Tuesday, March 8, 2011

This is Fiscal Responsibility?

Since Paul Krugman's column and blog have become little more than propaganda for the Democratic Party, I thought today that I would feature something written by an economist who actually does real economics: Robert Higgs. But first, let us look at a recent blog post by Krugman.

In critiquing a recent blog post by Tyler Cowen of George Mason University, Krugman notes that Cowen did not zero in on the rise of U.S. Government debt levels during the Reagan administration. He also writes this:
Bear in mind, too, that the signature initiatives of Republican presidents — the Reagan tax cut, the Bush tax cut, the Medicare drug benefit — have all been unfunded deficit-raisers; the signature initiatives of Democratic presidents — the Clinton tax hike, Obamacare — have all been deficit-reducing.
I find his attack on the tax cuts started in 1981, in which the top rates were dropped, including the one from 70 percent to 50 percent. At the Southern Economic Association meetings of 2004 in New Orleans, where Krugman was a featured speaker at a Sunday session, I asked Krugman if he believed that we should go back to the 70 percent rates, since he had been on the attack against Reagan.

His reply? "Oh, no! Those rates were insane!" (He really emphasized the word "insane.") Now, given Krugman's selective memory, I doubt he will recall having said such things, but it was in a room full of economists and I am sure that more than a few of them will remember what Krugman said.

There also is Krugman's claim that ObamaCare is "deficit-reducing." I had to pick myself off the floor at this one. Krugman is saying that the creation of a VAST new entitlement will result in lower levels of government spending, and that simply is a joke, a very bad joke.

Don't forget what ObamaCare has done in its thousands of pages of just the law, not to mention the hundreds of thousands of new regulations that will be kicking in over the years, will make the very thing that we need -- entrepreneurship in the field of medicine (real entrepreneurship, not trying to beat the system) -- will be criminalized. If Krugman really believes that making ALL medical care simply something that falls under government administration is going to reduce the opportunity costs that come with medical care, then he has totally rejected economics for something else.

More than four decades ago, the Democrats under Lyndon Johnson passed a vast array of new laws that created the very entitlements that, along with empire-preserving military spending, are eating the budget. As Professor Higgs notes, these new entitlements never were projected to eat the U.S. economy; instead, they were supposed to be a small appendage funded by our productivity.

Economics deals in the areas of costs and benefits. However, to economists (or at least those economists who are not part of the "elite" system, anyway), costs are opportunity costs. They are not simple administrative numbers.

Yet, when Krugman refers to medical costs, that is exactly what he means. Entrepreneurs over the years have reduced real costs by moving resources from lower-valued to higher-valued uses, as ultimately determined by consumers.

In Krugman's world, however, real cost reduction is nothing more than an edict from the state: You will cut costs. That is not economics, people; that is fantasy.

41 comments:

Bala said...

Come on Prof. Anderson. You surely know no economics. These are not deficits but the creation of money that government will spend thus making it possible for the economy to function in the first place. Doubt what I say? Ask AP!!

Bob Roddis said...

We can know n advance ithat ObamaCare will be a disaster because it relies almost completely upon command and control to “control” prices and to allocate resources. The simple fact is that Krugman and all the statists refuse to understand the pricing process (which is also why he won‘t wrap his little mind around the ABCT). Because ObamaCare is going to employ command and control in lieu of market pricing, it will be a nightmare. From the December 2010 issue of LIBERTY:

ObamaCare creates over 100 new government commissions. Some estimates are as high as 159; no one seems to know for sure. But judging by the 4,231 occurrences of the word “shall,” the commissions will be very busy, whatever their number. And they will be everywhere, all the time. According to the PPACA, commissions shall establish procedures; promulgate regulations; provide for efficient and non-discriminatory administration; prescribe regulations, rules, and guidance. They will be identifying health quality measures, monitoring outcomes, allotting money to states, awarding grants to entities, participating in rigorous federal evaluation of activities, ensuring that hospitals are representative of the spectrum, establishing a national strategy to improve healthcare, aggregating consistent data on quality, consulting with other commissions. They will be conducting demonstration programs, computing benchmarks, establishing geographically adjusted premiums, negotiating reimbursement rates, determining contingency margins, conducting competitive bidding processes. All this is barely the tip of a colossal, dizzying, and nebulous iceberg of healthcare command and control — so who needs the Public Option? @Page 25

http://www.libertyunbound.com/node/290

ObamaCare is a law written by economics deniers that only an economics denier could love.

