Joel Miller Just Can't Get Fairview Facts Straight

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“Everyone is entitled to his own opinion, but not his own facts.” Daniel Patrick Moynihan
Try as he might, New York State Assemblyman Joel Miller just can't get his facts right regarding the Fairview Fire District. On his first try, in a Poughkeepsie Journal Valley Views article on April 22, 2012, he wrote

Fairview alone had fire district tax rates nearly 10 times higher than 27 other towns in Dutchess County in 2010.

I pointed out in Joel Miller's Flawed Legislation for Fire District Budget Empowerment that there are only 20 towns in Dutchess County, and that even if he meant “fire districts” instead of “towns” (which would have made more sense), his statement is still not even close to correct.

Flawed Staff Work

In preparation for that blog post, I spoke with the staffer for Miller who had generated this misstatement. This staffer had already reviewed some of my own reports, including The Big Three Fire Districts of Dutchess County. It became clear to me that this staffer was not well prepared to interpret quantitative information, and the staffer readily conceded as much. My instinct was that if Miller were to release a corrected statement, it might also be wrong. Because I genuinely wanted facts to be correctly stated, I suggested a corrected statement, and I offered to preview any proposed new statement about Fairview. I never heard from Miller or any of his staffers about this matter.

My instinct turned out to be correct. On April 26, Miller sent a press release to each Fairview Fire Commissioner. This press release was essentially a rewording of his Valley Views article, except that the incorrect statement about Fairview was replaced by a new incorrect statement about Fairview:

Fairview alone had fire district tax rates nearly eight times higher than 30 other fire districts in Dutchess County in 2010.

The irony is that the above statement appears to be a mis-quote of a statement in my own report, which reads

Fairview’s tax rate is nearly eight times the average of the non-big-three districts.

Apparently the staffer thought the word “average” in my statement didn't really mean anything important, and could just be omitted! But as most European high school students know, an average of a bunch of numbers must be smaller than some of the numbers being averaged. In fact, for ordinary data like tax rates, roughly half the numbers can be expected to be greater than the average. Maybe even much greater.

And so it is in this case. Half the non-big-three fire districts had tax rates greater than the average of the non-big-three, and half had tax rates less than the average. So Fairview's tax rate was eight times higher than only 14 other fire districts — not 30 other fire districts.

Incidentally, “30 other fire districts” in Miller's statement is wrong too. There were only 30 fire districts in the whole analysis, and the big three fire districts were excluded from this average, so there could only be 27 non-big-three districts. The (weighted) average of these 27 was greater than 14 of these districts, and smaller than 13 of these districts, as one would expect. For five of these districts, Fairview was only about four times higher — not 8 times higher as Miller claimed.

Miller Has Been Ambivalent About Accuracy

This post isn't about flawed staff work. The principal is responsible for the work of his staff. If Miller had any doubt whether his staff could handle the fire tax rate issue, the doubt was resolved the first time the mistake was made. At that point, Miller knew — or should have known — that his staff didn't know what they were doing on this issue, and so were unlikely to make a proper correction on their own. Miller could have arranged for an independent review of his proposed “correction” before it was released. (I would have been glad to accommodate.)

But this post isn't just about fire taxes either. Joel Miller represents 6 of Dutchess County's 20 towns in the New York State Assembly. Yet he allowed himself to write “27 other towns in Dutchess County,” a gaffe that he or any member of his staff could easily have corrected without knowing anything about fire tax rates.

Taken together, these mistakes show Miller to have been ambivalent about the accuracy of his factual statements. Such lapses affect his credibility.

Why Has Fairview's Exempt Percent Increased?

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The Fairview Fire District has the highest fire tax rate in Dutchess County, and possibly the highest fire tax rate in New York State. One of the reasons for Fairview's high tax rate is that roughly half of Fairview's market value is exempt from paying fire taxes, but the exempt half still accounts for half the fire and emergency service calls to the Fairview Fire District. Fairview's taxable property owners pay not only their own share of fire tax, but also pay for service to the exempt properties. Fairview residents and property owners have had a longstanding interest in knowing exactly what percent of Fairview is exempt, and how Fairview's exempt percent may be changing over time. Unfortunately, there has been a history of misstatement of Fairview's exempt percent, which I have attempted to correct. See Fairview Fire District's Exempt Percent Is Misstated — Again.

Fairview's Exempt Percent

The following table shows a 5-year history of Fairview's exempt percent, according to my calculations:

Year of Tax Bill	Exempt Percent
2008	47.9*
2009	47.5
2010	47.9
2011	50.8
2012	51.7

* Listed exempt percent for 2008 is after correcting for a blunder by the Town of Poughkeepsie Assessor's Office.

Note that the 2008 “land” tax bill (including the fire, town, county, and other taxes) corresponds to the 2007 assessment roll, and so forth. This table shows that for the years 2008 — 2010, Fairview's exempt percent has been 47.7 plus or minus 0.2 percent. However, beginning in 2011, Fairview's exempt percent has noticeably increased, standing at 51.7 percent for 2012 tax bills. What accounts for this 4 percent increase in Fairview's exempt percent over two years? This post will examine this question.

Exempt Value has Increased While Taxable Value Decreased

Property values have been falling every year in Dutchess County since the 2008 economic meltdown. Fairview's taxable market value fell 11.8 percent between the 2010 and 2012 tax bills. If Fairview's exempt market value had also fallen 11.8 percent during this period, Fairview's exempt percent would have stayed the same as 2010, at 47.9 percent. But Fairview's exempt market value did not fall 11.8 percent — it actually increased by 2.5 percent! In terms of dollars, Fairview's exempt market value for the 2012 tax bill was about $74 million greater than it would have been if Fairview's exempt percent had remained constant. This $74 million caused Fairview's exempt percent to increase from 47.9 to 51.7 in two years. The $74 million arises from two sources:

1. Four exempt parcels saw dramatic increases in assessed value, for a total of about $41 million. 
2. Fairview's other exempt parcels fell in value by only about 4 percent on average, rather than by the 11.8 percent decrease for taxable parcels. These exempt parcels are assessed at approximately $33 million more than they would have been if they'd depreciated in proportion to taxable parcels.

Why did four exempt parcels dramatically increase in assessed value?

One might assume that the dramatic increases in four parcels simply reflect major construction projects on these parcels. Surprisingly, this assumption is true only for one of the four parcels. Marist College's parcel at 30 Fulton Street (Parcel number 134689-6162-05-035776-0000) increased in value from $240,000 in 2010 to $17,760,000 in 2012 because student residence halls were constructed on that property between those years.

The other three parcels, detailed in the following table, are part of the water and sewer systems for the City and Town of Poughkeepsie:

Parcel number 134689-6062-02 -xxxxxx-0000	827844	835560	818562
Address	3431 North Rd	Kittredge Pl	173 Kittredge Pl
Land use class	822 (water supply)	853 (Sewage)	853 (Sewage)
Owner	City of Poughkeepsie and Town	City of Poughkeepsie	Town of Poughkeepsie
2008 tax bill	$4,274,000	$111,400*	$159,300
2009 tax bill	$4,274,000	$235,000*	$316,000
2010 tax bill	$4,274,000	Not in roll	$316,000
2011 tax bill	Not in roll	Not in roll	$300,500
2012 tax bill	$12,000,000	$10,000,000	$5,250,000

The above three parcels have had no significant construction or other actual increase in market value in many years. These parcels have just been improperly assessed for at least 5 years:

• The 835569 property was erroneously listed as taxable rather than exempt for the 2008 and 2009 tax bills, as indicated by * after its assessed value.
• This same property was erroneously listed with land use class 340 (Vacant land located in industrial areas) for these same years.
• Two of the three parcels were erroneously omitted from the assessment roll corresponding to the 2011 tax bill. One was erroneously omitted from the assessment roll for the 2010 tax bill.
• None of the assessed values for any of these three parcels for any of the 5 years is remotely correct. Even for the 2012 tax bill, the total assessed value is $27,250,000 — only a fraction of the true value of these three properties.

According to my discussion with Town of Poughkeepsie Assessor Kathleen Taber, the 2012 values are only the beginning of an attempt to correct the assessments for these parcels. A realistic correction will not be in place until the 2013 land tax bill, which is based on assessments being finalized this month. The current Parcel Access database, applicable to 2013, shows a tentative total assessed value for these parcels of $125,000,000 — nearly $100 million more than this year's assessment.

Why did exempt parcels decrease in value less than taxable parcels?

While taxable parcels fell in value 11.8 percent in two years, most exempt parcels fell only about 4 percent. As I understand Taber's explanation for this, many exempt properties are difficult to assess because they don't generally appear on the open market. People don't generally buy or sell municipal sewage treatment plants, college academic buildings, or hospital atriums. Changes in the market value of these properties are difficult to gauge because there really isn't a market for these properties. Taber also mentioned that “commercial” properties tend to decrease in value more slowly than residential properties.

It may also be that less attention is given to properly assessing exempt properties simply because the stakes are lower. For taxable parcels, property owners pay real money proportional to the assessment. Taxpayers want assurance that they are paying no more than necessary, while municipal governments receiving taxes want assurance that they are collecting the full amount of money from every taxable parcel. Therefore, tax assessors are under considerable pressure to make assessments of taxable properties that are neither too high nor too low. For exempt properties, these incentives are not present. Inaccurate — apparently even wildly inaccurate — assessments aren't so much noticed.

Summary

There isn't one simple answer as to why Fairview's exempt percent has increased in the last two years. According to my analysis, there are three contributors, in order of decreasing importance:

1. Although Fairview's taxable market value fell by 11.8 percent, Fairview's exempt market value fell by only about 4 percent. The difference means that Fairview's exempt properties were valued $33 million higher than they would have been if they had tracked the taxable decline.
2. Three municipal water and sewer parcels were grossly under-assessed. The assessor made a correction of $23 million.
3. Marist College built student residences, increasing the value of one parcel by $18 million.

These three factors contribute 45%, 31%, and 24%, respectively, to Fairview's increase in exempt percent. Thus, all three factors contribute significantly to Fairview's increase.

Pattern of Under-Assessment of Exempt Properties

The careful reader will have noticed two reasons why Fairview's exempt percent may not be as meaningful as one would like. The first is that gross under-assessment of high-value exempt properties is a bigger issue than previously assumed. Two years ago, I found that the St. Frances Hospital complex had been under-assessed by over $100 million. At the time, I assumed this blunder was a one-time event that would be unlikely to be repeated. Now there's a second instance:  Municipal water and sewer parcels have been under-assessed by over $100 million. Most of this under-assessment will not be corrected until Fairview's 2013 tax bill. This pattern will continue: The recent construction of dormitories at Dutchess Community College — worth tens of millions of dollars — will not be reflected in Fairview's 2013 exempt percent. Taber told me she didn't have time to add the DCC dorms to the current assessment roll, the basis for Fairview's 2013 tax. The omission of such major contributors to exempt value results in underestimation of the true exempt percent.

Unequal Depreciation

The second reason why Fairview's exempt percent may not be so meaningful is that market forces apparently do not affect taxable and exempt properties equally. Nearly half (45 percent) of the increase in Fairview's exempt percent in the last two years is due to the fact that the average exempt property lost only one third as much value as the average taxable property did. At least, that's what the assessment rolls say. Do the assessment rolls accurately reflect exempt property values? There is some reason to wonder. If exempt properties have been overvalued in the last few years, Fairview's corresponding exempt percent is artificially high.

Pace Study's Analysis of Fairview Fire Tax Rate is Flawed

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Pace University's Michaelian Institute for Public Policy and Management released its 189 page Fairview Fire District Consolidation and Efficiency Study final report on June 12. This work, known locally as the Pace Study, examines the feasibility of Fairview consolidating with one or more neighboring fire districts. Pace Study Principal Investigator Michael Genito will present this work at a public meeting this evening, according to the Pace Study website.

In spite of the central importance of tax rates to fiscal analysis, the final report devotes only three sentences and one chart to Fairview's past and future tax rates. Unfortunately, these three sentences, which pertain to average yearly tax rate increase and projection to 2017, are incorrect. Also, the chart contains some incorrect data and an incorrect linear approximation. When I presented my analysis to Genito, he readily concurred that all these statements and the chart are flawed.

Flawed Final Report Passage

The flawed information, on page 175 of the final report PDF (labeled page 167), is as follows:

The Fairview Fire District tax rate has increased on average 4.4% each year from 2008 through 2012. A linear regression of the past five years going forward indicates that by 2017 the tax rate would approximate $6.50 per $1,000 taxable assessed valuation. As such, and all things being equal, the median home would expect to see their fire service property tax to rise from $1,321 per year to $1,502 in 2017.

The above chart, copied from the final report, is confusingly labeled “Tax Rate per $1,000 Assessed Value”, but it is clear from context that this data is really tax rate per thousand dollars of market value, otherwise known as true value tax rate. This is the appropriate kind of tax rate for this analysis.

2008 Fairview Fire Tax Rate Is Incorrect

The key flaw is that the 2008 tax rate in the above chart is incorrect. Fairview's effective 2008 tax rate is $5.16, whereas the above chart shows it to be approximately $4.83. The final report's error in Fairview's 2008 tax rate leads to all the other errors in this passage, as will be explained below.

Genito's Blunder

How did Genito come to make this error? He apparently took an unwarranted shortcut. Instead of dividing Fairview's tax levy by Fairview's market value (the correct method, and the definition of true value tax rate), he took the Poughkeepsie portion of Fairview's tax levy and divided it by the Poughkeepsie portion of Fairview's market value. Under ordinary circumstances, such as between 2009 and 2012, Genito's method would give the same — or nearly the same — result as the correct method. Unfortunately, Fairview's circumstances in 2008 were far from ordinary.

Inequitable Apportionment

Long-time followers of my work know that for every year from 2001 to 2008, apportionment of Fairview's fire tax levy between Poughkeepsie and Hyde Park has been inequitable, resulting in different true value tax rates for the Poughkeepsie and Hyde  Park segments, in violation of New York State Real Property Tax Law. In 2008, the Poughkeepsie segment had a true value tax rate of $4.83 — the number on Genito's chart — but the Hyde Park segment had a whopping true value tax rate of $5.96. All these facts were documented in detail four years ago here, and especially here.

Corrected Chart

In order to fairly graph tax rates, the Y-axis should ordinarily begin at zero dollars. Genito's chart begins the Y-axis at $2, presumably to better visualize small changes in tax rate. The following chart, using the corrected 2008 value, takes this decision further, beginning the Y-axis at $5. This way, small changes in tax rate can be seen even better.


Although the final report's chart includes a straight line approximation to the data and an extrapolation to 2017, such analyses are not appropriate to the corrected data. That's because the corrected data simply does not fit a straight line well enough to justify such an approximation. The corrected data cannot meaningfully be used to linearly extrapolate Fairview fire tax rate out even one year — let alone five years. Once again, Genito concurs with this judgement, which is supported by generally accepted criteria for goodness of fit to a straight line. What this means is that there is simply no basis to support the second and third sentences in the final report's passage, which project 2017 values.

Fairview's Tax Rate Has Been Trending Down Until 2012

We know that taxes are always going up, right? Well, not in Fairview. Examination of the corrected chart between 2008 and 2011 shows that Fairview's yearly tax rate change has been downward twice and upward only once. Even the single upward change from 2010 to 2011 leaves Fairview's tax rate lower than it was in 2008. A standard linear approximation to Fairview's 2008—2011 tax rate would show a decreasing tax rate, not an increasing one.

Fairview's Tax Rate Has Been Approximately Constant — Until 2012

Fairview's downward trend in the 2008—2011 time period is actually quite small. It would probably make more sense to approximate Fairview's tax rate during this time period as a constant value. With such an approximation, Fairview's 2008—2011 tax rate is $5.10 plus or minus 1.2 percent for every year in this interval. The 2011 tax rate is equal to this constant value to within 0.2 percent.

Fairview's 2012 Tax Rate Breaks the Pattern

This pattern of constant tax rate is broken in 2012, where the tax rate soars 12 percent from its historical value of $5.10. It is this break from the pattern that makes it infeasible to predict future tax rates. Another way to look at it is that there is no way one could have predicted Fairview's 2012 tax rate by extrapolation from the previous 4 years.

Average Yearly Tax Rate Increase Is Misleading

What about the first sentence in the final report's passage (average tax rate increase of 4.4 percent per year)? This statistic depends crucially on the 2008 value. With the corrected value, the average tax rate increase is only 2.6 percent per year, not 4.4 percent. Thus the passage's first sentence is incorrect.

Of course, even the corrected sentence is of dubious value. Averages can be deceiving. Why mention a formally correct “average increase” when the tax rate actually decreases as often as it increases. A man drowned in a river whose “average” depth was 6 inches. But he was in the 10-foot part. For the average yearly tax rate increase, essentially all of the tax rate increase during the 5-year period occurred in the last year.

Flawed Passage Is Best Removed

According to Genito, the report's inclusion of the above-quoted passage stemmed from a request by Fairview officials (the “Study Committee”) for a projection based on a 5-year history. Now that Genito has accepted my correction, he and I seem to agree that no future projection can be justified by the data. As I see it, the average tax rate increase is misleading as well, and is best omitted. The only part of the flawed passage that could be of positive value is the corrected chart. This chart is certainly useful for understanding Fairview's fiscal situation, but such an understanding appears to be outside the scope of this report.

Dutchess County Gov't 2013 Tax Rate Likely To Be Highest in Millennium

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Newly elected County Executive Marcus Molinaro is many weeks away from announcing a proposed 2013 budget. After that, the county legislature must deliberate on adjustments before approving a final budget in December. Nevertheless, I can already predict with some confidence that the final 2013 county budget will result in the highest tax rate in this millennium, and the highest tax levy in the history of Dutchess County. In other words, properties will be taxed more steeply by Dutchess County Government than ever before in this millennium. These predictions are based on two tax trends:

1. Dutchess County's taxable market value continues to fall — for the fifth year in a row.
2. Dutchess County Government's tax levy has never significantly fallen, year-to-year.

Taxable Market Value

Dutchess County's taxable market value and tax levy for each year from 2001 through 2012 are derived from the tax rate pamphlets published by the Dutchess County Real Property Tax Service Agency (RPTSA).


For the 2013 tax bill, only an initial estimate of Dutchess County's taxable market value is available (shown in yellow), based on the July 1, 2012, assessment rolls. This value is shown as $30.7 billion on page 23 of a fiscal presentation by the Dutchess County Budget Office. The downward trend in property values since the beginning of the economic meltdown in 2008 is evident in the following chart:


The 2013 taxable market value is shown in yellow to indicate that it is only a preliminary value. The final value, which will not be available until late January 2013, is most likely to be somewhat lower than this value for a variety of reasons explained in detail here.

Note that taxable market value is a net value, including both the value of new construction and improvements, and the current value of existing construction. Dutchess County's taxable market value surged in the first part of the last decade. In 2008 it was 2.5 times larger than in 2001. But from 2008 to 2013 it fell 20 percent. Once again, this 20 percent includes the effects of both the value of new construction and the current value of existing construction. Since there has been some new construction, the value of existing construction must have dropped more than 20 percent since 2008. 

Year to year increases in the taxable market value are shown  below:


When I performed this analysis last year, it appeared as if the property value free-fall was nearly over, since the 2012 taxable market value decrease was the smallest since the meltdown. But the 2013 estimate clearly contradicts that conclusion. Although the 2013 decrease is only an initial estimate, the final decrease will most likely be somewhat greater. Note that all these market values lag tax bills by a year and a half. For example, for tax bills to be paid in February 2013, the corresponding market values are as of July 1, 2011.

Tax Levy

To reason about the 2013 tax levy, let's consider Dutchess County's tax levy history:




The above charts show that Dutchess County's tax levy has increased by a significant amount almost every year. Only in 2002 and 2011 has the tax levy been essentially unchanged from the previous year. Accordingly, I've made the most conservative assumption, that Dutchess County's 2013 tax levy increase will be zero. Based on history, it's unlikely that Dutchess County's 2013 tax levy will be lower than the 2012 levy. The yellow bar indicates that this data point is speculative.

Tax Rate

The 2013 true value tax rate, which is calculated by dividing the assumed 2013 tax levy by the 2013 taxable market value, is $3.38 per thousand dollars of market value: 

The above chart shows that this projected 2013 tax rate for Dutchess County (in yellow) is higher than in any previous year. This projection is almost certainly a low estimate. That's because the final 2013 taxable market value and the 2013 tax levy are both likely to move in a direction to increase this tax rate even further. The tax rate increase chart gives a third reason to conclude that the $3.38 estimate is conservative:

If Dutchess County's 2013 tax rate turns out to be “only” $3.38 — the highest in this millennium — it will still represent the lowest tax rate increase since the meltdown.

Will My Predictions Stand the Test of Time?

What would it take for my tax rate prediction of at least $3.38 or my prediction of the largest tax levy in Dutchess County's history to be wrong? Well, perhaps Molinaro will propose an especially frugal budget with a lower tax levy than last year's. But this won't be easy to do. Former County Executive William Steinhaus was known for shrinking county government and implementing other austerity measures in the years since the meltdown. It's unlikely there's a lot of fat to cut. Meanwhile, the costs of everything are continuing to increase. The effects of the 2008 economic meltdown are still being felt all over, despite allegations of a “recovery”.

How Will We Know Whether My Predictions Are Correct?

The first and most significant indication of whether my predictions are correct will occur next month, when Molinero announces his proposed budget. The second and probably less significant indication will be when the County Legislature approves the budget, possibly with modifications, in December. But the final word will not be out until January, when the 2013 tax rate pamphlet is released by the RPTSA, possibly with slight adjustments as described here. It is these tax rates that are used to generate property tax bills. Ultimately, it is the property tax bills that define how steeply taxpayers are being taxed.

I Hope I'm Wrong

It would be great if my predictions turn out to be wrong. Property taxpayers have been suffering more every year since the meltdown, and of course not just from Dutchess County Government taxes. Only time will tell whether my prediction of Dutchess County's 2013 tax rate of $3.38 turns out to be low-ball.

UPDATE 10/6/2012 — Budget May Exceed 2% Tax Cap

Just a day after publication of this post, it already looks like my caution that my predictions might be wrong may be unwarranted. A front page story in yesterday's Poughkeepsie Journal describes Molinaro's intent to replenish  the County's rainy-day fund. The story quotes Dutchess County Legislative Chairman Robert Rolison as saying that Molinaro's plan would probably require exceeding the State's 2 percent tax cap. Nevertheless, Rolison signaled his intent to support such an increase. As I see it, the stage is already being set to increase the County's 2013 tax levy by at least 2 percent over 2012. Even at just 2 percent, the 2013 tax rate would be $3.45, a 6.1 percent increase over 2012. Such a result would easily confirm my predictions.

Full Value versus Fractional Value Assessing — A Comparison

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Property tax in New York State is fundamentally based on current market value. But this simple fact is obscured by New York’s convoluted municipal assessment system, in which some towns, cities, and villages are assessed at full market value, while others are assessed at a fraction of market value. Whether properties are assessed at full or fractional value has no effect on tax bills, though many taxpayers and even some government officials seem to think otherwise. This post attempts to demystify fractional value assessing from the viewpoint of the assessor’s job.

An assessing unit is a municipality which has the power under New York State law to estimate the value for taxing purposes of each parcel of real estate in its jurisdiction. The assessing units in Dutchess County are the 20 towns, the 2 cities, and some of the 8 villages. Each assessing unit has a government official called an assessor, whose job is to estimate the current market value of every property in her assessing unit, and to publish these determinations in a list of properties called the assessment roll. The reason for the focus on market value is that property tax is fundamentally based on market value. For each property in the yearly assessment roll, the assessor includes the assessment of that property for that year. The assessment is not necessarily the market value itself, but it is always a measure of the market value. The essential difference between assessments at full value and assessments at fractional value is the way the assessor expresses the assessments in the assessment roll.

Market Value Depends on Condition of the Property

The market value of a property is simply the amount a willing buyer would pay a willing seller for the property. It is obvious that the market value of a property depends on the unique characteristics of the property, including the condition of the property. If the condition of a property changes significantly from one year to the next, such as by major improvement or damage, it is obvious that the market value of the property will change to reflect this. Your decaying house built in 1910 might sell for only $100,000, but if you tear it down and build a McMansion, your property might sell for $1 million. If the McMansion burns down, your property might sell for only the value of the land, say $20,000.

The condition of most properties generally does not significantly change over relatively short periods of time. Most properties are not significantly improved nor suffer significant damage from one year to the next. So you might think that the market value of most properties does not change from one year to the next. Wrong! Market value of real estate also depends on forces unrelated to the condition of the property.

Economic Forces Cause Market Values to Trend Up or Down

The market values of properties often change over time for reasons unrelated to the condition of the properties. Large scale economic forces independent of the condition of individual properties affect real estate values. These forces generally affect all properties in a neighborhood or region in the same way.

Assessors employ “trend analysis” or trending to account for these forces. This means that for every property in a neighborhood, or even in her entire assessing unit, the assessor adjusts last year’s market value by a fixed percentage to account for these forces. For example, if real estate values decline 3.57 percent (as happened in the Town of Hyde Park this year), she would lower the market value of each property by 3.57 percent to indicate this.

What about Equalization Rate, Full Value, and Fractional Value?

Notice that we’ve come all this way in the discussion without mentioning the dreaded term “equalization rate”. We also haven’t yet mentioned the terms “full value” or “fractional value” that are the subject of this post. That’s because, as I cannot emphasize too strongly, none of these concepts plays a role in property tax. Property tax is fundamentally based on market value, and the essence of the assessor’s role is to estimate market value.

The only difference between assessing units which are assessed at full value and assessing units which are assessed at fractional value is the way in which the assessor expresses the market values of properties.

Assessing at Full Value

The term full value is just an assessor’s term for “market value”. In an assessing unit assessed at full value, the assessor expresses the market value of every property directly, by actually showing the market value for every property on the assessment roll. But for historical reasons, and perhaps to confuse the unwashed, she doesn’t actually call it “market value”; she calls it assessed value. So in an assessing unit assessed at full value, assessed value is market value.

Assessing at Fractional Value Was Illegal For Centuries

The land we now call New York State has had property tax for three and a half centuries (with some respites), beginning here more than a century before the birth of the nation. For at least the last two centuries, the real property tax laws provided that tax amounts be proportional to the current market value of properties. This concept provides a basic element of fairness: Two properties with the same market value should pay the same tax to a given taxing unit such as a school district, even if they are in different assessing units. So property taxes in New York have always been fair, right?

Well, no, not at all. What the law said was one thing, but what actually occurred was quite another. For two centuries, properties were routinely assessed well below market value, in successful attempts to gain tax advantages for constituents. Sometimes assessments were made at a uniform fraction of market value within an assessing unit, but apportionment of taxes among assessing units was haphazard at best. The result was widely differing taxes among similarly situated taxpayers. For most of our history, these illegal practices were ignored by both the legislative and judicial branches of government, which turned a blind eye to these flagrant violations of the law by the executive branch.

Requirements for Fair Fractional Value Assessing

New York’s property tax system was unfair for centuries, but not simply because we had fractional value assessing. It was unfair because we had fractional value assessing without acknowledging that we had fractional value assessing. Since fractional value assessing was not officially sanctioned, we didn’t compensate for it. But we could have. A system with fractional value assessing can be fair if the following two key requirements are met:

1. Within each assessing unit, all properties are assessed at a uniform percent of market value. The assessor must specify the percent of market value that is used.
2. For each taxing unit (such as a school district) comprising portions of multiple assessing units (such as Towns), the tax levy is apportioned among the Towns in proportion to the taxable market values of each Town or portion thereof in the District.

With fractional value assessing, the fraction of market value in an assessing unit is called the equalization rate or the level of assessment, depending on who’s specifying it.

Why Is Fractional Value Assessment Problematic?

Fractional value assessing is needlessly complex. It introduces gratuitous concepts like equalization rate and assessed value. Fractional value assessing makes it inconvenient to compare property values across assessing units, because two properties with the same assessed values in different assessing units can have completely different market values, depending on the equalization rates. Full value assessing is straightforward and intuitive. Property values are expressed the same way that buyers and sellers of property express them.

Assessing at Fractional Value Became Legal

For centuries, New York’s assessing system was characterized by fractional value assessing, which was technically illegal, but widely practiced, and by apportionment that was fair on paper, but poorly administered. This legacy system was reformed in 1981, but not in the way one might expect. The obvious way to fix the problem of inequitable property tax would have been to enforce the long-existing laws requiring all assessments to be at full value. This was the approach recommended by most legal scholars, by state bureaucrats, and even by then-Governor Hugh Cary. But apparently the voice of reason was no match for the entrenched practice of fractional value assessing, overwhelmingly supported by local government officials and taxpayers who really didn't understand (and still don't understand!) how property taxation works. Listening to its constituents rather than to the tax wonks, the New York State Legislature enacted a law — over Cary’s veto — essentially legalizing for the first time the long-existing practice of fractional value assessing. However, this time, the new law provided for controls at the state and local levels to assure equitable property taxes based on the two requirements for fair fractional value assessing listed above.

Fractional Value Assessing Is Still a Bad Idea

The current system, which uses a combination of full and fractional value assessing, is reasonably fair in distributing the tax burden equitably among taxpayers. However, the prediction of legal scholars that fractional value assessing would lead to confusion has surely come to pass. Many of my previous blog posts discuss misunderstandings of fractional value assessing by government officials and the Poughkeepsie Journal. Most of these misunderstandings do not result in unfair taxation, but in misleading descriptions of the taxation. See, for example, Hyde Park School District Promulgates Misleading Tax Information. New York State has been using financial incentives and other measures to encourage local assessing units to convert from fractional to full value assessing. This pressure seems to be working, though slowly. In 2000, all two dozen or so of Dutchess County’s assessing units used fractional value assessing. Now only 5 do: The Towns of Dover, Hyde Park, Pawling, Pine Plains and Stanford are still assessed at fractional value.

Currency Analogy

Fractional value assessing is analogous to the world’s money supply, with innumerable different currencies. An iPad may cost $500 in the U.S., €390 in Europe, or ¥40,195 in Japan. It does no good to know that an iPad costs 28,000, without knowing that the currency is Indian rupees. Similarly, it does no good to know the assessed value of a property, or even of an entire assessing unit, without knowing the equalization rate. If full value assessing is considered analogous to U.S. currency, then equalization rates are analogous to exchange rates from U.S. dollars to other currencies. Just as exchange rates change over time, so do equalization rates. Having all properties assessed at full value is analogous to having a global currency, a sort of super-Euro. With a super-Euro, prices could be compared world-wide without any conversions. Similarly, assessed values of properties could be compared directly, without the need for equalization rates. Assessed values would just be market values, as they were originally meant to be.

I’d like to thank three anonymous reviewers with knowledge of the assessing process for previewing this post.

Taxpayers Aren’t Santa

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Ken O'Brien
Note:At last week’s town council meeting the town manager noted that December 3rd’smeeting would address the annual setting of the tax rate. He reminded us thatthe rate was determined by the town budget which had already been settled upon last spring. In light of this I thought it appropriate to reprint apost that The O’Zone first published on December 6^th of lastyear. If so inclined, you may wish to examine the commentsthat were made by certain readers at the time.


__TaxpayersAren’t Santa__
December 5th's [2011] Southbridge town council meetingillustrated the upside down nature of town government.
Councilors and citizens were informed that they hadno choice regarding the property tax rate. Their only choice was whether therewould be a single rate for all property owners or different rates forindustrial, commercial and residential properties.
Now, whether you're a household or a business, thefirst thing you do when you prepare a budget is determine your income. Then youformulate a budget that fits within that income.
Not so for town government. First you establish yourbudget and later you set the income you will extort from the taxpayers.
I believe that it is time to institute a change thatwill correct this topsy-turvy situation.
The Town Charter provides in Section 4-2-3 that"The manager shall:(d) prepare, assemble and present to the council theannual town operating and capital budgets, shall present said budgets to the council in a formatacceptable to the council and cooperate with the council in all financialmatters."
Given that the budgets must be “in a formatacceptable to the council" I would propose the following addition to thetown bylaws:
"4-102.5 The annual operating and capitalbudget submissions of the town manager to the town council shall include aprojected impact upon the existing property tax rate given informationavailable at the time of the vote on the budget. Any increase from theprojections when the proposed tax rate is actually presented to the councilshall trigger a mandate that the budget be amended to conform to the revenueassumptions presented when the budget was adopted unless the council suspendsby a 2/3 vote said mandate."
This provision will restore sanity to the budgetingand taxing process where town officials must act like responsible adults ratherthan children expecting that Santa will fulfill their every wish.
OriginalComments

Does Anybody Take This Guy Seriously?

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Ken O’Brien
At the end of last month TheO’Zone published a copy of a letter from a former assistant principalseverely criticizing her former superior.
Shortly thereafter I publishedan article pointing out that, despite his shortcomings, Scott Lazo had beenoverly-vilified in some quarters, overlooking the many contributions he hasmade to the community. 
The very next day Ifell victim to the outrage of the blubbering blogger for breaching thesanctity of the letter, concealing the identity of the addressee and forsupposedly siding with Scott Lazo in current school committee squabbles. Coincidence?
Shortly thereafter Iresponded to his misguided missive rebutting every one of hisaccusations.
If I had expected an apology, I certainly hadforgotten the history of the man whoonce had the temerity to write, “I can say with all honesty that I nevertruly hated anyone. I have always tried to see the good in people; this wastrue of students I taught and any adults with which I came into contact. Ittook until the last two or so years of my teaching career to realize that I wascapable of hating anyone. I worked among and for some of the most evil people Ihave ever known.”
For the next two weeks I endured a relentlessbarrage of petty insults from the preening pundit referring to, as he put it, “thatother blog” or “the tabloid blog”. Also came accusations of spin or awillingness to publish even the most spurious anonymous comments.
Finally I responded by relegatingmy reply to my weekly cartoon segment, feeling that The Massachusetts “Disserver”had earned the distinction of being nothing more than the butt of a joke.
Rather than addressing this gnat seriously for thefollowing week I again added him as a subject in the latest set of lampoons.
He immediately responded with threats and amischaracterization of the ‘toons as an attack on his former profession. Nothingcould be further from the truth, insofar as I have the highest regard for theteaching vocation. Rather the first cartoon was making fun of his incessantwhining.
The second cartoon addressed his pompouspronouncements on public policy without ever having made even the effort to bemore than a bomb throwing critic.
In retrospect, the prince of posturing has a recordof throwing stones and then portraying himself as a victim when the volley isreturned. This is accompanied by a willingness to shift positions on any issuewhen it suits his purpose to a degree that would make even Mitt Romney blush.All of this is accompanied by a freewheeling willingness to rewrite history inthe process.
Take for instance his current taglines promoting themerits of the local newspaper.
It wasn’t that long ago that he wrote a regularcolumn for that paper. Someone asked him about his departure from that role on yetanother blog.
“Brent, Why did your column in the SouthbridgeEvening News end? I remember there was some sort of disagreement between youand the paper, but not the details. Also, what became of Walter Bird? He alsowrote a good column but I haven't noticed if he is writing anywhere now.Thanks. – Commenter”
He responded by saying, “Commenter, I chose to endmy column with the Southbridge Evening News due to my disagreement with theeditorial policy of the newspaper at the time. It does not seem necessary torevisit that. I have written for the Southbridge News since ending my weeklycolumn, and I have no doubt that my contributions would be welcome. I do notwish to commit to a weekly schedule however. As for Walter Bird, I'm sure hewould be happy to hear that you enjoyed his column. You can continue to readWalter's work at Examiner dot com Boston. I would provide the link for you, butthis comment section doesn't allow for it. Let's try it this way: Click thelink for my web site, The Massachusetts Observer. When you get there, you willsee a link called, Southbridge and Vicinity Web sites and Blogs. Click on thatlink. Once you are at that web site, look at the links on the right side. Thelink for Walter's column is the last one on the right. Be sure to bookmark sothat you can get back to his site easily. I hope this helps. - Brent Abrahamson”
The reality is that the split was significantly morecontentious than that remark would imply.
He wrote a column in the Southbridge Evening News ofApril 14, 2010 titled “A HateFilled Column” responding to an editorial by Walter Bird. In concludingthat piece he wrote, “. Indeed, my own column about bullying spurred by thePhoebe Prince tragedy was rejected at the prerogative of Editor Bird. Friday’spiece by Columnist Bird should have been rejected by Editor Bird as well.”
The Editor appended a comment to the column thatread, “Editor’s Note: The column referenced by Mr. Abrahamson had previouslyrun on his blog and he offered the editor the choice of not running it since ithad already been published. Mr. Abrahamson’s columns on a variety of issues haveappeared regularly on the pages of this newspaper and are all solid examples ofdiversity of opinion. None of Mr. Abrahamson’s columns have ever been rejectedbecause of content, nor have any contributed columns ever been rejected by theeditor because of content.This newspaper does not select which material shouldbe published and which shouldn’t based on political or ideological views.”
Incapable of letting the matter go, just as in thecurrent situation, B.A. pushed on with three additional articles on his ownblog, Justthe facts, Ma’am on April 23, SouthbridgeEvening News RIP on April30, and  UPDATE:Hardly anonymous on May 1.
He was still bashing the paper a year later in Whereis the Southbridge News? On March 4, 2011
His tendency to bite the hand that once fed his egowas no less the case when it came to denouncing The Worcester Telegram afterhis blog there ended. See his denunciation of that paper in Whythe T&G is not for me.
But, beyond this victimizer turned victim meme, ishis willingness to change his stance on issues when they no longer suit his currentagenda.
Take for instance his criticism of TheO’Zone . “I will give you some time to switch back to that very comfortableforum where you can post anything you wish to your heart's content.”
That’s a far cry from his earlierbluster. “Don't worry about comments. You don't need to display them, oryou can display the ones you want. In fact, my blogs are the only ones in townthat do not require prior approval before you can post. Now that's free speech!”
Then there’s the matter of his political astutenesson matters of town government. OnTuesday, June 22, 2010, he wrote, “Southbridge should adopt aRepresentative Town Meeting form of government. There should be a 3-memberelected and paid Board of Selectmen. The pay for each should be one-third ofthe present Town Manager’s salary. This pay is significant enough to attractqualified, intelligent candidates. A number of representatives (perhaps 8 to10?) would be elected from each precinct to vote on behalf of their precinctsat the annual Town Meeting. This vital role would not require a greatcommitment of time and perhaps some of the otherwise busier professionals inthe community would choose to engage in this type of public service.”
Just over four months later he wrote,on October 27, “Finally, in the long run, we must work toward the popularelection of a strong mayor. It is the only way to assure that the will of theelectorate trumps the power-driven agenda of a politically aggressive few.”
Finally, there’s the whirling dervish behavior onthe matter of unions when it comes to his current crusade. He has longportrayed himself as a supporter of unions, goingback as far as 2008 when he wrote, “Some of the comments I have readinclude: The unions ruined the country. The unions represent socialism. Theunions are anti-American.Amazing rhetoric. And, in my opinion, wrong. Infact, the time should be ripe for unions to begin flourishing once again….Management has long held great antipathy towardunions. When one member of the union is treated unfairly, then the entire unionhas been treated unfairly. There is strength in numbers.”
But so much for the value of unions and theirmembership when they get in the way of a new agenda. In his view we need thestate to take over the school district, so theunion goes under the bus. “The Southbridge Public Schools need to comeunder complete and total control of the State before any further damageoccurs.  The state must take the power tomake all decisions, including the power to hire and fire regardless ofcollective bargaining agreements.  Theymust make all decisions that would normally be those of the School Committee.”
I am sure that I will be accused of takingstatements out of context, and that’s why I’ve provided the links to allow thereader to judge for themselves. More likely, I will be attacked on a personallevel, although I’ve been careful to characterize my detractor in terms of hisown writings.
In closing, if you want to take this clown seriouslykeep in mind that he is, in my opinion, as treacherous and devious a harlequin as Stephen King’sPennywise. If you choose to agree with him you will rue the day when you decideto disagree. If you are in accord with his view on any given day you willalmost certainly find yourself having to reverse positions before long to stayin sync.
I did not start this nonsense. I can only hope,contrary to all experience and precedent, that this will be the end of it.

Southbridge School Committee: Wiggin Stipend, Search Plan For Acting Superintendent

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Ken O’Brien

Terry Wiggin

Tuesday night, at a special meeting of theSouthbridge school committee, plans were outlined for its search for an actingsuperintendent to replace current acting superintendent Terry Wiggin. Mr Wiggin is currently serving double duty, also being the school district's business manager. 

The acting superintendentwould serve until there is a resolution of the investigation of SuperintendentEric Ely, who is currently on paid administrative leave. At that point hisservices would end if Mr. Ely returns to active service or continue until a newsuperintendent is hired following Mr. Ely’s departure. 
The committee agreed on a planned payment $500 to $525 per day for an acting superintendent.

Chairman Woodruff said that she had been in touchwith the DESE, the Mass. Association of School Committees and the Mass.Association of School Superintendents, and at this point had the names of twoprospects for the acting superintendent position.
Following this the committee went into executive session.When they emerged they voted to provide Mr. Wiggin with an additional stipendof $2,000 per month pro-rated and retroactive to November 14, 2012, pending thehiring of an acting superintendent.

Stop Susan Rice For Secretary Of State To Re-Elect Scott Brown

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Ken O’Brien
A week and a half ago I posted the image on theright as one of The O’Zone’s Sunday Photo-‘Toons.
The obvious implication was that it would be ofpotentially great benefit to soon-to-be former Senator Scott Brown to have JohnKerry appointed Secretary of State because it would allow Brown to run in a specialelection for that then vacant Senate seat.
Indeed, Kerry was among two names prominentlymentioned to succeed Hillary Clinton who has announced her intention to stepdown. The other name floated was that of U.N. Ambassador Susan Rice.
Despite emerging evidence that Rice is PresidentObama’s preferred candidate, Republican opposition to her elevation to the posthas been increasing in vehemence, supposedly as a result of comments made byher on Sunday talk shows following the incident in Benghazi.
That rationale is as transparent as the finestBelgian lace. As the iconoclastic ladies atWonkette summarized the situation:
Egad!Horrible lying liar Susan Rice and acting CIA Director Mike Morrell met withsenators John McCain, Lindsey Graham, and new amiga Kelly Ayotte, and shescurrilously admitted that what she said on TV talk shows five days after theBenghazi attacks was factually incorrect because she didn’t have all the factsat the time she said that the attack was being investigated. McCain, Graham,and Ayotte immediately told reporters that the real scandal here is that whenRice went on TV, she said a thing that turned out not to be true, simplybecause the CIA had told her that thing, and instead of simply saying “we don’tknow,” she said that they thought maybe it was one thing, but they were stilllooking into it. How dare she mislead the American people like that!
No,really, that is the actual controversy, as near as we can figure out.
In the meantime, Republican Senators opposing Rice’sappointment, ranging from John McCain to Susan Collins, have sung the praisesof John Kerry as a Secretary of State nominee.
The thesis I hinted at in that cartoon is nowbecoming mainstream conventional wisdom within the beltway as the followingremarks made last night by Rachel Maddow illustrate:



Visit NBCNews.com for breaking news, world news, and news about the economy


In the meantime, should John Kerry end up asSecretary of State, speculation surrounds who Governor Deval Patrick  might name to serve in the interim capacityand thus have a leg up as the Democratic nominee. Would he name himself?Perhaps  5^th District CongressmanEd Markey? Citizens Energy CEO Joseph P. Kennedy, Jr.? Or, consider this – newly minted 4^th District CongressmanJoseph Kennedy III, who took over retiring congressman Barney Frank’s seat.
Stay tuned for further adventures in politics in thenew Byzantium.

Holiday Art & Craft Sale: locally made gifts by artisans & crafters

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Submittedby:
Monika Agnello

The Quinebaug Valley Council for the Arts andHumanities (QVCAH) is proud to present its annual Holiday Art & Craft Sale which will be held next weekend, December7- 9th, 2012 at 111 Main Street in Southbridge, MA.
Please join us from Noon to 9pm on Friday and 10amto 6pm on Saturday & Sunday when you'll find a huge selection of locally made gifts at theArt Center. 
The galleries will be full of the creative work ofover 25 area artists, artisans & crafters. Choose  from hand blown glass, jewelry, handmadecandles, framed prints, original paintings &  drawings, handmade clothing & feltedaccessories, photographs, fine woodwork & clocks, folk  art & sculpture, magnets & metalwork, handmade pillows, quilts & needlepoint and more. This  is a wonderful opportunity to find giftscreated locally & to support the artists & artisans of your community!
A percentage of all proceeds from the sale will goto benefit QVCAH, a local non-profit
dedicated to perpetuating the arts and humanities in the area for over 35years.
Now is also the perfect time to be a part of QVCAHand the local arts community. Become a QVCAH member when you stop into the sale and receivea 10% discount on your purchases. All major credit cards, cash & checks areaccepted.
For further information about the QVCAH Holiday Art& Craft Sale, please contact Monika at m.agnello@qvcah.org or 508.764.3341. Please see theQVCAH website for more details at http://www.qvcah.org.

Is Krugman an Economist or Just a Partisan Shill?

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According to Paul Krugman, the failure of Republicans to pass the American Jobs Act is the reason there is at least a little bit of doubt about Obama's re-election victory this fall. You see, according to Krugman, the economy would be close to booming right now if only, if only, if only.

And how does Krugman know that this piece of legislation would have been the magic bullet? Because some bloggers said it would. Yes, a bunch of Keynesians claim that a law that did not passed was the Answer to the Great Secret, but now we never will know if this act -- THIS act -- would have set the world aright.

This is the kind of stuff that stuns me. I was taught by some very good economists not be be a cheerleader for politicians, and certainly not to be someone who repeats political talking points and pretends that they really are economic truths. At least Alan Blinder is paid to be a partisan shill, and spews his propaganda on Obama's payroll.

At the same time, Ben Bernanke is trying to rev up the inflation engines in hopes that he can give Obama at least a small boost before the election to make it seem as though the economy is better off than it really is. Gee, maybe it is a Princeton thing; academic economists as nothing but shills for politicians, paid and unpaid.

[Update]: In his latest column, Krugman repeats his tired canard that it was Goldstein's "obstructionism" that is responsible for the current downturn. Along the way, he gives some very curious economic analysis:

There were good reasons for these positive assessments. Although you’d never know it from political debate, worldwide experience since the financial crisis struck in 2008 has overwhelmingly confirmed the proposition that fiscal policy “works,” that temporary increases in spending boost employment in a depressed economy (and that spending cuts increase unemployment). The Jobs Act would have been just what the doctor ordered.

 Wow! We were almost there, almost to prosperity! Goldstein destroyed the recovery again! However, Krugman is not through "proving" that Goldstein was the evil force behind this depression. He writes:

The most important consequence of that stonewalling, I’d argue, has been the failure to extend much-needed aid to state and local governments. Lacking that aid, these governments have been forced to lay off hundreds of thousands of schoolteachers and other workers, and those layoffs are a major reason the job numbers have been disappointing. Since bottoming out a year after Mr. Obama took office, private-sector employment has risen by 4.6 million; but government employment, which normally rises more or less in line with population growth, has instead fallen by 571,000. 

 Now, I can see a politician writing this, but an economist really has some explaining to do in order to successfully claim that government jobs will lead a recovery. First, however, Krugman does more of his aggregate tricks when he tries to essentially claim that private sector employment pretty much has recovered.

Here is the problem: the kinds of jobs that disappeared versus the kinds of jobs that have grown in number in the past four years are not the same. It is clear that the private sector is not as robust as it was before the downturn, and the lack of tax revenues being generated is the main reason that employment is lagging in state and local government jobs.

Krugman, however, wants us to believe state and local government jobs are the source of economic growth. That literally is impossible. These are not wealth-creating jobs, for the most part; instead, they consume wealth. The lack of growth in those jobs is proof that the private sector still is not producing enough to fund levels of government to where they were four years ago.

Like most Keynesians, Krugman has the cart before the horse. He wants us to believe that government is a net wealth creator when it is not. Furthermore, he wants us to believe that government can inflate the economy into prosperity, which is an illusion, but a convenient illusion.

Uh, Isn't this a Case of Malinvestment? I Forgot; Krugman Doesn't Believe in Malinvestment

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A while back, Paul Krugman mocked the Austrian Business Cycle Theory (ABCT -- or ATBC), claiming it was akin to the "phlogiston theory of fire." Why would he use such terms? Because the ABCT is based on the view that government economic intervention -- and especially aggressive monetary intervention -- creates malinvestments that cannot be sustained, and every good Keynesian knows that the real problem is "aggregate demand."

Thus, to get an economy quickly back on track after a bout of poor aggregate demand, all that is needed is for a government to engage in aggressive spending, borrowing, creating inflation (when the economy is in a "liquidity trap"), and creating vast subsidies in order to ramp up more spending. Krugman has emphasized these points time and again the past four years, and they are part-and-parcel to Keynesian doctrines.

Yet, in his most recent column, Krugman tries to claim that a financial crisis is "different" from other business cycle downturns because it takes longer for the economy to recover. Yet, to me, this brings up a number of questions that seem to contradict his Holy Keynesian Faith. He writes:

... President Obama’s people failed to appreciate something that is now common wisdom among economic analysts: severe financial crises inflict sustained economic damage, and it takes a long time to recover. (emphasis mine)

The simply question I ask is: Why? For that matter, given the Keynesian view that for analytical purposes factors of production are homogeneous, why should a housing bubble be a bad thing? (Oh, I forgot, the Federal Reserve System is trying to reflate the housing market and Krugman approves. That's called creating another bubble.)

If a housing bubble, or any other financial bubble, puts prices out kilter with fundamentals, why is that a problem given that Keynesian doctrine treats an economy simply as two curves, an aggregate demand curve and an aggregate supply curve? No matter what the government does as long as it encourages more demand is just fine.

Does Krugman believe this? No, or at least if he recognizes financial bubbles, then he also recognizes malinvestments, even if he claims otherwise. However, in looking at his infamous "Hangover Theory" article, there is a contradiction that Krugman never has tried to erase. He writes:

...let's ask a seemingly silly question: Why should the ups and downs of investment demand lead to ups and downs in the economy as a whole?

However, during both the Tech Bubble and the Housing Bubble, unemployment rates did go down and we had a general economic boom. (The Clintonistas claimed that they had created a "New Economy" by raising the top tax rate to 39.6 percent.) The booms were the trigger mechanism for much of the creation of new money and were central points of spending. Furthermore, the U.S. dollar was considered to be the world's "reserve currency," so when people were able to hold more dollars, the rest of the world was glad to accept them.

Even Krugman would acknowledge that point, but he has no intellectual theory to explain why it is that a housing bust and financial crisis should then result in long-term economic damage complete with high unemployment. His criticism of the ABCT could just as well be criticism of his own Keynesians beliefs:

The hangover theory, then, turns out to be intellectually incoherent; nobody has managed to explain why bad investments in the past require the unemployment of good workers in the present.

We could say the same thing about Keynesian Theory and Krugman's earlier point about financial collapses. If government simply takes over all lending and spends and spends and spends, then why should there be any residual problems at all? In fact, the government has done all of these things, yet the underlying economy is very weak. Krugman can try to play the political operative and spin the current mess as a huge success for the Obama administration, but he has not explained how a financial bubble (1) could help create a boom and (2) how a bursting of the bubble would cause damage given that government can fix things with spending.

Furthermore, if prices really don't matter (except aggregates put into an index), how would we know in the first place that a bubble had occurred? So what if housing prices are high; if the relationship of the prices don't really matter, then who is to say that housing is out-of-kilter? No doubt, these statements will enrage a Keynesian True Believer, but Keynesians -- including Krugman -- are not free to claim that prices matter when they want them to matter and that prices don't matter when Keynesians claim they don't.

Krugman's Snow Job on Economics

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Thirty years ago, I saw a local TV debate in Chattanooga between the late William H. Peterson and a Marxist professor at the University of Tennessee-Chattanooga, Phillip Giffin. Peterson had just returned from a trip to Romania, which then was living in the era of the execrable Nicolae Ceaușescu, and spoke about the poverty and misery he observed.

"But," interrupted Giffin, "There's no unemployment there."

Indeed, that is the mentality of much of the economics profession, or at least the left side of the profession, including Krugman. (No, Krugman is not a Marxist, but his Keynesian analysis is built upon many of the same foundations Marx used, including the overproduction/underconsumption paradigm.) So, I see once again that Krugman is killing trees this week to once again preach that if Barack Obama is elected, he will "create more jobs" than will Mitt Romney.

Notice that this really has nothing to do with economics per se. The Romanian regime "created jobs," although in reality, many jobs were nearly useless and the vast majority or Romanians lived in grinding poverty. Yet, we continue to hear the "creating jobs" arguments given by economists who should know better.

For most people, a job carries a transmission of income, which is why we obviously think about our jobs. However, if one thinks that a job's only use is that of an income transmitter, then one clearly does not understand employment. After all, the government could mail everyone checks for whatever amount a job would pay, and that would substitute for the income transmission.

Obviously, there would be a problem if everyone stayed home and just received a check, and it would become abundantly clear that a job is NOT just a means of providing income, but jobs also are the mechanism through which we have labor services throughout the economy, and without those service, there IS no economy. At one level, I am sure that even Paul Krugman would understand that point, but it also is clear to me that he seems to think that the importance of work really is in the income that individuals receive, and not the wealth creation itself that a job can help achieve.

For example, when interviewed about the Keystone Pipeline that Obama blocked, Krugman approved the president's actions, using environmental criteria. (Note that Krugman also praises the building of wind farms, which have their own negative environmental effects and, unlike Keystone, stay alive only through massive subsidies, tax breaks, and government requirements that electric utilities purchase power from those farms, so if one thinks that Krugman is being selective in his environmental concern, one might be correct.)

However, after announcing his opposition to Keystone, Obama then declared that increased government payments to the unemployed would have a more powerful and important economic effect than the building of an oil pipeline, and I do not recall reading a word of criticism from Krugman about that statement. Keep in mind that what Obama is saying is that essentially borrowing or printing money creates more wealth than does the application of capital in moving resources from lower-valued uses to higher-valued uses. This is stunning, for it demonstrates just how economically-illiterate Obama really is, and it also exposes people like Krugman who apparently can see no difference in printing money and creating wealth or, even worse, seem to believe that printing money actually creates wealth.

In his latest column, Krugman accuses Mitt Romney of snowing voters on jobs, asking: "But does he have a plan to create any?" That is not the right question. Instead, Krugman should be asking whether or not Romney -- or Obama, for that matter -- have any "plans" to encourage capital formation, and to let entrepreneurs and entrepreneurial firms move resources from lower-valued to higher-valued uses. Krugman's claim that Obama's record can be defended, yet Obama has done almost nothing to encourage the things I have mentioned.

(I forgot. Like Obama, Krugman believes that government can print, borrow, and subsidize an economy into a real recovery. In the end, the "plan" is called by another name: inflation.)

And what is a Paul Krugman column without at least one real howler? How about this?

Just for the record, one study concluded that America might gain two million jobs if China stopped infringing on U.S. patents and other intellectual property; this would be nice, but Mr. Romney hasn’t proposed anything that would bring about that outcome. Another study suggested that growth in the energy sector might add three million jobs in the next few years — but these were predicted gains under current policy, that is, they would happen no matter who wins the election, not as a consequence of the Romney plan.

Notice that there is no cost assumed to enforcing the intellectual property laws, and I don't know how one can extrapolate the kind of wealth creation needed for two million new jobs by the use of increased police powers, but when one is spouting rhetoric, careful thought need not intervene. Furthermore, the only significant wealth-producing portion of the energy sector is in fossil fuels, and Krugman already is on the record as saying those are evil and should be abandoned altogether. As for "creating jobs" through subsidies, apparently Krugman cannot understand that subsidies ultimately must come from those sectors of the economy that are profitable, which means that jobs are lost elsewhere.

Oh, I forgot. Being a Keynesian means that one believes government can do away with the Law of Scarcity and the Law of Opportunity Cost by fiat and with a printing press.