Science or just opinion?

In a recent column, Paul Krugman repeated the usual canard that Republicans are "anti-science," which is another way of saying that Only Stupid People Believe in God or Disagree with Krugman. Given that the Republicans are known as the Stupid Party, perhaps there is some truth to Krugman's view that Republicans (or at least a lot of Republicans) really are stupid.

Whether or not some Republicans are stupid, I contend that Krugman still did not make the case, and that is because he confuses science with opinion. Thus, if someone disagrees with him -- and everyone knows that Krugman claims to base his opinions solely on science -- then that person is an ignorant know-nothing.

I will go further. Krugman is not speaking so much of science here, but rather opinions from people who are employed as scientists. What he is claiming is a non sequitur: if one disagrees with his views, then one rejects the ENTIRETY of the Scientific Method.

The two subjects he identifies are the Theory of Evolution and whether or not humans are destroying the planet by causing global warming. It is Krugman's belief that if one does not hold to exactly the same viewpoints he holds, then one is beyond reproach and is utterly ignorant and should be banished from polite or at least intelligent company. He writes:

Mr. Perry, the governor of Texas, recently made headlines by dismissing evolution as “just a theory,” one that has “got some gaps in it” — an observation that will come as news to the vast majority of biologists. But what really got peoples’ attention was what he said about climate change: “I think there are a substantial number of scientists who have manipulated data so that they will have dollars rolling into their projects. And I think we are seeing almost weekly, or even daily, scientists are coming forward and questioning the original idea that man-made global warming is what is causing the climate to change.”

That’s a remarkable statement — or maybe the right adjective is “vile.”

Now, I don't want to get into the deeper arguments on evolution or climate change, but want to point out that when Krugman speaks of evolution, he is saying that all present and complex life forms all evolved from a simple form of life, the amoebae. (Krugman does not tell us how the amoebae found its way to existence, and since there can't possibly be a God -- such thoughts are not permissible at places like Princeton -- well, the cell just must have appeared on its own.)

There is plenty of scientific debate on the evolution of cells, but what Krugman is saying is that one must accept EVERYTHING on one side, proven or not, or one is an ignorant know-nothing. And God help any scientist who might use something like probabilities in the discussion, as the use of the scientific method is acceptable ONLY if one first accepts the view that all things complex evolved out of things simple.

As for global warming, Krugman is saying that unless one believes that a trace gas (carbon dioxide occupies about 0.037 percent of the atmosphere) is responsible for all changes in climage, one is an ignorant know-nothing. Furthermore, Krugman does not argue the science, but rather says that because the National Academy of Sciences is on the CO2 bandwagon, we should be, too.

You will have to excuse my skepticism here, as I wrote part of my doctoral dissertation on acid rain, including the predictions and what actually happened. Yes, the National Academy of Science in the early 1980s made a wild prediction (there would be a ten-fold increase in the number of acidified lakes in the USA because of acid rain) which did not come true, not even close.

In fact, it turned out that as the scientific theories of lake acidification evolved, so-called acid rain played no role at all. The composition of the watersheds and land-use patterns turned out to be the key predictor, something the Environmental Protection Agency tried to suppress by threatening scientists who came up with conclusions the EPA didn't like.

However, the politically-correct viewpoint (one that I am sure Krugman would defend to the death) was that acid rain was doing a number of terrible things, and if a scientist, after engaging in legitimate research, found out things that veered from the politically-acceptable view, then that person was not engaging in real science. Like it or not, with most scientific research on climate and the environment funded by governments, the political pressures are going to be there for people to reach conclusions of the Krugmans of this world.

Keep in mind that climate change has occurred for millenia. Interestingly, the so-called hockey stick managed to eliminate both the Medieval Warming Period and the Little Ice Age through mathematical manipulation. (But, if one's manipulations fit the politically-correct zeitgeist, then that is OK.) Of course, any view that the sun might play a role cannot be accepted because not even Paul Krugman is going to advocate that Congress pass laws to deal with the sun.

A world-class soil scientist once told me that the heart of the scientific method is "skepticism." Unfortunately, skepticism no longer is allowed once politics becomes the norm, and anyone who might employ the scientific method and reach conclusions that disagree with viewpoints that Krugman holds is "anti-science."

Bob Murphy on the Keynesians and Bastiat's "Broken Window Fallacy"

Bob Murphy has written an article dealing with how Keynesians are pushing back against the accusations that they are engaging in economic fallacies, or, to be specific, engaging Bastiat's famous fallacy. As usual, it is worth reading.

Now, Bob is fair to Krugman in that he does not say that Krugman wants war, alien invasions, or even the entire East Coast to be devastated by earthquakes and storms. Nonetheless, Murphy writes:

As I said earlier, the Keynesians lately have been launching a counterattack on the charge that they are committing the broken-window fallacy. One of their responses is to claim that the conservative/libertarian critics are ignoring the distinction between wealth and employment, and that they are unwittingly assuming that there is full employment (i.e., that there are no "idle resources").

Sympathetic onlookers have jumped into the debate, claiming that Bastiat could have been wrong. After all, suppose a hurricane came along and struck a community that initially had a large number of unemployed construction workers. Who would deny that the hurricane might (under the right circumstances) actually lead to more employment and a higher "gross domestic product" as it is currently measured?

Bob's answer is instructive, and I also believe that Keynesians cannot refute it, at least honestly.

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On another note, Krugman's Princeton colleague Alan B. Krueger has been named the chairman of President Obama's economic advisers. I have commentary here.

NYC's "stimulus" plan falls flat: Irene is a dud

So, it looks as though Paul Krugman will survive the Storm of the Century, and one only wishes that the political careers of Michael Bloomberg, Chris Christie, Janet Napolitano, and Barack "I'm in Charge of Hurricane Central" Obama could take the hit that the Big Apple was supposed to take.

