My challenge to Paul Krugman

by Russ Roberts on October 27, 2011

in Truth-seeking & ideology

In a recent post I wrote:

The evidence for the Keynesian worldview is very mixed. Most economists come down in favor or against it because of their prior ideological beliefs. Krugman is a Keynesian because he wants bigger government. I’m an anti-Keynesian because I want smaller government. Both of us can find evidence for our worldviews. Whose evidence is better? I’m not sure it’s a meaningful question. My empirical points about Keynesianism won’t convince Krugman. His point don’t convince me. I am not saying that we will never get any kind of decisive evidence on the question. I’m saying it sure isn’t here now.

This caused some consternation which is chronicled here along with my response. In particular I justified my claim about Krugman by pointing out that he rarely (ever) admits the possibility he might be wrong, that he is uncharitable about the motives and findings of people who do not agree with him (I gave some examples), and that he cherry-picks data to make his case and ignores data on the other side. This to me, is being an ideologue rather than a truth-seeker. That is a little unfair–he might be a truth-seeker in his heart but keeps it to himself when he writes in the New York Times. As I pointed out–he writes differently in his books where he will often say, could be, might, we’re not uncertain, and so on.

But the key point I was trying to make when invoking ideology, is that Krugman and I and most economists have a worldview. There’s nothing wrong with that. It’s not an indictment or a criticism. It’s simply true. That worldview may be based on casual observation, various principles that make sense to us about how the world works, facts of various kinds, and more statistically sophisticated forms of evidence.

We come to these views in various ways. They are part of our experience, our upbringing, our education, our thinking, and our observations of the world around us. They are inevitably philosophical and ideological at least in part and often in whole. We use these worldviews to filter and understand new information and process that information accordingly. That is not the way most economists or social scientists or even plain scientists think of themselves. They think of themselves as truth-seekers. (Journalists, by the way, have a very similar disconnect between how they view themselves and how I suspect they actually behave.) Truth-seekers look at the facts, allegedly uninfluenced by prior biases, philosophies, theories, and ideologies.

My claim is that this image of ourselves as pure truth-seekers is a fantasy. Facts don’t speak for themselves. We have to have some kind of worldview to interpret the facts, to filter them, to process them, to organize them. We all suffer from confirmation bias. Facts that challenge our worldview tend to be ignored, minimized, or dismissed as irrelevant.

This does not mean that facts don’t matter. Or that evidence is irrelevant. Or that ideologies never change. We learn. We adapt. Uncomfortable facts or evidence that conflict or that at least seem to conflict with our pre-existing ideologies and philosophies and theories can get under our skin and the itch won’t go away. So we can switch. Communists recant. Capitalists can move to the left. People give up the religion they were raised in. They convert to other religions. Atheists can become religious. Lapsed adherents can re-attach themselves to their faith.

But these types of changes in science and social science are typically not epiphanies. We change slowly. Evidence accumulates that makes us increasingly itchy and our views eventually evolve and adjust.

So when I say that Paul Krugman and I are ideologues, what I am really saying is that we are stuck in our ways. Not completely stuck of course. It is imaginable that Krugman might eventually after some natural experiment concede that his view of government’s effect on the economy might change. But it is highly unlikely. That is the nature of human nature in a field where there really isn’t a natural experiment that can be decisive.

So the post-WW II test of Keynesianism that Keynesianism totally failed–a 60% drop in government spending when the war ended that was followed not by the worst depression in American history but by good times, did not cause Keynesians to give up their faith. They explained it away. Remember, this was not an ex post debate. It was an ex ante debate. Paul Samuelson, a very very smart man, made a prediction. His prediction was not just inaccurate. It was wildly inaccurate. He was not alone. Many people at the time made such predictions that were wildly inaccurate. But this did not shake their faith in their worldview, at least publicly. They had ex post explanations for their ex ante inaccuracy. We all do this all the time. It is normal and often we are right to do so. Sometimes, or maybe often, there were unknown or unseen factors that led us astray. Our theories or worldviews are still correct.

Similarly, the massive spending on infrastructure by the Japanese government in recent times has not created prosperity there. But that stops no one here from advocating for more infrastructure spending on stimulus grounds. Nor has the apparent failure of the Obama stimulus spending changed anyone’s minds. I say apparent because of course it is possible that it was not big enough or things would have been worse had the spending not taken place. They can all be explained of course. But it’s just playing with words. Let’s not call it science.

Let’s not call it truth-seeking when we dismiss counter-examples to our worldview. We may still be right. But when we’re dealing with complex systems, truth is very hard to come by. To claim otherwise is the pretense of knowledge. What we are really debating is ideology and philosophy. That’s the fight of the century–more bottom-up or more top-down. That’s what’s really at stake. We may pretend otherwise, that we’re just economic engineers trying to make the system work better but I think that’s an illusion fostered to encourage people to buy our intellectual wares.

These points are particularly true about sophisticated econometric techniques. They rarely if ever settle a debate. They are used instead as weapons. No anti-stimulus economist is convinced by a multiplier of 2 from a regression. No pro-stimulus economist believes the multipliers of less than one. That’s what I mean by being an ideologue or having priors. New “evidence” isn’t considered evidence. It’s too easy to dismiss. As I have asked before, is there any statistically sophisticated study of a politically controversial question in economics that was so iron-clad and undeniably reliable that it has persuaded the people on the other side of the issue to change their views?

So my challenge to Paul Krugman and Brad DeLong and Matt Yglesias and Daniel Kuehn and others who didn’t like my claims about ideology and truth-seeking is this: what evidence could you imagine that would dissuade you from supporting massive government spending?

You might think the answer would be: if a $4 trillion spending program didn’t work, then I’d renounce Keynesianism. But do you really think that would do it? Paul Samuelson didn’t renounce Keynesianism after the reduction in WW II spending failed to create a depression. He became it’s biggest advocate. The failure of the Obama stimulus to do what the CBO and others said it would do has been easily explained away–it was too small, the situation was worse than we thought, it was poorly designed, it’s different when financial markets are broken, and so on.

I am willing to admit that I have trouble thinking of a natural experiment that would get me to change my worldview. It would take a lot of natural experiments in lots of different settings before I became convinced, for example, that government can spend our way out of a recession or that bailouts are a good way to deal with systemic risk. I have a worldview. I’m an ideologue. I have a philosophy of what makes the world a better place. I stand by that philosophy because I think its principles if implemented more widely would actually make the world a better place. It would take a lot of evidence to dissuade me from my views on economic freedom and the proper role of government. Those principles color the way I see the world. I think that’s true for almost all of us. What distinguishes is honesty about what we believe and why.

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{ 245 comments }

Jon October 27, 2011 at 2:50 pm

Sir, I do not think anyone has summed up knowledge and the issues it faces so succinctly, so accurately, and so understandably.

Alan Mead DDS October 27, 2011 at 10:48 pm

Indeed. My evidence is the real evidence. Your evidence sucks.

Stone Glasgow October 28, 2011 at 1:06 am

It’s a summary from the point of view of a businessman who recognizes that he might be wrong, and sees that he isn’t capable of producing a lot of the wonderful things we have today.

Krugman and DeLong see all the people who are not as capable or intelligent as them, and see that they could produce a lot of things that other people cannot, and they could make the lives of others better because of their superior intelligence and education.

Steve C. October 27, 2011 at 3:07 pm

Kudos.

My own take is that economics itself is a perfect illustration of “the knowledge problem”. And as the world’s economies have gotten more complex, it just makes describing things and proposing solutions that much harder.

I think context is probably the factor most economists forget about. Things change every day. To use your example, America 1919 compared to America 1946. You could spend an academic lifetime documenting the changes over what amounts to one generation. Wouldn’t that have some impact on how things would play out?

What I find disturbing about economists in general is not that they get things wrong. We are all human. It’s the continuous insistence that they would only have been right if the dials had been twisted correctly. That type of theorizing is not falsifiable. How useful is that?

Fred October 27, 2011 at 3:08 pm

I wonder if Iceland’s comparatively quick economic recovery after it’s banks were allowed to fail, compared to the non-recoveries in countries where the banks have not been allowed to fail, might nudge a Keynesian into a little more bottom-up thinking.

Nah.

Brian B October 28, 2011 at 10:06 am

Funny you should say that, Fred.
Krugman actually makes the same point in his column today but mixes the excellent little nugget about letting the banks fail in with the usual claims that Euro “austerity” has failed.
Of course, as always, he mischaracterizes austerity as only massive spending cuts when in reality it has consisted of actual massive tax increases coupled with either only proposed cuts while real spending actually increases or only the most modest beginnings of cuts.
I’d have to say it would be hard to imagine a better illustration of Mr. Robert’s description of ideological blinkers than Krugman’s recognition of a small slice of free market reality having no impact on his collectivist prescriptions for prosperity and virtue.

Brandoch Daha October 27, 2011 at 3:09 pm

There’s something charmingly na&iauml;ve about a man who thinks a heartfelt expression of honesty and goodwill will get him anywhere with people like DeLong and Krugman.

You’re the enemy, Roberts. Their task, as decent truth-seekers, as true friends of humanity and disinterested lovers of knowledge and fairness, is to eliminate or at least marginalize you and your views any way they can, so good people like them can dominate the scene more completely. If that involves being unfair or dishonest, that’s a small price to pay for making the world fairer and more honest place.

You say “ideologue”, but you really just have no idea.

simon... October 27, 2011 at 6:41 pm

How true!

Josh S October 27, 2011 at 11:32 pm

Indeed. People who see themselves as pure truth-seekers see people who disagree with them as some combination of corrupt and stupid. Not only is it impossible to imagine evidence that would convince Paul Krugman he’s wrong, it’s impossible to imagine convincing Paul Krugman that he is not entirely disinterested and platonic in his pursuit of truth.

Which is why Krugman will just read this essay as another admission by Russ that he is hopelessly biased, probably because he’s in on the World Koch Konspiracy, and unworthy of calling himself an economist.

Dan H October 27, 2011 at 3:09 pm

Russ,

I think you need to lay out a very omportant point though.

As (true) liberals, our concern is not necessarily what economic model works best. We are liberals because we first believe in the morality of classical liberalism: liberty, private property, etc… The fact that society tends to function better when individuals are free to associate voluntarily with one another is a nice by-product of liberty, but it is NOT the reason many of us primarily believe in free markets. We believe in free markets because we prefer liberty over coercion.

Would it not makes sense then that Krugman also chooses his economic viewpoint based on his moral code? Perhaps your question to Krugman and others should be “What is your moral code?”.

Fred October 27, 2011 at 3:20 pm

*like*

Greg Webb October 27, 2011 at 3:42 pm

Excellent! And, if Paul Krugman’s moral code is the same as Brandoch Daha’s moral code (see idiotic comment above), then we all have a lot to fear if the big-government types continue to gain more power over individual citizens.

Miles Stevenson October 27, 2011 at 3:52 pm

I think this is one of the biggest fundamental divides in the libertarian camp today. In one corner, you have people like Ayn Rand, who like yourself believe the most important thing is the fundamental ethical values of freedom and liberty. The utilitarian outcomes aren’t much of a concern, only the ethical underpinnings.

In the other corner, you have Milton Friedman. I am more on his side of the fence, when he talks about the most important part of capitalism being the greatest amount of good for the greatest amount of people.

Thomas Sowell noticed that divide within the libertarian camp in “A Conflict of Visions” and I’ve been aware of it ever since.

Dan H October 27, 2011 at 4:07 pm

My only problem with the utilitarian argument (greatest amount of good for the greatest amount of people) is that it is the exact sort of thinking that motivates Keynesians. They will argue that even if you are upset over a policy – or you think it harms you and your business somehow – then you just aren’t smart enough to know what’s in your best interest. The utilitarian argument leaves an opening for arguments of “Sometimes people just aren’t smart enough to know what’s in their best interest”.

Fred October 27, 2011 at 4:12 pm

The utilitarian argument leaves an opening for arguments of “Sometimes people just aren’t smart enough to know what’s in their best interest”.

Liberty and free markets are bad because people can’t be trusted to do what their betters think is good for them, therefore people should be coerced and markets should be managed.

Or something like that.

Dan J October 27, 2011 at 4:15 pm

Sounds like most politicians, especially, the folk who advocate panels of experts to dictate industry operations.

Miles Stevenson October 27, 2011 at 4:23 pm

I used to think the same thing. I used to agree with that line of thinking. But I ran into too many problems with the “Randian” (let me know if you prefer a different term) point of view.

And you correct about the Friedman approach. It does allow for those kinds of arguments. Utilitarianism certainly isn’t perfect. But that’s the whole idea. I don’t think any system is perfect, therefore, making the best of several imperfect alternatives is what I’m left with.

Ayn Rand tends to think in “solutions”, where Milton Friedman tends to think in “trade-offs”. Ayn Rand believed that she had deduced the objectively correct system of moral principles in a scientific way, Milton believed, as I believe, no such deduction is possible.

Don’t get me wrong, I still value the principles of liberty and freedom very highly. And I’m sure you still value the idea of achieving the greatest amount of good that is possible. We simply disagree about which side becomes more important when they conflict.

Dan H October 27, 2011 at 4:42 pm

Miles,

Very interesting take, as Friedman was a man whose writings convinced me to study economics in college.

There is one issue I have with trade-offs though: some would consider paying tribute to the mob a proper trade-off. When many people weigh the consequences of not paying the mob versus paying the mob, many often choose to pay the mob instead of fight it.

Economiser October 27, 2011 at 8:04 pm

Yes – and this is why I find myself more on the Randian side of this particular fence.

“The greatest good for the greatest people” is an empirical question and opens up the statement for counterarguments. A moral argument for liberty is much stronger IMO. The fact that liberty tends to lead to the greatest good is a helpful byproduct.

Ken October 28, 2011 at 3:48 pm

Dan H,

There is a particularly disgusting side of utilitarianism that utilitarians seldom discuss: the only real problem with the Holocaust was that there were too many Jews to suffer or not enough Nazis to take pleasure in that suffering. It also advocates for the “noble lie”, since the lie is told for the “greater good”. But these situations beg the questions: who decides how to measure misery, pleasure, and who determines what the greater good is?

So, Miles, are you a utilitarian or only a fair weather utilitarian? What principles underlie your thoughts? Would you be in favor of genocide if the outcome meant a wondrous life for all those who lived after that genocide? Some would say yes. For those who say yes, I would say I understand that reasoning, but I still reject it, primarily because my basic principles are life and liberty, which I see as an end in themselves, not a means.

Switching between philosophies seems to be just a rationalization of the things you want to be true. Pick something you think is true, like “hypothesis P is true”, then follow that to wherever it leads. If it leads to something that you think is false, then you should think that P is false and discard the belief systems you’ve built up using proposition P.

Regards,
Ken

Dan H October 27, 2011 at 4:08 pm

But that being said, I do agree that from the truest utilitarian perspective (not a bastardized views of utilitarianism) that capitalism is the best choice.

Will October 27, 2011 at 4:14 pm

“We believe in free markets because we prefer liberty over coercion.”

