Does Obama understand the economy?

Great Debates
141

Right. We’re back.

Looks like the posts in the interim have wandered off into the weeds, with the direction being the usual demagoguery and Republican-bashing. For reasons unknown.

That’s actually good. It gave me time to do a few searches, and I don’t seem to have missed many intelligent comments. Always appreciate xtisme’s, of course. And Shayna. Where’s Shayna? I always liked his/her comments.

I’m going to try and throw some numbers around here to get us back on track.

I can only find 2007 gasoline and petroleum consumption from the US D.O.Es website. I was looking for something in the middle, which was retail purchases of gasoline and diesel. The former is about 142 billion gallons per year. Sorry, Whack-A-Mole and others, but I don’t know how to quickly insert links in here. I swear it’s there. Just Google D.O.E. and gasoline consumption.

Total Petroleum consumption is about double that, but that includes distallates and a bunch of other things. I’m going to guess total ‘retail’ consumption, if you throw in buses and trucks and diesel vehicles and the like, is about halfway in between. Call it 200 billion gallons a year for now.

What I wanted was some sort of trendline between 2000 and 2007 to get a feel for growth and elasticity, but I can’t find it. So I’m going to swag 10% off the 2007 number for ‘current run-rate consumption’ if gas was to suddenly spike by $2/gallon. I’d actually bet it’s less than that. But let’s go with 10% for now.

So that’s 180 billion gallons at $2/gallon is $360 billion in revenue from a gas tax. Pretty healthy, as I expected. I’m going to ignore second-order effects for now. Please bear with me.

Now, let’s take a look at 1998 revenues. Why 1998? Because I want to get a feel for what levers we have to play with over a 10-year transition timeframe, how big the levers are, what the transition costs will be, and to highlight how possible this whole thing is IF WE JUST KEEP OUR GOD-DAMNED SPENDING UNDER CONTROL. Sorry. Lost it a little there. I’ll try not to do it again.

Plus, 1998 was a year with a balanced budget due to our beloved adulterer (excuse me: reasonably fiscally sound President) so it makes the analysis a little easier for the moment.

Capital Gains tax receipts were about $80 billion. I can’t find dividend tax receipts anywhere, but let’s assume they were about the same: $80 billion. That’s $160 billion in tax receipts from capital gains and dividends.

Wait. What’s that? We can roll capital gains and dividend tax rates all the way back to zero, and still have money left over? How can that be?

Well, I know that the whack/ding/dent that ExxonMobil, their competitors and all of the other affected industries such as refiners and distributors will take will swallow a lot easier when we tell their shareholders that we can now pay out every dollar, every single cent, of excess cash that they want to, without having to worry about the punitive double-taxation of dividends. They’ll love it. I guarantee it. Those are mature, cash-generating companies who would love to throw off excess cash as dividends. So at least some, if not most, of the resistance we might get from those industries to the ‘IdahoMauleMan’ plan will start to melt away.

We still have $200 billion to play with. What shall we do with it?

I know what I would do with it. Since the poorer citizens on the end of the spectrum have to deal with a $2/gallon tax increase with no corresponding offset, I want to start rolling back payroll taxes (since nearly all of them don’t pay any income tax, anyway) to zero, and for as many people, as I can. Start from the bottom and work your way upwards until you run out of $200 billion. You could even go farther if you wanted to, if you don’t mind a little deficit spending. But why not live within our means, at least for the moment? It’s good practice to follow, I believe. Let’s show our Congresscritters the right way to run a railroad.

Why did I take the order of tax rollbacks in the way I did? Meaning, why capital gains and dividends taxes first, then personal income taxes?

I’m glad you asked. It’s a good question. And the order probably needs to be played with, and the knobs adjusted here and there a bit, in order to sell it politically. I’d welcome the ideas of the SDMB posters on this topic. That is, as long as they don’t short-circuit immediately to the “It’s <Bush/Cheney/Gramm/Fill-in-Republicans name here> fault, so we should elect Obama”.

We can do that later. I promise.

