When John Maynard Keynes decided that Say’s Law was pesky and got in the way of his master General Theory, he simply created a straw man, demolished it, and — Voila! — academic economists celebrated its demise. Paul Krugman, however, does Keynes one better and allows us to get rid of that oppressive and evil Law of Opportunity Cost.

Krugman continues to insist that if the economy is in a “liquidity trap,” the “old rules” no longer apply, and that means the Law of Comparative Advantage. Since comparative advantage is nothing more than an application of the Law of Opportunity Cost, Krugman is claiming that when there are “special circumstances,” the Law of Opportunity Cost does not apply. And without that lousy law, governments can perform magic with the printing press! I deal with this in my latest post on Krugman-in-Wonderland.

With the latest employment numbers looking bleak, the Usual Suspects are out in droves explaining why after spending trillions of dollars, the economy continues to sink. Leading the way is Paul Krugman, who insists that this continuing downturn exists because the government has been “concentrating” on the wrong thing: budget deficits.

Krugman writes:

I don’t mean to dismiss concerns about the long-run U.S. budget picture. If you look at fiscal prospects over, say, the next 20 years, they are indeed deeply worrying, largely because of rising health-care costs. But the experience of the past two years has overwhelmingly confirmed what some of us tried to argue from the beginning: The deficits we’re running right now — deficits we should be running, because deficit spending helps support a depressed economy — are no threat at all.

And by obsessing over a nonexistent threat, Washington has been making the real problem — mass unemployment, which is eating away at the foundations of our nation — much worse.

The Keynesian explanation of what is happening is pretty straightforward, and Krugman does it on a regular basis (along with Brad DeLong and, to a lesser extent, Robert Reich). Details include:

• The economy operates in a circular motion, with consumer spending propping up business activity, which in turn provides jobs for consumers so that they can continue to spend and give themselves jobs (so that they can continue to spend);
• If marginal taxes on the wealthiest people are not high enough to confiscate much, if not most, of their income, then the rich will “hoard” the money and not spend enough, which slows and ultimately breaks what Reich calls the “virtuous circle” of spending;
• When that happens, government must raise tax rates on the “rich” (Reich calls for a return of the 70 percent marginal rates that existed in 1981) in order to get money into the hands of the “middle class” (which apparently is a creation of the State) so that the spending circle can be revived;
• At the present time, interest rates are very low, which means that the economy is in a “liquidity trap” in which the only way that the spending circle can move is via more government spending, which should be financed by borrowing, and since interest rates are low, the borrowed money essentially is “free;”
• If a person makes a point of discussion that deviates from what has been presented, that person is motivated by hatred of the unemployed and wants people to lose their jobs and wants the economy to tank;
• Thus, in the end, the debate on Keynesian “solutions” ultimately is a debate on good and evil. Those who support Keynesianism are “good” and those who disagree are evil.

In the numerous columns and blog posts Krugman has written in the past few months, the theme is consistent: there can be no intellectual disagreement with Keynesian analysis because the truth of the Keynesian position is self-evident. Anything else is evil and delusional. For example, the “Regime Uncertainty” position that Robert Higgs and others have taken is nothing more than a figment of one’s imagination:

O.K., I know what the usual suspects will say — namely, that fears of regulation and higher taxes are holding businesses back. But this is just a right-wing fantasy. (Emphasis mine) Multiple surveys have shown that lack of demand — a lack that is being exacerbated by government cutbacks — is the overwhelming problem businesses face, with regulation and taxes barely even in the picture.

For example, when McClatchy Newspapers recently canvassed a random selection of small-business owners to find out what was hurting them, not a single one complained about regulation of his or her industry, and few complained much about taxes. And did I mention that profits after taxes, as a share of national income, are at record levels?

So short-run deficits aren’t a problem; lack of demand is, and spending cuts are making things much worse. Maybe it’s time to change course?

While all of this seems to be self-evident to Krugman, there are some important things that are left out. The first is the role of the economist, who is supposed to be able to look beyond the rhetoric and the “man on the street” view that ultimately leads to the “Broken Window Fallacy.” For example, the marginalist position on value is one that is not easily seen or understood by the typical layperson, who is more likely to believe that the value of a final product is determined by its cost of production.

The second is that the typical small business owner is not going to be able to relate how government “job-saving” programs like the subsidizing of corn-based ethanol or the bailout of General Motors has diverted resources from productive to unproductive uses. Instead, the business owner is going to see how people directly are purchasing products and what it costs to make them, and then make decisions from that vantage point.

