More economic illiteracy from the NY Times

Paul Krugman seems to be in a bi-partisan spirit in his latest column, claiming that Mitt Romney is a "closet Keynesian," and he may be right. I'm not sure that Romney is a closet anything other than a guy who wants to be president, and he has the "presidential looks" that come from Central Casting.

I must admit that Romney's economic leanings don't interest me much and I doubt the guy has any real compass other than one in which the needle points to the White House. So, while Krugman tries to convince readers that Romney is another Keynesian, I have decided to comment on other examples of economic illiteracy that have been appearing on the NYT editorial page.

We have a couple of interesting ones. First, there is a claim that the GM and Chrysler bailouts somehow saved the economy as though it is possible to both dig a hole deeper and simultaneously claim one actually is filling it up. (The piece is by Steve Rattner, an Obama auto adviser, which means we are seeing political spin at its worst.)

Since Krugman is in a bi-partisan spirit, I have decided to go after a couple of Republicans for their op-ed on why the government should require automakers to make cars that can run on a bunch of different fuels, including methanol, which Tom Ridge (who distinguished himself as the first Secretary of the Department of Homeland Security, or should I say our future version of the domestic KGB) and former Bush Transportation Secretary Mary E. Peters have written. Why am I not surprised that the article ignores the simple Law of Opportunity Cost?

Let me first look at the bailout. At the time the Obama administration essentially nationalized GM (and partially-nationalized Chrysler), these companies had balance sheets that were billions of dollars out of whack and were hopelessly in the red. Had Obama not been beholden to the United Auto Workers and forced taxpayers to prop up these firms, both would have gone into Chapter 7 bankruptcy, which means all of the assets of these companies would have been liquidated to pay their creditors.

Rattner is correct that the bailouts did keep other companies tied to GM and Chrysler afloat, but like everyone else who writes for the NYT editorial page, his claim that the bailouts were economically-successful depends entirely upon eliminating the opportunity costs involved. He does that by pointing ONLY to one side of the equation and ignoring the other. It is like saying that if my wife hands me $10 from her purse, the economy is $10 wealthier.

Unfortunately, many people believe that governments create wealth by fiat, which is akin to a doctrine of State Economic Creationism, and Rattner is one of them. I don't blame Obama and his minions for their spin, as politicians are famous for that, but nonetheless economics does not permit us to look ONLY at one side and not the other.

The truth about GM and Chrysler is that there were (and still are) consuming more resources than they produce. That's right, the government could not eliminate that sad fact simply through executive order, no matter what Rattner and Obama might claim. As for the assets of GM and Chrysler, they would not have disappeared; the useful ones would have been sold to other auto companies and the industry could have better restructured.

True, the UAW would have taken a hit, but the only way to defend the bailouts from the UAW perspective is to claim that higher factor prices create more wealth. (That is a favorite tactic of Paul Krugman, by the way, which literally turns economics, opportunity cost, and the history of economic growth on their heads.) In truth, the UAW workers were overpaid relative to the auto industry, yet they were less productive than their counterparts.

For all its claims that it wishes to "protect" consumers, the Obama administration has an odd way of doing so. Consumers had spoken loudly in the case of GM and Chrysler, yet Obama slapped them in the face. However, neither the NYT nor Paul Krugman believe that, in the end, consumers should have any say when it comes to politically-protected firms and politically-protected unions.

(In his Playboy interview, Krugman also repeats the same fallacies that high wages by themselves create wealth. This is another rendition of the wrongheaded belief that governments can order wages to rise, which then creates wealth instead of what really happens: governments destroy wealth.)

As for Ridge and Peters, I have one question: If methanol is such a great idea, and if all it takes is a $100 tweaking to ensure that all cars can be flexible in fuel choices, then why haven't entrepreneurs taken that leap? One can go on about "network costs" and the like, but entrepreneurs created gasoline and diesel networks during the 20th Century without government leading the way.

Instead of trying to understand why fuels like methanol are not widely distributed, Ridge and Peters succumb to the wonkishness of central economic planning, as though Washington can guide an entire industry by fiat. Because I am not familiar with much of the regulatory structure in the auto industry, I don't know how the government's current set of rules would affect the building and marketing of cars powered by natural gas or methanol.

For example, do the CAFE mileage standards play a role? What about other rules? I don't know, but more often than not, we find that government regulations often stand in the way of good ideas.

Nonetheless, I don't get that sense with Ridge and Peters. Instead, they see something and create the false notion that government successfully can order something into production without there being terrible economic dislocations.

$8.50 an hour? Why be stingy? What about $85 an hour? $850 an hour?

Once upon a time, the editors of the New York Times used to editorialize against the establishment of the minimum wage, as they appealed to the arguments centering around the Law of Opportunity Cost. However, soon after Paul Krugman joined the NYT team as a columnist, the paper reversed its stance and decided to champion government-set price floors on wages.

Thus, the NYT today has demanded that the state of New York raise its minimum wage to $8.50, a measure the paper says should "not be controversial." Why? Because when it comes to minimum wage, according to the paper, opportunity cost does not exist. The editorial declares:

Gov. Andrew Cuomo supports an increase, as does Mayor Michael Bloomberg. Only Republican state senators are resisting, using the same stale argument that a minimum wage increase is bad for business. The Senate Republican leader, Dean Skelos, argues that the measure “could be a job killer rather than a job promoter.” That contention has been proved wrong time and again.

There is plenty of evidence showing than an increase can actually help the economy, because people with lower incomes spend a larger share of their paycheck immediately on clothes, food and other goods and services. That money often goes right back into the local economy.

I guess that the editors of the NYT think so highly of themselves that they don't have to adhere to the rules of logic; the use of logical fallacies is perfectly acceptable when the fallacies are employed to promote something the editors (and Paul Krugman) support. So, let us take a look at what is being said.

