The Market, not the Central Bankers, Should Decide Interest Rates

Like Paul Krugman, I have little or no pity for the Banksters who are demanding that the rest of us stop saying nasty (and true) things about them. Unlike Paul Krugman, I believe that interest rates should be permitted to rise -- if that is where the market says they should be.

Krugman claims that Banksters believe that low interest rates are "feeding inflation," something he claims is not true. Yes, oil prices are rising, and so are gold and other commodities, but Krugman has an explanation for that: natural volatility and "emerging markets." (He also appeals to the same excuse that the Soviets used to explain decades of bad harvests: bad weather.)

Here is the problem: interest rates should not be decided politically. According to Krugman, any raising of rates will trigger a new bout of unemployment, and at one level he is correct. However, the artificially low interest rates that Krugman endorses are having the perverse effect of preventing the necessary relocations in the economy that will bring about a recovery. Explains Bob Murphy:

...at some point reality rears its ugly head. The central bank hasn't created more resources simply by buying assets and lowering interest rates. It is physically impossible for the economy to continue cranking out the higher volume of consumption goods as well as the increased output of capital goods. Eventually something has to give. The reckoning will come sooner rather than later if rising asset or even consumer prices makes the central bank reverse course and jack up interest rates. But even if the central bank keeps rates permanently down, eventually the physical realities will manifest themselves and the economy will suffer a crash.

During the bust phase, entrepreneurs will reevaluate the situation. If the government and central bank don't interfere, prices will give accurate signals about which enterprises should be salvaged and which should be scrapped. Those workers who are in unsustainable lines will be laid off. It will take time for them to search through the developing opportunities and find a niche that is suitable for their skills and is sustainable in the new economy.

During this period of reevaluation and search, the measured unemployment rate will be unusually high. It's not that workers are "idle," or that their productivity has suddenly dropped to zero; rather, it's that they need to be reallocated, and that takes time in a complex, modern economy. This delay can be due to simple search, where the workers have to look around to find the best spot that is already "out there," or it can be due to the fact that they have to wait on other workers to "get things ready" before the unemployed workers can resume.

Since Krugman holds that factors of production (for analytical purposes) are homogeneous, then raising interest rates makes no sense, as all that needs to happen is for government to stimulate more spending, which then will automatically translate to producers ramping up their productions lines, and all soon will be well. If this were the case -- and it did not matter where capital investments were made -- then Krugman would be correct.

However, if factors from labor to capital ARE heterogeneous, and that the value relationship between those factors matters, then Krugman actually is fighting against the very necessary economic readjustments that are needed to create a meaningful recovery. Furthermore, we forget that this country had an economic recovery -- a substantial recovery -- in the 1980s even though interest rates were substantially higher than they are now. The image below demonstrates my point:

Now, it is true that interest rates fell during the recovery, but they still remained in double-digits through much of the 1980s when the economy was going strong. Unfortunately, because Krugman continues to stick to his "aggregate demand" thesis, all of this to him is white noise.

As I see it, the issue is not whether the government or central bank or anyone else should decide if interest rates rise or fall. I want to know what the market says about rates of interest, and I cannot help but believe that with the Fed trying to flood the world with dollars, that they are going to go up sooner rather than later. But they will rise.

We Have Reached the Goal!

Yes, two days before the campaign on The Point, we have passed the $5,000 threshold. Johanna and I are thankful to God and thankful for all of you who have contributed. (If you still wish to contribute, you can do so.)

This will be used to help with the up-front agency fees and the like.

Best wishes to all of you. Thanks!!

Our "Point" Fundraising Efforts

At the top of this blog, you see the icon for The Point, which is an effort on our part to raise $5,000 by Monday, January 31, in pursuit of our adoption of a girl from Latvia. If we don't reach our goal, then we receive none of what has been pledged.

This is not part of an on-going campaign. We intend to finance most of the $30,000 needed ourselves, mostly by cutting way back on spending and by my picking up extra work on the side. Nonetheless, we are about $2,400 from our goal and hope that anyone who wishes to pledge will do so.

Thanks.

A "War on Demand" or a War on Reason?

In a recent blog post, Paul Krugman is all atwitter over what he perceives to be a "widespread attack on demand-side economics." Not surprisingly, in his defense of Keynesianism, he manages to launch his own misguided attack on anyone who might think that "aggregate demand" is not an economic concept.

He writes:

...we’re seeing a much more widespread attack on demand-side economics. More than that, it’s becoming clear that many people don’t so much disagree with the idea that demand matters as find it abhorrent, incomprehensible, or both. I fairly often get comments to the effect that I can’t possibly believe what I’m saying about monetary or fiscal policy, that no sensible person could believe that printing money or engaging in deficit spending will increase output and employment — never mind that all I’m saying is what Econ 101 textbooks have been saying for the last 62 years.

First, the fact that something might appear in a textbook -- even for 62 years -- does not make it correct. It seems that Krugman is taking a chapter out of the "market test" view of economics that the Chicago School has used in an attempt to discredit the Austrian School.

Krugman, like Keynes, bases his viewpoint on a misstatement of Say's Law, in which he presents a caricature of what J.B. Say wrote in his Chapter XV of Book I in A Treatise on Political Economy. He writes:

First, Keynes was right: Say’s Law — the notion that income must be spent, and hence that supply creates its own demand — really is at the heart of the issue. Many, many people just can’t see how it’s possible for there to be an overall shortfall of demand.

Number one, what Krugman writes is NOT Say's Law, not even close. It is what Krugman and others of his intellectual generation WANT Say's Law to proclaim, yet as one who has read this chapter many times and who published a paper a year ago on it, I can say that what Krugman has written is nonsense.

The chapter in question dealt with the very issues Krugman raises, although it was done more than 130 years before The General Theory was written. In Krugman's caricature, he misinterprets Say's chapter as being written to claim that "aggregate demand" always is sufficient to purchase everything that is produced, as though it is impossible for there to be what Thomas Malthus and others claimed would be a "glut of commodities" that would exist because people would not spend their income.

