TPS

If it's published by a conservative/libertarian think tank, it has to be true, right? CATO for pay.

Yes, it really disappoints me that he can't catch passes ten yards over his head or the ones that bounce first. What a bust.

Hmmm...so that's why my intern can't work late next Wednesday....

Of course it was...

Housing Bubble Let's see, I beleive the right says it was the Tech bubble that fueled the 1990s, not Clinton's policies; so would you say the same about the housing bubble? Or is the housing bubble, and "half the growth since 2001", a consequence of Bush's supply-side policies? "The slump in the bonds is one of the first signs the housing boom is ending after the Federal Reserve's 12 interest- rate increases. Real estate has accounted for about half the economy's growth since 2001, according to Merrill Lynch & Co. "

I don't think we were supporting parties, rather we were discussing the predicited outcomes of personal tax cuts on the federal budget. I was explaining the impact that a keynesian would predict, and GG was predicting the impact from the supply-side perspective. Keynesians: personal tax cuts stimulate the economy by increasing household consumption and increased deficits. I argued (and provided evidence) the actual deficits were a function of the decrease in TOTAL revenues and increased spending. Supply-side (interpreting the arguments made here): while personal tax cuts increase spending, they have spillover effects on many different areas (markets, profits, etc), thus increasing total tax revenues, and (eventually?) lowering deficits. No evidence was given. As for your contention that politicians use economic theories to their own benefit, I couldn't agree more. Hooray for your team!!!!

Too late Bob. And boy, does she have some interesting uses for tinsel....

No, but my intern does...

To cover up for... FBI incompetence

I have to disagree with you again. There's a significant difference between the US and EU that you either ignore or are not aware of--the EU countries, as part of their membership requirements, have a "cap" of 3% of GDP on deficit spending. They indeed are constrained by Trichet and the ECB. There is no equivalent constraint on US government borrowing. The US can borrow as long as there are willing lenders. The FED's role is to set the borrowing rate, specifically the Fed Funds rate. The Fed can affect the Treasury's borrowing cost, but it can't prevent the US Treasury from borrowing. Here's a nice little article on the problems with trying to maintain the deficit caps in the EU and individual countries wanting more flexibility with their deficit financing. EU and deficits I don't know why you would make that statement about a Keynesian--"antithetical to your makeup"? One of the most significant contributions Keynes made in the General Theory was to show that Savings and Investment are not equated by interest rates. He stated that savings was primarily a function of income, and Investment was primarily a function of profit expectations--or what he called the "animal spirits of the entrepreneur." Certainly long run growth is a function of supply factors--the ability to produce more output, but throughout th Business Cycle, Investment is a function of profit expectations. But once again, expectations of making a profit lead to investment in capital expenditures, and its capital expenditures that create growth. Since you have a very different definition of fiscal policy, maybe you can define your notion of "capital formation" for me? Maybe that's another source of our disagreement, a definition? No disagreement there. Finally, since it's the most important game of the year today, GO UCLA!!!

* You either have a selective memory, or yours is as bad as mine. I actually argued back then for a cut in the payroll tax instead of what Bush was proposing. I said it would be better to make sure those who needed the income the most got the cuts. I was against his cuts that favored the top 5-10%. Are there archives that go that far back? If so, you'll find these exact comments. * And I guess I have to repeat my same statement over and over--I presented the data in post 51. What the data show is that the deficits were a function of BOTH falling TOTAL revenues (not just personal tax reveneus) AND increasing expenditures. How many times do I have to say it before you realize I said it? *Agghhh!!!! I said it in the last two posts at least! A cut in taxes increased disposable income for households, which increases consumption. The major components that helped us out of the recession were C+G. I guess the problem relates to your failed memory: I was against Bush's tax cuts that favored the wealthy; I argued for a tax cut, specificlly a cut in the payroll tax, to stimulate the economy. Had Bush focused the tax cuts on those with lower incomes, the cuts would've had an even greater effect. * Yes, according to that article, it states the majority of economists still believe the economy will muddle along and not double dip--isn't the majority "the consensus?" * Ahhh, now this rings a bell. I think Bush was making his tax cut argument before 9-11, and the recession was actually very mild, and we may have already been recovering. I remember arguing that instead of cutting taxes, if we continued to pay off the debt, that would lead to a future tax cut because you would eliminate the $300 billion + interest expense. However, I also made the above argument on cutting payroll taxes, assuming Bush would cut taxes. * What's baffling me is why you are the only person in the country that defines fiscal policy as some form of monetary policy. Try googling "fiscal policy" * We actually agree here! * What good is "capital formation" if it doesn't translate into expenditure on capital equipment? Growth is a function of real factors--productivity and labor force growth, not some amorphous concept. * Let me see if I can interpret that: I said I agreed with von hayek about large government limiting individual liberties. So if i apply the same standard to private enterprise, that means large corporations also lead to limiting individual liberties. YES, I would agree to that.

