Truth-seeking and ideology

by Russ Roberts on October 12, 2011

in Hubris and humility, Scientism, Stimulus, Truth-seeking & ideology

In this recent post, I made the following claim:

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 points 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.

I have evidently disillusioned Daniel Kuehn:

This is a statement about Russ that I wouldn’t have even made before I read him say it himself. He holds his views on Keynesianism to conform to his ideology. That’s a really disheartening thing to read, even though I’ve never been particularly in agreement with Russ in the past. I would have figured he at least had other objectives. Scientific conclusions based on adherence to an ideology are worthless. This is how we get the persistence of ideas like creationism and geocentrism. That isn’t to say that in ruder stages of society creationism and geocentrism weren’t decent explanations – they were decent at one time. But when the evidence starts to stack against them, adherence to ideology is what impedes scientific advances. That Russ actually embraces this is dumbfounding to me.

Needless to say, I see no evidence at all that that’s why Krugman views Keynesianism favorably. Russ doesn’t appear interested in offering any reason for thinking that’s Krugman’s motivation. It doesn’t really make any sense. There are Keynesians who favor and oppose larger government (just as there was at one time a fairly active community of Austrian socialists). Your view on how the economy works doesn’t require a certain political philosophy.

I recently interviewed Valerie Ramey on the multiplier. In her work, the multiplier ranges from .8 to 1.2. A multiplier of 1 means there is no stimulus from the spending–GDP rises by the amount of the increase in G but by no more. Private spending doesn’t grow. When you include the taxes (either today or in the future to pay back debt from the increase in spending) that finance the government spending, it’s particularly costly. Ramey uses a very clever idea to generate her estimates, but she is respectful of what other people find and in her survey of the literature and in our interview she says that the multiplier may be as small as .5 or as large as 2.

That’s a four-fold range. That in itself is discouraging. (Ramey and I had a very interesting conversation about the implications of that range. You can listen to that podcast in about ten days.) Much more discouraging is the fact that most if not all of the people who think the multiplier is large are fans of larger government and most if not all of the people who think the multiplier is small are fans of smaller government.

What is one to make of this alignment of ideology and belief? Is it a coincidence? Or perhaps causation runs the other way. It is possible. It is also possible that the small estimates of the multiplier are the right ones. Or the large ones are. And the other side, whichever side that is, does econometrics poorly. But to me it suggests scientism rather than science. It suggests that we are unable to measure the impact of the government on the economy with any precision. This is a particularly persuasive idea when you consider that few (any?) proponents of one view or the other change their mind when confronting the findings of the other side. And each side would certainly concede that the other side’s proponents are exceptionally bright, well-trained economists.

My view is that we cannot accurately measure the effect of government spending on the multiplier. To think otherwise is the pretence of knowledge. I don’t view my view as anti-scientific but rather a view that recognizes the limits of knowledge and the tools we use to measure the impact of government on the economy. It is not scientific to use science for tasks it cannot achieve. That is scientism. Very dangerous.

Daniel is right that I provided no evidence for my claim about Krugman, that his views on stimulus are driven by ideology as I know that mine are. The evidence is implicit in the post but I should have made it clearer given the boldness of the claim. Daniel “sees no evidence” of the claim in his own reading of Krugman. Here is my evidence. I will be interested to see if Daniel finds it persuasive.

(And one more point before proceeding. I do not believe that ideologies are evidence-free. I hold my ideology for a wide range of reasons many of which are based on what I observe about the world and human behavior along with a set of beliefs about how the world would work if my ideology were more prominent in policy decisions. But I don’t pretend I’m against government spending because the multiplier is small. Now on to Krugman.)

1. Krugman demonizes those who oppose more government spending. He rarely or ever grants the possibility that they might be right and that he might be wrong. This is not the way a scientist thinks. It is the way an ideologue thinks.

2. Krugman cherry-picks data and stories that confirm his worldview. He doesn’t just dismiss data that challenges his worldview. He usually ignores it. He does not write about the Japanese malaise that persists after trillions of increased spending. He does not write about the growth in the US economy when World War II ended. He rarely if ever writes about the work of Higgs or Ramey or Barro who find that wartime spending during WW II hurt the US economy. If he does, he writes about their work dismissively. He does not concede the possibility that the failure of the 2009 stimulus might challenge his views. (I recognize the possibility that it may have failed because it was badly designed or because the problem is worse than we thought and it was too small. Krugman never to my knowledge writes that he might have to reconsider his views based on the evidence.)

I did find a post where Krugman conceded that John Taylor “actually has a pretty good point.” That  point is that there was actually very little stimulus in the 2009 stimulus package. Krugman calls that point “pretty good” either because he really thinks it is or because it confirms his own world view. The evidence suggests the latter. In other posts on Taylor he refers to a “zombie claim” of Taylor’s or says Taylor has lost his mind or that his mind is corroded, that it’s a “good bet he [Taylor] doesn’t believe what he’s saying.” I mention Taylor because I know him a little bit. He’s a fine person and thoughtful and I’ve never seen him write or say anything like this about his intellectual opponents.

Krugman has written once or twice about the austerity of the World War II economy from a consumer’s viewpoint. He as explained that as being caused by rationing. He does not explain why rationing was necessary.

Certainly, Krugman has a story to tell that can explain the failure of the 2009 stimulus package, the on-going malaise of Japan, the World War II and post-World War II experiences. I’m sure he has a story about why stagflation was consistent with the Keynesian model of today (it’s been improved!). His stories would have facts. His stories could be right. What I find interesting is that I do not remember a time when he written for the New York Times where he has conceded uncertainty, or the possible virtue of the ideas of his intellectual opponents unless they comported with his own views. By the way, in his other writing, Krugman writes like a scientist. In his book, The Return of Depression Economics, he often says some issue is unsettled, we don’t know the full story and so on.

