{"id":4275,"date":"2015-06-10T20:52:15","date_gmt":"2015-06-10T20:52:15","guid":{"rendered":"http:\/\/www.rationalargumentator.com\/index\/?p=4275"},"modified":"2015-06-12T01:44:55","modified_gmt":"2015-06-12T01:44:55","slug":"fact-checking-krugman","status":"publish","type":"post","link":"https:\/\/www.rationalargumentator.com\/index\/blog\/2015\/06\/fact-checking-krugman\/","title":{"rendered":"Fact-Checking Paul Krugman’s Claim To Be “Right About Everything” – Article by Andrew Syrios"},"content":{"rendered":"
\n
\"The<\/div>\n<\/div>\n
Andrew Syrios
\n<\/big><\/big><\/strong><\/span><\/div>\n
June 10, 2015<\/span>
\n<\/big><\/div>\n
******************************<\/div>\n
\n
\n

But can the debate really be as one-sided as I portray it? Well, look at the results: again and again, people on the opposite side prove to have used bad logic, bad data, the wrong historical analogies, or all of the above. I\u2019m Krugtron the Invincible<\/a>!<\/p>\n<\/blockquote>\n<\/div>\n

\n
\n

Thus wrote the great Paul Krugman<\/a>. A man so modest as to proclaim that \u201cI think I can say without false modesty, a huge win; I (and those of like mind) have been right about everything.\u201d<\/p>\n

Quite a claim. Indeed, predictions are extraordinarily difficult. Even to an expert in a subject who has dedicated his life to a field of study, predicting the future proves elusive. Daniel Kahneman referenced<\/a> a study of 284 political and economic \u201cexperts\u201d and their predictions and found that \u201cThe results were devastating. The experts performed worse than they would have if they had simply assigned equal probabilities to each of three potential outcomes.\u201d<\/p>\n

A whole book of such wildly inaccurate predictions by experts was compiled into the very humorous The Experts Speak<\/em><\/a> with such prescient predictions as Dr. Alfred Velpeau\u2019s \u201cThe abolishment of pain in surgery is a chimera. It is absurd to go on seeking it\u201d and Arthur Reynolds belief that \u201cThis crash [of 1929] is not going to have much effect on business.\u201d Indeed, a foundational block of Austrian economics (that some Austrians unfortunately forgot regarding premature predictions of hyperinflation) is that the sheer number of variables in the world at large makes accurate forecasting extraordinarily difficult<\/a>.<\/p>\n

So it must be a rare man indeed that can be right about everything. And this man, Paul Krugman is not.<\/p>\n

Predicting a Bubble He Recommended<\/strong><\/p>\n

Paul Krugman likes to reference the fact that he predicted the housing bubble. Of course, he also sort of recommended it. From a 2002 column<\/a> of his,<\/p>\n

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.<\/p><\/blockquote>\n

In 2009, when this came out, he denied its obvious implication and wrote<\/a>, \u201cIt wasn\u2019t a piece of policy advocacy, it was just economic analysis. What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that\u2019s just what happened.\u201d So that doesn\u2019t count as a recommendation? It certainly sounded like he was agreeing with Paul McCulley on inflating a housing bubble. And he verified that that\u2019s exactly what he meant in a 2006 interview where he said,<\/p>\n

As Paul McCulley of PIMCO remarked when the tech boom crashed, Greenspan needed to create a housing bubble to replace the technology bubble. So within limits he may have done the right thing. But by late 2004 he should have seen the danger signs and warned against what was happening; such a warning could have taken the place of rising interest rates. He didn\u2019t, and he left a terrible mess for Ben Bernanke.<\/p><\/blockquote>\n

The best Krugman can possibly say is that he thought Greenspan went too far with the housing bubble he recommended.<\/p>\n

Deflation is Around the Corner<\/strong><\/p>\n

While running victory laps because the United States hasn\u2019t seen massive price inflation, Krugman seems to have forgotten what his prediction actually was. In 2010 he wrote<\/a>, \u201cAnd what these measures show is an ongoing process of disinflation that could, in not too long, turn into outright deflation … Japan, here we come.\u201d<\/p>\n

Robert Murphy called him on this and noted Krugman\u2019s response<\/a>,<\/p>\n

… Krugman himself … said of his 2010 analysis: \u201c(In that post, I worried about deflation, which hasn\u2019t happened; I\u2019ve written a lot since about why).\u201d<\/p>\n

