Don Boudreaux submitted a great letter to the editor about Krugman’s partisan economics. Good stuff. My posts about Krugman and health care illustrate why I lack respect for the guy, but Boudreaux’s letter does this quite efficiently.
(Thanks to Justin Longo for the pointer.)
From Russ Roberts‘ op-ed in the Wall Street Journal*:
Back in March, Henry Paulson, Ben Bernanke and the experts assured us that Bear Stearns had to be propped up. If not, the whole system could come crashing down. It is crashing down anyway. Just as in the 1930s, there is no evidence that the policy makers have any understanding of what they are doing. They need to make way for the natural forces of repair.
They need to let housing prices fall. They need to let firms go bankrupt. They need to let firms that are healthy thrive. They need to let healthy firms buy the sick firms. It is time to let the imprudent fail and the prudent pick up the bargains.
A recession is coming (or has already arrived) no matter what happens in Washington. The question is whether the attempt to forestall it is going to make it worse and turn it into another Great Depression.
By acting without rhyme or reason, politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everything is up in the air and as a result, the only prudent policy is to wait and see what the government will do next. The frenetic efforts of FDR had the same impact: Net investment was negative through much of the 1930s.
(via Ari Armstrong)
*From last October…somehow I missed it.
Economist David Henderson articulates one of my frustrations with Paul Krugman:
Paul Krugman seems never to take account of the findings of public choice. Even a basic understanding of public choice would make him question his views about how effective government can be in achieving good things. This comes across clearly to those who, as I do, read over 30 percent of his columns in the New York Times. He seems to believe that if one can conceive of a government solution to a problem, then all that has to happen is that the legislative bodies pass a law to spend money on the problem and the problem will be fixed.
Read the whole post here. Henderson is the editor or the Concise Encyclopedia of Economics, available on-line here.
Speaking of public choice, here’s a succinct summary from a Medicare reform report:
Like for-profit firms, politicians must compete to survive. But the nature of that competition forces them to weigh political costs against political benefits – where “costs” and “benefits” are measured in terms of impact on the next election. Private firms competing in a marketplace, by contrast, must compare economic costs with economic benefits.
For more, see here.
John Stossel writes eloquently on the danger and injustice of deficit spending:
Obama must realize that government has no wealth of its own and that commandeering scarce resources from the private sector only stifles the economy. Deficit spending does this two ways. When the Treasury borrows money, it outbids private borrowers who would have put the money to productive use. When the Fed creates money, it depreciates the dollar, shifts purchasing power from the people to special interests, and — by tampering with the price signals — creates an unsustainable recovery that will collapse and throw people out of work when the inflation stops.
Read the whole article here.
Amity Shlaes in the Wall Street Journal:
Massive government spending is no solution to unemployment.
Paul Krugman of the New York Times has been on the attack lately in regard to the New Deal. His new book “The Return of Depression Economics,” emphasizes the importance of New Deal-style spending. He has said the trouble with the New Deal was that it didn’t spend enough.
He’s also arguing that some writers and economists have been misrepresenting the 1930s to make the effect of FDR’s overall policy look worse than it was. I’m interested in part because Mr. Krugman has mentioned me by name. He recently said that I am the one “whose misleading statistics have been widely disseminated on the right.”
Mr. Krugman is a new Nobel Laureate, teaches at Princeton University and writes a column for a nationally prominent newspaper. So what he says is believed to be objective by many people, even when it isn’t.
Read the rest here. See also the work of Robert Higgs linked to this recent podcast.
(via David Harsanyi)
The Rocky Mountain News published my letter to the editor last week:
Amendment 59 backers should send refunds to schools
Let the “begathon” begin! That’s what educators would need to raise school funding because Amendment 59 failed, said Colorado Association of School Boards director Jane Urschel (“Despite defeat, Ritter aims for budget fix,” Nov. 6).
But fundraising should be easy – if 59′s supporters simply put their money where their vote is. Since 59 failed, taxpayers will receive a refund when the state collects excess taxes. Why not donate it to schools?
Amendment 59 would have sent about $50 million in annual tax surpluses to government schools. Since almost a million Coloradans voted for it, that’s a $50 donation each. As a tax-deductible donation, it’s even less. Just forgo dinner and a movie one weekend.
Surely voters who want government to spend their own tax refund – and everyone else’s – on government schools would donate voluntarily, right? Or would they prefer to support a school of their choice, a scholarship fund, or other causes they deem worthwhile?
