# Obama and the economy: appropriate disapproval? **URL:** \ **Category:** Great Debates\ **Created:** [September 5, 2012, 8:38pm UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790 "2012-09-05T20:38:16Z")\ **Posts on this page:** 20\ **Page:** 4
**Author:** ![KarlGauss](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/karlgauss/32/3713_2.png) [@KarlGauss](https://boards.straightdope.com/u/KarlGauss)\ **Post date:** [September 12, 2012, 12:58am UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/61 "2012-09-12T00:58:11Z")
> [@puddleglum](#): > > What you miss is that fundamental fact of government borrowing, it will eventually have to be paid back. Thus unless the economy starts growing again, tax rates will have to be raised to pay the money back. Higher taxes in the future will depress economic activity and productive investment in the economy. There is no such thing as a free lunch, to spend is to tax, either now or in the future. > [@jshore](#): > > Baloney! There is no evidence whatsoever to support this convoluted viewpoint involving that this sort of far-sighted reasoning. Heck, there isn’t even evidence to support supply-side fantasies in the present, let alone supply side fantasies based on expectations well into the future. Okay, I am definitely not disputing anything. I honestly and simply want to learn: What **puddleglum** said made sense to an economic ignoramus like me. I would be interested to hear the salient counterpoints to his argument. Again, I have no dog in this fight; I am genuinely curious to know and learn. Thanks! ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [September 12, 2012, 1:02am UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/62 "2012-09-12T01:02:20Z")
As an example of what Krugman said, [here](http://www.nytimes.com/2009/01/09/opinion/09krugman.html) is what he said in early January 2009: > [@](#): > > “I don’t believe it’s too late to change course, but it will be if we don’t take dramatic action as soon as possible. If nothing is done, this recession could linger for years.” > > So declared President-elect Barack Obama on Thursday, explaining why the nation needs an extremely aggressive government response to the economic downturn. He’s right. This is the most dangerous economic crisis since the Great Depression, and it could all too easily turn into a prolonged slump. > > But Mr. Obama’s prescription doesn’t live up to his diagnosis. The economic plan he’s offering isn’t as strong as his language about the economic threat. In fact, it falls well short of what’s needed. > > … > And the Obama plan is nowhere near big enough to fill this “output gap.” > > … > > The bottom line is that the Obama plan is unlikely to close more than half of the looming output gap, and could easily end up doing less than a third of the job. And, [here](http://www.nytimes.com/2009/07/10/opinion/10krugman.html) is what he said in early July 2009: > [@](#): > > As soon as the Obama administration-in-waiting announced its stimulus plan — this was before Inauguration Day — some of us worried that the plan would prove inadequate. And we also worried that it might be hard, as a political matter, to come back for another round. > > Unfortunately, those worries have proved justified. The bad employment report for June made it clear that the stimulus was, indeed, too small. But it also damaged the credibility of the administration’s economic stewardship. There’s now a real risk that President Obama will find himself caught in a political-economic trap. > > … > > What Mr. Obama needs to do is level with the American people. He needs to admit that he may not have done enough on the first try. He needs to remind the country that he’s trying to steer the country through a severe economic storm, and that some course adjustments — including, quite possibly, another round of stimulus — may be necessary. So, you are quoting out-of-context one little technical argument that Krugman had about what sort of growth rates are POSSIBLE when an economy is not utilizing its full capacity and ignoring the larger body of work where he actually discussed what Obama’s stimulus plan would do. And, it has nothing to do with the magical thinking of people envisioning future tax rates and everything to do with conventional economic science. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [September 12, 2012, 1:11am UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/63 "2012-09-12T01:11:46Z")
> [@jshore](#): > > Considering the closest comparison we have is the Great Depression, I’d say that sounds pretty modest by comparison. And, if the Tea Party yahoos had been in charge of the economy, we almost definitely would not be calling this the Great Recession but rather the Second Great Depression. The closest comparison would be the Carter/Reagan recession. This recovery has been slower. The trillion dollar recovery program implemented in this administration has not broken the 8% unemployment level in 4 years. [To quote Obama:](http://www.youtube.com/watch?v=4p4-vPrcDBo) “shovel ready was not as uh, shovel ready as we expected”. ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [September 12, 2012, 1:22am UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/64 "2012-09-12T01:22:53Z")
