Archive

Archive for the ‘New York Times’ Category

Statists and Power

January 7, 2010 2 comments

Most businessmen will do anything they can to preserve their position.  This extends to people in all realms.  Whether manufacturers, farmers, financiers, academics or politicians, those who wish to preserve their power will promote as many measures as necessary to do so.  In the case of those in the latter two fields, they impose the same anti-competitive barriers as those in the former ones.  For the statists of the academy and the capitol, they put up barriers to entry by stifling debate in marginalizing anti-statists such as the Tea Partiers, imposing punitive tariffs in engaging in ad hominem attacks against opponents and peddling their products in the marketplace of ideas by sophistry, obfuscation and at times fraud.

More generally, given that in most cases one need be accepted by the elite in order to enter academia, the political realm and even many industries, this creates another superficial barrier to entry.  This is well-depicted when one considers that while the Austrians seem to be the most accurate economists, most all professors of the subject are evidently blacklisted from the most prestigious institutions, and in the fact that there are so few Ron Paul’s in Congress.

Those wedded to the state – be it the politicians or their propaganda arms in academia and the MSM further cement their power by creating a permanent underclass via their policies.  This would explain why the most liberal urban areas are afflicted with the most widespread poverty, crime and education problems.  It is the policies of the statists that make these areas fertile for these conditions, but the people, imbued with the notion that the state is there to help them with their plight given its coddling from day one remain even more wedded to the paternal politicians the more desperate their situation.  The politicians throw their impoverished constituents crumbs, but at some point the pols will run out of crumbs when they plunder those who produce them to a large enough degree.

The slums of America reflect the ultimate end of statist policies, and the reason is as follows.  Statists remove the incentives to produce by encouraging failure, extending largess and attacking mutually beneficial exchange in free commerce.  The economic and political environment of urban America destroys the values that led to the creation of wealth squandered on the welfare state in the first place.

Ultimately, my sense is that those in power today, radical Cloward-Piven and Alinsky-ites that they are are not so much concerned with developing a socialist Utopia.  Contrary to this, I think they are using the socialists in academia, and the elites, former students brainwashed by academia, CNN and the New York Times as useful idiots.  They have institutionalized their progressive ideas over the last hundred years so that those with the most influence in society know of nothing else and more disastrously lend credence to their policies.

They are at peace with their yielding a hellish country like the ones incubated historically by leftists replete with widespread poverty, chaos and violence to reach their goal.  The goal of this administration and most all in government is power.  They will usurp our freedoms stealthily or outright in order to preserve and enlarge it.  Most evil in my view is the man bankrolling the whole operation, George Soros, who will push the country to the brink with his puppet politicians running the show, for his own profit.

In sum, I urge you to understand that ideology is a mere means to an end – secondary to all those who use the state as an instrument, be it the One-Worlders, Greens or Marxists.  Do not be fooled, their concern rests with one thing and one thing alone: power.  With every state encroachment, their power increases whilst individual liberty is extinguished.

Kalamitous Krugman

August 29, 2009 3 comments


In a recent New York Times Op-Ed entitled “Till Debt Does Its Part,” Nobel Prize-winning economist Paul Krugman rebuffs those few reactionary souls who argue that all this debt we are incurring is a bad thing. He assures us,

…don’t fret about this year’s deficit; we actually need to run up federal debt right now and need to keep doing it until the economy is on a solid path to recovery. And the extra debt should be manageable. If we face a potential problem, it’s not because the economy can’t handle the extra debt. Instead, it’s the politics, stupid.

Sometimes you really have to wonder what the standards are for winning a Nobel Prize. We have an economy built on consumer debt which relative to disposable income increased from a low in 1945 to its peak in 2007. As the Daily Reckoning further notes, we have $20 trillion in excess debt to work through over the coming years. Yet while on the private side, we need to pay for our sins, liquidate our debts, allow malinvestments to go belly up and start over on more solid fiscal ground, apparently the public sector can just keep on trucking.

As the sage Mr. Krugman notes,

Right now deficits are actually helping the economy. In fact, deficits here and in other major economies saved the world from a much deeper slump. The longer-term outlook is worrying, but it’s not catastrophic. The only real reason for concern is political. The United States can deal with its debts if politicians of both parties are, in the end, willing to show at least a bit of maturity. Need I say more?

Explain this to me exactly. When are deficits a help to an economy in distress? If the whole reason we are in economic distress is because of a glut of debt, then why is the answer to pour more gasoline on the fire? Any company that still functions in any semblance of a free market knows that if it can’t service its debt, it will be forced to make difficult decisions, potentially opting for bankruptcy. It cannot continually slop at the trough of the debt market.

