Paul Krugman

But the tax cut was supposed to do more than just give stockholders more money — or at least that’s what its proponents claimed. It was also supposed to lead to many years of high economic growth, 3 percent or more at an annual rate.

Independent observers were skeptical, to say the least. They conceded that the tax cut might lead to a brief sugar high, because that’s what big deficits do. But any favorable effects on growth, they argued, would soon fade out. And they always insisted that it would take some time to assess the tax cut’s actual effects.

Nonetheless, when the economy grew pretty fast in the second quarter of 2018, Trump and his supporters cried vindication, and ridiculed the critics.

But a bit of time has passed since then. While the numbers aren’t official, there are a number of independent observers, including both Federal Reserve banks and private financial institutions, that produce “nowcasts” that estimate growth based on early data. At this point, all these nowcasts show slowing growth, and most put the first quarter of 2019 at about 1.5 percent.

The results so far look nothing like the huge, sustained boom the Trump camp promised, but instead like the brief sugar high predicted by the critics.

But Trump is a special kind of leader. When things don’t go his way, when events fail to turn out as he planned and promised, he always knows exactly what to do: Blame someone else. Sure enough, he’s now asserting that we’d be having a “yuge" economic boom, 3 percent growth, all that, if only the Federal Reserve hadn’t raised interest rates.

OK, this is where you need to be able to hold two ideas in your head at the same time. Was the Fed wrong to raise rates? Probably yes. Does this account for the failure of the Trump tax cut? No.

The Fed was clearly overoptimistic about the economy’s prospects, as it has pretty consistently been for the past decade. It’s worth noting that throughout that whole period conservative critics of the Fed — the same people now backing Trump — attacked the institution for keeping interest rates too low, not too high. Still, it’s now clear that the attempt to normalize monetary policy was premature.

But the Fed’s premature rate hikes aren’t why the Trump tax cut is failing. How do we know that? Because all those boasts about why the tax cut would work miracles were based on a specific story about what is holding the U.S. economy back. And that story was and is all wrong.

The Trumpist theory — which was, I’m sorry to say, endorsed by conservative economists who should have known better — was that there was a huge pile of money sitting outside the U.S. that companies would bring back and invest productively if given the incentive of lower tax rates. But that pile of money was an accounting fiction. And the tax cut didn’t give corporations an incentive to build new factories and so on; all it did was induce them to shift their tax-avoidance strategies.

As Brad Setser of the Council on Foreign Relations points out, a casual glance at the data seems to suggest that U.S. companies earn a lot of their profits at their overseas subsidiaries. But a closer look shows that the bulk of these reported profits are in a handful of small countries with low or zero tax rates, like Bermuda, Luxembourg and Ireland. The companies obviously aren’t earning huge profits in these tiny economies; they’re just using accounting gimmicks to assign profits earned elsewhere to subsidiaries that may have a few factories, but sometimes consist of little more than a small office, or even just a post-office box.

These basically phony profits then accumulate on the books of the overseas subsidiaries, rather than the home company. But this doesn’t affect their ability to invest in the United States: if Apple wants to spend $1 billion here, it can always borrow the money using the assets of its Irish subsidiary as collateral. In other words, U.S. taxes weren’t having any significant effect in deterring real investment in the U.S. economy.

When Trump cut the tax rate, some companies “brought money home.” But for the most part this had no economic significance. Here’s how it works: Apple Ireland transfers some of its assets to Apple U.S.A. Officially, Apple Ireland has reduced its investment spending, while paying a dividend to U.S. investors. In reality, Apple as an entity has the same total profits and the same total assets it did before; it hasn’t devoted a single additional dollar to purchases of equipment, research and development, or anything else for its U.S. operations.

Not surprisingly, then, the investment boom Trump economists promised has never materialized. Companies didn’t use their tax breaks to invest more; mainly they used them to buy back their own stock. This in turn put more money in the hands of investors, which gave the economy a temporary boost — although for 2018 as a whole, one of the biggest drivers of faster growth was, believe it or not, higher government spending.

So the theory supposedly behind the Trump tax cut has turned out to be a complete bust. Corporate accountants got to have some fun exploring new frontiers in tax avoidance; the rest of us just ended up saddled with an extra $2 trillion or so in debt.

Now, I’m not deeply worried about that debt. Given low borrowing costs, the costs and risks of federal debt are far less than the usual suspects — again, the same people who cheered on the Trump tax cut — have claimed. But think of all the other things we could have done with $2 trillion — all the infrastructure we could have built and repaired, all the people who could have been given essential health care.

This article originally appeared in <a href="https://www.nytimes.com/2019/03/30/opinion/the-incredible-shrinking-trump-boom.html" id="b955b571-358a-31c3-a33a-212987a33973">The New York Times</a>.

So far, President Donald Trump has passed only one significant piece of legislation: the 2017 tax cut. It was, to be fair, a pretty big deal: corporations, the principal beneficiaries, have saved more than $150 billion, and over the course of a decade the tax cut will probably increase the budget deficit by more than $2 trillion.

The Incredible Shrinking Trump Boom

The White House is passing this off as a deliberate joke. More likely, someone slipped superheroes in to see whether anyone in charge was actually paying attention, and proved that they weren’t.

But the bigger news from the report involves the supposed economic payoffs from the Trump tax cut. Even the White House now acknowledges that the tax cut won’t do all they said it would — their wildly optimistic economic projections depend on the claimed payoff to other economic policies that they themselves haven’t specified. So tax cuts will do wonders for growth, as long as you do a bunch of other stuff, details to come later.

This puts me in mind of what Voltaire said about witchcraft: “It is unquestionable that certain words and ceremonies will effectually destroy a flock of sheep, if administered with a sufficient portion of arsenic.”

But beyond that, even the claimed positive effects of the tax cut itself are things we can already see aren’t happening.

