Competition For The Worst Economics Writer In America

You probably think it is so obvious that Paul Krugman is the worst economics writer in America that the proposition is not even worth discussing.  But over at National Review Online, Kevin Williamson thinks he has a competitor for the prize:  Martin Crutsinger, Chief Economics Writer for the Associated Press.

To his credit, Williamson nails the fundamental problem with the economics reporting by Crutsinger (and for that matter, the rest of the AP staff):

You will be hard-pressed to find an Associated Press report acknowledging the fact that government spending is accounted for at cost when calculating GDP.

It's not like Crutsinger ever makes a principled argument for why Fake Keynesianism is a good view of the economy.  It's just that he has so totally internalized the fallacy that it is everywhere in his reporting without his even seeing it.  So you get things like this whopper from his report of February 28:

"the only impediment [to economic growth of around 2%] . . . may be the across-the-board government spending cuts that kick in Friday."

Back to Williamson:

The final product is an AP-distributed political worldview that government spending is always good for the economy, good for employment, good for construction, etc., with little or no contemplation of the possibility that government spending may be one of our more significant economic problems.

OK, that's bad.  But could it really be worse than Krugman, who just takes everything about economics and turns it around a full 180 degrees?  Consider his recent column from March 28, entitled "Cheating the Children."  And how exactly are we cheating the children?  You might guess, by taking on huge amounts of debt that they will never be able to repay?  Wrong:

Yet there is, as I said, a lot of truth to the charge that we’re cheating our children. How? By neglecting public investment and failing to provide jobs.

So in Krugman's view, we are cheating the children by not having enough government spending and not taking on enough debt.  Got that?

Sorry, Kevin, but Krugman has Crutsinger beat by a mile.

The SEC Catches Up To One Of The Small Fry

The Wall Street Journal has the story on this morning's front page:  The SEC has caught one of the biggest crooks in the sale of billions of dollars of fraudulent securities.  The crook?  It's the state of Illinois!  The problem?  Disclosures relating to the extent of its pension obligations.

Here is a link to the SEC release, which in turn links to the consent order. 

An SEC investigation revealed that Illinois failed to inform investors about the impact of problems with its pension funding schedule as the state offered and sold more than $2.2 billion worth of municipal bonds from 2005 to early 2009. Illinois failed to disclose that its statutory plan significantly underfunded the state’s pension obligations and increased the risk to its overall financial condition. The state also misled investors about the effect of changes to its statutory plan.

Good thing that the people who missed Madoff are starting to catch up to the Manhattan Contrarian in noticing the huge problems in pension disclosures in at least one state.  Perhaps they might notice the problems of California, New York and many others some time soon?  Why not -- this is free grandstanding.  Bondholders who weren't already aware of Illinois's pension problems should probably be declared too dumb to be allowed to invest.  The SEC settlement contains no penalties, of course.  Also, no admission of wrongful conduct.  Just a list of so-called "remedial measures," including such powerful remedies as "provid[ing] a hyperlink to a February 2009 COGFA monthly briefing in which COGFA provided certain negative information regarding . . . the State's pension system assets," and "commission[ing] a Pension Modernization Task force to evaluate the benefit structure, costs, and funding of the State's pension systems."  Yup, that'll work.  Meanwhile, the state legislature has met repeatedly to address the funding shortfall issue, and has very pointedly done exactly nothing about it so far.  But, in the SEC's defense, that's not their issue.

Meanwhile, in the grand Keystone Kop tradition of missing Madoff, can the SEC please explain why they haven't noticed that the Federal government's disclosures of its own pension and retiree obligations, aka Social Security and Medicare, is misleading to the tune of multiple tens of trillions of dollars?  (By contrast, the Illinois Policy Institute puts the underfunding of Illinois pensions in the range of $85 billion -- around 0.1% of the size of the Federal problem.)  As a potential investor in Treasury securities, the amount of the unfunded liability for Social Security and Medicare is number one at the top of my list of what is absolutely essential to know.  Well, of course, there is the even bigger fraud in Federal accounting, namely counting all Federal expenditures on goods, services and salaries as a 100 cent on the dollar increase in GDP.  But I guess that one doesn't go to its own solvency. 

