Monday, June 29, 2009
Step 2: Watch new problems arise as a result
Step 3: Pretend you didn't cause the first problem and offer "new" solution - Blame freedom
Learning stuff is fun... Like today, I've just discovered what promises to be an intelligent and interesting documentary called "Fat Head", which takes on some of the premises in Morgan Spurlock's more widely-known documentary, "Supersize Me"
I haven't seen the whole film, so I can't really talk about it in relation to its predecessor, but the one thing about Supersize Me that always bothered me was how condescending it's conclusions were. People aren't fat because McDonald's has good advertisers or because they're forced to cram hamburgers down their throats. Nutrition Labeling hasn't worked in 30 years, so why anyone thinks even more of it will make a difference now is really just kind of silly... And for that matter, what you or I put into our bodies is none of the government's damn business anyway!
That said, the reason I wanted to post this today is because it provides yet another phenomenal example of how using government force to pressure people into changing their behaviors & purchasing decisions ALWAYS results in unintended consequences... At this point, it's another droplet falling in the ocean of evidence on why no politician (and consequently no lobbyist) should have the power to make laws affecting our very basic choices.
Thus, we have the "Center for Science in the Public Interest" advocating the USE of trans-fats instead of saturated (animal) fats at restaurants and in the home for decades, they lobby government to re-write public policy to push that prescription... And... *shock!* it works. So restaurants & home-cooks all across the US adopt their recommendations, subsidies are given to soy and vegetable oil producers to get the supply up and make it cheap, advertising campaigns ensue... Big win for the CSPI right? Except, oops! Trans-fats are actually pretty bad for you!
But now, of course, the CSPI is the main lobbying group advocating bans on trans-fats because they are so horrible for you... And ultimately, they have succeeded in making the fast-food industry into the villains again, all the while ignoring their own involvement in the intial move towards trans-fat usage.
For added hilarity, watch the video then look at the CSPI site on trans-fatty acids: http://www.cspinet.org/transfat/index.html
"The amount of trans fat being put in our food has declined by 50 percent since about 2005! The end is in sight, with both food manufacturers and chain restaurants switching from the most harmful fat of all—the partially hydrogenated oil that is the source of artificial trans fat—to healthier oils. The "end" will be the virtual elimination of trans fat from our food supply, saving roughly 50,000 lives per year!"
I can't recommend Tom Naughton's movie "Fat Head" 100% yet since I've not seen any more than 15-20 minutes of excerpts, but from those - it looks really good and I think it's definitely worth looking into.
Friday, June 26, 2009
"The laws of capitalism, which are blind and are invisible to ordinary people, act upon the individual without he or she being aware of it. One sees only the vastness of a seemingly infinite horizon ahead. That is how it is painted by capitalist propagandists who purport to draw a lesson from the example of Rockefeller — whether or not it is true — about the possibilities of individual success. The amount of poverty and suffering required for a Rockefeller to emerge, and the amount of depravity entailed in the accumulation of a fortune of such magnitude, are left out of the picture, and it is not always possible for the popular forces to expose this clearly ... It is a contest among wolves. One can win only at the cost of the failure of others."— Che Guevara 
Yes Che, that would be true, if only the world's productive output was completely static and the pie didn't grow any larger as people actually produced more stuff.
The beauty of capitalism is that for a Rockefeller to emerge, NO poverty or suffering at all is required for anyone else... Far from robbing "the poor", Rockefeller necessarily made his fortune by adding to the wealth of the world! This should be self-explanatory, but John D. Rockefeller got wealthy by discovering new uses for oil, extraction methods, creating an efficient supply chain and generally providing incredibly useful products to the world. Absolutist "environmentalists" aside, is there even anyone even remotely disputing that the ability to use oil as a power-source has added astronomical value to humanity? Even if you think it's time to stop using it now in 2009, without oil we'd have virtually none of the amazing tools we take for granted today. No computers, no plastics, no means of transportation and very little capital machinery - which would mean fewer available goods needed by people around the world to survive and live happy, comfortable lives.... you know... stuff like food, housing, clothing, sunscreen, medicines... Hats...
Without people like John D. Rockefeller, we have none of that. Without Rockefeller, the world is an immensely poorer place to be - thus he was duly compensated for the new value he added to billions of people around the globe...
So the world isn't poorer because he made billions of dollars... to the contrary, it's immensely wealthier!
(Minor side-note: Rockefeller also generously gave the approximate modern equivalent of $7,800,675,113 to philanthropic endeavors... That certainly seems better than the kind of philanthropy Guevara was known for!)
Now... I'm tilting at dead windmills here and I know I shouldn't give ruthless, psychopathic murderers like Che Guevara any intellectual credence at all, but that quote solidified some thoughts I've been having lately about the kinds of stupid totalitarian ideas people have which measurably set back the progress of humanity and make everyone poorer as a result.
Of all the economic fallacies which contribute to these sorts of things... I think the greatest and most terrible is the idea - as espoused by the Butcher  up there - is the idea that economic activity is zero-sum.
