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Join us as we discover, document, expose and challenge the bad people, the bad institutions and the bad ideas that stand in the way of wealth creation -- and show you how to fight back!

Friday, April 30, 2004

AN ORWELLIAN QUOTATION OF ORWELL    Mickey Kaus faults Paul Krugman for his reading of Orwell. Good to see Mickey back on the Krugman beat.

Posted by Donald L. Luskin at 9:09 AM | link  

NADER: EXPLOITER OF LABOR    A former Nader staffer reveals inhumane and illegal treatment of labor -- himself -- by the great champion of labor rights. Thanks to Bruce Bartlett for the link.

Posted by Donald L. Luskin at 9:07 AM | link  


Thursday, April 29, 2004

NOT VERY AFFIRMATIVE ACTION    Minority hiring? That's something only Republicans are supposed to do, I guess. And minority businessmen aren't happy with the piece of the pie they are getting for Boston's Democratic convention. Thanks to reader Jill Olson for the link.

Posted by Donald L. Luskin at 2:01 PM | link  

THE ELECTED DICTATORSHIP    That pesky Supreme Court appears poised to return America to dictatorship, where it was before 1972. Robert Musil has the story:
    Looks like a majority of the Supreme Court Justices are expected to vote to turn the United States into a kind of dictatorship -- just as Herr Doktorprofessor Paul Von Krugman feared!...They seem to think -- in fact everybody involved in the case seems to think -- that the case concerns a law passed in 1972 ("Federal Advisory Committee Act, an obscure open-government measure enacted in 1972. It says that when the government sets up advisory committees to seek outside advice, the committees must meet in public.") that the plaintiffs say requires (together with the federal rules of civil procedure) the President to turn over documents in judicial discovery. Herr Doktorprofessor says the plaintiff's interpretation of the law is needed to keep the US from being a kind of dictatorship. That means that before this law was passed in 1972 the United States was a kind of dictatorship...

    But the foolish majority of Justices seem to be indicating that they either don't think the 1972 law even applies -- or that it's unconstitutional if it does apply! How can they have gone so far off track? Aren't they reading Herr Doktrprofessor's column that bypasses all that silly constitutional law and statutory construction nonsense and gets right to the heart of the matter -- whatever that is after all the law is gone. Of course, the President does not agree with the plaintiffs - and neither did President Clinton when the exact same law was used to challenge Hillary Clinton's health care task force... That must mean that Bill and Hillary Clinton were also trying to turn the United States into some kind of dictatorship!


Posted by Donald L. Luskin at 8:25 AM | link  

GORE'S LOCK-BOX OPENS FOR KERRY    Here's why Al Gore lost in 2000 -- he didn't spend all his campaign money. Now he's giving $6 million to Kerry. Thanks to Bruce Bartlett for the insight.

Posted by Donald L. Luskin at 8:03 AM | link  


Wednesday, April 28, 2004

GUESS WHO'S NUMBER ONE    ...over at MSN Money's Strategy Lab? Some guy who calls himself the "political economist."

Posted by Donald L. Luskin at 11:16 PM | link  

AMEY STONE CATCHES ME IN A BULLISH MOMENT    Tough after a downer like yesterday, but BusinessWeek Online quotes me wanting to buy the dip.

Posted by Donald L. Luskin at 11:15 PM | link  

FREEDOM FOR ME, BUT NOT FOR THEE    Why does Andrew Sullivan find it "horrifying" that Muslims in Canada may choose to settle private disputes within the framework of sharia, the Islamic law? Would he feel differently if the Muslims in question were gay? Then would they be entitled to some choice in their private affairs?

Posted by Donald L. Luskin at 2:04 PM | link  

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THAT INTEREST RATE CHART  
Reader Mick Wright asks about my chart yesterday, showing the inverse relationship between federal debt and long-term interest rates (see "Interest Rates and Deficits: A Democratic Myth"):

As a non-economist, I'm wondering why you used the 10-year treasury yield average vs. the federal debt (as a percent of GDP) to show how Krugman is wrong on the relation between interest rates and the federal debt. Is the 10-year T-note the best indicator of interest rates? Aren't there others, and if so how do they factor in -- do they strengthen your case? Also, what about when you factor the federal debt not as a percentage of GDP, but only in real dollars and counting for inflation?

Basically I'm just wanting to know how solid your chart is, and a brief explanation of your method so that I can share your findings without fearing my inability to fill in any gaps that could be exploited.

