I’m not a Niallist

I read Niall Ferguson’s three posts on Paul Krugman which are generally summarised in this critique of Krugman and titled, “Much Bigger Than The Shutdown: Niall Ferguson’s Public Flogging Of Paul Krugman“. And you may be sure that nothing would be of greater interest to me than a proper take down of Krugman and the Keynesian theory that lies behind it. But while this critique may work in the world of non-economists it doesn’t work for me. There is nothing in it I feel I can refer to as an actual dissection of Krugman’s views. It certainly won’t affect any of Krugman’s own beliefs nor that of any modern economist.

Krugman’s position might really be brought down to three propositions:

1) To get out of our current recession it was, and is, necessary to have a full blown Keynesian stimulus.

2) Obama’s actual stimulus was too small. It was large enough to appear large enough but it was too small to actually achieve its ends and so will only discredit Keynesian theory and policy rather than demonstrate its effectiveness.

3) And for Austrian critics, where’s the inflation that is supposed to follow this wasteful expenditure since prices have been dead flat if not tending towards deflation? You may have pointed out that inflation that followed the spending of the 1970s but now there’s none so an Austrian analysis is completely wrong.

Ferguson made no headway on any of this. Instead, he stepped back and wrote:

I am not an economist. I am an economic historian. The economist seeks to simplify the world into mathematical models – in Krugman’s case models erected upon the intellectual foundations laid by John Maynard Keynes. But to the historian, who is trained to study the world ‘as it actually is’, the economist’s model, with its smooth curves on two axes, looks like an oversimplification. The historian’s world is a complex system, full of non-linear relationships, feedback loops and tipping points. There is more chaos than simple causation. There is more uncertainty than calculable risk.

Well great. This is not just Keynesian economics it is all economics that Ferguson takes aim at. By its nature, economics is about simplification, sometimes using smooth curves on two axes (e.g. supply and demand). And while I am a critic of economic theory along many dimensions, including the way in which the uncertain future is almost invariably swept away by many forms of modern analysis, this is so superficial and wrong headed that it leaves me absolutely cold. Krugman can ignore it because it in no way touches anything that matters in his economics and analysis. This is no answer at all.

But then to go on about how beastly Krugman is in how he attacks his opponents, and to praise Keynes as the contrast, is to show a fantastic ignorance of Keynes and the polemical nature of The General Theory. This is Ferguson attacking Krugman:

Finally – and most important – even if Krugman had been ‘right about everything,’ there would still be no justification for the numerous crude and often personal attacks he has made on those who disagree with him. Words like ‘cockroach,’ ‘delusional,’ ‘derp,’ ‘dope,’ ‘fool,’ ‘knave,’ ‘mendacious idiot,’ and ‘zombie’ have no place in civilized debate. I consider myself lucky that he has called me only a ‘poseur,’ a ‘whiner,’ ‘inane’ – and, last week, a ‘troll.’

Here Krugman is doing no less than Keynes did himself. Keynes famously initiated a slash and burn on the economics of his predecessors and attacked them not just intellectually but personally, most notably his own mentor at Cambridge, A.C. Pigou. Keynes said it was to ensure that attention was paid to his book since the issues were so important, but Pigou was clearly aggrieved and said so in the opening words of his review of the The General Theory:

WHEN, in 1919, he wrote The Economic Consequences of the Peace, Mr. Keynes did a good day’s work for the world, in helping it back towards sanity. But he did a bad day’s work for himself as an economist. For he discovered then, and his sub-conscious mind has not been able to forget since, that the best way to win attention for one’s own ideas is to present them in a matrix of sarcastic comment upon other people. This method has long been a routine one among political pamphleteers. It is less appropriate, and fortunately less common, in scientific discussion. Einstein actually did for Physics what Mr. Keynes believes himself to have done for Economics. He developed a far-reaching generalisation, under which Newton’s results can be subsumed as a special case. But he did not, in announcing
his discovery, insinuate, through carefully barbed sentences, that Newton and those who had hitherto followed his lead were a gang of incompetent bunglers. The example is illustrious: but Mr. Keynes has not followed it. The general tone de haut en bas and the patronage extended to his old master Marshall are particularly to be regretted. It is not by this manner of writing that his desire to convince his fellow economists (p. vi) is best promoted.

Alas, it did turn out that this was indeed the best way to influence his fellow economists and it is a template that Keynesians have followed ever since. Krugman’s style and form of attack – stupid, ignorant, incompetent bungler that he is (two can play at this game, I suppose) – is patterned after Keynes who was as arrogant as anyone who has ever written on economic matters as well as being amongst the most incompetent. An actual economic ignoramus who did his undergraduate degree in philosophy and notoriously, on Joan Robinson’s say so, never understood basic micro – “Maynard never spent the half hour necessary to learn price theory” – which is a pretty large gap in any economist’s knowledge base. That in trying to refute Say’s Law he fell right into the oldest fallacy in economics but then took the entire profession along with him is just one of those very unfortunate events that history is filled with. Every economist of his generation with no exception thought The General Theory was end-to-end nonsense. But the economics they knew has now disappeared as have those economists and is now replaced with the poisonous nonsense peddled by Krugman.

This is what Niall Ferguson does not discuss because he doesn’t understand it himself. But you would need a combination of an actual historical understanding of the development of economic theory up to the publication of The General Theory along with a reasonably sound understanding of why it was superior to what we find today. Alas, it is a relatively rare combination but some at least do have it. But if you try to say this to Keynesians in public, they will shout you down and threaten to remove your license to practise economics. Yet it is the Keynesians of the modern text – the people who think Y=C+I+G actually makes economic sense – who are the barbarians ruining our economies right before our eyes.

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