Of course I’m not a big fan of Krugman’s work in the Times. Maybe I’ve cherry-picked examples and failed to notice the times he was gracious or thoughtful about people who disagreed with him or more importantly where he conceded that his own views might be wrong or that further study was needed before reaching a definitive conclusion. Happy to learn about those writings from Daniel or others. But on the surface, he does not write like a scientist. He writes like an ideologue. That’s OK. He is an ideologue. Me, too. Nothing wrong with that. What is wrong is to be an ideologue while pretending that your ideology doesn’t affect your views on economics. I think it does. And pretending or claiming that economics has a great deal of certainty when you know that it doesn’t also doesn’t strike me as something a scientist should do. It’s what ideologues do.

Daniel is right that using ideology to judge science is bad science. I think the recent debates over the effects of the stimulus package are indeed bad science.

UPDATE: Matt Yglesias isn’t happy with me either.

UPDATE: Krugman responds to my first critique here.

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Duane October 12, 2011 at 11:57 pm

Krugman asks: “Do you ever see liberals crowing about a rise in spending, never mind what on? Liberals want government to do certain things, like provide essential health care; the size of government per se isn’t the objective.”

It didn’t take long to find an example (http://www.nytimes.com/2011/09/05/opinion/the-fatal-distraction.html) where Krugman does exactly what he says liberals never do: “What should we be doing to create jobs? … we should have a lot of job-creating spending on the part of the federal government…”

If I were Russ, I might give him the benefit of the doubt and suggest that he’s making a mental distinction between increased spending and the size of the federal government, because maybe he doesn’t see the connection between the two.

And in fairness to Krugman, the rest pf the quote above continues “… largely in the form of much-needed spending to repair and upgrade the nation’s infrastructure. Oh, and we need more aid to state and local governments, so that they can stop laying off schoolteachers.”

It seems clear that his main emphasis is “we just need to spend more because that will create jobs.” That’s not exactly the same as saying he wants more government just for the sake of having more government. The logic is somewhat circular. But in the end, if one makes the reasonable assumption that increased spending = bigger government, then Paul Krugman is definitely in favor of bigger government.

GiT October 13, 2011 at 4:00 am

Horrible analysis.

First, he’s addressing the problem of creating jobs. He’s offering a mechanism for doing that because he believes other mechanisms aren’t doing the work.

The GOAL is more jobs. The MEANS is government spending. The government could just as easily spend in a way so as to create private sector jobs that had no effect on government size by hiring only private contractors.

In a slump, Keynesians think there should be more spending. This spending can come from anywhere. It just happens that, according to their theories, the private sector can be stuck in a liquidity trap and monetary policy can be exhausted. If those are the case, then you need to look elsewhere for stimulative policy. Enter, the government.

The logic of the prescription is quite simple.

Someone needs to spend.
The government can spend.
No one else will spend.
Have the government spend.

At no point in the chain does the appropriate size of government enter the question.

In fact, for a Keynesian, during a boom, things can get out of hand and something needs to contract. If, again, monetary policy isn’t a viable route, than a Keynesian could just as soon call for a decrease in government spending in order to prevent overheating.

Duane October 13, 2011 at 8:28 am

Respectfully disagree. I was responding to Krugman’s own question, not Russ’s characterization. In Krugman’s own words, he asks “Do you ever see liberals crowing about a rise in spending, never mind what on?” I then point out an example where he says we need to increase spending, no matter what on. He does give some specific examples, but those confuse his point rather than enhance it.

Now, Krugman may in fact be arguing that he’s a proponent of increased spending (bigger government) because as an economist, he believes that is the best way to create more jobs. But it’s impossible to sort out his preference for higher spending as a Keynesian and his preference as a “liberal” for something like “much-needed” spending on infrastructure. Does he think the spending on infrastructure is “much-needed” because as an economist, he believes that it will boost employment? Or is the spending “much-needed” because he believes the government has not invested the proper amount in infrastructure? He’s inserting his value judgement that infrastructure spending is the proper role of the federal government there, whether he admits it or not. That’s an implicit endorsement of the fact that we need “bigger government”.

If Krugman had the same ideology as Russ or I, he might say something to the effect that infrastructure spending is better handled at the state level, but as an economist, he reluctantly endorses the view that the federal government could spend more money on infrastructure to create jobs. But he conflates the two, thus in my mind proving Russ’s point about how his ideology and his economics are inextricably intertwined. Russ doesn’t say that’s a bad thing, just that it’s a shame that people like Krugman are not willing to admit it.

Ben October 13, 2011 at 11:31 am

You’re completely missing the point. The Keynesian view is NOT a “preference for higher spending,” broadly speaking. The Keynesian view is that in a recession/slowdown such as the one we are fighting at the moment, there is a shortage of aggregate demand – not enough spending out there in the economy. The straight-forward prescription to this problem is to get more spending. From the Keynesian perspective, it doesn’t matter where that spending is coming from; it could be private sector, state government, federal government, etc. The problem is, the private sector is unwilling to spend right now due to a wide range of factors, chief among them the massive consumer debt overhang, and due to the zero lower bound on monetary policy, quantitative easing by the Fed has been fairly ineffective at spurring more private sector investment (which, by the way, is an argument vindicating the model used by people such as Krugman – he’s been saying as much for the entirety of the crisis). So with monetary policy ineffective and the private sector potentially taking a very long time to adequately pay down its debt if left to its own devices, where can we get the spending needed to boost the economy out of its doldrums? Enter the government. Note that it doesn’t matter at all whether it’s state, municipal, or federal government, all that is important is that there is a net stimulus that is adequate to meet the spending requirements. However, in the United States, most states and municipal governments must balance their budgets year to year, and many are struggling with crippling debt loads as it is. Rather than expanding as would be needed to aid the economy, they have been contracting, further worsening the problem. Indeed, this is one of the factors that led the 2009 stimulus to be even less effective, as cutbacks in local governments counteracted to some degree increases in federal spending.

