Friday, January 22, 2010

Paul Krugman has a new book out

Or maybe it's just a revised edition of an old book? It's a book of essays called The Accidental Theorist, and economist Brad DeLong reviews it. To quote Brad:

Critics of Paul Krugman call him acerbic and boastful, unfair on the attack and unwilling to make concessions on the defense, certain that he is correct, and always sure that those who disagree are mendacious or foolish (or both). And I cannot deny that these criticisms are accurate. But all these are outweighed by one fact: he is almost always--not always, but almost always--right.

That being right thingy must chap some right wing Chicago ass big-time, yo.

-- Badtux the Economics Penguin


  1. Krugman was also embarrassingly pro Hillary in the early months of 2008 before the tide shifted. That didn't earn him any points with the O team.


  2. I did not read Krugman as being embarrassingly "pro Hillary" but, rather, as pointing out that Hillary's plans and policies were more workable and fully fleshed than Obama's. And that was true. Obama's health care plan, for example, was an utter disaster -- a poll-driven pastiche which had a sort of surface plausibility but which was utterly unworkable, even the current Senate health care plan is better than Obama's plan was, that's how bad Obama's plan was (indeed, both the House and Senate plans look far more like HIllary's plan than like Obama's). I mentioned the problems with Obama's plan myself in early 2008 after I read both his plan and Hillary's plan, that's why I did not vote for Obama in the primary, it was clear that the youngster made good speech but the substance was not there.

    And has history since Obama was elected invalidated Krugman's point about Obama's health care policy emptiness? I think not. I think Krugman's judgement there has been validated quite well, thank you very much. As usual, he was right, and the O team is in no way going to forgive him for that crime.

    - Badtux the Krugman-admirin' Penguin

  3. Paul Krugman has never once demonstrated empirically that progressive increases in taxes do not stifle investment.

    The only way to permanently increase income is through capital investment. Taxes give to the state to squander what is normally invested in goods, services and capital formation.

  4. Uhm, excuse me, but when was the period of greatest GDP growth in America -- 1952-1980 when the top marginal tax rate was over 60%, or 1982-2010 when the top marginal tax rate was under 40%?

    Hint: It wasn't 1982-2010.

    In other words, the actual facts refute your notion of Krugman somehow "not proving" that higher taxes won't kill productivity.

    As for the capital investment part, the problem we have right now is more capital for investment than there are good ideas to invest in and customers to buy the results of that investment. That is why we are getting bubbles -- it's simple supply and demand, if there is an excess of investment capital, it will flow into *something*, and cause a bubble there.

    Please note that capital investment into production ONLY HAPPENS IF THERE IS SUFFICIENT DEMAND TO BUY THAT PRODUCTION. I am not going to invest in building a factory if there are no customers because real unemployment is at 20% and the remainder of my potential customers are saving, not buying, because they see themselves joining that 20% on the unemployment line Real Soon Now! You seem to believe that productive investment will happen even if there's no demand because people are unemployed or waiting to be unemployed. That's utter nonsense, a right-wing talking point with no basis in fact.

    Regarding your notion that taxes are a zero-sum game, taxes take away from investment ONLY IF THERE IS A SHORTAGE OF INVESTMENT CAPITAL IN AN ECONOMY. Which is not the case here in the United States, and has not been true for over twenty years, we've had one bubble after another since then because of an *excess* of investment capital. What we have a shortage of right now is consumption sufficient to keep all Americans employed, not investment, because unemployed people don't consume because, well, they have no money. What that implies is that we need tax policies that shift the tax burden from consumption taxes to the investor class -- i.e., that we shift taxes from sales taxes to income taxes targeted at the investor class to take the money they're currently using to create Dot-Com bubbles and real estate bubbles and put it to work building roads, hiring cops, etc. to put people back to work and therefore increase consumption. In the short term we do not need to do this because we can simply print money, since we're currently in deflation due to the collapse of so many asset values. But long term you can't print your way out of a consumption trap, you have to shift money from investment to consumption to get consumption up to where investment gets steered in productive ways rather than producing useless bubbles in real estate, dot-com stocks, whatever.

