Niall Ferguson: Paul Krugman Has Gotten Nearly Everything Wrong, And Yet This Has Only Provoked Further Arrogance, Self-Flattery, and Sneering At Those Who Got It Right

Niall Ferguson is an influential historian. I just heard of him. I'm immediately a fanboi.

He railed on Paul Krugman yesterday on the useless Joe Scarborough show, which was interesting enough.

It's from that exchange that I learned of Ferguson's three part demolition of Paul Krugman, whom he tastelessly, childishly taunts as "KRUGTRON, the Invincible!"

Wait a minute, Ferguson didn't call Krugman that. Krugman calls himself that. Ferguson is just using Krugman's preferred styling.

I hate linking the Huffington Post, but that's where Ferguson writes (apart from writing history books on the Depression and such).

Here are some excerpts from this three part series.

Krugtron the Invincible, Part 1: Krugtron gets everything possible wrong about Europe's weathering of the financial crisis, and then... begins claiming himself to have gotten everything right.

These quotes are by no means the only good stuff here; I just have to be picky about excerpts. I do suggest you break down and Read the Whole Thing(s).

Krugman reserves a special contempt for people who, in his words, "take a position and refuse to alter that position no matter how strongly the evidence refutes it, who continue to insist that they have The Truth despite being wrong again and again." He calls this "derping." The awkward thing for Krugman is that "being wrong again and again" perfectly characterizes his own commentary on what proved to be one of the crucial issues of the financial crisis: whether or not Europe's monetary union would survive it.

To begin with, Krugman was blithely confident that Europe would weather the economic storm better than the United States. On January 11, 2008, he hailed it as "The Comeback Continent":

... Since 2000, employment has actually grown a bit faster in Europe than in the United States ... If you think Europe is a place where lots of able-bodied adults just sit at home collecting welfare checks, think again. ... Europe's economy looks a lot better now - both in absolute terms and compared with our economy - than it did a decade ago.

Krugman explained Europe's comeback in terms of "deregulation", a more competitive broadband market than the U.S., "strong social safety nets" and "very high taxes." On May 19, 2008, after a visit to Berlin, he even told his faithful readers: "I have seen the future, and it works ... in the heart of 'old Europe'." (Admittedly this column was a standard "peak oil" piece, exhorting to Americans to have German-style cars and public transport, as opposed to, say, developing new technology to unlock hitherto inaccessible domestic supplies of oil and natural gas.)

Finally, in December 2008, Krugman woke up to the fact that the "Comeback Continent" was in fact an "economic mess." But what kind of mess? No, not the mess of excessively leveraged and effectively insolvent banks that had maxed out on CDOs, bubbly real estate and Club Med government bonds. The mess Krugman discerned was the failure of the German government to see "the need for a large, pan-European fiscal stimulus." The main thing, he wrote in March 2009, was not to make the mistake of thinking that "big welfare states are ... the cause of Europe's current crisis. In fact ... they're actually a mitigating factor." It was a theme he returned to when he and I debated the crisis in New York three months later, when he argued that "the human suffering [was] going to be much greater on this side of the Atlantic" because of Europe's "strong social safety net." Even in January 2010 he was still insisting that:

The real lesson from Europe is actually the opposite of what conservatives claim: Europe is an economic success, and that success shows that social democracy works. ... taking the longer view, the European economy works; it grows; it's as dynamic, all in all, as our own.

All of this sheds (to say the least) interesting light on Krugman's boast in an interview in March of this year to have been one of the few commentators who had "predicted the unfolding economic disaster in Europe." This is by no means the only retrospective prediction Krugman has ever made, but it is surely the most shameless.

Incidentally -- I'm not sure if this disproves Krugtron the Invicible or not -- but the one country in Europe that really did weather the crisis is Germany, with its hateful devotion to balanced budgets.

I say I'm not sure it disproves Krugtron the Invincible because he seems to be talking about how Germany can help Europe, not how Germany can help itself. Nevertheless, it sure does seem interesting, to me at least, that the one country insisting on fiscal sanity is also the one Western country that's not doing too bad at all.

Krugtron the Invicible, Part 2: Krugman gets everything about the housing crisis wrong.

Regrettably, Krugman - also known to himself and his cronies as "the Invincible Krugtron" - has not found time in his busy schedule of blogging to make the apologies that I believe are due, not only for his incivility and hypocrisy, but also for his own personal contribution to the crisis of confidence that afflicted Europe in 2011 and 2012....

In 2006, the year before the financial crisis began, Krugman had a twice-weekly New York Times column. What a perfect opportunity, one might have thought, for the infallible Nobel laureate and author of Depression Economics to warn his readers about the gathering storm. Retrospectively, Krugman pats himself on the back. "How did I do?" And the answer is, not too badly. ... I've had a pretty good stretch." In fact, only eight of Krugman's more than a hundred columns in 2006 referred to the bubble in the U.S. housing market and the danger posed by its bursting. The key word "subprime" did not appear in his column until March 2007. Nearly everything else was a partisan rant of one sort or another against the policies of the administration of George W. Bush.

...

Back on the eve of the crisis, Krugman also blew hot and cold on inflation, which I suppose is one way of being "right about everything"....

By August 2006, Krugman's diagnosis of the risk of a coming recession was correct in only one respect: that he thought there was a risk. In every other respect he was wrong...

