To the Editor:

Paul Krugman's column demonstrates how the redefining of medicine in America as a health care industry, where economics and consumerism are the central issue rather than health, undermines our efforts to find real solutions to the continual growth of degenerative illness.

If medicine can reclaim its traditional role in society, and the medical pluralism fostered by the alternative-medicine movement can be realized, then we will be better able to begin to change our focus away from the commerce of disease and toward an understanding of how to achieve health.

Eliot Tokar
Howard Beach, Queens
July 4, 2005
The writer is a practitioner of Tibetan medicine.

[Bush] argued that because most new jobs are created by small businesses, tax cuts to the owners of those businesses would stimulate robust employment growth. His policy thus rests implicitly on the premise that if business owners could afford to hire additional workers, they would. But whether owners can afford to hire is not the issue. What matters is whether hiring will increase their profits.

The basic hiring criterion, found in every introductory textbook (including those written by the president's own economic advisers), is straightforward: If the output of additional workers can be sold for at least enough to cover their salaries, they should be hired; otherwise not. If this criterion is met, hiring extra workers makes economic sense, no matter how poor a business owner might be. Conversely, if the criterion is not satisfied, hiring makes no economic sense, even for billionaire owners. The after-tax personal incomes of business owners are irrelevant for hiring decisions. [Emphasis added]

Oh really, Professor Frank? Suppose the personal tax rate is 100%? Now business owners have no reason to earn profits in the first place, whether by hiring new workers or anything else. So if we started from a 100% tax rate, surely a rate-cut would increase employment. Same if we started from a 99% tax rate. And 98%. Where does it truly become "irrelevant"? Does it ever? Those are the questions a serious economist would ask.

And how about effect of tax rates on workers themselves? Frank pretends that the Bush tax cuts were only for the rich, but in reality they cut the tax bill of every American who pays income taxes. When you get to keep more of your labor income, you are willing to provide more labor -- or work for a lower pre-tax wage as long as you achieve a higher after-tax wage.

Income taxes are, in every respect, a wedge that gets in between the supply and demand for labor, and cause less labor to be produced and consumed. I think there are a couple diagrams in those textbooks that cover that concept, too, by the way.

Update [7/8/2005]... Tino at Truck and Barter writes in to suggest Frank take a look at this NBER paper:

Personal Income Taxes and the Growth of Small Firms
Robert Carroll, Douglas Holtz-Eakin, Mark Rider, Harvey S. Rosen
NBER Working Paper No. 7980
Issued in October 2000

This paper investigates the effect of entrepreneurs' personal income tax situations on the growth rates of their enterprises. We analyze the personal income tax returns of a large number of sole proprietors before and after the Tax Reform Act of 1986 and determine how the substantial reductions in marginal tax rates associated with that law affected the growth of their firms as measured by gross receipts. We find that individual income taxes exert a statistically and quantitatively significant influence on firm growth rates. Raising the sole proprietor's tax price (one minus the marginal tax rate) by 10 percent increases receipts by about 8.4 percent. This finding is consistent with the view that raising income tax rates discourages the growth of small businesses.

Editors' Note

The Op-Ed page in some copies of Wednesday's newspaper carried an incorrect version of the below article about military recruitment. The article also briefly appeared on NYTimes.com before it was removed. The writer, an Army reserve officer, did not say, "Imagine my surprise the other day when I received orders to report to Fort Campbell, Ky., next Sunday," nor did he characterize his recent call-up to active duty as the precursor to a "surprise tour of Iraq." That language was added by an editor and was to have been removed before the article was published. Because of a production error, it was not. The Times regrets the error. A corrected version of the article appears below.

With all of the attention on the Supreme Court, I would note there's another important vacancy that's escaped public attention. The White House is still considering its next FTC nomination, and odds are we're getting a status quo appointee who won't challenge the agency's staff or institutional culture. Orson Swindle, a Republican installed by Bill Clinton, has left, and his most likely replacement is William Kovacic, who just completed a stint as the FTC's general counsel before returning to George Washington Law School, a hotbed of regulatory and litigation activism. Kovacic would be a ratification of the last five years of Republican antitrust policy, which as you know brought us the "superpremium ice cream" case and a fanatical war against physician contract rights, among other things.

More importantly, replacing Swindle with Kovacic would mean that all five FTC members are career antitrust lawyers. Although the FTC's authorizing statute does not even require the commissioners to be lawyers, the Bush administration will have succeeded in "privatizing" the FTC as a full-blown appendage of the civil antitrust bar.

