Chronicle of the Conspiracy
Saturday, February 05, 2005
Krugman wasn't man enough to do it in the pages of the New York Times, where the errors were made in the first place. Instead, he did it in the form of a semi-anonymous letter from "P.K." published on the Krugman-friendly website of the radical leftist blogger Atrios. We can be sure that Daniel Okrent won't be man enough to make Krugman repeat his correction in the Times. Why should this one be any different for "Figleaf Dan"?
And even on Atrios' website Krugman wasn't man enough to admit his errors, or even label his letter a correction. Instead, he said
In other words, "most of the time I get away with it, but every once in a while Luskin nails me so good I just have to say something about it."
And Krugman wasn't man enough to say what had been wrong in his column. He "didn't have to admit to a mistake; to do the right thing, all he had to do was 'clarify' his previous remarks. ...But isn't it worth accepting some brief personal embarrassment in order to head off a looming policy disaster that you yourself have helped create? Apparently not." That quote, by the way, comes from a 2001 Krugman column criticizing Alan Greenspan for endorsing the Bush tax cuts.
Thanks to reader Andrew Morton for the link.
Posted by Donald L. Luskin at 2:34 AM | link
Friday, February 04, 2005WEISMAN AGONISTES Washington Post reporter Jonathan Weisman must be pretty upset about his monumental screw-up yesterday on the so-called "clawback" provision in proposed Social Security reform -- a misleading term that has now been picked up by the intellectually defunct FactCheck.org, and will no doubt take months to purge from the public consciousness now that Weisman has put it into circulation. Why else would Weisman send me a defensive and haughty email like this, practically blaming the White House for not being more delighted by the journalistic integrity he thinks he showed in the face of his journalistic incompetence?
I emailed him back and told him that this is what happens when he lets liberal ideologues like Peter Orszag write his stories for him.
Posted by Donald L. Luskin at 1:43 PM | link
According to Krugman's New York Times column today, when you divert some of your Social Security payroll tax dollars into a personal account of the kind that President Bush is proposing, the government is effectively making a loan to you so that you can buy stocks on margin -- "speculation that no financial adviser would recommend."
Huh? Excuse me Professor Krugman, but that's my money we're talking about -- my payroll tax dollars. My personal account. Nobody's loaning me anything.
Here's Krugman's tortured and deceptive logic that gets him to his "loan" characterization. He quotes a White House press briefing that explains how workers who opt for personal accounts would have to forgo some of their regular Social Security benefits:
That's perfectly fair -- it's a simple trade-off. If it didn't work that way, then workers who elected personal accounts would be double dipping. But here's the way Krugman twists it:
Wrong, wrong, wrong. If it's a loan at all, it's a loan you make to yourself. And that's no loan at all. Real economists -- as opposed to Democratic apparatchiks like Krugman and Orszag -- call such a thing not a loan, but an "opportunity cost."
Here's an example. Suppose you have $1000 in a money market fund earning 3%, and you are considering investing that money in the stock market. The opportunity cost of that investment will be 3%, because you give up the 3% yield of the money market fund. That means you'll only come out net ahead on the stock investment if it returns more than 3% -- just as in proposed Social Security personal accounts. But there's no loan involved here. None.
In this case, your future benefits are analogous to the money market fund. In order to invest in stocks in your personal accounts, you have to give up the future benefits. A simple trade-off. An opportunity cost. Not a loan.
Here's what a real loan would look. You have that $1000 in the money market fund, but you want to invest $2000 in the stock market. So you borrow an additional $1000 from your stockbroker.
Or in the case of Social Security, suppose you are a struggling young African American working for minimum wage. You urgently want to own stocks, so you can start building a nest egg for your family. But you have no money to invest, because Social Security taxes have sucked up anything you could have set aside from your small earnings. So you manage to borrow some money, and you invest it in stocks. That's a loan. That's speculation. And that's what the opponents of personal accounts would prefer for America.
As a side note, that quote from Peter Orszag comes from a Washington Post story yesterday by liberal Washington reporter Jonathon Weisman. His story, based on that same press briefing that Krugman quoted, completely misstated the way Social Security benefits would be offset for personal account holders. He called it a "clawback," in which the government would confiscate earnings in your personal account below 3%. An array of spokesmen both liberal and conservative -- no doubt caught by surprise by Weisman's revelation of the non-existent "clawback" -- were quoted about how shocked and dismayed they were by it. Weisman loves to quote conservatives criticizing Bush; it's his specialty.