As I said before, economists are supposed to be able to take in the whole picture, or to contemplate not only what is “seen,” but also what is “unseen,” to quote Frederic Bastiat. In other words, one should expect a journalist to concentrate on what is “seen,” and to miss the aspects of the larger picture. That is excusable, even if it is irritating.

However, it is unexcusable for an economist, and especially one who has the stature of a winner of the Nobel Prize, to concentrate only on what is seen and not only to ignore those important things not seen, but then to personally attack other economists who do their real duties to examine the entire picture and declare that their motivation for doing so is that they are evil and want Americans to lose their jobs.

The truth is that Krugman’s argument is a red herring; had the Obama administration and Congress done nothing but talk about jobs and launch one employment program after another, the rate of joblessness still would be high, and the fiscal picture of this government and this country would be as bad as it is now. The U.S. economy is not doing poorly because of lack of “concentration” by government officials, but because the government stands in the way of an economic recovery.

By bailing out the banks, by bailing out companies, by spending at record levels, and by holding down interest rates, the U.S. Government is preventing resources from moving from lower-valued to higher-valued uses. Furthermore, the government through political intimidation (see the recent raid on Gibson Guitars) and hostile rhetoric against firms that are legitimately profitable is sending the message that private enterprise is the enemy that ultimately must be replaced by state-sponsored enterprise.

There is another problem to this “oversight” issue, and that is the promotion of the wrong view of a “job” itself. As I read the Progressives on jobs, I have come to realize that they (and that includes “economists” such as Krugman) see the “job” solely as a transmission mechanism for income and, therefore, spending.

In other words, the actual services that one provides are irrelevant in and of themselves, or at best are secondary to the income that those providing them receive for their work. In that view, an economy is just one big circle of spending, with “spending” itself taking on a meaning that is quite removed from the actions and desires of consumers.

Spending, according to the Keynesians, is rather impersonal, and it cannot be tied to purposeful behavior by individuals. The value of “spending” is not that individuals are able to purchase goods and services in order to meet their needs, but instead is a mechanism that keeps that “virtuous circle” known as an “economy” moving in the “right” direction.

This is not economics; it is a mechanistic view of the world that ignores individual preferences and the actual movement of resources and factors of production. Unfortunately, people like Krugman add to the tragedy by claiming that those who look to actual economic explanations of this continuing saga by employing the tools of economic analysis do so because they are both stupid and evil. When the “leading lights” of modern academic economics claim that the employment of historically-accepted intellectual instruments is in itself “evil,” then one must wonder about the very future of this discipline.

Delusion has been a way of life at the New York Times for years, so we hardly should be surprised when the editors insist that the way out of this debt crisis is for central banks and governments to throw out more debt. In my Krugman-in-Wonderland post today, I deal with the latest madness from the editorial offices of the “Newspaper of Record.”

Well, at least Paul Krugman understands that Ron Paul is using his subcommittee chairmanship as a bully pulpit, but Krugman is claiming that it is Ron Paul who will bear responsibility for mass unemployment. In his Friday column, Krugman says that Paul is “intimidating” the Fed, which means that all of this worry about “nonexistent” inflation is going to result in higher rates of unemployment.

I cover Krugman’s latest rant in my Krugman-in-Wonderland blog post today. To be honest, I think this is only the beginning. Krugman is going to start blaming the Austrians for everything, and he is going to be claiming that we are motivated by racial hatred. Yep, pointing out inflation is racist. Only in the “elite” world of the NY Times and academe.

I guess it had to happen sooner or later. Gasoline and oil prices are rising, so someone must be to blame. It must be a plot; those dirty capitalists and speculators are at it again, trading oil back and forth and artificially driving up prices.

How do I know? Chris Cuomo on ABC News tells me. Yeah, Chris, who grew up in a New York political family, which must mean that he knows everything about economics. No one knows economic truths like the political classes. These are people who claim that government can subsidize an economy into prosperity, and tax and regulate goods and services, which in turn will result in more goods and services produced. Everyone knows that.

This is an interview that must be heard to be believed. Beside Cuomo’s “expert,” who claims that oil is not subject to regular laws of supply and demand (which she explains in her, like, whiny, like Valley Girl voice), we hear that oil was not traded on markets before 1983. Right. There was no spot market, no nothing. Instead, we are told that it was government regulation that created prices, and free markets destroy “price discovery.”

