The best of Paul Krugman vs Reddit

Nobel prize-winning economist fields questions from "The Front Page of the Internet". What could go

Paul Krugman has a new book coming out, which means he is doing a lot of thing that one doesn't normally see from a Nobel Prize-winning economist. First he debated Ron Paul on Bloomberg TV, including a bizarre interlude involving inflation in third-century Rome. Then yesterday, he did a question and answer session with Reddit, the hugely popular social news site which brands itself "The Front Page of the Internet".

Under the headline IamA Nobel Prize-winning economist and New York Times columnist, Krugman – username nytimeskrugman – spent a couple of hours answering questions from Reddit users. Here are some of his best answers.

Responding to user sychosomat, who asked about the problems caused by the inability to perform experiments in economics, Krugman wrote:

Well, not being able to do experiments is a problem, but not as bad as all that. We do have statistical techniques for trying to sort out what's going on, although I'm skeptical about their power. But mainly we can look for "natural experiments", which often tell you a lot. In End This Depression I talk about how wars provide a natural experiment on fiscal policy; right now forced austerity in Europe is providing another set of natural experiments.

You may ask whether both sides in every debate won't nonetheless find ways to support their positions. My answer here is that this is not, in fact, happening. On the question of whether austerity is expansionary or contractionary, we had some alleged evidence for expansionary effects, but it was quickly shot down by the normal process of scholarly discussion. In any normal scientific debate, this would now be a settled issue.

I guess that what I'm saying here is that while the non-experimental nature of economics is an issue, the apparent inability to resolve differences that you see right now is about politics, not the inherent problems of the discipline.

Cthwaites asked how close we are to repeating the mistake in 1925, when Britain returned to the gold standard for seven disastrous years. Kurgman:

All around Europe's periphery they're doing it as we speak, er, type. The euro has served as the functional equivalent of the gold standard.

The difference for, say, Spain is that since they don't have their own currency, it's much harder to change course than it would have been for Britain under gold. But if you look at, say, Latvia, they're doing the full Churchill -- and being hailed as a role model even as they enforce a devastating slump on themselves.

Asked by Curbsidejohnman to give the best argument against austerity, Krugman replied:

I think it is to point out that if nobody is buying, nobody can sell. Austerity in a depressed economy makes the depression deeper, and that is, I believe, a point people can grasp. Of course, it's a point made easier to grasp now that the Irish and others have given us such clear examples of how bad the results of austerity can be.

Bloometal asked about Krugman's views on behavioural economics. Krugman wrote:

I think there's a lot of very good work in behavioral econ. But I don't expect a unified theory for many, many years. There are just two many ways the assumption of perfect rationality can fail, and I don't think we have enough broader understanding to put it all in one package.

That said, we can use behavioral econ even as it is, as long as we're modest about modeling. As long as we are prepared to say "this is how people actually seem to behave" without demanding general theorems -- for example the obvious reluctance to accept nominal wage cuts -- we can go a long way toward analyzing real-world issue in a way that can guide both prediction and policy.

Finally, one of Krugman's answers which works best without any context:

Shave around it every day, and get your wife to clip it fairly often.

(Oh all right, he was talking about his beard)

Photograph: Getty Images/Reddit.com

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Debunking Boris Johnson's claim that energy bills will be lower if we leave the EU

Why the Brexiteers' energy policy is less power to the people and more electric shock.

Boris Johnson and Michael Gove have promised that they will end VAT on domestic energy bills if the country votes to leave in the EU referendum. This would save Britain £2bn, or "over £60" per household, they claimed in The Sun this morning.

They are right that this is not something that could be done without leaving the Union. But is such a promise responsible? Might Brexit in fact cost us much more in increased energy bills than an end to VAT could ever hope to save? Quite probably.

Let’s do the maths...

In 2014, the latest year for which figures are available, the UK imported 46 per cent of our total energy supply. Over 20 other countries helped us keep our lights on, from Russian coal to Norwegian gas. And according to Energy Secretary Amber Rudd, this trend is only set to continue (regardless of the potential for domestic fracking), thanks to our declining reserves of North Sea gas and oil.


Click to enlarge.

The reliance on imports makes the UK highly vulnerable to fluctuations in the value of the pound: the lower its value, the more we have to pay for anything we import. This is a situation that could spell disaster in the case of a Brexit, with the Treasury estimating that a vote to leave could cause the pound to fall by 12 per cent.

So what does this mean for our energy bills? According to December’s figures from the Office of National Statistics, the average UK household spends £25.80 a week on gas, electricity and other fuels, which adds up to £35.7bn a year across the UK. And if roughly 45 per cent (£16.4bn) of that amount is based on imports, then a devaluation of the pound could cause their cost to rise 12 per cent – to £18.4bn.

This would represent a 5.6 per cent increase in our total spending on domestic energy, bringing the annual cost up to £37.7bn, and resulting in a £75 a year rise per average household. That’s £11 more than the Brexiteers have promised removing VAT would reduce bills by. 

This is a rough estimate – and adjustments would have to be made to account for the varying exchange rates of the countries we trade with, as well as the proportion of the energy imports that are allocated to domestic use – but it makes a start at holding Johnson and Gove’s latest figures to account.

Here are five other ways in which leaving the EU could risk soaring energy prices:

We would have less control over EU energy policy

A new report from Chatham House argues that the deeply integrated nature of the UK’s energy system means that we couldn’t simply switch-off the  relationship with the EU. “It would be neither possible nor desirable to ‘unplug’ the UK from Europe’s energy networks,” they argue. “A degree of continued adherence to EU market, environmental and governance rules would be inevitable.”

Exclusion from Europe’s Internal Energy Market could have a long-term negative impact

Secretary of State for Energy and Climate Change Amber Rudd said that a Brexit was likely to produce an “electric shock” for UK energy customers – with costs spiralling upwards “by at least half a billion pounds a year”. This claim was based on Vivid Economic’s report for the National Grid, which warned that if Britain was excluded from the IEM, the potential impact “could be up to £500m per year by the early 2020s”.

Brexit could make our energy supply less secure

Rudd has also stressed  the risks to energy security that a vote to Leave could entail. In a speech made last Thursday, she pointed her finger particularly in the direction of Vladamir Putin and his ability to bloc gas supplies to the UK: “As a bloc of 500 million people we have the power to force Putin’s hand. We can coordinate our response to a crisis.”

It could also choke investment into British energy infrastructure

£45bn was invested in Britain’s energy system from elsewhere in the EU in 2014. But the German industrial conglomerate Siemens, who makes hundreds of the turbines used the UK’s offshore windfarms, has warned that Brexit “could make the UK a less attractive place to do business”.

Petrol costs would also rise

The AA has warned that leaving the EU could cause petrol prices to rise by as much 19p a litre. That’s an extra £10 every time you fill up the family car. More cautious estimates, such as that from the RAC, still see pump prices rising by £2 per tank.

The EU is an invaluable ally in the fight against Climate Change

At a speech at a solar farm in Lincolnshire last Friday, Jeremy Corbyn argued that the need for co-orinated energy policy is now greater than ever “Climate change is one of the greatest fights of our generation and, at a time when the Government has scrapped funding for green projects, it is vital that we remain in the EU so we can keep accessing valuable funding streams to protect our environment.”

Corbyn’s statement builds upon those made by Green Party MEP, Keith Taylor, whose consultations with research groups have stressed the importance of maintaining the EU’s energy efficiency directive: “Outside the EU, the government’s zeal for deregulation will put a kibosh on the progress made on energy efficiency in Britain.”

India Bourke is the New Statesman's editorial assistant.