Semi-Daily Journal

I agree that it is just ignorance and stupidity.

Donald Luskin, Steven Moore and Larry Kudlow would all be well-served to take a semester off their day jobs and go sit in on Marty Feldstein's Ec10 class.

I can't believe that the National Review gives these guys column space! Jonah Goldberg, Kathryn Lopez these are not exactly the founding members of a chapter of MENSA but these econ guys are far more terrible by comparison.

Luskin in particular writes like a sixth grader. His 'takedowns' of Krugman are so adolescent that I often find myself struggling to stop giggling like a teenager myself. If Arnold Kling finds NROs politics tolerable, he should immediately send his resume and a writing sample to Rich Lowry and demand a change.

As I said in another thread, no purpotedly serious national publication should allow a guy like Steve Moore to ask that a guy woring in a bank in Chicago be picked over Greg Mankiw to give economic policy advice for this country. I thought that was NRO's low point, until they let the Inspector Clouseaus of the Krugman truth squad (sorry for the insult Clouseau) on their pages.

Larry Kudlow and friends would come out of Marty Feldstein's class precisely as they came in. The attacks on Paul Krugman's articles are not a measure of incompetence, rather the reverse. These attacks have an agenda that is both to bolster this Administration, and to reverse social and economic gains made since the New Deal.

That is the point of the National Review. The Review writers are still smarting about Social Security, Medicare, Medicaid, Civil Rights Expansion, and on and on. There is no mistake by the Nationaal Review\, just a radical social and economic agenda.

Please, please, please. The National Review writers are smart as smart can be. They have been and are mere propagandists.

Can you imagine Marty Feldstein correcting Larry Kudlow and defending Paul Krugman? What a laugh. Marty Feldstein's economics are the economics of this Administration.

Good post. I used to watch Kudlow and Cramer when it first came on CNBC. They were lively, funny and seemed to be enjoying the opportunity to interview all kinds of economic folks especially financial writers. As the war got closer and closer, the program got more strident, shrill and just plain ugly. I dunno what happened to those guys. I miss them.

Bruce Bartlett, Lawrence Kudlow, and Stephen Moore have been lying to us for a generation. Kudlow is especially bad as his lie on Thursday will directly contradict his lie from Monday. But the real prize goes to Victor Canto who wrote in 11/25 piece that fiscal stimulus does not push up real interest rates per his discussion of Ricardian Equivalence. He forgot, however, that Ricardin Equivalence holds that unfunded tax cuts do not fool anyone and does not increase consumption. But on 11/15, he claimed the tax cuts DO increase consumption. So I wrote the National Review noting this direct contradiction. You can read Canto's 11/15 piece at www.nationalreview.com but somehow his 11/25 piece disappeared from the Canto archives.

Look - folks have pointed out to the National Review that their 'economists' lie and that their lies are obvious. But they continue to allow these folks to continue to write. One would think the National Review to demand either honesty or at least better liars. I really hate saying anyone lies because some people make honest mistakes. But Bartlett, Canto, Kudlow, and Moore are not that stupid. They are just assuming their readers are.

What exactly is Donald Luskin's skill level in economic analysis -- undergrad, graduate, etc.? I am just wondering for the sake of knowing.

"Don attended Yale in 1974, and dropped out after one year to pursue his career. He is a die-hard libertarian, and devotes a great deal of energy to staying uninvolved in politics."

http://www.informedinvestors.com/iif_forums/client_capsule.cfm?companyID=706

Proof again that Brad Delong has a good heart and gives the opposition the benefit of the doubt.

Mindlessness over mendacity at the National Review?

Incompetence over deliberate, ruthless, evil destruction of the Federal government's revenue base?

The persistence of the stupidity is the remarkable thing. Isn't stupidity self-corrective at some point? Or is the stupidity of ideologues a one way road to hell?

I don't think I've ever seen anything like the sight of Norquist, Moore, Kudlow, Bush et al. reveling and smirking as they pound their stupidity and mindlessness through the Fox airwaves, just to mention another example of mendacity.

It's the smirking that gives away the mendacity and the evil. "Evil" being a word I picked up from .... Norquist, Moore, Kudlow, Bush et al. over the past 15-20 years in case anyone has a problem at this late date using the word in political discourse.

Krugman wrote, "The average American worker earns only about $40,000 per year; why does the administration, even on its own estimates, need to offer $500,000 in tax cuts for each job created?" Presuming the jobs are less ephemeral than one year, then isn't it inaccurate for Krugman to juxtapose one year of wages per job created with the tax cut cost over 10 years?

