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Time to examine some stuff written by a guy whom some people apparently call an economist:

I hear through the grapevine that the usual suspects at the WSJ have put out something along the lines of “Krugman says that unemployment benefits won’t raise unemployment, but in his textbook he says they will, neener neener.” Are they really that stupid? Probably not — but they you think that you, the reader, are that stupid.

My comment:
I think last part was supposed to be a sentence. I must assume that the guy who wrote this was in quite a rage over some unspeakably mean and cunning accusations pointing out inconsistencies in his “philosophy”. Thus he should be exculpated for such minor typos. This, however, does not in the slightest exculpate him for the actual crapload of “content” he fired off thereafter. I will for the most part not attempt to refute any statements made. For this would necessitate the existence of statements. The author obviously tries to avoid making any. For the most part he neither utters truths, nor falsehoods, but instead indulges is “un-truths”. (An un-truth is a claim that in itself defies the existence of truth. One can accomplish making such statements by using undefined terms. Example. If I say dooory and glooory makes fooory, then I have uttered an un-truth. I was asked by a reader to clarify which terms I consider undefined in this piece.)

But anyway, maybe this is a good time to explain the difference between determinants of the NAIRU — the minimum rate of unemployment consistent with a stable inflation rate — and the determinants of the unemployment rate at a point in time.

MY comment:
OK, since the author uses the term inflation without any further elaboration, I must assume that he has dealt quite a big deal with the phenomenon of inflation and is well aware of the only useful definition of inflation, meaning an increase in the supply of money and credit. I must thus assume that he does not fall prey to the completely arbitrary definition of inflation, namely the average price increase composition of some goods that some bureaucrat decided to consider.

That being said I am not sure what he means by “the minimum rate of unemployment consistent with a stable inflation rate”. He seems to be asserting there is some logical inverse linkage between inflation and unemployment, at least that’s my guess. I hope he doesn’t consider such constructs as the Philips curve in any way supportive of this claim, given that its validity has been long refuted. However, he doesn’t elaborate on it further so this statement of his remains, for now, unexplained and arbitrary.

So: there are limits to how hot you can run the economy without inflationary problems. This is usually expressed in terms of a non-accelerating-inflation unemployment rate; yes, there are some questions about whether the concept is quite right, especially at very low inflation, but that’s another issue.

My comment:
What is he taking about here? Again, I have to resort to guesswork.
What does he mean by “there are limits to how hot you can run the economy without inflationary problems” ?
What are those limits? What, in fact, is the unit in which I measure those limits?
What is “hot”?
Who is “you”?
What does “to run” the economy mean? In fact, what is the economy? Is it the market? But then who is that “you” who “runs” the market? The market is, by definition, not run by anybody, but is a system of multiple elements interacting as an organism, not an organization! So it is not “run” by anybody.
And then he says “there are some questions whether the concept is quite right”. If that is so, wouldn’t it make sense to resolve those questions first and establish the truth of a hypothesis you are applying to fundamentally support your reasoning?
And still I see him use the term inflation quite a lot without ever having told me what precisely it is, what it’s caused by, and what its valid relevance is when talking about unemployment.

Everyone agrees that really generous unemployment benefits, by reducing the incentive to seek jobs, can raise the NAIRU; that is, set limits to how far down you can push unemployment without running into inflation problems.

My comment:
What? Again, who is “you”? Is it the President? The central bank chairman? God? Who “pushes” unemployment. In fact, what does it mean in the first place?

But in case you haven’t noticed, that’s not the problem constraining job growth in America right now. Wage growth is declining, not rising, and so is overall inflation. A wage-price spiral looks like a distant dream.

My comment:
The author is right on one thing: Inflation is declining and has been for a while. In fact there is no inflation, there is deflation. And it is the only thing that can bring about a true and sustainable recovery. The only problem is, those who produce money and to some extent credit are trying to slow down or even stop deflation.
Now, I am unsure as to what this has to do in any way with his assertion that unemployment benefits reduce unemployment.

What’s limiting employment now is lack of demand for the things workers produce.

