Ugh -- Krugman Bringing Climate-Style Argument by Marginalization to Economics

Climate alarmists have mastered the trick of portraying opposition to their theories as not just being wrong, but being anti-science.  For years many scientists who have not looked into climate science at all have reflexively signed petitions supporting the alarmists, in the belief they were supporting science against anti-science. (By the way, time and again when these physicists and Earth scientists have actually later looked at the quality of climate science work, they have been astounded at the really poor quality garbage they were implicitly supporting -- I know, I am in that camp myself).

It looks like Paul Krugman, the most politicized economist ever(TM), is trying to bring the same style argumentation to economics.  If you don't agree with him, you are not just wrong, you are anti-science.  He is Galileo, and you are the ill-informed mystic.

So let me summarize: we had a scientific revolution in economics, one that dramatically increased our comprehension of the world and also gave us crucial practical guidance about what to do in the face of depressions. The broad outlines of the theory devised during that revolution have held up extremely well in the face of experience, while those rejecting the theory because it doesn’t correspond to their notion of common sense have been wrong every step of the way.

Yet a large part of both the political establishment and the economics establishment rejects the whole thing out of hand, because they don’t like the conclusions.

Galileo wept.

There are two other similarities between economics and climate that support this kind of blind (but unwarranted) certainty:

  1. There are few if any opportunities for controlled experiments to truly test cause and effect
  2. There are near infinite numbers of moving parts and variables, such that one can almost always find an analysis that shows your favored variable correlated to something good or bad -- as long, of course, as you are willing to pretend that a zillion other variables weren't changing at the same time which could have equally likely been part of the causation.
  • Max

    Ok but there also is the field test they lost last year. Just look at Scott Sumner over at econlib on monetarism vs fiscal stimulus.
    So Krugman post is even more ridiculous as it first seemed.
    If anything he is more on the quack science is a than the other side.

  • curmudgeon

    The climate hysteics have segued into extreme weather events will be the future, even if global temps don't rise as much as we predict. "Sandy!!" Polar Vortex!! Heat death of
    Australia!! Antartica has more surface ice because deep ice is melting!!

  • Frederick Colbourne

    I have analyzed several cost-benefit analyses (CBA). All but two that I have seen have left out the benefits of CO2 and of warming.

    The New Zealand study concluded that the effect on their economy of the pessimistic scenario would be beneficial because they could sell more agricultural goods at higher prices. The Quebec study concluded that a longer growing season would benefit their agriculture as would higher CO2.

    Various other studies have calculated the increase in agricultural production resulting from higher CO2 and lower demand for water. Leaves develop smaller stomata in the presence of high CO2 and this reduces water loss via transpiration. However almost none of the economic studies incorporate these economic benefits.

    The fact is that to do a proper CBA would cost millions of dollars. I would say that the CBA model would be at least as complex as the GCMs. But the economists have apparently not had the funds to do a global study. Such a study would cost US$ five to ten million and take about 5 years.

    But maybe it's not necessary because, to my knowledge, with the exception of Nicholas Stern, economists do not argue that global warming will make the world poorer in the next 100 years. What the CBA's show is that future generations will be richer than the present generation with or without global warming.

    Some CBA models argue that we are so rich that we can afford to sacrifice part of our present income to make ourselves and everyone else even richer. The assumption is that mankind can influence climate either by making it warmer or by avoiding making it warmer.

    [The CBA models have not asked the question: what would happen if there were several decades of cooling.]

    There are many issues. The discount rate for social goods is frequently set somewhere around 2% in real terms. For comparison, the US stock market over periods of several decades showed a real return of about 7% during most of the 20th century. [10% nominal less 3% inflation]

    Thus, the Stern Review on the Economics of Climate Change used a discount rate of zero, a rate that is much lower than the conventional value.for social CBA.

    There is a philosophical issue underlying the assumption about time preference, base on the idea that inter-generational time preference is different from intra-generational time preference.

    A critic might argue that in the developed world where people live to age 75 on average, the intra-generational discount rate of 3% [Nordhaus] would be more reasonable.

