Come Now, Mr. Krugman. Zombies?

20. December 2010

William Anderson of the Mises Institute brought this to my attention via my RSS feed. Paul Krugman, the persistent pest that he is, writes in his column today of the failure of free-market economics to accurately predict the future. I can find no real event that gives cause to this little rant of Krugman’s, but really, when isn’t a good time to compose a half-cocked column for publication in a nationally-read newspaper to confuse the masses?

Of course, when one ignores pertinent information and incorrectly defines the problem, it seems as if Austrians (and quasi-Austrians in the Reagan tradition of thought) were just plain stupid. Let’s start at the beginning.

How, after runaway banks brought the economy to its knees, did we end up with Ron Paul, who says “I don’t think we need regulators,” about to take over a key House panel overseeing the Fed?

Well, let’s first take this in context. Rep. Paul, who currently finds himself at the forefront of the popular libertarian movement, is in favor of abolishing the Fed. As the newly appointed Chairman of the House Subcommittee on Domestic Monetary Policy, he’s going to try to shed some light on what exactly is happening in that veritable lockbox of secrets commonly known as “the Fed.” Now, some of my other younger libertarian friends are Ron Paul enthusiasts; I find and acknowledge many points of his philosophy that seem to contradict other parts, and as such, I cannot fully defend him. But I do think that an increase in the flow of information is a good thing, and would support Rep. Paul in his quest to bring a change about in this vein at the Fed. But this quote from Paul is taken out of context; at the very least, he wants more regulation of the Fed. He wants to restrict the ability of the Fed to act. And then there’s the debate about whether a decrease in regulation is a bad thing, but that’s just an idealogical point that will not be resolved.

For the fact is that the Obama stimulus — which itself was almost 40 percent tax cuts — was far too cautious to turn the economy around. And that’s not 20-20 hindsight: many economists, myself included, warned from the beginning that the plan was grossly inadequate. Put it this way: A policy under which government employment actually fell, under which government spending on goods and services grew more slowly than during the Bush years, hardly constitutes a test of Keynesian economics.

You know, I have to give Krugman something. He did say that the plan was grossly inadequate. I wouldn’t bandy it about that I was calling for more of a plan that wasn’t going to work, but Krugman seems to like to do things like that, and to each his own. However, he’s wrong about government employment falling; you can see here that he’s wrong. It’s grown since 2008, and that’s not even counting the temporary census workers. Krugman contends that “government spending on goods and services” has grown “more slowly than during the Bush years.” That is one of the vaguest contentions I have ever heard. Of course, there are no facts, no data by which I might look deeper into this claim. I’m not even sure exactly what he means by this, actually. Government spending on goods and services? Does this mean subsidization of the private sector? Bailouts? Overall spending? I don’t know, but this is a poorly-written, vaguely-phrased sentence of which I think no one can really make a definitive heads or tails.

For two years we’ve been warned that inflation, even hyperinflation, was just around the corner; instead, disinflation has continued, with core inflation — which excludes volatile food and energy prices — now at a half-century low.

As I stated earlier this year, the banks aren’t lending. All of the money they were given by the Fed is sitting in the Fed’s vaults as excess reserves, accruing interest, not being lent. There are a few reason for this, namely that interest paid by the Fed on excess reserves is effectively greater than the overnight rate, or the Fed Funds Rate. Ben Bernanke (who looks like my dog) has acknowledged this. If the banks had been lending, however, there would be a inestimably high rate of inflation. This is simple economics; when there is an excess supply of funds, the value of said funds is diminished, and when there is a huge excess supply of funds, the value of said funds are hugely diminished. Which leads to inflation. It’s only by the simple fact that the banks are reluctant to lend that we aren’t suffering from crippling inflation.

The free-market fundamentalists have been as wrong about events abroad as they have about events in America — and suffered equally few consequences. “Ireland,” declaredGeorge Osborne in 2006, “stands as a shining example of the art of the possible in long-term economic policymaking.” Whoops. But Mr. Osborne is now Britain’s top economic official.

Well now. This seems to make “free-market fundamentalists” seem rather silly, doesn’t it. However, the Irish made the same mistake our American banks did. They lent money to those who shouldn’t have been lent to. The banks took actions inconsistent with the principle of self-interest and therefore with Austrian economics, or “free market fundamentalism,” as Mr. Krugman stated it. But other things about Irish policy, like their low tax rates, are good and in keeping with Austrian principles. The actions of the banks in lending to those to whom money should not have been lent could actually be construed as Keynesian; any spending is good spending, neh?

And then there’s the grand finale: zombies.

But such failures don’t seem to matter. To borrow the title of a recent book by the Australian economist John Quiggin on doctrines that the crisis should have killed but didn’t, we’re still — perhaps more than ever — ruled by “zombie economics.” Why?

Zombie economics are so called because they keep rising from the dead. Presumably, Krugman means free-market/Austrian policies as zombie-like. I must warn you, at this time, all pretense of being an economic column is dropped and Krugman begins the outright fawning over President Obama.

People tend to forget that Ronald Reagan often gave ground on policy substance — most notably, he ended up enacting multiple tax increases. But he never wavered on ideas, never backed down from the position that his ideology was right and his opponents were wrong.

