HowdidPaulKrugmangetitsoWrong?

JohnH.Cochrane 1 ManyfriendsandcolleagueshaveaskedmewhatIthinkofPaulKrugmansNewYorkTimesMagazine article,HowdidEconomistsgetitsowrong? Mostofall,itssad.Imaginethiswerenteconomicsforamoment.Imaginethiswerearespected scientistturnedpopularwriter,whosays,mostbasically,thateverythingeveryonehasdoneinhisfield sincethemid1960sisacompletewasteoftime.Everythingthatfillsitsacademicjournals,istaughtin itsPhDprograms,presentedatitsconferences,summarizedinitsgraduatetextbooks,andrewarded withtheaccoladesaprofessioncanbestow,includingmultipleNobelprizes,istotallywrong.Instead, hecallsforareturntotheeternalveritiesofaratherconvolutedbookwritteninthe1930s,astaughtto ourauthorinhisundergraduateintroductorycourses.Ifascientist,hemightbeaglobalwarming skeptic,anAIDSHIVdisbeliever,acreationist,astalwartthatmaybecontinentsdontmoveafterall. Itgetsworse.Krugmanhintsatdarkconspiracies,claimingdissentersaremarginalized.Mostofthe articleisjustacalumniouspersonalattackonanevergrowingenemieslist,whichnowincludesnew KeyenesianssuchasOlivierBlanchardandGregMankiw.Ratherthansourceprofessionalwriting,he playsgotchawithoutofcontextsecondhandquotesfrommediainterviews.Hemakesstuffup,boldly puttingwordsinpeoplesmouthsthatruncontrarytotheirwrittenopinions.Eventhisisntenough:he addscartoonstotrytomakehisenemieslooksilly,andputstheminfalseandembarrassing situations.Heaccusesusofadoptingideasforpay,sellingoutforsabbaticalsattheHooverinstitution andfatWallstreetpaychecks.Itsoundsabitparanoid. Itsannoyingtothevictims,butwerebigboysandgirls.ItsadisservicetoNewYorkTimesreaders. TheydependonKrugmantoreadrealacademicliteratureanddigestit,andtheygetthisattackinstead. Anditsineffective.Anyastutereaderknowsthatpersonalattacksandinnuendomeantheauthorhas runoutofideas. Thatsthebiggestandsaddestnewsofthispiece:PaulKrugmanhasnointerestingideaswhatsoever aboutwhatcausedourcurrentfinancialandeconomicproblems,whatpoliciesmighthavepreventedit, orwhatmighthelpusinthefuture,andhehasnocontactwithpeoplewhodo.Irrationalityand advicetospendlikeadrunkensailorareprettysuperficialcomparedtoallthefascinatingthings economistsarewritingaboutitthesedays. Howsad.

UniversityofChicagoBoothSchoolofBusiness.Manycolleaguesandfriendshelped,butIdontwanttoname themforobviousreasons.Krugmanfans:PleasedontbotheremailingmetotellmewhatajerkIam.Iwillupdate thisoccasionally,sopleasepassonthelinkratherthanthedocument, http://faculty.chicagobooth.edu/john.cochrane/research/Papers/#news.

