October 7, 2009

"like having Homer Simpson giving you diet advice"

I have neither the time nor the stomach for giving well-deserved kicks to the egregious Paul Krugman, but Bookworm has done a nice job with the latest...

...As it is, hearing preaching about politeness from Krugman is like having Homer Simpson giving you diet advice — it doesn't sit well, considering the source. During the past administration, when Krugman might have put his personal prejudices aside to advance his country's interests his whole focus was on denigrating the president, personally and politically, often in the crudest, most insulting terms. In just one year alone, we got things like this:
Posted by John Weidner at 4:57 PM

July 10, 2006

#199: NYC and Kugman

P. Krugman


For several months now Paul Krugman has been stuck in the equivalent of a computer “DO-loop” as he ricocheted back and forth between trashing the US economy because of George W. Bush and trashing US foreign policy because of George W. Bush. Today he broke out of his “loop” with The New York Paradox (07/10/06) but in a very strange way–he actually praised the direction currently under way in the economy of New York City. To us, the only thing that’s consistent about this is that George W. Bush is not the Mayor.

But what’s going on in NYC that has “sad sack” Krugman so optimistic? It’s a New York Times report to the effect that corporate headquarters are moving back to the City in spite of the high costs of locating and doing business there. As Krugman puts it;

“And the report on the headquarters boom suggests that New York may, paradoxically, be doing well precisely because technology has made it possible to move many jobs away from high-cost locations.”

So who’s moving away and who’s coming back? Why middle class folks are leaving, of course, and rich folks (read corporate bigwigs) are coming back.

“In the past…. in order to keep their top executives in Manhattan, companies also had to pay the rent on large office buildings and fill those buildings with thousands of lower-level employees, paying those employees wages high enough to compensate for New York’s high cost of living. Many companies decided that the benefits of a New York headquarters weren’t worth the cost.
Now, however, it’s possible for many of the people who would formerly have worked at corporate headquarters to work somewhere else instead, communicating with management electronically. And that makes it worthwhile to move top executives back to the center of things.”

Well, excuse us, but isn’t this exactly what Krugman has been bitching about for years with regard to the US economy, as a whole, compared with the rest of the world? Middle class jobs are being outsourced to India, low wage growth is happening at home as a result and the rich are getting richer? If it pertains to just New York City are we to believe it’s suddenly okay? Toward the end of the column Krugman seems to get an inkling of the corner he is painting himself into:

“The story of the New York economy isn’t entirely a happy one. The city has essentially lost all of its manufacturing, and it’s now in the process of outsourcing both routine office work and many middle-management functions to other parts of the country. What’s left is an urban economy that offers a mix of very highly paid financial jobs and low-wage service jobs, with relatively little in the middle.”

Well, no kidding! So why does NYC get a pass from Krugman? There’s no clue in this column. Maybe he will explain later why the thinks like an economist on NYC but like an ordinary liberal sap on the rest of the economy.

Our position is the same as always. We applaud what’s happening in both New York AND in the rest of the country (and in the world, for that matter). American labor will respond to globalization and lower cost international competition the way it always has: by taking advantage of unparalleled educational opportunities to retrain, upgrade skills and within a generation the whole economy will equilibrate to a much higher standard of living, both here and abroad. Indeed it’s happening as we write. Maybe when Bush is out of office, Krugman will get groove back.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 10:19 AM

February 27, 2006

#198: What to do? What to do?

P. Krugman


Graduates and Oligarchs, (02/27/06), is a mildly interesting column by Paul Krugman as he returns to one of his all-time favorite themes, the growing income inequality in America. What caught our eye was his odd choice of villains. Normally one would expect to read about the usual suspects lurking somewhere in the Bush White House. But in this case he chose his former boss at Princeton University, Ben S. Bernanke, who has been on the job a Chairman of the Federal Reserve for less than a month. What on earth has Ben done to deserve such an early scalding, we wondered. It turns out, not much. He was simply in the wrong place at the wrong time.

Here’s the story. Robert Gordon, the guru of productivity analysis at Northwestern University, has a new paper out [Link. Click on "Where did the Productivity Growth Go?" to view PDF] documenting growing income inequality between high end and low end labor based on detailed IRS data during the 1966-2001 period. Krugman’s problem is that this period does not include the Bush years so there is no one obvious to bash. Even worse, an acceleration in inequality occurred during the Clinton Administration.

What to do? What to do? On the one hand he wants to get the new evidence out because it promotes his redistributionist view of the proper social order, but, on the other hand, having Clinton in his cross hairs does not exactly score partisan points, which after all is Krugman’s main reason for living. Now as it happens Gordon in his paper speculated that the growing income disparity casts doubt on something economists call skill-based-technical-change (SBTC) as the driver of real wage growth. This is the idea that as workers upgrade their skills they will be better able to keep up with the growing prosperity generally than the workers who don’t upgrade. Gordon is skeptical of this hypothesis based on his findings. SBTC would suggest that inequality should be growing between the top 20 percent who have become more skilled (e.g., college graduates) and the 80 percent who have held the same skill level. Instead he finds that inequality has grown most between the top 1 percent (or even the top 0.1 percent) and the rest of the labor force, including the to 20 percent with their presumed higher SBTC. In fact, the real wage growth of anyone below the 90th percentile has not come close to keeping up with economy-wide productivity growth. Arguably this should not be happening in a labor market in which the top 20 percent has a growing skill base.

Enter poor Ben. In his initial testimony before a congressional committee to a question about real wage growth he gave the standard SBTC answer. He hadn’t read Gordon? How dare him! So, Krugman pounced. He needed a victim with some tangential connection with Bush White House and Bernanke was handy. Call it collateral damage.

By the way Gordon’s paper makes clear that the TOTAL labor share of national income has remained roughly constant over his sample period. The return to capital has actually decline somewhat. So it is not a though Daddy Warbucks and his capitalist buddies are walking off with all the money. Instead, the growing inequality is occurring WITHIN the labor share. Gordon attributes this to the superstar phenomenon as entertainers, sports figures and Donald Trump style CEOs command higher income which falls into the wages and salaries category.

So back to Krugman’s title– Graduates and Oligarchs. Can anyone imagine Britney Spears as an oligarch? If so, you have a better imagination than we do.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 2:08 PM

January 16, 2006

#197: The ever inventive Krugster...

P. Krugman


In First, Do More Harm (01/16/06) Paul Krugman makes another broadside attack on what is becoming the most successful part of the Bush health care initiative–Heath Savings Accounts “HSAs”. No wonder! As we have pointed out previously this at-first modest “under the radar” proposal has now snowballed into a system of financial accounts large enough to make grown liberals cry.

By letting people save, tax-free, in HSAs consumers can take more and more responsibility for their own health care decisions including how much to spend on what type of service or insurance. In time HSAs could wean the nation off our irrational employer-based health care system in which everyone is led to believe someone else is paying when, all the while, it is the employee, personally, paying through lower wages.

Krugman’s usual spiele on this is twofold: that 1) HSAs are only for the rich and 2) they drive the wealthy out of company insurance programs thereby weakening these programs for everyone else. Squad readers will not be surprised to hear (since we have said it before) that there is no evidence to support either of these claims.

So why are we bothering to write this report? Because the ever inventive Krugster has come up with a third reason to oppose HSAs:

“But the case of diabetes and other evidence suggest that a third problem with health savings accounts may be even more important: in practice, people who are forced to pay for medical care out of pocket don't have the ability to make good decisions about what care to purchase. "Consumer driven" is a nice slogan, but it turns out that buying health care isn't at all like buying clothing.”

This is really quite choice. It could go down as one version of “the liberal’s last words”:

We tried to help those fools, but they were too dumb to listen to us!

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 10:47 AM

December 20, 2005

#197: Slowly retreating from his dire predictions...

P. Krugman


Paul Krugman has been slowly retreating from his longstanding, dire predictions about the direction US economy. We don’t hear much about impending “banana republic-hood” or the “irresponsible Bush tax cuts” or “W’s Double-Dip.” Instead we hear such weary comments as:

“Yet by some measures, the economy is doing reasonably well. In particular, gross domestic product is rising at a pretty fast clip. So why aren't people pleased with the economy's performance?”

The retreat we are talking about is reflected in PK’s answer. The overall numbers look pretty good, he says, but many Americans are being left behind as reflected in lagging median wages. He has a small point here (the word “median” is important), but, as we will explain, it is a very small point indeed.

Let’s begin with brief discussion what actually drives labor compensation –– productivity. Chart I shows the growth rate in output per hour of labor input (labor productivity) and average real business wages since the late 50’s. We have followed the normal practice of smoothing the quarterly/monthly data (in this case we used a 3-year moving average) because the shorter-term observations are so erratic that longer run patterns are difficult to discern.

labor productivity and wages chert

Chart I shows a phenomenon familiar to all economists. Productivity (the blue line) was high coming out of the 50s and into the 60s, fell off a cliff beginning roughly with the 70s, then, despite some occasional fits and starts, did not begin a full recovery until the mid-90s. The simplified explanation for this pattern is that by the end of the sixties the “old economy” based on electricity and combustion engines had run its course and the “new economy” incorporating information technology did not kick in until the mid-nineties.

We think this scenario is essentially correct, but it raises an obvious question about why IT did not have an impact earlier? After all, computers had been around in abundance since the 60s. Most economists believe this is because major new technologies have long incubation periods before they actually change the way enterprises organize and function. So, just as electricity had been around for many prior decades, it was not until the 1920s that it had a major impact of business methods and productivity. The technology conundrum is that the cycles are so long and variable that it is hard to know contemporaneously where we are in any particular cycle. Thus Nobel winning economist Robert Solow is famous for quipping in 1987 “you can see the computer everywhere but in the productivity statistics.” His frustration with the computer “conundrum” was to last another 8 years.

But what does this have to do with labor compensation? This should be obvious from a look at real wages (the green line) in Chart I. Wages follow productivity! Always have and always will. However, over the last few years there has been a modest disconnect as wages have not followed productivity increases into new high ground. We would argue this is temporary and due in most part to the bursting of the stock market bubble in 2000, 9/11/2001 and the subsequent recession.

However, this is where Krugman pounces. He’ll have no part of bursting bubbles or recessions (which he blames on Bush and Greenspan, anyway). Furthermore, he claims that a MEDIAN measure of wage growth (instead of an average measure) would show even slower growth because those at the top end pull up the average wage. This is a variation on his familiar “tax cuts for the rich” theme. Unfortunately there is no way to check his argument. He has used the terms “the hourly wage of the typical worker” in The Big Squeeze (10/17/05) and “real median household income” in The Joyless Economy (12/05/05). We searched the databases of both the Labor Department and the Commerce Department and could find no data on median wages or family incomes.

Nevertheless, we suspect that Krugman has a minor point about the median wage lagging. However, rather than venality on the part of the Bush Administration, it is most likely due to globalization The undeniable fact is that the wages of semi-skilled labor in this country will have a hard time keeping up with wages generally when the world market for semi-skilled labor is determined in south China.

But we have been here before as a nation and as an economy and the solution is the same as always. American labor will take advantage of the vast and deep educational opportunities in this country and upgrade their skills so that they participate and benefit in a more technologically advanced economy. It’s happening as we write. Local community colleges are overflowing with ambitious students all across the country.

Inevitably a few will be left behind. That’s life. If Krugman wants to spend his time whining about a few laggards, that is his choice. But most workers, especially younger ones, are too busy getting ahead to sit around feeling sorry for themselves. We think the result will be an upturn soon in wage growth as it continues to track long term productivity.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 6:38 PM

November 21, 2005

#196: The al-Zarqawi view of American resolve...

P. Krugman


Paul “Blackhawk Down” Krugman convincingly shows his true colors (if anyone ever doubted them) in Time to Leave (11/21/05). We can think of no one who could take the al-Zarqawi view of American resolve and turn it into a statement of American policy better than Krugman. However, we feel inadequate compared to others we have read in blasting this latest sickness metastasizing on the anti-war left. A good place to start is with Ralph Peter’s column today. He says it all. But what a shame it has to be said!

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 10:13 AM

November 18, 2005

#195: “I'm not an opponent of markets"

P. Krugman


Paul Krugman has written two consecutive columns on health care in the United StatesHealth Economics 101 (11/14/05) and Private Obsession (11/18/05). Both columns are boring as hell and can be dismissed on the basis of one colossal howler:

“I'm not an opponent of markets. On the contrary, I've spent a lot of my career defending their virtues. But the fact is that the free market doesn't work for health insurance, and never did.”
This is pure fantasy. We can think of no domestic issue on which Krugman has ever sided with a market solution over a government solution. The reason is simple. For the left, government solutions are where the votes are. Making people think they must depend on government to provide services for which someone else is paying is the name of their game. Market solutions encourage people think, choose, evaluate and compare. An informed, self-reliant consumer is the left’s worst nightmare.

In the first of these columns Krugman argues that markets cannot work in healthcare because “adverse selection” makes healthcare different from all other markets. Read this nonsense if you must but realize there are counter examples to all of his points. More important, the issue is never whether the free market handles adverse selection perfectly, but whether a one-size-fits-all government solution improves things. I think we all know the answer to that. “You want a BLUE car comrade? Come back in two years-we may have one.”

In the second column Krugman goes after the one aspect of the recent drug bill that made it halfway reasonable-the possibility of introducing some competition and consumer choice into the industry. The private market has responded to an extent no one thought likely. But to Krugman, this is exactly the nightmare we described above; the threat of an informed consumer! So he starts pounding at how complicated and bewildering the program is to older Americans. He doesn’t say so, but in his condescension he makes buying healthcare sound almost as complicated as buying a house or condominium. We wonder how he thinks older Americans manage to do that.

Krugman also criticizes the private market for having higher costs due to advertising and other marketing programs explaining their various products to consumers. Ah, for the simple life where government provided as much of the same thing to as many people as wanted it and someone else paid. This mentality led the political satirist P. J. O’Rourke to once comment,

“If you think healthcare’s expensive now, wait til it’s free”
Someone always pays and consumer sovereignty is our only hope of controlling costs.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 11:50 AM

October 20, 2005

#194: Who does he think is spending all the money?

P. Krugman


In The Big Squeeze (10/20/05) Paul Krugman faces economic reality with his usual left-wing partisan edge. Also, as usual, he can’t quite get his square left-wing peg to fit the circle of facts. The issue he discusses in this column is globalization; it’s impact on US labor and what, if anything, should be done about what he sees as the erosion of America’s working middle class. His basic sentiments are as put this way:

“There was a time when the American economy offered lots of good jobs - jobs that didn't make workers rich but did give them middle-class incomes. The best of these good jobs were at America's great manufacturing companies, especially in the auto industry”.
And the basic problem is stated this way:
“But it has been a generation since most American workers could count on sharing in the nation's economic growth. America is a much richer country than it was 30 years ago, but since the early 1970's the hourly wage of the typical worker has barely kept up with inflation”.
The sentiment is head-in-the-sand drivel and Krugman’s statement of the basic problem is incorrect. The US economy is not stagnant; it’s dynamic and innovating. And contrary to popular belief the US is not losing it’s manufacturing base. The US share of manufacturing output (on a value added basis) remains the highest in the world and is not in decline. What has declined is manufacturing employment–we’re making more stuff with fewer workers.

Earth to Krugman: This is called progress, aka higher productivity

And the way American labor will adjust to this progress in the same manner it always has–since the invention of the lathe. Skills will be upgraded and the jobs shed by manufacturing will be shifted into higher value added enterprises. It’s happening as we speak.

Krugman would have us believe that since the 1970s inflation-adjusted National Income has tripled but the “typical” worker is no better off than 30 years ago. This is nonsense. Has he never been to a booming mall, or crowded car dealership, or waited for a table in a popular restaurant? Who does he think is spending all the money? Maybe he thinks the typical worker is a migrant farm worker or checkout clerk at Best Buy. But wait. There’s actual evidence. Here are two charts from the web site of Krugman’s buddy, Brad DeLong. The top chart shows the share of domestic income going for wages and salaries excluding employer contributions to pensions and health care; the lower chart includes these contributions. Either way, Krugman is wrong. Even a 6 percent smaller share (top chart) of a pie that’s tripled since the 70s represents substantial progress.

De Long chart

So, having conjured up a problem that does not exist and a labor market adjustment that is routinely resolving itself, how does Krugman get out of this pickle? Incredibly, he concludes by telling us that “denial is not an option” and that “something must be done.” What a guy!

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 10:10 AM

October 7, 2005

#193: "forgets himself and becomes an economist again"

P. Krugman


Sometimes Paul Krugman forgets himself and becomes an economist again. It doesn't happen often, but we have always noted this odd transformation when it does occur. In A Pig in a Jacket (10/06/05), he drops partisanship, at least temporarily, and assesses our energy problems thusly:

"Now, much of the public believes that corporate evildoers with close ties to the administration are conspiring to drive

Just in case you think I've gone soft on the energy industry, let me say that claims that we're having a crisis because environmentalists wouldn't let oil companies do their job are equally bogus. When you hear someone talk about how no refineries were built for 25 years, remember that until recently, oil companies weren't interested in building refineries, because they had excess capacity and profit margins were thin.

In fact, the current crisis is nobody's fault, except Mother Nature's. Both Katrina and Rita were stronger hurricanes when they plowed through offshore oil and gas fields than when they made landfall. And because damaged refineries and other energy facilities are competing for a limited number of repair crews, it's taking a long time to get those facilities back up and running."

OOOkay. Sounds like the energy industry is responding to incentives exactly as they should. It's not Cheney or Halliburton or cronyism, but market forces that carry the day. He didn't say it, of course, but the rapid recovery of gulf operations is due heavily to the unsung private sector. Krugman ends up making a perfunctory swipe at energy dependence and global warming and a vague appeal to non-price energy conservation. But the damage is done. Krugman has struck a blow for free enterprise. We predict he will soon come to his “senses” and begin trashing Bush energy policies for being non-green and industry dependent.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 8:48 PM

September 20, 2005

#192: lane management

P. Krugman


Tragedy in Black and White (09/19/05) is another mindless, factless, “Bushbasher” of a column by Paul Krugman and it’s starting to look to us as if he’s just “mailing them in” these days. The recycled skreed they contain isn’t worth specific comment.

However, we did take note of a NY Times quote by the black mayor of New Orleans, Ray Nagin, which goes to the heart of the federal/state/local government coordination issues that should be dominating the discussion of the Katrina disaster relief performance.

Noting that Admiral Allen had urged residents not to return, the mayor said: "The admiral's a good man. I respect him. But when he starts talking to the citizens of New Orleans, that's kind of out of his lane. There's only one mayor of New Orleans and I'm it."
“Out of his lane”? Think about that! Here's a mayor who has just had his unevacuated town washed away, who has spent the last two weeks blaming everyone else for his own mistakes, who decided to repopulate the city despite contaminated water and lack of power and who rescinded that strange move only after President Bush pointed out to him that another hurricane was headed toward his area. And he’s worried about who's getting in his lane?

Well, as a matter of fact, we are supposed to have “lanes” in our federal system and “lane management” is essential for that system of shared responsibility is to work. Unfortunately, in Louisiana it did not work, because, as Mayor Nagin and Governor Blanco have convincingly demonstrated, the lane system is not idiot proof. No president is going to sit by and take the blame for the actions or inactions clueless local yokels. So, just as the Department of Homeland Security and the National Intelligence directorate represented large consolidations of federal power in the wake of 9/11, we suspect that Katrina will result in more “lane mergers” and the federal government will end up with the authority to override local governments in national emergencies. As regrettable as this may be, the likes of Nagin and Blanco make it inevitable. Our hope is that the new authority will be a narrow as possible.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 3:25 PM

September 2, 2005

#191: The complaint will look stupid in a week or two...


The New York Times editorial page and Paul Krugman in Can’t-Do Government (09/02/05) shifted into partisan overdrive today in the after math of Hurricane Katrina in New Orleans and nearby coastal areas. Nothing makes their Bush-bashing juices flow quite like the thought of catching Bush 43 in a rerun of something they did to Bush 41–in this case 41’s presumed indifference to Hurricane Andrew back in 1992. And now they have an extra hook–they believe National Guard units stationed in Iraq have depleted units needed here.

Here’s a sample of how the Times sees it from today’s editorial:

“Watching helplessly from afar, many citizens wondered whether rescue operations were hampered because almost one-third of the men and women of the Louisiana National Guard, and an even higher percentage of the Mississippi National Guard, were 7,000 miles away, fighting in Iraq.”
Krugman, of course, is just plain nasty:
‘Even military resources in the right place weren't ordered into action. "On Wednesday," said an editorial in The Sun Herald in Biloxi, Miss., "reporters listening to horrific stories of death and survival at the Biloxi Junior High School shelter looked north across Irish Hill Road and saw Air Force personnel playing basketball and performing calisthenics. Playing basketball and performing calisthenics!"

Maybe administration officials believed that the local National Guard could keep order and deliver relief. But many members of the National Guard and much of its equipment - including high-water vehicles - are in Iraq. "The National Guard needs that equipment back home to support the homeland security mission," a Louisiana Guard officer told reporters several weeks ago.’

Hmmm. High-water vehicles in the deserts of Iraq? Well, they do have a couple of big rivers. But we smell a Krugman whopper here and hopefully some intrepid bloggers will run this down.

We also note that a Rudy-Pataki combo representing local and state government has not stepped forward in La. Indeed the local police seem to have been AWOL and the mayor spends most of his time blaming others, especially the federal authorities.

