Jared Bernstein on the economic effects of tax cuts

(In Salon.) Apparently there aren’t any.

He has charts.

I suppose the supply-siders will be around to argue some sort of “God of the Gaps,” but surely economic policy should be based on actual perceptible effects, not dubious possible ontologies.

Crap, I started using big words again, now the Austrians will get insulted.

OK, give it five posts before taking it to the Pit, Tom.


I like that word, sums things up pretty well. A right wing blogger could just as easily take all the same data, adjust it for something like debt, and get the exact opposite results.

The first economic simulator was based on water flow in a series of tubes. Sucking more water out of one point just causes it to suck from its surroundings (and then those sucking from theirs) so that it all balances out again.

Making the economy not act like that takes some finesse.

Easy. The REpubs have pushed that concept since Reagan. The results are clear. The Repubs have proven that tax cuts do not result in more jobs.
Jobs are added with increased demand.

And what increases demand?

Higher wages?

People with jobs.

One thing that does not increase demand is people that make $500k per year getting to keep and extra $10k to invest in corporations that are doing the majority of their investment overseas.

But it is conceivable that if you took that $10k and invested it in education, that it could increase demand.

Okay, sounds good. How would you like to get higher wages and more jobs?

So what do you propose? Banning overseas investments? Making sure people making more than $500k can’t invest? How much do we have to take to keep them from investing overseas?

How do you figure? Are Americans currently uneducated?

Well, let’s see. How about we invest in in educaton and infrastructure so that businesses are attracted to the US and have a large highly educated workforce.

Don’t be ridiculous, I am all for overseas investment. But all this garbage about cutting the top marginal tax rates increasing investment in American business and leading to more jobs is garbage. Growth here is pretty flat, and most companies are doing the majority of investment overseas. The rate that China and India are pumping out engineers and high tech workers is almost an order of magnitude higher than what we are doing here in the states when you take into account how many of our college graduates are foreigners. Yet claiming that having the lowest top rate in about 60 years is still too high is bullshit.

I read a report a couple of months ago that examine the effects of TABOR in Colorado (Tax Payer Bill of Rights - passed in 1992). This was touted as a way to increase growth as the lower taxes would attract businesses. It actually worked, for ~3 years economic growth in Colorado was greatly increased. Since then, however, Colorado’s growth has been anemic, below the national average. Experts posit this is due to the lack on investment in infrastructure in Colorado and the poor state of Colorado’s schools. I’ll see if I can find the report.

Are you claiming that having a better educated populace would not help employment or job creation?

You claimed that we need to invest more in education in order to increase demand (and wages). Does the US currently have an uneducated workforce?

The term “education” is rather broad and vague, would you like to narrow it down?

If was your comment: “But it is conceivable that if you took that $10k and invested it in education, that it could increase demand.”

I claimed nothing, simply asked how you get from investing $10k in education to increased demand. To me that suggests the US is currently suffering from an uneducated workforce, is it?

The point is not that wealthy people investing is harmful to the economy; the point is that letting them have more money so that they invest more (especially, but not only, if that investment is overseas) is not (by itself, anyway) nearly as helpful to the economy as Conservative economists usually make it out to be. After all, if there is no demand, investing is useless (and unprofitable even for the investors themselves, which is probably why they tend to invest overseas when the home economy is weak).

Citing the advantages of further education does not necessarily imply a lack of education, simply that in this instance, more is better. If I say I would be better off with an extra hundred thousand dollars, that doesn’t imply that I am poor. Similarly, if I suggest more education for our citizens would be an improvement, that does not mean they are “uneducated”, simply that more education would be an improvement.

This will likely go better if you question things that are actually said, rather than making up positions no one is offering.

It would go even better if you let people defend their own statements that they actually made. Such as if YOU were to stay L. G. Butts, Ph.D would be better off with an extra $10k, I might ask, “do you think he’s poor?”

Because what you did by jumping in contradicts L. G. Butts, Ph.D.'s position, namely that people with $500k aren’t better off with the extra $10k, but that “education” is better off.

The statement was made, and now needs to be defended. Once again in case you missed it:
“But it is conceivable that if you took that $10k [from a person making $500k] and invested it in education, that it could increase demand.”

I don’t know what crawled up your ass, emacknight, but let’s just go through this thread one more time, shall we:

foolsguinea links to some blog post that I didn’t even read that has graphs that purportedly show there is no correlation between high tax rates and GDP growth or employment. gonzomax states that this shows that the Republican party has now proven that lower taxes do not create jobs, then he posits that demand creates jobs. This is the start of our interaction:

You ask a simple question, I give you my opinion, specifically that employed people create demand because they have disposable income to spend on goods and services. I implied that I also agreed with gonzomax; that lowering taxes on the upper quintile is not going to increase demand because they will invest the money saved on their taxes (it is what I do). I then stated the the reason this will not stimulate demand is that most economic growth is happening overseas and this is where the majority of investments are going these days (this is where the majority of my investment lies). This will not increase demand here.

I then also said that one way you might (this is what coneivable means, if this is what you were confused about) increase demand is by instead investing money in education here in the US; this might spur job growth and entrepreneurship. In case you did not know it, education correlates with strong employment, higher wages, and starting businesses these days.

If you didn’t notice, I said investing in education might (again, this is what conceivably means) do these things.

What the hell are you talking about? I never implied or proposed any such thing. Personally, I don’t make 500 per year (I am not Rand Rover), but I am firmly in the upper quintile and I like investing overseas. In the last decade, I have gotten more return on my foreign investments than the investments here. Of the US companies I have invested in, the ones that have given me a good return are companies that are investing in growing business in China. This is just a fact.

So no, I don’t think we should stop wealthy people from investing, and no, I don’t think we should ban overseas investment. In fact, I think we should encourage it. But that is not really germane to the conversation, is it? This GD is about tax policy and increasing employments rates and thus demand. I don’t think that having the lowest top marginal tax rate in the last 60 years is doing much to spur demand, but investing in education might conceivably do it. Got it?

Did I imply this above? No. Well, I don’t think they are uneducated, but I do think we are losing ground. When I received my MS in EE, more than 75% of my fellow graduates were from other countries. The majority of these people were from China, Korea and India. Of the few that I questioned, they wanted to stay here in the states, maybe start businesses, but the majority could not due to our current immigration policies and thus they were going to go home and start businesses there. Well and good, I would do the same thing in their place.

But again, this is not really germane (that means related, if you are confused) to this conversation. I am stating that education just might spur job growth as educated workers are more in demand in today’s economy and that educated individuals are more likely to create businesses. Do you disagree?

See, I said it again. I think we have already covered this, but if you are confused what I am saying, we can go over it again.

What part of the above do you not understand?

I never claimed we NEED to invest more in education, you asked me how we might increase employment and I answered that education might do this. I never said anything about the US suffering from any fucking thing except maybe your inability to understand what I type.

I don’t even understand what you are saying here. Why the fuck are you putting words into my mouth. I never said that people with 500 k would not be better off with an extra 10 k, but that “education” would be. Of course people with 500k would be better off with an extra 10 k. I said that them having another 10 k would not increase demand. One more time: you asked how to stimulate demand. I said more employed people would stimulate demand (I agree that higher wages would also help). You asked how we can make more jobs and higher wages. I said that investing in education and infrastructure could potentially (I am using this as a synonym for conceivably - sorry, this is another word that means might) create jobs and increase wages, which again could increase demand. I don’t know what the fuck your problem is, but try to understand what my argument is, not what you think it is.

Keep in mind, this thread is about tax policy, and more specifically *changes * to the top tax rate.

You have made the assertion that we *might *increase demand if we increased the top tax rate, and used that money for education. Which sounds good in theory, but leads to a lot of unanswered questions.

If we are going to take money from the rich, and dump it in education, shouldn’t we at least examine what the current state of education is? This isn’t sub-Sarahin Africa, the US has close to the most educated population on Earth. You think we need to make it more educated by spending more money on it.

