Sunday, November 28, 2010

I am John Galt

Kurt Hauser demonstrates in this Wall Street Journal op-ed that we all have a little Galt in us. When taxes are too high, at the margin we go on strike.

Even amoebas learn by trial and error, but some economists and politicians do not. The Obama administration's budget projections claim that raising taxes on the top 2% of taxpayers, those individuals earning more than $200,000 and couples earning $250,000 or more, will increase revenues to the U.S. Treasury. The empirical evidence suggests otherwise. None of the personal income tax or capital gains tax increases enacted in the post-World War II period has raised the projected tax revenues.
Over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92% (1952-53) and as low as 28% (1988-90). This observation was first reported in an op-ed I wrote for this newspaper in March 1993. A wit later dubbed this "Hauser's Law."

Over this period there have been more than 30 major changes in the tax code including personal income tax rates, corporate tax rates, capital gains taxes, dividend taxes, investment tax credits, depreciation schedules, Social Security taxes, and the number of tax brackets among others. Yet during this period, federal government tax collections as a share of GDP have moved within a narrow band of just under 19% of GDP.

Why? Higher taxes discourage the "animal spirits" of entrepreneurship. When tax rates are raised, taxpayers are encouraged to shift, hide and underreport income. Taxpayers divert their effort from pro-growth productive investments to seeking tax shelters, tax havens and tax exempt investments. This behavior tends to dampen economic growth and job creation. Lower taxes increase the incentives to work, produce, save and invest, thereby encouraging capital formation and jobs. Taxpayers have less incentive to shelter and shift income.

On average, GDP has grown at a faster pace in the several quarters after taxes are lowered than the several quarters before the tax reductions. In the six quarters prior to the May 2003 Bush tax cuts, GDP grew at an average annual quarterly rate of 1.8%. In the six quarters following the tax cuts, GDP grew at an average annual quarterly rate of 3.8%. Yet taxes as a share of GDP have remained within a relatively narrow range as a percent of GDP in the entire post-World War II period.

Monday, November 8, 2010

I am Ma Chalmers

An editorial in today's New York Times:
What they [Democrats] need is what Ms. Pelosi has been unable to provide: a clear and convincing voice to help Americans understand that Democratic policies are not bankrupting the country, advancing socialism or destroying freedom.

I am Mr. Thompson

I am Hugh Akston

Sunday, November 7, 2010

I am Bertram Scudder

From the New York Magazine Intelligencer blog:
Saying sorry can be hard to do. Whether you ultimately failed to hold down the fort as Speaker of the House, slept with Jenny Humphrey in order to feel better about yourself, or broke network policy by donating money to Democratic candidates and failing to disclose it, either on the air or even privately, it's so often easier to say, I'm too good for this, that's why I did that questionable thing I did! See, it seemed Keith Olbermann, suspended on Friday for the last of those offenses was suddenly and unceremoniously suspended, but not so, says Politico's Mike Allen:
Network sources tell Playbook that Keith Olbermann was suspended because he refused to deliver an on-camera mea culpa, which would have allowed him to continue anchoring Countdown. Olbermann told his bosses he didn't know he was barred from making campaign contributions, although he is resisting saying that publicly. Olbermann may not hold as many cards as he thinks. He makes $7 million a year and MSNBC's prime time is not as dependent on him as it was before the addition of Rachel Maddow and Lawrence O'Donnell, who make considerably less.
We don't know all the facts just yet, though we suspect they'll slowly but surely leak this week. Howevs, as Runnin' Scared points out, "Olbermann does not seem like a man who enjoys taking orders or admitting he's wrong." If Olbermann felt he has the right to make private donations - that this was a cause worth fighting over - perhaps he could have said that on the air. If he didn't know he was breaking MSNBC policy (and whether you believe he should be allowed to make political donations or not, he is still an employee who did in fact violate company policy), he could have added that as a footnote in his apology, perhaps. Alas, this evolve into another case in which defeat is only the beginning. Because how much easier is it to storm out of the office, fists raised, and land yourself a very public suspension and now possible expulsion, rather than admit you're not sure you did the right thing?

Monday, November 1, 2010

I am Ellsworth Toohey

From Gonzalo Lira:

The Contradictions In The Life of A Fluffer

A “fluffer” is the person on a pornographic film shoot who makes sure that the male lead has an erection, and can thus “perform” at the appropriate moments. Remember Boogie Nights? Remember the fat little tub-o’-lard brilliantly played by Phillip Seymour Hoffman? The one who had a secret homosexual crush on Mark Wahlberg’s porn-star character? That’s a fluffer.

Brad DeLong is Paul Krugman’s fluffer.

