I wonder if I made the list?

[TPS]

I am twisting the argument?  Tell me when was the last time a Keynesian advocated a tax cut as a way into deficit spending?

Read any introductory/intermediate macroeconomics text. Here's a quote from one I just pulled off the shelf:

"When recession occurs, what fiscal policy should the federal government adopt to stimulate the economy? It has 3 main options: 1) increase government spending; 2) reduce taxes, or 3) some combination fo the two. If the federal budget is balanced at the outset, expansionary fiscal policy will create a budget deficit."

McConnell and Brue, 2002.

 

This is what you get when economists argue fiscal policy without understanding the basics of accounting & finance.  The deficit does not arise on its own - it needs revenues & expenses.  Yet, you continue to talk about government receipts from individuals, as if it's the only thing that matters, without acknowledging the effect on total economic output, employment, standards of living and building a base for future output.  You are attacking SS from the standpoint that the government has an inalienable right to a portion of an individual's income.

Again, see post #51 where I give the data on both revenues and expenditures--the increased deficits under Bush2 are a function of both.

 

I have focused on personal taxes because that is one of the central tenets of SS theory--cut those taxes and revenues increase. I have also stated that the SS argument is the "behavioral change" that comes from lower taxes, and how that is supposed to either increase the growth rate of GDP by MORE than the long-run average, or it causes individuals to shelter less income--the only way you get your effect is IF income grows faster to offset the tax rates. And no, I am not attacking SS based upon any moral argument--I agree with your F#%!ing moral argument, especially with this amoral goverment!!! Starve the beast! However, I'm sure we will disagree on where most of the government wastes its money.

 

Your statement about "the effect on total economic output, employment, standards of living and building a base for future output" I take to mean the behavioral changes. YOU guys "believe" that this happens, and I've tried to show the evidence doesn't support that belief.

 

You come back to say that Keynesians & SS'ers both advocate deficit spending, but don't acknowledge the key difference in how they get to that deficit.  You would figure  that even though we are still subject to economic cycles, the transitional pain that was endured during Reagan's terms have certainly built a strong foundation for the US economy to carry the rest of the world over the past 5 years.

Huh? Are you saying the 1980s set the foundation for the past 5 years? What happened inbetween?

This is the sort of argument that you supply-siders have to fall back on--you can't verify the results of that statement--"it's true because I say it is."

 

EU practices deficit spending in the way you advocate.  How's their economic recovery coming along?  The dot com bubble was very similar to Japan's burst in the early '90s, how did the recoveries of both countries compare?

Oh boy, there's a strawman. As if the only thing that impacts growth is deficit spending? Maybe you should go back to my earlier posts where I mentioned the factors that impact long-run growth.

And the dot-com bust is not "very similar" to the land bubble in Japan--that nearly collapsed their entire banking system. To say nothing of the cultural differences...

[TPS]

Ist off, I'm not certain where you got your numbers from because they don't match up with info on the IRS web site.  That is neither here nor there for the point of this discussion.

 

Well, I've checked out the IRS site, and I can't find the source of our differences. In fact, I've found further evidence of support:

 

Personal income taxes paid (latest data available):

Year Total top10%

2000 $980b $660b.

2001 $888 $576

2002 $797 $524

2003 $748 $493

 

 

Average tax rates as % of taxable income

Year total top10%

2000 15.3% 22.3%

2001 14.2 21.4

2002 13.0 20.5

2003 11.9 18.5%

 

You can find the historical data here:

IRS data

[GG]

Read any introductory/intermediate macroeconomics text. Here's a quote from one I just pulled off the shelf:

"When recession occurs, what fiscal policy should the federal government adopt to stimulate the economy?  It has 3 main options: 1) increase government spending; 2) reduce taxes, or 3) some combination fo the two.  If the federal budget is balanced at the outset, expansionary fiscal policy will create a budget deficit."

McConnell and Brue, 2002.

 

Try to stay on topic, it isn't that hard. I didn't ask for a textbook definition of Keynes' policy. Since you love saying that Bush is taking a page out of Keynesians' playbook, I asked for a real life examples of the last time a Keynesian supported a tax cut as a way to jump start an economy.

 

btw, still waiting for the answer (hint, most people here weren't born the last time they did)

 

 

Again, see post #51 where I give the data on both revenues and expenditures--the increased deficits under Bush2 are a function of both. 

 

I have focused on personal taxes because that is one of the central tenets of SS theory--cut those taxes and revenues increase. 

 

TOTAL revenues increase, not just revenues from personal income taxes.

 

I have also stated that the SS argument is the "behavioral change" that comes from lower taxes, and how that is supposed to either increase the growth rate of GDP by MORE than the long-run average, or it causes individuals to shelter less income--the only way you get your effect is IF income grows faster to offset the tax rates.  And no, I am not attacking SS based upon any moral argument--I agree with your F#%!ing moral argument, especially with this amoral goverment!!!  Starve the beast! However, I'm sure we will disagree on where most of the government wastes its money.

 

Your statement about "the effect on total economic output, employment, standards of living and building a base for future output" I take to mean the behavioral changes.  YOU guys "believe" that this happens, and I've tried to show the evidence doesn't support that belief. 

 

The reason that I mentioned the total economic effect is that you can't just use GDP growth as the proxy to judge the cumulative impact of the tax cuts on the economy. It's nice to argue that this economy will settle into historic GDP growth rates, knowing that the Fed has been actively putting the brakes on its growth over the past 12 months.

 

Huh?  Are you saying the 1980s set the foundation for the past 5 years?  What happened inbetween?

This is the sort of argument that you supply-siders have to fall back on--you can't verify the results of that statement--"it's true because I say it is."

