Sunday, March 27, 2011

It ain't just the "right wing," Krugman

Despite the fact that the hard left pretty much controls American higher education, as well as public education, Paul Krugman wants us to believe that the barbarian right is poised for a takeover of the education process. So, in this column, he points to some Republican attacks on a University of Wisconsin professor who wrote a column in the New York Times that, I guess, praised Democrats (surprise, surprise).

Now, I agree with Krugman that whatever the guy wrote is his business and the tactics that Republicans are using are reprehensible. If Krugman were simply to stop there and defend academic freedom, I'd be his biggest cheerleader.

However, Krugman being Krugman, he cannot stop at that point, and given the viciousness of his attacks on people who disagree with him, I would say that Paul Krugman is little more than someone who believes in "free speech for me, but not for thee." Instead, he then goes to the "Climategate" emails that were made public a couple of years ago and claims that there was nothing in them that smacked of fraud or even bad science.

Not surprisingly, a real scientist has a different take. Professor Emeritus of physics Hal Lewis of the University of California at Santa Barbara recently resigned from the American Physical Society after 67 years of membership and a distinguished career. He is not a right-winger, nor someone who believes science should be politicized. But it also is clear he does not see the "Climategate" emails in the same way Krugman sees them, writing in his resignation letter:
It is of course, the global warming scam, with the (literally) trillions of dollars driving it, that has corrupted so many scientists, and has carried APS before it like a rogue wave. It is the greatest and most successful pseudoscientific fraud I have seen in my long life as a physicist. Anyone who has the faintest doubt that this is so should force himself to read the ClimateGate documents, which lay it bare. (Montford’s book organizes the facts very well.) I don’t believe that any real physicist, nay scientist, can read that stuff without revulsion. I would almost make that revulsion a definition of the word scientist.
He goes on:
So what has the APS, as an organization, done in the face of this challenge? It has accepted the corruption as the norm, and gone along with it. For example:

1. About a year ago a few of us sent an e-mail on the subject to a fraction of the membership. APS ignored the issues, but the then President immediately launched a hostile investigation of where we got the e-mail addresses. In its better days, APS used to encourage discussion of important issues, and indeed the Constitution cites that as its principal purpose. No more. Everything that has been done in the last year has been designed to silence debate

2. The appallingly tendentious APS statement on Climate Change was apparently written in a hurry by a few people over lunch, and is certainly not representative of the talents of APS members as I have long known them. So a few of us petitioned the Council to reconsider it. One of the outstanding marks of (in)distinction in the Statement was the poison word incontrovertible, which describes few items in physics, certainly not this one. In response APS appointed a secret committee that never met, never troubled to speak to any skeptics, yet endorsed the Statement in its entirety. (They did admit that the tone was a bit strong, but amazingly kept the poison word incontrovertible to describe the evidence, a position supported by no one.) In the end, the Council kept the original statement, word for word, but approved a far longer “explanatory” screed, admitting that there were uncertainties, but brushing them aside to give blanket approval to the original. The original Statement, which still stands as the APS position, also contains what I consider pompous and asinine advice to all world governments, as if the APS were master of the universe. It is not, and I am embarrassed that our leaders seem to think it is. This is not fun and games, these are serious matters involving vast fractions of our national substance, and the reputation of the Society as a scientific society is at stake.

3. In the interim the ClimateGate scandal broke into the news, and the machinations of the principal alarmists were revealed to the world. It was a fraud on a scale I have never seen, and I lack the words to describe its enormity. Effect on the APS position: none. None at all. This is not science; other forces are at work. (Emphasis mine)
I would urge you to read the letter in full, as it tells what happens when governments that want certain results throw money at scientists. Now, I am sure Paul Krugman would not mind this one bit, and I doubt he would give someone like Professor Lewis the back of his hand (or worse).

However, since Krugman is talking about academic freedom, what about the case of Pat Michaels, the former State of Virginia climatologist and professor at the University of Virginia. A. Barton Hinkle writes:
They (conservatives) recall how Virginia’s former state climatologist, Pat Michaels, essentially was hounded out of his job at the University of Virginia because—although he agrees with the mainstream view that human activity is warming the planet—he is insufficiently alarmist about it. Gov. Tim Kaine’s administration publicly disowned Michaels. Environmentalists tried to have his funding cut. And the champions of academic freedom now so vocally defending Mann were, back then, conspicuously silent.
Since I never read any defense of Michaels' academic freedom from Krugman or his ilk, I think it is safe to say that Krugman most likely approved of what happened to him. After all, Michaels, in Krugman's parlance, is a "denier," and thus loses any academic credibility or right even to be teaching in a university.

No doubt, this is just another example of the double standard Paul Krugman employs when gracing us with his opinions. If Krugman or people with whom he agrees say something, then it must be supported in the name of free speech and academic freedom. However, disagree with the Master and his opinions on a variety of things, then release the hounds!