All Of The Government's Important Economic Data Are Fraudulent -- Part II (Poverty Rate)

Of the big three government economic statistics under discussion here (GDP, poverty rate, pension and health liabilities), one of them does not have even a hint of honesty about it: the poverty rate.  It is a scam from left to right and from top to bottom.  The basic idea is that the government publishes poverty statistics stating that millions of people are living in poverty as a device to sell the voters on spending more government money to fix the problem.  Massive amounts of government money are then voted and spent.  However, poverty is defined in such a way that little or none of the additional government spending is counted in determining who is living in poverty, and therefore billions and billions of additional spending do not decrease "poverty" in the slightest.  Next time around, despite billions of additional government spending, the "poverty" rate is the same or higher, and is used yet again to sell the voters on yet more spending to cure the poverty. 

Please take note that "poverty" as defined by the government has nothing whatsoever to do with what most people think of as real poverty, namely physical deprivation.  It has nothing to do with hunger, nothing to do with poor quality housing, nothing to do with inadequate clothing.  A family living in government-defined "poverty" may well have inadequate housing or poor clothing, or could also be receiving $100,000 or more in in kind government benefits, or could even be asset millionaires taking a year's sabbatical from lucrative jobs.  The government "poverty" rate statistic simply gives no meaningful information as to how many people are living in actual poverty as the term is generally understood.  Rather, the number is just a scam designed to play on the voters' emotions to sell more ineffectual government spending, none of which will or can reduce the measured rate.

Here is all you need to know about the "poverty" rate scam.  According to a compilation by Robert Rector of the Heritage Foundation, the total amount of means-tested government (Federal, state, local) anti-poverty spending as of the latest statistics (2011) is $927 billion per year.  According to the Census Bureau, the income thresholds for living in poverty, which vary by household size, were $11,170 for a single person and $23,050 for a family of four.  Also according to the Census Bureau, there were 48.5 million people in the United States in 2011 living in "poverty."

Do you sense that there is something wrong there?  Let's do a little very simple math:  $927 billion divided by 48.5 million people is $19,113 of government anti-poverty spending for each of them.  That is nearly double the "poverty" threshold even if the "poverty" population divides itself up entirely into one person households.  If we have four person households, the anti-poverty government spending is $76,452 per household, well more than triple the $23,050 threshold set by the government itself.

By its own definitions, the government could completely eliminate poverty, with plenty to spare, by simply passing out the $927 billion in cash pro rata to the 48.5 million people.  Instead, the government is spending more than triple the amount that it would take to completely eliminate poverty, and is not making a dent.  How could this be possible?

Very simple.  The government defines "poverty" totally in terms of "cash income."  And then it passes out the benefits not as cash, but rather in kind.  Think Medicaid, food stamps, public housing, school lunches, transportation vouchers, Obamaphones -- you name it.  None of it counts.  Any actual cash grant is carefully set to come out safely below the poverty line. 

What's incredible to me is that discussion of the poverty rate data in the media continues to treat the information as if it is something meaningful, even as if it represents some actual measure of material deprivation of the people.  But today, with an average of over $76,000 per year doled out for every family of four in "poverty," it is not possible for any intelligent person to take the data seriously.  The continued publication of this data is just a scam plain and simple, specifically designed to deceive the public into supporting more spending.

And if possible, the scam is getting even worse.   The existing "poverty" rate data has been under criticism for a long time for exactly the reasons stated above.  (Rector of Heritage has been one of the leading critics.)  This has caused a certain amount of concern in the poverty profiteer community.   After all, it would only take the public about ten minutes of focus to realize that just counting the in kind benefits at say one-half the amount the government spends would instantaneously eliminate almost all measured poverty.   How to ward that off? 

