Posting Towards Gomorrah

[Mmmm, Burger (C.J.)]

Originally posted by Spanky
Supply Sider theory is that tax cuts, even when you have huge deficits, will create growth, and such growth will always eventually cover the deficit. .

No, that is Reaganomics, whose supporters apparently have coopted the "supply sider" term.

[Spanky]

Originally posted by Greedy,Greedy,Greedy
Every now and then, I find myself wishing that I lived in a world filled with simple answers. Iraq=terrorism=evil, so war is good. Tax cut=growth=revenue, so tax cuts are good. Life is so simple! Economics is all laid out in a nice simple box isolated from all the other messy things. Deer nibble on the brush in the backyard and all is good.

Then I read my 5 year old a book, and delight in watching him ask question after question, discovering the beauty and interest of a world without easy answers.

You are oversimplifying my point. I was saying growth = good. If tax cuts bring in more growth than they deter then that is good. But that is a big if. It is debateable whether the Bush tax cuts brought in more growth than they deterred. And even if you agree with the concept that they brought in more growth than they deterred then then there is also an argument as to whether they will continue to bring in more growth than they deter.

The point I was trying to make is that once you agree that the Bush tax cuts brought in more growth than they deterred, then they were the right call. Ty and friends did not realize that once they admitted the Bush tax cuts brought in more growth than they deterred they were admitting the Bush tax cuts were a good thing.

The only simple part is growth = good. The rest is complicated. Unbelievably complicated.

[Spanky]

Originally posted by Mmmm, Burger (C.J.)
No, that is Reaganomics, whose supporters apparently have coopted the "supply sider" term.

How is that different from the Supply Sider theory. Or at least Laffer's versoin of Supply Side economics.

[Spanky]

Originally posted by Secret_Agent_Man
That may be so, but the journey of a thousand miles begins with a single step.

In other words, we've gotta start somewhere to get those f-ing bums out of power.

S_A_M

What you don't realize is that you can always make things worse. For Iraq, things may not be great, but a Democrat takeover will make them worse.

[Mmmm, Burger (C.J.)]

Originally posted by Spanky
How is that different from the Supply Sider theory. Or at least Laffer's versoin of Supply Side economics.

Laffer never said run deficits to cut taxes.

Supply siders, properly understood, do worry about deficits because they do have the potential to crowd out, and because any public investment is likely to be less efficient than private investment.

The "grow our way out of the deficit" is a convenient rhetorical hook for explaining why a true supply-side approach, which involves cutting taxes and spending, is not necessary (i.e., because it's not politically palatable).

[Hank Chinaski]

Originally posted by Spanky
blah blah

like most of you, I am not economically educated. However, I would rather not repost crap that I've read somewhere else as my own thoughts (hi Ty!).

But, honest question, isn't the stock market going through the roof proof that something good has happened?

[Spanky]

Originally posted by Secret_Agent_Man
So, it is only in the interests of the Administration's opponents, but not in the interests of the Administration, to shade the truth or try to paint themselves in the most favorable possible light?

Fascinating.

S_A_M

Yes it is in the interest of the Administration to paint them in a good light and for the Dems to paint them in a bad light. But it is in the political interest of the administration for things to go well in Iraq, where it is in the political interest of the Dems that things go bad in Iraq. That is why you can't trust the Democrats to run things better.

If the Democrats were screaming that we were not giving the Pentagon what it needed and the Generals should be allowed to win then a Dem takeover might be a good thing. But they are not the party of winning. they are the party of this is a bad war and we need to get out as soon as possible.

[Greedy,Greedy,Greedy]

Originally posted by Spanky
You really don't understand at all what I am saying, because you don't understand basic economic theory. If tax cuts spur more growth than would have occurred without them eventually they will pay for themselves.

Okay, I know I'm going to regret this, but since you've built a house of cards on this statement, without listening to Ty or reading the blurb he's now posted twice, let me break this down.

Say, for simplicity's sake, that there is an economy with GNP of $1,000,000 (add zeros if the assumption is too much for you), and the government runs on tax revenues of $200,000. There is a 20% tax rate. The economy grows at 1% per year, so it adds $1,000 per year in growth.

