Politics & Policy

Paul Krugman: The Prophet of Socialism

A prophet who has been consistently wrong.

Editor’s Note: This article is excerpted from Donald Luskin’s new book, I Am John Galt.

Christiane Amanpour’s eyes darted back and forth in fear, and her mouth twisted in disgust, because she could see where this was going. A guest on her Sunday-morning political talk show, ABC’s This Week, was getting dangerously overexcited, and something very regrettable was about to happen.

She could see that he was winding himself up as he talked about how a recent deficit-reduction panel hadn’t been “brave enough” — because it failed to endorse the idea of expert panels that would determine what medical services government-funded care wouldn’t pay for. When Obamacare was still being debated in Congress, Sarah Palin had created a media sensation by calling them “death panels,” causing most liberals who supported Obamacare to quickly distance themselves from any idea of rationing care as being tantamount to murder.

Cut to Amanpour’s horrified face. Cut back to the guest. Then it happened.

The guest said, “Some years down the pike, we’re going to get the real solution, which is going to be a combination of death panels and sales taxes.”

It was all the more horrifying because the guest was not a conservative, not an opponent of Obamacare. This guest was an avid liberal, a partisan Democrat, and an enthusiastic supporter of government-run health care. He was endorsing death panels, not warning about them. He was saying death panels are a good thing. And it was even more horrifying because of who this guest was. This was no fringe lefty wearing a tinfoil hat, churning out underground newspapers in his parents’ basement. This was an economics professor at Princeton, one of the country’s most prestigious universities. This was the winner of the Nobel Prize in economics, the highest honor the profession can bestow. This was a columnist for the New York Times, the most influential newspaper in the world. This was Paul Krugman, live, on national television, endorsing government control over life and death. And while we’re at it, let’s raise taxes on those who are permitted to live.

Who exactly does Paul Krugman think he is? He’d like to think he’s John Maynard Keynes, the venerated British economist who created the intellectual framework for modern government intervention in the economy. Keynes is something of a cult figure for modern liberal economists like Krugman, who read his texts with exegetical fervor. But Krugman will never live up to Keynes. However politicized his economic theories, Keynes’s predictions were so astute that he made himself wealthy as a speculator. Economics is called “the dismal science,” but as we’ll see, Krugman’s predictions are so laughably bad his economics should be called the abysmal pseudo-science.

Most critiques of Krugman as a public intellectual begin with what is apparently an obligatory disclaimer, usually in the very first sentence — something to the effect that Krugman is a very accomplished and well-respected economist. Then comes the “But . . .” and the critique proceeds in earnest, often scathingly.

But why concede this honor to Krugman? So what if he won the Nobel Prize? The real test of Krugman’s mettle as an economist is the accuracy of his economic forecasting. The fact is that, with about three decades of evidence now in, Krugman’s track record, to use a technical term favored by economists, sucks.

He’s not always candid about this. But once, under the pressure of a televised debate with conservative talk-show host Bill O’Reilly, Krugman blurted out an understated if truthful self-evaluation: “Compare me . . . compare me, uh, with anyone else, and I think you’ll see that my forecasting record is not great.”

The most egregious example of “not great” is Krugman’s utterly incorrect 1982 prediction that inflation would soar. He made this prediction from no less lofty a perch than the White House, as staff member of the Council of Economic Advisers in the first Reagan administration. In a memo titled “The Inflation Time Bomb” Krugman wrote with co-author Lawrence Summers, “We believe that it is reasonable to expect a significant reacceleration of inflation . . . at least 5 percentage points to future increases in consumer prices. . . . This estimate is conservative.”

It also turned out to be hilariously, side-splittingly, knee-slappingly, rolling-on-the-floor wrong. Except for a tiny uptick the very next month, inflation didn’t rise; it fell. Four years later, it had fallen to 1.18 percent, a rate so low as to border on deflation.

In late February 2000, two weeks before the peak of the dot-com stock bubble at Nasdaq 5,000, Krugman wrote in his Times column that the Dow Jones Industrial Average was overvalued, saying, “Let the blue chips fall where they may.” As for the Nasdaq — which at that point had almost doubled over the prior year, and more than tripled over the prior three years — Krugman said soothingly, “I’m not sure that the current value of the Nasdaq is justified, but I’m not sure that it isn’t.”

We all know what happened. As of this writing, the Dow is about 20 percent higher than when Krugman wrote those words — and that’s not including a decade of dividends. The Nasdaq is about 42 percent lower. It hit bottom in October 2002, a 75.7 percent loss from where Krugman said not to worry about it. After something of a recovery, stocks fell again. They hit a real bottom — about a week after Krugman wrote a Times column asking the rhetorical question, “Is there any relief in sight?” His wrong answer: “No.”

Perfect bookends: He missed the top, and then three years later, he missed the bottom. But then he outdid himself. In June 2003, with the Nasdaq up 20 percent since Krugman’s “No,” did he recognize his error and reverse course? Again, no. Krugman wrote that “the current surge in stocks looks like another bubble.” From there the Nasdaq was to rally another 75 percent.

