Germany Bashing With Bad Economics and Wrong Facts

If this were a football game, the referee should call unnecessary roughness for piling on Germany. The American Left led by Paul Krugman (The Harm Germany Does and Those Depressing Germans) excoriates Germany for forcing austerity on the rest of Europe. The U.S. Treasury (no newcomer to spending) demands that miserly Germany spend more to pull the PIIGS (Portugal, Italy, Ireland, Greece and Spain) out of their economic doldrums. Angela Merkel and her scrooge Germans are pictured as eating their Kuchen mit Schlag as Greek public employees lose jobs and unemployed youths riot in the streets. Even the sober Financial Times (Germany Is a Weight on the World) accuses the German juggernaught of piling up export surpluses to “beggar their neighbors.”

To understand the liberals’ beef against Germany, we must go back to the PIIGS borrowing spree that followed the creation of the Euro. As part of a single currency with strong partners to the North, even the PIIGS could borrow at low interest rates, and they borrowed voraciously not for investment but to pump up public spending. Their solvency in doubt as the financial crisis exploded, the PIIGS could no longer borrow. Suddenly, they had to live within their own means, except for the limited official loans the European Union, the European Central Bank and the IMF begrudgingly handed out to prevent the collapse of the Euro. Greece, Spain, and Portugal descended into deep recession with one quarter of the work force unemployed.

 



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Krugman On Austerity: How About Looking At The Facts For A Change?

New York Times economist and editorial writer, Paul Krugman, has headed the Left’s crusade against austerity, both in the United States and across the industrialized world. To Krugman, “austerity” does not denote a careful husbanding of government money. Rather austerity denotes unwisely large cuts in government spending that, he claims, threaten economic growth and recovery. Krugman bases his opposition to austerity on an empirical assertion that we can test; namely: “Across the advanced world, big spending cuts have been associated with deeper slumps.”

Krugman’s testable hypothesis, therefore, is: Countries that experience large reductions in government spending grow more slowly (or not at all or worse).

Just as some people speak before they think. Krugman seems to believe his asserting something to be true makes it true. The scientific method does not work this way, however. It requires that we first gather the facts on government spending and growth. Second, we must use these facts to test the Krugman hypothesis of a positive relationship between government spending and growth.  

The scientific method, so applied, shows Krugman’s facts to be wrong (where are the “big spending cuts”) and it refutes his hypothesis. Not a good day for Mr. Krugman. Next time, he should gather and test the facts before he writes.

 


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Wow! The New York Times Tells the Truth on the Benghazi Blunder (PS Obama Is Losing)

Op-ed writer Ross Douthat is a rare truth teller among the New York Times’s writers’ stable. Columnist Paul Krugman spouts daily left-wing fact-uninformed economics. Token conservative, David Brooks, pens trivia about the latest book he read. Maureen Dowd jokes about women’s issues. Only Douthat  questions the Times’ ueber-liberal party line and tells the truth.

In his Sunday October 14 Mystery of Benghazi, Douthat dissects why “White House officials continued to stress the importance of the ‘hateful’ and ‘disgusting’ video, and its supposed role as a catalyst for what Susan Rice, the ambassador to the United Nations, insisted was a spontaneous attack” even as “it became clearer that the Benghazi violence was an al Qaeda operation” --- a narrative “pushed on Sunday morning programs, on late-night talk shows and at news conferences, by everyone from Rice to Hillary Clinton to the president himself.”  Per Douthat: “When Obama spoke at the United Nations shortly after the attacks, the video was referenced six times in the text; Al Qaeda was referenced only once.”

Douthat, for the first time on the pages of the venerable Times, clearly lays out the time line of what he terms the administration’s “strange denial” that the Benghazi consulate attack was a planned terrorist action.

Douthat rejects two common explanations for Obama’s “self defeating strategy,” before coming up with his own. 

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2011 Ruffin Gregory Awards for the Worst Treatment of Climate Change in an Economics Textbook.

Apparently, the 2011 Ruffin-Gregory Award for the Worst Treatment of Climate Change in an Economics Textbook are out. Roy Ruffin and I (who did not know this award existed until recently) congratulate this year’s co-winners (or are they losers?): Miller and Gwartney, Stroup, Sobel, and MacPhearson, who received the vaunted grade of F. Among the losers (with the best treatment of climate change) are Mankiw and Krugman and Wells, who were awarded coveted A’s.

We look forward with bated breathe for the announcement of the 2012 awards.

Note to Krugman: Greece Proves Keynesian Economics Wrong

Times columnist Paul Krugman’s continuous railing against austerity reached a crescendo with Greece’s default. In his What Greece Means, Krugman vents his outrage:

“What Greek experience actually shows is that while running deficits in good times can get you in trouble… trying to eliminate deficits once you’re already in trouble is a recipe for depression…Greece is the worst case, with unemployment soaring to 20 percent even as public services, including health care, collapse.”

Bankrupt economies, like Greece, need stimulus, not austerity, Krugman declares indignantly. The “austerity-induced depressions” around the European periphery are proof that Keynes was right.  Germany’s Angela Merkel, her IMF-austerity allies, and world-wide lenders do not understand that we need a massive stimulus to get Greece out of this mess. They need to step up to the plate if they are good citizens of Europe (or the world).

Krugman does not fess up that Greece’s Keynesian policy of endless borrowing to fund wasteful government spending and feed massive welfare programs is exactly what got Greece in the trouble it is now in. The Greeks cannot pay their  bloated public payrolls, out-of-kilter wages, and generous pensions and early retirements unless fools lend them money that will not be repaid. Even the Greeks themselves are not falling for that trick. They are too busy transferring their assets abroad. Merkel and her stingy Germans make for good scapegoats, but it’s not only them. Lenders throughout the world have shut down the lending spigot.

Liberals are gearing up to use Krugman's Greek fable of “Keynes has won” to justify further trillions of U. S. debt and growing government to ever greater heights, as Times columnist Nicholas Kristof reveals in his In Athens, Austerity’s Ugliness:

 

 “Europe declared war on Keynes, and Keynes is winning…If you want to know how well (Republican budget cutting) works, come visit Europe — especially Greece. Yes, Greece needed a wake-up whack and economic reform, but Republican-style austerity knocked the patient unconscious.”

Greece’s Keynesian orgy leaves  it with two unpalatable options. One: Without further European bailouts, Greece exits the Euro zone, its drachma collapses, and its living standards fall to Bulgaria’s. Eventually, after prolonged pain its wages and prices fall enough to restore its competitiveness. Two: It meets the terms of its EU bailout agreements, it stays in the Euro zone, cuts government spending, and reduces wages and prices over an extended period of time until its competitiveness is restored.

One statistic explains why Greece must experience rising unemployment, let wages and prices fall, and fix its broken welfare system under both scenarios. German unit labor costs (the cost of producing one unit of output) have been flat over the past decade, while Greek unit labor costs soared, fueled by borrowed money from abroad. Germany (and the rest of Northern Europe)  kept its costs in check by wage restraint, rising productivity, and checking the welfare state. Greece became a broken economy no longer able to compete either within the European or world market. Keynesian economics brought them to this sad state of affairs.

Greece is not a test of Keynesian economics as liberals would like to claim.  Only economic illiterates could call for deficit spending when there are no lenders. In order for there to be a deficit, someone somewhere has to pay for it.

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