# For Krugman followers: How much debt would be acceptable?

**URL:** <https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106>\
**Category:** Great Debates\
**Created:** [August 1, 2011, 11:10pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106 "2011-08-01T23:10:01Z")\
**Posts on this page:** 20\
**Page:** 8

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**Author:** ![Dick\_Dastardly](https://avatars.discourse-cdn.com/v4/letter/d/c4cdca/32.png) [@Dick\_Dastardly](https://boards.straightdope.com/u/Dick_Dastardly)\
**Post date:** [August 10, 2011, 5:29pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/141 "2011-08-10T17:29:03Z")

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> [@Sam\_Stone](#):
>
> 1. Actually, there’s plenty of evidence of crowding out. One of the papers I cited from last year found that states that had the biggest injections of stimulus spending also had the largest subsequent drops in private sector business investment. Another paper I’ve already linked to found that the stimulus created jobs in the public sector, but destroyed them in the private sector.
> 
> 2.Oh, come on. Half the stuff he says, from his ‘spread the wealth around’ comment to Joe the Plumber during the campaign, to his comment that some people ‘have made enough money’, to his constant refrain that the rich aren’t pulling their weight, to his demagoguing the issue of corporate jets (which caused an instant fall in orders to Cessna and other American light aircraft manufacturers) has spooked businessmen.
> 
> [Kansas politicians, business leaders, aviation workers protest Obama’s comments on business jets](http://www.kansas.com/2011/07/20/1940726/politicians-business-leaders-aviation.html)
> 
> [NBAA Blasts Obama’s Comments on Business Aviation](http://www.amtonline.com/article/article.jsp?siteSection=1&id=13942)
> 
> 3.Really?
> 
> [Chamber of Commerce Reveals Small Business Uncertainty](http://www.portfolio.com/business-news/2011/05/04/chamber-of-commerce-reveals-small-business-uncertainty/)
> 
> But hey, what do they know? They’re only the people who own the businesses. I’m sure the Professor in Washington knows much more about what they need, right?
> 
> 4.No, you don’t understand. I could find the time, but _I don’t care_. I don’t care if YOU have been inconsistent in the past, because I’m not interested in ad-hominem attacks. Every time you go digging through 12 years of archives to post a ‘gotcha’ about ME, you make the debate personal. You attack the person instead of the substance of what the person is saying. That means you lose. It’s a hijack of the thread, it wastes everyone’s time, and it’s not relevant. I could be the biggest opinion-changing prevaricator on the planet, and it wouldn’t matter to whatever argument I happen to be making at any given time.
> 
> You seem to be fine with turning Great Debates into your personal white whale and wasting everyone’s time with personal attacks. I find that extremely tedious, which is why I ignore most things you have to say. And I’m damned sure not going to adopt your loathsome tactics.
> 
> Funny, but I suspect most people don’t find it all that amusing, given that it’s a constant distraction from the debates people are trying to have.

1.The crowding out theory is all about interest rates matey, unless of course you’re making up a new definition of what crowding out means. Your previous definition, up there in black and white, was all about interest rate rises due to government borrowing. So will you admit that the generally accepted version of the crowding out theory, the one where government borrowing forces up interest rates, the definition you were using a year or so ago, hasn’t actually happened?

1. Asked to provide evidence of Obama’s routing bashing of small businessmen, you provide something he said to somebody about wealth distribution and a something Obama said about corporate jets. 96% of small businesses make less than $250k, the amount Obama was telling Joe he’d increase marginal taxes on. And how many people earning less than 250 can afford a jet exactly? I’ll leave people reading to decide for themselves whether this qualifies as routine bashing of small businessmen.

2. The Chamber of Commerce is a GOP lobbying organisation. Here’s an actual survey that shows demand being clearly the number one issue for small businesses L:

[http://modeledbehavior.com/2010/09/17/sales-vs-labor-quality/](http://modeledbehavior.com/2010/09/17/sales-vs-labor-quality/)

Here’s a Wall Street Journal survey saying the same thing :

[http://online.wsj.com/article\_email/SB10001424052702303661904576452181063763332-lMyQjAxMTAxMDEwODExNDgyWj.html](http://online.wsj.com/article_email/SB10001424052702303661904576452181063763332-lMyQjAxMTAxMDEwODExNDgyWj.html)  
Here’s an investment manager saying the same thing :

> **[QOTD: Paul Kasriel Selective Uncertainty - The Big Picture](https://ritholtz.com/2011/07/qotd-paul-kasriel-selective-uncertainty/)**
>
> Northern Trust’s Paul Kasriel lays into one of the  more nonsensical shibboleths making the rounds these days — that U.S. businesses’ seem to have discovered “Selective Uncertainty:” “I keep hearing that what is holding U.S. businesses back from...

