The Chosen Ones: Krugman’s Critique of the Critics

Krugman is out with a kind-of-sort-of attack on critics of economics. It’s not surprising because Krugman is a very kind-of-sort-of type of guy in many of his opinions. The language of his latest piece, however, is somewhat bizarre. He labels heterodox economists ‘Gentiles’, presumably making orthodox economists, what? God’s chosen people? It’s a metaphor made in light-hearted jest — but it speaks volumes.

Krugman knows that he is dealing with a group that has been marginalised for years. Indeed, there is much documentary evidence that Krugman has been on the front lines marginalising those very people. You can see this, for example, in his exchanges with James Galbraith in the mid-1990s. But recently it seems like the heterodox crowd have been getting a lot right: themes such as income inequality and stagnation are those that the heterodox literature deals with in detail. And the students are waking up to this.

Let’s be clear about to what extent Krugman is misleading his readers in his latest piece. First of all, he thinks that the heterodox have hoisted themselves onto a pedestal because of their greater ability to predict financial crises. This is not really the case. I think that many heterodox economists would not use this as criteria as to what is and what is not good economics. A broken clock is, after all, right twice a day.

But Krugman goes a little far when he says that they have simply not made these predictions. We know well that heterodox economists have made extremely salient predictions over the past few decades — from the MMT proclamations on the Eurozone to Steve Keen and Ann Pettifor’s (among others) warnings of build-ups of private sector debt.

I think, however, that all this distracts from the key issue; which is that, silently, behind the scenes, the heterodox have been winning the debate. Krugman would never admit this, of course — indeed, he seems to live in a bit of an echo chamber over at the NYT with all his fanboys and fangirls and he may not even be fully cognizant of it — but if you move in economics circles you’ll know this to be generally recognised.

Take, for example, the Bank of England’s recent statement regarding how money is created. Krugman lost this debate to Steve Keen and Scott Fulwiller back in 2012 but he never conceded. Indeed, he selectively quoted the former to try to make his case (to whom he was making this case, I’m not sure, as most people interested in economics accept endogenous money theory these days). But when the Bank of England weighed in earlier this year the coffin was truly sealed. Of course, we heard not a peep from Krugman but we all know that he read the report which got extensive coverage on a blogosphere that we all know that he’s tapped into.

More and more heterodox ideas are getting play. In central banks, in newspapers among students. Anyone who surrounds themselves with the debate see that the orthodox — even the lefty orthodox like Krugman — come across as drab, stale and boring in the debates. It is heterodox economists that are providing good ideas, new interpretations and new policy innovations. People like Krugman are rehashing the ISLM and misunderstanding what a liquidity trap is and what it isn’t. The phrase “one trick pony” comes to mind.

Others, like Simon Wren-Lewis, are assuring themselves that mainstream economics is a science and that heterodox critiques are, presumably, as misguided as a crank trying to criticise the foundations of mathematics or chemistry. This is tied up with the idea — shared by Krugman — that our goal is to get rid of people like them. But as I wrote in response to Wren-Lewis in his comment section:

Heterodox economists do not reject much mainstream thought simply for the sake of rejecting it but rather because they believe it to be logically flawed. The only way that I can read your comment is “if a defining characteristic of heterodox thought is that it must reject anything that is mainstream, that is a problem FOR ME”. It is not a Problem in the abstract. You just don’t like it.

Also the [Manchester student’s] report is quite clear that we’re not talking about getting rid of mainstream economics altogether. I recognise that while I may think that it is a ghastly, illogical mess other people may not think so. They should be allowed to teach what they think to be Science. But that should not prevent others from pointing out that it may not be Science at all.

You think that mainstream economics is a Science. What gives your opinion weight? Presumably your PhD in economics. Well, I know literally hundreds of PhDs in economics that think exactly the opposite. The students are correct that both sides should get a hearing. If you are as convinced as you seem to be that your side is Scientific then you should be confident enough that you can defend this position rationally and convince students accordingly.

This is the line that heterodox critics must push. We’re not looking to lock people like Krugman and Wren-Lewis in a cage. We’re asking them to let people hear both sides of the argument. Personally, I know that the critics will win the argument if it is ever laid out; at least, to anyone who approaches it without a vested interest in maintaining the status quo.

But I suspect that Krugman senses this. I think he knows that he might lose the argument if the cat is ever let out of the bag. So, he wants to avoid the argument at all costs. Meanwhile, the DSGE crowd like Wren-Lewis are literally walking around like zombies that haven’t yet realised that their arguments have been rejected; by policymakers, central bankers, newspaper journalists and, now, students.

It’s a sad show to watch and speaks volumes about an all-too-human tendency to myopia and the problems associated with academic privilege. But it is a show that will not stop no matter how many blogposts Krugman writes to defend the status quo. That much can be told merely by reading Krugman’s own comments section.

Update: Stephanie Kelton has directed me to this excellent essay by James Galbraith from 2009. It is well worth a read.

Update II: Krugman has weighed in on the BoE paper. You listening there, Paul? Anyway, he thinks that it’s consistent with his views. If people believe that after reading the 2012 debates then I’m not going to convince them otherwise and I see little point in trying. Pretty cynical maneuver there, Paul, pretty cynical indeed.