 Welcome to the podcast that takes apart Paul Krugman's New York Times column. Join us as Tom Woods and Bob Murphy teach economics by uncovering and dissecting the arrows of Krugman. Nobel Prize winner, newspaper columnist and destroyer of nations. It's time for Contra Krugman. Welcome everybody to another episode of Contra Krugman. I'm Tom Woods with Bob Murphy and several other wonderful people because we are recording this particular episode live from the Mises Institute for the Mises University summer program. For those of you who don't know, Bob and I have a weekly podcast that we do together in addition to my daily one and Bob's other one. We have one we do together every week called Contra Krugman and we refute the Krugman New York Times column every single week and it's fun. So you can check it out at contracrugman.com Well today we have special guests. Now you already know Peter Klein and Lucas Engelhard and Mark Thornton and they are here to help us take down Krugman. Now I want to tell you the only other time we've ever done this show in front of an audience was at the Mises Circle in Seattle in May. Krugman releases two columns a week Monday and Friday and that week on Monday his column was terrible. And I don't mean terrible wrong just terrible not relevant. Not something we could... It was also wrong. And it was also wrong. Not something we could apply Austrian economics to. Bob and I were what are we going to do? What are we going to do? The events coming up on Saturday but then Friday morning you know like a Christmas present under the tree with a big bow on it. Krugman released the worst most idiotic column full of so many fallacies and we just thought it's just so glorious we're going to smack this thing and did we ever? Best episode ever. This week Krugman released a terrible column on Monday. We thought well we know old Paul come Friday morning he's going to bail us out with an awesome column full of zingers and fallacies we can smash. Nope another terrible one on Friday. So for today... He's on to you I think. Yeah I think it's almost like he started to listen to Krugman. So what we've got instead is one of his blog posts. He can't restrain himself from saying things on his blog that we can use so we're going to use a blog post and use it as a jumping off point and we're going to jump way off once we get through the original topic and the blog post is the GOP's original sin dated July 18th 2016 and of course it will be linked on the show notes page those of you who are secretly doing the drinking game I'm about to tell you the show notes page contrakrugman.com slash 45 All right well it's only this let me look it's giant font that I've printed it out in and it only goes this far so the gist of it basically is this Krugman is talking about the supply ciders of the late 1970s early 1980s and supply side tax policy under Ronald Reagan and here's what Krugman has to say he says I'm not sure even now whether people who aren't involved in economic policy discussion understand that supply side wasn't a doctrine like monetarism or even real business cycles ideas I may think are wrong but which had and to some extent still have significant support from professionals in the field supply side economics never had any evidence behind it it never had any support in academic research it barely even had any support among economic researchers and forecasters in the business world it was and remains crank economics pure and simple with nothing going for it except political convenience yet 35 years ago the GOP was already willing to embrace this doctrine because it was politically convenient and could be used to justify tax cuts for the rich which have always been the priority and then Krugman goes on to say but given that the GOP has been enthralled to if we can even dignify it as a school of thought according to Krugman that is so at odds with reality is it any surprise that the GOP is in constant reality denial in all kinds of fields so that's your post from July 18th 2016 so we are going to say a little something about supply side economics because in fact when I do Q&A sessions from time to time I get this a lot do the Austrians engage with the supply ciders are their views coincident? is their overlap? are they different? so Bob I'm going to kick this over to you okay well thanks Tom this is actually another first this is the first time that there's more than one real economist doing the show oh oh oh alright I have to just I know people at home are like whoa that escalated quickly but you guys need to understand Tom it misses you you guys are feeding he has the biggest eagle already stop telling him how great he is and how much you love his stuff you're making it worse alright so let me just get some context here as usual when Krugman says something the effect that there is no evidence whatsoever for X it means there's a lot of evidence for X and I'm just going to be very particular in my definitions if you call me on my I won't say lie but exaggeration of saying things that do not coincide with the truth put it that way so on this issue again what does he mean what he means is by supply side economics is the proposition that every reduction in tax rates will bring forth more absolute dollars in revenue then okay that's true there's not much evidence for that proposition even though in case you don't know this if you look at what happened in the Reagan Revolution it is true that federal revenues went up alright so when you're trying to understand why did deficits explode in the Reagan years it's not because of quote tax cuts for the rich it's because Reagan you know in congress spending rise faster than revenues did so make sure you're familiar with those basic facts but more generally I actually worked for Arthur Laffer for about a year so I saw even his old research papers Laffer he's one associated with supply side economics the Laffer curve and so on his claim was not that every tax rate reduction brings in more revenue he was just saying you can't use a static analysis you have to take into account a rate reduction changes incentives enlarges the tax base and so a static analysis will exaggerate the loss in revenue he wasn't saying that every tax cut pays for itself then let me just also talk about the issue of there's no evidence this is all just crank stuff again that's totally wrong so if you look at for example just google dynamic scoring CBO you'll pull up a report from the congressional budget office talking about dynamic scoring and how they do that in their assessments and what is dynamic scoring means we don't use a static analysis when we take into account like oh how much if we repeal the affordable care act what would that do to the budget deficit over the next coming years to say we're going to score it dynamically means we take into account if we change tax rates then that might change behavior and so that will affect how much revenue comes in so the CBO is not some crank organization that's the standard go-to place that assesses changes in policy Greg Mankiw and a co-author whose name I don't know how to pronounce so I'm just going to not say it they have an MBR paper on tax cut changes and how you do dynamic scoring so Greg Mankiw again not some crank economist in Krugman's world but you say alright he's a republican okay Christina and David Romer had a famous paper that came out in 2007 the title of that was the macro economic effects of tax changes showing you know they did some new approach and they found that oh there's large impacts from tax changes on economic behavior alright so this we say this a lot Tom and I had a hard this point a lot but what do progressive liberals want to do to stop climate change they want to have a carbon tax why because a tax affects behavior what do they want to do if they want to discourage people from smoking oh put a big tax on it and so what would happen if you want to discourage people from working why wouldn't you put a big tax on that right so this idea that oh it's some crank notion that raising tax rates on something discourages that activity far from being a crank notion that's standard stuff and I've just listed places that take that into account okay also I think the 1920s is a fairly good example of how this effect is is evident the tax rates were the top marginal rates were quite high in the early 1920s following World War one so a lot of people were not exposing their wealth to these tax rates or they were putting a lot of money in tax free municipal bonds or whatever and then when Harding and Coolidge reduced the rates they were willing to expose their their money to these rates and you did see this other activity now of course obviously we don't care that the government gets more revenue we're not saying that's a good thing we're just saying if Krugman says something that's wrong it should be refuted so that's that's what we're trying to do here now from here we want to jump off to some other topics I do want to give our distinguished guests an opportunity to jump in Peter you're you seem pretty eager so Peter Klein wait should we start with the Krugman now you're in our house I was going to say I mean I rarely agree with Bob Murphy but but he's right that a lot of the specific policy proposals that Krugman seems to attack in this column are ones that almost every mainstream economist would agree with but I believe in farther and say as these guys know and as you know if you listen to this podcast Krugman is right and and he's very slippery and cagey and what he does so in this this blog post on the one hand he's right that supply side economics is not a school of thought like Austrian economics or Keynesian economics with a distinct set of theoretical doctrines the label supply side economics just loosely refers to a set of policy proposals that were you know that many people suggested in the 1980s as ways of spurring economic growth for example tax cuts for not only personal income tax cuts but corporate income tax cuts simplifying tax rates and so forth but you know if you think about it more broadly the label supply side economics essentially means policies that address the supply side of the economy rather than the demand side right Keynesian economics says the only thing that matters not only for short-term economic fluctuations but even for long-term economic performance is the management of aggregate demand and fiscal policy and monetary policy are all about aggregate demand managing the demand side of the economy well a lot of economists in the 1980s as the Keynesian consensus was crumbling said well you know maybe the supply side of the economy matters too maybe we should think about policies that affect not only consumption but also production you know big shock you know things that discourage work things that discourage corporate investment ought to matter but what is also part of sort of supply side economics is things that all progressive economists seem to favor too like you know policies that would improve performance would improve the productivity of companies and industries investments in education and infrastructure training job training and so on these are all supply side policies and Krugman of course is in favor of all of these as are