I continue to find it strange that not only do the statists fail to understand the essential nature of the pricing process, they seem to have no understanding that the pricing process is central to Austrian theory. But they sure know they don’t like Austrian theory (whatever it might be).

Dan the Man said...

"In Krugman's world, however, real cost reduction is nothing more than an edict from the state: You will cut costs. That is not economics, people; that is fantasy."

Prof. Anderson, is this why the U.S. currently has health care with worse outcomes at greater expense as a % of GDP and per capita income than Australia, Canada, France, Germany, Japan, Norway, Sweden, UK, etc?

How do you say this stuff with a straight face? "Unleashing the power of the entrepreneur" in US healthcare has contributed to the nightmare of doctors/businessmen who treat based on cash, not results. This results in more testing (at clinics they may own), more visits, worse coordination, worse outcomes etc.

I will not deny that gov't payroll tax breaks on health benefits contribute to the problem, however, this has been invaluable to those who could not obtain health coverage otherwise.

Anonymous said...

@Dan: As my old friend would say, "source, or GTFO".

Bob Roddis said...

The idea that we have a free market in US healthcare is preposterous. It is truly a waste of valuable time to start from scratch and try to explain simple truths to someone holding such a ridiculous view.

The pricing process, anyone?

Mike Cheel said...

I have personally heard more doctors complain about government regulations than anything else.

Who of the government lovers are willing to talk about the HMO Act of 1973? According to Wikipedia,

"HMOs" were defined simply, as plans that: specified list of benefits to all members, charged all members the same monthly premium, and were structured as a nonprofit organization.

The Act solidified the term HMO and gave HMOs greater access to the employer-based market. The dual choice provision expired in 1995.

I guess it really is the free market's fault (again).

Mike M said...

Dan the Man said: Prof. Anderson, is this why the U.S. currently has health care with worse outcomes at greater expense as a % of GDP and per capita income than Australia, Canada, France, Germany, Japan, Norway, Sweden, UK, etc?

Dan, your statement is based on what? Outcomes measured by how? Whose data? How developed? Subjective or objective? Adjusted for monocultural society vs multicultural society? Adjusted for the fact most major advances in all aspects of medicine emanate from the USA?

Repeating a talking point does not make it true.

Bob Roddis said...

A fan of "Krugman in Wonderland" got the second comment posted today on Krugman's blog:

http://tinyurl.com/4j3fd3r

Xatrucho said...

Free market in US healthcare?

Doctors don't even determine their own fee, this video is rather revealing http://www.youtube.com/watch?v=FZc8bEn85PA

Also: http://www.aapsonline.org/

Also, about comments disappearing, I noticed it usually happens when comments are too long. Try splitting your posts and see if it works.

Anonymous said...

would you rather be right and impossible to politically implement (hayek), or partially wrong yet slowly progressive towards right? that is obamacare. you're applying free market principles to an industry that can't follow free market principles - healthcare. (could we cut off healthcare for orphans who can't pay? no. can we not give them ipods? yes) thus we must develop a more compromising set of rules that reduces to the extent possible market failures and government failures. does obamacare do so completely? hell no. is it a step in the right direction? i would argue yes.

Mike Cheel said...

So tell me again why something such as an appendectomy in the 1950s cost around $2500 without health insurance (which was completely affordable back then and I am referring to the insurance) and around $40,000 today?

Also, back in the 50s the doctor would be willing to make house calls. When was the last time anyone had one of those?

I know! It's that free market right? They are so greedy and don't care about anyone or anything (other than their own profits of course)!

We all know how caring this non-profit government is!

Xatrucho said...