But, of course, it was all simply wrong. After the White House issued a statement noting the error, the Post published a substantially corrected version on its web site. One can only imagine how Krugman's column today -- which quoted the Post story, and I have no doubt originally quoted it more extensively -- had to be re-engineered at the last minute before deadline, in order to avoid more than the usual embarrassment that attends the typical Krugman column.
To give you some idea of how the left respects the truth in these matters, visit the blog of U. C. Berkeley professor Brad DeLong -- a Krugman acolyte and former Clinton administration official who once described himself as "more inclined toward 'Marxism' than anybody else on the Berkeley campus," which is saying quite a bit. When the Post story first came out, he applauded Weisman and delightedly dilated on the notion of the benefit trade-off as a loan. When the correction was issued, DeLong amended his posting to say "the Post has buckled... Glad to see such spine." You'd think he'd be glad to see the truth. But no.
Update... A reader points out the the Orszag quote cited by Krugman was removed from the corrected Post story! The Times' new motto: "all the news that others find unfit to print."
Posted by Donald L. Luskin at 3:12 AM | link
Thursday, February 03, 2005JOKE OF THE DAY
Posted by Donald L. Luskin at 11:36 PM | link
LIFE WITHOUT BACKBONES Longtime readers James Jarvis points to this morsel on Jabba the Economist's plate:
I periodically go over to DeLong's blog to see what the other side is saying, and I understand you probably are done with him, but this post takes the cake.
Update... Check out William Beutler's account of the Post correction at the Washington Canard blog.
Posted by Donald L. Luskin at 10:48 PM | link
CAN'T PAUL KRUGMAN TELL THE TRUTH ABOUT ANYTHING? Can Paul Krugman really not understand how the federal government's Thrift Investment Plan works? Here he is in a Democracy Now! appearance this morning:
Hasn't Krugman read any of the many description of the TSP that have been in the press lately (here's mine)? TSP offers a completely free choice of five fund options, only one of which is managed by the government. It's all completely up to the employee -- nothing even remotely like "basically the government managing your money."
Posted by Donald L. Luskin at 1:46 PM | link
COLUMNIST CORRECTIONS POLICY SYNDICATED!
This just in from the National Conference of Editorial Writers, a nonprofit professional organization that exists to improve the quality of editorial pages and broadcast editorials, and to promote high standards among opinion writers and editors. It's all about how local newspapers can respond to the escalation of uncorrected errors and misinformation coming from syndicated columnists like Paul Krugman, Maureen Dowd and Molly Ivins -- and out-of-control cartoonists like Ted Rall. This is real progress.
Correction [2/4/2005]... In the original posting I spelled Ted Rall's name "Rahl." It has been corrected above.
Posted by Donald L. Luskin at 1:09 PM | link
DEAR ANN Reader Carl Marsh says:
Posted by Donald L. Luskin at 8:20 AM | link
ACCOUNTING BY AARPTHUR ANDERSON USANext catches AARP cooking the books in a poll showing public opposition to Social Security reform. In a letter to Congress, USANext reports that "National pollster John McLaughlin has a devastating analysis of the methodology behind the recent survey released by the AARP. It shows how that organization is attempting to falsely frame the debate over reforming Social Security by manipulating the American people, Congress, and the media. ...The following are examples of the misleading methodology:
Posted by Donald L. Luskin at 8:05 AM | link
KRUGMAN CALLS THE TOP Reader William Freivogel takes me to task for ridiculing Paul Krugman for the allusion in his Tuesday column to sky-high equity valuations at the peak of the NASDAQ bubble. Freivogel says, "You cannot blame anyone for not calling the tech stock bust in 2000-2001." Fair enough. But you can blame someone who pretends he called it, when he really didn't. I already quoted what Krugman wrote in February 2000:
But in the introduction to his 2003 book The Great Unraveling, Krugman wrote:
It's typical Krugman. In that same introduction, he wrote,
He failed to mention that he himself was doing the lauding. Here's in a 1998 article for Fortune, he used the same Gilbert and Sullivan reference:
By contrast, here is the concluding passage of a paragraph signing the praises of Enron:
That "end of the corporation" turned out to be something very different than Krugman meant. Of course Krugman was on Enron's payroll when he wrote that, as a member of their "advisory board." As Krugman himself said in concluding a column last week,
Posted by Donald L. Luskin at 1:19 AM | link
Wednesday, February 02, 2005THE PREBUTTAL CODE A Washington lobbyist friend sends this along -- Nancy Pelosi's "Prebuttal to State of the Union Address," as decoded by "an anonymous red vote in a blue state." He says "this is circulating all over Capitol Hill. It gets better as it goes. Nails Pelosi."
