Two horrible posts on Austrian economics, one by Paul Krugman and the other by Brad DeLong. The only thing I’ll write with respect to Krugman’s post is that he’s, maybe unintentionally, insulting his peers in the profession with Austrian tendencies. This is understandable because Krugman’s knowledge of what the Austrian School stands for is virtually zero — he only knows two predictions that some Austrians made on the eve of the Great Recession. But, given that his knowledge on this subject is close to zero, his posts should say as much (explicitly or implicitly).
DeLong’s post is a footnote to Krugman’s, where he chastises Bob Murphy for not amending his priors given the failure of his prediction (of high inflation). The problem is that the only option for change, acording to DeLong, is to embrace a non-Austrian worldview. In reality, this isn’t the only option. Murphy’s prediction of high inflation is based on a heuristic that represents a set of “Austrian” theories (because it’s not as if Austrian and non-Austrian theories are always incompatible) as he interprets them. There were many Austrians, including myself, who were not convinced the prediction was right — there were some which predicted deflation. The point is, whatever Murphy’s heuristic is, it can represent different interpretations of “Austrian” theory. So, a revision of his priors could lead him to reviewing his understanding of the underlying theory. Another way to put it is: there are two options, replace or revise. DeLong pretends as if the former (replace) is the only choice.
I can change the case to make my point clearer and more agreeable. Consider a Bizarro world where the dominant school is the Austrian one, and that DeLong belongs to a loud minority known as the “Keynesian School.” Following an important financial crisis in 2007–09 a deep recession sets in. Based on his interpretation of Keynesian doctrine — I don’t mean “doctrine” disparagingly, although it fits with Krugman’s accusation of cultism —, DeLong predicts that a fiscal multiplier of two, such that the radically austerian program of negative fiscal expenditure implies a contraction in GDP by X by 2012. It turns out that the economy contracted by less than X. Bob Murphy, columnist and blogger for The New York Times, notes the failure of DeLong’s prediction and publishes: man, this guy was really wrong, if he weren’t part of the cult then he would have replaced his priors, by which I mean he’d adopt Austrianism. But, this statement is wrong, because to (our hypothetical) DeLong the failure induced him to revise his priors by fixing the perceived mistakes in his understanding of the Keynesian worldview.
To Krugman and DeLong remaining an Austrian after the failure of your prediction is fanatical because they mistake the prediction for the theory. They simply don’t know the actual theory well enough to concede the possibility of revision. This is understandable since they are great economists who are too busy with other topics that are more important to them. I’m only asking that they they accept the limits to their understanding. Don’t insult somebody by essentially accusing him of being part of a cult knowing that his behavior doesn’t reflect that at all.