Oxymoron: The Liberal Economist

I chose the title of this post because economics is about supply and demand but liberals focus strictly on the demand side of the equation; they constantly demand that more be taken from those who earn and given to those who don't.

I confess that I read the New York Times every day. I read it because the journalism is far superior to my local paper and because its left-leaning bent gives me fodder for this blog.

One of the regular contributors to the editorial (opinion) pages is Paul Krugman. This guy is so far left that he makes Keynes look like a right-winger. The Times likes to tout him as a Nobel Laureate but, technically, there is no Nobel prize for economics; just physics, chemistry, medicine & peace. The Times likes to inflate itself while Krugman yammers on about deflating our wallets.

The thing that irks me most is his constant call for more deficit spending to boost the economy. It would indeed boost the economy as measured by GDP but recall that GDP is a faulty measure designed to make socialist policies look good by including government spending (but not borrowing). The accumulated debt caused by this reckless behavior yields an average annual cost of living increase of 5.5%, dwarfing the currently anemic GDP growth rate of about 2%.

Here is Krugman's latest load of bullshit with my rebuttal.

OP-ED COLUMNIST

Fiscal Fever Breaks

By PAUL KRUGMAN

Published: December 29, 2013 

In 2012 President Obama, ever hopeful that reason would prevail, predicted that his re-election would finally break the G.O.P.’s “fever.” It didn’t.

No surprise since the president is frequently wrong.

This is what hopeful gets us:

Justice; Fast & Furious, AP spying, Fort Hood, banks fined but no one jailed....
State/Intelligence; Benghazi, Susan Rice, Snowden, Syria, North Korea, Iran...
Defense; Drones, Guantanamo, sexual harassment, Al Qaeda's resurgence...
Treasury; Tea Party bashing, $4 trillion in toxic assets at Federal Reserve, debt...

And last but not least; the Obamacare train wreck with a net loss of 3 million insured so far accompanied by a large expansion of Medicaid that will further cripple state finances when federal funding (but not taxation) stops.

Fred R. Conrad/The New York Times

Paul Krugman

But the intransigence of the right wasn’t the only disease troubling America’s body politic in 2012. We were also suffering from fiscal fever: the insistence by virtually the entire political and media establishment that budget deficits were our most important and urgent economic problem, even though the federal government could borrow at incredibly low interest rates. 

Bullshit. Most media is liberal and they love it when the government borrows vast sums for social engineering programs. The interest rates matter little if you can't afford the principal. Those who insist that deficits are bad (like Fox News) are quite correct.

Instead of talking about mass unemployment and soaring inequality, Washington was almost exclusively focused on the alleged need to slash spending (which would worsen the jobs crisis) and hack away at the social safety net (which would worsen inequality).

Bullshit. This administration has done more to cause inequality than any in recent history despite the fact that more than 80% of the federal budget goes to social engineering programs. The bank and auto bailouts and low interest rates helped shareholders but did nothing for the bottom 50%. In addition, our population is aging as boomers near retirement and older workers simply earn more than younger ones; experience pays. 

Take away the safety net, target some programs for use-fees and trim the fat and the federal government costs $600 billion, not $3.8 trillion.

All federal spending except for the borrowed part (21% this year) is confiscated from the private sector where real jobs are created.

Get rid of sales, property, sin and fuel taxes and make FICA (Social Security and Medicare) a forced savings plan that can be inherited (401K-like) instead of a redistribution plan and we won't need a safety net.

So the good news is that this fever, unlike the fever of the Tea Party, has finally broken.

Bullshit. The government is still sucking the life out of the economy and conservatives like me keep screaming that things must change.

True, the fiscal scolds are still out there, and still getting worshipful treatment from some news organizations. As the Columbia Journalism Review recently noted, many reporters retain the habit of “treating deficit-cutting as a non-ideological objective while portraying other points of view as partisan or political.” But the scolds are no longer able to define the bounds of respectable opinion. For example, when the usual suspects recently piled on Senator Elizabeth Warren over her call for an expansion of Social Security, they clearly ended up enhancing her stature.

Bullshit. Warren is piled on because she is an idiot. She wants to increase benefits by increasing taxes or borrowing. This is precisely the behavior that led to the largest municipal bankruptcy in US history; Detroit. It has also led to municipal insolvency elsewhere.

Deficits are bad, and as the president would say, period.

But the liberals keep hoping that, some day, their dumb ideas will work despite all evidence to the contrary.

What changed? I’d suggest that at least four things happened to discredit deficit-cutting ideology.

First, the political premise behind “centrism” — that moderate Republicans would be willing to meet Democrats halfway in a Grand Bargain combining tax hikes and spending cuts — became untenable. There are no moderate Republicans. To the extent that there are debates between the Tea Party and non-Tea Party wings of the G.O.P., they’re about political strategy, not policy substance.

Bullshit. Most republicans are moderate and that's part of how we got into this mess. 

Tea Party means fiscally conservative, states rights and adherence to (Article 1, Section 8) the Constitution. 

There is about $1 trillion in tax loopholes, subsidies and credits that could be swapped for the same amount of property, sales, sin, fuel and income taxes. Neither side has the political will to do what needs doing.

Besides, we don't need any tax hikes. We need spending cuts deep enough to make real progress in paying off all the debt we've accumulated (more than $20 trillion across three levels of government). This will necessarily drive up the cost of living but, the sooner we do it, the least painful it will be.

Second, a combination of rising tax receipts and falling spending has caused federal borrowing to plunge. This is actually a bad thing, because premature deficit-cutting damages our still-weak economy — in fact, we’d probably be close to full employment now but for the unprecedented fiscal austerity of the past three years. But a falling deficit has undermined the scare tactics so central to the “centrist” cause. Even longer-term projections of federal debt no longer look at all alarming.

