Krugman: The State Makes and Producers Take

Paul Krugman definitely is a class warfare sort of guy, but to him, the parasite classes are those that actually produce something, while people who simply consume are the real producers. There is no other way around his recent attacks.

Furthermore, Krugman at least has come into the open by insinuating strongly that the State owns everything, and anything that we keep is nothing more than a gift from the authorities. Now, even there, I will say that there is room for discussion, such as the question asking whether or not income taxes are more fair than sales taxes or value added taxes, but in the end, we still are at the same place: Krugman believes that the State is nothing less than an out-and-out god creator.

Krugman's latest column is more of the same. First, it has his normal partisan shilling, with an attempt to come up with an explanation as to why Republicans might disagree with The Great One. Second, he once again attacks entrepreneurs, assuming that those who actually create something in the economy are the real parasites, echoing Barack Obama's "You didn't build that" theme.

Before going further, however, let me say that the Republicans actually had a candidate who stood up for free markets, called for peace abroad, free trade, and sound money. The Republicans not only rejected him, but they also treated him about as badly as a party could do. While I registered a few years ago in Garrett County as a Republican, it was so I could vote for Ron Paul in the primaries, and sooner or later I will have to change my registration back to Independent.

My point is that the Republicans really have not done anything that warrants a coherent defense. If they ever decide to be a party that promotes liberty instead of a party promoting warfare abroad and police and prosecutorial abuse at home, then I might be interested in taking a look at them.

Nonetheless, the Republicans' slide into political oblivion is not my main concern. What does concern me, however, is that Progressives like Paul Krugman are winning in the government's all-out war against real-live entrepreneurs, people that Krugman simply attacks by calling them "rich."

We have to understand that there are three kinds of "rich" people in this country. The first group includes people who have inherited large sums of money, the "coupon clippers." For the most part, these people solidly vote Democrat. They sit on boards of foundations, arts councils and the like, and tend to be very liberal in their politics.

While they might not be happy about having to pay more taxes, they generally can afford the increases and by supporting tax hikes, they can receive free publicity for being "humanitarians" and "unselfish" citizens, people worthy of their great wealth. They became wealthy because they were born into wealth, but unlike their ancestors who had to save and invest, these noble people don't have to worry about getting their hands grubby in the marketplace.

The second group includes people like Warren Buffett, the "political entrepreneurs." These are people who tend to be politically-connected, and while they might actually have made large amounts of money through their own enterprise decisions, those decisions often are tied into decisions made by legislators or other government officials. A lot of former and current politicians such as Al Gore and John Kerry also are in this group.

Gore recently was listed at having a net worth of more than $100 million, and that was before he got the sweetheart deal to buy Apple stock at about $7 a share, about $493 below the price per share that mere mundanes have to pay. Although he was simply exercising a director's stock option, Gore became a director because of his political career, not because of any entrepreneurial talent. While he likes to tout himself as an entrepreneur, generally Gore has made money by being tied into government-protected "investments" in "green energy" firms, making speeches, and demanding that free speech be ended if it involves disagreeing with him on global warming.

For that matter, Paul Krugman tends to fall somewhat into this category, given the fact that his partisan writings have made him popular with certain groups of people. Like Gore, he has become a multimillionaire, although he has not had to take any risks in the process, unlike those real entrepreneurs Krugman loves to hate. Take away the partisan politics and Krugman is well-known in academic economic circles, but not elsewhere.

In his book, Throw Them All Out, Peter Schweizer documents how these politically-connected people make their money. One reviewer of Schweizer's book describes how Obama's "green energy" people distributed tax dollars:

Perhaps the most disturbing revelations come from Schweizer's investigation into the Obama Energy Department and its infamous "green energy" loan guarantee and grant programs, a program Schweizer calls "the greatest -- and most expensive -- example of crony capitalism in American history." The scandal surrounding Solyndra -- the now-bankrupt, Obama-connected solar power company that received a federally guaranteed loan of $573 million -- is well known. But Solyndra, Schweizer says, is only the tip of the iceberg.

According to his research, at least 10 members of President Obama's campaign finance committee and more than a dozen of his campaign bundlers were big winners in getting tax dollars from these programs. One chart in the book details how the 10 finance committee members collectively raised $457,834, and were in turn approved for grants or loans of nearly $11.4 billion -- quite a return on their investment.

In the loan-guarantee program alone, Schweizer writes, "$16.4 billion of the $20.5 billion in loans granted went to companies either run by or primarily owned by Obama financial backers -- individuals who were bundlers, members of Obama's National Finance Committee, or large donors to the Democratic Party." That is a staggering 71 percent of the loan money.

Schweizer cites example after example of companies that received grants or loans and documents their financial connections to the Obama campaign and the Democratic Party. And he shows how "the [Energy] department's loan and grant programs are run by partisans who were responsible for raising money during the Obama campaign from the same people who later came to seek government loans and grants."

These, of course, are the very kind of "rich" that Krugman praises. Their wealth heavily depends upon schmoozing politicians and is tied into governmental policies, and they tend to be politically liberal. That most of their "investment" actually weakens the economy is irrelevant. They have the correct political views and the correct political ties, so they are sacrosanct.

You won't see Al Gore or John Kerry arguing against higher tax rates, and why should they? For the most part, they either can shelter their income or pay the extra bit, knowing that they will receive huge amounts of free publicity for their "selfless" actions. Furthermore, their own investments will not be placed at risk by the new confiscatory tax policies.

Then there are the people Krugman hates, the real entrepreneurs, the people who have taken real risks and made their money in the markets without the political favors. Moreover, many are in the "millionaire next door" category, business owners who have saved (Oh, the HORROR! Predatory Savers in our midst!), invested, put off present consumption, and maybe don't have the proper educational "credentials."

Many of them tend to be conservative in their politics, many go to church (more "proof" that they are wicked parasites who don't even subscribe to correct thinking), and they are people whose investments are put at risk by government policies. In short, these are the people who have built the economy, people who have had vision and have worked hard.

Krugman considers people in this group to be utterly devoid of any decency at all. They don't think like him (some even believe in "Intelligent Design") and the way they handle their economic affairs truly gets on his nerves. Worst of all, they don't "consume" or "spend" enough of their incomes for Krugman's liking, and many of them don't even read the New York Times!

Perhaps the most telling quote is his claim that only Republicans live in intellectual bubbles:

Well, I don’t have a full answer, but I think it’s important to understand the extent to which leading Republicans live in an intellectual bubble. They get their news from Fox and other captive media, they get their policy analysis from billionaire-financed right-wing think tanks, and they’re often blissfully unaware both of contrary evidence and of how their positions sound to outsiders.

So when Mr. Romney made his infamous “47 percent” remarks, he wasn’t, in his own mind, saying anything outrageous or even controversial. He was just repeating a view that has become increasingly dominant inside the right-wing bubble, namely that a large and ever-growing proportion of Americans won’t take responsibility for their own lives and are mooching off the hard-working wealthy. Rising unemployment claims demonstrate laziness, not lack of jobs; rising disability claims represent malingering, not the real health problems of an aging work force.

This is rich coming from an Ivy League professor who is tied in with the NYT and Beltway Democrats. These are the people who believe that MSNBC is mainstream and "moderate," and anyone who does not hold their secular, urbanite views of the world really has no right even to exist.

I went to high school with a couple of people in the Sulzberger family (publisher of the NYT), and talk about people with limited viewpoints. They literally could not see anything outside of their circles and expressed utter contempt for anyone who did not share their views.

