I provide commentary on political economy, police and prosecutorial abuse, and whatever else might come to mind.
Let justice roll down like waters,
and righteousness like an ever-flowing stream. Amos 5:24 (ESV)
People who have read my articles over the years know that I have a special distrust for prosecutors, as I consider many of them to be worse than the criminals they prosecute. Why? No one has expectations of a criminal doing the right thing or being honest, but prosecutors are in a special position of public trust and to abuse that trust by lying and knowingly railroading innocent people into prison.
When a criminal robs or even kills someone, he or she does so knowing they are breaking the law, and there are remedies for punishment. However, when a prosecutor breaks the law, he is doing so in the name of upholding the law, so when that happens, what he or she is doing goes to the very heart of the system. What they are declaring is that the entire system is a lie, and if that is true, then we have no moral or even legal basis upon which to prosecute real lawbreakers.
Furthermore, unlike private citizens, prosecutors rarely are punished. To date, even though we have seen example after example of prosecutors charging and getting convictions on people they knew to be innocent, not a single prosecutor ever has faced punishment stronger than a sanction, a mere slap on the wrist.
(In the case of Michael Nifong, the infamous prosecutor in the Duke Lacrosse Case, he was disbarred and spent one day -- one day -- in jail for lying to a judge. He never had to worry about being tried for obvious crimes, nor did he ever lose a penny in the pension he now receives. The people he wanted to put on trial faced 30 years in prison if they were convicted.)
The following account given by Jacob Sullum in Reason is chilling. Prosecutors in Louisiana had exculpatory evidence, withheld it, and put a person on death row they knew to be innocent. Ultimately, the evidence was found and John Thompson ultimately received a new trial and was acquitted.
Make sure you read the story. I will leave readers with Sullum's last paragraph:
The Supreme Court has ruled that local governments can be held liable for failing to train officials in their constitutional responsibilities when the need is "obvious," as with teaching police officers the proper use of deadly force. The need for prosecutors to respect defendants' due process rights is no less obvious. And since prosecutors themselves have absolute immunity for their trial-related misconduct, the threat of lawsuits against their employers is an important safeguard to prevent the pursuit of victory from trumping the pursuit of justice
In his classic 1981 article, “7 Fallacies of Economics,” Lawrence Reed noted that people believe that production exists “for its own sake.” He wrote:
Although production is essential to consumption, let’s not put the proverbial cart before the horse. We produce in order that we may consume, not the other way around.
He then succinctly pointed out:
A bad economist who falls prey to this ancient fallacy is like the fabled pharaoh who thought pyramid-building was healthy in and of itself; or the politician who promotes leaf-raking where there are no leaves to be raked, just to keep people “busy.”
It seems that whenever an industry gets in trouble, some people cry that it must be preserved “at all costs.” They would pour millions or billions of dollars in subsidies on the industry to prevent the market’s verdict from being heard. The bad economist will join the chorus and ignore the deleterious impact that would befall the consumer.
The good economist, on the other hand, does not confuse ends with means. He understands that production is important only because consumption is even more so.
Lest one think that Reed was exaggerating, I would recommend reading the editorial pages of the New York Times for a week, as most of its columnists and editorial writers engage in this fallacy on a regular basis. The latest to recommend “production for its own sake” as a way to end the current depression is Bob Herbert, who seems to be a walking dictionary of economic fallacies. His latest column, “The Magic Potion,” literally treats the government money printing presses as something that can work “magic” in “creating jobs” and restoring the U.S. economy.
There is something perversely humorous when a “journalist” who claims to be a “watchdog of government” literally claims that government policies can work something akin to magic. Furthermore, he has plenty of readers who swoon over his every word, and although I doubt that most readers here will be in that category, nonetheless I include his missives, anyway, if for no other reason than to point out just how silly – and destructive – the media pundits have become, not to mention the economic illiteracy that infects the chattering classes.
