Paul Krugman has to be one of my favorite people in economics. Every time he speaks about economics, which is claims is his field of expertise, he says something so incredibly dumb that it makes one laugh our loud. In his latest opinion piece in the New York Times he claimed that Austrian economists are akin to cultists:
Substance aside — not that substance isn’t important — Austrian economics very much has the psychology of a cult. Its devotees believe that they have access to a truth that generations of mainstream economists have somehow failed to discern; they go wild at any suggestion that maybe they’re the ones who have an intellectual blind spot. And as with all cults, the failure of prophecy — in this case, the prophecy of soaring inflation from deficits and monetary expansion — only strengthens the determination of the faithful to uphold the faith.
What makes this statement so funny is that every one of those accusations can be aimed at Keynesian economists. Keynesian believe they have access to a truth that generations of classical liberal theorists have somehow failed to discern. Even in modern times the followers of Keynes believe that war is good for the economy. What they fail to see, as Frédéric Bastiat pointed out in 1850, is that which is unseen. When a Keynesian sees a destroyed building they see economic stimulus waiting to happen. In their eyes rebuilding the structure will employ people and require materials, which will result in economic growth. They fail to see that the people and materials used to rebuild a destroyed structure could have instead been used to build a new structure. Instead of merely replacing that which was destroyed real economic growth, that is the creation of new wealth, could have occurred.
Keynesian also go wild at any suggestion that maybe they’re the ones who have an intellectual blind spot. Whenever the programs they advocate fail they don’t admit they were incorrect, they merely claim that the program wasn’t done hard enough. When printing money (often referred to as quantitative easing) failed to stimulate the economy the Keynesians claimed that the Federal Reserve simply failed to print enough money. The Federal Reserve is now printing $40 billion a month because their last two bouts of printing new money failed to get the economy on track. Even with so much money being printed the economy continues to falter and the Keynesians aren’t admitting their theory is incorrect, they’re blaming the Federal Reserve for not printing more money.
Failing prophecies also strengthens the beliefs of Keynesian economists. Keynesians claimed that printing money was the solution to the economic depression and now that they’ve been proven wrong they hunker down and demand that more money must be printed. They never stop to consider that their predictions may be wrong. When it comes to economics Keynesians are the masters of demanding the same failing programs be tried again, only harder.
The best part of Krugman’s column is the final sentence:
It would be sort of funny if it weren’t for the fact that this cult has large influence within the GOP.
Honestly, that sentence would be sort of funny if it weren’t for the fact that it has absolutely no bearing on reality. Show me a single member of the Republican Party that has studied and advocates Austrian economics (and now that Ron Paul is retired he no longer counts).
Mainstream economics has failed, in part, because its practitioners try to shape economics facts to fit their hypothesis. Consider unemployment. Keynesians are quick to claim that the creation of government programs is the solution to increasing unemployment numbers. When the government created programs to employ people the unemployment rate failed to drop so the Keynesians in the state redefined unemployment. Entire sections of the unemployed population were removed from the statistic and that allowed the state to report improved numbers. The state now reports, what it calls, the U3 statistic, which doesn’t include individuals who have been unemployed for more than one year (removing those individuals from the statistic is justified by claiming those individuals are no longer looking for work and are therefore unemployed by choice). By massaging the numbers the Keynesians were able to make the economic fact of employment fit their hypothesis and therefore claim to be knowledgeable in economic matters.