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.
Sunday, December 19, 2010
Friday, December 17, 2010
Krugman: Government programs had nothing to do with the housing bubble
I must say that when Paul Krugman gets on a subject, he sticks with it, and the latest chapter in his "it's all the fault of free markets" mantra comes in today's column in which he deals with the report of Financial Crisis Inquiry Commission. Not surprisingly, he sticks to his other mantra -- Republicans always are the cause of all problems and ills and Democrats have all the answers -- in this screed.
Unfortunately, the one thing he does not do is to deal with the actual problem, but to Krugman, solutions to the current crisis are problems, while in his view, we "solve" this problem by, well, creating more problems.
He begins (predictably):
There also is the matter of Lehman Brothers. I'm sorry, but the notion that the reason we had this crisis is because the government let Lehman fail is a bit much. Wall Street as a whole was overleveraged, but unlike Krugman, who wrongly says that it was because banks and the "shadow banks" were operating in a market totally unregulated by government, it seems to me that the famed "Greenspan Put" that also was part of Fed policy under Ben Bernanke created huge moral hazards that encouraged this drunken spree.
In Krugman's Keynesian world, markets don't respond to price signals, as prices have meaning only in the aggregate as part of an index. Things like relative prices and profits are meaningless, which is why Krugman can claim that the heavily-subsidized industry of "alternative energy" can lead us out of this depression. (Krugman does not seem to believe that free market profits have anything to do with the valuation of the factors of production, and why should they, given that in the Keynesian view, factors are homogeneous, economically speaking.)
Krugman's defense of Fannie and Freddie is pretty hilarious:
This is NOT a defense of Wall Street or the Republicans. I will say outright that one cannot have both a deregulated financial system AND something like the "Greenspan Put." It is not possible because the kinds of moral hazards that such policies create are such that we should not be surprised when we see a meltdown of this magnitude.
I don't think the banks were "suckered" by the government; they were in bed with the people who were supposed to be regulating them. Unlike Krugman, however, I don't think that this lack of oversight was due to free market ideology, as I know no free-market economist who believes that markets and moral hazard can exist simultaneously without creating real problems.
No, people were getting rich and not having to work very hard at it. As in a bubble atmosphere, even if everyone knows there is a bubble, the trick is to jump off before the whole thing peaks and then pops.
Because Krugman is stuck in his ideological and political ghetto, he really offers nothing but inflation as a "solution." He claims to understand the effects of financial bubbles, but his ideology, partisanship, and Keynesian thinking blinds him to the cause of bubbles. And if he cannot understand the cause of the problem, he hardly is qualified to recommend solutions.
Unfortunately, the one thing he does not do is to deal with the actual problem, but to Krugman, solutions to the current crisis are problems, while in his view, we "solve" this problem by, well, creating more problems.
He begins (predictably):
When the financial crisis struck, many people — myself included — considered it a teachable moment. Above all, we expected the crisis to remind everyone why banks need to be effectively regulated.As one who has read Krugman for a long time, I definitely believe that the last statement describes him quite well. So, here we go with Krugman's "facts" about the bubble:
How naïve we were. We should have realized that the modern Republican Party is utterly dedicated to the Reaganite slogan that government is always the problem, never the solution. And, therefore, we should have realized that party loyalists, confronted with facts that don’t fit the slogan, would adjust the facts.
It’s not as if the story of the crisis is particularly obscure. First, there was a widely spread housing bubble, not just in the United States, but in Ireland, Spain, and other countries as well. This bubble was inflated by irresponsible lending, made possible both by bank deregulation and the failure to extend regulation to “shadow banks,” which weren’t covered by traditional regulation but nonetheless engaged in banking activities and created bank-type risks.Now, it is true that, in George W. Bush's words, "Wall Street got drunk," but as Peter Schiff noted in a speech at the Mises Institute in 2009, there is this little issue of who was supplying the liquor -- the Federal Reserve System. As I have noted before, the government has a number of programs to extend home ownership well beyond its logical bounds and there was pressure from authorities for banks to throw away the underwriting standards for mortgages. That this would build up into a bubble is no surprise.
Then the bubble burst, with hugely disruptive consequences. It turned out that Wall Street had created a web of interconnection nobody understood, so that the failure of Lehman Brothers, a medium-size investment bank, could threaten to take down the whole world financial system.
There also is the matter of Lehman Brothers. I'm sorry, but the notion that the reason we had this crisis is because the government let Lehman fail is a bit much. Wall Street as a whole was overleveraged, but unlike Krugman, who wrongly says that it was because banks and the "shadow banks" were operating in a market totally unregulated by government, it seems to me that the famed "Greenspan Put" that also was part of Fed policy under Ben Bernanke created huge moral hazards that encouraged this drunken spree.