Obama all sorts of policy wonks on the Democratic as well as the Republican side so I mean depending on what you mean by supply side economics yeah pretty much everyone agrees that the supply side matters this is just sort of a rhetorical trick I think by Krugman to make supply side economics sound like it's something other than it is so he can knock it down as being unscientific that was even better than what you said Bob that was really good you should have me on the show more often maybe we should go back just having one trained economist on the show monopoly is good yeah I'm glad you pointed that out Peter just where that term supply side comes from it was a reaction against Keynesianism which was demand side management and also I can't help but point out Krugman taking his shot that oh yeah the only reason supply side had any currency was because the politicians loved it not like there's any danger of that happening the government needs to spend more money the politicians are like oh get that out of here let me suggest for the people who are listening to the recording when this episode is released they might not know Peter Klein as with Baylor University which is not implicated in anything Peter says of course Lucas is with Kent State University and Mark is here at the Mises Institute and Mark you want to jump in sure one thing Krugman did say that's correct is there was really a small number of supply ciders there was three guys Arthur Laffer, Jude Wyninski and one other guy who wrote books on supply side economics no one in academia really calls themselves a supply cider and the other thing I'll point out is I have a paper in the review of social economy back in 1986 on supply side tax cuts in the 1920s and it showed that the economy reacted very favorably and very quickly to the four tax cuts that occurred during the 1920s I think one thing I'd add to what's been said so far is the supply side policies okay they're associated with a very small group of people but they're not just isolated in this group either I think of when I was back in graduate school one of the first things I learned in macroeconomics were doing some growth theory or something like that we're looking at how we should tax the solution they came to was that taxing capital income is terrible it destroys the growth of the economy I suggest that maybe we should cut capital gains taxes that kind of thing cutting the taxes that we normally think for the rich is paying is a good thing for growing the economy and it wasn't a supply cider teaching me this it was a very mainstream typical guy at a state university so I'm baffled by the way on corporate tax rates as I'm sure most of your listeners being highly educated from listening to you would know the US has among the highest corporate income tax rates in the developed world even including some developing countries I remember when Bernie Sanders a few couple months ago was talking about making the US more like Denmark and Hillary Clinton said no Hillary Clinton said I can't remember they were arguing about who could be the most pro Scandinavian and who could make America look more like Scandinavia I remember tweeting sort of a smart algae tweet you know Senator Sanders yes the US should be more like Denmark I forget the number Denmark has a corporate income tax rate of about 20% the US has one close to 30% I said yeah let's be more like Denmark cut the corporate income tax and he retweeted that no doubt right sure he did by the way episode number six of Contra Krugman we take on the Bernie Sanders shouldn't we be more like Denmark objection so contra Krugman dot com slash six a little trivia about that Tom and I were concerned we're like we don't know anything about Denmark but we're like but neither Krugman so let's do this that's a fair fight all right I think it would be interesting now to use this as I say we use this as a jumping off point because sometimes when Krugman gives us thin gruel like this we think well let's make this into a broader teaching moment for the listening audience and one thing we might be able to talk about is free market economics in general as opposed to Austrian economics in particular there might be people who want to know well yeah I believe in free market economics why are you so devoted to this particular school of thought isn't it really all the same don't we all favor something you know all the same sort of thing and one of the questions I get a lot is what's the difference between the Austrian and the Chicago schools for example so I guess we could we could we could take this in terms of let's give some specific examples but also talk about why it does matter you know why free market is not enough maybe that's the the title of this episode free market is not enough anybody want to jump in on that by the way you know what won't be not enough the Contra cruise right get to that later not everybody knows that joke yet we'll ease them into it this is good we can tell which of you listen to the podcast you're laughing at those awkward segues we know you listen well segueing from the supply side thing I went to the first federal society conference at the university Chicago law school in 1983 and little that I know but I was supposed to be up in the dorm room with one of the law students and it was bill after we who is a art laughter the supply ciders nephew and we debated the entire weekend that I was there about you know he was he was saying you know what do you have to call it Austrian economics just free market economics is just like supply side I said well no it's not just like supply side there's no business cycle