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Paul Krugman on Detroit

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This is basically what has happened recently to the UK with its seperate currency from Europe.

That's most definitely not what happened to the UK. It's a ridiculous suggestion. What happened to the UK is that it's doing better than the rest of Europe economically, which is the exact opposite of "this".

 

So this is akin to Greece - they will never totally collapse because Greek workers can't practically work in Germany or England.

Again, ridiculous. Plenty of Greeks do work in Germany or England as we speak. Furthermore, 70% of Greece's young and middle aged population already speak English, and I'm sure they would be just as capable of learning German or any other language if they had to. The "language barrier" is not a barrier, it's a small obstacle anyone with motivation to cross, can.

The reason why most working Greeks are staying put is the bailout they're getting, which will allow the country to ignore basic math for a little longer.

Edited by Nicky

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I don't know too much about Detroit, but I do know that declining cities are features of a currency union as are booming cities. They are inevitable if you have a unified currency (the US dollar) and free movement of labour (ie the USA).  If you didn't have a unified currency (ie if Detriot had its own Detroit dollar) then Detroit's currency would devalue against the US dollar and the city would become competitive again. This is basically what has happened recently to the UK with its seperate currency from Europe.

 

If you didn't have free movement of labour (ie if the USA banned Detroit workers from working in the rest of the USA in the same way as it bans Mexican workers from working in the USA), then Detroit's collapse would also be stemmed. This is akin to the situation in Europe, ie although their is freedom of movement of labour in theory, in practice language barriers prevent this. So this is akin to Greece - they will never totally collapse because Greek workers can't practically work in Germany or England.

 

I don't mention all this to suggest that the USA should implement separate state currencies or labour restrictions! Rather to point out that declining cities and states are an expected feature of America's economy as are booming cities and states. So I think the moral panic and hand wringing over Detroit is ridiculous.

 

You are right in the fact that towns can bust in a free economy as people are free to move around, and that can cause a city to be a shadow of its former self, but that does not cause a city to go bankrupt. 

 

Detroit has gone bankrupt because it is has done what many cities have done and made ridiculous contractual deals that are unsustainable even in a good economy.  The fact Detroit has lost its population (arguably naturally) has only hastened the issue to its inevitable conclusion. 

 

The lost of population in a realistic situation would not cause bankruptcy since all you need to do is spend proportional to the population change.   If the opposite happened for example and the population increased, we wouldn’t blame the cities inability to provide services on a population boom.  It’s incidental to the city’s inability to budget and manage those budgets. 

 

Krugman’s sin is that despite knowing better he is ignoring these facts and perpetuating the error through burying the numbers by turning a local issue into a nation issue.   By accounting tricks he is excusing the idiots that can’t manage a budget and removing judgment from the pervious idiots who entered into unsustainable contracts.  This will give today’s bureaucrats the thin veneer of legitimacy to continue doing the same thing. 

Edited by Spiral Architect

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Krugman’s sin is that despite knowing better he is ignoring these facts and perpetuating the error through burying the numbers by turning a local issue into a nation issue.   By accounting tricks he is excusing the idiots that can’t manage a budget and removing judgment from the pervious idiots who entered into unsustainable contracts.  This will give today’s bureaucrats the thin veneer of legitimacy to continue doing the same thing. 

 

Paul Krugman did none of this. Yeesh.

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He has excused the problem in Detroit as being "small" on the national economic scale.  This is exactly what he has done. 

 

Where did he say he "excused" this?

 

He did simple math to show that the "pension crisis" is small compared to the US GDP. This was in the context of many people describing underfunded pensions in the USA as an existential threat to our country, which of course is false. He did not, in this article (or anyplace else that I know about) call upon the Federal government to bail out Detroit. If he did (and yes, that might certainly be in his character) then he'd be wrong.

 

See how this works? Use reality as your guide, not rationalism...

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He has excused the problem in Detroit as being "small" on the national economic scale.  This is exactly what he has done.