Well said. How hard is it as a parent to let your kid get hurt? However, for a child to grow and mature, they are going to have to make their own choices in life, even if they are bad choices. Parents cannot do everything for their children. Parents want to shelter their children from all the harm in the word, but they can’t. It is the freedom to make their own choices that teaches children responsibility because they learn from their mistakes and take great pride in the choices they got right. It may not be the easiest path in life, but it is the best.

Fred October 27, 2011 at 10:07 pm

Fathers are more willing to allow their children to learn from pain than mothers are.
Hence intrusive government being labeled the Nanny State.

Dan J October 30, 2011 at 10:07 pm

I abhor references of parent/child relationship to the govt/citizenry relationship. Govt is not the guidance in life of individuals. Govt is not responsible to raise society in a manner it sees fit. Govt is not my provider. Govt is not like a parent. More like the evil stepmother, if you must make reference.

Greg Webb October 27, 2011 at 5:36 pm

Miles, I haven’t read any of Ann Rand’s works, though many people tell me that I should. Rather, my interest in economics, and belief in free markets and free people, come from reading Milton Friedman’s books and articles as well as watching his series “Free to Choose” among other video and audio presentations. I have not read Thomas Sowell’s book “A Conflict of Visions” so I cannot comment on his reasoning about this perceived divide in the libertarian camp.

I think that information is so widely disbursed and decision making requires such prompt action that an economy cannot effectively or efficiently be centrally planned. So, I take it as a given that free markets lead to greater wealth than centrally planned economies.

But, statists of all types argue that greater wealth can be achieved through central planning (this time that is) and many are persuaded by their arguments. Yet, those same people rapidly change their views when they realize that government officials will be able to tell them what to do and overrule their choices.

Individual freedom is a more precious commodity than wealth. I can still enjoy my life if I don’t have a private jet, but I cannot enjoy my life if I am demeaned and degraded as a child being ordered about by an overly controlling busybody in government.

I believe that the libertarian divide is between those who want no government and those who believe in limited governmental power to perform certain functions like national defense (not unending wars), police protection, court systems for resolving disputes, etc. I am in the latter camp.

Miles Stevenson October 27, 2011 at 7:11 pm

Greg, that was well said. And to be clear, when I say “divide”, I don’t mean to suggest some ideological war within libertarian groups, only to point out one of several things that libertarians tend to disagree with each other over.

As far as libertarians who want no government, those are “anarchists”, not libertarians. I know, language is emergent and all, but I’m really not aware of any libertarians who advocate for no government at all. Libertarians tend to spend a lot of time trying to convince some liberals that they are not anarchists to no avail.

If you are interested in my own personal reasons why I don’t think the strict adherence to fundamental rights is a workable approach, I can try to summarize, but we could spend a lifetime getting into the details. I suppose it mostly comes down to three things:

1) Consistency. If you believe in police and military, as libertarians do, taxes are necessary to pay for these things. You cannot tax a populace without violating property rights. There are some theories (the Austrians have done the most thinking on this I believe) as to how government could be paid for without taxes, but I don’t find them convincing enough.

2) Epistemology. The most common way it has been put is “you can’t get an ought from and is“. It means ethical principles cannot be empirically derived from reality in any kind of scientific way. Ethics are preferences, not facts. I have never been satisfied with any attempt I’ve seen to dispute this. Ayn Rand thought she dealt with this problem, but I was not impressed with her attempt.

3) Negative externalities. I don’t see how negative externalities can be addressed from a fundamental rights perspective. If my neighbor blasts music in the middle of the night and I can’t sleep, it would be a violation of his fundamental rights to force him to turn it down, yet I am still being negatively harmed, even though none of my “rights” are being violated. This is something that Milton Friedman readily conceded to the left. Negative externalities, like pollution for example, do exist, they do incur real costs, etc. I don’t see any way to address these externalities from a strict fundamental rights perspective, so I think the utilitarian method is the only way to deal with it.

Even Milton Friedman saw a role for government regulation, in so far as that regulation could be empirically shown to be worth the costs.

Greg Webb October 28, 2011 at 1:12 pm

Miles, thank you for your response. You are both polite and logical with your response. I appreciate that.

You said, “As far as libertarians who want no government, those are “anarchists”, not libertarians.”

I agree with the anarchist definition, but this view of libertarianism is a continuing problem. President Ronald Reagan, in an interview with Reason Magazine, addressed this issue while discussing libertarianism and conservatism:

“If you analyze it I believe the very heart and soul of conservatism is libertarianism. I think conservatism is really a misnomer just as liberalism is a misnomer for the liberals–if we were back in the days of the Revolution, so-called conservatives today would be the Liberals and the liberals would be the Tories. The basis of conservatism is a desire for less government interference or less centralized authority or more individual freedom and this is a pretty general description also of what libertarianism is.

Now, I can’t say that I will agree with all the things that the present group who call themselves Libertarians in the sense of a party say, because I think that like in any political movement there are shades, and there are libertarians who are almost over at the point of wanting no government at all or anarchy. I believe there are legitimate government functions. There is a legitimate need in an orderly society for some government to maintain freedom or we will have tyranny by individuals. The strongest man on the block will run the neighborhood. We have government to insure that we don’t each one of us have to carry a club to defend ourselves. But again, I stand on my statement that I think that libertarianism and conservatism are travelling the same path.”

I am interested in your personal views as to why you believe that fundamental rights are not a workable approach. In your explanation, you focused first on Consistency by stating:

“1) Consistency. If you believe in police and military, as libertarians do, taxes are necessary to pay for these things. You cannot tax a populace without violating property rights. There are some theories (the Austrians have done the most thinking on this I believe) as to how government could be paid for without taxes, but I don’t find them convincing enough.”

Taxes are necessary to pay for the legitimate functions of the federal and state government. Accordingly, taxes are a reasonable cost for the services provided and do not infringe on the fundamental right of property. But, when government exceeds its legitimate functions, the excess taxes levied are an infringement on the fundamental right to property. The legitimate functions of the federal government are expressly enumerated in the Constitution. The legitimate functions of the state governments were left up to the citizens of each state to decide. So, if New York wanted to raise taxes to provide free public health care, then it could with the consent of its citizens. And, the check on politicians abusing a segment of New York’s citizens was the fundamental right of those citizens to move to another state with less burdensome taxes.

Your next reason was: “2) Epistemology. The most common way it has been put is “you can’t get an ought from an is“. It means ethical principles cannot be empirically derived from reality in any kind of scientific way. Ethics are preferences, not facts. I have never been satisfied with any attempt I’ve seen to dispute this. Ayn Rand thought she dealt with this problem, but I was not impressed with her attempt.”

Ethics are preferences as are most things involving human beings. I do not understand your point. The vast majority of Americans would agree that murder, theft, lying, cheating on your spouse, etc are wrong and ethically should not be done. The criminal code is filled with ethical and moral precepts originating from Judeo-Christian beliefs, which most likely originated from the beginnings of mankind. They are not arbitrary or more ambiguous than any other written concepts.

I have certain fundamental rights to my life, my liberty, and my property. But there are limitations on fundamental rights as are there are with anything. For example, I have a fundamental right to my property, but there is a very limited exception where the State, for the public good and appropriate compensation, may take my property…but only after proper due process by impartial judges to make sure that the State government is not unduly infringing on a citizen’s fundamental right.

The third reason that you presented was: “3) Negative externalities. I don’t see how negative externalities can be addressed from a fundamental rights perspective. If my neighbor blasts music in the middle of the night and I can’t sleep, it would be a violation of his fundamental rights to force him to turn it down, yet I am still being negatively harmed, even though none of my “rights” are being violated. This is something that Milton Friedman readily conceded to the left. Negative externalities, like pollution for example, do exist, they do incur real costs, etc. I don’t see any way to address these externalities from a strict fundamental rights perspective, so I think the utilitarian method is the only way to deal with it.”

Negative rights have been addressed from a fundamental rights perspective for a long time. The Founding Fathers specifically provided for certain fundamental rights for citizens, which, when there was a conflict in fundamental rights, would be decided by an impartial court through the due process of law in order to increase the likelihood that a decision was made that least infringed upon those fundamental rights. Consequently, negative externalities have been addressed for a long time in ethics and law.

Your right to play your music whenever you want as loud as you want may conflict with your neighbor’s right to sleep during normal sleeping hours. My parents’ rule was that I could listen to my music at night if I kept it low enough so that only I could hear it or if I used headphones. But, during the day, and as long as I was not disturbing anyone else, I could play my music as out as I wanted. My parents were teaching ethics with their rules and I am confident that no reasonable person would disagree. And, the law has pretty music codified this rule as law.

My parents also told me not to create a mess for anyone else to clean up. This ethical rule has been pretty much codified into law as well.

Or, as a Supreme Court Justice once famously said, “”The right to swing my fist ends where the other man’s nose begins.”

You said, “Even Milton Friedman saw a role for government regulation, in so far as that regulation could be empirically shown to be worth the costs.”

I think all libertarians and conservatives, who correctly understand their political philosophies, agree that government has a role to play in creating a more orderly society. But, government’s role must be limited to prevent the destruction of fundamental rights of the individual citizen. Historically, government has been entrusted to handle, through the court system, disputes between citizens. Also, state and local governments have been entrusted with the responsibility of handling other types of disputes arising from negative externalities. But, the federal government has not been assigned this power and it should not be involved.

I have often heard the utilitarian argument described as deciding the greatest amount of good for the greatest amount of people. Some who use this argument do so without any regard to the fundamental rights of a citizen or a minority of citizens relative to the will of the majority or the will of experts. I don’t think that you agree with that view. I certainly don’t and that is why I want the original system designed by the Founding Fathers where governmental power is limited and fundamental rights of individuals and minority groups are emphasized and cannot be violated except in certain limited circumstances after due process of law and a determination by an impartial court.

You probably have a better understanding of Milton Friedman’s views than I do. But, I always thought that he advocated individual freedom in his lectures on economics.

Miles Stevenson October 28, 2011 at 3:22 pm

Greg,

As far as the definition of libertarianism vs. anarchism goes, my view remains the same. Chiefly:

1) Language is a bottom-up process. No individual or group decides what definitions are proper for each word. The “common usage” of a word is therefore the generally accepted definition. This is the best we can do unless we want to limit human communication to pure mathematics.

2) The “common usage” of libertarianism implies a role for government instead of no government. The defining characteristic of anarchism as opposed to other political systems, is the complete lack of a government. If you take away the defining characteristic of anarchism and ascribe it to a sub-branch of libertariansm, anarchism ceases to be a word that has any meaning or defining characteristics.

For these reasons, it is appropriate to describe anyone who advocates for zero government as an “anarchist” instead of a “libertarian”.

On to your other questions…

“Taxes are necessary to pay for the legitimate functions of the federal and state government. Accordingly, taxes are a reasonable cost for the services provided and do not infringe on the fundamental right of property.”

I agree with you that taxes are a reasonable cost to pay for certain government services. My point, is that we cannot avoid giving government the power to force its citizens to collect those taxes. If government goes to collect taxes, and a group of anarchists say “We don’t agree or give you our consent to collect money from us, so go away.”, the government needs the authority to force that group to pay their taxes. Forcing someone to pay taxes is literally voilating property rights because you are taking their money against their will.

You may believe, as some do, that it is possible to have a functioning government if only the people who actually wanted to pay taxes did so, and those who didn’t want to pay taxes could opt-out. As I said in my earlier post, the Austrians have put some thought into this concept and how it could work. I’m simply not convinced. Thus, I believe that for government to work, it is necessary for government to have the power to violate your property rights to a degree. A “literal” approach to fundamental rights would reject the notion that the government is allowed to force people to pay their taxes.

“Ethics are preferences as are most things involving human beings. I do not understand your point.”

My point is that a literal interpretation of fundamental rights relies on certain rights to be fundamental (property, speech, etc.). The question is, are these rights actually fundamental? You can put together a case to argue this. You can persuade people that it is a “good thing” to have property as a fundamental rights. But you cannot prove in an empirical way that these rights are fundamental. Think about it. If someone asks you “Why are these rights fundamental?” You can’t conduct some scientific experiment and prove that they are fudamental. Instead, your only option is to persuade them that they should want these rights to be fundamental because it leads to good outcomes. This is inherently a utilitarian argument.

“Negative rights have been addressed from a fundamental rights perspective for a long time. The Founding Fathers specifically provided for certain fundamental rights for citizens, which, when there was a conflict in fundamental rights, would be decided by an impartial court through the due process of law in order to increase the likelihood that a decision was made that least infringed upon those fundamental rights. Consequently, negative externalities have been addressed for a long time in ethics and law.”

I respectfully disagree with you 100%. If negative externalities had been “addressed for a long time in ethics and law”, they would not be controversial today. Let’s go back to my example of loud music. Let’s say it gets SO bad, that I end up going to a community-level court to settle my dispute with my neighbor. My neighbor won’t budge, he wants to play his music at maximum volume. I won’t budge either, I want to sleep. The court has to make a decision. If the court decides to force my neighbor to turn down his music, the court is voilating his right to his music. If the court decides that I have no case, then I am left with a miserable outcome that most people would think is completely unfair.

I don’t think any of us would want to live in a society where the government allowed their neighbors to keep them up at night, or businesses to pollute the environment as much as they want with no consequences, etc. Yet, if government exercises their power to restrict people from doing those things, they are literally violating the rights of those neighbors and those businesses to do what they want with those properties.

Hence, a strict fundamentalist view of rights would conclude that the government has no right to force my neighbor to turn down his music and that there is no such thing as “a right to a good nights’ sleep”, therefore, I’m out of luck. But the utilitarian interpretation does not accept that as a very good outcome and concedes that sometimes force does need to be applied.

I think that you implicitly accept the utilitarian perspective. If you are anything like I used to be 4-5 years ago, you are simply uncomfortable with the idea that there is no such thing as an “air-tight” set of arguments to be made in order to logically prove that libertarian values are the correct ones.

Dan H October 28, 2011 at 3:25 pm

If I can prove that the loud music kept me up at night and harmed my health and well-being, I would have a tort.

kyle8 October 27, 2011 at 4:42 pm

Perfect Dan,

I do not dislike government meddling because it is inefficient, (it is) that is only a side note. I dislike it because we are not children nor peasants and we ought not need a nanny to hold our hand, or an overseer to steer our work.

Anotherphil October 27, 2011 at 10:53 pm

. If my neighbor blasts music in the middle of the night and I can’t sleep, it would be a violation of his fundamental rights to force him to turn it down..

Miles, this is why we have statutory law and a constabulary. The exercise of some “rights” by one party will preclude the free exercise of different rights by another. There needs to be a priority, and your right to the peaceable beneficial enjoyment of your property should be secured by the existence of a penal code charge of “disturbing the peace”.

There is plenty of literature attesting to to the necessity of sleep (take it from an insomniac) and none attesting to the need of loud music. Your neighbor can easily satisfy his desire with headphones.

Ken October 27, 2011 at 4:57 pm

“What is your moral code?”

