Third, Krugman's sweeping dismissal is not supported by arguments or evidence. Let us distinguish between two versions of supply-side economics. The broad version, which most American economists came to share in the late 1970s, is the view that the supply side of an economy--saving, investment, technological progress, and the size and productivity of the labor force--is what matters for output in the long run. Martin Feldstein, Krugman's and my boss at the Council of Economic Advisers (CEA) when Krugman was the international policy economist and I was the senior economist for health policy, is one of the best-known advocates of this view.
The narrow version of supply-side economics holds that high marginal tax rates discourage production by undermining incentives and that, therefore, when the government cuts marginal tax rates by X percent, taxable income increases and tax revenue falls by well under X percent. This was the view articulated by Arthur Laffer, Alan Reynolds, and other supply-siders during the late 1970s and early '80s. It is a view that Martin Feldstein shares, and it is the version of supply-side economics that Krugman ridicules.
Interestingly, some of the earliest evidence for this view was presented in 1980 by Jerry Hausman, one of Krugman's colleagues at MIT. The most systematic and careful evidence that Ronald Reagan's early-1980s cuts in marginal tax rates caused a huge increase in taxable income, thereby substantially offsetting the reduction in tax revenues, has been presented by Lawrence Lindsey. Lindsey was hired by Feldstein as the CEA's staff tax economist and was Krugman's and my colleague at the CEA during the 1982-83 academic year. Lindsey devoted his Ph.D. dissertation to the topic of Reagan's tax cuts once he returned to Harvard and wrote up his findings in the well-respected Journal of Public Economics. One signer of Lindsey's dissertation was Lawrence Summers, currently secretary of the treasury, who was also at the CEA during 1982-83. He is a man for whom Krugman generally shows much respect.
Yet Krugman mentions none of his present and past colleagues' respected academic work that supports the supply-side view. It's much more convenient for him to ignore their findings. In a 1993 article Krugman wrote, "Not all real-world questions are interesting--I find that almost anything having to do with taxation is better than a sleeping pill." Yet to appreciate the supply-siders' insights, you must delve into tax policy. Is it possible that Krugman has never taken the time to understand what supply-siders have to say?
Here's a challenge: I will give $100 to the first person who shows me anything close to a methodical examination by Krugman, written before August 1999, of the logic and evidence behind supply-side economics. You should know three things about me before you take the challenge: 1) I think I've read everything on supply-side economics that Krugman has ever written, 2) I'm a man of my word, and 3) I'm cheap.
Krugman seems to believe that the executive branch of government should have a lot of discretion in setting policy. After pointing out that the U.S. Congress refused to approve funds for a bailout of Mexico, Krugman writes: "Luckily, it turned out that the U.S. Treasury can at it its own discretion make use of the Exchange Stabilization Fund (ESF), a pot of money set aside for emergency intervention in foreign exchange markets. The intent of the legislation that established that fund was clearly to stabilize the value of the dollar; but the language didn't actually say that. So with admirable creativity Treasury used it to stabilize the peso instead."
Note his words luckily and admirable. Yet it is this same sort of discretion that, by Krugman's own admission, has often led the IMF to make things worse. Some of the best of Krugman's work supports the view, although he never says it, that discretionary government power is on balance bad. It's hard to read this book with an open mind and feel more confident at the end that giving lots of power to government officials is the best way to maintain economic growth.
Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time.
nfl jerseys|11.15.10 @ 2:29AM|#
jchzdggh
قبلة الوداع|8.16.11 @ 11:06PM|#
ThaNk U