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Supply-side Economics Explained for k5ers

By waxmop in Op-Ed
Fri Jan 23, 2004 at 08:43:00 PM EST
Tags: Politics (all tags)
Politics

George W. Bush's economic policy is based on trickle-down economics, also known as supply-side stimulus. Reagan was a big fan of this idea also. Simply described, supply siders argue that the best way to stimulate the economy to grow is to cut taxes on the wealthy. When their tax rates fall, the rich will increase their investments. For example, a restaurant owner might decide to build a larger kitchen if she gets a big refund check. Then, she'll have to hire more workers to staff that kitchen, and so employment goes up, indirectly because of that original tax cut.


It's a neat theory. Reagan argued that it even makes sense for the government to cut taxes to below current spending and take on debt because in the long run, the economy would grow back so that eventually the tax cut would pay for itself. This approach is called "supply-side" because the stimulus (the tax cut) are applied to the suppliers of goods and services (the business sector).

The common objection to supply-side economics is that there's absolutely no guarantee that if you cut taxes on the wealthy, then they will use that money to invest in new business. In fact, since these tax cuts happen in bad economic times, investors might decide that their money is safer if they save it rather than invest it. Going back to the restaurant example, if the restaurant owner decides to just stuff that tax refund into a savings account, or just keep it in her mattress, then no job growth occurs.

Also, if the government did what Reagan (and George W. Bush) recommended and went into deficits to finance one of these tax cuts, and no economic growth occurs, then the government is in a really bad spot. They have to raise taxes back to sustainable levels, and then raise taxes again in order to get the money to pay for the debt, and then raise taxes even higher to pay for the interest on the debt. Or, they can do what Reagan did, and just roll the debt over by issuing more debt. This is sort of like paying off the Master Card bill with the Visa. It works great as long as you can always get another credit card to lend you more money. When the last credit card company decides not to give you a card, then you are in trouble.

George Herbert Walker Bush called supply-side economics "voodoo economics" because all of supply-side theory was based on a hope that the rich would invest those tax cuts and not just stick them in the bank. George W. Bush ignores his father's opinions about the wisdom of his economic policy, however, and is a big supporter of supply-side economics.

Third-world countries do the Visa-Master Card swap trick all the time. They run up huge debts by spending more than they tax, and keep borrowing money from private investors in their country and abroad. When it becomes obvious that the country is so far in debt that they will never be able to pay it back, investors start selling off their debt, even if they sell them at steeply-discounted amounts. This is really, really bad for the country still trying to pay its bills by borrowing more. When investors start dumping your IOUs on the market, then your country's currency quickly loses value. This is called hyper-inflation.

In 1997, investors all around the world had lots of money invested in east Asia. Then, people lost confidence in certain countries, and so investors all started selling off like mad. The investors sold debt denominated in Asian currency to buy dollars. This pushed down the value of Asian currencies relative to $US. In short, families in these countries found out that their life savings (which were stored in their home-country currency, like the Thai baht, or the Indonesian rupiah, not in $US) lost all of its value because of inflation. It was as if these people woke up, went to the store, and discovered that all the prices had doubled, and were probably going to double every day after that. That's when the riots broke out, which scared away more investors, and the downward spiral continued.

The same thing happened recently in Argentina. Investors all started selling off Argentinian debt, so the value of the Argentinian currency plummeted, and people were wiped out. Also, when you have high, high inflation, goods imported from other countries become much more expensive.

What happened in the 1980s is like a big Rorschach test. Some economists see all the signs that supply-side economics worked, and others see the same period as the beginning of severe fiscal irresponsibility ("fiscal" means how the government manages spending). There's no doubt the economy grew after the Reagan tax cuts, but it never grew enough to pay back the debt Reagan racked up. We're stilling paying interest today on that debt. We're also now adding to it because each year that the government spends more than it taxes, it creates a deficit, so that gets added to the debt, and we've been in a deficit ever since the George W. Bush tax cuts. Also, in some other recessions, the government has chosen to just wait it out, and most recessions end in about 11 months. Based on previous experience, the recession probably would have taken care of itself eventually, and we wouldn't have all this debt hanging over us today from twenty years ago that we still haven't paid off.

In 1991, part of the reason why George H. W. Bush had to break his "read my lips: no new taxes" pledge was because he was forced with the choice of either raising taxes, or putting the country further in debt. He made the politically painful move in order to protect the long-term interests of the country, even though he knew he was just about guaranteeing he would lose the 1992 election.

Clinton saw an opportunity to steal an issue from the Republicans in 1992. Since they were no longer the party of being fiscally responsible, Clinton made that his mantra. He balanced the budget early, by cutting spending and raising taxes. Then of course, the public didn't like that, so in 1994, the Democrats lost control of Congress. Still, thanks to Clinton, we got out of deficits by the end of 1990s and in 2000 Gore wanted to start paying down the debt, but then George W. Bush won the election, and instead of paying down the $7 trillion that we owe (about $24,000 per US citizen, and growing every day), he pushed through his tax cuts instead.

The US debt is at an all-time high, and the financial world is starting to worry about the long-term stability of the US economy. The International Monetary Fund, in a release a few weeks ago, recently warned that the US debt was increasing to the size where it could threaten the world economy. The Bush administration almost entirely ignored the report and the mainstream US media didn't make the report into a big story.

Meanwhile, the US dollar has lost about 30% of its value versus the EU Euro in the last 12 months. A weak currency in the short run may help our exports, but in the long run, it pushes up interest rates and frightens foreign investors. Since most of our debt is held by non-US investors, the US government's ability to borrow depends on maintaining confidence that our currency will maintain value in the long-term.

One economist described debt as more like termites in the walls, rather than a tornado outside. Both will eventually destroy the house, but it is a lot easier to pretend that the termite problem isn't so bad.

The Brookings Institute, a think tank in Washington, DC, just finished a paper that describes some long-term consequences of ignoring the budget deficits. Alice Rivlin, former vice-Chair of the Federal Reserve Board of Governors co-authored the paper.It is written for the interested outsider, rather than the professional economist. In short, allowing the government to run deficits indefinitely raise interest rates for all of us, risks inflation of US currency, and limits long-term economic growth. Here's that paper.

Total employment (the number of people with jobs) has fallen by about 3 million jobs since the economy peaked in March of 2001. George W. Bush promoted the tax cut as a tool to create jobs, and by that standard, it hasn't worked at all.

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o $7 trillion that we owe (about $24,000 per US citizen, and growing every day)
o Internatio nal Monetary Fund
o recently warned that the US debt was increasing to the size where it could threaten the world economy
o Since most of our debt is held by non-US investors
o The Brookings Institute
o paper that describes some long-term consequences of ignoring the budget deficits
o by about 3 million jobs
o since the economy peaked in March of 2001
o Also by waxmop


Display: Sort:
Supply-side Economics Explained for k5ers | 295 comments (266 topical, 29 editorial, 2 hidden)
who holds US debt? China (2.72 / 11) (#2)
by rjnagle on Thu Jan 22, 2004 at 05:14:45 PM EST

I read recently (perhaps it was in that same IMF report) that the biggest holder of US debt (i.e., Treasury Bills) is China. If China loses confidence in our ability to pay down the debt and their own currency improves in stability, China could start selling off our T-Bills and basically raise the cost of maintaining the US debt over the future. This isn't really an immediate concern; China's currency and banking system is way more messed up than ours is. But in 10 years this could be a big issue, esp. if US's debt burden continues to increase. Personally, I think more international burden sharing and a more realistic policy of military engagement could do a lot to reduce US debt.

well, if the euro stays stable... (2.75 / 4) (#6)
by rjnagle on Thu Jan 22, 2004 at 05:58:30 PM EST

after writing, I realize that the value of Chinese currency is quite irrelevant to my point. If another currency (like the Euro) stays stable while the value of the dollar continues to fall and foreign banks predict that it will continue to fall, they'll sell off their US debt and buy European debt. That would really suck.

[ Parent ]
Well (2.60 / 5) (#28)
by kraant on Fri Jan 23, 2004 at 01:30:46 AM EST

I think that would be great for the economies of those European countries :)
--
"kraant, open source guru" -- tumeric
Never In Our Names...
[ Parent ]
Looking forward to it (none / 1) (#248)
by iasius on Tue Jan 27, 2004 at 06:17:37 PM EST

Although there are other factors that would present challenges to european economies so growth might not be so high.



the internet troll is the pinnacle of human evolution - circletimessquare
[ Parent ]
Japan is the largest, China is second (3.00 / 7) (#11)
by Steve Ballmer on Thu Jan 22, 2004 at 06:38:49 PM EST

See here

[ Parent ]
thanks Mr. Ballmer (none / 3) (#15)
by khallow on Thu Jan 22, 2004 at 09:07:06 PM EST

Pretty wild that Japan bumped it's US Treasury holdings by $140 billion from $385 billion to $525 billion. That's the sole reason IMHO why the US Dollar isn't inflating more than it has.

Stating the obvious since 1969.
[ Parent ]

Caribbean Banking Center ?????? (none / 1) (#195)
by ckm on Mon Jan 26, 2004 at 03:57:05 AM EST

What's that, two guys on a beach?  With 61 billion in treasury bonds???

WTF?

Anyone know what the Caribbean Banking Center is?

C/

[ Parent ]

According the that page... (none / 1) (#272)
by toganet on Fri Jan 30, 2004 at 11:32:51 AM EST

Caribbean Banking Center 2/

2/ Includes Bahamas, Bermuda, Cayman Islands, Netherlands Antilles, and Panama.

Johnson's law: Systems resemble the organizations that create them.


[ Parent ]
Not to nitpick, but most debt is held domestically (3.00 / 4) (#96)
by RaveX on Sat Jan 24, 2004 at 04:28:12 AM EST

As noted before, Japan is the largest foreign holder of U.S. debt, followed by China. However, the total amount of U.S. debt held abroad is only about $1.5 trillion (as of Nov 2003). This is in contrast to the total of over $4 trillion outstanding (also Nov 2003).
---
The Reconstruction
[ Parent ]
yeah, but... (none / 3) (#112)
by pb on Sat Jan 24, 2004 at 12:07:16 PM EST

That doesn't mean that US investors hold it... actually, much of our debt is owned by other branches of our government, to other branches of our government. Most of it is actually money sto^H^H^Hborrowed from social security.
---
"See what the drooling, ravening, flesh-eating hordes^W^W^W^WKuro5hin.org readers have to say."
-- pwhysall
[ Parent ]
It actually does mean that US investors hold it (3.00 / 4) (#136)
by RaveX on Sat Jan 24, 2004 at 03:47:45 PM EST

That doesn't mean that US investors hold it... actually, much of our debt is owned by other branches of our government, to other branches of our government. Most of it is actually money sto^H^H^Hborrowed from social security.

The $4 trillion figure I quoted was for "debt held by the public." I didn't even include the second column, for "intragovernmental holdings," because it wasn't germane. You're right that much of our debt is internal to the government, but that's the other ~$2.9 trillion that helps make up the almost $7 trillion total.

So you're right to point out that much of our debt is held by our own government (and that social security is being looted), but the $4 trillion I cited was the total for public debt, and the majority of that is held by US investors (and the rest by foreign investors).

So, all together, we have:
$1.5 - Debt Held Abroad
$2.5 - Debt Held Domestically
$2.9 - Debt Held by U.S. Gov't
----
$6.9 - Total Debt Outstanding

---
The Reconstruction
[ Parent ]

I stand corrected, (2.66 / 6) (#143)
by pb on Sat Jan 24, 2004 at 04:50:35 PM EST

I don't remember where I was reading about how much of the debt foreign investors hold, but that was the impression I got... Maybe it was something like this, where the one third or so of the public debt held by foreigners looks disproportionately large.

In any case, thanks for finding the actual numbers. :)
---
"See what the drooling, ravening, flesh-eating hordes^W^W^W^WKuro5hin.org readers have to say."
-- pwhysall
[ Parent ]

Misleading charts (2.75 / 4) (#169)
by sholden on Sun Jan 25, 2004 at 04:21:24 AM EST

Breaking up one class into categories while not splitting up the category you want to look larger is pretty standard practice.

--
The world's dullest web page


[ Parent ]
Statistics about the Debt (none / 0) (#295)
by Markusd on Thu Mar 04, 2004 at 05:37:49 PM EST

2004 Statistics on the U.S. Debt

37% Foreigners
17% Fed
13% Other
11% Households
7% Retirement
7% Mutual Funds
4% Insurance
4% Banks

Compared to 1994 when foreigners only owned 18%.

Top 5 countries:

15.2% Japan
4.2% China
3.2% U.K.
1.9% Carribean Banking Centers
1.6% Hong Kong

The reason  foreigners, mainly Japan, China and other Asian countries, are keeping the debt low is to keep down interest rates. When the supply of bonds increases, the interest rate increases. When the demand for bonds increases, the interest rate decreases. Thus foreigners are increasing demand proportional to US govn't spending (the increase in supply) and keeping the interest rate down.

Now why do these Asian countries wish to keep the interest rate down. Well, when the interest rate rises, the dollar appreciates. When the dollar appreciates, foreign goods become more expensive and thus we spend less on importing goods. Since economic growth in Asian countries depend on U.S. imported, they'd like to keep the interest rates low.

The source for the statistics: The National Post, FP Investing IN1, March 4, 2004


[ Parent ]

Capitalist Economics. (1.14 / 14) (#3)
by readpunk on Thu Jan 22, 2004 at 05:20:38 PM EST

I hate capitalist economics.

*Packs bags and heads to Cuba*.

./revolution

hating capitalist economics (2.14 / 7) (#10)
by circletimessquare on Thu Jan 22, 2004 at 06:29:06 PM EST

is like hating the fact that you eat

sure, che guevara is romantic, but he's also wrong

vicious attack on t-shirt sales commenced

The tigers of wrath are wiser than the horses of instruction.

[ Parent ]

Wow (none / 3) (#121)
by bobbuck on Sat Jan 24, 2004 at 01:18:33 PM EST

You do realize that the poorest guy in the USA is better off than anybody in Cuba?

[ Parent ]
Haha! (none / 2) (#210)
by ginipiggu on Mon Jan 26, 2004 at 01:26:43 PM EST

Really funny. Cuba is a dictatorship but as far as I (and CIA) know, their population are about as good off as that of the US. Whatever conclusions you can draw from that.

http://www.cia.gov/cia/publications/factbook/geos/cu.html
http://www.cia.gov/cia/publications/factbook/geos/us.html

[ Parent ]
Aside from the healthcare.... [n/t] (none / 2) (#273)
by toganet on Fri Jan 30, 2004 at 11:34:52 AM EST


Johnson's law: Systems resemble the organizations that create them.


[ Parent ]
One question (2.64 / 17) (#12)
by godix on Thu Jan 22, 2004 at 08:58:35 PM EST

How can you do a brief history of the last couple decades without mentioning the dotcom boom and bust, the way the Asian crisis hurt (although not that badly) the US economy, or the role globalization plays? The dotcom fallout, 9/11, worldcom, exporting low wage jobs, and Exxon had an order of magitude greater effect on the economy than the Bush tax cut. There are plenty of people debating on if supply side is good or bad but I think the dirty little secret that everyone tries to ignore is that it just doesn't matter much with an economy as large as the US has.

Incidently, along with tax cuts to the wealthy there are low interest rates which are supposed to motive people to not just stick it in the bank. Even if the rich guy does stick it in the bank it's not like the money is just sitting there, the bank will turn around and loan it to someone who does feel like investing it. In theory anything other than sticking it in the mattress will spur economic activity over the long run. As for how much I think this actually influences the economy, see my above comments.

I will do whatever the Americans want, because I saw what happened in Iraq, and I was afraid.
- General Qaddafi

The Bush tax cut has had a huge effect (2.60 / 10) (#25)
by steve h on Fri Jan 23, 2004 at 12:55:37 AM EST

on the budget deficit, which is the main point of this article.

And if you bothered to read the article, he did mention the Asian crisis.

[ Parent ]

Prove it (2.40 / 5) (#27)
by godix on Fri Jan 23, 2004 at 01:30:32 AM EST

Last I heard economist were still pretty divided on if the tax cuts helped or hurt the economy much less how much. Please link to the proof that the majority of economist have decided that the tax cuts were both bad and a huge effect.

If you had bothered to read the post, I asked for comments on how the asian crisis affected America, something he did not mention.

I will do whatever the Americans want, because I saw what happened in Iraq, and I was afraid.
- General Qaddafi
[ Parent ]

the purpose of my article (2.50 / 6) (#40)
by waxmop on Fri Jan 23, 2004 at 10:39:20 AM EST

George W. Bush sold his tax cuts as a way to create jobs. This article wanders all over the place, but the real point was to evaluate how well they worked.
--
We are a monoculture of horsecock. Liar
[ Parent ]
Contagion and Asia (none / 3) (#67)
by cam on Fri Jan 23, 2004 at 06:25:51 PM EST

I asked for comments on how the asian crisis affected America

I dont think it did. Asia is export driven into the huge 11 trillion US economy. What did US consumers notice in a difference. The manufactured trinkets were still cheap. The Asian nations sink huge amounts of dollars into the US treasury so American consumers can ship on the credit card at low interest rates. They continued to run surpluses and sink their money back into the US dollar. Interest rate remain low and Americans shopping on the credit card kept the world economy going.

The biggest losers from the Asian collapse were the Asian and Pacific nations. The only one affected in the US were the currency market speculators. They caused the contagion in the first place by their herd mentaility. The disruption in Asia was so large that it was enough to (for the better) collapse the Suharto government in Indonesia. What did the currency market speculators lose? BMW's? Hard to compare that to the inflation some Asian nations such as Thailand and Indonesia faced.

cam
Freedom, Liberty, Equity and an Australian Republic
[ Parent ]

Speculators made money not lost it (none / 1) (#267)
by scheme on Thu Jan 29, 2004 at 05:04:52 PM EST

The majority of the speculators during the Asian Crisis were shorting the currencies and driving the currencies down. So when the currencies collapsed, the speculators bought back the currencies and made a nice little profit from the collapse. The foreign institutions that had loans in the countries usually got paid off by IMF lacked loans.

The people who ended up losing were citizens of the various countries as inflation and austerity measures (required by the IMF) increased domestic prices and reduced government aid to the poor.


"Put your hand on a hot stove for a minute, and it seems like an hour. Sit with a pretty girl for an hour, and it seems like a minute. THAT'S relativity." --Albert Einstein


[ Parent ]
Economists are divided over everything -nt- (none / 1) (#249)
by iasius on Tue Jan 27, 2004 at 06:23:53 PM EST




the internet troll is the pinnacle of human evolution - circletimessquare
[ Parent ]
Course, (2.87 / 8) (#29)
by andamac on Fri Jan 23, 2004 at 01:40:01 AM EST

In line with that you'd also have to mention the runaway spending taking place, from Iraq to ethanol subsidies.

Fiscal responsibility does matter, and a large problem is that hardly anyone is doing it right now.

[ Parent ]

Analisys of the first paragraph (2.23 / 13) (#16)
by cbraga on Thu Jan 22, 2004 at 09:16:47 PM EST

[...] supply siders argue that the best way to stimulate the economy to grow is to cut taxes on the wealthy. When their tax rates fall, the rich
will increase their investments.

Wrong. When the tax rates fall the rich will roll over their money.

When do the rich invest? When they make more money investing in a business or in stock than by leaving the money in the bank. The way to increase investment isn't to cut taxes on the wealthy, it's to cut taxes on production, taxes on salaries, taxes on raw materials.

For example, a restaurant owner might decide to build a larger kitchen if she gets a big refund check.

I now imagine Mr. Restaurant Owner, with a big fat check in hands, thinking: "Should I get that BMW or fix this stinking kitchen? The BMW, of course, the kitchens doing fine."

Then, she'll have to hire more workers to staff that kitchen,

OMG, this is so backwards it hurts my brain. The reason to hire more emplyees is to serve more curstomers. FIRST, you increase your customer base by investing in ADVERTISING, THEN you buy a new kitchen and hire more people AS the demand increases.

And that's just the first paragraph. Wrong, wrong, wrong. Go get some business sense.

ESC[78;89;13p ESC[110;121;13p

investing in stock vs. investing in banks. (none / 3) (#19)
by Attackist on Thu Jan 22, 2004 at 10:26:23 PM EST

"When do the rich invest? When they make more money investing in a business or in stock than by leaving the money in the bank"

It is my sincere hope that you may one day come to understand that when you deposit your money in a bank, that bank turns around and invests your money.  The investment may take the form of granting loans, buying real estate, sinking dough into bonds or in the stock market, speculating on exchange-rate fluctuations and so forth. The money does not just sit in a vault and gather dust, as you imply by suggesting it as an alternative the wealthy might choose instead of investing directly.

Either way, the money is put to work.  

So I guess that this rudimentary economic principle sort of undermines your objections.  Which further serves to undermine your parting admonishment: "Go get some business sense." in a most ironic (and amusing) manner.

I think it is safe to say we need not further consider your position in these matters.

"See, I will let you have cow's dung instead of human dung, on which you may prepare your bread." -- God Almighty

(/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\)
[ Parent ]

What do banks then invest in? (2.60 / 5) (#24)
by rmg on Fri Jan 23, 2004 at 12:35:59 AM EST

It seems to me that if business is not going well, they will be likely to invest their money in real estate or metals or whatever is safe as opposed to business ventures. If so, then his argument stands. The businesses (and ultimately workers) do not, in fact, get the money, rather the upper class hordes it.

If your plan was to get money out to workers and consumers to keep the money moving, would it not make more sense to subsidize employment, ie. give some kind of tax mitzvah to businesses for each person employed? Hence offsetting lower profits and encouraging businesses to keep and hire employees? And wouldn't we expect that keeping employment up would also keep consumption up and presumably bolster profits and ultimately get business and the economy back into a favorable position?

I think we would.

_____ intellectual tiddlywinks
[ Parent ]

False Premise: (2.75 / 4) (#31)
by Attackist on Fri Jan 23, 2004 at 02:34:51 AM EST

Your objection rests on a false premise.  You directly oppose the notions of real-estate and commodities investment to the principles of supply-side economics.  This could not be further from the truth:

in the real-estate example, consider that whether a bank directly invests in property or merely loans the funds for another to do so, there are abundant parties benefitting from the transaction.  we have the seller realizing equity, agents making their fees, scores of bankers(employees) collating hundreds of forms and reports and finally, everyone knows that the wisest real-estate investment has its eye on development, which tends to drive down or limit the cost of properties, meaning a family can afford a home, or a young entrepreneur can afford that gentrified store front over on Fremont Ave.  

while with your reference to commodities, it is clear that a brisk trade in metals is sure to spur an increase of supply, which lowers prices, which allows for factories to increase production, which translates in to new jobs, or at least some sweet overtime pay.

and so, I'll have to disagree and say his argument does not stand.

finally, your idea to offer tax credits to businesses per number of employees is not without merit, as it is merely another strategy to effect the same fundamental principles espoused by the Reaganites.  

"See, I will let you have cow's dung instead of human dung, on which you may prepare your bread." -- God Almighty

(/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\)
[ Parent ]

Often during recessions, (none / 3) (#44)
by rmg on Fri Jan 23, 2004 at 11:31:12 AM EST

The real estate market becomes much tighter and people become less inclined to sell (since they would be better off with the property than the money from the sale). This very thing happened in the recent recession. Again, in an unfavorable business environment, development will be less likely, just as any other business venture. I'm sure that banks do try to invest in real estate during recessions because of the longterm safety of such investments, but I doubt they do a lot of active development (untile more favorable times) and I doubt they find as much of it available.

When I said metals, I was thinking gold and the like.

However you cut it, these are investments that don't put money in the consumer industry particularly quickly. One constantly hears about how America (and presumably other economies) are consumer driven, yet the strategy for jumpstarting them has relatively little to do with consumerism.

_____ intellectual tiddlywinks
[ Parent ]

Huh? (none / 3) (#49)
by aphrael on Fri Jan 23, 2004 at 11:52:13 AM EST

This may be a regional thing, but this recession has been combined with falling real estate prices in many localities. Falling real estate prices do not correspond with a decrease in willing sellers.

[ Parent ]
Falling real state prices and willing sellers... (none / 3) (#56)
by cbraga on Fri Jan 23, 2004 at 04:13:29 PM EST

...do correspond because as the price of the good drops, the number of people willing to sell decreases. It's quite obvious, really. If all of a sudden my car were worth a million dollars I'd sell it immediately, OTOH if its market price dropped to a hundred dollars I'd stick with it for many years.

That's basic economic theory, as the price of a good goes up new sellers show, which weren't willing to sell previously, and some buyers vanish because the good is now too expensive for them.

ESC[78;89;13p ESC[110;121;13p
[ Parent ]

Ah but it can go the other way. (none / 3) (#69)
by aphrael on Fri Jan 23, 2004 at 06:49:17 PM EST

If the number of willing sellers decreases, then the price goes up because supply is reduced and the buyers bid up the price.

[ Parent ]
Just because the price drops... (none / 0) (#274)
by toganet on Fri Jan 30, 2004 at 11:57:59 AM EST

Doesn't mean it has fallen below the owner's selling price.

If the house is paid off, the owner is basically sitting on a pile of cash.  Just because they might get less right now that if they wait a few years isn't as big a factor as you may think.  Liquid assets are more easily moved into the best-performing investments -- or, since the owner of the house can't count on social security to fund his retirement, he has to sell his home, invest the money, and move into less expensive 'senior housing'.

Johnson's law: Systems resemble the organizations that create them.


[ Parent ]
None of that matters (2.83 / 6) (#72)
by big fat idiot on Fri Jan 23, 2004 at 07:40:38 PM EST

The investment may take the form of granting loans, buying real estate, sinking dough into bonds or in the stock market, speculating on exchange-rate fluctuations and so forth.
None of these counts as an investment of the sort that is assumed will happen under supply side economics. The trickle down theory assumes capital investment, that firm owners will invest in either capital or labor to increase production.

[ Parent ]
An aside on investment (2.87 / 8) (#71)
by big fat idiot on Fri Jan 23, 2004 at 07:38:38 PM EST

Strictly speaking from the perspective of neoclassical economics, neither putting your money into a bank nor buying stock is an investment. Investment in the world of economics almost always refers to capital investment. That is to say that supply side economics assumes that capitalists will invest the money that they don't pay in taxes in increasing production in the firms that they own.

[ Parent ]
what you seem to miss: (none / 2) (#90)
by Attackist on Sat Jan 24, 2004 at 01:07:17 AM EST

and this should serve as a reply to your other comment below, is that these activities are still capital investments, only sometimes one or more steps removed from direct capital investment.  

it is true that there's a lot of friction acting on the cash flow under these circumstances, but that friction translates into more cash dispersed among more parties.

the long and short of it is that cash is moving, which is the objective.

