Krugman Retiring from NYTimes

All things must pass. Paul Krugman is going to retire from being a NY Times columnist after 25 years. Some people claim that being a columnist helped him get the 2008 Nobel Memorial prize in the economic sciences.

I can’t say anything about his NYT columns. I am  not a subscriber. I did catch glimpses of his political position, though. He was totally sold out to the Democratic party. Over the years, he’s infamously made a bunch of poor predictions. I was surprised at his mistakes considering that he was a first-rate economist.

I say “was” because he appeared to have forgotten the economics lessons that he learned and taught to a couple of generations of students — including yours truly.

Krugman is a master in the art of building models. Models are devices we use to explain some important feature of the world. The real world is too complicated for anyone to grasp it in one all-comprehensive gaze. You have to select the most salient bits of the world and abstract away all the rest, and tell a story that explains some aspect of the world. Models are not realistic. In fact, they are deliberately “wrong.” Their utility derives from their ability to simplify and therefore illuminate. We model the world so that we can make useful predictions.

Here’s a great example of Krugman explaining a feature of our economic world through a simple model. It’s a Slate column from January 1997 titled The Accidental Theorist. He begins:

Imagine an economy that produces only two things: hot dogs and buns. Consumers in this economy insist that every hot dog come with a bun, and vice versa. And labor is the only input to production.

OK, timeout. Before we go any further, I need to ask what you think of an essay that begins this way. Does it sound silly to you? Were you about to turn the virtual page, figuring that this couldn’t be about anything important?

One of the points of this column is to illustrate a paradox: You can’t do serious economics unless you are willing to be playful. Economic theory is not a collection of dictums laid down by pompous authority figures. Mainly, it is a menagerie of thought experiments–parables, if you like–that are intended to capture the logic of economic processes in a simplified way. In the end, of course, ideas must be tested against the facts. But even to know what facts are relevant, you must play with those ideas in hypothetical settings. And I use the word “play” advisedly: Innovative thinkers, in economics and other disciplines, often have a pronounced whimsical streak.

Krugman then continues with his hot dogs and buns model. Go read it. Here’s another bit from further down the column:

But while the hot-dog-and-bun economy is hypothetical, the journalist is not. Rolling Stone reporter William B. Greider has just published a widely heralded new book titled One World, Ready or Not: The Manic Logic of Global Capitalism. And his book is exactly as I have described it: a massive, panoramic description of the world economy, which piles fact upon fact (some of the crucial facts turn out to be wrong, but that is another issue) in apparent demonstration of the thesis that global supply is outrunning global demand. Alas, all the facts are irrelevant to that thesis; for they amount to no more than the demonstration that there are many industries in which growing productivity and the entry of new producers has led to a loss of traditional jobs–that is, that hot-dog production is up, but hot-dog employment is down. Nobody, it seems, warned Greider that he needed to worry about fallacies of composition, that the logic of the economy as a whole is not the same as the logic of a single market.

Good job, Krugman. And best wishes.

Author: Atanu Dey

Economist. View all posts by Atanu Dey