Friday, May 25, 2012

Egos and Economists Who Yearn for the Nonexistent Past

One of the constant themes of Paul Krugman's writings these days, other than shilling for Barack Obama and Democrats in general, is the walk down memory lane to the nation's idyllic past where tightly-regulated industries wisely governed by The Great Eye Of Washington grew and grew until those Bad And Greedy Ideologues Led By Ronald Reagan completely overturned the Perfect System and replaced it with Greed And Chaos.

Now, I always find it interesting that people like Krugman claim that "turning back the clock" is a foolish and reprehensible thing to do -- except when people Krugman do it. Progressivism, as they see it, means that ANY new government regulation or regulatory system ALWAYS is an improvement over the previous chaotic regime when Evil Private Enterprise was in charge. Thus, any attempt to change anything can be borne only from evil intentions, as each law, each regulation, each encroachment by the State is another step toward the Perfect Society.

In a recent column, Krugman once again takes us down memory lane, telling us that Mitt Romney must have been the Second Coming of Oliver Stone's fictional character Gordon Gekko, the takeover specialist who bought healthy, profitable firms, gutted them, drove them into the ground, and ultimately made a profit from destroying companies. Now, this is quite interesting, coming from an economist, given that the scenario, while nicely fitting for Hollywood, describes an impossible set of events.

In Krugman's Wonderland, it is entirely plausible that a corporate raider only can make money if he drives a profitable company into bankruptcy. After all, in the Real World, if the parts (i.e. physical assets) of a firm are more valuable than the firm itself, then we know that the firm already was headed for doom.

For example, the value of Apple does not rest in its physical assets such as inventory, parts, building, and the like. Instead, the value of that firm lies in the ability of its people to move factors of production from lower-valued to higher-valued uses, as ultimately determined by consumers. If a corporate raider or any other company were to try to purchase Apple, it would have to buy the "whole," not the "sum of its parts," something that would make Apple's purchase price prohibitively expensive.

All of this is lost in Wonderland, where life is static, and the capital that served companies in 1950 (when the rest of the world was recovering from the devastation of World War II, as the USA was not a physical battleground and did not have destroyed factories and bombed-out cities) is still working perfectly 30 years later and produces exactly the same returns. This is the state of mind that brought Krugman's mentor, Paul Samuelson, to claim that socialism in the Soviet Union was a "powerful engine for economic growth" that sooner or later would overtake the capitalist world in economic strength.

After all, in Wonderland, an economy is little more than a graph of aggregate supply and aggregate demand (with a Keynesian Cross thrown in for good measure) in which government stirs in new money and out of the mixture comes full employment (as long as the "right people" are in charge of the apparatus of the state). Anything that might upset this picture always is portrayed as evil.

Now, what I find interesting, beyond Krugman's partisan shilling, is the following statement, which tells me more about Krugman's grasp of the current economy than it does even about his politics:
In the wake of a devastating financial crisis, President Obama has enacted some modest and obviously needed regulation; he has proposed closing a few outrageous tax loopholes; and he has suggested that Mitt Romney’s history of buying and selling companies, often firing workers and gutting their pensions along the way, doesn’t make him the right man to run America’s economy.
First, I had no idea that presidents "run America's economy," but there it is. Second, I find it quite interesting that he uses Obama as his stellar example of attacking capitalism. As Kimberly Strassel recently noted:
President Obama is no fan of Mitt Romney-style "vulture" capitalism. So what's his alternative?

All those Republicans grousing about the president's attacks on private equity might instead be seizing on this beautiful point of contrast. Mr. Obama, after all, is no mere mortal president. Even as he's been busy with the day job, he's found time to moonlight as CEO-in-Chief of half the nation's industry. Detroit, the energy sector, health care—he's all over these guys like a cheap spreadsheet.

Like Mr. Romney, Mr. Obama has presided over bankruptcies, layoffs, lost pensions, run-ups in debt. Yet unlike Mr. Romney, Mr. Obama's C-suite required billions in taxpayer dollars and subsidies, as well as mandates, regulations, union payoffs and moral hazard. Don't like "vulture" capitalism? Check out the form the president's had on offer these past three years: "crony" capitalism.(Emphasis mine)
Strassel looks at Obama's record, and I find it quite interesting that Krugman refuses to apply the same standards to the President of the United States that he does private enterprise. Barack Obama as "Master of the Universe." Who would have thought it?

Now, one might remember the Solyndra debacle, and when one combines Solyndra's $500 million implosion with the other bankruptcies that Obama-financed firms have contributed (along with their millions in political contributions to Obama), the numbers are greater than J.P. Morgan's $2 billion trading loss, that has sent Krugman into apoplexy.Then there is General Motors, Obama's economic centerpiece:
Speaking of cars, Detroit is the business venture Mr. Obama's team has been most flogging as a success. True, General Motors and Chrysler are still turning their lights on, though they'd have arguably been doing the same had they been left to go through normal, orderly bankruptcies like those that helped the steel and airline industries restructure to become more competitive.

To get to the same place, Mr. Obama's crony capitalism handed $82 billion in taxpayer dollars to the two firms. That bailout money went to make sure the unions that helped drive GM to bankruptcy (and helped elect Mr. Obama) did not have to give up pay or pension benefits for current workers. They were instead rewarded with a share of the new firm. The UAW at GM meanwhile used the government-run bankruptcy to bar some 2,500 nonunion workers who had been laid off from transferring to other plants. How truly vulture-like.

