Fake Keynesianism On Full Display On The WSJ Op-Ed Page

Does any reader out there think that people in the government actually know what they are talking about?  If so, you can just disabuse yourself of that idea by reading the op-ed by Alan Blinder in today's Wall Street Journal.  Sorry it's behind the pay wall, but the link will take you to where you can get in if you are a subscriber.

Who is Blinder?  Currently a professor of economics at Princeton, but just recently Vice Chairman of the Federal Reserve.  Shouldn't somebody with those kinds of titles know at least a little something about basic public policy?  OK, here are a few key quotes:

At current rates of spending and taxation, federal receipts cover less than 74% of federal outlays.  So if the government hits the debt ceiling at full speed, total outlays . . . will have to be trimmed by more than 26% immediately.  That amounts to more than 6% of GDP, far more than the fiscal cliff we just avoided. . . .
Bad things will surely happen, one of which will be a swift descent into recession.

Blinder is completely ignorant of economic history, which shows that sharp cuts in government spending and in the size of the government are the cause of economic booms, not recessions.  Read my previous post here and the linked article by David Henderson for more detail.

It is beyond breathtaking that our top government officials operate at this level of ignorance.  And if you think that anyone at the Fed in Washington, or in the Treasury Department, or in the White House (including the top guy) knows any better, you are wrong.  (A few people in some of the regional Feds do know better.  They are a small minority and their voices are at present barely being heard.)

Greece, Latvia, And "Austerity" As An Economic Policy

The incompetent conventional wisdom sees the two poles of economic policy as "austerity" and "stimulus."  Exemplifying the incompetence is the IMF, which put out a report back in October comparing countries engaging in "austerity" to those following programs of "stimulus."  The conclusion (no surprise here from these fools) :  "stimulus" is better!  Summary of the IMF report and link here.

What's amazing to me is how many news organizations and bloggers buy into this terrible terminology, which seems specifically designed to obfuscate the only important issue, namely the relative size and growth of the state sector versus the private sector.  Here is really everything you need to know about economic policy:  large private sector, small state sector, successful economy;  small private sector, large state sector, unsuccessful economy.

The term "austerity" just completely confuses the issue.  "Austerity" means some combination of government spending decreases (usually not very much) and tax increases (generally onerous) -- a totally muddled mess.  So the state shrinks maybe a little for a while, but gets more revenue to keep the private sector from growing and let the government grow more as soon as the heat is off.  The chance that will work is about zero.  The thing that will work is massive spending cuts and no tax increases.  But the dopes like the IMF, New York Times, Krugman, et al. will cite the poor results of "austerity" in support of their preferred program of a blowout of government spending.

Consider Greece.  You would have to be in a cave for the past couple of years not to know that government of Greece is undertaking a program of "austerity" in order to earn bailouts from the various European bailout providers.  Greece's economic performance is, of course, terrible.  Do you have the impression that Greece has been engaging in big cuts in government spending?  The answer is that there have been some cuts, but not enough to actually shrink the state sector meaningfully as a percentage of the economy.  From Anders Aslund writing at Bloomberg News on January 7, 2013: 

Greece . . . maintained high public expenditures of 50 percent of gross domestic product in both 2010 and 2011, when it was supposed to be pursuing austerity.

According to the New York Times here, in the current budget passed in November, Greece has promised government spending cuts of about $10 billion, which would be about 3% of gdp.  That's maybe something, although in my view not nearly enough from a start of 50%.  Also, I don't believe that they will actually follow through and do it.  But meanwhile, how about taxes?  Oh, those are going up, and a lot. The Telegraph reports that on Friday the Greek parliament voted for tax increases to raise revenues by 2.5 billion euros -- that's also about 3% of gdp.   The corporate income tax rate is going from 20% to 26%, a sure economic killer.  The top personal income tax rate is going from 40% to 42%.  Well, that's what it means to do "austerity."  I think we can count on continuing economic failure in Greece.

It's actually hard to find a clean example of a country that has cut government spending massively without also engaging in destructive tax increases, but probably the best recent example is Latvia.   Again from Aslund's article at Bloomberg:

In 2009, Latvia carried out an arduous fiscal adjustment of 9.5 percent of GDP. . . .  Cuts in public spending accounted for two-thirds of the Latvian fiscal adjustment. It decreased government expenditures from a high of 44 percent of GDP in the midst of the crisis to a moderate level of 36 percent of GDP this year. Latvia has kept a flat personal income tax now at 21 percent and a low corporate profit tax of 15 percent.

