It's an ill wind that blows no one any good. The financial crisis that came to a head five years ago with the failure of Lehman Brothers has been especially beneficial to the economist Paul Krugman. In his widely read New York Times column and blog, Krugman regularly boasts that he has been "right" about the crisis and its consequences. "I (and those of like mind)," he wrote in June last year, "have been right about everything." Those who dare to disagree with him -- myself included -- he denounces as members of the "Always-Wrong Club." Readers of his blog have just been treated to another such sneer.
"Maybe I actually am right," Krugman wrote back in April, "and maybe the other side actually does contain a remarkable number of knaves and fools. ... Look at the results: again and again, people on the opposite side prove to have used bad logic, bad data, the wrong historical analogies, or all of the above. I'm Krugtron the Invincible!" That last allusion is to the 1980s science fiction superhero, Voltron. The resemblance between Krugman and Voltron was suggested by one of the gaggle of bloggers who are to Krugman what Egyptian plovers are to crocodiles. Yesterday one of these thought, wrongly, that he had caught me out. Unwisely, the crocodile snapped its jaws shut.
As a Princeton professor and Nobel Prize winner, Krugman is indeed widely believed to be intellectually invincible. He himself acknowledges having made only two mistakes, both predating the crisis: the impact of information technology on productivity, which he underestimated, and the significance of the federal deficits of the Bush administration, which he overestimated. "In the Great Recession and aftermath, however, I went with [my] models -- and they worked!"
"Let those who are without error cast the first stone," Krugman wrote back in 2010. Unfortunately, this is not an injunction he himself has heeded. Repeatedly, over the last five years, he has heaped opprobrium on others. His latest performance is characteristic; perhaps not quite intentionally he even refers to "my own unpleasantness with Ferguson".
Let us leave -- for the moment -- the question of the future size of the federal debt, which I have dealt with elsewhere and shall return to in a subsequent article. My purpose here is simply to challenge Krugman's right to behave in this way. Even if he were nearly always right, there would be no justification for his lack of civility. But he is not nearly always right. There is therefore no justification for his unshakeable certainty either.
Krugman reserves a special contempt for people who, in his words, "take a position and refuse to alter that position no matter how strongly the evidence refutes it, who continue to insist that they have The Truth despite being wrong again and again." He calls this "derping." The awkward thing for Krugman is that "being wrong again and again" perfectly characterizes his own commentary on what proved to be one of the crucial issues of the financial crisis: whether or not Europe's monetary union would survive it.
To begin with, Krugman was blithely confident that Europe would weather the economic storm better than the United States. On January 11, 2008, he hailed it as "The Comeback Continent":
... Since 2000, employment has actually grown a bit faster in Europe than in the United States ... If you think Europe is a place where lots of able-bodied adults just sit at home collecting welfare checks, think again. ... Europe's economy looks a lot better now - both in absolute terms and compared with our economy - than it did a decade ago.Krugman explained Europe's comeback in terms of "deregulation", a more competitive broadband market than the U.S., "strong social safety nets" and "very high taxes." On May 19, 2008, after a visit to Berlin, he even told his faithful readers: "I have seen the future, and it works ... in the heart of 'old Europe'." (Admittedly this column was a standard "peak oil" piece, exhorting to Americans to have German-style cars and public transport, as opposed to, say, developing new technology to unlock hitherto inaccessible domestic supplies of oil and natural gas.)