Indeed — or Amen, amen I say to you ;) — that is the key question. I have heard it argued by people I respect that when two people differ on first principles, no meaningful conversation can be had, other than on first principles themselves. They will simply talk past each other (and one or both may ultimately resort to goalpost moving, ad hominem, bad faith argument, and the like).

Krishnan October 27, 2011 at 7:19 pm

People like Krugman say, do whatever “feels” good and ha the “right” intentions – no matter what the result is – their only moral code (AFAIK) is there are elites like them and everyone else better listen up and do as they are told – that ordinary people making choices and bettering themselve is evil and cannot be allowed

Fred October 28, 2011 at 2:52 pm

that ordinary people making choices and bettering themselve is evil and cannot be allowed

I wouldn’t say that they view liberty as evil. More that they want authority in all things. They crave rules from authority that are backed with force. If something exists then there must be rules for it.

That’s why they deride libertarians as anarchists.

How are you going to know how to do something without heaps of regulation to guide you?
It would be anarchy!

How can rules exist without a threat of violence to back them up?
Who will force people to follow the rules?
It would be anarchy!

Disorder in the streets! Cats sleeping with dogs!

Libertarians are anarchists!

Mark Anthem October 27, 2011 at 8:27 pm

Yes, even if commonly-held state-gelded oxen miraculously could pull more carts farther than privately-owned oxen, I’d hide my ox and make do alone because I can foresee the next proposal on this Animal Farm.

Charlie October 27, 2011 at 3:16 pm

“So the post-WW II test of Keynesianism that Keynesianism totally failed–a 60% drop in government spending when the war ended that was followed not by the worst depression in American history but by good times, did not cause Keynesians to give up their faith. They explained it away.”

If you actually know where Keyenesians stand in modern macro, even Keynesians like Paul Krugman, you should realize they know, respect, understand and “believe” in a very different brand of economics than Paul Samulson did. Modern Keynesians have a much greater appreciation for monetary theory than the Keynesians of Samulson’s time and the modern frameworks they build wouldn’t predict a large depression after world war II.

When you say “they explained it away,” I don’t know if you are talking about Paul Samuelson or his descendants, but his descendants have “explained it away” by changing their world views. They are much more specific about when fiscal stimulus has traction, rather than being neutralized by Fed policy. They have a much richer understanding of monetary policy.

I’ve argued in the past that you have a strange view of how evidence should affect beliefs. I’ve argued that a belief based on evidence will usually change slowly over time as new evidence is added to an accumulation of old evidence.

David Henderson gives a good example from a discussion with Milton Friedman:

“Milton was a Keynesian throughout the last half of the 1930s and through most, if not all, of the 1940s. After I had expressed disappointment, in my review of Two Lucky People, that Milton had not identified how he had shifted, I spoke to him at a Hoover event. He told me that there had been nothing close to a “Saul on the road to Damascus” moment. He said it was so gradual that he couldn’t identify the change.”

The examples Russ gives actually disprove his point. Modern Keynesians have a much different world view than their 70s and 50s counterparts. That view has changed over time based on theory and evidence. PK has argued that the view of the average macroeconomist has changed too far, but even his view appreciates things like stagflation and supply shocks in a much richer way than his 50s counterparts.

I don’t know if Russ ever updates his world view with new evidence, but the overwhelming evidence is that the profession as a whole does.

Dan H October 27, 2011 at 3:20 pm

You’re trying to get around the argument. Though Keynesianism has evolved somewhat, the premise remains the same.

Anotherphil October 27, 2011 at 4:38 pm

Keynesianism is the theology of Harold Camping applied to of economics.

Repeated predictions never come true, and an otherwise bright guy (Camping was an engineer at one time) fails to see these repeated, spectacular errors as evidence of a problem involving his epistomological capacity. Ironically, each failure reinforces certitude.

Krugman is just peddling his credentials the way some young women peddle more intimate posessions.

Jon October 27, 2011 at 4:43 pm

Thank you for that visual that I will never get out of my head.

Curt Doolittle October 27, 2011 at 8:44 pm

Yes, that’s going to stick.. ouch.

Russ Nelson October 27, 2011 at 10:15 pm

If Krugman really wanted more stimulus, he should have bought himself a vibrator.

Russ Roberts October 27, 2011 at 3:42 pm

It’s certainly true that Keynesianism has evolved over time. It’s also true that Keynesians today have a very different view than Paul Samuelson. But the post-WWII experience is important for a number of reasons. One, ex ante, Keynesians predicted disaster. Two, it has been forgotten. Three, they also invoke the growth of government in advance of WWII as proof of Keynesianism (see my podcast with Fazzari for example). There’s nothing subtle or anything related to monetary theory or neo-anything.

Keith October 27, 2011 at 4:10 pm

This thread highlights that people can have discussions using the same vocabulary, but be light years apart in meaning. It also further illustrates Russ’ argument over economics being more of a philosophy (or religion) than a science.

I think Charlie is disagreeing with Russ’ grouping of ‘they’ and ‘Keynesians’ as all being similar. Charlie has his own view of what makes up, what it means to be, and who is a Keynesian. He clearly disagrees with the point Russ makes with his post-WWII analysis. Does this mean Charlie is not a Keynesian? Or is he one of the true Keynesians?

It would be like calling out all Christians (or Muslims, etc) as believing the same thing. I guarantee you’ll have widely different types of moral and/or theological arguments of faith between discussions with say Al Sharpton vs Pat Robertson. They’ll both point to the same reference and infer vastly different meanings. They both profess to be Christians. How do you tell who is right and who is wrong? Who is the ‘true Christian?”

It is precisely when the results are not repeatable, the data not concrete, and the process unknown where you’ll have the most varied disagreements.

No one publishes ‘acceptable’ or ‘agreed’ values of Pi to be between 6.183 to 1.5708. It would be absurd.

Charlie October 27, 2011 at 7:22 pm

I agree that labels are fuzzy. Russ focused his post on Paul Krugman and Paul Samuelson. Paul Krugman has been a public intellectual for a long time, so I have a good idea of how he views the world. My post is really his view vs. Paul Samuelson’s.

Regardless of whether he and Samuelson are the embodiment of all the Keynesians of their time doesn’t really matter. The central disagreement is whether the events of the last 3 years should make PK doubt his worldview. Consider he predicted them, I think they should not. He also wants to paint PK with PS’s mistake, which I think is ridiculous.

Russ knows very little macro theory. Perhaps this is why he thinks that Samuelson and Krugman must have the same worldview, since Krugman is arguing that fiscal stimulus will help the economy as Samuelson once did. The truth is that they are both using different world views (or models) that happen to coincide at certain times.

Russ Nelson October 27, 2011 at 10:17 pm

Ah, so this is the No True Keynesian fallacy, then.

Justin P October 27, 2011 at 11:39 pm

Plus 1 to Russ.

Scott Murphy October 28, 2011 at 10:04 am

comparing econometrics to PI is hardly fair. The rigor of geometry is not what is required for wide base agreement in a discipline.

Greg G October 27, 2011 at 5:33 pm

I am baffled as to why Samuelson’s views on what post WWII policy should have been are the standard by which Keynes is judged. We have good evidence of what Keynes himself thought. There is a You Tube video, of no less an authority than Hayek, claiming that Keynes did not support an expansionary fiscal policy after the war.

Charlie October 27, 2011 at 7:14 pm

Russ,

1. Your argument is ridiculous. It amounts to Paul Samuelson was wrong in 1945, therefore Paul Krugman is wrong today.

2. You say that even after conceding that they believe different things. Modern Keynesians don’t make Samuelson’s mistake. If you read Krugman, he has actually argued that part of what gives fiscal stimulus its strength is that it’s temporary.

3. It’s not logically inconsistent to believe that WWII provided stimulus, and also, to believe that coming out of WWII should be no problem. The relevant question is, if in 2018 we just ended WWIII, would PK predict catastrophe? You haven’t shown it to be true, and it is likely not.

C’mon Russ, this stuff isn’t that hard.

Russ Roberts October 27, 2011 at 10:00 pm

Sorry, it’s hard for me. The fact that you don’t think it’s hard should be a warning flag for you.

Yes, modern Keynesians don’t think the same way as old ones. But I think they would be equally worried about a 60% drop in “aggregate demand.” Either way, the example illuminates the challenge of accepting new evidence and data.

Charlie October 28, 2011 at 1:26 am

Russ,

“I think they would be equally worried about a 60% drop in “aggregate demand.””

That didn’t happen. Why do you think it did?

Charlie October 28, 2011 at 2:20 am

Russ,

It’s not clear if you realize that modern Keynesians understand that the Fed can create “aggregate demand” by lowering the Fed funds target. It’s true that 50′s Keynesians are bad on the issue. But modern Keynesians, at least mainstream ones like Paul Krugman, think the Fed controls aggregate demand in normal times.

I realize you might be confused, because you didn’t read much macro and probably not much Paul Krugman pre-crisis. But if you read books like Age of Diminished Expectations and Accidental theorists and most anything before 2008. PK thinks the Fed controls aggregate demand in normal times and fiscal policy at most has a very short run effect.

He changed his position when the Fed target got to zero. He adopted a position pretty close to the view the Fed is out of bullets and that fiscal stimulus is the only hope. He’s always argued that for the Fed to have any bullets at the zero lower bound, they’d have to work through inflation expectations. He just doesn’t seem certain that it’s even possible for the fed to credibly commit to that channel.

Russ Nelson October 27, 2011 at 10:23 pm

1) If Keynes was wrong in 1945, and Krugman is a Keynesian, then Krugman is wrong today. Either that, or being a Keynesian is a very plastic concept. “We’re all Keynesians now” becomes trivially true as even the Austrian economists come to be labeled Keynesians.

2) Krugman goes ahead and admits that his stimulus is a head fake to cure people of their “animal spirits”. “We’ll pretend that we’re under attack by aliens”, which will convince the public to allow us to waste huge amounts of capital countering a threat that doesn’t exist, which is the sci-fi version of paying one person to dig a hole and the other person to fill it in.

3) Oh gawds, YOU ARE DOING EXACTLY WHAT RUSS PREDICTED YOU WOULD DO …. which should lead you to think that you are wrong to do so.

Charlie October 28, 2011 at 2:22 am

“If Keynes was wrong in 1945, and Krugman is a Keynesian, then Krugman is wrong today.”

Haha, thank you for saying explicitly what Russ Roberts said implicitly. I’d hate to be accused of attacking a straw man.

BobMaplethorpe October 27, 2011 at 11:06 pm

Charlie,

I think you may be getting wrapped up in a zealous defense of Paul Krugman and missing the point. This is not a post about PK and his agreements with Samuelson.

Did Paul Samuelson change his views after his very clear prediction was very clearly wrong? If so, why not?

Would Paul Krugman change his views about Keynes if we had a 3 Trillion dollar stimulus and unemployment didn’t drop? Or would unemployment have been much worse without it?

Economics is not a science, it very rarely allows for counter-factual experimentation, and when something is not a science its difficult to stop idealogical beliefs from leading you towards the preferred evidence at hand.

If you think there is a big intellectual (IQ) gap between Keynes, Hayek, and Friedman – my guess is you would be wrong. How can three brilliant people look at the same evidence and come to such wildly different conclusions. This stuff is hard. Very hard.

Nikolai Luzhin, Eastern Promises October 28, 2011 at 6:47 am

Two very interesting propositions:

Economics is not a science, it very rarely allows for counter-factual experimentation, and when something is not a science its difficult to stop idealogical beliefs from leading you towards the preferred evidence at hand.

[This is why I am so insistent that extreme attacks be made on Hayek, for example, whom we know by his association with Koch was at best a dishonest rent seeker. It is why I tackle, head on, the bias of the Blog and its longing for The Cause.]

If you think there is a big intellectual (IQ) gap between Keynes, Hayek, and Friedman – my guess is you would be wrong. How can three brilliant people look at the same evidence and come to such wildly different conclusions. This stuff is hard. Very hard.

You assume honesty, when it fact we have overwhelming evidence by Hayek’s assocation with Koch what his agenda was. Same with Friedman. If he was so smart and honest, then explain this wonderful story:
And Friedman’s one success? In 1942, during world war two, Friedman actually went to work for the US government. While there he helped design the payroll tax that in Britain is known as PAYE, Pay As You Earn, and in the US as withholding tax, the system that allows the government to administer the taking of income tax directly from salaries and pay packets. Unlike everything else he argued for, withholding tax was withstood the test of time and is in use all around the world. It was the best thing that Keynesian-style government could ever have wished for, and Friedman bitterly regretted it. In his memoirs he wrote:

“It never occurred to me at the time that I was helping to develop machinery that would make possible a government that I would come to criticize severely as too large, too intrusive, too destructive of freedom. Yet, that is precisely what I was doing. [My wife] Rose has repeatedly chided me over the years about the role that I played in making possible the current overgrown government we both criticize so strongly.”

Josh S October 27, 2011 at 11:39 pm

Paul Krugman has made lots of incorrect predictions, most notably his prediction that Reagan’s supply-side economic policies would result in high inflation.

Didn’t cause him to even rethink his worldview.

House of Cards & Economic Freedom October 27, 2011 at 4:00 pm

Modern Keynesians have a much greater appreciation for monetary theory than the Keynesians of Samulson’s time and the modern frameworks they build wouldn’t predict a large depression after world war II.

“Modern geocentrism has a much greater, far richer, appreciation for the theory of epicycles and retrograde motion than the geocentrists of Ptolemy’s time.”

(No one doubts either a geocentrist’s or Keynesian’s ability to tack on as many ad hoc assumptions to the original theory or set of premises as are necessary to make the theory correspond with observation. But why make all those ancillary assumptions when alternative theories — heliocentrism and Austrian economics — explain observation so much more simply and elegantly?)

PrometheeFeu October 27, 2011 at 4:42 pm

Did they change their world-views or did the next generation of Keynesians adopt different world-views than their forefathers? Let me put it this way: I have a friend studying for PhD in cellular biology. One day, he called me up pretty unhappy and said something along the lines of: “I have wasted the past couple of months testing a theory and it was wrong. It made perfect sense. It matched previous data. Everyone around me thought it would turn out true. But it’s just wrong.” When was the last time you heard an economist say that?

Nikolai Luzhin, Eastern Promises October 28, 2011 at 6:35 am

Alan Greenspan admitted under oath, before Congress, than all this market/libertarian tripe is wrong

kyle8 October 27, 2011 at 4:46 pm

If modern Keynesians have adapted their theory, and if they are so sophisticated these days, then why are the actions of this present administration, guided as it is by Keynesians, so reckless, and idiotic?

Rather moving forward, if anything the modern Keyensian viewpoint seems to be little better than “Lets tax, spend, and borrow our way into prosperity!”

flash drive October 27, 2011 at 8:26 pm

Excellent comment, Charlie. No, Russ doesn’t update his view based on evidence. As a recent post of his states clearly, his idealogy leads his interpretation of evidence. Finding out the “truth” is not very high on his agenda. The silly thing is he asserts everyone else is like him. Fortunately, they are not.

Russ Roberts October 27, 2011 at 10:00 pm

Yes, I am the only economist with an ideology. The rest are just truth-seekers.

