One Size Fits All "Cost Reduction"

When I recently spoke at a college in Michigan, I met a couple of women from Canada who told me that whenever they need serious medical care, they come across the border to the USA. In fact, they said there are clinics in this country that specialize in treating Canadians who either are denied care in their own country or must wait in long lines.

The reason is simple: in the name of "controlling costs," the Canadian government through its "single-payer" plan simply withholds care through a "one-size-fits-all" system -- and that is what Paul Krugman claims we need to do here. (When he confidently asked an audience of Canadians if they believed they had a great system, he got responses that truly puzzled him, and certainly were not what he expected.)

(After the speech, a woman in the audience whose husband is a doctor told me that her husband spends about six hours a day doing paperwork in order to satisfy the government requirements. Please explain to me how this is any kind of positive change, especially considering that ObamaCare is going to pile on even more bureaucratic procedures into medical care.)

In a recent post, he claims that the way to get budget savings is for the government to withhold care. He doesn't put it that way, of course. Only a Keynesian and fellow-traveling statist could believe that when governments pile administrative procedures in medical care, such actions actually reduce real costs.

Like most statists, Krugman believes that costs are administrative numbers and the way that one reduces real costs is simply to order them to fall. So we get things like:

And the truth is that we know a lot about how to do that — after all, every other advanced country has much lower health costs than we do, and even within the US, the VHA and even Medicaid are much better at controlling costs than Medicare, and even more so relative to private insurance.

The key is having a health insurance system that can say no — no, we won’t pay premium prices for drugs that are little if any better, we won’t pay for medical procedures that yield little or no benefit.

Sorry, but this isn't economics. It is babble. Krugman really does believe that markets behave exactly like bureaucracies, and that one can substitute bureaucracy for market exchanges and actually get superior results.

Every "market" in which government involves itself with massive "oversight" or outright running things is going to have increasing real costs, as careerist bureaucrats find ways to pile on procedures and paperwork. However, in American medical care, we often find that those procedures that neither are covered by insurance or government payments are marked by falling prices. Yes, why is it that things like lasik surgery have been becoming increasingly affordable despite the lack of third-party payments? (Or, maybe I should add that it is because of the lack of third-party payments.)

Like all good Keynesians, Krugman believes that markets over time drive up real costs, and the only way to make things affordable is for government to order costs to fall. That is not the real record of capitalism, of course, but Keynesians ignore that hard fact. Instead, they want us to believe that if government just could provide everything administratively, that we would be able to live in splendor and wealth. Just like they did in the U.S.S.R. WHERE THEY HAD FREE HEALTHCARE!

Krugman the Extremist (and Distorian to Boot)

Goldstein might win! Goldstein might win! He wants to destroy our economy, deny us healthcare, and put all of us into misery!

So rants Paul Krugman today. And to go along with his rant that taxes might be too low, he gives us some bad history. He writes:

During the first two years of Mr. Obama’s presidency, when Democrats controlled both houses of Congress, Republicans offered scorched-earth opposition to anything and everything he proposed. Among other things, they engaged in an unprecedented number of filibusters, turning the Senate — for the first time — into a chamber in which nothing can pass without 60 votes.

 There is a problem with this bit of history, however: the Democrats had a huge majority in the House and a filibuster-proof majority in the Senate, or at least from June, 2009, until early January, 2011. (The 60th Democrat came after Al Franken stole, er, won the election in Minnesota.)

So, there essentially was no Republican opposition in the first two years of Obama's presidency, contra Krugman and nothing in the way of Obama imposing his agenda, which he did with a vengeance. Furthermore, his regulatory agencies, and especially the EPA, engaged in a "Crucify Them" strategy against business owners, or at least that is what one of the key EPA regulators bragged to a friendly group before his speech found its way onto the Internet and the public outcry cost him his job.

But Krugman is not satisfied with giving a dishonest political history of the Obama years. No, he also adds this gem:

If President Obama is re-elected, health care coverage will expand dramatically, taxes on the wealthy will go up and Wall Street will face tougher regulation. If Mitt Romney wins instead, health coverage will shrink substantially, taxes on the wealthy will fall to levels not seen in 80 years and financial regulation will be rolled back.

 Now, I am not exactly sure how a medical program with what Krugman admitted contained the infamous "death panels" and piles on the government paperwork -- complete with draconian criminal penalties for doctors who don't properly dot every "i" and cross every "t" -- is going to "dramatically" expand healthcare coverage. Yes, it might on paper, but in the real world -- where people have to see doctors and actually get care -- that is not going to happen. ObamaCare has not magically altered the production function, nor has it lowered opportunity costs, which means that this new set of laws is not going to do what Krugman claims.

A real economist would know that instinctively. A real economist also would know instinctively that making it more difficult to invest, making it more difficult to build something, and moving factors of production from higher-valued to lower-valued uses through political subsidies and outright intimidation is not going to result in a better economy.

I am not a Mitt Romney supporter and if he is elected, neither he nor Congress will be willing to do what is necessary to bring this economy back to real growth mode. Instead, President Romney (unlike Candidate Romney) will lean on Ben Bernanke to have the Fed try to inflate us into recovery, which is not going to happen.

But, then, Paul Krugman is not an economist. He is a political operative, period.

Plans and Economic Reality

For all of the talk from Keynesians that their goal is to help the private economy "gain traction," Keynesianism ultimately is about central government planning, be it monetary planning, government spending, or regulatory mandates. The ultimate mantra of the Keynesian is this: Statism equals prosperity.

Thus it is that in the wake of the Obama debate debacle, Paul Krugman has decided to go to war...over dueling medical plans, and his argument is this: Obama has a better "plan" than does Romney, and if Romney says otherwise, he is lying. One has to understand that what Krugman is arguing is that these plans are going to perform exactly as they are written, and that requires a huge stretch of the imagination.