But we think there’s a larger point here. In the battle of the Times and Krugman vs. Bush 43, they are “misunderestimating” him again! We fearlessly predict that in just a few weeks there will have been such a flurry of cleanup and rebuilding activity that their only option for complaint will be that he should have done it faster, and those kind of complaints typically have short shelf-lives. The reason we are so confident of our prediction is that a disaster like this unites all parties in Washington around that function they do best–spend money. No one will want to be left out. New Orleans will be showered with money and aid. Much of the most effective work as always will be done privately (Krugman will be too busy snarling to acknowledge that). And, by the way, the economy will benefit from Katrina also. We look for strong GDP growth for the rest of the year. The amazing thing to us is that the Times and Krugman could fall into such a trap.

Is all this rebuilding a good thing? We have some doubts because subsidizing construction in hazardous areas with cheap insurance and expensive infrastructure is usually a bad idea. But in this case, the New Orleans area ports are such vital national interests that maybe it will all work out. But Krugman, the Times and Co. are going to look like chumps very shortly.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

John adds: Regardless of the truth of the charges, the instantaneous hatred and partisan venom we've seen from leftists at a time of crisis is sick. Mentally sick. These people are deep in embittered-loser-land. And they will keep losing for a generation or two, unless they can come back to the reactions of normal people.

Posted by John Weidner at 12:43 PM

August 26, 2005

#190: A Grudging Correction from the streets of Qum


Paul Krugman had to make an embarrassing correction of his column Don’t Prettify Our History (08/22/05) concerning the 2000 election in Florida and the subsequent unofficial recounts. Anyone who followed that election even casually could see this one coming from a mile away. The Times public editor must have been overwhelmed by popular objections.

However, as important as Krugman fact checking is (we do it ourselves when he cites the research of others), in this case it misses a much larger point. It is not so much about his “lying” as it is about the demented state of mind that leads him and other Democrats to say such preposterous things about that election. In a word, they are crazed!

Think about it. From the halls of academia to the corridors of leading businesses and law firms there are grieving liberals whose career dreams were shattered by the Gore defeat. The narrowness of the election makes it hurt all the more. They simply cannot get past it and the outpouring of woulda, coulda shouldas takes many forms including distorting the facts of the recounts. They blame the ballots, they blame the machines, they blame Katherine Harris, they blame Gore himself and even themselves. When we think of self-flagellation we normally picture Iranian Shiites marching in the streets of Qum whipping themselves about the head and shoulders. But as Krugman’s column illustrates the Democrats have a trip going all their own. And it is self-destructive.

That of course is good news. They will never win the White House until they stop whining and get over Florida in 2000. Happily, they show no signs of doing that. To slightly restate the refrain of Brando’s Terry Malloy in On The Waterfront “They coulda been contendas.”

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 8:16 AM

#189: But we have the stats


Summer of Our Discontent (08/26/05) is another egregious example of Paul Krugman’s hell-bent partisanship and disregard for facts. His mantra for the last few years has been that economic growth in the U.S. is disappointing and that post-recovery job growth has been slow. But he has been totally wrong about GDP growth and now that jobs are growing nicely also, he has switched to wages:

“American families don't care about G.D.P. They care about whether jobs are available, how much those jobs pay and how that pay compares with the cost of living. And recent G.D.P. growth has failed to produce exceptional gains in employment, while wages for most workers haven't kept up with inflation."

Oops. Wrong again. As the following Bureau of Labor Statistics table makes clear, wages are more than keeping up with inflation in all sectors of the economy as of the 1st quarter of 2005. The only possibilities for explaining Krugman’s column are that he doesn’t know any of this (incompetence) or that he is a flat out liar. We vote for the former. He is too ideologically hidebound to bother with facts anymore.

BLS Wages Chart

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 7:56 AM

August 12, 2005

#188: You don't know it's a bubble 'till afterward...

P. Krugman


In Safe as Houses (08/12/05) Paul Krugman takes another shot at the U.S. housing “bubble,” apparently forgetting that bubbles are defined after they burst, not before. The trail of “predicting bubble bursts” is littered with some pretty distinguished corpses. The most famous, perhaps, is Fed Chairman Alan Greenspan and his “irrational exuberance” speech concerning the stock market in late 1996. At the time the Dow Jones Industrial average was only 60 percent of what it is today. In another case Professor Robert Shiller of Yale University wrote a book in 2000 entitled “Irrational Exuberance.” Even though he “got it right” in the sense that the stock market bubble did burst shortly after his book appeared, people forget that this was Shiller’s third bite at the apple. He had predicted stock market bursts twice before–once in the early 90s and again in the mid 90s. Perhaps Krugman has a similar strategy. Like the stopped clock that is always right twice a day–if you just keep at it your time will come.

We have no idea if he’s right or not about a housing bubble. But if his track record on other scare stories is any guide (remember the many “deflation” and then “stagflation” columns) we doubt it.

One other thing is bugging us that Krugman mentions again today (and the NY Times editorial page recites like a mantra). They keep claiming that this recovery is deficient because the recovery data are weaker than in most other post-war recoveries. Well, of course they are! It’s because they follow the shallowest recession in the post-war period. If you want to see strong recovery data, you need a deep recession first. Is there anyone on the planet who finds this surprising?

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 11:00 AM

August 1, 2005

#187: Let's work 30 hours a week, and zoom past the French...

P. Krugman


In French Family Values Paul Krugman makes an analytical error so inexcusable that it borders on incompetence. International comparisons of productivity are difficult enough under the best of circumstances. But to cite data showing “productivity in France – G.D.P. per hours worked – is actually a bit higher than in the United States” is flat out irresponsible. The reasons are simple. To make productivity comparisons on an apple to apple basis two crucial data adjustments have to be made. One is for the employment rate. A country with a lesser employment rate (more unemployment) will benefit in higher measured productivity because those unemployed are, in general, less productive. The other is for hours worked. Productivity declines with hours worked due to fatigue and other attentional factors. Thus, in general, measured productivity in a country where longer hours are worked will be relatively less at the margin. For both of these reasons, comparison countries must be put on an equal footing with regard to employment rates and hours worked before making the comparisons.

This is a well researched area of economics and there is little dispute about either the principles or the findings. But Krugman does not even acknowledge that this subject as an issue. For those who would like to dig into this further we provide this link to one such study. We chose Gilbert Cette because he is French and works out of the Banque de France. But there are many other studies as his reference page documents.

After adjusting for the “structural” discrepancies discussed above, Cette’s conclusions are as follows:

“We then see that the level of the ‘structural’ hourly productivity is higher in the United States than anywhere else, which suggests that the USA is still setting the technical efficiency frontier.”

“Following the Second World War, the growth of hourly labour productivity was faster in France and Japan than it was in the United States. However, the roles were reversed in the nineteen-nineties. This happened before France and Japan had fully caught up to the United States, since this analysis shows that ‘structural’ hourly labour productivity appears to be higher in the United States than it is in the other industrialised countries. This development has widened the already wide gap between economic living standards as measured by per capita GDP and is making Europe increasingly poor compared to the United States”

Krugman may have reached the point where he can say just about anything with little or no rebuttal. Those competent to evaluate him don’t waste time reading him anymore and his regular readers believe anything he says.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 8:51 AM

July 10, 2005

#186: "Is “pessimism” now some sort of religious faith?"

P. Krugman


It’s been months since Paul Krugman has written a column on the sad plight of our economy. We’re sure all Squad readers know why. The U.S. and world economies are doing pretty damn well. Even Krugman’s buddy, Stephen Roach, over at Morgan Stanley has thrown in the towel. As Roach put it:

“As a card-carrying pessimist, I am now being chided for expressing any
optimism.  My newfound bullishness on bonds, in conjunction with a more
upbeat assessment of Europe, has sparked a howl of protest from the
pessimistic crowd.  It's high time for the pessimist to play a more
even-handed role in shaping the macro debate.”

Chided? Pessimistic Crowd? This leads us to ask some questions: Is “pessimism” is now some sort of religious faith? Or is it a clandestine brotherhood complete with torch lit meeting rooms and secret handshakes? Is Roach now in danger of being “read out” of the club? Will Krugman, as pessimist-in-chief, stop quoting him in his columns? Should be fun to watch but we were frankly surprised that Roach felt it necessary to explain his revised views in terms of a break with the faithful.

In the mean time Krugman, much like Al Qaeda, has moved on to softer targets in his columns. His latest crusade is obesity. In Free to Choose Obesity (07/08/05) the villain is clear–big food, and the answer is clear–big government, but beyond that Krugman has little to say about what specific solutions might be. There is little wonder why. When you go much beyond labeling and education, things get silly fast. How about floor scales at Burger King, McDonalds and Wendy’s along with wall mounted height detectors. When customers’ height/weight ratios are over the “obese line”, they have to go to the salad bar. Or how about a government inspection program much like the Department of Agriculture’s meat and poultry system? Can anyone imagine a candy bar going down a government inspection line being checked for violating a regulatory sugar limit?

We also think obesity concerns should begin at home. If Krugman were slim and trim himself he would at least have some credibility on this subject. But he’s not. He’s a pudgy academic. In fact, if Poppin’ Fresh, the Pillsbury doughboy, and one of “big foods” most famous icons, were to grow a beard and take off the chef’s hat, he would be a spitting image of the Krugster himself. So what’s PK’s excuse? Was he misled by big food advertisements into thinking Twinkies were not fattening? Is he a victim? Like we said, when you get into the details things can get pretty silly.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 12:06 PM

June 29, 2005

#185: Yellow Peril

P. Krugman


The one thing you could say for Paul Krugman over his years as partisan columnist for the NY Times was that he stayed true to his free trade principles – even when the Democrats in Congress were engaging in protectionist demagoguery. Well. No more! With The Chinese Challenge (06/27/25) he's thrown in with the protectionists and we can now expect a steady stream of combined Bush/China bashing right up to the next election. In this column he is twitterpated over the Chinese bid for Unocal, a small but well-connected international energy company.

Here is his quote:

"Unocal sounds…like exactly the kind of company the Chinese government might want to control if it envisions a sort of "great game" in which major economic powers scramble for access to far-flung oil and natural gas reserves.

If it were up to me, I'd block the Chinese bid for Unocal. But it would be a lot easier to take that position if the United States weren't so dependent on China right now, not just to buy our I.O.U.'s, but to help us deal with North Korea now that our military is bogged down in Iraq."

This view is so flawed that it deserves careful parsing. The first point to be made is that oil, like most natural resources, is perfectly fungible, i.e., one barrel of oil is substitutable (with appropriate premiums and discounts for quality) with any other. Thus when President Bush says that drilling in ANWAR will make us less dependent on foreign oil he is just as wrong as his critics who say all Alaskan drilling is of no benefit to the U.S. because most of that oil goes to Japan. The point is that because of fungibility it does not matter who produces the oil or where it is shipped. If the Japanese buy our Alaskan oil, it just means they buy less somewhere else. It's an issue of logistics, not supply.

Think of world crude oil as a large pond. Producers add to the pond and consumers subtract from it. The price rises and falls with the level of the pond. If China does buy Unocal and they find some "far-flung oil" as Krugman fears, that's a good thing. It adds to the pond. If for some peculiar nationalistic reasons the Chinese decide to consume the newly discovered oil directly (not add it to the pond), that's good too. Because of fungibility the pond would still rise since the Chinese would draw less from it.

The bottom line is that Krugman has made a grievous error here. His professional colleagues must be cringing.

He then compounds his illogic by claiming it would difficult to block the Unocal deal because we are in a weak position vis-a-vis the Chinese (they hold our I.O.U.s and, with our military bogged down in Iraq, we need their help with N. Korea). This amounts to a colossal howler. The real direction of dependency is from the Chinese economy to the U.S. consumer. If the latter were to shift away from buying Chinese exports it would have regime threatening implications for the boys in Beijing. Chinese adventurism in foreign policy would have the same result. We suspect the leadership is well aware of their fragility. As to N. Korea, that's primarily a Chinese problem too. This will become apparent for all to see the first time N. Korea tests a nuclear missile and Japan announces the next day they too are going nuclear unless China knocks some heads together in Pyongyang. As to our military being bogged down in Iraq, that's a real laugh. What is Krugman suggesting? That if it weren't we maybe should invade N. Korea? Yellow Peril here we come!

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 6:06 PM

June 14, 2005

#184: Let's ignore those who believe in the marketplace...

P. Krugman


One Nation, Uninsured (06/13/05) is clearly a fill-in column for Paul Krugman– maybe he had to grade some late papers or something. In any case, it reveals some fault lines in his analysis of national health care insurance and confirms what we always knew his position to be – a single payer (read government) system. For example, he says right off the bat:

“Let's ignore those who believe that private medical accounts - basically tax shelters for the healthy and wealthy - can solve our health care problems through the magic of the marketplace.”

Well, we say, why ignore them? Why ignore arrangements that have worked for all other necessities of life, such as housing and transportation? Krugman is silent.

Then on the possible downside of a federal takeover of healthcare, he says:

“Some people, not all of them right-wingers, fear that a single-payer system would hurt innovation.“

Hey! That’s a real concern. If there is no incentive to innovate, why innovate? Again Krugman is silent.

We think this is all pretty simple. Krugman wants to bottle up the victim vote by promising to distribute health care equally and thereby achieve the great liberal dream of making all people dependent on government for healthcare. The scary thing is, it may work.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 10:20 PM

June 12, 2005

Krugdex updated...

P. Krugman


I've finally updated the index of KTS posts. (I'm up to #120) It's interesting to go back and look at what the Squad was saying, and compare it with what's happened. In fact, you don't need to look, I'll tell you. The Squad seems to have been right on in their explanations of where our economy was heading...and Krugman has been wrong so many times he belongs in the Grimblix Book of Records.

Actually, it's worth while reading those old reports. You'll learn nothing from Kruggie, but you will get a witty economic education from the Truth Squad...

Posted by John Weidner at 6:49 PM

June 10, 2005

#183: K on the Dark Side...

P. Krugman


The only way to comprehend Paul Krugman's recent columns such as Running Out of Bubbles (05/28/05) and today's Losing Our Country (05/10/05) is understand the depths of his pessimism. It's too easy to say it's just political and anti-Bush. It goes deeper than that. It's part of his DNA. It's worth repeating ourselves from earlier Squad reports to say he has spent a career looking for the economic dark side. A sample of his books and writings the last 25 years reflect this general malaise in thinking with such gloomy titles as, "Return of Depression Economics", "The Age of Diminished Expectations", Dispatches From The Dismal Science", "Even Worse than You Think" and "A Bridge to Nowhere?" and "The Great Unraveling." He's definitely a "glass is ninety percent empty" type of guy!

With this as background it is pretty easy to see why he still pines for the 60s and 70s and hates the 80s on forward. He simply doesn't believe in economic progress. Krugman would rather live in a world where the wealth pie is divided equally than in one where it is growing rapidly but unequally. The distinction is important because the policies that get one versus the other are exactly opposite. He doesn't trust the policies that are necessary for growth because some people might get rich. Perhaps these are honest differences, but beyond that the column is a bundle of unanswered questions about the costs of foregoing growth policies. For example, he asks the question, but never answers as to why the slow growth of middle class incomes (based on his flawed measurement) is because the rich are not taxed enough.

"Why is this happening? I'll have more to say on that another day, but for now let me just point out that middle-class America didn't emerge by accident. It was created by what has been called the Great Compression of incomes that took place during World War II, and sustained for a generation by social norms that favored equality, strong labor unions and progressive taxation. Since the 1970's, all of those sustaining forces have lost their power."

You bet! And the main reason is because they were stagnating our economy and hurting everyone's income and wealth. The irony that Krugman will never face is that the very "virtues" that he has cited over the years (not just today) in praise of business in the 60s, e.g., restrained profit motives, more awareness of "public" interests, cozy relationships with workers and unions were precisely the factors that led American industry to get a butt-kicking in the 70s by 2nd and 3rd rate countries all around the world and to having stocks of U.S. companies selling at prices below asset value. Nobody was happy with this – not even Jimmy Carter.

Fortunately, there was still enough vitality in American capitalism that the response to the 70s malaise was swift and brutal. A decade of mergers and hostile takeovers in the 1980s ushered in the era of "lean and mean" and put shareholder interests back in the driver's seat. There were abuses, of course, and some corporate raiders went to jail–Boskey, Milken, et.al. But in the end we were better for it and a foundation was formed for the productivity growth associated with the new economy in the 1990s.

Clearly Krugman cannot abide rough and tumble capitalism – most socialists cannot – so he blames "the engine of growth" for all our problems as he spirals down into another chasm of economic pessimism. He's trapped by his own ideology – poor but equal!

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 12:47 PM

May 25, 2005

#182: A "guest" writer's opinion...

P. Krugman


Paul Krugman is so boring to us these days we thought we would have a"guest" writer of a sort give some perspective on this wacky guy. The following is a Fortune magazine interview with N. Gregory Mankiw the outgoing Chairman of the the President's Council of Economic Advisors. Read the whole thing from the link below.

In this segment Mankiw is being asked by writer Peronet Despeignes about outside views of how the President's office works.

Q: How do you deal with this view of the decision-making process there? What do you hear from professors here at Harvard?

A: There are a lot of preconceived notions from people in the media who write stuff based on no knowledge at all. There are a lot of people who just make stuff up.

Q: So you often read the paper and slap your forehead?

A: Let me give you example. This is as I was arriving [as the new chair of the White House Council of Economic Advisers]. Glenn Hubbard, my predecessor, was leaving. I read one of Paul Krugman's New York Times’ columns, and he said something like, "Hubbard said he was leaving to be with his family, but you could see the knives sticking out of his back." The suggestion was that he's being kicked out. I knew that wasn't true. I knew I got the job in large part because Glenn recommended me. So here we have Krugman sitting in some office in New Jersey making a supposition about what's going on in Washington and then writing for the New York Times, with readers presuming that he knew something.

Q: Krugman is a very respected economist. What are your thoughts on his transformation into a columnist?

A: I had Paul as a teacher at MIT. And when I was at CEA in '82 and '83, he was there as well. I was a junior staffer in the Reagan administration. Two members of the senior staff were Krugman and (former Harvard economics professor, Clinton Treasury Secretary and current Harvard president Lawrence) Summers. At that time he was a brilliant economist. I thought he'd win a Nobel prize. I think there's a good chance he still will. His early work on international trade theory deserves it.
It's strange what's happened since then. When he became a New York Times columnist, he decided to abandon writing about economics as an economist does. He's very liberal, which is fine—most of my friends at Harvard are liberal—but whenever someone disagrees with him, his first inclination is to think that person is either a liar or a fool. It's amazing to me that an academic would behave that way. The one thing that I value about academia is open-mindedness, the premise that all ideas and different points of view should be considered. No one has a monopoly on the truth. The one defining characteristic of a good professor is to be open to all viewpoints.

Q: How do you explain what you describe as this change in Krugman?

A: I guess if you're a columnist, you want to be widely talked about and be the most e-mailed. It's the same thing that drives talk show hosts to become Jerry Springer. You end up overstating the case because it makes good reading. The problem is that economists by their nature—with a lot of "on the one hand" and "on the other hand" in their prose—can make boring reading.

[Krugman could not be reached for comment by presstime.]

We love the Jerry Springer analogy. Sorry we didn't think of it ourselves.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 10:30 AM

May 3, 2005

#181: Krugman "gets it"

P. Krugman


Programs for the poor are “poor” programs. That has been a mantra of the left for as long as we can remember. This is shorthand for the concern that if better off people are allowed to opt out of social programs, those programs atrophy from neglect and become only for persons who are poor or otherwise dependent. Paul Krugman gives a full exposition on this view in A Gut Punch to the Middle (05/02/05). Fear and loathing practically oozes out of every paragraph. The reason is simple. Modern liberalism depends on expanding dependency, not contracting it. To them, dependent people are assets. And assets must grow, not shrink.

The reason Bush’s “progressive indexing” of future Social Security benefits is a gut punch is because it threatens to free not just middle class workers, but also lower middle class workers, from the dependency they have been in for years. A reform that encourages people to invest in personal retirement accounts and depend less on Social Security is a major step toward an ownership society. But the problem for Democrats is that people who own things are no longer reliable Democrats. Krugman gets it! The fraction of the truly poor is small and getting smaller and the importance of Social Security will become smaller too if modest wage earners can become more independent. So the real gut punch here is to Krugman and the liberals, not to workers of any income level. The reason for all the teeth gnashing is concern that Bush will divide their troops.

The good news is that overall the liberals are losing these days. What we are witnessing should be viewed as death throes. Even the “limousine” liberals that Krugman hangs out with are shrinking in number and are now confined largely to boardrooms and editorial staffs of media elites, Hollywood and the west side of Manhattan. To us the interesting question is which rats will abandon this leaky boat? And when? Well, Hillary is certainly looking for a gangplank already. In
Squad Report # 176 we reported Krugman’s expressed dread of another Clinton candidacy. So we are betting that the Krugster will “go down with the ship.” He’s what American’s need. An irrelevant loser they can depend on.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 7:27 AM

May 2, 2005

#180: "Our system is hard to describe, but it’s hardly private"

P. Krugman


It’s more of the same in Paul Krugman’s latest demagoguery A Private Obsession (04/29/05). He begins with yet another attack on the U.S. healthcare system, this time by claiming it is the most “private” in the world. Once he’s pinned on the “private” label, he then trashes the system and blames all of its ills on…drum roll please….being private.

