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I’m uncomfortably aware that critiquing the Wall Street Journal’s editorial column is a job reserved for himself by The New Republic’s Jonathan Chait – and that Chait does not take kindly to interlopers on his territory. But it’s August, and Chait is taking a partial holiday, no doubt on Martha’s Vineyard with his fellow out-of-touch elitists.
And in Chait’s absence, the Journal has launched an attack on Ben Bernanke and the Federal Reserve that is not only remarkable in its brutal mishandling of fact – but also for its possibly lethal intellectual consequences within the conservative world.
Precisely because conservatives (rightly) hesitate to use aggressive fiscal policy to fight recessions, it is all the more urgent that we appreciate the reach of monetary policy. If we are pushed by ignorance or passion into a wrongheaded monetary policy, then we will have no answer whatsoever to the question: how do we create prosperity and employment in the near term?
So let’s go line by line through the Journal’s misinformation:
All the world’s right-thinkers are denouncing Rick Perry for suggesting this week that Texans would get “pretty ugly” with Federal Reserve Chairman Ben Bernanke if he guns the money supply any more between now and the 2012 election. His poor choice of words aside, the Texas Governor is right to put monetary policy front and center in the 2012 Presidential debate.
Let’s stipulate that Mr. Perry, in his first week on the Presidential stump, was wrong to use the words “almost treacherous, treasonous” in referring to Mr. Bernanke. Both of those words ought to be reserved for specific acts of betrayal against America, and the Fed chief is certainly a patriot. In particular, “treason” is the only crime specifically defined in the Constitution, which is something a tea party politician ought to learn.
On the other hand, everybody knows Mr. Perry meant no literal harm and was indulging the irrational exuberance that is one of his trademarks. The faux-outrage from liberals who routinely refer to the tea party as “terrorists” shouldn’t be taken seriously.
The real news isn’t the rhetorical gaffe but the substance and politics of Mr. Perry’s demarche. Here we have a Presidential candidate, a Texas populist no less, laying out a position in favor of sound money. This is a bear walking on its hind legs. The ghosts of Wright Patman and Henry B. Gonzalez are howling in the Hill Country.
This is all good partisan fun, but it does raise an interesting question: In what sense is Rick Perry a “populist”? As Andrew Gelman has exhaustively and I think decisively demonstrated, Texas Republicans are elected with the votes of the state’s richest people, not its poorest. Over the course of his political career, Rick Perry has raised a reputed $100 million. As for his presidential campaign …
Dozens of wealthy Texans who have been Perry’s top patrons in the state’s freewheeling, unregulated campaign finance landscape are being hit up for large checks by Super PACs supporting the governor. Simultaneously, many wealthy Perry backers and new prospects are being tapped by his campaign to help bundle scores of $2,500 donations, the legal limit per person.
The Republican governor is being backed by at least six Super PACs. The key group, called Make Us Great Again, has the closest ties to Perry and is expected to be a multimillion-dollar operation that will run ads to back him. It was set up this month by Mike Toomey, an Austin lobbyist and an ex Perry chief of staff. It will also benefit from the fundraising muscle of G. Brint Ryan, the CEO of a Dallas tax firm who with his wife has donated $563,000 since 2001 to Perry’s campaigns.
“I’d presume that the way for fellow travelers to compensate for a late start is to raise big money fast for a Super PAC. Mike and Brint have a wide range of contacts,” Austin-based lobbyist Bill Miller told iWatch News . His firm HillCo’s PAC contributed more than $253,000 to Perry’s earlier campaigns.
Other pro-Perry PACs are also revving up, including Americans for Rick Perry, which received a check for $100,000 from billionaire investor Harold Simmons and is run by Bob Schuman, a California based GOP operative. Schuman said he informed Toomey that “we’re going to stay out of his way in competing for Texas funds,” but adds that he still expects to raise $1.8 million by year’s end for grassroots and social media campaign to back Perry. Schuman says the PAC has already raised $400,000 and will likely launch a drive in Florida where a straw poll will be held in late September.
Back to the Journal editorial:
The media trope of the week is that Mr. Perry is George W. Bush only more so, but he clearly isn’t the same on monetary policy. Mr. Bush, who first appointed Mr. Bernanke, was an easy-money, weak-dollar President. He and his former economic advisers still don’t understand how Alan Greenspan’s policies at the Fed contributed to the credit and housing manias that led to the financial meltdown that caused the GOP’s political undoing in 2008.
So here’s the St. Louis Fed’s calculation of the monetary base through the Volcker and Greenspan years.
Do you see a dramatic departure from the historic norm between 2002 and 2007? I sure don’t. So what’s the Journal talking about?
