Paul Krugman is a jackass (2 Viewers)

[tommyGunZ]

True, it takes a big gun to kill an Elephant. But you can build a big enough gun to kill one. After decades of the religious mantra of "tax the rich" we are building bigger and bigger guns to shoot the rich. This is the class that produces wealth, not government. So go a head. Take from the rich and give to the big fat blotted irresponsible government that does nothing but create massive bureaucracies that make it next to impossible to create wealth. Do it in the name of helping the economy because it sounds good. But know this, our economy is hurting and increasing taxes on anyone, especially the wealth producers, at this time especially will be counter productive. What we need is radically less government, less bureaucracy, tort reform and policies that strengthen the dollar.

"decades of tax the rich"? What history book are you reading? Do you have any idea of what has happened to the top marginal tax rate over the last 50 years? And LOFL at "wealth producers".

 

[MasterofOrion]

True, it takes a big gun to kill an Elephant. But you can build a big enough gun to kill one. After decades of the religious mantra of "tax the rich" we are building bigger and bigger guns to shoot the rich. This is the class that produces wealth, not government. So go a head. Take from the rich and give to the big fat blotted irresponsible government that does nothing but create massive bureaucracies that make it next to impossible to create wealth. Do it in the name of helping the economy because it sounds good. But know this, our economy is hurting and increasing taxes on anyone, especially the wealth producers, at this time especially will be counter productive. What we need is radically less government, less bureaucracy, tort reform and policies that strengthen the dollar.

"decades of tax the rich"? What history book are you reading? Do you have any idea of what has happened to the top marginal tax rate over the last 50 years? And LOFL at "wealth producers".

Questions:1. If the bottom ~50% don't pay any taxes, then who is paying for our tax burden?2. How is wealth created in your opinion? Does government taking from the rich make us a more prosperous nation?

 

[pantagrapher]

Oligarchy, American StyleBy PAUL KRUGMANPublished: November 3, 2011 Inequality is back in the news, largely thanks to Occupy Wall Street, but with an assist from the Congressional Budget Office. And you know what that means: It’s time to roll out the obfuscators!Anyone who has tracked this issue over time knows what I mean. Whenever growing income disparities threaten to come into focus, a reliable set of defenders tries to bring back the blur. Think tanks put out reports claiming that inequality isn’t really rising, or that it doesn’t matter. Pundits try to put a more benign face on the phenomenon, claiming that it’s not really the wealthy few versus the rest, it’s the educated versus the less educated.So what you need to know is that all of these claims are basically attempts to obscure the stark reality: We have a society in which money is increasingly concentrated in the hands of a few people, and in which that concentration of income and wealth threatens to make us a democracy in name only.The budget office laid out some of that stark reality in a recent report, which documented a sharp decline in the share of total income going to lower- and middle-income Americans. We still like to think of ourselves as a middle-class country. But with the bottom 80 percent of households now receiving less than half of total income, that’s a vision increasingly at odds with reality.In response, the usual suspects have rolled out some familiar arguments: the data are flawed (they aren’t); the rich are an ever-changing group (not so); and so on. The most popular argument right now seems, however, to be the claim that we may not be a middle-class society, but we’re still an upper-middle-class society, in which a broad class of highly educated workers, who have the skills to compete in the modern world, is doing very well.It’s a nice story, and a lot less disturbing than the picture of a nation in which a much smaller group of rich people is becoming increasingly dominant. But it’s not true.Workers with college degrees have indeed, on average, done better than workers without, and the gap has generally widened over time. But highly educated Americans have by no means been immune to income stagnation and growing economic insecurity. Wage gains for most college-educated workers have been unimpressive (and nonexistent since 2000), while even the well-educated can no longer count on getting jobs with good benefits. In particular, these days workers with a college degree but no further degrees are less likely to get workplace health coverage than workers with only a high school degree were in 1979.So who is getting the big gains? A very small, wealthy minority.The budget office report tells us that essentially all of the upward redistribution of income away from the bottom 80 percent has gone to the highest-income 1 percent of Americans. That is, the protesters who portray themselves as representing the interests of the 99 percent have it basically right, and the pundits solemnly assuring them that it’s really about education, not the gains of a small elite, have it completely wrong.If anything, the protesters are setting the cutoff too low. The recent budget office report doesn’t look inside the top 1 percent, but an earlier report, which only went up to 2005, found that almost two-thirds of the rising share of the top percentile in income actually went to the top 0.1 percent — the richest thousandth of Americans, who saw their real incomes rise more than 400 percent over the period from 1979 to 2005.Who’s in that top 0.1 percent? Are they heroic entrepreneurs creating jobs? No, for the most part, they’re corporate executives. Recent research shows that around 60 percent of the top 0.1 percent either are executives in nonfinancial companies or make their money in finance, i.e., Wall Street broadly defined. Add in lawyers and people in real estate, and we’re talking about more than 70 percent of the lucky one-thousandth.But why does this growing concentration of income and wealth in a few hands matter? Part of the answer is that rising inequality has meant a nation in which most families don’t share fully in economic growth. Another part of the answer is that once you realize just how much richer the rich have become, the argument that higher taxes on high incomes should be part of any long-run budget deal becomes a lot more compelling.The larger answer, however, is that extreme concentration of income is incompatible with real democracy. Can anyone seriously deny that our political system is being warped by the influence of big money, and that the warping is getting worse as the wealth of a few grows ever larger?Some pundits are still trying to dismiss concerns about rising inequality as somehow foolish. But the truth is that the whole nature of our society is at stake.

 

[pantagrapher]

Krugman also recommends this column by Jonathan Chait

Inequality and BS11/3/11 at 3:28 PM CommentThe conservative movement generally, and sensibly, has its cranks specialize their crankery, so that you have one set of people tasked with pumping up the fantasies of supply-side economics, another concentrating on denying climate change, another insisting income inequality isn’t increasing, and so forth. James Pethokoukis of the American Enterprise Institute is a somewhat unique figure in that he’s deeply involved in all these projects.His latest project is to deny — or quasi-deny, or muddy the waters, depending on the day — the fact of rising income inequality. Pethokoukis is now taunting me, and I can’t possibly keep up quantitatively with his manic campaign to deny/minimize/muddy the fact of rising inequality. I can explain a few basic points that, if kept in mind, would help a reader so inclined to successfully navigate his way through Pethokoukis’s river of bull####. Here are the basic facts. For Americans at most income levels, wage growth has dramatically slowed over the past three decades, compared with the three decades that followed World War II. At the same time, overall inequality has risen, and inequality between the richest 1 percent and everybody has skyrocketed. The Congressional Budget Office’s masterful study lays out these facts in impressive detail.The thing to keep in mind is that Pethokoukis doesn’t directly challenge any of these facts, though he wants his audience to think he does. He cites a bunch of figures that pick away at pieces of the general picture — here is a study showing median income may have grown more than you thought, here’s a report showing family structure helped drive inequality, and so on. His favorite sleight of hand involves citing studies that do not focus on the richest 1 percent pulling away. The gap between the top 1 percent and everybody else is the most dramatic change, and it’s also the hardest to capture, since it involves a small subset of the population. (Indeed, the idea that the income of the top 1 percent is an important economic phenomenon is itself new, and older measures of inequality aren’t really designed to capture it.) So Pethokoukis just cites figure after figure that don’t measure the 1 percent against everybody else.He is, in a word, bull####ting. Bull####ting is not the same thing as lying. It is a higher art form, which Harry Frankfurt once explored in his classic essay, "On Bull####":

[The] statement is grounded neither in a belief that it is true nor, as a lie must be, in a belief that it is not true. It is just this lack of connection to a concern with truth — this indifference to how things really are — that I regard as of the essence of bull####.