Marty Feldstein is an unabashed conservative but Marty Feldstein is also a exceptionally well-respected mainstream economist. The econ writers at NRO (Kudlow Moore and the sad-sack Luskin) have a terrible understanding of mainstream economics and could use a few lessons: these lessons should come obviously from their own side since they would never dare listen to anyone else. As I said before, I will never understand why a magazine that wants to be influential, even among the pon-pom waving fans of their own side of the aisle would give three weekly economics columns to these three nutjobs.

Okay I better stop. i am beginning to sound like David Thompson. Next thing I know I will be ripping on these people's ancestors.

Be it Resolved: The Economic writers employed by the NRO and Fox News are overwhelingly mendacious, malicious propagandists, and have consistently proven this point through years if not decades of fealty and service to the dangerous dogma of the RNC & Repuglicans. What ever the RNC tells them to peddle, it's the next greatest thing, what ever the RNC says to attack is a danger to our very American way of life. It's been this way for at the very least 25 years. As dear Abby used to say: 'Wake up and Smell the coffee', or in this case the cant and propaganda.

If there are 'honest' conservatives out there doing economic commentary, they seem to be currently under employed or else are all out of favor Democrats. Show me a *real* honest fiscal conservative, and I'll show you someone who must miss Clinton and his economic policies dearly. That does not describe ANY right wing or 'conservative' media outlet or their economic analysts that I'm aware of.

Thought I'd let you know that -- when I alerted Brad DeLong to Dwight Meredith's column last night -- I also alerted Luskin himself to it and the CEA report (giving him the URLs of both), and got the following response:

"My critique of Krugman's lies has nothing whatsoever to do with whether the CEA report is accurate, or whether it even exists. I have no stake in trying to prove the CEA is correct, or even internally consistent. I am not their defender. However just out of sheer curiosity I'll see if I can determine what is going on here."

In short, he's saying that he didn't READ the CEA report before saying in National Review that it "doesn't give specific estimates beyond 2004." (Not a word from him to me today; it's about time I enquired further.) Of course, if so, this is every bit as honest as his weird hat trick in that same column -- in which he suddenly switched from dividing the tax cut by the number of jobs it would create, to dividing the tax cut by the number of "man-years" of work it would create, in order to try to make Krugman look worse, while hoping that no one would notice. In short, while I still have serious doubts about Krugman's own honesty in his original column, compared to Luskin he looks like George Washington.

Parenthetically, though, I have to admit that I haven't been surprised by anything National Review does since I started reading it in 1970. From 1969 through 1979, one of their superstars was a psychotic U. of Colorado anthropology professor named John Greenway, who was fond of raving about "the truth of nihilism" and the facts that "the only morality is that which conduces to the preservation of one's own group", that all opponents of slavery during the Civil War were guilty of "etiolated puritanism", and that the central figure in Susan Sheehan's book "A Welfare Mother" was a "mongrel dam of mongrel spawn". NR headlined his first appearance in the magazine ("Will the Indians Get Whitey?") with the approving comment that it said that "American whites didn't exterminate the Indians, but they should have" -- and in its next issue, sneered about the silly liberals who "can't understand a joke when they see one". Believe it or not, the magazine is much BETTER now than it was in the days when William Rusher (who, at the time, was advocating making George Wallace Vice President) was both publishing it and serving as its real editor in chief (which Buckley had stopped doing in the late 1960s in everything but name).

Luskin writes in NRO:
"Krugman's theory asserts that there would be no more jobs beyond the 1.4 million created in the first two years of the Bush plan (I don't agree with that, but let's stipulate it). While there would be no more jobs, he never asserts that those initial 1.4 million jobs will vanish at any time over the then years of the plan. They will be there generating $40,000 wages each year for ten years. So we still have to divide the ten-year cost of the tax cut by ten, because those jobs will be around for ten years."

As I understand it, Luskin's analysis is wrong for the following reason: AS SOON AS WE ARE OUT OF THE LIQUIDITY TRAP THE PRESENCE TAX CUTS MAKE NO DIFFERENCE AS TO WHETHER THOSE 1.4 MILLION JOBS EXIST THEREAFTER.

To see why here's a thought experiment:

Let's assume for the sake of argument that we are out of the liquidity trap in one or two years and for the sake of argument that by then the tax cut has created 1.4 million jobs. You have two choices.

(1) Repeal the tax cut. Thereafter, we let expansionary monetary policy maintain the 1.4 million extra jobs and create any new jobs until we have the unemployment rate that the Fed desires. Notice that, in the years after the liquidity trap is over, those 1.4 million jobs remain although the tax cut is gone.

