Krugman's Howdy Doody Time

Paul Krugman recently praised the 1950s, or at least the high tax rates of the 1950s.

"And the high-tax, strong-union decades after World War II were in fact marked by spectacular, widely shared economic growth: nothing before or since has matched the doubling of median family income between 1947 and 1973."

If we are to employ the post-hoc-ergo-propter-hoc logical fallacy with as much abandon as Krugman does, perhaps what we really need to do is drop a couple of atomic bombs on heavily populated cities overseas.

It's also a bit funny that he used the period of 1947-1973 to evaluate the 1950s. President Kennedy slashed those 1950 tax rates about as soon as he entered the presidency in 1961. So about half of Krugman's "golden years" were after the tax rates of the 1950s were cut.

In the seven decades since World War II, there have been 11 recessions in the US. Three of them started in just the seven years of 1953 to 1960, or exactly the period of our highest tax rates on personal incomes. That is, we suffered 27% of our post-war recessions in the 10% of the time top marginal rates were highest.

The most ironic part of this whole discussion of top tax rates is that they do not even do the one thing they are supposed to do: bring in more revenue.  

  

Data sources: OMB and IRS.

Do you see revenue going up when the top tax rate goes up? You shouldn't, because the correlation coefficient is negative over the 1950-2008 period. The higher the top rate, the less revenue collected. To be fair, the correlation is not statistically significant. That is, the top tax rate has no statistically detectable effect on the amount of revenue collected.

But if we compare the 1950s to later years, there are a few other parameters to examine. The top individual tax rate does not an economy make.

Over the decade of 1950-59, the federal government spent 17.6% of Gross Domestic Product. In President Obama's first term it spent 24.4% of GDP. That is a difference of $926 billion in today's dollars.

Funny, I didn't hear Krugman calling for the federal government to cut spending by nearly a trillion dollars per year. In fact, he argues for the exact opposite.

What did the federal government of the 1950s spend that money on? In the 1950s, the federal government spent 58% of its budget on "national defense." In the last four years: 19%. In the 1950s, the federal government spent 24% of its budget on "human resources." In the last four years: 66%.

Funny, I didn't hear Krugman arguing for tripling the defense budget. Nor did I hear him arguing for cutting "human resources" spending by two-thirds.

Over the 1950s, gross federal debt was cut from 93% of GDP to 59%. In just the last four years, it has increased from 70% to 105% of GDP. In the 1950s we shrank the debt, and now we grow it -- to the highest level since 1947.

Funny, I don't hear Krugman calling for the federal government to cut its debt. In fact, he argues for the exact opposite. He calls debt a "phantom menace."

Here are a few current federal programs and departments that did not exist in the 1950s.

• Medicare.

• Medicaid.

• National Endowment for the Arts.

• National Endowment for the Humanities.

• Dept. of Housing and Urban Development.

• Dept. of Transportation.

• Drug Czar (or any other "czars," for that matter).

• Environmental Protection Agency.

• Occupational Safety and Health Administration.

• Dept. of Education.

• Dept. of Energy.

• Dept. of Veterans Affairs.

• Dept. of Homeland Security.

• Obamacare.

Funny, I didn't hear Krugman's plea to eliminate any of these programs or departments.

From 1950 through 1959, the Federal Register averaged 10,703 pages of regulations. In 2011 it was 82,419 pages. In just the last 90 days, 5,769 new regulations were issued, with 923 more scheduled for the next 90 days.

Funny, I didn't hear Krugman's call for eliminating 90% of federal regulations.

Of all the differences between the 1950s and now, Krugman concentrated on just two: top tax rates and unionization.

• He did not mention that the 50s were the first decade after the 20-year double-whammy of the Great Depression and World War II.

• He did not mention that the entire world was recovering from World War II then, that our infrastructure was essentially unscathed from that war compared to much of the rest of the world, and that the postwar world was hungry for our exports.

• He did not mention that the high-tax years coincided with a significantly higher frequency of recessions.

• He did not mention that the top tax rate has no effect on federal revenues, or that if anything, a higher rate reduces revenue.

• He did not mention how little the federal government spent and regulated in those days compared to now.

• He did not mention the massive federal bureaucracy that grew since the 1950s.

• He did not mention how federal spending priorities flipped upside-down, from 58% on defense then, to 66% on "human resources" now.

• He did not mention that the decade of the 1950s was a perfect counterexample of his favorite tools of economic stimulus: massive government spending and growing the debt.

• As he lamented the decline in the relative amount of corporate tax collected, he neglected to mention that the US has the highest corporate tax rate in the developed world.

• As he lamented that the top tax rate is not high enough, he neglected to mention that the US has the most progressive tax structure in the developed world.

Krugman neglected virtually all that was important and cherry-picked the one or two statistics that supported his preconceived notions. In other words, he lived up to the standards of the New York Times.

Randall Hoven can be followed on Twitter or contacted via his web site, randallhoven.com.

