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July 06, 2008

Yes, It Is Donald Luskin Time...

Correspondents have been asking me why I have given up setting out my periodic markers on the internet warning people that more often than not National Review's Donald Luskin simply does not know what he is talking about. The truth is that I just haven't the heart: it's simply too depressing to surf on over there...

But here is one sent me a month or so ago:

The Conspiracy to Keep You Poor and Stupid: KRUGMANOMICS: MAKING IT UP AS HE GOES ALONG: Here's the incisive economic analysis of Paul Krugman, from his New York Times column today. Hey, mom and dad, if you're spending $50,000 a year to send your kid to Princeton to learn this, then here's my economic analysis for you: save your money. When it serves his purpose to ignore the facts... he does so.... [W]hen people's beliefs interfere with his agenda, he comes up with some convenient "facts":

[C]onsumers are, for the first time in decades, telling pollsters that they expect a sharp rise in prices over the next year. Fair enough. But where are the unions demanding 11-percent-a-year wage increases?.... In fact, wage growth actually seems to be slowing...

Hasn’t he been telling us for 7 years that wages have been going down? How then is wage growth suddenly slowing?

The answer, of course, is simple: Measured real wages--that is, the number of dollars you have paid divided by the price level--have been at best flat or falling for almost this entire decade. That is because measured nominal wages--how many dollars you get paid--have been growing more slowly than prices. And just now the rate of nominal wage growth has been falling.

If you understand that real wages and nominal wages are two different things, you don't get confused.

Does Luskin understand this? I think not.

I remember a similar mistake from the past: Luskin's attempt to compute the real exchange rate:

Grasping Reality with Both Hands: Economist Brad DeLong's Fair, Balanced, and Reality-Based Semi-Daily Journal

on which Luskin commented:

The chart... shows the real exchange rate of the US dollar for a decade before the 1982 memo, and then through the end of the Reagan presidency. It did drift slightly lower for the first couple of years after the memo. But then it took off to new highs -- nothing resembling anything like [Summers's and Krugman's late 1982 prediction of] a "return to approximately their historical levels."

when the actual real exchange rate was:

Grasping Reality with Both Hands: Economist Brad DeLong's Fair, Balanced, and Reality-Based Semi-Daily Journal

(Parenthetically, Paul and Larry look pretty smart and dead on: after one more upward leap in the exchange rate bubble of 1984-85, the real exchange rate did indeed go back to its historical level. There's a reason that people pay attention to them.)

It looks like what Luskin did was to take the nominal price of a basket of foreign currencies in nominal dollars and then multiply that by the U.S. price level--instead of taking the nominal exchange rate (the value of the dollar in terms of foreign countries) and then multiplying that by the U.S. and dividing that by the average foreign price level. He (i) takes the inverse of what he wants, (ii) does a transformation that turns the measure he is using into total garbage, and (iii) forgets that you have to adjust for changes in foreign price levels as well. This demobnstrates a truly rare degree of confusion between nominal and real magnitudes...

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Comments

Hacktastic! I don´t know why I get such a kick out of morons getting slapped around, but it sure is great fun. Kinda why I read sadlyno! alot.

Now Luskin is remarkable in that he is consistantly stupid. I, for one, think that Prof. Delong ought to read luskin every day for two reasons: 1) It will produce the special kind of Delongesque wit we love (and feed my addicition to seeing morons dissected) and 2) It will stop Prof. Delong from handing out "stupidest man alive" awards to lesser stupidities.

Isn't it possible that Luskin really understands these issues quite well but just prefers to mislead people (AKA lying) for reasons of his own, perhaps to keep his name on the invitation list to parties at the finest private clubs? Of course, this is the usual stupid-or-evil conundrum we face with the current crop of so-called conservatives.... Isn't it interesting that honesty used to be a virtue admired by conservatives?

Well, Luskin does disclose on his website that he is the acting head of "The Conspiracy to Keep You Poor and Stupid."

Truth hides in plain sight.

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