Meanwhile, at My Other Blog....

I will be making posts later about the Tonya Craft travesty, but I also want to point out that I do have another blog, Krugman-in-Wonderland, and have posted this morning about Krugman's latest promotion of bad regulatory schemes.

My posts on the Craft case will concentrate on the evidence and the veracity of yesterday's testimony by the "expert" witnesses for the prosecution.

The Power of What?

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.”

He continues:

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.

And continues:

…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.

Paul Krugman claims that we can play “beggar-thy-neighbor” against China and the only consequences will be felt by the Chinese. (As usual, Peter Schiff sees things more clearly.)

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 20^th 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.

My Response to Krugman's Monday, March 22, Column

On my Krugman-in-Wonderland blog, I have this response to Paul Krugman's column today in which he declares that any opposition to the healthcare bill in the name of economic laws is really an act of racism.

There will be much written on this in the future, but for now, this will have to suffice.

More Economic Illiteracy from the "Experts"

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.

Some Current Links

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.

On my Krugman-in-Wonderland blog, I take a hard look at Paul Krugman's assertion that the U.S. economy is floundering about in a "liquidity trap."

Coming Soon: A New Blog on Paul Krugman

I have decided to create a new blog, Krugman-in-Wonderland, which will deal with the almost-daily predations of Paul Krugman, the Nobel Laureate who insists on re-writing history and economics into a version compatible with his socialist/Keynesian ideology. The blog will be separate from this one, and it will feature not only my own anti-Krugman missives, but links and (if I learn the technology well enough) posts from others.

Stay tuned.

What Didn't Happen: Krugman Telling the Truth

In George Orwell's classic 1984, the poor people of Oceania constantly were being fooled. Despite the fact that Big Brother had total control of the media, it seems that the masses were being duped by the ubiquitous Goldstein. For years, Oceania has been at war with Eurasia. Suddenly, Big Brother tells them that Goldstein has tricked them into believing such lies, as OCEANIA IS AT WAR WITH EAST ASIA! (I mean, everyone should have known that!)

In reading Paul Krugman's missive today in the New York Times, "What Didn't Happen," I am reminded of Orwell. According to the Great Nobel Laureate, Krugman insists that we believe the following:

• The "stimulus" was "too small"
• The Obama administration was not "tough enough" with the banks (he should have nationalized them, I suppose -- but, then, they pretty much are nationalized already)
• Obama did not do as did Ronald Reagan and blame the previous administration.

I must admit that I admire Krugman's chutzpah at one level. Here is a guy to has the guts to claim things that patently are not true and are easily debunked, but he is able to do with (without any sanctions) in the editorial section of the NYT and get away with it, mostly because his employers at Princeton University and in New York are happy to promote his untruths.

In debunking this latest set of claims, let me begin with the last one first, that Obama refuses to blame Bush for his troubles. Writes Krugman:

Finally, about that narrative: It’s instructive to compare Mr. Obama’s rhetorical stance on the economy with that of Ronald Reagan. It’s often forgotten now, but unemployment actually soared after Reagan’s 1981 tax cut. Reagan, however, had a ready answer for critics: everything going wrong was the result of the failed policies of the past. In effect, Reagan spent his first few years in office continuing to run against Jimmy Carter.

Mr. Obama could have done the same — with, I’d argue, considerably more justice. He could have pointed out, repeatedly, that the continuing troubles of America’s economy are the result of a financial crisis that developed under the Bush administration, and was at least in part the result of the Bush administration’s refusal to regulate the banks.

But he didn’t. Maybe he still dreams of bridging the partisan divide; maybe he fears the ire of pundits who consider blaming your predecessor for current problems uncouth — if you’re a Democrat. (It’s O.K. if you’re a Republican.) Whatever the reason, Mr. Obama has allowed the public to forget, with remarkable speed, that the economy’s troubles didn’t start on his watch.

Yes, Krugman sneaks yet another one of his post hoc ergo propter hoc claims that it was the tax cuts of 1981 that must have created the recession of 1982. Now, remember that in 1981, Congress voted to bring down the top marginal personal income tax rate from 70 percent to 50 percent. Funny about that move. At the Southern Economic Association meetings in New Orleans in 2004, I attended a talk by Krugman, and in the Q & A I asked him if he recommended going back to the 70 percent rates.

"Oh, no!" He replied forcefully. "Those rates were insane!" (Yes, he used the i-word.) Thank goodness, I had a number of economists in the room with me, including Joe Salerno of Pace University and the Mises Institute sitting in the next chair, and I suspect that Prof. Salerno's memory is as sharp as mine.

As an economist, I always like to see the Law of Cause and Effect in action, and I would like to know how those 1981 tax cuts created massive employment. For that matter, Krugman continually claimed throughout the Bush administration that the lowering of the top rate from 39.6 percent to approximately 33 percent played a major role in the recession of 2001, despite the fact that the rates were not even changed until after the recession began.

Has Obama not been blaming the Bush administration, as Krugman claims? Let us look at the recent record. On Saturday, January 9, 2010, the Associated Press had the following piece:

He says "the buck stops with me," but nearly a year into office, President Barack Obama is still blaming a lot of the nation's troubles — the economy, terrorism, health care — on George W. Bush.

Over and over, Obama keeps reminding Americans of the mess he inherited and all he's doing to fix it. A sharper, give-me-some-credit tone has emerged in his language as he bemoans people's fleeting memory about what life was like way back in 2008, particularly on the economy.

