Uh, Mr. Clinton, didn't loan guarantees help get us into trouble in the first place?

One of the great things about reading the editorial page of the New York Times is that it tends to be Bad Idea Central, and while Paul Krugman seems to be the official Leader of Bad Ideas, nonetheless the enthusiasm for Krugmanesque ideas has spread across mainstream journalism and the political classes.

To make matters even better, Roger Cohen's recent column, "America, Awaken," not only is chock full of Really Bad Ideas, but then links an article by none other than Bill Clinton on how to restore the economy. A two for one deal! Is this a great country, or what?!?

Alas, neither person has a clue on how to deal with the present crisis, although at least Clinton does advocate cutting corporate tax rates. Nonetheless, one good point does not negate the other stuff, as a centerpiece of Clinton's proposed "recovery" plan is the issuance of "loan guarantees" to the banks. I'm not kidding.

First, let us look at what Cohen wants: (1) An "energy policy" that continues to throw even more dollars after "green" energy initiatives that not only are boondoggles but also are gobbling up resources and giving nothing in return but expensive and inferior fuels and electricity; (2) An "industrial policy" that he believes will force American companies to do more politically-correct "investing."

Like so many at the Grey Lady, Cohen is like the people in the crowd in the Frederic Bastiat story of the "Broken Window Fallacy," in which the onlookers claim a boy who broke a baker's window is a public benefactor because the glazier will have employment fixing the window. In other words, Cohen, like the Bastiat characters, views only what can be seen and has no idea as to what is not seen. He writes:

One of Clinton’s energy ideas related to the cash incentive Obama had offered for start-up green companies. America moved in the past few years, the former president noted, from having less than 2 percent of the world market in manufacturing high-powered batteries for hybrid or all-electric cars to 20 percent, with 30 new battery plants built or under construction. Then — wait for it — Republicans in Congress wouldn’t extend the plan because they viewed it as a “spending program” rather than a tax cut.

This is madness, the ne plus ultra of American politicians betraying the American people. As Clinton noted, “We could get lots of manufacturing jobs in the same way” — that is, combining green energy and industrial policy.

What Cohen does not say is that NONE of these companies can make it on its own in even a relatively free market. Instead, taxpayers are forced to cover the perennial losses that these firms will make. And Cohen truly believes that this is the way to a recovery.

The "madness" is not in pulling the plug on these subsidized ventures; the real madness is thinking that government can subsidize us into economic recovery.

Then there is Bill Clinton. I would urge readers to look over all the points, but I want to deal with the loan guarantee issue. Clinton writes:

Before the last presidential election, I tried for a year to get both Congress and the administration to deal with the fact that the banks weren’t lending because they were still jittery about the economy, and worried about the regulators coming down on them for bad loans still on the books. It’s not much better now. Banks still have more than $2 trillion in cash uncommitted to loans.

So I suggested that the federal government set aside—not spend—$15 billion of the TARP money and create a loan-guarantee program that would work exactly the way the Small Business Administration does. Basically, the bank lends money to a business after the federal government guarantees 75 percent of it. Let’s say that the SBA fund has about a 20-to-1 loan-to-capital ratio, and it’s never come anywhere near bankruptcy. If we capitalized this more conservatively at 10-to-1, we could guarantee $150 billion in loans and create more than a million jobs. We should start with buildings we know will stay in use: most state and local government buildings, schools, university structures, hospitals, theaters, and concert halls. We could include private commercial buildings with no debt. Even if many are strapped for cash, allowing the costs of the retrofits to be paid only from utility savings means the building owners won’t be out any cash. It’s a “just say yes” system.

Here is the problem: Clinton is demanding that banks lend for projects that are NOT going to help lead a recovery, but simply will reward people who are politically-connected. In other words, taxpayers will be on the hook (once again)for money lent to political entrepreneurs. I'm sure that Ben Bernanke will stand behind everything with his checkbook from the Fed.

Yes, subsidies, tax-financed and tax-guaranteed loans. That will fix everything.

Greece: Creating prosperity through spending, Right?

A constant theme of Paul Krugman's columns and blog posts is the idea that prosperity is created through spending, lots and lots of spending. When the economy started tanking seriously four years ago, Krugman and politicians of both parties immediately started to push more spending as a way to end the downturn.

Obama himself after taking office declared that the USA would spend its way out of this recession/depression and the only condemnation that Krugman could muster of this strategy was that the administration wasn't borrowing and spending enough money. Since the government could create its own "money" at a whim, the only limit on spending our way back to boom conditions was a political will to increase the government's debt obligations to future taxpayers.

Then came the Greek crisis. Consistent with his Keynesian viewpoint, Krugman said that the "solution" for Greece either would be huge European Union bailouts or a return of Greece to its own currency, abandoning the Euro. Anyone who might argue that governments were cannibalizing future resources and production in order to maintain current spending was condemned as a promoter of "austerity," which in Wonderland is a Truly Evil Person.

Ever since joining the EU, the Greeks have acted as though Paul Krugman were their Guiding Light. As this article demonstrates, Greece's government, courtesy of EU taxpayers, has created boondoggle after boondoggle complete with a bloated public payroll:

Even on a stiflingly hot summer's day, the Athens underground is a pleasure. It is air-conditioned, with plasma screens to entertain passengers relaxing in cool, cavernous departure halls - and the trains even run on time.