My comment: This is quite a strong statement to make. I wish this ivy league professor could deign to explain to us what he means by “lack of demand for the things workers produce”. Could he give me some real life examples? Does he actually understand what the purpose of prices is?

If a “lack of demand”, meaning the deliberate desire of some individuals to consume less and thus a perfectly valid choice, were the cause of unemployment, then the solution to this problem would be for those who produce those “things” to drop the prices of the goods offered so as to entice marginal consumers to purchase the goods in question.

If the author refers to the lack of profitability of such measures then it would indeed be better for those workers to stop what they are doing and find occupations that are more useful from the consumers’ points of view. This is the whole purpose of the mechanism of entrepreneurial profit and loss. Unfortunately the author nowhere delves into such annoying questions and thus leaves us nothing but a giant hole of nothingness.

Their incentives to seek work are, for now, irrelevant. That’s why comments by the likes of Sen. Kyl are so boneheaded — anyone who thinks that high unemployment in the first quarter of 2010 has anything to do with workers getting excessively generous benefits must not get out much.

My comment:
And so as a conclusion the author declares that the whole disincentive rooted in the provision of money taken from one person at gunpoint and supplied to another person for not working is simply irrelevant. I’m sorry, but this does not convince me in any way. Are you convinced??

And the truth is that unemployment benefits are a good, quick, administratively easy way to increase demand, which is what we really need. So right now they have the effect of reducing unemployment.

My comment:
How exactly do unemployment benefits “increase demand”. Wouldn’t it be helpful to try and explain the supposed mechanism at work when trying to advance such an argument? How precisely does it increase demand if I tell someone to give me $50 or else I will shoot him and then I hand it over to someone else who needs to prove to me that he is not working? And please don’t you tell me you think that the unemployed person spending the money will increase demand. That money has been taken from another person whose demands will be reduced by just that same amount! What it does indeed do is reduce the output of goods, which is the worst thing you can do for the well being of the people!!

I’m sorry to appear so nitpicky. I was asked to comment on this piece of crap and point out what I consider undefined terms so that’s what I did.

If we want to debate concepts clearly, I could simply sum up Krugman’s main point in one or two sentences and refute it with ease. But that is not how he rolls. He tries to obfuscate his concepts and claims with as many scary and unclear terms as possible and sometimes even just resorts to references to entire papers written by others, so as to make a reasonable debate over real issues virtually impossible.

That’s why I would, in my humble opinion, ask anybody who is genuinely interested in economics and human action to not take his stuff serious. Again, just tune out. There are so many more useful things you can do in your life than wasting your time with articles written by Paul Krugman.

Talk to a friend about truth and epistemology, talk to your mom and dad about your childhood, question people in your life about ethics, concepts, the state, and God, heck … sit in a room and stare at a wall. All these things would be a thousand times more useful than reading one paragraph from this deranged crackpot.

… thanks for that one Nancy. It really makes a great case for this pile of crap soon to be shoved down our throats!

Please consider this clip of Riots erupting in Berkeley over tuition increases.

Why is education becoming more and more expensive every year?

Tuition costs have been rising constantly over the past decades. Any comparison of today’s numbers with past numbers usually baffles people.

But why is education cost so expensive? You guessed it. As always it’s government involvement. Every field that the state gets its sleazy fingers around will always and everywhere suffer from this simple, repeatable and predicable phenomenon.

If you use money stolen from people at gunpoint, and use it to subsidize cheap student loans, you are not doing anything to increase the supply, you are merely increasing the demand. You will have more people purchasing higher education than would have under voluntary circumstances.

If on top of that you inflate the money supply over decades and use that same money for the same purposes, that only aggravates the price effects on the market, and a business cycle ensues. Just as I explained the business cycle in consumer goods versus a business cycle in capital goods, you can have the exact same business cycle in the production of education, arguably a capital good.

You can complain and riot all you want, you can act surprised about the inevitable results of completely misguided policies, you can ask for yet more state involvement if you like, but please don’t expect different outcomes then … because it’ll make you look kind of silly.

