Feeds:
Posts
Comments

Posts Tagged ‘Paul Krugman’

I’m not the biggest fan of Paul Krugman in his role as a doctrinaire advocate of leftist policy (he used to be within the mainstream and occasionally point out the risks of government intervention in his former role as an academic economist).

It’s not just that he believes in big government. He also has an unfortunate habit of misinterpreting (the charitable explanation) data when advocating higher taxes and more spending.

  • In 2015, he cherry-picked job numbers to make it seem as if Obama’s policies were producing good employment data.
  • Earlier that year, Krugman asserted that America was outperforming Europe because our fiscal policy was more Keynesian, yet the data showed that the United States had bigger spending reductions and less red ink.
  • In 2014, he asserted that a supposed “California comeback” in jobs somehow proved my analysis of a tax hike was wrong, yet only four states at the time had a higher unemployment rate than California.
  • And here’s my favorite: In 2012, Krugman engaged in the policy version of time travel by blaming Estonia’s 2008 recession on spending cuts that took place in 2009.

As you can see, he’s not exactly a paragon of sound thinking and careful analysis.

But there must be a blue moon in the forecast because the New York Times columnist has an accurate criticism of Donald Trump’s tax plan.

Before sharing Krugman’s critique, here’s the position of the Trump campaign, which asserts that the World Trade Organization has rigged the rules against America by allowing nations to give rebates to exporters so that there is no value-added tax (VAT) on good and services sold to consumers in other nations.

…there is a more subtle tax problem pulling US corporations offshore. It relates to the unequal treatment of the US income tax system by the World Trade Organization (WTO). …While the US operates primarily on an income tax system, all of America’s major trading partners depend heavily on a “value-added tax” or VAT system. Under current rules, the WTO allows America’s trading partners to effectively create backdoor tariffs to block American exports and backdoor subsidies to penetrate US markets. Here’s how this exploitation works: VAT rates are typically between 15% and 25%. …Under WTO rules, any foreign company that manufactures domestically and exports goods to America (or elsewhere) receives a rebate on the VAT it has paid. This turns the VAT into an implicit export subsidy. At the same time, the VAT is imposed on all goods that are imported and consumed domestically so that a product exported by the US to a VAT country is subject to the VAT. This turns the VAT into an implicit tariff on US exporters over and above the US corporate income taxes they must pay. Thus, under the WTO system, American corporations suffer a “triple whammy”: foreign exports into the US market get VAT relief, US exports into foreign markets must pay the VAT, and US exporters get no relief on any US income taxes paid. The practical effect of the WTO’s unequal treatment of America’s income tax system is to give our major trading partners a 15% to 25% unfair tax advantage in international transactions.

In the wonky jargon of public finance, VATs are said to be “border adjustable.” And here’s Krugman’s caustic observation about the above argument.

I’ve been writing about Donald Trump’s claim that Mexico’s value-added tax is an unfair trade policy, which is just really bad economics. …a VAT has the same effects as a sales tax. Now, nobody thinks that sales taxes are an unfair trade practice. …Trump wasn’t saying ignorant things off the top of his head: he was saying ignorant things fed to him by his incompetent economic advisers. …Should we be reassured that Trump wasn’t actually winging it here, just taking really bad advice? Not at all.

I don’t know whether it’s fair to criticize Trump’s economic advisers (after all, are they the ones who developed this position, or were they simply told to justify what Trump was saying?), but I certainly agree with Krugman that other nations don’t gain a trade advantage simply because they have a VAT.

Here’s some of what I wrote about this issue earlier this year.

For mercantilists worried about trade deficits, “border adjustability” is seen as a positive feature. But not only are they wrong on trade, they do not understand how a VAT works. …Under current law, American goods sold in America do not pay a VAT, but neither do German-produced goods that are sold in America. Likewise, any American-produced goods sold in Germany are hit be a VAT, but so are German-produced goods. In other words, there is a level playing field. The only difference is that German politicians seize a greater share of people’s income. So what happens if America adopts a VAT? The German government continues to tax American-produced goods in Germany, just as it taxes German-produced goods sold in Germany. …In the United States, there is a similar story. There is now a tax on imports, including imports from Germany. But there is an identical tax on domestically-produced goods. And since the playing field remains level, protectionists will be disappointed. The only winners will be politicians since they have more money to spend.

