Hey Krugman it just ain’t so: get unreal

Travis Fast

I go away for one week and a simple article in the Nation has brought out the Dons to defend orthodox economics. Who leads that advanced charge you ask? Well not the “red in the tooth and claw” Chicago boys but their more cosmopolitan and media savvy brethren like Paul Krugman. And I say brethren because despite Krugman’s protestation to the contrary he is very much one of them: a real economist.

After participating as a partisan in the “state failure school” in an attempt to remain significant in the wake of a seismic shift in economics during the eighties and nineties. And after having loudly shilled for free trade by acting as though free trade benefits all, albeit whispering that some non-market distorting program of redistribution was required to spread the benefits to the losers. Now, Krugman assures us that there is nothing to the basic neoclassical model which tilts the public policy balance in favour of capitalism over democracy, or inequality over equality. Krugman of course knows better than this. For what else could explain all the triangulating he has done over the course of his career in an attempt to remain relevant? Why now is he willing to shout that gains from trade require government intervention, while only whispering that there are gains to be had? What is that you feel at your back Paul, the winds of change?

Check out this piece of dissembling from Krugman:

The other is the effects of trade on income distribution. Anyone who thinks that neoclassical economics says that everyone gains from free trade, and that you have to reject the assumptions of the field to raise concerns, obviously doesn’t know anything about the subject: ever since Stolper-Samuelson 1941 we’ve known that trade can easily hurt large numbers of people, so the question is always an empirical one. A dozen years ago I thought the effects were small, but that was based on the numbers, not a judgment in principle. Now I’ve revised my views up, because the numbers are bigger.

Now I do not know what Krugman was teaching to his undergrads; and this is key because it determines the most unnatural selection process of who goes on to grad school in economics, and I do not know what made it into his new intro text, but this strong of a position never made it into any of the articles when the big free trade debates were going down. He tells us as much when he states: “A dozen years ago I thought the effects were small, but that was based on the numbers, not a judgment in principle. Now I’ve revised my views up, because the numbers are bigger.” Ah you see, at the time the numbers said one thing, now they say something else, and like a good scientist (empiricist?) professor Krugman has amended his position. Comforting as it is that such a positive exercise like neoclassical economics can predict such rosy outcomes and then fail so miserably once the real data is in, or as the song lyric goes: “once the needle is in and the damage is done,” we can’t let Krugman off that easy. For there is a contradiction in Krugman’s defence.

Indeed, Krugman’s claim that for neoclassical trade theory “the question is always an empirical one” rings churlish to my ears—that is, of course if notes could prevaricate. Just what empirical data was Krugman looking at back then? If this was pre free trade data then how could it have much relevance for predicting post free trade outcomes. In order to do that Paul needed a model, for it is only a model that can transform the input into a predictive output. And by his own admission, the output was junk. In such a case, there are only two options; (a) either your input data was junk and your model was sound—junk in, junk out—or (b), your input data was good and your model was bad–angels in, devils out. Well I suppose there is a third option: (c) both the input data and the model were junk.

How do we know which one was the case? A little analytical logic can help us. Paul tells us that he is a dyed in the wool empiricist when it comes to trade: “just the facts ma’am, and only the facts.” Hence, the input data must have been good. But Paul tells us, that with hindsight, the output data (the prediction) was bad. Therefore, a simple process of elimination means that his trade model must have been junk—angels in, devils out.

Paul should not feel bad because almost every vintage of the standard trade model that were being used to bolster the case for free trade back then shared one thing in common: they all predicted minuscule to minimal negative effects. A coincidence? I should think not.

And is this not the very basis of the dispute that is now fluttering around the internets between heterodox and orthodox economists? Paul tells us that the methodology is neutral, that one can arrive at any number of policy conclusions from it, and yet orthodox economists almost always seem to come down in favour of policies that preserve the greatest field of choices for what Marxists would call owners of the means of production (capital), and thereby less government regulation and less democratic direction of the economy. See Paul the problem is not that we know nothing about the subject as you contend, it is just that we are not buying what you are selling. I know, I know, you are not selling anything…in that case come back when you have something new to sell.

There is room for hope however. In the 2007, AEA Presidential Address, Akerlof demonstrated the existence of identity (the objectiveness of subjectivity–existence if you like). Let us hope it does not take Paul the same amount of time it took him to finally digest Storper-Samuelson 1941.

As an aside, I look forward to the AEA Presidential Address of 2050 wherein some bright aging orthodox economist will discover society exists: then we will really be cooking with gas.

Two links to this commentary:

http://bookclub.tpmcafe.com/

http://maxspeak.org/mt/

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One thought on “Hey Krugman it just ain’t so: get unreal

  1. …”after having loudly shilled for free trade by acting as though free trade benefits all, albeit whispering that some non-market distorting program of redistribution was required to spread the benefits to the losers”….
    ………………………..
    good one,”empiricist” indeed

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