The first is the fallacy of Appeal to Authority. Hey, Mayor Bloomberg and Gov. Cuomo support this, so it has to be good! Now, unless these two men are omniscient and never wrong about anything, it is irrelevant to whether or not they support the measure, and since neither makes minimum wage, neither person has to worry about being priced out of the market.

The second argument -- that Republicans oppose it, so it must be bad -- is another version of the Appeal to Authority. Democrats support it (conversely), so it must be good. Again, this is fallacious reasoning, although I realize that the NYT editors believe that they are incapable of such foolishness. (Yes, this is an ad hominem, and I mean every word of it.)

Republicans, according to the NYT, are using a "stale argument that a minimum wage increase is bad for business." Actually, not. They are saying that raising the minimum wage will jack up the price of unskilled labor, and that at the margin, some workers will lose their jobs. This is not a "bad for business" argument, but rather a "bad for some workers" statement. Nonetheless, why is this argument "stale"? Is mentioning the First and Second Laws of Thermodynamics "stale," or referring to the Law of Gravity? Of course not, but then why is the Law of Opportunity Cost a "stale" argument? Because the NYT says it is.

It gets even better. In the next paragraph, the editors commit the Fallacy of Composition when they declare that raising the minimum wage will raise the income of workers, who then will spend it and make all of us better off. Sorry, but it does not work that way, for the NYT editors (like Paul Krugman) are mistaking a marginal increase in pay for some workers (who don't lose their jobs) as a total increase in pay for all workers currently making minimum wage.

In other words, government by fiat can raise the total real income of all workers just by ordering it to be so. If that is the case -- and one can draw only that conclusion from the editorial -- then why stop at $8.50 an hour? Why not $85 an hour or even $850? If government can make small increases in total income by fiat, then why not large increases?

Now, if the editors wish to say that an increase to $8.50 would not cause economic harm but that an increase to $85 would, what would be the source of their explanation? If the Law of Opportunity Cost is off the table -- and that generally is the case on the NYT editorial page -- then what would substitute?

But what is an editorial from the NYT without piling on more economic fallacies? In the last paragraph we read:

Mr. (Sheldon) Silver (NY Speaker of the House) said he also plans to expand tax reductions for married couples earning less than $30,000 a year as another way to give incomes a boost. But he is starting with a minimum wage increase because, as he puts it, “People who work full time should not be poor.” That makes good sense for working families and their communities.

What is the definition of poor? Furthermore, is Silver saying that work causes poverty? Would a lot of these people be better off not working at all?

One would like to see all occupations being productive enough to where anyone who worked could live comfortably off that pay, but that never has been the case in all of human history, and I doubt seriously that the State of New York by fiat can change economic history, at least for the better. Again, we see the fantasy world that exists at the NYT. It really is the perfect home for Paul Krugman.

NYT: Forcing up labor costs creates more wealth

It always is interesting to see how the "elite" media also seems to produce the most number of economic fallacies, and a trip to the New York Times, and especially its editorial page, never disappoints. In this editorial, we find that laws that force up the price of labor create wealth.

I would suggest you try this at home. If you get two bids for work and you are assured that the quality of work would be the same, take the higher bid because the higher costs will create more wealth. Yeah, you will be using more resources, economically speaking, to do what could have been done with fewer resources, but who are we to argue with the brilliant minds at the NYT?

Say what? Issue more debt to relieve a debt crisis? Only in Wonderland!

The name of this blog came from a commentary I wrote for Forbes nearly three years ago, but I would add that the writers and editors of the New York Times seem to be living in their own Wonderland. This is a newspaper that took the confabulated "evidence" in the Duke Lacrosse Case and insisted that it all made sense when people living in the Reality World saw it and wondered how in the heck a D.A. managed to find a rape case wrapped up on that nonsense.

Unfortunately, the delusion that is the NYT is not limited to imaginary crimes being committed by "young men of privilege." No, the NYT still is insisting that we can and should "spend our way" out of this financial crisis. In today's editorial, we see yet another plea for central banks and governments to unleash another round of debt in order to enable sinking governments to...repay debt.

(Remember that the NYT was all over Karl Rove for his "reality-based world" comments when he was the de facto political officer for the Bush administration. While I agreed with the editors' assessment of Rove's comments then, I only can conclude that Rove Disease has overtaken the NYT editorial offices.)

The editorial is insisting that governments don't cut back on borrowing and spending (and increasing taxes) because if they stop borrowing, then won't be able to repay their debts:

Excessive indebtedness is a real, long-term problem. But Europe’s broad downward trajectory can only be turned around if governments — both those of lenders and debtors — spend more in the near term to put people back to work and get consumers back to spending.

The proper interpretation of those words is as follows: "We need to stop drinking, but in the interim, another round for the house! Let us make a toast to ending toasts...in the future!"

This is not, of course, what the editors actually seem to believe. Like Hitler's generals in the Berlin bunker who were insisting to the bitter end that they could win World War II, the editors are insisting that another round of borrowing and spending (and more taxation) THIS time will take hold and that economic growth will be just around the corner:

As the crisis quickens, more enlightened voices struggle to be heard. Christine Lagarde, the new managing director of the International Monetary Fund, is calling for balancing long-term debt reduction with “short-term support for growth and jobs.” The financier George Soros this week renewed his pleas for more growth-friendly policies, as has Gordon Brown, the former British prime minister.

What do the editors mean by "growth-friendly policies"? They mean more borrowing, more government spending, more subsidies, higher marginal tax rates, higher fuel taxes, more regulation, destruction of industries such as energy industries that still are profitable, more criminal penalties for normal business transactions, and broader welfare policies.