Investment has actually held up quite well despite the recession, like the investment guy points out.

1. Taking issue with every single incorrect or misleading thing you post on this board would literally be a full time job. I only pick out some of the most egregious things and when I do you answer maybe half the time. If you see that as attacking you then fair enough.

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**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\
**Post date:** [August 10, 2011, 5:59pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/142 "2011-08-10T17:59:00Z")

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What is clear is that the Republican trickle down economics system does not work. Putting money in the hands of the wealthy, shows they will keep it. Poor people think that if I owned a company and got a tax break, i would expand and make my company bigger. But without demand, that would just waste money.  
Putting the money into worker hands, through infrastructure rebuilding, would actually increase demand. Then the business heads would have a reason to expand. Because poorer people spend their money on survival and buying things, it actually stimulates the economy. Putting people to work, increases tax revenue. It is beneficial for the deficits.  
On the other hand, cutting and cutting will have disastrous results. It will be a deadening of demand. The weak economy will have nothing to push it forward. As the poor get booted out of welfare and unemployment ends, the demand created by those programs will dry up too.  
What kind of future economy can you expect if the Repubs and baggers get their way? It will not be pretty. But those on top will not suffer from their policies. They are insulated.

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**Author:** ![furt](https://avatars.discourse-cdn.com/v4/letter/f/439d5e/32.png) [@furt](https://boards.straightdope.com/u/furt)\
**Post date:** [August 10, 2011, 7:47pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/143 "2011-08-10T19:47:40Z")

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> [@foolsguinea](#):
>
> How do we judge “too large” or “too small”? If it’s just gross numbers, why should I think the government too big & not consider Ross Perot’s personal fortune too big? The rhetoric that wants to reduce government just because it’s so vast & controls so much wealth, with a bit of evolution, could turn into leveling & make as much sense.

It’s none of my business how much money Ross Perot, or anyone else including you, has. Zilch, zero, nada. (Provided they came by it in accordance with law) It is all of our business how much the government takes, because we run the government.

> [@](#):
>
> On the other hand, if we actually studied government departments, & judged how effectively they achieve their missions, we might find that some are too small to be effective. Would you accept (hypothetical numbers) raising non-defense discretionary spending by 11% of GDP while cutting Medicare by 2.5% of GDP & defense by 3% of GDP, losing votes all the way? Most politicians won’t. But that’s the sort of decision that comes from trying to make government effective at protecting the country & punishing wrongdoers, rather than just pandering and winning elections.

Sure – I can readily agree that some specific programs are underfunded. And so can most people, which is why lots of programs get increased funding, and lots of new programs are created every year. I can also name several that should be cut or just eliminated entirely … but that almost never happens.

The increasing spending in your hypothetical is, generally, not politically dangerous. The cutting spending is politically deadly. Ergo, one happens and the other doesn’t.

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**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\
**Post date:** [August 11, 2011, 3:14am UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/144 "2011-08-11T03:14:25Z")

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The repubs and baggers say cut . How will that effect demand? They want to cut spending while the private sector has already slashed like crazy. What is the future of employment? What is the future for America when we cut when we should not? They are advocating a financial death spiral. Less jobs, less taxes, bigger debt, not a good plan. But simple folk who can not conceive that we need to create jobs are easily fooled. We are screwed.

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**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\
**Post date:** [August 11, 2011, 7:15pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/145 "2011-08-11T19:15:37Z")

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> [@furt](#):
>
> No. For one, even if you erase the Iraq, Afghanistan and Lybia deployments and move tax rates (all of them, even the ones Obama wants to keep down) back to where they were under Clinton, we are still running a large and growing deficit.

In a normal economy, you would be wrong. Ina recession we can’t get there short of drastic cuts to medicare. We could literally get rid of ALL government besides medicare/medicaid, social security and interest on the national debt and still have a deficit based on the taxes we collect today.