If you want to create jobs… If you really, really want to create jobs, this is the order you need to cut taxes:

  1. Capital Gains and Dividends
  2. Corporate Taxes
  3. Personal Income Taxes

If Capital Gains taxes and Dividend taxes went to zero, along with credibility that they would stay there for the foreseeable future (which is possible, given my analysis above) you would see the most explosive job growth this country has ever seen since the 10%+ GDP days of the early 1900’s. Tens of billions of dollars of capital would come out of the woodwork. Maybe hundreds of billions. There are already tens of billions of dollars sitting idle in VC funds waiting for places to go. A typical $2 million early stage investment in a startup company can usually create about 20 jobs in most places in America, for a run of about 2 years at a bare minimum. And it happens practically instantly. Then you get whatever multiplier effect exists in the ecosystem of the local economy and geography. The winners that go on start to fund themselves and create even more jobs. The losers (if they are good entrepreneurs) go back to the drawing board and start again. And if it’s easy for them to attract money, they’ll get it.

If you cut the capital gains to zero, you remove any and all resistance to taking the cash off some balance sheet somewhere and putting it to work someplace else. And the ‘someplace else’ is usually a start-up, or a company looking for Angel funding, or VC funding, or mezzanine finance or maybe just a local auto body shop or veteranarian practice that needs $1 million or so to hire new employees and expand. Or a local community bank that is bumping up against it’s capital constraints and needs $2-5 million more to build a new branch and hire new tellers and loan officers. Or a cash-producing local farm that needs $2 million to buy some new land, get economies of scale, buy two more reapers, and hire 5 new technicians. Ask me how I know these things. If you’re interested in civil discussion, that is.

You get those companies that money, and they instantly create jobs. Agressive small businesses are simultaneously the most capital-constrained, but also the most rapid job-creating, entities in this great country of ours.

By cutting dividend taxes to zero, you also remove any and all resistance to shareholders demanding that unproductive, excess cash sitting on company balance sheets be disbursed to them.

The quickest, easiest lever to pull, that will provide the quickest payback in terms of job creation, is cutting capital gains and dividends taxes to zero. And as I’ve shown above, it is possible to afford that.

There are two problems with it.

  1. First, as noted above, it’s hard for Joe Average on Main Street to swallow a $2/gallon tax hike, while the money is used to offset capital gains and dividends tax receipts. Even if he gets his head around the fact that jobs will be created, he’ll never go for it. So you have to package it with a substantial tax reduction for the working poor and middle-class as well. I think you can do it, based upon the numbers above. I don’t have payroll tax receipts in front of me, but I think you could reduce a large number of American citizen’s payroll taxes to zero with the $200 billion I’ve noted above. And if you let anyone ‘opt out’ of Social Security voluntarily (which I also advocate) you might be able to get more people on the bandwagon.

  2. Secondly, one ‘problem’ with my plan will be that some people will get absolutely, stinking, filthy, disgustingly rich. These will be people who work hard, are smart and are skilled at investing in the right companies at the right time. Or maybe are just damn lucky.

They will put their own money at risk and will earn commissions managing the money of others. And since capital gains taxes are zero, they won’t pay any money in taxes.

That is going to bother a lot of people, including many (just a guess) on this Board. There are those of us who just can’t handle the notion of wealthy people, period. Wealthy people drive nice cars, wear nice clothes, and drink expensive beer in pleasant locales. They must have inherited that money or stolen it from oppressed peoples, somewhere. Surely they couldn’t deserve it. And therefore they must be punished with punitive taxes.

Sorry. Went off the rails there a bit. Last time, I promise.

So we probably need to split the baby somewhere in the middle. Dialing back capital gains taxes and taxes on dividends substantially, but not to zero, and ratcheting back any-and-all taxes (income, payroll) on the bottom rungs of the ladder, working our way upwards until we determine we can’t afford it any more.

Next up: How we package this politically, develop a transition plan, and pay for the transition.

At least, if anybody sane is still reading these posts.

142

You mean the Mulroney who took a country with a national debt at 30% of GDP and spent it up to a national debt of 65% of GDP? That Brian Mulroney?

We had to elect a Liberal government (big-L liberals, too) to get ourselves out of the mess Brian made.

