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Friday, October 17, 2008

AND SPEAKING OF CORRECTIONS   In today's New York Times:
An article on Tuesday about the awarding of the Nobel in economic science to Paul Krugman, a Princeton professor and columnist for The New York Times, misidentified the magazine he wrote for in the 1990s. It was Fortune, not Forbes. (Go to Article)
Too funny. It was Fortune in which Krugman wrote his gushing puff-piece on Enron, while on its payroll as a consultant,

Posted by Donald L. Luskin at 12:08 AM | link  

Thursday, October 16, 2008

CHART JUNK SCIENCE   Reader Greg Pagans points out a graphic from the New York Times on Tuesday, perpetuating in gaudy chart-junk the myth that the stock market does better under Democratic presidents than under Republican ones. See my recent Wall Street Journal op-ed for a complete debunking of this particular bullshytt. The Times chart actual contains a factual error, in addition to numerous conceptual errors. And as always, when the Times makes an error with regard to a liberal politician, the error is always in the direction of flattery.

In this case, the average annual return for teh S&P 500 during John F. Kennedy's presidency is given inaccurately. It is cited as 6.5%, but in fact it is 5.4%.

According to the graphic, Kennedy was inaugurated on 1/20/1961, and served until 11/22/1963. On those two dates, which are 2.838356 years apart, the S&P 500 was at 59.96 and 69.61, respectively. That is a total gain of 16.09%. The average compound annual return for 2.838356 years that gives you a cumulative return of 16.09% is 5.4%, not 6.5%.

The formula is: ( (69.61 / 59.96) ^ (1/2.838356) ) - 1.

I'll bet you a dollar to a dog turd that this will never be corrected by the Times.

Update [10/17/2008]... I win. Here is the New York Times' response:

Dear Mr. Luskin,

The methodology to calculate each individual President's annualized return took the closing price of the market on the day of inauguration as the start point and the closing price of the market on the last full day the President was in office. Mr. McCall was afraid that some people would argue it unfair to finish on the closing price of the day of the switchover since the President was technically out of office when the closing bell rang.

In Kenndy's case, he was also out of office as the closing bell rang, and the market dropped because he was no longer in office in a manner of speaking. The decisions behind the methodology were made without any forethought to increase Kennedy's return. The decision was based on the desire to calculate the S&P index change for data points that are tied to the President officially being in office. Mr. McCall would have used the noon intraday price if he had access to the data, but S&P only published closing prices for it's earlier data. The method we used also resulted in an overall gain for Republican presidents, and many would have had slightly lower returns had we used the closing price of the day the inauguration to calculate the exit level for a president. Nixon would have been -4.0% on that basis (vs. our published -3.9%), Fords would have been at 10.4% (vs. the 10.8%), Bush I would have been 10.9% (vs. 11.0).

The all-Democrat and all-Republican average annualized returns however do not leave the money out of the equation on inauguration day--so the decline in the market surrounding Kennedy's assassination is captured into the $300,069 figure. and the 8.9% annualized return. Otherwise it would have been about $315,000 or 9.0%, but he opted to publish figures that were overall more conservative to the Democrats and more favorable to the Republicans, as a whole.

Thanks for reading.

The Op-Ed Staff.

Posted by Donald L. Luskin at 10:44 PM | link  

Today's announcement that Paul Krugman won the Nobel Prize in economics, although not earth shattering, indicates that outright political partisanship is not a deterrent to winning. This is not as tragic a moment in western civilization as the sacking of Constantinople in 1453 or the Bolshevik Revolution of 1917, but it suffices as one of those sad moments we will regret over time.

The committee that chose Krugman cited his "trade" theories that once made him famous for actually doing economics. (Krugman contends that nations can create comparative advantages by subsidizing certain industries, something the ancients once called Mercantilism.)

From Will Pickering:
Your NRO column today allowed me to understand my reaction to the extended interview Paul Krugman recently gave on Brazilian TV. I have lived in Brazil for about 10 years, but nevertheless have followed your Truth Squad columns regularly. A few days ago the public TV network here (I live in Campinas, near Săo Paulo) re-ran an interview they did with Krugman in July. It was on a venerable program called "Roda Viva". The format is something you wouldn't see in the US - the set is a kind of lion's den, with the interviewee placed in a rotating chair at the bottom of a circular pit, surrounded by 4 or 5 big-shot journalists and professors who are all seated about 10 feet above in the stands. The interviewee has to strain his neck upwards and spin the chair around to anwswer the questions.

