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My challenge to Paul Krugman

Posted By Russ Roberts On October 27, 2011 @ 2:43 pm In Truth-seeking & ideology | Comments Disabled

In a recent post [1] 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 [2] 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 [3]. 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 [4]. 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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[1] a recent post: http://cafehayek.com/2011/10/the-evidence-for-keynesian-economics.html

[2] here: http://cafehayek.com/2011/10/truth-seeking-and-ideology.html

[3] made a prediction: http://cafehayek.com/2011/07/keynes-vs-reality-2.html

[4] more bottom-up or more top-down: http://www.youtube.com/watch?v=GTQnarzmTOc

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