In a politicized world, people do tend to live in bubbles and their ability to think becomes limited. I remember a conversation with a Democratic Party activist in which I asked him (during the mid-1980s) why the economy of the U.S.S.R. was so backward compared to ours. He replied, "It is because the U.S.S.R. has not been a country as long as the United States." Yes, he really believed that.

Thus, I doubt seriously that Paul Krugman ever has ventured outside of his own cloistered surroundings to speak to real-live business owners who must make hard decisions when governments impose new minimum wages or jack up taxes. To Krugman, they are nothing more than parasitic whiners and he is not interested in even trying to understand another point of view. To him, these people are ignorant rubes and the sooner they are replaced with people on government payrolls or people receiving transfer payments, the better. After all, these people will spend their incomes which makes them the true economic benefactors.

Krugman and Another Goldstein Moment

When Henry "Scoop" Jackson was confronted during the 1976 Democratic primary that his socialistic ideas violated laws of economics, Jackson replied that there was no problem: "We'll create a new economics," he told cheering supporters. Likewise, Franklin Roosevelt confidently proclaimed that since the laws of economics (read that, the Law of Opportunity Cost and the Law of Scarcity) were nothing more than human creations, his administration through majority rule and through intimidation and bluster could eliminate scarcity.

These men were politicians and one expects politicians to be divorced from reality when making empty promises to voters and if and when these initiatives fail -- as they must -- the politicians always can blame Goldstein, that ubiquitous saboteur. We expect nonsense and outright lies from politicians, and they always deliver.

However, it is quite another thing for an academic economist who is not self-identified as a Marxist to make the same claims, and especially an academic economist as decorated as Paul Krugman. In his column today, Krugman once again seems to make the claim that since voters have re-elected Barack Obama, that means that all of Obama's economic proposals must make sense, and that Obama can make it happen because he has the political will.

This was very much an election pitting the interests of the very rich against those of the middle class and the poor.

And the Obama campaign won largely by disregarding the warnings of squeamish “centrists” and embracing that reality, stressing the class-war aspect of the confrontation. This ensured not only that President Obama won by huge margins among lower-income voters, but that those voters turned out in large numbers, sealing his victory.

He adds:

Consider, as a prime example, the push to raise the retirement age, the age of eligibility for Medicare, or both. This is only reasonable, we’re told — after all, life expectancy has risen, so shouldn’t we all retire later? In reality, however, it would be a hugely regressive policy change, imposing severe burdens on lower- and middle-income Americans while barely affecting the wealthy. Why? First of all, the increase in life expectancy is concentrated among the affluent; why should janitors have to retire later because lawyers are living longer? Second, both Social Security and Medicare are much more important, relative to income, to less-affluent Americans, so delaying their availability would be a far more severe hit to ordinary families than to the top 1 percent.

 The simple answer is that Krugman ignores the hard fact that the vast majority of people who receive Social Security benefits are the poor and middle class, and the government, including our "Lord and Savior" Barack Obama, is incapable of creating resources from nothing, which means that we only can pay SS recipients what is in the till. One cannot craft a policy for Social Security without taking reality seriously, but Krugman really seems to believe that rhetoric is reality and that mere words can trump the Law of Scarcity.

There is another point Krugman does not mention, and that is the hard fact that the only place in this country that has consistently grown economically has been the Washington, D.C., area, which lives off the lives of taxpayers elsewhere. If the transfer society that Krugman so worships (along with his "Lord and Savior" Obama), then Washington's newfound wealth should then translate into wealth for all.

That, however, is not the case. Furthermore, by all measures black Americans have fared much worse under the Obama regime than any other regime in modern history, yet Krugman is telling us that if Obama continues to have his way, only the wealthy will be worse off and the rest of us will be rolling in clover.

So far, that has not happened, and it is not going to happen under the current set of governing policies from Washington. As long as we have politicians who believe entrepreneurs (that is, entrepreneurs that actually earn real-live profits) are parasites, that political entrepreneurs who enrich themselves with taxpayer subsidies are the real wealth generators, and that we can have economic recovery through transfer payments, and as long as we have voters and academic economists that actually believe this nonsense, we are going to see the downgrading of the American economy.

Of course, as the Obama administration continues to destroy the underpinnings of wealth creation, Krugman will blame the inevitable results on Goldstein. It has worked before, and it will work again. That is the new economic and political reality in the United States of America.

No, Military Keynesianism Does Not Make Us Wealthier

In his latest column, Paul Krugman continues to shill for higher tax rates, claiming that raising taxes somehow will strengthen the economy. I really don't have the time to deal with arguments that we have gone over before, so I will leave it at that. And, yes, Barack Obama won. The economy soon will explode with 12 million new jobs. Bill Clinton said that in a campaign speech, so it must be true.

Instead, I wish to look at a November 4 op-ed in the NYT, "The Permanent Militarization of America," by Aaron B. O'Connell, who teaches history at the U.S. Naval Academy in Annapolis. O'Connell writes that to a certain extent, Dwight Eisenhower's famous warning about the "Military-Industrial Comples" in his farewell speech in January 1961. However, writes O'Connell, much of the government spending in defense has had a positive economic effect and has contributed to economic growth:

The military-industrial complex has not emerged in quite the way Eisenhower envisioned. The United States spends an enormous sum on defense — over $700 billion last year, about half of all military spending in the world — but in terms of our total economy, it has steadily declined to less than 5 percent of gross domestic product from 14 percent in 1953. Defense-related research has not produced an ossified garrison state; in fact, it has yielded a host of beneficial technologies, from the Internet to civilian nuclear power to GPS navigation. The United States has an enormous armaments industry, but it has not hampered employment and economic growth. In fact, Congress’s favorite argument against reducing defense spending is the job loss such cuts would entail.

At one level, he is right. Some new technologies that were developed for the armed forces have found their ways to civilian uses, but the story is much different than what he might think. First, new technologies by themselves are not useful to the economy at large unless entrepreneurs can find a way to integrate these technologies into goods and services that individuals not only find useful, but are willing to give up scarce things in their possession in order to obtain.

Without the entrepreneurial component, vaunted new technologies tend either to be unused or applied in very esoteric ways that have little or no effect upon the general population. Take the Internet, for example. A lot of people have reminded me that government agents developed the first elements of what we know today as the Internet more than 40 years ago. That is true, but also irrelevant.

First, the Internet would not have been invented had entrepreneurs not first developed and applied what we know as telecommunications. I'm sorry folks, but Alexander Graham Bell and those who followed him were not working for the Department of War or Defense. Second, the Internet as we know it was of no commercial or economic use until entrepreneurs both developed and applied technologies like fiber optics and they developed mechanisms by which ordinary people could access what now is a technological and commercial wonder.

Furthermore, O'Connell's claim that this vast amount of government spending "has not hampered employment and economic growth" is one of those "proving a negative" statements. What he really is saying is that since the U.S. economy has been relatively strong since Eisenhower's speech, the diversion of huge amounts of resources from marketable uses to military spending has had no negative economic effects.

One cannot make that statement, economically speaking. First, we don't know if the economy would be stronger than it is now (I believe that it would) had this spending not occurred. Second, for O'Connell to be correct, military spending would have to have moved ALL factors of production from lower-valued to higher-valued uses in all situations involving Pentagon expenditures. If that is not true, then military spending has made us worse off.

No, I am not arguing for complete cessation of military spending. Certainly keeping this country from being invaded is a good use of resources, but that has not been the case with the USA for a long, long time. And, as O'Connell unwittingly notes, members of Congress are violently opposed to cutting any spending in their districts or states because that means some people there lose their jobs, at least in the short run.

