Politics & Policy

Unintelligent Design

The origins and madness of Paul Krugman's economic doctrine of massive taxation.

One of the Left’s sleaziest rhetorical tricks is to discredit conservative ideals by claiming they are based on religious beliefs, while liberal ideals are based on science. The Right, they sneer, is “faith based.” The Left, they brag, is “reality based.”

So we have Paul Krugman, America’s most dangerous liberal pundit, claiming that the world of conservative thought is “increasingly dominated by people who believe truth should be determined by revelation, not research.” Krugman even thinks the conservative preference for lower tax rates and higher economic growth is nothing more than a matter of right-wing religious zealotry. In his Friday New York Times column, Krugman called supply-side economics a “doctrine” that believes in “miraculous positive effects” which has “never been backed by evidence.”

Of course Krugman believes that his own leftist “doctrines” are entirely scientific. He excoriates Tom DeLay and Rick Santorum for statements they have made about the religious foundations of their views. But he never objects to the same kind of foundations when they support the views of Martin Luther King, Jr., Jesse Jackson, or even Al Sharpton.

In fact, Krugman doesn’t seem to know that the modern liberal conception of the welfare state began as a great religious awakening, led by the Christian Socialist and Social Gospel movements of the late 19th century. Their central doctrine was that the power of the state should be harnessed to redistribute wealth in order to combat sin among America’s crowded new urban populations. This doctrine gradually prevailed throughout the 20th century, through the Progressive Era, the New Deal, and the Great Society, with the introduction of the federal income tax, Social Security, Medicare, and the regulatory state.

Today’s seemingly secular science of economics — an establishment in which Paul Krugman is regarded as a leading authority — was deliberately created in the late 19th century to manufacture an intellectual imprimatur for the Christian Socialist and Social Gospel movements. It came about in just the way Krugman, in his Friday column, claims today’s conservative think tanks were created by the Right to manufacture evidence against liberal shibboleths such as global warming.

The American Economic Association — the leading professional organization of economics — was founded in 1885 to be, in the words of its leading founder Richard T. Ely, “an influential movement which will help in the diffusion of a sound, Christian political economy.” Its first mission statement called for combating “social problems whose solution is impossible without the united efforts of Church, State, and Science.”

Science? Au contraire. Of the AEA’s 50 founding members, more than 20 were former or practicing clergymen. And while Krugman warns today that the religious Right has begun a “process that ends with banishing Darwin from the classroom,” the AEA was founded explicitly to banish Darwinistic science from economics, for fear that it was buttressing the then-dominant paradigm of laissez-faire capitalism. No matter that Darwinism was good science. As historian Benjamin G. Rader put it in a biography of Ely, “Christian moral responsibility should be emphasized rather than the search for mechanistic laws.”

The banishment of Darwin — and science — from economics continues today in the work of statists like Krugman, and the AEA continues to put its imprimatur on their work. Every two years the AEA awards the John Bates Clark medal to the most distinguished American economist under the age of 40. Paul Krugman won it in 1991. Clark, an AEA founder, was a Christian Socialist. Though famous as the great pioneer of the theory of “perfect competition,” Clark actually believed that “Individual competition … ought to disappear … The alternative regulator is moral force.”

It must be moral force — it certainly isn’t science — that permits Krugman to claim that supply-side economics has “never been backed by evidence.” How does he reconcile the fact that federal tax revenues plummeted after peaking in 2000 (while tax rates remained high) and then recovered after the 2003 tax cuts were put in place? What does he call Krugman Truth Squad member Kevin Hassett’s observation that the tax revenues currently anticipated by the Congressional Budget Office for 2006 are about the same as those it anticipated for 2006 back in 1999 — even though tax rates have been slashed since then?

Here’s what I call it: scientific, empirical, real-world proof. Supply-side economics works. Lower tax rates, higher economic growth, and higher tax revenues go hand in hand in hand.

But despite the evidence, what economic “doctrine” would Paul Krugman prefer? He wants to see tax hikes — big tax hikes. He recently said, “We should be getting 28% of GDP [gross domestic product] in revenue. We are only collecting 17%.” It doesn’t take much of a scientist to realize that he’s talking about increasing federal taxes of all types by about 65 percent on average. But if Krugman were more of a scientist — if he’d look at the evidence — he’d realize that it can’t be done.

Historically, federal taxes have never even taken as much as 21 percent of GDP — even though federal income tax rates have at one time topped 90 percent (from 1944 to 1953). So what tax rate would Krugman propose in order to collect 28 percent of GDP in revenues when even 90 percent rates won’t get revenues up to even 21 percent of GDP? Krugman Truth Squad member William Anderson reported on the VonMises Blog that Krugman himself once said that 70 percent income-tax rates are “insane.” So if rates even worse than insane won’t do it, what will?

Sheer faith, apparently.

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

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