Monday, January 10, 2011

Paul Krugman's Inferiority Complex

Here's the latest from Paul Krugman:
Mark Thoma directs me to Eric Schoeneberg, who argues that the right is winning economic debates because people believe, wrongly, that there’s something inherently moral about free-market outcomes. My guess is that this is only part of the story; there’s more than a bit of Ayn Randism on the right, but there’s also the appeal of simplicity: goldbuggism is intellectually easy, Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it.
First off, there is something inherently moral about free markets. They are based on the belief in private property and the belief that individuals have the right to freely exchange goods and services with each other. It doesn't get more moral than that.

Secondly, one has to ask, if "goldbuggism" is so easy compared to Keynesian economics, than why can't Krugman understand parts of goldbuggism? I am specifically thinking about parts of Austrian school economics. I'm sure Krugman would include Austrian economics under goldbuggism, since Austrian's have developed the most sophisticated theories as to why gold makes an ideal money. So let's take a look at Krugman's understanding of this intellectually "easy" economics.

During an attack on Austrian economics, Krugman wrote:
Most modern hangover theorists probably don't even realize this is a problem for their story. Nor did those supposedly deep Austrian theorists answer the riddle. The best that von Hayek or Schumpeter could come up with was the vague suggestion that unemployment was a frictional problem created as the economy transferred workers from a bloated investment goods sector back to the production of consumer goods. (Hence their opposition to any attempt to increase demand: This would leave "part of the work of depression undone," since mass unemployment was part of the process of "adapting the structure of production.") But in that case, why doesn't the investment boom—which presumably requires a transfer of workers in the opposite direction—also generate mass unemployment? And anyway, this story bears little resemblance to what actually happens in a recession, when every industry—not just the investment sector—normally contracts.
This question by Krugman is a clear example that Krugman doesn't understand "easy" Austrian economics. I answered Krugman's question, this way:
Notice the viciousness, “supposedly deep Austrian theorists “.

As for as Krugman’s question as to why there isn’t a rise in unemployment during the boom part of the cycle , this clearly demonstrates his lack of a deep understanding of ABCT. Before a boom starts, the economy can be said to be in equilibrium between the consumer goods production and capital goods production. When a central bank then pumps in new money, new demand is created for labor in the capital goods sector causing bidding for labor away from the consumer goods sector. Thus, there is no point where rising unemployment would be a factor in this part of the cycle. However, during the downturn part of the cycle, it is not a case that the central bank is pumping money into the consumer sector. What is occurring, instead, is that a transfer of money is taking place from the capital goods sector to the consumer goods sector. It is this money drain from the capital goods sector that causes the unemployment. During the central bank induced boom, money isn’t being drained from anywhere.

As for every industry being impacted by a recession, Krugman just doesn’t get what a capital good is.
So if Austrian economics is so easy, but Krugman admittedly doesn't understand it, what conclusion is there other than that he really is not that bright?

Krugman's comment about "easy" economics reminds me of a discussion I had sometime ago with a top neurosurgeon in NYC. After explaining Austrian business cycle theory to him, he snidely remarked, "Well that sounds like a simple theory." To which I replied, "I can make it sound complicated if you like. In  fact there's this guy named Hayek who has developed part of the theory and with his writing style, his version of 'See spot run' would come out sounding complicated, but more to the point, isn't truth the real measure rather than simple or complex?"

Hayek, a Nobel laureate as is Krugman, nailed Krugman-like thinkers long ago. In his important work, The Counter-Revoloution of Science, Hayek laid out the case that economists like Krugman have physics envy. For some reason they have an inability to project out in deductive fashion. Because of this impotence, they try to force all science into the one tool they have left, mathematics. The problem is that mathematics does not provide for satisfactory answers in the sciences of human action. Thus, Krugman stuck with his inferior tool, lashes out at those who can perform.

Right now, Krugman has no clue about the price inflation that is coming, the Fed manipulated "boom" and the turnaround in unemployment that is coming. With his tool, he's totally impotent in solving these problems. He is trapped in some of the silliest forecasts an economist could make right now.

Come to think of it, he is probably justified in having an inferiority complex.


  1. I love posts like this; it's why I keep coming to this blog.

    It provides me with the opposite feeling I get when listening to NPR or watching Fox News (when they don't have someone like Ron Paul or Peter Schiff on as guests).

  2. The source of that “physics envy” is the need for a system that can be deliberately controlled by the statist. On “Meet the Press” in 1975, Hayek responded to a George Will question:

    George Will: "Dr. von Hayek, capitalism and particularly American capitalism would seem to have a good record at giving people a rising standard of living. Why are so many intellectuals, and particularly so many economists, skeptical about and even hostile to capitalism?"