The federal government has no such constraint on its spending. While the overall debt is a problem, it is a medium-to-long-term problem, not a short term one (see current record low rates on US bonds). Rather than questioning the US government solvency, the bond markets are practically begging us to borrow by offering us free money. Krugman, like any Keynesian who looks at this objectively, is not calling for increased spending because he approves of it for ideological reasons; he’s calling for the one institution in the economy that is in a position to spend in a counter-cyclical manner to use that unique freedom to get the economy back on track. You can quibble about what motivates the specific things he would like to see money spent on; infrastructure, teachers, social programs are to some degree a reflection of what he thinks would be of maximum value to society, but they are NOT what are motivating his calls for spending. The spending could be on anything, from military ramp-up to preparing for an alien invasion that is never coming. The point is, we’re in a lull in demand, and the federal government is the only institution that possesses the freedom to counteract this lull. Once the economy bounces back, it’s time to cut back on spending at a federal level, pay down the debt, and basically ensure that the federal government is ready to act in a counter-cyclical manner the next time it is needed. When Krugman advocates an increase in spending, he’s not making that argument from an ideological position that spending is good, which is what Russ appears to ascribe to him. He’s making that position as the logical conclusion of his economic model, which continues to be vindicated by the accuracy of its predictions over the course of the last few years.

Sam Grove October 13, 2011 at 3:37 pm

The point is that government has the POWER to spend and increase the debt.

Another point is that people don’t want to spend because of uncertainty induced by the highly variable potential actions of government and the private sector’s interest in avoiding losses cause by those actions. That’s why gold has gone way up, government can’t counterfeit gold as easily as it can churn out money and credit.

When does a long term problem (debt) become a short term problem?

Duane October 13, 2011 at 10:59 pm

I contest the assertion that Krugman has been “vindicated by the accuracy of [his model's] predictions over the course of the last few years.” He continues to argue for increased spending and, as John Taylor has documented quite extensively and Russ has pointed out here at Cafe Hayek, the data do not support the conclusion that even the existing stimulus has been a success. We will thankfully most likely never get to test Krugman’s model in full since it is highly unlikely that another ‘stimulus’ bill will be passed. But his argument for continued stimulus seems to be the economic equivalent of continuing to bang our collective heads against a brick wall and wondering why our headache is continuing.

m October 16, 2011 at 1:34 am

It should probably be pointed out that Krugman predicted the first stimulus would fail.

As far as the supposed example of Krugman calling for larger government for the sake of larger government, I think that there’s a rather key distinction. Krugman was saying that big government isn’t an end in itself. E.g. he’s saying that Keynesians don’t celebrate the government doing anything and everying (e.g. making cars) for the sake of having the government do it. He would celebrate a rise in gov. spending under current circumstances, but not to celebrate larger government but to temporarily increase demand. Similarly, temporarily keeping the car industry afloat is meant to prop up demand, but isn’t a long term function.

trrll October 13, 2011 at 4:57 pm

So how does advocating government spending–in a particular economic circumstance, and for a specified purpose (namely, creating jobs in a depressed economy) translate into “crowing about a rise in spending, never mind what on”?

It’s also worth noting that while Krugman has often suggested investment in our deteriorating infrastructure as a productive way in which this money could be spent, he has been very careful to make it clear that the money does not have to be spent in this particular way to achieve the economic goal of creating jobs and restoring national productivity. So this seems to be very much an example of separating his conclusions as an economist from his personal political preferences.

Duane October 13, 2011 at 10:53 pm

Krugman says “we should have a lot of job-creating spending on the part of the federal government, largely in the form of much-needed spending to repair and upgrade the nation’s infrastructure.” You say he’s been very careful to separate his conclusions as an economist from his personal political preferences, but the only separation he offers here between the two is a comma.

Duane October 13, 2011 at 11:14 pm

The Keynesian logic you describe above sounds eerily similar to the Politician’s Syllogism (courtesy of the excellent TV series “Yes Prime Minister”):

Something must be done
This is something
Therefore we must do it.

GiT October 14, 2011 at 11:13 pm

Yes it does, but that you think that the mere resemblance is meaningful is really rather ridiculous.

The Keynesian prescription is based on certain conditions holding, most relevant here being that those other parties which one might rely upon to spend are not spending. (And, of course, that spending is what is needed in the first place).

The analog would be something more like this.

There are 4 men standing around a lake.

One of them seems to be drowning.

Something must be done.
The man to my left is doing nothing.
The man to my right is doing nothing.
Therefore I must do something.

drycreekboy October 13, 2011 at 12:17 am

I seem to recall reading about Krugman that a major imaginative influence for him in choosing his vocation was Asimov’s Foundation series and Hari Seldon’s dream of a predictive psychohistory that forecasts future human history.

If that’s not evidence of an ideological predilection I don’t know what is.

vikingvista October 13, 2011 at 12:18 am

Can anyone help with this? Krugman writes:

“I try to analyze the economy as best I can, never mind what’s politically convenient, and indeed to bend over backward to avoid believing things that make me comfortable”

at which point I burst into uncontrollable laughter, spraying coffee all over my monitor, shorting it out, and leaving myself unable to finish Krugman’s piece. My question is, in the rest of his column, did he have anything else funny to say?

rmv October 13, 2011 at 12:32 am

yes

continuing in the same sentence, “to avoid turning everything into a morality play that confirms my political values”

very, very funny

m October 16, 2011 at 1:39 am

Well, he’s at least right on the “politically convenient.” Look at his record: he strongly supported Edwards during the 2008 primary, even though Edwards was always a distant third. He pushed hard for Clinton after based on a policy distinction when it felt like Obama was the inevitable primary winner. After Obama took office, Krugman was wined and dined by the Administration and he still continued to needle them on his blog and in his columns.