The Obama administration has come up with a solution.  In November 2012 they came out with a new "supplemental" measure of poverty.  The basic idea is to make "poverty" no longer an absolute measure of well-being, but rather a relative measure, defined with respect to 33% of the median level of income.  And beyond that, the new definition is completely incomprehensible.  The obvious idea here is again to maintain a measure that can't be reduced no matter how much spending on the poor there is, and no matter how much the well-being of the low income population improves in absolute terms.  Or to put it another way, the idea is to deceive the public into believing that poverty is not decreasing in order is to protect the poverty bureaucracy from any attempts to shrink its level of spending.

Here is an article from the Daily Caller on November 16, 2012 by Mickey Kaus, titled MSM falls for "New coke" poverty con.  At least Kaus realizes that it is a con.  Of the many who wrote about it, almost all the rest completely fell for the scam.  Pitiful.

All Of The Government's Important Economic Data Are Fraudulent -- Part I

Perhaps the most painful aspect about reading (or watching) debates about economic policy is that everyone cites government economic data that are completely unsuited and useless for the purpose cited.  I'm not talking here about obscure data; I'm talking about the main and most widely cited and used data, about which the ignorance of just about everyone is appalling.

In fact I assert that the principal government economic data are uniformly fraudulent.  And not in little ways; rather, in fundamental ways that go to the heart of how the data are designed to be used and how they are used.   Now, I am not accusing the United States government of systematically falsifying or putting out inaccurate data, the way, for example, Argentina puts out inflation data that everyone knows are completely made up.  But what our government does is just as bad or worse.  Our government issues data in categories that are defined in ways to that are designed to and do deceive the people.  And the deception is always of the same sort, namely, making bigger government appear more desirable in order to achieve the support of the people for that end.

This proposition is decidedly true with respect to the three categories of economic data that are the most important in terms of their use in the argument over economic policy.  Those categories are:  (1) GDP, (2) the rate of poverty, and (3) the cost of obligations to retirees for pensions and health care.

Today I will start with GDP, the principal measure of the overall size of the economy, and of whether the economy is growing or shrinking and by how much.  There is a fundamental problem with the compilation of GDP data, which is that government spending on goods, services and salaries is added into GDP dollar for dollar.  This fact makes the GDP data completely useless in a debate over whether government spending should be increased or cut.  Of course, that is the principal use to which GDP data are generally put.

The portion of the GDP that comes from the private economy is based on the assumption that voluntariness and markets mean that transactions of equal dollar value should be given equal weight.  That assumption does not apply to government spending.  How should the value of government spending be measured?   The assumption used is that a dollar of government spending gets added to GDP as if it were completely equal to a dollar of private spending.  When the government was a small percentage of the economy, and the government thought that thrift was a virtue, this assumption may have been as good as any other. 

But as soon as you count every dollar of government spending at full value, you can immediately see that pure wasted spending counts to "increase" GDP just as much as the very most necessary expenditure.  Suppose you pay someone to dig holes and fill them in (an example actually extensively discussed in Keynes' General Theory).  At the end of a year he has produced exactly nothing -- but the GDP numbers add in an amount equal to whatever the government paid him.  If the government pays every one of 300 million Americans $50,000 each to dig holes and fill them in all year, they have produced absolutely nothing by the end of the year, and the government records a GDP of $15 trillion.  If the government doubles everyone's salary to $100,000, then it just doubled the GDP to $30 trillion, even though they are all starving (because they were too busy digging holes to produce any food).

These are extreme examples, but we live in a time when the acceptance of the GDP numbers as measuring real changes in the economy is so great that the government can completely just pass out hundreds of billions of dollars of totally wasted spending to its friends, cronies and supporters, and count that as a dollar for dollar increase in GDP.   Yes, I am talking about the so-called "stimulus."  And they get virtually no push-back from the media, including most of the conservative media.  And the "stimulus" is just a small part of it.  How about "green" energy spending, specifically designed and intended to impoverish the people by preventing them from using cheaper energy and driving up the cost of electricity and driving.  Yes, that kind of destructive spending also is measured as increasing GDP dollar for dollar.

