Paul Krugman’s column on the nature of America’s debt problems has an interesting formulation in it. He writes:
Now, the fact that federal debt isn’t at all like a mortgage on America’s future doesn’t mean that the debt is harmless. Taxes must be levied to pay the interest, and you don’t have to be a right-wing ideologue to concede that taxes impose some cost on the economy, if nothing else by causing a diversion of resources away from productive activities into tax avoidance and evasion.
The distortions and lost productivity caused by tax-compliance are real problems, of course. But I think it’s funny that this is the only cost to the economy Krugman is willing to concede. It’s almost as if he’s saying that if taxpayers would stop greedily devoting so much time and money to avoiding and evading taxes (the latter being a crime) then there would be no downside to taxation. After all, the normal critique of (excessive) taxation is that it causes a diversion of resources away from productive activities into less productive uses determined by politicians. But that’s a concession Krugman can’t bring himself to make, even hypothetically. So in an effort to sound reasonable about the inherent costs of taxation, he pins the problem on the miserly taxpayers who create wealth but are too tightfisted when it comes to handing it over to government.
In Krugman's "Us and Them" view, it's always "them" that cause the problems. I'm sure he cheerfully writes his check for taxes and doesn't waste his precious productivity on avoiding taxes, he has more important things to do.
But remind me ... what exactly does he do that is productive?
He gives me tired-head.
Reply to this commentLinkReport AbuseYeah, Kroogie is undoubtably a "pick up a short form at the post office and spend a solid two-and-a-half hours at the kitchen table with it" tax payer.
Think of the accounting fees he saves...
Reply to this commentLinkReport AbuseKrugman's right: The federal debt is not like a mortgage. Indeed, it is far worse than a mortgage. For starters, someone who is late on his mortgage payment only risks losing the house and becoming homeless; if the federal government misses a payment on the debt serious repercussions up to and including war can ensue. Also, the foreclosure of a home only affects the individuals who are living in the home; the default of the U.S. on its debt affects not only all Americans, but any foreign government that happens to be holding our debt.
The comparison between a household mortgage and the U.S. debt is supposed to be some kind of demonstration of the layman's ignorance about public finance. I'm not so sure. I'm beginning to think it is a slur against the layman's intelligence and against household mortgages.
Reply to this commentLinkReport AbuseWow. What a misrepresentation of what Krugman said.
You still hung over?
Reply to this commentLinkReport AbuseHow can someone misrepresent what another person wrote? Is there some secret Krugman codex that we don't know about?
Reply to this commentLinkReport AbuseIt's customary to provide what Krugman "actually" said, if you're going to make this criticism.
CAPTCHA: "walk the walk." Let's see if you can do the same.
Reply to this commentLinkReport AbuseMisrepresentation?!? You (and Krug-man) must still be drinking.
Reply to this commentLinkReport Abuse"Perhaps most obviously, the economic “experts” on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits. People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring. Any day now!"
The bond vigilantes done give warnings. When countries come under scrutiny for excessive debt, rates spike fast and hard. See Greece and Italy. The most common argument the "debt doesn't matter" liberals offer is that we're unique in that our Federal Reserve can simply print as much currency as needed to make good on our dollar-denominated Treasuries. This works only if one is willing to think the laws of supply and demand don't apply to U.S. dollars! If we flood the world with dollars to pay debts, eventually our creditors will demand MORE of them - manifested as a higher interest rate - to compensate them for being paid in a withering asset.
They've enjoyed teasing us for currently low Treasury rates, brought on by 2011 being a "crisis" year and causing a flight to perceived safety. Plenty of tech stock investors and house flippers ridiculed anyone who warned the law of gravity was going to assert itself eventually, too.
Reply to this commentLinkReport AbuseThere are three things keeping interest rates down.
The Fed is buying most of the new issues with printed money.
The recession is eliminating competition from the private sector at treasury auctions.
As bad as the US is, the rest of the world is worse.
Should one of those three things ever go away, interest rates will spike dramatically.
Reply to this commentLinkReport AbuseGosh, and here I thought taxes also had to be levied to pay back the principal, not just the interest.
