Krugman, Twinkies, and Logical Fallacies

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When engaged in a debate, one method of winning is to avoid speaking about the merits of your arguments or your opponent.  It is so easy that we often don’t even realize that we’re using them and it’s rare that someone is completely immune from unintentionally slipping one or two in once in awhile.

So while logical fallacies are used to advance a point, effectively pointing them out can be a devastating weapon.

Earlier today, I read Paul Krugman’s latest column in the New York Times, entitled “The Twinkie Manifesto.”   Several of the arguments presented in the article bothered me, so I decided to bring them to light here and make my attempt to debunk his claims.

It would be a good idea to read Krugman’s column first and then read my rebuttal.  I will take major points that I find flawed one at a time.  Not every critique will involve logical fallacies, but I will point it out when I do.

Needless to say, it wasn’t really innocent. But the ’50s — the Twinkie Era — do offer lessons that remain relevant in the 21st century. Above all, the success of the postwar American economy demonstrates that, contrary to today’s conservative orthodoxy, you can have prosperity without demeaning workers and coddling the rich.

Very early in the piece, Krugman starts with a straw man.  Instead of making any attempt to even somewhat accurately describe a conservative viewpoint on taxes and the economy, he presents a false and misleading view of supply-side economics.  Calling the conservative viewpoint one that will involve “demeaning workers and coddling the rich” is an easy way for him to gather people to support his side since most people would be against such things.

Consider the question of tax rates on the wealthy. The modern American right, and much of the alleged center, is obsessed with the notion that low tax rates at the top are essential to growth. Remember that Erskine Bowles and Alan Simpson, charged with producing a plan to curb deficits, nonetheless somehow ended up listing “lower tax rates” as a “guiding principle.”

A few weeks ago, Slappy Jones posted an essay by Thomas Sowell on the topic of lowering taxes on the rich and what the intended effects on the economy would be.  While there are many conservatives out there who do in fact believe that lowering taxes on the rich will cause money to “trickle down” to the poorer people, the historical reasons behind lowering taxes was to increase tax revenue.  I suggest that Mr. Krugman give the Sowell article a read.

Furthermore, it is improper for Krugman to throw away Bowles and Simpson’s conclusion simply because he disagrees with it.

Yet in the 1950s incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years. The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent, twice what they pay today.

I find a few things wrong with this.

First of all, what exactly does Krugman mean by “corporate profits were twice as large, relative to national income”?  Earlier in the sentence, he was referring to tax rates, but he has seemed to have switched to tax revenues.  If so, he’s comparing apples to oranges.

Now, I’m not sure where he comes up with that the top 0.01% paid an effective rate of over 70%.  According to Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945, in 1960, the top 0.01% paid an effective tax rate of about 45%.  At no point was anyone paying 91% in taxes even when the rate was that high.  Why not?  It was because a lot of the money from the wealthier Americans went into tax-free shelters (again, from the Sowell article, page 2).

Squeezed between high taxes and empowered workers, executives were relatively impoverished by the standards of either earlier or later generations. In 1955 Fortune magazine published an essay, “How top executives live,” which emphasized how modest their lifestyles had become compared with days of yore. The vast mansions, armies of servants, and huge yachts of the 1920s were no more; by 1955 the typical executive, Fortune claimed, lived in a smallish suburban house, relied on part-time help and skippered his own relatively small boat.

Krugman never says who these top executives are, but nevertheless leads you to believe that they would have “vast mansions, armies of servants, and huge yachts” had it not been for the tax rates they faced.  This is a fallacy of questionable cause.

For the sake of disclosure, the essay is about the country’s executives in the top 30,000 companies.  The incomes of these people were $50,000 or more.  $50,000 would have put you in the 62% tax rate in 1955, which adjusted for today’s dollars would include incomes between about $435,000 and $536,000.  According to (hey!) the New York Times, the average income for someone in the top 1% today is $717,000.  Getting a spot in the 1% requires an income of at least $386,000, so this 62% rate would have put people earning $50,000 in the lower end of today’s top 1%.

And for the record, based on that article, those guys weren’t exactly living tough lives back then with the money they were making.  At one point, they reference wearing suits that cost $265, which according to this inflation calculator would cost about $2300 in today’s dollars.

This is important because not much later, Krugman says the following:

Today, of course, the mansions, armies of servants and yachts are back.

Hmmm, maybe things have gotten cheaper these days?  Today, someone earning $500,000 a year would have their effective taxes total about $100,000.  In 1955, that number would have been about $175,000 with a 35% effective rate.  $75,000 is a large chunk of change, but taking home $325,000 instead of $400,000 does not exactly make one “relatively impoverished” as Krugman described.

Surely, then, the far less plutocrat-friendly environment of the 1950s must have been an economic disaster, right?

Strange to say, however, the oppressed executives Fortune portrayed in 1955 didn’t go Galt and deprive the nation of their talents.

Again, Krugman makes another false comparison.  If companies are leaving the country today because of high taxes (even though they are lower than they used to be), something else is likely to be the driving force.  The nature of market was much different in the 1950s than it is today.  With the internet and more efficient modes of transportation (not to mention half of the western world still not reeling from World War II), global competition has increased dramatically.

On the contrary, if Fortune is to be believed, they were working harder than ever.

Or many of them utilized loopholes to get out of paying the high taxes.

There are, let’s face it, some people in our political life who pine for the days when minorities and women knew their place, gays stayed firmly in the closet and congressmen asked, “Are you now or have you ever been?”

This is a red herring.  This has nothing to do with economic policy.  Furthermore, this could also be classified as poisoning the well.  By sneaking this sentence in, Krugman is attempting to create a bias against someone who advocates for any given policy of the past.

America in the 1950s made the rich pay their fair share; it gave workers the power to bargain for decent wages and benefits; yet contrary to right-wing propaganda then and now, it prospered.

Ultimately, this is the fallacy on which Krugman bases his entire column: post hoc.  Economic prosperity may or may not be the result of higher taxes (many of us claim that it isn’t).  Unfortunately, he never actually attempts to prove this claim outside of offering the fallacy as his argument.

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slappyjones2
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When I drive through poor neighborhoods in the city, I see satellite dishes and cell phones everywhere…Do you think the 99%, or the bottom 1%, live better today or in 1950? Is that due simply to the passage of time or big evil corporations finding ways to make products cheaper and getting them to all people…for a profit!?

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