So this report is double voodoo, or voodoo squared: it relies on voodoo economics to make big claims for tax cuts, then adds a whole additional layer of magic to get the growth projections the administration wants to hear.

A chart everyone is talking about shows a baseline representing what growth would supposedly be under pre-Trump policies, then a higher line showing the claimed effect of the tax cut, then still higher lines representing the effects of things like the Trump infrastructure plan.

The first thing to say, then, is that there is no Trump infrastructure plan. He’s well past the midpoint of his term, and there has been not a hint of an actual proposal. In fact, his latest budget significantly cuts infrastructure spending. So his economists are claiming credit for something he hasn’t enacted, hasn’t proposed, and for that matter hasn’t made the slightest gesture toward making happen.

Actually, my Voltaire quote is unfair. Trump wants to pretend that he can kill sheep with magic while actually using arsenic, but without actually administering any arsenic, or even asking where he might get some.

But wait, there’s more. A red line supposedly representing the effects of the TCJA shows substantially elevated growth for the next few years, even without the arsenic. But that’s not what independent economists are seeing. For example, the New York Fed’s “nowcast” — early estimates based on partial data — shows only 1.5 percent growth for the first half of this year. And the NY Fed is relatively optimistic; other nowcasters like the Atlanta Fed and Goldman Sachs are showing much lower growth in the first quarter, less than half a percent.

The White House explains why it’s predicting such big growth: the TCJA will cause a surge in business investment by “substantially raising the target capital stock and attracting increased net capital inflows.” And this rise in the capital stock will cause a surge in productivity. Except that there’s no sign of a surge in business investment: the report cherry-picks a few numbers, but overall orders for capital goods, probably the best real-time indicator, are showing nothing much (that 2015-16 slump, by the way, was about fracking, which fell off for a while when world oil prices plunged).

Nor has there been a huge increase in capital inflows — if there had been, we would, as a matter of sheer accounting, be seeing a huge rise in the trade deficit, not the modest increase we’ve actually witnessed.

In other words, the tax cut is a big fizzle — and even the White House is half-admitting as much.

Which then raises the question, why do people on the right keep insisting that cutting taxes on rich people and corporations will have magical positive effects on the economy? There have been so, repeat no, clear success stories for this doctrine — no, not even Reagan, who benefited from a severe Fed-generated recession early on his watch, followed by a Fed-generated recovery.

Yet the tax-cut zombie shambles on. Someone, despite decades of practical failure, there’s a phalanx of billionaire-funded think tanks promoting trickle-down economics, and a loyal army of right-wing politicians supported by wealthy donors who keep insisting that they have faith that the next tax cut will do everything it promises. Really.

Why is that? Somehow, I suspect we know the answer.

This article originally appeared in <a href="https://www.nytimes.com/2019/03/20/opinion/holy-voodoo-batman.html" id="5d0df6cc-7cab-3a5e-a840-12ffe4d7d4c9">The New York Times</a>.

The 2019 Economic Report of the President is out, and everyone is having fun with the bit at the end that acknowledges the help of student interns — a list that includes Peter Parker, Aunt May, Bruce Wayne, and Jabba the Hutt.

Holy Voodoo, Batman!

And this assumption has real implications for policy discussion. For example, a lot of the agitation for a universal basic income comes from the belief that jobs will become ever scarcer as the robot apocalypse overtakes the economy.

So it seems like a good idea to point out that in this case what everyone knows isn’t true. Predictions are hard, especially about the future, and maybe the robots really will come for all our jobs one of these days. But automation just isn’t a big part of the story of what happened to American workers over the past 40 years.

We do have a big problem — but it has very little to do with technology, and a lot to do with politics and power.

Let’s back up for a minute, and ask: What is a robot, anyway? Clearly, it doesn’t have to be something that looks like C-3PO, or rolls around saying “Exterminate! Exterminate!” From an economic point of view, a robot is anything that uses technology to do work formerly done by human beings.

And robots in that sense have been transforming our economy literally for centuries. David Ricardo, one of the founding fathers of economics, wrote about the disruptive effects of machinery in 1821!

These days, when people talk about the robot apocalypse, they don’t usually think of things like strip mining and mountaintop removal. Yet these technologies utterly transformed coal mining: Coal production almost doubled between 1950 and 2000 (it only began falling a few years ago), yet the number of coal miners fell from 470,000 to fewer than 80,000.

Or consider freight containerization. Longshoremen used to be a big part of the scene in major port cities. But while global trade has soared since the 1970s, the share of U.S. workers engaged in “marine cargo handling” has fallen by two-thirds.

Technological disruption, then, isn’t a new phenomenon. Still, is it accelerating? Not according to the data. If robots really were replacing workers en masse, we’d expect to see the amount of stuff produced by each remaining worker — labor productivity — soaring. In fact, productivity grew a lot faster from the mid-1990s to the mid-2000s than it has since.

So technological change is an old story. What’s new is the failure of workers to share in the fruits of that technological change.

I’m not saying that coping with change was ever easy. The decline of coal employment had devastating effects on many families, and much of what used to be coal country has never recovered. The loss of manual jobs in port cities surely contributed to the urban social crisis of the ‘70s and ‘80s.

But while there have always been some victims of technological progress, until the 1970s rising productivity translated into rising wages for a great majority of workers. Then the connection was broken. And it wasn’t the robots that did it.

What did? There is a growing though incomplete consensus among economists that a key factor in wage stagnation has been workers’ declining bargaining power — a decline whose roots are ultimately political.

Most obviously, the federal minimum wage, adjusted for inflation, has fallen by a third over the past half century, even as worker productivity has risen 150 percent. That divergence was politics, pure and simple.