"See, I will let you have cow's dung instead of human dung, on which you may prepare your bread." -- God Almighty

(/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\)
[ Parent ]

Actually, no (2.66 / 6) (#105)
by big fat idiot on Sat Jan 24, 2004 at 09:43:59 AM EST

these activities are still capital investments, only sometimes one or more steps removed from direct capital investment
Not only do I disagree with you, but most economists disagree with you. The most obvious case is real estate speculation. The "investor" buys a property and hopes the property goes up in value. This adds nothing to productivity. And if they bought the property from another speculator, there is a circle of money buying more property with no capital investment ever happening. Capital investment only happens if the purchaser is also a developer and builds new stuff on the property.

So, yes, the types of transactions you're speaking of can lead to capital investment, but they do not have to and there is no prima facie reason to think that they will.

[ Parent ]

how come it worked for reagan, but not gwb? -nt- (1.63 / 11) (#17)
by Suppafly on Thu Jan 22, 2004 at 09:44:05 PM EST


---
Playstation Sucks.
according to GW (2.60 / 5) (#21)
by Attackist on Thu Jan 22, 2004 at 10:36:02 PM EST

it is working out great.

"See, I will let you have cow's dung instead of human dung, on which you may prepare your bread." -- God Almighty

(/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\/\)
[ Parent ]

Runaway spending. (nt) (none / 1) (#57)
by andamac on Fri Jan 23, 2004 at 04:32:35 PM EST



[ Parent ]
It is working for Bush Jr. (2.20 / 5) (#61)
by dcm266 on Fri Jan 23, 2004 at 05:11:59 PM EST

Hi,

While it may not be readily apparant, the tax cuts signed into law by George W. Bush are in fact working, and will work. It is a long run growth strategy, and there is near universal agreement among economists that cutting taxes will increase growth in the long run. Bush's presidency got hit with a recession, so the full impact of the tax cuts, while they are helping somewhat as we speak, will not be felt for years to come, as it typically the case with any long run economic stimulus. Cheers.

-dcm266

[ Parent ]

Actually it is a short term strategy (2.85 / 7) (#70)
by big fat idiot on Fri Jan 23, 2004 at 07:36:01 PM EST

tax cuts signed into law by George W. Bush are in fact working, and will work
Virtually every supply-sider holds that a tax cut should immediately create new jobs. As evidenced by the sunset provision in the cut, the short term was the playing field. Making the cuts permanent is a long term strategy and only just announced.

And what evidence is there that they are working? To my knowledge, there is absolutely no way to determine whether the jobs that were created in the past few months number more than would have been created if there was no tax cut.

there is near universal agreement among economists that cutting taxes will increase growth in the long run

That could be, but growth and jobs are two different things. Hence the term "jobless recovery".

Second, I doubt that this view is universal among economists. Perhaps it is nearly universal among neoclassical economists. But it also almost universally held by neoclassical economists that supply-side theory is bunk.

[ Parent ]

haha.. do you seriously believe that? -nt- (none / 3) (#76)
by Suppafly on Fri Jan 23, 2004 at 09:21:52 PM EST


---
Playstation Sucks.
[ Parent ]
In the long run, we're all dead... (3.00 / 4) (#144)
by RaveX on Sat Jan 24, 2004 at 04:52:31 PM EST

...and our children have to pay off the debt we've run up.

Yes, there is near-universal agreement that cutting taxes will increase growth-- but not necessarily in the long run. More importantly, while tax cuts in general provide a short-run stimulus (growth in the medium run is fixed, and growth in the long run is determined by other factors), the primary criticism of Bush's tax cuts is that they are extremely ineffective and target the wrong people. He's just not getting enough bang for our buck, to put it simply. There's a giant difference between "working" as in "having an effect" and "working" as in "being as effective as possible." His tax plan fails the latter requirement.
---
The Reconstruction
[ Parent ]

A couple of things (2.40 / 5) (#159)
by dcm266 on Sat Jan 24, 2004 at 08:15:08 PM EST

Hi there,

First of all, you provide an interesting analysis. I just want to go into a few things here, and then I have a question for you.

In the short run, GDP is based on spending, and a tax cut in which a large amount of money is spent on consumption goods by consumers. In the short run, this will shift the aggregate expenditure curve upwards. If equilibrium GDP is below GDP Full Employment, then the short run economy will improve. If we're already at full employment, the economy experiences an inflationary gap. Consider that an increase in consumption spending will likely convince firms to produce more to meet demand. This sounds wonderful in theory, and in theory, a perfectly timed tax cut will provide a needed stimulus in a recession. The problem, however, is that a well timed tax cut, which would be an example of countercyclical fiscal policy, is almost impossible to time correctly. The result is that in the short run, Congress leaves economic policy up to the Fed, with the exception of course of transfer payments such as welfare and unemployment, which do not directly affect GDP.

In the long run, economic growth is created by an increase in capital of all kinds, especially physical and human. Essentially, depreciation must be exceeded by new business investment, and of course, businesses get money from the loanable funds market, which includes equities, bonds, and loans. If there's more income for individuals to invest in the financial sense, there is more for businesses to spend, known as planned investment, in economics. This is why an approach to tax cuts which features an attempt to spur investment is wise. Reduction in capital gains and dividend taxes encourages investment in securities markets, making more people invest in our financial markets, even if they did not have additional income.

One more thing. We never have to pay back our debt. As long as the economy grows faster than our national debt grows, we can continue to roll over our debt forever. If we do this, the size of the debt relative to GDP will decrease, even as the actual debt may be growing in nominal dollars. So, we're really not in trouble, and the whole idea of paying down our debt is really quite unnecessary, although some of us would undoubtably like to see reduction in debt. I think the bias comes from the fact that household debt is seen as a bad thing and something to be avoided, when in fact a certain amount of debt is seen as beneficial if properly managed and used to productive ends.

You started to go into what constitutes a good tax cut, and I'm curious. If you had to cut taxes by say $100 billion, how would you distribute it? While we're discussing tax cuts, it might be interesting to discuss, although the differences would likely be more normative or value driven. Cheers.

-dcm266

[ Parent ]

Incomplete Analysis (2.52 / 21) (#26)
by dcm266 on Fri Jan 23, 2004 at 12:58:31 AM EST

Hi,

While interesting, I feel your analysis leaves out some critical points, and doesn't fully grasp economic reality. Here are some comments.

"The common objection to supply-side economics is that there's absolutely no guarantee that if you cut taxes on the wealthy, then they will use that money to invest in new business. In fact, since these tax cuts happen in bad economic times, investors might decide that their money is safer if they save it rather than invest it. Going back to the restaurant example, if the restaurant owner decides to just stuff that tax refund into a savings account, or just keep it in her mattress, then no job growth occurs."

First of all, wealthy people become wealthy through investing, and not through leaving cash under their mattress. Second, putting money in a savings account is a form of investment, and increases supply to the loanable funds market. You put your money in a savings account, and a bank has additional capital to loan out. Increased supply will help reduce interest rates as well.

"Also, if the government did what Reagan (and George W. Bush) recommended and went into deficits to finance one of these tax cuts, and no economic growth occurs, then the government is in a really bad spot. They have to raise taxes back to sustainable levels, and then raise taxes again in order to get the money to pay for the debt, and then raise taxes even higher to pay for the interest on the debt. Or, they can do what Reagan did, and just roll the debt over by issuing more debt. This is sort of like paying off the Master Card bill with the Visa. It works great as long as you can always get another credit card to lend you more money. When the last credit card company decides not to give you a card, then you are in trouble."

I often see reactions about the size of our debt. Yes, 7 trillion is a lot, but lets put it in perspective. Our GDP is nearly 11 trillion. To draw an analogy, consider a person making $50,000 per year. He would comparatively have $34,000 or so in debt, which is easy enough to manage. Furthermore, he may decide he has better things to do with his money than pay back debt, so he will roll it over. The United States government does this, and it works. In fact, our debt can continue to increase as long as it increases at a rate slower than or equal to our GDP growth. 14 trillion dollars could be a viable future debt in time if our GDP grows to 22 trillion.

"There's no doubt the economy grew after the Reagan tax cuts, but it never grew enough to pay back the debt Reagan racked up. We're stilling paying interest today on that debt. We're also now adding to it because each year that the government spends more than it taxes, it creates a deficit, so that gets added to the debt, and we've been in a deficit ever since the George W. Bush tax cuts. Also, in some other recessions, the government has chosen to just wait it out, and most recessions end in about 11 months. Based on previous experience, the recession probably would have taken care of itself eventually, and we wouldn't have all this debt hanging over us today from twenty years ago that we still haven't paid off."

Well, you're ignoring a couple of important things. The Reagan deficits were based on tax cuts, and a massive military spending program in addition to said tax cuts. The deficit with Bush is related to tax cuts, post 9/11 security expenses, the fact that the economy entered recession, thus reducing government revenue, and the fact that we are at war. Also, you later give Clinton credit for cutting deficits. Clinton happened to be in office for the greatest economic growth period of all time, not to mention the massive capital gains in financial markets.

"One economist described debt as more like termites in the walls, rather than a tornado outside. Both will eventually destroy the house, but it is a lot easier to pretend that the termite problem isn't so bad."

Ok, again, debt is not a bad thing. Most successful corporations have used debt to their advantage. Rolling over debt has its advantages and paying debt back can be expensive if you look at discounting. If I owe $1,000,000 as a bond and pay $50,000 a year in interest payments, when the bond comes due, I have two options. I could repay the bond; however, if I can make $80,000 a year by investing my million, it benefits me to roll over my debt, as I will make $30,000 or 3% per year. This is a basic example, but some debt can be good, and it is often the case that a government or corporation can make better use of their available cash via proper investment channels than by repaying debt.

"Total employment (the number of people with jobs) has fallen by about 3 million jobs since the economy peaked in March of 2001. George W. Bush promoted the tax cut as a tool to create jobs, and by that standard, it hasn't worked at all."

Ok, first of all, the Bush tax cut was not designed to fix the recession. This was never the intention. It was a long run growth package unveiled in Bush's campaign for president, when the economy was growing rapidly. You're taking a very short run view here, I think. Also, GDP growth has recently been strong and we are in an economic recovery. The idea of a tax cut is to increase the capital stock of an economy in the long run, which will lead to greater economic growth in the future. Also, the Fed is in agreement with Bush on the tax cut, as if they were not, they would use their powers to undo the stimulus of the tax cut by raising interest rates. In fact, in addition to Bush's long term stimulus, the Fed cut interest rates to provide short term stimulus. As for the loss of 3 million jobs, that's what happens in a recession. It has absolutely nothing to do with the effectiveness of the Bush tax cut.

Well, that's all for now. Cheers.

-dcm266

The rest of the world.. (2.60 / 5) (#30)
by Kwil on Fri Jan 23, 2004 at 01:49:38 AM EST

we are in an economic recovery.

..disagrees.

That Jesus Christ guy is getting some terrible lag... it took him 3 days to respawn! -NJ CoolBreeze


[ Parent ]
markets (none / 2) (#32)
by zen troll on Fri Jan 23, 2004 at 02:41:52 AM EST

Markets are not really about performance of the object of the stocks, bonds, commodities, or what have you. A company's performance is not necessarily reflected in it's performance in the stock market. The people gambling on the markets are betting on what other people will do in the market. By perceptions. A bad rumor with no truth to it can effect the market by large amounts, and that is why spreading bad rumors about stocks can be crimes. If investors in general think the market is going to go down or up, it will. All that the sinking dollar means is that people have no confidence in it based on their information sources (media). It takes months before public confidence catches up with reality. By your link the the US dollar is only back down to where we were in '95. All markets are rollercoasters. That is how the investors make money. When the dollar gets low enough based on the market's rumor grapevine, it will become irresistable to investors. Now is actually a good time to invest in the dollar.

[ Parent ]
Let's extend your analogy (3.00 / 4) (#89)
by dachshund on Sat Jan 24, 2004 at 12:27:11 AM EST

7 trillion is a lot, but lets put it in perspective. Our GDP is nearly 11 trillion. To draw an analogy, consider a person making $50,000 per year. He would comparatively have $34,000 or so in debt, which is easy enough to manage

The Federal Government collected $1,756 billion in revenue this year (including Social Security taxes.) To extend your analogy, if the US economy was a guy making $50,000 per year, then the amount of money that guy set aside to pay for all his expenditures would be less than $8,000 per year.

Now think about what this means in our analogy. You have a $34,000 debt hanging over you, but most of your salary is committed to other things (say, a business you run.) You brag about your high income, but you really only have $8,000 per year for all of your expenses-- including loan repayments. With that same $8000, you're expected to do things like keeping the lights on, paying for your dear old grandpa's retirement home, etcetera. And get this-- you're already overcommitted! Turns out that you're actually spending about $10,000 per year on all of these things, without paying a dime on your debt. So you're borrowing another $2000 per year just to make ends meet.

Now someone comes along and tells you that you shouldn't worry about your $34,000 (increasing all the time) loan. After all, you make $50,000 a year, right? Sounds good on the face of it. Problem is, in order to actually pay back your loan you have the choice of 1) shutting off the electricity and taking grandpa out of the retirement home, or 2) massively increasing the amount of money you spend on housekeeping (as much as 25% or more.) And even if you did that, you'd still be able to spare at most about $2000 per year-- enough to pay down your debt in a decade and a half. And that's "manageable"?

Back to the real world, this means we face a future of either a) large tax increases, or b) massive gov't spending cuts. Neither of which sound terribly good for business in the long term. And even if we have the political will to do this, it'll be a long time before we're debt-free. I think Wall Street is, and increasingly will be, appreciative of the long-term consequences of this debt-load,and what they'll do for business. They'll factor these worries into the markets-- even if politicians fail to take them seriously. And that's why a president who fails to take these things seriously will find himself in an increasingly nervous financial environment.

[ Parent ]

Comments (3.00 / 4) (#162)
by dcm266 on Sat Jan 24, 2004 at 09:41:21 PM EST

Hi,

A few things. First of all, I believe much of our "debt" is social security related. If we cut benefits, that goes down, but I accepted the 7 trillion figure for the sake of argument.

Let's take a typical bond coupon payment of 5% per year. Multiply 7 trillion by .05 and we get 350 billion in expenses to pay back debt each year. When we take the 1.7 trillion in collected taxes, 20% of it goes to pay off debt. Now, in reality, this is much lower, since social security "debt" does not require coupon payments on a yearly or more often basis, but I digress.

Let's play with my analogy. The man has an after tax income of $50,000, and spends $10,000 of it paying off his debt. What he has left over is $40,000 per year. For the sake of argument, we'll assume a constant interest rate of 5%, used to calculate coupon payments. Let us also assume that each year, his expenses exceed his salary by a certain amount. Let's take a look at what happens. If he's paying $10,000 per year, his debt can be calculated at $200,000, or 4 times his income.

Year 1 Income 50k Debt 200k Payments 10.0k Net 40.0k
Year 2 Income 55k Debt 250k Payments 12.5k Net 42.5k
Year 3 Income 60k Debt 300k Payments 15.0k Net 45.0k
Year 4 Income 65k Debt 350k Payments 17.5k Net 47.5k
Year 5 Income 70k Debt 400k Payments 20.0k Net 50.0k

Debt Service as Percent of Income Year 1: 20.0%
Debt Service as Percent of Income Year 2: 28.5%

This is rather scary, but as long as the growth of debt servicing costs are lower than the growth of his salary in absolute terms, this can go on forever.

Let's look at another person, who is a bit more prudent, starting with the same salary and debt, but still rolling it over. Since this is a percentage increase approach, numbers will be rounded. The idea is that debt increases at a lesser rate than salary growth.

Year 1 Income 50k Debt 200k Payments 10.0k Net 40.0k
Year 2 Income 55k Debt 210k Payments 10.5k Net 44.5k
Year 3 Income 60k Debt 220k Payments 11.0k Net 49.0k
Year 4 Income 65k Debt 230k Payments 11.5k Net 53.5k
Year 5 Income 70k Debt 240k Payments 12.0k Net 58.0k

Debt Service as a Percent of Income Year 1: 20.0%
Debt Service as a Percent of Income Year 5: 17.1%

As we can see, as long as payments for debt servicing are exceeded by growth in our economy, which income taxes are based on, there will never be a need to raise taxes to cover our growing national debt. In fact, all else remaining the same, this approach to increasing our debt could actually lead to a reduced need for taxes.

One more example. This time, we try to actively pay down our debt. When we do this, I will subtract our paying down the principle from net income, as it has a similar short term effect.

Year 1 Income 50k Debt 200k Payments 10.0k Net 40.0k
Year 2 Income 55k Debt 190k Payments 9.50k Net 35.5k
Year 3 Income 60k Debt 180k Payments 9.00k Net 41.0k
Year 4 Income 65k Debt 170k Payments 8.50k Net 46.5k
Year 5 Income 70k Debt 160k Payments 8.00k Net 52.0k

The trend here should be fairly obvious. Eventually, the person who is paying down his debt will have a very nice looking balance sheet. Does this mean we should pay down our debt? That depends. With an individual, paying off debt results in a temporary decline in standard of living in return for a greater standard of living later on. Looking at this, you'll see that net income will eventually be greatest if this trend continues for the third approach to debt.

But there's more to this issue than there might appear. Paying off our 7 trillion in debt would if we do it at 5% per year, would require 350 billion in payments in addition to the cost of interest on our current debt. If we get money from raising taxes, this will lower future economic growth. If we cut from education, we lose future human capital. The list goes on, and we get back to the Friedman dictum that, "There is no such thing as a free lunch."

Also, another technical thing. I did not add debt expenses to net income, while I subtracted paying down debt from net income. My theory is that while borrowed money does provide funds, it is not actual income, as it must be paid back eventually, as opposed to a salary. Likewise, when you pay back debt, you are reducing a future obligation to pay money, but it is coming out of your current income. Some of you may be interested in looking into discounting and some other finance things. It's not for everyone, but hey, I'm an economics and finance nerd. Cheers.

-dcm266

[ Parent ]

Additional Thoughts (none / 0) (#288)
by dcm266 on Mon Feb 02, 2004 at 04:56:05 PM EST

Hello Everyone,

In my prior post, for purposes of simplicity, I left out an important consideration for any financial decision. I will illustrate the problem that this lack of information creates as follows.

Let's say that at some point in the future, I happened to have a winning lottery ticket, that if exchanged, would give you one million dollars per year after all taxes, for the rest of your life. How much would you pay me for this lottery ticket? More importantly for me at least, how much should I sell it to you for?

It's a trick question, and you can't answer it correctly unless I give you one more piece of information. You do not know the discount rate. If I offered to give you one million dollars today or one million dollars a year from now, every one of you should take the million dollars today, even if you have no interest in spending it. This way, you earn interest for the entire year. Say you can earn $50,000 in interest over that one year. Now suppose I came to you and said, would you like $1,000,000 today, or $1,050,000 one year from now? Unless you're a compulsive spender, it makes no difference. If you are rational, you look at the return you could make on investments.

Back to our lottery example. If you can make $50,000 in interest off of a $1,000,000 investment, that is a 5% return on your investment. Thus, the discount rate is 5%, or your personal opportunity cost of investing. How do we determine the value of the lottery ticket? Simply divide $1,000,000 by the discount rate in decimal form, and you get

$1,000,000/0.05 = $20,000,000

This of course is the limit as we go on for an infinite amount of time, and people do not live forever. Let's say you expect to live 25 years before you die. Then the value is.

$1,000,000 + $1,000,000/1.05 + $1,000,000/1.05^2...$1,000,000/1.05^25

If we do the math in this case, the value of this lottery ticket to you would be $14,443,428. Now, I'm using an integral to approximate the value, and this seems an appropriate method. Now, let us say that you still plan to live for 25 years, but each year, your payments will increase by $100,000. Now the value is.

$1,000,000 + $1,100,000/1.05 + $1,200,000/1.05^2...$3,500,000/1.05^25

The value is now $28,915,318.

Ok, now to bring the topic back to payment of or expansions of debt. Back to our three different income earners. I have discounted out the total value of income for each person for 25 years. Here are the values.

Person 1: $939,534.37
Person 2: $1,228,972.20
Person 3: $1,294,252.20

Not that for person 3, I used (X-1) rather than X to multiply by 5.5. It's not exact, but it's a fairly decent simulator of the function.

This may lead us to the conclusion that debt is a bad thing, since clearly in our example, the person who took on the most debt ends up with the lowest net income; however, this would be ignoring all of the additional capital that person one possesses.

While his debt payments increase each year, and technically his net income is growing the slowest of all three, consider that the $50,000, even though I am choosing to not count it as income, can effectively act as income. The reason that it is not income is that one asset, cash, is offset by another asset, a note or debt payable. Thus, if you look at a balance sheet, net worth of the individual does not change. The theory is that eventually the sums of the debt must be paid off, but for a nation which in theory can last forever, debt can be rolled over indefinitely. Thus, we are getting additional funding for things that we are benefiting from now, and have an obligation that we can continually put off.

As long as there is complete stability, and absolutely nothing goes wrong, the first approach is excellent and in fact is ideal. After 25 years, the percentage of income going to simply service interest on debt for each of our persons is as follows.

Person 1: 41.17%
Person 2: 12.94%
Person 3: -1.17%

Well, person 3 could not have negative debt, but once his debt was paid down, he could begin to act as a creditor, lending money and receiving interest. Alternatively, he could let his debt drop to 0.

Now the question. Which alternative is the best? In an ideal world of stability where nothing ever went wrong, Person 1 would be in the correct position. In the extreme opposite, a world where nothing could be predicted and stability is nonexistant, person 3 would be in the ideal position; however, since we neither have perfect stability nor instability and total chaos, Person 2 is likely in the ideal position.

Apply this to government. In bad economic times, heavy debt burdens reduce the flexibility of government. If you spend half of your money on debt servicing, and revenue drops by 25%, you now have half as much to spend as you would have originally. For example, 1 trillion in debt payments, 2 trillion in revenue, and then revenue drops to 1.5 trillion. Even though revenue has only dropped by 25%, net revenue after transfer payments and debt servicing has dropped 50%. The extreme implications here cannot be ignored. The question that we have to ask is how much debt is the right amount? If we refuse to use debt, we are eliminating a valuable financing tool, but if we use too much, we threaten our fiscal viability. Naturally, the government can underwrite more bonds for itself or print up more money, options individuals do not have, but still the price is a further increase in debt, or inflation. Obviously, debt payments should be kept comparatively low, so as not to threaten to create problems in recessions when revenue drops, but we may still take advantage of some debt.

If any of this doesn't make sense, let me know, and I'll reply to your questions. Many people are not familiar with finance, and I don't spend too much time explaining finance to people, so this may not be the perfect post. Cheers.


[ Parent ]

"Voodoo Economics" (2.62 / 16) (#33)
by Elendale on Fri Jan 23, 2004 at 03:20:14 AM EST

"George Herbert Walker Bush called supply-side economics "voodoo economics" because all of supply-side theory was based on a hope that the rich would invest those tax cuts and not just stick them in the bank. George W. Bush ignores his father's opinions about the wisdom of his economic policy, however, and is a big supporter of supply-side economics."

Also because, if i remember correctly, "supply side theory" was essentially a made-up excuse to cut taxes for your friends and make it popular to the masses.

Let's do a quick pop quiz:

You're a heavy stock owner with a small to medium sized business and the tax on stock dividends has just been repealed. Do you:

  1. Re-invest the new money into the stocks, along with all the other money you make from the stocks?
  2. Buy a new car/house/spouse?
  3. Hire a new employee you may or may not need?
Hint: smart people do number one, fiscally unsavvy people do number two, really dumb people do number three unless there's a very specific need. I'd like to take this opportunity to point out that very specific needs are no reason for broad economic policy.

Business owners do not invest money that they are personally saving in their businesses except under certain circumstances. That's what the business's money is for.


---

When free speech is outlawed, only criminals will complain.


George W. Bush's economic policy: (1.18 / 16) (#34)
by SIGNOR SPAGHETTI on Fri Jan 23, 2004 at 04:33:56 AM EST

"Math is hard. Let's go shopping!"

-1, btw, because economics is voodoo. Economologists who think different bring to mind white guys dancing or philosophers writing true sentences. *sigh* Come on, guys, Kuro5hin is only as good as we make it. Please vote responsibly.

--
Stop dreaming and finish your spaghetti.

The reason Bush likes cutting tax (1.93 / 16) (#36)
by nebbish on Fri Jan 23, 2004 at 09:35:54 AM EST

Is because it leads to wealthy Republican supporters donating more to the party and leaves his friends better off. He is not a very complicated man.

---------
Kicking someone in the head is like punching them in the foot - Bruce Lee

Right. After all, I took that $800 (2.50 / 4) (#42)
by porkchop_d_clown on Fri Jan 23, 2004 at 11:19:47 AM EST

and turned around and gave it to Trent Lott.

No, wait, I didn't - I spent it on new gear for the family, the way millions of others did, which was exactly what Bush was hoping we'd all do.

--
"the internet is to the techno-capable disaffected what the United Nations is to marginal states: it offers the illusion of empowerment and c
[ Parent ]

I didn't know you knew Bush! (2.25 / 4) (#45)
by nebbish on Fri Jan 23, 2004 at 11:32:51 AM EST

Corruption lesson 1 - don't make it too obvious.

There is very little ideology in the Bush administration, just a desire to stay in power and give contracts to the right people.

---------
Kicking someone in the head is like punching them in the foot - Bruce Lee
[ Parent ]

You're in the minority (none / 3) (#125)
by dachshund on Sat Jan 24, 2004 at 01:59:59 PM EST

If everyone in the US had gotten about $800, I don't think anyone'd have much of a problem with it. Unfortunately, the combined tax cuts to people of your income range made up only a small fraction of the total cost of the cuts.

[ Parent ]
Actually, I'm not. (none / 2) (#153)
by porkchop_d_clown on Sat Jan 24, 2004 at 07:19:40 PM EST

Just about everyone who pays taxes got some or all of it. $400 per child, wasn't it?

--
"the internet is to the techno-capable disaffected what the United Nations is to marginal states: it offers the illusion of empowerment and c
[ Parent ]

Moneywise (none / 3) (#190)
by dachshund on Mon Jan 26, 2004 at 01:49:34 AM EST

You might have missed the body of my comment, so I'll repost it:

Unfortunately, the combined tax cuts to people of your income range made up only a small fraction of the total cost of the cuts.


[ Parent ]
Nitpick (2.85 / 20) (#37)
by IHCOYC on Fri Jan 23, 2004 at 09:52:08 AM EST

Going back to the restaurant example, if the restaurant owner decides to just stuff that tax refund into a savings account, or just keep it in her mattress, then no job growth occurs.
As a matter of fact, money placed in a savings account at a bank does in fact get invested; it just gets invested by the bank rather than by the depositor.

