Thursday, July 12, 2012

Krugman's Economic Fictions


Op-Ed columnist Paul Krugman has the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults. (Daniel Okrent, NY Times Public Editor)
Progressive arguments usually go something like this:
Aha! Paul Krugman said it, and he’s an Ivy League economics professor and a Nobel Prize winner, so there! Game, set match!
That is what’s known as the logical fallacy of appeal to authority. The next time a lefty trots out a Krugman talking point, ask him or her to explain the data behind it. They won't be able to, because Krugman's specialty is confecting arcane metrics with odd slices and perpetrating chart scale distortions to make his partisan points.

I often use the arguments of Thomas Sowell and Friedrich Hayek, but I don’t just say they said it so it must be true. I roll out their arguments and pit them against the real world, and that is what you must do if you’re going to employ the work of others. I like the back and forth, but the Krugmanites on the left either give you a dumb stare or vituperation of you dare to question The Bearded One.

There’s another little problem. Krugman has a reputation for making imperiously unacademic statements and he’s a partisan hack, who is frequently challenged by others in his profession. Sowell and Hayek do not get seriously challenged in such a way because they keep their studies and theses confined to the subject at hand, investigating economic and social questions in search of the truth rather than throwing partisan tomatoes at their enemies. Indeed, Hayek dedicated one of his books “to the socialists of all parties,” and wrote a short essay explaining why he is not a conservative.

Also, I do not discount everyone I disagree with. Brookings Institute leans left, but their studies are valuable and impeccably done, so much so that they’ve got even CATO and Heritage Foundation talking about structural income inequality. I also like Market Watch’s Paul Farrell, a lefty who often raves about end of the world scenarios, but amid the often hysterical tone, he points out how we’ve lost our way and that the system is broken.

Where Krugman, Keynes are Vulnerable
Krugman’s Statistical Cherry Picking
Obamanomics in One Lesson

45 comments:

-FJ said...

Hey, maybe an Orson Welles produced fake alien invasion scheme could help pull us out of this economic slump...

-FJ said...

Oooops. I guess that contradicts Adam Smith's "Wealth of Nations". But then Smith never won a Nobel...

Adam Smith, "Wealth of Nations"

"There is one sort of labour which adds to the value of the subject upon which it is bestowed; there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labour. Thus the labour of a manufacturer adds, generally, to the value of the materials which he works upon, that of his own maintenance, and of his master's profit. The labour of a menial servant, on the contrary, adds to the value of nothing. Though the manufacturer has his wages advanced to him by his master, he, in reality, costs him no expense, the value of those wages being generally restored, together with a profit, in the improved value of the subject upon which his labour is bestowed. But the maintenance of a menial servant never is restored. A man grows rich by employing a multitude of manufacturers; he grows poor by maintaining a multitude of menial servants. The labour of the latter, however, has its value, and deserves its reward as well.

Ducky's here said...

Don't forge Joseph Stiglitz, he's also quite capable of exposing Thomas Sowell as the shallow tool that he is.

I don't discount Hayek either and his arguments on the need for market economy pricing are pretty cogent.

Milton Friedman did some pretty important work consumption but his monetary theory is pretty much in disrepair. He followed up with "Free to Choose" which hasn't aged well at all.

But that's a problem we all have. How do we separate solid useful theory like Hayek form bought and paid for house propaganda like the fool Sowell?

It would take a fool to say that Marx didn't include very cogent criticisms of capitalism. He was a very good political economist and a lousy political scientists.

So what does it come down to? How do we find the honest inquiry in the jungle of the true believers and the paid corporate tools.
If Libertarians think they don't have that problem then it's the first step to realizing why they are often considered children in a sandbox.

Always On Watch said...

Krugman's attitude gets on my nerves.

In fact, I feel that way about most experts in economics.

Econ is called "the dismal science" for a reason.

Bunkerville said...

He is always introduced as "Nobel prize winner". Funny, I never hear Obama introduced that way. Perhaps the shine has become a bit tarnished.

Ducky's here said...

Oh by the way, Silverfiddle. Hayek does get challenged because he was a serious thinker who's theories deserve analysis.

Sowell doesn't get challenged. He gets ignored. He's nothing but a freaking trained seal.

The fact that you pair the two together indicates you should take a look at your own thought before you give everyone the tone.

