As I noted earlier Paul Krugman rejected the Austrian business cycle theory a few years ago, calling it “about as worthy of serious study as the phlogiston theory of fire.”[A theory of fire refuted by Antoine Lavoisier in the late 18th century].
Krugman wrote that he saw no reason why a investment bust would result in a recession because it would be compensated by increased consumption.
Now , in his latest New York Times column, Krugman seems to advocate his previously so detested “hangover theory”, quoting semi-Austrian economist Stephen Roach and correctly noting that the bursting of the stock market bubble lead to the 2001 recession and that the effects of this was counteracted by the creation of a new bubble, a housing bubble. He also correctly notes that when the housing bubble bursts the Fed may have run out of bubbles to prop up the economy and that the relief provided by the housing bubble simply meant that the problems were postponed (A observation I have previously made).
It is of course nice if Krugman has finally seen the light on this issue. If that is the case, he should retract his earlier rejection of “the hangover theory”
. But unfortunately, this is probably just a matter of grasping for straws -using any reasoning which could be used to attack Bush even if he really don’t believe in it- in his partisan crusade against Bush. Just like his current antiwar views is probably not based on a real opposition to war, but on the fact that is a Republican president has started it.
{ 26 comments }
I am really not sure why Krugman pretends to be an economist. He really is a so called journalist who is on an crusade to villify any one who challenges the welfare state. Well, the fact he writes for the NYT should indicate to most intelligent people that economist is something he likes to throw around the same way Kerry brags about being Catholic.
Good news in either scenario. Either he’s changed his views, which is good (although unlikely); or he’s just espousing new things to oppose those he disagrees with politically. If the former, then he’s come closer to the Austrian position. If the latter, then he’s nothing more than a political hack, and is not a serious economist to be taken seriously.
I’m no Krugman fan, but I don’t think his writings are inconsistent.
Back in 1998, he wrote that market crashes are usually followed by recessions, but criticized what he characterized as the Austrian Business Theory’s explanation of the relationship. Krugman argued that expanding the money supply going into a recession could avert it.
Today, he’s arguing that the Fed minimized a post-stack market-crash recession by inflating the housing market, and that if we’re not careful, we face a post-housing market crash recession.
The two statements don’t necessarily conflict; I assume that if confronted with them, Krugman would say that (i) in his opinion, an expansionist monetary policy would avert the recession; but (ii) there’s no way the Greenspan fed would enact such a thing, so, for practical purposes, the Fed doesn’t have a lot of levers left.
Alternately, a cynic might say that in 1998, Krugman’s goal was to persuade Japanese planners to expand their money supply, and in 2005, his goal is to persuade US voters to vote democrat.
On one hand you want to welcome him to the club, but on the other, you want to throw him out — he is first and foremost a defender of collectivism. For certain, you’d never find him writing about Clinton’s fingerprints being on the Fed’s policy leading to the stock bubble.
BTW, J Mann, did Krugman use the word ‘avert’ or the phrase “merely postpone its inevitability” when discussing recessions and money supply?
I see him playing both sides of the fence to support his true passion.
the comments above remind me of story/anecdote about a US president.
when an econimist gave him advice giving both sides of a point, the president told it seems what he needs is an economist who has only one hand!
Krugman obviously hasn’t read Mises or even Hayek if he thinks their theory is compatible with Schumpeter’s. What a pitiful job he does summarizing the ABCT. No understanding of the Austrian theory of money, time, etc.
Anyway, his 1998 article claimed that some sort of “excessive demand for money” caused recessions. The central bank could alleviate this by money pumping until the economy somehow recovered. He now adds to that the possibility that a housing bust could specifically cause a recession. He also says the Fed is able to create booms and busts in the housing market.
Of course, he doesn’t quite make the leap over into Austrianism. The question for him is when the Fed will run out of juice bringing on a recession which was mysteriously caused by a previous “excessive demand for money” back in the 90s. Even though a housing bust can cause a recession and the Fed can cause a housing bust. This is hopeless confusion.
How does this man sleep at night? I recall him literally advocating negative interest rates to the BOJ a few years ago. This was to stem the supposed “hording” that was keeping Japan depressed. Utterly failing to realize he was in effect advocating giving money to people in order to get them to take money they didn’t want!
Look Paul Krugman is a expert in International Trade not Macroeconomics and the policies he recommend in international trade are free market oriented.
“Just like his current antiwar views is probably not based on a real opposition to war, but on the fact that is a Republican president has started it.”
There is absolutely no evidence to back this up your bear the burden of proof. I could just as easily accuse you of similar motives as a advocate for austrian economics.
Joensen,
Krugman’s flip-flopping and past actions raise good reason for skepticism.
What flip-flopping ?
and what is wrong with changing your mind ?
Kristian,
The main blog discussed the flip-flopping. And nothing’s wrong with changing your mind, as long as it’s for the right reasons, and not merely temporarily for political expediency. Krugman hasn’t exactly given us reason to be confident that his “heart is in the right place”.
“Look Paul Krugman is a expert in International Trade not Macroeconomics and the policies he recommend in international trade are free market oriented.”
So? He speaks and writes about macroeconomics very often and he has apart from this latest column always been a die-hard Keynesian.
“”Just like his current antiwar views is probably not based on a real opposition to war, but on the fact that is a Republican president has started it.”
