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Saturday, June 11, 2005

KRUGMAN'S INSANE MIDDLE CLASS NOSTALGIA   William Anderson on the Mises Economic Blog reports a conversation with Paul Krugman, in which America's most dangerous liberal pundit called the 70% top marginal tax rate of the pre-Reagan years "insane." Yet, Anderson points out, Krugman rhapsodizes the heyday of the middle class in the 50's and 60's -- and the economic policies that made it possible -- in his latest Times column:

...middle-class America didn't emerge by accident. It was created by what has been called the Great Compression of incomes that took place during World War II, and sustained for a generation by social norms that favored equality, strong labor unions and progressive taxation. Since the 1970's, all of those sustaining forces have lost their power.

Before the 1970's, the top marginal tax rate was 90%. And Krugman says that even 70% is "insane." Well, he's never been noted for his consistency -- except for his insistence that tax rates should be much higher than they are now. As I pointed out last month, he told the Asia Times that "We should be getting 28% of GDP [gross domestic product] in revenue. We are only collecting 17%." The highest we have ever collected in history is about 21% of GDP. What "insane" top marginal rate would it take to collect 28% of GDP? 95%? 100%? More?

Here's another observation about that same paragraph from that same column -- pointed out by Jim Glass on his Scrivener.net blog. Jim is reminded of a similar Krugman paragraph, this one from an article for The Nation in 2003:

During the 1930s and '40s...America experienced what the economic historians Claudia Goldin and Robert Margo have dubbed the Great Compression: a drastic narrowing of income gaps, probably as a result of New Deal policies.

Whoa! Talk about "shaping, slicing and selectively citing" data! What happened to the Great Depression? What happened to World War II? Don't they count as part of the explanation, or was it all New Deal policies?

Or wait... Glass has a better take on it:

Yikes... the Great Depression and World War II were "New Deal policies"! And they were no accident!

Thanks to reader Chris Masse for the Mises link.

Posted by Donald L. Luskin at 9:23 PM | link  


Friday, June 10, 2005

KRUGMAN TO ACOLYTES: KEEP BELIEVING   Here's how Paul Krugman responds to criticism from his own newspaper's public editor: accuse his enemies of the same things of which he himself is guilty, and do it proudly by throwing the public editor's own words back at him. From Krugman's Times column today:

...right-wing partisans try so hard to discredit anyone who tries to explain to the public what's going on. These partisans rely in part on obfuscation: shaping, slicing and selectively presenting data... [emphasis added]

What's the message here? "The bad guys on the right do it, so I can do it to?" Probably. But more, it's a message to Krugman's "acolytes," as Dan Okrent called them. The message is: "Don't worry. If we all pretend together that Okrent's criticisms didn't sting, then it's as good as if they really didn't. We'll just outlast the bastard."

Not exactly the high road. Are you surprised?

Posted by Donald L. Luskin at 9:19 AM | link  

MERCANTILIST GAME THEORY?   in a Wall Street Journal op-ed on Bush administration efforts to bully China into revaluing the yuan:
...if there is short-term pain in this for the U.S., why pressure China to revalue? U.S. policy makers surely understand the downsides of a yuan revaluation for the U.S. economy. And they certainly must realize that their very public campaign only makes it more difficult for the Chinese to take action. Could it be that this is the point? A cynic might hope that the push for a Chinese exchange-rate change is not a response to misguided political pressures, but is instead a devious attempt to prolong the enormous benefits the U.S. derives at China's expense from the fixed dollar-yuan exchange rate. Or perhaps this is accident, not design. Either way, the administration has come up with a brilliant strategy to keep the good times rolling.

