Home > Economic policy, Economics - General > Krugman wins Economics Nobel

Krugman wins Economics Nobel

October 13th, 2008

Paul Krugman has been awarded the 2008 Nobel prize for economics[1]. The rules of the prize, honoured more in the breach than in the observance in economics, say that it is supposed to be given for a specific discovery, and Krugman is cited for his groundbreaking work in the economics of location done from the late 1970s to the early 1990s.

The reality, though, is that economics prizes are awarded for careers. Krugman’s early work put him on the list of likely Nobelists, but his career took an unusual turn around the time of the 2000 election campaign. While he has still been active in academic research, Krugman’s career for the last eight years or more has been dominated by his struggle (initially a very lonely one) against the lies of the Bush Administration, its supporters and enablers. Undoubtedly, the award of the prize in this of all years, reflects an appreciation of this work on behalf of truth in economics and politics more generally.[2]

The crew at Crooked Timber, of which I’m part, have a more parochial reason for cheering this outcome. Paul has generously agreed to take a part in a CT seminar on the work of Charles Stross, which should be published in the next month or so. Without giving too much away, there are some Nobel-related insights in his contribution.

fn1. Strictly speaking, the Bank of Sweden prize in Economic Sciences in honour of Alfred Nobel, or something like that.
fn2. Doubtless, Republicans will complain about being implicitly identified, yet again, as enemies of science and of truth. But they’ve made their bed and must lie in it (in both senses of the word).

  1. sean
    October 13th, 2008 at 22:46 | #1

    You mean the PRETEND noble prize in economics?

    I think you will find the full title “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2008″

    No he and NO economist deserves such prizes, they are why we are in the mess we are.

    “for his analysis of trade patterns and location of economic activity”

    ALL PRIZES IN THE PSEUDO SCIENCE OF ECONOMICS SHOULD BE BANNED AT ONCE.

  2. simmo
    October 13th, 2008 at 22:47 | #2

    Well done Paul Krugman! Who said that lefties were all emotion and no analysis? Good on ya Paul!!!

  3. sean
    October 13th, 2008 at 22:53 | #3

    Had a quick scan of the work he got his “nobel” for.

    In short “protectionism” and as my late grandfather who was a liberator of Belsen concentration camp said “if trade does not cross the border than tanks surely will”

  4. jquiggin
    October 13th, 2008 at 23:01 | #4

    Sean, you might want to read Footnote 1. In fact, you might want to read.

  5. Socrates
    October 13th, 2008 at 23:03 | #5

    Congratulations to Krugman. I agree the stated reasons are a bit of a pretext. But for pursuing results of analysis irrespective of being unfashionable and not being blinded by an ideology I think this prize is richly deserved.

    I agree with Sean that the Nobel prize in economics is not a good thing. It has become a tool to promote economics ahead of other social sciences that are no less credible. Still, if someone has to win the prize, its nice to see it go to someone I respect.

  6. sean
    October 13th, 2008 at 23:11 | #6

    I did read it you missed the “2008″ in fact i am good at reading, I read mathematics as a language not a science.

  7. observa
    October 14th, 2008 at 00:26 | #7

    “Doubtless, Republicans will complain about being implicitly identified, yet again, as enemies of science and of truth. But they’ve made their bed and must lie in it (in both senses of the word).”

    So must those with their good war and bad war theories in the long run-

    ‘BRITISH troops are no longer needed for the security of Iraq and should go home, Prime Minister Nuri al-Maliki has told a British newspaper.

    “We thank them for the role they have played, but I think that their stay is not necessary for maintaining security and control,” Mr Maliki told the Times.

    “There might be a need for their experience in training and some technological issues, but as a fighting force, I don’t think that is necessary.”

    I guess wall to wall Democrats will be able to road test those theories for us all fairly soon, along with those economic ones of theirs.

  8. sean
    October 14th, 2008 at 00:44 | #8

    “I guess wall to wall Democrats will be able to road test those theories for us all fairly soon, along with those economic ones of theirs.”

    From one fundamentalism to another, you would have thought by now the trial and error method at the heart of modern science would at least be acknowledged if not respected by economists?

    Feeling financial pain? First, blame all the scientists

    Mr Q might like to also acknowledge that the same systematic thinking is at the heart of so called “climate science”?

  9. Dave
    October 14th, 2008 at 00:56 | #9

    Onya Paul, worlds best economist and columnist – well deserved prize. And Hat Tip to our own Australian Krugman, Quiggin.

  10. George332
    October 14th, 2008 at 01:01 | #10

    Just read Sean’s comment, you are an idiot. Krugman a protectionist? Have you actually read any of his work?
    Its interesting that you are also (surprise surprise) a global warming denialist. You really do have to prove you are smarter with home grown theories than people that have actually studied things etc.
    Why dont you take John’s advice and actually read things for a change?

  11. October 14th, 2008 at 03:49 | #11

    I find Krugman a decent public intellectual, a fair economist, but a terribly misguided one.

