AN IMMINENT THREAT (TO DEMOCRATS, THAT IS)

Am I talking about Paul Krugman's version of the Bush administration's build-up to the US-led invasion of Iraq? No, that's Paul Krugman's own campaign of lies, exaggerations and sexed-up intelligence designed to fool the American people into thinking that America's federal budget deficit is a deadly threat. The draconian countermeasure he calls for? Regime change, of course -- and tax hikes. As I heard America's most dangerous liberal pundit urge (in violation of the New York Times' Code of Conduct) in a lecture last week at the University of California at San Diego, "vote!" -- for any of the Democratic presidential candidates, all of whom are calling for the repeal of George Bush's tax cuts.

Krugman has excoriated President Bush for his allusion to a "mushroom cloud" in describing the potential threat of Saddam Hussein's weapons of mass destruction. Krugman's fiscal equivalent of a mushroom cloud is America's impending insolvency: the crash of the dollar, a debt default, a downright national bankruptcy. Bush made his allusion in the context of admitting what he doesn't know: "We cannot wait for the final proof -- the smoking gun -- that could come in the form of a mushroom cloud." But for Krugman, insolvency is a clear and present danger -- a diagnosis certified on his own authority as an Ivy League economist who bragged to the San Diego lecture audience, "I invented currency crises" (pause for laugh; pause for Nobel Prize -- oh well, maybe next year).

Krugman has been calling Bush's America "a banana republic" now for months (for example here, here and here). He abandoned that slightly humorous metaphor in his Times column last Friday (which was all about "civility" in political discourse), writing "even the most sober observers now talk starkly about the risk to our solvency." Yes -- "most sober" -- as opposed to our President, presumably, whom Krugman has most uncivilly called "a recovering alcoholic falling off the wagon."

But who, then, are these "most sober" ones who "now talk starkly" in support of Krugman's predictions? As reader John Davidson put it in a letter on our letters page, "There is not one economist in the world who thinks that the US has any risk of insolvency." No, Krugman himself doesn't count.

But in his Times column yesterday, Krugman has some new intelligence, sexed-up to make it seem he's found his own little piece of financial yellowcake. Can mushroom clouds be far behind? Krugman writes,

Steven Antler, an economics professor at Roosevelt University, shot back yesterday on his must-read blog Econopundit,

So Krugman hand-picked a "model" that confirmed his prejudices. But does it? After spending a few minutes playing the role of Joseph Wilson IV and "drinking sweet mint tea," I found that Krugman had sexed-up his hand-picked "model." First I downloaded the Lehman press release Krugman cited. It turns out that Lehman never claimed to have "appl[ied] the same model" to the United States. It only stated that "the developed countries...are exhibiting large economic imbalances." Nothing whatsoever was said to the effect that the US's "imbalances" are any worse than those of any other country. Rather, the US is "conspicuous" only because "any financial crisis could cause considerable spillover effects to the rest of the world." I obtained the full September 1 2003 report on Damocles -- no different.

Next I called Lehman's UK-based Chief International Economist Russell Jones, the author of the report on Damocles. He'd seen Krugman's column -- I could hear the sound of his eyes rolling all the way from London. He told me "Krugman can be somewhat twisted and bitter on occasion. This analytic tool was not intended to be applied to developed countries. Damocles gave him an in to write a piece he wanted to write. He's making a career out of this kind of thing."

Strong words from Jones, who told me at the same time that Krugman is not wrong, in principle, to be concerned about the US's "rapid accumulation of debt," and that indeed the US scores poorly by Damocles' standards. But he firmly admonished, "to apply this to the US is not that relevant."

That's Krugman's sexed-up intelligence -- now here's his equivalent to the supposedly phony Al Qaeda/Saddam link. In Tuesday's column, Krugman pushed a phony link between the US's economic situation and that of Argentina. He warns that "our budget deficit is bigger relative to the economy than Argentina's in 2000" -- just as in a column in July he said "the U.S. government is running deficits bigger, as a share of G.D.P., than those that plunged Argentina into crisis." But three -- count 'em, three -- of his own columns written when the Argentina crisis was still making headlines in 2000 and 2001 (here, here, and here) show that Krugman himself believes there's no link at all. Back then he argued specifically that debt didn't have anything to do with Argentina's troubles: "...Argentina's fundamental problem isn't fiscal; it's monetary."

And how about Krugman's version of the disclaimers, pretending to say that the financial crisis that he predicts isn't really "imminent"? That's the best part.

In other words, don't look for evidence of impending insolvency -- the very fact that you think you don't see any evidence is part of the problem! It's just a cartoon illusion that GDP growth is beginning to surge, that payroll jobs creation has ticked up, that unexpectedly large tax inflows to the Treasury have caused both the Office of Management and Budget and the Congressional Budget Office to reduce their deficit forecasts sharply. It's just a zany fantasy that the dollar is not only not collapsing (John Snow would like it to be lower than it is) -- and that yields on Treasury debt are still very low by historical standards (just where Alan Greenspan wants them). You poor deluded fool... the very fact that things appear to be getting better means they're really getting worse!

