Monday, December 31, 2012

Incredible: DeLong-Krugman Go Out of 2012 with a Tag Team Bash of Austrian Economist Bob Murphy

In 2009 [corrected from earlier version, which said 2011], Bob Murphy and David Henderson made a bet that if at any point between October 2011 and January 2013, prices increased on a year/year basis, on seasonally adjusted CPI, by at least 10%, then Henderson would have to pay Murphy $500 or if by January 2013 no such increase occurred, Murphy would have to pay Henderson $500. Murphy has lost the bet.

Paul Krugman and Brad DeLong are going Gulf sturgeon crazy into the New Year over Murphy losing the bet.

DeLong calls out Murphy on losing the bet and continues:
The most terrifying thing of all is that being completely, comprehensively, unmistakably, fundamentally, fatally, totally wrong has not led Robert Murphy to rethink or modify any of his analytical positions or ideological beliefs by even one iota. 
I mean, one would expect an announcement on his weblog like: "I have been totally wrong, about everything. I am closing down this weblog for five years to avoid misleading readers while I intellectually retool. You will find me sitting at the feet of Paul Krguman, chanting 'om mani padme hum' until I achieve enlightenment."
Let me get this straight, DeLong expects an economist to shutdown his web site for an incorrect forecast. Maybe DeLong should show us how this is done, at Project Syndicate, in June, he wrote:
 I – have gotten significant components of the last four years wrong. Three things surprised me (and still do). The first is the failure of central banks to adopt a rule like nominal GDP targeting or its equivalent. Second, I expected wage inflation in the North Atlantic to fall even farther than it has – toward, even if not to, zero. Finally, the yield curve did not steepen sharply for the United States: federal funds rates at zero I expected, but 30-Year US Treasury bonds at a nominal rate of 2.7% I did not.
Compared to DeLong, Murphy looks like the haruspex Spurinna.

But, let's move on to Krugman, he goes beyond DeLong's cheapshot and acts just plain stupid. He writes:
Has there been anything comparable on the Austrian/Austerian side?
Why would any economist who knows anything about Austrian economics and bankster austerity programs link the two? Austrian economists have never supported any plan to suck dry the masses via taxation to payoff banksters holding government debt, which is what austerity programs are all about. As the leading Austrian economist, Murray Rothbard, put it:
I propose, then, a seemingly drastic but actually far less destructive way of paying off the public debt at a single blow: outright debt repudiation.
This is the exact opposite of austerity programs, which are designed to prop up sovereign debt and insure the banksters are paid. In other words, Krugman isn't getting a forecast wrong here, he is getting FACTS totally wrong.

As for Murphy's forecast, I have discussed before, in an important post, why exact timing in economics is very difficult.

That Krugman and DeLong jump on Murphy over a forecast suggests they have problems attacking Austrian theory. But they are lurking around Austrian blog sites, anyway, to jump high when they can spot something to blabber about. Indeed, it looks like Krugman and Delong are trying to mimic the high jumps of the sucker-mouthed, plate-covered Gulf sturgeon of the Suwannee River--a species headed for extinction.

22 comments:

  1. It's been pointed out, but largely ignored, that things like QE transfer money from the private sector to the public (govt) sector, and that such transfers often prove to be deflationary (think Japan, and a host of other reasons for this).

    Guys like Krugman and Murphy are full of crap, just in different ways.

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    1. So your argument is that printing new money is sometimes deflationary? Obviously, printing money doesn't necessarily mean prices would rise. It could be that other factors would cause prices to fall in spite of the upward pressure on prices QE would cause, but it sounds like you believe expansionary monetary policy can be the cause of deflation. If so, there is a reason that point has been largely ignored.

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    2. You must be an undercover Keynesian. They aren't "printing money," they are just changing into whose hands the interest on the debt goes. Monetary base is not increasing dramatically. A huge rip off of the private sector, of us. The "money printing" dogma is obviously false. (If it were true, would it be visible as such by government measures?)