143

We have 3 percent of the world oil. We can not drill our way out. We have to use less. To put ANWR on the books does not mean they will drill ,not soon and maybe not ever. It will take 5 to 10 years to put online and would not belong to us. It would be the property of an international corporation that could sell it any where. The whole argument is just a joke. An exercise in sophistry.
If you look around you will see nobody actually understands the economy. We have gone to the dogs led by the best and brightest. I do suspect that some of them knew what they were doing was dangerous. They were greedy and do it anyway. But wall street houses were run by the most educated and trained people in the field of economics. How did that work out. ? I am not sure anyone can say they know for sure how to fix this mess.

144

You sir, are exactly right.

Nobody, not any one person, understands the complexity of our economic system. Go take a look at the Soviet Union and centrally-planned former Eastern Bloc countries and get a gander at the results of an economy where a government entity dictated production levels, preferred industries, allowable trading partners, marketing practices, pricing, and a billion other things. The result is clear.

So what do you do? In absence of anything else, default back to individual freedom. Not coercion and the use of force. That’s what they did.

145

With all due respect, what makes you think that you have any idea about how jobs, improved living standards and wealth are created in a free society?

Obama at least has economic advisers from the freaking Chicago School of Economics. And let’s recall that these advisers aren’t guys who love the spotlight and are trotted out every 4 years. Rather they are attracted to Obama because they think he will make solidly grounded decisions. (I’m thinking of Heckman and Goolsbee.)

Generally speaking, I’d say that the current financial crisis is yet another nail in the coffin of market fundamentalism. We are seeing a replay of the early 1930s, the key difference being that we have policy makers (Bernanke and Paulson) who know what they’re doing.

Ok. Now show me the empirical research that provides such an ordering.

Casually, I’ll note that we had very strong growth in the late 1990s, after Clinton’s capital gains tax increase. And we had slow growth in the 2000s after GWBush’s capital gains tax cuts. Now there were other factors going on. But to suggest that tax cuts are the be-all and end-all is just crankery.

And 10% GDP growth? Long run inflation-adjusted trend growth was far slower before 1929 than it was after 1945. If you think that the early 1900s were a golden age, then I question your knowledge of the subject - with all due respect.

Let’s take a look at Angus Maddison’s measures of real per capita GDP growth in the US:

1820-1870: 1.34
1870-1913: 1.82
1913-1950: 1.61
1950-1973: 2.45
1973-1998: 1.99

These are the eras picked by him, based on global historical periods. Note how weak the growth was during the so-called laissez faire era. And note how they’re way less than 10%.

(There may have been individual years of high nominal growth. But the same could be said about the 1970s.)

Conservatives can get away with making unsubstantiated claims about tax cuts on television. But here, we require substantiation.

Nonsense. I have no problem with a Warren Buffet or Bill Gates making money hand over fist. But I’m also not naive about the CEO compensation, where stock options are not adjusted for general market trends (as reflected in say the S&P 500) during good times, but generously repriced in bear markets.

146

Many of the financial CEOs face one-way bets. If their stock does well, they get bonuses. But if the stock plummets due to poor decision made a year earlier, they don’t have to give those bonuses back.

The general technical name for this is agency problem. It’s been studied for a while.

147

Incidentally, for those with a serious interest in tax policy, the go-to guy is Joel Slemrod, Professor of Business Economics and Public Policy at the University of Michigan.

148

I mucked up my facts. Clinton introduced a deficit reduction plan which increased taxes on higher incomes. Tax cut fanatics predicted disaster and were proven wrong. But Clinton kept the capital gains rate at ~28% until 1997, when he agreed to drop the maximum rate to 21.2%. In 2003 Bush dropped the top rate to 15%. PDF link on this page.

149

Even if you don’t believe me, which obviously you don’t, you don’t have to. We don’t have to debate economics. All we have to debate is freedom, and leave the economic decisions to ourselves and our own devices.

Your second paragraph implies that if put a ‘smart’ guy in charge, and if he tries to ‘good’ things with ‘good’ advisors, we should abrogate our personal freedoms to them. Let’s disempower ourselves and let them tell them who we should trade with, at what price, what types of contracts can be consummated between borrowers and lenders, and a billion other things. Let’s allow them to have a go at setting up another Freddie and Fannie, or ethanol subsidies, or mohair wool subsidies, or Bridges to Nowhere, or restrictions on sugar imports, and lots of other stuff. You and I shouldn’t be trusted to make those decisions for ourselves. Senator Obama understands. Let’s put our faith in him.