We have two obvious objections: First, the U.S. system is private only in the sense that private organizations, employers or employer contracted organizations such as HMOs, write the checks. But such a weird system as ours is made possible only by heavy government subsidies, for example, treating employer contributions as nontaxable income. Without these subsidies (and other strings-attached rigidities) the system would have collapsed years ago. Second, and more fundamentally, one thinks of a private system as one in which the market is allowed to operate and consumers are free to spend their dollars on whatever they want, including healthcare. Clearly, that’s not happening in the U.S. Our system is hard to describe, but it’s hardly private.

Krugman pointed this out himself just two weeks ago in Passing the Buck (04/22/05) as he tried to explain why our system is so dysfunctional:

“An important part of the answer is that much of our health care spending is devoted to passing the buck: trying to get someone else to pay the bills”

He’s exactly right. Except he then draws exactly the wrong conclusion. When someone else pays the bills, consumers over-consume, providers misallocate and you end up with a mess like our current healthcare system. We agree with Krugman on that much. But his solution, universal health care, is even worse since that is the ultimate example of “someone else” paying the bills. In that case, the “someone else” is the government.

That’s why we like the part of the President’s plan that includes health savings accounts (HSAs), which would be an important step toward putting consumers in charge of their own healthcare spending. They might, for example, choose to pay minor health care bills out-of-pocket and use the bulk of their healthcare budget to buy catastrophic health insurance. Or, they might spend more on life style changes and other preventive healthcare practices that qualify them for lower health insurance generally. In either case consumer demand would drive the allocation of services as is the case in most private transactions.

Krugman, of course, is bitterly opposed to HSAs because-–you guessed it– they're private!

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 9:00 AM

April 25, 2005

#179: Who's oblivious?

P. Krugman


The obvious question to ask Paul Krugman after reading The Oblivious Right (04/25/05) is: who's oblivious? He trots out all of his favorite polls and think-tank research to show how bad things are with the U.S. economy. Only the corporate interests are benefiting, says he. But when it comes to the uncomfortable fact that President Bush just won re-election six months ago with expanded majorities in both legislative branches, his only explanation is that Bush exploited the Iraqi war. How lame! Elitists always claim to be for the little guys, but then blame them for being duped when they lose at the polls.

We suggest a better test of how well the economy is doing. Krugman should go to the shopping mall next Saturday morning and see if he can find a parking place within 200 yards of Home Depot. Must be all those CEOs taking up the spaces. Or he should try to rent a beach house this summer within 6 blocks of the water. He'd find he waited too long and those "corporate interest" beat him to it.

There's one howler:

"Democracy Corps, the Democratic pollsters, say that there is a "crisis of confidence in the Republican direction for the country." As they're careful to point out, this won't necessarily translate into a surge of support for Democrats."

Well, why the heck not? Are they going to vote Green?

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 8:32 AM

April 15, 2005

#178: The proper name for this system is "Scientific Socialism..."

P. Krugman


Paul Krugman seems to have finally tired of flogging Social Security reform (after nearly ten columns) and has turned his attention to issues of U.S. health care in The Medical Money Pit (04/15/05). Again, he is revealing his position on these matters slowly (so as to maximize the number of columns), but his agenda is clear. He wants a classic single-payer system in which the government uses monopsony power to control prices paid to providers.

Monopsony is the opposite of monopoly where the buyer, rather than the seller, holds all the high cards. But to make it work successfully, the monopsonist (the government, in this case) must set prices just high enough to keep providers working, innovating and entering the provider network. That's quite a trick as it turns out. Krugman likes to cite data showing U.S. consumers pay more than the rest of the developed world for health care. But he ignores the fact that most of the medical innovation occurs here also and the rest of the world gets a free ride – just as they free ride our military spending, our protection of world shipping lanes and, in general, our international police work.

Imagine a single-payer system applied to other "necessities of life" such as transportation, housing or clothing. Everyone gets free transport, but the government decides what the cars look like, how much they cost, sets train schedules and routes, locates airports, etc. The proper name for this system is Scientific Socialism and it was tried and failed over a fifty year period from Eastern Europe to China after WW II.

Why anyone would think that health care, of all life's necessities, would respond better to Scientific Socialism is a mystery to us. The only sure thing in such a system is that consumers will over demand, providers will under supply and rationing will occur. When the price system is not allowed to do the rationing, then rationing takes the form of waiting for service or poorer service. Worst of all, innovation may slow because incentives for research are too low. Of course, socialists have an answer to all this, but we say they had their chance in the greatest experimental lab of all – the real world. And they blew it. Think East Germany in the 80s, or Cuba now.

It would be nice if Krugman dealt with some of these issues in the coming weeks, but that's not likely. If he does, we will comment.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 8:49 AM

March 11, 2005

#177: A hawk without a landing gear...


As we tried to point out in Squad Report #175 Paul Krugman has an interesting conundrum all his own. In Slanting Social Security (03/11/05) he unleashes yet another cover-the-waterfront attack on Social Security reform initiatives. This time he attacks the Social Security Administration (SSA) itself for hyping the problem and suggests, quite correctly, that the estimated date of bankruptcy (currently 2042) is a moving target that depends on economic performance. The SSA used an absurdly low US annual growth rate of 1.8 % to make its estimates whereas most economists (including Krugman, if you put a gun to his head) believe it is much higher, perhaps 3 to 4 %. A rate as high as 3.5% would push the bankruptcy date so far out that most voters would happily "kick the can down the road."

So why doesn't Krugman close the deal by making this crucial point? That's the conundrum; he can't do it without acknowledging that the Bush economy is in very good shape. Out the window would go all of his favorite straw men based on Bush's mismanagement. Remember the "great unraveling" or the "road to banana republic-hood" or the "Japanese-style deflation?" None of that could happen in an economy growing at 3.5%. Instead it would be something to celebrate, as a golden age.

So Krugman's now like a hawk without a landing gear circling his quarry. He sees it clearly, but dare not strike.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 8:05 AM

March 7, 2005

#176: Krugman appears on Meet The Press

P. Krugman


In his last few columns Paul Krugman has been swirling in a world of negativism and partisanship with regard to reforming Social Security. As we pointed out in squad report #175 even when he makes a good point (instead of just recycling previous ones), it is buried so deeply in anger and nastiness that very few notice.

Yesterday, however, Krugman appeared on meet Meet The Press (03/06/04) where his "hell no, we won't go" attitude toward any Bush policy or initiative was pushed pretty hard by co-guests Kate O'Beirne and Joe Kline. He spent most of the program looking like he would rather be just about anyplace else. It's fun to read the whole thing, even minus the shifty-eyed body language. Here are some interesting excerpts:

TIM RUSSERT: Paul Krugman, has the Iraqi election changed the terms of the debate regarding the president and the Democrats?

MR. KRUGMAN: Sure. It's a little bit harder to--I mean, someone like myself would say very strongly this was a war sold on false pretenses. It's actually greatly damaged America's position in the world if you look at it broadly, but there has been some good news lately and we're all glad about that and we hope for the best. You know, you can't be rooting for American failure. You know, we're all Americans. We all want to see things go well and you can't be rooting against democracy. You want to see it succeed.

Now, you know, the news may change. It's five weeks, still no government in Iraq. You know, it's starting to look a little bit like another one of those Kodak moments, you know, toppling of the statue and then the weeks go by and suddenly it turns out that it looked better than it seemed. But maybe it'll turn out well, but, you know, you have to just hope that this is a good thing.

That was a very uncomfortable question for Krugman, especially the part about "you can't be rooting for American failure." The only time he perked up a bit was during the sequence "…you know, the news may change." However, O'Beirne then nailed his ass pretty good:

MS. O'BEIRNE: Tim, given the remarkable things that appear to be happening in that part of the world, I think the Democrats have to be extremely careful not to sound so resentful and pessimistic. They, of course, run the risk of being on the wrong side of history because something clearly seems to be happening there. Any party that appears to be welcoming a defeat for America because that's good for them politically is in a terrible position, and their traditional commitment to Democratic forces, fighting against repressive regimes, has been not much in evidence when they seem so unhappy or begrudging about these remarkable developments.

On the topic of the next Democratic presidential nominee:

TIM RUSSERT: Paul Krugman, how do you see things unfolding?

MR. KRUGMAN: I think it's just wildly up in the air. I mean, you know, there's enormous turmoil on the Democratic side trying to figure out--there's a lot of unity but there's a lot of turmoil about what the party stands for. And I just don't know. I mean, I can't--I dread the prospect of a Clinton run just because I think that would be--it would be an attempt to recreate the politics of the '90s when you had Bill Clinton, who was a president who managed to sort of triangulate. And I think we ought to have an election that's really about what what kind of country we're going to be and we won't have that if it's Hillary Clinton running.

O'Beirne and Klein pounced all over that one:

MS. O'BEIRNE: Paul represents the true believers who wouldn't want to see another Clinton presidency. And the grass roots, the active sort of angry grass roots that delivered the chairmanship of the party to Howard Dean might not want to see that kind of a presidency. But I think Hillary Clinton is a stronger candidate in that environment. She's such a known quantity that she has a lot of running room. She can move pretty significantly to the right, I think, and keep--she's been solid on national security--and keep an awful lot of those angry liberals on the reservation.

MR. KLEIN: Paul, I have a question for you: What was it about the peace and prosperity of the eight years of the Clinton administration that you didn't like?

MR. KRUGMAN: No, I liked the way the country ran.

MR. KLEIN: I think that he had a real governing philosophy. It wasn't triangulation. It was moving us from the industrial age to the information age, and that's where the Democratic Party is going to have to move...

MR. KRUGMAN: There's a radical right...

MR. KLEIN: ...if it wants to have any role in American politics.

MR. KRUGMAN: There's a radical right challenge to America as we know it that's under way, and I think the Democrats--I mean, maybe Hillary Clinton can do this. I'm actually not opposed to her, right? But they need to make clear that they are going to turn back that tide, not blur it.

MR. KLEIN: The answer to a radical right challenge isn't a reactionary left response.

We think Klein has it exactly right. Krugman represents the "dead end" wing of the Democratic Party and it will stay a minority party until the members of that wing die off. Clearly, they will never change.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 8:38 AM

February 6, 2005

#175: Even when he makes a valid point, no one notices


It’s a testament to how much radioactivity Paul Krugman has picked up over the years from his excessive partisanship and nastiness that even when he makes a valid point, no one notices. His admirers assume he can do no wrong, and his critics consider him a political hack. We’ve always prided ourselves as acknowledging the few times (very few!) when Krugman has it right. Now is time to do so again. In Many Happy Returns (02/01/05) he makes a point so potentially devastating to the Bush Social Security reform initiative that we doubt it could survive if this point were exploited effectively.

Here’s the deal. All economic projections beyond a few years are very sensitive to assumptions about economic growth rates, i.e., the growth rate of the GDP. In many cases these assumptions are buried in footnotes, but they are always there if you look hard enough. In the case of the Social Security Administration, their projections of two crucial dates (2018 when the trust fund begins running a deficit and 2042 when the trust is depleted) are based on an assumed annual GDP growth rate of 1.8%. The SSA claims that rate is based on historical experience but, in fact, they used only the period from 1966 to 2000 to make the calculation. This period includes the episode from the late 60s to the mid 90s when productivity in the US “fell off a cliff.” Economists are still debating exactly why this happened but whatever the reason it is definitely over now. Growth in 2004 will be near 4% and since 1995 it has averaged about 3% including the 2001/2002 recession. The low growth episode of the 70s and 80s should be considered a historical aberration and not a basis for projections of the future.

Now what Krugman and the Democrats should be doing is jumping up and down and demanding that the SS Administration rerun their projections using what most economists would consider a reasonable growth rate. If this were done we have no doubt that for rates over 3% the current “problem” dates of 2018 and 2042 dates would be pushed out further by at least 20 or 30 years. Some doctrinaire Krugman critics have tried to argue that since future SS benefits are tied to wage indexes higher economic growth rates would have little effect, i.e., higher growth rates would mean higher wages and therefore higher benefits. Sorry guys! Nice try, but it won’t work. The wage indexing affects only the marginal cohorts, i.e., those who retire each year. Recipients already retired receive only a CPI boost. This means that wage indexing phases in slowly and the impact is pretty far out.

Make no mistake. If the SS Administration used a more reasonable growth rate, the SS “problem” would be much reduced if not eliminated. Economic growth works wonders.

So why don’t Krugman and the Democrats ride this horse to victory? We’re guessing but it’s probably because acknowledging the higher growth rate would mean acknowledging a great Bush economy. This may explain why Krugman simply accepted the lower growth rate and spent most of his column in an overly complicated attempt to show why such a low growth rate is inconsistent with the administration’s stock market returns assumptions.

He’s right about that too, by the way. The administration shouldn’t get away with using a low growth rate assumption to trash the SS outlook and then use a higher rate to tout a SS reform initiative.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]
Posted by John Weidner at 8:52 PM

January 21, 2005

#174: Why Did Krugman Miss This Potential flaw?


In The Free Lunch Brunch (01/21/05) Paul Krugman almost gets it right. There is indeed a potential flaw in the President's transition plan to private accounts, but Krugman can't seem to find it. In this report we will first explain the potential flaw, then show where Krugman missed it (close, but no cigar!).

The Potential Flaw

As money enters the stock market from the funding of private accounts stock prices will be bid up. This is no problem as long as prospective earnings also rise so that the price-to-earnings ratios (P/Es) stay approximately the same during the funding. But unless the new money comes from increased savings there is nothing to drive earnings higher. In other words, if the private accounts are funded by borrowing rather than saving there is no diversion of national product away from consumption and into plant, equipment, technological research and all the things that promote economic growth. The result is that the private account holders end up owning stocks at inflated P/Es and will have years of lackluster returns to look forward to.

We have been careful to use the word "potential" to describe this flaw because some very smart people have thought long and hard about these issues and see them differently. For one thing, after the transition is complete further funding of private accounts would not require borrowing and would result in additional savings. One might also claim that even if stock returns are lower for the private accounts than the historical average they could still be substantially higher than the return associated with the current Social Security system. Finally, private account holders would at least own and control their accounts and that is worth a lot compared to the current system.

In a nutshell, we don't agree among ourselves on many of these issues, but we do think the borrowing vs. saving link to earnings and economic growth should be part of the debate.

So Why Did Krugman Miss It?

Probably because he is so intent on being mean and nasty that he can no longer think straight. He believes the Bush plan will fail because current stock holders are not stupid enough to swap their stocks for bonds, i.e., the bonds being issued to fund the transition.
Here's how he put it:

"So privatizers are in effect asserting that politicians are smart - they know that stocks are a much better investment than bonds - while private investors are stupid, and will swap their valuable stocks for much less valuable government bonds. Isn't such an assertion very peculiar coming from people who claim to trust markets?"

This gives Krugman a chance to take a swat at privatizers for hypocritically trusting politicians more than markets. But, in fact, the real problem is that Krugman doesn't understand markets. Of course current stockholders will give up their stocks for bonds if P/E ratios are bid up to unsustainable levels as we described above. Current stockholders will make out very well, thank you very much. It's the new private account holders with overvalued stocks backed by additional government debt rather than savings who will suffer. This is the point Krugman should have made, but apparently he doesn't even understand it.

Posted by John Weidner at 10:46 AM

January 18, 2005

#174: We Need More Dan Rathers


Have you ever thought there might be a connection between the war in Iraq and the reform of Social Security? Well, neither did we. But that’s because our minds are just not as facile as Paul Krugman’s. In That Magic Moment (11/18/05) he zeros in the common denominator–the Bush administration’s deceitfulness. Just as they hyped the need for war, they are now hyping the extent of the crisis in Social Security. These are such predictable Krugman positions that one might wonder why he bothered to repeat them all again.

But to wonder that is to not understand Krugman. What’s really going on here, as we have pointed out on many similar occasions, is pretty simple. It’s another column on the cheap. If Krugman can find two subjects on which he has written before and can link them in some “original” manner, he can then write on them all over again and use the link–in this case, Bush’s deceit–as cover for his “self-plagiarism.” The mystery is why the NY Times puts up with such laziness.

There is one howler: Krugman attributes the re-election of Bush to confusion among the electorate due to Bush misrepresentations about Iraq. Likewise, he sees the political viability of Social Security reform as due mainly to more Bush misrepresentations and blames the media for not doing its job in uncovering them. Apparently, if we just had a half dozen more Dan Rathers all would be well.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]
Posted by John Weidner at 1:55 PM

January 14, 2005

#173: Krug's own retirement plan is like that...


In The British Invasion (01/14/05) Paul Krugman comes up with a scare story of his own based on the UK's experience with private accounts. Here is his summary taken from one source:

"Many Britons were sold badly designed retirement plans on false pretenses. Companies guilty of "mis-selling" were eventually forced to pay about $20 billion in compensation. Fraud aside, the fees paid to financial managers have been a major problem: "Reductions in yield resulting from providers' charges," the Pensions Commission says, "can absorb 20-30 percent of an individual's pension savings."

American privatizers extol the virtues of personal choice, and often accuse skeptics of being elitists who believe that the government makes better choices than individuals. Yet when one brings up Britain's experience, their story suddenly changes: they promise to hold costs down by tightly restricting the investments individuals can make, and by carefully regulating the money managers. So much for trusting the people."

If there really is a problem here (we'd like to look into the UK system more before commenting) it seems to be a combination of fraud and fee greed. But Krugman admits that the American initiative has an answer for both problems by restricting investments to an approved list of low cost funds. He poo-poos that as not "trusting the people." But not trusting them to do what? Pick individual stocks? The evidence is that even experts have a tough time doing that–hence the rapid growth of index funds. Furthermore, the nation's teachers and college professors including Paul Krugman have a retirement plan at TIAA-Cref that is set up exactly along the lines Krugman is now knocking for lack of choice. You can read about it here. But the following table gives a quick overview of Krugman's Choice along with associated fees. It's certainly a broad and sensible choice. We can't vouch for the fees because we didn't calculate them ourselves, but they seem very reasonable as well (nothing over 0.5 %). So tell us, PK, if a program like this is good enough for you, why can't all workers have a piece of the action if they want it?

Krugman's Choice expense charges chart

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 10:26 AM

January 11, 2005

#172: a bare-knuckles political brawl


Paul Krugman is like a guy with a recording of just one song. All he can do for variety is turn up the volume. In The Iceberg Cometh (01/11/05) he turns it up just about all the way. However, his message is the same: Bush is creating a massive problem by trying to solve a non-existent or minor problem. He's said this all before and we've responded to it all before, so we thought it might be interesting to discuss in this report why Krugman's position is going to lose politically.

Once again Krugman and the Democrats have "misunderestimated" the president. This is how we think Bush is going to win:

First, he's going to neutralize the older workers in their fifties and up by assuring them that absolutely nothing will change regarding their Social Security benefits. This may not mollify the AARP completely, but it will certainly make their opposition seem rather pointless.

Second, with the older folks off the table, Bush will turn to younger workers knowing two things:

A substantial majority do not believe SS will be there for them when they retire, and A substantial majority believe private accounts are a good idea.

To complete the deal about all Bush has to do is convince them that they trading away a benefit they don't believe they'll ever receive for a private account that they will actually own NOW. He will have to phrase this point delicately, but it seems like a no-brainer to us.

The financing piece may be a little more difficult to promote since some borrowing will be necessary to pay for the much discussed transition to private accounts, i.e., if payroll taxes are to be diverted from the Social Security income rate (pay in) to build private accounts, then government securities must be issued to maintain the cost rate (payout). See the chart in Squad Report # 171. This will give rise to no end of demagoguery by Krugman and the Democrats about Bush's fiscal irresponsibility.

What Bush has to do here is point out that if the government kept their books correctly there would be no de facto increase in total debt because of private accounts. That is, if the entire unfunded obligation of Social Security were recognized for what it is – debt – then the transition cost is a wash, i.e., zero, because the debt incurred to fund private accounts simply replaces dollar for dollar the implied debt of the total unfunded Social Security liability. Anyone who has refinanced a home recently to gain a lower mortgage rate should pick up on this reality rather easily.

Finally, and possibly most important, this is going to be a bare-knuckles political brawl.

The Democrats seem to have forgotten what a human battering-ram the president can turn into when he really wants something. When he hits the road and starts selling his reform ideas against an opposition, including Krugman and Co., whose biggest idea is to do nothing, we expect the tide will begin to turn. When it does turn, there are several red state Democratic Senators with elections coming up whose butts will be hanging out pretty far. What will they do to avoid the fate of Tom Daschle, the "great obstructer?" Probably cut a deal.

Anyway, it should be fun to watch and hear. And may take a dog whistle to measure Krugman's shrillness as defeat approaches.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 9:57 PM

January 4, 2005

#171: A Ponzi-analysis...


In Stopping the Bum's Rush (01/04/05) Paul Krugman continues his head-in-the-sand series on why there is no Social Security crisis and why the President's privatization initiative is an evil conspiracy to end this venerable entitlement. In this column he tries to explain why the oft-mentioned date of 2018, the date when withdrawals from the SS trust fund are scheduled to begin, is really meaningless and is being used by privatizers as a scare tactic. He implies that his answer today is the "short version" of a much longer explanation written elsewhere (www.bepress.com/ev). We read the other article (which is on a pay site) and found, as we expected, that the long version is the same as the short version. So here's what he has to say about the integrity of the trust fund:

"The short version is that the bonds in the Social Security trust fund are obligations of the federal government's general fund, the budget outside Social Security. They have the same status as U.S. bonds owned by Japanese pension funds and the government of China. The general fund is legally obliged to pay the interest and principal on those bonds, and Social Security is legally obliged to pay full benefits as long as there is money in the trust fund. There are only two things that could endanger Social Security's ability to pay benefits before the trust fund runs out. One would be a fiscal crisis that led the U.S. to default on all its debts. The other would be legislation specifically repudiating the general fund's debts to retirees."