And of course, it works the same way when there is any proposal to cut spending.  Under GDP accounting, cuts in government spending, no matter how wasteful that spending, are recorded as reducing GDP dollar for dollar.  Thus here we have President Obama a few days ago opposing the upcoming spending cuts:

"Our top priority must be to do everything we can to grow the economy and create good, middle-class jobs," Obama said during remarks at the White House, standing alongside a group of emergency responders. "That's why it's so troubling that just 10 days from now, Congress might allow a series of automatic, severe budget cuts to take place that will do the exact opposite."

Thus, you can't ever cut any government spending, because that will shrink the economy.  Under this logic, we just head inexorably for a world where the economy is 100% government.  North Korea!

Over the next couple of days I'll consider poverty and pension accounting.

Totally, Completely, Utterly Incompetent

At this late hour on New Year's night, the word is that the House is likely to pass without change the Senate bill to, as they say, "avert the fiscal cliff."  There are two pieces to the "fiscal cliff" -- tax increases and spending cuts.  One is significant; the other is not.  It appears that the bill that will be passed addresses only the part that is not significant, and totally fails to address the part that is significant.

The part that is not significant is tax increases.  Tax increases are not significant because the cost of government spending will come out of the rest of the economy no matter what.  Today's spending can be paid for in only three ways:  today's taxes, tomorrow's taxes (i.e., the children will pay it), or inflating the currency.  Nobody's ever thought up a fourth option.  If you have one, write your congressman.   I'm 62, so whatever they don't get out of me in the next couple of years is going to the children.  Should I feel good that the tax increases on me for a couple of years aren't quite as bad as they might have been?   Without spending cuts, it only means that my kids are going to get the bill, or the even worse alternative, that a massive inflation will destroy both my retirement and their ability to make their way in life for decades.  My older daughter asks, given that they think they can spend without regard to the level of revenue, why do they bother to tax at all?  It's a very good question.

So the only important part of the deal is the spending cuts.  Well, it seems that they have skipped that part.  CBO appears to be touting numbers of $10 billion or so (over 10 years!) of spending cuts, but no amount of searching by me seems to be able to turn up any actual example of what's getting cut.  Well, assume that there actually will be $1 billion or so per year of cuts on $3.7 trillion of spending, or maybe .03%.  Is this a joke?

The CBO's numbers project $600 billion or so of revenue (over ten years) from the tax increases, or $60 billion +/- per year.  I don't believe these numbers, since the revenue supposedly comes from a handful of people from whom evasive action can be expected.  But assume that the figure is right.  Then it is about 6% of the projected cash-basis deficits.  Starting, say, tomorrow, January 2, it is going to be immediately obvious that they have not even started to address the bulk of the problem.  Are we going to do anything about the other 94%, or just ignore it?

A president who had even the tiniest element of competence would see it as the core of his job to put forth specific proposals to get the spending under control.  I do not believe that Obama is going to do it. I think that he is fully in the thrall of Fake Keynesianism, that he believes firmly that all government spending is good, no matter how wasteful, that more is better, and that the government creates the wealth by printing and passing out the fiat currency.   In other words, he is totally, completely, utterly incompetent.  I want to be proven wrong, but I don't think I will be.   

Finally, just a small word on the so-called projected revenue from the deal.  Taxes on capital gains are going up to the extent that income including the gains exceeds $450,000 for a couple.  Do they understand that the realization of capital gains is hugely discretionary, and you can manage them to take them when it is most advantageous?  If your income is going to be above $450,000 this year, then borrow against the asset this year (not taxable) and sell it next year or the year after when your other income is lower.  A few people (e.g., divorces) will not be able to manage things perfectly, but almost every dollar of so-called projected revenue from this capital gains tax increase is illusory.  Sorry.  And that's just one example.