Tuesday, 21 June 2011

Don Boudreaux's Open Letter to Paul Krugman

Guest post by Jeff Perren

Don Boudreaux of Cafe Hayek gives an excellent smackdown of Paul Krugman (albeit far more polite than he deserves). Krugman writes:

if you ask a liberal or a ‘saltwater’ economist, “What would somebody on the other side of this divide say here? What would their version of it be?” A liberal can do that. A liberal can talk coherently about what the conservative view is because people like me actually do listen. We don’t think it’s right, but we pay enough attention to see what the other person is trying to get at.

The reverse is not true. You try to get someone who is fiercely anti-Keynesian to even explain what a Keynesian economic argument is, they can’t do it. They can’t get it remotely right.

Or if you ask a conservative,”What do liberals want?” you get this bizarre stuff – for example, that liberals want everybody to ride trains, because it makes people more susceptible to collectivism. You just have to look at the realities of the way each side talks and what they know. One side of the picture is open-minded and sceptical. We have views that are different, but they’re arrived at through paying attention. The other side has dogmatic views.

To which Dr. Boudreaux replies, in part:

Let’s overlook your failure to distinguish conservatives from libertarians – a failure that, for the point I’m about to make, is unimportant.

You’re able to conclude that “liberals” are open-minded thinkers while “conservatives” are dumb-as-dung dogmatists only because you compare the works of “liberal” scholars to the pronouncements of conservative popular pundits [like] Glenn Beck and Rush Limbaugh ...

Because, as you claim, you study carefully the works of non-”liberal” scholars, you surely know that the late Frank Knight, Ludwig von Mises, F.A. Hayek, and Milton Friedman – influential economists whom you would classify as “conservative” – were all steeped in and treated seriously the writings of Keynes, Marx, Veblen, Galbraith, and other “liberal” thinkers.

The same is true for still-living influential non-”liberal” scholars.

 I’d be obliged to conclude that you in fact, contrary your claim, do not carefully engage the works of non-”liberal” scholars if you insist that “liberal” scholarship is ignored by conservative and libertarian thinkers such as James Buchanan, Gordon Tullock, Ronald Coase, Armen Alchian, Harold Demsetz, Anna Schwartz, Gary Becker, Vernon Smith, Leland Yeager, Henry Manne, Deirdre McCloskey, Allan Meltzer, Richard Epstein, Tyler Cowen, Arnold Kling, George Selgin, Lawrence H. White, and James Q. Wilson, to name only a few…

In short, Krugman once again has been caught peddling intellectual porkies.

The whole thing, while short, is well worth reading in its entirety, as are many of the comments.


  1. Keynesianism and socialism are of course simply incoherent: anyone who understands that 1 + 1 only every equals 2 (or more likely 1.5 after tax) already understands why Keynesianism and socialism always fail.

    It is a great pity Boudreaux has to waste his breath on useless socialists like Krugman.

  2. A simple good reading with no equations involved. Complex systems modeling of economics has already started for a decade or so. Physicists, economists, mathematicians, computer scientists are contributing to this effort & development. This is in line with Hayek's notion of an economic self-organized system, however, Austrian proponents haven't moved past their hostile to economic quantitative analysis, since they're still trapped in an 18th century mentality.

    Quote #1:
    As we shall discuss more
    fully below, it is the neo-Austrian economists who have been the heterodox group most open to the complex system perspective. However, despite sharing an economic liberal position with
    neoclassical economists, the neo-Austrians have had virtually no impact upon mainstream ideas
    in economics.

    Quote #2:
    In essence, Austrians, such as Von Mises and Von
    Hayek, did not disagree with the rhetoric of neoclassical economics but with its scientific
    credentials6. The sacrifice of Smith’s emphasis on the evolution of the institutions of capitalism
    in favour of exercises in calculus borrowed from physics is viewed as an entirely unsatisfactory
    basis for understanding how an economy works (Vanberg (2004)).

    Quote #3:
    Modern neo-Austrians see the economy as a complex system of individuals who, because of this
    complexity, face uncertainty that they attempt to reduce by adhering to behavioural rules that
    result in mutual benefits. These rules are an outcome of a process of ‘spontaneous order’
    whereby the best rules are selected and, ultimately, gain legitimacy in laws and constitutions.
    Knowledge and action are not optimized givens but emergent phenomena; it is argued that they
    must not be interfered with by entities such as governments that are regarded as political entities outside the economic system.

    Download Full Paper: From Simplistic to Complex Systems in Economics

    The discussion of the subject is simple and understandable to non-specialists.

  3. @FF: I'm afraid that once again your arguments (or the arguments you quote) mischaracterise Austrian economics. Once again, you're tilting at a strawman of your own creation.

    In fact, all three quotes and your summary are flawed, even before they begin to criticise.

    ** Austrians aren't "hostile" to economic quantitative analysis--they simply point out its utter inapplicability to human action, its inability to explain causality, and the imprimatur it places on "prediction" rather than understanding.

    ** In fact, Austrian economics first emerged in the 19th century, as an outgrowth of the 16th-century Salamanca school, and as a species of Aristotelian philosophy.
    So you could call it either 19th, 16th or 3rd century BC ... but not 18th.

    ** In fact, far from having "had virtually no impact upon mainstream ideas in economics," Austrian economists such as Carl Menger, Eugen von Bohm-Bawerk and Friedrich Wieser were part of the early "neo-classical synthesis." [About which you can read in Tony Endres 'Neclassical Microeconomic Theory: The Founding Austrian Version.']

    ** That said, their agreements were about more than just "rhetoric," and their disagreements with the synthesis extended to more than just complaints about the use of calculus.

    ** The characterisation of "Modern neo-Austrians" as folk who see economic activity as people "attempt[ing] to reduce [complexity] by adhering to behavioural rules that result in mutual benefits" is so flawed as to question the authority of the quoted source to even comment intelligently on the subject in question.

    So, once again, I can only exhort you again to put down juvenile nonsense like this and actually read and understand that which you criticise before you deign to criticise it.


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