Recollecting Professor Krugman 

RECOLLECTING PROFESSOR KRUGMAN Waging War to Make Peace Series By David Arthur Walters

Paul Krugman

Professor Paul Krugman, whose 2008 Nobel Prize in Economics "for his analysis of trade patterns and location of economic activity" astonished people who did not know he was an economist, and classified him as a radical ideologue and columnist devoted to liberal whining and denigrating conservatives, said that George Soros’ desire to be taken seriously as an Open Society philosopher instead of as a speculator is too ambitious. Neither Professor Krugman nor Philosopher Soros have much faith in free trade’s ability to compensate the poor for their suffering at the hands of the rich in order to obtain social justice and stave off the desperation that leads waging revolution and war to make peace. Indeed, Professor Krugman has made a profession of biting the Invisible Hand for its natural meanness. He certainly is paid well enough for representing the opposition, many of whom found the ulterior economic motive for waging war objectionable to
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Recollecting Professor Krugman 

say the least. The pre-emptive blitzkrieging of countries, purportedly to save people from their oppressive regimes, has been the ideal military strategy since Frederick advanced it so well. The long-standing Real Politic plan underlying the shocking and awesome blitz was, first and foremost, to control the oil flow, and, secondarily, to impose occidental republicanism on a people traditionally oppressed by oriental despotism; if only their civilization were upgraded from its medieval backwardness, the obviously superior way of life of Western civilization as led by the United States of America would be safe; eventually the entire world would be made safe for Western capitalism, and duly incorporated for multicultural profiteering. Evolutionary capitalism would eliminate competition until a few multinational corporations beholden to international banks controlled the globe; all the rest, by no means inconsiderable in terms of total business done, would suck the hind teats of the whales in the shark-infested waters while thinking of themselves as free and independent entrepreneurs. Capitalism would be perfected hence become its professed worst enemy – fascism. The business of government would be business, and the business of business would be government. Utopian globalism would not be realized democratically although the myth of democracy would advance its cause; only a right-wing government could actually do the trick, making sure the means of production was privately owned and controlled, and keeping a large military presence throughout the globe. Consumers would either consume or consume; producers would either produce or produce; citizens would vote for either business as usual or business as usual. Mainstream Media would babysit; there would be plenty of pabulum to go around. One might think that Professor Krugman could win a Nobel for objecting to that rather crudely expressed totalitarian scheme; but he seems to have left his political prejudices out of his economics, which is what scientists are supposed to do. Professor Krugman divined a “new” theory to explain a phenomenon of economic globalization. An old theory, the theory of comparative advantage, held that relative differences in the economic environments of countries induced them to pursue the production of different products for their local markets, which they could then respectively trade with other countries, if there were surpluses, for what they might respectively lack. He calls this trade dissimilar-dissimilar trade. The “new” theory, that of similar-similar trade, does not supplant old theories, but adds that economies of scale, the fact that large-scale production of diverse products is more economical because less costly due to the efficiencies gained, has the effect that the local production for some local markets is supplanted by large-scale production for the world market, hence the same products wind up being produced and consumed, for example automobiles, by several countries; the more efficient countries, those with closely integrated economies of scale along the same product lines, wind up
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Recollecting Professor Krugman 

