Friday, August 12, 2011

The hijacking of economic logic

As the U.S. economy continues to crumble and as the USA's debt situation deteriorates, Paul Krugman demands that we play the role of the band in "Animal House" and march forward as though there were no brick wall in front of us. (Who is playing the role of Stork? Is it Obama, Krugman, Stiglitz, "Bad" DeLong?)

Echoing Rahm Emmanuel's infamous "Never let a crisis go to waste" line, Krugman bemoans the fact that the Fed has not created enough of a paper blizzard to put overall inflation past six percent. (That commodity prices, not to mention prices that we are paying for food, fuel, medicine, and other goods, are in double-digit increase land is to be ignored, according to Krugman. Those price increases have nothing to do with Bernanke's policies; it's all "volatility," and anyone who disagrees is an Enemy of the People.)

Apparently, Krugman, like Rahm, must have believed that this crisis would trigger a "New New Deal," in which government would increase its reach over everything, and out of it would come jobs, jobs, and more jobs. That the scheme has failed miserably only heightens Krugman's rage, as he insists that just the very ideas that people have which disagree with his own are the cause of this misery. (Krugman never is wrong. Ask him.)

When Obama took office, accompanied by insurmountable Democratic majorities in the House and Senate, the government went on a spree of spending, new regulations, and massive entitlement increases. The Obama administration not only continued the destructive bailout policies of the Bush administration, but also added to them. By appointing a number of industry "czars," Obama even reached back to the days of the infamous National Industrial Recovery Act, as harebrained FDR scheme to organize the entire U.S. economy into a series of cartels. (Yes, the idea was that if we could produce less and force up prices of goods and commodities, the higher prices would translate into higher incomes and lead to recovery.)

However, Krugman wants us to believe that the administration from 2009 to 2011 actually engaged in "austerity" spending. And why, according to Krugman, did the Obama government reject his advice? The very presence of people who disagreed and said that they disagreed with Obama's claim that we were going to spend our way out of the recession. (I am not agreeing with Krugman, but rather am pointing out that Krugman is making the unreal claim that the tiny Republican numbers in Congress actually controlled nearly all White House and Congressional policymaking. Right.)

So, Krugman's great plan is for the U.S. Government to borrow into oblivion, bail out failed industries, subsidize "alternative energy" schemes, with the result being that jobs arise out of the economy. No country ever has inflated itself to prosperity, and the fact that the U.S. Dollar has served as the world's "reserve" currency for a while only will make the real crisis even worse when the rush to abandon the dollar increases. And it will increase, with the results being very, very ugly.

************************************

For the next several days, future posts will be spotty, as my wife Johanna, Sintija, and I are traveling to Latvia, where we will be living for the next 3-4 weeks. The adoption process is slow, but it continues.

Our apartment in Riga has wireless, and the Internet speed in Latvia is faster than it is in the USA, so I anticipate some time for future posts. Krugman and others will make outrageous claims, and I will try to answer them when I can.

41 comments:

Mike Cheel said...

Does the little girl know yet that you plan to adopt her? Good luck on your trip.

Anonymous said...

In his latest NY Times piece "Hijacked Crisis", to which your blog post refers, Krugman has one of his typical throwaway lines....one of those passive-aggressive lines that he loves to put in, which might take awhile to sink in and yet never fails to make your blood boil.
In this case, he refers to the deficit by saying "when the crisis struck and led to big budget deficits — because that’s what happens when the economy shrinks and revenue plunges...."
whooa....
so wait a minute...this is the same guy who constantly repeats over & over again that "President Bush squandered the surplus he inherited from Clinton", without ever once acknowledging the basic & simple facts about how a crisis can lead to revenue plunging. He completely ignores the fact that the Tech Bubble (which was created & inflated during Clinton's watch, with the help of Greenspan's super-loose policies) had a spectacular bursting in March 2000 and that led to a major dent in economic growth (ie: tax revenue) not to mention a big drop in the mega capital gains tax revenue which the Treasury was taking in during the go go day trading days. He ignores the fact that we had a horrible terrorist attack in September 2001, which knocked the entire country's psyche, led to a further deepening of the recession, and led to an expensive war in Afghanistan & Iraq (which Hillary Clinton, Al Gore, and John Kerry ALL voted for). The cumulative effect of this huge drain on revenue, combined with a major increase in govt expenditures, was to flip the books from suprlus to deficit. You can guarantee that if Clinton had been President during that same timeframe, then Krugman would no doubt be excusing away the deficit with the same argument "...because that’s what happens when the economy shrinks and revenue plunges".
Typical hypocrisy.
Well, you can't have it both ways Paul. You can't heap derision on Bush for building up a deficit, and yet somehow claim that Obama's blameless when it comes to his gargantuan deficit.

