Vile?

Here’s a recent post from Krugman where he calls Douglas Holtz-Eakin (DHE) “vile,” for making the argument that there is a lot of deceptive accounting in the Obama health care bill.  DHE provides 7 examples of deceptive accounting, and Krugman only addresses two of them.  I read both of Krugman’s arguments several times, and couldn’t make heads or tails of them.  Here is the debate in a nutshell.

1.  The Obama people claim the bill will lower the deficit by $138 billion over the next 10 years.  DHE claims that’s a gross exaggeration, and that it will probably greatly increase the deficit. 

2.  One argument made by DHE is that the tax increases start almost immediately, but the costs incurred under the program (such as health care subsidies), don’t start until 2014.  Krugman then produces a graph that shows this to be a “lie.”  Maybe someone can explain the graph to me, but I see it as confirming what DHE argued.  In the first 4 years it shows about $90 billion in revenue, and trivial expenditures (I’d guess around $20 billion.)  So it looks to me like nearly half of the projected savings occur because the taxes are hiked before the big subsidies kick in.  Isn’t that exactly what DHE claimed?  Krugman seems fixated on the fact that there is still a surplus in the 2014-19 period.  Yes, but it is much smaller than the $138 billion figure claimed by Obama.  If this was the only accounting gimmick claimed by DHE, then I could see Krugman crying foul—by itself it isn’t enough to turn a deficit into a surplus.  But it is only one of 7 accounting gimmicks discussed by DHE, and not even the most important.  And DHE is undoubtedly correct that it is an accounting gimmick, and it does inflate the 10-year deficit reduction estimate by about $70 billion, if Krugman’s graph is correct.

3.  What does Krugman consider to be the other deception in the DHE column?

Wait, it gets worse: Holtz-Eakin implies that there are hidden, delayed costs:

       “Consider, too, the fate of the $70 billion in premiums expected to be raised in the first 10 years for the legislation’s new long-term health care insurance program. This money is counted as deficit reduction, but the benefits it is intended to finance are assumed not to materialize in the first 10 years, so they appear nowhere in the cost of the legislation.”

Claims that the plan is window-dressed to look good in its first decade only to go sour later might sound plausible – except for the fact that the CBO projects bigger deficit-reduction in the second decade of the reform than in the first decade, something that wouldn’t happen if lots of costs were being hidden by being pushed off into the future.

Can anyone make heads or tails of Krugman’s argument?  Again, it seems obvious that this is another accounting gimmick.  There are “hidden, delayed costs.”  They are accounting for the front-loaded revenues but not the implied obligation to provide long term health care.  I’m no expert here, and perhaps there is a flaw in DHE’s argument, but Krugman certainly doesn’t provide one.  Instead he changes the subject by talking about the next 10 years.  But he acts as if the 10 to 20 year out CBO forecasts are reliable.  Here’s what Krugman said about the CBO is 2003:

Last week the Congressional Budget Office marked down its estimates yet again. Just two years ago, you may remember, the C.B.O. was projecting a 10-year surplus of $5.6 trillion. Now it projects a 10-year deficit of $1.8 trillion.

And that’s way too optimistic. The Congressional Budget Office operates under ground rules that force it to wear rose-colored lenses. If you take into account — as the C.B.O. cannot — the effects of likely changes in the alternative minimum tax, include realistic estimates of future spending and allow for the cost of war and reconstruction, it’s clear that the 10-year deficit will be at least $3 trillion.

I can’t argue with any of that, we will have nearly a $3 trillion deficit in just Obama’s first two years.  More importantly, this point applies equally well to the health care bill, as DHE notes:

Finally, in perhaps the most amazing bit of unrealistic accounting, the legislation proposes to trim $463 billion from Medicare spending and use it to finance insurance subsidies. But Medicare is already bleeding red ink, and the health care bill has no reforms that would enable the program to operate more cheaply in the future. Instead, Congress is likely to continue to regularly override scheduled cuts in payments to Medicare doctors and other providers.

Krugman knows that the CBO is required to assume that Congress will keep its promises, but he also knows that they almost always decide at the last minute to back off threats to cut Medicare.  I’m not saying it can’t happen in the future, but DHE’s argument is really no different from Krugman’s2003 argument that we should assume any projected rise in the ATM will be delayed.  Congress always does a last minute fix.

To summarize, all 7 of DHE assertions are correct.  Krugman tries to change the subject by looking at different issues, like whether the front-loaded revenue is, by itself, enough to turn a deficit into a surplus.  It’s not, but DHE never claimed it was.  Then Krugmanswitches the subject from the 10 year to the 20 year forecast, and relies on incredibly rose-tinted assumptions.  And after all this, he doesn’t lay a glove on DHE.  At best, Krugman might argue that DHE has a few weaknesses in his argument, although I don’t see any.  Or that the issue is up for debate.  But instead he claims DHE is a “vile” person who “lies.”  What in the world is wrong with Krugman?  I’d love to hear from his supporters.  Is this how you should refer to a respected economist with which you have an honest disagreement?  When I think of the term ‘vile,’ books like Mein Kampfcome to mind, not accurate and responsible NYT columns by DHE.  Recently I accused the Republican Party of a disturbing anti-intellectualism.  But what can one make of this comment by Krugman?

time to scratch Holtz-Eakin off my shrinking list of reasonable, reasonably honest conservatives.

That’s remarkably arrogant given that DHE’s column is quite reasonable, especially compared to Krugman’s insulting and sloppy reply.  Indeed Krugman’s comment suggests that he is the one who’s mind is already made up.  I’m going to keep reading Krugman, but I have to admit he isn’t making it easy. 