theory for example and I said you know Austrian support a real gold standard he said oh the supply side are supported to but they support the phony gold standard so this went on and on and do you mean like you're shaving and he's arguing with you yeah pretty much yeah pretty much just would not let it go but there are a lot of obviously there's a lot of differences in methodology can you explain the difference in gold standard because that's a good good example what does it mean when some people say they're for gold standard but you're saying oh that's the phony what do you mean by that well Austrians generally support we call the true gold standard where there are actual gold coins in circulation and in bank vaults where it's a physical amount of gold that where the dollar is defined as a physical amount of gold as a matter of fact we had an article on this by Frank Schousteck on Mises.org this week if you missed that the supply ciders at the time advocated having a gold price standard where gold would be at $400 an ounce this was obviously a long time ago and the government would supply or demand gold in order to maintain that price of $400 an ounce so it's a price fixing scheme and there's a lot of different problems associated with that but it's much different because it's a government managed system not a market managed system. Well to play up on what we were discussing before about supply ciders I mean again the term free market economics makes me a little bit uncomfortable because free market economics is a scientific discipline that is value free Austrian economics is value free even though many people trained in Austrian economics support free markets because Austrian economics helps us to see how free markets are better for human flourishing are better for overall well-being than controlled markets but I kind of don't like the term if you met someone who said well I'm a I mean you would be a little bit suspicious like well wait a minute you're mixing kind of the type of study you do with the conclusions that you reach I mean defense support for the free market is a conclusion of Austrian economics and many other kinds of economics plus some basic assumptions about human flourishing namely that we think it's better than human suffering right but economics per se is not really a free market thing and of course I know what people mean when they say free market economics and it's I don't mean to make it sort of more harmful than it is I just want to clarify that there are a lot of people who say I'm a free market economist what they mean is I support free market policies for various reasons but they don't use economics in a sort of very careful way or they're not engaged in economic analysis directly they just have an affinity for free market policies maybe for other reasons let me play devil's advocate here a little bit about teaching I mean I know you probably you don't do introductory courses but if you were and the subject of so-called externalities came up so we have air pollution or the guy with bad breath or whatever and we have externalities your approach would not be to say so now I'll show you why this means that government needs to do this you wouldn't do that because you're a free market economist right you would teach it to them in a certain way that would not include now let's make the defenses for what we all know is necessary government intervention you wouldn't so therefore you're a free market economist okay fine if free market economist means good economist rather than fair enough we're not saying that then I'm all for it all right we get that settled while we're talking about the distinction between Austria and Chicago school another huge example to show that it really is important why people if they say I'm in the Milton Friedman in the Chicago school why do I care about Austrian per se a huge difference is their approach to monetary policy as Mark was saying and beyond just saying okay let's have a real gold standard or versus a phony one their explanation the Great Depression so Friedman and Anna Schwartz famously said the Great Depression was caused because the Fed didn't inflate enough that through the 20s anytime there was a hiccup in the economy the Fed rushed in with new liquidity and got it going and that's all that needed to happen but for various reasons somebody died and so on and there was a power vacuum at the Fed it was asleep at the wheel and it amazingly is sat back while broader monetary areas collapsed in the early 30s and if only the Fed had come in and inflated more then we wouldn't have had the Great Depression whereas the Austrians it's almost the exact opposite Murray Rothbard famously arguing that the Fed was inflating in the 20s that's what blew up the stock bubble which then had to come crashing down and that's what caused the Great Contraction in the early 30s so there I mean that is a huge example of a difference we're not just nitpicking on methodological issues though we are happy to nitpick on methodological issues also in many ways Austrian economists Chicago school economists other people who would identify with sort of different free market movements we agree on a lot of analysis and policy especially at the microeconomic level but we Austrians are more consistent right so we take our price theory our value theory our understanding of markets and we use that all the way through as we're talking about macroeconomic phenomena money business cycles growth and so forth there's a lot of other economists they sort of flip it's like if you ask even a lot of Keynesian economists to talk about you know the market for shoes