Posted by Donald L. Luskin at 9:14 PM | link
THE ROGUES GALLERY The Joint Economic Committee of Congress has published a set of great charts showing all the basic economic and demographic realities of Social Security. If you're looking for a simple package that vividly illustrates all the most important issues, you'll find this a great resource:
Posted by Donald L. Luskin at 5:07 PM | link
Take the Krugman 6.5% Challenge
Krugman, of course, is America’s most dangerous liberal pundit — but maybe you’ve never heard of Baker. He’s co-director of the Center for Economic and Policy Research, a leftist think-tank funded by George Soros. Krugman and Baker were recently cited as “excellent sources” on Social Security reform by the Communist Party USA.
Here’s the challenge, from Krugman’s New York Times column Tuesday:
Krugman is using Baker’s test to try to suggest that stocks can’t possibly have the kind of returns in the future that they’ve had in the past — so Social Security reform with personal accounts that could invest in stocks is bound to fail. And he’s suggesting that Baker’s brilliance has stunned the opponents of reform into silence. Hardly — it’s just that none of us would have bothered to pay attention to someone like Baker if Krugman hadn’t elevated him to the pages of America’s so-called “newspaper of record.”
It’s dirty work, but someone has to do it.
Actually, it isn’t especially difficult. But to make the exercise interesting, I’ll limit myself to data Krugman himself offers in his very same Times column. Stand back, everybody — here goes.
Krugman states that the return on stocks from dividends and share repurchases is 3 percent. He states that “profits grow at the same rate as the economy,” and notes that “economic growth ... averaged 3.4 percent per year over the last 75 years.” It’s simple arithmetic that if dividends grow at the rate of earnings growth, and earnings grow at the rate of GDP growth, and if the dividend and repurchase yield stays at 3 percent, then stock prices must rise each year by 3.4 percent.
That’s 3 percent per year in yield plus 3.4 percent in capital gains. Sounds like a 6.4 percent return, to me. Just a hair shy of the 6.5 percent Krugman and Baker asked for, but I am still going to declare victory.
Even without the arithmetic, there’s nothing so unusual about thinking that stocks could return something like 6.5 percent, after inflation, over the next 75 years. After all, they’ve returned exactly that over the last 75 years, according to Ibbotson Associates. Stocks are somewhat more highly valued today than they have been on average in the past, but that may well be nothing more sinister than a reflection of the risk-reduction opportunities in today’s globalized economy. Besides, today’s valuations are fully reflected in the 3 percent dividend and repurchase yield that Krugman himself posited.
What does the guru of long-term stock investing — celebrated Wharton professor Jeremy Siegel — have to say about it? According to a Krugman column two weeks ago, “even Jeremy Siegel, whose ‘Stocks for the Long Run’ is often cited by those who favor stocks over bonds, has conceded that ‘returns on stocks over bonds won’t be as large as in the past.’” The point being that Americans would be better off leaving their Social Security taxes invested in the bonds held by the system’s trust funds, rather than investing in stocks through personal accounts.
But Krugman Truth Squad member Jim Glass, on the Scrivener.net blog, caught Krugman “Dowdifying” that quotation. What Siegel really said, after the sentence Krugman deceptively selected was, “I see a 5%-to-6% return on stocks, adjusted for inflation. I’m pessimistic about real bond returns.”
Okay, 5 to 6 percent isn’t quite 6.5 percent. But it’s close. And it’s a heck of a lot better than the rates of return offered by today’s Social Security system. According to the Congressional Budget Office, Social Security offers very poor returns for the median quintile of household earners — the present value of their payroll taxes is greater than the present value of their future benefits.
But Krugman does make one good point in Tuesday’s column. He states that stock returns in the neighborhood of 6.5 percent will not be possible over the coming 75 years if economic growth is as low as the 1.9 percent rate used by the actuaries of the Social Security Administration in their solvency estimates. He says that for that to occur, “you have to believe that half a century from now, the average stock will be priced like technology stocks at the height of the Internet bubble — and that stock prices will nonetheless keep on rising.”