Say did not deny that there could be a "glut" at times; in fact, he addresses that very issue, beginning with a situation in which there are unsold goods and the economy seems to be in the tank. (This should be a tipoff to the intellectual dishonesty of Krugman's position; Say addresses the very thing that Krugman claims that Say claimed was impossible.)

What Say did argue, and what I have argued in the paper I linked, was that there could be proportional imbalances in the economy, that there would be -- at least temporarily -- "too much" of something produced (Housing bubble, anyone?) and simultaneously, too little of something else.

However, what Say does not do is to lay out the causes of such problems. In his chapter, he only addresses the pre-Keynes/Krugman argument that the problem is due to a lack of "aggregate demand" (they did not use that term in 1803) brought about by a lack of money or a "general overproduction."

The issue Say covered was the source of demand itself: production of goods that could be traded for other goods. Keynes, and later Krugman, would argue that because people are paid in money for producing things, and because they have a tendency to save (and especially the wealthy, which is why Krugman believes that they should be taxed at higher rates -- so government will spend that money), that the market system itself has an internal contradiction that always leads to the problem of overproduction/underconsumption.

Say demolishes that argument in his Chapter XV, and I would invite readers to look at it for themselves, as opposed to taking Krugman's interpretation as gospel. However, Krugman is not satisfied at just attacking that point of view. No, he has to claim that anyone who thinks J.B. Say had a good point is doing so because of irrational moral scruples:

It’s becoming clear to me that a substantial number of writers on economics find the whole idea that the economy can suffer because people are too thrifty, insufficiently willing to spend, deeply repugnant. I’m the sort of person who finds the notion that sometimes virtue is vice and prudence folly interesting; but it’s clear that a number of people find that notion just plain evil. The world shouldn’t be like that — and therefore it isn’t.

And so he continues:

It’s kind of shocking if you think about it. Here we have a huge, hard-won intellectual achievement, one that accounts very well for the world we actually see, and yet it’s being thrown away because it doesn’t go along with ideological preconceptions. Once that sort of thing starts, where does it stop? The next thing you know, the theory of evolution will get the same treatment. Oh, wait.

In other words, this is not an argument about the efficacy of savings versus investment or even the perceived role of "aggregate demand." No, it is an argument between the Smart People (like Krugman) and the Yahoos who are so stupid that they might even believe in Creationism, which every writer at the NY Times knows is a notion that only Really Stupid and Immorally-Ignorant People will embrace.

In other words, in the end, this isn't even an argument about economic theory. No, it is not worthy even of argument. Krugman is saying that those people who disagree with his Keynesian views are so ignorant and so lacking of any regard at all that it would be better for the world if they were not alive. And they certainly deserve not even to be in the presence of Krugman at all, unless, of course, they agree to be treated as people once regarded children: people to be seen but not heard.

Does Anyone Understand the Meaning of "Competitiveness"?

OK, I start this post by agreeing with Paul Krugman this morning that the term "competitiveness" is hackneyed and essentially meaningless. However, as I read Krugman's column today, I think that Krugman has come to believe that all that is needed to make our economy more "competitive" is for the Fed to print more money and the government to spend it.

That's right; we need to be Number One in spending. That will revitalize the U.S. economy, at least according to Krugman, who sees "jobs" in and of themselves as the sign of a truly "competitive" economy:

It’s true that we’d have more jobs if we exported more and imported less. But the same is true of Europe and Japan, which also have depressed economies. And we can’t all export more while importing less, unless we can find another planet to sell to. Yes, we could demand that China shrink its trade surplus — but if confronting China is what Mr. Obama is proposing, he should say that plainly.

Furthermore, while America is running a trade deficit, this deficit is smaller than it was before the Great Recession began. It would help if we could make it smaller still. But ultimately, we’re in a mess because we had a financial crisis, not because American companies have lost their ability to compete with foreign rivals.

This demands a larger question, which Krugman does not ask: Why did we have a financial crisis in the first place? The secondary question is this: What needs to be done in order to bring the economy into a recovery, given we have had a financial crisis?

For Krugman, the answer is simple because his view of an economy is simple: Increase government spending. He writes:

The favorable interpretation (of President Obama's new "competitiveness" initiative), as I said, is that it’s just packaging for an economic strategy centered on public investment, investment that’s actually about creating jobs now while promoting longer-term growth. The unfavorable interpretation is that Mr. Obama and his advisers really believe that the economy is ailing because they’ve been too tough on business, and that what America needs now is corporate tax cuts and across-the-board deregulation.

My guess is that we’re mainly talking about packaging here. And if the president does propose a serious increase in spending on infrastructure and education, I’ll be pleased.

He further adds:

The financial crisis of 2008 was a teachable moment, an object lesson in what can go wrong if you trust a market economy to regulate itself. Nor should we forget that highly regulated economies, like Germany, did a much better job than we did at sustaining employment after the crisis hit. For whatever reason, however, the teachable moment came and went with nothing learned.

In both cases, Krugman employs the non sequitur as his rhetorical device. In the first quote, he assumes that if the government suddenly starts more public works construction jobs and showers new money on government schools, that the economy will regenerate itself (or at least start on the path to regeneration).

In the second quote, he creates the syllogism:

• Germany's economy has more regulation than that of the USA
• German employment losses have not been as great as those in this country
• Therefore, a more heavily-regulated economy creates more prosperity.

This ignores the particular areas of regulation, as it makes a blanket statement about regulation but fails to deal with any specifics. Furthermore, throughout the column, Krugman has only one standard for prosperity: employment.

It reminds me of a television debate that a Marxist "economist" had with a "free-market" economist about 30 years ago. The second economist had just come back from Romania and he was pointing out how poor the people were and how badly things worked there.

The Marxist replied (as though this statement trumped everything else), "But there is no unemployment there." In other words, having an official "job" as named by the government was the ultimate sign of prosperity and "competitiveness," and while Krugman is not claiming (at least I don't think he is claiming) that Romania under Nicolai Ceaucescu's tyrannical government was superior to whatever we had in this country, nonetheless he uses the employment standard as though nothing else matters.

