Republished from Economic Policy Journal
Paul Krugman is at it again. HeÂ writesÂ this morning (my highlight):
Substance aside â€” not that substance isnâ€™t important â€” Austrian economics very much has the psychology of a cult.Â Its devotees believe that they have access to a truth that generations of mainstream economists have somehow failed to discern;Â they go wild at any suggestion that maybe theyâ€™re the ones who have an intellectual blind spot. And as with all cults, the failure of prophecy â€” in this case, the prophecy of soaring inflation from deficits and monetary expansion â€” only strengthens the determination of the faithful to uphold the faith.
It would be sort of funny if it werenâ€™t for the fact that this cult has large influence within the GOP.
First, Austrian economics has about as much influence on thinking at the GOP as it does with Elizabeth Warren and Nancy Pelosi: Zero.
Krugman is either lying or is batshit dumb—and often I think both apply.
Second, it is really cute for a so-called economist who basesÂ his entire understanding of economics on a faulty understanding of a babysitting coupon co-op storyÂ to be calling out cults.
Note the part I have highlighted above.
How is this different from what Krugman has written about Keynes?
InÂ declaringÂ Keynesian economics vindicated I am, of course, at odds with conventional wisdom.
Third, Krugman creates a straw man, when arguing that Â all Austrian economists were calling for major price inflation at the start of Bernanke’s money printing. Bob Murphy was, but I took a different position. In 2009, IÂ wrote:
Murphy expects CPI(urban) to rise to at least 8% over the course of 2009. While I fully expect an upturn in inflation in ’09 and inflation at all levels to hit double digit rates at some point in the future, I’m not sure that this will occur in 2009. Thus, to remain consistent in my total disagreement with Murphy, I am going to say that inflation in 2009 will not hit an annualized rate of 8% for any three month period or longer. Obviously, a one month jump of 1% would put inflation at a 12% annualized rate. This could happen, but I don’t think in ’09 we will see 8% annualized inflation over any three month period.
Here’s exactly whatÂ occurred. Price inflation did pick up, as I expected, but it didn’t get anywhere near Murphy’s forecast:
But aside from this forecast, Krugman ignores the fact that Austrian economists tend to beÂ leery of any numerical forecasts.Â We view the nature of economics differently than Krugman. It’s not that we don’t have suspicions about what might develop, but we know it is a complex world, and although there are macro factors that are entirely visible, the complexity of the world is such that we don’t know all factors. This doesn’t leave us blind. Austrians would never, for example, make the errors that Krugman did, when he declared Argentina and Brazil majorÂ successÂ stories. See:Â PaulÂ Krugman’sÂ Great Forecasting Failure:Â ArgentinaÂ andÂ Krugman Blows It On Brazil, Also. These are majorÂ embarrassingÂ errors that, again, would never be made by even a neophyte Austrian.
However, if this is specifically about aÂ comparisonÂ of Keynesian forecasts versus Austrian forecasts, does Â Krugman seriously want me to go out and catalog the forecasting errors made by Keynesians? They are all over the damn place. See:Â An Administration Keynesian Speaks of Failure, Failure and Failure (And an Alternative Examined)
And yet, despite the chronicled failures of Keynesianism (by a card carrying Keynesian), Krugman seems to place Keynes on an altar, where he should beÂ worshipedÂ daily.
Krugman has written about Â Keynes:
And one of these years weÂ mightÂ actually end up taking Keynesâ€™s advice, which is every bit as valid now as it was 75 years ago.
TheÂ greatnessÂ of Keynes
——It is indeed frustrating that after three years in whichÂ KeynesianÂ predictions have been spectacularly correct, pundits insist on reading the evidence as a rejection of Keynes.—Â I have often wondered whyÂ KeynesÂ - unlike, say, Freud – has never become a pop cultural icon.
My real point here is not, as much, that Krugman is a cultist, but that when a person views an economist as seeing the world correctly, he is going to say, in many ways, many times, that such person is correct.
Krugman does it as much as the next guy. Krugman is being an evil bastard to pretend otherwise. The real test should be which economic theories are the soundest. When sound thinking is used as the criteria to look at different economic schools of thought, Austrian school economists Ludwig von Mises and Murray Rothbard have John Maynard Keynes blown away. Mises and Rothbard are much more careful in developing their theories and on a much sounder basis (no misunderstood babysitting coupon co-op stories at the foundation).
Krugman has demonstrated he doesn’t understand economic basics such asÂ Say’s LawÂ and theÂ Broken Window Fallacy, so perhaps he should be forgiven for not understanding advanced Austrian concepts such as the regression theorem, the exhaustion of the reserve fund, praxeology in general, and Austrian business cycle theory.
But it is just childish to call out “cult,” when one simply doesn’t understand a science. Â Does anyone have any babysitting coupons left? There’s aÂ grown manÂ throwing a child-like tantrum.