Monday, April 18, 2011

It's not civility; it's bad economics

As I see it, the Democratic National Committee is getting a good deal with Paul Krugman, for here is a guy who writes PR for the party -- and (at least to my knowledge) does not receive a paycheck for it. Wow! A Nobel Prize winner writes party propaganda, and it's all free!

Lest anyone think that Krugman is about anything but partisan politics, read again. His column today once again declares to the world that he is not about being an economist, but rather a political operative. Furthermore, he then attempts to claim that the New Deal and Great Society were about "values," not political rent-seeking.

You see, in Krugman's world, ANY criticism of the New Deal or Great Society can come only from an evil mind and a more-evil heart, and any criticism of President Obama when he is citing those two in favor of his own political proposals is a Really Bad Thing. From what I can tell, Krugman also believes that it is evil to employ basic tools of economics, like the Law of Scarcity and the Law of Opportunity Cost, in one's own analysis of government action.

While I have little or nothing to do with the Heritage Foundation (which openly has supported America's military adventures abroad as well as the vast domestic prison apparatus at home), nonetheless Krugman's attack on a recent report from Heritage tells us more about Krugman's lack of even basic economic understanding than it does about conservative politics. He writes:
When the (budget) proposal was released, it was praised as a “wonk-approved” plan that had been run by the experts. But the “experts” in question, it turned out, were at the Heritage Foundation, and few people outside the hard right found their conclusions credible. In the words of the consulting firm Macroeconomic Advisers — which makes its living telling businesses what they need to know, not telling politicians what they want to hear — the Heritage analysis was “both flawed and contrived.” Basically, Heritage went all in on the much-refuted claim that cutting taxes on the wealthy produces miraculous economic results, including a surge in revenue that actually reduces the deficit.

By the way, Heritage is always like this. Whenever there’s something the G.O.P. doesn’t like — say, environmental protection — Heritage can be counted on to produce a report, based on no economic model anyone else recognizes, claiming that this policy would cause huge job losses. Correspondingly, whenever there’s something Republicans want, like tax cuts for the wealthy or for corporations, Heritage can be counted on to claim that this policy would yield immense economic benefits.

The point is that the two parties don’t just live in different moral universes, they also live in different intellectual universes, with Republicans in particular having a stable of supposed experts who reliably endorse whatever they propose.
My criticism of Krugman is not based upon whether or not the Heritage report is credible, but rather his statement above on "environmental protection." Let me explain.

In economic analysis, environmental issues fall under the "technological externalities" category. That is, when economic exchanges (and I include production of goods within the umbrella of "exchange") also impose costs upon third parties that do not directly benefit from the original exchange, then we say that a negative "externality" is created that not only imposes harm on the third parties, but also distorts the structure of production.

One can run wild with externalities (which often exist because of problems in the delineation of private property rights, i.e., Who owns the skies when there is air pollution?), but we have to understand that the imposition of laws and regulations to deal with things like pollution also will have costs. Furthermore, when environmental extremists, like those people who now run the powerful Environmental Protection Agency, get their way, they will attempt to impose policies that go well beyond the "environmental protection" for which most Americans are willing to pay.

There is no way to be able to find the theoretical "optimal" policy for environmental protection, but nonetheless we can say that many policies do impose costs upon production, and added costs to production mean less of something is produced. That is fundamental in economic analysis. So, when Krugman declares that "environmental protection" does NOT impose economic losses somewhere, he is violating those fundamental principles of analysis in the area where he has his doctorate.

Furthermore, his endorsement of "green energy" with its vast array of subsidies tell us that one of his "values" is to support the process of moving resources from higher-valued uses to lower-valued uses. There is no way, economically speaking, around that point. Krugman's support of the anti-energy jihad is also support of policies that make us poorer.

In Krugman's Keynesian world, all that government needs to do is to tax, borrow, print money, and spend, spend, spend, and all is right with the world. Indeed, if the Keynesian view that all resources, factors, and capital are homogeneous, then he is correct. But, if they are heterogeneous, then the Keynesian analysis falls flat.

There is one more point, and that is Krugman's idea that the New Deal and Great Society support superior moral "values," or what the New York Times in a nearby editorial (quoting Obama) calls "the basic social compact in America." A welfare state, whether it is transferring vast amounts of resources for corporate welfare or for the creation of huge urban reservations in which millions of people are subsidized in all walks of life, is an entity in which some people are expected to work to support others who are politically-connected.