    Hayek: "Well, I've been puzzling about it for a long time, particularly about the economists who ought to understand better. It's very difficult to know why they don't. I think it's the intellectual attraction of a system you can deliberately control, which is fascinating to the intellectual."

    If Krugman understood Austrian School theory, he would realize that people must be free to engage in the pricing process. There is no role whatsoever in this process for busybodies like Krugman who would have no input into the process. He needs to stay home out of everyone’s hair where he can just play with his cat and cause no trouble.

  3. Rothbard, Classical Economics: An Austrian Perspective on the History of Economic Thought, Volume II, page 12 (28 in pdf file):

    Because he [Say] was a splendid writer, because he avoided the rough and tortured prose of a Ricardo, because, in Jefferson's phrase, his book was 'shorter, clearer, and sounder' than the Wealth of Nations, economists then and later tended to confuse smoothness of surface with superficiality, just as they so often confound vagueness and obscurity with profundity.

    And from pages 103-104:

    It is very possible, however, that it was precisely Ricardo's obscurantism that accounted for his success. For all too many people, laymen and professionals alike, obscurity and bad writing equal profundity. If they can't understand it, and they hear at every hand that so-and-so is a great man and his theories the current light, their belief in his profundity will be redoubled.

    There are great charms to obscurity. Moreover, there are particular charms for the adepts who cluster around the great man, the circle of initiates who claim - probably correctly - that only they can truly understand his work. Only they can penetrate the fog caused by the depth of the great man's wisdom. Schumpeter notes that 'quickly his circle developed the attitude - so amusing but also, alas!, so melancholy to behold - of children who have been presented with a new toy. They thought the world of it. To them it was of incalculable value that only he could fail to appreciate who was too stupid to rise to Ricardian heights.'

    Its murkiness and difficulty only heightened the
    enjoyment and pride of the adepts over their new toy. Nowadays, this effect is considerably heightened by the fact that obscurity gives disciples and critics more to talk and write about, and thus greatly multiplies the career
    opportunities for scholars in the current age of publish-or-perish.

  4. Keynesianism is easy to understand (spend more, and if it does not work, spend more!!). That is why it became mainstream even being evidently false.

  5. Krugman generally posts my comments as long as I call him names in a nice polite manner (although I don’t know why I bother). Like today:

    "[G]oldbuggism is intellectually easy".

    Oh, really?

    Then how come neither you nor your statist comrades have ever demonstrated the slightest familiarity with even the basic concepts of the Austrian School and you always rely upon your defamatory straw men? If it were so easy to vanquish the Austrian School, one would think you would at least make an attempt. You won't even try because you know you can't.


  6. Obscurantist, indeed. There is a quote out there from someone who was a graduate student in the 1930s who said that young economists felt elated to the point of giddiness when they imagined the long careers ahead of themselves as interpreters of Keynes's General Theory. No wonder they dislike and ignore the economic works which could be understood by any undergraduate or even high school students. No percentage in it for them.

    This is the same reason why priests must be initiated into the "mysteries" of whatever cult or religion in which they wish to make a living. Whether interpreting the entrails of chickens or trying to make sense out of the Old Testament as a Christian, the message from priests is, "You need us to tell you what's what." That the gods work in mysterious ways is not so much an inevitable part of their godhood, but a kind of job-security plan for clerics.

    Likewise the dead-simple rules of human action as applied to economics at the individual and collective level must be obscured in order first to disguise the theft and murder by government, and second to provide a comfortable living for economists.

  7. I believe most Cults need to put up the illusion that they are intellectually superior to all others.
    This way they can interpret their nonsense to their recruits and make it sound scientific.
    Austrian Economics needs no interpreters.

    Mr Krugman 2 things.
    #1 Debate Mr "Simpleton" Murphy
    #2 Gives us an equation for stimulus spending and it's results. No more "that's not enough stimulus" crap.

    Both should be very easy for an intellectual to do.

  8. Krugman's is an appeal to Shamanism -- typical.

  9. The Rothbard quote on the joys of obscurantism was excellent. Here is Hayek (on Firing Line, 1977) explaining other deep complexities of Keynesianism:

    Hayek: You see, another political element was that, of course, politicians just lapped the argument and Keynes taught them if you outspend your income and run a deficit, you are doing good to the people in general. The politicians didn’t want to hear anything more than that -- to be told that irresponsible spending was a beneficial thing and that’s how the thing became so influential.

    How scientific!

  10. >>>After explaining Austrian business cycle theory to him, he snidely remarked, "Well that sounds like a simple theory."<<<

    You should have said: "Well, that's because sound economics is not brain surgery."