Paul Krugman, "Addicted to the Apocalypse": An Asteroid or an Earthquake?

Do you like a good science fiction movie? I do, particularly owing to their marvelous special effects. For example, the tsunami depicted at the beginning of "Hereafter" (2010) was overpowering.

And then there are the disaster films involving asteroid collisions and earthquakes.

But note the difference between an asteroid collision and an earthquake. Although both of these phenomena can have catastrophic consequences, an asteroid collision can be predicted in advance, owing to its course and speed. On the other hand, whereas we might know that another earthquake will ultimately hit San Francisco owing to its proximity to the San Andreas fault, we can't say when.

In his latest New York Times op-ed entitled "Addicted to the Apocalypse" (http://www.nytimes.com/2013/10/25/opinion/krugman-addicted-to-the-apocalypse.html?_r=0), Paul Krugman mocks those warning of an "oft-prophesied, never-arriving debt crisis." Krugman concludes:

"Look at Japan, a country that, like America, has its own currency and borrows in that currency, and has much higher debt relative to G.D.P. than we do. Since taking office, Prime Minister Shinzo Abe has, in effect, engineered exactly the kind of loss of confidence the debt worriers fear — that is, he has persuaded investors that deflation is over and inflation lies ahead, which reduces the attractiveness of Japanese bonds. And the effects on the Japanese economy have been entirely positive! Interest rates are still low, because people expect the Bank of Japan (the equivalent of our Federal Reserve) to keep them low; the yen has fallen, which is a good thing, because it make Japanese exports more competitive. And Japanese economic growth has actually accelerated.

Why, then, should we fear a debt apocalypse here? Surely, you may think, someone in the debt-apocalypse community has offered a clear explanation. But nobody has.

So the next time you see some serious-looking man in a suit declaring that we’re teetering on the precipice of fiscal doom, don’t be afraid. He and his friends have been wrong about everything so far, and they literally [sic] have no idea what they’re talking about."

Debt, which hasn't yet sunk Japan, can't sink a nation? Oh really? Krugman, of course, doesn't mention what debt did to the Weimar Republic and what arrived in its aftermath.

So why the Weimar Republic and not Japan? My answer: Who is saying that it won't happen to Japan?

Okay, wise guy, if a disaster is about to befall us, tell us when?

But herein lies the quandary. Economics is not an exact science, and it is not possible to know exactly when human beings lose faith in their country's currency. An economic implosion is not a pending collision with an asteroid whose timing can be predicted. Rather, it is more akin to an earthquake, whose arrival is predestined, but whose timing cannot be foretold.

Rely on Krugman? Yeah, right. Remember how he once wrote concerning Occupy Wall Street (http://www.nytimes.com/2011/10/07/opinion/krugman-confronting-the-malefactors.html):

"Occupy Wall Street is starting to look like an important event that might even eventually be seen as a turning point.

. . . .

It’s clear what kinds of things the Occupy Wall Street demonstrators want, and it’s really the job of policy intellectuals and politicians to fill in the details."

And just where is Occupy Wall Street today? As I said earlier, economics is not an exact science.

I am not a "serious-looking man in suit" and perhaps not deserving of respect, but when Douglas Elmendorf, head of the nonpartisan Congressional Budget Office, declares, "The federal budget is on a course that cannot be sustained indefinitely" (http://www.cnbc.com/id/101065200), maybe it's worth listening to what he has to say.

Was that a rumble I just heard?

Paul Krugman, "Sympathy for the Luddites": The Dark Side of Technology

Is Paul Krugman correct? Most of the time? Some of the time? How much credence should we place in this Nobelist's op-eds? Well before turning to Krugman's op-ed of today's date, let's take a short trip down memory lane and go all the way back to . . . May 23, 2013, i.e. three weeks ago, when Paul praised "Abenomics" in a New York Times op-ed entitled "Japan the Model" (http://www.nytimes.com/2013/05/24/opinion/krugman-japan-the-model.html?_r=0) and wrote:

"The good news starts with surprisingly rapid Japanese economic growth in the first quarter of this year — actually, substantially faster growth than that in the United States, while Europe’s economy continued to shrink. You never want to make too much of one quarter’s numbers, but that’s the kind of thing we want to see.

Meanwhile, Japanese stocks have soared, while the yen has fallen. And, in case you’re wondering, a weak yen is very good news for Japan because it makes the country’s export industries more competitive."

Fascinating. But now read from CNNMoney this morning  (http://money.cnn.com/2013/06/12/investing/nikkei-japan/index.html?iid=HP_Highlight):

"The market swings have been wildest in Japan, with the Nikkei (N225) now 20% off its recent peak and officially in bear market territory. At the same time, the yen has strengthened to 94 per dollar for the first time since early April.

Prime Minister Shinzo Abe, who came back to power in December, has launched an aggressive campaign to boost Japan's economy following 15 years of deflation. The plan -- dubbed Abenomics -- includes coordinated government spending, central bank stimulus and structural economic reforms.