    Why would we sacrifice today for our children 75 years from now who will be richer than us? Why would we not spend the money raising these children during the next 20 years to give then a better start? [Why pay a carbon tax instead of paying into an education fund for our children?]

    http://en.wikipedia.org/wiki/Stern_Review

    Critiques:
    http://www.econ.yale.edu/~nordhaus/homepage/nordhaus_stern_science.pdf

    http://environment.yale.edu/files/biblio/YaleFES-00000260.pdf

    My own view is that Lord Stern has made a huge blunder that will ensure his place in history. His misfortune was to have been awarded a peerage.

    As a graduate student at the LSE in 1964 or 65, I attended a public lecture to the entire faculty and student body by a similarly puffed up economist who had referred to his contribution to the Btetton Woods System.

    I got up during the question period and asked him two questions? Why the British were so poor in comparison with the Canadians? How much on average had Britain's GDP been depressed by the Bretton Woods System?. http://en.wikipedia.org/wiki/Bretton_Woods_system

    You could have heard a pin drop. How shocking to challenge the great professor. How shocking to suggest that British politicians were so stupid as not to realize that a fixed exchange rate with the dollar and the Deutsche Mark would cause the UK economy to stop and go, stop and go for decades.

  • Alan_McIntire

    "So let me summarize: we had a scientific revolution in economics, one
    that dramatically increased our comprehension of the world and also gave
    us crucial practical guidance about what to do in the face of
    depressions"
    Paul Samuelson said roughly the same thing in his economics text, which was published not to long before we had "stagflation" under Presidents Nixon, Ford, and Carter.
    If those economists knew all the answers, they would have been able to anticipate "stagflation".

  • marque2

    The latest is a hoot. The ice somehow sinks to be melted by the warm salt water below , but then since ice water is less salty it floats to the surface where it freezes because water with less salt freezes more easily.

    It doesn't make sense - but it makes good sound bites for All Gore until folks catch on and they move to the next fabrication.

  • Matthew Slyfield

    If it looks like a duck and it walks like a duck then it probably quacks.

  • rst1317

    Krugman's argument over the years seems to be that the problem isn't that his version of Keynesian knows that not enough money was spent. I'm not sure I've ever ran across a detailed explanation, by Krugman or others, as to why it's reasonable to postulate that not enough was spent.

  • bigmaq1980

    @Krugman - Did you predict the housing bubble and tell us all what we needed to do to protect ourselves?

    Case closed!

  • BigGuy

    Yes, he did.

  • BigGuy

    Massive spending? W's mal, mis, and nonfeasance reduced the wealth of the USA by $40,000 per captia -- $12+ trillion.

    The $ spent for fiscal stimulus for construction -- not for tax cuts and auto stabilizers like extended unemployment benefits was about $300 billion -- $1000 per person.

    $40,000 LOST, $1000 spent to recover.

    That's not massive spending.

    When your teenager asks for some money to buy fast food after school, do you tell them, you have to cut back so instead of giving them $10, do you just give them a quarter -- 1/40th of $10.00 ?

  • bigmaq1980

    And so he did...

    http://www.nytimes.com/2005/05/27/opinion/27krugman.html

    Sort of...

    Was his "foresight" specific and actionable?

    He talks about a "housing bubble", but, given his "scientific revolution in economics", where's his prediction on when a meltdown will happen? (actually, Krugman credits Paul McCulley with predicting it, while Krugman is "starting to reconsider" his position while "looking at the housing market").

    It was full bore crisis late in 2008. Scanning his subsequent articles to the above, I may have missed it, but I didn't see him honing in on any more specific timing other than to generally point out that there is a bubble.

    If his superior "comprehension of the world" were true, he fell well short of providing "crucial practical guidance" that you or I could use to protect ourselves. Heck, he didn't even prescribe what the Fed should be doing to get out of a bubble. Maybe the comprehension he now talks about only came after the crisis hit.

    Look, I'll give him credit in talking about the bubble earlier than most (was he before Shiller?). But, perhaps he should also get credit for prescribing the low interest rates that fueled the housing bubble.

    http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html

    Of course, he disowns that his intent was to create a bubble - that being something the Fed mis-managed by keeping it too low for too long.

