Sunday, February 10, 2013

Is Krugman Attacking Murray Rothbard?

This is pretty interesting. Last week Wednesday for Morning Coffee with Murray Rothbard, I put up a video clip where Rothbard smashed Keynes for lying, including about Say's Law:

Out of the blue, Paul Krugman today has a vicious post discussing Say's Law and Keynes' take on it. Krugman writes:
When John Maynard Keynes wrote The General Theory, three generations ago, he structured his argument as a refutation of what he called “classical economics”, and in particular of Say’s Law, the proposition that income must be spent and hence that there can never be an overall deficiency of demand. Ever since, historians of thought have argued about whether this was a fair characterization of what the classical economists, or at any rate his own intellectual opponents, really believed. 
Not being an intellectual historian myself, I won’t venture an opinion on that subject. What I will say, however, is that Say’s Law (Say’s false law? Say’s fallacy?) is something that opponents of Keynesian economics consistently invoke to this day, falling into exactly the same fallacies Keynes identified back in 1936.[...]What’s depressing about all this is that Say’s Law is a primitive fallacy – so primitive that Keynes has been accused of attacking a straw man. Yet this primitive fallacy, decisively refuted three quarters of a century ago, continues to play a central role in distorting economic discussion and crippling our policy response to depression.

Krugman does mention recent posts by  Peter Dorman and Tyler Cowen, but neither of them mention Keynes or Say, specifically, in their posts. But what is interesting is Krugman also mentions that Keynes has been accused of building a straw man view of Say's Law. This is exactly the accusation Rothbard makes. Is Krugman taking morning coffee with Rothbard? Excellent! Is Murray getting under Krugman's skin? Could be, and, again, excellent!


  1. Krugman is suggesting that Dorman and Cowen are implicitly drawing from Say. Krugman is trying to argue that nonfinancial firms are hoarding cash. Cowen suggests that is only superficially true, since nonfinancial firms store cash in banks, or lend it directly through wholesale credit channels. Krugman is acting as if Cowen is a priori reaching this conclusion, basing himself on the notion that all money must be spent towards producers' and/or consumers' goods. But, Krugman is being uncharitable. Even if it's not true that all money must be used for present exchange, this doesn't imply that money can't be used for present exchange. Essentially, this latest post (of Krugman's) is a cheap shot.

    1. I'm not sure about a cheap shot - seems like its been going back and forth for some time. Krugman is basically saying that there isn't a great return on assets in a zero-bound interest rate environment and that if the money was spent it would provide a greater stimulus through the multiplier, which is possible. I believe what he is hinting at is that there is no lending. Although there could be, it doesn't exist right now, and banks and corps are essentially engaging in monetary destruction, which dampens QE's stimulus.

    2. Why is it a zero bound interest rate environment? The problem isn't what businesses are or are not doing. That is simply a symptom of a bigger problem. Businesses have no choice but to act in a rational manner. In other words, they are simply re-acting to an environment that those that think they can manage and optimize a market economy have created. Krugman offer's nothing more than a "hair of the dog" solution that simply puts off the financial re-alignment that will eventually take place.

    3. Why are they near zero? Because unemployment is at 7.9% and not budging, because monetary policy has been rendered useless thanks to defunct fiscal policy, and because the economy is operating well under capacity. That's why.

      Very nice story. So I guess your argument is for more regulation right? we need to make stricter rules to make sure businesses follow them as they are so righteously rational? Please do explain what you think optimal policy would be, and what the consequences of your policy would entail.

      I'd just like to point out that this 9:10 post does nothing to counter mine at 4:02, so I'm assuming that your fine with my reasoning.

    4. Interest rates are not at near zero because unemployment is 7.9%. That is utterly laughable that you would even assert. Please explain why it was the opposite back in the late 70s when unemployment was even higher? They are zero because market forces have been neutered by failed monetary policy. They are where they are because of nothing more than central bank manipulation.

      "Righteously" is your term and pure nonsense. Of course I know why you used it, because without it none of your arguments make any sense. The question is who gets to determine what is righteous behavior? Unfortunate we have more than a century of control freaks on the left and right telling us what it should be. IMO, that is largely why we are where we are today. I know that is what Progressive government is about and its a failure.

      Businesses are rational since that is all they can be. If you increase the cost of employment, they will seek ways to get subsidies, absorb, avoid and/or pass on those costs. That is all they can do. They have no choice since they have to assume that their competition is doing the same. If you have never worked at the upper levels of management or owned your own firm, I can maybe see how this is not something you can easily understand, but that is how it works.

    5. Really? The 70s? You actually think we are in a similar situation? You don't see that stagflation is different than insufficient demand? Ok, I guess we are going to have to use baby steps here.

