Monday, July 11, 2011

If You Fear Inflation, You May Be Suffering from 'Ron Paul Plus' Rage

Yes, that is the conclusion of columnist, economist and, now, psychotherapist, Paul Krugman. He writes:
We had dinner last night with Margaret Ray and Dave Anderson....We talked about various issues involved in trying to explain economics — and everyone agreed that monetary economics is where people are most likely to get not only confused, but furious.

There’s something about money, it turns out, that sends many people into blind rage — usually of the kind Margaret described as “Ron Paul plus”, but there are other versions too, some of them coming from the left.

Krugman then goes on to discuss "frictionless, perfect-information, costless-calculation world".  The Austrian economist Ludwig von Mises called this abstraction the "evenly rotating economy." Krugman goes on:

So why the rage? I suspect that it’s because a certain sort of person wants more purity than the real world is willing to supply. They want to believe in perfect markets, delivering perfect outcomes if only the government would stay out of the way. And so they want to believe that money too can be perfect if only we take it out of human hands, and make it good as gold, literally.

And when you point out that it doesn’t work that way, that money is a social convention meant to deal with an imperfect world, and that dealing with that imperfect world sometimes means that central banks need to take exceptional action, they fly into a rage.
This conclusion is coming from a guy who uses equilibrium models,which assume various frictionless, perfect-information, costless-calculation worlds, as an everyday tool. The entire basis of Austrian (i.e. Ron Paul) economics is that we don't live in a world of perfect knowledge. Austrian economist Friedrich Hayek wrote that prices were a signal to changes in an economy. Mises wrote about the changing economy in contrast with the abstraction of the evenly rotating economy. And somehow Krugman, who uses econometric models, which assume some variables are near constants, is lecturing on the problems of using a perfect world model! How is this different from Eliot Spitzer as attorney general railing on about the evils of prostitution?

As far as money being a "social convention" , this implies some type of agreement between peoples as to what to use as a money. There is no such "social convention".  Hayek understood that money arose  as an "unintended consequence" of barter exchange, precisely the opposite of a social convention. Through his regression theorem, Mises explained how money needed to arise from a commodity that had prior value---again no social convention. If anyone has a problem with an imperfect world, it is those who fail to understand that the entire world can not be planned by a Krugman-led politburo. Whether it is money, banking or healthcare, the world is too complex to be planned by a central planning authority. It is they who truly rage on in post after post, when there is any objection of their view that this complex world can be planned, be it Obamacare or Elizabeth Warren designed banking regulations, who believe in non-existant worlds of perfect knowledge. Call it Paul Krugman Rage Plus.

9 comments:

  1. Wenzel asks:

    How is this different from Eliot Spitzer as attorney general railing on about the evils of prostitution?

    It's not, except that this time it's the whore complaining, rather than the John.

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  2. This was my comment to the article:

    It is funny that Krugman writes that Ron Paul wants to make money perfect by taking it out of human hands, when in reality it is Krugman that wants to make money perfect by taking it out of the human hands. Just exactly how 'centrally planned' came to mean 'in the hands of the people', I'm not sure, but we'll leave it up to the people of North Korea and see if the two can be used interchangeably.

    It sounds more like Krugman is in a rage because all of those pesky humans aren't doing what his economic models say they should be.

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  3. Something's wrong with your site's feed. It doesn't import to thing's like twitterfeed or e-readers.

    Look at your Twitter account:
    http://twitter.com/#!/WenzelEconomics

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  4. I guess it’s time for me to give up my bizarre suspicion that Krugman couldn't possibly be so stupid as to not understand basic Austrian concepts but was purposefully misleading his cement-head minions.

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  5. Paul Krugman is such a joke that sometimes I find it hard to believe people consider him an economist! But then I remind myself that these people are not that intelligent, too.

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  6. Still problems:
    http://twitter.com/#!/WenzelEconomics/status/90498202045911041

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  7. Paul Krugman is boubleplus ungood, mostly because he is guilty of duckspeak and prolefeed.

    Those who succumb to his whiles suffer from a severe case of bellyfeel.

    To oppose Krugman is doubleplus goodthink.

    jaydub

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  8. I wish I could roam around Krugman's brain just to try and get an understanding of his thought processes. Its probably just crickets and Keynes lecturing. Sigh. Ignorance is Wisdom.

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  9. "We had dinner last night with Margaret Ray and Dave Anderson....We talked about various issues involved in trying to explain economics — and everyone agreed that monetary economics is where people are most likely to get not only confused, but furious."

    I imagine this is how the whole of Krugman's life has been; sitting in the ivory tower making up excuses for the failures of his models, discussing why the peasants just don't seem to get it.

    The point of confusion in teaching economics comes from trying to foist inaccurate and epistemologically unsound models upon the students. What could one expect but confusion when trying to fit the whole of human interaction into a few simple algebraic equations?

    ReplyDelete