Mr. Perry seems to appreciate that the Federal Reserve can’t conjure prosperity from the monetary printing presses. His articulation needs some work, but we hope the Texan doesn’t let media and other criticism deter him from pursuing the argument. The issue is crucial to understanding—and explaining to the American public—how the meltdown happened and why Americans are so unhappy with the current recovery.
Nobody – literally nobody – suggests that prosperity can be conjured from printing presses. The question before us is: what to do in the face of the worst economic collapse since the 1930s? Of course long-term growth comes from savings, innovation, and raising society’s skill level. (The Journal, with its indifference to deficits and its advocacy of open borders, is on the wrong side of at least two of those issues.) But when a crisis comes, what do you do then? In 1934 as in 2009, an accommodating monetary policy can mitigate the crisis and open the way for the drivers of longer-term growth to resume operation. Milton Friedman got that two generations ago. Almost every working business economist on the planet gets it today.
It’s in the next paragraph that the Journal editors shift from misdirection to disinformation:
The Texas Governor has a better insight into middle-class economic anxiety than do most Washington-Wall Street elites. Americans intuitively understand that their after-inflation incomes haven’t risen for a decade. Even when incomes rose during the growth years from 2003-2007, the gains were undermined by the rising cost of housing, as well as by rising food and energy prices.
Wow. I mean truly: wow.
Let’s start with sentence 2. I remember when it was fighting words to point out that the median income actually declined between 2000 and 2007. Back then, we were supposed to believe that the Bush tax cuts had let loose a cascade of prosperity across the land. Now – poof! – the Journal has vaulted to exactly the opposite side of the position it vehemently upheld for half a decade.
But even as it flips and flops toward a more accurate statement of the facts, the Journal inserts a series of misleading or worse misstatements.
1) True, incomes rose between 2003 and 2007 – that is, from the beginning to the end of the growth cycle. But the median income never caught up to its inflation-adjusted level of 2000, back before the Bush tax cuts. And many categories of income earners actually saw outright inflation-adjusted decline during the 2003-2007 period: college graduates for example.
2) The suggestion that it was energy prices that were primarily to blame for the stagnating incomes is an especially sneaky move – and sneaky in such a complicated way that unfortunately I’ll need a few lines to decode the sneak.
Here’s the narrative that the Journal hopes to embed in your head with the quoted lines:
Income grew adequately in the 2003-2007 period. But to the extent income did not growth, the fault lies with the monetary authorities. Their reckless money-printing caused the prices of housing and energy to rise, and those price rises negated the rises in cash incomes.
That implied narrative is false in every particular.
As we’ve seen, the monetary authorities did not recklessly create money in the 2000s. (Which is why, d’oh, we saw so little general price inflation in the period.)
The energy price increases we saw had nothing to do with US money creation and everything to do with China’s and India’s dramatic entry into international energy markets. Between 1990 and 2010, the number of cars on Chinese roads grew by 90x. Not 90%. 90 times. China soared over those 20 years from being a net oil exporter to the world’s second-largest oil importer, after the US – and Chinese consumption continues to grow at a pace 7x that of the US. We could scrap the US dollar and substitute gold bars with Ayn Rand’s image on them without changing those energy market facts.
But look, even more to the point: the price of oil has nothing whatsoever to do with the stagnation of US cash incomes. The bad news in the 2000s was bad news about earnings. Whether the price of oil went up, down, or sideways, the typical American worker had less money to spend on everything in 2007 than seven years earlier.
The main depressant of those incomes was a factor unmentioned in the Journal editorial: healthcare costs. Through the 2000s, the cost of labor to employers rose briskly: an average of 25% per hour as I pointed out in my 2007 book, Comeback. But because healthcare costs doubled over the decade, none of that increase in the money paid by employers filtered through to employees.
So why doesn’t the Journal acknowledge that rather large fact?
Two reasons may be at play:
1) Back when the Journal wanted to argue that incomes really had risen handsomely in the Bush years, its favorite trick was to aggregate wages and benefits. That made a nice-looking chart, even if it begged the question: “Am I really better off if my employer has to pay twice as much for knee surgery?” So possibly they have some compunction now treating the rise in healthcare costs as a bug rather than a feature.
2) More plausibly: as improbable as it is to blame the Fed for the surge in oil prices after 2002, it would just utterly flunk the laugh test to try to blame the Fed for the increase in health costs. So down the memory hole with that.