    But, isn't that the case always with economists? Not unlike the Nobel laureates who started LTCM thought they had a superior comprehension of the world...it was true until they went bankrupt, and almost took Wall Street with them.

    Has Krugman talked about this problem (interest on debt, see the link), how it should be resolved, and what we should do to protect ourselves?...

    http://globaleconomicanalysis.blogspot.com/2014/01/when-will-interest-on-us-national-debt.html

    I've not seen it, but maybe I missed it.

    Even at an optimistically low 3%, the interest will be $670B, per CBO numbers (for perspective, all personal income taxes collected in 2012 were $1.1T)....The consequences of all that spending Krugman has and continues to advocate (and he says our government has not spent enough - again with someone to blame).

  • marque2

    The government is suppose to refund us our bad investments? How will that help? They caused the problem in the first place by overstimulating the housing market. And we need more bubble causing stimulation from the government?

  • BigGuy

    Most residential real estate is still worth a fifth less than it was in 2007. Having the federal government indemnify homeowners for their lost equity could greatly benefit our economy, but your suggestion would not be likely to receive political support in Congress.

    We are in the midst of a depression. Aggressive fiscal stimulus is the surest way out.

  • FelineCannonball

    The economic implications are interesting -- but a lot is thrown off by the very scientific uncertainty concerning climate change. Decadal weather oscillations and precipitation patterns matter and the impacts of even subtle changes in global climate on these types of weather patterns is almost completely unknown.

    If we look at detailed paleoclimate histories of the Holocene we see that although it's the most stable period in recent history (and is associated with the advent of stable agricultural societies amongst diverse isolated peoples) it is studded with local 20-80 year droughts. We're pretty sure these are associated with cultural abandonment in several prehistoric merican cultures. If I was grasping, this is probably the biggest fear I can think of. That persistent drought hits the great plains or California or other bread baskets of the world and lasts a "long" period of time. There's little science in this as the models suck and although some might predict it, there isn't agreement. We do know it's possible from tree ring records (and likely eventually) and we do know we're perturbing the system, but it's more of a disaster novel plot than anything of a specific prediction.

    The suggestion isn't so much to reverse climate change as to increase economic resilience (regardless of the scale or cause of future climate change). For instance, increasing drinking water storage, conservation of aquifer resources, consideration of irrigation capabilities in rain dependent agricultural regions.

    The bigger problem I see is the size and complexity of the economic system reliant on "average climate" that was never "average" in the first place. Certain economic decisions we've made that make us less resilient -- greenspace development, loss of groundwater to pollution or perched aquifer penetration, over-reliance on certain regions for staples. Fallback agricultural solutions for regional drought and realistic planning for drought in municipalities. The other complication is infrastructure and trade dependent on relatively cheap fossil fuels -- something else we're not likely to be able to count on forever. If nothing else energy inefficiency affects economic competitiveness.

    I don't have a lot of faith in any significant response along this front except in response to short regional droughts or other water shortages (80's drought caused some action in California, Colorado River system is already tapped out and people are pouring money into storage). And god knows we have a lot of obstacles in solving problems and inefficiencies on the water law front. Here's hoping that any big problems are preceded by small ones that increase our investments.

    ------------------------
    Water efficiency changes with CO2 are real and where you can supplement with fertilizer (so it doesn't become the limiter of primary productivity) is a beneficial change for crops. A side-effect is impacts on natural ecosystems where shrubs and juniper invade grassland and extend their growing season. There are some subsequent effects on groundwater withdrawal and increased summer monsoon moisture which might not be so locally beneficial. Summer haboobs, flash floods, dry springs, depleted aquifers.

  • Another Ian
  • skhpcola

    Your blind faith in Keynesian magic thinking would be cute in a retarded child, but not so much in an adult that has been afforded the opportunity to learn from easily-found history.

    FDR's Secretary of the Treasury, Henry Morgenthau: "We have tried spending money. We are spending more than we have ever spent before and it does not work....After eight years of this administration we have just as much unemployment as when we started...and an enormous debt to boot!"

