Monday, January 21, 2013

The Big Shill

Readers of this blog know that I believe academic economists ought not to be shills for politicians and bureaucrats and let one's writings and pronouncements be infected with political partisanship. I have made that point many times and try to hold to it myself with everything that I write. (And that includes Ron Paul, even though I agree with him on many things. Nonetheless, academic economists should be willing to keep their distance, even from people they like.)

Second, academic economists ought to be able to differentiate between political "victories" by a politician and the economic outcomes. Unfortunately, Paul Krugman in this column manages to violate to principles and once again identifies himself as a shill, a lowly political operative.

It is no secret that Krugman worships Franklin Roosevelt and the New Deal, holding it to an almost mystical standard. That FDR's New Deal attempted to organize the entire U.S. economy into a series of cartels, destroyed agricultural products despite widespread hunger (the destruction financed by a tax on agricultural products), criminalized the kosher killing of chickens, and unleashed petty bureaucrats to burden entrepreneurs with useless rules is utterly irrelevant to Krugman. In fact, he wants us to believe that the New Deal -- which actually kept unemployment higher than it would have been had FDR just stuck to engaging in his adulterous liaisons -- in essence created an economic miracle: "...the New Deal had a revolutionary impact, empowering workers and creating a middle-class society that lasted for 40 years...."

In other words, Krugman wants us to believe that no U.S. "middle class" existed before the New Deal and that by empowering the state to move well beyond previous boundaries, FDR accomplished what no one ever before was able to do. Now, I have no idea how the New Deal could have done that, except that Krugman thinks that empowering labor unions and vastly expanding what truly is an unproductive bureaucracy managed to increase overall wealth in the U.S. economy.

This defies the imagination. The New Deal, from its inception, openly attempted to throw sand in the wheels of production and, thus, result in less wealth in the form of goods and services. Destruction of crops destroyed wealth; creating and maintaining cartels destroyed wealth. This is fundamental, yet Krugman turns the whole thing upside down by claiming that the use of violence (which enabled unions to gain higher wages for themselves -- at the expense of non-union workers) and the expansion of the bureaucracies, which are funded by taxpayers who are forced to give up some of their own wealth, somehow made all of us wealthier.

Krugman's gives himself away by telling readers that making some people poorer somehow is good for the economy. He writes:
That said, health reform will provide substantial aid to the bottom half of the income distribution, paid for largely through new taxes targeted on the top 1 percent, and the “fiscal cliff” deal further raises taxes on the affluent. Over all, 1-percenters will see their after-tax income fall around 6 percent; for the top tenth of a percent, the hit rises to around 9 percent. This will reverse only a fraction of the huge upward redistribution that has taken place since 1980, but it’s not trivial.
There is a huge problem here; Krugman explains that the new tax laws will make a portion of our population less well-off, but he does not adequately explain how that benefits the rest of us. Yes, ObamaCare allegedly will make it easier for some people to have access to health insurance, but ObamaCare itself, with all of its new rules, regulations, and criminal penalties, will result in less medical care overall being made available. Even Krugman admits that the health care law created a "Rube Goldberg device of regulations and subsidies...."

Is it my imagination, or is Barack Obama a magician? One would think that by adding rules and procedures (which, according to the Law of Opportunity Cost will increase overall costs), the government is going to force the medical care "supply curve" to the left (to use economists' jargon). How this is a "victory" for the economy, I have no idea.

In Krugman's view, making one group of people less-well-off is the same thing as making everyone else better off, yet he offers no mechanism other than pure transfer payments. However, transfer payments only distribute existing wealth and they create no new wealth. This is the classic "Zero-Sum Economy," and if that is Krugman's view of things, then how does he explain the fact that overall standards of living for everyone are substantially higher than they were during the New Deal. For that matter, they are substantially higher for everyone than they were during Ronald Reagan's presidency.

I would ask anyone to explain how Paul Krugman's theory of political economy actually demonstrates any causal relationship between New Deal and "Big Deal" policies and an overall rising standard of living. Krugman never has explained how an economy might grow in the first place, except to claim that inflation somehow creates economic miracles. (But even there, he does not explain a causal relationship between inflation and real economic growth.)

Furthermore, his explanation of "capital theory" really is nothing more than a spending theory. The new Apple iPhone, he surmised, might boost the economy because people will buy new ones. Come again? Does the iPhone do away with the Law of Opportunity Cost?

