Why not "demand-side economics"?

[John DiFool]

Again I am tossing in a debate idea in the hopes that I will become more enlightened about this issue. We hear a lot about "supply side economics", but I rarely hear a peep about its converse. Wasn't it Henry Ford I who decided that stimulating the demand side of things (which would include but not be limited to increasing employee pay, hiring more workers, increasing benefit levels so as to allow for more discretionary income, etc.) was the best way to get the economy going? Or are there hidden negatives involved in doing so (inflation?).

[Ruminator]

Henry Ford had enough wits to put together a car assembly line but he didn't know economics.

Here's an experiment we can try to test the validity demand-side economics. You pay your kids (an allowance) to do chores around the house: wash dishes, rake leaves, do laundry, etc. Instead of paying them a paltry dollar or two, you pay them hundreds or thousands of dollars for each chore. Now, your kids have enough money to pay off your mortgage!

Demand-Side. It's like magic.

[Sam Stone]

It's not that simple.

An economy is operating efficiently when the supply of goods and services meets the demand for goods and services to the extent of the financial capabilities of the people. It's operating efficiently when capital is flowing to the places that represent the highest value at that point in time, when productive capacity is being built that closely matches the future needs and demands of the population, when people are employed efficiently in jobs that best utilize their skills and abilities, etc.

Now, you can have a situation where you are taxing and regulating the supply side too much, driving up prices, depressing capital investment, and reducing incentives for people to work hard to grow businesses. In that case, supply-side reforms allow the economy to become more productive. Prices fall, new jobs are created, GDP goes up, and that in turn raises the standard of living of all.

You can also have a situation where fear or uncertainty or financial messes reduce demand such that you have an over-production of goods and services. Then companies start laying people off, and you wind up in a recession.

We can talk all day about the causes of recessions and their fixes, but for the purpose of this argument we can say that there are times when you need to fix the supply side, and times when you need to shore up demand.

The danger of any government intervention, whether it be supply side or demand side, is that it distorts the market. Market distortions through government action cause malinvestments and inefficiencies that ultimately reduce the productive capacity of the country and slow the growth of GDP and the rise of the general standard of living.

As a quick example, let's say that the auto industry is laying off people because production of autos is greater than the current demand for autos. Should you give tax incentives or subsidies to people to buy autos and shore up demand? Well, that depends. Maybe the supply of autos is too great because people don't want to drive as much. Maybe patterns of work and leisure have caused people to permanently shift their preferences slightly away from autos. Or maybe the auto companies that are hurting are making poor quality autos and people are buying others instead. In those cases, stimulating the demand for those autos is doing a disservice to the country- it's applying an artificial inducement to re-balance demand with current production. But the money has to come from somewhere, so other people are being taxed to pay for it. The best course of action is to let the market take its course.

But what about a case where you know that the lack of demand is truly temporary? It would suck to allow your auto companies to go bankrupt, only to find that you have a shortage of autos once demand picks up when the economy recovers.

The trick is sorting out the second kind of demand loss from the first. And that's something government is really bad at doing. That's why Milton Friedman famously said that the most efficient form of demand-side stimulus would be a helicopter drop of money across the entire population. But governments are influenced by lobbyists, and tend to direct stimulus money at special interests. That causes distortions and inefficiencies.

[Mosier]

Originally Posted by Ruminator

Henry Ford had enough wits to put together a car assembly line but he didn't know economics.

Here's an experiment we can try to test the validity demand-side economics. You pay your kids (an allowance) to do chores around the house: wash dishes, rake leaves, do laundry, etc. Instead of paying them a paltry dollar or two, you pay them hundreds or thousands of dollars for each chore. Now, your kids have enough money to pay off your mortgage!

Demand-Side. It's like magic.

The moral of the story: only the corporation can be trusted with money, because the company you work for is like your parents, and you are like a child.

[Mosier]

Originally Posted by Sam Stone

The danger of any government intervention, whether it be supply side or demand side, is that it distorts the market.

You free-market types all make this claim, which can be easily dismissed by real world examples of tightly regulated economies growing at an incredible rate, like China for the past 20 years. A large, powerful company can "distort" the market every bit as much as government interventions can.

Truth is, nobody in the whole world REALLY understands economics, and nobody can make an honest claim to know exactly what will result from X intervention. For example, we know a 0% tax rate is ridiculous, and the same is true for 100%. Every value between the two goes further into a gray area, and the optimal tax rate is not obvious. Also, you can't simply dismiss the element of morality in economics. Money is a way for people to have power over other people, and that power needs to have at least some oversight, or people will literally enslave other people. Where you decide morality intersects with economics enough to justify regulation or intervention is not necessarily where others would agree the intersection site is.

To the OP, of course you've heard of Demand Side Economics. Every time you hear the term "consumer economy" it's referring to demand-side economics. The demand-side is driving the push for unionization, lower prices, the surge in Chinese imports, and any number of other phenomena.

[Algorithm]

Originally Posted by Ruminator

Henry Ford had enough wits to put together a car assembly line but he didn't know economics.

I wouldn't be so quick to question Ford's knowledge of economics, when you apparently don't know the difference between a few children and a labor market, nor between a household and a goods-producing business.

[Dick Dastardly]

Originally Posted by John DiFool

Again I am tossing in a debate idea in the hopes that I will become more enlightened about this issue. We hear a lot about "supply side economics", but I rarely hear a peep about its converse. Wasn't it Henry Ford I who decided that stimulating the demand side of things (which would include but not be limited to increasing employee pay, hiring more workers, increasing benefit levels so as to allow for more discretionary income, etc.) was the best way to get the economy going? Or are there hidden negatives involved in doing so (inflation?).

Demand side economics is just Keynesianism, conventional economic theory that's been the standard for decades. Supply-side people are the superstars who told us that if you just slash taxes and regulations then the economy will work much better.

[Damuri Ajashi]

Originally Posted by John DiFool

Again I am tossing in a debate idea in the hopes that I will become more enlightened about this issue. We hear a lot about "supply side economics", but I rarely hear a peep about its converse.

Yeah, its called mainstream economics. Its like how nobody talks about how 2+2=4 anymore.

Or are there hidden negatives involved in doing so (inflation?).

One aspect of mainstream economics is the Keynesian effect of deficit spending. When there is overcapacity in production, you can utilize deficit spending to take up the slack. Enough deficit spending can overheat the economy and cause inflation at the same time that your government is making interest payments on all that deficit spending.

One of the effects of Ronald Reagan's tax cuts was that it created huge budget deficits and as the government was pouring more money into the economy than it was taking out in the form of taxes. This is probably what created the growth in the economy not any of that other voodoo bullshit.

If it wasn't for stagflation caused by the oil shock, there would never have been a question about whether there was any legitimacy to supply side economics but in the throes of the oil shock, we reached for the snake oil hoping that it would work. And it turned out that MASSIVE deficit spending (the deficit when Reagan left office was about as large as when Baby Bush left office was the ticket.

[Ruminator]

Originally Posted by Algorithm

I wouldn't be so quick to question Ford's knowledge of economics, when you apparently don't know the difference between a few children and a labor market, nor between a household and a goods-producing business.

I'm not comparing one family's children to the global "labor market." I'm comparing parents and children to the typical naive reading of Henry Ford's economic rationale.

He paid his workers more because because his factory techniques were productive enough that he could afford to pay them more and he was trying to stop employee turnover. Unfortunately, he mixed up the direction of causation and was able to later spout nonsense about paying his workers more so they could have money to buy his cars which was (supposedly) better for the economy.

[China Guy]

Sam - do you actually have a real economy example for where supply side economics actually worked in a major economy for the long term? Didn't work for the Regan era, the Japanese are still mired in their post bubble version, and I'm not sure if you would call what Dubya did "supply side" or not.

Thanks for playing.

[toadspittle]

Originally Posted by John DiFool

Again I am tossing in a debate idea in the hopes that I will become more enlightened about this issue. We hear a lot about "supply side economics", but I rarely hear a peep about its converse.

Is that you, David Brooks?

These Demand Side theorists are giving you a plan of action...

These Demand Siders have very high I.Q.’s, but they seem to be strangers to doubt and modesty...

Moreover, the Demand Siders write as if everybody who disagrees with them is immoral or a moron...

The Demand Siders don’t have a good explanation for the past two years...

The Demand Siders are brilliant, but they write as if changing fiscal policy were as easy as adjusting the knob on your stove...

He let forth with a flood of "Demand Siders" in this column. I'd never heard the term used by anyone before.

[Voyager]

Originally Posted by Ruminator

I'm not comparing one family's children to the global "labor market." I'm comparing parents and children to the typical naive reading of Henry Ford's economic rationale.

He paid his workers more because because his factory techniques were productive enough that he could afford to pay them more and he was trying to stop employee turnover. Unfortunately, he mixed up the direction of causation and was able to later spout nonsense about paying his workers more so they could have money to buy his cars which was (supposedly) better for the economy.

I thought the typical free marketer would say he should pay his workers the least he could get away with, and not pay them more just because he could. After all, in the short term this would increase his profits. Any evidence that turnover was a problem? I believe he specifically said he wanted to pay his workers enough so that they could afford a Ford car - was he lying?

[Chronos]

Henry Ford didn't understand economics? Well, I guess that explains why he ended up living his life in miserable poverty, then. Another mystery solved!

[Lantern]

First of all supply side economics is a creation of right-wing ideology not serious economics. Even market-oriented academic economists don't identify themselves as "supply-side".

Secondly the central idea of the movement: cut top marginal rates to improve productivity has been largely discredited. The basic idea is that cutting these tax rates will provide a strong boost to investment and worker productivity and therefore boost growth and the evidence for this is weak at best. From a historical pov. productivity growth in the US was higher in 50's and 60's with very high marginal tax rates than it was in the 80's when those tax rates were slashed. Clinton raised those rates and yet productivity growth actually increased in the late 90's. Bush cut those rates again and clearly economic performance since then hasn't been impressive.