There is another bonus for users of this state-of-the-art rapid transport system: it is, in effect, free for the five million people of the Greek capital.

With no barriers to prevent free entry or exit to this impressive tube network, the good citizens of Athens are instead asked to 'validate' their tickets at honesty machines before boarding. Few bother.

This is not surprising: fiddling on a Herculean scale — from the owner of the smallest shop to the most powerful figures in business and politics — has become as much a part of Greek life as ouzo and olives.

Indeed, as well as not paying for their metro tickets, the people of Greece barely paid a penny of the underground’s £1.5 billion cost — a ‘sweetener’ from Brussels (and, therefore, the UK taxpayer) to help the country put on an impressive 2004 Olympics free of the city’s notorious traffic jams.

The transport perks are not confined to the customers. Incredibly, the average salary on Greece’s railways is £60,000, which includes cleaners and track workers - treble the earnings of the average private sector employee here.

The overground rail network is as big a racket as the EU-funded underground. While its annual income is only £80 million from ticket sales, the wage bill is more than £500m a year — prompting one Greek politician to famously remark that it would be cheaper to put all the commuters into private taxis.

Not that any of this would matter in Keynesian thinking. Indeed, the Greek Underground would be considered the Ultimate Exercise in Creating Prosperity because it spends lots of money, and anyone who might protest that this is a huge waste of resources is an Enemy of the People.

The picture painted of Greece in the above article is a picture you won't read on Krugman's page or in the NY Times, as the omission of Greek wastefulness really highlights where Keynesians and Austrians part company (not that they ever walked together, anyway).

In the Keynesian/Krugman view, spending is separate from production and, to be honest, spending is the key to producing wealth. If you spend, they will produce.

I note this because I can anticipate the objection: Demand drives production, and even Austrians, with their emphasis upon the valuation of the factors of production being imputed by consumers placing value on the "final product," would admit to that. However, when Keynesians and Austrians speak of "demand," they are speaking in two different languages.

Keynesians couch demand in simple spending; put money into the hands of people, let them spend, and the economy magically will appear. (Chartalists go even further, claiming that because governments can claim a legal monopoly over money creation, that the amount of "demand" governments can create is infinite, since government is not "revenue constrained.")

Austrians, on the other hand, note that one cannot consume when one is not producing, and that Say's Law -- yes, that "tyrannical" Say's Law that Keynesians hate so much -- has something to tell us. The only way out of this world-wide depression is for governments to stop this massive borrowing and spending and permit the malinvestments -- and they are legion -- to liquidate and for the lines of production that are sustainable to be permitted to develop.

The current tragedy in Greece is the product of reckless spending and malinvestment. Unfortunately, neither the Greeks nor the economics faculty at Princeton are willing to face the facts.

The World Wide Web, Wiener, and the dead hand of government

Whenever I read Paul Krugman's articles and posts, I find that there is a constant theme underlying everything: Government in the hands of the Democratic Party is omniscient, utterly wise, and we should submit to the Great Wisdom of the Political Classes. Anyone who might dissent is immediately branded as the worst kind of human being to inhabit this planet.

If there is anything that Krugman hates, it is the presence of markets that are beyond government control. (And I do NOT include the financial markets that went over a cliff with the housing bubble. To claim that housing, with all of its government subsidies, government lending agencies, and government regulatory mazes is a "free market" is a very sick joke.)

Yet, Krugman has become a household word because of the markets that have developed on the World Wide Web, which (despite whatever we might hear from Robert Reich and Robert Kuttner) is not a product of the Wisdom of the State. As Gerard Docherty points out in this article, we have been watching a huge free market experiment for more than a decade, and it has affected our lives in ways we cannot imagine.

(I'm sure that the statists would claim that GOVERNMENT invented the Internet in the late 1960s as a Civil Defense mechanism to provide a way for government agencies to communicate in the event of nuclear war. While that technically is true, government did not invent the web as we know it, and until the advent of computers and fiber optics, the Internet had no commercial use.)

Docherty writes:

Despite its great complexity and rapid development over the last 10 years, the web community works largely without state intervention of any sort. Web designers did not need the hand of government to develop the skills to create ever more complex websites; IT professionals did not wait to read official reports saying they had to adapt as the technology changed; and companies were quick to offer the ever-evolving range of services needed for the web to run smoothly.

In other words, the private sector adapted, and adapted very quickly. Free-market mechanisms did what they always do — they rushed to meet consumer needs. This is reflected not only in the wide range of products available but also in the rapid drop in prices of almost every aspect of the web. Ten years ago, a personal website was an expensive proposition, especially if you needed anything professional or polished. Today, in the form of blogging software or services like Facebook, it is free. The overall cost of entry — taking into account the cost of training needed only a decade ago and now no longer necessary — has not so much dropped as evaporated. This low cost of entry has allowed a wide variety of individuals and companies to trade online, providing considerable choice for consumers.