This is not brain surgery or rocket science. This is all pretty basic and simple stuff. All we can do as long as people don’t understand it is to point out again and again what is at the root of our problems.

Other than that, sit back, relax, and watch this gigantic and predictable crap pile of madness erupt from a safe distance …

On Mish’s blog I cam across the latest Realpoint Delinquency Report:

In January 2010, the delinquent unpaid balance for CMBS increased by another $4.3 billion, up to $45.94 billion from $41.64 billion a month prior. The overall delinquent unpaid balance is up 326% from one-year ago (when only $10.79 billion of delinquent unpaid balance was reported for January 2009), and is now over 20 times the low point of $2.21 billion in March 2007. The distressed 90+-day, Foreclosure and REO categories grew in aggregate for the 25th straight month – up by $7.42 billion (28%) from the previous month and over $27.95 billion (508%) in the past year (up from only $5.51 billion in January 2009). This included a substantial jump in 90+-day delinquency in January 2010.

Other concerns / dynamics within the CMBS deals we are monitoring which may affect the overall
delinquency rate due to current credit market conditions in 2010 include:

• Balloon default risk is growing rapidly from highly seasoned CMBS transactions as loans are unable to payoff as scheduled. In many cases, collateral properties that have otherwise generated adequate / stable cash flow results are not able to refinance their balloon payment at maturity, due mostly to a lack of refinance proceeds availability. This scenario has added to loans with distressed collateral performance in today’s credit climate.

• Some five-year and seven-year balloon maturity risk is also on the horizon for more recent vintage pools from 2003 through 2005 where little no amortization has taken place due to interest-only payment requirements. Within this area of concern, large floating rate loan refinance and balloon default risk continues to grow, as many of such large loans are secured by un-stabilized or transitional properties that are soon to reach their final maturity extensions (if they have not done so already), or fail to meet debt service or cash flow covenants necessary to exercise in-place extension options.

• Aggressive pro-forma underwriting was the norm on loans originated for 2005 through 2008 vintage transactions, many with debt service / interest reserves required at-issuance. The balance of such reserves is declining more rapidly than originally anticipated, and many are close to default or transfer to special servicing (if not already there). Exacerbating such concern is the large unpaid balance related to loans underwritten with DSCRs between 1.10 and 1.25 as any decline in performance in today’s market could cause an inability to meet debt service requirements. This is especially evident with the partial-term interest-only loans that will begin to amortize in the near future, or those that have recently converted.

• Declined commercial real estate values and diminished equity in collateral properties may prompt more struggling borrowers with marginal collateral performance to walk away from properties.

• A cautious outlook for the hotel sector remains as many sizeable hotel loans from 2005-2008 vintage pools have reported poor or declined results in 2009 (especially on the luxury side) or were transferred to special servicing for imminent default and / or debt relief. Many properties have had to significantly lower rates to maintain an acceptable level of occupancy across the country and in some cases have experienced severely distressed net cash flow performance as a result. Our expectations are that even more of these loans may be asking for debt relief in the near future and may ultimately default if a resolution is not reached.

• Continued weakening in retail performance may lead to increased loan defaults as we have not yet experienced the full affect of retailer consolidation, closings and possible bankruptcy (i.e. many loans secured by collateral with troubled retailers as an active anchor).

• Layoffs, bankruptcies and downsizing have impacted office vacancies across most MSAs, including historically strong markets like New York City, and this trend is expected to continue.

• External factors mitigating risk include indications that credit liquidity is showing signs of improvement via foreign investors, and public REIT’s are showing the ability to restructure balance sheet debt. Political and governmental focus on job creation in 2010 along with increased support of mid-tier community banks to ease the credit crunch and stimulate lending may affect the overall commercial real estate markets as a whole.

• On the other hand, as three new issue deals closed in late 2009 and more new issuance is expected to come to market in 2010, some of the delinquency growth we have experienced in the trailing 12-months may yet be offset somewhat by any new issuance’s speed to market in 2010.

• In addition, liquidations of severely distressed defaulted loans picked up speed in the latter half of
  2009, while modifications and forbearance at the loan level continue to be discussed between
  borrowers and special servicers that may also result in a delinquency “leveling-off” period.

