Paul vs. Krugman

I don't like to watch TV debates, as people tend to talk past each other, but nonetheless, I would say that the Paul v. Paul (Krugman) debate probably was interesting. I've not watched it, but those who would like to see it can click on this link.

Here is a link to an abbreviated transcript.

Stereotypes and Interpersonal Utility Comparisons: This is economics?

One of my criticisms of Paul Krugman is that he really has abandoned economics while claiming that he is analyzing things from an economic point of view, and he does it again in his latest NYT column. First, he engages in crude stereotypes (which is typical of the NYT writers in general), and second, he then uses what one learns on the first day in graduate microeconomics: one cannot legitimately use interpersonal utility comparisons.

A prominent economist told me once that he worked with Krugman at a previous employer before, he added, that Krugman "went insane," and at one time the man did real economic analysis. Unfortunately, once he found that he could make a lot more money being a political operative, Krugman abandoned the fundamentals of economics such as the Law of Scarcity and the Law of Opportunity Cost and decided to push the view that governments via the printing press can do magic things and create wealth from green paper.

In the recent column, he makes the observation that long ago appeared on Lew Rockwell's blog, that many of the "Red States" actually receive more government income transfers than do many of the "Blue States." (Anthony Gregory had this excellent piece in 2010.) Krugman writes:

Many readers of The Times were, therefore, surprised to learn, from an excellent article published last weekend, that the regions of America most hooked on Mr. Santorum’s narcotic — the regions in which government programs account for the largest share of personal income — are precisely the regions electing those severe conservatives. Wasn’t Red America supposed to be the land of traditional values, where people don’t eat Thai food and don’t rely on handouts?

The article made its case with maps showing the distribution of dependency, but you get the same story from a more formal comparison. Aaron Carroll of Indiana University tells us that in 2010, residents of the 10 states Gallup ranks as “most conservative” received 21.2 percent of their income in government transfers, while the number for the 10 most liberal states was only 17.1 percent.

Thus, this hardly is news for libertarians even if Krugman wants us to believe that he has made a new discovery. Unfortunately, in trying to explain it, he engages in the kind of stereotyping that he would condemn in other people.

(Having gone to high school with two prominent NYT people, I can tell you that if they are typical of what inhabits the Times building, these are people who operate on the most superficial of levels, depending upon templates for opinions all the while looking down on the Great Unwashed around them. Yes, that is a stereotype, but the NYT editorial page is full of such snobbishness.)

First, Krugman blames those evil Christians:

...there is Thomas Frank’s thesis in his book “What’s the Matter With Kansas?”: working-class Americans are induced to vote against their own interests by the G.O.P.’s exploitation of social issues. And it’s true that, for example, Americans who regularly attend church are much more likely to vote Republican, at any given level of income, than those who don’t.

Of course, I had no idea that Democrats ever avoided "social issues" in their politics. Being that I am employed at a university where nearly all faculty members are liberal Democrats, I find it a bit ironic that people who are obsessed with all aspects of politicizing and codifying the Sexual Revolution would accuse others of having a fetish with "social issues."

Then it gets even more interesting:

Still, as Columbia University’s Andrew Gelman points out, the really striking red-blue voting divide is among the affluent: High-income residents of red states are overwhelmingly Republican; high-income residents of blue states only mildly more Republican than their poorer neighbors. Like Mr. Frank, Mr. Gelman invokes social issues, but in the opposite direction. Affluent voters in the Northeast tend to be social liberals who would benefit from tax cuts but are repelled by things like the G.O.P.’s war on contraception.

Krugman, you see, believes that income levels just happen and offers no insight at all as to the difference between the wealth of places like Texas and the blue-blood wealth of the Northeast. To him, income apparently is just income.

When I was doing research for a paper that I later had published in Public Choice, I studied different income and ethnic groups in all of the congressional districts in the USA. (I spent about eight hours a day for a month hand-loading data into a spreadsheet, which was time-consuming but ultimately enlightening about the voting patterns of people in these groups.)

I found that a lot of people in the wealthy suburbs of cities like Dallas and Houston voted Republican, while people in the wealthy suburbs of northeastern cities tended to support Democrats. However, it was not the income levels that were intriguing, but rather the fact that this was the classic confrontation of "old money" versus "new money." The northeastern wealth tends to consist of the "old money" of bygone eras, and the "trust fund" babies, while as wealthy as the business executives in Dallas, vote heavily Democratic.

Having gone to school with "trust fund" babies, I can see the difference quite clearly between the two groups. The "trust fund" liberals were much more likely to drink heavily and have an aversion to work altogether. They also tended to look down on people from the middle class, regarding them as suckers and idiots.

The "new money" wealthy in the southern states, however, tend to be people who had begun life either being poor or middle class and who earned their wealth through their jobs. They were more likely to go to church (and when they did, they were more likely to be Baptists than Episcopalians), and they were much more likely to have come out of a public school setting than were the "trust fund" blue bloods, who went to exclusive private schools.

The other high-income people likely to vote Democratic are secular Jews, and many of them have been dominant in industries like the mass media or on Wall Street. They are likely to be strong supporters of abortion rights and gay rights, and it is understandable why they would find a home with the Democrats.

