Home > Uncategorized > Paul Krugman, Bernie Sanders, and the Experts

Paul Krugman, Bernie Sanders, and the Experts

from Dean Baker

I have tremendous respect for Paul Krugman. I also consider him a friend. For these reasons I am not eager to pick a fight with him, but there is something about his criticisms of Bernie Sanders that really bothered me.

In a blog post last week, Krugman told readers:

“As far as I can tell, every serious progressive policy expert on either health care or financial reform who has weighed in on the primary seems to lean Hillary.”

While I already had some fun with the idea of Krugman revoking the credentials of everyone who works in these areas who does not back Clinton, the appeal to the authority of the “experts” is more than a bit annoying. The reason is that the “experts” do not have a very good track record of late and still have a long way to go to win back the public’s trust.

To start with the obvious, almost none of the experts saw the 2008 collapse coming. Almost all of them dismissed the idea that there was a housing bubble and even the few that grudgingly acknowledged the possibility of a bubble insisted that it could not have much consequence for the economy.

Given the devastation wreaked by the collapse of this bubble, this failure is comparable to weather forecasters missing Hurricane Katrina. Just to be clear, I don’t mean failing to recognize the full severity of the storm, I mean missing the hurricane altogether and forecasting nothing but blue skies for the day it hit. The public could be forgiven for not wanting to trust future forecasts.

The list goes on. The experts insisted that we would have a Second Great Depression if we didn’t bail out the Wall Street banks. Really? Was there some magical curse that would overcome the country if Goldman Sachs and Citigroup went out of business? Would Keynesian stimulus no longer work? We got out of the first Great Depression in 1941 by spending a ton of money fighting World War II. It is hard to see any reason why we couldn’t have ended the depression a decade sooner by spending a ton of money in 1931 on infrastructure, health care, and education. The same story would have applied in 2009.

Today most of the experts are telling us the economy is near full employment. To accept this view we have to believe that millions of prime age workers (between the ages of 25–54), just decided they don’t feel like working any more. The drop in labor force participation rates occurred at all education levels, including people with college and advance degrees. This massive loss of interest in working was completely unpredicted by the experts just a few years ago.

The experts have not done notably better on health care. We have seen a huge decline in the rate of health care cost growth. While this is a great development from an economic standpoint, it was completely unforeseen by the experts and still largely unexplained.

The experts even managed to get some of the basics of Obamacare wrong, falsely warning us about the importance of the “young invincibles,” convincing the public the that the success of the program somehow depended on the willingness of twenty somethings to sign up for insurance. As a simple analysis by the Kaiser Family Foundation showed, skewing by age makes little difference to the finances of the program. What matters is skewing by health condition. In other words, it matters much more for the finances of the program if healthy 60-year-olds sign up. There is no special importance to people being young.

Given their track record, the public has some cause for skepticism when being told that the experts all line up behind a particular candidate (which happens not to be true). It is certainly the case that Sanders’ proposals are campaign planks, not fully worked out programs. I will also be the first to say that I would be more than shocked if we managed to get a universal Medicare system in two terms of a Sanders administration.

But does Sanders agenda offer less prospect of moving the ball forward than Clinton’s? This is very much a political question, where one’s status as an expert on health care or finance may not be all that useful. I gave my answer last week. People may disagree, but they should at least understand the nature of the question.

One final point, many Sanders supporters seem to believe that Krugman is looking for a job in a Clinton administration. I am quite certain Krugman would turn down any job Clinton might offer. Krugman believes what he is writing, he just happens to be mistaken.

  1. February 3, 2016 at 1:01 pm

    Economists cannot do the simple math of profit — better keep them out of politics
    Comment on ‘Paul Krugman, Bernie Sanders, and the Experts’

    Economists are supposed to be experts on the economy. So it is quite natural to think that they know what profit is; after all, this is the pivotal phenomenon of their subject matter. Yet, this is definitely not the case. And this means that economists give economic policy advice without having a true understanding of the market economy. This holds for Walrasians, Keynesians, Marxians, and Austrians.

