Tag: Krugman

Latvia, the Country Prof. Krugman Loves to Hate, Wins 1st Prize

I constructed a misery index and ranked 89 countries from most to least miserable based on the available data from the Economist Intelligence Unit. My methodology is a simple sum of inflation, bank lending and unemployment rates, minus year-on-year per capita GDP growth. The table below is a sub-ranking of all former Soviet Union (FSU) states contained in my misery index.

For these FSU states, the main contributing factors to misery are high levels of unemployment and high interest rates.

The low misery index scores in Estonia and Lithuania don’t surprise me as I helped both countries establish sound money with the installation of currency boards in 1992 and 1994, respectively. Latvia, a country Paul Krugman loves to hate, takes the prize for the least miserable of the former Soviet Union countries in this sub-ranking.

Larry Summers Redefines Balanced Budgets as Stimulus and Big Deficits as Austerity

Former Treasury Secretary Larry Summers, in June 4 testimony before the Senate Budget Committee, offers a scatter diagram which allegedly shows “that countries that pursued harsher austerity policies in recent years also had lower real GDP growth.”  He acknowledges, but does not adequately explain, that the causality may well be backwards: Bond markets would not allow countries in severe economic distress (Portugal, Ireland, Greece and Spain) to continue financing deficits at the peak levels of 2010.

Summers defines “austerity” as the three-year change (regardless of the level) from 2010 to 2013 in cyclically-adjusted “primary” deficits (excluding interest expense) as a percent of potential GDP.  His scatter diagram then compares those changes to average real GDP growth from 2010 to 2013, using unexplained estimates for 2013.

Measuring fiscal stimulus by the change in budget deficits means several countries with little or no budget deficit in both 2010 and 2013 appear as employing the most “fiscal stimulus” in Summers’ graph. Sweden’s deficit is estimated at 0.1 percent of GDP for 2013, according to The Economist, and was literally zero in 2010.  Keeping the budget balanced puts Sweden on the admirable left side of Summers’ diagram – the side ostensibly choosing growth rather than austerity.  Germany is another country Summers counts as avoiding austerity, even though Germany’s brief cyclically-adjusted deficit of 3.5 percent of GDP in 2010 was cut to zero in 2012-2013.

When it comes to real GDP Growth, Hong Kong, Singapore, the Slovak Republic and South Korea appear near the top of Summers’ graph.  It is revealing that Hong Kong is also far to the left on the pro-growth side of the austerity axis.  This may appear paradoxical since Hong Kong ran budget surpluses in 7 of the past 8 years, and will do so again in 2013. No amount of cyclical adjusting could turn chronic surpluses into deficits.  Simply because Hong Kong has not switched from a big deficit to a smaller one, that alone suffices to place it among the least “austere” economies on list.  Similarly, South Korea’s budget surplus is estimated at 1.3-1.4 percent of GDP in both 2010 and 2013, according to the OECD, but keeping the budget in surplus between those years counts as stimulative policy in Summers’ reckoning.

Where Are the European Spending Cuts?

Paul Krugman recently tried to declare victory for Keynesian economics over so-called austerity, but all he really accomplished was to show that tax-financed government spending is bad for prosperity.

More specifically, he presented a decent case against the European-IMF version of “austerity,” which has produced big tax increases.

But what happens if nations adopt the libertarian approach, which means “austerity” is imposed on the government, rather than on taxpayers?

In the past, Krugman has also tried to argue that European nations have erred by cutting spending, but this has led to some embarrassing mistakes.

Now we have some additional evidence about the absence of spending austerity in Europe. A leading public finance economist from Ireland, Constantin Gurdgiev, reviewed the IMF data and had a hard time finding any spending cuts:

…in celebration of that great [May 1] socialist holiday, “In Spain, Portugal, Greece, Italy and France tens of thousands of people took to the streets to demand jobs and an end to years of belt-tightening”. Except, no one really asked them what did the mean by ‘belt-tightening’. …let’s check out expenditure side of Europe’s ‘savage austerity’ story… The picture hardly shows much of any ‘savage cuts’ anywhere in sight.

As seen in his chart, Constantin compared government spending burdens in 2012 to the average for the pre-recession period, thus allowing an accurate assessment of what’s happened to the size of the public sector over a multi-year period.

Austerity in Europe

Here are some of his conclusions from reviewing the data:

Of the three countries that experienced reductions in Government spending as % of GDP compared to the pre-crisis period, Germany posted a decline of 1.26 percentage points (from 46.261% of GDP average for 2003-2007 period to 45.005% for 2012), Malta posted a reduction of just 0.349 ppt and Sweden posted a reduction of 1.37 ppt.

No peripheral country - where protests are the loudest - or France et al have posted a reduction. In France, Government spending rose 3.44 ppt on pre-crisis level as % of GDP, in Greece by 4.76 ppt, in Ireland by 7.74 ppt, in Italy by 2.773 ppt, in Portugal by 0.562 ppt, and in Spain by 8.0 ppt.

Average Government spending in the sample in the pre-crisis period run at 44.36% of GDP and in 2012 this number was 48.05% of GDP. In other words: it went up, not down.

…All in, there is no ‘savage austerity’ in spending levels or as % of GDP.

I’ll add a few additional observations.

Hayek v. Krugman – Cyprus’ Capital Controls

Nobelist Paul Krugman has a propensity to spin and conceal. This allows for deception – the type of thing that hoodwinks some readers of his New York Times column. While deception doesn’t qualify as lying, it also fails to qualify as truth-telling.

