Krugman’s Four Dangerous Fiscal Fables

[classhandicapper]

http://finance.yahoo.com/blogs/the-exchange/krugman-four-dangerous-fiscal-fables-174155103.html

[mostpost]

http://finance.yahoo.com/blogs/the-exchange/krugman-four-dangerous-fiscal-fables-174155103.html
I don't think Krugman ever said that lowering tax rates would cause revenues to rise. He may have said that targeted tax breaks could encourage businesses to reinvest in their business, but I doubt if he said lower rates mean increased revenue.

I'm sure he said that spending improves the economy and therefore causes revenue to rise, because that is true. For proof see the thirties, the forties, the fifties, the sixties and the seventies.

I am also certain that the National debt is around $16T as stated by Paul Krugman. Laurence Kotlikoff's theory that it is $222T is too stupid to entertain. It charges us with all the spending we are going to do over the foreseeable future without crediting us with the revenue we are going to realize over that same period. It's gibberish.

[classhandicapper]

I don't think Krugman ever said that lowering tax rates would cause revenues to rise. He may have said that targeted tax breaks could encourage businesses to reinvest in their business, but I doubt if he said lower rates mean increased revenue.

I'm sure he said that spending improves the economy and therefore causes revenue to rise, because that is true. For proof see the thirties, the forties, the fifties, the sixties and the seventies.

I am also certain that the National debt is around $16T as stated by Paul Krugman. Laurence Kotlikoff's theory that it is $222T is too stupid to entertain. It charges us with all the spending we are going to do over the foreseeable future without crediting us with the revenue we are going to realize over that same period. It's gibberish.

I disagree on all counts.

When they talk about the value of future obligations, they use PRESENT VALUE calculations. In other words, let's say I promise to pay your healthcare in 20 years and according to actuarial tables you will live on average about 15 years from the time I start. They calculate the cost of those payments for 15 years assuming a reasonable rate of inflation from now until then. Then they calculate what revenues will be at THAT TIME assuming reasonable rates of economic growth. The difference is the debt. Then they discount that amount back to the present using an appropriate interest rate to find the present value of that obligation. This kind of thing is more or less standard finance and the type of accounting that is required by private sector companies.

There are a lot of assumptions in there. So you can't be perfect. But 220 trillion is WAY more accurate than 16 trillion even if turns out to be 100 trillion instead (and it could turn out to be 300 trillion).

Krugman is so wrong on this, one has to question his honestly and motives because it's hard to believe a trained economist with a reasonably high IQ could make this mistake.

IMO the answer is that his motivation is not economics. It's politics. He has a vision of what he wants politically and is willing to use bogus economics and finance to mislead the public and improve the chances of getting his preferred politicians in power so they can implement his preferred policies.

He knows the long term implications of his policies, but when that happens he'll either be gone or advocate massively increased taxes across the board.