Monday, April 23, 2012

The Amnesia Economist

One of the supposed rules for New York Times columnists is that they not endorse candidates or be overly politically partisan in what they write. That is a howler, of course, as the entire newspaper is little more than the house organ for the "respectable" Left in the Democratic Party. This is a newspaper, of course, that prattles on about how DNA "exonerates" people charged with certain crimes, but was absolutely certain in the Duke Lacrosse Case that DNA did not matter at all.

(The paper wanted us to believe that three drunken young men could rape, beat, and ejaculate on a woman for 30 minutes in a tiny bathroom, leave in a hurry without cleaning up anything, use no chemicals to eradicate the mess, and yet not leave one speck of DNA. Instead, the paper insisted, they used what only could be described as a "magic towel" that would make her DNA disappear, not collect the DNA of two of the "rapists," but have only the DNA of one person. But, according to the self-proclaimed "Newspaper of Record," this was "proof" of a rape.)

I make this lengthy point about the NYT because this is a paper that openly and arrogantly contradicts nature itself, as the people who write for the paper, including the vast majority of its columnists, believe that laws of time and space do not apply to them. That makes them free to rewrite history and declare themselves to be akin to the Masters of the Universe.

So it is with Paul Krugman, who this week calls Mitt Romney the "Amnesia Candidate" because Romney dares hold Barack Obama's policies as being responsible for there not being any real economic recovery. Why everyone at the NYT and Princeton KNOWS that EVERYTHING is the fault of George W. Bush BECAUSE HE CUT THE TOP INCOME TAX RATE FROM 39.6 PERCENT TO 35 PERCENT. Yes, anyone who knows ANYTHING about economics knows that slightly lowering income tax rates will cause massive unemployment, or that least that is what Krugman wants us to believe.

(And, please note that Krugman on numerous occasions has claimed that cutting tax rates has been a major cause of the downturn because, as every good Keynesian knows, government always spends more wisely than individuals can and will spend for themselves.)

At the present time, I am working on a project about the Great Depression and today, I will be writing about Herbert Hoover's response to the stock market crash of 1929 and beyond. In my research, I came upon this gem from Krugman. First, the Hoover quote:
It cannot be borrowed without impairment of the credit of the National Government and thus destroy that confidence upon which our whole system depends. It is unthinkable that the Government of the United States should resort to the printing press and the issuance of fiat currency as provided in the bill which passed the House at the last session of Congress under the leadership of the Democratic vice presidential candidate. Such an act of moral bankruptcy would depreciate and might ultimately destroy the value of every dollar in the United States.
Then, Krugman declares:
This should (but won’t) dispel the myth that Hoover was some kind of proto-Keynesian. But look,also, at how closely Hoover’s line of argument follows that of Very Serious People today.
 Yes, one quote from Hoover means that Hoover never called a conference of business and labor leaders in 1929 and demanded that they keep prices and wages high no matter what was happening in the economy. Hoover enthusiastically signed the disastrous Smoot-Hawley Tariff, despite receiving a letter signed by 1,000 economists begging him to veto it.

Hoover never pushed through massive public works projects and Guy Rexford Tugwell, a close adviser to Franklin Roosevelt, never declared, "We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started.” Hoover did not resurrect the War Finance Corporation to become the Reconstruction Finance Corporation (which today exists as the Small Business Administration) to make massive loans to failing companies. (After all, Hoover was a "liquidationist" and wanted the entire economy of the USA to go under so he could support the principles of "laissez-faire.")

Of course, Hoover was a True Believer in "laissez-faire" and he never was a Progressive, although he had convened a conference in 1921 on business cycles, and at the conference he did not declare that the standard government approach to a downturn (not to intervene) was outdated and that government needed to expand credit and engage in public works programs. 