Although the growth we have seen online is exceptional, it is still only a faster version of something capitalism does well: meeting a myriad of needs in a diverse society. It is difficult to imagine a better example of the free market at work.

The article is very good, as it goes into the details of what happens with the web and how it always is many steps ahead of government agents -- who would love nothing more than to gain control of it simply for the reason that government agents believe they should be controlling our lives.

And what better example of the typical government shyster than...Anthony Wiener, the disgraced former New York congressman who apparently worshiped not only power but his own sexual image. Gregory Bresiger has a great article here about this man who in his adult life has only known the State and his own desire to climb up the ladder of power. Bresiger writes:

Weiner is part of a flawed system that leads to the frequent reelection of career politicians who believe that government will solve every problem. He is also a careerist pol with zero experience in the private sector. Just like his mentor, Senator Chuck Schumer, he came out of college and went straight on the government payroll as an aide. He never knew anything but lusting after power and more power. Weiner was quoted as saying that he couldn't "imagine not being a congressman."

Yet how different is he from the political class of men and women, Republican and Democrat, who rule us today? Not very different. These are people who believe in the perpetual campaign and, by implication, a perpetually bigger government. It has grown into a Leviathan, a Leviathan that is enabled and expanded by people like Weiner.

Noting the slavish devotion that modern voters tend to have with the clueless politicians they follow, Bresiger notes:

The true believers — those who believe in their party no matter what, those who would vote for Idi Amin just as long as he was "one of them" (a loyal party member who won a primary) — will go on in this kind of self-imposed mental slavery that it seems impossible to escape. This problem is aggravated by the power of incumbency.

Indeed, in most of Weiner's seven elections in this district the Republicans rarely mounted a serious challenge. Weiner could be arrogant because he, along with many others, never faced a serious challenge. That is true in hundreds of districts around our nation, a nation many Americans insist is a democratic example for the rest of the world.

That is why it is wrong for our government to ram its version of democracy down on the rest of the world, killing thousands of people in the process. This is an imperial system that Anthony Weiner, too busy running for reelection and appearing on cable-television shows, never seriously considered.

No, I doubt you would read anything like this in Krugman's columns, as Krugman is one of those True Believers, someone who thinks that if Really Smart People Like Krugman have enough control, the world will be a great place.

The NY Times thinks Wal-Mart is evil

The Supreme Court's recent Wal-Mart decision has stirred a hornets, nest at Paul Krugman's other employer, the New York Times. Indeed, what else can one expect from that paper, but the belief that it would be a very good thing for lawyers and the government to loot one of the country's most successful businesses.

Yet, as I read an attack op-ed article written by Nelson Lichtenstein, a professor of history at the University of California, Santa Barbara, I have to ask myself just what crime does the NYT believe Wal-Mart committed in the first place?

The original charge was discrimination against women, and when feminists, racialist, and environmentalists make ANY charge against an American business, the NYT never fails to take their side in knee-jerk fashion. In fact, as the newspaper's editorial laments, the alleged actual damages to individuals were pretty small (maybe about $1,000), but by claiming that ALL women who worked (or had worked) at Wal-Mart after a certain year, were victims of discrimination, thus turning this whole thing into a multi-billion-dollar payout. (Not surprisingly, the NYT's favorite class of lawyers, the plaintiffs' bar, would have seen a small group of individuals receive hundreds of millions of dollars apiece while the women they represented would have not taken much at all. This is the NYT's version of "justice.")

I was not particularly familiar with the substance of the charges until reading Nelson's article, and it hit me that he is describing the typical business atmosphere. He writes:

There are tens of thousands of experienced Wal-Mart women who would like to be promoted to the first managerial rung, salaried assistant store manager. But Wal-Mart makes it impossible for many of them to take that post, because its ruthless management style structures the job itself as one that most women, and especially those with young children or a relative to care for, would find difficult to accept.

Why? Because, for all the change that has swept over the company, at the store level there is still a fair amount of the old communal sociability. Recognizing that workers steeped in that culture make poor candidates for assistant managers, who are the front lines in enforcing labor discipline, Wal-Mart insists that almost all workers promoted to the managerial ranks move to a new store, often hundreds of miles away.

For young men in a hurry, that’s an inconvenience; for middle-aged women caring for families, this corporate reassignment policy amounts to sex discrimination. True, Wal-Mart is hardly alone in demanding that rising managers sacrifice family life, but few companies make relocation such a fixed policy, and few have employment rolls even a third the size.

The obstacles to women’s advancement do not stop there. The workweek for salaried managers is around 50 hours or more, which can surge to 80 or 90 hours a week during holiday seasons. Not unexpectedly, some managers think women with family responsibilities would balk at such demands, and it is hardly to the discredit of thousands of Wal-Mart women that they may be right.

Notice that Nelson is not saying that ONLY Wal-Mart engages in these practices. I have seen other firms have similar policies, but if I read Nelson and the NYT correctly, he and the editors are claiming that this policy is "discrimination against women" ONLY in the case of Wal-Mart. (I am sure that the NYT never has reassigned anyone to a new location at any time, male or female.)