The chart below describes what Krugman is talking about. The upper portion shows that in about 2018 the Social Security cost rate (payout) rises above the income rate (pay in) and stays above it forever given current law. The lower portion of the chart shows the same phenomenon from the perspective of the Social Security balance. The balance swings negative in 2018 as the trust fund begins to be drawn upon

Social Security Chart 1-05-1

What Krugman does not tell us is that this trust fund does not really contain funded assets as he slickly implies, but unfunded treasury debt that is backed by a dedicated payroll tax. This is not that different from a dedicated bridge or turnpike tax. When you need more roads and bridges, you just raise the tax. Of course, for Krugman this is no biggie since he is always ready to raise taxes. But his analysis obscures the main point as to why there is a crisis looming in the first place, namely, that as the trust fund is drawn down beginning in 2018, the dependency ratio – the number of beneficiaries per 100 workers – will be rising sharply. That's the crisis!

Until Krugman acknowledges the crushing taxes that will be required around 2030 on the 2 workers that will be available in the labor force to support each retiree (it's currently about 4 workers per retiree) and makes some attempt to justify these taxes, his ponzi analysis has no credibility.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 10:31 AM

December 10, 2004

#170: Head in the sand...

P. Krugman

In Borrow, Speculate and Hope (12/10/04) Paul Krugman commits a grievous logical error. The Bush initiative on Social Security does NOT increase the "deficit" if debt is properly and fully recognized. Right now we have a very large unfunded liability to future retirees that is a debt in every sense of the word. It is not officially recognized as such because there are no treasury bonds directly associated with it. Krugman's hatred of privatization leads him to pretend this liability is no big deal But the facts are otherwise.

Bush would fund private accounts by simply swapping treasury debt for this unfunded liability, i.e., raise the former and reduce the latter, dollar for dollar with no change in the total. If Krugman sticks his head any further in the sand we won't be able to see his shoulders.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]
Posted by John Weidner at 11:19 AM

December 7, 2004

#169: To become free of the scare machine...

P. Krugman

Paul Krugmans's special column today, Inventing a Crisis (12/07/04), interrupts a mini-sabbatical taken right after the election to finish his textbook. So, the topic must be important, right? Well perhaps it is. Nothing sets Krugman's teeth on edge like a privatization initiative and when a Holy Cow of the scale of Social Security is involved, he goes absolutely ballistic.

He begins this column explaining why the Social Security program is not in immediate crisis and why the Bush administration is inventing a crisis to push through privatization. In fact, he is right about much of this. Sure, with a few tweaks here and there the current program could go on forever. We could continue slowly raising the eligibility age, end wage indexing, add a modicum of means testing, etc. So what's going on here? Why make the change? Or, why not?

We think the issue is this. To the Bush administration we could have a much BETTER retirement system IF we could transition smoothly to a system of private accounts. It would be consistent with Bush's philosophy of an ownership society. People would control their own accounts and could include them in their estates. After the transition period, the accounts would boost savings in the sense that people would reduce consumption to fund their accounts. And, over the long run they would actually earn a return. The big IF is the transition period because to finance it, the government may have to borrow. Look for Krugman to hammer away at this part of any proposal ad nauseam.

But here's what we think is really bugging Krugman – though he will never admit it. The cornerstone of modern liberalism is the nanny-state welfare entitlement of which Social Security is the quintessential example. It has kept liberals in power for years by keeping the people dependent and living in fear of losing it. Now game is starting to slip away. As people begin to see a more independent retirement, they will also become free of the liberal scare machine. If Social Security privatization succeeds, Medicare will be next.

In short, Krugman sees the rapids ahead and is paddling up-stream like hell.

The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 10:02 AM

November 6, 2004

#168: The five-stages-of-death model...

P. Krugman

Paul Krugman must have gotten up on the wrong side of the bed on election eve. In Faith in America (11/01/04) he wrote a generous tribute to democratic ideals that was free partisan cheap shots and optimistic about "America's great gift to the world." He even hinted that he was more concerned about the process of casting of votes than about who actually won the election.

So what's wrong with this picture? This is clearly not the Krugster we have all come to know and love. However, our guess is that whatever overcame him on Tuesday will be short lived. And it is fun to speculate about the drift of his columns over the next years. Will it be despair followed by bitterness, or will it be bitterness first, and then despair. Or maybe his mood will follow the five-stages-of-death model developed by Swiss psychologist Elizabeth Kubler-Ross. These are denial, anger, bargaining, depression and acceptance. Somehow we don't think acceptance is in Krugman's DNA, but we expect a full load of the other four. Our bet is that he starts out in denial.


Update: Before the Squad Report on the Krugman column of (11/01/04) was posted we had the release of No Surrender (11/05/04). We were a little bit off in our prognostications. Using the Kubler-Ross model of the five stages of death [see above], we expected just “denial” in his first post election column. But he included “anger” and “bargaining” as well. We were right that “acceptance” is nowhere on his radar screen. However, stay tuned for “depression”; that’s probably next.

Here’s how we interpret today’s column:

Denial: “This election did not prove the Republicans unbeatable. Mr. Bush did not win in a landslide. Without the fading but still potent aura of 9/11, when the nation was ready to rally around any leader, he wouldn't have won at all. And future events will almost surely offer opportunities for a Democratic comeback.”

“Does this mean that the Democrats are condemned to permanent minority status? No. The religious right - not to be confused with religious Americans in general - isn't a majority, or even a dominant minority. It's just one bloc of voters, whom the Republican Party has learned to mobilize with wedge issues like this year's polarizing debate over gay marriage.”

Anger: “President Bush isn't a conservative. He's a radical - the leader of a coalition that deeply dislikes America as it is. Part of that coalition wants to tear down the legacy of Franklin Roosevelt, eviscerating Social Security and, eventually, Medicare. Another part wants to break down the barriers between church and state. And thanks to a heavy turnout by evangelical Christians, Mr. Bush has four more years to advance that radical agenda.”

Bargaining: “Yes, Democrats need to make it clear that they support personal virtue, that they value fidelity, responsibility, honesty and faith. This shouldn't be a hard case to make: Democrats are as likely as Republicans to be faithful spouses and good parents, and Republicans are as likely as Democrats to be adulterers, gamblers or drug abusers. Massachusetts has the lowest divorce rate in the country; blue states, on average, have lower rates of out-of-wedlock births than red states.”

The bargaining quote was close call. It might have been denial. We went with bargaining because Krugman seems to be saying:
“C’mon you guys, this is all a big mistake. Can’t you see that we (the blue staters) love our wives and husbands, go to church and don’t get divorced at any higher rates than those religious fanatics out west? We are just as good as they are; better, in fact. So give us a break!”
On a related issue, it is interesting that the liberal media, including Krugman, is desperate to have this election be seen as one about values, rather than about Iraq, terrorism or the economy. They seem to draw some consolation from the idea that they didn’t lose on the real issues, but instead to an anomalous uprising by their cultural inferiors in the red states. It’s as though losing to some small town yokels and country bumpkins who believe in the virgin birth, that Jesus died for our sins and that we are NOT descended from monkeys makes it all hurt less.

Well that is fine with us. As long as they keep losing they can feel as culturally superior as they want to.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 5:38 PM

October 22, 2004

#167: Preparing for Defeat – Amazing Disgrace

P. Krugman

Paul Krugman's column Voting and Counting (10/22/04) would be better headlined Preparing for Defeat – Amazing Disgrace.

But what's of more interest is that the Democrats' party line with regard to the upcoming election is becoming clear. Last weekend, Eric Holder, the former Reno Justice Department deputy and currently head of the Democrat's "election task force", made a revealing comment to Chris Wallace on Fox News. He said, "If all those who want to vote are able to vote and if all of their votes are counted, John Kerry will be elected president." Today Paul Krugman said similarly, "If the election were held today and the votes were counted fairly, Senator John Kerry would probably win." In other words, if Kerry loses two weeks from now, it will be because the Republicans cheated somehow.

What does one say to this?

We think the Republicans need to get over their tendency to take the Democrats as worthy counterparties for a reasonable discussion of these issues. In fact, the Democrats are a bunch of jerks transitioning from permanent majority status to permanent minority status and are behaving badly. The return of civility will have to a wait a new generation of Democrats bred to be proper minorities. Remember the inanities of the Ev and Charlie Show (after Sen. Everett Dirksen and Rep. Charles Halleck) on which they would appear at weekly press briefings and joke about their political impotence as the Republican leadership in congress?

Can anyone imagine Daschle and Pelosi ever doing this? No way! The Democrats need new leadership that accurately reflects their new political role and status.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Krugman is pushing the "disenfranchisement of minority voters" line hard. It's pure BS; poor and black districts always have a higher percentage of spoiled ballots, no matter what the voting system. It's just an excuse-in-advance to not accept the results of the election. Actually, they have already admitted defeat. Admitted it by having Kerry run as a duck-huntin' God-fearin' gun-totin' cheese-steak-eatin' flag-salutin' terrorist-smashin' church-goin' reg'lar American guy....

As Hugh Hewitt said: "How do you ask a goose to be the last goose to die for a campaign stunt?  How do you ask a goose to die for a photo op?" 

Posted by John Weidner at 9:53 AM

October 12, 2004

# 166: The watchdog is sleeping in front of the fireplace...

P. Krugman

Paul Krugman in Checking the Facts, In Advance (10/12/04) covers the waterfront of domestic issues he thinks likely to come up in the next and final presidential debate (Wednesday, October 13). It was an easy column for him to write. Think of it as the Mother of all re-cycle jobs. Since the Squad has already commented on these subjects before in response to Krugman's earlier columns, we will try our best to say something original. But to quote the president, it's going to be "hard work."

First, on health care, the Wall Street Journal [subscription link] had an editorial today that restated many of our previous points from a fresh perspective. This makes an excellent response to Krugman's claim that the Kerry proposal would do nothing to restrict patient choice:

"On its current path, Medicare alone is projected to gobble up perhaps 35% of all federal spending by 2030 (up from about 13% now). And our readers know that companies are finding it harder to afford health insurance for employees, due both to incredible but expensive innovations and especially a third-party payment system that discourages price competition.

It doesn't help that the politically easy course is to declare health care a "right" and promise everything. But the truth -- as long Canadian wait lists attest -- is that health care is a scarce good like any other and can't escape the laws of economics. As such it will be "rationed" one way or another. The only question is whether that is done through prices and individual choice, or through the brute political force of government."

On jobs and unemployment Krugman trots out the old talking points about Bush being the first president since Herbert Hoover to preside over a payroll decline and that the recent growth in employment is not enough to keep up with population. Once again he brings up the specter of a declining labor force participation rate because, he says, job seekers are discouraged and are dropping out of the labor market. Sorry, PK, but the participation rate is too squishy a term to say much of anything about discouraged workers. There are too many other factors involved. However, the Bureau of Labor Statistics DOES track discouraged workers specifically in their household survey.

The unemployment rate including discouraged workers (blue line) and not including discouraged workers (red line) is shown in the following chart. X. The red line is the government’s official unemployment rate.

Chart, unemployment rates

The rate of discouragement is the difference between the red and blue lines and is shown by the yellow line near the bottom. Notice that while the percent of discouraged workers seems to rise and fall with the business cycle, the changes are very small (about a 10th of a percent) and little more than rounding errors. Clearly Krugman has no valid point here.
On deficits and fiscal responsibility Krugman continues to paint a bleak outlook and blames it on the Bush tax cuts and the Iraqi war. We went to the recent Congressional Budget Office (CBO) report on the outlook through 2014 and put together the chart below.

chart, projected 'worst case" deficit and GDP

This chart shows the projected GDP and projected deficits for the next 10 fiscal years under what we have called "worst case" assumptions. These are based on selected CBO assumptions that 1) the Bush tax cuts are made permanent, 2) the Alternative Minimum Tax is modified so that it collects less revenue, 3) the real growth rate in GDP falls from the current 4% to only 2.5% during in the next 10 years and 4) that the current expenditures in Iraq and Afghanistan continue at currents rates for the FULL 10 years (adding $270 billion to total spending). We put "worst case" in quotes because events can always make projections even worse, but we think these assumptions are pretty dire. In any case, under the circumstances the deficit shown in the chart is not all that scary. It stays a little over 3% of GDP over the entire period. If GDP were to continue growing at 4% we might even have a surplus at some point.
This probably explains why recent yields on the 10-year Treasury note are both low and lethargic. Recall that under the gospel of Rubinomics, the holy writ of fiscal conservatism before which born-again Democrats worship, the long bond is the all-seeing, all knowing arbiter of the economic health of the nation. “You can’t fool the bond market” is the Rubinomics watch word. Thus, if things were anywhere near as bad as Krugman has been claiming these yields should be skyrocketing and “barking” like a guard dog.

chart, yields on 10-year note

Instead the watchdog is sleeping in front of the fireplace and every time Krugman tries to rouse it with a scare story (e.g., the U.S. is headed toward banana republic-hood) the dog just yawns, rolls over and goes back to sleep. [See Squad Report # 36 for a fuller discussion of Rubinomics]
We rarely use the word "lying" in our reports, but Krugman is definitely distorting the facts for partisan purposes. Nothing new there, of course, but we thought it would be good to point it out once again.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 6:17 PM

August 27, 2004

#165: Have another donut?

P. Krugman

We are always surprised when Paul Krugman writes a column that is thoughtful and free of partisan cheap shots. In America's Failing Health (08/27/04) he comes pretty close and for the second time in recent memory, the topic of his thoughtfulness is health care. Health vs. Wealth (07/09/04) was the other one (see Squad Report #161). Here is the core of today's column:

"Clearly, health care reform is an urgent social and economic issue. But who has the right answer?
The 2004 Economic Report of the President told us what George Bush's economists think, though we're unlikely to hear anything as blunt at next week's convention. According to the report, health costs are too high because people have too much insurance and purchase too much medical care. What we need, then, are policies, like tax-advantaged health savings accounts tied to plans with high deductibles, that induce people to pay more of their medical expenses out of pocket. (Cynics would say that this is just a rationale for yet another tax shelter for the wealthy, but the economists who wrote the report are probably sincere.)
John Kerry's economic advisers have a very different analysis: they believe that health costs are too high because private insurance companies have excessive overhead, mainly because they are trying to avoid covering high-risk patients. What we need, according to this view, is for the government to assume more of the risk, for example by picking up catastrophic health costs, thereby reducing the incentive for socially wasteful spending, and making employment-based insurance easier to get.
A smart economist can come up with theoretical justifications for either argument. The evidence suggests, however, that the Kerry position is much closer to the truth."
We disagree, of course, for all the reasons stated in SR #161 but this time Krugman goes a little farther and cites some data suggesting that Americans pay more and get less benefit (based on longevity and infant mortality) than countries with a single-payer health care system, e.g., Canada and France. We checked the longevity data and life expectancy is very close in all advanced countries. So he doesn't have a very strong point here.

However, if we can get on our own soapbox for a moment, the reasons for "America's Failing Health" become pretty obvious if you just look around any convenience store. The amount of space devoted to junk food (cookies, crackers, candy, soda, ice cream and pastry) is appalling. We have some very fat people in this country. Life insurers routinely charge higher premiums to the obese. But in health care insurance the healthy it seems subsidize the obese through pooling. Then, as Krugman laments, since insurers cannot charge the obese a premium that reflects their health status, they find clever ways to exclude high-risk customers altogether.

Higher premiums to the obese might send them a price signal to lose some weight. Unfortunately, we seem to be moving in the opposite direction. There is a move afoot to make obesity itself a disease, rather than a contributor to other diseases, and therefore directly eligible for reimbursement for medical treatment. What a terrible idea. Instead of a price signal, this move would absolve the obese of all responsibility. They are simply sick.

Have another donut? Don't mind if I do

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 12:58 PM

August 13, 2004

#164: Poster boy for the redistributionist Democrats...

P. Krugman

In April of this year John Kerry declared famously that he was "not a redistribution Democrat." "Fear not," he went on, "I am not somebody who wants to go back and make the mistakes of the Democratic Party of 20, 25 years ago. Nor am I somebody who believes that Washington has all the answers."

Well, apparently Paul Krugman did not get that memo. In Bush's Own Goal (08/13/04) he launches a broadside against President Bush's "ownership society" campaign theme largely on grounds that it would conflict with measures to promote more equality. So if you want a poster boy for the "mistaken" redistributionist Democrats of 25 years ago, look no further.

But let's back up. First of all, the ownership society has been around and growing for many years and is likely to continue to progress regardless. That's the way capitalist societies evolve. Bush may be a little ahead of the curve in pressing ownership as a campaign theme, but there is little doubt that in another 10 years or so neither party can win without the "investor vote."
Second, with regard to taxes, most economists would prefer taxes on consumption only. Or, put another way, they would ask, why on earth would one want to tax capital income? Investments in innovative capital goods are the growth engines of a free economy. Taxing capital is the modern day equivalent of eating the golden goose and reducing or elimination such taxes is a key element of Bush's ownership initiative. (By the way, a consumption tax does not have to be a sales tax. It can as well be an income tax that exempts capital income from taxation. It can even be progressive).

Krugman, of course, is having none of this. A redistributionist to the end, he's a divider, not a creator. He would rather split the pie more evenly than have it grow more rapidly. In addition, like most lefties, the thought of people owning and controlling more of their wherewithal and being less dependent on government for retirement, health care, education, etc., is like a shot to the solar plexus. It really hits them where they live. Here's how Krugman whistles past this particular graveyard:

"Conservatives like to point out that a majority of American families now own stock, but that's a misleading statistic because most of those "investors" have only a small stake in the market." "If the "ownership society" means anything, it means spreading investment income more widely - a laudable goal, if achievable."
Open your eyes, PK, it's happening! Right under your nose.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 7:42 AM

August 10, 2004

#163: A "spin" against "spinning"

P. Krugman

Paul Krugman surprised us a little bit today in Spin the Payrolls (08/10/04). We thought the Bush administration had done such a lousy job of promoting the positive economic outlook that Krugman might just leave them to flounder. But no! Never one to pass up a column on the cheap, he did a cut and paste job from his previous columns on the jobs picture and wrote a "spin" against "spinning."

The result is heavy handed and a good column to skip. But anyone who wants a balanced, informative view of the complexities of the job market should read this article by Floyd Norris, Krugman's colleague at the Times and chief financial correspondent. As Norris points out there is probably no single best way to look at any economic data. Hence, there is no substitute for a comprehensive examination of a subject. In that spirit he offers this graph showing the growing and remarkable discrepancy between the household and business establishment surveys of job creation.

Norri, employment chart

No one really understands what is causing this discrepancy – it's probably more than just job definitional differences – but Krugman has no trouble finding that the payroll survey that makes the Bush administration look worse. Is there any doubt that if a Democrat were in the White House he would be touting the household survey instead?

Oh well. At least he's "the devil we know!"

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 9:17 AM

July 28, 2004

#162: It's time for a dose of reality

P. Krugman

We were away for only ten days and things really got looney at Krugman central. He and the New York Times editorial page are both going bonkers over the prospect of voting machine fraud in the upcoming election. In Fear of Fraud (07/28/04) Krugman wrote his third column and the Times is now up to at least six editorials on this marginal topic, all of them bordering on hysteria.

It's time for a dose of reality.

First the problem with the 2000 election was not simply that it was close. We have had close elections before. Rather, that election was statistical dead heat. Some important states (not just Florida) were decided by a several hundred to a few thousand votes. Even with a closely divided electorate the odds of that happening were in the hundreds of thousands to one. The odds in the 2004 election will be just as miniscule. Obviously we should improve voting process where practical, but to obsess over this subject is ridiculous.

Second, even if by some stretch of the imagination the 2004 election were to be another "dead heat" the contentious issues would most likely concern voter eligibility rather than vote counting technology. Notice that Democrats rarely mention the uncounted chads today, but prefer instead to talk (without a shred of evidence) of the million black voters denied the vote in Florida in 2000. When it comes to particulars, even Krugman himself mostly emphasizes the undercount of eligible felons and the over count of Hispanics as major problems:

"After first denying any systematic problem, state officials declared it an innocent mistake. They told Accenture to match a list of registered voters to a list of felons, flagging anyone whose name, date of birth and race was the same on both lists. They didn't realize, they said, that this would automatically miss felons who identified themselves as Hispanic because that category exists on voter rolls but not in state criminal records."
He may have some arcane point here. Apparently in Florida most felons are Democrats and most Hispanics are Republicans. But what pray tell does this have to do with his presumed topic – voting machine audits, touch screen technology and paper trails? Answer: NOTHING. Early in his column Krugman protests (too much??) that he is not paranoid. Okay. We prefer the technical term anyway. As we said in the opening sentence – he's looney.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 1:04 PM

July 9, 2004

#161: Sane and rational (for a change), also wrong...

P. Krugman

Finally! In Health versus Wealth (07/09/04) Paul Krugman gives us a serious account of his views on health care and, specifically, of the Kerry plan which he enthusiastically supports. The heart of that plan would have the government solve the problem of catastrophic health care expenses by assuming the role of a "re-insurer" and pick up 75 percent of all medical bills over $50,000. By relieving private carriers of this risk, so says Krugman, insurance premiums would decline 10 percent or more. Here's how he summarizes the Kerry proposal:

"This is a truly good idea. Our society tries to protect its members from the consequences of random misfortune; that's why we aid the victims of hurricanes, earthquakes and terrorist attacks. Catastrophic health expenses, which can easily drive a family into bankruptcy, fall into the same category. Yet private insurers try hard, and often successfully, to avoid covering such expenses. (That's not a moral condemnation; they are, after all, in business.)"
As good as it may sound, in our view, this is a truly bad idea. It not only fails to address the central flaw in our current health care system – a lack of incentives for cost control – it actually exacerbates that flaw by pushing us further down the road to politicized control of health care spending decisions and away from a market-based system in which consumers make spending decisions themselves.

