JazzBumpa | February 1, 2013 4:32 pm



On Saturday Mish wrote a really awful article with those words in it’s title.

The article borrows these words and includes a quote from an even more awful article by Austrian school economist and author Detlev Schlichter. Part of that quote is presented here.

What makes him [PK] so annoying is his unquestioning, reflexive and almost childlike enthusiasm for state intervention, even in the face of its obvious failure, and his apparent unwillingness to probe any deeper into the real causes of our present economic problems or to show any willingness to investigate the effectiveness or ineffectiveness of his particular medicine.

I want to make something perfectly clear before we go any further. It is fine to disagree with Krugman, or me, or the Pope, or anyone else, as long as you bring facts, data, and some basic skill in rational discourse. What is not fine is misrepresenting someone’s position and then holding the misrepresentation up to ridicule. That is both vile and stupid.

Back to the quote: does that sound anything like the Paul Krugman who puts his ideas out there for the world to see on a daily basis? What I see in Krugman is thoughtful analysis, and deep probing into both the causes of our problems and the consequences of economic policy decisions. You don’t have to agree with his assesments, but you cannot validly deny that he is making them.

When the opportunities smack me in the face like this, I put on my Krugman Truth Squad hat. Schlichter offers us a standard issue stale Austrian anti-Krugman diatribe. You have to wonder if he has ever bothered to read anything that Krugman has written. His wordy, repetitive, rambling, semi-coherent, desperate-sounding article – which I cannot recommend highly enough – is an impressive exercise in partial-truths, distortions, make believe, and straw man stuffing. He then hints that we should go back to the gold standard and totally unfettered free markets.

Schlichter lists Krugman’s alleged assumptions, condensed here:

1) Recessions, depressions and crises are the result of the unhampered market.

2) The Great Depression was caused by uncontrolled markets.

3) Recessions, depressions and crises are practically the result of one problem: a lack of aggregate demand. . . . It is the role of government to get people spending again. This is done by printing money and causing inflation so that people spend.

4) The Great Depression was solved by the government spending lots of money and the central bank printing lots of money.

Let’s pause here for a moment and set aside the redundancy. I’m not sure points 1 and 2 represent PK’s view with any degree of accuracy. Certainly they are gross oversimplifications and neglect other factors. But if they are true, then point 3 can’t be. Let’s set that aside, as well. Points 3 and 4 are reasonably close to the truth, though if you read the original, point 3 runs off the rails as it continues.

From there it only gets worse.

5) This explains ALL economic problems.

So, according to Schlechter, Keynes taught, Krugman believes – and would have us believe – that loose money policies and causing inflation are the right policy measures not only for recessions, but for boom times, and periods of inflation, hyper-inflation, stag-flation, or any other problem you can think of. Even I know enough about Keynes to call that out as false.

The redundency continues to pile up. I’ll extract one more point. [#’s 6,7, and 8 are repetitions of #4 with various degrees of elaboration and snark.]

7) If after many rounds of money printing and deficit spending, there is still a recession, then only one conclusion is permissible: There was obviously not enough money printing and deficit spending. We need more of it.

I don’t claim to know everything, but I’m not aware of any situation in recent history that has played out like this, so it looks like a Schlichterian fantasy. In the post WW II era, the combination of loose money and fiscal expansion has generally kept recessions rather short, leading to V-shaped recoveries, and putting the brakes on too quickly has occasionally led to a double dip. England has recently experienced an austerity-induced double dip recession. In the current U. S. doldrums, Krugman tells us fiscal frugality has led to a slow and limping recovery. This is credible since spending is flat and GDP growth is anemic. [Graph 1]

Graph 1, Current Expenditures and GDP (log scale)

Has any modern major economy had a recession persist after “many rounds of money printing and deficit spending”? Even in the Great Depression things turned around pretty quickly once New Deal policies were implemented. But, as PK also tells us, recessions brought on by a financial crisis are different from the typical post WW II recession.

Schlichter doesn’t let up. Though this statement [emphasis added], “Krugman is the one who should be made to explain his policy recommendations and who has to answer the criticism that policies like the ones he is recommending got us into this mess in the first place and that his policy ideas have been implemented for years to no effect , at least no positive effect.” is hard to beat for sheer negation of reality [and for channeling Ron Paul], the real capper is this: “Krugman is practicing Keynesianism as a religion.”

It is because of statements like this that I lose patience with people who use words like “disingenuous.” You can supply your own alternative vocabulary Check Krugman’s Op-Eds and blog posts, where he repeatedly demonstrates reality with graphs and tables, shows how austerity is failing right now with real-world examples, and admits it when he gets something wrong. When is the last time you saw a Krugman-hater do that?

Mish, to his eternal discredit, says of this nonsense: ” Moreover, it appears to be 100% accurate.”

But, Mish continues, the real way to debate Krugman is demonstrated by Economist Hans Hermann-Hoppe in this one minute video.

This is genuinely awesome. That an economist can be so thoroughly wrong – wrong in general and wrong in every particular – about what Keynesianism is and does, leaves me speechless, and that’s saying something.

OK – almost speechless. Any child can see that the earth is flat and the sun revolves around it. So let’s forget the trivially unimportant technical details and ask simple-minded, allegedly probing questions that in this case are totally unrelated not only to the policies Keynes and Krugman propose, but to anything else in the real world, and then point and stare when these questions cannot be answered – by anyone, while your minions nod approvingly.

But would it work? Mish concludes this way:

Krugman would respond with incomprehensible gibberish “for wonks only” as well as typical Keynesian nonsense about how paying people to dig holes and other people to fill them up would start a chain reaction of growth.

A child would see the answer was preposterous, but not a trained economist, politician, or brainwashed academic. Paul Krugman, keynesian economists in general, politicians wanting a free lunch, and most academics are all incurable.

Nonetheless, Hans Hermann-Hoppe’s answer is indeed the correct one. By asking questions a child will understand, some non-brainwashed people will see Keynesian and Monetary stimulus for what they really are: economic stupidity.

In a follow up article [with a 5 point list that includes 2 naked assertion and 3 irrelevancies {seriously – Zimbabwe?!?}] Mish makes it clear that in his view monetary and fiscal stimulus are BOTH stupid. So, at this point it looks as if he – with his straw man army and blatant intellectual nihilism – and I have devolved into a schoolyard game of calling each other stupid.

But I’m quite sure Mish is not stupid, and I’m fairly certain I’m not either. The real questions are these: who is paying attention to reality, whose policies make things better or worse in a given situation [absolutism, anyone?] and whose concepts have had some predictive power over the last several years. [Here’s a hint: it’s not the Austerians.]