To me, such "values" are not "moral" by any stretch of the imagination. They are noting but coercion by the political classes against those who are not politically-favored. This is not just political liberalism of what I speak. The Republicans in Congress (with a few exceptions) want to cut out what people call "welfare" for the poor, yet are happy to continue with the current arrangement of creating welfare for the Military-Industrial Complex, as well as agricultural subsidies that are socially and economically harmful. Republicans and Democrats both supported the huge financial and corporate bailouts that have dragged down our economy.

If such things represent "social compacts," then a "social compact" is something imposed by brute force. And that is something that Krugman, his employer, and those Republicans that Krugman hates all have in common.

26 comments:

Bala said...

And how long is it going to be before the whatever-Keynesian hacks come along sullying these boards with their garbage????

Mike Cheel said...

@Bala Give it time! They'll be here!

Bob Roddis said...

I was thinking the same thing. This post is so good, what can the hacks say about it?

Oh yes, just give it time. Bets anyone?

1. Austrian religion?

2. Somolia?

3. Some MMT yarn?

4. Professor Anderson is mean, so he's as bad as Krugman.

5. Professor Anderson works at Frostburg State, which is nowhere and is owned by the government.

In the last 10 months, what else have they said?

Arthur said...

I'm betting on #5, with a little bit of "I take a Nobel Prize winner more seriously than you, Prof Anderson. Where did you get your PhD again?" added in.

jason h said...

and having them proclaim that low taxes on high incomes and drastic cuts in social insurance are the only possible solution.

Of course progressives love to blame the 'greed' of the 'rich' for all the world problems. I find people interpret the Laffer curve to narrowly. Imagine if the U.S. had the lowest corporate tax rate in the world. GE wouldn't be earning and claiming all those profits abroad, rather they'd claim their profits as made in U.S.A. and the gov't would certainly see a boost in revenue.

Or, I guess you could just close all the 'loopholes'. Heck, make GE pay double taxes, I'm sure that'll give the economy a real boost.

jason h said...

Large majorities support higher, not lower, taxes on the wealthy. Large majorities — including a majority of Republicans — also oppose major changes to Medicare

Really Krugman? 'Large majorities' support taking other people's money and spending it on themselves.

Marc said...

I'd say any economic model that ignores pollution is fundamentally flawed because it is likely to yield the wrong results: it is biased to ignore the health care costs involved in production. Just ask the parents of the children living in the Central Valley in California, where Asthma is quite common. It is these parents that drive Republicans like Arnold Schwartzenegger to embrace environmental regulations that are then adopted throughout the country. So in a way we all benefit from the suffering children in the Central Valley. How is that not related to morals?

By the way, I like my work. I have a great job, being blessed by great talents that I am grateful for. I don't admire your focus on having to work for the less fortunate. Good luck with that.

Anonymous said...

@Marc: He spent about 1/3 of the article talking about pollution and negative externalities, and you're accusing him of ignoring pollution?

Did you even read the article, or did you stop after the beginning of the paragraph that started discussing environmentalism to write your comment?

Anonymous said...

Its all one way or the other with you William -

"ANY criticism of the New Deal or Great Society can come only from an evil mind and a more-evil heart" - where does Krugman say this? Any criticism, really?

"So, when Krugman declares that "environmental protection" does NOT impose economic losses somewhere, he is violating those fundamental principles of analysis in the area where he has his doctorate." - where does he say this too. He says the Heritage Foundation can be expected to INFLATE the losses.

And then your denial of the social compact is just typical libertarian garbage. It is a far cry from a totalitarian state to a democracy with a welfare system. You can quibble with him whether they are the right values, but when you and your supporters deny the role of the state and democracy - as both a legitimate use of force and coercion (what Tocquevill called willful bondage) and a check on the abuse of power you lose the argument.

CPG said...

I think when Marc said "ignoring pollution" he was referring to the fact that the article speaks of correcting for externalities as imposing costs on production, and if we didn't correct externalities, the world of business would be better. This is the section of the post to which Marc was referring...