It's not. It's an additive sum. People do not engage in economic activity unless both parties expect to benefit provided there is no force or coercion... Free trade is thus always value-adding!
Never has a more self-evident concept been so widely ignored and more poorly understood... and looking back on history shows thug after thug, dictator after dictator and evil after evil in the wake of this simple intellectual mistake.
Guevara, Ernesto "Che". "Socialism and man in Cuba." Marxists Internet Archive. 26 June 2009
 Llosa, Alvaro Vargas. "The Killing Machine: Che Guevara, from Communist Firebrand to Capitalist Brand: Newsroom:." The Independent Institute. 26 June 2009
"Oh those old things? Once upon a time there was a country called 'America' and when the people set up their government back in the 18th Century, they thought they a few pieces of paper could limit the power anyone had over anyone else. They called it a 'Constitution' and a 'Bill of Rights'... Funny idea."
Thursday, June 25, 2009
What you're forgetting is that that for a job to be a net producer it actually has to add value and capital to society. Value is subjective, and is revealed through things like consumer preferences. Since there are millions of consumers and every one of them is different, economic "value" is an extremely complex thing, so the combined power of millions of people trading with each other is the only way to really see what proportion of the population values certain things and by how much.
When a particular product is valued greatly and the supply is low - then prices rise signaling to producers that now would be a great time to get in on the action and make more of that product. New businesses open up in that field and suddenly supply starts to increase (bringing prices down, but now meeting demand for that good). This means that when a company is making a profit, this is generally because it is offering something valuable to it's consumers... Thus it should be said that they are adding wealth/value to society.
However, if a product is not highly valued, consumers won't volunteer to pay as much for the good or fewer people will be willing to pay - which in turn sends a signal to producers that said product *is not* wanted and capital would be best used elsewhere... Subsequently, if a company producing the non-valued product is over producing, then they will be operating at an economic loss and will have to adjust their output down to compensate or go out of business... this may mean laying off workers.
Because the market is based on voluntary transactions, that information is conveyed relatively quickly through profits & losses... Government can, as we've seen, fuck with that system very easily. For example by mitigating the losses that would have told producers that X or Y jobs were inefficient or not valued, thus contributing to a decline or a slowdown in generating real wealth when companies are unable to see actual market signals... Which means: There will be less stuff produced that people need or want, and thus more scarcity of highly valued goods and higher costs of living+lower quality of life overall... This is a bad thing.
Further, by trying to provide services itself, Government inherently works less efficiently than private companies.
Here's some hypothetical math to demonstrate why:
Let's look at how $500,000 might be employed to produce a good by a private company operating within a free-price, profit & loss system and government (which intrinsically operates without respect to profits or losses and is the rule-maker and thus can arbitrarily control prices).
Ex A: Private Company
A company that's earned that money in profits (in a free market) has done so by providing a product or service that is valued by their customers. If it was not valued, then consumers would have bought something else, right? Because they've earned profits, the company has received the signal that demand for their product is high and thus an expansion might be in order. The market rate, including benefits is - for example - $50,000.
But these are new jobs so they'll have to hire 1 new manager, and an HR person as well, lets say they're both worth $75,000.
SO... Our company hires 1 HR person, who hires 1 manager, and 7 new workers.
Those workers then spend their salaries on everything you talked about above [going to pay salaries of barbers, car-dealers, grocers, etc. - since everyone buys stuff there's always secondary & tertiary effects in the overall economy of employing someone].
Overall, this has been an activity which adds value to society, since 1. Consumers provided proof that they wanted/needed what's being sold, 2. The company's business model is efficient enough that profits aren't eaten up by operating cost, and 3. More of the right (for that moment) stuff is now being produced, thus increasing everyone's ability to get said product. Now, I know you're probably thinking about "CheapChineseCrap" or "SUVs", but imagine that this company is producing Flu Vaccines instead. We now have +7 workers creating the vaccine.
Ex B: Government
First. They have no way of effectively knowing if what they want to produce is needed or wanted, because instead of a profit & loss mechanism or a free price system, their "profits" are collected involuntarily, and prices are set either by some market-mimicking standard as the USSR did it, or by arbitrary fiat like Hugo Chavez. Ignoring the fact that this requires an inordinate amount of force... which I know you don't really care too much about, the point is that there's no automatic way to know what's actually needed at any given time.
So instead of acquiring the information naturally through observation of prices and profits - we have to hire "experts" to tell us what's needed, and we need someone in charge of determining what prices are. Since everyone in government is funded by taxes instead of via voluntary payments then you also need a tax-collector. Let's say that the "expert" can be responsible both for what gets produced and at what price they'll sell it and he manages to discover that we need more flu vaccines and ties the sell price at market value. Everything being equal to the private company, let's get back to the math model:
Same $500,000 but this time taken by force via taxation.