In Krugman's Keynesian world, markets don't respond to price signals, as prices have meaning only in the aggregate as part of an index. Things like relative prices and profits are meaningless, which is why Krugman can claim that the heavily-subsidized industry of "alternative energy" can lead us out of this depression. (Krugman does not seem to believe that free market profits have anything to do with the valuation of the factors of production, and why should they, given that in the Keynesian view, factors are homogeneous, economically speaking.)
Krugman's defense of Fannie and Freddie is pretty hilarious:
In the world according to the G.O.P. commissioners, it’s all the fault of government do-gooders, who used various levers — especially Fannie Mae and Freddie Mac, the government-sponsored loan-guarantee agencies — to promote loans to low-income borrowers. Wall Street — I mean, the private sector — erred only to the extent that it got suckered into going along with this government-created bubble.In this view, Freddie and Fannie were the victims of those rapacious capitalists. There was no subprime market; the Fed had nothing to do with this, and government came in on the tail end of things.
It’s hard to overstate how wrongheaded all of this is. For one thing, as I’ve already noted, the housing bubble was international — and Fannie and Freddie weren’t guaranteeing mortgages in Latvia. Nor were they guaranteeing loans in commercial real estate, which also experienced a huge bubble.
Beyond that, the timing shows that private players weren’t suckered into a government-created bubble. It was the other way around. During the peak years of housing inflation, Fannie and Freddie were pushed to the sidelines; they only got into dubious lending late in the game, as they tried to regain market share.
This is NOT a defense of Wall Street or the Republicans. I will say outright that one cannot have both a deregulated financial system AND something like the "Greenspan Put." It is not possible because the kinds of moral hazards that such policies create are such that we should not be surprised when we see a meltdown of this magnitude.
I don't think the banks were "suckered" by the government; they were in bed with the people who were supposed to be regulating them. Unlike Krugman, however, I don't think that this lack of oversight was due to free market ideology, as I know no free-market economist who believes that markets and moral hazard can exist simultaneously without creating real problems.
No, people were getting rich and not having to work very hard at it. As in a bubble atmosphere, even if everyone knows there is a bubble, the trick is to jump off before the whole thing peaks and then pops.
Because Krugman is stuck in his ideological and political ghetto, he really offers nothing but inflation as a "solution." He claims to understand the effects of financial bubbles, but his ideology, partisanship, and Keynesian thinking blinds him to the cause of bubbles. And if he cannot understand the cause of the problem, he hardly is qualified to recommend solutions.
Monday, December 13, 2010
Krugman's Economic Advice: Shop Until You Drop
Even when Paul Krugman gets it right, he still manages to get it wrong. Thus it is today that in his column, he starts out on the right track, but then misinterprets what is in front of him and then goes off on yet another Keynesian spiel.
First, I present the good stuff. Krugman writes:
Krugman would answer that a Republican administration was full of free-market types that believed banks should not be regulated, and that suddenly, all bank regulators believed that market hype. That does not square with what we know about government and governance.
Krugman fails to point out that the housing market is heavily subsidized and regulated by government and was so even before the mortgage industry essentially was nationalized during the last year of the Bush administration. Indeed, as one real estate attorney told me last year, the government actively was urging banks to abandon lending standards in the name of promoting more and more home ownership.
At the same time, the Heritage Foundation and Cato Institute were promoting the "Ownership Society" mantra and the Bush administration was bragging that it had put more minorities into home ownership than ever before. I'll go further. The "subprime market" never would have taken off in a free market, not without real safeguards built into the system, which contrasts with the moral hazard that existed as the government told lenders directly and indirectly that the taxpayers had their backs.
That part never makes it into Krugman's narrative, and no wonder. If government played a role by pushing vast amounts of resources into unsustainable markets and promised to make good on bad loans, then no one should be surprised at what happened. Furthermore, there is no such thing as a free market in which those taking the risks don't have to bear losses, which clearly became the perception.
Unfortunately, that is the soundest argument Krugman makes in this column, and from there he goes off the Keynesian deep end. He writes:
Of course, taking money from people just makes them poorer, and the idea that government spending would make up for their loss is a howler. Contra Keynes and Krugman, governments make sure that friends are benefited and enemies punished. The second way for government to get money, according to Krugman, is to borrow (and borrow and borrow).
Here is where it gets interesting. Who is on the hook for all of this money? Obviously, the debt must be repaid or there has to be a default. Obviously, the government chooses default by inflation, with Americans being told they can have their cake and eat it, too. I hate to be the bearer of bad tidings this Christmas season, but paying back the debt by inflation is not the "free lunch" Krugman claims it to be.
(Remember, he declares in The Return of Depression Economics that there really is a "free lunch," and that all we have to do is to find it. The "free lunch" is the taking on of huge debt, and then quietly repudiating it by destroying the U.S. Dollar. Yeah, as if there are no consequences from so doing.)
In Krugman's economy, we move seamlessly from the housing bubble to continued full employment, just as long as government, people -- someone -- is spending money. This is a view that says resources don't matter, that factors of production are homogeneous, and that there really are no consequences at all for driving entire markets into a big hole via malinvestments.
