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Friday, May 30, 2003

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It's disappointing to see Andrew Sullivan sounding so much like Paul Krugman. Andrew has been worrying for a while about increasing deficits and increasing government spending under a supposedly conservative administration -- and that's fine, I worry about all that too. But that's no excuse for uncritically passing on slanted and inaccurate scare stories in the media that claim the Bush administration is responsible for -- or worse, is trying to conceal -- some cataclysmic new fiscal threat to American civilization. And, disappointingly, that's just what Andrew is doing today. I'll betcha anything that Krugman's just licking his lips, getting ready to quote Sullivan on this one in his next column. "Even conservative Andrew Sullivan now admits..." can imagine the rest.

Today Andrew cites a story that ran Wednesday in the Financial Times.  Here's what he says about it:

"CRIPPLING DEFICITS LOOM: A report commissioned by the Bush Treasury Department is left out of the budget, claims the Financial Times. Hmmm. Money quote:

"The study's analysis of future deficits dwarfs previous estimates of the financial challenge facing Washington. It is roughly equivalent to 10 times the publicly held national debt, four years of US economic output or more than 94 per cent of all US household assets. Alan Greenspan, Federal Reserve chairman, last week bemoaned what he called Washington's 'deafening' silence about the future crunch.

"With each Bush budget, the fiscal future of this country - including its ability to fight necessary wars - is being gutted. Why are there so few conservative voices protesting?"

Andrew's description is accurate enough, at least in terms of faithfully portraying the FT story -- it's pretty intense. It describes a long-term budget study done by a former Treasury Deputy Secretary Kent Smetters and consultant Jagdessh Gokhale, reporting to former Secretary Paul O'Neill. The story strongly suggests that the study's projection of what the FT calls "a future of chronic deficits totaling at least $44,000bn" was deliberately suppressed by the Bush administration -- too hot to handle.

"...the Bush administration chose to keep the findings out of the annual budget report for fiscal year 2004, published in February, as the White House campaigned for a tax-cut package that critics claim will expand future deficits. The study asserts that sharp tax increases, massive spending cuts or a painful mix of both are unavoidable..."

By the time you're done with the story and Andrew's take on it, you have the idea that, after two years in office, the administration has concocted a plot to secretly pay trillions of dollars to Halliburton, to "leave it out" of the budget, and to purge all the honest people in the administration who knew what was happening.

But that's all simply untrue. And I can prove it, because in what I would hail as a breakthrough in high standards of reportorial integrity, the online version of the FT story provides links to the full transcripts of the FT reporter's conversations with Smetters and Gokhale, and to the report itself.

The most cursory scan of these documents reveals instantly that this study is actually about nothing more than a new method to account for the present value of Social Security and Medicare liabilities. Read the Smetters transcript. He says,

"'s very clear that almost all the problems are SS and Medicare. It's not the rest of the government that's a problem."

But the FT story only mentions Social Security and Medicare in its very last sentence, and then only en passant, as part of the obligatory administration denial:

"An administration official... noted the budget's extensive discussion of projected, 75-year Social Security and Medicare shortfalls."

The report's new method for calculating Social Security and Medicare liabilities isn't even all that new -- the Trustees of the Social Security Trust Fund already started using the method this year (and in fact, Smetters says his report comes up with less alarming numbers than the Trustees did). The Trustees have not applied the new method to Medicare yet -- this is the source of the big new liability described in the report. And it's a real issue that America will have to tackle someday.

But old or new, the present value of entitlement liabilities has never been tallied as part of the national debt (people like Milton Friedman, Alan Greenspan -- and I, too! -- have been complaining about that for years). Until that happens, we're just talking about what amounts to an informational footnote -- and one way of calculating that footnote versus another. We're not talking about anything that would be included in "the budget" as it is commonly understood or reported on.

It pains me to see President Bush getting beaten up over this, because he has done more than any other president to try to address the problems of Social Security and Medicare head on. He's dared to grasp the third rail of American politics, and to propose that Social Security be radically restructured to incorporate elements of personal choice. Ironically, according to Smetters in the transcript, Bush's work on Social Security reform -- if implemented -- would do wonders to address the very problems cited in the report:

"This new framework would do wonders for analysing [sic] SS reform. The president's commission - which I had the honor to help work with during my time in DC - uses the older measures since the new ones were not yet available. If they use these new measures, plans like Commission Model #2 would look terrific."

I agree with Andrew that Bush should be a lot tougher on spending (but we've known all along he's a "compassionate conservative," and we know what that means -- so let's at least not act surprised). But it's just flat-out wrong to imagine that there's a vast Bush-wing conspiracy to "leave out" things from the budget, or that the scary numbers estimated in this report are the result of some new thing that the Bush administration has done. These are problems that have been festering since the time of FDR -- President Bush is part of the solution.

 So Andrew, don't go all Krugman on me.

>> Extra!! Be sure to read the transcripts as an excellent object lesson in (1) how reporters try to put words in the mouths of the people they are interviewing; (2) how they badger their sources into making unfounded guesses and inferences; and (3) how they cherry-pick their interviews to tell only the story they want to tell, not what the interviewees actually meant. You can safely assume, in my experience, that this is par for the course in the media.

Posted by Donald L. Luskin at 7:26 AM | link  

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I noticed that the Center on Budget Policy and Priorities was referred to as "a liberal group" in a New York Times article today (natch, the article was about something supposedly terribly wrong with President Bush's tax cuts). Is this something new for the post-Jayson Blair era? Nothing will ever stop the Times from being a mouthpiece for liberal advocacy groups, and reporting their opinions as news -- but perhaps at least the Times will now have the decency to disclose the political orientation of the source.

Yep, this is the same Center on Budget Policy and Priorities that I wrote about yesterday. It's the one Paul Krugman admitted Wednesday on his personal website was the source for some unsourced tax statistics in his Tuesday column. It's the one that Krugman specifically admitted was "Democratic in orientation," but he claimed that its "statistical work is absolutely impeccable." 

So then I started thinking... hmmm... With Maureen Dowd under investigation by the Times for slightly distorting a Bush quote -- a mild offense, in my opinion, compared to one of Krugman's typical flat-out lies -- maybe Krugman decided it was time to strap a fig-leaf in place as best he could (or maybe Howell Raines or another of his corporate masters told him to).

The message on Krugman's website: if anyone ever asks, here's my source (see, I disclosed it!); here's its political orientation (see, I finally disclosed it! -- for the first time ever, having cited CBPP in the past at least 14 times, in columns on 5/29/01, 8/21/01, 9/30/01, 1/11/02, 2/19/02, 4/19/02, 7/30/02, 8/6/02, 8/30/02, 9/20/02, 12/27/02, 1/21/03, 3/21/03, and 5/9/03 -- although I think I'll say "Democratic" instead of using the "L" word); and it was all just objective statistical facts anyway (see, I never even had to source it, but now I have anyway -- so there!).

So then I started thinking some more... hmmm.... isn't it odd that the Times would run a 1500-word commentary by Krugman in the Saturday edition -- Krugman normally appears just on Tuesdays and Fridays -- on the subject of deflation and the Keynesian economics concept of "the liquidity trap." (here, by the way, is my vivisection of that commentary). Now why would the Times do that?  

I can't believe I didn't think of this immediately. This commentary by Krugman was the Times' correction of Krugman's notorious "divide-by-ten" lie from his April 22 column! I won't repeat the specifics of the lie here -- I've already covered it so many times. Suffice it to say that after I raised such a stink about it here and on National Review Online, Krugman published a series of no less than ten increasingly desperate rationales for it, spread over eight postings on his personal site (one, two, three, four, five, six, seven, and eight) -- the improbable centerpieces of which were deflation and the liquidity trap. Mickey Kaus teased Krugman by asking, "Paul Krugman's Web-only explanation of his thinking about deflation and the "liquidity trap" seems like Essential Reading for All Concerned Americans. ... Why not make this a NYT column?"

And so he did. So now if anyone asks Howell Raines how the Times responded to all those accusations from Luskin and the vast right-wing conspiracy about the divide-by-ten lie, Raines can say, "A Princeton economics professor on the short list for the Nobel Prize assures me that was all a misunderstanding, which we've now cleared up having run a lengthy commentary on deflation and the liquidity trap. No one can accuse us of not dealing with the issue" Of course neither the divide-by-ten lie nor the commentary's relevance to it were mentioned in the commentary. But fig-leaves are now firmly in place. All the plausible deniability that's fit to print.

Posted by Donald L. Luskin at 1:26 AM | link  

Thursday, May 29, 2003

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Paul Krugman's at it again, using his personal website to publish what amount to stealth corrections of his New York Times columns -- so the errors and lies get seen by hundred of thousands of readers, and the corrections by a few hundred hobbyists (but rectitude is formally observed, and more important, appearances are maintained).

The stealth correction this time pertains to his May 27 Times column. Apparently some people questioned his citation of statistics about President Bush's tax cuts, without giving any source for them --

" the fact that the federal tax take is heading for a historic low, or that the new tax cut will give millionaires a much bigger-than-average proportional increase in their after-tax income. (Some people are honestly asking; others are challenging my veracity.)"

So to challenge Krugman's veracity is dishonest? Well, let's move on...

It turns out that Krugman's sources were, predictably, liberal think tanks -- the Center on Budget and Policy Priorities and the Urban-Brookings Tax Policy Center. By way of anticipating objections (he's learning!) he admits that both are "Democratic in orientation." But no matter. In the case of CBPP,

"...while that affects its choice of subjects, the statistical work is absolutely impeccable; there is nothing at all like it on the right, or anywhere else. Their recent analysis of the declining share of federal revenue in GDP was central to my last column."

But when it comes to economic policy, statistical work is never impeccable. Oh, it may be accurately computed (would CBPP have failed to divide by ten like Krugman did?), the data sets are so complex, their meanings so ambiguous, their contexts so slippery, and their interpretation so value-loaded that to even call it "statistical work" is, fundamentally to deceive. What he really means is: these are left-leaning wonks who can get into the data and credibly manipulate it to (seemingly) support conclusions that provide good talking points for left-liberal columnists to crib from. Figures lie, and these guys help liars figure.

And as to that statistical work that there's "nothing at all like on the right, or anywhere else," all you have to do is go to the Office of Management and Budget and download the Historical Tables, Budget of the United States Government, Fiscal Year 2004, and you'll get all the raw data on "declining share of federal revenue in GDP" -- except that if you get it there, you can make up your own mind. Or, you can do it Krugman's way and go to CBPP where you'll be harangued by such impeccable statistical work as these papers:

And remember -- CBPP were the guys who published the study cited by Krugman in his March 21 Times column, blaming the entire future Social Security and Medicare shortfalls in Bush's tax cuts. This "statistical work" is anything but "impeccable" -- relying on a garbage heap of false assumptions, unjustified inferences, and politically motivated conclusions. Our demolition of can be found here.

The Urban-Brookings Tax Policy Center is no better -- except their "statistical work" is even more value-loaded, since it pertains, as Krugman puts it, to "distributional analyses - whose taxes get cut." This work draws heavily on the influence of William G. Gale and Peter R. Orszag, two of the most relentlessly partisan opponents of Bush's tax cuts, and jointly and separately, remarkably prolific generators of op-ed spitballs with supermarket tabloid headlines such as:

This kind of "statistical work" is, when you boil away all the pretensions, just punditry -- no different, really, than what Krugman churns out twice a week for the Times. And I mean no different -- when you browse through the CBPP and Urban-Brooking sites, you see the amazing extent to which Krugman's Times column is actually just a paper-based blog-without-links (and often, without even attribution), simply selecting and passing on the opinions of others that happen to match Krugman's own.

Krugman credits his sources when he thinks they enhance his credibility, and fails to mention them (except, when challenged, on his personal website) when he thinks they'll hurt it. For example, in the same May 27 column in which he did not cite CPBB or Urban-Brookings, he went on at length about a May 23 column from the Financial Times that was highly critical of Bush's tax cuts, leading off his column quoting the FT saying "The lunatics are now in charge of the asylum."

Krugman acts as though the FT has some special authoritative status on this matter -- and as though for it to publish an editorial opposing Bush's tax cuts were some remarkable and unprecedented event (but the most he says to support this idea is that the FT is the "normally staid" and "traditionally the voice of solid British business opinion"). Without assigning the FT some special status, what we have here is nothing more than one columnist writing a column largely based on quoting another columnist. Think of what someone with a fondness for paradoxes, say a Douglas Hofstadter, could do with the possibilities: should the FT now publish a column quoting Krugman quoting the FT -- and then should Krugman write another column quoting that one?

As a practical matter, it's like the old joke about lawyers. When there's only one lawyer in town, he has no business. When there are two, they both get rich. Same thing for left-liberal columnists.

>> Update... be sure to read David Hogberg's excellent smackdown of Krugman's May 27 column on Cornfield Commentary.

Posted by Donald L. Luskin at 12:58 PM | link  

Wednesday, May 28, 2003

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Think about how good things have been lately, and how hard a catastrophist like Paul Krugman has to work to make them seem bad. Remember, this is a guy who's trying to push a new book called The Great Unraveling. I'm thinking remainder bins...

The US-led invasion of Iraq was a brilliant victory (Krugman: "it did the terrorists a favor"). President Bush signs into law today an historic pro-growth tax bill, enacted thanks to support from cross-over Democrats (Krugman: "the administration ...actually wants a fiscal crisis"). And the crisis in corporate malfeasance seems to have been overcome (Krugman: "they can get away with even more self-dealing than before"). The thing that seems to be doing a lot unraveling nowadays is Krugman's home base, the New York Times, sinking ever deeper into the Jayson Blair fraud scandal (Krugman: ...deafening silence). And then Krugman's had his own taste of scandal lately too, thanks to relentless fact-checking here and by the Krugman Truth Squad on National Review Online.

So what is the diminutive Princeton economics professor who found outsized fame as America's most dangerous liberal pundit to do until he finds his next hobby-horse of the apocalypse? Simple -- he retreats to the one role where he thinks (wrongly, as you will see) that no one will seriously challenge him: teaching economics. So we find in last Saturday's New York Times a column by this economics professor that is, atypically for him, about economics. And it's a big one -- over 1,500 words, about twice the length of one his usual Times op-eds.

The column is about two economic concepts: deflation, and the "liquidity trap." As you might expect, Krugman tries to make it seem that these two concepts are coming together in an imminent cataclysmic catastrophe (and only he and a few other really smart people see the looming danger).

Krugman begins with deflation, and introduces the concept using one of his favorite rhetorical tricks: pumping up the importance of the issue he wants to discuss, and legitimizing his take on it, by citing recent comments on it by a big-time authority figure who happens to agree with him. In this case, he cites "a rather ominous report" on deflation issued by the International Monetary Fund. The report, Krugman says, has Alan Greenspan "worried" because it shows Germany joining Japan as the next deflation victim.

Krugman cites the report five times, including shock jargon like "adverse dynamics" and "deflationary spiral" -- he even proudly mentions that the report "draws on my work on the subject." But hang on -- let's not get too worried just because Krugman can tell his scary stories with quotes from an IMF report. Who says the IMF is an authority on deflation? In the past Krugman himself has called the IMF "chumps," has said it operates "like medieval doctors who insisted on bleeding their patients, and repeated the procedure when the bleeding made them sicker," and derides their ideas for being based on "bankers' orthodoxy, not textbook economics."

What is deflation, anyway? According to Krugman, it's "a general fall in the level of prices." Okay, simple enough. Now can Krugman tell us what causes it? Yep -- the "liquidity trap." Krugman says, "Once an economy is caught in such a trap, it's likely to slide into deflation." And can Krugman tell us what's so bad about deflation? Yep -- "the most important reason to fear deflation is that it can push an economy into a liquidity trap."

Whoa -- how's that again? Liquidity traps cause deflation and deflation causes liquidity traps? This is what parents pay to send their kids to Princeton for?

OK, let's get our money's worth and ask the professor what a "liquidity trap" is. As Krugman puts it, "...what if the economy is in such a deep malaise that pushing interest rates all the way to zero isn't enough to get the economy back to full employment? Then you're in a liquidity trap: additional cash pumped into the economy added liquidity sits idle, because there's no point in lending money out if you don't receive any reward. And monetary policy loses its effectiveness."

With interest rates already at zero, Japan would be said to be in a liquidity trap because the Bank of Japan can't lower rates any further. Krugman says that, in the United States, "with the overnight interest rate down to 1.25 percent, the Fed has almost run out of room to cut."

Of course all this rests on the Keynesian economic orthodoxy to which Krugman proudly subscribes -- the expectation that a central bank like the Fed can and should rescue the economy from occasional slowdowns by stimulating borrowing activity with artificially low interest rates. Krugman once described it as "the Keynesian compact" that allows brutal free-market economies to operate: "Oh, there are recessions now and then. However, when they occur, everyone expects the Fed to do what it did in 1975, 1982, and 1991: cut interest rates to perk up the economy."

The liquidity trap describes a failure of the Keynesian theory of the role of the central bank. It proves it doesn't work. In most sciences, this would be sufficient to throw out the theory. But Keynesian economics is not a science, it's an orthodoxy -- and failure is not an option among the orthodox, like Krugman. So the evidence of the orthodoxy's failure is given a technical name -- the liquidity trap -- and itself becomes a part of the orthodoxy in a new, more elaborate version, intensely studied by cultists like Krugman with even more single-minded solemnity than the original. Oddly, John Maynard Keynes himself first described the liquidity trap, but then again Keynes was never so orthodox a Keynesian as his latter-day followers.

If you don't believe the orthodoxy that a central bank is supposed to (or able to) turn recessionary lead into expansionary gold by lowering interest rates, then that leaves it with a pretty simple mission in life: to preserve and keep stable the value of the currency -- to prevent events such as deflation, correctly described as simply "a general fall in the level of prices." Such a mission is a matter of doing little more than printing the correct amount of money to meet the commercial demands of the economy -- print too much and you get inflation, print too little and you get deflation. As Milton Friedman said, "Inflation" -- or, for that matter, deflation -- "is everywhere and always a monetary phenomenon."

With that simple view of the Fed's mission, then in the words of economist David Gitlitz, my colleague at Trend Macrolytics, the liquidity trap "is akin to an urban legend," and deflation is nothing to be especially feared just because interest rates are near zero. Gitlitz wrote in a client report yesterday,

"As Fed Governor Ben Bernanke observed in a speech last fall, the Fed has an important tool at its disposal -- the monetary printing press -- that would allow it to directly inject essentially unlimited quantities of liquidity into the financial system if need be. Fed Chairman Alan Greenspan has reiterated on several occasions that the central bank could easily provide liquidity by jettisoning the rate-targeting regime and focusing its open market purchases on longer-term maturities."

But Krugman knows that. He's recommended that very solution to fix Japan's deflation for years (for example, here, in this paper whose web address includes the insensitive phrase "japtrap"). And he knows Bernanke's views intimately: earlier this month he bragged on his personal website about "Princeton - where the Fed's Ben Bernanke was department head until a few months ago..."

So just follow the money when Krugman says things in his New York Times column like, "those of us who worry about a Japanese-style quagmire find the global picture pretty scary" or "the risks look uncomfortably high" or deflation "will be very hard to reverse." As Caroline Baum put it in her column yesterday, "the Schadenfreude was palpable." That's because Krugman's desperately seeking something -- anything! -- that's unraveling (other than the New York Times). He's got books to sell!

Correction [5/28/2003] An alert National Review Online reader, Charles R. Martin, has informed me that, according to the dictionary, ravel and unravel mean the same thing. I guess I could be like Krugman about this, and claim that "all along" I was referring to the composer of Bolero, but as Richard Nixon used to say, "That would be wrong..."

Posted by Donald L. Luskin at 5:06 AM | link  

Sunday, May 25, 2003

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Look who's "on the cover of the Rolling Stone" (as the old song used to go), right there in the supermarket checkout line. Right there drop-shadowed on the bare-midriff abs shot of Ashton Kutcher, bracketed by headlines "EMINEM VS. JARULE: An Underground Rap War Heats Up" and "ALL-GIRL SMACKDOWN: Inside the World of Pro Catfighting," it's none other than Paul Krugman. His relatively modest headline -- "VOODOO ECONOMICS: How Bush is Looting America".

Krugman's got a new book coming out -- The Great Unraveling: Losing Our Way in the New Century -- so we're going to see a lot more of this kind of thing. The formula is for Rolling Stone to sell more copies of Rolling Stone by helping Krugman sell more copes of The Great Unraveling -- and that means making Krugman's thesis seem as dramatic and newsworthy as possible. Nothing new for a publication that's spent 35 years pimping for The Recording Industry (hey, fellow boomers: can you believe you were ever young and stupid enough to think for one instant that this magazine was actually cool?)