Mick, one reason I used the 10-year is because Paul Krugman himself did in the column if was dissecting. There are lots of rates you could use, but they all tell the same story.

There's no need to inflation-adjust, because both debt and GDP are in nominal dollars. So when you take the ratio of the two, it will be the same with or without inflation.

Another argument I could have made, which Greg Mankiw makes but Krugman conveniently omits, is that you can't just push a magical button and have debt go away. You either have to cut spending or raise taxes. Either one of those has its own effects on the economy, and on rates.

Another point I could have made: the whole point of keeping rates low is so that people can freely borrow. Yet Krugman in the same column says we in an orgy of borrowing engineered by Alan Greenspan. So what the hell does he want?

Posted by Donald L. Luskin at 7:14 AM | link  


Tuesday, April 27, 2004

A NEW COUNTER-CONSPIRATOR    Matt Schiros may have been born yesterday, but he's been up all night fact-checking Krugman (whom he'd never heard of until now). Good start on Matt's new blog!

Posted by Donald L. Luskin at 9:42 PM | link  

NOW WE KNOW WHERE THOSE PRODUCTIVITY FIGURES ARE COMING FROM    Hamas bomber blows up self, two stick-up men. Thanks to reader Jill Olson for the link.

Posted by Donald L. Luskin at 3:55 PM | link  

SHORT MEMORY (SO TO SPEAK)    Eleven Day Empire wonders whether "Paul Krugman's memory only go back to January 20, 2001?"

Posted by Donald L. Luskin at 2:07 PM | link  

WHAT ABOUT "LAFFER WAS RIGHT" DON'T YOU UNDERSTAND?    Alvin Rabushka on the success of Russia's low flat tax rate after three years:
    In the three years since the top rate of [personal income tax] was reduced from 30% to 13%, real flat tax revenue has risen by 79.7%. Russia's budget is relatively healthy. Tax compliance has improved. And incentives to work, save, and invest remain strong.
Thanks to Bruce Bartlett for the link.

Posted by Donald L. Luskin at 10:52 AM | link  

SOWELL ON HILLARYCARE REDUX    Thomas Sowell reacted the same way I did to the title of Hillary Clinton's cover-story for the New York Times Magazine last week: "Now Can We Talk About Health Care?" Does the mere passage of time mean that her horrific plan to enslave the medical profession is now worth reconsidering? Or can we talk about it "now" because she is no longer involved in the planning? Or, most likely, are we to understand that since her initial proposal there has been a cavalcade of evidence to suggest that she was right all along?

As always, Sowell gets it right by going to first principles, and to the evidence of what has happened in other countries that have done it Hillary's way:

"Universal health care" is a lovely phrase with political resonance in some quarters. But what does it mean concretely? ...since people differ in what they want, nothing can be "universal" without being mandatory. In other words, we are talking about forcing people to belong to whatever program the politicians and bureaucrats come up with, regardless of what the people themselves might prefer. Somehow, the notion seems to be insinuated that the government can do it cheaper and better. But name three things that the government does cheaper and better than private individuals and organizations. It would be no trick at all to name dozens of things that the government does worse and at higher costs...

How many of those who gush about "universal health care" know that the countries which have it also have waiting times to get treated that are several times as long as people in America wait to see a specialist or get an operation? Waiting not only means longer suffering, it can also mean that a treatable disease can become untreatable -- or even fatal -- because of the delay.


Posted by Donald L. Luskin at 10:03 AM | link  

"JUST NUTS"    Robert Musil has a devastating take on Paul Krugman's column today:

It's no surprise that Herr Doktorprofessor Paul Von Krugman doesn't like the Administration's claim to evidentiary privilege in connection with the Cheney energy task force. The Administration has advanced its constitutional policy arguments in the courts, and now before the Supreme Court. Reasonable minds may differ on those policies and the correct balance of constitutional imperatives -- but Herr Doktorprofessor has nothing to do with any of that. No mention of any of the policy arguments or balances or the constitutional structure that the Court must construe, or an informed citizen should consider, is mentioned by Herr Doktorprofessor. Indeed, he gives no indication that he even understands that any of those things matter -- or even exist.