DeLong is an economist at UC Berkeley, a Neo-Keynesian like his charge. (I’m sure I’ll get an earful for that characterization). Basically, Krugman and DeLong and their followers think that fiscal spending via deficits is the only way to turn around the economy. Fiscal spending, according to this macro-economic worldview, is the determining factor in the growth of a modern economy.

DeLong has worked with Krugman on quite a few different projects—but DeLong’s real job is making sure Krugman stays hard, and stays aimed at the appropriate hole, as it were. I mean, after all, he’s Krugman’s fluffer—that’s his job: To keep the talent erect and ready to perform, while dispatching any and all distractions.

Full disclosure: I was one of those distractions that got Krugman all soft. I wrote a piece where I pointed out that Krugman was clearly opening the inference for readers to think that a war might be the only solution for America’s fiscal problems.

DeLong called me “batshit insane”—which I sort of liked, actually. Sort of like the name of the super-villain in a cheesy James Bond rip-off: “My name is Insane—Batshit Insane.” I was thinking of having business cards made up.

Anyway: Recently, DeLong called for either the resignation of David Broder of the Washington Post, or the resignation in protest of the Washington Post staff, or a combination thereof. Why? Because according to DeLong, Broder’s most recent editorial was calling for a war with Iran, in order to save the U.S. economy.

Hmmm . . .

See, the reason DeLong had given me my cool super-villain name was because I had pointed out that Paul Krugman was not so subtly advocating war as a solution to America’s economic problems. DeLong threw a hissy fit—at me, for pointing out the full implications of Krugman’s writings.

But now, DeLong was throwing another hissy fit—only at David Broder, for saying essentially what Krugman had said.

Apart from these two episodes showing that Brad DeLong is big on hissy fits, they do seem to point to some glaring contradictions in Mr. DeLong’s worldview.

But don’t take my word for it: Take Mr. Krugman’s and Mr. Broder’s and Mr. DeLong’s word for it.
First, what Broder wrote:

In fairly mild, fairly pro-Obama editorial, Broder dismisses any real challenges to the president in the 2012 re-election, and finds that the only real thorn in Obama’s side is the economy—Broder correctly points out that the president really doesn’t have any control over it.

The Broder editorial ends with this:

What else might affect the economy? The answer is obvious, but its implications are frightening. War and peace influence the economy.

Look back at FDR and the Great Depression. What finally resolved that economic crisis? World War II.

Here is where Obama is likely to prevail. With strong Republican support in Congress for challenging Iran's ambition to become a nuclear power, he can spend much of 2011 and 2012 orchestrating a showdown with the mullahs. This will help him politically because the opposition party will be urging him on. And as tensions rise and we accelerate preparations for war, the economy will improve.

I am not suggesting, of course, that the president incite a war to get reelected. But the nation will rally around Obama because Iran is the greatest threat to the world in the young century. If he can confront this threat and contain Iran's nuclear ambitions, he will have made the world safer and may be regarded as one of the most successful presidents in history.
Broder might have put up a mealy-mouthed disclaimer—“I am not suggesting, of course, that the president incite a war to get re-elected”—but that’s exactly what he’s saying. There’s really no other way to read it.

DeLong pointed this out—actually, DeLong had a hissy fit, as is his wont, and called for the resignation-as-punishment of Broder, and the resignation-as-protest of the rest of the staff of the Washington Post. DeLong concluded with the following:

Broder is the worst. He is monstruous.
Poor Brad did not call for the resignation of anyone at the New York Times, when Krugman essentially argued for the same thing, in the op-ed pages and the blog that he has on the NY Times site.

From Krugman’s “1938 is 2010” editorial from this past Labor Day Weekend:

From an economic point of view World War II was, above all, a burst of deficit-financed government spending, on a scale that would never have been approved otherwise. [. . .]

Had anyone proposed spending even a fraction that much [$30 trillion] before the war, people would have said the same things they’re saying today. They would have warned about crushing debt and runaway inflation. They would also have said, rightly, that the Depression was in large part caused by excess debt — and then have declared that it was impossible to fix this problem by issuing even more debt.

But guess what? Deficit spending created an economic boom — and the boom laid the foundation for long-run prosperity.
By “boom”, Krugman is of course referring to the Post-War Boom.

From Krugman’s “Arsenal of Recovery” blog post this past September 25:

A very nice new paper by Gordon and Krenn on the end of the Great Depression.

Although they don’t quite say so explicitly, the paper is to an important extent an answer to Robert Barro’s claim that the World War II experience shows that multipliers are low, because private spending actually fell during the war; as I and others have tried to point out, this was because it was, you know, wartime, with rationing of consumer goods and sharp restrictions on private investment.

