Krugman predicted a serious economic downturn, so says The Nation Magazine.
Everyone here knows that the Austrians did too.
So, what is the difference between the two predictions?
A little background: I was talking about how only the Austrians predicted the current economic downturn, that the mainstream guys were blind-sided by it. Then I was shown this article. Ooops.
I was stumped. I hate being stumped, but not being an economist, I didn’t know how to retort.
What say you, ladies and gentlemen?
Krugman in a nutshell:
The state must guarantee financial stability ----> The state must regulate industry to fix market distortion caused by previous fix ----> The state must regulate further to to fix another market distortion caused by previous fix ----> The state must regulate further to to fix another market distortion caused by previous fix —> The state must regulate further to to fix another market distortion caused by previous fix —> The state must regulate further to to fix another market distortion caused by previous fix ----> The state must regulate further to to fix another market distortion caused by previous fix ----> The state must regulate further to to fix another market distortion caused by previous fix —> The state must regulate further to to fix another market distortion caused by previous fix
Imagine the above presented in an change log for electronic software. While fixes occasionally cause unintended problems, programmers usually can find the source and make amendments to fix it rather quickly. Krugman, however, is not writing mechanical code, but perscribing prohibitions on acting humans. The fundamental error with his program will seem elementary to us in the austrian choir, that is he recklessly assumes that any social or economic issue can be solved by ‘wisely’ controlling the valves to what is in his mind just a machine called a nation. Of course, this ‘machine’ is actually a vast abstract network of humans in mind numblingly variable situations each acting independently of the other and with for the most part little to no knowledge beyond guesses of what the other actors will do and what events are occuring around them. Austrian economic theory rides on the idea that humans have limited perception, though it is greatly aided by technology, communication, and above all private price calculations based on trade; the limited perception though remains. Krugman and the other philosopher-kings think that they can put a “1” here, and a “0” here, and thus successfully mold the world into their vision.
I think I went on a rant full of gibberish, but what I meant to say that Krugman attempts to apply simple solutions to complex, to say the least, problems. Previous regulatory fixes subsidized and penalized certain behaviors. The only explaination that the mainstream has for the panic is that the market wasn’t regulated enough. Yet, had there not been a housing bubble (a thing Krugman encouraged) due to state intervention discouraging it, the credit would have just gone somewhere else to fuel a different bubble.
I don’t make sense… I guess 5 in the morning can do that to you!
Since that article is talking about his Return of Depression Economics book, here’s a better review.
As Alan Reynolds says, “Any pretense about Thai or Mexican currency problems of the 1990s providing instructive ‘omens’ for today’s U.S. is plain drivel.”
His “prediction” in that article is purported to be his 1999 Depression Economics book. Peter Schiff was calling upcoming bust throughout the two years leading up to it. Comparing the two predictions is like comparing one weather man who says, “there will be a typhoon somewhere, at some time in the future” and then being proven right 6 months later and another weather man saying, “a typhoon is coming soon” and being proven right 1 week later.
Moreover Schiff predicted HOW the economy would fall: the bursting of the housing bubble which was caused by the easy money policy of the Fed. In contrast Krugman, although he did finally express concern when the bubble nature of the housing boom was painfully obvious near its end, literally advocated an easy-money housing bubble. And the causes of crises that Krugman talks about in his book have nothing to do with how the crisis actually happened. In fact he reverses cause and cure.
It’s not enough to be merely pessimistic to be rightly considered prescient. You have to understand WHY your pessimism is justified. If some kook had said, “This is all unsustainable! Without Zeta beams being transmitted by the distant planet Rann, the economy will eventually tank!” in 1999 would we consider him prescient?
Absolutely awesome answers so far.
Quote the relevant passage. I didn’t find anything.
a lot of economists predicted this financial crisis. one of them who’s name is steve keen predicted this to happen in the 90’s.
I mean he predicted in the 90’s that we would have a financial crisis like this in the late 2000’s
The problem is do you give more weight to timing or how accurate the description was? The most useful prediction help you keep your money. I think Bob Prechter did quite well with Conquer the Crash, gold advocates have done well also. Stock/real estate/ commodity bulls not so much.
Robert Shiller
steve keen
Paul Krugman
Larry summers did in 1989
Ben Stein suggested that a liquidity crisis could occur in a paper he wrote in the early 80’s.
The List goes on.
There were tons of economists who predicted this financial crisis, or wrote how such historical conditions could lead to a similar crisis. In the end these people were either ignored, or individuals like Ben Stein became hack economists.
Saying “something bad is going to happen in a decade” is not a prediction. None of those people saw the housing bubble while it existed.
Pointing towards some vague supposed flaws in some market does not demonstrate an undestanding of the boom-bust cycle.