    This is not to say, of course, that economists know nothing. In fact they know some easy to grasp practical, institutional or historical details. This, though, is not what science is all about. When the task is to explain how the universe works and the astronomer goes on describing in great detail how his kitchen works then one is inclined to think that this expert is a moron.

    The situation is analogous in economics. You have much expert talk about whether the FED should or should not lower the interest rate but all these guys have no idea of how the market system works because they have not figured out since econ101 what the crucial difference between profit and income is.

    All this is by no means new or some hidden secret of the profession. Every economist knows, or can know because it is in the Palgrave Dictionary, that “A satisfactory theory of profits is still elusive.” (Desai, 2008, p. 10)

    So, the simple fact is, that economists do not know what profit is, and this means that they do not know how the market system works, and this in turn means, that their economic policy advice has no sound scientific foundation.

    When economists talk about the economy this is storytelling decorated with some charts of crossing curves and exemplified with some actual numbers. It looks more scientific than tea leaves reading but, clearly, an economic model that is based on nonentities and inconsistent concepts is not different in principle from a cup of tea leaves.

    The fact of the matter is that economists are incompetent scientists who fail already at the level of elementary math. This assertion, of course, needs a formal proof.

    This is the set of premises to start with (each step of the argument can be checked on the back of an envelope by inserting arbitrary numbers for L, W, R):

    (0) The objectively given and most elementary configuration of the (world-) economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm.
    (i) Yw=WL wage income Yw is equal to wage rate W times working hours. L,
    (ii) O=RL output O is equal to productivity R times working hours L,
    (iii) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

    These premises are certain, true, and primary, and therefore satisfy all methodological requirements. The set of premises is minimal, that is, it cannot be reduced further, only expanded. The set contains no nonentities like maximization or equilibrium and no normative assertions. For the graphical representation see here

    At any given level of employment L, the wage income Yw that is generated in the consolidated business sector follows by multiplication with the wage rate W. On the real side, output O follows by multiplication with the productivity R. Finally, the price P follows as the dependent variable under the conditions of budget balancing, i.e. C=Yw and market clearing, i.e. X=O. Note that the ray in the southeastern quadrant is NOT a linear production function; the ray tracks ANY underlying production function. Note also that the wage rate W is an AVERAGE if the individual wage rates are different among the employees, which is normally the case.

    Under the conditions of market clearing and budget balancing in each period the price is derived as P=W/R (1), i.e. the market clearing price is always equal to unit wage costs. This is the most elementary form of the Law of Supply and Demand.

    If the wage rate W is lowered, the market clearing price P falls. If the number of working hours L is increased the price remains constant, provided productivity R does not change. If productivity decreases the price P rises. If productivity increases the price falls. In any case, labor gets the whole product, the real wage W/P is invariably equal to the productivity R according to (1), and profit for the business sector as a whole is zero. All changes in the system are reflected by the market clearing price. The most elementary economy is reproducible for an indefinite number of periods. For the inclusion of money see (2014).

    To define a reproducible minimal economy and to make its properties absolutely transparent has been the first step. With the second step the conditions of market clearing and budget balancing have to be lifted. This produces the phenomena of inventory changes (O-X>0 or 0 or 0 or 0, 0, dissaves Sm0, 0, a loss Qm<0, or breaks even Qm=0.

    The balances of the two sectors add up to zero Sm+Qm=0. This follows directly from the definition of saving/dissaving Sm and profit/loss Qm.

    This gives one the most elementary version of the profit law: profit is positive if the households dissave (increase debt/decrease financial assets) and negative if the households save. So profit for the economy as a WHOLE has nothing to do with productivity, the wage rate, or risk or any other of the usual explanations which stem from the observation of a SINGLE firm among many others. In fact, exactly here is where error/mistake comes in because what is true for a single firm is not true for the economy as a whole. This logical blunder is well-known as fallacy of composition.