> [@](#):
>
> For two, I take it as a given at this point that over any significant period of time there will be more “unexpected crises.” Iraq is ending, but in 2017 it’ll be Iran, or Egypt in 2019, or Congo 2021, or some other place where we decide they need Marines. Or just as we “had to” bail out a series of mortgage, financial and automotive companies, in 2015 we’ll find out that that it’s vital we bail out IBM or Disney. Or California and Illinois. The point is, once you set the precedent that every problem can and will be fixed courtesy of the US taxpayer, those problems keep appearing. And of course a recession every 10 years or so is pretty much a given, and thus ought to be incorporated into our planning … but never is.

Yeah but this isn’t just any crisis we are encountering right now.

> [@](#):
>
> For three, saying “our problem is the lack of revenue” seems to assume that somehow we can/should just keep raising taxes until we get enough to pay for all the stuff we want to spend on. Since the last time we were balanced (2000), our revenue has gone up ~20% … but our spending has doubled.

You sure about that? [http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=203](http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=203)

Our revenue as a percentage of GDP has gone down.

> [@](#):
>
> So, yeah, I guess you can say the problem is revenue, if you’re of the opinion that the federal government under Clinton was just way too small.

Tax revenue just about DOUBLED under Clinton and the economy didn’t seem to be hobbled. Is the argumetn taht the economy would have been MUCH MUCH better if Clinton hadn’t raised taxes or had cut taxes?

Spending went up as much under Reagan as it did under Clinton. And yet Reagan left us with historically high debts and deficits while Clinton left us with a surplus. How do you think he managed that?

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**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\
**Post date:** [August 11, 2011, 7:28pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/146 "2011-08-11T19:28:56Z")

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> [@furt](#):
>
> WWII is not a useful comparison; everyone understood that as soon as the war ended, government spending would be slashed and the deficit eliminated; and by 1950, the budget was indeed cut in half and the deficit gone (Despite fears that doing so would bring back the depression). Nobody is suggesting similar cuts anytime in the forseeable future.
> 
> The UK’s story is similar: their debt spiked during wars vs. Napoleon and Hitler, and they ran surpluses during peacetime to pay it back.
> 
> Those were temporary deficits to cover crises. Our current deficit is structural: even assuming no new wars, bailouts, etc., and even if growth is solid and healthy, there are still deficits projected out as far as the eye can see.

The same understanding applies to stimulus spending which automatically disappears. We also raised the hell out of taxes to close that WWII deficit we were collecting 5 times as much in taxes in 1945 compared to 1941.

The projections are bad for two main reasons. The deficit contributes to further debt which contributes to more interest which continues to increase the deficit. We can balance the budget by winding down teh wars, increasing taxes and getting back to a normal economy. But the deficit would come back because of health care costs.

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**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\
**Post date:** [August 11, 2011, 7:31pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/147 "2011-08-11T19:31:58Z")

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> [@Fotheringay-Phipps](#):
>
> Cute, as always. But the fact is that Krugman’s Nobel is in international trade, which is less of a political hot button for him. He is a passionate liberal politically, and people’s political passions can sometimes get in the way of rational analysis, even when they are Nobel Prize winners.
> 
> From the [farewell column](http://www.nytimes.com/2005/05/22/weekinreview/22okrent.html) by the former NYT ombudsman:

Sure, his groundbreaking stuff was in international trade but he’s STILL a nobel prize winning economist. Economics is not so specialized that he could be an accomplished economist on international trade and be an idiot on the basics.

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**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\
**Post date:** [August 11, 2011, 7:41pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/148 "2011-08-11T19:41:01Z")

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> [@Sam\_Stone](#):
>
> Really? Not taxing the people enough caused a crash? That’s a…novel idea. It’s also hard to reconcile with the uncomfortable fact that just before the crash U.S. taxes as a percentage of GDP were well above the historical average. Kinda blows your thesis out of the water.
> 
> Tax receipts NOW are at 60-year lows, but that’s because of multiple tax cuts as a ‘stimulus’ signed since 2008, coupled with a huge loss in revenue due to the steepest recession in 60 years coupled with an over-reliance on the taxes of the wealthiest Americans, who generally have the greatest ability to avoid taxes in a downturn due to capital losses.
> 
> But just before the recession hit, tax revenues were above the historical average and rising. And right now, the White House is projecting that tax revenues will rise back to pre-recession levels and beyond by 2015 due to economic recovery. Of course, I don’t think that’s likely, but that’s what the Obama administration thinks.

