Marches of the Non Sequitur

I really was ready to shout, "Hallalujah!" when I saw the title of Paul Krugman's latest column on the 10-year anniversary of the U.S. invasion of Iraq. When I met Krugman in 2004 at the Southern Economic Association meetings in New Orleans, we were discussing Iraq and I told him that I was afraid we would live the results of that war for the rest of our lives, and he agreed. I hated the war then and always will hate what the U.S. Government has done there.

Had he left things at that, I would have written a post filled with hosannas for Krugman's good judgment. Alack and alas, The Great One was using Iraq as a warmup for claiming that since the war was bad and the media did a terrible job in dealing with it, then any media criticism of the current federal budget deficit also is bad. Don't you get it? Media wrong then; therefore, media wrong now.

This is what the ancients once called the non sequitur (Latin for "it does not follow") in which the conclusion is not supported by the premises. If Washington was "wrong" on Iraq, then Washington certainly must be "wrong" on anything regarding the federal budget. Everyone knows that!

Even beyond Krugman's logical fallacy, there is another problem with his argument: Washington hardly is a place where "austerity" is being practiced, much less preached. The Republicans hardly were "austere" during their days of controlling all branches of the federal government and when people talk of "draconian budget cuts," they really are referring to alleged "cuts" in the INCREASE of spending. In other words, any slowdown in the rate of increase in spending is termed "austerity" by people who should know better.

Then there are statements like the following in which Krugman wants to claim that the mainstream media is on the side of "austerity":

...now as then we have the illusion of consensus, an illusion based on a process in which anyone questioning the preferred narrative is immediately marginalized, no matter how strong his or her credentials. And now as then the press often seems to have taken sides. It has been especially striking how often questionable assertions are reported as fact. How many times, for example, have you seen news articles simply asserting that the United States has a “debt crisis,” even though many economists would argue that it faces no such thing?

To be honest, I cannot recall reading anything recently in the mainstream press recently that referenced a "debt crisis." However, I would add that the U.S. Government is not paying its debts via any methods other than financial trickery, something that cannot continue forever without serious consequences. The U.S. Government pays its debts either by borrowing more money or essentially printing the payments, neither of which is sustainable.

No, we are not in a current "debt crisis," as one might define the term. Not even the Austrians are making that claim. The Austrians do say, however, that the real financial damage that the government and the Federal Reserve System has been doing is not going to have a happy ending. Krugman and his True Believers may believe that printed money essentially is real wealth (and that ultimately is what they are claiming), but the laws of economics have a way of making themselves known, and there will come a time when Ben Bernanke has no more rabbits to pull out of his hat.

Who is Flimflaming Whom?

Folks, things are getting serious. Paul Krugman and the Progressives have found the solution to all of our problems: spend money now, borrow, print, and then tax the rich (even higher) in the future and stick it to business. We'll all get rich!

You see, this is what Krugman calls a "serious" proposal. Anything that is grounded in reality -- you know, that fact-based world -- is what The Great One calls a "flimflam." First, however, he had to take his usual shot at Paul Ryan and the budget Krugman attacks. (Not that such things are news. While I have no plans to shill for Ryan, nonetheless I would say that what Ryan does is much more serious than Krugman's fantasy of spending ourselves into prosperity.)

However, one has to realize what Krugman calls a "serious" proposal: the budget plan recently released by the Congressional Progressive Caucus, which is a nice way of describing a group of people who believe in near-total State control of every aspect of your life. (Except abortion on demand, of course, as only that should be left out of any governmental regulation, according to "Progressives.")

Called "Back to Work," Krugman describes the plan in his own words:

But there’s a plan that does: the proposal from the Congressional Progressive Caucus, titled “Back to Work,” which calls for substantial new spending now, temporarily widening the deficit, offset by major deficit reduction later in the next decade, largely though not entirely through higher taxes on the wealthy, corporations and pollution.

Yes, we are supposed to believe that after the government spends trillions more on "job creation" (which is yet another euphemism for "massive public works" that socialists are fond of demanding), sometime in the next decade Congress will get around to trying to figure out how to pay for all of this. This "serious" proposal has the usual stuff about public works, "green energy," and all of the things that Obama has been pushing already. And there is yet another promise that socialist medical care will both lower costs and improve delivery.

What I do find interesting is that Krugman declares the following when describing another budget proposal, this one by Senate Democrats who apparently are not "Progressive" enough for Krugman:

...the Senate plan calls for further deficit reduction, through a mix of modest tax increases and spending cuts. (Incidentally, the tax increases still fall well short of those called for in the Bowles-Simpson plan, which Washington, for some reason, treats as something close to holy scripture.) But it avoids large short-run spending cuts, which would hobble our recovery at a time when unemployment is still disastrously high, and it even includes a modest amount of stimulus spending.