(No doubt, the AP must be run by...Republicans! Goldstein himself is president of that faux organization!)

Lest anyone think that just the AP has noticed this from Obama, one of his staunches political allies in the media, Roland Martin of CNN, wrote last month:

...instead of bringing up Bush, maybe they ought to spend more time driving home their message of making the right moves at the right time to get the country moving in the right direction. Bush has gone into retirement, choosing not to speak negatively of President Obama (unfortunately, we still have to hear Cheney and his rants).

If we are to move into a new year and a new way of governing, going back and talking about the past doesn't help. It only gives the impression that you don't have enough good things to say about your own agenda.

We don't have ol' Bush to kick around anymore. Now the heat will be applied fully to Obama, and we'll have to see if Mr. Calm, Cool and Collected can handle the tough moments as easily as he's basked in the praise and adulation.

Now, I find this curious, given that Krugman has had no problem himself blaming Bush's tax cuts for nearly every economic problem, and I doubt seriously that this current White House is so high-minded that it really takes ownership of the rising rates of unemployment and the current economic free fall. Nonetheless, Krugman's column is not about the truth; it is about continuing his partisan narratives couched in the language of The Economist Who Knows Everything.

What about the "stimulus" or alleged lack, thereof? First, Krugman leaves out the role of the Federal Reserve System which has spent trillions of dollars on all sorts of bailout nonsense, and all on the whim of the administration and its own chairman, Ben Bernanke.

Second, there is a more obvious question: How can a government that is flat broke, running more than a trillion dollars in the red, come up with trillions more to spend? Krugman's answer is to print more money (as he points out in his 2008 best-seller The Return of Depression Economics. (I am having my MBA students this spring read that book in order to compare and contrast Krugman's statements to those of the Austrian Economists.)

If printing money works so well, according to Krugman, then why collect taxes at all? In fact, why work at all? Last year, Krugman claimed that the purpose of the "stimulus" was for its spending, not for any real work that might have been done. Well, as I see it, if the work being done is not useful for any purpose other than spending, why use the scarce resources at all and just line up people and hand them their paychecks?

The "stimulus" is a failure not because of any paucity of government spending but because the politically-oriented disbursements don't address the imbalance of the economic fundamentals and the massive malinvestments of the Bush years that still have not been fully liquidated. (That is due in large part because the government continues to try to prop up the owners of the failed assets, with predictable results.)

Last, but not least, there are the banks. Let's face it; if Krugman really believes that the Bush administration "failed to regulate the banks," then I'd like to sell him a few bridges from Brooklyn. While trying to promote his own pathetic narrative of "the bankers serve THEM, but the people in the White House are on OUR SIDE," he forgets that the symbiotic relationship between Wall Street and the banks is not one of reckless free-enterprisers versus wholesome and good Democratic politicians.

There is good reason that the politicians are cozy with Wall Street. Like Willie Sutton, the know "where the money is," and don't mind helping themselves to a few million or more here and there. Economists I respect much more than I do Krugman (like Bruce Yandle of Clemson University, for starters and Jeffrey Miron from Harvard) have noted for years of the real nature of regulation has been for there to be a "revolving door" between the regulators and the industries they supposedly regulate.

Furthermore, as Eugene Fama (perhaps the most distinguished financial economist in the country from the University of Chicago) pointed out in a recent interview with the New Yorker, it was a mistake to bail out the banks in the first place because -- contrary to Krugman and his friends at the NYT -- no institution is "too big to fail." (I love his line that Krugman "wants to be czar of the world." No doubt, the Big K would run everything perfectly.)

Like his rewriting of the history of regulation and deregulation, Paul Krugman begins with the narrative, and then proceeds to pound square pegs into round holes. That hardly is unusual, as most of us perform that exercise from time to time. However, when most of us are caught, we listen to reason.

Krugman, on the other hands, listens only to himself and the daily set of talking points coming from left-wing Democrats. As I have said many times before, the man is not an economist; he is a political operative. Period.

Krugman Without a Clue

Even when Paul Krugman gets it right, he still gets it wrong. Now, I am not someone who is a knee-jerk critic of the guy, although I generally expect Krugman to blame the wrong people and recommend the wrong “solutions.”

Thus, when I saw the title of his most recent column, “Bankers Without a Clue,” I thought that this might be the day that I can read a Krugman column without cringing. Perhaps, I imagined, he might even use the “bankster” term that I have seen from so many libertarians and Austrian economists. Ah, hope!

Unfortunately, Krugman gave us his tired analysis, and in doing so, he also demonstrated that he was clueless himself about the stagflation of the 1970s. (After all, Krugman being a True Believing Keynesian believes that we should not have both rising unemployment and rising unemployment, since he already has written elsewhere that almost any economic problem can be solved by…printing more money.)

He writes:

Consider what has happened so far: The U.S. economy is still grappling with the consequences of the worst financial crisis since the Great Depression; trillions of dollars of potential income have been lost; the lives of millions have been damaged, in some cases irreparably, by mass unemployment; millions more have seen their savings wiped out; hundreds of thousands, perhaps millions, will lose essential health care because of the combination of job losses and draconian cutbacks by cash-strapped state governments.

And this disaster was entirely self-inflicted. This isn’t like the stagflation of the 1970s, which had a lot to do with soaring oil prices, which were, in turn, the result of political instability in the Middle East. This time we’re in trouble entirely thanks to the dysfunctional nature of our own financial system. Everyone understands this — everyone, it seems, except the financiers themselves.

