Keynesian Economics, Krugman, and Creationism

Nothing in movement conservatism makes sense except in the light of creationism.

Nice play!

Lysenko lives on in the field of economics.

I'd not disagree with his conclusions that there are cases where higher demand would improve the economy; I would disagree that this is necessarily the only way to look at it, or the best way. For example, Krugman's example of excessive thrift and unwillingness to spend can also be considered as an inability of suppliers to produce items that people will believe embody worth enough to justify expending money on, turning the "problem of demand" into a "problem of supply". (Terry Pratchett's C.M.O.T. Dibbler and his sausages could probably serve as an example - though, due to his skill as a salesman, he makes a living anyway.)

The difficulty of Economics as a science is it teeters on the edge of assessing "is" questions to assessing "ought" questions.

But people can live perfectly successful lives in ignorance of evolution, but there are plenty of real-world consequences to economic policy that any rational person can see. Surely people won't be able to live with the cognitive dissonance for long, right?

Right?!

Depressions could in fact be caused by the nebulous term "inadequate demand." What causes this inadequate demand? Could it be that inadequate demand is caused by the misallocation of resources brought on by loose credit and expansion of the money supply? The central bank sees a dip in demand, so they inflate, resulting in an increase in leveraged capital. This capital is spent on ill-conceived projects, say making products that not many people want to buy or large, expensive websites that few use. There is "inadequate demand" for these products and services (but it looks like a boom because there are lots of jobs and stocks created, it's really a bubble). The project/company defaults, removing money from the overall supply, laying off workers, losing money for investors. These people have less money with which to demand products and services. If this is widespread, deflation hits, and you start a recession/depression.

The dot com bubble and the housing bubble are perfect examples of this.

This, in an oversimplified, probably not entirely accurate nutshell, is the business cycle theory of the Austrian school (you might call them creationist economists) who focus on the intervention of the central bank (in the levels of interest rates) as the root cause of "inadequate demand" and depressions. This type of thing is also put out by monetarists with a different slant, being that the root cause of "inadequate demand" is an inadequate supply of money.

Monetarism is really only a slight modification of Keynesian theory anyway. It also uses giant amorphous aggregate quantities like "demand" and "output" and "employment" and plugs them into simple little equations to get at some answer. The Austrians say that this is crazy because not all employment is the same. Not all output is the same. You can't just lump it all together and plug it into a simple little equation to get another number with dubious meaning.

Anyway, what this whole post was trying to say is. Economics is not a science and it never has been. Please stop comparing it to science. I guess you could say that all economists are creationists in a way.

Oh and :

http://www.youtube.com/watch?v=3EPd2i4Jshs

And you won't like the source, but you might find this an interesting read.

http://www.americanthinker.com/2010/08/paul_krugman_gives_up_1.html

...But things got worse for the professor. Matching Krugman's repeated claim that the "stimulus" was too small, Sean produced peer-reviewed economic science from Alesina, who examined 92 attempts at stimulus since 1970 in OECD countries and found that tax cuts, but not spending, stimulated. Krugman stammered a reply, but the damage was done; his acolytes had learned that economic science existed that contradicted Krugman's claim (central to Obama's "stimulus" legislation) that government's spending your money helps an economy.

Matching Krugman's claim that government can "create wealth by printing money," several posters cited the latest economic science showing that the "multipliers" that Keynesians use are wrong. They further noted that Krugman had used these wrong multipliers seventeen months ago to predict incorrectly that Obama's stimulus package would keep unemployment below 9%.

And so Krugman's blog presented the most unforgivable conclusion: Krugman had actually been wrong. As he had been when he advocated low interest rates and the creation of a housing price inflation in 2001, one of the causes of current economic difficulties.

Things then got still worse. When Krugman repeated his claim that Bush's tax cuts had "caused" the deficit and damaged the economy, commenters first taught Krugman how to count. They then cited two papers by the Romers showing that tax cuts help economies. Christina Romer is, of course, the chief economic advisor to President Obama.

When Krugman repeated one of his "debt is good" posts, posters linked to the economic science from Reinhardt and Rogoff showing that high debt is inimical to economic recovery.

Occasionally, Krugman attempted a reply. For example, he dissembled that Reinhardt and Rogoff had "highlighted" a single postwar American experience, which he dismissed as "spurious." The commenters did not let him get away with it. Within 24 hours, Sean had pointed out that Reinhardt and Rogoff had found similar effects of debt in six countries on three continents over four decades, including Canada, Japan, Greece, and Belgium. Krugman then struggled to find something "spurious" about each of these. Sean's rebuttal showed that Krugman was refusing to meet any burden of proof. Still worse, Samuel showed that Krugman's reasoning, if applied generally, would forever insulate Krugman's ideology from any refutation of any kind.

...Which is perhaps what Paul Krugman wants, but it is not economic science....

It goes on. Pretty much illustrates that Krugman is largely a conceited, pompous windbag. Yeah, they call economics science too. Whatcha gonna do?

I like how this Krugman piece (that he links to in one of his recent blog posts that I got to through your link above) kinda sums up Paul Krugman.

http://www.slate.com/id/1937/

He lays out a simple and compelling allegory regarding a likely real babysitting co-op and tries to turn it into an argument for inflationary monetary policy.

Then in the 7 comments below, the peasants show him why he's full of shit.

Juice:

Could it be that inadequate demand is caused by the misallocation of resources brought on by loose credit and expansion of the money supply?

Right here, at step 1, the Austrians always seem to beg the question. Why does a change in the availability of credit caused by a central bank cause a "misallocation" to occur? Why does a change in the credit supply from other factors not also cause this misallocation? Just as interesting, how are they defining "misallocation" in this case? I've seen some attempts to explain it, but none that seem terribly consistent.