At around the same time, afraid of what he called a “fiscal train wreck” that would lead to disastrously high interest rates, he announced in the lead paragraph of a March 2003 Times column: “So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.” In fact, rates didn’t rise, even when budget deficits skyrocketed beyond anything he could have imagined then, driven by government “stimulus” spending that he himself urged. Nowadays, on his New York Times blog, he regularly chides deficit-wary Republicans by using today’s low interest rates to prove that the U.S. faces no financial difficulties.

In 2003, I set out to expose Krugman’s various distortions, and to force the New York Times to correct them. I started first on my blog, and soon afterward in a series of columns for National Review Online called “The Krugman Truth Squad” (KTS). The inaugural KTS column appeared on March 20, 2003. The series of columns was structured as what is now called “crowdsourcing”: Within several hours of a Krugman column’s appearing on the Times website, I and a network of fellow bloggers would put it under a microscope and discover all the filthy microbes hiding in every crack. We’d fact-check every claim, confirm every quotation, run down every source, and compare every statement for consistency with statements made in the past. The KTS called Krugman “America’s most dangerous liberal pundit,” and our promise to readers was: “We’ll read Paul Krugman so you don’t have to.”

I won’t cite here very many of the dozens upon dozens of prevarications that my Krugman Truth Squad exposed in 94 columns over five years. If you are interested, look up my name in the NRO author archives, where most of the KTS columns can still be seen. Or you can download a PDF file with the entire collection of KTS columns here.

In most cases, any given one of Krugman’s prevarications — if uncorrected, his lies — will seem trivial, as though I were nitpicking to focus on it. But the cumulative effect of them all — every exaggerated statistic designed to bolster some economic argument, every out-of-context quotation designed to make some conservative politician look venal or conservative economist look stupid, every inaccurate historical citation designed to make conservatives into crooks and liberals into heroes — is to shape Krugman’s narrative with a persuasive power it would never achieve if it were confined to the truth. In the same sense, the cumulative effect of my persistent blogging, and of the Krugman Truth Squad columns, has been to gradually erode that persuasive power.

My Truth Squad got Krugman’s attention right away. After just a month, in an April 2003 KTS column, I took Krugman to task for a whopper he’d told the day before in his Times column. Concerning claims by the Bush administration for job creation as a result of its proposed tax cuts, Krugman wrote,

Let’s pretend that the Bush administration really thinks that its $726 billion tax-cut plan will create 1.4 million jobs. At what price would those jobs be created? . . . The average American worker earns only about $40,000 per year; why does the administration, even on its own estimates, need to offer $500,000 in tax cuts for each job created?

Sounds sensible if you read it fast — and pretty damning of Bush’s plan — especially if you assume you don’t have to question Krugman’s claims, since these words were written by a Princeton economist on the pages of the New York Times. But now: Stop, think, and question. That $726 billion number came from a report prepared by Bush’s Council of Economic Advisers. The estimate of 1.4 million jobs created was just for the first single year of the tax cuts, 2004. Yet the $726 billion price tag was for ten years. In other words, Krugman was pushing the entire ten-year cost of the tax cut onto a single year of jobs creation.

It was a remarkably arrogant and sloppy thing for Krugman to put in writing, especially considering that a couple of months earlier he’d made a similar claim in a television interview, in which, without missing a beat, the interviewer had caught the distortion and forced Krugman to backtrack. PBS’s Geoff Colvin asked Krugman, “Well, but it’s going to go for longer than just this one year, right?” And all Krugman could say was “Well, yeah. . . .” But then he repeated the distortion, and having already acknowledged it to Colvin, the second time around it wasn’t just a distortion — it was a lie. And it was in writing, in the pages of the New York Times. There was no backtracking — and from Krugman, certainly no confession. All Krugman could do was try to justify it retroactively, which he did in a lengthy series of posts and updates on his Princeton website. He cited abstruse charts and graphs based on Keynesian macroeconomic theory to justify his erroneous claim — which for all the highfalutin econobabble was self-evidently simply the result of his having failed to divide by 10. Keynes would be rolling in his grave, only he’s too busy laughing.

After that, my KTS dogged Krugman relentlessly, catching dozens upon dozens of errors, distortions, and misquotations in his columns, which when left uncorrected became lies.

With all I and my fellow Krugman Truth Squad members did to expose Krugman’s lies, and with a new New York Times columnist corrections policy that imposes a formal reputational cost on Krugman if he keeps on lying, it seems that Krugman has nothing to say — at least nothing that has the power to influence the national debate, as his columns once did. It turns out that it’s a lot harder to convince people when you have to stick to the truth.

Need proof? Just think how Krugman must have felt in late 2010, when the 2003 Bush tax cuts he did so much to oppose — including embroiling himself in the humiliating divide-by-10 contretemps — were extended by a Democratic president and a Democratic Congress. At the same time, Krugman has become a victim of his own success. His vicious cycle of ever looser and ever coarser discourse has reached a dead end, and left him facing a new generation of competitors as loose and as coarse as he is. He just doesn’t stand out anymore.

— Donald L. Luskin is the co-author of I Am John Galt: Today’s Heroic Innovators Building the World and the Villainous Parasites Destroying It, from which this article is adapted.


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