In the end, what Krugman is reduced to shilling for Barack Obama because he is a Democrat who has vastly expanded the reach of the State. And according to Krugman, an expanded and more powerful State through coercion makes us all richer. I'm not sure how that happens, but maybe Krugman will explain everything in a future column.

26 comments:

JG said...

Allow me to translate for those not fluent in your particular style of hyperbole:

"unleashed petty bureaucrats to burden entrepreneurs with useless rules" - Translation: Required independent audits of financial statements to increase reliability of financial reporting, imposed penalties on financial fraud via the Securities Act of 1933 and actually restored depositors faith in banks through deposit insurance via the FDIC.

"destroyed agricultural products despite widespread hunger" - Translation: Paid farmers to not farm on all of their land to prevent turning over fragile soil during a drought, which contributed to soil degradation, which was a primary contributor to the dust bowl effect.

"criminalized the kosher killing of chickens" - Translation: There was a kosher butcher who was prosectuted for violating some aspect of a New Deal labor law and I thought I could pass this off as something sinister.

Bob Roddis said...

Such hyperbole indeed. Check out the "NRA-Voting Strength in the Iron and Steel Industry Code", Chapter 9 at page 13:

http://www.voltairenet.org/IMG/pdf/Sutton_Wall_Street_and_FDR.pdf

Bob Roddis said...

Oh yes, and that part in "The Grapes of Wrath" where they burn all of fruit while the Joads and friends were starving and blaming it all on capitalism was pretty funny too.

Tel said...

Austrian goes mainstream! If you can call a guest post on ZH to be mainstream (I'm thinking of the future here).

http://www.zerohedge.com/news/2013-01-21/guest-post-keynesians-and-ponzians

Sooo Prof "Hot Shot" Anderson, where's your guest post on ZH huh huh huh?

By strange coincidence though, the article does mention ... the political propaganda spewed out daily from Washington, their media minions and Wall Street shills.

Hmmm, dunno who he could be referring to there, no one in particular comes to mind.

William L. Anderson said...

Amazing. Until Tel pronounced his great historical wisdom (or whatever his name is), I had no idea that the only new regulatory initiative of the New Deal was the imposition of a few new bank regulations.

Furthermore, I had no idea that the AAA had nothing to do with an effort to raise agricultural prices, and that the entirety of the AAA was soil conservation. (That might contradict what the New Dealers and everyone was saying at the time, but like all Keynesians, "tel" knows better.)

As for the kosher butcher that "tel" apparently thinks was legitimately prosecuted for the criminal act of butchering chickens the way it had been done in American and in previous Jewish generations, it was the Schecter case that brought down the NRA.

You see, even though the framers of the NIRA openly said they wanted to reorganize the U.S. economy into a series of cartels, and even though the stated goal was to limit production and push up prices, "tel" knows better. All that stuff that was on the record really was just imaginary.

No doubt, "tel" also believes that Obama has been working economic miracles.

Tel said...

No doubt, "tel" also believes that Obama has been working economic miracles.

Ahhh, probably that would be "JG" who thinks that not me. My full name is Telford Tendys by the way, it's on my website. I'm not a Keynesian either.

My post was about something else.

Anonymous said...

Professor Anderson, what's your interpretation of the Austrian school mention allusion on The Simpsons? I found it hilarious.

http://vimeo.com/57364562

Anonymous said...

Professor Anderson, what's your interpretation of the Austrian school mention allusion on The Simpsons? I found it hilarious.

http://vimeo.com/57364562

Pulverized Concepts said...

Krugman says:

"For one thing, the Big Deal’s main policy initiatives are already law."

Yeah, that's right, rather than having a group of like-minded progressives voluntarily set up their own initiatives and thus prove to non-believers their efficacy, it's necessary to force everyone to take part, regardless of their opinions or desires. We know how easy it is to repeal a law that turns out to be a big mistake, see ethanol.

"And there’s another contrast: the Big Deal agenda is, in fact, fairly popular — and will become more popular once Obamacare goes into effect and people see both its real benefits and the fact that it won’t send Grandma to the death panels."

Sure, the "Big Deal agenda" is popular, at least among those that feel it will include "free" stuff. As it is now, every complaint that's made about current medical delivery will be solved by the Affordable Care Act, or so the bureaucratic optimists believe. Evidently they also believe that there is an unlimited capacity for the supply of medical services so there can never be such a thing as a "death panel".

