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Debunking Krugman (Again): On The Shift From Net To Gross Income Tax Basis

Tyler Durden's picture


It seems anywhere one looks there days, one reads a refutation of Paul Krugman's tortured "economist" logic. Lately, the NYTer has fallen into the crosshairs of many due to his contention that currently taxes, based on some chart which the Nobelist probably mislabeled again, are at 20th century lows. Of course, cherrypicking data that fits the theory is precisely what economists do. Which is why Krugman may be excused for missing out on a trend so subversive that we have seen it only mentioned by tax attorneys at Weil Gotshal: namely the gradual transition in the definition of taxable income from a "net" to a "gross" tax basis. As Weil's Kimberly Blanchard explains: "Many observers — most prominently Paul Krugman — write in terms of tax rates being at an all-time low and compare today’s rates favorably with those that existed early in the 20th century. Their implication is that tax burdens are lower today and, therefore, there must be room for tax hikes. But we know that taxes are not lower today. How could they possibly be when government revenues are so much larger, even as adjusted for inflation? The increasing size of the national deficit cannot explain the gap, which was already in evidence during the Clinton years. The average individual taxpayer is frustrated and confused because she hears that tax rates are down but somehow she believes (correctly) that her taxes keep going up. What has occurred is that the base has expanded dramatically, leading to taxes far higher than those paid by individuals historically." Expect to hear much more of this in the next two years.

Kimberly Blanchard
Weil, Gotshal & Manges LLP

New York

The most significant change was a gradual one that took place incrementally and is proceeding apace: The shift in the definition of income for purposes of the income tax on individuals, from a net to a gross tax base. When I first began practice in 1981, the individual tax was still largely a tax on net income, with few exceptions. The only items of expense or loss that were not deductible, other than capital items, were truly personal items (that is, expenses that did not relate to the production of gross income). That is not the case today. This shift has included, in no particular order:

  • phaseout of the personal exemption and the cutback on itemized deductions (even more severely in New York state);
  • expansion of the alternative minimum tax, which functions as a disallowance of the deduction for state income taxes;
  • virtual elimination of the deductions for section 212 expenses and medical expenses;
  • the cap on the mortgage interest deduction;
  • numerous caps on tax-deferred retirement savings;
  • other rules limiting the use of losses, interest deductions, etc. (including the failure to index the $3,000 cap on capital losses of individuals);
  • removal of the cap on the 2.9 percent Medicare tax;
  • the repeal of the General Utilities doctrine and reinforcement of double taxation on corporate prof ts;
  • enactment of the passive loss rules, which for the first time put a class of income on a separate schedule to eliminate base stripping; and
  • enactment of the passive foreign investment company rules.

There are doubtless others that I have forgotten, but the trend is clear. Many of these changes — such as the last two — represented very sound tax policy. Others represented nothing more than a revenue grab. Whatever the motivation, the cumulative effect has been to build a fairly bulletproof tax on gross income.

The shift has been so incremental that virtually no tax policy academic or economist appears to realize what has happened. Many observers — most prominently Paul Krugman — write in terms of tax rates being at an all-time low and compare today’s rates favorably with those that existed early in the 20th century. Their implication is that tax burdens are lower today and, therefore, there must be room for tax hikes. But we know that taxes are not lower today. How could they possibly be when government revenues are so much larger, even as adjusted for inflation? The increasing size of the national deficit cannot explain the gap, which was already in evidence during the Clinton years. The average individual taxpayer is frustrated and confused because she hears that tax rates are down but somehow she believes (correctly) that her taxes keep going up. What has occurred is that the base has expanded dramatically, leading to taxes far higher than those paid by individuals historically. And we will see more of this. In modern tax policy parlance, any exception from a tax on gross income is labeled a subsidy or tax expenditure.

So we have the average taxpayer looking in one direction, and the average policy wonk looking in the opposite direction. The failure on both sides to honestly assess where we are, and how we got here, is creating the most tax-related public acrimony that I have witnessed since I started practicing.


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Fri, 12/31/2010 - 10:02 | 839312 TheGreatPonzi
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"Nobel Prize"?

Oh, you probably mean the fraudulent "Nobel Memorial Prize In Economic Sciences", created by an organization of keynesian central banks in 1968, and which has nothing to do with the real Nobel prize, assuming the real Nobel prize is still something relevant.

To sum up, there is no "Nobelists" in economics, as the concept is a fraud disavowed by the very original founders of the Prize.

