The announcer praises FDR, declaring, "What a leader!" all because the president wanted inflation. Since we have had inflation with ALL presidents since then, I guess that all of the pass the MGM propaganda standard for being "great leaders."
Wednesday, May 30, 2012
Will this be Paul Krugman's Next Blog Post?
Wow! Nearly 80 years ago, Hollywood was channeling Paul Krugman! In this MGM propaganda video, we see how inflation -- yes inflation -- would be the savior of the country! (Note to people who actually believe this propaganda: deflation is an effect, not a cause.)
The announcer praises FDR, declaring, "What a leader!" all because the president wanted inflation. Since we have had inflation with ALL presidents since then, I guess that all of the pass the MGM propaganda standard for being "great leaders."
The announcer praises FDR, declaring, "What a leader!" all because the president wanted inflation. Since we have had inflation with ALL presidents since then, I guess that all of the pass the MGM propaganda standard for being "great leaders."
Tuesday, May 29, 2012
Krugman's New Political Correctness: Entrepreneurs are Parasites (Because anyone who has wealth is a parasite)
There is a new Political Correctness going about, and that is the claim that anyone whose income is above a certain level (say the upper one percent) only can be evaluated as a parasite, and Paul Krugman is one of the forces behind it. You see, the wealthy -- which include Krugman, since his annual income is in the millions of dollars -- have value ONLY in the amount of money that government takes from them via taxation.
When one views the world in Keynesian terms, then government is the only force that can create demand, since all good Keynesians know that Say's Law is wrong and that the source of consumption is not production, but rather printed money. True, inflation did not work well for Zimbabwe, but it will work for us because Krugman says it will.
Let us take Steven Jobs, for example. Some will mistakenly (according to the Holy Doctrines of the Church of Krugman) claim that by anticipating what consumers would want and then directing the production of goods that consumers readily purchased, Jobs ultimately made our economy wealthier. The profits he made were garnered because his entrepreneurial decision-making was correct.
Obviously, such a viewpoint no longer is Politically Correct. Jobs made more money than anyone else at Apple, so that makes him a parasite. His only value to society lay in the amount of taxes he paid, and the government should have taken more.
An economy, in Keynesians-Speak, is only about aggregates, and whenever government inflates the currency or takes huge chunks of income from the rich, it is "creating demand," and creation of demand ultimately creates jobs, and jobs are the source of wealth. (Note that I have not said "productive services" help create wealth; no, the only value that a job has is the income one earns and then spends.)
As I have said before, Krugman needs to begin with himself. If he were to give all of his income to the government, then there would be more income equality and more aggregate demand. A long journey, we know, begins with a single step.
When one views the world in Keynesian terms, then government is the only force that can create demand, since all good Keynesians know that Say's Law is wrong and that the source of consumption is not production, but rather printed money. True, inflation did not work well for Zimbabwe, but it will work for us because Krugman says it will.
Let us take Steven Jobs, for example. Some will mistakenly (according to the Holy Doctrines of the Church of Krugman) claim that by anticipating what consumers would want and then directing the production of goods that consumers readily purchased, Jobs ultimately made our economy wealthier. The profits he made were garnered because his entrepreneurial decision-making was correct.
Obviously, such a viewpoint no longer is Politically Correct. Jobs made more money than anyone else at Apple, so that makes him a parasite. His only value to society lay in the amount of taxes he paid, and the government should have taken more.
An economy, in Keynesians-Speak, is only about aggregates, and whenever government inflates the currency or takes huge chunks of income from the rich, it is "creating demand," and creation of demand ultimately creates jobs, and jobs are the source of wealth. (Note that I have not said "productive services" help create wealth; no, the only value that a job has is the income one earns and then spends.)
As I have said before, Krugman needs to begin with himself. If he were to give all of his income to the government, then there would be more income equality and more aggregate demand. A long journey, we know, begins with a single step.
Sunday, May 27, 2012
The Aliens are Coming! We MUST Build High-Speed Rail!