The first thing I need to point out is that Herbert believes – really believes – that government is the Source of All Wealth. Thus, a man like that is not going to back down or admit that perhaps government spending just might be destroying wealth. Second, like so many journalists, commentators, and “economists” (Paul Krugman comes to mind), there is this little issue of causality, determining what causes what. Here is an example of what I mean from Herbert:
Those who think some kind of robust recovery is hiding around the corner, just waiting to spring a pleasant surprise on us, are deluded. Too many families and individuals are tapped out. They’re struggling from week to week and month to month just to meet the necessities of housing, food and energy costs. Those crazed, debt-driven buying sprees that held the economy aloft for so long are over.
In other words, consumers cannot spend us back into prosperity. Well, guess what? Consumers don’t “spend” any economy into prosperity. Consumption is the end of production; consumers can spend because they have produced, not the other way around.
To a person, the people who appear regularly on the NYT editorial page, not to mention a jillion other publications and websites, really believe that all that is needed for an economy to grow is for consumers to have lots of money in their hands and then they spend, spend, spend us into prosperity. Herbert is right in that consumers are tapped out, but the question is why.
According to Herbert, it is because jobs are becoming scarce. He writes:
You can’t get back to a robust economy without putting Americans back to work. The economy needs to be rebuilt on a solid foundation of good jobs at good pay, and many of those jobs will have to come from thriving new industries. This is a long-term project that demands big-time government involvement. It will require the kind of commitment — over an even longer period of time — that President Obama and the Democrats in Congress gave to their health care initiative.
Franklin Roosevelt had it right in his first Inaugural Address when he declared, “Our greatest primary task is to put people to work.” He underscored the urgency of the task when he said it should be treated “as we would treat the emergency of a war.”
At this point, a reader might ask, “Who can argue with that? If people are employed in high-paying jobs, they are going to be able to consume.” That is true, but here is the problem: the issue is not the high-paying job; the issue is what is being produced and how do consumers value what is being produced.
Recently, Herbert wrote about “rights of consumers,” yet, he now pens an anti-consumer column. Read the following to understand what I mean:
The administration and Congressional leaders have been touting some recent legislation as “jobs bills,” but they are small-bore initiatives that will accomplish little. What is needed are bold new initiatives on several fronts. The federal government needs to do much more to help state and local governments that are in desperate fiscal straits because of falling tax revenues and are responding by laying off workers and cutting essential services.
A long-term program to rebuild the nation’s infrastructure (which was only made worse by the harsh winter) would create jobs and establish a sound industrial platform for 21st-century industries.
The transformation to a greener economy needs to be accelerated, and most of the manufacturing associated with that newer, greener economy should take place in the United States. And some new variation of the Works Progress Administration and the Civilian Conservation Corps should be developed to put economically distressed young people to work. What is happening to young, out-of-work and poorly educated American kids — not just in the big cities, but increasingly in suburban and rural areas, as well — is tragic.
In other words, he pushes for government to ram “green energy” down the throats of consumers who clearly through their purchases have said they don’t want it. Why is corn-based ethanol an expensive and destructive boondoggle? It is because consumers have spoken already and they have said that they are not willing to pay the full price for corn-based alcohol to be poured into their cars (and wreck their engines).
Herbert makes it absolutely clear that he considers government to be the source not only of wealth, but also the entity that should determine the direction of production. For all his going on about consumers, he actually is anti-consumer. Furthermore, we should not forget that the housing bubble occurred precisely because government agents purposely steered the economy toward building, buying and selling houses, and that artificial “stimulus” ultimately proved to be unsustainable. Consumers purchased houses when they would have been wiser putting their money elsewhere because the government greased the skids (and a few palms) by pushing resources into that market that would not have gone in that direction had there been no government intervention.
Believe me, pushing the housing market was a “bold new initiative” and we see where that went. Unfortunately, Herbert seems to be impervious to logic and ends the column with even more head-scratching words:
As for the budget deficits, they will never be brought under control if Americans are not put back to work. Unemployment drives deficits by depriving the government of tax revenues and dramatically increasing the costs of safety-net programs and other public services. Putting Americans to work will ultimately make it much easier to begin bringing the deficits down.
The closest thing to a magic potion for individuals, families and the American economy is a job. F.D.R. understood that. The longer it takes for the rest of us to catch on, the deeper the long-term damage to the society will be.
