"...in the name of fiscal necessity... dismantle immensely popular government programs that would otherwise have been untouchable. ...America a couple of decades from now will be a place in which elderly people make up a disproportionate share of the poor, as they did before Social Security. It will also be a country in which even middle-class elderly Americans are, in many cases, unable to afford expensive medical procedures or prescription drugs and in which poor Americans generally go without even basic health care. And it may well be a place in which only those who can afford expensive private schools can give their children a decent education."

Think it's more than a bit of a reach to claim that the real objectives of conservatives and their tax-cuts are poverty, illness and ignorance? That's nothing compared to what Krugman says in his new book. There he states that the Bush administration is part of the rise of a "revolutionary power" comparable to rise of "totalitarian regimes in the 1930's" [page 5]. To the objectives of poverty, illness and injury Krugman adds, "a country ...possibly -- in which elections are only a formality" [page 8].

Whew! Pretty strong words from someone who has often complained that the Bush administration attacks its critics for being unpatriotic. But believe it or not, Krugman took it even further in his interview last week with Terry Gross on NPR's "Fresh Air" (see "Lying About Lying" National Review Online, September 15, 2003). There he updated the book's old-fashioned Nazi metaphor with the post-9/11 version of same vicious cliché:

"The real threat isn't some terrorists who can kill a few people now and then but are not fundamentally a threat to the continuation of America as I know it, but the internal challenge from very powerful domestic political forces who want to do away with America as I know it."

Krugman told Gross that President Bush is only one of the "front men" for this "revolutionary power." According to Krugman, the criminal mastermind behind these "powerful domestic political forces" is Grover Norquist. He's the worse-than-a-terrorist who, Krugman told Gross, sits at the "center of the web." In Sunday's Times Magazine Krugman describes the coming America of poverty, illness and ignorance as "Norquist's vision."

You'd think if I wanted to talk to Norquist I'd have to track him down in a cave in Pakistan. But, in fact, I was able to reach him easily on Sunday in the Washington offices of Americans for Tax Reform -- the tax-relief lobbying group of which he is president -- while the ink of Krugman's Times Magazine article was still fresh on his fingers. If he was peeved at that the terrible things Krugman's been saying about him, he didn't show it -- if anything, he was amused by how weak Krugman's arguments against him are.

Norquist is not ashamed to have a vision that is different from "America as I know it" according to Paul Krugman. He told me, "Over 25 years I'd like to see the size of government shrink by half -- in terms of federal, state and local taxes and spending as a percentage of GDP, the value of government-owned assets, and the number of government employees. This can be done in an orderly way that doesn't hurt anyone."

But what about the poverty, illness and ignorance that Krugman says are the "revolutionary power's" goals? Norquist says,

"A make-believe argument -- if we aren't for the government program, we are against everything. The idea that we are for providing the same things with more efficient and effective alternatives, he leaves that out of the argument -- which is kind of disingenuous.

"All old people will be poor? Only rich kids will have an education? Those are two of the weakest arguments. Not only does the private sector have a proven track record of providing these services at a higher quality level at half the cost. And the voters understand that, so it’s a losing political argument. He points to the programs that are the easiest to privatize, and where we enjoy 70% public support.

"Half of American adults and 70% of voters own shares of stock either directly, in 401(k) plans, or in mutual funds. Every time an American gets a portable pension, it makes him not susceptible to Krugman's rhetoric.

"And telling Black Americans that the public school system is the best they're going to get, and they'd better appreciate it, is a losing argument. All we need is school choice in one state, and they'll see how well it works. It gives you some idea of how despicable the other team is. They know choice would be better, and they don’t want it."

This, then, is Krugman's heart of darkness. Trapped in the unenviable position of advocating statist solutions that are becoming increasingly less tenable, he has no choice but to try to convince his readers that superior private solutions do not exist, and therefore, that anyone who argues against the statist status quo is necessarily arguing for anarchy (and hey, why not throw in totalitarianism and terrorism for good measure). "Disingenuous"? Yes. "Despicable"? Yes.

Of course, what makes Paul Krugman America's most dangerous liberal pundit is that this disingenuous and despicable political agenda is wrapped up in 7,145 words of a Times Magazine article that seems, to the casual reader, to be an authoritative economic analysis of the history of tax-cutting. But in fact it's all aimed at eliminating any possible arguments in favor of tax-cuts, so that all is left is the objective to "do away with America as I know it." And as usual, it's all built on lies, errors and distortions.

Are taxes too high to begin with? Krugman says that "In the United States, all taxes -- federal, state and local -- reached a peak of 29.6 percent of G.D.P. in 2000." But in an October, 1999 article for Fortune reproduced in his new book, Krugman cited "America's comparatively trivial tax burden -- a mere 34% of GDP." How could Krugman have made such an obvious error?

Last week he told the liberal website Buzzflash, "It's not quantum mechanics; it's not hard stuff, but it does take some attention. The truth is, when I started doing this column, I wasn't a U.S. budget expert at all, and I had to put in a lot of work learning how to read those numbers. And you don't expect the guy in the street to understand that."

Perhaps not, but as Bruce Bartlett asks, "How can any professional economist admit such ignorance?"

