Paul Krugman - from Noble Prize Winning Economist to Political Hack in many easy steps

This post by Benjamin Zycher at the Economic Policy Journal 0 -  EconomicPolicyJournal.com: Paul Krugman: A Broken Window Equals Economic Stre...:  - illustrates how Paul Krugman is utilizing his stature as a Nobel Prize winning economist to advance some of the luniest economic arguments imaginable to support a "Green" political position. Anyone that has taken economics knows that a fundamemtal characteristic of economic analysis is to not only look at the "visible" consequences of an event or policy but to also look into the "invisible" consequences.

In the story of the broken window, the first order analysis is to see an increase in spending by the owner of the broken window to the glass company for a new window. The window company then has extra revenue that it uses to but supplies for the repair or pay for the installer's wages, who then uses the wage to buy food or clothing, etc and on and on. The first order conclusion is that the broken window has increased spending and investment which then ripples through the economy.

However, this neglects the "invisible" consequences of the broken window. The shop owner now spends money on a new window that he would have spent perhaps on a new suit or a vacation or a downpayment on a new car or dozens of other things which then would have rippled through the economy in a manner similar to the expenditure on the new window. The broken window didn't create new spending or investment but merely reallocated that spending from one area to another.

That someone of the stature of Paul Krugman can make such a ridiculous argument is sad.

That liberal lemmings looking for reasons to support their green agenda believe it is even sadder.

Obama: The Painless Deficit Cutter?

In the wake of the mandated Sequester cuts, the Obama administration has worked overtime to paint a dismal picture of pain and life with Government "cuts" amounting to $1 trillion over 10 years. Putting aside the fact that the Sequester does not actually reduce Government spending but merely reduces the amount that it will increase over the next ten years, it has still met ferocious resistance. The Obama administration has unleashed a tidal wave of PR meant to paint a picture of armageddon if the Sequester "cuts" are enacted. Among the dire consequences outlined by the administration are:

- Longer security lines at airports
- Air travel disruption
- Greater risk of wildfires
- Pest infested crops
- National meat and poultry shortages
- Prison lockdowns
- Fewer FBI agents
- Neglect for mentally ill, homeless and substance addicted
- 125,000 would be at risk of homelessness
- 600,000 women  and children thrown off WIC
- 424,000 fewer aids tests, 7400 fewer patients could get HIV medications
- 807,000 Fewer Hospital Visits for Native Americans, Hospital Closures
 And at least 45 more "dire" consequences claimed by the administration as compiled by ABC News.

All this pain because of a small reduction in (the increase in) spending of $1 Trillion over the next 10 years. 

However, on February 19th, 2013 Obama said "Over the last few years both parties have worked together to reduce our deficits by more than $2.5 trillion. More than two thirds of that was through some pretty tough spending cuts,” 

Really?

Two thirds of $2.5 trillion is $1.67 Trillion or 67% more than the Sequester amount of $1 Trillion. 

One would think that should have translated into 67% more pain and misery for the country yet I can't seem to remember the administration communicating this to the public. Nor do I remember seeing the painful consequences of these Government "cuts" reflected in the same 57 Plagues of America that are being touted for the Sequester. 

Either Obama is the modern day equivalent of the "Painless Dentist" and he can "cut" Government spending without incurring any painful consequences or his administration is manufacturing public pain related to the Sequester for political gain. 

I still dislike going to the dentist so I tend to think it is the latter. 

Obama Spokespeople Describe Effects of Sequester

Would Obama's Minimum Wage Hike Proposal Have Any Different Result Than His Increasing Import Tariffs?

In his recent State of the Union Address, President Obama put forward the proposal to increase the minimum wage from the current $7.25 per hour to $9.00 per hour. A 24+% increase.

He reason for proposing this change was that working people deserve a higher wage - in fact a living wage - and that it was time to raise the minimum wage. Implicit in this proposal was the assumption that raising the minimum wage would only produce a "good" both for current people working for minimum wage and those future employees to be hired at the minimum wage. However, why does he think this increase will not both decrease the demand for additional labor (currently getting $7.25/hour) and either result in layoffs of current minimum wage employees or a change in work requirements to ensure employers get $9.00 per hour of value vs $7.25? Or stated more directly, why won't this increase in the minimum wage increase the unemployment rate for low skilled workers or require a higher rate of productivity for current workers?

Economists have varying opinions about the effect of raising the minimum wage and studies can be pointed to that will show a positive, negative or no effect from raising the minimum wage. However, what makes the question of the effect of minimum wage increases particularly interesting in this case is the fact that the Obama administration has made policy decisions that seem to reflect their belief that raising the price of an item or service will lead to a reduced demand for that item or service. In 2009 the administration imposed a tariff increase on Chinese tires of 35 percent in the first year, 30 percent in the second, and 25 percent in the third year. The stated purpose of these increases was to reduce the demand for Chinese tires by making them more expensive and thereby increase demand for (then cheaper) domestic tires. I don't remember any statements from the administration about consumers or businesses being able to easily absorb the added costs and/or reduce their incomes or consumers accepting a lower disposable income by paying the higher prices for Chinese tires. No, in fact the implicit purpose was to increase the cost of Chinese tires and thereby reduce demand for them. It seems they believed higher prices for tires would result in decreased demand. 

So why does the same administration not think this will happen with an increase in the minimum wage? The price of the good (wages of low skilled workers) would go up with an increase in the minimum wage and the same economics says that just as in the case of increased tariffs on Chinese tires, less minimum wage labor should be demanded or used.

Of course the result is the same. Businesses will either hire fewer low-skilled workers thereby increasing the unemployment rate among this group or they will extract more work/value per person in order to justify the increased cost.  

Since some amount of minimum wage labor will still be needed - albeit at a higher level of productivity to justify the higher wage cost - those workers kept employed can be considered to be better off if they don't view a need for increased productivity a negative. However, this is little consolation for those employees that will be laid off or never hired because they can no longer be justified at a higher minimum wage.