 It's ironic you guys are here earlier. You're way early, and it's real quiet and then right when I get ready to start everyone It's real loud. I don't know why that happens. It's not just you guys. That's Human dynamics. I'm not making this up beforehand. Someone caught me outside It's Dr. Murphy Dr. Murphy if there were a giant asteroid coming to earth How would a free market deal with that and I just knew I'm at Mises University. Where else are you gonna get questions like that now? So what we're talking about today is Murphy versus Krugman and let me just justify this topic because I'm sure I'm gonna go out In a wild limb here and suggests that when Paul Krugman goes the American Economics Association No one proposes that he do a lecture entitled me versus Murphy that probably doesn't happen And so and why not because of course he wouldn't you know why would he waste his time? And so some people do say to me occasionally, you know, hey Bob how come you spend so much time you're giving Krugman a platform why do you waste your time with this clown and It's a couple things number one is because it's like when you play You have a canker sword and you just can't stop playing with it. Yeah, it's kind of like that. It's one of those things But also It's I mean the guy won the Nobel Prize and people are gonna email me and say there is no Nobel Prize in economics Yes, yes, I know it's the Memorial Award and so on but he he's Probably one of the worlds or not probably he is one of the world's most famous Economist right now just period and certainly as a representative of Keynesian economics and the other thing is he actually He does know a lot of theory and so he'll at least try to Put, you know, some sort of theoretical garb behind what the policy prescription is that he wants You know to pop to pop out of the other end of the tunnel if you will and so I think it is good He does try to grapple with the Austrians my all-time favorite critic of Austrian economics is Paul Samuelsen Because he was much better versed in the history of economic thought and he would quote Bambavar can come up with models to try to show Little scenarios in which Bambavar was wrong and the reasoning flipped and what have you but for our purposes Crubman is a pretty good foil. I like it when he talks about Austrian stuff And we'll see later on in this talk that because he'll say things that are specific enough that you could say oh You want to go down that route? Okay. Well, then look at this right? So it's I think it's useful and also because Tom Woods and I are planning on doing a podcast about him So it better be the case that it's worthwhile dwelling on him Okay, so that what oh that didn't come through well. Okay. See the Austrians aren't very good with numbers. Okay, so Here's here's the ordinal ranking of my topics and there's a lot of indifference You can see All right, this was you can see how it goes. Well, these numbers are supposed to go up. So Anyway, right first talk about the public challenge Austrian business like a theory fiscal austerity Then I'm waging inflation. There were a couple other topics I could have hit but I know they only give us 45 minutes this year and I know I'd run out of time So instead of doing that and rushing I decided just to minimize what we're gonna talk about So first of all for those who don't know This will actually ran so that this is I actually was in the Economist magazine in caricature form When they first drew this up, this was clearly a caricature and I put on some wait since then So actually it's not that far from reality at this point So what this is it was an article. I don't remember when this ran, but it was an article About heterodox economics, okay, so it wasn't just about the Austrians else talking about post-Kinsey So if you Google the Economist heterodox economics, I think you might be able to find this And so anyway, it was just talking about how this was in the wake of the financial crisis And so there was some resurgent interest in So-called heterodox approaches because a lot of people thought The the conventional wisdom the Orthodox economists who had been running central banks and so on Not only did they not avoid this crisis most of them didn't even see it coming And so it seemed like maybe we should look into the critics the people who for decades have been saying these mainstream guys are Overconfident let's see what let's give a you know the microphone of these critics So again, it wasn't it was also post Keynesians and some other Schools of thought I think they might even looked at like Marxist and so on but the Austrians were one of they and so they didn't mention me But they kind of you know people in the new in the know knew that this was me And so what this is in case you're not understanding this is where the heck is my there's my laser that's Hayek You know challenging Keynes and that was this is because of that rap video that came out And then this was because of what I'm now incidentally at first I thought they were saying I was just sucker punching Krugman here, but I'm not I'm tapping him on the shoulder You see that you can kind of see from the from the hand motions here So it's not that I'm just swinging when he's not looking it's that I'm saying hey Why don't you turn around and face me? So that's what's going on there? Now what this if you look it up if you take nothing else away from my lectures this week take this away Go to YouTube and look up a tribute to my favorite blogger Stoke the fear and move Paul's book and those are some videos that I made putting more time into them than my Dissertation and so therefore I want you to go look at that stuff and you can get an idea this the short version of this story in case you Have no idea what the heck is this what's this boxing motif? I'll say it really quickly and then I'll get out of the substantive stuff, but it was Somebody Krugman was really making a name for himself You know he won the Nobel Prize and so all of a sudden he got catapulted to international fame He had been famous, you know Had a growing name for himself in the New York Times Criticizing George W. Bush and his policies and that's when he sort of got radicalized and you know It sounds like he's working for al-Qaeda or something And he just you know he went because in the late 90s Krugman was a pretty respectable economist