Paul Krugman’s Surprising Demand For Tax Increases

by Pejman Yousefzadeh on April 25, 2011

Yeah, yeah, I know; why be surprised that a contemporary American liberal pundit has called for tax increases?

Well, for one thing, Krugman points out in his column that he is embracing a budget–“the People’s Budget”, no less–that calls for tax increases not just on the wealthy, but on the middle class as well. Of course, it follows that if Krugman’s call for middle class tax increases is adopted, then the middle class will have less disposable income. This means less spending on the part of the middle class, which ought to sound alarm bells in Krugman’s brainpan; it is a mainstay of left-of-center economic thinking that while the rich don’t spend enough to stimulate the economy (thus removing a justification to give the rich tax cuts, according to the left), the middle class spends plenty, and is instrumental in goosing up economic growth. Given that Krugman has made it his mission to persuade anyone who will listen, and anyone who can read his columns and his blog posts that we didn’t get a large enough stimulus from the Obama Administration in 2009, and that as a consequence, any economic recovery may be in peril–for more on this line of thinking, see generally this profile of Krugman–it is more than a little surprising that Krugman is willing to propose a middle class tax increase, a policy option that he ought to believe constitutes throwing any and all chances for a vibrant economic recovery under the bus.

The Krugman apologist may point out that Krugman really doesn’t believe that deficits are a big deal, and that he is playing devil’s advocate in his latest column; telling us what we ought to do in the event that the deficit crisis is real, even as he believes that it is nothing to worry about. To be sure, Krugman appears to be unconcerned about our fiscal situation, having gone so far as to have pooh-poohed the S&P’s recent threat to downgrade America’s credit rating. I don’t read his latest column as having been written on the road to Damascus (excuse the semi-oblique pun on Krugman’s first name), and ending in a genuine realization on Krugman’s part that our deficit situation is indeed quite parlous, and needs to be addressed immediately.

But given the likelihood that Krugman still is a member in good standing of the new “deficits don’t matter” crowd, one wonders why he praised the “People’s Budget.” Why not denounce it instead as representing the kind of unnecessary fiscal austerity that Krugman regularly inveighs against as detrimental to economic growth? Why not attack it for proposing middle class tax increases that might bring a halt to the kind of consumer spending that Krugman and like-minded pundits believe is instrumental to a comprehensive economic recovery? Why not bemoan the fact that it concedes to the Right the notion that austerity budgets are needed, instead of pushing for more Keynesian stimulus? Heck, why not denounce cuts in defense spending? Or is defense spending somehow one of the rare forms of government spending that Krugman and like-minded pundits believe will not stimulate the economy?

To sum up the whole situation, Paul Krugman’s latest editorial has him calling for a policy response to a fiscal crisis he doesn’t believe in. A policy response that calls for less disposable income for the very middle class he and other left-of-center economists and pundits believe needs to have as much disposable income as possible in order to stimulate economic growth through consumer spending. A policy response that calls for less government spending in defense, violating the very Keynesian commands for increased governmental spending that Krugman and other left-of-center economists and pundits believe is necessary for economic recovery. A policy response that is jumbled, incoherent, and contradictory.

For whatever reason, the New York Times saw fit to publish this editorial. And some people wonder why old media is in crisis.

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