# Why not "demand-side economics"? **URL:** \ **Category:** Great Debates\ **Created:** [July 6, 2010, 11:06pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790 "2010-07-06T23:06:02Z")\ **Posts on this page:** 20\ **Page:** 4
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 11, 2010, 3:10am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/61 "2010-07-11T03:10:57Z")
> [@Sam\_Stone](#): > > The progressivity of the tax code itself is a subsidy that extends from the rich down to every class below. That’s not true unless you define rich as the top third of Americans. Fully half of Americans receive more in direct benefits than they pay in taxes, 60% of Americans are the beneficiaries of spending directed towards them that exceeds their tax contribution, somewhere around the 65th percentile people are paying their pro-rata share of the federal income tax burden. If you start counting payroll taxes, state and local taxes, the breakeven point drops even further. Sure the top 20% pays 60% of federal income taxes, the top 1% pays 25% and this trend continues up to the top 0.001% (or top 1000 households) as ever richer families pay disproportionately more of money into the kitty. The only thing more disproportional than that is the rate at which their relative incomes have risen over time. The tax rate is pretty flat after you reach the top 1% until you get deep into the top 1% when rates start to drop back towards about 15%. I think we need more progressivity, MUCH more progressivity. Create another tax bracket at around 300K, then start phasing out capital gains rates and qualified dividend rates. > [@](#): > > In my ideal world, I think the only constraint on your ability to fire someone should be the contract you signed with them. Can a bunch of us get together and jointly negotiate for contract provisions? That called a union, or should we force every employee to negotiate with their employer alone? > [@](#): > > I still have misgivings about the ability of the market to inhibit discrimination. Some libertarians would tell you that businesses that discriminate would be punished by the market - they’d have a smaller pool of employees to pick from, and active discrimination would be punished by customers because they don’t like the company. I am not convinced of this. So this is an area where I refuse to dogmatically say that the government should have no say in discrimination. Well, at least you aren’t Rand Paul crazy. > [@](#): > > I do, however, oppose affirmative action. I think that minorities and women would disagree with you. There might be an argument that affirmative action has run its course but do you really think that over the history of affirmative action, the policy hasn’t done more good than harm? Women in the workplace, Asians at top ivy leagues in significant numbers, Blacks attending college in higher numbers (at least until the invention of rap and the federal drug sentencing guidelines). > [@](#): > > And, I oppose sweeping regulations that mandate accommodations for people, such as the Americans with Disabilities Act. I think they do more harm than good. I think the Americans with disabilities would disagree with you. Imagine you are a confined to a wheelchair. Noone will hire you, you can’t use public transportation, go to the library, use a public bathroom without risking falling on a public restroom floor. You are effectively a shut in living on the generosity of our social security system as you cash you disability checks every month. Then they pass the ADA and suddenly you have can get a job selling timeshares over the phone because now most businesses have disabled stalls and wheelchair access, they can’t discriminate against you. Now you bring home enough to pay your own rent, buy your own food and hire your own hookers. Now that hooker no longer seems like a pathetic psychological need that you eke out of your disability check, it now seems like a twisted little perversion that you pay for with money that you earned by bothering people in the middle of dinner and selling them time shares that they will probably only use a few times before you buy it back from them at a third the price and you derive much more enjoyment out of your encounters with the hooker. What was I talking about again? > [@](#): > > I think this is highly debatable. I’m familiar with the standard examples, such as Korea and Japan. I think the claims made for government intervention in these cases is over-stated, and there are many, many more cases where well-intentioned government intervention was disastrous or at least counter-productive. I think that if you asked the people from these societies, they would tell you that government guidance and coordination of industry was critical to their success. With that said, it can be a disaster. I don’t think I presented the Japan/Korea examples to say that we should operate under a government guided industrial policy, I presented them to argue that under the right circumstances and with the right policies, government involvement in the market can create competitive advantages for the nation. > [@](#): > > They’re pretty easily distinguishable unless the big corporations are allowed to imprison or kill people who don’t do as they say. Well I was talking about their impact on the market. How is the government’s decision to engage in some market activity significantly different than some megacorporation’s marketplace decisions? > [@](#): > > Competitive markets correct. Sure but it sure takes its time sometimes. > [@](#): > > If the markets truly aren’t competitive (and again, I agree that there are many market failures - health insurance is one of them), then I see a role for government. But that role should be to merely correct the market failures and enable competition to flourish - not to enter the market as a competitor. That should be an absolute last resort in the case that a market is unable to form at all. Would you put the TARP fund into this category of markets that are unable to form? The markets were valuing these mortgage securities that had underlying real estate assets as essentially worthless because people suddenly realized they couldn’t figure out how much they were worth so there were no bids at all and a constantly dropping ask. DO you think that in that case, government intervention is warranted? ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 11, 2010, 3:41am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/62 "2010-07-11T03:41:38Z")
> [@Sam\_Stone](#): > > Doesn’t that pretty much match my definition? It’s the other people here who are trying to define supply side economics as strictly being about the belief that lowering taxes will raise more revenue. I’ve been using the definition of supply side almost exactly as defined above. Nothing in there says that the economic growth will be so great that you’ll raise more taxes after the cut. Well to be fair I am strawmanning a bit because I want you to unequivocally state that the whole “tax cuts=revenue increases” is bullshit. Not thatit was bullshit in the short or medium term but maaaay create more tax revenue over the long term but that it was just utter bullshit so I can post one of those RESOLVED: TAX CUTS != REVENUE INCREASES and shut up all the folks on the board who believe otherwise forevermore. You simply provide too much intellectual support for people who believe some of these ridiculous theories. > [@](#): > > I’m confused. … We’re talking about whether or not there are examples of countries that have seen their economies dramatically improve after cutting the size of government and reducing regulation. Any other country I mention will also not be the U.S. Well the USA IS unique in that the largest economy in the world has a much harder time engaging in microeconomic behavior (although the second largest econmies have done so with some regularity during my lifetime whether it was Japan, Germany or China and eventually they all fell (at least Germany cashed in its chips and got a reunified country out of it). > [@](#): > > In Canada, the governments of Alberta, Saskatchewan, and Ontario reduced their government spending dramatically in the 1990’s. All three of them then went on to experience GDP gains higher than their bigger-government counterparts which did not reduce spending. Did they reduce government spending or did they reduce taxes? I don’t know enough about Canada to speculate why this might have occurred but I thought Alberta and Saskatchewan produced enough oil to be part of OPEC (and Ontario (or at least Tortonto) is to Canada what Singapore is to Malaysia), but once again I just don’t know enough about Canada. > [@](#): > > You might want to read this working paper from the International Monetary Fund: [Reforming Public Expenditure in Industrialised Countries: Are there Trade-Offs?](http://www.ecb.int/pub/pdf/scpwps/ecbwp435.pdf) > … > A particularly interesting tidbit for those who think that such reforms would come on the backs of the poor: > … > On average, the poorest quintile improved the most in countries that shrunk their governments the most, primarily because overall GDP growth was higher. > … I once was wary of that notion and I thought Clinton’s welfare reform would be a disaster for the poor. It has not turned out to be the case. Sure people had to work a lot harder for marginal improvements in their lives but with welfare, you life never gets better until you get off welfare. I am now convinced that the primary objective of welfare administrators should be to get people off of welfare but I am equally convinced that we need some more social infrastructure to grease the skids a bit. Something to do with daycare would be a huge benefit IMHO. I have a few single mothers that work with me and I don’t know how they do it. If we could make good daycare more accessible (even make it free), I would be OK with even more cuts to the welfare rolls. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 11, 2010, 3:46am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/63 "2010-07-11T03:46:57Z")