 ThatswhatIthink,butIdontexpectyouthereadertobeconvincedbymyopinionormyreferenceto professionalconsensus.Maybeheisright.Occasionallysciences,especiallysocialsciences,dotakea wrongturnforadecadeortwo.IthoughtKeynesianeconomicswassuchawrongturn.Soletstakea quicklookattheideas. Krugmansattackhastwogoals.First,hethinksfinancialmarketsareinefficient,fundamentallydueto irrationalinvestors,andthuspreytoexcessivevolatilitywhichneedsgovernmentcontrol.Second,he likesthehugefiscalstimulusprovidedbymultitrilliondollardeficits. Efficiency. Itsfuntosaywedidntseethecrisiscoming,butthecentralempiricalpredictionoftheefficient marketshypothesisispreciselythatnobodycantellwheremarketsaregoingneitherbenevolent governmentbureaucrats,norcraftyhedgefundmanagers,norivorytoweracademics.Thisisprobably thebesttestedpropositioninallthesocialsciences.Krugmanknowsthis,soallhecandoishuffand puffabouthisdislikeforatheorywhosecentralpredictionisthatnobodycanbeareliablesoothsayer. Krugmanwritesasifthevolatilityofstockpricesalonedisprovesmarketefficiency,andefficient marketersjustignoreditalltheseyears.ThisisacanardthatPaulknowsbetterthantopasson,no matterhowrhetoricallyconvenient.(IcanoverlookhismixinguptheCAPMandBlackScholesmodel, butnotthis.)Thereisnothingaboutefficiencythatpromisesstability.Stablegrowthwouldinfact beamajorviolationofefficiency.Efficientmarketsdidnotneedtowaitforthememoryof1929 graduallyreceding,nordidwefailtoreadthenewspapersin1987.Datafromthegreatdepressionhas beenincludedinpracticallyallthetests.Infact,thegreatequitypremiumpuzzleisthatifefficient, stockmarketsdontseemriskyenoughtodetermorepeoplefrominvesting!GeneFamasPhDthesis wasonfattailsinstockreturns. Itistrueandverywelldocumentedthatassetpricesmovemorethanreasonableexpectationsoffuture cashflows.Thismightbebecausepeoplearepreytoburstsofirrationaloptimismandpessimism.It mightalsobebecausepeopleswillingnesstotakeonriskvariesovertime,andislowerinbadeconomic times.AsGeneFamapointedoutin1970,theseareobservationallyequivalentexplanations.Unlessyou arewillingtoelaborateyourtheorytothepointthatitcanquantitativelydescribehowmuchandwhen riskpremiums,orwavesofoptimismandpessimism,canvary,youknownothing.Notheoryis particularlygoodatthatrightnow. Cryingbubbleisemptyunlessyouhaveanoperationalprocedureforidentifyingbubbles, distinguishingthemfromrationallylowriskpremiums,andnotcryingwolftoomanyyearsinarow. KrugmanrightlypraisesRobertShillerforhiswarningsovermanyyearsthathousepricesmightfall.But advicethatweshouldlistentoShiller,becausehegotthelastoneright,isnomoreusefulthanprevious 2

advicefrommanyquarterstolistentoGreenspanbecausehegotseveralonesright.Followingthelast mysticoracleuntilhegetsonewrong,thencastinghimtothewolves,isnotagoodlongtermstrategy foridentifyingbubbles.KrugmanlikesShillerbecauseheadvocatesbehavioralideas,butthatsnohelp either.Peoplewhocallthemselvesbehavioralhavejustaswideadivergenceofopinionasthosewho dont.Aremarketsirrationallyexuberantorirrationallydepressed?Itshardtotell. Thisdifficultyisnosurprise.Itsthecentralpredictionoffreemarketeconomics,ascrystallizedby Hayek,thatnoacademic,bureaucratorregulatorwilleverbeabletofullyexplainmarketprice movements.Nobodyknowswhatfundamentalvalueis.Ifanyonecouldtellwhatthepriceof tomatoesshouldbe,letalonethepriceofMicrosoftstock,communismwouldhaveworked. Moredeeply,theeconomistsjobisnottoexplainmarketfluctuationsafterthefact,togiveapleasant storyontheeveningnewsaboutwhymarketswentupordown.Marketsup?Awaveofpositive sentiment.Marketswentdown?Irrationalpessimism.