Wednesday, August 24, 2011

The Fake Krugman on Keynesian Economics

Most of you probably know by now that the alleged Krugman reaction to the earthquake on Google + was a fake. A lot of people have also observed something I agree with: the faker actually provided a fair representation of Krugman's (and many other peoples') position on the potential for economic disasters to increase growth.

The guy explains himself here and illustrates perfectly what I mean when I say people badly apply Bastiat to Keynesians. This is his own summation of the problem as he sees it:

"For too long now, Krugman along with other Keynesian economists such as Nouriel Roubini have supported Keynesian policies which advocate for more taxation of the job creating private sector to contribute to the job destroying public sector. While he public sector has “created” jobs, one must remember and take into account the opportunity cost of taxing the private sector."

First a really dumb point - Keynesians don't advocate increasing taxes on the private sector to pay for government as a macroeconomic policy (they may say that if taxes need to be increased for long-term budget and growth purposes they should be alotted in a specific way, but there's nothing "Keynesian" about a particular position on that point). They usually argue that tax cuts are less effective than other forms of stimulus, this is true. They argue that tax cuts on the wealthy are probably the least effective of all. Fine. But a small tax multiplier means that they think increasing taxes on the private sector hurts growth. This is elementary. This is something that no one who has any experience with economics coursework should miss. So where did he get this. Sounds like a politician's talking point to me, and I doubt it's much more complicated than that.

More importantly - Krugman and Keynesians have not forgotten the opportunity cost of taxing the private sector (or issuing bonds). This is precisely why they're always talking about whether we have evidence that public spending is crowding in or crowding out right now. The whole debate revolves around the concept of opportunity costs, so how can he think they've forgotten it?


Now, Bob Murphy thinks Yglesias and I are being ogres about this, but this faker guy demonstrates precisely why it's so bothersome. The fact is, people think we don't realize wealth has been destroyed. They point this out to me as if I'm not aware. People think we don't understand opportunity cost. They point this out as if opportunity cost is something other than one of the most elementary concepts in economics. People think we're celebrating destruction which would normally barely justify indulging with a response, but is infuriating because they seem to be serious when they say it.

Bob Murphy provides a detailed treatment of Bastiat that I'm glad he's taken the time to highlight. I found his post interesting. It looks as if (with the aid of a time machine) Krugman, Barro, Romer, and Bastiat could all have a fascinating discussion about crowding out that I would love to be a fly on the wall for. But if Bob thinks that's the caliber of the debate that's going on, he's deluded.


  1. DK wrote: "Now, Bob Murphy thinks Yglesias and I are being ogres about this..."

    Hey! You seem to think it would constitute a criticism to be compared to an ogre. But it actually is awe-inspiring, if you and Yglesias can write so many blog posts while being ogres. It shows how much more you can accomplish than the typical creature who lives in a forest eating unicorns for breakfast.

  2. This identity theft was a dirty, dirty tactic.

  3. Prateek Sanjay,

    Identity theft? Hardly. Identity parody yes.

    Poe's law example?


All anonymous comments will be deleted. Consistent pseudonyms are fine.