Man Without Qualities

Tuesday, October 12, 2004

What Me Worry Economists Win The Nobel Prize

Herr Doktorprofessor Paul Von Krugman didn't win the Nobel Prize again this year. Instead, it went to Edward Prescott and Finn Kydland, the first of whom immediately opined in a most politically incorrect manner:

President George W. Bush's tax rate cuts were "pretty small" and should have been bigger.

"What Bush has done has been not very big, it's pretty small," Prescott told CNBC financial news television.

"Tax rates were not cut enough," he said. Lower tax rates provided an incentive to work, Prescott said. .... The American analyst ... said a large tax cut in 1986 had lowered rates while collecting the same revenue. But "in the early '90s the economy was depressed by the tax increase in '93 by about four percent, and it's right at that level now," Prescott said.

Of course, that's not what prior economic Nobelist George Akerlof thinks, as Herr Doktorprofessor noted after he didn't win the Nobel Prize last year:
"What we have here is a form of looting." So says George Akerlof, a Nobel laureate in economics, of the Bush administration's budget policies — and he's right. With startling speed, we've blown right through the usual concerns about budget deficits — about their effects on interest rates and economic growth — and into a range where the very solvency of the federal government is at stake. ... Yet the administration insists that there's no problem, that economic growth will solve everything painlessly. And that puts those who want to stop the looting — which should include anyone who wants this country to avoid a Latin-American-style fiscal crisis, somewhere down the road — in a difficult position. Faced with a what-me-worry president, how do you avoid sounding like a dour party pooper?One answer is to explain that the administration's tax cuts are, in a fundamental sense, phony, because the government is simply borrowing to make up for the loss of revenue.

So there you have it from Herr Doktorprofessor's lips to God's ear. It's not enough for Herr Doktorprofessor that Messrs. Akerlof and Prescott merely disagree. By Herr Doktorprofessor's lights Edward Prescott must be a what-me-worry Nobelist who advocates yet more "phony" tax cuts and is an enemy of "fiscal sanity." As far as Herr Doktorprofessor is concerned, the Nobel Prize Committee might as well have honored Alfred E. Newman. And, presumably, in view of today's column, we might expect Herr Doktorprofessor to deem Mr. Prescott a lying sack of fertilizer just for good measure.

Gee, what will Herr Doktorprofessor write when President Bush holds the inevitable White House Rose Garden fete for Mr. Prescott?

UPDATE: Don Luskin provides a terrific detailed debunking of Herr Doktorprofessor's latest column. With Luskin's fisking out there, Senator Kerry uses Herr Doktorprofessor's arguments in tonight's debate at very much the Senator's own peril.

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