(2) Keep the tax cut in place. However, the Fed will match this choice with forgone interest rate cuts or interest rate hikes. The Fed will conduct a monetary policy that maintains those 1.4 million jobs and create new ones until we have the unemployment rate that the Fed desires. So those 1.4 million jobs remain with or without the tax cut.

Just to make it crystal clear, let's put it together: In the years of the liquidity trap, under our assumptions, the presence of the tax cut creates 1.4 million jobs. After the liquidity trap the presence of the tax cut not only makes not only no difference in job creation, it makes no difference as to whether those 1.4 million jobs still exist thereafter.

Therefore the 1.4 million jobs can be attributed to tax cuts ONLY IN THE YEARS OF THE LIQUIDITY TRAP AND NOT AFTER THE TRAP ENDS.

Am I missing something?

And assume that the 700,000 total jobs created over five years (above what would have happened otherwise) figure is correct, with 1.4 million jobs created in the first two years (lowering job creation over what it would have been in the latter years). So (assuming things move gradually), in 2004, there are 1.4 million jobs more than there would be otherwise. In 2005, there are only 1.16 million more. In 2006, .93 million more. In 2007, 700,000 more. Even assuming the effect completely disappears in 2008, that's 4.2 million job-years added.

So in the worst case spin on the CEA numbers, Krugman's figures are off by a factor of three, as he assumes only 1.4 million job-years added. No matter how much hyperbole Luskin threw at the matter, he did indeed catch Krugman with his pants down -- especially embarrassing because the real numbers seem to support Krugman's position, only not nearly as drastically as he claimed.

"Incompetence over deliberate, ruthless, evil destruction of the Federal government's revenue base?"

Oy, vey! It's not the federal government's money. It's The People's.

The overwhelming majority of federal spending is for programs that violate the Constitution (e.g. Social Security, Medicare, the War on Some Drugs, agricultural subsidies, etc. etc.) , so the federal government has no legitimate claim to the taxes to pay for them.

Bobby:

Two comments. Your last post actually make this more complex that need be. Regardless of the shapes of IS and LM curves (as in liquidity traps etc.) the economy will get back to full employment eventually - with or without fiscal stimulus. The only long-run impact of fiscal stimulus is therefore to reduce national savings and investment = less capital per worker.

You also asked about Luskin's economic training. Luskin dropped out of college during his first semester as an undergraduate. Having read some of his writings - this was a wise decision as his skills as an economist are quite weak. But Luskin was one of those 250 'economists' who signed the Republican economist letter. Another was Ben Stein. I would put up the credentials of Robert Solow and Paul Samuelson any day over those of Luskin and Stein. The latter seems to be a nice fellow but he's a comedian not an economist.

Bobby,

You assume that the 1.4 million job creation is ephemeral (since the job creation is only pertinent during the liquidity trap) and that inevitably a tax hike or contractionary monetary policy will occur in the liquidity trap aftermath. Using these assumptions, you conclude that the job creation spawned by the cuts is only relevant during the liquidity trap. This conclusion seems consistent with your assumptions. However, your assumptions also argue against using the *10 year* cost of the tax cut. Using your assumptions, I think the cost of the tax cut is only pertinent during the liquidity trap since the post-liquidity trap tax expense will be nullified by either the tax hike or the contractionary Fed (that increases the value of the extant money supply). So we've returned to the gratuitious debate of whether or not Krugman made an arithmetic error in juxtaposing the 10 year tax cut expense with a single year of wages from job creation. Anyone's thoughts?

achilles

Enjoy your posts....

Martin Feldstein is a fine economist who wishes the New Deal had never happened. Feldstein supports Administration fiscal policy completely, and hopes it will lead to radical changes in Social Security, Medicare, and Medicaid. I say, foooooy Martin....

http://www.wws.princeton.edu/~pkrugman/fiscal.html

FISCAL POLICY AND EMPLOYMENT: SIMPLE ANALYTICS
By Paul Krugman (4,28/03)

Here is a wonderfully simple graphical explanation of the tax cut-employment problem.

>>However, your assumptions also argue against using the *10 year* cost of the tax cut

Absolutelydutely not. The baseline for the job creation is "jobs which will exist with the cut, minus jobs which would have existed if there was no cut", while the baseline for the fiscal impact is "government debt which will exist given the cut, minus government debt which would have existed without the cut". The fact that the first is a 2003-4 story only while the second goes on for ten years is Bush's problem, not Krugman's.