Note the parenthetical aside, and the timing: Krugman in April 2013 is mentioning in parentheses to his reader that oh yes, as of February 2010 he was \u201cworried about deflation, which hasn\u2019t happened.\u201d In other words, Krugman entered this crisis with a model that predicted how prices would move in response to the economic situation, and chose his policies of government stimulus accordingly. He was wrong, and yet maintains the same policy recommendations.<\/p><\/blockquote>\n

But of course to Krugman, anyone who predicted price inflation can\u2019t explain why that hasn\u2019t happened<\/a>. Such people are just those<\/a> \u201c… who take a position and refuse to alter that position no matter how strongly the evidence refutes it.\u201d Krugman is different.<\/p>\n

Europe Will Do Better Than the United States<\/strong><\/p>\n

In 2008, Krugman wrote<\/a>:<\/p>\n

… tales of a moribund Europe are greatly exaggerated. … The fact is that Europe\u2019s economy looks a lot better now \u2014 both in absolute terms and compared with our economy.\u201d<\/p><\/blockquote>\n

Later he noted<\/a> that \u201cAmericans will face increasingly strong incentives to start living like Europeans\u201d and that \u201che has seen the future and it works.\u201d (I should probably note that that is a quote he borrowed from Lincoln Steffens<\/a> about the Soviet Union.)<\/p>\n

Then Greece went bankrupt and the international consensus is unquestionably that the crisis hit Europe harder<\/a>.<\/p>\n

The Euro Will Collapse<\/strong><\/p>\n

Niall Ferguson counted eleven different times<\/a> between April of 2010 and July 2012 that Krugman wrote about the imminent breakup of the euro. For example, on May 17th, 2012, Krugman wrote<\/a>,<\/p>\n

Apocalypse Fairly Soon. … Suddenly, it has become easy to see how the euro \u2014 that grand, flawed experiment in monetary union without political union \u2014 could come apart at the seams. We\u2019re not talking about a distant prospect, either. Things could fall apart with stunning speed, in a matter of months, not years. And the costs \u2014 both economic and, arguably even more important, political \u2014 could be huge.<\/p><\/blockquote>\n

Most of these predictions are laced with weasel words such as \u201cmight,\u201d \u201cprobably,\u201d and \u201ccould\u201d (more on that shortly). Still, while I\u2019m no fan of the euro, and it might still collapse, as of today, three years later, it has not. If the word \u201cimminent\u201d means anything at all, Krugman was wrong.<\/p>\n

The Sequester Will Doom Us All<\/strong><\/p>\n

Paul Krugman at least admitted<\/a> the sequester was \u201crelatively small potatoes.\u201d But for \u201crelatively small potatoes\u201d he makes a big deal about it, referring to it as \u201cone of the worst policy ideas in our nation\u2019s history.\u201d And it \u201cwill probably cost \u2018only\u2019 around 700,000 jobs.\u201d (Note the word \u201cprobably\u201d again.)<\/p>\n

Then later, he decided that these were actually quite large potatoes, stating<\/a>,<\/p>\n

And, somehow, both sides decided that the way to buy time was to create a fiscal doomsday machine that would inflict gratuitous damage on the nation through spending cuts unless a grand bargain was reached. Sure enough, there is no bargain, and the doomsday machine will go off at the end of next week.<\/p><\/blockquote>\n

The economy has done quite well<\/a> since then actually. Indeed, how $85.4 billion dollars<\/a> in \u201ccuts\u201d (from the next year\u2019s budget not the previous year\u2019s spending) could affect anything in a $17 trillion dollar economy is simply beyond me. And of course, it didn\u2019t<\/a>.<\/p>\n

Interest Rates Can\u2019t Go Below Zero<\/strong><\/p>\n

In March of this year, Krugman wrote<\/a> in regard to some European bonds with negative nominal yields,<\/p>\n

We now know that interest rates can, in fact, go negative; those of us who dismissed the possibility by saying that people could simply hold currency were clearly too casual about it.\u201d<\/p><\/blockquote>\n

But as Robert Murphy points out<\/a>, \u201cThe foundation for the Keynesian case for fiscal stimulus rests on an assumption that interest rates can\u2019t go negative.\u201d Murphy also points out that Krugman should admit he was wrong again because back in 2009, Krugman wrote,<\/p>\n

