Julian Simon and I vs. Paul Krugman

David Henderson

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The two economists [Krugman and Simon] appeared in different ways. Krugman wrote a deeply, though unintentionally, ironic article titled "Why most economists' predictions are wrong," filled with predictions that were... mostly wrong. Simon, sadly, had just passed away and so his appeared in the issue was by way of David Henderson's remembrance of him.

This is from a recent reminiscence by Chris Alden, co-founder of the Red Herring, a now-defunct Silicon Valley publication for which I was the monthly economics columnist from 1997 to 2000. Alden goes on to list Krugman's predictions, most of which, as he pointed out, didn't pan out. Productivity growth didn't fall, as Krugman predicted. Nor did the inflation rate go above 4 percent. Here's the Krugman prediction that I found most "interesting": "By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's."

The one prediction that did come about was the increase in the price of many raw materials. Krugman might have made money by taking the bet I offered him in that article. I think Alden goes a little too far in attributing the price increases solely to demand increases. The supply disruptions that Krugman predicted did occur.

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CATEGORIES: Economic History , Growth: Causal Factors

COMMENTS (6 to date)

Latest Comment

Arnold Kling writes:

This is interesting in so many ways. Making predictions about the Internet was really difficult in the mid-nineties, but by 1998 if you did not know that the Internet was transformative, you were really dense.

This is an important post, David, because people are constantly citing Krugman's accuracy as a forecaster. This certainly is a dramatic counterexample.

Posted December 22, 2010 10:37 PM

David R. Henderson writes:

Thanks, Arnold.

Posted December 22, 2010 10:49 PM

Libfree writes:

I think it's funny looking back at those old predictions. In 98 I thought the biggest problems would be finding things on the Internet (google didn't exist) rather than how we access it (iPhone, android,Mac,pc) ect. I do love how the whole Microsoft anti trust thing broke my way. Who cares about Microsoft anymore.

Posted December 23, 2010 8:11 AM

kebko writes:

I frequently hear demand being trotted out as a reason for high future commodity prices. This makes sense in an econ 101 sort of way, but it seems like one of those things where people simply refuse to look around themselves. We live in a world filled with things that have become more and more inexpensive as demand has grown and grown. Things which have increased in price in the face of long term demand growth seem to be the exception, not the rule.

Posted December 23, 2010 5:38 PM

Jacob Oost writes:

This is an important post, David, because people are constantly citing Krugman's accuracy as a forecaster.

Who is saying that? And why?

Posted December 23, 2010 8:31 PM

Robert Johnson writes:

"I do love how the whole Microsoft anti trust thing broke my way. Who cares about Microsoft anymore."

It's way off the topic of the post, but as one of the few remaining (born again, actually) fans of Microsoft I have to say something about this.

You're right that MS is losing, and will continue to lose, market share in consumer-oriented products (e.g. Chrome vs IE). It's considerably less clear that they are losing market share in the technical underpinnings of the computing world. I won't make any predictions, but the .NET framework, Visual Studio, and Silverlight represent significant and powerful technologies that seem to be ascendant against competitors.

MS has tied these new technologies to their Windows platform. Who knows what the outcome will be.

Posted December 27, 2010 3:49 PM

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