Bullshit, technical foul. Borrowing plunged from $1.4 trillion to $0.8 trillion on income of $3 trillion. It's still WAY too high at 21% (-5% is needed); meanwhile, the debt marches on. The federal portion of the debt is now approaching six times the income of the federal government.

Unemployment figures are bullshit too and everyone knows it. There are 171 million Americans between 20 and 65 years old and 144 million have jobs; this is more than 15% unemployment and that doesn't count the 19 million part-time workers, many of whom would prefer full-time employment.

Of jobs created this past year, 75% were part-time.

How can it be austerity when more than 80% of federal spending and 50% of state and local spending is for social programs? After subtracting Social Security and Medicare ($1.6T) we spend about $3 trillion/year on welfare and Medicaid.  Over 50 million poor this is $60,000 each (the median income is $40,000).

Of course, the poor receive only a tiny fraction since most is sucked up by government salaries, health insurance, retirement, buildings, utilities, blah, blah, blah. What we're doing does not work.

Safe Bet

Most sane people would agree that $17 trillion in federal debt plus $4 trillion in toxic assets plus $1.5 trillion in state debt plus $1.8 trillion in local debt is pretty alarming. Especially alarming since government is a black hole for cash.

Of course, casting doubt on liberal ideas violates an important dictum:

“Never argue with an idiot. They will drag you down to their level and beat you with experience.” 

Speaking of scare tactics, 2013 was the year journalists and the public finally grew weary of the boys who cried wolf. There was a time when audiences listened raptly to forecasts of fiscal doom — for example, when Erskine Bowles and Alan Simpson, co-chairmen of Mr. Obama’s debt commission, warned that a severe fiscal crisis was likely within two years. But that was almost three years ago.

Bullshit. How soon we forget the positive aspects of sequestration; $85 billion/year in automatic federal spending cuts. Not much (2.2% of federal spending) but proof of concept.

Krugman always whines about sequestration (but not in this context!) but not about the $415 billion in 2013 debt payments (10.9% of federal spending but only 2.57% of debt); probably less than the interest.

Obama has repaid less debt percentage than any predecessor since records were kept (less than 3% of GDP per year compared to Bush (41) at 7.75%). This is why the recent cost of living has been so low as the debt blossoms since Obama has also added more debt ($7 trillion) than any politician in history.

Finally, over the course of 2013 the intellectual case for debt panic collapsed. Normally, technical debates among economists have relatively little impact on the political world, because politicians can almost always find experts — or, in many cases, “experts” — to tell them what they want to hear. But what happened in the year behind us may have been an exception.

For those who missed it or have forgotten, for several years fiscal scolds in both Europe and the United States leaned heavily on a paper by two highly-respected economists, Carmen Reinhart and Kenneth Rogoff, suggesting that government debt has severe negative effects on growth when it exceeds 90 percent of G.D.P. From the beginning, many economists expressed skepticism about this claim. In particular, it seemed immediately obvious that slow growth often causes high debt, not the other way around — as has surely been the case, for example, in both Japan and Italy. But in political circles the 90 percent claim nonetheless became gospel.

Bullshit. This is the economic equivalent of the Mohammed video; pure sleight of hand.

Debt has been close-to or greater than 100% of GDP for quite some time; our debt of $17 trillion is greater than our GDP of $16 trillion. This doesn't count the $4 trillion in toxic mortgage assets held by the Federal Reserve. Does anyone beside Krugman doubt the economy still languishes despite spending (wasting) $11 trillion we don't have?

Besides, nobody listens to economists except other economists (sorry Clare) for the reason cited by Krugman; additionally, God forbid that somebody vets their work.

Then Thomas Herndon, a graduate student at the University of Massachusetts, reworked the data, and found that the apparent cliff at 90 percent disappeared once you corrected a minor error and added a few more data points.

Now, it’s not as if fiscal scolds really arrived at their position based on statistical evidence. As the old saying goes, they used Reinhart-Rogoff the way a drunk uses a lamppost — for support, not illumination. Still, they suddenly lost that support, and with it the ability to pretend that economic necessity justified their ideological agenda.

Bullshit. Who vetted Herndon's work? Also, see Tyler Cowen's comments and Reinhart and Rogoff's rebuttal. Of course, Krugman doesn't expect his liberal followers to double-check him.

Still, does any of this matter? You could argue that it doesn’t — that fiscal scolds may have lost control of the conversation, but that we’re still doing terrible things like cutting off benefits to the long-term unemployed. But while policy remains terrible, we’re finally starting to talk about real issues like inequality, not a fake fiscal crisis. And that has to be a move in the right direction.

Bullshit, bullshit, bullshit! Except the part about terrible policy. 

Of course it matters; debt service drives up the cost of living. Increased cost of living hurts everyone, especially the poor and those on fixed incomes (the elderly and the disabled), those these policies are supposed to be helping.

Long term unemployment is being fueled by dumb government policies like Obamacare and the tax increases that come with them. Part-time work is on the upswing for the same reason.

What do the liberals mean by inequality? Should a newborn have the same assets as an neurosurgeon? How about a burger-flipper and a franchise owner? How about a teacher's assistant and a principal? Inequality is a fact of life unless you are a drone in the Borg collective.

I prefer capitalists.

If they're talking about equality in opportunity, the US has always been the land of opportunity.

The son of Jamaican immigrants becomes National Security Advisor; Powell.
A woman becomes National Security Advisor and member of Augusta; Rice. 
The son of Cuban immigrants becomes Senator; Rubio.
All conservatives.