One thing that we don’t hear in this whole thing is that oil prices also can fall. Three years ago, we were told that speculators were responsible for driving gasoline prices to $4. However, the same people could not explain why it was that those same dastardly speculators could not keep the price from plummeting to $1.50 a gallon in three months.

We also don’t hear anything about the fact that the Federal Reserve System has been showering the world with dollars, and the U.S. Dollar is the currency in which all oil is traded. No, that would mean that Cuomo would have to blame the political classes, and that is not acceptable, not to him, or to his employer, ABC News.

Paul Krugman has this habit of rewriting history, and I deal with his latest salvo regarding what Herbert Hoover’s Secretary of the Treasury Andrew Mellon was supposed to have said. Here is my KIW post.

In today’s column, Paul Krugman claims that the Republicans are conducting a “war on logic” because they want to repeal (or SAY they want to repeal) ObamaCare. Now, I believe that Republicans HAVE been at war with economic logic for a long time, but what is ironic about Krugman’s latest missive is that he attacks what he calls attacks on logic by…attacking logic.

I cover it in my latest Krugman-in-Wonderland post.

I guess that we are going to see a lot of invective against Ron Paul from Paul Krugman and the NY Times, given Rep. Paul’s coming oversight position over the Federal Reserve. In a blog post today, Krugman deliberately misrepresents Rep. Paul’s views on money, and I jump on it. (I also quote liberally from Robert Wenzel’s excellent post on the same subject.)

Macroeconomists have a strange view of Opportunity Cost, and Paul Krugman gives it in his column today. I have a rejoinder in my Krugman-in-Wonderland post. Not only does Krugman claim that raising taxes would have only a small effect on the rate of unemployment and economic activity, but he also employs an argument that is based upon the belief that when government is better off, so are we.

Irwin Schiff once wrote that inflation is the only “arrow” in the Keynesian policy “quiver.” Paul Krugman seems to be proving that, and in my recent post on Krugman-in-Wonderland, I note that he always endorses inflation in the end. (Krugman fails to explain why the U.S. devaluation of the dollar in the early 1970s didn’t work an economic miracle.)

According to Paul Krugman today, the Really Bad People are keeping government from filling the “hole” left by the reluctance of businesses (also led by the Forces of Evil) to spend. Moreover, since all of an economy is nothing more than a set of zero-sum transfers, then it is up to government to set everything in motion.

Unfortunately, the Bad People are keeping government from doing its economic duty. I deal with those comments and more in my KIW post today.

While I know Bob Murphy is ready to debate Paul Krugman, nonetheless it seems that the Great One is enraged that the Holy One of Chicago has not performed the miracle of turning stones into bread, so he might not be in the mood to debate a real economist. Today, I examine Krugman’s latest missive that Obama simply has not spent enough.

Like his idol, J.M. Keynes, Krugman believes that Say’s Law is evil and just plain wrong. I deal with Krugman and Say’s Law in this KIW post today.

The New York Times has been the center of what Robert Higgs calls “Vulgar Keynesianism,” and today Daniel Gross, the economics editor at Yahoo continues the parade of nonsense. Gross claims that the way to economic recovery is for Americans to once again max out on consumer debt and spend, spend, spend.

I have my reply to this advice from yet another NYT “elite” in my Krugman-in-Wonderland post, “Daniel Gross: Channeling His Inner Krugman.”

Keynesians like Paul Krugman claim that Laws of Economics hold only under certain conditions, and then it is time for people to reject them and turn to the equivalent of Economic Voodoo. In my Krugman-in-Wonderland post today, I take on his latest praise of Congress trying to channel its inner Smoot-Hawley.

I also feature Prof. Murray Sabrin’s excellent piece that appeared today on Lew Rockwell’s page in which he takes on Krugman’s economic logic.

There is no more statist rag in the world than the New York Times, and the entire worship of the government and its regulatory apparatus was on display in an op-ed on transportation written by two college professors. Now, the op-ed must be read to fully comprehend the utter economic ignorance, the uncluttered belief in untrammeled state power, and just the snobbery and arrogance that seems to define the worst of New York City’s Official Religion: Worship of the State.