Russ Nelson October 27, 2011 at 10:28 pm

Ahhhhh, but admitting to having an ideology is part of your truth-seeking, while denying that he has an ideology is part of Krugman’s ideology. Understand? Capiche? Comprende? Forstår du me? Verstehen Sie? C’mon, Russ, this stuff isn’t that hard.

David October 27, 2011 at 3:26 pm

There are a few errors in the first paragraph. In case Mr K does read your well written challenge, please consider making the following edits:

In particular I justified my claim … he rarely (ever)…(I agave some examples)…
=
In particular, I justified my claim … he rarely (if ever)… (I gave some examples)

This to me, is not consistent with being an ideologue rather than a truth-seeker.
=
This, to me, is consistent with being an ideologue rather than a truth-seeker.

As I pointed out–
=
As I pointed out,

Daniel Kuehn October 27, 2011 at 3:30 pm

re: “No pro-stimulus economist believes the multipliers of less than one.”

I have a number of concerns about the arguments in this post, but this sentence is false. I, for one, am pro-stimulus and I also believe the majority of these studies for multipliers less than one.

I also gave you two links in your previous post with other pro-stimulus economists who also believe these multiplier estimates. Krugman has reproduced those graphs on his blog that show low multipliers (from the studies I linked to).

So why do you say “No pro-stimulus economist believes the multipliers of less than one.”??? That not only seems wrong – it seems wrong on the basis of evidence you had in front of you just this morning.

rbd October 27, 2011 at 3:36 pm

Stimulus = waste. Therefore, you are pro-waste?

Russ Roberts October 27, 2011 at 3:43 pm

You mean you believe them but you also believe they don’t apply to the present situation, right?

Daniel Kuehn October 27, 2011 at 4:43 pm

Yes, essentially. Like I believe the water level is a little higher at high tide than at low tide. Also like I believe the temperature is higher or lower depending on the angle at which we’re facing the Sun.

The fact that Keynesian theory anticipates those observed differences is one of many reasons to take it seriously.

Daniel Kuehn October 27, 2011 at 4:44 pm

The theory predicting that – I should add – was in place before any of these multiplier estimates were published

Daniel Kuehn October 27, 2011 at 4:45 pm

btw – I plan on answering that question since you were nice enough to include me in that august assemblage of names. But I want to give it some thought and write it out longish instead of a quick comment here.

House of Cards & Economic Freedom October 27, 2011 at 5:29 pm

I want to give it some thought and write it out longish instead of a quick comment here.

Can’t wait to read it. At last a cure for my insomnia! Hooray!

(I predict that this “longish” reply will not be forthcoming, and that you will do a disappearing act, just as Karl Smith has done in recent threads.)

Economic Freedom October 28, 2011 at 11:57 am

“disappearing act”

Thank you for your allusion to Halloween with your phantasmagorical statement. Is there any chance you will be doing a disappearing act any time soon?

Economic Freedom October 28, 2011 at 11:04 pm

Thank you for your allusion to Halloween with your phantasmagorical statement. Is there any chance you will be doing a disappearing act any time soon?

I can’t read what you wrote, because it is repetitive, Revolutionary Communist Party USA foolishness,regurgitated by Lisa Fithian and Debra Sweet from the last demonstration. I’d consider sending you money to get you to stop trolling and spewing left-wing inanities on this classical-liberal blog. Please tell me how much you’d want and where to send the check.

Charles Rice October 27, 2011 at 6:58 pm

I look forward to reading your post. A small epiphany for me some time ago was that the point of engaging in discussions, for me, is not to change the other person’s mind, but to change my own. If no argument or evidence ever changes my mind, I am either talking with fools (not likely to be true all of the time) or have lost any ability to integrate new information into my world view / current set of biases.

Russ Nelson October 27, 2011 at 10:31 pm

Well, partially. It’s also to find out if you understand your own position well enough to defend it. If not, you need to work harder to understand it, or consider the possibility that it’s wrong.

James Strong October 28, 2011 at 3:31 am

It’s nice to have a serious Keynesian commenting here. I like reading your responses in the comments. Please sick around if you can :)

carlsoane October 27, 2011 at 6:25 pm

Two things jumped out at me from the voxeu article you linked to this morning:

“Under flexible exchange rate regimes, however, the multiplier is indistinguishable from zero both on impact and in the long run.”

and

“The output response to increases in government spending is short-lived and much less persistent in highly indebted countries than in countries with a low debt to GDP ratio.”

Those two observations seem to argue against more fiscal stimulus for the US, but I believe you support more stimulus. What am I missing?

Daniel Kuehn October 28, 2011 at 6:06 am

Krugman goes over this – he suggests that the U.S. is best treated as closer to a relatively closed economy with relatively fixed exchange regimes because of the zero lower bound (http://krugman.blogs.nytimes.com/2009/10/01/multiplying-multipliers/), which is consistent with how a lot of people understand the impact of the zero lower bound (see the Christiano and Eichenbaum work).

As for debt burden – at the start of the crisis we didn’t have a particularly high debt burden. It’s higher now, of course, but I don’t think anyone is seriously concerned about the debt level except in a punditry sense. Anyway – that could be an increasingly binding constraint.

carlsoane October 28, 2011 at 10:17 am

I understand your reasoning now. Thanks.

Ironically, I wonder whether Krugman is underestimating the deflationary risks. I mean if he is wrong about which multiplier model applies to us, the government will essentially have taken on debt with a ratcheting up interest rate. Even though the nominal interest rate will be low, deflation will be causing government revenue to fall off commensurate to the rate of deflation making paying off, even at low interest rates, increasingly difficult.

Charlie October 27, 2011 at 3:31 pm

A small note, I don’t know about all “Keynesians,” but Paul Krugman predicted stimulus wouldn’t do much at all. He predicted it consistently and vocally before it was ever inacted. So it really has no bearing on the Samuelson experience. I wonder if you can find an example of Krugman being way off the mark on a prediction he was very confident in. You say, he never considers he could be wrong. I think it’s generally clear when PK believes something very strongly and when he’s less confident. For instance, he’s made it clear that he thinks monetary policy can help, if it changes long run expectations, but he’s not confident he knows if and under what circumstances it could achieve that.

The people you should really be criticizing with this argument are those that predicted hyperinflation. There were many and they have been way off the mark. PK’s worldview has served him well over the last 3-4 years. A lot of economists can’t say the same.

Dan H October 27, 2011 at 4:03 pm

The more you read Krugman, the more you’ll find that he rarely is bold enough to make a prediction. He says what we should do, but rarely gives predictions as to the outcome.

Reminds me of a Simpsons episode:
(at the Springfield Fair)
CRAZY DOCTOR: “With my diet, you can eat ALL you want, WHENEVER you want!”
MARGE: “Wow! And still lose weight?”
CRAZY DOCTOR: “Umm. You might!”

J. W. October 27, 2011 at 4:10 pm

“Paul Krugman predicted stimulus wouldn’t do much at all. He predicted it consistently and vocally before it was ever inacted.”

I suppose it depends on what you mean by “much at all.”

http://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithmetic-wonkish-but-important/

“Let’s be generous and assume that the overall multiplier on tax cuts is 1. Then the per-year effect of the plan on GDP is 150 x 1 + 240 x 1.5 = $510 billion. Since it takes $300 billion to reduce the unemployment rate by 1 percentage point, this is shaving 1.7 points off what unemployment would otherwise have been.”

Patracolus October 27, 2011 at 5:11 pm

The key phrase in the quote is “would have been otherwise”. There is absolutely no possible way to determine what it would have been otherwise, unless those nice people at the LHC are using the FTL neutrinos to somehow see forward in time.
Given that I say that if the government should have done nothing because then the unemployment rate should have been 5% by now.

J. W. October 27, 2011 at 7:48 pm

“There is absolutely no possible way to determine what it would have been otherwise”

Oh, sure. But keep in mind my point: it does not seem that Krugman predicted that the stimulus wouldn’t do “much at all.” Moreover, his “1.7 points” calculation is not all that far from the widest gap in the infamous Romer-Bernstein graph, where in the third quarter of 2010 the guesstimated difference is around 1.8. On the other hand, maybe Krugman thought that 1.7 isn’t very much.

Josh S October 28, 2011 at 7:32 am

Of course you can predict what it would have been otherwise. Just take what it actually is and run the model backward! What could possibly go wrong?

Charlie October 27, 2011 at 7:35 pm

J.W.,

He thinks the stimulus helped. He just predicted that the problem was very bad and much worse than Obama policy makers were predicting, thus the stimulus was woefully insufficient. And he even predicted that because it was way too small, people like Russ Roberts would use that as evidence that it didn’t work.

Pretty on the money. There are perfectly logical reasons to think he was and is wrong, and his predictions have been right for the wrong reasons. It’s just that Russ’s position that his correct predictions should make him doubt his worldview or even sillier that Samuelson’s wrong predictions should make Krugman doubt Krugman’s worldview.

J. W. October 27, 2011 at 7:58 pm

“He just predicted that the problem was very bad and much worse than Obama policy makers were predicting”

I have been unable to find any “prediction” by Krugman of how “very bad and much worse” “the problem” would be. He did express that the CBO estimates of unemployment were “optimistic” compared to what he thought, but he wasn’t very forthcoming about the specifics of what he thought–or I’m just really bad with Google.

Charlie October 28, 2011 at 2:01 am

J.W.,

Just keep reading the link you provided. It sounds like exactly what happened with unemployment being even a little bit worse than PK’s pessimistic prediction.

“Finally, compare this with the economic outlook. “Full employment” clearly means an unemployment rate near 5 — the CBO says 5.2 for the NAIRU, which seems high to me. Unemployment is currently about 7 percent, and heading much higher; Obama himself says that absent stimulus it could go into double digits. Suppose that we’re looking at an economy that, absent stimulus, would have an average unemployment rate of 9 percent over the next two years; this plan would cut that to 7.3 percent, which would be a help but could easily be spun by critics as a failure.

And that gets us to politics. This really does look like a plan that falls well short of what advocates of strong stimulus were hoping for — and it seems as if that was done in order to win Republican votes. Yet even if the plan gets the hoped-for 80 votes in the Senate, which seems doubtful, responsibility for the plan’s perceived failure, if it’s spun that way, will be placed on Democrats.

[b]I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work. [/b]”

Let’s hope I’ve got this wrong.”

He predicted the failure of fiscal stimulus, and he even predicted people like Russ would blame people like him. What did he miss?

J. W. October 28, 2011 at 2:49 am

Actually, he’s very careful not to “predict” much anything, except what a Republican response would be to a perceived poor result. (They’d be blaming Democrats? No way!)

In that passage, the best suggestion we get for what Krugman thought that unemployment could have been absent passage of the legislation is “much higher” than 7 percent. He references Obama suggesting “it could go into double digits,” perhaps suggesting that he agrees that unemployment could reach anywhere from 10 to 99 percent. Some prediction.

And Krugman calculated that, whatever unemployment might become with stimulus, it will have been 1.7 points more without stimulus.

He could have guessed that unemployment would have been 1.7 points less without stimulus and we would be no where nearer to knowing whether he was right. Krugman didn’t say (as far as I can tell) what unemployment would have been absent the stimulus.

He does sorta-kinda “predict” at the end there that the unemployment rate under stimulus would be “peaking at something like 9 percent.” That’s a “scenario” that he “see[s].” Was that a prediction? If so, it was wrong.

“He predicted the failure of fiscal stimulus”

Where? He said that the result could be one that is “easily be spun by critics as a failure.” That’s a claim about perceptions, not results. He refers to “the plan’s perceived failure, if it’s spun that way,” which again is a claim about perceptions, not results. He calls the bill of that time “a plan that falls well short of what advocates of strong stimulus were hoping for.” This indicates a measure relative to the desires of “advocates of strong stimulus,” which he doesn’t define there. It’s like saying “it’s far less than perfect.” Is that a prediction?

Charles Rice October 27, 2011 at 7:17 pm

My take on the PK prediction of the stimulus being to small was that it was a transparent hedge. If the economy recovered, PK would say that stimulus spending is clearly even more effective than thought. If the economy does not recover, PK can argue that he was proven correct.

The “too small” argument is a non-starter for me. Any increase in aggregate demand should help. It is nonsensical to say $800 billion is not enough, but ($800 billion) x (n) will jump start the economy. I have no reason to believe that marginal stimulus / aggregate demand beyond $800B would be any more effective than the aggregate demand created by the initial $800 billion, or that it was somehow predictable that the $800 Billion on it’s own would have little apparent impact.

Vagabundus October 28, 2011 at 4:05 pm
Dan H October 27, 2011 at 10:33 pm

As for the predictions Krugman did make – which weren’t necessarily bold or original – here’s how I see it:

I can open a credit card and go on a few vacations and have a grand ole time for a month or two. Sure, I’ll spend more while I run up my credit limit, and all will seem like fun and games. But once the vacation season ends and the bill comes, not only can I not continue to spend like I did with the credit card, I have to spend less and start paying off the bill. That my friend, is a boom and bust. Sure, stimulus will obviously provide a short term boost, much like your credit card. Anyone can make that OBVIOUS prediction. But there comes a time when you need to start paying off the balance.

Russ Nelson October 27, 2011 at 10:36 pm

Yes, the lack of hyperinflation is not well understood. Consider the possibility that the market had already priced-in the change in value of the dollar. What if the dollar had already been deflated by circumstances in the same amount as the number of dollars that were printed up?

Charlie October 28, 2011 at 2:05 am

The lack of hyperinflation is well understood. It’s just not well understood by you.

BobMaplethorpe October 27, 2011 at 11:38 pm

This is a fun Krugman prediction from 1998:

“By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.”

Brad Hutchings October 27, 2011 at 3:40 pm

The problem comes down to this. The more money one makes, the worse a personal investment government is. At the same time, there are people who propose solutions that necessarily depend on people who make money paying a large chunk of what they make in taxes. A $1T stimulus costs each and every one of us $3K on average, assuming it’s not borrowed. Take out 1/2 who aren’t working, and that’s $6K. Now name something you’ve spent $6K on lately without doing some real thinking about it. And then if it turns out to now have the effect promised, you’d be up in arms over the waste.

When you propose expensive solutions, you need to be willing to be held accountable. That’s where P-Krug and others fail the test and should not have our trust. Or perhaps, they should just be honest and call their plans redistribution and favoritism, because that’s mostly what they amount to.

PrometheeFeu October 27, 2011 at 4:45 pm

“The more money one makes, the worse a personal investment government is.”

That is far from being true. If you have more assets, you gain more from the rule of law being enforced. You are also more likely to gain from government power as you are in a better position to capture regulators.

LowcountryJoe October 28, 2011 at 1:38 am

“The more money one makes, the worse a personal investment government is.” ~ Brad Hutchings

That is far from being true. If you have more assets, you gain more from the rule of law being enforced. You are also more likely to gain from government power as you are in a better position to capture regulators.

The rule of law, yes. All legislation [the kind kind that ‘progressively sticks it to the wealthy? Hell no! And as we’ve all stated, the ability to capture the regulators — because the regulators wield so much damned power — is the problem.