telling the layperson What was good about free trade? What was the problem with a living wage and so on so you you would not have recognized that Paul Krugman compared to what he turned into and so at any event Of course after the crisis struck he was Trotting out Keynesian solutions and then he was in like a Barnes and Noble promoting his latest book at the time I think it might have been and this depression now, but I'm not certain But he was definitely in a Barnes and Noble doing like a book signing and whatever and somebody in the crowd So I think she she was in college This young woman, you know asked him hey, Dr. Krugman Why don't you debate the Austrians on business cycle theory and then she emailed me this later and told me what happened and Apparently he said something like I know this is gonna sound real elitist But serious economists don't you know give the Austrians a time of day anymore because they were big like back in the 20s But they were totally refuted by Keynes and no serious economist pays attention to the Austrians anymore I don't want to give them a platform And so she emailed me so I was like okay. I have to somehow now goad him into a debate I can't just challenge him and you know appeal to his sense of scientific integrity because he just said he wouldn't do it And so I dreamed up this idea my debate challenge with Paul Krugman. And so what I said is I Said hey everyone Pledge money if you want to see me an Austrian economist debate Paul Krugman a Keynesian on business cycle theory Contribute to this campaign and it was a way where you could I mean nowadays this is commonplace with certain like Fundraising techniques but back when I did this it was still somewhat novel to say you don't have to actually give the money It'll just you know take down your credit card with your pledge And only if Krugman agrees to the debate and it happens then does your credit card get dinged right? So there was little risk it was more that if we could all pull our pledges and get a big number that happens Then you get charged And the twist was the money wasn't going to me or Krugman It was going to a food bank in New York City All right And so and I can I called them and caught you know talk to their fundraising guy and said are you okay? If I do this is that and he said oh, yeah, we do all kinds of you know, that's fine So the point was it got up to like at least a hundred and five thousand dollars That was pledged that if Krugman had agreed to debate me would be donated to this food bank in New York City Right and so the idea was it would sort of put moral pressure on him that you know He's saying how what idiots these Austrians are and he can't give an hour of his time So that a hundred thousand of their money would go to a food bank So that was the idea and I made a bunch of funny videos to go along with that People asked me whatever happened to that very quickly He said he wouldn't do it and that's the move Paul's book you know we have him on a radio show saying he won't debate me if you want to see that and then the Philanthropy guy at that food bank left and his replacement wasn't answering my email So I got the sense that they were like yeah, this is kind of weird and so I just dropped it So also there's a fine line between being funny and being obnoxious and I thought I had crossed the line at some point stopped Okay Okay, so let's talk about more serious stuff now Austrian business cycle theory Okay, so I'm gonna throw out some articles and you'll see the relevance to this but I just want so I have People think of it as the sushi article Because I came up with this little fable of these Islanders who were making sushi and then this You know Paul Krugman shows up and then gives them a new way to revamp their production structure that doesn't Involve replenishing the capital stock and so they they have an artificial boom period where it looks like their living standards are going way up But they're unwittingly consuming their capital and then there's a crash later on and so you know hilarity ensues, okay? And so that's and Krugman is not in a cast and a favorable light But he Krugman responded to me to this in particular, you know, he said something like you know This is the best Exposition of this particular line of thought that I've seen so okay, let me go ahead and explain what's wrong with it So he conceded the theoretical validity of this viewpoint. He just said empirically this isn't what happens in modern market economies Okay, so that was actually in an improvement because up to then he had referred to the Austrian theory is like the Flogiston theory, you know meaning like this is medieval. This is crazy. And so here he was saying okay Yeah, theoretically this is internally consistent. It's just empirically. I don't think this is what happened in the US economy Okay, and then what after he did that then I came back with As you my reply to Krugman an Austrian business cycle theory, which was the Mises daily on January 24th, 2011 So again, I'm just in this talk here I'm gonna just go through some big picture topics and give you notes for further reading if you want to pursue this and get the details Okay, so what was one thing that jumped out in this and why it's Krugman is no Paul Samuelson in terms of an intellectual foe regarding Austrian theory is one of the things that's funny if you read this these back and forth Krugman says something like I'm paraphrasing but this is close to what he said He's going through all the reasons that he's frustrated with the Austrians and why they just don't have a grip on reality They don't understand modern recessions and what drives them and he says something like You know if if it's not if the Keynesians are wrong and this isn't about demand well Then why is it that empirically it seems that central banks have the ability to control the timing of recessions? And he just asked that works and then links to some you know J store article where they they empirically some of the authors went and looked at the timing of business cycles and they found that It looked like central banks can affect when the business cycle happens Okay, so if you stop and think about that that's bizarre the Krugman's challenging Austrians Saying you know, how come you guys won't admit that central banks have something to do with the business cycle, right? Me do you are