Dr. Doom

[Steely Dan]

I think this is some scary sh-- that we are propped up so much by potential enemies. Now, the original post and the article were very informative, but god this is sad that we are now the United States of debt . Though, it would be crazy for the economic nuke to go off; it would be the Great Depression all over again.

 

Reagan and Bushes advisor's seem to believe that deficits don't matter. Can someone please explain if that is in fact the case or do deficits really affect the economy as much as some people think?

 

BTW, am I the only one who was astounded by this:

 

Only a handful of 20th-century economists have even bothered to study financial panics. (The most notable example is probably the late economist Hyman Minksy, of whom Roubini is an avid reader.) “These are things most economists barely understand,” Roubini told me. “We’re in uncharted territory where standard economic theory isn’t helpful.”

 

________________

 

Banerji contends that Roubini’s apparent foresight is nothing more than an unhappy coincidence of events

 

With all of his predictions being right on it seems to me that it's like lottery odds to do this.

 

BTW, great thread. I'm learning a lot.

[Steely Dan]

Oh boy, your response is "what would the other guys have done." Put the onus on me, because you can't explain it.

 

Well...you and I have been debating the efficacy of "supply side" economics forever. You were touting how great things were for that one, maybe two, year(s). Given the 7+ years of Bush2's (SS) economic policies, please enlighten us on how "successful" they have been. Where has all the "capital formation" gone? You are so quick to criticize everything but your own beliefs. Please explain why the Bush2 tax cuts didn't create more than 1 year of above 3% real gdp growth. And 3% is the average, which means every other year was below average. All you other homers can chime in too....

 

I've never understood the theory of trickle down economics. If a business needs stuff it will raise capital to get those things done. It seems that just giving them money is a lost cause. They won't spend it as much as use it for corporate bonus's.

 

IMO, it's much smarter to give the money to those who will spend it. I.E. the middle class. That creates jobs because of consumerism. It's funny how when the administration wants to bump the economy they give out a tax advance with the idea that consumers spending money is good for the economy. When people spend it's good for everybody. It's much smarter to work from the bottom up than top down. Trickle down economics seems ludicrous.

[Adam]

I've never understood the theory of trickle down economics. If a business needs stuff it will raise capital to get those things done. It seems that just giving them money is a lost cause. They won't spend it as much as use it for corporate bonus's.

 

IMO, it's much smarter to give the money to those who will spend it. I.E. the middle class. That creates jobs because of consumerism. It's funny how when the administration wants to bump the economy they give out a tax advance with the idea that consumers spending money is good for the economy. When people spend it's good for everybody. It's much smarter to work from the bottom up than top down. Trickle down economics seems ludicrous.

I've always believed that its best to have all parts of the economy healthy

[Steely Dan]

I've always believed that its best to have all parts of the economy healthy

 

IMO, all facets of the economy become healthy when people spend money. It causes business to expand adding more jobs it increases the price of stocks and elevates the overall quality of life.

[/dev/null]

IMO, all facets of the economy become healthy when people spend money.

 

I beg to differ by adding the following....

all facets of the economy become healthy when people spend money but also save money

[Steely Dan]

 

Everybody sing now.

 

PROTEST SONG

Written and sung by Neil Innes

From `Monty Python: Live At City Center' etc.

 

Eric: Our next guest is a man who needs no introduction from me, so until next week ...

 

Neil: Uh...(tunes guitar)...uh...(tunes guitar)...uh, this next song is a protest song...(tunes guitar)...uh...(tunes some more)...uh, ladies and gentlemen, I've suffered for my music. Now it's your turn...

(Song starts)

 

(Terrible harmonica playing)

All the prophets of doom

Can always find room

In a world full of worry and fear

Tip cigarettes

And chemistry sets

And Rudolph, The Red-Nosed Reindeer

So I'm goin' back

To my little ol' shack

And drink me a bottle of wine

That was mis en bouteille

Before my birthday

And have me a !@#$in' good time!

 

Rain on a tin roof sounds like a drum

We're marchin' for freedom today ... hey!

