The Economics Killers

Before I look at some aspects of Paul Krugman's column today, I need to tell readers that, no, I did not watch any of the Republican National Convention, and I don't support Mitt Romney or the Republican Party, which officially has set itself up as nothing more than the political faction of the Neoconservatives. If Romney is elected, he still won't be president; no, Bill Kristol and Dick Cheney still will be the men behind the curtain.

It always is amazing to me to see how certain narratives continue to exist, even after real-live experience has debunked them time and again. Krugman always is claiming that the Republicans (including Romney and Paul Ryan) really are Radical Free Marketeers in action and if elected, will work to make government so small it "can be drowned in a bathtub." We have had six Republican presidents in my lifetime, and I cannot recall one time that government was smaller in spending and in scope than it was when that person took office. When writing of Keynesian economics, Krugman claims that the critics are blind to the facts, but when he writes about politics, he is as blind as anyone from the Washington Times or Fox News regarding the rhetoric and the facts.

Nonetheless, in today's column, he goes off on Republicans and Medicare, claiming:

But back to the big lie. The Republican Party is now firmly committed to replacing Medicare with what we might call Vouchercare. The government would no longer pay your major medical bills; instead, it would give you a voucher that could be applied to the purchase of private insurance. And, if the voucher proved insufficient to buy decent coverage, hey, that would be your problem.

I have no idea if the Republicans can impose the Next Wonkish Measure or not, or if they would give a real-live effort. I just don't know, but given the rhetoric and reality of the past, I cannot imagine that they will do what Krugman breathlessly claims they will do. But, hey, the guy is a master of regurgitating Democratic Party Talking Points, and that is the perspective that I take. After all, he is first and foremost a political operative.

What does interest me is what he says next, for it reflects his "knowledge," or lack thereof, about markets and how they work. Take his following points regarding insurance and Medicare:

Why would anyone think that this was a good idea? The G.O.P. platform says that it “will empower millions of seniors to control their personal health care decisions.” Indeed. Because those of us too young for Medicare just feel so personally empowered, you know, when dealing with insurance companies. Still, wouldn’t private insurers reduce costs through the magic of the marketplace? No. All, and I mean all, the evidence says that public systems like Medicare and Medicaid, which have less bureaucracy than private insurers (if you can’t believe this, you’ve never had to deal with an insurance company) and greater bargaining power, are better than the private sector at controlling costs. 

I know this flies in the face of free-market dogma, but it’s just a fact. You can see this fact in the history of Medicare Advantage, which is run through private insurers and has consistently had higher costs than traditional Medicare. (Emphasis mine) You can see it from comparisons between Medicaid and private insurance: Medicaid costs much less. And you can see it in international comparisons: The United States has the most privatized health system in the advanced world and, by far, the highest health costs.

Since I don't have the cost numbers in front of me, I won't dispute what he has said, and furthermore, I will answer using the assumption that his numbers are correct. Instead, I ask this simple question: Why would a private firm create a bureaucracy and then voluntarily engage in practices that force up its costs? After all, as economists since 1871 will note, the value of the final product is not determined from the value of the factors of production, but the other way around.

In other words, firms would gain nothing from engaging in activities that are more costly than necessary to provide a final product. When we do see something as Krugman describes, we need to know why private insurance costs would be higher than government bureaucracy costs.

Krugman does not give an answer, except to claim that what we are seeing is a free market in action. To me,  this is a non-explanation, given that I never have seen an economist -- including Krugman -- claim that firms can be more profitable by imposing higher costs upon themselves. So why would the insurance companies do it, especially since they operate in what Krugman seems to claim is a near-unregulated free market?

I think anyone who has worked for an insurance firm or for any regulated industry can tell you that government "oversight" is costly. Furthermore, what Krugman does NOT say is that Medicare and Medicaid officials are not subject to many of the same regulations that are laid down on private firms. Certainly no firm would create a bureaucracy that is unnecessarily costly as in free markets, higher costs do not lead to higher profits. I also would like to add that the regulatory process also serves as a domestic protectionist device that keeps out competition -- and leads to higher prices for consumers.

Now, if Krugman really wants to claim that the pre-1871 theories -- that the cost of production is what determines the cost of the final product -- he is free to do so. However, he just might be rejecting the price theory that has been taught for more than a century. If he wishes to turn back the clock to David Ricardo's theory of value, so be it.

Krugman's (Non)Partisan Adventure

I always love to see Paul Krugman use the term "non-partisan," as it generally means the opposite. Krugman is not supposed to use his column for partisan purposes, or at least that is the agreement he has with the New York Times, but his column strangely seems to echo the current talking points of the Democratic National Committee.

His latest partisan screed involves the Republican's "Pledge to America," which I have not bothered to read, nor will I read, since I remember the last bout of Republican rule. Nonetheless, I do find myself cheering for the Republicans to win this fall not because I believe they will govern effectively, but rather because the current Democratic juggernaut in which the White House and Congress have openly tried to destroy what is left of our economy (or turn the entire private sector into one big crony capitalism venture) has been a disaster.

For that matter, when we had divided government in the 1990s, things were a bit better, although the Clinton administration got Alan Greenspan to create the stock bubble disguised as the "New Economy." That is why I will support divided government for the last two years of Obama's first (And last?) term in office.