We now know what it will take to end the current depression: A few lies from American scientists (taking a break from claiming the seas are going to rise 20 feet) to get us ready to prepare for the vaunted invasion of "space aliens" and...high-speed rail.
Yes, in that world known as Wonderland, boondoggles will make us rich!
Said The Great One on a recent appearance with his soulmate, Bill Maher:
Yes, in that world known as Wonderland, boondoggles will make us rich!
Said The Great One on a recent appearance with his soulmate, Bill Maher:
This is hard to get people to do, much better, obviously, to build bridges and roads and healthcare clinics and schools. But my proposed, I actually have a serious proposal which is that we have to get a bunch of scientists to tell us that we're facing a threatened alien invasion, and in order to be prepared for that alien invasion we have to do things like build high-speed rail. And the, once we've recovered, we can say, “Look, there were no aliens.”
But look, I mean, whatever it takes because right now we need somebody to spend, and that somebody has to be the U.S. government.
Actually, this is Keynesianism in its purest form, for only in that world can one base a recovery on real-live boondoggles such as high-speed rail and claim to be speaking wisdom. No doubt, Maher was applauding every word.
Friday, May 25, 2012
Egos and Economists Who Yearn for the Nonexistent Past
One of the constant themes of Paul Krugman's writings these days, other than shilling for Barack Obama and Democrats in general, is the walk down memory lane to the nation's idyllic past where tightly-regulated industries wisely governed by The Great Eye Of Washington grew and grew until those Bad And Greedy Ideologues Led By Ronald Reagan completely overturned the Perfect System and replaced it with Greed And Chaos.
Now, I always find it interesting that people like Krugman claim that "turning back the clock" is a foolish and reprehensible thing to do -- except when people Krugman do it. Progressivism, as they see it, means that ANY new government regulation or regulatory system ALWAYS is an improvement over the previous chaotic regime when Evil Private Enterprise was in charge. Thus, any attempt to change anything can be borne only from evil intentions, as each law, each regulation, each encroachment by the State is another step toward the Perfect Society.
In a recent column, Krugman once again takes us down memory lane, telling us that Mitt Romney must have been the Second Coming of Oliver Stone's fictional character Gordon Gekko, the takeover specialist who bought healthy, profitable firms, gutted them, drove them into the ground, and ultimately made a profit from destroying companies. Now, this is quite interesting, coming from an economist, given that the scenario, while nicely fitting for Hollywood, describes an impossible set of events.
In Krugman's Wonderland, it is entirely plausible that a corporate raider only can make money if he drives a profitable company into bankruptcy. After all, in the Real World, if the parts (i.e. physical assets) of a firm are more valuable than the firm itself, then we know that the firm already was headed for doom.
For example, the value of Apple does not rest in its physical assets such as inventory, parts, building, and the like. Instead, the value of that firm lies in the ability of its people to move factors of production from lower-valued to higher-valued uses, as ultimately determined by consumers. If a corporate raider or any other company were to try to purchase Apple, it would have to buy the "whole," not the "sum of its parts," something that would make Apple's purchase price prohibitively expensive.
All of this is lost in Wonderland, where life is static, and the capital that served companies in 1950 (when the rest of the world was recovering from the devastation of World War II, as the USA was not a physical battleground and did not have destroyed factories and bombed-out cities) is still working perfectly 30 years later and produces exactly the same returns. This is the state of mind that brought Krugman's mentor, Paul Samuelson, to claim that socialism in the Soviet Union was a "powerful engine for economic growth" that sooner or later would overtake the capitalist world in economic strength.
After all, in Wonderland, an economy is little more than a graph of aggregate supply and aggregate demand (with a Keynesian Cross thrown in for good measure) in which government stirs in new money and out of the mixture comes full employment (as long as the "right people" are in charge of the apparatus of the state). Anything that might upset this picture always is portrayed as evil.