One last thing has to be said about the above paragraph: You just have to admire the audacity of the claim that it is Washington-Wall Street elites who want looser money. There is one teeny-weeny smidgen of truth here: Commercial banks that can borrow from the Fed at virtually 0 and then lend risk-free to the Treasury at 3% and now 2% have earned a tidy profit from the zero interest rate environment. But in many of our imaginations, “Wall Street” means hedge funds and private equity firms just as much as commercial banks. It is these players who have been squawking loudest against the Fed, a trend nicely symbolized by the fact that when the e21 think tank released its famous November 2010 open letter condemning quantitative easing, 7 of the 23 signatories were investors and money managers.
- MORE TO COME -
Murdoch destroyed one of the great papers. The WSJ is a terrible newspaper. Everything, like we see in all Murdoch properties, is seen through a one-sided political lens. There is no objective reporting or news focus in the WSJ. And that is in the entire paper and not just the editorial page. I would rather read U.S.A. Today.
Frum,
You’re really an idiot. A large part of the reason Oil prices spiked in the 2000′s was due to the devlued dollar. The US dollar declined against the Euro and other currencies. This was part of the Bush Administration’s polcy to increase exports. That’s why wages went down.
Frum is a typical Neocon covering up the failings of Bush, yet trying to smear economic Conservatives at teh same time. Go join the Democratic Party or move back to Canada and join the NDP.
A large part of the reason Oil prices spiked in the 2000’s was due to the devlued dollar.
And then the price of crude fell to $31 a barrel in 2009 because … ?
Maybe you need to try again.
Oil prices fell in 2009 due to the decline in demand. The financial shock.
So if that is true then why did the price of oil also go higher when you price it in other currencies other than dollars. It has nothing to do with exchanges rates you moron. In fact, the relationship is exactly the opposite. The price of oil can impacts exchange rates and not the other way around. Go back to the Glen Beck show.
Wages went down because exchanges rates and increasing exports? Pick up an economics book will you.
Frum is starting to get a lot more interesting …
Frum gains my respect every day. He is talking himself into being an Independent without a shred of ideology driving his agenda. He is a throw back to the old Republican party which used to be a sane, rational and respectful party even if I had disagreements with them on issues. He is saying all the right things because his focus is on the facts. While he will use them to support his opinion and advice, he usually gets his facts right and establishes them in an objective fashion. Unfortunately, that seems to be rather unique these days…
Yeah, in this column, Frum is what conservatism should be: cautious, doggedly empirical, mindful of the impact and context of past policies.
It is a little sad to see a phrase like this, though: “its possibly lethal intellectual consequences within the conservative world.” Alas, a little late to close that barn door.
I would want to take issue with Frum’s seeming belief that white populism in the US has anything to do with making the lives of the non-wealthy better, though. I’ve written about it quite a bit, e.g. here: http://www.poisonyourmind.com/2011/08/white-populism-in-the-us/ . To summarize, white populism, especially Southern white populism, changed drastically in the latter half of the 20th century as the parties realligned in the wake of federally mandated desegregation. The Southern Strategy was a successful effort by the Republican Party to channel whites’ resentment over desegregation into a generalized resentment of government (particularly anything, such as same-sex marriage, that extended rights to or assisted historically discriminated-against groups). The mantra of post-Southern Strategy white populism is “keep your government hands off my Medicare.”
No, Frum has become a liberal. Not that he was ever much of a conservative. Frum would go all out Democrat if he thought they’d fight endless war in the Middle East for Israel.
Frum and Stratfor are the only two places I’ve found consistent, clear, realistic analysis on US Politics. Shame that it’s so rare.
First of the OpEd at the Journal have been a disaster for years. In fact, for years I read Journal without ever reader the OpEd page, in my mind they were out of touch, and the comments (usually of support) by reader made we wonder out loud — we cannot possibly be on the same side, and who are these bozo in the finance sector who have these ideas.
BTW Lord Sidious you don’t have a clue — but then you are probably of the school that thinks the world ends at the US border. In 2000, 80% of all oil consumption was from G7 countries (Europe, America, Japan and Korea) in 2010 50% of the world consumption was from G7 countries.
Amusingly, Rush had the same attitude after Bush left the WH, he did a 180 on a number of policies that he had supported previously
WSJ = FoxNews.
