Ben Stein v. Paul Krugman
by Miles Mathis
Most people who arrive at this article in the natural way—that is, by coming via my homepage or via some other previous knowledge of me—will expect that they know which side I am going to be on here. I am mostly a lefty once I put my paintbrush down, therefore I must be intending to defend Krugman. Krugman attacks Bush constantly, I despise Bush, so it isn’t too hard to figure out.
However, those who know me even better know that nothing bores me more than doing what is expected of me. They know that I would never bother to write an article that moved in a predictable path. The two main paths in the current bilateral argument are already well represented, and I have no need to add to the mountains of literature on either side. Therefore I must be entering this argument from some strange obtuse angle, from some idealistic and possibly naïve dirt track, from some cliff that I will—at some point in the argument, guaranteed—appear to be hanging by the tips of my fingernails. . ..
Well, those people are right. They are right because I am limiting myself here to one exchange between Stein and Krugman, the famous New York Times exchange from March of 2002. To jog the memory of most and to update the memory of the rest, Krugman had written a short memorial and commentary to the economist James Tobin. In that commentary, Krugman claimed that most agreed that the Great Depression was caused by laissez-faire policies. He then called Milton Friedman “naïve” and claimed that monetarism was a dead letter. Finally, Krugman used the commentary to sell Tobin’s brand of neo-Keynesianism, which he labeled “sophisticated.”
Ben Stein called him on the first two statements and then famously accused Krugman of having “a limited background in economics.”
Krugman did not respond to Stein’s arguments, being satisfied with calling him a gameshow host, and stating that he, Krugman, knew both Tobin and the subject of economics more intimately than Stein.
Everyone on the left was certain that Stein had lost this exchange, and no one on the right disagreed with that. Many on the right took up Stein’s arguments, but no one defended Stein. The consensus was, and apparently is, that Krugman “owned” Stein in the mini-debate.
Well, economics is not my long suit, and I don’t mind leading with that admission. I can admit that both Krugman and Stein know a lot more about economics than I do, since it won’t much affect my article here. In fact, I will state for the record that I think the importance of economics as a whole has been vastly oversold in the 20th century. I find it vulgar for anyone but the poor to be so interested in money. If you have rent to pay and food to buy, and you have some immediate concern that you cannot pay it or buy it, then you have some right to be concerned with money. You may still be vulgar, but at least you have some excuse for it. In the modern world you have some very pressing reasons to doubt that what the fowls of the air get for free, you will also get, free or otherwise.
But when rich people spend years studying economics, it must be suspect. I have never met nor heard tell of an economist who recommended that other people should get rich before him and his friends and family, or who recommended that money was unimportant, or who recommended that a government should be as small as possible and disburse immediately and equally everything it took in. And yes, I mean this to apply to Marxist economists and all others as well as to capitalists. If you talk about money all the time, you must be interested in it, and if you are interested in it, it is unlikely that your interest evolved from a pressing desire to give it away.
Krugman can claim that someone whose career centers upon critiquing government policy must know something about economics, and this is true. But critiquing the government may take many forms, and there is no reason to assume that this critique must closely orbit economics. For instance, Ruskin knew quite a bit about economics, but he used that knowledge to advance theories that were not mainly economic in nature. The same can be said of someone like Emerson, who has been a very influential voice in American history. Both knew that economics was a necessary ingredient of government policy, but they recognized that no government can be grounded in economic policy, much less the society that government governs.
No doubt all quarters will attack me as hopelessly stuck in the past. How could anyone bring up Emerson and Ruskin when presented with Friedman and Keynes? Don’t I know that economics has reached a level of “sophistication” that is lightyears beyond anything Ruskin or Emerson could have imagined? Yes, I do know that claim is made, since Krugman just made it. Nor is he the first. It is current wisdom that current wisdom is everything and that the past has been superceded. But if Krugman can be nostalgic about the 60’s, when Tobin was in the Council of Economic Advisors and people “of fundamental decency” could exist, I suppose I can be nostalgic about the 19th century, when writers, critics, and analysts could call themselves idealists without having that immediately translated as “ideologues.”
What I mean by that, specifically, is that most commentators in the 19th century would have been embarrassed to be caught basing any argument on economics. Both a society and a government were expected to have deeper foundations. I am not saying that all or even most commentators in the 19th century proposed or argued for the right foundations, but they understood that the argument must go deeper than monetarism or inflation targeting or asset prices or aggregates. And they understood that this deeper level was not arrived at by putting a WWJD bumper sticker on your car or telling people that you “talked to God.”