President Obama, by contrast, has consistently tried to reach across the aisle by lending cover to right-wing myths. He has praised Reagan for restoring American dynamism (when was the last time you heard a Republican praising F.D.R.?), adopted G.O.P. rhetoric about the need for the government to tighten its belt even in the face of recession, offered symbolic freezes on spending and federal wages.

None of this stopped the right from denouncing him as a socialist. But it helped empower bad ideas, in ways that can do quite immediate harm. Right now Mr. Obama is hailing the tax-cut deal as a boost to the economy — but Republicans are already talking about spending cuts that would offset any positive effects from the deal. And how effectively can he oppose these demands, when he himself has embraced the rhetoric of belt-tightening?

Translation: Obama’s a great guy who’s trying to work with these terrible Republicans who adhere to these stupid zombified economic policies, except that they don’t because they support things that aren’t justifiable with a free market outlook. And Obama, this great man, really isn’t all that great because he’s acting more like a free marketeer than the damnable Republicans, but he’s still our great Keynesian savior except that he needs to do more.

Now, I know that Krugman being wrong about things isn’t really groundbreaking, but this was one of his more obscenely wrong posts in a while.

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In Which I Take On a Protectionist.

10. November 2010

This video is an excellent starting point for the topic today. I wouldn’t ordinarily use South Park as a basis for a post, but I think this is fitting.:

You see, whenever I hear people complaining about outsourced jobs, this is all I can think about because it’s usually the only argument the protectionist can come up with. In my experience, I find the most adamant protectionists amongst union members and conservatives whose area of interest is primarily in social conservatism. After my long neglect of twitter, I started logging on and found one user in particular who seemed to fall into that latter category. Naturally, I couldn’t help myself and responded to one of her tweets touting protectionism. After a few rather content-less tweets, she finally produced this:

@alyxwi If you read my profile, it says I am anti-freetrade AGREEMENTS. I am not and never have been against free trade. But the ability to trade freely with anyone in the world and freetrade AGREEMENTS where neither side pays tariffs is not fair and the reason is because the only way it could be is if our economy was equal to the other country’s. We’ve been singing this song for decades. America invents a new technology and decides because of a freetrade agreement to have it manufactured in China. However, China copies the technology in short order and starts selling the product for half the price the inventor does. Of course, they can, because they have no R&D costs to recoup and their manufacturing costs are much lower because they are not paying their workers even half of what American workers make. So time goes on and the original company is driven out of business because of lagging sales…afterall, the same product can be bought for half the price of their model. Their employees all lose their jobs. Once that company goes out of business, the copying company raises its price based on other competitors’ prices.
Just look at the negative trade balances we have with China, Japan, Mexico and Canada. Compare them with the figures even 20 yrs ago. In fact, before NAFTA, we actually had a positive trade balance with Mexico…now the figures are a float in red ink. And to make it worse, the government wants to sign more free trade agreements with South America. We just built a plant in Brazil for GM with stimulus money they were given. We have to realize that the politicians on either side will not stop. They are being paid too well to go along with these programs. The only way we can stop the decline of jobs in this country is to Buy American and be stubborn about it. I’ll guarantee there will be plenty of items you will still need to buy from other countries because there are entire product lines that aren’t even made here anymore!
If you look at the history of America, you will find that its strength & prosperity came after WWII with the industrialization during and following the war.
Economic experts will tell you something different and that’s part of the problem. America was alot better off before experts. I view experts like I do educators…Those who can, do and those who can’t teach (or claim to be experts).

to which I responded with (approximately*) this:

@ConservativeGal Pseudoeconomics can be so alluring, can’t it? Your remarks betray you as a protectionist making a poor attempt at masking herself as a patriot (though coming off more as a nationalist than anything else). One cannot be pro-free trade sometimes, or pro-free trade only when it benefits one’s city/state/country. It is simply inconsistent and does not serve the country well as the basis for fiscal or monetary policy.

Protectionism is what the Fed is (only somewhat inadvertently) doing right now by devaluing the dollar and by extension attempting to boost exports in a way that only a weak dollar can. Too bad that’s going to manifest as skyrocketing inflation in a year or so when the credit markets loosen up. Inflation will kill as many, if not more, jobs as this recession has. And it’ll hit everyone and spur more government spending. That sure doesn’t sound like it’s a good thing.

Protectionism is not realizing that a growing global economy is the result of the growth of emerging market countries and that it helps Americans too. When the Chinese are making our cars more cheaply than American laborers ever could (as a result of the inefficiency of minimum wage laws and union monopolies on blue collar labor) it allows the American car companies to grow their domestic businesses too. It can expand into new markets, it can create new domestic, higher-paying jobs and invest in new capital, thereby creating profits and jobs in other markets and companies.

