Krugman, Twinkies, and Tax Increment Financing

The size of the job matters, not the size of the boat.

I love Paul Krugman. Except when I don’t. During the Obama years Paul Krugman has been a clear and consistent voice for fiscal policy that doesn’t worry about debt limits or the phantom of “big government.” His latest reverie on the demise of the Twinkie reminds me of how even really smart people (Nobel Prize winners!) can get blown off course by ideology and rhetoric. Sometimes when he plays to the gallery, Krugman can indulge in language that makes fiscal policy harder to do. Here’s Krugman on the 1950s in his Twinkie Manifesto:

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 is smart enough not to imply a correlation between economic growth and the size of rich men’s boats. But that can’t be said of his left leaning readers. The problem with Krugman’s piece is that it seems to make the relative wealth of the rich the most important outcome of economic policy. That is, the economy will grow if we squash down the people who are wealthy by taxing them a lot.

Does it really matter how big the rich guy’s boat is? If the economy is thriving, people are getting back to work, and all boats are rising should we concern ourselves with just how rich the rich are getting? I think that matters less than creating policy that uses government credit, regulation, and funding to boost the economy. I think that is what Krugman’s support of stimulus is all about, not making the life of the richest executives more Spartan.

This matters at the local level. For me, in Washington, the El Dorado of public finance and land use is Tax Increment Financing or TIF. The benefits of TIF are myriad, since it uses the governments ability to zone, tax, and borrow in the public and private interest. By capturing the value of new development, taxing it and using the proceeds of the tax to pay down debt incurred for infrastructure;TIF is local fiscal policy, creating money where non-existed before.

But Krugman’s language feeds the liberal mindset that someone must be “laughing all the way to the bank” at the public’s expense because of schemes like TIF. Opponents of TIF are on both left and right, but it’s leftward opponents always see a bamboozle by the elite in TIF which doesn’t exist. On the contrary, current proposals actually would generate lots of new money for jobs, infrastructure, and sustainable, green development. Liberal opposition to concepts like TIF just aid conservative anti-tax and debt sentiment that Krugman has pointed to as the cause of economic pain, not recovery.

Krugman usually is a strong counter to the know-nothingism of the Tea Bagger set that decries debt and taxes as the downfall of the country. There is a long tradition in the United States of stoking fear of banks, financing, and, essentially, things that are hard to understand. But in the Twinkie Manifesto Krugman sounds the fearful Jeffersonian note of the American voice rather than the truly progressive Hamiltonian one.

I like to think that Krugman would support local proposals for TIF as a wise use of debt, taxation, and government regulation in the support of important goals like job creation and density. I’m all for it too, even if someone ends up getting a bigger boat. The wrong lesson of the late election is that, to paraphrase Margaret Thatcher, it’s fine for our policies to make the poor poorer as long as the rich are less rich. I’d rather read the election as a mandate for smart use of government regulation and debt to create jobs and promote sustainable growth using density using tools like Tax Increment Financing.

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