Thursday, March 24, 2011

Is Elizabeth Warren the "Keeper of the Secret"? Part II

In a recent defense of Elizabeth Warren's confirmation, Paul Krugman declares that "Elizabeth Warren is Not Jesus," although the fawning descriptions I read of her in the regular emails I receive from Sojourners would tell me that she is at least someone who has spent time at the Right Hand of the Lord.

Krugman does have this revealing point to make, however:
Certainly in my case, while I like and admire Warren, I’m under no illusions that all will be right with the world if Warren does, in fact, become head of the Consumer Financial Protection Board. For one thing, consumer protection is at best a piece of financial reform, and arguably not the most important piece. And Warren is just a good person, not a saint; she’s trying to work within the political limits of the possible, which means that much of what she does falls well short of what we’d like to see done.

But in a way that’s the point: if a basically moderate, reasonable, well-intentioned person with such a good track record can be demonized, there is truly no hope for reform. And yes, defending Warren is an opportunity to fight the anti-reformers on relatively favorable ground: she’s so obviously not a power-mad radical that the venom of the attacks makes the right look as unhinged as it really is.

My general view of politics and policy is that there are no saints and no geniuses; place too much faith in anyone, and you’re bound to be let down. But there are villains, and they need to be fought. (Emphasis mine)
Indeed, that is EXACTLY what Krugman does: demonizes anyone who might think a different thought than comes from his head. Does one think that Ben Bernanke's QE2 ultimately will have a destructive effect? Obviously, you want people to be out of work and to suffer.

Do you think that "stimulus" spending on "infrastructure" might not be a good thing? Then you are a racist who supports slavery. You see, anyone who doubts that inflation is a wondrous and wonderful thing and that the state can spend us into a prosperity cannot possibly have good motives for such thinking, as they represent a way of seeing the world that is unacceptable in Krugman's world.

Yet, beyond all that, why do I have problems with Elizabeth Warren and the whole notion that Frankendodd is not going to lead us into financial nirvana? After all, Warren is intelligent and I have no doubt that she actually is outraged by some of the, well, outrageous lending practices that occurred, especially during the housing bubble. Moreover, I am sure that Warren would like to keep people from being put into a situation in which they lose their homes and possessions due to foreclosure, and there is nothing wrong with that.

The problem Warren faces as the Super Regulator is twofold. First, to use the examples set by Ludwig von Mises, the idea that a bureaucracy can engage in the kind of economic calculation that would enable Warren and her staff to be able to efficiently set out the proper conditions for nearly all loans is beyond her competence or the competence of everyone else. Furthermore, government regulators do not make decisions on whether or not the people involved are, economically speaking, going to be able to move resources from lower-valued to higher-valued uses in a very complex economy.

Now, there actually is a way to help ensure fewer lending abuses: let banks and financial houses actually have to bear the consequences of bad lending decisions. Instead, the "Greenspan/Bernanke Put" always loomed in the background, providing enough moral hazard in the system to ensure that easy money policies of the Fed ultimately would prove to be a disaster.

Instead, we will have the worst of both worlds. First, there will be policies in which the government still is going to try to push the policies of easy credit and home ownership. Credit will be distributed on a political basis.

Second, to try to combat the obvious problems that politically-based lending creates, Warren and her minions will attempt to impose a "One Size Fits All" set of "solutions" on the credit markets. This assumes not only that Warren really has all of the answers, but that she can effectively engage in central economic planning, something that has eluded all other planners in the past.

In his seminal paper, "The Use of Knowledge in Society," F.A. Hayek noted that socialism (or the kind of regulatory apparatus that Krugman endorses) is built upon the premise that central planners have all of the requisite knowledge that is needed to make an economy work. Because that kind of knowledge is decentralized, he argued, in the end the planners will be flying blind and will be unable to direct an economy successfully.

While Warren would be heading an agency and not an entire economy, she obviously would not be the only central planner in Washington. However, she would be overseeing the agency that would set policies regarding lending, who receives loans, what terms, and so on. Don't kid yourself if you believe that she is going to make those decisions on the basis of anything but what would be politically-acceptable in Washington.

Guess what? The last time I checked, government was and is political.

Monday, March 21, 2011

Is Elizabeth Warren the "Keeper of the Secret"? Part I

One of the hallmarks of a politicized society is that people caught up in the mix tend to believe that there is a "keeper of the secret" just over the horizon -- if only we can get this person into office. Lest one think I exaggerate, remember that during the fall of 2008, Barack Obama rode into office on a wave of the worst kind of, frankly, idolatry, as children's choirs literally were singing "Obama's gonna save us" and worse.

(I hope that the Statlers and Walldorfs of this blog will admit that Obama DID run as a Messiah, and his campaign did little to dispel that notion that The Chosen One was going to fix everything. Hmmm. How well is THAT working out today?)

Paul Krugman today has a new "Keeper of the Secret," Elizabeth Warren. Yes, Elizabeth Warren is "gonna save us" if only she can do the job that Dodd-Frank (or, as I like to call it, "FrankenDodd") has declared she will do.