If unemployment is "disastrously high," then one would have to say that President Obama's programs then have had "disastrous" results. However, Krugman has been shilling for Obama for the past five years and continues to shill for him. Yet, he describes the results of what Obama has done to lower unemployment as "disastrous"? Very interesting.

In other words, this is more of Krugman's "heads I win, tails you lose" reasoning. And when it comes to "serious" budget proposals (as though Congress and the president are going to agree on a budget when that has not occurred for many years), the most serious is the one that spends and borrows now and then 10 years from now leaves to a future Congress as how to pay for all of it. No doubt, the Inflation Fairy is going to have to do a lot of work to pay for this one.

Krugman: Markets are good -- when they supposedly endorse Krugman's position

As a Keynesian, Krugman has embraced the price theory of his predecessors, that being the belief that "price" is the "P" on the y-axis of the Aggregate Demand -- Aggregate Supply graph. (It is hard to know that the "Y" -- Or is it "Q"? -- might be on the x-axis, given that GDP, or Y, is monetary-based and one cannot have the same thing on both axes. Likewise, an AS-AD graph cannot be logically configured to have just "physical output" on the x-axis, either. What's a Keynesian to do?)

Thus, "price" in the Krugmanian viewpoint is a statistic created by government, and it receives its meaning only as part of a state-configured weighted average. However, when it suits him, "price" suddenly can have all sorts of important meanings -- that is, something that supports his viewpoints.

Likewise, Krugman like many other "elite" academics has utter contempt for anything that smacks of the "market." In the academic world, as well as the world of mainstream/leftist journalism, markets are little more than evil creations made by those who wish to get rich on the backs of "the people." And "price theory"? Fuggediboutit, except when "markets" seem to affirm their position.

One of Krugman's constant themes is that there is very, very little inflation in our economy today. Rising fuel and food prices? Why that is just aggregate demand from abroad. QE1, QE2, and QE-in-perpetuity has nothing to do with that phenomenon, and anyone who claims differently does so because he or she is a racist or an Obama-hater (which means the person is a racist).

Why is this true, according to Krugman? Government bond prices. You see, if interest on U.S. Government bonds is low and prices high, then that is PROOF that there is no inflation. In other words, if he can spin a price into something that backs up his claim, then Krugman suddenly becomes Murray Rothbard in claiming that individual prices really do matter.

One thing that Krugman does not point out is that the ratings agencies have given U.S. Government debt their AAA ratings, but the rules applied to the government are different than rules applied elsewhere. I say this because the vast majority of U.S. Government debt (held in six-month T-bills) is repaid with more debt.

No other entity can get away with this. When New York City in 1975 secretly was selling bonds to pay back its previous bonds, the market ultimately revolted and the city had a financial crisis. In fact, what NYC did was illegal, and those behind it were committing criminal fraud, but because of their political connections, no charges were brought.

(Interestingly, the NY Times, which endlessly calls for criminal prosecutions against those alleged to have committed financial fraud, supported this fraud and the fraudsters. So much for the Grey Lady's consistency on criminal justice.)

As I see it, the AAA ratings from S&P and elsewhere are political in nature, and are not the result of any kind of careful -- and honest -- financial analysis. If any of the agencies were to downgrade U.S. Government debt, with its payment scheme of Rob-Peter-to-Pay-Paul, the government would be hauling executives from those firms into prison to join Bradley Manning. Don't kid yourselves on that; anyone who believes that an intimidation factor is not in play here does not understand the thuggery of the U.S. Government.

Yes, the government has declared that ONLY the U.S. Government can pay back bonds by selling other bonds, and as long as Congress raises the debt ceiling, some people believe this charade can go on forever. However, at some point, the real market will revolt against this fraudulent scheme. Yes, I am sure the Federal Reserve System will try to come to the rescue, but the Law of Scarcity will expose anything that Bernanke and company might try to do.

Peter Schiff makes a good point in this article, noting that the rating agencies are banking on the Fed's ties to the virtual printing press. He also notes that the ratings agencies were willing to hang onto the AAA ratings for a lot of mortgage paper that the market ultimately exposed to be worthless. Again, because of the political implications of the housing boom, I am sure that S&P, Moody's and others believed it to be in their best interests to pretend that mortgage bonds were sound investments.

And one can bet that at that point, Krugman will rise up and condemn the very market that he now claims provides "proof" that we have very low inflation and that government borrowing and spending is not out of control.