Bull####ting, not lying, is the natural metier of denialists of all forms. Pethokoukis compares the debate over inequality to the debate over climate change, by which he means that liberals are using false claims of expert consensus to stifle a very open question. I agree that it’s like climate change, but in a different way — a broad consensus exists among experts, but there are different ways of measuring it, which produce different perspectives on the shape of the phenomenon.Because the consensus bolsters the case for policy changes that conservatives don’t like, the movement expends vast resources attempting, with general success, to persuade its adherents that the whole thing is a lie cooked up by liberals. Pethokoukis is executing the dance steps perfectly. First he calls inequality a myth, then — when his primary source contradicts him — he retreats to calling it “overblown,” then returns to calling it a "myth" again. All along he pleads that he merely wants open dialogue, that it’s the liberals who are trying to stigmatize dissent and suppress open debate. The only purpose of the exercise is to muddy the debate enough to allow conservatives to avoid coming to grips with ideologically inconvenient facts.

 

[Topes]

The tea party stands for a series of propositions that don't meet the reality test: that deficits matter more than jobs, that cutting deficits and tightening credit will accelerate economic growth, that high taxes and over-regulation are the most important reasons that growth has not revived, and that America still offers the world's best opportunity for the poor to rise. Tea party plans call for a radical shift in the burden of taxation from the rich to the poor -- and promise big reductions in government spending without touching any of the benefits of current retirees.

The green is at least arguable, and the blue seems pretty close to the mark. Poor people the world over often vote with their feet — or try to — on the latter.

Not at all among developed nations.

An awful lot of poor immigrants try to come to the U.S. Isn't it because they think it offers a darn good opportunity to rise?

In a 2006 survey, 30 percent of people without a high school degree said that playing the lottery was a wealth-building strategy.

What does this even have to do with Maurile's point? I think we'd all agree that there's a correlation between being stupid and being poor. No surprise there.

The point is in the words I wrote after those. The fact that people come here for opportunity is not evidence that the U.S. offers them the best opportunity, as his statement seemed intended to suggest. Any correlation between stupid and poor even further undercuts any validity cast by poor "voting with their feet".

 

[IvanKaramazov]

The fact that people come here for opportunity is not evidence that the U.S. offers them the best opportunity, as his statement seemed intended to suggest.

But it is evidence that the US offers them a really good opportunity. You and slapdash are focusing on the argument about whether the US is literally "the best" in the world on this dimension instead of conceding the more important point that we're very good in this area.

Any correlation between stupid and poor even further undercuts any validity cast by poor "voting with their feet".

Not necessarily. I doubt the sort of person who views the lottery as a retirement fund is the same sort of person who immigrates to a new country.

 

[tommyGunZ]

True, it takes a big gun to kill an Elephant. But you can build a big enough gun to kill one. After decades of the religious mantra of "tax the rich" we are building bigger and bigger guns to shoot the rich. This is the class that produces wealth, not government. So go a head. Take from the rich and give to the big fat blotted irresponsible government that does nothing but create massive bureaucracies that make it next to impossible to create wealth. Do it in the name of helping the economy because it sounds good. But know this, our economy is hurting and increasing taxes on anyone, especially the wealth producers, at this time especially will be counter productive. What we need is radically less government, less bureaucracy, tort reform and policies that strengthen the dollar.

"decades of tax the rich"? What history book are you reading? Do you have any idea of what has happened to the top marginal tax rate over the last 50 years? And LOFL at "wealth producers".

Questions:1. If the bottom ~50% don't pay any taxes, then who is paying for our tax burden?2. How is wealth created in your opinion? Does government taking from the rich make us a more prosperous nation?

#1 is absurd. The bottom 50% play plenty of taxes. Why are you allergic to facts?#2 is a complex question. "Taking from the rich" doesn't automatically make us more prosperous, but it can, depending on what the rich would have spent that money on, and what the gov't spends it on.

 

[MasterofOrion]

True, it takes a big gun to kill an Elephant. But you can build a big enough gun to kill one. After decades of the religious mantra of "tax the rich" we are building bigger and bigger guns to shoot the rich. This is the class that produces wealth, not government. So go a head. Take from the rich and give to the big fat blotted irresponsible government that does nothing but create massive bureaucracies that make it next to impossible to create wealth. Do it in the name of helping the economy because it sounds good. But know this, our economy is hurting and increasing taxes on anyone, especially the wealth producers, at this time especially will be counter productive. What we need is radically less government, less bureaucracy, tort reform and policies that strengthen the dollar.

"decades of tax the rich"? What history book are you reading? Do you have any idea of what has happened to the top marginal tax rate over the last 50 years? http://

And LOFL at "wealth producers".

Questions:

1. If the bottom ~50% pay very little taxes, then who is paying for our tax burden?

2. How is wealth created in your opinion? Does government taking from the rich make us a more prosperous nation?

#1 is absurd. The bottom 50% play plenty of taxes. Why are you allergic to facts?#2 is a complex question. "Taking from the rich" doesn't automatically make us more prosperous, but it can, depending on what the rich would have spent that money on, and what the gov't spends it on.

#1 not absurd. Here are the facts.#2 Wealth distributions from the rich to the government does not create wealth, it destroys it. Government is very inefficient relative to the private sector. The cost of building infrastructure is absurdly high because of regulations and government bureaucracy. We couldn't build the Hover Damn now, not because of will or know how, but because of government regulations.

 

[Maurile Tremblay]

Questions:

1. If the bottom ~50% pay very little taxes, then who is paying for our tax burden?

2. How is wealth created in your opinion? Does government taking from the rich make us a more prosperous nation?

#1 is absurd. The bottom 50% play plenty of taxes. Why are you allergic to facts?#2 is a complex question. "Taking from the rich" doesn't automatically make us more prosperous, but it can, depending on what the rich would have spent that money on, and what the gov't spends it on.

#1 not absurd. Here are the facts.#2 Wealth distributions from the rich to the government does not create wealth, it destroys it. Government is very inefficient relative to the private sector. The cost of building infrastructure is absurdly high because of regulations and government bureaucracy. We couldn't build the Hover Damn now, not because of will or know how, but because of government regulations.

#1 is wrong because you said "very little taxes" instead of "very little income tax." The poor pay payroll taxes, sales taxes, excise taxes, and other taxes.

 

[Topes]

The fact that people come here for opportunity is not evidence that the U.S. offers them the best opportunity, as his statement seemed intended to suggest.

But it is evidence that the US offers them a really good opportunity. You and slapdash are focusing on the argument about whether the US is literally "the best" in the world on this dimension instead of conceding the more important point that we're very good in this area.

I haven't been reading along. I just popped in for a sec and glanced over the last page. I often read MT's posts because he's one of the better posters on the board. I replied only to Maurille's reply, as it looked very weak. He was countering a (possibly unsupported) assertion with an anecdote. Just looked like a very weak argument. Hence, my reply.