PrometheeFeu October 28, 2011 at 7:41 pm

“And as we’ve all stated, the ability to capture the regulators — because the regulators wield so much damned power — is the problem.”

Not for those who do the capture it’s not.

Chucklehead October 27, 2011 at 3:40 pm

“With the prolonged job and growth crisis, economists are in serious disrepute.
Their fake mathematics, and their envious attempts to be like physics makes them the continual butt of jokes in the circles of the scientific elite.
Economists have retreated from their profession: Markets and economic cycles, and are now firmly ensconced in schools of education where they push private political agendas for wealthy elites, or in think tanks where they trumpet some form of opinion that is nothing more than religion.
Economics is a FAILED DISCIPLINE filled with primarily clever, not intelligent, self preening narcissists. Economics is an after the fact predictor. So, they are fighting like the dickens to keep themselves in the spotlights.
In the gravitational world, 3% of the laws practiced ACCURATELY and REPEATEDLY predict 97% of physical outcomes.
In economics, 97% of their laws at best explain 3% of phenomenon.
And now, with their repeated cataclysmic failures, they are again saying TRUST US.
And now it is with the futures of our children.
With all due respect, to you economists, if you were physicists WE WOULD ALL BE DEAD.”

From a recent indictment from a WSJ comment. Sadly, I half agree.

Patracolus October 27, 2011 at 5:15 pm

Unfortunately, due to the chaotic nature of economic systems, with billions of inputs (I believe we are close to 7 billion by now), economists are more essential than ever due to their nature to explain that we really don’t know anything about economics, and at best they can only say what really pissed off Truman.

Sam October 27, 2011 at 3:40 pm

The Universe is full of dots. Connect the right ones and you can draw anything. The important question is not whether the dots you picked are really there, but why you chose to ignore all the others.

From the forward of my book, which I have yet to write.

Darren October 27, 2011 at 6:46 pm

From the forward of my book, which I have yet to write.

We look forward to the second paragraph.

Erik October 27, 2011 at 4:01 pm

I wonder if this isn’t a problem of the discipline (and the discipline’s ability to explain things to the media/policymakers).

If one takes a Kuhnian view of how the social sciences develop, then one might better articulate Kenysianism in all its rich forms as a model – which should be evaluated on its ability to put forth testable hypothesis and generate interesting questions. It should have an internal logic. It shouldn’t have an overabundance of tautologies and unmeasurable variables.

Now here is the other thing we are buying if we buy into a Kuhn view – that there WILL be data that isn’t consistent with our model. That doesn’t make the model “false” – rather it indicates limits. As Kuhn goes onto argue, at least one key is whether or not such outliers begin to stack up, forcing upon the discipline “paradigm shifts”, defined as the emergence a new model. One need look no further than Friedman to see how observations at odds with Kenyes forced a shift during the 1950s and 1960s. I think what Krugman would argue is that at least some of the time in some circumstances demand stimulus SEEMS to work. A key question is whether there are enough times it DOESN’T that the model has ceased to be useful in explaining observed outcomes.

In that way I think BOTH the “fresh water” and “blue water” schools are missing a lot from recent events. Now a blog post is not the place to try to build entire new discipline-crossing models but I wonder if both the findings from the new behavioral/experimental efforts AND the increasingly arcane gymnastics of formal game theorists don’t point to an emerging paradigm shift – which would begin to build models that place a non-rational (or at least more base instinct driven) actor front and center. The downturn indicates that NEITHER of the dominant schools in the discipline is really coming out rosey. The interesting issue for economics is what emerges as viable alternative.

Greg Ransom October 27, 2011 at 4:02 pm

“these types of changes in science and social science are typically not epiphanies.”

It’s an important fact that many times they are.

Darwin & Wallace had epiphanies. Mendel had an epiphany. Many who came across Darwin or Mendel later had their own epiphanies.

When Fabian socialist Friedrich Hayek read Ludwig Mises book _Socialism laying out the problem of socialist calculation, Hayek similarly had an epiphany. His youthful hopes and dreams were dashed. It depressed him.

But the power of the argument was inescapable.

And “evidence” or “data” had little or nothing to do with it.

Darwin’s “one long argument” was full of evidence (almost no “data”), but this evidence wasn’t anything that most naturalists didn’t already know. It was simply put in a powerful explanatory frame which solve deep and long standing problems raised by patterns in our experience, pattern in “the evidence” (which changes it “given” character depending on the explanatory frame).

House of Cards & Economic Freedom October 27, 2011 at 4:02 pm

Perhaps a good question to ask a Keynesian would be this:

Is there any event, or series of events, that would lead you to assert that Keynesian must be false?

Surfisto October 27, 2011 at 4:31 pm

In respect to the 60% decrease in WW II is there a good paper about this. Specifically in a war of that size of course government spending will fall a lot. Also if the world is largely destroyed where is the only place people can order goods from, the US. I am sure people (Pro Stimulus) will point this out, so is there a paper that makes this point in respect to growth?

muirgeo October 27, 2011 at 4:41 pm

“It would take a lot of evidence to dissuade me from my views on economic freedom and the proper role of government. ” Russ

Sure I like to think I am objective. If there were a libertarian run society that could be pointed to which was obviously far superior I don’t think I’d have a problem changing my position. But there is not and yet I’m accused of being flippant for stating this fact.

There is no doubt that policy matters. It seems far less than a coincidence that the two major economic collapses occurred after periods we would call lassiez faire at the very least compared to the post FDR period sandwiched between them that is always referred to as the blossoming of America and it’s middle class.

I DID go from Republican/Libertarian position to democratic one when I finally looked at the data from the Clinton Administration. Until that time I assumed the economy always did worse with democratic policies but further examination of the evidence suggest just the opposite. Democratic policies tend to increase employment which increases demand and grows the economy. The growing economy increases revenues which offset the increases in spending and the increases in taxes.

The other thing the Libertarian must ask themselves is why the average person around the world is very weary of the libertarian philosophy. I think people understand better than we credit them the difference between a theory taught in the class room and a theory put to policy. And it’s clear there are never any true libertarians once they find themselves at the top. The one thing people all understand is human behavior.

rbd October 27, 2011 at 4:46 pm

“Democratic policies tend to increase employment which increases demand and grows the economy.”

And those are?

muirgeo October 27, 2011 at 6:08 pm

Basically by focusing on wages over inflation. Expansionary policies in government, improved social services, better support of public education, support for labor and minimum wages and more progressive taxation.

I know you think that’s all invasive but if it truly gets more people to work and increases our productivity its pretty much a win win … except for people that want to be hyper rich… they can only be ssuper rich and there can actually bemore of them.

Mcwop October 27, 2011 at 9:00 pm

So basically, despite the focus on those things by government, their goal has failed. So, double the rope for our hanging.

carlsoane October 27, 2011 at 9:13 pm

We had expansionary government, increases in spending on social services, increased funding for public education, and increases in the minimum wage over the last decade and yet we are mired in a bad economy. We did have progressive taxation as well, although I know that you believe it needed to be far more progressive to achieve your social welfare goals.

And, even if one accepts your claim that FDR’s policies were responsible for ending the Great Depression and for ensuring the economic success of the post war period, one should wonder about the sustainability of those policies in light of the massive indebtedness and demographic slowdown of the Western democracies.

LowcountryJoe October 28, 2011 at 1:52 am

“Basically by focusing on wages over inflation.”

Inflation will hurt those who are drawing down their savings [two ways; less purchasing power and lower real return going forward] and investments.

“Expansionary policies in government”

We’ve already gone around on this one but you actually believe that more government equates to more liberty. I think you’re incorrect about this. Is liberty even all that important to you, though?

“improved social services”

Such as?

“better support of public education”

How about better education? How about distance learning with some of the best instructors in the world through streamed video and a lot less staffed individuals to proctor standardized tests from the on-line material that was provided?

“support for labor”

In what way? If I wanted support for lower prices for goods and services do to increase productivity/efficiency, would this go against support for labor?

“minimum wages”

At what price level?

“more progressive taxation.”

Paying a flat rate cause a wealthier individual to pony-up more. That’s progressive enough, isn’t it?

PrometheeFeu October 27, 2011 at 4:53 pm

“The other thing the Libertarian must ask themselves is why the average person around the world is very weary of the libertarian philosophy.”

I think the answer to that is easy: Libertarianism is scary! Right now, I can point exactly at the “reason” why my food is safe: the FDA. Same thing for drugs. I can point at the fact that if I were to become indigent, there is a specific program with specific people who can help me. If I can’t pay for healthcare, I can go to a specific office and get healthcare. Libertarianism involves trusting the invisible hand. In effect, libertarians say: “Jump! The Invisible Hand will catch you!” No matter how many times you point to strong evidence that the Invisible Hand will in fact catch you and that it will be much better, jumping is still scary.

Jon October 27, 2011 at 4:59 pm

Libertarianism is like leaving Plato’s Cave: it’s scary and it hurts, but freedom is the greatest reward of all.

muirgeo October 27, 2011 at 8:55 pm

Jon,

How do you know that? Have you left the cave… where do you live?

Patracolus October 27, 2011 at 5:19 pm

Oh yes, your food is just so safe. That is why upwards of 30 people have died so far from listeria, from canteloupes (they think). Of when everybody went off of tomatoes, what 3 times in the last decade, when in fact it was lettuce.

Patracolus October 27, 2011 at 5:25 pm

Forgot to mention that the FDA is also removing drugs from the market due to, what they consider to be, harmful side effects. I cannot remember what drug it was, but there were senate hearings on the ban, and the patients who would most suffer from its loss spoke about how it should be their decision, not a bureaucrats, as to what side effects would be too harmful. (I’m sorry for not being able to provide the evidence, it was back in 2005 I believe.)
That is the jist of libertarianism, let me make my own bad decisions and stop trying to protect me.
Also one of the major reasons I figured out (slow change that I can’t quite pinpoint just to bring this back to part of the article) I was a libertarian was that I realized that if the government had so much less power (besides protecting life, liberty and private property), then they would not be able to peddle that power to the lobbyists, and we could then remove crony capitalism.
If you find that your food is unsafe, then take the maker to court. That is what they are there for.

PrometheeFeu October 27, 2011 at 7:05 pm

I was simply describing public perception. And 30 dead people from food in a population of 350 million is a pretty good record. It is very sad for those people and their families but the fact of the matter is that food is safe.

Mark Maresca October 27, 2011 at 5:18 pm

Muirgeo,

For starters I would say that Hong Kong and Switzerland are pretty decent societies that could be argued to be more Libertarian than the US. Maybe some other contributor could suggest some others places. However, I think one could also make the claim by just looking at the current state of Europe and now the US that big social democracies tend to be unsustainable.

I think you take a little license with your statement about “two major economic collapses”. Many complicated things happened both before and after the 1930′s and the 2010′s. I also would not call the 70 or 80 years between those two decades the blossoming post-FDR period. I would state, however, that FDR reigned over a pretty economy that he couldn’t legislate his way out of, pretty similar to present day.

Regarding your radical transformation from a Republican to a Democrat, I wouldn’t necessarily tag Clinton’s years as particularly noted for government interventions. As a matter of fact, I would make the argument that Clinton was fairly libertarian: he stated that the era of big government is over; he reformed welfare; he negotiated free trade agreements, most notably NAFTA; and he presided over a period of pronounced private sector economic growth.

Finally, I think that people are skeptical about libertarian philosophy for the same reason that people go into town hall meetings and scream “Keep your government hands off my Medicare!” Most people want free markets when it suits them (like when they go to Walmart to buy t-shirts), but they want “free” government goodies when they believe that someone else is paying for it. Of course, these people are sadly misinformed.

Eric October 27, 2011 at 7:09 pm

“And it’s clear there are never any true libertarians once they find themselves at the top.”

This sentence is so revealing – it’s crazy.

Of COURSE those at the top are not true libertarians. Those at the top do not want economic freedom. They want to control. They want to keep their power.

To me, the fact that there are no libertarians “at the top” is persuasive that a libertarian philosophy is a good and prosperous thing.

Fred October 27, 2011 at 10:25 pm

Libertarians do not seek to have power over others, therefor finding a libertarian in a position of power is like finding an apple growing on an orange tree.

Muir’s argument is that because there is no evidence that will convince him that people who do not seek power have not sought power in order to implement their principles against the use of force through the use of force, that decentralized power and persuasion instead of force can not work.

And of course he’s right. Just as those who claimed that the economy of the South would collapse if slavery were to be abolished were right, that those who claimed Henry Ford could not mass produce a V8 were right, and that not having a perfect prior example of something proves that it cannot happen.

Trust him. He’s a doctor. He treats symptoms and ignores the causes.

Anotherphil October 27, 2011 at 10:59 pm

I DID go from Republican/Libertarian position to democratic one when I finally looked at the data from the Clinton Administration.

I don’t believe that for a minute.

Of course, Clinton wasn’t king, and you need to take the governing philosophy of the entire government at that time. Clinton was largely forced to move to the center (NAFTA, welfare) and drop Hillarycare after the 1994 elections.

Greg Ransom October 27, 2011 at 4:42 pm

Russ, in order to understand science, start thinking about explanations and explanatory rivalry rather than data.

Evidence plays a role but very often not as “data”.

jcpederson October 27, 2011 at 4:48 pm

An excellent post.

It is a worthy measure when it comes to discussing anything of importance with anyone, over any period of time – it is important to spell out what you believe, why, and what it would take to change your positions, and it is also important to gain the same understanding from the other side. You may find you needn’t bother arguing with a lot of people about a lot of things, leaving you to a more comfortable and enlightening life with the ones who seek and share and strive to overcome biases.

Jon October 27, 2011 at 4:57 pm

That’s a good point, jcpederson.

It might also be a good exercise to think why you believe something.

I spent some time in a monastery in college during Holy Week (the week leading up to and including Easter). One of the exercises the monks had me do was to spend an entire day sequestered. During this time, I was to consider why I believed in God. It is more difficult than one would think, but ultimately it strengthened my faith.

I did a similar exercise when I returned to college. Why was I a student of Ayn Rand? I found during the self-reflection that I was not; that my beliefs were different. That I am more a follower of Hayek and Macritchie (a professor of mine) than her.

Self-reflection is very important. If Russ’ challenge does nothing else, I hope it encourages all of us who read this post to do the same: ask ourselves why.

Mitch October 27, 2011 at 4:52 pm

Those amongst us who treat the word “ideology” as a pejorative are typical the most rabid ideologues of all.

At least that has been my experience.

Invisible Backhand October 27, 2011 at 5:14 pm

You blew your chance against the champ a couple weeks ago. You’re just another drunk in a bar. I didn’t read it and PK won’t either.

Methinks1776 October 27, 2011 at 5:20 pm

Are you Krugman’s spokesbitch now?

Invisible Backhand October 27, 2011 at 5:24 pm

I mopped the floor with you on capital gains for the rich…forget already?

http://i.imgur.com/c79K5.png

House of Cards & Economic Freedom October 27, 2011 at 5:32 pm

I mopped the floor with you on capital gains for the rich

I’ve heard that a lot . . . but only from you.