But Krugman seems to think that the government can have its cake and eat it too. Where a sober person might argue that in hard times, a government must tighten its belt, like a business or a man, Krugman seems to think that incurring more and more debt, in essence stretching out the inevitable painful liquidation whilst creating another debt/currency crisis down the road is better. Why have one financial crisis when you can have two or three stretched out over a longer period of time? You get the sense that Krugman’s agenda is more political than economic sometimes.

Which brings me to my next point. Krugman believes the only reason for concern over the debt is “political.” Proud of this claim, Krugman states, “Need I say more?” Well yes, I think you need do so. Our currency, and the debts run up by our government denominated in our currency are backed by the full faith and credit of the United States government; which is to say our money and debt are backed by our economy, our people. If we are in for a prolonged period of negative private sector growth, high unemployment and increased intervention in all aspects of life, especially our economy, how can Krugman make the assumption that the ability to continue adding to our debt solely rests on the “maturity” of the politicians? Can Barney Frank snap his fingers and suddenly make the world buy our paper?

If the politicians wish to be “mature” they can remove themselves from the private sector, slash spending and taxes, let whole swaths of industry go belly up and allow people to foreclose on their homes and pay off their debts. Alternatively, if the politicians wish to be immature, they can do so through intervention and coercion.

Krugman as one might expect opts for the latter, immature route. Mind-numbingly, he proclaims:

If governments had raised taxes or slashed spending in the face of the slump, if they had refused to rescue distressed financial institutions, we could all too easily have seen a full replay of the Great Depression.

As I said, deficits saved the world.

In fact, we would be better off if governments were willing to run even larger deficits over the next year or two. The official White House forecast shows a nation stuck in purgatory for a prolonged period, with high unemployment persisting for years. If that’s at all correct — and I fear that it will be — we should be doing more, not less, to support the economy.

Krugman, going along with his Keynesian (read socialists) brethren, forgets about the failures of all of the interventionism even before his idol FDR ever got into power during the Depression, in addition to the disastrous results of similar policies (which he of course advocated) over the last two decades in Japan. These frauds continue to peddle the same illogical government gobbledygook that prolonged the Depression, all the way to “cash for clunkers”, the modern day equivalent of FDR’s forced killing of crops and slaughtering of pigs.

Mr. Krugman seems to think that interventionism is what saves economies. Might I ask then, why not intervene from the start? If the state is so good at managing crises, why not let it manage all industry in good times as well? Is the free market only sufficient when the Dow is rising? And if deficits are the cure-all, then why do nations ever default on their debt? Why is Zimbabwe the way Zimbabwe is? Could it be that perhaps the central planners are not so divine after all?

To be fair, Krugman, digressing notes:

But what about all that debt we’re incurring? That’s a bad thing, but it’s important to have some perspective. Economists normally assess the sustainability of debt by looking at the ratio of debt to G.D.P. And while $9 trillion is a huge sum, we also have a huge economy, which means that things aren’t as scary as you might thinkHere’s one way to look at it: We’re looking at a rise in the debt/G.D.P. ratio of about 40 percentage points. The real interest on that additional debt (you want to subtract off inflation) will probably be around 1 percent of G.D.P., or 5 percent of federal revenue. That doesn’t sound like an overwhelming burden.

Even though all this debt we’re adding on might not actually be so great, we have a huge economy. Ah, the panacea of the huge (albeit shrinking) economy – an economy based on consumption, services and debt, the hallmarks of any economic powerhouse. He also argues that a rise in debt/GDP of 40% is OK, since this debt will only be 5% of federal revenue, which doesn’t sound so overwhelming. So essentially, because it’s only 5% of a massively-sized federal government which will have ever-decreasing tax revenues necessitating continued debt financing (to pay for more boondoggles), we should be OK to pay off our debt (with devalued dollars I suppose?).

What might our lenders think about that? Krugman has an answer for this too.

Now, this assumes that the U.S. government’s credit will remain good so that it’s able to borrow at relatively low interest rates. So far, that’s still true. Despite the prospect of big deficits, the government is able to borrow money long term at an interest rate of less than 3.5 percent, which is low by historical standards. People making bets with real money don’t seem to be worried about U.S. solvency.