"You're also ignoring Bush's earlier short term tax cut stimulus aimed at the mass population, that are along the lines of what these economists advocated, which obviously wasn't enough to lead a broader recovery. Nice of you to waive the Keynesian flag now, but forgetting how critical you were of the $300 rebate checks in '01." * A lump-sum rebate is the same as cutting the payroll tax? "Isn't it great to engage in hindsight analysis, instead of looking back to see the seriousness of the economy between 2001 and 2003. Easy to say now that the economy is growing at historic rates, when the concensus view at the time was that the recession was going to last years, given the economic run up leading up to it." * And you accuse me of reading comprehension problems? I never said the economy wasn't in serious shape. I've constantly stated that it took significant expansionary policies of the federal government via deficit spending to prevent things from getting worse. I certainly never read anywhere that the consensus opinion stated the recession would last years. As for my statement about long run GDP growth--please read what I wrote. I stated that GDP varies over the cycle, but the average for just about every administration has been about equal to the long term trend. I stated the Bush would probably end up about the same. I suppose stating the recesion was predicted by "the consensus" to last years helps support your argument though... "Your hindsight is also failing you in recalling that when Bush put the tax cut plans in place, revenues for fiscal 2004 & 2005 were projected to be $150Bn lower that the actuals that were delivered. Since the 2 year cost of the tax cut is about $150Bn, the tax cut already paid for itself." * Well, what I do remember is the CBO stating the White House's estimates were over-stated, and many economist speculated they over-estimated on the deficit so they could say exactly what you said--"see, it was supposed to be worse, but it's not." "I guess the organization that sets the baseline for the US credit markets is not responsible for fiscal policy in your book. This is your evidence that you understand how capital markets work? Right back at you - can you prove that the tax cuts weren't the impetus for the recovery? All you have to fall back on is that the economy is growing at roughly historic rates. You continue to bring up that the economy is rebounding due to deficit spending, yet fail to acknowledge the basic reason for the deficit - people got to keep more of their earnings." * Oh boy....Do you have your own peculiar definition of fiscal policy? Maybe you need to do a little research as well... And I "fail to acknowledge the basic reason for the deficit"? You conveniently left out my statement that consumption increased because of the tax cuts--yes, people keeping more of their earnings is the same thing as stating their disposable income increased. "In fact, I'm guessing part of the reason you're ornery is that the markets have behaved in exactly opposite way in what your textbook says they should. People shouldn't continue to invest in US, with a large deficit and low interest rates. But, lo & behold, they still do. I wonder why? What does your textbook say?" * Once again, you need to try and read what I posted. Who is financing the deficit? I'll save you the trouble--it's mostly Asian economies. Why? Because they don't want their currencies to increase vis-a-vis the $. By buying T-bills they offset the excess supply of $s on the FX markets caused by US trade deficits with those countries. By keeping the $ relatively strong, it promotes their export-led growth strategies. "But let me recount the position again, since you have a hard time connecting the dots. If, as you claim, large budget deficts are responsible for setting the economic recovery, why hasn't EU followed USA's economic lead? Many EU countries have budget deficits that are much larger. If, as you claim, low interest rates are the cause for the recovery, why did it take Japan a decade to recover, when they had a period of negative rates, to no avail? Lack of consumer spending in Japan can't be the cause, because a decade is a long time for people not to spend. " * I'm amazed you think the Japanese and European economies are just like the US. "Try checking out an accounting book and finding out the difference between capital formation and capital expenditures. (Hint, they're not the same)" * So you are now going to tell me that there's no relationship between capital formation and investment? But it is typical of your argument to date--relying on the more vague concept, as opposed to actual capital expenditures which is what produces growth. "I do find it ironic that for someone who purportedly upholds Darwinism in evolution would advocate an intelligent design that is government intervention." * While I recognize the need for government intervention in periods of economic stress--like 2001-2002, I also recognize that government spending is way out of control. In fact, I agree with Hayek, especially with respect to this government, that the larger government becomes, the more likely it is to limit our individual liberties.