Furthermore, the hours of work are not unlike some of my own hours of work, or the hours that a new assistant professor on a tenure track works when appointed to the faculty of a research institution. (Go to the offices of the economics departments of any major university on a Saturday, and you will see lots of assistant professors in their offices working on research papers.)

Retail management, especially at big stores like Wal-Mart, is a difficult job. Furthermore, the holiday seasons are extremely busy times, yet Nelson and Krugman's other employer are claiming that Wal-Mart has managers working these long hours, at least in part, in order to engage in discrimination.

I'll give a personal example. My oldest daughter was in sports broadcasting several years ago and was quite good. She had good connections with network broadcasters and was told that she had all of the skills to "go to the top."

One day, she called me and told me that she was leaving the profession. "I want to get married and have a family, and this career will not allow me to do it the way I want," she told me. So, she went into another line of work (that pays well), but gives her flexible hours, and she and her husband have two young children.

So, should my daughter have been able to sue ESPN or her own employer at the time for sex discrimination? After all, the kinds of hours and work that sports broadcasting requires will be disruptive to any female who wishes to have a family.

The logic of the Wal-Mart case, at least according to Nelson's screed, is the same as what I have presented above, yet no one would take seriously a claim by my daughter that these broadcasting firms had discriminated against her on the basis of sex. For that matter, I am sure that the NYT requires hours and working conditions that make it difficult for women to have families AND work the way the paper would demand. So, should every reporter who has worked for the NYT be permitted to sue? It seems that the NYT would be impaled upon its own logic.

To be honest, I had expected a stronger argument than what I saw. The NYT is angry because the courts did not stick it to another American business, and especially a business that does not operate according to the "Progressive" vision that the editors at that paper have for the rest of us.

Princeton University Economics: there is no such thing as opportunity cost

Because I am a holder of a doctorate from a program that was not "elite" by any standards, perhaps I don't understand the power that "elite" economists have in their possession to do away with economic laws. While Paul Krugman is on vacation, his Princeton colleague, Alan Blinder, gives us the latest howlers.

Writing in the Wall Street Journal, Blinder wonders how anyone might think that lots and lots of federal spending would be "job killing." Impossible! Blinder huffs:

It is easy, but irrelevant, to understand how someone might object to any particular item in the federal budget—whether it is the war in Afghanistan, ethanol subsidies, Social Security benefits, or building bridges to nowhere. But even building bridges to nowhere would create jobs, not destroy them, as the congressman from nowhere knows. To be sure, that is not a valid argument for building them. Dumb public spending deserves to be rejected—but not because it kills jobs.

The generic conservative view that government is "too big" in some abstract sense leads to a strong predisposition against spending. OK. But the question remains: How can the government destroy jobs by either hiring people directly or buying things from private companies? For example, how is it that public purchases of computers destroy jobs but private purchases of computers create them?

One possible answer is that the taxes necessary to pay for the government spending destroy more jobs than the spending creates. That's a logical possibility, although it would require extremely inept choices of how to spend the money and how to raise the revenue. But tax-financed spending is not what's at issue today. The current debate is about deficit spending: raising spending without raising taxes.

For example, the large fiscal stimulus enacted in 2009 was not "paid for." Yet it has been claimed that it created essentially no jobs. Really? With spending under the Recovery Act exceeding $600 billion (and tax cuts exceeding $200 billion), that would be quite a trick. How in the world could all that spending, accompanied by tax cuts, fail to raise employment? In fact, according to Congressional Budget Office estimates, the stimulus's effect on employment in 2010 was at least 1.3 million net new jobs, and perhaps as many as 3.3 million.

This is a most interesting economic worldview. While Blinder might be "technically" correct in that if government borrows a trillion dollars and spends it on whatever, then in the very short term, no doubt there would be new employment. Would it create new wealth? That is another matter, and would it be sustainable? probably not.

Yet, Blinder really doubles back on himself in that first paragraph. Let me repeat what he said:

But even building bridges to nowhere would create jobs, not destroy them, as the congressman from nowhere knows. To be sure, that is not a valid argument for building them. Dumb public spending deserves to be rejected—but not because it kills jobs.

What would constitute "dumb public spending," given that he believes that government spending "creates jobs," even "dumb" spending. What is the criteria for determining that the spending is "dumb," and why would it matter, anyway?

No doubt, Blinder would employ an opportunity cost argument but then he contradicts that argument not only within his sentence, but also further down in the article. He states:

A second job-destroying mechanism operates through higher interest rates. When the government borrows to finance spending, that pushes interest rates up, which dissuades some businesses from investing. Thus falling private investment destroys jobs just as rising government spending is creating them.

There are times when this "crowding-out" argument is relevant. But not today. The Federal Reserve has been holding interest rates at ultra-low levels for several years, and will continue to do so. If interest rates don't rise, you don't get crowding out. (emphasis mine)

So, all that is needed to eliminate "crowding out" (which also is opportunity cost in action) is for the Fed to hold down interest rates by mere fiat? (Oh, I forgot. Ben Bernanke was the chair of the economics department at Princeton before going to the Fed, and he still is listed as being on the faculty there. If one is a Princeton economist, a mere declaration can eliminate that pesky thing called opportunity cost.)