Turn on your headlights and sound your horn

If people get in the way

 

(Terrible harmonica playing)

Let me turn you on

To the Chromium Swan

On the the nose of a long limousine

Even hire it for the day

It is somethin' to say

But what the hell does it mean?

I may be accused

Of bein' confused

But I'm average weight for my height

My phil-o-so-phy

Like color TV

Is all there in black and white

 

RAI -- Rain on a tin roof sounds like a drum

We're marchin' for freedom today ... hey!

Turn on your headlights and sound your horn (honk honk)

If people get in the way

 

(Long harmonica note to end of song.)

 

Mike (as Policeman): All right sonny, that's enough. Concert's over for you, Mr. Tangerine Man. Off you go, on your bike. ... Welfare state, huh.

[GG]

Oh boy, your response is "what would the other guys have done." Put the onus on me, because you can't explain it.

 

Perfectly appropriate response because we're talking about a real example, not an economics class hypothetical. If Bush did not win the election in 2000 or in 2004, Greenspan would still be at the Fed and Rubin or a clone would be at Treasury. So tell me how the run up in the housing market through 2007 would have been any different.

 

Well...you and I have been debating the efficacy of "supply side" economics forever. You were touting how great things were for that one, maybe two, year(s). Given the 7+ years of Bush2's (SS) economic policies, please enlighten us on how "successful" they have been. Where has all the "capital formation" gone? You are so quick to criticize everything but your own beliefs. Please explain why the Bush2 tax cuts didn't create more than 1 year of above 3% real gdp growth. And 3% is the average, which means every other year was below average. All you other homers can chime in too....

 

Love how you cling to historical averages, as if 3% is the preordained growth. How about comparing US GDP expansion to peer developed countries with high tax rates. Surely if your theory is correct, they should always have a rate of growth that keeps up with the US as low taxes shouldn't matter. Of course that's not the case, as the high tax countries have lower growth rates over the same periods. And here we are with US barely at break even GDP, while there's contraction in some parts of the Eurozone. Never mind that tax receipts are back at historical averages of about 20% GDP, even with the tax cuts. But go ahead argue that increasing marginal rates on the most productive sector of the economy will be good for anything other than getting the proletariat vote out.

[TPS]

Perfectly appropriate response because we're talking about a real example, not an economics class hypothetical. If Bush did not win the election in 2000 or in 2004, Greenspan would still be at the Fed and Rubin or a clone would be at Treasury. So tell me how the run up in the housing market through 2007 would have been any different.

BAck at you--the difference is that Bush pursued your S-Side policies--majority of tax cuts for the top brackets, which I would argue (probably) exacerbated the financial crisis becuase the "wealthy" now have even more funds with which to speculate--errr...invest, and since equities were going nowhere, dump it into real estate.

 

Love how you cling to historical averages, as if 3% is the preordained growth. How about comparing US GDP expansion to peer developed countries with high tax rates. Surely if your theory is correct, they should always have a rate of growth that keeps up with the US as low taxes shouldn't matter. Of course that's not the case, as the high tax countries have lower growth rates over the same periods. And here we are with US barely at break even GDP, while there's contraction in some parts of the Eurozone. Never mind that tax receipts are back at historical averages of about 20% GDP, even with the tax cuts. But go ahead argue that increasing marginal rates on the most productive sector of the economy will be good for anything other than getting the proletariat vote out.

3% is the average real growth of the US economy since 1950--it's just a fact. Yes, I guess it would be asking too much to see how real gdp growth under bush2 compares to that?

My theory? You Supply-siders claim that tax cuts for the top lead to higher than normal growth, more tax revenues, capital formation, blah, blah, blah...but the facts have never supported the religion. The most significant impacts of supply-side policies, in both cases it was tested, were larger deficits, no better than average growth, and increased inequality. I guess when the facts let you down, you can always claim a new target--oh...ummm...we need to compare the policy change to other developed countries...yeah, that's the ticket...

Last I looked, the revenues as a % of GDP were 18.8%, which might seem close to 20%, but that "little difference" of 1.2% means we're losing $170 billion in revenue from a $14 trillion economy...