Pappy V. Winkle October 18, 2011 at 8:41 pm

That is politically convenient for Paul. He’s the political messiah of a political group of neo-progressives known as Kruglodytes.

gamut October 19, 2011 at 1:00 am

I’m going to take the high road here and make one observation: Krugman rarely responds directly to Russ, but apparently he does read his writing. In this particular case, where Russ writes a rather introspective commentary and makes an inference about Krugman in a way that is, I’d say, pretty respectful compared to those in the past, Krugman writes a multi-page “I know you are but what am I?” retort. If I were to judge by veracity of response, I’d say Russ has hit the nail, and apparently it hurts.

Michael E. Marotta October 13, 2011 at 12:20 am

From Brayden King on OrgTheory, for April 18, 2011, there was a pointer to a study on why evidence is not convincing. Basically, it is nothing surprising: people rate as “experts” those who agree with them.
On OrgTheory here, if you wish.

I wrote it up for Rebirth of Reason, an Objectivist discussion board. There, my comrades decided that the study was biased toward collectivism and could be ignored.

Anyway, von Mises said that socialists and capitalists usually agree on the facts: a certain commodity had a certain price in some given place at some particular time. What they disagree on is what that means. Meaning is a prioi. The post-modernists say that theory informs facts, that facts are always theory-laden.

vikingvista October 13, 2011 at 12:21 am

I find it impossible to believe that DK is sincere in his indignation. You and DB have written at length on scientism and inconclusive nature of empirical social sciences. DK visits here regularly, and so has surely read one of these discussions. So, either he is rudely refusing to understand what you wrote, or he never grasped the idea. I give him the benefit of the doubt and assume the former.

Daniel Kuehn October 13, 2011 at 9:32 am

vikingvista -
I would have thought – given Russ’s views on the alleged scientism of economics – that he would be more agnostic but maintain ideological affiliations that guide his views on government action in any particular case.

I was surprised to learn that his opposition to a particular economic theory is driven by his ideology. If he thinks there can be no convincing evidence for it one way or another, that’s one thing. But if he’s rejecting it out of ideology that’s very different.

I have ideology. It’s not a “big government” ideology. I don’t think much about the size of government because there are things I think the government should do more of and things I think it should do less of and things I think it should do about as much of but differently. I certainly have an ideology that wants constitutionally limited government. That’s all fine – and I can assert political positions on the basis of that ideology that I have. But I don’t have a right to evaluate science on the basis of that ideology. And ideally what I know about science should inform my ideology (Russ alludes to this too – he says that ideology should be empirically grounded).

What I’m not going to say is “I reject Austrian theory because I believe in a modest but important, constitutionally limited, democratic government”. For one thing that doesn’t make sense – many ideologies are consistent with a theory of how the economy works. But even if it did make sense as a criticism it is not the standard by which we judge scientific claims.

Sam Grove October 13, 2011 at 3:39 pm

I don’t think much about the size of government…

The fish doesn’t think much about water.

Daniel Kuehn October 14, 2011 at 7:40 am

Ya – you’ve spent the last several years trying to tell me I’m somehow co-opted by the government and you shower me with links about how the public school system has brainwashed me.

I get your schtick Sam. The logic is not lost on me. You’re just wrong. You don’t need to keep repeating the point.

Russell Nelson October 13, 2011 at 1:21 am

First, Kuehn is an idiot. Second, Krugman is an ideologue (evidence for the first conclusion). Third, Krugman is correct to have faith in his views. There are two kinds of faith: faith in that which cannot be disproved, and faith in that which has already been disproved. Given that Keynesian economics isn’t scientific — it’s scientistic — it cannot be disproved. So it’s reasonable for Krugman to have an ideology which includes faith in Keynesianism.

Lionel from France October 13, 2011 at 6:49 am

Agree

Wayne October 13, 2011 at 2:31 am

You should have Krugman come on econtalk. You’re a great host who’ll treat him fairly.

vikingvista October 13, 2011 at 2:54 am

What about his columns makes you think PK could resist being rude? The only reason Econtalk works is because RR invites polite people to participate.

Pfloyd October 13, 2011 at 8:36 am

I’m sure Krugman’s “fee” would be outside the scope of the free podcast Russ provides for us.

LowcountryJoe October 13, 2011 at 2:50 am

Oh my god; can P-Krug ever shoot it straight with people? I mean this is just ridiculous the denial that he appears to be in. Perhaps if he picked he added an appropriate placed two letters [ "u" & "n"] to the name of his reoccurring column he’d be delivering as advertised.

What is true is that some conservatives in America have always opposed Keynesian thought because they believe it legitimizes an active role for government — but that’s not what Keynesianism is about, and not the reason I or others support it.

Is it because the multiplier does so well? Let’s always stimulate if that’s the case! Or perhaps the aliens he so desperately wanted — so as to get us thinking one way — are already here and have bent his ear or are outright calling the shots.

Ryan Vann October 13, 2011 at 3:50 am

It seems nearly impossible to recoil in horror when you suggest you could be susceptible to confirmation bias. It isn’t as if you write and have pod casts concerning this consistently.

Jim October 20, 2011 at 5:01 pm

hehe, absolutely right on. Russ’ humbleness and transparency of trying to uncover his confirmation bias is what I like best about his podcast and writings.

W10 October 13, 2011 at 4:12 am

“Do you ever see liberals crowing about a rise in spending, never mind what on? Liberals want government to do certain things, like provide essential health care; the size of government per se isn’t the objective.”