How did Krugman figure that out? The Princeton economics professor — who some people think could someday win the Nobel Prize — had to ask Dean Baker to “help me out with that calculation (there are some technical details I won’t get into).” Indeed, Krugman probably needed the help — he never has had a very firm grasp of stock market valuation. During that “height of the Internet bubble,” Krugman wrote in his Times column that “I'm not sure that the current value of the Nasdaq is justified, but I’m not sure that it isn’t.”
Hmmm. That wasn’t exactly the unambiguous call to sell techstocks that Jeremy Siegel issued at the height of the bubble, when he wrote a piece titled “Big-Cap Tech Stocks Are a Sucker Bet.” No, as new ex officio Krugman Truth Squad member James Neel put it in an e-mail, “Krugman was for the bubble valuation of Nasdaq before he was against it.”
Today, once again, Krugman wants it both ways. He’s sure that stocks will perform poorly in the future, but he says, “if the economy grows fast enough to generate a rate of return that makes privatization work, it will also yield a bonanza of payroll tax revenue that will keep the current system sound for generations to come.” But that’s simply not true.
Kent Smetters, the Wharton professor who has pioneered the analysis of Social Security’s solvency beyond the deceptively arbitrary 75-year timeframe most often cited, told me that faster economic growth amounts to “very little over the long term.” Krugman’s analysis — which focuses on the higher taxes collected in the near term — ignores the reality that correspondingly “higher benefits come outside the 75-year window.” So you collect more now, but you just pay it out later. That’s largely because a 1977 law, passed by a Democratic Congress and signed by Democratic President Jimmy Carter, indexed Social Security benefits to economy-wide wage growth.
I’d conclude by turning Krugman’s challenge back on him: “Ladies and gentlemen, would you care to explain your position?” But I can’t — I’ve been writing the Krugman Truth Squad column long enough to know that he’s no gentleman.
Correction: Reader Dean Jens pointed out that in the original text above I had spoken loosely of the "negative" returns implied by the fact that the the present value of payroll taxes is greater than the present value of future benefits. Such returns are only negative relative to the discount rate used in the calculation -- they may or may not be negative in absolute terms. The text above has been amended.
Posted by Donald L. Luskin at 1:02 PM | link
INSIDE THE ANGRY LEFT'S BUNKER Here's what the angry left is plotting. As a journalist, I get a lot of their emails like this. When I see this kind of thing, I wonder what kind of barren lives these people must have, to want to spend so much energy in robotic, thoughtless knee-jerk opposition to anything proposed (or, in this case, not yet proposed) by President Bush. I'm tempted to tell them "get a life!" But I suppose this is their life. Sad.
Posted by Donald L. Luskin at 11:50 AM | link
THE VIRTUE OF PARTISANSHIP Words of real wisdom for President Bush from Brendan Miniter in the Wall Street Journal. With Democrats doing nothing by nay-saying on Social Security reform,
He's right. Bipartisanship in this one means about the same thing as mixing in counterfeit money with the real thing. It didn't have to be that way -- but the Democrats have made it so.
Posted by Donald L. Luskin at 10:12 AM | link
Tuesday, February 01, 2005KRUGMAN'S FORECASTS I'll have lots more in response to Paul Krugman's New York Times column today, in which is asserts that stock market returns cannot possibly be anywhere near as high in the future as they have been in the past (and thus, he argues, stocks must inevitably disappoint investors who hold them in Social Security personal accounts).
Krugman's argument is technical, and it will get a technical response. But first, let me point out that, on the face of it, there is very little reason why anyone should listen to Paul Krugman's forecasts about the future. He himself admitted to Tim Russert on CNBC that "Compare me … compare me, uh, with anyone else, and I think you’ll see that my forecasting record is not great." He's right to have been so modest. When he was an economist with the White House Council of Economic Advisors, he warned in 1982 of an "inflation time-bomb" -- just when inflation was about to fall to near zero over the next twenty years. In today's column he speaks of the prices of "technology stocks at the height of the Internet bubble" -- yet at that very height, in February 2000, he wrote "I'm not sure that the current value of the Nasdaq is justified, but I'm not sure that it isn't." And his books in the early 1990s contained forecasts -- then still quite fashionable among liberal economists -- of how America was certain to continue to lose ground to the economic juggernaut of Japan.