Fri, 12/31/2010 - 10:08 | 839323 GrouchoNotKarl
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Here's another refutation of Krugman by Robert Murphy.

I guess it's the end of the year Krugman hazing.

Fri, 12/31/2010 - 10:39 | 839355 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

One of these is not like the others:

One is not official...maybe it is because Economics is a total...A TOTAL.....farce.


Krugman is an idiot.  His acceptance speech detailed the new world order's plans to facilitate "Firms" instead of governments.  Now I do not like Federal Governments, but I do like sovereignty.  It is a thin line, but one that I think is necessary.  We may not need a Federal government to collect illegal income taxes, but I would like one to issue taxes on imports.

Fri, 12/31/2010 - 10:52 | 839374 bigdumbnugly
bigdumbnugly's picture

well i just hope my kids aren't reading this.  i rejiggered and replated a couple old bowling and softball trophies into nobel prizes for various deeds (not) accomplished.  wait til they find out i'm just a faud like krug.

cd... i got a wooden stake but - do you know if the lone ranger ever dug the silver bullets out of all the bad guys he shot?  and where they buried all those guys?  no reason, just asking.


Fri, 12/31/2010 - 11:51 | 839473 Sean7k
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Referring to economics as a total farce is pure ignorance. There is a difference between economics and the operation of an economy for the benefit of a select number of elites.

Economic behavior does not yield itself to prediction because it is the exploration of human action- action that takes place in individual moments in time by individuals whose behaviour is unpredictable.

Economics attempts to explain what has happened and what should happen based on a set of assumptions- one of which is non-intervention by governments and other actors capable of influencing an event. Since intervention is generally unknown before the fact, it's effect can only be explained after the fact.

Finally, economics is subject to the same problems in all social sciences when definitions are used and abused. Without a firm grasp on what the definitions and theories are, you are ripe for the introduction of doublespeak and propaganda. Just as this article attempts to demonstrate.

Krugman is a useful tool for the elites. That is why they dress him up, gave him a prize and let him write. If he wasn't, we would never had heard a word about him. Try comparing early Greenspan and FED chairman Greenspan- two different people.

Fri, 12/31/2010 - 17:21 | 840400 anonnn
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"Economics", as taught in America, is only half-truths, and thus a lie, bec it deliberately omits a vital datum...

Namely, there must be a working justice system to monitor and regulate unfair dealing  [e.g. fraud' lack of transparency, etc]. This is not taught. It is ignored.

 Otherwise, crims rise to the top of all control points.  Now look around and observe that truth.

It is not complicated.



Fri, 12/31/2010 - 18:52 | 840616 Sean7k
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Yes, but economics as taught by the Austrian school, especially anarcho-capitalism are not half truths. While there must be a system that protects private property, it is impossible to regulate fair dealing- this would imply government and all governments are run by those who would use police power to achieve their ends.

While fraud will always exist and transparency is a dream of the naive, it is in due diligence that we must trust to protect ourselves. The cost of individual sovereignty is individual responsibility.

You cannot abolish crime, it is a part of the human condition. There are those that will always prize violence over hard work. You can only contain it.

As for truth, it is a chimera, cloaked in subjectivity and bent to the will of those that rule. Give me wisdom- that is useful and universal in it's applications.

Fri, 12/31/2010 - 10:01 | 839314 Cognitive Dissonance
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Krugman is like the vampire in some hollywood horror story that the good guys never sucessfully kill. Please, would someone fashion a wooden stake out of sturdy oak and put this talking vampire horse down for good.


Fri, 12/31/2010 - 10:03 | 839318 TheGreatPonzi
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Krugman is either a liar, either a very tortured and confused spirit.

Fri, 12/31/2010 - 10:05 | 839321 snowball777
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That fragment, not, phrase is either a.

Fri, 12/31/2010 - 10:26 | 839335 TheGreatPonzi
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Have I made a mistake? I'm not a native English speaker, so please correct my grammar.

Fri, 12/31/2010 - 10:30 | 839343 fearsomepirate
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The correct construction uses "either--or" with no comma.

"Krugman is either a liar or a..."

Fri, 12/31/2010 - 10:31 | 839346 TheGreatPonzi
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Thanks. I knew this construction, but I thought either, either could have been a valid construction too. It makes sense in French litterally (soit, soit), but obviously not in English.

Fri, 12/31/2010 - 12:24 | 839567 Problem Is
Problem Is's picture

Either, or... Neither, nor...

