Tuesday, June 1, 2010

We need an economic debate
Tom Smith

William Galston on Paul Krugman's theories. Krugman isn't really a macroeconomist, though he plays one at the New York Times.  I'm not any sort of economist, really, but I have never been able to intuitively grasp the Keynesian argument (unless you are indeed in a liquidity trap) because it just seems highly improbable to me that you can stimulate the economy for very long by misallocating resources, which is what government investing invariably does.  This is because public officials don't really know where to invest, which is a very hard thing for anybody to figure out.


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Tom Smith


From Galston's article:

"I’m no economist; neither are most policymakers...[and] the economy is too important is leave to the economists."

I wonder how people would react to similar statements:

"I'm no endocrinologist, and my son's thyroid problems are too important to leave to the endocrinologists."

"I'm no engineer, and building bridges that don't collapse is too important to leave to the engineers."

"I'm no judge or lawyer, and rendering legal opinions and writing legal briefs are too important to leave to the judges and lawyers."

"I'm no law professor, and teaching the law is too important to leave to the law professors."

It seems to me that substituting ignorance for perspective is a dangerous, and potentially catastrophic, path to take. Galston should have simply left it at:

"We need our best economists to enter a robust, focused, and publicly accessible debate about the fundamentals of our current ills, and the media should serve the public interest by featuring this debate on a regular basis."

Hear, hear!

Posted by: Yo yo ma! | Jun 1, 2010 11:07:06 AM

What the government often does is worse than misallocation of resources. Better to call it intentional malallocation. By sending money to the wrong places, to where it doesn't want to go, government reinforces failure. "Throwing good money after bad," is the common way of expressing this.

Posted by: Lou Gots | Jun 1, 2010 11:44:53 AM

Since the current, er, malaise seemed to take virtually every macroeconomist by surprise, comparing the expertise of economists to medics or engineers is plain silly. As James Galbraith says, economics is a disgraced profession. Heaven knows where politicians or population should turn for economic advice - probably they'll turn to defunct economists; as Keynes said, that's what "practical men" do.

Posted by: dearieme | Jun 1, 2010 3:44:30 PM

Public officials tend to allocate resources poorly in an economic sense (though often quite effectively in a political sense). But they are very effective at discouraging productive economic activity, and at encouraging productive people to be productive elsewhere. These effects increase as the percentage of GDP controlled by government increases.

Posted by: Jonathan | Jun 2, 2010 2:45:50 AM

Funny that Galston, who actually mentions Krugman in the title of his article, says:

"Until someone refutes Reinhardt and Rogoff, our operating presumption must be that excessive debt accumulation will eventually reduce economic growth."

Well, that someone was Krugman, and he had in fact refuted Reinhardt and Rogoff (http://krugman.blogs.nytimes.com/2010/05/27/bad-analysis-at-the-deficit-commission).

Do Right Wing hacks have any shame?

Posted by: TNR blogging is too important to leave to TNR bloggers | Jun 2, 2010 12:21:03 PM

Who was it that said, "If you laid all the economics in the world end-to-end, they still couldn't reach a conclusion"?

Having said that, Krugman is still best known to educated people as a shill for Enron.

Posted by: Andrew | Jun 2, 2010 9:10:17 PM

Tom, I'm not sure whether you saw it, but Posner had a pretty intriguing article last September on TNR regarding how he "became a Keynsian."


Posted by: torreysurfer | Jun 3, 2010 11:23:14 PM