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Monday, January 21, 2008

Debunking Krugman

Introduction: For full disclosure, Ronald Reagan isn't merely my political hero but rather a hero in every way. Ronald Reagan embodies everything that is great about America. Reagan was the son of the town drunk in a town of about three hundred people when he was born. He grew up to be a sportscaster, an actor, President of SAG, the Governor of California, and ultimately the President of the United States of America. That ain't bad for the son of the town drunk and it shows that in America anyone can do anything if they believe in our spirit. I point this out because needless and unfair attacks on his legacy are those that hit a nerve with me.

Here is just such an attack. It is written by left wing Princeton economics Professor Paul Krugman. The idea that Krugman doesn't have any use for Reagan's legacy is about as logical as expecting the sun to rise tomorrow. It is of no surprise that Krugman, still, won't give Reagan any credit for the incredible turnaround of the country during those years. Hard core liberals still seethe at the sound of Reagan to this day. Krugman is just one of those liberals. Krugman preaches to the choir with this piece because only hard core liberals would buy this nonsense. It starts with this...

For it did fail. The Reagan economy was a one-hit wonder. Yes, there was a boom in the mid-1980s, as the economy recovered from a severe recession. But while the rich got much richer, there was little sustained economic improvement for most Americans. By the late 1980s, middle-class incomes were barely higher than they had been a decade before — and the poverty rate had actually risen.

When the inevitable recession arrived, people felt betrayed — a sense of betrayal that Mr. Clinton was able to ride into the White House.

Given that reality, what was Mr. Obama talking about? Some good things did eventually happen to the U.S. economy — but not on Reagan’s watch.

Now, this is some really intelligent sounding gibberish. Krugman must believe that Reagan's economic platform failed because we had a rather mild nine month recession four years after he left office. There is no sourcing for his claim that middle class incomes barely rose, however there were roughly twenty million new jobs created. Most of those jobs were in the middle class. With twenty million new jobs, it is also hard to believe that poverty rose. Frankly, the numbers speak for themselves. Twenty million jobs were created during the Reagan administration. Everything else is just spin.

Krugman also makes a great deal out of a recession that happened nearly four years after he left office. Never mind that recessions, just like booms, are a natural part of any economy. What is mind boggling about Krugman's analysis is that starting in 1983 the economy was on a boon, minus nine months in 1992, for nearly twenty years. Given that long standing economic expansion how exactly does Krugman come to the conclusion that the economy failed...

For example, I’m not sure what “dynamism” means, but if it means productivity growth, there wasn’t any resurgence in the Reagan years. Eventually productivity did take off — but even the Bush administration’s own Council of Economic Advisers dates the beginning of that takeoff to 1995.

Similarly, if a sense of entrepreneurship means having confidence in the talents of American business leaders, that didn’t happen in the 1980s, when all the business books seemed to have samurai warriors on their covers. Like productivity, American
business prestige didn’t stage a comeback until the mid-1990s, when the U.S. began to reassert its technological and economic leadership.

I like to keep my economics simple. There are thousands of economic statistics, and if you wanted to you can always find one that fits into your preconceived notions. That is exactly what Krugman is doing here. He has decided to isolate a few rather unimportant economic statistics and use them. He never mentions GDP and unemployment, and he doesn't because those statistics tell a different story.

The irony is that the years between 1983-2000 were one of the longest years of growth in our history. We had nearly uninterrupted growth in those years (all minus about nine months in 1992). In order to believe Reaganomics is a myth one would have to believe that he had nothing to do with nearly twenty years of uninterrupted growth.

Krugman continues...

I understand why conservatives want to rewrite history and pretend that these good things happened while a Republican was in office — or claim, implausibly, that the 1981 Reagan tax cut somehow deserves credit for positive economic developments that didn’t happen until 14 or more years had passed. (Does Richard Nixon get credit for “Morning in America”?)

But why would a self-proclaimed progressive say anything that lends credibility to this rewriting of history — particularly right now, when Reaganomics has just failed all over again?

One of the pitfalls of writing about economics is that you are almost always writing to an audience of novices. Very few people understand economics properly and thus in some ways you can say anything you want and get away with it. Reagan entered office with nearly 20% unemployment and inflation, and he left with inflation in check and nearly 20 million new jobs created. Yet, Krugman claims that all of Reagan's policies didn't materialize until fourteen years after he left office. I guess in Krugman's world twenty million new jobs is not an economic accomplishment. It is mind boggling that Krugman ignores the economic malaise that Reagan entered into and the economic boom he left and gives that no consideration when judging "economic development".

Finally, no hit piece would be final for any true blue progressive without a shot at Bush,

Like Ronald Reagan, President Bush began his term in office with big tax cuts for the rich and promises that the benefits would trickle down to the middle class. Like Reagan, he also began his term with an economic slump, then claimed that the recovery from that slump proved the success of his policies.

And like Reaganomics — but more quickly — Bushonomics has ended in grief. The public mood today is as grim as it was in 1992. Wages are lagging behind inflation. Employment growth in the Bush years has been pathetic compared with job creation in the Clinton era. Even if we don’t have a formal recession — and the odds now are that we will — the optimism of the 1990s has evaporated.

Once again, Krugman uses selective economic data to make a vague and undefined point. Wages is frankly a very bad economic indicator because so many Americans get paid in something besides wages: bonuses, options, commission, etc. Second of all, the direction of the economy is still not necessarily determined. There are lots of reasons the public mood is good. The media hasn't exactly been kind to the economy. It is ironic that folks are claiming we are headed for an economic fall, since those same folks claimed we were never in an economic boom. Sure everyone was optimistic in the nineties. We were in the internet revolution. Folks were making tons of money on paper thin companies. There may have been optimism but that optimism was largely directed at an illusion.

Bush came in nine months after the stock market lost three trillion dollars in paper profits. Nine months into his term 9/11 happened. Right after that several fortune five hundred companies admitted that their profits in the nineties were a fraud. Despite this perfect storm of terrible economic troubles, our economy suffered a rather mild recession and then followed with four and a half years of uninterrupted boon. If Krugman thinks that is a failure, I would like to see what his standards for success are.

As for Clinton, he came into office with the internet, cell phone, and other technology in its infancy. He left with the cell phone, the internet, and other technology being standard. Maybe in Krugman's world, Clinton deserves the credit for this, but in my world it is the likes of Steve Jobs, Bill Gates, and Michael Dell. It is easy to look over an economy when you are presiding over a technological revolution. Krugman may credit Clinton with this revolution, but we don't credit Coolidge with the twenties.

Krugman can spin this all he wants, but in order to believe that Reagan's legacy is a myth, you also have to believe he is the luckiest President ever. That's because he just happened to walk in during a period of stagflation and he walked out during an economic boon. If Reagan's legacy is a myth, then all of these things happened despite him. That only happens in the twisted mind of Paul Krugman.

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