What is he really saying? Bob Herbert is declaring that in order to bring budget deficits “under control,” government must run larger deficits. Yet, while apparently that makes perfect sense to Herbert, it does not compute with me. Now, if he is claiming that extra spending now will “prime” the economy to where it will produce “on its own” in the future, I can understand the reasoning, even if it is wrong.
Keep in mind that few people at the NYT have attacked private enterprise more than Herbert, and all of the government initiatives he has been championing are those initiatives that need subsidies to survive. Is he trying to say that massive subsidies to “green jobs” suddenly will result in those lines of production suddenly turning profitable in the future? What portion of the economy will be profitable so the government can have positive numbers with taxes and spending? He doesn’t say.
Instead, he claims that FDR knew something apparently the rest of us don’t know; people need to be able to pay their bills, and in our society, a “job” provides income for them to do so. That is plain silly, as though somehow I did not know that my job gives me an income through which I can support my family.
But even here, it gets worse. Herbert does not understand that a “job” is not a “magic potion” in and of itself. A job is nothing more than a task someone performs in the production of goods. In order to have income, we have to produce something, and for production to be sustainable, over time it must reflect the desires and spending directions of consumers and to be sustained, it must be profitable.
Unfortunately, Herbert is demanding that the government create what Peter Schiff so aptly has called a “phony economy.” Throughout his career as a journalist, Herbert has championed policies that make production of goods consumers want to be difficult, and he now calls for government to use vast amounts of resources to make products that consumers don’t want, and to force consumers and producers to pay for these products, anyway.
Indeed, if this is “magic,” it is a perverse magic in which government takes productive resources and “magically” transforms them into resources that are unproductive. He might say this is a “rich nation,” but it won’t be rich for long if influential people like Herbert continue to demand that government replace the productive economy with one that is phony.
Today, I highlight Peter Schiff and the aftermath of his appearance with Fed officials and Schiff's contention that the huge surge of monetary creation in the wake of the recent meltdown was the wrong thing to do. If you want to see more videos of Peter Schiff speaking, here is a link.
More than seven years ago – what seems to be an eternity now – Charles Krauthammer spoke to a Hillsdale College gathering which was celebrating the “success” of the U.S. war in Afghanistan and was about to celebrate the “success” of the U.S. invasion of Iraq. I read the speech after it came out and then had real concerns, but little did I know those concerns would be mild compared to the reality that has become the United States of America today.
Like so many other government programs, wars in which a stronger army invades a weaker country bring the “good effects” first, and only later do we see the “bad effects.” One recalls the German invasion of Poland in 1939, the Nazi express on the Western Front in the spring of 1940, and the early successes of the German invasion of the U.S.S.R. in 1941.One does not have to search far to see what was happening to the Wehrmacht in 1945 to gauge the “success” of the German retreat.
(Not-so-ironically, “Wehrmacht” originally meant “home defense” forces, just as it is ironic that the U.S. Department of War became the U.S. Department of Defense after World War II, and the number of U.S. “defense” excursions overseas, not to mention military bases overseas, has multiplied into something perverse that cannot economically be sustained.)
Thus, it was in that heady, self-congratulatory atmosphere in which the Neoconservatives were claiming “victory,” and they greatly applauded Krauthammer’s speech. Instead of offering critiques, instead I will include portions of that speech and let Krauthammer’s words speech for him:
At the end of the Cold War, the conventional wisdom was that with the demise of the Soviet Empire, the bipolarity of the second half of the 20th century would yield to a multi-polar world. You might recall the school of thought led by historian Paul Kennedy, who said that America was already in decline, suffering from imperial overstretch. There was also the Asian enthusiasm, popularized by James Fallows and others, whose thinking was best captured by the late-1980s witticism: “The United States and Russia decided to hold a Cold War. Who won? Japan.”
Well, they were wrong, and ironically no one has put it better than Paul Kennedy himself, in a classic recantation emphasizing America’s power: “Nothing has ever existed like this disparity of power, nothing. Charlemagne’s empire was merely Western European in its reach. The Roman Empire stretched farther afield, but there was another great empire in Persia and a larger one in China. There is, therefore, no comparison.”
