cause and effect.
I don’t know Rory…
If spending makes a bad economy better, then spending can also make a good economy better. International adventurism is also more palatable during good times.
The entire premise that “increasing demand is good” justifies deficit spending, which is not portrayed as an evil, but a feature of necessary and advantageous government interventions.
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