In other words, it is economics as though the Law of Scarcity did not exist.
First, I present the good stuff. Krugman writes:
The root of our current troubles lies in the debt American families ran up during the Bush-era housing bubble. Twenty years ago, the average American household’s debt was 83 percent of its income; by a decade ago, that had crept up to 92 percent; but by late 2007, debts were 130 percent of income.While he is right as far as he goes, unfortunately, Krugman the economist does not ask why the banks played the "band in 'Animal House'" role in thinking they could march through the wall. Why did banks abandon "sound lending" principles?
All this borrowing took place both because banks had abandoned any notion of sound lending and because everyone assumed that house prices would never fall. And then the bubble burst.
Krugman would answer that a Republican administration was full of free-market types that believed banks should not be regulated, and that suddenly, all bank regulators believed that market hype. That does not square with what we know about government and governance.
Krugman fails to point out that the housing market is heavily subsidized and regulated by government and was so even before the mortgage industry essentially was nationalized during the last year of the Bush administration. Indeed, as one real estate attorney told me last year, the government actively was urging banks to abandon lending standards in the name of promoting more and more home ownership.
At the same time, the Heritage Foundation and Cato Institute were promoting the "Ownership Society" mantra and the Bush administration was bragging that it had put more minorities into home ownership than ever before. I'll go further. The "subprime market" never would have taken off in a free market, not without real safeguards built into the system, which contrasts with the moral hazard that existed as the government told lenders directly and indirectly that the taxpayers had their backs.
That part never makes it into Krugman's narrative, and no wonder. If government played a role by pushing vast amounts of resources into unsustainable markets and promised to make good on bad loans, then no one should be surprised at what happened. Furthermore, there is no such thing as a free market in which those taking the risks don't have to bear losses, which clearly became the perception.
Unfortunately, that is the soundest argument Krugman makes in this column, and from there he goes off the Keynesian deep end. He writes:
What we’ve been dealing with ever since is a painful process of “deleveraging”: highly indebted Americans not only can’t spend the way they used to, they’re having to pay down the debts they ran up in the bubble years. This would be fine if someone else were taking up the slack. But what’s actually happening is that some people are spending much less while nobody is spending more — and this translates into a depressed economy and high unemployment.How, pray tell, does the government get the money to make up for all that lost consumer spending? As Krugman has said earlier, he believes that ALL of the Bush tax cuts should be permitted to expire, and that if he were in charge of the government, he would take that extra revenue and spend it.
What the government should be doing in this situation is spending more while the private sector is spending less, supporting employment while those debts are paid down. And this government spending needs to be sustained: we’re not talking about a brief burst of aid; we’re talking about spending that lasts long enough for households to get their debts back under control. The original Obama stimulus wasn’t just too small; it was also much too short-lived, with much of the positive effect already gone.
Of course, taking money from people just makes them poorer, and the idea that government spending would make up for their loss is a howler. Contra Keynes and Krugman, governments make sure that friends are benefited and enemies punished. The second way for government to get money, according to Krugman, is to borrow (and borrow and borrow).
Here is where it gets interesting. Who is on the hook for all of this money? Obviously, the debt must be repaid or there has to be a default. Obviously, the government chooses default by inflation, with Americans being told they can have their cake and eat it, too. I hate to be the bearer of bad tidings this Christmas season, but paying back the debt by inflation is not the "free lunch" Krugman claims it to be.
(Remember, he declares in The Return of Depression Economics that there really is a "free lunch," and that all we have to do is to find it. The "free lunch" is the taking on of huge debt, and then quietly repudiating it by destroying the U.S. Dollar. Yeah, as if there are no consequences from so doing.)
In Krugman's economy, we move seamlessly from the housing bubble to continued full employment, just as long as government, people -- someone -- is spending money. This is a view that says resources don't matter, that factors of production are homogeneous, and that there really are no consequences at all for driving entire markets into a big hole via malinvestments.
In other words, it is economics as though the Law of Scarcity did not exist.
Friday, December 10, 2010
Paul Krugman: Holding Economic Logic Hostage to Keynesian Nonsense, Part I
I must admit I enjoy reading Paul Krugman's material on the NY Times page if for no other reason than he does a good job of explaining bad "economic theory" in the form of what Robert Higgs calls "vulgar Keynesianism." While today's column primarily is political in nature (and no one politicizes economics more than Krugman), he also lays out the keys to understanding how Keynesian "logic" actually works.
Now if one were to have a conversation with Krugman, one would find that he actually believes in the Law of Scarcity, the Law of Demand, and the Law of Opportunity Cost. Furthermore, I doubt seriously that he believes these things can be repealed, even by a mythical President Krugman.
Yet, when put into a macroeconomic framework, Krugman's economic thinking is based upon a view that the "rule" somehow are different at different stages during the business cycle. For example, when things are relatively good, then one set of rules apply, and when the economy is in the tank -- as it is now -- one goes by another set of rules. And so it goes.
