Mr. Krugman vs. Dr. Krugman Again

by Don Boudreaux on June 6, 2011

in Self-deception

At his blog today, Mr. Paul Krugman writes that

you don’t find people like Christy Romer or, well, me taking positions on policy issues that are directly at odds with what they’ve said in their professional writings.

Well now.

In his June 27, 2005 New York Times column, Mr. Krugman objected to the Bush administration’s approval of Chinese bids to buy the American companies Maytag and Unocal.  He began that column defensively:

Fifteen years ago, when Japanese companies were busily buying up chunks of corporate America, I was one of those urging Americans not to panic. You might therefore expect me to offer similar soothing words now that the Chinese are doing the same thing.  But the Chinese challenge – highlighted by the bids for Maytag and Unocal – looks a lot more serious than the Japanese challenge ever did.

So surely the reason Mr. Krugman offered in that column for why Chinese purchases of U.S. companies differ fundamentally from similar purchases earlier by the Japanese is compelling and consistent with his earlier writings.  You judge:

One difference is that, judging from early indications, the Chinese won’t squander their money as badly as the Japanese did.  The Japanese, back in the day, tended to go for prestige investments – Rockefeller Center, movie studios – that transferred lots of money to the American sellers, but never generated much return for the buyers.  The result was, in effect, a subsidy to the United States.  The Chinese seem shrewder than that.

Overlook the obvious question of how is it that investors who use assets in ways that prove to be unproductive (that is, “never generated much return”) provide “a subsidy to the United States.”  Focus instead on Mr. Krugman’s explanation that he approved of Japanese investments in the U.S. because Japanese investors are dumb, and he disapproves of Chinese investments in the U.S. in part because Chinese investors are smart.

I’ve read many of Dr. Krugman’s academic books and papers and nowhere in these do I find even the faintest hint that a nation is enriched by dumb investors and impoverished by smart ones.  True, here I’m only speculating, but I’m quite confident that had Dr. Krugman been asked in, say, 1990 if a nation’s prosperity is put at greater risk the smarter are the people who invest there – or, alternatively, if a nation’s prosperity is more surely promoted the dumber are the people who invest there – he would have answered, unlike Mr. Krugman, with a resounding “No!”  After all, Dr. Krugman did serious economics.

….

In the same June 27, 2005 NYT column (linked above), Mr. Krugman offers a second reason (in addition to the one I mention above) for why he objects to the Chinese buying Maytag and (I gather especially) Unocal.  Here’s that second reason:

The more important difference from Japan’s investment is that China, unlike Japan, really does seem to be emerging as America’s strategic rival and a competitor for scarce resources….

I leave to the reader to decide if this second reason is at odds with Dr. Krugman’s justly famous warnings against the pop-internationalism notion that nations compete economically against each other, and against his (rather common for a sensible economist) counselling skepiticism of those who raise national-defense concerns as alleged justifications for (as Dr. Krugman writes on page 101 of Pop Internationalism) “a more nationalistic trade policy.”

I leave also to the reader the task of explaining how Uncle Sam stopping the Chinese from purchasing U.S. firms prevents, in any way that benefits Americans economically, the Chinese from competing for scarce resources.

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{ 44 comments }

John Papola June 6, 2011 at 2:10 pm

The man has become the worst kind of partisan crackpot. Pathetic.

Krishnan June 6, 2011 at 10:13 pm

I am convinced that Krugman has had some significant physiological changes from days when he was a serious economist and a thinker – Dr Jekyll and Mr. Hyde comes to mind – Perhaps he drinks something before he writes his NYT Column … The lame media would not dare ask Mr. Hyde as to what he thinks of Dr Jekyll’s work

Methinks1776 June 6, 2011 at 11:53 pm

I haven’t seen him around these parts much lately, but here’s a comment written by a cafe patron called “the Albatross” I found so funny I saved it. I ran across it again recently. I hope the Albatross doesn’t mind that I paste it here:

As a student of Paul (I will no longer give him the courtesy of using his last name—I do wish for my money back), I can only conclude from his lectures and writings.


The 1980s: We are screwed. (We prospered).


The 1990s: We are screwed (for this see the Age of Diminished Expectations where he predicted that free trade would lead to massive unemployment—it happened to drop rapidly after publication—productivity would accelerate under a certain President who will not be named).


The Early 2000s: We are screwed again (the productivity gains he moaned about materialized—see again the Age of Diminished Expectations).


