Paul Krugman Is Selling Snake Oil

Forbes

Arguing with Zombies is the title of a new book by New York Times columnist Paul Krugman. Although the “book” is actually a collection of his newspaper columns, the title gives us real insight into the thinking behind those columns.

Who are the Zombies? And why argue with them?

Paul Krugman

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Zombies are economists who believe that every tax cut pays for itself with increased revenue. They believe that social insurance has created an army of welfare addicts who would rather live off the dole than support themselves. They hate the poor. They are closet racists. They do the bidding of billionaire puppet masters who pay their salaries and fund their research. Their goal in life is to make the rich richer and the poor poorer.

Where do you find these zombies? You can’t. They don’t exist. Like the creatures of fiction, they are the product of a vivid imagination. Krugman delights in creating straw men. He verbally beats them about the head and shoulders and then walks away thinking he has won the Golden Gloves.

But wait a minute. Aren’t there serious public policy issues over which economists disagree? Isn’t Krugman outside the mainstream on many of them? And on some issues, hasn’t Krugman’s been embarrassingly wrong?

The answers are: yes, yes and yes. But you won’t learn about any of that by reading Krugman’s columns. Or by reading his book.

What you will learn is that Krugman hates Republicans and hates economists who advise them. His specialty in trade is the argument ad hominem. He doesn’t just disagree with people; he psychoanalyses them. He attacks their character, their motives, their honesty and their morality.

But why attack Republicans? If we accept Krugman at his word, he cares about income inequality, racism and the lack of progress for people at the bottom of the income ladder. Republican politicians have very little control over any of that.

In virtually every large city in the country, minority families are all too often forced to send their children to the worst schools. They live in the worst housing. They endure the worst environmental hazards. And in virtually every case, these cities are being run by Democrats!

Of the two parties, Democrats are far more hostile to the science of economics than Republicans. The fact that so many Democrats are socialists shows how little regard they have for anything economists think.

The typical delegate to the Democratic National Convention thinks that if a price is too low, government should raise it and nothing bad will happen. If a price is too high, government should lower it and nothing bad will happen. With the right minimum wage, everyone would be upper-middle class. With the right rent control, everyone would be living in luxury housing.

As the saying goes, if you want to save souls, you need to go where the sinners are. But Krugman isn’t into saving souls. Like a fire and brimstone preacher, he’s into consigning the righteous to eternal damnation for minor peccadillos.

Although the Times bills Krugman as a Nobel Prize winner, what you get from a typical Krugman column is not economics. It’s propaganda. All too often, he highlights some facts and suppresses others – arriving at an analysis that no real economist would consider fair-minded. For example:

  • Reading Krugman on the Republican tax reform, you would never know that the Obama administration also favored a large cut in the corporate income tax; or that the purpose was to encourage capital to stay in this country rather than go abroad; or that since the tax bill was passed $1 trillion has been repatriated back to this country by U.S. firms.
  • Reading Krugman on corporate taxation, you would never know that both theory and evidence suggest that workers, rather than rich people, bear the burden of the income tax and that corporate taxes actually suppress worker wages both in this country and abroad.
  • Reading Krugman on Social Security and Medicare reform, you would never know that the U.S. government has an unfunded liability of $239 trillion – a figure that is more than ten times the size of our economy – or that 19 Nobel Prize winners have signed a petition asking the federal government to accurately account for this debt.
  •  Reading Krugman on income inequality, you would never know that OECD statistics show that the United States has the most progressive tax system in the world or that tax reform made the tax code even more progressive than it was.
  •  Reading Krugman on the minimum wage you would never know that the original purpose of this Progressive Era reform was to keep white Aryan males from having to compete with blacks, women and immigrants in the labor market.

Withholding material facts that readers have every right to know about is intellectual dishonesty. lf we were in a court of law it would be called fraud.

Here are a few more things you won’t learn from Krugman’s new book.

Paul Krugman is an unreconstructed Keynesian. He believes that federal government deficits have a strong impact on the economy but that monetary policy is weak and ineffective. In 2013, Krugman announced that Keynesianism and monetarism were being put to the test. If Keynesianism was correct, an increase in the payroll tax and restrained federal spending should have slowed the economy down that year. But if monetarism was correct, monetary expansion should have kept the economy right on humming.

The monetarists (especially the market monetarists) won that contest in spades.

Also, in 2013, we had another disastrous test of Krugman’s view of the world. That’s when North Carolina reduced benefits for the unemployed. Although Krugman’s  textbook says that unemployment (UI) benefits reduce employment by giving people incentives not to work, in the New York Times he advanced a weird Keynesian argument that UI benefits actually increase employment. When the unemployed spend their benefits they stimulate the economy, he wrote. Based on that analysis, he claimed that North Carolina was conducting a “war on the unemployed.”

It didn’t take long for these predictions to be completely discredited. Following the cut in UI benefits, more North Carolinians went back to work.

Although there are so many examples to choose from, I nominate the following candidate for Krugman economics at its worst.

Krugman has said over and over again, in column after column, that the Republican tax reform is a failure because companies are using their tax cut gains to buy back stock rather than to create jobs.

This error in reasoning would get an “F” in a freshman economics class and would probably get you kicked out of graduate school if you made it that far.

When companies buy back their own stock, the money doesn’t disappear. It goes out of one pocket and into another. In the new pocket it’s just as available to create jobs as it was before. When new funds enter the capital market they tend to find their way to the companies that have the best prospects for investment and job creation.

That’s the way it should be.

Finally, if you are thinking that Krugman has never met a Republican, you might be inclined to cut him some slack.

But it turns out Krugman actually worked in the White House during the Reagan administration. That means he knows the tax cuts weren’t devised by economists whose motivation was to make the rich richer. He knows his fellow economic advisors to the president weren’t puppets, doing the bidding of billionaires. He knows they weren’t closet racists. He knows they didn’t hate the poor. He knows . . . . well . . . he knows it all.