The decline of unions, which covered a quarter of private-sector workers in 1973 but only 6 percent now, may not be as obviously political. But other countries haven’t seen the same kind of decline. Canada is as unionized now as the U.S. was in 1973; in the Nordic nations unions cover two-thirds of the workforce. What made America exceptional was a political environment deeply hostile to labor organizing and friendly toward union-busting employers.

And the decline of unions has made a huge difference. Consider the case of trucking, which used to be a good job but now pays a third less than it did in the 1970s, with terrible working conditions. What made the difference? De-unionization was a big part of the story.

And these easily quantifiable factors are just indicators of a sustained, across-the-board anti-worker bias in our politics.

Which brings me back to the question of why we’re talking so much about robots. The answer, I’d argue, is that it’s a diversionary tactic — a way to avoid facing up to the way our system is rigged against workers, similar to the way talk of a “skills gap” was a way to divert attention from bad policies that kept unemployment high.

And progressives, above all, shouldn’t fall for this facile fatalism. American workers can and should be getting a much better deal than they are. And to the extent that they aren’t, the fault lies not in our robots, but in our political leaders.

This article originally appeared in <a href="https://www.nytimes.com/2019/03/14/opinion/robots-jobs.html" id="f5133bd5-1fc2-37d3-af5b-26e138d57675">The New York Times</a>.

The other day I found myself, as I often do, at a conference discussing lagging wages and soaring inequality. There was a lot of interesting discussion. But one thing that struck me was how many of the participants just assumed that robots are a big part of the problem — that machines are taking away the good jobs, or even jobs in general. For the most part this wasn’t even presented as a hypothesis, just as part of what everyone knows.

Don't Blame Robots for Low Wages

Unfortunately, the aid isn’t going either to poor countries or to America’s allies. Instead, it’s going to wealthy foreign investors.

Before I get there, let’s talk for a second about a claim Trump often makes about a highly visible part of his economic strategy, the tariffs he has imposed on imports from China and other countries. These tariffs, he has insisted again and again, are being paid by China and represent billions in gains to the United States.

This claim is, however, demonstrably false. Tariffs are normally paid by consumers in the importing country, not exporters. And we can confirm that this is what’s happening with the Trump tariffs: Prices of goods subject to those tariffs have risen sharply, roughly in line with the tariff increases, while prices of goods not subject to the new tariffs haven’t gone up.

So Trump’s tariffs aren’t a tax on foreigners, whatever he may think. On the other hand, his other policies have given selective foreigners a huge tax break.

Remember, Trump’s only major legislative achievement is the 2017 Tax Cut and Jobs Act. The core of that bill was a sharp reduction in corporate tax rates, which has led to a drastic fall in tax revenues, on the order of $140 billion over the past year.

Who gains from this tax cut? Supporters of the bill claimed that the benefits would be passed on to workers in the form of higher wages, and they made a big deal over a flurry of corporate bonus announcements in early 2018. But those bonuses weren’t actually very big, and they didn’t continue.

In fact, at this point it’s clear that the bonus surge, such as it was, was all about tax avoidance: By moving up payments they were going to make anyway, corporations got to deduct the expense at the old, higher tax rate. Now that this option has expired, bonuses have dropped back to their normal level, or even a bit lower.

What about the argument that tax cuts would promote a huge swell in business investment, which would push up wages? Well, that isn’t happening, either; when it comes to business spending, the tax cut has been a big fizzle.

So who is benefiting from the tax cut? Basically, shareholders, who have received increased dividends and seen a lot of capital gains as corporations use their windfall not to invest, but to buy back their own stocks.

And a big share of these gains to shareholders has gone to foreigners.

We live, after all, in an era of globalized finance, in which wealthy investors normally own assets in many countries. Americans own trillions in foreign equity, both directly in the form of foreign stocks and indirectly in the form of stocks of U.S. corporations with foreign subsidiaries. Foreigners, correspondingly, have a big stake here, again both through direct stock ownership and via operation of their corporate subsidiaries.

Overall, foreigners own about 35% of the equity in corporations subject to U.S. taxes. And as a result, foreign investors have received around 35% of the benefits of the tax cut. As I said, that’s more than $40 billion a year.

To put this in perspective, Trump’s tariffs on China have raised $20 billion. Even if China were paying those tariffs — which it isn’t — that would fall well short of the gift he’s made to foreign investors.

Alternatively, we can compare Trump’s gift to foreign investors with our actual spending on foreign aid (which is much smaller than most people imagine). In 2017, the U.S. spent $51 billion on “international affairs,” but much of that was either the cost of operating embassies or military assistance. The Trump tax break for overseas investors is considerably bigger than the total amount we spend on foreign aid proper.

Now, the U.S. economy is almost inconceivably huge, producing more than $20 trillion worth of goods and services every year. We’re also a country that investors trust to honor its debts, so the tax cut, irresponsible as it is, isn’t causing any immediate fiscal stress.

So Trump’s giveaway to foreign investors isn’t going to make or break us, although it’s probably enough to ensure that the tax cut will be, overall, a net drain on economic growth: Even if the tax cut has some positive effect on the total income generated here (which is doubtful), this will probably be more than offset by the increased share of that income accruing to foreigners rather than U.S. citizens.

Still, even in America, $40 billion here, $40 billion there, and eventually you’re talking about real money. Furthermore, it does seem worth pointing out that even as Trump boasts about taking money away from foreigners, his actual policies are doing exactly the opposite.

This article originally appeared in <a href="https://www.nytimes.com/2019/07/25/opinion/trump-foreign-investors.html" id="c2f60de2-3297-3666-a9c8-52b1116caa95">The New York Times</a>.

Donald Trump often complains that the media don’t give him credit for his achievements. And I can think of at least one case where that’s true. As far I can tell, almost nobody is reporting that he has presided over a huge — but hidden — increase in foreign aid, the money America gives to foreigners. In fact, the hidden Trump program, running around $40 billion a year, is probably the biggest giveaway to other nations since the Marshall Plan.