Paul Krugman recently praised the 1950s, or at least the high tax rates of the 1950s.

"And the high-tax, strong-union decades after World War II were in fact marked by spectacular, widely shared economic growth: nothing before or since has matched the doubling of median family income between 1947 and 1973."

If we are to employ the post-hoc-ergo-propter-hoc logical fallacy with as much abandon as Krugman does, perhaps what we really need to do is drop a couple of atomic bombs on heavily populated cities overseas.

It's also a bit funny that he used the period of 1947-1973 to evaluate the 1950s. President Kennedy slashed those 1950 tax rates about as soon as he entered the presidency in 1961. So about half of Krugman's "golden years" were after the tax rates of the 1950s were cut.

In the seven decades since World War II, there have been 11 recessions in the US. Three of them started in just the seven years of 1953 to 1960, or exactly the period of our highest tax rates on personal incomes. That is, we suffered 27% of our post-war recessions in the 10% of the time top marginal rates were highest.

The most ironic part of this whole discussion of top tax rates is that they do not even do the one thing they are supposed to do: bring in more revenue.  

  

Data sources: OMB and IRS.

Do you see revenue going up when the top tax rate goes up? You shouldn't, because the correlation coefficient is negative over the 1950-2008 period. The higher the top rate, the less revenue collected. To be fair, the correlation is not statistically significant. That is, the top tax rate has no statistically detectable effect on the amount of revenue collected.

But if we compare the 1950s to later years, there are a few other parameters to examine. The top individual tax rate does not an economy make.

Over the decade of 1950-59, the federal government spent 17.6% of Gross Domestic Product. In President Obama's first term it spent 24.4% of GDP. That is a difference of $926 billion in today's dollars.

Funny, I didn't hear Krugman calling for the federal government to cut spending by nearly a trillion dollars per year. In fact, he argues for the exact opposite.

What did the federal government of the 1950s spend that money on? In the 1950s, the federal government spent 58% of its budget on "national defense." In the last four years: 19%. In the 1950s, the federal government spent 24% of its budget on "human resources." In the last four years: 66%.

Funny, I didn't hear Krugman arguing for tripling the defense budget. Nor did I hear him arguing for cutting "human resources" spending by two-thirds.

Over the 1950s, gross federal debt was cut from 93% of GDP to 59%. In just the last four years, it has increased from 70% to 105% of GDP. In the 1950s we shrank the debt, and now we grow it -- to the highest level since 1947.

Funny, I don't hear Krugman calling for the federal government to cut its debt. In fact, he argues for the exact opposite. He calls debt a "phantom menace."

Here are a few current federal programs and departments that did not exist in the 1950s.

• Medicare.

• Medicaid.

• National Endowment for the Arts.

• National Endowment for the Humanities.

• Dept. of Housing and Urban Development.

• Dept. of Transportation.

• Drug Czar (or any other "czars," for that matter).

• Environmental Protection Agency.

• Occupational Safety and Health Administration.

• Dept. of Education.

• Dept. of Energy.

• Dept. of Veterans Affairs.

• Dept. of Homeland Security.

• Obamacare.

Funny, I didn't hear Krugman's plea to eliminate any of these programs or departments.

From 1950 through 1959, the Federal Register averaged 10,703 pages of regulations. In 2011 it was 82,419 pages. In just the last 90 days, 5,769 new regulations were issued, with 923 more scheduled for the next 90 days.

Funny, I didn't hear Krugman's call for eliminating 90% of federal regulations.

Of all the differences between the 1950s and now, Krugman concentrated on just two: top tax rates and unionization.

• He did not mention that the 50s were the first decade after the 20-year double-whammy of the Great Depression and World War II.

• He did not mention that the entire world was recovering from World War II then, that our infrastructure was essentially unscathed from that war compared to much of the rest of the world, and that the postwar world was hungry for our exports.

• He did not mention that the high-tax years coincided with a significantly higher frequency of recessions.

• He did not mention that the top tax rate has no effect on federal revenues, or that if anything, a higher rate reduces revenue.

• He did not mention how little the federal government spent and regulated in those days compared to now.

• He did not mention the massive federal bureaucracy that grew since the 1950s.

• He did not mention how federal spending priorities flipped upside-down, from 58% on defense then, to 66% on "human resources" now.

• He did not mention that the decade of the 1950s was a perfect counterexample of his favorite tools of economic stimulus: massive government spending and growing the debt.

• As he lamented the decline in the relative amount of corporate tax collected, he neglected to mention that the US has the highest corporate tax rate in the developed world.

• As he lamented that the top tax rate is not high enough, he neglected to mention that the US has the most progressive tax structure in the developed world.

Krugman neglected virtually all that was important and cherry-picked the one or two statistics that supported his preconceived notions. In other words, he lived up to the standards of the New York Times.

Randall Hoven can be followed on Twitter or contacted via his web site, randallhoven.com.

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