 

The last five years are a continuation of the fiscal policies put in place by Reagan & the Volker Fed. Clinton was smart enough to support the pro-growth policies, and woldn't even consider to stand up to Greenspan. Looking at the make-up of Clinton's key economic team of Altman & Rubin, you have a lot of closeness to Reagan

 

Oh boy, there's a strawman.  As if the only thing that impacts growth is deficit spending?  Maybe you should go back to my earlier posts where I mentioned the factors that impact long-run growth.

 

Funny me, I thought that the Europeans were very productive in their employment (for the liucky ones that have a job) Tell me why then that Europe can't get out of its hole?

 

 

And the dot-com bust is not "very similar" to the land bubble in Japan--that nearly collapsed their entire banking system.  To say nothing of the cultural differences...

511147[/snapback]

 

Your lack of understanding of the capital markets is coming out again.

 

Care to share your thoughts on how the burst of any financial bubble isn't similar? Or are you saying that Japan was different and that only its banks were impacted by bad real estate deals? I'm sure there was no overinvestment in other sectors of the Japanese economy, nor were equity holders completely wiped out in Japan. Conversely, I'm guessing that the banks & bond holders suffered no impact from the dot com collapse.

[TPS]

Try to stay on topic, it isn't that hard.  I didn't ask for a textbook definition of Keynes' policy.  Since you love saying that Bush is taking a page out of Keynesians' playbook, I asked for a real life examples of the last time a Keynesian supported a tax cut as a way to jump start an economy. 

btw, still waiting for the answer (hint, most people here weren't born the last time they did)

Quite a few Keynesians proposed a cut in payroll tax when Bush contemplating his tax cuts. Keynesians typically suggest cutting taxes on lower income workers because they have a higher propensity to consume, so the impact on spending will be greater. I believe that Clinton wanted to cut taxes on lower income households--in addition to raising the top bracket, but he was talked out of it by Rubin.

 

TOTAL revenues increase, not just revenues from personal income taxes.

Maybe you need to look at post #51 again--I include total revenues, total expenditures, and personal taxes. Total revenues decreased every year as well.

 

The reason that I mentioned the total economic effect is that you can't just use GDP growth as the proxy to judge the cumulative impact of the tax cuts on the economy.  It's nice to argue that this economy will settle into historic GDP growth rates, knowing that the Fed has been actively putting the brakes on its growth over the past 12 months.

The reason you include the "total economic effect" is because you know it's not verifiable. And when the numbers don't add up, you have to say something like, "the impact doesn't occur until well into the future..." It's pure voodoo man!

 

The last five years are a continuation of the fiscal policies put in place by Reagan & the Volker Fed.  Clinton was smart enough to support the pro-growth policies, and woldn't even consider to stand up to Greenspan.  Looking at the make-up of Clinton's key economic team of Altman & Rubin, you have a lot of closeness to Reagan

I didn't realize that the Fed pursued "fiscal policies?"

Rubin's (Clinton) policy was targeted at the bond markets--raise taxes on the top bracket, restrain spending--specifically, don't enact all of the spending promises that Clinton made during the race. In effect, tighten fiscal policy, focusing on reducing the Bush1/Reagan deficits, and trust that the lower interest rates that followed would stimulate growth. As I recall, in his second term, without a dem majority, he went along with the cap gains tax cut that the reps were pushing.

 

 

Care to share your thoughts on how the burst of any financial bubble isn't similar?  Or are you saying that Japan was different and that only its banks were impacted by bad real estate deals?  I'm sure there was no overinvestment in other sectors of the Japanese economy, nor were equity holders completely wiped out in Japan.  Conversely, I'm guessing that the banks & bond holders suffered no impact from the dot com collapse.

Any response here will certainly take this thread on a different course, and requires a long response--maybe that's your strategy, since you certainly haven't posted any evdidence supporting the SS claims...

 

But a quick response: certainly the bursting of financial bubbles has similarities, but the aggregate impacts generally differ depending upon the response and which segment(s) of the financial system is directly impacted. There is no simple explanation to the question of the Japanese bubble and the length of time it took for their revival. Some factors to consider (vs the dot com bubble): the direct impact to their banking system via assets held (in this respect, I'd say their bubble was more like the Latin American debt crisis of the late 1980s then the dot-com bubble); their high propensity to save, thus relying less on the household sector to stimulate the economy; their reliance on (Business) Investment and Export sectors for grwoth; a more regulated financial system than the US; their full-employment/lifetime employment policies; and on and on...

 

As for the US and the post dot-com recession, I'm sure you'd agree that large deficits,home equity loans, and near zero short-term rates, played a significant impact in preventing a US depression/deflation after 9-11.

[GG]

Quite a few Keynesians proposed a cut in payroll tax when Bush contemplating his tax cuts.  Keynesians typically suggest cutting taxes on lower income workers because they have a higher propensity to consume, so the impact on spending will be greater.  I believe that Clinton wanted to cut taxes on lower income households--in addition to raising the top bracket, but he was talked out of it by Rubin.

 

Funny, I don't recall Keyensians advocating a payroll tax cut in 2003.

 

Interesting that you bring up Rubin nixing Clinton's idea of lowering taxes on the poor and raising them on the rich. I wonder if it had anything to do with him understanding on how to build the economy, instead of offering short term panacea.

 

The reason you include the "total economic effect" is because you know it's not verifiable.  And when the numbers don't add up, you have to say something like, "the impact doesn't occur until well into the future..."  It's pure voodoo man!

 

You are right, it's not verifiable by the stock market, bond markets, foreign exchange markets, unemployment numbers, housing prices, etc.

 

But at least you still have a scary word to fall back on.

 

I didn't realize that the Fed pursued "fiscal policies?" 

 

You may want to tell that to Bernanke before he takes the job. Fed Mission

 

Rubin's (Clinton) policy was targeted at the bond markets--raise taxes on the top bracket, restrain spending--specifically, don't enact all of the spending promises that Clinton made during the race.  In effect, tighten fiscal policy, focusing on reducing the Bush1/Reagan deficits, and trust that the lower interest rates that followed would stimulate growth.  As I recall, in his second term, without a dem majority, he went along with the cap gains tax cut that the reps were pushing. 