Yes, I am sure that all of these things will enable the economies of the USA and Europe to grow. Increase burdens upon individuals and businesses, make it easier to throw people into prison, print money, increase government borrowing, increase anti-business rhetoric, and expand the police powers of the state, and out of this is going to come that unicorn known as "economic growth." Create a little boom now and we will figure later how to deal with the inevitable bust.

Only in Wonderland.

The Times and Taxes

[Update]: It seems that Alan Greenspan is channeling the Chartalists! I'll let Greenspan's words speak for themselves:

Former Federal Reserve Chairman Alan Greenspan on Sunday ruled out the chance of a US default following S&P's decision to downgrade America's credit rating.

"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default" said Greenspan on NBC's Meet the Press

"What I think the S&P thing did was to hit a nerve that there's something basically bad going on, and it's hit the self-esteem of the United States, the psyche" said Greenspan.

Gee, hoodathunkitt! The Zimbabwe-Weimar "solution." Of course, the very act of printing money to repay debts is a form of default, so I think that Greenspan's belief that the USA can print worthless paper and get away with it speaks pretty much for itself. [End Update]

One of the reoccurring themes from the Keynesians is that government spending and taxation do not have an opportunity cost. While it is true that Keynesians at times will say not to raise taxes during a recession/depression, nonetheless the Keynesian "Balanced-Budget Multiplier" holds that government spending is preferable to private investment/spending, so the more the government takes in taxes, the better off the economy will be.

(Obviously, this presents us with an interesting question: Why doesn't government confiscate ALL of our earnings and spend them, thus creating endless prosperity? If government spending has a larger "multiplier effect" than private spending, then why hold back?)

So, we now hear from the New York Times about the "truth about taxes." This is one of those editorials that pretty much exposes the mentality of the "elite" of this country, thinking that is utterly condescending and demonstrates absolutely no ability of people at the "Newspaper of Record" to comprehend the current economic crisis.

This is par for the course at the Grey Lady. During the New York City fiscal crisis of 1975, the NYT in both its news and editorial sections utterly failed to comprehend what was happening. (For all of its crusading against "financial fraud" and the like, the NYT had NOTHING to say about the illegal and criminally-fraudulent practices of the city to sell capital bonds in order to pay for previously-issued bonds. Thus, the NYT endorsed criminal fraud when it was being committed by its political friends.)

Investment? Tax away the returns. Declares the NYT:

At the same time, super-low tax rates for investment income should be ended. Capital gains are taxed at a top rate of 15 percent, compared with a top rate for wages and salary of 35 percent. Proponents argue that the lower rate is an incentive to invest, but research shows that it also encourages gaming of the system. Tax breaks that have outlived their purpose must be ended, starting with subsidies for the oil industry, which is making billions in profits.

Let's deconstruct that one. Once again, the NYT is claiming that profits are bad for the economy (as opposed to losses in "alternative energy" that must be made up via subsidies.)

Yet, the ONLY way we will have an economic recovery, versus the constant financial bubbles that the Fed has been creating, is for firms to be able to be profitable in at least a semi-free market. In this country, the traditional energy industries of oil, natural gas, and coal can be profitable, yet these are the very targets of the NYT crowd, which is utterly delusional in its belief that we can create energy "alternatives" that will come close to our needs and subsidize our way to prosperity. That is not just wrong; it is sheer delusion.

Let's take on another whopper from the editorial:

To avoid across-the-board cuts, Congress must enact at least another $1.2 trillion in deficit reduction measures over the 10 years. For all of the talk of “big government,” there is no way to cut that much in discretionary programs without crippling basic functions. Lawmakers could eliminate the Federal Bureau of Investigation, Pell Grants, the Centers for Disease Control and Prevention, the National Institutes of Health and Head Start and still not cut $110 billion annually.

Now, no one has called for elimination of those agencies, although it might not be bad to take a hard look at them. Perhaps we might start with the TSA, an agency that was enthusiastically endorsed by the NYT, and has proven not only to be incompetent, but also abuse to travelers. (Notice that the NYT never does deal with that abuse, as the people there -- like most Progressives, including Krugman -- believe that just the very creation of a government agency is "progress." If there is abuse and fraud within the favored organization, then the "solution" is "more training."

Anyway, the editorial itself provides a window into the thinking of modern Progressives, who believe that any expansion of the state into our lives is a good thing. The massive tax increases that the NYT demands, in the view of Progressives, would have ONLY positive effects. But, then, these are people who actually believe that we can destroy our existing energy industries, replace them with corn-based ethanol and windmills, and subsidize and tax our way to prosperity.

This isn't economics; it is foolishness.

The NY Times thinks Wal-Mart is evil

The Supreme Court's recent Wal-Mart decision has stirred a hornets, nest at Paul Krugman's other employer, the New York Times. Indeed, what else can one expect from that paper, but the belief that it would be a very good thing for lawyers and the government to loot one of the country's most successful businesses.

Yet, as I read an attack op-ed article written by Nelson Lichtenstein, a professor of history at the University of California, Santa Barbara, I have to ask myself just what crime does the NYT believe Wal-Mart committed in the first place?

The original charge was discrimination against women, and when feminists, racialist, and environmentalists make ANY charge against an American business, the NYT never fails to take their side in knee-jerk fashion. In fact, as the newspaper's editorial laments, the alleged actual damages to individuals were pretty small (maybe about $1,000), but by claiming that ALL women who worked (or had worked) at Wal-Mart after a certain year, were victims of discrimination, thus turning this whole thing into a multi-billion-dollar payout. (Not surprisingly, the NYT's favorite class of lawyers, the plaintiffs' bar, would have seen a small group of individuals receive hundreds of millions of dollars apiece while the women they represented would have not taken much at all. This is the NYT's version of "justice.")