    In science, there is no need at all to believe in anything. Science is NOT about credibility or expert opinion or whether the scientist is simpatico, but alone about proof, that is, logical and empirical consistency.

    Imagine a simple experiment for the ongoing election campaigns. Ask every economist who comes along with a proposal of how to fix the economy about his underlying model. Check what this model says about profit. Admit only those economists to public discussion whose profit theory is correct — the silence will be deafening.

    Egmont Kakarot-Handtke

    References
    Desai, M. (2008). Profit and Profit Theory. In S. N. Durlauf, and L. E. Blume (Eds.), The New Palgrave Dictionary of Economics Online, pages 1–11. Palgrave Macmillan, 2nd edition. URL http://www.dictionaryofeconomics.com/article?id=pde2008_P000213.
    Kakarot-Handtke, E. (2014). Economics for Economists. SSRN Working Paper Series, 2517242: 1–29. URL
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2517242

    • February 4, 2016 at 5:29 am

      Egmont Kakarot-Handtke, a lot of maths leading nowhere. The relationships of the physical universe are often expressible in mathematics. All the other relationships often are not expressible in mathematics. So how useful is mathematics to scientists. For some scientists (e.g., physicists, biologists, chemists) very useful. For other scientists (e.g., experimental psychologists, demographers, evolutionary biologists) somewhat useful. And for other scientists (e.g. Anthropologists, sociologists, economists) of limited or no use.

      “In science, there is no need at all to believe in anything. Science is NOT about credibility or expert opinion or whether the scientist is simpatico, but alone about proof, that is, logical and empirical consistency.” You may believe this statement. But when you observe the work of scientists this statement shows itself obviously false. If scientists didn’t believe there was something to observe, there are ways to do those observations that will help the scientist understand the observed, and that all the work of observing would lead to better understanding why would they waste the time doing it? Science itself is just one big belief, on big faith. As to credibility and expert opinion, that’s what peer review is all about.

      • February 4, 2016 at 11:22 am

        Ken Zimmerman

        You say: “If scientists didn’t believe there was something to observe, there are ways to do those observations that will help the scientist understand the observed, and that all the work of observing would lead to better understanding why would they waste the time doing it? Science itself is just one big belief, on big faith.”

        You are a bit behind the curve as far as the relationship between theory and observation is concerned. And, worse, you have not yet gotten the fundamental distinction between belief (= religion) and knowledge (= science).

        What commonsensers and naive empiricists have never understood is that science starts where their myopic common sense ends. Here is the classical example.

        Roughly speaking, Aristotle put the Law of Motion thus: every body moves to his natural place of rest. Then he took a stone and threw it skywards. The stone came down some meters away. Never in the history of mankind had a law better been empirically tested and confirmed without exception.

        Against this, Galileo said, roughly, every body moves in a straight line until eternity. An empirical proof could not be given until space flight was possible.

        Nevertheless, this counter-intuitive assertion reappears as the first axiom of motion in Newton’s Principia. (Axiomata Sive Leges Motus, Wikipedia, https://en.wikipedia.org/wiki/Newton%27s_laws_of_motion#Newton.27s_first_law)

        And this is what Galileo told naive empiricists and commonsensers and brain-dead realists about the essence of science: “I shall never be able to express strongly enough my admiration for the greatness of mind of these men who conceived this [heliocentric] hypothesis and held it to be true. In violent opposition to the evidence of their own senses and by sheer force of intellect, they preferred what reason told them to that which sense experience plainly showed them … I repeat, there is no limit to my astonishment when I reflect how Aristarchus and Copernicus were able to let conquer sense, and in defiance of sense make reason the mistress of their belief.” (quoted in Popper, 1994, p. 84)

        The only thing scientists believe in is formal and empirical proof. Economics is a failed science. It has been logically and empirically refuted. There is no such thing as an economic expert. Peer review does not work in economics because author and reviewer share the same false belief (2013).

