Friday , 29 September 2023

In Defense of Paul Krugman – Sort of

I have a great deal of respect for Paul Krugman as an economist. He has a unique talent among economists for being able to make complex economic issues both understandable and interesting for the average person. [That being said,]…I am far less impressed with his abilities as a public policy commentator. [Let me explain.] Words: 567

So says the Blindfolded Monkey ( in edited comments from an article* entitled Taking Paul Krugman with a Grain of Salt which Lorimer Wilson, editor of (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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The article goes on to say, in part:

My problem with his performance as a commentator is twofold:

  • 1. he exhibits a common flaw among academics in viewing the world as if it were a controlled laboratory model.

Many of Krugman’s suggestions are quite rational and would be brilliant recommendations if the entire world was populated with perfectly rational people with PhDs in economics. Unfortunately, the world, and in particular the investment world, is made up of highly emotional, greedy and fearful people.

This flaw is illustrated in Mr. Krugman’s frequent argument that in recessions governments and central banks should not worry about debt and should increase both spending and the money supply as much as necessary to get people working and the economy growing. The problem with letting debt get too high, however, is that global investors begin to lose confidence that the country will actually be able to repay the debt and start driving up the interest rates on the country’s bonds, making it increasingly difficult and expensive to raise the necessary debt. If Greece could borrow an unlimited amount of money it would certainly be able to turn around its economy. The only problem is that there is a very limited supply of investors who are willing to lend it any money… In the cases where a country is able to borrow the necessary money, history has shown they rarely have the discipline to reduce their debt when times are good, making it increasingly more difficult and expensive to borrow money in future recessions.

  • 2. he is doing double duty as both an economist and a liberal activist.

While he does not make any secret of his left wing leanings, it can be difficult to determine whether his argument is based on his economic analysis or on his political preferences. If you pay close attention to some of his columns, you will see that many of his recommendations are based not on what he thinks is best for the economy in the long term, but on his wish that unemployment and economic hardship does not reach a certain level in the short term.

Before he became a liberal activist, Paul Krugman, the economist, may have conceded that periodic short term pain may be required to ensure a healthy economy in the long term.

(I would strongly recommend to anyone wishing to better understand the causes of recessions to read his book “The Return of Depression Economics”.)


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