"Old money" Democrats also are the ones who are more likely to fill the ranks of environmentalists and other groups that wish to use the state to remake society in their own image. As William Tucker once wrote, these are people who have a wonderful vision for others, but don't plan to be part of the Brave New World they are creating for those people they consider to be their inferiors.

Interestingly, a lot of entrepreneurs on the West Coast are more liberal in their social values, and are likely to support Democrats. Google is a prime example, as the vast majority of its political contributions go to Democrats. From what I can see, they support Democrats not so much because they believe in the Welfare State, but rather because they tend to be much more comfortable with the Sexual Revolution than most conservative Republicans.

As for interpersonal utility comparisons, Krugman gives us this gem:

Modern Republicans are very, very conservative; you might even (if you were Mitt Romney) say, severely conservative. Political scientists who use Congressional votes to measure such things find that the current G.O.P. majority is the most conservative since 1879, which is as far back as their estimates go.

How anyone can compare political attitudes today with those of more than a century ago, or to say that people are more "conservative" than they were in 1879 just makes no sense at all. People in 1879 would not have put up with the police state that exists today and certainly would not support how governments today confiscate much greater percentages of wealth than they did back then.

For example, New Yorkers for years resisted having police issued firearms because they feared police would act like an "occupying army," yet today we see conservatives tending to support the police state. (For that matter, Krugman also supports police state measures in his unwavering support of the TSA and other entities, along with his belief that governments should be free to know everything about our personal finances.)

As I see things, it is impossible to compare voters today with voters of yesterday, as today's "conservatives" would support governmental actions that even hardline statists of 1879 would have rejected. Krugman is comparing apples and oranges at best and giving political babble at worst.

Now to agree on something with Krugman. He writes:

The message I take from all this is that pundits who describe America as a fundamentally conservative country are wrong. Yes, voters sent some severe conservatives to Washington. But those voters would be both shocked and angry if such politicians actually imposed their small-government agenda.

That is correct as far as it goes, but Krugman also forgets that Ron Paul, who is the only candidate with a true "small-government agenda," also is most feared by the Republican hierarchy. Contra Krugman, most Republicans hardly fit into a "small-government agenda" category.

Krugman takes on the Austrians and Ron Paul (and, as usual, misrepresents what they are saying)

Gee, hoodathunkitt? Paul Krugman hates Ron Paul. It is not enough for Dr. Paul to want to leave abortion to state legislatures (where the U.S. Constitution would place it), but the very fact that Dr. Paul is personally opposed to abortion and would not perform one is enough to send Krugman into a rage.

Furthermore, Krugman attacks Dr. Paul on the matter of civil rights. Now, keep in mind that Dr. Paul is not against civil rights per se, given that no other person on the scene, Democrat or Republican, that is running for president that openly opposes the police state that both parties have created. (Sorry, Krugman. One cannot support both civil rights AND a police state. So, who is against civil rights?)

Anyway, Krugman is not referring to Dr. Paul's views on race, but rather Dr. Paul's view of the 1964 Civil Rights Act. Like all Progressives, Krugman holds that any law or regulation that is created in the name of something like civil rights is in itself the very essence of those rights. As Frederic Bastiat wrote in The Law in 1848, socialists (and I should add, Progressives) always couched beliefs within a specific government action:

Socialism, like the ancient ideas from which it springs, confuses the distinction between government and society. As a result of this, every time we object to a thing being done by government, the socialists conclude that we object to its being done at all.

We disapprove of state education. Then the socialists say that we are opposed to any education. We object to a state religion. Then the socialists say that we want no religion at all. We object to a state-enforced equality. Then they say that we are against equality. And so on, and so on. It is as if the socialists were to accuse us of not wanting persons to eat because we do not want the state to raise grain.

Likewise, according to Paul Krugman, the only reason one could oppose sections of the Civil Rights Act which give government huge swaths of control over private property is racism. (Likewise, if one thinks that ANY environmental regulation is bad or unnecessary, then one is in favor of having feces wash up on beaches, to paraphrase Anthony Lewis, who also wrote his columns at the NYT.)

But Krugman was only getting warmed up when he accused Ron Paul of being a racist and a misogynist. (And why else would one be opposed to abortion than out of hatred for women? Gloria Steinem has declared such, and so it is an established truth, at least at Princeton University and the NYT.)

Ron Paul, writes Krugman:

...(ignores) reality, clinging to his ideology even as the facts have demonstrated that ideology’s wrongness. And, even more unfortunately, Paulist ideology now dominates a Republican Party that used to know better.

Given the open opposition that Republican stalwarts have exhibited toward Dr. Paul, the idea that his "ideology" is dominating the GOP is a very sick joke, but Krugman seems to be full of humor these days. Unfortunately, he totally misstates the position that Austrians have on money, and he further writes that all Austrians believe that the monetary base is exactly the same as money that is circulating.

