March 31, 2003, 1:30 p.m.
Krugman: Awesomely Wrong
With shocking speed, the Truth Squad sets the Cheney record straight.

as Paul Krugman finally relented in his savage campaign of Bush-bashing? No such luck. While his New York Times column Friday only mentioned the president's name once, he instead beat up on Vice President Richard Cheney.


The column claimed the Bush administration has been arrogant and overconfident in waging war in Iraq. But the particular news hook that Krugman used to make his attack is so irrelevant, so totally unrelated to the war, that it's something only a Princeton economics professor could think of.

Krugman claimed that back in 2001, the report of the National Energy Policy Development Group — chaired by Cheney — completely misdiagnosed the cause of the California electric power crisis. He said the group overlooked the role of market manipulation by power producers. Last week the Federal Energy Regulatory Commission said in a report that energy companies did manipulate the electricity market during California's power crisis in 2001. An inspired Krugman then wrote of Cheney and the 2001 report,

They were supremely confident — and yet with shocking speed everything they had said was proved awesomely wrong.

Get it? Shocking speed and awesomely wrong. That's no coincidence. Krugman is manufacturing "disturbing parallels" between the Bush administration's alleged overconfidence in energy policy and alleged overconfidence in the war on Iraq.

Not incidentally, Krugman also needed to tell you how he got it right, because he blamed market manipulation all along. As he put it in the column, " . . . yes, I am patting myself on the back for getting it right." Not an incredible claim on the face of it: Knees always jerk toward blaming any and all problems on the corruption of corporations and plutocrats.

Okay. Time to call in the Krugman Truth Squad.

First, has the Bush administration really been so overconfident about the war in Iraq? Krugman wrote that

Right now, pundits are wondering how Mr. Cheney — who confidently predicted that our soldiers would be "greeted as liberators" — could have been so mistaken.

I suppose it's true that "pundits are wondering." In fact, pundits are wondering on overdrive these days. They're microanalyzing every possible political and military nuance of the war. It's a 7-by-24 living-color wall-to-wall wondering-a-thon. But readers of NRO have a perspective on all this. Friday's history lesson from Victor David Hanson should put to rest any silly ideas that this war has to be concluded in under 45 seconds in order to be regarded as a success.

But was Cheney really overconfident? Krugman Truth Squad member Tom Maguire, on his Just One Minute blog, went back to the transcript of Cheney's Meet the Press interview with Tim Russert on March 16, and found it impossible to reconcile Cheney's nuanced appraisal of the prospects of war with Krugman's characterization of it as a "confident prediction" that is now "so mistaken."

But now let's turn to Krugman's claims about the California power crisis and take a look at the report of Cheney's NEPD Group. Was it "supremely confident"? Hardly — it reads with the same bland bureaucratic self-assurance of nearly any other government task-force report, and offers up the usual broad list of findings and recommendations designed to please just about everybody. Krugman condensed it as

the energy crisis was a long-term problem caused by meddling bureaucrats and pesky environmentalists, who weren't letting big companies do what needed to be done. The solution? Scrap environmental rules, and give the energy industry multibillion-dollar subsidies.

The prime recommendation of the report — which President Bush acted on in an executive order the day after it was released — was to require "meddling bureaucrats" to prepare a statement of the "energy effects" of new regulations. Modest exploitation of the Arctic National Wildlife Refuge was recommended — hardly "scrapping environmental rules." And the so-called "multibillion-dollar subsidies" to the energy industry were in the form of grants for just the kind of environmentally friendly alternative-energy research that liberals love. Perhaps Prof. Krugman's objection is that he fears the research would be done by corporations, not universities like Krugman's Princeton.

For Krugman, the heart of what's wrong with the Cheney report is that it didn't finger market manipulation for causing the California energy crisis. But he claimed last week's FERC report did just that:

But now we have a new report from the Federal Energy Regulatory Commission, which until now has discounted claims of market manipulation. No more: the new report concludes that market manipulation was pervasive, and offers a mountain of direct evidence, including phone conversations, e-mail and memos. There's no longer any doubt: California's power shortages were largely artificial, created by energy companies to drive up prices and profits.

As I pointed out on my blog, the Conspiracy to Keep You Poor & Stupid, this claim by Krugman is substantially false. As Krugman might say, it is "awesomely wrong." And, again as he might say, I exposed it "with shocking speed." Within minutes of Krugman's column being posted on the Times website in the wee hours Friday morning, I had download the FERC report for myself and read the second and third sentences of its summary:

Staff concludes that supply-demand imbalance, flawed market design and inconsistent rules made possible significant market manipulation as delineated in final investigation report. Without underlying market dysfunction, attempts to manipulate the market would not be successful.

John Weidner summed up the California situation a bit more bluntly on his blog, Random Jottings (where, I have just discovered, another "Krugman Truth Squad" has been independently operating). Weidner wrote that

The 'perfect storm' of events and circumstances that led to the shortages included a nationwide rise in natural gas prices over which the state had no control, a three-year drought that reduced hydroelectric generation in California by over 20% during the late 1990s, and an explosion in August 2000 in the El Paso pipeline that carries natural gas from Texas to southern California. All of these factors led to increased wholesale costs of gas-fired electricity. However, under the California regulations these higher wholesale prices could not be passed on to consumers. So while electricity suppliers were going bankrupt, consumers were turning on the juice as if nothing was amiss. . . . Meanwhile the boob in the governor's office was doing his best to muddy the waters by finding scapegoats, mostly out of state suppliers, and avoiding blame himself.

So maybe Cheney's task force got it wrong by overlooking market manipulation. But Krugman's just plain wrong to blame manipulation entirely — and he's lying to the extent that he claims the FERC report is doing that.

— Donald Luskin is chief investment officer of Trend Macrolytics LLC, an independent economics and investment-research firm. He welcomes your comments at


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