Actually, I’m not really worried that Krugman will stop reading conservatives; where else would he get the material for his slash and burn posts?  What worries me more is that his liberal readers will assume that they no longer have to pay attention to conservative arguments.  At least until some day they wake up and it’s 1980 all over again, and they’ll all look around and wonder what happened.  After all, Krugman told us not to worry, the deficits aren’t a problem:

I get a lot of worried mail along the lines of “how on earth will we ever be able to pay off our debt”? Look, there are real worries — but the math per se isn’t very hard.

The Obama administration’s budget(pdf) predicts that by 2020 we’ll have net federal debt of around 70% of GDP and a budget deficit of around 4 percent of GDP. Now, you don’t have to go to a zero budget deficit to make headway on the debt — a budget deficit of 2-3 percent of GDP would imply a steadily declining debt/GDP ratio. So if you believe the administration’s budget estimates, we’ll need to find another 1-2 percent of GDP in revenue or cost savings.

Interestingly, back in 2003 the deficit outlook was nowhere near as bad as today.  But Krugman seemed much more worried:

But what’s really scary — what makes a fixed-rate mortgage seem like such a good idea — is the looming threat to the federal government’s solvency.

That may sound alarmist: right now the deficit, while huge in absolute terms, is only 2 — make that 3, O.K., maybe 4 — percent of G.D.P. But that misses the point. “Think of the federal government as a gigantic insurance company (with a sideline business in national defense and homeland security), which does its accounting on a cash basis, only counting premiums and payouts as they go in and out the door. An insurance company with cash accounting . . . is an accident waiting to happen.” So says the Treasury under secretary Peter Fisher; his point is that because of the future liabilities of Social Security and Medicare, the true budget picture is much worse than the conventional deficit numbers suggest.

.   .   .

I think that the main thing keeping long-term interest rates low right now is cognitive dissonance. Even though the business community is starting to get scared — the ultra-establishment Committee for Economic Development now warns that “a fiscal crisis threatens our future standard of living” — investors still can’t believe that the leaders of the United States are acting like the rulers of a banana republic. But I’ve done the math, and reached my own conclusions — and I’ve locked in my rate.   

I’m surprised he wasn’t also storing cans of peanut butter in his basement, if he thought things were really that bad.  But who holds these views today?  According to Krugman it’s the WSJ:

The rate rise that the WSJ is making so much of is an increase in 10-year rates from 3.67 percent on 3/22 (and 3.61 percent at the beginning of the month) to 3.91 percent on 3/25.

Now compare July 2003: the 10-year rate rose from 3.56 percent at the beginning of the month to 4.49 percent at the end.

Correct me if I’m wrong, but I don’t remember a lot of stories calling that spike in rates a sign of imminent US bankruptcy. Mostly it was taken as a sign of increased optimism about the economy.

Your take-home exam question: why the difference in treatment now?

I suppose Krugmanis hinting that the WSJ was blaseabout deficits when a Republican was in the White House, but becomes apocalyptic when a Democrat is in office.  That’s probably right.  Now here’s my take home question to you guys:  Why was Krugman so apocalypicback in 2003, and so blase about much bigger deficits today? 

PS:  Yes, I know that someone as clever as Krugman could reconcile the two views.  But here’s what Krugman doesn’t seem to get—so could those clever guys at the WSJ.  If you paid me enough money I could defend either the 2003 or 2010 view, or I could even reconcile both conflicting views—on either side.  Just tweak your assumptions about future taxes and spending.  Remind me to never again write about the budget deficit, it’s a total waste of time.

HT:  Mankiw.

Update:  This column by Mankiw is very good.  Mankiw is one of the very few economists who I tend to agree with on financial regulation.  Others, like Arnold Kling, have very intelligent things to say, but I especially like Mankiw’s tone.  There are some prudent things we can do (like convertible debt), but don’t expect miracles.  And don’t expect government regulators to spot the next crisis before it happens.


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30 Responses to “Vile?”

  1. Gravatar of JeffreyY JeffreyY
    27. March 2010 at 14:56

    If the plan is expected to improve deficits in the first 5 years, the second 5 years, and the second 10 years, where’s the cost being shifted to? DHE wrote:

    “Gimmick No. 1 is the way the bill front-loads revenues and backloads spending. That is, the taxes and fees it calls for are set to begin immediately, but its new subsidies would be deferred so that the first 10 years of revenue would be used to pay for only 6 years of spending.”

    If the 6 years of revenue that coincide with the 6 years of spending are enough on their own to pay for the 6 years of spending, that doesn’t look like much of a gimmick, and it’s certainly not what DHE implies in his article.

  2. Gravatar of ssumner ssumner
    27. March 2010 at 16:50

    Jeffrey, No it doesn’t pay for itself from years 2014 to 2019. Read DHE’s column. There’s something like a $500 billion deficit in hte first decade. Krugman only considers 2 of the 7 accounting tricks. It’s true that the first trick by itself doesn’t turn a deficit into a surplus for years 2014-19, but all 7 combined do. Krugman completely ignores DHE’s argument.

    The graphs are meaningless as they reflect that same faulty accounting that Congress forces the CBO to use.

    I’ll be very interested to see whether anyone can come up with a plausible defense of Krugman’s tirade.