So, the newsies don't get their disaster, the politicians look like fools instead of heroes, and New York doesn't have enough broken windows to stimulate the economy. How sad.

Krugman's Bernanke Problem

I must say that Paul Krugman always is on the lookout for villains. Christians, Creationists, Austrian Economists, Ron Paul, Republicans, and anyone else who is not in complete agreement with The Master all dissent from His Wisdom because they are evil. There can be no other explanation.

So, when people disagree with his view that another $400 billion would have done the trick with the "stimulus," they did so out of evil intent because they enjoy watching people lose their jobs and the economy falling into depression. When people voice concern about massive expansion of the monetary base and the real problems of inflation, they do so out of evil intent because they enjoy watching people lose their jobs and the economy falling into depression. When people object to the massive borrowing that creates an unpayable debt mountain, they do so out of evil intent because they enjoy watching people lose their jobs and the economy falling into depression. And so on.

Today, Krugman introduces a new villain: Rick Perry. Yes, it is Rick Perry, the Texas governor who now is running for the Republican nomination for president. Why is Perry now responsible for the economic misery? He criticizes Ben Bernanke and publicly worries about the various QE's and Fed-financed bailouts, and has used over-the-top language (i.e. "almost treasonous" and “we would treat him pretty ugly down in Texas” if he has the Fed purchase even more long-term government debt).

However, given the rhetoric I hear from the Democrats (and their media allies like Rachel Mad-dog and Keith Olbermann), accusing Ron Paul of "treason" and "the Tea Party is the enemy" and the like, it seems that what Paul Krugman is saying is that he and his allies are permitted to make whatever accusations they want (free speech, you know), but no one else is permitted to speak. After all, he argues, unless Ben Bernanke is able to do what Krugman has recommended, all hope of economic recovery will be lost, according to Krugman.

Am I exaggerating? Krugman writes:

...I’m using Mr. Perry — who has famously threatened Mr. Bernanke with dire personal consequences if he pursues expansionary monetary policy before the 2012 election — as a symbol of the political intimidation that is killing our last remaining hope for economic recovery. (Emphasis mine)

Just what is this "last remaining hope" policy? Something Krugman believes the Fed should be doing:

Well, in 2000 an economist named Ben Bernanke offered a number of proposals for policy at the “zero lower bound.” True, the paper was focused on policy in Japan, not the United States. But America is now very much in a Japan-type economic trap, only more acute. So we learn a lot by asking why Ben Bernanke 2011 isn’t taking the advice of Ben Bernanke 2000.

Back then, Mr. Bernanke suggested that the Bank of Japan could get Japan’s economy moving with a variety of unconventional policies. These could include: purchases of long-term government debt (to push interest rates, and hence private borrowing costs, down); an announcement that short-term interest rates would stay near zero for an extended period, to further reduce long-term rates; an announcement that the bank was seeking moderate inflation, “setting a target in the 3-4% range for inflation, to be maintained for a number of years,” which would encourage borrowing and discourage people from hoarding cash; and “an attempt to achieve substantial depreciation of the yen,” that is, to reduce the yen’s value in terms of other currencies.

Was Mr. Bernanke on the right track? I think so — as well I should, since his paper was partly based on my own earlier work. (Emphasis mine)

Given Krugman's rhetoric, one would think that Bernanke has been cowed into doing next-to-nothing, yet we read that Bernanke's Fed has made literally trillions of dollars in secret loans to banks and financial houses around the world, not to mention massive purchases of near-worthless assets in hopes that somewhere there is another short-term bubble the Fed can create to give us the illusion of recovery.

Now, I will say that Krugman is right -- we are losing hope for a real economic recovery -- but for the wrong reasons. Krugman is claiming that all that is needed is for the U.S. Government (and governments around the world), along with central banks, to try to pump up massive spending, or, as Keynesians call it, "aggregate demand" in hopes of re-employing "idle" factors of production.

Krugman can make this claim all he wants, but all he is doing is calling for the re-employing of malinvested assets that have gone bust, and that is not going to happen no matter how much nasty rhetoric he and his allies spew out. Krugman can blame Perry, Ron Paul, Michelle Bachman, Sarah Palin, and a whole list of other "villains," but perhaps he needs to look in the mirror and admit that he and the King's Men cannot inflate our economy back to prosperity.

Space aliens and coal mines: yeah, it all makes sense, now!

When I taught a macro course 20 years ago at UT-Chattanooga, we used Wallace Peterson's book which quoted Keynes as though it were Holy Scripture. Not surprisingly, Paul Krugman now seeks to justify his "space aliens" nonsense with...a quote from (Who else?) Keynes.

I will let readers view his post, but keep in mind that Krugman also thinks that he has effectively demolished the idea of gold being legitimate money. (According to Krugman, gold is a "useless metal," which I suspect is his way of saying that people use scarce resources to dig up something "useless," which, I guess, means that they are idiots.)

Furthermore, the use of gold bars in the "basements of central banks" is a relatively recent phenomenon and has little to do with the historical role of gold being used as a medium of exchange as opposed to a basis for issuing paper. But, given what I have read of Krugman, he would take it that we should leave gold in the ground (except for jewelry) because paper is being managed by Really Smart and Serious People like Ben Bernanke.

The creator of the fake Krugman statement confesses!!

So, the perpetrator of the Hoax has come clean! One wonders if the Obama administration's Department of (In)Justice will come after him in the way they have gone after S&P for downgrading U.S. paper. (Yeah, the DO(In)J has another explanation, but politics is politics.

I do find it interesting that Krugman DID classify the earthquake and tsunami in Japan as possibly being "expansionary" events, so while he did not make the statements on the U.S. earthquake, nonetheless he has said similar things elsewhere. Say what you want, but Paul Krugman IS a practitioner of the Broken Window Fallacy.