It's all logician good anyway, man... ;<}

Fri, 12/31/2010 - 14:52 | 839996 sgt_doom
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This is truly an appropriate and brilliant blog post.

And Krugman has always been a politician, and not even qualified as a half-assed economist.

What a clown!  His feeble attacks on the brilliant (and real) economist Prof. Michael Hudson, along with Krugman's constant nonsensical "topical" comments and commentaries, proves Krugman to be a pseudo-econ and complete douchebag, incapable of holding more than one variable in his head at any time.

Krugman, Obama and Kissinger should get together for a Nobel Prize Party, let me know and I'll strap on and meet them there.

Fri, 12/31/2010 - 10:05 | 839319 snowball777
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You're better off arguing that SS and Medicare payroll taxes (thanks Reagan!) have skewed the total effective rate from below 10% for median incomes to above 17% at peak in the late 90s. Not a concern for the trust fund interest spending gang.

One might also note the trend in relative portions of revenue coming from personal vs corporate income taxes (thanks sold-out congress!); raise corporate rates, cap gains rates, and lower personal rates.


Fri, 12/31/2010 - 11:56 | 839485 Sean7k
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+100 then add in Fees and activity taxes. Taxes on personal property items. Sales tax. Use tax. The list goes on. 

Fri, 12/31/2010 - 15:27 | 840118 A Nanny Moose
A Nanny Moose's picture

You realize, corporations do not pay taxes. They collect them.

Raising taxes on corps, while reducing personal taxes, does not lower the effective personal tax rate.

Fri, 12/31/2010 - 10:08 | 839322 lead salad
lead salad's picture

Suck it Krugman!

Fri, 12/31/2010 - 10:09 | 839324 Pants McPants
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Krugman is today's Wesley Mouch.  A skilled liar, but only within circles of people incapable of thinking.

Fri, 12/31/2010 - 10:12 | 839326 Dagny Taggart
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Fri, 12/31/2010 - 10:34 | 839352 Ray1968
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YESSSS! Great comparison!

Fri, 12/31/2010 - 10:47 | 839361 Cognitive Dissonance
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A skilled liar, but only within circles of people incapable of thinking.

Actually someone like Krugman depends upon people who normally are quite capable of thinking to suspend disbelief and critical thinking and accept at face value what they're being told. In an entertainment world that depends upon the viewing audience to suspend disbelief in order to "enjoy" the show, we have been conditioned to do likewise in every day reality.

One of the social casualties of the high degree of specialization in the world today is that many highly educated people will defer critical thought about anything other than their own speciality. This leads to group-think when some so-called "expert" declares the sky is green.

Two things happen here. One, the educated person assumes that the other educated person knows what he or she is talking about and thus they must simply not have all the facts. After all, no educated person would out right lie about such matters. It wouldn't be professional to do so.

The effect is to belief total hogwash because it comes from someone who is respected aka an authority figure. We understand in our speciality how the obvious is not so obvious, thus we are reluctant to challenge someone else because we are not an expert in that field.

Two, when everyone around the educated person begins to repeat this rubbish, the educated person won't dare speak out even if s/he suspects it's all rubbish because they don't wish to be perceived as uneducated or even stupid. Peer pressure is just as powerful in the educated class as it is among teenagers.

This is why it can only be the young boy who declares that the emperor has no clothes on.

Fri, 12/31/2010 - 10:54 | 839376 TheGreatPonzi
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College and diplomas were originally destined to ease the work of recruiters, but it has become a very interesting and counter-productive social phenomena, which indeed leads to a high conformism and regression to the mean.

There is a bubble in superior education (too much access/too few demand from real productive and innovative jobs). The bubble is especially in the services sector.

Fri, 12/31/2010 - 10:54 | 839377 Pants McPants
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I can't disagree with anything you've written...seems we're splitting hairs.  I completely agree with the groupthink comment as well as the peer pressure within educated classes.  It's almost as though the ultimate sin within those circles is being wrong, which the more insecure ones would equate with being a phony.  Big difference, sure, and I'm inclined to think Krugman knows he's a phony.  Maybe Ellsworth Toohey is a better comparison?  :)

Fri, 12/31/2010 - 11:26 | 839399 Cognitive Dissonance
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I actually loved your comment, but I failed to say so in my response. My apologies if you felt I was arguing or in disagreement. I wasn't......though I was jealous I didn't come up with Wesley Mouch reference first. :>)

BTW I'm beginning to suspect Krugman is some kind of CIA/NSA sponsored Manchurian academic via the never ending intelligence psyops programs. It's well understood that the CIA infiltrated academia and the MSM during the 50's and 60's and they have never let go since then. Bernanke comes to mind as well.  