        Egmont Kakarot-Handtke

        References
        Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series, 2207598: 1–16. URL http://ssrn.com/abstract=2207598.
        Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality., chapter Science: Problems, Aims, Responsibilities, pages 82–111. London, New York, NY: Routledge.

      • February 5, 2016 at 3:21 am

        You say “The only thing scientists believe in is formal and empirical proof.” But that clearly is not the case. In science studies I need look no further Kuhn’s “The Structure of Scientific Revolutions” to support my contention.

        That is one of the reasons why prior crisis proves so important. Scientists who have not experienced it will seldom renounce the hard evidence of problem-solving to follow what may easily prove and will be widely regarded as a will-o’-the-wisp. But crisis alone is not enough. There must also be a basis, though it need be neither rational nor ultimately correct, for faith in the particular candidate chosen. Something must make at least a few scientists feel that the new proposal is on the right track, and sometimes it is only personal and inarticulate aesthetic considerations that can do that. Men have been converted by them at times when most of the articulable technical arguments pointed the other way. When first introduced, neither Copernicus’ astronomical theory nor De Broglie’s theory of matter had many other significant grounds of appeal. Even today Einstein’s general theory attracts men principally on aesthetic grounds, an appeal that few people outside of mathematics have been able to feel.

        I don’t believe economics today can be justified based on “being on the right track,” or for its aesthetic appeal, or because it’s judged fair or the source of many useful hypotheses. Mainstream economics has no justification except for that it gives itself. It’s self-serving in the extreme. But just about every commenter on this blog has already made this claim.

        Kuhn, Thomas S. (1996-12-15). The Structure of Scientific Revolutions (Kindle Locations 2406-2413). University of Chicago Press – A. Kindle Edition.

      • February 5, 2016 at 11:50 am

        Ken Zimmerman

        In methodology, there is the distinction between the context of discovery and the context of justification. What Kuhn and others have put forth was a sociology/history of how major paradigm shifts happened. Mirowski did the same in the field of economics, e.g. (2009). With rare exceptions, though, economic methodology has entirely degenerated to storytelling and gossiping “Much of the work in methodology over the last ten years has thus consisted of methodological analysis of what economists do and how they argue.” (Dow, 1997, p. 78)

        The context of discovery appeals very much to so-called social scientists. This is because the only way they can understand the world is in the form of a narrative, i.e. Galileo said the earth moves, the Pope did not like it, he mobilized the Inquisition, Galileo was put on trial, he did not recant, after his conviction he said the historical words ‘Eppur si muove’. This is the stuff Hollywood then makes a sitcom of.

        With regard to the context of justification Kuhn stated: “First, a theory should be accurate within its domain, that is, consequences deducible from a theory should be in demonstrated agreement with the results of existing experiments and observations. (quoted in Redman, 1993, p. 3)

        This is pretty much in accordance with what I said, isn’t it?

        The unbridgeable difference between genuine scientists and so-called social scientists is that the former seek a clear decision between true or false while the latter are happy with storytelling in the vast realm between true/false where “nothing is clear and everything is possible.” (Keynes, 1973, p. 292).*

        To see the crucial point it suffices to compare the scientist Newton and the economist Adam Smith: “But he [A. Smith] had no such ambitions; in fact he disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter, 1994, p. 185)

        Economics never moved above the heads of the dullest readers until this day.

        Egmont Kakarot-Handtke

        References
        Dow, S. C. (1997). Mainstream Economic Methodology. Cambridge Journal of Economics, 21: 73–93.
        Keynes, J. M. (1973). The General Theory of Employment Interest and Money. The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke: Macmillan.
        Mirowski, P., and Plehwe, D. (2009). The Road From Mont Pelerin. The Making of the Neoliberal Thought Collective. Cambridge, MA, London: Harvard University Press.
        Redman, D. A. (1993). Economics and the Philosophy of Science. New York, NY, Oxford: Oxford University Press.
        Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford University Press.