Why do people show so much respect to a guy who constantly harps on & on about borrowing & spending our way out of trouble, when we can ALL see what a disastrous experiment that policy has been...and we can all see the price that countries like Greece etc have to pay for their use of the same strategy?

Mike Cheel said...

@Anon 10:12

"Why do people show so much respect to a guy who constantly harps on & on about borrowing & spending our way out of trouble, when we can ALL see what a disastrous experiment that policy has been...and we can all see the price that countries like Greece etc have to pay for their use of the same strategy?"

I have been asking that question for a long time now. How can these people continue to shill for the government when all you have to do is go outside or pickup a newspaper to see that things are unraveling? And then they try to blame the Austrians and the free markets (which we don't have at all).

Bob Roddis said...

I concluded by 1976 that it's no mystery about how "progressives" are the way they are. They are insecure and neurotic and hate average people. They believe that average people need to be led by their betters, the "progressives". Each individual progressive has an obsessive need to think he/she must control average people and that he/she is the one to do it.

This explains the complete inability of "progressives" to address basic Austrian concepts which rely upon the notion that average people must be allowed to search for their own economic values. No matter how many times and how many ways we've taunted the trolls on this blog, they never respond to this basic issue.

Everything "progressives" do is explained by this analysis. Global warming gives them an excuse to stop people from driving but also to even stop average people from breathing. Keynesianism provides them with the feeling that only they are smart enough to understand the mysteries of "macro" and only they, by applying these mysteries, can save average people from themselves (and a lack of aggregate demand!).

Hell, LK just proposed that commie syndicalist cooperatives are going to need a Big Bertha Nanny State to cure them of the inevitable lack of aggregate demand they will face.

This simple explanation explains everything. And they will not change.

ekeyra said...

My personal favorite fairy tale in all this, is the notion that "small government types" like ron paul somehow bullied the feds to create and spend ONLY 2 trillion dollars instead of the miraculous 4 trillion that would have surely pulled us out of this tailspin. Even if that were remotely true, how is the passage of 2 trillion in stimulus a victory for the people shouting for no stimulus at all? That wouldnt really seem like a victory at all, whether or not they get the credit for it.

Bob Roddis said...

Come to think of it, the Marxists are much more honest than the Keynesians. At least the Marxists clearly announced their intention of abolishing private property. The Keynesians do the same thing with their money dilution schemes which transfer purchasing power and wealth extra-judicially without due process and without the victims even knowing what hit them. It's a form of the abolition of private property by stealth.

Bob Roddis said...

ekeyra:

Our opponents are freakin' nuts. The only reason to "debate" them is to familiarize ourselves with their latest phony narrative in support of their nefarious schemes.

Bob Roddis said...

More from the history of the New Dealers:

Following the Japanese defeat, the Allied Occupation government had issued a press code that prohibited public discussion or publication of any information related to damages from the A-bomb – including information about medical treatment. This press code remained in place until 1951.

Today, we take for granted knowledge about the deadly effects of nuclear weapons. In fact, this knowledge was hard-won, and not with the aid of government grants and oversight but quite the opposite. Doctors and researchers had to fight the official keepers of public opinion in order to first discover and then reveal the truth about the effects of these weapons.


http://lewrockwell.com/shaffer-br/shaffer-br9.1.1.html

Anonymous said...

"We used to think that you could just spend your way out of a recession".

Jim Callaghan, Labour (i.e. left-wing) Prime Minister in the UK, 1976

zackA89 said...