But government employment is not the same as economic growth, even if O'Connell cannot see that (and few history professors these days are able to move beyond their own socialistic views). As for the rest of the article, I agree much with him, but I also find it interesting that he completely left out the militarization of the civilian police forces, and the militarization of the enforcement arms of federal agencies.

In fact, other than having our living standards lowered by gargantuan military spending, the one way we will come in meaningful contact with militarization is an encounter with the police. Why am I not surprised that a history professor missed that important point? You supply your own answer.

Pathos of the Political Operative

This post will be brief, but to the point. Paul Krugman no longer discusses economics in his column, as apparently the hard work of coordinating his writing with Barack Obama's re-election campaign means that "economics" will be passed off as little more than a demand that the government go on a tax-borrow-print-spend binge.

In his latest column, he vociferously defends Obama's latest "you didn't build that" speech, which really was nothing less than a declaration of war against entrepreneurship. (Oh, I forgot. Many, many years ago, Krugman had a post on entrepreneurship in which he tried to interpret it from a macro viewpoint, claiming that there was little or no entrepreneurship during the 1980s.Gee, I wonder if Krugman is just trying once again to be a political operative, not an economist.)

Reading Krugman's caricature of how people have responded (he wants us to believe that entrepreneurs and the "superrich" are one and the same) to Obama's attack on free markets (his claim that any success is always the result of some sort of government-enforced collectivism), I wonder how Krugman then is justified in claiming that Obama has "created jobs." Please explain to me how that is done. Did Obama risk his own financial capital? No. He took money from taxpayers and gave it to political contributors, and then called it "job creation," and Krugman is right there with him. (Anyone who will defend the taxpayer-funded fiasco called Solyndra really is no economist.)

No one is going to say that a single individual builds an entire business; however, success comes about through mutually-beneficial cooperation, but that is not what Obama and Krugman are saying. Instead, they are appealing to collectivist thinking. Furthermore, his comments about Hoover Dam and the Golden Gate Bridge demonstrated his own ignorance about the private firms that actually built these projects.

Unfortunately, neither Obama nor Krugman understand even a whit about the role entrepreneurs have played in the economic growth of this country and in the world. But, then, Krugman's MIT mentor, Paul Samuelson, believed that communism was producing a magnificent economy in the Soviet Union. Like Krugman, Samuelson never let facts get in his way.

Krugman and the Keynesian View of Entrepreneurship

Since Krugman has another column that he has coordinated with the Obama re-election campaign, a column that claims (once again) that the presence of a bank account in another country is proof that one is destroying  the economy at home, I won't make any comments except to say it proves once again that Paul Krugman is not an economist, but simply a political operative. Instead, I want to deal with some issues that have popped up through the comments section.

Someone cleverly sent me this link in response to my saying that Krugman never says anything about entrepreneurship. Yes, the guy is serious. He mentions the word more than four years ago, and that is "proof" that Krugman is an expert on the entrepreneur or something like that. As I went through my own search process through Google, the only other link I could find was Krugman's defense of the GM bailouts in which he claimed that "industrial clusters" really were more important than anything entrepreneurs do.

His comments on the bailouts are especially instructive because the Obama administration essentially wiped out the bondholders, gave the United Auto Workers what they wanted, and then dunned taxpayers to make it all happen. While Krugman might claim that the auto bailout was "the single most successful policy initiative of recent years," what occurred was pretty much a simple wealth transfer.

Furthermore, in his Keynesian style, Krugman assumes that capital and whole structures of production simply exist and that entrepreneurship has nothing to do with it. (Yes, he says the "individual entrepreneur," but in that he is creating the straw man, for he fails to understand the larger role of entrepreneurship in the economy.)

The point is that successful companies — or, at any rate, companies that make a large contribution to a nation’s economy — don’t exist in isolation. Prosperity depends on the synergy between companies, on the cluster, not the individual entrepreneur.

Yet, it was entrepreneurship over time that created this cluster, but to admit that would mean that perhaps his collectivized view of economics might not fit reality. Furthermore, entrepreneurship is not limited to people who (in Krugman's words) start their businesses in garages. (Notice that he leaves out Steven Jobs and how Apple was started, but that would mess up his narrative.)

The point is that the quintessential business figures of the 80s weren’t creative entrepreneurs. They were big-corporation executives (Lee Iacocca) and takeover artists (Michael Milken, Ivan Boesky). The gazillionaires who started in garages came later.

By limiting entrepreneurship to people "in garages," Krugman leaves out the larger understanding of what entrepreneurship is or what entrepreneurs do. Michael Milken WAS a financial entrepreneur, as he gained funding for a number of enterprises that the banks in the cartelized system that Krugman praises to much would not touch. It was Milken who secured start-up funding for CNN, which helped revolutionized how the news is brought into our homes. The creation of MCI, which did an end run around the way long distance calling was done via the AT&T government-created monopoly, came through Milken's funding.

It was Milken that secured the start-up money for McCaw Cellular, which took an idea and laid the foundation for the vast cellular networks we have now. And there were many more enterprises, NONE of which would have received funding from the banking system that Krugman insists was perfectly fine and should have remained in place.

You see, Paul Krugman wants us to believe that modern telecommunications "just happened" or that government would have created a wonderful system on its own. Like the industry "clusters" that really are the source of wealth (and we know that the clusters just appeared on their own -- or were the result of government action along with the farsightedness of the labor unions) in Krugman's view, there really is no need for the entrepreneur, who is just a sideshow, a freak in a garage who takes advantage of what government in its infinite wisdom already has created.

In Krugman's world the telecommunications that we enjoy now would have happened anyway because, well, just because. New technologies just happen and their application to the economy just happen, too. Furthermore, even things like the pre-existent "supply chain" are not subject to entrepreneurial ideas. No, they simply exist and if a company like Wal-Mart is able to change the way that supply chains work, well, that was not entrepreneurship; it was just fate.

I would urge readers to look at what Peter Klein has written in his book The Capitalist and the Entrepreneur. Unlike Krugman, Klein actually is an economist who knows something about entrepreneurs and entrepreneurship, and who does not feed partisan political propaganda to readers. (Unlike Krugman, Klein does not coordinate his writing efforts with partisan political campaigns.)

Anyone who does take the time to read Klein will see that the scope of entrepreneurship is much, much larger than anything Krugman can imagine. But, then, Klein is not going to tell readers that government spending, borrowing, and printing is the Source of All Wealth.

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On another note, I would urge readers to look at this recent Wall Street Journal editorial that lists a number of aspects of labor law in Spain that create barriers to employment. According to the editorial, 99 percent of Spanish businesses have 49 or fewer employees. Why?

Once a Spanish business reaches 50 employees, its workers must also elect five workplace reps to bargain on wages and conditions. These delegates must each receive at least 15 paid hours off monthly for their duties, and the quotas rise as companies grow. By the time a business hires its 751st staffer, it must have at least 21 workplace reps, each getting a minimum of 40 paid hours off per month.

No doubt, Krugman would claim that such measures will increase "aggregate demand" because governments create new wealth by forcing up wages. That the Spanish employment laws prevent larger enterprises from enjoying the economies of scale from large-scale capital funding simply gets beyond the thinking of a Keynesian.

Krugman Endorses Insanity (His Own Words)

On the Sunday before Thanksgiving in 2004, I attended a session at the Southern Economics Association annual meeting, held in New Orleans, and the speaker was Paul Krugman. Joseph Salerno and I sat next to each other to hear the Great Wisdom from The Master. To be honest, I cannot remember anything he said, but I do remember his answer to my question during the Q&A.