If you want more information, I also discuss the trade impact of a VAT in this video.

So, yes, Krugman is right. At least on this particular issue.

Actually, he’s even right about another part of his column, when he pointed out that if a VAT is supposedly good for competitiveness, then this should give New York (with a high sales tax) an advantage over Delaware (with no sales tax). As Krugman points out, this is absurd.

…nobody thinks that sales taxes are an unfair trade practice. New York has fairly high sales taxes; Delaware has no such tax. Does anyone think that this gives New York an unfair advantage in interstate competition?

Indeed, the answer to Krugman’s rhetorical question is that lots of people recognize that Delaware has the advantage. This is why politicians in many states (especially those with punitive sales taxes) are pushing for the so-called Marketplace Fairness Act in hopes of forcing merchants in states like Delaware to become deputy tax collectors for states like New York (this would be an odious expansion of extraterritorial tax powers for state governments).

I don’t want to get all wonky, but this fight revolves around whether consumption taxes should be levied where goods and services are sold (the origin-based approach) or whether the taxes should be collected based on where the consumer lives (the destination-based approach). High-tax governments prefer the latter because they want to make it difficult for their residents to shop where the tax burden is lower.

By the way, politicians in Europe and elsewhere impose destination-based VATs for the same reason. They don’t like tax competition. So that’s yet another reason (above and beyond the fact that they are money machines for big government) to dislike the VAT.

I suspect, incidentally, that Krugman favors destination-based consumption taxes over origin-based systems, so even though he’s right about VATs and trade, he probably compensates by being wrong on an issue that really matters.

 

 

Read Full Post »

I sometimes feel guilty when commenting on Paul Krugman’s work.

In part, this is because I don’t want to give him any additional attention, but mostly it’s because it’s too easy. Like shooting fish in a barrel.

His advocacy of Keynesian economics, for instance, makes him a very easy target.

And it’s always amusing to cite his words when exposing horror stories about the U.K.’s government-run healthcare system.

That being said, I feel obliged to write about Krugman when he attacks me or the Cato Institute.

Now he’s attacked Cato again and he looks like an even bigger fool.

Here’s some of what he wrote on May 15.

David Glasner has an interesting post about how the Cato Institute suppressed an old paper of his, refusing either to publish it or release it for publication elsewhere, not for a few months, but for decades. What Glasner may not know or recall is that Cato has a long-standing habit of trying to send inconvenient history down the memory hole.

When I first read that, I wondered why this was a bad thing. After all, should Cato be obliged to publish articles if we don’t fully agree with them?

But perhaps we had made some sort of commitment and were guilty of reneging. That certainly wouldn’t reflect well on us. So was Cato indeed guilty of spiking a paper we had promised to publish?

Nope.

On the same day that Krugman published his attack, Mr. Glasner published a correction. After emailing back and forth with the relevant person at Cato, he acknowledged that “my recollection of the events I describe was inaccurate or incomplete in several respects”  and that “Cato did not intend to suppress my paper.”

Since Krugman wrote his attack on Cato before Glasner wrote his correction, one presumably could forgive Krugman for an honest mistake. After all, surely he would immediately correct his column, right?

Nope.

On May 19, Jonathan Adler wrote about Krugman’s unseemly behavior in the Washington Post.

Krugman’s charge is false… As Glasner recounts in an update to the post that Krugman cited, the initial allegation was based upon a misunderstanding. Cato had not sought to suppress Glasner’s paper. Indeed, Cato had offered to publish it, albeit not as quickly as either Cato or Glasner had hoped. Once this was cleared up, Glasner forthrightly acknowledged the error. “Evidently, my recollection was faulty,” Glasner wrote. Krugman, however, has yet to update his post.

Wow. That doesn’t look good for Krugman.

But perhaps Adler’s comments had an impact because Krugman did add an update to his post.

In an amazing bit of chutzpah, however, he said it didn’t matter.

Glasner has retracted, saying he got his facts wrong. Unfortunate. It has no bearing on what I wrote, however.

Wow again.

I can understand that it’s no fun to admit mistakes. I’ve had to do it myself. More than once.

But you own up to errors because it’s the right thing to do.

Ethical behavior, however, is apparently not necessary if you’re Paul Krugman.

