The Paul Krugman Thread

What’s Wrong with Paul Krugman’s Philosophy of Economics?

edited 3rd Jul '14 12:31:06 PM by deathpigeon

In reading the article, admittedly with some preexisting bias, I can't actually find what it purports to criticize about Krugman's methodology, except that it raises the old dusty saw of 1970 and stagflation, which has already been shown to be a "stopped clock" event for neoclassical economics and a case of omitted variables for Keynesian analysis.

What the author completely ignores is that neoclassical is almost entirely an ideology-based economic philosophy whereas Keynesian is empirical. The modern resurgence of "freshwater" macro was and is driven mainly by powerful financial interests who like the fact that it tells them how important they are.

The author isn't criticizing either Krugman's methodology or his conclusions. He's criticizing what Krugman says about how economics should function as a discipline. Indeed, he seems to be implying that Krugman doesn't do economics quite the way he says economics should be done, and arguing that the way Krugman actually does economics is better than the way Krugman says that economics should be done. Indeed, what he's arguing is not that Krugman is wrong about everything, but that Krugman needs to explicitly address uncertainty when he talks about how economics should function, and Krugman really should know that already since it was Keynes who most famously made that argument, and Krugman has almost certainly read Keynes. Yet, Krugman has been silent about uncertainty in his treatment of economics.

Not!Krugman gets an Instagram

So John Oliver's show last night had a Paul Krugman joke. Basically talking about how print media is like porn, in that no one wants to pay for it. The joke he went with was "Paul Krugman's Trickle Down Economics" with him under the legs of a stripper or something.

I was deeply offended. Paul Krugman is an ardent opponent of that trickle down economics bullshit!

Wait, no, it was a joke was golden showers oriented not scatological.

I laughed at the joke, and it wasn't meant to indicate anything wrong about Krugman's economics.

Krugman waxes on about how Macro went so astray, in his opinion.

Academic politics ossify every discipline. As Krugman astutely notes, his own section of macroeconomics has its own mafia, and no Austrian is going to get tenure or publication where he has any influence, because no Austrian's papers will meet the standards that he and others like him have set.

That said, what Krugman doesn't say is that part of the reason Chicago and Austria have taken over most of the economic landscape is because there's a lot of pressure on universities to fund studies based on where the money's coming from, and when the Ayn Rand Institute wants to fund your school of economics, you can bet that they won't be establishing any chairs for Keynesians.

That's certainly a valid line of discussion. Krugman would observe that the acid test of any discipline is whether its ideas survive examination by reality; there may be a "clique" of evolution supporters among biology majors, but that's because it's a proven theory and anyone who tries to suggest alternatives has to meet an overwhelming burden of proof.

Paul Krugman's review of Jeff Madrick's Seven Bad Idea: How Mainstream Economists Have Damaged America and the World

The problem is that anyone who is qualified to judge the proof in question has a vested interest in seeing it destroyed, and has full authority to ignore it if they can't disprove it. If evidence has any bearing on academic politics, then why is the Chicago school in power? Answer: because the people who comprise the peer-review boards are students of Milton Friedman.

And, of course, the Austrians would respond that Krugman is wrong about the need to test theories in the real world, due to the self-evident fact that economics is a praxeology and not a science.

edited 28th Sep '14 5:18:43 AM by Ramidel

The Chicago School isnt really "in power" anymore, if they ever were. They have disproportionate influence among conservative policy makers because their theories happen to align with the self-interest of certain economic elites, but certainly there are other factions around.

Economics is a science in the same sense that sociology is- they have the theories and the models, but the scale of the phenomena they study is so vast that testing those theories in nearly impossible.

I take umbrage at that. That statement suggests to me that you do not have sufficient grounding in current sociology to make that comparison.