 

Btw, it's "Bush policies bad," not Bush bad.

 

And, for the umpteenth time, I am not criticizing tax cuts, I am criticizing the predicted impact S-Sers claimed the cuts would have--I'm criticizing YOUR theory, one which sounds good in the classroom or on conservative message boards, but the reality, that's another matter...

 

Ps. My platform is still (temporarily) cut the social security tax to put money into the hands of those who buy goods&services.

[GG]

BAck at you--the difference is that Bush pursued your S-Side policies--majority of tax cuts for the top brackets, which I would argue (probably) exacerbated the financial crisis becuase the "wealthy" now have even more funds with which to speculate--errr...invest, and since equities were going nowhere, dump it into real estate.

 

And said real estate is propped up by advantages thrown into the tax code.

 

3% is the average real growth of the US economy since 1950--it's just a fact. Yes, I guess it would be asking too much to see how real gdp growth under bush2 compares to that?

My theory? You Supply-siders claim that tax cuts for the top lead to higher than normal growth, more tax revenues, capital formation, blah, blah, blah...but the facts have never supported the religion. The most significant impacts of supply-side policies, in both cases it was tested, were larger deficits, no better than average growth, and increased inequality. I guess when the facts let you down, you can always claim a new target--oh...ummm...we need to compare the policy change to other developed countries...yeah, that's the ticket...

Last I looked, the revenues as a % of GDP were 18.8%, which might seem close to 20%, but that "little difference" of 1.2% means we're losing $170 billion in revenue from a $14 trillion economy...

 

Btw, it's "Bush policies bad," not Bush bad.

 

And, for the umpteenth time, I am not criticizing tax cuts, I am criticizing the predicted impact S-Sers claimed the cuts would have--I'm criticizing YOUR theory, one which sounds good in the classroom or on conservative message boards, but the reality, that's another matter...

 

Ps. My platform is still (temporarily) cut the social security tax to put money into the hands of those who buy goods&services.

 

If you insist on geting technical, the 18.8% revenue to GDP is higher than in Clinton's first term. If you also want to talk theory vs application, you should note the trend line of tax revenues in Clinton's first term vs his turnabout to lower capital gains taxes to save "his" economic platform. Just for the record, I'm not blaming him for the fall in equities in 2000. But I think we've discussed that.

 

And yes, comparisons to other developed economies are applicable, because the background driving the western economies are different now than they were 20-30-40 years ago. Why do lower tax countries exhibit higher growth rates and higher employment rates than high tax countries?

[OCinBuffalo]

And yes, comparisons to other developed economies are applicable, because the background driving the western economies are different now than they were 20-30-40 years ago. Why do lower tax countries exhibit higher growth rates and higher employment rates than high tax countries?

As if the rise of Ireland is because of peace and not severely reduced capital gains taxes, and other intelligent(and flexible) tax policies. Of course, European socialists and Keynsian apologists act like Ireland doesn't exist, and isn't smoking them economically. "Make the bad man stop!" We haven't had the same meteoric rise in growth because we have been less like Ireland, not more.

 

Supply-side was a response, a reaction, to the mess that was Jimmy Carter's, and his Keynsian Harvard professor advisers', "wage and price control" utopia. We had to do something drastic about fixing the real stagflation we were really encountering, right then, and Reagan did. The supply side policy saved our asses, those are the facts, and they are undeniable.

 

Of course the downside was larger deficits and a built in equities bubble(which burst in 87), but at the time that was clearly a better choice than 17-20% unemployment and 25-7% interest rates. I have always looked at strict Supply Side policy as a solution to a problem, and once that problem is solved, it's time to get back to the markets handling themselves, and therefore it's time to cut government spending, not taxes.

 

The problem I see is that it's easier for politicians to cut taxes rather than cut spending. Spending is the real enemy here, because it creates the very instability we are talking about = basing your business on the government instead of the market is a terrible idea(that should be obvious). It also creates inflation by reducing competition and therefore artificially raising prices(um, Lockheed Martin is doing health care? don't they make airplanes?)

