Saturday, August 20, 2011

Journamalism - WSJ Stephen Moore Edition

Stephen Moore writes an op/ed in the WSJ that's one of the most blatant pieces of journamalism (mixed with economalism) that I've ever seen. Karl Smith, David Glasner and Paul Krugman do the heavy lifting with a quick thought by me at the end.

First, Stephen Moore's editorial, Why Americans Hate Economics:
"I'm surprised how many students tell me economics is their least favorite subject. Why? Because too often economic theories defy common sense... When [WSJ writer] Laura Meckler... dared to ask the White House how increasing unemployment insurance "creates jobs"... she received this slap down: "I would expect a reporter from the WSJ would know this as part of the entrance exam just to get on the paper."
[The White House] explained to her that unemployment insurance "is a... direct way to infuse money into the economy because people who are unemployed... are going to spend the money they get... and that creates growth and income for businesses that lead... to making decisions about jobs--more hiring."
That's a perfect Keynesian answer, and also perfectly nonsensical. What the White House is telling us is that the more unemployed we can pay for not working, the more people will work. Only someone with a Ph.D. in economics from an elite university would believe this. 
I have two teenage sons. One worked all summer and the other sat on his duff. To stimulate the economy, the White House wants to take more money from the son who works and give it to the one who doesn't. I can say with 100% certainty as a parent in the Moore household this will lead to less work. 
Or consider the biggest whopper: Mr. Obama's thoroughly discredited $830 billion stimulus bill... We were promised... "multipliers" from every dollar the government spent. There was never any acknowledgment that for the government to spend a dollar, it has to take it from the private economy... the multiplier theory only works if you believe there's a fairy passing out free dollars.
How did modern economics fly off the rails? The answer is that the "invisible hand" of... Adam Smith, got tossed aside for the new "macroeconomics," a witchcraft that began to flourish in the 1930s during the rise of Keynes. Macroeconomics simply took basic laws of economics we know to be true for the firm or family... and turned them on their head..."
Oh goodness, can you feel the stupid? It burns. It really really burns, and I did not enjoy re-posting that, let me tell you.

Anyway, first up, Karl Smith begins the fisking:
"The Moore household is a small, open economy, where imports and exports exceed GDP. Its constituents have almost no internal, currency-denominated trade [with each other] and they hold no assets or liabilities against one another. It does not have its own central bank. It does not operate its own currency and it does not float bonds backed by the central bank. These are important characteristics of the Moore household that do not apply to the US economy."
Next up, David Glasner:
"Moore [says]: "Too often economic theories defy common sense." That's in it a nutshell for Moore: common sense is the ultimate standard of truth... so what's that you say, Galileo? The sun is stationary and the Earth travels around it? And you say the Earth is round? If [so] how could anybody stand at the bottom... and not fall off?... And you Einstein, you say there's a... space-time continuum, so that time slows down as one approaches the speed of light? Away with you!
[My] point is not to disregard common sense... but to recognize that common sense isn't enough. Sometimes things are not what they seem... once you recognize that common sense has its limitations... Moore is exposed... as unwilling to do the hard thinking required to push back the frontiers of [his] own ignorance.
[And] Keynesian [economic] ideas are rooted in certain common-sense notions, for example, the idea that income and expenditure are mutually interdependent, the income of one person being derived from the expenditure of another... so common sense [often] cuts in both directions. Moore likes one [paying people not to work will encourage them not to work] and wants to ignore others... We would like economists... to tell us which effect is stronger or... when one is stronger than the other... But all that would be too complicated and messy for Moore's cartoonish view of the world."
Finally, Paul Krugman:
"What's remarkable [about Moore's piece]... is the all-out embrace of anti-intellectualism. It actually denounces "fancy theories" and rejects them because they "defy common sense". Gosh, if that's the way the right is going, the next thing you know they'll reject the theory of evolution. Oh, wait.
There's a lot to critique... [about] what constitutes common sense. Some people find it commonsensical that if the government puts people to work [via a "thoroughly discredited stimulus bill"], that adds to employment; it takes fancy arguments from the likes of the WSJ to convince them otherwise. 
And now I'll add my $0.02. Moore discredits the stimulus multipliers by saying that if the government wants to spend a dollar it needs to take a dollar from the private economy. Here's the problem with that assumption. You must also, rationally, apply that line of logic to the private sector. If every dollar the government spends is a dollar taken out of your pocket, then every dollar Google makes is a dollar taken out of your pocket. Moore's assuming we live in an economy with a fixed amount of money and resources (a barter economy, basically).

Which means that for Apple to make any money they must take it from you, permanently. And the $400 you spent on that iPad you will never have back. You have just sustained a permanent, $400 hit to your worth and unless you sell the iPad, you won't get it back. But we don't live in a barter economy. We live in a much more complex world with a more complex economy than that. And it is decidedly NOT a barter economy.

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