Prof. Krugman’s New York Times column, “Hot Money Blues” (25 March 2013) is a case in point. Prof. Krugman sprinkles holy water on the capital controls that will be imposed in Cyprus. He further praises to the sky the post-1980 capital controls that were introduced in a number of other countries.

Prof. Krugman then takes a characteristic whack at all those “ideologues” who might dare to question the desirability of capital controls:

But the truth, hard as it may be for ideologues to accept, is that unrestricted movement of capital is looking more and more like a failed experiment.

Fine. But, not once did Prof. Krugman mention that there just might be a significant cost associated with the imposition of capital controls – a cost with which Prof. Krugman is surely familiar.

Before more politicians fall under the spell of capital controls, they should take note of what another Nobelist, Friedrich Hayek, had to say in his 1944 classic, The Road to Serfdom:

The extent of the control over all life that economic control confers is nowhere better illustrated than in the field of foreign exchanges. Nothing would at first seem to affect private life less than a state control of the dealings in foreign exchange, and most people will regard its introduction with complete indifference. Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty. It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape—not merely for the rich but for everybody.

When it comes to capital controls, I think the Cypriots – even the non-ideologues – might be inclined to agree with Hayek over Krugman.

Prof. Krugman: Ace of the Ad Hominem Smear

Prof. Paul Krugman’s New York Times column of March 27th, “American Thought Police,” made this startling assertion: “the hard right — which these days is more or less synonymous with the Republican Party — has a modus operandi when it comes to scholars expressing views it dislikes: never mind the substance, go for the smear.”  What would Dr. Freud say?  Well, after careful study of Prof. Krugman’s works and one trip to the couch, Dr. Freud diagnosed the patient and proclaimed, “projection bias.”  Yes, the ace of the ad hominem smear is simply projecting his own attributes and habits of mind and deed to others.

Conservatives, Liberals, and the TSA

Libertarians often debate whether conservatives or liberals are more friendly to liberty. We often fall back on the idea that conservatives tend to support economic liberties but not civil liberties, while liberals support civil liberties but not economic liberties – though this old bromide hardly accounts for the economic policies of President Bush or the war-on-drugs-and-terror-and-Iraq policies of President Obama.

Score one for the conservatives in the surging outrage over the Transportation Security Administration’s new policy of body scanners and intimate pat-downs. You gotta figure you’ve gone too far in the violation of civil liberties when you’ve lost Rick Santorum, George Will, Kathleen Parker, and Charles Krauthammer. (Gene Healy points out that conservatives are reaping what they sowed.)

Meanwhile, where are the liberals outraged at this government intrusiveness? Where is Paul Krugman? Where is Arianna? Where is Frank Rich? Where is the New Republic? Oh sure, civil libertarians like Glenn Greenwald have criticized TSA excesses. But mainstream liberals have rallied around the Department of Homeland Security and its naked pictures: Dana Milbank channels John (“phantoms of lost liberty”) Ashcroft: “Republicans are providing the comfort [to our enemies]. They are objecting loudly to new airport security measures.” Ruth Marcus: “Don’t touch my junk? Grow up, America.” Eugene Robinson: “Be patient with the TSA.” Amitai Etzioni in the New Republic: “In defense of the ‘virtual strip-search.’” And finally, the editors of the New York Times: ”attacks are purely partisan and ideological.”

Could this just be a matter of viewing everything through a partisan lens? Liberals rally around the DHS of President Obama and Secretary Napolitano, while conservatives criticize it? Maybe. And although Slate refers to the opponents of body-scanning as “paranoid zealots,” that term would certainly seem to apply to apply to Mark Ames and Yasha Levine of the Nation, who stomp their feet, get red in the face, and declare every privacy advocate from John Tyner (“don’t touch my junk”) on to be “astroturf” tools of “Washington Lobbyists and Koch-Funded Libertarians.” (Glenn Greenwald took the article apart line by line.)

Most Americans want to be protected from terrorism and also to avoid unnecessary intrusions on liberty, privacy, and commerce. Security issues can be complex. A case can be made for the TSA’s new procedures. But it’s striking to see how many conservatives think the TSA has gone too far, and how dismissive – even contemptuous – liberals are of rising concerns about liberty and privacy.

Ruth Richardson: The Queen of Fiscal Squeezes

In my posting of June 3, 2010, “Prof Krugman Is Wrong, Again,” I argued and presented evidence to indicate that Prof. Krugman and other fiscalists, who peddle the idea that more government spending is the economic elixir for the United States, are wrong.  They have latched onto an old idea – naive Keynesianism – that has congealed into a crust of dogma by endless repetition and obeisance.

When fiscal deficits and debt levels are “large” and the state of confidence is “low,” fiscal multipliers can be negative.  Under these conditions, a fiscal consolidation, not a fiscal stimulus, is stimulative.

While my June 3, 2010 posting contained well-known contra-Keynesian cases, my friend Peter Redward in Singapore reminded me that I failed to include New Zealand’s 1991 budget squeeze.  This leaves me a bit red-faced as another good friend, Ruth Richardson, was New Zealand’s Minister of Finance (November 1990 - 1993) and was responsible for the 1991 budget.  As Ruth makes clear in her memoirs Making A Difference (Chapter 11 - The Mother of All Budgets), the purpose of New Zealand’s fiscal squeeze was to restore confidence and boost economic growth.  Her squeeze worked like a charm, as Roger Kerr, Executive Director of the New Zealand Business Roundtable, recounts.