Now, what I find interesting, beyond Krugman's partisan shilling, is the following statement, which tells me more about Krugman's grasp of the current economy than it does even about his politics:
Now, one might remember the Solyndra debacle, and when one combines Solyndra's $500 million implosion with the other bankruptcies that Obama-financed firms have contributed (along with their millions in political contributions to Obama), the numbers are greater than J.P. Morgan's $2 billion trading loss, that has sent Krugman into apoplexy.Then there is General Motors, Obama's economic centerpiece:
As for GM and Chrysler, Krugman also has thrown in with the Obama administration on its action, yet in the "restructuring" of GM, the government pretty much forced massive layoffs and the like, the very things that Krugman claims make private equity to be the Very Spawn of Satan. The difference is that when private equity firms are in charge of layoffs, they tend to be done for economic reasons.
In the case of GM and Chrysler, however, it was quite clear from the start that the purpose of the bailout was to reward political contributors to the president and Democrats and to punish anyone who had the temerity not to bow down to Obama and his White House gang. This is what the ancients once called "Crony Capitalism," but when the cronies are Obama and company, then suddenly what was once a scourge now becomes an asset.
None of this is should be read as a defense for the current presidential candidacy of Mitt Romney. He has provided nothing in his campaign that tells me he has a clue of what is happening to this country and what needs to be done. Instead, he simply claims that he will "manage" the economy better than Obama has done.
The idea that Romney is running as a "Manager-in-Chief" should give anyone pause, and I don't think he will have any more economic success than did Richard Nixon, who presided over price controls, inflation, and economic stagnation. However, it seems that Krugman is clueless as to what Romney's real weaknesses might be. Instead, he shills for Obama because he believes that the president is the Right Man to lead us back to that era when government created cartels in banking, telecommunications, cartels, and energy and all was perfect and right with the world. Except that it wasn't.
Now, I always find it interesting that people like Krugman claim that "turning back the clock" is a foolish and reprehensible thing to do -- except when people Krugman do it. Progressivism, as they see it, means that ANY new government regulation or regulatory system ALWAYS is an improvement over the previous chaotic regime when Evil Private Enterprise was in charge. Thus, any attempt to change anything can be borne only from evil intentions, as each law, each regulation, each encroachment by the State is another step toward the Perfect Society.
In a recent column, Krugman once again takes us down memory lane, telling us that Mitt Romney must have been the Second Coming of Oliver Stone's fictional character Gordon Gekko, the takeover specialist who bought healthy, profitable firms, gutted them, drove them into the ground, and ultimately made a profit from destroying companies. Now, this is quite interesting, coming from an economist, given that the scenario, while nicely fitting for Hollywood, describes an impossible set of events.
In Krugman's Wonderland, it is entirely plausible that a corporate raider only can make money if he drives a profitable company into bankruptcy. After all, in the Real World, if the parts (i.e. physical assets) of a firm are more valuable than the firm itself, then we know that the firm already was headed for doom.
For example, the value of Apple does not rest in its physical assets such as inventory, parts, building, and the like. Instead, the value of that firm lies in the ability of its people to move factors of production from lower-valued to higher-valued uses, as ultimately determined by consumers. If a corporate raider or any other company were to try to purchase Apple, it would have to buy the "whole," not the "sum of its parts," something that would make Apple's purchase price prohibitively expensive.
All of this is lost in Wonderland, where life is static, and the capital that served companies in 1950 (when the rest of the world was recovering from the devastation of World War II, as the USA was not a physical battleground and did not have destroyed factories and bombed-out cities) is still working perfectly 30 years later and produces exactly the same returns. This is the state of mind that brought Krugman's mentor, Paul Samuelson, to claim that socialism in the Soviet Union was a "powerful engine for economic growth" that sooner or later would overtake the capitalist world in economic strength.
After all, in Wonderland, an economy is little more than a graph of aggregate supply and aggregate demand (with a Keynesian Cross thrown in for good measure) in which government stirs in new money and out of the mixture comes full employment (as long as the "right people" are in charge of the apparatus of the state). Anything that might upset this picture always is portrayed as evil.