(Theriskpremiummusthaveincreasedis justasempty.)Ourancestorscoulddothat.Really,isthatanimprovementonZeushadafightwith Apollo?Goodseriousbehavioraleconomistsknowthis,andtheyarecircumspectintheirexplanatory claimssofar. Butthisargumenttakesusawayfromthemainpoint.Thecaseforfreemarketsneverwasthatmarkets areperfect.Thecaseforfreemarketsisthatgovernmentcontrolofmarkets,especiallyassetmarkets, hasalwaysbeenmuchworse. Krugmanatbottomisarguingthatthegovernmentshouldmassivelyinterveneinfinancialmarkets,and takechargeoftheallocationofcapital.Hecantquitecomeoutandsaythis,buthedoessayKeynes considereditaverybadideatoletsuchmarketsdictateimportantbusinessdecisions,andfinance economistsbelievedthatweshouldputthecapitaldevelopmentofthenationinthehandsofwhat Keyneshadcalleda`casino.Well,ifmarketscantbetrustedtoallocatecapital,wedonthaveto connecttoomanydotstoimaginewhoPaulhasinmind. Toreachthisconclusion,youneedevidence,experience,oranyrealistichopethatthealternativewill bebetter.Remember,theSECcouldntevenfindBernieMadoffwhenhewashandedtothemona silverplatter.ThinkofthegreatjobFannie,Freddie,andCongressdidinthemortgagemarket.Isthis systemgoingtoregulateCitigroup,guidefinancialmarketstotherightprice,replacethestockmarket, andtelloursocietywhichnewproductsareworthinvestment?AsDavidWesselsexcellentInFedWe Trustmakesperfectlyclear,governmentregulatorsfailedjustasabysmallyasprivateinvestorsand economiststoseethestormcoming.Andnotfromanylackofsmarts. Infact,thebehavioralviewgivesusanewandstrongerargumentagainstregulationandcontrol. Regulatorsarejustashumanandirrationalasmarketparticipants.Ifbankersare,inKrugmanswords, idiots,thensomustbethetypicaltreasurysecretary,fedchairman,andregulatorystaff.Theyact aloneorincommittees,wherebehavioralbiasesaremuchbetterdocumentedthaninmarketsettings. Theyarestilleasilycapturedbyindustries,andfacepoliticallydistortedincentives. 3

Carefulbehavioralistsknowthis,anddonotquicklyrunfromthemarketgotitwrongtothe governmentcanputitallright.EvenmymostbehavioralcolleaguesRichardThalerandCassSunsteinin theirbookNudgegoonlysofarasalightlibertarianpaternalism,suggestinggooddefaultoptionson our401(k)accounts.(AndevenheretheyrenotveryclearonhowtheFederalNudgingAgencyisgoing tosteerclearofindustrycapture.)Theydonteventhinkofjumpingfromirrationalmarkets,whichthey believeindeeply,toFederalcontrolofstockandhousepricesandallocationofcapital. Stimulus Mostofall,Krugmanlikesfiscalstimulus.Inthisquest,heaccusesusandtherestoftheeconomics professionofmistakingbeautyfortruth.Hesnotclearonwhatthebeautyisthatweallfellinlove with,andwhyoneshouldshunit,forgoodreason.Thefirstsirenofbeautyissimplelogicalconsistency. PaulsKeynesianeconomicsrequiresthatpeoplemakelogicallyinconsistentplanstoconsumemore, investmore,andpaymoretaxeswiththesameincome.Thesecondsirenisplausibleassumptionsabout howpeoplebehave.Keynesianeconomicsrequiresthatthegovernmentisabletosystematicallyfool peopleagainandagain.Itpresumesthatpeopledontthinkaboutthefutureinmakingdecisionstoday. Logicalconsistencyandplausiblefoundationsareindeedbeautifulbuttometheyarealsobasic preconditionsfortruth. Ineconomics,stimulusspendingranagroundonRobertBarrosRicardianequivalencetheorem.This theoremsaysthatdebtfinancedspendingcanthaveanyeffectbecausepeople,seeingthehigher futuretaxesthatmustpayoffthedebt,willsimplysavemore.Theywillbuythenewgovernmentdebt andleaveallspendingdecisionsunaltered.Isthistheoremtrue?Itsalogicalconnectionfromasetof