Okay, if Paul Krugman is going to keep on writing the same column twice a week every week forever, then I am going to keeping on objecting to it forever, though not, I promise, twice every week.
A couple of bullet points from his latest:
- In response to the priorities of Senator John Kyl, Krugman writes: “So $30 billion in aid to the unemployed is unaffordable, but 20 times that much in tax cuts for the rich doesn’t count.” Oh, for goodness’s sake. $30 billion in aid to the unemployed might or might not be good policy and 20 times that much in tax cuts might or might not be good policy; that’s beside the point here. The point is that these are quite entirely separate issues and one’s position on the first need not dictate one’s position on the second. Aid to the unemployed is costly. Tax cuts are not. Didn’t I just say this?
- And Krugman goes on: “On paper, solving America’s long-run fiscal problems is eminently doable: stronger cost control for Medicare plus a moderate rise in taxes would get us most of the way there.” In the words of a certain Nobel laureate, this passage makes me want to stick a pencil in my eye. It’s like saying “Getting my family budget under control is eminently doable: fewer caramel macchiatos plus more trips to the ATM would get us most of the way there”. Yes, cutting spending will help. No, moving money around won’t.
Like it or not, the government can always raise taxes and therefore always has a claim on your wealth. You are the government’s ATM. Making a withdrawal today (by raising your taxes) means there will be less available to withdraw tomorrow. Raising taxes does not make the government richer. Didn’t I say this already?
- Yes, I know, a bunch of silly Republicans (along with a bunch of silly Democrats) have gone around saying the deficit is all that matters, which implies that a tax increase can offset a spending increase. Yes, silly people are silly. But the existence of silly people is not enough to justify additional spending. For that, you’ve got to, you know, attempt to justify the additional spending.
Sometimes a caramel macchiato is worth the cost and sometimes it’s not. Sometimes an unemployment benefit is worth the cost and sometimes it’s not. We have useful ways of thinking about these things. Some people say: “You know, that macchiato is expensive but it’s worth it.” Others say: “I don’t think that’s a very wise expenditure right now.” Paul Krugman says: “AHA! So a caramel macchiato is unaffordable, but you still haven’t visited the ATM!” And I say: How’s that again?
Stay tuned for more Godel, more Darwin, and a little less Krugman.
The tax increase is indeed a movement of wealth (or possibly even a loss). Isn’t there a difference, however, between what society gains and what government gains? Government is indeed an entity and can get money by raising taxes can’t it?
Michael: The government can no more enrich itself by raising taxes than you can enrich yourself by making withdrawals from your bank account. The govt’s power to tax is one of its assets (in fact, pretty much it’s only asset). That power is diminished every time it is exercised, just as your bank account is diminished every time you make a withdrawal.
But isn’t it the case that whatever the government doesn’t take through taxes, people are more likely to spend on their own consumption, and is thus unavailable for the government to tax in the future? (Of course the money doesn’t disappear when people spend it — it just changes hands between different taxpayers — but spending it on consumption causes *resources* to be consumed and disappear.) So doesn’t that give government a logical (if cynical) reason to tax — to get money before people spend it themselves?
In which case, it’s not like making an ATM withdrawal against your account; it’s more like making an ATM withdrawal against someone else’s account, where you want to grab what they can before the account holder can spend it!
“Paul Krugman is going to keep on writing the same column twice a week every week forever”
Twice a week? I thought it was more like twice a day!
The point that most people are complaining about is the DEFICIT.
Are you saying that raising taxes does not cut the deficit?
Various bloggers, Matt Yglesias, in particular has posted that Repblicans are lying when worrying about the deficit.
Krugman wrote “This week the party’s Senate leadership stopped pretending that it cares about deficits, ” notice the last word he wrote?
DEFICITS
Should Krugman worry about the deficit is a different topic.
Greetings,
it seems you always ignore that having a deficit means you need to spend money ( from you know, taxes ) on interest for no benefit to the government or the country.. Do you not agree that tax cuts reduce the interest paying ( from taxes ) .
T.
TJD: This is a fallacy. Having a deficit means that the government spends money to make interest payments, but it also means that individuals retain more savings, which allows them to *earn* more interest. There is no net loss.
Landsburg has been pretty clear in his (conventional) views that taxation imposes a cost. He has been less clear on his views regarding costs related to deficits — except to say that commentors exaggerate those costs.
To clarify this matter: What consequences would result from eliminating all taxes and relying entirely on borrowing to finance government expenditures? If Cheney was correct that Reagan was correct that deficits don’t matter, the consequences would be entirely benign.
Yet I suspect that if Landsburg really embraced this view, he’d already have a book out titled “DEFICITS DON’T MATTER!” That suggests to me that his view must be more nuanced than that.