I was not particularly familiar with the substance of the charges until reading Nelson's article, and it hit me that he is describing the typical business atmosphere. He writes:

There are tens of thousands of experienced Wal-Mart women who would like to be promoted to the first managerial rung, salaried assistant store manager. But Wal-Mart makes it impossible for many of them to take that post, because its ruthless management style structures the job itself as one that most women, and especially those with young children or a relative to care for, would find difficult to accept.

Why? Because, for all the change that has swept over the company, at the store level there is still a fair amount of the old communal sociability. Recognizing that workers steeped in that culture make poor candidates for assistant managers, who are the front lines in enforcing labor discipline, Wal-Mart insists that almost all workers promoted to the managerial ranks move to a new store, often hundreds of miles away.

For young men in a hurry, that’s an inconvenience; for middle-aged women caring for families, this corporate reassignment policy amounts to sex discrimination. True, Wal-Mart is hardly alone in demanding that rising managers sacrifice family life, but few companies make relocation such a fixed policy, and few have employment rolls even a third the size.

The obstacles to women’s advancement do not stop there. The workweek for salaried managers is around 50 hours or more, which can surge to 80 or 90 hours a week during holiday seasons. Not unexpectedly, some managers think women with family responsibilities would balk at such demands, and it is hardly to the discredit of thousands of Wal-Mart women that they may be right.

Notice that Nelson is not saying that ONLY Wal-Mart engages in these practices. I have seen other firms have similar policies, but if I read Nelson and the NYT correctly, he and the editors are claiming that this policy is "discrimination against women" ONLY in the case of Wal-Mart. (I am sure that the NYT never has reassigned anyone to a new location at any time, male or female.)

Furthermore, the hours of work are not unlike some of my own hours of work, or the hours that a new assistant professor on a tenure track works when appointed to the faculty of a research institution. (Go to the offices of the economics departments of any major university on a Saturday, and you will see lots of assistant professors in their offices working on research papers.)

Retail management, especially at big stores like Wal-Mart, is a difficult job. Furthermore, the holiday seasons are extremely busy times, yet Nelson and Krugman's other employer are claiming that Wal-Mart has managers working these long hours, at least in part, in order to engage in discrimination.

I'll give a personal example. My oldest daughter was in sports broadcasting several years ago and was quite good. She had good connections with network broadcasters and was told that she had all of the skills to "go to the top."

One day, she called me and told me that she was leaving the profession. "I want to get married and have a family, and this career will not allow me to do it the way I want," she told me. So, she went into another line of work (that pays well), but gives her flexible hours, and she and her husband have two young children.

So, should my daughter have been able to sue ESPN or her own employer at the time for sex discrimination? After all, the kinds of hours and work that sports broadcasting requires will be disruptive to any female who wishes to have a family.

The logic of the Wal-Mart case, at least according to Nelson's screed, is the same as what I have presented above, yet no one would take seriously a claim by my daughter that these broadcasting firms had discriminated against her on the basis of sex. For that matter, I am sure that the NYT requires hours and working conditions that make it difficult for women to have families AND work the way the paper would demand. So, should every reporter who has worked for the NYT be permitted to sue? It seems that the NYT would be impaled upon its own logic.

To be honest, I had expected a stronger argument than what I saw. The NYT is angry because the courts did not stick it to another American business, and especially a business that does not operate according to the "Progressive" vision that the editors at that paper have for the rest of us.

Gotta love war and more war!

From Paul Krugman's declaration that a new war would strengthen the U.S. economy to the latest salvo from the NY Times that we need to have the U.S. Armed Forces run the country, or at least the business sector, it seems that fascism is now the Official Doctrine of the "Newspaper of Record."

One really needs to read this column by Nicholas Kristof to believe it. Big Brother loves you.

Bailouts, Blunders, and Bad Policies

While Paul Krugman's column for May 2 is not exactly coordinated with the nearby editorial, "The Economy Slows," there is correlation if one looks for it. For both Krugman and his editorial bosses, it is all about government magically "fixing" the economy by new spending, new regulations, and creation of new "money."

Krugman is engaging in his usual political talking points, today excoriating the Republicans for what he claims is weakening of the new financial regulations, while the editorial writers bemoan for the umpteenth time that the economy, well, sucks. And if that were not enough, Krugman even reaches back to the hoary claims that this whole crisis came about because the Bush administration did not bail out...Lehman Brothers. Yeah, had the government just written a big, fat check for Lehman, all would be well today.

Now, I have no desire to get into the minute details of financial regulation, except to say that every regulatory initiative before has ended up creating cartels of people who ultimately have privileges above everyone else in the industry because of political connections. Economists have long established the unholy relationships between the regulators and the regulated, and while Krugman might persist in claiming that the Sainted Elizabeth Warren will "reinvent" regulation, here is betting that human nature wins (as it always does).

Furthermore, Krugman really wants us to believe that one of THE causes of the crisis was foreign exchange swaps. Good grief! Uh, can someone spell "H-O-U-S-I-N-G B-U-B-B-L-E, or did foreign exchange swaps create that crisis, too?

In the late 1970s, if one actually goes back and reads the financial literature of the time (as opposed to depending upon Krugman and his employer to give us an accurate depiction of that era), the push for deregulation was NOT ideological. The heavily-regulated banking "cartel" was struggling in the face of double-digit inflation, as people were taking money from low-interest bank accounts and putting money into highly-liquid money-market accounts that were coming into play and paying higher rates of interest than were the banks.

On the investment banking side, Michael Milken was pioneering high-yield and (supposedly) high-risk bonds (derisively called "junk bonds") that were doing an end run around the regulated system that could not and would not finance a number of new high-technology ventures. (Krugman leaves out that point because it does not fit into his narrative.) Entities like MCI and CNN were among these firms Milken helped to finance.