Banking is based on the premise that not everyone who deposits the money in a bank will want to withdraw it at once; if all the depositors did that, even the most well run bank in the world would surely fail. Instead, banks have to keep only enough cash reserves on hand to meet the demands of withdrawals in the ordinary course of business. The rest of the bank's assets goes into investments like making loans or the purchasing of bonds, even stocks. So money deposited in a bank does in fact get invested, but there are more middlemen. This is why when there's a bull market, bank accounts become unattractive; money sitting in a savings account loses relative to money invested in a portfolio or a stock fund. In a bear market, the value of a bank account rises, because the money placed in stocks declines in value, while the bank account money remains theoretically static.
 --
Fashion is the sister of Death
     --- Giacomo Leopardi

Savings != Investment (2.75 / 8) (#38)
by waxmop on Fri Jan 23, 2004 at 10:33:12 AM EST

They are related, but not identical. First of all, investment in economics means a particular thing: purchase of capital that will increase productivity. Savings is just the difference between funds earned and spent. A bank can choose to put its deposits into something like a loan to the restaurant, so the restaurant can build a new kitchen, OR, the bank can use the deposits to buy bonds, or the bank can hold the deposits because it doesn't see any relatively safe opportunities.

Theory suggests that the rates of returns on bonds will match returns on investment, in the long run, but they are still two different forces. Japan's economy for the last decade shows how a high savings rate doesn't necessarily translate into a high investment rate. In other words, Japanese banks are flush with cash (high savings), but their economy keeps shrinking (low investment).
--
We are a monoculture of horsecock. Liar
[ Parent ]

Savings == Investment. (2.66 / 6) (#41)
by porkchop_d_clown on Fri Jan 23, 2004 at 11:18:11 AM EST

Where do you think interest comes from?

You're right, the money might not be invested as directly as one might hope, but even buying bonds stimulates the economy, by providing the feds with more pocket money.

Japan's economy is in trouble because so much of their investments have failed, leaving the banks with a ton of worthless assets. Even after all this time, the banks still haven't written off their bad loans and that is why the Japanese economy still hasn't recovered.

And, no, that's no different than if I bought that new kitchen directly and then when bankrupt because no one came to my diner.

--
"the internet is to the techno-capable disaffected what the United Nations is to marginal states: it offers the illusion of empowerment and c
[ Parent ]

From my mortgage. (nt) (none / 2) (#97)
by Kwil on Sat Jan 24, 2004 at 04:34:57 AM EST


That Jesus Christ guy is getting some terrible lag... it took him 3 days to respawn! -NJ CoolBreeze


[ Parent ]
Asian Capitalism (none / 3) (#66)
by cam on Fri Jan 23, 2004 at 06:14:53 PM EST

Japanese banks fund export driven industry and investment even if they are high-risk by western bank standards. Asian capitalism is driven by investment in export ventures. The reason the bank can invest in such high risk ventures is that the Japanese government makes them, plus the government supplies no safety net for the Japanese forcing them to save.

cam
Freedom, Liberty, Equity and an Australian Republic
[ Parent ]

not in the US (3.00 / 10) (#47)
by aphrael on Fri Jan 23, 2004 at 11:48:36 AM EST

Banks aren't allowed to invest in the stock market; that was one of the major new deal reforms,and it wasn't undone when the banking laws were changed in the mid-90s (although they are allowed to be consolidated with investment houses).

Most banks in the US invest in mortgages.

[ Parent ]

What banks do with the money... (2.50 / 4) (#99)
by the womble on Sat Jan 24, 2004 at 04:51:36 AM EST

... is lend it to someone else, who preumeably either invests it (desired effect) of spends it on comsumption (economic stimulus anyway).

[ Parent ]
Agreed in principle (none / 2) (#202)
by aphrael on Mon Jan 26, 2004 at 09:56:09 AM EST

I was objecting to the specific claim that banks invest in stock. That isn't allowed, for good reason.

[ Parent ]
So that's why banks invest so heavily in mortgages (none / 1) (#205)
by Fon2d2 on Mon Jan 26, 2004 at 11:04:04 AM EST

You know, I'd never really thought about it. Maybe it creates too much financial instability. Funds invested in funds invested in funds which eventually lead back to the original funds. It's like the Federal Reserve holding Treasury bills denominated in dollars, except more complicated. I'd always thought banks invested so much in mortgages because they're generally the largest debt instruments amongst the public sector. It never really occured to me that banks were not investing in the business sector. No wonder savings accounts have such crappy interest rates.

[ Parent ]
Amen!! (none / 1) (#196)
by retromango on Mon Jan 26, 2004 at 04:11:43 AM EST

Banking is based on the premise that not everyone who deposits the money in a bank will want to withdraw it at once; if all the depositors did that, even the most well run bank in the world would surely fail. Instead, banks have to keep only enough cash reserves on hand to meet the demands of withdrawals in the ordinary course of business

I'm glad you raised this very important point. Banks loan more than they actually have in "cash." If I were to deposit $100,000, the bank can then loan this money to others. Actually, they can loan more than that (up to a ratio of 9-1, or $1million) These loans are considered assets because they are accounts receivable. In essence, banks "create" money. I don't have time to fully elaborate (maybe a future K5 article?) but you're comment contains the essence of our problem.

[ Parent ]

A bit about the Reagan tax cuts (2.57 / 14) (#48)
by aphrael on Fri Jan 23, 2004 at 11:50:42 AM EST

Reagan's tax cuts were in part motivated by a theory which indicated that at certain tax rates, a tax cut would result in higher revenue, as people would engage in more taxable activity after the cut. This appears to have happened.

Quite a bold statement. (2.33 / 6) (#60)
by rvcx on Fri Jan 23, 2004 at 04:50:37 PM EST

I've heard lots of talk about supply-side stimulus. I've never seen anybody with any evidence that it actually works, and there's a lot of evidence that it doesn't.

Either back up "it appears to have happened" with some real facts or shut up.

[ Parent ]

Tax (none / 2) (#87)
by kurioszyn on Sat Jan 24, 2004 at 12:11:13 AM EST

Cutting taxes will always stimulate economy.
On the other hand cutting taxes and spending like a drunken sailor is a much more questionable proposition.

I think Bush was right about the necessity of his tax cuts but he really blew it with his politically motivated (Hispanic vote, seniors) spending spree.

[ Parent ]

Here is some info (none / 3) (#88)
by kurioszyn on Sat Jan 24, 2004 at 12:13:20 AM EST

http://www.cato.org/pubs/pas/pa-261.html

Biased source?
Well, could very well be but try to refute the facts, not the source.


[ Parent ]

mmhmmm (none / 2) (#85)
by omegadan on Fri Jan 23, 2004 at 11:30:04 PM EST

Reagan's tax cuts were in part motivated by a theory which indicated that at certain tax rates, a tax cut would result in higher revenue, as people would engage in more taxable activity after the cut. This appears to have happened.

Thats called the laffer curve. It was bullshit then and its bullshit now

Religion is a gateway psychosis. - Dave Foley
[ Parent ]

It isn't bullshit. (none / 3) (#201)
by aphrael on Mon Jan 26, 2004 at 09:55:19 AM EST

It's a pretty well-regarded piece of economics, actually, and it worked: revenue was up after the first big Reagan tax cut. Of course, spending was up more.

[ Parent ]
That "bit" would be completely wrong (3.00 / 4) (#86)
by enkidu on Fri Jan 23, 2004 at 11:34:54 PM EST

The budget only started to right itself after Bush I's tax increase which was forced by the spectre of an ever increasing federal deficit and ballooning debt. That tax increase cost Bush I his job, but saved the government and country from a financial crisis and laid the foundations for the years under Clinton.

The current administration seems to believe that our potential debt problem will go away if we ignore it.

[ Parent ]

Yes and no. (none / 1) (#200)
by aphrael on Mon Jan 26, 2004 at 09:54:33 AM EST

Revenue was up after the 81 tax cut. Spending was up more.

[ Parent ]
Disruptive Technologies (none / 1) (#282)
by cam on Sat Jan 31, 2004 at 02:20:11 PM EST

This appears to have happened.

Except a disruptive technology came along in the form of the internet and expanded the demand for capital and the labour market. A completely new round of investment, purchasing and employment went on. I think that technology rather than tax cuts, enabled increased taxable activities.

cam
Freedom, Liberty, Equity and an Australian Republic
[ Parent ]

Bush is actually quiet smart (1.30 / 10) (#51)
by United Fools on Fri Jan 23, 2004 at 12:05:53 PM EST

He aleady planned to deal with future U. S. debts by selling the moon's He3 on earth.
We are united, we are fools, and we are America!
If I borrow, then my lender must save. Surely. (2.75 / 8) (#52)
by freestylefiend on Fri Jan 23, 2004 at 12:06:19 PM EST

I have my doubts about supply side economics.

In Spain, at the dawn of the Early Modern Period, the government found that more borrowing meant less industrial investment. In order to increase the debt level, the government had to make savings terms more favourable. As a result, many of the wealthy decided to abandon risky industrial investments and live off returns from government bonds.

This was one of the causes of Spain's inability to widely adopt the new technologies that were changing other European national economies. While other countries increased the size of their manufacturing and creative sectors, Spain largely produced agricultural products.

However, perhaps Spain would not have experienced this problem if the borrowed money had been spent wisely, as government investment could have taken the place of private investment. What I don't see is how borrowing can increase investment.

(I don't mean to suggest that the monarchs of the time were supply siders were supply-siders).

Depends on who the lender is.... (2.75 / 4) (#53)
by Frozen North on Fri Jan 23, 2004 at 12:18:56 PM EST

In the case of modern America, the lenders are (more than half the time) foreign investors. So our national debt is being effectively underwritten by overseas investors. Had they not bought U.S. bonds, there's no reason to assume that the money wouldn't go to some other country.
Frozen North
[ Parent ]
Reminds me of Supply Side Jesus (2.61 / 18) (#54)
by Kyle on Fri Jan 23, 2004 at 12:27:32 PM EST

I'd never heard of "supply side" economics until I saw The Gospel of Supply Side Jesus a while back, though I had heard of the trickle down theory.

Supply Side Jesus (none / 2) (#116)
by Ogygus on Sat Jan 24, 2004 at 12:31:10 PM EST

Therein lies the inherent contradiction between Christianity and fiscal conservatism.

The mice will see you now.
[ Parent ]
I prefer the more realistic reasons for Bushe cuts (2.23 / 13) (#55)
by xutopia on Fri Jan 23, 2004 at 12:32:54 PM EST

Bush and co are rich. By cutting taxes to the rich they make themselves richer.

Cutting taxes works even better when you cut to the poor. The reason being is that the poor dude that needs clothes, medication and a car who can suddenly afford it will buy. The rich fucker in his mansion won't necesarily buy a new car to add to his collection, as it is not a necessity.

I'm sorry but Bush did nothing magnanimous by cutting taxes. He simply did his pals a favor. Even his father was against the tax cuts.

I feel let-down (2.54 / 11) (#63)
by kesuari on Fri Jan 23, 2004 at 05:49:53 PM EST

Is that really all there is to supply-side economics? Much of this piece seems more like 'why debt is bad', which I know.

I can't trust supply-side. But I can't say why I don't, because I've never seen it argued better than here, which simply makes it seem as stupid as it sounds. But it can't really be that stupid, can it?

It is just that stupid (2.75 / 4) (#73)
by big fat idiot on Fri Jan 23, 2004 at 07:42:31 PM EST

Hence the appelation "voodoo economics."

To my knowledge, few (if any) economists take supply side theory seriously.

[ Parent ]

no... (3.00 / 6) (#80)
by xfrosch on Fri Jan 23, 2004 at 10:21:21 PM EST

this is a pretty suckass, highly biased oversimplification of supply-side economics.

To sum up quickly, the central dogma of supply-side economics is Say's Law: "Supply creates its own demand". Most Keynesian economists at the time were in the habit of teaching their undergrad students that Say's Law was utter folly; the surest way to flunk freshman econ at Northwestern in the mid-'70s was to cite Say's Law on a midterm. This aspect of supply-side theory is laid out in Thomas Sowell's 1968 University of Chicago PhD thesis, a revised version of which is still available from Princeton University Press.

There was also some mathematical theory centered around the "Laffer curve", named after a former Chicago professor who at the time was teaching at USC. The Laffer curve is a plot of total tax revenue versus tax rate; Laffer's point is that, rather than being a straight line rising monotonically, this plot is a curve, with a tax rate at which total revenue is maximized. When tax rates are raised beyond this point, and the curve takes on a negative slope, supposedly taxpayers find shelters and loopholes which enable them to avoid paying taxes, thereby decreasing revenue.

This could all easily be true without justifying many of the things Reagan did in the name of supply-side economics, and then there's the considerable distance between the fiscal responsibility Reagan preached and the policies he actually practiced. It's also no surprise that Bush pooh-poohed all of this as "voodoo"; by 1980 he had made a long career of living high on the hog at taxpayer expense, without knowing or caring when if ever the bills would come due.

Probably the quickest way to absorb what supply side was all about is to get your hands on a copy of George Gilder's Wealth and Poverty.

[ Parent ]

this article is bullshit (2.06 / 15) (#65)
by horny smurf on Fri Jan 23, 2004 at 06:08:44 PM EST

the title is supply side economics, yet you fail to discuss it at all, except as an introduction to debt spending.

You want to talk about supply side economics? Where's the Laffer curve? Mention that 1980 tax revenues were $244 billion, 1989 revenues were $446 billion. The 1980s debt wasn't due to tax cuts (total tax revenue increased), but due to increased gov't spending, which has nothing to do with supply side economics.

Laffer this... (none / 3) (#74)
by Baldrson on Fri Jan 23, 2004 at 08:09:33 PM EST

1980 tax revenues were $244 billion, 1989 revenues were $446 billion

Yeah the same years the mid to late boomers were entering their first mortgages under crushing interest rates and the GI generation was eating their grandchildren for lunch -- fed by the banks and government as butcher, cook and server.

-------- Empty the Cities --------


[ Parent ]

An important point missed... (2.33 / 6) (#75)
by Baldrson on Fri Jan 23, 2004 at 08:48:11 PM EST

Although it is patently obvious that there has to be consumption somewhere to motivate investment, and government debt will drive up consumer interest rates thereby leaving the only wealthy and/or high-income citizens serving each other as consumers and investors, there is still a slightly better argument for supply-side economics than you presented:

The demand for high end goods and services can supply some employment to the lower ends (ie: trickle-down) and this will tend to capitalize production of said high-end goods and services -- thereby bringing them into lower price ranges as volumes in the high end increases. This makes it possible for people who are dying on the street because they weren't the right ethnicity to collect a welfare check, to more realistically dream of buying something from the Sharper Image catalogue before they croak.

-------- Empty the Cities --------


This article explains nothing about the 'subject'. (2.28 / 7) (#77)
by thanos on Fri Jan 23, 2004 at 09:50:29 PM EST

The title offers little more than a segue into a simplistic attack on Republicans. In fact the author's attempt to 'simply describe' his subject is biased and not all that informative. It's a sad comment on the state of K5 when one can learn more about the front page topic from a Google Web definition than in the entire article itself.

A school of economics which holds that decreasing impediments to the supply and efficient use of factors of production, such as reductions in the tax rates, increases incentives and shifts the aggregate supply curve. Hence, supply-side economists argue that since taxation and government regulation "crowd out" investment, taxes and government regulations ought to be reduced in an effort to stimulate savings, investment, and growth.

How in creation did this get voted up to the front page?


Savinelli testified that Pickard said on two occasions that he had accidentally spilled LSD on himself, dosing himself with the drug. Pickard acted "giddy" and was less focused and organized for about a month after the second dosing.

mustn't attack the Boy King! (none / 2) (#79)
by melior on Fri Jan 23, 2004 at 10:04:15 PM EST

Touchy, aren't we? Just because Bush Jr. defends supply side economics doesn't make pointing out that it has been completely debunked into a simplistic attack on him.

And quoting a dictionary definition, I hasten to add, doesn't provide empirical support for a theory that's total balderdash.

- That's OK, I wasn't really using all of my Constitutional rights anyway...
[ Parent ]

Irrelevant. (none / 1) (#183)
by thanos on Sun Jan 25, 2004 at 04:54:17 PM EST

I wasn't commenting on Bush, nor was I arguing for or against supply-side theory (see: my post). What indicated to you that I was trying to support a theory?

The article's title states that it is explaining supply-side economics for K5'ers, which it did not do at all. I quoted the definition to illustrate the point that the article was a waste of time and did not explain anything.

So, who's the one who is touchy?

Oh, and btw, please refrain from hyperlinking to that nasty little imp Krugman.


Savinelli testified that Pickard said on two occasions that he had accidentally spilled LSD on himself, dosing himself with the drug. Pickard acted "giddy" and was less focused and organized for about a month after the second dosing.
[ Parent ]

Sorry, but much of this is incorrect (2.28 / 7) (#78)
by dcm266 on Fri Jan 23, 2004 at 10:02:48 PM EST

Hi,

"Virtually every supply-sider holds that a tax cut should immediately create new jobs. As evidenced by the sunset provision in the cut, the short term was the playing field. Making the cuts permanent is a long term strategy and only just announced."

Sorry, but where were you during the 2000 presidential campaigns, when Bush was promoting his tax cuts at a time that the economy was doing well. At this point, there would have been absolutely no need for counter-cyclical fiscal policy. The economy was enjoying its growth still and needed no short run stimulus. The intent of the tax cuts was for the long run.

You mention the sunset provision. This was included to make the tax cut appear less expensive than it actually was. That's right. It was a fiscal trick designed to maximize benefits, while minimizing costs. Notice how the cost was analyzed over 10 years even though many provisions faded out. If it was a short run policy, this would not have been the case. Finally, Bush is attempting to make the tax cuts in question permanent. He had to accept less ambitious goals and negotiate with those who opposed the tax cuts. Do you think the moderates and democrats out there would have even considered voting for a permanent set of cuts? No. The political climate may have added a few additional factors, but it does not change the fact, yes, the fact that the tax cuts were designed as a long run economic stimulus. Perhaps you simply noticed the marketing when they were repackaged and resold?

"And what evidence is there that they are working? To my knowledge, there is absolutely no way to determine whether the jobs that were created in the past few months number more than would have been created if there was no tax cut."

Well, by your logic, there also cannot be any evidence that they are in fact not working. Since you seem to be taking the skeptical approach here, which I certainly understand and in fact like, let's just go through some economic theory.

1) Government cuts taxes by $100 Billion.

2) In response, consumers in the economy spend $70 billion and invest $30 billion.

3) The consumption spending furthers growth in sectors of the economy.

4) The 30 million invested adds to our capital stock, which increases our future potential for production.

Now, this is a simplified analysis of what would happen, but it illustrates a couple of points. Tax cuts in fact help in two ways here. In the short run, consumption spending increases GDP, and in the long run, increased investment spending increases GDP and furthers economic growth.

"That could be, but growth and jobs are two different things. Hence the term "jobless recovery"."

We've made great gains in productivity. All else being the same, if productivity increases, employment will decrease. Eventually, we are likely to see an increase in employment.

"Second, I doubt that this view is universal among economists. Perhaps it is nearly universal among neoclassical economists. But it also almost universally held by neoclassical economists that supply-side theory is bunk."

You mistake normative differences and values for postive differences. Many economists are concerned with the price of tax cuts, such as the risk of short term inflation, rising deficits, and the like. As Milton Friedman says, "There is no such thing as a free lunch." The reason why long run growth results is because private individuals invest a portion of their income, and when investment rises, there is more capital available for new business ventures, product developments, and the like. This creates new businesses, and I don't think I need to explain further. Cheers.

-dcm266

Hmm.. (2.50 / 4) (#98)
by Kwil on Sat Jan 24, 2004 at 04:49:25 AM EST

1) Government cuts taxes by $100 Billion.
  1. In response, consumers in the economy spend $70 billion and invest $30 billion.
  2. The consumption spending furthers growth in sectors of the economy.
  3. The 30 million invested adds to our capital stock, which increases our future potential for production.
Here's an alternative scenario:
  1. Government does not cut taxes by $100 Billion
  2. In response, consumers in the economy don't spend anything extra.
  3. Government spends that $100 Billion on its own projects -- roadworks, schools, military, whatever.
  4. People who work on those Government projects also happen to be consumers
  5. In response, consumers in the economy spend $70 billion and invest $30 billion.
  6. Continue with your steps 3 and 4.
Looks like a wash to me.

Really, all that's changed is where the money comes from. With the government tax cuts, the money is left in the hands of the rich to invest in what will benefit them the most.

Without the government tax cuts, the money gets shuffled to the hands of people who actually need jobs (roadworkers, teachers, etc), so they can invest in what will benefit them most.

Cutting taxes increases spending?
Bullshit. You think think the government just sits on the money? It all goes around one way or another.

That Jesus Christ guy is getting some terrible lag... it took him 3 days to respawn! -NJ CoolBreeze


[ Parent ]
Slight problem (none / 1) (#218)
by CENGEL3 on Mon Jan 26, 2004 at 03:20:24 PM EST

The people who actualy MAKE money off government projects are NOT the people who actualy work on those projects. They're the people who have enough political clout to get awarded lucrative government contracts to provide goods and services.

They, in turn, turn around and pay thier workers a fraction of what they take in, produce shoddy products...and pay the requsit graft back into the campaign coffers of the politicians who made sure they got the contracts in the first place.

By advocating spending rather then tax cuts... you're just changing which wealthy people you give money to.

Under the tax cut scenerio you're pretty much giving it to all people of a certain income bracket.

Under the government program scenerio you are giving it only to people with political clout... and they get to decide how to distribute it.

The biggest difference is that when you put the money in the hands of private individuals they typicaly will attempt to invest it as shrewdly as they can....and will get good value on the goods and services they purchase with it. They do this because it is in thier own self-interest. The money that they are spending is thier own.

On the other hand, when you put the money in the hands of the government bearucrats....they have no real self interest in spending it wisely or getting value for goods or services. The money they are handling is not thier own...they recieve no personal benefit for handling it shrewdly or getting value for thier investments in goods and services.... they recieve no real proffesional benefit or career benefit for doing so either. The only controling factor on whether they spend that money well is the quality of thier character.

In fact, with the way most government programs work there is an active dissinsentive to spend it wisely. It's an amazing fact that almost every governmental office or program will spend exactly their entire annual budget every year with nothing left over. Guess why? That is because it is standard practice for such entities to spend every single dime they get, even if they could do the exact same job for less. At the end of the year if such entities look like they are going to have money left over they will waste it on nonsense purchases so they use up thier budget.
They do this because they are afraid if they can do a good job for less, they will get a smaller budget in future...and they are worried that some year they might have unexpected expenses.

Furthermore government agencies are typicaly at a dissinsentive to go shopping around for the best goods and services at the best prices. This is because of the reams of paperwork required to "approve" a new vendor.  

[ Parent ]

Ah, the center of the argument (none / 2) (#106)
by big fat idiot on Sat Jan 24, 2004 at 10:15:41 AM EST

First, I think you accidentally top posted this instead of as a reply to my comment.

Second the heart of this argument really takes place in this exchange:

me: And what evidence is there that they are working? To my knowledge, there is absolutely no way to determine whether the jobs that were created in the past few months number more than would have been created if there was no tax cut.

you: Well, by your logic, there also cannot be any evidence that they are in fact not working. Since you seem to be taking the skeptical approach here, which I certainly understand and in fact like, let's just go through some economic theory.

I have two comments on this.

First, I wonder about your reasoning. Would you use the same lack of evidence as a point of the discussion was on the existence of Bigfoot or the Loch Ness Monster? Or how about in the world of medecine? Should we prescribe drugs that have no evidence as to whether they are helpful or harmful?

Second, I'm glad that you brought up economic theory. Did you know that there is absolutely no evidence that neoclassical economic theory has any relevence to the way the real world works? Therein, lies the reason that I'm skeptical of supply-side economics.

It is bad enough that there no evidence that supply side theory works and that even its proponents seem to be incapable of measuring whether it works or not. But, to make matters worse, supply side theory is based on neoclassical economics which also has no empirical support to determine if it corresponds to the real world. I would love to be able to change my mind on this, but as far as I know there has never been any kind of scientific study done on whether or not neoclassical economic theory is true or not. I do know that after a few months of looking (admittedly not very hard) for any such study even being done, I have yet to find a single one.

These theories seem especially tenuous to me because they are based on key assumptions such as the presence of perfect competition. I don't know if you've ever looked at the characteristics of the marketplace that are demanded by the state of perfect competition, but they seem to me to pretty far fetched.

Now let me address some of the minor points. With regard to the Bush tax cuts being part of a long term plan. If they are part of a long term plan, that long term plan has nothing to do with trickle-down economics. I won't despute that many economists think that tax cuts have positive long term consequences. But that is not what supply side economics is all about.

We've made great gains in productivity. All else being the same, if productivity increases, employment will decrease. Eventually, we are likely to see an increase in employment.
Your last sentence is a non-sequitor. What if productivity keeps increasing? Does that not imply that employment will keep decreasing? What reason is there to believe that we are likely to see an increase in employment in the future?
You mistake normative differences and values for postive differences.
I have no idea what you mean by this, would you please explain it to me?
Many economists are concerned with the price of tax cuts, such as the risk of short term inflation, rising deficits, and the like. ... The reason why long run growth results is because private individuals invest a portion of their income, and when investment rises, there is more capital available for new business ventures, product developments, and the like.
But the reason that economists are interested in tax cuts here isn't for the tax cuts, per se. The reason that they are for the tax cuts is to force the government to decrease spending. It is government spending that is the evil here, not the taxes. Supply side economics is the theory that cutting taxes will result in greater government revenue in the short term. It has little to do with the long term effects that are created provided the government both reduces taxes and balances its budget.

[ Parent ]
issues with your analysis (none / 2) (#114)
by claudius on Sat Jan 24, 2004 at 12:26:49 PM EST

Your analysis is perhaps overly simplified.  In times such as these, with pathetically low interest rates and virtually unlimited access to capital, it is highly questionable whether another 30 billion in capital investment will enhance capacity in any meaningful way.  We are already operating far below capacity in the manufacturing sectors, so where is the incentive to expand further?  Unlike the Reagan experience, what we are suffering from at the moment is a crisis in level of demand, not in supply.  In such times, a 30 billion "relief" package aimed at the Bentley and Brie crowd cannot honestly be considered an efficient means of redressing our economic woes.  

It is very likely, given the current state of affairs, that the ratio of 30 billion invested and 70 billion spent is unrealistic anyway--anecdotally, my experience is that a larger fraction will be invested.  I happen to be in that crowd, and I invest 100% of the tax "relief;" one of my investment priorities is to shelter a good portion of my assets from the dollar's collapse, which is looking more imminent and less immanent of late.  The wealthy have the luxury of being able to hedge on the failure of the U.S. economy.  Too bad for the fixed-incomers in this failing state: the school-teachers, the nurses, the firemen.  