Is all of this spending "job killing"? If one goes by Blinder's ultra-short term view of spending and "job creation," then it is not "killing" jobs. However, if one sees this spending along with other government efforts to prop up the economy as impeding the liquidation of malinvestments and impeding a real recovery, then by all means the government spending spree is killing jobs by the millions.

Creating caricatures is "listening"? Only in Wonderland!

It seems that Paul Krugman really does listen to what others who are not Keynesians have to say. Really! Why do I know that? Krugman himself says it:

In my experience with these things – which I find both within economics and more broadly – is that if you ask a liberal or a saltwater economist, “What would somebody on the other side of this divide say here? What would their version of it be?” A liberal can do that. A liberal can talk coherently about what the conservative view is because people like me actually do listen. We don’t think it’s right, but we pay enough attention to see what the other person is trying to get at.

The reverse is not true. You try to get someone who is fiercely anti-Keynesian to even explain what a Keynesian economic argument is, they can’t do it. They can’t get it remotely right. Or if you ask a conservative, “What do liberals want?” You get this bizarre stuff – for example, that liberals want everybody to ride trains because it makes people more susceptible to collectivism. You just have to look at the realities of the way each side talks and what they know. One side of the picture is open-minded and sceptical. We have views that are different, but they’re arrived at through paying attention. The other side has dogmatic views.

In his own blog, Cafe Hayek, Don Boudreaux has his own reply to Krugman, and you can read it here. Now, for a guy who insists calling the Austrian Theory of the Business Cycle the "Hangover Theory" (and then explaining it in caricature form and simply refusing to acknowledge that Austrians do not explain it in the terms Krugman uses), his statement is pretty rich. Furthermore, I looked at some past posts of my blog and found a number of places where Krugman has declared that opposition to his points is motivated, at least in large part, by racism and hatred of others. (Last year, Krugman insisted that anyone opposed to QE2 had that viewpoint because that person wanted others to suffer and be out of work.)

So, despite Krugman's insistence that HE and HIS FRIENDS all are the epitome of open-mindedness and that everyone else is a dolt and idiot, I let his own columns and his own comments speak for themselves.

I have met a number of economists who won the Nobel, including Krugman, James Buchanan, Gary Becker, Milton Friedman, and F.A. Hayek. Interestingly, the latter four were gracious to their intellectual opponents and took great efforts to be able to explain differing points of view. And I never saw those four use the kind of attack language that Krugman regularly uses in his columns, articles, blog posts, and interviews.

Robert Murphy's new "Krugman and Keynes" course

Robert Murphy, perhaps the best Krugman critic out there, will be teaching a new course, Keynes, Krugman, and the Crisis. Writes Murphy:

The class is designed to give students of the Austrian School a fair understanding of the worldview of John Maynard Keynes and his best-known living proponent, Paul Krugman, in the specific context of economic booms and busts. After reading source material from Keynes and Krugman, we will discuss Austrian critiques of their approach.

Commenting on Krugman, Murphy says:

Whatever else one may think of him, Krugman always offers a snappy argument for his views, backed up by an appeal to a formal model. My main goal in this section of the course is to equip students to "think like Krugman." For example, he has a ready response for critics who object, "So why don't we just run trillion-dollar deficits forever, if they're so good?" or who ask, "Why didn't your advice work in Zimbabwe?" Naturally, I don't agree with Krugman's worldview, but the point is that he has a fairly consistent, complex theoretical structure. Ultimately, it takes more than one-sentence zingers to give his views the thorough refutation that they deserve.

Anyone interested in the course can find more information about it here.

Krugman endorses insanity (and I almost missed it)

When Paul Krugman spoke at the 2004 Southern Economic Association meetings, I attended his session and asked him specifically if he was endorsing going back to the 70 percent income tax rates that prevailed before 1981. Krugman's response? "Those rates were insane." (emphasis added)

Well, I guess that the recession and the failure of the Obama administration to perform its "Messiah" role for the economy have driven Krugman top endorse insanity. Yes, he says that 70 percent rates would be just fine.

That is in line with the current academic and political Left that wants to turn back the clock (to use their own term). Robert Reich seems to be leading the charge, but I found this piece by Krugman from nearly a year ago in which he says that 70 percent tax rates would not discourage people from producing.

Of course, Krugman does not point out that pre-1981, the 70-percent rates came with a lot of possible deductions and shelters, most of which have been eliminated in subsequent tax law changes. So, I guess Krugman believes that even if the federal government confiscates 70 percent (and it would be more than that, given the other government taxes out there) of marginal income, that people will work, save, and invest as they always have.

What is interesting is that we have been down that road before. In 1932, the Herbert Hoover administration drastically raised taxes at all levels, including the top income tax rate from 25 percent to 63 percent. We see how well THAT strategy worked, as by the following February, just before Franklin Roosevelt took office, the nation's unemployment rate had risen to about 28 percent.

Yes, and sooner or later, the band in "Animal House" will manage to march through the wall.

Gotta love war and more war!

From Paul Krugman's declaration that a new war would strengthen the U.S. economy to the latest salvo from the NY Times that we need to have the U.S. Armed Forces run the country, or at least the business sector, it seems that fascism is now the Official Doctrine of the "Newspaper of Record."

