Tuesday, May 25, 2010

Krugman Once Again Contradicts Himself

On November 21, 2004, I attended a session at the annual meeting of the Southern Economic Association in New Orleans, and the session speaker was...Paul Krugman. I sat with Prof. Joseph Salerno of Pace University, and we heard Krugman give his usual Keynesian address.

During the Q&A, I asked Krugman that since he was critical of cutting tax rages, then would he favor going back to the 70 percent top rates that existed before they were cut in 1981. Krugman's answer: "No! Those rates were insane!" (His term)

I am reminded of that answer in reading his blog post today about the "postwar system." (Krugman conveniently leaves out the collapse of the Bretton Woods accords in 1971, but since he considers money just something to be printed, I guess he would have considered that to be a good thing.) He writes:
Here’s what I think: inflation did have to be brought down — and Paul Volcker, not Reagan, did what was necessary. But the rest — slashing taxes on the rich, breaking the unions, letting inflation erode the minimum wage — wasn’t necessary at all. We could have gone on with a more progressive tax system, a stronger labor movement, and so on. (emphasis mine)
So, Paul, what is it? And if Krugman really wants me to believe that the standard of living for Americans was higher in the 1970s than it was in the past decade, well, I would like to sell him some ocean-front real estate -- in Nevada.

1 comment:

Sebastian said...

This isn't necessarily related to the blog post to which you refer, but I was recently shocked speechless by Krugman's apparent attempt to illustrate a positive correlation between the top marginal tax rate and economic growth.

I confess that I don't know that much about the history of US income taxation, but even a cursory glance at the data supplied by the National Taxpayer's Union reveals that the top rate of marginal taxation has moved around a lot. I mean, Reagan may have cut the top marginal tax rate to 50% from 70%, but he also put the rate at which this takes effect down to 100K-150K range (from ~200K). It's uncontroversial to suggest many more people would then be paying the top tax rate, since government was in effect using a bigger net. Likewise, it would also appear to me that, during this pre-Reaganesque "Golden Age", despite the absurdly high tax rates, it would only be very few people who actually had to pay them. Comparing a tax rate of 70% on income over $200,000 in the 60s with 35-40% on income over 250K-300K in the 2000s, after the constant debasement of the currency, is utterly meaningless at the best of times.

No doubt if he had factored in the constant erosion of the dollar's purchasing power, or put government spending as a percentage of GDP next to the economic growth rate, we'd be seeing some different results.

Anyway, a little off-topic I guess, but I thought it was useful to point out. I didn't see anyone make a comment to this effect on the actual blog post - perhaps the "moderators" at the NYT have been working overtime?