The Price is Wrong – and So is Krugman

Mises Daily: Thursday, April 18, 2013 by William L. Anderson

Every once in a while, Paul Krugman gives an object lesson in Keynesian economics and his M.O. generally is as follows:

·         Create a caricature of other points of view which is built on faulty assumptions and outright misrepresentations of the real position

·         Discredit that phony caricature

·         Claim victory

In a recent blog post, Krugman looks at unemployment and its causes, assigns the Austrians to something they don’t believe, and then claims that the Keynesian way is morally and economic superior even though his description of the Keynesian “solution” is to do exactly what he has condemned elsewhere: cutting real wages. To put it another way, it is more of the same. He writes:

So, start with our big problem, which is mass unemployment. Basic supply and demand analysis says that things like that aren’t supposed to happen: prices are supposed to rise or fall to clear markets. So what’s with this apparent massive and persistent excess supply of labor?  In general, market disequilibrium is a sign of prices out of whack; and most people commenting on our mess accept the notion that one or more prices are for some reason not adjusting. The big divide comes over the question of which price is wrong.