Why Paul Krugman is wrong: Austrian Economics vs Keynesian Economics | Saifedean Ammous

This guy is Tony Hichcliffe’s long lost dad.

how would a Austrian economic handle Rockefeller? It was impossible to start competing with the oil giant because he'd sell his oil at a loss in the region you'd try to set up shop, just to prevent you from getting a foot in the door... How can you maintain the free market at that point?

Let’s also be clear that Paul Krugman does not represent Keynesian economics. He is a “New-Keynesian”, not the true inheritors of Keynes, the Post-Keynesian tradition. A better comparison would be to have L Randall Wray, Steve Keen or Stephanie Kelton.

Money is a resource. Resources are either plentiful or scarce and that resources value is determined as such. Keynesians think they can mess with that dynamic and not create systemic problems.

Not a single definition of "free market" on sight. Free market on a late capitalism is as utopic as communism

Government has the power people not corporations

I would really like to see a debate between Ammous and someone who understands keynesian economics or even better MMT. And I really would like to understand what his values are and what he wants from an ideal governmen. In my opinion austrian economics fails without a fixed exchange rate system. And none of the major countries today have a fixed exchange rate system left. The gold standard is idiotic if you want to have a currency in which all people can trade with each other, because you are artificially limiting the supply of the currency without any reason. Today money is a monopoly of the government and austrian economics also knows how monopolys work. Apply this reasoning and you are nearly at MMT.

And btw. deflation is the worst which can happen in any money system, no one says inflation is good, but deflation is bad.

Apparently, this debate is about if the government should bail out bad economies by making lowering interest rates lower. But interest rates are set by the Federal Reserve, not by the government. Why should this be the case at all?

I feel like I'm taking crazy pills listening to this clown. Missing the entire point of.... everything with economics. First and foremost, focusing on general drives of one person or even a group of people not only misses the entire point of macroeconomics and the broader DATA SUPPORTED TRENDS that are available in the present and past histories of 170+ countries, but it's also like analyzing a glucose molecule and using it to make assessments about the entire human body. Mind you, he has ZERO DATA even though he was asked, and there are trillions of bits of data to analyze worldwide data over the entire, massive transition that the world has experienced over the last 100 years.

Some points.. ugh that pesky endless data that's completely ignored by this mouth breather:


1. We have had 15 recessions since the Great Depression. There is only ONE depression that we have not spent our way out of: The Great Depression. In 1929, Herbert Hoover cut government spending, let free market capitalism do its 'magic', and went from 2.9% unemployment in 1929 to 25% unemployment in 1933 4 years later. Then Roosevelt came into office, made massive government spending (printing money), and unemployment immediately reversed, and by 1937 unemployment as down o 15%.

2. Small government? 100% of first world countries have a large federal budget to GDP ratio, ALL supported by steeply graduated taxation. ZERO third world countries have large governments. Big government is a necessary evil. 100% of first world countries also have the federal government as the largest employer. I can keep going. Yes, governments are wasteful. Yes they are all corrupt. But, they skim funds off of people's wealth - and the middle class, hire and create the middle class, create infrastructure that wouldn't have otherwise existed, have social programs that lift some people out of poverty, and the rest is literally history. There has never been a middle class in any country without the aforementioned characteristics and a few others such as decent and enforced minimum wages, fractionalized banking and effective and enforced antitrust laws. Feel free to debate these points. The data is there on a massive scale over the last 100+ years.

3. Inflation isn't the CAUSE of recessions, it is a symptom AFTER recessions because of the natural dilution of currency from printing money, so far as the primary escape hatch out of a recession (see #1 above). There has been possibly one recession where high inflation was the cause, and I would say the first recession under Reagan, when interest rates were well above 10%.

Let the debates begin. This clown can be debunked in about 10 seconds. He's literally missing the major macroeconomic, broad stroke points that are proven with massive, historical data.

In closing, 100% of first world countries with low poverty and high standard of living have big governments - all of which have degrees of waste and corruption - and all first world countries are therefore a combination of capitalism and socialism, with extensive regulation to avoid massive economic upheaval, some of which is wasteful.

The small government argument cannot be won. We can debate the limits of big government, and the freedoms necessary to endure a strong capitalistic economy, but the perseverance and opportunities of capitalism, combined with the infrastructure and the economic and capital steering of the federal government are the primary and most consistent movers of a high standard of living.