My question dealt with tax rates. I asked that since he was critical of the current tax setup, would he endorse the 70 percent rates that existed before 1981? "Oh, no!" he exclaimed, "Those rates were insane!"

Since that time, Krugman seems to be doing everything he can to endorse insanity, and he does it again today in a column that totally misses the mark on the issue of economic growth. To be honest, the question he seems to be raising is a fair one -- Can we have both strong economic growth and high marginal tax rates? -- but his view of economic growth is so skewed that one hardly can answer it on his terms.

He writes:

The first thing you need to know is that America wasn’t always like this. When John F. Kennedy was elected president, the top 0.01 percent was only about a quarter as rich compared with the typical family as it is now — and members of that class paid much higher taxes than they do today. Yet somehow we managed to have a dynamic, innovative economy that was the envy of the world. The superrich may imagine that their wealth makes the world go round, but history says otherwise.

He is correct in that in the early 1960s, the U.S. economy was still the strongest in the world even though its highest marginal rate was about 90 percent. Thus, he reasons, tax rates really don't matter and we can raise rate much higher than they are today and still have lots of economic growth. In past columns, he has noted that a number of key sectors such as rail, truck, and air transportation all were organized into regulated cartels (though he does not use "cartels" even though that is what they were), and banking and finance were tightly organized into similar kinds of cartels. Things were so good back then, he argues, that any change in such legal arrangements could not have had any overall economic benefits and, in fact, the only reason things were changed was because people with the wrong ideology took power.

(Nowhere does Krugman acknowledge the Elephant In The Living Room. In 1961, the other economies of the world were recovering from that destruction of World War II. Japan's economy was in its infancy of productivity, Great Britain had moved to socialism and stagnation, Eastern Europe was walled off by the U.S.S.R., most of Asia was still in its ancient agricultural mode. The U.S. economy was in a position that would be changing, even if Krugman refuses to acknowledge that simple fact.)

Krugman seems to be saying that since this arrangement seemed to be successful in 1961, it ALWAYS would be successful, and he also seems to hint that the economy was successful BECAUSE of the tax and regulatory environment. For Krugman, it is post hoc, ergo propter hoc. Thus, if we were to return to such arrangements, we could then emulate the success of that era.

This brings me to the subject of his column, and that is his discussion of "the rich." If I read Krugman correctly, he is saying that Mitt Romney and his supporters are claiming that those who are wealthy really are the "engines" of a market economy, and that to raise taxes on them would stifle economic growth. Those supporters, Krugman, argues, are wrong because we had high marginal rates before along with economic growth.

Unfortunately, Krugman's entire analysis is based upon a very typical Keynesian "snapshot" view of the economy in which, to quote Robert Higgs, the individual factors of the economy are treated as just "goo" in which the only relevant analysis is to use pure aggregates. This has much political usefulness, as one can see, for Krugman does not have to deal with long-term trends or any underlying weaknesses within the economy. Furthermore, in his views, changes to the legal and regulatory structure have nothing to do with problems that  came about because of the structures of incentives and relationships created by tax laws and regulation. Instead, any changes to what had been a near-perfect system came about ONLY because of "conservative ideology."

Notice a word that never appears in any of Krugman's columns; never. It is "entrepreneurship." I have come to believe that Krugman thinks than an economy is totally administrative and very mechanistic: producers know the production function and then they produce things based upon their projections of how future spending patterns will go. The only things needed for a "successful" economy, then, are productions functions and spending.

The Krugman Economy is one in which economic growth would be due to changes in technology (and government researchers can "invent" anything that is necessary and innovative) and spending, lots of spending. Markets are useful only if they fit the pattern of "perfect competition" in which each firm is tiny and it faces a horizontal demand curve. Firms are simple production functions with given cost curves, with the sole decision by managers being where to set output.

Since entrepreneurship really is not necessary in the Krugman Economy, anyone who gains wealth via entrepreneurial activities is no different than a person who has inherited wealth, like the Kennedys. High marginal tax rates would have no effect upon production or wealth creation, since a government-run firm would be just as productive as a private one and probably more socially useful, since government agents and regulators -- at least if they are Democrats -- always govern with the best of intentions, and everyone know that intentions are all that matters. (Thus, if government agents intend to have high-quality "universal" medical care, then such a program is both morally superior to anything else and also will have the intended results.)

In the Krugman Economy, a Steven Jobs is no more useful than someone living in the Hamptons who lives off a huge trust fund, with the only real social use of either being the potential for government to take large portions of their incomes via taxation, which then can be converted into government spending, which is the REAL source of economic growth. There are no such things as incentives; corporations and entrepreneurs will not change their behavior or outlook a whit if the top rates go back up to 90 percent. Like the band in "Animal House," they will continue to march forward even if a wall blocks their way.

As I see it, Krugman argues that high tax rates will not hurt economic growth because entrepreneurs are both economically and socially unnecessary. He has not gone as far as John Kenneth Galbraith, who argued that entrepreneurs were parasites because they produced useless "private" goods that took away from "needed public investment," although is clearly is in Galbraith's neighborhood.

I would argue that Krugman is much closer to the views of his former professor, Paul Samuelson, who depended solely upon GDP models which permitted him to claim that the planned economy of the former Soviet Union was superior to that of a market economy because the U.S.S.R.'s aggregate numbers showed high growth. That the economy of the U.S.S.R. was primitive, blocked by massive shortages, poor quality of goods, and outright idiocy. Instead, people like Samuelson look at the overall production of goods, such as automobiles and then assumed that, for the purposes of economic analysis, a clunky, 1948-style East German Wartburg was no different than the superior cars made in the West and in Japan. All that mattered were aggregates.

Since entrepreneurship in the old communist bloc economies was illegal and those economies were growing rapidly, Samuelson and his followers reasoned that entrepreneurship at best was a dinosaur, historically interesting but unneeded in the modern, "sophisticated" economies in which wise planners armed with MIT doctorates could run via the creation and solving of simultaneous equations.

In a word, Krugman really does not understand the role of the entrepreneur, nor will he ever understand it. All he sees is someone with money who isn't spending enough of it at the present time. Furthermore, he cannot tell the difference between an entrepreneur and someone who lives on inherited wealth, nor can he tell the difference between market entrepreneurship and political entrepreneurship (i.e. Solyndra).

So, in the Wonderland of Krugman's economy, 90 percent tax rates make perfect sense. It might be "insanity," but in Wonderland, the insane is sane.

Krugman and Medical Care: We Need More Socialism

I've not posted since the U.S. Supreme Court upheld the insurance mandate of Obamacare, and am leaving much of the back-and-forth to other writers. Peter Schiff writes that if the government really does have the authority to levy a "tax" upon any citizen who does not purchase what the government demands they buy, then there really are no more checks on the power of government.

I tend to agree. In the last decade, we have seen exponential growth of the surveillance state, the prison state, the militarization of the police, and we now have a president who believes he has the authority to order missile strikes anywhere in the world and to kill whomever he likes -- and it all is done "under color of law." In other words, lawless behavior by state agents now is an oxymoron, since by definition, state agents cannot break the law.

This SCOTUS decision will unleash the IRS in a way that will astound people, and one can bet that the powers that government seized with the passage of the Patriot Act and other such legislation will be put to use in new and oppressive ways. Furthermore, this decision will further unleash to power of federal prosecutors to criminalize just about anything they choose.

(I deal with their brutality of the innocent in my other blog, not that Keynesians really care about the brutality of the state. They just want to see more because, in their minds, a leftist state cannot be brutal since by definition, socialism cannot oppress.)

