Steve Sailer ridicules Krugman on his blog, ISteve Blog, over a story Krugman wrote in 1998 about Austrian economics:
From exchanging emails with him, I’ve known for a decade that Paul Krugman was an egomaniacal jerk, but he was always described as being intelligent. Yet, here are parts of a 1998 column he wrote in Slate that is just jaw-droppingly dumb. This is the kind of thinking that kept us from having the medium strong recession we deserved in 2001 after the Tech Bubble, instead, postponing it until a recession/depression of Biblical proportions arrives now
Krugman’s take on Austrian economics is typical of Keynesians who think that consumer spending and money creation are the true sources of wealth. Sailer sums it up:
Unfortunately, due to advice like Krugman’s, we didn’t have much of a recession in 2001-2002 due to inflating the money supply, both by the Fed and by easing up on mortgage lending rules, so now we are paying the price in spades.
The Tech Bubble was stupid, but at least pouring huge amounts of money into Cisco Systems had a certain surface plausibility. Cisco actually made something (either switches or routers, I can’t remember which, despite reading dozens of articles in 1996-2000 but how the world could never get enough switches and/or routers). In contrast, building oversized homes outside of Las Vegas for the mortgage brokers who sold their old homes to the new blackjack dealers who got hired by the new casinos to fleece the Californians with home equity loans on their houses that were going to rise in price to infinity never ever made any sense.
Now, anti-Krugmaniac realist economics has a very valuable policy implication, which is: “frictional problems” are incredibly painful. So, don’t waste money in the first place. More specifically, the spending of a population is based on its wealth. In the long run, its wealth is mostly a function of its human capital (i.e., the population’s ability to earn money). So, don’t debauch the average human capital of your population.
Read the whole thing.