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.

Krugman: Welfare is the Nation's "Seed Corn"

Paul Krugman must feel at times as though he is Horatio at the Bridge. He openly campaigned for Democrats last fall only to see the House fall to Republicans and for the Democrats to see their once almost insurmountable Senate majority fall apart. And now, the Republicans are calling for budget cuts and Krugman once again dons his battle gear.

Now, I absolutely agree with him that the military budget should not be sacrosanct, and most likely I would want more cut out of the Budget to Preserve the Empire than would he. (After all, Keynesians believe that military spending also serves as an economic "stimulus," even if they don't like what it accomplishes.) Any Republican who believes that the current level of military spending and military interventions overseas is sustainable is not someone who is willing to listen to reason.

However, Krugman does not seem to be particularly exorcised about the lack of Republican desire to cut military spending. Instead, he decides that a poll by the Pew Research Center really should be the centerpoint of economic policy. He writes:

...Americans were asked whether they favored higher or lower spending in a variety of areas. It turns out that they want more, not less, spending on most things, including education and Medicare. They’re evenly divided about spending on aid to the unemployed and — surprise — defense.

The only thing they clearly want to cut is foreign aid, which most Americans believe, wrongly, accounts for a large share of the federal budget.

Pew also asked people how they would like to see states close their budget deficits. Do they favor cuts in either education or health care, the main expenses states face? No. Do they favor tax increases? No. The only deficit-reduction measure with significant support was cuts in public-employee pensions — and even there the public was evenly divided.

The moral is clear. Republicans don’t have a mandate to cut spending; they have a mandate to repeal the laws of arithmetic.

In other words, since no one really wants to stop spending, let's just pretend that we have lots and lots of money, or that we can increase the national debt or just get the Fed to give us QE3, QE4, and QE5, which is the Going-Out-Of-Business Sale. In the meantime, Krugman really wants us to think that unless we have a vast welfare state, somehow our economy and our society will disappear:

The answer, once you think about it, is obvious: sacrifice the future. Focus the cuts on programs whose benefits aren’t immediate; basically, eat America’s seed corn. There will be a huge price to pay, eventually — but for now, you can keep the base happy.

Yet, if anyone has called for the eating of the economy's seed corn, it has been Paul Krugman. Because, in his view, capital simply "happens," then we don't have to worry about capital development, given that if we spend lots of money, capital magically appears.

To Paul Krugman, there is no difference between real wealth and the printing of money. As he wrote in The Return of Depression Economics, all it takes is for the government to end the downturn is just to print money. There is, he claims, a "free lunch" out there. What he does not say is that these are the very policies that destroy our real seed corn, our capital base.

Krugman is Deep in the Heart of Taxes

Paul Krugman loves those "Aha!" moments in which he believes (or at least wants US to believe) that an economy can thrive only if government tax heavily and have lots of union workers on the payroll. In his Friday column, he claims to have discovered one of those moments in his supposed expose of Texas.

Yes, Texas is having a budget shortfall in state government which is supposed to be shocking to anyone who believes that governments during a recession should cut back upon the burdens they place on others. As usual, Krugman depends not only upon a left-wing "think tank" to supply ideology masquerading as analysis, but also upon the kinds of stereotypes that really are not acceptable in academic thinking.

Krugman writes:

These are tough times for state governments. Huge deficits loom almost everywhere, from California to New York, from New Jersey to Texas.

Wait — Texas? Wasn’t Texas supposed to be thriving even as the rest of America suffered? Didn’t its governor declare, during his re-election campaign, that “we have billions in surplus”? Yes, it was, and yes, he did. But reality has now intruded, in the form of a deficit expected to run as high as $25 billion over the next two years.

Gee, I'm shocked. The country is mired in a depression and tax revenues are down everywhere. If anyone would think (or declare publicly) that Texas could be exempt from this problem because of its policies, I would also want to sell them a nice railroad tunnel that runs between New Jersey and Manhattan.

He continues:

And that reality has implications for the nation as a whole. For Texas is where the modern conservative theory of budgeting — the belief that you should never raise taxes under any circumstances, that you can always balance the budget by cutting wasteful spending — has been implemented most completely. If the theory can’t make it there, it can’t make it anywhere.

Once again, Krugman gives us a caricature of analysis versus serious thinking. In theory, obviously, if one cuts any budget enough, be it a state, national, municipal, or home budget, one can balance it. The issue, however, is the opportunity cost of raising taxes, and Krugman has been saying throughout the economic crisis that there is no opportunity cost when it comes to government spending. (In fact, while he has not openly said he believes in the Keynesian balanced budget multiplier -- in which higher taxes lead to more spending, which revitalizes the economy -- he writes as though he believes in it.)

As I see it, there is no "theory" here, unless one brings in the balanced budget multiplier "theory." Instead, we are dealing with an accounting problem: How does a state -- which is required by law to have a balanced budget each year -- deal with the problem in which its projected spending outstrips its projected revenues?

In fact, it seems to me that Krugman discredits his earlier statement in the next paragraph:

How bad is the Texas deficit? Comparing budget crises among states is tricky, for technical reasons. Still, data from the Center on Budget and Policy Priorities suggest that the Texas budget gap is worse than New York’s, about as bad as California’s, but not quite up to New Jersey levels.

First, the CBPP is a left-wing organization that is not exactly going to be objective in this situation. My guess is that if someone who were publicly disagreeing with Krugman were to use something from the Heritage Foundation, Krugman immediately would claim that the study is "tainted."

Second, Krugman includes three states that have followed pretty much the Krugman Policy Standards of spending and raising taxes. If Krugman's "theory" were to be applied here -- that militant public sector unions are "good for the economy" and that raising taxes will help stymie a recession -- then California, New York, and New Jersey should be wallowing in surpluses. Yet, they face real crises, and according to Krugman's "theory," that should not be the case.

In other words, Krugman really is saying nothing that is significant. Furthermore, he repeats the canard about education spending, as though it were the key to academic and economic success. If that were true, then Washington, D.C., public schools, which spend more per pupil than any states, would be the best in the country instead of one of the worst systems.

There is a much larger issue here. A welfare state is not an economic plus; it is a financial burden. One can argue as to its necessity, well as debate whether or not it makes things better in the long term, but Krugman is not interested in doing that.

I am not defending Texas or Gov. Rick Perry, or anything about its state government. Being that Texas seems to have this problem about prosecutors being out of control (something with which I deal in my other blog), I have nothing good to say about the issue of governance in that state.

However, if Krugman is wanting to argue that the "theory" of cutting spending is discredited, then one would have to claim that his "alternative hypothesis" (that raising taxes and increasing spending is the way to beat a recession) is true. Yet, we see the "alternative theory" at work in California and New York, and both of those places are bleeding jobs and revenue.

Krugman, not surprisingly, is silent on that point. But I have a better idea: Let us see how the Illinois legislature's current plan works. The Democrats, which control politics in that state (which means they have all of the answers, if one follows Krugman's partisan missives), have proposed a 75 percent increase in the state's income tax rates and a huge increase in the cigarette tax.

If Krugman is correct, then Illinois should be able to solve its budget problems and also create new avenues of prosperity. Perhaps we should revisit the state in a year to see if Krugman's "theory" is correct.