Recession and the Gipper (or, how you do that voodoo that you do so well)

Great Debates
1

In the current Pit thread on “Tax Rebates” and the Poor, the discussion has turned towards the origins of our current economic prosperity (such as its is). Here are some highlights.

Uncle Beer defended Bush’s taxcuts on the grounds that: “[A] stimulated economy will autonomously generate additional wealth which will naturally be distributed among all econmic sectors. Yes, this is the old trickle-down Reaganomics. But ya know what? It [blummin’ ;)] worked last time”,

to which jab1 replied, “Cite, please”.

Uncle Beer at first demurred, until I wrote,

“[A]re you suggesting that Reagan’s record breaking budget deficits, the highest budget deficits in US history, were responsible for ending the recession? Let us bear in mind that the recession didn’t end until the mid '90s, by which point taxes had to be raised and spending shrunk in order to eliminate those deficits. We can certainly argue about what precisely led to the end of the recession, but I haven’t heard anyone (certainly not Alan Greenspan and his enthusiasts) arguing for budget deficits. …Up until very recently “trickle-down” theory has been a kind of laughingstock, and even conservative pundits avoided the term…”

To which Uncle Beer replied, *"Spending has shrunk? That’s a good one. What shrank was is the percentage amount of the annual increase. Baseline budgeting and all that. You will also note that federal spending became a greater and greater percentage of the GDP every year under Clinton. But actual spending, no matter how you measure it, went up each and every year of the Clinton administration.

And no, I’m not suggesting the Reagan’s deficit spending was responsible for ending the recession. I’m suggesting his tax cuts were. But I do believe a small federal deficit can be a good thing."*

He added, “Ummm, are you talking about the short recession that doomed Bush, Sr.'s bid for a second term?
That ain’t really what I’m referring to. I had in mind the Carter years. Huge interest rates, massive unemployment, runaway inflation, and gargantuan federal income tax rates. All that most certainly went away during the Reagan tenure, not during the Clinton era.”

And then he invited me to start a debate on the causes the end of the recession (though there may be some question as to which recession), in GD.

Which I have done :slight_smile:

So it looks as though we’ve got at least 2 overlapping debates on the table: 1) Which if any recession can Ronald Reagan’s tax cuts be held to have aided? and 2) Is Clinton or are Reagan/Bush I responsible for economic prosperity since the '90s?

I actually have a few replies to offer to Uncle Beer’s Pit remarks but I thought before I did and would turn the debate over to you, the present reader…

2

sheesh, all that copy and paste and italics…wouldn’t it have been easier just to post a link? :smiley:

http://boards.straightdope.com/sdmb/showthread.php?threadid=75923&pagenumber=2

3

I would have to say 1) Both, but not to a large degree for either. I believe they were both products of the business cycle and that no tax was gonna stop them, but they were shorter than they otherwise would have been had taxes been higher.

For 2) I would say none of them have any really great responsibility.

Permit me to ask you a question, if I may. Do you think that tax rates have any effect on the economy?

4

Weird_Al, “*Permit me to ask you a question, if I may. Do you think that tax rates have any effect on the economy?” *

Permission granted. <bows> Yeah, I do. Over in the Pit through (see Duck Duck Goose’s link) picmr has just weighed in on the effects of taxcuts in terms that sound persuasive to me. OTOH, Milossarian has suggested that entrepreneurial opportunities in new technologies created an even bigger impact and I’m inclined to agree. I’ve also heard relative economic prosperity attributed to (in no particularly order): 1)productivity gains amongst US workers; 2) lowering of interest rates and other good fiscal policy decisions; 3) decline in energy costs (until recently). And, at the same time, I’ve read of the harm done by Reagan’s “voodoo” and deficit-causing policies. For example. Towards the bottom of this link, a Berkeley economist argues that,

“The deficits of the 1990s have left us poorer as a nation than we would otherwise be. How much poorer? I can generate without working up a sweat estimates between $1000 and $3,400 in lost annual income for each American worker. That’s a loss in national productivity of some some $250 billion a year–about $4,000 a year of lost annual income for each family of four. And we can and should lay at the door of those who made up the government budget back in 1981. Now we have finally fixed this mistake: we haven’t yet made up the economic ground we lost, but at least we are no longer losing additional ground.”