The first paragraph is correct, although that is because he is stating the obvious. The second paragraph, however, reveals his ignorance of economic history. However, given that Krugman is ignorant on, well, about everything dealing with a real economy, his “Jake Blues-style” series of excuses for missing his bride at the altar (“There was an earthquake, IT WASN’T MY FAULT!!”) seems about par for the guy.

For the record, the stagflation of the 1970s occurred because of a lot of reasons, none of them rising oil prices, which were largely a result of U.S. inflation that occurred after President Richard Nixon in 1971 ended all ties of the U.S. Dollar to gold and gave us a pure fiat currency. (Keynesians want us to believe that rising oil prices caused inflation, when, in reality, the causality chain ran the other way.) Furthermore, he goes back to his tired and wrongheaded narrative about the U.S. financial system:

…there was nothing accidental about the crisis. From the late 1970s on, the American financial system, freed by deregulation and a political climate in which greed was presumed to be good, spun ever further out of control. There were ever-greater rewards — bonuses beyond the dreams of avarice — for bankers who could generate big short-term profits. And the way to raise those profits was to pile up ever more debt, both by pushing loans on the public and by taking on ever-higher leverage within the financial industry.

Yes, yes, it was all about the lack of regulation and the greed of those capitalists who were just following the Ideology of Free Markets. (I am sure that each of those bankers had copies of Atlas Shrugged in their back pockets.) Had the system been regulated by those Wise and Generous Regulators That Populated Washington after the New Deal, all of this could have been averted. What Krugman does not say, of course, is that we had both deregulation and the growth of moral hazard. (In fact, I never have seen Krugman refer to moral hazard, even though the perverse incentives that the various government backstops created made for a “heads I win, tails you lose” atmosphere in which the banks could fall into the “we’re too big to fail” nonsense.)

During the 1970s, Congress vastly expanded both the regulatory apparatus and government spending, and for the first half of the decade, the U.S. Armed Forces were bogged down in Vietnam. The top tax rate stood at 70 percent, the financial system was relatively small and highly-stratified and, as Michael Milken demonstrated, funding for the new high-technology initiatives that drove the economy through the 1980s and beyond came in large part from outside the regulated banking sector, something Krugman ignores (since it does not fit his own ideological narrative).

Furthermore, as the government taxed and regulated the economy into oblivion, thus destroying economic opportunities, it made up for the lack of economic growth (and the extra tax revenues growth would bring) by turning to the Federal Reserve System, which was all-too-happy to accommodate the growth of government by cranking up the printing presses.

Not surprisingly, the rate of inflation exploded during the 1970s and it was not, as previously noted, due to those greedy Arabs jacking up the price of oil on a whim. No, as the government expanded its jihad against private enterprise, the Fed responded by applying the “Krugman Solution” of printing more money in hopes that the activity generated by the new cash would cover the obvious economic bare spots.

As a result of this government “mismanagement” (to use a nice term), the economy experienced bouts of stagflation throughout the decade. Since Krugman cannot bring himself to believe that government taxation, regulation, and a rapidly-expanding fiat currency could have caused this debacle, it must have been OPEC and those greedy oil executives.

Likewise, he wants us to believe that American bankers in the last decade suddenly were seized by Ayn Rand Fever and decided to be greedy, ideology-directed financiers who recklessly leveraged their institutions and then hypocritically begged for money afterwards. Sorry, but these guys were on the dole all along, and given that Krugman never mentions moral hazard, one can see just how clueless (or maybe dishonest) the guy has been all along.

As I see it, the bankers are not clueless at all. They understand the game, they understand that the government is going to clean up the mess that they and their friends in Congress and the Bush and Obama administrations have created, and they understand that their antics are going to give them what they always have wanted: a nice, cozy, financial cartel which will provide sweet political contributions for the political classes, bonuses and high pay for themselves, and very little for everyone else.

And if Krugman cannot see it, then the guy truly is clueless. However, my take on the matter is much more cynical, and I don’t think I need to go any further on that subject.

Krugman (Of Course) Ignores Moral Hazard

In his continuous war against anything free market, Paul Krugman thinks he is attacking Wall Street and their behavior because they were "free market." In Krugman's view, financial bubbles are a natural consequence of markets that are not absolutely overseen by government regulators.

In his latest missive, Krugman claims that financial regulation will be "helped" by the formation of a new government "consumer protection agency." He writes:

A lot of the public debate has been about protecting borrowers. Indeed, a new Consumer Financial Protection Agency to help stop deceptive lending practices is a very good idea. And better consumer protection might have limited the overall size of the housing bubble.

Well, there is a problem here. Why were the subprime loans being made in the first place? It was government policy to "encourage" banks to make these loans. Yes, Krugman might deny that the Community Reinvestment Act of 1977 had anything to do with the subprime disaster, but history tells us something different.

The government was demanding that banks loosen their underwriting standards in order to promote the "Ownership Society" nonsense that came from the Heritage and Cato institutes. While some of the ideas were good, the idea that the government push home ownership no matter what was a disaster.

Furthermore, I never have read anything from Krugman that deals with the institutional moral hazard that has existed with the banks and financial insitutions in general. No Greenspan Put, not bailouts of politically-favored firms, no nothing.

So, Krugman gets it wrong once again. Not that he or anyone else in the economics profession cares. Krugman has spoken and since he is a Voice of a God, that is all that is needed. Standards of truth don't matter.

