The lion’s share of the deficit came from Bush and then some policies started under Bush and continued by Obama. See this graph.
Wow…pot meet kettle!
The world economy is in a shambles. A disaster not seen in 80 years and abetted by supply-siders and you call me blind? That’s rich…
And…
You know, Paul Krugman is not the Oracle of Modern Economics. There are plenty of economists who flatly disagree with him. Including SEVERAL that have Nobel prizes. And Krugman’s area of specialty is trade policy. He’s not even a macroeconomist. But you guys constantly use him as the trump card when you don’t have an answer. “But… You’re a LIAR because Paul Krugman disagrees with you!!! And he’s got a Nobel prize!”
Did you happen to notice who authored the paper I quoted from above? I’ll bet you didn’t even read it, did you?
I’ll save you the trouble. The authors were Christina and Paul Romer - actual macroeconomists, one who happens to be President Obama’s chairperson for his council of economic advisers. The paper is brand new, published in June 2010. It represents the latest research on the effect of tax cuts and increases, and they say the GDP-destroying effect of tax increases is not just evident, but it’s large and robust. They tried several robustness tests against their conclusion, and the worst result they showed was that a 1% tax increase might only cause a 2.5% GDP drop. And when they investigated why GDP fell, they found that it wasn’t about demand changes, it was about investment. A 1% tax increase could cause as much as an 11% drop in investment.
Is that what you want? You want to lower GDP and investment in the future, just so you can make sure the rich pay their ‘fair share’?
As for the details in your post - you need to stay focused. You posted all kinds of stuff having nothing to do with supply-side economics. You posted correlations as if they were fact (your claim that tax cuts caused the revenue drops in the early 1980’s fail to account for the recession taking place, for example).
Basically, you took every negative thing (from your perspective) that you could find, and attributed them to tax cuts without any supporting evidence. And frankly, I find Krugman a poor source. He’s a good economist from a technical point of view, but he’s also a partisan political polemicist with an axe to grind, and he’s increasingly confusing the two roles.
The repubs scream about accountability for the poor. What about the rich? The bankers who destroyed the system got raises, and bonuses. If they were accountable, they would have wound up on the street or in jail. They came out fine. They are actually in charge of the money that was designed to save what they destroyed. So they kept as much as they could.
What is a fair share for the bankers? It would have to start with losing their jobs. Paulson only became a billionaire for riding the ghost investment train at Goldman. Then he was put in charge . What a country.
Yes, because the government bailed them out. Against the wishes of Republicans, I might add. The biggest beneficiary of the bailouts, Goldman Sachs, was the top donater to the Obama campaign. Goldman Sachs executive is top-heavy with Democratic bigwigs, as is Fannie Mae and Freddie Mac. This is not a Republican Crony system, it’s a Democrat crony system.
The one financial firm that didn’t get a bailout, Lehman Brothers, also happens to be the one that gave the least to Democrats in the last election.
They’re sitting on the money because the government has created conditions that cause them to act that way. The government dumped trillions of dollars into the banks to make it easier to get credit, while failing to notice that there’s actually not that much demand for credit. And they set up the funds rates so that the banks could profit from the situation.
It’s not just Paulson. Other Goldman Sachs alums include Robert Rubin, former assistant secretary of the treasury Neel Kashkari and current assistant secretary Gary Gensler, Stephen Freidman. All former executives and/or partners in Goldman Sachs. Goldman’s current ‘Director of Government Affairs’, Michael Paese, was hired straight from Barney Frank’s office, where he was an executive assistant to Frank. Timothy Geithner’s Chief of Staff is Mark Patterson, who was a former lobbyist for Goldman Sachs.
How do you figure? According to this CNN table, Goldman got $10 billion, but Wells Fargo, Citigroup and JPMorgan Chase each got $25 billion, and Bank of America got $15 billion. Goldman is tied for fifth place with Morgan Stanley.
And all of those pale in comparison AIG, who got $182 billion.
So who is the biggest beneficiary of the bail out? Are they all Obama cronies?
Oops…(bolding mine)
The biggest beneficiary was Goldman Sachs, because a large part of the bailout of AIG was to enable them to pay off the debt they owed Goldman. It was beautiful, actually - Goldman got a large bailout without directly being bailed out very much, which allowed them to be the beneficiary while avoiding most of the conditions the administration put on the other big recipients like AIG. Goldman was the biggest beneficiary of the AIG bailout, getting about 13 billion of that bailout money directly.