Currently, nearly 80 percent of all dollars spent on health care are spent by someone other than the consumers who generate the bills. This situation is a prescription for disaster. Anytime a good or service is touted by politicians as a "right" that someone else should pay for, the result will be the same – over-consumption. Since price rationing can't occur in such a system (because consumers don't have to worry about prices), rationing will occur eventually by non-price means, e.g., shoddy service, treatment refusals and long delays.

The only solution we see is to move toward a market-oriented health care system that allows consumers to break out of the third-party-payer mess and take control of their own health care spending. There are two general approaches underway that are mutually inclusive. One is a defined-contribution plan that is being undertaken by some employers. Briefly, the employer buys a high deductible group plan and combines it with defined cash contributions to individual employee health accounts. The latter puts employees in control of routine health care decisions (bumps, mumps, bruises and skinned knees) and the former allows employers to cap their total contribution exposure. A more general approach is the Medical Savings Account (MSA) plans which work somewhat like an IRA. Contributions are tax deductible and accumulated investment earnings in the accounts are tax exempt. MSAs can be used either for routine medical expenses or the purchase of catastrophic insurance.

Both approaches could use some facilitation by Congress with regard to consistent tax treatment and more flexible rules governing account operations. However, they both achieve the most fundamental health care objective – bringing down costs and improving quality and service by putting the consumer in control.

Even though we totally disagree with Krugman, he should get some credit for initiating the discussion in a sane and rational manner.

He didn't mention Halliburton once!

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 2:24 PM

July 7, 2004

#160: Figures don't lie, BUT....

P. Krugman

With Bye-Bye, Bush Boom (07/06/04) Paul Krugman has finally returned to his field of expertise and wrote about an economic issue. Nothing like a below-expectation Labor Department payroll report to put a spring in the step of all gloom-and-doom Democrats. At least this column gives us a brief respite from Krugman's recent ranting on everything from John Ashcroft's Justice Department to a review of Michael Moore's new movie. However, the column itself was little more than a rehash of the DNC's talking points on the U.S. Economy.

One issue he raised is worth refuting. He notes ominously that the percentage of the adult population with jobs has fallen under Bush.

"If you want a single number that tells the story, it's the percentage of adults who have jobs. When Mr. Bush took office, that number stood at 64.4. By last August it had fallen to 62.2 percent. In June, the number was 62.3. That is, during Mr. Bush's first 30 months, the job situation deteriorated drastically."
He's right on the numbers, but wrong on everything else. Of course the jobs/population ratio is falling when the denominator (as defined by the Bureau of Labor statistic) is all non-institutionalized adults over 16. And it will fall again in the next four years (and in the next four after that) no matter who is elected president. That's because we have an aging population and each year a larger proportion is living in retirement. This trend which began in the late 90s is entirely explained by demographics and is not at all measure of the scarcity of jobs as Krugman claims.

What's really troubling is that Krugman knows all of this. If he wanted to state the issue more correctly he would have cited the jobs/labor force ratio where the denominator includes only those eligible and interested in working. But then, those data would not have "made his case". So what Krugman's jobs as a percentage of population really measures is how far he has sunk into partisan politics and intellectual dishonesty.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 11:15 AM

June 9, 2004

#159: Flailing and shrillness escalate...

P. Krugman

Once again Paul Krugman proved he is a world-class jerk with two articles in the last three days that show he's willing to slander anyone who doesn't agree with his now proven-to-be-incorrect views of the U.S. economy. The Maestro Slips Out of Tune (06/06/04) is yet another cheap shot at his old nemesis Alan Greenspan, published in the New York Times Sunday Magazine. Then in his regular column The Great Taxer (06/08/04) he first takes some swipes at Ronald Reagan and then, as a means of getting President Bush, pays Reagan a back-handed compliment for reversing some of his initial tax cuts, something Bush has refused to do.

Squad readers will not be surprised to learn that both of these articles are very similar. Remember the Krugman motto: Why write two or more different columns when you can be paid two or three times for just recycling the first one?

The essence of both writings can be summarized in a quote form each. From The Maestro Slips out of Tune:

"Either way, Greenspan did something remarkable. After becoming a symbol of America's economic turnaround in the 90's, and anointing himself the nation's high priest of fiscal probity, he lent crucial aid and comfort to the most fiscally irresponsible administration in history. In the end, that will be his most important legacy."
And from The Great Taxer:
"The contrast with President Bush is obvious. President Reagan, confronted with evidence that his tax cuts were fiscally irresponsible, changed course. President Bush, confronted with similar evidence, has pushed for even more tax cuts."
Notice that the veracity both of these quotes PRESUMES that Krugman's long held, pessimistic view of the U.S. economic outlook due to the Bush fiscal policy is correct. Thus he slams Bush for pursuing a fiscal policy in the face of evidence of its irresponsibility and slams Greenspan for abetting him in becoming the "most fiscally irresponsible administration in history."

And just what is the evidence of fiscal irresponsibility one might ask? The answer is, there is none. In fact, all the evidence supports the opposite view. Bush's fiscal policy has worked like a charm. Now that employment has started to grow rapidly the economy has entered one of those golden zones where a recovery becomes self-sustaining. One by one, Krugman's arguments of a renewed slump have fallen to the wayside. He can no longer grouse that the economy may stall when the tax cut stimulus stops, or when the home refinancing stops, or when the consumer gets tired of shouldering a burden that should share with capital spending. And jobs! We can't imagine what Krugman will say about the rapid payroll growth. As we have said before, jobs were the last arrows in his quiver and he's shot them and missed.

As he stews in his own juices over the next few months, we expect his flailing and shrillness to escalate. Hang on!

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 8:36 AM

June 1, 2004

#158: Hardly worth mentioning...

P. Krugman

Things are becoming desperate over at Paul Krugman Headquarters. In Dooh Nibor (06/01/04) he takes a week old "leak" from the Office of Management and Budget (OMB) and spins it into yet another "tax cuts for the rich" tirade. The trouble is this memo has already been batted around between the Kerry Campaign and the OMB for days now. It's old news to anybody who has been paying attention. Furthermore, the memo itself turns out to be just a mechanical projection that serves as a starting point for budget analysis. It is not a decision document. Here's how the OMB's J.T. Young put it to Reuters in response to Democratic claims of massive spending cuts.

"This memo is a process document only. It is a routine, normal part of the budget process. It merely allows us to begin the process of putting together a budget... It is not a decision document. While we intend to hold the line on spending and cut the deficit in half over the next five years, it doesn't mean we can't adequately fund our priorities as is done in the president's current budget as well as in his past budgets."
This is the end of the story. There was no story. Only Krugman could get away with column on the cheap like this because his editors at the Times aren't paying attention either.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

[Me, I'm in favor of "tax cuts for the rich." My campaign slogan will be, "The more you earn, the lower your tax rate!" ]

Posted by John Weidner at 10:40 AM

May 4, 2004

Some Krugman thoughts...


The Krugman Truth Squad is on hiatus these days—because they're economists, and Paul Krugman hasn't written anything solid on economics for a long long while.

But I'll just take a slice or two of off Krugman's latest column, Battlefield of Dreams:

...Less has been said about how dreams of making Iraq a showpiece for free trade, supply-side tax policy and privatization — dreams that were equally oblivious to the country's realities — undermined the chances for a successful transition to democracy.

A number of people, including Jay Garner, the first U.S. administrator of Iraq, think that the Bush administration shunned early elections, which might have given legitimacy to a transitional government, so it could impose economic policies that no elected Iraqi government would have approved. Indeed, over the past year the Coalition Provisional Authority has slashed tariffs, flattened taxes and thrown Iraqi industry wide open to foreign investors — reinforcing the sense of many Iraqis that we came as occupiers, not liberators...

So where's the evidence? Where are the facts? We don't need no facts, we're the NYT!

From what I've read, low-priced goods are flooding into Iraq, and many people now have money to spend, who didn't before. Cars, sat dishes, cell phones, are selling like hotcakes. Police, teachers, government employees all have greatly increased salaries. Our planned spending on various projects has been horribly delayed by State Department rules of a sort that Krugman doubtless supports. But it's starting to kick in, and unemployment is falling. Exactly who's complaining? How does K know that "no elected Iraqi government would have approved?" Instinct? Actually any smart government would want to have economic reforms made now, because they will be much harder to do once voters have a say.

But then Krug gets to what's really bothering him. PRIVATIZATION! He hates it like poison. (Which is just what it is to his dreams of being a kingpin in a big-spending Democrat administration.) He mentions various private contractors in a way that just assumes that they perform worse than government doing the same job. No evidence needed, of course, Merely mentioning "profits" and insinuating political connections (Republican) is enough.

Of course the prisoner-abuse scandal is handy to taint all:

...We don't yet know for sure that private contractors were at fault. [at Abu Ghraib prison] But why put civilians, who cannot be court-martialed and hence aren't fully accountable, in that role? And why privatize key military functions?...
Why? Well, for one thing you can lay them off when the war is over. When the contract expires the taxpayer's expense ends. And it frees up soldiers for other jobs. Like actually hunting for the bad guys.

And Krugman doesn't mention that the contractors doing things like body-guarding or interrogation are almost all retired US military personnel. Also that those aren't key military functions. (For key functions, think, "killing people and breaking their things.")

Posted by John Weidner at 1:59 PM

April 30, 2004

#157: It's getting pathetic...

P. Krugman

There is little doubt that President Bush's aircraft carrier landing a year ago was a political blunder. So why can't the Democrats capitalize? For the answer see Paul Krugman's column In Front of Your Nose (04/30/04). As with most of the anti-war left, Krugman sees all foreign conflict from the perspective of a Vietnamese war template. He simply can't get beyond the quagmire syndrome. Consider these gems concerning the Iraqi war:

"And all of the proposals one hears for resolving this ugly situation seem to be either impractical or far behind the curve."
"I don't have a plan for Iraq. I strongly suspect, however, that all the plans you hear now are irrelevant."
Is it any wonder Kerry crowd can't get a coherent message together? How do you deal with a situation you consider hopeless?

Krugman has the temerity to throw in the obligatory "did I mention North Korea is building nuclear weapon" line. This is how the left tries to inoculate itself from being seen as total wimps. But are we to think Krugman would support a ground war on China's border???

It's getting pathetic.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

* I'd have to disagree with the Truth Squad on one point. I don't think the carrier landing was a blunder. What was the message conveyed? That Bush can fly a jet, that he can mingle easily with the troops, that he's joyful over our victories, that the war is a top priority? What's to not like? And that a lot of prissy hate-America Democrats were stung into incoherent frenzies of loathing and frustration? That's bad? That he's conned all the sob-sisters into criticizing him for being war-like in a time of war?

When I heard about that carrier landing, my very first reaction was to grin, just thinking about how bozos in Berkeley would be shitting ice-cubes...I bet a gazillion ordinary Americans felt just the same thing. Even if it was a blunder, it was worth it!

Posted by John Weidner at 9:25 AM

April 27, 2004

#156: Nasty insinuations

P. Krugman

A Vision of Power (04/27/04) is another "Cheney bash" by Paul Krugman in which he rants against the administration's attempts to keep the participants in the Vice President's 2001 energy task force confidential. For Krugman the combination of Cheney and the energy industry sets off fulminations that can last for weeks. Remember the ten or so columns on the California electricity crisis a couple of years ago?

At first we were going to pass on this column, but then we spotted one segment so outrageous we changed our minds:

"Could there be a smoking gun in the [task force] records? Well, maybe Mr. Cheney was already divvying up Iraq's oil fields in 2001, but I'd be surprised to find anything that clear-cut."
The phrase "already divvying up Iraq's oil fields" gives the clear impression that the fields were in fact divvyed up at some point LATER and the only question is when the divvying began. But there never was any divvying. This is an unsupportable attempt to evoke images of colonial powers dividing the spoils of war. Instead, the overwhelming coalition effort was to get the Iraqi oil fields up and running again ASAP. They may have favored coalition companies with contracts and, at times, they may have sacrificed cost effectiveness for speed, but overall the effort was effective.

If Krugman wants a modern day parallel of a colonial rip-off he has to look no further than the Oil-for-Food program administered by none other than the UN Secretariat. This is a record-setting scandal involving theft from an oppressed people that is just now being fully comprehended. We have yet to find out who stole the Iraqis' money, but we will know soon enough. Companies and politicians with close ties to French and Russian interests in the Middle-East are good bets.

Meanwhile, will Krugman ever write a column on THIS historic scam?

Never! It doesn't fit his anti-Bush agenda.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 7:34 AM

April 20, 2004

#155: No and no!

P. Krugman

The historically low long-term interest rates as reflected currently by the yield on the 10-year US Treasury bond are an embarrassing problem for Paul Krugman and Democrat economists. At a lethargic 4.3%, the long bond yield continues to be "the dog that won't bark" and greatly complicates his assaults on the Bush administration's fiscal policies. In Questions of Interest (04/20/04) Krugman gives that dog a kick to see if he can't at least get a yelp out of it. We didn't hear anything yet.

Here's Krugman's problem. Under orthodox Rubinomics (named for former Treasury Secretary Robert Rubin) an omniscient bond market is the ultimate arbiter of economic well-being. Governments pursuing reckless fiscal policies are quickly brought to heel by higher yields in the bond market which sees right through their chicanery. Hence, a cogent argument for economic gloom and doom based on "irresponsible tax cuts for the rich", "fiscal deficits as far as the eye can see" and looming "banana republic-hood", requires some sort of a red flag coming from the 10-year bond. But the bond market is not cooperating. Instead yields are just lollygagging around near a 40-year low.

So Krugman tries a new tack. WHAT IF, he asks rhetorically, interest rates and inflation go back up to their long-run averages of, say, 7% and 3% respectively? Isn't that terrible? Won't the dog be barking then?

No and no! It's not bad at all. And it might even happen – Krugman has been right before on occasion. However, his larger problem is that to get us to that point he has to assume that the economy either recovers fully or is perceived to be recovering fully. Contrast that with the current perception reflected in polls showing that the economy is under performing. If that perception changes toward more optimism in the next 6 months Bush will be reelected with growing legislative majorities. Rates may rise some, but the dog still won't bark.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 9:40 AM

April 13, 2004

#154: Ivory Tower empty...

P. Krugman

After a column full of anti-Bush, anti-war rantings Paul Krugman in Snares and Delusions (04/13/04) finally gets to a "better solution" in this last paragraph.

"The best we can realistically hope for now is to turn power over to relatively moderate Iraqis with a real base of popular support. Yes, that mainly means Islamic clerics. The architects of the war will complain bitterly, and claim that we could have achieved far more. But they've been wrong about everything so far - and if we keep following their advice, Iraq really will turn into another Vietnam."

"Turn power over" and "relatively moderate" are so broad as to include everything from handing Sistani the keys to developing a pluralistic democracy operating under an Islamic umbrella. The devil, as usual, is in the details. Krugman's posturing profundity was never made clearer than in this absurd column. His ivory tower is as empty as his suit.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 7:23 AM

April 9, 2004

#153: Whistling past the election year graveyard..

P. Krugman

Paul Krugman in One Good Month (04/09/04) finally addressed the good news contained in last week's employment report – 308,000 new payroll jobs in March plus upward revisions in the January and February reports. But he punted on the report's implications for the future by taking a wait and see approach as to whether it continues. In other words, he whistled past the election year graveyard.

Three points are worth making:

The improving job outlook is the LAST piece of a strong economic picture to fall into place. Every OTHER indicator from GDP growth to inflation to interest rates has been outstanding for some time.
The reason jobs growth is important is that it becomes self-sustaining. The income generated by new jobs supports consumption spending and takes the pressure of the on-time policy stimuli, e.g., tax cuts. Krugman has made this point many times himself. Interesting he avoids it now.
The recovery underway in the US is not only strong itself, but is synchronized with most other large economies around the world. This is an uncommon occurrence and bodes well for the next several years as growth begets more growth.

Krugman and the Democrats just keep on insisting that the economy is weak in the face of mounting evidence to the contrary. And why not? Polls show they have done an amazingly good job of convincing people that economic their lives are precarious and that an Indian out-sourcer is lurking around every corner. It will be very interesting to see how long they can keep it up.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 10:22 AM

April 6, 2004

#152: Silence is Golden Deafening...


Paul Krugman is AWOL. After making "jobs, jobs, jobs…" the center piece (or better yet, the "only" piece) of his economic attacks on the Bush administration, he fell silent today [LINK 1] and did not comment on the spectacular employment report last Friday, April 2, 2004. Neither did any of the other "jobless recovery" publicists. Brad Delong, for example, gave it two sentences on his web site [LINK2]. The silence is deafening.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

How's the song go? "Mister, We Could Use a Man Like Herbert Hoover Again..."

Posted by John Weidner at 9:15 AM

March 26, 2004

#151: "Efficiency" Krugman-style

P. Krugman

The Medicare Muddle (03/26/04) is Paul Krugman's third column in six weeks on this topic and makes him the champion recycler of the New York Times. There's really nothing new. As in Social Security Scares (03/05/04), see Squad Report # 148, and The Health of Nations (02/17/04), see Squad Report #145), he continues to walk a tightrope between scaring seniors enough about their benefits to keep them voting Democratic, but NOT scaring them so much that they might embrace privatization. For once the privatization camel has his nose under the health care tent there is no turning back.

Krugman continues referencing undocumented studies showing that government health programs are more efficient that private ones. We would love to see those studies. Our guess is that these efficiencies come at the expense of choice, timely service and quality. When you price something below cost rationing always occurs, one way or another. Then there is an even greater problem. If you wring all the profits out of a private system to provide cheap service, how does innovation continue to get financed? On this point Krugman's silence is deafening.

This photo helps make the point. These two cars are Soviet ZIL-41044s circa 1980. They too were produced "efficiently", because the prices of their inputs were controlled, their design costs were minimal (they were stolen them GM) and customer service was non-existent. So if you didn't mind waiting a year or two and didn't really care which color you got..... Which one would you want?
The Zil, a Soviet automobile

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 7:27 AM

March 19, 2004

#150: Krugman and Greenspan are both wrong on this issue

P. Krugman

In No More Excuses on Jobs (04/12/04) Paul Krugman makes two errors which undermine his entire column. First he relies on his old nemesis Alan Greenspan to argue that the business establishment survey of payrolls is superior to the household survey of employment on the question of jobs and job creation. As you might expect, the former survey, which Krugman always touts, shows the largest job losses. This is the first time we recall that he sided with Greenspan on anything.

In fact, however, he and Greenspan are both wrong on this issue. The Bureau of Labor Statistics which publishes both surveys has made major progress in reconciling the two series and addressing the issues raised by Greenspan. He and Krugman should both read the most recent BLS report on this subject. LINK. In particular, the erratic population control shifts which impact the survey each January (and about which Greenspan complained) have been smoothed to make the survey more useful in research.

In addition, Krugman's claim that the establishment payroll survey captures new businesses is just plain wrong. True they have a model which makes a frail attempt at estimating new businesses, but as critics have pointed out it has proved notoriously wrong at economic turning points - just when we need accurate information most. The best that can be said of the establishment survey is that the revisions using data from state unemployment insurance programs eventually do catch start-ups, but this is typically 6 months to a year after the fact.

This column should be read a yet another attempt but Krugman to exploit the jobs issue which is all he has left to gripe about. Every other indicator of the economy's health is strongly up.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 2:23 PM

March 9, 2004

#149: Chart cribbed and adjusted...

P. Krugman

Paul Krugman's column Promises, Promises (04/09/04) is really a tale of two charts. It's the chart he cribbed from Brad DeLong and printed in the NY Times today vs. DeLong's original chart [link] posted last week.

Krugman's cribbed chart shows how far the Council of Economic Advisors (CEA) is off in their forecasts of payroll growth. This is a little like criticizing the Dallas Cowboys' cheerleaders for putting too high a point spread on America's Team. Of course the CEA tries to put the administration's case in the best light. That's what they get paid for. And Krugman gets paid for just the opposite.

DeLong at least had the intellectual honesty to include the Blue Chip consensus of fifty leading private forecasters (that's the yellow line in the chart below). Krugman took it out because his mission was to make the CEA look as bad as possible, not enlighten us.

The Blue Chip forecast is not as bullish as the others, but it's imminently reasonable. Moreover, it's about what one would expect under current circumstances emerging from a recession that was preceded by a bubble burst and accompanied by rapidly rising labor productivity. Job recovery can be agonizingly slow and that is not even the worst of it.

DeLong's Payroll Shortfall Chart

The facts are these: Many of the jobs lost in the last few years are not coming back. Ever! They are obsolete. They will be replaced by other jobs, but how well the new jobs pay will depend on the skill brought to the job by labor. The flipside of rising labor productivity is that labor must upgrade its skills to function with the new, more productive technology. Checkout clerks at Best Buy and espresso makers at Starbuck's are not going to make much money. Moreover, they are prone to become obsolete themselves in a few years.

To have it otherwise would be a denial of progress. If we listened to those who rail against "exporting" or "outsourcing" jobs, we would still in living in the world of the movie Pleasantville.

