In his article on the National Review Online at http://www.nationalreview.com/nrof_luskin/truthsquad200310080934.asp, Donald Luskin, describes why Krugman is a "Type D Economist". He states:
But the real problem, which Kling either doesn't understand, doesn't choose to understand, or doesn't choose to deal with, is that many of Krugman's Type C and Type M arguments are actually Type D arguments — deceptions. For example, the Type C argument demonstrating that the Reagan's tax cuts produced no faster economic growth necessitates that Krugman hand-picks beginning and ending dates on the economic timeline to produce the numbers he desires. The dates he cites, however, do not (contrary to his explicit claims) correspond to business cycle peaks. Nor did the tax cuts exist in all the years he includes. When the proper years are chosen, faster GDP growth can unambiguously be observed. (See the analysis on my blog, The Conspiracy to Keep You Poor and Stupid.)
Following is an excerpt of Luskin's analysis on his blog:
Do tax-cuts stimulate economic growth? Examining Ronald Reagan's famous supply-side tax-cuts, Krugman says
"...between 1979, when the big slump began, and 1989, when the economy finally achieved more or less full employment again, the growth rate was 3 percent, the same as the growth rate between the two previous business cycle peaks in 1973 and 1979. ...Nothing in the data suggests a supply-side revolution."
First, in picking 1979 and 1989 as his endpoints, Krugman is making up business cycles as he goes along. According to the official National Bureau of Economic Research business cycle dating, neither of Krugman's two years included a business cycle peak! What's worse, as reader Chris Huskins noted in an email to me, Krugman has included two years before Reagan was even president -- and his tax cuts didn't start taking effect until 1982.
If Luskin had bothered to do a google search, he would have quickly found that Krugman is NOT "making up business cycles as he goes along". Searching for "business cycle peaks" "1979 and 1989" turns up a number of matches. The most noteworthy are a couple of matches from the Federal Reserve Bank of San Francisco. The paper at http://www.frbsf.org/econrsrch/econrev/2000/article1.pdf states:
Figure 1 plots two general economic indicators of the business cycle — civilian unemployment rates and median real family income — that demonstrate this point. Outside of California, business cycle peaks (i.e., low points in unemployment) in 1973, 1979, and 1989 were followed by business cycle troughs in 1975, 1982, and 1992 for most of the U.S (Panel A).
Now there do appear to be more matches for the years 1980 and 1990, the business peaks given by the National Bureau of Economic Research. This seems to indicate that there is more than one way to measure business cycles. In any case, Krugman obviously did not make his business cycles up. In any case, Luskin continues:
A fairer test would be to look at the first whole official business cycle after Reagan started cutting taxes. That would be from the trough in November 1982 to the subsequent trough in March 1991. And what do you know -- that cycle's average GDP growth rate was 3.7% -- sharply higher than the 3% Krugman got with his invented business cycle.
He pulls a similar trick to laud President Clinton's tax increases:
"...here was a president who sharply raised the marginal tax rate on high-income taxpayers, the very rate that the tax-cut movement cares most about. And instead of presiding over an economic disaster, he presided over an economic miracle."
Apparently Krugman, holding himself out as an historian of the tax-cutting crusade, didn't hear about that cut in the capital gains tax rate from 28% to 20% that a Republican congress forced down President Clinton's throat in 1997. That's an even bigger cut in the capital gains tax rate than the one Bush put in place this year -- and it triggered the best growth years for the economy under Clinton. GDP growth from Clinton's tax-hikes to the capital gains tax-cut averaged 3.4%, below the growth rate of the Reagan years (and those were a full business cycle, including a recession). From the capital gains tax-cut to the end of Clinton's presidency, growth was 3.7% -- which happens to be exactly back to the higher levels of the Reagan years (thanks to a Republican tax-cut).
