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Thursday, November 20, 2003

Dear Economist

I read a typically well written highly literate face value article quite critical of Paul Krugman in your still theoretically current November 15th-21st issue. To respond to each of your specific criticisms in turn.
Regarding California's energy crisis, he berated the Bush administration and the Federal Energy Regulatory Commission for not imposing price caps sooner -- but found no room to mention Bill Clinton. In fact Krugman argued in favor of price caps long before they were imposed. His arguments might even have had an effect on the final policy choice which, in retrospect, would clearly have been an effect for the better. I am no mind reader, but I think Krugman directed his advice to the Bush administration because it was in power and actually able to do something about the problem.

Some time ago Michael Kinsley accused the Economist of a similar partisan bias. He wrote (I am quoting from memory) "I love the snappy way in which the Economist writes 'there are three things that the government should do about this problem' although I sometimes suspect that the Economist decides that there are three things that the government should do about this problem before it decides exactly which three things. In fact, I sometimes suspect that the Economist decides that there are three things that the government should do about this problem before it decides exactly which problem". Notice the accusation of blatant partisanship. According to Kinsley's no doubt false accusation the Economist does not take a fair and balanced approach writing "there are three things the government should do and the previous government should have done about this problem" before deciding exactly which problem.

You claim that Krugman claimed that "Bush's ham fisted foreign policy had forced Dr Mahathir to make the remarks". Krugman's article does not excuse Mahathir Mohamad and does not claim he was forced to do anything. You write "-most unlikely, given that he was about to step down". It is indeed absurd to suggest that Mahathir Mohamad does not plan to spend his retirement gardening. Your corresponded could look closer to home for such howlers, since the Economist has asserted that Teng Hsiao Peng played a dominant role in China when, in fact, his only position was president of the China bridge society, and that Lee Kwan Yew continued to play a leading role in Singapore after he had actually retired. Seriously, I haven't read every issue of the economist and I don't remember everything I read, but this is the first time I can think of an article in the Economist which presents as absurd the idea that long ruling politicians working on a succession think about politics. I would imagine instead that your South East Asian correspondents would find the assertion in the Face Value article patently ridiculous.

One criticism starts by noting that Krugman argues that Bush is "probably" encouraging North Korea to become a more dangerous nuclear power. The complete criticism was "This probably didn't convince most game theorists". The implication is that it is obvious that Bush' policy couldn't have done that. It is possible that threats could cow North Korea. They could also convince North Korea that they need a nuclear deterrent. North Korean actions (certainly up to the time when Krugman wrote that) seem to fit the second possible theory. To be more detailed. It is possible that Kim Jong Il would like a bomb, thinks a deterrent would be useful, would like to extort money and might still dream of intimidating South Korea into submission. However, he also fears the US and responds to threats (and cash see above). How should he react given the fact that Iraq was invaded even though Saddam Hussein appears in retrospect to have done everything he could short of going into exile to avoid an invasion ? I see two choices resigning (unlikely) and attempting to frighten us (what he is doing and it is working). The successful attempts to frighten us have made North Korea a more dangerous nuclear power.

I am reminded of the Piranha brothers (from Monty Python) who thought up an operation which they called the operation in which they threatened to beat people up if they gave them money. This operation was not successful. Similarly, I think the Bush administration's Iraq policy is not the best way to convince dictators to disarm. I think your columnist’s one sentence discussion of an extremely important issue was completely unserious.

Finally you claim that Krugman accuses Erica Groshen and Simon Potter of committing the lump of labour fallacy. He clearly did no such thing. I quote in full his description of the study

"In it, Erica Groshen and Simon Potter argue that the pattern of laying off workers during recessions and rehiring them during recoveries has changed: since 1990 employers have become much less likely to rehire former workers. It's an interesting study, and it might — repeat, might — shed some light on why businesses have added so few jobs during our so-called recovery."

I see no criticism whatsoever and certainly no claim that the authors commit the lump of labor fallacy. Erica Groshen is a friend of a friend of mine and I was delighted that she had received such high praise from Paul Krugman, to be honest, delighted and envious. Krugman goes on to accuse un named and uncited "usually bullish, supposedly hardheaded business commentators." not the authors of the study of falling for the lump of labor fallacy. Having read Krugman's article, I can think of only two reasons why someone would claim that Krugman accused Groshen and Potter of falling for the lump of labor fallacy -- the accuser is illiterate in English and incapable of understanding Krugman's clear statement or the accuser is writing in bad faith.

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