Krugman's Delusion

What nerve, huh? A loser-blogger calling out a Nobel-Prize-winning-Princeton economist for being deluded about economics! Well, that's what I'm doing. I must admit though that there are others far more deluded - there are those who think we're in some sort of real recovery right now. Krugman knows that's not true. But he seems to think that all we need to do is pump a whole bunch of money into the economy and, Voila!- we'll have our recovery.

In next Sunday's NYT Magazine, Krugman takes on Bernanke for not doing more to push along the recovery - things like pumping more money into the economy. What Dr. K does not understand is that what the economy is suffering from is not some technical imbalance like a vitamin deficiency. The economy is suffering from a deep fundamental problem - we are not increasing our output sufficiently to raise our standard of living. What's worse is that the growth we've had over the last 10 - 30 years was largely fraudulent, an illusion concocted by debt (and I'd argue all the growth of the last decade was completely fraudulent). Thus, our standard of living exceeds what we have truly earned and we continue to pile on debt just to maintain the ruse.

This is why the middle class has been stagnant for decades now - there's been no real fundamental growth. If economic growth were organic and true, then the resulting affluence would accrue to everyone. But since the average person is not any more productive in any real sense, the increased affluence has largely gone to those who have excelled at figuring out how to finagle the systemic leverage to their advantage - and to that small segment of the population who have actually become more productive (Silicon Valley, for example).

Most economists seem to think that money makes the economy function. Money allows the economy to function smoothly, of course, since a pure barter economy would be impractical. At best proper money management can help an economy function at its optimal level, but it can't actually increase production. Increased production can only come from people producing more.

But all else being equal, a society with more and more elderly people is not going to be producing more. All else being equal, a society with less-and-less STEM graduates is not going to produce more; and one with more-and-more people with lower innate human capital is going to produce less. And of course a society that increases its production of non-durable goods and services at the expense of tradable goods is not going to be producing more.

Despite the deep recession we just experienced, we have yet to fully pay the piper. The government seems to have finally given up on any serious efforts to prop-up the housing market, but the big banks have yet to realize their losses. Meanwhile, horrific deficits loom over us like dark storm clouds. We have not had sustained growth in excess of 3% since the 90's, so we can't literally grow ourselves out of these deficits. Our only recourse will be to inflate our way out.

Somehow or other we - as a society - need to figure out how we're going to pay the piper. The most just and constructive approach would reward those who have avoided leverage and punish those who have exploited leverage. But the Krugman approach - inflating our way out of debt = would of course do the exact opposite - reward the debtors and rape the savers. But it's even more critical to be fair at the institutional level. We cannot allow high-leverage banking to be a lucrative profession in relation to actual productive enterprises. We'll never approach the 4-5% per annum growth levels of the post-war years again, but we can get ourselves back in a respectable, true 2-4% level. But it won't be easy. More on that later.

The Martin-Zimmerman Wildcard

When viewed in hindsight, mistakes made in botched investigations seem rather obviously dumb. But the handling of the phone call between Martin and his girlfriend that took place in the moments before the shooting is particularly bizarre. Several weeks after the shooting, when the firestorm of protest was in full swing, Martin-family attorney Benjamin Crump announced that he had an affidavit from Martin's girlfriend detailing Trayvon's actions before the shooting, and insisted he would not hand it over to the police, but only to federal investigators. The Sanford Police responded that they had asked for anyone with information to come forward, but the young lady never came forth. The whole thing sounded fishy, and led me to wonder if the phone call even took place at all.

Now if indeed such a phone call had occurred, this would have been immediately obvious to the Sanford Police, who were in possession of Martin's phone. Why would they have needed someone to "come forward" when they could have just called the person up or tracked them down through phone records (a warrant for such an investigation would surely have been a snap to secure)? This would seem to constitute particularly incompetent police work. But we do know that even though they had the deceased teen's phone, they did not follow up on his identity and instead waited for Mr. Martin to call to report his son missing the next morning.

At any rate, because there was no immediate contact with the young lady, there have now been many weeks to prepare her testimony. The trial then will likely come down to her word* against Zimmerman's. And while Zimmerman gave several statements in the incident's immediate aftermath from which the prosecution can pick apart any inconsistencies, since the young lady was not interviewed early on in the investigation, her testimony will likely be well tuned. Thus, despite what appears to be a very weak case against him at this point, I believe Zimmerman's goose may be cooked once he gets to trial.

* Of course I'm assuming this aspect of the case is anything like it's being portrayed. In the Duke Lacross hoax, we were also told that the other stripper would corroborate the accuser's story, but that of course never panned out. It would not shock me if this entire aspect of the case ends up falling apart, but at this point I have to assume that the phone records do indeed show a phone call between Trayvon and this girl at the suggested time.

The Secret Service Debacle

Ok, so the secret service guys behaved poorly. Perhaps they should indeed be sacked. But if I were a politician who is currently or might soon be dependent on these guys to keep me and my family safe I might be a little cautious about flaunting my indignation over these alleged transgressions. I mean scoring political points is all well and good, but do you really want to do so at their expense?

O's Foreign Policy

He has escalated an unwinnable war in Afghanistan. He has pulled the rug out from underneath friendly regimes in North Africa only to usher in God knows what in their place. He has antagonized Russia, a major nuclear power, over their internal affairs. And yet his policies are still fare saner than Romney's.

OK So It's Not a Tax

It seems clear from the SCOTUS arguments that the "individual mandate" is not a "tax". So therefore it is a mandate - meaning the federal government is indeed requiring U.S. citizens to do something. This is, outside of conscription, wholly unprecedented. And since our recent experience with precedent is that it will inevitably lead to extreme policies, then it must be nullified.

There simply is no basis for exempting this particular mandate from any other mandate that congress may in the future dream up. How about requiring everyone to to go to college? Or get a physical every year? Or attend a Diversity Training course? Why not? What could possibly stop Congress from mandating such activities? Nothing. Only the understood constitutional limit on federal power that forbids Congress from requiring people to do anything other than pay taxes, serve on juries and join the army prevents it. If we lift that last constraint, there will be no limit to Congress's intrusion into our lives.

Let's hope Justice Kennedy remains steadfast in the face of Comrade Obama's Stalinist admonishments.