>>I think the cost of the tax cut is only pertinent during the liquidity trap since the post-liquidity trap tax expense will be nullified by either the tax hike

What tax hike? The budget proposal does not include any provision for a tax hike once unemployment begins to fall. You /may/ be trying to make an argument about dynamic scoring here, but if you are, you ought to be much more clear that you are doing so.

>> or the contractionary Fed (that increases the value of the extant money supply).

Anything which "increases the value of the extant money supply" also increases the value of government debt and the value of the projected tax cuts and so is a wash for these purposes.

This guy is guilty of false advertising; I very much doubt that he is an economist and I also doubt that he is able to read mail addressed to economist@economist.com

Anne:

Thanks for the link showing Krugman's AD-AS diagrams and his explanation, which indeed was quite simple. Note - Krugman does not need to talk about the shapes of IS and LM curves (as in liquidity traps). The simple point is that no aggregate demand policy can push us permanently beyond full employment. If long-term fiscal stimulus leads to less savings, then it will reduce capital accumulation and lower (not raise) long-term growth. All economic models that I am aware of agree with this point as all economic models start with the premise called the law of scarcity. But then the President's CEA must think they have repealed the fundamental premise of all economics.

"This guy is guilty of false advertising; I very much doubt that he is an economist and I also doubt that he is able to read mail addressed to economist@economist.com"

Ah! I so love that British understatement.

Hal is right about the long run. But is the long run here by end 2004? My comment addresses the end of Luskin's column ( http://www.nationalreview.com/nrof_luskin/luskin042503.asp ). I really think my comment is necessary to address the "ten year instead of two year" mistake that Luskin is making.

Economist, I would agree with you if only the Bush administration weren't selling the entire ten-year program as the job creator. There wasn't any error whatsoever on Krugman's part.

" If it's all about jobs, wouldn't it be far cheaper just to have the government hire people?"

The above from Krugman came just after he mentioned two numbers: $40K and $500K. Would any of the Krugmaniacs care to tell me just exactly what that number would be that is "far cheaper"?

Patrick, Are you asking whether $40k is less than $500k?

I double checked my math, and I can assure you that it is.

Patrick,
The answer to your persistent question-$40k.
Lawrence

I was actually asking more about Donald Luskin's skill level in graduate or even undergraduate economics. Surely a drop-out can learn undergrad economics by reading enough economics textbooks. I'm far less sure about graduate economics. I am just trying to see if this guy knows anything about economics.

I agree that Donald Luskin's articles for the public display almost no knowledge of economics whatsoever. Here's a passage from Luskin's own NRO piece where he attacks the Krugman Followup at http://www.pkarchive.org/economy/042203Follow.html:

"What follows is a hilariously complicated theory involving the role of the Federal Reserve and various other abstruse elements, leading to the conclusion that the 1.4 million jobs created in the first two years of the Bush plan are all the jobs there will ever be."

http://www.nationalreview.com/nrof_luskin/luskin042503.asp

The only thing that's hilarious is that someone who claims to be an economist would characterize this is "complicated" and "abstruse." This guy also advocates the gold standard.

Bobby is absolutely right. What we need is for the government to provide jobs to aid the economy as it structurally adjusts. The means of production should not be in the hands of the private sector where profiteers can exploit the masses and resources are allocated inefficiently while wealth accrues to a minority.

Joseph,

At no point in this thread did Bobby seem to say anything that could be characterized as "The means of production should not be in the hands of the private sector where profiteers can exploit the masses"

Having such a hard time rebutting Bobby that you have to make up arguments? I wonder who sent you here................

achilles is right. I'm actually very a very pro-markets guy, and I disagree with the sentiments that Joseph attributes to me. We're talking about aggregate demand, not structural stuff. Sorry Joe.

To Sol (Apr. 28, 9:07 AM): No, he didn't. Both Krugman and Luskin, when they try to calculate the yearly amount in foregone tax revenue necessary to create each $40,000-yearly (average) job, just refer to "jobs" rather than "job-years" and don't take into account the durations of any such new jobs. They don't try to calculate the amount of yearly tax revenue that must be foregone for each job-year instead -- except that Luskin, halfway through his original NR piece, suddenly and without explanation switches to using job-years instead as his quotient in the division while pretending he hasn't, in a ridiculously obvious fraudulent attempt to make Krugman look worse. (By the way, I also still haven't gotten any explanation from Luskin as to why he also said in that piece that the CEA report "makes no predictions beyond 2004", when it does in two places -- except that he's confirmed to me that he hadn't read it at all when he wrote that article.)

