What term would he prefer?
What exactly is a “nonexperimental system-science”?
Well, there are some economists who want to replace GDP as a measure of economic performance with the Index of Sustainable Economic Welfare or the Genuine Progress Indicator. But it’s mainly a matter of moving to the “red” side of the ledger certain things GDP assigns to the “black” or ignores entirely – all of them definitely quantifiable factors. Even these “welfare economists” and “green economists” don’t suggest estimating an economic measure for more abstract “things that human beings generally value.”
Which, for a layman, would be a much more effective method than trying to wade through the latest peer-reviewed literature.
:dubious: What, you mean, not in those exact words?
The idea expressed in the Laffer curve is that there is an optimal revenue-maximizing tax rate – one presumed (but never demonstrated) to be lower than the rates in effect in 1980. Which is the same as saying “A tax cut will pay for itself, and more!”
But I’m doing nothing of the sort. I’m not arguing that economists are right or wrong about anything, and not relying on anyone’s holding a Ph.D. in economics to support any contention I am making.
What I AM saying is that “I do not believe the proponderance of expert opinion in a particular field of study -in fact, I will reflexively assume the opposite - because of what I saw on TV” is just a silly position to hold.
If ITR Champion wants to make an argument on the subject of economics he’s welcome to do so; I’ll honestly weigh the logic and evidence he brings to the table no matter what his background is.
No, what Laffer and those who subscribed to his theories were sayng was that a cut in the marginal income tax rates would likely pay for itself. It’s not the same as saying any tax cut will pay for itself.
Perhaps I wasn’t being clear. I was truly asking if ITR had read much in the way of economic literature. I wasn’t talking about text books but merely books written by economists (whether they be liberal or conservative) intended for the general public. And I wasn’t trying to be a smart ass. I was truly curious if ITR had read anything on the topic before he was commenting since his views could easily be dispelled with even a cursory attempt to acquaint oneself with the basics of economic theory. His views reflected such a profound ignorance of basic economics that I was inquiring exactly how he came to those views.
Ownership of something by the government is not the same as a 100% tax rate. A 100% tax rate is when the government says that I can own something, but 100% of the money I make goes to it. Do you really think that under such a system the government would receive any revenue?
Let’s see any evidence that Giuliani, Reagan, or whatever Republican Presidential candidate you want has claimed that every tax cut will pay for itself. Yes, they say that certain tax cuts will provide more revenue than is provided by a higher tax rate, but I know of no one that says “cut every tax and no matter what the government will receive more revenue.” Supply side theory says only that at certain levels and for certain taxes, decreasing the rate of those taxes wll increase, not decrease, revenue for the government.
Even John Maynard Keynes recognized this common sense idea: “taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction in taxation will run a better chance than an increase of balancing the budget.”
You might be interested in actually seeing what a supply-side economist has to say on the Laffer Curve instead of regurgitating superficial analyses of it by folks in the media who have no idea about what they are saying.
I highly recommend Economics Explained, by Lester Thurow and Robert Heilbroner.
That does indeed look interesting. Perhaps I should pick up a used copy. Of course, I enjoy Free to Choose as well as Economics in One Lesson.
Brainglutton: "What term would he [Bruce Bartlett] prefer [instead of “Supply Side economics]”?
I don’t think he wants any term at all: perhaps he wants to declare victory and get out. Here’s the article.
Bartlett maintains that the original supply siders were calling for a particular tax cut during a particular period of time. I regard that as high historical revisionism. Be that as it may, he’s a little tired of the economic inanity:
** Brainglutton**: "What exactly is a “nonexperimental system-science”?
Keeping in mind that I don’t necessarily agree with the person who maintained that macroeconomics is a NESS, I’ll try to remember his argument.
Nonexperimental: Macroeconomists cannot conduct controlled experiments. Neither can most meterologists or astronomers.
System: The macroeconomy is a system (modeled with simultanious equations, as it happens). That is similar to meterology.
Science: I don’t recall what my acquaintance meant by that. But perhaps one might say, “An empirically-grounded discipline that tests hypotheses, in contrast to history, story-telling or literary criticism, for example.” (There’s nothing wrong with history, btw – or story-telling. But most of those endeavors are not science, though perhaps they have scientific components or offshoots.)
Those indeed are separate arguments.
The first is empirically empty: there is no evidence that tax cuts in 1977 would boost revenue relative to what it would have been. And indeed, the Reagan tax cuts falsified that hypothesis: the only way you can argue otherwise is by ignoring inflation and population growth. Yes, we are in the land of the cranks now.
That’s a distinction without a difference. There were no residual claimants within the Soviet system, yet their 100% profit take did not result in zero production.
In practice though, a 100% tax rate would likely result in massive tax planning, evasion and possibly bribery. But would it lead to zero revenue? That is unlikely: what it would lead to would be underreporting or repression of high-taxed income.
Bruce Bartlett, the architect of Kemp-Roth, believes that they are saying exactly that. See my above quote.
All this aside… Renob: Would you say that it’s a problem if Republican Party orthodoxy is grounded on crank-economics? As an aside, I’ll note that Milton Friedman, while he was very conservative, never engaged in supply-side crankery. There are serious conservative economists. Neither Laffer nor Wanniski are among their number.