First, as he points out in the article, the Fed massively increased the monetary base and some Austrians have said that sooner or later if that base is turned into large-scale lending, we are going to have inflation. That is a no-brainer. However, because some Austrians have said that maybe inflation will occur sooner rather than later, according to Krugman, that means that all Austrian theory on money is wrong. (This is what the ancients once called a non sequitur, but without the non sequitur, Krugman would not have any columns.

Second, Krugman continues in that insistence:

Austrians, and for that matter many right-leaning economists, were sure about what would happen as a result: There would be devastating inflation. One popular Austrian commentator who has advised Mr. Paul, Peter Schiff, even warned (on Glenn Beck’s TV show) of the possibility of Zimbabwe-style hyperinflation in the near future.

So here we are, three years later. How’s it going? Inflation has fluctuated, but, at the end of the day, consumer prices have risen just 4.5 percent, meaning an average annual inflation rate of only 1.5 percent. Who could have predicted that printing so much money would cause so little inflation? Well, I could. And did. And so did others who understood the Keynesian economics Mr. Paul reviles. But Mr. Paul’s supporters continue to claim, somehow, that he has been right about everything.

Austrians are not shocked at what has transpired. The economy, thanks to the bailouts, explosion of regulations, and incendiary rhetoric from the White House, is mired in depression, just as Austrians predicted it would be if the policies of the past four years were followed. As long as the monetary base remains just that -- a base -- and the money does not circulate, the official rate of inflation will be low. What I do find interesting, however, is Krugman's insistence that commodity prices have nothing to do with inflation, that the only reason they rise and fall is because of demand from "emerging economies" and "volatility." (Of course, "volatility" is an effect, not a cause, but since Keynesians regularly confuse cause and effect, we should not be surprised at Krugman's conclusions.)

You see, if Austrians are wrong in their belief that an expansion of money in circulation will force up prices (and that is what Krugman insinuates), then all of monetary theory is turned upside down. For that matter, Krugman already is on the record in calling for the Fed to directly purchase U.S. Government securities on the primary market, which in essence would be financing government via the printing press. Does Krugman also believe that such an action would not have a huge effect upon prices of goods, or does he want us to believe that any predictions of inflation here would be wrong?

Krugman's insistence that Austrians are ignorant about money is, well, ignorant. Austrians say that money is a secondary good which has a primary use to facilitate exchanges, and its productivity exists in the fact that it allows exchanges to occur that would not happen in a barter economy. Austrians further hold that money is subject to all of the laws of economics, including the Law of Marginal Utility (no, we don't hold that it simply is a quantity variable).

However, one of the most important aspects of Austrian thinking on money is that Austrians emphasize the transmission mechanism of new money being injected into the economy, and that transmission is non-neutral, for those receiving the new money first will be able to pay for goods at the old prices, but with new incomes. This view contrasts with the Keynesian viewpoint that monetary transmission is neutral, and that the only thing which matters is that money get put into the economy so that someone can spend it.

Moreover, Austrians also point out that the injection of new money into the economy also will have an effect upon the relative prices of goods, and that the relations will change as more money pours in. This contrasts with Krugman's view that new money has no such effect, and that everyone benefits equally from monetary injections. (In Krugman's view, while inflation benefits debtors at the expense of creditors, that is OK because he falsely assumes that all creditors are the "one percent" and that all debtors are in the other category.)

So, because hyperinflation has not hit, Austrians are totally ignorant about money, and that includes Ron Paul. We are dealing with timing, not monetary theory, and Krugman by confusing the former and latter, demonstrates his own ignorance about monetary matters.

There's a hole in the logic, dear Krugman, dear Krugman...

When numerous financial houses and banks in the USA and Europe were finally exposed for their massive holdings of worthless securitized mortgages and the infamous Housing Bubble was exploding, the political and financial "leaders" around the world quickly decided upon the "solution": Create a bigger bubble, and use the government's ultimate "Rabbit-Out-of-the-Hat" scheme, which is getting the central banks to do what governments in Latin America and Zimbabwe have done to pull off the scam.

In a recent column, Paul Krugman excoriates these creators of the New Bubble for their actions. No, he is not declaring that all they did was to make the problem worse; instead, he tells them in no uncertain terms that, in his opinion, they didn't make the Bigger Bubble big enough.

Yes, had the U.S. and European central banks been even more aggressive in creating and sustaining a huge bubble in government securities (that are as worthless as the mortgage securities that turned toxic), then we would be in a real economic recovery right now. If you think I am joking, read what Krugman says:

Think about countries like Britain, Japan and the United States, which have large debts and deficits yet remain able to borrow at low interest rates. What’s their secret? The answer, in large part, is that they retain their own currencies, and investors know that in a pinch they could finance their deficits by printing more of those currencies. If the European Central Bank were to similarly stand behind European debts, the crisis would ease dramatically.

Yes, what Krugman is saying is that the central banks of the USA and Great Britain can print money to buy their own government securities and the process can go on indefinitely. Lest anyone think that printing more dollars and pounds might have a negative effect upon those currencies, Krugman also has The Answer:

Wouldn’t that cause inflation? Probably not: whatever the likes of Ron Paul may believe, money creation isn’t inflationary in a depressed economy. Furthermore, Europe actually needs modestly higher overall inflation: too low an overall inflation rate would condemn southern Europe to years of grinding deflation, virtually guaranteeing both continued high unemployment and a string of defaults.

