Krugman's Voodoo Economics: Tax, Spend, and Inflate Ourselves Into Prosperity

Paul Krugman is in his element again. The Republicans control the U.S. House of Representatives and the Democrats no longer have a filibuster-proof majority in the Senate. A very liberal Democrat occupies the White House and is governing via executive orders (winning Krugman's approval, although executive orders are good only when Democrat presidents issue them).

So, even though Democrats still have the upper hand, in Krugman's mind the Republicans rule. Why? Because tax rates are not even higher than they are now. Furthermore, because the top individual income tax rate remains at 35 percent instead of being raised to 39.6 percent, all is lost because, in Krugman's view, that 4.96 difference is the difference between having a manageable federal budget and having large deficits. (Well, that 4.96 AND "death panels.")

All of this leads to a very interesting view of the Economy According to Krugman. As he wrote earlier this year, if it were up to him, ALL tax rates would rise, which would give the government more money (supposedly), lead to more spending, and give the economy a boost. (I'm not sure that Krugman's scenario would follow; when Herbert Hoover got Congress to raise taxes in 1932, revenues actually fell, but, then, Hoover was a Republican and did not have the requisite magical Krugmanian touch that Democrats have when it comes to taxes and spending.)

In his column today, Krugman accuses the Republicans of "hypocrisy," because they both support tax cuts and give lip service to balancing the federal budget. Actually, I agree with Krugman on this point, but I'm not sure the guy who accused Sarah Palin of "lying" on "death panels" and then glowingly spoke of "death panels" before denying he had claimed he really didn't mean what he just had said is someone who should call others "hypocrites."

Nonetheless, I think that we have a pretty clear picture of what Krugman believes will "revitalized" the American economy: higher taxes, more government spending, and inflation. On top of that, Krugman wants to bring back the old financial cartels that existed from the New Deal until the 1980s, not to mention other economic cartels that were prevalent under the federal government's regulatory schemes.

Those of us where were adults in 1980 can remember the outright stagflation that accompanied the government's economic policies, when inflation was in double-digits, unemployment was rising, and we saw no way out. Yet, Krugman wants to bring back those days via the resurrection of the old regulatory regimes and bursts of government spending and inflation.

Step back, folks, and take a hard look at what Krugman is recommending. This is a recipe for stagflation and lots of it. It is NOT a recipe for revitalizing our economy, period.

Economic laws have not changed. Government cannot repeal the Law of Scarcity nor can it order an economy into prosperity no matter what Krugman tells us. Indeed, what Krugman is recommending is nothing short of True Voodoo Economics.

Krugman's Snow Job

In writing about the recent seeming inability of New York City workers to remove snow from city streets, Paul Krugman spouts what would be the usual party line: Mayor Bloomberg was not up to the job, and it was "Bloomberg's Katrina." Why? Well, Bloomberg is not ideologically pure enough for Krugman, or so the Great Economist says.

Writes Krugman:

But he just faced a major test of crisis management — and it’s been a Brownie-you’re-doing-a-heck-of-a-job moment.

I was wondering why NYC’s storm response was such a mess; it turns out that the city administration basically refused to take the warnings seriously, long after anyone watching the Weather Channel knew that a blizzard was coming.

We have yet to find out exactly why. But this was a major fail.

However, as the New York Post writes, it seems that there also was something that Krugman ignored: union sabotage:

Selfish Sanitation Department bosses from the snow-slammed outer boroughs ordered their drivers to snarl the blizzard cleanup to protest budget cuts -- a disastrous move that turned streets into a minefield for emergency-services vehicles, The Post has learned.

Miles of roads stretching from as north as Whitestone, Queens, to the south shore of Staten Island still remained treacherously unplowed last night because of the shameless job action, several sources and a city lawmaker said, which was over a raft of demotions, attrition and budget cuts.

"They sent a message to the rest of the city that these particular labor issues are more important," said City Councilman Dan Halloran (R-Queens), who was visited yesterday by a group of guilt-ridden sanitation workers who confessed the shameless plot.