Wall Street Urinal = Fixed News
the price of oil not only increased because demand increased from the BRICs, but oil became a much bigger investor speculative commodity during the last 10-15 years. Some studies have shown that oil speculation by investors adds about as much new demand as China did during the last 10 years in terms of pushing up prices. How do you explain sudden spikes and then fall in the price of oil in 2008 and now again in 2011? Did China all of a sudden turn on their tap of demand on a dime and then shut it off? Fundamental demand even from China takes years to develop and is gradual. Oil price volatility is all speculative. Some now think that as much as 50% of the current price of oil is all speculation.
from the U.S. Department of Energy – Chinese consumption was:
2002: 1,883,660,777 barrels per year
2008: 2,948,835,000 barrels per year
so in 6 years China increased its consumption of oil by about 1/3 or 1,050,000,000 barrels a year
according to the CFTC the increase in the amount of cash pouring into the commodities market for petroleum products was almost exactly the same, as speculators bought 918,966,932 barrels per year more over the same period.
Liberals don’t like WSJ, Fox, or anything that doesn’t promote their fringe, warped view of the world. Water is wet.
I don’t think anyone has a problem with different points of view, even if you disagree with them. The problem with the WSJ, FOX and many other so-called “conservative” sources of news and analysis is all the lying. This is exactly what Frum is pointing out above. Why do these “conservative” media outlets have to continually lie? Argue based on the merits of your point of view and not based on a continual parade of lies. The thing which pisses me off more than anything about “conservatives” is that amount of lying they do.
“Conservatives” may win some battles with all their lying, but in the end they will not win the war because over the long-term the truth always prevails. The problem is all the unnecessary costs and pain we must go through because of all the conservative lying. The debt ceiling and the lie that we are currently in an immediate deficit or debt crisis is a good example.
Fringe, warped view?
If you watch Fox all the time, you’d come to the conclusion that Americans overwhealmingly oppose any legislation to deal with climate change.
Yet …
USA Today/Gallup Poll. June 11-13, 2010. N=1,014 adults nationwide. MoE ± 4.
“Would you favor or oppose Congress passing new legislation this year that would do the following? How about regulate energy output from private companies in an attempt to reduce global warming?”
Favor 56%
Oppose 40%
Unsure 4%
The fringe, warped view is largely a feature of those who rely solely on Fox and the WSJ for their information. They develop very strongly held beliefs of what would meekly and politely be termed “false facts”.
Wow, Frum, did somebody slip you the red pill?
I am not sure if your comment is being critical of Frum, but if you disagree with him, why don’t you argue his points. Besides all the continuous lying by so-called “conservatives” and those on the right, the other constant is when they cannot win an argument based on the facts and analysis they just go to the personal attacks. That just further emphasizes the weaknesses in their arguments.
Uh, google ‘red pill/blue pill’ if you don’t understand the reference.
Actually, here I did it for you:
The term red pill and its opposite, blue pill, are pop culture terms that have become a common symbol for the choice between the blissful ignorance of illusion (blue) and embracing the sometimes painful truth of reality (red).
Oh, and your implication that the ‘left’ doesn’t resort to attacks made me snort laugh a little, since of course your comment is an attack on ‘conservatives’, just a generalized one, which I suppose makes it better?
Thanks for the clarification. My post was not necessarily entirely directly at you, but a general statement.
Why, of course. Preemptive ‘general’ attacks show intelligence and clear thinking in arguments. ‘Personal’ attacks show weakness. No implied lack of self-awareness anywhere in sight.
Precisely because conservatives (rightly) hesitate to use aggressive fiscal policy to fight recessions
Conservatives hesitate to use aggressive fiscal policy to fight recessions when there’s a Democratic president. No problem at all when there’s a Republican president.
Chait has recently posted some great stuff from the GWB era showing support for fiscal policy and loose monetary policy.
Conservatives hesitate to use aggressive fiscal policy to fight recessions when there’s a Democratic president.
+1
Because it never works. Doesn’t matter whether the President is a Republican or Democrat. You and Frum fail to grasp is that recessions are necessary. They clear out the underbrush. The economy goes through a healing process. People pay off debts save money and retrench.
Bernanke has been trying to re inflate the bubble It’s not working. The economy continues on its downward spiral. We need to let housing hit bottom and then it will begin to recover.
Frum is really on fire lately!
Being booted out of the charmed circle must have had a salutary effect upon his brain processes.
He has become something of a prophet without honor in his own land.
He’s not honored in Canada?
I was referring to the metaphorical land of conservative opinion makers.
Wasn’t it downgraded as soon as Murdock bought it?
The time to downgrade the WSJ editorial page was decades ago. It’s risible insanity goes back a long way.
Its poisonous silliness may have peaked in the 1990s during the reign of the late Robert Bartley. Remember when he hoped to win a Pulitzer for the WSJ “investigation” (some would call it a witch hunt) of the alleged Clinton goings-on in Whitewater, Mena AR, and of course the “murder” of Vince Foster? He even referred to Hillary Clinton flying on a broom! Great journalism! Substitute Obama-hatred for Clinton-hatred and nothing at the WSJ has changed. Seib is still there, after all.
