Paul vs. Krugman

I don't like to watch TV debates, as people tend to talk past each other, but nonetheless, I would say that the Paul v. Paul (Krugman) debate probably was interesting. I've not watched it, but those who would like to see it can click on this link.

Here is a link to an abbreviated transcript.

The Amnesia Economist

One of the supposed rules for New York Times columnists is that they not endorse candidates or be overly politically partisan in what they write. That is a howler, of course, as the entire newspaper is little more than the house organ for the "respectable" Left in the Democratic Party. This is a newspaper, of course, that prattles on about how DNA "exonerates" people charged with certain crimes, but was absolutely certain in the Duke Lacrosse Case that DNA did not matter at all.

(The paper wanted us to believe that three drunken young men could rape, beat, and ejaculate on a woman for 30 minutes in a tiny bathroom, leave in a hurry without cleaning up anything, use no chemicals to eradicate the mess, and yet not leave one speck of DNA. Instead, the paper insisted, they used what only could be described as a "magic towel" that would make her DNA disappear, not collect the DNA of two of the "rapists," but have only the DNA of one person. But, according to the self-proclaimed "Newspaper of Record," this was "proof" of a rape.)

I make this lengthy point about the NYT because this is a paper that openly and arrogantly contradicts nature itself, as the people who write for the paper, including the vast majority of its columnists, believe that laws of time and space do not apply to them. That makes them free to rewrite history and declare themselves to be akin to the Masters of the Universe.

So it is with Paul Krugman, who this week calls Mitt Romney the "Amnesia Candidate" because Romney dares hold Barack Obama's policies as being responsible for there not being any real economic recovery. Why everyone at the NYT and Princeton KNOWS that EVERYTHING is the fault of George W. Bush BECAUSE HE CUT THE TOP INCOME TAX RATE FROM 39.6 PERCENT TO 35 PERCENT. Yes, anyone who knows ANYTHING about economics knows that slightly lowering income tax rates will cause massive unemployment, or that least that is what Krugman wants us to believe.

(And, please note that Krugman on numerous occasions has claimed that cutting tax rates has been a major cause of the downturn because, as every good Keynesian knows, government always spends more wisely than individuals can and will spend for themselves.)

At the present time, I am working on a project about the Great Depression and today, I will be writing about Herbert Hoover's response to the stock market crash of 1929 and beyond. In my research, I came upon this gem from Krugman. First, the Hoover quote:

It cannot be borrowed without impairment of the credit of the National Government and thus destroy that confidence upon which our whole system depends. It is unthinkable that the Government of the United States should resort to the printing press and the issuance of fiat currency as provided in the bill which passed the House at the last session of Congress under the leadership of the Democratic vice presidential candidate. Such an act of moral bankruptcy would depreciate and might ultimately destroy the value of every dollar in the United States.

Then, Krugman declares:

This should (but won’t) dispel the myth that Hoover was some kind of proto-Keynesian. But look,also, at how closely Hoover’s line of argument follows that of Very Serious People today.

 Yes, one quote from Hoover means that Hoover never called a conference of business and labor leaders in 1929 and demanded that they keep prices and wages high no matter what was happening in the economy. Hoover enthusiastically signed the disastrous Smoot-Hawley Tariff, despite receiving a letter signed by 1,000 economists begging him to veto it.

Hoover never pushed through massive public works projects and Guy Rexford Tugwell, a close adviser to Franklin Roosevelt, never declared, "We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started.” Hoover did not resurrect the War Finance Corporation to become the Reconstruction Finance Corporation (which today exists as the Small Business Administration) to make massive loans to failing companies. (After all, Hoover was a "liquidationist" and wanted the entire economy of the USA to go under so he could support the principles of "laissez-faire.")

Of course, Hoover was a True Believer in "laissez-faire" and he never was a Progressive, although he had convened a conference in 1921 on business cycles, and at the conference he did not declare that the standard government approach to a downturn (not to intervene) was outdated and that government needed to expand credit and engage in public works programs. 