Bobby, sorry for misconstruing your remarks. I used the word "structural" because I fear the recession could be secular and markets will not adjust to their long-term potential whereas you foresee a return to equilibrium in 2 years. Where I seem to disagree with you is that I feel corporate malfeasance and a Bush-created deficit that cultivates higher interest rates could make more drastic action necessary to rescue the economy.

"Where I seem to disagree with you is that I feel corporate malfeasance and a Bush-created deficit that cultivates higher interest rates could make more drastic action necessary to rescue the economy."

I don't disagree with you on that last sentence. I definitely don't disagree as to whether either of those effects occur. As to the size of the effects you are discussing I will trust whatever DeLong, Krugman, Brookings, etc. have to say about it (since I'm not qualified in this area myself).

Post script to Sol: I just did the actual "job-years" calculation. The CEA report (www.whitehouse.gov/cea/cea_growth_package_macroeconomic_effects.pdf) says (on both pgs. 6 and 7) that 510,000 jobs would be created in 2003, and 890,000 in 2004 - but that the average number of jobs created per year in the cut's first 5 years would be only 140,000, which means it's saying that it would DESTROY an average of 233,000 jobs per year during its third through fifth years.

So, if you do assume that the tax cut neither creates nor destroys any jobs during its sixth through tenth years, this comes down to a net creation of 8.22 million job-years (at $40,000 per job-year)-- at a cost of $88,300 per year in lost tax revenue for each $40,000 job-year it creates.

As I say, not much of a bargain.

Postscript to Sol: I just did the actual "job-years" calculation. The CEA report (www.whitehouse.gov/cea/cea_growth_package_macroeconomic_effects.pdf) says (on both pgs. 6 and 7) that 510,000 jobs would be created in 2003, and 890,000 in 2004 - but that the average number of jobs created per year during the cut's first 5 years would be only 140,000, which means it's saying that it would DESTROY an average of 233,000 jobs per year during its third through fifth years.

So, if you do assume that the tax cut neither creates nor destroys any jobs during its sixth through tenth years, this comes down to a net creation of 8.22 million job-years (at $40,000 per job-year)-- at a cost of $88,300 per year in lost tax revenue for each $40,000 job-year it creates.

As I say, not much of a bargain.

I seem to be making a habit of accidentally posting twice.

Conversely, if you assume that those two references in the CEA report ARE typos -- and that it actually meant to say that that an average of 140,000 new jobs per year through the 2005-2008 period, rather than the 2003-2008 period -- and if you also assume that it will continue to produce new jobs at a rate of 140,000 per year during its second 5 years, then it would create a total of 20.356 million job-years, at a cost of only $35,700 in yearly tax revenue foegone to create each $40,000 job-year. A considerably better bargian -- which means that the whole question does come down to whether those two references in the CEA report are typos.

Max Sawicky joins the fray, with a pox on both their houses.

http://www.wws.princeton.edu/~pkrugman/decade.html

In the comments section, he also wonders about this statement, near the end of P. Krugmans's second explanation:

"You may argue that tax cuts are good for some other reason - say, that they have a supply-side effect, increasing potential output (that is, shifting LRAS to the right.) But aside from the fact that independent economists - even the hand-picked head of the CBO - don't agree, that's playing dirty: if it's about jobs, it's about jobs. "

And Max points out that supply side effects that shift the Long Run Aggregate Supply curve to the right is pretty much what Luskin is talking about, and which could increase jobs, productivity, or both. If Krugman agrees that a supply side tax cut has the theoretical possibility of increasing output and jobs, why is it playing dirty to argue that? And why am I parroting Max's arguments? Am I worried that you folks won't follow the links, or is it that I have no original ideas of my own?

Good point - I had posted on this myself, and actually picked up a minor point Max offered, about employment surprises in the 90's. But I had actually concluded that, on balance, P Krugman was rrrii... rriiii.... oh, not as wrong as Luskin.

The CEA report admits the possibility of supply side effects, but does not attempt to estimate them. The 1.4 million figure which folks have hashed over here does seem to be ephemeral, although not in exactly one year, as the understated Krugman column presented it. So Luskin comes in for a little bit of subtle criticism by Max.

However, Luskin is relying on supply side effects that the CEA does not attempt to estimate, and Krugman admits that the possibility exists. Sawicky assures us that, in some of the CBO models, the supply side effects are worthy of note.

Where I come out on this is, you can't take the CEA report and divide by ten to adjust for job years. But you probably shouldn't be dividing by one, either.

