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Archive for the ‘Paul Krugman’ Category

While Paul Krugman sometimes misuses and misinterprets numbers for ideological reasons (see his errors regarding the United States, France, Canada, the United States, Estonia, Germany, the United States, and the United Kingdom), he isn’t oblivious to reality.

At least not totally.

He’s acknowledged, for instance, that there is a Laffer Curve and that tax rates can become so onerous that tax revenues actually decline.

Now he’s had another encounter with the real world.

In a column that was mostly a knee-jerk defense of Biden’s class-warfare tax policy, Krugman confessed yesterday that big government ultimately means big tax increases for lower-income and middle-class people.

…is trying to “build back better” by taxing only the very affluent feasible? Is it wise? …There’s a good case that the kind of society progressives want us to become, with a very strong social safety net, can’t be paid for just by taxing the rich. A country like Denmark, for example, does have a high top tax rate… But Denmark also has very high middle-class taxation, in particular a 25 percent value-added tax, effectively a national sales tax. …the fact that even the Nordic countries feel compelled to raise a lot of money from the middle class suggests that there are limits…to how much you can raise just by taxing the rich. So if you want Medicare for all, Nordic levels of support for child care and families in general, and so on, just raising taxes on the 400K-plus elite won’t get you there.

It may not happen often, but Krugman is completely correct.

European-sized government requires European-style taxes on everyone. And that means a big value-added tax, as Krugman notes. And it almost certainly also means big energy taxes, higher payroll taxes, and much higher income tax rates on middle-class taxpayers.

This chart from Brian Riedl shows that government spending already was on track to become a bigger burden for the American economy, and Biden is proposing to go even faster in the wrong direction.

The growing gap between the blue lines and red lines implies giant tax increases. At the risk of understatement, there’s no way to finance that ever-expanding government by just pillaging upper-income taxpayers.

By the way, Krugman is right about big government leading to higher taxes on ordinary people, but he’s wrong about the desirability of that outcome.

He wants us to think that big government means a “better America,” but all the economic data tells a different story. A bigger fiscal burden means much lower living standards.

P.S. If you want another example of Krugman being right on a fiscal issue, click here.

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In my humble opinion, Ronald Reagan was the only president in my lifetime who deserves praise for both believing in liberty and delivering good results.

His sound policies help to explain why the economy boomed after his policies were implemented, which is in stark contrast to the economy’s anemic performance during the Obama years.

There’s really no comparison between the two.

But not everyone appreciates Reagan’s accomplishments.

In his recent newsletter, Paul Krugman of the New York Times asserts that the Gipper’s economic record doesn’t merit praise.

…the legend of the Reagan economy…plays an outsized role in conservative economic doctrine to this day. …the core of modern conservative economic doctrine is the assertion that cutting taxes, especially on the wealthy, does wonderful things for the economy. And they hold up Reagan’s economic record as proof of that doctrine’s truth. …The truth is that Reagan doesn’t deserve blame for the 1981-2 recession — but he doesn’t deserve credit for the subsequent recovery, either. Instead, it was all about the Federal Reserve. …tax-cutting conservatives have been falsely claiming credit for that growth ever since.

I give Krugman credit for realizing that it would be preposterous to blame Reagan for the 1981-82 recession (I don’t know if Krugman understands that the downturn was baked into the cake by the Carter-era inflation, but he probably knows that it began before Reagan’s tax cut was even enacted, much less implemented).

But he then makes two mistakes, neither of which is trivial.

First, Krugman overlooks all of Reagan’s other accomplishments. Not only the impact of the tax cuts and tax reform, but also the spending restraint and deregulation.

Second, he wants to give all the credit to the Federal Reserve, yet central banks, while ostensibly independent, don’t operate in a vacuum. One of Reagan’s great accomplishments – as recognized by unbiased establishment types – was to support the temporarily painful shift to a non-inflationary monetary policy.

Krugman raises several additional points in his newsletter.

Since 1990 claims that tax cuts will generate huge booms — and that tax hikes will lead to disaster — have belly-flopped again and again. President Bill Clinton’s tax increases in 1993 didn’t cause the recession just about everyone on the right predicted; President George W. Bush’s tax cuts didn’t produce a “Bush boom.” The Trump tax cut didn’t deliver anything like the promised results. In 2011 Gov. Sam Brownback of Kansas cut taxes sharply, promising that this would lead to a surge in growth. It didn’t. At the same time, California raised taxes; conservatives declared that this would be “economic suicide.” It wasn’t.

I’ll begin by (sort of) agreeing with Krugman that folks on the right can be guilty of acting as if all that matters is tax policy (in other words, the notion that all tax cuts are a guaranteed elixir for growth and that all tax increases lead to economic collapse).

