This post is not about Brexit.
Everybody has written about it and nobody really knows how it will end (or start..).
This post is about Paul Krugman. He is the most influential economist of our time. He was one of the reasons I became, first an economics geek and then a blogger. He is sometimes wrong (as everybody), but today he did something very peculiar.
Something he would usually point out about his “enemies”.
He denied his usual argument.
One of his major contributions to economics was the self-fulfilling currency crisis, which is a great idea and was recently applied to the Eurozone crisis (not a currency crisis but similar logic).
Today, talking about Brexit, he denied the logic made by some economists, that a recession may occur if a loss in confidence by investors happens.
Well, just like…a self-fulfilling prophecy!!
But what does Paul has to say?
“But in that case we’re saying that bad things will happen because firms will perceive an increased probability of bad things happening. That’s either circular reasoning, assuming one’s conclusion, or both.”
“Meanwhile, what about the argument that Brexit will worsen financial conditions, increasing risk spreads? Well, this seems to me to be another circular argument – it’s claiming that bad things will happen because investors will expect bad things to happen.”
So the prophecys only work when Paul wants it?