SPIEGEL: Stop? The industrialized nations of the West want to eliminate hunger and poverty.

Shikwati: Such intentions have been damaging our continent for the past 40 years. If the industrial nations really want to help the Africans, they should finally terminate this awful aid. The countries that have collected the most development aid are also the ones that are in the worst shape. ...Huge bureaucracies are financed (with the aid money), corruption and complacency are promoted, Africans are taught to be beggars and not to be independent...

SPIEGEL: Even in a country like Kenya, people are starving to death each year. Someone has got to help them.

Shikwati: But it has to be the Kenyans themselves who help these people. When there's a drought in a region of Kenya, our corrupt politicians reflexively cry out for more help. This call then reaches the United Nations World Food Program -- which is a massive agency of apparatchiks who are in the absurd situation of, on the one hand, being dedicated to the fight against hunger while, on the other hand, being faced with unemployment were hunger actually eliminated. ..., and before long, several thousands tons of corn are shipped to Africa.... A portion of the corn often goes directly into the hands of unsrupulous [sic] politicians who then pass it on to their own tribe to boost their next election campaign. Another portion of the shipment ends up on the black market where the corn is dumped at extremely low prices. Local farmers may as well put down their hoes right away; no one can compete with the UN's World Food Program. And because the farmers go under in the face of this pressure, Kenya would have no reserves to draw on if there actually were a famine next year. It's a simple but fatal cycle.

SPIEGEL: If the World Food Program didn't do anything, the people would starve.

Shikwati: I don't think so. In such a case, the Kenyans, for a change, would be forced to initiate trade relations with Uganda or Tanzania, and buy their food there. This type of trade is vital for Africa. It would force us to improve our own infrastructure, while making national borders -- drawn by the Europeans by the way -- more permeable. It would also force us to establish laws favoring market economy.

Thanks to reader Jill Olson for the link.

Posted by Donald L. Luskin at 3:45 PM | link    

Posted by Donald L. Luskin at 9:48 AM | link    

Posted by Donald L. Luskin at 8:43 AM | link    

Tuesday, July 05, 2005

Paul Krugman is number eight among the 100 People Who Are Screwing Up America -- Bernard Goldberg's new book. New York Times publisher Arthur Sulzberger Jr. comes in at number two! Thanks to reader Jill Olson for the link.

Posted by Donald L. Luskin at 8:39 PM | link    

PRAISE HIM, THEN BURY HIM   Here's how it's done. Praise Bush. Praise conservatives. Even criticize liberals. And when it's all done, take whatever it is the conservatives did right and curse them for not doing even more of it. Nicholas Kristof's New York Times column today:

...Mr. Bush has done much more for Africa than Bill Clinton ever did, increasing the money actually spent for aid there by two-thirds so far, and setting in motion an eventual tripling of aid for Africa. Mr. Bush's crowning achievement was ending one war in Sudan, between north and south. ...it's worth acknowledging that Mr. Bush, and conservatives generally, have in many ways been great for the developing world...Mr. Bush's new push to help Africa is smartly designed, targeting problems like malaria and sex trafficking, where extra attention and resources will make a big difference on the ground...Mr. Bush's signature foreign aid program, the Millennium Challenge Account, is off to an agonizingly slow start, but is shrewdly focused on encouraging good governance and economic growth...

That's the bait. Here's the switch:

Aid has shortcomings, but Mr. Bush himself has shown that it can be used effectively to save lives by the millions.

Yet Mr. Bush is resisting the G-8's calls for further help for Africa; he thinks the sums are better spent on cutting the taxes of the richest people on earth than on saving the lives of the poorest. Come on, Republicans! You need to persuade Mr. Bush to be more generous this week, because his present refusal to help isn't conservative, but just plain selfish.

Thanks to reader Josh Hendrickson for the link.

Posted by Donald L. Luskin at 7:07 PM | link    

OH, HOW THE MIGHTY HAVE FALLEN TO SIXTH PLACE   The Financial Times is now the world's most respected newspaper, with the former number one New York Times falling to sixth, according to a new poll.

Among 1,000 respondents from 50 countries, 19.4 percent chose the FT as the best paper, according to the survey by Zurich-based Internationale Medienhilfe published on Tuesday.

The Wall Street Journal took second place with 17.0 percent, followed by Germany's Frankfurter Allgemeine Zeitung in third with 16.2 percent.