...but nonetheless we can say that many policies do impose costs upon production, and added costs to production mean less of something is produced. That is fundamental in economic analysis. So, when Krugman declares that "environmental protection" does NOT impose economic losses somewhere, he is violating those fundamental principles of analysis in the area where he has his doctorate.

Yes, of course accounting for an externality will impose costs on production, but not accounting for the externality imposes costs elsewhere, it is the very definition of externality as explained in the article. So I think when Marc talked about 'ignoring' he was referring to ignoring it from an economists point of view, not from a writers point of view.

The article quite clearly advocates for dismissing (ignoring) the cost of externality because it would allow for greater production. This is a fine idea that actually has been tried in the United States during the Gilded Age, and we saw a significant economic boom. Of course much of this was paved by increases in broad ranges of transportation and communication technology that was created by entrepreneurs, and largely funded by the Federal government (railroads, canals, turnpikes, telegraph, etc.)

It's about balance people, not ideology. The government sure as hell is always good, but it also isn't always bad. Good government is good, bad government is bad, and in this limited case, size doesn't matter

jason h said...

The article quite clearly advocates for dismissing (ignoring) the cost of [externalities] because it would allow for greater production.

Generally, libertarians advocate clearly defined property rights so that individuals (over bureaucrats) can determine the optimal trade-off between externalities and productivity.

As it is now, every 4 years new bureaucrats try to apply external cost arbitrarily.

CPG said...

That is absolutely true, it is one of the reasons that Thomas Jefferson did not completely tank the Federalist policies once he took over the office of President. He and Hamilton disagreed wildly about the direction and path of the country, but Jefferson valued continuity over ideology. If we could just get back to that it would be fantastic, we all know that entrepreneurs value fixed knowledge and not laws that change with the winds.

jason h said...

So rather than let the EPA set arbitrary standards every few years, let everyone downstream and downwind of the polluters negotiate a long term contract of acceptable terms and compensation.

Anonymous said...

@jason - there are so many assumptions in that argument - that polluters and communities have equal bargaining power, access to information, and that negotiation is costless.

I understand libertarians advocacy for property rights but don't understand how they can brush aside so much economic thought in one swoop. I also agree that regulation is often slow and arbitrary, but would think that it is context driven. So why not support cap and trade - much more practical and enforceable than direct negotiations.

Anonymous said...

Why not support cap and trade? Because CO2 isn't pollution.

Bala said...

"And then your denial of the social compact is just typical libertarian garbage."

And your garbage is???? What is the "social compact", Genius Social Sciences Professor?

"It is a far cry from a totalitarian state to a democracy with a welfare system."

Far cry? What a freaking retarded joke!! Does making such poor jokes come with the territory of you Genius Social Sciences Professors? Democracy with a welfare system is different from a totalitarian state only in degree and methods. The underlying principle is still the same - TO HELL WITH PRIVATE PROPERTY RIGHTS!!!!

"deny the role of the state and democracy - as both a legitimate use of force and coercion"

No, genius. We work differently. We say that the initiation of force and coercion are fundamentally ILLEGITIMATE. And by extension, we say that your precious State is illegitimate by its own definition.

"you lose the argument"

Which argument, genius? That never started. The only argument going on is the one on the other discussion thread where I am still waiting for your brilliant response.

So, Genius Social Sciences Professor, could we have some answers out there please?

Anonymous said...

@CPG: No, only in the mind of one who assumes that arbitrary force on behalf of the state can correct for externalities would one reach that conclusion.

Ever heard of Fish Legal? It's a UK non-profit organization that works to get compensation for property owners whose lands have been damaged by pollution using nothing more than common law protections. This is really all you need to correct externalities- a way for the third party in said exertnality to obtain compensation. Applying an arbitrary regulatory system doesn't allow for those who are actually affected by the externality to determine their cost, and companies who comply with the regulations could still cause damage to property owners, who then would have difficulty bringing suit against a company who followed regulations to the letter and had government authorization to put their pollutants into the air.

It helps if you don't straw-man your opponent's position when you rebut it. Nobody at any point is saying that externalities shouldn't be corrected. Nobody is even implying that. What's being implied and promoted is a system where property owners have the responsibility and the right to protect their property from damage, and could obtain compensation when such damage occurs. Nothing arbitrary, no logrolling, and no rent-seeking.