Source:
http://www.j-bradford-delong.net/Comments/FRBSF_deficit.html

And I also feel strongly that rising inequality (which regressive tax cuts perpetuate) is not only morally but economically unsound. Here is a really good analysis of that subject (written before the present tax cut), from Paul Krguman an MIT economist (who I sometimes strongly disagree with). This one is really worth reading through, IMO, if you’re interested in the legacy of the Reagan era.

http://www.j-bradford-delong.net/Economists/favorite_krugman.html

I should also say (though it’s probably obvious), that I’m not an economist and I never studied economics beyond the basic undergrad level. But I read a lot of economists and can usually follow the lines of the debate between them just fine.

5

Uncle Beer:*"Spending has shrunk? That’s a good one. What shrank was is the percentage amount of the annual increase. Baseline budgeting and all that. You will also note that federal spending became a greater and greater percentage of the GDP every year under Clinton. But actual spending, no matter how you measure it, went up each and every year of the Clinton administration. *

I am not sure if Uncle Beer made a mistake here since the last two sentences don’t seem related by a “but” as written. But just to clarify, between FY1993 and FY2001, federal spending as a % of the GDP went down every year, going from 21.5% to 18.0%. During the Reagan/Bush years, the average was >22%. [These numbers are all available from the Federal Budget Office.]

6

One of the reasons there is so much heated debate over these issues is that the terms are never defined. What is spending growth? Growth in absolute dollars? Growth as percentage of GDP? Growth after inflation?

Pundits on both sides pick and choose from all three of these in order to make their points. If someone wants to show that Reagan cut government spending, they’ll measure spending on a per-capita, after-inflation, and adjusted for GDP growth. Another person who wants to ‘prove’ that Reagan didn’t cut spending will just point to the total government outlays in dollars.

The same thing happens when it comes time to blame a president. If a guy is elected in 1980 and the economy goes into the tank in two months, is it his fault? How much inertia is there in the economy? And anyway, even if a budget gets passed, often pieces of it don’t come into effect for years down the road. So this gives pundits the freedom to pick and choose their starting point in order to massage the numbers in the way that supports their own prejudices.

Then there is another factor almost always ignored: While the overall size of government is huge, and has a significant effect on the economy, changes to it are generally quite small. So how much effect does a president really have? Take Bush’s new budget - the big arguments are over the size of the tax cut, which only amounts to an overall rebate of a few percentage points, out of a tax bite which itself is only maybe 20-30% of a person’s income. And even that is spread over 9 years. Anyone on either side claiming that this is going to have a major effect on the economy is engaging in wishful thinking.

So presidents are largely buffeted around by the economy, rather than controlling and shaping it.

Alan Greenspan has FAR more power to manipulate the economy, and monetary policy would be a much more productive place to look to find clues as to why certain recessions happened.

7

As for Reagan’s first recession, that really had nothing at all to do with him. The prime reason for it was that the Federal Reserve Board, under Paul Volcker (an appointee of Jimmy Carter’s, and a very good one), shrunk the money supply in order to curtail inflation. Interest rates were pushed sky-high, and this sent the economy into recession. Later, as inflation came under control, interest rates were lowered, and THIS was what started the first big economic boom.

Reagan’s deficits were largely out of his control, other than his increase in military spending which maybe amounted to 1/4 of the overal added debt we picked up in the Reagan years. If you look around the world, you’ll find that economies in all of the western democracies were restructuring, and they ALL carried big deficits. In fact, the U.S. deficit as a percentage of GDP was among the lowest of the G7 nations. Canada’s deficit was much higher.

In Reagan’s case, he inherited a government that already had a pretty big deficit, and 70 billion a year was added onto that almost immediately when inflation came down. Why? Because he lost the income from ‘bracket creep’. Back then the U.S. tax system was highly graduated. The top rate was something close to 70%. When you couple a highly graduated tax system with high inflation, you get bracket creep, in which inflation pushes people into higher and higher tax brackets, while their real income doesn’t change. This is essentially an automatic annual tax increase. That vanished overnight when inflation crashed.

