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My (Surprise) Conversation With Paul Krugman
From The Daily Capitalist
April 1, 2020
I’ve been pretty rough on economist Paul Krugman so imagine my surprise when he called me on Monday to chew me out for criticizing him for his support of massive government intervention to cure the economy. Now, let me say that I have never met the man, never have exchanged correspondence with him, and have been happy to snipe at him from a safe distance. I am also shocked that he would even read The Daily Capitalist, so it’s kind of an honor that he would stoop to talk with me.
You may recall that I took him to task in my March 16 commentary, Professor Krugman and Professor Keynes. I asked him 10 questions about Keynesian solutions to the economic crisis. I never expected him to answer these questions; it was just a rhetorical device.
I have to admit it was the most interesting one hour conversation that I have ever had. While I said in the article that he was brilliant, I didn’t realize that he was one of those “off the chart” geniuses that people talk about but rarely encounter. Now, I’ve read Keynes’s General Theory and thought I was pretty firmly grounded in his ideas and his major flaws. What I criticize the opponents of free markets for is that they have never read Mises or Hayek.
My mistake. It turns out that he has read all the major Austrian treatises, including Menger, Boehm-Bawerk, Mises, and Hayek. We spent a long time discussing Mises’s theories of epistemology and a priori theoretical analysis versus the school of historicism and econometrics. He admitted that he thought that Mises’s Human Action was an important book, but was a dead end as far as important economic theory. I thought Human Action was one of the greatest books ever written, economics or otherwise.
Let’s just say that we had a spirited conversation. As I said he is a very bright guy and to be honest I learned a thing or two from him. Basically, he argues that mathematics is the foundation of all economic science, and that through mathematics we can gain real knowledge of human behavior. The point he argues is that we can’t know everything just from logical analysis: you’ve got to examine the real world data and from that you can extrapolate real truths and derive real data from mathematical analysis and projections of the data.
I had actually never thought of it that way until Krugman explained it rather rationally. I immediately countered saying that isn’t that Hayekian “scientism” where unless you start with a proper theory, how do you know which data to choose for your real world analysis. He actually laughed at me and said, “That’s the biggest flaw of Austrian theory. Think about it—how can you know anything just from logical analysis? It’s really stupid when you think about what they are saying.”
And that’s when it hit me. He’s right. You actually can derive the ultimate truth of social problems by applying math to empirical research. It doesn’t matter so much if you don't have all the correct data because mathematics can adjust for that. As he pointed out there is a mathematical formula for everything in the world and human behavior is no different than the behavior of physical matter. You can imagine that this revelation struck me like a thunderbolt and since then I have been re-examining many of my basic precepts about economic theory.
I am now going back and applying these concepts to my previous posts to see if I can make sense of it. I have been clearly wrong in many cases—my apologies to all of you for that. But, I think that, once I get it right, I’ll be better able to write more intelligently about economics. In fact, thinking about it, it really makes everything a lot simpler, thus easier for me to understand the world, and that will be of benefit to you.
I think Keynesian theory is mostly correct, at least as seen through the eyes of the Neo-Keynesians like Krugman and Robert Reich (another thinker whom I have wrongfully maligned on these pages). I now think that the Obama stimulus plan has a pretty fair shot at working. Krugman thinks we are doing too little and should be spending twice as much, but I don’t know until I do some more analysis with the classic Keynesian formula of:
Pretty cool stuff, I have to admit.
This was my April Fool's joke last year. A bit of an Austrian "in" joke. I received hate mail from one very prominent Austrian economist who didn't think it was funny. What do you think? Was it a hit or miss?
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A hit, Econophile, as usual, and that’s no April foolin’.
With our regular Krugman treatment in the NYTimes, it’s a source of wonderment to me how someone with so little natural common sense has gotten so far. I was amazed at the strident stupidity when in
Krugman says death panels will save us money
Krugman at first acknowledged the existence of what he says the right calls “death panels” and then, to the apparent amazement of those around him, pushed on with the substantial cost saving these measure would bring. Just listen to the not-so-noble words of Americans’ prize:
Video: Healthcare: Political Fall Out (The Roundtable, abcNEWS.com)
Krugman: It’s amazing, actually, people on the right are simultaneously screaming they’re going to send all the old people to death panels and it’s not going to save any money. That’s a contradictory point of view.
Panelist: Death panels would save money?
Krugman: The advisory panel [Medical Advisory Board] has the ability to make more or less binding judgments on saying this particular expensive treatment actually doesn’t do any good medically and so we’re not going to pay for it. That is actually going to save quite a lot of money. We don’t know how much yet. The CEO gives it very little credit. But most of the healthcare economists I talk to think it’s going to be a really major cost saving.
http://www.youtube.com/watch?v=aogCaGv9i78
Not to say, of course, that Professor Krugman is not dangerous.
Yeah it was a hit. I liked it. As I read it, I was thinking about what I was going to write to you when I told you off and called you a crook. Then, at the the end, I laughed and breathed a sigh of relief.
Paul Krugman's "Prize Lecture" for his Nobel.
I have titled this speech, "The Rise of Firms".
He probably titles it, "My Master's Bidding". MUST WATCH!
http://nobelprize.org/mediaplayer/index.php?id=1072
That a Hari Seldon was a genius...Forward The Foundation!
Dear sir,
It may be true that a house fit for only a dog is still, yet, a house; but please stop trying to convince me that it's a mansion. What in effect we have here is a confusing of the scholar and the philosopher.
For example, Person A may run into Professor X and then later retell that event to Person B: "OMG, Professor X, knew what Descartes said, and Kant, and he quoted passages from Plato, and managed to dispell all the Scholatic ontological arguments in one breath; further, he addressed all the things under the sun that Wittgenstein didn't; and to top it all off, he produced arguments that made Quine just look plain silly."