[Here](http://www.nytimes.com/2008/12/01/opinion/01krugman.html) is a column from late 2008 where Krugman explains why running big deficits in a recessed economy is good idea…and, of course, the actual facts regarding interest rates over the last several years have borne out exactly what Krugman is saying. Admittedly, he doesn’t take on the new argument that **puddleglum** has now presented when the first one was shot down that the problem is really that everyone anticipates higher taxes in some distant dreaded future and hence doesn’t invest…probably because few people have had the gumption to make it and nobody that I know of has had the gumption to provide any evidence for it. [Here](http://www.pkarchive.org/) by the way is a good place to hunt down Paul Krugman columns from October 2010 and earlier. ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [September 12, 2012, 1:24am UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/65 "2012-09-12T01:24:18Z")
> [@Magiver](#): > > The closest comparison would be the Carter/Reagan recession. This recovery has been slower. That recession was not accompanied by a financial crash and a crash of the housing market. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [September 12, 2012, 1:57am UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/66 "2012-09-12T01:57:11Z")
> [@jshore](#): > > That recession was not accompanied by a financial crash and a crash of the housing market. That does not explain unemployment. That only explains upside down mortgages. ---
**Author:** ![Esox\_Lucius](https://avatars.discourse-cdn.com/v4/letter/e/848f3c/32.png) [@Esox\_Lucius](https://boards.straightdope.com/u/Esox_Lucius)\ **Post date:** [September 12, 2012, 7:55am UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/67 "2012-09-12T07:55:22Z")
> [@puddleglum](#): > > How do you know this? You assume that things would have been worse without the bailouts, but they could have been better. We do not know what things would have been like, but we do know how things are. Things are going very poorly, labor force participation rates are disastrous, unemployment is terrible, and growth rates are very poor. > All of the excuses for Obama and the poor recovery are trying to find a justification for what happened. All of the characteristics of the crisis were known when Obama took office, yet no one predicted a recovery this bad. If you look back at Obama’s budgets they were predicting 4% catch up growth. The prediction that the White House gave for the unemployment rates if the stimulus was passed was that it would never go over 8%. Clearly the administration was expecting a recovery like was typical during past recessions. Krugman predicted above average growth rates in the recovery and instead we got lower than average. > [Other](http://reason.com/archives/2009/02/13/why-the-stimulus-plan-wont-wor) people expected the stimulus to fail as it did. But clearly those people are just blinded by ideology. We could double down on failed policies or we could try a new approach. Every adjective you use to describe the recovery would certainly be worse without the bailouts (reasons below). Just because the predictions were off doesn’t mean things would be better if the government did nothing. I hardly think that hundreds of thousands more unemployed helps the economy. Out of curiosity, has there ever been a time when consumers have been so far in hock that they’re being advised to pay down their debt, and at the same time are expected to spend to get the economy going? How do you predict what they’re going to do with their money? As for the article you cited: > [@](#): > > In 2008, the major component was sending $100 billion in cash to Americans so they would have more to spend and thus jump-start the economy. It failed. People spent little, if anything, of the temporary rebate, and consumption did not recover. Where did that money go? > [@](#): > > Second, the thinking behind stimulus legislation assumes that the government is better at spending $800 billion than the private sector…By contrast, entrepreneurs’ decisions to spend their own cash are guided by monetary profit and loss. That’s likely to work better and certain to produce more innovation. The government doesn’t assume it’s better at spending. That’s a purely disingenuous statement and the author should be ashamed for it. It had to spend money because, contrary to another falsehood of hers, the private sector doesn’t spend its own cash in a severely recessed economy when there’s no return on it. Look, she says so herself right there: _“Entrepreneurs’ decisions to spend their own cash are guided by monetary profit and loss”._ So yes, in this case, the government was better at spending $800 billion, by default. It was either spend the money or let the country sink even deeper because it wasn’t going to get any help from private enterprise when there’s no profit to be made. Even [the Bush administration acknowledged as much](http://www.huffingtonpost.com/2012/08/01/mitt-romney-auto-bailout-obama_n_1727449.html) in reply to Mitt Romney’s “Let Detroit Go Bankrupt” idea: _“Romney’s strict no bailout stance, according even to Bush administration officials, ignored the fact that there was no private capital during the crisis to help the car companies avoid insolvency.”