We tend not to see or understand the historical uniqueness of this situation. Even at its height, Britain could always be seriously challenged by the next greatest powers. It had a smaller army than the land powers of Europe, and its navy was equaled by the next two navies combined.
Today, the American military exceeds in spending the next twenty countries combined. Its Navy, Air Force and space power are unrivaled. Its dominance extends as well to every other aspect of international life—not only military, but economic, technological, diplomatic, cultural, even linguistic, with a myriad of countries trying to fend off the inexorable march of MTV English.
…September 11 demonstrated a new kind of American strength. The center of our economy was struck, aviation was shut down, the government was sent underground and the country was rendered paralyzed and fearful. Yet within days, the markets reopened, the economy began its recovery, the president mobilized the nation and a unified Congress immediately underwrote a huge worldwide war on terror. The Pentagon, with its demolished western facade still smoldering, began planning the war. The illusion of America’s invulnerability was shattered, but with the demonstration of its recuperative powers, that sense of invulnerability assumed a new character. It was transmuted from impermeability to resilience—the product of unrivaled human, technological and political reserves.
But, he saves the best for later: “So we bestride the world like a colossus.”
And so it is that more than seven years later, the U.S. economy is in freefall, and the current government – elected in large part because of the recklessness of the Bush administration that Krauthammer so praises – is placing huge financial burdens that this economy cannot support. The wars continue in Afghanistan and Iraq, except they no longer are wars of invasion but, instead, are wars of occupation, and no matter how ruthless the occupier might be, in the long run a war of occupation cannot be victorious for those people who don’t belong there.
Krauthammer’s praise of U.S. “unilateralism,” which is a nice term for “bullying,” was popular that night with his audience. It was full of people who believed that “American exceptionalism” means the use of military power wherever the government damn well believes it can – and should – be used. It means floating bonds around the world and expecting the rest of the world to pick up our spending tab.
Ultimately, it means bankruptcy and humiliating defeat. True, publications like The Nation can claim that as long as our government printing presses remain operational, the USA never will go bankrupt because it can pay its creditors with paper – if it chooses to pay them at all.
In other words, it no longer is just the Neocons being arrogant and aggressive. The “torch” of political power has passed from the Republicans to the Democrats, but the arrogance and delusion of Washington, D.C., continues. Perhaps it is fitting that Krauthammer gave his speech to a Hillsdale College gathering, but the meeting was held in D.C.
Krauthammer declared that all the USA had to do was to demonstrate its “power” and the rest of the world would quake and humbly follow in obedience. Republicans – and later Democrats – have followed his not-so-sage advice and we see what lies before us: financial ruin and poverty. Just as there really was no “Argentine exceptionalism” of the 20th Century, as that once-great country inflated itself into poverty and ruin, so will be the reality of the Neocons’ “American exceptionalism” unless Americans come to realize that our present path of war abroad and reckless spending at home will destroy all of us.
I recently wrote a post on James K. Galbraith's "In Defense of Deficits," which appeared in The Nation, and Galbraith was none-too-happy with my interpretation, posting his views in the comment section:
The alert reader will catch the distortion in this post. When the public deficit increases, that's an increase in the "net financial wealth" of the *private sector*. Not (obviously) of the country as a whole.
And it's not real wealth either. The word I used was "financial."
It is a claim on future purchasing power, for the private sector. Exactly as stated in my article.
My point is accounting.
Professor Anderson restates a truism as an absurdity, in order to attack it.
Obviously, since he has raised an objection and says that I wrongly interpreted his article, I need to respond, and will try to be fair in the way that I do it. Obviously, my stated opinion that Galbraith, like his father, John Kenneth Galbraith, is "economically-illiterate" is not going to endear me to that family, but this is "business, not personal." John Kenneth openly endorsed socialism, believed that state ownership and control of all facets of an economy would create an economy that would be viable and prosperous.
For example, the elder Galbraith gave effusive praise to the communist regime of the Soviet Union, ironically, just before the regime went out of business, declaring that socialism made the best use of labor. Furthermore, Galbraith openly supported the communist Mao government of China despite the fact that we now know just how disastrous Mao's policies in both the "Great Leap Forward" (when millions of people starved to death) and the "Cultural Revolution."