Now say you cut taxes to 10%, so now the Government has $100,000 in revenues, and this results in the economy growing at 5% per year - a 5x increase in growth! With a tax rate of 10%, you are now collecting a whopping $105,000 instead of $101,000.

Fast forward ten years. With 5% growth per year, you will have an economy of roughly $1,600,000 rather than an economy of $1,100,000. You will still not have made up the revenue. You will have had to either run the Government on half the revenues, or have cut Government programs. Your cuts have not paid for themselves. Moreover, the gap between what the 20% would have raised with 1% growth and what the 10% raises with 5% growth is now over $200,000 per year, and there is either a $1.5 million debt or there have been severe cuts in government service, cuts which may, for example, undermine growth.

All this is simply meant to illustrate, a tax cut that results in growth will not always pay for itself. Cuts, like expenditures, must be managed in a reasonable and balanced way. But, if the fundamental basis of your economic theories are all based on the simplistic statement I've quoted above, you may want to think about them just a little more.

[Secret_Agent_Man]

Originally posted by Spanky
What you don't realize is that you can always make things worse.

I do realize that.

Originally posted by Spanky
For Iraq, things may not be great, but a Democrat takeover will make them worse.

If you're talking about a partial takeover (i.e. one House), I don't think so -- especially if it is by a narrow margin. I still have fond hopes that the process of forced compromise between our political parties on issues like this one which are crucial to our country may ultimately produce a better result.

[I suppose Ty would call this "Broderesque" of me, almost as if being like David Broder is an insult.]

Besides, Spanky, after the last few years we just can't sit by and wait until those fuckers are term limited out, give them gold watches and a nice little speech, and send them home to Texas, Wyoming, etc. There has to be some real price.

S_A_M

[Greedy,Greedy,Greedy]

Originally posted by Spanky


quote:
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Originally posted by Mmmm, Burger (C.J.) Of course, Congress will spend more than 100% of any revenue, so that's a bit irrelevant. And the size of government is fundamentally determined by spending, not by taxing, and absent a committment to cut spending, not much changes.
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This was not true for most of our country's history.

Cite please.

Burger has it exactly right. And it has been true for most of our nation's history - from the Continental Congress on.

Do we have to give you a lesson in economic history, too?

[Sidd Finch]

Originally posted by Mmmm, Burger (C.J.)
No, that is Reaganomics, whose supporters apparently have coopted the "supply sider" term.

And who were proven utterly and competely wrong by actual events. Not that economists (or Spanky) like to pay much attention to reality, of course.

[Spanky]

GATTIGAP already talked about this. So now you have admitted not knowing anything about economics but have decided to post someone you think does. Well, they don't. But of course, you couldn't know that.


quote:
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Alan D. Viard, a former Bush White House economist currently at the conservative American Enterprise Institute, recently told The Washington Post: "Federal revenue is lower today than it would have been without the tax cuts. There's really no dispute among economists about that."

THAT MAY BE TRUE BUT THAT DOESN'T MEAN THE TAX CUTS WON'T EVENTUALLY PAY FOR THEMSEVLES.

He's right. There's no dispute among economists. Conservative, moderate, or liberal, every credentialed economist agrees that the Bush tax cuts caused revenues to drop. There is, however, a dispute between economists and pseudo-economists. Supply-siders may be laughed at by real economists,

THIS IS BULL SHIT.

but they still enjoy a strong following among politicians, including, alas, the president of the United States. Here is what President Bush said a week and a half ago:


They said that we had to choose between cutting the deficit and keeping taxes low--or another way to put it, that in order to solve the deficit we had to raise taxes. I strongly disagree with those choices. Those are false choices.

THAT IS TRUE IF YOU AGREE WITH SUPPLY SIDER THEORY.

Tax relief fuels economic growth, and growth--when the economy grows, more tax revenues come to Washington. And that's what's happened. It makes sense, doesn't it?"

YES IT DOES


Well, no, it doesn't make any sense at all. Bush, of course, is correct that tax revenues have risen over the last few years. This is normal.

Except in certain extreme theoretical conditions, tax cuts cause revenues to fall, and tax hikes cause them to rise.

THIS IS TRUE.

The economy also can affect revenues. During an expansion, revenues can rise unusually fast, and during a recession, they can drop unusually fast.