for one, it was 2001. The first article I found in a quick search:Payroll tax While it doesn't explicitly state they are Keynesians, I guarantee you they are, given their explanations. Yes it relied on his understanding of building the long term economy by getting the government's fiscal house in order. Hmmm...yes, I see now, all prices are determined by supply-side policy. Once again, you respond with non sequiturs--"uh, gee, all of the good things that happen are the consequence of SS policies." I've stated that tax cuts stimulate the economy by increasing the deficit and increasing consumption (by increasing disposable income)--basic Keynesian economics. The only thing you've concretely stated so far about SS economics is: "The problem I have with that logic is that supply side is a growth oriented policy, such that while personal income tax revenues will fall, the overall growth in the economy will pick up much more, and the government will have plenty of other sources of revenues (ie corp taxes, excise taxes, gasoline, etc) So, to simply say that supply side doesn't work because personal tax revenues went down misses the point of trying to maximize total revenue." And as I've pointed out, GDP growth has not out-performed historical standards, AND total tax revenues have also declined--I believe to an historically low level as a % of GDP. Again, post #51 has both personal and total government revenues. Still don't see where it says the Fed is responsible for fiscal policy... No. Yes. Yes. Yes and No. Correct. The reason the US rebounds quicker are many, but related to the above, US households now have a 0% savings rate--we are consumers alright. Japanese HHs save about 25% of their income. Japan relies on export-led growth. The reasons we rebounded quickly: large fiscal deficits and consumers borrowing equity out of houses to spend, spend, spend. But of course, those low interest rates are a consequence of SS policies (as apparently everything is now...), not the fact that Asian economies pursue policies (buying T-bills) to keep their exchange rates low to support their export-led growth strategies. Not at all. Try checking out how much "capital formation" there's been in the US. US corps spend more on investment in foreign countries than they do domestically. Or are you including capital formation abroad by US corps? I'm still waiting for some concrete evidence to support the connection between SS policies and economic impact, not some amorphous statement about "just look at the markets." Hell, Alan Greenspan's farts move the markets! Without explicit explanations for how economic variables are affected by their policies, and evidence of the impacts, Supply-siders are basically left with a theory based on faith. Kind of like the theory of Intelligent Design....

So I suppose if you believe that people should get paid based upon their individual merit, that means you support taxing inheritances? Or do the children merit their father's (mother's?) money?

Most of this discussion is based on the 1963 National Security Action Memo, NSAM #263. While it suggests pulling out 1,000 advisors, it's not clear that JFK was going to pull out completely; in fact, probably not. It also discusses some similar issues that are being discussed about an Iraq pull-out strategy today--ensuring a strong enough presence so that it doesn't fall to the communist (insrugents). I'm sure you could find it if you google JFK + NSAM #263. This was also used as the central reason for JFK's assisnation in the O.Stone movie.

Yes, I can see the discussions now... Frantic New Orleans FEMA caller: Mr. Brown, NO is sinking! What do you recommend? Brown: Could you hold one second, I'm on the other line trying to get a table at Spagos. FNOFC: WTF?! Brown: Hello again, what was that you said? FNOFC: I said NO is F#@!ing sinking! Brown: Oh. Well, the first thing you need to do is hold a press conference. FNOFC: Press conference?!?!? I need the F@!ing national guard and supplies!!!! Brown: No, no, no. First a press conference. What color is your hair? FNOFC: WTF?!?!? Brown: Well you know it's important to look good on TV. If you have brown or reddish hair, then go with a little green in your suit; otherwise, standard dark blue. FNOFC: Jesus Christ! Can't you send me anything?!? Brown: yes, my fee of $1.5 million; what's your mailing address? FNOFC: click......