"Finally, progressives have the demographic and cultural wind at their backs. Right-wingers flourished for decades by exploiting racial and social divisions — but that strategy has now turned against them as we become an increasingly diverse, socially liberal nation."

A perfect example of projection. Krugman's "progressives" have not only exploited racial and social divisions to advance their agenda but have been the main force in creating them. The means to the progressive end has been to legislate equality among the inherently different, although the Ivy League alumni elite stand above this process. Krugman's unscientific love affair with progressive political ideals doesn't include his own financial sacrifice to the greater good. He could easily afford (We need more thought on the concept of "affordability".) to hire a butler, valet, footman, etc., if not just buy the victuals for some family living on the wrong side of the Princeton, NJ tracks. Of course the progressive game plan he advocates has, through byzantine regulation of voluntary exchange between free individuals, made his hiring of a butler much more difficult than it once was.

Lord Keynes said...

(1) "In other words, Krugman wants us to believe that no U.S. "middle class" existed before the New Deal "

That is a ludicrous straw man, since Krugman's original statement says or implies no such thing.

Krugman was talking about the greatly expanded middle class that arose after 1933 and above all after 1945.

(2) The New Deal was a mixed bag, containing both positive and negative aspects. Even Keynes was hostile to the cartelisation and food destruction aspects, as is well known:

http://socialdemocracy21stcentury.blogspot.com/2011/09/keynes-on-new-deal-in-1933.html

(3) "I would ask anyone to explain how Paul Krugman's theory of political economy actually demonstrates any causal relationship between New Deal and ... an overall rising standard of living. "

The New Deal's moderate fiscal expansion, financial reorganisation and jobs programs allowed a clear recovery, until idiot austerity advocates convinced Roosevelt to cut and balance the budget in 1937 - and the economy plunged back into depression in 1937.

The real GDP and real per capita figures provide the clear evidence for what austerity did in 1937-1938:

Year | GDP | Growth Rate
1929 | $977,000
1930 | $892,800 | -8.61%
1931 | $834,900 | -6.48%
1932 | $725,800 | -13.06%
1933 | $716,400 | -1.29%
1934 | $794,400 | 10.88%
1935 | $865,000 | 8.88%
1936 | $977,900 | 13.05%
1937 | $1,028,000 | 5.12%
1938 | $992,600 | -3.44%
1939 | $1,072,800 | 8.07%
1940 | $1,166,900 | 8.77%
* Millions of 2005 dollars
http://www.measuringworth.com/datasets/usgdp/result.php

Next, real per capita GDP:

Real US Per Capita GDP 1870–2001
Year | GDP | Growth rate

1929 | 6899 | 5.02%
1930 | 6213 | -9.94%
1931 | 5691 | -8.40%
1932 | 4908 | -13.75%
1933 | 4777 | -2.66%
1934 | 5114 | 7.05%
1935 | 5467 | 6.90%
1936 | 6204 | 13.48%
1937 | 6430 | 3.64%
1938 | 6126 | -4.72%
1939 | 6561 | 7.10%
1940 | 7010 | 6.84%
(Maddison 2003: 88).




Bob Roddis said...

LK says: Paul Davidson notes the nature of uncertainty in the Keynesian/Knightian sense:

“Keynes’s description of uncertainty matches technically what mathematical statisticians call a nonergodic stochastic system. In a nonergodic system, one can never expect whatever data set exists today to provide a reliable guide to future outcomes".

Therefore, we cannot even conceive of a “trend line” and there cannot be such a thing as a “gap” because “In a nonergodic system, one can never expect whatever data set exists today to provide a reliable guide to future outcomes”.

http://socialdemocracy21stcentury.blogspot.com/search?q=ergodic

Further, no one can claim that the market has failed because “In a nonergodic system, one can never expect whatever data set exists today to provide a reliable guide to future outcomes”.

Lord Keynes said...

Bob Roddis,

The existence of nonergodic, stochastic systems in market processes does not prevent identification of
output gaps in the present or past, or unemployment or GDP levels in the present or past.

