Tuesday, September 28, 2010


Paul Krugman is a bit upset that someone could accuse him of being a "warmonger," since he claims that World War II ended the Great Depression. Now, having spoken personally to Krugman about his opposition to the U.S. war in Iraq (and I share that opposition and told him so), I don't think Krugman loves war.

Nonetheless, his view is problematic, especially when one compares his views to those of economist Robert Higgs, who in this essay clearly debunked the "World War II as the end of the Depression" nonsense. Nonetheless, Krugman counters that the amoral nature of economics allows for war to be a positive catalyst in ending a downturn, even if we are against the war itself.

Economics, he writes, "is not a morality play." That is true, at least at one level. Ludwig von Mises himself wrote that economics is a "value-free" science, but he was writing from a very different perspective.

Krugman's contention is this:
...economics is not a morality play. It’s not a happy story in which virtue is rewarded and vice punished. The market economy is a system for organizing activity — a pretty good system most of the time, though not always — with no special moral significance. The rich don’t necessarily deserve their wealth, and the poor certainly don’t deserve their poverty; nonetheless, we accept a system with considerable inequality because systems without any inequality don’t work. And before the trolls jump in to say aha, Krugman concedes the truth of supply-side economics, that’s not an argument against progressive taxation and the welfare state; it’s just an argument that says that there are limits. Cuba doesn’t work; Sweden works pretty well.
(Now, I would suspect that Krugman would not be able to explain why Cuba "doesn't work," given he thinks that the two greatest critics of socialism of the 20th Century, F.A. Hayek and Mises, were idiots and people of no insight. He probably would mumble something about "incentives," but I doubt Krugman would even be able to comprehend the "economic calculation" issue that Mises and Hayek developed.)

Krugman goes on:
And when we’re experiencing depression economics, by which I mean a situation in which it’s hard to create sufficient demand to achieve full employment — mainly because short-term interest rates are up against the zero lower bound — the essentially amoral nature of economics becomes even more acute. As I’ve said repeatedly, this is a situation in which virtue becomes vice and prudence is folly; what we need above all is for someone to spend more, even if the spending isn’t particularly wise. (Emphasis mine)
It is interesting that he uses such phrasing, given it comes almost word for word from Bernard Mandeville's "Fable of the Bees," which was written in 1705, and which I lampooned in this piece, "The Fable of the Krugman."

Keep in mind, however, that Krugman's turning of the "virtue" of saving upside down to embrace the "vice" of reckless spending is not what Mises meant by describing economics as "value-free." Krugman is just saying that while saving would seem to be a good thing, what is needed now is spending, and lots of it. Thus, "situational ethics" becomes the basis for economic analysis.

However, the problem is not in our interpretation of economic morality. The problem is that Krugman insists that massive spending on behalf of the state will magically transform the U.S. economy, give it "traction," and send us on the Yellow Brick Road to Prosperity if not Oz itself.

Krugman does not embrace war; he embraces the government spending, the planned economy, the interventions, and the intrusions of the state into economic decisions. To him, that is Oz. However, if one reads the Higgs piece, one gets a much better understanding of the "prosperity" that war can bring.

For that matter, the Great Depression did not linger on because of a lack of government spending; as Higgs points out, it was "regime uncertainty," and I will put my money on that every time.

Ironically, while Krugman might not see himself as "Everyman," nonetheless his columns are full of condemnation for those people who might disagree with him or (horrors) vote differently than he does. So, even if the economy might not be a morality play, his columns tell a different story.

Krugman's Non Sequitur

In his comments about Howard Kurtz's profile of him, Paul Krugman declares himself to be a Great Man of Principle: "I support tax increases that will reduce my own after-tax income...."

That is fine, and I figured all along that Krugman, who makes in a year what many of us would have to work a lifetime to earn, would claim that if he is taxed more, the entire country would be better off. Maybe.

But the next line struck me as odd:
I worry greatly about unemployment, even though my own living is secure; I warn about growing inequality, even though I’m of the class that has gained from rising disparities; I’m upset about the direction this country is going, even though my own life is comfortable.
My question is this: How has Krugman gained from "rising disparities"? Is Krugman saying that because his income is rising, the incomes of others MUST fall?

If he is, then, economically speaking, he is giving us a non sequitur and is subscribing to the "fixed pie" argument in economics. That is, there is no such thing as real economic growth; the economy is fixed, and if one person gains, that automatically means that someone else loses.

That is a Third-World view of how an economy works. But, then, a person who subscribes to Y = C + I + G + (X-M) as the Gospel of Economics is going to have a skewed economic perspective.

Monday, September 27, 2010

Unemployment? No Problem! Krugman Can Fix It!

Paul Krugman is on a tear this morning. Excuses about unemployment? Who needs them!

In this column, he attacks people who claim that there are "structural" (that is, institutional) issues of unemployment that are exacerbating the current situation, and certainly some of these would have some merit, even if the Princeton Sage disagrees. For example, the Bush administration pushed home ownership like never before, and now people "own" homes that they cannot sell, so even if jobs are available elsewhere, the families cannot easily move to them.

(I would not be surprised to see one "solution" being what men in the Third World have done: take jobs far away from their homes, and send the money back to their families. That is a fixture of life in Africa and Asia, and we mostly have avoided it here, but that might be changing.)

Krugman writes:
What can be done about mass unemployment? All the wise heads agree: there are no quick or easy answers. There is work to be done, but workers aren’t ready to do it — they’re in the wrong places, or they have the wrong skills. Our problems are “structural,” and will take many years to solve.

But don’t bother asking for evidence that justifies this bleak view. There isn’t any. On the contrary, all the facts suggest that high unemployment in America is the result of inadequate demand — full stop. Saying that there are no easy answers sounds wise, but it’s actually foolish: our unemployment crisis could be cured very quickly if we had the intellectual clarity and political will to act. (Emphasis mine)
Hey, it's easy! Just "create" more "demand"! I had no idea!

How do we do that? Borrow and print lots and lots of money, there will be "demand" everywhere, the economy will "gain traction," and we are back into prosperity. All it takes is some "intellectual clarity and political will."

Of course, part of that "intellectual clarity" is to operate on the assumption that factors of production are homogeneous, and that there are no "structural" issues of production that will come into play when more "stimulus" is created. An economy? No problem! Y = C + I + G + (X-M), so all we need to do is to increase "G" to cover for a lack of "I" and "C" and the ship will right itself automatically.

From where does the "G" funding come? Why ask? ANY increase in "G" brings prosperity, whether it comes from new taxes or borrowing. (The U.S. Government does not directly "print" new money to pay its bills as we have seen in places like Latin America and Zimbabwe, as new money enters through the banking system. In other words, we are more "sophisticated" in the way we create money, as we use a roundabout way to "print.")

Lest anyone think that Krugman has NOT endorsed new taxes as a means to help bring economic recovery via new "demand," that person has not read this:
If we could wave away political reality, I’d let all the Bush tax cuts expire, and use the improvement in the budget outlook to justify a large, temporary increase in public spending.
Moreover, he claims that Obama can build a recovery in part on the expansion of "green jobs" and "clean-energy." Now, if that were true, it would be the first time that an economy recovery came about via the expansion of huge subsidies, since the "green technologies" need massive government help just to stay afloat.

In the reality-based world of economics, assets have real values, and if we have to prop up a set of assets via subsidies, then those subsidies must be taken from those assets that are profitable and then transferred to those that are not. Krugman and company argue that over time, these "new" assets will ultimately become profitable on their own, provided government subsidizes them enough. This is like saying that Mao could have made the backyard steel furnaces created during the Great Leap Forward work if he just had subsidized them enough.

No, assets matter. The structures of production matter. This is news to those who operate in the imaginary C + I + G + (X-M) world, but we are not going to end this hell of unemployment until government stops trying to BLOCK the recovery by re-directing assets from higher-valued, profitable uses to lower-valued and unprofitable uses. It is that simple, but Krugman will ignore it in order to push his own Keynesian fantasies.

Friday, September 24, 2010

Krugman's (Non)Partisan Adventure

I always love to see Paul Krugman use the term "non-partisan," as it generally means the opposite. Krugman is not supposed to use his column for partisan purposes, or at least that is the agreement he has with the New York Times, but his column strangely seems to echo the current talking points of the Democratic National Committee.

His latest partisan screed involves the Republican's "Pledge to America," which I have not bothered to read, nor will I read, since I remember the last bout of Republican rule. Nonetheless, I do find myself cheering for the Republicans to win this fall not because I believe they will govern effectively, but rather because the current Democratic juggernaut in which the White House and Congress have openly tried to destroy what is left of our economy (or turn the entire private sector into one big crony capitalism venture) has been a disaster.

For that matter, when we had divided government in the 1990s, things were a bit better, although the Clinton administration got Alan Greenspan to create the stock bubble disguised as the "New Economy." That is why I will support divided government for the last two years of Obama's first (And last?) term in office.

In reading Krugman's column, I get the sense that he really believes that if the Obama government can only increase the amount of money that it borrows and spends, that somehow this will have a magic reaction in which the government can begin to balance its budget and lead us into prosperity. He already is on the record demanding the increase of all income tax rates (which he claims will create more prosperity because government will have more money to spend).