_ And let’s remember, that’s the same private enterprise with its singular amoral goal of maximum profit that got us into this royal clusterfuck in the first place. How is it that it still gets worshipped as our saviour while government gets vilified for bailing it out from its irresponsible screwups? Getting back to the article you cited, what’s with these simplistic paeans to free enterprise that pass for economic analysis these days? Sure, free enterprise is a great system for everyone when the people running it work responsibly, but let’s not pretend it’s pure as Jesus. You’d think a private business never spent an inefficient penny on extravagant parties and plush offices and executive jets and exhorbitant bonuses, or went broke through mismanagement, or swindled customers out of their life savings, or bought politicians, or brought down the world’s economy through sheer hubris. And that a government that encourages responsible private enterprise but has to put the brakes on its selfish excesses–because it’s plain they won’t stop themselves–is somehow evil. But experience tells us otherwise. Or it should. ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [September 12, 2012, 11:06am UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/68 "2012-09-12T11:06:08Z")
> [@Magiver](#): > > That does not explain unemployment. That only explains upside down mortgages. What? There was a large collapse in demand due to this huge loss of wealth. (Why do you think the economy was losing ~3/4 million jobs per month when Obama wheb Obama took office?)..And, rising housing prices, which have traditionally helped to lead us out of recessions (according to Krugman) are not present this time? ---
**Author:** ![scabpicker](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/scabpicker/32/8268_2.png) [@scabpicker](https://boards.straightdope.com/u/scabpicker)\ **Post date:** [September 12, 2012, 1:12pm UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/69 "2012-09-12T13:12:05Z")
> [@KarlGauss](#): > > Okay, I am definitely not disputing anything. I honestly and simply want to learn: > > What **puddleglum** said made sense to an economic ignoramus like me. I would be interested to hear the salient counterpoints to his argument. > > Again, I have no dog in this fight; I am genuinely curious to know and learn. > > Thanks! I’m an economic ignoramus as well, but I’ll give it a shot. Here are some flaws in Puddlegum’s argument: 1. There are more ways to increase tax revenue than just raising the tax rate. (e.g. your economy can boom, raising tax revenues ) 2. Even if you do, increasing the tax rates does not necessarily affect economic activity. Whether it will depends on where your tax rates are on the ill-defined Laffer curve. 3. Even if your taxes are currently so high that you are going to suppress your economic growth with higher taxes later, you presumably have some discretion as to when that is. So, the plan is to raise them at a time when your economy is booming, and can take the hit. ---
**Author:** ![Enlightening\_Meditation](https://avatars.discourse-cdn.com/v4/letter/e/ecc23a/32.png) [@Enlightening\_Meditation](https://boards.straightdope.com/u/Enlightening_Meditation)\ **Post date:** [September 12, 2012, 1:52pm UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/70 "2012-09-12T13:52:29Z")
> [@KarlGauss](#): > > As a Canadian, I have never been able to figure out why Obama is [criticized for the country’s poor economic performance under his watch](http://www.gallup.com/poll/156698/americans-continue-give-obama-low-marks-economy.aspx), when it actually tanked during the GWB era (late 2007 - late 2008). > > Why is that? Why is Obama considered culpable? The facile answer is, I suppose, along the lines of ‘what has he done?’. On the other hand, I’d say, ‘hey, it _is_ getting better, and _he_ didn’t create this mess’. From the perspective of the political right, Pres. Obama is blamed for high unemployment and a slow/stalled economic recovery because he created unnecessary uncertainty among business leaders and investors by: 1) signing a new, complex health care law (aka the Patient Protection and Affordable Care Act, PPACA, ACA, or ‘Obamacare’) that’s 2,600+ pages of complicated regulations and includes new taxes on tanning bed salons and medical equipment among other things, 2) signing a financial reform bill into law (aka Dodd-Frank) that’s 1200+ pages long, complex, and establishes a lot of gray areas where regulators establish some of the rules at a later time, 3) preventing (or at least delaying for further study) expansion of the XL pipeline for oil sands transport because of environmental concerns, 4) vocally supporting regulation of carbon emissions, 5) signing a huge stimulus bill into law that didn’t curb unemployment, added to the treasury debt, and