Government has to first hire someone to collect the taxes... say $50,000 to that person. The expert commands $100,000 but that's very important, so we'll accept that too. Then they still have to hire a manager, at $75,000 and an HR person do to that hiring at $75,000 – and finally, as many workers to actually produce the vaccine as they can with the remainder.
So where does this leave us? With 1 Expert, 1 Taxman, 1 HR guy, 1 Manager, and... Well gosh, only 4 workers. I should also note that I'm being extremely generous, since government would probably opt to work at a loss to provide the vaccine at a nominally cheaper price, they would be paying far more than $50,000 to some unionized work force complete with life-time pension guarantees, and it wouldn't take 1 “expert”, but a whole team. But for my scaled down purposes... this will be fine.
So, you might think, “So what? Everyone has a job right?”
Sure... Everyone has a job - well, actually, 6 people instead of 7 have a job because the administrative side is a little more top-heavy and you can't afford to hire as many people with the same budget, but whatever... People are employed. But you know what the world doesn't have??
Enough Flu Vaccine.
Thank you for playing.
The person's response was to criticize my hypothetical numbers in the above example and completely and utterly ignore the principles involved. But because his response might very well be something that other people think when they read this... I shall quote it (unaltered) below:
"Sean, after trying to read your multi-page rant, I just about burst out laughing when I realized that you don't even grasp that the government buys more flu vaccine than anyone. In any case, people will not give up flu vaccines. They will give up the countertops. Your analogy is wrong.
And btw, a company that has one HR worker for every seven employees is DoA. Your numbers are completely made up, and actually in denial of the facts. Overhead for government agencies compares very favorably to the private sector."
Yes, in the real world - Government BUYS most of the flu vaccine produced... but first off, the above parable has nothing what-so-ever to do with which consumers are purchasing the good! It's set in an actually free-market where government isn't the buyer... This is why it's a *hypothetical example*.
It also has nothing to do with the specific good in question... I used "flu vaccinations" because he's someone who complains about people buying SUVs and stuff from China all the time as being terrible, but the reality is, if the government wanted to produce ballpoint pens, the argument and analogy remains identical.
That said... the fact that we have government as the main consumer of flu vaccines and regularly have shortages requires me to diverge from the point of the original lesson and talk about something else important as well [see below].
Thirdly... Again missing the point, he nit-picks my specific nominal cost of things like HR people.
Ok... He got me! One HR person isn't necessary for 4-7 employees. In reality, lets say you have 1 HR person per 20 employees, then what you need is 1/5th of an HR person's time to hire 4 new people or about 1/3rd of an HR person's to hire 7 - whatever. The reality though is that you're paying the HR guy either way a full salary and not per hire anyway, so assuming an equal salary in the private vs. public examples subtracts $75,000 in both cases. My POINT was that the cost there is the same and something you'd have to factor into the usage of the "available" $500,000 established by the (hypothetical, simplified) example.
The difference, which he failed to recognize, is that in a free market system a private company obtains information from price-signals and based on their profits or losses - whereas a government, with no concern for "losses" and greatly distorting price-signals has to hire some variety of experts to tell them what to produce, in what quantity and within what time frame...
Of course, in short, the mere requirement of government to collect taxes to fund their work rather than acquiring money from customers who voluntarily come to your shop and give it to you means that public systems inherently have several more layers of bureaucracy tacked on to everything they do. This means hiring far more administrators than workers than you would ever find in a private equivalent. Unfortunately - since many of the administrative costs are hidden with wild accounting schemes (i.e. Medicaid owing money to itself and such) and separate budgets for different agencies (the hypothetical "Vaccine Production Administration", the IRS, Congress, FDA, etc. etc. etc.) means most people will never be able to properly see the total costs, or the total number of administrators who were "necessary" to produce the vaccinations.
Sadly, my Economics Lesson fell on entirely blind eyes earlier today - but hopefully someone will get some use out of it all the same. In either case - I wrote it all out and it's now here for the world to view for all time. :)
* * * * *
"CASE STUDY": Government involvement as main buyer of flu vaccinesI said earlier that when there are shortages of a good that the free-market result is higher prices which compel other companies to join the market and start producing more of that good until an equilibrium has been met - i.e. until demand is satiated.
Obviously, I've simplified the price-signal relationship to some extent, since some goods are just legitimately scarce. Precious metals are hard to get to and the price jumping 300% in a year will definitely push more companies into the Platinum business, but they have to dig it out of the ground, so there's only so much output they'll be able to create no matter how much demand there is for the stuff. That said, vaccines don't fall into that category and we have shortages in flu vaccine every year, so what gives?
WELL. Your first thought might be that no price-signal is being sent to producers that flu vaccine is highly needed, i.e. prices are too low for the good and producers aren't getting the message that demand is much higher than supply.
This might lead you to believe that government is simply underpaying and therefore potential flu vaccine producers never get the idea to enter the market and make more of what's needed. The solution then, would be for government to increase the price they're willing to pay for the vaccine. And that would probably be true if this were an unfettered market... It would also just happen naturally as limited supply would command higher prices for a highly valued good.