There's a hell of a lot of empirical methodology in the field, thank you. Unlike too many in economics, the field as a whole is trying damn hard to distinguish between the ideas-factory side and what does to find out if they work when it comes to groups of people.

edited 28th Sep '14 7:20:34 AM by Euodiachloris

We've got an ample body of experimental evidence in economics; the problem is that the policy-makers ignore it in favor of their ideology.

I'm not saying that either of those fields do not. It wasn't a judgmental statement. But gathering data on large scale social phenomena is orders of magnitude more difficult than studying something in a laboratory. You cant experiment on human populations, after all. Hence, it is not impossible, but it is significantly more difficult, to test many theories and hypotheses in sociology or economics (or anthropology for that matter) than in certain other disciplines, and that makes it harder to disconfirm many of the claims that are made by experts within those fields, esp. when those claims are being made, as Krugman points out in the case of economics, at least to some extent in bad faith. Even an honest policy maker, let alone the average voter, could be excused for being confused by the arguments and controversies in any of these fields.

Economics is the worst case, because the policy implications of the models being discussed are more direct. When they get something wrong, millions of people can suffer for years.

It's not as monumentally difficult as you make out. <_< There are methods and tools that can be used that do follow scientific rigour.

Seriously: it's like astrophysics boasting about how hardcore it is... then having to use algorithm after algorithm to be able to interpret what information it gets from deep space.

Just because you use algorithms to interpret what you see from something that's damned hard for you to manipulate doesn't make what you're looking at less "empirically rigorous". <_< There are a lot of similarities between stargazing and looking at people, in fact. And, I'm not just talking about the statistics used in doing both.

edited 28th Sep '14 9:24:45 AM by Euodiachloris

I never meant to imply anything about scientific rigor, only that it's harder to tell who is right and who is wrong when the experts disagree with each other. Who is right, the functionalists or conflict theory? It's obviously more complex than that. For an economics example, who was right in the "Cambridge Capital Controversy"?. Is the question even meaningful? That's what I mean: issues that have important policy questions are very difficult to resolve decisively. This makes economics of limited use as a practical guide to government policy. At least for now.

I skimmed that Wikipedia article and it seems to be a case of different variants of neoclassical (or neoclassical and Austrian) arguing with each other, which is sort of like the guy who thinks the Earth is flat having a spirited debate with the guy who thinks the Sun revolves around the Earth.

edited 29th Sep '14 5:38:18 AM by Fighteer

OK, so according to that analogy, what do economists use for a telescope? What's their equivalent of Newton's law of gravitation? The "three body problem" in physics pales in comparison to predicting the precise effects of deregulating the financial markets.

Data, and analysis thereof. We have tons of data, and we have excellent tools for interpreting it. The problem is the people, not the science.

The Law of Universal Gravitation is a mathematical pattern that governs all bodies everywhere without exception and greatly simplifies the prediction of motion in space. I'm asking what the theoretical equivalent in economics is.

Supply and demand, I guess? Economics has models that predict behavior, much like physics. If the models are accurate, they succeed and enter the general body of knowledge.

I'm sorry, but Supply and Demand is nothing like the Universal Law of Gravitation. Predictions made on the basis of S & D is entire orders of magnitude less precise. If you fire a rocket with X weight and Y thrust along Z vector, an engineer can tell you where it will end up in a year with a high degree of accuracy. He can even tell you what effect this might have, if any, on other bodies in the same system (if this were a transiting asteroid rather than a rocket, for example). If, on the other hand, someone started a new car manufacturing business producing X number of units at Y price for the next Z years, how many cars will they sell? What precisely will be the effect on the economy overall? Obviously, no one can say, because the number of uncontrolled factors is much greater. That's what I mean: economics cannot be as precise a science as physics because the phenomena it is studying are much more difficult to simplify into theoretical models.

The problem with classical economics isnt that the models were imprecise, it's that many economists and politicians were unwilling to admit that fact. They treated it as if it were a realistic portrait of how real economies work, and of course we know they weren't. Worse, they acted as if a highly precise mathematical model of an entire national economy were possible, which at this point it isn't. We do have some fairly good behavioral and micro-economic models, of course, but I'm not aware of anything at the macro-economic scale that can claim as much reliability as, say, the three laws of motion.