I was very surprised at how reasonable Krugman seemed - no Bush-bashing, and in fact he barely mentioned politics at all. He talked about the mortgage crisis and the prospects for world trade, and it all seemed pretty calm and sensible to me. I gather there are different schools of thought on economic policy and its relation to crises like the great depression - it was a bit beyond me, honestly - but he mentioned all this in a calm and professorly fashion. I guess this was the old Krugman you talked about in your column.

It seemed to me like he was trying to give a good general impression of the US, instead of pandering to the anti-market and anti-American prejudices common here in Brazil on both the left and right. Odd, but that's how Krugman came off - the opposite of the behaviour of those American journalists who bash the US abroad while pretending to be neutral in print or on TV.

Naturally, since he won the Nobel prize, he is being praised in the media as the genius who foresaw the errors of "Bush´s" policies.

From Keith Snyder:
As someone who has read Krugman for a while and wondered if I was alone in knowing what an absolute crackpot he is, your recent article about the posthumous award was as heartwarming as it was brilliant.

Although I only have a high school education (and that's public school, mind you) I found it rather easy to pick apart many of his economic arguments found in those articles that strayed into policy and actual thought and away from the usual political vitriol so common these last few years. I haven't written Mr. Krugman lately but perhaps I should if, for no other reason than to congratulate him on a prize from a group that awarded the Nobel PEACE Prize to Yassir Arafat. Maybe the Nobel squad has a very dark sense of humor. Awarding a prize in economics to Krugman certainly does not disprove that.

I once told my employer that "...(Krugman) is going to die an angry, bitter old man completely discredited...just like (Kenneth) Galbraith" I guess I'll have to add RICH to that description but as they say-a fool and his money are soon parted-so maybe my first prediction will stand.

From John Seigel:
Portuguese neurologist Egas Moniz received the 1949 Nobel Prize in medicine for "his discovery of the therapeutic value of [prefrontal lobotomy] in certain psychoses," including depression and schizophrenia. The prefrontal lobotomy operation, in which the nerve fibers connecting the frontal lobe with other parts of the brain were cut, and which often made patients zombie-like, would be repudiated by the medical community within a decade....

Posted by Donald L. Luskin at 12:02 AM | link  

Tuesday, October 14, 2008

KRUGMAN'S POSTHUMOUS NOBEL   My column this morning on National Review Online. The Krugman Truth Squad lives!
Prior to 2008 the Nobel Prize had never been awarded posthumously. So great minds such as John Maynard Keynes and Fischer Black never received the coveted award. But all that has changed. This year, the prize for economics is going to Paul Krugman, an economist who died a decade ago.

To clarify, the person named Paul Krugman, the living and breathing man who will accept the Nobel in Stockholm this December , is merely a public intellectual — a person operating in the same domain as, say, Oprah Winfrey.

The living Krugman’s rabidly liberal New York Times column has, for nine years now, traded on the dead Krugman’s reputation as an economist, a reputation that only will be burnished by the award of the Nobel Prize. Yet his column is pure politics, not economics. It is the equivalent of astronomers Mather and Smoot — the 2006 Nobelists in physics — writing on astrology.

This living Paul Krugman can’t be the same person as the dead economist. The dead economist wrote eloquently of the supreme importance of globalization and international trade as engines of prosperity. But the living public intellectual remains silent on these subjects when the Democratic party’s nominee for president threatens to abrogate the North American Free Trade Agreement.

These days Krugman’s liberal agenda always takes precedence over economic principle. He has described himself as “an unabashed defender of the welfare state.” He has declared, “For me, Sweden of 1980 would be ideal.” He has called Barack Obama’s sweeping plan for socialized medicine “naďve” because it doesn’t contain enough mandates. He has said that “We should be getting 28% of GDP in [tax] revenue,” when the highest level ever collected, even in wartime, is less than 21 percent.