Quite a few Keynesians proposed a cut in payroll tax when Bush contemplating his tax cuts. Keynesians typically suggest cutting taxes on lower income workers because they have a higher propensity to consume, so the impact on spending will be greater. I believe that Clinton wanted to cut taxes on lower income households--in addition to raising the top bracket, but he was talked out of it by Rubin. Maybe you need to look at post #51 again--I include total revenues, total expenditures, and personal taxes. Total revenues decreased every year as well. The reason you include the "total economic effect" is because you know it's not verifiable. And when the numbers don't add up, you have to say something like, "the impact doesn't occur until well into the future..." It's pure voodoo man! I didn't realize that the Fed pursued "fiscal policies?" Rubin's (Clinton) policy was targeted at the bond markets--raise taxes on the top bracket, restrain spending--specifically, don't enact all of the spending promises that Clinton made during the race. In effect, tighten fiscal policy, focusing on reducing the Bush1/Reagan deficits, and trust that the lower interest rates that followed would stimulate growth. As I recall, in his second term, without a dem majority, he went along with the cap gains tax cut that the reps were pushing. Any response here will certainly take this thread on a different course, and requires a long response--maybe that's your strategy, since you certainly haven't posted any evdidence supporting the SS claims... But a quick response: certainly the bursting of financial bubbles has similarities, but the aggregate impacts generally differ depending upon the response and which segment(s) of the financial system is directly impacted. There is no simple explanation to the question of the Japanese bubble and the length of time it took for their revival. Some factors to consider (vs the dot com bubble): the direct impact to their banking system via assets held (in this respect, I'd say their bubble was more like the Latin American debt crisis of the late 1980s then the dot-com bubble); their high propensity to save, thus relying less on the household sector to stimulate the economy; their reliance on (Business) Investment and Export sectors for grwoth; a more regulated financial system than the US; their full-employment/lifetime employment policies; and on and on... As for the US and the post dot-com recession, I'm sure you'd agree that large deficits,home equity loans, and near zero short-term rates, played a significant impact in preventing a US depression/deflation after 9-11.

Well, I've checked out the IRS site, and I can't find the source of our differences. In fact, I've found further evidence of support: Personal income taxes paid (latest data available): Year Total top10% 2000 $980b $660b. 2001 $888 $576 2002 $797 $524 2003 $748 $493 Average tax rates as % of taxable income Year total top10% 2000 15.3% 22.3% 2001 14.2 21.4 2002 13.0 20.5 2003 11.9 18.5% You can find the historical data here: IRS data

Read any introductory/intermediate macroeconomics text. Here's a quote from one I just pulled off the shelf: "When recession occurs, what fiscal policy should the federal government adopt to stimulate the economy? It has 3 main options: 1) increase government spending; 2) reduce taxes, or 3) some combination fo the two. If the federal budget is balanced at the outset, expansionary fiscal policy will create a budget deficit." McConnell and Brue, 2002. Again, see post #51 where I give the data on both revenues and expenditures--the increased deficits under Bush2 are a function of both. I have focused on personal taxes because that is one of the central tenets of SS theory--cut those taxes and revenues increase. I have also stated that the SS argument is the "behavioral change" that comes from lower taxes, and how that is supposed to either increase the growth rate of GDP by MORE than the long-run average, or it causes individuals to shelter less income--the only way you get your effect is IF income grows faster to offset the tax rates. And no, I am not attacking SS based upon any moral argument--I agree with your F#%!ing moral argument, especially with this amoral goverment!!! Starve the beast! However, I'm sure we will disagree on where most of the government wastes its money. Your statement about "the effect on total economic output, employment, standards of living and building a base for future output" I take to mean the behavioral changes. YOU guys "believe" that this happens, and I've tried to show the evidence doesn't support that belief. Huh? Are you saying the 1980s set the foundation for the past 5 years? What happened inbetween?This is the sort of argument that you supply-siders have to fall back on--you can't verify the results of that statement--"it's true because I say it is." Oh boy, there's a strawman. As if the only thing that impacts growth is deficit spending? Maybe you should go back to my earlier posts where I mentioned the factors that impact long-run growth. And the dot-com bust is not "very similar" to the land bubble in Japan--that nearly collapsed their entire banking system. To say nothing of the cultural differences...

CBO Please see post #51 again. I gave you both the revenues as a % of GDP and expenditures. The expenditures have certainly gone up, and I stated the deficits are a function of both--lower revenues and higher expenditures. AND I don't deny that I'd rather see individuals with more income than see the government waste it. I totally support that part of anyone's argument, and supply-siders don't have a monopoly there. However, my focus has been on the revenue side because that's where all of the supply-side hocus pocus occurs. You guys claim a tax cut creates more revenue, and I'm saying only if there is higher income to offset the tax cut. The evidence I've provided for Bush2 suggests that tax revenues declined for every year of his 3-year (?I'll have to check this again) phase in. Once the tax cuts cease, if income goes up the next year, OF COURSE you'll have higher revenues. For example, if average personal rates are lowered over a 3-year period, say 10%, 9%, then 8%, and income increases each year by 3%, say from a base of $100,000, then you get the following: Yr1 $100,000 x .1 = $10,000 in taxes Yr2 $103,000 x .09 = $9,270 " " Yr3 $106,090 x .08 = $8, 487 Now if rates stay the same 8%, but income still grows, then Yr4 $109,273 x .08 = $8,742 Once the tax cuts are stopped, then revenues increase as income increases--it's basic math. Again, take a look at the CBO data--the deficits are a function of lower revenues AND higher spending; NOT just higher spending.