While I have no interest in the Republican's latest gimmick -- and the "Pledge" is just that -- I also have no confidence that Paul Krugman really has a clue as to what an economy really is and what makes it work. A plague on all their houses!

Tuesday, September 21, 2010

Veronique de Rugy on Austerity

In reply to Paul Krugman's numerous missives that the only way governments should react to the downturn is to spend, spend, spend, Veronique de Rugy has a piece in Reason that contradicts Krugman's points. (Yeah, I know, Reason gets Koch money, just as Krugman's people get Soros money. Call it a wash.)

Ms. de Rugy writes:
One of the key signaling devices for international investors is how a government behaves under financial duress—how it balances the demands of its debtors with those of its welfare recipients. Announcements of lower spending and higher taxes tell investors a country is willing to go to great lengths not to default on its debt obligations. If the government instead focuses on preserving its welfare state and public employee benefits, investors know default is more likely and will shy away from that country’s bonds.Japan has the world’s biggest debt as a percentage of GDP, at 227 percent, nearly four times the economist-recommended 60 percent ceiling. It has gotten away with its carelessness without risking default because the country relies more heavily than most on domestic investors to fund its follies. The United States, despite a dangerous debt burden relative to GDP (66 percent) and a structural deficit among the highest of developed countries (almost 4 percent), has so far also escaped investor censure, thanks to the perception that the dollar remains the safest currency in the world. European countries don’t have that luxury.
I would add that the people in power in this country act as though the U.S. Dollar is impervious to any kind of international challenge. They forget that just 40 years ago, that is precisely what happened, and the crisis of 1971 left the USD in the lurch.

She continues:
The notion that austerity is bad and stimulus is good rests on the Keynesian theory that if government spends a lot of money, that money will create more value in economic growth. This purported increase in gross domestic product is what economists call the “multiplier effect.” It’s a nice story, but like most fairy tales, it has scant basis in reality.

In a 2010 paper published by George Mason University’s Mercatus Center (where I work), economists Robert Barro and Charles Redlick showed that in the best-case scenario, a dollar of government spending produces much less than a dollar in economic growth—between 40 and 70 cents. If that was the rate of return on our private-sector investments, America would soon cease to be a leading economic force.

Barro and Redlick also looked at the economic impact of raising taxes to pay for spending increases. They found that for every $1 in tax-financed spending, the economy actually shrinks by $1.10. In other words, greater spending financed by tax increases damages the economy. The stimulus isn’t working, because the economic theory it is based on is fundamentally flawed.
As I said before, this piece is worth reading. Krugman won't like it, but people who actually believe that economics is more than just stuffing money into an economy of homogeneous factors are going to find it stimulating reading.

Monday, September 20, 2010

Paul Krugman is Part of "The Rest of Us"? I Don't Think So

Hmmm. Paul Krugman, Ph.D. (from MIT) and now a Princeton professor, actually is jus' plain folks. No, he doesn't like those millionaires, and he realizes that if the top tax rate is lifted from 35 percent to 39.6 percent, not only will the economy get a boost, but those strange, rich people will get their comeuppance.

This is hilarious. But, Krugman is making the claim, not me. He writes:
You see, the rich are different from you and me: they have more influence. It’s partly a matter of campaign contributions, but it’s also a matter of social pressure, since politicians spend a lot of time hanging out with the wealthy. So when the rich face the prospect of paying an extra 3 or 4 percent of their income in taxes, politicians feel their pain — feel it much more acutely, it’s clear, than they feel the pain of families who are losing their jobs, their houses, and their hopes.
Sorry, people, Krugman the populist doesn't cut it. I've met the guy, talked to him at length, and I can tell you that he ain't plain folks. If there ever were an elitist, it is Krugman.

Let's get serious about wealth. Krugman is a millionaire, and I suspect that his mid-six-figure salary at Princeton perhaps may pay some of his taxes. This guy makes millions of dollars a year from his speeches (I don't know his fee, but it probably is close to $100K a pop), his NYT column, his textbooks, and his other books.

Keep in mind that I am not criticizing him for making this money. Granted, the textbook market is not a free market as such, but most of his wealth is earned the old-fashioned way: He sells products and services to willing customers.

However, when Krugman tries to tell us that "other" rich are bad people (unless they are like George Soros, who funds a gaggle of left-wing organizations), he fails to mention that he is wealthier than many of the people he claims should have their income confiscated in large chunks because, well, they don't spend their money quickly enough.

There is another problem as well, and that is Krugman's insistence that if government keeps the top marginal tax rate at 35 percent, it is "giving" something to the wealthy. Let me give an analogy. Say that I break into Krugman's house with a few of my armed friends, and I take his big-screen TV, some furniture, and other nice things.

However, I decide that I will not take Krugman's new laptop. Now according to Krugman's view of the world, I am "giving" him a laptop because I have not confiscated it. (Yes, breaking and entering a house and taking the contents is theft; when the government breaks into and enters your bank account, that is called "taxation.")

So, if Krugman is going to get angry at all of those rich people, then I hope that if the tax rates are left at 35 percent, he will voluntarily give the portion that was not taxed (since he is in that tax bracket himself) and give it either to the government or to a worthy charity, or to the poor.

Friday, September 17, 2010

Krugman's Tax-Cut Dishonesty

I wondered when Paul Krugman was going to make his misleading points about the upcoming tax increases, and he did not waste time. Today, he once again provides more fodder for the "Krugman Truth Squad," as well as giving me an excuse to sit on my couch and write yet another blog post.

First, let me provide a Krugman statement and then go from there:
So, about those tax cuts: back in 2001, the Bush administration bundled huge tax cuts for wealthy Americans with much smaller tax cuts for the middle class, then pretended that it was mainly offering tax breaks to ordinary families. Meanwhile, it circumvented Senate rules intended to prevent irresponsible fiscal actions — rules that would have forced it to find spending cuts to offset its $1.3 trillion tax cut — by putting an expiration date of Dec. 31, 2010, on the whole bill. And the witching hour is now upon us. If Congress doesn’t act, the Bush tax cuts will turn into a pumpkin at the end of this year, with tax rates reverting to Clinton-era levels.

In response, President Obama is proposing legislation that would keep tax rates essentially unchanged for 98 percent of Americans but allow rates on the richest 2 percent to rise. But Republicans are threatening to block that legislation, effectively raising taxes on the middle class, unless they get tax breaks for their wealthy friends.

That’s an extraordinary step. Almost everyone agrees that raising taxes on the middle class in the middle of an economic slump is a bad idea, unless the effects are offset by other job-creation programs — and Republicans are blocking those, too. So the G.O.P. is, in effect, threatening to plunge the U.S. economy back into recession unless Democrats pay up. (Emphasis mine)
As I note below, Krugman already is on the record as calling for the repeal of ALL of the tax-rate cuts from the last decade, and then taking the money and having the government spend it. (Guess what, Paul? If government takes the money, it will spend it, period.) So, is Krugman now claiming that raising taxes (since we already know government WILL spend that new revenue) will cause the economy to go downhill? And this after earlier calling for expiration of ALL lower tax rates? The guy needs to make up his mind.

OK, let us look at the actual rate cuts. This recent AP article does a good job of explaining what actually will occur, as opposed to Krugman's partisan rant:
Here's some pressure for lawmakers: If they don't reach agreement on extending soon-to-expire Bush-era tax cuts, nearly all their constituents back home will get big tax increases.

A typical family of four with a household income of $50,000 a year would have to pay $2,900 more in taxes in 2011, according to a new analysis by Deloitte Tax LLP, a tax consulting firm. The same family making $100,000 a year would see its taxes rise by $4,500.

Wealthier families face even bigger tax hikes. A family of four making $500,000 a year would pay $10,800 more in taxes. The same family making $1 million a year would get a tax increase of $52,300.

The estimates are based on total household income, including wages, capital gains and qualified dividends. The estimated tax bills take into account typical deductions at each income level.

Democrats have been arguing for much of the past decade that tax cuts enacted in 2001 and 2003 under former President George W. Bush provided a windfall for the wealthy. That's true, but they also reduced taxes for the working poor, the middle class, and just about everyone in between. (Emphasis mine)
So, according to Krugman, for a family making $100K a year, $4,500 is just chump change, a tiny sliver of cash. I don't think so. Tax rates were cut at every level of income and one of the ironic results was that the tax payments became even more progressive than they had been before, with about half of all U.S. households paying no federal income tax at all. (However, they do pay Social Security tax, which for many families takes more money from them than does the federal income tax.)

Furthermore, Krugman recently called for raising ALL taxes at all levels:
If we could wave away political reality, I’d let all the Bush tax cuts expire, and use the improvement in the budget outlook to justify a large, temporary increase in public spending.
Let me translate: If the government takes a bigger bite of taxes during the recession, then it can spend more money, and we will be better off than before. Now, I'm not sure how that works, and maybe the Great One Can explain to me how this would help lead us back to prosperity and full-employment, but I'm confused.

Furthermore, if raising all tax rates to take more income would be good for the economy, why not a tax of 100 percent? I mean, just think of all the wonderful things government can do for us if it just has enough money to spend!