As I understand the Gold Reserve Act of 1934, FDR was thus impowered to raise the value of gold from around $20/oz. to £35/oz. You could still buy your wife a gold ring, and men did. Few people were hording diamonds,(though it is true that diamond engagement rings were being marketed for the first time on a wide scale by DeBeers because of the crash
of diamond prices due to oversupply) but gold production, at the higher value, soared. The result was the Fed soon had a lot of gold, interest rates crashed, and investment boomed.

The biggest problem with Keynesian thinking is the exact same problem with Marxism. It has solid theoretical models that break down in the real world with real people. Placing Keynesian systems in a world with short term political cycles with competing parties is imcompatible. Inevitably, the system will degenerate into debt accumulation as the expected moderation of monetary and fiscal levers works increasingly only in the downturns of cycles, and not the upturns. The mere fact that there was some semblence of political will to actually implement the system with some integrity pre GFC was surprising...but unfortunately, such actions only convince people that there is some credibility to the model long term. Much like QE in 2008, 2012, 2015 etc, it would have been far better if the ramifications of such policy errors were made clearer before we dug the keynesian hole deeper and deeper into the abyss of debt monetization and artificial financial growth.

Interesting

They, they, they... I'm an economist, very much a supporter of classical economics thought theory, but if your key argument starts with 'they always say this..', 'government bad..', and Lex is right, actual academics have at least some humility in allowing for limitations of their points of view, but this 'I lectured in university once' professor apparently has no flaws. I'd be curious in what field and which professors signed of on his PhD degree, a requirement for anyone to lecture in most universities.

Neo classical economics is an ideology not a science.... deductive reasoning based on unprovable axioms. It postulates a theoretical, inexistant economic actor and then plays games with this.

I can't count enough how many wrong things he says in the first 15 minutes about how central banks do operate

I might be stepping in over my head here, but while Menger's Marginal Analysis was a big deal, it also stressed the fact that value is subjective, something I think most other schools of economics don't really hold to. That right there is wha'ts wrong with a lot of economic ideas not only by economists, but by laymen. The whole idea of the Marxist Labor Theory of Value is based on an objective idea of value, and that therefore, there exists surplus value to be "stolen" by the capitalist employer.

There's other things that could be pointed out about Austrian economics, like the Austrian Business Cycle Theory, which not only points out the flaws of using inflation to boost the economy, but also explains how a central bank causes many economic crises.

Paul Krugman in particular has said several things that strike me as wrong, such as the idea that the destruction of invading aliens would help the economy, which is a great example of Frederic Bastiat's Broken Window Fallacy. Krugman has also emphasized the "Paradox of Thrift", another nonsensical idea based upon flawed economic reasoning.

Course-selling neoliberal nobody vs Nobel Prize winner. One opens up with a broad view his philosophy and ideas; the other starts by insulting and claiming the latter to be a fraud.

Krugman has never been right…

Keynesian Economics is not about printing money. It is about saying that the market is not perfect and that it should be tracked and controlled. Fridman's economics is about printing money.

but what about regulations?
Apple wouldn't have ever switched to USB-C if it wouldn't have been coerced by regulators.

why does it have to be black and white.

I agree with the rest said. but given the human nature coercion is necessary, with the hope that the one doing the coercion is goodwilled.

the analysis and arguments are at least superfluous if not hypocritical and naive...

Austrian Economics is just a fake basis for fascism.

Say what you want about Keynesian economics, but the fact of the matter is that keynesianism is the only economics that works in the real world. That's the top and the bottom of it. As the saying goes, There are no atheists in fox holes, and there are no libertarians in financial crises.

He's talking nonsense isn't he. As if Humans make rational decisions. Ludicrous.

I haven't seen free market solutions to environmental protection

Austrian economics is more a religion than a real aproach to the economy. You austrians should learn more mathematics. Praxeology and methodological individualism is a joke.

bullshit

Can't blame this guy for being so bull-headed about his woefully entrenched views... living with all that cognitive dissonance must be exhausting lol

Can't stand this arrogant huckster!

Two fantastic minds! Thankyou! ( I was not coerced into this)

Private enterprise can be as inefficient and corrupted as govt controlled enterprise. Bad actors everywhere, financialists, bureaucrats, corporatists, military, legal ambit, and so on. Competence and leadership can make the difference, or so I think.

I like this guy. I've long hated Krugman for all his garbage.

This dude said starting a new power plant is just as easy as starting a barber shop....so you know he's full of shit. He's arguing absolutely no government regulation, which is absolutely moronic because there are COUNTLESS examples of the free market not working correctly.