To Keynesian statists like Krugman, its always small if it is someone else's money. If he can fix the problem by stealing 10% of someone else's income, it is a non-problem to him. Edited by softwareNerd

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Yeeeeahhh... not quite... I don't think moving the problem around like this would have solved the core problem. Certainly the implementation of a currency in any case is a very complicated thing, and small countries are basically rated in the same way as any private country would be anyhow...

 

The UK will enjoy the fact that they aren't stuck dealing with Greece (at least directly), but I don't think it changed their overall prospects that much...

 

The UK was objectively and absolutely saved by having its own currency during the financial crisis. The pound dropped by 25% overnight from $2 per £1 to the current rate of $1.5 per £1. This effectively meant that UK exports were and are 25% cheaper overnight which was a massive boost.

Edited by Kate87

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Where did he say he "excused" this?

 

He did simple math to show that the "pension crisis" is small compared to the US GDP. This was in the context of many people describing underfunded pensions in the USA as an existential threat to our country, which of course is false. He did not, in this article (or anyplace else that I know about) call upon the Federal government to bail out Detroit. If he did (and yes, that might certainly be in his character) then he'd be wrong.

 

See how this works? Use reality as your guide, not rationalism...

 

 

He did not come out say it, of course, because he does not see a problem with a city going bankrupt since it is a small part of the whole.

 

Let’s take this from the top. 

 

  • Detroit went bankrupt due to bad policies.

 

  • Krugman is brushing aside these polices by taking a local problem into a national comparison.  A city going bankrupt is a problem within the economy of that city. 

 

  • If you actually want to excuse this on economic utilitarian grounds then you need to compare the deficit to the economy of Detroit. 

 

  • By making it a national issue he is playing a shell game.  Some little old lady in Arizona is not part of the economics of Detroit and her measured spending habits do not represent anything of value to Detroit. 

 

  • Where did I say anything about a bailout?  Where do you get this stuff? 

 

  • Since you mentioned it, it occurred to me that the people who did bail out Detroit 5 years ago did use this sort of justification.  It’s part of the “national economy” and all.  I doubt it will happen this time however. 

 

  • Krugman is excusing it since he is giving moral and academic approval to the actions of the leaders that put the city in this position.  He is taking a big error and claiming it is small.  He is guilty of sanctioning this behavior because he continues to propagate the excuses that excuse this behavior and render it insignificant when the truth is the leaders of this city are guilty as the hell.   

 

  • What is national in the proper sense of the term is that many cities are following the same path and within the context of the economy for each city, the local economy that will have to pay the bills, this is huge and a freight train coming.  It is a “national problem” that many local cities do not have the “local economy” to sustain the contracts they signed.  Even a small kid can tell you that when police can’t protect you and justify it in writing as the city being broke – There is a significant problem. 

 

  • “Yea, go ahead and keep spending money you don’t have – The experts say it is not a problem nationally and Detroit is an isolated incident. Nothing to see here my friend, there are no essential principles linking this – Just random concretes floating in the ether and what your city is doing is just fine.  See our economic model – It says we have plenty of money nationally so your quaint local mismanagement is no problem!” 

 

  • The reality is that Detroit is a hard look at the future of local mismanagement.  Not this rationalized shell game where we transport a local issue into a national comparison so we can ignore painfully obvious facts if reality.    
Edited by Spiral Architect

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You are right in the fact that towns can bust in a free economy as people are free to move around, and that can cause a city to be a shadow of its former self, but that does not cause a city to go bankrupt. 

 

Detroit has gone bankrupt because it is has done what many cities have done and made ridiculous contractual deals that are unsustainable even in a good economy.  The fact Detroit has lost its population (arguably naturally) has only hastened the issue to its inevitable conclusion. 

 

The lost of population in a realistic situation would not cause bankruptcy since all you need to do is spend proportional to the population change.   If the opposite happened for example and the population increased, we wouldn’t blame the cities inability to provide services on a population boom.  It’s incidental to the city’s inability to budget and manage those budgets. 