Latvia did raise their VAT somewhat, so they are not as clean a case as one would like.  According to Anne Applebaum in the Washington Post here, Latvia's economy shrank 24% in 2008-09, but has been growing at a rate of about 5% since.  To the extent that some of that 24% shrinkage reflects the cuts in government spending, keep in mind that gdp accounting records a dollar of government spending as equivalent to a dollar of private spending, which it is not.

How's It Going With The High Tax, High Spend, High Debt Model

Just checking around to see what I can find in the way of the latest data on how it's going with the high tax, high spend, high debt model of how to run a government.

Europe certainly qualifies for that category.  At ZeroHedge today, there is a collection of discouraging recent economic statistics from Europe.  Some of the most relevant:

  • The unemployment rate in the eurozone has now risen to 11.8% – a brand new all-time high.
  • The unemployment rate in Greece is now 26%.   A year ago it was only 18.9%. The unemployment rate in Spain has risen to 26.6%.
    • .The unemployment rate for workers under the age of 25 in Italy is 37.1%; in Spain, 56.5%; in Greece, 57.6%.

    Back in the U.S., Brian Barry at Bloomberg News reports on the contrast of the economic conditions of the blue and red states:

    [L]eaders of both parties . . . should also think about the path of state finances. The prospects should unnerve Democrats, in particular: The 26 states that Obama carried in November tended overwhelmingly to have lower credit ratings than the 24 where he lost.   The most obvious examples are California and Illinois, two big states that are deep-blue politically and deep in the red fiscally.

    Aside from credit ratings, how are the blue states doing versus the red states in economic performance?

    Checking in on Illinois, we find that efforts to get some control over the worst-funded pension system in the country are going nowhere:.  Again, from Bloomberg News:

Illinois lawmakers missed another chance to restructure the worst-funded state retirement system in the nation, officially ending their 2012 session yesterday without acting on measures to shore up pensions.  In failing to deal with a $97 billion unfunded liability that rises by $17 million each day, Illinois risks more downgrades from bond-rating companies, which have urged the state to stem the ballooning deficits.

Meanwhile, down in low tax (and no income tax) Texas, the New York Times on January 8 finds that their big problem is how to deal with a suddenly emerging $8.8 billion budget surplus:

A boom in revenues from sales taxes as well as taxes from oil and natural gas production have given Texas a budget surplus that the state comptroller has estimated at $8.8 billion.

As for California, it's too early to see how the big income tax increases are going to affect things.  My prediction:  badly.

The Climate Campaign Becomes Ever More Bizarre

Yesterday our official weather and climate bureaucrats, NCDC, came out with a big press release:  NCDC Announces Warmest Year on Record for Contiguous U.S.!!!!!!!  OK, the exclamation points are mine, but you can sense the excitement in their words.  Finally, the definitive proof of global warming!  (By the way, for those who don't know, NCDC is the National Climatic Data Center, a part of NOAA, the National Oceanic and Atmospheric Administration, which is in turn part of the Commerce Department.)

The story was immediately picked up by the press and given full play.  In the print edition of today's New York Times, it's three of the six columns in the middle of the front page at the top, complete with a big color map.  Headline:  Not Even Close: 2012 Was Hottest Ever in U.S.  Note that the word "contiguous" got disappeared from that headline.  Not good, New York Times.  (They did get the word "contiguous" back into the text of the story.)  In the print Wall Street Journal, there's a squib on page 1 followed by a full article on page A4.

It certainly sounds like something significant on its face.  Why am I just a suspicious guy?  That word "contiguous," so conveniently omitted in the New York Times headline, just catches my eye.  Could they really have left out Alaska and Hawaii?  Now Hawaii is kind of small, only 10,000 or so square miles, or well less than 1% of U.S. land area.  But Alaska is 663,300 square miles -- that's about 17.5% of the total U.S. land area, plenty to swing the result.  These people are climate campaigners.  They would not have omitted Alaska if including Alaska would lead to the same result.  The Manhattan Contrarian smells a rat.