Politicians and pundits portray Herbert Hoover as a defender of laissez faire governance whose dogmatic commitment to small government led him to stand by and do nothing while the economy collapsed in the wake of the stock market crash in 1929. In fact, Hoover had long been a critic of laissez faire. As president, he doubled federal spending in real terms in four years. He also used government to prop up wages, restricted immigration, signed the Smoot-Hawley tariff, raised taxes, and created the Reconstruction Finance Corporation — all interventionist measures and not laissez faire. Unlike many Democrats today, President Franklin D. Roosevelt's advisers knew that Hoover had started the New Deal. One of them wrote, "When we all burst into Washington...we found every essential idea [of the New Deal] enacted in the 100-day Congress in the Hoover administration itself."
When Herbert Hoover returned to the USA after his tour of Europe following World War I, he did not outline a new economic and social "vision" for the country that so excited Progressives that "Louis Brandeis, Herbert Croly of the New Republic, Colonel Edward M. House, Franklin D. Roosevelt, and other prominent Democrats for a while boomed Hoover for the presidency."

You see, the facts about Herbert Hoover are quite inconvenient when one wishes to portray him as something he clearly was not. So, one takes one quote from Hoover to "prove" that nothing else that historians have written about him is true. After all, when one is trying to promote a myth, a little amnesia cannot hurt.

Like the writers at the NYT during the lacrosse case, Krugman knows that if he continues to make untrue declarations, few readers will do fact-checking. After all, the Duke boys were white and "privileged," so they MUST have raped Crystal Mangum. 

Likewise, Hoover's entire career was devoted to Progressive causes and the paper trail is long, but when Paul Krugman tosses all of the facts down the Orwellian Memory Hole, then he must be right because, after all, he is a decorated and famous economist.

27 comments:

Zachriel said...

Steven Horowitz: As president, he doubled federal spending in real terms in four years.

Here is federal outlays by year.

Year Rec. Out. Sur./Def.
1928 3,900 2,961 939
1929 3,862 3,127 734
1930 4,058 3,320 738
1931 3,116 3,577 -462
1932 1,924 4,659 -2,735
1933 1,997 4,598 -2,602
1934 2,955 6,541 -3,586

Notice that the growth occurred mostly near the end of the Hoover Administration, what is known as "too little, too late". Also, doubling wasn't reached until fiscal year 1933-34.

Daniel Hewitt said...

^ you are confusing real spending with nominal spending

Lord Keynes said...

Contemptible, risible, rubbish, straw man, nonsense, false, lies, ad hominem, non sequitur.

Pete said...

"Also, doubling wasn't reached until fiscal year 1933-34."

And that's why the correction was delayed much further on than it otherwise would have been had individuals been allowed to solve their own problems, instead of being victimized by destructive state tinkering.

Zachriel said...

Daniel Hewitt: ^ you are confusing real spending with nominal spending

While the figures are not adjusted for inflation, an inflation adjuster would affect both receipts and outlays. In particular, Hoover ran a surplus in 1930, just as the the banking system was collapsing. He ran a small deficit in 1931, largely because of severely reduced tax receipts, and only in 1932 did he begin to apply a substantial stimulus. He also imposed tariffs, which exacerbated the problem. Nor did it double until 1934.

William L. Anderson said...

I'm not sure the real LK wrote the comments above, as he usually signs in with his Blogger link. But, nonetheless, I'll keep the comments up and if LK didn't write them, I'm sure he will check in soon enough.

Lord Keynes said...

(1) "I'm not sure the real LK wrote the comments above,"

I did not write the comments at April 23, 2012 4:26 PM

(2) The fact that Hoover was progressive for his era does not mean he did what was required to stop America's depression from 1929 onwards, as shown here:

http://socialdemocracy21stcentury.blogspot.com/2012/02/steven-horwitz-on-herbert-hoover-mostly.html

http://socialdemocracy21stcentury.blogspot.com/2011/05/herbert-hoovers-budget-deficits-drop-in.html

http://socialdemocracy21stcentury.blogspot.com/2012/01/what-hoover-should-have-done-in-1931.html

(3) "Hoover enthusiastically signed the disastrous Smoot-Hawley Tariff, despite receiving a letter signed by 1,000 economists begging him to veto it."

