Paul Krugman: Raving Socialist Moron of the Day

If a Socialist raves in the woods, but there’s no one around to hear it, should the forest creatures still seek to dismantle their private enterprise activities in order to develop a strong public sector? Or, put another way, Kevin sent me another Krugman diatribe. Here he is decrying the debt limit “crisis.”

Krugman’s rantings are rather formulaic. As he is Keynesian Socialist, you know exactly where he stands on all issues before he even opens his mouth. In fact, I’d say you can make you own Krugman rants by simply mixing and matching the following arguments:

  • The free market is an unstable system that will tear itself apart without strong government intervention
  • Depression is the logical result of an unregulated free market, and the private sector could never get out of a depression on it’s own.
  • Instead, the government must spend money counter cyclically to “stimulate” the economy
  • Private enterprise harkens back to our more primitive natures when it was a dog-eat-dog and we had to fight each other over scare resources. Bureaucratic action tends to be far superior because it is arrived as through consensus and often developed with the benefit of more enlightened minds like… well, him!

That last point is not really overtly stated as implied. But keep in mind, he’s got an Economic prize issued in Memorial of Alfred Nobel. As I’ve said in a prior post, Mr. Krugman has been the recipient of a funny kind of prize. Suffice it to say that Alfred Nobel never established a Nobel prize for Economics.

At any rate, let’s check Krugman’s latest rant and see how we did here. Hmm, well this one’s about how the terrible Republicans have sabotaged the Democratic process by demanding the government spend less money. With all the Republican bashing, I guess we can safely establish that Krugman is a Democrat. Oh wait, I already said that. See earlier where I said he was a Socialist. Continue reading Paul Krugman: Raving Socialist Moron of the Day

Obama’s Budget Attempts to Create “The Great Society”

The politicians and bankers of this nation have historically been quite content to enjoy the inflationary good times brought on by easy money; particularly if the deflationary crunch will happen on someone else’s watch. These days it doesn’t raise an eyebrow when the President announces a budgets that shows deficits as far as the eye can see, but that furnish a projection that the deficit can be cut dramatically cut in half a few years down the road… on someone else’s watch. Every President in modern history has done the same, and making excuses for our financial irresponsibility has just become part of the political process. 

By that measure, Obama’s budget is hardly a surprise. It has lots of government spending on pet issues while not making any hard choices about where to cut back in order to pay for it. Like other Presidents before him, Obama is promising that once the investments that his budget is making in this country come to fruition, that America will become a great nation once again. It comes as no surprise to anyone that Obama will be long gone by the projected time that these “investments” come to fruition and therefore he has no accountability in the outcome. Taking action that seems like a bad idea at the time, but claiming that history will show your wisdom in the long run is just part of being President. Bush did it so much you’d have thought that the historians of the future were his main political base.  So much of Obama’s budget just seems to be politics as usual. 

What does strike me as strange is the fervor and hype with which the Democrats are touting it.   Continue reading Obama’s Budget Attempts to Create “The Great Society”

Exploring the Myths of the Consumer Driven Economy: Part I

Roger recently posted in comments that deflation was bound to continue for “the next 2-3 year period.” His argument referenced a number of different sources and pulls in a lot of complex theories. I feel that it would be best to analyze these points one by one because these are the same points that get tossed around by people on a daily basis. I figure that doing so will take three different posts in a series where I explore economic myths. In so doing I’m going to provide a lot of definitions that are slightly different from the definitions that we here economics spouting. You will find that my explanations provide a great deal of clarity and reduce the situation to mere common sense. 

Let’s start with what wealth is. Wealth is a stock of assets. Assets are, for the most part, unconsumed economic goods. We traditionally think of wealth in terms of money and, back in the days of the gold standard, money was itself an unconsumed economic good. However today our modern money has been technically divorced from economic goods and services. It’s not a complete divorce because we can still use Federal Reserve Notes to pay for things. But the rate of exchange between money and good and services fluctuates from day to day. If we ever found that we could not exchange US Dollars for goods then we would cease to desire them at all and someone who had a lot of them would not be considered rich. This proves my point about wealth. If someone has a mass of things that either are unconsumed/functional economic goods (i.e. real estate, a car, a storehouse of fine wines)  or things that are immediately convertible into such (money) then we would consider him wealthy provided that he did not also have debts that exceeded his assets.

Which brings us to the next question, what is a debt? Continue reading Exploring the Myths of the Consumer Driven Economy: Part I

Paul Krugman’s Return of Depression Economics

A few months ago I commented on Dr. Paul Krugman’s receipt of a Nobel Memorial Prize for Economics. Well he just recently released an update of a ten year old book he has called, The Return of Depression Economics and the Crisis of 2008. Personally, I don’t see how Dr. Krugman is qualified to talk about the return of the current financial crisis given that he didn’t see it coming. However,  if real insight or predictive power were required for macroeconomists to write books, the field wouldn’t exist. 