Trump's Secret Foreign Aid Program

But right now, two of the major contenders for the Democratic presidential nomination, Joe Biden and Bernie Sanders, are having an ugly argument about health care that could hurt the party’s chances. There are real, important differences between the two men’s policy proposals, and it’s fine to point that out. What’s not fine is the name-calling and false assertions. Both men are behaving badly. And for their party’s sake, and their country’s, they need to stop it.

Let’s back up. There are, broadly speaking, two ways a country can try to achieve universal health insurance. One is single-payer: The government simply pays the bills. The other retains a role for private insurance but relies on a combination of regulations and subsidies to ensure that everyone gets covered.

We don’t have to speculate about how these systems would work in practice because every advanced country except the U.S. has some form of universal coverage. Some, like Canada and Britain, use single-payer (in Britain the government also operates the hospitals and pays the doctors). Others, like Switzerland and the Netherlands, have a large role for private insurers.

The clean little secret of health care is that both approaches work when countries try to make them work. In fact, we can see both systems at work right here in America.

More than 100 million Americans are covered by Medicare or Medicaid, which are both single-payer programs; despite Ronald Reagan’s ominous warnings back in 1961, neither destroyed American freedom. Since 2014, millions more have been covered by the Affordable Care Act, which was underfunded and has been subject to extensive Republican sabotage; nonetheless, states like California that have tried to make the act work have experienced huge declines in the number of residents without insurance.

Which brings us back to the Democratic quarrel.

Sanders, of course, has made “Medicare for All” his signature proposal. Could such a plan work? Absolutely. But there are two valid criticisms of his proposal.

First, it would have to be paid for with higher taxes. While many people would find the increased tax burden offset by lower premiums, the required tax increases would be daunting. And while Sanders has in fact proposed a number of new taxes, independent estimates say that the revenue they’d generate would fall far short of what his plan would cost.

Second, the Sanders plan would require that roughly 180 million Americans give up their current private insurance and replace it with something different. Convincing them that this would be an improvement, even if true, would be a tall order. Indeed, there’s good reason to believe that eliminating the option of retaining private insurance would be an electoral loser. (Elizabeth Warren and Kamala Harris, take heed.)

On the other side, Biden is proposing to build on Obamacare. That can sound like tinkering at the edges. But his actual plan is much bigger and better than is widely realized, with large increases in funding, a public option and more. It would, arguably, bring the ACA close to the standards of successful European systems.

That said, the Biden plan would preserve the crazy-quilt, Rube Goldberg aspects of our current system, which impose a lot of unnecessary costs and make it too easy for people to fall through the cracks.

So there’s plenty of room for a good-faith Sanders-Biden argument. Unfortunately, that’s not the argument they’re having.

Instead, Sanders is arguing that only single-payer can purge “corporate greed” from the system — an assertion belied by European experience — and broadly hinting that Biden is in the pocket of corporate interests. That’s a criticism you can level about some of Biden’s past policy positions, like his advocacy of the 2005 bankruptcy law. But it’s not a fair criticism of a health plan that’s actually pretty good and which most people would have considered radical just a few years ago.

For his part, Biden is declaring that the Sanders plan would undermine Medicare. In fact, it would enhance current recipients’ benefits. And it’s a bad sign that Biden, who poses as Obamacare’s great defender, is using a GOP scare tactic familiar from the utterly dishonest campaign against the ACA. No Democrat should be stooping to that level.

Unfortunately, Biden and Sanders will be appearing on different nights during the next Democratic debates. So it will be up to other candidates, or the moderators, to put them on the spot. It’s time for both men to stop poisoning their own party’s well.

This article originally appeared in <a href="https://www.nytimes.com/2019/07/22/opinion/biden-sanders-health-care.html" id="91ab49be-fcdc-31af-ad22-c295202fee69">The New York Times</a>.

Health care was a key factor in Democrats’ victory in the 2018 midterm elections, and it should be a big plus in 2020 as well. The shared Democratic position — that every legal resident should have access to affordable care, regardless of income or health status — is immensely popular. The de facto Republican position — that we should go back to a situation in which those whose jobs don’t come with health benefits, or who suffer from preexisting medical conditions, can’t get insurance — is so...

Biden and Sanders, Behaving Badly

On one side, Donald Trump wastes no opportunity to remind us how awful he is. His latest foray into overt racism delights his base but repels everyone else. On the other side, he presides over an economy in which unemployment is very low and real GDP grew 3.2% over the past year.

But the election won’t be tomorrow, it will be an exhausting 15 months from now. Trump’s character won’t change, except possibly for the worse. But the economy might look significantly different.

So let’s talk about the Trump economy.

The first thing you need to know is that the Trump tax cut caused a huge rise in the budget deficit, which the administration expects to hit $1 trillion this year, up from less than $600 billion in 2016. This tidal wave of red ink is even more extraordinary than it looks, because it has taken place despite falling unemployment, which usually leads to a falling deficit.

Strange to say, none of the Republicans who warned of a debt apocalypse under President Barack Obama have protested the Trump deficits. (Should we put Paul Ryan’s face on milk cartons?) For that matter, even the centrists who obsessed over federal debt during the Obama years have been pretty quiet. Clearly, deficits matter only when there’s a Democrat in the White House.

Oh, and the imminent fiscal crisis people like Erskine Bowles used to warn about keeps not happening: Long-term interest rates remain very low.

Now, the evidence on the effects of deficit spending is clear: It gives the economy a short-run boost, even when we’re already close to full employment. If anything, the growth bump under Trump has been smaller than you might have expected given the deficit surge, perhaps because the tax cut was so badly designed, perhaps because Trump’s trade wars have deterred business spending.

For now, however, Deficit Man is beating Tariff Man. As I said, we’ve seen good growth over the past year.

But the tax cut was supposed to be more than a short-run Keynesian stimulus. It was sold as something that would greatly improve the economy’s long-run performance; in particular, lower corporate tax rates were supposed to lead to a huge boom in business investment that would, among other things, lead to sharply higher wages. And this big rise in long-run growth would supposedly create a boom in tax revenues, offsetting the upfront cost of tax cuts.

None of this is happening. Corporations are getting to keep a lot more of their profits, but they’ve been using the money to buy back their own stock, not raise investment. Wages are rising, but not at an extraordinary pace, and many Americans don’t feel that they’re sharing in the benefits of a growing economy.

And this is probably as good as it gets.

I’m not forecasting a recession. It could happen, and we’re very badly positioned to respond if it does, but the more likely story is just a slowdown as the effects of the deficit splurge wear off. In fact, if you believe the “nowcasters” (economists who try to get an early read on the economy from partial data), that slowdown is already happening. For example, the Federal Reserve Bank of New York believes that the economy’s growth was down to 1.5% in the second quarter.

And it’s hard to see where another economic bump can come from. With Democrats controlling the House, there won’t be another big tax cut. The Fed may cut interest rates, but those cuts are already priced into long-term interest rates, which are what matter for spending, and the economy seems to be slowing anyway.

Which brings us back to the 2020 election.

Political scientists have carried out many studies of the electoral impact of the economy, and as far as I know they all agree that what matters is the trend, not the level. The unemployment rate was still more than 7% when Ronald Reagan won his 1984 landslide; it was 7.7% when Obama won in 2012. In both cases, however, things were clearly getting better.

That’s probably not going to be the story next year. If we don’t have a recession, unemployment will still be low. But economic growth will probably be meh at best — which means, if past experience is any guide, that the economy won’t give Trump much of a boost, that it will be more or less a neutral factor.

And on the other hand, Trump’s awfulness will remain.

Republicans will, of course, portray the Democratic nominee — whoever she or he may be — as a radical socialist poised to throw the border open to hordes of brown-skinned rapists. And one has to admit that this strategy might work, although it failed last year in the midterms. To be honest, I’m more worried about the effects of sexism if the nominee is a woman — not just the sexism of voters, but that of the news media, which still holds women to different standards.

But as far as the economy goes, the odds are that Trump’s deficit-fueled bump came too soon to do him much political good.

This article originally appeared in <a href="https://www.nytimes.com/2019/07/18/opinion/2020-trump-economy.html" id="cdc5a4c3-d6ee-358b-a5ec-aa4235372fb8">The New York Times</a>.

I’ve seen a number of people suggest that the 2020 election will be a sort of test: Can a sufficiently terrible president lose an election despite a good economy? And that is, in fact, the test we’d be running if the election were tomorrow.

Deficit Man and the 2020 Election

But Republicans were up in arms, warning that the Fed’s policies would lead to runaway inflation. A congressman named Mike Pence introduced a bill that would prohibit the Fed from even considering the state of the labor market in its actions. A who’s who of Republicans signed an open letter to Ben Bernanke demanding that he stop his monetary efforts, which they claimed would “risk currency debasement and inflation.”

And supposedly respectable Republicans engaged in conspiracy theorizing, suggesting that the Fed was secretly in league with the Obama administration. Paul Ryan and the economist John Taylor declared that the Fed’s policy “looks an awful lot like an attempt to bail out fiscal policy, and such attempts call the Fed’s independence into question.”

Of course, all these warnings were totally wrong. Inflation never took off. Almost none of the people who waxed hysterical over inflation have so much as acknowledged having been wrong. Bernanke, Fed economists, and Keynesians in general were proved right: printing money isn’t inflationary in a depressed economy.

But what lay behind all these dire warnings about inflation? Well, they came at the same time that Republicans were warning about the terrible, horrible, no-good consequences of deficit spending.

And it was obvious even at the time that Republican deficit posturing was hypocritical — obvious, that it, to everyone except the entire Beltway establishment. All you had to do was look at what was actually in Ryan’s budget proposals to realize that he wasn’t sincere, that he was using deficits as an excuse to bash social programs and hobble Obama. It was utterly predictable that Republicans would decide that deficits don’t matter as soon as they recaptured the White House.

But I thought that monetary policy was a bit different. Republicans have been the party of fiscal irresponsibility since Reagan, and there was no reason to believe they had changed. But goldbuggery, hatred of fiat money and abhorrence for the printing press did seem to be long-standing attitudes on the right. I imagined that Ryan, who once asserted that he had learned all he needed to know about monetary policy from “Atlas Shrugged,” might actually believe what he was saying about the Fed.

In light of recent events, however, it appears that I was wrong. Republican posturing on monetary policy was as insincere as the party’s posturing on fiscal policy. We now have to see the party’s 2010-2011 demands for tight monetary policy, like its demands for tight fiscal policy, as reflecting not economic principles, but rather a desire to sabotage Barack Obama.

You see, Donald Trump’s attempt to install Stephen Moore at the Fed failed for the wrong reason. Moore fell short because he turns out to be a loathsome individual. But he should have been rejected out of hand simply on the basis of his economic views. Not only was he wrong, again and again, during the financial crisis and its aftermath; not only did he refuse to admit error, or learn anything from his mistakes; but he turned on a dime as soon as Trump was in office, showing himself to be a purely political animal. He demanded higher interest rates when unemployment was above 9 percent; now he’s demanding lower rates with unemployment below 4 percent.

But as I said, that’s not why Moore fell short — because his whole party has followed the same path. Mike Pence, who demanded higher rates in the deeply depressed economy of 2010, wants lower rates now. No Republicans in Congress seem to have criticized Moore for his policy views, as opposed to his misogyny. Aside from Harvard’s Greg Mankiw, not one prominent Republican economist stepped up to oppose Moore, even though he clearly was engaged precisely in the kind of politicization of monetary policy Taylor and Ryan claimed to see in 2010.

Sure enough, Republicans are advocating now the policies they opposed when they were most needed. As Matt O’Brien points out, you don’t see the same thing on the Democratic side: Center-left economists who have argued for years that the Fed was being too conservative are still saying the same thing with Trump in office.

What all this tells us is that Republican positioning on economic policy has been in bad faith all these years. They didn’t really believe that a debt crisis and hyperinflation were looming. They were just against anything that might help the economy while a Democrat was president.

This article originally appeared in <a href="https://www.nytimes.com/2019/05/04/opinion/the-sabotage-years.html" id="3230abc8-20f1-3c64-a46f-cce436642f32">The New York Times</a>.

Do you remember the great inflation scare of 2010-2011? The U.S. economy remained deeply depressed from the aftereffects of the burst housing bubble and the 2008 financial crisis. Unemployment was still above 9 percent; wage growth had slowed to a crawl, and measures of underlying inflation were well below the Federal Reserve’s targets. So the Fed was doing what it could to boost the economy — keeping short-term interest rates as low as possible, and buying long-term bonds in the hope of gett...

The Sabotage Years

Well, I have concerns. Not about electability, a topic about which nobody knows anything. Never mind what today’s general election polls say: What will polling look like after the inevitable Republican smear campaign? The answer to this question depends, in turn, on whether news organizations will cooperate with those smears as gleefully as they did in 2016.

No, my concerns are about what will happen if either man wins. Are they ready for the political trench warfare that would inevitably follow a Democratic victory?

The trouble with both Biden and Sanders is that each, in his own way, seems to believe that he has unique powers of persuasion that will let him defy the harsh reality of today’s tribal politics. And this lack of realism could set either of them up for failure.

Start with Biden, a convivial guy who has maintained good personal relations with Republicans. All indications are that he believes that these good personal relations will translate into an ability to make bipartisan deals on policy.

But we’ve already seen this movie, and it was a tragedy. Barack Obama took office with a message of unity and bipartisan outreach, and a sincere belief that he could get many Republicans to back his efforts to revive the economy, reform health care, and more. Instead he faced total scorched-earth opposition.

And Obama’s belief that he could transcend partisanship nearly sank his presidency. Crucial months were wasted trying to devise health reform legislation that could attract Republican support; Obama’s signature achievement happened only because Nancy Pelosi’s heroic efforts dragged the Affordable Care Act across the finish line. He was willing to make a “grand bargain” with Republicans that would have undermined Medicare and Social Security, deeply damaging the Democratic brand; he was saved only by the GOP’s total intransigence, its unwillingness to contribute a single penny’s worth of tax increases.

The big concern about a Biden presidency is that he would repeat all of Obama’s early mistakes, squandering any momentum from electoral victory in pursuit of a bipartisan dream that should have died long ago.

Sanders, by contrast, doesn’t do bipartisanship. He doesn’t even do unipartisanship, refusing to call himself a Democrat even as he seeks the party’s nomination. But what Sanders appears to believe is that he can persuade voters not just to support progressive policies, but to support sweeping policy changes that would try to fix things most people don’t consider broken.

That, after all, is what his Medicare for All push, which would eliminate private insurance, amounts to. He is saying to the 180 million Americans who have private insurance, many of whom are satisfied with their coverage: “I’m going to take away the insurance you have and replace it with a government program. Also, you’re going to pay a lot more in taxes. But trust me, the program will be better than what you have now, and the new taxes will be less than you currently pay in premiums.”

Could those claims be true? Yes. Will voters believe them? Probably not. Polling shows that support for Medicare for All falls off drastically when people are informed that it would eliminate private insurance and require higher taxes.

You might try to rationalize the Sanders position by saying that Medicare for All is an aspirational plan, and that in practice he would be willing to accept a more gradualist approach. But that’s not what his behavior suggests. On the contrary, Sanders has conspicuously refused to support measures that would enhance Obamacare, even as a temporary expedient.

For Sanders, then, it seems to be single-payer or bust. And that would mean — with very high likelihood — bust.

We’re not talking about right versus left here. The Democratic Party has become much more solidly progressive, and that will be reflected in the policies of any Democrat who makes it to the White House. The issue, instead, is whether he or she will be willing to face up to the harsh realities of today’s politics.

Democratic candidates in the next tier of the current race seem to get it. Warren’s proposals are very progressive, but they’re also incremental, and even her fairly radical ideas, like her proposed wealth tax, poll well. Anyone who watched Kamala Harris at Wednesday’s William Barr hearing knows that she has no illusions about the state of partisanship.

Biden and Sanders, however, come across as romantics. Biden appears stuck in the past, when real bipartisanship sometimes happened. Sanders appears to live in an imaginary future, where a popular tidal wave washes away all political obstacles. Neither man seems ready for the tough fights that will follow even if he wins.

This article originally appeared in <a href="https://www.nytimes.com/2019/05/02/opinion/sanders-biden-2020.html" id="730036c6-e1f2-31e1-aa8f-092042705ff0">The New York Times</a>.

It’s still very early, but Joe Biden has emerged as the clear front-runner for the Democratic nomination. Bernie Sanders is in second place, although he appears to be fairly far behind, and one poll shows him in a statistical tie with Elizabeth Warren. So what should we think about the men currently leading the field?

The Trouble With Joe and Bernie

There has been a lot of commentary about Stephen Moore, the man Donald Trump wants to put on the Fed’s Board of Governors. It turns out that he has a lot of personal baggage: He was held in contempt of court for failing to pay alimony and child support, and his past writings show an extraordinary degree of misogyny. He misstates facts so much that one newspaper editor vowed never to publish him again, and he has been caught outright lying about his past support for a gold standard. Oh, and he has described the cities of the U.S. heartland as “armpits of America.”