You’re a legend in your own mind.

Invisible Backhand October 27, 2011 at 5:57 pm
Methinks1776 October 28, 2011 at 6:17 pm

What mind?

Invisible Backhand October 27, 2011 at 5:31 pm

“UPDATE: More thoughts from Russ here. This one is a little more head-smack-invoking than his last post, but he does pose a specific question to Krugman, DeLong, Yglesias, and me, which I’m going to try to answer tomorrow morning before getting my study on.”

http://factsandotherstubbornthings.blogspot.com/

Nick October 27, 2011 at 7:36 pm

I like how Invisible Backhand manages his own subreddit, spending hours at posting every cafehayek link on reddit along with some socialist slander (along with jabs on Don) and yet only gets 8 readers. Then along with his activity, he must have 1,000+ posts on cafehayek. It is a borderline obsessive activity.

You have a bit too much time on your hands, mate. You might consider a job or a hobby. I know the mental illness makes it tough.

For don, you might consider a restraining order. These are the kind of collecting-newspaper tin-hat guys that get potentially dangerous as the psychotic tendencies get worse.

House of Cards & Economic Freedom October 30, 2011 at 7:48 am

It is a borderline obsessive activity

It’s not a mere obsession. It’s organized and he has handlers.

Anotherphil October 27, 2011 at 11:00 pm

So Invincible ignorance is now channeling DK? Oh geez.

Hmmm… a doppleganger perhaps?

Russ Roberts October 27, 2011 at 5:51 pm

I know I’m just another drunk in a bar. Who are you? Why are you so hateful and angry?

Invisible Backhand October 27, 2011 at 6:57 pm

Who are you? Oh, just another Hoover Institute Exxon funded shill. zzzz….

Nick October 27, 2011 at 7:38 pm

You’re a nut, invisible backhand. I would have banned you a long time ago for your bizarre, obesseive compulsive activities on this blog and reddit. Along with the creepy, personal obsession with don and russ.

You seem to hate everyone here. Why not post on a blog like Think Progress or Daily Kos where you can be happy?

cpranger October 27, 2011 at 9:01 pm

Sargent, Becker, Friedman, North, Romer, Sowell, Conquest, Ferguson…if we are to judge others by the company they keep, Russ I think you’re ok. However, I am open to being wrong. If we are to shun people due to the funding of the institutions at which they choose to work, then why should this door not swing both ways? If your response is that funding from the government better represents the will of the people, then you need to answer the public choice issues. If your response is that you believe the other side is correct, that is a defendable position, but it suffers from the same faults of which you accuse others.

carlsoane October 27, 2011 at 9:37 pm

IB:
Your shill accusation is empty. ExxonMobil is also a major funder of the Brookings Institution.

Jon October 27, 2011 at 9:40 pm

And one of the single largest donators to the Obama administration.

carlsoane October 27, 2011 at 9:50 pm

IB:
Given Jon and my findings, I think you should withdraw your accusation.

Invisible Backhand October 28, 2011 at 1:51 pm

IB: Given Jon and my findings, I think you should withdraw your accusation.

Billionaire’s role in hiring decisions at Florida State University raises questions

“A conservative billionaire who opposes government meddling in business has bought a rare commodity: the right to interfere in faculty hiring at a publicly funded university.

A foundation bankrolled by Libertarian businessman Charles G. Koch has pledged $1.5 million for positions in Florida State University’s economics department. In return, his representatives get to screen and sign off on any hires…”

http://www.tampabay.com/news/business/billionaires-role-in-hiring-decisions-at-florida-state-university-raises/1168680

(psst…how can you have findings if you don’t look?)

carlsoane October 28, 2011 at 2:22 pm

IB:
I want to stay on point. You accused Russ of being a shill for ExxonMobil, a funder of the Hoover Institution. Then two of us pointed out that ExxonMobil is funding another think tank considered left of center and an administration also considered left of center. You’re left having to defend the supposition that ExxonMobil is funding shills to argue against their other shills.

Miles Stevenson October 28, 2011 at 2:30 pm

Carlsoane:
“You’re left having to defend the supposition that ExxonMobil is funding shills to argue against their other shills.”

Ahhhh, but don’t you see carlsoane? There is a much deeper and more sinister conspiracy happening here sheeple! Open your eyes! What is really going on is that ExxonMobil is intentionally funding those on the left simply because they want to pull the veil over your eyes and make you think there isn’t anything going on!

Don’t you know that a lack of evidence simply means that an evil mastermind is covering it up?

Miles Stevenson October 28, 2011 at 2:32 pm

I’m pretty sure this is an actual interview with Invisible Backhand:
http://www.youtube.com/watch?v=IMjm4LxFa1c&feature=player_embedded

Invisible Backhand October 28, 2011 at 5:41 pm

considered left of center

As a 501(c)(3) non-profit organization, Brookings describes itself as independent and non-partisan. The New York Times has referred to the organization as liberal, liberal-centrist, centrist, and conservative.[22][23][24][25][26][27][28] In 2008, The New York Times published an article where it referred to the “conservative Brookings Institution,”. The Washington Post has described Brookings as centrist and liberal.[29][30][31][32] The Los Angeles Times described Brookings as liberal-leaning and centrist before concluding these labels made no sense.[33][34][35][36] In 1977, Time Magazine described it as the “nation’s pre-eminent liberal think tank.”[37] Newsweek has described Brookings as centrist.[38] In addition, the organization is described as centrist by the liberal media watchdog group Fairness and Accuracy in Reporting.[19][39][40][41]

http://en.wikipedia.org/wiki/Brookings_Institution

carlsone, to stay on point you have to have one.

Methinks1776 October 28, 2011 at 6:16 pm

As a 501(c)(3) non-profit organization, Brookings describes itself as independent and non-partisan.

And I consider myself to be a 5’10, 110 pound blonde with magical powers. Does that make it true?

carlsoane October 28, 2011 at 7:21 pm

IB:
You’ve quoted a few liberal newspapers and magazines that on average claim that Brookings is centrist with a mildly liberal flavor. Those same outlets would peg the Hoover institution as clearly conservative. So, even using your own biased sample set, you fail to show that you aren’t making the absurd claim that ExxonMobil is funding shills to argue with their other shills.

LowcountryJoe October 28, 2011 at 1:56 am

You’re just another attention-seeker. The kind that probably has to tie a porkchop around your neck to get your own dog to play with you.

Anotherphil October 27, 2011 at 11:09 pm

Because he can’t distinguish the difference a champ and a chump.

Chris O'Leary October 27, 2011 at 5:45 pm

“So the post-WW II test of Keynesianism that Keynesianism totally failed–a 60% drop in government spending when the war ended that was followed not by the worst depression in American history but by good times, did not cause Keynesians to give up their faith. They explained it away.”

This is just good old cognitive dissonance.

They are no different than people who predict the end of the world and whose faith grows stronger when the appointed day passes.

Chris O'Leary October 27, 2011 at 5:47 pm

Again, the really penetrating, and fatal, question is why all of the Post-9/11 deficit spending hasn’t kicked off the greatest boom the world has ever seen.

Russ Roberts October 27, 2011 at 5:51 pm

That’s an easy one, Chris. It wasn’t big enough.

Chris O'Leary October 27, 2011 at 6:52 pm

Why isn’t Greece the richest country in the world, then? Are they, but nobody realizes it? ;-)

Also, one can’t argue that all of the money in Greece went to the top 1%.

Charlie October 27, 2011 at 7:44 pm

The fact that PK didn’t predict an economic boom caused by Iraq war spending and homeland security spending post 9/11 is a huge point in his favor. In fact, he used his column to argue against the belief that the Iraq war would be good for the economy.

Chris O'Leary October 27, 2011 at 8:19 pm

This is just an extension of counterfactual thinking.

khodge October 28, 2011 at 8:54 pm

PK is calling for a pretend war against alien invaders and yet he cannot predict an economic boom caused by real war spending?

Donald J. Trump October 28, 2011 at 11:10 am

Although wars are destructive, the U.S. industrial capacity was spared because the war didn’t reach the homeland. I think that instead of focusing solely on the post-war U.S. economy, you should also examine what happened to the economies of Japan, Germany, Britain, Italy, and even the USSR after WWII, and how these collapsed economies recovered. Japan now has the 3rd largest economy in the world after the U.S. and China. Germany has the 4th largest.

Perhaps you can begin your study post-world-war-2 economic history with Lend-Lease which was a GOVERNMENT program to get these countries’ economies back on their feet. Let me repeat: This was a GOVERNMENT-sponsored program to revive devastated economies. Keynes wins and Hayek loses as usual. Wake up, sir. Save yourself anymore embarrassment.

I’ve already fired you once in spirit; Now, I’m on “Round Two.”

http://en.wikipedia.org/wiki/Lend-Lease

Donald J. Trump October 28, 2011 at 11:17 am

Please substitute, Marshall Plan, for Lend-Lease in the above paragraph. My bad. They were two U.S. GOVERNMENT plans with different goals and purposes.

http://en.wikipedia.org/wiki/Marshall_plan

Donald J. Trump October 28, 2011 at 11:21 am

Belgian economic historian Herman Van der Wee concludes the Marshall Plan was a “great success”:

“It gave a new impetus to reconstruction in Western Europe and made a decisive contribution to the renewal of the transport system, the modernization of industrial and agricultural equipment, the resumption of normal production, the raising of productivity, and the facilitating of intra-European trade.”[10]

Jon October 28, 2011 at 11:23 am

Um, Mr. Trump, sir? Lend-Lease was during the war. The US loaned (or leased) war material to the Allied Powers to help support the effort against the Nazis.

Check out the very first sentence of the link you posted.

I think you may have been referring to the Marshall Plan (http://en.wikipedia.org/wiki/Marshall_Plan), the aid package of 1948-1952 where the US helped rebuild European infrastructure and promoted the spread of Capitalism. But even in that case, the majority of the Marshall Plan was the abolition of artificial trade barriers and promotion of trade across the ocean and Europe. Also, the funds given were eventually repaid.

Donald J. Trump October 28, 2011 at 11:36 am

Yes, Jon, I inserted an addendum to that effect. Thank you.

Jon October 28, 2011 at 2:02 pm

No problem.

muirgeo October 27, 2011 at 6:12 pm

Because almost all of the government rent went to the top 0.1%.

Chris O'Leary October 27, 2011 at 7:20 pm

So we just wrote people checks? None of them work for or own companies with employees?

Donald J. Trump October 28, 2011 at 11:33 am

Capitalist accumulation accounts for most of the wealth. I’m a fat cat, ultra-rich capitalist and I make money the old fashioned way – I cash dividend and rent checks, and deposit them in the bank. What is this fascination with work that you librarians have and use to try to fake us out with? Please wise up, or you’ll just be laughed at.

muirgeo October 27, 2011 at 6:16 pm

Look at wages for that period. If the government spending went to wages and not to Halliburton, the banks and to bombs you might have seen better results. Also, simultaneous with that period was the movement of 50,000 factories to other shores.

Chris O'Leary October 27, 2011 at 7:20 pm

Halliburton doesn’t have employees? Is the issue that all of those employees were working in Iraq so the money got spent there?

muirgeo October 27, 2011 at 6:13 pm

I never understood this argument. Keynes doesn’t call for ongoing government spendingwhen the private markets have picked up.

Chris O'Leary October 27, 2011 at 6:53 pm

No, but the extra spending should have supercharged the economy and allowed it to survive the financial crisis. That should have been just a minor bump in the road given all of the oomph we got from the deficit spending.

muirgeo October 27, 2011 at 9:01 pm

No Chris that’s NOT what Keynes claims. He specifically does NOT recommend extra speding when the economy is recovered.

House of Cards & Economic Freedom October 27, 2011 at 7:19 pm

No, instead Keynes calls for ongoing taxation when markets have picked up in order to “soak up” excess demand and prevent inflation.

I agree that it’s a kooky model of how an economy works.

muirgeo October 27, 2011 at 9:02 pm

Yeah …. so kooky like taking a loan out for a house you can’t buy outright but paying it off later when your income allows you to do so.

House of Cards & Economic Freedom October 27, 2011 at 10:04 pm

Quite a bit different when one voluntarily decides to get into debt to buy a house because one personally expects one’s own future productivity and income to allow repayment of the loan — as opposed to a third party like government getting everyone into debt involuntarily.

You’re a moral monster for not acknowledging the difference between voluntary action and involuntary. But then again, you’re on the far left. That explains it.

Economic Freedom October 28, 2011 at 12:10 am

“You’re a moral monster …”

Thank you for the allusion to monsters on Halloween.

http://www.youtube.com/watch?v=l2PoSljk8cE&feature=related

Economic Freedom October 28, 2011 at 11:06 pm

Thank you for the allusion to monsters on Halloween

I can’t read what you wrote, because it is repetitive, Revolutionary Communist Party USA baloney, regurgitated by Lisa Fithian and Debra Sweet from the last demonstration. I’d consider sending you money to get you to stop trolling and spewing left-wing inanities on this classical-liberal blog. Please tell me how much you’d want and where to send the check.

Chris O'Leary October 27, 2011 at 6:49 pm

“Paul Samuelson didn’t renounce Keynesianism after the reduction in WW II spending failed to create a depression. He became it’s biggest advocate.”

Missed this. This is CLASSIC cognitive dissonance (the “biggest advocate” part).

Eli October 27, 2011 at 6:28 pm

Murray Rothbard makes up a word to define the justified theoretic presumptions economists use:

“The fact that each man, in pursuing his own self-interest, furthers the interest of everyone else, is a conclusion of economic analysis, not an assumption on which the analysis is to be grounded. Many critics have accused economists of being ‘biased’ in favor of the free-market economy. But this or any other conclusions of economics is not bias or prejudice, but a postjudice- a judgment made after inquiry, not beforehand.”

Economists begin inquiry at a very basic place. Then they interpret the less basic ideas in light of the more basic. If two people cannot agree on basic things, we shouldn’t expect to agree with them on the less basic things.

rjs October 27, 2011 at 6:59 pm

“Krugman is a Keynesian because he wants bigger government”

krugman may want bigger government, but that’s not real what keynesian is…you could say that a politician who wants to regulate abortion, gay marriage, school prayer, etc wants bigger government too, but keynes had nothing to say about regulation…

Sanjeev Sabhlok October 27, 2011 at 7:08 pm

Russ, I’d like to see some accountability in the economics profession. If people squander public money in the trillions, they should cool their heels behind bars. See details (incl. my linked blog posts) here: http://sabhlokcity.com/2011/10/keynesianism-is-a-cult-further-proof-and-why-keynesians-should-be-jailed/

Economic Freedom October 27, 2011 at 7:43 pm

Russ was wrong about Bush’s tax cuts and he’s routinely wrong about income equality. If I were his student, I’d skip his class, and read books writen by Samuelson. I’d give the right answer to his exam questions and not the answers he wants. I’d make a big stink after I got an F in his class.

