Bob Murphy on Krugman and Job Losses

Bob Murphy proves again that there is no better critic of Paul Krugman and Voodoo Economics, as he uses Krugman's own data to point out flaws in the analysis of The Great One. I'll let readers go through the various quotes and charts that Murphy employs, but will add that once again, we see Krugman employing some sleight-of-hand in mixing the way he portrays job and wage numbers in order to cloud the picture.

What Krugman has been saying is that the current depression is due to an overall general lack of "demand," as opposed to structural imbalances in the economy. Thus, the way to "cure" the problem is for the government to throw trillions of dollars at it, and magically, things will turn around. However, as Murphy demonstrates, Krugman's own numbers, when presented in a normalized fashion, seem to support the Austrian argument.

Not that Krugman ever would admit it.

The Market, not the Central Bankers, Should Decide Interest Rates

Like Paul Krugman, I have little or no pity for the Banksters who are demanding that the rest of us stop saying nasty (and true) things about them. Unlike Paul Krugman, I believe that interest rates should be permitted to rise -- if that is where the market says they should be.

Krugman claims that Banksters believe that low interest rates are "feeding inflation," something he claims is not true. Yes, oil prices are rising, and so are gold and other commodities, but Krugman has an explanation for that: natural volatility and "emerging markets." (He also appeals to the same excuse that the Soviets used to explain decades of bad harvests: bad weather.)

Here is the problem: interest rates should not be decided politically. According to Krugman, any raising of rates will trigger a new bout of unemployment, and at one level he is correct. However, the artificially low interest rates that Krugman endorses are having the perverse effect of preventing the necessary relocations in the economy that will bring about a recovery. Explains Bob Murphy:

...at some point reality rears its ugly head. The central bank hasn't created more resources simply by buying assets and lowering interest rates. It is physically impossible for the economy to continue cranking out the higher volume of consumption goods as well as the increased output of capital goods. Eventually something has to give. The reckoning will come sooner rather than later if rising asset or even consumer prices makes the central bank reverse course and jack up interest rates. But even if the central bank keeps rates permanently down, eventually the physical realities will manifest themselves and the economy will suffer a crash.

During the bust phase, entrepreneurs will reevaluate the situation. If the government and central bank don't interfere, prices will give accurate signals about which enterprises should be salvaged and which should be scrapped. Those workers who are in unsustainable lines will be laid off. It will take time for them to search through the developing opportunities and find a niche that is suitable for their skills and is sustainable in the new economy.

During this period of reevaluation and search, the measured unemployment rate will be unusually high. It's not that workers are "idle," or that their productivity has suddenly dropped to zero; rather, it's that they need to be reallocated, and that takes time in a complex, modern economy. This delay can be due to simple search, where the workers have to look around to find the best spot that is already "out there," or it can be due to the fact that they have to wait on other workers to "get things ready" before the unemployed workers can resume.

Since Krugman holds that factors of production (for analytical purposes) are homogeneous, then raising interest rates makes no sense, as all that needs to happen is for government to stimulate more spending, which then will automatically translate to producers ramping up their productions lines, and all soon will be well. If this were the case -- and it did not matter where capital investments were made -- then Krugman would be correct.

However, if factors from labor to capital ARE heterogeneous, and that the value relationship between those factors matters, then Krugman actually is fighting against the very necessary economic readjustments that are needed to create a meaningful recovery. Furthermore, we forget that this country had an economic recovery -- a substantial recovery -- in the 1980s even though interest rates were substantially higher than they are now. The image below demonstrates my point:

Now, it is true that interest rates fell during the recovery, but they still remained in double-digits through much of the 1980s when the economy was going strong. Unfortunately, because Krugman continues to stick to his "aggregate demand" thesis, all of this to him is white noise.

As I see it, the issue is not whether the government or central bank or anyone else should decide if interest rates rise or fall. I want to know what the market says about rates of interest, and I cannot help but believe that with the Fed trying to flood the world with dollars, that they are going to go up sooner rather than later. But they will rise.

Yes, Paul, Bob Murphy Exists -- and He is a Better Economist than You Are

So, after shunning debate and the like, Paul Krugman finally admits that Robert Murphy exists, although I hardly think that what Murphy wrote constituted as "puerile insults." Yes, this comes from a person who mocks people who disagree with him as "zombies." No immaturity there.