 

[MasterofOrion]

Questions:

1. If the bottom ~50% pay very little taxes, then who is paying for our tax burden?

2. How is wealth created in your opinion? Does government taking from the rich make us a more prosperous nation?

#1 is absurd. The bottom 50% play plenty of taxes. Why are you allergic to facts?#2 is a complex question. "Taking from the rich" doesn't automatically make us more prosperous, but it can, depending on what the rich would have spent that money on, and what the gov't spends it on.

#1 not absurd. Here are the facts.#2 Wealth distributions from the rich to the government does not create wealth, it destroys it. Government is very inefficient relative to the private sector. The cost of building infrastructure is absurdly high because of regulations and government bureaucracy. We couldn't build the Hover Damn now, not because of will or know how, but because of government regulations.

#1 is wrong because you said "very little taxes" instead of "very little income tax." The poor pay payroll taxes, sales taxes, excise taxes, and other taxes.

They do. The subject is about "taxing the rich" which is not regressive taxes like sales taxes or SS taxes.

 

[bueno]

Bombs, Bridges and JobsBy PAUL KRUGMANPublished: October 30, 2011 A few years back Representative Barney Frank coined an apt phrase for many of his colleagues: weaponized Keynesians, defined as those who believe "that the government does not create jobs when it funds the building of bridges or important research or retrains workers, but when it builds airplanes that are never going to be used in combat, that is of course economic salvation."Right now the weaponized Keynesians are out in full force — which makes this a good time to see what's really going on in debates over economic policy.What's bringing out the military big spenders is the approaching deadline for the so-called supercommittee to agree on a plan for deficit reduction. If no agreement is reached, this failure is supposed to trigger cuts in the defense budget.Faced with this prospect, Republicans — who normally insist that the government can't create jobs, and who have argued that lower, not higher, federal spending is the key to recovery — have rushed to oppose any cuts in military spending. Why? Because, they say, such cuts would destroy jobs.Thus Representative Buck McKeon, Republican of California, once attacked the Obama stimulus plan because "more spending is not what California or this country needs." But two weeks ago, writing in The Wall Street Journal, Mr. McKeon — now the chairman of the House Armed Services Committee — warned that the defense cuts that are scheduled to take place if the supercommittee fails to agree would eliminate jobs and raise the unemployment rate.Oh, the hypocrisy! But what makes this particular form of hypocrisy so enduring?First things first: Military spending does create jobs when the economy is depressed. Indeed, much of the evidence that Keynesian economics works comes from tracking the effects of past military buildups. Some liberals dislike this conclusion, but economics isn't a morality play: spending on things you don't like is still spending, and more spending would create more jobs.But why would anyone prefer spending on destruction to spending on construction, prefer building weapons to building bridges?John Maynard Keynes himself offered a partial answer 75 years ago, when he noted a curious "preference for wholly 'wasteful' forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict 'business' principles." Indeed. Spend money on some useful goal, like the promotion of new energy sources, and people start screaming, "Solyndra! Waste!" Spend money on a weapons system we don't need, and those voices are silent, because nobody expects F-22s to be a good business proposition.To deal with this preference, Keynes whimsically suggested burying bottles full of cash in disused mines and letting the private sector dig them back up. In the same vein, I recently suggested that a fake threat of alien invasion, requiring vast anti-alien spending, might be just the thing to get the economy moving again.But there are also darker motives behind weaponized Keynesianism.For one thing, to admit that public spending on useful projects can create jobs is to admit that such spending can in fact do good, that sometimes government is the solution, not the problem. Fear that voters might reach the same conclusion is, I'd argue, the main reason the right has always seen Keynesian economics as a leftist doctrine, when it's actually nothing of the sort. However, spending on useless or, even better, destructive projects doesn't present conservatives with the same problem.Beyond that, there's a point made long ago by the Polish economist Michael Kalecki: to admit that the government can create jobs is to reduce the perceived importance of business confidence.Appeals to confidence have always been a key debating point for opponents of taxes and regulation; Wall Street's whining about President Obama is part of a long tradition in which wealthy businessmen and their flacks argue that any hint of populism on the part of politicians will upset people like them, and that this is bad for the economy. Once you concede that the government can act directly to create jobs, however, that whining loses much of its persuasive power — so Keynesian economics must be rejected, except in those cases where it's being used to defend lucrative contracts.So I welcome the sudden upsurge in weaponized Keynesianism, which is revealing the reality behind our political debates. At a fundamental level, the opponents of any serious job-creation program know perfectly well that such a program would probably work, for the same reason that defense cuts would raise unemployment. But they don't want voters to know what they know, because that would hurt their larger agenda — keeping regulation and taxes on the wealthy at bay.

I'd like to thank you for posting so many of his commentaries that prove the thesis of the OP.

 

[bueno]

Millionaire For A DayI see from comments here and elsewhere that the usual obfuscators are rolling out the old income mobility defense: sure, a few people get a lot of the income, but it's different people every year, so no harm. I think it's coming from the Tax Foundation this time.But if you actually read the CBO report, it already deals with that issue:

Household income measured over a multiyear period is more equally distributed than income measured over one year, although only modestly so. Given the fairly substantial movement of households across income groups over time, it might seem that income measured over a number of years should be significantly more equally distributed than income measured over one year. However, much of the movement of households involves changes in income that are large enough to push households into different income groups but not large enough to greatly affect the overall distribution of income. Multiyear income measures also show the same pattern of increasing inequality over time as is observed in annual measures.

\Translation: sure, many people who have incomes greater than $1 million one year fall out of the category the next year — but that's typically because their income fell from, say, 1.05 million to 0.95 million, not because they went back to being middle class. And the new millionaires are typically people who were making just shy of a million the year before, not Horatio Alger stories.And if you'd been following this subject you would know that this fallacy has been well understood for decades.Look, let me make a public service announcement: if you rely on bought and paid for sources on income inequality, you're going to embarrass yourself again and again. These people never get it right, because their whole reason for being is to obfuscate. You should never, ever, trust what they say on this issue.

I'll copy what I posted regarding this in the other thread:It's funny that he never dove into the details when he and the OWS crowd was touting that "the top 1% saw their incomes grow x%". Now he's throwing up a strawman that their incomes 'only' fell slightly--"not because they went back to being middle class."So which is it? Did the top 1% see huge gains in incomes from tilting the system in their favor as he's argued in the past? Or did they only see slight declines versus the growth of the rest of the populace? If we're going to debate this, let's get the facts out there because this is a huge change from what he's argued in the past.As usual he does a solid job of misleading and backpedaling.

Again, you're missing the point. He's illustrating the CBO's point that those who do fall out of the top bracket barely do. This is not the same as arguing that the entire Top 1% has seen a slight decline in income.

The nature of my business is that I could make a ton of money one year and then have to live off that cash for the next two. This could also be particularly true in the investing community where one could hit a home run one year and sit on the sidelines during bad market periods. Some who fall out of the top bracket barely fall out, others spike into the top bracket and rapidly fall out and some actually go broke.

 

[pantagrapher]

November 22, 2011, 10:48 AM

Taxing Job Creators

Mark Thoma sends us to the new Journal of Economic Perspectives paper (pdf) on optimal taxes by Peter Diamond and Emmanuel Saez. It’s a tough read (I’m still working on it myself), but there’s one discussion that I think helps make a useful point about current political debate.