Before addressing some of the specifics of Krugman's column, let me point out that people (like Krugman) who believe that we can have successful centralized government planning of the economy also tend to believe that there is a Special Person, the "Keeper of the Secret" who actually can make socialism or Socialism Lite work without the whole apparatus crashing and burning. Obama was the latest Knight in the White House, and we are told that if only -- if only -- Bobby or Teddy or even John, Jr., Kennedy could have occupied 1600 Pennsylvania Avenue, that today we would be living in a socialist heaven.

Now to Elizabeth Warren and Krugman's latest screed about how the Mean and Evil Republicans are picking on Messiah Lite. First, and most important, the position of "director" of FrankenDodd's "consumer protection agency" is supposed to be appointed by the president but approved by...Congress. So, the same people who screamed bloody murder when George W. Bush appointed people to various positions in the government and did an end run around Congress now are screaming bloody murder because Congress doesn't bow down and worship the person Obama appointed in an end run around Congress.

Sorry, people, if you want to have a politicized society, then you have to understand that in politics, truth and fairness simply don't matter. Krugman embraced that principle long ago and now he is enraged when others do the same thing.

Do you remember when the New York Times and people of Krugman's political ilk were going after Charles W. Pickering, calling him a racist and a Klan sympathizer? Yes, this is the same Charles Pickering who testified in 1966 against Sam Bowers, who at the time had a legal license to murder anyone he saw fit (including Goodman, Schwerner and Chaney in 1964). Bowers had the support of Mississippi's political establishment during that time, so going against him literally meant Pickering's life was in danger.

Furthermore, the Mississippi chapter of the NAACP -- the African-Americans who best knew him -- supported his nomination to be a federal appeals court judge, but the people allied with Paul Krugman successfully filibustered his nomination. The great Left-Libertarian Nat Hentoff -- not someone who might be mistaken for a Klan supporter -- called the whole thing reprehensible and excoriated the NYT and Senate Democrats for their outright lies.

I include this because Krugman seems to be of the belief that only Republicans engage in character assassination for political purposes. In fact, Krugman is a willing participant in character assassination -- when it suits his political goals -- so when he claims that only the other side does it is not something I find credible.

In Part II of this post, I will deal with the specifics of Warren and her role in FrankenDodd. Granted, I am sure that Krugman would say that the only reason I am questioning his column is because I want the Banksters to get away with financial crimes and I want people to go bankrupt. After all, only evil people can disagree with Paul Krugman.

Friday, March 18, 2011

Jobs programs and the stratified society

[Update]:Here is the link to my appearance last night on "Freedom Watch" with Judge Andrew Napolitano. I'm not sure exactly where on the list I am, but I'm in there somewhere. (My thanks to the makeup team at Fox Business News, as they managed to make me look younger than I am!)[End Update]

For years, elites of the academic, media, and political classes have argued that we should be more like Europe, but now that we have managed to create something akin to the European economy -- high rates of unemployment and high job stratification -- Paul Krugman and others don't like it.

Today, he argues that we need more "jobs programs," that young people cannot find work and that the Bad People in Congress aren't interested in spending billions more in "creating" new jobs for people who cannot find work. Now, I don't make light of people who lose their jobs and often lose their homes and face other financial calamities. Furthermore, it is very discouraging for young people who are graduated from college or even graduate school and then find door after door closed to them.

This is what we have seen in Europe for a long time, and I don't think we should be surprised that this country adopts European-style policies, that we get European-style results. I doubt Krugman recognizes this, and even if he did, he still would advocate that the government create what essentially would be "make-work" jobs.

In the past, Krugman has pointed to the "success" of the WPA during the Great Depression, a program that Krugman has claimed was devoid of politics. The truth is much, much different. Some WPA programs (which tended to be run by local Democratic politicians) required that anyone with a WPA job pay donations to the Democratic Party, and nationally, Harry Hopkins, FDR's right-hand-man who ran the program, used it as a way to buy votes for his party.

(William Shughart and James Couch in their book The Political Economy of the New Deal, do a lot of myth busting in this book, and I would tend to trust some people doing real research as opposed to a guy who has become a party shill under the guise of being an academic economist.)

Today, Krugman claims that the government not only should avoid cutting the budget, but should EXPAND this already unsustainable budget because, after all, interest rates are now very low. (Gee, think that the Federal Reserve might have something to do with this?) Thus, we are dealing with near-free money, he reasons:
Yet polls indicate that voters still care much more about jobs than they do about the budget deficit. So it’s quite remarkable that inside the Beltway, it’s just the opposite.

What makes this even more remarkable is the fact that the economic arguments used to justify the D.C. deficit obsession have been repeatedly refuted by experience.

On one side, we’ve been warned, over and over again, that “bond vigilantes” will turn on the U.S. government unless we slash spending immediately. Yet interest rates remain low by historical standards; indeed, they’re lower now than they were in the spring of 2009, when those dire warnings began.

