Robert Parenteau: The Large Fly in Krugman’s New Keynesian Soup

Naked Capitalism has the article Robert Parenteau: The Large Fly in Krugman’s New Keynesian Soup.

Paul Krugman had a delightful field day with his March 2nd New York Times column trashing media poseur economists like Larry Kudlow – economists who somehow manage to survive on their entertainment value alone, despite their repeated analytical errors. No doubt their prolonged shelf life has more than a little to do with the fact that the points of view they espouse tend to encourage their readers (or viewers) to think that their self interests are perfectly aligned with the self interests of say, oh, the Koch Brothers and their ilk. Useful idiots is the phrase that comes to mind. Useful idiots engaging in willful ignorance.

On his way to skewering the clownier clowns of the economics profession, however, Krugman could not help but to once again remind his loyal readers that everything you ever needed to know about macroeconomics was already discovered and described in his 1998 paper on Japan’s alleged liquidity trap. Humility is not one of Krugman’s strong suits, but we will allow you to come to your own conclusions after reading yet another of his repeated attempts at shameless self pimping in the March 2nd piece:

I thought it might be fun to see Paul Krugman being skewered, but by the time I got to the end of the article, my head was spinning.  Then I read the comments among very well read people arguing over who did or did not say what or how you could or could not interpret their words.

I offered the following comment:

Let me see if I can bring this discussion back to reality by quoting Greenberg’s Law of Reverence

Principles are not great because a revered person spoke of them. A person is revered because he or she spoke of great principles.

The argument about what Keynes did or didn’t say is not useful in proving or disproving the correctness of any economic principle. The economic principle is either correct (or applicable) based on reality. To the extent that Keynes is revered, it is because the principles he espoused were correct (applicable). Pretending or interpreting an idea as something that Keynes said is not proof of that idea.

The upshot of this understanding of Greenberg’s law is that it is a blind alley to pore through the writings or sayings of Keynes to find out if he did or did not say something, when what we should really be after is whether or not an economic idea is both correct and applicable to the current situation. This talk about economic experts is devolving into an almost Biblical discussion of whether or not you can find something in the Bible to support your argument.

The graph of economic growth versus real interest rates should not be surprising. The economy (society) is so full of competing forces that it is foolish to think that you can find a single measure that will always correlate with (much less be the cause of) one single other measure.

Besides the complexity argument, you have the idea of reflexivity (credit to George Soros, not reverence for him). The actors in this complex system read about what is said about how the system works, and they make judgments on how others will behave given this knowledge. No physical system of inanimate objects bases its behavior on what it thinks the other objects know. So thinking you can ever make a model of the system the way physicists do in purely inanimate systems is going after a fool’s errand.

<ironic self deprecation>I so fell in love with my brilliant analysis that I decided to blog about this whole episode.</ironic self deprecation>.

Leave a comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.