you are you getting it like if I put it in those words? So what's happening? I think is that In Krugman's mind there's two types of business cycle theory one is based on demand and You know spending flows and the other is based on real factors And so that's you may know this is real business cycle theory RBC So it is true in a real business cycle theory approach They think that there are shocks that happen to the real economy and that's why there are what appeared to everyone else to be business cycles And in the purest hardcore, you know, right-winger markets always are in equilibrium always clear everything super perfectly rational framework Business cycles are an equilibrium rational response to changed Fundamentals, okay, that you know, there was a shock to worker productivity And so that's why people aren't as rich as they thought they were and so on so that's You know that that's what Krugman thinks. He's battling it So in his mind is long if if central banks have the ability by changing how much money they're pumping in to affect The real economy like oh wow real GDP really went down look at that then in Krugman's mind the Keynesians win right so he doesn't see how You know as Garrison and others would describe it that the Austrian business cycle theory is kind of a combination of those two approaches that there's monetary Causes but yet the effects are you know are based on real factors Okay, so it's like monetary disturbances cause changes in the underlying real economy that then have an effect And that's partly what I was getting at in this article the importance of capital theory Let me just say this before I forget part of what I hope you get this week is The Austrian emphasis on what we call capital theory You know the capital goods and the capital structure of the economy Mainstream economists don't have a model that's that's that sophisticated or that's subtle and so you really can't even Depict Missessians the the Missessian theory the business cycle in a standard Keynesian framework, right? They they the best they could do in a normal Keynesian framework Capital with a capital K and then consumption goods is there might be too much investment in the current period And so that would be suboptimal because now oh, you know We're deferring consumption too much like there's too much saving this period So consumption is artificially low and then that just means like the time path of consumption Into the future is suboptimal compared to the representative agents utility function or something, okay? But you can't have a boom bust that doesn't even make any sense and that kind of simplistic framework All right, so like I said when I remember when I was in grad school I couldn't even get my classmates to see what Austrian business cycle theory was because they just they didn't they couldn't even handle it okay You guys ready for this All right. This is Krugman had said in one of these exchanges and that's what I was pointing out in my reply So I like I said I linked all this stuff. You want to give the details? But let me give you the the takeaway here one of the things he was trying to do when he was trying to blow up This this focus on real factors, right? So after the recession Or after the recession struck a lot of certainly the Austrians and then even other economists who are not Keynesians We're saying stuff like there was too much too many resources going into housing in 2006 2007 And so part of what needs to happen in the 2008 2009 period the government central bank need to keep their hands off and let Resources get reallocated to where they're supposed to be right there was too much in housing And so that needs that you know the workers need to get distributed and so on there's a reallocation that needs to occur So what like I said it wasn't just Austrian saying that there were other people who were in their own way in their own words and terminology Grappling with that and so Krugman thought he had a trump card against them And again, this is all linked if you go to those articles and he showed this would have been in I think it was like 2009 Maybe 2010 that he wrote this article and he was looking at manufacturing and construction those sectors and looking at the change of employment and he said wait a minute look at Manufacturing dropped more than construction did and so clearly this out of this reallocation stories crazy, right? If these if these real theorists were right and the cause for our recession right now is that there was too much investment going into housing The biggest drop should be in construction But look at it's across the board demand is just down So he thought he was showing the real culprit here is just people are panicked Demand has dropped and then that percolated back to the system. It's a general depression in economic activity It's it's not concentrated by sector the way the real cycle theorists would have to be for their story to be right So I came back and so wait a minute of course if you look at the absolute number of workers that that Delta You're gonna see a bigger drop in manufacturing because manufacturing is a bigger sector, right? If you looked at a percentages though, and then I just generalized it and so look at this This turned out even better than I was hoping so what this is showing is I don't know how well you can see it back there Retail trade non-durable goods durable goods and construction. This is employees, but it's an index Okay, so it's set that the January 2006 level is set to 100, right? So these are like percentage changes if you if you're you know looking at these numbers And so they're all set equal over here and then so the shaded area is the official time of the recession And so you can see this that construction dropped the most The next was durable goods the next was non-durable goods and then the one that dropped the least was retail All right, so this lines up I mean if Garrison with his power points couldn't have asked for it to turn out better than this Right, this almost makes me want to throw out the a priori and stuff and say just let's do it statistically This is worked out perfectly Right, so and what was great about that and then this also comes from the St. Louis Federal Reserve If you can't trust the Fed, who can you trust, right? All right, so again, that's why love this was using They're you know the