iftoasetoftherefore.NotevenPaulcanobjecttotheconnection. Therefore,wehavetoexaminetheifs.Andthoseifsare,asusual,obviouslynottrue.Forexample,the theorempresumeslumpsumtaxes,notproportionalincometaxes.Alas,whenyoutakethisinto accountweareallmadepoorerbydeficitspending,sothemultiplierismostlikelynegative.The theorem(likemostKeynesianeconomics)ignoresthecompositionofoutput;butsurelyspending moneyonroadsratherthancarscanaffecttheoveralllevel. EconomistshavespentagenerationtossingandturningtheRicardianequivalencetheorem,and assessingthelikelyeffectsoffiscalstimulusinitslight,generalizingtheifsandfiguringoutthelikely therefores.Thisisexactlytherightwaytodothings.TheimpactofRicardianequivalenceisnotthat thissimpleabstractbenchmarkisliterallytrue.Theimpactisthatinitswake,ifyouwanttounderstand theeffectsofgovernmentspending,youhavetospecifywhyitisfalse.Doingsodoesnotleadyou anywherenearoldfashionedKeynesianeconomics.Itleadsyoutoconsiderdistortingtaxes,howmuch peoplecareabouttheirchildren,howmanypeoplewouldliketoborrowmoretofinancetodays consumptionandsoon.Andwhenyoufindmarketfailuresthatmightjustifyamultiplier,optimal policyanalysissuggestsfixingthemarketfailures,nottheirexploitationbyfiscalmultiplier.MostNew Keynesiananalysesthataddfrictionsdontproducebigmultipliers. 4

Thisishowrealthinkingaboutstimulusactuallyproceeds.Nobodyeverassertedthatanincreasein governmentspendingcannot,underanycircumstances,increaseemployment.Thisisunsupportable byanyseriousreviewofprofessionalwritings,andKrugmanknowsit.(Myownareperfectlyclearon lotsofpossibilitiesforananswerthatisnotzero.)Butthinkingthroughthissortofthingandexplaining itismuchharderthanjusttarringyourenemieswithoutofcontextquotes,ethicalinnuendo,orsilly cartoons. Infact,IproposethatKrugmanhimselfdoesntreallybelievetheKeynesianlogicforthatstimulus.I doubthewouldfollowthatlogictoitsinevitableconclusions.Stimulusmusthavesomeotherattraction tohim. IfyoubelievetheKeynesianargumentforstimulus,youshouldthinkBernieMadoffisahero.Hetook moneyfrompeoplewhoweresavingit,andgaveittopeoplewhomostassuredlyweregoingtospend it.Eachdollarsotransferred,inKrugmansworld,generatesanadditionaldollarandahalfofnational income.Theanalogyisevencloser.Madoffdidntjusttakemoneyfromhissavers,heessentially borroweditfromthem,givingthemphonyaccountswithpromisesofgreatprofitstocome.Thislooksa lotlikegovernmentdebt. IfyoubelievetheKeynesianargumentforstimulus,youdontcarehowthemoneyisspent.Allthis pufferyaboutinfrastructure,monitoring,wiseinvestment,jobscreatedandsoonispointless. Keynesthoughtthegovernmentshouldpaypeopletodigditchesandfillthemup. IfyoubelieveinKeynesianstimulus,youdontevencareifthegovernmentspendingmoneyisstolen. Actually,thatwouldbebetter.Thieveshavenotoriouslyhighpropensitiestoconsume. Thecrash. Krugmansarticleissupposedlyabouthowthecrashandrecessionchangedourthinking,andwhat economicshastosayaboutit.ThemostamazingnewsinthewholearticleisthatPaulKrugmanhas absolutelynoideaaboutwhatcausedthecrash,whatpoliciesmighthavepreventedit,andwhat policiesweshouldadoptgoingforward.Heseemscompletelyunawareofthelargebodyofworkby economistswhoactuallydoknowsomethingaboutthebankingandfinancialsystem,andhavebeen thinkingaboutitproductivelyforageneration. Heresallhehastosay:Irrationalitycausedmarketstogoupandthendown.Spendingthen declined,forunclearreasons,possiblyirrationalaswell.Thesumtotalofhispolicyrecommendations isfortheFederalGovernmenttospendlikeadrunkensailorafterthefact. Paul,therewasafinancialcrisis,aclassicnearrunonbanks.Thecenterpieceofourcrashwasnotthe relativelyfreestockorrealestatemarkets,itwasthehighlyregulatedcommercialbanks.Ageneration ofeconomistshasthoughtreallyhardaboutthesekindsofevents.LookupDiamond,Rajan,Gorton, Kashyap,Stein,andsoon.Theyvethoughtaboutwhythereissomuchshorttermdebt,whybanksrun, 5

