At much greater length, I had reviewed what was wrong with Krugman’s thinking about recessions a year ago.

From National Journal, a sister mag of The Atlantic, comes the the Top Ten pundits among DC Insiders: “In conjunction with The Atlantic Wire, National Journal asked its panel of Congressional and Political Insiders to rank, one-through-five, those columnists, bloggers, and television or radio commentators who most help to shape their own opinion or worldview.” (Total points are the leftmost column of numbers, then points from Democrats, then points from Republicans.)

Maybe I’m missing something, but I thought that, by now, Tom Friedman was widely recognized to be a doofus. Not inside the Washington Echo Chamber, apparently. Here are raves from the Ruling Class about Mister Mustache:

Thomas Friedman

Democratic Insider: “Has attained that watercooler status of ‘Did you read what Friedman had to say today?’ Analysis of issues and policy implications often reveals ones that readers might not see themselves.”

Republican Insider: “An interesting blend of a liberal and a realist and a man ahead of his time on energy and green issues.”

D: “I’ve never read or listened to anyone who is better prepared, smarter, and more insightful. The premier thinker and writer in the group–yet presents so abrasively.”

R: “He’d be a lot more influential if he’d actually return a phone call.”

How many of the Top Ten were stridently wrong about Saddam’s Weapons of Mass Destruction?

(more…)

Paul Krugman has a long article in the NYT Magazine entitled “How Did the Economists Get It So Wrong?” which demonstrates quite nicely, by all the topics it avoids mentioning, how the economists got it so wrong.

Krugman’s article is basically a nostalgia fest, with Krugman arguing for Keynes over Friedman, East Coast economics departments over Great Lakes economics departments. Big whoop … It’s like baseball fans arguing over Mickey Mantle vs. Ty Cobb as a centerfielder on your all-time all-star team.

I’m sorry, but this is the 21st Century, and the critical problems we face are the ones that economists have tried hard to ignore.

Krugman, for example, totally ignores inconvenient realities, such as the bipartisan push by politicians for more mortgage lending to minorities, which played such a huge role in the mortgage meltdown that launched the recession.

Similarly, immigration is never mentioned. As I blogged on August 26, 2005:

Amusingly, the extremely low interest rates that are propping up the economy today are causing a boom in home construction in the exurbs (i.e., creating more of the exurban sprawl that Krugman derides). While the home construction boom is doing nothing to help us compete better economically with the Chinese, it is sucking in more illegal immigrants to work in construction. In turn, the rapidly rising populations of unassimilated Hispanic immigrants is triggering more white flight out to the exurbs and raising demand for new McMansions. [What I wasn't aware of in 2005 was how much of the lending was going to minorities.]

You might think that this process would interest economist Krugman, but you’d be wrong. Since 2001, Krugman has barely mentioned immigration at all, despite writing 100 columns per year for the New York Times. The problem he faces is that he and his bete noire George W. Bush hold almost identical, visceral, non-rational views on the goodness of immigration, so Krugman is just not going to mention the entire subject.

(more…)

Since the cost and the environmental impact of a construction project don’t matter anymore as long as Barack Obama is for it, here’s a green infrastructure plan expensive enough even for Paul Krugman’s taste: The North American Water and Power Alliance (NAWAPA):

Let’s generate huge amounts of carbon-free hydroelectric power and turn the western half of the USA green (in the literal sense) by diverting a small fraction of the water from Canada’s vast but almost-useless rivers that flow north into the Arctic Ocean. While we’re at it, we can turn northern Mexico green, too. (Here’s a promotional video from the 1960s.) Thayer Watkins writes:

The North American Water and Power Alliance (NAWAPA) is a project for diverting to the western U.S. and northwestern Mexico water from rivers in Alaska and Canada which now flow into the Arctic Ocean. In addition to providing irrigation water to arid parts of North America NAWAPA would also generate considerable amounts of power and provide some subsidiary benefits such as stabilizing the level of the Great Lakes. The project was formulated by the Los Angeles engineering firm of Ralph M. Parsons Company and got some attention in Congress, particularly from Senator Frank Moss of Utah, but is not politically feasible.