IMHO Krugman here agrees

Diego October 13, 2011 at 4:56 am

I thought Krugman’s reaction to this year’s ‘Nobel’ prize in Economics was a particularly hilarious example of him accommodating the facts to his own worldview. It was so funny because he was in a situation where he could not call anyone stupid. Had he called the prize-awarding committee a bunch of fools, he would have tarnished his own prize, so he had to say that the tools developed by this year’s winners are actually used by some Keynesians.

Greg October 13, 2011 at 5:18 am

yeah that was funny!!!

Daniel Kuehn October 13, 2011 at 9:34 am

I’ve posted positively about Sargent’s work long before he won the Nobel prize Diego. If you think I congratulated Sargent because I am so enamored with Krugman that I didn’t want to tarnish the prize that was awarded to Krugman you’re simply wrong.

I can’t think of a single Nobel laureate in economics that I think was undeserving of the prize.

Neil S October 13, 2011 at 10:01 am

Daniel,

You may want to check the extent to which you identify with Paul K. Daniel Kuehn is not mentioned anywhere in Diego’s comment.

Regards,
Neil

Daniel Kuehn October 13, 2011 at 10:32 am

Haha – touche. My apologies Diego.

I think it applies equally, though. Krugman favorably cites the work that grew out of Sargent and Sims’s work. The idea that he’s playing politics here – that he’s just congratulating them to cover his own ass – doesn’t really hold up in the face of evidence.

Most people – Keynesians or otherwise – are praising this prize, and the reason is obvious.

Dave Marsay October 13, 2011 at 6:17 am

I read Keynes from an uncertainty theory perspective. But didn’t Keynes advocate identifying the levers and then pulling the one that gave the required effect for the least effort? So isn’t he arguing for the smallest possible government intervention consistent with achieving the goal?

The prescription of increased state spending was conditional on his assessment of the circumstances of the time. Keynes was not a blind Keynesian. Keynes seems to demolish the classical argument that unemployement should be left to the market, and makes a good case that spending on infrastructure etc can sometimes be the best thing to do, whatever your goals.

Keynes doesn’t convince me that keeping unemployment down is always a sensible goal. But surely a view on what should be done now needs to be informed by an understanding of our current situation? I would like to see a Keynes style analysis, which may or may not lead to a ‘Keynesian’ prescription.

sym October 13, 2011 at 7:21 am

Superb article. However there’s a little fragment that might require a bit of attention: “What I find interesting is that I do not remember a time when he written for the New York Times” – although I am not a native English speaker.

Nikolai Luzhin, Eastern Promises October 13, 2011 at 9:05 am

Dear Mr. Roberts:

Physics has learned enough to realize that rules/laws/properties that might hold true under one set of facts do not hold true under others, for example, in the center of a black hole.

In economics, the center of a black hole is when defaults start and values start falling as more and more loans and counter parties fail. The rules break down and the Central Bank becomes increasingly irrelevant.

You are correct then when you write about, “the limits of knowledge and the tools we use to measure the impact of [anything including the] government on the economy.” You, however, don’t get the essential lesson from this truth and that is there no science of economics and there never will be.

US debt as a percent of GDP reached a post war low at the end of WWII under Jimmy Carter. By your thinking that should have been the best of times. It was the worst. There was no vision and we were perishing.

Economics did not solve that malaise. We were rescued by the personality of RR. He lifted spirits not by what he did but by who he was. Democrats hate him because of what he did. Republicans just outright lie and claim his success was because of his policies, because they want the fruits, tax cuts and corporate cronyism, that his personality made possible by covering over his mistakes.

You mention where Japan finds itself. It finds itself exactly where Keynes said it would be by massive spending: saved from the black hole. Why has it not moved further. The answer is simple: politics. During the last 25 years Japan has not produced a politician who can lead, inspire, create vision, etc..

American’s voted for Obama (and I have no doubt he will win the popular election this time) because it appeared he had a good shot at leading. He has failed miserably. It is ironic that he has done better than FDR at governing and worse at leading, even considering the handicaps he but on himself with really really bad picks like Romer and Summers.

The fact of the matter is that we remain near the zero bound and going forward are going to remain there. Nothing is going to improve conditions, nothing.

We are trapped by fundamental flaws in the Constitution and by ideology (abortion trumps common sense). The Framers thought that the Constitution would work due to the alignment of the various economic interests (merchants, manufacturers, traders, agriculture) against each other, achieving balance. Instead, we are aligned based on religion (abortion), with the Religious Right being the tool of the extremely wealthy for personal enrichment.

What I cannot understand is a man like Mitt Romney wanting to be President. If he is elected in March 2013, a trillion plus in spending will vanish from the Federal Budget, Keynes will be proved right, and the millions of jobless demonstrators around the White House will have Romney’s head on a pole.

I assume you share this vision. Would you bet your life on taking a trillion dollars out of the federal budget overnight, today? You may deny being a Keynesian but I bet you “pray in the dark” as insurance that there is God in Heaven, as the say about atheists.

Leadership is our way out but there is no way to there (Leadership) from here.

rmv October 13, 2011 at 9:32 am

Citation needed

Sam Grove October 13, 2011 at 3:46 pm

You mention where Japan finds itself. It finds itself exactly where Keynes said it would be by massive spending: saved from the black hole. Why has it not moved further. The answer is simple: politics. During the last 25 years Japan has not produced a politician who can lead, inspire, create vision, etc..

I must question the value of a system that requires the “right person” to keep it from failing.

Clyde Dotson October 13, 2011 at 9:08 am

It seems to me that expecting Krugman to be other than an ideologue in while wearing his op-ed writer hat is wrong headed. If you go back to the 16th Century you will find people like Machiavelli writing out of one side of their mouth for their fellow students of society, and out of the other for the people who fed them. It’s a very old story.

Bill Woolsey October 13, 2011 at 10:09 am

How absurd.