Finally, in December 2008, Krugman woke up to the fact that the "Comeback Continent" was in fact an "economic mess." But what kind of mess? No, not the mess of excessively leveraged and effectively insolvent banks that had maxed out on CDOs, bubbly real estate and Club Med government bonds. The mess Krugman discerned was the failure of the German government to see "the need for a large, pan-European fiscal stimulus." The main thing, he wrote in March 2009, was not to make the mistake of thinking that "big welfare states are ... the cause of Europe's current crisis. In fact ... they're actually a mitigating factor." It was a theme he returned to when he and I debated the crisis in New York three months later, when he argued that "the human suffering [was] going to be much greater on this side of the Atlantic" because of Europe's "strong social safety net." Even in January 2010 he was still insisting that:
The real lesson from Europe is actually the opposite of what conservatives claim: Europe is an economic success, and that success shows that social democracy works. ... taking the longer view, the European economy works; it grows; it's as dynamic, all in all, as our own.All of this sheds (to say the least) interesting light on Krugman's boast in an interview in March of this year to have been one of the few commentators who had "predicted the unfolding economic disaster in Europe." This is by no means the only retrospective prediction Krugman has ever made, but it is surely the most shameless.
The European crisis had in fact begun in December 2009, while Krugman was still celebrating Europe's economic success, when the newly elected Socialist government in Greece revealed the full extent of the country's fiscal crisis. The Invincible Krugtron was on the scene in a flash -- well, two months later: "Lack of fiscal discipline isn't the whole, or even the main, source of Europe's troubles -- not even in Greece. ... The real story behind the euromess lies not in the profligacy of politicians but in the arrogance of elites ..."
Wait, what about the Comeback Continent, where social democracy was the future that worked? Never mind about that, there's a crisis and Krugtron's help is urgently needed! And boy did he help.
The question of whether the euro was going to blow up imminently was surely the biggest call of the last few years. Fear of another Lehman-style shock froze credit markets and paralyzed policymakers. Was this just an outside risk over the long term, or a disaster that was almost upon us? Faithful readers of Krugman's New York Times column knew the answer.
By my reckoning, Krugman wrote about the imminent break-up of the euro at least eleven times between April 2010 and July 2012:
1. April 29, 2010: "Is the euro itself in danger? In a word, yes. If European leaders don't start acting much more forcefully, providing Greece with enough help to avoid the worst, a chain reaction that starts with a Greek default and ends up wreaking much wider havoc looks all too possible."
2. May 6, 2010: "Many observers now expect the Greek tragedy to end in default; I'm increasingly convinced that they're too optimistic, that default will be accompanied or followed by departure from the euro."
3. September 11, 2011: "the euro is now at risk of collapse. ... the common European currency itself is under existential threat."
4. October 23, 2011: "[the] monetary system ... has turned into a deadly trap. ... it's looking more and more as if the euro system is doomed."
5. November 10, 2011: "This is the way the euro ends ... Not long ago, European leaders were insisting that Greece could and should stay on the euro while paying its debts in full. Now, with Italy falling off a cliff, it's hard to see how the euro can survive at all."
6. March 11, 2012: "Greece and Ireland ... had and have no good alternatives short of leaving the euro, an extreme step that, realistically, their leaders cannot take until all other options have failed - a state of affairs that, if you ask me, Greece is rapidly approaching."
7. April 15, 2012: "What is the alternative? ... Exit from the euro, and restoration of national currencies. You may say that this is inconceivable, and it would indeed be a hugely disruptive event both economically and politically. But continuing on the present course, imposing ever-harsher austerity on countries that are already suffering Depression-era unemployment, is what's truly inconceivable."
8. May 6, 2012: "One answer - an answer that makes more sense than almost anyone in Europe is willing to admit - would be to break up the euro, Europe's common currency. Europe wouldn't be in this fix if Greece still had its drachma, Spain its peseta, Ireland its punt, and so on, because Greece and Spain would have what they now lack: a quick way to restore cost-competitiveness and boost exports, namely devaluation."
9. May 17, 2012: "Apocalypse Fairly Soon ... Suddenly, it has become easy to see how the euro - that grand, flawed experiment in monetary union without political union - could come apart at the seams. We're not talking about a distant prospect, either. Things could fall apart with stunning speed, in a matter of months."
10. June 10, 2012: "utter catastrophe may be just around the corner."
11. July 29, 2012: "Will the euro really be saved? That remains very much in doubt."
His most recent wrong call was that it was "a real possibility" that Cyprus would be "forced off the euro in the next few days." That was in March of this year -- shortly before a new Cypriot government reached an agreement for yet another bailout that kept it in the Eurozone.