Catalan nails it again. Great article.


Both Austrians and non Ausrians should take a look at this piece:


http://direct.mises.org/daily/5513/Rethinking-Depression-Economics

Bob Roddis said...

zackA89:

Excellent. Catalan is always excellent.

Now, I expect all you non-Austrian trolls to at least take a good shot at finally comprehending the idea of "economic calculation" before rushing in with your mindless unfocused hate-speech.

Anonymous said...

Obama didn't spend enough, they say? The president's projected spending came at over 46+ trillion dollars within a ten year period of time. How much spending does Krugman believe to be necessary for his plan to work -- 60 trillion+? To get back to a robust economy of 4% average growth and 6% ot less unemployment rate (goals accomplished much more cheaply in year's past), for his Keynesian plan to work by Krugman's own admission, given he believes the Obama record high in human history spending to be austere, it is necessary to squeeze the last nanodrop of diminished returns out of our current and immediate wealth to accomplish his goal. What cockamamie economic plan wouldn't work if you had unlimited resources to throw at it with no regard to what happens next? If only Lenin had Krugman, Bernanke and Geithner working for him, then the USSR would have indeed been a fool's paradise for at least a few years, but the crack up would not have taken seventy years.

LK said...

"They are insecure and neurotic and hate average people. They believe that average people need to be led by their betters, the "progressives"

LOL!!!...

Take at look some of your comments on this blog:

“I suppose that the people will do what they will do. But as long as they are too lazy to think through the absurdities set forth by their Keynesian overlords, they will face further depression and impoverishment.”

“There is something wrong with people who think it is OK for governments to promise average people virtually unlimited economic payoffs when that is impossible. It is even worse when the perpetrators whine that they are "constrained" from "satisfying" the promises because the particular situation precludes the use of diluted funny money to reduce the real value of the promised goodies. And, for whatever reason, the rabble is too dumb to understand the nature of the game and that have been played.”

So the rabble/ordinary people are just too dumb and lazy to accept your elitist Austrian crap, which is only known to salaried professors and the chosen few over at Mises.org, huh??

LK said...

"This explains the complete inability of "progressives" to address basic Austrian concepts which rely upon the notion that average people must be allowed to search for their own economic values. "

The basic Austrian "concepts" are either trivial truths (like human action has a purpose and goods are scarce) accepted by all economists (whether they are New Classicals, monetarists, New Keynesians etc) or total rubbish like the Austrian business cycle theory.

As for the average people (who you accuse of being "lazy" and "dumb"), they reject "Austrian" economic theory. If they did, Ron Paul or some other libertarian would be president, buddy.

Dream on.

ekeyra said...

LK,

Why exactly is winning an election a validation of anything? First of all not everyone votes, and those who do vote do not all vote the same or else we wouldnt bother counting past the first ballot. Furthermore, even if they should agree, by what authority do they extend the consequences of that decision to those who did not agree or expressed no preference at all? On top of that, even if everyone in a country agreed to something it can still be wrong. There were plenty of germans who believed the jews were the problem with their country, are you willing to say that their agreement and numbers validate their judgement?

LK said...

"Furthermore, even if they should agree, by what authority do they extend the consequences of that decision to those who did not agree or expressed no preference at all? "

LOL.. So even if the majority of people voted for Austrian economics, that would still not justify imposing it on people who did not vote?

On top of that, even if everyone in a country agreed to something it can still be wrong.

Correct. That is why public policy decisions must be first justifiable by a workable ethical theory.

Natural rights theory - the only theory that would justify a Rothbardian system - is a farce.

William L. Anderson said...

Sorry, LK. You cannot abolish the Law of Scarcity. I know Krugman claims there is a free lunch, and as long as the Keynesians continue to make that claim, I'm going to be challenging them. You may not like it, but there it is.

As for Austrian Economics, what part are we supposed to reject? The marginal utility view of money? Oh, I forgot; the State creates all value by decree.

William L. Anderson said...

By the way, LK, what do you say is "superior" to natural rights? The "rights" granted by the state? That same state that takes away our rights on a whim?