By the way, Krugman also attacked Cato in his column for supposedly trying to “pretend that they had never used the term privatization” when writing about Social Security personal accounts.

I’m not sure why this is supposed to be damning. All groups try to come up with terms and phrases that work best when trying to advocate particular policies.

Heck, I recently wrote about whether advocates of economic freedom should discard “capitalism” and talk instead about “free markets” or “free enterprise.”

So if Cato people decided to write about Social Security personal accounts instead of Social Security private accounts, the only crime we were guilty of is…gasp…marketing.

P.S. I’ve had some fun over the years by pointing out that Paul Krugman has butchered numbers when writing about fiscal policy in nations such as France, Estonia, Germany, and the United Kingdom.

P.P.S. In addition to defending Cato, I’ve also had to explain why Krugman was being disingenuous when he attacked the Heritage Foundation.

Read Full Post »

When I get my daily email from the editorial page of the New York Times, I scroll through to see whether there’s anything on economic issues I should read.

As a general rule, I skip over Paul Krugman’s writings because he’s both predictable and partisan. But every so often, his column will grab my attention, usually because the headline will include an assertion that doesn’t make sense.

The bad news is that this is usually a waste of time since most of his columns are ideological rants. But the good news is that I periodically catch Krugman making grotesque errors when he engages in actual analysis. Here are a few examples:

  • Earlier this year, Krugman asserted that America was outperforming Europe because our fiscal policy was more Keynesian, yet the data showed that the United States had bigger spending reductions and less red ink.
  • Last year, he asserted that a supposed “California comeback” in jobs somehow proved my analysis of a tax hike was wrong, yet only four states at the time had a higher unemployment rate than California.
  • And here’s my favorite: In 2012, Krugman engaged in the policy version of time travel by blaming Estonia’s 2008 recession on spending cuts that took place in 2009.

And if you enjoyed those examples, you can find more of the same by clicking here, here, here, here, here, here, here, and here.

But perhaps he’s (sort of) learning from his mistakes. Today, we’re going to look at Paul Krugman’s latest numbers and I’ll be the first to say that they appear to be accurate.

But accurate numbers don’t necessarily lead to honest analysis. Krugman has a post featuring this chart, which is supposed to show us that GOP presidential candidates are wrong to pursue “Bushonomics.”

In looking at this chart and seeing how Krugman wants it to be interpreted, I can’t help but think of the famous zinger Reagan used in his debate with Jimmy Carter: “there you go again.”

Let’s consider why he’s wrong.

First, he asserts the chart is evidence that GOP candidates shouldn’t follow Bushonomics.

I actually agree. That’s because the burden of government spending jumped significantly during the Bush years and the regulatory state became more oppressive. All things considered, Bush was a statist.

Krugman, however, would like readers to believe that Bush was some sort of Reaganite. That’s where we disagree. And if you want to know which one of us is right, just check what happened to America’s rating in Economic Freedom of the World during the Bush years.

Second, Krugman would like readers to think that Presidents have total control over economic policy. Yet in America’s separation-of-powers system, that’s obviously wrong. You also need to consider what’s happening with the legislative branch.

So I added a couple of data points to Krugman’s chart. And, lo and behold, you can just as easily make an argument that partisan control of Congress is the relevant variable. As you can see, Republican control of Congress boosted job growth for Obama, whereas the Democratic takeover of Congress led to bad results during the Bush years.

By the way, I don’t actually think congressional control is all that matters. I’m simply making the point that it is misleading to assert that control of the White House is all that matters.

What is important, by contrast, are the policies that are being implemented (or, just as important, not being implemented).

And since the economic policies of Bush and Obama have been largely similar, the bottom line is that it’s disingenuous to compare job creation during their tenures and reach any intelligent conclusions.

Third, since Krugman wants us to pay attention to job creation during various administrations, we can play this game – and actually learn something – by adding another president to the mix.

Krugman doesn’t identify his data source, but I assume he used this BLS calculation of private employment (or something very similar).

So I asked that website to give me total private employment going back to the month Reagan was nominated.

And here’s what I found. As you can see, good private-sector job growth under Reagan and Clinton, but relatively tepid job growth this century.