  3. Gravatar of Eric Morey Eric Morey
    27. March 2010 at 17:05

    Scott Sumner wrote:
    “So it looks to me like nearly half of the projected savings occur because the taxes are hiked before the big subsidies kick in. … And DHE is undoubtedly correct that it is an accounting gimmick, and it does inflate the 10-year deficit reduction estimate by about $70 billion, if Krugman’s graph is correct.”

    I don’t understand how raising taxes now in anticipation of spending that the government is committing to at a future date is a gimmick or inherently bad. What am I missing here?

  4. Gravatar of FuManchu FuManchu
    27. March 2010 at 17:08

    Yea, it’s the typical “refutation” of 1+2=3 by pointing out that 1 is less than 3, therefore they are wrong.

  5. Gravatar of ssumner ssumner
    27. March 2010 at 18:30

    Eric, Suppose you have a program that is expected to cost $100 million a year and bring in revenue of $60 million a year. Obviously the program will balloon the deficit to the tune of $40 million a year. Now assume you set up the taxes to start right away, and have the spending deferred for 4 years. Over the next 10 years you will bring in 10*$60 or $600 million in revenue, and you will spend 6*$100 or $600 million in spending. It will look like a balanced program, but of course as soon as you get past year ten you are $40 million a year in the red. That’s called an accounting gimmick. As far as I know pretty much every public finance expert in the world would agree that it is an accounting gimmick.

    Again, this gimmick by itself doesn’t push the program into deficit, but when combined with the other 6 gimmicks, the $138 billion surplus turns into a $500 billion dollar deficit over ten years. Douglas Holtz-Eakin is exactly right. I can’t imagine what Krugman is talking about.

    These programs are intended to last indefinitely–you have to think about them from a steady state perspective.

    FuManchu, That’s a much more concise way of making my point. Krugman’s obviously smart enough so that he should know this. I’ll give him the benefit of the doubt and assume he is not vile, but rather that he just rushed the post without thinking it through.

  6. Gravatar of Jim Glass Jim Glass
    27. March 2010 at 18:52

    I don’t understand how raising taxes now in anticipation of spending that the government is committing to at a future date is a gimmick or inherently bad. What am I missing here?

    Because the government isn’t saving the money, it is consuming it today on something else. Then when the future expense comes due, how is it going to be paid for then? Only by collecting the same amount of taxes all over again — paying for the same expense twice — or by cutting the expense because we can’t afford the later tax increase.

    It is “raiding the social security surplus” all over again — in fact literally.

    One of the gimmicks in the health care bill is that it makes formerly tax-free income taxable, to make it subject to Social Secuity tax. Then it takes the resulting $53 billion of Social Security payroll tax and uses it to pay for the health care plan. Thus in the first 10 years $53 billion of health care is “paid for”.

    But Social Security benefits are earned by those newly taxable wages — in fact, more than $53 billion worth, as SS is underfunded by its tax/benefit formula.

    With the SS taxes consumed “paying for health care”, instead of saved, how are those SS benefits going to be paid for, when they come due after the 10-year budget scoring window?

    This is the difference between “cash” and “accrual” accounting. Cash accounting counts only current cash-in, cash-out. Accrual accounting also counts the legal right to receive future income and legal liabilities to make future payments.

    Cash accounting is illegal in the US for all organizations much larger than a candy stand, for reason that should be obvious: it keeps liabilities “off the books”.

    The exception is that the US govt uses cash accounting. Thus, the SS taxes collected above, to be spent on health care, count as “revenue”, while the attached liability for SS benefits is ignored.

    This is how the US has piled up $60 trillion in accrued liabilities, mainly for entitlements, while the official national debt held by the public is only about $8 trillion.

    E.g., in 2008, the official budget deficit was $455 billion — but the Treasury says that using the accrual accounting rules required of the private sector, the deficit was actually over $3 trillion. (The 2009 numbers just came out but I haven’t checked them yet.) Those Enron execs sitting in jail today for keeping their liabilities off the books can only fantasize about having done it on any scale like this.

    This $60 trillion is why CBO has projected income tax rates will have to go up across-the-board 50% by 2030 … else the credit rating of the US is projected by S&P to fall to “junk” by then.

    Back in 2003, this “looming threat to the federal government’s solvency” bothered Krugman. Since the Dems took control of the budget, not at all.

    BTW, the above CBO and S&P projections were made before the recession made things so much worse — and, of course, before Obamacare ran up another $53 billion of unfunded future SS liabilities (consuming the funding for it up front), plus the extra $70 billion of unfunded future long-term care liabilities (consuming the premiums up front, the same as with the SS benefits).

    Holtz-Eakin is exactly right, this sort of budgeting is the road to Greece … arriving there circa 2030.

    Krugman’s rabid response shows how far he’s left economics behind in wedding the Kossacks.

  7. Gravatar of Jim Glass Jim Glass
    27. March 2010 at 20:05

    Krugman is so amazingly un-self-aware. To recap…

    Krugman today:

    “…Now compare July 2003: the 10-year rate rose from 3.56 percent at the beginning of the month to 4.49 percent at the end.

    “Correct me if I’m wrong, but I don’t remember a lot of stories calling that spike in rates a sign of imminent US bankruptcy.”
    ~~

    Krugman, terrified, in 2003:

    “… last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.

    “A leading economist recently summed up one reason why: ‘When the government reduces saving by running a budget deficit, the interest rate rises.’ Yes, that’s from a textbook by the chief administration economist, Gregory Mankiw.

    “But what’s really scary, what makes a fixed-rate mortgage seem like such a good idea, is the looming threat to the federal government’s solvency…”
    ~~~~

    Correct him if he’s wrong? Well, there’s onestory from 2003.

