How to out-Krugman Krugman

Josh Hendrickson (whose blog Dobbs Report you should be reading if you're not already) alerted me over the weekend to this New York Times article by Robert H. Frank, categorized as "Economic Scene" in the Business section. We're talking about the Times, of course, so we can't expect them to be "fair." Being "fair" would have required putting Frank's piece in the op-ed section.

I was a little busy with shopping and errands and never did get around to blogging about Frank. Meanwhile, Don Luskin today seized on Frank's socialist theme, and he exposed him for being yet another Krugman-esque hack who masquerades under the guise of actual economics. Luskin's takedown of Frank is one of those things you simply have to read for yourself.

While I'm nowhere near as familiar with Frank, his agenda is quite evident. What I find curious is that he actually goes beyond Krugman's typical socialist schtick. Krugman supports a heavily progressive tax structure (the second plank of the Communist Manifesto) that facilitates "the rich" supporting everyone else via big government social programs. It naturally fails to account for incentive, for how long will "the rich" continue to support the rest of society? Nonetheless, only this last March, based on his Keynesian pseudo-economics and revisionist history, Krugman justified higher taxes because, though it's not true, "President Clinton's 1993 tax increase ushered in an economic boom." But Frank justifies heavy taxes on "the rich" because, he all but directly says, it's for their own protection.

Higher taxes on "the rich" are for their own good? If you believe Frank, if "the rich" pay lower taxes, they risk a higher chance of dying from bacteria in undercooked beef, of having their expensive cars damaged by potholes, and of having our national security compromised by stolen nuclear stockpiles in Russia. The first is supposedly because there's less federal money to inspect meat, which doesn't preclude someone from cooking beef thoroughly. The second is supposedly because there's supposedly less money for road repair, but a "rich" person can more easily afford a new tire and alloy mag for a Porsche than a poor person can afford a tire and steel rim for an Escort. The third is supposedly because we've cut back on funding to secure Russian nuclear stockpiles. It's a real stretch, as if the other two weren't, and not just because a liberal is suddenly worried about U.S. national security. You could spend every penny of U.S. GDP and still not completely secure Russia's nuclear stockpile. Perfect safety does not exist, so it's perfectly sensible to cut back on spending when you gain nothing from it. I would have thought that Frank, who is touted as an economist, would understand trade-offs between spending and benefits, particularly at the margin. Maybe that's why he teaches only introductory economics.

And Frank ignores a basic fact: deficits are borrowed money, allowing a government to spend beyond tax revenues collected. What he's saying would be true if the federal and state governments stayed on budget, which they hardly ever do. Take my home state of New York as an example. The majority of state voters approved a $2.9 billion bond proposal for a great many transporation expansions and repairs. I opposed it vehemently, but its passage proves that even New York can still borrow money, if it offers enough interest.

Since I'm touching on government deficits and bonds, let's revisit something that Steve Conover explained last January. It is perfectly possible to neutralize your portion of the interest payments on the national debt. The more U.S. Treasury bonds you own, the more interest you receive that was partially coming from your taxes, and at a certain point you'll receive as much in interest as the portion of your taxes that pay the interest on the national debt. Then consider that it's overwhelmingly "the rich" who buy U.S. Treasury bonds, courtesy of their greater incomes. So Frank's assertion that the national debt falls more heavily on "the rich" is not necessarily true.

I have a keen interest in international trade, so one thing Frank wrote really got my attention. He claimed that "the United States' share of global patents granted continues to decline. Such cuts threaten the very basis of our long-term economic prosperity." Without having statistics in front of me, I'll just say right now that this also is not necessarily true. Beware of this time-honored way of skewing statistics. If I receive 100 patents in one year and 105 the next year, and everyone else receives 50 and then 55 patents, then my share has gone down as a percentage, but in absolute numbers I haven't lost ground.

And Frank had the foolishness to cite a Republican senator who is fearful and ignorant of international trade. Free trade brings prosperity, and even freer trade like NAFTA and CAFTA are a step in the right direction. When Domenici claims that "We're now on track to a second-rate economy and a second-rate country," is he speaking of the United States? Because if he's that clueless about the strength and resilience of the American economy, that alone is reason to get him out of Congress. Dr. Jagdish N. Bhagwati had two excellent pieces that explain why Americans have no one but themselves to fear: "Why Your Job Isn't Moving to Bangalore" and "Americans Manage to Convince Themselves They Are Underdogs."

Perhaps we should just take Domenici's prescription and impoverish ourselves. Protectionist economics may keep domestic wages high, but fewer people at home will be able to afford goods and services like before. About the worst thing politicians can do for the economy is enact protectionist policies during economic downturns: in addition to FDR's misplaced faith in government spending as a substitute for private consumption, the Hawley-Smoot Tariff was a major factor in exacerbating the Great Depression.