 

The point is: Clinton took over and was able to start at around 0, do a good job, and get to 10. Reagan took over and had to get from -15 to about 2 in his first term. The in-between Bush 1 presidency was a transition and was inevitably going to have an economic downturn because of the Iraq nonsense.

 

None of this means that it makes sense to "always raise taxes" or "always cut taxes". What does make sense is to use Fiscal policy in a more flexible manner, like Ireland. That cannot be done until the tax code is simplified, which is why I support a flat tax. What does make sense is to cut government spending and allow markets to work. Government interference in a market, both positive(spending) and negative(taxes), is the reason market equilibrium is being questioned. You can't say that markets are inherently unstable as a rule when the government is consistently messing with them.

 

You want to prove that markets are inherently unstable, get the government out of them for 10 years and see what happens.

[TPS]

And said real estate is propped up by advantages thrown into the tax code.

 

Was there a real estate tax code change under bush that caused the bubble?

 

If you insist on geting technical, the 18.8% revenue to GDP is higher than in Clinton's first term. If you also want to talk theory vs application, you should note the trend line of tax revenues in Clinton's first term vs his turnabout to lower capital gains taxes to save "his" economic platform. Just for the record, I'm not blaming him for the fall in equities in 2000. But I think we've discussed that.

You dance around quicker than FredAStaire. I tell you the difference between 20% and 18.8% represents some real $, and you bring in the "Clinton bad" retort. Pot calling kettle black! Look, if you want to make a relatively decent comparison, take two years that are similar in terms of unemployment. For both, in their 6th years in office, unemployment under Clnton was 4.5%, and for bush it was 4.6%. Since people who work pay taxes, it "normalizes" the comparison when the unemployment rates roughly equivalent. In those years, total revenue under clinton was 20%, and peronal federal income tax revenues were 9.6%. For Bush, the numbers are 18.5% and 8.0%. In addition, cap gains taxes were the same, so the main difference was the personal tax rates. Hope this isn't too tehnical...

 

And yes, comparisons to other developed economies are applicable, because the background driving the western economies are different now than they were 20-30-40 years ago. Why do lower tax countries exhibit higher growth rates and higher employment rates than high tax countries?

The background is different from 20-40 years ago...no sh-- sherlock. Btw, how many times do I have to tell you that I am focusing on your supply-side rhetoric that tax cuts lead to higher revenues?

 

Look, tax cuts can stimulate short run growth--that's standard keynesian policy because people have more after-tax inome to spend. However, deficits increase in the short run because of this. As growth picks up and unemployment falls revenues do rise. As for the long run, growth is a function of technology (productivity) and labor force growth. Sure, low taxes helped lure mncs to Ireland, but they wouldn't have come if there wasn't an educated workforce--taxes alone don't explain it.

[GG]

Was there a real estate tax code change under bush that caused the bubble?

 

Of course not, but also shows how an inefficient tax code helps spur inefficient capital deployment.

 

You dance around quicker than FredAStaire. I tell you the difference between 20% and 18.8% represents some real $, and you bring in the "Clinton bad" retort. Pot calling kettle black! Look, if you want to make a relatively decent comparison, take two years that are similar in terms of unemployment. For both, in their 6th years in office, unemployment under Clnton was 4.5%, and for bush it was 4.6%. Since people who work pay taxes, it "normalizes" the comparison when the unemployment rates roughly equivalent. In those years, total revenue under clinton was 20%, and peronal federal income tax revenues were 9.6%. For Bush, the numbers are 18.5% and 8.0%. In addition, cap gains taxes were the same, so the main difference was the personal tax rates. Hope this isn't too tehnical...

 

Thanks for the clarification, Ginger Rogers. I recall that I said "about 20%" when you jumped in with the exact percentage. Sorry that I couldn't let you get away with that. If you insist on arguing the precise 18.8% figure, then it needs to be put into the perspective of the 18.3% 40-yr historical average..

 

The link above also shows what I've been screaming about - the wonderful surplus during Clinton years was brought about by a huge increase in cap gains receipts which coincided? with the stock bubble run up. Take the cap gains taxes out of your numbers for both and see how things stack up, if you want to be really technical.