But the downgrade is better late than never. Long, long overdue.
Murdoch could hardly have harmed the WSJ editorial pages, since they were already far gone when he arrived. I do blame him for destruction of the rest of what was once an excellent publication. But who could have seen THAT coming?
And Mr. Frum, you have NO BUSINESS calling anyone else an “out-of-touch elitist.” Kettle, meet pot!
Say hello to Conrad Black and DSK for us.
The “Out of Touch Elitist” common was pretty plain sarcasm.
Like Chait’s article, it’s just good natured ribbing.
Agreed. If there’s been a downgrade at the WSJ, it’s that the News division, long left to operate independently of the extremists who were given free rein at the Editorial Page, are being corralled to produce news content that best reflects Lord Rupert’s political bias.
For years now both Rush Limbaugh and Sean Hannity have been urging their listeners to read the “news” sources that agree with their right wing views, to wit: The Washington Times, Worldnetdaily.com (and similar online sites) – and the WSJ editorial page.
Terrific article, Mr. Frum, speaking as a rock-ribbed Republican! We need to hear voices like yours now more than ever.
Excellent takedown of the latest piece of tendentious reasoning and history rewriting by the WSJ ed page. I doubt Krugman could do better. I particularly liked where you pointed out the complete volte face on real incomes and wealth which all through the Bush years they claimed were steadily rising as a consequence of the Bush tax cuts. As for their tut tut dismissals of Perry’s threats of violence against Bernanke, I seem to remember they made the same “He’s only joking” claims when Clinton was threatened with physical attack in his state either by his constituents or by the military by a US senator (Jesse Helms).
As to the fundamental issue of a monetary response to our present slowing economy the problem is there is only so much monetary policy can achieve when you’re in a liquidity trap as we are at present. This is why several noted monetarists have accepted the real need is for fiscal stimulus while those like Rogoff who are adhering to the true monetarist faith are reduced to proposing huge quantitive easing with the deliberate aim of creating inflation. In a way this crisis has revealed the limitations of monetarism and left the monetarists with no place to go.
I always liked the WSJ. I can’t say I always agreed with the editorials, but the writing was good and the research was solid. Then Rupert Murdoch bought it. People who don’t think that was a bad omen have obviously never read the New York Post or the many sleazy tabloids Murdoch publishes around the world. The man is trash. Fox News is trashy. Look at it with the sound off sometime. Vapid bleach blonds surround skeezy looking middle aged men. It looks like a used car salesman having lunch at Hooters. Nothing but trash (okay Chris Mathews is different and there are a few other exceptions) but most of the time when I flip on Fox News that’s what it is). But the Wall Street Journal was a real paper and in spite of promises made at the time of purchase, we all knew what was about to happen. It’s a shame.
You gotta allow that Shep Smith is an exception to the blonde harpy shrillness on Fox.
“Vapid bleach blonds surround skeezy looking middle aged men. It looks like a used car salesman having lunch at Hooters.”
Actually the best characterisation of the Fox News crowd I’ve ever heard was from someone who said “If these people weren’t on Fox News they’d be selling exercise equipment on late night cable shows.” This sums it up exactly.
Given the average weight of the mean (pun intended) Fox viewer, I would say they’re missing a huge opportunity!
-”Obama is a socialist, marxist, homosexual! You should prepare for the apocalypse with this patent pending, break through, ab-cruncher! Lose those unwanted pounds while we inform you of how the democrats are bringing this country down!”
Half the population is below average and half of them watch Fixed News.
Bruce Bartlette called Perry “an idiot” today. Hah. This is starting to look like a Georgetown/China game.
As a Hoya, glad to see you noticed our basketball diplomacy.
the WSJ editorial page is for Koch-heads … a once grand paper
This site satisfies all of my prurient interests.
Get your money out of Bank of America. They are buying Perry. And blatant about it too.
http://www.youtube.com/watch?v=40K7p3kZO9c&feature=player_embedded#t=10s
Possibly the worst toupee ever as well.
Actually, Chait did take down the WSJ today as well:
I have a bit of a weakness for insulting people’s intelligence. I recognize this and try to restrain myself. When I read Stephen Moore’s op-ed in the Wall Street Journal today, I thought that I would give restraint a try. There’s simply no way to honestly analyze this piece without commenting on the author’s intelligence. I suppose, to be charitable, I should refine that to mean Moore’s analytic intelligence; there are many kinds of intelligence, and perhaps Moore is gifted with great social intelligence, or artistic intelligence. And yet the relevant point is that Moore is the lead economic editorial writer for the country’s leading economic newspaper and yet he lacks even a rudimentary understanding of economics.