I will take the liberty to say that Krugman believes that a capitalist economy suffers from what might be "internal contradictions" (I use that term carefully, as Marx used it and Krugman is not a Marxist) that tend to bias economic performance downward. The logical progression goes in the following manner:
However, in the Keynesian view, the more government can drive down the savings rate to as close to zero as possible, the better off we will be, and the only way to do that is for government to make saving money as unattractive as possible. This noble goal of government can be accomplished in the following ways:
There are a number of other implications in all of this, and when one adds Krugman's own belief that a society that is based upon a cradle-to-grave welfare system along with other restrictions is preferable to what he sees as a society governed by the "animal spirits" of capitalism, the logical progressions are obvious. Furthermore, in Krugman's view, markets that are not boxed in by rules set by government agencies always run off the cliff, as all investors are short-term oriented (as are Keynesians) and are not deterred by changes in relative prices, since Keynesians don't believe that prices have any significance except when aggregated in to various price indices.
Furthermore, in Krugman's view, no one would be willing to invest in new capital, given that the economy already suffers from "overcapacity," so any cut in tax rates for wealthy people would be pointless and most likely would further drive down the economy. Only government can make things right, and that government must be run by people who think like he does.
So, when one reads Krugman's columns, these are things that are under-girding his statements. Now, I think that Keynesian thinking was wrong in the 1930s, it is wrong today. I'll address my concerns in my next post.
Now if one were to have a conversation with Krugman, one would find that he actually believes in the Law of Scarcity, the Law of Demand, and the Law of Opportunity Cost. Furthermore, I doubt seriously that he believes these things can be repealed, even by a mythical President Krugman.
Yet, when put into a macroeconomic framework, Krugman's economic thinking is based upon a view that the "rule" somehow are different at different stages during the business cycle. For example, when things are relatively good, then one set of rules apply, and when the economy is in the tank -- as it is now -- one goes by another set of rules. And so it goes.
I will take the liberty to say that Krugman believes that a capitalist economy suffers from what might be "internal contradictions" (I use that term carefully, as Marx used it and Krugman is not a Marxist) that tend to bias economic performance downward. The logical progression goes in the following manner:
- People produce goods and are paid;
- They take that money and "buy back" the goods that they make.
- People save part of the income they receive;
- Savings tends to be greater than investment (the banks and other savings institutions tend to invest less than they take in as deposits);
- Not enough money is available to "buy back" the created products;
- Therefore, this "underconsumption/overproduction" cycle leads to layoffs as firms quit making goods so that they can sell off their inventories.
- Wealthy people do not consume their entire paychecks at one time, so they have a greater "marginal propensity to save" than do people with lower incomes, which means that their spending/savings ratio creates problems for the economy;
- Wealthy people tend to be more responsible for economic downturns because they don't spend everything at once, which is why they need to have large portions of their income taxed away so that government can do the responsible thing and spend.
However, in the Keynesian view, the more government can drive down the savings rate to as close to zero as possible, the better off we will be, and the only way to do that is for government to make saving money as unattractive as possible. This noble goal of government can be accomplished in the following ways:
- Inflate the money supply by enough to discourage present savings, as the value of money depreciates so quickly that to hold any money to spend in the future would be pointless;
- Have high progressive tax rates to confiscate "idle money" from the wealthy so that government can quickly spend and bring the economy back to full employment;
- Have government aggressively borrow money in order to lap up any other idle funds.
There are a number of other implications in all of this, and when one adds Krugman's own belief that a society that is based upon a cradle-to-grave welfare system along with other restrictions is preferable to what he sees as a society governed by the "animal spirits" of capitalism, the logical progressions are obvious. Furthermore, in Krugman's view, markets that are not boxed in by rules set by government agencies always run off the cliff, as all investors are short-term oriented (as are Keynesians) and are not deterred by changes in relative prices, since Keynesians don't believe that prices have any significance except when aggregated in to various price indices.
Furthermore, in Krugman's view, no one would be willing to invest in new capital, given that the economy already suffers from "overcapacity," so any cut in tax rates for wealthy people would be pointless and most likely would further drive down the economy. Only government can make things right, and that government must be run by people who think like he does.
So, when one reads Krugman's columns, these are things that are under-girding his statements. Now, I think that Keynesian thinking was wrong in the 1930s, it is wrong today. I'll address my concerns in my next post.
Monday, December 6, 2010
Krugman Seeks the Herbert Hoover "Solution" to Depression
In 1932, the U.S. economy was in a depression with double-digit unemployment, and the end was not in sight. President Herbert Hoover, faced with both an imploding economy and growing budget deficits, Hoover opted for the Paul Krugman solution: raise taxes.
We know how this story came out. The tax increases not only failed to raise the revenue, but the nation's unemployment rate went up even faster, peaking at 28 percent in February 1933, a month before Franklin D. Roosevelt was inaugurated as Hoover's replacement.
This bit of history has been shoved down the Orwellian Memory Hole by politicians, "distorians," and economists. In his column today, Krugman continues that sorry tradition.