When one peels away the rhetoric about the dueling "plans," one finds that the central assumption is that government central planning works. In Wonderland, we are supposed to believe that the Obama plan actually will result in expanded coverage at lower costs? Why? Because Obama says so. With the Romney plan, things will not turn out well? Why? Because Krugman says so.

Never before in economic history has government planning done what Krugman claims ObamaCare will do: create more need-fulfilling services while simultaneously using fewer per capita resources. That is the heart of the debate, not which candidate has the better central plan.

Krugman can throw out all of the ex ante projections he wants, but the point is that by expanding the regulatory and confiscatory state, and employing an army of bureaucrats to see that all of the jillions of rules are followed to the letter, ObamaCare -- or RomneyCare II, for that matter -- ultimately will result in higher real costs of medical care. And as people find that the heart of ObamaCare's "cost-cutting" measures really means denial of medical choices for those who are not politically-connected, the ensuing "crisis" will bring demands for even more government control.

The regulatory state is quite predictable in its outcomes, yet people continually go to the same dry well because that is what the Progressives who essentially control all of our major institutions claim will "solve" the latest set of problems. Whether the OC or RC plans are implemented, in the end we will find that central planning from Washington will mean deterioration of medical services.

As I see it, the real issue is not the red herring of whether Mitt Romney told the Truth According to Paul Krugman. No, the real issue is that Washington is embarking on a journey that will have outcomes that are much different -- and much worse -- than what is being promised. Paul Krugman is politically-connected and he is wealthy; he won't have to worry about being denied care.

But those people who are not in Krugman's privileged category are going to find that not only will the government actively restrict their medical care, it will do it in an iron-fisted way. Central planning is central planning, and all of the rhetoric in the world cannot change that hard and sad fact.

Krugman and Medical Care: We Need More Socialism

I've not posted since the U.S. Supreme Court upheld the insurance mandate of Obamacare, and am leaving much of the back-and-forth to other writers. Peter Schiff writes that if the government really does have the authority to levy a "tax" upon any citizen who does not purchase what the government demands they buy, then there really are no more checks on the power of government.

I tend to agree. In the last decade, we have seen exponential growth of the surveillance state, the prison state, the militarization of the police, and we now have a president who believes he has the authority to order missile strikes anywhere in the world and to kill whomever he likes -- and it all is done "under color of law." In other words, lawless behavior by state agents now is an oxymoron, since by definition, state agents cannot break the law.

This SCOTUS decision will unleash the IRS in a way that will astound people, and one can bet that the powers that government seized with the passage of the Patriot Act and other such legislation will be put to use in new and oppressive ways. Furthermore, this decision will further unleash to power of federal prosecutors to criminalize just about anything they choose.

(I deal with their brutality of the innocent in my other blog, not that Keynesians really care about the brutality of the state. They just want to see more because, in their minds, a leftist state cannot be brutal since by definition, socialism cannot oppress.)

However, according to Krugman, the decision by the Supreme Court is something I should cheer because I now am a "winner." Funny, I don't feel like a winner, probably because I actually understand what socialism does to medical care over time, something that I doubt any Keynesian ever could understand because, frankly, Keynesians don't understand (or want to understand) the simple act of production. And forget the role of entrepreneurship in medical, as Keynesians would consider even the possibility of such to be anathema.

The Keynesian-Socialist View of Production vs. Ludwig von Mises and Economic Calculation

During the Socialist Calculation Debate between Ludwig von Mises and Oskar Lange in the 1930s and 40s, Lange demonstrated what I would call a mainstream view of how production and the firm might work. Indeed, what he said was hardly different from what I was taught in my production classes.

In mainstream neo-classical analysis, one analyzes production via the production function and input prices. (Yes, I constructed many a cost function using both things.) If one has both, then one can deduce the optimal use of inputs in production. (When graphing these items, the "optimal" position -- where costs are minimized -- is found where the production function, or isoquant, is tangent to the isocost.)

Lange held that a production function was pretty easy to find, and that government central planners could find prices simply by checking the commodities exchanges in the capitalist world, and with both in hand could then "plan" an entire economy by solving a huge batch of simultaneous equations. In fact, economists in the former Soviet Union became quite good at solving these equations by using matrices, and while their economic calculations generally turned out to be disastrously applied, nonetheless the world of matrix algebra advanced.

Socialism, Lange argued, actually would be more effective than capitalism because capitalists, after all, had to waste time and money making profits. Socialist production, having solved the issue of economic calculation, would produce more goods that were superior to what might be produced in the capitalist economies, or so he declared.

That is the essential argument that people like Krugman and Paul Craig Roberts have made about medical care. Everyone knows the "medical production function," right? So, what's the problem? For example, Roberts declares:

The American health care system is the most expensive of all on earth. The reason for the extraordinary expense is the multiple of entities that must make profits. The private doctors must make profits. The private testing centers must make profits.The private specialists who receive the referrals from general practitioners must make profits. The private hospitals must make profits. The private insurance companies must make profits. The profits are a huge cost of health care.

However, he adds, "single-payer" (which essentially is socialist or fascist, since fascism left much production in private hands with the state declaring what should be produced) eliminates the problems caused by profits:

The beauty of a single-payer system is that it takes the profits out of the system. No one has to make profits. Wall Street cannot threaten insurance companies and private health care companies with being taken over because their profits are too low. No health-provider in a single-payer system has to worry about being displaced in a takeover organized by Wall Street because the profits are too low.

What Roberts does not say, but what is obvious from his words is that we should not stop at medical care. If we know the proper production function for all aspects of medical care (which seems to be an assumption here) and if government simply by fiat can declare whatever prices it sees fit with no problems of resource misallocation, then directing a "rational" system simply is a matter of doing the math.