Posted by Donald L. Luskin at 8:18 AM | link  

JUSTICE IS WELL DONE  

By now surely you've already celebrated the wonderful news that Grand Inquisitor Eliot Spitzer has been soundly rebuked by the jury in the show trial of Theodore C. Sihpol, accused of mutual fund "late trading." Today's lead editorial in the Wall Street Journal gets it all just right. Here are the essentials:

The world is discovering why New York Attorney General Eliot Spitzer has been so reluctant to take his business targets into an actual courtroom... Mr. Sihpol is the exception to the usual Spitzer rule of using strong-arm tactics to coerce settlements out of business. The Attorney General has become famous for assailing a business practice that is either controversial or legally ambiguous, and then using leaks via the media and the threat of indictment or the destruction of an entire company to force his targets to surrender.

...the law says only that trades can't be made after the NAV is "next computed." As it happens, many current-day NAVs are not set until approximately 5:30 p.m... This helps explain why Mr. Sihpol had done his work entirely in the open, and with the approval of superiors. His attorneys argued that what Mr. Spitzer had called criminal--"late trading"--was in fact accepted practice, with no law prohibiting it. ... more than 25% of broker-dealers responding to an SEC survey had reported that customers had placed or confirmed mutual fund orders after 4 p.m. and received the same-day price... Smaller firms actually advertised their ability to do post-4 p.m. trades, while leading law firms, including Akin Gump and Piper Marbury, advised their clients that such trading was permissible so long as they got the order in before the new computation...Only after Mr. Sihpol was charged did the SEC propose a rule to create a "hard" 4 p.m. cutoff...

Mr. Spitzer's real mistake here, paradoxically, may have been taking on the little guy. Corporations are all too willing to settle with prosecutors, because their reputational risk from going to trial is greater than paying a fine and giving Mr. Spitzer his "victory." ...However, Mr. Sihpol had his freedom to lose. In addition to fighting Mr. Spitzer, he had to sue his former employer, Bank of America, to pay his legal fees. (According to his lawsuit, the bank sought to check with Mr. Spitzer before it originally decided not to pay.) ...Business fraud deserves to be prosecuted, but the criminalization of widely accepted business practices ex post facto is both unjust and offensive to the rule of law.


Posted by Donald L. Luskin at 8:04 AM | link  


Thursday, June 09, 2005

WILLFUL IGNORANCE   Robert Musil points out a stunning bit of deliberate ignorance on the New York Times editorial page.

From the editorial "Crumbs for Africa," Tuesday, June 8:

President Bush kept a remarkably straight face yesterday when he strode to the microphones with Britain's prime minister, Tony Blair, and told the world that the United States would now get around to spending $674 million in emergency aid that Congress had already approved for needy countries. That's it. Not a penny more...It's no surprise...

From a Times front-pager the very next day, Wednesday, June 9:

The United States and Britain have reached an agreement on how the billions of dollars that the world's poorest nations owe to international lenders can be erased...The plan would free 18 countries, most of which are in Africa, from any obligation to repay the estimated $16.7 billion they owe the international lenders...Mr. Bush had [previously] signaled his willingness to go along with writing off the debts in principle...

Here's Musil, on the Man Without Qualities blog:

So Mr. Bush had signaled his willingness to go along with writing off the estimated $16.7 billion in principle? Yet it...wasn't enough for the Times' editorialists to wait even one day before asserting that the most the US and the Administration would contribute to Mr. Blair's Africa requests was $674 million in emergency aid that Congress had already approved for needy countries. That's it. Not a penny more.

The Times just can't wait a day to bash Bush, even where their bashing contradicts their actual knowledge...


Posted by Donald L. Luskin at 11:17 PM | link  

WHAT IS SAID AND WHAT IS UNSAID   A reader sends along this gem of selective political/economic analysis from the Associated Press:
Economists believe that solid economic growth will continue to support increased hiring this year, a prediction that the Bush administration hopes will come true.
Who doesn't hope this prediction will come true? The Democrats? Then why doesn't the AP say that?

Posted by Donald L. Luskin at 7:39 PM | link  

I GUESS I'M NOT THE ONLY ONE   On our letters page -- reader Bruce Kesler on his battles with the "ombudsperson" from the San Diego Union-Tribune.