One of the hard realities that is about to hit American families is that at all levels, they will be paying substantially more in taxes than before, once the current rates expire. Krugman has been denying this reality for years, claiming that the cut in the top rate from 39.6 percent to 35 percent has been responsible for almost all of the federal deficit. This is nonsense, pure nonsense, and it is nonsense on its face.

So, Krugman wants it both ways. He wants to claim that if government takes a bigger chunk of money from all of us -- and then spends it on "jobs programs" -- the economy will improve. If the tax rates for everyone but those making past the $200K threshold are kept at current levels, the economy will improve.

So, which is it? Now, I am not going to say that if the second option listed above is implemented, that the economy will plunge into oblivion. Furthermore, government spending, no matter how it is financed, is a tax, period. The money may not come from direct revenues, but nonetheless it is a tax.

(Yes, yes, I know that Chartalists have declared that when it comes to government gaining revenues, the Law of Scarcity is repealed, but we are dealing with economics here, not fantasy.)

In the end, Krugman wants us to believe a number of things that are mutually-exclusive. By disguising it in a partisan rant, he is able to present the "Good Democrats versus Evil Republicans" morality play that no doubt will make his groupies happy, but he does so by engaging simply in partisan politics, not economics.

Thursday, September 16, 2010

Spending or Regime Uncertainty?

In a Wednesday post, Paul Krugman assures us that the only reason that businesses are not spending is, well, businesses are not spending. As he declares:
...the best thing government could do to help business would be to spend more, increasing demand.
Yes, yes, these ignorant rubes who own small businesses might cite other reasons as to why there is not more longer-term investment and hiring, but face it: the only reason that businesses are not spending is because, well, people are not buying their products.

This contrasts with Robert Higgs' contention that "regime uncertainty" is playing a large role in the current stagnation, just as it did in the 1930s, he said. The difference appears to be that Prof. Higgs actually listens to what business owners are saying, while Krugman does not.

Granted, often in economics we hold to things that might be counter-intuitive to the "man on the street," such as the marginal utility theory of value and the "derived demand" for factors of production. Value of the factors, economists point out, is derived from the value of the final goods, as opposed to the view that governs most voters and public policies: the value of final goods is derived from the value of factors of production.

(This was the reason cited for the government's energy policies of the 1970s, in which Washington held that if it could artificially hold down the price of crude oil, those "savings" would be reflected in the prices for gasoline. Well, it didn't quite work that way, as those of use who were adults during that decade can attest.)

In Krugman's post, however, what he is making is essentially a circular argument: if businesses will spend more, then they will be able to spend more. Sorry, in economics, we don't make or accept circular arguments.

Wednesday, September 15, 2010

Yeah, it was Lehman all along!

One of the prevailing myths that seems to keep going like the Energizer Bunny is that the financial meltdown occurred because the Bush administration let Lehman Brothers fail. Yes, this was a major event, the biggest bankruptcy in U.S. History, yet the economy did not go down because Lehman failed, no matter what Paul Krugman might say. And he says:
I’m puzzled: shouldn’t the papers this morning be full of retrospectives about The Event That Ended The Economy As We Knew It? (Not to mention the event that guaranteed an Obama election win.)

Or have the financial media decided to go along with the prevailing public view that none of this happened until after Obama was inaugurated?
While this is a short post on Krugman's part, nonetheless it is full of the usual fallacies he likes to promote. First, and most important, the economy did not go down because Lehman failed; Lehman failed because it had been a major player in promoting an unsustainable boom, and during the boom, it profited well, and when that toga party came to an end, so did Lehman's profitability.

Second, a rescue of Lehman by stuffing its assets full of funny money from the Federal Reserve System would not have changed the fundamental picture a whit. Wall Street was in trouble because its balance sheets were unbalanced, not because the Fed had failed to create enough new dollars. Lehman had bet the house on the housing market and lost.

Furthermore, had the Fed and the Bush administration let the banks and financial houses that were unsound go under, yes, the original economic downturn would have been steeper than it was. However, there were healthy financial houses and there were a lot of healthy assets in the economy, and they would be leading us in a recovery right now.

Instead, the government, first under Bush and then under Obama, decided to paper over the holes in the asset framework with Monopoly Money as though there had not been a massive amount of malinvestment occurring. As we have seen, we now have no recovery and the future is grim.

So, Happy Lehman Day to all of us. It would have been happy had Henry Paulson not demanded that taxpayers and the Fed bail out his good friends.

Monday, September 13, 2010

Those Chinese Commies, er, Capitalists, Finally Got Us!

When I was a young person, America was taught to fear the communists. The U.S.S.R. had missiles pointed at us, Castro's Cuba was 90 miles from Key West and the Cubans were set to invade any day, and China's Maoist commies were helping the North Vietnamese in our war in Vietnam. (I remember the Cuban Missile Crisis when I was in fourth grade.) As a girl I used to date told me when I questioned whether or not we should be in Vietnam, if we let the commies win there, then they would take over country after country until they got to us.

Well, history has a funny way of working out things. The U.S.S.R. and its satellites went out of business (complete with a going-out-of-business sale in which I bought some Really Neat Stuff). Vietnam is liberalizing its economy and its society, and the Mao Suits that American Limousine Leftists loved to wear have long been replaced by real clothes, just as China has become a productive country, as it throws of the shackles of communism.

However, where once we saw a Chinese commie hiding behind every bush and tree, Paul Krugman (who usually sees a Republican hiding behind every bush and tree) now sees a Chinese Currency Manipulator hiding behind every bush and tree. Oh, the humanity! Will we ever be free from the Present Dangers from those nations of the East?

Krugman's fear is based upon one of his usual themes: China's government is deliberately underpricing its currency, the renminbi, which makes Chinese goods cheaper relative to goods that are dollar-denominated. Krugman writes:
The consequences of this policy are also stark and simple: in effect, China is taxing imports while subsidizing exports, feeding a huge trade surplus. You may see claims that China’s trade surplus has nothing to do with its currency policy; if so, that would be a first in world economic history. An undervalued currency always promotes trade surpluses, and China is no different.

And in a depressed world economy, any country running an artificial trade surplus is depriving other nations of much-needed sales and jobs. Again, anyone who asserts otherwise is claiming that China is somehow exempt from the economic logic that has always applied to everyone else.
In other words, Krugman asserts that China is engaging in a "beggar-thy-neighbor" policy, but Americans (unlike the heroic Japanese) are too timid to challenge China as it supposedly becomes wealthy at our expense. Now, in case you don't recognize the logic here, Krugman is making the arguments that were put forth by the Mercantilists four centuries ago, with many of their arguments successfully refuted by Adam Smith in 1776.

Yet, bad ideas continue to stay around. While Krugman makes his claims on the basis of Keynesianism, in truth, that "economic theology" had its roots in Mercantilism and John Maynard Keynes even praised that group in his book, The General Theory.

Now, I do realize that simply screaming "Mercantilist!" does not win any real arguments, although this brief space is not appropriate for laying out every wrongheaded notion of the Mercantilist doctrines. However, I need to point out that when Krugman declares that somehow China is at least partially responsible for our current economic downturn because of its currency policies, he conveniently forgets that the U.S. Government under the Bush administration pushed the housing bubble, and then the Obama administration proceeded to try to prop up failed banks, the housing market, and producers (Government Motors being Exhibit A) as a sop to Wall Street contributors and American labor unions. By forcing the diversion of trillions of dollars of resources to those firms and sectors that cannot stand up on their own, President Obama and his minions are aggressively and deliberately blocking the recovery.

Of course, it is more fun to blame the Chinese commies capitalists. After all, aren't they the ones who caused the housing bubble in the first place by saving lots and lots of money, which somehow made its way here and was foolishly diverted into the U.S. housing market? (Oh, that's another conspiracy theory by the Usual Suspects. Yeah, those commies finally got us. Mao himself must have hatched the plot and is laughing from Hell.)

As for blaming any subsidies that China has for its "clean energy" programs for our current situation, I must admit that such an accusation is quite rich. Doesn't the U.S. Government provide huge subsidies to "clean energy" and has not Krugman called for the government to do so in the mistaken belief that we can spend and subsidize ourselves into prosperity? I mean, from where do the subsidies come? They MUST come from the remaining healthy (or less-ill) portions of the economy. Despite the Krugman-Keynesian-Chartalist beliefs that wealth is generated by the Federal Reserve System, transfer payments ultimately must come from REAL assets, not paper ones.

One must remember that for Krugman, the end of production is, well, production. If World War II created "prosperity," then China is creating its own version of prosperity by making it more difficult for the Chinese consumers to purchase those goods that they have been making. Instead of acknowledging the basic economic truth that the end of production is consumption, Krugman is claiming that the way for us to have a recovery is to subsidize our own industries, manipulate our currency (or place economic sanctions on China, which can be interpreted as an act of war), and then we will be fat and happy.

I doubt it. We are dealing with basic economics here. Creating what clearly would be a trade war would be yet one more step in destroying not only our economy (or, what is left of our economy), but also creating havoc in the rest of the world. Yeah, punish the Chinese; that will make us all rich.

Friday, September 10, 2010

Krugman: Government is not a burden; It creates wealth!

