Friday, January 18, 2013

The Dwindling Truth

Leave it to Paul Krugman to use his New York Times column to shade the truth. (The NYT's former public editor, Daniel Okrent, hardly a right-wing conservative, complained that Krugman's columns often had numerous factual errors. Why am I not surprised?)

In his latest column, Krugman promotes a number of false points and I will deal with some of them. Before looking at the substantive claims (the federal budget deficit has been "solved"), I'd like to begin with one his use of a deceitful term, "nonpartisan." He writes:
Recently the nonpartisan Center on Budget and Policy Priorities took Congressional Budget Office projections for the next decade and updated them to take account of two major deficit-reduction actions: the spending cuts agreed to in 2011, amounting to almost $1.5 trillion over the next decade; and the roughly $600 billion in tax increases on the affluent agreed to at the beginning of this year. What the center finds is a budget outlook that, as I said, isn’t great but isn’t terrible: It projects that the ratio of debt to G.D.P., the standard measure of America’s debt position, will be only modestly higher in 2022 than it is now.(Emphasis mine)
Sorry, Paul, but even your employer, the NYT, describes the CBPP as "left-leaning," the Times is not the only one to make that claim.Let's try Time, The Washington Post, and The National Journal, with none of them being considered "right-wing." What Krugman means by "nonpartisan" is that the CBPP does not officially endorse political candidates, but it clearly shills for Barack Obama and the Democrats in general.

For that matter, given Krugman's definition of "nonpartisan," he would have to claim the Heritage Foundation and Cato Institute are "nonpartisan," given that neither of them endorse actual candidates. Of course, one already knows what he thinks of those two organizations and considers them to be shills for the Republican Party. Yes, this is a small point, but once again we see how Krugman likes to play fast-and-loose with the truth.

On to the meat of the column itself. He writes:
Consider, for example, the case of Social Security. There was a case for paying down debt before the baby boomers began to retire, making it easier to pay full benefits later. But George W. Bush squandered the Clinton surplus on tax cuts and wars, and that window has closed. At this point, “reform” proposals are all about things like raising the retirement age or changing the inflation adjustment, moves that would gradually reduce benefits relative to current law. What problem is this supposed to solve?
 Assume that Al Gore had taken the office (and I am sure that Krugman would claim that he rightfully won it) and had left tax rates where they were. Would there have been deficits in the next few years? I suspect the "Clinton surplus" still would have disappeared for one important reason: the Tech Bubble popped in 2000 and a recession followed in 2001. Krugman writes: "It’s true that right now we have a large federal budget deficit. But that deficit is mainly the result of a depressed economy...." However, he wants us to assume that the reason we had deficits in 2001 and 2002 was that Congress lowered the top income tax rate from 39.6 percent to 35 percent...in 2003.

This is more of the "head I win, tails you lose" method that Krugman uses for his arguments. Now, I agree with him that Bush's wars cost this economy plenty (I don't believe that the economy will "benefit" from "weaponized Keynesianism" and spoke out against these wars from the beginning), but there also is another point that Krugman does not make: the source of larger tax revenues in the late 1990s versus the Housing Boom.

The Tech Bubble centered upon the stock markets and, not surprisingly, we saw a huge increase in the nominal amounts of taxes coming from capital gains during the second Clinton presidential term. In fact, at the end of 2000, capital gains receipts were $80 billion more than they were at the end of 1996. The following financial post also makes it clear that capital gains receipts fell sharply during the Bush years. (Capital gains rates were cut during the second Clinton term, yet they still rose, which surely must vex Keynesians, since they seem to believe such things are not possible.)
You'd better believe we pay careful attention to capital gains here. Friday, the Congressional Budget Office released an analysis of the rise and fall of federal individual income tax revenues from 1994 through 2004. It showed that capital gains accounted for half of the non-legislative changes to individual income tax revenues over the period. Ironically, capital gains revenues increased 0.7% of GDP from 1994 through 2000 under President Clinton, and they fell 0.6% of GDP from 2000 to 2004 under President Bush.
 They didn't fall because rates were cut; rather, they fell because people were not getting huge gains from "flipping" stocks after the Tech binge came to an end. Furthermore, a much different tax regime falls upon capital gains from the sale of houses, which means that the government was not able to cash in on the Fed's recycled dollars during the Housing Boom as it had done a decade earlier when the Clinton Bubble was on the rise.

Krugman, not surprisingly, leaves out that tidbit because it doesn't fit his narrative. Now, I will agree that deficit reduction should not be at the top of the agenda, but for different reasons than Krugman gives. He correctly points out that the depressed economy is responsible for much of the current deficit, although to him that is a good sign:
It’s true that right now we have a large federal budget deficit. But that deficit is mainly the result of a depressed economy — and you’re actually supposed to run deficits in a depressed economy to help support overall demand.
Unfortunately, throughout the piece Krugman trots out his "heads I win, tails you lose" logic. Government spending now is good; but cutting tax rates during a downturn is bad. (The economy was in recession shortly after Bush took office, and Democrats tried to claim that his talking about the recession and his campaign to cut tax rates was the cause of the recession.) The deficit is bad, but not so bad, and if the government inflates the currency, creates more jobs for bureaucrats and keeps entrepreneurs from starting new enterprises, and if the government continues to pay vast subsidies to politically-favored businesses (especially those in "green energy"), then out of that will come a real recovery.