In addition, we can get cheaper goods and after the initial wave of frictional unemployment, the laid-off workers will acquire other skills and find new jobs, likely doing something taking more skill. See, when we don’t have to waste time and capital on easily produced goods, we can spend our time creating higher-value or higher-quality goods which can be sold at a higher profit margin than the lower-quality goods the foreigners are now producing. And those foreign workers are getting paid much more than they ever have been in their lives before now, so their buying power is much increased, growing their economy and the global economy on the whole. This emerging market provides investment opportunities for American venture capitalists and investment firms, which provides more profit opportunities for Americans.

The alternative is Americans making the same goods they’ve always made. The alternative is more expensive goods everywhere. The alternative is economic stagnation and chilled international commerce. The alternative is weaker international relations, achieved through the absence of international trade. That’s what protectionism, your brand of “free trade”, has to offer. That sure doesn’t sound like it’s a good thing.

You don’t like experts? I’m no expert. I’m a college sophomore. But the principles of economics I’ve put forth here are so noncontroversial, so absolutely basic that they are taught in every macroeconomics class and required for any Liberal Arts student at my school. But aside from that, your absolute rejection of knowledge offered by these thoroughly abhorrent and evil (your idea, not mine) experts casts a veil of ignorance over your argument from the start. Paul Krugman may be a moron in the “intellectual” tradition of Keynes, but Friedman, Hayek, Mises and their intellectual heirs are correct about economics and many of them have doctorates. They’re all well-educated and regarded as experts. Before condemning them all on some hatred for the abstract idea of expertise, think about it. Your doctor is an expert in the human body. Do you wish he were less of an expert? How about the professors at your child’s college, whom you pay to thoroughly and correctly educate him? How about the engineer designing the bridge over which you have to drive every day, or the architect who drew up the plans for the house in which you to live every day? Want them to be less expert?

*I was typing this on my phone around 1 a.m. which resulted in a few incorrectly autocorrected words that I did not see last night. That’s all I changed.

If you disagree with me about anything, I’d love for you to contribute to the discussion.

On the Futility of Term Limits.

7. November 2010

There’s a big divide within the conservative/Republican/tea party world about term limits. I’ve seen signs at tea party rallies calling for term limits on Congressmen and I’ve talked to others about why term limits are the wrong choice in trying to control Congress. After hearing what people have to say about term limits, I’ve reached the conclusion that they are wholly unnecessary.

Those who support instituting term limits generally hold Congressmen like Barney Frank and the late Sen. Kennedy as examples of the perpetual incumbency allowed by our current system. They say that the presidency has been term limited, and that it should rightly follow that the Congress ought to also be limited in that fashion. These are good points and show failings inherent in our political system.

What those people forget is that the burden of ensuring good governance lies not on the heads of the governors but on those of the governed. We cannot rely on the mechanisms of government to save us from scheming politicians, or even ones who have simply outstayed their usefulness in Washington. To do so would go against the spirit of the Constitution, imbued in it by the Founders during its construction. A successful democracy depends on active participants both elected and electing.

We have faith in elections and respect their results because we know that they reflect the wishes of those who made the effort to voice their opinion. If the same people keep winning their seat we must only assume that it is because their constituents are satisfied with their performance. The only effective means to voice dissatisfaction is to vote the politician in question out of office. Term limits barricade the people from voicing their true opinions. What happens if, like in Rep. Ron Paul’s district, the people actually like their elected official? He has been reelected a number of times, but would have been forbidden to do so had he been subjected to term limits. In short, it is up to the people to elect a new representative if they believe the current one is not doing his job well enough. If no one is running against him, they must find and elect someone who will.

As a response to the argument about the presidential term limits, I can only implore people to remember that his term limit was imposed not by the Founders but as an amendment in the twentieth century. It was not in the original design of the Constitution and while it may suit the office of the President, it is not as easily applicable to Congress. A President is not directly elected by the people and it could therefore be argued that a term limit should be imposed to serve as a barrier to abuse of power. Congressmen of both houses are elected directly now, and it is in this way that we can ensure that the representatives will be voted out of office when the time comes.

Links for Wednesday 6.10.10

6. October 2010

We’re halfway to Friday, y’all.

  • I’d like to bring special attention to this first story. A fellow WordPress blogger with whom I have previously corresponded has published a story about how his photographs were used in a publication without proper attribution and compensation. Well, it was brought to his attention and now the whole thing has exploded in the publisher’s face. This brings me to my point. Copyright laws are far from effective. Instead of allowing organizations like the RIAA and the MPAA to get legislation like the DMCA passed where organizations get a cut of the fines, we should simply be making sure that stolen goods get paid for. The possibility of fines isn’t deterring would-be digital thieves, and it’s a form of wealth redistribution, and it’s wrong.
  • Is there an Obama/Clinton ticket looming in the future? That’s probably better than another Obama/Biden ticket. Clinton could actually have a moderating effect on Obama…
  • Mises Institute’s Jim Fedako draws a parallel between starving and government coercion.
  • My beloved Reason Magazine’s Nick Gillespie re-covers the Fulton fire, with bonus takes from Olbermann And Krugman!

Links for Tuesday 5.10.10

5. October 2010

I hope your Tuesday is going well. Now on to the links!

Bonus story!: Meatless Mondays is coming to Ole Miss! (Written by yours truly. Of course, they didn’t get my name right online, but it was correct in the paper.)