In regards to what Mike said I recommend the 3 videos here on Restoring Free Markets to Medicine: http://www.aapsonline.org/index.php/site/article/restoring_free_markets_to_medicine/

Will said...

@Mike Cheel- $2500 in 1950 was a great deal of money, not at all completely affordable. Its something like 75% of median household income.

At around $30,000 for an appendectomy today, the cost is still about 75% of household income. Its possible the cost adjusted for inflation, hasn't moved much.

sengber said...

Whew! I sometimes fear that Paul Krugman makes TOO much sense and I'm uncomfortable with someone having THAT much intellectual sway over me. So I came here and I get Sean Hannity/Bill O'Reilly style boiler plate. . .

Guess I'll keep looking.

Bob Roddis said...

It seems that we used to get the very high-end of the inferior mind cohort for commenters. Now we seem to be attracting the mid to low range of that cohort.

Hey sengber - if Krugman is so smart, how come he hasn't the slightest familiarity with basic Austrian School concepts?

Dan the Man said...

"Hey sengber - if Krugman is so smart, how come he hasn't the slightest familiarity with basic Austrian School concepts?"

Do you guys just ignore or completely deny the fact that you're views are in considered fringe by most mainstream economists?

Why would an economist like Krugman waste his time trying to understand concepts that have no real support in academia?

Bob Roddis said...

Why would an economist like Krugman waste his time trying to understand concepts that have no real support in academia?

1. Because Krugman's ideas are the cause of our problems which is the gist of the Austrian School. And Hayek won the Nobel Prize for his work on the ABCT which explains this. An economics professor should understand this.

2. Krugman mentions the Austrian School all of the time, constantly insulting its adherents. He's an economics professor. He won the Nobel Prize. One would think that when he mentions the Austrian School in such a setting, he ought to have at least the slightest familiarity with it. And he doesn't.

3. How would anyone know if the Austrian School was fringe or a message from GOD unless they had familiarity with and understood its basic concepts?

4. I maintain that academia purposefully avoids understanding concepts which are critical of their world-view because they suffer from a terminal case of intellectual rot.

Actually, your question answers itself.

Mike Cheel said...

@Dan

"Do you guys just ignore or completely deny the fact that you're views are in considered fringe by most mainstream economists?"

Just because a view is considered fringe does not automatically make it not accurate. I would mention the flat earth or the sun orbiting the earth but then you would just accuse me of sloganeering or something similar.

Views change all the time but I wouldn't expect you to notice.

Bob Roddis said...

Let’s not forget that AP Lerner once linked to a Paul
McCulley
article asking:

1) Could you explain the errors in this essay by Paul McCulley?

http://www.pimco.com/Pages/GCBFocusJuly2010FactsontheGround.aspx

In the article, McCulley proceeded to explain that when push comes to shove, we can always use the printing press:

But, you retort, the private sector is ultimately on the hook for the government’s liabilities, so how can those liabilities be considered the private sector’s asset? Simple: They can be sold for hard cold cash. To be sure, someday the government’s debt must be rolled over, or retired. But in real time, government securities are assets of the private sector (or the foreign sector). And for a fiat currency country, there is no reason to think that the debt cannot be rolled over, as such countries have a technology called a money printing press.

Today, Wenzel notes that PIMCO's Total Return Fund, the world's biggest bond fund, has dumped all U.S. government-related securities, including U.S. Treasuries and agency debt.

http://www.economicpolicyjournal.com/2011/03/worlds-largest-bond-fund-has-dumped-all.html

WHAT??? Everyone knows that the US government can satisfy all of its debt with keystrokes!

Jacob Moeller said...

Krugman points out that the Reagan tax cuts (like the Bush tax cuts) were unfunded. Your response is that Krugman once said the 70% top rate was insane.

The problem is that this isn't apples to apples. Krugman can on the one hand believe that a 70% top rate is insane, and on the other hand think that a responsible government ought to find a way to offset the loss to government revenue that will result when that rate is cut, as Clinton did and, yes, as Obama has done with the Affordable Care Act. There is nothing inconsistent about this, and you know it.