Silverfiddle said...

Ducky: My criticism of The Bearded One is that he uses his considerable mind to engage in petty partisan hackery, and the economically-ignorant rip his latest missive off of the teletype and run with it, not even pausing to notice the tricks he pulls to make some narrow point.

"Milton Friedman did some pretty important work consumption but his monetary theory is pretty much in disrepair."

I agree. Monetarism is killing us.

You seem to have a particular hatred for Dr. Sowell. Got anything specific to criticize him on? Or is it just a general hatred?

Silverfiddle said...

Also Ducky, Sowell is very much in the Hayek tradition, although I think he was Friedman's acolyte and learned the most from him, although you don't see a lot of Freidman's thought in his writing.

Liberalmann said...

You're probably smarter than a Pulitzer recipient.

-FJ said...

How many Pulitzer's did Einstein win again?

-FJ said...
This comment has been removed by the author.
-FJ said...

One of these days, Matt Wuerker is going to pull a six sigma proof of the Higgs Boson out of his *ss....

conservativesonfire said...

The system is broken. Putting Humpty Dumpty back together again may not be possible.

Steve said...

After Reagan got his tax cuts passed, the country went into recession and started building debt, Reagan's financial adviser said, "the country runs better with a debt." Now that was a financial genius.
Regan's own VP (Bush) called it Voodoo Economics.
Mondale predicted that debts would climb into the trillions, and told America he would raise taxes to balance the books.
Of course Mondale lost and Reagan left office leaving a 2.5 trillion dollar debt.
For the next 30 years until today the Republicans financial philosophy has been, "No New Taxes" and Norquist has had all Republicans sign a no tax pledge, or face the punishment of being kicked out of Republican support for their Republican election. Norquist is pushing the same line in this election.
All that complicated "trickle down" financial theory that cuts taxes, but not spending has produced a 16 trillion dollar debt so far.
The evidence proves that simple (grade school spend more than you tax) Math trumped all the financial geniuses of the Republicans of the last 35 years, and still today.
So when you blast Krugman for his misguided economic theories, he is a lightweight compared to all the Republican economic political hacks, that have gotten their way and left America headed towards bankruptcy with the 16 trillion dollar debt their political economic realities have produced.
Obama is not following Krugman's advise. Obama is following Republicans "tax cut" policies (his center piece tax legislation) that will add trillions more to our debt. The only difference is, Obama wants to leave out the rich in his tax cut policies.
Skip the Pulitzer winning, college educated number pushers, go with a first grade mathematician who knows spending more than you take in, is Voodoo Economics, that will build huge debt.
Mondale was right.

Silverfiddle said...

Of course, the debt stacked up by republicans and democrats is destructive, but Reaganomics, as continued by Bill Clinton, brought us the greatest economic boom our nation's history.

That people spent too much or that the crony crapitalists crawled in and attached themselves to the host is not an indictment of free-market economics as espoused by Reagan and Clinton.

Indeed, unlike with Krugman Progressive political economics, government spending is no an growth engine, it is a drag.

Steve said...

Tax levels have little to do with creating growth, but everything to do with debt levels.
You obviously disagree (brought us the greatest economic boom our nation's history).
Our greatest economic boom, was between 1950 and 1970, in fact it was the greatest economic boom , the World had ever seen. Yet we were paying twice the rate of taxes we paid under Reagan, or Clinton.
Can you explain that?
I also disagree with your typical Republican ploy, that Democrats are equally Responsible for the debt, as Republicans. Facts show (debt accumulated) under each president, prove Republican debt far outweigh Democratic debt.

Mustang said...

I believe there is only one thing lacking in this country: meaningful employment for economists. This deficit in employment opportunity may explain why some economists have begun writing to put food on the table. Some of these write syndicated newspaper columns. Others, such as Krugman, have turned to writing fiction.

Silverfiddle said...

Debt is a bipartisan issue. Presidents can't spend a dime without congressional approval.

Now, can you provide some stats comparing 50-70 vs, 80-2000?

It may be close, but I think the latter had more GDP growth.

Explaining the post-WWII boom is easy. We were the only industrial power left standing, so we dictated economic terms to the world.

We were where the action was at, the only place to make money, so rich people had nowhere else to put their money, so they sat here and took the high tax rates.