Are you reading this on a cell phone? The banking cartel that Krugman claims was working just fine would not touch the new cell phone industry that turned to Milken and his investment banking firm. Yes, Milken was doing an end run around the regulated system and the banks wanted a piece of it. (And they got Rudy Giuliani, who had his own political aspirations, to go after him with bogus criminal charges -- something admitted by one of Giuliani's lieutenants in a speech to Rutgers University law students.)

I include these points because Krugman really believes that if we only could go back to the days when trucking, airlines, railroads, telecommunications, and financial institutions were "regulated" into tiny, neat cartels, that everything today would be just great. Well, if the old system that Krugman praises were in existence, we would not be reading this, as there would have been no Internet for Al Gore to have invented.

Why? Because we still would be routing telephone calls through strands of copper wire instead of using fiber optics, as the regulated firms did not want to have to switch to anything that would deprive them of their full depreciation write-downs for tax purposes. Oh, and long-distance calls most likely would be about a dollar a minute instead of, in most situations, zero cents.

But, Krugman and his employer really seem to believe that the way to revive this economy is to turn back the clock to the regulatory structure of the 1930s, as though shrinking the economy by creating new cartels (which, by definition, limit output) through regulation. Oh, and government would simply depend upon the Fed to create new money in order to try to hide the fact that the regulatory side of government is making the economy contract.

Funny, the NYT editorial complains that inflation is of the "cost-push" variety, which means that higher prices are the result of higher prices, which is a logical absurdity. But absurd is the new watchword today. Shrink the economy, print money, create new cartels, limit technology, and out of that will come an economic version of the Shining City on the Hill.

(Yes, I need to address what went wrong in the financial deregulation, and why the system ran into the ground. Needless to say, I believe that the history of the past 30 years is not as simple as the "good regulation, bad freedom" story that Krugman and his ilk are telling.)

A change in direction on this blog

For more than a year, this blog has dealt almost exclusively with Paul Krugman's columns, blog posts and public statements. I will continue to follow what Krugman writes, but I also would like to deal with economic subjects and the economy as a whole without always having to reference Krugman.

The blog's name, Krugman-in-Wonderland, will stay the same, at least for now, but the subject matter will be broader. Part of this change comes because of suggestions from readers who would like to see a larger discussion of economic issues, and part of the change, frankly, comes because of the New York Times' new policy of making people pay for access. (I guess that the NYT is following the policies of their nemesis, Rupert Murdoch, who has a pay-to-read policy at the Wall Street Journal.)

I do have access to Krugman's columns through Lexis-Nexis via the Frostburg State library site, and have 20 "free" articles a month at the NYT. So, I won't completely ignore the guy, but am not going to be dealing with the refutation of particular columns or posts unless it is germane to the larger argument.

We all know where Krugman stands. He is an inflationist who actually believes that government can create wealth via printing of money. That is the bottom line with him, and we are now going to be reaping a huge whirlwind because of the funny money that Ben Bernanke has showered around the world.

The irony is that Krugman believes that Bernanke has not inflated enough, and as prices of food, fuel, and (soon to come) consumer goods rise rapidly, Krugman will insist that we really are not experiencing inflation at all, but rather that a rush of "corporate greed" has swept the nation, and that massive price controls will save the day. So, there is much more to come.

Krugman Tunnels Under Economic Logic

I was wondering why all of a sudden Paul Krugman was on a railroad tear, but now I know why: New Jersey Gov. Chris Christie has pulled the plug on yet another high-cost boondoggle that characterizes construction projects in the New York City area.

Yes, Krugman is bewailing the loss of the long-planned rail tunnel under the Hudson River between New Jersey and NYC, a project that promises to have billions of dollars of cost overruns and would burden the state with even more debt. From what I know, I believe Christie did the right thing, and the angst on the editorial pages of the NY Times that has accompanied Christie's decision definitely tells me the guy is correct.

In defending this boondoggle, which has been "planned" for two decades and still lacks the requisite funding, Krugman resorts to the kinds of cheap tricks that should be beneath a Nobel Prize-winning economist. (OK, I'm not really sure that a Keynesian also can be an economist, but nonetheless Krugman did win the Nobel a couple of years ago.)

For example, in a blog post yesterday, Krugman trots out this notion that the economics of public transit is something quite mysterious and that when one factors in all of the "externalities" and implicit costs that accompany people driving into Manhattan, then the mass transit facilities there more than pay for themselves.

(It is interesting that Krugman actually resorts to trying to make an argument by using "opportunity cost," since part of his current economic theme is that economic downturns at best modify and at worst do away with the Law of Scarcity. So, opportunity cost is fine when Krugman thinks it helps make his argument, but when Austrians try to point out the issues of opportunity cost in the analysis of the business cycle, Krugman claims that they are crackpots.)

Furthermore, Krugman does not want to address the cost issue because labor union practices in New York and New Jersey are behind the astronomical cost numbers for mass transit. However, at this point, Krugman then can switch back to his Keynesian mode and claim that all these high costs are just great, because THEY MEAN MORE SPENDING! He writes:

So this was a terrible, shortsighted move from New Jersey’s point of view. But that’s not the whole cost. Canceling the tunnel was also a blow to national hopes of recovery, part of a pattern of penny-pinching that has played a large role in our continuing economic stagnation.

When people ask why the Obama stimulus didn’t accomplish more, one good response is to ask, what stimulus? Leaving aside the cost of financial rescues and safety-net programs like unemployment insurance, federal spending has risen only modestly — and this rise has been largely offset by cutbacks at the state and local level. Many of these cuts were forced by Congress, which has refused to approve adequate aid to the states. But as Mr. Christie is demonstrating, local politicians are also doing their part.

And the ideology that has led Mr. Christie to undermine his state’s future is, of course, the same ideology that has led almost all Republicans and some Democrats to stand in the way of any meaningful action to revive the nation’s economy. Worse yet, next month’s election seems likely to reward Republicans for their obstructionism.