I have to admit that I haven't been following this blog, but it seems telling that the first post I read is either specious , or more generously, a simple fallacy.

Mike Cheel said...

@Bob

"And for a fiat currency country, there is no reason to think that the debt cannot be rolled over, as such countries have a technology called a money printing press."

No reason except for major inflation. Dan or AP or LK will be here shortly to announce that the government doesn't do this or it won't amount to inflation if they did.

Bob Roddis said...

Mr. Moeller:

I personally want a 80% immediately cut in all government spending.

I'm a Rothbardian libertarian. I'm not a Reagan-aut or a Republican.

Murray Rothbard explained Reagan here:

http://www.lewrockwell.com/rothbard/rothbard60.html

I'm not going to be responsible for crazy Republican warmongering spending sprees.

And while you are at it, why don't you be the very first (and thus, very special) Austrian School critic here to familiarize yourself with basic Austrian School concepts?

http://mises.org/resources/3081

Bish said...

@Jacob Mueller,

Thanks for the sensible comment. This is also my first time reading this blog due to a link in PK comments purportedly to a right wing viewpoint that is based on fact. My BS meter was pegging from this post. What? A top-end 70% tax rate is too much, therefore we can drop it to 15% and there is no middle ground? Clinton era....seemed like we could afford everything, the wealthy got wealthier and everyone was happy except Newt because the impeachment didn't go through.

Bob Roddis said...

I suppose we're now supposed to be personally responsible for that crypto-Nazi Newt too:

http://www.lewrockwell.com/blog/lewrw/archives/79583.html

Isn't it fun meeting the deep and informed minds of our learned opponents?

Superfluous Man said...

Wow, it really is hard to know where to begin in dealing with the Krugmaniac drones. How can you have an intelligent discussion with people who already "know" that Obamacare will lower deficits before it's even implemented. How do they know that? Because the garbage in - garbage out budget projections (also known as an educated guess) at CBO suggest so, that's how. Where did CBO get it's numbers? From two unimpeachable sources of non-partisan veracity like Harry Reid and Nancy "we have to pass it so people can find out what's in it" Pelosi. Given the 2700 pages of arcane legalistic BS in the Orwellian titled "Patient Protection and Affordable Care Act" I think the safest assumption is that Krugman and his blog drones don't know any more about the actual content of Obamacare than my cat. The left wing mindset invariably shows a disturbing incapacity to discern the difference between a desired outcome and a likely outcome.

Bob Roddis said...

The left wing mindset invariably shows a disturbing incapacity to discern the difference between

Fill in the blank:_________________

Almost everything.

Bob Roddis said...

For you totally ignorant Krugmanites who want to expand your little horizons -- start with "The Essential Von Mises" by Rothbard:

http://mises.org/resources/3081

and then move up to "Socialism" by Von Mises (a 30 MB book as a pdf is an option here):

http://mises.org/books/socialism/contents.aspx

jason h said...

Come on, if you've ever read the comments on Krugman's blog, you know what to expect.

Krugman preaches the gospel, no critical thinking or labels on your axes required.

Mike Cheel said...

http://mises.org/daily/5066/The-Myth-of-FreeMarket-Healthcare

Bob Roddis said...

Mike Cheel:

Thanks for the link. The major source of statist obtuseness is their complete inability to discern the difference between laisse faire and crony capitalism. To them, rich doctors using the government to get richer is just capitalism (and Austrians support capitalism). End of analysis.

Rich bankers running the Fed and causing the Great Depression is just capitalism.

Michael Moore's movie "Capitalism: A Love Story" is totally captured by this fatal failure to distinguish.

These people will never be reached.

Mike Cheel said...

@Bob I totally agree. I got into a political discussion with a liberal at the gym the other day and he was saying how much better and cheaper everything in Canada was and as proof he showed me a scar and explained that he had cancer treatment as well. He had many of the same arguments that you hear here about doctor greed and so on so forth. I just moved on. There was no reasoning with the guy and I can see that same mentality in some of the posters here. Emotion over logic or something. All you have to do is look around and \ or talk to people in the US to know what the current mentality has gotten us.