29.6%... 34%... who knows? All Krugman needs to know is that, either way, "This is a low number compared with almost every other advanced country. In 1999, Canada collected 38.2 percent of G.D.P. in taxes, France collected 45.8 percent and Sweden, 52.2 percent." Wow... just think: if we raise taxes, the US economy can be as "advanced" as that of Canada, France and Sweden.

Or Alabama? Krugman begins and ends the Times Magazine with the story of the epiphany of courageous and noble Alabama governor Bob Riley -- a Republican no less -- who decided he had to raise taxes on the rich and reduce them for the poor. "You might call it a New Deal for Alabama." Tom Maguire points out on his Just One Minute blog that Krugman somehow neglects to mention that the voters of Alabama rejected the noble plan.

Do tax-cuts stimulate economic growth? Examining Ronald Reagan's famous supply-side tax-cuts, Krugman says

"...between 1979, when the big slump began, and 1989, when the economy finally achieved more or less full employment again, the growth rate was 3 percent, the same as the growth rate between the two previous business cycle peaks in 1973 and 1979. ...Nothing in the data suggests a supply-side revolution."

First, in picking 1979 and 1989 as his endpoints, Krugman is making up business cycles as he goes along. According to the official National Bureau of Economic Research business cycle dating, neither of Krugman's two years included a business cycle peak! What's worse, as reader Chris Huskins noted in an email to me, Krugman has included two years before Reagan was even president -- and his tax cuts didn't start taking effect until 1982.

A fairer test would be to look at the first whole official business cycle after Reagan started cutting taxes. That would be from the trough in November 1982 to the subsequent trough in March 1991. And what do you know -- that cycle's average GDP growth rate was 3.7% -- sharply higher than the 3% Krugman got with his invented business cycle.

He pulls a similar trick to laud President Clinton's tax increases:

"...here was a president who sharply raised the marginal tax rate on high-income taxpayers, the very rate that the tax-cut movement cares most about. And instead of presiding over an economic disaster, he presided over an economic miracle."

Apparently Krugman, holding himself out as an historian of the tax-cutting crusade, didn't hear about that cut in the capital gains tax rate from 28% to 20% that a Republican congress forced down President Clinton's throat in 1997. That's an even bigger cut in the capital gains tax rate than the one Bush put in place this year -- and it triggered the best growth years for the economy under Clinton. GDP growth from Clinton's tax-hikes to the capital gains tax-cut averaged 3.4%, below the growth rate of the Reagan years (and those were a full business cycle, including a recession). From the capital gains tax-cut to the end of Clinton's presidency, growth was 3.7% -- which happens to be exactly back to the higher levels of the Reagan years (thanks to a Republican tax-cut).

And one more thing about that capital gains tax cut. Its passage in mid-1997 coincided perfectly with the inflection point in the stock prices that launched the great bull market of the late 1990's. And that Republican tax-cut-driven bull market was what made possible the budget surpluses that Krugman ascribes to the wisdom and prudence of Bill Clinton. As Krugman told Tim Russert in a CNBC interview two weeks ago (see "The Man Behind the Curtain," National Review Online, September 8, 2003),

"...we actually had a substantial surplus. And we ask where did -- where did that go? And the answer is, well, a lot of that was the stock market bubble."

Now fast-forward to the present, for Krugman's lies about President Bush's tax cuts. He can't wait decades to be able to look back and falsify the improvement in GDP growth that I am confident will be triggered by the latest round tax-cuts: so he resorts to falsifying prospective estimates of it. He writes,

"...the Congressional Budget Office tried to evaluate the growth effects of the Bush administration's proposed tax cuts. The budget office's new head, Douglas Holtz-Eakin, is a conservative economist who was handpicked for his job by the administration. But his conclusion was that unless the revenue losses from the proposed tax cuts were offset by spending cuts, the resulting deficits would be a drag on growth, quite likely to outweigh any supply-side effects."

A highly placed official of the Congressional Budget Office, speaking on condition of anonymity, told me that Krugman's claim is flatly untrue. The official told me that the CBO's Analysis of the President's Budgetary Proposals for Fiscal Year 2004, the report to which Krugman is referring, simply never "tried to evaluate the growth effects of the Bush administration's proposed tax cuts." Rather, it evaluated various scenarios for the entire budget -- tax cuts and spending increases (including $400 billion for a Medicare prescription benefit) at the same time. And the "spending cuts" Krugman says the CBO called for were, in fact, merely less spending increases. This isn't the first time I've seen a tax-and-spend liberal palm that card.

Also, the official told me that the CBO employed a panoply of various econometric models in the analysis, resulting in a spectrum of different scenarios based on different assumptions. Some showed positive growth effects, some show negative ones. It's a misrepresentation of the analysis to consider only the more pessimistic scenarios and conclude, therefore, that "deficits would be a drag on growth, quite likely to outweigh any supply-side effects."

I'll give the last word to Grover Norquist. His take on whether or not tax-cuts can create economic growth step refreshingly outside the entire analytical framework usually imposed on that question by economists, and cuts to the heart of what separates his libertarian view of the world from that of statists like Krugman. He told me,

"It is important to cut tax rates in order to reduce the damage that the tax structure does to the economy, and thus remove a disincentive to economic growth. Oh, you've given people an incentive? What's the incentive? That you're not sitting on them so hard any more. Great."

Now that's "Norquist's vision." I like it a lot better than Krugman's.

Posted by Donald L. Luskin at 4:03 AM | link  

Monday, September 15, 2003