Wednesday, March 09, 2005

Fisking Paul Krugman's Bankruptcy Analysis

Yesterday Paul Krugman had one of his classically lame op-eds in the New York Times. Krugman normally uses his space in the NY Dog Trainer as nothing more than an opportunity to bash Republicans, and he's usually totally ignorant of the facts. It's no different this time.

The credibility of journalists (or anybody, really) is badly damaged when they make provably false statements. In other words, if someone says, "2+2=5" then we have no reason to believe them if they say "the sky is falling." So why should we believe any of Krugman's pap when he throws out the whoppers below? Read "The Debt-Peonage Society" for the complete context of Krugman's editorial. As usual, he's light on supporting data, cites nothing, and heavy on the melodramatic cliches. Here you go:

"A vast majority of personal bankruptcies in the United States are the result of severe misfortune. One recent study found that more than half of bankruptcies are the result of medical emergencies. The rest are overwhelmingly the result either of job loss or of divorce."
A citation here would be nice, like naming the study. How about spending beyond one's means? Is that ever a reason for bankruptcy filings? Where does personal responsibility come in to play? Look at these statistics, where I found this quote: "The typical family filing for bankruptcy in 1997 owed more than one and a half times its annual income in short-term, high-interest debt. A family earning $24,000 had an average of $36,000 in credit card and similar debt." Federal Reserve (1997). Sounds like people who file for bankruptcy are, for the most part, being financially irresponsible and looking for the government to bail them out. Are there exceptions? Of course, but Krugman paints a picture like it's the other way around.

Medical emergencies are cited in my source above in half of bankruptcy filings, so I give Krugman credit for being close to the truth on that one. But it's still unclear if that's the only reason for those filings or merely another factor. Divorce is hardly a "severe misfortune" in most cases. Usually it's a choice made by one or both partners in a marriage. That we should all pay for their decision to get a divorce (and the debt they incurred prior to that divorce), to me, is deeply offensive.
"To the extent that there is significant abuse of the system, it's concentrated among the wealthy."
So only the wealthy are guilty of taking advantage of bankruptcy laws? This is an absurd statement. What about his vast majority of uninsured families where dad just got laid off and mom was hit by a bus?

"...over the past three decades the lives of ordinary Americans have become steadily less secure."
Again, some sort of citation or study would be nice. The last time I checked, the nation's economy was humming along. Unemployment is around 5%, interest rates are still near historic lows, and home ownership is at all-time highs. So the opportunity for success exists in this country. If people choose to spend more than they should, I'm sorry, but that is their (unfortunate) decision and they should be held responsible.

"Job stability has declined; spells of unemployment, when they happen, last longer; fewer workers receive health insurance from their employers; fewer workers have guaranteed pensions....Health insurance coverage is declining...."
Is he just making this stuff up? What are Krugman's sources? My goodness, we live in the greatest country, with the greatest economy the world has ever seen. There is more opportunity here than in any other country, and people are literally dying to come here and work. We have the highest standard of living and one of the highest lifespans, on average.

"...the current administration wants to phase out Social Security."
This is one of the Left's recurring mantras in their struggle against Social Secuirty reform. Show me one quote where President Bush has said this. Social Security is not being phased out! Updated, improved, fixed, yes--use whatever verb you want. Privatization, if implemented, will be: a) a small part of the total Social Security package, b) in addition to standard payouts, and c) completely optional, in other words, each person can decide for themselves if they want to put money aside into their own personal accounts (or not). Krugman throws this argument in at the end of his editorial, as if it has anything to do with the subject of his editorial, bankruptcy laws.

Look, there definitely is abuse of the system when it comes to people filing for bankruptcy. I believe that most bankruptcies are a result of people spending too much, or beyond their means. Rich people do it and poor people do it. Neither class has anything to do with how honest people are. Changing the bankruptcy laws and making it tougher for people to file may help people to control their spending.

I will also concede that the credit card companies make it tantalizingly easy for people to get themselves into trouble. It's too easy to get credit cards, run up big bills, and then decide you can't (or shouldn't have to) pay for the goods. But in the end, people are responsible for their own actions, their own purchases and their own financial stability.

I write this today (even though I really started it yesterday) because the Senate is about to pass a law reforming bankruptcy laws. To me, it seems like a good idea. I offer a few more links, here and here, for those interested in reading more on the subject.
Comments: Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?