To counter the Progressives, it should be noted that if the entire $100 billion were spent by low-income wage earners in the current economy, the money is not all going to be going for goods and services.  Given the large amount of consumer debt held by households in America, a large fraction of that money will simply go toward servicing that debt.  Such tax cuts merely ensure that Citicorp gets its due right now at the expense of the greater public's taking on debt in the future.  Granted, some of the 100 billion may be spent on growth-stimulating goods and services, but a large fraction will merely go the way of the 30 billion above and be invested by the consumer debt holders in non-growth-inducing ways--buy gold, acquire (but not necessarily develop) real-estate, hold Euros, hire Accenture to offload more services to China and India, etc.  While reducing their debt burden may improve the quality of life of the poor and may make future tax cuts geared at them more efficacious, the immediate response will likely be an inefficient stimulus, perhaps even less efficient than tax cuts for the rich.  

We're really moving into a financial pickle.  Cutting taxes on the rich risks public finance of capital flight, as would happen to any liquid capital in a state with its economic house in disarray.  Cutting taxes on the poor cannot stimulate spending since they're all in hock up to the hilt at usurious rates immune to filings of personal bankrupcy.  The middle class is being squeezed out of existence by increased local, state, and property taxes and the exodus of jobs overseas.  And cutting no taxes is impossible given how our elected officials operate.  We may all be Yossarian before this is over.  

[ Parent ]

Not really $7 trillion (2.55 / 9) (#81)
by scriptkiddie on Fri Jan 23, 2004 at 10:26:09 PM EST

The current debt isn't really $7 trillion, because about $3 trillion is money loaned by the government to itself. If an individual department, like Social Security or a pension fund program, has a surplus, it can choose to loan that money to other parts of the government. That $3 trillion doesn't influence the economy, positively or negatively, because it isn't seen by the public. The money really should be repaid, but if the government ever does have trouble paying off its debts, it can write off nearly half of it.

question (2.75 / 4) (#119)
by Burning Straw Man on Sat Jan 24, 2004 at 12:56:10 PM EST

An argument from a complete "Hawk" I've heard: Since the US can be entirely self-sufficient (energy, food) why do we care so much about debts to some other country? Just rip up the loans and tell them to send their debt collectors if they're so interested in getting their money.

From me, I still don't understand why we had to borrow money from anyone in the first place. How could it ever have happened that we spent more than we took in, since if we didn't take it in, we couldn't have been able to spend it in the first place?
--
your straw man is on fire...
[ Parent ]

Payback? (none / 3) (#161)
by Silver222 on Sat Jan 24, 2004 at 09:20:50 PM EST

Let me guess: This "Hawk" is one of those people who gets pissed off when the (insert minority here) declares bankruptcy in order to avoid crippling credit card payments or medical bills, right? Man, people like that piss me off for some reason...

[ Parent ]
This book has some answers (none / 2) (#194)
by retromango on Mon Jan 26, 2004 at 03:53:43 AM EST

The Creature from Jekyll Island is an excellent account of how we got into this mess. Griffin explains the origins of money and financial institutions in a very straight-forward manner. His conlusions at the end of the book are misguided in my opinion, but the research is outstanding. He provides numerous footnotes and clearly summarizes his points at the begining and end of each chapter. If you can, buy this book now; you won't be disappointed. Be sure to pass it on to friends!

[ Parent ]
Doesn't influence the economy? What? (none / 3) (#146)
by RaveX on Sat Jan 24, 2004 at 05:09:10 PM EST

That $3 trillion doesn't influence the economy, positively or negatively, because it isn't seen by the public. The money really should be repaid, but if the government ever does have trouble paying off its debts, it can write off nearly half of it.

That's patently false. If the government were to "write off" that $3 trillion, that would be $3 trillion dollars in promised services (ie. social security) that would not be delivered to the American people. You don't think that the millions of retirees who rely on social security losing their benefits would have a negative effect on the economy?

The effect would actually be quite similar to a large tax increase. Social security payments are taken out of your paycheck every time you're paid (or you have to pay them later, or you're doing something illegal or are a congressman or something). Those payments are funding social security for today's elderly. We hope that we will eventually benefit from the same program, and as such, the social security program actually recieves interest in a sense: we pay in at current productivity levels, but we recieve services when we're older which are funded at higher productivity levels.

However, if this system stopped at any point, we would lose those services and still would have paid money in that would otherwise have gone to savings, consumption, and investment. That, my dear sir, is a pretty significant tax hike.

The problem is that the money that exists for social security, money which has been raised by a tax on the American people, has been replaced by an IOU and used to pay for other things. If it's never replaced, we cannot continue to provide social security.
---
The Reconstruction
[ Parent ]

Bush Doesn't sound very Supply Side here (1.11 / 9) (#82)
by llamasex on Fri Jan 23, 2004 at 10:50:38 PM EST

THE PRESIDENT: Stretch, thank you, this is not a press conference. This is my chance to help this lady put some money in her pocket. Let me explain how the economy works. When you spend money to buy food it helps this lady's business. It makes it more likely somebody is going to find work. So instead of asking questions, answer mine: are you going to buy some food?

Now, it seems to be that if you want alot of people to buy ribs you would not give the tax breaks to the wealthy but give them to the lower classes since they are more likely to buy ribs. Of course Bush record on consistancy isn't very good at all

Howard Dean punched me in the face
George Dubya Bush: The man who made the Euro (2.37 / 8) (#84)
by Big Sexxy Joe on Fri Jan 23, 2004 at 11:13:26 PM EST

This is a terrible time for the U.S. to incur debt.  The dollar now has a very strong rival, the Euro.  I think Dubya is going to go down in history as the man who made the Euro because he is hurting the dollar at the just about the worst possible time in history for this to be done.

We desperately need democrats to take control of the government so we can have some responisible economic policy and keep the dollar stronger than the Euro.  If we don't our economy will be majorily fucked and we are unlikely to become the world's dominant economy again for quite some time.

By the way, trickle down economics has historically caused recessions and depressions.  The tax cuts of the Gilded Age caused a recession soon afterward.  We also used trickle down economics in the 1920's and we had a bit of a rough patch after that.  Of course, we shouldn't forget that the Reagan cuts caused the recession under Bush Sr.  The good times after the recession that came from the computer revolution, not from tax policy.

I'm like Jesus, only better.
Democracy Now! - your daily, uncensored, corporate-free grassroots news hour

Interesting side note (2.87 / 8) (#102)
by rusty on Sat Jan 24, 2004 at 07:27:47 AM EST

The good times after the recession that came from the computer revolution, not from tax policy.

And the computer (specifically the internet) revolution came in large part from previous government spending on basic research. The internet is just about a textbook case of successful research spending followed by technology transfer to the private sector creating wealth and improving the economy.

____
Not the real rusty
[ Parent ]

the 1990s was the computer boom, next... space? (none / 3) (#132)
by Burning Straw Man on Sat Jan 24, 2004 at 02:56:31 PM EST

And the computer (specifically the internet) revolution came in large part from previous government spending on basic research. The internet is just about a textbook case of successful research spending followed by technology transfer to the private sector creating wealth and improving the economy.

How about transferring space technology (and access) to the private sector, creating wealth and improving the economy?
--
your straw man is on fire...
[ Parent ]

Maybe (none / 1) (#133)
by rusty on Sat Jan 24, 2004 at 03:17:23 PM EST

Though haven't we been trying that since the 60's? There aren't very many examples of good tech transfer out of the space program yet.

____
Not the real rusty
[ Parent ]
I disagree! (2.75 / 4) (#135)
by Burning Straw Man on Sat Jan 24, 2004 at 03:25:24 PM EST

Though haven't we been trying that since the 60's? There aren't very many examples of good tech transfer out of the space program yet.

My well-rested and non-aching back would tend to disagree with you, after sleeping on my Tempur-Pedic mattress. In fact, there is an entire website which lists products which have come out of NASA research and labels them as "Certified Space Technology".
--
your straw man is on fire...
[ Parent ]

And don't forget the microwave oven nt (none / 1) (#138)
by Big Sexxy Joe on Sat Jan 24, 2004 at 03:54:10 PM EST



I'm like Jesus, only better.
Democracy Now! - your daily, uncensored, corporate-free grassroots news hour
[ Parent ]
Telecommunications (none / 0) (#281)
by cam on Sat Jan 31, 2004 at 02:14:16 PM EST

Radio was a boom industry at the turn of the century, telephony, internet have all provided high tech booms. One constant about humanity is that it loves to communicate. Technologies that enable and democratize communication (and publication) have proved disruptive.

cam
Freedom, Liberty, Equity and an Australian Republic
[ Parent ]

Expanded Labor Market (none / 1) (#280)
by cam on Sat Jan 31, 2004 at 02:11:18 PM EST

successful research spending followed by technology transfer to the private sector creating wealth and improving the economy.

It is also largely America's focus on applied science and engineering through the defence budget that helped this. I want Australia's defence budget to increase for that reason. Unfortunately the Australian government when it does spend, buys off the shelf or integrated solutions from the US armoury.

I am thankful for the internet revolution, it expanded the labor market and allowed me to move into a profession where ability and achievement were more valued than pieces of paper from institutions.

cam
Freedom, Liberty, Equity and an Australian Republic
[ Parent ]

Supply, demand, whatever (1.55 / 9) (#92)
by Brandybuck on Sat Jan 24, 2004 at 02:21:01 AM EST

Who cares if it's suppy side, demand side, or something else? The two facts that must be faced are the actual workings of economics, and the morality of taxation.

Cut taxes on the supply side (on the producers) or the demands side (the consumers)? Either helps, but much better is a tax cut on BOTH sides. The elasticity on either side is going to be different, but so what? Either helps, and both helps more! Any economist will tell you this. They might argue over the effects it will have on government funding, but none will deny that they will help the overall economy.

Then there's the morality of taxation. It's my money. I'm the one who earned it. Not Bush, Dean or Kerry. My wages are my property, and any scheme that forces it out of my wallet against my will is theft. At the same time, government does have legitimate functions, and they need to be funded. The solution is to cut taxes AND spending. Funny that no one in congress proposes this. Cut taxes as low as possible, and slash spending until the razor is dull. If it's not a necessary and legitimate function of government (and everyone will have different views of what is), then eliminate it.

Taxes need to be uniform and impartial. Don't pressure the wage earner to favor lower tarriffs for the importer, but do you best to balance them. Ditto for property versus sales taxes. Don't favor the producer over the consumer, or vice versa. The purpose of taxation is to fund the government, not for social restructuring, so stop trying to change the world with my money!

Perils of unfettered capitalism (none / 2) (#94)
by dcm on Sat Jan 24, 2004 at 03:24:03 AM EST

While I personally believe I many people are horribly overtaxed, especially the upper middle class, taxes do more than just fund the government.  One of the main problems of free market capitalism is wealth concentration;  taxes(esp. estate taxes) act as a damper on this effect.  Unrestricted capialism will lead to plutocray and dynasties;  Mexico is a good example of the concentration of wealth.  

While I believe that taxes and government spending should be cut capitalism is not a perfect system. Its just the best one we have come up with so far.

As an aside, one of the main reasons I believe government spending should be cut is that I have seen the inefficiences in "crown corporations"(a canadianism) that don't have to be economically viable.


[ Parent ]

Mexico? (none / 2) (#122)
by Brandybuck on Sat Jan 24, 2004 at 01:46:49 PM EST

Mexico is a good example of the concentration of wealth.

Mexico's problems aren't the result of capitalism, they're the result of corruption and cronyism. The extremely rich aren't in power because they're extremely rich, but rather they're extremely rich because they're in power.

[ Parent ]

Unfortunately ... (none / 3) (#174)
by pyramid termite on Sun Jan 25, 2004 at 10:35:01 AM EST

... there's nothing about capitalism that prevents corruption and cronyism. Supposedly, people are going to make rational decisions - Vendor X is offering something for 5c a thousand less than Vendor Y, so we go with Vendor X. Then Y offers the guy in charge of buying a couple of thousand of dollars to pick him. Or more likely, they have social contacts and scratch each other's backs. But how would the buyer justify it? Oh, vague reports about quality and Vendor Y's responsiveness and concern for the customer.

Any corporation that gets big enough starts acting like a government. And politics, red tape, corruption and cronyism are all part of that.

On the Internet, anyone can accuse you of being a dog.
[ Parent ]
necessary and legitimate (none / 2) (#140)
by Burning Straw Man on Sat Jan 24, 2004 at 04:17:27 PM EST

If it's not a necessary and legitimate function of government (and everyone will have different views of what is), then eliminate it.

For every government program you could name, there would be a well-supported special interest group who would whip their voting block into a frenzy over any threat to it.

You seem to think that these government programs (and the taxation they support) are unconstitutional, but I dare you to challenge the IRS using a constitutional defense! This is because the preamble has phrases like "more perfect union", "establish justice", "insure domestic tranquility", "provide for the common good", "promote the general welfare", and "secure the blessings of liberty to ourselves and our posterity". Just about any program you could name could fall into one or more of those categories.

"But that's just the preamble" you say. How about Article I, Section 8: "The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States."

Sorry, but the Constitution pretty much gives Congress the authority to take money from your wallet to provide for the "general welfare" of the US. Since the authors didn't specify what might constitute "general welfare", we end up living in a country where people can vote money out of each other's pockets. That is the reality of the situation.

Any time you feel like asking your senator to repeal the 16th Amendment, go right ahead. Otherwise, you're free to buy some island somewhere and set up your own "moral" government.
--
your straw man is on fire...
[ Parent ]

Greedy Resource Grab (2.55 / 9) (#93)
by cronian on Sat Jan 24, 2004 at 03:15:41 AM EST

The current US interests rates are really low, the government is issuing lots of bonds, while the dollar is collapsing. Basically, the US is taking the world's resources, and distributing them via massive government spending, ostensibly to fight terrorism. The money goes to the owners of the Republican industries. The tax cuts are just another to distribute the money in a way where it less of it cycles back to the government.

China pegs its currency to dollar which makes exports cheaper, Japan has spent a fortune to prop up the dollar, and the OPEC countries price their oil in dollars, and then invest much of the revenues in the US. Bush then is able to inflate the dollar to give corporate welfare, without worrying about serious inflation concerns.

However, the system is very delicate, and if other countries stop taking actions that prop up the dollar, a we could experience hyper-inflation. As the debt grows it becomes more and more difficult for the world to sustain the dollar.

Most of the world, doesn't want the dollar to collapse, because it would devestate their industries exporting to the US, upon which many countries are dependent. Although, Bush seems to want to alienate every country.

As it is, if you consider the US GDP in Euros instead of dollars, GDP fell over 25% last year. You can do the same thing, and calculate the real state of the stock market. The effects have been muted because US has been getting lower prices, but it probably won't be sustainable.

We perfect it; Congress kills it; They make it; We Import it; It must be anti-Americanism
Argh . . . (2.44 / 9) (#95)
by billman on Sat Jan 24, 2004 at 03:52:11 AM EST

I want to post some nasty things directed at specific people who have made ignorant posts but I will bite my tongue.  

First off, why do only Republicans have rich friends?  I guess the grand master of the Democratic party Ted Kennedy hangs out in homeless shelters when he's not showing up for one of his family member's criminal trials? Can we just do away with that little bit of rhetoric.  There are rich Republicans and rich Democrats and neither one is more likely than the other to give a rat's ass about poor people.  In fact, if you want to get into the nitty gritty details, Republicans tend to donate more to social issues than do Democrats.  

Second, saving is investing.  Barring digging a hole in my backyard and burying my savings I am investing by putting my money into a bank who then re-invests (else how can they afford to pay me interest) by buying bonds or lending money to other people to buy homes and/or make business investments.  

And lastly, who do you trust more with your money, you or the government?  In case you have trouble answering that question, currently the government spends over $40,000 a year to help each family listed as being below the poverty level.  Do the math.  

I'm not pro or con trickle down economics but I lean in the favor of pro only for the reason that I trust my fellow citizen more than I trust a politician.  I'm in favor of putting as much money as possible in the hands of the people who will use it the most effectively.  Next time you think the government (Democratic or Republican) has your best interests at heart, ask yourself why we have school book repositories when the average citizen can purchase the same item for anywhere from 25% - 50% cheaper.  

The idea behind trickle down economics is less about trickling down as it is about putting economic resources in the hands of the people most likely to maximize the value of them.

Look at how it is implemented (2.75 / 4) (#104)
by lukme on Sat Jan 24, 2004 at 08:03:53 AM EST

we decrease the amount of money going into the government, then we dramatically increase the spending on a global war against terror (which due to its nebulous definition doesn't really make us more safe).


-----------------------------------
It's awfully hard to fly with eagles when you're a turkey.
[ Parent ]
So what if Schiff was worse? (none / 2) (#108)
by Baldrson on Sat Jan 24, 2004 at 10:55:23 AM EST

It doesn't really make any difference that Jacob Schiff was worse than J. P Morgan. Nor does it really make any difference that Ted Kennedy is worse than any given multi-millionare who parks his wealth in US Treasury instruments.

-------- Empty the Cities --------


[ Parent ]

Trust & Book Repositories (none / 1) (#208)
by Valdrax on Mon Jan 26, 2004 at 12:47:24 PM EST

And lastly, who do you trust more with your money, you or the government?  In case you have trouble answering that question, currently the government spends over $40,000 a year to help each family listed as being below the poverty level.  Do the math.

Of course I trust myself to spend it better -- assuming of course that I can get prices as good as the government.  I'd have to say that my quest for affordable health insurance in the 15-month span from when I graduated to when I was hired full-time by my current employer points out that some things can be better paid for by someone with better bargaining power that little old me.  My "screw the man whose post-graduation insurance expired last month" medical bill drove that one home to me.

I prefer to turn the question around, though.  Who do you trust more, the government or other people around you?  One is an organization that hires experts to spend their time to focus on tasks that they know well for the public good.  The other group slogs through the business day working for someone else's sake to go home and watch TV.  They have little free time to get informed on all the purchasing decisions which the government would've made for them instead.

I'm not pro or con trickle down economics but I lean in the favor of pro only for the reason that I trust my fellow citizen more than I trust a politician.

I trust a politician trying to please all of those citizens more than I trust a group of them all trying to please themselves.  Both are inefficient at doing what's best for the common good, but I believe that the politician has to try harder to please everyone than most people will do when left to fend for themselves.

Next time you think the government (Democratic or Republican) has your best interests at heart, ask yourself why we have school book repositories when the average citizen can purchase the same item for anywhere from 25% - 50% cheaper.

Well, since both my parents are teachers, I think I can field that one.  Said books are used by more than 2-4 students over the course of their life.  The average citizen would save more money this way even if they were directly taxed 1-to-1 to pay for it.

However, forcing everyone to pay for their own school books spreads the burden out evenly between the poor (who desperately need more education to get out of being poor) and the wealthy.  This, of course, hurts the people with the least disposeable income the most, which would further impede the class mobility of American citizens by effectively levying a regressive tax.  Personally, I could easily shrug off about $100 per kid at the beginning of the school year for books.  If I made less than $25,000 per year like I did a few months ago, I couldn't.

Perhaps more importantly, it loans books to kids who have really irresponsible parents.  You know the type -- kids running around with tattered clothes in the front yard near their parents brand new Cadillac.  I used to see it all the time when I drove to my grandmother's house in the poorer sections of town.  THOSE kids desperately need publicly funded books much more than I did as a kid.  I lived with responsible parents who, while not rich by any stretch of the imagination, would have gladly gotten me any book I needed for my education.  Those kids living with less responsible parents didn't do anything wrong, and they don't deserve to be doomed to ignorance and thus poverty just because their parents aren't worth a spit.  Those kids are why we have public book repositories to hold the books between school years.

Now if you want to complain about the books being overpriced, feel free, but that's the free market for you.  It's not like cash-strapped local school districts are conspiring with the book companies to drive up their expenses.

[ Parent ]

I think you're mis-reading me (none / 0) (#287)
by billman on Mon Feb 02, 2004 at 04:42:22 PM EST

The way a book repository works is this:

1.  The school is authorized to buy books for students.

2.  The school is prevented from going to the general market and purchasing books at market rates.

3.  School repositories which are a product of an era where access to books was not common and is currently a business in which people make huge political contributions to politicians in order to get authority to purchase an existing repository, buys the books at market prices and then sells them at a significant mark-up to the schools.

4.  Since the schools, by law, have to make their purchases from the book repositories, the taxpayer ends up getting screwed.

Of course, this whole thing is why I trust my fellow citizen more than I trust a politician.  It would be really nice if politicians actually did try to help out the citizens but citizens don't pay for campaigns, special interest groups and businesses do.  

I agree with you though that collectively we can purchase many items cheaper than as individuals however that one must just as careful to make sure that we don't end up paying just as much because the person administrating the program on our behalf (i.e. a politician) isn't running his next campaign on funds obtained from the people who are bidding for the contracts.  

[ Parent ]

A stupid question (2.80 / 10) (#100)
by ishark on Sat Jan 24, 2004 at 04:53:51 AM EST

I apologize in advance for my stupid question, but there's something I don't understand. I can see that cutting taxes will provide more money to companies and allow them to hire more people, but at the same time the government is a big employer (or at least it is here in Europe) through administration, education, healthcare, etc... If the money is moved from the government to companies, this will result in jobs lost on the public sector, so I don't see how this can create new jobs, at most it can move them from the public to the private. Also, salaries in the private sector tend to be higher than in the public sector, since (again, here where I live) public sector jobs are basically "for life" (it's really not easy to be fired), as a consequence people are ready to be paid less in exchange of job security, so I'd guess that less jobs are created than what are cut (but I realize my guess may be wrong). What am I missing?

That is part of the goal... (2.75 / 4) (#101)
by Psycho Dave on Sat Jan 24, 2004 at 06:15:55 AM EST

Bush and Co. want to gut funding for the public sector, short of institutions such as the military, and law enforcement, to whom they let reign supreme. Social programs, such as welfare or medicare are ones they would ideally like to see removed.

Most everything Republicans do is in favor of the private sector over the public. Take social security, which was a major issue in the 2000 elections. Bush Jr's plan was to have people invest their social security accounts in things like the stock market. All good and dandy in early 2000, but that idea would go nowhere later when the dot-com bubble burst and the stock market tanked. In his latest state of the union address, Bush has revived the idea now that the stock market has recovered and he won't be laughed out of the chamber for even suggesting it.

After 9/11, Bush had the opportunity to raise defense spending, and then reshape his tax-cut as economic "stimulus", adding more to the deficit. Some have speculated that this deficit spending was a way to destroy the social security system as we currently know it.

In the Clinton years, when the government was producing surpluses, the way he justified not refunding the difference back to the people or cutting taxes was because of the crisis in social security (though whether or not the system was truly in crisis is debatable). Government surpluses could be poured back into the program to ensure it wouldn't go bankrupt when the boomers start retiring soon. Bush's policies have completely reversed that policy.

Now, I'm not arguing for a government with a bloated social sector and a welfare state like many democrats favor. There are many needs that the private sector can fill at lower cost and greater efficiency. However, the private sector cannot fairly fulfill all our needs. Just look at the mess our country's healthcare system is in.

[ Parent ]

Federal deficit vs national debt (3.00 / 7) (#149)
by DaChesserCat on Sat Jan 24, 2004 at 05:40:13 PM EST

A couple points.

Take look here for definitions to the terms in the subject.

First off, at the end of 1992, the National Debt was approx $4T (that's trillion dollars). Uncle Sam ran a deficit of $290B (billion dollars) that year, alone. That's about the time that Clinton came to the White House. The national debt, and perpetual deficits, were a major campaign topic, one of the reasons he was elected. He continued to run deficits from 1993 to 1997, but they decreased from $255B in 1993 to $22B in 1997. By the end of 1997, the National Debt was $5.3T. In 1998 - 2000, there were surpluses of $69B, $125B and $236B. Unfortunately, the interest on the National Debt kept the Debt level rising. By the end of 2000, the National Debt was $5.6T. In short, in spite of the fact that there were annual surpluses, they were never enough to stop the National Debt from rising (although, from 1999 to 2000, the National Debt only rose $23B, which is pretty close; the last time the debt had grown this slowly was from 1973-1974).

Source

Why didn't Clinton give the difference back in tax breaks? Because, in spite of all the budget surpluses, we still weren't reducing the National Debt. IIRC, one of the points during the Clinton/Gore campaign was that 40% of all taxes recevied simply went to paying interest on the National Debt. It's not enough to simply bring in more money than you spend. You have to pay down the debt.

Now that we've got the Shrub in the White House, any semblance of fiscal responsibility has definitely gone out the window. GWB has already contributed more to the National Debt than any other president in history (and Reagan had 8 years to make his contribution).

Trains stop at train stations Busses stop at bus stations A windows workstation . . .
[ Parent ]
A good question! (none / 3) (#111)
by andersjm on Sat Jan 24, 2004 at 11:50:35 AM EST

The key component in supply-side economics is running a national deficit.  You can do this by lowering taxes, but that's far from the only way.  Raising public spending, say on welfare or health care, has the same effect.

Which part of the population you spend your loaned money on is a political decision.  There is no economic reason why tax cuts for the rich would work better than any other kind of expenditure.

[ Parent ]

a private job is better for economy (2.00 / 4) (#168)
by JackStraw on Sun Jan 25, 2004 at 03:44:59 AM EST

Private companies are inherently, obviously more efficient than government.

The marginal production of adding private jobs is then much greater than a public sector job. So, shifting the jobs to the private sector would increase production and, within a few years, really help the economy.

That's one of the important things supply-side economics takes a few years to kick in.
-The bus came by, I got on... that's when it all began.
[ Parent ]

Saving = Investing (if you have real free markets) (2.42 / 7) (#107)
by Gothmolly on Sat Jan 24, 2004 at 10:51:28 AM EST

In a truly free market, where the government does not print money at will, then increased deposits into savings institutions will lower interest rates. So the store owner who saves his tax refund check is investing in someone ELSEs new kitchen, whether he knows it or not. Since the banks have a greater ratio of reserves to outstanding debt, they can offer lower rates. These low rates are what spur investment. However, in the current socialist State known as America, Mr. Greenspan decides how much monopoly money to pump into the economy by fiat (and some sound reasoning, lets be fair). So in America, the lower taxes MAY, but do not HAVE TO cause, lower interest rates.

Yeah, but real free markets don't exist (none / 2) (#117)
by big fat idiot on Sat Jan 24, 2004 at 12:32:58 PM EST

All of neoclassical economics is based on the assumption of perfect competition. In reality, free markets don't exist except in very rare situations. And even in these situations, all of the elements of perfect competition don't hold.

One of the great problems of neoclassical economics is how to apply the theory to real markets. There is no real evidence that neoclassical theories hold in the real world.