Having said all this, that doesn't mean that there is some "demand-side economics" which will work all the time either. Most of the time the economy isn't demand-constrained and there is about enough demand relative to the potential output. If there is too much demand you get inflation. It's only during a recession when demand is insufficient that you need expansionary monetary and fiscal policy to stimulate the economy.

As for the supply-side it is extremely important in the long run if you want increase the overall standard of living. However government policies to boost the supply side don't fall in some clear ideological pigeonhole. You need to make sure that the economy is reasonably business friendly but that doesn't necessarily mean low taxes. If you have good infrastructure and educated workers, the private sector can thrive even with fairly high taxes; for example the Scandinavian economies are among the most competitive in the world. Low trade barriers and low inflation are probably more important than low taxes.

[Wesley Clark]

Sounds like Keynesian economics. But I know little about the subject. Supply side economics, in its current form (giving all the tax breaks to the wealthy/powerful and deregulating them), is not really about economics anyway it is more of an attempt to curry favor with the wealthy and powerful due to ideological and financial reasons. It is no different than the union between leftists and unions, its about currying favor first and economics second.



But focusing on demand is important. China's domestic markets are supposed to be opening up soon. Making US consumers more stable (feeling they/we won't be fired tomorrow) will help grow the economy.

[Hellestal]

I think the best way to compare supply-side/demand-side policies is to think about short-term/long-term problems.

A supply-side friendly policy can potentially increase the long-term economic growth of a nation by creating an environment where business innovation is better rewarded. This does not mean a quick-fix to a troubled economy. Rather, it means creating enough market freedom where people have the right incentives to make better goods with more efficient production techniques. The entire economy, and all the people, could eventually benefit. It just takes a while. The problem is that that's not ever what "supply-side economics" is billed as in the popular media. Ideological hacks cite it as some sort of panacea, which it absolutely is not. The people who promise short-term benefits from such a supply-side policy are cads. Those who say we would receive higher government revenues immediately, if we would only lower taxes, are ignorant, idiotic, or deliberately dishonest. Unfortunately, such people still have a prominent place, even today, in modern political discourse. Ridiculous, but there it is.

Demand-side policies, in contrast, are typically assumed to be unnecessary.

Demand is often thought to take care of itself. But this simply isn't true when the economy is suffering deflationary pressure. Demand needs a boost at times like the Depression when prices are dropping, or threatening to drop in the future. Which includes, notably, our current economic crisis. What we desperately need right now, today, even as I write this, is more aggregate demand spurred by our economic authorities. But this is a short-term problem. We don't need our economic policy-makers to stimulate demand forever. They should do so only until this deflationary cycle is broken, the unemployment rate is dropping quickly, and economic growth is strong again.

Originally Posted by Mosier

You free-market types all make this claim, which can be easily dismissed by real world examples of tightly regulated economies growing at an incredible rate, like China for the past 20 years. A large, powerful company can "distort" the market every bit as much as government interventions can.

China's economy is, as you say, tightly regulated. But it is nevertheless much less tightly regulated than it was 40 years ago. Their current extraordinary growth is the direct result of liberal reforms.

China is making up for lost ground.

Of course, eventually they will use up all the easy pickings. Eventually their growth will slow. But their growth will plateau more quickly, far short of the productivity level of advanced nations, if they do not implement more market reforms. We don't have to have perfect knowledge of optimal tax rates or market regulations to have a good idea of a general range. China is still well outside that range. They must reform further, or their growth will stall prematurely.

Originally Posted by China Guy

Sam - do you actually have a real economy example for where supply side economics actually worked in a major economy for the long term? Didn't work for the Regan era, the Japanese are still mired in their post bubble version, and I'm not sure if you would call what Dubya did "supply side" or not.

Japan's not a good example. The Japanese central bank didn't play ball. For twenty years, they've been making the exact same mistake, keeping their money tighter than it should be. All those fiscal manipulations are for naught if the central bank is pulling in the other direction.

As for Reagan, well, some people make the argument that the supply-side reforms of the 80s did create the foundation for stronger long-term economic growth compared to other advanced nations (keeping in mind that said reforms were also, exactly as Damuri Ajashi noted, big stimulus boosts to demand at the time, in the form of lower taxes/higher deficits.) I mean, I don't particularly buy the long-term growth argument myself. And even if I did, advanced economies could still quite rationally make a choice for slightly lower economic growth in exchange for more government services in the present.

But the argument from Sumner that I linked is both well thought out and intellectually consistent, which is more than I can say about most of the other things I've read that advocate any sort of supply-side position, which is typically Laffer curve nonsense.

[msmith537]

Originally Posted by Chronos

Henry Ford didn't understand economics? Well, I guess that explains why he ended up living his life in miserable poverty, then. Another mystery solved!

And it would explain why most economists are billionares!

Being a good businessman is not the same thing as being a good economist.

Originally Posted by Mosier

Truth is, nobody in the whole world REALLY understands economics, and nobody can make an honest claim to know exactly what will result from X intervention.

I don't think that's entirely true. It's more of a political issue than anything else. Most economics seem to be in agreement about price floors (minimum wage) and ceilings (rent control), industry subsidies and protectionism ultimately being bad for economic growth. But people will still demand those things if they feel it's in their best interest, regardless of any unintended consequences.

Originally Posted by Mosier

The moral of the story: only the corporation can be trusted with money, because the company you work for is like your parents, and you are like a child.

First of all, only businesses are creating wealth because they are the mechanism by which raw materials are converted into the products and services that people value. According to supply-side economic theory, the economy grows when businesses are allowed to create more wealth, more products and employ more people.

So why doesn't it work (or not work to the satisfaction of Liberal-minded people)?

Well, for one it doesn't really do anything for people who work in low-skilled jobs, don't work for successful companies and otherwise don't add a lot of economic value.

Also, I think there is a tendency for wealth in corporations to trickle up, not down. Most employees tend to get paid market wage for their skills, while the excess value created tends to go to paying bonuses for executives.

[DanBlather]

Stop thinking about supply and demand side theories, and instead look at policies. Right now we have excess industrial capacity and lots of capital available for investment., but not enough demand to cause companies to hire more workers or for banks to lend money. St this point in time we need to think of ways to increase demand by raising minimum wage, govt investment in long term assets (bridges, dams, schools), extending unemployment, etc.

In the future we may need to do something different when the conditions call for it. What we have done is the worst possible thing: deficit spending in good times and now the unability to spend while we are in a doldrum.

[Damuri Ajashi]

Originally Posted by Hellestal

I think the best way to compare supply-side/demand-side policies is to think about short-term/long-term problems.

A supply-side friendly policy can potentially increase the long-term economic growth of a nation by creating an environment where business innovation is better rewarded.

You do realize supply side economics is political bullshit, right?

Its a combination of basic economics combined with partisan wishful thinking.

[Sam Stone]

Originally Posted by Mosier

You free-market types all make this claim, which can be easily dismissed by real world examples of tightly regulated economies growing at an incredible rate, like China for the past 20 years. A large, powerful company can "distort" the market every bit as much as government interventions can.

Yes, there are market failures due to monopoly, lack of information, and other causes. Market distortions can be caused by all sorts of things. No doubt about it.

I'm not an anarchist. I'm not even a hard-core libertarian that believes government should completely stay out of the economy. I believe that government's role is to maximize freedom and make sure markets are functioning correctly. That's why I support government interventions that correct honest-to-God market failures.

It's when government goes farther and tries to actually manipulate well-functioning markets in order to 'improve' them that it starts screwing things up.

Truth is, nobody in the whole world REALLY understands economics, and nobody can make an honest claim to know exactly what will result from X intervention.

Exactly my point. Which is why it's generally better to just it alone and allow it to adjust itself. The reason the free market works is because it has negative feedback control loops built into it. No one has to control it, just like no one has to control an ecosystem. If things get out of whack, they self-correct. No one person can make a pencil let alone a car, and yet we make pencils and cars every day, generally in exactly the right quantities, and we distribute them exactly where they need to go. We do all this without a grand pencil czar, because the market transmits the information required to those who need to know it and adjusts when things get out of whack. The information required to make these decisions is distributed in the minds of thousands of people. It does not exist in any central location.

This is why government can't out-perform a properly functioning market. It doesn't have the information needed to make good decisions, and it can't keep up to speed with changes in supply and demand.

For example, we know a 0% tax rate is ridiculous, and the same is true for 100%. Every value between the two goes further into a gray area, and the optimal tax rate is not obvious.

I never said anything about tax rates. I was answering a question about 'supply side' vs 'demand side' in general. I wasn't making a Laffer-curve argument or suggesting any optimum tax rates. I wasn't even talking about taxes, really. I was thinking more along the lines of helping the supply side by removing barriers to production. Hell, you can have 'supply side' reforms by simply making government more efficient - say, through regulatory streamlining or even hiring more inspectors so that you can reduce permiting delays.

Also, you can't simply dismiss the element of morality in economics. Money is a way for people to have power over other people, and that power needs to have at least some oversight, or people will literally enslave other people.

And that would be why you have laws and a constitution. These are better tools for addressing actual civil rights issues. Social programs would be the next best way to do that. The worst way is to manipulate the market through the power of government to make it more egalitarian.

Where you decide morality intersects with economics enough to justify regulation or intervention is not necessarily where others would agree the intersection site is.

If the market creates externalities, it's acceptable for the government to create policies which correct for those externalities. According to many economists on both the left and right, you can actually make the market more efficient by adding taxes ("Pigouvian Taxes" if you want to look it up), if the taxes rebalance the market to force it to account for the cost of the externalities. That's partially the argument behind carbon taxes.

But if a market is free, and all participants are absorbing the costs of transaction and all of them have the information needed to make good decisions, then the government shouldn't inject itself into the middle in order to force some kind of social change. For example, if one person works harder than another, and as a result starts accumulating wealth faster than the other person, it's not the government's business to interfere in the actual market to remove the harder working person's advantage. All that does is destroy efficiency. But that's what government does when it imposes price ceilings, or sets quotas, or erects trade barriers.

To the OP, of course you've heard of Demand Side Economics. Every time you hear the term "consumer economy" it's referring to demand-side economics. The demand-side is driving the push for unionization, lower prices, the surge in Chinese imports, and any number of other phenomena.

I think the use of these terms is somewhat unfortunate because they're ill-defined and politically loaded. I would not consider the drive for unionization to be 'demand-side economics'. For the purposes of this discussion I assume we're talking about government policies that are intended to stimulate the economy. 'Supply side' policies would seek to stimulate the economy by reducing barriers to business growth, while 'demand side' would be government policies seeking to increase the demand for goods and services.

To me, 'Supply side' policies are effective any time business is being hindered excessively by regulation or non-competitive taxes. They can work in good times or bad. "Demand side' policies are specifically useful during times of abnormal, temporary short-term decline in demand, and their sole goal should be to correct for distortions in the market caused by recession, natural disaster, bubbles popping or other problems where it's believed that the reduction in demand is greater than it will be in the near future. You don't need them when you have full employment and reasonable levels of consumer spending.

[Chronos]

And it would explain why most economists are billionares!

Being a good businessman is not the same thing as being a good economist.

While a good businessman won't necessarily have a strong theoretical understanding of economic principles, it seems to me self-evident that one can't be successful in business without a solid practical sense of economics. And after all, isn't that the free-market measure of quality? Those who really do have the better understanding will be the ones who are more successful, and success is measured in money?

[Sam Stone]

Originally Posted by China Guy

Sam - do you actually have a real economy example for where supply side economics actually worked in a major economy for the long term? Didn't work for the Regan era, the Japanese are still mired in their post bubble version, and I'm not sure if you would call what Dubya did "supply side" or not.

Thanks for playing.

Yes, I can. Have a look at what happened to the 'Asian Tigers' when they liberalized their business regulations and lowered trade barriers. Look at the results of India's market liberalization. Or China's. Have a look at what NAFTA did for Canada's exports and economy. Have a look at what what happened in Eastern Europe after the Iron Curtain fell. Have a look at Canada's economy after we lowered businesses taxes, de-regulated a number of industries, and reduced the size of government from 44% of GDP to 33%. Look at the economy in Britain before and after the Thatcher revolution.

There is a clear pattern that when governments lower barriers to business creation, innovation, and trade, the economy improves.

How about you providing examples of the opposite? Are there countries with free markets and moribund economies that were improved by having government 'manage' the economy? I keep hearing Japan mentioned as an example of successful government intervention, but Japan's successes came in spite of government intervention, not because of it. Many of Japan's government/industry 'partnerships' like MITI's 5th generation project were complete disasters.

Japan's decade-long stimulus has resulted in an inefficient, over-built infrastructure it can't afford, along with high debt and economic stagnation. The result is that 2% of Japan's GDP goes to interest on its debt, and this consumes 14% of its entire budget. And that's without touching the principle. And it really doesn't have anything to show for it.

So where did a government make an economy stronger by managing industry? And I'm not talking about a failed state recovering after order was restored - I mean a 1st world economy that took off after a more statist government stepped in to 'manage' the economy with additional regulations and taxes.

[Really Not All That Bright]

Originally Posted by Sam Stone

So where did a government make an economy stronger by managing industry? And I'm not talking about a failed state recovering after order was restored - I mean a 1st world economy that took off after a more statist government stepped in to 'manage' the economy with additional regulations and taxes.

You mean like FDR's spending ending the Great Depression?

[smiling bandit]

Originally Posted by Chronos

While a good businessman won't necessarily have a strong theoretical understanding of economic principles, it seems to me self-evident that one can't be successful in business without a solid practical sense of economics. And after all, isn't that the free-market measure of quality? Those who really do have the better understanding will be the ones who are more successful, and success is measured in money?

Well, that is a good theory, but in practice that's not what tends to happen. *Shrug* Life doesn't always make sense to us.

In any case, it's also not what Henry Ford had to do with. he didn't pay his workers high wages out of some noble intention, or to "let them afford his cars." He did it so that he could get the very best workers! And it worked, and over time his processes and company were able to bring down the cost of cars. That's ultimately classic supply-side economics. But trying to make a direct demand-side equation balance would have failed grossly.

[septimus]

Originally Posted by Sam Stone

The danger of any government intervention, whether it be supply side or demand side, is that it distorts the market. Market distortions through government action cause malinvestments and inefficiencies that ultimately reduce the productive capacity of the country and slow the growth of GDP and the rise of the general standard of living.

To dismiss all government interventions shows frightening ignorance. Do you think the Interstate Highway system represented "malinvestment" and "slowed GDP growth"? Also, please Google "Tragedy of the Commons" and read about technology spinoffs from the Apollo Moon-landing program. This may seem pretty basic, but you've got to start somewhere, Sam.

Originally Posted by Mosier

You free-market types all make this claim, which can be easily dismissed by real world examples of tightly regulated economies growing at an incredible rate, like China for the past 20 years. A large, powerful company can "distort" the market every bit as much as government interventions can.

Best is a "Middle Path" between Sam's laissez faire and a leftist position. What we don't need is the right-wing style of regulation we've seen too much of in post-literate America. Even pure laissez faire might have been better than the banker-friendly government behavior of the last 30 years (which has cost Main Street and ordinary taxpayers a trillion dollars or more while coked-up derivatives players with their mortgage scams, etc. are driving Ferraris).

Demand-side action is what's needed, but one would hope for a mechanism more intelligent than the "drop banknotes out of helicopters" solution attributed to Friedman.

A good approach, which was advocated once or twice in the pages of N.Y. Times, would be to improve homeowner confidence (and therefore spending) by forcing mortgage delays and renegotiations. Since Obama's advisors were from the creditor side of the creditor/debtor division, such suggestions were not adopted; this will be an important theme when textbooks about the Second Great Depression are written.

Originally Posted by toadspittle

Is that you, David Brooks?

Brooks' prattle seldom has any value, except as a "contrarian indicator."

[Sam Stone]

Originally Posted by Really Not All That Bright

You mean like FDR's spending ending the Great Depression?

First of all, we disagree that 'Roosevelt's Spending' ended the Great Depression. But that's a debate for another thread.

But I meant a country that elected a statist government which proceeded to permanently restructure the economy to have government call more of the shots. Say, a country that moved from a relatively free-market government to a socialist or social democratic government which raised taxes, increased regulation, or tried to 'improve' the mix of goods and services in the economy through tariffs, taxes, regulations, subsidies or other ways that government can influence the direction of business.

[Really Not All That Bright]

First of all, we disagree that 'Roosevelt's Spending' ended the Great Depression. But that's a debate for another thread.

Well, then I'm not going to bother debating this issue with you. Government spending on the New Deal and the war uncategorically ended the Depression.

But I meant a country that elected a statist government which proceeded to permanently restructure the economy to have government call more of the shots. Say, a country that moved from a relatively free-market government to a socialist or social democratic government which raised taxes, increased regulation, or tried to 'improve' the mix of goods and services in the economy through tariffs, taxes, regulations, subsidies or other ways that government can influence the direction of business.

You mean a government which created a welfare state and national public works administration more or less overnight?

[Sam Stone]

Originally Posted by septimus

To dismiss all government interventions shows frightening ignorance. Do you think the Interstate Highway system represented "malinvestment" and "slowed GDP growth"? Also, please Google "Tragedy of the Commons" and read about technology spinoffs from the Apollo Moon-landing program. This may seem pretty basic, but you've got to start somewhere, Sam.

I couched my statements in terms of 'danger' and 'risk'. I didn't say that every government intervention always causes malinvestments. In fact, I just finished posting a message which conceded that 'Pigouvian' taxes can make a market more efficient.

I'm getting pretty tired of people constantly erecting straw men arguments against my positions or assigning views to me that I never uttered.

Best is a "Middle Path" between Sam's laissez faire and a leftist position.

Again, where in my posts did you see me say that the government should adopt a strict laissez-faire policy?

What we don't need is the right-wing style of regulation we've seen too much of in post-literate America. Even pure laissez faire might have been better than the banker-friendly government behavior of the last 30 years (which has cost Main Street and ordinary taxpayers a trillion dollars or more while coked-up derivatives players with their mortgage scams, etc. are driving Ferraris).

'Post-literate'? I don't think this word means what you think it means. Given that we're chatting via text and all... I assume this is some sort of cheap shot at 'stupid right-wingers' or something?

Demand-side action is what's needed, but one would hope for a mechanism more intelligent than the "drop banknotes out of helicopters" solution attributed to Friedman.

Hope all you want, and you're not going to get it. Have you looked at the process of allocating stimulus money? If so, do you see a lot of intelligence there? Here's a hint - the states that need the money the most are not the ones that have the most powerful members of congress who sit on the appropriations committees.

I think a helicopter drop would be far preferable to a stimulus that sends tens of billions of dollars to states so they can increase the salaries of already-overpaid public servants, while people who are actually out of work have their benefits cut off.

A good approach, which was advocated once or twice in the pages of N.Y. Times, would be to improve homeowner confidence (and therefore spending) by forcing mortgage delays and renegotiations. Since Obama's advisors were from the creditor side of the creditor/debtor division, such suggestions were not adopted; this will be an important theme when textbooks about the Second Great Depression are written.

Or maybe that program wasn't adopted because forcing banks to take on the risk of mortgage write-downs at a time when banks are failing may not be smart policy.

Maybe someone who could see a little further than the immediate short-term realized that if banks cannot control the terms of repayment, they are less likely to lend money, and right now the last thing you want to do is give banks a reason to not lend money.

Maybe someone realized that if you write down all these mortgages, the mortgage-backed securities become even more toxic, or the banks are forced to re-price them and take huge hits to their capital reserves.

Maybe someone realized that allowing all these mortgage holders to erase their debts on the backs of the banks would be a moral hazard that would encourage people to over-leverage themselves in the future.

Maybe someone realized that this would essentially be a huge bailout for people who were irresponsible with their money, and would ultimately be borne by everyone else.

[septimus]

Originally Posted by Sam Stone

I couched my statements in terms of 'danger' and 'risk'. I didn't say that every government intervention always causes malinvestments.

You wrote "Market distortions through government action cause malinvestments and inefficiencies that ultimately reduce the productive capacity of the country" which seems pretty absolutist. It wouldn't have hurt to inject a "sometimes" into that statement, would it? After all, progressives would argue that many "market distortions", e.g. carbon tax, should be made to improve ultimate efficiency and capacity.

Originally Posted by Sam Stone

'Post-literate'? I don't think this word means what you think it means. Given that we're chatting via text and all... I assume this is some sort of cheap shot at 'stupid right-wingers' or something?

It might be interesting (though clearly tangential) to learn what you think 'post-literate' means, and what you think I think it means. To the extent it was a 'shot', cheap or otherwise, it was directed at faulty thinking all across the political spectrum.

Originally Posted by Sam Stone

I think a helicopter drop would be far preferable to a stimulus that sends tens of billions of dollars to states so they can increase the salaries of already-overpaid public servants, while people who are actually out of work have their benefits cut off.
...
Maybe someone who could see a little further than the immediate short-term realized that if banks cannot control the terms of repayment, they are less likely to lend money, and right now the last thing you want to do is give banks a reason to not lend money.

In my post I didn't mention Obama's stimulus, but rather the idea of delay or renogotiation of existing mortgages. An interesting proposal was to allow mortgaged ownership to become rentals for a few years with a future day of reckoning. This could be win-win: owner keeps his home, housing market is not impacted, bank postpones its reckoning. Happy home-owner is then more likely to spend, boosting the economy.

But anyway, if one supposes mortgage paper has a determinable value, a bank either is or isn't solvent. There are remedies (e.g. selling stock to the U.S. Treasury) but financial fictions to pretend an insolvent bank is solvent is just the type of nonsense which leads to crisis.

Originally Posted by Sam Stone

Maybe someone realized that allowing all these mortgage holders to erase their debts on the backs of the banks would be a moral hazard that would encourage people to over-leverage themselves in the future.

I think moral hazard is a good term that needs to be contemplated, and used as a source of instruction.

But when AIG was permitted to run up trillions of dollars worth of nominal obligations, with the only peep from authorities being Greenspan's applause I can't listen to a right-winger complain about the "moral hazard" of ordinary Americans without imagining a giant ugly pot calling a small deluded kettle "black." (And make no mistake, when you speak of homebuyers "who were irresponsible with their money", many or most of them were deceived by unscrupulous brokers.)

[puddleglum]

Originally Posted by Voyager

I thought the typical free marketer would say he should pay his workers the least he could get away with, and not pay them more just because he could. After all, in the short term this would increase his profits. Any evidence that turnover was a problem? I believe he specifically said he wanted to pay his workers enough so that they could afford a Ford car - was he lying?

Ford was lying. The typical worker at a Ford plant lasted about 4 months. The job was repetitive and mind numbing and Ford treated his workers like crap. Having his work force turn over 3 times a year was costing Ford huge amounts of money. He dramatically raised salaries to try to keep his workers from quitting. However, since he did not want to announce that the reason was for the raises was horrible working conditions, he announced it was because of his generosity and that it would help the company. Nobody stupid enough to believe that paying workers more in the hope that your workers will buy your products could stay in business. It is not economics that is just basic math.

[Really Not All That Bright]

Can you offer a citation for the 4-month figure? Everything I've read indicates that Ford had the lowest turnover of any of its contemporaries.

[puddleglum]

Originally Posted by Really Not All That Bright

Can you offer a citation for the 4-month figure? Everything I've read indicates that Ford had the lowest turnover of any of its contemporaries.

From this american heritage magazine

The moving line not only sped production, it also reduced the worker’s role to repeating a single set of actions over and over. Immigrant workers, together with more highly skilled American workers, hated the moving assembly line as a mind-numbing and nerve-racking ordeal. “Forditis” became a name for the miscellaneous ailments that resulted. In 1913, as the line neared completion, worker turnover at Ford reached the astonishing rate of 370 percent.

[smiling bandit]

Originally Posted by septimus

But when AIG was permitted to run up trillions of dollars worth of nominal obligations, with the only peep from authorities being Greenspan's applause I can't listen to a right-winger complain about the "moral hazard" of ordinary Americans without imagining a giant ugly pot calling a small deluded kettle "black." (And make no mistake, when you speak of homebuyers "who were irresponsible with their money", many or most of them were deceived by unscrupulous brokers.)

Calling that a right-wing idea, however, is rather dishonest.

[Buck Godot]

Originally Posted by msmith537

I don't think that's entirely true. It's more of a political issue than anything else. Most economics seem to be in agreement about price floors (minimum wage) and ceilings (rent control), industry subsidies and protectionism ultimately being bad for economic growth. But people will still demand those things if they feel it's in their best interest, regardless of any unintended consequences.

It may also be the case that grinding up unproductive old people into Soylent green would be very good for economic growth, but that doesn't mean it's a good idea.

[Really Not All That Bright]

It is, of course, but it doesn't have to be.

[septimus]

Originally Posted by smiling bandit

Calling that a right-wing idea, however, is rather dishonest.

Wrong. It is right-wing ideas like "Greed is good", "wealth creation implies value to society", "government regulation is always bad" that lead to such mistaken priorities.

Now any particular right-winger may try to dance around nimbly, hand-picking their own examples for a Greed is Good dogma, or whatever. One would like to hope that fellow Dopers, even those with rightist views, have a coherent and intelligent grasp of economic issues, but I see little evidence of it. Sometimes in these threads I even ask: What do you believe? but get little answer beyond a claim that unnecessary government regulations are unnecessary and a peculiar belief that liberal economists think breaking windows is good.

So let's start with you, smiling bandit. Was Greenspan's cheerleading for the derivatives market a good thing or not? Was the Greed is Good banking climate that led to the mortgage crisis a good thing or not?

[Sam Stone]

Originally Posted by septimus

You wrote "Market distortions through government action cause malinvestments and inefficiencies that ultimately reduce the productive capacity of the country" which seems pretty absolutist. It wouldn't have hurt to inject a "sometimes" into that statement, would it? After all, progressives would argue that many "market distortions", e.g. carbon tax, should be made to improve ultimate efficiency and capacity.

Nice selective quoting. The sentence right before that says, "The DANGER of market interventions is that..." later I even give examples of government interventions that improve market efficiency. I also pointed out examples of situations where there are imbalances between supply and demand that you could theoretically fix with government intervention, but the problem is that intervention has a poor track record because government isn't very good at sorting out where and when to intervene.

I think the failing here is that you're jerking your knee and assuming that since I'm saying something critical of government I must be a laissez-faire anarchist.

It might be interesting (though clearly tangential) to learn what you think 'post-literate' means, and what you think I think it means. To the extent it was a 'shot', cheap or otherwise, it was directed at faulty thinking all across the political spectrum.

Post-literate is generally taken to mean a society in which media other than reading or writing become the modes of communication, leading to a citizenry that can no longer read or write. For example, a society in which everyone gets their information from TV and communicates by phone or video. That's why I said it was weird to claim that society was 'post-literate' while writing messages on a message board.

In my post I didn't mention Obama's stimulus, but rather the idea of delay or renogotiation of existing mortgages. An interesting proposal was to allow mortgaged ownership to become rentals for a few years with a future day of reckoning. This could be win-win: owner keeps his home, housing market is not impacted, bank postpones its reckoning. Happy home-owner is then more likely to spend, boosting the economy.

I'm skeptical of these kinds of cool-sounding big ideas, because I believe that markets are complex and that when you meddle in them you cause problems you never anticipated. You might convince me that your plan is a good one, but the burden of proof is on you and I set the bar pretty high for government intervention, given its track record.

[Damuri Ajashi]

Originally Posted by Sam Stone

Yes, there are market failures due to monopoly, lack of information, and other causes. Market distortions can be caused by all sorts of things. No doubt about it.

I'm not an anarchist. I'm not even a hard-core libertarian that believes government should completely stay out of the economy. I believe that government's role is to maximize freedom and make sure markets are functioning correctly. That's why I support government interventions that correct honest-to-God market failures.

It's when government goes farther and tries to actually manipulate well-functioning markets in order to 'improve' them that it starts screwing things up.

You sound like a fiscally conservative Democrat to me.

Exactly my point. Which is why it's generally better to just it alone and allow it to adjust itself. The reason the free market works is because it has negative feedback control loops built into it. No one has to control it, just like no one has to control an ecosystem. If things get out of whack, they self-correct. No one person can make a pencil let alone a car, and yet we make pencils and cars every day, generally in exactly the right quantities, and we distribute them exactly where they need to go. We do all this without a grand pencil czar, because the market transmits the information required to those who need to know it and adjusts when things get out of whack. The information required to make these decisions is distributed in the minds of thousands of people. It does not exist in any central location.

This is why government can't out-perform a properly functioning market. It doesn't have the information needed to make good decisions, and it can't keep up to speed with changes in supply and demand.

The market can create gluts and shortages as well and it clears these gluts and shortages with the pricing mechanism. Because they don't have a profit motive, the governments react to adverse pricing differently than someone taht needs profits to make payroll. But with that said, ther are some goods that teh government can reasonably determine should be provided even at a loss to the fisc. Mass transportation is one example. Almost every large metropolis in teh world has a mass transit system taht operates at a loss and it is still probably a good idea for governments to operate (or subsidize others to operate) these money losing transportation systems anyway.

I wasn't even talking about taxes, really. I was thinking more along the lines of helping the supply side by removing barriers to production. Hell, you can have 'supply side' reforms by simply making government more efficient - say, through regulatory streamlining or even hiring more inspectors so that you can reduce permiting delays.

This is not supply side so much as it is basic econ. Reducing cost of doing business reduces hurdle rates and causes mroe economic activity. You could do the same thing with easy credit or tort reform or eliminating child labor laqws. The trick is to picjk those things that you as a society are willing to live with in order to encourage economic activity.

And that would be why you have laws and a constitution. These are better tools for addressing actual civil rights issues. Social programs would be the next best way to do that. The worst way is to manipulate the market through the power of government to make it more egalitarian.

Yeah i agree that like trying to use a hammer to screw in a lightbulb.

If the market creates externalities, it's acceptable for the government to create policies which correct for those externalities. According to many economists on both the left and right, you can actually make the market more efficient by adding taxes ("Pigouvian Taxes" if you want to look it up), if the taxes rebalance the market to force it to account for the cost of the externalities. That's partially the argument behind carbon taxes.

There are also pigouvian subsidies and pigouvian tarriffs.

But if a market is free, and all participants are absorbing the costs of transaction and all of them have the information needed to make good decisions, then the government shouldn't inject itself into the middle in order to force some kind of social change. For example, if one person works harder than another, and as a result starts accumulating wealth faster than the other person, it's not the government's business to interfere in the actual market to remove the harder working person's advantage. All that does is destroy efficiency. But that's what government does when it imposes price ceilings, or sets quotas, or erects trade barriers.

While the market efficeintly allocates capital it does not always equitably compensate labor. At least that is the notion that some people get when they look at executive compensation.

I think the use of these terms is somewhat unfortunate because they're ill-defined and politically loaded. I would not consider the drive for unionization to be 'demand-side economics'. For the purposes of this discussion I assume we're talking about government policies that are intended to stimulate the economy. 'Supply side' policies would seek to stimulate the economy by reducing barriers to business growth, while 'demand side' would be government policies seeking to increase the demand for goods and services.

To me, 'Supply side' policies are effective any time business is being hindered excessively by regulation or non-competitive taxes. They can work in good times or bad. "Demand side' policies are specifically useful during times of abnormal, temporary short-term decline in demand, and their sole goal should be to correct for distortions in the market caused by recession, natural disaster, bubbles popping or other problems where it's believed that the reduction in demand is greater than it will be in the near future. You don't need them when you have full employment and reasonable levels of consumer spending.

And do you think that the implementation of supply side economics has meant very much more than tax cuts and humongous deficits which cause a Keynesian effect as these huge deficits end up putting more money into then system than it takes out?

[Damuri Ajashi]

Originally Posted by Sam Stone

Yes, I can. Have a look at what happened to the 'Asian Tigers' when they liberalized their business regulations and lowered trade barriers. Look at the results of India's market liberalization. Or China's.

And every one of those Asian Tiger's followed the Japanese model of managed economies. China's economy is pretty much managed as well; a government official is present or a signatory to practically every large industrial contract.

Have a look at what NAFTA did for Canada's exports and economy. Have a look at what what happened in Eastern Europe after the Iron Curtain fell. Have a look at Canada's economy after we lowered businesses taxes, de-regulated a number of industries, and reduced the size of government from 44% of GDP to 33%. Look at the economy in Britain before and after the Thatcher revolution.

There is a clear pattern that when governments lower barriers to business creation, innovation, and trade, the economy improves.

Yeah but in America supply side econmics has come to mean tax cuts for the rich, tax cuts for the rich and oh yeah more tax cuts for the rich.

How about you providing examples of the opposite? Are there countries with free markets and moribund economies that were improved by having government 'manage' the economy?

Well I guess I would point to every industrialized country in the world after the Great Depression.

I keep hearing Japan mentioned as an example of successful government intervention, but Japan's successes came in spite of government intervention, not because of it. Many of Japan's government/industry 'partnerships' like MITI's 5th generation project were complete disasters.

Yeah but the failure rate was low enough that they were ebating the pants off of the rest of the world for decades.

Japan's decade-long stimulus has resulted in an inefficient, over-built infrastructure it can't afford, along with high debt and economic stagnation. The result is that 2% of Japan's GDP goes to interest on its debt, and this consumes 14% of its entire budget. And that's without touching the principle. And it really doesn't have anything to show for it.

It has a functioning economy.

So where did a government make an economy stronger by managing industry? And I'm not talking about a failed state recovering after order was restored - I mean a 1st world economy that took off after a more statist government stepped in to 'manage' the economy with additional regulations and taxes.

What about stuff that happened after the Great Depression? I would think that those models are relevant to us right about now.

[Sam Stone]

Originally Posted by Damuri Ajashi

You sound like a fiscally conservative Democrat to me.

Not really. Not if being a Democrat means I have to support big labor, large government, big education, and the rest of the baggage of the Democratic Party.

I describe myself as 'libertarian' (small l) because it most closely matches my belief system:

- I believe in government, but no more than is necessary. Government is a last resort when markets break down, not a superior alternative to markets.

- I believe in taxation, but only to the extent that it is necessary to fund government operations. I do not believe in taxation as a form of wealth transfer across income strata of society.

- I believe in social programs, but no more so than to prevent extreme economic hardship. I believe that societies function better when the poor aren't starving and uneducated and sick. But social assistance should not be a way of life and should not extend to making the middle class more comfortable.

- I generally believe in liberal social policies. I'm pro-choice, anti-capital punishment, pro-gay marriage, and support drug legalization.

- I believe that business owners do not lose their rights when they engage in commerce. Therefore, I believe that business regulation should be kept to the minimum required to assure public safety, I support the right of a business owner to hire or fire whoever he wants regardless if that person is in a union or not and regardless of the person's skin color or ethnic background or sex.

- On the other hand, I do not believe that engaging in commerce gives someone a claim on my tax money through directed subsidies, sweetheart deals, government 'partnerships', or other mechanisms of forced wealth transfer. That includes tariffs and trade barriers that induce me to deal with people I would otherwise not deal with.

- I'm generally suspicious of government. I believe there are concrete reasons why government action is dangerous, flawed, and inefficient. It may be necessary, but it needs to be constrained in scope and power.

- I believe that the market is a complex, chaotic system with uncountable feedback loops and unpredictable actors. As such, I believe the only way for it to functional well is from the bottom up. I also believe that a modern economy is far too complex for a government to manage, and that government doesn't have access to the information needed to efficiently direct markets, because the information is simply not available outside the boundaries of the choices of the public and the feedback of the price system. Government can never know what's best for people, because the people themselves don't know until they are forced to make choices between all the options available to them - and to pay for them.


These are not positions compatible with Democrats or Republicans. And not really with big L Libertarians, either. They're generally classically liberal, pro-market, pro-freedom beliefs, but they don't pigeonhole into any particular party.

The market can create gluts and shortages as well and it clears these gluts and shortages with the pricing mechanism.

That's my whole point. Businesses can be stupid, businesses can over-produce or under-produce. But the price system connects them together in ways that correct the flaws. Let's say someone invents a product made of plastic that is highly superior to its steel alternatives. Demand for steel will fall. There will be an overproduction of steel. But then prices for steel drop, signalling steel producers to eliminate their most expensive modes of production and stimulating demand at the same time. Now other steel-based products become cheaper, and people buy more of them and less of their own alternatives. That in turn causes other gluts and shortages. But through the price system, everything adjusts until the market clears.

This is all so tremendously complex that there is no one person who can understand it. No one can look at an input and predict the outputs across the economy. Investors who spend their lives studying markets barely do better than chance when predicting market movements.

And when a government decides to meddle in that market by fiat, it causes outcomes it could not predict. So corn ethanol subsidies wind up causing the price of chicken soup to go up through some 5th order interaction, an outcome that was totally unpredictable.

In a mixed economy, these unintended consequences happen, but at least a market still exists to correct for them. As the government attempts to control more and more, and the market loses its ability to adapt because of high regulation, the whole process starts to break down. But even modest levels of interference in the market cause unintended consequences, and this usually results in government interference being less efficient than predicted.

Because they don't have a profit motive, the governments react to adverse pricing differently than someone taht needs profits to make payroll. But with that said, ther are some goods that teh government can reasonably determine should be provided even at a loss to the fisc. Mass transportation is one example. Almost every large metropolis in teh world has a mass transit system taht operates at a loss and it is still probably a good idea for governments to operate (or subsidize others to operate) these money losing transportation systems anyway.

I don't buy that mass transit is always a universal good - or at least it's not clear that it's always better than the alternative. And of course, there are degrees of mass transit - a basic bus system is a lot less intrusive and expensive as is Light-Rail transit, and LRT systems are a lot less expensive and intrusive than full-blown subways and high speed train links. There are a lot of examples of cities that have over-built their mass transit and as a result have under-utilized transit movements that actually slow down overall traffic flow, increase energy requirements, and cause high taxation which causes business flight and destroys jobs.

This is not supply side so much as it is basic econ. Reducing cost of doing business reduces hurdle rates and causes mroe economic activity. You could do the same thing with easy credit or tort reform or eliminating child labor laqws. The trick is to picjk those things that you as a society are willing to live with in order to encourage economic activity.

We have been operating in this thread without a good definition of 'supply side'. I've been using it as "government action that reduces the regulatory or taxation burden on producers", as opposed to generalized demand-side policies which seek to stimulate the demand of goods and services.

While the market efficeintly allocates capital it does not always equitably compensate labor. At least that is the notion that some people get when they look at executive compensation.

As soon as you start talking about what's 'equitable' you get into value judgments and decisions that are ultimately political and not economic. Is it equitable that Jack Welch, who rescued GE from near-extinction and turned it into a 21st century industrial powerhouse that employs hundreds of thousands of people, be paid millions of dollars per year? If not, how come? Is it equitable that the lemon next to you in your unionized shop gets paid the same amount you do, despite the fact that he calls in sick all the time, goofs off, and causes you to carry part of his workload? If so, how come?

The beauty of believing in freedom is that I'm willing to let the individuals decide and contract amongst each other. Social engineers want to impose their view of morality on everyone else by force.

And do you think that the implementation of supply side economics has meant very much more than tax cuts and humongous deficits which cause a Keynesian effect as these huge deficits end up putting more money into then system than it takes out?

Um, I don't think supply side economics is the cause of deficits. I think deficits are caused by a gap between government expenditures and revenues. I can just as easily blame deficits on large government costs. More specifically, I think deficits going forward are most specifically caused by governments having promised people more in entitlements than we can afford.

[Dick Dastardly]

Originally Posted by Sam Stone

Um, I don't think supply side economics is the cause of deficits. I think deficits are caused by a gap between government expenditures and revenues. I can just as easily blame deficits on large government costs. More specifically, I think deficits going forward are most specifically caused by governments having promised people more in entitlements than we can afford.

Supply side economics cause those big gaps between revenues and expenditures though, right? I mean that's what the numbers show. Cutting taxes does not stimulate enough economic growth to increase revenues to the level they would have been had taxes not been cut. In fact the evidence shows no real extra economic growth at all due to cutting taxes.

And entitilement programs are easily affordable in the medium and long term. All that's needed for instance in the US is to get the projected profit growth out of the Medicare system or ideally bring in a universal system like Frenace or Canada's. Then the US deficit problem would disappear overnight.

[smiling bandit]

Originally Posted by septimus

Wrong. It is right-wing ideas like "Greed is good", "wealth creation implies value to society", "government regulation is always bad" that lead to such mistaken priorities.

So let's start with you, smiling bandit. Was Greenspan's cheerleading for the derivatives market a good thing or not? Was the Greed is Good banking climate that led to the mortgage crisis a good thing or not?

I'm not sure why my . Furst off, I am not finance expert. That said, I know there were several who did question his inflationary growt-at-any-cost approach. I consider it dangerous myself, but he was not the only problem. Congress- Right and Left, has unfortunately been encouraging bubbles for a while. IN some ways they still are.

[Sam Stone]

Originally Posted by Dick Dastardly

Supply side economics cause those big gaps between revenues and expenditures though, right?

Supply side tax cuts from modest tax levels will not create enough GDP growth to cause government revenue to rise enough to recoup the costs, no. Both the Reagan and Bush tax cuts caused short and medium term government revenue to fall.

That does not mean they are the cause of the gap between revenue and expenditure. Gaps are caused by the difference between revenue and expenditure. You can fix them by modifying either side of the equation. For example, it would be a 'supply side' move to cut business taxes and replace them with a VAT tax. Or to cut business taxes and adjust the spending of government to match the revenue picture.

I mean that's what the numbers show. Cutting taxes does not stimulate enough economic growth to increase revenues to the level they would have been had taxes not been cut.

You're taking a very narrow view of 'supply side'. Not all supply-siders think that the Laffer Curve means you'll always get back more in revenue than you cut. Hell, even Art Laffer doesn't say that. What many will say is that the loss of revenue will be somewhat less than the total amount of the cuts because of revenue gains through increased GDP. It's called "dynamic scoring", and the Obama administration is using it now.

In fact the evidence shows no real extra economic growth at all due to cutting taxes.

Never? Really? You got a reputable cite for that?

And entitilement programs are easily affordable in the medium and long term. All that's needed for instance in the US is to get the projected profit growth out of the Medicare system or ideally bring in a universal system like Frenace or Canada's. Then the US deficit problem would disappear overnight.

Ridiculous. You do know that Canada's health care budget is also exploding, right? The population is getting older, and new medical procedures and drugs are being invented every day to keep people alive and healthier longer. Both of those factors are contributing to an expansion of health care costs throughout the world.

As for the U.S. not having a deficit problem if it can stop the growth of health care costs - the U.S has a deficit problem now. A big one. Are you contending that public health care would shave. 1.6 trillion dollars off the U.S. budget? I'd like to see how that works.

[septimus]

Thanks for posting the synopsis of your political views, Sam Stone. I've bookmark'ed it, in case we join in debate again.

I didn't get a clear answer from Smiling bandit when I posed the following question. Would you be willing to try, Sam ?

Was Greenspan's cheerleading for the derivatives market a good thing or not? Was the Greed is Good banking climate that led to the mortgage crisis a good thing or not?

Originally Posted by Sam Stone

Post-literate is .... For example, a society in which everyone gets their information from TV and communicates by phone or video. That's why I said it was weird to claim that society was 'post-literate' while writing messages on a message board.

Iron-age people who preferred bronze tools still lived in the Iron Age. My impression is that policy-making today is less competent than it was some decades ago, that (without writing a long essay to connect the dots) listening to Limbaugh rather than reading Buckley is part of the problem; I use "post-literate America" in an ironic way to reflect that.

Although you and I may have other areas of disagreement, the focus in this debate is your faith in free unfettered markets. There are many reasons why such faith is unfounded, with the "Tragedy of the Commons" being particularly simple, important and easy-to-understand.

I am also, believe it or don't, an advocate of free-market methods but believe the free market can often be improved by government interventions, especially simple taxes. Fire protection, for example, is usually taxpayer-funded so if a product poses a fire risk, don't prohibit it -- tax it! with the tax commensurate with the fire risks. Similarly, if government by and for the people determines that tobacco or gasoline use has drawbacks not factored in to market prices, then tax tobacco or gasoline!

Originally Posted by Sam Stone

I'm skeptical of these kinds of cool-sounding big ideas, because I believe that markets are complex and that when you meddle in them you cause problems you never anticipated. You might convince me that your plan is a good one, but the burden of proof is on you and I set the bar pretty high for government intervention, given its track record.
...
I believe that the market is a complex, chaotic system with uncountable feedback loops and unpredictable actors. As such, I believe the only way for it to functional well is from the bottom up. I also believe that a modern economy is far too complex for a government to manage, and that government doesn't have access to the information needed to efficiently direct markets, because the information is simply not available outside the boundaries of the choices of the public and the feedback of the price system. Government can never know what's best for people, because the people themselves don't know until they are forced to make choices between all the options available to them - and to pay for them.

...And when a government decides to meddle in that market by fiat, it causes outcomes it could not predict. So corn ethanol subsidies wind up causing the price of chicken soup to go up through some 5th order interaction, an outcome that was totally unpredictable.

I think it is your faith in unfettered markets that is misguided. The program of mortgage delay I advocated would be rather simple compared with how the "free market" for mortgages developed: mortgages have been sliced, diced and traded to the point where homeowners literally have no one to negotiate with (and homeowners are even winning lawsuits because with all the slicing and dicing the free market sometimes can't even prove who owns a given slice of mortgage paper!)

I don't like your "corn ethanol subsidy" example. I happen to think ethanol subsidies are foolish for 1st-order reasons. I don't know if you can find a reference for even a "3rd-order" economic interaction causing trouble but if so, would guess that private enterprise was as likely to be to blame as government action.

The almost-religious fascination with unfettered markets is, I think, a big flaw in today's right-wing thinking. A few months ago, there was a thread about "High Frequency Trading" and I was almost a lone voice in that thread, claiming that such hyper-efficiency was more likely to be a problem than a solution. Today we see a new SDMB thread (sorry, I don't have link handy) pointing to a video with allegations of HFT use to manipulate prices. (And let's be clear: such shenanigans are not victimless crimes.)

[Dick Dastardly]

Originally Posted by Sam Stone

Supply side tax cuts from modest tax levels will not create enough GDP growth to cause government revenue to rise enough to recoup the costs, no. Both the Reagan and Bush tax cuts caused short and medium term government revenue to fall.

That does not mean they are the cause of the gap between revenue and expenditure. Gaps are caused by the difference between revenue and expenditure. You can fix them by modifying either side of the equation. For example, it would be a 'supply side' move to cut business taxes and replace them with a VAT tax. Or to cut business taxes and adjust the spending of government to match the revenue picture.



You're taking a very narrow view of 'supply side'. Not all supply-siders think that the Laffer Curve means you'll always get back more in revenue than you cut. Hell, even Art Laffer doesn't say that. What many will say is that the loss of revenue will be somewhat less than the total amount of the cuts because of revenue gains through increased GDP. It's called "dynamic scoring", and the Obama administration is using it now.



Never? Really? You got a reputable cite for that?



Ridiculous. You do know that Canada's health care budget is also exploding, right? The population is getting older, and new medical procedures and drugs are being invented every day to keep people alive and healthier longer. Both of those factors are contributing to an expansion of health care costs throughout the world.

As for the U.S. not having a deficit problem if it can stop the growth of health care costs - the U.S has a deficit problem now. A big one. Are you contending that public health care would shave. 1.6 trillion dollars off the U.S. budget? I'd like to see how that works.

Short, medium and long term revenue to fall, not just short and medium. And of course supply side cuts are the difference between revenue and expenditure. Reagan made great big tax cuts and ended up with then record deficits because of it. Bush made tax cuts and tax revenue fell. Even just before the recesion hit it was vastly below where it should have been. Just compare revenue growth from the Bush years to revenue growth from previous decades.

Whatever supply-siders think or claim it's all turned out to be a bunch of crap. It's really hard to look at the current economic situation and still support supply-side ideas. Not that it's going to stop you but for the non-ideological people over the last couple of years the facts and the evidence of what free-market deregulationism does to your nice economy are pretty clear.

Just look at economic growth under various presidents to see how well supply-side works. Reagan's economic growth was within 0.1 percentage poijnts of high-tax Jimmy Carter and tax-raising Bill Clinton, all three at or around 3.5% average GDP rowth, and all three well below the GDP growth trend of 90% marginal rate 1950s and 60s. George W Bush, the guy who inherited a budget surplus to play with and then pushed the strongest supply-side policies ever seen in America achieved whopping 1.9% average GDP growth and an epic financial meltdown caused by deregulating the economy. That's pretty good evidence. That's a modern mature economy with well-established growth trends and historical data to look at and the evidence couldn't be more clear.

Once economic growth returns and revenues come back and the deficit closes, America can actually have a budget surplus by setting up a universal healthcare system :

It's hard to constantly come up with new ways to say "America spends way, way, way, way, way more than any other country on health care." But we do! Just look at the National Geographic graph above, which puts per-person spending on one side of the chart and average life expectancy on the other. Or consider this: If we spent what Canada spends per person, our deficit problem would go away entirely. And Canada's per-person average is in a country where everybody is fully covered and so has full access to care. America's is in a country with 47 million uninsured, and so many people skimp on needed care. So the comparison is actually unfair to Canada.
David Leonhardt has another way of making the point. We don't have a government-run system. But our system is so expensive that our government's partial role is pricier than the whole of government-run systems.

In per-person terms, government agencies spent roughly $4,500 on medical care, while the private sector spent roughly $3,000.
Here’s what’s notable about that $4,500 figure: It’s more than what a lot of other rich countries spend on health care — including both the public and the private sectors. All told, Canada, Belgium and Germany each spend about $4,000 per person on health care. Australia and Britain spend about $3,500 each. Japan spends a little less than that.


http://voices.washingtonpost.com/ezr...y_way_mor.html




and




http://voices.washingtonpost.com/ezr...fallacies.html

[Sam Stone]

You changed the argument. I never argued that the U.S. spends less than other countries. I said that it would not fix the deficit just by adopting universal health care.

Do you seriously believe that if the U.S. went to a single-payer system that health care costs per capita would drop to levels seen in Canada? This ignores the numerous factors that can go into health care costs.

[Dick Dastardly]

Originally Posted by Sam Stone

You changed the argument. I never argued that the U.S. spends less than other countries. I said that it would not fix the deficit just by adopting universal health care.

Do you seriously believe that if the U.S. went to a single-payer system that health care costs per capita would drop to levels seen in Canada? This ignores the numerous factors that can go into health care costs.

And I'm saying it would turn the deficit into surplus and provided cites to back my claim up. As far as what I seriously believe I'm going to go with the opinions of actual experts who've looked at the situation.

[Damuri Ajashi]

Originally Posted by toadspittle

Is that you, David Brooks?

He let forth with a flood of "Demand Siders" in this column. I'd never heard the term used by anyone before.

Brooks is trying to legitimize supply side economics by making it sound like it is just the flip side of "demand side" economics. Of course nothing could be further from the truth. Supply side economics is to mainstream economics what unicorns are to horses. Sure it has magical healing powers and all that but unicorns don't exist.

[Damuri Ajashi]

Originally Posted by Sam Stone

Not really. Not if being a Democrat means I have to support big labor, large government, big education, and the rest of the baggage of the Democratic Party.

So you don't support the right of labor to organize and exercise countervailing power against corporations? Is it merely the fact that corporations cannot fire union members for joining a union or is it something more than that?

Noone wants large government for the sake of having large government. I constantly point to our budget and ask "what would you cut" and the answer is "lets cut the pork, that'll balance the budget" (which amount to about 2% of the federal budget) and then I hear "lets cut welfare" (I don't know how much more you can cut welfare after the welfare reform act of 1996) I never hear a groundswell of support from the right for cutting medicare or social security (at least not around election time). The reason I mention the right is that they are the ones that carry the economic torch for libertarians (see Grover Norquist).

- I believe in government, but no more than is necessary. Government is a last resort when markets break down, not a superior alternative to markets.

You do not believe that there are things that the government can do better than the market under ordinary circumstances? Is the police department and fire department "last resorts? Is the FDA a last resort? Or do these things make sense without having to see if the market can't come up with its own solution?

- I believe in taxation, but only to the extent that it is necessary to fund government operations. I do not believe in taxation as a form of wealth transfer across income strata of society.

Its not so much a matter of averaging income as trying to create a floor. Perhaps this war against poverty is misguided and it is simply too costly in terms of economic impacts to provide things like medicaid, food stamps and what passes for welfare these days. Perhaps the disincentives that go along with trying to fund these programs by taxing richer folks are too great a cost for whatever benefits medicaid, food stamps and welfare provide for a more stable society. If we were taxing the Ferrari driving rich so that the middle class could drive Honda Accords instead of Honda Civics, then I could see your point more clearly. If there are things like this going on, then I agree, its too much.

I believe in social programs, but no more so than to prevent extreme economic hardship. I believe that societies function better when the poor aren't starving and uneducated and sick. But social assistance should not be a way of life and should not extend to making the middle class more comfortable.

I tend to agree and maybe things have gotten too far. Can you give me an example of social assistance to the middle class that allows them to live better than they earn (assuming we say that things like police protection and public education do not fall into this category).

I generally believe in liberal social policies. I'm pro-choice, anti-capital punishment, pro-gay marriage, and support drug legalization.

Thats funny I am slightly pro-life, slightly pro-capital punishment, ambivalent on gay marriage, and fairly pro-marijuana (but not other drugs). One of the benefits of being a Democrat and not an idealogue is that I can pick and choose the stuff that I want without having to be terribly consistent in what I support and do not support.

I believe that business owners do not lose their rights when they engage in commerce. Therefore, I believe that business regulation should be kept to the minimum required to assure public safety,

I think business owners don't lose rights but I also don't think that corporations have the same rights as individuals.

I support the right of a business owner to hire or fire whoever he wants regardless if that person is in a union or not and regardless of the person's skin color or ethnic background or sex.

Are you saying that I should be able to fire people because they are black?

I believe that the market is a complex, chaotic system with uncountable feedback loops and unpredictable actors. As such, I believe the only way for it to functional well is from the bottom up. I also believe that a modern economy is far too complex for a government to manage, and that government doesn't have access to the information needed to efficiently direct markets, because the information is simply not available outside the boundaries of the choices of the public and the feedback of the price system. Government can never know what's best for people, because the people themselves don't know until they are forced to make choices between all the options available to them - and to pay for them.

When you talk about government telling industry how many shoes to make and how many shoelaces to make I hear you but governments can and have successfully directed economic activity towards prosperity. As an aside, when you have corporations that are larger than half the nations in the world, that have revenues that are larger than the tax revenues of all but a handful of nations in the world, how do you distinguish between their actions and governmental action? Is it the profit motive that keeps these megacorporations disciplined enough so that they do not disrupt the market mechanism while the lack of profit5 motive in government makes their involvement in the market distortive?

These are not positions compatible with Democrats or Republicans. And not really with big L Libertarians, either. They're generally classically liberal, pro-market, pro-freedom beliefs, but they don't pigeonhole into any particular party.

Well my beliefs don't pigeonhole into any party either but I identify with Democrats these days. I voted Republican in every election before 1998 then I realized that the far right had taken over the Republican party and I started voting party line Democrat about 2002ish.

That's my whole point. Businesses can be stupid, businesses can over-produce or under-produce. But the price system connects them together in ways that correct the flaws. Let's say someone invents a product made of plastic that is highly superior to its steel alternatives. Demand for steel will fall. There will be an overproduction of steel. But then prices for steel drop, signalling steel producers to eliminate their most expensive modes of production and stimulating demand at the same time. Now other steel-based products become cheaper, and people buy more of them and less of their own alternatives. That in turn causes other gluts and shortages. But through the price system, everything adjusts until the market clears.

This is all so tremendously complex that there is no one person who can understand it. No one can look at an input and predict the outputs across the economy. Investors who spend their lives studying markets barely do better than chance when predicting market movements.

And when a government decides to meddle in that market by fiat, it causes outcomes it could not predict. So corn ethanol subsidies wind up causing the price of chicken soup to go up through some 5th order interaction, an outcome that was totally unpredictable.

In a mixed economy, these unintended consequences happen, but at least a market still exists to correct for them. As the government attempts to control more and more, and the market loses its ability to adapt because of high regulation, the whole process starts to break down. But even modest levels of interference in the market cause unintended consequences, and this usually results in government interference being less efficient than predicted.

Yeah, we're all familiar with the pricing mechanisms ability to clear markets and drive production towards equilibriums and all that but there are market shocks and market imbalances that however temporary cause real lasting but avoidable harm to individuals. Sure the market will eventually cull out the food processors that poison their customers but a lot of people will get poisoned before that happens and if the prevention of poisoned food is more expensive than the cost of compensating the poisoned customers, it may never happen.

I don't think mass transiton't buy that mass transit is always a universal good - or at least it's not clear that it's always better than the alternative. And of course, there are degrees of mass transit - a basic bus system is a lot less intrusive and expensive as is Light-Rail transit, and LRT systems are a lot less expensive and intrusive than full-blown subways and high speed train links. There are a lot of examples of cities that have over-built their mass transit and as a result have under-utilized transit movements that actually slow down overall traffic flow, increase energy requirements, and cause high taxation which causes business flight and destroys jobs.

I am trying to think of a large city that hat has overbuilt their mass transit system and I'm drawing a blank. When Homer Simpson's Springfield buys a monorail system then sure I see the waste in that but otherwise, I'm pretty sure that mass transit makes sense for most large cities.

We have been operating in this thread without a good definition of 'supply side'. I've been using it as "government action that reduces the regulatory or taxation burden on producers", as opposed to generalized demand-side policies which seek to stimulate the demand of goods and services.

The way you define supply side is not how the right defines supply side. Supply side economics as it is commonly understood includes tax cuts that pay for themselves (e.g. the distortive effect of taxes are so great that you would create more than enough extra economic activity to overcome the lower rate of taxation) and deregulation that results in better self regulation by industry (e.g. if we didn't regulate the oil drilling in the Gulf of Mexico, BP would never have drilled that far out because they would have drilled closer to shore and there wouldn't be a crisis right now (of course thats Bullshit because BP would be drilling in both places)).

As soon as you start talking about what's 'equitable' you get into value judgments and decisions that are ultimately political and not economic.

It is almost impossible to separate the two. When you are saying one economic system is better than another you are making value judgments. Is it better that society as a whole has more wealth even thought that wealth is concentrated ina few hands or is it better to have slightly lower aggregate wealth with better distribution?

Um, I don't think supply side economics is the cause of deficits. I think deficits are caused by a gap between government expenditures and revenues. I can just as easily blame deficits on large government costs. More specifically, I think deficits going forward are most specifically caused by governments having promised people more in entitlements than we can afford.

If the budget was close to balanced in 1979 and had been in a surplus position for most of the post WWII period and then as a result of tax cuts driven by supply side theories we get huge budget deficits, do we say that the tax cuts caused the deficits or do we say the expenditures caused the deficits. It is clear to me that it is tax cuts in this case. If you have tax cuts without offsetting spending cuts then those tax cuts caused the deficit if you have expenditures without offsetting tax increases then those expenditures caused the deficit. Noone argues that the stimulus spending caused deficits why is it so hard to admit that the tax cuts caused deficits?

Originally Posted by Dick Dastardly

Supply side economics cause those big gaps between revenues and expenditures though, right? I mean that's what the numbers show. Cutting taxes does not stimulate enough economic growth to increase revenues to the level they would have been had taxes not been cut. In fact the evidence shows no real extra economic growth at all due to cutting taxes.

Well there was probably some positive effect to reducing taxes. Even if it was mostly for rich folks, lower capital gains taxes made it cheaper to reallocate wealth to more to more productive investments, lower income taxes on the wealthy made them more likely to save a bit more and and increase productive capacity, etc. But it doesn't even come close to creating enough additional economic activity to create more tax revenue than it cost.

And entitilement programs are easily affordable in the medium and long term. All that's needed for instance in the US is to get the projected profit growth out of the Medicare system or ideally bring in a universal system like Frenace or Canada's. Then the US deficit problem would disappear overnight.

True, but in about 50 years, without bending the cost curve we will be in the same situation we are in today.

Originally Posted by smiling bandit

That said, I know there were several who did question his inflationary growt-at-any-cost approach. I consider it dangerous myself, but he was not the only problem. Congress- Right and Left, has unfortunately been encouraging bubbles for a while. IN some ways they still are.

Bubbles are really good for politicians, they get the credit for economic growth and are already working as lobbyists on K street by the time the piper comes around to get paid. This political reality is supposed to be tempered by thoughtful technocrats like the fed chairman. He is supposed to be one of the adults in the room but when the Fed Chairman is caught up in trying to prove his ideology correct, he has become a politician.

Originally Posted by Sam Stone

Supply side tax cuts from modest tax levels will not create enough GDP growth to cause government revenue to rise enough to recoup the costs, no. Both the Reagan and Bush tax cuts caused short and medium term government revenue to fall.

Are you implying that those tax cuts might pay for themselves over the LOOOOOONG term? Perhaps what you are trying to say is that the Clinton economic growth is really the result of Reagan's tax cuts and not as a result of Clinton's looser regulatory policies combined with the communications act of 1996 combined with huge cuts in military spending? Lets face it, there is very littel good on a societal level about tax cuts for the sake of having tax cuts.

That does not mean they are the cause of the gap between revenue and expenditure.

Sure it does.

Gaps are caused by the difference between revenue and expenditure. You can fix them by modifying either side of the equation.

Yeah but when you have tax cuts without spending cuts then you are only modifying one side of teh equation (tax cuts without spending cuts) then those modification (tax cuts without spending cuts) resulted in deficits. If the Republicans were willing to man up and introduce spending cuts to go along with those tax cuts then fine, for decades Democrats introduced spending increases to go with their spending increases and they absorbed the political fallout of those tax increases. The republicans were not willing to do that, they wanted tax cuts but didn't want to face the consequences of responsibly cutting spending along with it because the tax cuts were so fucking steep that they would have had to significantly cut medicare social security or military spending to offset the cost of the tax cuts.

[/quote]For example, it would be a 'supply side' move to cut business taxes and replace them with a VAT tax. Or to cut business taxes and adjust the spending of government to match the revenue picture.[/quote]

I agree that we can reduce friction by reducing business taxes but then we have to figure out some way to eliminate the tax deferral for the shareholders. If we aren't going to tax corporate income at the corp[orate level when it is earned we have to tax it at the investor level when it is earned. Noone who proposes eliminating corporate tax cuts proposes that. In fact that is one of the reasons why people are proposing 10% corporate tax rates instead of 0% corporate tax rates, in order to preserve the income deferral for the shareholders.

You're taking a very narrow view of 'supply side'. Not all supply-siders think that the Laffer Curve means you'll always get back more in revenue than you cut.

Yeah, the ones cutting the taxes do.

Hell, even Art Laffer doesn't say that. What many will say is that the loss of revenue will be somewhat less than the total amount of the cuts because of revenue gains through increased GDP. It's called "dynamic scoring", and the Obama administration is using it now.

Everyone from Paul Krugman to Keynes agrees that lowering taxes by 50% will not result in a 50% decrease in collected revenues, there is nothing controversial about that. What is controversial is how much more than 50% you will collect, supply siders that push for tax cuts say that you can cut taxes 50% and colect more than you collected before the tax cuts.

Never? Really? You got a reputable cite for that?

Well that's obviously not true but the effect is not nearly as pronounced as most people who support tax cuts seem to believe. In fact at these tax levels it is barely detectable.

Ridiculous. You do know that Canada's health care budget is also exploding, right? The population is getting older, and new medical procedures and drugs are being invented every day to keep people alive and healthier longer. Both of those factors are contributing to an expansion of health care costs throughout the world.

As for the U.S. not having a deficit problem if it can stop the growth of health care costs - the U.S has a deficit problem now. A big one. Are you contending that public health care would shave. 1.6 trillion dollars off the U.S. budget? I'd like to see how that works.

Well, first of all you don't have another stimulus bill and that shaves off about 800 billion, so why don't we use that as the number to shoot for?

Federal healthcare outlays about 800 billion between medicare, medicaid, veterans, schip, etc. applying this universally without taking a look at what we are paying for is not going to save us any money, it is merely going to save society some money as we eliminate the needless overhead associated with private insurance companies.

Originally Posted by Sam Stone

You changed the argument. I never argued that the U.S. spends less than other countries. I said that it would not fix the deficit just by adopting universal health care.

Do you seriously believe that if the U.S. went to a single-payer system that health care costs per capita would drop to levels seen in Canada? This ignores the numerous factors that can go into health care costs.

Yeah but per capita costs would drop significantly, neh?

Originally Posted by Dick Dastardly

And I'm saying it would turn the deficit into surplus and provided cites to back my claim up. As far as what I seriously believe I'm going to go with the opinions of actual experts who've looked at the situation.

I think society would save that much money but I don't know if all those savings would inure to the fisc.

[Dick Dastardly]

Originally Posted by Damuri Ajashi

Well there was probably some positive effect to reducing taxes. Even if it was mostly for rich folks, lower capital gains taxes made it cheaper to reallocate wealth to more to more productive investments, lower income taxes on the wealthy made them more likely to save a bit more and and increase productive capacity, etc. But it doesn't even come close to creating enough additional economic activity to create more tax revenue than it cost.



True, but in about 50 years, without bending the cost curve we will be in the same situation we are in today.

All the cuts for big earners did was to unbalance the economy. Reagan cut taxes for the wealthy in 1981 then spent the next seven years raising them on low/middle income earners to try and make up some of the huge deficit he'd created. Bush 43 just cut taxes for the wealthy and ignored the deficit. This has left an increasing chunk of national income in the hands of the wealthy, they've more than doubled their share of national income since 1980. And they've basically invested all the extra money which has meant a big chunk of national income added to the speculative capital of the country which has helped create the bubble economy we have now. Take that money out of the hands of the wealthy and redistribute it downwards to low/middle income earners* and they'll spend it, creating jobs and economic growth in the real economy, 70% of which is consumer spending. That's where the money should be going and that's where it'll have yo be redistributed before we see any real sustained economic growth in the future.

*Who responded to their flatlining wages and increased share of the tax burden by going heavier and heavier into debt. So both the wealthy and low/middle incomes have a higher demand for financial products/assets, which creates bubbles.......


BTW we were talking about mortgage lending standars the other day and during a post I remembered this amazing thing I read a while ago about mortgage standards then forgot to look it up. Here's a legal officer from one of the banks that blew up :

"Someone in Florida had made a second-mortgage loan to O.J. Simpson, and I just about blew my top, because there was this huge judgment against him from his wife's parents," she recalled. Simpson had been acquitted of killing his wife Nicole and her friend but was later found liable for their deaths in a civil lawsuit; that judgment took precedence over other debts, such as if Simpson defaulted on his WaMu loan.
"When I asked how we could possibly foreclose on it, they said there was a letter in the file from O.J. Simpson saying 'the judgment is no good, because I didn't do it.' "


http://seattletimes.nwsource.com/htm...11_wamu25.html