Tag: Paul Krugman

Macroeconomics in politics

Steve Chapman writes:

If the economy improves and unemployment drops, Obama can take credit. If it fails to improve and unemployment rises, though, he can say he averted an even worse showing. Republicans will take the opposite tack — attributing any improvement to the natural resilience of the economy and blaming the administration if things get worse. And neither side will really know who’s right.

A scientifically trained politician (or journalist) often has good reasons to simply say, “I do not know.” But in politics, or especially in politics, such statements are considered a sign of weakness, and therefore, political suicide. To be a successful politician you need to signal strength, not epistemological sophistication. To a lesser extent this applies to (partisan) journalists who write about macroeconomic matters as well. If Paul Krugman would just confine himself to sketching a number of different scenarios without taking sides, many people would find his columns boring and would look for ammunition to engage in political debate elsewhere. The addiction to politics is so strong that we are prepared to throw everything we have been taught about valid reasoning and how science operates out of the window.

Related reading: Looking at the world through politically-colored glasses

On economic forecasting: A positive-sum game against nature

Pavlov’s dogs of stimulus

In his latest column “To Spend or Not to Spend,” Anthony de Jasay discusses the current plans to borrow and spend our way out of economic recession. A central place in such policy proposals is taken by the renewed enthusiasm for Keynesian economics, a school of economic thinking that appears to have been formulated for activist politicians (which raises some interesting questions about the relationship between the popularity of economic “ideologies” and policy needs). Keynesian economics raises some serious epistemological problems and questions about the ability of  its recommended policies to produce predictable and consistent effects. As de Jasay writes:

…for all its admirable originality and inner consistency the Keynesian system has notorious faults. Perhaps the principal one is that it holds out an open invitation to lesser Keynesians to treat the economy as a complex machine made of rigid Meccano parts whose mechanical properties are fixed and known. There is the propensity to consume, the marginal efficiency of capital, liquidity preference and so forth, great impersonal data that make the whole economy move in certain ways when they move—but why do they move? It is all macro and no micro. It is too easy to forget that the data are the sums of human decisions subject to human expectations and they change as expectations change. The eminent Polish economist and statesman Leszek Balcerovicz holds that the authors of fiscal stimulus packages must be taking people for Pavlov’s dogs who react predictably to signals because they live by conditioned reflexes and not by calculating reason.

In the January 12, 2009 issue of the American Conservative, David Gordon reviews Paul Krugman’s The Return of Depression Economics and the Crisis of 2008 and wonders why price adjustments in the market should not be allowed to “solve” the recession instead of engaging in a new round of interventions that set the stage for another  bust, and so forth. But why does the economy face collapse at all? Gordon quotes from Krugman’s own work to support the Austrian Business Cycle Theory [ABCT]. Over at the Ludwig von Mises website, Juan Ramón Rallo Julián presents a case that “the current crisis fits perfectly with how Austrian economists have explained these events since the beginning of the 20th century.”