...Donald Luskin...was one of the main proponents [link] of the Evil Soros Conspiracy theory...

Today on my way to lunch I passed a homeless guy with a sign that read "Vote Obama, I need the money." I laughed.

Once in the restaurant my server had on an "Obama 08" tie, again I laughed as he had given away his political preference--just imagine the coincidence.

When the bill came I decided not to tip the server and explained to him that I was exploring the Obama redistribution of wealth concept. He stood there in disbelief while I told him that I was going to redistribute his tip to someone who I deemed more in need--the homeless guy outside. The server angrily stormed from my sight.

I went outside, gave the homeless guy $10 and told him to thank the server inside as I've decided he could use the money more. The homeless guy was grateful.

At the end of my rather unscientific redistribution experiment I realized the homeless guy was grateful for the money he did not earn, but the waiter was pretty angry that I gave away the money he did earn, even though the actual recipient deserved money more.

I guess redistribution of wealth is an easier thing to swallow in concept than in practical application.

The new president, whoever he is, will start out facing a budget deficit of at least $1 trillion, possibly much more. Sen. Obama has nonetheless promised to devote another $1.32 trillion over the next 10 years to several new or expanded refundable tax credits and a special exemption for seniors, according to the Urban Institute and Brookings Institution's Tax Policy Center (TPC). He calls this a "middle-class tax cut," while suggesting the middle class includes 95% of those who work.

Mr. Obama's proposed income-based health-insurance subsidies, tax credits for tiny businesses, and expanded Medicaid eligibility would cost another $1.63 trillion, according to the TPC. Thus his tax rebates and health insurance subsidies alone would lift the undisclosed bill to future taxpayers by $2.95 trillion -- roughly $295 billion a year by 2012.

But that's not all. Mr. Obama has also promised to spend more on 176 other programs, according to an 85-page list of campaign promises (actual quotations) compiled by the National Taxpayers Union Foundation. The NTUF was able to produce cost estimates for only 77 of the 176, so its estimate is low. Excluding the Obama health plan, the NTUF estimates that Mr. Obama would raise spending by $611.5 billion over the next five years; the 10-year total (aside from health) would surely exceed $1.4 trillion, because spending typically grows at least as quickly as nominal GDP.

A trillion here, a trillion there, and pretty soon you're talking about real money. Altogether, Mr. Obama is promising at least $4.3 trillion of increased spending and reduced tax revenue from 2009 to 2018 -- roughly an extra $430 billion a year by 2012-2013.

How is he going to pay for it?

Donald Luskin, chief investment officer of TrendMacrolytics, says the raft of bad corporate news stems from policymakers' initial failures to properly address the financial crisis.

There are train cars spilled across the countryside, he said, but the good news is that "the runaway locomotive has been stopped."

We’re hearing from a variety of sources that Jamie Dimon, the CEO of JP Morgan Chase, has agreed in principle to be Obama’s Treasury Secretary. Dimon worked hand-in-glove with Hank Paulson over the Bear Stearns bailout. The new boss, it appears, will be the same as the old boss.

Editors’ Note

An article in the Itineraries pages last Tuesday reported about the increasing stress on business travelers, and cited the findings of “Stress in America,” an annual survey of the American Psychological Association. That survey found that economic factors were the leading causes of stress levels in 2008, but it did not say, as the article did, that “the crisis on Wall Street was the No. 1 cause of anxiety,” nor did participants in the survey say they felt most vulnerable to stress “in the office and on a business trip.”

The survey included data from Sept. 19 to Sept. 23, 2008, a period of volatility on Wall Street, but none of the questions in the association’s survey referred to Wall Street or any economic crises. Participants were not asked how business travel affected their stress levels or where they felt most vulnerable to stress. The author of the article distorted the survey’s findings to fit his theme, contrary to The Times’s standards of integrity.

The article also quoted incorrectly from a comment by Nancy Molitor, a psychologist in Wilmette, Ill., who told the author that, “In my 20 years of practice I’ve never seen such anxiety among my patients,” not “among my banking and business patients.” While Dr. Molitor does have patients in banking and business, she did not single them out as being more anxious than her other patients. (Go to Article)

Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.

After scrutinizing Roosevelt's record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.

"Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump," said Ohanian, vice chair of UCLA's Department of Economics. "We found that a relapse isn't likely unless lawmakers gum up a recovery with ill-conceived stimulus policies."

Suppose we agree that Paul Krugman's opinion pieces over the last 8 or 10 years have been 100% nuts. So what? Do you hire your plumber because of his political views or because he can fix your pipes? Krugman's opinions on public policy are irrelevant to the quality of his scientific work. He did brilliant work that changed two fields in economics. That's my definition of Nobel-quality work: something that changes the way the profession does things. Krugman did it not once but twice.

I neither disagree nor agree with your assessment of his academic work. I wrote what I wrote to make it clear that the award should not be misunderstood as validating his political positions, or the way he has expressed them.

Just out of curiosity, what exactly do you think he did that was so brilliant (twice)? Can you summarize it in a compelling way? To me it sounds like patently obvious tautologies.

My comment was not aimed at you but rather your readers, who seem to want to dismiss Krugman's scientific contributions on the basis of his political writings. I agree with you 100% that the award has no bearing on the validity of his political positions or his expression of them.

