Disdain for Economics

I find it quite interesting that Paul Krugman has decided to recast himself as a populist, as though he is part of the "rest of us." (Anyone who has attended conferences and seen Krugman interacting with others can say quite assuredly that the guy hardly fits into the category of the "common man," especially since he is a multi-millionaire and an academic.)

As usual, in his latest column, he pretends to be Paul Krugman The Populist and excoriate Mitt Romney for his recent remarks at the Boca Raton fundraiser. What I find interesting, however, is that Krugman reverts to stereotypes, which hardly is what academics are supposed to do. Moreover, in other columns, he has claimed that inflation actually benefits the poor and middle class over the rich, which simply is not true.

Furthermore, instead of providing insight, Krugman provides Keynesian stereotypes. I find it interesting that Tim Carney, who hardly is a celebrated economist, gives much more insight into the whole Romney affair than Krugman ever could. Carney writes:

By tagging 47 percent of America as irresponsible, Obama-supporting government dependents, Romney showed again that his politics are grounded in false liberal premises.

Romney's statement at a closed-door fundraiser reflected the mistaken liberal view that the growth of government mostly redistributes wealth downward -- it doesn't. He also implicitly bought into the Left's narrow view that both tax cuts and welfare programs mostly benefit the immediate recipients. Finally, Romney conflated tax cuts with government aid, reflecting the perverse mindset that all wealth originally belongs to the state.

He then lays it out quite nicely:

Romney was correct that a portion of America backs President Obama because they "are dependent upon government" and "believe that they are entitled." We even know these dependents' names: Duke Energy CEO Jim Rogers, General Electric boss Jeff Immelt, Pfizer lobbying chief Sally Sussman, Solyndra investor George Kaiser and millionaire lobbyist Tony Podesta, to list a few.

In the last few years of bailouts, stimulus, Obamacare and government expansion in general, we have seen median income fall and corporate profits soar. Industries are consolidating as the big get bigger while the little guys shut down.

But it gets better:

When government controls more money, those with the best lobbyists pocket most of it. The five largest banks hold a share of U.S. assets 30 percent larger today than in 2006. Also, as Obama has expanded export subsidies, 75 percent of the Export-Import Bank's loan-guarantee dollars in the past three years have subsidized Boeing sales.

Romney, however, wasn't talking about corporate welfare queens. He was talking about the 47 percent of the population that pays no federal income tax.

Think about Romney's perverse logic here: He disparaged people as "dependent" for not owing income taxes. Many of these people are retired and living off the life savings they earned. A family of four earning $40,000 could owe zero federal income tax even without tax credits.

Keeping your own money isn't being "dependent on government." Sure, Obama speaks as if it were, lambasting the GOP for "giving" tax cuts to the wrong people. But Republicans are supposed to distinguish between government giving you something and government leaving you alone.

The real issue is not disdain for workers but rather disdain for investment and for economic growth. Romney certainly does not get it and neither does Krugman. (Nor does Obama, but we already knew that.) When I read Romney's quotes, all I can do is to shake my head, and when I read Krugman's quotes, I am reminded once again that he is a political operative, not an economist.

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!