Halloran said he met with three plow workers from the Sanitation Department -- and two Department of Transportation supervisors who were on loan -- at his office after he was flooded with irate calls from constituents.

Of course, given that Krugman believes that municipal unions are good for the economy and fit his ideology, somehow that little tidbit of news managed to slip by him. No doubt, I am sure that the union leaders who made sure the streets weren't plowed also knew that the Usual Suspects and the NY Times and people like Krugman would be quite happy to cover for their ideological soulmates.

Krugman really should call his blog: No Conscience of a Liberal.

Is "Volatility" the Last Refuge of a Scoundrel? (Or At Least a Keynesian?)

To "prove" his argument that commodity prices and inflation have no relationship, Krugman has a blog post in which he uses the graph below.

The problem is this: Which commodities? We have seen prices of gold skyrocket, although Krugman would regard gold as passe or even evil. But an even more important bellwether would be oil prices, since oil worldwide is denominated in U.S. Dollars. Thus, oil might well be more sensitive to changes in the value of the dollar than might other commodities.

In other words, de-homogenization might be something worthwhile here. Just a thought.

The second problem I see is that once again, Krugman uses the deus ex machina explanation of "volatility" to explain away anything that might be uncomfortable. Are oil and gold prices going up? Well, so what? They are volatile; that explains everything.

Krugman: It's Not Inflation Until I Say It's Inflation

So, Paul Krugman finally has taken notice of rising commodity prices, although the price of gold has escaped his notice. (Krugman, of course, is a true gold hater, although I would be interested to know if he has any gold holdings in his own investment portfolio.)

In his most recent column, Krugman claims that rising food and fuel prices are nothing more than evidence of an economic recovery. Nothing else. He writes:

What the commodity markets are telling us is that we’re living in a finite world, in which the rapid growth of emerging economies is placing pressure on limited supplies of raw materials, pushing up their prices. And America is, for the most part, just a bystander in this story.

As for inflation, Krugman claims it is low, but what he means is that the government's Consumer Price Index is not rising by nearly as much as prices are rising for commodities. As I see it, however, the "Scarcity" argument really does not hold much water.

Krugman apparently believes that although the Federal Reserve System has been flooding the world with dollars via bailout loans around the world and an aggressive monetary expansion policy at home, all of those extra dollars really have no effects on prices. Yet, I believe that to be shortsighted, as the commodities markets are extremely sensitive to changes in the value of money.

However, Krugman claims that any dissent from his wisdom is nothing more than right-wing nonsense:

What about commodity prices as a harbinger of inflation? Many commentators on the right have been predicting for years that the Federal Reserve, by printing lots of money — it’s not actually doing that, but that’s the accusation — is setting us up for severe inflation. Stagflation is coming, declared Representative Paul Ryan in February 2009; Glenn Beck has been warning about imminent hyperinflation since 2008.

Yet inflation has remained low. What’s an inflation worrier to do?

One response has been a proliferation of conspiracy theories, of claims that the government is suppressing the truth about rising prices. But lately many on the right have seized on rising commodity prices as proof that they were right all along, as a sign of high overall inflation just around the corner.

Uh, I would say that stagflation (a parallel increase in the rates of inflation and unemployment) already is here, although it is not as pronounced at it was 30 years ago. But since Krugman denies that stagflation is here, then I guess it is not here no matter what the numbers tell us.

As I have said before, people have been too quick with the predictions of hyperinflation and imminent economic collapse, but given that the Obama administration's economic "recovery" program consists of spreading dollars abroad, spending, expanding government regulation, empowering federal prosecutors against business figures, demonizing businesses, continuing costly foreign wars, and expanding an already bloated and abusive "security" apparatus at home, there isn't going to be anything akin to a real recovery.