Of course, “liberals” support “big government” because there are many new and/or expanded government programs that they find desirable.

I am pretty sure that Krugman considers the private sector valuable and reductions in private consumption and investment as ‘costs’ to be balanced against the benefits of government spending programs.

Real leftists (which Krugman is not,) might start down the road of the private sector being bad and all of the added democratic decision making being good. But I don’t think that is where Krugman is.

If you think Krugman is “bad,” just read some of the comments on any “liberal” blog. While I don’t see alot of statements that government is good in and of itself or that the private sector is bad, there is a lot about how the only answer to the economy problems is a transfer of income and/or wealth from the rich to the poor.

I have accused Krugman of arguing for the liquidity trap because he values various new and expanded government programs. If the unemployment rate was low, he would be advocated those with some kind of tax increases to pay for them. No doubt, higher taxes on “the rich.”

Today, he argues in bad faith that the only alternative to expanding these programs is continued recession.

And so, I am agreeing with the basic argument here. I think that there are three alternatives, and Krugman downplays all of them because he believes the added government spending is a good thing.

The other three are tax cuts, an increase in the quantity of money, and lower prices and wages.

Those of us who are “market monetarists” have been advocating the monetary solution for some time. Generally, we support quantitative easing in perhaps heroic amounts, no or negative interest on reserve balances, and most importantly, a specific target for the growth path of nominal GDP.

Sumner often points out that Krugman (and some others) put expanded government spending up front, and often downplay the possibility of monetary policy. Market monetarists agree that adjusting the target for the federal funds rate can’t work. But why does Krugman say that this is what he means by monetary policy? It comes down to his view that there are lots of government spending programs that would be good things.

On the other hand, that I am skeptical of new government programs and think there are lots of existing ones that are not desirable is also a reason why I think a monetary regime that stabilizes the growth path of nominal GDP is a good thing.

I think tax cuts of the right sort could help. But I don’t like deficits because I think it is important for taxes and government spending to be tied. When people vote for more spending programs, they should be voting for more taxes. When they vote to cut taxes, they should be voting to cut government spending programs. It is a good public choice institution.

I think a lower growth path of prices and wages would help too. I think that it would be horribly disruptive, and support stable nominal GDP growth instead. Still, I find some of the arguments Krugman makes against it implausible. I still think the best economics is that price and wage level adjustments can work, it is just they are really painful.

Again, why go to more government spending? It is because the spending is good on its merits. After the programs are in and have lots of special interests supporting them, we raise the taxes to pay for them.

It is the other side of the coin of lowering marginal tax rates. We implement supply-side tax reform now. And then when the deficits and national debt becomes troubling, we reduce or slow the growth in government spending.

As I have said, I don’t favor that approach. I like supply-side tax programs, but think they should be matched by government spending cuts.

I think it is desirable to come at these things with open eyes.

trrll October 13, 2011 at 10:26 am

You argue, “He does not concede the possibility that the failure of the 2009 stimulus might challenge his views.” After your accusation of “scientism,” this seems a very odd remark. On what scientific basis would you argue that an outcome that agrees with one’s theory (see, e.g. http://www.nytimes.com/2009/02/13/opinion/13krugman.html) is a basis to challenge that theory?

Dave October 13, 2011 at 10:26 am

Very poorly thought out posts. I suspect you’re suffering from Krugman Derangement Syndrome (he seems to do that to some people). It would have helped if you’d actually addressed his points about the quality of the various studies he mentioned.

Invisible Backhand October 13, 2011 at 10:42 am

You probably won’t see this Russ, but I think how you respond to Krugman is very important. Done right, it could catapult your reputation to the national level.

Economic Freedom October 13, 2011 at 11:21 pm

Got shill?

EG October 13, 2011 at 11:06 am

I completely agree with you Russ. This is what happens when economists like to play engineer.

Invisible Backhand October 13, 2011 at 11:07 am

Atrios links and comments as well:

“One thing I learned about conservatives on the interwebs is that the do seem to believe that evil libruls love Big Guvmint as an end in itself. Sullivan used to spout that kind of thing a lot. And, no, it just isn’t true. More than that, if the Bush years had any positive impact on the world it was giving liberals an extra dose of distrust of the power of the state. Conservative glibertarians never get my respect because they spend all their time worrying about imaginary threats to freedoms which don’t matter much.

Anyway, no, “more government spending” is not a liberal goal. There’s stuff that the state should pay for, there’s stuff that the state should pay for and handle in house (less contracting), and there’s stuff that the state should be responsible for. Also, too, fewer freedom bombs.”

http://www.eschatonblog.com/2011/10/leviathan.html

Darren October 13, 2011 at 4:22 pm

At a minimum, the Left simply does not care what size and scope the government attains. You can’t have more spending an on social programs without the attendant bureaucracy and expanded government.

Mike B. October 13, 2011 at 11:09 am

There are so many places to criticize Dr. Krugman’s and Mr. Yglesias’s rebuttals that I’ll just have to settle on one argument that Dr. Krugman makes early that REALLY bothered me basically proved Dr. Roberts point about his uncompromising ideology and dismissive attitude towards contrary evidence and scholarship.

Dr. Krugman argues that conservatives (and libertarians) view small government as “an end in itself” while somehow liberals view the government as means arguably (in Dr. Krugman’s mind) to acheiving greater ends than smaller government could through redistribution and providing a variety of services. This is a complete mischaracterization of the conservative/libertarian (c/l) view of government. C/L view government as a means to securing the greatest amount of liberty and prosperity possible. Krugman essentially argues that the c/l view of government is that it should exist just simply to exist (and for some reason why Krugman doesn’t explain, c/ls think it should stay small just because…). C/Ls believe that government is instituted to secure (not grant) liberty and prosperity in order for individuals (and society as a whole) to flourish. The fact that Dr. Krugman fails to even actually address a real c/l argument for limited government demonstrates to me that he’s guilty of exactly the kind of dismissive, derogatory attitude that Dr. Roberts attributes to him.