Now let’s take a closer look at the total change in private employment for the first 81 months of the Reagan, Bush, and Obama Administrations. And you’ll see that Krugman was sort of right, at least in that Obama has done better than Bush.

And if there’s no recession before he leaves office, he’ll look even better than Bush than he does now. But Obama doesn’t fare well when compared against Reagan.

So does this mean Krugman will now argue GOP candidates should follow Reaganomics rather than Obamanomics or Bushonomics?

I’m not holding my breath waiting for him to make a correction. By the way, keep in mind what I said before. Presidents (along with members of Congress) don’t have magical job-creation powers. The best you can hope for is that the overall burden of government diminishes a bit during their tenure so that the private sector can flourish.

That’s what really enables job creation, and that’s the lesson that really matters.

But it’s not easy to find the truth if you put partisanship above analysis. Krugman erred by making a very simplistic Bush-Republican-bad/Obama-Democrat-good argument.

In reality, the past several decades show that it’s more important to look at policy rather than partisan labels. For instance, the fiscal policies of Ronald Reagan and Bill Clinton are relatively similar and are in distinct contrast to the more profligate fiscal policies of George W. Bush and Barack Obama.

P.S. Paul Krugman’s biggest whopper was about healthcare rather than fiscal policy. In 2009, he said “scare stories” about government-run healthcare in Great Britain “are false.” But you can find lots of scary stories here.

Read Full Post »

I’ve had some fun over the years by pointing out that Paul Krugman has butchered numbers when writing about fiscal policy in nations such as France, Estonia, Germany, and the United Kingdom.

So I shouldn’t be surprised that he wants to catch me making an error. But I’m not sure his “gotcha” moment is very persuasive. Here’s some of what he wrote for today’s New York Times.

Gov. Jerry Brown was able to push through a modestly liberal agenda of higher taxes, spending increases and a rise in the minimum wage. California also moved enthusiastically to implement Obamacare. …Needless to say, conservatives predicted doom. …Daniel J. Mitchell of the Cato Institute declared that by voting for Proposition 30, which authorized those tax increases, “the looters and moochers of the Golden State” (yes, they really do think they’re living in an Ayn Rand novel) were committing “economic suicide.”

Kudos to Krugman for having read Atlas Shrugged, or for at least knowing that Rand sometimes referred to to “looters and moochers.” Though I have to subtract points because he thinks I’m a conservative rather than a libertarian.

But what about his characterization of my position? Well, he’s right, though I’m predicting slow-motion suicide. Voting for a tax hike isn’t akin to jumping off the Golden Gate bridge. Instead, by further penalizing success and expanding the burden of government, California is engaging in the economic equivalent of smoking four packs of cigarettes every day instead of three and one-half packs.

Here’s some of what I wrote.

I’m generally reluctant to make predictions, but I feel safe in stating that this measure is going to accelerate California’s economic decline. Some successful taxpayers are going to tunnel under the proverbial Berlin Wall and escape to states with better (or less worse) fiscal policy. And that will mean fewer jobs and lower wages than otherwise would be the case.

Anyhow, Krugman wants readers to think that California is a success rather than a failure because the state now has a budget surplus and there’s been an uptick in job creation.

Here’s more of what he wrote.

There is, I’m sorry to say, no sign of the promised catastrophe. If tax increases are causing a major flight of jobs from California, you can’t see it in the job numbers. Employment is up 3.6 percent in the past 18 months, compared with a national average of 2.8 percent; at this point, California’s share of national employment, which was hit hard by the bursting of the state’s enormous housing bubble, is back to pre-recession levels. …And, yes, the budget is back in surplus. …So what do we learn from the California comeback? Mainly, that you should take anti-government propaganda with large helpings of salt. Tax increases aren’t economic suicide; sometimes they’re a useful way to pay for things we need.

I’m not persuaded, and I definitely don’t think this counts as a “gotcha” moment.

First, I’m a bit surprised that he wants to brag about California’s employment numbers. The Golden State has one of the highest joblessness rates in the nation. Indeed, only four states rank below California.

Second, I don’t particularly care whether the state has a budget surplus. I care about the size of government.

Krugman might respond by saying that the tax hike generated revenues, thus disproving the Laffer Curve, which is something that does matter to supporters of small government.