dominating world trade. The large-scale economy including cheaper transportation explains why production is centralized and therefore more and more people live in cities. In fine, world economic centers dominate world trade. George Soros, as we have seen, believes the integrated world centers hold the world hostage; the poorer and less developed countries on the periphery getting the worst of downturns as the ones in the center circle their wagons; hence the domination must be more socially i.e. economically just. Professor Krugman’s “new” theory, if we understand it rightly, rides piggy back on old theories. The theory that large-scale production is more efficient and better done in population centers is hardly groundbreaking; it is, to say the least, platitudinous. We wish that the professor had explained the role of waging war to make peace in the evolution of the temporarily increasing returns attributed to the large-scale efficiencies realized through similar-similar trade between allies. There is no sin in platitudes if novelly expressed and accompanied by graphs depicting the results of complex calculations. Professor Krugman may have gotten his Nobel for the same reason that President Obama got his, for opposing the political-economic regime of the neo-conservatives who waged war to make peace, to make the world safe for Western capitalism whether the world liked it or not – Mr. Soros might have gotten a Nobel for his opposition to the Party of War if he had not almost brought down the Bank of England and wreaked havoc on Asian financial institutions to fund his philanthropic contributions to open society activists. What Professor Krugman’s new scientific theory, which is more descriptive than explanatory, would predict, other than more of what it observes, i.e. business as usual, we do not know. We would ask him if he opposes centralization and favors the decentralization that was promised by High Technology and Chairman Mao, but he has been too busy with his calculations to respond to our questions. In any case, what do Nobel Prize winners in Economics really know that is of any proven practical value in a constantly changing future? This is a vital question in our context of waging war to make peace; that is, if the pursuit of scarce property is a fundamental motive for revolution and war, and if the broader satisfaction of needs and wants by economies of scale fosters peace. We think economists are more often wrong than right, and cannot be trusted to reliably predict anything – at least monkeys are better stock pickers. We might take the advice of Sir Karl Popper and ask, Can economic theories be falsified, or do they tend to explain everything no matter what happens? Then they are not legitimate
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Recollecting Professor Krugman 

scientific theories. A Freudian analyst may explain every apparent failure of theory using the same theory, attributing an apparent contradiction, for instance, to the analysand’s resistance. The theory of the free market economist explains everything; if something goes wrong, it is the market’s fault and not a fault in the theory, for the market is efficient hence always right. The very notion of a Nobel Prize for economics is abhorrent to scientists who do not believe economics is a science at all. Nobel Prize winning particle physicists have despised the pretentiousness of economists who believe their mathematical models can predict future outcomes: for example, Nobel laureate Martin Perl, co-discover of the subatomic particle, the tau lepton, said the Nobel Prize for economics should no longer be given. We further note that a prize for economics was not included in Alfred Nobel’s will. The high priests of efficient market economics, who believe that markets establish a felicitous and just equilibrium without regulatory intervention, insist that Professor Krugman is not an economist at all because he does not belong to their political religion. They mock his claim that the United States enjoyed a progressive golden age destroyed by the vicious jungle economics of capitalism; nevertheless, there is still time to get back on the golden path if the right policy changes are made. Professor Krugman’s infidelity to false faith in efficient markets, free-trade markets that regulate themselves on the balance for the good of humankind, is blasphemous to the free marketers. He lays the blame for social injustice and its woes at the doorstep of rightwing radicals, the new conservatives who hold that economic disparity is the natural and just result of differences in virtue, and have done their best to condone and promote the vile inequity and pernicious partisanship that places them among the elite. Do what professors say have any impact on the real world at all? Well, yes, it seems so; that is, if they are professors of economics and rent their souls out to the prevailing faction, which is normally the most brutish force, ambivalently emulated by all those who believe their liberal democracy provides an opportunity for every poor slob to strike it filthy rich if s/he invests in the stock market and plays the lottery. Mr. Krugman, in his role as iconoclastic columnist, was happy to review two unorthodox books – The Myth of The Rational Market, A History of Risk, Reward, and Delusion on Wall Street, by Justin Fox, and The Sages, Warren Buffet, Paul Volcker, and the Maelstrom of Markets, by Charles Morris – in an August 9, 2009 New York Times article entitled ‘School for Scoundrels.’ The myth that markets are efficient in themselves, if left free to make their own adjustments via competition, was a house of sand that obviously collapsed with the
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Recollecting Professor Krugman 