Investors responded to Abenomics by selling the yen and buying Japanese stocks. The weak yen helped boost shares of Japanese exporters, including Toyota (TM), Sony (SNE) and Kirin (KIRI). But those stocks and others have been punished this week as the yen regained ground.

. . . .

Meanwhile, the Bank of Japan is walking a fine line as it attempts to achieve an inflation rate of 2% without driving up interest rates on government debt. The country's gross public debt, after years of budget deficits, is projected to hit 230% of the size of the country's economy by 2014."

Kind of reminds me of when Krugman said of Occupy Wall Street in October 2011 (http://www.nytimes.com/2011/10/07/opinion/krugman-confronting-the-malefactors.html):

"Occupy Wall Street is starting to look like an important event that might even eventually be seen as a turning point.

. . . .

It’s clear what kinds of things the Occupy Wall Street demonstrators want, and it’s really the job of policy intellectuals and politicians to fill in the details."

Yup, he sure hit the nail on the head that time, too.

Back to the present. In his latest New York Times op-ed entitled "Sympathy for the Luddites" (http://www.nytimes.com/2013/06/14/opinion/krugman-sympathy-for-the-luddites.html?_r=0), Krugman warns of the effects of technology on the labor force:

"Today, however, a much darker picture of the effects of technology on labor is emerging. In this picture, highly educated workers are as likely as less educated workers to find themselves displaced and devalued, and pushing for more education may create as many problems as it solves."

Krugman concludes:

"Education, then, is no longer the answer to rising inequality, if it ever was (which I doubt).

So what is the answer? If the picture I’ve drawn is at all right, the only way we could have anything resembling a middle-class society — a society in which ordinary citizens have a reasonable assurance of maintaining a decent life as long as they work hard and play by the rules — would be by having a strong social safety net, one that guarantees not just health care but a minimum income, too. And with an ever-rising share of income going to capital rather than labor, that safety net would have to be paid for to an important extent via taxes on profits and/or investment income.

I can already hear conservatives shouting about the evils of 'redistribution.' But what, exactly, would they propose instead?"

Okay, I'm also in favor of a "strong social safety net," but what happens when you increase "taxes on profits and/or investment income"? Answer: businesses and high wealth individuals move to more "hospitable" locales, eliminating even more jobs.

So what is Krugman advocating, "Abenomics," involving massive deficit spending, or simply higher corporate taxes?

Darned if I know.

Paul Krugman, "Japan the Model": Ignore "Fake Scandals" and Look to Japan for Guidance

Paul Krugman disappeared from the op-ed page of The New York Times when the Benghazi, AP and IRS scandals broke. Okay, Krugman knows absolutely nothing about Libya and al-Qaeda, and perhaps he has no personal insights involving the Justice Department's seizure of Associated Press telephone records. But to simply ignore the IRS matter? It was almost as if a sports writer had suddenly decided to take a holiday during the World Series.

Today, Krugman finally provides us with "Conscience of a Liberal" guidance concerning the underlying nature of the ruckus buffeting his beloved Obama administration. In a Times op-ed entitled "Japan the Model" (http://www.nytimes.com/2013/05/24/opinion/krugman-japan-the-model.html?_r=0), Krugman writes:

"In America, for example, there are still more than four times as many long-term unemployed workers as there were before the economic crisis, but Republicans only seem to want to talk about fake scandals."

Ah yes, "fake scandals" of the kind that have Lois Lerner scurrying to plead the Fifth. "Fake scandals" that result in blistering rebukes of Obama from Times columnist Maureen Dowd (see: http://jgcaesarea.blogspot.co.il/2013/05/maureen-dowd-when-myths-collide-in.html). "Fake Scandals" that prompt a dyed-in-the-wool liberal columnist such as Eugene Robinson of The Washington Post to write an opinion piece entitled "Obama administration mistakes journalism for espionage" (http://articles.washingtonpost.com/2013-05-20/opinions/39391166_1_gary-pruitt-espionage-act-fox-news), which begins:

"The Obama administration has no business rummaging through journalists’ phone records, perusing their e-mails and tracking their movements in an attempt to keep them from gathering news. This heavy-handed business isn’t chilling, it’s just plain cold.

It also may well be unconstitutional."

Yup, it's all the fault of the Republicans.

But the real purpose of Krugman's op-ed today is to praise "'Abenomics' — the sharp turn toward monetary and fiscal stimulus adopted by the government of Prime Minster Shinzo Abe." Observing that "nobody else in the advanced world is trying anything similar," Krugman proceeds to observe:

"The good news starts with surprisingly rapid Japanese economic growth in the first quarter of this year — actually, substantially faster growth than that in the United States, while Europe’s economy continued to shrink. You never want to make too much of one quarter’s numbers, but that’s the kind of thing we want to see.

Meanwhile, Japanese stocks have soared, while the yen has fallen. And, in case you’re wondering, a weak yen is very good news for Japan because it makes the country’s export industries more competitive."