In the first part of the paper, D&S analyze the optimal tax rate on top earners. And they argue that this should be the rate that maximizes the revenue collected from these top earners — full stop. Why? Because if you’re trying to maximize any sort of aggregate welfare measure, it’s clear that a marginal dollar of income makes very little difference to the welfare of the wealthy, as compared with the difference it makes to the welfare of the poor and middle class. So to a first approximation policy should soak the rich for the maximum amount — not out of envy or a desire to punish, but simply to raise as much money as possible for other purposes.

Now, this doesn’t imply a 100% tax rate, because there are going to be behavioral responses – high earners will generate at least somewhat less taxable income in the face of a high tax rate, either by actually working less or by pushing their earnings underground. Using parameters based on the literature, D&S suggest that the optimal tax rate on the highest earners is in the vicinity of 70%.

OK, I hear loud screams from the right side of the room. Parsing those screams, I hear the following arguments:

1. Theft! Tyranny! OK, I hear you. This can’t be argued on rational grounds; I think there are a lot more important moral issues in the world than defending the right of the rich to keep their money, but whatever.

2. They’ll go Galt! This amounts to saying that D&S’s estimate of the “behavioral elasticity” is too low. Maybe, but they’re pretty careful about that, and your gut isn’t better than their econometrics.

3. You’ll kill job creation! This is where it gets interesting.

Right now the official rhetoric of the right, and a fair number of people who consider themselves centrist, is that high-income individuals are “job creators” who must be cherished for the good they do.

Yet textbook economics says that in a competitive economy, the contribution any individual (or for that matter any factor of production) makes to the economy at the margin is what that individual earns — period. What a worker contributes to GDP with an additional hour of work is that worker’s hourly wage, whether that hourly wage is $6 or $60,000 an hour. This in turn means that the effect on everyone else’s income if a worker chooses to work one hour less is precisely zero. If a hedge fund manager gets $60,000 an hour, and he works one hour less, he reduces GDP by $60,000 — but he also reduces his pay by $60,000, so the net effect on other peoples’ incomes is zip.

Of course, he doesn’t actually lose all of that $60,000, since he ends up paying less in taxes. So there is a loss of revenue from that withdrawal of effort. But that’s precisely what the Diamond-Saez calculation takes into account, and the reason the optimal top tax rate isn’t 100%.

So, are conservatives comfortable with this analysis? I would guess not, that they have a deep-seated belief that the 1%, by working harder, are doing the 99% a big favor, creating jobs and raising incomes — and that this gain isn’t fully (or even largely) captured by the money they’re paid.

My point, then, is that this claim — and the lionization of high earners as people who make a vast contribution to society — is not, in fact, something that comes out of the free-market economic principles these people claim to believe in. Even if you believe that the top 1% or better yet the top 0.1% are actually earning the money they make, what they contribute is what they get, and they deserve no special solicitude.

 

[Andy Dufresne]

I think there are a lot more important moral issues in the world than defending the right of the rich to keep their money, but whatever.

I'm not so sure.

Yet textbook economics says that in a competitive economy, the contribution any individual (or for that matter any factor of production) makes to the economy at the margin is what that individual earns — period. What a worker contributes to GDP with an additional hour of work is that worker’s hourly wage, whether that hourly wage is $6 or $60,000 an hour. This in turn means that the effect on everyone else’s income if a worker chooses to work one hour less is precisely zero. If a hedge fund manager gets $60,000 an hour, and he works one hour less, he reduces GDP by $60,000 — but he also reduces his pay by $60,000, so the net effect on other peoples’ incomes is zip.

Of course, he doesn’t actually lose all of that $60,000, since he ends up paying less in taxes. So there is a loss of revenue from that withdrawal of effort. But that’s precisely what the Diamond-Saez calculation takes into account, and the reason the optimal top tax rate isn’t 100%.

So, are conservatives comfortable with this analysis? I would guess not, that they have a deep-seated belief that the 1%, by working harder, are doing the 99% a big favor, creating jobs and raising incomes — and that this gain isn’t fully (or even largely) captured by the money they’re paid.

Not really. Because it's not about whether people will work less, it's about people having less investment capital that they're willing to risk in new ventures.I think. But I'm just a simple unfrozen engineer turned computer programmer. Your "textbook economics" frightens and confuses me.

 

[tommyGunZ]

November 22, 2011, 10:48 AM

Taxing Job Creators

Mark Thoma sends us to the new Journal of Economic Perspectives paper (pdf) on optimal taxes by Peter Diamond and Emmanuel Saez. It’s a tough read (I’m still working on it myself), but there’s one discussion that I think helps make a useful point about current political debate.

In the first part of the paper, D&S analyze the optimal tax rate on top earners. And they argue that this should be the rate that maximizes the revenue collected from these top earners — full stop. Why? Because if you’re trying to maximize any sort of aggregate welfare measure, it’s clear that a marginal dollar of income makes very little difference to the welfare of the wealthy, as compared with the difference it makes to the welfare of the poor and middle class. So to a first approximation policy should soak the rich for the maximum amount — not out of envy or a desire to punish, but simply to raise as much money as possible for other purposes.

Now, this doesn’t imply a 100% tax rate, because there are going to be behavioral responses – high earners will generate at least somewhat less taxable income in the face of a high tax rate, either by actually working less or by pushing their earnings underground. Using parameters based on the literature, D&S suggest that the optimal tax rate on the highest earners is in the vicinity of 70%.

OK, I hear loud screams from the right side of the room. Parsing those screams, I hear the following arguments:

1. Theft! Tyranny! OK, I hear you. This can’t be argued on rational grounds; I think there are a lot more important moral issues in the world than defending the right of the rich to keep their money, but whatever.

2. They’ll go Galt! This amounts to saying that D&S’s estimate of the “behavioral elasticity” is too low. Maybe, but they’re pretty careful about that, and your gut isn’t better than their econometrics.

3. You’ll kill job creation! This is where it gets interesting.

Right now the official rhetoric of the right, and a fair number of people who consider themselves centrist, is that high-income individuals are “job creators” who must be cherished for the good they do.

Yet textbook economics says that in a competitive economy, the contribution any individual (or for that matter any factor of production) makes to the economy at the margin is what that individual earns — period. What a worker contributes to GDP with an additional hour of work is that worker’s hourly wage, whether that hourly wage is $6 or $60,000 an hour. This in turn means that the effect on everyone else’s income if a worker chooses to work one hour less is precisely zero. If a hedge fund manager gets $60,000 an hour, and he works one hour less, he reduces GDP by $60,000 — but he also reduces his pay by $60,000, so the net effect on other peoples’ incomes is zip.

Of course, he doesn’t actually lose all of that $60,000, since he ends up paying less in taxes. So there is a loss of revenue from that withdrawal of effort. But that’s precisely what the Diamond-Saez calculation takes into account, and the reason the optimal top tax rate isn’t 100%.

So, are conservatives comfortable with this analysis? I would guess not, that they have a deep-seated belief that the 1%, by working harder, are doing the 99% a big favor, creating jobs and raising incomes — and that this gain isn’t fully (or even largely) captured by the money they’re paid.

My point, then, is that this claim — and the lionization of high earners as people who make a vast contribution to society — is not, in fact, something that comes out of the free-market economic principles these people claim to believe in. Even if you believe that the top 1% or better yet the top 0.1% are actually earning the money they make, what they contribute is what they get, and they deserve no special solicitude.