So Reagan inherited a huge deficit, piled some more military spending on it, and lost bracket creep income. There you go - big deficits. His tax cuts, IMO, had little or no effect on the deficit, because the stimulus they added to the economy created enough offsetting growth to pay for them. (This isn’t quite ‘Reaganomics’, because he believed the tax cuts would create SO MUCH growth that they would pay for all his other spending. Uh uh.)

So what created the longest boom in history? A number of factors, all of which came together at once. First of all, remember “Wall Street”, and the evil Gordon Gekko, raper of companies, corporate raider without a heart? You can thank him. American industry went through a radical restructuring in the 1980’s, thanks to those corporate raiders, Michael Milken’s ‘Junk Bonds’ (which allowed the creation of companies like Microsoft and Dell), and other innovations in corporate management. I note that liberals fought tooth-and-nail against both of these trends. Remember the ‘greed of the 1980’s’? Well, that helped create the boom of the 1990’s.

Corporations in the 1980’s had grown fat and wasteful. Corporate raiders (and the threat of them) forced companies to become lean and efficient. This translated into higher profits and greater growth in the long run.

Then you had the boom in technology, which brought even more innovations like just-in-time inventory, the availability of greater information to corporate decision-makers, etc.

Finally, the fed’s success in breaking inflation allowed all of this innovation to exist in a low interest rate environment. The lower cost of money created more venture capital, which gave companies more operating capital to fuel expansion.

And I think it can be argued that the last 2 or 3 years of the ‘boom’ were artificial, a classic spending bubble. Manufacturing grew too fast, too much money got pumped into tech companies, etc. One of the reasons we dropped into a recession this year was because companies were sitting on way too much inventory. Demand fell off, and manufacturing fell even faster as companies attempted to sell off their inventories and get them down to a more reasonable level. One of the reasons Greenspan has been somewhat tentative in cutting rates even faster is because he’s had his eye on inventory levels, which are dropping rapidly. So even if demand doesn’t increase, manufacturing output should, and this should create ripple effects in creating jobs, increasing consumer confidence, etc.

Note that I didn’t include the actions of a single politician as a major factor in both booms and deficits in that entire message, other than Alan Greenspan and Paul Volcker.

8

Well, Sam, I tend to agree with you that the effect that the President and other politicians have over the economy as a whole and economic cycles is probably overrated. I won’t even argue with your interpretation of the reasons for the economic cycles over the last couple decades, except to point out that these are more conjecture than anything else, and to nitpick a couple of points that I find particularly dubious:

(1) I don’t agree that Reagan’s tax changes had little effect on the deficit, except perhaps in net, i.e., the tax hike in SS may have largely offset the income tax cuts. As I pointed out in another thread, if you look at the personal income tax receipts in real terms, they start to dive in FY1982 and don’t recover to pre-1982 levels for several years. This does not suggest too much of an offsetting of the income tax cuts by any growth they caused. Perhaps some of this could be accounted for by “bracket creep”, although I am dubious of this explanation without more evidence: When I look at the tax rate schedules in my 1040 info booklet over the past few years, I see the brackets move up every year, so there does seem to be a cost of living adjustment to them. Do you know for a fact that this was not the case back then or that the adjustment was insufficient?

(2) I find the claim that “innovations in corporate management” have been an important component of the boom suspect. It seems to me that corporate management goes through silly fads more than it does true innovations. Surely some of the productivity increases from computers have helped in management too, but that’s about as far as I would go.

9

I’ll accept our disagreement on some small matters, and yeah, there certainly is room for some interpretation.

The reason we keep trying to pin a ‘cause’ on politicians is because politicians, with help from the media, have managed to convince us that they run the show. It’s very hard for the media to report on something as complex as an industrial economy, but relatively easy to report on some pronouncement from a politician on a podium.

Thus, the media becomes an accomplice in a big lie - the idea that government controls our society, and the ‘right’ politicians can solve all our problems.

In truth, the effect that individual pieces of legislation have on the economy as a whole can be swallowed up into rounding errors. But if a the government passes a new education bill, and test scores a year later go up, they will claim victory and the media will let them. It’s just much easier for the media than for them to have to explain changes to the tests, demographic changes among students, changes in cultural attitudes towards education, etc.