Economics is not a science and it never has been. Please stop comparing it to science. I guess you could say that all economists are creationists in a way.

I've found that the crankiness of an economics screed on the Internet is almost invariably proportional to the number of times it gratuitously uses the term "Economic science."

Regarding the American Thinker summary, you can usually judge the usefulness of the summary of a debate by how much it gleefully describes the discomfort of the person they don't like rather than describing that person's actual arguments. Being familiar with most of these debate points, a few things stick out:

1) "Create wealth by printing money." Total crap. Creationist argumentation at its best. This is the equivalent of, "The big bang was an explosion full of FIRE! They say life and water came from FIRE!"
2) The Reinhart / Rogoff paper--Completely glosses over the discussion of correlation versus causation, which was kind of the at the heart of the matter.
3) The "advocated the creation of a housing bubble" lie is the one that takes the cake. Even fricking Arnold Kling says it's a bogus reading of that editorial. When Arnold Kling and Paul Krugman are on the same side against you, it's a good bet that you're being a crank.

He lays out a simple and compelling allegory regarding a likely real babysitting co-op and tries to turn it into an argument for inflationary monetary policy.

Then in the 7 comments below, the peasants show him why he's full of shit.

Sort of the same way creationists lay the smackdown on biologists by asking such insightful questions as, "If we came from monkeys, why are there still monkeys?"

Actually, those posts indicate a pretty good thought process but miss the point (probably because they're not fully steeped in the background of the debate): The posters were calling for deflation, which would be natural result if the scrip was not backed by babysitting hours.

However, key to this whole Keynesian recession model thing is sticky prices. New Keynesian economics would be much less interesting if prices were always able to adjust on the fly. In reality, many prices (like wages) are sticky and their inability to change is neatly reflected in this example. Instead of a quick adjustment in prices, we get a recession.

Look, Krugman may be arrogant and abrasive, but there's a reason he has a professorship at Princeton, a Clark Medal, and a Nobel. He actually has a pretty solid grasp of the basics.

Plus based on the same-old junk people post in his comments to refute him is just that, same-old junk.

If depressions are caused by inadequate demand, what does that say about our ability to reduce overconsumption as an essential element of dealing with the climate crisis?

You can't have it both ways, and if there's one word in economics that deserves the Creationist Prize, that word is "growth." There IS NO sustainable growth rate. All growth rates aside from 0% are exponential functions over time. You can't have indefinite growth on a finite planet any more than you can map an infinite plane onto the surface of a Euclidean solid.

Economics based on growth are "not even wrong." Economic theories based on growthism violate one of the most basic precepts of science, which is empirical consistency, and therefore have no claim to being scientific. If we want to get economics on a sound empirical basis, the very first step is to give up the delusion of growthism.

Re the link to Dobzhansky's essay:

TD starts off with this quote supposedly from a Saudi sheik in 1966:

The Holy Koran, the Prophetâs teachings, the majority of Islamic scientists, and the actual facts all prove that the sun is running in its orbit . . . and that the earth is fixed and stable, spread out by God for his mankind. . . . Anyone who professed otherwise would utter a charge of falsehood toward God, the Koran, and the Prophet.

I've been trying via Google to find an original source for that quote, but without success: it's clear (through the placing of the ellipses) that everyone else is getting it from the same source, almost certainly TD. Does anyone know where TD might have got it from?

Juice writes:

Yeah, they call economics science too. Whatcha gonna do?

Let's see. You mock the idea that economics is science. Yet you consider Krugman refuted. Hmmm.

In other words, it's totally obviously that you're just gibbering at random. Totally obvious, that is, except to you and your ilk.

Look, Krugman may be arrogant and abrasive, but there's a reason he has a professorship at Princeton, a Clark Medal, and a Nobel. He actually has a pretty solid grasp of the basics.

To paraphrase Asimov, he has a lot to be arrogant and abrasive about. Unlike most of his Internet critics (who, for some reason, are also arrogant and abrasive).

Regarding the babysitter co-op model: the economic analysis was actually a published paper by people not named Krugman. Krugman turned it into an icon. If the paper is so bad as Krugman-haters claim, they'll have no trouble citing published refutations.

You can't have it both ways, and if there's one word in economics that deserves the Creationist Prize, that word is "growth." There IS NO sustainable growth rate. All growth rates aside from 0% are exponential functions over time. You can't have indefinite growth on a finite planet any more than you can map an infinite plane onto the surface of a Euclidean solid.

You are making a fundamental fallacy, and compounding it with proof by inappropriate analogy. Unlimited growth is certainly possible on a finite planet, in the same way that language is unbounded despite there only existing a finite number of letters.

So long as humans continue to manufacture and crave new combinations of raw goods, the economy is by definition expanding. It does not matter if the new consumables show up in any official market or not. When Captain Skippy Smuckers invented the peanut butter and jelly sandwich way back when, he expanded the economy.

Sorry william e emba(#14), but that is the most asinine argument I have read so far this year; g724(#10) had it right, and to suggest growth in a finite space is, in any sense, the same as the growth of language - is ridiculous.

Well, no, hang on: william e emba has a point. All these "new combinations" coexist with the established technologies. That's why, for example, instead of doing away with horse-drawn carriages, we have separate lanes for them on city streets and have established high-capacity sewage systems to deal with the dung. Likewise, at any Best Buy you have a choice of iPods and 8-track players with vacuum-tube amplifiers. Over at the marina you can book a cruise to Spain on a caravelle.

And the soon-to-be-available Bayesian-analysis quantum-computing snark detectors won't affect people's ability to appreciate irony.