Hey, Algore! We're Freezing Up Here!

When I worked in Tennessee many moons ago, I had some dealings with Algore and his office. While Newsweek might consider Algore to be a Great Intellectual, I found the guy to be yet another stupid, fat, scripted politician. Now that he is the self-proclaimed world expert on climate, I am sure that he has a way to interpret the current cold wave as being caused by...global warming.

Now, whenever it is cold outside, Algore pretends that it is not happening (kind of like the late MLB Commissioner Bowie Kuhn not wearing his overcoat after he agreed to have the World Series at night and it was freezing at the first game). However, take a heat wave or a drought and Algore is first to give us the "Aha!" as though there never had been heat waves or droughts before the current decade.

Albore is not a prophet or an intellectual. He is a thug, a fascist who has a wonderful future planned for all of us, a future that he and his friends have no intention at all of being part of. He and his friend James Hansen have called for criminal prosecutions of people who disagree with them, and I have no doubt that if Albore ever obtains the power he wants, the prisons will be full of "deniers."

As for the recent "Climategate" revelations, Albore has declared: Pay no attention to the man behind the curtain!! I have another recommendation for the guy: come up to my place and stand outside in the below zero temperatures and 18 inches of snow and tell me that we are about to be baked off the planet. And, maybe Albore and Mr. "Climate Denial is Treason Against the Planet" Paul Krugman can stand outside together by my house and claim that it isn't cold outside.

Paul Krugman's Enduring Narrative

Paul Krugman does not like to be confused by the facts, especially if those facts contrast with his own narratives. In a recent column for the Mises Daily page, I look at how Krugman's semi-weekly "talking points" tend to conflict with reality.

One of the things that always amazes me is the utter shamelessness that Krugman demonstrates. As this Youtube video points out, Krugman attempted to use a number of Canadians to shill for their own health system. When most of those present pointed out that they did not much care for Canadian care, Krugman decides that perhaps he needs to change the subject.

Interestingly, Krugman never does allude to this incident in any of his articles. I'm shocked, SHOCKED at his omission.

Paul Krugman's Christmas Carol

It is the year 2014 and Tiny Tim is ill, but he does not need the generosity of Ebenzer Scrooge to bring him back to health. No, as Paul Krugman insists, the Cratchits

have health insurance. Not from their employer: Ebenezer Scrooge doesn’t do employee benefits. And just a few years earlier they wouldn’t have been able to buy insurance on their own because Tiny Tim has a pre-existing condition, and, anyway, the premiums would have been out of their reach.

But reform legislation enacted in 2010 banned insurance discrimination on the basis of medical history and also created a system of subsidies to help families pay for coverage. Even so, insurance doesn’t come cheap — but the Cratchits do have it, and they’re grateful. God bless us, everyone

Now, Krugman admits that this is just a story, but he has seen the Ghost of Christmas Future and declares:

O.K., that was fiction, but there will be millions of real stories like that in the years to come. Imperfect as it is, the legislation that passed the Senate on Thursday and will probably, in a slightly modified version, soon become law will make America a much better country.

Indeed, we know that the legislation that will place more chains upon us than which bedeviled Jacob Marley is going to be costly, much more costly than Krugman will admit, and I am not about to say that imposing new costs and taking the individual out of medical care will make this a better country. In fact, I would not be surprised if it made the USA a place that people will want to leave, if only to find a place where they can receive adequate care.

Being a skeptic about this impending legislation places me in Krugman’s gunsights. You see, the only possible reason that I could oppose this attempt to impose “universal” medical care is that I want the Tiny Tims of the world to become sicker, and ultimately to die. Lest one think I exaggerate, here is Krugman in his own words:

First, there’s the crazy right, the tea party and death panel people — a lunatic fringe that is no longer a fringe but has moved into the heart of the Republican Party. In the past, there was a general understanding, a sort of implicit clause in the rules of American politics, that major parties would at least pretend to distance themselves from irrational extremists. But those rules are no longer operative. No, Virginia, at this point there is no sanity clause.

Actually, he is wrong, as many of the “tea party” and “death panel” folks are not Republicans, at least in the mainstream sense of the word. They are libertarians and supporters of Ron Paul and others like him, but since Krugman considers Paul and other adherents to Austrian Economics to be ignorant nuts and financial illiterates, they obviously are going to be targets of his scorn. Furthermore, the prospects of “death panels” are quite real; they exist in all of the other countries that have the kind of “universal care” that Krugman endorses.

Although Krugman claims that any “horror story” about medical care in places like Great Britain are nothing but lies, I will present a real-live horror story that tells volumes not only about socialist medical care, but also people like Paul Krugman, who believe that egalitarianism is the highest principle of all, even if it leads to someone unnecessarily dying a horrible death.

Debbie Hirst, a woman living in Great Britain, suffered from breast cancer, which had metastasized. As the New York Times explains, the British National Health Service refused to provide her with Avastin, a drug widely available in the USA and Europe, because the government declared it to be too costly. As the NYT (ironically, given that it is Krugman's employer) explains:

…with her oncologist’s support, she decided last year to try to pay the $120,000 cost herself, while continuing with the rest of her publicly financed treatment.

By December, she had raised $20,000 and was preparing to sell her house to raise more. But then the government, which had tacitly allowed such arrangements before, put its foot down. Mrs. Hirst heard the news from her doctor.