Fantastic piece by Krugman. Our tax policy has become analogous to our drug policy - dominated by uneducated scary rhetoric from special interests not founded on actual evidence.

 

[Maurile Tremblay]

Yet textbook economics says that in a competitive economy, the contribution any individual (or for that matter any factor of production) makes to the economy at the margin is what that individual earns — period. What a worker contributes to GDP with an additional hour of work is that worker’s hourly wage, whether that hourly wage is $6 or $60,000 an hour. This in turn means that the effect on everyone else’s income if a worker chooses to work one hour less is precisely zero. If a hedge fund manager gets $60,000 an hour, and he works one hour less, he reduces GDP by $60,000 — but he also reduces his pay by $60,000, so the net effect on other peoples’ incomes is zip.

Does "in a competitive economy" mean that there's no producer or consumer surplus? (For the rest of the paragraph to be true, I think it has to mean that.) If so, models of a competitive economy may be useful for certain purposes, but not for drawing conclusions about a person's contribution to the economy in comparison to his earnings — not in the real world."Physics with friction is not as beautiful. But you need it to get rockets off the ground." — Richard Thaler

 

[guderian]

Fantastic piece by Krugman. Our tax policy has become analogous to our drug policy - dominated by uneducated scary rhetoric from special interests not founded on actual evidence.

I agree. It's a shame we keep electing those darn tax happy Democrats.

 

[pantagrapher]

Fantastic piece by Krugman. Our tax policy has become analogous to our drug policy - dominated by uneducated scary rhetoric from special interests not founded on actual evidence.

I agree. It's a shame we keep electing those darn tax happy Democrats.

Seriously. They've just been raising taxes left and right this past decade.

 

[pantagrapher]

Things to TaxBy PAUL KRUGMANPublished: November 27, 2011The supercommittee was a superdud — and we should be glad. Nonetheless, at some point we’ll have to rein in budget deficits. And when we do, here’s a thought: How about making increased revenue an important part of the deal?And I don’t just mean a return to Clinton-era tax rates. Why should 1990s taxes be considered the outer limit of revenue collection? Think about it: The long-run budget outlook has darkened, which means that some hard choices must be made. Why should those choices only involve spending cuts? Why not also push some taxes above their levels in the 1990s?Let me suggest two areas in which it would make a lot of sense to raise taxes in earnest, not just return them to pre-Bush levels: taxes on very high incomes and taxes on financial transactions.About those high incomes: In my last column I suggested that the very rich, who have had huge income gains over the last 30 years, should pay more in taxes. I got many responses from readers, with a common theme being that this was silly, that even confiscatory taxes on the wealthy couldn’t possibly raise enough money to matter.Folks, you’re living in the past. Once upon a time America was a middle-class nation, in which the super-elite’s income was no big deal. But that was another country.The I.R.S. reports that in 2007, that is, before the economic crisis, the top 0.1 percent of taxpayers — roughly speaking, people with annual incomes over $2 million — had a combined income of more than a trillion dollars. That’s a lot of money, and it wouldn’t be hard to devise taxes that would raise a significant amount of revenue from those super-high-income individuals.For example, a recent report by the nonpartisan Tax Policy Center points out that before 1980 very-high-income individuals fell into tax brackets well above the 35 percent top rate that applies today. According to the center’s analysis, restoring those high-income brackets would have raised $78 billion in 2007, or more than half a percent of G.D.P. I’ve extrapolated that number using Congressional Budget Office projections, and what I get for the next decade is that high-income taxation could shave more than $1 trillion off the deficit.It’s instructive to compare that estimate with the savings from the kinds of proposals that are actually circulating in Washington these days. Consider, for example, proposals to raise the age of Medicare eligibility to 67, dealing a major blow to millions of Americans. How much money would that save?Well, none from the point of view of the nation as a whole, since we would be pushing seniors out of Medicare and into private insurance, which has substantially higher costs. True, it would reduce federal spending — but not by much. The budget office estimates that outlays would fall by only $125 billion over the next decade, as the age increase phased in. And even when fully phased in, this partial dismantling of Medicare would reduce the deficit only about a third as much as could be achieved with higher taxes on the very rich.So raising taxes on the very rich could make a serious contribution to deficit reduction. Don’t believe anyone who claims otherwise.And then there’s the idea of taxing financial transactions, which have exploded in recent decades. The economic value of all this trading is dubious at best. In fact, there’s considerable evidence suggesting that too much trading is going on. Still, nobody is proposing a punitive tax. On the table, instead, are proposals like the one recently made by Senator Tom Harkin and Representative Peter DeFazio for a tiny fee on financial transactions.And here’s the thing: Because there are so many transactions, such a fee could yield several hundred billion dollars in revenue over the next decade. Again, this compares favorably with the savings from many of the harsh spending cuts being proposed in the name of fiscal responsibility.But wouldn’t such a tax hurt economic growth? As I said, the evidence suggests not — if anything, it suggests that to the extent that taxing financial transactions reduces the volume of wheeling and dealing, that would be a good thing.And it’s instructive, too, to note that some countries already have financial transactions taxes — and that among those who do are Hong Kong and Singapore. If some conservative starts claiming that such taxes are an unwarranted government intrusion, you might want to ask him why such taxes are imposed by the two countries that score highest on the Heritage Foundation’s Index of Economic Freedom.Now, the tax ideas I’ve just mentioned wouldn’t be enough, by themselves, to fix our deficit. But the same is true of proposals for spending cuts. The point I’m making here isn’t that taxes are all we need; it is that they could and should be a significant part of the solution.

 

[humpback]

Another example of how you can't take hacks on either side seriously. There is plenty of evidence against a financial transaction tax which he leaves out, much more than there is evidence in favor of it. Many countries have tried it, and not only has it not brought in anywhere close to the revenues projected (shocker), but most of them have repealed it. The few who still have it had to come up with exemptions so they didn't completely destroy their financial industry, which then brings in even less revenue, and it doesn't effect the "evil bankers" because they don't have to pay it.

It's a terrible idea, yet another one that only makes sense in academia, not the real world.

 

[pantagrapher]

Another example of how you can't take hacks on either side seriously. There is plenty of evidence against a financial transaction tax which he leaves out, much more than there is evidence in favor of it. Many countries have tried it, and not only has it not brought in anywhere close to the revenues projected (shocker), but most of them have repealed it. The few who still have it had to come up with exemptions so they didn't completely destroy their financial industry, which then brings in even less revenue, and it doesn't effect the "evil bankers" because they don't have to pay it.It's a terrible idea, yet another one that only makes sense in academia, not the real world.

OK. What's the evidence?

 

[humpback]

OK. What's the evidence?

A few examples from Wiki (there are plenty more):Swedish financial transaction tax (1984 - 1991)

Sweden is an early example of introducing a tax on equity securities, fixed income securities and financial derivatives. In January, 1984, Sweden introduced a 0.5% tax on the purchase or sale of an equity security. Hence a round trip (purchase and sale) transaction resulted in a 1% tax. In July, 1986, the rate was doubled, and in January, 1989, a considerably lower tax of 0.002% on fixed-income securities was introduced for a security with a maturity of 90 days or less. On a bond with a maturity of five years or more, the tax was 0.003%. Analyst Marion G. Wrobel prepared a paper for Canadian Government in July, 2006, examining the international experience with financial transaction taxes, and paying particular attention to the Swedish experience.[29]

The revenues from taxes were disappointing; for example, revenues from the tax on fixed-income securities were initially expected to amount to 1,500 million Swedish kroner per year. They did not amount to more than 80 million Swedish kroner in any year and the average was closer to 50 million.[30] In addition, as taxable trading volumes fell, so did revenues from capital gains taxes, entirely offsetting revenues from the equity transactions tax that had grown to 4,000 million Swedish kroner by 1988.[31]

On the day that the tax was announced, share prices fell by 2.2%. But there was leakage of information prior to the announcement, which might explain the 5.35% price decline in the 30 days prior to the announcement. When the tax was doubled, prices again fell by another 1%. These declines were in line with the capitalized value of future tax payments resulting from expected trades. It was further felt that the taxes on fixed-income securities only served to increase the cost of government borrowing, providing another argument against the tax.