    This is yet another political appointment that discredits the prize.

    The committee has a political agenda and that is it’s only reason for picking Krugman. It’s like picking a Polish Pope, back in the day: to further the agenda.

    You can have fun with that analogy for a bit. But in the end Krugman is not someone who should be given a Nobel prize by any stretch of the imagination.

  12. simmo
    October 14th, 2008 at 05:37 | #12

    Sean you are a clown. Paul Krugman is a staunch proponent of free trade. get your facts right!

  13. Chris Warren
    October 14th, 2008 at 06:58 | #13

    Does sean realise that with “wall to wall” democrats it is likely less American tanks will cross borders?

    In fact we may get more and better fair trade if America took all its tanks home.

    Trade forced by tanks is bad trade.

  14. sean
    October 14th, 2008 at 07:30 | #14

    Would you get in a plane designed by Krugman?

    This is a man who for 8 years as written bile after bile repudiating his own academic work (and yes I do understand Ricardos comparative advantage)

    He fits facts to suit his hypothesis, He advocates intervention as an efficiency increasing tool, this is a logical fallacy, when you intervene you pick winners and you choose to protect one side or the other (btw would you say Fannie and Freddie was an efficient way to run the mortgage market?)

    And its the same in international trade, either the market decides or you have to pick winners.If you pick winners you have to get into politics, if you get into politics then you take sides as he has done since 2000. (see nyt)

    He is getting this award for his bile against Bush and to set the agenda in the coming post bush era, life is not just about what you think, its about living what you think, lets hope he pays tax at his preferred higher rate.

    Just because you claim to be not to be a protectionist, is not the same as actually being one, its just words. If you dont accept the free market (and no that is not a market without rules or taxes) then the logical conclusion is that you wish to protect some interest or other*

    And least us forget, his attack on the dead. Whatever you do or do not think of Friedman to launch a character assignation on someone who cannot defend themselves is beyond the pale, he owes an apology to Friedmans family.

    *I define a free market as one, where you can equally participate under fair and equal rules and the exchange of goods is by mutual consent.

  15. Warbo
    October 14th, 2008 at 07:49 | #15

    “character assignation”

    Is that like a meeting of minds or something?

  16. TerjeP (say tay-a)
    October 14th, 2008 at 08:12 | #16

    Well maybe John. So long as you admit that when Robert Mundell won the prize in 1999 it wasn’t just for work on optimal currency areas but also because supply side economics had made a great contribution to humanity and the laffer curve had put some common sense back into public policy.

    http://en.wikipedia.org/wiki/Robert_Mundell

  17. observa
    October 14th, 2008 at 08:15 | #17

    You’ve got to admit once the Nobel gets into ‘social science’ it all gets a bit like art awards. I’ll look forward to Obama and Mullar Omar joining illustrious Nobel Peace Prize winners like Carter and Arafat.

    My favourite peace price winner just at this moment is that guy who started a bank, Muhammad Yunus and is now poignantly famous for that great line- ‘One day our grandchildren will go to museums to see what poverty was like.’

  18. TerjeP
    October 14th, 2008 at 08:23 | #18

    A museum about socialism do you think. ;-)

  19. October 14th, 2008 at 08:27 | #19

    p.s. Just on the laffer curve can somebody explain what is going on in New Zealand this election. Even the New Zealand Greens want to cut income taxes. I’ve put up a small piece about it on the ALS blog.

  20. October 14th, 2008 at 08:41 | #20

    This is the best response to the Krugman’s Nobel I’ve seen so far. It gives due credit to his early theoretical accomplishments, points out the shortcomings of those accomplishments, and then makes the point that Krugman is probably the most politically partisan recipient of the prize in recent memory. His NYT columns have done much harm to his reputation; if the Nobel comittee wanted to give it to a neo-Keynesian they could have at least selected someone more academic.

  21. observa
    October 14th, 2008 at 08:44 | #21

    We are all Grameen bankers now Terje.

  22. jquiggin
    October 14th, 2008 at 08:55 | #22

    #16 I don’t think Mundell ever endorsed the Laffer curve (more accurately, the Laffer claim that modern economies are on the descending part of the rates-revenue curve known long before Laffer). This is a very silly idea, and Mundell isn’t silly.

    Nor do I think that the committee was necessarily endorsing the particular policy positions taken by Mundell (for that matter, I don’t think they are endorsing Krugman’s policy views).

    But I do think that Mundell’s significant contribution to the debate over supply-side economics (whatever exactly that means) played a role in his Nobel award, and so, obviously, did Mundell, judging by his acceptance speech. Similarly, Krugman’s willingness to stand up to the Bush administration has played a major role this time around.

  23. October 14th, 2008 at 08:58 | #23

    In short “protectionism� and as my late grandfather who was a liberator of Belsen concentration camp said “if trade does not cross the border than tanks surely will�

    Krugman is not a protectionist, in practice. He is a free-trader because he recognises government intervention has hidden costs.