No, I don't support forgeries, although I do remember that a lot of Democrats and assorted lefties did not condemn the use of forged documents against President Bush by CBS News and Dan "The Frequency" Rather in 2004. In other words, for some people, if a forgery is politically useful, then it is OK.

It was only 5.9. Blame the Bond Vigilantes!! Too Small!

[Update]: Krugman claims that this comment is a forgery. Maybe it is, but it is no more ridiculous than his "space aliens" comment.

Hey, forget the space aliens! We now have a new economic stimulus package: the earthquake!

Actually, no. It was too small, just like the "stimulus," darn it! Paul Krugman has given us the Ultimate Broken Window Fallacy post on Google about yesterday's earthquake (which I admit we did NOT feel here in Riga):

"People on Twitter might be joking, but in all seriousness, we would see a bigger boost in spending and hence economic growth if the earthquake had done more damage."

Now, if we only could get the space aliens to induce and earthquake, we all could get rich!!

Krugman's Freudian Slip?

For years, Paul Krugman has been touting the wonder of Sweden's economy, as its high taxes and high welfare programs apparently provide "aggregate demand" that keeps the entire circle turning. So, in a recent blog post he makes from Sweden, Krugman declares:

Of course the point is not that Sweden is perfect, it’s the fact that it works and thrives despite high taxes and a strong welfare state — which isn’t supposed to be possible according to conservative dogma.

So, does Sweden thrive BECAUSE OF high taxes and welfare, or IN SPITE of it? Both cannot be true. Is it a Freudian slip, or is he just creating a conservative straw man?

I have never been to Sweden, and right now I am the closest I ever have been to there, being in Riga, Latvia. Each day, two ferries run from Rita to Stockholm, and from what I can tell, Scandinavians seem to make up the largest contingent of tourists here in Old Riga, where we are staying. The reason that the Swedes like to come here is because Riga, while somewhat expensive by American standards, is much less expensive than Sweden. In my conversations with Swedes and Norwegians, I get the sense that they are not personally as wealthy as Progressive Americans want us to believe.

In other words, what Krugman (who is a multi-millionaire and really doesn't have to worry about what things cost) does not tell people is that Swedes pay much more for goods than do Americans, yet Swedish incomes are not as high, and their real incomes are substantially lower than ours. Now, this is not a slam on Sweden, which is a lovely country, but nonetheless is not quite the paradise Krugman wants to claim that it is.

Now, Sweden is not a hellhole, either, although I don't know of any practitioners of "conservative dogma" who make the claim that such a society cannot function. Furthermore, income tax and welfare policies are not the only thing affecting investment. Something tells me that the Swedish government is not nearly as hostile to new capital investment as is the current Regime in Washington. (While it will bug the Krugmanites who read this page, this editorial that appeared in the Wall Street Journal is spot on when it comes to dealing with the economic policies of the Obama administration.)

Krugman has one more statement that does strike me as interesting:

An anecdote here: Robin and I were talking yesterday with an eminent American financial economist, and said something about tax levels here. He said, “Well, that’s why all the young people are leaving.” Except, you know, they aren’t. But never mind — that’s what’s supposed to be happening, and it must be happening.

Does that mentality apply to the stimulus? According to Krugman, a "stimulus" by definition always must have a positive economic effect, provided it is "large enough," so is the fact that the economy is in the tank -- despite trillions of dollars being spent to keep that from happening -- proof on its face that the government is following an "austerity" plan? Or, if "that’s what’s supposed to be happening, and it must be happening" only applies to other things, but not the "stimulus"?

Say what? Issue more debt to relieve a debt crisis? Only in Wonderland!

The name of this blog came from a commentary I wrote for Forbes nearly three years ago, but I would add that the writers and editors of the New York Times seem to be living in their own Wonderland. This is a newspaper that took the confabulated "evidence" in the Duke Lacrosse Case and insisted that it all made sense when people living in the Reality World saw it and wondered how in the heck a D.A. managed to find a rape case wrapped up on that nonsense.

Unfortunately, the delusion that is the NYT is not limited to imaginary crimes being committed by "young men of privilege." No, the NYT still is insisting that we can and should "spend our way" out of this financial crisis. In today's editorial, we see yet another plea for central banks and governments to unleash another round of debt in order to enable sinking governments to...repay debt.

(Remember that the NYT was all over Karl Rove for his "reality-based world" comments when he was the de facto political officer for the Bush administration. While I agreed with the editors' assessment of Rove's comments then, I only can conclude that Rove Disease has overtaken the NYT editorial offices.)

The editorial is insisting that governments don't cut back on borrowing and spending (and increasing taxes) because if they stop borrowing, then won't be able to repay their debts:

Excessive indebtedness is a real, long-term problem. But Europe’s broad downward trajectory can only be turned around if governments — both those of lenders and debtors — spend more in the near term to put people back to work and get consumers back to spending.

The proper interpretation of those words is as follows: "We need to stop drinking, but in the interim, another round for the house! Let us make a toast to ending toasts...in the future!"

This is not, of course, what the editors actually seem to believe. Like Hitler's generals in the Berlin bunker who were insisting to the bitter end that they could win World War II, the editors are insisting that another round of borrowing and spending (and more taxation) THIS time will take hold and that economic growth will be just around the corner:

As the crisis quickens, more enlightened voices struggle to be heard. Christine Lagarde, the new managing director of the International Monetary Fund, is calling for balancing long-term debt reduction with “short-term support for growth and jobs.” The financier George Soros this week renewed his pleas for more growth-friendly policies, as has Gordon Brown, the former British prime minister.