On the other side, we’ve been assured that spending cuts would do wonders for business confidence. But that hasn’t happened in any of the countries currently pursuing harsh austerity programs. Notably, when the Cameron government in Britain announced austerity measures last May, it received fawning praise from U.S. deficit hawks. But British business confidence plunged, and it has not recovered.
Now, the only references I have seen to "bond vigilantes" in recent times have been in Krugman's columns. Second, cutting government spending is only one aspect of getting our economic house in order.

Krugman approaches the subject purely from standard macroeconomic viewpoints. An economy is a homogeneous mass of factors that will become "fully employed" when enough money flows through the system, a "just add money." He has absolutely no idea of what entrepreneurs do, or that they even matter.

The problem, from an Austrian viewpoint, is not that of "idle resources," but instead we have massive amounts of malinvested resources. This country, like other countries in Europe, went whole hog in throwing money into housing at a rate that clearly was unsustainable, and when the crisis finally hit, the government's response was sad, but predictable: it ratcheted up the spending in hopes of propping up the housing market and everything else.

In the end, Krugman really does not believe that there is opportunity cost, or he seems to believe that opportunity cost does not matter when "interest rates are at the zero bound," as though the laws of economics are superseded by high rates of unemployment. The U.S. Government has thrown literally trillions of dollars at this economy and yet we are dead in the water.

It does not have to be like this, but we get the worst of both worlds. We have just enough "spending" to at least give the Keynesians a few bones, but then the government does everything it can to block real entrepreneurs through regulations and tax policies, which means the government is blocking a recovery.

Contra Krugman, contra the "Liquidity Trap" doctrines, the Law of Opportunity Cost is not repealed by low interest rates and high rates of unemployment.

Wednesday, March 16, 2011

Krugman joins the "Broken Window Fallacy" crowd

I am in New York for a conference, but I will share this gem from Paul Krugman's recent blog post in which he claims that the tragedy and recovery in Japan likely will be "expansionary." Yes, we see yet another "economist" become a caricature of the people who claimed that the hoodlum who broke the baker's window described in Henry Hazlitt's classic Economics in One Lesson.

As Hazlitt explains in the first chapter, the "Broken Window Fallacy" is the central fallacy that we see in one form or another, and from what I see, Krugman is the biggest advocate of this fallacy. Hey, I know. We're in a "liquidity trap," so the world is turned upside down. Right?

Monday, March 14, 2011

Gee, think the bailout might have had something to do with this?

Paul Krugman is angry, and to a certain extent, I don't blame him. Yes, the Banksters are screwing their customers and the abuses seem to be protected by congressional Republicans and the other Usual Suspects.

To be honest, Krugman's column is worth reading and what I am going to say in this post will make no sense unless you do read it. Krugman outlines examples in which some of the big banks have, in essence, defrauded homeowners, engaged in bait-and-switch tactics, and taken money under false pretenses, and look to get away with it.

I share that outrage, but the difference is that Krugman and I have conflicting opinions about why this situation has come about in the first place. Krugman sees free-market capitalism as the culprit, and cannot understand why the government isn't "fixing" the problem, while I see crony capitalism and the bailout of 2008 as being the heart of the issue.

In other words, Krugman believes that more intervention is the solution, while I believe that intervention has been the problem and that Krugman's "solutions" only will make matters worse.

When Henry Paulsen in September 2008 demanded that Congress pass a bailout, Krugman agreed with him that such an action was necessary to "save the system." My sense at the time was that if the "system" could screw up this badly, perhaps it should not have been saved at all.

Now, Krugman also believed (and still does) that post-bailout, the financial structure should have been reconfigured into something akin to the regulated banking cartel that existed before 1980. (Yes, it was a government-created and protected cartel.) And for all of Krugman's insistence that the cartel worked just fine, and that deregulation came about purely because Ronald Reagan became president and "conservative ideology" forced a change in the system, he really needs to read his history, unless he wants to convince me that Michael Milken, a liberal Democrat, really was a closet Reaganite.

The larger problem is that Krugman seems to be one of the few True Believers in the economics profession that government regulation of an industry can and should be done in a pure "public interest" fashion, and as long as people of the Proper Ideology are running the system, the Wise and Omniscient Regulators will govern wisely. I hate to tell the Great One that "Capture Theory" is alive and well and has a much better explanatory record than does "Public Interest Theory" that Krugman espouses.

Last Saturday, I heard a speech by former congressman and budget director in the Reagan administration, David Stockman, who spoke on the bailout and the aftermath. Stockman told the audience that the notion that unless Congress bailed out the Banks That Drank The Kool-Aide the "system would collapse" was nonsense, more propaganda from Paulsen and the Goldman-Sachs crowd.

As Stockman noted, while there was real danger that perhaps Bank of America and Goldman-Sachs might not be able to make their payrolls, the idea that ordinary American companies would not be able to do the same was nonsense. Here is where someone like Stockman really collides with Krugman.

