David R. Henderson  

Paul Krugman: David Henderson Was Right

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Ok, Krugman didn't say that; he didn't mention my name. But that's Krugman's MO. He has stated explicitly before--I can't find the link quickly--that he doesn't want to mention the names of people he takes issue with because that would give us too much publicity. And, in debating important ideas, we can't have that.

So what did Krugman say? In a recent interview, he was asked by Henry Blodget, "What have you been wrong about?"

Krugman replied (from about 15 seconds to 35 seconds):

I greatly underestimated the economic impact of IT [Information Technology.] I didn't really--mid-nineties, I was very skeptical about claims that we were about to have a productivity boom and I was wrong, OK?

It's likely that his article in technology magazine The Red Herring (June 1998) is one of the articles he had in mind where he expressed his skepticism. Krugman had written:
* The growth of the Internet will slow drastically, as the flaw in "Metcalfe's law"--which states that the number of potential connections in a network is proportional to the square of the number of participants--becomes apparent: most people have nothing to say to each other! 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.

* As the rate of technological change in computing slows, the number of jobs for IT specialists will decelerate, then actually turn down; ten years from now, the phrase information economy will sound silly.

But 9 months earlier, in the September 1997 issue of that same magazine, in an article titled "The Digitial Economic Revolution," here's what another economist author had written:
But a cardinal rule for economists studying government data--or any other data--is, Don't forget what you already know. We see the evidence of productivity from computers all around us. Computers have already revolutionized the way we do our banking. I'm not talking about the small percentage of us pushing the envelope by paying bills from our home PCs. I'm talking about the vast majority of us, many of whom still can't tell a modem from Motrin, who use computers every time we use an automated teller machine; because the ATM is open morning, noon, and night, we no longer have to run to the bank during lunch hour.

Computers also have allowed a huge percent of professionals to skip a step in writing memos, reports, and letters: having a secretary retype it. As a result, employers have been able to cut many secretaries from their workforces; these secretaries then go and find work elsewhere or different work at the same companies. If these productivity gains don't show up in government data, then maybe there's something wrong with the data. And there definitely is something wrong, as we'll see shortly.

The author goes on to describe the ways the IT revolution had already increased productivity and was likely to increase it further.

Who is that economist? C'est moi.

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COMMENTS (7 to date)
Jameson writes:

Gotta savor those moments when they come.

NZ writes:

Instead of aspiring to be secretaries--an area where many women had great success both before and after having kids--women now aspire to be managers and CEOs. Of course, it's a longer climb on the corporate ladder to those types of positions, which means really investing in one's career and delaying marriage and childbirth. It also means now women go to college at much higher rates, so women accrue lots of debt by the time they're in their mid-20s. This further pressures them to pursue a career rather than hopelessly trying to find a guy who's willing to work down his debt and hers while she's at home pregnant or with the kids. (Thus, the "Liz Lemon" effect is in full swing among educated women.)

But lo and behold, a lot of women's evolutionary advantages translate better to secretarial work than upper management, plus with the Ticking Clock a lot of them still want to keep their options open in terms of having kids, and so many women hit the so-called "glass ceiling". But this surely must be the fault of men, so HR departments are expanded to make sure workplaces are "inclusive" and "nurturing" of women. Government bureaucracies sprawl to make sure women aren't being discriminated against in any way. The Overton window of what we're allowed to think and say about women in the workplace shrinks (and changes shape unpredictably) every day.

Yup, eliminating secretaries sure has been productive.

Roger Sweeny writes:

NZ, skilled weavers are hurt when power looms become common. That doesn't mean that productivity hasn't gone up. It simply means that the change wasn't Pareto superior. Of course, very few changes are. That's part of the tragedy of life.

Russ Nelson writes:

The Krugman that admits error is not the true Krugman.

NZ writes:


My point was that in many cases, the examples economists point to of increases in productivity are actually just complex broken window fallacies.

David R. Henderson writes:

@Russ Nelson,
The Krugman that admits error is not the true Krugman.
That doesn’t make sense. Everyone is a complex mixture of characteristics. Would I like him to admit error more often? Yes. But watch the whole video and you’ll see that he does admit other errors. And if we’re going to be all “true Krugman,” then my candidate for the true Krugman would be the Krugman of the 1990s.

Todd Kreider writes:

(cranky monday rant) Krugman's funniest way off prediction was that by 2005 we'd see that the internet would be just a blip in productivity increases, but he has had many more. Check out what he thought 2096 will look like when he wrote it in 1996.

Yet he isn't alone in the economics profession. I've been following what economists think about technology and most (but not all!) come out looking like Tyler Cowen and Robert Gordon -- that is, "Not even wrong."

Do we see any economists discussing what the impact of the super health pills that leading longevity researchers think will be on the market starting from 2017 to 2022? Even a guy like Robin Hanson, with an MA in physics and who has signed up for cryonics, didn't think longevity experts have predicted that when all you have to do is Google the big names in the field.

Instead, we have the CBO predicting health care costs out to 20 flippin' 80, arguing that technology has always increased costs in the past, so...

Economists need to put down Popular Mechanics (to which theey point to in order to make fun of the flying car) and start erading Technology Review.../(cranky monday rant)

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