    Keynesians are liars, thieves, grifters, and wannabe totalitarians. Your preferred prescription is assured failure, yet you are a stout advocate for that route. It is the mark of a person of diminished mental acuity to pine for something that never has been successful in the past. I suppose that you believe that your favorite fascists can make it work this time, though. Pfft.

  • marque2

    We also have the problem that you don't really experience a loss until you sell the item.

  • BigGuy

    Since the financial crisis began in 2008, those who have called for aggressive fiscal stimulus have been right and those who have called for austerity have been wrong. Quantitative easing by the Fed prevented this Depression from being severe. If Congress supported aggressive fiscal stimulus combined with QE, this Depression would have already ended.

    What ended the Great Depression was the fiscal stimulus of WW2 which cost about double the GDP of 1929 or triple the GDP of 1937. That's why the stimulus in 2009 needed to be $24 trillion -- 30 times greater than it was.

    You call Keynes magic thinking, even though Keynesian economics has worked very well to deal with this Depression. Austerity in Ireland and Greece and Spain has made things worse, not better. In Iceland and Japan, things have improved.

  • BigGuy

    Take a money and banking course online from MIT or Stanford. It's free. Do the problem sets about the zero lower bound on interest rates and increasing aggregate demand when monetary velocity has fallen below 1.0

    When you do the computations you'll find that $25 trillion in fiscal stimulus is still too low.

  • BigGuy

    One big argument against both fiscal and monetary stimulus is that it'll cause inflation.

    How much inflation has there been in the past five years? Not much.

    Food has gone up about 10%, apparel about 8%, and natural gas -- energy -- has gone DOWN more than 33%.

    Food's up less than 10% in the past five years:
    http://research.stlouisfed.org...

    Apparel's up 8.5%:
    http://research.stlouisfed.org...

    Natural Gas is a THIRD LESS than five years ago:
    http://research.stlouisfed.org...

  • HenryBowman419

    That Krugman brings up a "scientific" revolution in economics is seriously laughable. I guess he doesn't yet realize that economics is a "social science" (an oxymoron) and thus is not science at all, as there is no way to replicate experiments, etc. What happened in economics is that it began to use some mathematics. This fooled many into thinking that they were actually performing science, which simply isn't the case.

    It is instructive to examine the hypotheses of Lord Keynes. Keynes was a sharp fellow who thought up lots of [untested] economic principles, but loathed actually using data to ascertain whether his ideas had any merit. One of the worst of his ideas (mostly bad because politicians love it) is that for every dollar of government spending, the multiplier effect yields $4 in economic activity. Keynes simply stated this, without any justification whatsoever, except it was his idea, and thus must be correct.. Eventually economists began to test the idea, only to find that the multiplier was not significantly different from 1.0.

    Years ago Krugman apparently went insane. Nowadays he is simply a political hack who adds no value to any discussion of economics.

  • rst1317

    "Most residential real estate is still worth a fifth less than it was in 2007." ~ BigGuy

    Arguing that the economy is not healthy because current housing prices are lower than at the peak of the bubble is like arguing those folks on The Biggest Loser are unhealthy because of how much smaller they are today than they used to be.

  • rst1317

    Japan has a lost generation and is well on it's way to a 2nd one. What constitutes improvement?

    Austerity in Greece has saved it. They're projecting growth for the first time in years.

    Spain has done nothing that resembles austerity. Their government is spending more money today than before the crisis.

    Ireland's economy is growing stronger than most of Europe. I'm not sure why you think they're doing poorly.

    http://www.independent.ie/business/irish/ireland-reports-strongest-growth-in-europe-for-industrial-production-29916921.html

    If you want to see where true austerity works, look to the Baltics. They got hit very hard, possibly the hardest in the world, by the financial crises but have quickly bounced back.

    http://www.economist.com/node/21556580

  • BigGuy

    I won't write the book answering your points, it's already been written:
    http://press.princeton.edu/titles/9270.html

  • skhpcola

    So injecting $75,000 into the economy for every man, woman, child, and illegal alien in the country would be stimulative? I'd love to subscribe to your newsletter to have an illustrative exemplar of idiotic ideology.

    Further, a fiscal stimulus greater than 150% of the GDP is insanity. The rot that Keynes' policy preferences produces is only to the religious faithful that are acolytes of his cult.