howdepositinsuranceandcreditguaranteeshelp,andhowtheygiveincentivesforexcessiverisk taking. Ifwewanttothinkabouteventsandpolicies,thisseemslikemorethanaminordetail.Thehardand centralpolicydebateoverthelastyearwashowtomanagethisfinancialcrisis.Nowitishowtosetup theincentivesofbanksandotherfinancialinstitutionssothismessdoesnthappenagain.Thereslotsof goodandsubtleeconomicsherethatNewYorkTimesreadersmightliketoknowabout.Whatdoes Krugmanhavetosay?Zero. KrugmandoesntevenhaveanythingtosayabouttheFed.BenBernankedidalotmorelastyearthan setthefundsratetozeroandthengooffonvacationandwaitforfiscalpolicytodoitsmagic.Leaving asidethestringofbailouts,theFedstartedtermlendingtosecuritiesdealers.Then,ratherthanbuy treasuriesinexchangeforreserves,itessentiallysoldtreasuriesinexchangeforprivatedebt.Though thefundsratewasnearzero,theFednoticedhugecommercialpaperandsecuritizeddebtspreads,and intervenedinthosemarkets.Thereisnotheinterestrateanymore,theFedisattemptingtomanage themall.RecentlytheFedhasstartedbuyingmassivequantitiesofmortgagebackedsecuritiesand longtermtreasurydebt. Monetarypolicynowhaslittletodowithmoneyvs.bondswithallthelatterlumpedtogether. Monetarypolicyhasbecomewiderangingfinancialpolicy.Doesanyofthiswork?Whatarethe dangers?CantheFedstayindependentinthisnewrole?Thesearethequestionsofourtime.What doesKrugmanhavetosay?Nothing. Krugmanistryingtosaythatacabalofobviouscrackpotsbedazzledallofmacroeconomicswiththe beautyoftheirmathematics,tothepointofinducingpolicyparalysis.Alas,thatwontstick.Thesadfact isthatfewinWashingtonpaytheslightestattentiontomodernmacroeconomicresearch,inparticular anythingwithaseriousintertemporaldimension.PaulssimpleKeynesianismhasdominatedpolicy analysisfordecadesandcontinuestodoso.FromtheCEAtotheFedtotheOMBandCBO,everyone justaddsupconsumer,investmentandgovernmentdemandtoforecastoutputandusessimple Phillipscurvestothinkaboutinflation.Ifafailureofideascausedbadpolicy,itsasimpleminded Keynesianismthatfailed. Thefutureofeconomics. Howshouldeconomicschange?Krugmanarguesforthreeincompatiblechanges. First,hearguesforafutureofeconomicsthatrecognizesflawsandfrictions,andincorporates alternativeassumptionsaboutbehavior,especiallytowardsrisktaking.TowhichIsay,Hello,Paul, wherehaveyoubeenforthelast30years?Macroeconomistshavenotspent30yearsadmiringthe eternalveritiesofKydlandandPrescotts1982paper.Prettymuchallwehavebeendoingfor30yearsis introducingflaws,frictionsandnewbehaviors,especiallynewmodelsofattitudestorisk,and 6

comparingtheresultingmodels,quantitatively,todata.Thelongliteratureonfinancialcrisesand bankingwhichKrugmandoesnotmentionhasalsobeendoingexactlythesame. Second,KrugmanarguesthatamoreorlessKeynesianviewistheonlyplausiblegameintown,and Keynesianeconomicsremainsthebestframeworkwehaveformakingsenseofrecessionsand depressions.Onethingisprettyclearbynow,thatwheneconomicsincorporatesflawsandfrictions, theresultwillnotbetorehabilitatean80yearoldbook.AsPaulbemoans,thenewKeynesianswho didjustwhatheasks,puttingKeynesinspiredpricestickinessintologicallycoherentmodels,endedup withsomethingthatlookedalotmorelikemonetarism.