In fact, he contrasts his ideal government policy with private business, writing:

Consider: A corporate leader who increases profits by slashing his work force is thought to be successful. Well, that’s more or less what has happened in America recently: employment is way down, but profits are hitting new records. Who, exactly, considers this economic success?

Again, we are seeing the non sequitur at work. According to this statement, Krugman seems to believe that workers are pure cost, and that the more layoffs a company has, the greater its profitability will be. Thus, he reasons, a "competitive" private economy will have high unemployment AND high profits, which means that a "competitive" private sector actually is BAD for an economy and for human welfare in general.

Krugman demonstrates the typical macroeconomic view of an economy, seen through aggregates and the false belief that all factors of production are homogeneous and that there is no connection between production and consumption. However, no company becomes more profitable simply by having mass layoffs. Layoffs are a response to changes in consumer choices for the final products made by the firm. Labor is a factor of production, a heterogeneous factor; labor is meaningful as it applies to production, and if its discounted marginal revenue product falls to less than its marginal cost, then a company is wise to jettison that factor, just as it jettisons other factors that become cost burdens.

Furthermore, an economy cannot grow unless entrepreneurs find ways to make more final goods while using fewer resources. At the same time, a growing economy finds ways to take the temporarily unused resources and apply them to other productive uses.

Krugman, however, sees no connection between resources and economic growth. For example, he has written that we can "rebuild" our economy via "green energy," yet none of those industries are able to survive without government mandates, special tax breaks, or outright subsidies.

To an economist, there is a fundamental difficulty with a so-called green economy: it cannot stay afloat without cannibalizing the healthy and profitable areas of production. To Krugman, however, it is all just a matter of spending, and if government borrows and taxes and regulates in order to force Americans to purchase products they don't want, then that is good for the economy.

True, I have used a non sequitur, but that is what Krugman seems to be saying. In his view, the only thing that matters is employment. If government spends and hires people to engage in "jobs," then prosperity will follow, as all that matters are aggregates.

That makes no sense, economically speaking. If Krugman is right, and if the primary issue is simply "creating jobs" so that people can have an income, why do we need production at all? Wouldn't it be even better if the Federal Reserve System just printed zillions of dollars and left bags of money with each person? Since "spending" magically leads to everything else, why wouldn't that be a perfect solution to our problems?

To Krugman, an economy is a mass of numbers and nothing else. There are no relative prices and no interrelationships between factors of production. Thus, to him, "competitiveness" is based on the rate of unemployment, which means that there is nothing in his viewpoint that would have refuted the Marxist I heard 30 years ago claim that Romania's economy -- under which most people in that country lived in poverty -- was superior to that of the United States.

Krugman's Nixonian Anti-Chinese Screed

Paul Krugman has gone to great lengths to blame China for the current economic depression that the USA and other nations are suffering. Yes, it those dastardly Chinese saved too much; they hold down the real value of their currency; they don't charge enough for their goods, and on and on and on.

In today's NYT column, Krugman goes on another anti-China screed, although at least he does have some lucid moments. So, let us begin. Krugman writes:

The root cause of China’s muddle is its weak-currency policy, which is feeding an artificially large trade surplus. As I’ve emphasized in the past, this policy hurts the rest of the world, increasing unemployment in many other countries, America included.

However, as Don Boudreaux correctly points out, it seems that Krugman contradicts himself later. Krugman says:

But a policy can be bad for us without being good for China. In fact, Chinese currency policy is a lose-lose proposition, simultaneously depressing employment here and producing an overheated, inflation-prone economy in China itself.

One way to think about what’s happening is that inflation is the market’s way of undoing currency manipulation. China has been using a weak currency to keep its wages and prices low in dollar terms; market forces have responded by pushing those wages and prices up, eroding that artificial competitive advantage. Some estimates I’ve heard suggest that at current rates of inflation, Chinese undervaluation could be gone in two or three years — not soon enough, but sooner than many expected.

China’s leaders are, however, trying to prevent this outcome, not just to protect exporters’ interest, but because inflation is even more unpopular in China than it is elsewhere. One big reason is that China already in effect exploits its citizens through financial repression (other kinds, too, but that’s not relevant here). Interest rates on bank deposits are limited to just 2.75 percent, which is below the official inflation rate — and it’s widely believed that China’s true inflation rate is substantially higher than its government admits.

Rapidly rising prices, even if matched by wage increases, will make this exploitation much worse. It’s no wonder that the Chinese public is angry about inflation, and that China’s leaders want to stop it.

But for whatever reason — the power of export interests, refusal to do anything that looks like giving in to U.S. demands or sheer inability to think clearly — they’re not willing to deal with the root cause and let their currency rise. Instead, they are trying to control inflation by raising interest rates and restricting credit.

Boudreaux counters:

In short, Beijing keeps the value of the yuan too low by buying dollars with newly created yuan – a policy that Mr. Krugman correctly recognizes to be inflationary.

But as we read on to paragraph ten, we find Mr. Krugman singing an altogether different dirge. He there complains that Beijing now is “trying to control inflation by raising interest rates and restricting credit. This is destructive from a global point of view: with much of the world economy still depressed, the last thing we need is major players pursuing tight-money policies.”

If the “root cause” of the low value of the yuan is Beijing’s inflationary monetary policy – and if this policy harms, as Mr. Krugman says, both China and the rest of the world – why does Mr. Krugman scold Beijing for tightening its monetary policy?

That is a good question. Now, in fairness to Krugman, he is claiming that the proper course of action is for China's government to permit the value of the Chinese currency to rise against the U.S. Dollar, which would make Chinese goods more expensive for Americans.

Krugman reasons that such a policy would shrink China's trade surplus with this country, and that is true. For that matter, I believe that such a policy is more harmful to China than it is to the USA because that means the Chinese are holding dollars which are falling in value and the value of U.S. Government debt also is going to decline.

To put it another way, Americans get Chinese goods, and the Chinese get American paper. Krugman believes that is a better deal for China, and a really bad deal for this country.