So what went on temperature-wise in Alaska in 2012?   A little Google search promptly turns up this article from the January 3, 2013 Alaska Dispatch:   Brrrrrrrr!  Last year coldest in three decades for Anchorage.  And you probably thought it was going to be warm but just not a record.  Nope, coldest in thirty years.

But that's just Anchorage.  How about the rest of Alaska?  Well, in the Alaska Dispatch of December 23, 2012 we have this article:   Forget global warming, Alaska is headed for an ice age.  Excerpt:

In the first decade since 2000, the 49th state cooled 2.4 degrees Fahrenheit
That's a "large value for a decade," the Alaska Climate Research Center at the University of Alaska Fairbanks said in "The First Decade of the New Century: A Cooling Trend for Most of Alaska."
The cooling is widespread -- holding true for 19 of the 20 National Weather Service stations sprinkled from one corner of Alaska to the other, the paper notes. It's most significant in Western Alaska, where King Salmon on the Alaska Peninsula saw temperatures drop most sharply, a significant 4.5 degrees for the decade, the report says.

Sure enough, it's the whole state.  And would this swing the result for the United States?  Of course it would.  Now getting an average temperature for something like the United States is not a straightforward exercise (do you weight different stations differently depending on how far apart they are?) but I think we can be absolutely certain that if NCDC got the same result including Alaska then it would have included Alaska.

And what that means is that you can't trust a single word that NCDC or NOAA say on the subject of climate.  They are selectively cherry-picking data to convince you that they have a dramatic result when in fact they have nothing and are just propagandizing for more Federal dollars for themselves.

And how about the New York Times?  I'm sorry, but I can't forgive leaving out the word "contiguous" in the headline, and I can't forgive not mentioning the Alaska result in the story.  Was the omission of Alaska a mistake based on ignorance, or was it intentional?  If the first, it would show that the New York Times reporter knows nothing about his subject and is unable to ask the most obvious questions.  No, this is Justin Gillis, lead guy on the climate beat at the Times and a committed climate campaigner.  Thus, we are left with the conclusion that the article is just a deliberate attempt to propagandize and deceive the readership.

And by the way, the highly accurate satellite temperature data for the entire world are also available.  These data only exist for the 33 years from 1979 to 2012, but at least we can get an indication whether 2012 is somehow out of line.  Here are the data from UAH.   OK, 2012 is in about the top third, but well down from the peak in 1998.  No dramatic story there.

The Total Corruption of the American Geophysical Union

The AGU is one of those big professional societies of scientists, with tens of thousands of members in the fields of earth and space science.  They hosted their annual convention in early December in San Francisco.  Prominent climate blogger Steve McIntyre attended, but only wrote a post on January 5 on his return from a trip to Asia.  His report:  none other than Peter Gleick was a featured speaker at the convention.  Seems almost impossible, but McIntyre took photographs and has posted them at his site, climateaudit.org.

Do you know who Gleick is?  Until February 2012 he was head of the AGU's Task Force on Scientific Ethics.  That's when he was caught forging and then widely publicizing a fake document created to smear a small conservative think tank that had put on conferences featuring appearances by climate sceptics.  I use the term "forging" carefully:  I think that the evidence, summarized below with links for more detail, is sufficient at this point that the term can and should be used as to Gleick.  Yet Gleick seems not to have lost any of his stature among his peers.

Going back to February 2012, besides his role at the AGU, Gleick was also head of something called the Pacific Institute in California, an environmental organization specializing in water issues, and something of a climate campaigner, including regular articles at Forbes magazine.  On February 14, 2012 a then-anonymous individual e-mailed to several climate sites some documents said to have come from the Heartland Institute purporting to show that Heartland's climate sceptic efforts were at least in part funded by the Kochs and that Heartland knew that its sceptical efforts were "anti-climate."  The documents were made public by DeSmogBlog and the Guardian.  In rapid succession over the next several days: (1) Heartland admitted the authenticity of all of the documents except one, which it labeled as a forgery.  The one in question happened to contain all of the information that was damaging to Heartland.  (2) Gleick confessed that he was the source of the documents and that he had stolen the authentic ones by calling a Heartland staffer and pretending to be a board member.  In his confession Gleick stated that his phishing exercise had been motivated by the receipt "in the mail" "at the beginning of 2012" of the strategy memo that Heartland had labeled as fake.  (3) Numerous bloggers, including Steven Mosher and Roger Pielke, Jr. demanded that Gleick answer the question of whether he had forged the fake document.  As far as I have been able to determine, he has never answered that question. 

