Friday, May 25, 2012

Paul Krugman has a Nobel Prize

How many times have we heard that? Krugman writes a bunch of nonsense masquerading as a thoughtful column, he gets called out on his crap, and his fan-boys jump to his defense.

And every single time, that defense is:
Well, Paul Krugman won a Nobel Prize in economics. What have you done?
Frequent readers of this blog will know that I'm big on pointing out fallacies of argument, and this one certainly qualifies. In fact, it can actually be characterized as a fallacy in two different ways.

First, we can note that it's a simplistic appeal to authority: Krugman is right because he's a recognized expert, because someone else says he's an expert. His actual argument, the "facts" he cites are inconsequential. He's right because he's Paul Krugman, famous economist.

And second, it's also a fallacy because it assumes facts not in evidence. To whit: ask anyone who defends Krugman with the Nobel Prize line the following question: what did he win the prize for? Is Krugman actually a renowned expert on the particular economic issues on which he's pontificating? Stunned silence. Crickets.

Noble Prizes--most of them--are a lot like Academy Awards. And in fact, the Nobel Prize in Economics--actually the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel--is not a real Nobel Prize. It's given by the Swedish central bank, though it is officially associated with the Nobel Foundation and the selection process for the award is similar to that for the five original Nobel Prizes. And that process is--again, like the Academy Awards--a vetting of nominees by a committee, followed by a vote of the Acedemy, in this case the Royal Swedish Academy of Sciences.

I don't want to come across as too harsh here, because receiving such an award is certainly an honor. And it's certainly based on hard work and original thinking. After all, Friedrich Hayek and Milton Friedman--two men whose views on economics (and politics) are diametrically opposed to Krugman's in many ways--both won the Nobel Prize in Economics, as well. So did James M. Buchanan, one of the many economists who were signatories to the Cato Institute's ad opposed to the Obama Administration's Stimulus plans.

Buchanan won his prize in 1986, "for his development of the contractual and constitutional bases for the theory of economic and political decision-making."

Krugman won his in 2008, "for his analysis of trade patterns and location of economic activity."

Now for the typical lay-person, which of these two men seems to have received their recognition for their work on government policy, with regard to the economy? Pretty obvious, no? Yet, Krugman fan-boys have deluded themselves into thinking that Krugman is the top dog in economics, when it comes to government policy. Why? Mostly, I would guess, because he has a column in the New York Times.

Speaking of which, here is Krugman's latest piece, rife with his usual faulty analysis and unrelenting braggadocio. In this article, Krugman constructs yet another strawman par excellence:
Actually, before I get to that, let me take a moment to debunk a fairy tale that we’ve been hearing a lot from Wall Street and its reliable defenders — a tale in which the incredible damage runaway finance inflicted on the U.S. economy gets flushed down the memory hole, and financiers instead become the heroes who saved America.

Once upon a time, this fairy tale tells us, America was a land of lazy managers and slacker workers. Productivity languished, and American industry was fading away in the face of foreign competition.

Then square-jawed, tough-minded buyout kings like Mitt Romney and the fictional Gordon Gekko came to the rescue, imposing financial and work discipline. Sure, some people didn’t like it, and, sure, they made a lot of money for themselves along the way. But the result was a great economic revival, whose benefits trickled down to everyone.
Krugman then proceeds to dismantle the "fairy tale," in order to prove how smart he is. But the problem is, of course, that no one is making the argument he's so ably criticizing. The argument isn't that private equity firms upended "lazy managers and slacker workers," it's that the actions of such firms freed up capital that was not productive. It's simple Capitalism 101. The equity firms merely accelerated--at various moments--a process already at work. And Krugman--in my opinion--damn well knows this. So why the obfuscation on his part? Politics. Nothing more.

Look at his conclusion:
Think about where we are right now, in the fifth year of a slump brought on by irresponsible bankers. The bankers themselves have been bailed out, but the rest of the nation continues to suffer terribly, with long-term unemployment still at levels not seen since the Great Depression, with a whole cohort of young Americans graduating into an abysmal job market.

And in the midst of this national nightmare, all too many members of the economic elite seem mainly concerned with the way the president apparently hurt their feelings. That isn’t funny. It’s shameful.
Let's remember that Krugman--once upon a time--actually called for a housing bubble, then proceeded to whine about it and blame it on everyone else.

From the first (Krugman in 2001, my boldface):
To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
From the second (Krugman in 2008, my boldface):
It all starts with the bursting of the housing bubble. This has led to sharply increased rates of default and foreclosure, which has led to large losses on mortgage-backed securities...
So what should be done? Well, let’s think about how, until Paulson hit the panic button, the private sector was supposed to work this out: financial firms were supposed to recapitalize, bringing in outside investors to bulk up their capital base. That is, the private sector was supposed to cut off the problem at stage 2. 
It now appears that isn’t happening, and public intervention is needed. But in that case, shouldn’t the public intervention also be at stage 2 — that is, shouldn’t it take the form of public injections of capital, in return for a stake in the upside?
So, Krugman calls for a bubble, the bubble bursts (as bubbles always do), and Krugman calls for a bailout with a public takeover of the financial industry. Then shortly after that--as we all know--Krugman starts calling for massive public expenditures to "stimulate" the economy, far more in that regard than the Administration spent, trillions more.

In Krugman-land, massive government spending and government takeover of firms is a panacea for the tragic consequences of the government over-involving itself in the economy. Right. That makes so little sense, it really is shameful, not funny at all.

But Krugman has a Nobel Prize.

Cheers, all.

1 comment:

  1. Isn't this common sense? Do these morons really believe the government is going to save them? Have you ever read a single letter of a subject called history? Let alone some simple common sense? Here is some common sense for you: Say you have a basketball team of equal skill and talent. One has five seasons of really really tough competition. The other just practices together. Who will win if they play? Ummmmmmm....maybe competition is a law of nature. Maybe government by its nature has no competition. What kind of products will you get from a government? Simple. WTF is the problem?