Why? He claims that such policies reduce "aggregate demand" in the USA and jack up the rate of unemployment. However, if the end of production is consumption, then China's policy means that Americans are not having to pay the full freight for goods they get to use. (The Chinese at the same time are having to pay more for the goods they produce, which means that the government policy is making them poorer.)

Krugman's perspective is that of a Keynesian, and Keynesians get things backward. To a Keynesian, the purpose of production is, well, production. That is why Keynesians will claim that World War II "ended the Great Depression," because they look at GDP and the rate of unemployment and nothing else.

During World War II, Americans experienced high levels of deprivation that were every bit as serious as what they experienced during the Great Depression. Yes, everyone had a job and money in their pockets, but neither meant that much, as goods were rationed or difficult to find.

I don't support what the Chinese government is doing, but as I see it, the greater victims are the Chinese, not the Americans. China is not responsible for our near-10 percent rate of unemployment; U.S. Government policies from both the Bush and Obama administrations are responsible.

When Nixon faced a huge financial crisis in August 1971, his response was not to look inward, but instead to blame the rest of the world. Economically speaking, his administration was a disaster.

While Krugman recognizes that Nixon's policies of imposing price controls was futile, he never does seem to understand that if China imposes such controls on itself, that the Chinese will bear the brunt of the trouble, not Americans. But even here, I must admit to being puzzled. After all, during the California electricity crisis of a decade ago -- a crisis caused primarily by the fact that the state imposed price controls on the same of electricity -- Krugman claimed that price controls would result in more supply and lower prices.

So, if he holds to that same belief today, then I would think he would be applauding the latest actions of the Chinese government. Go figure.

Yes, Paul, Bob Murphy Exists -- and He is a Better Economist than You Are

So, after shunning debate and the like, Paul Krugman finally admits that Robert Murphy exists, although I hardly think that what Murphy wrote constituted as "puerile insults." Yes, this comes from a person who mocks people who disagree with him as "zombies." No immaturity there.

The article to which Krugman refers is this one on capital theory, something that is missing from Krugman's Keynesian analysis as well as from the old Chicago School. (In their view, capital magically appears, as economists simply can assume it into existence. Don't try this at home.)

I think that Krugman and Murphy can argue this on their own without any help from me. Here is Murphy's post on his own blog regarding Krugman's post. Read and enjoy.

(I am back from speaking to the Gulf Coast Economics Club in Pensacola. A great time was had by all, and now it is time to get to work at my day job.)

Robert Wenzel and the March Toward Socialism

Paul Krugman does not like to say that government control of the economy is socialism, and maybe he is correct. After all, the Nazi government controlled prices, picked "winners and losers," and directed production.

Producers got to own the property (in name, at least) and those favored producers got to be profitable, but at the expense of those people and companies that were not politically connected or simply were scorned by Hitler and his gang. We called that "Fascism." Another term might be "Crony Capitalism."

Today, we have a regime that tries to pick winners, rewards friends, and direct production to those lines favored by Washington. Call it what you will, but Robert Wenzel in this post calls it socialism. And I think he is correct.

On the Road Today

I'm speaking to the Panhandle Economics Club in Pensacola, Florida, and am on the road. I write this post from Dulles Airport near Washington.

Yes, I most likely will mention Paul Krugman during my talk, but only peripherally. I'll be back to regular posting later this week.

Just Who is Conducting a War on Logic?

In his column today, the hyper-partisan Paul Krugman is excoriating the Republicans in Congress for what he claims is their ongoing "war on logic." Krugman may be partially correct, given that we are dealing with Washington, D.C., and the Republicans, but the way he defends his own point are, well, violations of logical constructs.

In other words, Krugman seems to be adept at recognizing breaches of logic because he long ago gave up logic in the pursuit of partisan attacks disguised as economic analysis. I will not concentrate on his actual attacks on the Republicans, as I don't want readers to think that I have a whit of trust for the GOP, which proved long ago that it was a party of fiscal recklessness, and whose leaders (and most of the rank-and-file, for that matter) still seem wedded to the destructive belief that we can have our empire abroad and freedom at home.

Instead, I want to concentrate on other points to note why I am saying that Krugman claims that he is fighting against a "war on logic" by declaring war on...logic. He writes:

So, about that nonsense: this week the House is expected to pass H.R. 2, the Repealing the Job-Killing Health Care Law Act — its actual name. But Republicans have a small problem: they claim to care about budget deficits, yet the Congressional Budget Office says that repealing last year’s health reform would increase the deficit. (Emphasis mine)

Krugman claims that repealing ObamaCare actually will swell the federal deficit. Why? Because the Congressional Budget Office says so.

He is claiming that a projection by an office that rarely is correct in its projections, and whose principals are eager to please their congressional masters, is something akin to Holy Writ. (I add that Krugman believes that the CBO is infallible ONLY when Democrats control Congress, part of his logical chain depends upon which is the party in power.)

One of the important aspects of logic is that one have correct premises, and Krugman is declaring that his premise -- ObamaCare as contained in the 2,500-page monstrosity that no one has read in toto -- is correct. Yet, there really is no reason to assume that the CBO is correct; we are to assume that it is because Krugman says it is.

What Krugman claims -- and it under-girds his entire logical edifice -- is that bills passed by Congress by Democrat majorities and signed by a Democrat president will have the exact results that its creators claim they will have. In Krugman's logical world, there is no Law of Unintended Consequences, there are no perverse incentives that are created, nor does anyone negatively affected by the legislation ever change his or her behavior.

Furthermore, there is nothing wrong in Krugman's world in setting up straw men and then demolishing the false creation, and then claiming an intellectual triumph. But Paul Krugman is a logical man. Why? Because he says so.

Krugman's Fairy Tales

One of the things one supposedly learns in the academic world is that while the world has its black-and-white issues, there also are many shades of gray. Now, I am not speaking so much of "situational ethics" or even what some have called "the New Morality" (which is not particularly moral nor new), but rather those areas where people may disagree on what is the right thing to do in certain things.

Another thing we supposedly learn in that world is that one does not argue legitimately by setting up straw men and then demolishing them. One has to be careful in setting up generalities that simply have no meaning as the foundation of one's arguments.