[NOTE]: In answer to a comment from AP Lerner regarding the behavior of interest rates and government bonds, I will be answering that question via an article I will send to the Mises Institute page. That will give me more space to deal with this question, the same one that Paul Krugman has been asking in his columns: If the "bond vigilantes" were right, why have interest rates fallen instead of going up? I'll post the column when it is put up on the Mises page. That means the answer will be coming in a few weeks.

On another point, I know that some of you have seen your comments disappear. I am NOT deleting any of them. Yesterday, I was having problems of my own dealing with Blogger, and so I believe that what we are seeing is a technical issue at work that is beyond my own blog. I'm sorry that you have experienced those problems, but I also want you to know that I don't delete things just because I disagree with them. [END NOTE]

In his missive today on Japan and the state of its economy, as well as the state of our own economy, Paul Krugman decides that being a partisan hack is good economics. While I hold no love for the Republican Party and fully agree that the Bush administration was irresponsible and profligate, nonetheless, when the Democrats took power, they did not put the brakes on runaway spending, but, instead, stepped on the accelerator.

Here is the problem. While Krugman and the Democrats rightly accuse the Republicans of "running the economy into a ditch," they don't say how it was done. After all, with the explosion in government spending during the Bush years, they cannot accuse the Republicans of not spending enough "to give the economy traction."

Yes, the purposeful diversion of huge amounts of money into the housing market created a destructive bubble, but even there, the Democrats and Krugman have a problem. First, if all that is needed is more spending, then why did the attempts to continue to prop up the housing market fail miserably?

If recessions are caused simply by a drop in private spending (both consumption and investment spending), then fixing it should be easy: Ben Bernanke can just fly lots of helicopters over the country and drop money. Since government is not "revenue constrained," as the Chartalists are fond of reminding us, the solution is easy. As Robert Murphy noted in this article, since government monetary creation "abolishes scarcity," fixing the current problem is a helicopter drop away.

Furthermore, spending is spending, and since the Bushies launched wars on the other side of the world and spent, spent, spent, it would seem to me that they were increasing the "aggregate demand" that Krugman claims is the key to prosperity. Yet, why did the boom turn into a bust? The Austrians have the answer, but Krugman and his followers (the entire U.S. Government apparatus) certainly are not going to listen.

I also wish to address one more issue, and that is Krugman's claim that ObamaCare is a cost-cutting measure. He says:
(The Republicans) also surely (will) try to repeal health reform, which would be another twofer, reducing economic security even as it increases long-term deficits.
What is Krugman's proof that this initiative will lower the future federal deficits? He cites studies from the Congressional Budget Office, studies that were made by Democrats to benefit Democrats. Now, I like to see empirical evidence as much as the next guy, but I am NOT going to accept partisan political speculation of something that supposedly will happen in the future as "empirical evidence" of something that is GOING to happen. That is not economic analysis; it is simply partisan hackery. Furthermore, name me one "cost-saving" government spending program that has cut the federal deficit. These "programs" are nonexistent.

As some of the people commenting on this blog have noted, Krugman was calling for a $1.2 trillion "stimulus," but we got "only" $800 billion. Now, we are supposed to assume that for want of just $400 billion more, the economy would have been close to "full employment." That seems absolutely ludicrous on its face. Furthermore, he demonstrates no causal mechanism on how that extra "stimulus" would have translated into longer-term economic benefits. By claiming that all of this is the fault of Goldstein the Republicans, Krugman further moves away from economic analysis into the world of pure partisan politics.

Monday, September 6, 2010

A Princeton Poet Speaks

I am pleased to share a poem written by a man who lives near Princeton, James Heffern, but apparently the nonsense that passes for economics at the Ivy Tower has not affected him. (He is a bigger fan of Sarah Palin than I, but overall, his poem is pretty darn good.) Mr. Heffern in his own words:

“Dunciad,” which is written in the manner of Alexander Pope’s famous satire, describes all the figures in government, media, and academia who are colluding to make such economic misjudgments as we face possible. Mr. Heffern writes:
The poem has two attributes, I believe, you can relate to specially: 1) the most prominent dunce featured in the poem is Paul Krugman and 2) the economic principles I champion in the poem are derived from “Meltdown” which, I noticed, is on your favorites list.

You will also appreciate there is nothing in the poem about birth certificates, mosques, Afghanistan, oil spills, or other issues that pale in comparison to the economic challenges we are facing.

The poem is divided into six parts:

The invocation of the muse, the goddess Liberty

Obama’s primary race against Hillary Clinton

The general election: Obama v. John McCain

The Obama Presidency

A vision of Obama winning another term and its ensuing effects on the economy

A vision of Obama being checked in his bid for a second term.
The poem is long, but well-worth reading!


Sweet Liberty! Goddess! Attend my rhyme,

And steep my keyboard in a lucid clime.

Great the subject—the poet hardly fit

For whatever muse inspired Dada lit.

Tell how we’ve come to this pitiful pass.

Say who’s a fool and decry the odd ass.

Spare not the media, whom we berate

For fomenting anti-“teabagger” hate.

Denounce our pols through want of prudence curst

Since Bush the second reigned like Bush the first.

Now America’s in an ev’n greater bind

With Bushes three through six all in one combined.

     Obama’s his name and much to our grief

We hail him Barack—our wastrel-in-chief.

Born into honor, a babe without guile,

He first drew breath on a Sandwich Isle.

Yet no lack of myths attended his rise—

The mark of a man adept at disguise.

Eager to shape them he took to his pen

(So many bought it he did it again).

Now his polish and Harvard pedigree

Evoke the name of John F. Kennedy.

How strange that a man can inspire such lore

Five years removed from a state senator.

The one candidate whom no one would vet,

Now Midas reversed—his touch turns to debt.

Why mount a resistance—Liberty say;

And how we’ll defeat him—this is my lay.


From the beginning the crowds were raucous,

Forewarning us of the Iowa caucus

Where the Clintons were finally brought to heel

By farmers just up from their evening meal.

A third place showing had Hillary pissed;

(That’s one disaster Nostradamus missed).

The fourth estate in duplicitous bands

Slunk out of town with mud on their hands;

While a sober Barack refused to crow

With one state down and fifty-six to go.

     The frontrunner’s mantle became him well;

And resiliency, too, in case it fell.

The ever-faithful wife, taking a stand

To watch what she said with a mike in her hand.

Yet the campaign was still under attack;

A celestial vision bursting with flak.

Potshots at ACORN (not hard to indict);

The impious left and the Reverend Wright.

To base accusers Obama demurred,

And plumbed his past that his voice be heard.

Spoke in Philly; the Reverend Wright foremost;

The speech was butter but his grandma toast.

     Forth went Obama, momentum renewed;

Each rally a kind of beatitude,

‘Til Joe the Plumber took to his street,

And flyover country met radical chic.

Candor obtained; “Spread the wealth” was spoken;

Middle class support ne’r seemed so token.

But slips of the tongue make hardly a snag;

The socialist cat crawled back in its bag.

     Dialogue done, Barack did not linger;

(The common touch chafes a bitter clinger).

He now moved the chains like a black Dan Fouts

While Hillary struggled with three-and-outs.

When the Kennedy clan shorted her stock,

All but the feminists put her in hock.

The campaigns wound down—contracted in scope,

To who was the change and who was the hope.

The angel of hist’ry with wings unfurled

Gave both to Barack, and him to the world.

     To Invesco Field the nominee hied;

And unity spanned the Rockies’ divide.

Shouts of “Yes we can!” reached the cloud-capp’d heights,

And Bob the Builder surrendered the rights.

He spoke at length of effects and causes,

Barren of substance but pregnant with pauses,

Shadowed by columns remindful of Rome,

Ionic, I think, or perhaps just foam.

Earmarks, he said, he’d ax with defiance;

And pork that flouted Shari’ah compliance.

“Not by a dime will the deficit grow!”

(When Obama kids he puts on a show).

He’d harness the wind and exploit the sun;

Clean carbon from coal by the metric ton.

The cost of pollution would start to range

Like pork bellies do on Chicago’s exchange.

     Naked with hope, the people were ravished;

His vows of change unstintingly lavished.

A few more touches and “King!” they’d declare;

Like a pope, a crown, and St. Peter’s square.

From dread’s dark depths I glumly gazed my fill;

An ague caught for which there was no pill.


The desert crossed and Canaan near at hand,

November marked Obama’s promised land.

For his VEEP he chose a senator chum;

And Tweedle Smart was joined by Tweedle Dumb.

Up to their hero the press corps sidled;

Mouths agape and integrity bridled.

Women would challenge him, “What’s your beliefs?”

While secretly thinking, “Boxers or briefs?”

Among his disciples many were those

Who felt themselves raptured—but kept their clothes.

Hardball’s my favorite—who first bent the knee;

Now throws like a girl and bats from a tee.

Whom Barack, the healer, inspires like Lourdes;

While “teabaggers” code for “Scythian hordes”.

How tea parties fright him! Make him grow shrill;

As if Martians returned to Grovers Mill.

“Monochromatic?”—sounds kind of fudgy.

Perhaps he means, “pasty, blonde, and pudgy”.

Rush, he believes, is a beetle-browed brute;

Not happy he’s deaf, he’d prefer him mute.

But why belabor his take on the news?

He preaches his gospel to empty pews.

Gone is the glory of SNL fame;

His ego trots on while the show pulls up lame.