funneled money into a failed enterprise (Solyndra, a solar panel manufacturer), 6) dithering during the debt ceiling debacle of summer 2011 which led to a credit rating downgrade by one of the major ratings agencies (S&P i think), 7) threatening to raise income taxes among the wealthy and corporate ranks. From the perspective of the far right wing, Obama is responsible for crashing the economy because he’s a homosexual sympathizer (which angers God), a baby killer (also angers God), a marxist socialist, an atheist muslim, et cetera who wants to destroy the USA. He is an incarnate of Satan according to some. Revolutions don’t happen without a lot of economic problems and general unhappiness. Obama is only half-way there and needs another four years to finish the downfall of the USA. From the perspective of the left, I refer you to the Paul Krugman arguments that have presented in this thread topic already. The general sentiment on the left is that Obama needed more stimulus more quickly. Of course, the Dems did not have a filibuster proof 60-vote majority in The Senate when the stimulus bill was passed (Sen. Al Franken did not join The Senate until June '09 because his election was too close to call and there were court battles over ballot count disputes), so the stimulus bill needed at least one Republican vote in The Senate (and it was Sen. Olympia Snowe if I recall). Republicans hate increasing deficit spending for reasons other than military purposes and tax cuts. Personally, I think the health care and financial reforms have contributed to sluggish hiring and that the stimulus should have been larger and/or better directed. There are also significant external factors that have not helped the situation such as the currency crises in Europe, threats of insanity by Iran or North Korea, lots of natural disasters, the gulf oil spill, etc. I place a lot more blame on Congress for slow economic growth due to their gridlock on debt reduction matters and passing complicated dogshit bills written largely by lobbyists and interest groups. ---
**Author:** ![KarlGauss](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/karlgauss/32/3713_2.png) [@KarlGauss](https://boards.straightdope.com/u/KarlGauss)\ **Post date:** [September 12, 2012, 3:53pm UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/71 "2012-09-12T15:53:24Z")
> [@scabpicker](#): > > I’m an economic ignoramus as well, but I’ll give it a shot. > > Here are some flaws in Puddlegum’s argument: > > 1. There are more ways to increase tax revenue than just raising the tax rate. (e.g. your economy can boom, raising tax revenues ) > 2. Even if you do, increasing the tax rates does not necessarily affect economic activity. Whether it will depends on where your tax rates are on the ill-defined Laffer curve. > 3. Even if your taxes are currently so high that you are going to suppress your economic growth with higher taxes later, you presumably have some discretion as to when that is. So, the plan is to raise them at a time when your economy is booming, and can take the hit. Much obliged. In fairness, though, **puddleglum** did qualify his points with “unless the economy starts growing again, tax rates will have to be raised . . .” (emphasis added) ---
**Author:** ![KarlGauss](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/karlgauss/32/3713_2.png) [@KarlGauss](https://boards.straightdope.com/u/KarlGauss)\ **Post date:** [September 12, 2012, 3:58pm UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/72 "2012-09-12T15:58:02Z")
> [@Enlightening\_Meditation](#): > > From the perspective of the political right, Pres. Obama is blamed for high unemployment and a slow/stalled economic recovery because he created unnecessary uncertainty among business leaders and investors by: 1) signing a new, complex health care law (aka the Patient Protection and Affordable Care Act, PPACA, ACA, or ‘Obamacare’) that’s 2,600+ pages of complicated regulations and includes new taxes on tanning bed salons and medical equipment among other things, 2) signing a financial reform bill into law (aka Dodd-Frank) that’s 1200+ pages long, complex, and establishes a lot of gray areas where regulators establish some of the rules at a later time, 3) preventing (or at least delaying for further study) expansion of the XL pipeline for oil sands transport because of environmental concerns, 4) vocally supporting regulation of carbon emissions, 5) signing a huge stimulus bill into law that didn’t curb unemployment, added to the treasury debt, and funneled money into a failed enterprise (Solyndra, a solar panel manufacturer), 6) dithering during the debt ceiling debacle of summer 2011 which led to a credit rating downgrade by one of the major ratings agencies (S&P i think), 7) threatening to raise income taxes among the wealthy and corporate ranks. \ > > Personally, I think the health care and financial reforms have contributed to sluggish hiring and that the stimulus should have been larger and/or better directed. There are also significant external factors that have not helped the situation such as the currency crises in Europe, threats of insanity by Iran or North Korea, lots of natural disasters, the gulf oil spill, etc. I place a lot more blame on Congress for slow economic growth due to their gridlock on debt reduction matters and passing complicated dogshit bills written largely by lobbyists and interest groups. That was very helpful. I hadn’t appreciated the effect (real or perceived) of ‘ObamaCare’ on the economy. Still, I’m not sure I understand the relationship between his ‘green’ activities and the dull economy. To me, that sounds awfully much like the same argument you hear about ‘global warming’ and how it’s just an attack on US industry in disguise. ---
