Sparticus, I already called Scylla on that one, and we’ve been lobbing rhetorically since. With respect, name-calling back isn’t constructive. Let’s move on, please? Thanks.
—I thought the closest they ever got was Reagans “Supply Side” scheme, with its Laughable Curve, and such?—
You certainly have a very messed up view of economics if you think that supply side economics (which is NOT the same thing as a general dislike for taxes) was ever supported by even a tiny minority of academic economists. It was largely the concoction of a few outside hacks, journalists (heavily promoted as gospel from the WSJ editorial page), and, of course, politicians. Read Paul Krugman’s “Peddling Prosperity” for a look into some wacky ideas from both the right and left that claimed to be “Econ 101” yet were in reality laughed off by most actual economists.
Sigh. I maintain that the area of consensus is much larger that it appears, and it can be gleaned by noting the area of agreement across a wide range of introductory and intermediate economics texts. Contrast this with sociology, psychology or political science where students are introduced to a greater variety of “schools of thought”.
I confess that my POV on this is challenged more often than I would like. (Actually though, the media doesn’t challenge it that much: usually when economists are quoted context is absent OR they are being asked about macroeconomic forecasts which nobody does particularly well OR the quotee is actually a politician and is acting accordingly).
It is unclear to me whether Apos and I will come to consensus. I might note that Sam and I are capable of operating on a base of shared beliefs, despite our usually divergent conclusions. This thread is a decent example of this. I framed the question as, “What is the effect of a tax cut, relative to a spending increase, all things being equaled?” That is, at bottom, a technical question susceptible to empirical analysis.
Sam cleverly shifted the issue to, “What does Congress do after a tax cut is passed?” Now, a paper could be written on this subject (though I personally am not aware of one). But it would inevitably be historical in nature: it’s not clear to what extent its conclusions to be generalized. Put in another way, because it is at bottom a political question, the answer will necessarily be less definite.
Elucidator, *Hence, a tax policy that positively gouges the rich and siphons that money directly to the poor is, by your argument, the most efficacious, as well as the most humane. *
Yeah. Some of the claims in this thread just baffled me. To say that the poor have a higher marginal utility for an additional dollar of income than the rich do (which I believe) seems to me to be a justification for redistribution. In fact it is.
I’ve wondered whether liberals have a more utilitarian morality, while conservatives operate with a different framework. If this is the case, then it would be an example of a set of assumptions or operating principles that truly are beyond the realm of reasoned debate.
Agreed, I think, but wasn’t ‘supply side’ marketed as a dislike for taxes? It’s been 20 years, but I clearly recall something along the lines of, “cut taxes to corporations and individuals, and the money will be invested and create jobs.” No?
Elucidator asks: *And which economic marvin has got the figures and mathematical models to prove that the very best thing for the economy is to stuff as much money as possible in the pockets of rich folks? *
Good question. I know of 2 examples.
Number 1:
In the 1970s, Martin Feldstein noted that in an inflationary environment, tax rates of (say) 50% represented a fairly strong disincentive to save. Let me walk through an example.
Assume: a) Inflation = 9%. b) Real interest rates = 3%. ergo, nominal rates = 12%
Since our hapless fat-cat is taxed on the basis of nominal rates, his after-tax returns of 6% (12% times .50) don’t even keep up with inflation. This could represent a fairly strong disincentive for savings.
(Although there are answers to this line of thinking)
I will note that this justification carries less force as inflation recedes to 1990s levels.
Number 2:
Corporations get to deduct their interest expenses, but not their dividend payments. Thus, they pay a tax on dividends, but so do the shareholders (provided they are not a pension fund). This double-taxation of dividends tilts the incentives against equity and (more perniciously) against the company paying out any windfall profits that occur. This implies that Corporate taxes should be cut, since ultimately it is individuals that pay taxes anyway. If you are concerned about fiscal issues, personal taxes on higher incomes could be correspondingly increased, since those people would benefit from such a change disproportionately. (Insert detailed and highly contentious empirical analysis here, guesstimating the extent to which different income groups would benefit).
Number 2 can be endorsed by some fairly mainstream economists. Although they also add that a zero corporate income tax would not be smart, as it would support a range of artificial tax shelters.
Please note that it is difficult to justify recent Republican policy along the preceding lines, with the exception of a small part of Bush’s 2002 proposals.
Well, I’m dubious that the tax cut would have done much to the economy for or against, but it’s not like we’ve got ourselves a perfect scientific experiment with one variable.
The events of last September pretty much stunned the business community for several months. No one knew if any other shoes were going to drop – no one was making any capital investments and consumers weren’t in a spending mood.
We’ve also had multiple instances of large corporations (Enron, Global Crossing) having to restate their earnings and going bankrupt due to outright fraud on the part of their chief executives. Again, not something that’s likely to raise investor confidence.
Apos:
Um, Elucidator may have been claiming that a consensus among economists existed against the Supply side framework.
The economy is suffering because the wealth effect has become a ‘poverty effect.’ I don’t think Bush caused the tech bubble to burst. Experts saw that coming for years. [sub]Should’ve listened to the experts. Grumble.[/sub]
Tax cuts are one way to boost consumer spending, very important in recessionary times. Another way is through liquidity. Money is cheap already, so tax cuts are about all the feds. can do. Infrastructure spending might help some. Road construction not only pumps money into the economy, it boosts business and worker productivity as well. (Time saving, decreases costs)
The fact is that (prepare yourselves) the economy is cyclical. Takes a bow
flowbark - BTW, was my ‘economics for Dummies like Me’ 3-line summary of your ‘cut taxes’ v. ‘gvt investment’ explanation on the previous page an accurate representation of what you were trying to say? I’d really like to know. Thanks.
The weakness with this part of your post is that business men haven’t used their working capital to put back into the business here lately. What has happened is that business managers engineer mergers or buy outs and in both cases employment goes down and the managers get a bigger bonus for being “more efficient.”
The name of the game has not been building up a business by putting profits back into the business. The game has largely been one of financial manipulation and a mere shuffling of the same organizations among different owners and into different combinations without any real growth.
–1) I’m not sure what “it” is.—
“It” was your math on the tax cut. I think you said it was 4. He thought you said it was .8.
—2) I tried to put forward straightforward aggregate demand analysis. Sorry if I wasn’t cogent. I trust that you understand the benefits of counter-cyclical government spending.—
Sure, but by no means are these benefits uncontroversial as a policy strategy. You can list benefits for anything: the question is whether they are worth the costs, and in your story, the costs are utterly unmentioned.
Some think that the costs are worth the benefits msot of the time, some think they usually are not worth it, but in any actual situation it’s usually a matter of empirical study as to which effects dominate and why.
But my key point is that the extra short-term $1 gained via government spending (vs. tax cuts) should not be thought of as a free lunch, mana from heaven (which is what it might seem from your story). It comes from somewhere: that is, it is a transfer of wealth, not itself a productive activity.
What is actually going on is that the government is taking money that otherwise would have been spent at a later period and making sure it instead gets spent now, in the hopes of stimulating the economy (though not by any sort of simple story: there are many other factors, such a story why wages fail to rise when prices do, interest rates, etc.). Does this do more harm than good in the aggregate? Again, that’s generally something that can only be answered by empirical study, not by any simple story.
—3) OTOH, perhaps you are advocating Ricardian Equivalence. Is that what you have in mind? I find your story to be a little, um, distracting.—
Um, who in their right mind would “advocate Ricardian Equivalence”? Or, for that matter, disagree with it? It is something that is necessarily true only under certain ideal conditions, but then so are many of the simple stories economists tell, and that’s hardly the point. For most major policy debates, the question is not which aspect of theory you hold to (since it’s comparatively easy to agree about theory), but rather what you think the conditions and the data are. Whether government spending or government cutting taxes is ultimately the best way for governments to fight recessions is very much a matter of debate, and shouldn’t be presented as anything else.