And I’m certainly not singling out Democrats here. This is a universal condition. If the economy rebounds, you can be assured that Bush will take credit for it. And if it tanks, you can be sure that the Democrats will blame Bush for it. The media has already declared this to be ‘Bush’s economy’, preparatory to writing endless op-ed pieces on what went right or wrong once they see how it shakes out.

But really, what effect will a 100 billion dollar tax cut have in a multi-trillion dollar economy? It’s not like that was new money added to the economy - if the government had kept it, it would have spent it. We conservatives would argue that they wouldn’t spend it as wisely, so let’s say that leaving it in the government’s hands results in a 10% decrease in real wealth from that money over leaving it in private hands. That’s a net change of maybe 10 billion dollars, which is far less than 1% of our total economic output. So if the economy grows or shrinks by, say, 3% next year, Bush’s tax cut may have been responsible for .5% of that. MAYBE. But the blame or credit for the whole shebang will fall on his shoulders.

10

Sam Stone, "So Reagan inherited a huge deficit, piled some more military spending on it, and lost bracket creep income. There you go - big deficits. His tax cuts, IMO, had little or no effect on the deficit, because the stimulus they added to the economy created enough offsetting growth to pay for them. (This isn’t quite ‘Reaganomics’, because he believed the tax cuts would create SO MUCH growth that they would pay for all his other spending. Uh uh.)"

Sorry, Sam. As you seem to realize, this just won’t cut it. Either you didn’t bother to look at the links I posted, or you did and hoped no one else would. :wink: Reagan’s responsibility for record-breaking deficits is incontrovertible. Between 1979 and 1980 the deficit grew from about 1 1/2 to just under 3 percent of GDP. Enter the Gipper. By 1983 that figure was 6% or more than double the deficit that Reagan inherited from the Carter years. That situation wasn’t permanently rectified until taxes were raised and programs shrunk, the latter of which method continued throughout the Clinton years. To say that the tax cuts responsible for the deficit provided enough “stimulation” to justify themselves is just voodoo all over again–especially as I’ve provided evidence that the same tax-cut driven deficits cost Americans $250 billion a year.

I don’t at all disagree that politicians and the media way overemphasize the impact that politicans have on the economy. And I also agree that the Fed’s impact is greater than most legislative measures (though I’m fairly certain that the President is responsible for appointing chairs such as Greenspan in which case they have to be given credit for what the Fed does). But probably the single most important exception to that rule is the matter of tax cuts.

Don’t get me wrong. I agree that tax cuts aren’t a big factor in pulling the economy out of recession. But what regressive tax cuts like Reagan’s and W.'s do is to aggravate patterns of inequality that are already way out of control. And in the long run, this is not only morally unjustifiable but also economically unsound.

I think we both agree that productivity gains were one of the major causes of recent economic prosperity. Even your Gordon-Gecko-theory boils down to productivity gains: i.e., Wall Street’s demands for leanness amount to squeezing more productivity out of the workforce: both middle and working class. Now in an ideal situation, those gains in productivity should be spread around equitably and wisely: some goes to profits, some to increased wages so that workers working harder can purchase and save more, some goes to into longterm wisdom such as training, research and development. Your “Greed-is-Good” philosophy has stinted all but the first which–in conjunction with tax cuts–has squeezed the middle and working classes and given us the wealth profile of a third world country (a plutocratic elite; a shrinking middle class; and a huge number of poor, including working poor).

Here is an excerpt from the link I posted.

“Here’s a rough (and reasonably certain) picture of what has happened [as a result of Reagan’s legacy]: the standard of living of the poorest 10 percent of American families is significantly lower today than it was a generation ago. families in the middle are , at best, slightly better off. Only the wealthiest 20 percent of Americans have achieved income growth anything like the rates nearly everyone experience between the 40’s and early 70’s. Meanwhile the income of families high in the distribution has risen dramatically with something like a doubling of real incomes of the top 1%.”

Since this was written in 1998, that trend has worsened and now, with the Bush’s tax cuts, it will worsen again still. As a conservative you believe that government spending is wasteful. Let’s assume, for arguments sake, you’re right. What’s the justification for giving a tax cut, 60% of which goes to the 1% who have already benefitted the most while continuing to leave almost everyone else behind? Why not cut payroll taxes instead and thus give a break to the vast majority of Americans who live from paycheck to paycheck?