(Actually,thoughthisistheconsensus,myown workfindsthatnewKeynesianeconomicsendedupwithsomethingmuchdifferentandmoreradical thanmonetarism.)Asciencethatmovesforwardalmostneverendsupbackwhereitstarted.Einstein revisesNewton,butdoesnotsendyoubacktoAristotle.Atbestyoucanplaythefungameofhunting forinspirationalquotes,butthatdoesntmeanthatyoucouldhaveknownthesamethingbyjust readingKeynesoncemore. Third,andmostsurprising,isKrugmansLudditeattackonmathematics;economistsasagroup, mistookbeauty,cladinimpressivelookingmathematics,fortruth.Modelsaregussiedupwithfancy equations.ImoldenoughtorememberwhenKrugmanwasyoung,workingouttheinteractionsof gametheoryandincreasingreturnsininternationaltradeforwhichhewontheNobelPrize,andtheold guardtuttuttednicerecreationalmathematics,butnotrealworldatall.Heoncewroteeloquently abouthowonlymathkeepsyourideasstraightineconomics. Howquicklytimepasses. Again,whatisthealternative?DoesKrugmanreallythinkwecanmakeprogressonhisandmy agendaforeconomicandfinancialresearchunderstandingfrictions,imperfectmarkets,complex humanbehavior,institutionalrigiditiesbyrevertingtoaliterarystyleofexposition,andabandoning theattempttocomparetheoriesquantitativelyagainstdata?Againsttheworldwidetideof quantificationinallfieldsofhumanendeavor(readMoneyball)isthereanyrealhopethatthiswill workineconomics? No,theproblemisthatwedonthaveenoughmath.Mathineconomicsservestokeepthelogic straight,tomakesurethatthethenreallydoesfollowtheif,whichitsofrequentlydoesnotifyou justwriteprose.Thechallengeishowharditistowritedownexplicitartificialeconomieswiththese ingredients,actuallysolvethem,inordertoseewhatmakesthemtick.Frictionsarejustbloodyhard withthemathematicaltoolswehavenow. Theinsults. Thelevelofpersonalattackinthisarticle,andfudgingofthefactstoachieveit,issimplyamazing. Asonelittleexample(ok,Imabitsensitive),takemyquotationaboutcarpentersinNevada.Ididnt writethis.Itsaquote,takenoutofcontext,fromabloomberg.comarticle,writtenbyareporterwhoI 7

spentabout10hourswithpatientlytryingtoexplainsomebasics,andwhoalsoturnedoutonlytobeon ahuntforembarrassingquotes.(ItsthelasttimeIlldothat!)Iwastryingtoexplainhowsectoralshifts contributetounemployment.KrugmanfollowsitbyalieIneverassertedthatittakemass unemploymentacrossthewholenationtogetcarpenterstomoveoutofNevada.Youcanteven dredgeupaquoteforthatmonstrosity. Whatsthepoint?IdontthinkPauldisagreesthatsectoralshiftsresultinsomeunemployment,sothe quoteactuallymakessenseaseconomics.Theonlypointistomakeme,personally,seemheartlessa pure,personal,calumniousattack,havingnothingtodowitheconomics. BobLucashaswrittenextensivelyonKeynesianandmonetaristeconomics,sensiblyandevenhandedly. Krugmanchoosestoquoteajoke,madebackin1980atalunchtalktosomebusinessschoolalumni. Really,thisisonthelevelofthepictureofBarackObamawithBillAyresthatSeanHannitylikestoshow onFoxNews. Itgoeson.KrugmanassertsthatIandothersbelievethatanincreaseingovernmentspending cannot,underanycircumstances,increaseemployment,orthatwearguedthatpricefluctuationsand shockstodemandactuallyhadnothingtodowiththebusinesscycle.Thesearejustgrossdistortions, unsupportedbyanydocumentation,letaloneprofessionalwriting.AndKrugmanknowsbetter.All economicmodelsaresimplifiedtoexhibitonepoint;weallunderstandtherealworldismore complicated;andhisjobissupposedtobetoexplainthattolayreaders.Itwouldbenodifferentthanif someoneweretolookupPaulsearlyworkwhichassumedawaytransportcostsandclaimPaul Krugmanbelievesoceanshippingisfree,howstupidintheWallStreetJournal. TheideathatanyofusdowhatwedobecausewerepaidoffbyfancyWallStreetsalariesorcushy sabbaticalsatHooverisjustridiculous.