Monday, November 19, 2018

22 Days in Paul Krugman's Masterclass (Day 2) (It Got Worse)

 Paul Krugman
Lesson 2 in Paul Krugman's Masterclass is 9 minutes and 31 seconds long.

In this lesson, he emphasizes that economics is about real people rather than robotic agents.

He even disses grad students who come up with elaborate mathematical models that refer to economic agents rather than people.

If you wanted to be generous, you could say it was actually a shallow but mildly good start for someone steeped in Keynesian aggregative thinking. He didn't come close to talking about subjectivism or ranking of values but it could have been much worse.

From there it was all downhill. He linked Adam Smith's "invisible hand" with averages. Smith never talked about averages in The Wealth of Nations when discussing the "invisible hand". I guess in a way, a businessman providing a days bread knows on average how much will be sold but Smith's point was much deeper and majestic, that businessmen without the direction of a central power meet that "average demand" on a daily basis. Of course, it seems to be beyond Krugman's knowledge level that there is even a deeper point to "the invisible hand" as taught by Mises and Hayek that prices act as regularly changing signals to businessmen to provide them cost direction in what to produce and supply---and that this is why the elaborate mathematical models of grad students never work. If it was really only about averages, those you could put into a computer. The big problem, which Krugman doesn't discuss (and probably doesn't realize its key importance) is how supply and demand changes in the economy are best disseminated to businessmen and consumers, which is through changes in prices as signals.

Then it got even worse, Krugman attributed the phrase "the dismal science" to those who reacted to Thomas Malthus' embarrassing forecast that population growth would grow geometrically and food supply would not and thus result in widespread misery.

In fact, the phrase "the dismal science" first occured in Thomas Carlyle's 1849 tract called Occasional Discourse on the N... Question, in which he argued in favor of reintroducing slavery in order to restore productivity to the West Indies, but economists argued against that view, so he wrote :
Gavin Kennedy, Professor Emeritus, Heriot-Watt University, explains in more detail:
If this presentation was made by a high school freshman in his first economic class, I would give the student a sympathetic C-, but I grade on a tougher scale for Nobel Prize-winning economists so for this lesson I give Krugman an F-.

Let's see what tomorrow brings.


Links to discussions of all Krugman's Masterclass lessons are here.


  1. Of course, it seems to be beyond Krugman's knowledge level that . . . prices act as regularly changing signals to businessmen to provide them cost direction in what to produce and supply."

    Is this possible, i.e. that he doesn't know how prices function in a free market? Or is it willful ignorance? Or the result of subconsciously disregarding something that doesn't dovetail into your belief system? Or is it simply lying?

    I honestly would like to know. And Krugman certainly isn't the first to cause me to ask such questions. You can see this every day in columns and blogposts by a variety of people.

  2. 90 bucks for this, huh. Do you suppose in lieu of payment, he'll let me break 90 dollars worth of his windows that he will have to replace, and thereby stimulating his local economy by more than that amount. He would surely benefit from a stronger economy more than from that $90.

  3. Things I have discovered on social media over the years:

    1. No non-Austrian has the slightest familiarity with basic Austrian analysis or concepts, especially the fundamental notion of prices as essential information and prices that have been distorted by funny money as distorted information causing the boom/bust cycle.

    2. No Austrian seems to grasp the full extent of #1, the complete and total lack of understanding of everything Austrian by non-Austrians.

    3. At least once a week, I go trolling to induce additional proof of #1. My comment on Krugman’s Facebook ad for his course induced the usual responses:

    They just can’t help themselves.