Bob Roddis said...

Average people don't know much about politics but know a whole lot about what they like, how much it costs and where to get it. Thus, there is no economic problem but there is a political problem. People don't know who or what they are voting for and bureaucrats can never have the knowledge of individual average people. And they certainly are not going to be wise or benevolent.

AUSTRIANS RESPECT THE ABILITY OF AVERAGE PEOPLE TO LIVE THEIR OWN LIVES. AUSTRIANS DO NOT RESPECT THE ABILITY OF ANYONE TO ELECT THEIR OWN OVERSEERS. LK purposefully misrepresents this position because he must. Heck, we've never found a statist yet who even admits that his nefarious schemes depend upon SWAT teams, fines and prison. We can thank the government schools for that.

Further, there is nothing trivial about the knowledge problem. This is demonstrated by LK's purposeful avoidance of it (or his extreme stupidity in failing to grasp it). The essence of Austrian thought is the IGNORANCE of everyone about what everyone is thinking. The only evidence of subjective value is the price paid for goods and services wihout which we are acting bling. Indeed, I just wasted 90 minutes of my life watching Steve Keen slowly grasp (without knowing it) some basic Austrian truths, like "neo-classical" aggregates are not respresentative of reality and people aren't necessarily rational in their purchaeses. Who knew?

http://socialdemocracy21stcentury.blogspot.com/2011/08/steve-keen-on-behavioral-finance.html

Because LK refuses to understand economic calculation, he can't possibly understand the ABCT and his attacks on it are truly pathetic.

LK spends all this time and energy attacking us but ultimately does nothing but throw nerf balls at us. There is never ANY SUBSTANCE to LK's silly pronouncements. LK's total failures prove we are right.

Also, where is that proof of the alternative universe of "macro"? It's been days now.

Bob Roddis said...

Acting bling?

I meant acting blind.

LK said...

"By the way, LK, what do you say is "superior" to natural rights? The "rights" granted by the state? That same state that takes away our rights on a whim?"

"Natural" rights do not exist, as Ludwig von Mises long ago argued:

There is, however, no such thing as natural law and a perennial standard of what is just and what is unjust. Nature is alien to the idea of right and wrong. “Thou shalt not kill” is certainly not part of natural law. The characteristic feature of natural conditions is that one animal is intent upon killing other animals and that many species cannot preserve their own life except by killing others. The notion of right and wrong is a human device, a utilitarian precept designed to make social cooperation under the division of labor possible. All moral rules and human laws are means for the realization of definite ends. There is no method available for the appreciation of their goodness or badness other than to scrutinize their usefulness for the attainment of the ends chosen and aimed at. (Mises, L. 1998 [1949]. Human Action: A Treatise on Economics, Ludwig von Mises Institute, Auburn, Ala. p. 716).

A right is a ethical and legal construct.

If you would prefer to have your "rights" enforced by private protection agencies, groups that in principle might well be little better than mafia thugs, so be it.

Such private thugs could take your rights away on a whim as well, so don't play that pathetic card. E.g., if you don't want their "protection," they'll make you an offer you can't refuse.

LK said...

"Average people don't know much about politics ..."

Really? So, in other words, you think they are just the "rabble" and too dumb and lazy to accept your elitist Austrian garbage.

"but know a whole lot about what they like, how much it costs and where to get it. etc. etc."

Indeed that is why vast numbers of people - the majority - in Western countries prefer public/universal health care.

Bob Roddis said...

The government model in action in a small lake-town in Michigan:

http://detnews.com/article/20110813/METRO/108130383

Bob Roddis said...

There is nothing elitist about the Austrian vision and everything elitists about the LK vision. For the 55,000th time, Austrians respect the ability of average people to live their own lives. Keynesians do not and, without any basis in fact or logic, insist that free exchange MUST lead to a lack of "aggregate demand" which must be rectified with SWAT teams controlled by them. Because they are smarter than average folks. Just cuz.

LK said...

"For the 55,000th time, Austrians respect the ability of average people to live their own lives. "

And, for the 55,000th time, they want a government and public goods - not your Austrian fantasy world.

Bob Roddis said...