[ Parent ]

You make me laugh (none / 1) (#198)
by Cackmobile on Mon Jan 26, 2004 at 09:19:05 AM EST

I love your call about America being a socialist state. Thats some funny shiat!!!

[ Parent ]
Go back to your Rothbard [n/t] (none / 1) (#204)
by Fon2d2 on Mon Jan 26, 2004 at 10:30:39 AM EST



[ Parent ]
Political wanks (2.33 / 9) (#109)
by ph317 on Sat Jan 24, 2004 at 11:11:19 AM EST


Funny how Democrats can use GHWB's broken tax promise against him on year, and a few years later use it as an example of a responsible good decision in order to beat down GWB.  It's not about what's right or wrong, it's about which version of the truth accomplishes your goals today.  Republicans are no better of course, all politically minded people are snake-like in this manner.

What I wouldn't give for a rational political and economic process :(

Two different issues (3.00 / 4) (#115)
by big fat idiot on Sat Jan 24, 2004 at 12:29:24 PM EST

One issue is how can you believe any of the promises a politician makes if that politician breaks an unequivicol promise that was the center of his or her campaign?

The other issue is whether or not a politician is willing to do the neccessary thing at the appropriate time for the good of the country.

It is valid to hammer a given politician on the former even if it lead to the latter.

[ Parent ]

Super Funny! (2.71 / 7) (#127)
by limekiller on Sat Jan 24, 2004 at 02:34:19 PM EST

ph317 writes:
"Funny how Democrats can use GHWB's broken tax promise against him on year, and a few years later use it as an example of a responsible good decision in order to beat down GWB."

Funny how Bush can bash Clinton on his "nation building" and then do exactly the same thing in Iraq after he's elected.

Funny how Bush can bash Clinton as being a tax-and-spend Democrat and then blow $120bn (to date) on the war.  This week Bush is going to present Congress with an $820bn spending package.

Funny how Bush has us $1tn (that's trillion, not billion) in debt whereas Clinton left us $400bn on the surplus side.

Funny how Bush can bash Clinton on his lack of security for this country and then launch a war that the United States Army War College (the guys who kind of do this for a living) called "unnecessary" and specifically state that resources were redirected away from real threats to non-threats.

Regards,
Jason

[ Parent ]

Macroeconomics 101 (3.00 / 11) (#110)
by virtualjay222 on Sat Jan 24, 2004 at 11:12:18 AM EST

If my memory serves me correctly, there are a plethora of dreadful textbooks that describe the differences between the three different ways to manage the economy - fiscal (which consists of either demand-side or supply-side) and monetary.

Demand-sided is by far the most efficient regarding increases in GDPr, since the money spent by the government goes directly into the economy. Unfortunately, the people don't like that idea very much ($24K for a hammer?!, etc). That $86 billion that was going to Iraq supposedly is actually going to (mostly) American corporations. So while dumping a $50K garbage truck into Iraq enrages most Americans (who would rather see that go into improving schools or whatever), that does help our economy.

Supply-side is a bit more hit-or-miss, as the article stated. There are a tremendous number of leakages and, as such, a smaller bang for your buck, so to speak. The political advantages, however, are enormous (which I'm sure my fellow K5ers would be all too willing to elaborate on for me).

Monetary policy (controlling the number of dollars floating around the world at any given time) is the other major option. The Federal Reserve can, in theory, regulate interest-rates (and thus investment spending) by buying/selling government securities on the open-market. This is by far the most ineffective of all, and is primarily used to help prevent inflation.

Now, it has been quite a while since I've taken an economics course, and I'll be the first to admit that I wasn't the ideal student, but I believe most of this to be correct. I recall something about a multiplier effect, for which there are equations (depending on the type of policy used) to predict the change in GDP, but my personal feeling is that they are weak at best (though they do predict a smaller amount of growth through supply-sided policy).

If there are any corrections, or any additional thoughts, it would be greatly appreciated.

---

I'm not in denial, I'm just selective about the reality I choose to accept.

-Calvin and Hobbes


nice article. (3.00 / 11) (#113)
by pb on Sat Jan 24, 2004 at 12:21:37 PM EST

I've been planning on writing up something about our debt for a while, but never did, so let me interject with a few more points here...

Although there are many businesses in the US, many of their plants and jobs are actually overseas. So cutting taxes on the wealthy just gives them more money to invest in new plants and jobs... that aren't in the US in the first place. By cutting taxes on the wealthy, you're probably doing more to help China's economy than you are to help the US economy. Obviously rich people didn't get rich by not holding onto their money...

And actually you could get a lot more tax revenue by closing corporate tax loopholes and properly expensing stock options. Some large corporations, like Cisco and Microsoft, managed to get away with paying no taxes, and actually shifting their tax burdens to their employees. However, you don't want to give the big corporations too much incentive to not be in the US in the first place--just make them pay the 35% that they already should owe, that'd be enough for me.

Our own government accounting is horrible; it's either negligent or fraudulent. On the negligent front, the DoD literally can't account for what happened to trillions of dollars, and one of the consequences of this is that we literally have military equipment lying around that we didn't know we had... dozens of tanks, airplanes, munition stockpiles, etc.

As for fraudulent, a good chunk of our debt every year actually consists of money 'borrowed' from Social Security, that no one seems to intend to pay back. At least we know where the money went, I guess. Think of Social Security not as a retirement program, but as an unpopular income tax hike in disguise, because that's really what it is. Much of the rest of our debt is held by foreign investors, and as the article says, if they ever decide that US bonds aren't worth the money, we'll be in trouble.

In fact, if interest rates go up, or the dollar gets stronger, or any number of things do happen, we'll end up paying more each year just to pay the interest on our debt. Not only are we paying more in the long run, but we're making our whole economy much more fragile.

...But at this point, I feel like I'm just repeating bits of the article itself, so... good article! :)
---
"See what the drooling, ravening, flesh-eating hordes^W^W^W^WKuro5hin.org readers have to say."
-- pwhysall

Borrowing from Social Security (none / 2) (#203)
by Fon2d2 on Mon Jan 26, 2004 at 10:26:49 AM EST

The social security fund is called a trust fund, but that name is actually a misnomer. The Treasury doesn't actually hold the money paid in through FICA taxes as cash because that would be a horrible way to invest the money. It actually uses that money to buy Treasury bonds, so in essence, it is lending itself that money. Those bonds still mature the same as any other Treasury bonds so it is the state of the Treasury bonds you should look at to determine the state of Social Security. If there is not enough income to pay off those bonds when they mature, then the debt will be rolled over to the public. Either way, the Social Security benefits will be paid.

Another way to look at it is this. Right now the Federal Government has a Social Security surplus. Since overall, the government is in a defecit, it is better to use that surplus money for other purposes now, and then issue more debt if and when it is necessary later. Otherwise the government is unnecessarily issuing debt while it has money lying around which just means it'll increase it's defecit paying more interest. Whether some debt is issued now, or more debt issued later, it doesn't change the government's expenses in the long run, except for that increase in interest payments.

Finally, consider that seniors are one of the strongest voting groups in the U.S. It's highly unlikely that they will ever go without getting more than their fair share. In the end, it isn't really about money paid in, or paid out of any trust fund. It's about the ability of the U.S. Economy and the GDP to support the current base of retired people. That's what the age wave crises is about. When the baby boomers hit retirement, support for retirees will be a larger piece of GDP. That means a lower percentage of wealth and thus a lower standard of living for everyone, because there will be more consumers for every producer.

In the end, it's really about a transfer of wealth from the young people to the old people which is not inherently a bad thing. There are a lot of things wrong with Social Security, but since older people will always create a stronger voting block than young people, don't expect anything to change anytime soon. The system still largely benefits old people. But personally, I say give me back that 7% paid to FICA and let me invest it how I see fit. If I added that to my current 401K contributions, I'd be rich at retirement no questions asked. But if when I do reach retirement our outdated Social Security system is still grinding away in largely the same manner, then don't expect me to have any remorse or support any changes. I'm gonna be all about the gimme gimme gimme.

[ Parent ]

Sources RE: corps paying no taxes? (none / 1) (#235)
by wurp on Tue Jan 27, 2004 at 11:28:25 AM EST

Can you give us some sources that indicate what corps pay no taxes?  Is that something that can be figured out from the information publicly traded corps are required to publish?

Can anyone tell me how to find all of the information corps are required to publish?
---
Buy my stuff
[ Parent ]

sure. (none / 2) (#276)
by pb on Fri Jan 30, 2004 at 05:25:12 PM EST

I think Cisco actually bragged about it; in any case, it was a big deal at the time. And that's why people were fussing over how to (or whether to) expense stock options.
---
"See what the drooling, ravening, flesh-eating hordes^W^W^W^WKuro5hin.org readers have to say."
-- pwhysall
[ Parent ]
Thanks much! (nt) (none / 1) (#279)
by wurp on Sat Jan 31, 2004 at 12:55:17 AM EST


---
Buy my stuff
[ Parent ]
Oil has a lot to do with that, too. (2.14 / 7) (#118)
by Pig Hogger on Sat Jan 24, 2004 at 12:46:25 PM EST

The war in Irak was mostly motivated because Saddam was selling his oil in Euros, rather than in dollars, because he was getting more value back, since the US dollar is on artificial life sustainment.

Likewise, the current destabilization campaign in Vénézuela is aimed at preventing them from selling their oil in Euros.

The next guys that are going to ask Euros for their oil are the saudis, and once this happens, there will be really nothing to prevent other players from doing the same.

It's not for nothing that the US dropped all military contact with the saudis, because they will soon become a member of the "axis of evil" (after all, Oussama Ben Laden IS from Saudi Arabia)...

This means that the US dollar will no longer be a credible currency for international trade, and it's artificial "value" will then plummet, bringing down the US economy with it.

Europe will gain back the upper hand it lost some 60 years ago in world affairs, and the yankees will just be yet another self-centered anglo-saxon colony isolated in a culturally diverse planet...
--

Somewhere in Texas, a village is missing it's idiot

Spot on. (none / 2) (#120)
by Phillip Asheo on Sat Jan 24, 2004 at 01:02:16 PM EST

Do you read a lot, or are you just smart ?

--
"Never say what you can grunt. Never grunt what you can wink. Never wink what you can nod, never nod what you can shrug, and don't shrug when it ain't necessary"
-Earl Long
[ Parent ]

I'm both! (none / 3) (#129)
by Pig Hogger on Sat Jan 24, 2004 at 02:43:17 PM EST

:)
--

Somewhere in Texas, a village is missing it's idiot
[ Parent ]

scary proposition (none / 2) (#124)
by Burning Straw Man on Sat Jan 24, 2004 at 01:57:20 PM EST

Europe will gain back the upper hand it lost some 60 years ago in world affairs, and the yankees will just be yet another self-centered anglo-saxon colony isolated in a culturally diverse planet...

... with a whole bunch of tanks, guns, planes, and currently under a president who probably wouldn't mind going into a country and taking what we want, if they won't accept dollars for it.
--
your straw man is on fire...
[ Parent ]

So what? (none / 2) (#128)
by Pig Hogger on Sat Jan 24, 2004 at 02:42:57 PM EST

Last time somebody tried that trick, the rest of the world ganged-up on him.
--

Somewhere in Texas, a village is missing it's idiot
[ Parent ]

wrong (none / 2) (#131)
by Burning Straw Man on Sat Jan 24, 2004 at 02:47:55 PM EST

Hitler did not close his borders and flip off his creditors. He invaded neighboring countries. It is questionable whether France would invade the US to recover money lent to the US by a French businessman or bank. It is not questionable that France would defend an invasion by the US which attempted to kill the businessman or rob the bank through force of arms.

Ok, maybe I shouldn't have used France in this example, but I hope the point stands. Ripping up IOUs is not the same as invading other countries and killing their citizens. I have my doubts if China, Britain, Germany, or Japan would invade the US to recover debts.
--
your straw man is on fire...
[ Parent ]

How to recover debts from the US (none / 1) (#213)
by gyhujikolp on Mon Jan 26, 2004 at 02:48:32 PM EST

Ok, maybe I shouldn't have used France in this example, but I hope the point stands. Ripping up IOUs is not the same as invading other countries and killing their citizens. I have my doubts if China, Britain, Germany, or Japan would invade the US to recover debts.

When some American states defaulted on Barings Bank (of Britain) they used a cunning strategy to get the money back:

"In 1842, 11 states including Maryland, Pennsylvania, Mississippi and Louisiana defaulted. Setting a precedent that would be used often in later years, Barings bank simply intervened in local politics. In Maryland Barings helped to finance candidates in the next election who were willing to repay. "In the elections in 1846 the `resumptionists' narrowly won, and soon afterwards Maryland raised new taxes which enabled it to repay its debts. The campaign had cost Barings about $15,000; it was worth it," notes Sampson.

"Mississippi held out. By 1929 the unpaid debt was estimated at $32 million, and as recently as 1980 London banks were still trying to get Mississippi to repay on the loans it defaulted on 138 years earlier."

Compare and contrast:

"After Mexico defaulted in 1861, Britain, France and Spain invaded; France installed Ferdinand Maximilian as emperor. (He lasted only four years, and failed to pay the debts.)"

Quotations from
http://www.jubileeplus.org/analysis/reports/reliefbefore.htm

.


[ Parent ]

tactics (none / 1) (#220)
by Burning Straw Man on Mon Jan 26, 2004 at 04:18:28 PM EST

Invading Mexico in 1861 would not be anywhere similar to invading the US in 2004.

And if it were found that a candidate for office was being financed by a Foreign Power, much more likely with today's media presence than in 1842, the voters would likely decide not to vote for this candidate (unless of course they agreed with paying the debts).

Interesting history stuff there, thanks for posting it!
--
your straw man is on fire...
[ Parent ]

tactics (practicality of) (none / 1) (#234)
by gyhujikolp on Tue Jan 27, 2004 at 09:25:10 AM EST

Yes, admittedly not very practical tactics in this case. As you might have guessed I was bringing them up mainly for historical interest (sorry, should have said so).

Another interesting snippet I came across (in the same article, I think) is that a lot of European countries defaulted on loans taken from the U.S. during WWI. Could be a useful defence should the U.S. ever decide it's not going to pay...


[ Parent ]

elections (none / 1) (#236)
by Burning Straw Man on Tue Jan 27, 2004 at 11:43:05 AM EST

I think it would be very interesting if the next newly elected US President (be in 2004 or 2008) were to announce, "I won't be paying the debts of previous presidential mistakes."

Although in more recent history, France and Germany were fighting pretty hard to ensure that the future government of Iraq was going to pay off Hussein's debts.
--
your straw man is on fire...
[ Parent ]

taxes (2.87 / 16) (#123)
by Burning Straw Man on Sat Jan 24, 2004 at 01:50:56 PM EST

One misleading comment that I've heard from conservatives is that the wealthiest 1% of Americans pay something like 33% of the taxes, in an attempt to show how over-taked the wealthiest Americans are. It's true, and a very interesting statistic (Sharpton for example thought it was below 10% and demanded that it be at least 20%), but misleading. This is because taxing someone with an income of one million dollars at the same rate (let's say 25%) of someone with an income of 35 thousands dollars, you would still see the richer person paying a lot more in total tax dollars ($250K vs. $8750). With 99 million people paying $8750 (about $900 billion, rounded up), and 1 million people paying $250K ($250 billion) for a total tax revenue of $1.15 trillion, that would make the wealthiest 1% of this ficticious economy pay around 20% of the total tax revenue, and this is with a flat tax. If you tax the wealthiest 1% at 35% instead of 25%, the total tax revenue increases to $1.25 trillion, and the wealthiest 1% are now paying 28% of the total tax burden.

On another note, to me it's quite obvious that if you were going to, say, cut taxes to the tune of $200 billion dollars (numbers grossly exaggerated of course), putting $2000 in the hands of 100 million people will do more for the economy than putting $200K in the hands of 1 million people, because those 100 million people probably need things which they currently aren't buying, and will put more of that $200 billion directly into the US economy. To me it is entirely more likely that the 1 million people each getting $200K will move more of that money into overseas markets or indirect investments, whereas the 100 million people each getting $2000 will buy cars, televisions, etc.

If I had another $2000 a year, I would probably use half of it to pay off my debts (allowing me to get more debt by buying more things later) and half of it to buy stupid stuff like an iPod or new hockey skates, because I'm a stupid consumer. If Warren Buffet suddenly had another $200K I don't think it would result in more jobs in his companies.
--
your straw man is on fire...

and another thing... (none / 3) (#126)
by Burning Straw Man on Sat Jan 24, 2004 at 02:18:18 PM EST

If those 100 million people all spend their $2000 on something, the wealthy 1 million people will be the ones selling a lot of it to them anyway in terms of services and goods.
--
your straw man is on fire...
[ Parent ]
A good way to empty warehouses but.. (none / 1) (#139)
by doormat on Sat Jan 24, 2004 at 04:03:08 PM EST

Wouldnt putting $2000 in the hands of 100 million people just cause prices to go up? If stuff is sitting around in warehouses then its a good way to get rid of inventory without having to discount it, but what happens when that inventory runs out, and sellers realize that they can sell their stuff for more?

Its much like the situation with housing right now where I live. Low interest rates got rid of excess inventory in the housing market for the first 6 months, and now because of prolonged low interest rates, houses are on track to double in price over the course of 7 years (avg home price was $160K in Jan 2000, now (Jan 2004) is over $240K -- thats a 50% increase).
|\
|/oormat

[ Parent ]

prices (none / 3) (#142)
by Burning Straw Man on Sat Jan 24, 2004 at 04:42:26 PM EST

A few things are true:
  1. Wendy's Value Menu will have $1 hamburgers, no matter how many people get $2000 tax rebates.
  2. Outside of monoplies and collusion, prices are usually set at a value somewhat above what it costs to produce the product being sold, no matter how many people get $2000 tax rebates, because if "product X" can be produced for $500, it will sell for fairly close to $500 plus the cost of getting the product to the consumer, plus a little markup for profit. If one producer of "product X" sells at $800, then another producer can still sell at $700 and make a good profit, then another producer can still sell at $550 and make a good profit at volume, etc. And over time, usually "product X" can be produced more cheaply due to efficiencies, causing the price to drop.
If there are 1 thousand HP DVD-RW's sitting in the BestBuy warehouse, and they all were bought by people waving their $2000 rebate checks with frothy abandon, BestBuy still isn't going to be able to jack up their prices because Circuit City is competing with them, and HP still isn't going to be able to jack up their prices because a host of companies are competing with them.

The only time that temporarily increased demand results in price hikes are when (a) the supply is constricted, (b) the product has one producer, or  (c) there is collusion amongst the "competitors" in the market. HP is happy to roll thousands more DVD-RW's out of the factory at the same price, because if they raise their prices, somebody else's DVD-RW's are going to be bought instead.

Also, if 100 million people bought an HDTV, then the prices would actually have to fall nearer to production costs, because there would no longer be as much demand for new HDTVs.
--
your straw man is on fire...
[ Parent ]

so so inflation (none / 2) (#145)
by khallow on Sat Jan 24, 2004 at 05:00:46 PM EST

Housing tracks income pretty well because it is a good that people are willing to spend a certain percentage of their income to obtain. Health care and education are probably in the same category. However, I don't think most items will track income that closely particularly in the form of tax cuts which don't add to the employer's costs.

Stating the obvious since 1969.
[ Parent ]

Housing and Income (none / 2) (#157)
by czolgosz on Sat Jan 24, 2004 at 07:53:32 PM EST

Housing tracks income pretty well because it is a good that people are willing to spend a certain percentage of their income to obtain.
Not quite. Housing actually tracks both income (proportionally) and interest rates (inverse-proportionally). And it's not to do with people's willingness so much as the fact that lenders mandate fixed maximum ratios of payments to income. These vary from country to country but are usually constant within a country. Most buyers will borrow as much as someone will lend to them; the ratios are the hard-stop. When ratios were increased in the UK, borrowers quickly maxed out at those new ratios.


Why should I let the toad work squat on my life? --Larkin
[ Parent ]
good point (none / 1) (#223)
by khallow on Mon Jan 26, 2004 at 06:41:02 PM EST

Not quite. Housing actually tracks both income (proportionally) and interest rates (inverse-proportionally). And it's not to do with people's willingness so much as the fact that lenders mandate fixed maximum ratios of payments to income. These vary from country to country but are usually constant within a country. Most buyers will borrow as much as someone will lend to them; the ratios are the hard-stop. When ratios were increased in the UK, borrowers quickly maxed out at those new ratios.

I should have said setting other stuff constant. You are correct.

Stating the obvious since 1969.
[ Parent ]

Limited Supply (none / 1) (#245)
by Shajenko on Tue Jan 27, 2004 at 04:19:19 PM EST

That, and factories can refill warehouses. You can't make more land.

[ Parent ]
Uuu. (2.33 / 6) (#130)
by Megahitler Electrodictator on Sat Jan 24, 2004 at 02:46:01 PM EST

A more fundamental question is: overtaxed relative to what standard?

I will suggest one standard, anyway: tax where it does the least harm.

[ Parent ]

but where would you spend it? (2.20 / 5) (#167)
by JackStraw on Sun Jan 25, 2004 at 03:40:54 AM EST

As a libertarian, I'm in favor of predictable, consistent taxing... for example, not changing who's taxed in response to short-term economic trends. But...

One thing I like about supply-side economics is that it puts the money in the hands of the rich. These are the people who have shown their ability to make smart investments. Long-term economic growth doesn't come from people buying more I-Pods. It comes from smart people using the money as capital. Or, at least, that's how it seems to me.

Whenever someone earns money, it's like a vote from the economy that the person is productive and responsible; that's where we want our tax cuts going, if we want long-term growth and increased productivity; and it's the productivity that makes America competitive.
-The bus came by, I got on... that's when it all began.
[ Parent ]

Hmm (none / 1) (#237)
by wurp on Tue Jan 27, 2004 at 11:59:49 AM EST

It seems to me that most of the richest get richer because they are able to:

a) trick people out of their money

b) use their existing wealth to buy legislation or favor that causes big government or corporations to give them money

c) both

Neither of those sound like something that benefits our economy in the long-term.

Now, there are plenty of people who just chronicly make bad fiscal decisions, and penalize their own and the common wealth.  But those people exist among both the rich and the poor.  There are people who chronicly make good fiscal decisions, and those people tend to get wealthy, at least by the standards in which they were raised.  Most people fall in the middle, and they tend to stay poor because they have poor friends & family, have low educations and expectations in terms of jobs, etc. or stay rich because they have wealthy friends & family, good education, and high expectations in terms of jobs.

In my experience, there are two kinds of people who believe that the rule is the rich are rich because they deserve it.  Those who were born rich, and those who believe philosophically in a strict work ethic and rewards & punishments.

My life has taught me that most people fall in that happy medium in which a few lucky breaks at the right time, combined with the will to take advantage of them, or unlucky ones at the wrong times, will be the biggest determining factor in their life.

Examples:
Most people make the mistake of having unprotected sex at an inappropriate time or with an inappropriate person.  If that results in a child, or an STD, it can be life-defining.

Most people apply for a good job at least a few times in their life, or for a scholarship, or to start their own business.  Getting the attention of the right person due to coincidental factors can make the difference between wasted effort and a new life.

I guess my message is this: do your best to reduce the opportunities for bad life-defining things to happen to you, and increase opportunities for the good ones, but don't go judging someone's worth by whether or they've had fortune or misfortune in which opportunities have paid off.  Or, more pertinent to this conversation, don't assume that someone who has money makes good monetary decisions, and most especially don't assume they make monetary decisions that are good for the common weal.
---
Buy my stuff
[ Parent ]

That's one way to look at it... (none / 1) (#244)
by Shajenko on Tue Jan 27, 2004 at 04:09:40 PM EST

...though it is a naive way. How much wealth a person has acquired has very little to do with how much they have benefitted society, or how hard they work, or how productive they are. For instance, Bill Gates: he earned his money because A) he was in the right place in the right time and knew the right people, and B) he crushed competitors ruthlessly. Another point is, that the more wealth you have in comparison to other people, the more bargaining power you have, and you can therefore tilt the benefit of any trade you engage in more towards you than towards the other guy. This means that the wealthy can easily stay on top, and the poor find it hard to move upwards.

[ Parent ]
a problem with this (none / 3) (#206)
by naught on Mon Jan 26, 2004 at 11:08:17 AM EST

is that like you, most people will use their income tax refund to pay off their debt.  there are two kinds of people in this country, for the purposes of this debate: fiscally educated, and fiscally ignorant.  fiscally educated people develop the economy.  fiscally ignorant waste their money on foreign electronics, debt, and do little for the economy.

rich people, regardless of their income, will always be able to get out of taxes.  they do this by putting money back into the economy as creation of assets.  if they want to utilize the tax loopholes that maintain their lifestyle, they have to put the money back into the economy.

not-rich people go to h & r block in the spring, and spend their paychecks on cheeseburgers and DVDs.  there is no incentive for the not-rich to do anything with their money, since they don't know how to buy assets (if they did, they'd be rich).

for a rich person, each dollar is an employee.  employees belong out of the house doing work, not in the safe.  that people fail to understand this is the reason any argument against tax cuts for the rich as a means to stimulate the economy can be made.

being rich has nothing to do with how much money you make in dollars, but how much you make without working as a ratio to your expenses.

--
"extension of knowledge is the root of all virtue" -- confucius.
[ Parent ]

if people paid off their debt (none / 2) (#211)
by Burning Straw Man on Mon Jan 26, 2004 at 01:27:14 PM EST

OK, if people paid off their debt, then the $100 a month they were paying towards that debt now becomes $100 a month they will invest or spend. Multiplied by 100 million people, and that's $10 billion dollars a month.
--
your straw man is on fire...
[ Parent ]
A few more comments (1.06 / 15) (#134)
by dcm266 on Sat Jan 24, 2004 at 03:20:05 PM EST

"Your analysis is perhaps overly simplified.  In times such as these, with pathetically low interest rates and virtually unlimited access to capital, it is highly questionable whether another 30 billion in capital investment will enhance capacity in any meaningful way.  We are already operating far below capacity in the manufacturing sectors, so where is the incentive to expand further?  Unlike the Reagan experience, what we are suffering from at the moment is a crisis in level of demand, not in supply.  In such times, a 30 billion "relief" package aimed at the Bentley and Brie crowd cannot honestly be considered an efficient means of redressing our economic woes."

Again, keep in mind that this is a long run initiative. The additional presence of capital may not mean quite as much with really low interest rates, but it provides additional supply of loanable funds in the future. As the demand curve for funds starts to shift to the right, as businesses now actually are starting to increase investment, the additional supply will help keep interest rates a notch lower. Meanwhile, the 70 billion consumers spend does in fact fuel growth in the short run.

