Bob Herbert's Phony Jobs

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.

James K. Galbraith: Like Economically Illiterate Father, Like Son

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.

Herbert's Folly

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.

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.

Entitlements and Employment: Why Bob Herbert is Clueless

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.

And:

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.

Government as "Referee"?

I guess I have seen all of it now. President Obama plans to bring the heavy hand of the Entity Formerly Known as the U.S. Department of "Justice" into the college football mix. Egged on by Sen. Orrin Hatch, Obama promises to see whether the Bowl Championship Series that determines the Division-I football national champions each year is, well, legal:

In the letter to Sen. Orrin Hatch, obtained by The Associated Press, Assistant Attorney General Ronald Weich wrote that the Justice Department is reviewing Hatch's request and other materials to determine whether to open an investigation into whether the BCS violates antitrust laws.

"Importantly, and in addition, the administration also is exploring other options that might be available to address concerns with the college football postseason," Weich wrote, including asking the Federal Trade Commission to review the legality of the BCS under consumer protection laws.

Several lawmakers and many critics want the BCS to switch to a playoff system, rather than the ratings system it uses to determine the teams that play in the championship game.

"The administration shares your belief that the current lack of a college football national championship playoff with respect to the highest division of college football ... raises important questions affecting millions of fans, colleges and universities, players and other interested parties," Weich wrote.

Hatch is miffed because the University of Utah in 2008 went unbeaten but was unable to play for the national championship because Florida and Oklahoma were chosen by the BCS point system to be in that one. Now, I have serious doubts that Utah could have beaten Florida that year in any venue, but nonetheless I myself would prefer a playoff.

However, using federal law as a hammer to pound in this nail not only is overkill, but it demonstrates the very arrogance of Washington and the Obama administration, which apparently believes that all of the world is the domain of the president. Now, I am not going to fall into the argument that there are more "pressing matters" for the government to consider, given the state of the economy.

In fact, I might be willing to say that if the president were to "concentrate" on trivial matters like who plays whom for the college football championship, perhaps the economy might recover more quickly. Who knows?

My larger point is that there seems to be nothing that Washington does not claim to own. Yes, economists are fond of saying that government is supposed to be a "referee" in the economy, but this is ridiculous. Enough!

Obama to "Focus on the Economy." Please, No!

After managing to alienate some of his most loyal voters in Massachusetts this last week, President Obama now promises to "focus on the economy." All I can say in response is, "Please, no. Focus on anything else. Please."

With the latest economic reports pointing out that unemployment continues to rise, it would seem that perhaps Obama might abandon his unwise "We're going to spend our way out of the recession" stance. The president promises to boost regulation of financial services, impose new environmental restrictions, raise taxes, and make it more difficult for entrepreneurs to operate.

This is not a prescription for a recovery, folks. It is a prescription for a depression.

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My wife and I will be traveling to Houston and to College Station, Texas, this weekend. More on this later.

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.

Prosperity through Road Construction: Shoveling Something other than Dirt

One of the constant themes of modern socialism (and Keynesianism) is the belief that we can create prosperity through government spending on roads. Mind you, roads can help an economy if they are located in places where they can aid commerce by making it possible for relatively cheap transportation that permits wider uses of division of labor.

However, that is not why people like Paul Krugman and other socialists champion tax-funded road building. Instead, they insist that the money spent in itself will revitalize the economy, and that is pure nonsense. Interestingly, this past year has seen a huge amount of government "public works" spending, but the effects have not been what the Krugmanites/Socialists have claimed.

A recent AP article notes that a number of economists have examined the results of this road building, and find them wanting:

Ten months into President Barack Obama's first economic stimulus plan, a surge in spending on roads and bridges has had no effect on local unemployment and only barely helped the beleaguered construction industry, an Associated Press analysis has found.

Spend a lot or spend nothing at all, it didn't matter, the AP analysis showed: Local unemployment rates rose and fell regardless of how much stimulus money Washington poured out for transportation, raising questions about Obama's argument that more road money would address an "urgent need to accelerate job growth."

This is not surprising, but no doubt the Krugmanites/Socialists will have an answer declaring that the real problem was that the government did not spend enough. Spend more, they tell us, and then you will see the positive results.

Why has this spending not had the desired effect? To answer that, one has to understand that an economy is not an amorphous blob into which one pours money in order to make the recipe complete. An economy has a very complex set of relationships in which all factors are valued relative to one another, and in the end the value of those factors of production is determined by the value that consumers place upon the final product that those factors create.

In other words, coal is valuable because it helps to make electricity, which we value. Electricity does not receive its value from coal; coal receives its value from electricity.

Furthermore, an economy that is functioning correctly is one in which the factors either are in balance or are not prevented from finding their proper relationships with one another. By piling on spending and forcing factors to be expended on pet government projects, the Obama administration (like the Bush administration before it) actually is diverting factors from the use that consumers prefer to uses that the political classes and their allies prefer.

This move actually makes economic activity more distorted and prevents the recovery from occurring. In fact, I can say confidently that this forced "massive public works" emphasis is making us poorer because it actually is a massive wealth transfer from the productive to the non-productive economic sectors.

To use a term from Peter Schiff, the government is destroying wealth, and that makes us poorer. Furthermore, as government continues to pound square pegs into round holes, the net effect will be to destroy more wealth and throw many more people into unemployment and poverty.

This is something the Austrian Economists understand instinctively. Keynesians and Krugmanites are clueless, and while they revel in their cluelessness and their ignorance is celebrated in the media as Great Wisdom, nonetheless, they are ignorant people, but (unfortunately) ignorant people who are influencing the government to destroy what is left of our economy.

Indeed, the "shovel-ready" projects are shoveling something, alright, but it is not dirt. I don't think I need to emphasize that the nonsense they are shoveling at us comes from the back end of a bull.