Posted by Donald L. Luskin at 8:58 AM | link  

A BRIEF HISTORY OF THE SCHOOL CHOICE MOVEMENT   It's always good to read the occasional piece by Milton Friedman in the Wall Street Journal. This morning's is the history of his intellectual and moral involvement in the school choice movement -- how it was his first area of inquiry into the importance of free markets, why it's necessary to save a dying US education system, and how finally some small progress is being made.

Posted by Donald L. Luskin at 7:55 AM | link  


Wednesday, June 08, 2005

RISK? WHAT RISK!   When the media talks about personal accounts, it's always some version of Al Gore's overweening warning about a "risky scheme." Here's a terrific report by the Free Media Project, documenting the media's one-sided finger-waggings and telling the truth about how little risk is involved in personal accounts (and how much risk is involved in the existing system). Yes, I'm quoted generously here -- so call me biased. But this is great stuff.

Posted by Donald L. Luskin at 1:47 PM | link  

CALAME SPEAKS   We've opened up a dialog with Barney Calame, the new "public editor" of the New York Times. I asked him to comment on what approach he'll be taking to op-ed columnists, and the matter of their factual accuracy and the "fairness" of their opinions (not in the sense of their balance, but in the sense of their intellectual integrity). Here's his eminently reasonable response:
I consider the question an important one -- but more philosophical and of less immediate urgency than questions about the accuracy and fairness of articles that have just appeared in the paper.

As the public editor, I see my fundamental responsibility as monitoring the accuracy and fairness of the news columns of The Times. One of the major goals in the pursuit of fairness is to keep opinion out of news articles, which make up the bulk of the daily paper.

But the dynamic is quite different on the editorial page and op-ed pages. Opinions are what the editorial-page staff and the op-ed columnists and contributors exist to provide. So the public editor's role there is different. My primary task is to monitor the accuracy of the facts used on those pages. As long as the facts used to support those opinions are accurate, I think the fairness of the opinions on the editorial page and op-ed pages is almost never a question that the public editor is qualified to decide.


Posted by Donald L. Luskin at 12:48 PM | link  

WELL, YEAH...   The New York Sun reports: "A Brooklyn College professor who described religious people as 'moral retards' said he is dropping his bid to become chairman of the department of sociology after the college's president expressed outrage over his views." Thanks to reader Bruce Kesler for the link.

Posted by Donald L. Luskin at 9:21 AM | link  

THE 2005 JAYSON AWARDS!!
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Welcome, ladies and gentlemen, to the first-ever Jayson Awards! It’s a glittering gala of gotchas, as we recognize Paul Krugman’s most egregious (or just plain hilarious) lies, errors, distortions, misquotations, and embarrassments in six categories. Winners will all receive their choice of any one Krugman Truth Squad logoed product from our online store.

It was a real challenge to pick the winners -- the best of Krugman’s worst -- because America’s most dangerous liberal pundit has produced an unprecedented wealth of partisan sleaze. And after writing the Krugman Truth Squad column for more than two years, I really thought I’d seen it all. But thanks to the almost two hundred readers who submitted nominations, the 2005 Jaysons recognize a great selection of not only familiar classics, but also some brand-new never-before-seen Krugman howlers.

Our first Jayson is given in the category of Shaping, Slicing, and Selectively Citing Numbers -- Krugman’s “disturbing habit” according to former New York Times “public editor” Daniel Okrent. The envelope please. … And the winner is … David M. Kiriazis, chairman of the economics department at Frostburg State University in Frostburg, Maryland, for the terrific example of statistical sinnuendo that he uses in his Principles of Economics class as an example of what not to do. In a March 12, 2004, Times column, Krugman wrote:

But wait -- hasn’t the unemployment rate fallen since last summer? Yes, but that’s entirely the result of people dropping out of the labor force. Even if you’re out of work, you’re not counted as unemployed unless you’re actively looking for a job.