Yeah, it all is Ron Paul's fault. But in the next paragraph, Krugman demonstrates that he wants the Federal Reserve System to do what has been prohibited from the very creation of the 1913 law that created the Fed: have the central bank purchase short-term U.S. Government paper in the primary market. He writes:

But such action, we keep being told, is off the table. The statutes under which the central bank was established supposedly prohibit this kind of thing, although one suspects that clever lawyers could find a way to make it happen.

The cynicism drips off the column with that one, and his comments are a dream come true for those who claim (falsely) that governments are "not revenue constrained," as though the printing press can erase the Law of Opportunity Cost. Krugman's Ultimate Solution, one that I have said for months underlies most of his economic commentary, is dependent upon printing money and nothing else.

Understand the logical construct of what Krugman has declared in this latest column. If the various central banks announce that they are going to start buying short-term government bonds from whatever country seems on the verge of default (or simply cannot pay its bills with regular tax revenues), this immediately will stop the various runs on banks that are holding this government paper, increase the value of government bonds, lower interest rates, bring more spending in the economies of the world, and give us a widespread economic recovery. That is the Krugman economic logic in one sentence.

So, recovery is just a "clever lawyer" away. Intent of laws that were written to prevent the U.S. and European governments from doing what Juan Peron did in Argentina and Robert Mugabe did in Zimbabwe mean nothing, and Krugman makes it clear that he really believes that the secret to prosperity is the printing press:

The story of postwar Europe is deeply inspiring. Out of the ruins of war, Europeans built a system of peace and democracy, constructing along the way societies that, while imperfect — what society isn’t? — are arguably the most decent in human history.

Yet that achievement is under threat because the European elite, in its arrogance, locked the Continent into a monetary system that recreated the rigidities of the gold standard, and — like the gold standard in the 1930s — has turned into a deadly trap.

So, it turns out that the secret to Europe's prosperity was not producing goods and services that other people wanted and needed. Instead, the "secret" was political democracy and the welfare state, as though both of these entities actually produce something. No doubt, Krugman claims that these economies are in a "liquidity trap," and such a situation turns the laws of economics upon their heads. That is nonsense, pure nonsense, for no government and no economist can repeal the Law of Scarcity and the Law of Opportunity Cost.

The world is in financial trouble because central banks, the financial districts, and governments created massive malinvestments in housing and the stock markets in order to achieve a veneer of "prosperity." Those malinvestments have been exposed, and exposed greatly.

Instead of dealing with that reality, Krugman and others insist on creating a New Reality, one in which people are forced to "invest" in government spending, as though flooding economies with various currencies magically will bring back the prosperity that was lost. In other words, Krugman believes that creating The Mother Of All Financial Bubbles in government securities is going to bring our economies into the bliss of recovery. While Krugman uses the song, "There's a Hole in the Bucket," to push his point (the solution, according to Krugman, is to fill the "bucket" with newly-created money), he forgets that his logical constructs themselves are full of holes.

What happens when THAT bubble blows up like a volcano? Just print more money.

Krugman not telling the truth about deregulation? Gee, hoodathunkitt?

One of the enduring themes in Paul Krugman's columns is that the entire economic mess today is due to the fact that "free markets" have been permitted to run wild, and had the entire economy been under state control, we would be prosperous and happy. His recent screed on the subject, while more of the same, also includes something that, frankly, is untrue: financial deregulation was borne out of free-market ideology:

In the real world, recent events were a devastating refutation of the free-market orthodoxy that has ruled American politics these past three decades. Above all, the long crusade against financial regulation, the successful effort to unravel the prudential rules established after the Great Depression on the grounds that they were unnecessary, ended up demonstrating — at immense cost to the nation — that those rules were necessary, after all.

As I pointed out in my last post, major deregulation efforts came through a Democratic Congress and President Jimmy Carter, who at last check still was a Democrat. However, another major deregulation moment came in 1998, when Congress repealed much of the Glass-Steagall Act and President Bill Clinton (who I think was and still is a Democrat) signed the bill. (I also need to point out that Regulation Q, which was part of the original G-S Act, was repealed in 1980 in the deregulatory act known as DIDMCA -- a move supported by the New York Times, which in modern times is not exactly known as a staunch supporter of free markets.)

Well, it turns out that another blow to Krugman's "The-Free-Marketers-Did-It" theme comes from the NYT, which is highlighted in this recent blog post from journalist Paul Mulshine:

But back when he was Speaker of the House, Gingrich was quite comfortable with the Fed. In fact he led the fight to repeal Glass-Steagall, a move that many argue was a key factor in the financial meltdown that occurred in 2008. Consider that when he talks about jailing "the politicians who put this country in trouble."

Check this excerpt from an April 1998 New York Times article on the effort to repeal Glass-Steagall and Gingrich's cozy relationship with Alan Greenspan:

It pitted Treasury Secretary Robert E. Rubin, who opposed the bill, against Alan Greenspan, the chairman of the Federal Reserve, who favored it.