The article to which Krugman refers is this one on capital theory, something that is missing from Krugman's Keynesian analysis as well as from the old Chicago School. (In their view, capital magically appears, as economists simply can assume it into existence. Don't try this at home.)

I think that Krugman and Murphy can argue this on their own without any help from me. Here is Murphy's post on his own blog regarding Krugman's post. Read and enjoy.

(I am back from speaking to the Gulf Coast Economics Club in Pensacola. A great time was had by all, and now it is time to get to work at my day job.)

Just Who Is Spreading Humbug?

For the second year in a row, Paul Krugman invokes "A Christmas Carol" as the theme of his Christmas Eve column. Last year, we found that ObamaCare would allow Tiny Tim to have unlimited medical care and that President Obama's legal monstrosity:

...will provide real, concrete help to tens of millions of Americans and greater security to everyone. And it establishes the principle — even if it falls somewhat short in practice — that all Americans are entitled to essential health care.

You see, Krugman was in such a giving mood that he actually believes that government can legislate away the Law of Scarcity. Unfortunately, today Krugman is not full of "tidings of comfort and joy."

No, he is upset that the "zombies" have not been kicked out of the country, or at least academe and the media. How DARE anyone be permitted to contradict The Great One in any media or academic forum!

Bob Murphy, whose debate challenge Krugman still has refused, takes the Nobel winner to task in his LRC column today, and Murphy's words are quite worth reading, although I am sure that Krugman would consider all of it to be "humbug." Murphy writes:

As far as the free-market fundamentalists dominating the political scene "more thoroughly than ever," I suppose Krugman is right, in the sense that two French poodles could dominate a pit bull more than one French poodle could. But as the Fed discloses its cumulative $9 trillion in backdoor loans, as the FBI raids hedge funds, and as federal spending as a share of the economy is at its highest level since World War II, I hardly think that DC is being overrun by laissez-faire shock troops.

Murphy continues:

To prove that free-market fundamentalists have seized power, Krugman's Exhibit A is Ron Paul:

(Krugman) How did that happen? How, after runaway banks brought the economy to its knees, did we end up with Ron Paul, who says "I don't think we need regulators," about to take over a key House panel overseeing the Fed?

(Murphy continues) Of course, if we look at the actual context of what Paul is saying, we find that he means it is foolish to trust government regulators to nip asset bubbles in the bud, while the Fed and other government programs do their part in fueling such bubbles. Ron Paul was not saying, "Let the banks do whatever they want," instead he was saying that we shouldn't be bailing them out when they screw up. Instead, let them go bankrupt just like any other business would after making horrible investment decisions.

Furthermore, the Wall Street crowd did NOT want Ron Paul as subcommittee chairman, nor does that bunch support him politically. And while Krugman supported the TARP bailout, Ron Paul campaigned against it. Yet, Krugman continues to try to portray Ron Paul as a reckless "Zombie."

Krugman is not satisfied just to disseminate disinformation about Ron Paul. No, he attacks anyone who disagrees with him and issues an outright fantasy about the state of present discourse:

Still, why does it matter what some politicians and think tanks say? The answer is that there’s a well-developed right-wing media infrastructure in place to catapult the propaganda, as former President George W. Bush put it, to rapidly disseminate bogus analysis to a wide audience where it becomes part of what “everyone knows.” (There’s nothing comparable on the left, which has fallen far behind in the humbug race.)

Yeah, there is no George Soros, who spends in a YEAR what the demonized Koch Brothers have spent in a lifetime on different advocacy organizations. According to Krugman, there is no Media Matters, no Center for American Progress, no Daily Kos, and no New York Times, Time, Newsweek, MSNBC, or Washington Post.

(I also should make the point that no one "funds" this blog or anything else that I am doing in my public criticisms of Paul Krugman. I'm just doing my "Zombie" activities on my own.)

In the end, Krugman not only bemoans the lack of an even bigger welfare state and the presence of people with the temerity to disagree with him, but he also claims that people are not standing up to the "free market zombies" because of a lack of courage. Right. Somehow, I don't think that Krugman is doing what he does because he is "courageous" and is "standing up to The Man."

If anyone is spreading humbug, it is Paul Krugman and his acolytes.