Even before going into explanations of why socialism as an economic system is bound for failure, we can look directly at the communist regimes -- Cuba and North Korea stand today as stark examples -- and see just how much misery they cause. However, Galbraith would have none of that, and remained a supporter of socialism to his death.
His support of such regimes would fall into two categories. First, Galbraith was a true "Progressive" in which he believed that the educated "elite" should be making decisions for others, and that ordinary people really were incapable of exercising choices for themselves. Second, judging from his personal accounts of heading the Office of Price Administration during World War II, he enjoyed having power over others and believed himself capable of singularly being able to "run an economy." Enough said.
From what I can tell, James is carrying on the work of his father, and if he wishes to do so, fine. However, part of that work is making claims about the economy and economic growth that are not true. I will return to the paragraph I quoted in the earlier post, plus add another one:
To put things crudely, there are two ways to get the increase in total spending that we call "economic growth." One way is for government to spend. The other is for banks to lend. Leaving aside short-term adjustments like increased net exports or financial innovation, that's basically all there is. Governments and banks are the two entities with the power to create something from nothing. If total spending power is to grow, one or the other of these two great financial motors--public deficits or private loans--has to be in action.
For ordinary people, public budget deficits, despite their bad reputation, are much better than private loans. Deficits put money in private pockets. Private households get more cash. They own that cash free and clear, and they can spend it as they like. If they wish, they can also convert it into interest-earning government bonds or they can repay their debts. This is called an increase in "net financial wealth." Ordinary people benefit, but there is nothing in it for banks.
Let's go to the heart of the matter: Galbraith claims that economic growth occurs because of an "increase in total spending." Spoken like a true Keynesian. The only problem is that he does not understand what brings about economic growth. In the Keynesian view, new spending pushes the "aggregate demand" curve to the right, which increases GDP which -- Voila! -- gives us "economic growth," end of discussion.
That is not economic growth, folks, it is growth of a statistical measure called GDP. It is purely quantitative, not qualitative. For example, during World War II, the economic GDP measures showed the economy "growing," but it was a phony economy making war goods. The lot of individuals was not in line with a growing economy, as there was deprivation, rationing, overseas military service where many people lived in squalid conditions, and all of the other horrors that accompany war. Yes, the official rate of unemployment was low, but so was quality of life.
Economic growth occurs when we develop capital that permits us to make more goods using the same or fewer resources per produced unit. It occurs when more and more people have access to goods such as food, shelter, clothing, and other things that make their lives better. The whole of economic growth through the past two centuries has been the development of capital that enables individuals to produce more goods that they believe will meet their needs.
In other words, the key to economic growth has been capital, something that is anathema to a Keynesian, who insists that capital appears like magic as long as there is enough spending. Well, enough said about that.
With banks currently borrowing from the Federal Reserve at near-zero rates and then rolling those loans into government bonds, it seems to me that the increase of public debt is in at least the short-term interests of banks, as bank loans for private capital purposes are way down. However, I don't see this as a good situation, for one of the main reasons that there are few prospects in the private economy right now is the government's rampage against productive people and productive firms.
Let's face it; the last thing any firm right now wants to be seen doing is making a hefty profit as the media and political classes are all over such "profiteering." Well, no worry here; the Obama administration is making sure that the burden of government is going to be so heavy that business firms won't be able to be profitable. (Of course, if businesses go under, Obama and his allies condemn that as more "proof" of business malfeasance, but if they still manage to be profitable, well that will be a crime, too.)
There is much else not to like in Galbraith's article, but I don't have access to all of the bytes in the universe to comment on everything. Let us just say that Galbraith falls prey to almost all of the things listed by Lawrence Reed in his classic article, "7 Fallacies of Economics."
In fact, if you wish to have some fun, make a game of it. Read "In Defense of Deficits," then read "7 Fallacies," and then match Prof. Galbraith's statements to the fallacies listed by Prof. Reed. It will be enjoyable and educational, I assure you.