One really needs to read this column by Nicholas Kristof to believe it. Big Brother loves you.

Collective goods versus goods

By declaring medical care to be essentially a "collective good," Paul Krugman and others are saying that the state should take over the creation and distribution of the good and treat it as something that should be limited, but the limited distribution to be decided by the state. In other words, Krugman does give a back-door nod to the Law of Scarcity, but at the same time claims that medical care is a "special case" that should be guided by government regulators.

In reading the comments on yesterday's post, I am struck by the outright hostility by some to ANY kind of entrepreneurship in medical care. In other areas of the economy, entrepreneurs have managed to bring resources from lower-valued to higher-valued uses, but somehow, medical care is different. Not only do entrepreneurs artificially push up real costs, according to at least a couple of the people making comments, but their very presence in medical care is outright evil.

If medical innovations actually raise real costs, then I suspect that what these commenters are saying is that we need to go back to medical care that existed perhaps when I was a child, when we worried about polio, measles, whooping cough, malaria, rheumatic fever, mumps, and lots of other diseases. We should not have MRI's, arthroscopic surgery, (God forbid lasik surgery, given that people pay out-of-pocket for that), CAT-Scans and a host of other things that simply were not available when I was hospitalized in the 1950s.

Instead, we should have state-provided and state-driven care that is determined by panels of "experts" who apparently are more wise than anyone else. I'm sure that will create a wonderful state of care, and it will be cheaper. (Krugman happily called them "death panels" and recommended them highly -- using that term -- but now wants us to believe that only critics of KrugmanCare are using the term.)

In other words, if I read the commenters and Krugman correctly, we need more people to die sooner, or be crippled by disease and inadequate (but cheap) surgery techniques. And if anyone wishes to engage in medical entrepreneurship, well, that person should go to prison for life.

Paul Krugman: government eliminates opportunity cost

Ever since the Progressive Era, Americans have been bombarded with the notion that all goods really are collective in nature. Thus, we hear about "our food supply" and "our oil," and "our healthcare."

If goods truly are collective, then it ultimately is up to that most collective entity, government, to "distribute" them. Pay no attention to the real problems that arise out of the notion of collective things, which is nothing but socialism using different terms. And even Paul Krugman cannot "solve" the central problem of socialism: economic calculation.

In his column on Medicare, Krugman manages to wrap a falsehood around a central kernel of truth, that being that on paper, Medicare costs less than private insurance. He writes:

...here’s what you need to know: Medicare actually saves money — a lot of money — compared with relying on private insurance companies. And this in turn means that pushing people out of Medicare, in addition to depriving many Americans of needed care, would almost surely end up increasing total health care costs.

The idea of Medicare as a money-saving program may seem hard to grasp. After all, hasn’t Medicare spending risen dramatically over time? Yes, it has: adjusting for overall inflation, Medicare spending per beneficiary rose more than 400 percent from 1969 to 2009.

But inflation-adjusted premiums on private health insurance rose more than 700 percent over the same period. So while it’s true that Medicare has done an inadequate job of controlling costs, the private sector has done much worse. And if we deny Medicare to 65- and 66-year-olds, we’ll be forcing them to get private insurance — if they can — that will cost much more than it would have cost to provide the same coverage through Medicare.

And what causes this problem? Private enterprise, of course:

And then there’s the international evidence. The United States has the most privatized health care system in the advanced world; it also has, by far, the most expensive care, without gaining any clear advantage in quality for all that spending. Health is one area in which the public sector consistently does a better job than the private sector at controlling costs.

I will give Krugman his argument as far as it goes, but I think that a few points just might be in order, points that Krugman conveniently ignores.

The first is that Medicare is NOT subject to state mandates, and that is a huge factor, as mandates drive up the cost of insurance. (I won't ask why Krugman ignores this point except to say that it does not fit with his narrative that socialism is morally and economically superior to private enterprise.)

Second, Medicare sets the payment schedule and doctors that treat Medicare patients have no other choice. Patients can sue insurance companies and the media generally will side with patients and doctors in having the courts order insurers to spend lots of extra money. However, that does not happen (to my knowledge) with Medicare.

Third, there is no way that the advent of third-party payments will NOT result in higher costs, as decisions for care are made by people who do not have a direct interest in the outcomes. Keep in mind that if we had third-party payments for buying other things, like food, then food prices would be higher than they are now.

Fourth, Krugman falls for the silly doctrine that medical care is "different" and not really subject to the laws of economics. Now, keep in mind that when we say that something is subject to economic laws, what we are saying is that it is a scarce good. If economic laws don't apply, then the good cannot be scarce.

I cannot believe for a second that Krugman would claim that medical care is a non scarce item, yet, he writes about medical care as though it is not scarce. For example, take his long-held view that medical capital drives up costs. If that were true, then it would be the first time in economic history that the presence of capital (at least developed in a free market) forced real costs to be higher than they would be in the absence of capital.

Would Krugman ever write that the development of the assembly line made automobile costs higher? If that were true, then the story of how Henry Ford was able to bring down the price of a new car from about $1,000 to less than $300 simply would be non-existent.