Incidentally, he never explained then why he left such a great place and moved to Florida however.

Dan said...

@Mike Cheel: Not a lot of critical thinking required. I would say the burden of proof is on you. If you look at the data, its fairly obvious that countries that have more gov't intervention in healthcare have longer life expentancies and spend a smaller % of GDP on healthcare.

This isn't just liberals pulling stuff out of thin air. Wikipedia aggregates the OECD data quite nicely here:

http://en.wikipedia.org/wiki/Health_care_system

Have fun going around in circles trying to discredit hard facts.

Bob Roddis said...

I suppose it's racist to examine ethnicity in regards to the life expectancy of various populations.

http://tinyurl.com/4zc5res

Black Americans have a significantly higher mortality rate than Japanese Americans who outlive Japanese Japanese. Which must be racist.

Seeing that our government restricts the number of hospital beds and medical students, but doesn't completely restrict physician's salaries, it's pretty hard to compare one statist system with another. Again, the "progressive" will claim that anything bad in the US system is the result of "capitalism".

burkll13 said...

"its fairly obvious that countries that have more gov't intervention in healthcare have longer life expentancies and spend a smaller % of GDP on healthcare. "

i seriously doubt your ability to recognize intervention and the effects thereof.

Anonymous said...

Hey William L. Anderson, don't look now, but you're challenging a guy who's written about 20 more books than you have on economics and public policy.

That is, about 20 more than zero, which is how many books you've written.

Hell, he even writes more BLOG entries than you do, plus his Times columns, plus myriad talks and presentations.

Meanwhile, you write...a blog that is basically rubbish.

Have you ever even published anything in a journal of economics?

I mean, c'mon, Bill, do you really think anyone who doesn't live inside your head really believes you even make it up to Krugman's kneecap level intellectually?

And no, you can't count the various forms of invertebrate life who punctuate every comment on your blog with a link to the Von Mises webpage.

Oh, lest one forget, where did you get your Ph. D again? AUBURN? Are you freaking kidding me? Who even knew they had Ph. D programs in anything but "agricultural science" there? Football team's pretty good, but economics...bottom feeding, dude. Real bottom feeding. Couldn't get into a decent program, huh? That helps explain why you're at Frostburg State.

Bob Roddis said...

Such a calm and complete exposition of facts and logic from Anonymous.

It's always enlightening to draw out the deepest wisdom from the souls of our opponents.

caresearch said...

Cronyism at its most obvious.
by the way, How long is 'temporary?'

Number of healthcare reform law waivers climbs above 1,000

http://thehill.com/blogs/healthwatch/health-reform-implementation/147715-number-of-healthcare-reform-law-waivers-climbs-above-1000

Mike Cheel said...

@Dan So according to your article the government statistics say:

"Its 2007 study found that, although the U.S. system is the most expensive, it consistently underperforms compared to the other countries. A major difference between the U.S. and the other countries in the study is that the U.S. is the only country without universal health care."

So in the US, without the government completely taking over (yet) and even with its endless regulations and policies that have driven up the cost of healthcare and insurance and have limited the number of doctors who are able to practice, we are still in the top 10 (apparently we are #10 according to the government statistics you have provided).

So you are saying we need more government intervention, regulations and money thrown at this and it will get even better?

Mike Cheel said...

@Bob Anonymous obviously feels threatened by Bill, hence the tirade. It appears the Krugman cultists have arrived in greater numbers since seeing the link in his comment space the other day.

Anonymous said...

"Threatened by" Auburn Ph. D. William L. Anderson, who has written zero books on the topic he purportedly teaches? You are deep in psychedelic fantasy, my friend. Do you Von Mises worshippers use hashish at your meetings? If not, it must be some other potent psychotropic that is informing your 'thought.'

Bala said...

""Threatened by" Auburn Ph. D. William L. Anderson, who has written zero books on the topic he purportedly teaches"

Oh!! So writing books on what he teaches is the standard by which you evaluate if a person knows what he teaches. Pray tell us how you came to this mind-blowing conclusion.