So what? Why would one expect Herr Doktorprofessor to discuss or understand such things? He's a kind of economist, not a constitutional lawyer. He has absolutely no special claim to understanding what is driving this case -- despite his bizarre, amorphous claim to speak for "Those of us who have been following such things." He is neither trained nor a natural legal talent. But neither his complete lack of competence and facility in constitutional law, nor his lack of insight in this case in particular, keep his most recent column from arguing for a single, completely whacko conclusion:

"What Mr. Cheney is defending, in other words, is a doctrine that makes the United States a sort of elected dictatorship: a system in which the president, once in office, can do whatever he likes."

I'll be frank: His assertion is just nuts.


Posted by Donald L. Luskin at 9:44 AM | link  


Monday, April 26, 2004

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INTEREST RATES AND DEFICITS: A DEMOCRATIC MYTH   
Last week Alan Greenspan handed the Democrats a new weapon in their election-year efforts to discredit President Bush's booming economy: the Fed chairman hinted broadly that today's historically low interest rates are about to move higher.

But rising rates are a tricky weapon for the Democrats, as Paul Krugman -- America's most dangerous liberal pundit -- is learning. In a New York Times column last week Krugman forecasted that 10-year Treasury bond yields will soar to 7% from their current 4.4%, and warned "...many American families and businesses will be in big trouble if interest rates really do go as high as I'm suggesting."

At the same time, though, the Democrats can't evade the reality that rising rates are strong evidence of the economic boom they've tried to deny and discredit. Even Krugman admits (between clenched teeth) that rates will rise "If the economy fully recovers or even if investors just think it will..."

Krugman seems to find himself in the rather difficult position of arguing that "American families and businesses will be in big trouble" when "the economy fully recovers."

Fortunately for the Democrats, there's another way to spin rising interest rates: as the product of Bush's tax cuts and the present federal budget deficit. This gives Democrats the opportunity to retell their nostalgic myth about the prosperity of the late 1990s, kindled by low interest rates made possible when the Clinton administration brought "long-term budget deficits under control through a mixture of tax increases for upper-income families and spending restraint."

Krugman, an economics professor at Princeton, cites academic arguments in order to convert myth into fact:

"...there's no argument among serious, nonideological economists. For example, a textbook by Gregory Mankiw, now the president's chief economist, declares in italics that 'when the government reduces national saving by running a budget deficit, the interest rate rises.'"

Yes, it's true that Mankiw's textbook Principles of Macroeconomics does say that. It's even true that it says it in italics. But (with due respect to Mankiw), the myth is just a myth. The historical evidence simply doesn't bear out any such relationship -- indeed, it proves the opposite. When annual changes in debt are regressed against annual changes in interest rates, the result is a negative correlation -- precisely the reverse of what Krugman's politics (and Mankiw's theory) would dictate.

The chart below makes it crystal clear for anyone who wants to know the truth. From 1958 to 1974, rates rose while debt plummeted. From 1974 to 1982 rates soared while debt barely changed at all. From 1982 to 1993 rates collapsed while debt soared. After 1993, during the Clinton years, while debt fell sharply -- and again since 2001, during the Bush years, while debt has risen -- interest rates continued lower, moving in the same direction they'd been moving since 1982.

How could Krugman and Mankiw be so wrong? In Krugman's case, that's an easy one: he's just trying to score partisan political points, and the difference between right and wrong doesn't even enter into his considerations. In Mankiw's case it's a bit more subtle. He's dealing in the realm of abstract theory, in which propositions like the relationship between rates and debt can be considered in splendid isolation, without any of the complicating outside influences that inevitably interfere in the real world.

One such influence is taxes -- especially taxes on savings, such as the capital gains tax. The epoch of falling interest rates starting in 1982 coincides with a time of generally falling tax rates, starting with the Reagan revolution (and including a large cut in the capital gains rate forced on Clinton by a Republican congress in 1997). Of course Krugman would never mention it, but Mankiw's book says -- also in italics -- "if a change in the tax laws encouraged greater saving, the result would be lower interest rates..." 

Another influence on interest rates is inflation. Since 1958 inflation and interest rates have moved hand-in-hand -- the two are positively correlated to the same degree that rates and debt are negatively correlated. Krugman mentions rising inflationary trends in his column last week. But until then he had been wringing his hands about just the opposite -- deflation (as reader Brian Briody reminded me). Krugman wrote in his Times column just over a year ago that "the threat of deflation is worse now than it was a year ago. In fact, by some measures deflation is already here...Will it be all over the newspapers a year from now?" The risk of falling into what he called the "black hole" of deflation was exacerbated (you guessed it) by "the Bush administration...playing politics with fiscal policy."