So here’s how you should think about the decision to kill the tunnel: It’s a terrible thing in itself, but, beyond that, it’s a perfect symbol of how America has lost its way. By refusing to pay for essential investment, politicians are both perpetuating unemployment and sacrificing long-run growth.

I have serious doubts that this tunnel, with its costs of $11-15 billion, would "revive" the economy of that area and also provide for long term growth. First, other policies that Krugman has been endorsing are going to sap growth in the future and second, if there is any growth, much if not most of the financial gain will go to paying off the debt incurred to building those projects.

No, what we have is yet another Krugman shot at someone who actually wants to be fiscally responsible. However, being that Krugman is trying to claim that the current regime in power is being "stingy" with its spending, I doubt the man really is capable of comprehending an economic argument.

Daniel Gross: Channeling His Inner Krugman

The New York Times has been a fount of Keynesian revivalism, with not only Paul Krugman's frequent columns and blogs preaching the Gospel of Spending but also other writers as well. Today, I look at a column by Yahoo's economics editor Daniel Gross, in which he claims that the nation's economic recovery depends upon individuals using debt to purchase consumer goods.

Gross claims that the real secret of the past success of the U.S. economy has been the fact that U.S. consumers spend a lot of money. I'm serious. He writes:

...as the economy slowly recovers, there are signs that Americans are rediscovering their free-spending ways. Total consumer credit, which includes non-revolving debt like car loans, has stabilized, and it rose in both June and July. It’s back to where it was in the second quarter of 2009. Collectively, we don’t seem to have run our credit cards through shredders. Mailboxes are again stuffed with credit card solicitations. Newspapers are filled with come-ons from car dealers offering zero-percent financing. The Federal Housing Authority offers mortgages on houses for as little as 3 percent down. You’d be forgiven for thinking that we’ve flown back in time to September 2006.

And, believe it or not, that’s a good thing. The economic expansion that has been going along in fits and starts since June 2009 was initially powered by government stimulus and business investment. But for this recovery to mature, broaden and persist, the greatest economic force known to mankind — the American consumer — has to get back in the game. (Emphasis mine)

In an economy in which consumers account for 70 percent of activity, credit is both a vital lubricant and the indispensable fuel.

Somehow, it does not surprise me that our "elite" thinkers believe this nonsense. (Almost everyone I have known who has been associated with the NYT has considered himself or herself to be intellectually and morally superior to the rest of us mundanes. Over time, these people really do become caricatures of themselves.)

However, if what he is saying is true, then we really should be passing on this Great Secret. Tell the people of Haiti that if they want to have a thriving economy and recover from the recent earthquake, they need start borrowing lots and lots of money so they can buy consumer goods, houses, and the like and spend themselves into prosperity. As for the goods on the shelves, if you spend, they will magically appear.

I would like to contrast Gross's comments with some real economic analysis from Robert Higgs, who recently wrote:

As every student of the business cycle learns early on, the most variable part of aggregate expenditure is private investment. When real gross private domestic investment peaked, in the first quarter of 2006, it was $2,265 billion, or 17.5 percent of GDP. When it hit bottom in the second quarter of 2009, it had fallen by 36 percent to $1,453 billion, or 11.3 percent of GDP. (Deducting investment expenditures aimed at compensating for depreciation of the private capital stock [Table 1.7.6], we find that real net private investment – the part that contributes to economic growth—in the most recent quarter was only one-third as great as it was at its peak in early 2006.) The ups and downs of the business cycle are obviously driven not by consumption spending, but by investment spending.

The difference becomes even more obvious when we compare quotes from Gross and Prof. Higgs. First, I quote Gross:

John Maynard Keynes wrote of the paradox of thrift — if everyone saves, everyone becomes poorer, because demand for goods and services will fall. Here’s another paradox: Running up consumer debt may be a moral failure and a recipe for long-term damnation, but it also contains the roots of our short-term salvation.

Now I quote Prof. Higgs:

Such arguments, however, fail to grasp the true nature of the boom-bust cycle, especially the central role of investment spending in driving it—and, more important, in driving the long-run growth of real output that translates into a rising standard of living for the general public. Politicians, if they truly wish to promote genuine, sustainable recovery and long-run economic growth, need to focus on actions that will contribute to a revival of private investment, not on pumping up consumption. In the most recent quarter, real gross private domestic investment was running at an annual rate more than 20 percent below its previous peak and, as noted, real net private investment was fully two-thirds below its previous peak.

To bring about this essential revival of investment, the government needs to put an end to actions that threaten investors’ returns and create uncertainty that paralyzes their undertaking of new long-term projects. Gigantic measures such as the recently enacted health-care legislation and the financial-reform law, which entail hundreds of new regulations whose specific content, enforcement, and costs are impossible to forecast with confidence, contribute to “regime uncertainty” and thereby encourage investors to hold large cash balances or to park their funds in short-term, low-yield, less risky securities. Such investments cannot support genuine recovery and sustained long-run growth.

In sum, our crying need at present is for a robust revival of private long-term investment. Consumption-oriented government “stimulus” programs, at best, only ensure a protracted period of economic stagnation.

Gross, like Krugman, seems to believe that all that is necessary for our economy to recover and grow is for the government to shower dollars on everyone, who will then take the money and spend it, and borrow to add to whatever they don't have. And if people and businesses are not willing to spend, then it is up to the government to confiscate that money via taxation and inflation and other methods of coercion, if necessary.

Prof. Higgs, on the other hand, says that economies grow when businesses are able to invest for the long term and find ways to produce more using fewer resources over time. Thus, the value of "investment spending" is NOT the spending per se, but rather the fact that the lines of production in which they invest are able to produce goods that satisfy the needs and desires of consumers.