And the impact of Smoot-Hawley on America's economy was minimal:

"Exports were 7 percent of GNP in 1929. They fell by 1.5 percent of 1929 GNP in the next two years. Given the fall in world demand in these years from the causes described here, not all of this fall can be ascribed to retaliation from the Smoot-Hawley tariff. Even if it is, real GNP fell over 15 percent in these same years. With any reasonable multiplier, the fall in export demand can only be a small part of the story. And it needs to be offset by the rise in domestic demand from the tariff. Any net contractionary effect of the tariff was small" (Temin 1989: 46).

http://socialdemocracy21stcentury.blogspot.com/2011/02/smoot-hawley-and-us-contraction-of.html

(4) "Hoover never called a conference of business and labor leaders in 1929 and demanded that they keep prices and wages high no matter what was happening in the economy."

The belief that flexible wages and prices will clear markets is a delusion. Even if wages and prices were perfectly flexible, there would still be involuntary unemployment and failures of aggregate demand.

Apart from which US wages fell markedly from 1931, yet the depression continued.

You cut wages savagely in 1929 and that still wouldn't have stopped distress selling of assets, debt deflation, the bank runs and bank collapses leading to loss of people’s savings, and demand shocks.

Isaiah said...

This seems highly dishonest (and petulant). I think it was clear that he called Romney the "amnesia candidate" because Romney is misrepresenting very recent history (and he outlined specific ways he was doing that) and not because "Romney dares hold Barack Obama's policies as being responsible for there not being any real economic recovery."

Further, I had trouble believing that any competent economist would assert that tax cuts caused the economic downturn, and I looked up Krugman's position on that, and I could not find him saying that you claimed he did, while I did find many instances of him attributing the downturn to other causes or approvingly citing others doing so (http://krugman.blogs.nytimes.com/2010/01/13/percents-and-sensibility/, http://rortybomb.wordpress.com/2011/05/18/peter-wallison-discusses-fannie-and-freddie-for-the-american-spectator-or-where-are-the-fact-checkers/, http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?_r=3, etc.).

I get that this site is about tearing down what you think is the unearned reputation of a more successful economist, but if that is carried out through fabrication of his positions and clear displays of ressentiment, I don't see how it accomplishes that goal.

Mike M said...

Isaiah,
I don’t believe Professor Anderson’s blog is about tearing anyone down but rather using the platform to illustrate the intellectual flaws in the philosophy, economic and otherwise, held by Krugman and those that fall in the same camp.

Define successful. Lots of money, accolades, upper class living in NY, nice positions, admiration by the right people? By that standard Madoff was successful. Until he wasn’t.

Be careful. You might be getting the LK disease. Long on citations and short on individual thinking.

Also could you refrain from using the words “competent economist” and Krugman in the same sentence. It makes my head hurt.

Cheers

Isaiah said...

Mike,
I think you're saying the same thing I was but spinning it in that first paragraph. He thinks Krugman's reputation and accolades are unearned, and he's trying to provide a counter. I think that's a pretty neutral description.

With regard to the second paragraph, yes, those are all fair definitions. I'd put accolades and "nice positions" tops on the list. And, sure, success can be fleeting. Realistically, though, I think it's a safe bet that both our gracious host and Dr. Krugman will go to their graves without a substantial re-evaluation of their contributions to their field.

And I don't get the "LK" comment. It appears that you're getting into a little personal attack there, and I don't want to encourage that, either. I expressed skepticism that Krugman held the views that Anderson attributed to him, looked it up, and found evidence suggesting that I was right to be skeptical, and then I linked that evidence.

Regardless of your political or philosophical affiliation, IMO, you don't advance your own point by denying the basic competence of a Nobel Prize AND Clark Medal recipient. Heck, just graduating summa cum laude in econ from Yale and getting a PhD from MIT should entitle one to that informal title (competent). Further, I was saying that I find it hard to believe that ANY competent economist could believe the position attributed to Krugman by Anderson. It just seems so obviously wrong. However, I now believe that that is precisely why Anderson attributed the position to Krugman--to dishonestly discredit him.