they would understand it in a way that's not totally different from the way we Austrians would understand it and they would say yeah of course the market can produce the right quantity and quality and variety of shoes and could be priced in such a way that many different people can buy shoes of different kinds and so forth but then you say well what about money oh well money is totally different the market can't produce money because of some hand waving you know I in Rand would say blank out right or what about other goods and services what about so called public goods what about lighthouses and what about you know generation of information or scientific research or national defense right Austrian economists will often say well let me analyze that using the same kind of theories and methods and techniques I would use to analyze the shoe market although of course there may be important institutional differences where as a lot of mainstream economists even Chicago and other kind of free market types will say oh well wait a minute you know now I've got to use a totally different kind of model or I start with the assumption that well of course the government has to supply money of course the government has to supply XYZ because it's just a totally different thing from other goods and services about the question about monopoly theory differentiating Chicago and Austria and where does that come from why do they not have the same why don't they reach the same conclusions about monopoly that somebody like Rothbard reaches in man economy and state okay well the Chicago school their monopoly theory their similarities between their theory and the standard theory and Austrians basically mainstream economists will argue that it's either government interventions monopoly privileges granted by the government or it's specific market conditions that are unique to a particular good or industry that allows for monopolies to exist allows for market power to exist Murray Rothbard's analysis building on Mises's analysis of monopoly basically Rothbard argued that all monopolies are created by government intervention in the granting of monopoly privileges in the economy so it's there's important differences obviously between the two Rothbard argues that that basically you cannot generate a monopoly in the free market I think another way you could say that is a label some people use instead of Austrian economics is causal realist economics because Austrians believe in trying to trace out cause and effect throughout the economy which is why we don't use a lot of math right and we also are interested in explaining real markets the real economy neoclassical economists including Chicago economists are more interested in unrealistic models of the economy especially this horrible thing that we need to get rid of so called perfect competition so the perfect competition model has been an albatross around the necks of economists for many years and I think Chicago school types they hold up this perfect competition this perfectly competitive situation as an ideal and so to them monopoly is like a dirty messy corruption of this ideal state and so yeah we don't like government in general but we do want the government to try to take away monopoly and these other things and make us more like perfect competition whereas Austrians recognize there's no such thing as a perfectly competitive market you know all sellers have a product that is somewhat different from that of other sellers not to be too technical as Mark said the way Rothbard puts it all sellers have a downward sloping demand curve and so unless you get a special privilege from the government right we can analyze you just the same way we analyze any producer we don't need a separate monopoly theory to go to add on to our competition theory except in the case where the government gives you an exclusive grant there's a really good chapter on this subject of perfect competition that I remember years ago I really enjoyed it really helped me understand what the problems with it were and it's in this obscure book by Milton Shapiro I think it's called the foundations of the market price system something like that one of the last chapters you can find it online at Mises.org just really demolishes that perfect competition model say well are you done with that I'm done with that but I have another thing to say it's my show too today you're actually making some good points we should write this on the calendar actually I stole that joke from him when he used that against me a few weeks ago so don't boo me that was his joke no boo him for using my joke from two weeks ago alright so this reminds me again another big difference and you might say I can imagine some people hearing this and saying okay so you guys are the real dogmatic ones the Chicago school at least acknowledges the possibility that there could be a role for government to combat pollution or to build you know nuclear weapons and so on because it's true you can't trust politicians to make shoes but give them nuclear weapons that makes a lot of sense but on an issue where I think Austrians are quite reasonable and have common sense and the Chicago school is very exaggerated has come to like financial markets and Eugene Fama guys like that put forward what's considered the efficient markets hypothesis and as a hypothesis and a benchmark to start the analysis in the classroom that's great that's a good starting point but it leads to absurdities in practice where for example as of 2009 and 10 there are several people out of that Chicago school tradition who say there was no housing bubble because bubbles