I don’t think you can say low taxes caused the crash but low taxes did exacerbate teh debt and deficit problem.

The wealthiest cannot shelter ordinary income with capital losses (other than about $3000/year), they can only chelter captial gain with capital losses.

And I don’t see how you can say that taxes were well above the historical average unless you are going back to pre-WWII.

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**Author:** ![Great\_Antibob](https://avatars.discourse-cdn.com/v4/letter/g/e47c2d/32.png) [@Great\_Antibob](https://boards.straightdope.com/u/Great_Antibob)\
**Post date:** [August 11, 2011, 7:55pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/149 "2011-08-11T19:55:09Z")

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> [@Damuri\_Ajashi](#):
>
> And I don’t see how you can say that taxes were well above the historical average unless you are going back to pre-WWII.

In terms of [% of GDP](http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200), he’s right. Tax revenues are at 60 year lows in terms of %.

In terms of historically high tax revenues as a percentage of GDP before the downturn, he’s absolutely wrong. Unless, that is, he’s switching to tax revenue in absolute dollar terms, but switching between the two doesn’t make any sense. The same link above also shows this.

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**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\
**Post date:** [August 11, 2011, 8:03pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/150 "2011-08-11T20:03:43Z")

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> [@Der\_Trihs](#):
>
> Hardly, it’s just one that the Right doesn’t like to pretend is possible. Taxes Bad. Plutocracy Good. But the simple fact is that we live in a consumer driven economy, and all the time those consumers have less and less money because it’s all being sucked into the top few percent of the economic elite. And you can’t sustain a healthy national economy on the desires of a few percent of its population. The oh-so-wonderful “job creators” aren’t going to hire anyone until demand for what their corporations make goes up, and demand is becoming progressively more depressed because the rich have most of the money in the country.
> 
> Raise taxes on the rich, put it in the pockets of the normal people. Even better, hire them for all those infrastructure repairs and other problems that the republicans have avoided doing anything about because Government Is Bad unless it is used to hurt and oppress people.

Its not really teh taxes that has caused this. It the hobbling of labor. Capital gets a larger portion of value than it used to so captal compuinds at higher rates while labor stagnates.

The problem with low taxation is that we end up borrowing the money we dont’ collect in taxes and largely from teh same people. So instead of taxing Joe $100 we now tax him $75 and borrow $25 from him.

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**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\
**Post date:** [August 11, 2011, 8:38pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/151 "2011-08-11T20:38:03Z")

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> [@Dr.Strangelove](#):
>
> You are actually arguing against Keynesianism in general, which IMHO is the broken window fallacy writ large, but this has nothing to do with my question. Keynesians believe that when unemployment is high, the government should spend money to employ people. The military employs a lot of people. Therefore, I don’t understand why some Keynesians believe military spending is a net negative.

Keynesian economists don’t generally believe that. One of the main cases for Keynesian economics was WWII. We spent a boatload of money and had little in the way of infrastructure to show for it. We could literally have built all those tanks and driven them into the ocean because under the lend lease program we got paid almost nothing, of course defeating Hitler was more thana pleasant side effect.

You could make the argument that there are better ways to spend money but a full scale land war in Europe is undoubtedly a really fast way to spend money and reach full employment. Sure we could rebuild the nation’s infrastructure but its hard to spend that much money on roads on bridges fast enough (at least safely) to get the stimulative effect we need, we have to burn money a lot faster than that.

Tax cuts are suboptimal because they don’t directly address unemployment and its hard to stimulate the economy with food stamps. Even a broad base tax cut like lowering the social security tax rate only gives people who already have jobs a little more money. Sure its better than nothing but its not going to get people who think the economy is unstable to spend much more, they’ll pay down debt or save, pretty much what all those corporation that are sitting on tons of cash are doing.

Its not as good as opening up factories to build tanks and giving people who are living on the edge enough room to get back on their feet by giving thema job riveting plating onto Humvees.