      Difference is the stagflation in the 70s were characterized by both the external commodity shocks and Nixon's price controls. The result was high inflation, low growth, and high employment. Friedman and Phelps explained the shift of the Philips curve - when inflation is persistently high workers will expect wage increases to match, so it creates a vicious cycle. Increasing the interest rates combats this, so Volcker jacked up the interest rates in 79 to a ridiculously high level, and succeeded to bring inflation down. However, increasing the interest rate also has a contractionary effect on the economy through monetary destruction (ie it stifles growth).

      If you've not noticed, the current situation is very different. We have low inflation and low growth, so raising interest rates might be one of the most idiotic things that you could do. Inflation might actually be useful now to kick start growth. Any contractionary policy would just be silly.

      Interesting conspiracy theory though. I'm sure it has $2 drug store novel written all over it.

      If righteous is really your problem with that question, than take it out of the sentence and answer it. Nice try to dodge it though.

      By the way - you know the difference between nominal and real figures, right?

      And I'm assuming that wage increases aren't a part of your increasing costs of employment - here's non-farm payrolls from FRED and as you can see - almost nil growth (if they've even recovered to pre recession levels)[1][id]=PAYEMS&s[1][transformation]=pch

      And of course, because you are such a successful businessman, it can't be the cost of loans, as a lower interest rate means low rates on loans - in fact, real interest rates are negative.

      Now I can understand that if you just own your own firm or work in the upper levels of management, this may be difficult to see. Especially if you can't seem to understand that running a business isn't the same as running an economy, ie - microeconomics is different than macroeconomics.

      Anyways, I'm off on vacation for the next week. Looking forward to what response you can drum up for when I get back.

      Happy Year of the Snake.

  2. I agree Wenzel! I think he's been creeping around here.

    Good for him if so, let's elevate the debate and get to the truth! Let the chips fall where they may.

  3. It is astonishing that even after all these years, Krugman and other Keynesians can't even comprehend that their attack on Say's Law is a straw man.

    Did any of them actually read the original source material?

    1. I doubt most Keynesians have even read Keynes.

    2. Actually George that's a misquote - Krugman says that Keynes was making an obvious statement. Here is the quote:

      "What’s depressing about all this is that Say’s Law is a primitive fallacy – so primitive that Keynes has been accused of attacking a straw man."

      So here I think its Wenzel who has misquoted.

      And George, I think probably not, but some have. I'd expect Krugman has, as he wrote the forward on a recent edition. Its probably the same as most things, I'm sure not everyone who subscribes to Hayek or Mises or Marx or whomever has actually read them, which is unfortunate. But still, I think the important thing is the content of the argument, not what school it comes from.

    3. How is Wenzel misquoting, when he is taking right from Krugman?

      You need new reading glasses.

    4. "But what is interesting is Krugman also mentions that Keynes has been accused of building a straw man view of Say's Law."

      That's what Wenzel says. This is from Krugman's blog:

      "What’s depressing about all this is that Say’s Law is a primitive fallacy – so primitive that Keynes has been accused of attacking a straw man."

      See the difference?

      Apology accepted

    5. Looks to me like Krugman built a straw man to defend Keynes attacking a straw man.

    6. Well, not sure if I agree - but at least its not a misquote!

  4. Wenzel, you and Krugman should just become friends already so you can have someone to talk with about how much you hate private property and free markets...

    you two have alot in common with eachother

  5. I wonder later if Wenzel has been taking morning coffee with rothbard. Rothbard was for natural rights and private property, that is the general principle behind his entire economic works...

    Wenzel says there is no natural law and thus there is no property rights, the opposite of what Rothbard taught.

    Wenzel says its perfectly acceptable, moral, and legal to use government force to steal other peoples property, and worse, Wenzel thinks he has a just right to do this!

    Rothbard wrote in disagreement.

    1. @ "Daniel,"

      RW doesn't need me to call out trolls or dis-informationalist on his behalf but as a commenter I just wanted to say I think your feeble attempts above are pathetic.

  6. Krugman is cracking. His recent comments about police being a public good so citizens don't need to be armed have been absolutely humiliated with recent events, not to mention his views on Argentina being destroyed.

    Stuttering little Krugie is starting to lash out!

    1. Krugman is correct. My Jewish grandparents didn't need to be armed, either, because they had the police to protect them. The German police were excellent enforcers of law, including the Nuremberg Laws. Not to mention the wonderful experience of the King placing soldiers in the homes of American Colonists. Just think of how safe we would be- each one of us quartering a soldier. Pure Utopia. - RJD

    2. The Japanese who were rounded up and put in camps, or the American Indians, or the blacks, or on and on didn't need to be armed because they had the police as a "public good" to protect them - LOL. And as krugman stammered about, anyone who argues in favor of gun rights like the NRA is "insane" according to Krugman. Nevermind the fact that the NRA has a higher approval rating than Obama does according to Gallup.