    In economic theory however, he subscribes to the fashionable “strategic protectionism” models supported by many Australian social democrats. These models show how formalism can be abused (something Austrian economists have long written about), and applying them to policy would have disastrous results.

  24. jquiggin
    October 14th, 2008 at 09:00 | #24

    Sukrit, previous politically active winners of the prize (like Friedman) have been less partisan because the times were less partisan.

    It’s absurd, in current circumstances, to suggest a bipartisan stance in support of sound economic policies. The Republican party, on this as on most issues, is unsound from top to bottom. They’ve long since abandoned any notion of budget balance, or rational allocation of public expenditure in favour of an unceasing diet of tax cuts for the rich.

  25. October 14th, 2008 at 09:08 | #25

    Friedman was never a shill for the Republican Party, he didn’t caricature socialism (at least not like Krugman caricatures markets). Indeed, Friedman would have joined the Libertarian Party were it not more expedient to be a Republican.

    Democrats are equally committed to unbalanced budgets, tax cuts and the rest of it. As you should know, political reality means both parties are in substance very similar. Democrats aren’t any good on costly foreign wars either – Clinton had a long laundry list of interventions, and Barack Obama is on record stating he would invade Pakistan. So there is no point discussing parties and personalities.

    As an academic, Friedman never stooped that low – Krugman, on the other hand, does it regularly. I have no problem with his views on economics. There seems to be bipartisan agreement that he’s good on international trade. But there are others who aren’t as partisan who should have been considered first.

  26. stuart
    October 14th, 2008 at 09:47 | #26

    @sean

    It seems the only one writing Bile here is you.

    Congrats to Paul on the prize. He deserves to be acknowledged for his role in bringing economics to the masses as he does for theoretical work.

  27. James Haughton
    October 14th, 2008 at 10:10 | #27

    “The core-periphery model of Krugman (1991a)”!?

    This looks suspiciously like a ripping-off and mathematising of Wallerstein and the dependency theorists, who were saying the same things about inter-regional trade, specialisation, imperfect competition and returns to scale, etc, back in the 50s-70s.

  28. Ernestine Gross
    October 14th, 2008 at 11:08 | #28

    The 2008 Bank of Sweden Nobel Prize in Economics is going to cause serious embarrassment to the many contemporary blogs and policy papers, written by non-economists in public and private institutions, who justify their propaganda with reference to Nobel Prize winners in Economics. Not Arrow, not Debreu, not Sen, not Stieglitz, not, ….. . No, only M. Friedman and v. Hayek are to be found in the said blogs and policy papers. Talking about partisanship, eh?

    Those, who feel P. Krugman ought to apologise to M. Friedman’s family (and v. Hayek’s?) ought to get the said bloggers and policy paper propagandists to publicly apologise to all the Bank of Sweden Nobel Prize winners in Economics whom they have left out.

  29. derrida derider
    October 14th, 2008 at 11:23 | #29

    James at 27 – yes and no. Krugman has never denied the influence on him of the dependistas, while criticising both their technical inadequacies and their failure to generalise the mechanisms beyond questions of imperialism (the latter, he would argue, partly a consequence of the former). There’s a fine essay by him on this at http://web.mit.edu/krugman/www/dishpan.html

  30. wilful
    October 14th, 2008 at 11:42 | #30

    james, this post is recommended to me as containing a lot of info about his academic career: http://www.marginalrevolution.com/marginalrevolution/2008/10/paul-krugman-wi.html

    I’m sure the answers to your question are easy enough to find out.

  31. smiths
    October 14th, 2008 at 12:15 | #31

    ha ha

    sean made his comment at 10.46 writing the prize off (which i agree with),
    and at 10.53 piped in again to comment on the work of krugmans he’d just ‘scanned’

    seven minutes of analysis of 40 years work

    and an inaccurate slagging off

    1+1=3, can you read that

  32. Ubiquity
    October 14th, 2008 at 13:16 | #32

    I found this quote on a blog

    “Essentially, Krugman argues that we follow the Europeans. We all know what an economic powerhouse Europe is, with its double digit unemployment and exploding government debt. The poor in France are so elated that they regularly celebrate with bon fires made from cars. ~fundamentalist”

    I think the bit about europe is true.

  33. Joseph Clark
    October 14th, 2008 at 13:24 | #33

    Good on Krugman. I’m not totally onside with all of his politics but he is a clear thinker and a fine economist.

  34. Ubiquity
    October 14th, 2008 at 14:00 | #34

    For the Krugman fans, a quote from Krugman:

    “unsustainable situations usually go on longer than most economists think possible. But they always end, and when they do, it’s often painful.â€?

    Krugman economic wisdom.

  35. jquiggin
    October 14th, 2008 at 14:55 | #35

    Ubiquity at #32, that is an impressively wingnutty quote. You could enter it in one of the many contests like this one.

    http://crookedtimber.org/2008/10/13/the-name-of-this-band-is-exploding-heads/

  36. Joseph Clark
    October 14th, 2008 at 15:14 | #36

    As long as we’re quoting Krugman, this is tremendous:

    “At the shallowest level, some intellectuals reject comparative advantage simply out of a desire to be intellectually fashionable. Free trade, they are aware, has some sort of iconic status among economists; so, in a culture that always prizes the avant-garde, attacking that icon is seen as a way to seem daring and unconventional.”

