So, after all the mishigas that I wrote lately, I come across the following post that confirms my suspicion -- too many economists allow subjective preferences to play a major role in their "conclusions". In other words, they can very much be political hacks.
For those too lazy to open the link, it is a blog piece by Paul Krugman making the case for much higher tax rates on high income earners. I am not an economist (we know) so I will leave the more wonkish analysis around marginal product theory to the folks at Modeled Behavior.
But, I am a lawyer, and therefore no PhD in the black arts from MIT is necessary in order to identify the inconsistencies that abound here.
As many of us know, Mr. Krugman is very much our King Keynesian. Which means that he advocates for a theory that tells us the necessity of monetary and fiscal stimulus in times like these. Moreover, it also informs us that higher taxes generally are not stimulative, and simply a terrible idea in recessions -- it is the starting point, after all, for why so many from his team lay no claim to Herbert Hoover (even though he was instrumental in many of the ideas behind the New Deal).
Now, working in reverse, the higher taxes piece is an obvious affront to fun-loving Keynesians everywhere. There is no other explanation for Krugman's implied endorsement of such a policy except that it caters to his political beliefs and preferences -- even though he tries to mask it with econometrics.
But, the better part to me is how he runs into problems with fiscal stimulus, and directly contradicts a post that he made but a few days earlier...here. In it he refers to a recent speech by Christina Romer (of $800 billion stimulus fame) in which she makes the case for fiscal stimulus as a proven method for lifting/stopping the slide in an economy. What's particularly interesting, though, is that the examples she cites to prove the utility of fiscal stimulus all involve tax policy, whether rebates or otherwise -- a point that Scott Sumner also notices on his blog.
So, what motivates Krugman? He endorses the Keynesian approach, fiscal stimulus in particular, but then undermines his own position by referencing a study that says higher taxes would not impede economic recovery, even though he recently cited work by Romer that advocates the complete opposite. Uhmm...yeah, I think we have our answer. I just thought he was better at masking it.