Now, what I find interesting, beyond Krugman's partisan shilling, is the following statement, which tells me more about Krugman's grasp of the current economy than it does even about his politics:
In the wake of a devastating financial crisis, President Obama has enacted some modest and obviously needed regulation; he has proposed closing a few outrageous tax loopholes; and he has suggested that Mitt Romney’s history of buying and selling companies, often firing workers and gutting their pensions along the way, doesn’t make him the right man to run America’s economy.First, I had no idea that presidents "run America's economy," but there it is. Second, I find it quite interesting that he uses Obama as his stellar example of attacking capitalism. As Kimberly Strassel recently noted:
President Obama is no fan of Mitt Romney-style "vulture" capitalism. So what's his alternative?Strassel looks at Obama's record, and I find it quite interesting that Krugman refuses to apply the same standards to the President of the United States that he does private enterprise. Barack Obama as "Master of the Universe." Who would have thought it?
All those Republicans grousing about the president's attacks on private equity might instead be seizing on this beautiful point of contrast. Mr. Obama, after all, is no mere mortal president. Even as he's been busy with the day job, he's found time to moonlight as CEO-in-Chief of half the nation's industry. Detroit, the energy sector, health care—he's all over these guys like a cheap spreadsheet.
Like Mr. Romney, Mr. Obama has presided over bankruptcies, layoffs, lost pensions, run-ups in debt. Yet unlike Mr. Romney, Mr. Obama's C-suite required billions in taxpayer dollars and subsidies, as well as mandates, regulations, union payoffs and moral hazard. Don't like "vulture" capitalism? Check out the form the president's had on offer these past three years: "crony" capitalism.(Emphasis mine)
Now, one might remember the Solyndra debacle, and when one combines Solyndra's $500 million implosion with the other bankruptcies that Obama-financed firms have contributed (along with their millions in political contributions to Obama), the numbers are greater than J.P. Morgan's $2 billion trading loss, that has sent Krugman into apoplexy.Then there is General Motors, Obama's economic centerpiece:
Speaking of cars, Detroit is the business venture Mr. Obama's team has been most flogging as a success. True, General Motors and Chrysler are still turning their lights on, though they'd have arguably been doing the same had they been left to go through normal, orderly bankruptcies like those that helped the steel and airline industries restructure to become more competitive.I have my doubts that Krugman's future columns will deal with any of these sticky issues. (The Washington Post has an interesting column about Obama's "Public Equity" record.) He already is on the record as supporting the vast "green energy" subsidies in part because he believes coal is evil and in part because subsidies mean spending, and every Keynesian knows that spending, even if for financial turkeys, is the lifeblood of an economy.
To get to the same place, Mr. Obama's crony capitalism handed $82 billion in taxpayer dollars to the two firms. That bailout money went to make sure the unions that helped drive GM to bankruptcy (and helped elect Mr. Obama) did not have to give up pay or pension benefits for current workers. They were instead rewarded with a share of the new firm. The UAW at GM meanwhile used the government-run bankruptcy to bar some 2,500 nonunion workers who had been laid off from transferring to other plants. How truly vulture-like.
Contract law was shredded, as unions were given preference over other creditors, such as pension funds for retired teachers and police officers. Congressmen used political sway to keep open their weak auto dealerships, forcing layoffs at stronger ones (vulture . . . vulture . . . vulture). Political masters obliged the industry to pour resources into unpopular green cars. The political masters were obliged to offer $10,000 tax credits to convince Americans to buy them. (They still won't.) And the message to every big industry? Go ahead, run your business into the ground. The Capitalist-in-Chief has your back (especially if you are unionized).
As for GM and Chrysler, Krugman also has thrown in with the Obama administration on its action, yet in the "restructuring" of GM, the government pretty much forced massive layoffs and the like, the very things that Krugman claims make private equity to be the Very Spawn of Satan. The difference is that when private equity firms are in charge of layoffs, they tend to be done for economic reasons.