YES. BUT THE POINT IS, DID THE TAX CUTS FULE THE EXPANSION? IF THEY DID THEN THEY ARE RESPONSIBLE FOR THE INCREASED REVENUE. IF THEY DIDN'T, THEN THE TAX CUTS DID NOT. IN OTHER WORDS IF THE TAX CUTS LED TO GROWTH, THEN THEY HELPED, BUT IF THEY DID NOT LEAD TO GROWTH THEN THEY DIDN'T. WHAT THIS GUY IS IMPLYING IS THAT THEY DID NOT LEAD TO GROWTH (HE IS IMPLYING THAT BECAUSE HE IS IMPLYING THAT THE RECOVERY IS NOT CONNECTED TO THE TAX CUT).

The latter is what happened following the first Bush tax cut. When Bush took office, tax revenues accounted for 19.8 percent of gross domestic product. After the tax cut, they collapsed to a low point of 16.3 percent--far lower than even the most pessimistic projection.

BUT IF THE ECONOMY CONTINUES TO GROW EVENTUALLY THE TAX RATES WILL ACCOUNT FOR MORE THAN 19.8 PERCENT OF GROSS DOMESTIC PRODUCT. BUT THESE ARE ALSO RIGGED NUMBERS BECAUSE AS THE ECONOMY GROWS YOU NEED MORE MONEY TO GET TO 19.8 PERCENT OF GDP. SO WHEN WE GET TO THE POINT WHEN OUR REVENUES EQUAL 19.8 PERCENT OF GDP WE WILL BE BRINGING IN A LOT MORE REVENUE THAN 19.8 OF THE GDP EQUALED IN 2002. TO BE FAIR HE SHOULD JUST BE DISCUSSING REVENUE IN DOLLAR TERMS.

Yes, revenues have risen from that low level, but they still haven't recovered.

BUT IF THE GROWTH CONTINUES, AND THE TAX CUT FUELED THAT GROWTH THEN THE THEORY WILL PROVE CORRECT.

The Center on Budget and Policy Priorities found that revenues currently lag $200 billion behind the revenue growth you would normally find during a recovery.

THIS CLAIM MAKES NO SENSE AT ALL. THERE IS NO SUCH THING AS A NORMAL RECOVERY. WHAT HE IS ALSO CLAIMING HERE IS THAT WITHOUT THE TAX CUTS THERE WOULD HAVE BEEN MORE GROWTH.

Now, Bush's reply to that is to say that if it weren't for his tax cuts, we would still be in a recession. Indeed, in the same October 11 speech, he asserted, "I'm convinced that if we had raised taxes, it would cause there to be an economic decline, which would make it harder to balance the budget over the years."

IF THE TAX CUTS DID NOT BRING ABOUT GROWTH HE WOULD BE WRONG. IF THE TAX CUT BROUGHT GROWTH HE IS RIGHT.

Because Bush can veto any tax hike, we can't know for sure whether he's right. But there's another pretty good way to check that claim: Go back to the last time there was a major tax hike. That was in 1993. Just about every major elected Republican predicted the 1993 tax hike would slow down the economy, probably cause a recession and cause revenues to decline. Instead, they boomed, rising from 17.5 percent of GDP when Bill Clinton took office to 19.8 percent when he left.

SO HERE THE GUY IS ARGUING THAT A TAX INCREASE WOULD HAVE BROUGHT MORE GROWTH. SO HE IS ARGUING THAT BUSH'S TAX CUTS ACTUALLY HAMPERED GROWTH. BUT THIS IS A B.S. COMPARISON. CLINTON INHERITED A GROWING ECONOMY WHERE BUSH INHERITED A RECESSION. WITH CLINTON THE QUESTION SHOULD BE, WOULD THE GROWTH BEEN EVEN STRONGER IF HE HAD NOT RAISED TAXES? AND CLINTON EVEN ADMITTED THAT HE RAISED TAXES TOO MUCH.

Republicans say Clinton just benefited from a good economy. Of course he did. That's the point. Raising taxes on the rich, within reason, did nothing to slow down the economy. Moreover, that same logic applies to Bush. Clinton did not invent the business cycle, and neither did the current president. Both benefited from a growing economy.

THERE IS A LEGITIMATE DISPUTE OVER WHETHER IT WAS CLINTON'S TAX INCREASE, OR REAGANS TAX CUT THAT PRODUCED THE GROWTH. BUT THERE IS NOTQUESTION THAT THE GROWTH LEAD TO BALANCING THE BUDGET. THE TAX INCREASE WITHOUT THE ADDED GROWTH WOULD NOT HAVE COME CLOSE TO BALANCING THE BUDGET. HOWEVER, THE GROWTH WITHOUT THE TAX INCREASE WOULD HAVE EVENTUALLY BALANCED THE BUDGET.

But here's the difference. Clinton inherited a large deficit and, with the economy going full-tilt, turned it into a sizable surplus. Bush inherited a sizable surplus and, with the economy going full-tilt,

WRONG. BUSH INHERITED AN ECONOMY IN RECESSION

he's still running a deficit north of $200 billion. If Bush had a responsible fiscal policy, we'd be paying off our debt right now, not adding to it.

NOT TRUE.

In the same speech in which he claimed that his tax cuts have caused revenues to rise, Bush bragged that he's "restraining spending." So why do we still have a deficit? I mean, he says he's kept spending down, he's caused revenues to skyrocket, and the economy is going great guns. Why are we still in the red?

WE ARE STILL IN THE RED BECAUSE BUSH ALSO RAISED SPENDING.

And if Bush's own economists say his tax cuts caused revenue to drop--and Viard isn't the only one--then how can he continually get away with insisting the opposite?

HIS OWN ECONOMISTS ARE SAYING THAT THE TAX CUTS WORKED AND THAT IN A FEW YEARS THEY WILL HAVE BROUGHT IN MORE REVENUE THROUGH GROWTH THAN WAS LOST THROUGH TAX CUTS. WE JUST HAVEN'T HIT THAT POINT YET.

[Spanky]

Originally posted by Mmmm, Burger (C.J.)
I think you are conflating two very distinct approaches.

1) Supply-side economics is classical economics

--it posits that an economy will maximize productivity and growth when barriers to trade, including various taxes, are at a minimum and as non-distortionary as possible. Any taxes, or at least any above the minimum necessary for government, will distort incentives and lead to reduced growth.

So are you saying Adam Smith was a Supply Sider? I think you are wrong here. If Adam Smith is a Supply Sidder what is Laffer?

Originally posted by Mmmm, Burger (C.J.)
2) Keynesian economics--this is the FDR-style policy, that says deficit spending can be used to stimulate an economy, and, should be used when an economy needs stimulation. (Conversely, when an economy is booming, this model says the government should run a surplus to "cool" the economy and smooth out the business cycle)

Supply-siders are not Keynesians. In many ways they could not be more opposite. To suggest that a genuine supply sider advocates for deficits is either misleading or wrong. A true supply sider would not advocate deficits, because they understand that the effective tax rate is equal to government spending, not government taxing, in the long run.

I never said Supply Siders are Keynsians. I just said that in a recession they both agree that taxes should be cut (as long as you are above the right point on the Laffer curve for the Supply Sider).

[Tyrone Slothrop]

Originally posted by Spanky
You really don't understand at all what I am saying, because you don't understand basic economic theory.

That must be why I gave my proxy to Burger.

[Spanky]

Originally posted by Mmmm, Burger (C.J.)
Laffer never said run deficits to cut taxes.

No but he said even if you have deficits, you can cut taxes, and such tax cuts will eventually bring in more revenue than you lost ( as long as you are on the right point of the curve).

Originally posted by Mmmm, Burger (C.J.) Supply siders, properly understood, do worry about deficits because they do have the potential to crowd out, and because any public investment is likely to be less efficient than private investment.

Yes but at a certain point on the Laffer curve the best way to deal with a deficit is to cut taxes.

Originally posted by Mmmm, Burger (C.J.) The "grow our way out of the deficit" is a convenient rhetorical hook for explaining why a true supply-side approach, which involves cutting taxes and spending, is not necessary (i.e., because it's not politically palatable).

Growing out of the Deficit is the foundation of the logic behind the Laffer curve. Is it not?