 

Krugman’s sin is that despite knowing better he is ignoring these facts and perpetuating the error through burying the numbers by turning a local issue into a nation issue.   By accounting tricks he is excusing the idiots that can’t manage a budget and removing judgment from the pervious idiots who entered into unsustainable contracts.  This will give today’s bureaucrats the thin veneer of legitimacy to continue doing the same thing. 

 

With the exception of demographic decline, it is very difficult for a government to plan for decline. Rather every instinct of a politician is to stop the decline by improving the town. This is because people are generally optimists and also that people vote for positive outcomes. In an economy with freedom of movement of labour and in a fixed currency area, some towns WILL fail regardless of anything a politician does. This is an unremarkable fact.

 

That's most definitely not what happened to the UK. It's a ridiculous suggestion. What happened to the UK is that it's doing better than the rest of Europe economically, which is the exact opposite of "this".

 

Again, ridiculous. Plenty of Greeks do work in Germany or England as we speak. Furthermore, 70% of Greece's young and middle aged population already speak English, and I'm sure they would be just as capable of learning German or any other language if they had to. The "language barrier" is not a barrier, it's a small obstacle anyone with motivation to cross, can.

The reason why most working Greeks are staying put is the bailout they're getting, which will allow the country to ignore basic math for a little longer.

 

Honestly I do not know how to respond to your comments. There is a reason the UK has done better than Europe and one of the biggest contributors to its performance has been the devaluation in sterling. I would conservatively guess that 95% of economists would agree with this. A basic reading of any textbook will tell you that a 25% devaluation is a massive boost for exports. The downside was that inflation briefly hovered near 5% during the past few years, and this was caused by higher import prices, again caused by the sterling devaluation.

 

If Detroit's currency started devaluing, residents would've left all the same.

And by the free movement of labor, you mean the free movement of people, of course. Because, last I checked, labor was done by people. And by restricting the movement of people you mean stopping everyone from leaving. And the only way a city can stop its people from leaving is with a giant wall, like the one in Berlin. Maybe land mines and barbed wire, like in North Korea.

I don't think that would've worked for Detroit, btw. I'm pretty sure that if Detroit's government tried to turn the city into a prison back when its residents started moving out, the result would be them hanging from the fences they built, not economic merriment. The American people are not quite ready for what you so obliviously decided to describe as "something other than free movement of labor".

 

OMG, again how to respond to this? I am not advocated the restriction of movement of labour. Did you read my post?

 

As for Greece devaluing their currency: yes, they could have if they had one, but that's not really a good "solution". Similarly, bankruptcy -- like Detroit -- is not a good solution. These are both solutions only in the context of having first created problems that cannot be fixed without breaking sizable promises.

 

Governments with free floating exchange rates don't "decide" to devalue. Rather, the market decides to devalue the currency. This is what happened with the UK with massive purchases of dollars during the financial crisis and massive sales of sterling. This kind of illustrates Austrian economists folly who have always predicted a dollar crisis, when in reality people purchased dollars on a massive scale during the crisis. The dollar still remains strong against a basket of currencies.

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Governments with free floating exchange rates don't "decide" to devalue. Rather, the market decides to devalue the currency. This is what happened with the UK with massive purchases of dollars during the financial crisis and massive sales of sterling. This kind of illustrates Austrian economists folly who have always predicted a dollar crisis, when in reality people purchased dollars on a massive scale during the crisis. The dollar still remains strong against a basket of currencies.

Well, markets decide within a context. Free-floating is fine and dandy, but we're talking about fiat currencies here, with central banks being the primary actor in the puzzle.

You can take all the digs you want against Austrians. So, Objectivists like to eat babies, no?

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  • Krugman is brushing aside these polices by taking a local problem into a national comparison.  A city going bankrupt is a problem within the economy of that city. 

 

"True, in Detroit’s case matters seem to have been made worse by political and social dysfunction."

 

Did you even read that article at all, or did you just assume that Paul Krugman, Socialist, must have said those things because he's a socialist?

 

Pure. Rationalism.