In the case of GM and Chrysler, however, it was quite clear from the start that the purpose of the bailout was to reward political contributors to the president and Democrats and to punish anyone who had the temerity not to bow down to Obama and his White House gang. This is what the ancients once called "Crony Capitalism," but when the cronies are Obama and company, then suddenly what was once a scourge now becomes an asset.
None of this is should be read as a defense for the current presidential candidacy of Mitt Romney. He has provided nothing in his campaign that tells me he has a clue of what is happening to this country and what needs to be done. Instead, he simply claims that he will "manage" the economy better than Obama has done.
The idea that Romney is running as a "Manager-in-Chief" should give anyone pause, and I don't think he will have any more economic success than did Richard Nixon, who presided over price controls, inflation, and economic stagnation. However, it seems that Krugman is clueless as to what Romney's real weaknesses might be. Instead, he shills for Obama because he believes that the president is the Right Man to lead us back to that era when government created cartels in banking, telecommunications, cartels, and energy and all was perfect and right with the world. Except that it wasn't.
Wednesday, May 23, 2012
Bob Murphy on Krugman and Job Losses
Bob Murphy proves again that there is no better critic of Paul Krugman and Voodoo Economics, as he uses Krugman's own data to point out flaws in the analysis of The Great One. I'll let readers go through the various quotes and charts that Murphy employs, but will add that once again, we see Krugman employing some sleight-of-hand in mixing the way he portrays job and wage numbers in order to cloud the picture.
What Krugman has been saying is that the current depression is due to an overall general lack of "demand," as opposed to structural imbalances in the economy. Thus, the way to "cure" the problem is for the government to throw trillions of dollars at it, and magically, things will turn around. However, as Murphy demonstrates, Krugman's own numbers, when presented in a normalized fashion, seem to support the Austrian argument.
Not that Krugman ever would admit it.
What Krugman has been saying is that the current depression is due to an overall general lack of "demand," as opposed to structural imbalances in the economy. Thus, the way to "cure" the problem is for the government to throw trillions of dollars at it, and magically, things will turn around. However, as Murphy demonstrates, Krugman's own numbers, when presented in a normalized fashion, seem to support the Austrian argument.
Not that Krugman ever would admit it.
Tuesday, May 22, 2012
What Kind of Regulation Do We Need?
One of the reasons I gave this blog the name it has is because many of Paul Krugman's claims seem to have originated in Wonderland, and his recent column on financial regulation proves once again that Krugman is a master of the half-truth and is more political operative than economist. He begins:
Before I deal directly with Krugman's claim -- that the financial industry in the USA is unregulated, despite its too-big-to-fail status -- I would like to point out something that I believe is ironic: the hypocrisy of the screams about J.P. Morgan losing two billion dollars when the NYT and Krugman are demanding that taxpayers pony up many billions of dollars in order to prop up the politically-connected "green energy" business. As I see it, if Krugman is so wanting to prevent huge financial and business losses in the economy, then I have a perfect place for him and his cohorts to begin: pulling the plug on "green energy" subsidies.
I will let the NY Times speak for itself (and I have no doubt that Krugman is in agreement, given his earlier support for such subsidies):
Nonetheless, Krugman makes a number of fallacious claims in his column, and I would like to briefly deal with them. First, he wants us to believe that "too-big-to-fail" is a natural consequence of a market system. One has to remember that in order to get to that kind of a size, a firm must outgrow external markets, and if that were to happen, then the firm would lose its ability to engage in economic calculation, something pointed out by Murray N. Rothbard in Man, Economy and State.
Firms don't do that on their own, as that same market that Krugman despises quickly would discipline the company for the inevitable economic errors it would be committing. Second, Krugman makes some heroic assumptions regarding economic and financial regulation, the most obvious being that somehow, a risk-averse regulator always or nearly always would know exactly what kind of decisions to make for the firm that is being regulated.
Instead, what we would see would be a replay of what happened over the years as the banking system set up during the New Deal evolved into a system that would fund only those established industries that also had close relationships with banking and the government. This effectively would be socialized banking without the official title of socialism, and anyone who has seen a socialist country knows a time warp that such risk-averse systems create.