Special servicing needs have had a huge increase over the past year. We are about one year into Commercial Property Crunchtime and it seems to be gaining steam.

The impact of CMBS TALF which runs out by the end of this month has of course been negligible. All in all, about $9.8 billion have been settled since its inception, according to the NY Fed’s TALF announcements.

Paul Krugman on unemployment benefits:

Take the question of helping the unemployed in the middle of a deep slump. What Democrats believe is what textbook economics says: that when the economy is deeply depressed, extending unemployment benefits not only helps those in need, it also reduces unemployment. That’s because the economy’s problem right now is lack of sufficient demand, and cash-strapped unemployed workers are likely to spend their benefits. In fact, the Congressional Budget Office says that aid to the unemployed is one of the most effective forms of economic stimulus, as measured by jobs created per dollar of outlay.

But that’s not how Republicans see it. Here’s what Senator Jon Kyl of Arizona, the second-ranking Republican in the Senate, had to say when defending Mr. Bunning’s position (although not joining his blockade): unemployment relief “doesn’t create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work.”

In Mr. Kyl’s view, then, what we really need to worry about right now — with more than five unemployed workers for every job opening, and long-term unemployment at its highest level since the Great Depression — is whether we’re reducing the incentive of the unemployed to find jobs. To me, that’s a bizarre point of view — but then, I don’t live in Mr. Kyl’s universe.

… and here, on the other hand, is Paul Krugman on unemployment benefits:

What does textbook economics have to say about this question? Here is a passage from a textbook called “Macroeconomics“:

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker’s incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of “Eurosclerosis,” the persistent high unemployment that affects a number of European countries.

So it turns out that what Krugman calls Sen. Kyl’s “bizarre point of view” is, in fact, textbook economics. The authors of that textbook are Paul Krugman and Robin Wells. Miss Wells is also known as Mrs. Paul Krugman.

It’s not that this particular contradiction should surprise anybody in any way or that this is some great ‘gotcha’ moment. He’ll come up with some stupid explanation that his deluded readers will gobble up. Just look at the hilarious comments on the above article!

Paul Krugman is a bigoted, dishonest and despicable apologist for state expansion wherever possible. His writing style is for the most part condescending and arrogant, meanwhile spouting some of the most incoherent and laughable nonsense one can find on economics.

He conveniently chooses to avoid syllogistic proof of his positions and sways with whatever a Democrat in power happens to need to have justified at any particular moment. Don’t take it serious, just tune out.

The total volume of private credit and loans in the US has dropped to now $15,474 billion. It has fallen by now $1,468 billion since the peak in October 2008.

The annual rate of decline remains at 6.2%.

I can agree to all the things listed in there. Present me one of the proofs asked for in Part 1 and you can sign me up for the whole God thingy immediately.

And I concur with part 2: Spare me any stories of how you used to be an atheist and converted to religion and how it has helped you in times of emotional trouble. Don’t make a fool of yourself by telling me that you yourself talked to God, Jesus, an angel or what have you. Believe me, this will NOT convert me, quite the contrary!

The crucial point is that of the ‘null hypothesis’. Every scientific theory has a null hypothesis, meaning a scenario under which the proposed theory could be proven wrong.

If rocks were to fall up, all things being equal, then Newton and Einstein would need to get back to the drawing board. If a ship were to fall down the disk of the earth, then surely Galilei must have gotten something wrong, etc …

This is kind of important. Everybody who wants to propose a bullet proof and sound theory has to offer a null hypothesis under which it may be proven false. This is because true theories don’t need to shy away from the most rigorous scientific scrutiny.

But even IF they were proven wrong, nobody’s worldview in the scientific community would shatter and render his life meaningless. Quite the contrary. Science welcomes challenge and progress. Religion doesn’t.

So whenever you talk to a religious person, before discussing anything else, simply ask them the following question: What proof would convince you that your theory is wrong, meaning that God and miracles don’t exist?

