Keynesians like Paul Krugman, believing that government spending is needed in a recession to stimulate the economy, have been arguing that the previous round(s) of stimulus weren’t big enough. There has been some interesting discussion across the economic blogosphere in recent months, but in the past few days some of the discussions have been escalating almost to the point of parody.

Some of this recent debate has to do with the “broken window” idea considered by Bastiat a long time ago. The Keynesian argument (ok, Keynes came after Bastiat, but it’s modern Keynesians that are bringing up this broken window) is that if a shopkeeper’s window is broken, he has to spend money to replace it, which increases revenue for the window-fixer, who then has money to spend on something else, and it basically “trickles down” from there. Voila, stimulated economy! The Bastiat response is that this does not consider what is “unseen” – namely, what more efficient resources the shopkeeper might have spent his money on if he hadn’t had to fix his window. The Keynesians respond that while the shopkeeper may be losing short-term wealth he is shifting future consumption to present consumption which stimulates the economy now, and so on and so forth. At this point we start to get into complicated economic models where both sides rely on abstract theory and cherry-pickings from historical examples to prove their points.

But the Keynesians have been fervently arguing for the broken window lately. Paul Krugman actually suggested that preparations for a fake alien invasion would stimulate the economy.  Matt Yglesias just said that somehow you can increase growth by breaking windows but nobody ever said you could increase wealth that way. But here’s what tops them all: When the East Coast was hit by its largest earthquake in more than century yesterday, jokes went around Twitter that Paul Krugman said it wasn’t “big enough.” But then Krugman’s Google+ account actually said, “People on twitter might be joking, but in all seriousness, we would see a bigger boost in spending and hence economic growth if the earthquake had done more damage.”

Woah. That statement ignited the conservative interwebz! Was Krugman so attached to his Keynesian theories that he wished for greater natural disasters to stimulate the economy more?

Then we all found out that Krugman doesn’t have a Google+ account and that the whole thing was a hoax. But the lie in the hoax was that it made Krugman sound like a mean guy who wanted big disasters to stimulate the economy – not that Krugman doesn’t think big disasters really could stimulate the economy. The real Krugman’s response was that things like war aren’t “desirable,” but the idea that they do stimulate is still “correct.” Krugman doesn’t want a major earthquake to happen, but it sounds like he really does think it would stimulate the economy through all the money that would have to be spent to rebuild everything. (Krugman’s Keynesian fans apparently thought so, too, because before the hoax was revealed and the post was deleted, they were engaging in fervent comment debate about how the broken window fallacy is not really a fallacy.)

Now maybe I’m just a dumb armchair post-libertarian who doesn’t understand the nuances of the complicated economy (I hope I’m not adding to the misrepresentations of Krugman here), but if great natural disasters stimulate the economy, then why did interest rates immediately plummet after the giant March earthquake in Japan? (I remember this because we were house-hunting and we locked in a lower interest rate for a mortgage a couple of days later.) All the world’s investors didn’t jump out of stocks and into bonds because they thought growth was about to be stimulated.

But, hey, maybe the Keynesian technocrats are smarter than the world’s investors (irrational market theories and all that). Or maybe the broken window fallacy really isn’t a fallacy under certain conditions. But I’m not convinced that a 9.0 magnitude earthquake is one of those conditions.

Continue reading Keynesians, Earthquakes, and Broken Windows

When I was in junior high learning about the rise of the European Union, it seemed like apocalyptic history in the making. It was a definitive step toward the evangelical’s eschatological future of one-world government. As such, I find it fascinating that in the last several months the threat of the EU’s collapse has grown from hushed whispered conjectures on economic blogs to front-page mainstream-media discussion across the world. I’ve gone from believing the world was on its way to political unification to believing that the main evidence for that belief was going to collapse any day now.

Continue reading Will the EU collapse or grow stronger?

I heard a frustrating interview on NPR yesterday on my drive home from work. Melissa Block was interviewing Michael Ward, CEO of the freight rail company CSX, about how his business was doing with the recession and everything (transcript here). She seemed rather concerned with the fact that even though the company’s business was picking up again, they were still hiring fewer employees than they had during their pre-recession peak:

Continue reading Are Productivity Increases Hurting the Job Market?

Just in time for my piece about Warren Buffet and the dangers of relying on high-income earners to pay all the taxes, the Wall Street Journal is out with an editorial analyzing some IRS data that reveals some interesting things:

In 2007, 390,000 tax filers reported adjusted gross income of $1 million or more and paid $309 billion in taxes. In 2009, there were only 237,000 such filers, a decline of 39%. Almost four of 10 millionaires vanished in two years, and the total taxes they paid in 2009 declined to $178 billion, a drop of 42%.