Roberts would argue, not doubt, that many of the profits in the medical system are not due to "free markets," but rather government favoritism given to politically-connected firms. Yet, even though government involvement via a regulatory system politically creates rents, his "solution" is for government to have even more regulatory power. Yet, if government already is a toady of private enterprise, as he says, then why should one expect that by the simple act of giving government even more power in the pricing and paying of medical care, that corruption would disappear and regulators suddenly would become pure in heart and be possessing the ability to perfectly allocate medical resources?

Likewise, Krugman argues that markets are the problem, and certainly not a solution in medical care, writing:

There are two strongly distinctive aspects of health care. One is that you don’t know when or whether you’ll need care — but if you do, the care can be extremely expensive. The big bucks are in triple coronary bypass surgery, not routine visits to the doctor’s office; and very, very few people can afford to pay major medical costs out of pocket.

This tells you right away that health care can’t be sold like bread. It must be largely paid for by some kind of insurance. And this in turn means that someone other than the patient ends up making decisions about what to buy. Consumer choice is nonsense when it comes to health care. And you can’t just trust insurance companies either — they’re not in business for their health, or yours.

This problem is made worse by the fact that actually paying for your health care is a loss from an insurers’ point of view — they actually refer to it as “medical costs.” This means both that insurers try to deny as many claims as possible, and that they try to avoid covering people who are actually likely to need care. Both of these strategies use a lot of resources, which is why private insurance has much higher administrative costs than single-payer systems. And since there’s a widespread sense that our fellow citizens should get the care we need — not everyone agrees, but most do — this means that private insurance basically spends a lot of money on socially destructive activities.

 This is interesting and very telling from two different viewpoints. First, Krugman has limited the entire conversation to "markets" for systems of payments for medical care, the third-party system, yet there is an entire web of complex relations within medical care that he ignores. (He does claim that improvements (like the MRI device) are responsible for the high cost of health care, which would make medical care quite unique because capital in a market economy tends to allow more goods to be created with fewer resources, but since he others already have declared that medical care is "different," then capital in the medical field apparently is a liability, not an asset.)

Unfortunately, Krugman does not even address the efficacy of third-party payments themselves, yet the proliferation of third-party payments for anything is going to mean that an important connection in economic exchange is distorted. The role of third-party payments in the rise of medical costs hardly is controversial, but Krugman seems to accept that the system can function only if all payments come from third parties.

The second point is that Krugman implies that a government system would not deny care, as though the Law of Opportunity Cost applies only to private insurers. Yet, even Krugman himself has endorsed denial of care and, yes, "death panels" (his words) as a way to hold down costs. So, one supposes that government is not subject to opportunity cost, but if it is, government agents will act wisely and compassionately.

Thus, we are supposed to conclude that (1) medical care is different than any other good one might purchase, (2) opportunity cost applies only to private care or at least manifests itself less if government agents decide who is to receive care, and (3) since everyone already knows the production function and since government has the power to set prices, there is no economic calculation problem, which means that the system does not need profits and losses to guide its decision makers.

Is There a Role for Entrepreneurs in Medical Care?

In the MBA classes I teach, I emphasize the role of the entrepreneur, not simply as an individual, but also the role of entrepreneurship within the firm itself. I use a lot of material from the Austrians, including Peter Klein's new book, The Capitalist and the Entrepreneur: Essays on Organization and the Markets.

Klein reminds us that most of the mainstream economic literature long ago discarded the entrepreneur as either socially useless (or even harmful) or irrelevant in a world of "economic" analysis based upon production functions, "given" input prices, and probabilities. These things, many mainstream economists believe, have demystified economic analysis to the point where any semi-competent economist, along with bureaucrats from the Federal Trade Commission or the Department of Justice, can both see and create the "optimal" system of production.

The Soviets certainly believed the entrepreneur was nothing more than a parasite, and all private entrepreneurship (legally called "speculation") was outlawed, with execution as a penalty always on the table. Production functions were obvious and planners could find prices by reading the Wall Street Journal, so the system did not need entrepreneurs, and especially did not need profits, as socialism already had done away with profits, which were nothing more than what Marx said they were: an unjust expropriation of the compensation that belonged to the workers.

As the Soviet economic planners found out, however, this was not a formula for "rational production," but rather a prescription for utter chaos. The economy of the former U.S.S.R. was legendary for its shortages, its poor-quality products, bad food, and, yes, poor medical care. When the Soviet Union still existed, American defenders would agree that maybe the government was too repressive and, yes, its economy was not good.

However, they would add: "It has free healthcare." (Likewise, I remember when a Marxist who teaches economics at the University of Tennessee-Chattanooga claimed that Romania's economy under communist rule was superior to that of the western nations because "there is no unemployment there.")

One of those former Soviet planners, Yuri Maltsev, has written about what that "free" care was like for ordinary people:

Being a People’s Deputy in the Moscow region from 1987 to 1989, I received many complaints about criminal negligence, bribes taken by medical apparatchiks, drunken ambulance crews, and food poisoning in hospitals and child-care facilities. I recall the case of a fourteen-year-old girl from my district who died of acute nephritis in a Moscow hospital. She died because a doctor decided that it was better to save “precious” X-ray film (imported by the Soviets for hard currency) instead of double-checking his diagnosis. These X-rays would have disproven his diagnosis of neuropathic pain.

Instead, the doctor treated the teenager with a heat compress, which killed her almost instantly. There was no legal remedy for the girl’s parents and grandparents. By definition, a single-payer system cannot allow any such remedy. The girl’s grandparents could not cope with this loss and they both died within six months. The doctor received no official reprimand.

As one reads the tales of Soviet medical care, it is clear once again that socialism is a system in which the consumer plays no role. Whether it was doctors and medical personnel killing patients or forcing them to pay bribes for basic care, patient care was the lowest priority. Ironically, at least one prominent Democrat politician, following the SCOTUS decision on Obamacare, declared that a future step should be the unionization of doctors. One can be assured that if this is part of our medical future, actual care for individuals will be secondary to preserving the political players in the system, as doctors through their unions will receive even more political cover.