Over the years, I have been fortunate to have met a number of well-known economists, including a number who have won the Nobel Prize in economics. Furthermore, I have known a lot of their friends and have had the opportunity to sit with some of them and have long conversations, as well as see them interact with others.

A number of them have had columns and articles in the popular media, including the late Milton Friedman and Gary Becker, and I read many of them. I cannot recall one time when either of them ever drew the distinction that they were holy and moral and anyone who disagreed with them was pure evil. In fact, many of these Nobel winners have demonstrated a real graciousness toward those in other camps.

And then there is Paul Krugman, who really draws the line in today's column, "A Tale of Two Moralities." In this column, we find there are two kinds of people in our society.

The first group he describes as such:

One side of American politics considers the modern welfare state — a private-enterprise economy, but one in which society’s winners are taxed to pay for a social safety net — morally superior to the capitalism red in tooth and claw we had before the New Deal. It’s only right, this side believes, for the affluent to help the less fortunate.

These are the good people, as they want wonderful things for those who are less fortunate. Unfortunately, he continues, there also are the Bad People in our midst:

The other side believes that people have a right to keep what they earn, and that taxing them to support others, no matter how needy, amounts to theft. That’s what lies behind the modern right’s fondness for violent rhetoric: many activists on the right really do see taxes and regulation as tyrannical impositions on their liberty.

How do these people differ? Krugman explains:

There’s no middle ground between these views. One side saw health reform, with its subsidized extension of coverage to the uninsured, as fulfilling a moral imperative: wealthy nations, it believed, have an obligation to provide all their citizens with essential care. The other side saw the same reform as a moral outrage, an assault on the right of Americans to spend their money as they choose.

He goes on to explain that the Good People are Democrats, but the Bad People are Republicans. The Good People are kind, generous (at least with other people's money), and make good neighbors.

The Bad People, on the other hand, are violent, greedy, selfish, and are so out-of-control that there really is no reasoning with them, as they reject any attempt at reconciliation. These Bad People have no socially or morally redeeming values, and Krugman promises to show how they also spread a bad social theology:

But that was then. Today’s G.O.P. sees much of what the modern federal government does as illegitimate; today’s Democratic Party does not. When people talk about partisan differences, they often seem to be implying that these differences are petty, matters that could be resolved with a bit of good will. But what we’re talking about here is a fundamental disagreement about the proper role of government.

Regular readers know which side of that divide I’m on. In future columns I will no doubt spend a lot of time pointing out the hypocrisy and logical fallacies of the “I earned it and I have the right to keep it” crowd. And I’ll also have a lot to say about how far we really are from being a society of equal opportunity, in which success depends solely on one’s own efforts.

I only can wonder how Krugman deals with students at Princeton who are not in his moral corner. After all, he is publicly declaring that their views are immoral and illegitimate and have no place in decent society. After having seen how much of the faculty at Duke University dealt with the false allegations in the infamous Duke Lacrosse Case of four years ago, Krugman does have a model to follow, and the faculty members who engaged in the worst conduct at Duke also are people in Krugman's political corner.

Of course, only the Bad People make false allegations. Only the Bad People engage in violence. (There were no Obama supporters outside a polling place making threats. That is just your imagination.)

The first is that the Tucson shooter was not a political person, and what happened is not necessarily something that falls into the category of political violence. There is no evidence that Jared Lougher knew the identity of the federal judge, and I don't think one murders nine-year-old girls for political reason.

Krugman, however, has ignored the facts because they don't fit his narrative. But there is even a bigger issue that Krugman ignores and that is the violence committed by government agents. I never have seen Krugman speak on one incident in which those wearing government costumes have engaged in unwarranted violent behavior against innocent people.

(Will Grigg has documented government violence against innocents -- including outright murder -- numerous times. I guess that the very act of pointing out that fact, according to Krugman, makes Grigg a violent person.)

The closest Krugman has come to dealing with that issue was about 10 years ago (I have not found the column but remember reading it) when he wrote that there was no abuse by the IRS of taxpayers. There was no government violence, and if there was, well those on the receiving end deserved it. In other words, according to Paul Krugman, even if the government engages in unwarranted violence, as long as Democrats are in charge, we are to take it no matter what.

Notice that what he is saying is that if one does not accept the ObamaCare bill in toto, then one wants other Americans to die for lack of medical care. To question a bill that runs 2,500 pages with much of the contents being open-ended (to be "interpreted" by the bureaucracies) is to be evil and violent, not to mention utterly selfish.

Furthermore, if one questions the extremely "liberal" use of the Commerce Clause in the Constitution, one is a violence-loving purveyor of evil. In fact, given his views of American society and capitalism before the New Deal, it would seem that he believes that life was pure hell until FDR came along with all of his alphabet-soup programs.

Krugman's logic runs into another problem: it seems that, according to a study by Arthur Brooks, those who Krugman claims are greedy -- conservatives -- tend to give away a larger portion of their income than do liberals. Of course, Krugman believes that the ONLY acceptable kind of "giving" comes through taxation and transfer payments. There can be NO argument here.

There is another point I believe needs to be made: most Republicans believe in and support the Welfare State. In fact, like a lot of Democrats, they support the Welfare-Warfare State and never have attempted any serious repeal of welfare (or warfare) measures when they were in power. Thus, Krugman has set up the straw man Republican when, in reality, there are no Republicans in power (except for Ron Paul) that really fit that description.

And, I only can guess that Krugman, who has smeared Ron Paul before, would claim that Rep. Paul is someone who advocates mindless political violence and murder. After all, he does believe that much of the modern state is illegitimate, so A MUST follow B. Why? Because Krugman says so.

My guess is that Krugman sees nothing polarizing about his rhetoric. People who agree with him are the Good People, and everyone else is a Bad Person. And that is the "wisdom" that comes from the august Princeton faculty these days.

My Appearance on Freedom Watch

Here is the link to my appearance in Judge Andrew Napolitano's "Freedom Watch." We discuss the recent statements by Paul Krugman. I appear at about the five-minute-mark in Part II, which is linked here.