**Author:** ![scabpicker](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/scabpicker/32/8268_2.png) [@scabpicker](https://boards.straightdope.com/u/scabpicker)\ **Post date:** [September 12, 2012, 4:37pm UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/73 "2012-09-12T16:37:45Z")
> [@KarlGauss](#): > > Much obliged. > > In fairness, though, **puddleglum** did qualify his points with “unless the economy starts growing again, tax rates will have to be raised . . .” (emphasis added) Absolutely true, I must have glossed over the first part of the sentence. I apologize if I offended you, **puddlegum**. I did not mean to misrepresent your argument. I don’t have the theory chops to express it correctly, but it seems to me that the root problem of this argument is that it’s viewing the economy as something similar to a zero sum game. If done properly, government spending can provide the infrastructure for your economy to expand well beyond its original size. If done in a manner that just boosts the amount of money moving around to stimulate aggregate demand, I think you’re going to get poorer results than if you invested in some (useful) infrastructure projects that in turn employ a noticeable number of people. In all fairness, the problem with Keynesian theory is a problem that is easily understood by anyone who’s ever borrowed: It’s rather easy to borrow when times are tough, it’s harder to be thrifty pay down your debt with the extra you make when times are good. My only advice on that count is to elect responsible adults. ---
**Author:** ![puddleglum](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/puddleglum/32/137_2.png) [@puddleglum](https://boards.straightdope.com/u/puddleglum)\ **Post date:** [September 12, 2012, 6:33pm UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/74 "2012-09-12T18:33:12Z")
> [@scabpicker](#): > > I’m an economic ignoramus as well, but I’ll give it a shot. > > Here are some flaws in Puddlegum’s argument: > > 1. There are more ways to increase tax revenue than just raising the tax rate. (e.g. your economy can boom, raising tax revenues ) > 2. Even if you do, increasing the tax rates does not necessarily affect economic activity. Whether it will depends on where your tax rates are on the ill-defined Laffer curve. > 3. Even if your taxes are currently so high that you are going to suppress your economic growth with higher taxes later, you presumably have some discretion as to when that is. So, the plan is to raise them at a time when your economy is booming, and can take the hit. 1. Economies can also shrink, in which case you are deeper in debt and have less tax revenues come in. Look at Japan, they have been shoveling money into infrastructure spending for 30 years and all they got out of it was some paved islands and huge amounts of debt. The economic growth never came back. 2. This shows a flawed understanding of the Laffer curve, you do not have to past or even near the inflexion point in the curve for tax increases to hurt the economy. To get to the inflection point the deadweight losses have to be so large that the foregone economic activity affects the total amount of tax revenue. In our economy with top tax rates around 50% the deadweight loss would have to amount to twice the tax rate increase. Most estimates I have read put the deadweight loss of tax increases is about 20 to 50 percent. Thus the economy can be significantly hurt by tax increases without tax revenue actually falling. There is a point where tax rates are too low for an economy to prosper. It is impossible to know for sure what those rates are, but any tax increase above the optimal level hurts the economy regardless of how close they are to the Laffer curve inflection point. 3. The future is uncertain, if we knew boom times were coming it might make sense to say borrow now and pay later, but we don’t know what is coming. All we know is that if we borrow now we are going to have to pay later. Since we know we have to pay later they safest course of action is to hang onto money now so you have it when you have to pay. ---
**Author:** ![puddleglum](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/puddleglum/32/137_2.png) [@puddleglum](https://boards.straightdope.com/u/puddleglum)\ **Post date:** [September 12, 2012, 7:22pm UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/75 "2012-09-12T19:22:21Z")
> [@jshore](#): > > Baloney! There is no evidence whatsoever to support this convoluted viewpoint involving that this sort of far-sighted reasoning. Heck, there isn’t even evidence to support supply-side fantasies in the present, let alone supply side fantasies based on expectations well into the future. It’s just a fairy tale conservatives tell themselves, having long-since abandoned any notion of need for evidence, scientific or otherwise, in discussions ranging from economics, to the Iraq War, to climate change. There is plenty of good evidence that people base decisions on expections of future wealth, not just current wealth. Look at what happened to the tax rebates of 2008. If you expect people to base consumption and investment decisions based solely on current wealth than a one time tax rebate should goose consumption.[Here](http://online.wsj.com/article/SB122757149157954723.html) is the evidence it did not. What happened was consumption remained flat even though there was a temporary jump in disposable income. The same thing happened in 1974 when Ford sent 100 dollars to everyone who filed a tax return. Consumption patterns did not change at all. [Here](http://www.federalreserve.gov/pubs/feds/2006/200619/200619abs.html) is a study the fed did about what happened when congress passed a temporary change in the depreciation schedule. What they found was that for the most part business did not respond to short term changes like they would to a permanent change. [Here](http://www.nber.org/papers/w1265) is a paper on how current and anticipated deficits can be contractionary. ---
**Author:** ![foolsguinea](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foolsguinea/32/14751_2.png) [@foolsguinea](https://boards.straightdope.com/u/foolsguinea)\ **Post date:** [September 12, 2012, 10:03pm UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/76 "2012-09-12T22:03:10Z")
> [@puddleglum](#): > > What you miss is that fundamental fact of government borrowing, it will eventually have to be paid back. Thus unless the economy starts growing again, tax rates will have to be raised to pay the money back. **Higher taxes in the future will depress economic activity and productive investment in the economy.** There is no such thing as a free lunch, to spend is to tax, either now or in the future. At this point, whether or not the economy starts growing again, tax rates will have to be raised to pay the money back. And the USA is a very wealthy economy with a very high standard of living. It’s likely that we literally can’t grow as fast as we did mid-century, when global trade was unusually depressed and we were a net oil exporter. A lot of what you say makes sense. The problem is in the sentence I bolded. There is no evidence that tax rates depress the economy enough to make them not worth it. Yes, they pull money out of the economy, but they also put it back in. And redistribution of money–of resources, funds, and power–via taxation allows us to break out of the destructive cycles that “free-market,” “consensual” private business can fall into. ---
**Author:** ![Docta\_G](https://avatars.discourse-cdn.com/v4/letter/d/2bfe46/32.png) [@Docta\_G](https://boards.straightdope.com/u/Docta_G)\ **Post date:** [September 12, 2012, 10:15pm UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/77 "2012-09-12T22:15:22Z")
Decades of institutionalized insanity have wrecked the economy, and all Americans can think about is whether they’re better off now than they were a little while ago. You’re bleeding to death, and all you can think about is what color bandaid to wear. ---
**Author:** ![scabpicker](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/scabpicker/32/8268_2.png) [@scabpicker](https://boards.straightdope.com/u/scabpicker)\ **Post date:** [September 12, 2012, 10:55pm UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/78 "2012-09-12T22:55:39Z")
> [@puddleglum](#): > > 1. Economies can also shrink, in which case you are deeper in debt and have less tax revenues come in. Look at Japan, they have been shoveling money into infrastructure spending for 30 years and all they got out of it was some paved islands and huge amounts of debt. The economic growth never came back. > 2. This shows a flawed understanding of the Laffer curve, you do not have to past or even near the inflexion point in the curve for tax increases to hurt the economy. To get to the inflection point the deadweight losses have to be so large that the foregone economic activity affects the total amount of tax revenue. In our economy with top tax rates around 50% the deadweight loss would have to amount to twice the tax rate increase. Most estimates I have read put the deadweight loss of tax increases is about 20 to 50 percent. Thus the economy can be significantly hurt by tax increases without tax revenue actually falling. > There is a point where tax rates are too low for an economy to prosper. It is impossible to know for sure what those rates are, but any tax increase above the optimal level hurts the economy regardless of how close they are to the Laffer curve inflection point. > 3. The future is uncertain, if we knew boom times were coming it might make sense to say borrow now and pay later, but we don’t know what is coming. All we know is that if we borrow now we are going to have to pay later. Since we know we have to pay later they safest course of action is to hang onto money now so you have it when you have to pay. 1. The future is always uncertain. If you think that your economy is going to shrink for the amount of time that a government can carry a debt, you’ve got far worse problems than your future tax rates. 