Monday, January 30, 2012

Krugman's willful ignorance

The heir-apparent to the throne of John Maynard Keynes is at it again. This time, Paul Krugman targets Europe with his one-size-fits-all solution of spend, spend, spend. Nevermind that Krugman dumped actual Keynesian theory a long time ago, for the generalized solution of governments spending their way out of every problem no longer even needs the dishonestly supposed support of Keynes; it's become nothing but a political talking point, thanks to people like Krugman (who, of course, cannot be criticized because he has a Nobel Prize).

He focuses in on Great Britian (well, Krugman says just "Britian," but that's imprecise; surprising for such an erudite person, no?), arguing that an "austerity doctrine" there has had tragic consequences. As evidence, he compares conditions now with those in the post-Great Depression era:
It turns out that by one important measure — changes in real G.D.P. since the recession began — Britain is doing worse this time than it did during the Great Depression. Four years into the Depression, British G.D.P. had regained its previous peak; four years after the Great Recession began, Britain is nowhere close to regaining its lost ground.
So, GDP is down and that is because--according to Krugman--of the austerity measures taken by the government there. As he says:
Britain, in particular, was supposed to be a showcase for “expansionary austerity,” the notion that instead of increasing government spending to fight recessions, you should slash spending instead — and that this would lead to faster economic growth. “Those who argue that dealing with our deficit and promoting growth are somehow alternatives are wrong,” declared David Cameron, Britain’s prime minister. “You cannot put off the first in order to promote the second.”
What we can assume from this--because there's just no way Professor Krugman could have his facts wrong--is that spending is way down in Great Britain. Right? Unfortunately for the Professor, such does not appear to be the case. Here are a couple of charts from UK Public Spending:

Shoot, that doesn't look right at all, does it? Total spending is up in the UK (I recognize that UK and Great Britain are not the same thing, but again Krugman was imprecise and I doubt there would be much of a difference, regardless), as is spending as a percent of GDP. Where's the austerity? Jeremy Warner lays out some more of Krugman's misconceptions here.

But that's the real problem. In Krugman-land, austerity policies are defined as spending less than what Krugman would spend, as is clear from his near-continuous (now) criticisms of spending in the United States. Krugman wants more, more, more. There is no such thing as too much spending, because any failures to revive the economy by increasing spending can always be hit with the criticism "not enough."

Krugman is convinced he is right of course. And he would have us believe that his conclusions are the product of careful consideration and analysis, unrelated to politics or ideology. Indeed, he has the audacity to conclude that
...Policy makers, pundits and, I’m sorry to say, many economists decided, largely for political reasons, to forget what they used to know.
Krugman, I'm sorry to say, has lost his mind.

Cheers, all.


  1. One other point. Slashing budget (if it were to happen) is not necessarily enough. In 2001-2003 Israel had severul "austerity" measures (basically, budget cuts, though I am not sure whether they were cut in real terms). Only in 2003 when Netanyahu became finance minister and budget cuts (pretty severe cuts) were accompanied by real reforms, the economy started getting out of the slump (and did better than US growth by a factor of around 2 and better then EU by a factor of around 3).

    I do think that to a large extent the general direction of the policies have a signifciant impact. Even today, taxes in Israel are higher than US and there are other problems associated with the more or less socialistic past, but the dircetion where the gov tries to take the economy is opposite to the US. The direction is to free more of the economy, lower the taxes etc. And the economy is largely booming (though there are signs of a slowdown now)

  2. It's quite impressive that you're showing some data to support your claim that Krugman is wrong. However, you're showing data from 1950 and about 2011. What we're interested in is what's been happening between 2008 and 2011. Firstly, your graphs aren't particularly relevant. If, however, we consider the top graph, spending - as a fraction of GDP - increased by about 5%. However, GDP fell by about 6% so this does not indicate a significant increase in absolute terms. It is simply a higher fraction of GDP because GDP has fallen. In the bottom there is clearly some increase in absolute spending between 2008 and 2011. However, inflation has been running at about 5% and so to simply match inflation, spending would have to increase by about £30 billion per year. As far as I can tell, the data you've shown is entirely consistent with the beginnings of austerity and does not show, in any way, that Krugman is wrong.

  3. Sorry Anon, but at best you might extrapolate minimal spending growth from such assumptions. Note Krugman's words again: "slash spending." Where is this slashing?

    "Austerity" should actual mean austerity, imo. Increased spending--even if the increase is not as big as some might like--ins't austere. It just isn't. Pretending that it is is dishonest...or willful ignorance.

  4. It's certainly the case that the UK government wants to essentially remove the deficit over the course of this government (i.e., by about 2014/2015). The NHS are facing £20 billion cuts. The increase in public spending is not keeping place with inflation (one might argue that it should have increased by £90 billion since 2008). There have been no public sector pay rises since about 2008 and about 750000 public sector workers have lost their jobs. Maybe that's not quite slashing it, but it's certainly reducing public spending (when inflation is taken into account). Krugman's view is that they should be doing the reverse. That they should now be investing even if (long-term) reducing public spending would be a good thing. Arguing that he is wrong simply because you think that spending has not actually been slashed seems to miss the point a little.

  5. My contention:

    "But that's the real problem. In Krugman-land, austerity policies are defined as spending less than what Krugman would spend, as is clear from his near-continuous (now) criticisms of spending in the United States. Krugman wants more, more, more."

    Krugman frames it as "slashing spending" and "austerity measures." He's wrong based on what he actually says.

    Here's more:

    Note that the chart on UK spending here includes numbers adjusted for inflation.

  6. Well I must admit that I don't quite understand some of those figures - or rather I don't understand how some can be correct. The first shows UK public spending in billions of Euros and shows the rate of increase slowing after 2008 and being almost flat from 2009 to 2011. The last figure shows public spending adjusted for inflation. This doesn't seem correct. Inflation has been running at 5%, so how can inflation adjusted spending be increasing when actual spending is flat?

    I suspect that we aren't going to change each others minds. I happen to have a lot of time for Krugman's general views (even if some of what he says is not strictly correct - and I'm not even convinced that this is necessarily the case).