First, they write that the city is in danger of becoming like a “Third-World” city because there are “poorly-regulated” private transportation. They write:

If you’ve ever spent time in a city in the developing world, chances are you’ve experienced a transit system that relies almost entirely on private commuter services. Thanks to low barriers to market entry — often anyone with a working van or bus can pick up passengers — the streets are clogged with a motley assortment of vans and buses, few of them in optimal working condition. The results are, not surprisingly, higher levels of pollution and more accidents and traffic fatalities than in cities with strictly regulated public services.

Mr. Bloomberg and the Taxi and Limousine Commission have offered assurances that better regulations will keep the city from becoming an American Calcutta or Rio de Janeiro. But that’s an easy promise to make, and probably an empty one: New York’s experiences with crane and building-code regulations demonstrates that enforcement usually costs more than policymakers are willing to spend, especially in lean fiscal times.

Oh, but it gets much, much better. The solution, of course, is to make sure that government limit transportation alternatives for consumers, including the government-sponsored cartel:

Private transit service will also incur social costs. For starters, because the new vans don’t accept MetroCards, passengers who want to transfer from them to a public bus or train have to pay twice — a significant burden for residents with modest incomes who live along the affected routes.

Second, relying on private service means replacing well-paying transit employees with a lower-paid and typically untaxed labor force. Private van operators have reported working 14-hour days, seven days a week, for about $200 in daily pay — before maintenance expenses. These drivers have no health insurance, retirement or disability benefits. Adding more informal workers to the New York work force, even as the number of public employees is decreased, is no way to build a robust local economy.

Translated into English, this passage is saying that unless people receive government salaries and benefits, then they certainly should not be permitted to impede upon a government monopoly. Yes, the way to build a “robust” economy is to deny employment opportunities and force up the real price of public transportation.

They end with this missive:

Finally, increased dependence on fragmented transit service could be an obstacle to Mayor Bloomberg’s environmental agenda, PlaNYC 2030, a vision for the next 20 years that relies heavily on an expanded and well-integrated public transit system to all parts of the city. Lobbying by newly entrenched private operators would likely pressure the city to retain inefficient parts of the status quo — to their benefit and at the public’s expense.

True, the Bloomberg administration considers private transit services a temporary solution, to end as soon as the money to restart the affected routes is found. But City Hall needs to adopt a clear end date and make a meaningful investment in rigorous public regulation, including oversight and inspection, to ensure high-quality labor and vehicle standards.

On the other hand, if the operations are to continue indefinitely, then they need to be quickly integrated into the Metropolitan Transit Authority system, with MetroCard connectivity.

Above all, City Hall needs to recognize that when it comes to public programs, seemingly convenient stopgap measures can easily take on a pernicious life of their own. If it doesn’t, one of the nation’s most forward-thinking mayors will be responsible for taking his city’s transit system back into the past.

This is exactly the kind of elitist thinking that claims to be supporting “the poor” when, in fact, they see “the poor” as nothing but wogs who get in the way of the bureaucrats’ own grandiose plans for them.

In my Krugman-in-Wonderland post today, I briefly contrast the views pushed by Paul Krugman and Robert Higgs.

According to Krugman, businesses are not spending because…they are not spending. If they will start spending, then they will be able to spend more. Prof. Higgs, on the other hand, notes the issue of “regime uncertainty.” My money is on Robert Higgs.

I guess Paul Krugman is tired of screaming at evil Republicans, for today, he goes back to another theme: the Chinese are causing our problems by “manipulating” their currency. In today’s Krugman-in-Wonderland post, I take a look at his latest claims. Be afraid; be very afraid.

According to Paul Krugman, it seems that World War II created a foundation for long-run prosperity. Yes, what we really need is to add to our deficit and debt in ways unimaginable. (Thank goodness, Krugman does not recommend that our armed forces invade yet another hapless Third World country.)

I answer Krugman here and here.

Once again, Paul Krugman deliberately distorts the Austrian Theory of the Business Cycle, this time in a recent blog post. I have answered his latest missive, quoting Murray Rothbard, and linking to articles on the subject from Robert Murphy and David Gordon.

Even when Austrians clearly point out Krugman’s errors in describing the ATBC, he continues to make them. I doubt it is because he has not read the alternative explanations or even because they just are not strong enough to deal with his attacks. No, these are well-detailed and accurate, but as long as Krugman can continue to dismiss the ATBC “straw man” caricature he has created, he does not have to deal with the real arguments or the real implications of Keynesian policies.