In multi-ethnic societies, folks tend to vote to whack the minorities:

http://www.stanford.edu/~rabushka/politics%20in%20plural%20societies.pdf

Isn't that why the US won't tolerate an election in Muslim countries? But since it's democratic, it must be good, right?

Didn't majorities in the south vote for Jim Crow laws? Must make it right, eh, especially since natural rights are "rubbish".

I'm done. This a waste of time. LK proves our points for us.

Hey, where's that proof of the existence of macro?

LK said...

"In multi-ethnic societies, folks tend to vote ...

Already dealt with this rubbish above: a policy implemented by a government must

(1) be moral under a workable and defensible ethical theory (not some nonsensical theory like natural rights), and

(2) command majority support.

I do not regard broad democratic support as a sufficient ground for action. Action must be (1) moral as well, as I have said above.

Policies implemented will be unacceptable if immoral - and an intelligent person would oppose them, even if they managed to command majority democratic support.

There is no contradiction in this position.

Mike M said...

LK@ 9:56

You refuse to answer Bob's question about macro.

I'll assume because you can't

Mike M said...

LK @10:09

(1) moral according to whom?

The majority?

Which automatically satisfies # (2)

And in circular fashion you go

ekeyra said...

"So even if the majority of people voted for Austrian economics, that would still not justify imposing it on people who did not vote?"

In the simplest sense, yes. There is no way to ethically impose any system of governence to someone who chooses not to participate. What you are conflating however, is the myriad laws and dictates of our modern political system with the austrian assertion that anyone who wishes to be left alone should be. There is nothing austrians can impose on people, short of personal responsibility. Even then that would not be an edict enforced at austrian gunpoint ( a contradiction in terms if i ever heard one), but simply a reality that must be confronted in any functioning society. If you distort the consequences of people's actions you destroy the fabric of social interaction.

I have made this argument to many people. You can live in your keynsian utilitarian paradise, and neo-cons can live in their walled off gated communities, paranoid of communists or muslims or whatever boogeyman of the day. I dont care. What noone else has any right to do is force someone to participate or fund either of those if they do not wish to do so.

You also completely avoided my question about how elections validate ideaological positions. The closest you came was several posts later when you claim:

"a policy implemented by a government must

(1) be moral under a workable and defensible ethical theory and

(2) command majority support."

Yet those two criteria are completely unrelated, especially when it comes to public policy. A majority cannot make an action ethical by coming to an agreement that it is not. Individual actions cannot be made moral or immoral by a show of hands. On the other hand, actions taken by a majority, or a mob, have never been hindered by morality in the entirety of human history. If they are the majority, being wrong will not stop them.

Major_Freedom said...

LK:

LOL! For a Keynesian yahoo to call an adherent of Austrian economics "elitist" is like Stalin calling a political prisoner "dictator."

Keynesian "economics" isn't even a framework of how the economy works. It is nothing but a flotsam and jetsam series of contradictory assertions and political gobbledygook designed solely to serve as justification for spending on the part of an elitist parasitical institution.

Keynesian economics REQUIRES an elite in order to even exist. Austrian economics does not.

If there was no such thing as the government, then there would be no such thing as Keynesian "economics."

Austrian economics would be the only surviving economics. It is based on individual action, not elitist institutions. Everything that would happen in such an economy would still be explainable entirely in the Austrian framework.

Keynesian "economics" = elitist crap.

Daniel Hewitt said...

For crying out loud
by Andrew Sabl


I’m the process of moving house, and admit that I got to Friday morning’s Krugman column 24 hours after every other blogger. But I couldn’t let this go.

Quoth Krugman:

For more than a year and a half — ever since President Obama chose to make deficits, not jobs, the central focus of the 2010 State of the Union address — we’ve had a public conversation that has been dominated by budget concerns, while almost ignoring unemployment.

Krugman should turn off the rage long enough to read the damn speech. Except for the parts that defended the stimulus and the Affordable Care Act, practically the whole thing was about job creation, and to some extent about the difficulty of getting things done in today’s hyper-partisan Washington—a problem that Krugman one of these years might do well to consider taking seriously.