The New York Times slipped from first place in the 2003 survey to sixth, its score dropping to 8.1 percent from 21.3 percent. "The results show that the New York Times is suffering because of past scandals, while German-language publications remain highly respected internationally," Internationale Medienhilfe said in a statement.

Thanks to reader Jill Olson for the link.

Posted by Donald L. Luskin at 1:31 PM | link    

OKAY, I MISSED IT   Reader Jill Olson and blogger James B. of The Chief Brief have wondered how I could have possibly failed to connect the dots between Paul Krugman's claim that obesity is a Republican plot, and the fact that Krugman's avid ultra-liberal defender Brad DeLong, is, well, uh... you know...

Posted by Donald L. Luskin at 11:27 AM | link    

---

Monday, July 04, 2005

ANOTHER DELONG SMEAR   Brad DeLong has smeared me again while I was on vacation, attacking my article in the July 4, 2005 print edition of National Review. But out of a 2,000 word article, he could actually fault me on only two points -- but by his standards, that entitles him to smear me as the "stupidest man alive."

He claims "Luskin denies the existence of the entire discipline of statistics" just because I complain that income mobility research is based on very small population samples. That's like saying I deny the existence of the science of optics because I complain that the correction in my glasses doesn't sufficiently improve my vision. The population samples are small. And as to DeLong's authoritativeness on the "discipline of statistics," just remember that he testified on the discipline in Al Gore's dispute of the 2000 Florida election. The court was not impressed (afterwards one attorney called DeLong "a $500-an-hour psychic" and another said "Those were voodoo statistics").

He claims that I "never eyeballed the time series on growth and inequality...The relationship between growth and inequality in the U.S. in the twentieth century? None--neither positive nor negative." His proof is a naive set of charts that compare 10-year lagged per capita GDP growth to the annual income share of the top 1% of earners. Is "eyeballing" those particular charts the one and only way to think about the proposition? Does any other approach make one "stupid" -- or "stupidest"? Eminent Harvard economist N. Gregory Mankiw doesn't think so. Mankiw wrote in the comments board of DeLong's blog,

If you look at these data, you will find four episodes when the share going to the top 0.1 percent changed substantially over a five year period (where I somewhat arbitrarily define “substantial” as more than 4 percentage points): the periods ending in 1921, 1928-29, 1933-34, and 2000. The share going to the rich decreased in the first and third episodes, and increased in the second and fourth.

As an economic historian, you will surely recognize these dates. The first and third are associated with economic turmoil and financial market panic, while the second and fourth are associated with a booming economy and stock market.

It is an interesting question what the right time-series model is to explain the dynamics of inequality and the macroeconomy. But the simple scatterplots you posted on your blog don’t seem to capture what is clearly in the data.

There's no response from DeLong (natch). Yet using what DeLong himself called "the state-of-the-art data on income inequality from Emmanuel Saez and Thomas Piketty (2003)," clearly there's something to what Mankiw (and I) are saying. What do your eyeballs tell you about the 1920s and the 1930s? DeLong just says, "inequality is high in the fast-growing 1920s and...high in the depressed 1930s." Something must be wrong with his eyeballs.

Update... Econopundit Steve Antler has this analysis of Mankiw's point.

Posted by Donald L. Luskin at 11:36 PM | link    

FAT: A PARTISAN ISSUE   Paul Krugman has found something new to blame Republicans for: obesity. Yep, according to him it's the right wing conspiracy to make us vast. The proof? Well, let's see... he mentions that he himself is overweight, yet he's certainly not a Republican. He mentions that a lobbying organization funded by Coca-Cola and Tyson Foods is opposed to efforts to curtail "food liberty." Yet isn't one of Coca-Cola's largest shareholders Warren Buffet, a Democrat? And wasn't Arkansas-based Tyson Foods' CEO Donald Tyson a major Bill Clinton supporter? Didn't the company plead guilty in 1997 to bribing Clinton's Agriculture Secretary Mike Espy? Didn't the Clinton White House admit in 1994 that Tyson's outside counsel James Blair placed most of the orders for cattle futures trades that made Hillary Clinton $100,000 profit on a $1,000 investment?

Tim Worstall and Keith Burgess-Jackson have comments, too.

Update... Perry Eidelbus has a thought: maybe Krugman should think about market solutions.

Posted by Donald L. Luskin at 11:18 PM | link    

---

There's more...visit the archives!