 

Sounds like a page out of Reagan's handbook to me. You forgot to include welfare reform and free trade agreements. Damn, that Clinton was a good listener. You would figure more Dems would try to be like him...

 

Any response here will certainly take this thread on a different course, and requires a long response--maybe that's your strategy, since you certainly haven't posted any evdidence supporting the SS claims...

 

But a quick response: certainly the bursting of financial bubbles has similarities, but the aggregate impacts generally differ depending upon the response and which segment(s) of the financial system is directly impacted.  There is no simple explanation to the question of the Japanese bubble and the length of time it took for their revival.  Some factors to consider (vs the dot com bubble): the direct impact to their banking system via assets held (in this respect, I'd say their bubble was more like the Latin American debt crisis of the late 1980s then the dot-com bubble); their high propensity to save, thus relying less on the household sector to stimulate the economy; their reliance on (Business) Investment and Export sectors for grwoth; a more regulated financial system than the US; their full-employment/lifetime employment policies; and on and on...

 

 

Let me get this straight, an overvaluation of Japanese assets is closer to the inflationary debt crisis of Latin America, than it is to an overvaluation of Internet assets? Obviously, since Japan & LA both involved "banks" then the root cause must be the same. Of course, you also equated Enron's bankruptcy with the S&L crisis, then it's not far off base for your analogies.

 

But I would like to focus on the last part of your contention about Japan. Are you saying that Japan's insular nature is a major reason for its slow turnaround? High savings rates impede economic growth? A more regulated financial system prevents funds from reaching best destinations to effect a turnaround? Full employment/lifetime employment are bad?

 

Don't tell me they're short term effects, as Japan has been dormant for nearly a decade. Lucky for them, the US likes to buy Japanese products.

 

As for the US and the post dot-com recession, I'm sure you'd agree that large deficits,home equity loans, and near zero short-term rates, played a significant impact in preventing a US depression/deflation after 9-11.

512523[/snapback]

 

So let's take this thread a full circle. All these things played a major role. But let's put your comment in proper perspective (as framed by Mickey's original point that the economy sucks). Not only is the US not in a depression following severely cataclysmic events that would have brought an ordinary economy to its knees, but it is growing and is keeping the rest of the world proppped up.

 

You choose to ignore the effect on capital formation that the tax cuts have had, and its resulting impact on the economic growth. I choose not to.

[Alaska Darin]

Funny, I don't recall Keyensians advocating a payroll tax cut in 2003. 

 

Interesting that you bring up Rubin nixing Clinton's idea of lowering taxes on the poor and raising them on the rich.  I wonder if it had anything to do with him understanding on how to build the economy, instead of offering short term panacea.

 

514853[/snapback]

Rubin was WAY more interested in passing his BTU tax.

[TPS]

Funny, I don't recall Keyensians advocating a payroll tax cut in 2003. 

for one, it was 2001. The first article I found in a quick search:

Payroll tax While it doesn't explicitly state they are Keynesians, I guarantee you they are, given their explanations.

 

Interesting that you bring up Rubin nixing Clinton's idea of lowering taxes on the poor and raising them on the rich.  I wonder if it had anything to do with him understanding on how to build the economy, instead of offering short term panacea.

Yes it relied on his understanding of building the long term economy by getting the government's fiscal house in order.

 

You are right, it's not verifiable by the stock market, bond markets, foreign exchange markets, unemployment numbers, housing prices, etc.

Hmmm...yes, I see now, all prices are determined by supply-side policy. Once again, you respond with non sequiturs--"uh, gee, all of the good things that happen are the consequence of SS policies."

 

I've stated that tax cuts stimulate the economy by increasing the deficit and increasing consumption (by increasing disposable income)--basic Keynesian economics. The only thing you've concretely stated so far about SS economics is:

 

"The problem I have with that logic is that supply side is a growth oriented policy, such that while personal income tax revenues will fall, the overall growth in the economy will pick up much more, and the government will have plenty of other sources of revenues (ie corp taxes, excise taxes, gasoline, etc) So, to simply say that supply side doesn't work because personal tax revenues went down misses the point of trying to maximize total revenue."

 

And as I've pointed out, GDP growth has not out-performed historical standards, AND total tax revenues have also declined--I believe to an historically low level as a % of GDP. Again, post #51 has both personal and total government revenues.

 

You may want to tell that to Bernanke before he takes the job.  Fed Mission

Still don't see where it says the Fed is responsible for fiscal policy...

 

 

But I would like to focus on the last part of your contention about Japan.  Are you saying that Japan's insular nature is a major reason for its slow turnaround?  High savings rates impede economic growth?  A more regulated financial system prevents funds from reaching best destinations to effect a turnaround?  Full employment/lifetime employment are bad? 

No. Yes. Yes. Yes and No.

 

Don't tell me they're short term effects, as Japan has been dormant for nearly a decade.  Lucky for them, the US likes to buy Japanese products.

So let's take this thread a full circle.  All these things played a major role.  But let's put your comment in proper perspective (as framed by Mickey's original point that the economy sucks).  Not only is the US not in a depression following severely cataclysmic events that would have brought an ordinary economy to its knees, but it is growing and is keeping the rest of the world proppped up. 

Correct. The reason the US rebounds quicker are many, but related to the above, US households now have a 0% savings rate--we are consumers alright. Japanese HHs save about 25% of their income. Japan relies on export-led growth. The reasons we rebounded quickly: large fiscal deficits and consumers borrowing equity out of houses to spend, spend, spend.

 

But of course, those low interest rates are a consequence of SS policies (as apparently everything is now...), not the fact that Asian economies pursue policies (buying T-bills) to keep their exchange rates low to support their export-led growth strategies.