What do the editors mean by "growth-friendly policies"? They mean more borrowing, more government spending, more subsidies, higher marginal tax rates, higher fuel taxes, more regulation, destruction of industries such as energy industries that still are profitable, more criminal penalties for normal business transactions, and broader welfare policies.

Yes, I am sure that all of these things will enable the economies of the USA and Europe to grow. Increase burdens upon individuals and businesses, make it easier to throw people into prison, print money, increase government borrowing, increase anti-business rhetoric, and expand the police powers of the state, and out of this is going to come that unicorn known as "economic growth." Create a little boom now and we will figure later how to deal with the inevitable bust.

Only in Wonderland.

Random commentary on Krugmania

Why the Progressives liked John Kenneth Galbraith

I remember when Staples put this Dilbert cartoon into an ad, and Krugman claims that this is how some American pundits decide who is "presidential."

Obviously, Krugman never would think a person's looks would determined whether or not he was "distinguished," but it was not that long ago that Progressives were united in their praises of the "distinguished economist" John Kenneth Galbraith, whom I dubbed the "Dilbert Economist." Yes, Galbraith was tall and had academic-style hair which...turned silver. That he was an economist as opposed to being a socialist political operative who made a number of nonsensical claims on economics is another subject for debate.

(For that matter, Bill Clinton was tall and his hair has turned silver, too. That must make him a "distinguished ex-president.")

Salvation by Printing Money

In the end, Krugman tends to be a Silvio Gesell-style crank. Print money (which everyone knows is free wealth), and governments easily can solve their economic problems. In a recent post, Krugman claims:

...countries without a printing press are subject to self-fulfilling crises in a way that nations that still have a currency of their own are not. The point is that fears of default, by driving up interest costs, can themselves trigger default — and that because there’s a crossing-the-Rubicon aspect to default, once a country crosses that line it will probably impose fairly severe losses on creditors. A country with its own currency isn’t in the same position: even if it is pushed into some inflation, there’s no red line that need be crossed.

Yeah, there are no consequences for debasing the currency; it's all "free money"! Wealth for all!

Save us from space alien economics!

While waiting at JFK International Airport last Sunday to catch a plane to Riga, Latvia, I saw Paul Krugman on the tube (along with Harvard's Ken Rogoff). While the words were provided, nonetheless I could not get myself to watch it, as I just was not in the mood for ridiculous. Apparently, I missed a doozy. For that matter, I didn't even know that space aliens were upon us, although I would say that in economic terms, space aliens will attack us before Keynesian "solutions" set the economy on a correct and sustainable path.

According to Krugman, war (be it with Germans and Japanese or space aliens) is a great thing (even though he admits it gives us "negative product social spending") because it both gives us more employment AND inflation! I mean, what's not to like? You can have prices rise and have empty store shelves -- but you have a job, even if you can't buy anything, as was the case in WWII.

As for Krugman's "alien threat" comments, Bob Higgs has it right. On a recent Facebook post, Robert Higgs has written:

Professor Krugman, I can be even more Keynesian than thou. My plan: invite aliens to bring to earth the blueprints for a global debt-financed public-works program in which every nation would construct thousands of pyramids (constrained only by the condition that public debt not exceed infinity and policy makers' IQ not exceed 63.)

Higgs makes more sense. Really. Mary Theroux of the Independent Institute agrees, and has this to say:

As Dr. Robert Higgs has more than ably shown, the Great Depression continued, and deepened, throughout the New Deal and throughout World War II. The World War II years were a time of shared privation, with virtually every item that we take for granted today either rationed: e.g., meat, gasoline, sugar, clothing; or not available at any cost: e.g., new cars, appliances, etc. The American standard of living throughout World War II remained at an excruciatingly low level that no 21st century American would accept. Meanwhile, unemployment disappeared simply because 16 million able-bodied people were sent to war, paid below-market rates and subject to danger, death, and maiming they may not have preferred to unemployment.

To be honest, I think that we will be better with space aliens running things than the Keynesians.

A delusion agenda, anyone?

[Update]: Graham Dugas sent me a link of Richard Nixon's infamous August 15, 1971, speech after closing the gold window because of constant runs on the dollar. Staying true to his name of "Tricky Dicky," Nixon proceeded to blame the "international speculators" for actually buying gold and essentially shorting the dollar, which Nixon dishonestly calls the "cause" of the trouble.

Of course, the cause of the trouble was the fact that the government was rapidly expanding the supply of dollars -- with a predictable result. Flash forward to 40 years later and we see Washington still trying to claim that the government wants to protect our money and our lives.[End Update]

The editors at the NY Times believe that they have discovered something that apparently no one else notices: a lot of people are out of work. Of course, the Grey Lady's perception that in the past year "Congress and the Obama administration have spent the year focused on budget cuts" is a pretty sick joke, considering that the government continues to spend and borrow into oblivion.

Now, the editorial is worth reading if only for its huge leaps in logic. First, the "serious" stuff: "Without more jobs, both the economy and the budget will deteriorate further."

Notice the causality here; the NYT is claiming that "jobs" help create an economy. So, we are supposed to believe that the economy is bad because people are out of work instead of dealing with the logical point that unemployment is high because the economy is bad. This is simple economic logic, something that always seems to escape the people in the august NYT offices.

But, it gets even better, as all of these grandiose jobs projects ("Let's rebuild this and that....") need to be funded, of course. How to do that?

Washington, in thrall to austerity, has abandoned one of the most immediate and powerful tools for supporting growth and jobs, namely, borrowing at today’s low rates to provide direct fiscal aid to states. But Mr. Obama can and should make the case for targeted new jobs today, to be paid for over time by closing tax loopholes.

This is hilarious (unfortunately). First, Washington is not "in thrall to austerity" by any stretch, given the explosion not only in government spending, but also in government obligations over the past four years. Washington might be delusional, but "in thrall to austerity" is a product of a fertile imagination.