We can start crisscrossing the nation with natural gas pipeline to reduce the dependence on coal and oil but even that will take too long.

You simply got to get the unemployment rate down by hook or by crook.

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**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\
**Post date:** [August 11, 2011, 9:09pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/152 "2011-08-11T21:09:44Z")

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> [@RickJay](#):
>
> I’m not sure that’s true.
> 
> For one thing, paying soldiers costs a shitload of money. Just eyeballing it I’d guess pay alone, between active and reserve personnel, plus civilian workers in DOD, costs at least $150 billion a year, and I think my guess is low.
> 
> And of course if you want to buy expensive equipment, much of what you’re paying for is the labour needed to make it.
> 
> It is true, however, that military labour is an economic dead end.

Yeah since we stopped the spoil of war system war has become less profitable.

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**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\
**Post date:** [August 11, 2011, 9:24pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/153 "2011-08-11T21:24:13Z")

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> [@wevets](#):
>
> From [David H. Hackworth](http://en.wikipedia.org/wiki/David_Hackworth), certainly not a liberal or leftist of any stripe.
> 
> In his book _Hazardous Duty_, page 326…
> 
> It’s possible the Center for Defense Information is wrong, but this puts some perspective on why Keynesians would prefer stimulus in other forms besides military spending. Even should those jobs in health care not be as well-paying as some in military production, employment for more people allows for a larger increase in aggregate demand for needed goods over luxuries.
> 
> I haven’t read the Center for Defense Information’s work, but it may be interesting and relevant to the way this thread has progressed if anyone wants to check it out.

Yeah but there’s a limit to how much money we can effectively pour into education, transportation and shit like that, there is a much higher limit to how many people we can put in the military. We just need a land war somewhere.

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**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\
**Post date:** [August 11, 2011, 9:32pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/154 "2011-08-11T21:32:06Z")

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> [@elucidator](#):
>
> We have stuff that needs fixing, and stuff that needs building. Which we will have to do, today or tomorrow. It won’t get any cheaper. The economy recovers (from my lips to the Ears). the material we need to buy will cost more.
> 
> So: do it. Borrow the money (which also won’t get any cheaper), buy the stuff, hire the people, and get to it. Baskets full of win. Oh, and it will help our people. Did I mention that? Pretty important.
> 
> Hope is not tangible, nor is it fungible. But its real, and it matters.

Yeah, there is something to be said for doing it while its cheap.

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<div class="post-metadata">

**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\
**Post date:** [August 11, 2011, 9:43pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/155 "2011-08-11T21:43:18Z")

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> [@xtisme](#):
>
> Oh, I don’t think either Obama or I am laboring under the delusion that Republicans are nice. I don’t even discount that they can be/have been/are being stupid…they are all of that.

Obama is operating under the illussion that Republicans are negotiating in good faith and acting in the best interests of the nation.

In fact republicans are so convinced that they have a monopoly on good idea that it is worth any price to the nation to get the reins of power so they can implement their ideas (the RIGHT way this time around). Even if it means a double dip recession, even if it means holding the global economy hostage to their ideology. They are so certain that the fringe theories of Austrian economics are correct (for those that even give a shit about justifying their fiscal positions, they have an almost religious attachment to them) and that the mainstream theories of all the other economists in the world are incorrect that they are willing to beat this planet’s economy within an inch of its life so it can reemerge like the pheonix, powered by the engine of the free market.

> [@](#):
>
> Let me ask this in a different way. If simply hiring all of the people currently unemployed is a sure fire way to spur demand, why doesn’t anyone do it? Oh, we all know that Americans are stupid and greedy, so let’s leave them out of this. Let’s take, oh, say France. They have had unemployment problems for quite a while. Why haven’t they simply hired (or forced their corporations to hire) a large percentage of their unemployed to spur demand and make themselves the economic superpower they feel is their rightful place in the universe? You can’t tell me that it’s the Evil Republicans (or the French equivalent :p) preventing this seemingly simple and fools proof method? Are you? Why hasn’t any other country (with the exception of many communist countries where it didn’t work out so well) tried this? It’s seemingly simple. In a recession? Unemployment high? Well, just hire everyone and this will magically spur demand and set you on the road to recovery and baby seals!
> 
> So…why hasn’t anyone done this?
> 
> -XT

Because it requires huge deficits that can only be reliably recouped through the taxing power.