official data and everything it's not like I had to go to the you know The Friedrich Hayek Business Cycle Research Center or something with the numbers that have been through their their spontaneous order filter And so you know this this up this turned out beautifully and again It's not that I dreamt this up and then checked it to make sure it worked and then published an article It's Krugman was the one who said aha you guys Your theory predicts this and you're wrong look at that right so when he thought the numbers were on his side And then when you say well no wait a minute This this is actually clearly the correct way to do it in terms of percentage changes and it came out this way So that's why I think this is a pretty good piece of evidence for someone who likes to Claim that all the evidence is on his side and the rest of us are just you know genuflecting before our idols The other thing and there's a I'm not going to move on because I want to hit other topics But if you follow those links I gave you There's other stuff just like this like where he said at one point If you thought it was about reallocation then you would see unemployment drops would be the biggest in those states that had the biggest housing boom And he was looking at like the last 12 months well after the recession had started and then saying oh But there is no such correlation and so I don't wait a minute If you if you go back and you look at your time period from when the Housing boom peaked and then say from that point to now Which states have been the hardest hit and then look at you know They lined up almost perfectly where the states that had the biggest housing booms were the ones that at that point Had the worst recession and so on so again it was He made this claim and clearly he didn't you know The way he tried to test it was not good anybody could admit that yeah That's not the right comparison and when you adjusted it and did the his own test properly It actually verified or it was consistent with the reallocation story not with his In other words if it were just general demand dropped because people were scared or they were trying to Pay off their debts You wouldn't expect the states that had the biggest housing bubbles to be the ones where unemployment shot at the most right? There would be no quite if it were just demand is down But yet you did see a pretty tight correlation between Which states got hit the hardest and which states had prior had the biggest housing bubble Okay, what about this issue of austerity and I put this in quotes because There's a couple things for number number one is for a while at least The countries that were engaged in the savage austerity. They didn't even cut their spending in absolute terms It was just that they had it had gone way up During you know an immediate aftermath of the recession and then some of them pulled back a little bit All right, so it was like kind of like the ratchet effect, but the other thing too is It's here. Let me pull up these claims So crewman was saying the austerians thought that there would be expansion and so then if there's not they must be idiots There was he claimed that these horrible cuts will lead to a double dip And then in particular and I'll show you in a minute the charts he used he said that you know one of his He likes to throw out all this empirical evidence and he said that Belgium was spared from austerity and that's why it was doing better than some other european countries All right, so I'll come back to somebody to show you what was wrong, but this is the kind of um claim he was he was spinning so one thing though is It certainly no austrian economist was saying. Oh, yeah, if there's a bad recession what government should do is jack up taxes Okay, so even if that were true that some country tried to balance its budget by massive tax hikes And then its economy faltered that would hardly be a criticism of austrian economics. All right, so admittedly some Sort of conservative right-wing economists were in favor of Balancing the budget through a combination of spending cuts and massive tax hikes So it's not that Krugman was totally picking on a straw man But the point is certainly austrians would not fall into that camp and they would recognize the distinction between Reducing huge deficits through spending cuts versus tax hikes. So just be careful about that But for one thing in terms of the these so-called fiscal austerity Uh, this chart is Is up through 2011 so with some of the especially greece some of these countries They really did cut their spending in absolute terms even the further along we went But this mantra of oh my gosh, Europe is suffering from savage austerity. The Keynesians were saying that from like 2010 onward Okay, so this was at one point where you could see that, you know, clearly most of them Their spending was higher than it had been even at the peak of the of the housing bubble years Okay Now as far as belgium Krugman had a post july 1st 2014 called the secret of belgium's success So here i'm just giving you one example with all of krugman's stuff All of it with much of krugman's stuff All you need to do is just take his own data in his own logical argument and just Tweak it a little bit and you can see how he's presenting something in a very particular way because it needs to be like that To fit the story he wants to spin so in this case Again, his whole point since 2009 was We need to run big budget deficits because central banks have run out of ammunition. They've hit the zero lower bound They can't cut interest rates anymore And so conventional monetary policy has failed or you know, it's run out of steam And so that's why to boost aggregate demand You need sent central governments to come in and run big deficits to offset The the saving of the of the private sector as it deleverages And so he would has all kinds of scatter plots and whatever about European countries and their adjustments to their budget balance So this is just one example of how he would do it and so i'm going to show you this make sure you get what his point was And then show you another way to look at the same numbers and you'll see how The story is much different from what he was leading you to believe Okay, so this is the change in the structural budget balance and so it's showing. Oh look at belgium So again, this is this is this