Tuesday, September 7, 2010

Does Walter Block Understand Econ 101?

Thanks to the internet, Paul Krugman can bitch, from Japan, about the lack of public spending in the U.S., ignore ideas from such economists as Walter Block, and we can all read about it with amazement, from around the globe. Krugman writes, in a blog post titled, Infrastructure:
...the other party is standing in the way of much needed repair to our roads, ports, sewers, and more– not to mention creating jobs...

Beyond all that, the new initiative is a chance for me to air one of my pet peeves: the stupidity of the claim, which you hear all the time — and you’ll hear again now — that it’s always better to provide stimulus in the form of tax cuts, because individuals know better than the government what to do with their money.

Why is this claim stupid? Because Econ 101 tells us that there are some things the government must provide, namely public goods whose benefits can’t be internalized by the market.

So suppose we’re going to put $50 billion of resources that would otherwise be idle to work. Is it better to use them to produce public goods like improved roads, or private goods like more consumer durables? ...

....anyone who tells you that basic economics settles the question, that is says that devoting more resources to production of private goods is better, doesn’t understand Econ 101.

And there’s a pretty good argument to be made that we are, in fact, starved for public goods in this country, so that it would actually be a good idea to shift some resources to public goods production even if we were at full employment...
First, as far as, public spending creating jobs. Krugman simply fails to get the very basic, first chart introduced to any ERcon 101 student. That is the "guns and butter" chart, where guns represent government spending and butter private sector spending. If the government is spending money to "create jobs", there is that much less available for the private sector. Thus, the Krugman implication that there is a net gain in job creation by government spending is false. It is a trade off, between government spending and private sector trading. This is not only Econ 101, but it is Chapter 1 of Econ 101. That Krugman doesn't get this is astounding.

From there the Nobel Prize winning Krugman goes on to show his lack of understanding of, admittedly, an advanced concept.

That concept is the belief that it is inaccurate to say only government can provide a road system.

Krugman writes as though he has never read any literature that has argued such. This, of course, could be an understandable error if written by a non-economist, but it is surely embarrassing for the pontificator Krugman to not be familiar with the work in his own profession.

Does this means that advocates of a private road system are not familiar with Econ 101, surely not. What it does mean is that there are advances made in public versus private sector theory made by such economists as Walter Block that Krugman chooses to ignore or is simply unfamiliar with. In either case, it is Krugman who is failing to provide a full picture.

One hopes that Block takes pen to paper to inform Krugman about his failure to recognize the growing work surrounding private road theory..


  1. What's truly funny/sad about this is that you or anyone else would have to make a post about the "growing work surrounding private road theory" as if it's some amazing logical or scientific breakthrough in radical economics.

    One day, on EPJ, I'll probably read about "the growing work surrounding private food distribution theory."

    Sometimes I wonder if we Austrians should be spending more time teaching people history before economics. So many people can't even begin to wrap their heads around basic economic theory because we're so far away, historically, from when any of these concepts were non-controversial, everyday facts of life. Many people I speak to lack the creativity to envision a world at all different from the present and thus they deem it impossible. But if you tell them it's not impossible and in fact the world was once the very way I am suggesting it should be, suddenly their ability to think creatively and imagine this potential world is unlocked.

    It's funny, so many claim that Keynes was the greatest and most influential economist who ever lived, but the economics "profession" in all its glory, a la Krugman, would be absolutely nowhere without Karl Marx and his perpetuation of classical economic errors in the idea of objective value theory.

    That's what Krugman's whole flawed, violent view of the economic world is based off of-- objective value theory. There's really no point in batting down his lame ministrations one-by-one when his main faulty premise goes continually unchallenged.


  2. My only guess is that maybe Krugman sat in on another professor's Econ 101 course and perhaps discovered a flaw in his thinking. Until now, Krugman has been steadfastly telling us how the economy can only recover when the consumer is willing to spend their money and thus government economic policy should be in favor of creating consumer demand. Now I guess he is explaining to us how stupid and wasteful it would be to put more money directly into the hands of consumers. I guess if you take it further, he is now arguing that the tax cuts and credits in the stimulus package were wasteful.

    It must be hell to be one of his students, never knowing what your teacher's economic views are from day to day.