And now... with the second apologia in its evening edition... we see Krugman pull out all the stops, resorting even to bold-face type. I can just imagine his tiny fists pounding the keyboard, screaming out the one thing that can save him...So, you ask, why were these paragraphs boldfaced? I'll quote the first in full (which Luskin, predictably, didn't):
Update: Yes, this means that the output and employment increase created by a fiscal expansion goes away - the additional jobs are here today, gone tomorrow. Don't take my word for it - check any major principles textbook. Tax cuts may create jobs, but the jobs go away even if the tax cut remains in place. "in the long run, shifts in aggregate demand affect the overall price level but do not affect output." Mankiw, p. 744.That's right, folks... the section was in boldface because it was an after-publishing edit, no different than a blogger putting something in italics in order to differentiate between the newer and older material. (I don't usually do it, but it's common.) Luskin's a blogger, he'd know this, yet deliberately misportrayed the real reason in his quest for juvenile "points" on Krugman.
(Plus, he continues to misinterpret what Krugman is saying, mistaking the idea that "the jobs would exist anyway after a few years" to "the jobs would go away after a few years".)
Add the woeful shot at the maintainer of the Unofficial Paul Krugman archive as being "infinitely sycophantic" and the spectacle of David attempting to fell Goliath by flinging his own rancid faeces is quite complete.
As Dwight Meredith said, Krugman isn't the liar here.
Edit: Bobby, the aforementioned "infinitely sycophantic" maintainer, actually illustrated the whole thing quite well:
"Krugman's theory asserts that there would be no more jobs beyond the 1.4 million created in the first two years of the Bush plan (I don't agree with that, but let's stipulate it). While there would be no more jobs, he never asserts that those initial 1.4 million jobs will vanish at any time over the then years of the plan. They will be there generating $40,000 wages each year for ten years. So we still have to divide the ten-year cost of the tax cut by ten, because those jobs will be around for ten years."'Nuff said. This is probably why Luskin had to namecall... "Bobby" had his number, and Luskin knows it. His only hope was flung faeces, counting on the idea that two opposite ideas will produce the expectation that the truth lies at the middle, even if one side is completely fallacious.
As I understand it, the writer, Donald L. Luskin's, analysis is wrong for the following reason: AS SOON AS WE ARE NO LONGER NEAR THE LIQUIDITY TRAP THE PRESENCE OF THE TAX CUT MAKES NO DIFFERENCE AS TO WHETHER THOSE 1.4 MILLION JOBS EXIST THEREAFTER.
To see why here's a thought experiment:
Let's say we pass the tax cut in Spring 2003. It's now the end of 2004, and, by now, we are no longer close to a liquidity trap. This means that the Fed once again can bring us back to full employment through monetary policy, whereas monetary policy was relatively ineffective during the trap. For the sake of argument, up until now the tax cut has created 1.4 million jobs. We are now faced with two choices:
(1) Repeal the tax cut. Thereafter, we let expansionary monetary policy maintain the 1.4 million extra jobs and create any new jobs until we have the unemployment rate that the Fed desires. Notice that, in the years after the trap is over, those 1.4 million jobs remain although the tax cut is gone.
(2) Keep the tax cut in place. However, the Fed will match this choice with forgone interest rate cuts or interest rate hikes. The Fed will conduct a monetary policy that maintains those 1.4 million jobs and create new ones until we have the unemployment rate that the Fed desires. So those 1.4 million jobs remain with or without the tax cut.
Just to make it crystal clear, let's put it together: In the years we are near the liquidity trap, under our assumptions, the presence of the tax cut creates 1.4 million jobs. After the trap the presence of the tax cut not only makes no difference in new job creation, it makes no difference as to whether those 1.4 million jobs still exist thereafter.
Therefore the 1.4 million jobs can be attributed to tax cuts ONLY IN THE YEARS WE ARE NEAR THE LIQUIDITY TRAP AND NOT AFTER THE TRAP ENDS.
Please do not fail to note that the time when the trap ends is exogenous to this model and, here, is independent of whether or not a tax cut is passed. Indeed Krugman says, "Now most forecasts presume that we'll be out of the trap by next year - that is, before most of the supposed job creation from the tax cut takes place. Even if you're more pessimistic than that, we're probably looking at only 1-2 years when fiscal policy creates jobs." I am assuming that these forecasts do not assume this tax cut which has not passed yet. Anyway, sorry if I botched or misinterpreted any of this.
Thus the Wurlitzer plays on.