    BTW, you appear to believe that government spends its money in unproductive ways. So you're saying we do NOT need highways, police and fire departments, and all those other things that we collectively get together and form governments to buy because history has shown that this is the least expensive (or in some cases, only) way to obtain these services? Or are you saying that the invisible imaginary hand will somehow wave a magic wand and provide these services if we don't have a government? Funny, I took you for a right-winger, not an anarchist...

    - Badtux the Economics Penguin

  5. Tux: in 1978 Congress established rules that created the infamous 401K as a tax-deferred means of retirement planning.

    THAT is what fueled the bubbles. Do you understand the ENORMITY and economic power of those funds?

    If you run a fund and have a $billion coming in every month from your clients payroll deductions, you HAVE to invest it somewhere. An INCREASED supply of cash looking for high retirns chasing a flat number of viable investments is what caused the "bubbles" to happen.

    A personal example: in early 1994 a techy friend and I (I was in healthcare at the time) created some gizmo software that allowed a Home Nurses and other healthcare professionals (Drs., labs, etc.) to access computerized patient records, and update those records via a touch-tone phone in the patients home. We barely had a working beta model that was maybe 30% done. We showed it to a guy @ Raymond James, and the next thing we knew we were on a private jet to San Jose to meet with a bunch of tech VC's and fund managers. Within 6 months, after bidding the thing up, we sold VAPORWARE to the VC arm of Sun Systems: Sanford Univ. Yes, we made $$$ and yes, they never finished the project-it (Unitron Medical Comminications)was eventually sold to Sabretek and collapsed, 5 management teams later. (I bought a big ass boat.) I doubt they's have invested if they weren't flush with 401K $$$.

    Fact is a reduction of taxes-which is exactly what a 401k was and is-fueled massive formations of capital, not taxes.

    Additionally, during the period you cited Americans were known as conservative SAVERS (capital formation) and the total tax rates...NOT just income taxes, but all taxes combined...were VERY low.

    [b]There are more taxes than just income. It's the TOTAL net taxation folks pay, not just marginal income rates[/b]

    Another point: you realize than in many instances a mortgage was defaulted NOT just because of an ARM adjustment but because PROPERTY TAXES also went up significantly. Example: the tax bill for my modest home in Tampa I've woned for 20 years runs around $3200 a year. The house next door..about the same size and condition of mine...sold 2 years ago for a staggering figure. The buyer (a dumbass) was shocked the tax bill went to over $8000 a year!!! $420 a month MORE than he anticipated. THAT is what made his finances collapse and he went into default.

  6. HERE documents the clusterfuck and screwjob that happened after Sun dumped Unitron on Sabretek, a nasty lawsuit:

    Fortunately, I was looooooong gone. What started as a cool idea for the benefit of home healthcare turned into a massive screw job.

    At least I got a nice sailboat boat and went cruising before the storm...:-)

  7. From a macroeconomic flow of funds point of view, there is no difference between a 401(k) and a defined benefits pension plan. Both take worker and corporate money and invest it. Your ascribing magical value to 401(k) plans is nonsense, it isn't -- from a macroeconomic flow of funds point of view a retirement plan is a retirement plan.

    Besides, the bubbles didn't start in 1978. You cannot point to any single asset bubble that started in 1978. The first asset bubble I'm aware of is the real estate asset bubble in the oil patch states that popped in 1987 and caused the collapse of the S&L industry. From there the bubbles just kept getting bigger and bigger -- the telecom bubble, not one but *two* additional real estate bubbles, the dot-com bubble, and now a Treasury bubble where investors fighting to buy Treasuries have driven down interest paid on Treasuries to under 0% even though the fundamentals say that this makes no sense.