And if you’re answer is because “Greed is Good,” think about that again. For the time being times are okay, even for those who struggle, because unemployment is low; and wages had finally begun to climb a tad (just in time for Greenspan to raise interest rates to slow things down, which may well have caused the current recession-to-be). In the meantime household savings and credit card debt are at an all time high; bankruptcies are at record-breaking highs. The trade deficit is way outa control. What’s going to happen when a recession hits?

And if your answer is that the filthy rich will invest all their tax-cut wealth in stuff that’s good for American workers, then you’re so far into voodoo you oughta be sticking pins into your Bonzo fetish doll. A lot of that “investment” goes into dot.com madness, oversupply, dodgy hedge funds, and foreign investments that aren’t going to help people here get good jobs and pay their credit card bills. Good thing Congress has just passed a law to make it much harder for people to declare bankruptcy!

Uncle Beer: As jshore has already pointed out, you’ve either flubbed your syntax or erred when you seemed to say that government spending as a share of GDP increased under Clinton; it did the reverse. Yes government spending grew in absolute terms, but it was outpaced by the growth of the economy. To say that government spending has “increased” when it’s grown less that the growth rate of the economy as a whole is like saying that your salary has “increased” when you were given a raise that’s less than the rate of inflation. In actuality, you’re getting less, and so did the government, which had to stretch its services to meet the demands of a growing population and growing economy, under the Clinton years.
Now I agree with you

11

Sorry about that last little “Now I agree with you…” It was something I’d meant to edit out.

12

Sam,

What Mandelstam said. And in addition…

I tend to agree with you to a large extent about the government not having all that much control and in fact in many ways I feel you are making the points I try to make on this board…since I often find myself arguing exactly this sort of thing when people are complaining about the evil government controlling their lives, whereas they are totally oblivious to the extent to which the whole materialistic culture produced by capitalism is a much more potent controller of their lives.

On the other hand, I think that while the government’s ability to regulate economic cycles can be limited, it can have longer term effects on things such as the distribution of wealth and the nature of the economy etc. I think we already know that unfettered capitalism left to its own devices produces such staggering inequalities that we (well, at least most of us) don’t want to leave it completely to its own devices. And, the evidence shows that government can make quite a bit of difference in this regard. (Witness the decline of elderly poverty following the creation of Social Security, and the backward progress on poverty and equality in many ways over the last 20-odd years.)

13

It’s important to understand why Reagan was elected and what problems he was supposed to solve:

1 - Stagflation: Back then, both inflation and unemployment were rising. This confounded the economists, and the politicians of course were at a complete loss as to how to address this problem. More on this below.
2 - The aforementioned inflation led to the bracket creep that Sam Stone alluded to. This was a big problem politically for the Democrats, and one they for some reason never addressed on their own.
Problem #2 was solved in 1986, when the brackets and the deductions, both standard and personal, were tied to inflation so as to prevent bracket creep from happening again.
Problem #1 is a lot more interesting.
Two vital statistics: in January 1977, when Carter took office, the number of people employed was 89.93 million. In January 1981 the number of people employed was 99.96 million, an increase of 10 million. Percentagewise, this was an increase of 11% in the number of people employed. Not a bad record. But the number of people unemployed nevertheless rose, from 7.3 million to 8.1 million. This last statistic is what everyone focussed on, and was a large part of the reason Carter was booted.
How, you ask, could this happen? How could you increase the number of jobs in the economy by 11% over a mere 4 years and still get your butt booted for raising the unemployment rate?
This is where the third vital statistic comes in:
In 1980, the percent of the population between 20 and 24 was 9.4%. The number between 15 and 19 followed closely behind at 9.3%. These two cohorts were the two largest parts of the population at that time. This age is the age when you first enter the labor force.
So the labor force was increasing rapidly at that time, so rapidly that the attempt to get them all employed resulted in galloping inflation. And still the unemployment rate went up.
Carter’s answer to the above dilemma was the Democratic answer: create jobs to solve the unemployment problem.
Reagan’s answer to the above dilemma was the Republican answer: create a recession to solve the inflation problem.
Unfortunately for the wealth of the nation, Reagan’s answer worked.
In my opinion, it worked because under Reagan the demographic problem disappeared as the above cohorts got older. By 1990, the number of people 15-19 fell to 7.2% of the population, while the number between 20 and 24 fell to 7.7%, considerably less than what they were in 1980.

