February 07, 2013

Mr. Krugman's Science, part 4

The text for today's sermon is taken from The Daily Howler, another blogspot...spot, this one ably manned by Bob Somerby, he of the clever phrase and the deadly outside jumpshot, a star of the Aragon Dons basketball team circa 1965.  I had the privilege of being on the court a couple of times against Bob, playing for crosstown rival San Mateo High School. As he was fearless in driving the lane, Bob does not shrink from taking on the mighty New York Times, that purveyor of Establishment memes, themes and nonsense, that First Amendment-powered organ that George W. Bush knew he could trust with the awful truth, for over a year, that the Bush/Cheney Administration was systematically violating the FISA law and the 4th Amendment in wiretapping American citizens without a warrant.  Or could plant bogus claims with Judith Miller, ace reporter/obfuscator, about weapons of mass destruction in Iraq.  Or could count on Thomas Friedman to do the dirty work of making an insane war look like an historical inevitability.  The New York Times has done so much to ruin the oversight function of the Fourth Estate, that shadow branch of government that Thomas Jefferson thought was more important than the other three.  As it was then, so shall it be now.  Writes Bob:

And so forth, and so on and more so. New York Times readers constantly fawn to the newspaper’s famous columnists, no matter how inane, bogus, dishonest or disrespectful the column in question may be. In this way, readers of our smartest newspaper have sleep-walked through the many years in which Times columnists have advanced the stupidest narratives of our age... We are where we are because of these people—because of this newspaper’s pseudo-journalists, because of its gullible readers.
Good stuff, Bob.  As nice in its own way as that fadeaway jumper back in the day.  To be fair in what I'm attributing to Mr. Somerby, I think Bob believes that Paul Krugman is a valuable exception to this general denunciation.  I can understand that.  I think it's a question of developing a feel for Mr. Krugman, if I can say that without too much presumption.  To become truly worn out by Mr. Krugman's nonstop, narcissistic self-promotion and intellectual flimflam is the work of years.  You have to watch Krugman truncate graphs, and cook statistics, and abstract from context, and you have to read his absolutely irreconcilable 180-degree changes in position depending upon whose ox he happens to be goring, and a writer of Bob Somerby's breadth (and frequency) may not have the time. Or he may genuinely believe that the obviously bad things about Krugman are more than balanced by the good professor's championing of the entitlements.  Be that as it may.

Lately Mr. Krugman has been having a field day with his neologisms.  I hasten to add that Mr. Krugman's coined phrases are sometimes a little worn around the edges, because he didn't actually make them up.  Take, for example, his use of the phrase Very Serious Person, a term of derision referring to members of the Beltway crowd who follow the herd and are wrong because they disagree with Mr. Krugman.  I'm pretty sure this is a lift from Glenn Greenwald, who coined the phrase, the acronym VSP, and gave the phrase its meaning.

Or "Confidence Fairy," a cutesie description which Krugman has run into the ground over the last year or so.  This term refers to the Deficit Scolds (another of his laboriously repeated descriptions), who focus too much on America's federal deficits and who do not understand (because they are not conversant with John Maynard Keynes) that the trillion dollar plus deficits we have been running since the latter part of the Bush Administration are not a problem.  Mr. Krugman repeats over and over that America does not have a fiscal problem.  The debt service, measured as a percentage of GDP, is manageable, inflation is low, and the future is so bright the present needs to wear sunglasses. 

As for the long run problems, Mr. Krugman (these days) seems to say one of two things: he quotes J.M. Keynes and his famous "in the long run we are all dead," or he says that America has "a big economy, we can handle whatever comes our way."  Thus, when a lesser light such as Laurence Kotlikoff over at Boston University begins talking about a net present value (NPV) of unfunded long-term liabilities for Social Security and Medicare, Mr. Krugman just yawns and probably thinks to himself, "What do you expect from a non-Ivy institution?" True, Professor Kotlikoff seems fairly certain that the NPV is currently $222 trillion, and under generally accepted accounting principles, this is the amount that should be booked by the Treasury as our current shortfall.  You might judge for yourself:

Mr. Krugman is not buying this sort of alarmist claptrap.  Indeed, he has recently been writing columns and blogs celebrating the end of the deficit problems.  Somewhere in there (you may have missed it; I'm pretty sure I did) we solved all of these funding difficulties.  I may have been distracted by the squadron of pigs flying out of my ass at that precise moment.

And yet, and yet:  in March, 2003, when George W. Bush was President, Mr. Krugman took a different approach.  What now seem quaintly mild deficits (on the order of $300 billion per year) had Mr. Krugman reaching for the smelling salts.  In a column called "A Fiscal Train Wreck," Mr. Krugman said this (and see if you can spot the slight difference in tone between Mr. K then and Mr. K now):

 That may sound alarmist: right now the deficit, while huge in absolute terms, is only 2 -- make that 3, O.K., maybe 4 -- percent of G.D.P. But that misses the point. ''Think of the federal government as a gigantic insurance company (with a sideline business in national defense and homeland security), which does its accounting on a cash basis, only counting premiums and payouts as they go in and out the door. An insurance company with cash accounting . . . is an accident waiting to happen.'' So says the Treasury under secretary Peter Fisher; his point is that because of the future liabilities of Social Security and Medicare, the true budget picture is much worse than the conventional deficit numbers suggest...  (my emphasis mischievously added).

How will the train wreck play itself out? Maybe a future administration will use butterfly ballots to disenfranchise retirees, making it possible to slash Social Security and Medicare. Or maybe a repentant Rush Limbaugh will lead the drive to raise taxes on the rich. But my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt.

And as that temptation becomes obvious, interest rates will soar. It won't happen right away. With the economy stalling and the stock market plunging, short-term rates are probably headed down, not up, in the next few months, and mortgage rates may not have hit bottom yet. But unless we slide into Japanese-style deflation, there are much higher interest rates in our future.
How odd, huh?  Now, with an economy obviously much worse than the early years of the last decade, with the deficits much, much higher measured either as an absolute number or as a percentage of GDP, anyone who talks exactly as Mr. Krugman did in 2003 is a Deficit Scold,  a Very Serious Person or a believer in the Confidence Fairy.

Yet it is Mr. Krugman who is considered a genuine Very Serious Person, leaving aside the satirical edge for a moment.  When it was politically convenient to do so, Mr. Krugman folded up his Keynesian superstructure like a cheap lawn chair.  And now the good professor urges his government to do what irresponsible governments usually do: print money to pay current bills and to inflate away debt.

What can possibly account for this astounding flip-flop? I have my own General Theory. Mr. Krugman's column is about Mr. Krugman.  When George W. Bush was running deficits of around 3% GDP (which Krugman now says is essentially the "optimal size" and nothing to worry about), Dick Cheney was saying that "deficits don't matter." Reagan had proved that.  How can Paul Krugman possibly jump on that bandwagon? But now the Beltway consensus, the firm conviction of the Very Serious People, is that deficits, especially of the enormous size we currently face, most assuredly do matter.  How does one stake out an iconoclastic position in the face of such widespread common sense? How does one, in other words, make sure that attention is drawn to oneself, to remain the cynosure of all intellectual eyes?  By adopting Dick Cheney's position, of course.

This is why I admire Mr. Krugman's qualities as a showman, first and foremost. He knows that economics isn't a science, that it's an ass which will do what you want it to do, as Mr. Bumble said about law.  And if his 2003 predictions come true, and interest rates soar, and hyperinflation sets in, and the currency collapses, and we become a Banana Republic?  I assure you that Mr. Krugman will emerge, at least to his own nose, smelling like a rose, and will tell you, "I told you so."

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