Economist Steven Horowitz (who did actual research, not look for a stray quote from Hoover) did not write:

Politicians and pundits portray Herbert Hoover as a defender of laissez faire governance whose dogmatic commitment to small government led him to stand by and do nothing while the economy collapsed in the wake of the stock market crash in 1929. In fact, Hoover had long been a critic of laissez faire. As president, he doubled federal spending in real terms in four years. He also used government to prop up wages, restricted immigration, signed the Smoot-Hawley tariff, raised taxes, and created the Reconstruction Finance Corporation — all interventionist measures and not laissez faire. Unlike many Democrats today, President Franklin D. Roosevelt's advisers knew that Hoover had started the New Deal. One of them wrote, "When we all burst into Washington...we found every essential idea [of the New Deal] enacted in the 100-day Congress in the Hoover administration itself."

When Herbert Hoover returned to the USA after his tour of Europe following World War I, he did not outline a new economic and social "vision" for the country that so excited Progressives that "Louis Brandeis, Herbert Croly of the New Republic, Colonel Edward M. House, Franklin D. Roosevelt, and other prominent Democrats for a while boomed Hoover for the presidency."

You see, the facts about Herbert Hoover are quite inconvenient when one wishes to portray him as something he clearly was not. So, one takes one quote from Hoover to "prove" that nothing else that historians have written about him is true. After all, when one is trying to promote a myth, a little amnesia cannot hurt.

Like the writers at the NYT during the lacrosse case, Krugman knows that if he continues to make untrue declarations, few readers will do fact-checking. After all, the Duke boys were white and "privileged," so they MUST have raped Crystal Mangum. 

Likewise, Hoover's entire career was devoted to Progressive causes and the paper trail is long, but when Paul Krugman tosses all of the facts down the Orwellian Memory Hole, then he must be right because, after all, he is a decorated and famous economist.

Will inflation save Europe?

In a recent column, Paul Krugman says that Europe essentially is committing "economic suicide" with its various "austerity" programs, with the only thing that can save the Continent being inflation. While I can agree with him in part that "austerity" programs as outlined by the European Central Bank can be harmful to economic growth, the idea that inflation is the magic elixir that turns bad economies into engines of prosperity is pure snake oil.

Krugman writes:

So if European leaders really wanted to save the euro they would be looking for an alternative course. And the shape of such an alternative is actually fairly clear. The Continent needs more expansionary monetary policies, in the form of a willingness — an announced willingness — on the part of the European Central Bank to accept somewhat higher inflation; it needs more expansionary fiscal policies, in the form of budgets in Germany that offset austerity in Spain and other troubled nations around the Continent’s periphery, rather than reinforcing it. Even with such policies, the peripheral nations would face years of hard times. But at least there would be some hope of recovery. (Emphasis mine)

 How much inflation? Krugman does not say, although he should know that once a government goes down the inflation path, it needs to apply increasing amounts of inflation over time to get the same effects. The history of inflationary episodes is quite clear on that point.

However, at the same time, we have to understand just what is meant by "austerity" in the European sense. The ECB (with the Federal Reserve System lurking in the background) has engineered a bailout of the banks that lent these governments lots of euros, and in order to now pay back the loans, the governments must cut spending and raise taxes.

Cutting spending, contra Krugman, is not necessarily contractionary, although European governments impose heavy costs upon business, making it harder for businesses to be an engine for recovery. Krugman mentions Spain and its near-24 percent unemployment. What he does not say is that Spain has some of the most restrictive employment regulations in the world in which employees, once hired, pretty much have something akin to tenure, which means employees pretty much cannot be fired for any reason.

Under that set of incentives, when businesses find the back door nailed shut, it means that the front door is much harder to open. Unfortunately, people like Krugman cannot see such policies as having any effect upon employment rates in Spain because they tend to see government employment as morally and financially superior to private employment, so that if Spain makes it difficult for businesses to hire people, then let government "pick up the slack."

There is an underlying issue that Krugman cannot see because of his anti-enterprise ideology. For many years, Europeans have looked down their noses at the USA because it has not had the same restrictions on businesses as Europe and the USA's welfare state is not as vast as that on the Continent.

Yet, such restrictions and heavy spending have made it more difficult for businesses to generate real wealth, which ultimately has translated into slow growth and high unemployment. Unfortunately, the current spate of "austerity" programs fails to recognize how new wealth can be created and what it really would take for Europe's economies to grow.

Krugman, however, would have none of that. His message to Europe is simple: keep the restrictions on business in place, increase government spending, and print money, lots of money. Such actions in the present might mask the underlying problems, but in the long run, it would be disastrous.

