Been Too Long!

Well, since I have thoroughly neglected this blog for almost 6 months now, I suppose it's time to add something.

I had my day made this afternoon by Contessa Brewer of MSNBC. Twice. The first time she was trying to implicate the private sector as being the root cause of the economic downturn (something Paul Krugman has trumpeted repeatedly), and one of her guests actually had the guts to stand up and explain to her that the government's regulation and influence played a huge role in the build up of the sub-prime bubble.

The Clinton administration pressured Fannie Mae and Freddie Mac to buy more sub-prime mortgages in order to help more Americans enjoy the "American Dream." Sounded good at the time - but we know better now. The two mortgage giants bought a LOT of risky debt and a bubble developed. Before anyone attacks me for being a partisan hack, I will also gladly hold the Bush administration responsible for not clamping down on this.

The second occurence came when Contessa was interviewing Steve Forbes. He was explaining how Japan tried to use government stimulus and failed miserably, just as is happening now. Contessa cut across him and regurgitated Paul Krugman's all-too-often-used call to action that Japan had failed because they hadn't done enough stimulus, and hadn't done it quickly enough! Steve Forbes politely responded with the facts that are often ignored by proponents of government intervention: Japan actually began stimulus early in the 1990s, and actually passed fiscal stimulus legislation 10 times. They succeeded in tripling their national debt, and plowing through the 90s with abysmal economic growth. Is there any reason to believe our experiment will go any differently?

Poor Contessa didn't have an answer for this. Fiscal stimulus leads inexorably to several things, not the least of which is misallocation of capital that the economy has to sort out over a longer period of time than a natural economic downturn. The government also ends up with a massive debt load. On top of that, inflation runs rampant, and the dollar (or domestic currency) loses value against its competition.

I was delighted because in the space of an hour of live news broadcast, two of Paul Krugman's liberal rallying cries were swatted away by well-informed and intelligent members of society. Consider this my formal request for politicians to educate themselves in the field of economics - we the People desperately need educated fiscal policy, taxation, and public policy decisions - not political showmanship and demagoguery.

The Niggles

"The critics are instead mainly engaged in a series of minor complaints, aka niggles; FDR didn’t do so well, the statistical evidence ain’t so great, you can’t trust government, etc., etc.. "

So, Mr. Krugman is contending that when critics say flooding the economy with cash creates a situation that manifests artificial and unsustainable demand, thus leading to an extended economic downturn, as the economy attempts to find the sustainable level of output following a period of overheating... that is considered a minor complaint?

I'd call having the "check engine" light continually coming on in your car "the niggles," (a situation I became intimately acquainted with last week) but I'm not so sure an extended period of heavy unemployment would qualify as a "minor complaint."

The bottom line for Mr. Krugman -- government can't spend the country's economy out of a recession. You can create some nice fireworks in the short run, but the economy is still going to have to return to a sustainable (and likely lower) level of growth when all is said and done.

Seriously 2.0

I read Paul Krugman's latest blog entry and had another one of those "stunned silence" moments. He is actually asserting that aggregate macroeconomic demand during the depths of the Great Depression was perfectly inelastic, as he demonstrates with this graph:

Sure, many of us have seen this in theoretical demonstrations during our study of economics. But Mr. Krugman is suggesting that this was a REAL phenomenon during the Great Depression.

"They’re [naysaying, logic-burdened economists] implicitly assuming – not demonstrating – that the AD curve had a 'normal' slope, even in the depths of the Depression. But it didn’t."

Thank you, Mr. Krugman, for using a theoretical demonstration used to teach the concept of demand inelasticity to "prove" that government policies used to boost wages during the depression were actually helpful. Great work.

Let's inject some logic into this and watch it fall apart, shall we? First, let's try to consider a world in which aggregate demand is perfectly inelastic. Imagine, for a moment, that it is 1935, and you are unemployed and extremely poor. You are a bit hungry, and have plenty of choices for something to eat, but you decide you want to buy one orange. You are the proud owner of $1.00, and an orange vendor is happy to sell you oranges for $0.05 each. It strikes you as a reasonable deal.

The basic assumption of perfectly inelastic demand is that the quantity demanded does not change as a result of a change in price. So if Mr. Krugman's assertion about conditions during the Great Depression are correct, then you would still buy one orange, even if it cost you $1.00.

Logic tells me that this would be highly unlikely (or more realistically, impossible) in a marketplace with alternative choices (as existed during the Great Depression, and still exists today). If the orange vendor told you that he would be willing to sell you an orange for $1.00, you are probably more likely to try to find a way to make your dollar last you longer.

But the pomposity of the liberal doesn't end there -- we are not simply talking about the supply and demand conditions for oranges, but the supply and demand conditions for every good and service in the "aggregate" economy. Essentially, buyers are willing to buy the same amount of all goods and services regardless of price.

This does not sound like a realistic condition to me. But Mr. Krugman is happy to muddle up theories regarding interest rates, demand for money, and liquidity, to try to get you to believe that there was no negative effect to artificially boosting wages during the Great Depression (and, one would believe, he is saying the same is true now).

Doesn't it seem more logical, Mr. Krugman, that employers have only a limited amount of money with which they can hire employees? And, perhaps, forcing them to pay each employee more money might force them to discharge some employees in order to cover the new, increased labor cost? It also seems logical, then, that these displaced employees would be less inclined to use any savings they have to purchase the same amount of goods and services. It is even feasible to assume that some employers would not be able to lay off enough workers to continue production, and as a result, would have to raise prices instead (thereby reducing quantity demanded for their product). It is not out of the realm of possibility that this could drive companies who were employing numerous workers out of business entirely.

Again, Mr. Krugman; but this time, with more logic.

A Sense of Purpose

This blog will dare to cross swords with the liberal economist phenomenon that is Paul Krugman, and will focus specifically on addressing oversights in his daily blog, "The Conscience of a Liberal."

I must add that I am doing this out of a sense of moral obligation. After reading what Mr. Krugman has written in the New York Times and on his blog, I have frequently been stunned to silence by his lack of insight, his arrogance, and the effect he has on his hungry, unquestioning audience.

My personal disagreement with Mr. Krugman, on the most basic level, exists in that I believe that people who wish to engage in discussions in which they present themselves as an "authority" on a topic should, in fact, have a thorough understanding of the topic before they begin to speak. Mr. Krugman, speaks and writes like someone who sees only what he wants to see, which are all things that correspond to and uphold his liberal leanings. My feeling is that if Mr. Krugman wants to speak and write, he should, at least, have the "conscience" to investigate whether what he is saying is the truth before he presents it to the masses as such.

Please feel free to engage in my discussion of topics.