That's a real problem, because it means that economics is not a very helpful guide for lay people when making short term practical decisions. When the experts disagree with each other, who should the rest of us believe? You and I, Fighteer, may believe we have some clue regarding that, but that's because we have taken the time to study the subject to some extent. Most people dont, including elected officials. There is no simple way to tell who the crazies are. If someone comes along and claims that they have a way to get around the law of momentum, anyone would be skeptical of that because the scientists who believe in the law of momentum have been right so many times (any time someone launches a satellite). Economists are more like weathermen, they dont have simple models that are right all the time, so they arent trusted, and shouldnt be, to anywhere near the same degree.

That, in turn, makes it a lot easier for someone to sell snake oil. "What is the effect of lowering taxes?" Mainstream economists will produce an extremely dense model with a lot of qualifiers in it: "probably this" and "likely that". Who knows if they are right or not? Then another guy comes along with something like the Laffer Curve. The Laffer Curve is wrong, but it's easy to understand, and difficult to clearly disprove. So a certain type of politician (the "a bad decision is better than no decision at all" kind) really likes it. That's why economics is not a science like physics, or even medicine. The phenomena they seek to explain is simply too complex.

BTW- that article Deathpidgeon linked to at the top of the page had some interesting things to say about this very issue.

edited 29th Sep '14 7:43:17 AM by demarquis

Economic theory is not applicable to most everyday decisions, anyway. Who cares about supply and demand curves when buying milk? The point isn't to inform the behavior of individual consumers at the grocery store, but to anticipate their behavior in aggregate when setting overall policy.

I would also challenge your assertion that orbital mechanics are comprehensible, never mind relevant, to the average layperson. They take the proclamations of physicists with as much faith as they take the proclamations of the local weatherman.

The problem with economics isn't the science; it's that the science is preempted by political interests. Consider evolution — the science on that is as solid as on gravitation, but something like half of the U.S. population has serious doubts about it. Ditto anthropogenic climate change, and both have heavy opposition in the form of wealthy persons and groups who can buy institutions that spread propaganda on their behalf.

Krugman has often observed that when you examine fields where outcomes actually matter, such as international capital and finance, you find people who believe in Keynesian rules, because if they don't, they lose money, and hence their jobs. So clearly economics is fully capable of being an empirical science.

edited 29th Sep '14 7:52:28 AM by Fighteer

I wasnt talking about the decisions of individual consumers, I was talking about choices that have macro-economic consequences, like starting a new car manufacturing company, or lowering the tax rate. We can predict individual decisions much better than that, at least in a laboratory setting.

"They take the proclamations of physicists with as much faith as they take the proclamations of the local weatherman."

Absolutely not true. There is a reason "That isnt rocket science" is a common phrase in our culture. Orbital mechanics are very comprehensible in a visual shorthand sort of way. You dont have to be able to calculate the math (I cant) to trust that NASA scientists know how to fire a rocket at the moon, they did it several times. The scientists who did that also claim other things, like there is little friction in space, objects in motion will stay in motion, etc. They must be right about those too, or the moon lander would never have made it. Economists cant guide a company or an economy the way space scientists can guide a rocket.

Now your point about the effect of politics on the acceptance of science is correct- and marketing has a lot to do with that. But I claim that one reason why the public doubts certain things like evolution, climate change, or government investment in the economy is because of the vast scales involved- it's easy to sell lies because ordinary people cant see anything with their own eyes, they way they can with a moon landing. And that's precisely because of the complexity of the phenomena we seek to explain. Compare to the very small number of conspiracy buffs who believe the moon landings were faked.

Your point about international financiers is further support- they can see direct effects- on their own pocketbook.

edited 29th Sep '14 7:55:52 AM by demarquis