  37. Bingo Bango Boingo
    October 14th, 2008 at 15:16 | #37

    jquiggin, it might be wingnutty, but is it wrong? Would you deny that French social democratic labour market policies have something to do with relatively high unemployment rates? Or that high unemployment rates, particularly amongst youth, are a major contributing factor to the social problems that now plague les banlieues?

    BBB

  38. jquiggin
    October 14th, 2008 at 15:46 | #38

    France may be a great bogy for Americans, but it is scarcely the obvious candidate as an example of social democracy.

    More to the point, the difference between US unemployment (6.1 per cent) and French unemployment (8.0 per cent) is about equal to the proportion of low-skilled Americans in prison (equal to around 1.5 per cent of the labour force).

  39. TerjeP (say tay-a)
    October 14th, 2008 at 16:52 | #39

    #16 I don’t think Mundell ever endorsed the Laffer curve (more accurately, the Laffer claim that modern economies are on the descending part of the rates-revenue curve known long before Laffer). This is a very silly idea, and Mundell isn’t silly.

    Well by your measure John Maynard Keynes
    must have been silly because he said it also, and at a time when modern economies were taxed far less than they are today.

    John Maynard Keynes:

    Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget. For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more–and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.

    Jude Wanniski who coined the term Laffer curve in his 1978 book “The Way the World Works” clearly attributed the idea to both Mundell and Laffer. Here is how Wanniski tells it:-

    http://www.polyconomics.com/ssu/ssu-031003.htm

    And as you have already noted Robert Mundell made much of supply side economics in his Nobel acceptance speech.

    Of course the real interesting work by Mundell relates to currencies and the gold standard.

  40. Michael of Summer Hill
    October 14th, 2008 at 16:57 | #40

    John, Krugman deserves the Noble Prize for pouring scorn on the neo-liberal conservative Republicans and their political policies in advancing the interests of the wealthy at the expense of not so well off which led to the growing disparity between the rich and poor.

  41. SJ
    October 14th, 2008 at 17:01 | #41

    Terje, what John said was:

    …(more accurately, the Laffer claim that modern economies are on the descending part of the rates-revenue curve known long before Laffer). This is a very silly idea…

    Your Keynes quote doesn’t get you anywhere.

  42. Damocles
    October 14th, 2008 at 17:04 | #42

    Unemployment is currently lower than the US in Sweden, Norway, Denmark, Austria; the Netherlands and the UK (not to mention Australia).

    http://www.economist.com/markets/indicators/displaystory.cfm?story_id=12381154

    Maybe those European social democrats aren’t that dumb after all.

  43. jquiggin
    October 14th, 2008 at 17:11 | #43

    Terje, Jude Wanniski is not an authority on the history of economic thought, or anything else.

    In your quote (and, like many soi-disant supply-siders) you are confusing Keynesian demand-side effects with incentive-based supply-side effects. Experience suggests that Keynesian demand-side effects are usually smaller than early Keynesians expected, but still larger than the supply side effects yielded by ‘dynamic scoring’ exercises.

  44. Bingo Bango Boingo
    October 14th, 2008 at 17:31 | #44

    “Unemployment is currently lower than the US in Sweden, Norway, Denmark, Austria; the Netherlands and the UK (not to mention Australia).”

    Let’s not oversimplify things. It is higher in Belgium, France, Spain, Germany, Italy, Portugal and Spain. And the UK is a neoliberal place, or so Quiggin tells us (IIRC).

    BBB

  45. TerjeP (say tay-a)
    October 14th, 2008 at 17:32 | #45

    SJ – why not? Keynes is quite clear. He basically says that today tax rate cuts have a better chance of raising revenue than tax rate increases. Where in the quote is he unclear?

    John – Jude may not rate as an authority on the history of economic thought but given he coined the term “Laffer curve” he is an authority on who promoted the idea to him. And he gives almost equal billing to Mundell as to Laffer. He describes Mundell as Laffers mentor on the issue. And even now several years after Jude passed away the website of Robert Mundell links to Judes former consultancy (Polyconomics where the article of Judes I linked to resides) suggesting that Mundell is not interested in distancing himself from Judes claims. In fact the link has been there since 1998 when I first started reading about Robert Mundell and his work on currencies.

    http://www.columbia.edu/~ram15/

    For what it is worth I personally think the Laffer curve is shaped mostly like the profile of Uluru. There is only really a slop of significance at very high tax rates and at very low tax rates and in most of the middle changes in the tax rate have little impact on tax revenue (the curve being mostly flat in the middle). However tax cuts do have a significant effect on private sector output and hence total welfare (public sector plus private sector) does generally improve significantly with a tax cut.

  46. Damocles
    October 14th, 2008 at 17:37 | #46

    BBB, I think we agree that simply labeling developed countries as either “social democratic” or “neo-liberal” tells us effectively nothing about their unemployment rate.

    Of course, its noteworthy that most of the developed countries with lower unemployment than the US are major energy producers (as is the US) while the major western Euroepan countries with higher unemployment aren’t.

  47. cs
    October 14th, 2008 at 18:21 | #47

    Terrific news John.

  48. jquiggin
    October 14th, 2008 at 18:35 | #48

    Terje, giving the name “Laffer curve” to something well-known for centuries before is evidence of ignorance, not a basis for authority. I could call E=mc^2 the “Petersen equation” if you liked, but that wouldn’t make me an expert on physics.

  49. SJ
    October 14th, 2008 at 18:44 | #49

    Terje Says:

    SJ – why not? Keynes is quite clear. He basically says that today tax rate cuts have a better chance of raising revenue than tax rate increases. Where in the quote is he unclear?

    Sigh. Because it’s a generic argument for the possible existence of something like the Laffer curve, and says absolutely nothing about the position on the Laffer curve in his own day, let alone about today.

  50. Ikonoclast
    October 14th, 2008 at 19:36 | #50

    JQ, a bit of an aside. Whilst the idealist philosopher, George Berkeley, did not come up with e=mc^2 he did come with the proposition that all motion is relative, 150 years before Einstein. That is quite an achievement I think. Berkeley was critical of Newton’s assumption of classical empty space as an absolute reference. Physicists will correct me if my last sentence is somewhat loosely expressed.

    Berkeley’s Proposition 112 from ‘Concerning Human Understanding’; “..I must confess that it doth not appear to me that there can be any other motion other than relative; so that to conceive motion there must be at least conceived two bodies, whereof the distance or position in regard to each other is varied…”

    I am waiting to see if anyone can quote an ancient Greek philosopher who came up with the same idea much earlier. It’s quite possible.

  51. SJ
    October 14th, 2008 at 19:54 | #51

    Ikonoclast, that’s just the same as Galilean relativity, i.e., the thing that was accepted well before Einstein’s special relativity, also known as Newtonian mechanics.

    In actual fact, special relativity was fairly well understood in the ten or twenty years prior to Einstein’s publication in 1905, and necessarily flowed from Maxwell’s work in 1873. Special relativity would have become main-stream with or without Einstein.

    Einstein’s major work was on gravity, i.e. general relativity, regardless of the fact that he’s popularly remembered for special relativity.

  52. SJ
    October 14th, 2008 at 20:00 | #52

    To better put it in context, Galilei published in 1632, and Newton in 1687.

  53. jquiggin
    October 14th, 2008 at 20:38 | #53

    I agree with SJ, I think. Feynmann has some pretty sharp things to say about the idea that you can derive Einstein’s physics from abstract philosophical reasoning about relative motion. Without empirical evidence like the Michelson-Morley experiment, it would have been impossible to get there.

  54. Nick K
    October 14th, 2008 at 21:04 | #54

    Damocles says “Unemployment is currently lower than the US in Sweden, Norway, Denmark, Austria; the Netherlands and the UK (not to mention Australia).”

    The only reason unemployment is lower in many of these countries is that far more long-term jobless people are on disability benefits and other payments.

    In the Scandinavian countries and the Netherlands, I believe around 8 or 9% of working-age people are on either disability or sickness benefits. In the US about 4% of working-age people are on disability.

    The unemployment rate is pretty meaningless, as there are all sorts of things that governments can do to reduce the number of people actually looking for work without creating one extra job.

    As for Australia, our unemployment rate only came down after many years of economic growth (not to mention the resources boom). Because Australia has a more regulated labour market, it takes more growth to get people into work.

  55. Nick K
    October 14th, 2008 at 21:17 | #55

    Ubiquity at 32, Krugman has also argued that America should follow the European example in creating more family-friendly policies in the workforce.

    Yet he ignores the obvious fact that the US is about the only developed nation to have birthrates above replacement levels, while the Europeans have all got birthrates well below replacement levels.

    If the European model is so much better, why is the European family disappearing faster? Indeed, we ought to look at what the Americans do better. One is that they have a tax system more favourable to family breadwinners.

  56. SJ
    October 14th, 2008 at 21:21 | #56

    John hit the nail on the head @53.

    Maxwell threw a spanner into the works of the Galilei/Newton framework in 1873, which required one of two possible explanations, either an ether, or the bizarre Lorentz transformations.

    The Michelson-Morley experiments killed off the ether explanation, leaving only the Lorentz formulation on the table.

    Similarly, the Laffer curve postulates two possible tax rates where tax revenue is equal, but one where decreasing the tax rate decreases tax revenue and another where decreasing the tax rate increases tax revenue. The experimental evidence from Reagan and Bush II killed off the theory that decreasing tax rates increases tax revenue.

    Experimental evidence can’t be ignored. Bushies and glibertarians are a waste of time and space.