Also, consider that the very wealthy often do in fact invest in bad times. When everyone else is selling, it is a perfect time to buy, all else being the same. As for the relatively small amount of capital added, this is true, but is the most that could really be managed. If Bush's tax cut saved taxpayers 500 billion per year in taxes, and half of that was invested, the result would be much larger, but so would the cost. Also, as this is a long run policy, even if the rich do not invest their share when conditions are poor, when conditions pick up, that capital and future capital from the next round of tax cuts will still be there to fuel investment. Even if we wait a couple years, the results will come through eventually.

"It is very likely, given the current state of affairs, that the ratio of 30 billion invested and 70 billion spent is unrealistic anyway--anecdotally, my experience is that a larger fraction will be invested.  I happen to be in that crowd, and I invest 100% of the tax "relief;" one of my investment priorities is to shelter a good portion of my assets from the dollar's collapse, which is looking more imminent and less immanent of late.  The wealthy have the luxury of being able to hedge on the failure of the U.S. economy.  Too bad for the fixed-incomers in this failing state: the school-teachers, the nurses, the firemen."

There's some truth to this, but the 70 and 30 billion were really just there as arbitrary numbers. In this case, the short run impact of consumption would be diminished, and the long run impact of additional capital would be increased. No significant challenge to my overall analysis I think, as one thing increases and the other decreases, reducing the short term and increasing the long term impact. Consider also that invested over one century at a 6% rate of growth, 30 billion dollars becomes 10,179 billion dollars. Granted, inflation will reduce the real purchasing power of this sum, buteven with an inflation rate of 4%, we still are looking at 201 billion dollars in today's dollars.

Regarding the collapse of the dollar, I'm not as confident about that as you are. Central banks in Asia and Europe are concerned about this, as they do not want their exports to diminish. The result is that even with a decline in the relative value of the dollar, there is some protection in that at a certain level, banks will start buying up dollars to prevent their currency from growing too strong. A serious collapse in the dollar will also significantly affect the rest of the world, as the Asian financial crisis of 1998 affected countries far away. We really are an international economy. To an extent, our problems are the world's problems.

Don't take this to mean that I am particularly confident about the future of this country. I'm not, and in fact, I'm quite concerned with out future, though more for what I see as a decay in society, though that is another issue.

"To counter the Progressives, it should be noted that if the entire $100 billion were spent by low-income wage earners in the current economy, the money is not all going to be going for goods and services.  Given the large amount of consumer debt held by households in America, a large fraction of that money will simply go toward servicing that debt.  Such tax cuts merely ensure that Citicorp gets its due right now at the expense of the greater public's taking on debt in the future.  Granted, some of the 100 billion may be spent on growth-stimulating goods and services, but a large fraction will merely go the way of the 30 billion above and be invested by the consumer debt holders in non-growth-inducing ways--buy gold, acquire (but not necessarily develop) real-estate, hold Euros, hire Accenture to offload more services to China and India, etc.  While reducing their debt burden may improve the quality of life of the poor and may make future tax cuts geared at them more efficacious, the immediate response will likely be an inefficient stimulus, perhaps even less efficient than tax cuts for the rich."

Here, I cannot say that I agree. First of all, I think you're proposing an alternative, an income tax cut for the poor. The thing is, the poor don't really pay that much income tax, so I'm not sure about this as an option. The rich, who have money to invest, pay a greater share of our taxes relative to their income. This is the logic behind the typical tax cut targeted at upper clases. They will typically invest their money.

Also, if the poor use the tax cut to pay off debt, then future money they would have to use to make debt payments is now free to purchase goods and services. Ultimately, it will still have a positive effect.  

"First, I think you accidentally top posted this instead of as a reply to my comment."

This is true. Sorry about that.

"me: And what evidence is there that they are working? To my knowledge, there is absolutely no way to determine whether the jobs that were created in the past few months number more than would have been created if there was no tax cut.

you: Well, by your logic, there also cannot be any evidence that they are in fact not working. Since you seem to be taking the skeptical approach here, which I certainly understand and in fact like, let's just go through some economic theory."

Well, there are seriously complicated ways of tracking capital and helping to determine what invested capital will do. Also, one can consider the long run result of investment on the economy. I didn't want to go into it, so I was willing to say for the sake of argument that the issue you highlighted was a wash, even though in fact it was anything but.

"I have two comments on this.
First, I wonder about your reasoning. Would you use the same lack of evidence as a point of the discussion was on the existence of Bigfoot or the Loch Ness Monster? Or how about in the world of medecine? Should we prescribe drugs that have no evidence as to whether they are helpful or harmful?"

Well, see above. Locating a giant monster in a swamp is a bit easier, all things considered, than tracking every investment and flow of capital. Since macroeconomic theory does such a good job of explaining the performance of the economy in the long run, it was easier to explain. Also, this method of economic analysis is tried and has proven itself to be successful. In addition to complex models of flows of capital, the performance of the economy for as long as we have statistics on it, proves the accuracy of the classical model. The example of drugs is similar. If a drug had proven effective over 100 years, would that not be evidence enough of its effectiveness?

"Second, I'm glad that you brought up economic theory. Did you know that there is absolutely no evidence that neoclassical economic theory has any relevence to the way the real world works? Therein, lies the reason that I'm skeptical of supply-side economics."

First of all, the idea of tax cuts is based on the classical model. I'd prefer to see that used as opposed to neoclassical economic theory. For capitalist economics, this is the classic theory of the performance of the economy in the long run, and explains things very well. You hit snags if you try to use it in the short run, which I have not tried to do. I suggest a brief brushing up on the classical model and glancing at some more trends in the overall macroeconomy. It is fairly easy to understand.

Another problem you encounter is that you make a classic mistake. You say there is no evidence how much of an impact the tax cuts had on the improvement in the economy. Maybe other things helped. When you study economics, however, you look at the correlation between each variable individually. Here, you will find that a tax cut has a positive impact.

"These theories seem especially tenuous to me because they are based on key assumptions such as the presence of perfect competition. I don't know if you've ever looked at the characteristics of the marketplace that are demanded by the state of perfect competition, but they seem to me to pretty far fetched."

First, perfect competition is a microeconomic subject, while we are looking at the classical model to study the macroeconomy. If you study more microeconomics, you will see that economic theory is not based on these assumptions, and that there is accounting for monopoly, competitive monopoly, natural monopoly, and all sorts of imperfect competition. Your assertion that all of this economic theory we are discussing is based on the notion of perfect competition is completely false. Please do some more research. I can sort of understand where you are coming from, but knowingly or not, you are supplying misinformation.

"Now let me address some of the minor points. With regard to the Bush tax cuts being part of a long term plan. If they are part of a long term plan, that long term plan has nothing to do with trickle-down economics. I won't despute that many economists think that tax cuts have positive long term consequences. But that is not what supply side economics is all about."

Both supply side and demand side economic policies try to improve the state of the economy. I'd argue that the Bush tax cut is both a supply and demand side policy. It has positive effects in both areas, and there is no question that wealthy people investing in ventures, starting new businesses, and the like, will lead to improved employment and higher wages, all else being the same."

"Your last sentence is a non-sequitor. What if productivity keeps increasing? Does that not imply that employment will keep decreasing? What reason is there to believe that we are likely to see an increase in employment in the future?"

No, production in an economy is based on number of workers and on productivity. If our economy grows at 3% per year, and productivity increases at anything less than 3% per year, employment will grow. If you look at economic data over time, you will see a clear trend that shows employment increasing during a recession, and decreasing afterwards. If nothing else, a gain in productivity will increase corporate profits, as they can now produce a greater amount with the same amount of employees, or produce the amount they produced before with a lesser number of employees. As profit grows, firms will respond by hiring more employees. In the short run, the effect of productivity is to increase profits by reducing costs, which in the long run leads to increased production and employment.

As for normative and positive differences, positive differences are statements of how the economy works, and normative are statements of values and how things should be. There is great temptation to overlap the two, and you seem to have done it a couple of times.

"But the reason that economists are interested in tax cuts here isn't for the tax cuts, per se. The reason that they are for the tax cuts is to force the government to decrease spending."

This is false. Economists want to forbid Congress from having a structural deficit. Structural deficits are those based on everything other than economic conditions. For example, increased welfare benefits during a recession that further a deficit are part of a cyclical deficit. If you outlaw all deficits, you are binding Congress's hands when there is a recession. Interest in tax cuts exist for their long run benefits. Stopping Congress from spending taxpayer money is a benefit of this, not the cause.

"It is government spending that is the evil here, not the taxes. Supply side economics is the theory that cutting taxes will result in greater government revenue in the short term. It has little to do with the long term effects that are created provided the government both reduces taxes and balances its budget."

This is not true. The idea is to increase revenue in the long run. It is quite plain that if you cut taxes in half, your revenue the next year will be less than it was, unless the economy grows at 100%. This will not happen, so any attempt to ultimately increase revenue can only be valid for the long run. I've never met people who seriously believe that cutting taxes will increase revenue in the short run. That is just absurd.

"Here's an alternative scenario:
Government does not cut taxes by $100 Billion
In response, consumers in the economy don't spend anything extra.
Government spends that $100 Billion on its own projects -- roadworks, schools, military, whatever.
People who work on those Government projects also happen to be consumers
In response, consumers in the economy spend $70 billion and invest $30 billion.
Continue with your steps 3 and 4.
Looks like a wash to me."

A couple of problems exist here. First, while the theory is interesting, the fact is that the government is less efficient than the private sector in its spending and production, meaning each government dollar would be worth more in the hands of private individuals.

Second, you're ignoring the standard of living effect. If we spend an extra 100 billion on our military and it does not need it, even though the money is still being put into the economy, the money is being wasted and could be spent better on something that would make our society better off. The more money the government has, the less is in the hands of private individuals to invest and to use to further economic growth.

One last thing. The government will divert some spending to pay employees a modest salary. 1000 employees making $50,000 per year will typically invest less than some wealth individual who gets a 50 million dollar tax break. The goal of the tax cut in the long run is to increase the amount of investment and funds to make investments, thus increasing our capital stock. As a result, we should give money to those most likely to invest.

"Really, all that's changed is where the money comes from. With the government tax cuts, the money is left in the hands of the rich to invest in what will benefit them the most."

Exactly. The rich invest in whatever is the most profitable and lucrative investment. Guess what happens? This attractive industry receives an infusion of funds and is able to take off. Well, when a company grows, it needs to hire more workers. Labor demand shifts to the right, increasing both the equilibrium wage and the number of people employed.

Oy vey. This ended up being a very long post. I'll be a bit more selective in what I reply to next time, or else this will just become too massive to digest efficiently. Cheers.

-dcm266

Without the government tax cuts, the money gets shuffled to the hands of people who actually need jobs (roadworkers, teachers, etc), so they can invest in what will benefit them most.

Cutting taxes increases spending?
Bullshit. You think think the government just sits on the money? It all goes around one way or another.

ATTENTION! Don't top-post replies to comments! (2.57 / 7) (#148)
by RaveX on Sat Jan 24, 2004 at 05:20:27 PM EST

Especially if you know that you're doing it:

"First, I think you accidentally top posted this instead of as a reply to my comment."

This is true. Sorry about that.

This is at least the second time that you've done this. That's really not cool. We're a community. I can see that you're new, but please have some respect for how we function. Thanks.
---
The Reconstruction
[ Parent ]

Well (none / 3) (#154)
by dcm266 on Sat Jan 24, 2004 at 07:42:41 PM EST

Hi,

Look, I'm sorry about the whole top-posting thing, but I wasn't attempting to do it, and realized, "Oh crap, I did it again," after I had already posted this. You see, I'm quite absent minded, and somehow managed to miss the specific reply button a couple of times. Now that I actually know what to do, it should not happen again. It's not a matter of respect, but simply not realizing where the reply button was. Cheers.

-dcm266

[ Parent ]

Repost it as a comment then (none / 2) (#156)
by Pholostan on Sat Jan 24, 2004 at 07:48:49 PM EST

Your top-post will probably be hidden.

- And blood tears I cry Endless grief remained inside
[ Parent ]
Wealth distribution (none / 1) (#187)
by electroniceric on Sun Jan 25, 2004 at 08:48:33 PM EST

One of the things that seems to be notably missing in this analysis is wealth and income distribution. Suppose that I accept the premise that money given to the wealthy will be invested in companies that create jobs for Americans. Also leaving aside from the question of whether those jobs are kept in the US or located elsewhere, how much does the job that's created pay? According to the IMF:
Within-country inequality has indeed increased in many countries but remained stable in many others. This [...] concept is the difference between the incomes of the rich and the poor within a country, typically measured using a Gini coefficient--a statistical construct that ranges between 0 and 1, with lower values indicating greater equality. Gini coefficients in Japan, many European countries, and Canada have been stable over the past couple of decades, ranging between 0.25 and 0.3. In contrast, in other developed countries, the United States being the most notable example, the Gini coefficient has increased to about 0.4 over the past 20 years.
While I could be convinced of the wisdom of minor changes to the structure of our taxation (income-focused), I'm still pretty skeptical of throwing the redistribution concept out the window, and have yet to hear mechanisms where tax cuts on the wealthy to lead to a reasonably equitable distribution of wealth.

[ Parent ]
No, actually (1.83 / 12) (#147)
by trhurler on Sat Jan 24, 2004 at 05:18:04 PM EST

Only simpletons think rich people won't invest money if you let them keep it. The anti-supply-siders argue that it is easier, faster, more direct, and easier to measure to simply "give" that money to poorer people. They seem to ignore the old line about giving a man a fish, but in fact, they aren't ignoring it - they WANT people dependent on them, so that they can go on buying those peoples' votes for eternity. The idea that those people might get good jobs and not NEED government favors terrifies them for this very reason.

But, as I've already said, nobody but simpletons thinks rich people will put money in savings accounts or under mattresses. First of all, NOBODY puts huge sums of cash under mattresses unless he's engaged in illegal activity. To do so is a guarantee that you will lose money to inflation. Second, nobody with a choice(and the rich have lots of choices,) puts his money anywhere it won't earn at least 5-6%. Third, the only places you can get that kind of return that are big enough markets to hold all the money involved here are either direct investments, derivatives of some kind(which still stimulate growth, albeit in a more complicated way,) or else money markets. Money markets, however, offer the worst yield, and while they're relatively safe, the more money gets poured into them, the lower the yield. As such, they're usually only used by the rich as a temporary storage place for money(a sort of inflation resistant bank account, since this investment is trivially convertible to cash.) Sounds like the perfect refuge for money, right? Except, strangely enough, money market investments create growth too. As it happens, you can't get a decent rate of return without creating growth somewhere.

I'm sure P.T. Barnum's much lauded fool exists somewhere with a lot of money, but we all know what will happen to him and his money. The rest of the rich DO invest their money, because they want to STAY rich, and there's basically no other way to do it.

--
'God dammit, your posts make me hard.' --LilDebbie

maybe, but you're missing an important point (2.66 / 6) (#150)
by jimjamjoh on Sat Jan 24, 2004 at 06:04:32 PM EST

i'd agree that the rich, when given tax cuts, are liable to invest.  however, we live in a more global marketplace now, and the jobs that are being created are more and more being shipped overseas.  simply, there's more bang for your buck in investing in multinationals because they offer cheaper overhead in terms of labor, and thus bring a more attractive product to market.

and this is the major problem with supply-side today:  the rich get richer, and the middle- and lower-classes domestically end up with the shaft.


[ Parent ]

yeah (none / 3) (#152)
by golrien on Sat Jan 24, 2004 at 06:36:33 PM EST

What happens to your trickle-down theory when the rich put all their money into India??

[ Parent ]
The people of India gets richer (none / 2) (#155)
by Pholostan on Sat Jan 24, 2004 at 07:44:03 PM EST

They are in general a lot poorer than the populace of the USA. So the tickle-down theory sorta works, just not for americans.

- And blood tears I cry Endless grief remained inside
[ Parent ]
Which of course is why supply side doesn't work. (none / 2) (#163)
by tthomas48 on Sat Jan 24, 2004 at 10:41:00 PM EST

Because Indians don't pay taxes in the United States and thus can't be used to pay down the debt incurred by giving tax cuts to the wealthy. Realistically I think we can all agree that:

"Supply side works if invenstors are investing in companies that invest heavily in the United States."

Since we all see that not happening right now, the eventual outcome seems pretty clear.

[ Parent ]

"Income tax" (none / 2) (#164)
by losthalo on Sat Jan 24, 2004 at 11:02:07 PM EST

Charge income tax on foreigners working for US companies. Or just charge the companies directly.

[ Parent ]
To which they... (none / 1) (#175)
by tthomas48 on Sun Jan 25, 2004 at 01:40:12 PM EST

Stop hiring foreign workers to work in the US. Working in their native countries is cheaper. And the companies move offshore so they pay no tax. Most of them are doing/have done this. And one thing I do agree with the Republicans on is that if you tax corporations, they're going to pack up and leave the  U.S. immediately. Supply side don't work. Never will work. It depends on companies doing what's right vs. what makes them the most money. And we all know how that one always plays out.

[ Parent ]
Sorry, I was unclear (none / 1) (#177)
by losthalo on Sun Jan 25, 2004 at 02:28:48 PM EST

I intended to say that we should tax (at the same rate as US-citizen employees are taked on income) companies for their foreign employees. i.e., if they ship twenty jobs to India doing tech support for American accounts over the phone, the company pays taxes equal to what those employees would pay in income taxes if they lived and worked here.

This is a kludge, but the issue of companies not paying taxes by scooting resources and employment over national borders is killing US employment for the sake of enriching already-profitable industries. In the end a new model of taxation needs to come about that speaks to these issues. 'Income tax' may no longer be a good model.

[ Parent ]
There's another tax that would work... (none / 1) (#242)
by Shajenko on Tue Jan 27, 2004 at 03:21:48 PM EST

It's called a tariff. That way, it doesn't matter where the corporation moves to, if they want to trade with the US, they pay the tariff. They can't simply take our market, the one they want to sell in, with them.

[ Parent ]
I definitely agree. (none / 1) (#252)
by losthalo on Tue Jan 27, 2004 at 06:55:41 PM EST

The problem is that we legislated away our ability to impose them with NAFTA and our membership in the WTO.

A fine kettle of fish it is that the politicians have sold us.

[ Parent ]
power to tax (none / 1) (#178)
by jimjamjoh on Sun Jan 25, 2004 at 03:00:24 PM EST

is founded upon the government's ability to penalize you if you do not abide. trying to tax people over which you hold no authority is a fool's errand, and equates roughly to "please, oh please, give me money." we pay our taxes because if we do not, we will be jailed. but we have no jurisdiction to jail an Indian national if he does not choose to pay income taxes to the US government, regardless of the nationality of his employer. plus, there's the whole idea of GDP...if the labor occurs in a nation, it is the right of that nation to claim (that is, to tax) that labor...

[ Parent ]
Then tax the employer... (none / 1) (#179)
by losthalo on Sun Jan 25, 2004 at 03:34:17 PM EST

...and leave out the middleperson.

And I would say that if the service is provided to an American, by an American company, the fact that the call center is extra-national is less important.

but this is exactly why I think 'income tax' is becoming more and more brain-damaged as a way to support the government. It's only still there because it relieves investors from paying on all of their 'income' (since Capital Gains Tax is much lower).

[ Parent ]
sure, but remember, (none / 1) (#180)
by jimjamjoh on Sun Jan 25, 2004 at 03:37:07 PM EST

we're talking supply-side economics here, and taxing the employer runs counter to the idea of supply-side ...you're making an argument for a more direct taxation model

[ Parent ]
Supply-side economics is broken. N/T (none / 1) (#251)
by losthalo on Tue Jan 27, 2004 at 06:53:25 PM EST



[ Parent ]
Yeah (none / 1) (#229)
by trhurler on Mon Jan 26, 2004 at 08:30:15 PM EST

That way, the whole company will just pick up and leave the US. You're an economic genius.

--
'God dammit, your posts make me hard.' --LilDebbie

[ Parent ]
Sooooo (none / 1) (#232)
by losthalo on Tue Jan 27, 2004 at 06:50:35 AM EST

What's your solution to ever-increasing unemployment and ever-decreasing real wages? The massively expanding amounts paid to executives are the real reasons why corporations are paying less and less to the hourly employees. How do we avoid an eventual welfare state if this trend continues?

The government doesn't have to stomach the large numbers of employees who are replaced by work-visa foreigners, but it grants those visas anyway. The government doesn't have to keep taxes on non-employment 'income' (capital gains tax) low, but it does. What's the solution?

[ Parent ]
You are seriously misinformed (none / 2) (#246)
by trhurler on Tue Jan 27, 2004 at 04:20:34 PM EST

Have you been using Dick Gephardt as a source of "news," or what?

First of all, capital gains taxes shouldn't be low - they should be abolished. The idea of taxing a person for activities that by their nature grow the economy, provide jobs, and increase the average standard of living is beyond evil. But, this has NOTHING to do with the issue at hand, so I have to assume you brought it up because you're jealous of people who have more money than you do. Class warfare is tacky.

Second, those work visas have worthwhile consequences, although their numbers should probaby be reviewed. Remember, people who have lived in the US and have seen what it is like here are less likely to hate us, and more likely to say a kind word about us to people who DO hate us. We're not exactly winning the PR battle so far, and we need every bit of help we can get.

Third, there is no basis in fact for this "executives are taking my pay" nonsense. Again, it sounds nice if you're a class warrior, but look at the numbers. Your average company that's paying large bonuses to executives(none of them make THAT much in base salary,) has tens of thousands of employees. Were you to take $3,000,000 in bonuses(not the very largest sum, but well above the average,) and divide it across the employees of such a company, each would be lucky to take home an extra $100 for the year. Even the worst offenders probably aren't taking more than maybe $500 per employee per year. For a full timer, that's about a quarter an hour. The real problem businesses are facing is that on the one hand, they do need hourly people, but on the other hand, they are less and less capable of both doing and being trusted with the business of the company, because more and more work is of the sensitive nature that used to be only handled by management types. They can't get rid of these people, but on the other hand, they can't justify higher pay on the basis of value to the company.

This is a transitional phase. We're moving towards something different. The challenge is to avoid panicking and doing things that will ultimately make things worse instead of better. People love to point to labor unions and say "the industrial revolution needed these, so why shouldn't we do things we think are necessary," but reality is that the standard of living and the standards in workplaces would have gone up anyway; what labor unions ultimately achieved was give gangsters yet another way into politics and to drive wages in the US so high that our industrial period has been foreshortened by decades. The electricians, pipefitters, and carpenters who make six figures(counting overtime, but not actually working all of it,) now are basically taking from their children's futures, as they are the principle cost driving much US business out of the country. Yes, right now, the competition has ridiculously cheap labor - but it won't stay that way. Increasing demand will raise the cost of labor there too - but not as high as the unions have raised it here. Fundamentally, if you want to know why you can hardly find a factory job today, you can point at the likes of the Teamsters. They are almost solely responsible.

--
'God dammit, your posts make me hard.' --LilDebbie

[ Parent ]
Ayuh. (none / 1) (#250)
by losthalo on Tue Jan 27, 2004 at 06:52:45 PM EST

The idea of taxing a person for activities that by their nature grow the economy, provide jobs, and increase the average standard of living is beyond evil.

Taxes are evil. Try another argument. (Taxation on the hard-earned livelihood of the average working-class person isn't less evil, by most definitions of evil - have fun with that one).

Class warfare is tacky.

(psssst!)Your unwillingness to argue real points is showing...

Remember, people who have lived in the US and have seen what it is like here are less likely to hate us, and more likely to say a kind word about us to people who DO hate us. We're not exactly winning the PR battle so far, and we need every bit of help we can get.

And we don't have any better methods of improving our image with the Third World? How about not overthrowing their governments and installing puppet dictators? How about not pushing them around as if we own the entire planet? Those might make for better first steps.

And as for moving toward something different, on that I can agree. The buying ability for hours worked has been going steadily downward while debt has been going steadily upward. I think we may in my lifetime see the end of world confidence in the US economy, because we're no longer producing anything anyone else wants, and we're losing our ability to pay for what everyone else makes. And the wealthy are taking a bigger piece of the pie as time goes on, and say they cannot afford higher wages...

[ Parent ]
Simple (none / 1) (#227)
by trhurler on Mon Jan 26, 2004 at 08:29:34 PM EST

The standard of living goes up in India, wages rise, prices go up, and all of a sudden, it isn't so profitable to keep sending business to India. If what you're suggesting is that the US can continue to be prosperous while other nations suffer, then you do not understand prosperity very well. While government programs to do so may fail, if we cannot economically build up other nations, we ourselves will not sustain our prosperity. That's a fact. How does it happen? Like this, of course.

--
'God dammit, your posts make me hard.' --LilDebbie

[ Parent ]
A different issue (none / 1) (#226)
by trhurler on Mon Jan 26, 2004 at 08:23:58 PM EST

What you're referring to is not supply side economics. It is the law of comparative advantage. It cannot be defeated. US workers will have to move into fields in which the US is competitive. The days of the US as a manufacturing powerhouse are mostly over, and that is not because of rich peoples' scheming. It is because even the middle class and poor in the US prefer to buy those foriegn goods - they're cheaper, better made, and generally better at whatever it is they do, and this is because conditions in those foriegn countries are better for doing that kind of production. It is at most a matter of decades before the remaining US car companies are either completely global in scope or else foriegn owned. Production will be moved out of the country in large part, with final assembly here, as the foriegners do it. That's life. The question is, will you adapt and move into areas in which you can make money, or will you whine and bitch about the rich and blame anyone but yourself while suffering your way through life?

--
'God dammit, your posts make me hard.' --LilDebbie

[ Parent ]
Yeah, they have a comparative advantage... (none / 1) (#241)
by Shajenko on Tue Jan 27, 2004 at 03:16:23 PM EST

Their comparative advantage is that they don't have to worry about such things as labor laws, unions, minimum wage, safety standards, child labor laws, worker death and disability, etc. Heck, in China, a large number of workers are slaves (political prisoners). A free person cannot compete with a slave on price.

[ Parent ]
Actually, (none / 1) (#243)
by trhurler on Tue Jan 27, 2004 at 04:06:39 PM EST

Most of our competition in our most vital industries is in countries that have or are rapidly adopting such laws. India, Japan, Korea, various European countries, etc. Yes, China makes a lot of goods, but the situation there cannot last; the fastest way to explode it is to boost the Chinese economy and spread communications technologies throughout.

The simple fact, though, is that from the standpoint of the possible, it does not matter WHY they have an advantage. What matters is that they DO have it, and we cannot directly counter it without doing more harm than good.

--
'God dammit, your posts make me hard.' --LilDebbie

[ Parent ]
Which helps the economy more? (2.60 / 5) (#165)
by losthalo on Sat Jan 24, 2004 at 11:08:17 PM EST

Consumers having more money to spend, or the wealthy having more money to invest in facilities, inventory, and research? You know the average consumer will spend the money, it will stimulate the economy and lead to someone's making a profit. Investment may do that - or it may not.