I would challenge the assumption that the US government’s credit will remain good. As Krugman notes, our debt/GDP is going to rise significantly, “The official White House forecast shows a nation stuck in purgatory for a prolonged period, with high unemployment persisting for years,” and as I mentioned government is intervening in the economy on an unprecedented scale, but relax, our friends in the Far East will continue to bankroll us. Krugman should take a page from Milton Friedman’s playbook (along with those of Hayek, von Mises and Bastiat) and remember that there is no such thing as a free lunch. All government can do for “revenue,” is directly tax, or indirectly tax through issuing debt (taxing future generations and/or devaluing the currency) or printing money.

While Krugman argues that the people “making bets” don’t seem worried about our solvency, as numerous publications have noted, the Chinese are buying less treasuries and stockpiling commodities (however short-lived the Times may think it will be), indicating that they are diversifying out of dollar-denominated assets. Meanwhile, the government has had to take the drastic measure of purchasing its own Treasuries, with the Fed committing to buy $300bn in notes (i.e. printing $300bn) and also monetizing the debt more discretely. In other words, the government has had to keep its own borrowing costs down artificially, making up for the lack of demand of its primary dealers by bidding for its own debt. But look at the YTD yield curve for the 10-Year Treasury, and tell me that the markets aren’t reacting at all to our fiscal recklessness:


Moreover, just because rates haven’t spiked by 500bps in the last year, does that mean that market participants really aren’t scared about our solvency? Markets can stay irrational for long periods of time, just look at the housing bubble or any of the other bubbles which after the fact have seemed so obvious. Further, I would argue that creditors like China are being perfectly rational. The Chinese are trying to shift their money towards assets with real tangible value like commodities, while doing as little as possible to spook the government debt markets, because doing so would hurt the value of their own paper. If they flooded the markets with Treasuries, all of their dollar-denominated assets would plummet in price. It’s not in their interest for there to be a run on the US government yet. But that doesn’t mean that they won’t slowly but surely make their exit from US paper assets, leading to higher borrowing costs for our government and less confidence in our dollar. As I mentioned, there is no free lunch.

Krugman notes that other governments that have practiced similar profligacy like Belgium and Italy never faced financial crises in the early 1990s, but there are obvious notable differences. We are the biggest economy in the world. We were the most prosperous one. We have the world’s reserve currency. We are not accustomed to the kind of fiscal stagnancy faced in Europe. I just do not see that Krugman’s comparisons hold water. A more apt comparison in my eyes would be the US versus the British Empire circa its collapse.

Regardless, I want to return to the fundamental point that going into more debt to solve a problem caused by too much debt makes no sense. One might argue that sometimes debt can be beneficial and not cause long term harm. One might cry that parents are right to take out a mortgage on a house to raise their children. If the family can reasonably expect to generate the cash flows to retire this debt over time, then this will certainly be fine. But the US is like one giant family of drug-addled deadbeats looking to buy a mansion in the Hamptons, having already foreclosed on its subprime mortgage, maxed out all of its credit cards and traded in its Rolexes to the local pawn shop. And its only cash flows are those it can obtain by plundering its citizenry.

Debt is OK if you can reasonably expect to pay it off. To incur even greater debt in the face of debt that you will already be unable to service is downright immoral and will lead to severe consequences for the people.

These deficits in and of themselves are also not productive. They represent a stealing of wealth from future generations. As I mentioned, the only way to pay down the debt will be to tax future Americans, either directly or indirectly through inflating the money supply and thus devaluing the currency. Further, regarding what the debts are actually being used to finance, as I have argued in accordance with sound Austrian economics, the deficit spending for bailing out failing ventures stops the market from naturally adjusting, and leads to less productive if not downright destructive “jobs,” and labor being diverted from the private sector.

So in some respects again, Krugman is right that our politicians need to be mature. But the people get the government they deserve, and as of yet though there have been some bright signs, the majority of people don’t seem to want to deal with the pain that mature servants would bring them today for a brighter tomorrow.

It is worth noting that in Krugman’s delusion, he actually makes a redeeming comment:

Over the really long term, however, the U.S. government will have big problems unless it makes some major changes. In particular, it has to rein in the growth of Medicare and Medicaid spending.

He actually has me for a second, until the subsequent stanzas:

That shouldn’t be hard in the context of overall health care reform. After all, America spends far more on health care than other advanced countries, without better results, so we should be able to make our system more cost-efficient.

But that won’t happen, of course, if even the most modest attempts to improve the system are successfully demagogued — by conservatives! — as efforts to “pull the plug on grandma.”

Keep it classy, Paul.

Red Eye’s New York Times Correspondent

March 26, 2009 Leave a comment

On a lighter note than most of my posts, and since I’m too swamped with work to write anything of substance:

Red Eye’s New New York Slimes Correspondent:

Cheers

Categories: New York Times, Red Eye