True, Krugman was rarely unequivocal in predicting a euro breakup. Especially at the beginning of the crisis, he hedged, sometimes assigning "more or less even odds" to "a breakup of the euro, with major players, not just Greece, being forced out." That was in an interview with Playboy (seriously) back in February 2012. By May, however, he was more certain. While conceding to the Washington Post (presumably in jest) that his view of the euro's survival "depends on my mood," he stated: "As a matter of substantive economics? It's doomed." His confidence growing, he told the Belgian paper De Tijd: "I think Greece is too far-gone. I don't see a realistic possibility of making the euro work for them now." Radio Free Europe listeners were told that same month that a Greek exit was "probably something that will take place in months." "Mr. Krugman, does Greece have to leave the euro zone?" he was asked by Der Spiegel. "Yes," he replied. "I don't see too much alternative now." "I don't think they can save Greece," he told the Financial Times.
By now the Invincible Krugtron was on a roll. "Something has to happen and in the end it does have to be a Greek exit," he told a reporter from the Independent. "I'd be astonished if they can go more than two years without leaving. I'd be astonished if they could go even one year." Viewers of the BBC were next:
Krugman: I believe Greece will and must leave the euro. I think there is no alternative.
BBC: When do you think it will happen?
Krugman: It could happen in a few weeks in the next election of Greece [which was on June 17].
On more than one occasion -- on PBS in June last year for example, and in an interview the following month with Business Insider -- the formulation was conditional: if the Germans did not tolerate higher inflation, "then the euro will break up." But by September it was back to inevitable Greek exit: "I cannot see how this country can remain in the euro," he told L'Express. "It is practically impossible."
In all, I count a total of twenty-two statements of this sort, attaching probabilities of 50 percent and above to the scenario of one or more countries leaving the euro.
Now, I happen to be rather a euro-skeptic myself. I opposed the creation of the euro and predicted at the outset that the experiment of monetary union without fiscal integration would ultimately degenerate. But today, as you may have noticed, the euro is still intact. Indeed, the Eurozone has two more members than when the crisis began and in January will acquire yet another, Latvia. That is not to say that it won't fall apart eventually. But for the foreseeable future that remains a much lower probability scenario than its survival. I don't know which particular model Paul Krugman was using in the summer of 2012, but it certainly did rather a bad job of predicting what would happen. I laughed out loud at his recent lame excuse that his model couldn't have been expected to predict the action of the European Central Bank. What an awesome model: one that predicts everything about a monetary union except the action of the monetary authority.
Besides its wrongness, the other striking feature of Krugman's commentary on the euro is the vitriol he has directed against those struggling to cope with the crisis. In December 2011, he called the then Italian Prime Minister Mario Monti "delusional." In March of this year, incredibly, he appeared to liken the Finnish Vice President of the European Commission, Olli Rehn, to a cockroach. Some people, I have come to realize, are intimidated by this lack of civility. But I am with Dilbert. It's simply absurd for this man to accuse others of "derping," a childish neologism meaning -- in case you've forgotten -- to "take a position and refuse to alter that position ... despite being wrong again and again."
"I like to think," Krugman wrote on August 14, "that if I had been proved ... utterly wrong ... I'd have had the strength of character to admit it and question my premises. But I don't know for sure, and with some luck I'll never find out." Now that I have shown Krugtron the Invincible to have been utterly and repeatedly wrong about the euro, I look forward to reading his admission of error.
To be precise, I would like to see him admit that he got the biggest call of the last several years dead wrong, again and again and again. Not only should he admit his mistake, but he should also apologize to the millions of people who have suffered as a result of it. Or does he believe that his numerous, widely read predictions of imminent currency break-up had no impact whatever on the expectations of European investors and consumers?
Niall Ferguson's latest book is The Great Degeneration (Penguin Press).
© Niall Ferguson 2013
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