Sanity is Missing in Action, not the President

In his excoriation of President Obama in his recent column, Paul Krugman claims that if Obama would have stood up against the "radicalism" of the house, perhaps we might be on our way to economic nirvana:

...let’s give the president the benefit of the doubt, and suppose that $38 billion in spending cuts — and a much larger cut relative to his own budget proposals — was the best deal available. Even so, did Mr. Obama have to celebrate his defeat? Did he have to praise Congress for enacting “the largest annual spending cut in our history,” as if shortsighted budget cuts in the face of high unemployment — cuts that will slow growth and increase unemployment — are actually a good idea?

This falls into the "don't make me laugh" category. As Lew Rockwell recently wrote, there are no "cuts" in spending at all, despite the rhetoric:

In the first place, no one is talking about actual cuts, not even the supposedly radical Republicans. These are cuts in projected spending, meaning that everyone is dealing with symbolic changes in a future that is just as symbolic. Even on paper, the only way to consider these cuts is to compare them with the GDP and the national debt -- both of which are slated to rise. Forgetting those two metrics, and looking at the actual numbers, there are no cuts at all and only increases.

Even the dating of the Republican’s balanced budget is ridiculous. So the budget will be fully balanced in 2040? That’s three decades from now. Few of the people in office will still be in office, and many will be dead. To see how viable this is, consider how many political plans of the year 1982 still survive today.

I will go even further. Despite Krugman's constant claims that prosperity will return if the government throws enough new money around and if the highest marginal tax rates are raised from 35 percent to 39.6 percent, he is absolutely wrong.

The problem is not with "idle" resources; the problem lies in the fact that the Obama administration, along with the other Usual Suspects in Congress, academe, and the media, cannot recognize that there are huge swaths of malinvested resources still dragging down the economy. It does not matter how many dollars the government throws at housing; the government encouraged the wasting of billions of dollars for something that cannot be sustained in any normal market, and no one in authority still is willing to admit any mistakes.

To make matters worse, the Obama administration continues to insist that granting huge subsidies to corn-based ethanol and electric "wind farms" ("subsidy farms" is the more appropriate term) will help lead us out of the recession. Earth to Obama (and Krugman and the others): it is impossible to subsidize oneself into prosperity. Any benefits accrued to one party MUST be confiscated from another when subsidies are involved. An economy built upon subsidies is an economy that will continue to shrink.

Krugman still is of the belief that if the political classes pretend we are prosperous and throw enough money into the economy, then suddenly everything magically will rise and the prosperity train will be on the tracks. This is utterly delusional, but delusion seems to be the watchword at the NY Times and in Washington.

Massive federal spending, face it, is "ludicrous and cruel"

In his column today, Paul Krugman takes his cue from the Democratic National Committee and writes yet another one of his partisan screeds on the Republicans' federal budget proposals, calling it "ludicrous and cruel." Actually, he is right, but I think for reasons other than what he might admit.

First, he demonstrates that he really is little more than a political operative because he aims much of his vitriol against Rep. Paul Ryan, the House Budget Committee Chairman. In fact, as he often does, Krugman spends as much time with personal attacks on an individual as he does with the ideas that the individual is espousing. To me, that is ironclad proof that the focus of his column is that of a partisan political operative, NOT an economist.

Second, he then goes into yet another tizzy to claim that a 4.96 percent cut in tax rates somehow has triggered every other evil that one can imagine, and he really wants us to think that if only the "rich" could be taxed at 39.6 percent instead of 35 percent, that all would be well. Only a political operative would say that, because a real economist would understand that the scenario Krugman presents is nonsense.

Third, the idea that our economy can support massive welfare spending and subsidies at home and military adventures abroad is plain delusional. Now that the Obama administration has decided to follow in the footsteps of its predecessor and continue the fiction of Empire Forever, Krugman no longer raises the objections to military adventures and its requisite spending as he did when George W. Bush was president.

Instead, he promotes the delusion that because Ben Bernanke is keeping interest rates artificially low, the USA can continue to borrow and spend into perpetuity. (No, we will borrow and spend into oblivion.)

We are seeing a period of outright political delusion that dwarfs even the delusion that accompanied Lyndon Johnson's pursuit of the "Great Society" AND the war in Vietnam. Both then and now, the politicians have imagined that they can pretend the U.S. economy can continue to carry the heaviest burdens of government in the history of the world.

So, we have reached yet another episode of the dog-and-pony show known as the government shutdown. It is all political theater, while the rest of us will learn the very hard lesson that just because economists like Paul Krugman and his friends claim that this government can spend us into prosperity does not make it so.

No doubt, when inflation begins to really catch fire -- and there is no avoiding it now -- Krugman will call for price controls and claim everything as its cause but the truth: out-of-control borrowing and spending creates disasters, not prosperity.