But to Keynesians such as Krugman, it doesn't matter. In the long run, all of us are dead.

Tuscaloosa just needs to "believe in government"

In the aftermath of natural disasters, the standard Paul Krugman line is that only government can fix the problems, and that if one just "believes in government" with all one's heart, soul, and mind, then things will go well. After Katrina, Krugman claimed that the reason that FEMA's response to the disaster in New Orleans

...wasn't just a consequence of Mr. Bush's personal inadequacy; it was a consequence of ideological hostility to the very idea of using government to serve the public good. For 25 years the right has been denigrating the public sector, telling us that government is always the problem, not the solution. Why should we be surprised that when we needed a government solution, it wasn't forthcoming?

Or, as Krugman wrote in that same column, had the Bushies allegedly loved government, then FEMA would have had a magnificent response and no doubt everything in the Gulf post-Katrina would have recovered more quickly. (In other words, Krugman actually wants us to believe that federal government agents given near-absolute authority in New Orleans somehow eschewed their power and decided to pursue an ideological line of "limited government." Yeah, we run into those kinds of government agents all the time, agents who are deathly afraid of abusing their powers.

In other words, according to Krugman, the powerful, top-down government approach that is fashioned by bureaucrats who believe in what they are doing and directed by Liberal Democrats provides the best response to disaster. Well, we have a laboratory in the aftermath of tornadoes in Tuscaloosa, Alabama, and Joplin Missouri, and the results definitely are contra-Krugman.

David T. Beito and Daniel J. Smith have looked not only at the speed of post-tornado recovery in those two cities, but also the governmental action behind it. Tuscaloosa is using the tornado to engage in top-down government planning, and also is waiting for more FEMA money. (And everyone knows that since Barack Obama loves government, FEMA will be Johnny-on-the-spot.)

Joplin, on the other hand, is cutting back zoning enforcement and permitting businesses to rebuild, which definitely is an anti-Krugman approach and most likely would earn the Great Man's contempt. So how are things going? Beito and Smith write:

In Joplin, eight of 10 affected businesses have reopened, according to the city's Chamber of Commerce, while less than half in Tuscaloosa have even applied for building permits, according to city data we reviewed. Walgreens revived its Joplin store in what it calls a "record-setting" three months. In Tuscaloosa, a destroyed CVS still festers, undemolished. Large swaths of Tuscaloosa's main commercial thoroughfares remain vacant lots, and several destroyed businesses have decided to reopen elsewhere, in neighboring Northport.

The reason for Joplin's successes and Tuscaloosa's shortcomings? In Tuscaloosa, officials sought to remake the urban landscape top-down, imposing a redevelopment plan on businesses. Joplin took a bottom-up approach, allowing businesses to take the lead in recovery.

 Keep in mind that while much of Alabama tends to vote Republican, Tuscaloosa is a university town that is full of political liberals and, as such, believers in government planning. The planners also are spouting the politically-correct language and ideals. Write the authors:

The Alabama city's recovery plan, "Tuscaloosa Forward," is indeed state-of-the-art urban planning—and that's the crux of the problem. It sets out to "courageously create a showpiece" of "unique neighborhoods that are healthy, safe, accessible, connected, and sustainable," all anchored by "village centers" for shopping (in a local economy that struggles to sustain current shopping centers). Another goal is to "preserve neighborhood character" from a "disproportionate ratio of renters to owners." The plan never mentions protecting property rights.

Joplin, on the other hand, features an:

official plan (that) not only makes property rights a priority but clocks in at only 21 pages, compared with Tuscaloosa's 128. Joplin's plan also relied heavily on input from businesses (including through a Citizen's Advisory Recovery Team) instead of Tuscaloosa's reliance on outside consulting firms. "We need to say to our businesses, community, and to our citizens, 'If you guys want to rebuild your houses, we'll do everything we can to make it happen,'" said Joplin City Council member William Scearce in an interview.

Now, if one only read the columns of Paul Krugman, one would think that Joplin's recovery would be lagging and Tuscaloosa would be booming. Yet, all of the things that leftists like Krugman claim are needed to make an economy recover, don't seem to be working very well:

Instead of encouraging businesses to rebuild as quickly as possible, Tuscaloosa enforced restrictive zoning rules and building codes that raised costs—prohibitively, in some cases. John Carney, owner of Express Oil Change, which was annihilated by the storm, estimates that the city's delays and regulation will cost him nearly $100,000. And trying to follow the rules often yielded mountains of red tape, as the city rejected businesses' proposals one after another.