I can't summarize his work. First, it isn't in my own field, so I don't have facility with it. Second, although I could describe it in a few words, I could add nothing to what one already can find in Wikipedia or some such. The work was theoretical, and the reader would have to be familiar with the details of economic theory to appreciate the contributions. Third, although the conclusions may seem obvious, they aren't. It often is the case in economics that "obvious" conclusions are wrong or, more often, right but quite difficult to prove in a coherent way that is consistent with all the facts. (To take one famous and truly remarkable example, international trade has a tendency to equalize wages across countries even if neither workers nor machines migrate from one country to another. Most non-economists would neither guess that is true nor believe it after being told about it. Another example is the famous welfare theorem. A free market economy in which there are no monopolies, no externalities such as pollution, and no public goods will produce exactly the same allocation of resources and goods as would an omniscient and benevolent central planner trying to maximize social welfare. Given that central planners never are omniscient and often are not benevolent, capitalism is unambiguously superior to communism even in terms of maximizing social welfare, the very thing the communists claim they are better at. I am sure you would agree that history provides strong supporting evidence for that conclusion.) Krugman's work that was cited for the prize most definitely was not obvious. It relies on the idea that production functions exhibit increasing returns. What are production functions? What are increasing returns? What is unexpected about increasing returns? That's all technical jazz, useful to the economist but opaque to the non-economist. The difficulty in explaining it is similar to trying to explain the contribution of someone who gets the prize in physics. I never know what the hell that stuff is about.

Well, what can I say. I'm not a trained economist, or a trained anything. You are free to think I'm arrogant, but I am telling you the truth when I say that all this stuff sounds utterly obvious to me. Could I describe it in mathematical language? No. But I don't see why that is a test of virtue. I couldn't say it in Portuguese, either.

Come on. You're not arrogant. You have a practical understanding of the world that most people lack. As a practical guy, you want to get on with business and not be encumbered by a lot of stupid regulations, taxes, etc. Abstract theorems are not your cup of tea. I have no problem with that. It's kind of like the difference between engineers and mathematicians. In fact, I follow your blog precisely because of its connection to the practical world. I do bet that even you don't understand the "factor price equalization theorem," according to which trade in goods is sufficient to equalize wages across countries even without *any* migration of workers or international investment. That's really remarkable, and I bet you couldn't explain it even in English.

Given your practical understanding of the world, though, you probably have no trouble understanding its major implication: free trade raises the incomes of workers in poor countries, so anyone who wants to raise wages in places like Mexico should favor free trade agreements such as NAFTA.

The results from theoretical economics are useful. Think for a minute about the power of the welfare theorem that I mentioned in my previous email. It says this. Give me an economy with no monopoly, no pollution and so on, and no public goods. Then in that economy we can *prove* that the *best* that socialism can do is what the free market already will do. Given that central planners are far from omniscient, we *know* they are going to do worse than the market. To translate into terms of what we see in the world, communism is guaranteed from the start to be inferior to capitalism. That is a prediction based on the way people interact with each other. The evidence, of course, overwhelmingly supports the prediction: Soviet Union, China, Eastern Europe, etc. What a club for beating liberals (and commies like Obama)! But there's more. The real world has monopolies (though not all that much in developed economies), pollution and other "externalities," and public goods such as national defense. Those "market failures," as they are called, provide a reason for government intervention in the economy. That's why government rules concerning pollution are justifiable (though of course particular rules may be badly done). However, the only interventions that are justified are those necessary to fix the market failures. The vast majority of government programs have nothing to do with market failures. That means, by the welfare theorem, that they unambiguously reduce social welfare. There thus is no philosophical basis for any of those programs, at least no such basis connected to the real world. The damn programs take away people's freedom and/or income only to be guaranteed to make people worse off, on average. What kind of perverted morality justifies programs like that? That's really strong stuff! Mortgage subsidies to increase house ownership are an example. What market failure leads people to own too few houses so that the government has to come in and distort the market? There is no such failure, of course, and the whole mortgage subsidy business is harmful nonsense. Other examples are public education, the entire Department of Energy, the Social Security system, Medicare, the Small Business Administration, and on and on. Milton Friedman understood that, and it runs through all his writings. You understand it intuitively because of your experience with the world, but that doesn't mean a formal demonstration is not useful. That's why Gerard Debreu got the Nobel Prize for showing it.

Economics, done right, tries to understand the way the world works. As with biology, mathematics, and so on, there are two goals. The first is simply to understand things. The second is to use that knowledge to control the world to improve the human condition. That's where Krugman's work comes in. He helped us understand things about how international trade works and why we see some of the things we see. The odd thing about Krugman and many others like him (Stiglitz, Klein, Solow, even Arrow to a lesser extent) is that, despite their brilliant contributions to economics, they won't let economics discipline their thoughts about public policy. They have prior convictions, and nothing anyone says or does makes them question those convictions. All those guys (with the possible exception of Klein) deserved the Nobel Prize because they made major contributions to our understanding of how the economy works. The fact that they also will not let their own work or that of others get in the way of their socialist preferences is exasperating but irrelevant to the Prize. So I applaud Krugman's scientific contributions but nonetheless join you in roundly criticizing almost everything he has written on public policy over the last decade or so.