    I swear, he’s setting himself up as a case study for a psychology textbook.

    (Of course, he’d probably object that “looming” doesn’t mean “imminent”. :-) )

  8. Gravatar of JeffreyY JeffreyY
    27. March 2010 at 22:04

    I did read DHE’s article:

    Point 1 is a lie: according to the CBO, revenues outpace outlays in all periods. The CBO may be wrong, but there’s no accounting gimmick. If, in fact, revenue were expected to be 6/10 of the cost in the 6 years that we’re spending anything, it would be a gimmick, and that’s what DHE implies, but that doesn’t match the real projections.

    Point 2 sounds plausible and gimmicky.

    Point 3 could be true, but we’d expect a long-term health care insurance cost to start showing up in the 2020-2030 time frame, right? But in that time frame the CBO anticipates even bigger deficit improvements. If there are actually “hidden delayed costs”, where are they hiding?

    Point 4 is certainly a gimmick.

    Point 5 seems inaccurate, at least according to http://www.ssa.gov/OACT/quickcalc/index.html. If I increase my salary by 10%, the expected benefit goes up by less than 10%. It could be that $53B is the wrong revenue increase for the expected, but DHE implies that it’s totally impossible to save any money by shifting health care into taxable income, and according to the SSA that’s wrong.

    Point 6 is … confusing. They found a way to save money (and stop subsidizing private banks), and they decided to use that as a funding source for health care. The funding source isn’t directly related to health care, but if they’d raised income taxes as a funding source that wouldn’t be directly related either. What’s the problem here?

    Point 7 is the big deal. DHE certainly lies at one point inside this paragraph. He writes, “the health care bill has no reforms that would enable [Medicare] to operate more cheaply in the future”, but the ACA creates the Independent Payment Advisory Board (http://voices.washingtonpost.com/ezra-klein/2010/03/can_we_control_costs_without_c.html) to lower Medicare costs with a 60-vote hurdle to amend its proposals. I’ve heard it has other reforms, but I don’t have a link to them. But DHE’s big argument is that we can’t trust Congress to stick to its cuts. He points at the regular reversal of one of the cuts from the 1997 Balanced Budget act, but http://www.whitehouse.gov/omb/blog/09/12/04/CBPP-Savings-Will-Stick/ argues that 4/5 of the other cuts from that bill have stuck. Given that history, why does it make any sense for DHE to ignore _all_ of the Medicare savings?

    This still leaves the bill as increasing the deficit over the next 10 years, and if DHE had just pointed that out I’d have no complaints (although Krugman might have lashed out anyway), but by my estimate, DHE has lied to quintuple his estimated extra deficit.

  9. Gravatar of Don the libertarian Democrat Don the libertarian Democrat
    27. March 2010 at 23:58

    Scott,

    I have to admit I’m confused by your reply. Here’s what DHE says:

    “Removing the unrealistic ( Opinion- Don ) annual Medicare savings ($463 billion) and the stolen ( Opinion based on his own estimate- Don )annual revenues from Social Security and long-term care insurance ($123 billion), and adding in the annual spending that so far is not accounted for ( Opinion it won’t get passed- Don ) ($114 billion) quickly generates additional deficits of $562 billion in the first 10 years. And the nation would be on the hook for two more entitlement programs rapidly expanding as far as the eye can see ( Opinion- Don )”

    I don’t have any problem with his having a different opinion than the CBO or Krugman, but to call them gimmicks and games is simply a pejorative description of the fact that he disagrees with the CBO and Krugman.

    Obviously, I would not call him vile or any such thing, so I’m bothered by the tone Krugman’s post too. I would simply say that DHE’s post seems unfair to me in its characterization of the people he disagrees with. By saying that they’re using gimmicks and games, he implied that they were liars. In other words, they know better. But he didn’t counter with facts. He countered with his own opinions. That’s not enough to warrant implying someone is a liar.

    I did read the report, by the way. I wish I could say who’s right about the future, but I can’t.

  10. Gravatar of q q
    28. March 2010 at 05:28

    i don’t think krugman is being all that inconsistent with respect to the deficit. his point is and was that the long term deficit is important but not the short term deficit. his secondary point is that he thinks that running a short term deficit now is a good thing, but he wouldn’t think it is a good thing when the economy is doing well.

    in terms of tone, yes, but he is really bad with tone. some people can get away with shrill but not dr k. a lot of people can’t communicate tone and emotion over the internet or written matter in general. he is one of those who can’t. it’s hard and a different skill than economics or political analysis. should he just shut up and not try then? i bet that would cost him a lot of readers. so the incentives say no. i think though that thoughtful readers of him and a lot of other internet writers should remember this.

  11. Gravatar of ssumner ssumner
    28. March 2010 at 06:25

    Jim Glass, Those are very good points. What is so amusing isn’t that he changes his mind on the deficit, but that he swings from one emotional extreme to the other, from a hyperbolic claim that we are fast becoming a banana republic, to a Mad magazine style “what, me worry?”

    Jeffrey, You said;

    “Point 1 is a lie: according to the CBO, revenues outpace outlays in all periods. The CBO may be wrong, but there’s no accounting gimmick. If, in fact, revenue were expected to be 6/10 of the cost in the 6 years that we’re spending anything, it would be a gimmick, and that’s what DHE implies, but that doesn’t match the real projections.”

    Once again DHE is saying that the CBO is wrong, because the CBO is forced by Congress to follow the accounting gimmicks. And as I said, his first point alone does not turn a deficit into a surplus, but he never claimed it. It was one of 7 accounting gimmicks. So it is completely correct.