 

You choose to ignore the effect on capital formation that the tax cuts have had, and its resulting impact on the economic growth.  I choose not to.

Not at all. Try checking out how much "capital formation" there's been in the US. US corps spend more on investment in foreign countries than they do domestically. Or are you including capital formation abroad by US corps?

 

I'm still waiting for some concrete evidence to support the connection between SS policies and economic impact, not some amorphous statement about "just look at the markets." Hell, Alan Greenspan's farts move the markets!

 

Without explicit explanations for how economic variables are affected by their policies, and evidence of the impacts, Supply-siders are basically left with a theory based on faith. Kind of like the theory of Intelligent Design....

[GG]

for one, it was 2001.  The first article I found in a quick search:

Payroll tax  While it doesn't explicitly state they are Keynesians, I guarantee you they are, given their explanations.

 

And of course these investment bank economists have been just as critical of Bush's later tax cuts, as you have been. Right?

 

You're also ignoring Bush's earlier short term tax cut stimulus aimed at the mass population, that are along the lines of what these economists advocated, which obviously wasn't enough to lead a broader recovery. Nice of you to waive the Keynesian flag now, but forgetting how critical you were of the $300 rebate checks in '01.

 

Isn't it great to engage in hindsight analysis, instead of looking back to see the seriousness of the economy between 2001 and 2003. Easy to say now that the economy is growing at historic rates, when the concensus view at the time was that the recession was going to last years, given the economic run up leading up to it.

 

Your hindsight is also failing you in recalling that when Bush put the tax cut plans in place, revenues for fiscal 2004 & 2005 were projected to be $150Bn lower that the actuals that were delivered. Since the 2 year cost of the tax cut is about $150Bn, the tax cut already paid for itself.

 

Yes it relied on his understanding of building the long term economy by getting the government's fiscal house in order. 

 

Gee, and here I thought that taxing the hell out of the rich is the sure way to get the fiscal house in order.

 

 

Still don't see where it says the Fed is responsible for fiscal policy...

 

I guess the organization that sets the baseline for the US credit markets is not responsible for fiscal policy in your book. This is your evidence that you understand how capital markets work?

 

 

Correct.  The reason the US rebounds quicker are many, but related to the above, US households now have a 0% savings rate--we are consumers alright. Japanese HHs save about 25% of their income.  Japan relies on export-led growth.  The reasons we rebounded quickly: large fiscal deficits and consumers borrowing equity out of houses to spend, spend, spend. 

 

But of course, those low interest rates are a consequence of SS policies (as apparently everything is now...), not the fact that Asian economies pursue policies (buying T-bills) to keep their exchange rates low to support their export-led growth strategies.

 

I'm still waiting for some concrete evidence to support the connection between SS policies and economic impact, not some amorphous statement about "just look at the markets."  Hell, Alan Greenspan's farts move the markets!

 

Right back at you - can you prove that the tax cuts weren't the impetus for the recovery? All you have to fall back on is that the economy is growing at roughly historic rates. You continue to bring up that the economy is rebounding due to deficit spending, yet fail to acknowledge the basic reason for the deficit - people got to keep more of their earnings.

 

We've seen your recitations from economics textbooks, and the routine dismissals of the capital markets, but not the understanding that healthy capital and credit markets don't just materialize because a text book says they should.

 

In fact, I'm guessing part of the reason you're ornery is that the markets have behaved in exactly opposite way in what your textbook says they should. People shouldn't continue to invest in US, with a large deficit and low interest rates. But, lo & behold, they still do. I wonder why? What does your textbook say?

 

But let me recount the position again, since you have a hard time connecting the dots. If, as you claim, large budget deficts are responsible for setting the economic recovery, why hasn't EU followed USA's economic lead? Many EU countries have budget deficits that are much larger. If, as you claim, low interest rates are the cause for the recovery, why did it take Japan a decade to recover, when they had a period of negative rates, to no avail? Lack of consumer spending in Japan can't be the cause, because a decade is a long time for people not to spend.

 

 

Try checking out how much "capital formation" there's been in the US.  US corps spend more on investment in foreign countries than they do domestically.  Or are you including capital formation abroad by US corps?

 

Try checking out an accounting book and finding out the difference between capital formation and capital expenditures. (Hint, they're not the same)

 

Without explicit explanations for how economic variables are affected by their policies, and evidence of the impacts, Supply-siders are basically left with a theory based on faith.  Kind of like the theory of Intelligent Design....

515684[/snapback]

 

I do find it ironic that for someone who purportedly upholds Darwinism in evolution would advocate an intelligent design that is government intervention.

[TPS]

"You're also ignoring Bush's earlier short term tax cut stimulus aimed at the mass population, that are along the lines of what these economists advocated, which obviously wasn't enough to lead a broader recovery. Nice of you to waive the Keynesian flag now, but forgetting how critical you were of the $300 rebate checks in '01."

 

* A lump-sum rebate is the same as cutting the payroll tax?

 

"Isn't it great to engage in hindsight analysis, instead of looking back to see the seriousness of the economy between 2001 and 2003. Easy to say now that the economy is growing at historic rates, when the concensus view at the time was that the recession was going to last years, given the economic run up leading up to it."

 

* And you accuse me of reading comprehension problems? I never said the economy wasn't in serious shape. I've constantly stated that it took significant expansionary policies of the federal government via deficit spending to prevent things from getting worse. I certainly never read anywhere that the consensus opinion stated the recession would last years. As for my statement about long run GDP growth--please read what I wrote. I stated that GDP varies over the cycle, but the average for just about every administration has been about equal to the long term trend. I stated the Bush would probably end up about the same. I suppose stating the recesion was predicted by "the consensus" to last years helps support your argument though...

