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.

The Pain Economist

In my Monday column, I looked at some of the work done by Robert Higgs, who takes on the "vulgar Keynesianism" head-on. Today, I look at the chief spokesmen for the "vulgar Keynesians," Paul Krugman, who excoriates modern policymakers for doing what he claims is "inflicting pain" through financial "austerity."

In his May 31 column, Krugman writes the following:

When the financial crisis first struck, most of the world’s policy makers responded appropriately, cutting interest rates and allowing deficits to rise. And by doing the right thing, by applying the lessons learned from the 1930s, they managed to limit the damage: It was terrible, but it wasn’t a second Great Depression.

Now, however, demands that governments switch from supporting their economies to punishing them have been proliferating in op-eds, speeches and reports from international organizations. Indeed, the idea that what depressed economies really need is even more suffering seems to be the new conventional wisdom, which John Kenneth Galbraith famously defined as “the ideas which are esteemed at any time for their acceptability.”

Given that Galbraith was a hardcore socialist, and one who was quick to praise the communist economies, I find it significant that Krugman quotes him, especially when one sees that Krugman has been calling for higher taxes and raising business costs as the means for securing a new "prosperity."

What are these terrible ideas that Galbraith would have criticized? Why, they are very (very) small measures of fiscal responsibility. Krugman declares that policymakers want to let interest rates rise and for governments to begin (and only begin) the process of living within their means. Such "responsible" behavior, Krugman argues, is irresponsible in outcomes:

The best summary I’ve seen of all this (changes of policy direction) comes from Martin Wolf of The Financial Times, who describes the new conventional wisdom as being that “giving the markets what we think they may want in future — even though they show little sign of insisting on it now — should be the ruling idea in policy.”

Put that way, it sounds crazy. And it is. Yet it’s a view that’s spreading. And it’s already having ugly consequences. Last week conservative members of the House, invoking the new deficit fears, scaled back a bill extending aid to the long-term unemployed — and the Senate left town without acting on even the inadequate measures that remained. As a result, many American families are about to lose unemployment benefits, health insurance, or both — and as these families are forced to slash spending, they will endanger the jobs of many more.

And that’s just the beginning. More and more, conventional wisdom says that the responsible thing is to make the unemployed suffer. And while the benefits from inflicting pain are an illusion, the pain itself will be all too real.

In Krugman's view, governments can stop all of the pain -- and bring back prosperity -- simply by printing and borrowing, and any attempt to bring this unsustainable action to a halt is interpreted as a deliberate infliction of "pain" upon vulnerable people. Now, if assets really were homogeneous, and if government borrowing had exactly the same results that business borrowing might have, that would be one thing.

However, assets are NOT homogeneous; they are heterogeneous and as Higgs noted in his articles, an economy is not a blob of homoegeneity: it is a complex organism of assets and production, and the failure to recognize this fact means that we are doomed to repeat the very failures of the 1930s.

Perhaps the greatest irony in the present economic morass is that economists and governments around the world are claiming that they are acting to "avoid the mistakes of the 1930s," yet governments actually are engaging in a repeat of that decade, and we know how it ended: in destruction, death, and war.