By the way -- you want a quick laugh? Click here and see where Krugman stole that Wile E. Coyote metaphor from. Beep-beep!

Hey, don't let Krugman get to you. Liberals claim that the so-called "neo-cons" have been plotting the invasion of Iraq for years. Well, Krugman's been forecasting the imminent demise of the US economy for even longer. Two -- count 'em, two -- of his books in the early 1990s (here and here) had the phrase "The Age of Diminished Expectations" in their titles. And when the boom of the late 1990s proved him wrong, he had the gall to write a book called The Return of Depression Economics. Last April Krugman was predicting that SARS would cause a global depression. A year earlier he was predicting a "third oil crisis." If it's not one crisis it's another.

What else can Krugman do now but pretend there's a crisis? It's in his genes. And for him, there really is one. A year from now, voting to repeal Bush's tax cuts will be tantamount to voting to repeal prosperity. For Krugman and the Democrats, that's the imminent threat.

Luskin's reality and the lies of Kruman/NY Slimes are validated in the article below in the WSJ.

http://www.freerepublic.com/focus/news/1001590/posts?page=1

Budget Deficit Shrinks Due to Strengthening Economy (Daschle On Life-Support)
The Wall Street Journal ^ | October 15, 2003 | JOHN D. MCKINNON

Posted on 10/15/2003 9:04 AM PDT by Pubbie

WASHINGTON -- The strengthening economy is helping to hold the federal budget deficit a bit narrower than the soaring level officials projected during the summer.

When the Treasury Department tallies up final figures later this month, it is expected to show a federal budget deficit between $370 billion and $380 billion for the fiscal year that ended Sept. 30. That is still a huge shortfall and far wider than the previous record deficit of $290 billion set in 1992. But it is substantially narrower than the $455 billion the White House predicted a few months ago.

It is also the first bit of good news the Bush administration has had on the budget front in some time. Democrats dismissed the difference as a drop in the bucket, but some economists said that if the trend continues, it could point the way to more decent budget news in mid to late 2004, just as voters are beginning to focus on the election and President Bush's track record on the economy.

White House Budget Director Josh Bolten told reporters at a breakfast meeting that the fiscal-2003 deficit would come in below $400 billion. He called the development "modest good news" for an administration that has seen unexpectedly large budget shortfalls the past two years.

Douglas Holtz-Eakin, director of the Congressional Budget Office, agreed that the budget picture is improving a bit, saying there are "lots of indications it could come in below $400 billion."

Analysts warned against reading too much into the improving budget picture, however, saying it could prove to be short-lived. Currently, the deficit is projected to reach as much as $500 billion for fiscal 2004, when the budget effects of Mr. Bush's tax cuts and the extra spending on the Pentagon and homeland security are likely to peak.

But economists said the latest developments suggest that the deterioration of the government's fiscal situation has begun to ease. Rising profits are leading the way by pushing up corporate-tax collections. Lou Crandall, chief economist at Wrightson ICAP, estimated that corporate tax receipts would total $40 billion in September, a $5 billion improvement from September 2002, if it weren't for a one-time budget gimmick in the 2003 tax-cut bill that shifts some of that revenue into October. Tax withholding from paychecks also is showing some improvement, in a possible reflection of job gains.

The government also is spending a bit less than expected on defense as well as Medicaid and the federal welfare program. But the defense money still is likely to be spent this year or next, limiting the long-term effect on the budget picture, officials at the White House Office of Management and Budget cautioned.

Several analysts speculated that the White House intentionally overestimated the deficit somewhat last summer, hoping to generate some good news this fall. "I had the sense [last summer] that they put out a number that was easy to beat," said Ed McKelvey, a Goldman Sachs economist.

Administration officials rejected that idea. They said the White House has been burned repeatedly the past two years by revenue estimates that proved to be overly optimistic, and sought to be as conservative as possible this time around. Even with the recent uptick in tax collections, fiscal 2003 is expected to be the third year in a row that the federal government has collected less money in absolute dollar terms than the year before.

In fact, estimating the budget picture has never been an exact science. During the final few years of the Clinton administration, while the stock-market bubble was expanding, budget surpluses swelled in part because officials consistently underestimated tax collections. Now, projecting budgets has become more difficult than ever, thanks to all the tax-law changes under Mr. Bush.

In his National Review Online article titled "Crisis Management", Donald Luskin once again combats alleged distortions by Paul Krugman with distortions of his own. He states:

But in his Times column Tuesday, Krugman had some new intelligence — sexed-up to make it seem like he found his own little piece of financial yellowcake. Can mushroom clouds be far behind? Krugman wrote,

Lehman Brothers has a mathematical model known as Damocles that it calls "an early warning system to identify the likelihood of countries entering into financial crises." Developing nations are looking pretty safe these days. But applying the same model to some advanced countries "would set Damocles' alarm bells ringing." Lehman's press release adds, "Most conspicuous of these threats is the United States."