What Gordon and Krenn point out is that we actually have more information than a simple comparison between the depressed peacetime economy and the war economy after Pearl Harbor: there was a period of more than two years when the United States was gearing up for war but not yet engaged in combat — the Arsenal of Democracy era. Rationing was not yet in effect, and for at least part of this period the economy still had excess capacity despite a very large rise in government spending.

What they find is that when there was still excess capacity, there was a quite large multiplier on government spending; that is, fiscal policy worked.
Though I despise Krugman, and consider him a nihilistic liar, I do admire his slipperiness as a writer.

Krugman is a much better writer than Broder—so he doesn’t fall for the trap of saying outright, “War would be good for the American economy”.

He’s actually much more clever and pernicious about it: Krugman sets up the inference, but never takes the final step to the inevitable conclusion—instead, he invites his readers to take that final step.

That way, he can claim in a superficially accurate sense that he had nothing to do with promulgating the idea of war as a fiscal stimulus package—while in fact being the godfather of the conceit.

It’s a bit like a defense lawyer, questioning a rape victim on the stand: “How many sexual partners have you had in the last year, aside from my client?—wait, sorry, the judge won’t allow me to ask you about your past sexual escapades: I withdraw the question.” The lawyer isn’t saying the victim’s a slut—he’s inviting the jury to make the inference, while sliding in the notion that the rape wasn’t a rape, merely consensual sex.

Or for another example of Krugman’s rhetorical strategy: Go back to the top of this very post, and please re-read the first paragraph that I wrote. I’ll wait.

Notice the Boogie Nights reference? Notice how I mention the totally irrelevant issue of the Hoffman’s character’s homosexual crush on Wahlberg’s character? Totally irrelevant—but it instantly sets up the reader to make the inference that DeLong has a homosexual crush on Krugman.

In fact, it’s practically the only inference the reader can make—yet I can skate away, and quite accurately claim that I never said DeLong had an unnatural attraction to Krugman. I never even had the intention of making such a claim! How dare you say that I intended to say such a thing! However, if readers infer such a thing on their own, well, that’s their business . . .

See what I mean by “slippery”?

That’s the kind of pernicious, despicable bullshit Krugman pulls on his readers on a regular basis: He throws a rock, then hides his hand. He says the fiscal deficit necessary to finance the Second World War was the best thing that ever happened to the American economy—then has his fluffer, Brad DeLong, get all mock-outraged when someone points out that Krugman seems to be suggesting that a big-ass war would be good for the American economy.

Now, I called Krugman out on his lies about World War II fiscal indebtedness in my post, “Why Paul Krugman Is An Imbecile—or a Fraud” I took apart his “1938 is 2010” post quoted above, showing how Krugman had played fast-and-loose with the data, twisting it very subtly in order to support a conclusion that could not be supported by any other means except deception.

But then, in my later post, “Why I Despise Krugman”, when I pointed out that Krugman is consistently arguing for war as a means to salvage the U.S. economy, I got an earful from Brad DeLong. (Krugman himself wrote a post in response to me, called “Economics Is Not A Morality Play”—a post of a truly shocking level of arrogance and conceit, not to mention moral torpitude.)

DeLong wrote me an e-mail with the lines (I am here quoting verbatim), “Have you no decency, sir? Have you no decency?”

Actually, I do: That’s why I’m pointing out the contradiction in DeLong’s various hissy fits. He threw a hissy fit at me, for correctly inferring that Krugman is calling for war to solve America’s fiscal problems. Then he threw another hissy fit at David Broder, whose sin was that he said explicitly what Krugman is too cowardly to say flat out.

Poor Brad DeLong: The lonely life of a fluffer is filled with such curious contradictions. He has to defend Krugman for advocating war as an economic solution—while castigating Broder for advocating war as an economic solution.

Poor Brad DeLong: Such is the fate of a man who deliberately decides to be the submissive sidekick to a stronger yet immoral star like Krugman. There’s nothing wrong with being the sidekick—so long as you maintain your integrity. But you can’t maintain your integrity by being the sidekick of a nihilistic liar like Krugman. And the thing is, poor Brad can’t break from Krugman at this point: His entire reputation depends on the K-ster Monster of Princeton Junction. Poor Brad is locked into his fate.

Poor Brad DeLong: It’s actually not much fun for me to mess around with him—because I know that no one will defend him. Krugman certainly won’t. Guys like Krugman use their fluffers to get them hard—but then pretend they can’t help them when they run into trouble, like poor Brad DeLong has now.

Poor Brad DeLong: Sad, sad, sad little fluffer. Pump, pump, pumping away.