Fri, 12/31/2010 - 12:21 | 839557 Pants McPants
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Haha OK, my comprehension skills failed me a bit.  Regardless we are in agreement (again) re: Krugman as CIA/NSA operative.  It's as though there is no shortage of people who will become a charlatan in exchange for vanity.  I'd rather know the truth than be powerful anyday.  Now if I could just get out of DC......

Fri, 12/31/2010 - 12:37 | 839604 The Profit Prophet
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One of the better fields to see this principle play out is that of modern abstract art.  A couple of great documentaries currently available on Netflix ("Who the @#$% is Jackson Pollack" & "My Kid Could Paint That") perfectly illustrate the idiocy that can spew from the mouths of "experts", and immediately be adopted and supported by all "interested" and like-minded people in order to perpetuate absolute bullshit.  The movie "Pollack" provides a great preamble to the viewing of these documentaries, and lays the necessary groundwork regarding the drunken and broken origins of Pollack's modern abstract art and his now priceless canvasses filled with "spilled paint". The fact that Pollack himself had deep rooted fears of being discovered as a fraud is prima facia evidence of the true nature of his "art".  When modern art experts then determine that a 4 year old is capable of producing similarly "brilliant" works of modern art (see: "My Kid Could Paint That").....the implicit fraud that exists on all levels of this field of art becomes unmistakably clear......and fools are paying millions for this shit!!!!

In the case of Krugman, we (the fools) are paying a great deal more than the consumers of modern art.....we are paying for Krugman's "modern economic art" with the wealth of our future generations......and we should all be ashamed of how we allowed this economic tragedy to happen!

T.E.I.N. everyone!  

Fri, 12/31/2010 - 12:48 | 839629's picture

But Ellsworth Toohey loves Pollack!

Fri, 12/31/2010 - 14:37 | 839958 The Profit Prophet
The Profit Prophet's picture

As well he should....Pollack's success makes a mockery of all those who revere art, and the "experts" who determine what qualifies as art.  I guess by extension, our modern day incarnations of Toohey - Bill Maher and John Stewart - should also be big Pollack fans.

Fri, 12/31/2010 - 12:50 | 839637 Cognitive Dissonance
Cognitive Dissonance's picture

Nice analogy. I just placed in my queue your suggested Netflix choices. Pollack is an instant view choice so I'll spool that up tonight.


Sun, 01/02/2011 - 08:51 | 842436 halvord
halvord's picture

It's worth a watch. Pollock's splatter stuff might be fractals: there is real science on this.

Fri, 12/31/2010 - 13:02 | 839681 Pants McPants
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I read something the other day on that discussed CIA involvement in modern art.  I'll watch the recommended vid, too.  Thanks!

Fri, 12/31/2010 - 11:48 | 839462 Blackfriday
Blackfriday's picture

I always thought he was more like Dr. Robert Stadler.  Probably a smart guy, but willing to prostitute his ability in return for false accolades.

Fri, 12/31/2010 - 15:26 | 840121 A Nanny Moose
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Fri, 12/31/2010 - 10:09 | 839325 Mark Medinnus
Mark Medinnus's picture

Although this article piqued my interest, I felt the impact of a few graphs would have captured better the gist of our plight.

Fri, 12/31/2010 - 10:28 | 839338 Thorny Xi
Thorny Xi's picture

How can rates be lower, but revenues higher?


Perhaps - population change?

Fri, 12/31/2010 - 10:27 | 839339 Mr Lennon Hendrix
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Kkkrugman should donate all his monie and future earnings to the Federal Reserve to help pay the debt he wants to issue.

Fri, 12/31/2010 - 10:29 | 839340 fearsomepirate
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My favorite Krugman rebuttals are the ones he writes himself.  Google "Krugman vs Krugman" and see what I mean.

Fri, 12/31/2010 - 10:29 | 839341 entendance
Fri, 12/31/2010 - 10:30 | 839344 sethco
sethco's picture

Shit article, part of the current Con propaganda effort to stem the tide of growing realization amongst the masses that cutting taxes isn't the solution to everything. And Krugman is a Red Herring, whatever he believes or writes. He and everyone else missed all of those petty bullet points because they are pennies in the fountain compared to massive massive tax RATE decreases. Nigger please. Tax rates, especially for the wealthy, are at historic lows. This isn't tortured economist logic. It's data.

Authors like this also write articles claiming that the rich pay more taxes than they ever have, while failing to mention that they now own 99% of everything.

Fri, 12/31/2010 - 12:53 | 839644's picture

The more the government encroaches on individual liberty the greater the disparity between the wealthiest and the poorest. That ought to tell you something.

Fri, 12/31/2010 - 10:32 | 839345 wiskeyrunner
wiskeyrunner's picture

The trend is up, go with the flow. Making money in this market is easy. Stop reading and listening to financial news. There job is to keep you off balance. Learn technical analysis, and good money management. You can make money in this market if your are disciplined. Hanging out on this site or any other site that has a bias is no good. Tune out and away from the noise.

When this site first came online there were no ad banners on the site. Now it's covered with the very sponsors they write about....hello people wake up!!!!


Fri, 12/31/2010 - 10:34 | 839349 Silverhog
Silverhog's picture

Imagine listening to this ass at a cocktail party. Good thing nobody ever invites me to one.

Fri, 12/31/2010 - 10:42 | 839357 Bearster
Bearster's picture

"The average individual taxpayer is frustrated and confused because she hears that tax rates are down..."

I am confused.  Is this article about taxes paid by women?  Do women pay a higher rate or something??

Fri, 12/31/2010 - 10:52 | 839366 Mercury
Mercury's picture

It's not just federal income tax (paid by only by 50% of wage earners these days...think about the long run democratic implications of that for a moment.).  State income and cap gains sure seem like they are at all time highs (please show me I'm wrong if I am here), property taxes are high everywhere (and we now know they will keep going up in the face of declining RE values) plus the government regulates or seeks rent on everything under the sun these days which for sure never used to be the case.  You can't open a lemonade stand today without first getting $1000 in permits and licences.

Bottom line (pun intended) The overall tax burden for people who actually do anything is higher than a lot.

Can I get a Nobel for that?

Fri, 12/31/2010 - 12:02 | 839502 Sean7k
Sean7k's picture

As soon as you can explain why the top 1% are getting richer. 

Fri, 12/31/2010 - 12:55 | 839653's picture


Government is not your friend.

Fri, 12/31/2010 - 10:49 | 839368 nmewn
nmewn's picture

I liken it to boiling Kermit the Frog by gradually turning up the heat...he won't jump out...till he can't.

Then you throw in fee's, permitting, liscensing, regulatory compliance, state & local taxes and it's a miracle anything can still get done...or that there are any frogs left.

If anyone cares to think about it, do this...divide your weekly gross salary into fifths. Now, depending on your tax bracket remove, your federal, state (if any), medicare, social security taxes. This is your net take home should be done with taxes...right?

With the money you have left imagine yourself walking out your office door and getting in your car to go home. Low on gas? stop at the gas states federal gas tax is 46 cents a gallon.Wait you say...I've already paid my federal taxes before I even got the money from my employer. Au contraire. You go in to pay...wait...let me grab a six pack and a gallon of tax. Off you go home.

You walk into your home (which you pay property taxes on...divide by 360) you turn on the lights (which you pay taxes on...divide by 30), take a quick shower (water & sewer taxes are included for some reason, read your bill) fire up your computer (which you paid taxes on when you bought it) to catch up on the latest events at ZH.

At the end of it, any middle class person will realize that fully 50% of your income is consumed by taxation.

Yet, somehow, over 50% of voters were convinced by complete economic illiterates that 250k is rich...the pot is now at a rolling boil and the other frogs can see what's happening to Kermit...LOL.




Fri, 12/31/2010 - 10:53 | 839379 Mercury
Mercury's picture

Ha! I think we more or less blurted out the same thing at the same time.

We can share the Nobel.

Fri, 12/31/2010 - 10:57 | 839383 nmewn
nmewn's picture

LOL...I saw that...lemme go get a hacksaw ;-)

Fri, 12/31/2010 - 10:50 | 839371 CulturalEngineer
CulturalEngineer's picture

The question of tax rates is worthwhile but peripheral... at best only serving to point towards the real problem.

And (in my humbleacious opinion) the real problem is very old. And the world can't take much more of this deja-vu all over again. Civilizations just keep on collapsing...

It's like a doctor who sees patients dying one after another with the same symptoms... but never stops to think there's any connection... prescribing the same useless medicine. The whole thing is getting very hard to take!

What thing do I refer to?

Sure! Taxes, Wall Street greed, government corruption and incompetence, the mortgage fiasco etc., etc., ad infinitum... are all part of it… as are the current pathology in politics and business that make it all possible.

But these sorts of stories are thousands of years old and come in a variety of forms… over and over again… in civilization after civilization.

Gee… you’d think people would wonder about what it is that is behind that.

NO!!! I don’t think its some several thousand year old conspiracy.

But it IS a product of natural human drives… and the inadequacy of social technologies (finance,law and government are technologies) to keep up with the way societies evolve over time and with scale.

THERE IS A FUNDAMENTAL SCALING ISSUE IN HUMAN SOCIETIES ASSOCIATED WITH NATURAL HUMAN COMMUNITY SIZE (Dunbar’s Number), THE ALTRUISM PROBLEM (there’s an unavoidable discontinuity between biological and intellectual altruism) AND COGNITIVE LIMITS (the “attention economy”).

I don’t claim this is the root of every problem in the world… but it IS a significant element… and further by exploring these aspects we can begin to search for pragmatic solutions.

Frankly we don’t have a lot of time… so for me… the thing that’s so hard to take is the lack of attention to any examination of the real roots of the problem... or pragmatic mechanisms for its remediation.

Social Networks & The Social Organism: Healing the Breach

Re-Igniting the Enlightenment: On Building Landscapes for Decision


Fri, 12/31/2010 - 12:07 | 839526 Sean7k
Sean7k's picture

The problem is government- it's existence and form. It is further burdened by private Central Banks. Finally, the corporations protected by government working hand in hand as elites.

The solutions are simple: absolute minimum or no government and the abolishment of legal tender laws. Individual sovereignty and private property laws.

Zero taxes, zero fees unless personally approved and no central police power.

Fri, 12/31/2010 - 10:57 | 839385 chunkylover42
chunkylover42's picture

One would think that it gets old constantly correcting/debunking Krugman.  But it doesn't.

Fri, 12/31/2010 - 11:00 | 839389 Mitchman
Mitchman's picture

With Krugman, one is reminded of The Devil's Dictionary definition of the word:

Positive: Mistaken at the top of one's voice.

Fri, 12/31/2010 - 11:00 | 839391 The Count
The Count's picture

In hindsight, all financial 'geniuses' the likes of Greenspan, Madoff, Krugman, etc. were debunked in due course. I was always led to believe the followers of that particular religion were way smarter than the rest of us. Looks more like clever, but not really smart.

Fri, 12/31/2010 - 11:11 | 839411 moneymutt
moneymutt's picture

at least Krugman had the sense to see GFC coming

Fri, 12/31/2010 - 12:59 | 839669's picture

Gotta love Krugman's suggestion that a housing bubble was necessary in order to avoid an economic downturn.

Fri, 12/31/2010 - 14:28 | 839934 The Profit Prophet
The Profit Prophet's picture

A fact which begs the question - is Krugman evil or just plain stupid?

Fri, 12/31/2010 - 14:51 | 839991 Cognitive Dissonance
Cognitive Dissonance's picture

Neither. Just massively self deluded and surrounded by a world of enablers who expand their power and make money off of his widely disseminated delusions.

Krugman is the head non governmental magician who in turn lends credibility to the head governmental magicians, who then support Krugman and company. The ultimate circle jerk. It's called keeping the public myth and Krugman is one of the head myth keepers.

Fri, 12/31/2010 - 11:10 | 839407 moneymutt
moneymutt's picture

This is good point but has got to be tough to pin down. Tax code has gone thru waves of what's deductible, how much is deductible. He talks of trends since 1981...but was much of anything dedectible when they introduced income tax? Reagans re-doing of tax code removed many special deductions.
Good point but I need more than since 1981. It would be work, but I don't see why a researcher couldn't just track a handful of representative family units over the last 100 years and see how its changed. A single person, a family of four with one person working, and a family of four with two people working. Track income at poverty, renting, working class/lower middle class middle calls, upper middle class (like high end professionals), and high end CEO level. And see how each of these units have fared from all taxes.

Fri, 12/31/2010 - 11:11 | 839410 redpill
redpill's picture

I can't read Krugman without feeling physically ill. He is a serpent tempting the world with gross inflation, and only now are people realizing that addictive fruit will be our downfall. Our time in paradise is coming to an end.