Samuelson, and many other Nobel prize winners, put their names on the line when it counted, opposing Bush’s and the Republican’s disasterous tax cuts for the wealthy.

http://en.wikipedia.org/wiki/Economists%27_statement_opposing_the_Bush_tax_cuts

Why Daniel Kuehn feels he has to appease librarians and other right-wing extremists is beyond me. I think he has a psychological need to be accepted by everybody. He is being played like a fiddle by wackos and other pro-rich, capitalist fascists.

Daniel Kuehn October 28, 2011 at 3:01 pm

I don’t think I’m psychologically needy, but then if I were I wouldn’t know it would I?

If I am being played like a fiddle my alleged fiddlers don’t seem to think so. I’m pretty consistently indifferent to “the rich” (neither pro- nor anti-), I am consistently pro-capitalist, and I am consistently anti-fascist. If that wins plaudits from people you happen to consider “wackos” then so be it.

Economic Freedom October 29, 2011 at 12:32 am

You will have to replace your pro-capitalism with pro-environmentalism. Otherwise, you will just be a tool for those who would exploit the environment and the people, plants, and animals that depend on the healthy environment. The rich who are getting richer as we speak are the impetus behind the worldwide environmental destruction. You are fairly intelligent, so I suspect that as time goes by you will get the message. Sooner is better than later, though. In some sense, being pro-capitalist and anti-fascist are contradictory. That is easily seen in the control of the media by right-wing reactionaries such as the billionaire Koch brothers and Murdoch. If you are pro-capitalist, you have to show how it liberates, and enables poor people, and does not spoil the planet. That is quite a tough job you have ahead of you with mass poverty and starvation around the world, including 40,000,000 adults and children in the U.S. who depend on food stamps to eat. I don’t think you will ever succeed in showing the glowing effects of capitalism for the masses or the environment. You’d have to look to countries in Scandinavia that are more welfare states than pure capitalistic for anything approaching a high quality of life for all its citizens.

Economic Freedom October 29, 2011 at 12:37 am

Just as communisim in the former Soviet Union, and China collapsed or has been replaced, so too will capitalism die out in its present form. It just has to, and I’m not even quoting Marx.

Economic Freedom October 28, 2011 at 11:09 pm

I can’t read what you wrote, because it is repetitive, Revolutionary Communist Party USA dimwittedness, regurgitated by Lisa Fithian and Debra Sweet from the last demonstration. I’d consider sending you money to get you to stop trolling and spewing left-wing inanities on this classical-liberal blog. Please tell me how much you’d want and where to send the check.

Economic Freedom October 29, 2011 at 12:33 am

You would steal my identity to spew garbage, wouldn’t you. Thief!!

House of Cards & Economic Freedom October 30, 2011 at 7:57 am

I can’t read what you wrote, because it is repetitive, Revolutionary Communist Party USA dimwittedness, regurgitated by Lisa Fithian and Debra Sweet from the last demonstration. I’d consider sending you money to get you to stop trolling and spewing left-wing inanities on this classical-liberal blog. Please tell me how much you’d want and where to send the check.

Economic Freedom October 30, 2011 at 7:58 am

I can’t read what you wrote, because it is ignorant, illiterate, repetitive, Revolutionary Communist Party USA dimwittedness, regurgitated by Lisa Fithian and Debra Sweet from the last demonstration. I’d consider sending you money to get you to stop trolling and spewing left-wing inanities on this classical-liberal blog. Please tell me how much you’d want and where to send the check.

Greg G October 28, 2011 at 7:08 am

SS

Now the idea is floated to jail Keynesians without any objection from self proclaimed libertarians. Every day I learn more here about the libertarian idea of liberty. Does no one on this entire site have any sense of irony???

Demosthenes October 28, 2011 at 10:26 am

What Sanjeev said:

“If people squander public money in the trillions, they should cool their heels behind bars.”

When you take money from people with the promise that it will be spent on their own good, and then waste it, that is tantamount to theft. What else should a libertarian say that one should properly do with thieves? Let them roam free?

Nikolai Luzhin, Eastern Promises October 27, 2011 at 7:34 pm

And now, just before Halloween, we seek shelter at Midnight in the Garden of Evil, where truth, like art, is in the eye of the beholder.

Admitting that one is subject to incentive caused bias doesn’t mean that all are.

Your write, “My claim is that this image of ourselves as pure truth-seekers is a fantasy. Facts don’t speak for themselves. We have to have some kind of worldview to interpret the facts, to filter them, to process them, to organize them. We all suffer from confirmation bias. Facts that challenge our worldview tend to be ignored, minimized, or dismissed as irrelevant.”

We can look at your worldview and confirm your bias. We can look at Krugman and see he has nothing in his background suggesting the bias that blooms like a weed, here. He could curry favor with the Rich and Powerful but . . .

Nick October 27, 2011 at 7:39 pm

Anyone think this guy is a sockpuppet for another infamous poster (see above)?

Justin P October 27, 2011 at 11:53 pm

One of muirducks multiple personalities perhaps?

brotio October 29, 2011 at 12:41 am

Not Yasafi. Little Nikki’s language skills are too good.

:P

Mark Anthem October 27, 2011 at 8:12 pm

Godspeed, Russ, any battle will be like fighting Goliath without the home-field advantage. I think the time buzzer would sound for me before I could score even one point against him.

To me, Keynes’ general theory and Krugman’s musings are like living moving Escher sculptures I know aren’t real, yet am not clever enough to deconstruct or discover the hidden seams and trickery.

Is there any verity to me saying there’s a tactical vulnerability to be found in the Keynes quote “The world is ruled by little else than the ideas of economists and political philosophers both when they are right and when they are wrong. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

The defunct economist I think he had in mind was named Amilcare Puviani.
Keynes, has not yet been exposed for perpetrating a “Puviani Scheme.”

Amilcare Puviani’s “Theory of Fiscal Illusion” describes in lurid detail how eager practical politicians, Krugmans, and everyone else can get their “money for nothing, and their chicks for free.”

The Puviani Scheme seems a cynical public choice variant of Bastiat’s Unseen that always works.

When government revenues are unseen by the taxpayers, the cost of government is perceived to be much less than it is. The ambitious politician works to magnify the public perception of Government’s benefits and takes credit of anything beneficial that is seen wherever possible.

At the same time, this politician should make the real burden of taxes and regulation appear to be less than they really are. Hide, obfuscate, inflate, and lie, using the taxpayers own money to force him to look at the seen and to prohibit him from perceiving the unseen.

If this is can be proven correct by greater minds than mine, then nearly every public figure can be exposed as a traitor and perpetrator of currently 1000 trillion dollar despicable Puviani Scheme.

The growing ruse grows increasingly difficult to conceal in a world economy of only 60 trillion dollars being observed by 3 billion victims with internet connections.

Ryan October 27, 2011 at 8:14 pm

I know I am way too late to this discussion, I’m not so sophisticated and smart and others, and I’m not so dedicated to the discussion… BUT..!!

The line about Japan’s infrastructure spending really hit me! I’ve lived in Osaka for a few years and have done quite a bit of traveling through the countryside as well. Japan is constantly spending TONS of money on roads, bridges, sidewalks, taxi circles, etc. At every construction site there are extra men dedicated to directing traffic around the job, even in isolated areas where this is really not necessary. Those workers are usually older men of retirement age! To an American’s eyes it sure looks like a waste (perhaps its a matter of cultural preferences, but in this case I really think I’m right!).

This takes place in a country with a very poor economy (you all know the numbers better than I do) and where it’s very difficult for young people to find a good job! To me this isn’t just theory, it’s real life and it sucks (unless you’re very old, and you won’t live long enough to see the result on the next generation’s Japan). Hope America doesn’t turn out like this!

Economic Freedom October 28, 2011 at 1:17 pm

Japan is the 3rd richest country in the world after the U.S. and China. So, your statement that “This takes place in country with a very poor economy …” is crazy false. Perhaps the wealth is being concentrated in the hands of the few instead of the many like the U.S.. This would explain the fact that “it’s very difficult for young people to find a good job!” Stop saying things that aren’t nearly true and wise up before it’s too late.

Economic Freedom October 28, 2011 at 11:12 pm

Perhaps the wealth is being concentrated in the hands of the few instead of the many like the U.S.

I can’t read what you wrote, because it is repetitive, Revolutionary Communist Party USA foolishness, regurgitated by Lisa Fithian and Debra Sweet from the last demonstration. I’d consider sending you money to get you to stop trolling and spewing left-wing inanities on this classical-liberal blog. Please tell me how much you’d want and where to send the check.

Economic Freedom October 29, 2011 at 12:53 am

You would steal my identity to spew garbage, wouldn’t you. Thief!!

Economic Freedom October 30, 2011 at 8:00 am

I can’t read what you wrote, because it is dull, repetitive, Revolutionary Communist Party USA dimwittedness, regurgitated by Lisa Fithian and Debra Sweet from the last demonstration. I’d consider sending you money to get you to stop trolling and spewing left-wing inanities on this classical-liberal blog. Please tell me how much you’d want and where to send the check.

Zack October 27, 2011 at 9:49 pm

Mises in his book “Human Action” asserts that the economy is too complex to learn anything from data unless you have a worldview in within which to view the data. So people with different worldviews can view they same thing in different ways(Such as how WWII either proves or disproves Keynesian economics depending on who you ask).

Because of this Mises asserts that economics must be based on a priori logic, rather than on data

Michael October 27, 2011 at 9:53 pm

Markets are just like any other organism, what works survives. What doesn’t, falls away. To think you can manipulate from the top is arrogant at best, and immoral at the worst.

As Hayek realized, it’s just to complex. But it’s still fun to argue about.

Greg G October 27, 2011 at 10:07 pm

Guess I’m just about the only person here that often finds value in both Russ and Krugman’s ideas.

Russ Nelson October 27, 2011 at 10:44 pm

I find value in Krugman’s ideas, but the sign of the value is negative.

Jon October 28, 2011 at 4:15 pm

I find lots of value in Krugman. He wrote the principles textbook I learned from. He challenges me to consider and reconsider my points of view. His contributions to economics are quite worthwhile.

I may not agree with him, but I value his opinion just as highly as I do Russ’

vidyohs October 27, 2011 at 11:13 pm

“Krugman is a Keynesian because he wants bigger government. I’m an anti-Keynesian because I want smaller government. Both of us can find evidence for our worldviews. Whose evidence is better? I’m not sure it’s a meaningful question.”

Whose evidence is better. Oh hell yes it is a meaningful question!

I like to think Benjamin Franklin is a hell of lot more intelligent in the way of the world than Paul Krugman.

“He who would give up liberty for a little security, deserves neither.” Benjasmin Franklin.

And, that fits this argument like a glove. “Give up liberty” big all intrusive nanny state government ensuring security in the form that we all live at the same miserable subsistence level existence.

Oh, hell yes it is a meaningful question!

Stone Glasgow October 28, 2011 at 1:09 am

In Franklin’s time, it was possible for men to be free. Each of them owned the most powerful military weapon available. Today, none of us can own enough military equipment to defend the nation; we must allows some group of others to enslave us with their military power, and hope for the best.

vikingvista October 30, 2011 at 4:55 pm

None of us has enough money to build and maintain the Chunnel either, yet there it is.

It is some odd mental quirk that leads people to believe that “organization” is synonymous with “coercive state” even when surrounded by far more examples to the contrary.

BobMaplethorpe October 27, 2011 at 11:25 pm

Russ, beautifully written. Keep up the good work.

Carlos October 27, 2011 at 11:46 pm

speaking of cherry-picking facts which Karl Mannheim taught us can be avoided. How about this one? We taxpayers borrowed hundreds of billions (a trillion plus?) to bail out banks. Banks are back on their feet and doing great! Ergo, government (taxpayer)-deficit spending works. Or do you _believe_ in selective spending only on the well-to-do and screw everyone else? Those monies could have been invested in FDR-style programs rebuilding (re-tooling) infrastructure for the rest of the 21st century, from public works, to green-solar energy projects, to mag-levs criss-crossiing the nation and state of the art mass transit.
But we appear to witness the triumph of policies designed to benefit a narrow segment of our society to the detriment of the majority. What else is new?

Justin P October 27, 2011 at 11:56 pm

Dr. Roberts
Excellent post! There must be something in the water at GMU. One of the best Econtalks ever and a brilliant post.

I for one thank you!

SMV October 28, 2011 at 12:07 am

Assume the next time the politicians decided to spend a half trillion dollars to spur the economy the money was given in equal chunks to only 10 randomly selected states. And the chunks where divided again randomly between money given to state governments or directly to citizens.

What would be the outcome:

A) One side ofthe debate would abandon their previous positions
Or
B) Both sides would claim victory because of some ex-post story and the argument would go on.

I am afraid it would be B. But if we are going to spend the money anyway it would sure be great to find out. Think about the long term benefit to society.

sejros October 28, 2011 at 2:07 am

You introduced a little popperism into economic field. That’s great, I think!
A lot of economists are forgetting critical viewpiont. I can’t say it is absolutely bad, because it is unavoidable, but reminding the falsification criteria is so inspiring!

Chucklehead October 28, 2011 at 2:18 am

Dr. Roberts;
Too much introspection. Keynesianisum and Macroeconomics are religions and must be taken as is on faith It only exists to give politicians cover to raid the treasury, and our childrens’ labor to buy votes. It serves no other function. One man can not win a argument against a trillion dollars of political interests.
A honest search for the truth can not be accomplished in a political environment. Remember; “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” Arthur Schopenhauer. You are currently in the second stage.
I would suggest stop fretting about PK and the Trolls, and devote those energies to your new physical training regime. It will provide much greater utility to yourself and your peeps.

Joel October 28, 2011 at 3:31 am

What a great article. So honest Russ

Daniel Kuehn October 28, 2011 at 7:58 am
Miles Stevenson October 28, 2011 at 11:05 am

Even though I thought the “you still blog at Cafe Hayek” quip was a bit of a cheap shot, that was a good response Daniel, I’m impressed. You definitely bring up some good points that we need to consider.

Maybe you can shed some light on something for me, since I assume I’m simply misunderstanding the Keynesian argument here…

The Keynesian perspective is that the multiplier is low during economic stability and high during recessions. In this article, Krugman seems to agree with the Romer multiplier of 1.5 as the appropriate number, given the context of the U.S. economy in 2009: http://krugman.blogs.nytimes.com/2009/10/01/multiplying-multipliers/

So, we spent what, $800 billion roughly? The Keynesian perspective is that this didn’t bring us out of a recession because it wasn’t nearly enough, and that it needed to be in the trillions to be effective.

Now, I understand that Krugman wanted the stimulus to be much bigger, but if a multiplier of 1.5 is correct, then that $800 billion should have added $400 billion of real growth to the economy, right? Yet, unless I am misunderstanding the outcome of the stimulus, that doesn’t seem to have happened. What gives?

Is it the Keynesian belief that the multiplier is only high if we are in a recession AND the stimulus is in the trillions? If the multiplier truly is high, then surely the $800 billion should have done something, even if it fell short returning us to complete stability.

Again, I assume there is something I’m missing here, so I hope you can help me out.