Thanks God, Paul Krugman will continue to write that NYTimes’ column twice a week, he makes all of us think!!!…
I think that the ATM analogy is OK for a first approximation, but it is really more complicted, isn’t it? Your bank account has a certain amount of money in it, and as you take it out of the ATM that amount gets less. You have said “The (potentially taxable) wealth of the citizens is one of the government’s assets, and taxation depletes that asset” as though it were a bank account with a fixed amount in it. But isn’t there a Keynesian argument that spending this taxation will have a net increase in the future potentially taxable wealth of the people? At least in times of recession. I had thought that was the point – the economy is not like a bank account with a fixed amount in it. The cake is not of a fixed size. There is more than one equilibrium position.
I may have got this wrong, but it is at least a fairly complicated area of discussion. It may be that taxation depletes future wealth more than it grows, but as long as it at least theoretically possible for the opposite, then the question “what effect will this taxation have on future wealth” is a valid one.
Krugman has not addressed this point in the linked articles. He has addressed a different point. He has perhaps been a bit imprecise with his terminology. He castigates those who put the deficit above all else, then says “solving America’s long-run fiscal problems ” as though the deficit were the only long-run fiscal problem America faces.
However, he is not mainly trying to make the case for increased or decreased spending or taxation, but pointing out that those who say the deficit is all important are inconsistent. He also says that they believe (erroneously in his opinion) that lower taxes increases tax take. They may or may not be wrong, but if they believe it, that absolves tham of hypocrisy.
You believe that he is making a point that is not worth making. He seems to think it is, as he has made it several times.
I must admit I still don’t understand the ATM analogy. Here’s my analogy: The government takes money from people, just like a mugger does. According to Landsburg:
The [mugger] can no more enrich [him]self by [mugging more people] than you can enrich yourself by making withdrawals from your bank account. The [mugger’s] power to [mug] is one of its assets (in fact, pretty much it’s only asset). That power is diminished every time it is exercised, just as your bank account is diminished every time you make a withdrawal.
This is clearly wrong. Muggers can obviously increase their wealth by mugging more, so I don’t see how the government can’t increase its wealth by taxing more. It’s true that the mugger decreases the total size of the economic pie through his rent-seeking activity, which means there is, in the ultimate sense, less money to steal, but so what? The mugger himself has gained, precisely the thing Landsburg argues is impossible.
Landsburg is far smarter and more knowledgeable about economics than I am, so I’m certainly not claiming he’s wrong, but his explanation seems lacking to me.
Nathan: You are overlooking the fact that there are many muggers but only one government. When the mugger takes a dollar from you, he mostly diminishes *other* muggers’ ability to steal in the future, not his own. But in the case of the govt, there’s only one mugger, so a mugging today means less available to mug tomorrow.
Another difference is that muggers have to sieze opportunities as they come along, but for the govt the opportunity to tax is always there.
“McConnell Blasts Deficit Spending, Urges Extension of Tax Cuts”
http://www.rollcall.com/news/48451-1.html
Is McConnell being logically consistent?
This is slightly off topic and perhaps less interesting than the current converstation, but in broad terms it still involves government intervention, but my question is how do you think a government should manipulate its’ currency? What should its’ goal be? Does it matter if they never print money? Does it matter if they print gobs of money? Are there certain situations where these goals should change? These questions to me seem as if they’d be hard for anyone to answer but especially so for a libertarian. Perhaps context is just too important regarding currency to make broad statements regarding what is good and bad policy? This in contrast to the libertarians’ view that in general smaller government is better government, as the saying goes. Are there any such sayings regarding currency management?
Josh – I would highly recommend reading
http://www.amazon.com/Money-Credit-Economic-Cycles-ebook/dp/B003E7F308/ref=cm_cr_pr_product_top
Makes the Austrian case of why the government should not be in the business of printing money or enouraging a fractional reserve system.
“more Darwin, and a little less Krugman”
Ie, survival of the fittest.
neil: “The point that most people are complaining about is the DEFICIT.”
neil, I know that a bunch of silly Republicans (along with a bunch of silly Democrats) have gone around saying the deficit is all that matters, which implies that a tax increase can offset a spending increase. Yes, silly people are silly. But the existence of silly people is not enough to justify additional spending. For that, you’ve got to, you know, attempt to justify the additional spending.
Hmm, why does that last paragraph seem familiar?
tibu: “Thanks God, Paul Krugman will continue to write that NYTimes’ column twice a week, he makes all of us think!!!…”
Absolutely. The Paul Krugman “Think System” of economics.
“When the mugger takes a dollar from you, he mostly diminishes *other* muggers’ ability to steal in the future, not his own.”
How so?
“But in the case of the govt, there’s only one mugger, so a mugging today means less available to mug tomorrow.”
Yeah, but hasn’t the government technically become wealthier anyway? It might slightly reduce opportunities to become wealthier, but the point still remains.