Even though the tax on fixed-income securities was much lower than that on equities, the impact on market trading was much more dramatic. During the first week of the tax, the volume of bond trading fell by 85%, even though the tax rate on five-year bonds was only 0.003%. The volume of futures trading fell by 98% and the options trading market disappeared. On 15 April 1990, the tax on fixed-income securities was abolished. In January 1991 the rates on the remaining taxes were cut in half and by the end of the year they were abolished completely. Once the taxes were eliminated, trading volumes returned and grew substantially in the 1990s.

Effect on volatility

Proponents of the tax assert that it will reduce price volatility. In a 1984 paper, Lawrence Summers and Victoria Summers argued, “Such a tax would have the beneficial effects of curbing instability introduced by speculation, reducing the diversion of resources into the financial sector of the economy, and lengthening the horizons of corporate managers.”[46] It is further believed that FTTs “should reduce volatility by reducing the number of noise traders”.[47] However most empirical studies find that the relationship between FTT and short-term price volatility is ambiguous and that “higher transaction costs are associated with more, rather than less, volatility”.[47]

A 2003 IMF Staff Paper by Karl Habermeier and Andrei Kirilenko found that FTTs are “positively related to increased volatility and lower volume.”[48] A study of the Shanghai and Shenzhen stock exchanges says the FTT created “significant” increases in volatility because it “would influence not only noise traders, but also those informed traders who play the role of decreasing volatility in the stock market.”[49] A french study of 6,774 daily realized volatility measurements for 4.7 million trades in a four year period of index stocks trading in the Paris Bourse from 1995 to 1999 reached the same conclusion “that higher transaction costs increase stock return volatility.” The French study concluded that this volatility measures “are likely to underestimate the destabilizing role of security transactions since they – unlike large ticks – also reduce the stabilizing liquidity supply.”[50]

A study of the UK Stamp Duty in 1997 found no significant effect on the volatility of UK equity prices.[47]

Effect on liquidity

In 2011 the IMF published a study paper, which argues that a securities transaction tax (STT) "reduces trading volume, it may decrease liquidity or, equivalently, may increase the price impact of trades, which will tend to heighten price volatility.”[51] A study by the think tank Oxera found that the imposition of the UK’s Stamp Duty would “likely have a negative effect on liquidity in secondary markets.” Regarding proposals to abolish the UK’s Stamp Duty, Oxera concluded that the abolition would “be likely to result in a non-negligible increase in liquidity, further reducing the cost of capital of UK listed companies.”[52] A study of the FTT in Chinese stock markets found liquidity reductions due to decreased transactions.[49]:6

Effect on price discovery

An IMF Working Paper found an FTT impacts price discovery. The natural effect of the FTT’s reduction of trading volume is to reduce liquidity, which “can in turn slow price discovery, the process by which financial markets incorporate the effect of new information into asset prices.” The FTT would cause information to be incorporated more slowly into trades, creating “a greater autocorrelation of returns.” This pattern could impede the ability of the market to prevent asset bubbles. The deterrence of transactions could “slow the upswing of the asset cycle,” but it could also “slow a correction of prices toward their fundamental values.”[51] :16,18,21

Habermeier and Kirilenko conclude that “The presence of even very small transaction costs makes continuous rebalancing infinitely expensive. Therefore, valuable information can be held back from being incorporated into prices. As a result, prices can deviate from their full information values.”[48]:174 A Chinese study argrees, saying: “When it happens that an asset’s price is currently misleading and is inconsistent with its intrinsic value, it would take longer to correct for the discrepancy because of the lack of enough transactions. In these cases, the capital market becomes less efficient.”[49]:6

Revenues

Revenues vary according to tax rate, transactions covered, and tax effects on transactions.

The Swedish experience with transaction taxes in 1984-91 demonstrates that the net effect on tax revenues can be difficult to estimate and can even be negative due to reduced trading volumes. Revenues from the transaction tax on fixed-income securities were initially expected to amount to 1,500 million Swedish kroner per year but actually amounted to no more than 80 million Swedish kroner in any year. Reduced trading volumes also caused a reduction in capital gains tax revenue which entirely offset the transaction tax revenues.[31]

An examination of the scale and nature of the various payments and derivatives transactions and the likely elasticity of response led Honohan and Yoder (2010) to conclude that attempts to raise a significant percentage of gross domestic product in revenue from a broad-based financial transactions tax are likely to fail both by raising much less revenue than expected and by generating far-reaching changes in economic behavior. They point out that, although the side effects would include a sizable restructuring of financial sector activity, this would not occur in ways corrective of the particular forms of financial overtrading that were most conspicuous in contributing to the ongoing financial crisis. Accordingly, such taxes likely deliver both less revenue and less efficiency benefits than have sometimes been claimed by some. On the other hand, they observe that such taxes may be less damaging than feared by others.

Increased cost of capital

Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University, and formerly Chief Economist at the IMF, argues that there are ample reasons to be angry at financiers, and real change is needed in how they operate.[58] However, he concludes, "the FTT financial transaction tax, despite its noble intellectual lineage, is no solution to Europe’s problems – or to the world’s."

"Over the long run, the tax burden would shift. Higher transactions taxes increase the cost of capital, ultimately lowering investment. With a lower capital stock, output would trend downward, reducing government revenues and substantially offsetting the direct gain from the tax. In the long run, wages would fall, and ordinary workers would end up bearing a significant share of the cost. More broadly, FTTs violate the general public-finance principle that it is inefficient to tax intermediate factors of production, particularly ones that are highly mobile and fluid in their response."

Would the tax be progressive or regressive?