In a previous essay I addressed a common argument against the above point of view:
Another common argument in support of [taxing people to pay for schools] is that “we all benefit from it.”… In any case, just because you benefit from something does not mean you must pay for it. We benefit if others have food, shelter, clothing, and good hygiene, but this doesn’t mean government should force us to buy food, shelter, clothing, and soap for others.
(What does this have to do with Barbara Streisand? She supports tax-funded schools. (Photo credit.))
From Reuters, November 17:
GREENSBURG, Indiana (Reuters) – The rest of the country may have been debating the possible bankruptcy of America’s iconic automakers on Monday, but in southeast Indiana more than 1,000 U.S. workers were cheering the opening of Honda’s newest assembly plant. …
The rise of Honda’s mammoth new car plant in America’s farming heartland is a stark contrast to the layoffs and plant closings announced in recent months by General Motors Corp, Ford Motor Co and Chrysler LLC.
But for the Honda workers here, their jobs — with a starting wage of $18.41 an hour — are just as much part of the U.S. auto industry as those at their imperiled Detroit competitors. They just don’t get as noticed.
“GM has laid off and cut back how many people and Honda is building a plant. What is Honda doing right? Maybe they should look at this model and learn something instead of getting a bailout,” shrugged new Honda worker Larry Giles, 41.
According to 2007 figures compiled by the Center for Automotive Research, foreign automakers including Honda, Toyota and Nissan employed some 113,000 workers in the United States, about half of the 239,000 employed by Detroit’s Big Three.
Read the whole article here.
Why would politicians bail them out? Diffuse costs and concentrated benefits.
My piece published in Saturday’s Daily Camera:
It’s wrong for government to bail out failing businesses, financial institutions, and irresponsible home “owners” who cannot pay back loans. This just rewards people for making poor decisions. This punishes both financially responsible taxpayers and successful businesses that profit by producing what consumers want.
If anything cripples prosperity, it’s rewarding those who squander wealth at the expense of those who create it. The best way to bolster financial markets is to respect the rights of consumers and producers to trade voluntarily according to their own best judgment. But Treasury Secretary Henry Paulson wants to replace such free-market transactions with tax-funded government policies that encourage borrowing. But aren’t such policies the problem in the first place?
As economist Stan Liebowitz summarizes in his “Anatomy of a Train Wreck,” a long history of pro-borrowing policies have contributed to the mortgage mess. Low interest rates, regulations that promote risky lending implicitly backed by Fannie and Freddie, and other policies advanced the politically popular goal of home ownership, or home “borrowership” to be accurate, by those who cannot afford it.
We should not further empower government officials to treat taxpayers like pawns in the world they see as a chessboard. This invites special interests to feed at the government trough at politicians’ benefit and taxpayers’ expense.
Instead, as Harvard economist Jeffrey Miron suggests, legislators should “eliminate those policies that generated the current mess.”
Other references on this issue:
Jeffrey Miron, Ph.D., Don’t blame free markets for the current panic.
Arnold Kling, Ph.D. (former Senior Economist at Freddie Mac), Fantasy Testimony, and History of Mortgage Securitization.
A press release by the Ayn Rand Center for Invidual Rights:
“Everyone is blaming ‘the free market’ for today’s financial crisis,” observed Yaron Brook, executive director of the Ayn Rand Institute. “But we should be blaming the unfree market. The mortgage and financial markets have been thoroughly controlled by government–and that is why they failed.
“It was the government’s hand in the creation of Fannie Mae and Freddie Mac, the Federal Reserve Board’s inflationary policy of keeping interest rates artificially low, the irrational lending standards forced on lenders by the federal Community Reinvestment Act, and the quasi-official policy of bailing out large financial institutions deemed too big to fail, that contributed to creating a situation in which millions of people were buying homes they could not afford, in which the participants experienced the illusion of prosperity, in which billions upon billions of dollars were going into bad investments.
“We do not need more regulation or economic ‘supervision.’ What we need to do is remove the government’s power to coerce, bribe, reward and bail out irrational decisions. The unfree market has failed. It’s time for a truly free market.”
The Investors Business Daily has also mentioned the Community Reinvestment Act.
(via Ari Armtrong)
No. And it’s not possible, anyway. But apparently people think that’s part of the job.