Krugman could better spend his time helping the Democrats come up with some sensible alternatives to taxing the rich and punishing "Benedict Arnold" CEOs for out sourcing.

He should also clear up where he got this chart.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 1:49 PM

March 5, 2004

#148: Vampire:hiss....Krugman:hissy-fit

P. Krugman

We had trouble today finding the focal points of Paul Krugman's column Social Security Scares (03/05/04). On a first quick reading he supported the Treasury view that Social Security is in pretty good shape:

"So does the Treasury report show a looming Social Security crisis? No."
and that Medicare is a problem for another day:
"When people issue ominous warnings about the cost of Medicare after 2077, my question is, Why should fiscal decisions today reflect the possible cost of providing generations not yet born with medical treatments not yet invented?"
We agree! So, can this be the Paul Krugman we all love to hate? Actually it can be. On a second reading we realized what was really bugging him. Privatization! Private Retirement Accounts and Medical Savings Accounts threaten to undermine government programs by allowing people to become more self-sufficient. To a socialist, talk of privatization is like waving a cross in front of a vampire. They hiss and turn away. In Krugman's case a hissy-fit is more descriptive.
"After Alan Greenspan's call for cuts in Social Security benefits, Republican members of Congress declared that the answer is to create private retirement accounts. It's amazing that they are still peddling this snake oil; it's even more amazing that journalists continue to let them get away with it�.Why is it so hard to say clearly that privatization would worsen, not improve, Social Security's finances?"
It's hard because any worsening would be temporary due only to transition funding and we would come out the other side with a system where each generation provides for itself privately rather than depending on the current intergenerational transfer system which is little more than a Ponzi scheme run by the government. What Krugman finds "scary" in Social Security Scares is the possibility that people will be depend less on the government in the future.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 9:16 AM

March 3, 2004

#147: So what happened to Rubinomics?

P. Krugman

It must be winter again. Once a year about this time Paul Krugman loads his bazooka and fires one at Fed Chairman Alan Greenspan. There was The Quite Man (01/08/02) and the Maestro is a Hack (02/07/03) and now, right on cue, we have Maestro of Chutzpah (03/02/04). These columns are so close in content you could lay a dime over them and not see the difference. We have often marveled that Krugman's lazy recycling habits seem lost on the NY Times editors. Even Hip-Hop recording studios demand new material occasionally.

However, we keep trying to think of original ways to respond to Krugman's shopworn tirades. But it's tough. His principal beef with Greenspan is that he supported the Bush tax cuts. Krugman has written at least 50 columns centered on "tax cuts for the rich" as the root of all fiscal evil. In fact, he attributes most of the "unraveling" in his book The Great Unraveling to these tax cuts. The result, he says in various colorful ways, will be exploding deficits and fiscal ruin and eventual banana republic-hood. The only hope is a Democrat in the White House.

But wait a minute. What about Rubinomics (named for Clinton Treasury Secretary Robert Rubin)? We haven't heard that term in a while, have we? That's probably because the bell-weather indicator of Rubinomics, the long-term Treasury bond, currently is not following the Krugman playbook. Let's review:

According to Rubinomics, bond investors are among the most financially savvy folks on earth. They don't tie up money in a fixed-income instrument for ten years or more without demanding a yield that will cover the foreseeable contingencies resulting from fiscal irresponsibility. Prospective deficits are problems only if excessive government borrowing in the future might drive up future interest rates. But the savvy old bond market doesn't have to wait around until the future to reflect a looming problem. The ten-year Treasury note is trading right now on the Chicago Board of Trade. If the bond market sees a fiscal crisis coming down the road it bids up long-term rates NOW.

Another tenet of Rubinomics is that the bond market is omniscient. It's all-seeing and all-knowing. You can't fool it; you can't argue with it; and you can't shut it down. There were reports that Bill Clinton would pound his desk in frustration when Rubin told him he couldn't promote some spending program or other because it would raise yields in the bond market.

So, if all of the neofiscs from Krugman to Andrew Sullivan are right, then the yield on the ten-year Treasury note must be exploding, right? Well, perhaps it should be, but as shown in the chart, it's not. The yield is near a 40 year low and shows no signs of concern. Either they are wrong, or Rubinomics is wrong. We think they are wrong. As we have pointed out before, the projected deficit over the next ten years, under reasonable assumptions, is around 2.5 percent of projected GDP. That's good enough to qualify the US for the Euro zone (joke) and explains why the bond market isn't worried by the Krugman hyperbolics.

10 Year Bond Maturity Chart

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 11:04 AM

February 27, 2004

#146: The bugle call of partisan hackmanship

P. Krugman

Paul Krugman's last bastion of academic respectability rests on his consistent defense of free trade. Hence the protectionist talk coming from the Kerry and Edwards camps must make him cringe. Nevertheless, in The Trade Tightrope (02/27/04), he once again answers the bugle call for partisan hackmanship by making excuses for Kerry on the trade issue (Edwards, apparently, is too far overboard even for Krugman). The result is one of those "just watch the silver screen folks, and don't pay any attention to that man behind the curtain" deals. Read this column if you must. It's pathetic.

There's one howler:

"Put it this way: there's a reason why the two U.S. presidents who did the most to promote growth in world trade were Franklin Roosevelt and Harry Truman, while the two most protectionist presidents of the last 70 years have been Ronald Reagan and, yes, George W. Bush."
What on earth is he talking about? And this is his last sentence! So the column ends with a breathtaking assertion followed by not one word of justification.

What's the name of that public editor again? Okrent, or something? His position is that when facts are presented in error, they must be corrected even if they are camouflaged in opinion columns. Fair enough, but then he has to deal with the Krugman loophole. Outrageous assertions made without any facts don't require corrections!

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 8:53 AM

February 17, 2004

#145: Health care is socialism's last stand

P. Krugman

Most observers would agree that the battle between capitalism and socialism during the last two decades was won by capitalism. As a means of developing, producing and distributing goods and services it proved to be far superior to socialism, and as a medium of technological innovation and adaptation to changed economic circumstances it was unmatched. So that debate is over, right? Well, not quite. When it comes to issues concerning health care socialism is alive and well. Apparently, on such important matters, the market system is not to be trusted. Thus, while no one would suggest we need universal, affordable BMWs, no politician can deny we need universal, affordable health care. The fact that the policies required to provide free BMWs would destroy a company seems lost on those advocating similar policies to care for our health.

Because of this dichotomy, Paul Krugman in The Health of Nations (02/17/04 can, in one sentence, acknowledge that US health care is the best in the world and then, in a subsequent sentence, imply that health care should be affordable to all and then, in yet another sentence, claim that the means to get from here to there is to crack down on prices received by drug companies and health insurance companies. There's not a word about the returns on investment that are necessary to keep financing innovations in health science and technology, or drug research. In fact, an apparatchik in the old East Germany could not have put it better. Somehow when it comes to health care they get away with it.

There is a sensible, market-based solution to the US health care problem and the Bush administration is sort of moving down that sensible road. But since Krugman says he will "talk more about alternatives for health care in future columns" we will wait and see how his solutions evolve before discussing this further.

But one thing is clear. Health care is socialism's last stand.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 7:28 AM

February 10, 2004

#144: Brother, can you spare a dime?

P. Krugman

During his interview on Meet the Press last Sunday, President Bush commented with a sly smile that the improvement currently underway in the US economy was "just about right" What he meant, we think, is that in an election year having a strong economy that is getting stronger is more important than having an economy that is just strong. We agree and the momentum of this expansion is likely to continue for many months, if not years.

So what's with Jobs, Jobs, Jobs (02/10/04) by Paul Krugman in which he focuses on what he terms the "grim job picture." It's pretty simple really. As we've said before, employment is the last arrow in his quiver. While all economic recoveries are a little different they have in common that employment growth lags other indicators. In this particular recovery, despite it's strength otherwise, job growth is lagging more than usual. This is perhaps because labor productivity growth is so strong or because 9/11 and other geo-political shocks have made employers more cautious. Whatever the reason, Krugman is pounding on the jobs issue for all it's worth. The trouble is, it's not worth much. It's temporary! By the time the election rolls around the job picture will be as bright as the rest of the economy. And that's why Bush was smiling.

There are a couple of howlers:

1. "For a while, that famous 8 percent growth rate seemed to be just what he needed. But in the fourth quarter, growth dropped to 4 percent."
Dropped to 4 percent! Dropped! Who's he kidding. A year ago Krugman would have though 3 percent impossible.
2. "The only seemingly favorable statistic is the unemployment rate, which has recently fallen to 5.6 percent, the same as in November 2001. But how is that possible, when employment has grown more slowly than the population, or even declined? The answer is that people aren't counted as unemployed unless they're looking for work, and a growing fraction of the population isn't even looking. It's hard to see how this is good news."
Actually, it IS good news. If Krugman kept up with the research literature on employment trends he would know that as countries become wealthier the age of retirement becomes lower. There seem to be no exceptions to this trend, even in workaholic countries such as Japan. The reason these people aren't looking for work is because they are happily trading some "stuff" for more time off. Maybe PK should join them after November.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 9:39 AM

January 30, 2004

#143: He's "not buying it." No evidence needed...

P. Krugman

In Where's the Apology (01/30/04) Paul Krugman tries to leverage two recent reports, one by David Kay and the other by Lord Hutton to bolster the anti-war left's position that Bush (and, to a lesser extent, Blair) are guilty misleading their countries into waging war. He comes a cropper because the case he needs to make requires two steps. First, that the prewar intelligence was weak or deficient and second (and more important), that Bush and Blair deliberately hyped the intelligence to promote war. After some grandstanding and smoke and mirrors rhetoric, Krugman finally faces his problem directly with this paragraph (we added CAPS for emphasis).

"True, Mr. Kay still claims that this was a pure intelligence failure. I DON'T BUY IT: the Carnegie Endowment for International Peace has issued a damning report on how the threat from Iraq was hyped, and FORMER OFFICIALS warned of politicized intelligence during the war buildup. (Yes, the Hutton report gave Tony Blair a clean bill of health, but many people � including a majority of the British public, ACCORDING TO POLLS � regard that report as a whitewash.)"
Notice that Krugman's case, as usual, comes down to what he's "not buying" or what some leftwing research group is claiming or what unnamed officials warn or some polls show. Ultimately, the Kay and Hutton reports are of no help to him at all.

He ends this pitiful column on this weak note.

"Still, the big story isn't about Mr. Bush; it's about what's happening to America. Other presidents would have liked to bully the C.I.A., stonewall investigations and give huge contracts to their friends without oversight. They knew, however, that they couldn't. What has gone wrong with our country that allows this president to get away with such things?"
The title of this column, Where's the Apology, says it all. Life would be so much simpler for PK if Bush would just confess.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 1:50 PM

January 28, 2004

#142: Quandary for the Left

P. Krugman

We've said before and we will say it again. Thank God for small deficits. They keep the left in line because they can't grow government without raising taxes on the "rich." And, conservatives can't cut taxes further without slowing the growth of government by controlling spending.

Today's column by Paul Krugman, Red Ink Realities (01/26/04), is a perfect example of this quandary for the left. He's completely flummoxed! Clearly he thinks we are not spending enough, but, because of that nasty old deficit, he ends up pushing for higher taxes on the top 5% of income earners. But that's a non-starter. The top 5% starts at about $125,000. Thus a husband and wife each earning $75,000 are well into this bracket and are about as middle class as you can get these days. They pay the full load of payroll taxes, the full load of college tuition and they qualify for few if any tax breaks. They are the real victims of our current tax system.

So why doesn't Krugman want to soak the top 1% instead? Simple. There's not enough money there. The top 1% already pay 35% of the income tax. How much does Krugman think they should pay? 50%? 60%? Trust us, he'll never say.

He ends the column this way:

So here's a test for the Democratic contenders: details of your proposals aside, which of you can do the best job explaining the ongoing budget con to the American people?��
We would suggest another test:
Who will define the middle class by income bracket and then explain that anyone in that bracket gets a tax cut; anyone above it gets a tax increase.
If they all did that the soak-the-rich con would be over.

But what about the outlook for the deficit? Krugman continues to say the deficit is exploding and we keep saying it is constructively small. In fact, the latest projections [PDF] by the non-partisan Congressional Budget Office agree with us. Even assuming the current tax rates are made permanent as Bush has proposed and that the Alternative Minimum Tax (ATM) is indexed to inflation at some point, the annual US deficit is still comfortably in the 2% to 2.5% range for the next 10 years. That's good enough to qualify the US for the Euro zone. If France and Germany are kicked out for violating the deficit guidelines we could take their place.

Just kidding!

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 7:33 AM

January 23, 2004

#141: Lap swimmer in a cesspool ...

P. Krugman

We returned from a winter break and had the experience of reading Paul Krugman's last eight columns in one or two sittings. Try it sometime! It's like watching a lap swimmer in a cesspool. He just goes back and forth treading in the same muck. He even had the audacity to write yet another column (we've lost count) on Enron. Conveniently forgotten are such facts as that the principal Enron transgressions date back to the Clinton administration when Krugman was a paid member of their advisory board. To hear him now, Enron was a Bush problem from the gitgo and he blithely uses the term as a metaphor for the administration's cozy relations with big business donors.

What a guy!

But the main thing we noticed in these columns was acceleration in the trend toward Howard Dean that we spotted a few months ago. Krugman was always a latent supporter, but now he has become a true "Deaniac" just as the Democratic primary voters are coming to their senses and rejecting the kind of angry, extremist Bush-bashing that is Dean's (and Krugman's) trademark. Krugman even echoed Dean in knocking the centrism of the Clinton administration.

If the Howard Dean flame-out continues and the Democrats nominate a moderate, Krugman will have to climb out of a pretty deep hole. It'll be fun watching.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 2:29 PM

December 26, 2003

#140: Nothing scares a leftie like the thought of people becoming more self-sufficient.

P. Krugman

New Year's Resolutions (12/26/03) is hardly worth reading. However, there is one notable political comment. Krugman essentially throws his support to Howard Dean for the presidential nomination. Here's one of several beauties:

"In the last few weeks the usual suspects have been trying to paint Howard Dean's obviously heartfelt comments about his brother's death in Laos as some sort of insult to the military."
The point, of course, was that the brother was NOT IN the military as Dean had just claimed. Looks like Paul and Howard will go down the same toilet together next November. At least we will only have to trip the handle once.

On economic policy, Krugman took a swipe at tax-exempt savings accounts which may be a major Bush initiative starting next year. Amazing! Nothing scares a leftie like the thought of people becoming more self-sufficient.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 1:56 PM

December 23, 2003

#139: Poor krug, he's got nothing to say

P. Krugman

Citizen Conrad's Friends (12/23/03) is a testament to how desperate things are getting over at PK headquarters. The Dow is over 10,000, the economy is roaring, President Bushes approvals are over 60% and we finally caught Saddam! So what does Paul Krugman write about? Conrad Black!

Black is someone most of Krugman readers have never heard of and couldn't care less about if they had. But that's not the point. The point is to use Black and his business problems as a lead-in to smear someone else who is more important and has some career similarities to Black. That would be one Rupert Murdock! What has Murdock done-other than be a conservative in the same business as Black? Nothing!

And that about sums up this column. It's a big nothing.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 9:41 AM

December 16, 2003

#139: an equal opportunity snipper!

P. Krugman

Patriots and ProfitsWith (12/16/04) Paul Krugman crawled into a journalistic spider hole all his own. He opened this column with the lofty disclaimer that charges of profiteering by Halliburton "have, inevitably and appropriately, been pushed temporarily into the background by the news of Saddam's capture." He then proceeded to write a less than appropriate and definitely "uninevitable" column on exactly that subject.

What happened here is pretty obvious. Krugman had ALREADY written this column before the Hussein capture and was too lazy (and cowardly) to switch to the major topic of the weekend; a topic on which he has pounded the Bush administration over and over in previous columns. At least Maureen Dowd had the good sense to be on vacation and did not have to deal with the broader implications for the anti-war left of Saddam in custody.

As to the column itself, it is a classic example of a "Krugman investigation." Basically, he strings together some carefully selected news sources and then yells corruption. In this case his slanted snippets come from the Wall Street Journal, the Army Corps of Engineers, NBC News and US News and World Report among others. At least he's an equal opportunity snipper! Nothing is sourced precisely; no dates are given and interspersed between these "citations" are a litany of Krugman innuendos and character assassinations.

In other words; it was business as usual. In his first column after the biggest story since the beginning of the war, Paul Krugman was AWOL.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 9:29 AM

December 12, 2003

#138:, The door is open...

P. Krugman

A Deliberate Debacle (12/12/03) by Paul Krugman is one of those columns written strictly for the coastal elites. These are the same folks who are going be on the losing end of a 40 to 10 states-carried ratio in the next presidential election. At issue is what Krugman considers the contretemps of sending James Baker off to negotiate Iraqi debt forgiveness with our estranged allies while simultaneously excluding those allies from bidding on lucrative Iraqi reconstruction contracts. Even worse, according to Krugman, the administration did so "with highly offensive language." He sees this as an effort by administration hawks to sabotage reconciliation with our anti-war allies.

The quote by President Bush that has the Krugman elites so upset is this: "It's very simple. Our people risk their lives. . . . Friendly coalition folks risk their lives. . . . The contracting is going to reflect that."

Quelle horror!

By contrast consider an alternative statement from Bush that might have pleased Krugman. "Let's let bygones be bygones. Sure the French, Germans, Russians and Chinese opposed us on the war to protect their vested economic interests in the Hussein regime, but now that he's gone we have to work together to rebuild Iraq. Even the large portion of the reconstruction costs being paid for by US taxpayers will be open to full international bidding. Fair's fair!"

Is there anyone who would buy that?

Actually this is one of those issues where a red state/blue state perspective is necessary for true understanding. There are many people in this country outside of NY, NJ, MA and CA who don't give a rat's ass whether the French, et. al., are offended. They see perfect logic in limiting contracts to coalition countries. As to debt forgiveness�the door is open. It's up to the "estranged allies" to get back on our good side!

It's called hardball, PK.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 6:13 PM

December 5, 2003

#137: Shifting the doomsday time frame

P. Krugman

There's always a market for pessimism, apparently, even if it means constantly shifting the doomsday time frame. Having been wrong on every prediction to date about the prospects for the current US economy, Paul Krugman has now pushed the goal posts of economic disaster so far back he's become a "futurist" of sorts. In Looting the Future (12/05/03) he reminds us of one of those wizened, skid row cartoon characters holding a placard reading, "The End is Coming."

But despite all the bluster, there are only two serious points in this column. And, as Krugman likes to say, "to be fair", we agree with one of them. The first is the claim that there is a 25% long-term budget gap that will exist regardless of economic recovery. This is crazy! Krugman gives no citation for this odd position but it probably harks back to the Brookings study by Auerback, Gale and Orszag he mentioned in The Tax Cut Con (9/14/03) in the Sunday New York Times Magazine. This was our comment about that in Squad Report # 122.

"Krugman delights in citing studies that show a long-term budget gap (because of the Bush tax cuts, of course) that is unaffected by economic growth rates. Ever wonder why an economy growing a 4% (which we expect to occur soon) wouldn't have better budget prospects than an economy growing at 2%? Here's the dirty little secret. The economists conducting these studies ASSUME that government discretionary spending rises proportionally with GDP. Talk about a catch 22! They don't even allow for the possibility that higher growth rates might be used for something other than more entitlement programs. In our view the Brookings study by Alan Auerbach, William Gale and Peter Orszag (cited by Krugman) represents nothing more than a liberal establishment terrified of losing the tax base which allows them to control spending by productive members of society. Without that tax base, some of these Brookings guys might actually have to work for a living!"
To put a finer point on it an economy growing at 2% doubles every 34 years compared with every 18 years when growing at 4%. Anyone who doesn't see that the latter rate gives broader societal options is "certifiable." Sure spending may go up, but at least there is a choice. Restoring fiscal order may be one of the choices.

All that said, we agree with Krugman that profligate spending can upset any degree of economic performance and the Bush administration is definitely soft on spending. As we noted in Squad report # 134, we found ourselves in the odd position of being "strange bedfellows" with Ted Kennedy and Krugman in opposing Medicare expansion. We're hoping Bush toughens up in his second term.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 1:11 PM

November 28, 2003

#136: Lie

P. Krugman

In his column The Good News (11/28/03) Paul Krugman makes the following claim about the structure of the President�s Council of Economic Advisors (CEA)

�What's particularly striking is the contempt this administration has for the rules. I was on the staff of the Council of Economic Advisers during the Reagan administration (those were nonpolitical jobs back then); one thing I remember was that if the experts said a proposed trade restriction violated international trade law, that was that. By contrast, just about every protectionist step taken by the Bush administration has been clearly in violation. And if the major economic powers stop honoring the rules that preserve open global markets, the chances of future development in poor nations will be much reduced.�
This is a complete lie! The only political appointments to the CEA are the Chairman and the two principal members of the Council. All positions on the staff, where Krugman served, are non-political as they have ALWAYS been. Next he�ll be claiming the job market statistics from the Labor Department are politicized (when they don�t go his way, of course).

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 1:52 PM

November 25, 2003

#135: A good column to skip...

P. Krugman

Paul Krugman's The Uncivil War (11/25/03) is a waste of time and a good column to skip. However, if you must read it, start with the last paragraph in which he finally gets to the point.