  7. I just can't let the thing go. Wenzel and Krugman should both agree on this point: the REAL Economic Policy Journal was established in 1985 prior to the beginning of the internet and therefore should claim complete ownership of the domain

  8. Wait, Say's Law is a fallacy? I guess it's hard for an advocate of counterfeiting to understand a simple law of honest accounting that applies to market exchanges of goods.

    Princeton Professors like Krugman know only how to steal from others, so they cannot hope to ever understand free markets.

    1. Krugman would like to announce that Say's law is a "refuted" fallacy and be done with it....he knows it strikes at the heart of the issue.

      Interestingly, I read up on it hard again on wiki around 6-8 months ago(let the laughter begin, but I find wiki to be useful when used properly)...I went back again last night and notice the topic has EXPANDED GREATLY.

      There's been a lot added in the last 6-8 months. It underpins a lot surrounding classical economics.

      It's very important that Keynesians try to dispel it if they are going to try to "win" an idealogical debate. Say's law eventually leads to discussions about "animal spirits", which is a place most sane Keynesians don't want to go....

  9. Lord Keynes and Say's Law
    - by Ludwig von Mises
    (Ch.V of Planning for Freedom )

    "...With regard to economic goods there can be only
    relative overproduction. While the consumers are
    asking for definite quantities of shirts and of shoes,
    business has produced, say, a larger quantity of shoes
    and a smaller quantity of shirts. This is not general
    overproduction of all commodities. To the overproduction
    of shoes corresponds an underproduction of
    shirts. Consequently the result can not be a general
    depression of all branches of business. The outcome
    is a change in the exchange ratio between shoes and
    shirts. If, for instance, previously one pair of shoes
    could buy four shirts, it now buys only three shirts.
    While business is bad for the shoemakers, it is good
    for the shirtmakers. The attempts to explain the
    general depression of trade by referring to an allegedly
    general overproduction are therefore fallacious.

    Commodities, says Say, are ultimately paid for not
    by money, but by other commodities. Money is
    merely the commonly used medium of exchange; it
    plays only an intermediary role. What the seller wants
    ultimately to receive in exchange for the commodities
    sold is other commodities. Every commodity produced
    is therefore a price, as it were, for other commodities
    produced. The situation of the producer of
    any commodity is improved by any increase in the
    production of other commodities..."

    1. And what if there is an overproduction of both shoes and shirts, because the consumer's housing price crashes and his loans been called in, and now he needs to pay off a mortgage on a house that is loosing money. What if the consumer, and many others in his town, don't buy shoes and shirts because the cannot afford to?

      How does trade commence when there is no market for the producers goods above the cost of production?

      The assumption that markets always clear is a very narrow one, and as we have seen this past crisis, an incorrect one.

    2. Without going into any significant detail, markets DO always clear despite your disbelief outside 'a very narrow range'.

      The problem people with your frame of mind have is that they want everyone to be successful no matter what they may be doing.

      What if the buyer of shoes cannot afford to buy the shoes anymore? Who knows, but I see many possibilities:

      1. He doesn't buy them.
      2. The shoemaker exports his shoes to another community, state, country etc.
      3. The local guy is out of luck, but the shoemaker may continue operating selling to someone else or making only high end products.
      4. The shoemaker may lower his price.
      5. He may retool his business to make cheaper shoes.
      6. Maybe the person your heart bleeds for will save his money for a longer amount of time before buying a new pair of shoes.
      7. Perhaps the shoemaker will even shut down, allowing only the most cost efficient producer to continue, where ever he may be (or might not exist at this point).

      You guys who hold onto the idea that markets don't clear live in a bubble that disregards forces outside the 'narrow range' your own minds can construct. The world is big and complex, don't believe that what you see is all there is or ever will be.

    3. Market? What market? You call the U.S. economy as it is a MARKET?

  10. "What if the consumer, and many others in his town, don't buy shoes and shirts because the cannot afford to?"

    Say's Law says that one can only be a consumer (create demand) by first becoming a producer (create supply). If your "consumer" has something that other people want (created supply) then he can afford the things he demands (shirts and shoes). If he hasn't, then he won't. Sorry, but things couldn't possibly (logically and physically) be any other way, Helicopter Ben notwithstanding.

    1. One can also become a consumer by being a thief. Or a government "worker". But I repeat myself.