Long Ago and Far Away, Paul Krugman Was Actually Sane

Over the past few years, Paul Krugman has become known as one of the most rabid leftists prominent in the national political scene. He is, as George Will once described him, famous for believing that anyone who disagrees with him is “a knave or corrupt or a corrupt knave.”

What you may not know, however, is that that the very angry leftist New York Times columnist has actually diverged quite a bit from his former life. That past is what earned him his Nobel Prize in economics and also...a spot on Ronald Reagan’s Council of Economic Advisers. And while one wishes that he had worked there cleaning the commodes, the truth is that Krugman was actually there as an economist who believed (mostly) in the free market.

Yes, dear reader, Paul Krugman was not always the insane man he plays on television.

This was something that has been known in some conservative circles but never has the former sanity of Krugman been so conveniently digested as in the current issue of the American Spectator by journalist Ira Stoll. I will provide a few choice excerpts here:

His 1996 Harvard Business Review essay, for example, dismissed central planning on the basis of the Hayekian idea that knowledge is distributed. “The simple fact is that governments have a terrible track record at judging which industries are likely to be important. At various times governments have been convinced that steel, nuclear power, synthetic fuels, semi-conductor memories, and fifth-generation computers were the wave of the future,” Krugman wrote, sounding like some American Enterprise Institute scholar scoffing at the Obama administration’s plans to subsidize windmills, electric cars, and Solyndra. “Of course, businesses make mistakes, too, but they do not have the extraordinarily low batting average of government because great business leaders have a detailed knowledge of and feel for their industries that nobody—no matter how smart—can have for a system as complex as a national economy.”

In the same essay, which was reissued as a slim book in 2009, Krugman wrote, “a good tax policy obeys the broad principles developed by fiscal experts over the years—for example, neutrality, between alternative investments, low marginal rates, and minimal discrimination between current and future consumption. […]

“High marginal tax rates can hurt economic growth,” Krugman wrote in a 1998 book, The Accidental Theorist.

Pretty amazing stuff coming from a man who nowadays is an ardent believer in raising taxes and is forever calling for even more central planning in the form of so-called “stimulus” spending, wants massive amounts of Federal Reserve “qualitative easing,” and was a big advocate of the nonsensical trillion-dollar coin idea.

His former tax views are particularly jarring considering that, of late, Krugman has joined the chorus of leftists pining for ye olde 91 percent tax rates of the 1950s. Aside from the fact that the highest rates back then were not actually paid by anyone, consider the following quotation from Krugman in light of the passages quoted above:

Consider the question of tax rates on the wealthy. The modern American right, and much of the alleged center, is obsessed with the notion that low tax rates at the top are essential to growth. Remember that Erskine Bowles and Alan Simpson, charged with producing a plan to curb deficits, nonetheless somehow ended up listing “lower tax rates” as a “guiding principle.”

Yet in the 1950s incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years. The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent, twice what they pay today.

The contrast between the two passages is truly like night and day, it is a fine example of what Bush Derangement Syndrome can do to what was formerly a fine mind.

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Matthew Sheffield's picture