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Friday, November 14, 2003

Unravelling the Thread

A few weeks ago Arnold kling caused a bit of fuss round the blogs by criticising Paul Krugman for using what he calls 'Type M' arguments. This debate seems finally to be reaching the responsible 'old media' world: the Economist has an article on 'one handed economics'. Now I am not here going to reiterate what I said in my post at the time . I do, however, think that the Economist is right to draw attention to his absurd use of the 'lump of labour' argument in connection with the New York Fed paper he was talking about in his article (incidentally, this argument would be better directed towards domestic US IT workers, often trade unionists, who use this type of point 'Jose Bove style' in connection with Indian outsourcing: but then they aren't normally neo-cons).

To this I would add his article "Argentina: the role of ideology", where he argues the peg etc. was so popular since "a currency board fitted a conservative ideology: by eliminating any discretionary monetary policy", which sails clean past the fact that this idea has been popular all over the place, and especially in Europe, where you could think of the euro as a kind of 'institutionalsied currency board'. As he says, there are arguments either way, the only thing you can't say is that this is produced by a right wing ideology. Or there is a recent interview he gave on US radio - called 'whats left of the New Economy - which is worth listening to in its own right, there are some interesting points about de-regulation, and you can easily see that however hard he tries to be positive, he can't get away from the fact that he is fundamentally a 'new technology skeptic' (no disgrace here, there's a long tradition of this, that's why some have called it the 'dismal science', and it's a legitimate opinion: simply one I don't agree with. As he says, "oh, um, sure, there are some interesting things going on out there, but......).

The point I want to highlight, however, is his generalised turning-up-of-the-nose at one of the greatest of twentieth century economists: Joseph Schumpeter ("I have mixed feelings about Schumpeter, his name used to come up..........economic and business analysis should be about analysis and not poetry". Thank you very much Paul for that enlightening observation!) - which he esentially seems to justify due to the use made of Schumpeter by the 'new economy scam' Enron types in the 1990's. Of course he's so busy mocking Schumpeter, that he loses the main interesting point in the argument. Creative destruction is not only about physical capital, it's also about human capital. For those who haven't had enough with all this, you could try reading his for richer NYT magazine piece, and noting the use made of Galbraith in the argument. Then you should go back to his Ohlin Lectures of 1992 and check the references to Galbraith in the index (published as Development, Geography and Economic Theory). Here you will find a very different appreciation of Galbraith: a much more negative one. To cap it all - and this incidentally is precisely where I came in personally in my wising-up on Krugman, since my first mail to him was about this very point (he, incidentally, replied by sending me back the Fisher velocity equation, which I take it we are all now agreed does not apply in any straightforward way to the situation in Japan). Here he himself describes some of his articles as "diatribes", which "focus more on the question of why Japan's policymakers (and too many economic pundits, Japanese and Western) have been unwilling to break out of the habits of thought that are, in my view, the only reason that predicament persists". Well said. I couldn't sum up his view better. I just don't share it.

Lyinginponds.com, a website that tracks partisanship among American political columnists, rates Mr Krugman second in the overall partisan slant of his columns, behind only Ann Coulter, a fiercely (and often incoherently) conservative polemicist. As the site documents exhaustively, the vast majority of Mr Krugman's columns feature attacks on Republicans; almost none criticise Democrats. Unsurprisingly, this has made him a sort of ivory-tower folk-hero of the American left—a thinking person's Michael Moore. But he may have even more readers among his ideological adversaries, particularly on the internet, where deconstructing his latest column is a kind of twice-weekly parlour game—albeit one so contentious it has spawned talk-show chatter and even legal threats.

He refers to these critics as his “stalkers”. Many of them spend an inordinate amount of time quibbling about minor semantic points, or trivial differences in statistics. But they cannot all be easily dismissed. The more reasonable ones allow that he is a gifted writer and economist, but also argue that these days his relentless partisanship is getting in the way of his argument. Is the American political and economic picture, they ask, really as one-sided as he paints it? And if not, should an economist of Mr Krugman's prominence be telling the public that it is?

A glance through his past columns reveals a growing tendency to attribute all the world's ills to George Bush. Regarding California's energy crisis, for example, he berated the Bush administration and the Federal Energy Regulatory Commission for not imposing price caps sooner—but found no room to mention Bill Clinton, who presided over a similarly inactive FERC for the first part of the crisis, nor to attack California's then Democratic governor Gray Davis for his disastrous refusal to allow consumer prices to rise. After Mahathir Mohamad, the prime minister of Malaysia, recently gave an anti-Semitic speech, Mr Krugman argued that the Bush administration's ham-fisted foreign policy had forced Dr Mahathir to make the remarks in order to shore up domestic political support—most unlikely, given that he was about to step down.

Even his economics is sometimes stretched. A recent piece accused conservatives of embracing the “lump of labour fallacy”, the mistaken claim that there is a fixed quantity of work which governments must strive to allocate equitably. In fact, the paper he cited did not commit the lump of labour fallacy. He used game theory to argue that, by criticising North Korea but not attacking it, and then going after Iraq instead, Mr Bush is “probably” encouraging North Korea to become a more dangerous nuclear power. This probably did not convince most game theorists. Overall, the effect is to give lay readers the illusion that Mr Krugman's perfectly respectable personal political beliefs can somehow be derived empirically from economic theory.

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