One of the characteristics of a socialist economy was the various "time warps" that it created. When the Berlin Wall fell in 1989 and East Germans soon began to drive their Wartburgs and Trabants over the formerly-forbidden border to West Germany, people found that there was little difference between the 1989 Wartburg and the 1948 make of the same car. During my visit to East Germany in 1982, I found that much of the country, from its infrastructure to its street lighting looked unchanged from the 1940s.

Why the time warp? In a word: entrepreneurship, or the lack, thereof. While a lot of economists tried to explain the difference between the East and West as being to to "superior technology" in the West, that really is no explanation at all. New technologies do not magically appear; entrepreneurs must find a way to apply technologies in a way that will appeal to both the needs and budgets of average people.

Economic entrepreneurship in the old communist bloc was a crime; furthermore, a bureaucratically-run economy was going to be resistant to change because governments are loathe to take any kinds of risks. Car manufacturers stayed with the "safe" production function. Bureaucrats rarely receive any rewards for being right when they take risks, but often are punished for making errors, unlike entrepreneurs, who receive profits when they make correct decisions about the future and losses when they are wrong.

In the West and Japan, however, auto manufacturers had at least a measure of private entrepreneurship, and the result was a better automobile, even in the face of massive government political and regulatory interference with the production process. (Yes, some companies were bailed out, and it is my belief the government should have simply let Chrysler and General Motors go out of business. Entrepreneurship, after all, works best with a profit and loss system.)

What both Krugman and Roberts claim is that the real problem with medical care is entrepreneurship, and once the entrepreneur is removed from the picture and government directs the resources within the system, all will be well. Yet, why should that be the case we see opposite results elsewhere?

In the end, the single-payer advocates claim that medical care is different, and is not subject to the laws of economics. That would be a first in all of human history: a scarce good that is not subject to the Law of Scarcity.

For all of the talk of "American Exceptionalism," the real exception in the United States historically has been that entrepreneurs have had great freedom here, and we as citizens and consumers have benefited mightily from their actions. For that matter, every medical device that has saved lives and every development of medical procedures that make once-impossible surgeries now easy and commonplace has come ultimately through entrepreneurship.

And what will happen if the government tries to outlaw medical entrepreneurship? The system ultimately will slowly deteriorate, medical innovation will come to a halt, and patients will find themselves at the bottom of the totem pole.

Another thing will be commonplace, too. We will see politically-connected people like Paul Krugman and Michael Moore either using their great wealth to receive medical treatment in other countries that are not as restrictive as the USA, or they will use their political connections to be bumped ahead of everyone else. Oh, and Krugman and Moore and others will continually be propagandists in telling us how good we have it now that we have state-run medical care.

State-administered medical care: not exactly a low-cost panacea

I have a lot of arguments with Keynesians, the first being that they are not really speaking of economics, per se, but rather concentrate upon the administration of state power. To a Keynesian, there are no real costs, no real prices, and money simply is something to be manipulated by state authorities in order to facilitate wealth transfers.

Keynesians, from what I can tell, really have no idea how wealth is created, and in the advocating of the "euthanasia of the rentier," they really mean the doing away with entrepreneurship altogether and replacing it with a form of central planning. When Keynes wrote in the German edition to The General Theory that it would be easier to implement his ideas in a dictatorship than is a democratic state, he was not giving his stamp of approval to Hitler, but rather was saying that government economic planning would be easier when people did not get in the way.

Although much of the economy does not have the hardcore central planning that Keynes and his followers might have wanted, one area where socialism effectively has been implemented has been medical care. In fact, American medical care is one portion of the economy in which the staples of a free economy -- free prices and private property -- pretty much do not exist. Yes, there are things we call prices and there are some privately-owned portions of the medical system, but they are controlled or monitored by state authorities to a point where a market hardly is recognizable.

To Paul Krugman, this is a wonderful state of affairs, except that the government really should have even more control, all in the guise of reform. In his most recent column, he claims that Obamacare somehow is making the medical system better, controlling costs, and proving that socialism really does work in medical care.

I'm not going to get into a spitting match over the Republicans versus the Democrats or the latest numbers from the Congressional Budget Office. There is a larger issue here, one that Krugman and the rest of Washington, D.C., ignores, and that is the fact that state-sponsored medical care always will be more costly and less-effective than medical that is not state-run.

Now, I don't mean the present system with third-party payments, strict licensing requirements, price controls, allocation controls, and a horde of bureaucrats poring over every decision and second-guessing doctors. I am not speaking of a system that is full of government mandates, from certain kinds of screenings, mandatory injections of children with Lord-knows-what, government favortism, and requirements that taxpayers fund birth control so that college students can have a subsidized hookup culture.

Look at those industries which have been relatively free. Over time, quality and service improve, and prices to consumers go down. Now, Krugman will argue that medical care is DIFFERENT, and that it is not subject to the laws of economics. Hmmm, in other words, medical care is not an economic good, which only could mean that it is not scarce. Or, he might argue, government regulatory burdens and government price controls and mandates somehow can overcome or eliminate the reality of scarcity.

When Krugman writes of costs, he means administered numbers, not opportunity costs. When he calls for mandates, he means that consumers should not have free choice and that the state should choose, since a Progressive state is wise, as long as it is populated by people who "believe in government."

So, we will have the forever spitting matches in which people like Krugman will claim that things are getting better and that one day, we can be like Europe. That the state can magically do away with scarcity is just one more Keynesian fantasy.

Do regulations always work as the authors claim?