But as Prof. Kiriazis explains,

Unless nothing else changed, a decline in the unemployment rate could not possibly be explained “entirely” by people dropping out of the labor force. In fact, from June 2003 to Feb 2004, the labor force did decline from 147 to 146.5 million, but the number of unemployed declined from 9.2 to 8.2 million. Hence, the decline in the unemployment rate was mainly the result of more people finding jobs.

By the way, I specifically corresponded with both Okrent and Times editorial-page editor Gail Collins about this episode, and was “entirely” stonewalled by both. Collins blew me off by sniffing, “I’ve discussed your objections with Paul Krugman and am convinced that everything he wrote was well within the realm of acceptable opinion writing.”

Our second Jayson is for the category of Biggest Howler (Political). And the winner is … Jeffrey Gepner, who submitted Krugman’s Times column from election morning last November. Believing -- along with the rest of the media -- that John Kerry would win the presidency, Krugman rhapsodized,

I always get a little choked up when I go to the local school to cast my vote. The humbleness of the surroundings only emphasizes the majesty of the process: this is democracy, America’s great gift to the world, in action. … Those people still believe in American democracy; and because they do, so do I. … it’s already clear that the people of Florida -- and, I believe, America as a whole -- have refused to give in to cynicism and spin.

… Regular readers won’t be in any doubt about who I want to win, though New York Times rules prevent me from giving any explicit endorsement. (Hint: it’s the side that benefits from large turnout.)

Needless to say, Krugman’s not feeling quite so rhapsodic lately. In a Times column three weeks ago he had this to say about “America’s great gift to the world, in action”:

the national election was about who would best defend us from gay married terrorists.

The runner-up in this category is Jeffrey Trimarchi, who submitted Krugman’s Times column of January 2, 2004. Back then, Krugman was furiously supporting the candidacy of Howard Dean (who had publicly said that, if elected, he would name Krugman as his “foremost economic policy advisor”). Urging John Kerry to get out of the race and make way for Dean, Krugman claimed the Kerry campaign had “imploded,” and clucked,

This is no time for a candidate who is running just because he thinks he deserves to be president.

Our third Jayson is for the category of Biggest Howler (Economics). And the winner is … Max Pappas, who has unearthed an astonishing and hitherto unknown statement by Krugman. In the December/January 1996-97 issue of Boston Review, Krugman -- today a rabid defender of the Social Security status quo and opponent of “privatization” -- not only admits that there is a crisis, he comes out in favor of personal accounts:

I like [Richard] Freeman’s idea of providing each individual with a trust fund when young rather than retirement benefits when old, but we had better realize that this is a significant change in the character of the social insurance system … Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today’s young may well get less than they put in).

By way of contrast, runner-up Chris Braaten submitted a January 2005 interview in Rolling Stone in which Krugman had a very different message for “today’s young.” On personal accounts, Krugman stated,

We’ll have more suffering and bigger bills. People will ask: Where did all that money go? The answer will be: It basically went into mutual-fund fees.

Our next Jayson is for the category Worst Prediction. And the winner is … Jon Henke of the Questions and Observations blog, who found this hysterically bad prediction in a 1998 Krugman article called, ironically, “Why Predictions Are Wrong.” Krugman wrote,

By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.1997, which was a good year for worker productivity, has led many pundits to conclude that the great technology-led boom has begun. They are wrong. Last year will prove to have been a blip, just like 1992.

Here’s a graph showing nonfarm business output-per-hour, direct from the website of the Department of Labor. As you can see, productivity launched into its greatest-ever sustained period of growth right after that “blip.” Better send a fax to Krugman about that (in case he doesn’t have an Internet connection).