 

"Your hindsight is also failing you in recalling that when Bush put the tax cut plans in place, revenues for fiscal 2004 & 2005 were projected to be $150Bn lower that the actuals that were delivered. Since the 2 year cost of the tax cut is about $150Bn, the tax cut already paid for itself."

* Well, what I do remember is the CBO stating the White House's estimates were over-stated, and many economist speculated they over-estimated on the deficit so they could say exactly what you said--"see, it was supposed to be worse, but it's not."

 

"I guess the organization that sets the baseline for the US credit markets is not responsible for fiscal policy in your book. This is your evidence that you understand how capital markets work?

Right back at you - can you prove that the tax cuts weren't the impetus for the recovery? All you have to fall back on is that the economy is growing at roughly historic rates. You continue to bring up that the economy is rebounding due to deficit spending, yet fail to acknowledge the basic reason for the deficit - people got to keep more of their earnings."

 

* Oh boy....Do you have your own peculiar definition of fiscal policy? Maybe you need to do a little research as well...

And I "fail to acknowledge the basic reason for the deficit"? You conveniently left out my statement that consumption increased because of the tax cuts--yes, people keeping more of their earnings is the same thing as stating their disposable income increased.

 

"In fact, I'm guessing part of the reason you're ornery is that the markets have behaved in exactly opposite way in what your textbook says they should. People shouldn't continue to invest in US, with a large deficit and low interest rates. But, lo & behold, they still do. I wonder why? What does your textbook say?"

* Once again, you need to try and read what I posted. Who is financing the deficit? I'll save you the trouble--it's mostly Asian economies. Why? Because they don't want their currencies to increase vis-a-vis the $. By buying T-bills they offset the excess supply of $s on the FX markets caused by US trade deficits with those countries. By keeping the $ relatively strong, it promotes their export-led growth strategies.

 

"But let me recount the position again, since you have a hard time connecting the dots. If, as you claim, large budget deficts are responsible for setting the economic recovery, why hasn't EU followed USA's economic lead? Many EU countries have budget deficits that are much larger. If, as you claim, low interest rates are the cause for the recovery, why did it take Japan a decade to recover, when they had a period of negative rates, to no avail? Lack of consumer spending in Japan can't be the cause, because a decade is a long time for people not to spend. "

* I'm amazed you think the Japanese and European economies are just like the US.

 

"Try checking out an accounting book and finding out the difference between capital formation and capital expenditures. (Hint, they're not the same)"

 

* So you are now going to tell me that there's no relationship between capital formation and investment? But it is typical of your argument to date--relying on the more vague concept, as opposed to actual capital expenditures which is what produces growth.

 

"I do find it ironic that for someone who purportedly upholds Darwinism in evolution would advocate an intelligent design that is government intervention."

 

* While I recognize the need for government intervention in periods of economic stress--like 2001-2002, I also recognize that government spending is way out of control. In fact, I agree with Hayek, especially with respect to this government, that the larger government becomes, the more likely it is to limit our individual liberties.

[GG]

".....  Nice of you to waive the Keynesian flag now, but forgetting how critical you were of the $300 rebate checks in '01."

 

* A lump-sum rebate is the same as cutting the payroll tax?

 

What's the difference in how the tax cut is delivered? Btw, I figured you would be extremely pleased in the progressive nature of the rebates -

 

$300 on $25,000 in wages is 1.2%

$300 on $100,000 in wages is 0.3%

 

A working class family with 2 children and $45K in income got the equivalent of a 2.7% tax cut off their payroll tax, if you care to look at it that way.

 

ps - in the 2002 tax plan, there were additional rebate checks for families with children, which certainly benefited the lower income groups more.

 

 

Isn't it great to engage in hindsight analysis, instead of looking back to see the seriousness of the economy between 2001 and 2003.  Easy to say now that the economy is growing at historic rates, when the concensus view at the time was that the recession was going to last years, given the economic run up leading up to it."

 

* And you accuse me of reading comprehension problems?  I never said the economy wasn't in serious shape.  I've constantly stated that it took significant expansionary policies of the federal government via deficit spending to prevent things from getting worse.  I certainly never read anywhere that the consensus opinion stated the recession would last years.  As for my statement about long run GDP growth--please read what I wrote.  I stated that GDP varies over the cycle, but the average for just about every administration has been about equal to the long term trend.  I stated the Bush would probably end up about the same.  I suppose stating the recesion was predicted by "the consensus" to last years helps support your argument though...

 

I'm acusing of of Monday morning QB'ing. You were up in arms about the tax cuts when Bush first uttered the words in his inaugural address, and you've maintained that stance ever since. When the indications came in that the economy had started rebounding, you jumped on the Keynesian horse to proclaim that heavy deficit spending was responsible for lifting the economy out of the crapper.

 

But, the one thing that you haven't come around to admitting, is the composition of those deficits. I'll repeat it again for the reading challenged, a deficit is the difference between revenues and expenses. The deficit does not occur on its own.

 

So, I'm trying to reconcile your logic. If you are going to give credit to "deficit spending" as the way out of the 2001 recession, but you rail about the tax sapping the Treasury of cash and creating the defcit, how come you won't acknowledge that the tax cuts aided the recovery?

 

As to the views of the economists in 2002 - here's just one snippet.

 

"Your hindsight is also failing you in recalling that when Bush put the tax cut plans in place, revenues for fiscal 2004 & 2005 were projected to be $150Bn lower that the actuals that were delivered.  Since the 2 year cost of the tax cut is about $150Bn, the tax cut already paid for itself."

* Well, what I do remember is the CBO stating the White House's estimates were over-stated, and many economist speculated they over-estimated on the deficit so they could say exactly what you said--"see, it was supposed to be worse, but it's not."

 

Monday morning QB, again. Your memory maybe failing you. If anything, it was Bush's reliance on CBO's surplus projections in 2001 that led to the first tax cut.

