Runaway Banks Brought the Economy to its Knees
Krugman starts by throwing out an aphorism that is unquestioned by people on the left but still far from true: "runaway banks brought the economy to its knees." Yes, the banks had something to do it with it. They were lending the money for the mortgages that people couldn't afford. But why were they making those loans? The people who were taking out the loans had something to do with it (they're the ones who ultimately decided what they could afford). When an unqualified lendor takes out a "no doc" loan and later can't afford the payments, is that the bank's fault for trusting the borrower, or is it the borrower's fault? Is Krugman really saying the banks weren't paternalistic enough? (Actually, he is, but that's a separate discussion.)
Clinton and Bush on Tax Breaks and Job Creation
Krugman continues by saying this:
"After the experiences of the Clinton and Bush administrations — the first raised taxes and presided over spectacular job growth; the second cut taxes and presided over anemic growth even before the crisis."This is typical of Krugman's half truths. Krugman forgets to consider capital gains. Capital gains were at 28% when Clinton took office, and they were at 20% when he left office. Clinton didn't raise that tax; he lowered it. Krugman's right that Bush lowered the capital gains rate further still.
He also employs some sleight of hand on regular tax rates. The top marginal tax rate when Clinton took office was 31%, which Clinton quickly raised to 39.6%, where it stayed until Bush took office. Bush lowered the top rate to 35%, which was still higher than it had been when Clinton took office.
How about Krugman's claim about job creation? The Clinton years 1993-1999 were good for jobs creation, with the highest job-creating years occurring after Clinton lowered the capital gains rate (but raised the personal income tax rate).
When Bush took office in 2001, the economy lost 1.76 million jobs, but that was due to follow-on from the Clinton years. Bush inherited the dot com bubble burst from Clinton and then was hit by September 11.
2004-2007 under Bush were strong job-creating years. These were the years the "Bush tax cuts" were in effect. An average of about 2 million jobs per year were created "before the crisis." 2 million new jobs per year doesn't seem "anemic" (to use Krugman's word). It's higher than Clinton created during his last year in office, anyway.
The point isn't that Krugman is flat wrong. The point is that he glosses over important details to make the points he wants to make (e.g., ignoring Clinton's reduction of capital gains). Sometimes he picks the part of the argument that suits him and ignores the rest (the dot com burst and September 11). And sometimes he just plain makes up facts to suit his own purposes (see below).
Claim that Government Jobs Have Decreased Under Obama
Later in the article Krugman trots out his favorite misleading statistic,
"For the fact is that the Obama stimulus — which itself was almost 40 percent tax cuts — was far too cautious to turn the economy around. ... Put it this way: A policy under which government employment actually fell, under which government spending on goods and services grew more slowly than during the Bush years, hardly constitutes a test of Keynesian economics."The "government employment" that fell is total government jobs including federal, state, county, and local government jobs. Contrary to Krugman's claim, federal employment (the employment Obama controls) increased, as everyone knows, except for Krugman.
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