TARP was signed by the Bush Administration, but Democrats controlled the House and Senate, and Hank Paulson also served under Bush, and much of TARP was administered by the Obama administration. But I should add that this cronyism isn’t just isolated to Democrats, although Democrats are heavily over-represented at Goldman, Fannie Mae, and Freddie Mac. Plenty of Republicans are part of the revolving door system between big business and government. Cheney and Halliburton, for example.
I am quite familiar with the work of the Romers. The article is very involved and nicely empirical. I wish I had the several hours it requires to work through. I’m just semi-trained: you’d get more insightful remarks from Hellestal.
That said, the results are anything but cut and dried. For example, on page 37:
Romer & Romer are quite honest about the fact that they have no causal model for why the effects they observe occur. This is certainly not damning in and of itself, but until we have some better theoretical explanations for this, I’d be cautious to exploit these findings to justify any tax policy.
Actually, I pointed out the same clause in my message above, which is why I said that it looks like raising the tax in order to spend the money would be the worst choice of all. Far better to raise the tax and apply it to the deficit.
I’m also aware that this is one paper of many, and that it’s not exhaustive. Still, it’s certainly credible evidence that taxes do in fact cause substantial negative effects on GDP, and it should not just be handwaved away by people who wish to believe that they can raise taxes with impugnity and not hurt the economy, or even that raising taxes will help the economy because then the government will spend the money wisely.
It should especially be read by those who think that ‘supply siders’ are any people who think that lowering taxes might help the economy and that the cost will be at least somewhat offset by economic growth, and that, since supply-side economics are ‘bunk’, anyone believes in the stimulative effect of tax cuts is automatically a crank.
At least, that’s the criticism that’s being leveled at me on this board. I have not once said that tax cuts always return more revenue than they cost, but any time I try to make any case for a positive effect from a tax cut I get labeled a ‘supply sider’ and dismissed. Often accompanied by a random quote from Saint Krugman.
I should add that I wasn’t trying to use that paper to justify policy - I’m very ambivalent about the Bush tax cuts, and I’m open to arguments on both sides. I was using the policy to point out that the notion that tax cuts can stimulate GDP growth and reduce the cost of the cut, and that tax increases can cause GDP growth to slow down and not raise as much revenue as expected, is not a crank position and not an idea to be dismissed out of hand because you don’t like the conclusion, as so many on this board tend to do.
I hadn’t noticed that. Serves me right for coming in at the end of a thread.
It’s not evidence per se, it’s an interpretation of the evidence using some empirical techniques that may or may not be reasonable. The authors themselves discuss their possible omitted variable bias or the fact that tax increases may in fact correlate with other GDP-reducing factors. They try to correct for these things in some reasonably interesting ways, but let’s not go too crazy yet.
I admit I just skimmed the article, but I don’t think this is true. Romer & Romer do not argue that lowering taxes increases growth, just that increasing them can reduce growth on average. They don’t posit a mechanism for how this works and are quite honest that they cannot conclude whether this works on the supply side or on the demand side. It is not possible to infer that the supply side story has any merit from this study.
Sorry. Well, I’ll cop to the Saint part. After I read History Versus Expectations, I confess, I’d vote for him for sainthood. For what it’s worth, I think there is definitely a time and a place for tax cuts. Unfortunately, I don’t know what time or place that is.
You’re making it sound like they think it’s a mild effect, or that it barely rises above the noise, or that they are very unsure of the result. That’s not the tone I get from reading that paper. They use wording like this:
That doesn’t sound particularly tentative. Of course, near the end of the paper they suggest areas of potential weakness and further study, but certainly they think this is a strong result. The biggest caution they put in the paper is that, while the statistical correlation is strong, the confidence interval is wider than they’d like because of the sample size.
Also note that this paper doesn’t change an orthodoxy that says tax cuts have no effect - on the contrary, it’s accepted for a long time that tax cuts and tax increases modify GDP in an inverse relationship. What’s new about this paper is that the size of the change is much bigger than previously thought, and the new conclusion comes from the division of taxes into ‘endogenous’ and ‘exogenous’ taxes - exogenous taxes being those that are not entangled with other factors that affect economic output. So basically, what’s new about this paper is that it controls for affects other than the tax cuts so output can be correlated better.
But long before this paper, it was accepted that tax increases will reduce economic growth somewhat, and tax cuts will increase it all else being equal. You can make all kinds of exceptions for taxes that meet certain criterion, such as those specifically used to pay down a debt, or those used to finance a war or to correct another heavy economic imbalance. Greg Mankiw would probably argue that Pigouvian taxes wouldn’t have such a GDP reducing effect, for example.
Actually, while they talk mainly about tax increases, the effect works both ways. Their data includes tax increases and tax cuts. Their point is that the correlation of taxes and GDP is negative. In fact, in one paragraph in the paper they offhandedly say that since an increase in X causes a decrease in gdp of Y, then a decrease in tax X would have the opposite effect. They seem to think the effect is symmetric.
You’re right that they don’t explicitly endorse a demand side or supply side conclusion, but I find that a bit strange since their paper show a huge reduction in investment from a tax increase, and only a small reduction in demand.
For me, one of the most interesting findings of the paper is that tax cuts aimed at deficits actually had a positive effect on GDP. I wonder why that is? Does that suggest that large deficits are a big drag on the economy? Perhaps actions taken to reduce the deficit cause business confidence to rise? They don’t speculate on that, but it seems to me that this could possibly have an effect on the analysis of deficit driven fiscal stimulus. I wonder if they’re looking at that now, hoping to explain why their fiscal stimulus model seems to have failed (the famous prediction of unemployment under 8% if the stimulus passed).
In any event, whether or not their conclusion eventually holds against challenges, the point is that the notion that tax cuts can cause GDP increase and tax increases a loss in GDP is certainly not a ‘crank’ position, so some people in this thread should stop rolling their eyes and sneering at the very mention of it.
Also, GDP does not equal revenue. It is entirely possible to raise GDP and still lose tax revenue. For example, if the tax was highly progressive, then a tax cut would not just reduce revenues for the current year, but the loss could actually accelerate as GDP rises, if the GDP rise is reflected in a rise in real income for the population. In that case, the government loses revenue because it loses ‘bracket creep’ increases. That happened with Reagan’s first tax cut, and also with Kennedy’s 1964 cut, I believe.
Of course, you can argue that the only reason GDP increased in those years was because of the tax cuts, so if the taxes hadn’t been cut there would have been no bracket creep anyway.
I’m happy to let people reading judge for themselves the relative merits of our arguments over the five points I posted about. Personally I’m going to go with the guys who know what they’re talking about rather than the opinion of some guy on the internet with a storied history of making disingenuous, to put it politely, claims.
As for the stimulus stuff, you’re basically saying we should repeat what the Mellonite liquidationists did back at the start of the Depression. And you’re claiming that austerity has produced economic growth in Europe when the austeirty programmes haven’t even started in Britain and Germany has a fiscal stimulus of 2% of GDP this year. I’m pleased that you’re now on record as saying that you think we should abandon all stimulus efforts and embrace austeirty as the way to get the economy going though.
Let’s get this straight: YOU have a ‘storied history’ of accusing your opponents of lying whenever you don’t like their conclusions and can’t refute them. You don’t get to just repeatedly smear someone, then go around dismissing what they say because they’ve been accused of being disingenuous so much. Character assassination is your stock in trade.
I’m not saying that at all. I’m in favor of extending unemployment benefits. I was in favor of a smaller stimulus. I was in favor of TARP, and of the fed’s Quantitative Easing to stabilize the money supply when velocity was falling.
The problem I had all along was that the stimulus would be mismanaged by Washington. I was skeptical of the claims of huge multipliers for the stimulus. And I’d say I’ve been right. Washington did a terrible job of disbursing the stimulus money. And there’s no evidence of a multiplier at all so far.
And most of all, I was worried that the stimulus would not meet ANY of Larry Summer’s demands that it be “Targeted, Temporary, and Timely.” It was targeted all right - to constituencies of powerful politicians. It wasn’t temporary - much of it was used to grow the size of government, or to prevent government from contracting as the private market did. And it wasn’t timely - three years after the start of the financial crisis, half the stimulus money still has not been spent.
The mere announcing of an austerity program could have immediate effects on investment. Markets and businesses react to the future and not just the present. One of the reasons it’s so hard for simple economic models to work in the real world is that once people figure out what the long-term plan is, their behavior changes.
How much of an affect this has, I don’t know. I’m not about to make a sweeping conclusion about what caused the improvement in Britain’s latest economic numbers. I merely presented it as a data point. There could be a completely unrelated factor that caused the recent increase.
Still, I find it striking that when I read articles about the economy in Canada, the UK, and Germany, I reading how economists were ‘surprised’ at how much better the economy is than what they predicted, and when I read similar articles in the states, I keep reading how economists are ‘surprised’ that the economic results aren’t as good as they thought they’d be. I present this as nothing more than an interesting observation.