     Thus was Obama girded for battle,

His army of soldiers lethal in prattle.

They claimed by Heav’n was victory foretold;

And in the millions that Gallup polled.

Pitted against their quixotic campaign:

The perennial maverick, John McCain.

Years in captivity turned his mind inward;

Thence to labor in Washington’s vineyard.

Meshed with his base like a ram and a thicket

Keeping Joe Lieberman off the ticket.

Instead chose Alaska’s comeliest catch;

A curvaceous version of Orrin Hatch;

Creating a duo hard to upstage,

Except by our most grandiloquent sage;

Inasmuch as Obama’s legacy strives

For the face of Mount Rushmore or Plutarch’s Lives.

     Portents were grim as autumn impended;

More than the Yankees were being upended.

Impregnable icons of Wall Street banks

Saw balance sheets blow and level their ranks.

Billions of dollars in outstanding dues

From bad SIV’s to worse IOU’s,

Incautiously bundled, dispersed, and resold

In schemes that Ponzi would blush to behold.

Discomfited experts boasted a first:

Th’ unpoppable bubble—housing—had burst.

So many foreclosures, so many liens;

So much for the theories of John Maynard Keynes.

     Yet could the phoenix still rise from the ash

If only Treasury would cough up the cash,

And explode, at last, the laughable myth

That we heed the precepts of Adam Smith,

Whose laissez-faire guide to wealth creation

The Fed subverts to our ruination.

For how free is Smith’s invisible hand

When joined at the wrist to Alan Greenspan?

Called “the Maestro” for the wand that he waved

(That created credit from nothing saved)

At the game of golf he liked to piddle,

And the markets knobs he liked to twiddle,

Performing the tasks of finance’s hub

Like Jean Paul Marat, immersed in his tub;

Just a pen and notepad keeping at bay

The threat of a downturn or Charlotte Corday.

Home price inflation, the low interest loan—

From each he made a philosopher’s stone

That removed from risk the specter of fear

And made flipping houses a new career.

Should skeptical investors doubts betray,

Tides of liquidity swept them away;

More dubious critics he urged to reflect

That markets, like golf balls, can self-correct.

     With a lovely wife in whom he confided,

(His better half but twice as misguided),

He seemed the exemplar of “brain” and “trust”

By taming the cycle of boom and bust.

Adieu to all that…the Maestro’s wits

Proved more inclining to misses than hits.

Haled before Congress, the wherefores to broach,

(Like a losing team berating its coach)

He implied an excuse, only too true:

“I did what the nation wanted me to.”

     Now he’s retired; if his house were bugged,

You’d hear Andrea reading him “Atlas Shrugged”

Compelling the kind of retrospective

That unites the soul with its collective,

Whence theories once boasting the power to save

Now flicker like shadows in Plato’s cave.

     While Wall Street titans the public reviled,

On Team Obama Providence smiled.

“Communist!” “Radical!”—every canard

First fizzled, then died like a dud petard.

Independents woo’d, succumbed to his sway

And hedge fund donations all broke his way.

Secure, Barack, watched the White House kindle

A still unextinguished epic swindle,

Fiendishly finagled by “those who have”,

From Wall Street to K Street to Pennsy Ave.

Enter Paulson, whose unflappable calm

Belied obeisance to the outstretched palm.

With Lehman’s collapse he posed our peril

Hinged on the hopes of Goldman and Merrill.

He distilled this poison in Bush’s ear

With grave threats inaction would cost us dear.

Sorely miscast for the crisis at hand,

Bush little distinguished request from demand.

Sword of Damocles! It twisted his view.

What—save for his necktie—wasn’t askew?

Goaded by Treasury, beset by attacks,

He sought terms from the board of Goldman Sachs.

Down dropped the veil over backroom high jinx,

That made Teapot Dome look like tiddly winks.

TARP was conceived; deception redoubled;

“Toxic” and “Worthless” were now termed “Troubled”.

Against such connivance nothing availed;

(The House balked once, but Pelosi prevailed).

Like an infection lanced, discharging pus,

Now the banks were making a run on us.

     McCain did much to enhance the drama:

Suspend his campaign—rattle Obama.

It did not work, nor his own maverick bent.

His came, and saw, and without ado went.

The people perplexed—to whom could they sue?—

Chid the old soldier with a sad “et tu?”

Now could Obama post up in the paint,

Trash-talk the bailout, vote “aye” without taint;

Box out the taxpayer, flagrant foul Bush,

Split two defenders and dunk with a whoosh.

Both candidates voted; both were on board;

One triple-doubled; one fell on his sword.

     The rest of the race was academic:

Much more encomium than polemic.

Vict’ry’s garland now wove through the story

And Grant Park throngs but gilded the glory.

The millions exulting with heartfelt pride

Quite silenced the shouts of “Liberticide!”

Rahm, too, triumphed; it was no light duty

Making Wall Street’s wants yield so much booty.

He transformed unease and a latent fear

Into a beer hall putsch without the beer.

     Even now Hank Paulson evades disgrace,

And flings his subterfuge right in our face.

Ignorant of the incalculable harm

(No fires put out—just killed the alarm);

He justifies all in sincerest prose

For bamboozling us and Charlie Rose.


Touting a secular “fishes and loaves”

Bukharin is famous in Princeton’s groves.

A pedagogue he, imparting with grace

Untruths from a laureate’s weighty place.

On money, high finance, the public crib

He observes the rites of a faithful lib,

Fending off scorn, each Republican foe

By invoking aid from St. Delano.

     Duly invested with newsprint’s power

(Like bullhorn blasts from an ivory tower)

He harps on each of ninety-five theses

In minor, jejune opinion pieces,

Propagating the view that brands the Right

As bigots whom blacks unsettle with fright.

    At the entire South he wags his tongue

Like a mortarboard-wearing Neil Young.

How he rails!—at pay for corporate brass

To all their scions who sit in his class.

On Fed duplicity oft has he mused;

And come to the notion—he’s all confused.

     With friends at court and connections abroad,

He owns up to “liberal” and they applaud.

At Liberty’s expense Europe’s beguiled;

The gullible Swedes and Oslo go wild.

     The incarnation of Bukharin’s views,

Obama embarked on his shakedown cruise,

The seas as calm as the tidings were glad

‘Midst hopes that only his bowling was bad.

In ivied bowers Bukharin, aloof,

Beheld his ideas put to the proof:

Trillions and trillions in government debt

Blindly dispensed without hindrance or let.

Like testing Watson by watching a gene,

Or Einstein's eclipse in 1919,

The country in toto became his lab--

Cheap validation when we pay the tab.

     Once having seized our national treasure

(Money machines that print at his pleasure),

How quickly Obama did loot the land

(Though Scott Brown’s record will forever stand).

All he perpetrated I can distil

From the inaptly named "stimulus" bill.

Conceived in corruption, nurtured with hype,

All change aside--it reduced him to type.

Now was he cast in the big-spending mold

Reprising the thirties, new deals and old.

To all intents, the dollar’s new master

Inflating it to further disaster.

Congress and he machinated as much,

Like two beads of water that fuse when they touch.

Down came the vote like Jovian thunder,

Loosing Barabbases bent on plunder;

Some like pigs at a trillion dollar trough

Deaf to our pleas that enough is enough.

     Ill fares the land when promised reform

And graft this blatant becomes the new norm.

When public employees are forced to toil

Not at their jobs but dividing the spoil.

When Appropriations—stewards of our wealth,

In dispensing cash so exhausts itself

That Chairman Obey, put through his paces,

With lolling tongue breaks down in the traces,

All so cupidity’s deepening sway

Can lord it o’er the American way.

     Having baptized his rule in heaps of pelf,

Obama now turned to the nation’s health.

Catchy, new slogans he coined by the day,

Foremost among them, “Get out of my way.”

Specter he welcomed back into the fold,

Who found his prize calf not fatted but old.

Al Franken, too, to belated renown;

(All the Senate received was one more clown).

Reid and Pelosi, their wonted pallor,

Complimenting their feminine valor,

Became like a fortress—their roles would switch:

The one a rampart, the other a ditch.

All now ranged against Liberty’s standard;

Congress a cannon, POTUS a lanyard—

A never-surfeited lust for control

Exciting Dingell to give the word, “Pull!”

     Once on this course Obama decided,

Whom many trusted they now derided,

Suspecting his plea for the utmost speed

A specious pretext for power and greed.

As the health care bill gestated and grew

A cloud of unknowing grew with it, too.

It immersed information deep in dearth,

And pledges of openness stilled at birth.

If too much scrutiny threatened delay,

“Choice and competition!” Pelosi would bray.

Progressives echoed her, each errant knave

Provoking Orwell to roll in his grave.

     Under such auspices a bill did morph;

A giant in size, in savings a dwarf;

Taxes so high their scope was preempted

So Congress (the rogues!) would be exempted.

     Unemployment rates, meantime, looked amiss;

Millions of jobs lost attested to this.

Home starts fell at a rate that was steady;

Gibbs got his b.s. all shovel ready.

Recovery’s road he bedded and paved

With bogus statistics, created and saved.

     Even at Princeton conditions were stark

With endowment below the three billion mark.

The board of trustees said, “This cannot stand”

And scores of pink slips went out by their hand.