The Bush Presidency: Oh the horror of 2.5% deficits!


The Obama Presidency: 11% deficits are great, and if the stimulus fails then it is because evil Republicans did not make it bigger—ha, ha I win anyway. BTW, I got my Nobel Prize revealing how countries are more interdependent on trade than anyone thought—meanwhile trade is bad.


Why is it great economists always seem to need a good dose of Lithium?

Charlie June 9, 2011 at 3:47 pm

I showed below that this post is totally wrong, that Krugman did speak on these issues in the past and isn’t contradictory. I really think this post should be updated to reflect the mistake Don made.

Rick Hull June 6, 2011 at 2:14 pm

There was a recent article (NYTimes? I kind of doubt it) that delved into the changes in PK’s column and personal life, boiling down to the greater influence of his ultra-progressive wife. I have to wonder if she is not penning these articles and simply submitting them for his review, in order to massage any glaring inconsistencies or outright fallacies…

John Papola June 6, 2011 at 2:25 pm

Boom:

“How Paul Krugman Found Politics”
real title: How Paul Krugman became the most intellectually bankrupt hack on a payroll.

http://www.newyorker.com/reporting/2010/03/01/100301fa_fact_macfarquhar

chris June 6, 2011 at 3:01 pm

quote from article ““When Robin and I started writing about health care, single payer was clearly the way to go…” Jebus…Bust!

Methinks1776 June 6, 2011 at 3:16 pm

I think Robin is primarily a yoga instructor.

Russell Nelson June 7, 2011 at 1:56 am

But, it should be noted, that she is where Paul gets his nookie. So she should be counted as a primary influencer of Paul’s brain.

Dano June 6, 2011 at 3:23 pm

“Unlike Wells, who was so upset when Reagan was elected that she moved to England, Krugman found Reagan comical rather than evil.”

So Wells moved from Reagan to Thatcher (who was elected in 1979). Why didn’t she just go to Canada where Trudeau was PM?

Rob June 6, 2011 at 5:09 pm

Also a quote from the article….[Krugman says] “Keynesian economics, which was coming out of the model-based tradition, even if it was pretty loose-jointed by modern standards, basically said, ‘Push this button.’ ” Push this button—print more money, spend more money—and the button-pushing worked. Push-button economics was not only satisfying to someone of Krugman’s intellectual temperament; it was also, he realized later, politically important.

The hubris!!!

Eric June 7, 2011 at 7:44 am

Absolutely! I came to comment to this blog entry and put in this link, and am pleased to see you beat me to it.

PS – love your work, and so did my 7 year old. My wife just shook her head as her 50 year old husband and 7 year old daughter were singing along to the refrain of “Fight of the Century”

brotio June 6, 2011 at 2:18 pm

We won’t know what Krugman really meant until Daniel Kuehn divines Krugman’s mind for us.

Steve_0 June 6, 2011 at 5:22 pm

I’m going to kiss you on the mouth. Despite having just sprayed Orange Fanta all over my keyboard and monitor, I can’t be mad at you.

brotio June 6, 2011 at 7:43 pm

HSIROTFLMAO

Thanks, Steve.

Methinks1776 June 6, 2011 at 2:30 pm

Mr. Methinks muses: if selling to idiots is such a good thing, perhaps we should sell the entire United States to Colonial Gadafi. Surely the dumb colonial will just destroy all U.S. assets and then we’ll be really really rich.

Don Boudreaux June 6, 2011 at 2:33 pm

Good plan in principle – but I’m not sure if Col. Gadafi really is as dumb as he appears to be. He’s held on to power for decades, and that feat requires some semblance of smarts.

Methinks1776 June 6, 2011 at 2:39 pm

You’re right. We need someone dumber. How about Muirdiot?

brotio June 6, 2011 at 7:44 pm

:D

Methinks1776 June 6, 2011 at 2:38 pm

Somebody call the CFTC and have that saintly regulator prevent the Red Chinese investors from buying SPU futures. Who knows what they’re up to, those shrewd bastards.

If the Chinese are so good at extracting value from assets, we certainly don’t want them doing that in the United States. Here we like only too big to fail, too big to succeed and too dumb to innovate. That’s the secret to our 21st century economic power!