“He looked at me and said: ‘I’m so sorry, Debbie. I’ve had my wrists slapped from the people upstairs, and I can no longer offer you that service,’ ” Mrs. Hirst said in an interview.

“I said, ‘Where does that leave me?’ He said, ‘If you pay for Avastin, you’ll have to pay for everything’ ” — in other words, for all her cancer treatment, far more than she could afford.

Officials said that allowing Mrs. Hirst and others like her to pay for extra drugs to supplement government care would violate the philosophy of the health service by giving richer patients an unfair advantage over poorer ones.

Patients “cannot, in one episode of treatment, be treated on the N.H.S. and then allowed, as part of the same episode and the same treatment, to pay money for more drugs,” the health secretary, Alan Johnson, told Parliament.

“That way lies the end of the founding principles of the N.H.S.,” Mr. Johnson said.

Indeed, this is a most telling story, and according to the NYT, Hirst was not alone as many other people had similar tales. (Most likely, Krugman would accuse all of them of lying or, worse, wanting to upset those egalitarian principles that will make these sorry events inevitable.)

Keep in mind that the National Health Service in this case was acting as a “death panel.” (Of course, “death panels” don’t exist under socialist care; Krugman tells us so.) However, because of the adverse publicity, the NHS backed down and paid for Hirst’s Avastin. Nonetheless, this episode gives us an important window in examining the institutional nature of socialist medicine.

As anyone who ever has dealt with a bureaucracy knows, the most important thing is that the people working in those bureaus protect themselves and the government. The real purpose of socialist medicine is not making sure that everyone who needs medical care can receive it.

Instead, the real purpose of such a medical regime is to ensure that all people receive the same care, even if that care is substandard. (There is an exception: people who are politically-connected will be jumped to the head of the line and will find that the finest health facilities are reserved for them. For example, when Michael Moore took Americans to Cuba so they could experience medical care under socialism, he took them not to the facilities that regular Cubans frequent. Instead, they went to the care facility that exists exclusively for political elites, something Moore failed to tell his audience.)

I wish that Krugman’s invective was limited to the “death panels” crowd, but he next turns on those who are concerned about the costs of this legislation:

A second strand of opposition comes from what I think of as the Bah Humbug caucus: fiscal scolds who routinely issue sententious warnings about rising debt. By rights, this caucus should find much to like in the Senate health bill, which the Congressional Budget Office says would reduce the deficit, and which — in the judgment of leading health economists — does far more to control costs than anyone has attempted in the past.

But, with few exceptions, the fiscal scolds have had nothing good to say about the bill. And in the process they have revealed that their alleged concern about deficits is, well, humbug. As Slate’s Daniel Gross says, what really motivates them is “the haunting fear that someone, somewhere, is receiving social insurance.”

How do we know that this bill will “reduce the deficit”? Why, the bill declares it to be so, and the accounting methods contained in this bill “prove” it. Now, according to Mark Hemingway, there are some accounting tricks in this legislation, and I suspect that if private firms used the same accounting methods, some people would be hauled off to prison, and Krugman would lead the cheerleading squad for the prosecution.

For example, according to Hemingway:

In order to make health care legislation sound cheaper than it is, the Senate health care bill begins collecting major tax increases and fees immediately and delays the bill's major spending provision for four years. So cost projections bandied about in media reports are taken from from 2009 to 2019 and appear substanially cheaper than when the legislation's spending is in full effect from 2014 to 2024.

Even this dishonesty is built upon the assumption that the projected revenues of these massive tax increases will match the actual revenues, something that is highly doubtful in the current economic climate. One might recall that Jeffrey Skilling went to prison in part because Enron aggressively counted all accounts payable as present income, as opposed to Enron’s counting the income when the money actually came in. (This was legal, but the government still found a way to criminalize it.)

Furthermore, Krugman commits the logical fallacy of “appeal to authority” in his declaration that since the “leading health economists” have approved this bill and its fiscal language, then there is nothing left to argue. Thus, Krugman reasons, those critics who are concerned about the costs of the bill really are saying this because they want others to get sick and die.

As for “controlling costs,” Krugman demonstrates once again that he is not an economist. No government can successfully mandate “lower costs.” Governments can place price controls and do like the British NHS and deny certain care, which means that individuals suffer and die prematurely. Such actions might show up on official balance sheets as “lower costs,” but economically speaking, that is fiction.

Whenever governments attempt to impose “cost controls,” they create other dislocations that are costly to people who cannot obtain certain goods precisely because of the “cost control” mechanisms. When people must suffer because government authorities have denied medical care, that is a cost borne by the individuals and their families. When people die prematurely, that is a cost that is borne by others, and it is every bit as real a cost as anything that appears on a government spreadsheet.

Given the record of government medical care, it is easy to envision a completely different outcome to the Tiny Tim Cratchit affair. Instead of assuring that Tiny Tim receives the medical treatment he needs to survive, the government health authorities declare that it is too costly to treat the lad and suggest that he take lots of painkillers (which the government provides for free) that will keep him out of pain until he dies (and, thus, stops costing the government so much money).

Outraged at this situation, Ebenezer Scrooge declares that he gladly will pay for all of Tiny Tim’s treatment, only to be rebuffed by the government, which declares that paying for Tim’s care will undercut the very basis of the government’s health policies. The government announces that because Scrooge does not have enough money to pay for everyone’s medical care, then he cannot be permitted to pay for anyone’s care, including care for himself.