Fiscal restraint o’er “compassion” had won;

How different Obama is from Princeton!

     What of Bukharin? His hectoring zeal?

His silence now deafened the commonweal.

More for his rep the laureate trembled;

His all-knowing air appeared dissembled.

Like an old sophist who’d seen better days,

He sought to deny that he caused the malaise,

Lest his medallion embossed with Nobel

On e-Bay Art Sulzberger tried to sell.

     Working the numbers, a graph and table

He humored his fans with one more fable:

A claim that weighed in like a piece of fluff—

The stimulus bill wasn’t big enough!

More confirmation, as the maxim goes,

That quacks, like kings, can parade without clothes.

     Health care reform was losing its luster

Though sixty-vote vigils forbore filibuster.

Sleep was disdained and comforts forsaken

Into wee hours when key votes were taken.

Nor could defections threaten adoption,

Not states opting out of the opt-out option;

Congress rescinded the oaths it had sworn

And sacrilege sullied Christmas Eve morn.

Here words fail us—but oh! the duress—

“Twas the night before” mangled by Roland Burris!

     Yet, in a trice, would their plan unravel

Abrupt as Franken banging his gavel.

In Massachusetts where Democrats reign

A truck-driving gym rat can still get game.

Poised between parties Scott Brown had the sense

To say with conviction he’d straddle the fence;

Yet preach on the text (how Democrats seethed!)

That seats in the Senate can’t be bequeathed.

He and his rival went toe against toe;

And Coakley came too, but just for the show.

Grim looked Gergen—moderate, debater,

Archly condensed into “moderator”.

His weapons ranged from fork ball to splitter—

The stuff you’d expect to beat a switch hitter.

He graced the mound with impeccable style,

His unbloodied socks imported argyle;

Yet still felt threatened by the tactician

Whose lug could cow the suavest patrician.

When old indiscretions at last bore fruit,

Gergen saw Brown in his birthday suit,

A cake-of-beef sandwich served open-faced,

Samson’s own forearm strategically placed.

“This,” Gergen thought, “is too much exposure.”

Foot on the rubber, he lost his composure.

He hung a fat curve ball out o’er the plate,

Brown crushed it, his swing like a wind-whipped gate.

Both watched the ball disappear in the sky;

Brown morphed into Fiske and waved it goodbye.

     Just one new join in the Party of No

And health care returned to the status quo.

Obama shrunk from muscled Colossus

To bungler keen on cutting his losses.

Sad was the plaint of Progressive betrayed:

Bukharin, whose laptop would not be stayed.

Backbone buckling beneath the scrutiny,

He took to his blog, a one-man mutiny,

Proclaiming, “Obama is not The One!

He’s all Attila without the Hun!”

And frailty’s name was exposed as more

Than woman alone….Try famed professor.

     The White House, tested, made its next forum

A chance for POTUS to lack some decorum.

An amicus curiae brief of the sort

That asked in a huff who’s friends with the court.

The State of the Union, so oft a dud,

A wearisome bore for the couch-bound spud,

Would swing like a pendulum, loosed pell-mell

From wrath’s own angel, come out from its shell.

     Mantled in black, seated all in a row

Like ducks you plug at a carnival show,

The Supreme Court brooded like muses nine,

Enjoined by tradition to ride the pine.

Down from his dais, now like a pulpit,

Obama glared and fingered the culprit,

His words a kind of digital prodding

To chastise, chasten, and wake the nodding.

What a fat target to rip from on high;

It’s the State of the Union! Dare reply!

     He made his harangue, confusing the throng,

His oration so right, his facts all wrong.

For a year we’d been mouthing, “It’s simply not true.”

Now Justice Alito was mouthing it too.

The chamber rustled to murmurs, “How bold”,

While cringing, Judge Roberts thought, “Irksome scold!”

Hardball, impressed, had the passing figment

That somehow Barack had lost his pigment.

Whatever the case, the court shrugged it off,

Requiting rebuke with hardly a scoff.

Storing it up for future reference

Should next year’s speech also lack deference.

Forewarned how tactless Obama can be,

Forearmed they’ll come with shooters of pea.

     Now change was revealed in all its scope:

Taboo-busting boorishness tinged with hope.

It would stand Barack in excellent stead

As, gibbering, health care rose from the dead.

Against all advice the White House regrouped,

With new depths to plumb, new lows to be stooped.

It queried Congress, testing its temper

To see if its “fi” still had its “semper”.

More pledges exacted, no matter the price;

Unhappy the soldiers conscripted twice.

Obama, his capital nearly spent,

Abandoned all pretense of good intent;

Reneging on vows as if made in jest;

Brokering deals at others’ behest.

The more he wheedled, the more he cajoled,

The more special interests raked in the gold.

Unions made sure he was worth his hire

(Failure found an adoptive sire).

The AARP got such a big slice,

It moved to Palm Beach and retired twice.

Lawyers who traffic in frivolous suits

Not only flowered but sunk deeper roots.

Stupak’s circle was easy to cozen—

Such votes come cheap when bought by the dozen.

Obama, moreover, our stomachs tried

When he and Kucinich went for a ride,

The latter sure the flight would engender

Pride that he, too, was once a contender.

Thus, bribery ran a river in spate

And CBO numbers rigged the debate.

“The CBO scores” meant more than the bill;

Its amorous flings were the talk of the Hill;

Yet how it disproved we’d be in arrears

Got Enron’s director twenty-five years.

All shame was lost as Senate tradition

Sank more debased than life in perdition;

The Twisting of arms an optimum tool;

Goading a man to renounce his own rule.

How firm stood Obama in days of yore

(Reciting from notes on the Senate floor)

Against injustice he swore would take root

Should parliamentarians get the boot.

Here’s a conundrum: under his aegis

Nuclear warfare’s not so egregious.

Gone the alarmist, his dire narrative

Tweaked into a moral imperative

Wherewith Congress, their Rubicon crossed,

Measured their marches in liberties lost.

Passage felt like a bad movie ended—

Disbelief back (it was never suspended!)

To the ship now righted with waves of hats

Bukharin returned with all the rats;

Pelosi clutched her gavel gigantic

(Wanting to touch it Franken was frantic).

In a single year via Obama

Of government growth this was the Mama.

A new vein mined in the mountain of debt;

More booze-sodden toasts on Pelosi’s jet.

Speak! Liberty, in tones becoming age

What further plots these sad events presage.

Complete the equation; your prescient sum:

Obama past, Obama yet to come.


     By increments, like layers of guano;

Subtle as Janet Nepolitano,

The debt grew. Insuperably steady,

Always the Treasury at the ready

To gorge this glutton, loosed from Dante’s Hell;

Obesity’s rod to chastise Ms. Michelle.

      As orgies of outlays continued apace,

Bukharin restored enough of his face

To champion Obama’s brand new start

With all the gloss of a scholiast’s art.

One foot in his mouth, one in the stirrup,

He mounted his nag, “Following Europe”.

An equestrian byword, gaunt of rib,

Forever in search of a free corn crib,

It seemed to totter, the last of its legs

Less tendon and muscle than balsam pegs.

     Consider Pegasus, only larger;

As paragons go, a pure white charger;

And such was this nag esteemed in the press

That hardly a man could think of it less.

The Brians, the Katies, the Michael Moores

(When it rains on the Right it Amanpours)

Curtsied before this ignoble pairing,

Emblem of Washington way past caring.

     Not with less favor was Obama buoyed;

Defective or not, his warranty void.

In moralizing tones he lulled the brain

Like Mesmer dangling his watch and chain.

In the mid-forties his favorables polled,

And, crowds upon crowds, the bandwagon rolled.

Guileless soccer moms loathed fixing blame;

Their foresight reduced to the next road game.

Would that their children played always at home;

In time they’d see we’re collapsing like Rome.

     Independents held firm: There’s voters who think;

Straight down the middle and up to the brink;

Deists of dignity, atheists glad;

Truth blows in the wind with each hanging chad.

     Youths were the vanguard, who, passive as sheep,

Their legacy squandered, the jailer’s keep

Looming in health reform’s legislation,

Still cast their lots with Obamanation.

     Such was the spirit of undeterred zest,

The Leibniz-like hope, “It’s all for the best”

That spread contagion, each vote like a germ,

Vaulting Obama to a second term.

     Now darker impulses came to the fore,

Cued by interest rates starting to soar,

And all the misery multitudes faced—

The ultimate crisis that Rahm wouldn’t waste.

     The White House, gladdened, saw reason to fete;

The drama foretold, the stage had been set

For founding Utopia with the repute:

A nation of equals, all destitute.

     To this idea Obama held fast

Even as businesses sputtered their last.

The yoke of tight credit eliciting groans,

And, bound by red ink, banks calling in loans.

      Emboldened, Geithner, redoubled his haste

That dollars, devalued, be more so debased.

The press devils harked and took extra heed,

Obliging their boss with consummate speed.

As trading in greenbacks hit a new low

The clattering presses started to glow;

The belts and bearings so hot from the strain,

Whole sheets of bennies would burst into flame.

     America’s creditors got their comeuppance,

Paid back in dollars not worth a tuppence.

Nor could Bernanke’s obsequious pleas

Silence the rage of a billion Chinese.

