Enemies of the People: This Group of Hawaiians Undermines Government Stimulus

If Keynesians are to be consistent, then they would have to say that the significance of production is not in the particular goods being created, or how they meet human needs, but rather the amount of spending that accompanies the production. Obviously, if what recently happened in Hawaii were to proliferate, Keynesians would go bananas.

This group of determined people got together and fixed a road that government authorities said would cost $4 million to repair. It is pretty clear from this story that the residents spent much less than that, which means (if one applies Krugmanian logic) that they reduced potential wealth by $4 million minus what they actually spent. (Sooner or later, I supposed, Hawaii would have received the "stimulus" money to fix the road.)

After all, it is not the road that creates the wealth. Instead, it is the money that is spent. Right? That is a constant theme from Krugman and other Keynesians, and everyone knows that the Keynesians cannot possibly be in error.

Given that these evil residents depleted the economy of wealth, I would say that they MUST be classified as "enemies of the people." Hey, maybe they might even make President Obama's infamous "Enemies List."

Update: Poster Jeff has provided this gem from Krugman: projects are not about what is created, but rather the spending. So, I guess this means that if the government pays people to dig holes and then fill them again, it is creating wealth because people will spend the money.

The "stimulus" that failed to "fix" the economy

Paul Krugman is at it again, claiming that the Obama "stimulus" of 2009 would be too weak to push the U.S. economy back to full employment. Why? The government did not "spend" enough money.

From what I have read of Krugman's commentary on this particular issue, he is trying to claim that he was some sort of prophet, and that had Obama listened to him instead of his unworthy "advisers," the government would have pumped another $400 billion into the economy and that new money magically would have transformed everything. Yes, out of the trillions and trillions of dollars that have been spread around the world since 2008, it all came down to a measly $400 billion.

While it is true that Krugman accurately noted that this downturn would last for a long time, he got his reasoning wrong. The problem is that Krugman, as a Keynesian macro guy, cannot see anything but aggregates, which is not economics at all. There is no such thing as "aggregate demand" and "aggregate supply," or at least something with such terms that can be represented in the crude "Keynesian Cross" or an AD-AS graph.

With the Keynesians, spending is spending, period, and it does not matter where the spending occurs, just as long as someone somewhere is SPENDING. This is the crudest form of analysis, and I can say forthwith that anyone who believes this is not an economist.

In a couple of links, Sheldon Richman explains first why the "stimulus" did not turn around the economy, and, why more "stimulus" money would fail to have made a difference.

Richman understands something that Krugman and his followers do not: that the creation of new money does not create real wealth, but rather serves to transfer wealth:

But it’s more than that. Since the new money gets into some hands rather than others first, monetary expansion — that is, inflation — changes the pattern of prices and production that would have resulted from voluntary exchange under sound money. Among the prices distorted are interest rates. By doing so, inflation transfers resources from those who produce wealth to others.

Inflation, therefore, is one more government income-distribution program. The lucky early recipients of the fresh fiat money gain purchasing power — command over scarce resources — at the expense of everyone else.

Economies do not grow because government showers them with new money; they grow when people can take existing resources and use them in ways to create more wealth than they did before, or they find new ways to use these resources, often turning them into new kinds of resources. For example, before entrepreneurs found a way to turn crude oil into a useable fuel, kerosene, and to make it widely available at a good price, petroleum was seen as a nuisance, not a resource.

This is something that I have concluded Krugman and others are incapable of understanding. To these people, entrepreneurs are nothing more than parasites, people who somehow profit at the misery of others. In their minds, the State is the creator of all wealth, period.

Under this kind of thinking, production and consumption are two separate and unrelated things. More production does not enable people to consume more; in the Krugman-Keynesian view, more production actually is bad, because then it means that consumers have to find ways to "buy back" the goods that have been created.

Krugman also confuses consumption, which is purposeful activity, with "spending," which is activity that exists not to satisfy the needs and wants of individuals, but rather is a mechanism to "buy back" that which was produced and to enable producers to make more stuff, and so on.

As I said before, this is not economics. It is the creation of mechanistic models that fail to reflect human action. Unfortunately, it is what dominates the thinking in government and academe and even Wall Street, and as long as policies are being made under such direction, this depression not only will continue, but get worse.

Krugman's Freudian Slip?

For years, Paul Krugman has been touting the wonder of Sweden's economy, as its high taxes and high welfare programs apparently provide "aggregate demand" that keeps the entire circle turning. So, in a recent blog post he makes from Sweden, Krugman declares:

Of course the point is not that Sweden is perfect, it’s the fact that it works and thrives despite high taxes and a strong welfare state — which isn’t supposed to be possible according to conservative dogma.

So, does Sweden thrive BECAUSE OF high taxes and welfare, or IN SPITE of it? Both cannot be true. Is it a Freudian slip, or is he just creating a conservative straw man?

I have never been to Sweden, and right now I am the closest I ever have been to there, being in Riga, Latvia. Each day, two ferries run from Rita to Stockholm, and from what I can tell, Scandinavians seem to make up the largest contingent of tourists here in Old Riga, where we are staying. The reason that the Swedes like to come here is because Riga, while somewhat expensive by American standards, is much less expensive than Sweden. In my conversations with Swedes and Norwegians, I get the sense that they are not personally as wealthy as Progressive Americans want us to believe.

In other words, what Krugman (who is a multi-millionaire and really doesn't have to worry about what things cost) does not tell people is that Swedes pay much more for goods than do Americans, yet Swedish incomes are not as high, and their real incomes are substantially lower than ours. Now, this is not a slam on Sweden, which is a lovely country, but nonetheless is not quite the paradise Krugman wants to claim that it is.