"And even aside from the double standard, how important is civility? I'm all for good manners, but this isn't a dinner party. The opposing sides in our national debate are far apart on fundamental issues, from fiscal and environmental policies to national security and civil liberties. It's the duty of pundits and politicians to make those differences clear, not to play them down for fear that someone will be offended."
We agree. So what's Krugman's problem? Why the whining about being demonized and called unpatriotic? The likely Democratic presidential nominee will be from the anti-war left and probably a trade protectionist to boot. President Bush will go after him with all the guns $200 million can buy blazing away.

Fasten your seat belt PK, you're in for a bumpy ride!

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

* Update: Krug's wandered onto Cori Dauber's turf:

I generally avoid dealing with Krugman because, hey, why bother -- it's a crowded market. But today I have no choice -- he makes a play at my trade, rhetorical criticism. ...

...Some texts need Fisking, when they do indeed use metaphor, analogy, etc, to suggestively imply something in a deniable way. But Krugman, let's just say, should really stick to economics. Here's his take on the new RNC ad defending the president:

"The ad was clearly intended to insinuate once again -- without saying anything falsifiable -- that there was a link between Iraq and 9/11."

Seriously, dude, leave the driving to professionals.

Posted by John Weidner at 10:10 AM

November 21, 2003

#134: Hell hath no fury like a leftie scorned

P. Krugman

Wow! Hell hath no fury like a leftie scorned. In AARP Gone Astray (11/21/03) Paul Krugman goes after America's most noted advocacy group for retired people with a viciousness normally reserved for Dick Cheney and Halliburton. AARP, normally a pillar of Democratic congressional support, has jumped ship over Medicare expansion and the Krugster is highly pissed. With the cruelist cut imaginable, he accuses them of acting like a business!

Amazingly enough, we come down legislatively on the same side as Krugman. We, too, would like to see this entitlement expansion defeated. AARP has it exactly right when they say that this bill can be "fixed" later. What we have here is a classic case of getting the "camel's nose under the tent." Havoc always follows.

So why doesn't Krugman see it the same way? Partisan politics, of course. He doesn't want to see Bush get the credit for an entitlement expansion.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 9:08 AM

November 18, 2003

#133: this time we agree with Paul Krugman

P. Krugman

This is one of those rare occasions when we agree with Paul Krugman, except he did not go far enough in criticizing the Mutual Fund industry in Funds and Games (11/18/03). The cheaters in the mutual fund industry should be punished severely and, if the law allows it, go to jail. But the mutual fund problem in the US goes much deeper. These funds have been getting by with smoke and mirrors for years.

To put it simply, mutual funds are overpriced and don't deliver. Anyone who has seriously researched the problem (the academic financial literature is full of such studies) finds that mutual fund managers cannot consistently beat the broad market averages. They get by on aggressive marketing, brokerage kick backs that border on corruption, and exploiting the natural desire of investors to "beat the averages." In America no one wants to be average!

The answer, however, is simple and getting simpler. For years there have been inexpensive index funds that replicate the various market averages for investors. Fidelity and Vanguard are leaders in this area and have many no-load index funds. Just check their web sites. These funds are growing in popularity with both individual investors and institutions who are tired of getting ripped off by managers promising more than they can deliver.

Historically, there were valid criticisms of index funds for being too broad to be useful to those investors who wanted to focus on just certain industries or geographic regions or companies of a certain size (large cap, small cap, etc.). But now there are ETFs (Exchange Traded Funds) which are bundles of individual stocks that trade as units. One example is SPDRs, or Standard and Poors' Depository Receipts. These are ETFs that replicate a variety of S&P indexes including the S&P 500 in its entirety, and also sector-specific SPDRs that carve up the S&P 500 into separate industry groups. For techies there are Qubes (QQQ) that do the same for the technology-laden Nasdaq-100. And this is just the beginning. There are ETFs on just oil services stocks, just transport stocks and just about any other sector that comes to mind. More can be read at Morningstar or Indexinvestor.

You can still lose money, of course. But the point is there are more and more alternatives now to the bullshitting, high-fee mutual fund manager. The recent scandals should accelerate the trend to these obvious alternatives.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 12:22 PM

November 14, 2003

#132: Greeks + gifts =

P. Krugman

Medicare expansion is a long standing dream-issue for the US left. They can exploit the health concerns of the elderly with impossible promises and reap a treasure trove of votes in return. The Kennedy wing of the Democratic Party has been doing this for years. But in
The Trojan Horse (11/14/03) Paul Krugman complains that this dream is under threat by a group of house Republicans who, with uncharacteristic backbone, are insisting on injecting a modicum of market competition into the system. The idea that people might shop for health care and insurance in ways similar to cars and appliances would in Krugman's words "force Medicare to compete with private insurers" and "seems intended to undermine the whole system."

Let's hope he's right! Here's a good way to think about it. Leaving aside those who are victims of premature death, the rest of us will grow old, become ill and in need of medical care and then die at some point. Those are facts. However, the medical expense of postponing the inevitable is potentially unlimited. If extravagant promises are made to provide these medical services below cost, overconsumption will result and the volume of unnecessary tests, procedures and drug prescriptions quickly reaches the breaking point. The usual result of all this is to vilify service providers and drug companies, impose price controls and suffer long delays in dispensing medical services. Think Canada or the U.K. None of this is a problem to the Kennedys or the Krugmans of the world since the population receiving such ill treatment soon dies off and the system, in effect, buries�literally buries�its own mistakes and inefficiencies. They then move on to the next oldest living cohort of elderly and begin the scare game all over again.

So what's wrong with setting up a system in which people can take responsibility for their own health care as they do other basic needs, with a safety net for those who can't? Krugman spots HIS problem right away. It's what economists call "adverse selection." If a one-size-fits-all government health insurance system competes along side a private system, those whose health risks are greater than the standard price of the government plan will choose the government plan. Those with lower health risks do better in a private plan that can be tailored to their circumstances. It's no different than a life insurance company requiring physicals to set rates or charging higher premiums to older customers or an automobile insurer rejecting those with convictions of driving while drunk.

We all know elderly people who have good health regimes of diet and exercise. We also know some who smoke, are 100 lbs. overweight and never exercise. Guess which ones will end up in the government plan needing hip or knee replacements and will wait several months for the service? That's adverse selection.

Frankly, we see nothing wrong with such a two tier system even if it does seem a little cynical. But if cynicism is an issue consider Krugman's position. What has him upset comes down to nothing more or less that votes. It's hard to scare people who have incentives to take care of themselves and have used those incentives to provide for their own health insurance. Nothing scares a leftie like self-reliance.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 4:16 PM

November 11, 2003

#131: The Krugman way to correct an error...

P. Krugman

Turning silk purses into sows' ears must be tough work. But for whatever reason, Paul Krugman took a break from his recent attempts to mug the US economy (the same economy that grew 7.2 percent in the 3rd quarter and has produced a quarter million jobs recently) and turned his attention back to the war in Iraq with Support the Troops (11/11/03). The result was one, long howler. Imagine, after eight years of military neglect by the Clinton administration and after two-thirds of elected Democrats opposed the recent funding for troop support and rebuilding in Iraq, Krugman has the audacity to criticize the Bush administration for being too cheap with military spending. Who does he think he's kidding?

The main story, however, occurs near the end of the column when he revisits another of his recent muggings�that of Congressman George Nethercutt. As we pointed out in Squad report #129, Krugman, in quoting Nethercutt, left out the final 5 words of his statement which changed its meaning entirely. Here's how Krugman tries to correct that:

Some say that Representative George Nethercutt's remark that progress in Iraq is a more important story than deaths of American soldiers was redeemed by his postscript, "which, heaven forbid, is awful." Your call.
First of all, these words were not a postscribt; they were part of a complete sentence. Second, the issue is not whether you think Nethercutt is "redeemed" by those 5 words, but whether you have the journalistic integrity to include them in the first place. Did we use "Krugman" and "integrity" in the same sentence? That's a howler in itself.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 7:29 AM

November 7, 2003

#130: Paul Krugman knows even less about Southern politics than Howard Dean...

P. Krugman

[This post slightly revised 11-9]
The main thing we learn from Flags Versus Dollars (11/07/03) is that Paul Krugman knows even less about southern politics than Howard Dean. At least HoDe broadened somewhat his stereotypical view of southern voters by throwing in guns and gays as hot button issues down in Dixie. But to Krugman the Southerner is just a primitive subject in a reward-based learning experiment�sort of like a lab rat choosing which tunnel to run down to get the goodies. As he sees it, the southern "choice" is between racist symbols and federal dollars. He then recounts all the evidence as to why the South seems to always run down the wrong tunnel, i.e., vote against what HE considers their best interests. He did this before in True Blue Americans (05/07/02) in which he calculated how much more Bush red states get back in federal dollars than they pay in. This time he's calculated how much more the Gore blue states got in tax-cut dollars than the poorer red states. Either way the South could improve their "cash flow" by voting for the Democrats.

Krugman's frustration with the South's voting pattern might be paraphrased this way:

How can you Crackers keep voting Republican after all we've done for you the last 70 years? Don't you know you're biting the hand that feeds you!
The "hand" he's referring to, of course, is the New Deal social welfare entitlements system that is the crowning achievement of 20th century liberalism. But in the South, as in much of the rest of the country, they've caught onto the long run consequences of all these New Deal programs and are rebelling against them despite the favorable cash flow of federal dollars. These consequences include the creation of a self-perpetuating dependent class, the destruction of the family unit by a dysfunctional welfare system, the collapse of the public education under the weight of Democratic sponsored teachers' unions, and a tax code that penalizes success, especially in new businesses.

As one small example, even the heavily southern Congressional Black Caucus (20 out of 36 members) overwhelmingly favors ending the estate tax. To Krugman's chagrin it looks like these folks want to get ahead too.

Meanwhile, the leading Democratic presidential candidates don't get it either. In addition to Confederate flags they still see the South in terms of shotguns and pickup trucks. The clips of John Kerry dressed in a freshly bought hunting jacket holding a dead pheasant (to keep up with Dean in the hunt for the pro-gun vote) was too rich for words.

We'll say it again. It's going to be a Bush blowout and Krugman and the Dems don't even understand their predicament.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

[ I saw a great line by Senator Zell Miller of Georgia. He said something like "Howard Dean knows as much about the South as a hog knows about Sunday!" --JW]

Posted by John Weidner at 3:40 PM

November 4, 2003

#129: We didn't think he could sink any lower, but...

P. Krugman

In This Can't Go On (11/04/03) Paul Krugman quotes the great Herb Stein, chairman of the Council of Economic Advisors under Richard Nixon, for what is known as Stein's Law: "Things that can't go on forever, don't." We would make this addendum: "People who can't sink any lower ethically, do." This addendum applies to Krugman himself and he is in an ethical free fall.

He dredged up the Congressman George Nethercutt vs. the Seattle Post-Intelligencer set-to, a sad event in journalism, which has been blogged endlessly as an example of media bias and irresponsibility. Andrew Sullivan covered this best so we will quote him before turning to Krugman.

"DOWD AWARD NOMINEE: This one goes to the Seattle Post-Intelligencer for deliberately mangling a quote from Congressman George Nethercutt. He'd just returned from a tour of Iraq and, like so many others, reported a much more optimistic scenario than many in the media have been reporting. He gave a talk in which he said, "So the story is better than we might be led to believe � I'm � just � indicting the news people � but it's a bigger and better and more important story than losing a couple of soldiers every day which, which, heaven forbid, is awful."

The Seattle P-I chopped off the quote so that it said in its subhead: "It's a better ... story than losing a couple of soldiers every day." They added in their own words: "He added that he did not want any more soldiers to be killed." But that is not an accurate rendition of the full quote. It's a device to protect themselves in what is clearly a hit-job. Nethercutt complained, "I requested that the Post-Intelligencer correct the record. They refused. And they even refused to at least run my full quote. But the P-I didn't stop there. They then wrote an editorial condemning me, repeated the quote they had deliberately distorted, and put my 'quote' next to the name of one of our fallen soldiers. To do so was completely heartless."

So what does Krugman do, with full knowledge and malice of forethought? The same damn thing! Except he didn't even add the mollifying phrase used by the Seattle P-I to acknowledge that Nethercutt did not actually "want any more soldiers to be killed."
"Some Americans may share the views of the Republican congressman who said that progress in Iraq was "a better and more important story than losing a couple of soldiers every day." (Support the troops!)"
Krugman not only truncates the Nethercutt quote to further his partisan agenda, but adds the parenthetical "(Support out Troops!) which gives the impression that the thrust of Nethercutt's remark showed lack of support.

We think Andrew needs a new award category. We suggest the 'Krugman Mauling Award' based on some NLF penalty terminology. In this case Krugman made a late hit, out of bounds and with an intentional face-mask tacked on.

They say he's a prince of a guy once you get to know him.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 9:50 AM

October 31, 2003

#128: Day to dread

P. Krugman

October 30, 2003 was the kind of day we have been predicting for over a year and a day Paul Krugman has been dreading for months. It's "read'em and weep" time over at PK headquarters. The US economy is roaring and job creation will follow shortly. All the "I hope I'm wrong" and "maybe they'll get lucky" nonsense from Krugman is swept away. There is nothing negative in the 3rd Quarter GDP data. The overall growth rate was stupendous, 7.2 percent, and all sectors were equally impressive. The real sleeper was non-farm inventory investment which was down again. This means the long awaited re-stocking purchases, powerful growth producers in themselves, still lie ahead. Also we note that large military spending, the nay-sayers refrain after the 2nd quarter GDP report, returned to modest levels in the 3rd quarter. It was the private sector that carried the load.

Instead of reading Krugman's nit-picking column A Big Quarter (10/31/03) we recommend just skipping down to his standard "bail-out" line.

"Still, it's possible that we really have reached a turning point."
Yoooooo bet, PK. Yoooo bet.

Krugman finished up by laying down a jobs marker by which HE will evaluate the Bush first term.

"To put it more bluntly: it would be quite a trick to run the biggest budget deficit in the history of the planet, and still end a presidential term with fewer jobs than when you started. And despite yesterday's good news, that's a trick President Bush still seems likely to pull off."
We agree Bush probably won't have job levels up to the bubble standards of early 2000 by election time, but he'll come close enough to carry 40 states including Florida, Pennsylvania, Ohio and Michigan.

Like we said: read'em and weep!

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 6:37 AM

October 30, 2003

#128: Factual Error

P. Krugman

We don't normally get too focused on Paul Krugman's chronic lack of fact-checking. We prefer instead to document and ridicule his devolvement from noted economist to political hack and point out the hoops of implausibility he regularly jumps through attempting to square his politics with sound economics. HOWEVER, in Too Low a Bar (10/24/03) he committed a factual gaff so atrocious we decided to point it out.

"If we want to improve the dismal prospects of job seekers � currently, 75 percent of those who lose jobs still haven't found new jobs when their unemployment benefits run out � the number of jobs must grow faster than the number of people who want to work."
The 75 percent figure is nothing less than preposterous! We checked with some labor economists who told us, off the top of their heads, it was more like 40 percent. So we looked it up. The Bureau of Labor Statistics (BLS) collects detailed data on labor force participation rates (that's basically what they do) and this includes exhaustion rates for unemployment insurance (UI). As shown in the top table in this BLS link, the correct number for the fraction of unemployed workers who exhaust their UI before finding a job is 43.6 percent in the most recent reporting period, the 2nd quarter of 2003. A related statistic shown further down on the same page indicates that the average worker on UI takes about 16.1 weeks to find a job. This is known as the "average duration" of unemployment. If Krugman's figure of 75 percent were correct, a rough estimate of average duration would be around 30 weeks, and UI only runs 26 weeks unless extended. There is no way he can defend this figure.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 6:42 AM

October 24, 2003

#127: The retreat continues!

P. Krugman

The retreat continues!

As we have mentioned before Paul Krugman is in the middle of a cut-and-run strategy from his previous prognostications for the US economy (remember the "double dip" recession, or the Japanese style deflation or the banana republic-hood, latin style. With Too Low a Bar (10/24/03) the retreat goes into high gear. The essence of the column is a castigation of Treasury Secretary Snow for setting up an easy target by predicting job growth of 2 million before the election. Krugman says "Mr. Snow may get lucky."

Oh really! Can anyone imagine the GDP growth rate associated with creation of 2 million jobs over the next 12 months? It's easily 4%. And what about the mood swing in this country during such a growth spurt? And its implications for the presidential election?

Hey PK. If you bet on the jobs issue to sink the Republicans and think an increase of 2 million is not enough�you've lost.

It's Bush in a landslide.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 7:28 AM

October 22, 2003

#126: Note on Krugman and Mahathir...

P. Krugman

We were going to pass on Paul Krugman's disgusting column Listening to Mahathir (10/21/03). But there is one point we have not seen others make. If one paraphrases Krugman as follows:

"Mahathir is on our side in the war against terrorism. Don't worry about the anti-semitism stuff�that's just rhetoric; it's just for domestic consumption and part of a delicate balancing act."
Now if you substitute "Hitler" for "Mahathir" and "communism" for "terrorism" you have in essence the rationalization for rationalizing and appeasing the Nazis in the 1930s.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

[I noticed that Donald Sensing, in a post called Science and Islam has some interesting thoughts on some parts of Mahathir's speech that didn't get much notice here. --JW]

Posted by John Weidner at 12:26 PM

October 17, 2003

#126: They just refuse to believe that higher taxes will be good for them...

P. Krugman

Paul Krugman's world is crumbling and he is not taking it well. On the eve of primary season and with a presidential general election just a year away, look at what he has to deal with:

1. The eight (or is it nine) Democrats seeking the presidential nomination are all running against the "worst economy since Herbert Hoover" and all want to raise taxes on the wealthy.

2. Meanwhile, back in the real world, the economy is anything but Hooveresque. As we keep saying over and over, it is gathering strength now and there will be a spate of good economic reports in the coming weeks. The markets have certainly noticed. The Dow Industrials are closing in on 10,000 again and some of the broader indexes, such as the Wilshire 2000, are already in historic high ground.

3. People have the crazy notion that when the wealthy do well, they do well too. They just refuse to believe that higher taxes on anyone will be good for them.

It's enough to make a grown leftie cry. And that, in a nutshell, is what The Sweet Spot (10/17/03) is all about. We recommend skipping this one

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 8:26 AM

October 14, 2003

#125: He's bailed out ...

P. Krugman

On the surface Don't Look Down (10/14/03) by Paul Krugman is just another recycle job lamenting the disastrous economic policies of the Bush administration. But a closer look shows something different. The reason he is afraid to "look down" is because he has bailed out of his dire assessment of the near term economic outlook and, by implication, of the political outlook.

After a litany of comparisons between the U.S. and third world countries concerning budget and trade deficits, legal systems and corporate governance issues�all purporting to show why the U.S. is in as bad a shape as, say, Argentina�he notes,

"....financial markets are generally willing to give advanced countries the benefit of the doubt. Even when an advanced country seems to be deep in a financial hole, lenders usually assume that it will somehow find the resources and political will to climb back out."
Well no kidding! Wonder what these hard-headed lenders know about advanced countries that Krugman doesn't?

And then, a confession of sorts,

"...there's no question that the U.S. has the resources to climb out of its financial hole. The question is whether it has the political will."
By "political will" he means the will to raise taxes on the top 1% (he doesn't actually say that, but...)

And finally, a time frame shift. Even if the Bushies continue to "screw up" Krugman can't seem to identify an immediate problem for them prior to the 2004 election,

"The crisis won't come immediately. For a few years, America will still be able to borrow freely, simply because lenders assume that things will somehow work out."
And indeed things will work out! First, with a strengthening U.S. economy (it's already happening). Next, with the re-election of Bush along with larger Republican majorities. And finally, with permanent tax cuts and approaches to retirement and health insurance that rely on competition and market based solutions rather than on entitlements.

Krugman must have had a sleepless night over this column!

Posted by John Weidner at 9:31 AM

October 7, 2003

#124: Lumping It

P. Krugman

Lumps of Labor (10/07/03) has to be one of the most nonsensical columns Paul Krugman has ever written. Incredibly, he begins by citing the "lump of labor fallacy" [the idea that there is a fixed amount of work to be done in the world, so any increase in productivity reduces the number of available jobs.] as the centerpiece of his column, but then fails to explain why it is a fallacy. Next, he blasts the Bush administration for not refuting the fallacy with job creating policies that will stave off pessimism and protectionism. Excuse us! Did someone say pessimism? Peddling pessimism for partisan advantage is Krugman's stock and trade.

First of all, "lumps of labor" is a fallacy because rising national income (the principal result of productivity growth) leads to greater aggregate demand. The labor released in some areas of the economy as a result of greater productivity doesn't just stand around forever. The growing demand absorbs it into other areas of the economy where it is needed. There is nothing new about this process and it should come as a surprise to no one. How many people do you know still employed in the whale oil industry? In Moby Dick's day this was a major source of jobs.

As economies become more advanced several things tend to happen. There is an employment shift from producing things to supplying services. There is a shift in the production of things requiring low and semi-skilled labor to countries that have a large supply of that kind of labor. And some industries simply disappear, e.g., whale oil, due to obsolescence. Most economists call this progress. What about it PK?

If Krugman has a point at all here, it is that the growth process is not frictionless. People do get uprooted and have to look for other jobs and are sometimes unemployed for several months. These growing pains are especially difficult during periods such as the present when productivity growth is high and the economy is emerging from recession. But the lumps of labor fallacy is a fallacy precisely because these problems are a) temporary and b) the price we all pay for a higher standard of living. Try finding this point anywhere in Krugman's column! In fact, with each Labor Department report, it is becoming clear that the "jobless" part of the current recovery IS temporary and has run its course. Jobs are growing again.