Now there are many people who have spent their lifetime studying the texts of other thinkers and pouring over their words, and just as this done in philosophy, this would make one a scholar, but not a philosopher--although the two are readily confused.
What appears to be your current mistake is that you're not so much looking for a "theory" of some sorts to revel aspects of the economy, but you're looking for a qork to bestow a meaning to life: to make it simplier, if you will--and the order and form of that simplification will be in the magnitude according to one's digestive system.
Accordingly, it almost follows from definition: great thinkers may produce schools of thought; however, great schools of thought never produce great thinkers. From my perspective, your wrong turn was more likely committed when you first convinced, and then later public proclaimed, to be one from the Austrian School of thinking. I might be counted with a retort from you: "but, sir, this was exactly what I was looking for at the time." Fair enough.
Huh? April Fool's Day was yesterday?
Wished i would have seen it last year - well done.
Same here.
I was thinking, "Either he was suicided or he got an offer he couldn't refuse..."
The problem with April Fool's jokes is that to be an effective joke, it has to be believable.
It passed both the "believable" on the surface test, and the "wickedly subversive and sarcastic under the surface" test. Very funny.
Generally speaking "economics" is an incomplete area of study because the data bases that are utilized are never complete.
It is a simple matter to mention the results of a particular data base.
Also economists are a lot like "hit songs". An economist's "hit song" is when one of their prognastications end up being seemingly correct, they become a star, "for a while".
Human nature always follows performance, and furthermore will never buy financial assets when they are on sale.
Just check the asset classes that the top ten hedge fund managers for 2009 utilized.
Hey! What can you say about a man who cannot fathom why the market places a value (in Euros) on default insurance (CDS) on U.S. Treasury debt?
With the World's most powerful military, default risk ought to be crystal clear.
In short, the assumption that underlies all of his work is that our government is staffed by a band of angels who can do no wrong!
Government as a benevolent god.
I thought it was great until the last line. Just kidding... Great post!
I think it is hilarious, but maybe a bit too restrained. Possibly off the scale for economics humor though,...
I am curious why the hate mail? what was the beef?
I don't want to embarrass the gentleman who apparently had lost his sense of humor with advancing age. He thought ridicule was a disservice to the movement.
Ridicule is a necessary substitute for gun power and rage. The disservice to the movement is tolerating the high-profile rape and pillage of America's dignity.
Show time.
Heh.
I detest Krugman
Leo,
Keynes was clever, no doubt about that. But he was also an egocentric know-it-all who took pride in talking in riddles to confuse his listeners or critics (sound like Mr Greenspan?).
In fairness, his theory (and I'm only saying this from an empirical standpoint as I'm not an economist and haven't read his works) included saving in the good times to enable spending in the tough times, NOT something that (certainly, but not only) the US and UK governemnts have done.
Krugman's clever. But he's also wrong.
DavidC
And paid not to see the 15-foot rolling stone coming down the tunnel at us.
As I told Alex Webber and Jean Claude Trichet over drinks at the palatial estate of the MadHedgeFundTrader last night Krugman, being a short man, likes large numbers. His big number envy extends to everything from zip codes to stimulus packages, to debt ceilings.
I think Krugman is far from perfect, but he has done wonders elevating the profile of the fraudulent science of economics. As for Keynes, he is way above your sphere of comprehension. Get your hands on Robin Rowley and Omar Hamouda's book, Probability in Economics, and learn about how various geniuses properly viewed probability theory as applied to economics.
Now, now, Leo. Take a deep breath. I like probability theory. But I'm more partial to Mandelbrot and Taleb. Probability is a different issue than the concept of econometrics as a whole. There is still the problem of what you are measuring and we Austrians would say that without a good theory based on a priori analysis, econometricians don't know where to start the numbers. It's an epistemological question, Leo. You may be right that my mind is too feeble to comprehend all of what Keynes has written, and I will admit that I have not read it all. But I have explored Austrian theory in some depth and I am quite taken with it. On the other hand I don't think you are right about Krugman. He is just another polemicist.
I think Krugman is far from perfect, but he has done wonders perpetuating the fraudulent science of economics.
There. Fixed it for ya'.
Until "MATH" can get this right, it will never be the sine qua non:
If I have a dollar and double it, I get Two Dollars, a one hundred percent increase.
If I have 2 Dollars and I spend one dollar, I have reduced my holdings by 50%.
Where did the other 50% go since I still have one dollar?
Did you double it because you earned another dollar or did you go to Kinkos and photocopy it?
You're right in implying that math will never get this right, because it's not a math problem. Math is a type of symbolic logic, and this problem is a comprehension problem. In the second part, you switched from using the original amount as the reference to using the increased amount as your reference, hence your missing $$$. I've seen many trick question like this, and all are just a topical twist on the same tactic.
You, uh, just said you spent it.
I almost vomitted...thank god it's Friday!
Great joke.
It was clever but the date is right at the top.
If Krugman really had the math on the superior effectiveness of central planning he would have shown it to us by now.
Krugman=0
...
I'm still giggling.
I was half way through it and thought 'This has to be a joke...'. It wasn't until the end that it was confirmed! Brilliant!
DavidC
I have to admit that I was faling for it in the same manner as DavidC, and was saying to myself "this has got to be a load of kaka".
So, I also commend you on your brilliant joke.
Time to go back to taking a baseball bat to the heads of the romantic Keynesians.
As I read this, I thought you were serious. Along the way, I figured anybody whose world view changes in the course of a 1-hour conversation either never did much research or thinking in the first place or was omittting a LOT of new data in reporting their change.
Fortunately, you were joking & so regain some credibility.