Many of the things that we enjoy today came about because of entrepreneurs both in finance and in the creation of new products, and I will say unequivocally that the system that Krugman demands to be in place would not be capable of taking the kinds of risks that were necessary to create modern telecommunications, home computers, cell phones, the Internet as we know it, and numerous things that simply did not exist three decades ago and would not have existed at all had Krugman had his way.
One has to remember that nowhere in Krugman's formal economic training did he learn anything about entrepreneurship. His program at MIT was heavily into mathematical models and it is impossible to model entrepreneurship as such. Instead, the models will assume "a new technology" or some other "shock" and then the math is applied from there.
Thus, I will contend that because Krugman is hostile to anything outside the mathematical realm, and because the Austrians are the ones that really have integrated entrepreneurship into their entire economic analysis (and Krugman already has demonstrated his utter hostility to all things Austrian), that he really is incapable of intellectually understanding entrepreneurship. Furthermore, he maintains a childlike belief in the Progressive view of economic regulation, as though all one has to do is to have enough faith in the regulators and the system they represent, and the regulators will make omniscient decisions.
It is not that the financial system does not need regulation; indeed, it does need regulation, but the kind that only the markets can apply. Instead, we get the kind of regulation that depends upon political relationships, implied bailouts, and moral hazard on steroids.
Oh, and then people like Krugman tell us that a Really Good Deal is subsidized energy, which destroys wealth while it drains taxpayers and makes them poorer. Maybe we ought to be putting these regulatory burdens upon the Solyndras and making the banks and financial houses account for their own losses.
Sometimes it’s hard to explain why we need strong financial regulation — especially in an era saturated with pro-business, pro-market propaganda. So we should always be grateful when someone makes the case for regulation more compelling and easier to understand. And this week, that means offering a special shout-out to two men: Jamie Dimon and Mitt Romney.Given that we have a leftist president who hates capitalism (or at least capitalism that is not based upon giving him campaign contributions and requires political connections), and given that the leading media organizations tend to be anti-capitalist, I'm not sure where this "pro-business, pro-market propaganda" can be found. Nonetheless, because Krugman makes this claim, his followers will say that his very words make his point true.
Before I deal directly with Krugman's claim -- that the financial industry in the USA is unregulated, despite its too-big-to-fail status -- I would like to point out something that I believe is ironic: the hypocrisy of the screams about J.P. Morgan losing two billion dollars when the NYT and Krugman are demanding that taxpayers pony up many billions of dollars in order to prop up the politically-connected "green energy" business. As I see it, if Krugman is so wanting to prevent huge financial and business losses in the economy, then I have a perfect place for him and his cohorts to begin: pulling the plug on "green energy" subsidies.
I will let the NY Times speak for itself (and I have no doubt that Krugman is in agreement, given his earlier support for such subsidies):
The federal government has given generously to the clean energy industry over the last few years, funneling billions of dollars in grants, loans and tax breaks to renewable power sources like wind and solar, biofuels and electric vehicles. “Clean tech” has been good in return. (Indeed, since they have contributed "generously" to Obama's re-election campaign. That is the only "good" return I can surmise would be the case.)I must admit that even someone as cynical as I is stunned by this nonsense. Here are Krugman and his employer screaming about a firm losing two billion while at the same time claiming that losses of close to $100 billion by a single industry are somehow "good" for the economy. (The NYT also commits the "Broken Window Fallacy" by claiming that the "clean energy" industry "was one of the few sectors to add jobs." The addition of these "jobs" did not add wealth, but rather destroyed it, but that little bit of logic is anathema to the likes of NYT editors and Paul Krugman.)
During the recession, it was one of the few sectors to add jobs. Costs of wind turbines and solar cells have fallen over the last five years, electricity from renewables has more than doubled, construction is under way on the country’s first new nuclear power plant in decades. And the United States remains an important player in the global clean energy market.
Yet this productive relationship is in peril, mainly because federal funding is about to drop off a cliff and the Republican wrecking crew in the House remains generally hostile to programs that threaten the hegemony of the oil and gas interests. The clean energy incentives provided by President Obama’s 2009 stimulus bill are coming to an end, while other longer-standing subsidies are expiring.
If nothing changes, clean energy funding will drop from a peak of $44.3 billion in 2009 to $16 billion this year and $11 billion in 2014 — a 75 percent decline.
This alarming news is contained in a new report from experts at the Brookings Institution, the World Resources Institute and the Breakthrough Institute. It is a timely effort to attach real numbers to an increasingly politicized debate over energy subsidies.
Nonetheless, Krugman makes a number of fallacious claims in his column, and I would like to briefly deal with them. First, he wants us to believe that "too-big-to-fail" is a natural consequence of a market system. One has to remember that in order to get to that kind of a size, a firm must outgrow external markets, and if that were to happen, then the firm would lose its ability to engage in economic calculation, something pointed out by Murray N. Rothbard in Man, Economy and State.
Firms don't do that on their own, as that same market that Krugman despises quickly would discipline the company for the inevitable economic errors it would be committing. Second, Krugman makes some heroic assumptions regarding economic and financial regulation, the most obvious being that somehow, a risk-averse regulator always or nearly always would know exactly what kind of decisions to make for the firm that is being regulated.
Instead, what we would see would be a replay of what happened over the years as the banking system set up during the New Deal evolved into a system that would fund only those established industries that also had close relationships with banking and the government. This effectively would be socialized banking without the official title of socialism, and anyone who has seen a socialist country knows a time warp that such risk-averse systems create.
Many of the things that we enjoy today came about because of entrepreneurs both in finance and in the creation of new products, and I will say unequivocally that the system that Krugman demands to be in place would not be capable of taking the kinds of risks that were necessary to create modern telecommunications, home computers, cell phones, the Internet as we know it, and numerous things that simply did not exist three decades ago and would not have existed at all had Krugman had his way.
One has to remember that nowhere in Krugman's formal economic training did he learn anything about entrepreneurship. His program at MIT was heavily into mathematical models and it is impossible to model entrepreneurship as such. Instead, the models will assume "a new technology" or some other "shock" and then the math is applied from there.
Thus, I will contend that because Krugman is hostile to anything outside the mathematical realm, and because the Austrians are the ones that really have integrated entrepreneurship into their entire economic analysis (and Krugman already has demonstrated his utter hostility to all things Austrian), that he really is incapable of intellectually understanding entrepreneurship. Furthermore, he maintains a childlike belief in the Progressive view of economic regulation, as though all one has to do is to have enough faith in the regulators and the system they represent, and the regulators will make omniscient decisions.
It is not that the financial system does not need regulation; indeed, it does need regulation, but the kind that only the markets can apply. Instead, we get the kind of regulation that depends upon political relationships, implied bailouts, and moral hazard on steroids.
Oh, and then people like Krugman tell us that a Really Good Deal is subsidized energy, which destroys wealth while it drains taxpayers and makes them poorer. Maybe we ought to be putting these regulatory burdens upon the Solyndras and making the banks and financial houses account for their own losses.
Friday, May 18, 2012
Krugman and the "Magic" of Inflation
I remember reading a book 30 years ago in which the author said that in the end, Keynesians have one arrow and only one in their quiver: inflation. While they might deny that to be true (Hey! We have FISCAL policy!! We borrow a lot of money that is created by the Fed!)
But Paul Krugman certainly seems anxious to prove the author's point, as once again he calls for the "solution" of printing money as salvation for Europe. For that matter, he has long advocated the same "salvation" for this country, continuing that fallacy that our economy is exactly like the so-called babysitting co-op in Washington.
Today's column is pretty typical of Krugman. While I agree that the bank-imposed "austerity" measures put on the regimes of Greece and Spain are not helpful to economic growth, my differences with Krugman are substantial. To Krugman, the entire thing is spending; the more a government spends, the richer everyone becomes, end of discussion. And if the government does not have enough to spend in tax revenues, then print money or borrow, but spend, spend, spend.