For the record, in the same week I wrote in my SmartMoney.com column that "deflation is dead." As Krugman now implicitly confesses in last week's column, I was right and he was wrong. But no matter: another day, another black hole -- and another chance to blame Bush.

Posted by Donald L. Luskin at 2:22 PM | link  

TIMES NAILED ON PASSION    A former New York Times staffer crucifies the Times for its trail-of-corrections coverage of Mel Gibson's The Passion of The Christ.
    ...Frank Rich, the brilliant critic-turned-polemicist...clobbered the younger Gibson week after week for acts against humanity. Clearly, the star's biggest transgression was his failure to invite Rich to an advance screening of "The Passion." Indeed, Rich claimed no one had been invited except for right-wing weirdos (I was invited, though I may not qualify on either count).

    To Rich, it was an open-and-shut case that what Gibson had created was anti-Semitic propaganda. The Times' overall coverage seemed designed to support this view. Stories from the Times' Hollywood bureau declared that studio chiefs would no longer work with Gibson, citing Jeffrey Katzenberg and David Geffen of DreamWorks among those who "expressed anger over the film" -- a claim that resulted in another "correction."

Thanks to reader David Williams for the link.

Posted by Donald L. Luskin at 2:18 PM | link  

JOKE OF THE DAY   

Posted by Donald L. Luskin at 9:41 AM | link  

BEST EVER TIMES ERROR    Read it for yourself.

Posted by Donald L. Luskin at 9:32 AM | link  

YET AGAIN, UNINTENDED CONSEQUENCES    Housing regulations make it harder for Habitat for Humanity to build low-income housing. Zoning laws are like minimum wage laws -- mandating bigger, safer homes keeps people homeless, just as mandating higher wages leaves people jobless.

Thanks to reader Jill Olson for the link.

Posted by Donald L. Luskin at 9:29 AM | link  

YOUR CALL    John Kerry launches "Sportsmen for Kerry" initiative. Whaddaya think?

Thanks to reader Jameson Campaigne for the link.

Posted by Donald L. Luskin at 9:26 AM | link  

HENTOFF: "60 MINUTES" OUTPACES TIMES ON PICKERING    It's amazing what "60 Minutes" can do when Viacom doesn't have a book to sell. Here's Nat Hentoff celebrating Mike Wallace's truth-telling about Judge Charles Pickering -- and setting it against the New York Times' record.
    Last year, I wrote four columns in the Voice on the ordeal of Judge Pickering...Included in those articles were direct quotes from New York Times reporters David Firestone and Neil Lewis, who went to Mississippi and found direct evidence refuting the Times editorial writers' pernicious misinformation about the judge. The Times editorials entirely ignored what the paper's own reporters had discovered.

    So has the Times' semi-public editor (or ombudsman), Daniel Okrent. I say semi-public editor because if you telephone him, as I did twice on this story, you hear that you are likely to get a quicker response if you e-mail him. Otherwise, "Please limit your comments to 30 seconds."

    I expect there may be a few hundred thousand New Yorkers, and more around the country, who do not have access to e-mail, and could find it difficult to compress their complaints into 30 seconds. The ombudsman has not returned my calls. Nor has Gail Collins, who is in charge of the editorial board. More democratic than Okrent, her office does not have a 30-second cutoff.

Thanks to reader Jameson Campaigne for the link.

Posted by Donald L. Luskin at 9:01 AM | link  

COMPUTER SALES ROAR (REALLY)    Raw government data on computer sales in February shows that computer orders rose 40.4% last month, and shipments rocketed 47.5%. Yet the official reports show "seasonally adjusted" orders with no growth at all, and shipments growing only 1.3% growth (compared to overall durable goods orders that grew 3.4% and shipments that grew 3.2%). People with too much power make policy based on these lies, you know...

Thanks to reader David Duval for the link.

Posted by Donald L. Luskin at 8:30 AM | link  

KURTZ HAS IT RIGHT    Are you surprised that there's a double standard?
    Reporters at President Bush's prime time news conference two weeks ago were relentless in pressing him to admit "any errors in judgment," or his "biggest mistake," or that he owes the American people an "apology."

    But when news organizations screw up, their executives often fail to admit culpability or tell readers and viewers they're sorry. In many cases, they merely issue canned statements and slink into the shadows without answering questions from the sort of nosy reporters they employ to harass everyone else.

Thanks to reader Jill Olson for the link.

Posted by Donald L. Luskin at 8:10 AM | link