Paul Krugman Confesses: “I Was Wrong About Inflation”

Establishment-favorite economist Paul Krugman has declared the obvious: “I was wrong about inflation.”  

Issued from his prestigious perch at The New York Times, Krugman’s confession centers on what he describes as an early-2021 economic debate over the consequences of the $1.9 trillion American Rescue Plan Act enacted on March 11 of that year: 

“Some warned that the package would be dangerously inflationary; others were fairly relaxed. I was Team Relaxed. As it turned out, of course, that was a very bad call.”

For those of us who’ve been right about inflation, the satisfaction of Krugman’s mea culpa doesn’t linger much beyond the headline. That’s because, as John Sexton writes at Hot Air, “Krugman spends the entire column explaining how the people who were right…were right for the wrong reasons.”  

What’s more, Krugman completely ignores the people who were right for the right reasons. In Krugman’s world, Austrian economists and adherents didn’t even participate in the discourse:

“This wasn’t a debate between opposing economic ideologies. Just about all the prominent players, from Larry Summers to Dean Baker, were Keynesian economists, with more or less center-left political leanings.”  

It’s not just the Austrians who shall not be spoken of, even the substance of their ideas are glaringly absent. Critically, nowhere does Krugman mention the Federal Reserve, or acknowledge that anyone predicted inflation would surge because the trillions of dollars in the stimulus plans were being created out of thin air.  

M2 Money Supply (via St Louis Fed) 

An intellectually honest treatment of the topic would at least mention the money-supply argument and then make a case why it wasn’t validated. Instead, Krugman uses his 500-word allowance to imagine a 2021 debate limited to the cool kids in the Keynesian tree-fort — and to explain how, even though he was wrong, he was actually kinda right too. 

And so, most of what Times readers hear from Krugman is that various Keynesians quibbled over the size of the “multiplier effect” that increased government spending would have first on employment and GDP, and then prices.

Ignoring the spectacular growth of the money supply, Krugman lets himself off the hook by declaring that “much, although not all, of the inflation surge seems to reflect disruptions associated with the pandemic,” disruptions he claims no one anticipated. 

Discussing his column on MSNBC, Krugman claimed that “nobody really thought about logistics, supply chains or any of that stuff until suddenly it became a big problem.”

Setting himself up for a future admission of error, Krugman told Mika Brzezinski that, because consumers aren’t expecting inflation to last, it probably won’t: 

.@paulkrugman on getting inflation wrong: “Partly it’s that there is stuff that I didn’t — that nobody saw coming. Nobody saw Putin invading Ukraine. I think nobody thought about logistic supply chains or any of that stuff until suddenly it became a big problem.” pic.twitter.com/F4nprqImlu

— Tom Elliott (@tomselliott) July 21, 2022

Speaking of money supply growth, it’s telling that Krugman tries to confine inflation controversy to the 2021 stimulus package; 2020 had its own multi-trillion-dollar Keynesian bacchanalia fueled by the Fed’s money printers…to say nothing of Quantitative Easing and other Fed follies perpetrated since the Great Recession. 

Of course, when the inflation debate is couched his way, that means Krugman was only wrong for a year and change, rather than forever and always. 

If Krugman says he was wrong, does that mean he was right? https://t.co/Md8dbiCXVb

— Archer Bowman (@ArcherBM) July 21, 2022

There’s another reason we can’t give Krugman full credit for his poor stab at humility: It apparently wasn’t even his idea. Krugman was one of eight Times opinion columnists who wrote “I was wrong about” essays, which were published as a package on July 21.    

In case you didn’t know, Krugman was also wrong about the internet: