KRUGMAN TRUTH SQUAD
#43: Got Those Early 90's Blues...
-We've lost count, but "The Vision Thing" (09/20/02) must be the seventh or eighth column this year by Paul Krugman informing us that the economy is in terrible shape and that the fault lies with the Bush administration. In today's column he's saying the situation is "feeling a lot like the early 1990's." As do most Democrats, Krugman obsesses on the prospect that Bush II will go out the same way as Bush I. But as long as he wants to bring up the 1990s, let's take a look his own positions on methods of macroeconomic assessment, then and now–sort of a Krugman I vs. Krugman II.
Then, Krugman I was an ardent believer in the NAIRU. This is an arcane economic acronym standing for Non-Accelerating Inflation Rate of Unemployment. The idea, however, is quite simple. If you try to implement growth policies that reduce unemployment below NAIRU, you get acceleration in inflation instead of growth. Most economists in the nineties took NAIRU to be 5.5 to 6.0 percent and thought it was consistent with non-accelerating-inflationary economic growth rate of about 2.5 percent. Krugman, in true believer fashion, took NAIRU to be the economist's equivalent of a physical law and heaped scorn on anyone who argued otherwise. In the attached column written 1996 for the NY Times (02/04/96) he states the case for NAIRU succinctly, while ripping its opponents in the same style Krugman II uses today. It is only three pages or so and we urge all squad readers to give it quick look. [ LINK] Here's a sample:
The Nairu is usually put at 5.5 to 6 percent -- the current unemployment rate, more or less. To question whether this is too pessimistic misses the point. If the Nairu is 5 percent rather than 5.5, the economy can grow at 3.5 percent -- but for only one year. If the Nairu were 4.5 percent -- which would be utterly inconsistent with historical experience -- you would get two years of 3.5 percent growth. It's still hardly the kind of explosive growth the Fed's critics say we should aim for.
How do the advocates of faster growth respond to such calculations? They don't. As one frustrated official remarked: "The problem with these guys is not that they don't know enough economics. It's that they don't understand what it means to have a logically consistent argument."
Now, in today's column, Krugman II disparages the current 5.7 percent unemployment rate as barely adequate and he does not even mention that the current growth rate is over 3 percent or that inflation is low and not accelerating. So here we are, just emerging from a shallow recession, and the economy is already doing better than Krugman I thought possible under the best of circumstances just six years ago. And on top of that, he's not happy! Something is very wrong with this picture. If the two Krugman's ever get together to sort this out we would like to be a fly on that wall.
What has happened, in effect, is that the center of the Krugman universe has shifted in the last six years. Good things have happened in areas of labor productivity, growth rates, public finance and inflation that Krugman I publicly pronounced to be impossible. These are the same areas that are now central topics in Krugman II's twice-weekly policy pontifications. What is called for, on his part, is an acknowledgement of these developments and an assessment of their implications for public policy writings. Our point is not so much that Krugman I was totally wrong. We all make our share of mistakes. But Krugman II has yet to address any of these issues and continues with his left wing, soak-the-rich rants as though nothing has happened. He seems stuck in a stagnant, slow-growth economic time warp from which he argues that an almost constant pie should be divided more equally. But all the evidence suggests that the "speed limit" on the U.S. economy has moved up substantially in the last few years and that the pie is growing again. We need to assess why the pie started to grow again and how to keep it growing.
This means that all of the pro-growth, supply side policies that Krugman I castigated in 1996 are now back in play. They have been delayed by the recession, 9/11 and corporate scandals, but only temporarily. Krugman II's strategy seems to be to keep them at bay as long as possible with anti-business, anti-Bush muckraking. But his best road back to credibility is to face the changed economic realities, drop the knee-jerk anti-capitalist rhetoric and give us a coherent, updated assessment of the economy's potential and how we are doing in comparison.
[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.]
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KRUGMAN TRUTH SQUAD
Special Edition: The Squad responds to critics of Report #41
This Special Edition of the Krugman Truth Squad report is intended to tie some loose ends left in recent reports.
In report #41, "Stocks and Bombs", we expressed skepticism that Krugman had accurately reflected the views of Larry Kudlow in his 06/26/02 column for NRO entitled "Taking Back the Market–By Force." We had some trouble finding Kudlow's article at first because of Krugman's peculiar citation, but when we did find it, our skepticism was fully justified. Krugman outrageously distorted Kudlow's position.
Krugman was all over Kudlow for arguing for an invasion of Iraq to boost the Dow. He implied that Kudlow's line of reasoning was that military spending would stimulate the economy and thus support equity markets. Krugman then attacked this position with great vigor. "There is nothing magical about military spending–it provides no more economic stimulus than the same amount spent on, say, cleaning up toxic waste dumps", he wrote. Moreover, " if the administration wants to pump money into the economy, all it needs to do is drop its objections to things like drought aid for farmers and new communications gear for firefighters. In other words, if the economy needs a burst of federal spending, neither economics nor politics requires that this burst take the form of a war."
Great speech, but it has nothing to do with Kudlow's position. In fact, it's just the opposite. Kudlow argued that a war would be short and cheap. And the economic benefits would lie chiefly in making the world a safer place to conduct business. He never said a word about an economic stimulus coming from military spending. As he put it, "All-out war mobilization is unnecessary. Iraq will fall with much less." He went on to say that these benefits to western economies would result from the "shock therapy of a decisive war". He closes by writing, "We will know that our business will stay open, that our families will be safe, and that our future will be unlimited." We're not sure Kudlow's right on all of this, but we are sure that Krugman twisted his position about 180 degrees.
As to report # 42 on "Cronies in Arms" it is more of the same Krugman bullshit. When Halliburton (Dick Cheney's former employer) bought Dresser Industries they sold a division of Dresser, now Dresser-Rand, to another company, Ingersoll-Rand. Subsequent to the sale, Halliburton stopped covering 440 salaried employees under Dresser's pension plan because they were no longer Dresser employees. Three hundred of the workers who were under 55 and had been eligible for an enhanced early retirement benefit lost that privilege when the unit was sold. Many of these employees have subsequently retired.
Halliburton, in a statement, said the employees "did not lose any plan benefits they had earned up to the time of the sale" and that employees who retire at 65 will get the "their entire accrued benefit according to the terms of the [Dresser Industries] plan at the time of sale."
Does this chain of events justify a charge of pension fund CONFISCATION? It's not even close. But it does confirm, once again, that Krugman is intellectually dishonest and cannot be trusted on any point of fact.
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[Several people pointed out to me that Kudlow had been misquoted. I passed on those remarks to The Squad. I mentioned that I thought it was a vindication -- if people were searching hungrily for mistakes, and this was the best they could come up with -- a misquote ...
The Squad, if you are not aware, is a cenacle of economists who are in the habit of circulating e-mails of appalled astonishment at the writings of Paul Krugman. The Squad Reports are the boiled-down product. I suspect they remain anonymous because they are Members of Universities, an environment recently described as an island of repression in a sea of freedom. This immediately brings to my mind The Man Who Was Thursday ... ]
... My take is about the same as Laura's, and is supported by a decade's worth of newspaper history. The cost-cutting, personality-hating newspaper chains have done everything possible to do away with popular columnists. The most successful tactic has been to let the popular columnists die off and quickly kill all discussion of replacements by issuing the standard "he/she could never be replaced."
There was once a time when a columnist like Mike Royko, Jim Murray, Ann Landers or Herb Caen could decide the fate of major metropolitan newspapers by simply walking across the street to the competition. The modern publishing business doesn't tolerate that kind of personal power. First, the competition was eliminated in an endless series of mergers and closures. Then the pasty-faced, nervous little moneychangers waited for the stars to die. Nowhere else in the media business can you find this desperate desire to crush any spark of humanity.
Radio, television, movies, music, sports, even the book-publishing business ... all these businesses depend on personality and talent. Think of one of those media and ...
KRUGMAN TRUTH SQUAD
#42:...from economics professor to economics gossip columnist...
In "Cronies in Arms" (09/17/02) Paul Krugman continues his tragic slide from economics professor to economics gossip columnist. In today's piece he makes use of some tricks gossip columnists often employ to cover up for not really having the story. Cheap come-ons and a touch of mystery are old standbys. For example "Who was that blond beauty Mr. A was seen dining with at an intimate table for two last week? We bet is wasn't his wife!"
Compare that with this sentence from "Cronies in Arms", "Dick Cheney vehemently denies that talk of war, just weeks before the midterm elections, is designed to divert attention from other matters. But in that case he won't object if I point out that the tide of corporate scandal is still rising, and lapping closer to his feet." Now many readers might think–Wow! Krugman's got the goods on Cheney. But no–it's just a cheap come on. The column, it turns out, has nothing to do with Cheney and we are left wondering what this veiled reference was all about.
Krugman's real target is Thomas E. White, secretary of the Army and former Enron executive. Not much has been heard about White lately, but his story is worth a brief review. While at Enron the former army general headed a retail division, Enron Energy Services. He left in May 2001 to join the defense department. When Enron collapsed White was the subject of withering fire to resign his position. Leading up to his testimony before the Senate Commerce Committee in July 2002 rumors were flying.
Newsweek quoted an anonymous Republican source to the effect that White would refuse to testify. Billy Tauzin, R-Lousiana, said White should resign if he refused to testify. "No government official working for this administration ought to go before a committee of Congress and take the Fifth," said Tauzin. "If you're going to do that, maybe you should find another job."
The reason little has been heard of White lately is that he did testify before the Senate panel and it was one of those great moments in the annals of Congressional hearings. The testimony was not reported in the mainstream media, of course, but some of us saw it on C-Span. To put it technically, White "mopped up the floor" with his Senate critics. Barbara Boxer was reduced to incoherent babbling (more than normally). Here are some things BusinessWeek had to say.
"Army Secretary Thomas White had a chance to take the witness stand in the court of public opinion on July 18, and he made the most of it.
Lawmakers began the meeting loaded for bear. A host of senators went through the litany of allegations surrounding White: that he sold $12 million of Enron shares just before the company's value fell sharply and Enron went into Chapter 11, that he coordinated with other Enron divisions to profit from California's power crisis, and that he placed 77 phone calls to Enron executives after assuming his Pentagon post.
Surprisingly, after several hours of grilling White, several members of the Senate Commerce Committee seemed resigned to accept the explanations for his corporate behavior while he was vice-chairman of the Enron retail subsidiary. But others urged federal regulators to give the charges deeper scrutiny.
White responded to the first charge by saying he sold the stock to comply with ethics rules for government officials, requiring senior government managers to divest themselves of equities that might pose a conflict of interest. But White testified that the 660,000 Enron options he held onto were worth more than the stock he sold -- and those options subsequently became worthless.
In response to the second major charge, White insisted that as head of an Enron retail division he sought to keep prices low in order to retain customers. White repeatedly stated that he didn't see the Enron memos that spelled out strategies to manipulate the California market until the Federal Energy Regulatory Commission made them public.
After grilling the witness, Senator Ron Wyden (D-Ore.) called for the Federal Energy Regulations Commission and the Securities & Exchange Commission to investigate White. Nonetheless, underscoring just how difficult it may be to build a case against White, Wyden, who is one of the Army Secretary's more outspoken critics, observed after an inconclusive back-and-forth: "I think, Secretary White, you and I both agree that this is pretty dense stuff." White could only agree."
Now Krugman has teamed with Jason Leopold, a reporter for Salon.com, who has been resifting the ashes and debris of Enron and found some "smoking emails" which purport show that White was involved in one of Enron's infamous long-term contracts that were booked as a profit. This is certainly possible, but it's old, old stuff. Those questionable accounting practices have been looked at upside down and backwards. Even Krugman concedes they were probably not illegal, just "grossly unethical."
But what does all of this have to do with business scandals lapping at Dick Cheney's feet? As we said before–nothing! But here's the Krugman link. White sold his stock at good prices, while pension funds invested in Enron lost money. Another company recently sold one of its divisons and confiscated the employee's pensions (Krugman offers no evidence of this). The other company was Halliburton, Cheney's former employer. Earlier, when Cheney left Halliburton to run for vice-president, he had to renegotiate his long-term employment contract and, as part of that renegotiation, he was allowed to retain full pension benefits. Does that sound like a scandal lapping at anyone's feet?
The famous gossip columnist, the late Hedda Hopper, would probably have been proud of Krugman for his fancy footwork. But we think New York Times readers should demand much more from him. As we have pointed out before, they are being cheated.