But it’s also important to put Moore in context. Until he decided that the Fed should roll those printing presses to help Trump, he was part of a fairly broad group that advocated tight money in the aftermath of the global financial crisis. This group bitterly criticized both the Fed’s low interest rates and its efforts to boost the economy by buying bonds, so-called “quantitative easing.” Its members warned that these policies would lead to runaway inflation, and seized on a rise in commodity prices in 2011-12 as the harbinger of an inflationary surge.

Meanwhile, economists at the Fed and elsewhere argued that there was no inflationary risk given the depressed state of the economy, and that “core” inflation, which excludes volatile food and energy prices, was a much better indicator of inflationary pressure than commodity prices. Sure enough, the commodity price surge was a temporary blip, and runaway inflation never happened.

The Fed was right, and its hard-money critics were wrong. In fact, it’s hard to think of other events in economic history in which rival doctrines received such a clear test, and in which one of them emerged so decisively as the winner. When it comes to evidence settling an economic dispute, the monetary events of 2009-14 or so were as good as it gets.

But two funny things happened once the verdict of the evidence was in. First, aside from a vague mea culpa from Larry Kudlow, none of the Fed’s critics were willing to admit that they were wrong. In 2014 Bloomberg contacted signatories of a 2010 open letter to then-Fed Chairman Ben Bernanke warning of an inflationary explosion, to ask what they thought given subdued inflation and a solid economic recovery. Not one was willing to admit that the letter’s warnings had proved incorrect.

Second, the people who got it wrong were if anything rewarded for their errors. Moore, who was among the right-wingers who called for interest rate hikes in 2007-8 to head off what they saw as looming inflation as the Great Recession was already underway, was wrong about everything during the financial crisis. He remained a fixture on the right-wing conference circuit, and in 2014 the Heritage Foundation appointed him as its chief economist. Kudlow, who dismissed those warning about the housing bubble as “bubbleheads,” and warned about looming inflation in the depths of recession, is now the Trump administration’s chief economist.

So the attempt to install Moore at the Fed is right in character. And let’s be clear: The issue is not simply one of having made some bad forecasts. It’s about being consistently wrong about everything, and refusing to learn from error.

Recently Moore declared that the Fed is “filled with hundreds of economists who are worthless, who have the wrong model in their mind. They should all be, they should all be fired, and they should be replaced by good economists.” Given the respective track records of the Moore and the Fed over the past decade and more, what he apparently means by the “wrong model” is a view of inflation that has repeatedly been proved right, as opposed to his own analysis, which has always been wrong.

But so far not a single Republican senator has questioned Moore’s qualifications. When it comes to right-wing economists, what we see is a clear pattern of survival of the wrongest.

This article originally appeared in <a href="https://www.nytimes.com/2019/04/24/opinion/survival-of-the-wrongest.html" id="8f9f96ac-f58e-35c5-a5e4-30f3ea8b0a81">The New York Times</a>.

Evidence has a well-known liberal bias. And that, presumably, is why conservatives prefer “experts” who not only consistently get things wrong, but refuse to admit or learn from their mistakes.

Survival of the Wrongest

The answer seems to be that Sanders got a lot of book royalties after the 2016 campaign, and was afraid that revealing this fact would produce headlines mocking him for now being part of the 1 Percent. Indeed, some journalists did try to make his income an issue.

This line of attack is, however, deeply stupid. Politicians who support policies that would raise their own taxes and strengthen a social safety net they’re unlikely to need aren’t being hypocrites; if anything, they’re demonstrating their civic virtue.

But failure to understand what hypocrisy means isn’t the only way our discourse about politics and inequality goes off the rails. The catchphrase “the 1 Percent” has also become a problem, obscuring the nature of class in 21st-century America.

Focusing on the top percentile of the income distribution was originally intended as a corrective to the comforting but false notion that growing inequality was mainly about a rising payoff to education. The reality is that over the past few decades the typical college graduate has seen only modest gains, with the big money going to a small group at the top. Talking about “the 1 Percent” was shorthand for acknowledging this reality, and tying that reality to readily available data.

But putting Bernie Sanders and the Koch brothers in the same class is obviously getting things wrong in a different way.

True, there’s a huge difference between being affluent enough that you don’t have to worry much about money and living with the financial insecurity that afflicts many Americans who consider themselves middle class. According to the Federal Reserve, 40 percent of U.S. adults don’t have enough cash to meet a $400 emergency expense; a much larger number of Americans would be severely strained by the kinds of costs that routinely arise when, say, illness strikes, even for those who have health insurance.

So if you have an income high enough that you can easily afford health care and good housing, have plenty of liquid assets and find it hard to imagine ever needing food stamps, you’re part of a privileged minority.

But there’s also a big difference between being affluent, even very affluent, and having the kind of wealth that puts you in a completely separate social universe. It’s a difference summed up three decades ago in the movie “Wall Street,” when Gordon Gekko mocks the limited ambitions of someone who just wants to be “a $400,000-a-year working Wall Street stiff flying first class and being comfortable.”

Even now, most Americans don’t seem to realize just how rich today’s rich are. At a recent event, my City University of New York colleague Janet Gornick was greeted with disbelief when she mentioned in passing that the top 25 hedge fund managers make an average of $850 million a year. But her number was correct.

One survey found that Americans, on average, think that corporate CEOs are paid about 30 times as much as ordinary workers, which hasn’t been true since the 1970s. These days the ratio is more like 300 to 1.

Why should we care about the very rich? It’s not about envy, it’s about oligarchy.

With great wealth comes both great power and a separation from the concerns of ordinary citizens. What the very rich want, they often get; but what they want is often harmful to the rest of the nation. There are some public-spirited billionaires, some very wealthy liberals. But they aren’t typical of their class.

The very rich don’t need Medicare or Social Security; they don’t use public education or public transit; they may not even be that reliant on public roads (there are helicopters, after all). Meanwhile, they don’t want to pay taxes.

Sure enough, and contrary to popular belief, billionaires mostly (although often stealthily) wield their political power on behalf of tax cuts at the top, a weaker safety net and deregulation. And financial support from the very rich is the most important force sustaining the extremist right-wing politics that now dominates the Republican Party.

That’s why it’s important to understand who we mean when we talk about the very rich. It’s not doctors, lawyers or, yes, authors, some of whom make it into “the 1 Percent.” It’s a much more rarefied social stratum.

None of this means that the merely affluent should be exempt from the burden of creating a more decent society. The Affordable Care Act was paid for in part by taxes on incomes in excess of $200,000, so $400K-a-year working stiffs did pay some of the cost. That’s OK: They (we) can afford it. And whining that $200,000 a year isn’t really rich is unseemly.

But we should be able to understand both that the affluent in general should be paying more in taxes, and that the very rich are different from you and me — and Bernie Sanders. The class divide that lies at the root of our political polarization is much starker, much more extreme than most people seem to realize.

This article originally appeared in <a href="https://www.nytimes.com/2019/04/18/opinion/bernie-sanders-tax.html" id="2cac2270-7fa7-3aa7-af4f-971a7e187df9">The New York Times</a>.

A peculiar chapter in the 2020 presidential race ended Monday, when Sen. Bernie Sanders, after months of foot-dragging, finally released his tax returns. The odd thing was that the returns appear to be perfectly innocuous. So what was all that about?

Bernie Sanders and the Myth of the 1 Percent

Yet while they may seem similar, if you think of everything as left versus right, they’re very different on another dimension, which you might call purity versus pragmatism. And that difference is why I believe progressives should enthusiastically embrace the GND while being much more cautious about M4A.

You see, for all its sweeping ambition, the Green New Deal is arguably an exercise in pragmatism — in the proposition that the perfect is the enemy of the good.

What’s the perfect in this case? Climate-policy purists are focused on the notion of a carbon tax to discourage greenhouse gas emissions, and they look down on any proposal that doesn’t put such a tax front and center.

What’s wrong with a carbon tax as the centerpiece of climate policy? There are some narrow economic arguments for a broader range of public policies — for example, government support can be crucial for the development of new energy technologies.

Even more important, however, is the political economy. A carbon tax would hurt significant groups of people — and not just fossil-fuel billionaires like the Koch brothers. As a result, a carbon tax on its own is the kind of eat-your-spinach policy that technocrats love but many ordinary citizens hate, as illustrated by what just happened in France, where a planned fuel tax increase was withdrawn in the face of furious “Yellow Vest” protests.

So how do you make climate action politically feasible? The GND answer is to bundle measures to reduce emissions with a lot of other stuff people want, like big public investment even in areas with only weak direct relationships to climate change.

You could call the GND a proposal for economic transformation that includes climate action. But you could also call it a “Christmas tree,” the traditional term for legislation festooned with lots of riders unrelated to the ostensible purpose in order to win political support.

The point is that climate action probably won’t happen unless it’s a Christmas tree — and the GND’s advocates are OK with that. In that sense, they’re pragmatists despite their big ambitions.

Medicare for all, by contrast, is an exercise in the proposition that we must not settle for anything less than the ideal.

Indeed, Sanders has explicitly refused to support Nancy Pelosi’s proposal to enhance Obamacare, even though her proposal would expand health insurance coverage to millions of Americans and make it more affordable for millions more. His reasoning seems to be that making things better, even as an interim step, would undermine support for a more radical transformation.

To be fair, the simplicity of the pure single-payer, government insurance system Sanders advocates would have some advantages over the hybrid public-private systems that have been proposed by other progressives — for example, letting people keep private insurance if they want, but offering the option of Medicare buy-in.

You might say that single-payer is the system technocrats would choose if they had a free hand, with few political constraints. In fact, that’s pretty much what happened in Taiwan, which asked a panel of experts to design its health care system, and ended up with single-payer.

On the other hand, international experience shows that universal coverage and high quality health care can be achieved in a variety of ways; technocrats may prefer single-payer, but it’s not essential.

And the political obstacles to a Sanders-type plan are formidable. Almost 180 million Americans are covered by private health insurance, and many of them are satisfied with their coverage. Polling suggests that while the public reacts favorably to the slogan “Medicare for all,” that support drops precipitously when people are informed that it would eliminate private insurance and require substantial tax increases.

The Sanders view, however, is that a sufficiently determined leader can overcome these doubts and persuade many voters who are currently doing OK that radical change is nonetheless in their interests. I don’t know of anything in recent history to justify this belief, but there it is.

My guess is that if Sanders does make it to the White House, he’ll quickly find that he can’t deliver on his grand vision, and will eventually try for a less purist alternative. And let’s be clear: A lot more Americans will have affordable health care if any Democrat is elected than they will if Donald Trump retains the White House.

Still, it’s important to realize that among Democrats, purity versus pragmatism is as important an axis as left versus right. And the two big progressive ideas are on opposite ends of that axis.

This article originally appeared in <a href="https://www.nytimes.com/2019/04/11/opinion/green-new-deal-medicare-for-all.html" id="c701093d-b77c-3949-a843-db0abe9ce652">The New York Times</a>.

Right now there are two big progressive ideas out there: the Green New Deal on climate change and “Medicare for all” on health reform. Both would move U.S. policy significantly to the left. Each is sponsored by a self-proclaimed socialist: the Green New Deal by Alexandria Ocasio-Cortez and Medicare for all by Bernie Sanders. (Of course, neither of them is a socialist in the traditional sense.) Both ideas horrify not just conservatives, but also many self-proclaimed centrists.

Paul Krugman

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