Remember that Krugman also is one of the True Believers that the failure of the government to bail out Lehman Brothers touched off the "crisis," that Lehman was so interconnected to the entire system that everything was at risk because of its financial collapse. I believed then and believe now that such sentiments were nonsense, and Stockman's speech certainly does not undermine that belief.

However, I would like to point out a different set of connections, which is that the bailout actually strengthened the "bad banks" at the expense of the good ones. Many forget that a capitalist system is one of profits AND losses. Losses are important because they send important signals to entrepreneurs to move resources in a different direction.

Krugman was thinking that the bailout might make the banks more subservient to the state, and then someone like Elizabeth Warren could move in and Govern With Great Wisdom and all will be at peace again. That is nonsense.

What happened with the bailout? A number of banks, aided and abetted by the Federal Reserve System and government policies to put people into home ownership, helped drive themselves and the housing market into the ground. At that time, the Bush administration should have allowed the losses to take their course, and while the short-term fallout would have been bad, in the end it would not have been worse than the slow death of the system that we now are experiencing.

The bailouts did not turn Bank of America and others into whimpering, obedient puppies. Instead, the bailouts created even bigger monsters, something that Krugman in all of his rage simply refuses to see.

Friday, March 11, 2011

Krugman: Dumbing Down Economics

I must admit that I look forward to reading Paul Krugman's Friday column, as he generally produces something with enough howlers to last a weekend. Today, he does not disappoint, and I should thank him for providing some fodder for me.

(I am sitting in a session of the Austrian Scholars Conference in Auburn, which means I am not exactly sitting with members of the Paul Krugman Fan Club. Tomorrow, I present a paper in which Dave Kiriazis and I argue that the Jim Crow laws were not a "blind spot" of the Progressives that historians always present as "reformers," but rather they were part and parcel to the system that was created.)

Anyway, back to Krugman. In a screed against House Republicans today, he declares that the U.S. Government really is in no fiscal danger at all, so no budget cutting is necessary. Second, he once again tells us that "costs" are purely administrative affairs, and that central government planning can lower costs of medical care.

But first, he starts out with a bit of interesting hubris, writing:
Like anyone who writes regularly about what passes for economic and fiscal debate in American politics, I’ve developed a strong tolerance for nonsense. After all, if I got upset every time powerful people were illogical and/or dishonest, I’d spend every waking hour in a state of raging despair.
Funny, but a lot of his columns and blog posts really do look like episodes of "raging despair." But, there is more:
Yet there are still moments when I find myself saying, “They can’t really be that stupid,” or maybe, “They can’t really think the rest of us are that stupid.”
Now, while he is talking about Republicans -- who really do manage to say Really Stupid Things -- I cannot help but apply Krugman's words to his following declaration: have to realize two things about the fiscal state of America. First, the nation is not, in fact, “broke.” The federal government is having no trouble raising money, and the price of that money — the interest rate on federal borrowing — is very low by historical standards. So there’s no need to scramble to slash spending now now now; we can and should be willing to spend now if it will produce savings in the long run.
This is worthy of an entire blog post itself, but nonetheless, you have to understand what Krugman is saying. Interest rates for government bonds are low because the opportunity cost of investment also is very, very low. The very policies of bailing out banks, housing, the U.S. auto industry, and numerous other entities, along with the government's other policies have ensured that the economic "recovery" will be anemic at best.

To put it another way, the non-government sector of the economy is not producing enough goods and services to be able to fund the current rate of government spending, so the Obama administration then runs gargantuan deficits. According to Krugman, this is due to the fact that the government does not have high enough taxes and because government needs to spend, spend, spend in order to end the depression.

So, Krugman claims that we can "pretend" that everything is just fine, as though this blizzard of government spending will create "future savings." It is mind-boggling to me, and maybe IT will drive me to "a state of raging despair."

Krugman then turns to medical care:
Second, while the government does have a long-run fiscal problem, that problem is overwhelmingly driven by rising health care costs. The Congressional Budget Office expects Social Security outlays as a percentage of G.D.P. to rise 30 percent over the next quarter-century, as the population ages, but it expects a near doubling of the share of G.D.P. spent on Medicare and Medicaid.

So if you’re serious about deficits, you shouldn’t be pinching pennies now; you should be looking for ways to rein in health spending over the long term.
On the surface, this seems to make sense. However, what Krugman actually is saying is that the spread of bureaucracy over ALL medical exchanges and procedures somehow will result in lower costs AND better medical care. This is madness, as I see it.

Bureaucracies do not make things less costly. At the present time, our family is pursuing an overseas adoption, and over the past decade (we last adopted in 2001), the bureaucratic tentacles over international adoptions have greatly expanded. I can tell you from personal experience that bureaucrats are vastly raising the costs that we have to incur.