It’s really weird how you keep ignoring the blatantly obvious reason that your objection makes no sense whatsoever. You continue to pretend that the political debate between these people is about what you’re talking about, when they’re very clearly talking about something else whose existence you consider irrelevant, so therefore you act as if they’re not talking about it. I continue to shake my head in wonder while wishing you’d go back to writing interesting things.
Cos:
A Republican senator makes a silly argument against unemployment benefits. That silly argument is inconsistent with the Senator’s ongoing support for tax cuts.
Paul Krugman says: That senator is being silly. Therefore we need more unemployment benefits and higher taxes.
I say: If you want more unemployment benefits and/or higher taxes, you really ought to make a case for them.
You say: Krugman is not talking about making a case for those policies! He is talking about how silly the other guys are! They are debating something totally different than what you’re debating.
I say: My point exactly. They are debating the wrong thing. Plus Krugman is jumping to conclusions he hasn’t justified. I think that’s worth harping on.
Steve Landsburg :
* Money spent on deficits is money not spent on investing in companies, of course there is a loss ( loss of opportunity )
* Am I correct in assuming in your economic world-model that the US only borrows from US people, that would be wrong. In reality a lot of borrowing is done from abroad -> loss for the US.
* Finally, I am not sure you understand what a fallacy is, here’s a list to help you out : http://en.wikipedia.org/wiki/List_of_fallacies
T.
TJD:
Money spent on deficits is money not spent on investing in companies
One could equally well say that money spent on taxes is money not spent on investing in companies.
Am I correct in assuming in your economic world-model that the US only borrows from US people
No. Where did you think I had assumed that?
TjD:
Whether Steve is correct or not, you did not address his response to your point, at all, but instead engaged in condescension. Dixit your link, that would be ad hominem.
Bob:
I did address his point ( with condescension ):
“TJD: This is a fallacy. Having a deficit means that the government spends money to make interest payments, but it also means that individuals retain more savings, which allows them to *earn* more interest. There is no net loss.”
1. There is a loss ( of opportunity )
2 There is a loss ( for the US ) its not only US individuals that earn the interest
T.
TjD: You really did quite entirely miss the point.
There is a loss ( for the US ) its not only US individuals that earn the interest
No. This is wrong. You can either keep repeating it, or you can try to understand why it’s wrong. (Or, of course, you can walk away.)
Suppose the government cuts my taxes by $1 and therefore has to borrow a dollar from a foreigner. Next year it has to repay that foreigner $1.05.
Meanwhile, I have an extra dollar in my bank account, where, over the course of a year, it earns five cents interest. (You see? The interest I was talking about, as opposed to the interest you were thinking about, goes to an American.) Next year, instead of having a dollar, I have $1.05.
The five cent interest cost, which goes to a foreigner, is offset by the five cents interest earned by the taxpayer, an American.
Your error was noticing the first five cents and failing to notice the second five cents. That’s an example of a fallacy. I’ll leave you to peruse your fallacy list and figure out which one.
“Aid to the unemployed is costly. Tax cuts are not.”
By that, Prof. Landsburg, do you mean that the benefits of unemployment aid to the households who can then buy things — some worthwhile, some unnecessary — exceed the costs (so there’s a net loss of “welfare”)?
Your statement from the prior blog entry under the link seems to point that way, but it’s not quite clear.
From prior entry:
“Next, unemployment benefits are costly, both insofar as they discourage recipients from seeking work and insofar as they necessitate taxes that discourage productive activity. The cost of $77 billion worth of benefits is not $77 billion, but it’s not zero either.
So unemployment benefits are costly and tax cuts are not. Which doesn’t mean that all unemployment benefits are bad or that all tax cuts are good, but it’s plenty adequate to absolve the hypocrisy charge.”
Is this extension of unemployment aid a case of a “good” extension of unem aid or a “bad” extension, in your view?
Thanks for your insights and a great blog.
“On paper, solving America’s long-run fiscal problems is eminently doable: stronger cost control for Medicare plus a moderate rise in taxes would get us most of the way there.” -PK
He lost me at “stronger cost control for Medicare”. Is that analogous to fewer caramel macchiatos? That doesn’t quite capture the incentive problems.
I know it’s harder and longer to say “fewer caramel macchiatos given to special friends in return for political favors and favorable headlines for unsuspecting voters, paid for from the ATMs of strangers (who happen to be those unsuspecting voters).”
To Krugman’s point, that type of spending is much, much easier to cut on paper than it is in real life.
Mark Foley:
Is this extension of unemployment aid a case of a “good” extension of unem aid or a “bad” extension, in your view?
My prejudice says “bad”, but I haven’t thought about this hard enough to be sure.
“There is no net loss.”
but the final state is different.
you could argue before and after the interstate highway system
was built there was no net loss. but the final state with
the highways was a gain for society.
oh forget it, i’m walking away