Just blocks from the White House, dismal days dawned:

At Beijing’s request the Smithsonian pawned;

Removed from the coinage our trust in God;

Torn up and discarded the Mall’s new sod.

     Yet in a panic they STILL dumped our debt

Like “junk that sinks but doesn’t get wet”.

Progressives, convulsed with laughs of elation,

Thrilled at the currency’s immolation.

     Obama, unmasked, delivered his creed:

“From capital’s chains the nation is freed!

Fallen from azure are Liberty’s minions;

Their wealth dispersed and melted their pinions.

Their fate has devolved by nature’s command,

Like beasts to the sea relinquishing land.

By government sufferance they’ll still survive

And by their toil their countrymen thrive.

     “Hereinafter debate is discouraged;

Of bile and spleen be lawmakers purged.

Time’s expired though Lieberman stammer;

Franken presides. Behold his sledgehammer!

     “No rancor too great, I’ll heal the rift;

Make lions lay down with Eleanor Clift;

Focus America’s eyes on the prize:

Newsweek’s resurgence, Rush Limbaugh’s demise.

     No more on the Yank will foreigners sour;

Gone is the stigma of temporal power.

Lest there’s doubt our hegemony’s through,

The United Nations has vouched it true.

     “Liberty’s statue a title will bear

For indoctrination: The Great Au Pair.

She’ll tend the docile from cradle to grave,

But rule like Draco the home of the brave.”


     Liberty! Swear by all that’s heroic;

By Tom Paine’s cry or some martyred stoic;

That legions of devotees still unbowed

Can via the ballot box make you proud.

      Fled is your vision of unchecked decline;

Observed and noted; defeatists repine.

Awaits the nation whom you’ve anointed

To thwart Obama, and what’s appointed

In Two Thousand Twelve—the electoral shock

Bigger than Mayans resetting their clock.

     Called from rule of a people set apart;

Whisked from the North into the nation’s heart,

Liberty’s Chosen One graces our cause

With unvarnished reverence for all her laws.

Dian the Huntress! O thrice-noble one!

Who cradles, in camo, a twelve-gauge shotgun;

To her our great nation its homage pays.

She lifts the spirit and dazzles the gaze!

Ev’n as a baby shaking her rattle,

So shook the earth from Gnome to Seattle.

As harbingers go, a Democrat’s curse:

The rattle betiding a grip on their purse.

      Born of good stock, a family of teachers,

She cherished life and slaughtered its creatures;

And learned to subsist off a mountain ledge:

“The roughest berry from the rudest hedge”.

     Inured to long winters, her snow-broth blood

Flowed like a freshet in a warm spring flood.

For proof against cold—just braided tresses,

Seal-skin knickers and party dresses.

Many a skinned knee would her gambols cost

While skipping through darkness on permafrost.

     But summers were heav’n, abundant with light;

Sly Morpheus vanquished by wakey night.

Two a.m. ice cream in downtown Wasilla;

With thirty-one flavors—all vanilla.

     Steeled by decades of hardscrabble life,

Risen to governor, mother, and wife,

She preached an ethic of courage and faith

To all of her ilk, to whom she saith,

“The Republican Party’s one big tent,

Reached only by floatplane, like Jonah sent

To urge reform from Sidon to Tyre;

Or risk a rain of brimstone and fire”.

    The pundits mocked her like jesters at court.

Her high aspirations they turned to sport;

Demanding more than just her pilloried,

But swift boated, borked and ev’n hillaried.

With a regent’s poise she contained her rage

When a satyr struck from his late nite stage

With viscerally wrenching jabs to the gut

That felt like Carson degraded by smut.

     All she endured like an Alaskan Frost;

Her family maligned, her privacy lost.

When a Grub Street hack bent to his labor,

She built a fence and made a good neighbor.

     Now backed by an army of raw recruits,

In numbers like locusts, in brains like Newts,

She’s fixed their will like a diorama,

Pledged to unseating Barack Obama.

     Although from rustics her ranks are drawn,

It suffices that Sarah leads them on;

With a gig’s worth of Toby on her ipod,

Hers the conservative scepter and rod.

There’s no demographic she can’t get,

From harp seal hunters to the paint ball set.

Rose among brambles, she’ll start a new vogue

That will not stop ‘til we’ve all gone rogue.

     Lady of Iron! Like whom in stature

None can compare but Margaret Thatcher;

She’s picked up the gauntlet and entered the lists,

Her finger erect in spite of the fists,

To launch a campaign with a monster rally—

A million strong at the base of Denali

That could ev’n swell by a factor of two

United with migrating caribou.

     On behalf of Liberty she’ll proclaim

Austerity’s Era in all but name.

A purging of all that soils this nation

Couched in the virtue of deprivation.

In gemstone jellies and a gingham dress,

She’ll dub her campaign the “Dime Store Express”

Exalting thrift that begins in the home,

Then wends its way to the Capitol’s dome.

     Uncle Sam’s belt she’ll cinch ‘til it rankles

So pants at the knees don’t bag to the ankles;

A balanced budget required by law,

And further enjoined by Mama’s big paw.

     Bernanke’s Bastille she’ll take by storm;

(Rejecting all pretense of Fed reform)

Ransacking its books, exposing to view

Webs of corruption and monies undue.

Dare Wall Street object? They’ll live with their lot,

Cowed by “You betchas” that terminate “NOT!”

     Wrought of the stuff that gives virtue its soul,

Dogma inscribed on her hand like a scroll,

She’ll scatter a new political seed

That rewards hard work and punishes greed.

By chanting her name will children applaud,

Their futures preserved from government fraud;

Their voices attuned to freedom’s allure,

Anointing the blind with patriot myrrh.

     Like Joseph with harlots we’ve left our robes;

In fortitude Davids; in patience Jobs.

Forgoing the fruits of Liberty’s horn,

That orchards remain for ages unborn.

Of vulgar indulgence we stand confessed;

Our penance accepted; our penitence blessed.

Shriven, we’ll labor with each passing breath

Commending ourselves to a glorious death

When rising triumphal in Liberty’s cars,

We take our inheritance with the stars.

About the author:

Born in 1964, Jim Heffern grew up in Lawrenceville, New Jersey where he now resides. A career carpenter, he attributes his political bent to his father, Adrian Heffern, now retired, who covered New Jersey politics as a journalist for over thirty years. Jim had the distinct pleasure of attending high school with Jon Stewart. Two years younger than Jon, he only had one class with him-a history class called "The Making of Modern Europe" taken when he was a sophomore and Jon a senior. He recalls Jon had a special rapport with the teacher-a Reagan supporter (the year was 1980) who relished belittling all things liberal, his students not excepted. Such was their rapport, however, that the teacher, in perverse deference to Jon, kept pinned to his bulletin board a replica of a 1920 campaign poster featuring (in prison garb) the socialist candidate for president, Eugene Victor Debs.

Jim suspects this was a gift from Jon to the teacher and by its display, a way of honoring the gift more than the man. It remained in the classroom long after Jon had graduated, and the image of Debs' spare, wizened figure
in paper-thin tunic, his graybar digs in the background, sticks in Jim's mind even to this day. It's the image of dignity, resolve, and sacrifice-three virtues that today seem as obsolete as the philosophy which inspired them.

Krugman Unleashed: Economics as Though the Non Sequitur Means Something

Following with his thematic writing (in following recent blog posts, including this one, along with my response), Paul Krugman continues to insist that if the Obama administration decides to really crank up the borrowing and spending, we, too, can experience a wonderful boom, just as Americans did in the 1940s.

Now, I find interesting that Krugman now has decided that World War II, a time when at least 50 million people met horrible deaths, really was a wonderful time of plenty and happiness, or at least it gave us an "economic boom," and Krugman believes booms are good. Lest anyone think I am exaggerating, read Krugman's own words:
From an economic point of view World War II was, above all, a burst of deficit-financed government spending, on a scale that would never have been approved otherwise. Over the course of the war the federal government borrowed an amount equal to roughly twice the value of G.D.P. in 1940 — the equivalent of roughly $30 trillion today.

Had anyone proposed spending even a fraction that much before the war, people would have said the same things they’re saying today. They would have warned about crushing debt and runaway inflation. They would also have said, rightly, that the Depression was in large part caused by excess debt — and then have declared that it was impossible to fix this problem by issuing even more debt.

But guess what? Deficit spending created an economic boom — and the boom laid the foundation for long-run prosperity. Overall debt in the economy — public plus private — actually fell as a percentage of G.D.P., thanks to economic growth and, yes, some inflation, which reduced the real value of outstanding debts. And after the war, thanks to the improved financial position of the private sector, the economy was able to thrive without continuing deficits.
As I have noted before, Robert Higgs, who actually is an economist who knows something about history (and is not simply a partisan political operative like a famous faculty member from Princeton), lays out the reality of the World War II home front quite well. Furthermore, there is the little problem of Krugman's non sequitur: How in the world can we say that World War II created a "boom" that "laid the foundation for long-run prosperity"?

First, the economy was tuned to war goods, not goods that people actually would want or need in normal life. Much of the capital that was developed during the war was not easily turned toward civilian production.

Second, there is no causality here. Krugman notes that the government went into huge deficit spending during the war, and then "long-run prosperity" just naturally followed. How, I ask, does that follow?