Daniel Kuehn October 28, 2011 at 12:46 pm

re: “Even though I thought the “you still blog at Cafe Hayek” quip was a bit of a cheap shot”

I didn’t mean it as a cheap shot at all, to clarify. At least two prominent economists expected the economy to do badly after the war: Samuelson and Hayek.

People keep talking about Samuelson as if (1.) he offered “the Keynesian answer” to the question, and (2.) we are somehow tied to Samuelson. Meanwhile, Hayek doesn’t even get mentioned by Russ for predicting the exact same thing, and Russ is actually (unlike me with Samuelson) blogging with Hayek as a namesake!!!!

I’m just always amazed how the very weak Samuelson/post-war line is so convincing for people.

Miles Stevenson October 28, 2011 at 1:04 pm

Fair enough, I understand what you mean. I haven’t read the Hayek prediction that you mention (nor do I expect you to do my homework for me), but if it’s true then you make a fair point.

Daniel Kuehn October 28, 2011 at 3:06 pm

The blogger “Lord Keynes” has blogged on it a couple times. Obviously it’s for different reasons than Samuelson. It’s during one of his interviews from the 70s. He said he expected the inflationary boom of the war to end in a crash, and failed to anticipate “that the inflationary boom could continue for two decades” – which as LK points out is a weak answer because the two decades after the war were not inflationary at all.

It’s confusing because he also says “I didn’t think we’d slip into a depression”, but in the context of saying that he thought the inflationary boom would end it’s clear that what he means is that the war set up another boom bust cycle that was about to bust.

I don’t know if he ever wrote any of this down at the time – that is all Hayek’s account of what he thought in a later interview. IF you come across anything he actually wrote in the 40s I’d be interested in it.

Jon October 28, 2011 at 4:20 pm

Daniel-

Correct me if I am wrong, but weren’t the reasons that Samuelson and Hayek predicted problems with the economy different? If I recall, Hayek was afraid of a slip to driven economies rather than free markets would result in problems going forward?

Daniel Kuehn October 28, 2011 at 12:50 pm

On your main question:

1. We can’t say conclusively if it added $400 billion in real growth because we don’t have a counterfactual. Maybe in the future we can get a better sense of this, but even then we’ll probably have to rely on averaging multiple episodes. But I’m not sure you can say so decisively that we haven’t had real growth that big relative to the counterfactual of what could have happened. I don’t think Krugman’s argument is that the $800 billion did nothing – simply that it didn’t do enough.

2. “$800 billion” – remember – is just a politician/journalist figure. What does that really mean? How much of this is an actual increase over counterfactual spending? That’s not entirely clear. A lot of this was just paying for things that would have been paid for anyway, particularly at the state level but also at the federal level. That sort of thing isn’t net stimulus. A good example of this is the recent “jobs bill”. I think it’s a good idea, but something like half of it is just baseline expected spending that was moved under the heading of a “jobs bill” – it’s not a net increase.

Miles Stevenson October 28, 2011 at 1:16 pm

Before I respond to each with more question (and more admission of my own ignorance about neo-Keynesian theory), maybe you can suggest a book appropriate for the layman to gain a better understanding of the modern Keynesian perspective? It strikes me that there are several neo-classical books which do a good job at educating the layman (“Economics in One Lesson”, “Basic Economics”, “Applied Economics”, “Free to Choose”, etc.). Are there any similar book you could recommend for someone like myself who has never taken a single economics course in his life to better understand your perspective?

As to your other responses, they illicit still more questions if you care to take a stab at them:

“1. We can’t say conclusively if it added $400 billion in real growth….”

So in other words, you seem to be saying that the accuracy of these Keynesian predictions are difficult to measure. Am I being fair?

2. “….A lot of this was just paying for things that would have been paid for anyway…”

I have heard it said that according to the Keynesian model, the manner in which the government spends stimulus money is irrelevant, the only thing that matters is that it is spent. Is this another example of something that may have been true for early Keynesian theory, but has been abandoned in modern theory? Or maybe I’m misunderstanding you. Maybe it still holds true that it doesn’t really matter how the money is spent, and you are suggesting something different.

Daniel Kuehn October 28, 2011 at 3:13 pm

re: “So in other words, you seem to be saying that the accuracy of these Keynesian predictions are difficult to measure. Am I being fair?”

Yes – at least as it pertains to this episode specifically. The corollary of course is that ANYONE’S predictions about a single episode are difficult to measure. Of course we have a lot more data than just this episode (or just this country), so the task isn’t hopeless for answering more general questions like “what is the multiplier during a recession” – but even that can be tough.

On your second question – there are a couple things that stimulus does. It puts money in people’s pockets and increases aggregate demand, for example. For that first effect it really doesn’t matter what you do with it. For the “increases aggregate demand” part it seems like it probably does matter (you want to do things that make the economy more productive, add real value, enable private transactions, etc.). But the other important thing that stimulus does happens in the bond market – it generates a demand for loanable funds, pushing up interest rates and giving monetary policy (which lowers interest rates) traction again. Karl Smith explains this process very well in his recent debate with Bob Murphy – better than I could. In terms of creating government debt it obviously doesn’t matter how the money is spent. So it all depends on what you’re looking at specifically.

Daniel Kuehn October 28, 2011 at 3:16 pm

On the books – honestly an old book by Lawrence Klein called “The Keynesian Revolution” really helped me. Any intermediate level textbook is going to give you a good enough understanding of it. I’ve really just picked up what I know beyond that level. The graduate level macroeconomics courses I’ve had haven’t taught any Keynesian economics – it’s been almost all what’s called “growth theory”. Business cycle theory was not emphasized at all.

Also – follow the blogs. Do a word search on Krugman or DeLong for “liquidity preference”, “Hicksian”, or “IS-LM” and they do an excellent job giving you all you need to know to have an informed opinion.

I would just say read the General Theory itself too, but some people don’t like that.

Dan H October 28, 2011 at 3:23 pm

Stimulus is akin to a family taking a vacation. They spend spend spend, run up the credit card, go consumption crazy for a week, and then when they return home they restrain spending to pay down the debt.

Miles Stevenson October 28, 2011 at 3:52 pm

Daniel,

” The corollary of course is that ANYONE’S predictions about a single episode are difficult to measure.”

I think that this is essentially Russ’ position. This is what Russ means when he says that there is evidence on both sides of the fence and that ideology is filling in the gaps. I think you are in agreement with this?

If I understand Krugmans’ response (genuinely trying to fair), Krugman believes that ideology is playing no role in his own perspective, only truth and facts. I have never seen Russ claim that Krugmans’ facts are wrong, only that the picture they create is incomplete, which Russ readily concedes about his own picture as well.

Thanks for the book suggestion. I will genuinely give it a try, although I’m hoping to get the “modern” Keynesian perspective so that I’m not accused of beating a dead horse. ;) I have tried to give Keynesian economics a chance. I started reading “The Keynes Solution: The Path to Global Economic Prosperity” by Paul Davidson. I haven’t found it very convincing though. I keep running into the same textbook examples that Henry Hazlitt pointed out of looking at only one side of the economic effects and ignoring the others.

I have honestly tried to read the General Theory, but, my god, it is confusing. I suspect that it is confusing even for those who are sympathetic to his ideas, and that my own biases simply make it even harder to understand. I don’t know if I’ll give it another go.

I do subscribe to Krugmans’ blog. Perhaps I’ll start posting my questions about how Keynsian theory works on your own blog, as you seem to be willing to try and explain it to me where you can. As you can probably guess, there is still so much I find logically confusing about it, but I’m genuinely open to learning more and being challenged.

Finally, I’ll say that I think you might have a good point about the Samuelson post-WWII prediction. If his prediction can be demonstrated to be an incorrect application of Keynesian theory, then I don’t see how it can be a “smoking gun” argument against Keynesianism. But I would be interested in learning more about how Samuelson screwed up the theory. What did he get wrong?

Daniel Kuehn October 28, 2011 at 3:58 pm

re: “This is what Russ means when he says that there is evidence on both sides of the fence and that ideology is filling in the gaps. I think you are in agreement with this?”

Well no, I’m not! In any single instance it’s hard to say exactly what happened. Across multiple instances we can do OK at properly at identifying the model and we can get results – and we have gotten these results. They suggest that the multiplier is high during recessions and low during periods of growth. I don’t see where ideology needs to fill in here. Do we have a lot of competing theories that explain this? Among the competing theories are there multiple theories that also explain why interest rates have remained so low? I don’t think so. I simply don’t see where the need for ideology is.

I have an ideology. I’ll tell you what I think is ethically right or wrong. I’ll tell you what I think is and isn’t an appropriate role for government. But in terms of understanding how the economy works I’ve never had an occasion to reach for my ideology – and it wouldn’t be helpful even if I did.

Russ is right that these things can be hard. He’s certainly right that we can’t know a counterfactual in a single episode. He’s wrong if he or anyone extends that into an agnosticism about what the empirical work says over multiple episodes, countries, and model specifications. Claiming that we don’t really know anything on that point is very misleading, I think.

Daniel Kuehn October 28, 2011 at 4:03 pm

On Samuelson – I’m trying to learn about this myself. I’ve been reading a lot on these predictions since yesterday.

I picked up the book with the chapter that Samuelson’s prediction appears in (not the only place, of course – but the one that’s often cited). It’s an interesting little piece. It starts out quite optimistic about what the economy is capable of after the war, moves into a long digression summarizing Keynes, and then only at the very end knocks down the argument of more optimistic people. So it’s an odd organization for something that is billed as a pessimistic piece (although he was genuinely pessimistic).

Others – as I noted – were not. And there’s no excuse to neglect them. Alvin Hansen – the so called “American Keynes” who was much more famous than Samuelson at the time – was extremely optimistic about post-war growth and made all the arguments that modern Keynesians make about it. And he made these claims in the chapter right before the Samuelson chapter that’s always quote. So there’s absolutely no excuse for anyone to present Samuelson as the official Keynesian position on it. The Hansen chapter is in the same damn volume. If you pick up the book to quote Samuelson, you have Hansen’s optimism sitting right there in front of you.

Miles Stevenson October 28, 2011 at 4:27 pm

Daniel,

“Across multiple instances we can do OK at properly at identifying the model and we can get results – and we have gotten these results. They suggest that the multiplier is high during recessions and low during periods of growth. I don’t see where ideology needs to fill in here. Do we have a lot of competing theories that explain this? Among the competing theories are there multiple theories that also explain why interest rates have remained so low? I don’t think so.”

The most recent EconTalk interview with Valerie Ramey suggested to me that there are competing theories. She pointed out studies that come up with negative multipliers as well as ones that come up with positive ones. Maybe I’m being naive, but I certainly did not get the impression that the vast majority of all the evidence supports high multipliers during recessions. Nor do I think that the case is that simple. Even with a high multiplier, stimulus is only a good idea if government actually does it right. Even Krugman is disappointed in the governments ability to apply Keynesian models effectively. Shouldn’t the ability of government to “take good advice” be included in a model of whether or not government is a good tool to fix recessions?

I realized I digressed a bit from the multiplier issue, sorry. I’ll move on.

“Russ is right that these things can be hard. He’s certainly right that we can’t know a counterfactual in a single episode. He’s wrong if he or anyone extends that into an agnosticism about what the empirical work says over multiple episodes, countries, and model specifications. Claiming that we don’t really know anything on that point is very misleading, I think.”

I don’t think he’s claiming that. But I understand how easily that can be misconstrued. I think one of the things that is getting misunderstood is when Russ is saying that bias is implicit in every decision that we make. All of the psychological studies that I have read on this subject confirm this. Michael Shermer has been doing good work over the years researching human bias and belief, and I think his books are worth a look. The conclusion is that bias is inescapable.

Modern psychology suggests that even though “in terms of understanding how the economy works I’ve never had an occasion to reach for my ideology”, you can’t help it. Bias will creep into everything you do, even if you actively try to contain it. Selection bias is one such example. When you look at the empirical studies which suggest high multiplier effects during recessions, those studies are automatically weighted higher in your brain than any study which finds a low multiplier.

This isn’t the same as throwing up our hands and saying “well, we may as well give up since we are all biased and we can’t know anything!”. You are right, if Keynesian models are confirmed by more empirical evidence than alternatives, then Keynesian models are the best explanation we have. I totally agree with you. It just seems to me that more intellectuals on the left share this view that they “never reach for their ideology”, and as a result end up ignoring or down-playing evidence that points in the other direction.

I’m simply not hearing neo-classical economists making the claim that “ideology isn’t affecting my judgement” and that troubles me about the left. In my view, when you reach that point where you are so confident of yourself that you don’t think ideology is playing a role in your evaluation of the facts, that’s when you really start opening up the potential of hurting a lot of people and being completely blind to it, even though you have every intention of helping people.

John Farrier October 28, 2011 at 9:41 am

Outstanding post. It’s important to be as full cognizant of one’s own possible biases, and to consider outcomes that, however hypothetical, would falsify one’s understanding of the world.

Frank October 28, 2011 at 10:09 am

economics is politics by other means. Compare Clauswitz who refers to war as politics by other means.

House of Cards & Economic Freedom October 28, 2011 at 11:15 pm

Compare Clauswitz who refers to war as politics by other means

He refers to war as diplomacy by other means.

Economic Freedom October 29, 2011 at 12:56 am

You would steal my identities to spew garbage, wouldn’t you. Thief!!

House of Cards October 29, 2011 at 12:57 am

You would steal my identities to spew garbage, wouldnt’ you?
Thief!!

DTAF October 28, 2011 at 8:04 pm

I’ll never trust a Keynesian until one advocates cutting government spending during a time of plenty. And I’ll never trust you and your ilk until I hear an admission that when government spends money, that’s paying someone’s paycheck, with X dollars, paid for by X dollars of either tax money or deficit spending (my kids’ tax money). I see this post as no different from Krugman’s posts. You admit people have world views, and then excuse yourself for it. I excuse none of you. A “worldview” is just a gap in factual information that is filled up with prejudice. A pox on you all.

another view October 29, 2011 at 7:54 pm

I’ve read a lot of Paul Krugman over the years. Mostly the mathematical technical stuff but also a few of his books. I think it’s a profound misreading and simplification to say that what drives him is some supposed unsatiated demand for larger government. Sure he has a worldview but to reduce it to that is just silly.

Bill Nelsin November 1, 2011 at 9:09 am

I live on a desert island with ten other people. How can Keynes help me?

Greg G November 1, 2011 at 9:44 am

Bill

Keynes does not claim to be able to help your 11 person economy. Austrian economics will work fine there.

Bill Nelsin November 1, 2011 at 4:19 pm

I wonder how many more people would have to join me on the island before we can abandon the no-longer functioning Austrian economics for the benefits of Keynesianism.

At least another dozen people or so would be necessary, I would think. Still not sure how it would work, though. We would probably have to study Keynes for a few years.

Ryan Aaron November 3, 2011 at 9:06 pm

I wouldn’t say that the ability to chose is more valuable than wealth, I would say that it IS wealth in its most basic form. Wealth enables you to do or accomplish things you desire – and wealth is meaningless without choice.

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