When this situation becomes public, Krugman declares that it only is a “scare story” and is patently untrue. And, if it is true, Krugman continues, it is a necessary event, since one “must break some eggs to make an omelet.”

God bless us everyone, for when this bill becomes law, we will need to invoke God’s blessing if only to stay healthy.

Krugman: Blame the Speculators

Paul Krugman sees lots of villains in the current downturn. Of course, there are those people who think that free markets are a good thing, so they obviously are to blame. Then there are the Bushites, who did not believe enough in the wonder and majesty of governmental powers, so they failed to create Paradise on Earth.

But there is more. Krugman on other occasions has blamed the Chinese for our economic malaise, but now he has another culprit: those "socially useless" speculators.

I find it most interesting that Krugman resorts to the Last Refuge of an Economic Scoundrel when he points the finger at those people who do not have everlasting trust in the promises made by politicians. Now, there are times when Krugman rejects the "speculators are at fault" argument. For example, I don't recall Krugman agreeing with Ken Lay's contention that the short sellers brought down Enron, although given Krugman's explanations of the downturn, Lay's point would be as legitimate as anything from Krugman.

(Note: I believe that Lay was wrong. Short-sellers by themselves cannot make a stock price plunge and stay down permanently any more than they can bring down an entire economy.)

When the government of Great Britain 40 years ago was inflating like mad and engaging in all sorts of accounting trickery, currency buyers began to short the Pound. Of course, the officials of Britain's Labor government did not blame their reckless policies; no, it was the fault of the "Gnomes of Zurich." Yes, those bad men in Switzerland were conspiring to bring down the Pound.

Unfortunately, that mentality exists today, and I am not surprised that it is Krugman leading the anti-speculation charge. Anyone familiar with finance know that speculators and short-sellers do not control markets; they expose the shortcomings of market participants. Speculators did not short Enron stock because they thought it would be fun; they shorted it because they believed (correctly) that it was overpriced.

In his column today, Krugman declares that a lot of financial transactions are "socially useless," and should be taxed. My guess is that he would include short-selling among those transactions, and in that he is aping his spiritual mentor, John Maynard Keynes, who believed that the sale of stock in secondary markets also was "socially useless."

Krugman, in his condemnation of the "speculators," ignores the 800-pound gorilla sitting in the room: the moral hazard that government created in the financial markets that ultimately led to the financial meltdown. Why does he ignore things like the "Greenspan Put" and the various bailouts? Easy, government-caused moral hazard does not fit his socialist worldview.

In Krugman's world, private enterprise itself is the cause of instability, and government (as long as the Right People are in Charge) is the white knight. Thus, it hardly surprises me that he resorts to the "Gnomes of Zurich" nonsense.

Unemployment Nation

The rate of unemployment in this country continues to grow, and in response the government is trying to bankrupt us with even more spending. This map outlines the growth of unemployment county-by-county since January 2007.

Of course, Paul Krugman will claim that this "proves" that the government must print even more money, as all True Keynesians believe that printing money is how an economy generates wealth. For those who wish to learn more about the man who gave us the "Keynesian solution," here is a great piece by Murray Rothbard about John Maynard Keynes.

Krugman: It is China's Fault

A friend of mine suggested calling this site, "Krugman in Wonderland," but my wife objects, so it is obvious I need to keep peace in the family. Nonetheless, I am grateful to Paul Krugman for providing so much material that helps keep me writing. Granted, this perch is not as lucrative as Krugman's New York Times location on the editorial page, but a person has to do what he can.

The latest outrage comes today in his column that blames China for much of the economic downturn. Granted, today's column is not as outrageous as his column last Friday in which he claims that the way to end unemployment in the United States is for Congress to write laws making it nearly impossible to fire workers. Yeah, they have tried that in Spain, which has had double-digit unemployment for years, as employees carry liabilities that make it a real danger for companies to employ anyone.

Without going into a lot of detail about how currencies work in relation to one another, Krugman attacks the Chinese government for following a policy to keep its currency, the yuan, low relative to the U.S. Dollar. China does this in order to make its goods attractive for export, as the government there is trying to emulate what Japan did in promoting its own export-first policy.

Because I am no fan of government fiat currencies, I am not going to approve of China's policies, which actually punish the Chinese workers who must pay much more for their goods than they would if the yuan could float in a free market. Nonetheless, Krugman contends that somehow China is making itself better off at the expense of everyone else. That simply is not true. He writes:

So picture this: month after month of headlines juxtaposing soaring U.S. trade deficits and Chinese trade surpluses with the suffering of unemployed American workers. If I were the Chinese government, I’d be really worried about that prospect.

Unfortunately, the Chinese don’t seem to get it: rather than face up to the need to change their currency policy, they’ve taken to lecturing the United States, telling us to raise interest rates and curb fiscal deficits — that is, to make our unemployment problem even worse.

And I’m not sure the Obama administration gets it, either. The administration’s statements on Chinese currency policy seem pro forma, lacking any sense of urgency.

That needs to change. I don’t begrudge Mr. Obama the banquets and the photo ops; they’re part of his job. But behind the scenes he better be warning the Chinese that they’re playing a dangerous game.

No, the Chinese are not playing a "dangerous" game; they are playing a stupid game, because they are not permitting themselves to enjoy the fruits of their very hard labor. At the same time, one must remember that the U.S. Government has played a very dishonest game with the Chinese.