In reading Krugman's column, I get the sense that he really believes that if the Obama government can only increase the amount of money that it borrows and spends, that somehow this will have a magic reaction in which the government can begin to balance its budget and lead us into prosperity. He already is on the record demanding the increase of all income tax rates (which he claims will create more prosperity because government will have more money to spend).

While I have no interest in the Republican's latest gimmick -- and the "Pledge" is just that -- I also have no confidence that Paul Krugman really has a clue as to what an economy really is and what makes it work. A plague on all their houses!

The Manchurian Colunmist

Sigh. Even when he gets it right, Paul Krugman gets it wrong. His article today truly is based upon talking points that seem to have come from the DNC headquarters itself. Like Paul Revere, Krugman is riding his horse and shouting from the saddle, "To arms, to arms, the small government people are here!"

Who are the Apostles of "small government"? Why, it is those dastardly Republicans, you know, the same Republicans that gave us wars overseas, gigantic deficits, a housing bubble, and upticks in federal spending that were matched only by the Vietnam-Great Society years of the 1960s. Lest you think I am imagining things, here is Krugman in his own words:

For readers who don’t know what I’m talking about: ever since Reagan, the G.O.P. has been run by people who want a much smaller government. In the famous words of the activist Grover Norquist, conservatives want to get the government “down to the size where we can drown it in the bathtub.”

Oh, yes, and the GOP has been following Norquist's instructions ever since. (Krugman always trots out that quote whenever he wants to play his Paul Revere role to protect the overpowering and expansive state as something that is "progress.")

But why have those Republicans not been able to keep their evil promises? Why, because government social programs are popular:

But there has always been a political problem with this agenda. Voters may say that they oppose big government, but the programs that actually dominate federal spending — Medicare, Medicaid and Social Security — are very popular. So how can the public be persuaded to accept large spending cuts?

So, how have these stealth "small government" activists done it? What is their secret plan? Why, tax cuts! Yeah, cut the top rates so government cannot collect as many taxes and give us Nirvana!

The conservative answer, which evolved in the late 1970s, would be dubbed “starving the beast” during the Reagan years. The idea — propounded by many members of the conservative intelligentsia, from Alan Greenspan to Irving Kristol — was basically that sympathetic politicians should engage in a game of bait and switch. Rather than proposing unpopular spending cuts, Republicans would push through popular tax cuts, with the deliberate intention of worsening the government’s fiscal position. Spending cuts could then be sold as a necessity rather than a choice, the only way to eliminate an unsustainable budget deficit.

Uh, ladies and gentlemen, please tell me when the Republicans actually cut spending. Ronald Reagan certainly didn't, and the Bushes did not during their presidencies. Karl Rove pushed the welfare state expansion, and the Republicans were anxious to follow his instructions when they controlled all three branches of the federal government.

For that matter, Republicans pushed cuts in tax rates in order to change the sets of incentives for private enterprise, and I certainly think that cutting the rates during the 1980s was a good thing. When I asked Krugman if he supported the old 70 percent pre-1981 tax rates (at a public session at the 2004 Southern Economic Association meetings in New Orleans), Krugman replied, "Oh, no! Those rates were insane!" So, I guess Krugman was against those high rates before he supported them.

In other words, we are not receiving an accurate picture of what Republicans are doing. (Don't elect those monsters! They might CUT YOUR SOCIAL SECURITY!) Instead, I think that Glenn Greenwald of Salon presents a much more accurate picture of the modern GOP, one that is based upon reality and is not something that comes out of Wonderland:

This is what Republicans always do. When in power, they massively expand the power of the state in every realm. Deficit spending and the national debt skyrocket. The National Security State is bloated beyond description through wars and occupations, while no limits are tolerated on the Surveillance State. Then, when out of power, they suddenly pretend to re-discover their “small government principles.” The very same Republicans who spent the 1990s vehemently opposing Bill Clinton’s Terrorism-justified attempts to expand government surveillance and executive authority then, once in power, presided over the largest expansion in history of those very same powers. The last eight years of Republican rule was characterized by nothing other than endlessly expanded government power, even as they insisted — both before they were empowered and again now — that they are the standard-bearers of government restraint.

Greenwald continues:

...(the) GOP limited government rhetoric is simply never matched by that Party's conduct, especially when they wield power. The very idea that a political party dominated by neocons, warmongers, surveillance fetishists, and privacy-hating social conservatives will be a party of "limited government" is absurd on its face. There literally is no myth more transparent than the Republican Party's claim to believe in restrained government power. For that reason, it's only a matter of time before the fundamental incompatibility of the "tea party movement" and the political party cynically exploiting it is exposed.

I could not agree more. Unfortunately, Krugman wants to continue the false message that Republicans are going to cut the state, and everyone knows that the state is the lifeblood for all of us. I mean, how can we survive unless government agents are in every room of our houses telling us what to do?!?

After reading Krugman’s blather about the “low-tax, small-government” Republicans, there is only one conclusion I can make: Paul Krugman is the Manchurian Columnist! Yes, he actually is a Republican operative in disguise telling us that Republicans are going to give us less government and lower taxes in order to convince us to vote for them.

But when the GOP actually takes power, the welfare state will grow! Don’t you see the connection? I must let Hollywood know at once!