Russ Roberts and Don Boudreaux, of Cafe Hayek, don’t know what to call their recent posts about Paul Krugman. I have a suggestion: It’s about time.
Economist Russ Roberts criticizes Krugman for his treatment of intellectual opponents, like economist Robert Barro, in this case. Roberts quotes two passages from Krugman’s own economics textbooks that support an argument that Barro makes:
Additional transfers to people with earnings below designated levels motivate less work effort by reducing the reward from working.
Yet, while Krugman said as much in his text books, in his blog post, Krugman does a poor job of characterizing this incentives-driven view of what Barro calls “regular economics”:
But if you follow right-wing talk — by which I mean not Rush Limbaugh but the Wall Street Journal and famous economists like Robert Barro — you see the notion that aid to the unemployed can create jobs dismissed as self-evidently absurd. You think that you can reduce unemployment by paying people not to work? Hahahaha!
If you read Barro’s piece, what you see is a blithe dismissal of the whole notion that economies can ever suffer from am inadequate level of “aggregate demand” — the scare quotes are his, not mine, meant to suggest that this is a silly, bizarre notion, in conflict with “regular economics.”
Not exactly. I did read Barro’s piece. He sets a good example of how to characterize opposing views, accurately and without straw-manning it like a 9-year-old who just put gum in her sister’s hair because “she deserved it”:
Keynesian economics argues that incentives and other forces in regular economics are overwhelmed, at least in recessions, by effects involving “aggregate demand.” Recipients of food stamps use their transfers to consume more. Compared to this urge, the negative effects on consumption and investment by taxpayers are viewed as weaker in magnitude, particularly when the transfers are deficit-financed.
Thus, the aggregate demand for goods rises, and businesses respond by selling more goods and then by raising production and employment. The additional wage and profit income leads to further expansions of demand and, hence, to more production and employment.
And, it wasn’t quite a ‘blithe dismissal’. It was an argument that Krugman chose to blithely dismiss himself, instead of addressing it.
So, why did Krugman describe Barro’s argument as he did? Why not simply state the argument. For example, Barro believes that the unemployment creates incentives for people not to work, something I also believe and have written in my textbooks. Where I disagree with him is that I believe during recessions, those incentive effects are overwhelmed because there are fewer jobs a lot more people who want them.
Don Boudreaux goes one further and criticizes the people who seem to relish in their own intellectual capacity to deal with Krugman’s nuances (by using bigger words than I used in the previous paragraph), while missing a larger point, that economics shouldn’t be used to justify stealing.
I did something that I rarely do. I read Krugman’s whole piece, and was reminded of why I choose not do so. Not only do I agree with the points made by Roberts and Boudreaux above, but there are other things that bug me.
Here’s a couple of those things.
1. He says of Keynes’ “discovery” of aggregate demand:
…while I’m generally against scientific pretensions, it amounted to a scientific revolution, something like plate tectonics in geology.
First, I don’t put much stock in anyone who compares economics to science. I think they will be prone to be more confident in their views than they should be, which can lead to disastrous results.
Second, why make this analogy if he really is “generally against scientific pretensions.” Just not in this case? Aggregate demand is lone example in economics where scientific pretensions is warranted?
Something else bugs me. Krugman writes:
Think, for example, about the Great Recession and its aftermath. Regular economics says that economies should normally get richer each year, as their work force and capital stock grow, and technology advances. But after 2007 the United States and other advanced countries suddenly went into reverse, becoming poorer instead of richer, and for an extended period too [pointing to a chart of declining GDP in the recession].
Does regular economics say that economies should get richer every year? Maybe. I haven’t heard that one.
Is GDP a measure of wealth? I thought it was a measure of economic activity. Can’t GDP decline and wealth still go up? If Bill makes $100,000 a year and has $1 million in Apple stock, does his wealth go down if his salary declines to $90,000? Not necessarily. It depends on how much he spends, doesn’t it? If he spends $80,000 a year, his wealth can still grow after the decline in his salary, no?
Perhaps I’m mistaken in my understanding of GDP. If so, please correct me. But, if not, it seems that Krugman’s language is unnecessarily sloppy here for a Nobel economist.