In short, Carter didn’t create the problem that got him booted, and Reagan didn’t solve it. It was purely a demographic problem, and it solved itself.

Labor force statistics available at http://www.bls.gov.
Population statistics available at http://www.census.gov/prod/www/statistical-abstract-us.html

14

Mandelstam: I’ve looked over the Pit thread, and your links, and got to the MEGO point fairly quickly. I don’t think I will be participating in this debate. There’s too much history behind it for me to be willing to go back and figure out. I suppose I could, but, I’m lazy.

Also, I prefer a debate with a smaller range; the last few posts I read in the pit thread were something to do with Clinton getting a bj. I like to slice off a small piece of an issue and discuss that, as in my “horror movie” thread, devoted to a narrow (perhaps too narrow) slice of the abortion debate.

Let me just say this: I pretty much agree with the Pit poster who said that presidents are buffeted by the economy rather than controlling it.

I also agree with:

As to this:

I looked at the link; I looked for where the author would propound on what the mechanism for this was, but I couldn’t find it.

Finally:

I am strongly resistant to calls for the tax code to be based on what anyone thinks is “moral”. As to the economic side…perhaps you could start another thread on just this issue.

15

Well, you simply cannot avoid the moral questions. If you choose to pretend to ignore them by saying something like “I will just have proportional taxation and leave it up to the market how the wealth is distributed”, you are making just as arbitrary a moral choice as any other (although you are couching it in language that attempts to hide the arbitrariness). [One person to see on exactly this point, going back quite a ways since I read the book in college, is Lester Thurow “Generating Inequality”.]

16

These last few messages are proving my point. Look at all the justifications for claiming that Reagan screwed things up - One ‘proof’ that Reaganomics didn’t work is that tax receipts declined in 1981 and didn’t recover for a couple of years. But this is exactly what Reaganomics would have predicted - the basis behind Reaganomics was that if you cut taxes, the added growth in the economy will pay for them. But growth takes time. If a businessman saves some money in tax, he’ll invest it, but that investment won’t show up as increased productivity for some time.

Also, the graph in the the link that Mandelstom posted, titled “Deficit Measures as shares of GDP” shows that the deficit was improving rapidly in Reagan’s last term, and took a big dive again AFTER Bush’s tax increase. So some would claim that Bush’s tax increase actually hurt us by stifling growth and helping foster a recession.

But you can’t have it both ways. If Reagan’s tax cuts didn’t show an effect for a few years, then it’s disingenuous to suggest that Bush’s tax increase caused a recession in the same year. But by picking and choosing your starting point, you can make either case.

Another area in which undefined terms can prove either case is in trying to determine if the poor were better off or not after Reagan. The main statistic defenders of Reagan use are inflation-adjusted income, and in that measure, the poor did much better. But what if you measure the wealth of the poor compared to the average, or the richest? Then they fared much worse, because while the poor saw their incomes increase, the rich saw them increase much faster.

Another way to misrepresent the facts would be to show the poor’s average income as a percentage of GDP. If you use that as your benchmark, it will show the poor declining. But is that fair? The point behind Reaganomics was that a rising tide lifts all boats - by increasing growth in the economy, you benefit everyone. So a statistic that cancels out the effect of growth is meaningless in determining whether or not Reaganomics worked.

This is the essence of the problem. Every statistic you provide ‘proving’ that the poor did worse can be refuted with another statistic using a different baseline.

That’s why after several hundred years we still have fundamental disagreements over what ‘good’ government is.

17

I take your point, particularly the last one. But:

To paraphrase Paul Krugman: suppose the years 1995-2000 were not a time of almost unprecedented growth, but rather a time of failure. Would the supply-siders be taking responsibilty? If not, remember the old saying that success has many fathers, but failure is bastard.

18

pantom, thank you for that very interesting demographic analysis. I am curious: is it in your own and, if not, where did you read it?

jshore “…I often find myself arguing exactly this sort of thing when people are complaining about the evil government controlling their lives, whereas they are totally oblivious to the extent to which the whole materialistic culture produced by capitalism is a much more potent controller of their lives.”

