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Thursday, May 15, 2003

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There was a time once, long ago and far away, when I used to respect Yale economist Robert Schiller. After the stock market crash of 1987, when everyone was looking for scapegoats, he was doing pathbreaking work polling institutional and retail market participants to understand the role of "thought contagions" in chaotic market environments. It was good work.

But in more recent years Schiller's work to understand the psychology that drives markets has led him to the conclusion that everybody is stupid and irrational, and that government should intervene to protect people from themselves. He has promoted a couple of his books now by claiming to be the one who coined the expression "irrational exuberance" and planted it in Alan Greenspan's mind -- triggering perhaps history's largest-scale example of government intervening to influence market valuations.

Now, on a day when President Bush has finally assembled a razor-thin congressional majority to support his revolutionary reform of the unfair double taxation of dividends, Schiller is out with an op-ed in the New York Times suggesting that the US tax code should be fundamentally re-engineered in such a way as to prevent: "income inequality." The man who thinks we're all irrational says that income inequality "could create resentment and even violence." The Schiller solution:

"...future tax brackets and rates should be contingent on the extent of future inequality. Tax law should be based on a principle that might be called inequality insurance: the taxes would be collected in such a way as to insure that the level of inequality, after taxes and transfers, does not exceed the levels present when the law was enacted. If such indexing were put in place today, the brackets and rates would adjust whenever inequality worsened beyond today's levels."

In other words, he would have the tax code structured to freeze in place any and all of today's relative incomes. If you made a lot a more money than you did last year, it would be taxed away (unless everyone else made as much more as you did).

One question, if I may... If we're all so irrational, what cognitive faculty does Schiller believes he possesses that qualifies him to decide (considering that he, too, is no doubt irrational -- since we all are) that freezing today's level of equality (or anything else) is something we should even want, and that any particular level of equality (or anything else) should be enforced by the tax code? How would we know, if we are irrational?

Posted by Donald L. Luskin at 11:32 PM | link  

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My antitrust guru Skip Oliva, president of Citizens for Voluntary Trade and operator of the Intellectual Passivist blog, responded to my speech "The Economics of Mass Destruction."

"A couple months ago, the Department of Justice coerced an antitrust settlement from Village Voice Media and New Times Media. Basically each company had a failing newspaper competing in the other guy's market. To cut their losses, the companies basically agreed to shut down the failing newspapers.

"The DOJ saw this as 'market-swapping' and charged both companies with attempted monopolization in the 'alternative newsweekly' markets in Los Angeles and Cleveland. This may be the first time a market can be defined as an 'alternative' to some other market for antitrust purposes.

"Under the settlement, each company was forced to sell their closed newspaper assets to third parties chosen by the DOJ, and these companies would then reopen the newspapers. Now, as I see it, forcing a newspaper to publish against its owner's judgment violates the First Amendment. I said as much in filings with the district court opposing the settlement.

"The DOJ, obviously, sees things differently. They issued a reply to my comments which were, at best, evasive. Today I filed my own reply, which addresses the Government's definition of 'alternative newsweekly.'"

I continue to believe that if the Bush administration wants to create a better environment for entrepreneurship in America, it should cut the systemic tax imposed on all US business by the power of the antitrust nazis.

Posted by Donald L. Luskin at 6:17 AM | link  

Wednesday, May 14, 2003

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Here are two great emails from readers responding to Paul Krugman's celebration of state-run media. The first, John Hemphill makes a point I wish I'd thought to make myself.

" have Krugman's BBC point backwards. The 'independence' of the BBC is not from the government, but its insulation from the market. As you point out, the New York Times and the Boston Globe lose market share, the New York Post gains; the only way to continue putting forth an out-of-touch viewpoint is government funding."

Lance Sugden writes,

"Krugman says, '...because the networks aren't government-owned, they aren't subject to the kind of scrutiny faced by the BBC, which must take care not to seem like a tool of the ruling party.'

"And I suppose Canada's state run CBC must also take care not to seem like a tool of the ruling Liberal party. Au contraire. Don Cherry a.k.a. 'Grapes,' is extremely biased, eccentric and controversial but is also the most popular hockey commentator on Canadian TV, hands down. Nobody comes even close. Every week on CBC's Hockey Night in Canada he has a hugely popular segment called 'Coach's Corner.' Back in April, you might remember the Montreal Canadian fans booed the US national anthem as it was sung during the pre-game. The 'Coach's Corner' episode that followed a few days later featured Don Cherry in a very loud American tie. He voiced his strong support for the US and disgust at the Montreal Canadian fans and other anti-Americans. On CBC's website, you can view any 'Coach's Corner' episode from this past season with the exception of Don's pro-USA episode. It has conveniently disappeared from the website.