One of the most enduring of Holy Doctrines from the Progressive Era is that "experts" employed by the government are wise and discerning, and new regulations, be they for finance or the environment, always work exactly as they are supposed to do. Thus, any new edict from the Environmental Protection Agency will do exactly as it says, creating a cleaner country and reducing pollution and negative health effects.

In a recent blog post, Paul Krugman continues this Progressive tradition of bowing to regulation in an attack on recent remarks by Republican Congressman Paul Ryan. First, Ryan's quote (responding to an attack by President Obama):

Just last week, the President told a crowd in North Carolina that Republicans are in favor of, quote, “dirtier air, dirtier water, and less people with health insurance.” Can you think of a pettier way to describe sincere disagreements between the two parties on regulation and health care?

True to form, Krugman responds by declaring that Obama MUST be telling the truth because, after all, according to The Great One, Obama's remarks are "a literal description of GOP proposals to weaken environmental regulation and repeal the Affordable Care Act".

One has to understand a few things about Krugman's statement. First, does he consider ALL environmental regulation ALWAYS to be good? For example, if the EPA tomorrow were to ban all private automobiles, would that in the end lead to a cleaner -- or dirtier -- environment?

Regarding ObamaCare, is he claiming that this law actually will result in MORE people receiving medical care? I don't see how that is possible, given that doctors will be under more scrutiny than ever, both with regulations AND criminal penalties, and they will spend more time than ever doing paperwork. (Talk to someone in a medical office and that person will give you a lot of information on just how much extra work government regulations create -- and labor is a scarce thing.)

Furthermore, what good is "access to insurance" if one cannot see a doctor? In some places in Canada, they literally have lotteries to see who is able to see a physician, which means the medical care is "free" (not paid directly, but indirectly through taxes) but for many people, unavailable.

As for environmental regulation, one of my areas of specialization has been environmental/resource economics, and one of my mentors, Bruce Yandle, has done a lot of research on the ACTUAL effects of environmental regulation. This point is important, because, unlike Krugman, Yandle has sought out to find out what really happens with regulation, as opposed to Krugman, who claims simply that a regulation always accomplishes its purpose -- if the correct party is in power.

Yandle always taught us to look beyond the rhetoric and the claims and examine the rules and the results. In a recent article in Regulation, Patrick Moffitt and I have done just that in a study of the new environmental regulations for Barnegat Bay in New Jersey.

Interested readers can look at the piece in its entirety, but from what we have found, the new regulations and restrictions are coming about because the EPA and the New Jersey Department of Environmental Regulation (where Lisa Jackson was before she became Obama's choice to head the EPA) are targeting "nutrients" (and especially nitrogen) have misdiagnosed the cause of the bay's demise. This should not be surprising, given that much of so-called environmental science today is utterly politicized.

In fact, both Moffitt and I are convinced that the directives of the EPA and the NJDEP will make the waters of Barnegat Bay MORE polluted and less productive than if these agencies had done nothing. I know, that is politically incorrect.

I found out just how politicized it was 20 years ago when I researched the EPA and acid rain, and it was made clear then and is even more so now that when the EPA funds scientific research, it EXPECTS results that are in line with its political leanings. I'm not kidding nor exaggerating, and have talked to EPA scientists who say that if good research contradicts the EPA narrative, then the research is ignored or suppressed, and those that insist on doing it find their careers in jeopardy.

So, instead of examining the results of regulation, Krugman simply looks at the so-called intentions of the framers of the rules, and then claims that anyone who disagrees with the regulations does so because he or she wants people to get sick and die. But, then, Krugman says the same thing about anyone who thinks the Keynesian narrative is wrong; the only people, according to Krugman, who disagree with Keynesian analysis are those who want others to lose their jobs, their homes, and maybe their lives.

Krugman: Dumbing Down Economics

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

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

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

But first, he starts out with a bit of interesting hubris, writing:

Like anyone who writes regularly about what passes for economic and fiscal debate in American politics, I’ve developed a strong tolerance for nonsense. After all, if I got upset every time powerful people were illogical and/or dishonest, I’d spend every waking hour in a state of raging despair.

Funny, but a lot of his columns and blog posts really do look like episodes of "raging despair." But, there is more:

Yet there are still moments when I find myself saying, “They can’t really be that stupid,” or maybe, “They can’t really think the rest of us are that stupid.”

Now, while he is talking about Republicans -- who really do manage to say Really Stupid Things -- I cannot help but apply Krugman's words to his following declaration:

...you have to realize two things about the fiscal state of America. First, the nation is not, in fact, “broke.” The federal government is having no trouble raising money, and the price of that money — the interest rate on federal borrowing — is very low by historical standards. So there’s no need to scramble to slash spending now now now; we can and should be willing to spend now if it will produce savings in the long run.

This is worthy of an entire blog post itself, but nonetheless, you have to understand what Krugman is saying. Interest rates for government bonds are low because the opportunity cost of investment also is very, very low. The very policies of bailing out banks, housing, the U.S. auto industry, and numerous other entities, along with the government's other policies have ensured that the economic "recovery" will be anemic at best.

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

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

Krugman then turns to medical care:

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

So if you’re serious about deficits, you shouldn’t be pinching pennies now; you should be looking for ways to rein in health spending over the long term.

On the surface, this seems to make sense. However, what Krugman actually is saying is that the spread of bureaucracy over ALL medical exchanges and procedures somehow will result in lower costs AND better medical care. This is madness, as I see it.

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

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

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

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

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

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

This is Fiscal Responsibility?

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

In critiquing a recent blog post by Tyler Cowen of George Mason University, Krugman notes that Cowen did not zero in on the rise of U.S. Government debt levels during the Reagan administration. He also writes this:

Bear in mind, too, that the signature initiatives of Republican presidents — the Reagan tax cut, the Bush tax cut, the Medicare drug benefit — have all been unfunded deficit-raisers; the signature initiatives of Democratic presidents — the Clinton tax hike, Obamacare — have all been deficit-reducing.