However, according to Krugman, the decision by the Supreme Court is something I should cheer because I now am a "winner." Funny, I don't feel like a winner, probably because I actually understand what socialism does to medical care over time, something that I doubt any Keynesian ever could understand because, frankly, Keynesians don't understand (or want to understand) the simple act of production. And forget the role of entrepreneurship in medical, as Keynesians would consider even the possibility of such to be anathema.

The Keynesian-Socialist View of Production vs. Ludwig von Mises and Economic Calculation

During the Socialist Calculation Debate between Ludwig von Mises and Oskar Lange in the 1930s and 40s, Lange demonstrated what I would call a mainstream view of how production and the firm might work. Indeed, what he said was hardly different from what I was taught in my production classes.

In mainstream neo-classical analysis, one analyzes production via the production function and input prices. (Yes, I constructed many a cost function using both things.) If one has both, then one can deduce the optimal use of inputs in production. (When graphing these items, the "optimal" position -- where costs are minimized -- is found where the production function, or isoquant, is tangent to the isocost.)

Lange held that a production function was pretty easy to find, and that government central planners could find prices simply by checking the commodities exchanges in the capitalist world, and with both in hand could then "plan" an entire economy by solving a huge batch of simultaneous equations. In fact, economists in the former Soviet Union became quite good at solving these equations by using matrices, and while their economic calculations generally turned out to be disastrously applied, nonetheless the world of matrix algebra advanced.

Socialism, Lange argued, actually would be more effective than capitalism because capitalists, after all, had to waste time and money making profits. Socialist production, having solved the issue of economic calculation, would produce more goods that were superior to what might be produced in the capitalist economies, or so he declared.

That is the essential argument that people like Krugman and Paul Craig Roberts have made about medical care. Everyone knows the "medical production function," right? So, what's the problem? For example, Roberts declares:

The American health care system is the most expensive of all on earth. The reason for the extraordinary expense is the multiple of entities that must make profits. The private doctors must make profits. The private testing centers must make profits.The private specialists who receive the referrals from general practitioners must make profits. The private hospitals must make profits. The private insurance companies must make profits. The profits are a huge cost of health care.

However, he adds, "single-payer" (which essentially is socialist or fascist, since fascism left much production in private hands with the state declaring what should be produced) eliminates the problems caused by profits:

The beauty of a single-payer system is that it takes the profits out of the system. No one has to make profits. Wall Street cannot threaten insurance companies and private health care companies with being taken over because their profits are too low. No health-provider in a single-payer system has to worry about being displaced in a takeover organized by Wall Street because the profits are too low.

What Roberts does not say, but what is obvious from his words is that we should not stop at medical care. If we know the proper production function for all aspects of medical care (which seems to be an assumption here) and if government simply by fiat can declare whatever prices it sees fit with no problems of resource misallocation, then directing a "rational" system simply is a matter of doing the math.

Roberts would argue, not doubt, that many of the profits in the medical system are not due to "free markets," but rather government favoritism given to politically-connected firms. Yet, even though government involvement via a regulatory system politically creates rents, his "solution" is for government to have even more regulatory power. Yet, if government already is a toady of private enterprise, as he says, then why should one expect that by the simple act of giving government even more power in the pricing and paying of medical care, that corruption would disappear and regulators suddenly would become pure in heart and be possessing the ability to perfectly allocate medical resources?

Likewise, Krugman argues that markets are the problem, and certainly not a solution in medical care, writing:

There are two strongly distinctive aspects of health care. One is that you don’t know when or whether you’ll need care — but if you do, the care can be extremely expensive. The big bucks are in triple coronary bypass surgery, not routine visits to the doctor’s office; and very, very few people can afford to pay major medical costs out of pocket.

This tells you right away that health care can’t be sold like bread. It must be largely paid for by some kind of insurance. And this in turn means that someone other than the patient ends up making decisions about what to buy. Consumer choice is nonsense when it comes to health care. And you can’t just trust insurance companies either — they’re not in business for their health, or yours.

This problem is made worse by the fact that actually paying for your health care is a loss from an insurers’ point of view — they actually refer to it as “medical costs.” This means both that insurers try to deny as many claims as possible, and that they try to avoid covering people who are actually likely to need care. Both of these strategies use a lot of resources, which is why private insurance has much higher administrative costs than single-payer systems. And since there’s a widespread sense that our fellow citizens should get the care we need — not everyone agrees, but most do — this means that private insurance basically spends a lot of money on socially destructive activities.

 This is interesting and very telling from two different viewpoints. First, Krugman has limited the entire conversation to "markets" for systems of payments for medical care, the third-party system, yet there is an entire web of complex relations within medical care that he ignores. (He does claim that improvements (like the MRI device) are responsible for the high cost of health care, which would make medical care quite unique because capital in a market economy tends to allow more goods to be created with fewer resources, but since he others already have declared that medical care is "different," then capital in the medical field apparently is a liability, not an asset.)

Unfortunately, Krugman does not even address the efficacy of third-party payments themselves, yet the proliferation of third-party payments for anything is going to mean that an important connection in economic exchange is distorted. The role of third-party payments in the rise of medical costs hardly is controversial, but Krugman seems to accept that the system can function only if all payments come from third parties.

The second point is that Krugman implies that a government system would not deny care, as though the Law of Opportunity Cost applies only to private insurers. Yet, even Krugman himself has endorsed denial of care and, yes, "death panels" (his words) as a way to hold down costs. So, one supposes that government is not subject to opportunity cost, but if it is, government agents will act wisely and compassionately.

Thus, we are supposed to conclude that (1) medical care is different than any other good one might purchase, (2) opportunity cost applies only to private care or at least manifests itself less if government agents decide who is to receive care, and (3) since everyone already knows the production function and since government has the power to set prices, there is no economic calculation problem, which means that the system does not need profits and losses to guide its decision makers.

Is There a Role for Entrepreneurs in Medical Care?

In the MBA classes I teach, I emphasize the role of the entrepreneur, not simply as an individual, but also the role of entrepreneurship within the firm itself. I use a lot of material from the Austrians, including Peter Klein's new book, The Capitalist and the Entrepreneur: Essays on Organization and the Markets.

Klein reminds us that most of the mainstream economic literature long ago discarded the entrepreneur as either socially useless (or even harmful) or irrelevant in a world of "economic" analysis based upon production functions, "given" input prices, and probabilities. These things, many mainstream economists believe, have demystified economic analysis to the point where any semi-competent economist, along with bureaucrats from the Federal Trade Commission or the Department of Justice, can both see and create the "optimal" system of production.

The Soviets certainly believed the entrepreneur was nothing more than a parasite, and all private entrepreneurship (legally called "speculation") was outlawed, with execution as a penalty always on the table. Production functions were obvious and planners could find prices by reading the Wall Street Journal, so the system did not need entrepreneurs, and especially did not need profits, as socialism already had done away with profits, which were nothing more than what Marx said they were: an unjust expropriation of the compensation that belonged to the workers.

As the Soviet economic planners found out, however, this was not a formula for "rational production," but rather a prescription for utter chaos. The economy of the former U.S.S.R. was legendary for its shortages, its poor-quality products, bad food, and, yes, poor medical care. When the Soviet Union still existed, American defenders would agree that maybe the government was too repressive and, yes, its economy was not good.

However, they would add: "It has free healthcare." (Likewise, I remember when a Marxist who teaches economics at the University of Tennessee-Chattanooga claimed that Romania's economy under communist rule was superior to that of the western nations because "there is no unemployment there.")