(IfKrugmanknewanythingabouthedgefundshedknowthat believinginefficientmarketsdisqualifiesyouforemployment.Nobodywantsaguywhothinksyoucant makeanymoneytrading!)GivenKrugmansspeakingfees,itsasurprisingfirststoneforhimtocast. Apparently,salaciousprose,innuendo,calumny,andselectivequotationfrommediaarentenough: Krugmanaddedcartoonstotrytomakeopponentslooksilly.TheLucasBlanchardBernanke conspiratorialcocktailpartycelebratingtheendofrecessionsisasillyfiction.Soistheirdespondent gloomonreadingrecessioninthepaper.NobodyataconferencelookslikeDr.Panglosswithwildhair andasuitfromthe1800s.(OK,RandyWrighthasthehair,butnotthesuit.)Keynesdidnotreappearat theNBERtobebooedasanoutsider.Whyareyouallowedtomakethingsupinpicturesthat wouldntpasseventheTimesweakfactcheckinginwords? Well,perhapswegotoffeasy.ThisallwasmildcomparedtoKrugmansviciousobituaryofMilton FriedmanintheNewYorkReviewofBooks.Butmostofall,Paulisntdoinghisjob.Hessupposedto read,explain,andcriticizethingseconomistswrite,andrealprofessionalwriting,notinterviews,opeds andblogposts.Ataminimum,thisstyleleadstotheunavoidableconclusionthatKrugmanisntreading realeconomicsanymore. 8

 HowdidKrugmangetitsowrong? SowhatisKrugmanupto?Whybecomeadenier,askeptic,anapologistfor70yearoldideas,replete withwellknownlogicalfallacies,apariah?Whypublishanessentiallypersonalattackonanever growingenemieslistthatnowincludespracticallyeveryprofessionaleconomist?Whypublishan incoherentvisionforthefutureofeconomics? TheonlyexplanationthatmakessensetomeisthatKrugmanisnttryingtobeaneconomist,heistrying tobeapartisan,politicalopinionwriter.Thisisnotaninsult.IreadGeorgeWill,CharlesKrauthnammer andFrankRichwithequalpleasureevenwhenIdisagreewiththem.KrugmanwantstobeRush LimbaughoftheLeft. Alas,toKrugman,astofartoomanyexeconomistsinpartisandebates,economicsisnotaquestfor understanding.Itisasetofdebatingpointstoargueforpoliciesthatonehasadoptedforpartisan politicalpurposes.StimulusisjustmarketingtosellCongressmenandvotersonapackageof governmentspendingprioritiesthatyouwantforpoliticalreasons.Itsnotapropositiontobe explained,understood,takenseriouslytoitslogicallimits,orreflectiveofmarketfailuresthatshouldbe addresseddirectly. Whyargueforanonsensicalfutureforeconomics?Well,again,ifyoudontregardeconomicsasa science,adisciplinethatoughttoresultinquantitativematchestodata,adisciplinethatrequires crystalclearlogicalconnectionsbetweentheifandthethen,ifthepointofeconomicsismerelyto providemarketingandpropagandaforpoliticallymotivatedpolicy,thenhiswritingdoesmakesense.It makessensetoappealtosomefutureeconomicsnotyetworkedout,evenverballytodisdain quantificationandcomparisontodata,andtoappealtotheauthorityofancientbooksasinterpreted you,theirloneremainingapostle. Mostofall,thisistheonlyreasonIcancomeupwithtounderstandwhyKrugmanwantstowrite personalattacksonthosewhodisagreewithhim.Ilikeitwhenpeopledisagreewithme,andtaketime toreadmyworkandcriticizeit.AtworstIlearnhowtopositionitbetter.Atbest,IdiscoverIwaswrong andlearnsomething.Isendapolitethankyounote. Krugmanwantspeopletoswallowhisargumentswholefromhisauthority,withoutdemandinglogic,or evidence.Thosewhodisagreewithhim,alas,areprettysmartandhaveprettygoodargumentsifyou bothertoreadthem.So,hetriestodiscreditthemwithpersonalattacks. Thisisthepoliticalsphere,nottheintellectualone.Dontarguewiththem,swiftboatthem.Findsome embarrassingquotefromanoldinterview.Well,goodluck,Paul.Letsjustnotpretendthishasanything todowitheconomics,oractualtruthabouthowtheworldworksorcouldbemadeabetterplace.