I would add that the Krugman-Gross-NYT approach assumes that spending is mechanistic and exists only to clear the shelves so producers can put more goods on the shelves again. In that view, production and consumption are not intricately related, and entrepreneurship is useful ONLY in the fact that they are able to provide jobs for people so they can spend, clear the shelves, and put more stuff back on them.

This is not an economy; it is a circular pattern, and in that view, production is useful only in the fact that it keeps people busy. It would be just as useful for people to be paid to dig holes and then fill them afterward, and continue the process indefinitely. And this is the best that our "elites" can do?

An Now, Another Look at "Climategate" and the NY Times

Like most people on the left, Paul Krugman is a True Believer in human-caused "global warming" and believes that the way to "save the planet" is for the government to order us to use inferior fuels like ethanol and unreliable windmills to create electricity. (Of course, one must manufacture these windmills, which uses energy, but Krugman discounts all that and, like a true Keynesian, believes that new windmills and other "alternative energy" projects are a "given.")

In this post, I compare two opinion pieces. The first is a recent editorial in the New York Times, which glosses over some recent "investigations" of "Climategate," and declares them to be perfectly legitimate. The second is a Wall Street Journal op-ed by Patrick Michaels that looks at the specifics of the "investigations" and their aftermath. Generally, people (including me) are going to be predisposed to a point of view, but as one who has read the NYT for many years, I do notice that the paper has a disturbing trend of ignoring the obvious whenever the paper's own points of view are being challenged.

I often use the infamous Duke Lacrosse Case as an example, because the NYT had such a dismal performance in that whole situation. This problem was not due to a lack of information that journalists could obtain. Indeed, the information was there and bloggers such as K.C. Johnson seized on it and had the story correct from the beginning.

The NYT, however, which probably had the most dismal record of any news publication in this case, twisting the facts in ways that made it obvious that the it was interested in only one result: trial and conviction of people who clearly were innocent. (The NYT's August 25, 2006, front-page article was so bad that even the paper itself was forced to distance itself from its own work after the North Carolina Attorney General Roy Cooper dismissed the charges and declared the accused to be "innocent.")

I bring this up because the leadership of the NYT long ago decided that party politics and leftist ideology trump the facts. Thus, I hardly am surprised to read this editorial in the NYT about the "Climategate" investigations. In part, the editorial declares:

Perhaps now we can put the manufactured controversy known as Climategate behind us and turn to the task of actually doing something about global warming. On Wednesday, a panel in Britain concluded that scientists whose e-mail had been hacked late last year had not, as critics alleged, distorted scientific evidence to prove that global warming was occurring and that human beings were primarily responsible.

It was the fifth such review of hundreds of e-mail exchanges among some of the world’s most prominent climatologists. Some of the e-mail messages, purloined last November, were mean-spirited, others were dismissive of contrarian views, and others revealed a timid reluctance to share data. Climate skeptics pounced on them as evidence of a conspiracy to manipulate research to support predetermined ideas about global warming.

The panel found no such conspiracy. It complained mildly about one poorly explained temperature chart discussed in the e-mail, but otherwise found no reason to dispute the scientists’ “rigor and honesty.” Two earlier panels convened by Britain’s Royal Society and the House of Commons reached essentially the same verdict. And this month, a second panel at Penn State University exonerated Michael Mann, a prominent climatologist and faculty member, of scientific wrongdoing.

Dr. Mann, who was part of the e-mail exchange, had been accused of misusing data to prove that the rise in temperatures over the last century was directly linked to steadily rising levels of carbon dioxide. His findings, confirmed many times by others, are central to the argument that fossil fuels must be taxed or regulated.

Compare those words to what Prof. Michaels has written:

Now a supposedly independent review of the evidence says, in effect, "nothing to see here." Last week "The Independent Climate Change E-mails Review," commissioned and paid for by the University of East Anglia, exonerated the University of East Anglia. The review committee was chaired by Sir Muir Russell, former vice chancellor at the University of Glasgow.

Mr. Russell took pains to present his committee, which consisted of four other academics, as independent. He told the Times of London that "Given the nature of the allegations it is right that someone who has no links to either the university or the climate science community looks at the evidence and makes recommendations based on what they find."

No links? One of the panel's four members, Prof. Geoffrey Boulton, was on the faculty of East Anglia's School of Environmental Sciences for 18 years. At the beginning of his tenure, the Climatic Research Unit (CRU)—the source of the Climategate emails—was established in Mr. Boulton's school at East Anglia. Last December, Mr. Boulton signed a petition declaring that the scientists who established the global climate records at East Anglia "adhere to the highest levels of professional integrity."

This purportedly independent review comes on the heels of two others—one by the University of East Anglia itself and the other by Penn State University, both completed in the spring, concerning its own employee, Prof. Michael Mann. Mr. Mann was one of the Climategate principals who proposed a plan, which was clearly laid out in emails whose veracity Mr. Mann has not challenged, to destroy a scientific journal that dared to publish three papers with which he and his East Anglia friends disagreed. These two reviews also saw no evil. For example, Penn State "determined that Dr. Michael E. Mann did not engage in, nor did he participate in, directly or indirectly, any actions that seriously deviated from accepted practices within the academic community."

Readers of both earlier reports need to know that both institutions receive tens of millions in federal global warming research funding (which can be confirmed by perusing the grant histories of Messrs. Jones or Mann, compiled from public sources, that are available online at freerepublic.com). Any admission of substantial scientific misbehavior would likely result in a significant loss of funding.

He further notes:

Then there's the problem of interference with peer review in the scientific literature. Here too Mr. Russell could find no wrong: "On the allegations that there was subversion of the peer review or editorial process, we find no evidence to substantiate this."

