The Center for Geoeconomic Studies Destroys Paul Krugman

Paul Krugman has a lofty platform. He has a massive megaphone and an epic echo chamber. He has a Nobel Prize for economics. Does any of this mean we should listen to him? If you buy into this from Nassim Nicholas Taleb or the following, no.

When Friedrich von Hayek became a Nobel Laureate in economics in 1974 he said: “The Nobel Prize confers on an individual an authority which in economics no man ought to possess.” The truth of this is demonstrated daily by the case of Paul Krugman.

And some more evidence (there’s lots) that we’d be well advised to ignore Krugman? How about something from The Center for Geoeconomic Studies (associated with the Council on Foreign Relations) which shows he chose to cherry-pick his facts in order to “demonstrate” the “Icelandic Post-Crisis Miracle.”

We showed that Krugman’s “miracle” was merely an artifact of comparing changes in Iceland’s real GDP with that of Estonia, Ireland, and Latvia since the strategically chosen 4th quarter of 2007.

Why did Krugman choose the 4th quarter of 2007?  Because starting with any other quarter would have ruined his story.  Based on the GDP data available at the time he made his figure (which have since been revised), Iceland’s GDP had fallen a whopping 5 percentage points between Q3 and Q4.  By starting his story in Q4 Krugman managed to lop that off, making Iceland look much better.

We showed that the miracle story collapses as the starting date for the comparison is backed up.  What we find is a simple story of large booms and busts in Estonia and Latvia, and much smaller booms and busts in Iceland and Ireland.

Ah, the question of economics (and government): what’s your baseline?

The Center initially showed how Krugman constructed his false-miracle in 2010, but now he’s dragging the issue back to the surface. So what’s the real Krugman agenda?

Once again, Krugman has relied on a Potemkin-Village graphic to illustrate his wider claim, which is that Icelanders derive unambiguous net benefits from their government obliging them to hold and transact in a national currency that their trading partners will not accept. (80% of Greeks consistently reject going back to such a state.)

Liberal economists: choosing facts that support their positions, ignoring those that don’t.

The insanity of liberal economists

Linsanity is (was) the Jeremy Lin phenomenon.

Insanity is doing the same thing over and over and expecting different results.

Argument from ignorance asserts a proposition is true because it has not yet been proven false.

This makes Paul Krugman and Robert Reich, AKA Paul Rugrat and Robert Tyke insane. And ignorant.

Jeremy Lin is merely on the Knicks injured reserve, but he could be back for game five versus the Heat. Were he to suffer a brain injury instead of a knee injury, he might want to consider a future as a liberal economist. But I digress…

Both Krugman and Reich offer the same “economic” shtick over and over again: Borrow more money. Spend more money. Print more money. Repeat ad infinitum until the next national-level collapse and/or revolution.

From the Rugrat:

Critics [like Krugman himself] warned from the beginning that austerity in the face of depression would only make that depression worse.

Snip.

…the failure of austerity policies to deliver as promised has long been obvious. Yet European leaders spent years in denial, insisting that their policies would start working any day now, and celebrating supposed triumphs on the flimsiest of evidence.

The failure of austerity policies in the above context means this: to try and approach living within a nation’s means. Snip.

…serious analysts now argue that fiscal austerity in a depressed economy is probably self-defeating: by shrinking the economy and hurting long-term revenue, austerity probably makes the debt outlook worse rather than better.

Yes, the Rugrat considers himself a serious analyst. And perhaps because no one has come up with a model to disprove him, regardless of the self-evident non-austerity fail, he considers his hypothesis to be true. And Reich is cut from the same dwarfish cloth.

Here’s Reich, who is at least more succinct (if no less insane):

Blame it [that is, the epic European economic fail, sans Germany] on austerity economics – the bizarre view that economic slowdowns result from excessive debt, so government should cut spending.

Naturally, the Europe to America implication is this: bad things will happen to the United States should we practice “austerity.”

Yet only a liberal economist (or two) could think the U.S. Government adding over $6.2 trillion to the national debt in the last four fiscal years is somehow approaching the aforementioned and dangerous austerian approach.

That’s because we all know that deficit government spending somehow magically creates a multiplier effect of something greater than 1.0. Except when it doesn’t. Like for at least the last four years.

And such borrowing becomes problematic if the money isn’t paid back, or if it is, if it’s paid back at less than full value, either due to financial haircuts or inflation.

As to the serious analysts tag the Nobel Prize winning Krugman credits himself with, I must defer to polymath Nassim Nicholas Taleb of The Black Swan fame. Taleb refers to the aforementioned Nobel Prize in economics as “absurd” “pseudo-science” which is “reminiscent of medieval medicine.” And he’s got more, far more, but here’s a good representative chunk:

…economic models, it has been shown, work hardly better than random guesses or the intuition of cab drivers…

Other than that, liberal economists should be inherently trusted, honored, and deferred to. At least as much as random guesses and cab drivers.