Now, Sweden is not a hellhole, either, although I don't know of any practitioners of "conservative dogma" who make the claim that such a society cannot function. Furthermore, income tax and welfare policies are not the only thing affecting investment. Something tells me that the Swedish government is not nearly as hostile to new capital investment as is the current Regime in Washington. (While it will bug the Krugmanites who read this page, this editorial that appeared in the Wall Street Journal is spot on when it comes to dealing with the economic policies of the Obama administration.)

Krugman has one more statement that does strike me as interesting:

An anecdote here: Robin and I were talking yesterday with an eminent American financial economist, and said something about tax levels here. He said, “Well, that’s why all the young people are leaving.” Except, you know, they aren’t. But never mind — that’s what’s supposed to be happening, and it must be happening.

Does that mentality apply to the stimulus? According to Krugman, a "stimulus" by definition always must have a positive economic effect, provided it is "large enough," so is the fact that the economy is in the tank -- despite trillions of dollars being spent to keep that from happening -- proof on its face that the government is following an "austerity" plan? Or, if "that’s what’s supposed to be happening, and it must be happening" only applies to other things, but not the "stimulus"?

Yes, Paul, it IS politics!

In what Jeffrey Tucker of the Mises Institute calls "The Most Evil Column Ever," Paul Krugman begins to come clean. If I read his recent statements correctly, Krugman is claiming that the economy easily can be "fixed" with a dose of inflation, heavy taxation, and borrowing, and that anyone who might see things differently does so because that person is pure evil.

Krugman has not gone as far as Michael Moore, who recently called for the arrest of the CEO of Standard & Poors for permitting his agency to downgrade U.S. Government debt, but he is moving in that direction. As Anthony Gregory has put it, we are seeing the totalitarian mindset of the Progressives in action, and Krugman is right in the middle of it with his unhinged rhetoric. (Gregory, one of the most insightful writers out there today, notes that we now are faced with totalitarian thinking on both right and left. His column definitely is worth a read.)

Before deconstructing Krugman's column and his latest blog posts, I would like to quote Tucker who makes a most salient observation regarding S&P's supposed sin:

Krugman seems to regard the down-rating as the sin that cries out to heaven for vengeance. And why? Because S&P had given Lehman Bros. an A rating before it went bankrupt and therefore the company has no credibility.

Huh? Doesn’t his point suggest the opposite of what he intends? By his own account, S&P has a bias to overrate bonds. S&P down rated U.S. debt from AAA to AA+. Seems like S&P could continue to downlist U.S. debt a long way before even approaching Lehman territory. Plus, if A is supposed to be a vote of confidence in Lehman, how can AA+ constitute a pessimism so horrible that it is a crime against humanity?

That is an excellent point. Furthermore, what Krugman does not point out is that the government was strongly encouraging the formulation of the toxic assets through its various programs, and the Federal Reserve System quietly stood in the background with its promised "Greenspan-Bernanke Put."

To say it another way, one easily can argue that S&P was doing what its political masters wanted it to do: give high ratings to government-inspired debt. Likewise, as we can see with the reaction of Krugman, Moore, Congress, and the White House to the latest S&P move, the consequences of telling the truth -- that the emperor wears no clothes -- are severe. With upcoming Senate hearings on S&P, we can be assured that the iron fist of the state is going to follow.

So, it is politics after all, but a different kind of politics. Krugman blames Goldstein, er, the Republicans, for all of the problems -- ALL of them. According to Krugman, even when the Democrats held the White House AND insurmountable majorities in the House and Senate, somehow Goldstein, er, the Republicans, managed to keep them from spending what Krugman says was enough money to "stimulate" the economy and give it "traction."

How did the Republicans do that dastardly deed? Why they disagreed with Paul Krugman. Yes, mere words, something that never bothered the Democrats before, suddenly stopped them dead in their tracks and made them initiate what Krugman has called "austerity." Yes, through Fox News (which Krugman and his allies never watch, anyway), the conservatives managed to destroy all the good Krugman demanded that Obama do. The fact that the Democrats had the major media all on their side from the NY Times to the news networks apparently meant nothing, as just the existence of dissent somehow overpowered the powerful.

To me, that is a huge howler. What Krugman is saying is that the very presence of people who might see the world differently than him is unacceptable. Given his recent endorsement of the view that the only way we can bring back prosperity is through state violence against businesses and banks, we can see where he and his political allies are headed. Look for Krugman to endorse measures in the future that smack of totalitarianism and outright violence.

Krugman no longer is even engaging in debate. The same person who spoke glowingly of "death panels" now is claiming that only the conservatives have used the term. For that matter, Krugman's ally Robert Reich also has endorsed "death panels," although he termed things differently.

For all of his talk of being the prophet in the wilderness, Krugman clearly is part of the political establishment. The recent Time screed against the Tea Party points out that the establishment view is that Ben Bernanke is a sober tiller of the economy, that John Maynard Keynes provides the way to prosperity, and that Ron Paul is a wacko nut job. In other words, the political establishment -- and Time is part of that group -- has no problem with Krugman.

What we are seeing is a roadmap to destruction. On one side, Krugman is claiming that tax-borrow-print-spend will bring us prosperity when, in fact, it will only make things worse. And as the hole continues to get deeper, Krugman and his friends are going to call for outright totalitarian measures against anyone who disagrees with them. You can bank on that one.

Krugman: Dumbing Down Economics

I must admit that I look forward to reading Paul Krugman's Friday column, as he generally produces something with enough howlers to last a weekend. Today, he does not disappoint, and I should thank him for providing some fodder for me.

(I am sitting in a session of the Austrian Scholars Conference in Auburn, which means I am not exactly sitting with members of the Paul Krugman Fan Club. Tomorrow, I present a paper in which Dave Kiriazis and I argue that the Jim Crow laws were not a "blind spot" of the Progressives that historians always present as "reformers," but rather they were part and parcel to the system that was created.)

Anyway, back to Krugman. In a screed against House Republicans today, he declares that the U.S. Government really is in no fiscal danger at all, so no budget cutting is necessary. Second, he once again tells us that "costs" are purely administrative affairs, and that central government planning can lower costs of medical care.