And Kennedy spurred even more growth by cutting tax rates.

BTW, government did a good thing back then by paying down our WWII debt and ramping down government spending.

In the 70's, the rest of the world caught up, and we were too fat, dumb and happy to respond effectively.

Steve said...

Democrats out spent Republicans by far, for decades, until Bush(II) with his 2 wars, tax cuts, drug program, etc., all not paid for and he left office with about a 6 trillion dollar debt, himself.
At least Democrats offset their spending, by collecting enough taxes to pay for their spending.
Those high tax rates, did not kill growth.
Until recently, Presidents usually got the budget they wanted, even with an opposition Congress.
Bottom line, this generation has committed the American sin: they will leave an America worse off, than it was left to them. For no reason except selfish, Voodoo Economics.
I'm all for cutting spending. Let's start with eliminating the Dept. of Education and Homeland Security (which is not necessary to defend America) but added huge costs to government spending, not to mention the unnecessary intrusion on individual liberties.
Reagan walked into a recession. Clinton walked into a tech boom. Neither of which had anything to do with tax levels, but the cyclical ups and downs of private business.
Presidents can do little about private business waves, but can set tax levels.
Our current tax level, is obviously to low, or we would not have such high debt levels.
We didn't dictate economic terms to the rest of the world (after WW II) we were the only country left with a (private) production capability. The world had to buy from us, a captive market.
That's not true today, we make little, but buy much.

Silverfiddle said...

I agree with much of what you say, but this is simply not true:

At least Democrats offset their spending, by collecting enough taxes to pay for their spending.

All democrats added to the national debt, including Bill Clinton (who does have the distinction of adding the least of all presidents in recent memory).

I agree with you that taxes are only one part of the equation. Maybe you're arguing with the wrong guy? I've never been a "lower taxes at all costs" person.

Ducky's here said...

Debt is a bipartisan issue.

----

Can we get an Amen from the congregation !

Silverfiddle said...

Here's a timely article...

http://www.forbes.com/sites/jamesglassman/2012/07/11/the-facts-about-budget-deficits-how-the-presidents-truly-rank/

Ducky's here said...

Speaking of timely articles:

What Thomas Sowell won't tell you about markets


... or Why listen to Schumpeter

Steve said...

"At least Democrats offset their spending, by collecting enough taxes to pay for their spending.
Those high tax rates, did not kill growth"
I should have made more clear, I was talking the WW II generation.
They instituted social programs, and raised taxes to pay for them. They paid the huge WW II debts and did not pass on a huge debt.
I'm not a "tax at all cost" guy.
You say you are voting for Romney, so I guess you support his fiscal statements. He will cut 4 trillion from government, and of course no new taxes. We should learn from Europe's failed austerity measures.
We need to cut, or tax 1.75 trillion just to balance the yearly books, and that does not address the already 16 trillion.
I suggest we do both raise taxes and cut spending. I suggest we raise taxes more than cut spending to address that 16 trillion. I suggest we get away from these Voodoo Economics and balance our books, then never again spend more than we take in.
How much we spend, and what we spend on, is a good debate. But what we have already spent, is not debatable and must be paid.
Saw your link. It points out what I was saying. Clinton raised taxes (about 4%). That did not kill growth, and was why he had less debt than other presidents.

Silverfiddle said...

Ducky: Nothing in there that refutes anything done by Sowell, but it was interesting, especially setting up the strawman about how capitalists believe markets never fail. False.

Markets go up and down, they soar and they crash. These are reinforcing signals and as such are not a defect any more than you burning your hand if you accidentally touch a hot burner on a stove.

When government ceases policing the markets but instead offering perverse incentives and keeping the stupid and the venal from getting burned, that is when the problems start.

Silverfiddle said...

"We should learn from Europe's failed austerity measures."

Could you please provide some evidence of European austerity?

OECD Data doesn't support that contention...

http://www.oecd-ilibrary.org/sites/gov_glance-2011-en/03/04/index.html;jsessionid=5e5ewmbe3l9sm.delta?contentType=&itemId=/content/chapter/gov_glance-2011-10-en&containerItemId=/content/serial/22214399&accessItemIds=/content/book/gov_glance-2011-en&mimeType=text/html

And neither does Eurostat data...

http://epp.eurostat.ec.europa.eu/portal/page/portal/government_finance_statistics/data/main_tables

Daniel J Mitchell has a good summary here:

http://www.cato-at-liberty.org/paul-krugman-and-the-european-austerity-myth/

Silverfiddle said...