[ Parent ]
Well, no, not actually (none / 1) (#225)
by trhurler on Mon Jan 26, 2004 at 08:09:54 PM EST

Give average consumers money, and they'll spend it. But, that spending will NOT necessarily lead to added hiring or higher wages. It may just disappear into wasteful spending. On the other hand, investments by rich people require something to invest IN. They can't invest in "getting richer." They have to invest in some sort of productive activity, and that activity will require people to be employed. They may invest indirectly, via derivatives markets of some kind, but as the name suggests, they are derived - from productive activity. There is NO way that investment money can fail to help the economy unless it is put into bad ideas. As it happens, those who do the most investing(guess who they are,) have access to the best advice and the best experience in the investing field. So guess what?:)

--
'God dammit, your posts make me hard.' --LilDebbie

[ Parent ]
I love the distinction. (none / 1) (#253)
by losthalo on Tue Jan 27, 2004 at 07:02:05 PM EST

Wageslaves spend money on goods, and it's 'wasteful', rich people invest in improvements to their company (or in other companies), i.e. they spend money on goods, and it's 'productive activity'. Could you draw out that distinction for me a bit? I'm finding it fuzzy.

Me, I wonder how much offshore banking and the like increase when there are tax cuts for the wealthy, and how much 'economic recovery' can be traced to said tax cuts.

And finally, if we're running massive deficits, couldn't we get something better for them than handing more capital to corporations in a year when we've been bailing out and propping them up anyway?

[ Parent ]
unconvinced (none / 2) (#166)
by ir0b0t on Sun Jan 25, 2004 at 01:01:45 AM EST

That may be the case, but the policy results in high unemployment as manufacturing and labor are exported.  

I regret to inform you that this simpleton is unconvinced.  
"I find your lack of faith disturbing . . . ."
[ Parent ]

Heh (none / 1) (#224)
by trhurler on Mon Jan 26, 2004 at 08:06:33 PM EST

Go take the first semester of a program in economics. You'll learn very quickly about a thing called "comparative advantage." Put simply, some types of work are moving overseas because the conditions there are better for that work, and we cannot keep that work here by any means that won't cause more harm than the "problem" it is supposed to fix. The solution is to move into fields we're good at.

--
'God dammit, your posts make me hard.' --LilDebbie

[ Parent ]
Only Regan was following the advice of one of his (1.71 / 7) (#151)
by SnowBlind on Sat Jan 24, 2004 at 06:21:20 PM EST

age contemporaries. It shows how far left the country has moved when supply side economics were the mainstay of one of the best loved Democratic Presidents of our short history, John F. Kennedy.

Quotes from his Library economics page.

First, the classic one liner:

"A rising tide lifts all boats."

Remarks in Pueblo, Colorado, August 17, 1962, Public Papers of the Presidents: 1962, p. 626.

"It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough jobs or enough profits."

Remarks to the Economic Club of New York, December 14, 1962, Public Papers of the Presidents: 1962, p. 879.

"If the economy of today were operating close to capacity levels with little unemployment, or if a sudden change in our military requirements should cause a scramble for men and resources, then I would oppose tax reductions as irresponsible and inflationary; and I would not hesitate to recommend a tax increase if that were necessary."

Remarks to the Economic Club of New York, December 14, 1962, Public Papers of the Presidents: 1962, p. 879


Give all the evidence, with the recent NASA to Mars announcement, the sucessful "Pay of Bigs" invasion of Iraq and Afganistan instead of Cuba, if Dubbya is tring to finish someones legacy it is not his fathers, but JFK's.

Now all he has to do is travel to Bagdad and declare he is a jelly donut in Farsi.

There is but One Kernel, and root is His Prophet.
Tricle Down (2.00 / 8) (#158)
by bolson on Sat Jan 24, 2004 at 08:05:50 PM EST

The leaks have been plugged.
Making Democracy Safe for the World (change the voting system)
Honest economics -vs- more Bush lies (2.83 / 12) (#170)
by EphraimT on Sun Jan 25, 2004 at 05:32:20 AM EST

This, for me, and I suspect also for a lot of Americans, is really the question. I make no pretense at being an economist, or even being particularly well informed about the various economic theories currently in vogue. I also know little, or nothing, about building nuclear reactors, piloting jet aircraft, or making sushi. For all these things I, and many like me, rely on the talents and honest hard work of those who do know. Herein lies the rub.

When GWB was running for President the economy was doing cartwheels and so, after election, we had a 1.6 trillion dollar tax cut, because the economy was slowing. So, the economy sickens, 9/11 happens, the CEOs of major corporations start dropping in flames (along with their corporations) in one financial scandal or another, the first quarter of 2003 finds 8.5 million Americans out of work and GWB's answer to all of this is another 1.6 trillion in tax cuts. But before all of this tax cutting, the U.S. still started out with one of the lowest tax rates in the econimically developed world (27th out of 30 OECD countries http://www.ctj.org/images/oecd2.gif ).

It was important to GWB to reduce the role, and size, of government as a stimulus to the economy by getting government out of the way of developing the economy through streamlining permitting processes, etc. This is still apparently part of the plan if advice reportedly being given to Gov. Schwartzenager is any indication ( http://www.townhall.com/columnists/robertnovak/printrn20031023.shtml). Yet the size, and expense, of the federal workforce is increasing ( http://www.shns.com/shns/g_index2.cfm?action=detail&pk=FEDSIZE-01-22-04 ).

So, this is January 2004 and 2.3 million jobs have gone away since GBW took office. Well, to be fair, 1000 new jobs were created in December 2003 ( http://www.ocnus.net/cgi-bin/exec/view.cgi?archive=38&num=9673 ), and I'm certain that is good news to the 8.5 million Americans reportedly unemployed during that same month (http://www.bls.gov/news.release/empsit.nr0.htm ). Or is it, since now they'll be in competition with millions of formerly illegal immigrants GWB has generously suggested offering legal status and jobs to?

I'm a blue collar worker. I have a family to feed, clothe and get educated to the point where they stand a chance of having an easier life than I did. My $400 tax cut is going to the rising costs of fuel oil, gasoline and higher local taxes to make up for the money needed to make up the difference in fed money withdrawn from my local school district which is still required to pay for GBW's "No Child Left Behind". The economicly literate can argue until the cows come home, and, in the spirit of discourse making reasonable decision making possible, should. But if the man in charge of economic policy is either a liar, a cynical manipulator or a moron none of this discourse means diddley - until he is out of office, the damage is repaired and the trust is restored. I did learn something from the article and the subsequent comments, though. Thanks.

Ummm... The manipulator was Clinton, and.. (1.50 / 6) (#172)
by porkchop_d_clown on Sun Jan 25, 2004 at 07:56:22 AM EST

every schmuck who went around crying "the Dow will hit 40k!!!".

The economy and stock market were wildy overheated by 1999, and we were repeatedly warned that this was true. We chose to do nothing, because it was too pleasant to imagine that we had "balanced the budget" by taxing imaginary economic growth.

Cutting taxes is the correct response to an economic slow down; and the economy did recover in 2003.

Finally, I'd like to point out that despite all these claims of "job destruction" the U.S. unemployment rate is still a third less than it was under Carter.

--
"the internet is to the techno-capable disaffected what the United Nations is to marginal states: it offers the illusion of empowerment and c
[ Parent ]

Let me see if I understand this. (3.00 / 4) (#181)
by EphraimT on Sun Jan 25, 2004 at 03:56:52 PM EST

Jimmy Carter's worst year of unemployment figures (7.0%) was the year he lost to Reagan (who cruised to stratospheric unemployment heights of 9.5% two years running before settling back to 5.2% the year Bush I took over). Bush II's current unemployment rate is around 6.0% for 2003.

I admit the possibly that a miracle of economics that I don't fully understand is at play here, but how is a 1% difference of something ...still a third less ... of anything?

Bill Clinton took over from Bush I in 1992 with an unemployment rate of around 7.2%. Instead of cutting taxes he started cutting government spending in an effort to promote private capital. By 2000 the unemployment rate had hit 3.9% briefly (if I remember correctly). Maybe tax cuts are the right way to cure a sluggish economy.

Balancing the budget is indeed another of those economic conundrums that I just don't get. What I can verify (and you can too) is that in 2001 the Congressional Budget Office predicted a $5.6 trillion surplus through 2011. Last I looked, that prediction is now for a $1.4 trillion deficit. Somewhere, I'm sure, 9/11 is to blame for everything.

Like I said, I really don't understand economics, so I leave it up to people I hope are trustworthy. So it goes.

[ Parent ]
I remember Carter having numbers in (none / 1) (#188)
by porkchop_d_clown on Sun Jan 25, 2004 at 11:14:09 PM EST

the mid 7's, I certainly don't remember 9.5% under Reagan, nor 7+ under Bush I. Where did you get those figures?

--
"the internet is to the techno-capable disaffected what the United Nations is to marginal states: it offers the illusion of empowerment and c
[ Parent ]

Numbers (3.00 / 6) (#189)
by EphraimT on Sun Jan 25, 2004 at 11:51:54 PM EST

In these particular cases the information came from:
Ronald Reagan:
http://www.presidentreagan.info/unemployment.cfm

George H.W. Bush
http://www.osc.state.ct.us/reports/economic/2000cmprpt/charttext/chart09.htm

However, you can get everything you need from http://www.census.gov/statab/www/ and/or http://stats.bls.gov/eag/eag.us.htm.
Also, if you choose to listen to some people the current unemployment rate is really 9.7%:
http://www.fairandbalanced.org/docs/StoryID1693.htm

[ Parent ]
Okay. (none / 1) (#197)
by porkchop_d_clown on Mon Jan 26, 2004 at 08:22:33 AM EST

Wow. I didn't remember them being so high.

Thanks for the links!

As for the current figures - there may still be some manipulation going on; I read an article in US News & World report (no online link I'm afraid) and also heard on NPR that people are deliberately conflating two different ways of measuring unemployment - using one method to estimate jobs lost and another to estimate jobs gained with the result that jobs gained is vastly underestimated.

OTOH, there have also been claims that the unemployment surveys don't track the "long term unemployed" and "underemployed" (as per your last link) - but if that's true, I would expect those historic figures would also have to be revised upwards to match; I don't think the methods for collecting unemployment figures have changed much in decades.

--
"the internet is to the techno-capable disaffected what the United Nations is to marginal states: it offers the illusion of empowerment and c
[ Parent ]

unemployment nunbers (none / 0) (#284)
by Rademir on Sat Jan 31, 2004 at 05:06:39 PM EST

No reference handy, but i remember hearing from more than one source while Reagan was in office that they stopped counting people who were "no longer working" by not counting people who remained unemployed for some period of time.

I would guess that they are constantly tweaking how they get these numbers, and occasionally make bigger changes like this one.

Consciousness is our Oxygen Challenge


[ Parent ]
Let me make something abundantly clear..... (2.80 / 5) (#185)
by Agrippa on Sun Jan 25, 2004 at 05:57:32 PM EST

Only two presidents have resided over a net loss of jobs. ever. Herbert Hoover, and guess who else?  Lets talk about the words net loss. There are fewer people who have jobs now, than they did before george bush entered office. Unemployment rate is simply a good way  of looking at current state of affairs as it refers to the ration of the labor force as a whole and those people actively looking for work. During recessions, many workers simply choose to leave the labor force, thus actually lowering the unemployment rate. The critical element to look at over extended periods of time are total labor force, and total employment normalized for population growth.

The economy didn't recover in 2003. We has a gdp spike due to lower taxes that lead to an increase in consumer spending while increasing the multiplier.  If anything, we are only going to return to stable growth in mid 2004.  A tax cut is the appropriate thing to do in a recession, however, the necessary corallary is a reduction in government spending, which is, interestingly enough growing at rates that astound even the most bleeding heart, wealth transfering commie-pinko liberals.
We are all worms, but I do beleive I am a glow worm.
[ Parent ]

Response to an economic slow down (none / 1) (#209)
by thejeff on Mon Jan 26, 2004 at 01:15:45 PM EST

The trouble with cutting taxes in a slow down is that it also tends to lead to cutting of spending and services, right when people need them most. The "safety net" part of domestic spending is stressed from increased need when the economy is bad, slashing funding only makes things worse.

Furthermore, many of these programs are state or locally run using some federal money. When the federal money is cut, local taxes tend to rise to compensate. So some of the tax cuts just shift money around.

Probably the best short term response to an economic downturn, is to cut taxes and increase spending. This is what Bush has done, though I'd argue with his spending priorities. It's also what Reagan did. What's harder to do is change that when the economy turns around. Maybe even increase taxes so that you can pay back the money borrowed so you'll be in good shape for the next downturn. Clinton managed to do some of this. Brought the deficit down, even if he couldn't actually reduce the debt.

[ Parent ]

No. You misunderstand. (none / 1) (#233)
by porkchop_d_clown on Tue Jan 27, 2004 at 08:15:20 AM EST

The way you're supposed to compensate for a recession is by cutting taxes while maintaining or increasing spending.

In other words, run a deficit.

In the ideal world, you pay off the accumulated deby when the economy improves. Unfortunately, in the real world that never seems to happen.

--
"the internet is to the techno-capable disaffected what the United Nations is to marginal states: it offers the illusion of empowerment and c
[ Parent ]

quack economic medicine (none / 3) (#259)
by tgibbs on Wed Jan 28, 2004 at 12:49:09 PM EST

Cutting taxes is the correct response to an economic slow down; and the economy did recover in 2003.

The way you recognize a quack cure is that it doesn't matter what you're sick with; it's a cure for whatever ails you. Bush didn't propose cutting taxes for the wealthy--the tax cut was originally proposed during the Clinton administration when the economy was still going strong (the economy didn't start to tank until it began to be clear that Bush was likely to win) and was offered in the spirit of returning some of the Clinton surplus to the taxpayers. When the economy started to fail, Bush reformulated the same prescription as a "cure" for the downturn, even though virtually all economists argued that it would make little difference in the timing of the recovery, and that manipulation of interest rates would be more effective in minimizing the depth of the recession.



[ Parent ]

My ˘ (2.40 / 5) (#171)
by Gangrenous BoB on Sun Jan 25, 2004 at 05:57:47 AM EST

Though it might get back to 2˘ one day with favourable exchange rates or tax concessions.

Two points to consider.

  • Money can be invested overseas.

  • A tax break for labour increases labour effiency.

    "Please not be quoting this grammacally and spelling poor sentence." - Gangrenous BoB

  • Indeed. (1.83 / 6) (#173)
    by lonesmurf on Sun Jan 25, 2004 at 09:00:47 AM EST

    Article.


    Rami

    I am not a jolly man. Remove the mirth from my email to send.


    You are really taking that concept seriously? (none / 2) (#182)
    by megid on Sun Jan 25, 2004 at 04:41:10 PM EST

    Man... Maybe being an outsider helps. Who paid that guy's campaign into office, again? "Supply-side economics" sounds like a nice excuse, though...

    Tax cuts are spent where the profits are biggest. Not neccessarily within USia.

    --
    "think first, write second, speak third."

    taxation as a system of revenue generation (2.75 / 4) (#184)
    by Burning Straw Man on Sun Jan 25, 2004 at 05:23:49 PM EST

    The government requires funds to "promote the general welfare" of the citizens whom it serves. What ways to raise funds other than income tax are at the government's disposal?

    Let's see:

    1. Import taxes
    2. Export taxes
    3. Sales taxes
    4. Property taxes
    #1 charges people money for bringing goods into the United States. This is an expense which can most easily be passed along by the capitalist to the end consumer, and by using the cheapest labor possible abroad.

    #2 charges people money for exporting goods out of the United States. This is an expense which can be passed along by the capitalist to the workers through lower wages, or to the end consumer market abroad through higher prices.

    #3 charges people money for the products they buy. This is an expense which is completely paid by the end consumer, and thus can be ignored by the capitalist (aside from their own purchases).

    #4 charges people money for owning expensive things. It is a bit harder, but the capitalist can probably push much of this expense to both end consumers and workers, through higher prices and lower wages.

    I'm sorry, but in the end, the people with money will work the system such that they maintain their position.

    Imagine a new tax, "Wealth Accumulation Tax" (WAT), which instead of taxing people on the money they earn, taxes people on the money they accumulate. Basically, you would pay a tax according to your net worth (property, holdings whether domestic or international, cash, stock, etc, less debt). People of lower net worth (under $100K) might be exempt entirely from this tax, and it would of course be a progressive tax. Of course, this would result in wealthy people attempting to leave the country with all their wealth, however as long as they were U.S. Citizens they would still be beholden to the WAT.

    Note that I don't support such a thing (WAT) as it's not exactly friendly or "moral", as a libertarial might put it, and of course it would have horrible side effects which I probably haven't even considered, such as foreign investors having even more power in the United States since they would be able to accumulate wealth and then buy US companies which could not. But there are all kinds of non-income taxation systems you could devise. Any other ideas from the K5 menagerie?
    --
    your straw man is on fire...

    a quick thought (none / 2) (#192)
    by retromango on Mon Jan 26, 2004 at 02:22:49 AM EST

    How about taxing pollution?

    [ Parent ]
    Counter-thought (none / 1) (#207)
    by Valdrax on Mon Jan 26, 2004 at 11:56:52 AM EST

    How about taxing pollution?

    <sarcasm>
    Why not?  After all, taxes have done a lot to stop smoking.
    </sarcasm>

    Well, at least it wouldn't be a regressive tax.  Wait, never mind -- the cost of pollution would simply be pushed onto the customer.  Legalizing and profitting from polution is not a safe stance for the government to take.

    [ Parent ]

    common mistake (3.00 / 6) (#193)
    by phriedom on Mon Jan 26, 2004 at 03:40:25 AM EST

    RE: items 1 and 2: It is a common mistake to think that cost (of production) and selling price are related. The price is set by supply and demand, not by the price of production. If your costs go up and you raise your prices, you can expect your customers to buy less or switch to subsitutes (assuming you were charging what the market will bear.) Same goes for paying your workers. If your profits are forced down and you drop everyone's salaries by 10% in response, you can expect in most cases to see people leave, unless they have nowhere to go and so the labor market bears out this lowered price. Labor markets are a lot more complicated than markets for goods, so there are exceptions when you consider unions, etc. My point is that raising taxes on businesses doesn't raise their prices to customers, nor would tax relief lower prices.
    I don't ask for much, I just want a lot of it.
    [ Parent ]
    Indeed (none / 1) (#240)
    by Shajenko on Tue Jan 27, 2004 at 02:42:43 PM EST

    Similarly, it isn't hard for an employer to turn his workers' income tax cut into his wage reduction.

    [ Parent ]
    More tax does equal higher price... (none / 1) (#262)
    by malfunct on Wed Jan 28, 2004 at 01:26:19 PM EST

    Considering that if you rais the tax on the supplier, the supply will go down (don't ask me the specifics because I can't think of the ecnomic principles behind the statement right now) which will move the intersection of supply and demand to point where price is higher in the normal case. The tax will also increase the inefficiency of the market for related reasons. Anyways, economically taxes are not good as they leave out a group of people that value the goods at a price less than the market price.

    That said taxes are a complete necessity in a civilized society (unless you have a society where people were perfectly charitable and also managed to be able to take care of themselves in all ways) and so the key is to minimize the tax and maximize the effectiveness of the money spent. Our wonderful government doesn't seem to have made much traction on either of those tasks.

    [ Parent ]

    unidentified priciples (none / 1) (#263)
    by phriedom on Wed Jan 28, 2004 at 08:14:17 PM EST

    "Considering that if you rais the tax on the supplier, the supply will go down (don't ask me the specifics because I can't think of the ecnomic principles behind the statement right now) which will move the intersection of supply and demand to point where price is higher in the normal case."

    Well, I can't argue agaist that logic. Nope, I'm stuck with just nay-saying:

    No it won't. Income taxes on the supplier doesn't reduce the supply.


    I don't ask for much, I just want a lot of it.
    [ Parent ]
    Better explanation... (none / 0) (#286)
    by malfunct on Mon Feb 02, 2004 at 01:30:27 PM EST

    Ok took some time to find sources for my reply: http://www.econmodel.com/classic/salestax.htm Basically what that page says is that if you add a tax you reduce the amount supplied at a given price (because you basically raise all prices by the tax amount which slides the curve to the left). The page also shows that regardless of how the tax is applied (to the consumers or the suppliers) the tax is shared 50/50 by consumer and supplier. There you go, proof that adding a tax raises the price burden on the consumer.

    [ Parent ]
    Capital gains tax (none / 2) (#228)
    by Pseudonym on Mon Jan 26, 2004 at 08:29:58 PM EST

    Imagine a new tax, "Wealth Accumulation Tax" (WAT), [...]

    It's called "capital gains tax", you already have it in the US, and capitalists find ways to avoid it.


    sub f{($f)=@_;print"$f(q{$f});";}f(q{sub f{($f)=@_;print"$f(q{$f});";}f});
    [ Parent ]
    taxation as a system of revenue generation (none / 2) (#238)
    by F34nor on Tue Jan 27, 2004 at 12:13:49 PM EST

    Look to the Tobin Tax or Transaction Surcharge Tax. Invented as a way of slowing short term currency speculation it is a tax that is both equitable and egalitarian.

    [ Parent ]
    interesting! (none / 1) (#239)
    by Burning Straw Man on Tue Jan 27, 2004 at 12:18:14 PM EST

    Anobody else interested in reading about the Tobin Tax, I saved you a Google search: Tobin Tax Initiative.
    --
    your straw man is on fire...
    [ Parent ]
    Debt is a GOOD THING! (1.80 / 10) (#186)
    by ipex on Sun Jan 25, 2004 at 07:32:14 PM EST

    Ok all this debt bashing has got me really pissed off.

    That debt is the most stabalizing thing this econonmy has. Where do you think people invest their retirements savings? The debt is only a debt because people are BUYING it. And the people who are buying it are securing future streams of income. Who are the owners of the US debt? Most bashers indicate that foreign countries own it all and that we will be sending all our money overseas. That is complete bullshit. The owners of a vast majority of the debt are US pension managers. And all the money, all the future streams of incomes will be going towards paying your parents pensions when they retire.

    Lets go a little deeper since most you can say "ya well still a good portion of the debt is owned by foreign"

    Well I can't agrue with the fact but we must realize why that is the case. Foreigners own US debt because we have bought more foreign goods than US goods. There is nothing wrong with this. Infact it is a very good thing. This tells me that the price for foreign goods is LOW relative to US goods. Right now we are taking advantage of ineffecient exchange rates.

    Even further for all those who know anything about finance. Ever heard of the risk free asset? Well incase you haven't it prices basically every assets out there. With a very large debt the price fluctuations of the debt and thus the return on the risk free assets changes. This interns leads to greater price volatility. Which was exactly what we saw when the US was running a surplus..... won't here this stuff from anyone on TV.... of course none of you will ever read any real economic papers.

    anyway the only thing which matters is Deficit/GDP. As long and that value stays within certain bounds stable growth will follow. Ya there are a lot of other factors... but I aint going into that stuff. I sure hope the guy who wrote this wasn't one of my students.

    A closer look at money (2.87 / 8) (#191)
    by retromango on Mon Jan 26, 2004 at 02:18:56 AM EST

    Foreigners own US debt because we have bought more foreign goods than US goods.

    First, let me make it clear I am not an economist. However, I thought the trade deficit and who owns Treasury bonds were seperate issues. I am sure they are related in some arcane way, but as far as I know, the banks use Treasury notes as secure backing so they can loan more than they have. It seems the main reason we invest so much time and money into the military is to reassure investors that the US government is a sure bet i.e., we can take what

    the only thing which matters is Deficit/GDP.As long and that value stays within certain bounds stable growth will follow.

    It's clear you're speaking only about the economy. However, I wish more people would take a broader view of the situation. Is GDP growth always good? Producing guns, treating wounded citizens and clogging courts with lawsuits all boost the GDP, but can that truly be charecterized as growth? Profit does not equal growth. A simple cure for cancer would set the GDP back by billions of dollars. Bad for growth?

    I sure hope the guy who wrote this wasn't one of my students.

    You're a teacher? I'm surprised, because you're response seems rather simplistic and uneducated. I wish there were more teachers out there that offered insight and breadth of knowledge. You seem to be simply parrroting the dogma. Take a closer look at the history of financial instruments. Understand the origins of the Federal Reserve. Debt is NOT good unless you're the one profiting off other people's indentured servitude. Do your students a favor and teach them about Buckminster Fuller. Critical Path is an interesting read, particularly the chapter "Legally Piggily."

    Ok all this debt bashing has got me really pissed off.

    You make the bankers proud ; )

    [ Parent ]

    Comments and Thoughts (none / 1) (#217)
    by dcm266 on Mon Jan 26, 2004 at 03:10:55 PM EST

    Hello,

    "It's clear you're speaking only about the economy. However, I wish more people would take a broader view of the situation. Is GDP growth always good? Producing guns, treating wounded citizens and clogging courts with lawsuits all boost the GDP, but can that truly be charecterized as growth? Profit does not equal growth. A simple cure for cancer would set the GDP back by billions of dollars. Bad for growth?"

    I'm glad to see that this has been brought up, as it is an important consideration. For this sort of analysis, I'm fond of using two variables. The first is GDP growth. If you want, you can look at real GDP per capita over time to determine how the economy is growing. At some point, it is essential to take into account inflation and population growth when doing any sort of comparative analysis. The CPI or Consumer Price Index tends to overstate inflation by about 1%, and I doubt this will be fixed any time soon, due to the political consequences. Still, if you want a realistic estimate, I think subtracting 1% from the rate of inflation each year makes sense. If people like, I'll post an explanation about this.

    Another thing to consider is that many transactions in things that are seen as harmful to society are not factored into GDP. For example, anything on the black market is not factored in, as people selling things illegally are obviously not going to file tax returns and keep records of transactions for the government to see.

    I guess I've rambled a bit, but I thought those two points were interesting, though that may be because I really like economics. If you look at real GDP, then your example of a cheap cure for cancer can be fixed to more accurately reflect conditions and change. GDP may be reduced, but when the cost of cancer cures is tracked year to year, this will be reduced as well, lowering the inflation rate. Also, GDP most likely would not be reduced in the end, as money that people used on cancer treatments are spent elsewhere. The part of GDP dealing with cancer treatment would drop as you have correctly said, but the additional money would be used elsewhere. The effect would be that GDP would not change much at all, and inflation would go down, providing a comparative improvement in standards of living. Price drops tend to improve living conditions, as the same good can be bought for less, and so more income is free to purchase other goods. Cheers.