Before going on, I will say that I am not impressed by the Republicans' "low-tax" rhetoric, given that government spending itself is a tax. (One does not even have to hold to perfect Ricardian Equivalence to make that statement.) Nonetheless, I don't think that Krugman's argument here is valid, and the premises from which he builds his argument are ridiculous.
As a "macroeconomist," Krugman operates from a completely different set of "opportunity costs" than what the Law of Scarcity describes. In Krugman's view, the "cost" comes when an individual keeps money he or she has made instead of having it confiscated by the government. (The Keynesian Balanced-Budget Multiplier "proves" that tax increases always have a positive effect and are more economically efficient than the result when individuals keep their money.)
Thus, when money is not confiscated from productive people, that is a "cost" to the country. Obviously, it would not take long to create the Reductio ad absurdum scenario, and I don't think that the person who told a roomful of economists in November 2004 that the pre-1981 70 percent tax rates were "insane" is going to agitate for super-high tax rates. At least not yet.
However, Krugman seems willing to accept anything the Congressional Budget Office produces (at least when the CBO is under control of the Democrats), and I will say that the semi-rosy scenario he claims would be the case if all tax rates rise to their pre-2003 levels is fantasy. He writes:
Now, I have not read any apocalyptic predictions on the pro-tax cut side, although Krugman has been throwing out enough doom to make up for any ridiculous claims from the Republicans. For example, he writes:
This is an interesting line of thinking. According to Krugman, the government is the "country," and the "country" is us. So, if the government has more money, then "we" always are better off -- except for those millionaires who always gain their wealth at the expense of everyone else.
There is nothing in Krugman's writings that would suggest that the optimum tax rate would be 100 percent on ALL private income. I am serious. If Krugman's view of the "country" is the government itself -- and his language points to that belief -- then the "country" is at its best when it has everything that everyone has produced.
Now, I doubt that even Krugman would be willing to give us this kind of scenario, although I never have read anything from him in recent years that would refute it. Instead, he tries to convince us that if individuals are permitted to keep $4 trillion of income (which I doubt would be the case -- those are unrealistic numbers, in my view), that it would be a "cost" to the "country." However, if the government is permitted to confiscate that $4 trillion, then we are better off, since "we" would be the "country."
In Krugman's world, if an individual is permitted to keep any income, that is a "cost" to the country, and even though the individual is made worse off if the money is confiscated, it is a "benefit" to the "country," given his own rhetorical definitions. So, we can have the scenario in which all individuals are made worse off, but the "country" is made better off.
That is economics? I don't think so. It is nothing but absurd set of political talking points.
We know how this story came out. The tax increases not only failed to raise the revenue, but the nation's unemployment rate went up even faster, peaking at 28 percent in February 1933, a month before Franklin D. Roosevelt was inaugurated as Hoover's replacement.
This bit of history has been shoved down the Orwellian Memory Hole by politicians, "distorians," and economists. In his column today, Krugman continues that sorry tradition.
Before going on, I will say that I am not impressed by the Republicans' "low-tax" rhetoric, given that government spending itself is a tax. (One does not even have to hold to perfect Ricardian Equivalence to make that statement.) Nonetheless, I don't think that Krugman's argument here is valid, and the premises from which he builds his argument are ridiculous.
As a "macroeconomist," Krugman operates from a completely different set of "opportunity costs" than what the Law of Scarcity describes. In Krugman's view, the "cost" comes when an individual keeps money he or she has made instead of having it confiscated by the government. (The Keynesian Balanced-Budget Multiplier "proves" that tax increases always have a positive effect and are more economically efficient than the result when individuals keep their money.)
Thus, when money is not confiscated from productive people, that is a "cost" to the country. Obviously, it would not take long to create the Reductio ad absurdum scenario, and I don't think that the person who told a roomful of economists in November 2004 that the pre-1981 70 percent tax rates were "insane" is going to agitate for super-high tax rates. At least not yet.
However, Krugman seems willing to accept anything the Congressional Budget Office produces (at least when the CBO is under control of the Democrats), and I will say that the semi-rosy scenario he claims would be the case if all tax rates rise to their pre-2003 levels is fantasy. He writes:
A few months ago, the Congressional Budget Office released a report on the impact of various tax options. A two-year extension of the Bush tax cuts, it estimated, would lower the unemployment rate next year by between 0.1 and 0.3 percentage points compared with what it would be if the tax cuts were allowed to expire; the effect would be about twice as large in 2012. Those are significant numbers, but not huge — certainly not enough to justify the apocalyptic rhetoric one often hears about what will happen if the tax cuts are allowed to end on schedule.How the CBO even can come up with something like this is ridiculous on its face. It really seems to be based upon the belief that individuals don't change their behavior at all when taxes are increased or decreased.