HOWEVER... This isn't an unfettered market! It's a highly controlled, regulated and skewed market where the participants are playing by different rules than you or I. The government is not actually a market participant in the same sense as anyone else. Normal people have to earn the money they get, bear the losses of bad decisions and have to work within the system by engaging in voluntary transactions with everyone else. Government on the other hand is bound by no such concerns... It gets it's money by force, and as a result bears *none* of it's losses and has incentive to engage in economically profitable actions only so far as the public holds politicians accountable for fiscal irresponsibility (which is apparently not at all). In reality, politicians are of course motivated by political success, which typically means not adding to the economy as discussed above and producing more wealth but merely transferring wealth from some people to more politically connected people.
So there are two main factors contributing to flu vaccine shortages that have nothing what-so-ever to do with low prices, but everything to do with the way the Government skews the market. First, government erects barriers which either disallow alternate suppliers to join the market or cause the costs of doing business to rise excessively through various requirements, fees and other taxes that even when high priced goods are sending signals to other producers to make something of high value, no one new is able to produce the good. As an added bonus, most of these laws have historically been supported by the major companies already working in the industry affected since restrictions like that limit their potential competition and enables them to have monopolies or near-monopolies and keep prices/profit margins artificially high.
You'll notice that the manufacturers of the flu vaccine have steadily declined since the 1960s...
So in reality, allowing more companies easier access into the vaccine market and reducing the government-imposed costs to produce vaccines would go a long way to reducing costs (I personally vote for abolishing the FDA and moving to a private system like the way Underwriter's Laboratory tests all consumer electronics cheaply & successfully), but government will have none of that.
The other irony of this is that while vaccines are expensive to make and supply is naturally limited by the low production, government probably over pays for flu vaccine! I know that might seem a little counter intuitive, but these companies aren't run by idiots - they know that government's pockets are deeeeeeeeeeeeeeeep, and even the most scrupulous people are bound to realize the benefits of a "customer" with a bottomless bank account and the willingness to write blank checks. Government can get it's money by force, (or apparently now, just print more of it whenever they run out!) so they have no incentive to be frugal with it anyway, politicians really only have incentive to make sure their blank checks get spent in their home states. Regardless, the lesson here is that because government involvement distorts market forces so much, we get the beautiful joy of experiencing shortages of something we really need (flu vaccines) - while also paying too much per unit - with no effective way of either increasing supply *or* lowering cost.
[Minor follow-up: Upon some further inspection, it appears that indeed the intuitive thing is probably happening. Government programs under pay for medical supplies & services: According to the GAO, Medicare pays about 87 percent of market rates for most services, but about 34 percent for anesthesia services - Thus, in addition to the restrictions the Federal government places on suppliers and the excessively high cost of regulation, they do in fact also distort the price-signal relationship by under paying. Crap... That's even worse.]
 Miller, Henry I., and David R. Henderson. "The FDA's Risky Risk-Aversion." Stanford University: Hoover Institute - Policy Review 145 (2007). Hoover Institute - Policy Review - The FDA's Risky Risk-Aversion. 26 June 2009
 "Regulation Search: vaccines drugs." US Government Printing Office. National Archives & Records Administration. 26 June 2009
 Katiin (Ph.D), Kenneth I., Dr. Christopher-Paul Milne (DVM, MPH, JD), Joseph A. DiMasi (Ph.D), Ken Getz (MBA), Janice M. Reichert (Ph.D), and Dr. Richard I. Shader (MD). Outlook 2008. Rep. Boston, MA: Tufts Center for the Study of Drug Development, 2008. 26 June 2009
 "Health Care in United States 1960-2010 - Federal State Local." Federal State Local Government Spending in United States 2007 2008 2009 2010 2011 - Charts Tables. 26 June 2009
Wednesday, June 24, 2009
"People who are very aware that they have more knowledge than the average person are often very unaware that they do not have one-tenth of the knowledge of all of the average persons put together. In this situation, for the intelligentsia to impose their notions on ordinary people is essentially to impose ignorance on knowledge."- Thomas Sowell
“Only when the fountains of government abundance began to dry up, when through lack of funds and the impossibility of negotiating fresh loans the state was forced to check the extension of bureaucracy and to put a stop to public works, then and only then did the Italians realize what it meant to have allowed themselves to be made one of the most heavily taxed nations in the world.” have allowed themselves to be made one of the most heavily taxed nations in the world."- Guglielmo Ferrero, 1898
"Libertarianism is the radical notion that you don't own other people"
More to come!
In March, Fannie Mae (FNM.N)(FNM.P) said it would no longer guarantee mortgages on condos in buildings where fewer than 70 percent of the units have been sold, up from 51 percent, the paper said. Freddie Mac (FRE.P)(FRE.N) is due to implement similar policies next month, the paper said.Seriously Mr. Frank?