An IMF Working Paper finds that the FTT “disproportionately burdens” the financial sector and will also impact pension funds, public corporations, international commerce firms, and the public sector, with “multiple layers of tax” creating a “cascading effect.” “[E]ven an apparently low-rate [FTT] might result in a high tax burden on some activities.” These costs could also be passed on to clients, including not only wealthy individuals and corporations, but charities and pension and mutual funds.[51]:25,37

Other studies have suggested that the financial transaction tax is regressive in application—particularly the Stamp Duty in the UK, which includes certain exemptions only available to institutional investors. One UK study, by the Institute for Development Studies, suggests, “In the long run, a significant proportion of the tax could end up being passed on to consumers.”[47]:3 Another study of the UK Stamp Duty found that institutional investors avoid the tax due to intermediary relief, while short-term investors who are willing to take on additional risk can avoid the tax by trading noncovered derivatives. The study concluded, therefore, “The tax is thus likely to fall most heavily on long-term, risk-averse investors.”[51]:36

 

[pantagrapher]

Killing the EuroBy PAUL KRUGMANPublished: December 1, 2011 Can the euro be saved? Not long ago we were told that the worst possible outcome was a Greek default. Now a much wider disaster seems all too likely.True, market pressure lifted a bit on Wednesday after central banks made a splashy announcement about expanded credit lines (which will, in fact, make hardly any real difference). But even optimists now see Europe as headed for recession, while pessimists warn that the euro may become the epicenter of another global financial crisis.How did things go so wrong? The answer you hear all the time is that the euro crisis was caused by fiscal irresponsibility. Turn on your TV and you’re very likely to find some pundit declaring that if America doesn’t slash spending we’ll end up like Greece. Greeeeeece!But the truth is nearly the opposite. Although Europe’s leaders continue to insist that the problem is too much spending in debtor nations, the real problem is too little spending in Europe as a whole. And their efforts to fix matters by demanding ever harsher austerity have played a major role in making the situation worse.The story so far: In the years leading up to the 2008 crisis, Europe, like America, had a runaway banking system and a rapid buildup of debt. In Europe’s case, however, much of the lending was across borders, as funds from Germany flowed into southern Europe. This lending was perceived as low risk. Hey, the recipients were all on the euro, so what could go wrong?For the most part, by the way, this lending went to the private sector, not to governments. Only Greece ran large budget deficits during the good years; Spain actually had a surplus on the eve of the crisis.Then the bubble burst. Private spending in the debtor nations fell sharply. And the question European leaders should have been asking was how to keep those spending cuts from causing a Europe-wide downturn.Instead, however, they responded to the inevitable, recession-driven rise in deficits by demanding that all governments — not just those of the debtor nations — slash spending and raise taxes. Warnings that this would deepen the slump were waved away. “The idea that austerity measures could trigger stagnation is incorrect,” declared Jean-Claude Trichet, then the president of the European Central Bank. Why? Because “confidence-inspiring policies will foster and not hamper economic recovery.”But the confidence fairy was a no-show.Wait, there’s more. During the years of easy money, wages and prices in southern Europe rose substantially faster than in northern Europe. This divergence now needs to be reversed, either through falling prices in the south or through rising prices in the north. And it matters which: If southern Europe is forced to deflate its way to competitiveness, it will both pay a heavy price in employment and worsen its debt problems. The chances of success would be much greater if the gap were closed via rising prices in the north.But to close the gap through rising prices in the north, policy makers would have to accept temporarily higher inflation for the euro area as a whole. And they’ve made it clear that they won’t. Last April, in fact, the European Central Bank began raising interest rates, even though it was obvious to most observers that underlying inflation was, if anything, too low.And it’s probably no coincidence that April was also when the euro crisis entered its new, dire phase. Never mind Greece, whose economy is to Europe roughly as greater Miami is to the United States. At this point, markets have lost faith in the euro as a whole, driving up interest rates even for countries like Austria and Finland, hardly known for profligacy. And it’s not hard to see why. The combination of austerity-for-all and a central bank morbidly obsessed with inflation makes it essentially impossible for indebted countries to escape from their debt trap and is, therefore, a recipe for widespread debt defaults, bank runs and general financial collapse.I hope, for our sake as well as theirs, that the Europeans will change course before it’s too late. But, to be honest, I don’t believe they will. In fact, what’s much more likely is that we will follow them down the path to ruin.For in America, as in Europe, the economy is being dragged down by troubled debtors — in our case, mainly homeowners. And here, too, we desperately need expansionary fiscal and monetary policies to support the economy as these debtors struggle back to financial health. Yet, as in Europe, public discourse is dominated by deficit scolds and inflation obsessives.So the next time you hear someone claiming that if we don’t slash spending we’ll turn into Greece, your answer should be that if we do slash spending while the economy is still in a depression, we’ll turn into Europe. In fact, we’re well on our way.

 

[guderian]

Killing the Euro

By PAUL KRUGMAN

Published: December 1, 2011

Can the euro be saved? Not long ago we were told that the worst possible outcome was a Greek default. Now a much wider disaster seems all too likely.

Only in Krugman's straw man chamber. Link

 

[Statorama]

So the problem is Greece isn't SPENDING enough? Oy Vey

 

[Brock Middlebrook]

I'm feeling bad for the folks that are in the top 1%, but not in the top .01%

 

[pantagrapher]

Depression and DemocracyBy PAUL KRUGMANPublished: December 11, 2011It’s time to start calling the current situation what it is: a depression. True, it’s not a full replay of the Great Depression, but that’s cold comfort. Unemployment in both America and Europe remains disastrously high. Leaders and institutions are increasingly discredited. And democratic values are under siege.On that last point, I am not being alarmist. On the political as on the economic front it’s important not to fall into the “not as bad as” trap. High unemployment isn’t O.K. just because it hasn’t hit 1933 levels; ominous political trends shouldn’t be dismissed just because there’s no Hitler in sight.Let’s talk, in particular, about what’s happening in Europe — not because all is well with America, but because the gravity of European political developments isn’t widely understood.First of all, the crisis of the euro is killing the European dream. The shared currency, which was supposed to bind nations together, has instead created an atmosphere of bitter acrimony.Specifically, demands for ever-harsher austerity, with no offsetting effort to foster growth, have done double damage. They have failed as economic policy, worsening unemployment without restoring confidence; a Europe-wide recession now looks likely even if the immediate threat of financial crisis is contained. And they have created immense anger, with many Europeans furious at what is perceived, fairly or unfairly (or actually a bit of both), as a heavy-handed exercise of German power.Nobody familiar with Europe’s history can look at this resurgence of hostility without feeling a shiver. Yet there may be worse things happening.Right-wing populists are on the rise from Austria, where the Freedom Party (whose leader used to have neo-Nazi connections) runs neck-and-neck in the polls with established parties, to Finland, where the anti-immigrant True Finns party had a strong electoral showing last April. And these are rich countries whose economies have held up fairly well. Matters look even more ominous in the poorer nations of Central and Eastern Europe.Last month the European Bank for Reconstruction and Development documented a sharp drop in public support for democracy in the “new E.U.” countries, the nations that joined the European Union after the fall of the Berlin Wall. Not surprisingly, the loss of faith in democracy has been greatest in the countries that suffered the deepest economic slumps.And in at least one nation, Hungary, democratic institutions are being undermined as we speak.One of Hungary’s major parties, Jobbik, is a nightmare out of the 1930s: it’s anti-Roma (Gypsy), it’s anti-Semitic, and it even had a paramilitary arm. But the immediate threat comes from Fidesz, the governing center-right party.Fidesz won an overwhelming Parliamentary majority last year, at least partly for economic reasons; Hungary isn’t on the euro, but it suffered severely because of large-scale borrowing in foreign currencies and also, to be frank, thanks to mismanagement and corruption on the part of the then-governing left-liberal parties. Now Fidesz, which rammed through a new Constitution last spring on a party-line vote, seems bent on establishing a permanent hold on power.The details are complex. Kim Lane Scheppele, who is the director of Princeton’s Law and Public Affairs program — and has been following the Hungarian situation closely — tells me that Fidesz is relying on overlapping measures to suppress opposition. A proposed election law creates gerrymandered districts designed to make it almost impossible for other parties to form a government; judicial independence has been compromised, and the courts packed with party loyalists; state-run media have been converted into party organs, and there’s a crackdown on independent media; and a proposed constitutional addendum would effectively criminalize the leading leftist party.Taken together, all this amounts to the re-establishment of authoritarian rule, under a paper-thin veneer of democracy, in the heart of Europe. And it’s a sample of what may happen much more widely if this depression continues.It’s not clear what can be done about Hungary’s authoritarian slide. The U.S. State Department, to its credit, has been very much on the case, but this is essentially a European matter. The European Union missed the chance to head off the power grab at the start — in part because the new Constitution was rammed through while Hungary held the Union’s rotating presidency. It will be much harder to reverse the slide now. Yet Europe’s leaders had better try, or risk losing everything they stand for.And they also need to rethink their failing economic policies. If they don’t, there will be more backsliding on democracy — and the breakup of the euro may be the least of their worries.