But the Laffer Curve doesn’t say that all tax hikes lose revenue. Instead, it says that tax rate increases will have a negative impact on taxable income. It’s then an empirical question to figure out if revenues go up a lot, go up a little, stay flat, or decline.

And what matters most of all is the long-run impact. You can rape and pillage upper-income taxpayers in the short run, particularly if a tax hike is retroactive. In the long run, though, people can move, re-organize their finances, and take other steps to reduce their exposure to the greed of the political class.

In other words, people can vote with their feet…and with their money.

And that’s what seems to be happening in California. Take a look at how much income has emigrated from the state since 1992.

Next we have a map showing which states, over time, are gaining taxable income and which states are losing income (and I invite you to look at how zero-income tax states tend to be very green).

The data isn’t population adjusted, so populous states are over-represented, but you’ll still see that California is losing while Texas is winning.

And here is similar data from the Tax Foundation.

So what’s all of this mean?

Well, it means I’m standing by my prediction of slow-motion economic suicide. The state is going to become the France of America…at least if Illinois doesn’t get there first.

California has some natural advantages that make it very desirable. And I suspect that the state’s politicians could get away with above-average taxes simply because certain people will pay some sort of premium to enjoy the climate and geography.

But the number of people willing to pay will shrink as the premium rises.

In other words, this Chuck Asay cartoon may be the most accurate depiction of California’s future. And this Lisa Benson cartoon shows what will happen between now and then.

But I won’t hold my breath waiting for a mea culpa from Krugman.

Read Full Post »

Writing for the New York Times, Paul Krugman has a new column promoting more government spending and additional government regulation. That’s a dog-bites-man revelation and hardly noteworthy, of course, but in this case he takes a swipe at the Cato Institute.

The financial crisis of 2008 and its painful aftermath…were a huge slap in the face for free-market fundamentalists. …analysts at right-wing think tanks like…the Cato Institute…insisted that deregulated financial markets were doing just fine, and dismissed warnings about a housing bubble as liberal whining. Then the nonexistent bubble burst, and the financial system proved dangerously fragile; only huge government bailouts prevented a total collapse.

Upon reading this, my first reaction was a perverse form of admiration. After all, Krugman explicitly advocated for a housing bubble back in 2002, so it takes a lot of chutzpah to attack other people for the consequences of that bubble.

He likes cats, so he’s not all bad

But let’s set that aside and examine the accusation that folks at Cato had a Pollyanna view of monetary and regulatory policy. In other words, did Cato think that “deregulated markets were doing just fine”?

Hardly. If Krugman had bothered to spend even five minutes perusing the Cato website, he would have found hundreds of items by scholars such as Steve Hanke, Gerald O’Driscoll, Bert Ely, and others about misguided government regulatory and monetary policy. He could have perused the remarks of speakers at Cato’s annual monetary conferences. He could have looked at issues of the Cato Journal. Or our biennial Handbooks on Policy.

The tiniest bit of due diligence would have revealed that Cato was not a fan of Federal Reserve policy and we did not think that financial markets were deregulated. Indeed, Cato scholars last decade were relentlessly critical of monetary policy, Fannie Mae, Freddie Mac, Community Reinvestment Act, and other forms of government intervention.

Heck, I imagine that Krugman would have accused Cato of relentless and foolish pessimism had he reviewed our work  in 2006 or 2007.

I will confess that Cato people didn’t predict when the bubble would peak and when it would burst. If we had that type of knowledge, we’d all be billionaires. But since Krugman is still generating income by writing columns and doing appearances, I think it’s safe to assume that he didn’t have any special ability to time the market either.

Krugman also implies that Cato is guilty of historical revisionism.

…many on the right have chosen to rewrite history. Back then, they thought things were great, and their only complaint was that the government was getting in the way of even more mortgage lending; now they claim that government policies, somehow dictated by liberals even though the G.O.P. controlled both Congress and the White House, were promoting excessive borrowing and causing all the problems.

I’ve already pointed out that Cato was critical of government intervention before and during the bubble, so we obviously did not want government tilting the playing field in favor of home mortgages.

It’s also worth nothing that Cato has been dogmatically in favor of tax reform that would eliminate preferences for owner-occupied housing. That was our position 20 years ago. That was our position 10 years ago. And it’s our position today.

