After Newsweek published a rare cover story criticizing President Obama, New York Times columnist Paul Krugman sprang into action and criticized both the author, Niall Ferguson, and the publication over the story's claim that Obamacare is not deficit neutral.
"We're not talking about ideology or even economic analysis here -- just a plain misrepresentation of the facts, with an august publication letting itself be used to misinform readers. The Times would require an abject correction if something like that slipped through. Will Newsweek?"
Krugman pointed to the CBO analysis that said the Affordable Care Act would reduce the deficit as the final word on the matter. However, the CBO tends to optimistically assume revenue streams that will in reality never materialize. For example, the CBO estimates that $107 billion will be raised from "changes in taxable compensation and penalty payments," which I take to mean the new tax on Cadillac insurance plans. When taxes are calculated, there is a tendency to underestimate human response to increased taxation, which is avoidance. If there are x current Cadillac plans, and the tax rate is y, the government's revenue will be x times y. There, it raised a hundred billion dollars on paper. However, if Cadillac plans are going to get taxed at 30%, guess what--the real life response is that people are going to drop those plans or find some other way to avoid that tax and the government will never see that money.
The CBO can't accurately quantify how people will avoid the tax, but common sense tells us they will. Niall Ferguson apparently understood that, and for his recognition that the CBO estimates aren't the final word on the matter, he was smeared as unethical.
Now, let's put aside that fact that Paul Krugman, the Pulitzer-Prize winning Princeton economics professor, can't understand the concept that taxes affect people's behavior. For the sake of argument, we'll say that the CBO is the final word on the matter and Ferguson is dead wrong. Should Krugman be the one casting stones about the "misrepresentation of facts with an august publication letting itself be used to misinform readers." Remember, he said the Times "would require an abject correction if something like that slipped through."
Krugman's most recent column in the august New York Times seems to show that he himself misleads readers.
In it, he criticizes Paul Ryan's budget as "a con game."
On the tax side, Mr. Ryan proposes big cuts in tax rates on top income brackets and corporations. He has tried to dodge the normal process in which tax proposals are "scored" by independent auditors, but the nonpartisan Tax Policy Center has done the math, and the revenue loss from these cuts comes to $4.3 trillion over the next decade.
While Krugman assumes rosy revenue projections by ignoring real human responses to tax increases, he also is eager to assume big drops in revenue from tax decreases. It shouldn't take someone like me to teach him something about economics, but when tax rates decrease, economic activity can increase resulting in more tax revenue. If we thought like Krugman, a business that offers a one-day 20% storewide sale will have 20% less revenue that day than they would have without the sale. To him, a lower price means lower revenues and lower taxes mean lower revenues. To people with common sense, however, lower prices could mean higher revenues, and so can lower taxes.
But that's beside the point. It's not unethical for Krugman to be wrong about economics, even though that's what he's immersed in.
The unethical part is how he described the "nonpartisan" Tax Policy Center. That group is a joint venture of the Urban Institute and the Brookings Institute.
Did Krugman lie? Not technically--both groups call themselves nonpartisan, which makes it easier to pretend it's true. But Krugman's standard for Ferguson wasn't that he out-and-out lied, it was that he misled readers. That's exactly what Krugman did when he tried to pass off an ideologically biased group as an objective one during his criticism of Ryan's plan. And he did it in the august New York Times.
So not only is Krugman wrong about economic principles, he unfairly accused Ferguson of being unethical simply for disagreeing with the CBO estimates. Furthermore, Krugman himself really did mislead readers when he tried to cloak a biased group as an objective one in his latest column.