housing market and bank crisis – we should not worry, however, for it is being revived as we speak, for myths that promise freedom die hard. “Wall street bought the ideas of the efficient-market theorists,” Mr. Krugman writes in his review, “in many cases literally: professors were lavishly paid to design complex financial strategies. And these strategies played a crucial role in the catastrophe that has now overtaken the world academy.” Noteworthy financial scoundrels include Nobel Prize winners Harry Markowitz, William Sharpe, Merton Miller, Robert Merton, and Myron Scholes. Ironically, if the efficient market theory were correct, the advice of such finance experts or any other analyst for that matter is not really worth a plug nickel because, in the long run, the course a truly efficient market takes is like the unpredictable random walk of a drunken investor; each stagger is determined by current information and not by previous steps, so no one can know where he is going to go, and can only know where he is at present. That is, there is no serial price correlation. All the information available, including a best estimate of future events, is in the current price of a security, which is all that it is worth at any given time; a monkey throwing darts at a list of stocks would do as well or better at selecting the winners than an expert; and on the average, buying and holding a diversified portfolio or an index of a broad market would produce better returns than paying an expert to analyze and select stocks. Technical investors who make decisions based on charted patterns of price changes are fools, and so are investors who make their choices based on the financial fundamentals of firms, believing they can choose securities that are under- or overvalued to go long or short on. Wherefore the efficient-market finance professors and advisors are elite confidence men who use a pseudo-science to dress an irrational behavioral process with a semblance of rationality in order to temporarily rig prices and manipulate sheep into being fleeced. To wit, they are charlatans; the same might be said of Nobel Prize winning free-market political-economists, as well as executives of large firms who undercut prices to drive small competitors out of business, and say, when objections are made, “Let the market decide.” The efficient-market cult is like other academic cults that tend to political activism. “In this sense, efficient-market acolytes were like any other academic movement. But unlike, say, deconstructionist literary theorists, finance professors had an enormous impact on the business world – and, not incidentally, some of them made a lot of money in the process.” Lawrence Summers called them “idiots” – undoubtedly that was an insult to idiots despite their lowest IQ range. But now we have a culture to counter the madness and stupidity of the servile professors, called “behavioral finance,” which acknowledges what common sense has related ever since Adam was created, that mankind is unpredictable, hence investors are irrational, but in
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Recollecting Professor Krugman 

predictable ways. Seers like George Soros, Warren Buffet and Paul Volcker have seen through the efficient-market dogma along with its risky tenets – we note that one idiotic albeit still fashionable tenet holds that if an investor holds a diversified investment folio including even the riskiest securities, the investor is bound to fare better than putting eggs into too few baskets. George Soros, it is observed, doesn’t have a method other than being smarter than everyone else. Mr. Buffet figures out what a company is worth and buys it cheap. Mr. Volcker’s main asset is his integrity. We add that, if the efficient market hypothesis were true, using chicken bones to divine the future would serve us better. “I came away from reading these books wondering if their shared under-lying premise – that the current crisis will put an end to Panglossian views of financial markets – is right,” writes Mr. Krugman. “My guess is that the myth of the rational market – a myth that is beautiful, comforting, and, above all, lucrative – isn’t going away anytime soon.” Well, then, if there be truth in historians’ observations that financial collapses and severe disappointments of great economic expectations result in revolutions and war, because man is more or less an economic animal and an irrational one at that, we may expect ever more wars waged to make peace. Alan Greenspan has already found reason in the statistical tea leaves to take his apology back. The majority wants instant success; people are tired of Professor Obama’s long lectures and rational approach. Radical Republicans want to undo social programs and leave poor folks in the lurch. The Tea Party is marching on Washington with pitchforks bent on hurting themselves. Companies are profitable again, more efficient with fewer employees; who cares about high unemployment when it keeps wages down? It looks like there is going to be hell to pay again. The future remains to be seen, and that certainly is problematic, for mistaken history never repeats itself exactly; it is drunk and staggering randomly about, looking for somewhere to collapse.

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