> [@Hellestal](#): > > This is true enough. In my first post in this thread, I specifically pointed out, at least two times, that there is a difference between policies that are intended to increase the long-term supply of goods in an economy, and the Laffer tax nonsense. And yet **Damuri Ajashi** still somehow managed to miss it. Well to be fair I am strawmanning a bit like I said but I have every reason to like you said. For example: > **[Supply-side economics](https://en.wikipedia.org/wiki/Supply-side_economics#Supply-side_vs._Monetarism)** > > Heterodox > Supply-side economics is a macroeconomic theory postulating that economic growth can be most effectively fostered by lowering taxes, decreasing regulation, and allowing free trade. According to supply-side economics theory, consumers will benefit from greater supply of goods and services at lower prices, and employment will increase. Supply-side fiscal policies are designed to increase aggregate supply, as opposed to aggregate demand, thereby expanding output and employment while lo... And they do so to this day. In DC this belief is de rigeur among conservatives. The reason is that they all want tax cuts but they can’t bring themselves to cut spending so they pretend that tax cuts will pay for themselves, that way they can vote for tax cuts without ever having to pay the political price of spending cuts. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 11, 2010, 3:51am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/64 "2010-07-11T03:51:01Z")
> [@psikeyhackr](#): > > The economists pretend that depreciation does not happen on to durable goods on the demand side. Cars are no different from hamburgers. Well that’s not true. Almost everyone that has gotten past econ 201 understand that even fixed cots are variable costs over the long term. There is a substantive difference between mainstream economics and supply side economics (which is basically a tortured and selective reading of mainstream economics that leads to the conclusion that cutting taxes has only good effects. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [July 11, 2010, 5:42am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/65 "2010-07-11T05:42:22Z")
> [@Hellestal](#): > > This is true enough. In my first post in this thread, I specifically pointed out, at least two times, that there is a difference between policies that are intended to increase the long-term supply of goods in an economy, and the Laffer tax nonsense. And yet **Damuri Ajashi** still somehow managed to miss it. > > But whose fault is that? > > I _also_ linked in my first post to Megan McArdle’s story from a few years back that it is standard editorial policy among a prominent conservative magazine, even now, to wrongly declare that lower taxes will increase government revenues, and they will [spike any article](http://www.theatlantic.com/business/archive/2007/10/i-take-it-all-back/2116/) that points out that this is a lie. **This is the mainstream conservative position in the US, and it is total bollocks.** Yes, there is an actual potential justification for lower taxes (not that I’m convinced right now, but it does exist). But the people who argue that rational position are rare. Most of the “supply-side” argument, _as it has always been used_, has been based on the tax nonsense, or else an implicit, and highly hypocritical, short-term Keynesianism. It’s fair to point out that that nonsense is how “supply-side economics” is typically used in our public discourse. I’m not sure that that’s the way it’s used at all. I talk about this with people on the right, and a lot of them are supply-siders but are perfectly willing to accept that tax cuts don’t always result in increases in revenue. They see supply-side much the way I do - policies that improve business conditions in general. > [@](#): > > And what’s the advantage, really? A potential extra point or so of GDP growth? A single point that we’re not even sure exists? It’s a perfectly reasonable choice for people to decide that they’d rather have a fair tax system and strong social services, rather than letting 1% of people walk home with 45%+ of the nation’s pie, this highly unbalanced distribution tolerated in exchange for the mere hope of a really kick-ass economy twenty years out. First, you’re moving the goal posts. The assertion was that smaller government does not result in higher GDP growth, period. If you’re willing to accept that it can, then the discussion has changed from macreconomics to values. You’re willing to give up a little growth and a little more efficiency in favor of what you see as more social justice. That’s fine, but it’s a different argument. But you’re also ignoring the fact that the JEC study found that the poor did _better_ in the economies that cut the size of government the most. And I can see how that could happen - for example, smaller government means less rent-seeking from powerful special interests. The study did point out that it matters HOW you cut the size of government. If you do it by cutting welfare and food stamps, I can see how it would hurt the poor. If you do it by eliminating farm subsidies and cutting the military budget, I can see where powerful vested interests are hurt and the poor do better. And you’re dismissing 1% growth awfully lightly. The long run gets here before you know it. 1% growth means that by the time my daughter is ready to have a family, the per-capita income could be 25% higher. That’s a big deal. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 11, 2010, 6:20am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/66 "2010-07-11T06:20:32Z")
> [@Sam\_Stone](#): > > I’m not sure that that’s the way it’s used at all. I talk about this with people on the right, and a lot of them are supply-siders but are perfectly willing to accept that tax cuts don’t always result in increases in revenue. They see supply-side much the way I do - policies that improve business conditions in general. Then you are talking to a different species of right wingers than I do. Do any of these right wingers you talk to think that a tax cut today would increase revenue? Or that any of the tax cuts since 1980 (with perhaps the exception of the first tax cut from 70% to 50% top marginal tax rate) increased revenue? I think it time to stop equivocating and simply state that tax cuts don’t raise revenue at least not until we raise taxes into the 50%+ territory. When we approach that mark, we can have this discussion again but can we say that anyone that brings up this point these days is simply full of shit? ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [July 11, 2010, 6:57am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/67 "2010-07-11T06:57:01Z")
> [@Damuri\_Ajashi](#): > > You can always hire replacement workers but you can only fire strikers if they are striking for economic reasons. If they are striking for unfair labor practices then you cannot fire them. I think that distinction matters. Can you give me an example of a non-economic, yet unfair labor practice? > [@](#): > > There are reasons for all those labor laws and its not just bleeding heart liberals trying to screw the man. Something else we can debate, I suppose. In my opinion, most labor laws are unnecessary and can easily be replaced by private contracts and market pressures. > [@](#): > > Wanting regulations to prevent cholera outbreaks and market crashes is not wanting large government for the sake of having large government. There is a specific thing they want government to do. You can’t legislate away the business cycle, or create a regulatory regime so good that bubbles can’t form and people can’t find ways to skirt the system. In fact, government action usually contributes to bubbles and other misallocations of labor and capital. In my opinion. > [@](#): > > But to the extent that people feel that the default actor for any activity should be the government unless the private sector can prove its advantages, then fine I agree that these people have gone too far. Can you point me to one poster that feels this way? I can think of a few on this board. I’m not going to name them, because I don’t want the headache. Most of them are people I’d rather not have to talk to. > [@](#): > > And the “blanket statement” that the market is too unregulated is clearly true, now maybe not ALL parts of the market are not too unregulated but there are certainly parts of it that are. Can you then name some parts of the market you think are over-regulated? Or is the only problem one of under-regulation? > [@](#): > > Speaking for myself, I could get behind phasing out social security based on income if we can remove the cap, lower the social security tax rate and subject all earnings (including stuff like stock options and carried interest) to the tax. Well, if you’re removing the subsidy for the rich, do you really need to raise their taxes? Or were you saying you just want all income included, but with a low enough tax rate to prevent an overall tax increase? If so, I could get behind that. > [@](#): > > I can get behind reducing benefits under medicare but I don’t want to means test medicare to the point where we just have an expanded medicaid program, in fact I would like to make medicare more universal. But doesn’t that mean you _are_ in favor of government programs that seek to make the middle class more comfortable, and not just programs that help the poor? > [@](#): > > I could even gfo so far as to make medicare largely a high deductible health plan but I can tell you that Republicans won’t go for it. Senator Baucus was trying to negotiate a universal high deductible health care plan, WITH tort reform, WITH medicare reform (eliminate the waste in part C and close the donut hole with the savings, but without the reduction in overall benefits that some people wanted (especially end of life benefits) but Republicans saw this as Obama’s waterloo and threw away a much better health care package (from almost any perspective) and got a health care package that didn’t bend the cost curve and with all the talk about “death panels” it looks like we will never be able to bend the cost curve (thanks to the Republicans in congress). I believe Paul Ryan’s plan had much the same features, and it wasn’t the Republicans who ran from it. Democrats refused to even debate it, as I recall. > [@](#): > > Most of the money that goes to the dept of education goers towards guaranteed student loans and pell grants. Do you really think that we should get rid of these programs? Yes. I think those policies have caused a bubble to form in higher education. I think they’re responsible for a good part of the cost inflation we’ve been seeing, and they’ve pushed too many people into college who are really better suited for other things. They’ve also allowed less disciplined people to study subjects that will not result in reasonable careers, while saddling them with monstrous debt. > [@](#): > > I don’t know what you mean by the home ownership tax credit but I agree we should either make rent deductible or make home mortgages NOT deductible but there is no political will to do that. Sorry, I meant the home interest deduction. This is a _major_ subsidy for the middle class and the rich, and it pushes more people out of apartments and into homes, which is not necessarily a good thing. > [@](#): > > Eliminating farm subsidies would mean that within 10 years we will be importing almost all of our food from South America, which is fine as long as we are confident that we can secure that food source in the case of shortage or war. The same claims were made about New Zealand farming when the government there decided to eliminate agriculture subsidies. The result was a healthier, more competitive farming industry, once it shook free from all the distortions that had been caused by government interference. American cars were subsidized through quotas placed on foreign imports. Did that help the American auto industry? Or did it make them less competitive and less able to compete in the world market? > [@](#): > > I think business subsidies are fine, I just wish they wouldn’t do it through the tax code. The R&D tax credit is one example. We give companies a tax credit instead of simply subsidizing R&D by engaging in GOVERNMENT sponsored basic research. I don’t think the government should be involved at all, but I don’t really have a problem with government R&D, so long as it’s not commercial R&D (i.e. building particle accelerators is fine. Building better mousetraps is not). > [@](#): > > We have fallen waaay behind in basic research and there doesn’t seem to be a recognition that only a couple of market participants have the investment time horizon to be able to invest in basic research. That’s simply not true. Private R&D in the U.S. is robust AND long-term. And I’d like to see evidence that the U.S. is ‘falling behind’, as opposed to the rest of the world catching up. It’s a myth that businesses don’t engage in long-term R&D. For example, every drug company is doing R&D for products that can’t possibly return their investment for at least 20 years. Microsoft, Apple, Lucent, HP, and almost any other largish tech company have huge budgets for basic R&D. We’re not talking about just developing the next generation of operating system, but doing research that has no current apparent commercial benefit. Microsoft alone spends close to 10 billion per year in R&D, which is almost double that of the National Science Foundation, and more than half of NASA’s budget. Private R&D spending in the U.S. is in the neighborhood of 375 billion dollars per year - it has declined a bit during the recession, but other than that it has been increasing for a long time, both in absolute terms and as a percentage of GDP. Government can’t hope to come anywhere near those levels of spending. > [@](#): > > I think getting rid of the R&D tax credit and giving American companies access to our basic research is a much better than the tax credit which often goes towards stuff like how to make the dominoes pizza box. I worked for a small chemical products company when I was in college. At that time, government ‘encouragement’ of science was all the rage, and there were tax credits and subsidies galore. They _hurt_ us. You know why? Because we were too small. We couldn’t afford full-time lawyers to fill in the paperwork, and the owner of the business was an immigrant from Germany who didn’t have connections. All the grant money went to the two large chemical suppliers in town. And they used that money to drive down the prices of their chemicals, making it harder for the smaller firms to compete. This _reduced_ innovation. But it sure lined the pockets of some chemical company owners. > [@](#): > > Paul Krugman got the nobel prize in economics for his ideas about how you create comparative advantages. For example, right now, solar cells are about 10 years from achieving grid parity, IOW, they are about 10 years from achieving the same cost for electricity as coal and nuclear generated electricity BUT that includes the generous tax subsidy by the government. This is the case the world over, there is not a lot of places where solar cells can achieve grid parity without government subsidies. BUT at one point they were nowhere near grid parity with or without subsidies. They are closing the gap and some scientists think that we will close the gap even without subsidies in the forseeable future, but we will never get there if we do not encourage innovation in this industry. And what if it turns out that solar cells aren’t the best way to solve the energy problem, but the subsidies for solar cells have crowded out the startups that had alternatives? What happens to the solar industry if the government subsidies are cut off? In other words, what makes you think the government is any more capable of picking winners and losers than is the collective wisdom of the market? I was in Germany recently, and noticed how many solar cells there are because of the German subsidies. I was talking to an engineer there, and he said that they now had a real problem because Spain had cut its subsidies for solar cell installation. This caused a glut in the market, which drove down cell prices - and was really hurint European solar manufacturers. He also told me that the return he was seeing on his solar installation was nowhere near what the government claimed it would be, and he was looking at a 20 year payback, even with the subsidy. I asked him if there was a plan in place for the government to pay for replacing all the cells at end of life, and he had no idea. Government should just stay out of this kind of stuff. It just distorts markets and causes havoc. There’s already plenty of R&D going on in energy. Everyone knows there’s a fortune waiting for the people who can figure out how to deliver solar energy or some other kind of renewable power at competitive prices. Investment money has been flooding into these companies for a long time. I own a small amount of stock in a company that makes hydrogen fuel cells, and a bit in a solar manufacturer, precisely because I think there’s a future there. But I consider them basically to be Hail Mary investments - highly risky, but with a potential for a lot of return. These companies are very well capitalized. And they’re almost pure R&D ventures. When government gets involved it just starts injecting politics into the whole process. Then it starts regulating. Then the rent-seekers show up. > [@](#): > > There is a reason why we don’t make any electronics in this country and its not just wage differentials, its because we didn’t encourage and subsidize those technologies the way Japan and Korea did. If they were wrong, they would have a white elephant industry on their hands but they had to take that chance. If we leave the market to develop naturally, we will maintain our comparative advantage in things like financial services and medicine but won’t really develop comparative advantages that will be able to maintain the current standard of living for 300 million people. You understand that what you’re saying is, “The people in my party are smarter than the American public. The American people have chosen path A, and we think it should be on path B. So we’re going to force them down our path.” Individuals and companies are capable of spotting comparative advantage as well, you know. They are investing their energies in the things they feel are important. YOU don’t like the amount they are choosing to invest in R&D, but it’s the amount they chose. Markets tend to be pretty smart, you know. And they do price in future risks and opportunities. There is capital already moving in the directions you want it to go in, but you just don’t like the amounts. So you want the power to take the money from people and put it where you think it should go. The track record of governments doing this is not good. The Japanese 5th Generation Project was a very expensive dud. The Concorde never came close to paying back it’s investment cost. Usually, the results are more like [this](http://allafrica.com/stories/200502090238.html) or [this](http://www.allbusiness.com/government/government-bodies-offices-legislative/10571771-1.html). > [@](#): > > I’d like to remind you that we had a surplus 10 years ago. There was nothing magical about it, our economy was stronger, taxes were higher and we had less debt drag. Well, there was a _little_ magic, in the fact that the social security surplus was being used to make the budget look better. That luxury is gone. > [@](#): > > The debt drag is not overwhelming yet but if we continue to bury our heads int eh sand and pretend that we don’t have to make hard choices then it WILL become overwhelming. There was a recent poll regarding taxes and the vast majority of people were willing to have higher taxes if they felt confident that the money would be used efficiently and effectively and not wasted on bridges to nowhere. And of course we need to cut some spending too, mostly military (do we really need 11 aircraft carrier groups (each one of which could pummel most nations into the stone age), do we really need the next gneeration of tanks and swiftboats, I mean who the heck would dare fight that kind of war with us?). In this case, the government has experts analyzing the military threat and the proper military posture and the mix of forces required. Presidents from both parties, and both parties in Congress have generally accept these recommendations and provided the funding. But you know best? You know this is wrong? Why is it that you’re willing to entrust so much of your decision-making to government, when you’re so unwilling to accept the government’s judgment when it comes to the military budget? ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [July 11, 2010, 6:58am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/68 "2010-07-11T06:58:57Z")
> [@Damuri\_Ajashi](#): > > Then you are talking to a different species of right wingers than I do. Yeah. I tend to talk to the smart ones. See my answer regarding tax cuts in your other thread. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [July 11, 2010, 12:02pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/69 "2010-07-11T12:02:18Z")
> [@Sam\_Stone](#): > > I’m not sure that that’s the way it’s used at all. I talk about this with people on the right, and a lot of them are supply-siders but are perfectly willing to accept that tax cuts don’t always result in increases in revenue. They see supply-side much the way I do - policies that improve business conditions in general. I’m talking about the US conservative establishment, not your chums. I already cited that it is editorial policy to lie to their readers at a prominent conservative rag. It is completely verboten to even acknowledge the inconvenient fact that lower taxes won’t increase government revenues at US levels of taxation. But they don’t stop there. They use whatever ridiculous arguments they can to justify their tax cuts-über-alles ideology. The most recent example I saw, from just a few days ago, is [this insanity from Arthur Laffer himself](http://online.wsj.com/article/SB10001424052748704862404575351301788376276.html?mod=WSJ_Opinion_LEADTop), who claims that a federal tax holiday could lead to a 2.5% employment rate, which is _better than full employment._ Sheer lunacy. He also asserts, unequivocally and wrongly, that governments don’t create resources. And this, from what is supposed to be the best business paper in the US. Cutting taxes is considered magic by the conservative establishment. No dissent is tolerated. Like you, I also know a few reasonable, knowledgable conservatives who don’t believe in the tax-cut magic, but as far as I can tell, these conservatives should be on the endangered species list in the US. > [@Sam\_Stone](#): > > First, you’re moving the goal posts. The assertion was that smaller government does not result in higher GDP growth, period. If you’re willing to accept that it can, then the discussion has changed from macreconomics to values. You’re willing to give up a little growth and a little more efficiency in favor of what you see as more social justice. That’s fine, but it’s a different argument. I am not changing any goalposts. I appreciate that you are outnumbered here, but you don’t get to pin me with claims that other people have made. It wasn’t _my_ assertion you’re referring to. I admitted from the beginning that it is reasonable to believe (although I don’t agree with it) that smaller government might result in more economic growth, even with respect to a highly developed country like the US. I also admitted, from the beginning, that even if we come to understand long-run growth better than we presently do, we’re still stuck with a value judgment about what to do. > [@Sam\_Stone](#): > > And you’re dismissing 1% growth awfully lightly. The long run gets here before you know it. 1% growth means that by the time my daughter is ready to have a family, the per-capita income could be 25% higher. That’s a big deal. I wouldn’t say I dismissed it lightly. Maybe it seemed that way because I was emphasizing our ignorance of long-run growth. We have at present no compelling reason to believe that this is anything more than another bout of wishful thinking on the part of people who believe that tax cuts lead to unicorns and fairies. These are people who lie about everything, absolutely everything, when it comes to advocating that rich people should pay less to the government. Many of them are paid to spread misinformation. They are scum. That they are scum does not, of course, mean that they are automatically wrong about this particular point. But it does mean that our evidentiary standards should be bloody high. The American left doesn’t trust people like Laffer and his ilk, and _that distrust is thoroughly justified._ ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [July 11, 2010, 6:50pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/70 "2010-07-11T18:50:32Z")
> [@Hellestal](#): > > They use whatever ridiculous arguments they can to justify their tax cuts-über-alles ideology. The most recent example I saw, from just a few days ago, is [this insanity from Arthur Laffer himself](http://online.wsj.com/article/SB10001424052748704862404575351301788376276.html?mod=WSJ_Opinion_LEADTop), who claims that a federal tax holiday could lead to a 2.5% employment rate, which is _better than full employment._ Sheer lunacy. Yeah, I tend to agree about that one. > [@](#): > > Cutting taxes is considered magic by the conservative establishment. No dissent is tolerated. And I would say the same thing, only substituting “Fiscal Multiplier” and “Liberal Establishment”. The Keynesian Multiplier has been the left’s version of the Laffer Curve - a theoretical construct that works in limited cases, but which is universally applied to justify pretty much any kind of government spending. > [@](#): > > I appreciate that you are outnumbered here, but you don’t get to pin me with claims that other people have made. It wasn’t _my_ assertion you’re referring to. Fair enough, but your response was to my post, which was specifically taking on the idea that smaller government is not correlated to higher growth in any way. Hence my confusion. But it’s not a big deal either way. This kind of talking past each other is inevitable in a thread with many participants. > [@](#): > > I wouldn’t say I dismissed it lightly. Maybe it seemed that way because I was emphasizing our ignorance of long-run growth. We have at present no compelling reason to believe that this is anything more than another bout of wishful thinking on the part of people who believe that tax cuts lead to unicorns and fairies. Hang on - your statement assumed 1% growth as a result of tax cuts, and you specifically said that you’d prefer to give up that growth in exchange for more social justice. > [@](#): > > These are people who lie about everything, absolutely everything, when it comes to advocating that rich people should pay less to the government. Many of them are paid to spread misinformation. > > They are scum. This is pure partisanship. You don’t think the left does the same thing? Do you think that if I wrote an article calling Keynesian stimuluses into question, I could get it published in _The Nation_? All partisan political journals have narratives that they maintain through editorial policy. That doesn’t make them ‘scum’. > [@](#): > > That they are scum does not, of course, mean that they are automatically wrong about this particular point. But it does mean that our evidentiary standards should be bloody high. And I think those standards should be just as high when proposing major new government programs, higher taxes, stimuluses, and all the rest of the activist agenda. But they aren’t. Decisions are made based on partisan posturing, oversimplifications, distortions of the facts, and outright lying. BOTH sides do this. It’s the nature of the American political process. ---
**Author:** ![China\_Guy](https://avatars.discourse-cdn.com/v4/letter/c/779978/32.png) [@China\_Guy](https://boards.straightdope.com/u/China_Guy)\ **Post date:** [July 11, 2010, 7:20pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/71 "2010-07-11T19:20:49Z")
Sam, just because there is politics on both sides of the economic spectrum does make tax cutting supplier siders right. Still waiting for an example of a successful supply side economy of a size that would be relevant for the US. Would you say it’s fair to say that Reganomics, probably the best example of supply side economics in the US economy, was not successful in driving long term growth or more income equality? ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [July 11, 2010, 8:12pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/72 "2010-07-11T20:12:36Z")
> [@China\_Guy](#): > > Sam, just because there is politics on both sides of the economic spectrum does make tax cutting supplier siders right. Still waiting for an example of a successful supply side economy of a size that would be relevant for the US. You’ve defined away every country on the planet, since the U.S. has a bigger GDP of anyone else. I already pointed to a study that looked at every country in the OECD, and found a strong correlation between smaller government and higher growth. The same study then widened the sample size to 60 countries, and the relationship held. The other study looked at transient factors (ie. not just the size of government, but economic performance as government was made smaller). It too found a strong correlation between reducing the size of government and improved economic performance. And the poor did better as well. To me, this is pretty compelling evidence. I’ve certainly never seen any evidence that making government bigger enhances economic performance in the same way. But you also changed the goalposts - I wasn’t strictly talking about the United States, but about the relationship between big government and economic performance in general. Your insistence that all evidence is irrelevant unless the country is as big as the U.S. strikes me as a variation on the “No True Scotsman” fallacy. > [@](#): > > Would you say it’s fair to say that Reganomics, probably the best example of supply side economics in the US economy, was not successful in driving long term growth or more income equality? No, I wouldn’t say that. For one thing, Reagan barely touched the size of government as a percentage of GDP. It was 20.2% in FY2001, and only declined to 19.2% by FY1989. So right there, we can say that the Reagan era didn’t really affect the size of government and can’t be used as evidence that reductions in government size will improve economic performance. In addition, Reagan only managed to slow the growth of regulation,and never did reverse it. That said, let’s go back and look at the economic conditions at the beginning and end of Reagan’s presidency: 1980 Economic conditions: Unemployment: 7.1% Interest Rate: 19% Inflation: 13.5% GDP Growth: -.3% Government Revenue: 31.7% of GDP 1988 Economic Conditions: Unemployment: 5.5% Interest Rate: 7% Inflation: 4.1% GDP Growth: 4.5% Government Revenue: 32.8% of GDP In addition, median family income increased by $4000 under Reagan. After the 1982 recession, the recovery saw GDP growth rates over 7%. I agree that the 1981 tax cut resulted in less overall government revenue and increased the size of the deficit. But there is no question that Reagan’s 8 years, which represented probably the longest period of reduced government growth and lower taxes, was also one of the best periods of economic performance the U.S. has seen. Considering that he started with an economy in stagflation, I’d say that’s pretty good. If Barack Obama got anywhere near these kinds of results from the stimulus, you guys would be declaring an economic miracle. As for income inequality, that’s your hobby horse, not mine. I made no claim that supply-side economics reduce income inequality, so I’m not sure why you injected it into the debate. ---
**Author:** ![China\_Guy](https://avatars.discourse-cdn.com/v4/letter/c/779978/32.png) [@China\_Guy](https://boards.straightdope.com/u/China_Guy)\ **Post date:** [July 11, 2010, 9:05pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/73 "2010-07-11T21:05:14Z")
Thanks Sam. Do you have a link for the data so we could also look at 1992 since that would be a longer term view of the Reganomics ear. Maybe do a back of the envelope adjustment for economic cycles in there too? It’s my view that Canada and UK are apples to oranges, do you disagree? I’m not trying to define away every country but examples need to be at least ballpark to be relevant for the US. Otherwise, you could try take the Singapore model to the US. I don’t think it’s changing the goalposts, since the supply siders are very vocal in the US and I think that’s primarily what this thread is focused on but I could be wrong. Not really trying to debate income inequality but certainly I would list significantly increasing income inequality as a negative when weighing up whether or not supply side economics is “successful.” ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [July 11, 2010, 10:29pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/74 "2010-07-11T22:29:54Z")
I got the data by querying the various government databases and other public sources. Trying a google search for “Interest Rates US Historical”, “GDP US historical”, etc. That’s what I do. And now we’re running into a problem - if you want to expand the analysis by looking at business cycles, longer-term performance across other presidencies and all the rest, we’re rapidly going to get to a point where you can explain away anything by just pointing to the right measures. Paul Krugman agrees that the Reagan era saw improvements in the economy, but he thinks it was the Keynesian effect of the deficit increase. Other people will say that Reagan’s tax cuts hurt, but his later tax reform fixed the problem. Still others give the credit to Volcker’s monetary policy under Carter. If you show that the economy tanked by 1992, many would blame Bush Sr’s tax increases. Then of course, there’s the business cycle running through all of it, changes in oil prices, changes in the world economy, the rise of China, and other factors. Where are we going to draw the line? ---
**Author:** ![China\_Guy](https://avatars.discourse-cdn.com/v4/letter/c/779978/32.png) [@China\_Guy](https://boards.straightdope.com/u/China_Guy)\ **Post date:** [July 11, 2010, 11:42pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/75 "2010-07-11T23:42:52Z")
I’m not trying to pick nits, but Bush Sr continued the Reaganomics aka ÜS conservative supply side. That should not be a point to argue. Therefore, it should probably be fair game to look at the Reagan / Bush years and not just the Reagan years. I’m not sure what that would show honestly and was hoping you had a good link to the annual numbers so as to work off the same data. Would you not classify Bush Sr as a continuation of Reagan’s supply side? ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [July 12, 2010, 2:07am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/76 "2010-07-12T02:07:06Z")
> [@China\_Guy](#): > > I’m not trying to pick nits, but Bush Sr continued the Reaganomics aka ÜS conservative supply side. That should not be a point to argue. I disagree. Bush maintained Reagan’s basic program in his first budget, then began veering away from it. Halfway through his term he signed a large package of tax and spending increases, which caused a near-revolt among the supply-siders in the Republican party. He also enacted the Americans with Disabilities act, which was one of the most intrusive pieces of legislation in decades. In addition, he signed the Clean Air Act and a major overhaul of immigration policy. You may like these policies, but they are far from supply-side economics. Most conservatives think that Bush I betrayed the Reagan revolution and acted like a paternalistic, big government politician. > [@](#): > > Therefore, it should probably be fair game to look at the Reagan / Bush years and not just the Reagan years. I’m not sure what that would show honestly and was hoping you had a good link to the annual numbers so as to work off the same data. > > Would you not classify Bush Sr as a continuation of Reagan’s supply side? I think it would fair to say that the first half of the Bush administration continued Reagan’s generally supply-side approach, so I’d set that particular cutoff at 1990. I’m not sure what we’re hoping to prove here, though. The debates about Reagan’s policies have been going on since he left office, and I don’t think there’s a complete consensus among economists. The problem we have, which is the problem with a lot of economic analysis, is that it’s impossible to carry out controlled experiments. No matter how good or bad the results of a policy look, the other side can always say that without them things would have been better/worse. And since we have no controls, that becomes hard to refute - especially when you get away from the specific analysis of specific policies and start trying to draw conclusions from macro trends over years or decades. ---
**Author:** ![China\_Guy](https://avatars.discourse-cdn.com/v4/letter/c/779978/32.png) [@China\_Guy](https://boards.straightdope.com/u/China_Guy)\ **Post date:** [July 12, 2010, 3:50am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/77 "2010-07-12T03:50:32Z")
> [@Sam\_Stone](#): > > The problem we have, which is the problem with a lot of economic analysis, is that it’s impossible to carry out controlled experiments. No matter how good or bad the results of a policy look, the other side can always say that without them things would have been better/worse. And since we have no controls, that becomes hard to refute - especially when you get away from the specific analysis of specific policies and start trying to draw conclusions from macro trends over years or decades. Agreed, find me a one handed economist. 😃 Supply side is very slippery (and I don’t mean that in a snarky way). Hell, I’m more or less in agreement with the wiki definition, but that’s not what US conservatives use. And about the only case we have is the Reagan decade. Where it’s obvious that year 1 was off of a very low base and part of a “normal” econonomic cycle recovery. Then if one uses the Reagan cutoff rather than the Bush Sr cutoff, well, it’s going to look a whole lot different. Thing is, though, the Reagan/Bush era is about the only supply side example out there for a significant economy (with all due respect to the UK and Canada). Unless you want to count Bush Jr, and we all know how that turned out. I took a macro/policy upper division class from Schnell, one of Reagan’s economic supply side advisors, at UC Davis in 1983. He didn’t convince me then that the theory had real world legs, and I don’t see any real world examples now of a supply side sucess (using the US conservative view). ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 12, 2010, 5:40am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/78 "2010-07-12T05:40:22Z")
> [@Sam\_Stone](#): > > Can you give me an example of a non-economic, yet unfair labor practice? I guess you could boil stuff like workplace safety down to economics but here is a list of other stuff: > **[Unfair labor practice](https://en.wikipedia.org/wiki/Unfair_labor_practice)** > > An unfair labor practice (ULP) in United States labor law refers to certain actions taken by employers or unions that violate the National Labor Relations Act of 1935 (49 Stat. 449) 29 U.S.C. § 151–169 (also known as the NLRA and the Wagner Act after NY Senator Robert F. Wagner) and other legislation. Such acts are investigated by the National Labor Relations Board (NLRB). > The NLRB has the authority to investigate and remedy unfair labor practices, which are defined in Section 8 of the Act. In b... > [@](#): > > Something else we can debate, I suppose. In my opinion, most labor laws are unnecessary and can easily be replaced by private contracts and market pressures. Yeah I don’t think they are quite so easily replaced or they would never have been a need for them in the first place, the free market of the early 1900’s did not spontaneously address these issues without legislation. Perhaps an argument can be made that things have gone far enough or that they have even gone too far but back then companies were using mercenaries to bust up union organizers. > [@](#): > > You can’t legislate away the business cycle, or create a regulatory regime so good that bubbles can’t form and people can’t find ways to skirt the system. In fact, government action usually contributes to bubbles and other misallocations of labor and capital. In my opinion. I agree that you can’t eliminate business cycles but I think you can moderate their severity (it probably takes more political will than can be spared for something like that). I think bubbles are avoidable. I heard Warren Buffett in front of Congress a few weeks ago. He was defending Moody’s (a subsidiary of Berkshire Hathaway) by saying that noone could have seen this coming. Well two years earlier I heard Buffett say exactly the opposite at his annual meeting, he didn’t speculate about the size of the bubble but he seemed to be pretty sure that a bubble existed in the real estate market. > [@](#): > > Can you then name some parts of the market you think are over-regulated? Or is the only problem one of under-regulation? Well, I think there are political forces (money) that prevents the long term over-regulation of industries so I guess I think that there are probably more instances of underregulation than over regulation. BUT I think that we get pretty close to the right amount of regulation and with trial and error get closer and closer to the amount of regulation we need as our society and technology changes. > [@](#): > > Well, if you’re removing the subsidy for the rich, do you really need to raise their taxes? Or were you saying you just want all income included, but with a low enough tax rate to prevent an overall tax increase? If so, I could get behind that. I guess I was saying that I wanted all EARNED income included. /rant: For example, when I give my waiter a tip, it is a gratuity, a gift, I am no more required to give it than I am required to give my wife a present on our anniversary and yet we do not tax that tip as a gift (not taxable income), instead we treat it as earned income because that is what it is; however when a hedge fund manager shares in the gains in his portfolio, he gets to pay capital gains on income that is no less earned than the waiter’s tip and yet we allow the hedge fund manager to engage in the fiction that his carried interest income is not actually ordinary income. Another example, we give people who receive incentive stock options a choice on when to pay taxes on those options (at ordinary income tax rates). They can pay when the option is granted or when the option is exercised. We have somehow gotten to the point where out of the money options are in fact worthless under this calculus even though I would pay money for those options so these options are always declared when granted and the income is always taxed as capital gains. I am OK with reducing the overall tax rate as long as it was actuarily justified. I don’t see why we have to overfund the ss system to achieve fully funded status. I am happy to maintain ss as a transfer tax system (all the ss critics that are upset about the underfuning of ss never seem to want to fully fund ss (and it could be done over 75-100 years if we wanted to). > [@](#): > > But doesn’t that mean you _are_ in favor of government programs that seek to make the middle class more comfortable, and not just programs that help the poor? Well, yes, if you put it that way. I am also in favor of public education. I think there are some goods and services that should be available to everyone regardless of ability to pay. Education is one of them and health care is the other. I also think that there are limits. Every child in the public school system would benefit from private tutors that teach the child individually and take them on private tours of the world’s museums but we have decided that this is too much for the government to provide so we limit it to about 28-35 students per classroom. Medicare spends over 25% of its budget in the last year of a person’s life, but this does not tell the entire story. That is an average of $26,000/decedent, but the median is much lower because much of that 25% goes to a small group of people who’s bodies have outlived their minds. > [@](#): > > I believe Paul Ryan’s plan had much the same features, and it wasn’t the Republicans who ran from it. Democrats refused to even debate it, as I recall. I think you recall incorrectly. The whole health care debate was held up for months while we gave the senate finance committe a chance to come up with a bipartisan solution and Baucus and Grassley were almost able to reach a compromise when the republicans realized that Obama took a hit every time it looked like he was focusing on anything but the economy. So Senator Kyl (the most effective senate whip I’ve seen in a while) bullied Grassley into tabling the bill just to see what would happen… after all, the Democrats wanted health care reform so badly that they could always come back and say “OK, we reconsidered, we will sponsor that bill we talked about before”. > [@](#): > > Yes. I think those policies have caused a bubble to form in higher education. I think they’re responsible for a good part of the cost inflation we’ve been seeing, and they’ve pushed too many people into college who are really better suited for other things. They’ve also allowed less disciplined people to study subjects that will not result in reasonable careers, while saddling them with monstrous debt. OK I hear you. Easy money has a way of causing bubbles. It always struck me as odd that in almost every other country in the world the best university in the country are the nationally funded schools and here the best schools are mostly private schools. I would be OK with lower student loan subsidies if we had a better funded (perhaps even free) more competitive state school system with perhaps a few free national schools in DC that would require government service in the civil sector (working at places like NASA, or Los Alamos) instead of the military (you get the idea, kind of like a west point for the civil sector). > [@](#): > > The same claims were made about New Zealand farming when the government there decided to eliminate agriculture subsidies. The result was a healthier, more competitive farming industry, once it shook free from all the distortions that had been caused by government interference. Yeah, I’m not going to fall on my sword over this one. I am perfectly OK with importing all our rice and getting all our fruits from Guatemala, I’d think the FDA (which you apparently don’t think is necessary) might become more important tho. > [@](#): > > American cars were subsidized through quotas placed on foreign imports. Did that help the American auto industry? Or did it make them less competitive and less able to compete in the world market? I’m not going to protect quotas for a mature industry. > [@](#): > > I don’t think the government should be involved at all, but I don’t really have a problem with government R&D, so long as it’s not commercial R&D (i.e. building particle accelerators is fine. Building better mousetraps is not). Yeah but we don’t spend money building particle accelerators anymore, instead we subsidize the market so that they will build 20 types of mousetraps instead of 15 or worse, we subsidize 20 different forms of packaging the same 3 or 4 mousetraps. > [@](#): > > That’s simply not true. Private R&D in the U.S. is robust AND long-term. And I’d like to see evidence that the U.S. is ‘falling behind’, as opposed to the rest of the world catching up. It’s a myth that businesses don’t engage in long-term R&D. For example, every drug company is doing R&D for products that can’t possibly return their investment for at least 20 years. Microsoft, Apple, Lucent, HP, and almost any other largish tech company have huge budgets for basic R&D. We’re not talking about just developing the next generation of operating system, but doing research that has no current apparent commercial benefit. Microsoft alone spends close to 10 billion per year in R&D, which is almost double that of the National Science Foundation, and more than half of NASA’s budget. > > Private R&D spending in the U.S. is in the neighborhood of 375 billion dollars per year - it has declined a bit during the recession, but other than that it has been increasing for a long time, both in absolute terms and as a percentage of GDP. Government can’t hope to come anywhere near those levels of spending. maybe I overstated this, maybe I have an ideological blind spot for government sponsored R&D over government subsidies of private sector R&D. The US used to spend a LOT more money on basic R&D, can we agree on that? > [@](#): > > I worked for a small chemical products company when I was in college. At that time, government ‘encouragement’ of science was all the rage, and there were tax credits and subsidies galore. They _hurt_ us. You know why? Because we were too small. We couldn’t afford full-time lawyers to fill in the paperwork, and the owner of the business was an immigrant from Germany who didn’t have connections. > > All the grant money went to the two large chemical suppliers in town. And they used that money to drive down the prices of their chemicals, making it harder for the smaller firms to compete. This _reduced_ innovation. But it sure lined the pockets of some chemical company owners. It sounds like you agree with me. > [@](#): > > And what if it turns out that solar cells aren’t the best way to solve the energy problem, but the subsidies for solar cells have crowded out the startups that had alternatives? What happens to the solar industry if the government subsidies are cut off? In other words, what makes you think the government is any more capable of picking winners and losers than is the collective wisdom of the market? Well that’s the problem. What if you pick the loser, even after thoughtful deliberation and high levels of confidence that a particular technology is the future, you could be wrong, we might end up backing the betamax of the energy sector because it is technologically superior. That’s what makes the free market better over the long term. The chaotic errors of the free market are usually less destructive than the organized coordinated errors of a government policy. > [@](#): > > Government should just stay out of this kind of stuff… …most of the time. > [@](#): > > When government gets involved it just starts injecting politics into the whole process. Then it starts regulating. Then the rent-seekers show up. Damn rent seekers, always ruining everything. > [@](#): > > You understand that what you’re saying is, “The people in my party are smarter than the American public. The American people have chosen path A, and we think it should be on path B. So we’re going to force them down our path.” I’m pretty sure we won the last election in a landslide. > [@](#): > > Well, there was a _little_ magic, in the fact that the social security surplus was being used to make the budget look better. That luxury is gone. You really think social security is the difference between that surplus and today’s deficit (ignoring the stimulus)? > [@](#): > > Why is it that you’re willing to entrust so much of your decision-making to government, when you’re so unwilling to accept the government’s judgment when it comes to the military budget? I’m in favor of a strong military as long as people are willing to pay for it. > [@Sam\_Stone](#): > > Yeah. I tend to talk to the smart ones. You know both of them?!?!?! JK, I think I am probably strawmanning you again by conflating conservative with the sort of people who espouse conservativism at the highest decibel levels. > [@Sam\_Stone](#): > > And I would say the same thing, only substituting “Fiscal