 

"I guess the organization that sets the baseline for the US credit markets is not responsible for fiscal policy in your book.  This is your evidence that you understand how capital markets work?

 

* Oh boy....Do you have your own peculiar definition of fiscal policy?  Maybe you need to do a little research as well...

 

I think that I'll stick with my definition that an organization that sets the nominal interest rate of the world's largest economy and regulates every nationally chartered bank pursues a fiscal policy. Maybe the word "fiscal" is baffling you.

 

"In fact, I'm guessing part of the reason you're ornery is that the markets have behaved in exactly opposite way in what your textbook says they should.  People shouldn't continue to invest in US, with a large deficit and low interest rates.  But, lo & behold, they still do.  I wonder why?  What does your textbook say?"

 

* Once again, you need to try and read what I posted.  Who is financing the deficit?  I'll save you the trouble--it's mostly Asian economies.  Why? Because they don't want their currencies to increase vis-a-vis the $.  By buying T-bills they offset the excess supply of $s on the FX markets caused by US trade deficits with those countries.  By keeping the $ relatively strong, it promotes their export-led growth strategies. 

 

Yes, it is mostly Asian economies, but there's healthy buying from other sources as well. The treasury bonds are a safe heaven for the international investors, since no other economy has carried its weight. Why is EU having a tizzy over ECB's proposal to raise rates?

 

"But let me recount the position again, since you have a hard time connecting the dots.  If, as you claim, large budget deficts are responsible for setting the economic recovery, why hasn't EU followed USA's economic lead?  Many EU countries have budget deficits that are much larger.  If, as you claim, low interest rates are the cause for the recovery, why did it take Japan a decade to recover, when they had a period of negative rates, to no avail?  Lack of consumer spending in Japan can't be the cause, because a decade is a long time for people not to spend. "

 

* I'm amazed you think the Japanese and European economies are just like the US.

 

They're not, but they certainly exhibit a lot of qualities that you favor.

 

"Try checking out an accounting book and finding out the difference between capital formation and capital expenditures.  (Hint, they're not the same)"

 

* So you are now going to tell me that there's no relationship between capital formation and investment?  But it is typical of your argument to date--relying on the more vague concept, as opposed to actual capital expenditures which is what produces growth.

 

Nice twist. Yes, there's a relationship between capex & capital formation, but since I never talked about capital expenditures, I fail to see how they factor into this debate.

 

 

"I do find it ironic that for someone who purportedly upholds Darwinism in evolution would advocate an intelligent design that is government intervention."

 

* While I recognize the need for government intervention in periods of economic stress--like 2001-2002, I also recognize that government spending is way out of control.  In fact, I agree with Hayek, especially with respect to this government, that the larger government becomes, the more likely it is to limit our individual liberties.

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And I'm sure you apply the same standard to limiting "individual liberties" when it comes to private enterprise.

[TPS]

"What's the difference in how the tax cut is delivered?  Btw, I figured you would be extremely pleased in the progressive nature of the rebates -

 

$300 on $25,000 in wages is 1.2%

$300 on $100,000 in wages is 0.3%

 

A working class family with 2 children and $45K in income got the equivalent of a 2.7% tax cut off their payroll tax, if you care to look at it that way. 

 

ps - in the 2002 tax plan, there were additional rebate checks for families with children, which certainly benefited the lower income groups more."

 

I'm acusing of of Monday morning QB'ing.  You were up in arms about the tax cuts when Bush first uttered the words in his inaugural address, and you've maintained that stance ever since.  When the indications came in that the economy had started rebounding, you jumped on the Keynesian horse to proclaim that heavy deficit spending was responsible for lifting the economy out of the crapper.  "

 

* You either have a selective memory, or yours is as bad as mine. I actually argued back then for a cut in the payroll tax instead of what Bush was proposing. I said it would be better to make sure those who needed the income the most got the cuts. I was against his cuts that favored the top 5-10%. Are there archives that go that far back? If so, you'll find these exact comments.

 

 

"But, the one thing that you haven't come around to admitting, is the composition of those deficits.  I'll repeat it again for the reading challenged, a deficit is the difference between revenues and expenses.  The deficit does not occur on its own. "

 

* And I guess I have to repeat my same statement over and over--I presented the data in post 51. What the data show is that the deficits were a function of BOTH falling TOTAL revenues (not just personal tax reveneus) AND increasing expenditures. How many times do I have to say it before you realize I said it?

 

"So, I'm trying to reconcile your logic.  If you are going to give credit to "deficit spending" as the way out of the 2001 recession, but you rail about the tax sapping the Treasury of cash and creating the defcit, how come you won't acknowledge that the tax cuts aided the recovery?"

 

*Agghhh!!!! I said it in the last two posts at least! A cut in taxes increased disposable income for households, which increases consumption. The major components that helped us out of the recession were C+G.

I guess the problem relates to your failed memory: I was against Bush's tax cuts that favored the wealthy; I argued for a tax cut, specificlly a cut in the payroll tax, to stimulate the economy. Had Bush focused the tax cuts on those with lower incomes, the cuts would've had an even greater effect.

 

"As to the views of the economists in 2002 - here's just one snippet.'

* Yes, according to that article, it states the majority of economists still believe the economy will muddle along and not double dip--isn't the majority "the consensus?"

 

"Monday morning QB, again.  Your memory maybe failing you.  If anything, it was Bush's reliance on CBO's surplus projections in 2001 that led to the first tax cut."

* Ahhh, now this rings a bell. I think Bush was making his tax cut argument before 9-11, and the recession was actually very mild, and we may have already been recovering. I remember arguing that instead of cutting taxes, if we continued to pay off the debt, that would lead to a future tax cut because you would eliminate the $300 billion + interest expense. However, I also made the above argument on cutting payroll taxes, assuming Bush would cut taxes.