To the extent that we’ve forgotten Obama’s jobs agenda, it’s because Republicans and conservative Democrats in the Senate killed all most of the jobs programs that Obama proposed over and over again (most of which the House passed). True, the amount of the President’s speech devoted to the deficit was non-zero, whereas Krugman would have preferred zero. But the claim that the deficit was the speech’s “main focus” is pure fantasy.

http://www.samefacts.com/2011/08/barack-obama/for-crying-out-loud/

Tel said...

Quote from LK:

LOL.. So even if the majority of people voted for Austrian economics, that would still not justify imposing it on people who did not vote?

How is it possible to impose Austrian economics on anyone, when all this means is allowing people to make their own decisions how they want to trade and who they want to trade with?

It's like my attempting to impose on you that you have to decide what you want to eat for lunch. I guess that if I refuse to tell you what to do, then I'm forcing you to think about your own actions... but how exactly is that imposing on you? Doesn't make sense.

Bob Roddis said...

More heroic tales from “The miracle of democracy” where vast majorities of citizens alertly and wisely vote for the promulgation of essential public goods:

Now comes a story from the Associated Press of a new government scheme that might be called "Getting Paid for Not Flying Any Passengers":

"On some days, the pilots with Great Lakes Airlines fire up a twin-engine Beechcraft 1900 at the Ely, Nev., airport and depart for Las Vegas without a single passenger on board. And the federal government pays them to do it.

Federal statistics reviewed by The Associated Press show that in 2010, just 227 passengers flew out of Ely while the airline got $1.8 million in subsidies. The travelers paid $70 to $90 for a one-way ticket. The cost to taxpayers for each ticket: $4,107. Ely is one of 153 rural communities where airlines get subsidies through the $200 million Essential Air Service program, and one of 13 that critics say should be eliminated from it."


http://mjperry.blogspot.com/2011/08/getting-paid-for-not-flying-passengers.html

zackA89 said...

Folks, here you have it. Krugman enlightens us on what can be done to “stimulate” our economy. Talk about a howler.
Try and keep a straight face while watching this clip of Krugman. I dare you.

I wonder if people like LK, JG, or one of our other in-house statists/ Keynesians try defend this one.



http://www.breitbart.tv/paul-krugman-reccomends-military-build-up-to-fight-alien-invasion-as-remedy-for-economy/

zackA89 said...

was that clip a joke? does anyone know?

Anonymous said...

I think it's great that your adopting a child, but why not an American one?

Bob Roddis said...
This comment has been removed by the author.
Bob Roddis said...

Zack:

Kroogie is serious about the spending on the imaginary aliens. Perhaps this blog should be called "Krugman from Planet Zorcon".

http://original.antiwar.com/justin/2011/08/14/can-space-aliens-save-us/

Average people simply don't understand that the elites REALLY DO think this way. It's our job to show them.

Bob Roddis said...

As you all know, I love the MMTers. Average people simply do not understand that the Fed can create money out of nothing. I believe that if they were to understand this and understand that it is illegal because it’s unconstitutional and that it’s the cause of the boom/bust cycle and our current catastrophe, they would be properly appalled. The explicit nature of the MMTers idiotic claims thus help our cause immensely. They might even be moving into Canada:

http://mikenormaneconomics.blogspot.com/2011/08/mmt-hits-canada.html

http://www.progressive-economics.ca/2011/08/12/mmt-what-it-means-for-canada/

http://www.progressive-economics.ca/2011/08/11/no-retreat-no-surrender-time-for-progressives-to-explode-deficitmonetary-myths/

http://www.progressive-economics.ca/2011/08/10/thoughts-on-why-not-print-money/

From these blog posts, you can clearly see that the MMTers themselves view MMT as a method of mass looting, theft and wealth transfers. A bunch of commies.

Bruce said...

Even I could write a blog entry based on this doozy from Krugman today:

"In fact, at a national level lower wages would almost certainly lead to fewer jobs — because they would leave working Americans even less able to cope with the overhang of debt left behind by the housing bubble, an overhang that is at the heart of our economic problem."

Does he really believe that?