"Clinton raised taxes (about 4%). That did not kill growth, and was why he had less debt than other presidents."

That was during a boom time. Even President Obama has said we shouldn't raise taxes during a downturn.

Ducky's here said...

Nothing refutes anything done by Sowell?

Hardly, Sowell is a cheerleader for the big bone of contention here.

No matter how often he is shown wrong, that market pimp clings to the belief that markets are not fallible. Not inherently flawed.

That is what separates us.

Will "take no prisoners" Hart said...

One of his "imperiously unacademic statements" was when he compared John Boehner to Herbert Hoover. Anybody who's ever even cracked a history book knows that Hoover wasn't even remotely a free-market capitalist (not that Mr. Boehner necessarily is, either). He ran the largest peace-time deficits in American history, raised taxes 152%, passed the Smoot-Hawley Tariff Act, and put forth one utterly costly public-works project after another. Krugman's a dope.

Silverfiddle said...

Ducky: I think you're engaging in some strawman building of your own.

Tulips anyone?

Sowell does not say markets are always sunshine and lollipops. What he says is they are the best we have for setting price and product availability.

You set an impossible standard that no economist advocates.

Will "take no prisoners" Hart said...

And there haven't been austerity measures in Europe. This is yet another lie by Krugman. England, France, and Italy have all increased spending over the past 4 years (yeah, maybe the rate of increase has slowed slightly) and even Greece is spending at a rate higher than when the crisis started. Only Estonia has really engaged in austerity and those frigging bastards are growing at a 7.6% clip. Like I said, Krugman's a dope.

Finntann said...

@Our current tax level, is obviously to low, or we would not have such high debt levels.

No... couldn't possibly be the spending, that's silly.

So Steve, if your salary was cut by 25%, would you go into debt or would you cut spending?

CBO SPENDING figures for 2011:

Interest $227B
Medicare & Medicaid $835B
Social Security $725B
Defense $700B
Discretionary $646B
Other $465B

TOTAL: $3598B

CBO INCOME figures for 2011

Individual Income Tax $1092B
SSSI: $819B
Corporate: $181B
Other: $139B
Excise: $72B

TOTAL: $2303

As you can see Interest, Social Security, Medicare/Medicaid and other, just about eat the entire income, you could eliminate the entire Department of Defense and most discretionary spending and we'd still be screwed.

In Obama's 2012 Budget HHS Medicare and Medicaid Services eats $1110B compare that to $1092 in Income Tax in 2011. Doesn't that strike you as ridiculous?

Social Security is another $808B

You could eliminate the entire Department of Education and you wouldn't even notice it was gone from a budgetary perspective. It would kind of be like you deciding not to buy a cup of coffee.

Given 2011 federal income, and leaving Medicare/Medicaid and Social Security alone lets work our way down the Administration:

M/M & SSSI $1900B

2012 Treasury Interest $474B

That is 2374, a net loss of 71 Billion Dollars... and we have no government.

http://www.nytimes.com/packages/html/newsgraphics/2011/0119-budget/

So you're saying what? We should double our tax rate?

Now... think.... what is taking another 1.4 Trillion out of the hands of individuals, families, and corporations going to do to the economy.

ITS NOT AN INCOME PROBLEM

ITS A SPENDING PROBLEM

Steve said...

Finn,
The money has already been spent. We owe 16 trillion and counting. By the time we can cut government, it will be 20 trillion.
It is a spending problem, and I said so, including some areas that I thought should be cut. I can list more if you want.
I also said debating spending is great on an ongoing, future basis.
What about the 16-20 trillion? Obviously we did not tax ourselves enough to pay for our spending over the last 30 years.
You can't debate past spending. If you disagreed with that spending, fine, doesn't matter; you say nothing about how we pay our debt.
You make a political argument I agree with, spending must be cut.
I make a numbers argument, that the debt has to be paid. It's a one generation debt (30 years) that this generation is solely responsible for, because of its selfish, greedy, deadbeat actions, of spending without paying for that spending.
Please don't insult yourself by arguing something (over spending) which I agree with and said so.
How do we pay of this debt? According to you we don't?