But first, he starts out with a bit of interesting hubris, writing:

Like anyone who writes regularly about what passes for economic and fiscal debate in American politics, I’ve developed a strong tolerance for nonsense. After all, if I got upset every time powerful people were illogical and/or dishonest, I’d spend every waking hour in a state of raging despair.

Funny, but a lot of his columns and blog posts really do look like episodes of "raging despair." But, there is more:

Yet there are still moments when I find myself saying, “They can’t really be that stupid,” or maybe, “They can’t really think the rest of us are that stupid.”

Now, while he is talking about Republicans -- who really do manage to say Really Stupid Things -- I cannot help but apply Krugman's words to his following declaration:

...you have to realize two things about the fiscal state of America. First, the nation is not, in fact, “broke.” The federal government is having no trouble raising money, and the price of that money — the interest rate on federal borrowing — is very low by historical standards. So there’s no need to scramble to slash spending now now now; we can and should be willing to spend now if it will produce savings in the long run.

This is worthy of an entire blog post itself, but nonetheless, you have to understand what Krugman is saying. Interest rates for government bonds are low because the opportunity cost of investment also is very, very low. The very policies of bailing out banks, housing, the U.S. auto industry, and numerous other entities, along with the government's other policies have ensured that the economic "recovery" will be anemic at best.

To put it another way, the non-government sector of the economy is not producing enough goods and services to be able to fund the current rate of government spending, so the Obama administration then runs gargantuan deficits. According to Krugman, this is due to the fact that the government does not have high enough taxes and because government needs to spend, spend, spend in order to end the depression.

So, Krugman claims that we can "pretend" that everything is just fine, as though this blizzard of government spending will create "future savings." It is mind-boggling to me, and maybe IT will drive me to "a state of raging despair."

Krugman then turns to medical care:

Second, while the government does have a long-run fiscal problem, that problem is overwhelmingly driven by rising health care costs. The Congressional Budget Office expects Social Security outlays as a percentage of G.D.P. to rise 30 percent over the next quarter-century, as the population ages, but it expects a near doubling of the share of G.D.P. spent on Medicare and Medicaid.

So if you’re serious about deficits, you shouldn’t be pinching pennies now; you should be looking for ways to rein in health spending over the long term.

On the surface, this seems to make sense. However, what Krugman actually is saying is that the spread of bureaucracy over ALL medical exchanges and procedures somehow will result in lower costs AND better medical care. This is madness, as I see it.

Bureaucracies do not make things less costly. At the present time, our family is pursuing an overseas adoption, and over the past decade (we last adopted in 2001), the bureaucratic tentacles over international adoptions have greatly expanded. I can tell you from personal experience that bureaucrats are vastly raising the costs that we have to incur.

Keep in mind that these bureaucracies are operating on the premise that they are lowering the probability that a child will be taken from a foreign children's home to a worse situation with another family. That does happen, but it is pretty rare.

However, by forcing up costs on the adoptive family's end, the government is vastly increasing the probability that a child won't be adopted at all, which means that when these children turn 16, they are booted out into the streets. Thus, the bureaucrats are GUARANTEEING that there will be more fodder for international prostitution rings. All in the name of "making people better off."

Talk to a doctor and find out just how ObamaCare has vastly increased the paperwork and bureaucratic oversight which govern their practices. Any doctor will tell you that this has raised his or her own costs, and doctors must now direct resources to satisfying the bureaucratic monsters.

Yet, Krugman claims that this will "lower" costs. Well, I will tell you how this will work, just as it has "worked" elsewhere: governments will "lower" medical costs by increasingly denying care, which is nothing more than passing off costs to the consumers of medical care. The costs don't go away; they just are shifted.

In economics, we speak of costs as "opportunity costs." However, in Krugmanland, costs simply are administrative numbers that the state can manipulate. That is fantasy, not economics.

Krugman: If You Oppose "Infrastructure Spending," You Support Slavery

Leave it to Paul Krugman to ratchet up the use of the non sequitur in dealing with people who might disagree with him. Here is a guy who takes a stray quote and then implies that anyone who might agree with one part agrees with everything else.

In a recent blog post entitled "Opposition to Infrastructure Spending," Krugman writes:

I’m currently reading Daniel Walker Howe’s What Hath God Wrought, and there’s an interesting discussion of the debate over “internal improvements.” Some southerners were opposed, for an interesting reason. Here’s Nathaniel Macon of North Carolina, in 1818:

If Congress can make canals, they can with more propriety emancipate.

I leave the elucidation of any parallels or lack thereof to modern politics as an exercise for readers.

So, we have the implication from the Nobel winner himself: Oppose the "stimulus" (which is why he is advocating more "infrastructure" spending), and you are a racist, the worst kind of racist, someone who approves of slavery.

Actually, a lot of people opposed the "internal improvements" to be funded by tax dollars because a lot of the money was wasted or ended up in the pockets of people who were less-than-honest. (But, hey, they spent the money, and that is the good thing about any kind of "stimulus.")

It's Not the Euro, Paul

When I went to Baylor School in Chattanooga (when it was an all-boys' military school), one of our traditions was to have senior write-ups in the yearbook, along with a quote that would characterize the particular senior. (Perhaps my favorite quote was that given to Mike Aiken of our Class of 1971, which read, "Life is one damn thing after another." If you know Mike, you know that one is perfect.)

For another friend who was graduated several years before me, there was this: "The problem with the world is wine, women, and song. We must stop singing." Obviously, that line is meant to be humorous, but when someone actually tries to apply something similar to economic analysis, well, the joke ceases to be funny.

One of the reoccurring themes in Paul Krugman's blog posts has been his dissatisfaction with the results of European countries adopting the Euro as a single currency. In a recent post, he writes:

As readers may have guessed, I’ve been working on a euro-related project; more about that one of these days. But for now, I thought it might be worth explaining a bit more about how I see the political economy.