Fri, 12/31/2010 - 11:15 | 839423 moneymutt
moneymutt's picture

oh please, first he has way less influence in DC than Wall Street and the FED does. Second, even tho I disagree with him profoundly on many things and find his analysis in his op eds lame, the worst he is leading us towards is Japanification, ala 1989-now, that has not been great for them, but its not like it was the great depression there, have you visited? In spite of Japans continuing real estate bust their middle class doing okay, they have good infrastructure, plenty of commercial activity.

I don't think we should go way of Japan or way of Krugman, but if I am going to rate him on the evil economist scale, he goes way below the idiots that didn't even see the GFC coming (or purposely ignored it). They way people talk here you would think Krugman had as much power and was as bad for the economy as Greenspan and Wall Street.

Fri, 12/31/2010 - 11:15 | 839420 Rodent Freikorps
Rodent Freikorps's picture

Dear Paul,

Do you really think the transnational progressives would ever trust you if they win?

Good luck with that. And by "good luck" I mean die in fire.

Fri, 12/31/2010 - 11:17 | 839426 jomama
jomama's picture

is that shill who won a nobel for someone else's work still writing hit pieces?  i need an advil and tums anytime i force myself to read anything of his anymore...

Fri, 12/31/2010 - 11:25 | 839439 nmewn
nmewn's picture

"is that shill who won a nobel for someone else's work still writing hit pieces?"

You are one of the few who know this about his Nobel.

Yes, he basically got it by crossing the T's & dotting the I's on someone elses work.

He's always been a snake.

Fri, 12/31/2010 - 12:04 | 839509 topcallingtroll
topcallingtroll's picture

All of you zeroheads need to go to the new york times early in the morning before Krugman cuts off comments, usually by 9 o'clock, and also occasionally check for his blogs on the nytimes blog list which can be published at any time.  I have been one of about five or six people who attempt to point out some of the problems with his positions.  If one hundred zeroheads commented each time he had a column then it would be an amazing sight!

Fri, 12/31/2010 - 12:07 | 839523 Yossarian
Yossarian's picture

Here is total govt (state/local/federal) spending as a % of GDP:

I don't care if it's in income tax, a tariff, a use tax, a property tax, or a program (social security)- the govts share of the NOMINAL US economy has grown steadily even when you consider that REAL economic growth has probably been over-stated (thus The Federal Reserve printing/digitization exercise to support nominal output and hide that sad fact). We can argue whether this is optimal (certainly some would say govt commanding healthcare resources has been sub-optimal while others would differ), but you cannot deny the increased govt. control of our nation's resources. 


Here is the BEA explanation of the various government spending metrics:  It seems that the NIPA is the most reliable and, within that, Total rather than Current expenditures shows the real (cash flow) picture. 

As for 2008, I'd say that while your $3.2T estimate for State&Local is closer than the BEA estimate of $2.2T, I would use the NIPA estimate of $2.8T:

With total Federal expenditures of about $3.3T in 2008 ( I would estimate that total expenditures were ~$6.1T. 

If we assume that State&Local grew at 2.5%/yr since 2008 to ~$3T and Federal expenditures in 2010 are ~3.4T ($3.9T less $500B transfers to State and Local which I assume are counted in state and local spending) then total spending is $6.4T or about 44% of the estimated $14.6T 2010 GDP. 

Fri, 12/31/2010 - 12:09 | 839527 Problem Is
Problem Is's picture

" cherrypicking data that fits the theory is precisely what economists do."
Tyler Durden

That one is going on my quote sheet over my desk right after:

"No man, no problem."
Iosif Vissarionovich Dzhugashvili

Fri, 12/31/2010 - 12:10 | 839533 apberusdisvet
apberusdisvet's picture


We now have the highest corporate tax rate in the world.  Hmm.  Canada just lowered its tax rate.  Hmmm Hmmm.  When Ireland significantly dropped its corporate  tax rate, they had a tremendous growth in GDP.  Hmmm Hmmm Hmmm.

You really have to wonder what the true agenda of the PTB is.

Fri, 12/31/2010 - 12:19 | 839552 Pat Hand
Pat Hand's picture

A lot of good points.  However,

Their implication is that tax burdens are lower today and, therefore, there must be room for tax hikes. But we know that taxes are not lower today. How could they possibly be when government revenues are so much larger, even as adjusted for inflation?

this confuses levels and rates.  The economy has grown, inflation-adjusted, thus tax  revenues would be higher even if rates were unchanged.