Well, at least that’s empirical to an extent; much better, at any rate, than treating economics as an “axiomatic-deductive science.”
No, it’s a distinction with a difference. If the government owns something, it obtains 100% of the revenue from it. There is an incentive to make that business productive. If the government says, instead, that I have to pay 100% of the profits on the business I own to the government, that’s an incentive for me to do absolutely nothing.
Perhaps Bush said something of that sort. He’s said a lot of stupid stuff but I’d like to actually see some context of that statement.
I don’t think that the GOP supports tax cuts because of the Laffer Curve or because they think that somehow tax cuts will produce more revenue. The GOP supports tax cuts, in my view, because they think that the people who earn money should be able to keep more of it. They are not in favor of cutting taxes to increase government revenue. They are in favor of cutting taxes to return more of the money to the people who earn it. Yes, they may use supply-side ideas as part of their justification of tax cuts at certain times, but I don’t think supply side notions are at the heart of their rationale behind cutting taxes.
If you read anything by Wanniski, you know that his whole philosophy is that cutting marginal tax rates and rates on wealth creation will create a large increase in government revenue in order to fund social programs. He wants the government to have more money to, essentially, buy off liberals while at the same time rewarding those who create wealth. Wanniski thinks that an increase in government spending is essential. His views are certainly not within the mainstream of GOP economic thought, even though the Bush Administration has both cut taxes and increased spending.
Not the kind of spending increases Wanniski had in mind, I’m sure.
Since under Bush spending has increased in pretty much every area (including for “liberal” things like education and health care) I think that there is probably some overlap. Having read some of Wanniski’s stuff, though, it doesn’t seem Bush was following the traditional supply-side playbook.
Renob:
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The point remains. In the extreme hypothetical where the government mandates a 100% tax rate, revenue would not be zero. (Nonetheless, the Laffer curve would probably be relevant at such an extreme.)
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Bartlett quoted Bush, McCain and Forbes.
------------ Renob: “Yes, they [Republicans] may use supply-side ideas as part of their justification of tax cuts at certain times, but I don’t think supply side notions are at the heart of their rationale behind cutting taxes.”
That’s an unsubstantiated opinion about politics. Here’s mine (also unsubstantiated). The Republican party is a coalition of the very-rich – who provide campaign funding, businessmen and evangelicals, who bring votes.
The Republican donor class likes having its taxes cut. Republicans have embraced this form of crankery because it is politically convenient.
Renob: “The GOP supports tax cuts, in my view, because they think that the people who earn money should be able to keep more of it.”
No, because that would justify a flat tax-cut: Republican revenue-loss/budget deficit plans are invariably tilted towards higher income groups. Sorry, but that contention is not consistent with observed Republican behavior.
It also ignores budget deficits and the burden they place on future taxpayers altogether.
Renob: “His [Wanninski’s] views are certainly not within the mainstream of GOP economic thought, even though the Bush Administration has both cut taxes and increased spending.”
Ok, we both agree that Wanninski’s views are wholly consistent with Republican behavior. The conservative author, commentator and publisher of classified secrets Robert Novak believes that they are central to Republican thought: “It is no exaggeration to say that the recent history of the United States would have been far different were it not for Jude Wanniski.” This is not surprising, since Wanniski is a mere populizer of the Laffer Curve as an empirically relevant construct – and the economic “magic” of tax cutting is repeatedly invoked by all manner of modern conservative.
Ok, but note that I said “Macroeconomics” and did not refer to the broader discipline.
Personally, I think that economics is what (serious, peer-reviewed) economists do. This definition isn’t especially informative, but it is a decent place to start.
Permit me to quote Paul Krugman from Peddling Prosperity (1994).
Indentation added.
Of course it’s crankery to say that all tax cuts increase tax revenue. But it’s also crankery to say that all tax increases increase revenue. And there are plenty of people on the left who have never seen a tax increase they didn’t like.
The truth, as usual, is somewhere in between. Tax cuts generally don’t cost as much as liberals say they’ll cost, and tax increases generally don’t pull in as much revenue as liberals say they will. But tax cuts generally cost more in revenue than conservatives say they will.
The luxury tax is a good example. Democrats wanted a luxury tax, and had all sorts of estimates for how much revenue it would bring in. Republicans said it would just destroy the industries that had the tax applied. Republicans were closer to the truth than the Democrats were, and the tax was eventually repealed, but not before it did lot of damage to the luxury car, general aviation, and boatbuilding industries.
No, Sam. Sorry, but no.
To say that all tax increases in the US increase revenue, relative to what it would have been is a fair empirical approximation in the US.
In contrast, there has never been any decent, peer-reviewed, empirical evidence that the US was ever on the wrong side of the Laffer curve. Never. Serious conservative economists don’t make this argument, because it implies parameter values that are indefensible. They will call for tax cuts – and indeed there were some rather defensible arguments for cutting taxes in 1960 and even in 1977. But none of those involve the Laffer Curve.
There is no symmetry here. None. Your luxury tax example is a red herring: it draws attention away from the central claims.