The previous excerpts contain a number of conflicting figures from Krugman and Luskin. I therefore constructed the following table to check the accuracy of each of their claims:
AVERAGE ANNUAL INCREASE IN REAL GROSS DOMESTIC PRODUCT
(GDP in billions of chained 1996 dollars)
Percent Change
--------------------------------
Year Real GDP Total
----------- -------------- Annual- Average Change /
First Last First Last ized Annual # of Yrs Claim Claimant
----------- -------------- -------------------------------- --------
1973 1979 4123.4 4912.1 2.96 2.99 3.19 3.00 Krugman
1979 1989 4912.1 6591.8 2.98 3.01 3.42 3.00 Krugman
1982 1991 4919.3 6676.4 3.45 3.47 3.97 3.70 Luskin
1993 1997 7062.6 8159.5 3.68 3.68 3.88 3.40 Luskin
1997 2001 8159.5 9214.5 3.09 3.10 3.23 3.70 Luskin
1997 2000 8159.5 9191.4 4.05 4.05 4.22
1960 1973 2376.7 4123.4 4.33 4.35 5.65 Selected
1973 1980 4123.4 4900.9 2.50 2.53 2.69 Business
1980 1990 4900.9 6707.9 3.19 3.21 3.69 Cycle
1990 2001 6707.9 9214.5 2.93 2.94 3.40 Peaks
1961 1970 2432.0 3578.0 4.38 4.40 5.24 Selected
1970 1982 3578.0 4919.3 2.69 2.72 3.12 Business
1982 1991 4919.3 6676.4 3.45 3.47 3.97 Cycle
1991 2001 6676.4 9214.5 3.27 3.28 3.80 Troughs
Source: 2003 Economic Report of the President, online at
http://w3.access.gpo.gov/eop/;
National Bureau of Economic Research (business cycle peaks
and troughs) at http://www.nber.org/cycles.html
The table calculates the average annual growth of the real GDP via three methods, resulting in three different values. The first is the annualized growth rate. This is the rate that, if it had occurred in every year of the specified span, would have resulted in the actual growth that occurred over the entire span. The second value is the average annual growth rate, obtained by dividing the sum of the annual growth rates by the number of years in the span. As can be seen, the first and second values are very nearly identical. The last value is obtained by simply dividing the total growth rate by the number of year in the span. This tends to overstate the true annual growth rate since it does not account for the compounding effect of the annual growth rate. It should therefore not be used and is provided just for illustrative purposes. In any case, the first two lines show the two claims made by Krugman. Putting aside his choice of business cycle peaks, he stated that "the growth rate was 3 percent" from 1979 to 1989 and "the same" from 1973 to 1979. Rounding off to the nearest tenth, he was right on the money.
The next three lines show the three claims made by Luskin. In the first one he stated that the growth rate from "November 1982 to the subsequent trough in March 1991" was "3.7%". However, the table above shows the growth rate from 1982 to 1991 to have been just short of 3.5%.
Luskin's second claim was that "GDP growth from Clinton's tax-hikes to the capital gains tax-cut averaged 3.4%, below the growth rate of the Reagan years (and those were a full business cycle, including a recession)". Clinton's tax-hikes were in 1993 and, as Luskin states, the capital gains tax-cut was in 1997. There was no recession during this four-year period so it's unclear what Luskin was saying parenthetically above. In any case, the table shows that the growth rate for this period was about 3.7%, higher than the 3.4% claimed by Luskin.
Finally, Luskin's third claim is that "From the capital gains tax-cut to the end of Clinton's presidency, growth was 3.7%". Since Clinton was president until January, 2001 and it was he that submitted the 2001 Budget, I assume that "the end of Clinton's presidency means 2001. The table shows that the growth rate from 1997 to 2001 was about 3.1%, not the 3.7% that he claims. If Luskin had been referring to 1997 to 2000, before the end of Clinton's presidency, then the growth rate would have been about 4.05%, higher than Luskin's claim.
In summary, Krugman appears to be batting 2 for 2 in his claims and Luskin appears to be batting 0 for 3. Now, one could claim that Krugman's choice of business cycle peaks was questionable and that it was in his favor. However, all three of Luskin's errors were in his favor. Unlike Luskin did with Krugman, I do not jump to the conclusion that this errors were intentional. Just as there are different definitions of business cycle peaks, there is a chance that Luskin is using slightly different values of real GDP. However, I would call on him to give his sources and show precisely where his numbers came from. This is especially important since he is accusing others of pushing deceptive data.