Now, focusing on Frank's overtly socialist agenda, no doubt he believes it's morally wrong that any single individual is able to consume more than anyone else, but the real immorality is when people consume more than others because the former have used the power of government to take (better termed "coerce" or "steal") wealth from the latter. This is the very "redistribution of wealth" that Krugman openly advocates, and for which Frank uses the euphemism "public investment." But as Jon Henke of QandO so well put it, "we don't have inequality in income—we have inequality in output. Some of us haven't been producing our share."

In Frank's world, how terrible a situation for anyone who has more wealth! Yet the reality is that greater wealth is as terrible as Brer Rabbit being thrown into the briar patch -- with the bonus that Brer Rabbit hired someone to throw him in. Look beyond the mere fact that someone bought more things of greater value: it necessarily means the supplier has earned more income, and the economy is greater than had the buyer only enough money for one rose, a cheaper car, etc. What is so wrong about people having the freedom, and thus the motivation, to produce more, earn more, and spend or save more? That is what Frank really thinks is terrible: the freedom to choose to earn, and the freedom to choose how to dispose of one's wealth. I was about to qualify "wealth" with "legitimate," meaning gained without the use of coercion and/or fraud, but socialists have completely distorted "legitimate" as they have many other words.

And most importantly, where does all the money go that "the rich" spend and save? To everybody else. "Trickle-down" does exist, folks, as I explained back in my second-ever blog entry. "The rich" do not sit on piles of money, or stick it where only other "rich" can touch it. Nor does it just "trickle down" to everyone else, because to everyone else is the only place it can go.

But, socialists claim, government spending is the same as private consumption, so there is no economic loss. First, they ignore the very real disincentive effect of higher taxes. Bruce Bartlett uses a conservative estimate of 20 cents lost for every $1 collected in taxes. As I've pointed out, that in fact is low compared to other estimates. Second, socialists (who these days hide behind the moniker "progressive") ignore the gross inefficiency of government spending. It's worth quoting Milton Friedman again: "...if I spend somebody else's money on somebody else, I'm not concerned about how much it is, and I'm not concerned about what I get."

It is the natural tendency of government to waste taxpayers' money. I'll say as I have before, that the problem isn't the lobbyists, but that governments exceed their Constitutional authority and thus generate special interest groups. We shouldn't be surprised that every $1 increase in Medicaid spending in the early 1990s meant the private sector could reduce its own spending by only 50 to 75 cents. We shouldn't be surprised that our public infrastructure costs so much to build to get so little, especially "expansions" the public wouldn't otherwise pay for. We shouldn't be surprised that Donald Trump fixed Central Park's Wollman rink at a fraction of what the city had wasted on nothing. And we shouldn't be surprised that we can't get rid of bad politicians, because we deserve such a fate for continually re-electing them.

One can only wonder what kind of world Frank thinks ours is, when he criticizes rich people thusly: "Wealthy families have further insulated themselves by living in gated communities and sending their children to private schools." Since when is it wrong to use your wealth to protect yourself and your family from the criminals with whom liberal politicians and liberal judges play catch-and-release? Since when is it wrong to want your children to receive a good education, at a safe school without bullies, troublemaking students that prevent others from learning, and bad teachers who get tenure because their unions lobbied city hall?

There's an old poem by Edwin Arlington Robinson, which my father taught me when I was little:

Richard Cory

Whenever Richard Cory went down town,
We people on the pavement looked at him:
He was a gentleman from sole to crown,
Clean favored, and imperially slim.

And he was always quietly arrayed,
And he was always human when he talked;
But sill he fluttered pulses when he said,
"Good-morning," and he glittered when he walked.

And he was rich--yes, richer than a king--
And he was admirably schooled in every grace:
In fine, we thought that he was everything
To make us wish that we were in his place.

So on we worked, and waited for the light,
And without the meat, and cursed the bread;
And Richard Cory, one calm summer night,
Went home and put a bullet through his head

Something makes me suspect that this is one of Frank's favorites, since he believes people must be protected from having greater wealth. Yet not all rich people kill themselves, and above all, Richard Cory still had the freedom to dispose of his own life (literally) as he saw fit, apparently without harming others.

Perhaps a little from Jefferson is in order?

The care of every man's soul belongs to himself. But what if he neglect the care of it? Well what if he neglect the care of his health or his estate, which would more nearly relate to the state. Will the magistrate make a law that he not be poor or sick? Laws provide against injury from others; but not from ourselves. God himself will not save men against their wills.

Nor will God save men from their wealth, however they use it. They must choose, and remember, it's the love of money that is the root of all evil, not money itself.

Well, after this review of Frank's bad economics, it's no wonder he lamented in the Times that "most students seem to emerge from introductory economics courses without having learned even the most important basic principles." If he teaches introductory economics with such convoluted logic as he displays in his writings, I can see how he'd get such an impression from his own students, and it wouldn't be their fault.