John Krehbiel
The lost generation – Paul Krugman Blog – NYTimes.com
by John Krehbiel on 5 November 2009
After all, it’s impossible that living standards would double under a regime of high marginal tax rates, generous minimum wages, and strong unions. So it just didn’t happen.
The lost generation – Paul Krugman Blog – NYTimes.com.
2009-11-05 » John Krehbiel
6 November 2009 @ 9:27 am
I’m afraid I am with a lot of those who commented on the post you linked to.
But not any one in particular!
When I see economic data like this, I feel like thumbing through “How to lie with statistics.” Not that I think the guy is wrong or lying or anything, but because in general, economic data requires so many factors to be involved, that it is crazy to think any of these guys really know what is going on.
After all, the usual argument goes, if you understand economics so well, why aren’t you filthy rich yet?
It just seems like an immensely complicated system to try and understand.
Much better, IMHO, to just do what is right on my part and hope for the best…
6 November 2009 @ 9:38 am
Yeah, that’s my reaction. People can’t explain very simple things. There’s no way they can explain complicated, intricate stuff like that.
6 November 2009 @ 11:06 am
I agree that economic statements about what caused past events are suspicious. But the point here is that that is at least partly because economists simply deny that anything that violates their models exists. “Everybody knows” high tax rates, high wages, and strong unions are bad, so the economy can’t have been any good until Saint Ronald came along.
I heard someone on NPR say that WWII was a pretty big economic stimulus, probably bigger than any other except last years stimulus package. That’s just mind-numbingly preposterous, but a clear example of the mindset.
6 November 2009 @ 11:10 am
Yes, some economic analysis seems to come down to what you assume to start with.
When you’re dealing with a complex set of variables, you inevitably try to organize it with some Grand Theory.
I wonder if there’s something analogous to the “method of multiple working hypotheses” in economics?
6 November 2009 @ 11:17 am
Or maybe they could come up with computer models like the weather man does and publicly commit to them beforehand.
John, why wasn’t WWII a big economic stimulus?
6 November 2009 @ 11:34 am
That’s the point. It was a huge stimulus, making the present package look like a blip. The reporter I was referring to said that WWII was a stimulus bigger than any other, “except maybe last year’s.”
But all we hear is how much money the government is borrowing, how much it is spending, and how long it will take to pay it back. Like weapons of mass destruction, if enough reporters repeat what they hear without analysis, it becomes true.
“From a certain point of view.”
7 November 2009 @ 4:01 am
Nixon, from 1969-1974, was the first president to spend too much, revolving debt so that the value of gold – 35 dollars an ounce since the 19th century – finally started climbing. Every administration after him continued the trend.
Therein, I think, is half the problem. The other half is that the country was running out of infrastructure to invest in. The WWII spending exhausted the majority of meaningful infrastructure spending.
7 November 2009 @ 7:33 am
Saying there is no more infrastructure to invest in is like physics students being told that everything had been discovered pre-quantum mechanics.
Much of our electrical generation capacity is nearly a century old, and terribly inefficient and polluting thanks to sweetheart deals allowing them to operate legacy technology without modern pollution standards. That can all be replaced.
As Greg has pointed out, nationwide wireless high speed computer access makes a lot of sense.
There are dams and levees to dismantle, mass transit systems to build, carbon sinks to devise and build, lunar colonies to build, ……..
7 November 2009 @ 5:33 pm
I’m no economist, of course, which probably makes me more qualified to comment rather than less.
I posted something on my blog awhile back about my, probably crackpot – like most economic speculation, theory that what caused the growth after WWII was the destruction of much of the world’s productive capability. The US grew as an export powerhouse while the rest of the world grew because their productivity was seriously diminished by war damage. That was certainly true in Germany, France, England, Japan and China.
I use as one support for my theory the fact that the US sank into a deep recession in ‘46-’48. Were we sinking back into the Depression that was interrupted by the War only to recover when we could begin to pump exports out to Europe?
I do agree that there is a lot of mythology surrounding what happened in the 80s. During the 80s, we still had pretty severe unemployment until 84-85 (this is from memory) and then we had Real Estate Bubble Collapse I in 87-88, which caused a dramatic stock market crash and the Recession of 89-91.
That’s the other part of my theory. The US economy only did well as long as the productive capacity of the world was still depressed from WWII and we were living high on the hog on debt since then.
8 November 2009 @ 9:30 am
Krugman answers those arguments here.
People have ideological principles which often having nothing to do with reality. They are very likely to believe, against varying amounts of evidence, that the world was better when people adhered to those principles. Conservatives talk about the 50s, but forget segregation and other forms of repression. I admit that I remember the good wages I got in the late 70s and ignore the harm done to others by inflation.
8 November 2009 @ 5:44 pm
Sounds like Krugman agrees with me about the Reagan 80s there. Of course, Krugman should know about economics under Reagan, seeing as he worked for the Reagan White House on the Council of Economic Advisers from 82-82.
When conservatives are nostalgic for the 50s, they forget the very high tax rates. Could you imagine the crying if the rich today had to pay the 92% tax rate of 52-53? The rest of the 50’s enjoyed a lower 91% top tax rate.
This fits in with my theory, actually. The US could sustain very high tax rates as long as we were the sole economic powerhouse. What did we spend those tax dollars on? The Interstate Highway System? Is that all?
OTOH, JFK was wise to lower those rates to 77% when the US Economy was starting to get some competition in the 60s. Liberals forget that JFK slashed tax rates and it caused an immediate jump start to an economy in the doldrums.
8 November 2009 @ 5:51 pm
When people talk about a 91% tax rate, what usually gets lost in translation is that the tax rate is a marginal tax rate. IOW, only the income in that top bracket is taxed at that rate. Nobody paid 91% income tax on all of their income.
8 November 2009 @ 7:35 pm
True, but those rates were still much higher than today, especially the rich. The bottom rate was 20% on the first dollar made in 1953. Today, nearly half of everyone pay no income tax at all.
8 November 2009 @ 8:06 pm
I’ll bet payroll taxes are higher now, though. Those are disproportionally paid by lower income wage earners.