Keep in mind that these bureaucracies are operating on the premise that they are lowering the probability that a child will be taken from a foreign children's home to a worse situation with another family. That does happen, but it is pretty rare.

However, by forcing up costs on the adoptive family's end, the government is vastly increasing the probability that a child won't be adopted at all, which means that when these children turn 16, they are booted out into the streets. Thus, the bureaucrats are GUARANTEEING that there will be more fodder for international prostitution rings. All in the name of "making people better off."

Talk to a doctor and find out just how ObamaCare has vastly increased the paperwork and bureaucratic oversight which govern their practices. Any doctor will tell you that this has raised his or her own costs, and doctors must now direct resources to satisfying the bureaucratic monsters.

Yet, Krugman claims that this will "lower" costs. Well, I will tell you how this will work, just as it has "worked" elsewhere: governments will "lower" medical costs by increasingly denying care, which is nothing more than passing off costs to the consumers of medical care. The costs don't go away; they just are shifted.

In economics, we speak of costs as "opportunity costs." However, in Krugmanland, costs simply are administrative numbers that the state can manipulate. That is fantasy, not economics.

Tuesday, March 8, 2011

This is Fiscal Responsibility?

Since Paul Krugman's column and blog have become little more than propaganda for the Democratic Party, I thought today that I would feature something written by an economist who actually does real economics: Robert Higgs. But first, let us look at a recent blog post by Krugman.

In critiquing a recent blog post by Tyler Cowen of George Mason University, Krugman notes that Cowen did not zero in on the rise of U.S. Government debt levels during the Reagan administration. He also writes this:
Bear in mind, too, that the signature initiatives of Republican presidents — the Reagan tax cut, the Bush tax cut, the Medicare drug benefit — have all been unfunded deficit-raisers; the signature initiatives of Democratic presidents — the Clinton tax hike, Obamacare — have all been deficit-reducing.
I find his attack on the tax cuts started in 1981, in which the top rates were dropped, including the one from 70 percent to 50 percent. At the Southern Economic Association meetings of 2004 in New Orleans, where Krugman was a featured speaker at a Sunday session, I asked Krugman if he believed that we should go back to the 70 percent rates, since he had been on the attack against Reagan.

His reply? "Oh, no! Those rates were insane!" (He really emphasized the word "insane.") Now, given Krugman's selective memory, I doubt he will recall having said such things, but it was in a room full of economists and I am sure that more than a few of them will remember what Krugman said.

There also is Krugman's claim that ObamaCare is "deficit-reducing." I had to pick myself off the floor at this one. Krugman is saying that the creation of a VAST new entitlement will result in lower levels of government spending, and that simply is a joke, a very bad joke.

Don't forget what ObamaCare has done in its thousands of pages of just the law, not to mention the hundreds of thousands of new regulations that will be kicking in over the years, will make the very thing that we need -- entrepreneurship in the field of medicine (real entrepreneurship, not trying to beat the system) -- will be criminalized. If Krugman really believes that making ALL medical care simply something that falls under government administration is going to reduce the opportunity costs that come with medical care, then he has totally rejected economics for something else.

More than four decades ago, the Democrats under Lyndon Johnson passed a vast array of new laws that created the very entitlements that, along with empire-preserving military spending, are eating the budget. As Professor Higgs notes, these new entitlements never were projected to eat the U.S. economy; instead, they were supposed to be a small appendage funded by our productivity.

Economics deals in the areas of costs and benefits. However, to economists (or at least those economists who are not part of the "elite" system, anyway), costs are opportunity costs. They are not simple administrative numbers.

Yet, when Krugman refers to medical costs, that is exactly what he means. Entrepreneurs over the years have reduced real costs by moving resources from lower-valued to higher-valued uses, as ultimately determined by consumers.

In Krugman's world, however, real cost reduction is nothing more than an edict from the state: You will cut costs. That is not economics, people; that is fantasy.

Monday, March 7, 2011

Say What?

While I set up this blog because of fundamental disagreements I have with Paul Krugman on economics and political economy, nonetheless I did not set it up for the purpose of disagreeing with him. In other words, I don't disagree with Krugman for the sake of disagreement.

More than once, I have read through one of his columns and found myself in agreement (if not total, certainly agreeing with most of what I was reading), but then he comes up with something to which I ask myself, "Say what?" Thus it is today with his column on education: after making some sense, Krugman then gives readers the classic non sequitur.

The column points out that going to college might not provide the automatic financial boost for individuals that it once did, and he gives some examples. Unfortunately, Krugman approaches the entire subject from a purely administrative point of view, as though an economy were something run by a political board of directors.

In fact, most of Krugman's columns and articles do rest upon the viewpoint that an economy is something to be administered by the state, and in that point, it hardly differs from what used to be the case in the former U.S.S.R. and China. The U.S.S.R. used to have the highest per capita ratio of Ph.D.s to the rest of society, but the economic results were less-than-satisfying.