"It's just been a hodgepodge," says Mr. Carney. "We've gotten so many mixed signals from the get go. The plans have been ever-changing." Boulevard Salon owner Tommy Metrock, one of the few business owners to rebuild on Tuscaloosa's main thoroughfare, McFarland Boulevard, says the restrictions created "chaos" as people put their livelihoods on hold while the city planned.

There is one other possibility, however. Perhaps that the influence of other Republicans in Alabama has been such that the city planners in Tuscaloosa simply don't believe ENOUGH in government to work magic. I'm sure that Krugman would come up with a similar explanation, or maybe he will write a column to say that businesses have turned Joplin into a hellhole and government, by accidentally creating "wide-open spaces" in Tuscaloosa, has turned the city into paradise. Stay tuned.

Krugman, "National Greatness," and Boondoggles

One of the mantras for the Neo-Conservatives has been "national greatness," which means that America ought to be producing huge, expensive public works projects. (One gets the sense that William Kristol and David Brooks wistfully see the Pyramids in Egypt and wish that we could leave something similar for future generations.)

Now Paul Krugman is taking that one step further, arguing that big public transportation projects are a sign of "national greatness," and that people like Gov. Chris Christie are cheating us of a future by engaging in "cannibalism." Yes, the same Paul Krugman who is calling for big increases in inflation, the same Paul Krugman who demands that the Obama government increase its rate of borrowing, the same Paul Krugman who has called for the Federal Reserve System to engage in the worst kind of financial trickery by buying short-term Treasuries, is now complaining that Christie's refusal to commit future generations of New Jersey taxpayers to massive cost overruns via a rail tunnel actually is an example of "cannibalizing the future."

I must admit that Krugman's audacity is breathtaking. Not building the rail tunnel, according to Krugman will "strangle the state's economy" as though all of New Jersey depends upon one rail tunnel to be operated by a government agency. Krugman writes:

America used to be a country that thought big about the future. Major public projects, from the Erie Canal to the interstate highway system, used to be a well-understood component of our national greatness. Nowadays, however, the only big projects politicians are willing to undertake — with expense no object — seem to be wars. Funny how that works.(Emphasis mine)

Throughout the column today, Krugman goes on and on about how passenger rail projects present a wonderful future and that anyone who is against them must be evil. He declares:

One answer is that the governor is widely assumed to have national ambitions, and the Republican base hates government spending in general (unless it’s on weapons). And it hates public transportation in particular. Indeed, three other Republican governors — in Florida, Ohio and Wisconsin — have also canceled public transportation projects supported by federal funds.

 What Krugman does not tell us is that projections of the Florida rail project from Orlando to Tampa (for which the feds promised the state $3 billion) were such that Florida taxpayers would be stuck paying billions of dollars more for the project that would have become a high-cost boondoggle. The non-Krugman account is found here.

Then there is California, something Krugman has not mentioned. In that situation, the Holy Democrats, which run the state and are engaging in fiscal cannibalism of their own in propping up the state's government employee unions, have engaged in utter financial nonsense in promoting the "Bullet Train" from San Francisco to San Diego. The report is here. Steven Greenhut has more on the California rail rip-offs. (And even Slate gets into the act.)

My guess is that Krugman is like many Progressives in that he has a wonderful future planned for the Great Unwashed who now commit the sin of driving cars and shopping at Wal-Mart. Granted, he has no plans to take part in that future, which is reserved for the ignorant mundanes who need to be saddled with massive and unpayable debts, which would cannibalize their own futures.

But, why should the mundanes be permitted at all to plan for themselves? No, they need Paul Krugman and the Progressives to do that for them.

Thanks to Our Contributors

Many thanks to Scott Dysart,David Leinwand,Larry Wasserman, and Joseph Fetz, who have all made contributions to our campaign to raise funds for therapy for our daughter Sasha.  A journey of a thousand miles begins with a single step!  We are grateful to you.