Mike M said...

Isaiah
Good points duly noted.

I don’t know about the reevaluation prediction as I don’t know either of them personally. What I do know is people of intellectual integrity will reevaluate and amend their positions in the face of new discovered truths.

My LK comment was sarcasm directed at him based on his history here. Apologies to you if thought it was directed at you. (we really need a sarcasm font)

My question and caution to you on your final point. You put an awful lot of weight in awards and degrees from certain “approved” institutions that should automatically extend credibility to a recipient. I don’t believe that is a wise path. Is a Nobel Prize really what it used to be? Are Ivey league graduates really that smart? I’ve known plenty of people from elite schools that can’t engage in basic critical thinking.

Not sure who the author was on this but it fits: “The smartest person in the world is totally worthless once he accepts a false axiom as truth, and seals himself off from the possibility that he is wrong”

Unfortunately most of what passes for public discussion of issues is nothing more than intellectually dishonest political spin or pseudo intellectual drivel. I fear we are no longer a nation of critical thinking and reason. Keep the faith. There are elements trying to reignite that fire.

Pete said...

Lord Keynes:

(2) The fact that Hoover was progressive for his era does not mean he did what was required to stop America's depression from 1929 onwards

Required according to what standard, and what assumptions? That state printing and spending can fix problem caused by state printing and spending?

(3) "Hoover enthusiastically signed the disastrous Smoot-Hawley Tariff, despite receiving a letter signed by 1,000 economists begging him to veto it."

And the impact of Smoot-Hawley on America's economy was minimal

"Exports were 7 percent of GNP in 1929. They fell by 1.5 percent of 1929 GNP in the next two years. Given the fall in world demand in these years from the causes described here, not all of this fall can be ascribed to retaliation from the Smoot-Hawley tariff. Even if it is, real GNP fell over 15 percent in these same years.

The Smoot-Hawley tariff bill was a bill that put a tariff on imports, not exports. The bill put additional tariffs on over 20,000 imported goods to record levels.

That is NOT "minimal."

With any reasonable multiplier, the fall in export demand can only be a small part of the story.

Try import demand.

(4) "Hoover never called a conference of business and labor leaders in 1929 and demanded that they keep prices and wages high no matter what was happening in the economy."

The belief that flexible wages and prices will clear markets is a delusion. Even if wages and prices were perfectly flexible, there would still be involuntary unemployment and failures of aggregate demand.

Impossible. If prices and wages are perfectly flexible, then any demand for labor can fully clear the market of labor, by lower prices for labor. Any "uncertainty" can be eliminated by yet still further wage decreases. Nominal investment does not disappear, even in the greatest depths of a depression, and if the assumption is price flexibility, then the prevailing nominal investment can buy up all available labor.

Apart from which US wages fell markedly from 1931, yet the depression continued.

That's because inflation and spending and intervention continued.

You cut wages savagely in 1929 and that still wouldn't have stopped distress selling of assets, debt deflation, the bank runs and bank collapses leading to loss of people’s savings, and demand shocks.

"Savagely", hahaha.

If wages fell, then the demand for capital goods, and the demand for consumer goods from wage earners, would have eventually leveled off, stopping further selling of assets, debt deflation, and bank runs.

Demand shocks are endogenous to wages and profits, so a stabilization of wages and profits has no impetus for any demand shocks.

Fearsome Pirate said...

LK, the point isn't whether Hoover did or didn't do enough. The following two statements are different:

"Hoover did nothing."
"Hoover didn't do enough."

Krugman is claiming the former, which is patently false. You're moving the goalposts with latter.

Dennis said...

It seems to me that the relationship between unemployment and inflation can be addressed by answering a simple question: why would increasing the amount of the medium of exchange lead to a decrease in unemployment? There does not seem to be any logical relationship between the two, so any efforts in that regard are bound to fail.

Kim Kardashian said...

LK strategery:

1. Create Strawman
2. ????
3. PROFIT!!!!

Gee said...

Obama once exhalted Adam Smith on free-market ideals, does that make Obama a Champion of laissez faire?