I tried to download this video directly, but was unsuccessful.

My Appearance on Judge Napolitano's Show Wednesday

I'll be going to New York today (via Amtrak) and will be gone until Friday night, so posting is likely to be spotty at best. I'm attending a conference in the city, and I'll have a report on that later.

On Wednesday night, January 12, I am scheduled to appear on Judge Andrew Napolitano's show, "Freedom Watch," on the Fox Business Channel. We tape between 4:30 and 6, and the show comes on at 8 p.m.

Hope everyone has a great week!

Krugman's Climate of Dishonesty

In reading Paul Krugman's column today on the Arizona shooting -- a very predictable column, I might add, given Krugman's political views -- I am struck by the fact that we have a mathematical economist who adds 2 + 2 and gets 5. Not only is his theme dishonest, but he also goes about presenting the information dishonestly.

When he first heard about what happened, Krugman said the following on his blog Saturday:

We don’t have proof yet that this was political, but the odds are that it was. She’s been the target of violence before. And for those wondering why a Blue Dog Democrat, the kind Republicans might be able to work with, might be a target, the answer is that she’s a Democrat who survived what was otherwise a GOP sweep in Arizona, precisely because the Republicans nominated a Tea Party activist. (Her father says that “the whole Tea Party” was her enemy.) And yes, she was on Sarah Palin’s infamous “crosshairs” list.

So, he right away assumes that some Angry White Male Who Belonged To The Tea Party carried out the shooting. Furthermore, he claims that the ONLY angry rhetoric directed against her was coming from the right, yet he apparently ignores (and one wonders if he is doing this on purpose) the hateful rhetoric that was directed at her from the Daily Kos, which is a hard-left Democrat website that adores Paul Krugman.

(The post quickly was taken down after the shooting, as the Kos wanted to make sure that Sarah Palin received the blame. I checked the site this morning and there is no reference to anything the Daily Kos had from its own side, and it once again is blaming Palin and the Usual Suspects from the Tea Party, as well as a quote from Krugman. Gabrielle Giffords, it seems, committed the sin of voting for John Lewis for speaker instead of Nancy Pelosi. Obviously, according to the Daily Kos, that alone was worthy of death.)

Since the shooting occurred, we have found much more information about the shooter, Jared Lougher. Apparently, the guy was somewhat a person of the Left, and it is quite doubtful that Sarah Palin influenced him to do anything. He apparently is someone whose behavior has been growing increasingly bizarre and disruptive. Furthermore, it is abundantly clear that he has had nothing to do with the Tea Party or any of the other protest movements.

All of that information is known to us, and it was available when Krugman wrote today's column. Thus, I come down hard on him precisely because he purposely ignores the facts. Krugman writes:

...there has, in fact, been a rising tide of threats and vandalism aimed at elected officials, including both Judge John Roll, who was killed Saturday, and Representative Gabrielle Giffords. One of these days, someone was bound to take it to the next level. And now someone has.

It’s true that the shooter in Arizona appears to have been mentally troubled. But that doesn’t mean that his act can or should be treated as an isolated event, having nothing to do with the national climate. (Emphasis mine)

In other words, after first having claimed Saturday that the shooter MUST have been tied to the Tea Party, Krugman now ignores the guy's background and life circumstances. Why? It does not fit Krugman's narrative.

As one who does not watch television -- and especially the political talk shows like those on MSNBC with Keith Olbermann and Rachel Maddow and the ones on the right on Fox News -- I have no idea if the rhetoric is comparable or not between right and left. However, when I read the following from Krugman, I have to wonder how a Nobel Prize winning economist can stretch language with a straight face:

And there’s a huge contrast in the media. Listen to Rachel Maddow or Keith Olbermann, and you’ll hear a lot of caustic remarks and mockery aimed at Republicans. But you won’t hear jokes about shooting government officials or beheading a journalist at The Washington Post. Listen to Glenn Beck or Bill O’Reilly, and you will.

Now, I really doubt that either Beck or O'Reilly (neither of whom I respect) have called for political opponents to be shot and killed. I HAVE seen (on YouTube) some of the hateful rhetoric that Olbermann has directed toward Ron Paul. On this segment, he accuses Paul of treason, which carries the death penalty. No doubt, if O'Reilly were to accuse someone of treason, Krugman would claim he was trying to have that person killed.

In other words, with Krugman it is "heads I win, tails you lose." Anyone who disagrees with Krugman and his friends and makes that disagreement public is a traitor and an inciter of hate. Now, this is the same Paul Krugman who has smeared other economists with hateful rhetoric, calling them "zombies." (Robert Murphy lays out the Krugman theme in this insightful article.)

So, in the end, Krugman jumps into what clearly is a tragic situation and throws around partisan rhetoric, makes up his own narrative, and ignores the facts. Had Sarah Palin written that Rep. Giffords was "dead to me" on her website, would Krugman have pretended she never said anything like that?

Right. Years ago, I wrote that Krugman was not an economist, but rather was a political operative. I have not changed that opinion a whit, and Krugman's column today proves my point.

It is one thing for political hacks like Olbermann or Beck or even the people at the Daily Kos to frame everything that happens in political terms and ignore pertinent facts. I expect that kind of behavior from them.

However, when a decorated academic economist does the same -- and calls it careful analysis -- I draw the line. I NEVER have seen or heard hateful rhetoric coming from other Nobel Prize winning economists, ever, and I have spent hours with many of them. Yet, with Paul Krugman, it seems that all we get is hate and name-calling and political talking points. I will let you be the judge of that kind of behavior.

Krugman is Deep in the Heart of Taxes

Paul Krugman loves those "Aha!" moments in which he believes (or at least wants US to believe) that an economy can thrive only if government tax heavily and have lots of union workers on the payroll. In his Friday column, he claims to have discovered one of those moments in his supposed expose of Texas.

Yes, Texas is having a budget shortfall in state government which is supposed to be shocking to anyone who believes that governments during a recession should cut back upon the burdens they place on others. As usual, Krugman depends not only upon a left-wing "think tank" to supply ideology masquerading as analysis, but also upon the kinds of stereotypes that really are not acceptable in academic thinking.

