I’m here for the Bad Ideas session at the Festival of Dangerous Ideas. Initially we are welcomed bythe Ethics Centre and by the Opera House itself.
Krugman’s session is Chaired by Andrew Charlton. Charlton begins by acknowledging Krugman’s interest in science fiction. If sci fi is one of his loves, then economic fiction is one of his hates. Like the fictin you need to cut taxes for growth. Or that Trump is a credible presidential candidate.
On the stage – FINALLY – is Nobel Economics prize winner, Paul Krugman. He begins by acknowledging that his sci fi paper was that it was a serious analysis of a ridiculous subject…. which is the reverse of most economic treaties.
Krugman notes that Keynes was the source of the dangerous ideas label. He says he was inspired by Keynes quote. If you could make good predictions the world would listen. At some level he wishes that can still happen. But his experience has shown that bad ideas do tend to hang around – and they are hard to eliminate. They cantinue to be dangerous for the world.
Krugman notes that there are questions about why economist didn’t predict the last economic crisis. But that aside, what happened after the crisis is an example of the endurance of bad ideas. Those in power did some thngs right by protecting the banks from collapse but also there were some very bad decisions based on bad ideas about inflation. Many conservative economists warned about the growth of inflation.
Krugman notes that the warnings about inflation were unfounded. from 2007 to now, inflation has remained under 2%. Had enormous budget deficits, and other symptoms of inflation. But no inflation. Why? Because what happens on depression like conditions, you don’t get inflation. This is text book stuff. Far from crowding out govt spending, it (predictably) did almost nothing to private spending.
If your economist who doesn’t worry that they know noting then they are kidding themselves. The experience since 2008 actually validated economists do actually know what they are talkigng about. Bad news is that not many people listened, Obsession with debt and deficit should not be a problem during a period of depression like conditions. Should be worried abut deflation.
So lots of people predicted run away inflation, and they were wrong – and these were people who were advising investors. So some bad investment decision made. But you would think after that that complainants would change their minds. But they haven’t, and they are still warning of deficits, inflation. When Bloomberg questioned these people none admitted they were wrong.
Krugman notes the same thing is happening with climate chnage. How many people are changing their mind? Zero.
Krugman notes that the views he is exploring tend to be all on the right of politics. He notes there are bad ideas on the left but it’s not symmetrical. He cites JS Mill – “I did not mean that Conservatives are generally stupid; I meant that stupid people are generally Conservative”. This is more true now than ever. You can create an environment where you are never challenged on your views. Leave aside Fox News, it can also happen on CNBC.
The question is not why are these ideas bad…. the question is why these things persist. Krugman gives 2 possible reasons.
First variety are people who put forward ideas because it serves their interests. these are people who say that you cut taxes on rich people. There is no evidence to suppport it. but there is real money of a small number of people at stake so they control the conversation. Many climate denials are in the same situation – most are supported by mainstream energy suppliers.
Weird thing is that for all these totallly bad ideas, there are peole who get angry about these ideas – in support.
Second variety of bad ideas proponents is the sought of person who uses social engineering and affinity fraud because people like to support people like themselves. If you think about the people who work hard all their lives, it is difficult to imagine the creation of wealth for people who didn’t earn their position. Emotions run higher on monetary subjects – higher than other issues.
Krugman gets a lot of hate mail on economic subjects. People will cling to ideas even when they are demonstrably wrong or when they personally suffer from the belief. So what do you do about this level of belief?
What you learn is that having a model that’s right or that is demonstrable doesn’t have any impact. You have to keep on making good arguments. There will be some people who will be empowered by good arguments. but beyond that, you need to engage the academic community and forensic thinking. But you also need to be less polite. [YES!!!!!]
If you use diplomatic language you don’t move peole. If you use strong language it resonates. use sarcasm, satire – these are not luxuries they are critical.
Willl bad ideas last forever? Krugman doesn’t know. But come up with good idea and fight for them.
Charlton returns to the stage, running questions. he starts by asking if bad ideas could cause another crisis.
Krugman says worrying about the next crisis is too early. US only starting torecover, Europe not at all. Truth is that it could be wrse next time round. He cites work from Quiggin on why stimulus was possible.
Charlton asks what the role of tech was in encouraging bad ideas. Krugman says tech has done more to break through the bubbles. There are crazy elements online but there is a golden age of serious debate online. Some of this filters through to policy makers.
A question from the floor is that evidence is not enough so what’s the value of presenting evidence. Is it better to engage sociologists in explaining views.
Krugman notes that we don’t really have full evidence because we can’t experiment on full economies – it’s not ethical. But we do come close and it still doesn’t convince people. Economists do need to talk to flakier social sciences to explain concepts. Croos-discipline communication works.
Another question from the floor explores the Greek crisis. Krugman notes that Europe was poorly considered to begin with. Entry was too easy and exit is much harder. He thiks that after many many years it might just grind out asurvival. but it’s a hard battle. You wonder how much punishment they can take.
Charlton asks about the experience of Japan and China. Krugman says China looks like Japan in the late 1980s. A lot of private sector debt, booming economy. China is unlikely to deal with change in the same way that Japan die because it doesn’t have the social cohesion.
Paul asks about the Australian economy. The audience laugh. Krugman says this is the dangerous question. He says there’s going to be a hit to the Oz economy and maybe a recession. BUt Australia has a flexible exchange rate, and its external debt is in Aussie dollars. He says he has no views of the current govt, but he is not panicking. He hopes policy officials are not too stupid. Charlton responds – wait till you meet them.
Another question from the floor asks about disputing facts… how do young people find accurate information. Krugman notes that there is more good information out there – and it’s easy to check sources. Krugman says you need to do research and invest time to understand the subject. Krugman says it’s not that hard. Not many poor sources that stand up to even an hour of research.
Charlton asks what sources Krugman uses. Krugman replies that he’s obliged to say the New York Times, which doesn’t always get it right. There’s also a great site called Economists View. It has the best sources. Bloomberg is good – he reads tons more, but that’s the highlights.
There are a few more questions, and the audience are staying very late. We conclude with a question on the lessons of change of opinion from science. Krugman said he wishes that economics could work like science in changing opinions. The event closed to wild applause.