(more…)

New Nobelist Paul Krugman blogs for the NYT today:

Worries about next year

I’ve been ruminating over economic prospects for next year, and I’m getting scared.

Two points:

1. The economy is falling fast. We’ll see what tomorrow’s employment report says, but we could well be losing jobs at a rate of 450,000 or 500,000 a month.

2. Infrastructure spending will take time to get going — a new Goldman Sachs report suggests that projects that are “shovel-ready” are probably only a few tens of billions worth, and that a larger effort would take much of a year to get going.

You don’t say!

From exchanging emails with him, I’ve known for a decade that Paul Krugman was an egomaniacal jerk, but he was always described as being intelligent. Yet, here are parts of a 1998 column he wrote in Slate that is just jaw-droppingly dumb. This is the kind of thinking that kept us from having the medium strong recession we deserved in 2001 after the Tech Bubble, instead, postponing it until a recession/depression of Biblical proportions arrives now.

While you are reading Krugman’s theorizing denouncing the the Austrian business cycle theory that malinvestment causes recessions, think about Las Vegas.

Sin City had the biggest boom of the decade and now the biggest bust with, by far, the highest foreclosure rates. Why? Because it’s next to California. The median homeowner in California saw his home equity rising by, say, $60,000 per year in the middle of the decade. A lot of those Californians took out home equity loans, gassed up their new cars, and headed to Vegas to spend some of that $60,000 in additional wealth. (My barber used to go five or ten times per year to Vegas.)

So, businesses built more gigantic casinos in Las Vegas, which employed lots of construction workers and then service workers to work inside the casinos. In turn, they built tons of homes outside Vegas for, depending on the price range, all the new construction and service workers, or all the people trying to get away from living next to the new construction and service workers. Meanwhile, the price of existing homes was going through the roof in Las Vegas, so the local homeowners were all spending money like they were Californians, too. And, in turn, they built tons of retail and other stuff, like, say, water parks, to service all those new residents and their kids.

All of sudden, people in California wake up to the fact that they aren’t as rich as they thought they were. In fact, they are much poorer because they’ve already spent much of the pseudo-wealth they thought they had garnered in the middle of the decade. They can’t cash out on their houses, so they are suddenly looking at 28 years of writing big monthly checks to pay for all those trips to Las Vegas.

What’s the first thing you can cut out of the household budget? Well, the single most obvious luxury to eliminate is those goddam trips to Las Vegas.

(more…)

“We threw the pie because we didn’t want to engage in debate and legitimise what he was saying.” is the explanation given by a spokeswoman for No Borders, a radical pro-immigration group in Britain after Phil Woolas, Minister For Immigration, had been hit with a pie believed to made of “Bourbon Cream biscuits and vegan cream.”[BBC NEWS--Migrant row minister hit by pie] She also said “What he was spouting were right wing anti-immigration policies. The danger is that people like him are making such views mainstream.”

And what, you might ask, where these right-wing policies? Something to do with race or religion, the two main problems with immigration to the UK? No, even the Minister for Immigration can’t talk about that in the UK, he’d be investigated by the police. His sin was to suggest the possibility that their could be numerical limits to the number of immigrants to the United Kingdom, and that the British population should not exceed 70 million.

Of course, the refusal to engage debate is typical–Ann Coulter described this style of argument in 2005:

Liberals enjoy claiming that they are intellectuals, thrilled to engage in a battle of wits. This, they believe, distinguishes them from conservatives, who are religious fanatics who react with impotent rage to opposing ideas. As one liberal, Jonathan Chait, put the cliche in The New Republic: Bush is an “instinctive anti-intellectual” and his administration hostile to “fact-driven debate.” In a favorable contrast, Clinton is “the former Rhodes scholar who relished academic debates.” Showing his usual reverence for fact-checking, The New York Times’ Paul Krugman says the Republican Party is “dominated by people who believe truth should be determined by revelation, not research.”