    You are unserious, incurious, and not worth the effort it would take to fisk your nonsense.

  • BigGuy

    You describe me with unkind adjectives and call Keynes' a cult. You do not refute that austerity has been bad, while expansionary monetary policy and aggressive fiscal policy in the past five years, where and when applied, has been good.

    Look at the data. We've not had much inflation. If QE was so bad, shouldn't we have had bad inflation? We have not. Some things cost a lot less -- natural gas costs one third LESS than in 2008. Men's clothing is still about 10% LESS than it cost in 1998.

  • DensityDuck

    I like how Krugman is name-checking Galileo. It's obvious that he's bought into the popular myth, which I guess is not so surprising.

    People talk as though everyone believed in geocentrism because it was dictated by Christian religious authorities. In fact, Ptolemaic epicycles--the math that makes geocentrism work--were invented, as the name implies, long before anyone named Jesus showed up. And they *were* math; rational models that explained existing data and sort-of predicted future events, although not very accurately, and the math got increasingly complicated as time went on and more observations had to be accounted for. But they *did* work.

    If anything, Galileo was the Global Warming Denier of his day. Proposing some crazy theory that was neither needed by science nor suggested by existing evidence, but really was done just because he thought the math would be easier if we did it HIS way--clearly proving, as if anyone needed proof, that rather than finding a better understanding of the world he was just too dumb to understand science. Which was, by the way, quite settled. And Galileo's response to being snubbed by the scientific community was to go whining to his buddy the Pope, and when the Pope told him to get lost he got in a big flamewar via the Renaissance equivalent of Twitter and got himself banned from the message board of society.

  • http://aguanomics.com/ David Zetland

    Krugman is right that lots of economic theories hold up, but wrong to imply that these theories are applied well, esp. with "models" or econmetrics whose outputs are driven by pre-specified parameters. Most economists should stick with the 30% of our subject that's rigorous and robust, but the 70% that's opinion dressed up in maths. (I'm an economist)

  • rst1317

    They're not my points, they're as reported by others. Blanket statements like "austerity doesn't work" is not consonant with what many countries are experiencing.

    If austerity doesn't work, what other thing(s) did these countries do to turn things around?

  • BigGuy

    Read the book, or at least the book reviews.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    Keynes was a statistician by training & trade (early on).

    Krugman was fired from CEA for poor rate forecasting in the 1980s, mostly because he didn't know enough to talk to Paul Volcker.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    So was Krugman, once.

    He got fired from CEA back in the 1980s for bad rate forecasting.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    QE did indeed reduce recession severity, but it also prevented markets from clearing. That residual effect has grown manifold, and is now very dangerous.

    The direct effect can be seen in the complete inability of the Fed to move away from QE, much less ZIRP.

    We are locked in to those 2 very destructive policies for the indefinite future.

    The longer the pain - which increases exponentially with Krugman's irresponsible policies - is postponed, the worse it will be when it hits.

  • BigGuy

    No, there need not be great pain when QE ends and interest rates rise. Adequate fiscal policies in the future could reduce or stop that pain. Having inadequate fiscal policies now is a political choice of Republicans in Congress.

    In the future, when interest rates do rise, Republicans may choose to help all the people, not just rich people. We can not expect that, but it is possible.
    .

  • http://devilish-details.blogspot.com/ mesaeconoguy

    Oh, really?

    And what “adequate” fiscal policies do you advocate?

    Rephrase: which would you like to eliminate: Obamascare, Mediscare/Medicaid, or Socialist Insecurity?

    You can have 1 of those 3, not all.

    Pick one.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    In the Keynesian IS-LM framework, if monetary stimulus always results in growth, then why not stimulate the economy continually?

  • http://devilish-details.blogspot.com/ mesaeconoguy

    Also, please explain how QEinfinity & ZIRP have helped “all the people, not just rich people” who hold the majority of assets.

    http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/03/Fed%20vs%20S%26P.jpg

  • rst1317

    The book you cite does not explain why address what has been occurring in the previously cited countries. A hypothesis that is clearly contradicted by real life events is a hypothesis badly in need of revision.