This post is a bit different, although I will return to my usual battling self soon enough. As many of you know, my two sons are from Ethiopia, and Ethiopian adoptions resonate deeply within me, as do the Ethiopian people themselves. Here is a moving video from the Forrest family as they celebrate a year of having brought home two young children from that proud and beautiful country.
(Be careful. It is a 100-meg download and I would not try this on a system that cannot handle it. I'm using my computer at my office.)
The first 3-1/2 minutes are accompanied by a most moving song by Andrew Peterson, "Canaan Bound." Here are the lyrics, which speak of faith, the love of God, and following God's leading even when you don't know what will be the end of the journey, or the heartache and triumph you will experience on the way. It is like our own adoptions, and like our own journeys into the Kingdom of God. Experience and enjoy.
Sarah, take me by my arm Tomorrow we are Canaan bound Where westward sails the golden sun And Hebron's hills are amber crowned
So bid your troubled heart be still The grass, they say, is soft and green The trees are tall and honey-filled So, Sarah, come and walk with me
Like the stars across the heavens flung Like water in the desert sprung Like the grains of sand, our many sons Oh, Sarah, fair and barren one Come to Canaan, come
I trembled at the voice of God A voice of love and thunder deep With love He means to save us all And Love has chosen you and me
Long after we are dead and gone A thousand years our tale be sung How faith compelled and bore us on How barren Sarah bore a son So come to Canaan, come
Where westward sails the golden sun And Hebron's hills are amber crowned Oh, Sarah, take me by my arm Tomorrow we are Canaan Bound
It seems that James K. Galbraith, son of the late Economic Illiterate John Kenneth Galbraith, is trying to outdo Paul Krugman on the issue of public debt and printing money. His article in the Marxist publication, The Nation, called "In Defense of Deficits" has to be one of the most juvenile pieces of work I ever have read.
Take the following quote:
For ordinary people, public budget deficits, despite their bad reputation, are much better than private loans. Deficits put money in private pockets. Private households get more cash. They own that cash free and clear, and they can spend it as they like. If they wish, they can also convert it into interest-earning government bonds or they can repay their debts. This is called an increase in “net financial wealth.” Ordinary people benefit, but there is nothing in it for banks.
Wow! The way to make a country wealthier is to go into debt! And, guess what? Government can just print money to pay back the debt, so we don't have to worry about it! JKG says so!
With government, the risk of nonpayment does not exist. Government spends money (and pays interest) simply by typing numbers into a computer. Unlike private debtors, government does not need to have cash on hand. As the inspired amateur economist Warren Mosler likes to say, the person who writes Social Security checks at the Treasury does not have the phone number of the tax collector at the IRS. If you choose to pay taxes in cash, the government will give you a receipt–and shred the bills. Since it is the source of money, government can’t run out.
Oh, but it gets even better. Read on:
...public debt a burden on future generations. It does not have to be repaid, and in practice it will never be repaid. Personal debts are generally settled during the lifetime of the debtor or at death, because one person cannot easily encumber another. But public debt does not ever have to be repaid. Governments do not die–except in war or revolution, and when that happens, their debts are generally moot anyway.
So the public debt simply increases from one year to the next. In the entire history of the United States it has done so, with budget deficits and increased public debt on all but about six very short occasions–with each surplus followed by a recession. Far from being a burden, these debts are the foundation of economic growth. Bonds owed by the government yield net income to the private sector, unlike all purely private debts, which merely transfer income from one part of the private sector to another.
Why am I not surprised that a publication like The Nation would champion this nonsense? Yes, yes, the source of national wealth is debt and printing money.
Oh, and Galbraith is a professor at the LBJ School of Public Affairs at the University of Texas. Hey, Longhorns! You got a live one there! How fitting that this economic illiterate teaches at the place that honors the profligate LBJ.
I usually don't read Bob Herbert's columns in the New York Times, as they tend to be angry and ignorant, not to mention economically illiterate. However, once in a while, even Herbert sets new standards for outrage, and he has done so with this column.
Yes, Bob has discovered the obvious: we are in a serious depression. Gee, glad you have noticed, Bob. Of course, like all good NYT columnists, he neatly confuses cause with effect. Thus, we get ignorant missives like this:
Budget cuts...tend to weaken rather than strengthen a state’s economy, especially when they entail furloughs or layoffs. Government spending stimulates an economy in recession. And wise spending is an investment in everyone’s quality of life.