As to his point about protectionist sentiments arising out of the fallacy, this is laugh out loud funny. His clumsy attempt to blame it on Bush, leads him smack up against the likelihood that the next Democratic presidential candidate is likely to be a virulent protectionist riding the lump of labor fallacy all the way to defeat. Should be fun to watch.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 7:26 AM

September 26, 2003

#123: Betting the Ranch (interim report)

P. Krugman

This is an interim Squad report while Paul Krugman is away on book tour promoting his latest recycle-job, "The Great Unraveling."

All Squad readers should circle October 3rd on their calendars. This is the day the Bureau of Labor Statistics makes its annual benchmark revisions in the payroll survey of U.S. business establishments. As mundane as this topic may sound it should have Krugman and the Democrats awake at night with worry. We've often pointed out that PK and the Dems have few arrows left in their anti-Bush quivers over economic policy. They are now down to just one arrow--JOBS. For example, in the recent debate between Democratic presidential candidates the words "jobs" or "jobless recovery" were used more frequently than any others except "and", "I" or "the." But the upcoming October payroll revisions may kick the "jobs prop" out from under them.

Here's some background. Whenever Krugman and the Democrats say that we have lost 1.1 million jobs in the U.S. since the recession ended in November 2001 and cite this as evidence of a jobless recovery, they are relying on the Labor Department's survey of payrolls at business establishments, a sample of 400,000 firms. But Krugman's problem, which he may have to confront after October 3rd, is that this survey is probably the most revised data series produced by entire the Labor Department. There are many reasons for this but the main problem is that the establishment survey in real-time does a poor job of surveying small firms and it barely counts jobs created in new, start-up firms. Jobs in these areas are particularly important at turning points in the economy and, not surprisingly, that is when the establishment survey contains the largest revisions as more complete information becomes available.

For example, during the last "jobless recovery" in 1992 the establishment real-time survey showed a loss of 55,000 jobs initially, but was later revised to show a gain of 1.4 million jobs. That's a swing of nearly one and a half million jobs! Thus Krugman and the Democrats currently are betting the ranch on a real-time data series that is KNOWN to be unreliable.

Will the Oct 3rd revisions follow the 1992 precedent and show that job loss was much less than initially reported and that jobs are now increasing? No one knows for sure. But Krugman has good reason to be worried and we can afford to dream a bit. For example, what would he say if the jobs data were in fact revised upward and then, after that, the 3rd quarter GDP report, also announced in early October, showed continued strong growth? We're hoping we get a chance to find out.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 3:40 PM

September 15, 2003

#122: Catch 22

P. Krugman

The Tax-Cut Con by Paul Krugman in the New York Times Sunday Magazine (09/14/03) shows clearly where he is headed over the coming months�possibly years. Basically, he has given up on a "double dip" economy and on Japanese style "deflation" occurring here and admitted that the U.S. economy is likely to recover�drum roll please!

But, of course, insurmountable problems lie ahead because of the Bush tax cuts, the needless war in Iraq, the administration's conflicts with corporate interests and all of the the usual Krugman spiel. Basically, we can't afford to do all the things that need doing without soaking the rich with more taxes.

We will confine ourselves to two points:

Krugman makes no distinction between the statutory and economic incidence of taxation. This is one of the first things undergraduates learn in a public finance course. "Incidence" is economists jargon for who pays the tax. The corporate income tax is a classic example. The statutory incidence is clear since a corporate officer writes a check to the IRS. But the economic incidence is entirely different. After writing the check the corporation passes the tax along, i.e., passes along the economic incidence, to consumers by way of higher prices, to workers in lower wages, and to shareholders with reduced dividends, retained earnings and share valuations. Ultimately, a corporation pays no tax! This example is classic because it illustrates the age old axiom that there is no free lunch and the one who actually pays may not be the one you think. Krugman knows all of this, but shamelessly exploits the corporate tax as a soak the rich initiative. In fact, the corporation tax is a drag on investment and capital formation. His colleagues must cringe. It illustrates how low he has sunk academically, intellectually and ethically.

Krugman delights in citing studies that show a long-term budget gap (because of the Bush tax cuts, of course) that is unaffected by economic growth rates. Ever wonder why an economy growing a 4% (which we expect to occur soon) wouldn't have better budget prospects than an economy growing at 2%? Here's the dirty little secret. The economists conducting these studies ASSUME that government discretionary spending rises proportionally with GDP. Talk about a catch 22! They don't even allow for the possibility that higher growth rates might be used for something other than more entitlement programs. In our view the Brookings study by Alan Auerbach, William Gale and Peter Orszag (cited by Krugman) represents nothing more than a liberal establishment terrified of losing the tax base which allows them to control spending by productive members of society. Without that tax base, some of these Brookings guys might actually have to work for a living!

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 8:20 PM

September 12, 2003

#121: Unraveling

P. Krugman

Anyone thinking about buying Paul Krugman's new book "The Great Unraveling" can get a quick summary by reading his column today entitled Exploiting the Atrocity (09/12/03). And if you are wondering how an entire book can be summarized in just 900 words, you have missed the genius of Krugman. He has been recycling the same 900 words of partisan rage since his career as a New York Times columnist began in 2000. If he can recycle and get 40 or 50 columns a year on the cheap, why not just hit the cut and paste tabs and get a whole book on the cheap? W.W. Norton and Company, his publisher, is brazen enough to admit that is about all there is too it.

We also note that the basic thrust of today's column is very similar to the consensus coming from the Democratic presidential candidates' debates. And that is where the real unraveling is taking place�in the Democratic Party. Krugman claims that President Bush's poll ratings are lower than before 9/11. In fact, comprehensive polling shows clearly that the American public has bought into the war on terror including the Iraqi war and the post war rebuilding. Moral equivalence in an age of terrorism doesn't cut it and the Democrats, especially in the Krugman/Streisand wing of the party, apparently haven't figured that out. Howard Dean's attempt to elevate Hamas terrorists to the status of "soldiers" is just the latest example. The Democrats have crammed so many "equally-deserving" victim and whacko groups under their big tent that sensible people are leaving to become Independents or Republicans. There is not an electable candidate in the field.

That may be why Hillary is reconsidering running in 2004. She's afraid if she waits until 2008 there may not be a party left after the voters have so thoroughly rejected Krugmanism.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 7:26 AM

September 9, 2003

# 120: Jaw Droppers...

P. Krugman

In Other People's Sacrifices (09/09/03) Paul Krugman endorsed Howard Dean for President.

Of course we're just kidding. But this column is right out of the Dean playbook. The good news is that while Dean may well ride the anti-war movement to the Democratic nomination, he will end up carrying only New York, Massachusetts, California and maybe three or four other states in the general election. Expect the collateral damage in the House, Senate and Governorships to be very high.

Today's column has a couple of jaw-droppers. The first:

It gives me no pleasure to say this, but I (like many others) told you so. Back in February I asked, "Is this administration ready for the long, difficult, quite possibly bloody business of rebuilding Iraq?" The example of Afghanistan (where warlords rule most of the country, and the Taliban � remember those guys? � is resurgent) led me to doubt it. And I was, alas, right.
What on earth is he talking about? If Bush's speech to the nation was anything it was an expression of iron-willed determination to see the war on terror through to the end. Furthermore, the American people have bought into Bush's strategic vision of the Middle East as a rancid swamp, of our security as depending on draining the swamp and of a free and prosperous Iraq as a lynch pin in the draining process. He's taking it to 'em and if he pulls it off, the political and economic price tags will seem like bargains in terms of enhanced world security.

The second:

So will Congress give Mr. Bush the money he wants, no questions asked? It probably will, but it shouldn't. Mr. Bush created this crisis, and if he were a true patriot he would pay a political price to resolve it. Maybe it's time for him to do a couple of things he's never done before, like admitting mistakes and standing up to the hard right.
��This must be some kind of a Krugman fantasy. Bush fesses up that PK was right all along on the economy and the war and then commits hari-kari as an act of atonement. Puhleeze! Nevertheless, despite his dreaming, we think Krugman is slowly "getting it" with regard to his likely journalistic role over the next 5 years. Sideline sniveler.

We wonder if he has the Bush fortitude to see that through.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions.]

Posted by John Weidner at 9:07 AM

September 5, 2003

#119: But, hey, that's what Treasury secretaries are for ...

P. Krugman

Paul Krugman's The China Syndrome (09/05/03) is a blunderbuss of a column covering all of his favorite and oft repeated rants�Iraq blundering, aggressive unilateralism, job losses, tax cuts for the rich, Bush duplicity and all the rest.

It's worth noting that one negative aspect of rapid productivity growth is that adding payroll during a recovery is definitely slower because employers can do so much more with fewer workers. The good news is that once employment does start to grow (and it will) the associated GDP growth rate will be much higher (because of greater productivity) than we have come to expect. Less than 10 years ago most economists, including Krugman, would have been happy with our current status of GDP growth at 3% and unemployment at 6%. But now we know we can do better.

Krugman is hoping that employment growth will lag long enough to defeat Bush for re-election. This is very unlikely. As we said last week, we think Bush is in almost perfect position with the timing of the recovery cycle�strong GDP growth going into an election. We expect Krugman to keep harping on the lagging jobs growth simply because it is his last card. When that is played there will be a "great unraveling" sound coming from across Nassau street.

By the way, Krugman was right on one thing. Sending Treasury secretary Snow to China was a fool's errand. But, hey, that's what Treasury secretaries are for. Besides cheerleading what else do they have to do with their time?

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]


* I would add that Krug's belief that Bush has done an about-face on Iraq is wishful thinking. Den Beste is very good on the subject today. And there's this by Paul Wolfowitz. My question: Between Chirac, Schroeder and Krugman; who is most eager to see America and Iraq fail? --JW

Posted by John Weidner at 1:47 PM

September 3, 2003

#118: Déjà all over again ...

P. Krugman

We know we said just a week ago in Squad Report #116 that, "He'll be Back." But we never thought Paul Krugman Another Friday Outrage (09/02/03) would be back quite this fast. It's déjà California, all over again! And it's not just California AGAIN, but it's essentially the same old columns AGAIN that he wrote over the last two years�recycled with a few minor changes. For example, Smoking Fat Boy (05/10/02), Turning California Off (06/27/01, Power and Profit (01/24/01) and California Screaming (12/10/00) are all basically the same column. They can be found in the PK archives. We said all we had to say on this topic in Squad report # 9.

Sooner or later Krugman will have to deal with the gathering strength of the US economy. Talk about great timing! A recovery going into an election year is an incumbent�s dream and Bush is about to live that dream. Krugman obviously knows this and is shying away from economic topics in his recent columns. This also explains his obsession with California and Iraq/Al Qaeda as diversionary subjects. However, when he does return to economic issues expect him to start off by hitting some "soft targets" such as deficits (irrelevant) and unemployment (a lagging statistic). But expect little to be said about productivity growth, recovering profits and expanding business investment in capital equipment and inventories which are the real meat of the upturn. When Krugman must finally deal with the full force of the recovery he will probably retreat into class warfare, growing income inequality, the burgeoning plutocracy, the top 1% and other of his old standbys. It will be fun to write about them for a change.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 9:41 AM

August 29, 2003

#117: His stupidist column yet ...

P. Krugman

In Fistfuls of Dollars (08/29/03) Paul Krugman plays military affairs "expert " again and, in the process, writes the stupidest column of his entire tenure so far at the New York Times. And that covers a lot of stupidity!

His thesis today is that Bush will fail in Iraq because of a lack of money and troops. But Krugman's problem, as usual, is that he can't see beyond the end of his partisan nose. Bush won't fail quite simply because he (and we) can't afford to fail. If it takes a bigger deficit and the repositioning of some troops, then that is what will happen. But those are not even the most relevant issues. The greater Middle East including much of north Africa and as far east as Pakistan is a snake pit of failed societies. An unholy alliance of radical Islam and local hoodlums masquerading as government officials is holding back millions of people from economic progress. And that alliance is threatening the rest of us with violence at the same time. There is absolutely no reason why these mostly Islamic nations can't join the world community in growth and prosperity much as the Asian nations did earlier last century. But a free and democratically functioning Iraq is crucial to that process. The alternative is a nightmare that would be much more expensive ultimately in lives and dollars than we are expending now.

We think Krugman needs to get back to economic topics rather soon. He is about to begin a period of serious melt down over his anti-Bush economic outlook. The 2nd quarter GDP growth rate was just revised upward to a 3.1% annual rate. And, many serious economists believe SERIOUSLY that the 3rd quarter will be 7% or 8% and that calendar 2003 can exceed 4%. There will probably even be some job creation by the end of the year, but that normally lags a bit. In any case, Krugman will have some heavy duty damage control to undertake in the next five or six weeks. We can't wait!

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 9:30 AM

August 22, 2003

#116: Like a night bug circling a candle ...

P. Krugman

What is it about the Krugster and California? Like a night bug circling a candle�he can't seem to stay away from the place. He shipwrecked what was left of his credentials as a economist with nearly a dozen absurd columns in 2001/2002 on the CA electricity crisis and today he returns with Conan the Deceiver ((08/22/03)�an attempt to trash Arnold Schwarzennegger's gubernatorial campaign. So what's going on with this California obsession? Actually we think it is pretty simple and that it has nothing to do directly with anything in today's column directly. If you want to read it go ahead, but here's the way we see the big picture.

First of all, it is a fact of life that state governors are often buffeted by national trends, particularly economic trends, that are largely beyond their control. Hence their "success" or "failure" in office frequently comes down to the luck of timing. When things go well nationally, they get a lot of credit in their state�George W. Bush of Texas comes to mind� and when things go badly nationally, they get blamed in their state no matter what they do. In good times, the smart governors manage to keep their heads on straight and do not "confuse genius with a bull market." In other words, they don't blow the budget on spending programs. Gray Davis was not among the smart ones and now is in deep do-do.

But here is the second part of the picture. The U.S. economy is about to roar. It is probably roaring already, but it will certainly be roaring in the fourth quarter and into 2004. This will provide tremendous relief for beleaguered state budgets and to the governors who managed to hang on to their jobs. Hence for Democrats the prospect of losing the governorship of California in October is a disaster beyond calculation. Davis will get the blame for all the down side and the new Republican governor, probably Schwarzennegger, will get credit for a "miracle" recovery. We hope Arnold keeps his head and puts a lid on spending, but it almost doesn't matter. To paraphrase Woody Allen, about all he will have to do every day is "just show up." The rising economic tide nationally will do much of the rest.

It gets even worse for Democrats in 2004. If losing the governorship means they will have to fight for California in the presidential election they may as well not put up a candidate. It's that simple.

We suspect Krugman realizes all of this and in today's column he is simply doing his small part (peeing into the wind, actually) to stave off the inevitable. What we are wondering though is whether this is IT for Krugman on California? Will he cut his losses and ride off into the sunset or somewhere. Most of us doubt it. Rather than a sunset rider he reminds us more of the cowboy on horseback in those western movies shooting frantically over his shoulder as he flees from a losing battle with rustlers to round up a posse.


[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 7:32 AM

August 19, 2003

#115: We report, you decide ...

P. Krugman

We found three aspects of Paul Krugman's The Road to Ruin (08/19/03) of particular interest. 1) the column was NOT virulently partisan as some had expected, 2) it raised some legitimate issues about the consequences of partial de-regulation, BUT, 3) Krugman chickened out every time he got close to proposing possible solutions.

Let's start with some of the issues he raised. There is no doubt that partial de-regulation often has unintended consequences. In California a couple of years ago the consequences of a market design with free floating wholesale prices, but fixed consumer prices, contributed to a massive electricity crisis because the need for consumer rationing could not be signaled through this flawed pricing system. Krugman argues that in the case of the recent northeast blackout it was again partial de-regulation (this time of generation, but not of transmission) that was the culprit because generators were no longer tied to transmission facilites in a manner that gave them incentives to maintain and upgrade the systems. Here is how he put it:

"Under the old regulatory system, power companies had strong incentives to ensure the integrity of power transmission � they would catch the flak if something went wrong. But those incentives went away with deregulation: because effective competition in transmission wasn't possible, the companies providing transmission still had to be regulated. But because regulation limited their profits, they had little financial incentive to invest in maintaining and upgrading the system. And because of deregulation elsewhere, responsibility was diffused: nobody had a strong stake in keeping the system reliable. The result was a failure not just to add capacity, but to maintain and upgrade capacity that already existed."
Now this seems a little far fetched and convoluted to us, but we give Krugman credit for at least coming up with a plausible analysis. However, on the crucial question of how to solve the problem he is virtually silent. Would he restore the old regulations at the electricity generation level? Presumably not, but he never says why not. He is clearly against extending de-regulation to the transmission sector because of monopoly pricing issues. But if profits in transmission remain capped, as they are currently, where is the incentive to invest in grid facility upgrades? An obvious question, perhaps, but Krugman does not even touch it. Instead he ends the column with some anti-climactic posturing.
"This nation needs to invest billions in its power grid, yet given recent history, it's crucial that this investment not be simply another occasion for energy-industry profiteering. Somehow, I'm not optimistic".
Neither are we with this kind of lunacy! Where does he think the investment will come from in the absence of proper incentives? Until the Krugmans of the world make peace with "profiteering" vs. "return on investment" there is little room for optimism on issues such as these.

There is one howler today. Krugman notes that "Incidentally, there seems to be a weird reluctance to face up to what happened in California." This is so true�and especially by Krugman HIMSELF. Instead of engaging in a sensible discussion of regulatory issues, his California analysis continues to be hung up on market manipulation rather than de-regulatory design flaws. He makes this fallacious claim with regard to a FERC report on California:

"even the Federal Energy Regulatory Commission, which strongly backs deregulation, has concluded that market manipulation played a major role.
Here is what the FERC actually said:
"Staff concludes that supply-demand imbalance, flawed market design and inconsistent rules made possible significant market manipulations delineated in final investigation report. Without underlying market dysfunction, attempts to manipulate the market would not have been successful."
As the popular saying these days goes, "we report, you decide."

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 8:54 AM

August 15, 2003

#114: Who's doing the unraveling, Bush or Krugman?

P. Krugman

Twilight Zone Economics (08/15/03) is Paul Krugman's attempt (one more time) to put his pessimistic spin on the improving U.S. economy. We think he knows he's losing! Note that the critiria is no longer just "more jobs", but "easier to find jobs." All Krugman followers should file this one away for future reference.

The interesting thing to us is that Krugman has a book coming out this Fall entitled "The Great Unraveling." The unraveling referred to is supposed to be the Bush administration's economic policy. However, his publication date should coincide with a U.S. economy growing somewhere between 4% and 6%. Book critics will be asking who's doing the unraveling, Bush or Krugman?

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 9:52 AM

August 12, 2003

# 113: Italian MRE's?

P. Krugman

The headline in the Wall Street Journal today is "As U.S. Shows Signs of Strength, Global Economies Look Up, Too." With news like that it is no wonder Paul Krugman in Thanks For the M.R.E.'s (08/12/03) is scrounging the earth for something to complain about. He finds it this time in a complaint department as old as the Trojan War�soldiers griping about food. Naturally, Krugman being Krugman, he tries to magnify this microscopic molehill into a gigantic anti-Bush mountain with the old "tip-of-the-iceberg" trick. The sub-standard food rations, you see, are just a small example of the administration's penny-pinching ways that extend all through government as they cut corners in a desperate attempt to pay for the irresponsible Bush tax cut for the wealthy. This guy is sooo... predictable.

There are a couple of howlers. In one he claims that our soldiers are swapping food packs or M.R.E.'s (meals ready to eat) with Italian troops. Being an economist you would think he would do some research and find out the U.S./Italian food ration "exchange rate." We suspect there are not enough Italian soldiers in Iraq to get a good sample. Anyway, we can treasure the visual image of our soldiers standing on Baghdad street corners trading their food packs for a bite of cannelloni.

The other is based on a vague, third-hand report (typical Krugman) of a "witch hunt" at the Transportation Security Administration to threaten those who would reveal cost-cutting measures with the Patriot Act. On the one hand, if true, we would join Krugman in deploring use of the Patriot Act to silence anyone. On the other, we can't help but note what a ludicrous world it would be (Krugman's world) in which bureaucratic cost cutting is a whistle-blowing offense. We don't know anyone but PK who could seriously consider anything that absurd. As a scary thought, imagine such a philosophy applied to something major�like Medicare reform. Can you see the $billions, floating away?

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 7:58 AM

August 5, 2003

#112: Where has he been the last 50 years?

P. Krugman
For a guy who makes his living spinning economic data for partisan advantage,Everything Is Political (08/05/03) by Paul Krugman is the height of chutzpah. His alleged point is that the Treasury Department no longer gives politically unbiased assessments of the economy. NO LONGER? Where has he been the last 50 years? Has he never heard of Engine Charlie Wilson or George Schultz or Don Regan or Nicholas Brady or James Baker or Robert Rubin or Larry Summers? Does he think "Rubinomics" was named after Robert's dog? ALL Treasury secretaries push the President's case. That's their job. That's why Paul O'Neill is no longer in office and John Snow took his place. And if Tim Russert befuddles Howard Dean on Meet the Press by uncritically citing Treasury Department estimates that's too bad for Russert and Dean.

Anyway, what's wrong with administration departments taking positions on complex policy issues? Krugman certainly does. In his ideal world there would be no Republican Treasury secretaries, only the rich would pay taxes and they would never get a tax cut. So anyone taking a position contrary to that is not being objective. Is that what he is saying?

This is one of Krugman's more absurb columns.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at 7:34 PM