If, indeed, capital were to be responsible for higher real medical costs, then one would have to look at other factors to see why this would be so, for it makes no economic sense by itself. Unfortunately, Krugman is not willing to go outside the narrative that medical care is "different."

Moreover, if government by taking over payments can eliminate opportunity cost (or make it substantially lower), then why does not government involve itself in everything else and lower costs? For that matter, if government by simple fiat can create such miracles, then why has socialism failed in places like Cuba, North Korea and the U.S.S.R.?

Rule by inflation

When John Maynard Keynes called for the "euthanasia of the rentier," he meant that the government's monetary authorities should hold the rate of interest low enough to where people who earn money from lending no longer would be willing to lend. Thus, the "rentier" would disappear from the scene.

Paul Krugman is repeating that call, and now claims that it is that evil "rentier" that is dragging down the economy. If only the authorities were willing to listen to him and have more inflation; if and only then would people be able to find jobs and the economy would hum along nicely:

While the ostensible reasons for inflicting pain keep changing, however, the policy prescriptions of the Pain Caucus all have one thing in common: They protect the interests of creditors, no matter the cost. Deficit spending could put the unemployed to work — but it might hurt the interests of existing bondholders. More aggressive action by the Fed could help boost us out of this slump — in fact, even Republican economists have argued that a bit of inflation might be exactly what the doctor ordered — but deflation, not inflation, serves the interests of creditors. And, of course, there’s fierce opposition to anything smacking of debt relief.

Looking at the Fed's balance sheet post TARP, one hardly can say that the Fed has not been "aggressive" in trying to spread more dollars throughout the world. However, I suspect that when Krugman calls for the Fed to be "more aggressive," he means the Fed finding a way to purchase short-term Treasuries directly, as opposed to buying them on the secondary market. (The original Federal Reserve Act prohibits the Fed from such direct purchases, although given that Washington no longer has to abide by the same laws that govern the rest of us, I am sure Ben Bernanke can find a way around such pesky requirements.)

Krugman's call for more inflation is based upon his belief that inflation benefits low-income people and hurts the wealthy. Thus, the reason that inflation is not higher is due to unwarranted lobbying by the rich, who are benefiting at the expense of the rest of us.

Now, when the main financial crisis hit in 2008, I argued (contra Krugman) that not only would bailouts retard any recovery, as they would prevent or postpone liquidation of bad assets, but also would increase the political strength of the very people who had driven the economy over the cliff. Krugman now thinks that the people on Wall Street have too much political influence, but he fails to see the connection between the bailouts and their political strength.

I will go even further. Krugman is absolutely wrong on inflation, in that the people most hurt by it are NOT the rich, but rather the small savers and people on fixed incomes. (Krugman claims that people on SS and other fixed incomes would not be hurt because SS is indexed to inflation.)

Here is the problem, and it demonstrates that Keynesians (once again) really have no concept of money and see it only as a "quantity variable." Yet, what actually happens with a burst of inflation?

As Henry Hazlitt points out in his excellent Economics in One Lesson, inflation creates a "mirage" of prosperity at the beginning, but in the end is like the "Dead Sea fruit that turns to dust and ashes in its mouth." A new bout of inflation does not raise all prices and incomes at the same time. Instead, those who receive the new money first receive the benefits, while those at the back of the line (small savers and, yes, people on fixed incomes, even those incomes indexed to inflation) bear the costs. Murray Rothbard writes:

Inflation, then, confers no general social benefit; instead, it redistributes the wealth in favor of the first-comers and at the expense of the laggards in the race. And inflation is, in effect, a race--to see who can get the new money earliest. The latecomers--the ones stuck with the loss--are often called the "fixed income groups." Ministers, teachers, people on salaries, lag notoriously behind other groups in acquiring the new money. Particular sufferers will be those depending on fixed money contracts--contracts made in the days before the inflationary rise in prices. Life insurance beneficiaries and annuitants, retired persons living off pensions, landlords with long term leases, bondholders and other creditors, those holding cash, all will bear the brunt of the inflation. They will be the ones who are "taxed."

He continues:

Inflation has other disastrous effects. It distorts that keystone of our economy: business calculation. Since prices do not all change uniformly and at the same speed, it becomes very difficult for business to separate the lasting from the transitional, and gauge truly the demands of consumers or the cost of their operations. For example, accounting practice enters the "cost" of an asset at the amount the business has paid for it. But if inflation intervenes, the cost of replacing the asset when it wears out will be far greater than that recorded on the books. As a result, business accounting will seriously overstate their profits during inflation--and may even consume capital while presumably increasing their investments.

In Krugman's Keynesian world, however, none of that matters. If anything, businesses are parasites and government, by creating "new money," also creates wealth. That really is the "New Economics" in a single sentence.

War, war, war!! Yeah, that will make us prosperous!

Krugman is at it again. During a recent appearance on ABC's "Sunday Morning," he once again made the Keynesian declaration that war is good for the economy:

“If we had the threat of war, had a military buildup, you’d be amazed at how fast this economy would recover.”

I'm not sure what we call Iraq, Afghanistan, Libya, and wherever else the U.S. Armed Forces are shooting people. I think I call it war, and we can see just how good it has been not only for our economy, but also the economies of the lands this government has attacked.

