Borrowing and Spending: The Way to Wealth

Hey, big spenders! It's Paul Krugman to the rescue! In the aftermath of David Stockman's recent New York Times article, Krugman is assuring his faithful readers that the massive debt financing of the Obama administration's spending spree is no big deal and that it is not real debt at all, figuratively speaking.

Why? According to Krugman: "...debt does not directly impoverish us, because it’s money we owe to ourselves."

What does he mean by that?

...think about the macroeconomics; did America really put itself $30 trillion in hock to someone else? No, some Americans lent to other Americans, which is a very different issue.

In other words, it essentially is free money, and the government can engage in this financial trick indefinitely without there being any negative consequences. Essentially, what Krugman is saying is that internal bond finance (mostly by the Federal Reserve System) essentially gets rid of the Law of Scarcity. Government, through money printing and issuance of bonds, is an unlimited fountain of wealth creation, and if there is inflation with all this, all the better, according to Krugman, because inflation will help U.S. exports, creating jobs and making us wealthier. (That is Krugman's Inflation Fairy at work.)

(Gee, I wish whoever is holding my mortgage would buy into this: I don't have to repay you! Don't you see, WE OWE IT TO OURSELVES!! Any harm that would accrue by my default would be perfectly internalized into a zero-sum outcome. I gain, you lose, America is not harmed at all!)

Understand that Krugman is the most decorated academic economist of our time. His face is all over the talk shows, and he is treated with the kind of reverence in academe once reserved for someone like Einstein. Yet, his central message is this: internal bond finance of government trumps scarcity. Yes, the guy actually believes this, or at least one can say he provides the Obama administration with cover for its destructive policies.

Remember, Obama declared that unemployment payments from the government create more wealth than does an oil pipeline, and that a welfare system actually makes the economy stronger and is not an economic burden, but a provider of wealth. Yes, for all of the supposed sophistication of American Progressives (and especially the ones that worship Krugman and Obama), it seems that in the end they confuse financial trickery with wealth creation.

Who is Flimflaming Whom?

Folks, things are getting serious. Paul Krugman and the Progressives have found the solution to all of our problems: spend money now, borrow, print, and then tax the rich (even higher) in the future and stick it to business. We'll all get rich!

You see, this is what Krugman calls a "serious" proposal. Anything that is grounded in reality -- you know, that fact-based world -- is what The Great One calls a "flimflam." First, however, he had to take his usual shot at Paul Ryan and the budget Krugman attacks. (Not that such things are news. While I have no plans to shill for Ryan, nonetheless I would say that what Ryan does is much more serious than Krugman's fantasy of spending ourselves into prosperity.)

However, one has to realize what Krugman calls a "serious" proposal: the budget plan recently released by the Congressional Progressive Caucus, which is a nice way of describing a group of people who believe in near-total State control of every aspect of your life. (Except abortion on demand, of course, as only that should be left out of any governmental regulation, according to "Progressives.")

Called "Back to Work," Krugman describes the plan in his own words:

But there’s a plan that does: the proposal from the Congressional Progressive Caucus, titled “Back to Work,” which calls for substantial new spending now, temporarily widening the deficit, offset by major deficit reduction later in the next decade, largely though not entirely through higher taxes on the wealthy, corporations and pollution.

Yes, we are supposed to believe that after the government spends trillions more on "job creation" (which is yet another euphemism for "massive public works" that socialists are fond of demanding), sometime in the next decade Congress will get around to trying to figure out how to pay for all of this. This "serious" proposal has the usual stuff about public works, "green energy," and all of the things that Obama has been pushing already. And there is yet another promise that socialist medical care will both lower costs and improve delivery.

What I do find interesting is that Krugman declares the following when describing another budget proposal, this one by Senate Democrats who apparently are not "Progressive" enough for Krugman:

...the Senate plan calls for further deficit reduction, through a mix of modest tax increases and spending cuts. (Incidentally, the tax increases still fall well short of those called for in the Bowles-Simpson plan, which Washington, for some reason, treats as something close to holy scripture.) But it avoids large short-run spending cuts, which would hobble our recovery at a time when unemployment is still disastrously high, and it even includes a modest amount of stimulus spending.

If unemployment is "disastrously high," then one would have to say that President Obama's programs then have had "disastrous" results. However, Krugman has been shilling for Obama for the past five years and continues to shill for him. Yet, he describes the results of what Obama has done to lower unemployment as "disastrous"? Very interesting.

In other words, this is more of Krugman's "heads I win, tails you lose" reasoning. And when it comes to "serious" budget proposals (as though Congress and the president are going to agree on a budget when that has not occurred for many years), the most serious is the one that spends and borrows now and then 10 years from now leaves to a future Congress as how to pay for all of it. No doubt, the Inflation Fairy is going to have to do a lot of work to pay for this one.