Fri, 12/31/2010 - 12:25 | 839564 TruthInSunshine
TruthInSunshine's picture

The Paul Krugman says:

1) Higher taxes are good;

2) The government spends collected tax revenue efficiently and justly;

3)  You can't spend money that the government wants to take from you in a more efficient and just way than the government; and

4)   The problem with our economic situation is not that we make less things of value, which leads to high unemployment and underemployment, but that the government doesn't collect enough revenue. Collecting more revenue will cure what ails our economy.


The Paul Krugman has Ph.d in economics and won a Nobel Laureate in economics.

But The Paul Krugman lacks one ounce of common sense or real world wisdom.

I went to university and I have an advanced degree, but if I were to construct Exhibit A as a reason to NOT do so, I would draw a sketch of The Paul Krugman's face.

Fri, 12/31/2010 - 12:52 | 839646 ArmchairRevolut...
ArmchairRevolutionary's picture

If you are going to try to debunk Krugman (it can be done), you should have a basic understanding of what you are talking about.  In this case, Kimberly Blanchard is claiming that income taxes have gone up, because revenues have gone up.  This is not correct. Income taxes are not the only source of government revenues.  Income tax revenues as a percentage of GDP have been relatively flat since the 1950's. They have dropped a little from the 1990's.  Debt is a source of revenue and it has risen substantially.

This article: worthless.

Fri, 12/31/2010 - 13:04 | 839697 gwar5
gwar5's picture

Krugman's answer to everything is spend, and then find a tax to rationalize the spending. 


Virtually nothing that the government does can't be done more efficiently by the private sector.

The difference is massive waste and Krugman's taxes to make up for it.


Fri, 12/31/2010 - 14:05 | 839846 linrom
linrom's picture

Average tax in US on positive AGI in 2008 was a staggering 12.24%. The average tax on top 1-5% income earners was wealth redistributive 17%.

Debunk this!

How exactly do we know that taxes are NOT lower today than in the past? Show me some FACTS. Do we have a top tax rate of 91-94% like we did for most post WWII era before tax burden was shifted away in favor of deficit spending and lower wages.

Fri, 12/31/2010 - 14:38 | 839892 TruthInSunshine
TruthInSunshine's picture

In 1914, the income tax applied to less than 4% of Americans. The top marginal rate was 3%, while the overwhelming majority of less than 4% who did pay any income tax paid 1%:

Rep. Cordell Hull introduced the first income tax law under the newly adopted Sixteenth Amendment. He proposed a graduated tax starting with a 1-percent rate for incomes between $4,000 and $20,000 increasing to a top rate of 3 percent for those earning $50,000 or more. The House Ways and Means Committee called upon citizens to "cheerfully support and sustain this, the fairest and cheapest of all taxes. . . ."

The first tax collection day under the new law took place on March 1, 1914. Since the average worker earned only about $800 a year, few people actually had to pay any federal income tax. Less than 4 percent of American families made an annual income of $3,000 or more. Deductions and exemptions further shrank the pool of taxpayers. Nevertheless, the federal government collected $71 million that first year. Millionaire John D. Rockefeller alone paid an estimated $2 million.

All in all, most Americans thought the new tax was a great idea. One taxpayer wrote to the Bureau of Internal Revenue, "I have purposely left out some deductions I could claim, in order to have the privilege and the pleasure of paying at least a small income tax. . . ."


BRIA 11 3 b The Income Tax Amendment: Most Thought It Was a Great Idea


Fri, 12/31/2010 - 14:14 | 839893 wilburpup
wilburpup's picture

you forgot the preamble:  "Death solves all problems."

Fri, 12/31/2010 - 15:04 | 840040 Groty
Groty's picture

I bet there are lots of Cubana who would like a chance to live in America.

Why can't we trade Krugman to Castro in exhange for someone who would actually appreciate living in America?

Fri, 12/31/2010 - 17:17 | 840390 anonnn
anonnn's picture

"Economics", as taught in America, is only half-truths, and thus a lie, bec it deliberately omits a vital datum...

Namely, there must be a working justice system to monitor and regulate unfair dealing  [e.g. fraud' lack of transparency, etc]. This is not taught. It is ignored.

 Otherwise, crims rise to the top of all control points.  Now look around and observe that truth.

It is not complicated.


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