Invisible Backhand October 13, 2011 at 1:06 pm

Darn that Grover Norquist for besmirching all c/l’s.

Mike B. October 13, 2011 at 11:12 am

I realized that I said “C/L view government as a means to securing the greatest amount of liberty and prosperity possible.” When I should have said:

“C/L view SMALL/LIMITED government as a means to securing the greatest amount of liberty and prosperity possible.”

ettubloge October 13, 2011 at 12:03 pm

I love this quote:

“Liberals want government to do certain things, like provide essential health care; the size of government per se isn’t the objective”.

That is like the adulterer who just has sex with other women but does not intend to cheat on his wife.

txslr October 13, 2011 at 2:10 pm

It would be a lot easier to accept the idea that liberals’ view of government was limited if they offered some principaled limitation on the scope of state activities.

Rich Berger October 13, 2011 at 12:30 pm

If you don’t believe that lib/progs are interested in expanding government, just ask them specifically how much revenue (as a fraction of GDP) is necessary to fund the government.

A. Zarkov October 13, 2011 at 1:20 pm

We seem to have two Krugmans. One a rather nasty ideologue who insults and deprecates virtually anyone who disagrees with him. The other Krugman acts in a reasonable scholarly manner. What explains this seeming Jekyll- Hyde behavior? I will hazard a guess. According to a March 2010 New Yorker article, Krugman lets his wife edit his newspaper columns. From the article,

“When he has a draft, he gives it to Wells to edit. Early on, she edited a lot—she had, they felt, a better sense than he did of how to communicate economics to the layperson. (She is also an economist—they met when she was a postdoc at M.I.T. and he was teaching there.) But he’s much better at that now, and these days she focuses on making him less dry, less abstract, angrier.”

In the article Krugman’s wife Robin Wells comes across as an angry black women, and a highly partisan ideologue.

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

This might explain Krugman dual personality. Some men let their wives control them a little too much.

txslr October 13, 2011 at 2:05 pm

When Russ says he is in favor of smaller government and Krugman is in favor of big government I take size to refer to the scope of the government’s activities. Krugman’s response that those of his persuasion do not automatically applaud more spending, then, is entirely beside the point. Stalin was not noted for lavish spending on the Gulag. That didn’t make him a champion of small government.

Geoff October 13, 2011 at 2:11 pm

Those who don’t realize they have biases which shape their conclusions are those who are least likely to overcome their biases.

Joe Kash October 13, 2011 at 2:30 pm

I see this debate as one concerning “theoretical” keynsianism versus “theoretical” libertarianism and one concerning “practical” keynsianism and “practial” libertarianism.

Krugman argues that Keynsian/liberal economists don’t argue for bigger governement but better governement. He argues that conservatives just want smaller government.

Maybe this has to do more with political reality. Does “good” governement exist. Maybe in a theoretical world “good” Keynsian programs would outperform liberterian policy? But there is no such thing. Does not history show that government programs always turn bad (if they did not already start out bad)?

I think conservatives argue for smaller government, not because an inherent truism that goverment can never do any good BUT because the historical reality that goverment always turns bad.

Economic Freedom October 13, 2011 at 3:19 pm

Krugman’s fantasy that conservatives don’t “thoughtfully consider” cuts in government spending but merely advocate smaller government for the sake of a small-government ideology is proof that the guy is clueless — and always has been — about the Broken Window Fallacy. He simply cannot grasp the idea that the “unseen” in an economy is real.

The reason conservatives and libertarians advocate any decrease in government spending is that such decreases correspond to increases in the private sector activities of spending, saving, and investing. Since these latter are all examples of individuals controlling their own wealth in their own ways, it obviously increases utility over having a third-party like government spend other people’s money in its own way. How, specifically, individuals in the private sector would choose to spend, save, or invest their own wealth with less government spending is unseen, since it depends on the individual’s preferences. But a larger private sector means more individuals are getting greater utility from their own wealth by exercising their own choices on how to use it.

Conservatives and libertarians want each individual to be able to have the right to “thoughtfully consider” how he makes use of his own wealth — and as much of his own wealth as possible. Krugman and his wife (Robin Wells) don’t accept this position as an example of “thoughtful consideration” about economics because it’s all unseen: i.e., no one can say in advance what private individuals would do with their own wealth; the most one can say is that they would control their own wealth in ways that corresponded with their own preferences and scale of values.

Darren October 13, 2011 at 4:28 pm

If you can’t identify what button to push or what lever to pull to magically manipulate the economy and society, it’s not “thoughtful consideration”.

Lance October 13, 2011 at 5:08 pm

Russ:

Perhaps both you and Paul are being to hard on the other side. Paul is polemical on his blog/column. But he is supposed to be be there. People don’t read opinion columns to hear a lot of “on the other hand..”

More importantly, I bet there are a lot of points on which I bet you and Paul agree. I bet if pressed, Paul would agree that at some level rent control reduces the availability of rentals. He might think it is still worth it to have rent control, but he would be willing to concede the empirical point that rent control reduces supply. He doesn’t write about this on his blog because his aim is to move policy to the left, not to provide an even handed account of all policies.

tdp October 15, 2011 at 11:13 pm

In his own economics textbooks he writes exactly that. He also writes about the deadweight losses caused by excise taxes and other distortions of the free markets.