Some readers have chimed in that the euro is essentially a political rather than economic project. Well, it’s both; that has been the European strategy ever since the Schuman declaration. The point is to deliver a series of economic integration plans that do double duty: they’re economically productive, but they also create “de facto solidarity”, moving Europe closer to political union.

For 60 years, this strategy has been highly successful. Europe is one of the great, inspiring stories of the modern world, maybe of all time: peace, prosperity, and democracy flourishing where once there were minefields and barbed wire.

But: the strategy depends on each move toward economic integration being both a political symbol and a good economic idea. That was clearly true of coal and steel, the common market, the eurosausage, and so on. It is, however, by no means clear that the euro passes that test. Europe’s limited labor mobility (although there’s more than there used to be) and, crucially, lack of fiscal integration makes a common currency a dubious proposition at best.

In this and in other posts and columns in which he blames the Euro for much of the turmoil on the Continent, Krugman confuses cause with effect. As I have noted in other posts dealing with Krugman's Euro fetish, Krugman seems to believe that the "solution" for Europe is yet another round of inflation, a "hair of the dog" monetary and fiscal strategy.

At the center of this problem is the fact that the huge European welfare apparatus, along with the power of government employee unions such as those in Greece, Spain, and Frace, only can be supported if the economies of those nations produce enough wealth to enable governments to spread it around. Furthermore, the taxation and regulation policies of those nations must be such that it is possible for private firms to create enough wealth in the first place.

Unfortunately, one of the things that happens in economic downturns is that tax revenues fall and it becomes obvious that the lavish government benefits given to government employees cannot be supported by that country's economic activity. Now, as Krugman has noted, in the past, when each of these government controlled its own fiat currency, one "solution" was devaluation, which in reality is nothing more than a government's admission of trying to paper over its losses by engaging in a glorified printing of new money.

This, economically speaking, is not a solution at all. It simply masks the underlying problems and creates new problems in the process. Not only does this strategy continue the charade of "giving" people something that is illusory, but it also undermines an economic recovery.

However, when a country does not control its fiat currency, as is the case of the Euro, then the problems become much more front-and-center. Greece, for example, is in trouble because it no longer can afford to give government employees pay and benefits that they are not earning, and the Greek government employees have responded by going on a rampage of rioting, murder, and destruction of property.

The Euro is not the cause of this trouble; instead, it is the messenger, the entity that bears the bad tidings. What is Krugman's response? It is shoot the messenger. In Krugman's view, there is nothing wrong with runaway government benefits; in fact, he argues, such spending helps the economy by "stimulating" it.

While there often is much not to like about "austerity" moves, nonetheless for the most part they are little more than policies that reflect the economic reality of the present time. (My problem with "austerity" is that it often emphasizes the implementation of new taxes without cutting enough spending; I'm all for the reality of "pay as you go," but we have to understand that we cannot kill the Golden Goose in the process.)

Krugman really seems to believe that we can pretend we are creating wealth simply by borrowing, spending, and creating new money. Yet, these actions don't create wealth; they destroy it. Krugman may call such a statement the product of "zombie economics," but to claim that government spending by itself "creates wealth" is the real "zombie" position.

There Will Be Hypocrisy

On a recent appearance on ABC's "This Week," Paul Krugman spoke glowingly of what he called "death panels." In fact, he referred to "death panels" as a "real solution" in helping to get a "real solution" to federal budget problems. He really did say that, but Krugman being Krugman quickly made a posting on his blog that declared that he really did not mean exactly what he said even though, frankly, he meant exactly what he said.

What was significant about that whole affair was that Krugman and his friends and admirers for the last two years have called Sarah Palin a liar because she said that federalizing medical care ultimately will feature what she called "death panels." Krugman called the idea a "complete fabrication," except that he obviously understood all along that a U.S. government medical care program, which would be responsible for determining who receives medical care, would emulate those Europeans Krugman so much admires, and those countries have death panels.

The reason I bring up last week's incident is that Krugman now takes a stray quote from Alan Simpson as "proof" that there is some sort of GOP conspiracy to shut down the federal government and destroy the world:

Now, you might think that the prospect of this kind of standoff, which might deny many Americans essential services, wreak havoc in financial markets and undermine America’s role in the world, would worry all men of good will. But no, Mr. Simpson “can’t wait.” And he’s what passes, these days, for a reasonable Republican.

Now, I am no fan of Alan Simpson and really don't take anything he says very seriously. Yes, he and Erskine Bowles co-chaired a "Deficit Commission," which also was nothing less than one of the dog-and-pony shows that Washington brings out once in a while to dazzle the media and to tell the taxpayers that Washington Is Serious About Cutting The Deficit.

Yes, I am sure that some Republicans are going to make noise when the debt limit has to be raised this coming spring in order for the U.S. Government to continue borrowing at unsustainable levels. Furthermore, after a few members of Congress engage in The Usual Grandstanding, demand some "concessions" from President Obama (which he will ignore after making public show of concern for the deficit), Congress will vote to extend the debt limit and go on its merry way.

In the past, we even have had to veritable "train wreck" in which the debt limit passes and (horrors) THE GOVERNMENT SHUTS DOWN. Except that it really does not shut down. Yes, they make a big show of closing the Washington Monument, and I am sure that there would be a few other high-profile, low-impact closings in order to try to convince people that Their Savior Is Not Operating, and the Usual Suspects in the media will play Their Usual Role in telling us we're doomed unless Washington can spend more.

As Krugman continues his role as a partisan shill, he gives us this gem:

...the G.O.P. opposes anything that might help sustain demand in a depressed economy — even aid to small businesses, which the party claims to love.

Right now, in particular, Republicans are blocking an extension of unemployment benefits — an action that will both cause immense hardship and drain purchasing power from an already sputtering economy. But there’s no point appealing to the better angels of their nature; America just doesn’t work that way anymore.

