The inimitable EconStories gang, which includes the great John Papola, has just released their newest creation just in time for Christmas: Deck the Halls with Macro Follies. It lampoons the idea getting consumer spending going is how to jumpstart an economy. Contra those ideas of Keynes and Malthus (and Bernanke!), the real way to build prosperity is to save and thereby increase production. But watch the video, it’s really fun.
Keynesian economic policy is a negative-sum game: They essentially believe that you can take water from the deep end of the swimming pool with a bucket, carry it to the shallow end while sloshing water out onto the deck along the way, dump it back in, and somehow the water level of the swimming pool will rise.
Reading Paul Krugman is like picking at a scab: You know you should probably just let it alone, but there’s pleasure in picking the Krugman rough redness. So you read. So you bleed. So you flick away the droplets and the clots.
I could hardly avoid his recent post, “Economics and Morality,” in part because the title mirrors an abiding interest of mine, and of many libertarians. There is a deep connection between economics and ethics. After all, one is the science of human action and transactions, the other is the art of prescribing for same. Frank Knight observed that the subject of economics was the same as that of Herbert Spencer’s Principles of Ethics: “acts adjusted to ends,” or, to put simply, Human Conduct.
Krugman offers no insights about the deep connections. Instead, he regurgitates old pabulum about the welfare state, and misunderstands the case for free markets. Again.
He begins with a concern: “[T]he right is winning economic debates because people believe, wrongly, that there’s something inherently moral about free-market outcomes.”
I don’t know if this is the case, in the real world. Perhaps I don’t follow enough “debates.” But, as I see it, market outcomes are not moral as such. It’s market processes that are. That is, non-fraudulent, non-coerced exchanges (trade) — no matter how much error there may be in them — are more moral processes than fraudulent and coerced processes. It’s the means that are important, here. Fixating on the ends leads you into traps like Krugman seems to rest his whole ideology upon.
Apparently, Paul Krugman has never read the work of Ludwig von Mises and F.A. Hayek. Chortling on The New York Times blog, he yammers away in this manner:
Many of the comments to my Austrian economics post are of the form “Well, of course employment rises when investment is expanding, and falls when the investment is falling — in the first case the economy is booming while in the second it’s slumping.”
As I tried to explain, however, that’s assuming the conclusion; there’s no “of course” about it. Why do periods when the economy is investing more correspond to booms, while periods when it’s investing less correspond to slumps? That’s easy to understand in Keynesian terms — but the whole Austrian claim is that they’re an alternative to Keynesianism. Yet I have never seen a clear explanation of this central point.
There are books that deal with this by Hayek, Mises and others. Why doesn’t Krugman reference them, rather than drone on about the quality (or lack thereof) of his blog commenters?
I could, at this point, dredge up those Hayekian and Misesian pearls. But, for the moment, I feel challenged by Krugman’s apparent requirement that bloggers spin this stuff anew, so I’ll give my shot at an answer to his challenge, without referencing any of the Austrian classics. They are there for all to read. But it’s always a good experiment to see how one thinks through this on one’s feet.
Problem is, Krugman’s challenge seems fairly obvious. I need a handicap. So I’ve downed three shots of anisette, and am on my fourth. Can I answer Krugman drunk?
I think so.
Reading his post, I see that the question should be reformulated: Why is it when investment picks up, so does employment? [Keep reading…]