No doubt, Krugman would argue that the economy had "gained traction" during that time, but that is a circular argument at best. In that view, the economy booms because, well, it booms.

Finally, is Krugman demanding that the government expand the way it did during World War II, and that somehow, that will create long-term prosperity? If enough of us get jobs raking leaves and digging holes, and then filling them up again, will that magically make goods appear on the shelves and give us the Horn of Plenty?

Prof. Higgs has a much better handle on the subject. In this paper on "Regime Uncertainty," he not only lays out what happened during the 1930s and the war, but also what happened afterward. The difference is that his paper actually uses believable causal mechanisms, not Krugman's "Hair of the Dog" economic theories.

Sunday, September 5, 2010

Fallacy of Composition, or a Non Sequitur?

Of all of the things that Paul Krugman has written demanding that the government engage in even more massive borrowing and spending to "give the economy traction," perhaps this September 3 post is the most fallacious. Ironically, Krugman is claiming that his opponents are engaging in an informal fallacy, the Fallacy of Composition.

He writes:
Whenever the issue of fiscal stimulus comes up, you can count on someone chiming in to say, “Only a moron could believe that the answer to a problem created by too much debt is to create even more debt.” It sounds plausible — but it misses the key point: there’s a fallacy of composition here. When everyone tries to pay off debt at the same time, the result is contraction and deflation, which ends up making the debt problem worse even if nominal debt falls. On the other hand, a strong fiscal stimulus, by expanding the economy and creating moderate inflation, can actually help resolve debt problems.
So, what is his example? It is World War II. He goes on:
From 1929 to 1933, everyone was trying to pay down debt — and the debt/GDP ratio skyrocketed thanks to contraction and deflation. During and immediately after WWII, there was massive borrowing — but GDP grew faster than debt, and the debt burden ended up falling.

Yes, it seems paradoxical — but that’s the kind of world we’re living in. And the refusal of so many people to face up to the fact that we’re in a world where conventional rules don’t apply makes it likely that we’ll stay in that world for a long time come.
Here is the problem. As Robert Higgs wrote nearly 20 years ago, to say that World War II was a time of "prosperity" is an obscenity. It is true that the GDP numbers were high, but Prof. Higgs points out that the economy mainly was producing war goods. He writes:
In fact, conditions were much worse than the data suggest for consumers during the war. Even if the price index corrections considered above are sufficient, which is doubtful, one must recognize that consumers had to contend with other extraordinary welfare-diminishing changes during the war. To get the available goods, millions of people had to move, many of them long distances, to centers of war production. (Of course, costly movements to areas of greater opportunity always occur; but the rate of migration during the war was exceptional because of the abrupt changes in the location of employment opportunities.) After bearing substantial costs of relocation, the migrants often found themselves crowded into poorer housing. Because of the disincentives created by rent controls, the housing got worse each ear, as landlords reduced or eliminated maintenance and repairs. Transportation, even commuting to work, became difficult for many workers. No new cars were being produced; used cars were hard to come by because of rationing and were sold on the black market at elevated prices; gasoline and tires were rationed; public transportation was crowded and inconvenient for many, as well as frequently pre-empted by the military authorities. Shoppers bore substantial costs of searching for sellers willing to sell goods, including rationed goods, at controlled prices; they spent much valuable time arranging (illegal) trades of ration coupons or standing in queues. The government exhorted the public to “use it up, wear it out, make it do, or do without.” In thousands of ways, consumers lost their freedom of choice.
Furthermore, Krugman seems to be claiming that the "high GDP" numbers between 1941 and 1945 came as a result of all of the heavy borrowing done by the Roosevelt administration. This is nonsense. It is as though World War II came about because of "investments" by FDR and his "Brain Trust" when, in fact, the war had nothing to do with the New Deal per se.

So, in claiming that he is ferreting out the "Fallacy of Composition," Krugman engages in yet another non sequitur. Not exactly good economic analysis.

Friday, September 3, 2010

Krugman's Column and Comments: If Your Spend, Spend Boldly

One of Martin Luther's most famous sayings was, "If you sin, sin boldly." Now, Luther was not demanding that people commit sins, but rather was emphasizing what he saw was the grace of God. In a 1521 letter to Melanchthon, he wrote:
If you are a preacher of Grace, then preach a true, not a fictitious grace; if grace is true, you must bear a true and not a fictitious sin. God does not save people who are only fictitious sinners. Be a sinner and sin boldly, but believe and rejoice in Christ even more boldly.
No, this is not a theology lesson, but I see an analogy in Paul Krugman's latest statements, both in his latest column and on an appearance on Good Morning America.

He writes:
When Mr. Obama first proposed $800 billion in fiscal stimulus, there were two groups of critics. Both argued that unemployment would stay high — but for very different reasons.

One group — the group that got almost all the attention — declared that the stimulus was much too large, and would lead to disaster. If you were, say, reading The Wall Street Journal’s opinion pages in early 2009, you would have been repeatedly informed that the Obama plan would lead to skyrocketing interest rates and soaring inflation.

The other group, which included yours truly, warned that the plan was much too small given the economic forecasts then available. As I pointed out in February 2009, the Congressional Budget Office was predicting a $2.9 trillion hole in the economy over the next two years; an $800 billion program, partly consisting of tax cuts that would have happened anyway, just wasn’t up to the task of filling that hole.

Critics in the second camp were particularly worried about what would happen this year, since the stimulus would have its maximum effect on growth in late 2009 then gradually fade out. Last year, many of us were already warning that the economy might stall in the second half of 2010.
Since I am not in the Wall Street Journal Supply-Side/Neoconservative camp, I'm not going to comment on what the Journal editorialists have written, but I do have a problem with Krugman's analysis.

He claims that had the government appropriated nearly three times as much as it did, the economy would be doing fine now and we would be close to full employment. However, he fails to explain just how or why that would be the case. Yes, I am familiar with the diagrams included in an earlier posting, but Krugman seems to be implying that had the government run a three-trillion-dollar-plus deficit last year, that our economy would be in fine shape today.

But, WHY would it be in good shape? Would have that injection of spending -- And how and where would Congress appropriate that amount of money so quickly? -- have boosted long-term capital investment, which is missing today? Krugman doesn't say; he just looks at GDP charts, extrapolates, and then he is off writing columns.

Second, his attribution of bad motives to anyone who disagrees with his point really strikes me the wrong way. Republicans are just obstructionists and nothing more, and the markets are run by idiots, and President Obama is just listening to the wrong people, and that maybe Krugman should be the president's top economic (and political) adviser. Who knows?

I mean, if the Keynesian paradigm really is as good as Krugman says it is, then I would be happy to participate in a scheme in which all of us could spend ourselves into wealth. Since the Chartalists seem to believe that the official government monopoly on what government calls money is the source of creation of wealth and prosperity, all that is needed is for government to spend, spend, spend, and everything else will follow.

At one level, I wish Obama had followed Krugman's advice and just lavished the spending if for no other reason to demonstrate just how wrongheaded that entire Keynesian paradigm really is. (I'm sure that Krugman would add that one not only would need new spending, but one also would have to have a religious faith in government spending and government itself in order to make the whole thing work.)

So, Obama is going to try to do something, the economy will continue to tank, and Krugman will be claiming that all we need to do to get rich is spend a lot of money, and if our bank accounts are empty, then the government will fill them with "living water."

Thursday, September 2, 2010

"Spending" versus Consumption: Does Economic Theory Actually Assume People are Human?

Keynesians and Austrians have a lot of economic and philosophical differences, some of which I have tried to spell out on this blog. However, in my view, other than the implied assumption about "homogeneous factors" and the Keynesian view that one can do specific economic analysis with nothing but aggregates, perhaps the greatest gulf between Austrians and Keynesians comes in how people from those camps view actual human economic behavior.

I believe that Krugman, in this blog post ("The Economic Narrative"), does all of us a favor by explaining his position and unwittingly laying out the real differences between the Keynesians and Austrians. If I can reduce it to one sentence, it would be: Keynesians ignore the fact that human beings engage in purposeful economic behavior. Krugman writes:
A straight Keynesian analysis implied the need for a much bigger program, more oriented toward spending, than the administration proposed. And people like me said that at the time — we’re not talking about hindsight.
If, indeed, an economy were a mechanistic operation in which we robotically put inventory on the shelves and then "spend" so we can clear the shelves (so we can put more stuff on the shelves again), then Krugman would be correct. A government program to encourage spending would do the trick.

However, because what Krugman calls spending actually involves purposeful behavior by individuals, we are dealing with different perspectives on the matter. Krugman implies that an economy is made up of two detached arms, one that produces and the other that spends. They are disassociated from one another, and if spending does not occur in large enough amounts or quickly enough, then the other side breaks down.

Austrians, on the other hand, believe that the economy is a very complex web in which producers look to meet the needs of consumers, needs that consumers will meet by purchasing goods. This process is not mechanistic, by any means. Moreover, the processes are related; more production means more consumption, as the base of our "purchasing power" is not how much money government can put into the economy, but rather our ability to produce those goods that people want.

Although Krugman (as we saw in an earlier post) has recognized the presence of asset bubbles, he then turns around and denies that the boom produces systematic malinvestments. However, what does he think a bubble is, anyway? It is the creation of malinvestments.