And in the column today, Krugman betrays a fundamental misunderstanding of the economics of Social Security itself. He write, "we don't need to worry about Social Security's future: if the economy grows fast enough to generate a rate of return that makes privatization work, it will also yield a bonanza of payroll tax revenue that will keep the current system sound for generations to come." Krugman has forgotten -- or chosen to ignore -- that under current law Social Security benefits are indexed to wage growth. If the economy grows like Krugman is talking about, yes, payroll tax revenues will grow too -- but so will benefits, nearly perfectly proportionately. The sensitivity tables given by the Trustees of the Social Security Trust Funds don't show this -- because they arbitrarily cut off the calculation after 75 years. But the reality is that the early benefits of increased tax revenues are eventually offset by the higher cost of benefits. Gee -- think how good Krugman could make that look if he reduced the window of analysis to just 10 years.
Posted by Donald L. Luskin at 9:32 AM | link
A SMART ANALOGY
Reader Noel Sheppard sends in this smart email:
Posted by Donald L. Luskin at 9:11 AM | link
Monday, January 31, 2005EPSTEIN ON THE FLAT TAX A lecture by Richard Epstein extolling the flat tax -- concluding on this amusing note:
It is ironic that the flat tax is popular in former communist countries. It was Karl Marx, in his Communist Manifesto of 1848, who was among the first to call for "a heavy progressive or graduated income tax" at a time when a flat rate was the norm in the early industrialising countries.Thanks to Bruce Bartlett for the link.
Posted by Donald L. Luskin at 11:47 PM | link
So now sucking savings capacity out of every American's life -- especially those for whom saving and investment are crucial for any hope of social mobility --is a "public good" on which "the very possibility of justice depends"?
So the market generates no positive externalities? Only government coercion is capable of creating a common good -- defined, of course, as whatever it is that Benjamin Barber happens to think is good (fuel conservation, for example; it concerns him not that others may differ).
So we are born with a "natural right" to have an antiquated, socialistic, bankrupt welfare scheme that lays upon us like a succubus? Barber should go back and refresh his memory about what the natural rights philosophers were all about -- removing such impediments to liberty.
Thanks to reader Joe Wright for the link.
Posted by Donald L. Luskin at 3:09 PM | link
ROCK ROCKS ON SOCIAL SECURITY An anonymous reader sends this email, responding to my NRO Krugman Truth Squad column today, "Big Black Lies" --
Posted by Donald L. Luskin at 1:04 PM | link
A LITTLE TRUTH FOR FIGLEAF DAN Here's the kind of columnist correction that New York Times public figleaf Dan Okrent should be willing to run -- one where the facts are black-and-white wrong, and where confession won't embarrass the columnist too much by making it look as though he engaged in a deliberate falsification. In his Friday column Paul Krugman wrote,
Krugman is wrong -- Bush made that statement on January 11 in an open meeting with Americans of all races.
But I'm not even going to bother to send an email about it to Okrent. I'm tired of having him say "I'll look into it" and then nothing ever happens. Now he doesn't even bother to lie -- when I send emails to him, I get no response at all. So I'll help Okrent lie -- to himself and his "public" -- that "judging by the shrinking volume of complaints I receive from readers, columnists' errors have become much less frequent.
Posted by Donald L. Luskin at 9:46 AM | link
AND NOW FOR SOMETHING COMPLETELY DIFFERENT Okay, this takes the prize for simply the most bizarre analysis yet published about Social Security. It runs in the Ann Arbor News under the rather ironic headline "Expert tackles misconceptions about Social Security." It's a Q&A with James N. Morgan, who is said to be a research scientist and professor of economics emeritus at the University of Michigan. Morgan, among other things, served on advisory committees to the Social Security Administration from 1966-69. It's possible, judging from this, that he is a bit past his prime.
And you thought you'd heard every possible excuse for why there's no crisis. Now you've got a new one: the insolvency of Social Security will cure inflation!
Uh, when someone takes my money and gives it to someone else, I'd say I'm paying for it.
Posted by Donald L. Luskin at 9:28 AM | link
LIE EXPECTANCY Jim Glass on the Scrivener.net blog has factchecked Paul Krugman's New York Times column from Friday, and found it to be more full of
Posted by Donald L. Luskin at 9:16 AM | link