All but a handful of big banks opposed the bill, as did nearly all small and medium-sized banks and savings and loan companies. Wall Street backed the bill, as did insurance companies. Consumer groups fought the bill.

While the debate has less to do with ideology than with members of Congress forced to choose among powerful friends, the end game came down to partisan maneuvering. Republicans from Speaker Newt Gingrich on down scurried through the afternoon to line up the necessary votes.

Less to do with ideology? What? CONTRADICT PAUL KRUGMAN? THE NEW YORK TIMES? Surely not!

But, it gets even better, as Mulshine highlights an interview with Ron Paul in which the congressman notes that he voted against repeal of G-S. That can't be, according to Krugman's theme, but there it is. Dr. Paul says:

I voted on the Glass-Steagal change and I voted against it. The free market though would not have a Glass-Steagal. Banks could do what they want and they have to suffer the consequence. The reason I voted against it, that bill did have some bad parts to it, but one of the reasons I argued against it, repealing it, it was that it was going to put a greater burden on the banks and the taxpayer was at risk, at greater risk through the FDIC and other insurance programs of the government.

In other words, Dr. Paul recognized the moral hazard in having the Fed acting as a backstop against bank losses (Surely, the Fed NEVER would do anything like that, would it?), and knew that the bill would foster excessive risk taking.

Paul Krugman forever is claiming that people who think free markets might be a good thing never take into account any of what has happened in the last decade, yet he cannot even correctly note who were the players in deregulation -- and who were not. While accusing others of running "down a rabbit hole," Krugman seems to have taken permanent residence in that same hole while claiming that his fractured version of history is the Only Truth.

Krugman and the New Moralizing

Paul Krugman loves to take on what he calls the "moralizing" crowd, at least when it comes to making economic policy choices. If someone objects to the Federal Reserve System inflating money so that it devalues the holdings of individuals -- a confiscation of their wealth -- then that person is engaging in what Krugman calls "moralizing," and that is bad.

However, when it comes to the Welfare State, Krugman suddenly turns into Jeremiah, excoriating the Israelites for not worshiping the God of Collectivism. In his column today, he repeats the leftist canard that in a free society, one is "free to die." (The other leftist slogan is that in a free society, one is "free to starve," which is why I guess people in North Korea are going hungry.)

I did not watch the Tea Party debate the other night and am not interested in pulling up the recordings, given I just am tuned out to hearing politicians yapping. However, there was a situation in which someone asked Ron Paul a hypothetical question about a 30-year-old man who had not purchased medical insurance, Krugman writes (always trying to put Paul in the worst possible light because, after all, Ron Paul cannot possibly be as decent a human being as is Paul Krugman):

Mr. Paul replied, “That’s what freedom is all about — taking your own risks.” Mr. Blitzer pressed him again, asking whether “society should just let him die.”

And the crowd erupted with cheers and shouts of “Yeah!”

The incident highlighted something that I don’t think most political commentators have fully absorbed: at this point, American politics is fundamentally about different moral visions.

Now, there are two things you should know about the Blitzer-Paul exchange. The first is that after the crowd weighed in, Mr. Paul basically tried to evade the question, asserting that warm-hearted doctors and charitable individuals would always make sure that people received the care they needed — or at least they would if they hadn’t been corrupted by the welfare state. Sorry, but that’s a fantasy. People who can’t afford essential medical care often fail to get it, and always have — and sometimes they die as a result.

Indeed, people can die from a lack of treatment, but, as Krugman notes in this interview, if who is to die is decided by government agents wearing white coats and repeating the mantra of "lower costs, lower costs," then we should "let them die." Furthermore, the notion that many people in the medical professions are motivated ONLY by money is a huge lie.

My grandfather, Dr. William Chisholm, served as a medical missionary in Korea before World War II, and he treated many, many people who never paid him a cent. Today, my cousin, David Morton, who is Dr. Chisholm's grandson, works in the hinterlands of Malawi treating patients who cannot pay him. (According to Krugman, those men are just fantasies. No doubt, they must have evil intentions, since they were and are motivated by their Christianity, and we already know what Krugman thinks of Christians.)

Furthermore, we have many doctors all over the world, not just in the USA, who will treat patients who do not compensate them. Yes, because medical care is scarce, ultimately someone needs to pay something, and often others are willing to pay, or some doctors at least are willing to essentially charge themselves in certain situations. Furthermore, Ron Paul is a doctor and is much closer to the medical scene than Krugman, yet here is Krugman lecturing the man about medical care and essentially calling him a liar. Yes, that is what Krugman is doing.

According to Krugman, ONLY the Welfare State can ensure the moral outcomes; anything else is immoral, and those who object to any aspect of the Welfare State are immoral monsters who just want to see others suffer and starve. Am I exaggerating? Read the column and you will see what I mean.

As for morality, Krugman says that it is a good thing for governments to destroy the assets of individuals through inflation (and to oppose such a thing, according to Krugman, is immoral, as those who oppose it do so only because they selfishly want other people to be out of work and to suffer), but when a man who has been a doctor speaks of compassion within his profession, well that man is an immoral liar.