Krugman: Not enough economic destruction

There are times when Paul Krugman is merely outrageous, and then there are times when he really lets himself go, and today's column reflects the latter. In one fell swoop, Krugman exposes his ignorance on money, on investment, and on economics itself.

I'll go further. Krugman is not advocating a real economic recovery; instead, he is demanding that the Federal Reserve System and Ben Bernanke take the kind of action that will be utterly destructive and thus guarantee that in order to have a real economic recovery, people in the United States are going to have to suffer the kind of pain that would not have been necessary had we done the right thing four years ago and, for that matter, 11 years ago.

The theme of Krugman's column is explained by his title, "Not enough inflation." In other words, we don't need less destruction of the dollar; we need more, and make no mistake about it, inflation is the destruction of the value of money.

As Steve Horowitz pointed out in my recent post, Keynesians like Krugman cannot differentiate between factors of production and consumer goods, nor can they differentiate among capital and other factors. For that matter, Krugman cannot even explain what real investment is. Take the following from his column:

How so? For one thing, large parts of the private sector continue to be crippled by the overhang of debt accumulated during the bubble years; this debt burden is arguably the main thing holding private spending back and perpetuating the slump. Modest inflation would, however, reduce that overhang — by eroding the real value of that debt — and help promote the private-sector recovery we need. Meanwhile, other parts of the private sector (like much of corporate America) are sitting on large hoards of cash; the prospect of moderate inflation would make letting the cash just sit there less attractive, acting as a spur to investment — again, helping to promote overall recovery. (Emphasis mine)

This simply is an outrage; no other word will do. What Krugman is saying is that inflation would create incentives to invest, which is something that no real economist would say. As Robert Higgs has noted here, and here, the economy is lacking the kind of long-term investment that is needed for real recovery, and inflation will NOT bring that about.

In fact, inflation would have the opposite effect, as it would create even more regime uncertainty and would force people to put it into things where the value of money can be sheltered, and that would NOT be the kind of long-term investment that requires both confidence and low interest rates and, yes, low or no inflation. As one can see in this column, such investment is not even on Krugman's radar screen; after all, to a Keynesian, the real value of investment is the short-term spending that takes place and little or nothing else.

Once again, we also see the "Goldstein" analogy that Krugman is fond of giving. Yeah, if it were not for those evil right-wingers, we would have lots of inflation and lots of prosperity. What Krugman does not say is that the kinds of "investments" promoted by inflation are not sustainable because they are malinvestments. That is the hard truth, even if Krugman denies it.

One of Krugman's constant revisionist themes is that the 1970s were a golden age of investment and economic growth. He can throw all the charts he wants, but we had two serious recessions, double-digit inflation, price controls, and a lot of economic chaos. Yes, since Krugman and I were in college at the same time, both of us remember what it was like, and people were not spinning the happy tales that Krugman wants us to believe.

If Krugman is successful in encouraging Ben Bernanke to unleash the wolves of inflation, the result is not going to be one with a happy ending. The economy still will be moribund, there will be lots of unemployment, and people will have to deal with higher real prices, which means they will become poorer with no hope in sight. True, Krugman believes that somehow the Fed can "manage" inflation rates of 4-6 percent quite easily, but as F.A. Hayek once noted, inflation creates a "tiger by the tail" situation, and it does not take long for the situation to get out of hand.

And when and if it does, then look for Krugman and his acolytes to call for price controls, capital controls, and all other modes of coercion, as though the state can coerce an economy into prosperity. Don't kid yourselves about what Krugman is demanding; he is calling for economic destruction in the name of promoting economic recovery. We cannot have both.

Horowitz on Keynes; Tucker on Murray

Steve Horowitz has a good piece in the Freeman Online about some of the Keynesian errors of aggregation. The following point especially is instructive:

The Austrian insight is relevant to both capital and labor. In standard Keynesian models (as well as most other macroeconomic models), capital is understood as an undifferentiated mass. The Keynesian model also assumes that interest rates do not equilibrate the supply of savings and the demand for investment funds. Thus when people save more, there’s no signal transmitted to investors that they should build more for the future. As a result, the decline in consumption that accompanies the increase in savings causes firms to invest less as their inventories pile up without any offsetting increase in investment elsewhere due to the lower interest rate.

There is much to like in this piece and I hope readers will examine it.

