In a recent New York Times op-ed (, Paul Krugman continues his boundless quest to become the "it" guy in the world of economics. I have taken issue with his command of basic economic facts in the past -- a gutsy, if not insane thing to do given the man was awarded a Nobel Prize in Economics. In this post, however, the topic is more about ego than economics.
In this op-ed, Mr. Krugman says (and I kid you not), "...But after the debacle of the past two years, there’s broad agreement — I’m tempted to say, agreement on the part of almost everyone not on the financial industry’s payroll — with Mr. Turner’s assertion that a lot of what Wall Street and the City do is “socially useless.” And a transactions tax could generate substantial revenue, helping alleviate fears about government deficits. What’s not to like?"
Well, I disagree with the idea that what Wall Street does is socially useless. And I am not on the financial industry's payroll.
Nope, I'm just a simple ole' economist, using my head, training, and experience to consider this idea, map out the pros and cons, and analyze the logical end-game of such a tax. I conclude that it is a really bad idea.
Why? There are lots of reasons, but I will mention only two. One, raising taxes reduces private economic activity, which will curtail growth, reduce tax revenues and increase the deficit. Two, taxes distort the price signal between suppliers and demanders of goods and services, including financial capital, reducing economic efficiency.
His reasons? Other than citing one academic study (while ignoring the many others that reach a different conclusion), he gives no economic reasons for his views. Instead, he make claims. He claims, for example, that “socially damaging behavior … caused our current crisis.” He says that the financial services industry is “bloated” and needs to be cut down to size. He says that the new tax is okay because it raises revenues for the government which, he claims, should make us all feel better about the deficit and, apparently, the size and nature of government spending under Obama. And, the lamest of all, for no other reason than to hide behind their skirt, he claims the existence of some phantom majority, apparently to create the impression that anyone with a different view is clearly in the minority. A tactic that should be beneath a Noble Prize winner.
Mr. Krugman, I so disagree with you. Even in an op-ed piece -- perhaps especially in an op-ed piece – I believe that one
needs to reign in an ego that would parade claims as facts, especially when each of
those claims is disputed by your fellow economists, none of whom stooped so low
as to imply that you were paid for your views.
Mr. Krugman, I so disagree with you. Even in an op-ed piece -- perhaps especially in an op-ed piece – I believe that one needs to reign in an ego that would parade claims as facts, especially when each of those claims is disputed by your fellow economists, none of whom stooped so low as to imply that you were paid for your views.