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2014: Thoughts on Economics, Empires and Their Sophists


by Ira Katz

As 2014 begins I, like all sensible people, ponder how long the dollar can last, for both my personal financial decisions and as a world event of the greatest importance.

Empires can be sustained only as long as they can be economically sustained. The Soviet withdraw from Afghanistan was certainly not for any normal human or moral reason, but simply because they were going broke. In hindsight we can see that the days of that evil empire were numbered with that strategic military retreat.

The dead canary in the coal mine for our current aggressive evil empire built on military strength will be the real withdrawal from one of the imperial outposts; say Korea or Japan, due to economic emergency, namely, the collapse of the dollar.

Why hasn’t the collapse of the dollar occurred by now? Shadowstats founder John Williams expects hyperinflation in 2014. While Paul Krugman says “the new year starts with some good omens. Oh, and politics: between the non-disaster of Obamacare (which is producing epic levels of denial) and the prospect of a decent rate of economic growth, the midterm elections may not go the way many on the right currently expect.”

Making sense of the experts is more a matter of separating the sophists for the empire from the others. A short historical tour of these characters by way of Wikipedia starts with:

Irving Fisher (February 27, 1867 – April 29, 1947) was an American economist, statistician, inventor, and social campaigner. He was one of the earliest American neoclassical economists, though his later work on debt deflation has been embraced by the Post-Keynesian school.

Fisher made important contributions to utility theory and general equilibrium. He was also a pioneer in the rigorous study of intertemporal choice in markets, which led him to develop a theory of capital and interest rates. His research on the quantity theory of money inaugurated the school of macroeconomic thought known as “monetarism.” Both James Tobin and Milton Friedman called Fisher “the greatest economist the United States has ever produced.”

Fisher was perhaps the first celebrity economist, but his reputation during his lifetime was irreparably harmed by his public statements, just prior to the Wall Street Crash of 1929, claiming that the stock market had reached “a permanently high plateau.”

The next “great” public economist was Paul Samuleson. I picked up my copy of Samuelson’s text book a few years ago from a discard pile at the library of the university where I was working. It is a 10th edition (1976) filled with many silly statements, which is why I wanted to have it, but nothing compared to the edition published in 1989 as described in the Wikipedia article.

Samuelson is considered to be one of the founders of neo-Keynesian economics and a seminal figure in the development of neoclassical economics. In awarding him the Nobel Memorial Prize in Economic Sciences the committee stated:

More than any other contemporary economist, Samuelson has helped to raise the general analytical and methodological level in economic science. He has simply rewritten considerable parts of economic theory. He has also shown the fundamental unity of both the problems and analytical techniques in economics, partly by a systematic application of the methodology of maximization for a broad set of problems. This means that Samuelson’s contributions range over a large number of different fields.

Samuelson’s influential textbook has been criticized for including comparative growth rates between the United States and the Soviet Union that were inconsistent with historical GNP differences. The 1967 edition extrapolates the possibility of Soviet/U.S. real GNP parity between 1977 and 1995. Each subsequent edition extrapolated a date range further in the future until those graphs were dropped from the 1985 edition. Samuelson concluded the economic description of the Soviet Union and marxism in 1989: “Contrary to what many skeptics had earlier believed, the Soviet economy is proof that … a socialist command economy can function and even thrive.” The Collapse of Communism happened during the same year and the Soviet Union broke up two years later.

Certainly Mr. Krugman can be considered the current embodiement of the Fisher-Samuleson line, Nobel Prize and all.

Paul_Krugman has written extensively on international economics, including international trade, economic geography, and international finance. The Research Papers in Economics project ranks him among the world’s mostinfluential economists. Krugman’s International Economics: Theory and Policy, co-authored with Maurice Obstfeld, is a standard undergraduate textbook on international economics. He is also co-author, with Robin Wells, of an undergraduate economics text which he says was strongly inspired by the first edition of Paul Samuelson‘s classic textbook. Krugman also writes on economic topics for the general public, sometimes on international economic topics but also on income distribution and public policy.

The Nobel Prize Committee stated that Krugman’s main contribution is his analysis of the effects of economies of scale, combined with the assumption that consumers appreciate diversity, on international trade and on the location of economic activity. The importance of spatial issues in economics has been enhanced by Krugman’s ability to popularize this complicated theory with the help of easy-to-read books and state-of-the-art syntheses. “Krugman was beyond doubt the key player in ‘placing geographical analysis squarely in the economic mainstream’ … and in conferring it the central role it now assumes.”

The Wikipedia article does not list his most famous quote/prediction so I have found some contenders: His 2002 prescriptions to help the economy, “To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.” Or his call for alien assistance, “If we discovered that space aliens were planning to attack, and we needed a massive build-up to counter the space alien threat, and inflation and budget deficits took secondary place to that, this slump would be over in 18 months,” Or his apparent prespription for “death panels” to solve budget issues. I am sure readers can suggest their own candidates.

We can only hope that the esteemed economist of empire Krugman will become as popular as the Soviet Nobel winner in economics Leonid_Kantorovich. You haven’t heard of him? He won for his “contribution(s) to the theory of optimum allocation of resources.,” something the USSR was great at. Sorry F.A., but the Economics Prize winners are about as worthy as the Peace Prize winners.

I leave the last word to Lew Rockwell who does not pin down a date but gets to the heart of the matter. He recently said that the banksters and the government they support must “run up against the laws of reality because there are certain things they’re doing that have an economic impact. No matter what they hope or think, or no matter how many people they fool, the kind of money printing that is going on will bring them down.”

[LewRockwell.com, Jannuary 13, 2014]


Randall G. Holcombe is Research Fellow at The Independent Institute, DeVoe Moore Professor of Economics at Florida State University, past President of the Public Choice Society, and past President of the Society for the Development of Austrian Economics. He received his Ph.D. in economics from Virginia Tech, and has taught at Texas A&M University and Auburn University. Dr. Holcombe is also Senior Fellow at the James Madison Institute and was a member of the Florida Governor’s Council of Economic Advisors.
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