Now, I have not read any apocalyptic predictions on the pro-tax cut side, although Krugman has been throwing out enough doom to make up for any ridiculous claims from the Republicans. For example, he writes:
But while raising taxes when unemployment is high is a bad thing, there are worse things. And a cold, hard look at the consequences of giving in to the G.O.P. now suggests that saying no, and letting the Bush tax cuts expire on schedule, is the lesser of two evils.This really is akin to the scene in "Animal House" in which the band tries to march through a wall. Does Krugman really believe that the ONLY change would be revenues, and that the U.S. economy would perform just as before with the only difference being that the government would be in possession of $4 trillion more than if the lower rates remain? Furthermore, when government takes money from individuals, does that mean that the "country" always is better off?
Bear in mind that Republicans want to make those tax cuts permanent. They might agree to a two- or three-year extension — but only because they believe that this would set up the conditions for a permanent extension later. And they may well be right: if tax-cut blackmail works now, why shouldn’t it work again later?
America, however, cannot afford to make those cuts permanent. We’re talking about almost $4 trillion in lost revenue just over the next decade; over the next 75 years, the revenue loss would be more than three times the entire projected Social Security shortfall. So giving in to Republican demands would mean risking a major fiscal crisis — a crisis that could be resolved only by making savage cuts in federal spending. (Emphasis mine)
This is an interesting line of thinking. According to Krugman, the government is the "country," and the "country" is us. So, if the government has more money, then "we" always are better off -- except for those millionaires who always gain their wealth at the expense of everyone else.
There is nothing in Krugman's writings that would suggest that the optimum tax rate would be 100 percent on ALL private income. I am serious. If Krugman's view of the "country" is the government itself -- and his language points to that belief -- then the "country" is at its best when it has everything that everyone has produced.
Now, I doubt that even Krugman would be willing to give us this kind of scenario, although I never have read anything from him in recent years that would refute it. Instead, he tries to convince us that if individuals are permitted to keep $4 trillion of income (which I doubt would be the case -- those are unrealistic numbers, in my view), that it would be a "cost" to the "country." However, if the government is permitted to confiscate that $4 trillion, then we are better off, since "we" would be the "country."
In Krugman's world, if an individual is permitted to keep any income, that is a "cost" to the country, and even though the individual is made worse off if the money is confiscated, it is a "benefit" to the "country," given his own rhetorical definitions. So, we can have the scenario in which all individuals are made worse off, but the "country" is made better off.
That is economics? I don't think so. It is nothing but absurd set of political talking points.
Friday, December 3, 2010
Krugman Freezes Out Obama
When Paul Krugman won the Nobel Prize in economics in 2008, blogger Don Luskin wrote tongue-in-cheek that it was the first time that the Swedish central bank had given the award to a "dead economist." Luskin was joking, of course, as everyone knows that Krugman is a living and breathing human being, but his point was that Krugman long ago had given up economics for political partisanship and for what Robert Higgs calls "vulgar Keynesianism."
Lest anyone think that Krugman actually tries to make an economic argument from his New York Times perch, well, think again. Here is someone supposedly of intellectual stature trying to claim that if governments only spend enough money, that the spending somehow will permanently revitalize the economy. In other words, we spend ourselves rich.
When Barack Obama was elected President of the United States two years ago, Krugman was among those shouting the "hosannas" and throwing palm branches at the feet of the Messiah. (Of course, Obama did not ride into Washington on the back of a donkey colt, but rather in a gas-guzzler limo.)
Today, however, the hosannas have stopped, at least on Krugman's page, and while he is not yet in the mob shouting, "Crucify him!" nonetheless, I can see that the Messiah already has lost favor and most likely Krugman will be looking elsewhere -- perhaps to Hillary Clinton. In today's column, Krugman essentially rejects Obama because he thinks that the president is not doing enough to spend ourselves into recovery.
This is couched in the language of the federal deficit of course, and Krugman's view that the government under Obama is not confiscating enough income from everyone else:
I have no idea as to the tax revenue that would be "lost" if the current tax rates are made permanent (although "permanent" in federal budget language is rather a fluid concept), but I do think that the political theater that Krugman is making is rather telling. You see, Paul Krugman really does want us to believe that we don't need capital investment (other than "massive public works"), and that our economy can prosper just as long as the government spends and spends and spends.
For that matter, I wonder why Krugman does not advocate a 100 percent tax on all of our income, and just let the government spend money, given that the "multiplier" would be at its highest level with such a scenario. Given that governments are not "income constrained," we can end this recession immediately.
Krugman's "no tax cuts for the rich" rhetoric largely is symbolic, as his real beef with Obama is that the government has not confiscated enough of our wealth. As he has written before, if it were up to him, he would let ALL tax rate cuts expire and then have the government go on a spending spree.
So, to follow Krugman's chain of logic, Obama is now out-of-favor because he is not spending and taxing enough. Maybe Hillary Clinton will be the Chosen One. Or maybe Krugman himself.
Lest anyone think that Krugman actually tries to make an economic argument from his New York Times perch, well, think again. Here is someone supposedly of intellectual stature trying to claim that if governments only spend enough money, that the spending somehow will permanently revitalize the economy. In other words, we spend ourselves rich.