Really? Mr. Mann claims that temperatures roughly 800 years ago, in what has been referred to as the Medieval Warm Period, were not as warm as those measured recently. This is important because if modern temperatures are not unusual, it casts doubt on the fear that global warming is a serious threat. In 2003, Willie Soon of the Smithsonian Institution and Sallie Baliunas of Harvard published a paper in the journal Climate Research that took exception to Mr. Mann's work, work which also was at variance with a large number of independent studies of paleoclimate. So it would seem the Soon-Baliunas paper was just part of the normal to-and-fro of science.

But Mr. Jones wrote Mr. Mann on March 11, 2003, that "I'll be emailing the journal to tell them I'm having nothing more to do with it until they rid themselves of this troublesome editor," Chris de Freitas of the University of Auckland. Mr. Mann responded to Mr. Jones on the same day: "I think we should stop considering 'Climate Research' as a legitimate peer-reviewed journal. Perhaps we should encourage our colleagues . . . to no longer submit to, or cite papers in, this journal. We would also need to consider what we tell or request our more reasonable colleagues who currently sit on the editorial board."

Mr. Mann ultimately wrote to Mr. Jones on July 11, 2003, that "I think the community should . . . terminate its involvement with this journal at all levels . . . and leave it to wither away into oblivion and disrepute."

Climate Research and several other journals have stopped accepting anything that substantially challenges the received wisdom on global warming perpetuated by the CRU. I have had four perfectly good manuscripts rejected out of hand since the CRU shenanigans, and I'm hardly the only one. Roy Spencer of the University of Alabama, Huntsville, has noted that it's becoming nearly impossible to publish anything on global warming that's nonalarmist in peer-reviewed journals.

Of course, Mr. Russell didn't look to see if the ugly pressure tactics discussed in the Climategate emails had any consequences. That's because they only interviewed CRU people, not the people whom they had trashed.

I can assure readers that had the situation been reversed, the NYT would have been all over it. Somehow, I am not surprised that Paul Krugman is employed by an outfit that believes that "truth" is whatever the NYT says it is.

Paul Krugman: Think Exactly Like Me, or You Are a Racist

Paul Krugman, as a New York Times columnist, is supposed to operate independently of the newspaper's editorial policy, in that his columns are supposed to reflect his thinking and not be done in coordination with the newspaper's editorials. Of course, his latest attack on Rand Paul and the appearance of the paper's editorial calling Paul a racist just might be coincidence, but I have my doubts.

Why is Rand Paul a "racist," according to Krugman and his employer? He is a racist because he does not believe that the federal government should dictate anti-discrimination policies to private businesses via the Civil Rights Act of 1964. Keep in mind that Paul has not used racially-inflammatory language during his campaign or even brought up race at all. However, if he does not worship at the feet of the feds, then he is by definition a racist, or at least that is what they claim at the NYT.

Writes Krugman:

You know, if Rand Paul loses his Senate race, in a way I’ll be sorry. He’s been so much fun in such a short period of time!

Anyway, given the flap over his assertion that he wouldn’t support the Civil Rights Act of 1964, some Republicans are making the argument that they were the party of civil rights, while Democrats were the enemies. And there’s some truth to that: in the 1950s and early 1960s, the opponents of civil right were largely Southern Democrats.

But what happened to those Southern Democrats? They became Republicans. And I’m not just speaking metaphorically: many Republican members of Congress during the era of GOP dominance were, literally, former Democrats who switched parties.

The point is that today’s Democratic party is, effectively, the party of Lyndon Johnson, whose decision to push forward on civil rights cost the party the South, as he knew it would. Meanwhile, today’s Republican party is the party of Richard Nixon, who cynically exploited the backlash against civil rights to build a new majority.

Therefore, Rand Paul is a "Southern Democrat" who is a racist, like Theo Bilbo or George Wallace in his earlier years. Now, Krugman offers no proof that Paul is a racist; he just makes the connection.

Likewise, his employer declares:

In a handful of remarkably candid interviews since winning Kentucky’s Republican Senate primary this week, Mr. Paul made it clear that he does not understand the nature of racial progress in this country.

As a longtime libertarian, he espouses the view that personal freedom should supersede all government intervention. Neighborhood associations should be allowed to discriminate on the basis of race, he has written, and private businesses ought to be able to refuse service to anyone they wish. Under this philosophy, the punishment for a lunch counter that refuses to seat black customers would be public shunning, not a court order.

It is a theory of liberty with roots in America’s creation, but the succeeding centuries have shown how ineffective it was in promoting a civil society. The freedom of a few people to discriminate meant generations of less freedom for large groups of others.

It was only government power that ended slavery and abolished Jim Crow, neither of which would have been eliminated by a purely free market. It was government that rescued the economy from the Depression and promoted safety and equality in the workplace. (Emphasis mine)

Republicans in Washington have breathlessly distanced themselves from Mr. Paul’s remarks, afraid that voters might tar them with the same extremist brush. But as they continue to fight the new health care law and oppose greater financial regulation, claiming the federal government is overstepping its bounds, they should notice that the distance is closing.

Now, the editors don't explain how the government "rescued" the economy from the Great Depression, given that the rate of unemployment in 1939 was substantially higher than it was in 1930 or even 1931, and was close to the 1933 high of 25 percent. However, we are speaking of the NYT, the same newspaper that tried to claim that Duke lacrosse player Reade Seligmann simultaneously could be both at a bank teller and at a party miles away raping Crystal Mangum. This is a newspaper that believes its very words supercede reality.

Krugman makes one more interesting comment: "So yes, let’s honor the great Republicans of yore; I’m a Lincoln man, myself."

That is interesting. Lincoln was a self-proclaimed racist, whose Illinois did not permit free black people to live within its state borders. Lincoln also ordered his armies to loot, burn down whole cities and towns, and whose armies went pillaging and raping as they went along.

Thus, if I am to follow Krugman's logic (and the logic of his employer), then Krugman favors rape, racism, and destruction. Hey, if he is a "Lincoln man," then he has to favor what Lincoln did.