You said the US is lagging, who is it lagging behind, and how much are they spending on education?

What’s too bad is that if you had asked Gonzomax, he’d have shown you stats where higher education isn’t increasing wages. Wages have stagnated even though education levels continue to rise. There was a time when investing in education provided huge gains (see Costa Rica as an example). But it’s entirely possible (see that variation on might and conceivable) that spending another $10k in education won’t provide the returns you’re after.

As an example, let’s say we take that $10k from Mr Rich and provide a scholarship to Mr Poor. Mr Poor was going to engineering school where he would have graduated and earned $50k, now he can get a masters and earn, what? How much more? How much more demand do we get with that $10k?

Mr Rich would have invested that in BRIC and made a nice return, getting taxed heavily on his gains, but also had more disposable income (hence more demand).

It’s not as if people all dropped out of school right before 2008. Decreased demand is a huge problem right now in the US, and the government is going heavily in to debt trying to deal with it. If you think dumping a trillion dollars into education will help, simply explain how. But more importantly explain how this trillion will be different than the money spent pre-2008.

Wrong end of the telescope. The rich guy eats steak, which creates a demand for cows, and corn, and so on and so forth. But, being rich, he is most likely already eating as much steak as he wants, because he can.

The man who picks up his garbage however, not so much. Far less so the guy who used to pick up his garbage, but is laid off. Money transferred to either of these is more “disposable”, in that it is more likely to be spent on steak. Or tofu, whatever.

Point being, we don’t have an truly oligarchical economy, where the rich have it all and the rest of us suck it. We have a consumer economy, which will not function, at all, not the least little bit, if the consumers have no money to spend. It stops. And if it stops, it withers.

Hence, it is necessary to create some device to move that money about. Yes, to redistribute the wealth. Even the Free Market, blessings and piss be upon it, cannot accomplish the end, there must be a substantial artificial incursion from government. We need not pick the rich up by the ankles and shake them midair until all their money drops out. An entertaining notion, to be sure, but sadly impractical. Taxes have a time honored tradition of usefulness when it comes to redistribution, as someone on the conservative wing of the extreme left, I favor such old-fashioned, tried and true approaches.

Tax the rich, and spend the money on whatever method seems most likely to disperse it in the widest possible fashion. Myself, I favor infrastructure and green energy spending, but it is certainly conceivable that other approaches deserve consideration. The function is far more important than the ideology, pull the car out of the ditch, and we can talk about which direction to drive in later.

Actual paper about this topic instead of this poor blog post cited by foolsguinea: http://www.ecb.int/pub/pdf/scpwps/ecbwp1174.pdf : “We therefore conclude that there rarely is a free lunch due to tax cuts. However, a substantial fraction of the lunch will be paid for by the efficiency gains in the economy due to tax cuts.”

So wrong it’s hard to comprehend. The US is not better than 25th in math, somewhere between 12th and 23rd in reading, and between 20th and 27th in science.

You should read these articles before you post them. His conclusion is tax increases could derail growth, and your conclusion is growth and taxes have nothing to do with each other. But I guess if you could comprehend the point of economic research you would be a conservative.
Even with that conclusion the research he cites is poor. It does not target times like this when spending cuts or tax increases are being pondered to cut deficits. An economist has studied what happened to economies in like circumstances. His studied 107 different instances where OECD countries made fiscal adjustments to shrink deficits and his conclusion:

You can read the rest herehttp://online.wsj.com/article/SB10001424052748704271804575405311447498820.html

“Among 15-Year-Olds”

Is that where we’re trying to increase demand? Is there a shortage of 16 year old entrepreneurs?

The two questions that need to be answered when considering the use of progressive taxes to fund education in order to increase demand are:

  1. Will *increased *education actually increase wages?
  2. Have education levels *changed *over the past 10 years?

We’ve seen wages stagnate over the past 10 years, and although I’ve been told it’s because the rich are getting richer, the proposal put forward says that education is to blame.