No, I don't think Krugman is endorsing even more military buildups and wars. (The Neo-cons, conservative Republicans, and many in the Tea Party have been beating the war drums loudly enough.)

Is Medicare sacrosanct?

In his column today, Paul Krugman declares that the Ryan plan for Medicare is something out of "vouchercare" and would be inferior to the current system. On one side, I am agnostic about this; a voucher scheme still has the government not only in control of the purse strings, but also acting as the distributor of medical care.

Now, Krugman has no problem with either of these roles of government, but he wants the state to send the checks because he says that it will better "control costs." He then uses Canada's medical system as a positive example of cost control.

While Krugman is free to say what he wants, I find this statement to conflict with what many people are saying about Canada's system:

Consider Canada, which has a national health insurance program, actually called Medicare, that is similar to the program we have for the elderly, but less open-ended and more cost-conscious. In 1970, Canada and the United States both spent about 7 percent of their G.D.P. on health care. Since then, as United States health spending has soared to 16 percent of G.D.P., Canadian spending has risen much more modestly, to only 10.5 percent of G.D.P. And while Canadian health care isn’t perfect, it’s not bad.

Bad, of course, is a relative term. There is almost no medical innovation in Canada, and much of medical care there is a time warp, as medical capital deteriorates and there is no incentive for medical providers to acquire new capital.

Take the following example: Montreal, which has about three million people, has three MRI devices, while Allegany County, Maryland, where I work, has 80,000 people and three such devices. In Montreal, a person in need of an MRI has to wait six months (unless the person has political connections), while in Allegany County, the wait is miniscule, perhaps a day to set up the appointment.

Why the disparity? To a Canadian medical provider, an MRI is just a cost, as the firm cannot make a profit from this piece of capital. So, one of the most innovative medical devices today is seen as pure cost in Canada.

When one speaks of lowering costs, we are talking administrative numbers, not opportunity cost. (Yes, I know. Keynesians believe that Opportunity Cost is an oppressive tyranny left over from those bad old Classicals.) The real costs are borne by individuals who have care withheld from them, and that is endemic in Canada, whether or not Krugman wants to admit it.

The larger issue as I see it is that Krugman believes that medical care should be in control of the state. He simply cannot see any role for markets and private enterprise, entrepreneurship and, Horrors!, real prices. Medical innovation, as he sees it, is the result of pure research and that can be done much more efficiently from the government side, since political considerations never enter into any production equation. In other words, Krugman actually believes that state-run care will provide better results at cheaper costs.

Thus, his belief that Medicare, which was created 46 years ago, is Holy and Sacrosanct. Despite the fact that it, like everything else associated with the U.S. Government is going broke, Krugman still remains the True Believer that government medical care will give us good care, plenty of innovation, and low costs. Not possible.

While I have no idea how he would respond to a recent action by the FDA, which seized "birthing pools" because the government claims they are "unregistered medical equipment." As one bureaucrat declared:

Pregnancy is an illness and birth is a medical event. Therefore, a pool that a woman gives birth in should be classified as medical equipment.

Interestingly, Portland, Oregon, hardly is a bastion of conservative Republicanism or even libertarianism. It is a community heavily steeped in statism, and so the reality of the very statism that they support crashes down upon them. (Since the FDA considers pregnancy to be a disease, maybe that is why the government is so anxious for there to be abortion on demand.)

Who is to blame for the coming downturn?

When Barack Obama took office, Paul Krugman urged him to emulate Franklin Roosevelt, and it looks as though Obama might just achieve what FDR did: have a depression within a depression.

As the economy begins another long and sad slide, Krugman is claiming that our government just did not spend enough money the past few years, and that is why we are headed south:

Back when the original 2009 Obama stimulus was enacted, some of us warned that it was both too small and too short-lived. In particular, the effects of the stimulus would start fading out in 2010 — and given the fact that financial crises are usually followed by prolonged slumps, it was unlikely that the economy would have a vigorous self-sustaining recovery under way by then.

Krugman's retrospective is his usual self-aggrandizing nonsense, the idea being that had Obama borrowed and spent an extra trillion, dollars, Krugman then would have argued for two trillion, and had the administration dumped two trillion, Krugman would have demanded four. And so it goes.

What Krugman does not say is that like FDR, Obama went on a regulatory rampage, and on top of that, the government continues to pursue wars abroad and now openly admits to having CIA-sponsored death squads roaming the globe in search of the "bad guys." Obama has openly demonstrated himself to be quite hostile to private enterprise (of the non-subsidized variety), and the government through the Federal Reserve System is showering the world with dollars, yet he wonders why U.S. business firms do not engage in long-range capital planning and expenditures.

As Robert Higgs notes in this excellent essay, the Roosevelt administration created huge amounts of "regime uncertainty," which led to a slowdown of private investment. It seems that Obama, through his rhetoric, his initiatives, and the brazen hostility of Washington toward private investment, we are seeing a repeat.

Krugman, of course, won't mention this point, and why should he? Keynesians believe that all we need to do is to shower an economy with money and everything else follows. Well, it doesn't.