 

 

"I think that I'll stick with my definition that an organization that sets the nominal interest rate of the world's largest economy and regulates every nationally chartered bank pursues a fiscal policy.  Maybe the word "fiscal" is baffling you."

 

* What's baffling me is why you are the only person in the country that defines fiscal policy as some form of monetary policy. Try googling "fiscal policy"

 

"Yes, it is mostly Asian economies, but there's healthy buying from other sources as well.  The treasury bonds are a safe heaven for the international investors, since no other economy has carried its weight. "

 

* We actually agree here!

 

"Nice twist.  Yes, there's a relationship between capex & capital formation, but since I never talked about capital expenditures, I fail to see how they factor into this debate."

* What good is "capital formation" if it doesn't translate into expenditure on capital equipment? Growth is a function of real factors--productivity and labor force growth, not some amorphous concept.

 

 

"And I'm sure you apply the same standard to limiting "individual liberties" when it comes to private enterprise."

 

* Let me see if I can interpret that: I said I agreed with von hayek about large government limiting individual liberties. So if i apply the same standard to private enterprise, that means large corporations also lead to limiting individual liberties.

YES, I would agree to that.

[GG]

* You either have a selective memory, or yours is as bad as mine.  I actually argued back then for a cut in the payroll tax instead of what Bush was proposing.  I said it would be better to make sure those who needed the income the most got the cuts.  I was against his cuts that favored the top  5-10%.  Are there archives that go that far back? If so, you'll find these exact comments.

 

....

 

I guess the problem relates to your failed memory: I was against Bush's tax cuts that favored the wealthy; I argued for a tax cut, specificlly a cut in the payroll tax, to stimulate the economy.  Had Bush focused the tax cuts on those with lower incomes, the cuts would've had an even greater effect.

 

The rebates were a tax cut focused on the lower incomes. Everyone got the same $$$, no matter what their income level. Thus, it benefitted the low income earners the most. If you add up both years' rebates, you come to about 4% tax cut for a family of 4 and $45K of income. That obviously wasn't enough, and the tax cut that was aimed at stimulating capital formation was put in place in '03 that sealed the deal.

 

* What's baffling me is why you are the only person in the country that defines fiscal policy as some form of monetary policy.  Try googling "fiscal policy"

 

If you note the original quote it refers to the combined fiscal policies of the Fed & Treasury. Yes, I know what the textbooks say about the definition of "fiscal policy," however, I also know that fiscal policy in the US has been very much coordinated with the monetary policy at the Fed, and Treasury's options are generally limited with what the Fed is doing.

 

If you want a real life example, take a look at the stink EU finance ministers are making this week. They are perfectly free to conduct whatever "fiscal plocies" they choose. Then why are they upset with Trichet, who just limited their options?

 

* What good is "capital formation" if it doesn't translate into expenditure on capital equipment?  Growth is a function of real factors--productivity and labor force growth, not some amorphous concept.

 

I noticed that you've yet to recognize profit as the fundamental determinant of capital formation. It is far from an amorphous concept, even though it's antithetical to your makeup. Productivity & labor force growth are components of profit, not the end all.

 

* Let me see if I can interpret that: I said I agreed with von hayek about large government limiting individual liberties.  So if i apply the same standard to private enterprise, that means large corporations also lead to limiting individual liberties. 

YES, I would agree to that. 

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The primary difference between the two, is that generally you have an immediate opportunity to get a large corporation out of your life by voting with your wallet.

[TPS]

If you note the original quote it refers to the combined fiscal policies of the Fed & Treasury.  Yes, I know what the textbooks say about the definition of "fiscal policy,"  however, I also know that fiscal policy in the US has been very much coordinated with the monetary policy at the Fed, and Treasury's options are generally limited with what the Fed is doing. 

 

If you want a real life example, take a look at the stink EU finance ministers are making this week.  They are perfectly free to conduct whatever "fiscal plocies" they choose.  Then why are they upset with Trichet, who just limited their options?

I have to disagree with you again. There's a significant difference between the US and EU that you either ignore or are not aware of--the EU countries, as part of their membership requirements, have a "cap" of 3% of GDP on deficit spending. They indeed are constrained by Trichet and the ECB. There is no equivalent constraint on US government borrowing. The US can borrow as long as there are willing lenders. The FED's role is to set the borrowing rate, specifically the Fed Funds rate. The Fed can affect the Treasury's borrowing cost, but it can't prevent the US Treasury from borrowing.

 

Here's a nice little article on the problems with trying to maintain the deficit caps in the EU and individual countries wanting more flexibility with their deficit financing.

EU and deficits

 

I noticed that you've yet to recognize profit as the fundamental determinant of capital formation.  It is far from an amorphous concept, even though it's antithetical to your makeup.  Productivity & labor force growth are components of profit, not the end all.

I don't know why you would make that statement about a Keynesian--"antithetical to your makeup"?

One of the most significant contributions Keynes made in the General Theory was to show that Savings and Investment are not equated by interest rates. He stated that savings was primarily a function of income, and Investment was primarily a function of profit expectations--or what he called the "animal spirits of the entrepreneur."

Certainly long run growth is a function of supply factors--the ability to produce more output, but throughout th Business Cycle, Investment is a function of profit expectations. But once again, expectations of making a profit lead to investment in capital expenditures, and its capital expenditures that create growth. Since you have a very different definition of fiscal policy, maybe you can define your notion of "capital formation" for me? Maybe that's another source of our disagreement, a definition?

 

The primary difference between the two, is that generally you have an immediate opportunity to get a large corporation out of your life by voting with your wallet.

No disagreement there.

 

Finally, since it's the most important game of the year today, GO UCLA!!!

[colin]

There is way too much party schilling mixing in with the economic discussion here. You guys seem to root for your respective parties like how I root for the Bills-- in thick and thin, right or wrong.

