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Balanced Fare: We Report, You Deride

Friday, May 09, 2003



Quicker Krugman

Seriously. From his Friday column denouncing, yet again, the Bush tax cut, we excerpt this:

...bear in mind that Bush-style tax cuts now have a track record. Of the 2.1 million jobs lost over the past two years, 1.7 million vanished after the passage of the 2001 tax cut.

Cheap shot, or a serious attempt to suggest a cause and effect relationship? We cut taxes, and it cost us jobs? I think that other factors, including the collapse of the tech bubble, the recession that began in March 2001 (prior to passage of the tax cut), and the 9/11 attack, are responsible for a significant portion of those job losses. Therefore, my guess is "cheap shot", but given the Earnest Professor's recent embedding of serious economic models in cryptic comments, how do we tell? Watch his website, I guess.

OK, I can't stop. One more:

The tax cut will be passed, and the budget will plunge even deeper into the red. And one day we'll realize that international investors are treating us like a banana republic — that they won't finance our trade deficit unless they are paid very high rates of interest (have I mentioned that the dollar has just fallen to a four-year low against the euro?) — and everyone will wonder why.

No, he has not mentioned that the Euro is strengthening against the dollar. The Euro is also improving against the yen, despite Japan's current account surplus. A different road to banana-dom for Japan, perhaps. This article recites the conventional wisdom, which is that the Euro is benefitting from higher interest rates than either the US or Japan.

Also unmentioned by the Earnest Prof is that US Treasuries are back at the lows set in March. Hmm, is this consistent with hyperinflation? Back when he refinanced his mortgage in March, Prof. Krugman seemed to be worrying about higher interest rates.

He mentions the Euro as a comparison, so let me play my own broken record. France and Germany have budget deficits around 3% of GDP, which is proportionately higher than ours. They also have higher unemployment, less favorable demographics, more rigid labor markets, higher taxes, and more generous welfare and health programs. If the US faces a crisis caused by budget deficits and Social Security, how is the outlook for Europe any better?

Back in private, the Prof is pondering the problem of deflation and liquidity traps for the US economy. In this view, the Fed may be powerless, and fiscal action, such as a tax cut, may be appropriate to rally the economy. Meanwhile, over at the Times, the Bush tax cut is evil.

There is a middle ground, of course - pitch the tax cut that makes sense now. Republicans will label it as "me-too", others will wonder whether short term tax cuts produce changes in long term behavior, and away we will go. Meanwhile, I think both of these predictions will be wrong - no deflation, no hyperinflation, just muddling through.

Now I am really finished. Almost. I just want to make sure that everyone is up to speed, on the same page, and ready for the weekend.

"You know, $550 billion here, $550 billion there, and pretty soon you're talking real money." comes from Krugman's column. The original line, "A billion here, a billion there, and pretty soon you're talking real money", is attributed to Sen. Everett Dirksen, Republican wit and raconteur. But not so fast!

UPDATE: I should read the newspapers. The NY Times has a long, gloom inducing piece on the current attempt by the French Governmrent to reform their pension system in an attempt to confront fiscal and demographic reality. I think I will rely on the power of flexible timestamps to put a new post below this one at 10:00 AM.


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