I also can’t help but comment on Krugman’s assertion that GOP control of government last decade somehow was inconsistent with statist government policy. One obvious example would be the 2004 Bush Administration regulations that dramatically boosted the affordable lending requirements for Fannie Mae and Freddie Mac, which surely played a role in driving the orgy of subprime lending.

And that’s just the tip of the iceberg. The burden of government spending almost doubled during the Bush years, the federal government accumulated more power, and the regulatory state expanded. No wonder economic freedom contracted under Bush after expanding under Clinton.

But I’m digressing. Let’s return to Krugman’s screed. He doesn’t single out Cato, but presumably he has us in mind when he criticizes those who reject Keynesian stimulus theory.

…right-wing economic analysts insisted that deficit spending would destroy jobs, because government borrowing would divert funds that would otherwise have gone into business investment, and also insisted that this borrowing would send interest rates soaring. The right thing, they claimed, was to balance the budget, even in a depressed economy.

Actually, I hope he’s not thinking about us. We argue for a smaller burden of government spending, not a balanced budget. And we haven’t made any assertions about higher interest rates. We instead point out that excessive government spending undermines growth by undermining incentives for productive behavior and misallocating labor and capital.

But we are critics of Keynesianism for reasons I explain in this video. And if you look at current economic performance, it’s certainly difficult to make the argument that Obama’s so-called stimulus was a success.

ZombieBut Krugman will argue that the government should have squandered even more money. Heck, he even asserted that the 9-11 attacks were a form of stimulus and has argued that it would be pro-growth if we faced the threat of an alien invasion.

In closing, I will agree with Krugman that there’s too much “zombie” economics in Washington. But I’ll let readers decide who’s guilty of mindlessly staggering in the wrong direction.

Read Full Post »

It’s not often that I read something by Paul Krugman and think, “Good point, I hope he’s correct.”

After all, I had to correct Krugman’s inaccurate analysis of Estonia, and also point out the errors in what he wrote about the United Kingdom. And I also noted mistakes he made when writing about Canada and France.

And let’s not forget his absurd assertion that it would be good for the U.S. economy if aliens threatened to attack!

It certainly seems as if he specializes in making mistakes.

But he has just written something that sort of makes sense.

In pushing for draconian cuts in Medicaid, food stamps and other programs that aid the needy, Mr. Ryan isn’t just looking for ways to save money. He’s also, quite explicitly, trying to make life harder for the poor — for their own good. In March, explaining his cuts in aid for the unfortunate, he declared, “We don’t want to turn the safety net into a hammock that lulls able-bodied people into lives of dependency and complacency, that drains them of their will and their incentive to make the most of their lives.”

To be more specific, I hope Krugman is right in that Ryan wants “to make life harder for the poor” if the alternative is to have their lives stripped of meaning by government dependency.  And I agree that it will be “for their own good” if they’re motivated to join the workforce.

To be sure, Krugman wants readers to reach the opposite conclusion. Even though the War on Poverty seems to have put an end to the progress we were making (see this remarkable chart), Krugman equates spending money with compassion.

And I suppose I should point out that he is completely wrong (using dishonest Washington budget math) when writing about “draconian cuts” since Cong. Ryan is merely proposing to slow down how fast government spending is growing.

P.S. For those who want more information, watch this video to learn about how government anti-poverty programs hurt the poor.

P.P.S. Check out this map to see how various U.S. states subsidize poverty.

P.P.P.S. To get your blood boiling, read this horrifying post about how a left-wing international bureaucracy conspiring with the Obama White House to redefine poverty in ways that make America look bad.

Read Full Post »

I’ve run across very few good cartoons about Keynesian economics. If my aging memory is correct, I’ve only posted two of them.

But at least they’re both very good. We have one involving Obama, sharks, and a lifeboat, and another one involving an overburdened jockey.

Now we have a third cartoon to add to the collection.

To provide a bit of additional background, the cartoon is channeling Bastiat’s broken-window insight that make-work projects don’t create prosperity, as explained in this short video narrated by Tom Palmer.

I make similar points in this post mocking Krugman’s wish for an alien invasion and this post explaining why Obama’s green energy programs lead to net job destruction.

P.S. This Wizard of Id parody is the best cartoon about economics, but it teaches about labor markets rather than Keynesianism.

Read Full Post »

Older Posts »

%d bloggers like this: