Krugman Finally Jumps the Shark

I have for some time offered a defense of P-kroog. 

A tepid defense, to be sure.  But the defense has been that he had not sacrificed his intellect to his ideology in the area of international trade.  Sure, he sold out and lied about domestic macro policy, but okay:  he was still sensible on his open economy macro claims.  In fact, really impressive.  (For an example, read this.   That's great stuff.  P-kroog vintage 1993).  P-kroog, on trade, still had some sense of being required to use actual logic and evidence.

Until....now.  P-kroog has decided that the reason that investors are trying to get their money out of Greece, Cyprus, and etc. is that (wait for it) the INVESTORS are bad people, and need to be controlled.  Here it is.

There is a reason why capital mobility is one of the Mundell-Fleming "unholy trinity," along with a currency peg and an independent monetary policy.  That reason is simple:  if a country wants to impose capital controls, it can only be because they want to do something appallingly stupid to their exchange rate or their monetary policy.  Some commentary from FEE.

(I should note that the "Krugman thinks he is Pharaoh" comparison makes sense.  He won't let the capital go, he thinks he is a living god, and he lives in a city near denial, or the Nile, or something like that)

Oldie but goodie....Capital Strike

You have likely seen this.

But I want to make sure you have ALL seen this...(Thanks to CG for the update)

Bar Stool Economics
Suppose every day, ten men go out for beer and the bill for all ten comes to $100 and If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.)
So, that's what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." so drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected...They would still drink for free...But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?'...They realized that $20 divided by six is $3.33..

But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner
Suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before...And the first four continued to drink for free...

But once outside the restaurant, the men began to compare their savings.
"I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man," but he got $10!" "Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I!" "That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison.
"We didn't get anything at all. The system exploits the poor!"
The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, ladies and gentlemen, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

For some reason, this little internet meme is usually attributed to Prof. David Kamerschen, at UGA. But he did NOT write it, and disavows either knowledge or opinion of the piece. So....there.