More Krugman Mayhem Regarding the Hoover Record
I tell you, Dr. Paul Krugman is an absolute master of writing things that are incredibly misleading, but are technically not lies. The following actually took my breath away:
Just to be clear, you can, if you choose, make moral arguments to the effect that it’s wrong to seize the rightful earnings of the wealthy for other purposes; I would disagree, and argue that the real immorality is letting so many of our fellow citizens suffer. But that’s all a different kind of discourse. What the right is claiming is that there’s a straight economic, not moral, argument for low taxes on the rich, that going back to Herbert-Hoover-level taxes at the top makes everyone richer. [Bold added.]
That is truly impressive. Sure, Krugman doesn’t actually say it, but you certainly get the implication that Herbert Hoover was a right-wing laissez-faire guy, who tried slashing tax rates to jumpstart growth and then–oops–it plunged us into the Great Depression. Hey folks, we tried the free market, first under Hoover and then again under George W. Bush, and look what it got us!
Here’s what actually happened with the top marginal income tax rate. And note, I’m grabbing the chart from a left-leaning site that is trying to make fun of the right’s horror at Obama’s plan:
So the “Herbert-Hoover-level taxes at the top” were that way because of the massive Harding-Coolidge tax cuts (spearheaded by Treasury Secretary Andrew Mellon). (There was also a dinky Hoover tax cut after the stock market crash.) Yet it would have taken away from Krugman’s rhetorical punch to say, “Republicans want to give us the same tax rates that prevailed during the Roaring 20s, as if that will shower prosperity on us!”
If you really want to see what Herbert Hoover did with tax rates, and the effect it had on the economy, you can see that he jacked the top rate from 25 percent to 63 percent in a single year in 1932. (In fact tax rates went up across the board, as this history shows.) And then we had the absolute worst economic performance in U.S. history.
Correlation isn’t causation, but if anything the tax evidence from the 1920s and 1930s paints the exact opposite picture Krugman is trying to tell here. And remember, this is the guy who routinely complains that people who disagree with him are a bunch of idiots and/or liars.
Isn’t the point just that Hoover looked out for the rich but not the 99% at a time when he probably should have been worrying more about the 99%?
I don’t understand where you’re getting this caused the Great Depression/cause the roaring 20s stuff. I wasn’t lead that direction until you lead me there, which makes it hard for me to accuse Krugman of being misleading.
I’ve developed a soft spot for Hoover, despite his problems – I agree Krugman uses him as a poster boy rather than a historical figure. But I’m not sure he was all that misleading here.
DK wrote:
Isn’t the point just that Hoover looked out for the rich…?
Sure, I can work with that Daniel. If you took Krugman to be saying, “Hoover just looked out for the rich,” then yes indeed, Krugman was being extremely misleading. Who the heck looks out for the rich by jacking the top tax rate from 25% to 63% in one year?
Aside from that elegant refutation we have Hoover’s prior record. It might be interesting to people to learn WHY Hoover was popular enough to be easily nominated and elected. He was a disatrous president, but he was never a toady-for-hire.
Sorry to burst another Kontradiction bubble, but it’s never seemed to get you down in the past 🙂
Don’t worry, you failed in your attempt. No need to be sorry.
Plus, it’s not a Kontradiction. It’s the writing of things that are incredibly misleading, but are technically not lies. It is something only a fundamentally dishonest person does. Or a big firm lawyer.
Bob Murphy starts out with:
Dr. Paul Krugman is an absolute master of writing things that are incredibly misleading, but are technically not lies.
So, let’s look at Krugman’s main “point”:
What the right is claiming is that there’s a straight economic, not moral, argument for low taxes on the rich, that going back to Herbert-Hoover-level taxes at the top makes everyone richer.
Bob’s point is that the low top marginal rates during the early part of the Hoover regime were leftovers from Harding and Coolidge and that it was Hoover who raised those rates astronomically in the midst of the depression. What followed were more subsequent rate hikes and more depression which lasted until the end of WWII. The perpetual phony and dishonest narrative of the statists consists of a) laissez faire caused and perpetuated the depression; b) Hoover’s policies consisted of laissez faire; and c) debt, money dilution and World War under FDR cured the depression. Further, since the depression was caused by malinvestments induced by the banking system, low marginal tax rates coinciding with the bust were fairly irrelevant as to the cause.
So, Krugman is technically right that there were low top marginal tax rates during the Hoover regime and during the beginning of the depression. But the way he stated it is completely misleading because low rates didn’t cause or perpetuate the depression and most people never learn of Hoover’s interventions and massive tax rate hike. But Krugman is trying say: “Look at what laissez faire, low tax rates and that fool Hoover did during the depression. Ha ha.”
DK’s objection is like his objection to Tom Woods and 1920, ignoring Tom’s repeated emphasis of the Wilson “stroke of luck”.
Bob –
1. I understand Bob. I understand the problems with Krugman. One of the problems with Krugman is not that he implied the taxes caused the great depression.
2. I don’t know what your obsession with the 1920 thing is. I’ve seen you post about that around the blogosphere recently. I got Tom’s pun. I’m not sure how much sense it makes – Wilson would have demobilized regardless of his health, right? What did you really expect him to do (and why do you think a stroke would make him lean on the demobilization inadvertantly?!?!).