Obviously that last hit was at Bush, not Krugman, and I will be asked to stay on target. Well, the previous paragraphs hit all targets, as they were meant to. The first problem with the Stein/Krugman mini-debate is that it never got off the ground. An economic argument is stale to begin with, and one that never evolves into real questions of intent is doubly stale. By this standard both Stein and Krugman are losers. I chose their argument mainly as an example of the current level. Like the Buckley/Galbraith debate of a generation ago, this one never reaches altitude. Buckley/Galbraith at least got off the ground. It reached treetop level, let off a couple of sonic booms, then stalled out and crashed with a thud. This one simply hits the fence at the end of the runway and rips up a swath of knee-high corn.
Despite that, I am going to try to kick it into the air for a few moments, like a half-aired beachball, to see if we can get a few kernels of real information from it.
Stein’s first contention is that the Great Depression was not caused by laissez-faire economics, and that everyone knows that. Is he correct? I will not argue about what everyone knows or does not know, since I don’t give a damn. What the majority thinks of the matter, or how accurately Stein or Krugman mirror the majority, is not the question at hand. The question concerns the term laissez-faire, and the historical fact. It seems to me that the problem in this cross-fire is that neither Stein nor Krugman makes any effort to say what he means by the term, and that it appears they mean two separate things. I think Krugman implies that the Great Depression was caused by the federal government refusing to take strong control of the situation. If the feds don’t take a firm control of the market, then they are “letting it be,” which is laissez-faire, simply by translation from the French.
Both sides seem to admit that this is the case, since Stein blames the New Deal for the Depression. A feature of the New Deal was to allow the problem to correct itself, so that the fix would be a permanent one. However, it appears to me that Stein may be implying that other forces were at work. If he is not, he should be. He says that the New Deal included price-fixing and restraint of trade. He could mean one of two things by that. He may mean to criticize Roosevelt for not allowing the “free market” to determine things even more than he did. This is the standard Republican critique, and as such is a complete misdirection. But he could mean that Roosevelt mainly continued the regressive policies of his predecessors. Depending on when and how they are done, price-fixing and trade restraint can either help the rich or hurt them. Is the price being fixed high or low? Is it being fixed when the middle classes have a lot of the money in the country or when the rich do? What trade is being restrained and why?
For it is not simply a matter of strong government control or laissez-faire: it is not one or the other. You can argue that no part of the Depression was laissez-faire by arguing that the government simply refused to override other pre-existing controls. The government can pretty much let the market be, but this does not mean that the market is sailing along free of control. What it means is that it is under the control of the banks, which were not then and are not now owned or controlled by the government. If this is what Stein means, then he is correct.
Krugman will say that I am naïve in trying to argue that letting the rich determine the market is not laissez-faire, since that is precisely what it is. In a state of nature, where all controls are removed, the rich will naturally determine the markets. He will say that I cannot undercut the term laissez-faire by inserting the word “control” in that way.
And now we are getting to the heart of it. The beachball is finally rising into the air. For this brings us to the distinction that Krugman and Stein never reach, that no one ever reaches in the mainstream press. From the time of Woodrow Wilson, the government had been actively assisting the rich (I could say from the time of Washington, but I am concerned here only with the Depression and its immediate causes). The Federal Reserve didn’t set itself up in some vacuum or in a milieu of laissez-faire. It wasn’t some necessary and natural market outcome. There was much debate, there were votes in Congress, the charters were written and signed. The banks were given control of the market by the government of the United States, over the express outcries of many vocal legislators and analysts and critics. That is not laissez-faire, that is policy. Roosevelt did not change that policy and it is still the policy today. A complete lack of government control over the markets does not take us to a state of nature, it takes us to plutocratic tyranny.
I may be overly generous in assuming that Stein intended to allude to any of that. It would seem strange to see a conservative arguing against policies for the rich, but Stein has done it before (or I should say since). Stein has been attacked for his article in the Sunday Times [May 7, 2006] entitled, “You’re rich? Terrific. Now Pay Up!” Lest you think that Stein, demoralized by his loss to Krugman, switched sides in the four years since 2002, I must recommend you read the article, which also tells us—apropos of nothing—that the oil companies are not price fixing and that they are doing a great job. No, Stein is still a conservative, but he does buck the line sometimes, and I think that this argument with Krugman might have been one of those times.
But no matter what Stein was alluding to, he was correct regarding Krugman. The Great Depression was not caused by laissez-faire, even if you accept that Hoover and Roosevelt did not take firm control of the situation in any way. Even if it were proved that they did absolutely nothing, policy-wise, it is still easy to show that the markets were not free. To say that the government was not controlling the situation is not to say that no one was controlling it; and unless the government had decided to dissolve the Federal Reserve Board, we should expect that those who were controlling it before 1929 were still controlling it after 1929.
