Wednesday, December 7, 2011

Krugman and DeLong versus Hayek and Mises

Mario Rizzo comments on the latest attacks by Paul Krugman (on Friedrich Hayek) and Brad DeLong (on Ludwig von Mises) and believes a major nerve has been touched. Under the title, Yes, Paul: It is Hayek versus Keynes, Rizzo writes: comes Paul Krugman with his sometimes-echo Brad Delong (or is it vice versa?). Krugman thinks that Hayek was not an important “macro” economist; certainly not the rival or alternative to Keynes, either in the 1930s or today. In fact, Hayek embarrassed himself with his cycle and capital theory. Hayek’s brilliance as a monetary theorist (aka “macroeconomist”) is a figment of the political imaginations of those who love him for his “political” book, The Road to Serfdom.

Until just a little while ago, I thought it best to ignore the latest Krugmanic outburst, especially since there are excellent posts at Marginal Revolution and Café Hayek, just to mention two. And yet the recent obsession Krugman has with Hayek (and lately the obsession DeLong has with Mises) means that some nerve has been touched. Of course, it might simply be that Krugman needs material for his blogs and columns.

However, I think the real issue is this. Hayek’s approach attacks, root-and-branch, the macroeconomic way of thinking. It is not simply a challenge to a particular theory of the determinants of mass unemployment, inflation, business cycles and the like. Hayek is not accepting the rules of the game or the parameters of the sub-discipline of modern macroeconomics. Hayek does not want to argue that the government expenditure multiplier is 0.5 instead of 2.0, for example. He does not want to discuss just how much fiscal stimulus should be undertaken and what form it should assume.

In short, he does not want to focus on aggregate spending and aggregate consequences. Hayek’s approach says: Let us pierce the veil of aggregates and look at the distortive effects on relative prices and relative output produced by boom-time credit expansions. Let us look at the distortive effects that booms leave us as we work our way through a recession. Let us concentrate on sustainable lines of expenditure both during the boom and during the road out from the bust.

Suffice it to say this greatly erodes the intellectual capital of a field of economics – although one not noted for its successes. It mocks the claim that Keynes was a true revolutionary in economic thought. It opens the possibility that he was muddled, inconsistent and unaware of the contributions to monetary and business cycle theory made by the “classical economists” on the eve of the General Theory.

It also opens the possibility that Keynes’s economics was catapulted into prominence not so much by its technical or scientific excellence but the compatibility of its policy nostrums with the temper of the times.


  1. Re: The nerve that's been touched.

    I believe it was Bob Roddis who mentioned here on the EPJ not long that AE has won and these clowns know it.

    Keynes is dead.

  2. "It also opens the possibility that Keynes’s economics was catapulted into prominence not so much by its technical or scientific excellence but the compatibility of its policy nostrums with the temper of the times."

    Yep, that is pretty much how I see it. Just to go back to July when there was a lot of this talk regarding Rothbard from guys like Boudreaux. This is what I said (quoted on EPJ July 30th) regarding that particular dynamic:

    "Of course the establishment economists and media will attempt to make Rothbard fall into a memory hole. Not only did he write in an extremely straight-forward and easy to understand language, but he also covered a wide range of sciences and topics (economics, political theory, history...). And, as it just so happens, a lot of people are beginning to read his work these days."

    "The establishment is merely trying to nip this one in the bud. They see Rothbard (and, Austrian econ in general) getting a resurgence, so the only way for them to combat this trend is to talk trash about it. They know, just as most Austrians do, that it is extremely hard to go back to being a statist after having read a few of Rothbard's books. Trust me, the last thing that they want is to have a bunch of ancaps running around; we might end their gravy train."

    Attacking Rothbard is pretty easy for a statist, because he represents a complete attack on everything that they believe. However, these more recent attacks aren't that much different.

    You see, Hayek, Mises and Rothbard aren't much different epistemologically and methodologically, they just came to different degrees of their conclusions (regarding the state). Yes, there is more to it than that, but I see no reason to mention it here. In fact, even mentioning Rothbard in most cases is more of case that will rouse curiosity than condemnation amongst the audience (most simply don't know who he is). With Mises, this isn't as true, because his name is far more well-known. The fact that they are now going after Hayek shows me that they are trying to snuff out Austrian ideas altogether, because Hayek is very well-known and respected in the economic community (i.e. outside of Austrian circles).

    All that is really happening is that these guys are seeing the winds of change coming their way and they don't like it. They like their cushy jobs and positions granted by spouting empiricist-positivist claptrap (in favor of state intervention), and they intend to keep it that way. The thing that tells me that this is the case is that they never make specific arguments, and if they do, they misrepresent the position held by the Austrian in question-- most readers don't study economics and won't know the difference.

    This has nothing to do with the academic acumen and influence of past economists, and has everything to do with current academic acumen and influence. They are just trying to save their asses from the coming tide of people who aren't afraid to call them out on their bullshit. It just so happens that Austrian economics is highly representative in this movement.

  3. It's interesting Krugman can only point to those two prominent Austrian Economists. Both De Long and Krugman would certainly struggle taking on the Rothbardian theories of anarcho-capitalism. Whereas Hayek never pointed to FRB as being the problem, Rothbard did. And he did it effectively and precisely.

  4. How do you define a society where mediocrity and profanity rules over sanity and common sense?

  5. On the Ghandi scale (ignore/laugh/fight/win), I think we're entering into the 3rd stage.

    Things have definitely changed. Ron Paul was on the Laura Ingram Show last week slamming all the other candidates for being "In Many Ways A Variant If Not True Keynesians." She took him seriously, and was polite, and the quote was featured in the mainstream neocon press:

    No wonder Krugman & Co. have their knickers in a twist.

  6. Keynes was not so much compatible "with the temper of the times" (in any popular sense) as compatible with what the government and large financial cartels wanted: an excuse to borrow and inflate and otherwise manage the currency, to their benefit.

    Krugman still has a job not because Joe Sixpack believes and wants his regular dose of Keynesianism, but because the government and the elites can only continue to profit at our expense by relying upon Keynesianism. Wall Street understands the Cantillon Effect very well; they are always first in line.