  • BigGuy

    Monetary stimulus does NOT always result in growth, especially when interest rates are near zero. What IS-LM explains is how monetary stimulus can have (relatively) little impact and how and why aggressive fiscal stimulus may be needed.

    Monetary velocity has declined, even thought the Fed has been creating more money. That's why there has not been severe inflation.

  • BigGuy

    Without QE, the economy would have devolved into a deflationary spiral. Instead of 5 to 20% of homeowners having negative equity, more than half of owner occupied households would have negative equity.

    Without QE, Detroit would not be the exception that it is. Instead, Detroit would be the model for how more than half the country would be living.

    Detroit has had a deflationary spiral in its residential real estate for decades. The abandoned areas of some other Northern and Midwest cities have also had declining real estate values for decades. Its not just a Black or inner city issue. Rural towns in counties with lousy farmland and without any gas or oil obtainable by fracking have also had declining real estate values for decades.

    Nearly all the wealth generated in this recovery has gone to the rich and ultra rich, while everybody else has fallen back a bit -- 5 to 15%. Without QE, the rich and ultra rich would have retained the wealth they already had, but everybody else would have lost a third to two thirds of their wealth.

  • BigGuy

    The book is about zombie ideas in economics: ideas that distort reality and that have not been proved out by real life experience. Those are the the ideas that you present to argue that austerity has worked.

  • BigGuy

    Most people who bought homes between 2000 and 2006 have experienced the loss, even if they did not abandon their homes.

  • marque2

    No one who kept the home experienced a loss and a large percent that let the house for close and lived there two years for free actually gained considerable. You don't experience a loss until you sell a losing asset - and when all things are the same - same house payment same taxes there shouldn't be any suffering - unless you are talking psychological effects.

    You might want to take a basic finance course .

  • http://devilish-details.blogspot.com/ mesaeconoguy

    True.

    And how did we get to ZIRP?

    The Fed took us there, in their accommodative and stimulative efforts.

    As we have seen recently with the non-taper taper announcement, if Fed action is curtailed, rates will drift higher, and have done so (the 10 yr is now 2.84, after drifting north of 3, and well off the lows).

    The continued artificially low rate environment is just that – artificial, and due entirely to the Fed.

  • markm

    Henry, your argument proves too much. Many sciences cannot perform experiments, but have to sift existing data for relevant correlations. Economics _can_ be a science, if you don't mind doing much grinding hard work for slim results while other economists gain fame with bad but easy ork.

    The problem is, the way to be well known as an economist is not to produce sound science, but to be a good story teller (e.g. Malthus and Keynes) and especially to support influential people in wishful thinking. Policy makers used to have to seize on some small part of what the economists said and ignore the rest. Keynes eventually had to deny being a Keynesian, as politicians misused his work to justify buying votes with money the government didn't even have yet under most economic conditions, and ignored his prescription to run a surplus in a boom. IMO, Krugman avoids that problem by writing ephemeral columns instead of books, and continually revising to fit the latest lefty position.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    At what point does it become inflationary?

    Please describe the exact conditions.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    Pure speculation.

    The pain would have been considerable, but the damage it is doing now (along with totally irresponsible fiscal policy) far outweighs the short-term effects of a severe recession.

    The ensuing abnormally weak recovery from the recession is a result of bad fiscal coupled with highly questionable (and potentially very dangerous) monetary policy which continues to prevent, not help, recovery.

    Further, your supposition of underwater homeowners is inaccurate in a quicker recovery, and the housing market still has not cleared, and we are reinflating that bubble as well, using the same mechanism: bad lending and housing policy.

    And yes, the rich would have done all right either way, so your criticism of Repugs is irrelevant. Got it.

  • BigGuy

    People living in homes worth $100,000 that cost them $300,000 who have a $250,000 mortgage certainly are feeling the loss, even if the loss has not been realized by a sale.

  • BigGuy

    When wages are rising at above the rate of inflation.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    That is the classical definition of too much money chasing too few goods, but doesn’t describe the precise point when your policy becomes problematic.

    Please describe the exact point when your hyperaccomodative policy (over the past several years) becomes inflationary.