The next Jayson is for the category of Funniest Inadvertent Confession. And the winner is … Paul Kane, who resurrected Krugman’s Times column of April 23, 2000, aptly titled “How to Be A Hack.” In a discussion of the economic “hired guns” who “roam in packs” in Washington, he describes how to identify one, writing,

he has learned that pretty good jobs in think tanks, or on the staffs of magazines with a distinct political agenda, are available for people who know enough economics to produce plausible-sounding arguments on behalf of the party line. Ask him whether he is a political hack and he will deny it; he probably does not admit it to himself. But somehow everything he says or writes serves the interests of his backers … there is another telltale clue: if a person … always sings the same tune, watch out.

And here’s some advice for the Krugman Truth Squad:

Hack jobs often involve surprisingly raw, transparent misrepresentations of fact: in these days of search engines and online databases you don’t need a staff of research assistants to catch ’em with their hands in the cookie jar.

We couldn’t agree more, Paul! The runner-up in this category is Jimmie Bise, Jr., who found this confession in a 1998 Fortune column -- something it’s taken a frustrated Dan Okrent all these years to figure out:

My record as a forecaster is far from perfect, but I’m very good at explaining my mistakes.

Our final Jayson is the N. Gregory Mankiw Award for Excellence in “Just Making Stuff Up.” And the winner is … Jim Glass of the Scrivener.net blog. Glass submitted Krugman’s Times column of January 28, 2005, in which Krugman utterly invented out of whole cloth the mortality statistics required to prove that African Americans don’t get a bad deal from Social Security. Refuting a statement by President Bush to the effect that shorter life expectancies mean that African Americans don’t collect as much in Social Security benefits as whites, Krugman wrote:

It’s true that the current life expectancy for black males at birth is only 68.8 years -- but that doesn’t mean that a black man who has worked all his life can expect to die after collecting only a few years’ worth of Social Security benefits. Blacks’ low life expectancy is largely due to high death rates in childhood and young adulthood.

Glass demolished this by going to life-expectancy data from the National Center for Health Statistics. Writes Glass,

We find that black males right in the middle of a working life, age 40, have a 30% chance of dying by age 65. (The corresponding chance for white males is 17%.) … Black males alive at age 5 have only a 3% chance of dying within the next 25 years of their childhood and young adulthood, by age 30. (For white males the figure is 1.9%.) So their death rate during their past-age 40 working years is 10 times higher than “the high death rates in childhood and young adulthood” Krugman ascribes to them.

And the risk that a black male age 40 will die before reaching the Social Security retirement age of 65 -- after paying [payroll taxes for most of his] working life [and being] still too young to recover any of them -- is 10 times higher than the risk that one will die as a child or young adult age 5 to 30. (And 77% higher than the risk that a white male age 40 will die by age 65.) Krugman … claimed exactly the opposite.

Six categories, and regrettably only six Jayson winners. Thanks again to all the readers who submitted terrific nominations. And especially to the bloggers of the Krugman Truth Squad who, as always, came up with so many great ideas. Be sure to visit Just One Minute, Man Without Qualities, Econopundit, Lying in Ponds, Eidelblog, and Tim Worstall for more prime Krugman gotchas.

Posted by Donald L. Luskin at 8:59 AM | link  

JILL AND WILL  

Our uber-reader Jill Olson continues to successfully infiltrate the vast right wing conspiracy, and her rogues gallery of star portraits grows. Here's her latest close encounter: George Will. Jill was previously seen in the company of Ann Coulter.

Posted by Donald L. Luskin at 7:57 AM | link  

KRUGMAN SETS THE STANDARDS AT THE TIMES    ... not the "public editor." Check out Jane Galt this morning for another of the "divide by ten error" at the paper of record. Thanks to reader Sylvain Galineau for the link.