There is absolutely no evidence to back this up your bear the burden of proof.”
Actually I can admitt that my guess that Krugman only opposes the Iraq war because it was started by a Republican president was only a guess, a guess based on Krugman’s obsession of attacking Bush on all issues and at all times.
But I think he good test of this hypothesis would be his opinion of the NATO bombings of Yugoslavia. If he were truly antiwar then he would have opposed it. But if he is merely acting on the premise “Republicans=bad on all issues and at all times, Democrats=good on all issues and at all times” then he would have supported it. And a quick google search revealed that Krugman was indeed in favor of the bombing of Serbia.
.
Indeed, he even advocated the hawkish view that the U.S. should have used ground troops against the Serbs . And tellingly, even though he disagreed with the Clinton administration from a pro-war perspective, he emphasized that “I don’t blame the [Clinton]administration [For not using ground troops],which is responding to a political reality”.
Stefan,
Do a google search and you’ll find that Krugman published many pieces critical of Clinton during the 1990s (perhaps because he was passed over for White House job early in the Administration). Reasonable people can disagree about Kosovo but it’s easy to distinguish Kosovo from Iraq: our intervention in Kosovo turned off a looming genocide, whereas no humanitarian or national security interests justified the Iraq invasion. Krugman may not have made his reputation as a macroeconomist (he’s best known as an international trade theoriest), but he is more than competent to write about macroeconomics at the level of sophistication required by op-ed pages. (He may not be smart enough to work at the Ludwig von Mises Institute but teaching at Princeton surely counts for something!)
Just what is it about Krugman that gets under your skin? I agree that Krugman squanders his talents writing hyper-partisan op-ed pieces, but his columns are livelier and more thoughtful — and barely more partisan — than most of the stuff that appears on op-ed pages.
Stefan, you can be against the war in Iraq out of principal reasons without being against all wars, you have to remember that Krugman is writing from a mainstream point of view.
Wow, luckily the Austrian’s economic theories aren’t derived from “mainstream” emotions. So does jay leno gain credibiliy for his views in your eyes because he is mainstream also? Is krugman just a spokes man for what he preceives the American public “feels” and then bases his economics upon it? How absured.
What gets under my skin is that he influces the proletariet with lies! People “cite” krugman, but he is a total sham!
Ehh, I didn’t say that, my point is that since he has a mainstream point of view on everything Stefan Karlsson can’t expect Paul Krugman to think in the same way about anything(much less war) as Libertarian.
He can be against the war out of principle without being against war in general.
Krugman is a Keynesian. Period. Anything he has to say should be discredited because of that.
Well if that was the case then it would discredit this:
“The benefits of export-led economic growth to the mass of people in the newly industrializing economies are not a matter of conjecture. A country like Indonesia is still so poor that progress can be measured in terms of how much the average person gets to eat; since 1970, per capita intake has risen from less than 2,100 to more than 2,800 calories a day. A shocking one-third of young children are still malnourished–but in 1975, the fraction was more than half. Similar improvements can be seen throughout the Pacific Rim, and even in places like Bangladesh. These improvements have not taken place because well-meaning people in the West have done anything to help–foreign aid, never large, has lately shrunk to virtually nothing. Nor is it the result of the benign policies of national governments, which are as callous and corrupt as ever. It is the indirect and unintended result of the actions of soulless multinationals and rapacious local entrepreneurs, whose only concern was to take advantage of the profit opportunities offered by cheap labor. It is not an edifying spectacle; but no matter how base the motives of those involved, the result has been to move hundreds of millions of people from abject poverty to something still awful but nonetheless significantly better.”
Or how about this one:
“New York’s housing shotrage is the result of rnet contorl, a law that prevents landlors from raising rents except when specifically given permission.”
Or:
“New York’s limited supply of taxis is the result of a licensing system introduced in the 1930s.”
Have you ever heard of the “bandwagon” kristian? What does arguing the mainstream have anything to do with economics? So the bombings in bosnia were complely differnet than the ones in iraq? What principle does he use to be for bosian-bombing but against iraq-bombing? Wait…it’s the one where hes an ideological partisan intrested only in state expansion..
No, he is against preemptive war.
Bombing serbians in what way kept Americans any safer? Atleast saddam was a threat to freedom!
Bruce-I have nothing against Krugman except he is wrong on many issues and that he has a irrational lojalty to the Democratic Party (Just like some people at NRO have a irrational lojalty to the Republican Party), so that even when he is right he is it for the wrong reason.
And yes, it is possible to be for the bombing of Serbs yet against the Iraq war for other reason than partisan politics, but given Krugman’s general pattern of animosity towards the Republicans it does seem like the most likely explanation.
You have it backwards he has a strong animosity against the republicans becuase he disagrees strongly with them on issues he considers important, not the other way around.
Someone like you him would agree on stuff like “sweetshops” and cheap labor.
Someone like you would agree [with him] on stuff like “sweatshops” and cheap labor.
Not necessarily. He acknowledges some of the benefits of capitalism, but he has an unreasoning hatred of it that is not at all admirable. As you quoted, “It is not an edifying spectacle; but no matter how base the motives of those involved, the result has been” etc. In essence, he seems to consider economic freedom disgusting but sometimes useful.
You are putting a extremely negative spin on what he says.
Comments on this entry are closed.