Wednesday, November 21, 2018

22 Days in Paul Krugman's Masterclass (Day 4) (He denies supply and demand theory)

Paul Krugman
Lesson 4 in Paul Krugman's Masterclass is 9 minutes and 48 seconds long.

In this lesson, there is actually something I can agree with. Early on Krugman says, "Productivity is the source of wealth."  That nails it.

Early on he also explains the division of labor. It is a serviceable explanation but I have seen better.

Then Krugman once again goes off the rails. He declares that Say's Law is an "80-year-old fallacy."

This is absurd.

I discussed Say's Law and its importance last year:

Krugman though denies Say's Law because he has to, to support his Keynesian perspective.

Indeed, in most of this lesson, Krugman spends his time touting Keynesianism. He promotes the absurd mainstream idea that there can be a general lack of demand, which, of course, he argues can be fixed by printing more money or increasing government spending.

I note that to actually believe that there can be such a lack of demand you can not believe in supply and demand as the method by which prices are set and markets clear. If you believe supply and demand is a fundamental observation, it is impossible to believe you can have a general lack of demand. Prices would just adjust until product clears.

Keynesians, including Krugman, have an implied denial of supply and demand in their argument. And it really gets out of control.

In this lesson, Krugman shows how out of control when he states that "government policies can be magic," and he points to money printing and government spending as ways to counter the general lack of demand which, I repeat, cannot exist if you accept the basic principle of supply and demand that markets clear.

Krugman closes this lesson by once again also bringing up his poorly thought out babysitting co-op story as support for Keyensian theory.


Links to discussions of all Krugman's Masterclass lessons are here.


  1. The commenters on Masterclass's ads for this course are a fun read:

  2. Keyensians and those like them use government power to prevent markets from clearing. Their premise is with enough technocratic meddling and government violence markets won't clear. The government will fine people and put people in cages if they do things that would result in a market clearing. That's where they seem to start. Their premise assumes meddling.

    Of course some times markets clear anyway and sometimes they don't resulting in a decade long depression, a decade of financial repression, and/or even just making the next financial calamity much worse.