    I already addressed point 3.

    On point 5, I agree that $53 billion may be an over estimate. But the burden of proof is on the Obama people. DGE shows they didn’t take the increased future SS liabilities into account, and that it could bias the result by up to $53 billion. Even if the number is wrong, he’s right about the bias. It’s probably hard to calculate an exact estimate, as it depends on where various people are relative to maximum benefits. But even if you are right this doesn’t qualify as a “vile lie” rather it’s one place where he is right that there is gimmicry, but the numbers may be slightly off.

    Point 6. I agree that this is a matter of perspective. But it raises what I think is the central problem with this whole process. Everyone on the left and right has agreed for years that Medicare and Medicaid are out of control, and must eventually be addressed or they will bust the budget. Everyone seemed to agree that when they were addressed, the savings would have to be used for deficit reduction. All the health care bill does is promise to address the problem, but then commit the money not to deficit reduction but rather to insurance subsidies. But in that case you haven’t really addressed the broader budget problem. Even worse, we no longer will be able to address it by controlling Medicare and Medicaid cost, rather we’ll have to get the money elsewhere. The potential savings from M&M reforms have already been spent. My point is that it was a given that Congress was going to do this loan program reform. To arbitrarily allocate the savings to health care seems misleading. Even if health care didn’t pass we were going to have those savings. But if health care didn’t pass they would have been used for deficit reduction. So in effect money is being shifted from deficit reduction to health care. I agree that the fungibility of money makes it possible for honest people to disagree on this, but given our huge deficit problems looming in future decades, I think his conservative approach is reasonable.

    Point seven is your strongest, but I still think there are two good counterarguments:

    1. Even if you are right about the budget act, we have a track record on Medicare that suggests the medical lobby is too strong to cut back that sharply. We have a track record of Congress making many similar promises on Medicare and backing off. So from that perspective I think DHE’s claim is reasonable.

    2. I don’t see that sentence as a lie, because it could easily be interpreted as DHE saying there are no specific cuts made in the bill, rather there is a vague hope that a future commission will come up with some cuts. I do agree that the 60 vote threshold gives the comission some teeth, so that eakens DHE’s point, but it remains to be seen how successful it will be. Don’t think it is easy to cut Medicare. There are reasons for the high expenditure. I agree there is enormous waste, what I don’t agree on is that it will be easy for the commission to identify that waste. Remember the Republican outcry over medical panels denying treatment for Grandma. That’s exactly how the European countries hold down costs. I don’t think it’s obvious that that sort of rationing will be politically acceptable here.

    To conclude, you have written the sort of intelligent reply Krugman should have written. These points are debatable. But I still don’t see anything close to “vile lies.”

    Don, Even Jeffrey (above) thinks many of these are gimmicks. The term gimmick doesn’t mean lie. What it means is that Congressman are told they must make the numbers work over a 10 year horizon, and therefore they shift money around until get they get it all to fit. Everyone knows Congress does this, I don’t think even Krugman would deny it. He made the same complaint about Congress’s interference with the CBO in the 2003 article I linked to.
    Krugman’s complaint is that the first gimmick, by itself, isn’t enough. He’s right, but DHE never said it was. I can’t imagine anyone denying there are some accounting gimmicks, it’s just that the Dems would say they are justified for a higher good, getting the bill to pass the CBO’s 10 year window.

    q, The problem with your argument is that the long term budget situation is even worse than in 2003, which makes his extreme flip flop look kind of silly. Again, I agree you can come up with plausible defenses. But consider his implied charge against the WSJ. His last rhetorical question is a sort of “we all know the answer–the WSJ is biased toward the GOP” OK, but apply that same reasoning to Krugman himself.

    Yes, he has a problem with tone. But it’s not (as you claim) that some people can get away with shrill, and he can’t. It’s that people like Cowen and Mankiw say other people are “wrong” whereas Krugman says they are “vile liars” Yeah, I’d say that’s a problem with tone. he really is shriller than most other bloggers. Rather than “shrill,” I’d prefer the term “insulting.”

    I’ll bet in real life he doesn’t talk that way to people he disagrees with at seminars. But if that sort of speech is acceptable in blogs, why not use it at seminars?

  12. Gravatar of Don the libertarian Democrat Don the libertarian Democrat
    28. March 2010 at 07:54

    Scott,

    I don’t agree. You think they’re gimmicks because you think they’re implausible. Same with Jeffrey. That’s an opinion. A gimmick is used to deceive or mislead. Is that a lie or not?

    When you say “They are hidden, delayed costs”, the second part is true, the first part is either an opinion or the imputation of deception. Which is it?

    If you say “Everybody does it”, then it can’t mislead anyone. You can’t be fooled by something you expect. Who’s the target audience of the deception? I guess it’s average people, but DHE has in no way proved his view is correct. He uses the language he uses to impute bad faith on the part of his adversaries. What stopped him from just saying that the predictions and implications are wrong? When you agree with someone, of course it looks true. It sounds as if DHE is saying “I know they’re gimmicks, because I used gimmicks”. Why then did you use gimmicks? Was it do deceive or mislead? If there are unspoken rules that both sides follow, it’s not a gimmick. It’s the rules of the game.

  13. Gravatar of Don the libertarian Democrat Don the libertarian Democrat
    28. March 2010 at 08:17

    “1.
    1. A device employed to cheat, deceive, or trick, especially a mechanism for the secret and dishonest control of gambling apparatus.
    2. An innovative or unusual mechanical contrivance; a gadget.
    2.
    1. An innovative stratagem or scheme employed especially to promote a project: an advertising gimmick.
    2. A significant feature that is obscured, misrepresented, or not readily evident; a catch.
    3. A small object whose name does not come readily to mind.”

    A gimmick is something you use to deceive. Intention is implied in the use. I used x as a gimmick. It’s not a thing in and of itself. You can’t buy a gimmick. The whole point is to make plain what the x is meant to accomplish.

  14. Gravatar of TGGP TGGP
    28. March 2010 at 09:43

    Casey Mulligan argues here that government debt isn’t a problem. Spending is, though.

  15. Gravatar of Doc Merlin Doc Merlin
    28. March 2010 at 12:00

    @TGGP, I don’t entirely agree. He is completely full of crap. Treasury debt is only low yield in historical terms, it isn’t low yield when compared to quite a bit of private debt.

  16. Gravatar of MikeDC MikeDC
    28. March 2010 at 12:03

    Scott,
    This reminds me, I’ve got a bone to pick with your accusation that the Republicans are “anti-intellectual”. This implies the Republicans somehow chased off right leaning intellectuals.

    My observations are that, for a variety of reasons, right leaning intellectuals abandoned the Republicans and not vice versa. Participation in politics is tough. The left has lots of intellectuals that are willing to get involved in the messy business of actual politics, even though it’s difficult, and you’re frequently ignored.

    But, if you build relationships, you ultimately gain some influence and your general outlook gains some currency.

    I tend to think the unwillingness of anyone meaningful (I guess perhaps aside from Mankiw) to really get involved with and go to bat for the Republicans is at least partially due to the sad state of academics in general. Even if economics is relatively balanced politically, universities are decidedly not, so it’s a much easier proposition for a professor who’s not a Democrat or socialist to gain cover by saying he or she is not a Republican and throwing out a tired line about their bigotry or social heathenism. Or poor economic policies, which is a laugher given the alternative.

    Scaring and shaming smart Republicans into non-participation in Republican politics ends up making the Republicans that much more anti-intellectual and dependent on the shallow, shrill and socially oriented ones. As with many things, it’s a potentially vicious circle that will require leadership and foresight to overcome.

  17. Gravatar of Doc Merlin Doc Merlin
    28. March 2010 at 12:04

    @Don

    They are, in fact, intended to mislead. They exist so the president can say it is budget neutral (according to the CBO) when its not budget neutral to anyone who does any digging. Then the Dems can accuse the republicans of lying and the partisans will believe them. I already have a lot of dems telling me this bill was budget neutral when it is fact is quite the opposite.

  18. Gravatar of JeffreyY JeffreyY
    28. March 2010 at 12:31

    So, I agree with you that Krugman should respond to whole articles instead of just the wrong points, and that he tends to subordinate his economic opinion to his political objectives. But I also agree with him that we should be able to expect better out of former CBO heads, that 2-3 of DHE’s claims about the ACA are lies, and that lies intended to change public policy are vile. (That does mean lots of Krugman articles in the last year have been vile lies too.)

    You’re complaining a lot about the 10 year horizon of most CBO analyses. And it’s certainly true that the ACA has a much longer effect: it commits the government to spending lots of money indefinitely, and it modifies Medicare in ways that won’t pay off for more than 10 years. As you say, “These programs are intended to last indefinitely–you have to think about them from a steady state perspective.” That’s what Krugman seems to be trying to do when he looks at the CBO’s second decade analysis, where the ACA scores even better than the first decade. Now, maybe the hidden costs show up in the third or fourth decade instead. If that’s the case, DHE or you should make that claim and back it up. But DHE instead makes lots of implications that the costs have been pushed out to the 11th year, which simply isn’t true. If anything, the gimmick is that Congress _couldn’t_ apply the savings from the second decade to make the first decade look better.

    On the Medicare savings: If I’m remembering right, the Democrats complained a lot that the CBO wouldn’t look at all the “bend the curve” ideas they were trying, and would only score concrete changes. If that’s right, the IPAB wouldn’t even show up in the $463B, even though it’s likely to save a lot of extra money. It’s the curve that matters: http://en.wikipedia.org/wiki/File:Medicare_%26_Social_Security_Deficits_Chart.png. If any of the ideas tried out in the ACA manage to flatten out that medicare growth, they’ll save orders of magnitude more money than any of the “gimmicks” DHE’s complaining out. DHE wouldn’t have been lying if he’d just warned about the uncertainty there, but instead he claimed we aren’t going to see any of it.

    I really wish the NYT would learn to put links into their opinion articles so DHE could back up his assertions.

  19. Gravatar of anon/portly anon/portly
    28. March 2010 at 12:45

    Maybe everyone saw this but Delong addressed the DHE column twice:

    http://delong.typepad.com/sdj/2010/03/as-romneycare-moves-toward-probable-final-passage-douglas-holtz-eakin-says-463123114-562.html

    http://delong.typepad.com/sdj/2010/03/romneycare-final-passage-aftermath-mark-mcclellan-vs-doug-holtz-eakin.html

    He doesn’t call DHE “vile” or claim that he lies, but he does in the first one suggest that DHE is shading his analysis to fit Republican talking points. (It’s kind of hard to disagree with that, in my view, though maybe he doesn’t embrace this point quite so readily with economists who work for Democrats). His chief points are (1) that DHE’s view of the Medicare cost reductions is somewhat unreasonable; and (2) the rest of DHE’s points (beside the Medicare cost issue) are somewhat trivial.