Those with $10 million or more in reported income fell to 8,274 from 18,394 in 2007, a 55% drop. As a result, their tax payments tanked by 51%. These disappearing millionaires go a long way toward explaining why federal tax revenues have sunk to 15% of GDP in recent years. The loss of millionaires accounts for at least $130 billion of the higher federal budget deficit in 2009.

Surprise, surprise. All those rich people that were earning money on their investments in the good years (and paying taxes on them) found themselves losing money in the bad years. This tells me a couple of things.

First, it supports the argument that it’s a bad idea to increase the government’s dependence on large but volatile incomes. If you balance your budget by taxing the rich what are you gonna do in a year when their tax payments drop 51%? As I said earlier,

The super-rich don’t make $100 million a year because they’re earning wages of $50,000 an hour doing constant work. They make that much because they invest money in the stock market along with various other complicated and volatile things that are taxed at different rates… the income of the super-rich is much less dependable than mine or yours – when the stock market crashed in 2008, so did the income of the super-rich. A lot of them even lost money. So the more you count on super-rich income to fund your government, the more you’re going to be hurting when super-rich income completely disappears for a year.

Second, it suggests that everybody like Warren Buffet can’t really be paying lower rates than their secretaries – how else could the government lose so much revenue if they weren’t paying very much to begin with?

Now the Wall Street Journal claims this article is based on “more detailed tax data” straight from the IRS, but they are often accused of cherry-picking data to fit their agenda. The reliable Media Matters makes such an accusation, picking apart the WSJ article with their own piece, which… isn’t very good. It hems and haws about how “millionaires” are usually defined by net worth, not income in a single year, and that millionaires have actually been going up. It references a recent WSJ article that talks about a new record number of millionaires. It talks about how silly it is to blame Obama for this and so on.

But Media Matters seems to be missing the entire point. When discussing government revenue, it doesn’t matter if the number of net-worth millionaires hasn’t gone down because we don’t tax net worth. We tax annual income. It doesn’t even matter if the number of annual-income millionaires came back up in 2010 or if it seems to be coming back up in 2011. The amount of government revenue from high-income earners still went down in 2009, and Media Matters does not seem to dispute this at all.

Clearly the years in questions (2007 vs. 2009) are a clever selection, as usually-high-income earners don’t have bad years like that all the time. But the point is that those kinds of years do happen, and if the top 0.2% are already paying more than 20% of the total income tax, how much more should we be relying on them to plug the gaps in our ever-expanding budget? With the stock market crashing again, the government might not collect very much money from “millionaires” in 2011, either.

It’s certainly a popular notion to tax the rich, and I’m open to ideas about simplifying tax schemes or rolling back some of the most recent tax cuts. But simply from an accounting perspective, I don’t think it’s a good idea to increase the part of your budget that is dependent on a revenue source that can go up or down by hundreds of billions of dollars a year. Am I missing something here?

It’s election season again, and you know what that means… Ron Paul is running for President and the media is completely ignoring him. Even Jon Stewart is noticing this time, and he’s put together a brilliant snapshot of the most recent ignorance:

 

This stuff leads to conspiracy theories by Paul fans about how the media wants to bring him down – why else would they talk more about Santorum and Huntsman? Or maybe they just simply don’t think he’s a serious candidate. But what’s fascinating to me in all of this is that Ron Paul arguably actually deserves some attention this time around.

At this time four years ago, he wasn’t even on the polling radar, and Paulbots were still complaining about his lack of coverage, or that the polls didn’t reflect his true popularity. Today Paul’s average is sitting at 8.8%, and his average only even peaked at 7.4% last time around. From the RealClearPolitics 2012 GOP poll collection, we learn that in the last two weeks Paul has even twice polled ahead of Michele Bachmann (you know, the candidate important enough for a Newsweek cover piece) for third place. He’s solidly ahead of Cain, Gingrich, Huntsman, and Santorum (that’s gotta be depressing for those guys).

Continue reading Ron Paul Already Polling Better Than Last Time

Warren Buffet is at it again. The super-rich investor thinks the super-rich should pay higher taxes. Liberals find this delightful because for some reason they usually can’t get the super-rich to agree to their plans to make them pay higher taxes. Here’s a kind rich man who’s not just another greedy good-for-nothing! He sees the truth! Conservatives find this annoying because the super-rich are supposed to hate paying taxes. They’re supposed to want to keep all their money so they can create jobs with it because they’re supposed to be better at spending it than the government. Buffet’s pro-tax-stance is almost as annoying to conservatives as Hermann Cain being a conservative black man is to liberals.

Continue reading Why Doesn’t Warren Buffet Just Pay More Taxes?