chart's taken from krugman's july 2014 article Percent of potential gdp. Okay, so already we're talking about stuff that you know is based on Some analysis of imaginary of how big could the economy be? All right, so the potential gdp is not something you can go measure. It's an abstract thing And then the change in the structural balance Where's my laser? Oh, I think I read oh there is the structural budget balance What that word structural means is we're not looking at the actual deficits We're like netting out interest expenses. Okay, so that's what that means And so already we're dealing with two adjustments to the actual numbers And so what he's showing here is oh using this measure belgium You can see it increased its deficit, right the the budget balance got worse Whatever the time period is for this chart whereas netherlands in the france The netherlands in france they Improved their structural budget balance meaning they got more towards a balanced budget All right And so he's because what was happening here is belgium was outperforming these countries economically And so he was trying to explain what's the secret of belgium's success is they resisted the calls for fiscal austerity They continued to they actually made their budget balance get worse compared to the netherlands in france Right, so that's krugman's story and so I just know that can't be right It can't be that the french had a more responsible budget policy than belgium that can't be right and so I just went up and got these two things and just showed so these are graphs are for me Just showing look at the blue line here is belgium's spending as a percent of gdp and this is france So how in the world can you say that? Oh, yeah, this is showing me that the reason belgium's outperforming france Is because the belgium's you know, they they had more aggressive government spending than france That doesn't make any sense that that's not what's going on And then down here too Deficits as a percent of gdp again belgium's blue you can see throughout the whole period belgium had a much smaller deficit as a percent of gdp And you know even the in you can't even say the change right going from 2008 to 2009 look at how big france's Budget deficit grew compared to belgium's all right, and then the blue one belgium shrank more quickly as well Okay, so you can see how I don't know what time period I'm not saying krugman made these numbers up But you can see that this it gives you the totally wrong impression When you see something like this right and my point is This happens all the time with krugman stuff that he you can see if you look at he'll do per capita And he'll do this. I mean he chooses things Very carefully to give the certain thing whereas if you tweaked it just a little bit you could get the opposite impression okay Another huge issue is the so-called stimulus in the sequester So here's wait, let me So I I like to as I like to say the Keynesians were wrong coming and going so what I mean by that is 2009 with the stimulus pet the so-called obama stimulus package Many Keynesians and I'll come back to krugman's caveats on this in a second We're saying we need this because we're going to enter a battery session And then what happened is things got worse and I'll show you specifically in a second And then with the so-called budget sequester When there were automatic spending cuts that kicked in Keynesians across the board were freaking out about that krugman called it a fiscal doomsday device He called it one of the worst policy ideas in u.s. History. I'm not putting words on them That's what he said and then the economy actually got better after that happened And the Keynesians were all like wow you can't just look at one country. I mean come on And so the the point is just that they were wrong on both ends that With these the stimulus the economy was worse with it Then they had warned what happened if the government did nothing and then the opposite pattern happened with the sequester They made specific forecasts about this is what the economy will do if we don't cut spending If we do cut spending with the so-called sequester the economy is going to do much worse And then the sequester happened and the economy did better Than they had done in their basic, you know baseline forecast, right? It's almost as if government spending is bad for the economy, you know go figure but So another but again in both cases they just say well, you know the first case The economy, you know, fortunately or the time was worse than we realized and then with the sequester Well, the economy had stronger headwinds than than we realized and so that's what pulled it through Okay, so we had the specifics here with the Stimulus or yeah the obama stimulus package in case you haven't seen this this right here is from the romer-burnstein Report from the council of economic advisors. So in early 2009 the new incoming obama administration Proposed this big stimulus package. And so they were saying this. So this is the unemployment rate and they were warning So this is where, you know, they released it, right? This is early 2009 and they made this forecast and they say if we do nothing Unemployment is going to go up this high and that was scaring everybody. You see they was going to rise and just break 9% They said but if we pass this obama stimulus plan We'll keep unemployment below 8% Okay, so they did pass the stimulus package and then what happened the red lines would happen in reality unemployment went up past 10% Okay, so again unemployment was worse with the obama stimulus Then its cheerleaders had warned what happened if we do nothing Okay, so that again in terms of if you want actual empirical evidence What more could happen to justify the critics who said running big deficits doesn't help the economy Than this and they explained it and said well, you know our baseline forecast was wrong It's still true other things equal that the stimulus helped It's just you know The the unemployment rate would have been up off the chart had we done nothing Okay, and then like I said, I don't have a chart here to show you If you if you want afterwards I can give you specific things you want to go look up and get the specifics But with the so-called sequester again the same sort of thing the macroeconomic advisors whatever making specific quantitative Forecasts that goldman