I find his attack on the tax cuts started in 1981, in which the top rates were dropped, including the one from 70 percent to 50 percent. At the Southern Economic Association meetings of 2004 in New Orleans, where Krugman was a featured speaker at a Sunday session, I asked Krugman if he believed that we should go back to the 70 percent rates, since he had been on the attack against Reagan.

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

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

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

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

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

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

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

Krugman's New Gig: He's a Comedian!

Once upon a time, I thought Paul Krugman was at least a semi-serious economist, as opposed to being just another political operative. (The difference is that I actually read Krugman's stuff, in part because of this blog and also in part because I do hope -- against hope, I'm afraid -- that he will give some of the economic wisdom that he used to give. No, I don't read anything on the Wall Street Journal editorial page by either Karl Rove or Peggy Noonan, as pure political operative material is not worth the time spent reading it.)

In his semi-weekly anti-Republican screed masquerading as a column, Krugman decides to delve into comedy. After attacking the Republican budget proposals which actually may cut a tiny sliver of spending (don't hold your breath, however), Krugman then gives us this gem:

What would real action on health look like? Well, it might include things like giving an independent commission the power to ensure that Medicare only pays for procedures with real medical value; rewarding health care providers for delivering quality care rather than simply paying a fixed sum for every procedure; limiting the tax deductibility of private insurance plans; and so on.

And what do these things have in common? They’re all in last year’s health reform bill.

That’s why I say that Mr. Obama gets too little credit. He has done more to rein in long-run deficits than any previous president. And if his opponents were serious about those deficits, they’d be backing his actions and calling for more; instead, they’ve been screaming about death panels.

Yes, talk to people in the healthcare business who actually have to deal with the new law and all of its new regulations. Talk to people who have to fork out huge amounts of money to comply with these new rules, the restrictions on care, and the like.

This is "cost-cutting" in its most bureaucratic and Orwellian sense. One does not and CANNOT cut "costs" by forcing people to bear new costs. (Don't forget that Krugman himself used "death panels" in a positive way on national television, and he sees governmental denial of care as a legitimate tool for "cost-cutting.")

The fundamental concept in economics is opportunity cost. The Keynesian notion that government can simply create money to bring about new spending and thus reclaim "idle resources" is one way that Keynesians like Krugman like to claim that they can create the "free lunch." (Don't forget that Krugman himself makes that very claim in his Depression Economics book.)

So now we have Krugman claiming that forcing up real costs and passing laws somehow can circumvent the very real and immutable laws of economics. It's official; he no longer is an economist; he is a political operative, and maybe a comedian. Maybe both.

Just Who is Conducting a War on Logic?

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

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

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

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

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

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

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

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

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

Krugman's Fairy Tales

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

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

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

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

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

The first group he describes as such:

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

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

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

How do these people differ? Krugman explains:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Just Who Is Spreading Humbug?

For the second year in a row, Paul Krugman invokes "A Christmas Carol" as the theme of his Christmas Eve column. Last year, we found that ObamaCare would allow Tiny Tim to have unlimited medical care and that President Obama's legal monstrosity:

...will provide real, concrete help to tens of millions of Americans and greater security to everyone. And it establishes the principle — even if it falls somewhat short in practice — that all Americans are entitled to essential health care.

You see, Krugman was in such a giving mood that he actually believes that government can legislate away the Law of Scarcity. Unfortunately, today Krugman is not full of "tidings of comfort and joy."

No, he is upset that the "zombies" have not been kicked out of the country, or at least academe and the media. How DARE anyone be permitted to contradict The Great One in any media or academic forum!

Bob Murphy, whose debate challenge Krugman still has refused, takes the Nobel winner to task in his LRC column today, and Murphy's words are quite worth reading, although I am sure that Krugman would consider all of it to be "humbug." Murphy writes:

As far as the free-market fundamentalists dominating the political scene "more thoroughly than ever," I suppose Krugman is right, in the sense that two French poodles could dominate a pit bull more than one French poodle could. But as the Fed discloses its cumulative $9 trillion in backdoor loans, as the FBI raids hedge funds, and as federal spending as a share of the economy is at its highest level since World War II, I hardly think that DC is being overrun by laissez-faire shock troops.

Murphy continues:

To prove that free-market fundamentalists have seized power, Krugman's Exhibit A is Ron Paul:

(Krugman) How did that happen? How, after runaway banks brought the economy to its knees, did we end up with Ron Paul, who says "I don't think we need regulators," about to take over a key House panel overseeing the Fed?

(Murphy continues) Of course, if we look at the actual context of what Paul is saying, we find that he means it is foolish to trust government regulators to nip asset bubbles in the bud, while the Fed and other government programs do their part in fueling such bubbles. Ron Paul was not saying, "Let the banks do whatever they want," instead he was saying that we shouldn't be bailing them out when they screw up. Instead, let them go bankrupt just like any other business would after making horrible investment decisions.

Furthermore, the Wall Street crowd did NOT want Ron Paul as subcommittee chairman, nor does that bunch support him politically. And while Krugman supported the TARP bailout, Ron Paul campaigned against it. Yet, Krugman continues to try to portray Ron Paul as a reckless "Zombie."

Krugman is not satisfied just to disseminate disinformation about Ron Paul. No, he attacks anyone who disagrees with him and issues an outright fantasy about the state of present discourse:

Still, why does it matter what some politicians and think tanks say? The answer is that there’s a well-developed right-wing media infrastructure in place to catapult the propaganda, as former President George W. Bush put it, to rapidly disseminate bogus analysis to a wide audience where it becomes part of what “everyone knows.” (There’s nothing comparable on the left, which has fallen far behind in the humbug race.)

