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Monday, January 26, 2009

A sad day for economics

I predicted (fabulously wrongly, I'll admit) that Paul Krugman would not win the Nobel Prize in economics because of his terrible writing in the New York Times. His actual economic research is, in my humble opinion, some of the greatest work in the past thirty years, but his rantings on the NYT op-ed page showed him to be human after all - he succumbed to a hubris that was unexpected by me (although I have never met him).

It is a shame that he is viewed as a spokesman for our field because his rants and ramblings have become ever more unglued over time. In yesterday's op-ed piece he had this statement:

The actual cost of a free school lunch, by the way, is $2.57.

For real!?!? What the heck is he talking about? He is no longer an economist who tries to make reasoned arguments and provide insight into the sometimes complex issues that economics as a field provides the tools to analyze.

I feel like a fool, because I know that Krugman knows better - the "free lunch" is NOT FREE!!! Why does he even include the term free lunch without the quotation marks?

He then goes on to make a blogosphere type argument instead of using economics:
Next, write off anyone who asserts that it’s always better to cut taxes than to increase government spending because taxpayers, not bureaucrats, are the best judges of how to spend their money.

Here’s how to think about this argument: it implies that we should shut down the air traffic control system. After all, that system is paid for with fees on air tickets — and surely it would be better to let the flying public keep its money rather than hand it over to government bureaucrats. If that would mean lots of midair collisions, hey, stuff happens.

Again, for real!?!? Krugman knows better. The argument isn't whether any public monies should be spent. The air traffic control system is a good example of where "government" can internalize the externality that Krugman so accurately describes. However, ON THE MARGIN additional government spending will not be directed toward the internalization of negative externalities or coordination problems. Rather the spending is likely to be directed toward pet projects of the 535 congressmen and a few hundred "advisers" in the Obama administration, perhaps including Krugman himself?

Economists stress than incentives matter and influence decision making. Can it be that Krugman and others who defend the Obama "stimulus plan" have incentives for doing so?

I wonder.

Regardless, it is a sad day for economists when the most recent Nobel winner comes across as a loon.

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