I had not realized that he was getting ready to trot out the unemployment benefits canard again. Now, if Krugman really were to believe this "demand" nonsense, I wonder why he does not endorse Washington just creating a few trillion dollars or more and just leaving the sacks of money at our doorsteps just before Black Friday. You want spending? We'll GIVE you spending!

Yes, yes, we know. Had the government spent $1.2 trillion instead of $800 billion for its "stimulus" efforts, we would be in a full-blown recovery by now. All for the want of $400 billion, and now the Evil GOP wants to end any more "stimulus" efforts and destroy the world.

Let's sum it up. Krugman uses the actual term "death panels" but really does not mean "death panels," except we know that he does. Alan Simpson uses "blood bath" and he obviously means every word. Emmanuel Goldstein lives!

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.

Krugman: Government is not a burden; It creates wealth!

[NOTE]: In answer to a comment from AP Lerner regarding the behavior of interest rates and government bonds, I will be answering that question via an article I will send to the Mises Institute page. That will give me more space to deal with this question, the same one that Paul Krugman has been asking in his columns: If the "bond vigilantes" were right, why have interest rates fallen instead of going up? I'll post the column when it is put up on the Mises page. That means the answer will be coming in a few weeks.

On another point, I know that some of you have seen your comments disappear. I am NOT deleting any of them. Yesterday, I was having problems of my own dealing with Blogger, and so I believe that what we are seeing is a technical issue at work that is beyond my own blog. I'm sorry that you have experienced those problems, but I also want you to know that I don't delete things just because I disagree with them. [END NOTE]

In his missive today on Japan and the state of its economy, as well as the state of our own economy, Paul Krugman decides that being a partisan hack is good economics. While I hold no love for the Republican Party and fully agree that the Bush administration was irresponsible and profligate, nonetheless, when the Democrats took power, they did not put the brakes on runaway spending, but, instead, stepped on the accelerator.

Here is the problem. While Krugman and the Democrats rightly accuse the Republicans of "running the economy into a ditch," they don't say how it was done. After all, with the explosion in government spending during the Bush years, they cannot accuse the Republicans of not spending enough "to give the economy traction."

Yes, the purposeful diversion of huge amounts of money into the housing market created a destructive bubble, but even there, the Democrats and Krugman have a problem. First, if all that is needed is more spending, then why did the attempts to continue to prop up the housing market fail miserably?

If recessions are caused simply by a drop in private spending (both consumption and investment spending), then fixing it should be easy: Ben Bernanke can just fly lots of helicopters over the country and drop money. Since government is not "revenue constrained," as the Chartalists are fond of reminding us, the solution is easy. As Robert Murphy noted in this article, since government monetary creation "abolishes scarcity," fixing the current problem is a helicopter drop away.

Furthermore, spending is spending, and since the Bushies launched wars on the other side of the world and spent, spent, spent, it would seem to me that they were increasing the "aggregate demand" that Krugman claims is the key to prosperity. Yet, why did the boom turn into a bust? The Austrians have the answer, but Krugman and his followers (the entire U.S. Government apparatus) certainly are not going to listen.

I also wish to address one more issue, and that is Krugman's claim that ObamaCare is a cost-cutting measure. He says:

(The Republicans) also surely (will) try to repeal health reform, which would be another twofer, reducing economic security even as it increases long-term deficits.

What is Krugman's proof that this initiative will lower the future federal deficits? He cites studies from the Congressional Budget Office, studies that were made by Democrats to benefit Democrats. Now, I like to see empirical evidence as much as the next guy, but I am NOT going to accept partisan political speculation of something that supposedly will happen in the future as "empirical evidence" of something that is GOING to happen. That is not economic analysis; it is simply partisan hackery. Furthermore, name me one "cost-saving" government spending program that has cut the federal deficit. These "programs" are nonexistent.

As some of the people commenting on this blog have noted, Krugman was calling for a $1.2 trillion "stimulus," but we got "only" $800 billion. Now, we are supposed to assume that for want of just $400 billion more, the economy would have been close to "full employment." That seems absolutely ludicrous on its face. Furthermore, he demonstrates no causal mechanism on how that extra "stimulus" would have translated into longer-term economic benefits. By claiming that all of this is the fault of Goldstein the Republicans, Krugman further moves away from economic analysis into the world of pure partisan politics.

Krugman's Column and Comments: If Your Spend, Spend Boldly

One of Martin Luther's most famous sayings was, "If you sin, sin boldly." Now, Luther was not demanding that people commit sins, but rather was emphasizing what he saw was the grace of God. In a 1521 letter to Melanchthon, he wrote:

If you are a preacher of Grace, then preach a true, not a fictitious grace; if grace is true, you must bear a true and not a fictitious sin. God does not save people who are only fictitious sinners. Be a sinner and sin boldly, but believe and rejoice in Christ even more boldly.

No, this is not a theology lesson, but I see an analogy in Paul Krugman's latest statements, both in his latest column and on an appearance on Good Morning America.

He writes:

When Mr. Obama first proposed $800 billion in fiscal stimulus, there were two groups of critics. Both argued that unemployment would stay high — but for very different reasons.

One group — the group that got almost all the attention — declared that the stimulus was much too large, and would lead to disaster. If you were, say, reading The Wall Street Journal’s opinion pages in early 2009, you would have been repeatedly informed that the Obama plan would lead to skyrocketing interest rates and soaring inflation.

The other group, which included yours truly, warned that the plan was much too small given the economic forecasts then available. As I pointed out in February 2009, the Congressional Budget Office was predicting a $2.9 trillion hole in the economy over the next two years; an $800 billion program, partly consisting of tax cuts that would have happened anyway, just wasn’t up to the task of filling that hole.

Critics in the second camp were particularly worried about what would happen this year, since the stimulus would have its maximum effect on growth in late 2009 then gradually fade out. Last year, many of us were already warning that the economy might stall in the second half of 2010.

Since I am not in the Wall Street Journal Supply-Side/Neoconservative camp, I'm not going to comment on what the Journal editorialists have written, but I do have a problem with Krugman's analysis.

He claims that had the government appropriated nearly three times as much as it did, the economy would be doing fine now and we would be close to full employment. However, he fails to explain just how or why that would be the case. Yes, I am familiar with the diagrams included in an earlier posting, but Krugman seems to be implying that had the government run a three-trillion-dollar-plus deficit last year, that our economy would be in fine shape today.

But, WHY would it be in good shape? Would have that injection of spending -- And how and where would Congress appropriate that amount of money so quickly? -- have boosted long-term capital investment, which is missing today? Krugman doesn't say; he just looks at GDP charts, extrapolates, and then he is off writing columns.

Second, his attribution of bad motives to anyone who disagrees with his point really strikes me the wrong way. Republicans are just obstructionists and nothing more, and the markets are run by idiots, and President Obama is just listening to the wrong people, and that maybe Krugman should be the president's top economic (and political) adviser. Who knows?

I mean, if the Keynesian paradigm really is as good as Krugman says it is, then I would be happy to participate in a scheme in which all of us could spend ourselves into wealth. Since the Chartalists seem to believe that the official government monopoly on what government calls money is the source of creation of wealth and prosperity, all that is needed is for government to spend, spend, spend, and everything else will follow.

At one level, I wish Obama had followed Krugman's advice and just lavished the spending if for no other reason to demonstrate just how wrongheaded that entire Keynesian paradigm really is. (I'm sure that Krugman would add that one not only would need new spending, but one also would have to have a religious faith in government spending and government itself in order to make the whole thing work.)

So, Obama is going to try to do something, the economy will continue to tank, and Krugman will be claiming that all we need to do to get rich is spend a lot of money, and if our bank accounts are empty, then the government will fill them with "living water."

"Proof" that the "Stimulus" Worked?

In an August 27 post, Paul Krugman shows a graph that supposedly is "proof" that the "Stimulus" actually worked, but also constitutes "proof" that the "Stimulus" was "not big enough." Krugman's post hoc ergo propter hoc world, of course, is full of this stuff, but I believe it will do us well to take a brief look.

The post deals with the following two graphs, the first being Mark Zandi's prediction and the second being the actual GDP numbers (or at least what the government says are the GDP numbers). First, the Zandi graph:

Now, for the post-stimulus graph:

The graphs are what they are. However, Krugman's comment about them is most illuminating:

It’s not a perfect correspondence, nor would you expect one — other factors, especially inventory swings, were bound to make the timing of actual growth different from that of stimulus. Still, the two pictures support the view that stimulus worked as long as it lasted, boosting the economy — which is the same conclusion Adam Posen drew from Japan’s experience in the 1990s (pdf): Fiscal policy works when it is tried. (Emphasis mine)

But the stimulus wasn’t nearly big enough to restore full employment — as I warned from the beginning. And it was set up to fade out in the second half of 2010.

Most important, a new injection of money into a moribund economy (especially if it is an early injection) ALWAYS will bring about more economic activity. In his classic "Fiat Money Inflation in France," Andrew Dickson White points out that during the French Revolution, the first round distribution of Assignats brought new life to the French economy, a "stimulus," if you will.

However, with further injections, the economy responded less and less to the new money and new spending until finally all that was left was the inflation. In this case, I am not surprised at the numbers, but one has to remember that the stimulus was about SPENDING and nothing else. The new money for projects ended up in the hands of people who spent it, clearing existing inventories and the like.

What Krugman wants us to believe is that had there been more money made available through "fiscal" policies (more borrowing by the government), somehow that extra money would have given the economy "traction," which then would have allowed it to move along on its own. There is no real causality as to WHY this would happen; he just wants us to believe that this is what would have occurred.

Actually, what would have happened would have been bigger numbers (as Krugman claims) at the beginning, and then a steeper fall, as there would have been nothing to have SUSTAINED that earlier activity. In the Keynesian paradigm, the economy is a homogeneous mass driven only by spending; Austrians understand that there has to be long-term capital investment that can be sustained by economic activity, and that makes all of the difference.

Lew Rockwell on Keynesian "Inception"

One thing I like about Lew Rockwell is that he has an uncanny way of explaining things in ways that anyone (except, perhaps, a Ph.D. economist) can understand. There is no wonkishness, no equivocating, and certainly no appeal to the God of the State.

His latest article, "The State's 'Inception' Fails," is an excellent case in point, and I urge readers to find out for yourselves why I believe this commentary is on the mark. Lew writes:

Two years ago, the economy was seriously dragged down amidst an amazing banking crisis that spread throughout the world. The illusion created by loose credit – that housing could go up in price forever and we could enjoy permanent prosperity due to monetary expansion – was shattered by events. Reality had dawned. We found ourselves in the midst of an economic depression.

At that point in policy, we were at a fork in the road. The wise direction was to let the depression happen. Let the bad investments wash out of the system. Let housing prices fall. Let banks go broke. Let wages fall and permit the market to reallocate all resources from bubble projects to projects that make economic sense. That was the direction chosen by the Reagan administration in 1981, and by the Harding administration in 1921. The result in both cases was a short downturn followed by recovery.

The Bush administration, in a policy later followed by the Obama administration, instead attempted a tactic of dream incubation as portrayed in the recent film Inception. The idea was to inject artificial stimulus into the macroeconomic environment. There were random spending programs, massive buyouts of bad debt using phony money, gargantuan tax tricks, incentive programs for throwing good money after bad, and hiring strategies to weave illusions about how all is well.

His reference to "Inception" is quite accurate, and his explanation clearly explains his analogy:

In the movie, the goal of the dream incubation was to implant an idea into an unsuspecting subject’s head that would cause him to act differently than he otherwise would have. In the real life version of inception, the state tried to implant in all our heads the idea that there was no depression, no economic collapse, no housing crisis, no push back on real estate prices, and really no serious problem at all that the state cannot fix provided we are obedient subjects and do what we are told.

In the movie version, the attempted inception is on a time clock. The dream weavers can only keep the subject in a state of slumber so long. In the real life version, things are much messier. The headlines have spoken about the impending recovery every day for all this time, and yet the evidence has never really been there. All the stimulus really did was forestall events a bit longer, but it hasn’t prevented them.

Now, with the stock markets melting and the near-universal consensus that we are back in recession, everyone is awake. It is pretty clear that the inception did not take. The unemployment data look absolutely terrible. As the Wall Street Journal points out, only 59% of men age 20 and over have a full-time job (in the 1950s, that figure was 85%). Only 61% of all people over 20 have any kind of job now.

Unfortunately, the "educated" people like Paul Krugman and Ben Bernanke, while disagreeing on some of the details of what government policies should be, nonetheless share the same general view: Only government spending can bring back the economy through artificial "stimulus." Unfortunately, these people have misunderstood what an economy really is and how it works. Like other academic economists, they see an economy through mathematical equations in which there really is no purposeful human action.

Instead, the automons produce goods on one end and then "buy back" what they have produced, which makes no sense from the larger point of view. It creates a view of people who simply go through the same motions day after day, and if they do it enough times, the economy gains what Krugman likes to call "traction," which then permits this process to go on somewhat rhythmically. If the individual does not spend in the patterns that the academic economists declare are necessary for this "traction" to continue, then the consumer somehow is "falling down on the job."

With the "Ruling Class" economists and politicians, there always is someone else to blame. The "stimulus" was too small; consumers are greedily saving their money instead of dishing it out at the stores and in auto showrooms; businesses refuse to engage in long-term spending and investment; banks are sitting on reserves; or Republicans (though is a huge minority in Congress) are keeping President Obama from carrying out his proper duties just as Goldstein constantly thwarted the aims of Big Brother.

Unfortunately, this administration -- like the one that preceded it -- is refusing to face reality and continues to believe in its "inceptionist" tactics. However, an economy is not an imaginary construct; it is a real entity and its success depends upon the ability of entrepreneurs and producers to make those goods that people need, something that always will escape the understanding of the supposedly "best and brightest" among us.

Yeah, We Needed Just a Few Trillion More Dollars of "Stimulus"

I had no idea that Ezra Klein is a brilliant economist, but apparently he agrees with Paul Krugman, so he needs no more qualifications. Granted, he had his flash of brilliance more than a year after Krugman's epiphany, but nonetheless he still is brilliant.

Klein's "insight" is that the government did not spend enough money this past year. Krugman, on the other hand, said last year that the "stimulus" was not generous enough and would fail to stem the economic downturn. Here is Klein:

The original stimulus package should've been bigger. Rep. David Obey, chairman of the House Appropriations Committee, says the Treasury Department originally asked for $1.4 trillion. Sen. Kent Conrad, chairman of the Senate Budget Committee, wanted $1.2 trillion. What we got was a shade under $800 billion, and something more like $700 billion when you took out the AMT patch that was jammed into the package. So we knew it was too small then, and the recession it was designed to fight turned out to be larger than we'd predicted. In the end, we took a soapbox racer to a go-kart track and then realized we were competing against actual cars.

This was a mistake, of course. But the mistake may not just have been the size of the stimulus package. I wonder if it wasn't fed by a belief that there'd be other chances. If all we needed was the $700 billion package, then great. But if unemployment remained high and the recovery had trouble taking hold, surely there would be the votes for further stimulus and relief spending. No one in the political system could possibly look at 10 percent unemployment and walk away from it, right?

Wrong. Ten percent unemployment and a terrible recession ended up discrediting the people trying to do more for the economy, as their previous intervention was deemed a failure. That, in turn, empowered the people attempting to do less for the economy. So rather than a modestly sized stimulus leaving the door open for more stimulus if needed, its modest size was used to discredit the idea of more stimulus when it became needed.

So, for lack of an extra $400 billion, all we got was this lousy depression. Krugman last year declared:

...many economists, myself included, actually argued that the plan was too small and too cautious. The latest data confirm those worries — and suggest that the Obama administration’s economic policies are already falling behind the curve.

To see how bad the numbers are, consider this: The administration’s budget proposals, released less than two weeks ago, assumed an average unemployment rate of 8.1 percent for the whole of this year. In reality, unemployment hit that level in February — and it’s rising fast.

So, if I am to interpret this stuff correctly, had Obama had Tim Geithner sell just another $400 billion of Treasuries to the world, the economy would have gained "traction" (Krugman's favorite term) and we would be bouncing toward recovery as we speak.

Sorry, folks, that dog won't hunt. The problem was not that we spent too little; the problem was that the government refuses to understand that credit-fed booms are unsustainable and that this Keynesian "hair of the dog" strategy (in which we don't take just a little whiskey, but drink an entire case) is doomed to failure.

Ironically, in the name of "avoiding the mistakes of the 1930s," our government is taking us down the same path that Hoover and FDR took us. Happy Unemployment, America.

Krugman: More Spending will Solve All Business Ills

Paul Krugman continues with his theme that there is nothing wrong with American business that some government borrowing and spending, along with confiscatory legislation, won't solve. Are businesses not engaging in long-term investment? Government should spend more money, and that will "stimulate" the economy and businesses will invest.

Are people "hoarding" their money and not spending it? No problem. The new across-the-board tax increasing coming in January will confiscate lots of new cash, which the government will "wisely" spend, leading to more prosperity. (A lot of people who are fond of the term "tax increases for the rich" are going to find that THEY are the "rich" when the Bush tax cut rates expire at the end of this year.)

Government spending trumps all ills, or at least that is how a Keynesian like Krugman sees it. Forget the fables of "regime uncertainty" or the levying of price controls (which always "lower costs," according to Krugman).

Krugman's attacks on business owners and managers come from a perspective of someone who never has had to meet a payroll and who never has had to deal seriously with any government regulations. Krugman pretty much has been employed in elite academic settings in which his employers have huge endowments that mitigate a lot of problems that ordinary people must face. He earns millions of dollars as a writer and speaker, so the only regulations he must meet are tied to tax rates, and Krugman already believes his taxes are too low.

To Krugman, any complaint from the business sector always is the crying of wolf. He writes:

So why are we hearing so much about the alleged harm being inflicted by an antibusiness climate? For the most part it’s the same old, same old: lobbyists trying to bully Washington into cutting taxes and dismantling regulations, while extracting bigger fees from their clients along the way.

Beyond that, business leaders are, as I said, feeling unloved: the financial crisis, health insurance scandals, and the catastrophe in the Gulf of Mexico have taken a toll on their reputation. Somehow, however, rather than blaming their peers for bad behavior, C.E.O.’s blame Mr. Obama for “demonizing” business — by which they apparently mean speaking frankly about the culpability of the guilty parties.

Well, C.E.O.’s are people, too — but soothing their hurt feelings isn’t a priority right now, and it has nothing at all to do with promoting economic recovery. If we want stronger business spending, we need to give businesses a reason to spend. And to do that, the government needs to start doing more, not less, to promote overall economic recovery. (Emphasis mine)

So, there you have it. More spending will solve all economic ills. Let the government borrow into oblivion, let the Fed print more money, and this upside down world will right itself and we can return to full employment.

As I have said before, Krugman's main error is seeing an economy as a mass of homogeneous "stuff." Just add new money and the mixture comes to life. That is not an economy; it is a classroom model that fails to take in account the real-live and complex organism of the economy and its various structures of production. By claiming otherwise, Krugman once again demonstrates that while he might have a Nobel prize in economics, he knows very little about a real economy.

S.M. Oliva and DOJ's New War on Doctors

I have come across an excellent commentary by S.M. Oliva, one of the country's most knowledgeable people on anti-trust law regarding recent action by the Obama administration's Department of "Justice" against doctors in Idaho. The government contends that the doctors' refusal to accept Medicare patients at rates that would force them to deliver care at prices less than their own costs is a form of "price fixing," which is a very "creative" way of looking at such matters.

Oliva makes an important point regarding how the government is likely to engage doctors who might balk at the new restrictions that ObamaCare is going to put on them, and that is by bringing criminal charges against them:

First, until now the Federal Trade Commission, not the Justice Department, has taken the lead in prosecuting physicians. Since 2000, the FTC has brought about three dozen cases against physicians (all but one of which settled without any trial). But the FTC only has civil and administrative jurisdiction; the Antitrust Division has civil and criminal jurisdiction. The Sherman Act makes no distinction between civil and criminal “price fixing,” so in a case like this, it’s entirely a matter of prosecutorial discretion whether to charge the doctors with a civil or criminal offense.

Based on the descriptions in the Antitrust Division’s press release, there’s certainly no reason they couldn’t have prosecuted the doctors criminally and insisted upon prison sentences — and there’s little doubt such threats were made or implied to obtain the physicians’ agreement to the proposed “settlement.”

The second reason this is a landmark case is that the Justice Department has unambiguously stated that refusal to accept government price controls is a form of illegal “price fixing.”

The FTC has hinted at this when it’s said physicians must accept Medicare-based reimbursement schedules from insurance companies. But the DOJ has gone the final step and said, “Government prices are market prices,” in the form of the Idaho Industrial Commission’s fee schedule. The IIC administers the state’s worker compensation system and is composed of three commissioners appointed by the governor. This isn’t a quasi-private or semi-private entity. It’s a purely government operation.

What’s more, the Antitrust Division has linked a refusal to accept government price controls with a refusal to accept a “private” insurance company’s contract offer. This lives little doubt that antitrust regulators consider insurance party contracts the equivalent of government price controls — and physicians and patients have no choice but to accept them.

At the present time, the USA leads the world in the number of people incarcerated in prison. Apparently, the Obama administration is going to try to make sure in the future, the upcoming prison clientele is going to be higher-income professionals with M.D. by their names. Don't kid yourselves; this administration means to enforce ObamaCare by throwing people into jail.

Chutzpah, or Just Bad Economics?

One thing I have admired about Paul Krugman has been out out-and-out chutzpah. Here is a guy who told a roomful of economists (including me) in 2004 that the 70 percent top marginal tax rates that existed before 1981 were "insane," but then writes in his blog that the cutting of those rates to 50 percent contributed to the recession of 1981-82. (He does not give us any causality, just rhetoric.)

So, a year ago, in this blog post, he shows the Obama (then) projections of the economy with and without the "stimulus."


He then adds the following:

Kudos, by the way, to the administration-in-waiting for providing this (the graph) — it will be a joy to argue policy with an administration that provides comprehensible, honest reports, not case studies in how to lie with statistics.

Hmmm. According to the Obama projections - Krugman then claimed were (at least) mostly truthful, our rate of unemployment should be under eight percent. Given that the rate actually is well above 10 percent - and climbing - how does one square such projections with the statement that this administration was telling the truth, especially since Krugman himself in that post says that the numbers on the graph were close to the ones he had projected?

Well, he declares that the stimulus was not "big enough." So if the government had printed more money, if the government took on even greater debt, if the government were to nationalize the banks and medical care system, then we would be in the Promised Land.

That does not cut it, folks. The Obama administration gave us a set of projections that were as bad as anything coming from the Bush White House. Furthermore, Krugman himself signed onto the figures and now blames the fact that they were bogus on Obama not being fiscally reckless enough and Goldstein, uh, those bad, bad Republicans.