Silverfiddle said...

Steve,
You're making pretty good sense, then you say something like this:

"Obviously we did not tax ourselves enough to pay for our spending over the last 30 years."

This statement is equally valid: Obviously, they spent too much.

Did you check out the European spending numbers? Did you see that there had been scant austerity?

The underlying myth to all this phony austerity blather is the fallacy that government spending drives economic growth. It does not. The private sector is the economic engine.

Steve said...

SF,
Wasn't quite boon times in the 1930's when we passed FDR's social agenda and raised our taxes to start paying for that agenda. It was the end of the depression and did not slow the end of the depression.
Wasn't quite boon times in 1946-1947-1948 strapped with debt from the war. We raised our taxes to pay that debt, which did not slow the boon which did not start until 2 years later by 1949-1950.

Austerity measures in Europe have started riots and work stoppages in England and other countries. The severe cuts have not produced more jobs, or demand for products/production, just created a poorer society with more layoffs and longer term unemployment.
No investment by the private sector, or the government.
Same thing here today, no investment by the private sector, or the government. No wonder we can't get out of this. Investment is the only spark, that will pick up the economy.
If the cry that by cutting taxes, we increase jobs, America (and Europe) should be swimming in jobs, with all the tax cuts. It isn't.
The basis of that cry is to unleash growth, it hasn't, and can't, because there is no investment - capital to fuel that growth.
Romney is a business liquidation expert. From his statements, that's what he wants to do to the American government. Great, then what.? No investment, no growth.
It is best to have that investment coming from private business, but they are not. Scream at them, for having no faith in America, to use the cash they are sitting on, to spur growth.

Steve said...

Wrote that before I saw your last comment
So we agree
As a member of the corporate party, why are corporations not investing in America

Steve said...

Before you answer:
Capitalist have an obligation to the society they do business in, beyond just making money.

Jersey McJones said...

Silver, did you just write an entire post dedicated to excoriating the personage of Paul Krugman?

Do you really believe most "liberals" and "progressives" think Krugman is some Jesus of Economics?

Did you cite any single thing Krugman ever said in your post?

Give it a rest. There's no Kruggey Man.

JMJ

Finntann said...

Steve, I have no problem with raising taxes to pay down debt, with one caveat...

before I will readily consent to pay more taxes the government must consent to stop spending it like a drunken sailor.

No balanced budget amendment, no new taxes. The government must stop spending money it does not have.

Until then, I'll vote for anyone who will oppose new or increased taxes.

Cheers!

Steve said...

Gotcha
No chance, or concern to pay our debt.
Part of the deadbeat generation
You disagree with what the money was spent on, so you refuse to help pay the bill
Why do Republicans keep voting for unpaid spending?
The height of irresponsibility

Silverfiddle said...

Steve: European governments have not cut taxes--they are raising them.

Herbert Hoover raised taxes, and as you mention FDR did it again, and we got a decade of depression.

Clinton did it and we got continued growth. Sounds like the economic context matters, doesn't it?

I've already told you I'm not a "tax cuts at all costs" guy, so I don't know what you are now arguing against

Again I will ask you, where is the proof of this supposed European austerity?

Z said...

Europeans cutting taxes? WHERE?

Silverfiddle said...

Here's another good article...

http://www.forbes.com/sites/peterferrara/2012/07/12/obamanomics-the-final-nail-in-the-discredited-keynesian-coffin/

“We call this period, 1982-2007, the twenty-five year boom – the greatest period of wealth creation in the history of the planet. In 1980, the net worth – assets minus liabilities – of all U.S.households and business…was $25 trillion in today’s dollars. By 2007, …net worth was just shy of $57 trillion. Adjusting for inflation, more wealth was created in America in the twenty-five year boom than in the previous two hundred years.”

Finntann said...

@Why do Republicans keep voting for unpaid spending?

We're not the one throwing the trillion dollar circus exchanging bread for votes.

Sounds like "The height of irresponsibility"

FreeThinke said...

Paul Krugman and all the intellectual farceurs who think Krugman is worthy of that Nobel -- or was it a Pulitzer? -- prize he was awarded should be strung up, flayed, then disemboweled with a red hot poker.

};-)>

~ FreeThinke