    -dcm266

    [ Parent ]

    Trade deficits and treasury bonds (none / 2) (#221)
    by John Asscroft on Mon Jan 26, 2004 at 04:34:36 PM EST

    If the United States is running a persistant trade deficit, that means that either a) foreign countries are building up huge reserves of unused American currency, or b) they are sending the money back to America as investment money. b) has been the default for the past twenty years. We've basically been holding a fire sale of U.S. assets to foreign countries, to the point where the third-largest auto company in America is owned by Germans, the biggest oil company in America is owned by the Dutch, and the fourth-largest auto company in America is owned by Japanese, and the entire U.S. ship-building industry (with the exception of the naval shipyards) has been hauled off to South Korea and Japan.

    The basic problem is that we're running out of assets to sell overseas. So overseas buyers are moving more and more to buying U.S. government bonds as well as Fannie Mae/Freddie Mac securities (which are not government-insured but if Mae/Mac bust, you can bet there will be a government bailout because the alternative, a massive depression to make the Great Depression look like a piker, is too horrible to consider).

    The problem is that this places the U.S. economy at the mercy of foreigners. If China dumped all their U.S. government securities at fire sale prices, thus preventing the U.S. government from selling new securities (since the old ones would be saturating the market), the only way we could prevent a default by the U.S. Government would be to have the Federal Reserve Board buy up the new government bonds -- i.e., print money, with resulting inflation. The majority of U.S. securities do not need to be owned by foreigners to give foreigners the power to destroy the American economy... just a big enough chunk to saturate the market is all it takes.

    So all we risk, by running such huge government deficits every year, is turning the U.S. into yet another 3rd world nation whose currency is so hyper-inflated as to be worthless.
    We must destroy freedom to save it from the terrorists who want to destroy freedom. Else the terrorists have won.
    [ Parent ]

    True, but (none / 1) (#271)
    by DrSbaitso on Fri Jan 30, 2004 at 03:31:30 AM EST

    I think what the first replyer (to whom you replied) was just saying that debt caused by budget deficits is different than cash outflow caused by trade deficits, which is absolutely right. While the government keeps rolling over the debt and selling more t-bills, tax dollars have to pay the interest (to foreign investors, hedge funds, US investors, or whoever owns the treasury bills themselves). As of now, I think something like 15% of the annual US budget pays the INTEREST on the debt. The total value of the debt is something like 50% of our total GDP.

    Basically, if we keep running (budget, not trade) deficits, the interest on the debt will grow to a point that it will necessitate huge spending cuts and/or tax increases. Because of the miracle of compound interest, the debt will NEVER go away until we start to run large surpluses to start to pay down the principle. Some debt is okay; mountainous, crushing debt is bad.

    Aeroflot Airlines: You Have Made the Right Choice!
    ---Advertising slogan for the only airline in the USSR
    [ Parent ]

    That's good. (none / 2) (#214)
    by nutate on Mon Jan 26, 2004 at 03:00:24 PM EST

    If you download the excel files from the U.S. budget office, you'd see that yes the ratio of the deficit to the GDP has been pretty steady for the past 5 or so years. Problem is, those numbers don't take into account the fact that money is being taken from the social security reserves to pay for the current budget.

    With that included things have definitely gotten much worse... even if you are fortunate enough to never depend on SS (and maybe just complain about people using that number for identification) you should still get angry that the government is spending money that they said they would return to you bailing out the airlines and homeland security. Or maybe you're like Dennis Miller and 7-11 changed you...

    [ Parent ]

    Foreign ownership of currency versus debt (none / 3) (#215)
    by marcmengel on Mon Jan 26, 2004 at 03:01:36 PM EST

    Actually, you're confusing trade deficit and budget deficit here.

    We get a trade deficit when we buy more stuff from overseas than we sell. When that happens, foreigners own lots of our currency.

    Foreigners only own part of our budget deficit when they do things like buying Treasury bonds -- which is how we "sell" our debt to people. When you "buy" a Treasury note, you're actually loaning the U.S. Government money.

    If no-one is willing to buy Treasury bonds anymore because they think they won't get paid, then the government can't borrow money anymore.

    [ Parent ]

    Debt is a good thing!?! (none / 0) (#294)
    by Markusd on Thu Mar 04, 2004 at 05:30:20 PM EST

    I'm guessing this guy never passed econ 101.

    First of all, he's quite wrong. Foreigners do own the largest percentage of the debt, 37% to be precise (Source: The National Post, IN1, March 4, 2004). Retirement savings only owns a meager 7%.

    The reason  foreigners, mainly Japan, China and other Asian countries, are keeping the debt low is to keep down interest rates. When the supply of bonds increases, the interest rate increases. When the demand for bonds increases, the interest rate decreases. Thus foreigners are increasing demand proportional to US govn't spending (the increase in supply) and keeping the interest rate down.

    Now why do these Asian countries wish to keep the interest rate down. Well, when the interest rate rises, the dollar appreciates. When the dollar appreciates, foreign goods become more expensive and thus we spend less on importing goods. Since economic growth in Asian countries depend on U.S. imported, they'd like to keep the interest rates low.

    Now where the heck does this guy come up with debt is good!?! The U.S. having such great debt means investors have their money in a market that doesn't encourage very high growth (considering the U.S. uses this money to blow up other countries... I don't see the economic return in that). If the U.S. didn't have debt, investors could have their money in industries that do cause economics growth (finance, manufacturing, etc.).

    I'm not going to even get into the rest of his "arguments" (for lack of a better word).

    Markus
    B.A. Hons. Econ.

    [ Parent ]

    Don't forget the Laffer Curve... (3.00 / 4) (#216)
    by marcmengel on Mon Jan 26, 2004 at 03:09:27 PM EST

    The Laffer Curve was also one of the great arguments of the Reagan-era supply-siders.

    The claim is simple -- that at 100% tax rate, you make no money in taxing, 'cause people won't bother working if they get nothing, and at 0% tax rate you make no money in taxing, for obvious reasons, and at various rates we get various returns, so somewhere in the middle is a maximum.

    The problem was, no-one bothered to figure out where the maximum was, they just assumed it was nearer 10% than 50%...

    Not true. (none / 2) (#258)
    by tkatchev on Wed Jan 28, 2004 at 12:31:25 PM EST

    At 100% you will get a black-market shadow government as people try to evade taxes; at 0% you get the same thing as people turn to alternative organisations to get services the government normally provides.

    (Both schemes were actually tried in practice in post-communist Russia. It's true.)


       -- Signed, Lev Andropoff, cosmonaut.
    [ Parent ]

    Certainly... (none / 2) (#261)
    by marcmengel on Wed Jan 28, 2004 at 01:16:39 PM EST

    ... but these are side-effects. Important ones to be sure.

    [ Parent ]
    A black-market shadow government (none / 0) (#290)
    by daviddennis on Tue Feb 03, 2004 at 05:47:53 PM EST

    So what do we do about the Los Angeles City Government, which offers schools that don't educate and police that don't protect or serve?

    That is, if we have government services that are so bad the rich hire private patrols and send their kids to private schools, as a virtual requirement, what is the point of paying taxes?

    I just bought an entry-level house in a nice area of LA, and I pay $5,250 a year in property taxes.  The roads around my house are cracked and potholed, and I'd be embarassed to send a kid to my local schools.

    I'm not even mentioning the 9.3% income tax or the 8.25% sales tax.  And if it weren't for Proposition 13, the property tax would be even higher.

    I'm not likely to support any expansion of government, however worthy it may sound on paper, because our local government has done such a disasterous job at such a high price.

    D
    amazing.com has amazing things.
    [ Parent ]

    Oh Canada? (2.50 / 4) (#219)
    by tap dancing lenin puppet on Mon Jan 26, 2004 at 04:13:02 PM EST

    It's great that all of this discussion of American economics is going on... but does anyone know where a fairly uninformed Canadian might go to read similiar discourse on his own country's fiscal policies?

    Any help would be appreciated,

    Will

    Saving = Investing (sometimes) (none / 2) (#230)
    by salimma on Tue Jan 27, 2004 at 03:53:26 AM EST

    In fact, since these tax cuts happen in bad economic times, investors might decide that their money is safer if they save it rather than invest it. Going back to the restaurant example, if the restaurant owner decides to just stuff that tax refund into a savings account, or just keep it in her mattress, then no job growth occurs.
    Money put in a savings account would probably be invested by the bank, in which case it works out the same as if the restaurant owner sinks money into his business.

    The worry is that this 'saving' could take place abroad. Specifically, capital flight (ask Russian oligarchs and Indonesian tycoons on this point. Ask *very* nicely). If you put your money in mutual funds that invest abroad, after all, while the money is not invested here, you should get your money back with profit so it is not really harmful.

    - Michel
    Orthodoxy means not thinking--not needing to think. Orthodoxy is unconsciousness.

    Eric Blair

    tax breaks equals debts equals minus investment (none / 3) (#231)
    by Highlander on Tue Jan 27, 2004 at 05:32:58 AM EST

    If tax breaks are paid for by debts, the debts attract money that would otherwise be invested. So supply side economics raises the interest rates and really makes only sense to Bushs rich friends and people putting money into retirement funds.

    Who profits from tax breaks should really be determined by a smart analysis of economic problems but is usually is decided by who your voters and donors are.

    Moderation in moderation is a good thing.

    Po people spend mo money... (3.00 / 4) (#247)
    by araym on Tue Jan 27, 2004 at 06:04:10 PM EST

    I think the idea of tax cuts stimulating the economy is not unreasonable, give people more money back and they will spend more, etc. However, what I think is incorrect is the assumption that wealthy people will spend the money better than poor people.

    To prove my point, imagine our good friend GW Bush gives the rich a huge tax cut (I know this is hard to imagine but hey it could happen!), now say we've got 300,000 rich people saving an extra $40,000 a year to the tune of $120 billion, now it's a decent chance they might spend that money or they may just throw it on the pile, or maybe even buy some treasury notes to help finance the debt the tax cuts are incurring, either way it's not really a big deal for them, they already have all their expenses paid for. Now imagine instead you give 50,000,000 people each $240, how much percent of that money will be pumped immediately into the economy, I'd estimate almost 100%, some low-to-middle class person is gonna get that check and spend it right away, this would stimulate the economy more I'd say.

    Of course this would be assuming that politicians actually cared about the economics of it and not the people who send in the maximum allowable contribution every year...

    -=-
    SSM

    You're a Keynesian. (none / 2) (#257)
    by waxmop on Wed Jan 28, 2004 at 09:27:58 AM EST

    Or at least what you're describing sounds similar to what John Maynard Keynes believed in. He figured that the poor have a higher marginal propensity to consume than the rich do, meaning that if you give a poor guy a dollar, he'll go buy a bottle of ripple, and increase aggregate demand, but that same dollar in the hands of a rich man would more likely end in a savings account.
    --
    We are a monoculture of horsecock. Liar
    [ Parent ]
    It's true, but... (none / 1) (#275)
    by Elendale on Fri Jan 30, 2004 at 03:28:09 PM EST

    Basically, this sort of tax cut works in the way it works because "the poor" are idiots (although a bigger problem is they don't have a system set up to make money in the same way the rich do) and spend money they should be saving. Really, tax cuts based on this sort of mentality isn't "How do we give cash back to the poor?" but "How do we give cash to the rich and make it popular with the masses?"
    ---

    When free speech is outlawed, only criminals will complain.


    [ Parent ]
    Keynes was a moron (none / 1) (#278)
    by dh003i on Fri Jan 30, 2004 at 08:14:18 PM EST

    as is anyone who can STILL follow his anti-economics. Keynesian economics could not predict and cannot explain the phenomena of the inflationary recession (70s). In fact, according to Keynesian economics, such is impossible. In other words, Keynesian economics is pure BS.

    Social Security is a pyramid scam.
    [ Parent ]

    What a Fucktard Position... (none / 2) (#268)
    by Guncrazy on Thu Jan 29, 2004 at 05:22:07 PM EST

    Goddamn it. It just fucking pisses me off that people demand compulsory education, and settle for a system that produces minds so feeble they are oblivious to fallacious bullshit like this.

    "Now imagine instead you give 50,000,000 people each $240, how much percent of that money will be pumped immediately into the economy,

    Obvious Question: Where the fuck did that $240 (times 50,000,000) come from? Why, it had to come from taxpayers--the people who provide goods and services. So tell me, how does this make any sense at all?

    If you owned a grocery store, how would it help you, or the economy, if you were forced by the government to give me $100 cash, even if I turned around and spent it all in your store? You might as well just look away while I push a shopping cart full of your finest meats and cheeses past the cashier without paying. But in reality the situation is even worse, because no transaction is 100% efficient, and government services much less so.

    Let's say I own a liquor store, and the government says, "We need you to pay $1,000 in taxes so we can give poor people money to stimulate the economy." So I pay my taxes to the agent in charge of collection, and because he needs to be paid, he takes a cut. Then the agent in charge of accounting will take a cut, because he, too, needs to be paid. The agent in charge of disbursement will take his cut, and send the money on to the distribution center where, after taking her cut, the bitch at the window takes her pay before finally handing a $240 pittance to a reeking bum.

    Assuming that the bum decides not to celebrate this new government handout with a baker's dozen blowjobs from a toothless whore, he's still got less than a quarter of what I paid to spend in my store. And what, exactly, did the $1,000 I paid produce? Nothing, unless you want to count a mountain of government paperwork. This is clearly a drag, not a stimulus, on the economy.

    Race is irrelevant 99.999% of the time. And the 0.001% of the time it is relevant, someone is looking for a donated organ.
    [ Parent ]

    Excuse me, maybe you should read more carefully... (none / 1) (#269)
    by araym on Thu Jan 29, 2004 at 05:54:53 PM EST

    Obvious Question: Where the fuck did that $240 (times 50,000,000) come from? Why, it had to come from taxpayers--the people who provide goods and services. So tell me, how does this make any sense at all?

    See, those 50,000,000 don't have to pay the $240 they normally would in taxes, it's called a tax cut. Bush knows all about them but he'd rather let low to mid income people pay the $240 and give it to the rich instead.

    If you owned a grocery store, how would it help you, or the economy, if you were forced by the government to give me $100 cash, even if I turned around and spent it all in your store? You might as well just look away while I push a shopping cart full of your finest meats and cheeses past the cashier without paying. But in reality the situation is even worse, because no transaction is 100% efficient, and government services much less so.

    Actually a tax cut is 100% efficient because the government never recieves that money in the first place.

    I get the impression you misunderstood my main point...

    -=-
    SSM

    [ Parent ]
    Bush's Tax Cuts Weren't Just for the Rich (none / 2) (#270)
    by Guncrazy on Thu Jan 29, 2004 at 07:23:55 PM EST

    I may not have understood what you meant, but I certainly understood what you wrote. There is a big difference between "giving" people money, ""giving"" them tax cuts (letting them keep what rightfully belongs to them).

    Still, how are you going to give low-income people tax cuts, when they don't pay taxes? In fact, many families with low and mid incomes actually already receive more money back from the government than they pay, in the form of Earned Income Tax Credits and (possibly) Child Tax Credits.

    In case you didn't know, the bottom 50% of American wage earners pay less than 5% of all taxes. That is a disproportionately light tax burden, and Bush still lowered taxes for their income brackets--not just for the rich.

    Race is irrelevant 99.999% of the time. And the 0.001% of the time it is relevant, someone is looking for a donated organ.
    [ Parent ]

    Let's make a deal :) (none / 0) (#289)
    by Luyseyal on Tue Feb 03, 2004 at 11:23:23 AM EST

    Ignoring the bullshit in your arguments (e.g., the poor pay property (usually indirectly) and sales taxes), let's make a deal:

    In exchange for a universal, single-payer health care system, we dump the transgressive, expensive income tax system in favor of a national sales tax on non-essentials (not food, cheap clothes, etc.).

    Deal? :)
    -l

    [ Parent ]

    Counteroffer (none / 0) (#291)
    by Guncrazy on Wed Feb 04, 2004 at 07:22:56 PM EST

    What "bullshit"? Obviously, yes, the poor are going to pay property taxes (indirectly, most likely as part of their rent, since most poor people don't own real estate) and sales taxes (just like everyone else).

    However, it should be clear that these are not the taxes we're discussing--we're talking about income taxes. Bush has little to no control over property and sales taxes, so how could he issue refunds on these?

    The idea of abolishing income taxes is appealing, though, and I wouldn't mind at all replacing them with national sales taxes. Just keep government's hand the fuck off the private health care system.

    Race is irrelevant 99.999% of the time. And the 0.001% of the time it is relevant, someone is looking for a donated organ.
    [ Parent ]

    Tax Cuts are't the only option (3.00 / 6) (#254)
    by Gangrenous BoB on Tue Jan 27, 2004 at 08:26:16 PM EST

    Try investing in infrastructure. Jobs are created for a period of time. Debt is taken on by the government which is funded by those with money (Rich, mutal funds, pension plans, etc,...) and benefits those who have to pay it off. Foreign investment is increased due to decrease in the level of domestic investment funds which will help the dollar increase in value.

    Finally the big one. If the right infrastructure is invested in then you should see an increase in labour effiency over the long term helping workers compete against workers overseas creating jobs over the long term. This will increase long term tax revenue. Of course if the wrong infrastructure is investing in (like Japan did) then everybody gets screwed.

    The whole idea is to invest in things that will actually bring about an increase in economic effiency. Things like safer roads or a cleaner environment which reduce insurance and health costs. Generally you don't want to have the government aim for big projects as they generally stuff them up or costs blow out. Ofcourse filling in pot holes doesn't sell as well politically as a super-dupa highway from point a to point b.

    It's a Win Win Win situation if done correctly.

    It isn't a good idea to tax anyone for this in a recession as you either tax the rich who'll dodge it somehow (moving assets off shore is one), increase labour costs or push people out of the workforce. None of these really benefits anyone especially the government in power.

    "Please not be quoting this grammacally and spelling poor sentence." - Gangrenous BoB

    Yes! A tax cut! (none / 3) (#256)
    by blackwizard on Tue Jan 27, 2004 at 10:37:39 PM EST

    Now we can afford to move all our programmers overseas!!

    LOL! (2.00 / 6) (#260)
    by Rahyl on Wed Jan 28, 2004 at 12:50:13 PM EST

    Oh boy, where to begin...

    Tax cuts for the "wealthy" ?!?!  Do just a little research into who pays taxes and you'll find that it's impossible to cut taxes for anyone BUT the "wealthy".  To put it simply, those below the 50% income line don't have a tax liability.

    And what's this savings account thing?  Banks don't just put cash in vaults when you deposit it, they lend it out.  That money the restaurant owner puts in a bank *does* create jobs, by being lent out to others to buy homes, cars, go to school, etc.

    Democrats just *love* to spout off this "you only have two choices" nonsense to.  There's another choice, albeit one that politicians on both sides of the fence don't like to talk about much:  CUT SPENDING!

    This does not mean "cut the increase in spending from 9% to 8.5%", it means spend fewer absolute dollars.  Never ever trust statistics coming from politicians who are trying to convince you that you should surrender more of your money to them.  To them, changing the increase in education spending from 10% to 8% will be advertised by their opponents as "slashing the education budget by 20%!"

    You're being lied to and you need to kick these people to the curb.  This goes for Republicans to.  Stop trying to save face by inventing excuses for this kind of behavior.

    Payroll tax (none / 2) (#264)
    by pr0t0plasm on Thu Jan 29, 2004 at 05:17:07 AM EST

    is paid by everybody up to an absolute limit, and the guy watching the gas pumps as I filled up my tank this morning will feel the loss much more than the guy at the next pump feeding his beamer. And, since either the US will default on its debt, or someone will take your advice and eviscerate social security (or both), none of the 3 of us is likely to see any returns on having paid it.

    - - - - - Patent applied for and deliver us from evil.
    [ Parent ]

    how to draw the 50% income line (none / 0) (#277)
    by Burning Straw Man on Fri Jan 30, 2004 at 06:25:31 PM EST

    those below the 50% income line don't have a tax liability

    Are you referring to the "poorest" 95% of the people which have 50% of the total money? Or the "poorest" 50% of the people which have 10% of the total money? These numbers are pulled out of thin air, but similar figures are the real figures.
    --
    your straw man is on fire...
    [ Parent ]

    Why cut taxes on the business sector (none / 3) (#265)
    by A55M0NKEY on Thu Jan 29, 2004 at 04:06:28 PM EST

    Cutting taxes boosts the economy. Duh. That's a truism.

    But why cut taxes on the business sector when you could instead cut taxes for individuals?

    Individuals with a big tax check will buy more stuff, or invest in stocks as *they* choose. Either way the economy gets a boost. More money in the hands of individuals increases demand which eventually raises prices, raised prices mean it's possible for the diner to afford that bigger kitchen and staff it. Those who choose to invest rather than consume are a potential source of capital for that diner's expansion.

    The very wealthy don't consume nearly as much as their money makes them. They will almost always choose to invest any extra money they have because of a tax cut because they don't need it right now. A business will expand when it is profitable enough to do so. Giving them a tax cut is saying that although your business is not profitable enough to expand based on it's current tax load, we are willing to decrease that tax load to make it more profitable. It benefits those with their foot already in the door.

    Cutting taxes for individuals says: Here's some extra cash. Spend it however you want. Maybe local businesses will become more profitable because of your spending, you decide by voting with your dollars. If you would like to start a business, then this extra cash will make it easier for you to get your foot in the door, or you can buy stocks and provide capital to businesses that you think have the potential to be profitable to make the best use of your money and generate the best returns.

    I'd suggest (2.00 / 4) (#266)
    by dh003i on Thu Jan 29, 2004 at 04:49:48 PM EST

    that the author of this story actually read up. The budget would have remained balanced, given the tax cuts, had not spending dramatically increased. And the budget was *never* balanced during the Clinton era. There was only the illusion that it was balanced due to excess social security revenues. And that was only the *annual* budget which was balanced. If I'm in 50,000 dollars debt, and this one year, I don't spend more money than I make, my "annual budget" is balanced. However, my debt has not been eliminated; I'm still in debt.

    So, what should be done? The ultimate solution is simply to eliminate the State all-together. However, short of that, we can start out by eliminating the State's ability to control the monetary supply. Eliminate the government printing press' and ability to inflate. Go back to free market standards of money. Various banks would issue their own bank-notes, and the free market would mandate gold and/or silver as the required commodities (bank notes would then be in defined masses of gold or silver). Banks that issued fraudulent notes (for more gold than they had) would quickly go bankrupt, as other banks called on them to redeem. They would also face criminal charges. Eliminate the FDIC. Get the government completely out of banking and money.

    This would eliminate the government's ability to inflate the money supply, and would effectively prevent inflation (the supply of gold and silver can inflate, but they can't be printed out, and inflations are normally extremely gradual...also, currently, just as much gold is being turned into electronics or jewelery as is being mined). I'd suggest that the author of this article get his facts straight. INFLATION means that the supply of money is increasing. That, in turn, causes your money to lose value. To assert, however, that simply because your money loses value there is inflation is to reverse cause and effect.

    Once we've eliminated the government's ability to inflate the money supply (eGold, Liberty Dollar are examples of privitized money), we should then go about cutting back on the government's ability to spend. Part of it is societal attitude. We should all regard taxes as nothing more than theft, and the government as nothing more than a large mafia organization. The adoption of this attitude would hinder the government's tax-collecting efforts. We then cut taxes dramatically. We should cut back the government's spending to what it was in some previous year, the earlier the better (e.g., 1780). Let's start out by eliminating just the unconstitutional government agencies, like the IRS. Let's also eliminate the US military, NASA, welfare, medicade, medicare, social security, the CIA, and the FBI.

    These articles may be of interest: Mises.org articles on the budget and the deficit.

    Social Security is a pyramid scam.

    problems with gold (none / 0) (#285)
    by cronian on Sat Jan 31, 2004 at 06:04:32 PM EST

    While there are many problems with our current monetary system, gold can experience inflation like anything else. If someone was able to monopolize the gold mines, which cover a limited geographic area, they would be able to assert de facto control under a gold based system. During periods, when lots of the gold was introduced into the market, many economic did ensue. Spain caused lots of trouble because they kept importing lots of gold from the new world. I guess all other commodities are susceptible as well. I think the ideal economic system would incorporate multiple commodities, and futures like oil, gold, diamonds, platinum, etc. which could freely exchanged electronically, allowing the actual componenets to be held by entities enjoing a high reputation. Of course, you would still have the issue of runs on the money, and so the various holders of accounts would be subject strongly to a good a reputation of honesty and fairness.

    The thing is that some entity will be required to provide protection, and deal with urban infrastructure. Neighbors fight all the time about what needs to be done to the sewage system, and what city services are needed, what land they take up, etc. If there is not some process to resolve these conflicts, it results in inadequate infrastructure, and overall lack of inefficiency. The logical entity to resolve these disputes is the same one that provides protection.

    Protection is neccesary for the consumer to make complex transactions easy a reliable. In cases where the government doesn't do this sufficiently, especially for illegal goods and services, mob or mafia groups take control. These groups are kept from taking too much, becuase they want to prevent people from moving out of their territories. However, These groups generally join together in some sorts of union to avoid the inefficiencies generated by inner-group rivalry. Then, once power is centralized we get the obvious inefficiencies generated by central planning, inequitable wealth distribution, etc until the center collapses upon itself. These things generally precede in cycles, and I don't see any way to really change that.

    We perfect it; Congress kills it; They make it; We Import it; It must be anti-Americanism
    [ Parent ]
    Inflation (none / 0) (#293)
    by thetenken47 on Thu Feb 19, 2004 at 09:04:56 PM EST

    Inflation is not the same as an increase in the money supply. Increasing the money supply is one way of achieving inflation, but not the only way. Inflation can also be achieved when people lose confidence in the currency/government, such as during wartime or governmental turmoil. Read more about it on wikipedia.org. Your entire theory would pretty much eliminate any safeguards on money and the international economy.

    [ Parent ]
    anti-trust (none / 0) (#283)
    by jago25 on Sat Jan 31, 2004 at 02:29:30 PM EST

     hmm on a similar subject I wonder if there;s any articles out there on the effects of anti-trust on economics

    Heres the right way (none / 0) (#292)
    by Ksec on Sun Feb 08, 2004 at 08:07:28 PM EST

    You need to get things moving to spur the economy. Tax breaks are OK but if you want a real recovery raise the minimum wage to 12 bucks an hour. Millions of people spending money versus a few with the tax cuts . Those millions buy cars and washers and stocks . Instant infusion and the fact that more people are buying your products you make up in buk sales what you may have lost in wages paid out. Ive always heard the conservatives whining about raises in the minimum wage but history proves them wrong. The past two Min Wage hikes actually helped the economy and noone had to raise prices like the conservs promised. Supply side is bogus. Its just more Republican spew about enriching the rich, it does nothing as promised and always leaves a huge deficit (IE Reagan and Bush -voodoo supply siders)

    Supply-side Economics Explained for k5ers | 295 comments (266 topical, 29 editorial, 2 hidden)
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