By the time New York Times columnist Paul Krugman graced the mound, his team had been straggling. Undisciplined and short-fused, privatization adversaries had been hurling wild pitches at the President’s Social Security plan for months — an alarmist editorial in “The Nation” here, a Ted Kennedy spasm there — nothing ever nearing the strike zone.
- Jess Cox
Having grown pleasantly accustomed to their opponents’ stammering, privatizers and their cohorts in the media resentfully mobilized at word of Krugman’s decision to enter the debate. A franchise player had finally stepped to the rubber — a southpaw with 20 books, over 200 policy papers and a PhD in economics. Who does the right-wing media call (and forgive me if this metaphor has dragged on): The one designated hitter that knows how to time Krugman’s pitches.
Donald Luskin, a free-market apostle with a sardonic temper and a passion for stock dividends has been haunting the Times columnist for years. Operating under the “Krugman Truth Squad” banner, the National Review contributing editor dedicates the bulk of his brain activity to finding ways to make left-wing economists look stupid. But altogether sturdy, Krugman’s writing has never had much trouble standing on its own two legs, and Luskin’s ridicule usually fails to resonate.
Not anymore. Krugman’s attempts to debunk the investor-friendly benefit system have fallen decidedly short. Each week he throws up drab, scantily researched softballs, and each week his opponents hit home runs.
February has been particularly amusing for Luskin. On the first of the month he made headlines after accepting Krugman’s “6.5 percent challenge” – a trial run for any economist projecting stock markets to yield six and a half percent invest returns over the next 75 years (the earnings rate purportedly necessary to equalize the program’s transition costs). Krugman claims current growth forecasts make that scale of expansion impossible for personal savings accounts. Luskin begged to differ. Using Krugman’s own data and some simple arithmetic, Luskin shows in plain English how steady growth in profit margins (figures that often voyage with the pace of the economy) can complement predictably rising stock dividends to generate a long-term return rate of 6.4 percent – just shy of Krugman’s target, but still worthy of victory. Why? He explains. “”Even without the arithmetic,” he wrote, “there’s nothing so unusual about thinking that stocks could return something like 6.5 percent, after inflation, over the next 75 years. After all, they’ve returned exactly that over the last 75 years.”
Krugman’s most recent piece was worse — much worse. He spent most of his time struggling to draw equivalence between diverting payroll taxes into private savings accounts and borrowing would-be gambling cash from the federal government. His logic: Earnings in personal investment accounts cannot outpace the current system’s rates of return unless investors sidestep the bond market. “The only way to get ahead,” he said, “would be to invest in risky assets like stocks, and hope for higher yields.” Every penny rerouted into equity markets, according to Krugman, increases the prospect of a non-performing “loan.” There you have it, a pearl of wisdom from one of the greatest economic minds of our time: the stock market, Krugman concluded, can be a risky venture.
Think I’m oversimplifying? Read Krugman’s column – or better yet – read Luskin’s response. If you never thought you’d live to see a world-class economist lectured on the concept of opportunity costs — usually Pgs. 1-2 of an Econ.101 textbook — you’re in for a laugh. Though his patronizing tone never fades, Luskin nonetheless nails the bottom line: Electing to direct payroll taxes into investment accounts is an opportunity cost, not a personal loan. Krugman’s arcane analogy rests on the assumption that payroll taxes are funds that originally belonged to the government — but they aren’t. That’s where we get the name taxpayers.
Now to be fair, Luskin does enjoy the luxury of rebuttal when constructing his arguments, and he’s never had the burden of speaking first. But still, Krugman is a New York Times columnist — writing beneath the same masthead where William Safire won his Pulitzer for unclothing corruption in President Carter’s Office of Management and Budget, where Jimmy Reston spilled his soul after the Watergate leaks, where Tom Friedman pieced together the puzzle of globalization. The New York Times Op-Ed page is hallowed ground in the land of political commentary. Host to some of the sharpest thinkers of our time, its margins have absorbed a brain trust unmatched in the field. It makes you wonder: If Krugman can’t finish the game, who can?
Singer can be reached at singers@umich.edu