 

[DiStefano]

It's never enough is it? When times are good, government should increase spending. And when times are bad, government should increase spending. Europe's income tax rates are substantially higher than ours, but it's not enough. So they have a VAT (sales tax) of around 20%. It's not enough. So they tax gasoline so that the price is about $6 a gallon. But it's never enough. The greed of government surpasses the greed of bankers, and that's saying something.

 

[Maurile Tremblay]

Hey, look: A Krugman column I agree with.

 

[Slapdash]

 

[Arsenal of Doom]

Krugman on Ron Paul in late 2011:

I’m sure that the Paulistas will find a way to claim that their man has been right about everything, even though his predictions have been all wrong. But he really has built his political career around the notion that he’s an expert in a subject about which he actually understands nothing.

Krugman is hosting a Bloomberg TV segment later today with Ron Paul as a guest. Should be a pleasant conversation.

 

[pantagrapher]

Can we get an update on that runaway inflation?

 

[Topes]

One Point Seven Seven

That’s the current interest rate on 10-year US bonds.

Remember, back in 2009 there was a big debate between people like me, who said that we were in a liquidity trap and that interest rates would stay low as long as the economy was depressed, and people like the WSJ editorial page and Niall Ferguson, who said that government borrowing would bring on the bond vigilantes and send rates soaring.

How’s it going?

And just to be clear: this isn’t just about I-told-you-so. We’re talking about different models, different visions of how the economy works. Their vision led to calls for austerity now now now; mine said that the overwhelming danger was that we wouldn’t provide enough stimulus, and that we would pull back too soon. Sure enough, we didn’t and we did. And now catastrophe looms.

NIALL FERGUSON: Okay, I Admit It -- Paul Krugman Was Right

 

[BigSteelThrill]

Paul Krugman Was Right

Everybody knows that now. Its not arguable.Though some will always argue against anything that is counter to their dogma... kind of like dinosaurs being ridden by early humans.

 

[humpback]

One Point Seven Seven

That’s the current interest rate on 10-year US bonds.

Remember, back in 2009 there was a big debate between people like me, who said that we were in a liquidity trap and that interest rates would stay low as long as the economy was depressed, and people like the WSJ editorial page and Niall Ferguson, who said that government borrowing would bring on the bond vigilantes and send rates soaring.

How’s it going?

And just to be clear: this isn’t just about I-told-you-so. We’re talking about different models, different visions of how the economy works. Their vision led to calls for austerity now now now; mine said that the overwhelming danger was that we wouldn’t provide enough stimulus, and that we would pull back too soon. Sure enough, we didn’t and we did. And now catastrophe looms.

NIALL FERGUSON: Okay, I Admit It -- Paul Krugman Was Right

Do you guys have some sort of translator where up equals down, or is it just blatant lying?

 

[ren hoek]

Paul vs. Paul

 

[pantagrapher]

Paul vs. Paulhttp://youtu.be/jEmKIRqz9AI

Legalize competition of currency within the U.S.? Disband legal tender? WOW.

 

[Slapdash]

Paul vs. Paulhttp://youtu.be/jEmKIRqz9AI

Next part?

 

[Dinsy Ejotuz]

Austerity = depression

Liquidity trap = no inflation

Bond vigilantes = myth

Krugman by knockout.

(though I do think he's wrong that the stimulus will be unwound without causing inflation and higher interest rates if/when the economy picks up again - the Fed will wait too long to clamp back down IMO)

 

[ren hoek]

Paul vs. Paulhttp://youtu.be/jEmKIRqz9AI

Legalize competition of currency within the U.S.? Disband legal tender? WOW.

Yes, let people use other forms of currency. I agree with Ron Paul when he says inflation is theft by stealing value from people who save money. While it is open to fluctuation, that simply doesn't happen with gold and silver. Just like he said, if he's wrong, then the goldbugs will fall and the dollar will reign supreme. What's so outlandish about giving people that choice?

 

[IvanKaramazov]

Can we get an update on that runaway inflation?

I wonder whatever happened to the sky-high interest rates thatwe all expected thanks to Bush's deficits.

 

[Dinsy Ejotuz]

Can we get an update on that runaway inflation?

I wonder whatever happened to the sky-high interest rates thatwe all expected thanks to Bush's deficits.

C'mon. You can do better than this - you're not even trying here. If there's no liquidity trap the usual rules apply.No one's arguing that deficits don't matter. The argument is that stimulus/deficits in a time of debt deflation don't lead to higher interests rates and inflation (at least not immediately). And that the real risks you run of future inflation and higher interest rates are more than offset by the damage that a depression brings about if you don't address it aggressively.

 

[IvanKaramazov]

Can we get an update on that runaway inflation?

I wonder whatever happened to the sky-high interest rates thatwe all expected thanks to Bush's deficits.

C'mon. You can do better than this - you're not even trying here. If there's no liquidity trap the usual rules apply.No one's arguing that deficits don't matter. The argument is that stimulus/deficits in a time of debt deflation don't lead to higher interests rates and inflation (at least not immediately). And that the real risks you run of future inflation and higher interest rates are more than offset by the damage that a depression brings about if you don't address it aggressively.

There was no liquidy trap when Krugman was taking out his fixed-rate mortgage.

 

[Socrates11]

I'm no economist, but shouldn't interest rates be higher under current circumstances but the Fed is keeping them artificially low? Isn't that part of the argument behind Japan's doldrums, that they keep their interests rates low and prevent the business cycle from re-setting?

And anyone that pays attention to their grocery bill knows there is a shadow inflation going on. Prices are up across the board or the size of items are reduced to keep prices flat.

I don't think our current economic situation is anywhere near working itself out. Krugman might be right, or his error may just not be apparent yet.

 

[dickey moe]

Can we get an update on that runaway inflation?

Eaten lately? Drove anywhere? Been to the doctor much? I'll hang up and listen.

 

[the moops]

Can we get an update on that runaway inflation?

Eaten lately? Drove anywhere? Been to the doctor much? I'll hang up and listen.

The doctor is more expensive because of inflation?

 

[Fennis]

Can we get an update on that runaway inflation?

Eaten lately? Drove anywhere? Been to the doctor much? I'll hang up and listen.

bought a house lately? bought tech gadgets? hired a laborer much?

 

[chet]

Kruger was on BloombergTV yesterday afternoon and ruled. He pwned Ron Paul (who is an economic idiot by the way).

Has anyone read Kruger's new book?

 

[ren hoek]

I'll take the economic idiot that nailed the housing bubble over the blowhards that completely whiffed on it.

Anyway, here's the rest of that interview. It picks up where the last one left off at about 13:30.