I’ve got to assume you still haven’t even read the paper. You keep repeating that the story I tell supports ABCT as if that’s some kind of revelation on your part of some kind of gaping hole in my logic. If you read the actual paper, you’d know that I say exactly that: that nothing about 1920-1921 contradicts ABCT at all, and that this may even be an example of an Austrian business cycle. Read it dude – I make that claim!
My point is, it’s not a great case study to use to dispute fiscal policy in a Keynesian downturn.
1. So what’s the big deal about Harding? Who cares if it was Harding or Wilson, or Wilson’s wife, due to the “stroke of luck”?
http://krugman.blogs.nytimes.com/2012/01/23/more-than-you-want-to-know-about-warren-harding/
2. I get the part about 1920 not being a “classical” ABCT with malinvestments in capital goods caused by low interest rates and not being a “classical” Keynesian episode. However, lots of prices and wages turned out to be non-sticky (as if prices and wages had minds of their own).
3. I still agree with Tom Woods that one never hears about this recession/depression because it basically fixed itself without very much government interference or stimulus and contradicts the establishment narrative.
4. My point is always: Where is the fundamental proof that the market fails and/or results in mass unemployment? The problems of 1920 were clearly the result of the creation of the Fed which your work shows subsidized the war. That’s “classic” Rothbard. Funny money hides the cost of war from the public. Then the market snapped back to normal pretty much on its own. We never hear of that from the statist academics because it upsets the narrative. Then Churchill tried to re-impose the gold standard at the wrong par value and everything went to hell.
Conclusion: The problems of 1936 were not problems of market failure but of government funny money and war. If the market doesn’t fail, “stimulus” makes no sense. Your paper provides factual support for the long held Rothbardian narrative.
1. The story is “Harding cut spending big time and that got us out of 1920-1921”. That story is wrong. That’s the point about Harding.
2. Ummm… it might be a clasical ABCT recession. I’m not personally prepared to rule that out. I don’t think there’s enough research on it (this is one of my big complaints about the Austrian literature thus far – it’s mostly just “Harding’s austerity lead to a recovery”. I think it would be nice to see some ABCT investigation, and trace out the malinvestments, etc. If loose money EVER caused malinvestments, the loose money of the late 19-teens ought to have.
3. OK, well that’s precisely the narrative that’s wrong. First, you do hear about it. Economic historians talk about it a lot. Woods just didn’t cite them. As for the general public – you don’t hear about it because it wasn’t the Great Depression. It’s as simple as that.
4. That’s a much bigger discussion, although I’ve been on the record as someone who doesn’t like the “market failure” lingo. I’m curious – why do you think what Benjamin strong did with interest rates is “the market” readjusting, but when Churchill takes action it’s not the market? Both cases – here and in Britain – are cases of policy responses, Bob.
I concede that whatever Benjamin Strong did was not “the market”. But who denies that a funny-money boom can start up sooner than a non-stimulated boom? There were still no significant programs to cause prices to readjust and no government employment or unemployment programs.
This video was my first exposure to Tom Woods discussing 1920 from 3 years ago this week. I think he gets the timeline correct:
http://www.youtube.com/watch?v=czcUmnsprQI
Since we’re discussing Krugman’s rhetorical M.O., RT interviews Steve Keen here (for the first 11 minutes):
http://mikenormaneconomics.blogspot.com/2012/04/new-media-covers-k-kontroversy.html
Keen claims that Krugman has maligned and misrepresented him. Is that possible? Actually, the only reason Krugman behaves in this manner is because his positions are unsupportable. Otherwise, he would directly engage his opponents and calmly expose their errors.
Keen’s theory of private debt causing problems is somewhat co-extensive with the Austrian position. However, as a Minskyite, he meticulously avoids thinking about the inducement for the excessive debt: funny money dilution and artificially low interest rates impairing economic calculation. But he understands that banks create loans out of thin air (and calls it “capitalism”). Keen states that out-of-date narratives should be abandoned. Indeed.
To be clear to our dishonest opponents (like LK), the theory of malinvestment assumes the taking on of debt for projects that should not have and would not have been taken on. When the projects fail, the debt cannot be paid back. Thus, malinvestments will tend to be associated with “excessive debt”.
“To be clear to our dishonest opponents (like LK), the theory of malinvestment assumes the taking on of debt for projects that should not have and would not have been taken on. When the projects fail, the debt cannot be paid back.”
Flogging the dead horse.
It is the blowing of asset bubbles in financial assets or real assets that is the perennial, primary source of instability in unregulated capitalism, not the fantasy of ABCT.