    Also note that Delong agrees (in some cases) with the word “gimmick.” I think Don the Libertarian Democrat should focus more on the words “contrivance” and “gadget” in the definition of gimmick and less on the words “lie” and “deceit.” Think of a gimmick play in football or a theatrical gimmick. A gimmick may not work against a sophisticated football defense or play-goer or budget analyst but it stays inside the rules and norms and serves its purpose. (A good CBO score, a TD against a Big-10 team, a Broadway hit). If you just call it garden-variety deceit you miss the not-untruthful-but-exploitative part of its meaning.

  20. Gravatar of simon simon
    28. March 2010 at 13:50

    Mankiw’s column is indeed quite good. But I don’t understand how one can reconcile these two quotes:
    “Whatever we do, let’s not be overoptimistic about how successful improved oversight will be.”

    “MY favorite proposal is to require banks, and perhaps a broad class of financial institutions, to sell contingent debt that can be converted to equity when a regulator deems that these institutions have insufficient capital.”

    What is his view on regulatory oversight? Let’s not be overoptimistic about it, but simply optimistic?

  21. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    28. March 2010 at 14:18

    ‘He [DeLong] doesn’t call DHE “vile” or claim that he lies, but he does in the first one suggest that DHE is shading his analysis to fit Republican talking points.

    So, he’s still using that trope, is he. The boy needs new material.

  22. Gravatar of marcus nunes marcus nunes
    28. March 2010 at 16:54

    In the James Bond saga, the 00 means “licence to kill”.
    In the Krugman “diatribes”, NP (Nobel Prize) means “licence to be vile, offending, obnoxious, derogatory,…)

  23. Gravatar of scott sumner scott sumner
    29. March 2010 at 05:09

    Don, Everyone agrees they are gimmicks, even Obama supporters and DHE critics like Brad DeLong agree. The only debate is how big the gimmicks are. If you don’t like the term ‘gimmick,’ call them something else. DHE’s point is that the health bill will add to the deficit, not subtract from the deficit as is being claimed. And he is certainly right.

    Reporters who cover Washington know exactly why the bill was written this way–they had to move numbers around until the 10 year CBO window was achieved. I call that a gimmick.

    TGGP, They are both problems, but spending is the much bigger problem.

    MikeDC, I disagree. Of course there are always more left wing intellectuals than right wing intellectuals, almost by definition. But the GOP has become increasingly anti-intellectual. Why would an intellectual want to work for a party that complains about Obama care on big government grounds, and then complains that Obama will cut Medicare? Or who help devise an Obama-care for Massachusetts, but later are told they aren’t allowed to say anything good about the idea. The GOP has become increasing populist, responding more to talk radio than the views of Chicago-school economists. If they want to go the Bush/Sarah Palin route that’s fine, but don’t expect many intellectuals to follow along. Another example is when Gingrich was forced out and replaced with party leaders who had no discernible ideology other than getting elected.

    I’m running late, I’ll do the other comments later.

  24. Gravatar of MikeDC MikeDC
    29. March 2010 at 06:06

    Scott,
    I didn’t dispute that the GOP has become increasingly anti-intellectual. The question is whether it’s because intellectuals are pushed out, or walked out on their own. I’d argue the de-intellectualization of the GOP is largely due to the latter. It’s sort of an intellectual boycott.

    Look at your response again. All of the complaints you level at the GOP are complaints are somewhat fair, but the same could be said about the Democrats were you a fairly consistent liberal intellectual.

    Yet, Dem intellectuals don’t take their ball and go home. These threads on the health insurance bill are evidence of that. The guys you’re arguing against are fighting tooth and nail, point by point, on stuff that’s, as you point out, not controversial and frequently at odds with their intellectual beliefs. Participation in the political process, I’m afraid, requires significant compromise of intellectual principles.

    I understand why that’s unpleasant. It’s why I’ve pretty much given up anything meaningful and just talk about sports. But from a bigger picture, I’m coming to the realization it’s counter-productive. “The GOP” and “the Democrats” are not discrete things. They’re alliances of people with independent and often conflicting views. You’re often going to lose battles, even against your erstwhile allies, but, as in actual markets, actual participants in the process get a say. Boycotters typically have no voice at all.

  25. Gravatar of scott sumner scott sumner
    29. March 2010 at 10:58

    Jeffrey, You said:

    “But I also agree with him that we should be able to expect better out of former CBO heads, that 2-3 of DHE’s claims about the ACA are lies, and that lies intended to change public policy are vile. (That does mean lots of Krugman articles in the last year have been vile lies too.)”

    It is juvenile to call those you disagree with vile, especially if its a technical economic issue, rather than something like war, abortion, etc.

    I think DHE is right. So you and Krugman must must think I am vile as well. And you say Krugman is also vile. And by your logic you are also vile if you say somthing inaccurate. Doesn’t that water down the term ‘vile’ to complete meaninglessness? This is the sort of name-calling you expect from schoolchildren.

    You still don’t seem to understand DHE’s argument. He is saying the CBO estimates are wrong, not just this decade, but the next, and the next, and the next. He doesn’t believe the Medicare savings will be realized.

    I’m not expert on Medicare, but given how out of control the program has been in recent decades, and given the explosive growth forecast for the future, I’d rather use any savings for deficit reduction–not financing new initiatives

    Thanks anon/portly, I did a new post on the DeLong post. If I was going to suggest someone couldn’t do basic math, I’d want to check my own math first.