For someone constantly railing about how ‘disingenuous’ your opponents are, you sure like to put a lot of words in people’s mouths. I never once said you should abandon all stimulus efforts. Again, I support the extension of unemployment insurance.
What I do think the government should do is start a program of restructuring of public unions and targeted cuts of government programs that aren’t working well. I would put a pay freeze on all public workers for at least a year. They’re already in the top third of income quintiles. More importantly, I’d announce pension reform initiatives that scale back public pensions to be equivalent to the average for private sector workers in the same positions (suitably indexed into the future to not badly hurt those already retired). Scaling back pensions would not cost any money today, but would bend the cost curve going into the future and change the deficit outlook. I’d consider a plan like that to be a stimulus.
In addition, I’d never have passed that gigantic financial reform bill. I think it’s a disaster, and I think it’s anti-stimulative. It’s dropping a whole bunch of uncertainty and cost on businesses in the middle of a recession. Stupid, stupid. And I’d repeal the Obama health care plan, which has turned into a gigantic mess full of unintended consequences. And the only reason it ‘only’ cost a trillion dollars is because it assumes a 500 billion cut in Medicare - which means it will be even harder to bring medicare costs into line because the low-hanging fruit has been claimed by yet another entitlement program.
I’ll bet if you repealed those two gigantic pieces of legislation, you’d see an immediate improvement in business investment and job creation. Couple that with some targeted government cuts and support of state programs that get their public payrolls in line with reality, and you’d set the stage for a much more robust recovery.
Then, I’d start talking about medicare reform as part of a comprehensive health care reform package that starts with catastrophic insurance for all, with deductibles indexed to income and wealth, and which eliminates medicare as a universal entitlement and folds it into the omnibus health care plan with suitable additions and modifications to meet the needs of retired people who cannot afford their own health care.
My plan is MORE progressive than medicare, because it means-tests benefits while maintaining universal taxation. It’s better than Obamacare because it reduces adverse selection and the cost to insurance companies of pre-existing conditions while allowing market forces to control the bulk of health care.
Then I’d announce a ‘stability plan’ which tries to help business plan for the future by managing government-imposed change. Part of that would be a solid plan for deficit control, but it would also include a promise to table cap and trade and card check and other scary regulations businesses are worried about, at least until the recession is over.
Finally, I’d use this time as an opportunity to sift through the Federal Register and start reforming regulations that have proven to have a poor cost-benefit factor. I’d eliminate the efficacy standard for FDA trials, I’d scale back the Americans with Disabilities Act, and I’d re-evaluate OSHA and other intrusive regulations. Not eliminate them - make them more efficient. Examine what has worked over time and keep it, and throw out stuff that just adds cost.
Notice there’s nothing in there about supply-side tax cuts returning more revenue than the cost of the cut, or about opposing any kind of economic stimulus.
I’m happy to let the actual evidence show which of us has the storied history of being full of you-know-what. If you want to pretend for whatever reason that you’re not regularly mocked on the board for your previous postings then that’s fine by me.
Now you’re saying that you’re not in favour of fiscal stimulus, in spite of all the evidence around the world of it working so well, but you are in favour of monetary stimulus – since you agree that the economy needs stimulating in general then don’t you think the austeirty budgets are a bad idea? And you’re hilariously trying to dodge the fact that you claimed austerity budgets which hadn’t been cut had been producing economic growth in economys currently recieving massive fiscal stimulus. Austerity budgets can encourage investment just by being announced! Really? Show us examples of this increased investment. And then you’re back to claiming how legislation and regulation is going to cut jobs and investment, back to parroting Heritage Foundation nonsense again.
A tax cut would certainly not qualify for that. They already had the tax cut for years and no jobs were created. We need the banks to lend to small businesses, the ones that actually do create jobs. But they are reluctant because they can make money so easily now with practically free money from the government.
I wish Obama would take over a bank and start the process rolling.
Let’s see a cite for this - specifically that no jobs were created after the Bush era tax cuts.
Failing that, stop making things up.
Regards,
Shodan
Hyperbole is wasted on some people. Literally no jobs? If that is your only beef, we’ll give you that one. But the Bush tax cuts were less effective in stimulating jobs than any other modern recession:
But if your only concern is proving gonzo wrong on the literal meaning of his statement, congratulations, for what ever that is worth. But the Bush tax cuts sucked at creating jobs. That is undeniable.