And the follow-up assertion by P. Krugman that "no serious economist thinks that a tax cut or spending increase will have any effect on employment more than a couple of years from now." seems to be contradicted both by some of the CBO models and his own statements.

Links:

P Krugman website x 2

http://www.wws.princeton.edu/~pkrugman/decade.html

http://www.wws.princeton.edu/~pkrugman/fiscal.html

>>then it would create a total of 20.356 million job-years, at a cost of only $35,700 in yearly tax revenue foegone to create each $40,000 job-year. A considerably better bargian

Not really. As I pointed out on the thread that Sullivan appears to believe is in the memory hole, a worker with a $40K salary pays $7,000 in federal income taxes alone.

"Therefore the 1.4 million jobs can be attributed to tax cuts ONLY IN THE YEARS OF THE LIQUIDITY TRAP AND NOT AFTER THE TRAP ENDS."

I'm not getting into the job numbers because I'm not happy about any of the methodologies being used, but I think Bobby has got the point: hooray!!

"What tax hike? The budget proposal does not include any provision for a tax hike once unemployment begins to fall. You /may/ be trying to make an argument about dynamic scoring here, but if you are, you ought to be much more clear that you are doing so."

Well, Bobby may not have been, but I am. Read the Krugman "oops its back......" article. This is all about expectations and dynamic inconsistency. The only serious way that's being proposed of convincing people that there might be inflation is to convince them that a government with large debt problems will be more lenient with it than a discretionary central bank would be (since they want to burn-off the capital value).

Changing our expectations is what it is all about. Of course once we twig that and they cotton on to this which way we go is anybody's guess. This could get interesting.

What was I not clear about?

By the way, in my comment I'm assuming that we get out from near the liquidity trap for no particular reason except that forecasts say so, and I am not assuming any managed inflation. In my revised version I say:

"Please do not fail to note that the time when the trap ends is exogenous to this model and, here, is independent of whether or not a tax cut is passed. Indeed Krugman says, "Now most forecasts presume that we'll be out of the trap by next year - that is, before most of the supposed job creation from the tax cut takes place. Even if you're more pessimistic than that, we're probably looking at only 1-2 years when fiscal policy creates jobs." I am assuming that these forecasts do not assume this tax cut which has not passed yet. Anyway, sorry if I botched or misinterpreted any of this."

So if you accept the predictions that we will be out of the trap within a year or two without managed inflation, why would we want managed inflation after the trap is over? Is it that you don't accept the predictions (which is fine with me)?

Maybe I am misinterpreting you words.

Bruce: The only difference between your calculation (8.2) and mine (4.2) is that I assumed there was no benefit to jobs post-2008. (Note that jobs are not destroyed in 2005-2007, their creation time was simply moved up to 2003-2004.) I agree (as I said in my original post) that by this calculation, the tax cut does not appear to be worth it.

However, as pointed out in a comment on Kling's blog, the entire wages versus tax cut comparison is complete BS. It factors in nowhere near the full costs and benefits on either side of the equation. Krugman should be embarrassed for having suggested it, and we should be embarrassed for arguing like it meant something.

Reading Donald Luskin versus Krugman, Delong, PLA, Bobby, et al has the same the squirm-inducing cringe factor as the the infamous Slate dialogue between James Glassman and the editor from the Economist, where it was discovered that the root of the "Dow 36000" thesis was a simple double-counting error. The fella is *so* over-matched.

I don't think Luskin or his fans are interested in honest discussion, but in case they are, here is one more attempt at education by analogy (borrowed from Krugman's '97 article "Vulgar Keynesians". It's somewhat amusing that Luskin and Galbraith are fighting on somewhat the same team)

Imagine there's something wrong with your car, so you're only able to drive 20 miles under the speed limit. If you're goal is to increase the speed of the car up to the speed limit (full employment) but no further, the Bush tax cut (or other fiscal stimulus) is analogous to creating a down-hill slope or a tail-wind so that you can travel faster even if the car is damaged (so the Bush tax-slope "creates miles", or "creates jobs"). But once the car is fixed, you can achieve full speed even without a down-hill or a tailwind, so that whatever "stimulus effects" of a down-hill tailwind will be offset by the driver (Fed) slamming on the brakes in order to avoid exceeding the speed limit. Thus the Bush tax-slope "creates miles" only as long as the car is damaged, and below the speed limit (i.e. the economy is in a recession).