Agreed. And again, agreement with Sam for his sober-minded realism regarding the impact of government. I recently read that in England something like 60% of the population believes that multinational corporations have more control over their lives than does Tony Blair’s government. I don’t know of any similar poll of Americans. That said, our governments are so deeply determined by their corporate sponsors that it’s often pretty hard to tell the difference between government and business interests. For this reason, the American people have come to seem pretty progressive in comparison to their elected governments. The majority did not want Bush’s tax cut. The majority is concerned about rising inequality. The majority wants to see a conservationist environmental policy. What Americans want and what they get is increasingly divergent which is why Americans are increasingly cynical about government. Ironically, the more Americans divest from government (by assuming that it’s just powerless to do anything, or by ceasing to vote), the more they perpetuate a situation in which they are, in effect, governed not by a popular democracy but by a business and wealth plutocracy. To divert them they are given plenty of “free” television; when they are frustrated, the white majority amongst them is assured that all of their problems are caused either by minority special interests or by “big” government itself; and these carefully generated beliefs lead the American people to disempower government even further and, in doing so, to strengthen the business elite that really rules them.

Wierd_Al, for these and for the reasons as jshore mentioned, you can’t ignore the moral implications of economic policy. In fact moral assumptions are built into economics (which back in the Adam Smith days, was still a branch of “moral philosophy”), because the goal of economic policy is to increase prosperity. Most economists are de facto utilitarians: they assume, when they write about achieving prosperity, that prosperity will result in increased happiness. Even if you judge prosperity in purely material terms (and most people don’t–they’d also value their health, their emotional wellbeing, etc. etc.), you can’t simply put aside the question of how prosperity is distributed. Since you read the link, think about Krugman’s analogy between the fisherman society (less inequality for hard work) and the gold-prospecting society (great inequality in spite of hard work). How can issues of economic prosperity be dealt with without assessing which kind of society we’re perpetuating. If you prefer, think of these as social questions rather than moral.

Sam, thanks for your last. However, I am beginning to think that I’m debating economics with a postmodern philosopher!

“Every statistic you provide ‘proving’ that the poor did worse can be refuted with another statistic using a different baseline.”

All you have suggested here is that some statistics are more misleading than others. As Krugman’s analysis of inequality shows, the redistribution of wealth towards the top 1% is incontrovertible. Of course you can distort reality with misleading figures such as Dick Armey used.

Pardon me, Sam, but you keep returning us to some fairly small potatoes issues: none of us has the numbers at hand to really argue about whether Bush Sr.'s tax rise was more/less responsible for that recession than other factors at the time. The bigger question here is whether the Reaganomics to which W. has seemed to return us isn’t going to exacerabate already historic levels of inequality so much that–in conjunction with other unattended problems (esp. the trade deficit)–our longterm economic prosperity begins to look very dubious indeed. Given what you believe about “bubble”-type investment, and given how little faith you have in government’s ability to curb or direct that, how do you see that problem being offset by Bush-o-nomics?

19

I’m sorry if I gave the impression that I believe government actions are irrelevant, or even that you can’t assess a government’s actions by analyzing after-effects. You certainly can.

Rather, my point was that politicians on both sides are constantly analyzing existing trends, and when they go their way they claim responsibility for them. Also, that politicians are very disingenous in that they will pick and choose amongst the vast numbers of statistical analyses available in order to ‘prove’ the point that they’ve already decided they are going to make.

I have a great example of what I’m talking about. Robert Reich, Clinton’s Secretary of Labor, is famous for using poor analysis and misleading statistics to ‘prove’ his points. For example, he just wrote an article in which he claimed that the poorest members of society did not benefit at all from the boom of the 1990’s. To ‘prove’ this, he used Department of Labor statistics from 1990 to 1997. But the statistics are also available for every year up to 2000, so why didn’t he include the last three years? Well, because in the last three years the poor gained rapidly. In 1998 alone the incomes of the bottom 10% increased by 5%. Reich intentionally ignored those years because they disproved the point he was making. Apparently you can get away with that when you’re an economist. If a physicist tried to massage the data that way, he’d lose the respect of his peers overnight and find it hard to publish. Plus, guys like Reich go directly to the mass media with their theories, rather than submitting them to peer-reviewed journals for scrutiny.