Posted by Donald L. Luskin at 7:25 AM | link  


Tuesday, June 07, 2005

GLOBAL WELFARE QUEENS   Leftist welfare impulses on a grand global scale: the forgiveness of underdeveloped countries' debt (when they've stopped paying the interest years ago anyway), and the extension of further "debt" (under the circumstances, merely a gift). The Wall Street Journal wisely disagrees:
Some 38 nations qualify as "highly indebted poor countries," or HIPCs. Despite $144 billion in bad loans, mostly from official lenders, their average per-capita income is more than 25% below where it was in 1980. Ending this misery starts with diagnosing the problem. And to that end, the British claim that "many countries have to choose between servicing their debt and investing in health, education, infrastructure and other areas" isn't helpful -- because it isn't true.

Lenders stopped expecting repayment on this money years ago. In fact, since 1985 the HIPCs have been regular recipients of new funds to cover their debt service, as Carnegie Mellon economist Adam Lerrick shows in a new paper out from Congress's Joint Economic Committee. This has put the HIPCs further into debt. But the process continues so the World Bank and International Monetary Fund can boast -- preposterously -- that they've never made a bad loan.


Posted by Donald L. Luskin at 9:58 AM | link  


Monday, June 06, 2005

MANNE ON DONALDSON   The always reliable Henry Manne has a knockout op-ed in the Wall Street Journal this morning, celebrating the potential for deregulatory reform in the departure of William Donaldson from the SEC, and his replacement by Chris Cox.
I have reference first and foremost to Sarbanes-Oxley and, second, to the efforts by Mr. Donaldson, largely unnoticed outside Wall Street, to protect the age-old privileged position of the New York Stock Exchange against competition and to register hedge funds.

Neither of these Donaldson initiatives, it might be noted, has anything at all to do with the great scandals of our era other than the fact that political hysteria often enables adoption of otherwise irrelevant laws. But each of these symbolizes what is probably the costliest aspect of our system of securities regulation -- the inhibition of open competition... Protection from competition is the key to understanding the various alphabet agencies that sprang up during the New Deal era. These agencies were designed to -- and did, in fact -- protect the chosen industries from competition, a sort of legalized cartel arrangement that also misled the public into believing that these agencies were really about consumer or investor protection....

Both when he signed the Sarbanes-Oxley bill and when he appointed Mr. Donaldson as the Don Quixote of the corporate world, President Bush himself got snookered into advancing the argument that we needed to restore confidence and trust in the American corporate and financial system, a euphemism which, under the circumstances, meant more regulation. This was said in spite of the fact that there is not the slightest evidence anywhere that this loss-of-confidence argument had any economic justification; that existing criminal laws and private internal controls were insufficient to deal with the problem; or that additional and very costly corporate regulation could ever restore any confidence that investors might have lost. But Mr. Donaldson took him at his word, undoubtedly because he believed the same canard. Good regulatory knight that he is, his most recent Congressional testimony in April still supported strict enforcement of Sarbanes-Oxley in spite of mounting evidence that it is costly beyond any conceivable benefits.


Posted by Donald L. Luskin at 8:50 AM | link  


Sunday, June 05, 2005

AN UNEXPECTED MOMENT OF CLEAR-HEADEDNESS   here in the Golden State. Our Senator Diane Feinstein comes out against the Schumer/Graham China tariff amendment. Brava!

Posted by Donald L. Luskin at 6:31 PM | link  

DOUBLE HEADER   A year ago the New York Times found a way to both bash Bush and build up Democrats at the same time, by salting yet another cultural review with yet another political irrelevancy. The lead paragraph from a review in the New York Times Sunday Book Review -- Douglas McGrath on Grant and Twain, The Story of a Friendship That Changed America, by Mark Perry:
When people speak of the "weight of history," I am not moved. The McGrath head has never been bowed with worry as President Kennedy's must have been during the Cuban missile crisis or as President George W. Bush's surely was when gas prices briefly dipped below $2 a gallon, weakening key stocks in his trust fund.
Via Discriminations, thanks to reader Fred Manzo.

Posted by Donald L. Luskin at 4:29 PM | link