His critique of Keynesian economics is valid, we are see high inflation right now because the Fed has dumped trillions into the economy since 2020, but his counter argument is garbage.

The main criticism of austrian thought to me is nonsensical. The idea that their arguments are invalid because they arent data driven/mathematical and just theory is a red herring. Principally, there are some axiomatic truths that do not require emprical data to reasonably assume are true, especially when they concern human behavior which fundamentally is what economics is. Im a statistician and the austrian criticisms remind me of the criticisms made towards bayesian theory and the determination of prior probability. Some events in nature give us reasonably informed priors that do not require data driven verification to take seriously. I think the same can be said for austrian arguments. Sure their statements arent verifiable by data but if you step back and think about what they are saying you can definately place a very high theoretical prior probability of them being true.

And yet the vast majority of the world's economists -98% do not agree with the Austrian school. It's very much an outlier.

Macro theory with its equilibrium simulation models is pretty iffy, but 1) that doesn't mean Austrian Economics has any merit and 2) Ammous comes off as petty and insecure with how negative he is being towards other people on a personal level. Furthermore, the more general predictions of Keynes are and have been tested, so he is also wrong in that sense. When a theory says something very specific will happen in a scenario (increased or decreased government spending during a recession/boom will impact the economy in one way or another), whether the specific prediction happens or not is a pretty good test for the theory. Also I would think being "somewhat accurate"is a more realistic goal than being "true" for any macro theory.

We must have government regulation in areas that we have in common. The free market, as arbiter of efficient economics certainly doesn’t apply with resource extraction industries. These industries, for reasons of maximizing profit, love “economies of scale.” This means large scale blitzkrieg clear cut logging, mountain top removal for mining, fishing nets as big as city blocks, etc. We can’t wait for “consumers” to realize the destruction these non-viable, unsustainable practices do to society, wildlife and the ecosystem at large.

Considering the fact that no major government has been implementing austrian economics since 1929 I see amazingly few people fighting for scraps of meat out in our streets (Europe).

Thank you, many times over. This explanation of why the Austrian School is a good choice cleared my indecisive mind. I already had put my trust in Javierf Milei as President of Argentina. Now I am very glad I did. I just hope he can pull it off in that darling country of "mine".

This guy is so focused on the government and the banks he forgot there's rich people out there who don't want any of that so they made it happen, thru the government and banks lol.

A vote against a government is a late kind of feedback mechanism. It may work and, even if it did, it is just late. The effects of Inflation cannot be reversed!!! Inflation may come down, but prices that shot up do not! Indeed, Rishi Sunak boastfully claims inflation is down. But the prices that shot up are never going to be down to their pre-inflation levels. So the voting process is delayed feedback.

Consumerism is natural. He just put the advertisers out of business.

Austrian "economists" only exist on the internet and in history books.

What an idiot. We have seen the greatest economic growth and people taken out of poverty since Keynesian economics took over. People don’t have the patience to see how people lived a hundred years ago…

Austrian economics is astrology in economics

The hard fact is that we already have government. And it's owned by the rich and powerful. Government becomes "small" when social welfare issues are raised, but when its actions benefit the rich, it quickly becomes "big". No economic theory going to change this. Economics without politics is futile.

"I don't want your power plant, I want my own generator" but forget to mention that he won't use any of the things that was built and cultivated using that power plant.

But what about the coercion that those with gold impose on those not fortunate enough to be born around gold?

Whoever argues that humans are capable of somehow surviving and thriving without being subjected to some form of authority is delusional. The free-will in humans inevitably makes them prone to disputes in their day-to-day dealings - be it social or economic. Actually, the underlying foundation for all 'western' economic models is property rights, and these can only be guaranteed by a central authority with coersive capabilities over everyone in that given society. The likes of Saifedean have a naive narrative that somehow depicts all persons as being altruistic, well-intentioned and having the inherent capacity to do that which is in the best interest of every other person - in absence of any form of authority.

Unfortunately, humans are yet to evolve to that level of civilization where we are all neurologically connected, and what I do must intrinsically be for the common good of everyone else. Even in such a case, it wd take some immense imagination to assume that all persons would be able to interpret what I do as being for the good of all in that very time that I am doing it. Any economist who theorizes from an abstract point of view without taking into consideration the wider context of human existence is not only dangerous, but a shame to the Economics profession.

I agree that there are gaps in the current governance models, but I believe such gaps can be progressively addressed instead of breaking the entire state-craft upon which the current civilization is based.