However, the things I have listed seem to be on Krugman's list of what will bring us into recovery, although I am not sure how any of what I have listed is going to result in more goods being produced and American entrepreneurship being unleashed. But Krugman is too busy creating "Jake Blues" excuses as to why commodity price increases really have nothing at all to do with the state of the U.S. Dollar. (Remember "Jake's" encounter in the sewer tunnel with his jilted lover, played by Carrie Fisher? He gives a litany of excuses, and Krugman takes the cue.)

So what are the implications of the recent rise in commodity prices? It is, as I said, a sign that we’re living in a finite world, one in which resource constraints are becoming increasingly binding. This won’t bring an end to economic growth, let alone a descent into Mad Max-style collapse. It will require that we gradually change the way we live, adapting our economy and our lifestyles to the reality of more expensive resources.

But that’s for the future. Right now, rising commodity prices are basically the result of global recovery. They have no bearing, one way or another, on U.S. monetary policy. For this is a global story; at a fundamental level, it’s not about us.

I don't think so. Resources have not suddenly become finite; the Law of Scarcity did not come about yesterday. To deny ANY relationship between the surge in commodity prices (including gold and silver, Paul) and the dollar losing value is to deny reality. But Krugman is good at denying reality -- and demonizing anyone who disagrees with his Great Wisdom.

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.

Krugman: Print Money! Print More Money!!

In The Return of Depression Economics (which I reviewed here), Paul Krugman writes: “Recessions, in other words, can be fought simply by printing money—and can sometimes (usually) be cured with surprising ease.”

Once upon a time, printing money was another euphemism for inflation, but in this day of Orwellian Newspeak, it is called "Quantitative Easing" or something else. (Krugman holds that inflation is measured only by indexes, so just creating more money in and of itself is meaningless.) Furthermore, according to Krugman, real-live evidence of inflation is, well, irrelevant whenever Krugman says so. He recently wrote:

For two years we’ve been warned that inflation, even hyperinflation, was just around the corner; instead, disinflation has continued, with core inflation — which excludes volatile food and energy prices — now at a half-century low. (Emphasis mine)

In other words, two situations in which you really will be feeling the brunt of higher prices is nothing more than volatility at work. However, does anyone really think that food prices will be volatile downward anytime soon?

This is part of the "heads I win, tails you lose" arguing style that Krugman employs. Housing prices have been depressed for a long time, but they were way out of kilter and even Krugman will admit that, and that has had an effect upon the price indexes.

What Krugman does not say, however, is that food, energy, and commodities in general are quite sensitive to changes in the value of money and often act as the proverbial canary in the coal mine. Because Krugman hates gold and silver (or any other kind of "hard" money) and commodities in general, anything that might reflect the fact that people are escaping the dollar and buying something that can hold its value relative to money is something that is evil.

(Of course, anyone who disagrees with Krugman on this subject is a "zombie" and not even worthy of being permitted to inhabit the same planet as Krugman.)

So, inflation is the key in Krugman's view. Save the world by flooding it with dollars or whatever, but flood the world.

Uh, I believe the federal employment trend is upward, Paul

Gee, it seems that Paul Krugman has found a new word to describe people who might actually believe that the Law of Marginal Utility applies to money and to economics in general: Zombie. In a recent blog post, he claims to be able to debunk the "myth" of "soaring federal employment," and, thus, label anyone who disagrees a "zombie."

Krugman's "proof" is the graph below, which does show that in Census years, there are temporary spikes in government employment. However, we still can see a significant growth (even without the Census workers) in federal employment since Obama took office.

As I see it, this significant increase demonstrates what many of the "zombies" (including me) have been saying: the government's policies of the last two years have turned the federal government into the only "growth" industry in the country. Furthermore, the addition of literally hundreds of thousands of government employees does nothing but increase the economic burden on everyone else.

So, who is the zombie? Could it be the guy who believes that an addition of government to be paid by everyone else is an economic "stimulus"? Oh, I forgot. "Sophisticated" economists have repealed the Law of Scarcity and the Law of Opportunity Cost.