"An arrogant liberal ivy leaguer might conclude that state run television is superior to privatization but any conservative hockey fan from the backwoods of Manitoba can tell you that it just isn't so."

And for those of you who think I've been selling Krugman short, be sure to read this one on our Letters Page.

Posted by Donald L. Luskin at 11:27 PM | link  

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I note with sorrow the continued spread of the dreaded virus KARS -- Krugman Adaptive Repetition Syndrome. Even though I thoroughly exposed the lie in Krugman's April 22 column that President Bush's proposed tax cut would cost $500,000 each to create 1.4 million $40,000 jobs (the cost of the tax cut is spread over ten years, but the $40,000 wage is for a single year), that lie continues to be parroted by politicians and pundits.

Dave Ogilvy, David Bethune and Ken Crosson all sent me emails noting that the lie was repeated in E. J. Dionne, Jr.'s column in the Washington Post Monday. Dionne cites as his source last week's New Yorker column by David Cassidy (which I pointed out last week) -- in which Cassidy didn't have the plain decency to cite Krugman as his source. Here's the media house-of-mirrors operating in top form -- the New Yorker repeats a lie from Krugman's New York Times column, and then the Washington Post repeats the same lie citing the New Yorker! And the best part of it is that Dionne's Post column was all about how the Bush administration would stoop to "say anything" to promote its tax cuts.

My National Review colleague Ramesh Ponnuru caught the lie repeated yet again Monday by no less a truth-seeker than Ralph Nader -- on CNN's Crossfire. Here's Nader talking to an ever-vigilant Robert Novak:

"NADER: His own economy adviser says the tax cut will create 1.4 million jobs. Most economists think that's a wild exaggeration. But even taking that figure, it amounts to half a million dollars per job...

"NOVAK: Now that's funny math.

"NADER: No, it's not funny math at all.

"NOVAK: You're taking jobs in one year as against the tax cut over 10 years.

"NADER: And look, let's face it, the top 10 percent of the income earners in this country get the lion's share."

In case Nader drove that Corvair too fast for you to see the trick, that was Liberal Media Rule Number Four in action -- when caught in a lie, change the subject to class warfare. Gets 'em every time.

Posted by Donald L. Luskin at 6:06 AM | link  

Tuesday, May 13, 2003

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All hail FOX News's Neal Cavuto! Paul Krugman took at shot at Cavuto in his New York Times column Tuesday -- and now Cavuto has shot back with what can only be described as a generous serving of good old fashioned shock and awe. Krugman wrote,

"...both the formal rules and the codes of ethics that formerly prevented blatant partisanship are gone or ignored. Neil Cavuto of Fox News is an anchor, not a commentator. Yet after Baghdad's fall he told 'those who opposed the liberation of Iraq' — a large minority — that 'you were sickening then, you are sickening now.' Fair and balanced."

Richard Zimmerman, a FOX spokesman, told me that "Neal's statement was made during his daily 'Common Sense' commentary segment, and labeled as such." But Cavuto himself gets to the point just a bit more forcefully:

"Exactly who's the hypocrite, Mr. Krugman? Me, for expressing my views in a designated segment at the end of the show? Or you, for not so cleverly masking your own biases against the war in a cheaply written column? ...I'd much rather put my cards on the table and let people know where I stand in a clear editorial, than insidiously imply it in what's supposed to be a straight news story. And by the way, you sanctimonious twit, no one -- no one -- tells me what to say. I say it. And I write it. And no one lectures me on it. Save you, you pretentious charlatan. ...Now make I suggest you take your column and shove it?"

Cavuto could have rolled all the way to Baghdad. He could have -- and should have -- blasted Krugman for daring to preach about "codes of ethics" at a time when the New York Times' reputation has been shattered by revelations of pervasive negligence that permitted the journalistic fraud of its reporter Jayson Blair. And he could have -- and should have -- blasted Krugman for daring to preach about "blatant partisanship," when Krugman himself is easily among the most relentlessly partisan journalists in America.

Oh... and then there's that matter of Krugman's truthfulness, or lack thereof. Krugman began his column by stating that "during the Iraq war...many Americans turned to the BBC for their TV news. They were looking for an alternative point of view — something they couldn't find on domestic networks."