Jared June 6, 2011 at 3:09 pm

I’ve become rather tired of Krugman, so I’ve simply gone radio-silent on him on Twitter and Lucidicus.org. I think the NY Times counts on us to disseminate his nonsense by expressing our aggravation. I say we all just ignore him. No links, no mentions, no forwards.

Expat June 6, 2011 at 3:15 pm

Agree with Jared. Ignore him.

Eric June 7, 2011 at 7:45 am

I’m not sure… Hayek ignored Keynes and look where we are today.

Sam Grove June 6, 2011 at 4:26 pm

Writes Andrew Penn Fitzgerald (on LRC):

Actual quote from Krugman on ‘This Week’ this morning: “If we had the threat of war, had a military buildup, you’d be amazed at how fast this economy would recover.”

kyle8 June 6, 2011 at 4:38 pm

Can you imagine the hubris and cognitive dissonance behind that statement? Remarkable.

WhiskeyJim June 6, 2011 at 6:08 pm

Forget the economics. What has happened to Krugman?

The logic of quite a few of his posts reminds me of a fairly illiterate, stupid, 12 year old with access to Internet data. Seeing him on TV is embarrassing; he says stuff that is dumber than Ed Schultz comes up with, and that is pretty difficult to do.

Perhaps he got hit on the head.

kyle8 June 6, 2011 at 6:52 pm

Syphillis?

vikingvista June 7, 2011 at 2:18 am

No, he’s been tested. Word has it that he had a full body CT a couple of years ago. Apparently it showed that he was completely full…of himself.

WhiskeyJim June 6, 2011 at 6:10 pm

BTW, his Japan comment is outright racist.

Imagine if South Africa had been buying American assets.

vidyohs June 7, 2011 at 9:42 am

Wrong! Wrong! Wrong!

My goodness man, don’t you know it is impossible for looney lefties to be racist!

It is racist for you to say they are racist.

(no personal offense intended, sir. I got that from the media.)

Charlie June 6, 2011 at 6:11 pm

“you don’t find people like Christy Romer or, well, me taking positions on policy issues that are directly at odds with what they’ve said in their professional writings.”

“I’ve read many of Dr. Krugman’s academic books and papers and nowhere in these do I find even the faintest hint that a nation is enriched by dumb investors and impoverished by smart ones”

It should be obvious that you haven’t accomplished the task of finding a counter example of PK’s original statement. Since if he never spoke on the subject, he can’t possibly be contradicted. What opinion he held in the 90s and whether or not it changed is of no consequence, as he did not say, I’ve never written anything contrary to some opinion I once held (it would be ludicrous if he said such a thing, because he’s talked about changing his mind on many subjects over the last 10 to 20 years).

Second, if you do not think overpaying for an asset can cause a wealth transfer, then I will gladly sell you this pencil I have for $100,000. By your logic, you will be no poorer and I will be no richer. Also, I promise to use the pencil very productively and derive much utility from it, so that in aggregate America as a whole is better off. And think of how productive you can be with that pencil!

Charlie June 6, 2011 at 6:13 pm

To be more precise:

“spoke on the subject”

should really be “published in a professional journal” or “written in professional writings,” which is more accurate but also more awkward.

Methinks1776 June 6, 2011 at 8:05 pm

Second, if you do not think overpaying for an asset can cause a wealth transfer,

Did they overpay or were they inefficient at managing the assets once purchased. Either way you look at it, they overpaid, but if the issue is mismanagement, then the seller did not receive an excessive amount of cash flow and the mismanagement of these assets was not a net gain for Americans.

You may want to think some more about your hypothetical, btw. It makes no sense at all.

Methinks1776 June 6, 2011 at 8:06 pm

Strike the cash flow (was thinking of asset pricing). I mean didn’t receive an excessively high price for the asset.

Charlie June 7, 2011 at 4:45 am

The following was meant for Methinks, though it must have ended up in the wrong place. Now he argues that the Japanese paid a fair price but mismanaged the assets. Evidence? And even if they managed the assets poorly, it doesn’t mean Americans as a whole did poorly, it means it matters how well Americans managed the new assets compared to the Japanese managed the old assets.

Or better yet, just enjoy the rest of the story:

Your missing the whole point. PK not only argues that the Japanese companies over paid. He gives a reason. They were overly concerned with status, a[nd they were overly concerned with name brands. You are welcome to try to prove him wrong, but certainly that empirical insight is relevant comparing Japan versus China in recent time.