In a letter to the CEO's of both companies, Representatives Barney Frank, the chairman of the House Financial Services Committee, and Anthony Weiner warned that a 70 percent sales threshold "may be too onerous" and could lead condo buyers to shun new developments, according to the paper.
While I'm at it, here's comedy gold from NY Times, dated Sept. 11, 2003:
''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''Like I said... Comedy gold. Additionally... Barney Frank sounds like an idiot, which really adds to the hilarity. Plus, you know... his name is "Barney".
Thursday, June 18, 2009
In all honesty, I have committed far too much time to Paul Krugman over the past several months. I've read his blog posts somewhat regularly, and as such, I've been exposed to far more nonsense than any human should legitimately or willingly submit to. Yet here I am again, compelled to blow even more of my life on the diminutive yet disturbingly egotistical professor.
For those of you who aren't particularly aware of the Krugman, he is a blogger for the New York Times and is their resident "expert" on economics. He also won the Nobel memorial prize in Economics a few years back for his work in International Trade - which I haven't read but I hear is actually rather worthwhile, and pro-free trade/anti-protectionism... Which is weird given that his political proclivities run entirely the other direction. But of course, you can't fair very well with actual, legitimate peer-review in economics if you only write partisan hackery... Fortunately for Krugman however, that's the New York Times' specialty.
Broken Windows and Krugman's Faulty Reasoning
Dr. Paul Krugman is someone who wrote, just 3 days after the Twin Towers fell on 9/11, this:
"These aftershocks need not be major. Ghastly as it may seem to say this, the terror attack like the original day of infamy, which brought an end to the Great Depression ? could even do some economic good.
...So the direct economic impact of the attacks will probably not be that bad. And there will, potentially, be two favorable effects.
First, the driving force behind the economic slowdown has been a plunge in business investment. Now, all of a sudden, we need some new office buildings. As I've already indicated, the destruction isn't big compared with the economy, but rebuilding will generate at least some increase in business spending."
You just don't find a clearer depiction of the Broken Window Fallacy thoroughly destroyed by Frederic Bastiat nearly 200 years ago!! The above statement is not only a failure of logic that could and should be recognized by every thinking person on the planet, it's also Econ 101 stuff. It's not really that complicated either... Just ask yourself, is the wealth of society greater when you destroy a building, or is it lessened? Or even, make it more personal if you wish... If you have $1000 you wanted to spend on a trip to Disneyland, but your laptop breaks and you instead spend that $1000 on a new laptop, are you one laptop richer? NO... Of course not... You've got just as many laptops as you had before, but now you are out one vacation. Yet Krugman, winner of the Nobel prize in economics can't understand that basic logical fallacy?
Sadly, as absurd as it is that Krugman would say something so idiotic, classless (under the circumstances) and demonstrably wrong - it turns out that's some of the least of the economic nonsense Krugman has been pedaling over the years...
Krugman's Bubble Blowing
The real impetus for writing this little diatribe came out just a few days ago, thanks to some review by Ron Paul Blog blogger, Patrick Semmens, who noted in the comments of a Reason Magazine article that in 2002; Krugman wrote:
"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."
That's right friends, that actually is Paul Krugman advocating that the Federal Reserve produce a bubble in housing to push the economy back "up" in the face of the recession we were facing in 2000-2001 which was exacerbated by the terrorist attacks. Now, this has zipped about the Blogosphere quite a lot in the last 2-3 days, and Dr. Krugman even had to respond to it here today.
His response was piffle, merely trying to back-pedal by suggesting that he was merely offering "economic analysis" and not recommending perpetuating a bubble economy as a policy action. And of course, Krugman also insinuates that anyone who believes he was advocating for the Fed to pump up a housing bubble, then surely they must also think that he was the 2nd shooter in the Kennedy assassination as well... Really Krugman? Really... That's the best you can do? Ugh.
Disappointingly, this kind of ad hominem is exactly what many of us have come to expect from the good doctor. His record of making accurate predictions on the economy has been abysmal, and his record as a policy-advocate has done nothing but lead to disaster after disaster, and the crazy part is, he knows it! For example, in 2004, Krugman himself - on national TV, no less - said:
"Compare me … compare me, uh, with anyone else, and I think you’ll see that my forecasting record is not great."
You don't say Dr. Krugman? Your forecasting record is lousy, huh? Hmm... go figure. Yet here's a man who commands a fat salary from the NY Times for his economic advice & ideas, along with his Princeton professorship and his regular (rather pricey) speaking engagements... Not to mention his regular appearances on network & cable television spouting his "expertise". Paul Krugman's ridiculously illogical view of economics is why his predictions are so terrible, and that his predictions are so awful is why most Americans view economics as a mystery and economists as witch doctors no more capable of accurate forecasting than the local meteorologist trying to do the weather for next month.
Of course, the point is that Krugman knows damn well that his analysis are little more than partisan hackery designed to mislead & distort. And when he gets caught in his own idiocy, his only way out is to distract and insult. He certainly can't succeed in any open debate with the actual facts...