The point of the story is to get an idea (or, more importantly, a model) of what the entire playing field is like, so that you don’t make the mistake of forgetting that there’s a “rest of the story” when you look at some policy impact. Neglecting where the money comes from, and the harms that processes might cause, is just such a mistake. It isn’t a conclusive mistake (it doesn’t mean that government spending ISN’T the best out): it’s just a misleading way to tell the story.
The point here is that the exact same tax cut was claimed to be good for both. Specifically, it is not considered good policy to try to fight a recession by giving most of the money from the cut to the rich.
**
Hardly the case for the government.
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Gee, I could swear that I heard the Republicans whining about the debt for years! The markets seemed to appreciate the responsibility demonstrated by a surplus and decreasing debt - not all the boom was the bubble.
Just for the record, I had Republican politicians in mind. (And please show me one of those critters who doesn’t promote tax cuts as a magic bullet).
Don’t be such a literalist, Scylla. It’s bad for your blood pressure. 
Spoke:
And what Democratic politician did not advertise a tax-cut as a magic bullet for the economy?
Certainly Clinton and JFK did.
Perhaps you should say “Politicians”
And perhaps you should stop denying that this particular tax cut was advertised as a magic bullet.
Actually the burden of proof is on you. You’re the one making the positive statement that it wa done in such an unrealistic fashion.
As I recall, the beneficial effect on the economy was a secondary argument for the refund. The primary argument was as a return of capital to taxpayers.
That’s not calling it a magic bullet.
If you disagree, please cite where Bush made outrageous or grandiose claims about the efficacy of the refund for the ailing economy.
Up until my previous post, I have done no such thing. Don’t put words into my mouth for rhetorical effect.
Let’s review:
I started this little chat with the following (from the OP):
(Please note that I said “in part”. Who is misrepresenting whose position here?)
Scylla responded:
(See? No need to put words in your mouth. You said it.)
I replied, with what I thought was humerous hyperbole (but which you seem to be taking as personal insult for some unfathomable reason):
[Scylla dons sulky face.]
squeegee was then kind enough to provide a quote from Our Beloved Leader which proves that he promotes his tax cuts in just such a way:
Sure sounds like “magic bullet” language to me.
And if you’re going to promote a tax cut as a magic bullet, then it seems eminently fair for voters to question whether the tax cuts have worked as advertised.
Now can we stop the petty semantic squabbling, and get back to the (loads more interesting) question of whether Bush’s scheme has worked or will work?
Can someone back up for little ol’ erl for a second? I thought that the problem with the economy had everything to do with 9/11 fears and the recent corporate scandals, not the refund—from, what, a year and a half ago?—and some tax cut.
I suppose I would like to understand how it is asserted that “well, we had a tax cut, and look at the economy!” spells anything other than “fallicious reasoning”.
eris: people aren’t being clear about what they are talking about when they say “problem with the economy.” There are two major problems on the table here, and they are interlinked, but not exactly the same. One is relatively short-term (we hope), and the other is long term.
The first is the recession. Bush almost certainly didn’t cause the recession, though people are of various minds as to whether he’s really done a good job in fighting it (or even if that IS his job). It’s possible to argue that the tax cut hurts the flexibility of interest rates (since investors are expecting the government to have to borrow heavily in the future) and thus worsens the recession. But it’s by no means certain. (It could also be noted that tax cuts today pretty certainly just equal tax hikes tommorow, which changes people’s motives as well)
And that ties into the the second problem: the long term budget outlook for the government. The recession definately makes that situation worse. So does the tax cut. Questionable surpluses turning into deficits as far as the eye can see is a bad thing, especially with the retirement of the Baby Boomers looming.
—I suppose I would like to understand how it is asserted that “well, we had a tax cut, and look at the economy!” spells anything other than “fallicious reasoning”.—
It is fallacious. If the tax cut hurt the economy, we can’t tell. It could have helped, but we can’t tell. The only way we could know for sure would be if we knew what things would have been like without the tax cut. But we don’t know that. Without the tax cut, things could be even WORSE. Or they could have been much better. To know what actual effect it had, positive or negative, we need some complex story that models reality well enough to be convincing. We don’t have that yet: maybe in 10 to 20 years, looking back at the data in hindsight.