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**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\
**Post date:** [August 11, 2011, 9:46pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/156 "2011-08-11T21:46:36Z")

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> [@xtisme](#):
>
> If only one or two countries did this, it would by futile?? So…everyone has to do this, and then it would work?

The economy of a country is a bit more self contained than the economy of a company.

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**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\
**Post date:** [August 11, 2011, 9:47pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/157 "2011-08-11T21:47:41Z")

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> [@elucidator](#):
>
> Hoo, boy, early onset Budweiser’s. For whatever reason, where you wrote “country” I read “company”, and read it the same way several times. So I’m firing upon a position not currently occupied. My bad.
> 
> However, if we had been talking about “companies”, I would have been totally right. Just want that noted for the record.

Shit, I read it the same way. Oops.

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**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\
**Post date:** [August 11, 2011, 9:53pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/158 "2011-08-11T21:53:36Z")

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> [@Great\_Antibob](#):
>
> In terms of [% of GDP](http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200), he’s right. Tax revenues are at 60 year lows in terms of %.
> 
> In terms of historically high tax revenues as a percentage of GDP before the downturn, he’s absolutely wrong. Unless, that is, he’s switching to tax revenue in absolute dollar terms, but switching between the two doesn’t make any sense. The same link above also shows this.

I wasn’t disputing that we are at hsitoric lows. Most of that is stimulus tax cuts and the effects of teh recession, I was referring to the notion that tax revenue was at hsitoric highs under the bush tax cuts. Its like he tried to slip in laffer curve bullllshit without explicitly saying that lowering taxes increases tax revenue.

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**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\
**Post date:** [August 11, 2011, 11:09pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/159 "2011-08-11T23:09:26Z")

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> [@Damuri\_Ajashi](#):
>
> I wasn’t disputing that we are at hsitoric lows. Most of that is stimulus tax cuts and the effects of teh recession, I was referring to the notion that tax revenue was at hsitoric highs under the bush tax cuts. Its like he tried to slip in laffer curve bullllshit without explicitly saying that lowering taxes increases tax revenue.

Gah. This is annoying. Tax revenues as a percentage of GDP _for the U.S. as a whole_ were at high or near-high levels just before the recession, as I showed by linking directly to the GPOAccess tables. _Federal_ tax revenue was nearly back to about the historical average. The difference comes from the fact that the stimulative effect of the tax cuts helps revenue at the state level, but the cost of the tax cut was borne by the feds.

Look at AntiBob’s own cite. Here are the federal tax receipts as a percentage of GDP during Bush’s 8 years:

2001: 19.5% \<- Bush tax cut passed: 1.3 trillion dollars. Mostly Keynesian.  
2002: 17.6% \<- 2001 Recession caused 0.3% drop in GDP. 2002 tax cut for business expensing  
2003: 16.2% \<- Bush Tax cut passed. Mostly ‘supply side’ cuts  
2004: 16.1%  
2005: 17.3%  
2006: 18.2%  
2007: 18.5%  
2008: 17.5%

Those are the facts. Now, how much did those tax cuts cost? The problem in determining the exact amounts is that they are intertwined with the effects of a recession, a recovery, and an artificial boom caused by easy money, bad credit, and government stimulus.

The fact is, there was a one-year drop in revenue from 17.6% of GDP to 16.2% of GDP after the 2003 tax cuts were passed (they were retroactive to the start of 2003). I think it’s mostly fair to count this as lost revenue due to cuts, since the economy was growing by then. (notice: no ‘Laffer Curve bullshit’ here). The 2001 cuts are a little harder to separate from the data, since the economy was also in recession and tax receipts were bound to come down somewhat, as they did in 2008. In addition, there was a loss of about a trillion dollars in real wealth due to 9/11, which is hard to factor in.

But notice that tax revenue started coming back up again in 2004, and was back to the level before the 2003 cut by 2005-2006, then went higher back to within 1% of GDP from 2001 levels.

That’s really all we know. Supply-siders say that the first tax cut was a drag on the economy, because it was mostly an attempt at Keynesian stimulus (tax cuts for poor people, a one-time cash payment to everyone to encourage them to spend, income tax rate reductions across the board to encourage private spending). The 2002 and 2003 tax cuts were more heavily weighted towards capital gains, business taxes, accelerated depreciation, and dividends, making them more ‘supply side’ and less ‘demand side’.