And the reason we\u2019re all turning to fiscal policy is that the standard rule, which is that monetary policy plus automatic stabilizers should do the work of smoothing the business cycle, can\u2019t be applied when we\u2019re hard up against the zero lower bound. [i.e. zero percent interest]<\/p><\/blockquote>\n

\u201cInflation Will be Back\u201d<\/strong><\/p>\n

In 1998, Paul Krugman predicted<\/a> \u201cInflation will be back.\u201d<\/p>\n

Nope<\/a>.<\/p>\n

\u201cThe Rate of Technological Change in Computing Slows\u201d<\/strong><\/p>\n

Same article as the last one, \u201c… the number of jobs for IT specialists will decelerate, then actually turn down.\u201d<\/p>\n

Aside from a short dip after the 2001 recession, the answer would be nope again<\/a>.<\/p>\n

Weasel Words and \u201cAccurate Predictions\u201d<\/strong><\/p>\n

Let\u2019s take a look at Paul Krugman\u2019s \u201caccurate prediction\u201d of the financial crisis. On March 2nd, 2007, he predicted<\/a> the following explanation would be given a year from then for the financial crisis he was sort of predicting,<\/p>\n

The great market meltdown of 2007 began exactly a year ago, with a 9 percent fall in the Shanghai market, followed by a 416-point slide in the Dow. But as in the previous global financial crisis, which began with the devaluation of Thailand\u2019s currency in the summer of 1997, it took many months before people realized how far the damage would spread.<\/p><\/blockquote>\n

So the crisis would begin in China? Almost.<\/p>\n

He concluded that column by saying, \u201cI\u2019m not saying that things will actually play out this way. But if we\u2019re going to have a crisis, here\u2019s how.\u201d<\/p>\n

That\u2019s a good hedge, just like with the euro. He can say he got the financial crisis right (albeit happening in a different way than he expected), but then say he didn\u2019t get the euro wrong because he added \u201cprobably\u201d before any prediction about it.<\/p>\n

Normally, there would be nothing wrong with these weasel words. Given the nature of predictions, any prediction that is made should have a qualifier in front of it. It\u2019s simply an admission that you aren\u2019t omniscient. But you can\u2019t eat your cake and have it too. Either Krugman was right about the crisis (sort of) and wrong about the euro (and many other things) or neither should count at all.<\/p>\n

Or course, this doesn\u2019t refute Krugman\u2019s theories. But then again, Krugman may want to slow down on his victory laps.<\/p>\n

Andrew\u00a0Syrios<\/span>\u00a0is a partner in the real estate investment firm Stewardship Properties. He graduated from the University of Oregon with a degree in Business Administration and a Minor in History.<\/strong><\/p>\n

This article was published on Mises.org<\/a> and may be freely distributed, subject to a Creative Commons Attribution United States License<\/a>, which requires that credit be given to the author.<\/strong><\/p>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Andrew Syrios June 10, 2015 ****************************** But can the debate really be as one-sided as I portray it? Well, look at the results: again and again, people on the opposite side prove to have used bad logic, bad data, the wrong historical analogies, or all of the above. I\u2019m Krugtron the Invincible! Thus wrote the great Paul Krugman. A man so modest as to proclaim that \u201cI think I can say without false modesty, a huge win; I (and those…<\/p>\n

Read More Read More<\/span><\/a><\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[2919,641,2434,1992,2435,1142,1205,236,4048,4042,1004],"class_list":["post-4275","post","type-post","status-publish","format-standard","hentry","category-economics","tag-andrew-syrios","tag-austrian-economics","tag-boom","tag-bubble","tag-bust","tag-china","tag-deflation","tag-inflation","tag-mises-institute","tag-mises-org","tag-paul-krugman"],"_links":{"self":[{"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/posts\/4275","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/comments?post=4275"}],"version-history":[{"count":2,"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/posts\/4275\/revisions"}],"predecessor-version":[{"id":4288,"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/posts\/4275\/revisions\/4288"}],"wp:attachment":[{"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/media?parent=4275"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/categories?post=4275"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.rationalargumentator.com\/index\/wp-json\/wp\/v2\/tags?post=4275"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}