So, I guess in Wonderland, people in a free society are "free to die," and in Wonderland, Krugman is free to lie.

Wrong and wrong

Paul Krugman seems to have a need to claiming time and again that he is right and everyone else is wrong, and his "proof" is that interest rates did not go up as predicted by the editorial writers at the Wall Street Journal (thus, giving us the overworked "bond vigilantes" phrase). He also constantly invokes his "confidence fairy" line, but has not given proof of its lack of veracity -- except to use the term with the idea that his constantly saying it "proves" it is true.

His newest pen pal, Bruce Bartlett, seems to have gone over to the Keynesian side, and now he has David Frum to join him. I have linked Frum's mea culpa article for those who wish to read it.

However, there are a number of people who also have been wrong, people that Krugman never will acknowledge because he already has attacked them as being wrong and stupid all of the time: the Austrians. For example, in 2001 -- that's right, 2001 -- Ron Paul on the floor of the U.S. House of Representatives declared that the Fed was in the process of engineering a housing bubble. However, since Rep. Paul subscribes to a theory that Krugman claims is no more credible than the "phlogiston theory of fire," then nothing Ron Paul says should have any veracity at all. (In Krugman's world, only Keynesians are right and everyone else -- even those that are right -- are wrong.)

Keep in mind that Krugman already has declared that the U.S. Government is not "broke," even though borrowing now is now out-of-control. Of course, Krugman's latest "scheme" is for the government to borrow obscene amounts of money, spend it, with the idea that the resulting spending will give the economy "traction" to move on its own. There is no causality other than Krugman's circular belief that spending will begat spending which will begat prosperity. In other words, he actually wants us to believe we can spend ourselves into prosperity.

Let us address his "confidence fairy" phrase for a minute. According to Krugman, business "confidence" is based solely on what business owners and managers perceive to be future spending. If someone will spend, business will build. Robert Higgs, however, notes that not only is Krugman wrong, economically speaking, but he also is contradicting his own guru, John Maynard Keynes:

The humor columnist for the New York Times, Paul Krugman, has recently taken to defending his vulgar Keynesianism against its critics by accusing them of making arguments that rely on the existence of a “confidence fairy.” By this mockery, Krugman seeks to dismiss the critics as unscientific blockheads, in contrast to his own supreme status as a Nobel Prize-winning economic scientist.

The irony in this dismissal, as others, including my friend Donald Boudreaux, have already pointed out, is that Krugman’s own vulgar Keynesianism relies on a much more ethereal explanatory force for its own account of macroeconomic fluctuations–namely, the so-called animal spirits. The master himself wrote in The General Theory: “Thus if the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but a mathematical expectation, enterprise will fade and die. . . . [I]ndividual initiative will only be adequate when reasonable calculation is supplemented and supported by animal spirits. . . .” (p. 162). Because Keynes conceived of his “animal spirits” as “a spontaneous urge to action rather than inaction” (p. 161), he of course had no way to explain their coming and going or to measure or evaluate them in any way. They are as surreal as a ghost–when and why they come and go, no man knows or can know. Such is the force that drives the ups and downs of private investment in Keynesian economic theory, and such theory unfailingly drives Krugman’s commentaries on the recession and on the possibility and effective means of recovery from it.

Since Krugman's "confidence fairy" line is aimed at Higgs' "regime uncertainty" view, I include what Higgs says about it:

Regime uncertainty, however, has a much more grounded basis. In my own research on the topic, I have presented evidence derived from (1) a mass of testimony by investors, businessmen, and other contemporaries, (2) voluminous historical facts on the character of government actions that reasonable people had every reason to interpret as theatening the security of their private property rights, (3) variations in the structure of investment, especially as between short-term and longer-term projects, and (4) specific twists in the term-structure of returns on private corporate bonds, as well as other relevant evidence on the behavior of financial markets.

As against this varied and substantial evidence, what does the proponent of animal sprits have to offer? Well, nothing at all. The idea is purely fanciful, the product of Lord Keynes’s fertile imagination.

So, this is what we have:

• Keynesians are right and Austrians are wrong (because Krugman says so)
• The Keynesians "doctrine" of "animal spirits" also is wrong because it contradicts Krugman's view of business confidence
• But Keynesian doctrine is right, even if it is not right.

So, there you have it. Krugman now is depending upon David Frum, a guy who long ago rejected anything to do with free markets and peaceful relations between people as being desirable, to validate his own Keynesian opinions. You just cannot make up this stuff.

The Great Inflationist Kneecapper

In an interview many years ago, Victor Navasky, the former editor of The Nation, described the New York Post as an entity that would "kneecap" anyone it did not like, and he did a "rat-a-tat-tat" imitation with his hands. (Not that Navasky and The Nation ever would do such a thing themselves.)

Economists at one time did not publicly kneecap each other. They hardly were (or are) angels behind the scenes, and I have been witness to some real ugliness that has transpired in economics departments, and ideology really had little or nothing to do with the infighting.

Over the years, I have been privileged to have met economists who won Nobel prizes and read their material. Some were forceful in what they wrote, and others were not, but even in their popular press columns, they never launched outright personal attacks on other economists, and when they mentioned others, they dealt with their arguments as they understood them.