You are clearly so contemptibly ignorant - or just stupid - that you do not understand that Austrian economics has virtually the same view on uncertainty in a market system as Post Keynesian economics, e.g.:

"Mises distinguished between the role of ‘quantitative predictions’ within the natural sciences and ‘qualitative predictions’ in sociology and economics. He argued that it is impossible to predict specific outcomes in social science with any degree of accuracy and that, instead, social science should concern itself only with the prediction of patterns

Mark J Smith, Social Science in Question: Towards a Postdisciplinary Framework, p. 155.
----

"The important point in relation to economic theory is that Misesian Man knows the body of economic laws that Misesians have built up; these laws, while absolute, are qualitative and ceteris paribus in their nature and cannot themselves forecast the future"

Murray N. Rothbard, Economic Controversies, p. 174.

William L. Anderson said...

Rothbard did NOT mean that the laws of economics might not apply in the future, which is what LK has been claiming. Instead, Rothbard said that we do not know the events of the future.

However, Rothbard and the Austrians have used laws of economics to say that if the monetary authorities do such and such, in the future, we shall see results like "X." Likewise, an Austrian can say confidently that if the government slaps a price control of $2 a gallon for gasoline when the current price is $3.50 a gallon, then we will see a shortage develop.

That is a big difference versus what Paul Davidson is saying. As I read it, Davidson seems to be claiming that in the future demand curves may naturally swing upward, etc.

Lord Keynes said...

"That is a big difference versus what Paul Davidson is saying. As I read it, Davidson seems to be claiming that in the future demand curves may naturally swing upward, etc."

No, Paul Davidson is not saying that at all (although, as it happens, the law of demand is certainly not universal, for other reasons).

Davidson is thinking of certain economic data or quantities in market systems, e.g., stock market prices of an specific stock or in general 10 years from now, the returns on an investment 4 years from now, etc, etc.

Tel said...

LK: The US government ran a deficit every year from 1931 through 1940 and beyond, so what is this "austerity"? How do you define "austerity" then?

Lord Keynes said...

"Tel said...

LK: The US government ran a deficit every year from 1931 through 1940 and beyond,"


(1) it is perfectly possible for the federal government to run a deficit and at the same time for overall government fiscal policy to be contractionary.

(2) as it happens, the federal deficit was virtually eliminated in fiscal year 1938, as Roosevelt cut total federal spending in both fiscal years 1937 and 1938, as you can easily verify here:

http://www.presidency.ucsb.edu/data/budget.php

(3) austerity is government fiscal policy (at all levels) that contracts demand in an economy.

When Roosevelt all but eliminated the stimulative levels of deficit spending in his budget balancing 1937-38, he severely contracted demand in the US economy. The result was real output collapse again in 1938, as you can see from the real GDP data above.

Tel said...

LK: austerity is government fiscal policy (at all levels) that contracts demand in an economy.

Oh, OK so whatever government does if GDP happens to go down then that was "austerity", that is what you are saying.

Well, no surprise that "austerity" causes GDP to go down then, since you have just defined the cause by dint of the outcome. Not particularly useful to policy makers is it?

I presume the George Bush spending in 2008 followed by the Obama spending in 2009 must have also been "austerity" since when the recession hit, demand was down.

Bala said...

"although, as it happens, the law of demand is certainly not universal, for other reasons"

LK will just not stop this idiocy. He will insist on continuing to reveal his complete ignorance of basic economic concepts.

Bala said...

"Not particularly useful to policy makers is it?"

ROFLMAO!!! Thanks, Tel.

Lord Keynes said...

"Oh, OK so whatever government does if GDP happens to go down then that was "austerity""

No, that is not what I said above.

"I presume the George Bush spending in 2008 followed by the Obama spending in 2009 must have also been 'austerity' "

No, it was not. It was clearly stimulative.

Dinero said...

GDP measurement includes government spending and so stating that a decoline in government spending lead to a decline in GDP is simply a tautology

Bala said...

"No, it was not. It was clearly stimulative."

As Obelix says "Clear as mud"

Mike said...

LK said: "No, it was not. It was clearly stimulative."

Only stimulative to the banking and political class

William L. Anderson said...

Keynesians like to claim that free markets are "trickle-down economics" in action, but I think a real case can be made in saying that the Keynesian stimulus truly is based upon "trickle down" theory. The idea is that the government shovels money to favored political constituencies and then individuals there spend the money.

The new spending then "trickles" through the economy and supposedly enriching those at the back of the line.

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