Now Luskin is basically arguing "Even the lying, ass-covering bastard Paul Krugman agrees the Bush tax-slope "creates miles" in the first year. So after one year *Where do those miles go*, Herr Professor? Is Slugman, the clever hobbit who knows so very much, really arguing that the car mysteriously slows down after one year, for no apparent reason? This is all sophistic, tendentious bullshit to cover up the fact that The Partisan One is a liar, liar, liar who deliberately lied in the NY Times. And he would have gotten away with it, too, if it hadn't been for us meddling Libertarians"

Now people like Galbraith, D-squared disagree with the economic mainstream in that they either think the conventional speed limits are set way too low, or disagree with this simple model/analogy in countless other sensible ways. But Luskin et al are not simply disputing the model's parameters or frame-work: they haven't understood it. And they are brandishing their lack of comprehension in a most irritating way, claiming the Krugman says the Bush tax-cut creates 1.4 million jobs, which promptly vanish at the stroke of midnight after a year. (last try: the *jobs* don't vanish, but the *job-creating effects* of the tax cuts, or other fiscal stimulus, disappear after the economy recovers).

I basically think these types of arguments are useless at changing people's minds, but I couldn't help myself.

Roublen,

The argument Lufkin is probably making is that the job creation stems from a shift in the long-term aggregate supply curve due to (1) increased capital formation from a lower corporate cost of capital due to the elimination of the double taxation of earnings, and (2) greater efficiency in capital structure since debt is no longer tax advantaged over equity. You know as well as I do that this is mendacious gewgaw, but technically Lufkin is correct in presuming secular job creation using these questionable assumptions.

It's actually Luskin not Lufkin (no association with Donaldson as far as I know). When I heard of him a few weeks I thought he was that guy too.

I think no association with Jenrette either

I notice that achilles has reversed himself by answering the call put out to Krugmaniacs, but that's not the only unintentionally amusing part of his response, which was:

" Patrick, Are you asking whether $40k is less than $500k?". Which was seconded by:

" Patrick,
The answer to your persistent question-$40k.
Lawrence "

Which I hope GT is reading for the implicit argument that spending is only temporary, but tax cuts are permanent.

Unfortunately for both, I have not forgotten at all d squared's earlier post in which he (subtracting $7k in personal income taxes, but ignoring the foregone business tax revenues lost due to the absence of production by the 1.4 million lucky duckies) put the figure at $330K per job:

" the federal government could hire 1.4 million people to sit on their arses on $40K salaries for ten years (cost roughly 40 - 7 * 1400 * 10 = $462bn)"

Would you gentlemen care to argue who is off by a factor more than 8?

This was your post

"The above from Krugman came just after he mentioned two numbers: $40K and $500K. Would any of the Krugmaniacs care to tell me just exactly what that number would be that is "far cheaper"?"

Now somehow I was supposed to infer from this that you were asking me to check the math on some post that D^2 made?

Anyway I did since you asked. And in about 15 seconds I realized he was right and you are really embarassing yourself now. $33,000/yr * 10 years is $330,000. $330,000 * 1.4 million IS $462 billion. YOu just tripped up because he wrote it as (33*10)*(1400) [my parenthesis use to illustrate your error] forgetting that both
terms in the parenthesis are in thousands, whereas you assumed only the product was in thousands.

So the answer to your question

"Would you gentlemen care to argue who is off by a factor more than 8?"

is its Patrick R Sullivan. He's off by a factor of 1000.

Bobby,

What are the economics to explain why Luskin's aggregate supply shift hypothesis is incorrect? I know it's wrong. I just don't know why. Thanks.

Looks like we have a final verdict on this. From today's Washington Post (www.washingtonpost.com/wp-dyn/articles/A50898-2003Apr28.html):

"White House economists placed some important caveats on the 1.4 million jobs figure when it was first released. Although the Council of Economic Advisers projected that the original Bush plan would create 510,000 new jobs this year, the employment level, on average, would only be 192,000 jobs higher than it would be without the proposal. And that is in an economy losing 92,000 jobs a month.

"A White House paper also cautions that virtually all of the jobs 'created' by the package by 2004 would be hiring that would have happened anyway in 2005 through 2007.

"Beyond 2007, the tax package would actually do more harm than good, warned Joel Prakken of Macroeconomic Advisers LLC, which developed the computer model the White House used.

"In the short run, the president's plan to virtually eliminate taxes on corporate dividends would lead to an 8 percent jump in the Standard and Poor's 500-stock index, more business investment, and a 'wealth effect' from rising stock prices that would cause an increase in consumer spending, the St. Louis-based forecasting firm predicted.

"But in the longer run, surging budget deficits would raise interest rates and lower savings rates, while higher investment income would actually discourage job creation, Prakken said."