Eric Shierman October 13, 2011 at 11:10 pm

Russ, have you seen Charlie Rose’s interview of Jefferey Sachs? Check out this clip where he tries to convince Charlie Rose that there is no Keynesian multiplier or that a larger 2009 stimulus still would have accomplished nothing. Sachs of course holds to long-term government investment. Rose eventually convinces Sachs that our political system cannot do long-term planning. What if Sachs connected those dots? He’s a smart guy; he just might some day. But I would like to note how he does not share your ideology about government but he has been swayed by the evidence regarding Keynes.

http://www.youtube.com/watch?v=1t-dXHU1AJI&feature=related

Herman October 14, 2011 at 1:00 am

Mr. Roberts first point is that Keynesianism is not conclusively supported by science.

His next point is to make the case that since the basis is not scientific, it must be ideological.

In fairness, he points out that anti-Keynesianism is not supported by science either, and is therefore equally ideological.

This seems like a perfectly rational assertion. The way to refute it would be to prove that, in fact, the science behind Keynesianism is sound, and the parties’ advocacy for it has it’s basis in an open, scientific approach.

But the responses do not address this. Instead, the responses are a comparison of ideologies: one of which they think is flawed in purpose because it’s objective is small government and whatever that implies, while the other is on an adherence to the economic model, whatever that implies (irrespective of the resulting government).

Whether true or not, that response confirms that this is a conflict of ideology and not science; the only matter of debate is whether Mr. Roberts described their ideology correctly. Is their ideology Large government vs. Large central spending – some here assert that those ideologies are functionally equivalent, while they do not agree – but the matter is irrelevant.

Mr. Roberts point is made: there is no science, only ideology, no matter how you describe it.

Herman October 14, 2011 at 1:06 am

I wish there was an “edit” feature on this blog. Please allow me to re-write my closing:

Whether true or not, that response confirms that this is a conflict of ideology and not science; the only matter of debate is whether Mr. Roberts described their ideology correctly. The core of their rebuttal is over whether their ideology is a faith in large government, or a faith in a model that calls for large central spending. Some here assert that those ideologies are functionally equivalent. They do not agree.

But the matter is irrelevant. Mr. Roberts point is made. There is no science, only an ideology, no matter how you describe it.

Martin Brock October 15, 2011 at 11:07 am

I share your frustration regarding edits. The blog needs some sort of edit feature for the comments section. It ain’t rocket science.

You say, “There is no science, only an ideology …”. Kuehn essentially says, “There is no ideology, only science, that I can see.”

You both overstate your case. Krugman’s political ideology and scientism are very apparent to me, but he doesn’t dismiss empirical methods entirely. He rather employs these methods to defend a theory. He doesn’t defend his theory because empirical observation supports the theory so conclusively. He defends the theory empirically because scientific discipline compels him to offer this defense, even when an empirical defense is inconclusive at best.

All scientists operate this way, even in the “hard” sciences. Some scientific theories yield to empirical falsification more conclusively than others, but this difference distinguishes one science from another, not one scientist from another.

For this reason, I sometimes use the term “scientistianity” instead of Hayek’s “scientism”, to emphasize the role of revered, prophetic heroes in the process. A Christi is a follower of Christ. A Christian belongs to a party of followers of Christ. I learned this etymology years ago when interested in the Bahai faith.

Keynes was the prophet of a new economic school of thought in an economic tradition embracing scientific methods. He seems very deliberately to have sought this role.

Jon Murphy October 14, 2011 at 7:27 am
Martin Brock October 15, 2011 at 10:45 am

If Kuehn “sees no evidence at all” than Krugman defends Keynesian economic theory because he favors state policies rationalized by Keynesian theory, then Kuehn can only be blinded by ideology himself. If he’d only write “little evidence”, he’d leave me a little room to doubt his ideological zeal, but he doesn’t.

Macroeconomic theory divorced [i]entirely[/i] from a broader ideology is impossible. Kuehn should read Kuhn on this point.

tdp October 15, 2011 at 11:19 pm

People who have an ideological aversion to large government also frequently big government policies are harmful to society and to the very people they claim to help. Take for example Hayek, von Mises, Rothbard, and even Milton Friedman. They made arguments for reduced/no government on both counts, but they used distinct arguments for each concept (free markets vs. opposition to statism on an ethical or political level), even if they would sometimes combine them. Because it is quite possible, and quite frequent, for conservatives/libertarians to have different arguments for small government that draw on both economics and political philosophy, it would be incorrect to describe them as distorting facts to fit their ideology, since their belief in a particular economic policy is almost never based on their desire for small government, and vice-versa.

vikingvista October 17, 2011 at 2:48 am

If there is an esthetic involved, it is a distaste for bullying. For everyone but libertarians–including conservatives, socialists, unionists, democracy activists, and a countless number of activist groups who fall more or less into those camps–bullying is a desirable and justified tool for dealing with a great many people they disagree with. Very often it is a kind of bloodlust that motivates them. At least those libertarians who sadly agree to some measure of bullying, don’t call it justice, but a “necessary evil”.

Aaron October 18, 2011 at 6:05 pm

How can anyone not think Krugman’s ideologies influence his economics…? the title of his economics blog is “The Conscience of a Liberal”

Lee Jamison October 19, 2011 at 9:23 am

The difference between a liberal (I call them “political liberals” to distinguish from classical liberals.) and a modern conservative is really one of frame of reference. Political liberals believe their “goal” is the goal. If they want financial equality that is their goal. They will create a subjective definition of such equality and then use policies that appear to achieve the subjective definition of the “high calling”.

Conservatives think very differently. Their frame of reference is a form of ecology- “What SYSTEM provides sufficient SUSTAINABLE production to provide a broad distribution of the excess?”

The liberal mindset is narrowly drawn and a-temporal. 1. Define an abstract goal. 2. Solve the abstract equation of the goal in the most direct manner. 3. Goal achieved. The damage to economic continuing ecology is not an issue.

The conservative mindset is like that of the farmer. Tend the soil. Grow the crop. Use the excess both to create more capacity to tend the soil and grow the future crop and to feed people.

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