That’s obviously not true. Indeed, fiscal policy only accounts for about 20 percent of a nation’s score in Economic Freedom of the World. And since fiscal policy also includes the burden of government spending, that means tax policy may only explain about 10 percent of economic performance.

And when you understand that, it’s easy to see that Krugman is attacking a straw man.

For instance, nobody should be surprised that the economy didn’t do well under Bush because his one good policy (the 2003 tax cut) was more than offset by all of his bad policies (more spending, more regulation, entitlement expansion, education centralization, TARP, etc).

Likewise, nobody should be surprised that the economy prospered under Clinton because his one bad policy (the 1993 tax hike) was more than offset by all the good policies adopted in the 1990s (spending restraint, welfare reform, deregulation, etc).

The bottom line is that good tax policy is important, but you also have to pay attention to all the other policies that also impact economic performance.

And when you do, Reagan’s performance looks even more impressive.

P.S. Reagan did engage in some protectionism, unfortunately, which is why America’s score on trade declined during the 1980s. In his defense, I’ll point out that Reagan believed in free trade and he was the one who started the negotiations that led to both NAFTA and the WTO. So I would argue that, in the long run, his tenure was a net plus for trade.

P.P.S. When I write about Reagan’s policies, I can’t resist pointing out that his policies resulted in big increases in tax revenue from upper-income taxpayers (in other words, powerful evidence of the Laffer Curve).

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If you ask what worries me about the incoming Trump Administration, I’ll immediately point to a bunch of policy issues.

Others, though, are more focused on whether Trump’s business empire will distort decisions in the White House.

Here’s what Paul Krugman recently wrote about Trump and potential corruption.

…he’s already giving us an object lesson in what real conflicts of interest look like, as authoritarian governments around the world shower favors on his business empire. Of course, Donald Trump could be rejecting these favors and separating himself and his family from his hotels and so on. But he isn’t. In fact, he’s openly using his position to drum up business. …The question you need to ask is why this matters. …America is a very rich country, whose government spends more than $4 trillion a year, so even large-scale looting amounts to rounding error. What’s important is not the money that sticks to the fingers of the inner circle, but what they do to get that money, and the bad policy that results. …what’s truly scary is the potential impact of corruption on foreign policy. …someplace like Vladimir Putin’s Russia can easily funnel vast sums to the man at the top… So how bad will the effects of Trump-era corruption be? The best guess is, worse than you can possibly imagine.

I’m tempted to ask why Krugman wasn’t similarly worried about corruption over the past eight years. Was he fretting about Solyndra-type scams? About the pay-to-play antics at the Clinton Foundation? About Operation Choke Point and arbitrary denial of financial services to law-abiding citizens?

He seems to think that the problem of malfeasance only exists when his team isn’t in power. But that’s totally backwards. As I wrote back in 2010, people should be especially concerned and vigilant when their party holds power. It’s not just common sense. It should be a moral obligation.

But even if Krugman is a hypocrite, that doesn’t mean he’s wrong. At least not in this case. He is absolutely on the mark when he frets about the “incentives” for massive looting by Trump and his allies.

But what frustrates me is that he doesn’t draw the obvious conclusion, which is that the incentive to loot mostly exists because there’s an ability to loot. And the ability to loot mostly exists because the federal government is so big and has so much power.

And as Lord Acton famously warned, power is very tempting and very corrupting.

Which is why I’m hoping that Krugman will read John Stossel’s new column for Reason. In the piece, John correctly points out that the only way to “drain the swamp” is to shrink the size and scope of government.

…today’s complex government allows the politically connected to corrupt… most everything. …In the swamp, no one but taxpayers pays for their mistakes. …it’s well worth it for companies to invest in lobbyists and fixers who dive into the swamp to extract subsidies.For taxpayers? Not so much. While the benefits to lobbyists are concentrated, taxpayer costs are diffuse. …Draining the swamp would mean not just taking freebies away from corporations—or needy citizens—but eliminating complex handouts like Obamacare. Candidate Trump said he would repeal Obamacare. Will he? He’s already backed off of that promise, saying he likes two parts of the law—the most expensive parts.

As you can see, Stossel understands “public choice” and recognizes that making government smaller is the only sure-fire way of reducing public corruption.

Which is music to my ears, for obvious reasons.

By the way, the same problem exists in many other countries and this connects to the controversies about Trump and his business dealings. Many of the stories about potential misbehavior during a Trump Administration focus on whether the President will adjust American policy in exchange for permits and other favors from foreign governments.

But that temptation wouldn’t exist if entrepreneurs didn’t need to get permission from bureaucrats before building things such as hotels and golf courses. In other words, if more nations copied Singapore and New Zealand, there wouldn’t be much reason to worry whether the new president was willing to swap policy for permits.

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