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.

Just Who Is Spreading Humbug?

For the second year in a row, Paul Krugman invokes "A Christmas Carol" as the theme of his Christmas Eve column. Last year, we found that ObamaCare would allow Tiny Tim to have unlimited medical care and that President Obama's legal monstrosity:

...will provide real, concrete help to tens of millions of Americans and greater security to everyone. And it establishes the principle — even if it falls somewhat short in practice — that all Americans are entitled to essential health care.

You see, Krugman was in such a giving mood that he actually believes that government can legislate away the Law of Scarcity. Unfortunately, today Krugman is not full of "tidings of comfort and joy."

No, he is upset that the "zombies" have not been kicked out of the country, or at least academe and the media. How DARE anyone be permitted to contradict The Great One in any media or academic forum!

Bob Murphy, whose debate challenge Krugman still has refused, takes the Nobel winner to task in his LRC column today, and Murphy's words are quite worth reading, although I am sure that Krugman would consider all of it to be "humbug." Murphy writes:

As far as the free-market fundamentalists dominating the political scene "more thoroughly than ever," I suppose Krugman is right, in the sense that two French poodles could dominate a pit bull more than one French poodle could. But as the Fed discloses its cumulative $9 trillion in backdoor loans, as the FBI raids hedge funds, and as federal spending as a share of the economy is at its highest level since World War II, I hardly think that DC is being overrun by laissez-faire shock troops.

Murphy continues:

To prove that free-market fundamentalists have seized power, Krugman's Exhibit A is Ron Paul:

(Krugman) How did that happen? How, after runaway banks brought the economy to its knees, did we end up with Ron Paul, who says "I don't think we need regulators," about to take over a key House panel overseeing the Fed?

(Murphy continues) Of course, if we look at the actual context of what Paul is saying, we find that he means it is foolish to trust government regulators to nip asset bubbles in the bud, while the Fed and other government programs do their part in fueling such bubbles. Ron Paul was not saying, "Let the banks do whatever they want," instead he was saying that we shouldn't be bailing them out when they screw up. Instead, let them go bankrupt just like any other business would after making horrible investment decisions.

Furthermore, the Wall Street crowd did NOT want Ron Paul as subcommittee chairman, nor does that bunch support him politically. And while Krugman supported the TARP bailout, Ron Paul campaigned against it. Yet, Krugman continues to try to portray Ron Paul as a reckless "Zombie."

Krugman is not satisfied just to disseminate disinformation about Ron Paul. No, he attacks anyone who disagrees with him and issues an outright fantasy about the state of present discourse:

Still, why does it matter what some politicians and think tanks say? The answer is that there’s a well-developed right-wing media infrastructure in place to catapult the propaganda, as former President George W. Bush put it, to rapidly disseminate bogus analysis to a wide audience where it becomes part of what “everyone knows.” (There’s nothing comparable on the left, which has fallen far behind in the humbug race.)

Yeah, there is no George Soros, who spends in a YEAR what the demonized Koch Brothers have spent in a lifetime on different advocacy organizations. According to Krugman, there is no Media Matters, no Center for American Progress, no Daily Kos, and no New York Times, Time, Newsweek, MSNBC, or Washington Post.

(I also should make the point that no one "funds" this blog or anything else that I am doing in my public criticisms of Paul Krugman. I'm just doing my "Zombie" activities on my own.)

In the end, Krugman not only bemoans the lack of an even bigger welfare state and the presence of people with the temerity to disagree with him, but he also claims that people are not standing up to the "free market zombies" because of a lack of courage. Right. Somehow, I don't think that Krugman is doing what he does because he is "courageous" and is "standing up to The Man."

If anyone is spreading humbug, it is Paul Krugman and his acolytes.