Could Obama be a (gasp) supply sider?

He is promising to keep the middle-class tax cut, in some form. A good idea, I think. Of all the people that need a bailout, the taxpayer should be at the front of the list. After all, he is the only one that can drive consumption.

Will it be called “trickle down” this time?

He’s still letting the tax cuts on the top 1% expire. That’s not trickle down.

Who can say? Bit early in the game to know one way or the other what he’s going to do. My guess though is that while he may not be a economic conservative, he is probably not going to be an economic left winger either. If he follows a fairly moderate path (economically) then I think he is going to do fine.

We’ll see how many of his campaign promises he keeps…and how pissed off the left is this time next year. The more pissed off they are the better job he’ll be doing IMHO. :wink:

Happy New Year…may it be better than this last one.

-XT

The $850 billion stimulus plan is definitely trickle up, focusing on job creation.

“Trickle-down” obviously means the benefits are happening somewhere up above. The idea was that if you cut taxes for the wealthy it would create economic benefits for the middle-class.

Obama’s program eliminates this indirect process that only works in theory. He plans to cut taxes for the middle-class directly so they don’t have to worry about whether or not things trickle to them from somewhere else.

Wikipedia: “Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created using incentives for people to produce (supply) goods and services,” principally by cutting tax rates for those who have sufficient wealth to create new production capacity.

I’m not seeing any of that in Obama’s tax or stimulus plans. The middle-class tax cut isn’t supply-side. Government spending on infrastructure and whatnot isn’t supply-side.

Well, if Obama wants to increase consumption, this kind of transfer payment from the rich to the middle class isn’t going to do it. This doesn’t change demand at all - you are merely robbing Peter to pay Paul, and there is no indication that Paul’s spending is any different from Peter’s. Just the opposite - people said they would not spend their last stimulus check, but use it to pay down debt.

Not if it comes from Obama, no matter what he does to the deficit. That term is only applied to Reagan and Republicans. They won’t call it “government by Robin Hood” either, although that is what it is.

Huge increases in spending, massive growth in deficits and the national debt, combined with tax cuts, are a good thing. If a Democrat does it.

Regards,
Shodan

Are you still in favor of cutting spending and cutting the deficit during the worst recession in 70 years? I just want to be sure I understand your brand of economics.

Just so we know what we’re talking about:

Supply Side: Increase the wealth of society by making it easier for people to invest in production and create enterprises. Remove roadblocks to innovation and make it easier to build capital.

Demand Side: Increase the wealth of society by making it easier to spend money on things, so that people will buy more stuff. Pay for it by making it harder to actually produce things and invest in production.

Which one sounds more likely to work?

Since both require borrowed money, the first is more akin to borrowing money to buy new tools or pay for an education. The latter is more akin to borrowing money so you can buy a new TV. Which one has the best chance for long-term susstainability? Which one is more likely to actually increase the wealth of society over the long haul?

The only time a ‘demand side’ stimulus makes sense is when demand falls so dramatically that you run the risk of losing a whole bunch of productive capacity as firms go out of business, AND you’re sure that the fall-off in demand is temporary and that you’ll be sorry when demand picks up again and the productive capacity is no longer there. This is the classic argument for a Keynesian stimulus, and it generally applies to the type of recessing you get on the downslope of the business cycle.

This is not such a recession. This is a ‘balance sheet’ recession - a fundamental correction to a situation where people have been borrowing too much money and leveraging too many assets to pay for an economic expansion that turned into a bubble. The bubble burst, the paper wealth vanished, and now we’re left with crushing debt ratios. The economy HAS to shrink a bit, and people have to save money. If you throw stimulus dollars at the middle class, they’re just going to save it. This will not cause a stimulus. This will just have the effect of transferring debt from the middle class to the government.

In effect, what the government is doing is preventing a necessary correction by borrowing even more money to keep the good times rolling. It’s saying, “Oh, you want to save money do you? Well, we’re not going to let you. We’re going to borrow a whole bunch of money on your behalf and try to force you to spend it.”

Japan tried that during its balance sheet recession, which is still going on, 15 years later. FDR tried it, and lengthened the Great Depression by seven years. Apparently, we are no longer capable of learning from history - learning that a short, deep recession that corrects a lot of imbalances is preferable to a long, drawn out recession that doesn’t change much because the government keeps short-circuiting corrective measures.

I don’t care. I still want my check.

Let me give you my answer:

The government should encourage saving, and let the correction happen. It should not increase taxes. It should look to cutting regulation in the interests of lightening the load on the economy in a way that does not cost money.

There’s no chance the government can lower the deficit in this climate - government tax revenues are going to plummet all on their own as GDP contracts. But government shouldn’t spend huge amounts of money on a ‘stimulus’, but should instead spend money only to help people who are hit the hardest by the recession. Relief programs, extension of unemployment benefits if needed, that sort of thing.

But crazy plans to spend a trillion dollars on infrastructure and such should be scrapped until the economy has shaken itself out and is back on solid ground.

But what if you’re wrong, Sam? What if Paul Krugman, with his Ph.D. and his Nobel Prize is right, and you’re wrong?

Obama is cutting taxes, not raising them.

The infrastructure spending needs to be done regardless. It’s not an optional or elective expense, it’s a necessary one. A recession is an optimal time to do it. Put people to work.

Want to know an expense that’s nothing but massive waste? Iraq. We need to get out of there 4 years ago. We should also confiscate all the money that’s been given to Haliburton.

When did people start calling depressions “corrections?”

Ooh… An appeal to authority!

Would you like me to list the economists who disagree with Mr. Krugman? If I can come up with a bigger list than yours, do I win?

Appealing to authority isn’t a fallacy if the authority in question is an expert on the issue. Arguing otherwise is simply nonsensical.

It’s a fallacy if opinion among other, equally qualified experts, is mixed. Anyone can cherry-pick an expert to take the place of reasonable debate. Paul Krugman is an excellent economist, but a terrible polemicist. When he sticks to academic economics, such as the work on comparative advantage that got him the Nobel Prize, he’s excellent. But he’s a very partisan left-wing political polemicist, and has a history of writing editorials which contradict not just other economists, but his own published work.

This is true, and that’s the least objectionable part of his plan. The scarier parts are the various plans to borrow lots of money to spend on various industrial projects, bailouts, and infrastructure building.

The problem with infrastructure spending is that the people you’d be ‘putting to work’ are the ones who are already employed. Long gone are the days where you can take men off the bread lines and give them a pickaxe to swing.

Another problem is that infrastructure takes a hell of a long time to ramp up. The initial work would go to engineering and consulting firms, surveyors, lawyers, environmental consultants, and the like. That process would probably take so long that the recession will be over before you even break ground. Then you’ll be trying to hire workers in an economy that is recovering and needs those workers for other things.

There are a few infrastructure projects that are on the books already, have all the necessary prep work done, and could actually start hiring people in a timeframe measured in months instead of years. But there aren’t nearly enough of them to absorb the kind of infrastructure spending Obama is talking about.

But the biggest problem with this plan is that the money won’t go to necessary infrastructure - it will become a huge political slush fund that will be divvied up in Congress in a huge fire sale. When the government coffers are opened that wide, oversight dies. Corruption will increase. Every little piggie in the country will be pushing his way into the trough.

Would you say Congress has a history of allocating infrastructure funds efficiently? Before you answer, you might consider the fact that the levees in New Orleans were in substandard condition for years, through multiple congresses of both parties, while money was being spent on bridges to nowhere and other dubious projects.

Now that’s just stupid. Confiscate the money given to Haliburton? You mean the money paid for contracts they actually carried out? Did it occur to you that if a trillion dollars is spent on ‘infrastructure’, one of the chief recipients will no doubt be Haliburton and other large consulting/engineering firms?

Just about everyone. What do you think a business cycle recession is? It’s a correction. Inventory grows, productivity gains slow, people get laid off. That’s a correction to a supply imbalance. The inventories eventually drop, production increases, and people are re-hired.

Look, it’s no secret that much of the economic growth over the past two decades has been unsustainable. People were injecting money into the economy on the demand side by leveraging increasing home values in a real estate boom. The fed kept interests rates too low, for too long, causing holders of capital to find increasingly speculative and risky places to put their money. The left has been saying this for eight years - saying that the good Bush economy was smoke and mirrors because people were just spending their real-estate capital and keeping the economy afloat.

Well, that’s largely true. Now the real estate bubble has collapsed, exposing the incredibly high debt positions of everyone. There’s no more money to borrow to keep the economy expanding. In fact, people have to take the money they earn and start paying down the debt, so we have to contract the economy to restore some balance. That’s the correction, and it needs to happen.

What happened to the deficit hawks on the left? The ones who claimed that it was Republicans who were the fiscal liberals who ran big deficits? The ones who claimed that Bush’s deficits would eventually bankrupt the country? Now Obama’s talking about running a trillion dollar deficit and engaging in an orgy of spending, and suddenly all those fiscally conservative liberals are completely silent.

I’m at a loss, here. How is it you can say that Krugman is an “excellent economist” whilst in the same breath telling us he is completely wrong about basic principles of economics? Is he Andrei Mukkelman, originator of Mukkelman’s Faulty Conjecture, Mukkelman’s Erroneous Hypothesis, and Mukkelman’s Utterly Ridiculous Theorem?

And this “academic” economist? Implies a lot more than it states. Who are “academic” economists, and what are the other kind? Is Phil Gramm an “academic”? Friedman? Greenspan? Are “academic” economist simply free of liberal error? (That can’t be right, everybody knows that the liberal left has an iron grip on academe…)

Has Krugman contradicted previous positions? I’m sure he has, he is rather more liberal than he used to be, be more surprised if he didn’t, even suspicious.

In a lesser man, I might think this was a “damn with faint praise” tap dance, an effort to appear all open minded, and stuff, without having to give up any actual points. In a lesser man, that is.

Let me ask you - do you agree with everything Milton Friedman or Friedrich Hayek said about economics? Both of them won Nobel prizes, and both of them would disagree with Krugman’s political positions on just about everything.

And yet, all three would probably agree with each other’s work that won them the Nobel. There’s a pretty wide gap between the technical economic theories that won those people the Nobel and their application in the political sphere. Economics does not speak to thinks like social justice at all, which is why there can be excellent economists whose political inclinations are on either the left or the right.

Even better, Krugman correctly predicted at least some of the consequences of the bursting of the housing bubble, unlike Greenspan.
Sam’s economic philosophy has led to this disaster, so of course he wants more of it.

Is Obama implementing Krugmans prescriptions? I thought Krugman was not a fan.