sacks and stuff were passing around saying this is going to be the impact Of congress cutting spending in this reckless fashion It's going to shave such and such off of gdp growth because they were predicting it was going to cost like 700,000 jobs They did do the sequester and then the economy did better than their baseline forecast had predicted if there had been no spending cuts So again, it was the flip that the economy outperformed what they said So it could just be that there was two coincidences and they went against the kanesians or again It could be that government deficits don't help the economy Okay minimum wage. This is also a good one The here the 98 versus 2015 Krugman is really instructive so he If you want to see that this is a fantastic article It's called which so that if you just go google, which do you prefer Krugman circa 1998 or Krugman circa 2015? That's like the blog post title this guy did Just came out like a week ago And because what happened is Krugman just recently had an op-ed in the New York Times talking about the minimum wage And he made a few claims. So I'll try to summarize this for you he says You know he admits yes the consensus used to be among economists myself included because this stuff is in his textbook The standard story about the minimum wage causing unemployment. He said yes economists used to think that Raising the minimum wage would cause teenage unemployment or more generally unemployment among low skilled workers But it's it's good to look at the teenagers because that's you know where it's concentrated And he said but then starting with the famous card Kruger study That consensus flipped and now we have evidence, you know rigorous evidence showing that Unemployment you know modest increases in the minimum wage do not cause significant drops in teenage employment And so that's no longer, you know, it's just that's that's what the empirical evidence shows We've changed our minds and it'd be nice if you conservatives would would do the same You know making it look like they they're scientists because they follow the evidence. They're not ideologues And then when he was trying to explain Theoretically, you know, how could this be is that the demand curves don't go downward and he said well, it's because Uh workers are human beings. They're not like the supply and demand curves for gasoline or wheat And he says that maybe the workers work harder, you know, if you if you raise wages Maybe they show up and they have better morale so they produce more so that their productivity is not just a fact of nature But it's endogenous Or maybe it reduces turnover, right? So if the if the firms offer more Then they get workers who don't just show up and work a little bit and then quit And so they always have somebody new who can't learn the ropes if you have people there they're longer if turnovers down Over time you'd think productivity would be higher, right? So he said maybe there's that influence So he's given possible theoretical reasons, but he said it doesn't matter what the theory is the explanation The facts are the facts and this is it. Okay, so then This blog post which do you prefer Krugman circa 98 or 2015 Went back and found and I had I was aware of this article But I've forgotten the specifics and I forgot just how damning it was in light of his 2015 op-ed So the card and Krugman study came or sorry the card and Kruger's thing came out and that's the one with the New jersey and the other was pennsylvania One raised a minimum wage and so these guys called fast food places and it it looked like there was no bad effect and there had been Objections to that study So Krugman in 98 is writing a book review of a book advocating for so-called living wages Right, so that's even more than just the minimum wage hike But to say we need to pay workers enough so they can support a family and that that that And Krugman just excoriates that and this book review came out five years after That card Kruger study and so Krugman in 98 Said i'm paraphrasing here, but this is the spirit of what he was saying He said so card Krugman had this Kruger had this thing In liberals have seized on this iffy result to say that the laws of supply and demand no longer apply to labor markets So this is five years after he's had the time to digest their study He's still calling at that point an iffy result whereas now he's saying, you know We should be congratulated for accepting the new evidence And then he and he also goes through and debunks all the reasons he gave in this current piece So in particular he says Suppose it's true that if you offer higher wages the employees have better morale and so they work harder He said well, if that's the case the government doesn't need to force them to do that Right it's in your own narrow interest as an employer If you're going to pay more and the workers show up and work harder The government doesn't have to put a gun to your head and make you earn more profit They would just need to fact you that and say hey, here you go. Just do that Right, so that's one element and then he said this idea of Because the people in the book he was reviewing also cited this thing about If we pay everyone a living wage that will reduce reduce turnover And so, you know the firms won't actually have to take a huge hit That it'll pay for itself and so crewman 98 pointed out quite correctly That might make sense for certain leaders in an industry, right? If you have a bunch of firms in an industry one of them can get away with paying above industry wages To attract the best workers to reduce turnover for them But you can't reduce turnover in the economy as a whole, right? There's always going to be the natural unemployment rate and workers bouncing around So it's not that everybody can get the cream of the crop That's a strategy that makes sense for some firms in an industry But you can't force all of them to attract the cream of the crop, right? So again, it was when you read his two articles side by side and he even back in 98 says laments How it seems like some people are trying to make this an issue of morality And and not realizing the laws of supply and demand apply to labor as much as they apply to weed or gasoline Okay, so it's what's eerie is it's like when crewman and now is trying to Attack the economists who have this worldview The specifics he comes