Second, while the suggestions are couched in the language of capital spending, it is clear that what the editors mean is that the government needs to continue its record borrowing simply to funnel it to certain favored political groups. This basically is the government using the bond markets as a giant credit card to continue a spending spree.

The last one -- "closing tax loopholes" -- also demonstrates utter delusion at the Grey Lady. What constitutes a "loophole"? While the NYT and Paul Krugman seem to believe that the government can balance the budget and end the recession by raising the top rates to, perhaps, 70 percent (a rate Krugman tool me seven years ago was "insane," but I guess Krugman now is re-defining "inanity").

For the past four years, the NYT has shown utter hostility to those industries that are profitable and can lead us out of a recession. Instead, we get the incomprehensible nonsense that if the government borrows at even higher rates, jacks up taxes, and props up favored "green industries" with huge subsidies, that this mishmash will result in a recovering economy.

It seems to me that the editors of the NYT need to spend some time in "recovery" from the delusion of Keynesian thinking. These are people who are laying out the very path to depression and are calling it prosperity. I don't think so.

The hijacking of economic logic

As the U.S. economy continues to crumble and as the USA's debt situation deteriorates, Paul Krugman demands that we play the role of the band in "Animal House" and march forward as though there were no brick wall in front of us. (Who is playing the role of Stork? Is it Obama, Krugman, Stiglitz, "Bad" DeLong?)

Echoing Rahm Emmanuel's infamous "Never let a crisis go to waste" line, Krugman bemoans the fact that the Fed has not created enough of a paper blizzard to put overall inflation past six percent. (That commodity prices, not to mention prices that we are paying for food, fuel, medicine, and other goods, are in double-digit increase land is to be ignored, according to Krugman. Those price increases have nothing to do with Bernanke's policies; it's all "volatility," and anyone who disagrees is an Enemy of the People.)

Apparently, Krugman, like Rahm, must have believed that this crisis would trigger a "New New Deal," in which government would increase its reach over everything, and out of it would come jobs, jobs, and more jobs. That the scheme has failed miserably only heightens Krugman's rage, as he insists that just the very ideas that people have which disagree with his own are the cause of this misery. (Krugman never is wrong. Ask him.)

When Obama took office, accompanied by insurmountable Democratic majorities in the House and Senate, the government went on a spree of spending, new regulations, and massive entitlement increases. The Obama administration not only continued the destructive bailout policies of the Bush administration, but also added to them. By appointing a number of industry "czars," Obama even reached back to the days of the infamous National Industrial Recovery Act, as harebrained FDR scheme to organize the entire U.S. economy into a series of cartels. (Yes, the idea was that if we could produce less and force up prices of goods and commodities, the higher prices would translate into higher incomes and lead to recovery.)

However, Krugman wants us to believe that the administration from 2009 to 2011 actually engaged in "austerity" spending. And why, according to Krugman, did the Obama government reject his advice? The very presence of people who disagreed and said that they disagreed with Obama's claim that we were going to spend our way out of the recession. (I am not agreeing with Krugman, but rather am pointing out that Krugman is making the unreal claim that the tiny Republican numbers in Congress actually controlled nearly all White House and Congressional policymaking. Right.)

So, Krugman's great plan is for the U.S. Government to borrow into oblivion, bail out failed industries, subsidize "alternative energy" schemes, with the result being that jobs arise out of the economy. No country ever has inflated itself to prosperity, and the fact that the U.S. Dollar has served as the world's "reserve" currency for a while only will make the real crisis even worse when the rush to abandon the dollar increases. And it will increase, with the results being very, very ugly.

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For the next several days, future posts will be spotty, as my wife Johanna, Sintija, and I are traveling to Latvia, where we will be living for the next 3-4 weeks. The adoption process is slow, but it continues.

Our apartment in Riga has wireless, and the Internet speed in Latvia is faster than it is in the USA, so I anticipate some time for future posts. Krugman and others will make outrageous claims, and I will try to answer them when I can.

The Keynesian game: Let's pretend we are rich even though it is just an inflation mirage

At the heart of the recent Paul Krugman screeds has been this belief: In a recession, we must spend money as though we were wealthy. How do we do that? As Krugman has said many times, the government debases the currency or borrows with a vengeance.

Krugman's other "solution" is to confiscate more wealth from businesses and individuals and then pretend that the transfer itself makes everyone wealthier. The interesting thing to me is that this process -- debasing money -- actually makes people poorer as their money buys less than before.

However, when we are in Keynesianland, none of this matters. Inflation increases and it puts more money into the hands of people who then spend it, and somehow this magically lifts an economy from depression. As Krugman recently wrote:

Actually, there’s a very good case for allowing inflation to rise above 3 percent, to 4 or even 6 percent, for several years. Don’t take it from me — take it from Greg Mankiw and Ken Rogoff. Indeed, it’s arguable that inflation, both actual and expected, is the main thing the Fed should deliver, if it can.

Of course, the idea that the Fed has the ability to "manage" inflation is something for the debate mill. My belief is that it does not take long for inflation to jump from six percent to double-digits and beyond.

Underlying this nonsense is the belief that money itself is wealth, and that the government creates it out of thin air. Thus, the government pulls yet another financial rabbit out of the hat. Through central bank manipulation, the government can borrow at a zero (or even negative, in real terms) interest rate, which then becomes "proof" of "free money." In other words, the government can spend money as though the economy were robust instead of being just bust.

In the end, the results are yet another Keynesian mirage. Spend as though you were rich, as though the spending itself will turn around the economy and really make us rich. Maybe in the fantasyland of the Progressives, but not in the real world.