Yeah, there is no George Soros, who spends in a YEAR what the demonized Koch Brothers have spent in a lifetime on different advocacy organizations. According to Krugman, there is no Media Matters, no Center for American Progress, no Daily Kos, and no New York Times, Time, Newsweek, MSNBC, or Washington Post.

(I also should make the point that no one "funds" this blog or anything else that I am doing in my public criticisms of Paul Krugman. I'm just doing my "Zombie" activities on my own.)

In the end, Krugman not only bemoans the lack of an even bigger welfare state and the presence of people with the temerity to disagree with him, but he also claims that people are not standing up to the "free market zombies" because of a lack of courage. Right. Somehow, I don't think that Krugman is doing what he does because he is "courageous" and is "standing up to The Man."

If anyone is spreading humbug, it is Paul Krugman and his acolytes.

Paul Krugman Was Against Death Panels Before He Was For Them -- Before He Never Said It

When Sarah Palin wrote last year that ObamaCare would lead to "death panels," the Usual Suspects howled, along with Paul Krugman. The LA Times declared it the "biggest lie of 2009" and the New York Times also weighed in with a solemn declaration that there would be no such thing as a "death panel."

Fast forward to Krugman's November 14 appearance on ABC's "This Week" in which he not only claimed that the budget would need to get under control via controlling healthcare costs, but he specifically used the term "death panels" as a cost-controlling device. In his own words:

"Some years down the pike, we're going to get the real solution, which is going to be a combination of death panels and sales taxes. It's going to be that we're actually going to take Medicare under control, and we're going to have to get some additional revenue, probably from a VAT. But it's not going to happen now."

So, after having made fun of Palin, calling her a liar and worse, Krugman himself endorses such a thing. Obviously, he realized he was in hot water for his Freudian slip, so he quickly posted something on his NYT blog to minimize the damage.

He writes:

So, what I said is that the eventual resolution of the deficit problem both will and should rely on “death panels and sales taxes”. What I meant is that

(a) health care costs will have to be controlled, which will surely require having Medicare and Medicaid decide what they’re willing to pay for — not really death panels, of course, but consideration of medical effectiveness and, at some point, how much we’re willing to spend for extreme care

(b) we’ll need more revenue — several percent of GDP — which might most plausibly come from a value-added tax

And if we do those two things, we’re most of the way toward a sustainable budget.

So, the "death panels" really are not "death panels" even though Krugman calls them as such. Let's be realistic, folks. Paul Krugman really does believe that we need government-created "death panels," which will operate in the name of "lower costs." He actually believes they will help, even if he won't openly admit it -- except when he admits it.

Krugman's Hocus-Pocus Economics

Well, following the elections, which were pretty disastrous for the Democrats, at least regarding the U.S. House of Representatives, I figured Paul Krugman's first column would be yet another attack on the Republicans. Instead, he attacked President Obama for not having enough "audacity" in his economic programs.

We have been down this road before. Krugman's favorite theme -- other than Republicans come from the Pit of Hell -- has been that Obama did not spend enough, inflate enough, or regulate enough. What Krugman wants us to believe is that the most leftist president of my life somehow did not have the courage to tax, borrow, and spend, and that Obama's lack of "courage" is what blew up the House.

Writes Krugman:

Mr. Obama’s problem wasn’t lack of focus; it was lack of audacity. At the start of his administration he settled for an economic plan that was far too weak. He compounded this original sin both by pretending that everything was on track and by adopting the rhetoric of his enemies.

The aftermath of major financial crises is almost always terrible: severe crises are typically followed by multiple years of very high unemployment. And when Mr. Obama took office, America had just suffered its worst financial crisis since the 1930s. What the nation needed, given this grim prospect, was a really ambitious recovery plan.

Could Mr. Obama actually have offered such a plan? He might not have been able to get a big plan through Congress, or at least not without using extraordinary political tactics. Still, he could have chosen to be bold — to make Plan A the passage of a truly adequate economic plan, with Plan B being to place blame for the economy’s troubles on Republicans if they succeeded in blocking such a plan.

But he chose a seemingly safer course: a medium-size stimulus package that was clearly not up to the task. And that’s not 20/20 hindsight. In early 2009, many economists, yours truly included, were more or less frantically warning that the administration’s proposals were nowhere near bold enough.

And there's more:

I felt a sense of despair during Mr. Obama’s first State of the Union address, in which he declared that “families across the country are tightening their belts and making tough decisions. The federal government should do the same.” Not only was this bad economics — right now the government must spend, because the private sector can’t or won’t — it was almost a verbatim repeat of what John Boehner, the soon-to-be House speaker, said when attacking the original stimulus. If the president won’t speak up for his own economic philosophy, who will?

There is much economic "hocus-pocus" in these statements, a veritable treasure trove of Frederic Bastiat's "Fallacy of the Broken Window." For all his "the stimulus should have been bigger" line, never does he in this or any other column explain how that move would result in a long-term recovery. Oh, yes, he says it would give the economy "traction," as though an economy is a perpetual motion machine that just needs a little push.

So, what should Obama do? Krugman (of course) has the right answers:

There is an alternative: Mr. Obama can take a stand.

For one thing, he still has the ability to engineer significant relief to homeowners, one area where his administration completely dropped the ball during its first two years. Beyond that, Plan B is still available. He can propose real measures to create jobs and aid the unemployed and put Republicans on the spot for standing in the way of the help Americans need.

Would taking such a stand be politically risky? Yes, of course. But Mr. Obama’s economic policy ended up being a political disaster precisely because he tried to play it safe. It’s time for him to try something different.

The only way to "engineer relief" to homeowners is to give them checks or pay their mortgages if they default. It does not take a Nobel Prize to know that a government program that taxes homeowners who are paying their mortgages in order to give to people who are unable to do so is not going to save the housing industry, but it will send a message to people who work and pay their bills that the government thinks them to be an unlimited ATM for the president to buy votes.

