Fuzzy Math by Krugman (2001) - why the Bush tax cut will be bad for the USA

[Oleander Ardens]

I read this weak this remarkable book by Krugman, who was able to combine a precise analysis with clear presentation, so that even people with little knowledge in economy should be able to greatly increase their understanding of fiscal and monetary policy, both in the US and in general.

It neatly explains how Reagan and especially Bush junior sacrified overall economic wellbeing to Ideology, and investigates the radical myths of small goverment and taxcuts as an everworking elexir for the economy. I warmly recomend it for every person who enjoys reading a intelligent book.

BTW: Keynes quote: "It is better to be roughly right than precisely wrong" goes just fine with this book.

[Crazed Rabbit]

I'm not a fan of Krugman, and I remember a government study on tax breaks in the US that showed they helped the economy. So this is probably just another partisan screed by Krugman, as so many of his columns are.
*finishes dismissing the book out of hand*

CR
PS And I detest Keynes.

[CountArach]

PS And I detest Keynes.

No? Really?

[Crazed Rabbit]

Totally unexpected, isn't it?

CR

[seireikhaan]

Not unexpected at all, CR.

I'd expect you to disagree with anyone who states that government spending can be in any ways helpful.

[Rhyfelwyr]

From what I remember on my studies of Keynes v White its just as well Keynes won.

[CountArach]

Totally unexpected, isn't it?

CR

You certainly had me fooled.

[Kadagar_AV]

This is off topic, but it is a quick question:

Rhyfelwyr, why do you have the swedish symbol under your posts, along with the "Validus regnum"

the three golden crowns on a blue background

It just made me wonder...

[Koga No Goshi]

It neatly explains how Reagan and especially Bush junior sacrified overall economic wellbeing to Ideology

No disrespect meant to the book, I'd be shocked if anyone in 2008 would require a book in order to come to this realization.

[Banquo's Ghost]

This is off topic, but it is a quick question:

Rhyfelwyr, why do you have the swedish symbol under your posts, along with the "Validus regnum"

Or the arms of Munster...

[Alexander the Pretty Good]

Reagan and Bush didn't actually implement small government.

[Oleander Ardens]

I will try to answer some of the questions, one by one:

Reagan and Bush didn't actually implement small government.

Yes and no and a very strong no. Both increased the overall government greatly, but almost only in discretionary spending for public goods, among them especially in the military. At the same time they tried to contain in other areas in the spirtit of small governement. But most importantly of all they both cut income taxes based on supply-sided view of economic growth, greatly reducing the taxes gathered by the rich and very rich. Bush did also eliminate the tax of the very, very rich: the estate tax, while Reagan actually increased the payroll tax. Both increased directly and/or indirectly the burden of the poor and middle class, while decreasing it for the rich and very rich.


By reducing now the overall tax intake they both created facts for the budget for the coming years and decades. Reagans budget director David Stockman admitted in his own book that they never believed in their own "rosy scenarios" of the cheap tax cuts. In his own words they used their own huge deficits, created by their own policies and lacking ability to curb spending, to force the succeding goverments to spend less, to become "small". Thus the sacrficed overall well-being for their own political gain and ideology, while leaving to later governments and generations to clean up their mess.


That especially Mr. Bush tried to hide the cost of his fiscal policies is most embarassing and dangerous, or to quote the last words of Krugman in "Fuzzy math": "I can't think of any previous administration that has tried to sell its economic plan on such false pretenses. It would be a shame, and a dangerous precedent, if they get away it with it" Written 2001.

OA

BTW:A very nice interactive chart in the NYT. A surprising neat way to meaningfully present economic data.

[Rhyfelwyr]

Or the arms of Munster...

VR is my mod. Shameless off-topic advertising over.

For just now...

[Oleander Ardens]

I'm not a fan of Krugman, and I remember a government study on tax breaks in the US that showed they helped the economy. So this is probably just another partisan screed by Krugman, as so many of his columns are.
*finishes dismissing the book out of hand*

CR
PS And I detest Keynes.

Fan/remember/probably just another partisan screed/dismissing the book out of hand/ And I detest Keynes

I can not think of a better argument than your post to show the need for research as done by the latest Winner of the Nobel price. Some people, especially highly regarded economists must still bother about methods and facts. For some it seems to be a luxuray - which is understandable. It just has no place in a serious debate.

Regards
OA

[Koga No Goshi]

Fan/remember/probably just another partisan screed/dismissing the book out of hand/ And I detest Keynes

I can not think of a better argument than your post to show the need for research as done by the latest Winner of the Nobel price. Some people, especially highly regarded economists must still bother about methods and facts. For some it seems to be a luxuray - which is understandable. It just has no place in a serious debate.

Regards
OA

You can't convince or overturn an ideologue's argument with facts and figures. Those are just ammo to be bent and spun for a true believer. ;)

[Crazed Rabbit]

Fan/remember/probably just another partisan screed/dismissing the book out of hand/ And I detest Keynes

I can not think of a better argument than your post to show the need for research as done by the latest Winner of the Nobel price. Some people, especially highly regarded economists must still bother about methods and facts. For some it seems to be a luxuray - which is understandable. It just has no place in a serious debate.

Regards
OA

Krugman got the prize for modeling trade theory and 'economic geography', for rediscovering in a way theories on free trade. Now it appears he used to do good work, but abandoned that to become a partisan. And it is that partisanship that will be buoyed by his prize, not his earlier work.

Now it seems to me he's one to let ideologies triumph over economic theory:

Well, no. Although America has higher per capita income than other advanced countries, it turns out that that's mainly because our rich are much richer. And here's a radical thought: if the rich get more, that leaves less for everyone else.

