Politics & Policy

Anger Management

Krugman and Co. are fuming without cause.

My, how many tens of thousands of words the punditocracy has churned out since Monday night to explain why the presumed Democratic front-runner, Howard Dean, got tromped in the Iowa caucuses. The poor fools. They should have asked me.

It’s all so simple. The day of the caucuses, the Wall Street Journal revealed that Dean, if elected president, would appoint Paul Krugman his “foremost economic policy adviser.”

That’s all it took. From frontrunner to “run screaming” in a single day.

Apparently having America’s most dangerous liberal pundit actually influencing real-world economic policy is too horrifying even for Democrats to contemplate.

Okay — I’m kidding. I have no idea whether any Iowa delegates even gave Paul Krugman a thought on Monday. But at the same time, the caucuses were a big blow to the whole “angry liberal” movement that Dean and Krugman have staked their careers on.

Krugman has been increasingly clear in his New York Times columns that he endorses Dean, with Wesley Clark serving as an understudy. (The two “angry” candidates.) In his January 2 column, he came within an inch of urging all the Democratic candidates other than Dean and Clark to drop out of the race so that the two frontrunners — the frontrunners then, that is! — could rage at President Bush unobstructed. In his column Friday — the last one before the Iowa caucuses — Krugman endorsed Dean and Clark again, saying that they were the ones angry enough to land on the right side of “the great Democratic divide … between those who are willing to question not just the policies but also the honesty and the motives of the people running our country, and those who aren’t.”

About the nicest thing Krugman has ever said about Iowa winner John Kerry is that he wishes the press would stop talking about his hair. (In fact, Krugman wishes that so much he’s mentioned it in no less than three Times columns — here, here, and here. What’s up with that?).

But then came Iowa. Could it be that Democratic voters lap up Krugman’s anger shtick in the pages of the Times — but they actually have very little to be angry about? Krugman keeps predicting economic catastrophe, but the economy is booming — with U.S. household wealth at all-time highs. Krugman keeps talking about the failure of the war on terrorism, but there hasn’t been a terrorist act on American soil since September 11, 2001, Saddam Hussein is behind bars, and Afghanistan has a new constitution. He keeps talking about the Republicans’ “coded appeals to racism”, but the Bush administration is visibly the most ethnically and gender-diverse one in history.

Most important, perhaps, Krugman keeps telling voters that they should be angry because they didn’t really get a tax cut. Almost all Bush’s tax cuts went to the rich — so Krugman’s story goes — which means that Bush lied when he said ordinary Americans would get a tax cut, too.

But it turns out that here, too, in this key pocketbook issue, voters have very little to be angry about. Indeed, they should be thrilled. That’s because it’s not Bush who lied about tax cuts: It’s Krugman.

Using his authority and credibility as a Princeton economics professor, Krugman has claimed that Bush lied about the tax cuts, making the charge the centerpiece of his case against Bush. In fact, Krugman cited this when he was asked by Alan Colmes on Hannity and Colmes to prove that George Bush is a liar. (This was the same show, by the way, in which Krugman the angry liberal got so angry that he slandered me by claiming that I “stalked” him “personally”):

KRUGMAN: … I’ve got the goods, you know. I’ve got the facts.

COLMES: How can you prove a lie? Can you prove that they lied?

KRUGMAN: Oh, sure. Look, when Bush in his State of the Union said 92 million Americans will receive an average tax cut of $1,000, it turns out that half of tax payers either received nothing or less than $100. There was a technical sense in which what he said was true but it was designed to mislead.

Where can we go to get the facts, to see if Krugman is right? Let’s consult the Urban Brookings Tax Policy Center, which Krugman himself once described as “particularly useful for distributional analyses — whose taxes get cut. Again, the orientation is Democratic — Republicans think that it’s evil even to ask such questions — but the work is impeccable. … the best, worth reading deeply and often.”

According to Urban Brookings’ analysis of the tax cuts described in that State of the Union address, about 53 percent of “tax units” (individuals, married couples, households, and so on) got nothing or less than $100. Does that mean Krugman is right when he says “half of tax payers either received nothing or less than $100″?

No, because here’s what Bush really said in his 2003 State of the Union address:

The tax relief is for everyone who pays income taxes — and it will help our economy immediately: 92 million Americans will keep, this year, an average of almost $1,000 more of their own money.

Note that Bush was talking about people who pay income taxes. Jeffrey Rohaly, the director of tax modeling at Urban Brookings, told me that virtually all the tax units who got no tax cut — 36 percent out of the 53 percent who got less than $100 — paid no income taxes in the first place. In fact, thanks to refundable child credits, many of them have what amount to negative income taxes — the government pays them. By shifting the argument from income-tax payers to all taxpayers, Krugman stacked the deck. As he might say, “it was designed to mislead.”

So let’s drop out the 36 percent who pay no income taxes to begin with, and see what the Urban Brookings’ analysis tells us about which income-tax payers got what kind of tax cut:

The average income-tax payer got a cut of $1,159 — 15 percent more than Bush claimed

55 percent of income-tax payers got a cut from $1 to $500

42 percent of income-tax payers got a cut from $501 to $5,000

That’s a lot of real money in the hands of real people — not just “the rich.” So did Bush lie? No — Krugman did. Are those tax cuts anything to be angry about? No. In fact, voters might start getting angry at candidates who are so angry that they might take those tax cuts away.

So what are angry liberals like Krugman and Dean and Clark supposed to be angry about at this point?

Well … just wait ’till November. They’re going to be angry as hell.

– Donald Luskin is chief investment officer of Trend Macrolytics LLC, an independent economics and investment-research firm. He welcomes your comments at don@trendmacro.com.

Members of the National Review editorial and operational teams are included under the umbrella “NR Staff.”


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