      On the contrary, a substantial increase in treasury interest rates would cause broad price increases, and a rally in commodities. Similarly, if Japan would ever raise interest rates, the Nikkei would explode upwards--the opposite of Keynesiasm dogma/prediction.

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  2. I saw this before and was appalled. I would like Murphy to reply with haste though, as opposed to stating he is 'busy' and will get back to it. He should get while the getting is good, Krugmanites won't visit his blog twice. They will see that message and rejoice.

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  3. Prof. DeLong probably doesn't understand the meaning of the word "bet".

    AFAIK there is no need for anyone to place a bet on 100% certain outcome. Just looking at the payoffs of the binary bets - get $500 if you win, pay $500 if you lose - makes me wonder how certain the participants were about the outcomes they were betting on. Of course, Prof. DeLong is an ivory tower intellectual, and obviously has no clue about the real world.

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  4. I'm wondering what Bob Murphy's net worth is. A piddly $500? If he had been certain of the outcome, he should have bet $500 million or something.

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  5. Amazing indeed. Btw, it is David Henderson, not Doug.

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  6. Here's the lesson: don't bet on anything except craps.

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  7. I think this brings up the important point about the proper role of the economist.

    For Keynesians, they want to understand, optimize, and control the economy much like engineers want to control a chemical process.

    Austrians, because they realize there are no (or insufficient) constants in the economy that allow for predictable and repeatable phenomena, realize that to try to predict or control the economy is a lost cause.

    Why is Murphy dabbling in what econometricians attempt to do?

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    1. I was wondering something similar: why was an Austrian paying any attention to CPI? Does he really think he can add butter, hats and horses and figure out how much "their" price has increased "overall"?

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    2. Yes! I wish Bob and the Austrian Schoolers were spending their time schooling the non-Austrian yet free-market guys about how the subjective values of individuals are ordinal, non-cardinal, non-aggregateable, and non-quantifiable.

      Instead they get sucked into Max Keiser's casino gulag--because its so much more fun and its on TV and its so tempting to have everybody think you're smart about gambling on the government's slavery statistics. Its not just Bob, ever since at least when the government put Louey Ruckeiser on TV, they hooked the whole country on wanting to be index speculators.

      I think it actually hurts the causes of truth and anti-statism when guys like Peter Schiff and Ron Paul are trotted out as successful libertarian "touts" because their 5 star picks of ten years ago happened to have paid off so well.

      Austrian schoolers should be teaching people like Krugman and even David R Henderson why GNP is meaningless and undefineable. I think Rothbard implied that abolition of government statistics would be a necessary measure toward ending the state's grip on our necks.

      If Murphy were ever to debate Krugman, I would want it to center on the great stuff the Austrians have to offer. The Austrians can prove that breaking windows is bad and that hiring armies of NSA computers and Milton Friedman's to aggregate our "incomes" in order to calculate how many and who's windows to break besides being praxeologically absurd makes things much worse.

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  8. Is Krugman of all people bringing up someone being wrong on a prediction? LOL

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  9. If Krugman is right and knows it, why not debate the "fallacious" Murphy? Or, respond to why he is scared to do so.

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  10. War of personalities again, woo hoo! For readers of Human Action & Man, Economy & State, correct me if I'm wrong, but isn't every transaction between individuals unique? And if so, then isn't the current general economic situation unique, because of the uniqueness of individual transactions? Clearly, going out on a limb to predict a politically uncomfortable 10% y/y increase in the CPI was risky to one's reputation if one cares what their peers think.

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  11. Why is it assumed that money supply expansion will immediately or fairly quickly result in a broad based increase in price levels of a certain percentage? It seems to me, adhering to the ABT, after a boom, while malinvestments are being sorted out, general price levels should be falling precipitously. Money inflation might not lead to 10% inflation as indicated by a politically manipulated CPI, but rather lend support to a general price level higher than what one might expect in what should be a deflationary environment.

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  12. Thanks Bob W. Just a few clarifications everybody:

    (A) I made the bet with David Henderson in December 2009. (The 2011 is when I posted an "update" on the bet on my blog. I wasn't ignoring it; I was letting my readers know that I had this pending bet, and if you follow Wenzel's link you can see I was already sweating the Henderson one by that point.)