One of those former Soviet planners, Yuri Maltsev, has written about what that "free" care was like for ordinary people:

Being a People’s Deputy in the Moscow region from 1987 to 1989, I received many complaints about criminal negligence, bribes taken by medical apparatchiks, drunken ambulance crews, and food poisoning in hospitals and child-care facilities. I recall the case of a fourteen-year-old girl from my district who died of acute nephritis in a Moscow hospital. She died because a doctor decided that it was better to save “precious” X-ray film (imported by the Soviets for hard currency) instead of double-checking his diagnosis. These X-rays would have disproven his diagnosis of neuropathic pain.

Instead, the doctor treated the teenager with a heat compress, which killed her almost instantly. There was no legal remedy for the girl’s parents and grandparents. By definition, a single-payer system cannot allow any such remedy. The girl’s grandparents could not cope with this loss and they both died within six months. The doctor received no official reprimand.

As one reads the tales of Soviet medical care, it is clear once again that socialism is a system in which the consumer plays no role. Whether it was doctors and medical personnel killing patients or forcing them to pay bribes for basic care, patient care was the lowest priority. Ironically, at least one prominent Democrat politician, following the SCOTUS decision on Obamacare, declared that a future step should be the unionization of doctors. One can be assured that if this is part of our medical future, actual care for individuals will be secondary to preserving the political players in the system, as doctors through their unions will receive even more political cover.

One of the characteristics of a socialist economy was the various "time warps" that it created. When the Berlin Wall fell in 1989 and East Germans soon began to drive their Wartburgs and Trabants over the formerly-forbidden border to West Germany, people found that there was little difference between the 1989 Wartburg and the 1948 make of the same car. During my visit to East Germany in 1982, I found that much of the country, from its infrastructure to its street lighting looked unchanged from the 1940s.

Why the time warp? In a word: entrepreneurship, or the lack, thereof. While a lot of economists tried to explain the difference between the East and West as being to to "superior technology" in the West, that really is no explanation at all. New technologies do not magically appear; entrepreneurs must find a way to apply technologies in a way that will appeal to both the needs and budgets of average people.

Economic entrepreneurship in the old communist bloc was a crime; furthermore, a bureaucratically-run economy was going to be resistant to change because governments are loathe to take any kinds of risks. Car manufacturers stayed with the "safe" production function. Bureaucrats rarely receive any rewards for being right when they take risks, but often are punished for making errors, unlike entrepreneurs, who receive profits when they make correct decisions about the future and losses when they are wrong.

In the West and Japan, however, auto manufacturers had at least a measure of private entrepreneurship, and the result was a better automobile, even in the face of massive government political and regulatory interference with the production process. (Yes, some companies were bailed out, and it is my belief the government should have simply let Chrysler and General Motors go out of business. Entrepreneurship, after all, works best with a profit and loss system.)

What both Krugman and Roberts claim is that the real problem with medical care is entrepreneurship, and once the entrepreneur is removed from the picture and government directs the resources within the system, all will be well. Yet, why should that be the case we see opposite results elsewhere?

In the end, the single-payer advocates claim that medical care is different, and is not subject to the laws of economics. That would be a first in all of human history: a scarce good that is not subject to the Law of Scarcity.

For all of the talk of "American Exceptionalism," the real exception in the United States historically has been that entrepreneurs have had great freedom here, and we as citizens and consumers have benefited mightily from their actions. For that matter, every medical device that has saved lives and every development of medical procedures that make once-impossible surgeries now easy and commonplace has come ultimately through entrepreneurship.

And what will happen if the government tries to outlaw medical entrepreneurship? The system ultimately will slowly deteriorate, medical innovation will come to a halt, and patients will find themselves at the bottom of the totem pole.

Another thing will be commonplace, too. We will see politically-connected people like Paul Krugman and Michael Moore either using their great wealth to receive medical treatment in other countries that are not as restrictive as the USA, or they will use their political connections to be bumped ahead of everyone else. Oh, and Krugman and Moore and others will continually be propagandists in telling us how good we have it now that we have state-run medical care.

Krugman: Economic efficiency makes us poorer

Several years ago, I wrote that Paul Krugman really is not an economist, but rather is a political operative, and he has done his level best since then to prove my point. He does it again in his latest column.

According to Krugman's writings on the subject of employment, he begins with jobs first, or, to be more specific, the number of jobs. To Krugman, there is no difference in jobs, economically speaking, if they are created because Apple expands its operations or if the government subsidizes a Solyndra. If Apple's expansion meant a thousand extra jobs, but the government payments to Solyndra resulted in 1,100 new (and, obviously, temporary) jobs, Krugman's logic would say that the Solyndra gig would be better for the economy, even if Apple were profitable and Solyndra was hemorrhaging cash.

(As I read Krugman, I get the sense that he agrees with the Left that economic profits really consist of funds "taken from the community" and that lower profits would mean more wealth is being created. Yes, it is convoluted, but Keynesian "economics" is convoluted, folks.)

In attacking Mitt Romney (which is fine with me, given I won't vote for him even if he wins the Republican nomination), Krugman claims that Barack Obama actually has been a net creator of jobs. That's right, Obama is good for the economy even though it is in depression, and has become worse since he took office. Krugman writes:

Americans have jobs now than when Mr. Obama took office. But the president inherited an economy in free fall, and can’t be held responsible for job losses during his first few months, before any of his own policies had time to take effect. So how much of that Obama job loss took place in, say, the first half of 2009?

The answer is: more than all of it. The economy lost 3.1 million jobs between January 2009 and June 2009 and has since gained 1.2 million jobs. That’s not enough, but it’s nothing like Mr. Romney’s portrait of job destruction.

Incidentally, the previous administration’s claims of job growth always started not from Inauguration Day but from August 2003, when Bush-era employment hit its low point. By that standard, Mr. Obama could say that he has created 2.5 million jobs since February 2010.

Now, given that a lot of these "jobs" either have been government jobs or jobs that came through government-subsidized industries, perhaps we should be asking if the Obama administration's policies have made it easier or more difficult for businesses to create new wealth. After all, if you want to create "full employment," it is easy: just tell everyone they only can do agricultural work but cannot use any tools in the process other than your hands. I can assure you that people will be busy, at least until they starve to death, but, hey, they will be employed.

Robert Higgs has some answers, writing:

Private net investment is currently running far below the rate required to sustain a rapid rate of economic growth. Real consumer spending, in contrast, peaked in the fourth quarter of 2007, fell only slightly (about 2.5 percent) to the second quarter of 2009, and by the fourth quarter of 2010 exceeded its previous quarterly peak (by almost 1 percent). Despite the wailing and gnashing of teeth among Keynesian economists and politicians with regard to allegedly inadequate consumption, a collapse of consumption is not to blame for the economy’s anemic recovery to date. However, looking elsewhere for the cause, we find that the economy’s true engine of growth – private business net investment – continues to sputter, running in the most recent quarter at less than a third of its previous peak rate and, for the entire year 2010, at only 40 percent of its rate for the entire year 2007.

Higgs adds:

Investors continue to view the future with major misgivings, owing to the unsettled condition of the government’s future actions with regard to health care, financial regulations, energy regulations, taxation, and other matters that have serious implications for business costs and the security of private property rights in business capital and its returns. Although ObamaCare and the Dodd-Frank bill have already been enacted, these massive statutes leave scores of important details awaiting determination by administrative agencies and courts whose actions will be fiercely contested at every step. Future tax rates also remain up for grabs in Congress.