Uh, Bob, budget cuts do not weaken the economy; they come about because the economy is weak. How do states receive their revenues? They tax others, and if economic activity does not generate wealth, there are no revenues to collect via taxation.
And what constitutes "wise spending"? Herbert really does not define it except to imply that "wise" is whatever he deems it to be.
As one who has followed Herbert over the years, I find few other writers, except for those at the Nation, who pretty much are Marxists, who despise private enterprise as much as does Herbert. It is rare that he is not attacking business owners or those who are productive and blaming them for all of the miseries of life.
Well, guess what? When government goes on a jihad against business, as we now see with the Obama administration, less wealth is created. When private enterprise creates less wealth, governments can spend less. That is a fact of life that all of the raving and raging by Herbert and the others at the NYT cannot eliminate with all of their rhetoric.
When we last left Alan "The Obfuscator" Greenspan, he was telling a Senate committee that his "faith in markets" had been shaken by the meltdown. Other than the fact that his statement demonstrated his own ignorance that the markets had not caused the downturn, but rather exposed the folly of the Wall Street Banksters who made bad decisions, knowing the Federal Reserve "had their backs," to understand how markets work (and don't work) really does not require "faith" at all.
Well, Greenspan is not giving up. No, he is onto a brand new theory of the meltdown. Forsaking the obvious, he blames the entire thing on the fall of communism two decades ago. Yes, yes, those damned commies did it. (I include my post on Lew Rockwell's blog.)
Meanwhile, back at the Funny Farm, Paul Krugman continues his nonsense about our supposed "liquidity trap," attacking Stephen Roach in the process. Roach had the audacity to question Krugman's call for an all-out trade war against China (yes, jacking up tariff rates by 25 percent constitutes the beginnings of a trade war). You see, Krugman continues to insist that the pegging of China's currency at a rate that undervalues the renminbi and overvalues the U.S. Dollar. (Gee, it used to be that "dirty rates" from places like China and Latin America undervalued the dollar, which really was an act of theft.)
However, Roach's greatest "sin," according to Krugman, was calling for Americans to save more money. Indeed, such words are anathema to the Keynesian Krugman, who really believes in the "paradox of thrift" nonsense.
What do we need to do now? We need to permit the economy to liquidate the malinvestments, build up our savings, and stop this ruinous government out-of-control spending. Like Herbert Hoover and FDR, George W. Bush and Barack Obama are pushing our economy into a long-term depression, and this current government (and people like Krugman) are demanding that we do everything possible to stymie a recovery.
As the Obama administration continues to ram through this disastrous medical care bill, I have some commentary in my weekly "Not So Fast" column with the Foundation for Economic Education. In my piece, I question whether or not this bill really will cut medical costs, as its promoters claim.
Bob Herbert is an angry man. Day after day, watching the world from his office window at the New York Times, he sees the ravages of capitalism and writes about the poor and exploited people toiling for their daily bread. Capitalism, he has written many times, conducts a “war against workers,” and examples abound that prove his point.
In a recent column, Herbert rails against Toyota. No, this is not Toyota making cars with defects, although I am sure that Bob would want to include that item in one of his missives against capitalist oppression. (You see, capitalists not only exploit workers, but they sell them crummy goods on top of that.) This time, the column claims the following with the headline:
“Workers Crushed by Toyota.”
Wow. Is Toyota seizing people and conscripting them to work for pennies a day and live in squalid conditions? Is it confiscating their earnings? (Whoops! Government does that, but Herbert likes government that engages in heavy taxation, which is not oppressive in Bobspeak.)
No, Toyota is committing the Greatest Sin of All: it is announcing a plant closure. In Herbert’s own words, we have:
California has been very, very good to Toyota. It is one of the largest markets in the world for the popular Prius hybrid. Nearly 18 percent of all Toyotas sold in the U.S. are sold in California. The state has showered the company with benefits, including large-scale infrastructure improvements for its operations and millions of dollars for worker training. California is one of the key reasons that Toyota is the wealthiest carmaker on the planet.