Multiplier” and “Liberal Establishment”. The Keynesian Multiplier has been the left’s version of the Laffer Curve - a theoretical construct that works in limited cases, but which is universally applied to justify pretty much any kind of government spending. I don’t remember the liberal left ever saying that we could responsibly increase spending without increasing taxes because the multiplier effect would more than generate enough GDP to make up for the additional spending. Meanwhile you had some prominent conservative voices saying something like that when it came to tax cuts. > [@](#): > > And I think those standards should be just as high when proposing major new government programs, higher taxes, stimuluses, and all the rest of the activist agenda. But they aren’t. Decisions are made based on partisan posturing, oversimplifications, distortions of the facts, and outright lying. BOTH sides do this. It’s the nature of the American political process. It may be pot calling kettle but I think that one side has engaged in more fiscal dishonesty than the other when one side increased taxes as they increased spending and the other side cuts taxes without cutting spending. > [@Sam\_Stone](#): > > Your insistence that all evidence is irrelevant unless the country is as big as the U.S. strikes me as a variation on the “No True Scotsman” fallacy. I think he’s trying to say that America is uniquely unique. > [@](#): > > If Barack Obama got anywhere near these kinds of results from the stimulus, you guys would be declaring an economic miracle. We wouldn’t have to declare a damn thing, we would be trying to figure out what to call our single payer system. > [@](#): > > The problem we have, which is the problem with a lot of economic analysis, is that it’s impossible to carry out controlled experiments. No matter how good or bad the results of a policy look, the other side can always say that without them things would have been better/worse. And since we have no controls, that becomes hard to refute - especially when you get away from the specific analysis of specific policies and start trying to draw conclusions from macro trends over years or decades. Well those confounding factors you mentioned earlier aren’t imaginary. I personally believe that the economic acceleration during the Reagan years were a form of keynesian economics. Deficit spending caused economic stimulus during a staglflationary economy. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [July 12, 2010, 12:22pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/79 "2010-07-12T12:22:06Z")
> [@Sam Stone](#): > > If Barack Obama got anywhere near these kinds of results from the stimulus, you guys would be declaring an economic miracle. Obama doesn’t have the full help of the Fed. Reagan did. In addition to the (Keynesian!) effect of the tax cuts, Fed chair Volcker dropped interest rates sharply to help spur growth when he finally felt that he had licked the 70s inflation. That was the worst post-war recession until our most recent crisis, but conventional monetarily policy was there in full force. Don’t forget the money supply. Never forget the money supply. > [@Sam Stone](#): > > And I would say the same thing, only substituting “Fiscal Multiplier” and “Liberal Establishment”. The Keynesian Multiplier has been the left’s version of the Laffer Curve - a theoretical construct that works in limited cases, but which is universally applied to justify pretty much any kind of government spending. This is false equivalence. I don’t know how you could possibly suggest this in any seriousness, because it isn’t even close at all. The macro theory is used to justify government spending only in our present situation. I can cite all manner of liberal economists who say this wouldn’t work in a time of economic expansion. You can possibly posit that fiscal stimulus is being over-hyped, and maybe you’d have a point, but we’re still left with the distinction between our present crummy economy when it can work, and a normal economy when stimulus would not be hyped at all. This is the sort of distinction that the conservative establishment _never ever ever_ makes with respect to tax cuts. They don’t ever change their recommendation based on the situation. A _majority_ of GOP reps and senators have pledged to never raised marginal rates under any circumstances. When W was campaigning during the time of surpluses under Clinton, he advocated tax cuts to give the money back to the people. When the dot-com recession started, he advocated tax cuts (basically, as a Keynesian stimulus!) to the economy. **This is not policy.** This is a knee-jerk reaction, also advocating what you want no matter what the situation. And yet it is entirely commonplace among conservatives in the US today. You can’t cite anything even remotely similar about American liberals, most especially not about Keynesian spending. > [@Sam Stone](#): > > Hang on - your statement assumed 1% growth as a result of tax cuts, and you specifically said that you’d prefer to give up that growth in exchange for more social justice. No. I did not say that. To quote myself: “It’s a perfectly reasonable choice for people to decide that they’d rather have a fair tax system and strong social services, rather than letting 1% of people walk home with 45%+ of the nation’s pie, this highly unbalanced distribution tolerated in exchange for the mere hope of a really kick-ass economy twenty years out.” I did not say that that was _my_ choice. I said it was a reasonable choice for “people”, referring to American liberals, given their fears of future income disparities. I was being hyperbolic with the numbers, but that was in order to emphasize the potential instability of extremely large disparities of income. If I personally knew, for certain, that we could consistently maintain a 1% higher growth rate, then I’d have to think quite hard about several important issues. > [@Sam Stone](#): > > This is pure partisanship. No, it isn’t. I would make the same judgment of any publication or group that deliberately makes it _a matter of policy_ to mislead their audience about the facts. > [@Sam Stone](#): > > You don’t think the left does the same thing? Do you think that if I wrote an article calling Keynesian stimuluses into question, I could get it published in The Nation? All partisan political journals have narratives that they maintain through editorial policy. That doesn’t make them ‘scum’. This is a really terrible strawman. Awful. It’s one thing to have a narrative. **It’s someone else entirely to lie to you audience as a matter of editorial policy.** I never once made the argument that conservative magazines should give equal hearing to Keynesian economics. They have a right to their own opinions–what they don’t have is their own reality. They should not print things that are manifestly untrue, or refuse to print an article because it introduces a single fact that they dislike. I make a moral judgement of them, yes, one that is commensurate to their deliberate, institutionalized mendacity. Even if they like tax cuts, it should be a common goal for all honest participants in the public discourse that they shouldn’t fabricate misinformation in their campaign to try to show how magically delicious lower taxes are. You will not find anything near equivalent on the left, not with respect to unions or marginal tax rates or any other question of public policy, that is as closed-off as the tax mania is on the right. Nothing. There is no equivalence here. > [@Sam Stone](#): > > And I think those standards should be just as high when proposing major new government programs, higher taxes, stimuluses, and all the rest of the activist agenda. But they aren’t. Decisions are made based on partisan posturing, oversimplifications, distortions of the facts, and outright lying. BOTH sides do this. It’s the nature of the American political process. **There is no equivalence here.** Not at all. Not in the slightest. No matter how much you wish to equate the groups, they are not equal in their sins. The left isn’t a choir of angels. People on the left aren’t immune to lying and hypocrisy. But it is not the same bubble of ignorance that the conservatives have built up. To equate the two sides, as if they are the same right now, is a sign of a sheer disconnect from what’s going on in the US right now. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 12, 2010, 4:48pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/80 "2010-07-12T16:48:13Z")
> [@Hellestal](#): > > It’s one thing to have a narrative. **It’s someone else entirely to lie to you audience as a matter of editorial policy.** Is it still a lie if they really, REALLY, reeeeeaaaaally believe it? [Previous page](https://boards.straightdope.com/t/why-not-demand-side-economics/545790.md?page=3) [Next page](https://boards.straightdope.com/t/why-not-demand-side-economics/545790.md?page=5)