As the New Republic says today, the Administration's response to THAT part of their own computer model was simply to carefully fail to mention it in their official CEA report. Hurry, folks! There's not a moment to lose!

To Joseph: the reason Luskin's (and Bush's) reasoning is wrong is that the job-creation effect which they claim this tax cut will produce is -- by their own statements -- not connected with supply-side effects at all, but with classic Keynesian demand-side effects.

According to Keynes, it really is stimulative for the government to run a deficit during a downturn in order to increase demand -- but, by exactly the same reasoning, you want the government to run a SURPLUS on the up side of the business cycle. Run a continuing deficit then -- when businesses have no excess production capacity that's running idle, as during a recession -- and a government deficit just forces interest rates up for everyone and thus discourages private investment that would further grow the economy. By contrast, the government running a surplus during that period and using that surplus to pay back all the money it borrowed helps lower interest rates.

It is, of course, possible that Bush's tax cut might have some supply-side stimulative effects on top of that -- but the point is that Bush's constant prediction of those 1.4 million new jobs over the next 2 years is, by his own statement, based on a model that entirely DENIES any such supply-side effects. And the economy's total failure to decline as a result of Clinton's 1994 tax hike --as predicted by virtually all supply-side enthusiasts -- indicates that supply-side effects are much weaker than they made them out to be.

Did I get all that right, Brad?

Joseph. I'm flattered that you'd ask a non-economist like me. I'm just a current undergrad econ major and not really qualified, but here's my best try.

This supply shift is not going to happen. The growth models that I've learned so far say that a policy change shifts aggregate LR-supply-curve outwards relative to the baseline (that is the aggregate supply curve that occurs without the policy) if it increases capital per effective hour of labor (that is a labor hour augmented by total factor productivity), increases the growth rate of total factor productivity, increases quantity or quality of human capital (education, health) per labor hour, improves something called "instutitions," or increases labor supply.

So Luskin would have to claim that the tax cut does one or many of these.

Perhaps they would in fact have favorable effects, although I'm not sure how. But this is not a question of "do they have that effect." It is a question of "how large is the effect." I don't know how to go about figuring this either. I'm not qualified or advanced enough.

But what we can look at is a consensus among economists who are qualified. I think that consensus says that the favorable effects are too small to be appreciable anyway and would be swamped by other things like, say, the huge deficits that are coming. It has been said again and again on these boards and in testimonies on DeLong's blog that few people who aren't cranks, even Bush's handpicked new CBO director, thinks this will have this supply shift.

So what else? For an historical perspective on the supply-side effects of tax cuts, look at the disapointing record of Reagan's tax policy regarding potential growth, that is growth of the economy's productive capacity. The basic story is that the Reagan cuts really didn't do much of anything good or bad on the supply-side (I recommend Krugman's Peddling Prosperity for more that) and didn't really make any difference except to create huge budget deficits (and the Mundell-Fleming model would suggest a huge trade deficit, but I'm not quite sure as to an empirical consensus on this). Bill Nordhaus provides a much better look at the Reagan years than I could recount at this link:

http://www.econ.yale.edu/~nordhaus/Econ157b/reagan_v3.ppt

So that's my knowledge of supply side. Sorry if this is not much help.

Errata:

"Perhaps they would in fact have favorable effects, although I'm not sure how. But this is not a question of "do they have that effect." It is a question of "how large is the effect." I don't know how to go about figuring this either. I'm not qualified or advanced enough."

they in this paragraph refers to the tax cut currently being considered and I am referring to tax cuts' favorable effects on aggregate supply

A few points:

Roublen: Jamie Galbraith wasn't on the "same side" as Luskin, of course; he was making his argument in 1997 and as history shows, on the specific issue of whether monetary policy in 1997 was too tight, he was right and PK was wrong. You are right to say, however, that myself, Max (the Don) Sawicky and JG are basically on the side of those who don't care all that much about deficits per se.

Patrick: I have no idea what you're on about. The 1.4 million "lucky duckies" go from unemployment (producing nothing) to federal employment (producing nothing) with a net impact on the corporation tax base of zero. I've checked my calculation, and 1.4 million units of 33,000 dollars equals 46.2 billion dollars, which multiplied by ten years equals 462 billion dollars (undiscounted and unadjusted for inflation). If you divide this by 8 you get roughly $60bn, which is a figure that doesn't seem to match up to anything. I strongly advise you to apply the coup de grace to my neck if you have one, or else to stop digging yourself deeper into a hole, because people other than myself are now laughing at you.