        * See ‘Economics as fool’s paradise’
        http://axecorg.blogspot.de/2016/01/economics-as-fools-paradise.html

      • February 6, 2016 at 4:37 am

        I agree with much of what you say about economics and economists. But you really miss the boat on science. Keynes seems to believe that the “moral” sciences, such as economics are somehow inferior because they cannot bring their ideas to a conclusive test either formal or experimental, presumably as can the so called “non-moral” sciences. Actually science is always about non-conclusive ideas. About continuing to check for empirical results that either confirm or dis-confirm the ideas of concern. This applies for the moral as the non-moral sciences. The methods and theories a scientist employs are chosen based on their fitness for examining the objects of study. Thus the methods of a physicist would be different from those of a biologists, those of an economist different from those of a geologist, those of an anthropologist different from those of a physiologist. They share a common goal, however – to reveal the study object via empirical examination. This is what unities the scientific community, not a particular method or theory. As for storytelling, that is an old human activity. And yes scientists use is also. But using it does not change the overall goal of scientists. Economists are not scientists because they do not seek this overall goal of science — to reveal the study object via empirical examination. They do indeed just tell stories, sometimes not even very good stories. Revealing the study object holds little interest for them.

      • February 6, 2016 at 7:09 pm

        The historical research, by historians not economists support your contention that economists have not acted as scientists in most situations. If one assumes the test of science is the focus of a discipline’s practitioners on revealing the object(s) of study, most economists fail that test. Economists spend an amazingly short period of time and little energy on actually studying such things as “economic actions,” “economies,” “changing economics,” etc. Even worse most assume that they know what these are and how they work, before they’ve even studied them. A fatal error for a scientist.

      • February 6, 2016 at 11:27 am

        Ken Zimmerman

        Economics claims to be a science: “Starting with Adam Smith’s history of astronomy, the main theorists of classical economics sought to capture the essence of the scientific method in order to employ in the sphere of economic research.” (Mirowski, 1995, p. 198)

        What is the essence of science? “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994, p. 31)

        In more than 200 years economists have not produced much of scientific value but very much of silly storytelling.

        In view of obvious scientific failure, economists have to make up their minds: (i) to stick to storytelling and to voluntarily get out of science, or (ii), to comply with the methodology and ethics of science and to come up eventually with the true theory of how the economy works.

        As Eichner put it more specifically: “Economics as a discipline therefore has a choice: It can retain the neoclassical core of its theory or, alternatively, it can one day become a science. It cannot have it both ways.” (1983, p. 518)

        Make no mistake, when the dust is settled and the history of science becomes written neither an orthodox nor a heterodox economist of the last 200 years will appear in the index under the heading Scientists.

        Egmont Kakarot-Handtke

        References
        Eichner, A. S. (1983). Why Economics Is Not Yet a Science. Journal of Economic Issues, 17(2): 507–520. URL http://www.jstor.org/stable/4225324.
        Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.
        Mirowski, P. (1995). More Heat than Light. Cambridge: Cambridge University Press.

  2. February 3, 2016 at 1:36 pm

    So once again we won’t elect…. “George McGovern”?!

  3. February 3, 2016 at 1:50 pm

    Profit is ADDITIONAL money over and above operating costs. When you always generate a scarcity of individual incomes in ratio to total costs in every enterprise you have a macro-economic scarcity of same, and just dumping more money into the system re-initiates this same effect….you still are saddled with an unstable system. Economists need to awaken to this fact, and that is when they’ll see that A DIRECT PAYMENT OF ADDITIONAL INDIVIDUAL INCOME….is the only thing that will save modern technologically advanced profit making economies

  4. Norman L. Roth
    February 3, 2016 at 6:39 pm

    Feb. 3, 2016

    Thank you M. Egmont Handtke,
    You are a first class tautologist. You even offer a world class challenge to the still reigning champ…Paul Samuelson’s Revealed preference theory. And tsk, tsk , tsk. All that name calling ! Do you really think that Keynes, Marshall, Walras, Pareto, Georgescu-Roegen, Messrs. Ludwig & Richard Mises, Michael Polanyi, John V. Neumann, as well as lots of people at RWER & on & on, were “incompetent scientists who fail at the level of elementary math” ?