can't exist by definition or you give me an operational definition that could do anything because if we were in a bubble and everyone knew it then the bubble would pop like that's the kind of argument they use and you understand there's a certain logic to it saying how could it be that we all know assets are overpriced because then wouldn't we sell them but then they just move on and say okay so therefore stop telling me that low interest rates are fueling asset bubble because that doesn't mean anything to me when clearly I think Austrians recognize no the fed pumping in money has something to do with why markets go way up and then crash and they don't just have this almost tautologist way of just inoculating the market and saying that can't be there must be something else going on here one example I'd like to use to differentiate the mainstream from the Austrians in terms of competition and monopoly about 100 years ago people started making automobiles and colas coca-cola for example and there would be in every little town in every big town there would be people who were building cars by hand one at a time so you'd have two or three guys in a garage making parts putting together into the engine in the car likewise with colas people were making up their own recipes and selling colas and there were thousands and thousands of these automobile companies and as well hundreds and hundreds of these soda companies all over the place and that's what mainstream economics likes they like an unlimited number of producers out there in the economy with no effect no ability to affect the market price and so on nowadays of course we have just a couple of automobile companies and just a couple of automobile companies here in the united states so now we have a small number of sellers and the mainstream opposes that because that creates market power or monopoly power so they would like the initial stages where you've got thousands of individual firms they don't like what exists today in their firms despite the fact that everybody knows that automobiles are so much better nowadays and relatively inexpensive so they like the early stage they don't like the current stage but austrians view the whole thing of the industry starting and consolidating improving the product reducing the relative price of automobiles over time so what we're doing is competition you know where else there'll be a small number of cola sellers the contra cruise you betcha do we want to tell them what's going on here I kind of think we're supposed to I guess we have no joys at this point October 9th through the 16th of this year Bob and I are hosting a six night cruise a board Royal Caribbean's Liberty of the Seas we can believe that we love you all to think that we planned it that way but if only Bob were that competent we might be able to we have so much fun stuff planned for it and you can visit contracruise.com to find out about it and then tell your parents it's very important for my education that I go on this cruise and we'll see if we can outfit you but the key thing is the awkward segue that's the whole thing how do we bring up the cruise during the show we just come up with these ridiculously absurd ways like we were talking about Brexit and I said Bob you know something you would not want to secede from the contra cruise see that's the thing so on the cruise we're actually going to give a prize to the person who has the best most classic transition I mean you don't really have to promote the cruise when you're on it but you've got to tell that joke in order to get the prize so anyway contracruise.com we're all going on the cruise for free aren't we panelists? Yeah I'm sorry the audio seems to have gone out just there sorry let me add one thing I've noticed this could just be because it's a small sample size in terms of Chicago people I know but doesn't there seem to be a temperamental difference between a lot of Austrians and a lot of Chicago people the Austrians if you were to go out for drinks with them and talk to them about their views their view would be that the state is evil it's evil it's not like let's see if we can help them to fine tune it and make things work for us better it's evil and we have to oppose it but if I took Chicago people out they would you know they would say well you know a lot of times the government is full of a bunch of jokers isn't it and they sure do a lot of things that are silly and wrong and private solutions do seem to work but and even David Friedman who's a very smart guy and I like him but he's got Chicago influences he's an anarchist and even he doesn't really you don't get the sense he just hates the state so what do you think the source of that is where's the direction is it that Austrian economics makes you this way or is that you're already this way and that draws you to Austrian economics it sounds like Tom's saying we're a bunch of haters doesn't it of evil I don't know the answer to that but you're right there is a difference in temperament I think a lot of Austrian economists at least those of us in the room here I would say we're very good at doing technical economics but what really attracted us to this field of study was some kind of passion or really a desire to make the world a better place and to understand how the world works and we really do have this kind of drive it's really a big deal we think about it all the time there are a lot of economists even as you say economists who are sympathetic to free markets who do economics as a nine to five job I mean they're kind of technicians or technocrats who are interested in doing modeling and collecting data