2. Thank you, ignorance fought. It’s still not a foregone conclusion that increasing tax rates will affect your economy to the point where it begins shrinking, or even that the change will be greater than the general noise in the numbers. There are also other things you can do to affect your economy in a positive way while you have to raise taxes. 3. This is a short sighted metaphor. Again, if your economy is not going to be gaining ground any time soon, taxes are the least of your problems. You’re probably going to be worrying about feeding everyone and maintaining a capitalist system at all before very long. ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [September 13, 2012, 12:59am UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/79 "2012-09-13T00:59:41Z")
> [@puddleglum](#): > > There is plenty of good evidence that people base decisions on expections of future wealth, not just current wealth. Look at what happened to the tax rebates of 2008. If you expect people to base consumption and investment decisions based solely on current wealth than a one time tax rebate should goose consumption.[Here](http://online.wsj.com/article/SB122757149157954723.html) is the evidence it did not. What happened was consumption remained flat even though there was a temporary jump in disposable income. The same thing happened in 1974 when Ford sent 100 dollars to everyone who filed a tax return. Consumption patterns did not change at all. I think you are moving the goalposts here. What I was objecting to was a notion that was based on three things, any one of which being wrong would mean that the argument completely breaks down: (1) Supply-side arguments. (2) Arguments that people make decisions based on future expectations for taxes. (3) Arguments that people make such decisions based not just on concrete expectations based on tax laws currently in place but rather on the basis of vague notions like “Oh, look, he had to increase the deficit to do this. I bet that several years down the road, somebody is going to raise my taxes to make up for it.” What you have responded with is some stuff that seems to show that a short term tax rebate did not produce much of an increase spending (from a source, the WSJ editorial / op-ed pages, that are known to regularly lie and deceive to further their philosophical agenda, but let’s assume for the moment that they haven’t in this case). However, this sort of negative result, while interesting, does not really further your argument very much. For example, it can just as well be used (and has been used) to support the argument that government spending is a much more effective stimulus than a tax rebate or tax cut of any kind. (See, for example, the discussion [here](http://www.politifact.com/truth-o-meter/statements/2010/aug/12/rachel-maddow/maddow-claims-spending-more-stimulative-tax-cuts/), with no hard-and-fast conclusion drawn by Politifact other than that macroeconomics predictions are still all over the map. Note in particular the low multiplier effects estimated by some for extending the Bush tax cuts…although others seem to claim larger effects.) > [@](#): > > [Here](http://www.nber.org/papers/w1265) is a paper on how current and anticipated deficits can be contractionary. That paper, now quite dated (1984), seems to propose as its main mechanism as to why such deficits aren’t stimulatory the idea that they can lead to higher long-term or short-term interest rates. As I have noted, it is going to be hard to argue, based on empirical evidence, that this mechanism is imposing a significant limitation on the stimulatory effects in the current climate of historically-low interest rates. Are you saying that in the absence of a stimulus and the accompanying higher deficits, banks would be paying us to borrow money from them? ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [September 13, 2012, 2:20am UTC](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790/80 "2012-09-13T02:20:00Z")
> [@jshore](#): > > What? There was a large collapse in demand due to this huge loss of wealth. (Why do you think the economy was losing ~3/4 million jobs per month when Obama wheb Obama took office?)..And, rising housing prices, which have traditionally helped to lead us out of recessions (according to Krugman) are not present this time? What What? you’re trying to link housing prices to jobs. That makes no sense at all. At best, the rise in housing prices follows an increase in wealth as an indicator. We have the lowest interest rates in my lifetime and nobody is borrowing money. [Previous page](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790.md?page=3) [Next page](https://boards.straightdope.com/t/obama-and-the-economy-appropriate-disapproval/633790.md?page=5)