If you want to claim that the Bush tax cuts never expanded the economy at all and are purely a drag, while assigning them the blame for the full amount of the revenue reductions when they were implemented, then you’d have to believe that they were responsible for a permanent drop in revenue of 3.4% of GDP, and that’s the number you often hear liberals claim for the current cost of the Bush tax cuts, or even higher.

But if that’s the case, then what you’re also saying is that without the Bush tax cuts, government revenue would have hit 21.9% of GDP in 2007 instead of 18.5%, and there is simply no precedent for that kind of revenue gain in American history. The highest revenue previously recorded was at the peak of the tech boom in 2000, when revenue hit 20.6%. And the economy was a hell of a lot hotter then.

So the reality is somewhere in between. No, I don’t think the Bush tax cuts were free, and I damned sure don’t think that they actually increased government revenue. However, I don’t think they cost as much as a static scoring of their effect would suggest. The real cost is somewhere between what the left claims and what the right claims.

And I’m very tired of the ‘Laffer Curve’ being thrown as an insult whenever someone tries to point out that dynamically scoring tax cuts results in revenue losses somewhat less than a purely static score would assign. This is not even remotely controversial. The Obama administration has used dynamic scoring on its own tax cuts.

The Laffer Curve and its implications are a complex topic that is not served well either by people on the right who assume it means all tax cuts are free or earn more revenue, or by liberals who use it as a joke to dismiss any claims against the positive effects that do occur when taxes are cut. Both extremes are wrong and ignorant.

One last thing: Democrats have a fundamental contradiction here - On the one hand, they assume that the Bush tax cuts did absolutely nothing to stop the recession and had absolutely no positive effects on the economy. On the other hand, they claim that their own tax cuts (and further tax cuts for the lower classes) are necessary stimulus which will help the economy. But the rationale for the 2001 tax cuts was exactly the same. Demand was down due to recession, and the Bush administration responded by adopting Keynesian solutions - increasing government deficit spending, and pouring money onto consumers in the hope that they would spend it. If that failed and was a bad idea, what does that say about stimulus spending now?

Look at this chart of government spending in constant dollars, corrected for population:

[Government spending - Clinton-Bush administrations](http://www.usgovernmentspending.com/downchart_gs.php?year=1992_2008&view=1&expand=&units=d&log=linear&fy=fy12&chart=F0-fed&bar=1&stack=1&size=l&title=US%20Federal%20Spending&state=US&color=c&local=s)

Real spending under Clinton remained almost unchanged for his 8 years in office. Under Bush, it grew like crazy.

Bush’s early policies were Keynesian - increased deficit spending, coupled with tax cuts. Democrats describe these policies as a total failure, but then turn around and claim that the current policies (more deficit spending and tax cuts) are the answer. Confused?

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**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\
**Post date:** [August 12, 2011, 8:56pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/160 "2011-08-12T20:56:05Z")

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> [@Sam\_Stone](#):
>
> Gah. This is annoying.

Ahh, I see what happened, I thought you said that tax revenues as percentage of GDP were at historic highs, you merely said they were above historic averages. Now, I agree that there are all sorts of confounding factors in trying to determine the effects of tax cuts so noone can ever be very certain about anything (certainly not certain enough to hold the global economy hostage over fiscal policy).

> [@](#):
>
> No, I don’t think the Bush tax cuts were free, and I damned sure don’t think that they actually increased government revenue. However, I don’t think they cost as much as a static scoring of their effect would suggest. The real cost is somewhere between what the left claims and what the right claims.
> 
> And I’m very tired of the ‘Laffer Curve’ being thrown as an insult whenever someone tries to point out that dynamically scoring tax cuts results in revenue losses somewhat less than a purely static score would assign. This is not even remotely controversial. The Obama administration has used dynamic scoring on its own tax cuts.

The CBO and OMB uses dynamic scoring as well, the Laffer Curve criticism isn’t that tax cuts reduce economic distortions, the criticism is that at these tax levels the small cuts and increases we are talking about do not have significantly different dynamic scores than static scores and certainly not the sort of differences that supply siders claim. The effect on the revenue and especially the deficit is pronounced.

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