However, before lending too much credence to Krugman's ballyhoo, you might want to have a gander at what Reuter's columnist James Saft had to say about "Abenomics" in a recent Economic Times article entitled "Weak yen a boon for investors, not Japan" (http://articles.economictimes.indiatimes.com/2013-05-15/news/39282115_1_exporters-abenomics-nikkei):

"Buy Japanese stocks if you must but don't expect Abenomics and the fall of the yen to revitalize Japan's economy. The yen has fallen by more than 20 percent since Prime Minister Shinzo Abe, who advocates aggressive monetary and fiscal policy, was elected in December, busting through the 100 yen to the dollar level last week.

In part the theory behind Abenomics is that a weaker yen will revitalize industry, which will export more and plow the proceeds into hiring and capital investment. The stock market certainly believes: benchmark shares in Tokyo are up 36 percent this year and more than 68 percent over six months.

But a look at the actual data shows Japanese companies, like British ones during a similar bout of currency weakness in 2008, appear to be more eager to use a newly competitive currency to pad profits through higher margins rather than higher export volumes. Thus far, Japanese exporters appear to be doing just that. Despite yen falls the price of Japanese exports in local currency has barely budged.

. . . .

Abenomics contains an irony: the effect of its stimulus will be enjoyed in substantial part by hedge fund managers and clients in New York and London and by workers in Japanese factories as yet unbuilt in places like Kentucky."

Will the purchase by the Bank of Japan of government bonds, driving money into the Japanese stock market, result in a sustained economic recovery? I doubt it. Business spending in Japan is still weak (see: http://www.investing.com/analysis/business-spending-in-japan-remains-weak-despite-abenomics-167735), and the aging and shrinking of Japan's population spell future disaster (see: http://www.investing.com/analysis/abenomics-will-accelerate-japan's-descent-168235).

Bottom line: I wouldn't place my money on  a quick fix that brings about a rapid rise in stock market prices, but which does not assure sustainable economic growth. Thursday's decline in Japanese share prices is a harbinger of future chaos out of the Far East.

Or stated otherwise, given that benchmark shares in Tokyo rose some seventy percent in six months and the yen fell more than twenty percent during that same period, is it any wonder that "nobody else in the advanced world is trying anything similar"? I don't think so.

Japan: Where Is Obama?

Given the enormity of the disaster in Japan, I again find myself asking, where is Obama? Yes, I know: There was the brief March 11 statement in which he offered his condolences. But where are the offers of technical cooperation, rescue assistance, medical help and basic human needs, e.g., food and blankets? Is this any way to treat an ally?

And forgive me for daring to ask the unimaginable: Notwithstanding the radiation risk, why can't the president bring himself to visit Tokyo? This gesture would be remembered for generations to come.

Or at least send Hillary, who in the past told tall tales of bravery under sniper fire in Bosnia.

But why should we fool ourselves? Obama is not a leader, and this "reflective" president likes to watch as developments unfold in the Far East and, as we have already painfully learned, in the Middle East.

Regarding the Middle East. I noted in my prior blog entry that Hillary is currently not welcome in Saudi Arabia. Now, we learn:

"A coalition of six youth groups that emerged from Egypt’s revolution last month has refused to meet with Secretary of State Hillary Clinton, who arrived in Cairo earlier today, in protest of the United States’ strong support for former Egyptian President Hosni Mubarak who was ousted by the uprising."

http://blogs.abcnews.com/politicalpunch/2011/03/young-leaders-of-egypts-revolt-snub-clinton-in-cairo.html

U.S. prestige around the globe has never been lower.

The Obama Doctrine: Appease Your Enemies, Undermine Your Friends

Historian and scholar Bernard Lewis aptly stated:

"A nation can make few mistakes worse than this: to be harmless as an enemy and treacherous as a friend."

Regrettably, the Obama administration has decided to ignore the advice of Lewis and is indeed pursuing a foreign policy premised upon appeasing enemies while undermining friends:

- In Europe, Obama abandoned the American missile defense agreement with NATO allies Poland and the Czech Republic, after subdued growls from Moscow. Both Poland and the Czech Republic assisted the U.S. with troops in Iraq.

- In Asia, Obama has decided to keep North Korea off the list of states that sponsor terrorism, notwithstanding a ballistic missile test in 2009 that infuriated Japan. Placing North Korea on the blacklist would have subjected it to economic sanctions.

- In the Middle East, Obama is now appointing a new ambassador to Syria, after Syria threatened to target Israeli cities in the event of renewed hostilities. Syria's assassination of Lebanese Prime Minister Rafik Hariri, a friend of the West, exactly five years ago, is being ignored.

- In Iran, Obama continues to stand silently on the sidelines and mull new deadlines and sanctions, as Iran's dissidents are silenced, tortured and executed.

- In South America, Obama helped reinstate Honduran President Manuel Zelaya, who sought to to abolish presidential term limits and to provide himself with dictatorial power. Obama allied himself with the likes of Venezuelan President Hugo Chavez and Nicaraguan president and Sandinista leader Daniel Ortega.

Can the Free World survive the Obama Doctrine over the course of the next three years? What will be the repercussions if Obama is reelected and his inner convictions are no longer counterbalanced by the need to present a moderate facade?

Stay tuned.