I'm not sure how that will happen, but Krugman believes it will. Enough said.

11 comments:

Pulverized Concepts said...

"Consider, for example, the case of Social Security. There was a case for paying down debt before the baby boomers began to retire, making it easier to pay full benefits later. But George W. Bush squandered the Clinton surplus on tax cuts and wars, and that window has closed. At this point, “reform” proposals are all about things like raising the retirement age or changing the inflation adjustment, moves that would gradually reduce benefits relative to current law. What problem is this supposed to solve?"

This paragraph is a completely disconnected sequence of logic. What's "paying down debt" got to do with "paying full benefits later"? Social security funds are in a lock box somewhere, independently collected via payroll deductions and disbursed from the fabled lock box to recipients. Paying down debt doesn't have anything to do with social security, right? Social security money is sacred and can't be used to pay forest rangers or buy guided missile cruisers. As for Bush "squandering" the Big Dog's surplus on tax cuts, how does that work? That would imply that all money belongs to the feds and they just allow us to keep some percentage of it for our own uses. And why does the federal government need a surplus in the first place? They don't require any discretionary spending at all.

The reform proposals that change social security eligibility and benefits are colliding with federal monetary policy in that inflation targets are automatically destroying benefits, requiring cost of living adjustments. The problem, no matter how described, can't be solved with Keynesian thinking.

JG said...

The CBO is funded by the federal government and accepts no private funding.

Cato and Heritage Foundation were founded by and get most of their funding from a handful of wealthy families for the purpose of promoting tax cuts.

Are you really comparing the objectivity of the CBO to these private clubs? Do the words "false equivalency" mean anything to you?

JG said...

@ Pulverized Concepts,

Do you really need someone to explain how a dozen years of multi-trillion-dollar wars falls under the umbrella of "squandering" our national treasure? Do you really need someone to spell this out for you?

Pulverized Concepts said...

Perhaps your reading comprehension has suffered a momentary setback, the comment was in regard to the relationship, if any, between tax cuts and "squandering". Your response with a consideration of "a dozen years of multi-trillion-dollar wars" seems to be a refutation of Krugman/Keynes stimulus, the enpixelation of money to employ people to build aircraft carriers, develop drones, manufacture fighter aircraft, etc. While there has been a dramatic decrease in media scrutiny of the operations of the US coercion community overseas since the arrival of the anointed one, nevertheless US troops and military hardware are still stationed all over the world and even Guantanamo Bay functions as it has since the Bush era. The argument is between two factions of the state apparatus, one of which attempts to buy votes and preserve power through direct payments based on the redistribution of ill-gotten gains, the other that attempts to use fear to justify the expansion of agencies like the Dept. of Homeland Security, both by inflating the money supply. If demonizing one aspect of the state makes you feel better, go for it. But each part is integral to the whole.

Pulverized Concepts said...

"The CBO is funded by the federal government and accepts no private funding."

Are you saying that the CBO, which is made up of state employees, has no allegiance to the state? That it's completely neutral in its findings? Are you waiting with carrots for the Easter bunny?

JG said...

I assure you that my reading comprehension skills are just fine. The connection between tax cuts and the 12-year spending spree in Iraq/Afghanistan is that both have the effect of diverting resources that could have been better deployed as either paydowns to the national debt or investments in domestic infrastructure.

And no, I am not refuting Keynesian thought at all. Keynes supported paying down the debt during times of plenty and expanding the debt during weak economies. Unfortunately, as a nation we've pursued the opposite stragegy. We ran up debt during the boom years when we had the means to reduce it, and now we obsess about the debt during a time when we have don't have the money to pay it down. Totally ass-backwards.

JG said...

"Are you saying that the CBO, which is made up of state employees, has no allegiance to the state?"

I'm saying they don't have to beg for money from donors, which makes them inherently more independent than any privately funded think-tank.

And I can think of many examples of federal employees who have no trouble contradicting and disobeying their bosses in the executive branch. The acting head of the FHFA has had no problem disobeying his boss on the subject of housing policy. And I can name a general or two who had no problem publicly opposing the White House on foreign policy.

William L. Anderson said...

I was not referring to the CBO, but rather a private organization. You might actually want to read what I wrote.

Second, the CBO is funded by appropriations from politicians using tax dollars. Are you claiming that politicians and government are not political? Amazing. You really believe that government agents act with independent wisdom and never seek to please their political masters.

JG said...

My mistake, you were referring to the CBPP using using CBO projections. I stand corrected.

Regarding the independence of the CBO and other federal agencies, tone at the top and management influence are factors in any organization. But there is a planet of difference between a federal agency that may or may not be infuenced by the their bosses wishes and organizations like Cato and Heritage whose sole purpose for existing is to manufacture data that is sympatheic to its donor's agenda.

Michael Price said...

So getting money from government doesn't affect your objectivity but getting money from private sources does. So then government money is somehow magically unable to affect objectivity like private money.

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