When Barack Obama was elected President of the United States two years ago, Krugman was among those shouting the "hosannas" and throwing palm branches at the feet of the Messiah. (Of course, Obama did not ride into Washington on the back of a donkey colt, but rather in a gas-guzzler limo.)
Today, however, the hosannas have stopped, at least on Krugman's page, and while he is not yet in the mob shouting, "Crucify him!" nonetheless, I can see that the Messiah already has lost favor and most likely Krugman will be looking elsewhere -- perhaps to Hillary Clinton. In today's column, Krugman essentially rejects Obama because he thinks that the president is not doing enough to spend ourselves into recovery.
This is couched in the language of the federal deficit of course, and Krugman's view that the government under Obama is not confiscating enough income from everyone else:
After the Democratic “shellacking” in the midterm elections, everyone wondered how President Obama would respond. Would he show what he was made of? Would he stand firm for the values he believes in, even in the face of political adversity?Now, given that millions of Americans have lost their jobs or taken pay cuts, the fact that federal employees will not be receiving pay raises for a couple of years is pretty mild stuff, and Krugman's over-the-top reaction tells us more about his priorities and agenda than it does about anything Obama has done. He goes on:
On Monday, we got the answer: he announced a pay freeze for federal workers. This was an announcement that had it all. It was transparently cynical; it was trivial in scale, but misguided in direction; and by making the announcement, Mr. Obama effectively conceded the policy argument to the very people who are seeking — successfully, it seems — to destroy him.
So I guess we are, in fact, seeing what Mr. Obama is made of.
The truth is that America’s long-run deficit problem has nothing at all to do with overpaid federal workers. For one thing, those workers aren’t overpaid. Federal salaries are, on average, somewhat less than those of private-sector workers with equivalent qualifications. And, anyway, employee pay is only a small fraction of federal expenses; even cutting the payroll in half would reduce total spending less than 3 percent.Of course, it is political theater, as though anything a president does these days is anything but. However, Krugman goes to his own political theater in his insistence that we pretty much can cure all of our economic ills if the tax rate for families making $250K or more a year goes from 35 percent to 39.6 percent, and we steeply raise capital gains taxes and inheritance taxes.
So freezing federal pay is cynical deficit-reduction theater. It’s a (literally) cheap trick that only sounds impressive to people who don’t know anything about budget realities. The actual savings, about $5 billion over two years, are chump change given the scale of the deficit.
I have no idea as to the tax revenue that would be "lost" if the current tax rates are made permanent (although "permanent" in federal budget language is rather a fluid concept), but I do think that the political theater that Krugman is making is rather telling. You see, Paul Krugman really does want us to believe that we don't need capital investment (other than "massive public works"), and that our economy can prosper just as long as the government spends and spends and spends.
For that matter, I wonder why Krugman does not advocate a 100 percent tax on all of our income, and just let the government spend money, given that the "multiplier" would be at its highest level with such a scenario. Given that governments are not "income constrained," we can end this recession immediately.
Krugman's "no tax cuts for the rich" rhetoric largely is symbolic, as his real beef with Obama is that the government has not confiscated enough of our wealth. As he has written before, if it were up to him, he would let ALL tax rate cuts expire and then have the government go on a spending spree.
So, to follow Krugman's chain of logic, Obama is now out-of-favor because he is not spending and taxing enough. Maybe Hillary Clinton will be the Chosen One. Or maybe Krugman himself.
Wednesday, December 1, 2010
California's Krugman Solution: A Modest Proposal
In his best seller The Return of Depression Economics (which I had my MBA students read this past year), Paul Krugman writes: “Recessions, in other words, can be fought simply by printing money—and can sometimes (usually) be cured with surprising ease.”
Indeed, as I read his latest string of columns that increasingly are laced with partisan invective and personal attacks, there is one constant theme: government needs to fight this downturn by churning out new money and quickly spending it. There are problems, however, when political bodies like Greece and Ireland fall into crisis because their currency, the Euro, is created by the European Central Bank.
In Krugman's view, the solution always lies in creating more money, and since he thinks that Europe is being stingy, he has been writing that the real shame is that Ireland, Greece, and Spain cannot "devaluate" in the way that Iceland has done. As I see it, if printing money would work for Iceland, then it would work for the biggest banana republic in the USA (which increasingly is becoming a banana republic, itself), California.
Yes, debt-and-deficit-riddled California, the once-Golden State now has become a prisoner not only of its mismanagement of prosperity, but also of the leftist ideology that is its governing philosophy. The state that gave us Apple Computer and Google now gives us bloated government worker unions, high tax rates, ridiculous regulations, a swarm of bureaucrats, and Nancy Pelosi.
California now is at the end of the line. It is driving out businesses, criminalizing and demonizing entrepreneurship, and things only will become worse. What to do? Why, there is only one thing to do: print money.
Of course, California is part of the big political union called the USA, but it seems to me that a "Krugman solution" already has been reached: government scrip. Yes, the outgoing Guhvuhnatuh, Ahnuhld Himself, used IOUs to pay California workers, and if Krugman is to be believed (and he IS a Nobel Prize winner, after all), then California really has no budget problems at all.
Yes, the Ultimate Chartalist Solution is at hand, and I hope that Krugman will recognize it, since he already has supported the concept of the idea. California can stop paying its workers in USD and use its own scrip. Given the state legislature's penchant for passing law after law, it can declare the scrip to be California legal tender and ORDER state businesses to accept it, on pain of workers and business owners going to prison.
(This would be quite appropriate, since one of the fastest-growing areas of criminal prosecution in this country has been the category of "economic crimes," as the USA borrows from the legal past of the USSR.)
Granted, there might be a showdown from Washington, although I figure that since Democrats control the executive branch of the U.S. Government and the U.S. Senate, and children in California DID sing praises to Obama ("Obama's gonna save us"), perhaps the god in the White House will relent and let California carry on its Krugman scheme.
Everyone would be happy, I guess. California would not be "budget constrained," the state could multiply its bureaucracies, authorities could arrest and try more business owners, Google could be used to spy on capitalists and other evil-doers, and there would be enough money for all!
Furthermore, California could enjoy an "export boom." (I'm sure Krugman would like that.) True, the only thing the state could export would be bureaucracy and videos of children singing praises to Obama, but that should be enough to entertain the masses. (California would NOT be able to use "Yes, We Can!" as its state slogan, since Obama already took that one. Maybe the incoming Gov. Moonbeam might employ "Accept our money -- or else" as the state slogan.)
So, all it takes is guts, I suppose. Make Paul Krugman California's secretary of the treasury and the country will take off. Moonbeam, you have a mission!! (It cannot be a "mission from God," however, as California intellectuals are godless.)
Indeed, as I read his latest string of columns that increasingly are laced with partisan invective and personal attacks, there is one constant theme: government needs to fight this downturn by churning out new money and quickly spending it. There are problems, however, when political bodies like Greece and Ireland fall into crisis because their currency, the Euro, is created by the European Central Bank.
In Krugman's view, the solution always lies in creating more money, and since he thinks that Europe is being stingy, he has been writing that the real shame is that Ireland, Greece, and Spain cannot "devaluate" in the way that Iceland has done. As I see it, if printing money would work for Iceland, then it would work for the biggest banana republic in the USA (which increasingly is becoming a banana republic, itself), California.
Yes, debt-and-deficit-riddled California, the once-Golden State now has become a prisoner not only of its mismanagement of prosperity, but also of the leftist ideology that is its governing philosophy. The state that gave us Apple Computer and Google now gives us bloated government worker unions, high tax rates, ridiculous regulations, a swarm of bureaucrats, and Nancy Pelosi.
California now is at the end of the line. It is driving out businesses, criminalizing and demonizing entrepreneurship, and things only will become worse. What to do? Why, there is only one thing to do: print money.
Of course, California is part of the big political union called the USA, but it seems to me that a "Krugman solution" already has been reached: government scrip. Yes, the outgoing Guhvuhnatuh, Ahnuhld Himself, used IOUs to pay California workers, and if Krugman is to be believed (and he IS a Nobel Prize winner, after all), then California really has no budget problems at all.
Yes, the Ultimate Chartalist Solution is at hand, and I hope that Krugman will recognize it, since he already has supported the concept of the idea. California can stop paying its workers in USD and use its own scrip. Given the state legislature's penchant for passing law after law, it can declare the scrip to be California legal tender and ORDER state businesses to accept it, on pain of workers and business owners going to prison.
(This would be quite appropriate, since one of the fastest-growing areas of criminal prosecution in this country has been the category of "economic crimes," as the USA borrows from the legal past of the USSR.)
Granted, there might be a showdown from Washington, although I figure that since Democrats control the executive branch of the U.S. Government and the U.S. Senate, and children in California DID sing praises to Obama ("Obama's gonna save us"), perhaps the god in the White House will relent and let California carry on its Krugman scheme.
Everyone would be happy, I guess. California would not be "budget constrained," the state could multiply its bureaucracies, authorities could arrest and try more business owners, Google could be used to spy on capitalists and other evil-doers, and there would be enough money for all!
Furthermore, California could enjoy an "export boom." (I'm sure Krugman would like that.) True, the only thing the state could export would be bureaucracy and videos of children singing praises to Obama, but that should be enough to entertain the masses. (California would NOT be able to use "Yes, We Can!" as its state slogan, since Obama already took that one. Maybe the incoming Gov. Moonbeam might employ "Accept our money -- or else" as the state slogan.)
So, all it takes is guts, I suppose. Make Paul Krugman California's secretary of the treasury and the country will take off. Moonbeam, you have a mission!! (It cannot be a "mission from God," however, as California intellectuals are godless.)
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