and solving little clever puzzles and things but I don't think they have that same drive or passion now whether that's self-selection or whether as you say there's something about studying Austrian economics that makes you more passionate I don't exactly know but I'd like to have more people studying Austrian economics so we can do that experiment and I don't think their people take a week off in their summer to come to Alabama to study their kind of economics but I don't think that's going to work for you all so if you felt like applauding you could hey yeah it could be some of you were like yeah tell me about it you know I think just an anecdote to follow up on what Peter was saying when I was in grad school so I was at NYU and it was a very international program and it was funny the one American other American guy and we were like studying for the things that we hadn't been prepared mathematically for the first I've been thinking we were going to get but it's we were watching it was the Olympics that year and we were watching over this Italian woman's house and we were sitting there watching and these are all my first year classmates and I was just making conversation I said something like okay guys they were really into the Olympics like more than I was and I said if you could either win the Nobel Prize in economics or win a gold medal in some Olympic event which would you choose and they were looking at me like that was the dumbest question gold medal of course that surprised me where as you know there I was nerdy and thinking you know well no I went into the life of the mind or whatever you know I could have been a star athlete but I chose not to you know so but that just kind of I was making a conversation but I was surprised by how they were just like that's not even close why would you even ask that that to them like Peter was saying it was yeah this is interesting my government is going to fund me to go study and I'll come back and help the central bank and you know do so they thought they were helping and so forth but it was not that they were out there they changed the world I don't think that's not why they went into economics I also wonder back to the question of why is it we really think government is evil right compared to the Chicago guys I wonder how much of it is the influence of Murray Rothbard too being a great Austrian economist doing the value free stuff but also having his like libertarian philosophy writings that a lot of us have read where we see property rights as not just being something that gives us a nice outcome but that is actually like morally good violations of these rights are actually evil right it's not just all making the economy less efficient than it could possibly be but you're actually violating people's rights and we get enraged by this I got another thing on that that we when we study markets right we really make a sharp distinction between voluntary interaction peaceful cooperation among people and violent interaction you know if I punch Murphy in the face which I've been tempted to do many times you know I mentioned this in my lecture yesterday we wouldn't refer to that as a negative externality right we would haul me off to the slammer or whatever I think a lot of mainstream economists including Chicago economists they don't recognize an intrinsic distinction between voluntary interaction and coercion and they would say oh yeah well we can do we can apply our models to punching Bob in the face that's just another outcome it lowers Bob's utility it may increase Peter's utility in fact Ronald Coase the great Chicago economist Ronald Coase was very explicit about this he wanted to banish the notion of causation altogether from economic analysis and he said look it's no different you could say yeah Klein caused Murphy's bloody nose by punching him in the face but you could also say Murphy caused his own bloody nose by his failure to duck at just the right moment and analytically those are really identical whether Klein should have to compensate Murphy for his injury or not really just depends on who could have avoided this harm at a lower cost if Murphy could have ducked more easily than I could have withheld my punch then it's his own fault but I think this ties into what you're saying that they don't view that kind of a situation as any different from tax policy and pricing or purely voluntary buying shoes and so forth we really do see a difference on this point, not the point of him punching me the broader point he's not setting up a strawman there if you guys have never read this you should go look at the economic analysis of crime from a Chicago school point of view and they will be quite explicit like doing a cost benefit analysis they'll get mad saying a lot of people think when you analyze the cost and benefits of certain policies about crime to not count the utility to the thieves so in their mind they're saying you have to be fair and if you know muggers get a thrill from mugging people besides just the money that goes into it so that's a benefit from mugging to be offset of course by if there's people out there who don't like being mugged well then you take that in account too we're being fair and balanced but it's not a strawman he's setting up and there is a certain logic to that where you say no we're being value free who are we to say that the people who have the money in the first place because they went out and earned it you get the logic of what they're doing but it's kind of freaky where that ends up leading especially if it's involving a punch to my face I feel very strongly about that no strawman I mean what