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Crow, I think you're missing part of the point and are being more argumentative than you need to be. People have already made the point, rightly, that while $25 billion is not a big deal to Krugman when compared with the national economy, it's the underlying economic philosophy that Krugman is supporting that is the problem, and people like Krugman would continue saying it's not a big deal even if the problems multiplied. And, the underlying and actual problem would not be addressed -- that we don't have a free market. 

 

In this column, just like all his others, he continues to support socialist/collectivist economic policies, and says things like, "for the most part the city was just an innocent victim of market forces." Because, after all, in Krugman's world the government MUST take some of your wages and manage your retirement for you, so that when the population declines and there's not enough tax revenue coming in to support the Ponzi scheme of funding pensions, then you're just the victim of "market forces." He'd never accept that they are actually the victim of government forces, and government force.

 

And that's what people in this thread, I think, are talking about. While you argue about the number $25 billion, and whether it's big in comparison to the economy or not, other people are talking about the overall philosophy Krugman defends in his column. That's where you aren't seeing the forest for the trees.

Edited by secondhander

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Crow, I think you're missing part of the point and are being more argumentative than you need to be. People have already made the point, rightly, that while $25 billion is not a big deal to Krugman when compared with the national economy, it's the underlying economic philosophy that Krugman is supporting that is the problem, and people like Krugman would continue saying it's not a big deal even if the problems multiplied.

 

And you know this... how? Can you read his mind? Because he certainly didn't write this down anywhere.

 

Based on my own daily reading of PK, he absolutely does not think this. Detroit certainly was a victim of market forces. So are lots of people. How we react to them can be different, but market forces certainly involve winners and losers. So what. He also blames "political dysfunction" aka political corruption. He also blames the disintegration of the concept of city centers. All of this is just plain science and observation, not political editorial.

 

You are all seeing a forest, and then making up what the trees must look like in there, having never set foot in said forest. Pure. Rationalism.

 

If you want to attack Krugman on socialist things he did say, then fine. Making up things he "must be thinking" is idiotic--and completely unnecessary, and completely counter-productive if you actually do want to criticize his underlying belief in socialism.

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Based on my own daily reading of PK, he absolutely does not think this. Detroit certainly was a victim of market forces. So are lots of people. How we react to them can be different, but market forces certainly involve winners and losers. So what. He also blames "political dysfunction" aka political corruption. He also blames the disintegration of the concept of city centers. All of this is just plain science and observation, not political editorial.

You have absolutely no idea what you are talking about. This paragraph: Pure. Irrationalism.

Krugman absolutely DOES believe that these problems can be solved by multiplying the government money thrown at it. You know what his prescription is for the stagnant economy? The government didn't throw enough money at the problem. TARP should have been at least doubled, probably more!!!!

"Market Forces"???? This is your diagnosis???? Completely absurd. I guess you don't realize that it is "market forces" that provide jobs and create wealth. Market forces don't destroy cities. The solution for Detroit is to reinstate "market forces", not more government intervention.

Science and observation??? This is the same kind of observation that says that the rooster crowing causes the sun to come up. You have named effects not causes. Complete logical abdication. Not one of those things you mentioned has anything to do with the destruction of Detroit. They are all liberal talking points.

 

It is ALL political editorial and that is what makes Krugman not just sad but evil: he is a liar. He is smart enough to know that less freedom and government confiscation of wealth are what will destroy this country and yet that is what he advocates. Most politicians are ignorant, Krugman is evil, he seeks destruction. Why you would defend anything he says is beyond me, maybe you actually believe what you wrote in this paragraph: are you just stupid or are you evil?

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You have absolutely no idea what you are talking about. This paragraph: Pure. Irrationalism.

Krugman absolutely DOES believe that these problems can be solved by multiplying the government money thrown at it.

 

 

Please cite exactly where he said this. No, I'm not asking you to tell me he's a Keynesian (duh), no, I'm asking for the citation of where he said that the solution to poor planning, corrupt politicians, and the other things he actually does write about with respect to preventing the next Detroit involves giving them more money.