Contract law was shredded, as unions were given preference over other creditors, such as pension funds for retired teachers and police officers. Congressmen used political sway to keep open their weak auto dealerships, forcing layoffs at stronger ones (vulture . . . vulture . . . vulture). Political masters obliged the industry to pour resources into unpopular green cars. The political masters were obliged to offer $10,000 tax credits to convince Americans to buy them. (They still won't.) And the message to every big industry? Go ahead, run your business into the ground. The Capitalist-in-Chief has your back (especially if you are unionized).
I have my doubts that Krugman's future columns will deal with any of these sticky issues. (The Washington Post has an interesting column about Obama's "Public Equity" record.) He already is on the record as supporting the vast "green energy" subsidies in part because he believes coal is evil and in part because subsidies mean spending, and every Keynesian knows that spending, even if for financial turkeys, is the lifeblood of an economy.

As for GM and Chrysler, Krugman also has thrown in with the Obama administration on its action, yet in the "restructuring" of GM, the government pretty much forced massive layoffs and the like, the very things that Krugman claims make private equity to be the Very Spawn of Satan. The difference is that when private equity firms are in charge of layoffs, they tend to be done for economic reasons.

In the case of GM and Chrysler, however, it was quite clear from the start that the purpose of the bailout was to reward political contributors to the president and Democrats and to punish anyone who had the temerity not to bow down to Obama and his White House gang. This is what the ancients once called "Crony Capitalism," but when the cronies are Obama and company, then suddenly what was once a scourge now becomes an asset.

None of this is should be read as a defense for the current presidential candidacy of Mitt Romney. He has provided nothing in his campaign that tells me he has a clue of what is happening to this country and what needs to be done. Instead, he simply claims that he will "manage" the economy better than Obama has done.

The idea that Romney is running as a "Manager-in-Chief" should give anyone pause, and I don't think he will have any more economic success than did Richard Nixon, who presided over price controls, inflation, and economic stagnation. However, it seems that Krugman is clueless as to what Romney's real weaknesses might be. Instead, he shills for Obama because he believes that the president is the Right Man to lead us back to that era when government created cartels in banking, telecommunications, cartels, and energy and all was perfect and right with the world. Except that it wasn't.


Anonymous said...

You need to read Krugman with more care. At no time is he advocating going back in time. He does point out that the historical record does notsupport any claims about the wonders of unregulated free markets, low taxation, austerity and the wonders of present financial shenanigans. Ever since 2009 he has consistently stated that it is foolish to worry about inflation and to cut borrowing and expenses when interest rate at rock bottom. The time to cut is when the economy roars back, not when it is flat on its back. He has consistently criticized Obama's policies for being inadequate but considers Republican positions to be outright dangerous.

Mike M said...

Anonymous said
“Ever since 2009 …”

OK now I understand. Krugman thinks he is smarter than everyone else and desires to be the “Manage in Chief.” Or maybe you think our problems would be alleviated if we just follow Krugman’s prescription.

I believe you miss a key element of the Anderson’s piece. NOONE should be “managing” the economy, for that assumes that one or a small group of "elite" people possess omnipotent wisdom that should displace the individual judgment and actions of the masses.

American Patriot said...

More I read Krugman as well as other progressive "experts" in their fields, more I realize how utterly clueless they are.
They can't help their collectivist statist urges which show every time they open their mouths.

Anonymous said...

Mike M. are you suggesting unregulated capitalism? No managing, just let the Strong destroy the weak (Social Darwinism?)a repeat of the Gilded Age?

William L. Anderson said...

Tell you what. Why don't you actually learn what life was like and what actually happened during the so-called Gilded Age, as opposed to listening to Progressives. You might learn something.

Don Siefkes said...

Who does Mr. Anderson think would make a good President? What specific steps does Mr. Anderson be taken to increase employment in the U.S.A. His comments are well thought out, but light on what we should do and who should do it.

Don Siefkes Sterling Heights, MI

Mike M said...

In addition to the advice presented by Professor Anderson, you might want to spend some time learning how to present and intellectually honest argument.

You changed the subject from management of an economy to regulation. Then you present the classic progressive counterargument to government regulation by painting a picture of Mad Max anarchy but for the government.

Pulverized Concepts said...

BHO doesn't have the work ethic or knowledge to be blamed for the current state of affairs. He's the "champ" and like other champs he's surrounded by a retinue of camp followers and sycophants that are careful never to utter a discouraging word, while ingratiating themselves in whatever ways possible. Svengalis like David Axelrod and Valerie Jarrett do what they can to insulate the champ from reality and advance their own agendas. In fifteen years they'll all be wealthy elder statesmen. That's how it works.

AntiCollectivist Chris said...

Don Siefkes - perhaps you should read up on Austrian Economics. Some quick steps to "increase employment" would be to get rid of all government interference in the economy - minimum wage, government subsidies, taxes, licensing fees, regulations, manipulation of interest rates, drug laws, corporate welfare, personal welfare, legal tender laws, intellectual property, military bases spread all across the globe, etc.

I put increase employment in parentheses because most real economists look for increased production. Without monetary inflation by government, increased production leads to LOWER prices. This makes everyone wealthier. Wouldn't it be nice if households could still be supported by one income?

"ANONYMOUS" -Your ignorance of economics is stunning! For the future, please remember the saying - It is better to be thought a fool than to open your mouth and remove all doubt.

Hiram J Goldstein II said...

I'm not sure Krugman has any beliefs that extend beyond "a Democrat should always be President." What he believes seems to depend more on what will help Democrats get elected than any consistent set of principles.

Tom E. Snyder said...

I like John Stossel's term for "crony capitalism": CRAPITALISM.

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