(When I was in graduate school, my math econ teacher, Henry Thompson, once pointed out that the Soviets led the world in developing the application of matrix algebra to solving simultaneous equations in putting together the economic Five-Year Plans. After telling us that fact, he added, "Of course, it didn't do them any good.")

As I read through the column, I realize that Paul Krugman the economist hasn't a clue about the role of entrepreneurship in an economy. None. Instead, we get this:
So if we want a society of broadly shared prosperity, education isn’t the answer — we’ll have to go about building that society directly. We need to restore the bargaining power that labor has lost over the last 30 years, so that ordinary workers as well as superstars have the power to bargain for good wages. We need to guarantee the essentials, above all health care, to every citizen.
In other words, "prosperity" is something that just happens (provided that the government "stimulates" the economy with enough "spending"), and that the government then must ensure that the benefits of a productive economy be spread throughout the population. Furthermore, the process must be one of, frankly, coercion. We must force employers to pay more, we must force taxpayers to purchase medical services for others, and so on.

In other words, in Krugman's view, an economy is something that is administered, supported by government spending and monetary creation, and everything forced upon others either through outright violence or threats of violence and property confiscation. Not once in any of his columns have I read anything that even was close to recognizing that entrepreneurship is the key to a growing economy.

Instead, Krugman seems to believe that an economy just "happens," and that the role of government is to keep the perpetual motion machine running. To be honest, there is nothing in his viewpoint that would be any different than what was done in the U.S.S.R. during the communist era. Education, then, is nothing more than a mechanism to put people in certain predetermined slots in which they would receive an income because, well, they are supposed to receive an income. There is no matching of any position with what contribution it actually makes to that thing called an economy.

(Actually, in Krugman's view, the usefulness of any position is in how much the person employed spends on goods. Likewise, the usefulness of capital is the spending required to create it. Spending, spending, spending.)

I also would add that Paul Krugman really would have no way of explaining why it was that the Soviet economy was primitive compared to what existed in the West. And we should not be surprised, given that one of his most important mentors, Paul Samuelson, actually believed that communism and central economic planning someday would result in a Soviet economy that would be more productive and prosperous than that in this country.

In the end, there really is no difference between MIT economics and what existed in the U.S.S.R. Everything either is administered or simply happens. All production functions are known, and all that is needed is for administrators to act according to "efficient" means. We see how well that worked in the Soviet Union.

Friday, March 4, 2011

Are the Republicans Killing the Recovery, or is Krugman Killing Economic Logic?

Once upon a time, economists were taught logic, as they had to use it in presenting their material. Over time, the study of logic -- and the attendant fallacies that good students learn in order to recognize good arguments over fallacious ones -- was replaced by multi-variable calculus and statistics.

Places like MIT (where Paul Krugman received his Ph.D.) promoted a mathematically-rigorous economics graduate program, and most everywhere else followed at one level or another. "Doing economics" became creating mathematical models that either were supposed to emulate either what individuals do (microeconomics) or an entire economy (macroeconomics) and then "solving" the mathematical equations and presenting one's results as an economic application.

The most famous of the MIT professors was Paul Samuelson, who not only was successful in transforming academic economics from one of logical constructs to aping the "language of physics," but also promoting Keynesian "economics" in the United States. Like his student after him, Samuelson also received the Nobel in economics.

Why the long introduction? I do it because Krugman once again abandons economics for circular logic in his latest column. We get such gems as:
So we’ve gone through years of high unemployment and inadequate growth. Despite the pain, however, American families have gradually improved their financial position. And in the past few months there have been signs of an emerging virtuous circle. As families have repaired their finances, they have increased their spending; as consumer demand has started to revive, businesses have become more willing to invest; and all this has led to an expanding economy, which further improves families’ financial situation.
Before the Doctrines of Samuelson had taken hold, such a statement immediately would have been recognized as an example of circular logic, or, more specifically, the informal logical fallacy of "begging the question." Today, unfortunately, this is what passes for economic wisdom.

Every once in a while Krugman has a column full of such economic gems, and this is one of them. At the present time, the Republicans are proposing about $60 billion in cuts -- this with a proposed budget deficit of approximately $1.5 TRILLION -- and Krugman is claiming that such cuts will "kill" the current economic recovery.

I'd like to say that on its face, such a statement falls into the "howler" category, but this gives authentic howlers a bad name. This comes from the same guy who still wants us to believe that had the "stimulus" passed in 2009 been $1.2 trillion instead of $800 billion, that we would have had a full recovery. Yeah, all it took was another $400 of paving roads, and we would have been in clover.

However, when Krugman writes a Really Rich Column, he throws in lots and lots of howlers. So, we get this one:
But it’s (the recovery) still a fragile process, especially given the effects of rising oil and food prices. These price rises have little to do with U.S. policy; they’re mainly because of growing demand from China and other emerging markets, on one side, and disruption of supply from political turmoil and terrible weather on the other. But they’re a hit to purchasing power at an especially awkward time. And things will be much worse if the Federal Reserve and other central banks mistakenly respond to higher headline inflation by raising interest rates.
Yep, Krugman pulls his best Jake Blues act by trying to claim that the rise in oil and food prices has nothing to do with the fact that Ben Bernanke has been showering the world with dollars. Yeah, commodity prices are volatile and we have had bad weather, and so on and so on.