Krugman might call it the "Confidence Fairy," but government cannot make up for lost investment and, in fact, bears huge responsibility for the current lag in private investment.

Yes, Obama can throw money at "green energy" and create some temporary jobs and Krugman will claim that this is superior to any kind of economic restructuring that enables entrepreneurs to create more wealth while using fewer resources. In Krugman's mind, such a thing is anathema. Lest one think I am off-base, I believe Krugman exposes that view in this declaration:

At this point, some readers may ask whether it isn’t equally wrong to say that Mr. Romney destroyed jobs. Yes, it is. The real complaint about Mr. Romney and his colleagues isn’t that they destroyed jobs, but that they destroyed good jobs.

When the dust settled after the companies that Bain restructured were downsized — or, as happened all too often, went bankrupt — total U.S. employment was probably about the same as it would have been in any case. But the jobs that were lost paid more and had better benefits than the jobs that replaced them. Mr. Romney and those like him didn’t destroy jobs, but they did enrich themselves while helping to destroy the American middle class.

Paul Krugman demonstrates his utter ignorance at what happens in business restructuring and leveraged buyouts. When a firm like Bain purchases a firm and then sells its assets and makes money in the process, the Krugmans in the academic and political world scream that Bain is DESTROYING JOBS.

However, let us think about this and ask the obvious question: How can Bain do this in the first place? It can do it because when a business is successful, the whole is greater than the sum of its parts. However, a failing business is going to find itself in the opposition situation: the sum of the parts is greater than the whole.

For example, would any capital firm try to purchase Apple today and then make money selling off the company's assets? Hardly, as the strength of the company is entrepreneurship, and that is not a commodity that can be bought and sold. Unfortunately, Krugman wants us to believe that Bain and other corporate raiders took perfectly healthy firms and then destroyed them, and that the markets were so twisted and so incapable of seeing that good firms unjustifiably were being taken apart that they stupidly purchased the assets for more than the raiders paid for the entire company.

Krugman never explains how this is possible, but perhaps it is because he simply cannot comprehend the simple aspects of Opportunity Cost. Whatever the reason, he clearly does not even begin to understand how markets work, not to mention the role of the price system. You see, Krugman actually believes that markets DESTROY wealth, but governments create it through vast networks of subsidies and regulations. He never has explained how and why this is so, but perhaps he believes that since he is Paul Krugman, he doesn't have to explain anything. ENTREPRENEURS? We don' need no stinkin' entrepreneurs!

In praise of Steve Jobs

One of the things I dislike most about both the Keynesian and mainstream economic paradigms is that they simply ignore the entrepreneur. Either the entrepreneur is simply assumed into the equation, as though what he or she does is "inevitable," or, in the case of the mainstream, irrelevant.

Worse yet, the mainstream economists will throw in the phrase, "new technology," as though a new technological product just appears as though by magic. (When one lacks a coherent theory of capital, nonsense or pure fantasy will fill the void.)

I write these words with the passing of Steve Jobs, whose genius was in the fact that he could see what others could and would not see. It was not just the technology that made Apple so influential and helped produce the Digital Age, but the fact that Jobs realized that technology meant nothing if people did not want to use it.

In celebrating the life and accomplishments of Steve Jobs, it is not that he made a lot of money, or even cared about it. He was not a political force, and Apple did not have a political action fund, nor was it a force in lobbying. While Jobs was alive, Congress and the President did not go after Apple in the way it went after Microsoft and other high-tech firms. Now that he is gone, it will be interesting to see if the federal government attempts to milk political funds from that company in the way that it has done to so many other successful firms that have demonstrated their vulnerability in the face of an unwarranted government onslaught.

No, Jobs was not someone who influenced elections or tried to make bureaucrats (and ultimately taxpayers) do his bidding. His work was much too important for anything like that, and the man truly changed much of his world -- and ours.

I include a number of tributes to Jobs in this post, including this from:

The New York Times

Holman Jenkins of the Wall Street Journal

The editors of the Wall Street Journal

Andy Kessler

Jeffrey Tucker of the Mises Institute

Had Paul Krugman written a tribute, I would have included that, but so far he has said nothing, at least in the latest update of his blog. If Krugman has something, I will put it in.

What is "the social contract" of which Krugman and Elizabeth Warren speak?

[Update]: Sheldon Richman, editor of The Freeman, offers another perspective on Elizabeth Warren and her now-famous words. Between what we are hearing from Washington and Michael Moore's latest veiled call for violence against people who make less money than he does, one can bet that private capital investment in this country is going to be stunted for years.

From what I can tell, the Keynesians and the Depublicans (or maybe the Remocrats) have declared war on private capital. The rest of us will pay dearly for this, and I will say that the U.S. economy NEVER will recover as long as the present gang of thieves holds power. [End Update]

Paul Krugman makes millions of dollars a year. While I am not privy to his actual income numbers, I have been told by a very reliable source that it is in the millions. Furthermore, he has no children and a wife who also earns a high income. The guy clearly makes more money than he needs to live, and many poor families could live well if Krugman were willing to give them a "big hunk of it." (If the man has a charity by which he feeds the hungry, I am not aware of it.)

Thus, we can conclude that Paul Krugman -- if we wish to consistently apply his words, and the recent words of Elizabeth Warren -- is responsible for making other people poorer. Krugman makes a lot of money, and according to Krugman, one only can make money at the expense of others who are worse off, so by Krugman's own admission, he is violating a "social contract."

That is not what Krugman would say, and I am sure that if government agents were to seize his property and most of his holdings, he would scream bloody murder, but that is for another post. Instead, I want to zero in upon this notion of the "social contract" that suddenly seems to be the rage among the Left.

In a recent meeting that has gone viral on YouTube, Elizabeth Warren, the Harvard law professor who President Obama unsuccessfully tried to appoint as a de facto "banking czar," now is running for the U.S. Senate in Massachusetts. This is that quote that the people from Moveon claimed was perhaps the most important thing EVER said:

There is nobody in this country who got rich on his own. Nobody. You built a factory out there – good for you.

But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory….

Now look. You built a factory and it turned into something terrific or a great idea – God bless! Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

At one level she is right, but no one I know claims that a person has gained wealth by no one's efforts but his own. However, we need to read between the lines of what both Warren and Krugman are saying, and we can find something much more sinister and economically ignorant than what their supporters would like to admit.

When I heard Warren's quote, the first thing that came to mind was the scene in "Godfather II" when Don Fanucci tells a young Vito Corleone that Corleone must let him "wet my beak." In other words, Fanucci was telling Corleone that the neighborhood was his own territory and if Corleone wanted to do business there, he had to pay up -- or else.

Call it what you will, but Fanucci was presenting his own version of "the social contract." Given that Murray Rothbard on more than one occasion likened government to a criminal gang or a mafia, I would say that the "social contract" of which Warren and Krugman speak falls into that category, something neither of them ever would acknowledge.

Yet, what was Warren saying? She was making the claim that entrepreneurs -- people like Steven Jobs -- somehow reap ALL of the gains of their commercial success, and that the ONLY way that other people outside the successful entrepreneur can gain any benefit at all from that successful company is through taxation. That is it. According to Warren, companies like Apple might sell products, but they benefit only the company Big Wigs.

While the Usual Suspects applaud these words, I cannot help but think of the story of "The Little Red Hen," who prepared bread by growing wheat, making flour, and baking the loaf, all while others looked on and did nothing. In the end, the Little Red Hen shared the bread with her chicks.