The truth is that during the war many Americans turned away from the BBC. FOX's Zimmerman provided me with A.C. Neilson's authoritative television viewership statistics, which show that BBC-America's primetime audience actually fell from 93 thousand households in February to 88 thousand in March. At the same time, FOX TV's audience nearly doubled from 1.7 million in February to 3.2 million in March.

It wasn't just American households either. Matthew Hoy reminds us that "The crew of the British aircraft carrier Ark Royal turned off the BBC and switched to Rupert Murdoch's Sky News." That's right, the same Rupert Murdoch whose News Corporation owns FOX. "According to a 'senior rating' on the Ark Royal: 'The BBC always takes the Iraqis' side. It reports what they say as gospel but when it comes to us it questions and doubts everything the British and Americans are reporting. A lot of people on board are very unhappy.'"

Krugman not only lied about the growth of the BBC's audience, he omitted to mention the decline in the New York Times' own audience. According to a recent report by the Audit Bureau of Circulation, the Times' circulation has fallen 5.3% year-on-year for the six months ended March -- and that of its sister publication the Boston Globe has fallen 6.3%. For the same period, though, the New York Post -- yes, the newspaper owned by Rupert Murdoch -- saw its circulation rise 10.2%.

Krugman's lies mask, in the short-run, the brute fact that the audiences are voting with their eyeballs. They're gradually beginning to turn away from the systematic liberal bias of the mainstream media -- and columns like Krugman's. But his long-run strategy is to take away the audience's right to vote, by converting media to state control like the BBC's. Here's his rationale:

"Through its policy decisions — especially, though not only, decisions involving media regulation — the U.S. government can reward media companies that please it, punish those that don't... Yet because the networks aren't government-owned, they aren't subject to the kind of scrutiny faced by the BBC, which must take care not to seem like a tool of the ruling party."

David Hogberg gets it right when he nails Krugman's twisted logic:

"The reductio ad absurdum of Krugman’s argument is a media organization that receives its funding from the government is freer from government influence than those media organizations that are merely regulated by the government. I’m not going to bother explaining what’s wrong with that as it should be obvious."

Yep. It's something only an Ivy League economist could have come up with. And something only the New York Times would be shameless enough to run.

Posted by Donald L. Luskin at 9:06 PM | link  

Monday, May 12, 2003

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The unfinished symphonies drone on, and now we are up to Krugman's Tenth. Yes, it's Paul Krugman's tenth attempt to rehabilitate his credibility as an economist (and as an operator of a four-function calculator) after my exposé of the lies about President Bush's tax cuts  in his April 22 New York Times column (his previous nine apologiae are spread over seven postings on his personal site: one, two, three, four, five, six and seven (and, of course, still no correction from the "newspaper of record").

This time Krugman's responding to Mickey Kaus's challenge that he write about the concept of the liquidity trap for his New York Times column if it's all so darned important -- important enough, that is, to serve as the centerpiece of an elaborate after-the-fact rationale for Krugman's April 22 lies. Krugman says that he mentioned the liquidity trap in a September 2001 New York Times Magazine piece -- and so he did. Krugman fairly chirps, "I almost forgot about it myself." La-dee-da... and then adds, "But I have been telling a consistent story." In other words, "Simply because I can demonstrate that, in the past, I once mentioned the concept of the liquidity trap in the pages of the New York Times, that means I meant all along the elaborate and situation-dependent rationale it otherwise appears that I cooked up after-the-fact to justify myself about the April 22 matter." Case closed. Self-esteem salvaged. Back to corrupting the youth of Princeton.

But let's not look too closely at that Magazine piece. Sure, it mentioned the liquidity trap. Big deal. It was no more accurate a depiction of reality then than it is now. The concept of the liquidity trap fit right into a piece that was in every way a typical Krugman doom-and-gloomer, predicting that America will go the contractionary way of Japan. It was written just three months before America's recession bottomed in December 2001, as measured by a subsequent rebound in GDP and corporate profits. Perfect(ly wrong) timing.

And as for Japan? Krugman predicted that its liquidity trap would shatter its public finances and that its interest rates would rise as its creditworthiness was downgraded. Japan is still deep in recession, but its long-term interest rates are lower now than they were when he wrote that (just as rates in the US are virtually the same today as they were on March 11 when Krugman warned they would skyrocket -- and got so panicked about it that he refinanced his mortgage with a fixed rate (or at least he said he did)).

Krugman's self-evaluation on that Magazine story? "Oh, and by the way, I think the piece, published in Sept. 2001, still looks pretty much on target."

What target is that... the one labeled "WRONG AGAIN"?