    In short, you started from an invalid premise, and then arrived at an invalid conclusion. In fact, you pretty much arrived at my conclusion accidentally -- that there is too much investor capital that is investing into too many half-baked ideas. I don't mind that personally, since I make a pretty significant chunk of money thanks to that (for the past ten years I've worked for VC-funded technology firms that had interesting ideas that in the end turned out to not be commercially viable), in other words it's good for my personal economy, but it doesn't appear to be doing a whole lot for the economy as a whole.

    - Badtux the Entrepreneurial Penguin

  8. Your premise that the 401K didn't start accumulation of capital is just wrong, tux.

    Your premise that there is no difference between a defined pension plan and 401k is one extent. MANY companies who didn't have defined plans began 401k's for their employees. Besides, anyone can open a 401k, either Roth or tax deferred.

    401k's were game changers and certainly DID create massive cash reserves that needed investment.

    Much has been written about how it actually created the mutual fund industry. Additionally, hardly all companies matched funds. When I was an employee I never worked for a company that did. i DID start my own retirement fund with a 401K.

    Go look at when the sheer number of mutual funds grew. It's no coincidence it was a few years AFTER 401K began. Why? The HUGE amount of $$$ folkks were putting into them had to go somewhere.

    I've started over 20 corporations, have acquired 8 businesses in my life. I have personally employed almost 600 people since my first venture in 1989. I currently own three business, two that operate in two countries. My direct EXPERIENCE is entrepreneurism in healthcare, tech, aviation, hospitality (bar/live music venue), tourism and web development/marketing consulting. I know many things specifically germaine to those industries.

    And you are incorrect about why the S&L's crashed. They crashed because Congress passed and Reagan signed tax reform that disallowed losses on passive investments (like Commercial real estate) against current personal income. That devalued the investment many had in Commercial properties which had been the focus of financing by many S&L's. How do I know? My family had a decent portfolio of commercial property in Atlanta at the time. Fortunately we were never highly leveraqged and had owned the properties for over 10 year and we had positive cash flows; the tax laws didn't really devestate our portfolio. Hurt, but not kill. We did sell it at prices less than we wanted.

    I have two masters: an MBA-Marketing and M.S.-Econ from prominent southern universities.

    Sorry if my knowledge doesn't fit your agenda. But it is what it is. My opinion of Keynsian philosophy is not the same as yours. keynsian has it's place, like having a credit card with a zero balance or an unused LOC on your house just in case times get tough. I don't fully disagree with Obama's stimulus as I don't disagree with Dubya's efforts to stave off the effects of 9/11 on the U.S. economy; my larger problem is decades of deficit spending even during good times.

    We can disscuss or you can continue to delete and call me cute names that do not apply.

  9. Paul Krugman has never once demonstrated empirically that progressive increases in taxes do not stifle investment.

    I'm not sure where you want him to go to conduct this experiment. And besides, don't you have it backwards? Your assertion is that taxes do stifle investment, so the burden of proof is on you.

    GDP growth ought to be a reasonable proxy for investment activity. It has been declining since the 50's. Taxes have gone down repeatedly over the period.

    This is consistent with Krugman's view, not consistent with yours.

    Bush gave the wealthiest citizens the biggest tax cuts in many decades, and at the end of his term, the economy was (is) in the toilet.

    Your explanation?

    Your contention that 401Ks caused the bubbled is a naked assertion, and an example of "A precedes B, therefore A causes B" reasoning. None of this is evidence.


  10. Let's do a thought experiment. Imagine a company making a capital investment of $100,000, depreciated using the double declining balance. That method allows depreciation of 40% of the investment in the first year. What value does that have to the investor in various taxing evironments?

    Tax Rate Value of tax break, Yr 1
    10% $4000
    20% $8000
    40% $16000

    But wait, there's more -

    Actual information on Taxes and economic growth.

    JzB the hard math trombonist


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