Krugman: The State Makes and Producers Take

Paul Krugman definitely is a class warfare sort of guy, but to him, the parasite classes are those that actually produce something, while people who simply consume are the real producers. There is no other way around his recent attacks.

Furthermore, Krugman at least has come into the open by insinuating strongly that the State owns everything, and anything that we keep is nothing more than a gift from the authorities. Now, even there, I will say that there is room for discussion, such as the question asking whether or not income taxes are more fair than sales taxes or value added taxes, but in the end, we still are at the same place: Krugman believes that the State is nothing less than an out-and-out god creator.

Krugman's latest column is more of the same. First, it has his normal partisan shilling, with an attempt to come up with an explanation as to why Republicans might disagree with The Great One. Second, he once again attacks entrepreneurs, assuming that those who actually create something in the economy are the real parasites, echoing Barack Obama's "You didn't build that" theme.

Before going further, however, let me say that the Republicans actually had a candidate who stood up for free markets, called for peace abroad, free trade, and sound money. The Republicans not only rejected him, but they also treated him about as badly as a party could do. While I registered a few years ago in Garrett County as a Republican, it was so I could vote for Ron Paul in the primaries, and sooner or later I will have to change my registration back to Independent.

My point is that the Republicans really have not done anything that warrants a coherent defense. If they ever decide to be a party that promotes liberty instead of a party promoting warfare abroad and police and prosecutorial abuse at home, then I might be interested in taking a look at them.

Nonetheless, the Republicans' slide into political oblivion is not my main concern. What does concern me, however, is that Progressives like Paul Krugman are winning in the government's all-out war against real-live entrepreneurs, people that Krugman simply attacks by calling them "rich."

We have to understand that there are three kinds of "rich" people in this country. The first group includes people who have inherited large sums of money, the "coupon clippers." For the most part, these people solidly vote Democrat. They sit on boards of foundations, arts councils and the like, and tend to be very liberal in their politics.

While they might not be happy about having to pay more taxes, they generally can afford the increases and by supporting tax hikes, they can receive free publicity for being "humanitarians" and "unselfish" citizens, people worthy of their great wealth. They became wealthy because they were born into wealth, but unlike their ancestors who had to save and invest, these noble people don't have to worry about getting their hands grubby in the marketplace.

The second group includes people like Warren Buffett, the "political entrepreneurs." These are people who tend to be politically-connected, and while they might actually have made large amounts of money through their own enterprise decisions, those decisions often are tied into decisions made by legislators or other government officials. A lot of former and current politicians such as Al Gore and John Kerry also are in this group.

Gore recently was listed at having a net worth of more than $100 million, and that was before he got the sweetheart deal to buy Apple stock at about $7 a share, about $493 below the price per share that mere mundanes have to pay. Although he was simply exercising a director's stock option, Gore became a director because of his political career, not because of any entrepreneurial talent. While he likes to tout himself as an entrepreneur, generally Gore has made money by being tied into government-protected "investments" in "green energy" firms, making speeches, and demanding that free speech be ended if it involves disagreeing with him on global warming.

For that matter, Paul Krugman tends to fall somewhat into this category, given the fact that his partisan writings have made him popular with certain groups of people. Like Gore, he has become a multimillionaire, although he has not had to take any risks in the process, unlike those real entrepreneurs Krugman loves to hate. Take away the partisan politics and Krugman is well-known in academic economic circles, but not elsewhere.

In his book, Throw Them All Out, Peter Schweizer documents how these politically-connected people make their money. One reviewer of Schweizer's book describes how Obama's "green energy" people distributed tax dollars:

Perhaps the most disturbing revelations come from Schweizer's investigation into the Obama Energy Department and its infamous "green energy" loan guarantee and grant programs, a program Schweizer calls "the greatest -- and most expensive -- example of crony capitalism in American history." The scandal surrounding Solyndra -- the now-bankrupt, Obama-connected solar power company that received a federally guaranteed loan of $573 million -- is well known. But Solyndra, Schweizer says, is only the tip of the iceberg.

According to his research, at least 10 members of President Obama's campaign finance committee and more than a dozen of his campaign bundlers were big winners in getting tax dollars from these programs. One chart in the book details how the 10 finance committee members collectively raised $457,834, and were in turn approved for grants or loans of nearly $11.4 billion -- quite a return on their investment.

In the loan-guarantee program alone, Schweizer writes, "$16.4 billion of the $20.5 billion in loans granted went to companies either run by or primarily owned by Obama financial backers -- individuals who were bundlers, members of Obama's National Finance Committee, or large donors to the Democratic Party." That is a staggering 71 percent of the loan money.

Schweizer cites example after example of companies that received grants or loans and documents their financial connections to the Obama campaign and the Democratic Party. And he shows how "the [Energy] department's loan and grant programs are run by partisans who were responsible for raising money during the Obama campaign from the same people who later came to seek government loans and grants."