What makes this point especially hard to resist is that Moore’s lack of understanding of rudimentary economics is the subject of his op-ed. Here is his thesis:
Christina Romer, the University of California at Berkeley economics professor and President Obama’s first chief economist, once relayed the old joke that “there are two kinds of students: those who hate economics and those who really hate economics.” She doesn’t believe that, but it’s true. I’m surprised how many students tell me economics is their least favorite subject. Why? Because too often economic theories defy common sense. Alas, the policies of this administration haven’t boosted the profession’s reputation.
Moore believes the entire economics field is composed of idiots who fail to grasp obvious realities. Their theories defy “common sense,” which is to say Moore doesn’t understand them, which is to say they must all be wrong. For instance:
Mr. Carney explained that unemployment insurance “is one of the most direct ways to infuse money into the economy because people who are unemployed and obviously aren’t earning a paycheck are going to spend the money that they get . . . and that creates growth and income for businesses that then lead them to making decisions about jobs—more hiring.”
That’s a perfect Keynesian answer, and also perfectly nonsensical. What the White House is telling us is that the more unemployed people we can pay for not working, the more people will work. Only someone with a Ph.D. in economics from an elite university would believe this.
Right. The theory holds that a lack of demand is creating a high level of unemployment. Unemployed people have a high marginal propensity to consume — which is to say, they’re generally desperate to pay the bills. If you let them keep drawing uninsurance claims, they will spend that money on things like repairing their car and buying clothes, creating more employment in the fields of auto repair and clothing retailers. Moore seems to think either that unemployment benefits can only have the effect of discouraging people from working — that apparently, our economy suffers from a surplus of jobs that have gone unfilled because applicants would prefer to stay on unemployment. I suppose you could argue that this is the case, and that this effect overwhelms the demand-side boost from maintaining consumption for the unemployed who would not otherwise be obtaining work.
But Moore doesn’t make that case. He just thinks it’s obviously dumb to think that unemployment benefits could have an effect other than to discourage work. I have not omitted from his op-ed any portion where he makes this case.
Moore continues:
A few months ago Mr. Obama blamed high unemployment on businesses becoming “more efficient with a lot fewer workers,” and he mentioned ATMs and airport kiosks. The Luddites are back raging against the machine. If Mr. Obama really wants to get to full employment, why not ban farm equipment?
But Obama is not proposing to ban farm equipment, or ATMs, or airport kiosks. So, hey, maybe there is more to the argument! Indeed, there is an entire economic debate about the degree to which technological trends have impacted employment. Over the last three economic expansions, unemployment has taken much longer to come down than in previous cycles. Economists believe that technological changes have a great deal to do with this. That is the debate Obama was referencing. Moore, again, appears totally unaware of it.
More Moore:
Or consider the biggest whopper: Mr. Obama’s thoroughly discredited $830 billion stimulus bill. We were promised $1.50 or even up to $3 of economic benefit—the mythical “multiplier”—from every dollar the government spent. There was never any acknowledgment that for the government to spend a dollar, it has to take it from the private economy that is then supposed to create jobs. The multiplier theory only works if you believe there’s a fairy passing out free dollars.
Moore is at least referencing an economic theory here, albeit an extremely old one believed by very few economists any more. The theory holds that borrowing money in the short term must always lead to an immediate reduction in short-term spending. Economists have answers to this objection that do not rely on fairies. Moore genuinely seems to think that the entire field is filled with idiots unfamiliar with his “common sense” objection.
One more piece of Moore’s argument:
Keynesians believe that the economic problem is abundance: too much production and goods on the shelf and too few consumers. Consumers lined up for blocks to buy things in empty stores in communist Russia, but that never sparked production. In macroeconomics today, there is a fatal disregard for the heroes of the economy: the entrepreneur, the risk-taker, the one who innovates and creates the things we want to buy. “All economic problems are about removing impediments to supply, not demand,” Arthur Laffer reminds us.
Let’s take the last part first. He cites supply-side guru Art Laffer, who claims that all economic problems are supply-side problems. Moore is not just saying that marginal tax rates matter. He is ascribing them total importance, reducing all economics to the supply-side. No real economist believes this. Moore is epitomizing the pure crankery of supply-side economics, the belief that it has discovered simple truths that have elided the entire profession.
In the first part of the paragraph, he assumes that Keynesian economics is simply the mirror image of his own belief system. He thinks that government discouragement of wealth is the only possible economic problem. Therefore, Keynesians must believe that a failure of demand is the only possible economic problem. But look, he says — there were shortages under communism! He has refuted Keynesian economics! That Keynesians do not believe that a failure of demand is the only possible economic problem genuinely does not occur to him.