Obama playing it safe? The guy who has pushed through a 2,500-page bill that no one has read in its entirety (and no one person knows exactly what is in it) to engineer a complete government takeover of medical care is "playing it safe"? Maybe in Krugman's world, but definitely not in the world where the rest of us live.

Falling Into Economic Illiteracy

During the fall of 2008, a video made its way around the Internet. Some children of Hollywood producers and Democratic activists were put into a small choir, complete with a leader who directed them to sing about how "Obama's gonna save us." The children sang praises like the choirs of Chinese children four decades earlier who had sung praises to Mao, the Great Leader who was portrayed as the very Sun.

The camera panned on the parents who listened with enraptured hearts, and the expressions on their face were of unalloyed joy. The Very Messiah was here, and he was going to spread freedom, happiness, and plenty. All it would take would be a vast expansion of the State and Obama was the One to do it.

Paul Krugman was not in the audience, but he might as well have been, given the tone of his columns that fall. Indeed, even those who decided upon the Nobel Prize were caught up in the Messiah Fever and awarded its highest honor to Obama's Prophet Krugman.

Two years later, there are no choirs singing praise to the Holy One of Chicago, and the economy is in much worse shape than we could have imagined, and all signs on the horizon are bad. What could Obama have done? Paul Krugman knows, and he shares his Prophetic Vision (Oh, lucky us!) in his column today.

Obama, Krugman writes, did not do enough. He did not spend enough, nor regulate enough, or spread Joy and Peace and Happiness. He should have immediately imposed the very medical system that Canadians would like to change. According to Krugman's fellow NY Times columnist, Frank Rich, Obama apparently did not arrest enough people, either, nor throw enough people into prison, to join with the other two-million plus that already are spending time in government cages.

Yes, the state has neither been a great enough Sugar Daddy, nor has the state killed enough people overseas, nor has it been harsh enough to people who don't meet the approval of the editorial board of the "Newspaper of Record." The same newspaper that decries the state of imprisonment in this country claims that our Real Problem is that we don't have enough people in prison. It has come to that. The children sang of Obama "spreading freedom," but apparently (at least at the NY Times) spreading "freedom" means more incarceration of people who don't meet the newspaper's definition of being politically correct.

So, what does Krugman claim is the reason that unemployment is higher than it was when Obama took office? The government did not pretend that it is wallowing in riches and money, and while it boosted spending and debt, it engaged in Krugman's definition of "austerity."

A few commentators will point out, with much more justice, that Mr. Obama never made a full-throated case for progressive policies, that he consistently stepped on his own message, that he was so worried about making bankers nervous that he ended up ceding populist anger to the right.

But the truth is that if the economic situation were better — if unemployment had fallen substantially over the past year — we wouldn’t be having this discussion. We would, instead, be talking about modest Democratic losses, no more than is usual in midterm elections.

The real story of this election, then, is that of an economic policy that failed to deliver. Why? Because it was greatly inadequate to the task.

Krugman, it seems, was the Keeper of the Secret, and he gives us the Answer For Which We Have Waited:

When Mr. Obama took office, he inherited an economy in dire straits — more dire, it seems, than he or his top economic advisers realized. They knew that America was in the midst of a severe financial crisis. But they don’t seem to have taken on board the lesson of history, which is that major financial crises are normally followed by a protracted period of very high unemployment.

If you look back now at the economic forecast originally used to justify the Obama economic plan, what’s striking is that forecast’s optimism about the economy’s ability to heal itself. Even without their plan, Obama economists predicted, the unemployment rate would peak at 9 percent, then fall rapidly. Fiscal stimulus was needed only to mitigate the worst — as an “insurance package against catastrophic failure,” as Lawrence Summers, later the administration’s top economist, reportedly said in a memo to the president-elect.

But economies that have experienced a severe financial crisis generally don’t heal quickly. From the Panic of 1893, to the Swedish crisis of 1992, to Japan’s lost decade, financial crises have consistently been followed by long periods of economic distress. And that has been true even when, as in the case of Sweden, the government moved quickly and decisively to fix the banking system.

To avoid this fate, America needed a much stronger program than what it actually got — a modest rise in federal spending that was barely enough to offset cutbacks at the state and local level. This isn’t 20-20 hindsight: the inadequacy of the stimulus was obvious from the beginning.

One wonders at the ingratitude of Krugman's words. After all, has not the Obama administration done everything in its power to undermine entrepreneurs all the while giving lip service to them? Oh, the administration has found clever ways to offer low interest rates to those firms who Follow In The Way Of Obama instead of doing real entrepreneurship.

Instead of insightful people finding ways to put resources to use that will enable real economic growth to occur, the Obama administration is dunning taxpayers to continue to finance and to expand the Ethanol fraud. Favored firms from those on Wall Street to GM to the producers of "clean energy," the vast subsidy machine rolls on, pushing us further into depression. Yes, 15 percent Ethanol in our gas tanks "is gonna save us." (Given the performance of this administration, I think that the Ethanol would do better as cheap whiskey, which at least would permit us to better drown our sorrows.)

The fundamental issue here is that not one person in this administration, nor its acolytes like Krugman, has a clue as to what makes an economy grow. They really believe that it is little more than a perpetual motion machine, a mixture of homogeneous stuff into which one throws money to make everything work magically.

So, today, instead of singing praises to His Messiah, Paul Krugman is left to rage that Obama didn't listen to him and borrow, print, and spend even more money, further empower labor unions, jack up the minimum wage to a zillion dollars an hour, or give all government employees a big raise. Thus, we see that those most honored in academic economics really have no idea what economics is, a discipline that is based upon the simple Law of Scarcity.

No, Obama refused to pretend that the Law of Scarcity did not exist. And why not? Two years ago, he was the Chosen One, the Holy One of Chicago, the One Who Would Save Us.