    (B) What happened is that Bryan Caplan thought some of us were being too pessimistic in our criticisms of Bernanke back in 2009, and so he wanted to bet me. The original bet I had was with Caplan, and it was for 10% yr/yr by January 2016. Then Henderson wanted a piece of the action, but he *agreed* with me that price inflation might break out within five years, so he shortened it to a 2-year window (by picking 2013 instead of 2016). Obviously I wasn't as confident it would happen in 2 years versus 5 years, but I said what the hell. Obviously I shouldn't have.

    (C) Yes, I'm well aware of the problems with CPI. But I was betting a guy (Caplan) who thought certain other commentators and I were being crazy in our warnings about Bernanke. So he wasn't going to trust Shadowstats etc. So we had to pick something "official." Back in 2009, I thought price inflation was going to be so significant by 2016 that they wouldn't be able to officially report it as less than 10%. Remember, back in the 1970s official CPI inflation this metric almost hit 15%. I thought (and still think) what Bernanke has done is going to make the 1970s look tame in comparison, so it's not crazy for me to think the government would have to admit "official" CPI higher than 10%, even though in reality it would be much higher.

    (D) Last point: I am aware of PR issues etc. I would not have been as reckless in betting *Krugman* or another Keynesian on something like this, because then it would go down in the history books. But I bet Bryan Caplan, an anarcho-capitalist, and David Henderson, a very free-market guy who authored a study on why the USG should follow the Canadian example and slash spending to get out of the fiscal imbalance. So here's what happened: In Krugman's terminology, two austerians make a bet. When one of them loses (since ties aren't possible), Krugman then declares, "Ha ha, austerity economics is wrong."

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    1. That was funny, and soo true:

      So here's what happened: In Krugman's terminology, two austerians make a bet. When one of them loses (since ties aren't possible), Krugman then declares, "Ha ha, austerity economics is wrong."

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  13. Being criticized is better than being ignored. Krugman and Delong provide valuable publicity for Murphy and other Austrians. A few of their readers will visit Murphy's site and realize what an honest person and great economist he is.

    I think the bet underscores the fact that many Austrians take the equation of exchange too literally, as Mises and Hayek warned. Many things can prevent monetary expansion from creating cpi increases. Japan knows all about that.

    Bernanke's helicopter drop hasn't caused significant inflation and probably won't for many reasons. 1) Regulators have seriously raised the bar on new loan activity. 2) Few businesses see a reason to invest in the US where taxes, regulation and regime uncertainty are so high. 3) Everyone is deleveraging like crazy (see Higgs posts on this on his blog). 4) Changes in Basel III and regulation are forcing international banks to shrink to an amazing degree. 5) Low interest rates make the risk/reward ratio for new lending unappealing to most bankers. 5) Most of the new money is going into assets, like the stock market and foreign bonds.

    I got sucked into the hysteria over Bernanke's monetary policy, too, in the early days. Trying to figure out why cpi didn't respond as I thought it should has made me a better economist.

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  14. Arthur Krolman, CFAJanuary 1, 2013 at 11:10 AM

    Murphy screwed up. Krugman et al were dead on correct: the Titanic stern did truly rise up out of the water -- the opposite of sinking -- after hitting the iceberg. Clearly easing of more Bernanke icebergs into the hull of the US economy is called for.

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    1. That is utter nonsense. If prices had been allowed to quickly find their unadulterated level and bad debts had been allowed to be quickly liquidated, we probably would not be in a perpetual depression. The Fed policy of hiding the unadulterated market price of most everything is the cause of our problems, not the cure.

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  15. I got sucked into the hysteria over Bernanke's monetary policy, too, in the early days. Trying to figure out why cpi didn't respond as I thought it should has madelazer epilasyon me a better economist.

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  16. Sivilce Tedavisi Obviously I wasn't as confident it would happen in 2 years versus 5 years, but I said what the hell. Obviously I shouldn't have.

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