Anonymous said...

People writing opinion pieces on the opinion page of a newspaper aren't supposed to have opinions? This is one of the more bizarre assertions I've seen posted in a long time. I didn't read where Krugman was endorsing a candidate. Where in this piece did he do that. Krugman has written critical things about Obama and Democrats on numerous occasions. His politics are clear, but so are those of George Will, Charles Krauthamer and any number of right wing columnists. You don't like the slant of the NYT editorial board and I don't like that of the WSJ or Fox. That's life man. Stop with the righteous indignation. Stop whining, OK?

William L. Anderson said...

Krugman is more than a columnist, and I have much higher expectations from an academic economist than I do a pure columnist like Will. Maybe my expectations are too high, but I do not believe that academic economists should be little more than shills for particular candidates.

While I have supported Ron Paul, I have not written what essentially would be propaganda for him or his campaign. Furthermore, I do not shill for the Republican Party, and I believe that when an academic economist like Krugman becomes little more than a political operative, he needs to resign his position as a faculty member.

Obviously, that is my opinion, but I don't use my classroom as a place from which to launch what essentially is political propaganda. It is clear that Krugman does not feel that way.

Mike Cheel said...

Off this topic but on topic for Krugman, reddit has scheduled an 'Ask Me Anything' with him on May 1st.

http://i.imgur.com/7VBMk.png

Hopefully he can clarify his position on some things.

Anonymous said...

I hope to read your critique of Fox News soon, because if any entity believes, in your words, the the laws of time and space do not apply to them, it's Fox.

Anonymous said...

Presidential administrations have been peopled by academics from time immemorial. Academics who advise politicians are commonplace and comment on political issues in public forums all the time, all the while remaining on university faculty. Why should Krugman be the exception? You assert you are not a shill for any party but it sure does not look that way to me...

William L. Anderson said...

I don't watch Fox News. In fact, we don't have TV reception at our house and have not had it for nearly 11 years.

Fox News represents the Neoconservative point of view, and I am not a Neocon. And there are plenty of people critiquing Fox News out there, so I don't see why I am required to write critiques of something I don't even watch.

Pulverized Concepts said...

Krugman attempts to put himself in an unassailable position by prescribing tactics that he knows won't be used and thus can't fail. Republican/conservatives are totally off-base and wish only to see higher unemployment and general starvation. Democrat/socialists are unwilling to demand the printing of trainloads of money and its distribution to the unemployed. Thus both sides are at fault in the Great Recession, and really guilty of the crime of ignoring the recommendations of a Nobel prize winner.

Tel said...

Fox News have a website, so now ignoring them can be a matter of choice rather than necessity.

Anonymous said...

Let me get your logic straight -

160 years of consistent reporting on New York State, the United States, the World, Arts, Sports, Business, and the most elaborate and well-funded network of trained reporters on the planet thrown out the window because of an editorial about the Duke LaCrosse Team (which, by the way the Times reported a response from their public editor - http://www.nytimes.com/2007/04/22/opinion/22pubed.html?pagewanted=all)?

William L. Anderson said...

Hmmm. You never read the commentary on the NYT from its former public editor.

The NYT throughout the case had numerous opportunities to look at the evidence and chose, instead, to go with the Politically-Correct line. Somehow, I doubt you are familiar with the NYT coverage of that case. The response from the Public Editor, Byron Calame was less than truthful, in my view, and in the view of K.C. Johnson, who wrote a book on the case.

One writer for the Times corresponded regularly with me to blast the paper's coverage and another said the coverage made him "sick." Even Duff Wilson admitted personally to me that he blew it.

And please don't claim that this is the ONLY time the NYT has let its ideological blinders lead them over a cliff. Don't forget the Tawana Brawley case in which the NYT at first treated everything she said as true.

Anonymous said...

OK...Again, 150 years of the most comprehensive news coverage on the planet does not live up to your standard of perfection...I am sure you could build a better paper.

Yes, the NYTimes is the worst paper in the world, clearly.