Krugman writes:

These are tough times for state governments. Huge deficits loom almost everywhere, from California to New York, from New Jersey to Texas.

Wait — Texas? Wasn’t Texas supposed to be thriving even as the rest of America suffered? Didn’t its governor declare, during his re-election campaign, that “we have billions in surplus”? Yes, it was, and yes, he did. But reality has now intruded, in the form of a deficit expected to run as high as $25 billion over the next two years.

Gee, I'm shocked. The country is mired in a depression and tax revenues are down everywhere. If anyone would think (or declare publicly) that Texas could be exempt from this problem because of its policies, I would also want to sell them a nice railroad tunnel that runs between New Jersey and Manhattan.

He continues:

And that reality has implications for the nation as a whole. For Texas is where the modern conservative theory of budgeting — the belief that you should never raise taxes under any circumstances, that you can always balance the budget by cutting wasteful spending — has been implemented most completely. If the theory can’t make it there, it can’t make it anywhere.

Once again, Krugman gives us a caricature of analysis versus serious thinking. In theory, obviously, if one cuts any budget enough, be it a state, national, municipal, or home budget, one can balance it. The issue, however, is the opportunity cost of raising taxes, and Krugman has been saying throughout the economic crisis that there is no opportunity cost when it comes to government spending. (In fact, while he has not openly said he believes in the Keynesian balanced budget multiplier -- in which higher taxes lead to more spending, which revitalizes the economy -- he writes as though he believes in it.)

As I see it, there is no "theory" here, unless one brings in the balanced budget multiplier "theory." Instead, we are dealing with an accounting problem: How does a state -- which is required by law to have a balanced budget each year -- deal with the problem in which its projected spending outstrips its projected revenues?

In fact, it seems to me that Krugman discredits his earlier statement in the next paragraph:

How bad is the Texas deficit? Comparing budget crises among states is tricky, for technical reasons. Still, data from the Center on Budget and Policy Priorities suggest that the Texas budget gap is worse than New York’s, about as bad as California’s, but not quite up to New Jersey levels.

First, the CBPP is a left-wing organization that is not exactly going to be objective in this situation. My guess is that if someone who were publicly disagreeing with Krugman were to use something from the Heritage Foundation, Krugman immediately would claim that the study is "tainted."

Second, Krugman includes three states that have followed pretty much the Krugman Policy Standards of spending and raising taxes. If Krugman's "theory" were to be applied here -- that militant public sector unions are "good for the economy" and that raising taxes will help stymie a recession -- then California, New York, and New Jersey should be wallowing in surpluses. Yet, they face real crises, and according to Krugman's "theory," that should not be the case.

In other words, Krugman really is saying nothing that is significant. Furthermore, he repeats the canard about education spending, as though it were the key to academic and economic success. If that were true, then Washington, D.C., public schools, which spend more per pupil than any states, would be the best in the country instead of one of the worst systems.

There is a much larger issue here. A welfare state is not an economic plus; it is a financial burden. One can argue as to its necessity, well as debate whether or not it makes things better in the long term, but Krugman is not interested in doing that.

I am not defending Texas or Gov. Rick Perry, or anything about its state government. Being that Texas seems to have this problem about prosecutors being out of control (something with which I deal in my other blog), I have nothing good to say about the issue of governance in that state.

However, if Krugman is wanting to argue that the "theory" of cutting spending is discredited, then one would have to claim that his "alternative hypothesis" (that raising taxes and increasing spending is the way to beat a recession) is true. Yet, we see the "alternative theory" at work in California and New York, and both of those places are bleeding jobs and revenue.

Krugman, not surprisingly, is silent on that point. But I have a better idea: Let us see how the Illinois legislature's current plan works. The Democrats, which control politics in that state (which means they have all of the answers, if one follows Krugman's partisan missives), have proposed a 75 percent increase in the state's income tax rates and a huge increase in the cigarette tax.

If Krugman is correct, then Illinois should be able to solve its budget problems and also create new avenues of prosperity. Perhaps we should revisit the state in a year to see if Krugman's "theory" is correct.

Our family's pursuit of another adoption

In my brief bio sketch on this blog, I note that three of my children are adopted from overseas. My two sons are Ethiopians (now age 15) and my 11-year-old daughter is from Guatemala. I also have an adult daughter who is married and has two young children.

For several years, my wife and I have wanted to adopt another girl who is Sasha's age, but our earlier efforts to adopt through the U.S. foster care system were unsuccessful. (I could say a lot about our experience with that system, but let me just say that it gave us an education in the U.S. childcare bureaucracy, and it both was eye-opening and very unpleasant.)

Last year, we concluded that perhaps God wanted our family to remain as it was, but neither my wife nor I had lost the desire to add one more child. We recently met an 11-year-old orphan from Latvia, Dace (pronounced "Dot-say") who is up for adoption, and after much prayer and deliberation, we have decided to pursue her adoption.

Neither of us have come to this decision lightly, and we have done so only after a lot of prayer and deliberation. This adoption will require that we raise a lot of money, and that we really cut back on discretionary spending. I'll have to work harder than ever, but I believe with all my heart that it is the right thing to do.

You will see that I have placed the link to our website on this blog and in this post. If you feel led to visit our adoption blog, please do. As you can see, we also have a place for people to donate to this project, should they feel led to do so.

I will post updates from time to time. In the meantime, I ask that you pray for our efforts, as this is something we never can accomplish on our own. Thank you.

It's Not the Euro, Paul

When I went to Baylor School in Chattanooga (when it was an all-boys' military school), one of our traditions was to have senior write-ups in the yearbook, along with a quote that would characterize the particular senior. (Perhaps my favorite quote was that given to Mike Aiken of our Class of 1971, which read, "Life is one damn thing after another." If you know Mike, you know that one is perfect.)

For another friend who was graduated several years before me, there was this: "The problem with the world is wine, women, and song. We must stop singing." Obviously, that line is meant to be humorous, but when someone actually tries to apply something similar to economic analysis, well, the joke ceases to be funny.