Look, no one says you can't think PK's wrong. It's just not shown that he is illogical or that he even wrote against his economic framework over that time. Sadly, Boudreaux is not nearly capable of keeping up with PK [well, perhaps it is not so sad. what would he say?]

Charlie June 6, 2011 at 6:39 pm

The second explanation struck me as something like the strategic interaction theories arising out of international trade theory. I knew these models require increasing returns, and that Krugman was pioneering in these models, thought I didn’t know much about the field.

About 20 minutes on google scholar reveals this

Where on page 66 in the section on Strategic Effects, Krugman discusses the possibility that in certain instances countries can benefit from strategic interaction in FDI at the expense of domestic countries. Quite consistently with the article Don cites, Krugman concludes that in theory the argument is sound, but that empirically the argument is not sound in the case of Japan.

Don has identified a case where PK took a consistent theoretical understanding of economics and applied it to two different situations. Thus, demonstrating that being consistent is not about a certain policy recommendation, but applying certain theoretical understandings to different economic situations. So not only does Don not prove his point, he gives a very compelling example of the opposite view.

Charlie June 6, 2011 at 6:40 pm
James A Donald June 6, 2011 at 9:32 pm

It appears to me that Krugman was always stupid, and that what has changes that progressivism has become less defensible, so his rationalizations for it have become more strained.

To say the same thing in different words, it used to be easier to be a progressive and not look like a fool.

It used to be that the left was the evil party, and the right was the stupid party. As a result of the steady accumulation of silly doctrine, rigidly enforced, the left has become the stupid evil crazy party. The right has no core doctrine, being a random accumulation of everyone that the left steps on. Roissy is right wing, Auster is right wing, and Mencius is right wing yet they are all right wing in completely different ways, much as in the days of the reformation, the only thing protestants had in common was that they disagreed with the pope, but they each disagreed about completely different questions.

While leftism is a very specific doctrine, with a large and ever growing collection of holy writ, rightism is any deviation from that doctrine, so one rightist has little in common with another.

As the left increasingly steps on smart people, for example Chagnon, we are seeing increasing numbers of smart people exiled into the right for being dangerously smart, for example Roissy.

Dennis June 6, 2011 at 9:58 pm

I commend the comments and their authors. They are especially good tonight. However, it seems to me that Krugman has become such an easy target. On the other hand, the scary thing is that there are people who hang on his every word. I know. I live in a small city with a major public university and they all love Paul Krugman.

vikingvista June 7, 2011 at 2:20 am

“they all love Paul Krugman.”

I assure you that it isn’t because of all the economic enlightenment he’s given them.

Russell Nelson June 7, 2011 at 1:59 am

I’m having trouble keeping Mr. Krugman and Dr. Krugman straight. I can only imagine that Paul has the same problem.

Charlie June 7, 2011 at 4:39 am

Your missing the whole point. PK not only argues that the Japanese companies over paid. He gives a reason. They were overly concerned with status, a[nd they were overly concerned with name brands. You are welcome to try to prove him wrong, but certainly that empirical insight is relevant comparing Japan versus China in recent time.

Look, no one says you can't think PK's wrong. It's just not shown that he is illogical or that he even wrote against his economic framework over that time. Sadly, Boudreaux is not nearly capable of keeping up with PK [well, perhaps it is not so sad. what would he say?]

AC June 7, 2011 at 9:16 am

The burden of proof is on someone who thinks we should worry about how much of the investment from different countries is concerned with status. If a “right-winger” argued that, he and his lapdog DeLong would be calling them the stupidest people alive.

Ameican hero June 7, 2011 at 1:02 pm

It’s funny he mentions Romer. I have copies the syllabus of the classes Dr. Romer taught including several sample tests with answers. Romer’s sample test asks about the minimum wage and the answer is a narrative about how bad the minimum wage is and how it causes unemployment. Also, there’s a question on the sample test about the effects of strong labor unions. And the answer suggests the student is supposed to learn that labor unions cause unemployment by making labor more expensive.

Now, when Dr. Romer was the president’s economic advisor, did she ever once give a press conference or write or say anything about how the minimum wage harms people especially the poor? And did Dr. Romer ever talk about the labor unions cause unemployment?

And you would think President Obama would have asked professor Romer what causes unemployment since unemployment is the main problem. So what did Romer advise the president?

And Krugman says Romer, like him, doesn’t let politics change his positions?

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