 

And no, "market forces" et. al. was not my diagnosis, and I don't have one, and we weren't talking about my views about Detroit at all. Nice strawman though.

 

As for the rest of your mindless rant, let's just say that you are proving my point in spades...

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Here's one of the groups that wants to treat pensions-obligations differently from bond-obligation. They also throw in "stop racist attacks" into their agenda, and even "stop LGBTQ attacks".  Ah these poor souls, buffeted by forces that couldn't be of their making... or could it?

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"True, in Detroit’s case matters seem to have been made worse by political and social dysfunction."

 

Did you even read that article at all, or did you just assume that Paul Krugman, Socialist, must have said those things because he's a socialist?

 

Pure. Rationalism.

 

I will say this one last time and if you don't get it I'll assume your just dishonest and stop - I never said Krugman is a Socialist.  It is not even on the radar. If you want to start a thred and discuss this that is fine but it's not important to the case I am making.

 

I also did not say he is complete dismissing every aspect of what Detroit did wrong.  You are tossing straw men and ignoring the point.

 

What I did say is that his economic comparison is sanctioning the bahavior by white washing it.  He, an economist, is taking a local number and comparing it to national numbers, a shell game trick and he knows it.  Real advocates of Socialism or a mixed economy will point to his shell trick in the future to justify their behavior.  Or even just mangers living in mindless non-pricipled land who think they are not Socialists will do it.  Either way his guilt is obvious. 

 

As a complete aside - If I was rationalising I would not be pointing to concretes as proof to my thought process.  A good example of living in a thought process without looking at the real world proof would be an economists that dismisses problems by buring them in accounting tricks despite the fact the city is falling apart and similar cities are following the same path.   

Edited by Spiral Architect

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Here's one of the groups that wants to treat pensions-obligations differently from bond-obligation. They also throw in "stop racist attacks" into their agenda, and even "stop LGBTQ attacks".  Ah these poor souls, buffeted by forces that couldn't be of their making... or could it?

 

I don't see PK in there. Moreover, PK is smart enough to understand that even talking about something like this would essentially eliminate credit and/or send their rates to the moon.

 

Here's another link that has nothing to do with Paul Krugman.

 

This is fun.

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I will say this one last time and if you don't get it I'll assume your just dishonest and stop - I never said Krugman is a Socialist.  It is not even on the radar. If you want to start a thred and discuss this that is fine but it's not important to the case I am making.

 

Well, clearly PK is a "socialist", loosely speaking. Or maybe a mainstream mixed-economy advocate, or something like that. In this context my point was that he is not, in any way, an advocate of a proper government based on individual rights. I wasn't "accusing' anybody of labeling him a socialist (that was my label), I was accusing people of misquoting and willfully misinterpreting somebody whose premises ideas are wrong. My appeal is for all of us to take the high ground, epistemologically, and not engage in the fabrication of, well, anything.

 

What I did say is that his economic comparison is sanctioning the bahavior by white washing it.  He, an economist, is taking a local number and comparing it to national numbers, a shell game trick and he knows it.  Real advocates of Socialism or a mixed economy will point to his shell trick in the future to justify their behavior.  Or even just mangers living in mindless non-pricipled land who think they are not Socialists will do it.  Either way his guilt is obvious. 

 

As a complete aside - If I was rationalising I would not be pointing to concretes as proof to my thought process.  A good example of living in a thought process without looking at the real world proof would be an economists that dismisses problems by buring them in accounting tricks despite the fact the city is falling apart and similar cities are following the same path.   

 

 

Can you please cite exactly where PK compares the Detroit number to a national number? I never saw that anywhere.

 

Now, as to faulting any sort of writer for the ways in which people interpret and use their ideas, that seems like a slippery slope to me. There's a Christian posting here occasionally who swears that Objectivism is compatible with his beliefs, for Christ sakes.

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I honestly can't stand to read a single paragraph that crackpot writes. If I ever saw him walking down the street, I would have a hard time not killing him.