Anonymous said...

@anon 6:03:

'So why not support cap and trade - much more practical and enforceable than direct negotiations.'

[citation needed]

Because it's so much more practical to have the government hand out arbitrary passes that allow companies to violate the property rights of others. Much less practical to have the owners of the property actually determine what should happen to it.

Enforceable? Limiting the government's role to stepping in only when there's a disagreement or other tort is less enforceable than regularly checking who has their pollution license? What metric are you using, if any? Or are you giving preference to state intervention as your null hypothesis?

Bob Roddis said...

We had two inches of measurable snow in Detroit yesterday that didn‘t melt until 4:00 p.m. It’s been cold and rainy since Saturday. It’s been below normal for months. The normal high for today is 58 and today the high is 42. The record number of tornados this month were caused by the extremely cold air coming from the north meeting the warm air from the south. If there was global warming, these storms would be less severe due to the more moderate temperature differences between the two fronts.

This carbon tax crap is just another statist technocratic “solution” to a problem that does not exist (another problem that does not exist is the allegation that the unguided free market suffers from its own natural recessions). These “progressives” are nothing but bullies and prodigious liars which is the natural state of their personalities. If we slap down one of their schemes of control, they will plot and scheme some more and just come up with a new one.

Anonymous said...

I didn't say carbon tax. I said cap and trade as a principle for any form of pollution. It is utopian to think that bargaining between parties is possible. Think of the parties relative strength, access to information, and the costs of that negotiation. Despite what people might claim, taxing pollution is not arbitrary, even though it might be imperfect. Cap and trade gives polluters the possibility to trade among themselves and reach a more economically efficient outcome.

BTW Your keen anecdotal evidence is obviously proof the global warming is a hoax.

jason h said...

Cap and trade gives polluters the possibility to trade among themselves and reach a more economically efficient outcome

Economic for the polluters perhaps. Yet know compensation for the polut-ees. The poor kids with asthma have to buy their own inhalers.

Bob Roddis said...

It is utopian to think that bargaining between parties is possible.

We finally get to the hard core of the statist belief system. Bargaining between parties is called "shopping". It is always alive and well until the statists and their Einsatzgruppen show up. It's the statist utopian religion that believes that statist interference can work (and that voluntary cooperation has not and will not work).

One bond strategist was quoted in Bloomberg as saying, “It’s truly a shot across the bow and a message to Washington, which has been clowning around on this and playing politics when they should toss ideology aside and focus on achievement.” This statement was made with the belief that there is a depraved political-ideological government on one hand, and, on the other hand, we have this creature called ‘good’ government wherein some magical powder can be sprinkled on the politburo to purge its kingpins of their affinity for all things megalomaniacal. All government, by definition, is political-ideological, and all politics, by definition, is coercion. A ‘non-political’ political structure does not exist. Why is that so hard to understand? Politics is the act of using one’s position and power to execute acts of theft, redistribution, and the promotion of advantage to selected recipients. Are people — even really smart people — just desperate to believe in something “good,” even if it is pure fantasy?

http://www.lewrockwell.com/blog/lewrw/archives/85983.html#more-85983

Libertarians eschew politics and support shopping.

Anonymous said...

Jason and anonymous : cap and trade is about carbon dioxide, nothing else. CO2 is not pollution and most certainly doesn't cause asthma.

jason h said...

Actually, Anonymous suggested using Cap and Trade for any form of pollution. I agree CO2 is not.

My point is that the typical regulatory scheme does nothing to restore those who are actually injured by pollution. Nor does it provide an incentive to reduce it.

California has stringent fuel efficiency standards, yet apparently still suffers from smog induced asthma.

Bob Roddis said...

Cap & trade is just another scheme (perhaps the final solution of all schemes) to force people to get the donut eaters' permission before driving. Or breathing.

Another example of the totalitarian mind at work.

Greg said...

Actually Bob, the core of the statist belief is that freedom is not a good thing for everyone, and especially the classes that they claim to defend. The poor and minorities will only be taken advantage of by the clever, therefore freedom is not necessarily a good thing.


The statist loves to declare himself as a champion of the poor and minorities, but the racism inherent in their position that these same people are too stupid to be given freedom is never examined. That is the true crux of their beliefs.