Greece, since its independence in 1830, is in a state of bankruptcy almost 50% of the time. Does this tell you something?
— Carmen Reinhart, quoted in Panagiotis Petrakis, The Greek Economy and the Crisis: Challenges and Response (London: Springer Heidelberg, 2012), p. 330.
By the way, the link will take you the book’s Amazon page. Check out the suggested retail price (not Amazon’s price). It’s $189. These books are published specifically for an inclusive market that includes university libraries. The book has its qualities, but it’s not worth $189. I find that scandalous.
Bob Murphy tries to catch a DeLong contradiction. I’ve disagreed with DeLong that Murphy’s prediction errors should lead to dramatic changes in views (i.e. Austrian → Keynesian). But, being honest, I do think Murphy should have made some changes to his views. Of course, everyone thinks what they know is right, but I don’t think Murphy’s predictions of inflation were called for by the data. If we look at the minutiae (i.e. the work of [I'm in L.A. so I can't check my references], I believe, Jeffrey Hummel is a good example — I have in mind the evidence that the Fed is practicing specific allocation of credit, rather than neutral credit provision), the predictions that come to my mind are very different. Of course, the Fed could change policy and Murphy could turn out to be right.
Also, the ends that DeLong, Krugman, et cetera, seek are close to what Murphy was warning of (high inflation), so they’re two economists worth listening to in that area. If DeLong and Krugman, who want high inflation to induce hoarders to spend, predict low inflation, they probably have a pretty good case.
Finally, I agree with Daniel that these comparatively small changes are the kind that DeLong and Krugman made — the kinds that ought to be made. I definitely think this is a point in their favor (even if they expect far too much from people who disagree with them, who have as much right to hold on to the bulk of their ideas as DeLong does). It’s ironic, because their detractors tend to be the most dogmatic (and, just to be clear, I don’t have Murphy in mind at all here — I think Keen is a better example).
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.