Oh, and by the way (as it were), now that New York Times executive editor Howell Raines is besieged by the Jayson Blair scandal, how long before he gets someone to fact-check Krugman's columns? Blair's work was accepted uncritically because he was young and Afro-American in an organization obsessed with establishing institutional legitimacy by expiating White Guilt. Krugman's work is passed because he's an effective liberal attack-dog whose work fits into the same agenda. But Raines is learning that truth is an end in itself for the "newspaper of record." You'd think that would have been obvious all along. Now even Raines will have to do something about it.

It may take a while for Raines to dig out from under the Blair fiasco and start putting some discipline on Krugman. And in the meanwhile, columns like today's will slip through. It's an hilarious pot-calling-the-kettle-black job that Raines should be shudderingly afraid to run, with Krugman accusing Fox TV's Neal Cavuto of bias because he called opponents of the Iraq invasion "sickening" (this from a man who compares President Bush to Caligula and warns repeatedly that Bush is turning America into a banana republic). But the best past is the opening sentence, when Krugman claims (oh, and by the way, with no evidence) that "...during the Iraq war: many Americans turned to the BBC for their TV news. They were looking for an alternative point of view." Krugman offers no explanation for why the New York Times' circulation is off 5.3% over the last 6 months.

Posted by Donald L. Luskin at 11:55 PM | link  

Sunday, May 11, 2003

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I was introduced as "a blogger" when I gave an after-dinner speech last week to the annual meeting of Russell 20-20 Association, a group of the world's largest investment managers and pension plans, sponsored by the Frank Russell Company (my speech, "The Economics of Mass Destruction," can be viewed on the Trend Macrolytics site). The president of the Frank Russell Company, who introduced me, didn't know what a "blog" is -- and neither did anyone else at my table, which included one of the most senior faculty member of Stanford University (where the meeting was held), the manager of the world's largest corporate pension fund, and the manager of one of America's largest foundation endowments. When I asked for a show of hands among the 100 or so executives present for anyone who knew what a "blog" is, less than a dozen were raised.

My friends, if blogging is the next killer app of the Internet -- or more important, if it is a fundamental change-the-world innovation in media and journalism, then we have our work cut out for us, and we have our opportunity. We are like the cobblers who have discovered the land where no one wears shoes -- yet.

At the dinner table I explained what a blog is. There was the usual polite, partially feigned fascination with anything having to do with the Internet. But when I said that blogs have completely transformed my utilization of media and the way I acquire information about the world -- that I basically get everything from blogs now -- everyone stopped being polite. One fellow at the table was utterly shocked that I would trust any information I acquired online. I asked him if he trusted information he got from politically biased mainstream newspapers like the New York Times, or for that matter, from any commercial media biased toward at least some degree of sensationalism, if not some particular political view. I asked him if he had ever, once, read a newspaper account of some event of which he personally had expert or eye-witness knowledge, and found it to be accurate. I asked him he had ever once been interviewed by a reporter who quoted him accurately or in context, or who didn't already have the story written before the conversation even began? Well, no, he had to admit... but still... "...not the Internet! You can't be serious!"

Of course anything that's wrong with the mainstream media -- bias, error, sensationalism, and so on -- can be wrong with the blogosphere as well. But there are six critical differences, all in favor of the blogosphere.

  1. When you surfing the blogosphere you are never deluded by the false sense of security conferred by an undeservedly authoritative brand-image like that of the New York Times -- you are in the wild west, and you know it.
  2. In the blogosphere you are massively diversified -- you can easily and rapidly access many competing sources of information and points of view.
  3. Blogs tend to cite their sources diligently, and provide hyperlinks directly to source material -- if you want to do your own fact-checking, establish context, or just learn more, you can easily do so.
  4. Blogs can act as a digest of and gateway to the conventional media -- so you have the best of both worlds.
  5. Blogs tend to be written by people who read blogs, and blogs often refer to each other, link to each other, police each other, and so on, so errors or biases are quickly discovered and exposed -- in the heyday of the Internet this used be called "collaborative filtering."
  6. Because blogging permits anyone to be his own author/reporter/pundit/publisher is he wishes, you can personally participate in the process of the formation of news and opinion in the blogosphere -- it's not just passively acquiring information, it's being an insider to an information-processing community. B

So if you're a blogger, or even if you just get some of your news and opinions from blogs -- take a moment to be proud of what you are part of. It really is a force for good. It really is revolutionary. And it really is just beginning.

Posted by Donald L. Luskin at 11:37 PM | link