I’m not sure how these descriptions square with the fact that liberals keep responding to conservative ideas by throwing food.[AnnCoulter.com - Archived Article: IT'S ONLY FUNNY UNTIL SOMEONE LOSES A PIE, November 13, 2005]

Paul Krugman just won the Nobel Prize in economics, but they should have given it to the economist who has been hollering since the 1990s about the government’s mortgages for minorities and the poor policies, Stan J. Liebowitz.

He’s got a new analysis out that’s fairly definitive.

UT Dallas economist Stan J. Liebowitz’s witty report on how “relaxed lending standards” to increase home ownership among minorities and low income whites led to the collapes is now online (1 meg PDF).

Anatomy of a Train Wreck: Causes of the Mortgage Meltdown
by Stan J. Liebowitz

Download PDF File (29 pages)Why did the mortgage market melt down so badly? Why were there so many defaults when the economy was not particularly weak? Why were the securities based upon these mortgages not considered anywhere as risky as they actually turned out to be?

This report concludes that, in an attempt to increase home ownership, particularly by minorities and the less affluent, virtually every branch of the government undertook an attack on underwriting standards starting in the early 1990s. Regulators, academic specialists, GSEs, and housing activists universally praised the decline in mortgage-underwriting standards as an “innovation” in mortgage lending. This weakening of underwriting standards succeeded in increasing home ownership and also the price of housing, helping to lead to a housing price bubble. The price bubble, along with relaxed lending standards, allowed speculators to purchase homes without putting their own money at risk.

The recent rise in foreclosures is not related empirically to the distinction between subprime and prime loans since both sustained the same percentage increase of foreclosures and at the same time. Nor is it consistent with the “nasty subprime lender” hypothesis currently considered to be the cause of the mortgage meltdown. Instead, the important factor is the distinction between adjustable-rate and fixed-rate mortgages. This evidence is consistent with speculators turning and running when housing prices stopped rising.

Anatomy of a Train Wreck is included in the forthcoming Independent Institute book, Housing America: Building Out of a Crisis, edited by Randall G. Holcombe and Benjamin Powell.

---

Stan J. Liebowitz is Research Fellow at The Independent Institute, Ashbel Smith Professor of Economics and Director of the Center for the Analysis of Property Rights and Innovation at the University of Texas at Dallas, and co-author with Stephen Margolis of Winners, Losers, and Microsoft: Competition and Antitrust in High Technology, published by the Independent Institute.

Keep in mind that 15 years ago Peter Brimelow debunked the original report/hoax on discrimination against minorities in mortgage lending that set off this chain reaction catastrophe. See his 1993 Forbes article The Hidden Clue.

For a year now, I’ve been pointing out that the mortgage meltdown is partly related to the Establishment’s long campaign to loosen traditional standards of creditworthiness for lower income and minority households. This national priority gave the get-rich quick artists in the business world the perfect excuse for doing what they’d always wanted to do: take the money and run and let the taxpayers and savers pay for the clean-up.

Now, others are starting to pick up on that insight, including the Village Voice. Via Arnold Kling, Edward Barrett writes in a hit piece on the New York attorney general, “Andrew Cuomo and Fannie and Freddie:”

Perhaps the only domestic issue George Bush and Bill Clinton were in complete agreement about was maximizing home ownership, each trying to lay claim to a record percentage of homeowners, and both describing their efforts as a boon to blacks and Hispanics. HUD, Fannie, and Freddie were their instruments, and, as is now apparent, the more unsavory the means, the greater the growth. But, as Paul Krugman noted in the Times recently, “homeownership isn’t for everyone,” adding that as many as 10 million of the new buyers are stuck now with negative home equity—meaning that with falling house prices, their mortgages exceed the value of their homes. So many others have gone through foreclosure that there’s been a net loss in home ownership since 1998.

(more…)