And, as the economy continues to tank, Krugman can blame the Wall Street Journal editorial writers, the Tea Party, and everyone else, but never his own ideas that put this spending spree into motion. No, if the economy tanks, it must be because those in power didn't spend enough and debase the currency enough because, after all, Paul Krugman never is wrong.

Yes, Paul, it IS politics!

In what Jeffrey Tucker of the Mises Institute calls "The Most Evil Column Ever," Paul Krugman begins to come clean. If I read his recent statements correctly, Krugman is claiming that the economy easily can be "fixed" with a dose of inflation, heavy taxation, and borrowing, and that anyone who might see things differently does so because that person is pure evil.

Krugman has not gone as far as Michael Moore, who recently called for the arrest of the CEO of Standard & Poors for permitting his agency to downgrade U.S. Government debt, but he is moving in that direction. As Anthony Gregory has put it, we are seeing the totalitarian mindset of the Progressives in action, and Krugman is right in the middle of it with his unhinged rhetoric. (Gregory, one of the most insightful writers out there today, notes that we now are faced with totalitarian thinking on both right and left. His column definitely is worth a read.)

Before deconstructing Krugman's column and his latest blog posts, I would like to quote Tucker who makes a most salient observation regarding S&P's supposed sin:

Krugman seems to regard the down-rating as the sin that cries out to heaven for vengeance. And why? Because S&P had given Lehman Bros. an A rating before it went bankrupt and therefore the company has no credibility.

Huh? Doesn’t his point suggest the opposite of what he intends? By his own account, S&P has a bias to overrate bonds. S&P down rated U.S. debt from AAA to AA+. Seems like S&P could continue to downlist U.S. debt a long way before even approaching Lehman territory. Plus, if A is supposed to be a vote of confidence in Lehman, how can AA+ constitute a pessimism so horrible that it is a crime against humanity?

That is an excellent point. Furthermore, what Krugman does not point out is that the government was strongly encouraging the formulation of the toxic assets through its various programs, and the Federal Reserve System quietly stood in the background with its promised "Greenspan-Bernanke Put."

To say it another way, one easily can argue that S&P was doing what its political masters wanted it to do: give high ratings to government-inspired debt. Likewise, as we can see with the reaction of Krugman, Moore, Congress, and the White House to the latest S&P move, the consequences of telling the truth -- that the emperor wears no clothes -- are severe. With upcoming Senate hearings on S&P, we can be assured that the iron fist of the state is going to follow.

So, it is politics after all, but a different kind of politics. Krugman blames Goldstein, er, the Republicans, for all of the problems -- ALL of them. According to Krugman, even when the Democrats held the White House AND insurmountable majorities in the House and Senate, somehow Goldstein, er, the Republicans, managed to keep them from spending what Krugman says was enough money to "stimulate" the economy and give it "traction."

How did the Republicans do that dastardly deed? Why they disagreed with Paul Krugman. Yes, mere words, something that never bothered the Democrats before, suddenly stopped them dead in their tracks and made them initiate what Krugman has called "austerity." Yes, through Fox News (which Krugman and his allies never watch, anyway), the conservatives managed to destroy all the good Krugman demanded that Obama do. The fact that the Democrats had the major media all on their side from the NY Times to the news networks apparently meant nothing, as just the existence of dissent somehow overpowered the powerful.

To me, that is a huge howler. What Krugman is saying is that the very presence of people who might see the world differently than him is unacceptable. Given his recent endorsement of the view that the only way we can bring back prosperity is through state violence against businesses and banks, we can see where he and his political allies are headed. Look for Krugman to endorse measures in the future that smack of totalitarianism and outright violence.

Krugman no longer is even engaging in debate. The same person who spoke glowingly of "death panels" now is claiming that only the conservatives have used the term. For that matter, Krugman's ally Robert Reich also has endorsed "death panels," although he termed things differently.

For all of his talk of being the prophet in the wilderness, Krugman clearly is part of the political establishment. The recent Time screed against the Tea Party points out that the establishment view is that Ben Bernanke is a sober tiller of the economy, that John Maynard Keynes provides the way to prosperity, and that Ron Paul is a wacko nut job. In other words, the political establishment -- and Time is part of that group -- has no problem with Krugman.

What we are seeing is a roadmap to destruction. On one side, Krugman is claiming that tax-borrow-print-spend will bring us prosperity when, in fact, it will only make things worse. And as the hole continues to get deeper, Krugman and his friends are going to call for outright totalitarian measures against anyone who disagrees with them. You can bank on that one.

The Times and Taxes

[Update]: It seems that Alan Greenspan is channeling the Chartalists! I'll let Greenspan's words speak for themselves:

Former Federal Reserve Chairman Alan Greenspan on Sunday ruled out the chance of a US default following S&P's decision to downgrade America's credit rating.

"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default" said Greenspan on NBC's Meet the Press

"What I think the S&P thing did was to hit a nerve that there's something basically bad going on, and it's hit the self-esteem of the United States, the psyche" said Greenspan.

Gee, hoodathunkitt! The Zimbabwe-Weimar "solution." Of course, the very act of printing money to repay debts is a form of default, so I think that Greenspan's belief that the USA can print worthless paper and get away with it speaks pretty much for itself. [End Update]

One of the reoccurring themes from the Keynesians is that government spending and taxation do not have an opportunity cost. While it is true that Keynesians at times will say not to raise taxes during a recession/depression, nonetheless the Keynesian "Balanced-Budget Multiplier" holds that government spending is preferable to private investment/spending, so the more the government takes in taxes, the better off the economy will be.

(Obviously, this presents us with an interesting question: Why doesn't government confiscate ALL of our earnings and spend them, thus creating endless prosperity? If government spending has a larger "multiplier effect" than private spending, then why hold back?)