I guess that Paul Krugman represents a new era in how Nobel-winning economists present themselves in public, and his column on Rep. Ron Paul's hearing on the Federal Reserve System once again crosses that line of civility and decency. (Perhaps it is better to argue that Krugman long ago crossed the line and decided just to stay there, and maybe build a mansion.)

It is perhaps ironic that Rep. William Lacy Clay, a congressman from St. Louis, launched the personal attacks (of which Krugman clearly approves) on Dr. Thomas DiLorenzo by claiming that Austrian Economics is "unscientific" because it relies upon deductive logic. As anyone who has taken a logic class knows, the ad homimen, appeal to authority, and the like fall into the category of "informal fallacies," yet, Krugman obviously likes to employ them. Clay also relied heavily upon such fallacies in his "proof" that Dr. DiLorenzo was a fraud.

Now, I always have learned that if one wishes to attack the position of another person, one first should do some fact-checking. First, Krugman's comments:

One of the hearings was called by Representative Ron Paul, a harsh critic of the Federal Reserve, who now has an oversight role over the very institution he wants abolished in favor of a return to the gold standard. Mr. Paul’s subcommittee called three witnesses, one of whom was an odd choice: Thomas DiLorenzo, a professor at Loyola University and a senior fellow at the Ludwig von Mises Institute.

What was odd about that choice? Well, Mr. DiLorenzo hasn’t actually written much about monetary policy, although he has described Fed policy — not just recently, but since the 1960s — as “legalized counterfeiting operations.” His main claim to fame, instead, is as a critic of Lincoln — he’s the author of “Lincoln Unmasked: What You’re Not Supposed to Know About Dishonest Abe” — and as a modern-day secessionist.

No, really: calls for secession run through many of Mr. DiLorenzo’s writings — for example, in his declaration that “healthcare freedom” won’t be restored until “some states begin seceding from the new American fascialistic state.” Raise the rebel flag! (Emphasis mine)

Now, here is Dr. DiLorenzo's reply:

The junior high schoolish smart aleck Paul Krugman, who writes for that well-known leftist tabloid the New York Times, wisecracks about the Ron Paul Fed hearings in his recent column where he says that I was writing about the Fed as “a legalized counterfeiting operation” as far back as the 1960s. That’s unlikely since the very first thing that I ever wrote that was published was an article for the peer-reviewed Southern Economic Journal in 1980, shortly after I finished graduate school. He must have me confused with Ludwig von Mises or Murray Rothbard. I guess all Austrians look alike to some people.

Now, why does Krugman go rabid at any criticism of Abraham Lincoln? He explains:

He (Lincoln) was, after all, the first president to institute an income tax. And he was also the first president to issue a paper currency — the “greenback” — that wasn’t backed by gold or silver.

Yes, Lincoln was a "stimulus" sort of guy, someone who liked to print money. However, if one reads through the Krugman columns, one finds that anyone critical of such an action is to be labeled...well, whatever Krugman wants to call him. A racist? Yes. An ignoramus? Yes.

So, Paul Krugman is becoming unleashed. Disagree with him on monetary policy, global warming, the current inflation situation, taxes, and whatever else and you are not simply wrong. No, you oppose all these things because you are evil. You want people to lose their jobs and be unemployed and poor forever. There is no other explanation.

Paul Krugman Smears Tom DiLorenzo and Ron Paul

Leave it to Krugman to use smear tactics to discredit Ron Paul's hearing on the Federal Reserve System. I put his post in full:

Mike Konczal has a post about Ron Paul’s first hearing on monetary policy, in which he points out that the lead witness is a big Lincoln-hater and defender of the Southern secession.

And it’s true! I went to his articles at Mises, and clicked more or less idly on the piece about American health care fascialism — I guess that’s supposed to be a milder term than fascism, although he seems to equate the two. And sure enough, he ends:

This is not likely to happen in the United States, which at the moment seems hell-bent on descending into the abyss of socialism. Once some states begin seceding from the new American fascialistic state, however, there will be opportunities to restore healthcare freedom within them.

I presume that Amity Shlaes is already working on her Lincoln assessment, The Even More Forgotten Man.

First, Tom DiLorenzo, who wrote the article that so offended Krugman, DOES make clear his use of "fascialism," writing:

Some time ago I invented the phrase "fascialism" to describe the American system of political economy. Fascialism means an economy is part fascist, part socialist. Economic fascism has nothing to do with dictatorship, militarism, or bizarre racial theories. Fascism is a brand of socialism that was the economic system of Germany and Italy in the early 20th century. It was characterized by private enterprise, but private enterprise that was comprehensively regulated and regimented by the state, ostensibly "in the public interest" (as arbitrarily defined by the state).

Socialism started out meaning government ownership of the means of production, but it came to mean egalitarianism promoted by "progressive" taxation and the institutions of the welfare state, as F.A. Hayek stated in the preface to the 1976 edition of The Road to Serfdom. The problems of the American healthcare system are caused entirely by the fact that the government subjects the system to massive interventions, some of which are fascist in nature, while others are socialist.