do you think I am Paul Krugman but couldn't they make an argument that they're the ones who are being value free and the fact that we refuse to acknowledge the utility to the thief means that we're sneaking in an ethical proposition there that only the utility that's lost by the victim is worth counting isn't that making an ethical or likewise the fact that a lot of our analysis kind of takes for granted private property I could probably find some ethical sneaky ethical assumptions even in Austrian economics am I wrong I know I'm wrong I want to know why I'm wrong I think we could weasel out of your objection and be a little bit more technical and say well Austrians consider as relevant to this sort of policy assessment only valuations that can be demonstrated in action right and if we're talking about a monetary economy things that can be priced in the market and so forth so we would say yeah I mean Bob says or I say I get utility from punching Bob that's not something that we can really price out so in other words we know that the fact that Bob did not you know punch himself or bring him forth bring himself to me to be punched we can make a statement that Bob prefers we can observe that Bob prefers not being punched to being punched that's enough the fact that Bob might say in an interview later or a survey oh but yes sometimes I actually do like to be punched we would say that's not really relevant scientifically that doesn't matter that's why we only look at people's you know we only try to infer well-being from what people do in situations of voluntary exchange that is such a good answer I feel better already about Austrian economics that's good this is a kind of a weird episode let me let me make sure that we're not setting up a storm so in reference to your point of your right time and that's exactly what they would say they're saying yeah we're not bringing in value judgments and they would think they're giving a more solid footing to the proposition that theft should be illegal so the way they would do it is to say look if a thief breaks into your house and takes a $100 television set then the thief is up $100 worth of wealth and the owner's down or even if you get more specific say it's not really worth as much to the thief because you know he's got to go resell it somewhere and it's a stolen good and things like that so at best that's a pure transfer but now if thievery is allowed like that then people are going to have to waste resources having more locks and setting up security cameras so that is the reason a mainstream economy would say using the benefit we can show why widespread theft is a bad thing and so we want to enact policies that discourage it blah blah blah but that's I think a lot of Austrian libertarians that reject what they would call crude benthamite utilitarianism Murray Rothbard in particular said yeah you might be able to begin to come up with the right answer using that framework but then you've lost your moorings and you're going to end up possibly miscalculating and then justifying something that actually is morally reprehensible whereas coming from he would say a natural law tradition deriving rights in that fashion is much safer and more likely to lead you to what the correct answer is so it's not an arbitrary thing we kind of just know if your cost benefit led to the fact that yeah it's fine to go drown kittens for fun and there's nothing morally weird about that you would kind of say that can't be right we got the wrong answer and so I think Rothbard would say so why would you put your eggs in the basket of this crude calculation when you know it might go awry and you need your sort of common sense moral intuitions to check that in doing policy analysis we're acting not only as Austrian economists but also as human beings who have ethical judgments and who hold particular values I have no problem whatsoever with somebody saying well you know you think you shouldn't punch Bob Murphy in the face you've snuck in some ethical judgments into your value free analysis I'm like yeah I did so what yeah of all things to sneak into your analysis not punching Bob it's weird that Austrian economics rests on the foundation that you can't hit me how about that how about that all right listen I think if I may summarize what everyone's been saying the supply ciders had more to say for themselves than Krugman gives them credit for that's really what we've been driving at for most of this this late morning but we did use the column to jump up to talk about some other things that I think are on the minds of some folks here you've been talking about mostly Austrian economics all week except when there have been some comparative talks and you may want to know well what are the differences and you know is it I'll have to use the term free market economics is it enough to be a free market economist or is there more to think about here so I want to thank Mark Thornton, Lucas Engelhardt, Peter Klein and you know what I'll even thank Bob Murphy what the heck right if you can't hit him thank him all right check out our show notes page we'll link to the column and we'll try to link interesting related to what we were just talking about contrakrugman.com and subscribe on iTunes or Stitcher so that you can hear our smackdowns of Krugman in weeks when he gives us something to smack down so thank you very much everybody appreciate it thanks for listening to Contra Krugman subscribe to the show for free on iTunes or Stitcher at contrakrugman.com you'll also find detailed show notes pages, our blog books by Tom and Bob and more at contrakrugman.com see you next week