 

Supply side (with along with most neoconservative policy sort of spans the spectrum from free market to socialist policy) and keynsian policies when put into practice end up being socialist spending and regulation/taxation getting put into the republican cronies (military socialism) or the democrat cronies (old american left socialism).

 

Neither are honest applications of economic theory, just a way to excuse behaviour that fulfills political agendas.

 

The rebublicans in power now are just dumping a ton of spending and lowering taxes which is EXACTLY what reds like keynes would have wanted (although he might be iffy on the tax cuts on the upper end of the pay scales). This is foolish and irresponsible governing and the fallout of this is monetization of the deficit (measured by true inflation: growth in the money supply).

 

The Republicans actions (despite what some of their better memeber, like Ron Paul for example insist on) are that of a big government cold war military socialism regime. The rhetoric that most often gets thrown around by republicans is much more free market than thier actinos.

 

The Clinton administration saw a MASSIVE credit expansion (essentially inflation of the money supply and a very wide spread amount of over investment) and most of the really hammer and sicle policy get shot down or watered down by the split houses.

 

I don't know if you guys are all about the economics and the betterment of your nation, or about just supporting your party like a sports team, but each party acts in its own best interest and that moves them very far from their rhetoric and very close to each other.

 

At times it is like you guys are arguing about what colour box of the exact same thing you should buy.

[colin]

Oh,

 

I'd also like to add that Keynsian economics is horsesh!!t.

 

Thanks

[Alaska Darin]

There is way too much party schilling mixing in with the economic discussion here.  You guys seem to root for your respective parties like how I root for the Bills-- in thick and thin, right or wrong.

 

Supply side (with along with most neoconservative policy sort of spans the spectrum from free market to socialist policy) and keynsian policies when put into practice end up being socialist spending and regulation/taxation getting put into the republican cronies (military socialism) or the democrat cronies (old american left socialism).

 

Neither are honest applications of economic theory, just a way to excuse behaviour that fulfills political agendas.

 

The rebublicans in power now are just dumping a ton of spending and lowering taxes which is EXACTLY what reds like keynes would have wanted (although he might be iffy on the tax cuts on the upper end of the pay scales).  This is foolish and irresponsible governing and the fallout of this is monetization of the deficit (measured by true inflation: growth in the money supply).

 

The Republicans actions (despite what some of their better memeber, like Ron Paul for example insist on) are that of a big government cold war military socialism regime.  The rhetoric that most often gets thrown around by republicans is much more free market than thier actinos.

 

The Clinton administration saw a MASSIVE credit expansion (essentially inflation of the money supply and a very wide spread amount of over investment) and most of the really hammer and sicle policy get shot down or watered down by the split houses.

 

I don't know if you guys are all about the economics and the betterment of your nation, or about just supporting your party like a sports team, but each party acts in its own best interest and that moves them very far from their rhetoric and very close to each other.

 

At times it is like you guys are arguing about what colour box of the exact same thing you should buy.

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I think I love you.

[colin]

I think I love you.

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i feel special yet dirty all at the same time.

 

like back when i was an alter boy...

[GG]

At times it is like you guys are arguing about what colour box of the exact same thing you should buy.

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While generally I won't disagree with your post, please remember that I was talking only about the effects of the tax cuts, not what this administration has done with the expense side.

[TPS]

I don't know if you guys are all about the economics and the betterment of your nation, or about just supporting your party like a sports team, but each party acts in its own best interest and that moves them very far from their rhetoric and very close to each other.

 

At times it is like you guys are arguing about what colour box of the exact same thing you should buy.

 

I don't think we were supporting parties, rather we were discussing the predicited outcomes of personal tax cuts on the federal budget. I was explaining the impact that a keynesian would predict, and GG was predicting the impact from the supply-side perspective.

 

Keynesians: personal tax cuts stimulate the economy by increasing household consumption and increased deficits. I argued (and provided evidence) the actual deficits were a function of the decrease in TOTAL revenues and increased spending.

Supply-side (interpreting the arguments made here): while personal tax cuts increase spending, they have spillover effects on many different areas (markets, profits, etc), thus increasing total tax revenues, and (eventually?) lowering deficits.

No evidence was given.

 

As for your contention that politicians use economic theories to their own benefit, I couldn't agree more. Hooray for your team!!!!

[colin]

I don't think we were supporting parties, rather we were discussing the predicited outcomes of personal tax cuts on the federal budget.  I was explaining the impact that a keynesian would predict, and GG was predicting the impact from the supply-side perspective.

 

Keynesians: personal tax cuts stimulate the economy by increasing household consumption and increased deficits.  I argued (and provided evidence) the actual deficits were a function of the decrease in TOTAL revenues and increased spending.

Supply-side (interpreting the arguments made here): while personal tax cuts increase spending, they have spillover effects on many different areas (markets, profits, etc), thus increasing total tax revenues, and (eventually?) lowering deficits.

No evidence was given.

 

As for your contention that politicians use economic theories to their own benefit, I couldn't agree more.  Hooray for your team!!!!

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I'll assume you and GG were just debating the economic theory involved, but it did get hard to tell who was schilling for thier side of aisle and who was looking to make and read points (not saying it is you two, but the way these debates splinter up it gets tough to follow). Getting lost in the minutia is fine, i do it all the time.

 

anyhow i think there are two important points in tax cuts and revenue:

 

1. There is a deadweight cost in taxation. Just taxing parties will reduce total output. with 100% government efficiency we'd still be worse off as an economy with taxation (assuming the economy doesn't need the rights enforcement that government provides at all).

 

2. The balanced budget multiplier is ZERO. what this means is that even if the money multiplier is true, since the "new" money spent into the economy by the government came out of the economy in the first place, you remove as much of the multiplier effect as you have added.

 

the common argument against point 2 is that the government will take money from people who are less likely to spend it. the problem with that is the money would be invested, which in turn means it is used and eventually spent. unless it is stuck under a matress it will end up as part of the economy.