  57. jquiggin
    October 14th, 2008 at 22:39 | #57

    Nick K, if birthrates are the measure of economic success, I guess Iran and Ceacescu’s Romania are the models, having achieved birthrates well above what would be expected given their level of development.

    On your other point, the US Employment/Population ratio is not remarkably high, particularly for males. US social and economic institutions do encourage/demand fairly high rates of female participation compared to other countries. With relatively high birthrates, as you note, and little support for childcare, this creates problems of its own.

  58. Bingo Bango Boingo
    October 14th, 2008 at 23:04 | #58

    “Similarly, the Laffer curve postulates two possible tax rates where tax revenue is equal, but one where decreasing the tax rate decreases tax revenue and another where decreasing the tax rate increases tax revenue. The experimental evidence from Reagan and Bush II killed off the theory that decreasing tax rates increases tax revenue.”

    Huh? The central concept of the Laffer Curve is obviously sound, although when assumed to be smooth the curve itself is just plain nutty. The supply-siders of the early 80s overstretched (for example, the revenue-maximising rate may be higher than 80%, but you would never have heard that from them). The Reaganites hopelessly oversold the fiscal benefits of reducing marginal tax rates, when they should have focussed on the pro-growth effects (we got another dose of stupidity on this from the Bush administration, IIRC). In short, they walked straight into the statists’ trap.

    BBB

  59. SJ
    October 14th, 2008 at 23:26 | #59

    I have no idea what you’re talking about BBB, and I really don’t care what nuance you’re trying to add.

    As I said before, Bushies and glibertarians are a waste of time and space.

  60. Bingo Bango Boingo
    October 15th, 2008 at 00:04 | #60

    Yes, I’m not surprised you don’t understand. That seems to be a central failing of yours. But to spell it out: your implication that the Laffer Curve postulates all tax cuts increase revenue is hopelessly wrong. It’s a standard canard; a shallow talking point of Teh Left. Now go back and read what I wrote, carefully mind you, over and over again, and you may begin to comprehend. I doubt it though.

    BBB

  61. christine
    October 15th, 2008 at 01:32 | #61

    But the quote from SJ says exactly what you are saying, BBB – that a tax cut may decrease or increase revenue depending where you are on it. And the point JQ was making was that this idea was well known for ages, and the main contribution of Laffer and most of his fellow supply siders was, as you say, to argue that tax rates were above the maximum point on the curve (where further tax increases would decrease revenue). This was almost certainly done for political reasons, and without empirical evidence. So what are you arguing about?

    Laffer’s (or whoever’s) argument is still being (mis)used. Political parties over here in North America (I include Canada) do it all the time, with absolutely no empirical justification. Eg, I seem to recall John McCain has said “tax cuts always increase revenue.”

  62. TerjeP
    October 15th, 2008 at 04:16 | #62

    Terje, giving the name “Laffer curve� to something well-known for centuries before is evidence of ignorance, not a basis for authority. I could call E=mc^2 the “Petersen equation� if you liked, but that wouldn’t make me an expert on physics.

    The issue was whether Mundell agreed with the supply side position on US taxation which he clearly did. You seem to be trying to change the topic.

  63. TerjeP
    October 15th, 2008 at 04:19 | #63

    Sigh. Because it’s a generic argument for the possible existence of something like the Laffer curve, and says absolutely nothing about the position on the Laffer curve in his own day, let alone about today.

    In the quote Keynes is sufficiently clear. Specifically the quote includes the following words:-

    For to take the opposite view today

  64. TerjeP
    October 15th, 2008 at 04:50 | #64

    And the point JQ was making was that this idea was well known for ages, and the main contribution of Laffer and most of his fellow supply siders was, as you say, to argue that tax rates were above the maximum point on the curve (where further tax increases would decrease revenue).

    The point was known for ages (in antiquity in fact) but I doubt it was well known. The main contribution of Laffer was to resurrect the concept at a time when people had lost sight of the fact that tax increases face diminishing returns (not to mention the cost to private sectory output). It was also nice of him to express the idea as a graph.

    We could rename it the Khaldun curve after Ibn Khaldun (1332-1406) but even those such as JQ that object to any contribution on the part of Art Laffer (or Robert Mundell or Jude Wanniski) still call it the Laffer curve.

    In any case the topic has digressed from my original point. Which was simply that if Krugman getting the Nobel prize is as much about his politics as his economics then we can infer the same for Mundell.

    I am no fan of Krugman or his politics in general. However neither am I a fan of George W Bush. So in so far as the former is one more voice chipping away at the deceit of the latter then hurray.

  65. James Farrell
    October 15th, 2008 at 10:11 | #65

    Terry, that’s about the thousandth time you’ve quoted Keynes in support of the Laffer Curve. But what John says at #43 (and I’m sure I’ve told you before, myself) is exactly right. You seem deaf to the point. Have you actually read the essay?

  66. Andrew Knight
    October 15th, 2008 at 10:11 | #66

    Hi jquiggin,

    I’m emailing you in regards to an email I sent to you last month about a partnership, have you had a chance to think about it?

    If you would more information about the proposal, please let me know.

    I look forward to hearing from you.

    Kind Regards,
    Andrew Knight.
    Website Manager
    Banking & Finance Division
    Asia-Pacific Region

    Boomerang.com.au (Australia) Pty Ltd
    E: [email protected]

  67. Jim Birch
    October 15th, 2008 at 10:43 | #67

    Could someone elighten me: I thought the Laffer curve was a simplistic heuristic for people who could not think in more that two mathematical dimensions at once. It’s not something you can have a serious argument about, is it?

    If you really wanted to know the relationship between taxation and revenue – and the other variables – surely you’d want to use the “revolutionary” empirical method: go and look at the actual evidence out there. Ideology, theory, historical quotations from esteemed or reviled figures, and accumulated belief sets may aid the production of a subject feeling of certainty but if you’re really interested actually knowing what’s going on, aren’t you eventually going to have a look at the real world evidence?

    You’ll probably find the evidence on the taxation-revenue question is mixed and incomplete. This would seem to me to be grounds for admitting uncertainty – or even a badly posed question – rather than a good reason for reaching for a bit of ideology to prop up that feeling of certainty.

  68. October 15th, 2008 at 13:16 | #68

    Jim,

    The laffer curve is a concept and a proposition. Nations don’t have one single tax rate they have multiple rates that apply at different levels of government, that vary by income category and which apply to different things (income, goods and services land etc). Likewise revenue improvements may not all accumulate at one tier of government but may be collected at multiple tiers even though changes in tax policy may have occured at only one tier.

    Some people have tried to use total revenue as a ratio of GDP as some form of national tax rate proxy but this approach is deeply flawed. For instance if a nation had a simple two tier income tax with a 1% rate on income below 50k and a 100% rate above 50k then any reduction to the top tax rate would probably deliver more tax revenue due to added incentive but it would also probably increase tax revenue as a percentage of GDP. The proxy would register a tax hike even though the reality was a tax rate reduction.

    Further more the laffer curve illustrates steady state revenue for a given tax rate but the variation in outcome due to a change in the tax rate is the result of dynamic processes that yeild a benefit (or cost) over a protracted period of time. There is no next day effect on revenue because habits and behaviour and commitments don’t respond immediately to a shift in policy.

    As such all this leaves the empirical question and comparative analysis subject to considerable interpretation.

    Regards,
    Terje.

  69. Ernestine Gross
    October 15th, 2008 at 13:17 | #69

    Re #67: “I thought the Laffer curve was a simplistic heuristic for people who could not think in more that two mathematical dimensions at once.”

    I concur.

    “It’s not something you can have a serious argument about, is it?”

    No, it is not.

  70. October 15th, 2008 at 13:31 | #70

    #65

    James – If there is context that I have missed that casts the Keynes quote in a different light then I’d be happy to look at it. However on it’s own the quote seems to be very supply side in it’s language and it is a quote offered by Laffer himself. Whether Keynes saw the logic of tax cuts to raise revenue as being a demand effect or a supply effect doesn’t matter overly. However the latter seems more likely to me given the way the quote refers to incentives.

  71. Damocles
    October 15th, 2008 at 15:11 | #71

    From Wanniski’s article Terje linked to earlier:

    “The tax cuts passed this spring were correctly designed, reducing unnecessarily high tax rates on capital, which is why the stock market has been rising since mid-March when the first signs of the legislation taking shape began to appear.

    “…That combination led me to predict that as the lower tax rates would steadily increase the rate of economic growth over several fiscal years, the budget deficits would turn to surpluses.”

    I’m sure that the failure of the 2003 tax cuts to produce the predicted results is a demonstration that reality (and not supply-side economics) is at fault.

  72. Damocles
    October 15th, 2008 at 15:25 | #72

    The quote from Keynes is apparently from his “The General Theory of Employment, Interest and Money”.

    here’s a link in case anyone feels keen enough to search it out in context:

    http://www.marxists.org/reference/subject/economics/keynes/general-theory/

  73. Michael of Summer Hill
    October 15th, 2008 at 15:37 | #73

    John, if I may respond to Terjep by saying the general underlying theory of Keynesian economics is that governments use fiscal policies to stimulate demand and output during contractionary periods by increasing government spending and reducing tax rates thereby releasing more disposable income into the economy and vice versa. As for proponents of supply-side economics it failed to materialise during President Reagan’s era for government revenues fell sharply from levels that would have been realised without the tax cuts ((see Karl Case & Ray Fair, Principles of Economics (2007), p. 695)).

  74. Nick K
    October 15th, 2008 at 16:38 | #74

    JQ at 57, just a couple of things.

    I don’t really believe that birthrates are necessarily a reliable indicator of economic success (although they sometimes rise a bit during periods of economic boom).

    But low birthrates do cause various problems, such as producing declining numbers of working-age people supporting more elderly etc.