So, we now hear from the New York Times about the "truth about taxes." This is one of those editorials that pretty much exposes the mentality of the "elite" of this country, thinking that is utterly condescending and demonstrates absolutely no ability of people at the "Newspaper of Record" to comprehend the current economic crisis.

This is par for the course at the Grey Lady. During the New York City fiscal crisis of 1975, the NYT in both its news and editorial sections utterly failed to comprehend what was happening. (For all of its crusading against "financial fraud" and the like, the NYT had NOTHING to say about the illegal and criminally-fraudulent practices of the city to sell capital bonds in order to pay for previously-issued bonds. Thus, the NYT endorsed criminal fraud when it was being committed by its political friends.)

Investment? Tax away the returns. Declares the NYT:

At the same time, super-low tax rates for investment income should be ended. Capital gains are taxed at a top rate of 15 percent, compared with a top rate for wages and salary of 35 percent. Proponents argue that the lower rate is an incentive to invest, but research shows that it also encourages gaming of the system. Tax breaks that have outlived their purpose must be ended, starting with subsidies for the oil industry, which is making billions in profits.

Let's deconstruct that one. Once again, the NYT is claiming that profits are bad for the economy (as opposed to losses in "alternative energy" that must be made up via subsidies.)

Yet, the ONLY way we will have an economic recovery, versus the constant financial bubbles that the Fed has been creating, is for firms to be able to be profitable in at least a semi-free market. In this country, the traditional energy industries of oil, natural gas, and coal can be profitable, yet these are the very targets of the NYT crowd, which is utterly delusional in its belief that we can create energy "alternatives" that will come close to our needs and subsidize our way to prosperity. That is not just wrong; it is sheer delusion.

Let's take on another whopper from the editorial:

To avoid across-the-board cuts, Congress must enact at least another $1.2 trillion in deficit reduction measures over the 10 years. For all of the talk of “big government,” there is no way to cut that much in discretionary programs without crippling basic functions. Lawmakers could eliminate the Federal Bureau of Investigation, Pell Grants, the Centers for Disease Control and Prevention, the National Institutes of Health and Head Start and still not cut $110 billion annually.

Now, no one has called for elimination of those agencies, although it might not be bad to take a hard look at them. Perhaps we might start with the TSA, an agency that was enthusiastically endorsed by the NYT, and has proven not only to be incompetent, but also abuse to travelers. (Notice that the NYT never does deal with that abuse, as the people there -- like most Progressives, including Krugman -- believe that just the very creation of a government agency is "progress." If there is abuse and fraud within the favored organization, then the "solution" is "more training."

Anyway, the editorial itself provides a window into the thinking of modern Progressives, who believe that any expansion of the state into our lives is a good thing. The massive tax increases that the NYT demands, in the view of Progressives, would have ONLY positive effects. But, then, these are people who actually believe that we can destroy our existing energy industries, replace them with corn-based ethanol and windmills, and subsidize and tax our way to prosperity.

This isn't economics; it is foolishness.

Downgrades, Debt, and More Delusion

So, Standard & Poors has downgraded the mighty U.S. Government bond to less than AAA status, and Paul Krugman is upset. Now, he is not upset that the government now has more than $14 trillion in debt, nor that government spending continues apace without the capability of this economy to create the kind of wealth needed to pay down this monstrosity.

No, Krugman is upset because he is of the belief that things were just going fine, at least debt-wise, until those mean, nasty Republicans engaged in debt-limit brinksmanship. In other words, his only beef is that the government is not taxing us enough. (Remember, he already has declared that the government "is not broke." Yes, according to Krugman, as long as the government can borrow money, its finances are in solid shape.

Krugman declares:

...there is a case to be made that the madness of the right has made America a fundamentally unsound nation. And yes, it is the madness of the right: if not for the extremism of anti-tax Republicans, we would have no trouble reaching an agreement that would ensure long-run solvency (Emphasis mine).

I really must admit to being dumbfounded here. Does he really believe that had some of the Republicans not demanded budget cuts, everything would have been just fine? Does he really believe that hitting the borrowing-and-spending accelerator somehow would magically have transformed this economy and federal budget and pushed us into the black? I'm sorry, but this is astounding.

One does not have to support the Republicans to know that things are in desperate shape. The government's insistence that everything is just fine, and that prosperity is just around the corner, and that all the sick patient needs is just another "fix" of cheap credit is utterly delusional.

Whether or not one can quibble with S&P for downgrading U.S. Government debt, one thing is for certain: the U.S. Government is not solvent, not by a long shot. It is able to pay back bonds by borrowing money, something that is ANY other entity were to do would be considered criminal fraud. Borrowing from Peter to pay Paul is not an economic program; it is a de facto admission of bankruptcy.

Wrong and wrong

Paul Krugman seems to have a need to claiming time and again that he is right and everyone else is wrong, and his "proof" is that interest rates did not go up as predicted by the editorial writers at the Wall Street Journal (thus, giving us the overworked "bond vigilantes" phrase). He also constantly invokes his "confidence fairy" line, but has not given proof of its lack of veracity -- except to use the term with the idea that his constantly saying it "proves" it is true.

His newest pen pal, Bruce Bartlett, seems to have gone over to the Keynesian side, and now he has David Frum to join him. I have linked Frum's mea culpa article for those who wish to read it.

However, there are a number of people who also have been wrong, people that Krugman never will acknowledge because he already has attacked them as being wrong and stupid all of the time: the Austrians. For example, in 2001 -- that's right, 2001 -- Ron Paul on the floor of the U.S. House of Representatives declared that the Fed was in the process of engineering a housing bubble. However, since Rep. Paul subscribes to a theory that Krugman claims is no more credible than the "phlogiston theory of fire," then nothing Ron Paul says should have any veracity at all. (In Krugman's world, only Keynesians are right and everyone else -- even those that are right -- are wrong.)