 

:-), :-( *

 

 

* Funny (because it makes my point), but sad (because it makes my point)...

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Well, clearly PK is a "socialist", loosely speaking. Or maybe a mainstream mixed-economy advocate, or something like that. In this context my point was that he is not, in any way, an advocate of a proper government based on individual rights. I wasn't "accusing' anybody of labeling him a socialist (that was my label), I was accusing people of misquoting and willfully misinterpreting somebody whose premises ideas are wrong. My appeal is for all of us to take the high ground, epistemologically, and not engage in the fabrication of, well, anything.

 

OK, my bad.  From your tone I misunderstood and appreciate that.  My problem is I don't think I'm misquoting him but I get your point so it's cool. 

 

 

Can you please cite exactly where PK compares the Detroit number to a national number? I never saw that anywhere.

 

"Are Detroit’s woes the leading edge of a national public pensions crisis? No. State and local pensions are indeed underfunded, with experts at Boston College putting the total shortfall at $1 trillion. But many governments are taking steps to address the shortfall. These steps aren’t yet sufficient; the Boston College estimates suggest that overall pension contributions this year will be about $25 billion less than they should be. But in a $16 trillion economy, that’s just not a big deal — and even if you make more pessimistic assumptions, as some but not all accountants say you should, it still isn’t a big deal."

 

And while were at excussing the people who screwed up:

 

"So was Detroit just uniquely irresponsible? Again, no. Detroit does seem to have had especially bad governance, but for the most part the city was just an innocent victim of market forces."

 

And to just slam the point home:

 

"There are influential people out there who would like you to believe that Detroit’s demise is fundamentally a tale of fiscal irresponsibility and/or greedy public employees. It isn’t."

 

 

After giving lip service to the obvious mismanagement he completely excuses it by blaming "market forces" as if "market forces" somehow forced the city to enter into bad contracts that they could not have paid for in any economy.   He white washed the problem by comparing it to the national economy, which isn't even valid if it was a national issue.  He is guilty and after reading that again I am now certain that he is completely dishonest and discredited. 

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"So was Detroit just uniquely irresponsible? Again, no. Detroit does seem to have had especially bad governance, but for the most part the city was just an innocent victim of market forces."

Also notice the spin-doctor phrase "uniquely irresponsible". Stockton declared bankruptcy, as have so many others over time. In fact, one can take any murderer and say he's not "uniquely immoral". What does that actually mean in real life, outside the spin-doctor's convoluted brain.

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There are two separate points that PK made here which for some reason people seem to be smashing together:

 

1. The Detroit was an "innocent victim of market forces" and other factors such as incompetence, corruption, Big Lies, etc. had little to do with it.

 

2. The there is no serious "pension crisis" in the USA in the sense that underfunded pensions will drive the USA to Greece-like bankruptcy.

 

I'll take the second one first, as it's simple math: while the issue of underfunded pensions is annoying, and has deep (bad) philosophical roots, it's not a crisis for the USA as a whole. In the above quote is is absolutely not comparing Detroit's pension shortfall to the USA. For that matter, he's trying to make the opposite point which is that the entire USA is not going to Hell in a Handbasket like Detroit because of pensions, the bluster from Fox News Republicans notwithstanding.

 

As for the first point, sure, it's PK's way of calling a mixed economy glass "half full". The fact is that if Detroit were Silicon Valley or New York City, then they'd be fine since with lots of money you can make all kinds of mistakes and still be fine ("you'll do something Mr. Reardon!"). This is what anybody using math will tell you. It's not a value judgement, it's just math.

 

As for reading in a deeper evil plot on the part of PK's blog post, I'm just not seeing it, and the fact that people are predisposed to simply making up things he said out of thin air is telling.

 

The deeper plot here is the bankruptcy of the Republicans and the Tea Party, et. al. Since they cannot come clean and justify liberty on principled grounds they just make shit up, abolishing reason from political discourse. This is far more destructive than any egghead like PK could ever be.

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