I'll digest here and just say that when Krugtron the Invincible speculated on the chances of a recession (which he thought was only a fifty/fifty proposition; which is a nice way to be "right about everything"), he boldly asserted it would begin with a stock market crash in China.

But let's move on:

...

One might have expected a little more humility from an economist who so clearly failed to understand the nature of the biggest financial crisis of his lifetime until after it had happened. Or at least a little less egomania: "Yes," he wrote in January, "I've heard about the notion that I should be Treasury Secretary. I'm flattered, but it really is a bad idea." Gee, Professor Krugman, why do you say that?

It would mean taking me out of a quasi-official job that I believe I'm good at and putting me into one I'd be bad at. ... An op-ed columnist at the [New York] Times ... [can] have a lot more influence on national debate than, say, most senators. Does anyone doubt that the White House pays attention to what I write? ... By my reckoning ... an administration job, no matter how senior, would actually reduce my influence.

...

I confess I am at a loss to understand the basis for this self-satisfaction. If Krugman was wrong about the origins of the crisis, and wrong about the fate of the euro - wrong, in short about the two biggest crises of our time - what exactly was he right about? What, besides the doubtless large number of his Twitter followers, entitles him to be so pleased with himself?

Just as an aside: This opening structure, "I can't understand how/why..." Is it ever used straight anymore?

No criticism intended; just an observation about the structure. It seems like 90% of the time "I can't understand why..." is deployed, the writer has some Strong Suspicions about the why.

Krugtron the Invincible, Part 3: Krugman is an egregious partisan hack and hypocrite whose sensitivity to the deficit is binarily correlated to which party is in the White House increasing the deficit.

Part 3 also gets into the personal nature of the spat, which I'll just refer you to the article for. I'll keep it on Krugtron The Invincible's strangely toggling predictions about whether a deficit will, or will not, cause a "fiscal train wreck." If it's a Republican in the White House, such deficit spending will crash the global economy; if a Democrat, not so much.

Important for this article is the fact that Krugtron the Invincible has been savaging the world (even Obama) for not pushing for a stimulus three times the size of the nearly trillion dollar fiasco actually implemented.

Because this is a counterfactual proposition, he is free to assert it would have whatever effect he likes. He seems to be arguing that his Prediction on this score is Correct, in as much as, not having been implemented, it hasn't been proven Incorrect. (Whereas his real-world predictions have in fact been largely proven incorrect.)

Interestingly, as we'll see, when McCain proposed a larger stimulus than Obama did in 2008, Krugtron the Invincible... attacked McCain.

Other equally eminent economists have taken a much less sanguine view of this "vulgar Keynesianism" [the "vulgar," crude understanding of Keynesianism favored by Krugman that just throwing money around automatically works with little or no negative consequences], openly questioning his back-of-envelope calculations about a mega-stimulus. In a parallel debate about the policy options open to the United Kingdom, there seems a rather stronger argument against additional borrowing even in terms of Krugman's own "simplish IS-LM model". And, as Greg Mankiw has pointed out, in an earlier debate about the wisdom of deficit finance - when the President was a Republican, not a Democrat, and when the stimulus took the form of tax cuts and spending on war - Krugman himself took the diametrically opposite position.

In 2003, he warned, the United States was heading for "a fiscal train wreck":

The Congressional Budget Office operates under ground rules that force it to wear rose-colored lenses. If you take into account - as the C.B.O. cannot - the effects of likely changes in the alternative minimum tax, include realistic estimates of future spending and allow for the cost of war and reconstruction, it's clear that the 10-year deficit will be at least $3 trillion. ... We're looking at a fiscal crisis that will drive interest rates sky-high. ... because of the future liabilities of Social Security and Medicare, the true budget picture is much worse than the conventional deficit numbers suggest. ...

I'm terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits. ... my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt.

And as that temptation becomes obvious, interest rates will soar. ... I think that the main thing keeping long-term interest rates low right now is cognitive dissonance.

For the record: the federal debt in public hands back then was $2.8 trillion, 35% of GDP. Today it is approaching $12 trillion, more than double as a share of GDP. The projected ten-year deficit then was, as Krugman states, $3 trillion; now, the equivalent figure is more than double that. And yet today we supposedly have no "train wreck" to worry about; indeed, it would be fine if the debt were a trillion dollars bigger.

Yes, I know, that was then and this is now; this time is different, we're in a liquidity trap, and all that. But what about 2008, the year the crisis began? For some strange reason, at that time Krugman vehemently opposed the presidential candidate arguing for - as he himself acknowledged - the larger fiscal stimulus. His name was John McCain - "McCain the Destroyer", as Krugman crudely called him. Four years later, Krugman explicitly acknowledged that Mitt Romney's (admittedly vague) fiscal plans would "blow up the deficit" and - shamelessly using an argument he had previously derided - compared the United States in such a high-deficit scenario with Greece.

In short, if Paul Krugman truly has won "a stunning victory" in "an epic intellectual debate" - as he recently claimed - it appears to have been over ... Paul Krugman.

Well. That just about takes care of Krugman, and his various remoras and pilot-fish bloggers following him around and sniffing at his boy-size jockstrap.

posted by Ace at 10:14 AM

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