Monday, October 4, 2010

Putting Paul Krugman on Freud's Couch

Finally, someone explains the problem with Paul Krugman's methodology:
"What’s going on here? I believe that what we’re looking at is people who know their math, but don’t know what it means: they can grind through the equations of their models, but don’t have any feel for what the equations really imply. Confronted with informal discussion that’s grounded in models but not explicitly stated in terms of math, they’re totally baffled. And so they lash out.

Sad, really."
Who wrote this? Why none other than Paul Krugman, today, in an attack on Austrian economists. Is this a case of the psychological defense mechanism known as projection bias? Of course, it is.

The bias was first recognized (I hate to break it to Krugman, but by an Austrian) Sigmund Freud and further developed by his daughter Anna Freud. It essentially says projection bias is a psychological defense mechanism where a person unconsciously denies their own attributes, thoughts, and emotions, which are then ascribed to the outside world, including other people.

So how can I be so confident this is Krugman projecting? Krugman attacks those who use models but don't get it in terms of verbal discussion. Well, Austrians theorize using verbal discussion. They don't use equations, Krugman does!

In fact, part of the criticism made by Austrians, including Hayek and Mises, against econometricians is that confronted "with  informal discussion that’s grounded in [theoretical] models but not explicitly stated in terms of math, they’re totally baffled."

Indeed, Mises was even harsher about econometrics, in Planning for Freedom he wrote:
As a method of economic analysis, econometrics is childish-play with figures that does not contribute anything to the elucidation of the problems of economic reality.
Bottom line: Krugman's thinking on economics is wrapped in a faulty methodology and his post today reveals that deep down he understand's this and it bothers him.

For a full discussion of Krugman's failure to understand Austrian Business Cycle Theory, see my article: The Strange Mind of Paul Krugman.

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