Forget about economics. Let’s talk about freedom. You will disempower yourself to make your own decisions. And you will elect an official who will point a gun at my head and tell me what decision I now must make. And maybe you, as well. Although you may not realize it yet, because the guy you want to elect is ‘good’, ‘smart’ and ‘decent’, and seems to agree with you at the moment on a number of matters.

So let’s not debate economics. You want to debate freedom instead? It’s a lot easier, since we can start with our Constitution. But we’ll end up truing back to the same principles.

That 10% figure I threw out is not real, per capita growth. It’s real growth, not adjusted for population. Why is that important? I’m glad you asked.

Your per capita figures look about right. You know what that 2%-ish per capita figure represents? It’s worker productivity. Historical evidence shows that America has clipped along at about a 2% per capita productivity level since it’s inception. No other society in the history of mankind can top that.

Your cite’s figures probably underestimate it because they don’t adjust for quality, as is the hot topic amongst many economists these days. In other words, American workers produced about 100 cars 20 years ago, and today they produce about 100*(1+0.02)**20 cars with the same inputs. That’s probably what Angus is measuring. But the cars are of much higher quality, due to hard-to-measure productivity measurements.

But let’s drop that for now. We’ll go off into the weeds again.

You’re debating trivialities when you compare productivity measurements of 1.8 to 1.6 or 2.1 or 1.4 or anything like that. You’re missing the big picture. Trying to debate whether Republicans did this, in this year to produce 1.7% per-capita GDP growth or Democrats did that, in that year to produce 1.9% per-capita GDP growth is arguing about where to place the deck chairs on the Titanic.

The big picture is that there are hundreds of years of real, per-capita improvements in GDP strung together AT ALL. That there aren’t any long negative runs, or a total collapse in the economy in places like the former Soviet Union, or sub-Saharan Africa, with corresponding collapses in life expectancy and major quality-of-life issues. Or basket cases like Latin America. Or slowing dying old geezers like France and Germany and Italy, which struggle continually with high unemployment.

That positive string you cite has kept going, and going, and going despite hundreds of millions of immigrants flooding into our borders, multiple world wars, massive changes in the economy from agriculture to manufacturing to services and a billion other things. Those immigrants wouldn’t have come at all, if the opportunity to knock out of few decades of 2%-ish wasn’t available.

But now, of course, things are terrible. We must now disempower ourselves and toss the keys to self-interested bureaucrats in Washington to tell us what to do, what products to manufacture, who to trade with, what prices to set, and a billion other things. Senator Obama understands. He’ll know what to do.

I ask you, as I have asked the other posters on this Board: Why would you give them that power? Why are you so willing to disempower yourself like that? I don’t understand.

150

And who was able to get off the Titanic and into the life boats? All the rich folk. Those in steerage were screwed.

So too when you hand wave away the issues and say we have had nice and steady growth over the years when looked at as a whole. Unfortunately that growth is not distributed evenly or even remotely evenly.

I think the folks in steerage would love to get on deck and argue where the chairs should go.

151

Right. Class warfare and Socialism. The proletariat against the running-dog, capital imperialist roaders. That’ll create jobs. That’ll protect freedom.

I guess the millions of Mexicans who die of thirst crawling across our deserts, the Chinese stuffing themselves into shipping containers to sneak into San Francisco Bay, and the Uzbeks wandering across the forest borders up in Maine are doing so because they can’t wait to be oppressed by the entrenched, ruling elite. The Scrooge McDucks who go into their basements, scoop up gold coins from large pots and let them jingle-jangle between their fingers to the ground as they cackle with glee.

The prosecution rests it’s case. I was wondering aloud way, way back in the first page of this section whether Obama was a closet Socialist. By reading his economic platform, and by listening to his supporters on the Board, I think I’ve got my answer.

Time to write another check to McCain, McKinney, Bob Barr and whomever else is out there.

152

So, the country has survived and prospered despite immigrants and wars and massive changes but Obama will manage to sink it? :rolleyes:

Republicans are in no way immune to poor economic choices. Bush-I called Reagan’s economic policies “voodoo economics” and he was right. Look what the current Bush’s policies have gotten us.

Obama is provably waaay ahead of McCain on economic knowledge. Obama is arguably surrounding himself with better advisors. Obama has a notable intellectual curiosity that McCain lacks. Obama is just downright smarter than McCain is period.