I think you are twisting the ideas to fit your own notion of them. A Keynesian would say deficits in general are expansionary, and they can be created in two ways: one, increase government spending; or two, decrease taxes. Keynesians argue that the the cut in taxes stimulates the economy by increasing disposable income and therefore consumption, AND via a higher deficit, which implies that more of government spending is funded by borrowing--and we all know that is the republican way...borrow and spend baby! Unless of course, that supply-side stuff really works, then we'd have a surplus eventually...

Well then look at the aggregate data: Personal tax revenues 2000 $1 tril 2001 $994 bil 2002 $858 2003 $794 2004 $809 Obviously part of the decline was attributable to the slowdown in 2001-02, but much of it was due to the cut in personal tax rates. The Laffer curve is nice in theory, but no one has ever shown any evidence of it--please show me if you have any. Let me try and explain the mathematics: Your income is $50,000 and personal tax rate is 10%, so you are paying $5,000 in taxes. If your income grows by 3% next year, you are now making $51,500. If the tax rate remains constant, you are paying $5,150 in taxes. If you reduce the tax rate by 3% (a decrease from 10% to 9.7% is a 3% decrease) to 9.7%, then you are paying the same absolute tax value as before: $51,500x0.097=$5,000, but your tax rate is now the lower 9.7%. The 3% increase in your income is offset by a 3% decrease in your tax rate. Now, if taxes are decreased by more than 3%, say a 10% decrease (going from from 10% to 9% would be a 10% decrease), then tax revenues will fall. Taxes paid=$51,500x0.09=$4635. The only way tax revenues can increase is if your income increases by more than the 10% cut in your taxes. That is the crux of the SS argument--the only way that revenues can increase is if taxable income increases by more than the decrease in the tax rates. Their argument is that the cut in taxes either increases the growth of income faster than it would've been, OR people were hiding income in tax shelters, so the lower tax rate will induce them to shelter less income. As i recall, Bush had a 3-year phase in on his tax cuts, which is consistent with the data above--personal income tax revenues fell every year.

Cripes! And I thought you were taking the Keynesian side... You supply-siders keep making that argument, but none of you have ever provided evidence. And to simply show that dollar revenues went up, is not evidence, because revenues will increase as national income increases. What you have to show is that revenues as a % of income increased, and that's just not the case. When you break down the deficits, they have increased because of the combination of increased spending plus lower tax rates. year Rev Exp personal inc rev 2001 19.8% 18.5% 9.9% 2002 17.8% 19.4% 8.3% 2003 16.4 19.9 7.3 2004 16.3 19.8 7.0 For the first 4 years of Bush, revenues fell as a % of GDP and exp. increased--his deficits were a combination. I've included the personal income tax revenue % as well, since that was the major source of tax cuts. And i agree with you about the surpluses; only problem with that argument is that the SS revenues have also made Bush's deficits look better because of your same reasoning. So, Bush's "true deficits" are even worse.

I was specifically addressing the question of the impact tax cuts have as viewed by Keynesians vs. SSs. For Keynesians, all else constant, a cut in taxes is expansionary because it increases deficits. For SS, tax cuts are supposed to change behavior--increasing work effort and productivity, so that the tax cut leads to higher growth, and therefore lower deficits, eventually... Otherwise I agree with your description of "functional finance." By the way, every policy is really "by and large Keynesian." The evidence from the impact from both Reagan and Bush2 tax cuts is that they caused higher deficits. As Reagan's former budget director wrote in his "tell all" book, Supply-Side theory was really a ruse to re-direct income from the bottom to the top.

I guess Supply-siders and Keynesians need interpreters when they debate. Two things you've left out of my argument: 1. I said that taxes under Clinton were still 9% of GDP before the cap gains tax. The cut in the tax may have fueled stock bubble it my not have. Capital gains taxes went up because stock prices went up so much. 2. That's why I've been arguing that long term GDP growth is determined by labor force growth and productivity growth, and that it's averaged around 3% for the past 60 years. You want to argue that supply-side tax cuts create faster growth; the numbers aren't there unless you play with the starting period. The difference for those sitting on the sidelines: Keynesians believe that personal tax cuts for individuals fuel the economy by expansionary deficit spending--witness the deficits under Reagan and Bush2; GG, a SS, believes tax cuts on individuals create incentives that must either increase participation in the labor force or increase productivity. Unless there's another way to increase long-run growth? Bib: you're an idiot! Come on 999 (or turn that upside down...)!