Toyota is paying the state back with the foulest form of ingratitude.
The company is planning to shut down the assembly plant in Fremont, Calif., that makes Corollas and the Tacoma compact pickup. The plant closure will throw 4,700 experienced, highly skilled and dedicated employees onto the street during the worst job market since the Depression, and it will jeopardize nearly 20,000 other jobs around the state.
Indeed, Herbert regards Toyota as a terrible ingrate. Why, California permitted this company to build an assembly plant there, and now it is planning to close the plant. How dare the Toyota management think of doing such a thing! Lest one think I am exaggerating, read on:
It is a cold and irresponsible act on Toyota’s part, a decision that was not necessary from a business standpoint and that completely disregards the wave of human misery it is setting in motion.
What we’re dealing with here is the kind of corporate treachery toward workers and their local communities that has ruined countless lives over the past several decades and completely undermined the long-term prospects of the economy.
By the way, what is the crime here? Well, it seems that Toyota is moving its operations to places that don’t meet Herbert’s approval:
The (Toyota) plant is a heck of a lot more viable than the nonstop dissembling of top Toyota executives. The company could keep the plant open and profitable if it wanted to. But, instead, it has decided to shift the production of these vehicles to Japan, Canada, Mexico and Texas.
Why does this “fabulously wealthy” company do such things, adding to the unemployment misery of California? Herbert does not give a direct answer except to imply that Toyota is filled with ungrateful, wretched capitalists who enjoy inflicting misery upon others. The decision makers there are ingrates who don’t understand or care about what is happening in the former Golden State.
I might have a suggestion or two. First, and most important, there is no reason that California, with its wealth of entrepreneurial talent, should have such a high rate of unemployment. While it is true that the housing boom and bust was particularly pronounced in that state, nonetheless California enjoys advantages that should be to its advantage during trying times.
Second, let’s be honest about California; it has become a banana republic for one thing and one thing only: its government is out of control. Steven Greenhut, a longtime observer of government in California, has noted in his new book, Plunder, that public employee unions in California have become kleptocrats and have been bleeding the taxpayers of that state for many years.
Furthermore, as the state coffers – built in large part upon the stock market and housing bubbles of the last decade – have been shrinking, the unions have become more militant, more violent, and greedier. If there is a “war against workers” (Herbert’s words) in California, it has been a war conducted by unionized government employees against everyone else who works for a living.
Don’t think for a second that the Toyota management has not taken notice. They are watching the government unions become angrier, nastier, and increasingly out-of-control; they are watching California’s politicians, who have promoted this war of government against everyone else, become increasingly vengeful, as businesses and individuals pack up and leave some of the highest levels of taxation and regulation in the country.
I hate to tell this to Herbert – actually, I don’t hate to tell him – but the decision by Toyota’s management is not due to some sort of anti-worker arbitrariness on behalf of decision makers. Toyota does not hate California workers and love employees who are Canadians, Mexicans, and Texans. Furthermore, there is a large opportunity cost in moving operations, and the Toyota management no doubt has taken all of these things into consideration.
While I am not privy to what Toyota managers might be thinking, I suspect that they understand that California’s politicians are not going to back down. Indeed, my sense is that they are going to make the government even more oppressive, raise taxes, and crack down on dissidents. Like Michigan, where labor unions have plundered the state’s taxpayers and now reap the nation’s worst economy, California is on a course of self-destruction.
Unfortunately, people like Bob Herbert believe that the course I have laid out is exactly what should be done in trying economic times. He really believes that government should be telling people what to eat, to buy, and what to believe, and he really believes that imposing high taxes and creating a stifling bureaucracy create prosperity.
However, the people who make the goods and pay the bills are not that stupid. Toyota is leaving California, and if Herbert and others cannot figure out the reason, then they truly are clueless.
I teach economics at Frostburg State University in Frostburg, Maryland. We are located on the Allegheny Plateau, and we have cool summers and tough winters.
I am the single father of five children, four of them adopted from overseas and I have two grandchildren. My family and I are members of Faith Presbyterian Church (PCA).