In the Elizabeth Warren/Paul Krugman version of "The Little Red Hen," however, the other animals could claim that their very presence at the farm was the REAL reason that the Hen could make bread in the first place. The animals might say that since they did not knock down the wheat or burn down the hen house, that it was THEY who were responsible for the Hen's success.

As for "marauding bands," who is Warren kidding? Has anyone ever seen a police raid (and especially from the Feds) on business firms. Please don't tell me that these "law enforcement" raiders are orderly and respectful. They behave exactly like "marauding bands, and all-too-often it is discovered afterward that there was no good reason for the violent raid in the first place.

The word from Krugman and Warren is this: entrepreneurs gain success ONLY at the expense of the people who really are responsible for the entrepreneurs' success in the first place. Entrepreneurs, in their view, really are parasites for they drain the "community" of its rightful wealth.

Now, I agree that many Wall Street firms have gained wealth through political favoritism and from bailouts, but since Krugman and Warren actually supported the bailouts of those banks and financial houses, as well as the bailouts of GM and Chrysler, I'm not sure why they are complaining. The Austrians wanted those entities to bear the costs of their entrepreneurial errors, and permit those firms whose principals had not made the bad choices to be able purchase the assets of the firms that failed, but because the Austrians have wanted the "banksters" to bear the costs of their errors, Krugman and others have claimed that Austrians are "enemies of the people."

Do people have obligations to their neighbors? I believe they do, although the "social contract" of which Krugman and Warren speak is a "contract" that demonizes people who have taken risks and been successful and goes well beyond any relationship and responsibilities that I would be willing to support.

I'm sorry, but the notion that everyone else should have a claim to the income of Steven Jobs -- or even Elizabeth Warren and Paul Krugman -- because of a "social contract" they claim exists is nonsense. But I will go further; Steven Jobs has contributed much more to the well-being of people in this world than Krugman, Warren, and all of the other leftists in the world combined.

Elizabeth Warren and Paul Krugman want us to believe that the Political Classes ultimately create wealth, and that the parasites are people who saved, invested, took risks, and took an idea and were successful in business. This is not a "social contract;" it is turning reality upside down.

Falling Into Economic Illiteracy

During the fall of 2008, a video made its way around the Internet. Some children of Hollywood producers and Democratic activists were put into a small choir, complete with a leader who directed them to sing about how "Obama's gonna save us." The children sang praises like the choirs of Chinese children four decades earlier who had sung praises to Mao, the Great Leader who was portrayed as the very Sun.

The camera panned on the parents who listened with enraptured hearts, and the expressions on their face were of unalloyed joy. The Very Messiah was here, and he was going to spread freedom, happiness, and plenty. All it would take would be a vast expansion of the State and Obama was the One to do it.

Paul Krugman was not in the audience, but he might as well have been, given the tone of his columns that fall. Indeed, even those who decided upon the Nobel Prize were caught up in the Messiah Fever and awarded its highest honor to Obama's Prophet Krugman.

Two years later, there are no choirs singing praise to the Holy One of Chicago, and the economy is in much worse shape than we could have imagined, and all signs on the horizon are bad. What could Obama have done? Paul Krugman knows, and he shares his Prophetic Vision (Oh, lucky us!) in his column today.

Obama, Krugman writes, did not do enough. He did not spend enough, nor regulate enough, or spread Joy and Peace and Happiness. He should have immediately imposed the very medical system that Canadians would like to change. According to Krugman's fellow NY Times columnist, Frank Rich, Obama apparently did not arrest enough people, either, nor throw enough people into prison, to join with the other two-million plus that already are spending time in government cages.

Yes, the state has neither been a great enough Sugar Daddy, nor has the state killed enough people overseas, nor has it been harsh enough to people who don't meet the approval of the editorial board of the "Newspaper of Record." The same newspaper that decries the state of imprisonment in this country claims that our Real Problem is that we don't have enough people in prison. It has come to that. The children sang of Obama "spreading freedom," but apparently (at least at the NY Times) spreading "freedom" means more incarceration of people who don't meet the newspaper's definition of being politically correct.

So, what does Krugman claim is the reason that unemployment is higher than it was when Obama took office? The government did not pretend that it is wallowing in riches and money, and while it boosted spending and debt, it engaged in Krugman's definition of "austerity."

A few commentators will point out, with much more justice, that Mr. Obama never made a full-throated case for progressive policies, that he consistently stepped on his own message, that he was so worried about making bankers nervous that he ended up ceding populist anger to the right.

But the truth is that if the economic situation were better — if unemployment had fallen substantially over the past year — we wouldn’t be having this discussion. We would, instead, be talking about modest Democratic losses, no more than is usual in midterm elections.

The real story of this election, then, is that of an economic policy that failed to deliver. Why? Because it was greatly inadequate to the task.

Krugman, it seems, was the Keeper of the Secret, and he gives us the Answer For Which We Have Waited:

When Mr. Obama took office, he inherited an economy in dire straits — more dire, it seems, than he or his top economic advisers realized. They knew that America was in the midst of a severe financial crisis. But they don’t seem to have taken on board the lesson of history, which is that major financial crises are normally followed by a protracted period of very high unemployment.

If you look back now at the economic forecast originally used to justify the Obama economic plan, what’s striking is that forecast’s optimism about the economy’s ability to heal itself. Even without their plan, Obama economists predicted, the unemployment rate would peak at 9 percent, then fall rapidly. Fiscal stimulus was needed only to mitigate the worst — as an “insurance package against catastrophic failure,” as Lawrence Summers, later the administration’s top economist, reportedly said in a memo to the president-elect.

But economies that have experienced a severe financial crisis generally don’t heal quickly. From the Panic of 1893, to the Swedish crisis of 1992, to Japan’s lost decade, financial crises have consistently been followed by long periods of economic distress. And that has been true even when, as in the case of Sweden, the government moved quickly and decisively to fix the banking system.

To avoid this fate, America needed a much stronger program than what it actually got — a modest rise in federal spending that was barely enough to offset cutbacks at the state and local level. This isn’t 20-20 hindsight: the inadequacy of the stimulus was obvious from the beginning.

One wonders at the ingratitude of Krugman's words. After all, has not the Obama administration done everything in its power to undermine entrepreneurs all the while giving lip service to them? Oh, the administration has found clever ways to offer low interest rates to those firms who Follow In The Way Of Obama instead of doing real entrepreneurship.

Instead of insightful people finding ways to put resources to use that will enable real economic growth to occur, the Obama administration is dunning taxpayers to continue to finance and to expand the Ethanol fraud. Favored firms from those on Wall Street to GM to the producers of "clean energy," the vast subsidy machine rolls on, pushing us further into depression. Yes, 15 percent Ethanol in our gas tanks "is gonna save us." (Given the performance of this administration, I think that the Ethanol would do better as cheap whiskey, which at least would permit us to better drown our sorrows.)

The fundamental issue here is that not one person in this administration, nor its acolytes like Krugman, has a clue as to what makes an economy grow. They really believe that it is little more than a perpetual motion machine, a mixture of homogeneous stuff into which one throws money to make everything work magically.

So, today, instead of singing praises to His Messiah, Paul Krugman is left to rage that Obama didn't listen to him and borrow, print, and spend even more money, further empower labor unions, jack up the minimum wage to a zillion dollars an hour, or give all government employees a big raise. Thus, we see that those most honored in academic economics really have no idea what economics is, a discipline that is based upon the simple Law of Scarcity.

No, Obama refused to pretend that the Law of Scarcity did not exist. And why not? Two years ago, he was the Chosen One, the Holy One of Chicago, the One Who Would Save Us.