I have been following Moore for years, and I have met him — yes, it was awkward — and I can assure you that this is not just some oddball rhetorical game he’s playing. He genuinely has no idea what he’s talking about. And I’m sorry to be mean to what seems to be a fairly nice guy, but it does matter that there are completely ignorant people wielding great influence over the policy debate.
The Soviet analogy is doubly stupid. The reason shelves were barren in the Soviet Union was because the economy was being managed to maximize exports and to maximize spending on military hardware … thanks to a captive workforce with no freedom to organize for higher wages they never really had to provide supply to meet demand. And fwiw, if you had money in Soviet Russia, there was always an abundance of supply available.
For some bizarre reason conservatives equate Keynesianism with central planning as you can tell by the constant association of the two by the usual suspects whose knowledge of economics could summarised on the back of a postage stamp. Keynesianism is NOT about central planning, it’s about “demand management.”
Exactly – the Soviet economy was never structured to respond to demand. It was hardly a capitalist economy to begin with. Why it’s being used to prove supply-side economics is beyond me.
I went over and read the Chait piece and one can but agree. I’ve been reading Moore intermittently with some bewilderment for many years. It’s hard to tell whether he has absolutely no idea what he’s talking about (Chait’s premise) although on the basis of the prima facie evidence that certainly appears to be true. On the other hand he could just be making all this stuff up (aka. lying) in order to advance a particular agenda. Either way it’s absolutely appalling in the context of the Journal being the country’s leading financial newspaper. Never in a million years would a piece like this appear over the byline of a staff writer at the Financial Times. But this is the sort of nonsense that passes for analysis at the ed page of Gigot and before the equally nutty Bartley. Presumably Gigot sits on panels at economic conferences from time time, you have to wonder why he’s not called on this sort trash by conservative economists let alone the likes of Krugman or De Long.
Damn good piece by Moore. Central planning doesn’t work. Keynesian economics is central planning.
I guess refutation and better argumentation means nothing to you, but, then, you were either being sarcastic or were trolling.
Kudos, Frumplestiltskin! Cogent and satisfying commentary. Every time I see Stephen Moore on “Real Time,” I ask myself: why? The guy IS clueless.
Bush and the Buck
A weak-dollar policy is a mistake
http://old.nationalreview.com/nrof_bartlett/bartlett200312080912.asp
Probing Greenspan’s Easy-Money Madness
http://www.thestreet.com/_iwon/markets/detox/10143159.html?cf=WSIWON1111051500
We are in this mess because Greenspan and Bernanke both had an easy money policy. In a truly free market the correction would have taken place long ago. It would have been sharp, but short.
You do realize your citing the exact kind of analysis that Frum just refuted in this article? Or do you just will yourself to ignorance. Not that Greenspan’s Fed wasn’t very much involved in the problems which resulted in the economic crisis, but that wasn’t Frum’s point. His point was that Bernanke is doing the only thing that makes sense given the current crisis, which is demand and employment, not inflation and debt based.
Frum didn’t refute one damn thing. Greenpan and Bernanke have both had an easy money regime. Followed the Paul Krugman bubble philosophy.
Here is the lefts favorite economist on August 2, 2002
“The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”
http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html?src=pm
The artificially low cost of credit which creates distortions in the market. Malinvestment happens. Bubbles grow and eventually burst and the rest is history.
All Frum is advocating is Keynesian nonsense. It has never worked.
He wasn’t advocating, he was describing. This has been debunked.
If he was advocating, show me where he has repeated this in a different context. It’s not as if Paul Krugman says things he cares about once, and lets it drop.
Challenge: Show us one other quote from Krugman (a separate, unique one, not one of the many where he takes on folks just like you running around with this misconception) where he advocates a housing bubble as a good thing.
(Jees – I gotta order that “drink coffee not kool aid” cup, there really is too much kool aid being drunk. Like, it’s the same crap being recycled and recycled, and dealing with it is like playing whack-a-mole!)
“Precisely because conservatives (rightly) hesitate to use aggressive fiscal policy to fight recessions, it is all the more urgent that we appreciate the reach of monetary policy.”
Frum, are we or are we not in a liquidity trap? YES/NO
If YES what is the alternative to an aggressive fiscal policy?
Editorials are nothing but opinion. That conservatives ever took “opinions” in the WSJ as “Word” is akin to what they’ve railed about for years: Liberals drinking the Kool-Aid from the editorial pages of the New York Times editorials.