One of the guys I work with is a huge Democrat. Went to the inauguration last year and all. When I mentioned increasing taxes to pay for all the new debt we were racking up, he said "I'm not worried about it because I'll just shift income around and they won't see an additional dime from me. I pay enough already.". Yep, that's your typical Democrat hypocrite. Raise taxes on everyone, but I'm not going to pay any more than I can legally get away with.
Reply to this commentLinkReport AbuseAs an economist, Krugman has to know that political decisions are less efficient (in terms of maximizing economic value) than market decisions. The fact that he doesn't even acknowledge this is a testament to his intellectual dishonesty.
Reply to this commentLinkReport AbuseI have my doubts that Krugman knows that at all. From his various writings, I have no trouble believing that he thinks politicians (especially the ones he supports) would do a much better job of allocating resources than does the private sector.
Krugman is the one after all, who a few years ago waxed poetic about the wonders of the Chinese system, where the politicians don't have to spend any time worrying about what the voters want.
Reply to this commentLinkReport AbuseI'm not going to read Krugman's column but think the phrase "if nothing else" got overlooked in the response. I can understand Jonah overlooking that because it's more reminiscent of a time when the left mainly couched their arguments for redistribution in the notion of "fairness" while at least tacitly acknowledging the trade off's involved. Now, Obamacare is a jobs bill. Tax increases will free the economy from the right wing hostage takers. Fiscal stimulus spending has a GDP multiplier of 1.5 because, well . . . just because. Temporary stimulus via payroll tax "holiday" is a job creating tax cut. Essentially, anything the left wants to do is the cure for the "policies that got us into this mess".
Lost in the rhetoric for several years is any straightforward discussion of the trade offs associated with taking money from the private sector and running it through the federal government.
Reply to this commentLinkReport AbuseKrugman's right. Tax evasion is hard work. After eleven years of being self-employed I can personally tell you its quite time-consuming keeping 2 sets of books.
Reply to this commentLinkReport Abuse"But that’s a concession Krugman can’t bring himself to make, even hypothetically."
He can't/won't make it now, in his columns advocating the tyranny of socialism.
I'm curious if Krugman's own textbook makes that concession though.
The easiest, and most fun, way to debunk Krugman is to compare what he's saying now to what his own textbook says.
Reply to this commentLinkReport AbuseThe problem in this country is that the billionaires and multi-millionaires have rigged the system so that they hide their income using tax shelters and loopholes. Even the income that they fail to hide is taxed at only 15%. On the other hand the middle class and the upper middle class pays 25-35% tax rate and cannot use the tax shelters of the super rich. Thus there is huge income redistribution - via taxes - from the middle and upper-middle class - to the super rich.
The only way to fix this is:
Reply to this commentLinkReport Abuse1. Tax all income at exactly the same rates. The income of the super rich (capital gains and dividents) should be taxed at the same rates as regular income - just as when federal taxes were originally introduced in the USA.
2. Close ALL tax shelters and loopholes that the super rich use.
3. Reform the AMT to only target the super rich - as originally intended! Now the AMT mostly targets the middle class!
4. Introduce new tax brackets for incomes over $1M and $10M. When federal taxes were originally introduced in the USA only incomes of over $1.2M (in 2011 adjusted $) were taxed, ad progressive rates, but now there is not even a separate tax bracket for incomes larger that $1M.
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Reply to this commentLinkReport AbuseIn the same spirit Krugman claims governments need never repay debt, families too can rollover credit card balances semi-indefinitely (up to the families credit limit).
A home mortgage can be turned into a Home Equity Line of Credit. The loan balance can then be run up to a limit imposed by the appraised value of the house put up for collateral. Thus, LOC debt, too, need not be repaid.
However, If interest rates should go up, and the debt limit reached, and the family finds itself with insufficient income to pay interest charges and a contractually required monthly repayment of principle, then it is bankrupt.
In this event, creditors, upon bankruptcy, or death of the family, can sell the house to recoup its then current loan balance.
Creditors of a failed country on the other hand, are screwed. They can't sell the country to recoup monies owed to them. There's no "bankruptcy court" they can appeal too. Creditors know this, which is why there is a "credit limit" on government debt just as there is on family debt. KRUGMAN is dead wrong.
So, to sum up, the real kicker is this "Credit Limit" business. Family or Government, a limit exists. And when it is reached, the debt bubble bursts with catastrophic consequences for all of us.
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