Jeff Tucker, one of the most insightful people I know, has written this piece in answer to the recent work by Charles Murray that calls attention to what he calls the "Great Divide" between American social and economic classes. Tucker notes that the system is rigged against the poor in ways that neither conservatives nor liberals can begin to understand:

That leaves the fundamental question: Why has this actually happened? From what I’ve read, Murray seems to overlook the political reasons for why the lower third has begun to eschew the bourgeois virtues. It all comes down to economic opportunity and deep integration into the division of labor, for it is through commerce that individuals acquire value in the eyes of themselves and others.

The regulatory and tax states have made the lower classes into pariahs from the point of view of the commercial world. They are expensive to hire and hard to fire, which makes them even more expensive to hire. The minimum wage is bad enough, but that is only the beginning. A giant machinery governs how, where, when, and under what terms they can work and enjoy fulfilling lives. Business creation is harder than ever for anyone but the highly educated elite.

When they do get jobs, the whole system is allied against their social advancement. Cash business is criminalized. Everything requires a permit. The bureaucracy rules, instead of the entrepreneur. The laws, taxes, mandates, programs — and everything else the state has done — work like a giant bed of sharp rocks in the middle of a river that punishes those who tried to get to the other side.

Inflation and the Fed’s interest-rate policy have punished the accumulation of wealth and shortened the time horizon of the lower third of the population classes. The rise of the police state and the criminalization of their lifestyle have driven them into a culturally, socially, and legally marginal existence, so that they are always one step away from entanglement with police, courts, and jail.

As government grows — and the regulatory and tax states expand — and as the prohibitions on behaviors, services, and goods grow and grow, society becomes ever less economically mobile and dynamic. The class system that is part of every society becomes a caste system of entrenched position. It becomes a society of the put-upons versus the privileged.

That certainly seems to be the case in Maryland, which is a one-party state dominated by urban Democrats. All of the Democrats I know here at Frostburg State (which is most of the faculty and student body) claim to have Great Compassion for the poor, but that compassion is reflected ONLY in their view that to really help the poor, we need to make sure that they have enough welfare benefits. Raising the minimum wage also is Holy Grail, and the fact that the minimum wage puts a lot of poor people out of work either is ignored or is dismissed with a reference to the Card-Krueger AER paper (if they know about that paper) or to something else

What I find is that the poor are revered, but only if they can be revered from a distance, as faculty members and poor people really have nothing socially in common.

Please Help Sasha Anderson Have Real Hope—For the First Time.

Who is Sasha Anderson?   

Sasha is a twelve year old girl who lives in the darkness of Reactive Attachment Disorder, a consequence of infant neglect before her parents adopted her. 

RAD won’t kill Sasha, but if untreated, it will destroy her quality of life.  She spends every minute of every day in survival mode; it’s her against the world.  It doesn’t bother her that she lies and steals.  She is justified, entitled.  She trusts no one. 

Sasha exudes a curiously winning pathos.  She’ll talk to you, no problem.  Her every nerve is straining on high alert as she approaches.   “What can I get out of this woman?” she thinks.

 “How can I work this situation to my advantage?”

  “Where’s the nearest exit, if I need to bolt?”

Even when she’s with you, Sasha is curiously alone.  She tries, but she can’t push away the vague memory of being abandoned, hungry and left to die.  Chattering helps her drive the thought out of her head, so she weaves her conversational web, each word carefully chosen to reveal exactly what she wants you to know, no more and no less.

Sasha is real, and she is our daughter.  She needs help, and you have the power to help her.

We, her parents, have found a program near our home called A HEART’S WORK, which specializes in the treatment of RAD.  Sharon Fuller, the lead therapist, has successfully treated RAD in 15 children.  She is confident that she can enable Sasha to become an emotionally healthy child who can love and trust.  

 The therapy Sasha needs will cost $5000; the extra money we raise will go to pay The Point for this campaign. This treatment is not covered by insurance.  We will contribute to this campaign ourselves, as we are able. 

Your donation will enable Sasha start six weeks of intensive therapy at A HEART’S WORK at the end of the school year.  When our goal of $5,500.00 is met, a check will be sent directly to A HEART’S WORK.

Sasha is twelve, so there is a narrow window of opportunity left in which she is likely to be responsive to attachment therapy.  Please empower us to change Sasha’s world while there is still time.

Thank you,

Bill and Johanna Anderson