I don’t discount David’s epiphany, just recall the years that many of us have made the same observation-to deaf ears.
Frum is actually making conservatism respectable. Almost. Just when you think that he is on a roll, Frum will resort to some silly anti-Obama nonsense that makes one scratch his head. Guess old habits are hard to break.
I also love those that comment in here. This blog has the best commenters and it is one of the reasons to come. I always learn something from the comments. Great post Frumplestiltskin.
^+1 Frum is on the right track to redeeming himself. It’s clear he sees the danger from the Christian Jihadists completely gutting the GOP. The Tea Baggers can win the South and Kansas, but they can kiss the rest of the states goodbye.
PracticalGirl wrote: “I don’t discount David’s epiphany, just recall the years that many of us have made the same observation-to deaf ears.”
+1
I’m always baffled by how someone who was dead wrong for so long and then finally gets a few issues right can retain strong convictions about all the other stuff he continues to believe in the face of strong disagreement by those who got those other issues right the first time. No one would ever follow the advice of a doctor or investment manager who was dead wrong on the first few diagnoses or investment recommendations over the advice of a doctor or investment manager who got things right from the very beginning.
Getting it right initially and getting it right eventually are two very different things. We don’t have the luxury of ignoring the advice of those who got it right initially. Frum should admit this.
I don’t know. Maybe it’s just my personality, but I never got this whole attitude. The kind of thing they specialise over at driftglass blog. (“So, Andrew Sullivan, you’ve finally come out and said that the Teabag Party is insane. WHEN ARE YOU GOING TO ADMIT THAT YOU WERE WRONG ABOUT IRAQ!!!!!!!!!!!111″)
Frum is agitating for “good jobs”(!!!), calling out the WSJ propa-*ahem* editorial board, and even, for God’s sake, flat out denying that the interests of the bondholders are 100% congruent with the interests of America as a whole.
In what seems like a very short time, he has actually moved to the left of some of the biggest names in the Democratic Party.
Go Frum, say I, and let’s see where this ride takes you.
David,
You’re awfully late to the party. The WSJ editorial page has been in a downward slide since Paul Gigot became its editor in 2001. It’s testament to the (formerly) high quality of its news coverage that the paper has been shielded from overall decline as long as it has. Alas, it took only a few short years of ownership for the rest of the paper to be Murdoched.
Why would it matter whether he’s late to the party? If he had been doing this since 1990 it wouldn’t change the fact that the WSJ editorial page still exists and is influential, and needs to be called out sometimes.
The Wall Street Journal speaks for “big money”.
Big money most fears the effect of inflation on their assets.
Monetary easing potentially (though not in this environment) risks inflation.
Therefore, let’s return to gold to protect my assets, and the heck with the rest of the economy.
The Journal’s open borders position wasn’t surprising. The policy has, and will continue to, deflate wages.
Poor Lord Keynes…he said that when faced with a shortage of demand, one must look to the four factors that make up aggregate demand and see how one can increase one or the other. But he also said that one could look to monetary policy first, then AG. Once monetary policy was no longer feasible or effective, start working on the four factors. The easiest one is government created demand since the government can borrow, inflate or just print money if they have to in order to get demand going. All the critics of LMK then assume that he said to keep it up forever as a matter of policy regardless of the situation. That is nonsense. Massive deficit spending was recommended only when in a hole. Once out of the hole, excess revenues were intended to pay down the debt incurred during the hard times bringing back a balance between economic activity and sound fiscal policy. In a nutshell, this means you keep taxing once out of a depression or recession in order to pay down debt incurred, not to give away money to taxpayers before they paid off the principal.
lincolndemocrat.com » Blog Archive » The Wall Street Journal as the worst… // Aug 22, 2011 at 10:13 am
[...] …example of economic misinformation: [...]
About Three–or Is It Four?–Decades Late, But Welcome All the Same… | FavStocks // Aug 24, 2011 at 9:50 am
[...] Time to Downgrade the Journal’s Editorial Page: I’m uncomfortably aware that critiquing the Wall Street Journal editorial column is a job reserved for himself by The New Republic’s Jonathan Chait…. [But] in Chait’s absence, the Journal has launched an attack on Ben Bernanke and the Federal Reserve that is not only remarkable in its brutal mishandling of fact – but also for its possibly lethal intellectual consequences within the conservative world. Precisely because conservatives (rightly) hesitate to use aggressive fiscal policy to fight recessions, it is all the more urgent that we appreciate the reach of monetary policy. If we are pushed by ignorance or passion into a wrongheaded monetary policy, then we will have no answer whatsoever to the question: how do we create prosperity and employment in the near term? [...]