Tuesday, November 18, 2008

Me vs. ... a Nobel Laureate?

As a dedicated, fiscally-conservative, self-proclaimed utilitarian student of economics, I have come to realize that my primary contender in the world of American economics comes from the Keynesian camp, with no better figurehead today than the most recent Nobel laureate in Economics, Paul Krugman.

In many ways, Mr. Krugman is a lot like me: he seems to argue in a no-nonsense manner, with highly-authoritative tones and an air of "I’m not going to waste my time on you if you haven’t done your research." Some might find this a hostile attitude, but naturally, I can sympathize; as I’ve said before, I often find myself entering economic discussions with people who, quite frankly, have very little technical understanding of the subject. As such, I believe myself to be very difficult to argue with, as I tend to take on an authoritative tone, while remaining calm and concise. I do not like to get emotional when I argue, because I never want to give the impression that I am saying something I do not actually believe because I am upset. Even when I say something I know will be unpopular, as is often the case with certain aspects of utilitarian solutions, I enter into the subject with complete seriousness and without fear of offending the other party. Mr. Krugman has the same… aura of argument, if you will, and so my perceived strengths of argumentation and discussion I find mirrored in him. Bottom line: if I could hold my own in an argument with Mr. Krugman, I could argue with anyone.

Fortunately for me, I am spared the task of digging through his textbooks to find likely non-topical arguments to bring up, as he has his own blog on nytimes.com entitled "The Conscience of a Liberal." Much like I would want to, had I the time, he updates his blog often and is extremely political (liberal, of course). Unlike most liberal-minded people I meet, however, he seems to be both extremely well-informed and well-studied, and, not surprisingly, with a significant fan base of liberal comment-writers (who suggest ideas like Mr. Krugman becoming an advisor to President-Elect Barack Obama). That’s fine; I can respect anyone who is informed and studied. I do not like his cheap jabs at conservatives in his posts, however, making me really want to return the favor. Normally (and most likely, intentionally), Mr. Krugman speaks of issues and economic models with which I am fairly unfamiliar and, without proper research, unable to dispute in any manner that would garner any respect or personal satisfaction.

That is not the case today.

Scanning the Krugman blog, I came across this post entitled “Fannie Freddie data” where Mr. Krugman attempts to use this graph to show how Fannie Mae and Freddie Mac were less responsible for the credit crisis than us phony-believing conservatives have claimed. What an open-door invitation for dispute; not only am I in complete disagreement on the subject, but the “data” being used to back up his assertion is woefully misleading and incomplete.

Initially I posted a response on his blog. Here is the text in full:

Maybe I’m not reading that graph right, but doesn’t it still show the government-backed pools still at around 40% of the mortgage market? Sure those asset-backed securities issuers climbed up to almost 20%, but it seems kind of odd to try to assert that F & F weren’t the dominant player and still didn’t have price-leader-like powers.

Isn’t there also a case for damage being done before 2003, re: setting up those bad incentives for mortgage holders?

Another flaw with a graph that just adds up to 100% is that it doesn’t show absolutes, just market share. Looking at the absolute holdings in the mortgage market would likely paint a different picture. Yet with a market share graph you can show a decline and say they weren’t the source of the problem. Seems like incomplete data to me.

Finally, I find it difficult to believe that there is any economist out there who actually believes that “deregulation” was the problem that led to the credit crisis. Step 1: set up bad, non-free market regulation (backing F & F with taxpayer money). Step 2: set up more regulation to counter the bad regulation (risk limits) in an attempt to simulate free market results. Step 3: systematically remove the counter regulation (removing risk limits), skewing once again further away from a free market solution. Step 4: when market fails due to the unbalanced bad regulation, claim that removing the counter regulation was the problem, blame the free market concept.

Upon reflection, however, I realized that NYTimes.com gives blog writers full administrative powers over their blog comments. I have posted several comments on his pages in the past, and haven’t seen them become published on his page for at least several days, leading me to believe that perhaps he won’t publish my disagreement. Just in case he uses these cheap tactics, I decided to write up my own blog post where there can be permanent evidence I control of his incomplete argument. Et voilĂ .

My response was initially only going to be my first paragraph, but as I thought about it more, my criticisms expanded into the top three paragraphs and finally cumulated into the fourth, which has less to do with his data and more to do with the utter amazement that any student of economics can even try to make the case he is trying to make. Here I was thinking it was just the misinformed media quoting the misinformed politicians about the background of the financial crisis, and instead I see there are liberal economists (apparently suspending their studies for the time being?) behind this reasoning as well. I should have guessed!

So today, as I click “Publish” here on my screen, I potentially draft myself into the eternal political blog war with some direct quotes of perhaps the most popular, respected member of “the other side.” I don’t feel like any ideas I publish are poorly thought out, but I am always open to the concept that I am wrong. Either way, Mr. Krugman’s post was clearly incomplete and, I would say, a mistake. Posts like that by the respected members of the liberal community that deal lashes to conservatives while not actually citing any substantial evidence, are a big problem these days, and I am simultaneously saddened and excited that Nobel Laureate Paul Krugman is susceptible to authoring such things.

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