up with perfectly describes himself like 10 years earlier, right? So it's it's eerie okay lastly inflation So all the austrian's predicted hyperinflation their model was falsified and this guy murphy lost a bat And therefore he's an ideologue while crewman is a scientist now You might think like wow, this is pretty narcissistic bob and well. Yeah, it is but it's justified because He really did crewman did single me out by name All right Because what happened is just to give you the quick in case you don't know this background So there's this guy, you know, I was since Bernanke inflated the monetary base I was warning about geez this this could be bad this could weaken the dollar and so on And so I was concerned about And yes, you have to be very careful the difference between monetary inflation and price inflation and so on But I was saying you could expect prices to rise And so my friend david r. Henderson who he writes for econ log if you're familiar with that So he's one of their main, you know, normal guys in the rotation Total freeman. He's not an austrian but total sympath that trefellow traveler very free market And he actually had done a bunch of studies praising the canadian fiscal austerity of the 90s Right, so he was totally on board with policy prescriptions in terms of how to get how should the u.s. Government be behaving during the great recession So we were totally honest and he made a bet with me and said I don't think inflation price inflation is going to be that big a deal In the next few years. And so, you know, we took it made a bet And he was right and I was wrong. Okay, fair enough And so then brad the long and crewman found out about that somehow And then linked to it and said oh These you know these austrian this guy murphy doesn't even have the decency to change his model Okay, so it's not that I lost a bet to a kansey in other words That we could have just as well said yep, david hennerson won his bet and therefore austerity works Because his model just got proven right because in other words his policy for services were just like mine Compared to what the canzines were saying. So that was what was weird about it but uh also Let me so what's the moral of the story is if you're going to make a public bet make sure you don't lose Right, that'll just save you a lot of embarrassment plus money Okay, but more specifically what's so crewman who was running victory laps for years Not just about me, but saying These right wingers who are warning about bernanke's debasement of the currency. They've just been wrong year after year Whereas we kanesians our islm model has passed with flying colors our crewman said some version of that narrative 50 times i'm not exaggerating since 2009 right and he keeps saying With us with you know with we kanesians. This is Science we're being empirical our model has been verified time and again because we made false file predictions were right Okay, so when it comes to price inflation No, he's not right. He was totally wrong also in the opposite direction right so in A blog post of february 2010 he had this chart. So he was this was his Um, it was median and trimmed it was some version of inflation the st. Louis fed published And so this is what you know crewman crewman wasn't looking at headline cpi He thought this was a better measure of inflation inertia something like that But the point is this is what the chart looked like as of february 2010 And fruit crewman said i'm going process of disinflation that could and not too long lead to outright deflation japan here We come Okay, so you can see how the year over year change was down at 1 of that point He was arguing it could actually keep going down and become negative because in japan They really did have falling cpi for a period. So when he says japan here we come he meant This is what's happening to us here. So at this point he was predicting or warning of Literal falls in the cpi year over year So did that come true? No, this is the point where he made that prediction You can see what happened to price inflation You know jumping way up almost a pre recession levels a few months after he made that Okay, so again, it's he was predicting that it was going to keep going down to here And instead it went right up there I'll give you another example. This is crewman from a 1983 memo that crewman and larry summers wrote by sorry, it's an 82 memo. They're talking about the 83 recovery And his title was the inflation time bomb question mark Okay, and so he so this is crewman back when he was on the council of economic advisors, I think And my point here is that you know crewman has been wrong about inflation in different periods as well So this he was wrong warning of deflation and here in the early 80s. He was warning of the inflation time bomb Page two of the memo. He says, uh We think that it might add five percentage points to future increases in consumer prices So you can say well, how did crewman's model do there? This is the point at which he made that prediction Price inflation then was about 4.9. So it would have needed to get up to about 10 and no, it just Went down like that. Okay. So the point was ironically crewman was predicting the exact same thing that I was in my bet with david arhenderson, right? So Uh, anyway, I don't know if he if crewman made a 500 bet with somebody, but if he did he would have lost it okay, so the takeaway from all of this is That do not believe it when Crewman says the empirical evidence is on our side All this stuff is lining up the way we predicted It's not true with a lot of it. You can just take his own presentation and just look and say wait a minute Why did he choose that particular metric if you tweak it a little bit? You see it's the opposite Let me say I have a few minutes left here. Let me just spend one or two minutes on the minimum wage stuff And then I'll probably have time for one or two questions on a minimum wage stuff. Let me make sure you understand this The consensus was as of like 1982 people had it wasn't just the theory the blackboard theory of supplying demand up You should put wages above the market clearing level you get unemployment They had done all kinds of regressions on us data Over the course of decades, okay? And like as of 82 there was like a presidential commission or something or maybe was a congressional commission I don't