Krugman is entitled to such opinions, whether as a public intellectual or an economist. But there have been serious questions about his journalistic integrity — suggestions that the living Krugman has debased and corrupted the very science the dead Krugman did so much to advance.

In 1999 Paul Krugman was paid $50,000 by Enron as a consultant on its “advisory board,” and that same year he wrote a glowing article about Enron for Fortune magazine. But he would change his tune. After Enron collapsed in 2001, Krugman wrote several columns excoriating the company. (One featured what may be the most absurd howler in the history of op-ed journalism: “I predict that in the years ahead Enron, not Sept. 11, will come to be seen as the greater turning point in U.S. society.”) In most of these columns Krugman worked hard to link Enron to the Bush administration, and in one he actually blamed Enron’s consultants for the company’s collapse — while neglecting to mention that he, too, had been an Enron consultant.

Daniel Okrent, while ombudsman for the New York Times, wrote that “Paul Krugman has the disturbing habit of shaping, slicing and selectively citing numbers.” Indeed. But Krugman’s distortions were so rampant, and his unwillingness to correct them so intransigent, that Okrent — no doubt pressured into service by my Krugman Truth Squad column for NRO — did something about it. Okrent forced the Times op-ed page to adopt for the first time a corrections policy for op-ed columnists. That was in 2004. Later, when Krugman flouted that policy, the Krugman Truth Squad went to work on Okrent’s successor, Byron Calame, who pressed for the adoption of a new, more stringent policy in 2005.

Krugman wasn’t happy about the pressure coming from the Krugman Truth Squad. After I met him in person at a lecture he gave in connection with one of his books, he smeared me on national television by saying, “that’s a guy who actually stalks me on the web, and once stalked me personally.”

That didn’t stop me from writing many more Krugman Truth Squad columns for NRO. But this one is the first in quite a while. I stopped not because I was afraid of Krugman’s defamations, but because I became aware that Krugman’s influence was waning.

Before the Times began to hold Krugman accountable for what he actually wrote in his columns, Krugman was having a powerful impact on the way public policy was being debated and decided. But no longer. Funny thing — it’s a lot harder to have a political impact when you can’t lie.

In this sense, Krugman is not only a dead economist. He’s also a dead propagandist.

With last year’s Nobel Peace Prize having gone to Al Gore, one has to wonder whether Krugman’s award is a left-leaning political statement, perhaps intended to revive Krugman’s influence. Probably not. In recent years several right-leaning economists have won the prize.

More likely, the Nobel committee decided deliberately to overlook Krugman’s political extremism, just as it chose to overlook John Nash’s schizophrenia in 1994. That’s not to say Krugman is crazy, though he has stated: “my economic theories have no doubt been influenced by my relationship with my cats.”

Whatever the committee was thinking, the only remaining question is what the living Paul Krugman will do with his $1.4 million prize. Will he pay taxes on it at the low rates established in 2003 by George W. Bush, a president and a policy that Krugman has worked so assiduously to discredit? Or will he voluntarily pay at the higher rates he advocates?

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

Monday, October 13, 2008

KRUGMAN WINS THE NOBEL PRIZE   The Nobel Prize is never posthumous -- it is only awarded to living persons. So some great minds such as John Maynard Keynes and Fischer Black never received the prize in Economics. All that has changed. With today's award to Paul Krugman, the Nobel as gone to an economist who died a decade ago. The person alive to receive the award is merely a public intellectual, a person operating in the same domain as Oprah Winfrey. And even as a public intellectual, the prize is inappropriate, because never before has a scientist operating in the capacity of a public intellectual so abused and debased the science he purports to represent. Krugman's New York Times column drawing on economics is the equivalent of 2006's Nobelists in Physics, astronomers Mather and Smoot, doing a column on astrology -- and then, in that column, telling lies about astronomy.

But what's done is done. The only question now is whether Krugman will pay taxes on the prize at the low rates enabled by the Bush tax cuts he has done so much to discredit, or if he will volunteer to pay taxes at higher rates he considers more fair.

Posted by Donald L. Luskin at 7:25 AM | link