But you want us to put our faith in the guy who, by his own admission, does not have a clue about economics. A guy who is running for president and making no real effort to teach himself about the economic issues.

Leaving all economic choices solely up to us and keeping the government out of it is a proven recipe for a massive disaster. Robber barons, S&L collapse, sub prime debacle, wild speculation that led to the Great Depression…a smooth and efficient economy requires oversight and regulation. It is like a bunch of kids. Left to themselves you end up with Lord of the Flies. With some oversight and told to stay in the yard and play nice the kids thrive and no amount of them bitching about us restricting their freedom will change our minds on that point.

153

Huh? On noes! I’m a pinko commie bastard! :rolleyes:

Read that quote again in the post you refer to. The RICH did better under democrats than republicans as well as the poor. Under republicans the rich do well and the poor are just screwed. There is no Robin Hood bullshit here. A prospering economy and the poor doing better means more people to buy more stuff which means the rich still get richer. Try to be a billionaire in a country of subsistence level workers and see how many iPods you can sell them.

154

The old trickle down theory of economics is evil by definition. Make it so the wealthy and powerful get a crap load of money and they will eventually do things to lift the poor. Sure they will.
It is now a tinkle down theory. The rich never get enough. They have no problems looting the system for all they can get. They build industries in foreign lands with cheap labor and no regulation. Tell the poor how they should be patriotic and back a system that is going wrong. America is a nation of money changers. Corporate leaders are rewarding themselves with more and more. Wages are dropping. Jobs are disappearing. Are workers to take solace in that?. At least the rich are making out. Too many Americans actually believe they have a chance to get rich and powerful. It is a silly unrealistic dream. The system is set up to lock out the low life interlopers.

155

We can give this one more crack (actually two, since I have two more ideas) if you guys/gals will promise not to immediately short-circuit the debate to

Republicans = Bad. Therefore, vote Obama.

I don’t care about Republicans. I don’t care about Democrats. You will never, ever see me cheerleading for anything Republican. Except you keep jumping right there, and losing me in the debate.

Let’s take Obama and McCain out of it for a little while, and turn down the temperature. And there is enough good data already posted in the previous few pages to make our respective cases, one way or another.

Agreed?

156

The thread is ABOUT Obama and his understanding of the economy (which naturally implies a comparison to McCain and by extension liberal/conservative differences). If you wish to have a debate solely on economic theory by all means start a new thread…I’d almost certainly participate in it.

As for cheerleading…well…not the first time you’ve said this:

157

Agreed.

But first WE have to understand the economy, and understand the respective positions our candidates are taking. We can’t seem to get past first base on that one.

I’ll stop with the check-writing jibes. And the wisecracks about McCain and Palin.

The reason I keep bringing that up is I think Obama/Biden’s Economic Plan is so horrible, and so potentially destructive to our economy and America’s precious freedom, that I must take action in some way as a private citizen.

But I’ll volunteer to stop that all of that for now. And forget about McCain, Obama, Democrats, Republicans, even the election for awhile. Then we can come back to it and bring it up again, as we make closing remarks.

Any interest? Agree? Disagree?

158

Translation: you are blowing smoke.

How did I imply that?

::Skips empty rhetoric::

Translation: You made up the 10% figure.

Just to be clear: productivity improvements would be captured in a real per capita growth figure. Population growth would not be so reflected. But US population has never grown at ~8% per year.

And I was trying to convey relative growth figures. The golden age was after WWII, when as it happens, anti-trust and other forms of regulation were at their peak. Admittedly, a lot of other programs were introduced in the 1970s. But we can see that the 1973-1998 era had much better growth than the early 1900s.

159

Excellent! Thank you for the response. We’re off and running.

I’m looking for immigration and labor force growth stats now. Struggling a bit with Googling “US Labor Force Immigration”, etc.

If you have some good cites or links, please shoot them my way.

160

Er - I’m not sure what exactly you’re looking up and why.

But a good general source of statistics is here:
http://www.census.gov/compendia/statab/

You might also be interested in the Bureau of Labor Statistics:

Pre-WWII measures of the economy tend to be scarcer and less reliable, btw.

GDP figures come from the Bureau of Economic Analysis:
www.bea.gov