Now. All that said, his "rebuttal" to the exposed 2002 quote certainly could have been the truth............... that is... Perhaps Krugman really didn't mean that we should pump up a housing bubble, shouldn't we give him the benefit of the doubt at least? Man, I'd love to... But unfortunately that case would actually hold some water if Krugman hadn't clearly and consistently advocated for exactly that again & again from 2001 on!
The Plot Thickens
Reason magazine commenter, Ben Lee took the time to compile a rather telling list of additional Krugman gems, exposing today's "rebuttal" as the revisionist bullshit the Krugman has come to specialize in.
Read the whole thing over at the Ludwig von Mises Institute blog, but here are a few bits of classic Krugman advocating for the Federal Reserve to cut interest rates & pump up a bubble:
"August 14th, 2001
"Consumers, who already have low savings and high debt, probably can't contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery.... But there has been a peculiar disconnect between Fed policy and the financial variables that affect housing and trade. Housing demand depends on long-term rather than short-term interest rates -- and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1.... Sooner or later, of course, investors will realize that 2001 isn't 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place."
October 7, 2001
"Post-terror nerves aside, what mainly ails the U.S. economy is too much of a good thing. During the bubble years businesses overspent on capital equipment; the resulting overhang of excess capacity is a drag on investment, and hence a drag on the economy as a whole.
In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer. But it seems inevitable that there will also be a fiscal stimulus package"
Dec 28, 2001
"The good news about the U.S. economy is that it fell into recession, but it didn't fall off a cliff. Most of the credit probably goes to the dogged optimism of American consumers, but the Fed's dramatic interest rate cuts helped keep housing strong even as business investment plunged."
Sooooo.... Yeah. It sure looks like Krugman's 2002 piece was merely "analysis", not that he doesn't have a lengthy history of advocating for a perpetual bubble economy. And by the way, OF COURSE he advocates that!!! That is Keynesianism 101, and Krugman, if nothing else, is a dyed-in-the-wool disciple of John Maynard Keynes. Unabashedly so. And Keynes, of course, said:
“The remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the so-called boom to last. The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and keeping us permanently in a quasi-boom.”.
~ Keynes (1964), p. 322.
Well, anyway - I left a comment on his blog, as did Tim Cavanaugh of Reason Magazine and a number of other regular posters over there. As of this moment however, none of our comments have been "approved" by Krugman's moderators. My comment, for posterity's sake, is below:
C'mon Paul... This is ridiculous. As is your "moderated" comments board (by which I mean, filtered so that not a single comment appears from anyone who exposes your absurd lie with links & evidence from your many years of advocating exactly the policy that you appear to in your 2002 statement).
You've advocated for a perpetual bubble over & over, and the internet archives only help those of us who've been paying attention to keep you from forgetting.
Continue your attempts at wriggling your way out of your own bad predictions and worse ideas, but here's a barrage of quotes from your own mouth & pen, sir:
Perhaps you've forgotten all those. But do you have the guts to let your readers see... That remains to be seen I guess. (This comment will be posted elsewhere, as I won't be holding my breath for your board's "approval").
To all the commenters here like "Sabrina Star", rolling their eyes at the rest of us, your smugness suits you about as well as it does on Krugman himself... But self-congratulations, ad hominem attacks and snide remarks really can't help you out of this one. Your dear leader can't weasel out of his own advocacy quite so easily.
Finally Dr. Krugman - It's also worth noting that you've showed your hand to the Austrian school here, as you've obviously admitted that the Federal Reserve is capable of artificially creating a bubble. Since you recognize that it's possible, will you now go on record admitting that that's exactly what happened here?
No more "animal spirits", no more "deregulation" canards (we all know Bush was the biggest regulator since Nixon already - http://www.reason.com/news/show/130328.html & http://cei.org/news-release/2009/06/17/obama-overregulation-plan-wont-fix-financial-crisis). I want to see you admit that you realize the accuracy of the Austrian Business Cycle Theory, and that the bubble in housing was a direct result of what you said (and yes, advocated) in 2002.
Admit that you understand that this crisis was caused by exactly the kind of Keynesian policies you've been advocating for your entire career.
I think I've made it clear enough here that Krugman is neither to be trusted, nor listened to as any voice of sanity or intelligence in the economic sphere - and frankly, Krugman hasn't really done much legitimate work in the field of economics in a long time. It's quite a shame that he manages to get such an enormous public forum for how big a twit he really is... But there's one more interesting point to make - which I touched on in my comment to Krugman's blog...
That is: Krugman, in 2002 and earlier openly explains that a lowering of interest rates by the Federal Reserve, combined with printing money & dumping it into the financial system can inflate an economic bubble.
Why is this important??? Because it is exactly the basis for Austrian Business Cycle Theory, which Krugman has repeatedly denied has any merit!
