Economically and Morally Wrong

Monday, September 15, 2014

Paul Krugman writes a column on a subject it is tempting to joke that he ought to know something about: "How to Get It Wrong". The "It" is, in this case, economics, and Krugman even admits that intellectual failure has occurred at several levels in his discipline. But if you're expecting a mea culpa, holding your breath could be a life-threatening proposition:

In what sense did economics go astray? Hardly anyone predicted the 2008 crisis, but that in itself is arguably excusable in a complicated world. More damning was the widespread conviction among economists that such a crisis couldn't happen. Underlying this complacency was the dominance of an idealized vision of capitalism, in which individuals are always rational and markets always function perfectly.
That's right. Krugman, who we must assume applies the label "policy-oriented economist" to himself, is blaming a crisis caused by government meddling in the economy on a massive scale on  "capitalism" (in a world where that system exists nowhere) and individual irrationality for the same (as if said meddling hasn't incentivized it). This should come as no surprise since "policy-oriented economist" as he uses it is a euphemism for "an economist who assumes that the government should plan at least some aspect of the economy". (I suppose one could make a case for saying that an economist interested in the problems of transitioning from central planning to capitalism is "policy-oriented", but that's an argument we can hope to have in a better day.)

And so it is that Krugman (1) decries his professed discipline for failing to predict an economic collapse since economists improperly (a) modeled a system that doesn't exist anywhere today, by (b) not accounting for an irrationality he needn't presume (because "economic policy" -- i.e., central planning -- actively fostered it), and (2) buys into (or at least sells) the myth that government looting creates jobs. (By using the term "looting", I am accepting Krugman's invitation to connect dots. Government funding for job creation has to come from somewhere, doesn't it? Or is there a model out there for ex nihilo creation I am not privy to?)

With his column's title, Krugman tempts us to mock him as he prepares to hide behind the skirts of abstruse economic models. But I think he deserves more than mockery for errors so blatant that even a layman like myself can see them. I say this, because to truly understand how to get something wrong entails actual knowledge of how to get something right. Krugman's column thus encourages many steeped in bad mental habits to continue them, in part by setting up anyone speaking of the emperor's clothes to look like an idiot.

-- CAV


Andrew Dalton said...

"Underlying this complacency was the dominance of an idealized vision of capitalism, in which individuals are always rational and markets always function perfectly."

Leaving aside the questionable claim that acceptance of economic freedom is (or was) dominant, did anyone actually defend free markets based on these assumptions? I've never heard it.

If Krugman wanted a chance to be persuasive, as opposed to preaching to the lefty choir, he would take on the strongest arguments for laissez-faire that actually exist--not the weakest arguments that he can imagine.

Gus Van Horn said...

Indeed. In taking his approach, he basically admits that he's wrong and doesn't give a damn.