As I see it, restructuring any economy in order to place its debt service at the top (which means high tax rates) is likely to be counterproductive in the short run AND long run. Like it or not, governments usually are an impediment to economic growth and certainly not an engine of the same.
For Krugman, financial bubbles ARE the soul of capitalism, period. In his view, investors are a bunch of lemmings that always run over the cliff unless wise government agents steer them otherwise. As Austrians see it, the culprit is going to be the central bank or government in one form or another.
(For those people who claim that the housing bubble was SOLELY the result of private investment, they ignore the role of the Federal Reserve System, Freddie and Fannie, and a government that demanded that more people be put into home ownership, damn the consequences.)
So, what is Krugman's "solution"? He provides it here:
But Paul Krugman certainly seems anxious to prove the author's point, as once again he calls for the "solution" of printing money as salvation for Europe. For that matter, he has long advocated the same "salvation" for this country, continuing that fallacy that our economy is exactly like the so-called babysitting co-op in Washington.
Today's column is pretty typical of Krugman. While I agree that the bank-imposed "austerity" measures put on the regimes of Greece and Spain are not helpful to economic growth, my differences with Krugman are substantial. To Krugman, the entire thing is spending; the more a government spends, the richer everyone becomes, end of discussion. And if the government does not have enough to spend in tax revenues, then print money or borrow, but spend, spend, spend.
As I see it, restructuring any economy in order to place its debt service at the top (which means high tax rates) is likely to be counterproductive in the short run AND long run. Like it or not, governments usually are an impediment to economic growth and certainly not an engine of the same.
For Krugman, financial bubbles ARE the soul of capitalism, period. In his view, investors are a bunch of lemmings that always run over the cliff unless wise government agents steer them otherwise. As Austrians see it, the culprit is going to be the central bank or government in one form or another.
(For those people who claim that the housing bubble was SOLELY the result of private investment, they ignore the role of the Federal Reserve System, Freddie and Fannie, and a government that demanded that more people be put into home ownership, damn the consequences.)
So, what is Krugman's "solution"? He provides it here:
Italy and, in particular, Spain must be offered hope — an economic environment in which they have some reasonable prospect of emerging from austerity and depression. Realistically, the only way to provide such an environment would be for the central bank to drop its obsession with price stability, to accept and indeed encourage several years of 3 percent or 4 percent inflation in Europe (and more than that in Germany).
Both the central bankers and the Germans hate this idea, but it’s the only plausible way the euro might be saved. For the past two-and-a-half years, European leaders have responded to crisis with half-measures that buy time, yet they have made no use of that time. Now time has run out.So will Europe finally rise to the occasion? Let’s hope so — and not just because a euro breakup would have negative ripple effects throughout the world. For the biggest costs of European policy failure would probably be political.
Yes, salvation through inflation, as though a central bank can "manage" rates of inflation over time. Krugman's love affair with inflation totally ignores the underside of such a policy, and ignores the fact that over time, the corrosive effects of inflation grow and any "positive" effects (i.e. "deleveraging") tend to diminish.
You see, Krugman truly seems to believe that the only "bad" effects of inflation would be higher prices, although those higher prices would be offset by higher incomes. Inflation, at least in Wonderland, has no effect upon investors' choices, it does not direct money into lines of production that are unsustainable, and it has no destructive effects at all unless it gets out of hand, and even then, the results are not very bad.
Like the Bourbons who, in the words of Tallyrand, "learned nothing and forgot nothing," the Keynesians never learn from inflation, and in the end always reach for that last arrow. Like Krugman, who apparently believes that the Obama administration can subsidize the economy into recovery (see "green energy" and other such nonsense), Keynesians truly believe that all assets are homogeneous, and that an economy is a mixture into which one stirs money and if one stirs in enough money and forces everyone to spend, out of it comes prosperity.
That is a Wonderland view of economics, but apparently that is what our economic and political elites are trying to claim is the truth. So print and spend yourselves into prosperity, Europeans! It must be so, it must be so!
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