Luskin then goes on to quote another Krugman Truth Squad member who criticizes Krugman's use of the word "model" to describe Damocles, saying that it is not a mathematical model but a very simple index of ten "selected" indicators. He then continues:

So Krugman hand-picked a "model" that confirmed his prejudices. But does it? After spending a few minutes playing the role of Joseph Wilson IV and "drinking sweet mint tea," the Krugman Truth Squad found that Krugman sexed-up his hand-picked "model." I downloaded the Lehman press release Krugman cited. It turns out that Lehman never claimed to have "appl[ied] the same model" to the United States. It only stated that "the developed countries ... are exhibiting large economic imbalances." Nothing whatsoever was said to the effect that the U.S.'s "imbalances" are any worse than those of any other country.

Luskin is correct that the Lehman press release never claimed to have applied the same model to the United States. In fact, Krugman never claimed that the Lehman press release said that. However, and article titled "America the risky?" on page 70 of the October 4th-10th issue of The Economist stated the following:

When Lehman ran America's economic numbers through Damocles, the outcome was striking. With its rapidly climbing current-account deficit and foreign debt, among other worries, America's Damocles index is just shy of 75. There are, points out Russell Jones, the bank's international economist, problems applying Damocles to America, which enjoys the luxury of having the world's reserve currency. Granted. Poorer countries tend to owe dollars, and therefore suffer when their currencies fall. Lucky America, of course, owes its own currency.

In a previous paragraph, the article had stated that a "reading above 75 indicates that a country has a one-in-three chance of a crisis in the next 12 months". In any case, the Economist does confirms that Lehman did apply Damocles to the United States. Luskin could be excused for not knowing this except for one fact. Later in his article, he references the online version of the Economist article. He left this reference out of his blog, possibly because the reader must be a subscriber to the Economist online in order to access it. In any case, Luskin continues several paragraphs later:

And how about Krugman's version of the disclaimers, pretending to say that the financial crisis that he predicts isn't really "imminent"? That's the best part.

The crisis won't come immediately. For a few years, America will still be able to borrow freely, simply because lenders assume that things will somehow work out. But at a certain point we'll have a Wile E. Coyote moment. For those not familiar with the Road Runner cartoons, Mr. Coyote had a habit of running off cliffs and taking several steps on thin air before noticing that there was nothing underneath his feet. Only then would he plunge.

In other words, don't look for evidence of impending insolvency — the very fact that you think you don't see any evidence is part of the problem! It's just a cartoon illusion that GDP growth is beginning to surge, that payroll jobs creation has ticked up, that unexpectedly large tax inflows to the Treasury have caused both the Office of Management and Budget and the Congressional Budget Office to reduce their deficit forecasts sharply.

In fact, the CBO document that Luskin references states the following:

CBO estimates that the federal deficit was about $374 billion in 2003, up from $158 billion in the previous year. The estimated deficit is about $27 billion lower than CBO projected this summer. Higher revenues account for about $13 billion of the change, including $7 billion from unexpectedly strong receipts of corporate income taxes. Lower outlays account for about $14 billion of the change, primarily because of lower-than-anticipated spending by the Departments of Defense and Education, and for Medicaid, unemployment benefits, Temporary Assistance for Needy Families, and net interest.

Hence, higher revenues accounted for $13 billion, or slightly less than half, of the $27 billion deficit forecast reduction. The other half was due to lower outlays. Yet Luskin stated just that "unexpectedly large tax inflows to the Treasury" have caused the reduction in deficit forecasts, totally failing to mention the lower outlays. I guess he assumed that nobody would check the source that he himself provided. In any case, Luskin continued:

You poor deluded fool ... the very fact that things appear to be getting better means they're really getting worse! (By the way — want a quick laugh? Click here and see where Krugman ripped off that Wile E. Coyote metaphor. Beep-beep!)

Luskin is alleging that Krugman ripped off the Wile E. Coyote metaphor from an article he wrote on March 22, 2002, over a year and a half ago. Following is Luskin's Wile quote:

All the Nasdaq has to look forward to is Wyle E. Coyote's definition of a recovery: You jumped off a cliff, your rocket skates flamed out and you've splattered on the desert floor — but at least you've stopped going down.

and, once again, following is Krugman's quote:

But at a certain point we'll have a Wile E. Coyote moment. For those not familiar with the Road Runner cartoons, Mr. Coyote had a habit of running off cliffs and taking several steps on thin air before noticing that there was nothing underneath his feet. Only then would he plunge.

The only similarity seems to be that both involve Wile E. Coyote and both involve one of Wile's main activities (falling). It appears that Luskin feels that all mentions of Wile hereafter are direct steals of his article on March 22, 2002. He's right, that was good for a quick laugh!

The latest version of this message can be found at http://home.netcom.com/~rdavis2/luskin3.html

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