Why do I say that? Well, because it is true. For the last decade, the U.S. Government has sold trillions of dollars of debt (which the Federal Reserve System is rapidly depreciating with inflation-ravaged dollars) to China, and in return, Americans get consumer goods. Now that the Chinese realize that they have been played for suckers, our "experts" now accuse them of starting the problem in the first place, as though it was the Chinese who created the housing bubble and run the Fed.

Granted, that kind of logic is hard for someone like Krugman to understand, as he believes an economy is nothing more than a "blob" into which we throw newly-printed money. Like Aaron, who told Moses that the Golden Calf simply appeared after he threw gold jewelry into a fire, Krugman believes that an economy magically appears simply when governments print money. Which story is less believable? I'll let readers decide.

Like other economists, Krugman also gets it wrong

In 1998 Paul Krugman wrote an attack on the Austrian theory of the business cycle (ATBC), saying that it was about as credible as the “phlogiston theory of fire.” Not surprisingly, he managed not only to mislabel the ATBC (calling it a “Hangover Theory”) but also proved incapable even of describing the theory that had been so well laid out by Ludwig von Mises, F.A. Hayek, and Murray N. Rothbard.

I mention this ten-year-old sarcastic foray into economics because Krugman has struck again, this time in a New York Times Magazine article, “How Did Economists Get It So Wrong?” It turns out, according to the 2008 Nobel Prize winner, that economists falsely claim that capitalism is “perfect”:

Unfortunately, this romanticized and sanitized vision of the economy led most economists to ignore all the things that can go wrong. They turned a blind eye to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of markets — especially financial markets — that can cause the economy’s operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don’t believe in regulation.

That was not the only problem with economists, as Krugman sees it. Not only did they have a wrong-headed faith about free markets, but they also had forgotten the Great Lessons of Keynesianism:

Keynes did not, despite what you may have heard, want the government to run the economy. He described his analysis in his 1936 masterwork, “The General Theory of Employment, Interest and Money,” as “moderately conservative in its implications.” He wanted to fix capitalism, not replace it. But he did challenge the notion that free-market economies can function without a minder, expressing particular contempt for financial markets, which he viewed as being dominated by short-term speculation with little regard for fundamentals. And he called for active government intervention — printing more money and, if necessary, spending heavily on public works — to fight unemployment during slumps. [Emphasis added.]

He adds:

It’s important to understand that Keynes did much more than make bold assertions. “The General Theory” is a work of profound, deep analysis — analysis that persuaded the best young economists of the day. Yet the story of economics over the past half century is, to a large degree, the story of a retreat from Keynesianism and a return to neoclassicism.

One should read Henry Hazlitt’s classic The Failure of the “New Economics” to see something other than the fawning prose that Krugman writes about Keynes. There is so much nonsense in these two paragraphs that it would take a large volume to refute it all. I will concentrate on just a few things.

First, it is amusing to see Krugman write that Keynes was concerned about economic “fundamentals,” given that Keynesian theory treats all capital and, indeed, all assets as being homogeneous. There are no economic fundamentals in the Keynesian system; indeed, Keynes (and Krugman) call for inflation, which is general in scope, as a way to end unemployment in specific economic sectors.

Second, like Keynes, Krugman has declared that printing money will solve nearly any economic problem (although he has not used the specific Keynes quote on inflation, that it “turns stones into bread”). As Hazlitt noted in his classic, Economics in One Lesson, inflation always leads to economic disaster.

Third, as the ATBC so aptly points out, it is inflation that creates the boom-and-bust cycles. If inflation is the cause of the problem, then even more inflation cannot be the solution.

Krugman is correct when he says Keynes made “bold assertions,” but one searches The General Theory in vain for something profound. As Hazlitt noted, there is nothing in the book that is both true and original: What is true is not original, and what is original is not true.

Krugman is right that economists “got it wrong.” However, it was not a religious belief in free markets that caused the trouble, but rather government intervention, something Krugman never seems to mention in any of his columns.

Has Paul Krugman Become an Austrian? Not Quite….

Paul Krugman has looked at Austrian Theory of the Business Cycle and found it wanting. First, he mistakenly calls it a "hangover theory" when, in fact, it is a theory of easy credit leading to malinvestments. Second, he really does not understand that government cannot sustain a boom once the financial wave has crested. Third, he has no understanding of the heterogeneity of assets, assuming that capital and other assets are homogeneous for the purposes of economic policy.

However, in his recent column, he did make a (sort of) reference to malinvestments. He does not call them as such, but does make a reference to assets that could not be sustained in the boom:

Financial firms, we now know, directed vast quantities of capital into the construction of unsellable houses and empty shopping malls. They increased risk rather than reducing it, and concentrated risk rather than spreading it. In effect, the industry was selling dangerous patent medicine to gullible consumers.

Granted, this is pretty stern stuff from someone who called for then-President Bush and the Fed to start a housing bubble (and then say later he only was kidding). However, what he said has some truth to it, as it was not just the "banksters" that were selling the snake oil, but the "elite" economists as well. (One remembers how Arthur Laffer excoriated Peter Schiff for sounding the alarm in 2006.)

The other thing to keep in mind is that Krugman actually seems to be differentiating between assets that are sustainable and those that cannot be sustained. Can he be saying that assets and capital really are heterogeneous as say the Austrians versus the belief of Keynesians that assets are homogeneous, as the Keynesians claim in their policy prescriptions? (Indeed, that seems to be a fundamental tenet of Krugman’s claim that "depression economics" changes the rules.)