That statement -- which is simply a matter of arithmetic -- is guaranteed to bring accusations of ''class warfare.''

That's a fundamental misstatement of economics; there is not one set 'pie' where if one person gets a larger piece, another person must get a smaller piece.

You can't convince or overturn an ideologue's argument with facts and figures. Those are just ammo to be bent and spun for a true believer. ;)

I asked all the Keynes supporters in that other thread how they could support his policies when they did so poorly in the Great Depression. But those folks, so quick to jeer, offered nothing to defend their ideas, because there is no good defense. You're the ideologue here.

You know why I detest Keynes? I originally bought the 'Roosevelt pulled America out of the Great Depression' line, until I started reading about the economics of it and found out that he unintentionally kept America down. And I try to learn from the past instead of swallowing without question one version.

CR

[Husar]

That's a fundamental misstatement of economics; there is not one set 'pie' where if one person gets a larger piece, another person must get a smaller piece.

No it isn't, it just appears like that because of loans and debt, for further reference look at the thread about money and watch the 45min video. It's pretty simple actually, when I make someone 10$ richer I will have 10$ less, anything else is just complicating that simplicity until it looks like a good thing.

Once all companies and families can pay for their investments in cash and won't have any debt you can say they're all rich, but I bet it won't happen.

[Crazed Rabbit]

I'm assuming you're being sarcastic, Husar.

Anyways, here's Krugman saying the current situation resembles the Great Depression.

This statement shows either (1) that Krugman knows nothing about economic conditions during the Great Depression or (2) that he knows nothing about economic conditions at present. An unemployment rate of 20-25 percent is not comparable to an unemployment rate of 6 percent. A decline in real GDP of 30 percent is not comparable to ongoing growth in real GDP. Approximately 10,000 commercial bank failures are not comparable to a handful of such failures recently. Deflation of 20-25 percent is not comparable to the inflation we presently experience. Many other gross differences might be mentioned, as well.

CR

[Husar]

I'm assuming you're being sarcastic, Husar.

No, why?
Are you saying that when you give me 10$ you won't have 10$ less? Maybe you'll get a chewing gum in return but that won't make you a lot richer, especially after you've eaten it.
What makes us richer is inflation.

[SwordsMaster]

Well, I for one reckon that a Nobel prize in economics is worth reading...

As of government spending, I for one believe that a government performs no useful function, except for creating a framework in which individuals should be able to perform useful functions. But when the government is starting to tell me what I can and cannot think like in the Reagan era, I get upset and find me a better government.

Anyhow. Any other points? Or just government spending?

[Oleander Ardens]

I have just limited time so I will just answer CR.

That's a fundamental misstatement of economics; there is not one set 'pie' where if one person gets a larger piece, another person must get a smaller piece.

Let us see the context from which you have taken your Krugman quote:

Still, you can understand why Novak assumed that we were No. 1. After all, we really are the richest major nation, with real G.D.P. per capita about 20 percent higher than Canada's. And it has been an article of faith in this country that a rising tide lifts all boats. Doesn't our high and rising national wealth translate into a high standard of living -- including good medical care -- for all Americans?

Well, no. Although America has higher per capita income than other advanced countries, it turns out that that's mainly because our rich are much richer. And here's a radical thought: if the rich get more, that leaves less for everyone else.

That statement -- which is simply a matter of arithmetic -- is guaranteed to bring accusations of ''class warfare.'' If the accuser gets more specific, he'll probably offer two reasons that it's foolish to make a fuss over the high incomes of a few people at the top of the income distribution. First, he'll tell you that what the elite get may look like a lot of money, but it's still a small share of the total -- that is, when all is said and done the rich aren't getting that big a piece of the pie. Second, he'll tell you that trying to do anything to reduce incomes at the top will hurt, not help, people further down the distribution, because attempts to redistribute income damage incentives.

These arguments for lack of concern are plausible. And they were entirely correct, once upon a time -- namely, back when we had a middle-class society. But there's a lot less truth to them now.

First, the share of the rich in total income is no longer trivial. These days 1 percent of families receive about 16 percent of total pretax income, and have about 14 percent of after-tax income. That share has roughly doubled over the past 30 years, and is now about as large as the share of the bottom 40 percent of the population. That's a big shift of income to the top; as a matter of pure arithmetic, it must mean that the incomes of less well off families grew considerably more slowly than average income. And they did. Adjusting for inflation, average family income -- total income divided by the number of families -- grew 28 percent from 1979 to 1997. But median family income -- the income of a family in the middle of the distribution, a better indicator of how typical American families are doing -- grew only 10 percent. And the incomes of the bottom fifth of families actually fell slightly.

As you see Krugman precisely answers your question, not surprisingly a bit better than I could have done.

I would like it to shift a possible discussion about Keynes into a new thread and refocus on the little interesting book "Fuzzy Math". It is already interesting enough for this thread.

OA

[Crazed Rabbit]

Nope, Krugman did not preemptively answer my critique. I said:

That's a fundamental misstatement of economics; there is not one set 'pie' where if one person gets a larger piece, another person must get a smaller piece.

Krugman attempts to preempt attacks based on other things:

First, he'll tell you that what the elite get may look like a lot of money, but it's still a small share of the total -- that is, when all is said and done the rich aren't getting that big a piece of the pie. Second, he'll tell you that trying to do anything to reduce incomes at the top will hurt, not help, people further down the distribution, because attempts to redistribute income damage incentives.

I'm not saying either thing.

CR

[Oleander Ardens]

I confess I'm quite amused. You say something very agreeable in your first quote, which content you share with a part of Krugman's quote. Yet you think you score a point by thinking he is wrong. It would help your understanding if you would care to read again his quote. Or would you care to elaborate your points?