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Krugman’s Job-Robbing Calculus
The Times columnist unloads a whopper of a tax-cut lie.


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Donald L. Luskin

Paul Krugman has delivered his most dangerous and brazen lie ever — bar none. And it’s no error — it’s an outright lie for sure. Economists don’t make this kind of error.

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In his Tuesday column, Krugman made what seems to be a drop-dead argument that the Bush administration’s tax-cut proposal is a hopelessly bad way to create new jobs. The betting line for Krugman Truth Squad members is 10-to-1 that this argument gets repeated in the liberal media a dozen times before the week is out. And it’s 100-to-1 that the New York Times ever corrects it. Read this from Krugman:

. . . let’s pretend that the Bush administration really thinks that its $726 billion tax-cut plan will create 1.4 million jobs. At what price would those jobs be created? . . . The average American worker earns only about $40,000 per year; why does the administration, even on its own estimates, need to offer $500,000 in tax cuts for each job created?

As I pointed out in my blog, The Conspiracy to Keep You Poor and Stupid, the lie in this argument is three-fold. To unravel it, you need to understand two facts.

1. The Bush administration’s estimate of 1.4 million jobs — made in a Council of Economic Advisors report on February 4 — is only for new jobs created through 2004.

2. $726 billion is the cumulative value of the tax cut over ten years.

Are you beginning to see the three-fold lie? Follow along.

Because $40,000 in earnings for the average worker is a one-year figure, and the tax-cost per job of $500,000 ($726 billion in tax cuts divided by 1.4 million new jobs) is a ten-year figure, you have to divide $500,000 by ten to make the figures comparable. So a $40,000 job is created with only $50,000 in tax cuts, not $500,000. Krugman is off by a factor of 10.

It gets worse.

If the Bush tax cuts create 1.4 million jobs just through 2004, we can assume that they will create many more jobs over ten years. The CEA report doesn’t give specific estimates beyond 2004, but they do say they believe that the impact of the tax cuts is front-loaded. So, let’s guess that 500,000 new jobs are created each year for the next eight years. By the end of 2012, that’s a cumulative 5.4 million new jobs.

Over ten years, that means that 30.86 million new job-years will have been worked. If we divide $726 billion in tax cuts over ten years by 30.86 million, we get a tax-cost of only $23,522 to create a $40,000 job. Now Krugman’s off by a factor of 21.

And that’s only two of the three folds in this three-fold lie. Here’s the bonus ripple.

Krugman entirely ignored the fact that all the workers who get those new $40,000 per year jobs will pay taxes on their wages. The $726 value of the tax cut was calculated assuming that there would be no new jobs at all — so any taxes on the wages from any new jobs created ought to count against the tax cut. If we include direct and employer-paid FICA taxes and federal income taxes for a tax on wages of 15%, that adds up to $185 billion in tax revenue over ten years.

That number reduces the tax-cost per job to only $17,522. And that puts Krugman off by a factor of 29. Not bad for a politician — but scandalous for an Ivy League economics professor.

Unfortunately, Krugman didn’t stop with one three-fold lie, brazen as it was. He then claimed that Bush is

sacrificing other potential pro-employment policies on the altar of tax cuts. Once you take those sacrifices into account, it becomes clear that the Bush plan is actually a job-destroying package . . . indirectly destroying jobs by preventing any rational response to a weak economy.

Krugman is referring to potential job losses resulting from fiscally strapped states having to cut back on spending. If this makes the Bush tax cut a “job-destroying” package, then presumably Krugman must believe that more state jobs will be lost than the 1.4 million new jobs that will be created through 2004. But while he ridiculed Bush’s 1.4 million estimate as coming “from the same place where Joseph McCarthy learned that there were 57 card-carrying Communists in the State Department,” he cited no figure at all for the number of jobs “destroyed.”

Krugman’s idea of a “rational response to a weak economy” is to “provide an emergency package of aid to state governments — not to pay for new spending, but simply to maintain basic services.” Like what? (He mentioned college scholarships. Did he mean to Princeton?) And he ridiculed the money-saving step of “unscrewing every third light bulb in Missouri government offices” — though in a column about the California energy crisis he scolded Vice President Cheney’s National Energy Policy Development Group for not endorsing conservation. How many jobs do you have to create to screw every third light bulb back in? (Answer: 57.)

Krugman set it up so that the Bush tax-cut plan looks like a treadmill to nowhere — with new jobs being created while old jobs are “destroyed” for lack of emergency aid. But here’s the lie in that idea: Those state job cuts are the result of a weak economy, not the cause of it. States are shedding jobs and services because their tax revenues are down in this recession — period. How will it help the cause of economic recovery to simply maintain the recessionary status quo. Same state services? Same state employees? Same tax rates?

No. If Krugman wants to keep the states spending on scholarships and light-bulb screwers, there’s only one thing to do: get the economy growing again so that there are more private sector jobs producing wages and (hence) tax revenue to pay for public sector jobs.

Krugman Truth Squad member Matthew Hoy called this spade a spade on his blog, Hoystory.com: “That’s what we need! More government workers! If he talks like a socialist and walks like a socialist . . . ” Indeed — and there’s the pot that boils up these lies. Krugman’s solutions have nothing to do with economic recovery, and everything to do with his preference for enlarging the economic sphere of the state.



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