I haven’t read the book, so I’m not going to judge the proverbial book by its cover, but judging by the reviews off of Amazon Dr. Krugman doesn’t spend much time in this book addressing our current financial crisis. It would seem that the theme of the book is that more regulation is needed to correct various situations that he feels are excessive and most of the situations he presents (such as Long Term Capital Management) are ten years old. Towards the end of the book, Krugman presents his analysis of the current financial crisis. I am not the least bit surprised to read that he feels that our current crisis was the result of insufficient demand. Continue reading Paul Krugman’s Return of Depression Economics

Paul Krugman Gets a Funny Kind of Prize

For those of you who don’t know, Paul Krugman, Economics Professor and NY Times columnist, has recently been named recipient of the 2008 The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. This blog may be one of the only places you see it expressed in this fashion because most media outlets just say he got the “Nobel Memorial Prize in Economic Science” or, even more simply, the “Nobel Prize in Economics.” There’s only one problem with this, and that is that there simply is no Nobel Prize in Economics. 

Alfred Nobel was the chemist who invented dynamite and made a fortune manufacturing explosives. One day he was reading the paper and came across his own obituary. It was sobering for him to read that the major work of his life was viewed as a “merchant of death” and this motivated him to want to improve his name and legacy. So his will set up for annual prizes to be awarded for significant achievements in five fields: Medicine, Chemistry, Physics, Literature, and Peace. The first group of prizes were given in 1901. Economics was not among them. 

Then the central Bank of Sweden in 1968 decided to donate money and give away it’s own prize “in memory of Alfred Nobel.” It is not a nobel prize, and that’s according to the Nobel Foundation itself. But people call it that, and that’s because the Bank of Sweden wanted to cash in on the prestige of the Nobel name. It’s a bit like me giving out a prize for best blogger “in memory of Alfred Nobel”. It’d be interesting to see if we could get the press to pick up on it and start saying “this years Nobel prize for blogging was awarded to…”. You have to give it to Economists, they understand the importance of controlling people’s perceptions more than anyone else. It is rather fitting then that their prize is only prestigious because they did such an excellent job confusing people into thinking of it as a Nobel Prize, given that one of the main contributions of the “science” has been confusing people into thinking that fiat money has intrinsic value or that inflation adjusted “real earnings” per hour worked are only down 2.5% from a year ago. As I discuss in my book, the whole “science” boils down to little more than conjecture expressed in mathematics too sophisticated for the majority of people to understand.

So what is it that Dr. Krugman won the prize for? He came up with a theory that industrialized nations tend to trade a lot of the same goods back and forth. No, I’m not joking. You can read the NY Times story for yourself if you don’t believe me. Krugman came up with a theory that corporations develop in different countries that specialize in slightly different versions of the same goods and that different consumers in different countries will develop a preference for some of those particular variations. Therefore, international trade will show a lot of nations shipping similar stuff back and forth; the article gives the examples of Fords and Volkswagens being shipped across the Atlantic.

Wow. Well I suppose congratulations to Dr. Krugman are in order. The Nobel may be phony, but the prize money is real. And his theory has clear application… but I’m not quite sure how or to what. The theory that he was correcting was David Ricardo’s defense of free trade which supposed that nation’s would specialize in goods where they had a competitive advantage. That we did not necessarily see this represented in the flow of goods (e.g. Japan doesn’t make all the world’s cars) was to me not as important as whether rich nations, where capital has been invested in plants and technologies, should trade with poor nations which have only cheap labor to offer. Ricardo demonstrated through math than any 8th grader could do that allowing free trade between these nations would be beneficial to both countries because the high labor cost goods would start to be made where the labor was cheaper and vice versa (which we do still observe today). That Mr. Krugman has instead theorized that industrialized nations trade a lot of the same goods back and forth does not even seem relevant to me. So I suppose it’s good for him I wasn’t on the selection committee. 

So we have a committee set up for a central bank that set up this “prize” more or less as a public relations exercise. Presumably they figured that if “Nobel Prizes” were awarded then people would think it was a real science, and they probably aren’t wrong. I remember when A Beautiful Mind came out, I don’t remember encountering anyone who did not feel that John Nash had not been awarded a genuine Nobel Prize. You would expect that the winners of this “prize” tend towards being people who favor theories which feature strong central banks, for instance, and that is exactly what we have with Krugman. To quote Dan Klein’s review of all the columns that Krugman has written, “Krugman has almost never come out against extant government interventions, even ones that expert economists seem to agree are bad, and especially so for the poor.” 

Let’s call this ridiculous prize what it is, a sham. Alfred Nobel did not establish this prize, the central Bank of Sweden did. And it has given awards to Economists such as Merton and Scholes for their theory on options pricing that is widely viewed as producing option prices that don’t work. As if to prove their critics point for them, Mr. Scholes has gone on to lose a spectacular amount of money with it with the meltdown of Long Term Capital Management, which you can read all about in Roger Lowenstein’s book When Genius Failed

Economics is a graveyard of failed theories that are still paraded about as validated truths. Keynesian Economics has been dogmatically followed by both the United States and Japan in efforts to get out of depressions, and it has failed spectacularly. Yet we still see Keynesian theory and the government intervention it (and Dr. Krugman) recommend as the savior that we now need to embrace in the face of our new credit crisis. When we will ever wise up?