The fact that the currency used to pay for oil worldwide is the dollar is irrelevant in Krugman's political world, but it is relevant in the real world. When there is a movement afoot to use something other than the dollar to pay for international oil sales, I don't think it is because the Republicans want to cut 1.7 percent from Obama's current budget.

However, we are supposed to ignore this and accept Krugman's politically-convenient "bad weather and everyone else is getting richer" explanation. That is not economics, nor is it even mediocre economic logic. No, it is the application of pure, political partisanship in an attempt to circumvent sound economic thinking. Yep, that's Paul Krugman.

Wednesday, March 2, 2011

Trains, Planes, and Krugman

There are times when Paul Krugman seems to play into every stereotype about the wooly-headed liberal, and this is one of them. Now, before I do criticize him for his position, let me add that I, too, love to ride on trains. I really do.

In fact, when I went up to NYC in January, I took the Amtrak from Cumberland to DC, and DC to Newark (where I stayed with friends). For the most part, I enjoyed my trip.

However, as George Will notes in this column, the collectivist mentality that always dominates Krugman's writings seems to manifest itself in the demand that everyone ride trains because it is good for them. Writes Will:
Generations hence, when the river of time has worn this presidency’s importance to a small, smooth pebble in the stream of history, people will still marvel that its defining trait was a mania for high-speed rail projects. This disorder illuminates the progressive mind.

Remarkably widespread derision has greeted the Obama administration’s damn-the-arithmetic-full-speed-ahead proposal to spend $53 billion more (after the $8 billion in stimulus money and $2.4 billion in enticements to 23 states) in the next six years pursuant to the president’s loopy goal of giving “80 percent of Americans access to high-speed rail.” “Access” and “high-speed” to be defined later.

Criticism of this optional and irrational spending—meaning: borrowing —during a deficit crisis has been withering. Only an administration blinkered by ideology would persist.

Florida’s new Republican governor, Rick Scott, has joined Ohio’s (John Kasich) and Wisconsin’s (Scott Walker) in rejecting federal incentives—more than $2 billion in Florida’s case—to begin a high-speed rail project. Florida’s 84-mile line, which would have run parallel to Interstate 4, would have connected Tampa and Orlando. One preposterous projection was that it would attract 3 million passengers a year—almost as many as ride Amtrak’s Acela in the densely populated Boston–New York–Washington corridor.
The latest high-speed-rail caper reminds me of the silly fit that Krugman and his employer threw when Gov. Chris Christie closed the curtain on the mega-billion rail tunnel from New Jersey to Manhattan. Now, Krugman justifies all this by saying that trains are nicer than a drive, trains allow you to avoid traffic, etc.

And, to a point, I agree. I like riding the New York Subway, the New Jersey Transit, and will use the PATH trains when I go to a conference in NYC in two weeks. However, I am not naive about what these things cost, and how heavily each passenger mile is subsidized.

Yes, riding a train is more pleasant than driving, but building and operating them mean a huge opportunity cost that must be paid somewhere by someone. And it does not help to see the Obama administration claiming delusional ridership numbers, as Will notes.

But there is more. Will concludes:
So why is America’s “win the future” administration so fixated on railroads, a technology that was the future two centuries ago? Because progressivism’s aim is the modification of (other people’s) behavior.

Forever seeking Archimedean levers for prying the world in directions they prefer, progressives say they embrace high-speed rail for many reasons—to improve the climate, increase competitiveness, enhance national security, reduce congestion, and rationalize land use. The length of the list of reasons, and the flimsiness of each, points to this conclusion: the real reason for progressives’ passion for trains is their goal of diminishing Americans’ individualism in order to make them more amenable to collectivism.

To progressives, the best thing about railroads is that people riding them are not in automobiles, which are subversive of the deference on which progressivism depends. Automobiles go hither and yon, wherever and whenever the driver desires, without timetables. Automobiles encourage people to think they—unsupervised, untutored, and unscripted—are masters of their fates. The automobile encourages people in delusions of adequacy, which make them resistant to government by experts who know what choices people should make.

Time was, the progressive cry was “Workers of the world unite!” or “Power to the people!” Now it is less resonant: “All aboard!”
So, what does Krugman say? First, the guy who has praised the TSA and claimed that its very existence is proof of it legitimacy, now complains about the "war on liquids" and the stressful airport security.

Second, while train travel is nice, he forgets the part about taxpayers having to pony up the big bucks to pay for it. True, Keynesians don't believe in opportunity cost, but that does not mean it doesn't exist.

So, when I am riding the rails into NYC in a couple of weeks, I will thank all of you for paying for my trip.