One of my favorite books is At Random, the reminiscences of Bennett Cerf, a founder of Random House. Since I just read a great comment about Ayn Rand at Dean Esmay, I thought I'd put in a snippet of what Bennett has to say:
... But as I said, arguing with her was like running your head against a stone wall. I remember when Atlas Shrugged was being edited by Hiram Haydn. The hero, John Galt, makes a speech that lasts about thirty-eight pages. All that he says in it has been said over and over already in the book, but Hiram couldn't get her to cut a word. I very angrily said to him, "You're some editor. Send her in to me. I'll fix it in no time." So when Ayn came in and sat down, looking at me with those piercing eyes, I said, "Ayn, nobody's going to read that. You've said it all three or four times before, and it's thirty-odd pages long. You've got to cut it." She looked at me calmly and said, "Would you cut the Bible?" So I gave up...
One of the reasons our life here has been rather hectic lately, is that, just when they were staggering under a unusually heavy burden of cases, Charlene and her 2 partners got chance to move from 3 separate offices in their building, into one large suite, with extra space to expand the firm in the future.
It's a nice old building, on California Street near Tadich Grill, and their new offices now overlook the California St cable car line, and they can open their windows and hear the bells. (One is willing to put up with a lot of nootziness in exchange for the good parts of life in San Francisco.)
But the move generated shocking amounts of confusion and kerfluffle; and many problems that have had to be solved by tossing gold coins at them. (Most of them associated with the name Microsoft, that public-spirited company that's single-handedly preventing recession by providing jobs for millions of consultants. Perhaps this is what Pitt the Elder meant by breaking Windows with guineas...
They also need furniture to fill this space, and make it look like a real law office. That's where I come in. This Maple reception desk is my first piece for the new space.
Soon to come; the firm name in shiny letters on that green wall...
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I woke up early today, and I'm not a morning person on the best of days, and through half-open eyes I started to read Craig Schamp, writing about his flight from SJ to Phoenix. Ho hum, another blogger boring us with the trivia of his life.
Only this story was weirdly different, and my sleep-clogged brain wasn't sure if I was reading some Science Fiction, or still dreaming, or if the world had changed without my realizing it, or ...
... three shuttles arrive all at once, and taking the first, we're the only passengers on our bus. Oddly, in a scenario out of a post-apocalyptic movie, the bus driver makes all the usual stops, stopping in the far end of the lot for passengers who didn't show.
When we get to the terminal, we breeze through the security checkpoint in just a couple of minutes. No lines, no hassles, this is the way travel is meant to be...
It finally comes to me -- he's flying on September 11! What a smart guy. (And the place really is named the Norman Y. Mineta International Airport.)
Dave Trowbridge, his girlfriend Deborah, and her daughter Rose came up for a visit, and we went over to see the Lemurs at the SF Zoo. The Lemur area is new, and we hadn't been there. What delightful creatures they are. They have beautiful coats and long long fluffy tails; and they leap through the trees most acrobatically. We all agreed that Bill Gates should buy Madagascar, and redeem himself by saving Lemur habitats.
This picture is blurred, but it captures something of the flavor of Dave T; a man who is connected, on some deep spiritual level, with the Three Stooges. (You think I'm kidding? -- read his books) He is teaching my son how to make music by rubbing a finger on a wineglass. Shortly after this we were Googling the prices of Glass Harmonicas ... (Eat yer hearts out, China, WE get to Google)
Much of our conversations are also blurred in my mind, but Dave, a dog lover if there ever was one, told a great true story. A police dog is sent in to sent to pull a suspect out of a small crawl-space in a hospital parking lot. The dog refuses the command to release the suspect, and goes on to bite him savagely!
They take the mauled suspect into the ER, and the doctor there berates the policemen for this horrible police brutality. The policeman listens with very professional calm, then quietly lets the doc know that the suspect beat-up one of his nurses, who is also in the ER, in a coma. The doctor then holds up the syringe of anesthetic he was about to inject, squirts the contents into the air, and then begins to stitch up the perp.
Last, as the policeman is putting the dog into his car, assuming the dog has gone mad and will have to be destroyed, he sees blood, and discovers the dog has been stabbed. With the intelligence of his breed, the dog had made the decision that the scumball was far too dangerous to release, and took appropriate action ... (The dog survived and resumed his honorable career)