LK, like all Minskyites and Keynesians, absolutely positively fails and/or refuses to understand the basic concepts of exchange, subjective value, the objective nature of prices and thus economic calculation. He fails and/or refuses to understand that Keynesian policies themselves are the primary “transmission mechanism” for the impairment of economic calculation. These people are like obsessive compulsives who write treatise upon treatise concerning historical minutiae regarding automobiles and are always debating what makes them move while oblivious to the fact that they run on gasoline. Here’s their hero Minsky oblivious to all things catallactic:
The financial instability hypothesis has both empirical and theoretical aspects. The readily observed empirical aspect is that, from time to time, capitalist economies exhibit inflations and debt deflations which seem to have the potential to spin out of control. In such processes the economic system’s reactions to a movement of the economy amplify the movement–inflation feeds upon inflation and debt-deflation feeds upon debt-deflation. Government interventions aimed to contain the deterioration seem to have been inept in some of the historical crises. These historical episodes are evidence supporting the view that the economy does not always conform to the classic precepts of Smith and Walras: they implied that the economy can best be understood by assuming that it is constantly an equilibrium seeking and sustaining system.
http://www.levyinstitute.org/pubs/wp74.pdf
It’s such a mystery why these “capitalist economies” seem to spin out of control. Wait. I know! They need special guidance from special people with special knowledge unavailable to average people. Like LK!
Simply amazing.
It is the blowing of asset bubbles in financial assets or real assets that is the perennial, primary source of instability in unregulated capitalism, not the fantasy of ABCT.
Perennial unregulated capitalism? LOL. Where? We live in a regulated world, not an unregulated world. We have central banks, which are not free market institutions.
Bubbles are blown up by fiat money inflation from privileged, regulated banks.
That is exactly what ABCT is about.
As usual, LK is completely clueless.
I’m sorry Bob but don’t Austrians argue that the boom of the 20s was false and created by low interest rates? So surely appealing to the ‘roaring twenties’ as an example of a prosperous economy is a bit of a Murphy Mishap (!) ?
Just because there was malinvestment and a later bust doesn’t mean that everything during the 20s was malinvestment.
Exactly. What Unlearning fails to take into account is that the Austrian interpretation of the 20’s also has a dramatic increase in productivity as an explanation for why there wasn’t massive price inflation during that period. Obviously, this would imply that the “roar” in the roaring 20s wasn’t merely due to money inflation.
Unlearning,
I don’t think when Bob wrote
‘yet it would have taken away from Krugman’s rhetorical punch to say, “Republicans want to give us the same tax rates that prevailed during the Roaring 20s, as if that will shower prosperity on us!”’
he was, as an ‘Austrian’, endorsing the 1920’s as a period of genuine prosperity. I think he was only pointing out that this period is often seen as such by the lay public and more ‘mainstream’ economists, like Krugman. And, they don’t see fed induced low interest rates as leading to the ultimate bust.
I think Bob was only pointing out that, given this ‘worldview’, low tax rates during the 1920’s correlated with high growth. Had Krugman acknowledged this it would have detracted from his admonition that low taxes only helped the rich.
Fair play, although I think Krugman sees a large portion of the 20s as a bubble too. He certainly doesn’t agree with the Friedmanite interpretation of the depression.
RPM says:
“I tell you, Dr. Paul Krugman is an absolute master of writing things that are incredibly misleading, but are technically not lies.”
As you recently dove into the waters of climate debate, I think it is not too far OT to bring up an example of this same mastery by Michael Mann, of the Hockey Stick graphs.
I haven’t looked lately; but, Mann’s Penn State webpage (and the university’s PR) used to claim that his HS papers were endorsed by the Natl Academy of Sciences. [I wonder if realclimate.org retains this fiction at its FAQ page.] Anyone looking into the matter will find that that is not true. The clearest incident proving this is the questioning under oath, by the Barton Committee (2006) of the NAS/NRC panel report head, Gerald North, and that panel’s chief statistician. It was clearly stated that they had no disagreement with the conclusions of the Wegman panel, which looked at the use of statistics, in the Mann et al. HS papers. The Wegman panel was extremely critical of the HS papers and determined that Mann et al.’s conclusions were not supportable. Wegman essentially agreed with the criticisms made by McIntyre and McKitrick.
Well, I saw an excerpt from Mann’s recently released book. Here, he says something like: The Natl. Academy of Sciences report on our work was “widely reported” as endorsing it.
Technically not a lie, but very misleading.
Here, he says something like: The Natl. Academy of Sciences report on our work was “widely reported” as endorsing it.
PineFly, I know enough about the subject to understand exactly what you are claiming, but I don’t know enough to say whether your interpretation is right. However, assuming you accurately depicted what happened, that is indeed shocking.
In a similar vein, I think President Obama says, “What I’ve always said…” a lot in response to questions, so that he can be truthful most of the time. I.e. he just has to lie (about Jeremiah Wright or whatever) upfront, and then he can keep saying, “My position on this, from the beginning, has always been…” and he can be utterly sincere.
Hi Bob,
Mann’s new book is up at Google Books, interestingly enough. On p. 163:
“The NAS report was widely reported to be an affirmation of our work.”
The best discussion of the reports commissioned by the Barton Committee is at McIntyre’s “Climate Audit” blog. It is titled something like: The Wegman and North Reports For Newbies. But, I am biased.
On the characters of Mann, Obama, and the lack of integrity of PSU, NYSU-Albany, and UEAnglia, words fail me. O tempore, o mores. Oh, did I forget to mention Peter Gleick?
Thanks