These, of course, are the very kind of "rich" that Krugman praises. Their wealth heavily depends upon schmoozing politicians and is tied into governmental policies, and they tend to be politically liberal. That most of their "investment" actually weakens the economy is irrelevant. They have the correct political views and the correct political ties, so they are sacrosanct.

You won't see Al Gore or John Kerry arguing against higher tax rates, and why should they? For the most part, they either can shelter their income or pay the extra bit, knowing that they will receive huge amounts of free publicity for their "selfless" actions. Furthermore, their own investments will not be placed at risk by the new confiscatory tax policies.

Then there are the people Krugman hates, the real entrepreneurs, the people who have taken real risks and made their money in the markets without the political favors. Moreover, many are in the "millionaire next door" category, business owners who have saved (Oh, the HORROR! Predatory Savers in our midst!), invested, put off present consumption, and maybe don't have the proper educational "credentials."

Many of them tend to be conservative in their politics, many go to church (more "proof" that they are wicked parasites who don't even subscribe to correct thinking), and they are people whose investments are put at risk by government policies. In short, these are the people who have built the economy, people who have had vision and have worked hard.

Krugman considers people in this group to be utterly devoid of any decency at all. They don't think like him (some even believe in "Intelligent Design") and the way they handle their economic affairs truly gets on his nerves. Worst of all, they don't "consume" or "spend" enough of their incomes for Krugman's liking, and many of them don't even read the New York Times!

Perhaps the most telling quote is his claim that only Republicans live in intellectual bubbles:

Well, I don’t have a full answer, but I think it’s important to understand the extent to which leading Republicans live in an intellectual bubble. They get their news from Fox and other captive media, they get their policy analysis from billionaire-financed right-wing think tanks, and they’re often blissfully unaware both of contrary evidence and of how their positions sound to outsiders.

So when Mr. Romney made his infamous “47 percent” remarks, he wasn’t, in his own mind, saying anything outrageous or even controversial. He was just repeating a view that has become increasingly dominant inside the right-wing bubble, namely that a large and ever-growing proportion of Americans won’t take responsibility for their own lives and are mooching off the hard-working wealthy. Rising unemployment claims demonstrate laziness, not lack of jobs; rising disability claims represent malingering, not the real health problems of an aging work force.

This is rich coming from an Ivy League professor who is tied in with the NYT and Beltway Democrats. These are the people who believe that MSNBC is mainstream and "moderate," and anyone who does not hold their secular, urbanite views of the world really has no right even to exist.

I went to high school with a couple of people in the Sulzberger family (publisher of the NYT), and talk about people with limited viewpoints. They literally could not see anything outside of their circles and expressed utter contempt for anyone who did not share their views.

In a politicized world, people do tend to live in bubbles and their ability to think becomes limited. I remember a conversation with a Democratic Party activist in which I asked him (during the mid-1980s) why the economy of the U.S.S.R. was so backward compared to ours. He replied, "It is because the U.S.S.R. has not been a country as long as the United States." Yes, he really believed that.

Thus, I doubt seriously that Paul Krugman ever has ventured outside of his own cloistered surroundings to speak to real-live business owners who must make hard decisions when governments impose new minimum wages or jack up taxes. To Krugman, they are nothing more than parasitic whiners and he is not interested in even trying to understand another point of view. To him, these people are ignorant rubes and the sooner they are replaced with people on government payrolls or people receiving transfer payments, the better. After all, these people will spend their incomes which makes them the true economic benefactors.

Spending or Regime Uncertainty?

In a Wednesday post, Paul Krugman assures us that the only reason that businesses are not spending is, well, businesses are not spending. As he declares:

...the best thing government could do to help business would be to spend more, increasing demand.

Yes, yes, these ignorant rubes who own small businesses might cite other reasons as to why there is not more longer-term investment and hiring, but face it: the only reason that businesses are not spending is because, well, people are not buying their products.

This contrasts with Robert Higgs' contention that "regime uncertainty" is playing a large role in the current stagnation, just as it did in the 1930s, he said. The difference appears to be that Prof. Higgs actually listens to what business owners are saying, while Krugman does not.

Granted, often in economics we hold to things that might be counter-intuitive to the "man on the street," such as the marginal utility theory of value and the "derived demand" for factors of production. Value of the factors, economists point out, is derived from the value of the final goods, as opposed to the view that governs most voters and public policies: the value of final goods is derived from the value of factors of production.

(This was the reason cited for the government's energy policies of the 1970s, in which Washington held that if it could artificially hold down the price of crude oil, those "savings" would be reflected in the prices for gasoline. Well, it didn't quite work that way, as those of use who were adults during that decade can attest.)

In Krugman's post, however, what he is making is essentially a circular argument: if businesses will spend more, then they will be able to spend more. Sorry, in economics, we don't make or accept circular arguments.