If you read the peer-reviewed journals in economics, you find a totally different kind of scholarship. The claims are much more modest, the admission of potential for error much more prominent, and the economists are very careful to attempt to isolate the dependent variables and account for spurious correlations and other complicating factors.

But by mining statistical data as Reich does, you can prove anything. If you can arbitrarily pick your start and end points, you can create any trend you wish.

Another way to lie with numbers is to ignore one whole side of an equation. This was the standard tactic of those who believed in government job creation in the 1980’s. If the government gives a company 10 million dollars to hire people, and that company uses it to hire 100 people, is it really fair to say that the government created 100 jobs? Perhaps those jobs would have been created anyway. And what of the effect of taking the 10 million out of the economy in the first place? If spending creates jobs, than taking money away from people must cost jobs. But that was never factored into the calculations that the politicians trundled past their constituents.

This technique is also heavily used by safety regulators. They’ll pass a law mandating a new flotation device in airplanes, and claim that it will save X number of lives. But they don’t consider the other side of the equation, which is that the added cost is passed on to consumers, and that will cause some of them to drive instead of fly. And since driving is much, much more dangerous, more people may die in car accidents as a result of the regulation than were saved by the new seats. This type of effect happens all the time, but is rarely factored into public pronouncements over the success or failure of a regulation.
So how do you tell what the effect of something was? Well, that’s tough to do. You have to isolate all the independent variables. You have to behave like a scientist - you start with an hypothesis, THEN you examine the data to see if the hypothesis predicted the outcome. And you have to be consistent. Conservatives love to say that Clinton’s economic boom was really the result of Reagan’s actions. But if a president’s actions still have effects 20 years after they were put in place, then couldn’t you equally claim that the boom in the latter half of Reagan’s tenure was really the result of LBJ’s Great Society programs? If not, why? What makes the stuff Reagan did so long lasting, and the stuff LBJ did vanish overnight? Show me an economic model to explain this. If you can’t, you’re just blowing smoke.

To give credit to the Supply-Siders, they did attempt to do this. The infamous Laffer Curve was an attempt to build a model that would predict future results, and Reagan’s tax cuts were the experiment. Was it a failure? Partially, but not totally, IMO. And I don’t think any economists would argue that tax cuts do have a stimulative effect. The question is, “how much?”, and on that score Reaganomics failed, because Art Laffer’s predictions were way off the mark.

But one thing is certain - wherever the economy goes from here, you can be sure that politicians will be quick to take the credit or assign blame for it.

20

All right, I’m going to break this little consensus here and focus on this question regarding poverty and its measurement: can we honestly state that poverty “increased” under Reagan, or under Clinton? The statistics are deceptive since so many fail to account for in-kind redistribution (food stamps, subsidized housing, Medicaid) or for the shadow economy in which many poor people live. This latter is especially significant, since anecdotally we know that there are an astonishing number of people getting paid under the table, with no records in labor, tax, social security or other statistics, and that for obvious reasons these people are more likely to be poor.

Another group that inflates poverty statistics is students, who may be cash-poor but are receiving education that will provide them with ample income later. In fact, one thing that seems especially vexatious about income statistics is that they don’t attempt to sort out people’s incomes over time - the good years, the bad years. As income increasingly becomes incentive-based, these differences matter. Somebody who’s unemployed for a year may have a lousy single year, but through savings, low housing costs, etc., doesn’t match up with anybody’s idea of “poor.”

I will buy, however, that inequality has accelerated since Reagan (and in fact its affect appears to have become even more pronounced during the 1990s). What I will not buy is that this statistic should worry us, particularly since to an as-yet unknowable degree the inequality may have resulted from an overvalued stock market, which distorts not only distribution-of-wealth data but also income data from exercise of compensatory equity distributions.

But even laying those concerns aside - let’s assume the worst case scenario. I don’t think we need to care unless we see that a large number of people (not merely those employed in basket-case industries like steel or textiles) are becoming, in absolute, inflation-adjusted, all-economic-transfers included terms, poorer, and are remaining so over a period of several years.

Those are the folks we need to worry about, and I am not persuaded that anything other than a growing economy, relocation grants and (re)training programs will help them. High marginal tax rates are, at best, irrelevant to any of the above.