Fundamentally, the story of this depression, and the great depression, and the tech bubble, and the stock market bubble, and the 70s Stagflation, the 80s housing & financial bubbles, the 1920 recession.... and, well, virtually every economic boom & bust the world has ever experienced, has clearly been a result of tampering with the money supply by central banks within a fractional reserve banking system. Krugman explicitly denies this explanation in article after article, yet..... here he is, in 2001, 2002 and beyond advocating EXACTLY that scenario!! What's depressing, of course, is that Krugman believes that inflating bubbles is a good thing.
Now, of course, Krugman blames the idiotic canard of "deregulation", which was non-existent during the Bush years (as I linked in my comment), liquidity traps and stupid consumers... All the while denying that it was exactly those policies which he recommended and championed, that created the bubble in housing & subsequently the stock-market to begin with.
The man is a fraud. Nothing more, nothing less. I think it's time for him to be exposed for the hack that he is.
***Note: I want to just give a special thanks to Ben Lee, Mark Thornton, "jsh", Mish, Patrick & all the other fine libertarians who've done all my research and muckracking for me. Crowd-sourcing is sweet. Viva la Internet!
Tuesday, June 16, 2009
What an idiot... And to think - the man has a nobel prize & a weekly NY Times column to this day that haven't been stripped away.-Paul Krugman, August 2002
“To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”
Sunday, June 14, 2009
A few of my predictions from the Ben Bernanke blog (below) have already come true...
Here's VP; Joe Biden spinning the "recovery" efforts as not going as well because things were worse than they'd estimated.
From this article:
"everyone guessed wrong" on the impact of the stimulus, economy was worse off than anyone thought.
Everyone, huh? Evvveryone.... Right... Everyone.
Wednesday, June 3, 2009
[Insert Audience Laughter Here]
Now, I'm quite sure he's absolutely correct that unemployment will continue to rise through the end of the year. But as 2009 slides into its "middle", with 300,000+ new unemployed in May and the US Government & Federal Reserve continuing down an increasingly idiotic path of economic destruction, I'm also quite sure that come the end of the year will bring more unemployment & further worsening economic conditions. As the dollar starts to get seriously devalued and Government takes over an ever expanding chunk of the GDP, and restricts more aspects of economic & social activity, things aren't exactly looking up... Yet we're sure to enjoy more Bernanke predictions of how it's all just about over and surely everything is going to be ok in another 6 months or so. He's got such a great track record on these things, don't you know?
So what of Bernanke's earlier predictions anyway? Well. Why don't we take a look at a few!
“Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve.-Washington Post, October 27, 2005
U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president’s Council of Economic Advisers, in testimony to Congress’s Joint Economic Committee. But these increases, he said, ‘largely reflect strong economic fundamentals,’ such as strong growth in jobs, incomes and the number of new households.”
“A leveling out or a modest softening of housing activity seems more likely than a sharp contraction…”-Testimony to a House Financial Services Committee, Thursday, February 16, 2006, (source: Washington Times, February 16, 2006)
“My baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of (Fed) and fiscal stimulus begin to be felt.”-Testimony to the U.S. Senate Committee on Banking, Housing, and Urban Affairs on February 14, 2008
Aren't those great? Of course... As wrong as he was about all that, since the "meltdown", he's made even more ridiculous statements which have been localized to a few months at a time. Check out a few from this year from the AP on May 5th, 2009:
"Here’s a look at Bernanke’s recent comments on the economy:
Jan. 13 - "Fiscal policy can stimulate economic activity, but a sustained recovery will also require a comprehensive plan to stabilize the financial system and restore normal flows of credit," Bernanke said at the London School of Economics.
Feb. 24 - Bernanke said he hoped the recession will end this year, but that there were significant risks to that forecast. Any economic turnaround will hinge on the success of the Fed and the Obama administration in getting credit and financial markets to operate more normally again. "
March 3 - Testifying to the Senate Budget Committee on the bailout of American International Group Inc. ( AIG - news - people ), Bernanke didn't repeat remarks he had made a week earlier that the recession could end this year if the government succeeded in turning around wobbly financial markets.
March 10 - The recession was more severe than the Fed had expected, Bernanke acknowledged after a speech to the Council on Foreign Relations. Still, he added there's a "good chance" the recession could end this year if the government managed to get financial markets to operate more normally again.
March 15 - "We'll see the recession coming to an end probably this year," if the government succeeds in bolstering the banking system, Bernanke said in an interview with CBS ( CBS - news - people ) TV program "60 Minutes."
April 3 - He said he expects a "gradual resumption of sustainable economic growth." However, he didn't say when in remarks to a Fed conference in Charlotte, N.C.
April 14 - "Recently we have seen tentative signs that the sharp decline in economic activity may be slowing," Bernanke said in a speech at Morehouse College in Atlanta. "To be sure, we will not have a sustainable recovery without a stabilization of our financial system and credit markets."
May 5 - "We continue to expect economic activity to bottom out, then to turn up later this year," Bernanke told lawmakers, sounding more confident about the prospects for a recovery later in 2009.."
