KRUGMAN ADMITS THE ECONOMY IS RECOVERING From an article by Krugman in the Sunday New York Times:
Over the last few months, the recovery has finally started to look like the real thing.
Update...Reader and typo king Irwin Chusid warns, "Uh-oh. Considering PK's recent track record on the economy, perhaps the rest of us should start worrying?"
Posted by Donald Luskin at 9:12 AM | link
Next...
"...in retrospect we know that Greenspan's 'judgment' -- that tax cuts were needed to prevent excessive budget surpluses -- was a misjudgment of Rumsfeldian proportions. In fact, the United States is headed for a budget deficit of more than $400 billion this year, more than half of it a result of tax cuts passed since Greenspan gave Bush his support."
In a effort to belittle Bush/Greenspan PROFESSOR KRUGMAN'S has crossed all boundaries prescribed for a impartial academician. He was proponent of impending deflation and always thought that interest rates cuts will not work, as they did not in Japan. Once recovery is underway he is now looking at tax cuts, another proven reason for great success of American economy, the Reagenomics was not a voodoo economic model it had ingredients that supported incentive and encouragement of the concept of invisible hand that encourages distribution based on innate greed. Tax cuts bring long-term prosperity. Surplus as it was projected in 2001 was lost primarily due to increased spending and weak economy as highlighted below, many of these factors were definitely out of Bush control, the 24% surplus lost due to tax cuts can be described as stimulating factor, the present state of economy may be helped by those very tax cuts that eroded the surplus, 911 global jihad against USA and a world shaken by global terrorism had its damaging impact on the economy however the recovery has been very smart and may be tax cuts have helped, Krugman always thought that increased spending and tax cuts would lead us into recession.
jec.senate.gov
Luskins handles his latest critique of Greenspan..
PROFESSOR KRUGMAN'S THREE-STATE LOGIC Paul Krugman had an article on Alan Greenspan in Sunday's New York Times Magazine, in which he makes the following claim (one we've heard from him several times before, in a variety of forms):
"...in retrospect we know that Greenspan's 'judgment' -- that tax cuts were needed to prevent excessive budget surpluses -- was a misjudgment of Rumsfeldian proportions. In fact, the United States is headed for a budget deficit of more than $400 billion this year, more than half of it a result of tax cuts passed since Greenspan gave Bush his support."
I've found it always pays to take particular care when Krugman begins a sentence with the words "in fact."
In fact -- as it were -- Krugman's statement is only a "fact" if you operate in a world of three-state logic. In the normal world of two-state logic, a statement is either true or false. In Krugman's world of three-state logic, a statement can also be "not false" without being altogether true. The statement above is, at best, not false.
Here's what I mean. It is not false that the amount of tax revenue lost because of the tax cuts in question (those since 2001) is equal to more than half the amount of the present deficit. But it is also the case that there are other factors that contributed to the deficit that are even greater. Increases in discretionary spending are also more than half the deficit. And loss of tax revenues and increases in entitlement spending thanks to a weaker than expected economy are about seven-eighths of the deficit.
But wait, you are no doubt asking -- how can that be so? All that adds up to more than 100% of the deficit. In fact, it adds up to about 200% of the deficit! Welcome to the world of three-state logic.
The explanation is that back in 2001, as Krugman points out in his article, official government forecasts were calling not for deficits but for surpluses. Since the topic of Krugman's statement is the change in expectations from 2001 to today, the real question is not only the role of the tax cuts -- as though the entire world must be explained by a single factor's influence -- but rather the roles of all the factors, including the tax cuts. If you take all the factors into account, then tax cuts are responsible for only 24% of the swing from surplus to deficit. It's all summarized in the chart below, from an excellent little report by the Joint Economic Committee of Congress.
So Krugman's statement is not false. But it isn't true, either. As such, it is deceptive in that it both frames the question in the wrong context, and then provides only a small part of the information that a reader would need to know to make a reasonable judgment. A true version of the statement would have been something like:
"Revenues lost due to tax cuts explain more that half of today's deficits, but they are only a small contributor to the swing into deficit from the surpluses that were expected when Greenspan gave Bush his support."
That would have been true (although even that depends on various economic assumptions that could reasonably be questioned). But that wouldn't have scored as many Bush-bashing points, now would it?
Posted by Donald Luskin at 12:32 AM | link
poorandstupid.com |