    Do some homework instead of all that polemic abuse. And read TELOS & TECHNOS.

    Google Norman L. Roth

    • February 4, 2016 at 12:01 pm

      Norman L. Roth

      You certainly have to take Georgescu-Roegen off the list because he and I are of one mind: “Knight lamented that there are many members of the economic profession who are ‘mathematicians first and economists afterwards.’ The situation since Knights time has become much worse. There are endeavors that now pass for the most desirable kind of economic contributions although they are just plain mathematical exercises, not only without any economic substance but also without mathematical value. Their authors are not something first and something else afterwards; they are neither mathematicians nor economists.” (1979, p. 317)

      So, yes, I think and even prove that economists are “incompetent scientists who fail at the level of elementary math.” *

      Egmont Kakarot-Handtke

      References
      Georgescu-Roegen, N. (1979). Methods in Economic Science. Journal of Economic
      Issues, 13(2): 317–328. URL http://www.jstor.org/stable/4224809.

      * See also ‘How the intelligent non-economist can refute every economist hands
      down’
      http://axecorg.blogspot.de/2015/12/how-intelligent-non-economist-can.html

  5. February 3, 2016 at 10:04 pm

    Are not the economists that treat “Loans as deposit”, “…incompetent scientists who fail at the level of elementary math” ? Do they not know what a double entry is ? Do they not know the difference of what new wealth creation is versus entering someone elses owned wealth as a new deposit?, or really a ‘copy’ of that wealth ? If the total USA wealth is $500 trillion and private for profit banks have $100 trillion on deposit. How much should a bank be allowed (using math} to lend as a Genuine Loan? Answer: NONE, they are supposed to be the guardian of the $100 trillion, they have a fiduciary duty to have it available on demand. Period. They must first have permission from the depositors “take away their rights and lend them to the borrower knowing that hey will no longer be able to redeem until the loan is paid back.”But no problem, we have legalized this deception!

  6. Jon Cloke
    February 4, 2016 at 12:39 pm

    I like a lot of what Krugman says and his ‘mea culpa’ Robinson lectures on economics failing to predict the GEC are classic examples of putting your hands up and accepting responsibility – they should be taught in economics classrooms everywhere as an example of how to eat humble pie..

    Having said which, the recent imbroglio which PK became involved in with Steve Keen where he refused to accept that banks can indeed create money and their loans/credit is in no way related to the amount of deposits they take in was either frighteningly naive or deeply cynical…

    • February 6, 2016 at 3:50 pm

      Jon Cloke

      Entertainment is about like/dislike, science is about true/false.

      The problem with Krugman is that his economic policy arguments have no sound theoretical foundation. He, for example, uses still IS-LM or a variant thereof. Because the IS-LM model is provably false since Keynes/Hicks this is reliable indicator of logical incompetence (2014).

      Whatever Krugman argues for or against is his personal opinion. Having disqualified himself, he has no legitimacy to speak in the name of science.

      Egmont Kakarot-Handtke

      References
      Kakarot-Handtke, E. (2014). Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It. SSRN Working Paper Series, 2392856: 1–19. URL
      http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2392856.

  7. February 5, 2016 at 11:17 pm

    I think clinton has its own considerations, sanders, too. It’s just about the standpoint of what is right and what is wrong. In the end we will only see which are the most profitable.

  8. John hughes
    February 9, 2016 at 8:01 pm

    After reading an article like this it makes me realize how stupid and uneducated journalists can be…….youre a clown….the abolishment of the uptick rule played a larger role then anything in the financial crisis….lack of transparency 2nd get a life

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