Unfortunately, he never takes that statement to its logical conclusions. Instead, he uses it as a lead-in to his usual point: banks must be both cartelized and regulated:

The huge bonuses Goldman will soon hand out show that financial-industry highfliers are still operating under a system of heads they win, tails other people lose. If you’re a banker, and you generate big short-term profits, you get lavishly rewarded – and you don’t have to give the money back if and when those profits turn out to have been a mirage. You have every reason, then, to steer investors into taking risks they don’t understand.

And the events of the past year have skewed those incentives even more, by putting taxpayers as well as investors on the hook if things go wrong.

I won’t try to parse the competing claims about how much direct benefit Goldman received from recent financial bailouts, especially the government’s assumption of A.I.G.’s liabilities. What’s clear is that Wall Street in general, Goldman very much included, benefited hugely from the government’s provision of a financial backstop – an assurance that it will rescue major financial players whenever things go wrong.

All of this is (gasp!) true. Indeed, the famed "Greenspan Put" always was in the back of the minds of the banksters when they were playing the high-roller game. But, alas, Krugman does not seem to understand the logical implications of his statement (again):

You can argue that such rescues are necessary if we’re to avoid a replay of the Great Depression. In fact, I agree. But the result is that the financial system’s liabilities are now backed by an implicit government guarantee.

Now the last time there was a comparable expansion of the financial safety net, the creation of federal deposit insurance in the 1930s, it was accompanied by much tighter regulation, to ensure that banks didn’t abuse their privileges. This time, new regulations are still in the drawing-board stage – and the finance lobby is already fighting against even the most basic protections for consumers.

The problem, of course, is that government regulation creates real-live cartels that, while regulated, still are not going to serve consumers in a way that free-market firms would do. As I have stated elsewhere, the "Land of Oz" banking system that Krugman so touts actually fell apart in the late 1970s because of inflation and its inability to deal with the new technologies that were waiting to have investments made. Thus, it fell to people like Michael Milken and others who operated outside the financial cartel to set the stage for the high-tech revolution.

To Krugman the Keynesian, however, all of this is gibberish. Economies grow, in his view, because people increase spending, and if people hold back and investors don’t invest, then government steps in and fills the void. It is all so easy – and all so wrong.

There is another way, called profit and loss. In the real world, profits and losses serve as the bellwethers of regulation. Furthermore, if financial firms know that they are not operating with the government covering their losses, then the investment decisions that they make will differ greatly from those made when the "put" is at their backs.

Unfortunately, Krugman and most other "elite" economists don’t come close to understanding this simple point. Instead, they really seem to believe that banking and finance are different, and must be both cartelized and protected.

So, while Krugman seems to understand, if only for a fleeting moment, that assets might be heterogeneous and that government guarantees create huge moral hazards, nonetheless in the end his Keynesianism bleeds through. Like the Bourbons of France, he learns nothing and he forgets nothing.

The former boxer Terry in "On the Waterfront" lamented that he "coulda been a contender." With some sound economic background, Krugman could have been an Austrian. Unfortunately, he has decided to swallow the same snake oil that he claims that the banksters were selling, and it turned him into a Keynesian. He may be famous, he may be a Nobel Prize winner, but he still is wrong.

Krugman Redefines the Meaning of Treason

Paul Krugman, never one to hold back on comments, now has declared that anyone who doe s not believe as he does on global warming is guilty of “treason against the planet.” Lest a reader think I am exaggerating, here is what he wrote:

And as I watched the deniers make their arguments, I couldn’t help thinking that I was watching a form of treason — treason against the planet.

To fully appreciate the irresponsibility and immorality of climate-change denial, you need to know about the grim turn taken by the latest climate research.

But, there is so much more to his apocalyptic attacks on anyone who might think differently:

To fully appreciate the irresponsibility and immorality of climate-change denial, you need to know about the grim turn taken by the latest climate research. (Emphasis mine)

The fact is that the planet is changing faster than even pessimists expected: ice caps are shrinking, arid zones spreading, at a terrifying rate. And according to a number of recent studies, catastrophe — a rise in temperature so large as to be almost unthinkable — can no longer be considered a mere possibility. It is, instead, the most likely outcome if we continue along our present course.

Thus researchers at M.I.T., who were previously predicting a temperature rise of a little more than 4 degrees by the end of this century, are now predicting a rise of more than 9 degrees. Why? Global greenhouse gas emissions are rising faster than expected; some mitigating factors, like absorption of carbon dioxide by the oceans, are turning out to be weaker than hoped; and there’s growing evidence that climate change is self-reinforcing — that, for example, rising temperatures will cause some arctic tundra to defrost, releasing even more carbon dioxide into the atmosphere.

This truly is amazing. Krugman pretty much now holds the view that HE is the standard of good and proper thought. Remember, throughout history, the punishment for “treason” has been death. By the way, don’t think that people like Krugman are going to back off. Holocaust “denial” in parts of Europe is punishable by prison, and I guarantee you that people like Krugman and his zealot friends will want similar legislation in the USA for “global warming denial.” I wish I were exaggerating, but I see this coming.

One thing that does interest me is that Krugman pretends that other researchers (including researchers at MIT) who hold to different views simply don’t exist, or anyone who does express a dissenting view either is an industry stooge or insane. And all of us know what must be done about these "enemies of the people," or should I say, "Enemies of the planet."