One of the reoccurring themes in Paul Krugman's blog posts has been his dissatisfaction with the results of European countries adopting the Euro as a single currency. In a recent post, he writes:

As readers may have guessed, I’ve been working on a euro-related project; more about that one of these days. But for now, I thought it might be worth explaining a bit more about how I see the political economy.

Some readers have chimed in that the euro is essentially a political rather than economic project. Well, it’s both; that has been the European strategy ever since the Schuman declaration. The point is to deliver a series of economic integration plans that do double duty: they’re economically productive, but they also create “de facto solidarity”, moving Europe closer to political union.

For 60 years, this strategy has been highly successful. Europe is one of the great, inspiring stories of the modern world, maybe of all time: peace, prosperity, and democracy flourishing where once there were minefields and barbed wire.

But: the strategy depends on each move toward economic integration being both a political symbol and a good economic idea. That was clearly true of coal and steel, the common market, the eurosausage, and so on. It is, however, by no means clear that the euro passes that test. Europe’s limited labor mobility (although there’s more than there used to be) and, crucially, lack of fiscal integration makes a common currency a dubious proposition at best.

In this and in other posts and columns in which he blames the Euro for much of the turmoil on the Continent, Krugman confuses cause with effect. As I have noted in other posts dealing with Krugman's Euro fetish, Krugman seems to believe that the "solution" for Europe is yet another round of inflation, a "hair of the dog" monetary and fiscal strategy.

At the center of this problem is the fact that the huge European welfare apparatus, along with the power of government employee unions such as those in Greece, Spain, and Frace, only can be supported if the economies of those nations produce enough wealth to enable governments to spread it around. Furthermore, the taxation and regulation policies of those nations must be such that it is possible for private firms to create enough wealth in the first place.

Unfortunately, one of the things that happens in economic downturns is that tax revenues fall and it becomes obvious that the lavish government benefits given to government employees cannot be supported by that country's economic activity. Now, as Krugman has noted, in the past, when each of these government controlled its own fiat currency, one "solution" was devaluation, which in reality is nothing more than a government's admission of trying to paper over its losses by engaging in a glorified printing of new money.

This, economically speaking, is not a solution at all. It simply masks the underlying problems and creates new problems in the process. Not only does this strategy continue the charade of "giving" people something that is illusory, but it also undermines an economic recovery.

However, when a country does not control its fiat currency, as is the case of the Euro, then the problems become much more front-and-center. Greece, for example, is in trouble because it no longer can afford to give government employees pay and benefits that they are not earning, and the Greek government employees have responded by going on a rampage of rioting, murder, and destruction of property.

The Euro is not the cause of this trouble; instead, it is the messenger, the entity that bears the bad tidings. What is Krugman's response? It is shoot the messenger. In Krugman's view, there is nothing wrong with runaway government benefits; in fact, he argues, such spending helps the economy by "stimulating" it.

While there often is much not to like about "austerity" moves, nonetheless for the most part they are little more than policies that reflect the economic reality of the present time. (My problem with "austerity" is that it often emphasizes the implementation of new taxes without cutting enough spending; I'm all for the reality of "pay as you go," but we have to understand that we cannot kill the Golden Goose in the process.)

Krugman really seems to believe that we can pretend we are creating wealth simply by borrowing, spending, and creating new money. Yet, these actions don't create wealth; they destroy it. Krugman may call such a statement the product of "zombie economics," but to claim that government spending by itself "creates wealth" is the real "zombie" position.

Krugman's "Death Panels" for the Economy

Paul Krugman definitely has thing thing about "death panels." In fact, he so much is enamored with them that apparently he believes that the American economy itself should be forced to die.

That is not what he believes he is saying, but as I see it, his recommendations are akin to bleeding the patient to death (and digging our economic hole even deeper). He writes in his most recent column:

If there’s one piece of economic wisdom I hope people will grasp this year, it’s this: Even though we may finally have stopped digging, we’re still near the bottom of a very deep hole.

So, what does Krugman recommend? Well, he seems to believe that we are not digging fast enough, and that more digging will get us out of the hole. Krugman declares:

So what can be done to accelerate this all-too-slow process of healing? A rational political system would long since have created a 21st-century version of the Works Progress Administration — we’d be putting the unemployed to work doing what needs to be done, repairing and improving our fraying infrastructure.

Yes, yes, bring back the WPA! Yeah, the organization with the alternative title, "We Piddle Around," and "We Poke Along." I'm not sure that a "rational political system" would be creating such waste, but to Krugman, the economy simply is a mechanistic mass of homogeneous factors into which one throws in a bunch of money, with an economy magically appearing.

What Krugman never will understand is that the kind of government he demands is a burden to the economy, not a stimulator. I have yet to see him suggest one thing that actually would make our economy stronger. Instead, he claims that we can have a recovery based upon government spending and subsidized "green energy" production.

Now, both Krugman and I see problems on the horizon, but for two very different reasons. First, here come Krugman's worries:

Realistically, the best we can hope for from fiscal policy is that Washington doesn’t actively undermine the recovery. Beware, in particular, the Ides of March: by then, the federal government will probably have hit its debt limit and the G.O.P. will try to force President Obama into economically harmful spending cuts.

I’m also worried about monetary policy. Two months ago, the Federal Reserve announced a new plan to promote job growth by buying long-term bonds; at the time, many observers believed that the initial $600 billion purchase was only the beginning of the story. But now it looks like the end, partly because Republicans are trying to bully the Fed into pulling back, but also because a run of slightly better economic news provides an excuse to do nothing.

Now, I am not sure how the Fed's QE2 or QE100 would "promote job growth" in the long term, given that it would more likely result in stagflation. For that matter, what this economy needs is real economic growth, and if that occurs, then "job growth" will follow.

Instead, Krugman really seems to believe that if the government creates official "jobs" and then pays people with printed money (QE2 version), then the result will be a growing, robust economy. Well, maybe Krugman and Brad DeLong believe that nonsense, but everything he is recommending will do nothing but make the economic hole we are in even deeper and the sick economy even more ill.