Keep in mind that Krugman already has declared that the U.S. Government is not "broke," even though borrowing now is now out-of-control. Of course, Krugman's latest "scheme" is for the government to borrow obscene amounts of money, spend it, with the idea that the resulting spending will give the economy "traction" to move on its own. There is no causality other than Krugman's circular belief that spending will begat spending which will begat prosperity. In other words, he actually wants us to believe we can spend ourselves into prosperity.

Let us address his "confidence fairy" phrase for a minute. According to Krugman, business "confidence" is based solely on what business owners and managers perceive to be future spending. If someone will spend, business will build. Robert Higgs, however, notes that not only is Krugman wrong, economically speaking, but he also is contradicting his own guru, John Maynard Keynes:

The humor columnist for the New York Times, Paul Krugman, has recently taken to defending his vulgar Keynesianism against its critics by accusing them of making arguments that rely on the existence of a “confidence fairy.” By this mockery, Krugman seeks to dismiss the critics as unscientific blockheads, in contrast to his own supreme status as a Nobel Prize-winning economic scientist.

The irony in this dismissal, as others, including my friend Donald Boudreaux, have already pointed out, is that Krugman’s own vulgar Keynesianism relies on a much more ethereal explanatory force for its own account of macroeconomic fluctuations–namely, the so-called animal spirits. The master himself wrote in The General Theory: “Thus if the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but a mathematical expectation, enterprise will fade and die. . . . [I]ndividual initiative will only be adequate when reasonable calculation is supplemented and supported by animal spirits. . . .” (p. 162). Because Keynes conceived of his “animal spirits” as “a spontaneous urge to action rather than inaction” (p. 161), he of course had no way to explain their coming and going or to measure or evaluate them in any way. They are as surreal as a ghost–when and why they come and go, no man knows or can know. Such is the force that drives the ups and downs of private investment in Keynesian economic theory, and such theory unfailingly drives Krugman’s commentaries on the recession and on the possibility and effective means of recovery from it.

Since Krugman's "confidence fairy" line is aimed at Higgs' "regime uncertainty" view, I include what Higgs says about it:

Regime uncertainty, however, has a much more grounded basis. In my own research on the topic, I have presented evidence derived from (1) a mass of testimony by investors, businessmen, and other contemporaries, (2) voluminous historical facts on the character of government actions that reasonable people had every reason to interpret as theatening the security of their private property rights, (3) variations in the structure of investment, especially as between short-term and longer-term projects, and (4) specific twists in the term-structure of returns on private corporate bonds, as well as other relevant evidence on the behavior of financial markets.

As against this varied and substantial evidence, what does the proponent of animal sprits have to offer? Well, nothing at all. The idea is purely fanciful, the product of Lord Keynes’s fertile imagination.

So, this is what we have:

• Keynesians are right and Austrians are wrong (because Krugman says so)
• The Keynesians "doctrine" of "animal spirits" also is wrong because it contradicts Krugman's view of business confidence
• But Keynesian doctrine is right, even if it is not right.

So, there you have it. Krugman now is depending upon David Frum, a guy who long ago rejected anything to do with free markets and peaceful relations between people as being desirable, to validate his own Keynesian opinions. You just cannot make up this stuff.

Debt and Delusion

I have stayed away from doing commentary on the whole debt ceiling "crisis" because nothing bugs me more than watching a bunch of hypocrites and frauds prattle around as though they were doing something important. Furthermore, we are dealing with a situation in which the contrived "crisis" is given more play than the real crisis that government has brought to us.

Nonetheless, we were supposed to have been transfixed with the dog-and-pony show in Washington, and now that the Political Classes have papered over yet another yawning hole, the pundits now are looking at winners and losers. In today's commentary, I deal with the angst emanating from the "Newspaper of Record," the editorial writers and, of course, Paul Krugman.

Like me, both entities consider the final decision to be a Really Bad Deal, but for reasons that demonstrate their own delusions about the economy. For all of the bad prose that these commentaries provide, I think that I can describe them in one sentence: We believe that government must spend and tax us into prosperity.

This is not possible, period. One can be of a socialist or Keynesian ideology and spout to the heavens that this time, such a scheme will work. It won't. Yet, Krugman gives us the same old delusion:

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

Indeed, slashing spending while the economy is depressed won’t even help the budget situation much, and might well make it worse. On one side, interest rates on federal borrowing are currently very low, so spending cuts now will do little to reduce future interest costs. On the other side, making the economy weaker now will also hurt its long-run prospects, which will in turn reduce future revenue. So those demanding spending cuts now are like medieval doctors who treated the sick by bleeding them, and thereby made them even sicker.

Krugman would be correct if assets were homogeneous, but they are not. Furthermore, he provides NO causal path as to how this continued government spending is going to lead to future prosperity. No, in Krugman's world, is just happens.

We are seeing a dearth of current private capital investment in this country, and no wonder. Krugman can ridicule business confidence all he wants by calling it the "confidence fairy," but when we have a government that has shown it is utterly hostile to investment that either is not directly subsidized or falls outside the president's view of what is right and proper (i.e. energy investments), then it is not hard to understand why businesses lack confidence to throw their money within U.S. shores.

Instead, Krugman wants us to believe that businesses automatically will invest when they see that the government is committed to showering the economy with new dollars. Well, government has been doing that for the past four year, and so far we are not seeing any results, and we won't see results, either.

What we are seeing is utter delusion in Washington, something I recently likened to the view from "Hitler's bunker" at the end of World War II. (I made the remarks while being interviewed on RT.)

So, Krugman and his employer can give us the Keynesian fairy tales all they want, but they are just as delusional as their friends in Washington. Krugman believes this madness is sustainable; it is not.