Paul Krugman: David Henderson Was Right
By David Henderson
Ok, Krugman didn’t say that; he didn’t mention my name. But that’s Krugman’s MO. He has stated explicitly before–I can’t find the link quickly–that he doesn’t want to mention the names of people he takes issue with because that would give us too much publicity. And, in debating important ideas, we can’t have that.
So what did Krugman say? In a recent interview, he was asked by Henry Blodget, “What have you been wrong about?”
Krugman replied (from about 15 seconds to 35 seconds):
I greatly underestimated the economic impact of IT [Information Technology.] I didn’t really–mid-nineties, I was very skeptical about claims that we were about to have a productivity boom and I was wrong, OK?
It’s likely that his article in technology magazine The Red Herring (June 1998) is one of the articles he had in mind where he expressed his skepticism. Krugman had written:
* The growth of the Internet will slow drastically, as the flaw in “Metcalfe’s law”–which states that the number of potential connections in a network is proportional to the square of the number of participants–becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.
* As the rate of technological change in computing slows, the number of jobs for IT specialists will decelerate, then actually turn down; ten years from now, the phrase information economy will sound silly.
But 9 months earlier, in the September 1997 issue of that same magazine, in an article titled “The Digitial Economic Revolution,” here’s what another economist author had written:
But a cardinal rule for economists studying government data–or any other data–is, Don’t forget what you already know. We see the evidence of productivity from computers all around us. Computers have already revolutionized the way we do our banking. I’m not talking about the small percentage of us pushing the envelope by paying bills from our home PCs. I’m talking about the vast majority of us, many of whom still can’t tell a modem from Motrin, who use computers every time we use an automated teller machine; because the ATM is open morning, noon, and night, we no longer have to run to the bank during lunch hour.
Computers also have allowed a huge percent of professionals to skip a step in writing memos, reports, and letters: having a secretary retype it. As a result, employers have been able to cut many secretaries from their workforces; these secretaries then go and find work elsewhere or different work at the same companies. If these productivity gains don’t show up in government data, then maybe there’s something wrong with the data. And there definitely is something wrong, as we’ll see shortly.
The author goes on to describe the ways the IT revolution had already increased productivity and was likely to increase it further.
Who is that economist? C’est moi.