Second, what is Krugman really trying to say? He is trying to go in the backdoor to smear Rep. Paul with the following syllogism:

• Ron Paul has Tom DiLorenzo testifying at his hearing;
• Tom DiLorenzo has defended southern secession and has criticized Abraham Lincoln;
• Therefore, Ron Paul is a racist and anything he says about the Fed's behavior should be ignored.

Don't kid yourselves about what Krugman is doing. The guy has smeared Ron Paul in the past and now that Rep. Paul is taking aim at the Fed -- something that is in his right to do -- Krugman is going to unleash all barrels on him. And, I am sure that his employer, the NY Slimes, will follow suit.

Paleo-Krugmanism

[Update, Monday, December 20]: In his column today, Krugman has upped the ante, now calling Ron Paul an out-and-out "zombie." Furthermore, he repeats the quote from Ron Paul but this time Krugman does not include the reference so that readers can see exactly what Rep. Paul means by his quote.

We are dealing with deceitfulness, pure and simple. Krugman is trying to make readers think that Rep. Paul approved of the behavior of the Wall Street firms and wants more of the same. As I see it, this episode highlights the fact that Krugman is fundamentally dishonest in the way he writes. If he were an honest man, he would deal with Rep. Paul's quote in full, and if he then disagreed, he could say why he thought Rep. Paul was wrong.

However, Krugman instead just uses dishonesty and personal attacks. This speaks for itself. [End Update]

I guess with Ron Paul chairing the subcommittee that oversees the Fed, Paul Krugman will be attacking him on a regular basis. Today, he has a blog post which not only misstates the Austrian position on money, but also employs logical fallacies as the basis of attack. In other words, it's another day at the office for Krugman.

Robert Wenzel has an excellent commentary on what Krugman says, and I want to emphasize with Mr. Wenzel that Ron Paul knows the difference between money supply and monetary base. This is in reply to what Krugman writes:

I used that term (paleomonetarism) — it’s probably not original, but who knows? — in a recent post about the increasingly obscure meaning of the money supply. The best example would surely be Ron Paul, who’s now going to have oversight over the Fed. If you read his stuff, it’s very clear: money is a well-defined quantity that the Fed controls, and inflation comes from — indeed is defined as — increases in that quantity.

What he means, I guess, is monetary base. (Emphasis mine)

Krugman then shows a graph which has both the monetary base and the CPI and -- Lo and behold! -- the rate of inflation does not match the monetary base. Conclusion? Ron Paul is an idiot.

As Mr. Wenzel replies (and I quote him at length):

Krugman knows damn well that the monetary base is not the same thing as the money supply--and that the distinction became important once excess reserves started piling up, to the tune of a trillion dollars, in the monetary base. Further, Krugman knows this trillion dollars in excess reserves is money sitting outside the system, i.e., it is not in the economy. It is pure evil when Krugman suggests that Congressman Paul thinks that the monetary base is the same thing as the money supply. During television interviews, I have heard Congressman Paul on many occasions comment that there was a huge amount of excess reserves in the monetary base and that it was a threat to explode the money supply. This clearly indicates that Congressman Paul knows the difference between the monetary base and the money supply. (Note: Don't send me an early clip of Congressman Paul talking about the monetary base, without reference to excess reserves, as Krugman points out, monetary base was different in "normal times". Once it became clear that excess reserves were flooding the monetary base, Congressman Paul clearly noted that the monetary base was not moving in correlation with the money supply)

Thus, the chart Krugman runs to show the supposed disconnection between the monetary base and price inflation, and implying that Congressman Paul thinks there is a connection, is deception far beyond that of his Princeton buddy, Ben Bernanke, who claimed that he is currently not printing money.

Krugman goes on with even more nonsense by calling Ron Paul's view the politically dominant view. Ron Paul subscribes to the Austrian School of Economics. While gaining in popularity, it's about as politically dominant as the legalize LSD movement.

Labeling Paul's view as the politically dominant view appears to be a slick attempt to muddy Ron Paul with the economic mess that is surely coming. "Hey, the politically dominant paleomonetarism/Ron Paul view is what got us in this mess."

Given that Krugman writes for the newspaper that desperately tried to prop up the corrupt and disgraced Michael Nifong while he pursued prosecution in the fake Duke Lacrosse Case, I am not surprised to see him deliberately misrepresenting Ron Paul's views. That's par for the course at the NYT.

Mr. Wenzel asks how Krugman can sleep at night. It's easy. The guy who writes "Conscience of a Liberal" has no conscience at all.

Krugman's Attack on Ron Paul (And Using Logical Fallacies in the Process)

In a recent blog post, Paul Krugman says he admires Ron Paul's "frankness" even though he cites Rep. Paul's ideas as being "crazy." Not surprisingly, Krugman misrepresents what Rep. Paul is saying, ignores what Rep. Paul has said in the past about the financial crisis, and demonstrates his own ignorance by employing the informal fallacy of Appeal to Authority.

There have been a number of posts made to Lew Rockwell's blog about this (including a couple of my own). They are listed here, here, here, and here.