Sunday, March 20, 2011

Paul Krugman Building His Case for Retreat from His Absurd Deflation Warning

Paul Krugman in a post today discusses if he has ever changed his views about a trend in the economy, i.e., has he ever been wrong about a forecast. He scratched his head, headed up to the attic of his house, blew the dust off of papers decades old, glanced through them and, yes his razor sharp mind was correct, he did recall correctly that sometime in the 1990's he said something about Asia that he had to change his mind on.

What causes Krugman to recall the change of mind that occurred so long ago?

He's trapped. He is a good enough data watcher to know that price inflation is heating up.

The price inflation that is about to hit the consumer level came about because of the money printing by his former colleague at Princeton, Ben Bernanke. Krugman, with his wacky Keynesian theories never saw it coming. In November of last year, he wrote:
There’s really nothing here to shake my view that deflation, not inflation, is the threat.
I called him on it right then and there:

In short, Krugman has made a lot of dumb arguments, but his argument today may very well prove to be his dumbest, most inaccurate, embarrassing argument he has ever written. In time, I expect economists will be using it as an example of total confusion. It is likely to surpass the embarrassing calls of Irving Fisher, who said just weeks before the crash, "Stocks have reached what looks like a permanently high plateau," and the call of New York Fed economists McCarthy and Peach who wrote an entire paper in 2004 explaining why the housing market was not in a bubble.

Yes, write this down. In November 2010, when we are on the edge of huge price inflation at the consumer level, Krugman fears deflation.
Since he now knows the price inflation is coming, he needs to start his retreat. He continues in his post of today:
What would it take for me to decide that I needed another major rethink? A major surge in domestically-driven inflation — in particular, a surge in wages — would do it. And there has been an uptick in core inflation measures that is a bit of a surprise; but at this point it doesn’t remotely count as the kind of discordance with theory that would require a major shift.

The point is that yes, I am prepared to change my views when the evidence warrants. Are you?
When the evidence warrants? Paul, what about your elegant deflation theory? Are you willing to also change your views on the theories you hold that have put you right in front of a monster embarrassment? Rethink is good. Get your theories correct and it shouldn't happen again.

(Thanks 2 Bob Murphy for the link)


  1. PK gave a not-so-subtle hattip to Lord John Maynard "The Great One" Keynes with that "The point is that yes, I am prepared to change my views when the evidence warrants. Are you?" quip!

  2. I mean....he's surprised about the inflation? Seriously? It's really mind boggling how lost Krugman is, but it's even more mind boggling that people worship the man. The fact that he won a Nobel Prize should totally discredit the Nobel Prize for Economics.