The Wisdom and Folly of Paul Krugman

Dare to disagree with Paul Krugman? If you’re prominent enough to merit his attention, he will attack your ideas and worse, label you as evil. But behind his rhetoric is an economist who is often worth listening to.

In his new book, Arguing with Zombies, Paul Krugman presents his trademark blend of economic analysis and political rage. The book is a collection of his New York Times columns, celebrated or loathed, depending on your point of view; few people are neutral about them. As his longtime followers already know, there are two Paul Krugmans: the Nobel Prize-winning economic theorist and the master of polemic insult. The aggressive title suggests that the latter one won. However, the struggle continues inside the book, which includes much that is of value. And, to make matters worse for those put off by his politics or perpetual state of high dudgeon, the book is extraordinarily well written.

Winston Churchill has been quoted as saying, “A fanatic is someone who can’t change his mind and won’t change the subject.” Along with Mark Twain and Albert Einstein, Churchill is claimed to have said just about everything worth saying. I don’t know if he said it, but it applies to Krugman, whose Johnny One-Note approach to political discourse is deeply annoying. Because of his obvious talent for a certain kind of economic analysis (he revolutionized economic geography in the 1980s), I just know he has the ability to discern good arguments from bad. Yet, in Arguing with Zombies, he mixes them with wild abandon.

I cannot in good conscience recommend this book, despite its occasional flashes of brilliance.

I typically summarize the contents of the book I’m reviewing. This octopus of a book is harder than most to summarize, because its many short chapters (newspaper columns) cover just about every issue that the American public has faced since 2004. And, in principle, each chapter deserves praise, rebuttal, or a mix of the two. For manageability I’m focusing on five major economic issues on which Krugman has written extensively: the euro, healthcare, the global financial crisis of 2007-2009, government debt, and the philosophy of economic research.

The roach motel

What is especially frustrating about Krugman’s work is that there are gems buried deeply in the polemic haze. Consider the following:

The euro has turned out to be a Roach Motel, a trap that’s hard to escape… Suppose that you are, say, Finland, with…two big exports: cell phones made by Ericsson1 and wood pulp used to produce paper.

Then along comes technological change that batters Ericsson’s market share and also reduces office use of paper. What do you do? Well, you need new exports; but to get there you have to give businesses some incentive to do new things, typically by reducing wages and prices relative to those in other countries. If you have your own currency, that’s usually easy; [the currency depreciates]. But...after 2008, the country no longer had its own currency… So their only way out was a long, painful slog of reducing wages in the face of high unemployment.