    Simon, Very good point. Here’s what I think Mankiw was thinking. There are two kinds of regulations. One is where regulators look closely at what banks are doing, try to micromanage risk, i.e. try stopping bubbles before they get out of hand. The second kind recognizes that regulators are no smarter than banks, and tries to set up a system so that if things go wrong, and banks suffer large losses, it doesn’t create an economy-wide banking panic. That is what the convertible debt idea was trying to do. I still think your question is a good one, but I do think that’s what Mankiw had in mind.

    Patrick, Check out my new post, I’m not impressed with DeLong’s arguments.

    Marcus, I’m surprised someone at the NYT doesn’t quietly tell him to tone it down a bit. The NYT published the DHE piece, and it’s a respectable editorial, even if a few points are debatable. There are a few debatable assertions in any editorial. That doesn’t make it vile.

    MikeDC, Here’s another angle, for what it’s worth. Left liberals are basically utilitarians who favor big government. Many right wing intellectuals are also utilitarians, but favor small government. But the GOP is a big tent with social, foreign policy and economic conservatives, some of which are non-utilitarians. I find many more examples of left wing intellectuals who prefer the Democrats to the Republicans on almost every issue, than vice versa. And I see that as reflecting the nature of the GOP, a kind of grab bag of various resentments against leftism. I resent the economic policies of the left, but otherwise don’t agree with the Republicans on much. Leftist I know are liberal on everything–economics, social issues, foreign policy. So I think there is a difference.

  26. Gravatar of Kevin Donoghue Kevin Donoghue
    29. March 2010 at 13:29

    Scott: “I think DHE is right. So you and Krugman must must think I am vile as well.”

    No, that doesn’t follow. Krugman’s contention is that DHE knowingly made a false statement. Krugman might say that if you are taken in by that statement then you are a victim of DHE’s vile deception.

  27. Gravatar of Jim Glass Jim Glass
    29. March 2010 at 20:28

    “Casey Mulligan argues here that government debt isn’t a problem. Spending is, though.”

    Mulligan is so being so superficial here, well, he gets the simplest thing wrong:

    Judging by the prices prevailing in the market, $12 trillion is not enough to satisfy current demand for government securities.

    The day he wrote that, the govt debt held by the public was $7.85 trillion. He was off by more than 50%.

    Following which…

    The fact is that United States government bill, note, and bond prices are higher than the prices of comparable private sector securities, and have been that way for decades. Or to put it another way, government securities continue to offer the lowest yields…

    Um…

    ~~~~
    Obama Pays More Than Buffett as U.S. Risks AAA Rating

    The bond market is saying that it’s safer to lend to Warren Buffett than Barack Obama.

    Two-year notes sold by the billionaire’s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg.

    Procter & Gamble Co., Johnson & Johnson and Lowe’s Cos. debt also traded at lower yields in recent weeks…

    “It’s a slap upside the head of the government,” said Mitchell Stapley, the chief fixed-income officer in Grand Rapids, Michigan, at Fifth Third Asset Management, which oversees $22 billion…
    ~~~~

    As to his “have been that way for decades”, it’s the classic mistake: Since “for decades” my credit rating has been AAA due to my until now responsible borrowing, it thus will remain AAA into the future — regardless of how much more reckless I get. Without credit raters like, say, S&P ever projecting that my ever-growing debt will drop my credit rating to “junk” by 2027.

  28. Gravatar of scott sumner scott sumner
    30. March 2010 at 05:34

    Kevin, Yeah, but I’d rather be called evil by Krugman, than be called stupid. Am I really so dense that I can’t evaluate the logic of DHE’s arguments on my own? (Don’t answer that.) Remember, no knowledge of public finance was required, Krugman was basically challenging the logic of his arguments. And I still agreed with DHE after reading Krugman, so how was I uninformed?

    But technically you are right.

    Jim Glass, Good points. Obviously Mulligan understands S&D, so what did he mean by saying there wasn’t enough gov. debt to satisfy demand? Demand is a function of price. Did he explain that remark?

  29. Gravatar of Nathan Nathan
    30. March 2010 at 09:38

    We should worry about the steady-state not the first few years, and we should focus on the big-dollar items, I think both sides would agree. The big question from a budget perspective is whether or not Medicare spending can be controlled. If it can’t be, then the projections will turn out to have been wildly optimistic. If it can be, then the projections should turn out to be fairly realistic over the long-term. I don’t think anyone on either side can deny that this bill takes more substantive steps to control Medicare spending than anything passed by the Republican-controlled Congress during the 2000s. So for Republicans to claim that they could have cut costs better is a bit of sour grapes. Does this bill cut costs as well as some completely imaginary Republican alternative that would be all cuts with no subsidies? Of course not. But that’s not the real-world comparison we should be looking at.

  30. Gravatar of scott sumner scott sumner
    31. March 2010 at 05:41

    Nathan, Yes, but I seem to recall that when Gingrich wanted to control health care costs in 1995, Clinton stopped him. Nonetheless, I agree that the GOP record is not good, especially on the Medicare side.

    In another post comment I mentioned another issue, the taxes on the rich won’t bring in as much revenue as the CBO is forced to estimate. Even non-supply-siders acknowledge that there are substantial behavioral effects from these tax increases. They’ll bring in money, just not what is being counted on.

    The Economist magazine supported the bill, but the new issue has some very negative comments about the cost control side. Replacing the tax break on insurance with a fixed tax credit could have been a big cost saver–too bad it wasn’t adopted. I also wish there had been more emphasis on HSAs.

    I think everyone agrees this is just a first step, and the cost issue will have to be addressed again down the road.

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