    Moreover, having a low birthrate is actually more of a problem in countries with high taxes and large social expenditures (particularly Western Europe). That is because as populations age taxes will have to further rise to meet these costs (pensions, health care etc.). There is a limit to how much the economy can cope with higher taxes.

  75. Dallas Beaufort
    October 16th, 2008 at 00:34 | #75

    Paul Krugmans Zoned Zones is right up there and conveintly being ignored until the dam bursts and then some. Not so Dry after all.

  76. October 16th, 2008 at 09:53 | #76

    I found this interesting, can someone tell me if it’s true?

    That’s because, unlike the other Nobel prizes which were established by inventor and philanthropist Alfred Nobel, the “Nobelâ€? prize in economics was established (and funded) by the Sveriges Riksbank – the Swedish central bank.

    Not surprisingly, critics of central banking – such as the great Ludwig von Mises and his protege Murray Rothbard – were never tapped by the selection committee. In fact, in the nearly four decades since the first “Alfred Nobel Memorial Prize for Economicsâ€? in 1969, the Swedish central bank has only awarded its top honor to one critic of central banking – Austrian economist Friedrich von Hayek – and he had to share the 1974 award with a Swedish socialist.

  77. October 16th, 2008 at 10:01 | #77

    Is Hayek the only critic of central banking to win the prize? Friedman was a very moderate critic, as he didn’t want to switch to a gold standard, free banking or some of the more radical propositions by the Austrian economists (correct me if I’m wrong). So maybe he doesn’t count as a critic.

  78. jquiggin
    October 16th, 2008 at 10:21 | #78

    A far more plausible explanation is that von Mises (who died in 1973) was regarded, by mainstream economists in general as being far less eminent than the economists who won the prize while he was in contention and that Rothbard is not taken seriously at all as an economist. To the extent that anyone pays attention to his work, it’s as a political philosopher.

    Similarly, the proportion of critics of central banking who have won the prize is not surprising given that this position is about as marginal as Marxism. I don’t think any Marxist/Marxian economists have won the prize, but I don’t attribute this to the fact that bankers don’t like Marxists.

  79. October 16th, 2008 at 10:30 | #79

    John, you’re probably right. Libertarian economists in general are in the minority, and Austrian economists (a more radical bunch) are even more marginal. That probably explains it.

    But then, one might argue that the Nobel Prize is merely picking the best of “mainstream” economics, and perhaps not truly the most innovative work. They have to play it safe by picking someone from the mainstream, to maintain the credibility of the award in the eyes of the economics profession (thus even Hayek was a risky choice).

  80. October 16th, 2008 at 10:32 | #80

    I was under the impression that Rothbard was taken seriously as an economist. Usually when people have a PhD in economics (as he did, from Columbia University), and publish widely in academic journals, that automatically qualifies them to be “taken seriously”.

    You shouldn’t take anything I say about economics seriously, as I’ve never taken economics at university. But Rothbard? Of course you should take him seriously.

  81. Damocles
    October 16th, 2008 at 11:07 | #81

    Assuming the Economic prize follows the same rules as the Nobels, Von mises was only eligible from 1969 until his death in 1973.

    Also, I’d always understood that while the Sveriges Bank sponsors the award, the bulk of the money for running it and the prizes themslves came from right-wing American sources – hence the early dominanceof the award by Chicago School members.

  82. Uncle Milton
    October 16th, 2008 at 11:09 | #82

    On a parochial note, while Krugman’s prize is richly deserved, the scientific background on his work, published on the Nobel prize web site, contains references to papers by four Australian economists (5 if you count a New Zealander who has been here for decades).

    Two of them, Murray Kemp and Max Corden, are worthy contenders themselves for their work in international economics.

  83. Damocles
    October 16th, 2008 at 11:19 | #83

    A quick examination of Rothbard’s bibliography such that his scholarly publications consist of a smattering of reviews, two articles in American Economics Review and a handful of book chapters – unless you want to count “Libertarian forum” and “Free Man” as academic journals.

  84. jquiggin
    October 16th, 2008 at 11:55 | #84

    Damocles, Snap! I just wrote this then saw yours

    Sukrit, I downloaded Rothbard’s bibliography from the Mises site
    http://www.mises.org/mnrbib.asp

    and the suggestion that he published widely in academic journals is quite simply wrong. He wrote a couple of notes in the AER in 1951 and a handful in less high-powered places thereafter.

    The great majority of his (admittedly voluminous) output was in libertarian house journals, books by libertarian presses and the like.

  85. October 16th, 2008 at 14:17 | #85

    Based on what I have read of his work (admittedly limited to banking) Murry Rothbard is a loony. He arrives at some good conclusions (ie pro gold standard) via some very flawed reasoning. I think he is on balance bad for libertarianism.

  86. MickP
    October 24th, 2008 at 16:34 | #86

    The last eight years in the US has been like a return to Reaganomics and the notorious ‘Laffer Curve’. It seems there’s no group more rich and powerful than the rich and powerful over there.

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