The problem with this marketing formula for Krugman is that when you take him off the op-ed page of the New York Times -- where the combination of brevity, topicality, and presumed authority turn his screw-loose partisanship into a deadly ideological weapon -- there's really not that much that's dramatic or newsworthy. The interviewer -- someone named Will Dana (whose last accomplishment, according to an accompanying blurb, was to interview someone named Tom Morello, who I learned from a Google search is a guitarist for a band named Rage Against the Machine) -- tries damn hard to find some there there. He begins,

"While the rest of the media leads the cheers, it's up to New York Times columnist Paul Krugman to explain how Bush is looting the economy. ...Krugman has pummeled Bush from all sides with a persistence that would seem compulsive if it were it not so analytically rigorous."

Well, "analytically rigorous" must have a pretty low standard for reporters accustomed to interviewing rock guitarists. But the fact is that there's absolutely nothing in the interview that even comes close to supporting the highly inflammatory charge that President Bush is "looting the economy." And the "great unraveling" doesn't seem so great. If there weren't someone telling you that Paul Krugman is a great authority, and that this great authority is personally quite worried about all this, I think you'd have a hard time finding much in the actual substance here that would strike you as even remotely interesting.

For example, here's Krugman explaining the deep mystery of the deadly Bush administration:

"I have a hard time getting inside the [Bush administration] mindset. They are cynical, yet they persuade themselves that they are somehow idealistic. There are probably some people in or close to the administration who have a grand plan to demolish the welfare state and roll back the New Deal. ...And others in the White House believe that, somehow or other, growth will solve all our problems."

OK. So they're conservatives, and they're pro-growth. What's so hard to understand about that mindset? That's a grave new threat to the Republic? And here's what would happen if that mindset prevails:

"So if your elderly mother needs a hip replacement, you may well find that you either have to impoverish yourself to pay for it, or she'll have to do without. ...There'll be a lot of fees. Even now some school districts are charging for use of the school bus.'s going to be real -- you want to think Charles Dickens."

Huh? That's the "great unraveling"? That's a Dickensian world -- a world where you have to pay for the services you get or the modern miracles you "need"? Sounds to me pretty much like the stuff liberals have been disagreeing with conservatives about for a lot longer than Rolling Stone has been in the supermarket checkout lines. The only thing that's new is that, this time around, we've got a highly credentialed Princeton economics professor taking one side of this old debate on the pages of America's "newspaper of record," and screaming it at the top of his lungs as though there's some terrible new peril here that only he can see.

The wave of book promotion that's beginning here in Rolling Stone could be Krugman's undoing. It may pull him out of the one environment -- the op-ed pages of the New York Times -- where he is truly effective. It wouldn't be the first time a highly specialized media phenomenon died of overexposure.

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

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"Bobby" -- the sycophantic webmaster of a worshipful on-line shrine to Paul Krugman, seems unhappy that I granted his demand to publish on National Review Online a link to his attempt to explain away Krugman's infamous divide-by-ten lie. Perhaps it's because I juxtaposed it with Krugman's own confession on national television that it was, in fact, a lie. So now "Bobby" has posted a reply to that on his site, claiming that Krugman didn't mean to confess, and railing against "idiots like Luskin" in the same breath as he predicts I will respond with "the usual name-calling." He also predicts that I will "play to [sic] the Clinton card," by finding his absurdly lawyerly and deconstructist interpretation of Krugman's televised confession to be absurdly lawyerly and deconstructionist, evoking memories of President Clinton's immortal "it depends what the meaning if is is" statement.

Hey, I'll go "Bobby" one better! I'll reproduce the photo of "Bobby" and Bill Clinton from "Bobby's" personal web site, of which he says, "Former President Clinton came to Yale to give the final speech for the 300th Anniversary speech series. This picture of us together was taking [sic] in the middle of a mob of people." One has to wonder whether either of them had inhaled on this occasion (or is that "the usual name-calling"? -- I guess it is, whatever is means). "Bobby's" site also features numerous photographs of his wife, which led one of my readers to write me, wondering, "Strange to see that hes married, I would have thought he was saving himself for Krugman."

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