So how have his predictions stacked up? Not well. Take a look at the following graphic regarding unemployment in the US.
The above chart is a great snapshot of where we are right now, and clearly shows Ben Bernanke's rosy eyed optimism to be pure fantasy over the years, but Bernanke didn't produce the graph itself - it was Obama's team of economists who did that. Note that they laid out two possible estimates for unemployment, one with the "economic stimulus package" and one without. Naturally, the one without was much higher than the one with - they wanted to pass their recommended legislation after all (and of course it wouldn't be passed if it wasn't presented as a way to avoid a much more serious problem). But... Ooops! Not only are our current and ever increasing rates of unemployment across the US *higher* than their predictions with the stimulus, we've already exceeded their "worst-case-scenario" predictions without the stimulus...
Gosh, I'd say "I told you so" but at some point this is just depressing.
"So what", you might be thinking, "Obama & Bernanke and the entire crew out there maybe just underestimated the magnitude of the problems that were "left" to them by President Bush... It's too early to say that that the current policies of the Government & Federal Reserve have caused higher unemployment, right?"
Let's set aside the fact that everyone in Obama's economic team, to say nothing of Bernanke himself (who was already Federal Reserve Chairman in 2005), were around throughout the entirety of the Bush years... and the Clinton years... and the G.H.W. Bush years and the Ronald Reagan years too! And virtually all made call after ridiculously incorrect call time and time again... Yet here they still are, making bad predictions and recommending failed and foolish policy. In doing so, let's also set aside that these are exactly the people responsible for our current position, so Obama's people shouldn't be "surprised" by anything they've been "left" with on this economy. And while we're at it, let's leave out the entirety of the Austrian School of economists who correctly predict the coming events as well as who have offered a clear and logically consistent explanation why this all happened. Let's leave all that out and assume that Obama's people just misread the magnitude of the problem by a few million lost jobs and a few trillion dollars of lost nominal "value". If we make those concessions... then sure. Technically, it is still too early to say conclusively that it's Government action that's already prolonging the recession, and turning it into a depression... But... That's really only because the vast majority of the stimulus money hasn't made it on to the open market yet!
Stop and consider that for a second.
The vast majority of the money our Congress voted to approve so urgently that they couldn't even be bothered to read what they were voting on... WON'T EVEN BE SPENT FOR ANOTHER YEAR at the earliest!
Of course maybe that will make you think that then the stimulus could have worked (and maybe still will) if it was all spent immediately, infusing the wider economy with a huge injection of cash just when it "needed" it most. Now, that is still quite untrue for all of the fine reasons my Austrian economist pals have been saying forever, but the reality is, all economic theory aside, we have the stimulus as it is. We can't very well go back in time now and make it work faster and given the lightening speed at which it's taken hold already, I'm not sure it's even remotely possible to get it to "work" faster. But this means that whatever the Government/Fed's intentions were in boosting "aggregate demand", and whatever insane Keynesian "multiplier" they expected to get out of that, their "boost" can't even possibly work for at least 2-3 years, even if it was based on sound reasoning and historical experience... which it isn't.
In the meantime, unemployment skyrockets and "aggregate spending" decreases even further, so whatever their original predictions were, things will keep getting worse and worse and thus the predictions will be further and further away from reality - which in their minds surely will mean that next year, as things are much worse than they'd predicted or anticipated (purely because they're all morons apparently), they will need to "stimulate" even more! At any rate, once the stimulus spending does go into full, blazing effect, I will reconnect with the above graphic and compare to the new ones available and there will be no further doubt how exactly our Government & Federal Reserve have succeeded to turn something relatively unfortunate into a complete, unmitigated catastrophe. It may be technically too early to call right now, but give it a year.
Now, all that said, there is a much more insidious character to the fact that all this mad Government spending hasn't actually made it into the regular economy yet... What the time lag on the stimulus spending really means to us ordinary folks is that the coming hyper-inflation necessarily won't be noticeable or really "start" happening for a couple years yet. Unfortunately, that's going to lull an awful lot of people into a false sense of security and the belief that the "worst is over".
As inflation starts to set in and cost of everything rises, there is naturally a time lag between prices rising and wages rising and certainly history has shown that the faster the increase in inflation, the greater the gap between cost of living and wages can become. As that happens over the next 5-6 years, the real standard of living in America will continue to decrease significantly - and with it comes wonderful things like civil unrest, hunger and possibly increases in crime & violence.
And honestly this is barely scratching the surface... I'm not even mentioning the grotesque destruction of liberty that we will continue to experience as our Government tightens its grip on the economy, choking us all or the havok that all that will cause all on it's own, even without the economic disaster. Perhaps on the next installment I will explain how economic liberty & "social" liberty are merely two sides of the same coin, and how anyone who's cheering the tightening of Obama's grip on the "evil big businesses" is merely cheering their own imprisonment and poverty... But I think I've done enough for now. ;)