Now on to the next question. Was Milton Friedman naïve? I don’t like Friedman any more than I like Keynes, but I don’t think naïve is the correct adjective. What Krugman meant is that Friedman was wrong, and he should have just said so. The word naïve displays a smugness when it is used, in almost every situation, and certainly in this situation, and I think Stein was correct to call him on it. Krugman proves this in his reply, where he continues to argue smugly.
Krugman has every right to disagree with Friedman: his own knowledge of economics justifies his public opinion in the biggest newspaper in the country. But that level of knowledge does not justify looking down his nose at Friedman. Friedman reached a level in the field second to none, and to assert that he reached that level with a naïve understanding of his subject is disingenuous. It is even counterproductive, since it implies that he may have been too simple or unaware to intend the outcomes of his policies. I believe that Friedman fully understood what he was doing and why: that is why he is fully responsible for his books, his counsel, and the outcomes of that counsel.
The truth is, none of these people are naïve or ill-informed. They are all extremely well-read, very intelligent, and quite capable of building an argument from top to bottom or bottom to top. All this argument about who knows more facts or who knew whom more intimately or who was whose Daddy is feckless. If these smart people are going to argue with each other, they should do us the favor of debating some real issues. And if they want to do that, they are going to have to dig deeper than economics. Economic policy is always chosen for a reason, and a real debate will have to air these reasons.
OK, next question: is monetarism dead? Well, again, I think we are seeing two different definitions being batted about. Krugman says in his memorial that Keynes showed us that “with judicious use of monetary and fiscal policy a free market system could avoid future depressions.” Is that not a sort of monetarism? In any economic theory, a vital part of “monetary policy” is going to be money supply. Krugman intends monetarism to be read in the strictest sense, so that it applies only to how much money is printed and in supply. Stein means to imply, I think, that although this may not be the only thing that is important in money policy, it is still one of the primary concerns of any economics. It may be correct that money supply does not completely determine inflation or anything else, but no one would argue that you can print as much or as little money as you like with no market effect. Friedman tied money supply to inflation but never said that it was the only tie. Krugman makes it look black and white in his memorial: he implies that Friedman’s theory—monetarism—was concerned only with money supply, that it ignored all other factors, and that it has been made completely obsolete in the last 20 years. I wish it were so, but agree with Stein that it isn’t. For the record, I also wish that Keynes’ theory were completely obsolete, or that it had reached a laudable level of sophistication. But it isn’t and it hasn’t. Large parts of both Keynes’ and Friedman’s theories are intact to this day, sometimes modified, sometimes almost pristine. To say that Friedman has become obsolete is like claiming that Freud is obsolete, simply because no one is a Freudian like Freud was.
In the end I usually side with Krugman, since he is attacking Bush for reasons that transcend economics. Those reasons might be called moral, although that word has been sullied in the past century. But in this debate I have to side with Stein, since Stein is mainly correct in the points he offers in the letter. The Depression was not caused by laissez-faire policies, Friedman was not naïve, and monetarism is not dead.
Most have said that Stein was “owned” by Krugman in this debate, but I think a more precise word would have been “pre-owned.” That is, Krugman won only because he sat in a higher position at the beginning of the debate, and could loft his words downwards upon his opponent. But I am not impressed with tactics like that. Both of Krugman’s letters (the memorial to Tobin and the reply to Stein) stink of authority. It is bad enough that Stein mentions his dad; much worse that Krugman mentions his Clark Medal.
Unfortunately, this is now the state of the art in economics. Even at the highest levels, the discussions are all misdirection, on both sides. Here is one of my favorite quotes on this, from Webster Tarpley:
The economics profession is totally bankrupt today, with every Nobel Prize winner in economics with the sole exception of Maurice Allais qualifying for commitment to a psychiatric institution. One of the reasons for the depravity of the economists is that their assigned task has always been one of mystification, especially the job of covering up the simple and brutal fact that American depressions have generally been caused by Bank of England and City of London bankers.
I recommend that last assertion
of Tarpley as a topic for debate by Stein and Krugman. At the least, they need to address some real
questions instead of these make-work questions about Friedman and aggregates
and monetarism. Let them finally graduate
beyond sophomoric preening and semantic trivialities. As a low-level warm-up, let Stein take the position of Friedman,
or any update of it he chooses, and let Krugman take the position of a
“sophisticated” neo-Keynesian, and let us see where it takes them. I think to make it interesting they must
address what sort of society Keynes and Friedman intended their economies to
underwrite, and what sort of society Stein and Krugman envision. Without that, the debate will never get
above treetop level, no matter how much wind they blow past our ears.
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