Within a day of Gleick's confession, blogger Megan McArdle, then with the Atlantic, had put together a series of damning observations and questions based on the documents and Gleick's confession that made it impossible to believe that the fake document had any source but Gleick's own forgery:

We know two things about the memo:
1.  It must have been written by someone who had access to the information in the leaked documents, because it uses precise figures and frequent paraphrases.
2.  It was probably not written by anyone who had intimate familiarity with Heartland's operations, because it made clear errors about the Koch donations--the amount, and the implied purpose.  It also hashed the figures for a sizable program, and may have made other errors that I haven't identified.  
Did someone else gain access to the documents, write up a fake memo, and then snail mail that memo to Dr. Gleick?  Why didn't they just send him everything?
If an insider was the source of the memo, as some have speculated, why did it get basic facts wrong? (I have heard a few suggestions that this was an incredibly elaborate sting by Heartland.  If so, they deserve a prominent place in the supervillain Hall of Fame.)
Why did the initial email to the climate bloggers claim that Heartland was the source of all the documents, when he couldn't possibly have known for sure that this was where the climate strategy memo came from?
Why was this mailed only to Gleick?

Plus, of course, Gleick has never denied that he forged the document.

Well, Gleick was suspended as head of the Pacific Institute.  Oh, but by June 2012 he was back in charge, with no investigation or explanation.  Gleick did disappear promptly from the AGU Task Force on Scientific Integrity, replaced by Linda Gunderson.  At the December 2012 AGU convention in San Francisco, McIntyre asked Gunderson if the Task Force had thought to conduct any investigation of its former chair as to whether he had committed a major forgery intended to smear a professional rival. 

Gundersen said that the Task Force had not considered the Gleick affair at all. It had done no investigation of Gleick’s conduct whatever. She said that Gleick wasn’t her responsibility and refused to be drawn into commenting on the affair in any way.

And of course, by December 2012, Gleick was back at the AGU convention as honored guest speaker, with no apology and no explanation. 

Meanwhile, in 2011 the AGU established a Climate Communication Prize, intended, according to its president's statement, "to raise the visibility of climate change as a critical issue facing the world . . . ."  This year's winner is former NCAR climate scientist Jeffrey Kiehl, who has since gone off into Jungian psychology.  Here are a few of his statements on climate from his web site:

The planet has been warming for the past few decades. . . . These changes are having serious effects on life on Earth. Science tells us that the majority of this warming is due to increases in the greenhouse gas, carbon dioxide. The measured increased in this gas is due to humans burning fossil fuels, i.e. coal and oil. . . .  Projections are that over fifty percent of species may be lost by the end of this century. . . . These are very dire predictions that can cause a sense of despair and hopelessness in us.

Are wild predictions that "over fifty percent of species may by lost by the end of this century" what passes for science at the AGU? 

And also AGU, is there any reason why any member of the public should trust anything you say or do?

Will There Be Any Real Spending Cuts?

So the so-called "fiscal cliff" deal postponed the discussion of spending cuts for the Federal government for two months.  In the next negotiation, will there be any real spending cuts?

I'm certainly not counting on it.  Check out the article by Robert Samuelson in today's Washington Post:  If We Can't Kill Farm Subsidies, What Can We Kill?  Excellent question.  According to Samuelson's data, the current level of Federal farm subsidies is running around $10 billion to $15 billion per year -- less than half a percent of Federal expenditures.  Farm income hit records in 2011 and 2012.  The theoretical justifications for the farm subsidies (e.g., save the family farm, protect small businesses against volatility higher than that of other businesses)  are thoroughly obsolete.

Of course, what farm subsidies are is a great source of graft -- work for lobbyists and resulting campaign contributions.  Check out the "Agriculture" section of Senator Chuck "Worst Senator Ever" Schumer's web site:  item after item of the giveaways Chuck has been able to get for the few thousand remaining New York farmers.  How does he even get away with this representing one of the most heavily urbanized of states?  The answer is that not a single one of his urban constituents has ever even read this part of his web site.   

My bet is that the Republicans won't even make a play to deal with the farm subsidies.  And if they won't deal with that, what will they deal with?   At this point all we can do is hope for a financial crisis to extricate us from this folly.