The intellectual bankruptcy of the left, part II
This post could also be titled, "Brad DeLong and the art of the stupidly flawed analogy."
Ever since Don Luskin started catching Brad DeLong in serious intellectual property violations (which I understand got DeLong in a wee bit of hot water with the University of California Regents), DeLong has tried to get back at Don any way he can. In fact, I recently discovered that he even smeared Don and me together. A supposedly intelligent Berkeley economics professor (though some consider the last four words together an oxymoron) evidently couldn't understand what Don and I were talking about. Well, that's what DeLong gets for acting like the rude schmuck you tend to encounter at cocktail parties, the kind who uninvitedly jumps into the middle of your conversation.
It's too bad DeLong's "intellectual garbage pickup" is more a revelation about his own inadequacies and hypocrisy. "And why beholdest thou the mote that is in thy brother's eye, but considerest not the beam that is in thine own eye? Or how wilt thou say to thy brother, Let me pull out the mote out of thine eye; and, behold, a beam is in thine own eye? Thou hypocrite, first cast out the beam out of thine own eye; and then shalt thou see clearly to cast out the mote out of thy brother's eye." (Matthew 7:3-5)
Today, DeLong resorted to an old trick: the flawed analogy. He tried to put Bush's tax cuts in a real-world situation, except that it's so oversimplified that it exceeds even DeLong's usual absurdity. I got the link via Alex Tabarrok at Marginal Revolution. I must say, with all respect to Tabarrok, that I'm really disappointed how a smart GMU economist fell for this tripe. Tabarrok also wrote that Bush's tax cuts are merely a "shift," when in fact (and I'll detail this later) they were tax cuts for everybody and a shift of the tax burden toward the upper incomes.
Let's take DeLong's entry a piece at a time. First, the federal government was not running budget surpluses of $200 billion per year. (Note his use of "running" to insinuate surpluses were the status quo under Clinton, when in fact deficits were falling just as much because of the Republican-controlled Congress.) The federal government has never had a $200 billion surplus, and telling that to American taxpayers is asking us to believe complete bullshit. Take a look at the Congressional Budget Office's own historical data, table 1. You might think the federal government had surpluses of $69.3 billion in 1998, $125.6 billion in 1999, $236.2 billion in 2000, and $128.2 billion in 2001. However, the federal government was not running surpluses that large, because the total revenues included Social Security taxes.
The Treasury by law is required to "borrow" Social Security surpluses, so those revenues are negated by the fact that we must pay them back in the future. The federal government actually had a $29.9 billion deficit in 1998, a mere $1.9 billion surplus in 1999, an $86.4 billion surplus in 2000, and a $32.4 billion deficit in 2001. It's just more hypocrisy from liberals because, back in the 1980s and early 1990s, Democrats liked to use Social Security taxes to mask how bad the budget deficits really were. Today they're suddenly deficit hawks, though you could bet they wouldn't make this criticism if John Kerry wrecked the budget and national economy with universal health care.
Second, what warped universe does DeLong think he exists in, that he maintains it's fair for two people to consume different resources (going to lunch) yet split the cost equally? The truly fair thing is to let each pay for himself. However, we are, after all, dealing with the socialist mindset. When DeLong then suggested that one should pay more than the other, as an avowed Marxist, what he's really saying is that it's fair not because that person consumes more, but because that person makes more money. That's quintessential modern liberalism for you: let everyone else create the wealth, and use the coercive power of government to take more than what you put in.
Third, DeLong's analogy is simply stupid for claiming that the wealthier of the two pays $5 out of a $20 tab, and the other guy goes into debt for $15. Let's even play his game and assume the ludicrous idea of borrowing $3 for every $1 spent. Now, how do we pay the interest on government bonds? With taxes. And who pays the bulk of taxes? "The rich." So why is it so hard for DeLong to connect points A and B, and realize that "the rich" will pay most of the borrowed money? The NCPA broke it down so well, using the IRS' own data: "The top 25 percent of income earners pay nearly 83 percent of the income tax burden, and the top 10 percent pay 65 percent. The top 1 percent of income earners pay almost 35 percent of all income taxes."
But let's put it in a Sesame Street-simple picture, complete with colors so that even a Berkeley economics professor can understand. Econopundit Steve Antler provided a couple of graphs a long time ago that showed effective tax rates for each tax quintile. You don't need to hold up a micrometer to your computer screen to see that each quintile got a very even tax cut. George W. Bush's tax cuts put more money into the pockets of the rich, yes, but also into everyone else's pockets. At the same time the tax burden shifted more toward the rich. The rich don't mind, however. Though they're paying more in taxes, their after-tax income is higher than before. The Laffer Curve rides again.
Fourth, DeLong's analogy is oversimplified and assumes the two diners are merely consumers. Have we walked blindly for the last 150 years, that we've forgotten Bastiat's clear lesson that "Man produces in order to consume. He is at once both producer and consumer"? Apparently DeLong never learned that. (Hint, Brad: less Keynes, less kissing Krugman's ass, and more Bastiat.) Once we realize what Bastiat was saying, we also realize that incentive is the key economic force that DeLong omits. That's a natural thing with Keynesians, though.
When the wealthier of the two diners realizes that he's picking up most (if not all) of the tab, whether he pays it now or pays the credit card later, he'll want to produce less. When the other diner realizes that he doesn't have to pay much (if anything), he won't want to produce much either. We could delve into tax rates and other parts of the real world, but those can't fit into DeLong's analogy either. I'm suddenly reminded of Krugman's laughable attempt to reduce an economy to a single equation. The two of them embody the joke about the physicist's chicken processing machine that assumes a spherical chicken.
Fifth, like any bad economist, DeLong deals with the absolute numbers, rather than the proper way of comparing the budget deficits against GDP:
Today we're running a deficit of $300-$400 billion a year. Relative to what would be a sane, reality-based, and appropriate fiscal policy, the Bushies are putting $500-$600 billion this year on our collective national credit card.Our friend Steve Conover regularly emphasizes the necessity of comparing budget deficits to the economy. It's the only way to go. A $600 billion federal budget deficit seems enormous, but it's 4.6% of our $13 trillion economy. Also, does DeLong bother to read the latest news? Via our friend Josh Hendrickson, the Wall Street Journal reported that the CBO "now expects that the 2006 deficit will be significantly less than $350 billion, perhaps as low as $300 billion." In fact, then, we're talking about a budget deficit between 2.3% and 2.7% of GDP. If you look at the CBO data again, we had far, far worse in the 1980s, when the Democrats controlled both the House and Senate. Were were liberals' complaints then about runaway Congressional spending? I guess it doesn't apply when they're running things.
That bill will come due: somebody has to pay it. To pretend that it won't--to pretend that you can talk about the progressivity of the burden of paying for the federal government without talking about the long-run incidence of the national debt--well, that would be the equivalent of me telling Dariush that only cash matters: that when we talk about who paid for lunch, we should count only cash put down now, and we shouldn't count the fact that his credit card bill will show an extra $15 due next month.At last, DeLong resorted to a strawman. We supply-siders simply don't pretend that no one will have to pay the debt. What we do say is that if the economy grows faster than the debt, it's fine. If I get a 5% raise, I can more than afford a 4% increase in my annual debt service payments. As far as the "long-run incidence" of who's paying off the debt, well, I already addressed that. Even if we pass the debt on to our children, they'll be wealthier than we are and even more capable of paying it off.
Finally, and it's somewhat unrelated, DeLong said "what we do to our lecturers is shameful." As I've asked before, if your compensation isn't enough, why do you work there? Is someone holding a gun to Berkeley lecturers' heads?