remember and they had had some economists and this got published in a top journal It was like it was a review of all the empirical literature up to that point and there was a consensus That a certain you know hike would cause one to three percent drop in teenage employment And that was how it was and they had controlled for stuff like business cycles and so on right So it they had put in things and there's these national level regressions that you would have thought You know just to try to isolate the impact of the minimum wage And then in the 90s the so-called revisionist wave kicked in and even there though What they do it's it's hard for me to sort of dumb it down here for in terms of layperson language, but Don't think that it's like. Oh, yeah the result just flips Even when you do the with the new stuff with the new data and so on With various states changing their minimum wages when you do the first level regression It still pops out that the men hikes of the minimum wage cause employment to go down What they're arguing these these so-called revisionist authors they're putting in more controls And at some point after they add like the third or fourth one Then the coefficient on the minimum wage variable flips it or either gets real close to zero Or in some cases it gets slightly positive Okay, and so it's My hunch is that they're sort of over correcting right that they're Let me just give you an example of what I mean They're saying things like it what they must be saying is that It's just a coincidence that states that have been raising their minimum wages Have been in areas where employment's not growing as quickly for other reasons Okay, but the the original regressions did include things like population and so on so it's it's like a very Specific result. It's not just something obvious like oh if If florida has uh, or if texas doesn't have a minimum wage law itself And people are moving there because of cheap housing or florida's got sunshine people are moving there And it's other states that have high minimum wages that have awful winters And so population it's not something like that because they control for population, right? It's very particular things and my hunch is I can't prove it right now This is one thing I'm going to work on when I get to texas tech is to try to look and see Empirically, can we tease that out? But the point is To give you an example you could have something like I believe Suppose when they go to raise the minimum wage the fast food restaurants in the industry in that area in that state Switched into more automation right to get you know more drink machines where you just press the button And they just design it so they can get by with fewer workers I think the way some of these regressions work is They would put in a variable that would pick that up And it would take away weight from the minimum wage coefficient because it would say oh, there's this regional trend Of increasing automation and that's why teenage employment is not it's not because the minimum wage It's because for some reason all the restaurants in this state decided to bring in more automation Right, you see what I'm saying so It's it's pretty hard to tell the you know the regression don't include other regional shocks that are directly caused by a minimum weight You know, you can't how could you tease that out? So again, like I say it's Even the baseline results in these new revisionist waves They will say look we can replicate the old canonical result But then we start adding in all these controls for regional variation Then all of a sudden the coefficient on the minimum wage goes to zero or you know, slightly positive. So that's So and that's what crewman summarizes this thing. Oh all the best literature shows that you know there's there's no evidence And one last thing is Even if all those results were gospel truth They're all looking historically it modest increases in the minimum wage They're not looking at doubling the minimum wage, which is what would happen if the federal wage goes to 15 dollars an hour Some woman just put out a thing. I was I don't know if it wasn't on bloomberg. It was somewhere else But maybe it was bloomberg saying looking at some there are certain states like arkansas Where the median wage right now is below 15 dollars an hour, right? So if they jack up the federal minimum wage to 15 Half the hourly workers in that state will now that will be a binding constraint All right, so this isn't like a little tweak This is a huge increase Okay, so let me stop there and maybe take one question. Yep It's good. You're gonna be the only one so this better be eloquent brilliant. Okay. So one of the arguments for why qb and qe2 in the u.s have not led widespread inflation and similarly in europe with the ecb plan They're they're floating with the equation, right? So what? Well, I'd like to answer your question, but we're out of time. So Uh, yeah, so the question is how come qe didn't lead to such a couple things number one is If you define it in price inflation broadly to include asset prices Well, of course, there's huge inflation price inflation right asset markets zoom And this is a little bit colloquial perhaps and it would have been better Had I said this on the front end rather than after my particular prediction turned out wrong But if you think about it, it wasn't like Bernanke was doing his helicopter drop and given hundred dollar bills to average americans So they could go to the grocery store and buy bread with it. He was giving it to huge bankers And so what are they going to do? They're not going to go stock up on tuna fish They would go into asset markets and bid things up. So if you looked at the actual mechanism of who got the money It actually You know does seem yeah, they went out and invested it in various places Certain inflation hedges like gold and whatever did shoot up especially in the beginning when they brought in qe So I think there is that element and then you say well, why hasn't it percolated out? Number one is the banks haven't been lending it out Isn't much and also I think it's true that just the demand to hold cash went up, right? So in other words had they not done qe I think prices would have come down a lot and so partly it was just their offsetting What otherwise would have happened. Okay, so all right. We're out of time. Thanks everybody