This is not a whole lot to ask for. It is they who are so certain that the theoretical entity that they can’t point at truly exists, it is they who believe in the validity of a book written 1700 ago about events that supposedly occurred 300 (!!) years prior to that, without access to any of the means of media and communication available today, it is they who suggest that this theoretical entity and this book should be used as the ultimate source of wisdom and morality, arguably the most important thing in life.

Those are some pretty extraordinary and amazing claims to make. They are amazing in particular because they are being advanced without the slightest proof whatsoever. The clip above asks for some proofs that should be rather easy to deliver if the theory was indeed true.

Thus it is only fair to give religious people that same opportunity, assuming they want to be taken seriously: Tell us what more proof you need in order to be convinced that there is no God ?

For the longest time the federal government has been able to run up debts and postpone the burden of payments for immediate purchases of goods and services. Interest payments on public debts have stayed somewhere around $100 billion, or at least below $200 billion per year.

In 2009 the interest paid on federal public debt was $187 billion, about 8% of the total of $2,100 billion in tax money collected. That means around 8% of the taxes you are currently paying are going to interest payments for expenditures made in the past.

Recent estimates from the GPO predict a rather drastic change:

From now through 2015 the interest paid on the federal debt is estimated to rise to as high as $570 billion. In other words, it is estimated to triple within the next 5 years. This is up from 8% to then 27% of our current tax burden.

To put things in perspective: The last time this number was a third of what it is today was in 1983, 27 years ago!

So what used to take 27 years to get us to today’s levels, could now happen in as little as 5 years. If this is not explosive growth, then I don’t know what is.

By the way, the GPO estimates in that same budget that the federal government’s tax receipts will rise year by year over the next 5 years to reach an impressive $3,600 billion in 2015. If people trust such rosy numbers, it is understandable that the interest portion can still be sold as justifiable.

Where that tax money is supposed to come from is not really clear to me. I understand that politicians will say that exciting and fundamental economic growth will be the driver for this. I would like to submit that this is, as always, rather laughable.

I suggested some very broad and basic estimates for the years to come in terms of tax collections, and was then already closer to the actual numbers than the official estimates.

The president’s budget estimates tax receipts of $2.2 trillion, $2.4 trillion, $2.7 trillion, and $3 trillion for 2009, 2010, 2011, and 2012, respectively. These estimates are laughable. My projections for tax receipts, as I explained in The Coming US Tax Receipt Shortfall:

Federal tax receipts will fall to $2.25 trillion in 2009, to $2 trillion in 2010, to $1.75 trillion in 2011, and to $1.5 trillion in 2012.

Meanwhile there is no indication that government expenses will fall. Even with the current, now completely obsolete, budget estimates for government expenses, the Federal deficit would develop as follows:

• $850 billion for 2009
• $1 trillion for 2010
• $1.3 trillion for 2011
• $1.7 trillion for 2012

These are very optimistic figures. It wouldn’t be surprising if actual figures turned out to be around double or triple those numbers, unless a true change in policy were to occur.

Now that we have updated figures on coming expenses it’s time to update the deficit predictions:

• $1.65 trillion for 2009
• $1.6 trillion for 2010
• $1.95 trillion for 2011
• $2.2 trillion for 2012

Even if a fall in tax receipts were to flat out in 2012 and tax collections were to begin rising again, i still don’t see how collections should reach a number as high as $3,600 billion under current circumstances. I think the government could be happy if by then they were back to just below what they are collecting today by then!

This is all of course assuming that no drastic changes in the tax code occur, which is of course completely predictable:

If President Obama keeps spending like this, and really wants to cut the deficit in half by 2013, he will at one point be faced with no other choice but to raise taxes on all Americans, rich, middle class, and poor.

Actually, the rich will always find ways to not pay taxes, which leaves the two former groups as those who will be bearing the heaviest burden.

Yes, as sure as night follows day, the bills for decades of profligacy, corruption, wars and destruction, favoritism and coerced unionism, in other words for big government, are coming due.  And those who will be paying the bills won’t be the people who enjoyed the benefits of and asked for all this spending, it will be you and your children, who were never and will never be asked.