 

 

The background is different from 20-40 years ago...no sh-- sherlock. Btw, how many times do I have to tell you that I am focusing on your supply-side rhetoric that tax cuts lead to higher revenues?

 

Look, tax cuts can stimulate short run growth--that's standard keynesian policy because people have more after-tax inome to spend. However, deficits increase in the short run because of this. As growth picks up and unemployment falls revenues do rise. As for the long run, growth is a function of technology (productivity) and labor force growth. Sure, low taxes helped lure mncs to Ireland, but they wouldn't have come if there wasn't an educated workforce--taxes alone don't explain it.

 

Then why doesn't growth come to Cuba, which has an overeducated work force? Why did the Baltics' & Poland's growth skyrocket after they lowered taxation, even though their workforce was just as educated beforehand?

 

Bottom line is that even under current low tax rates - tax receipts as % of GDP are above historical averages. So, you'd figure that blaming tax cuts for increased deficits would lose its steam as an argument. No?

[TheMadCap]

The second Dr. Doom article claims that the AVERAGE american househould has around 9,800 dollars in credit card debit. Can that be right??? Do people really have that much debt on a CC?????

[Taro T]

The second Dr. Doom article claims that the AVERAGE american househould has around 9,800 dollars in credit card debit. Can that be right??? Do people really have that much debt on a CC?????

If that's mean, it wouldn't surprise me at all. Sounds a little high for median.

[TPS]

Of course not, but also shows how an inefficient tax code helps spur inefficient capital deployment.

 

 

 

Thanks for the clarification, Ginger Rogers. I recall that I said "about 20%" when you jumped in with the exact percentage. Sorry that I couldn't let you get away with that. If you insist on arguing the precise 18.8% figure, then it needs to be put into the perspective of the 18.3% 40-yr historical average..

 

The link above also shows what I've been screaming about - the wonderful surplus during Clinton years was brought about by a huge increase in cap gains receipts which coincided? with the stock bubble run up. Take the cap gains taxes out of your numbers for both and see how things stack up, if you want to be really technical.

 

 

 

 

Then why doesn't growth come to Cuba, which has an overeducated work force? Why did the Baltics' & Poland's growth skyrocket after they lowered taxation, even though their workforce was just as educated beforehand?

 

Bottom line is that even under current low tax rates - tax receipts as % of GDP are above historical averages. So, you'd figure that blaming tax cuts for increased deficits would lose its steam as an argument. No?

As I've stated quite often, the initial impact (first year or two) is lower revenues when you cut rates--simple math. And tax cuts will increase spending because you've increased after-tax income. The difference between us is that I believe they have a greater impact if you cut rates for those who spend, you believe they have a greater impact if you cut rates for those who save--true?. Of course as the economy eventually expands, from the expansionary fiscal policy tax cut, revenues increase as more people find jobs and incomes increase--that's why I said you need to compare years with similar unemployment rates. And, as you correctly point out, if one is lucky to have a bouyant stock market, you also get a nice cap gains impact on personal revenues. While that helped clinton, what helped even more was the fact that greenspan let the economy continue to grow, allowing unemployment to fall below 6%, what was believed to be the "natural rate of unemployment." Can you figure out what happens to tax revenues when an extra 2-3 million people are working?

[TPS]

Reagan and Bushes advisor's seem to believe that deficits don't matter. Can someone please explain if that is in fact the case or do deficits really affect the economy as much as some people think?

 

BTW, am I the only one who was astounded by this:

 

Only a handful of 20th-century economists have even bothered to study financial panics. (The most notable example is probably the late economist Hyman Minksy, of whom Roubini is an avid reader.) “These are things most economists barely understand,” Roubini told me. “We’re in uncharted territory where standard economic theory isn’t helpful.”

 

________________

 

Banerji contends that Roubini’s apparent foresight is nothing more than an unhappy coincidence of events

 

With all of his predictions being right on it seems to me that it's like lottery odds to do this.

 

BTW, great thread. I'm learning a lot.

sh--! Sorry I missed this. This is so ironic. When I was in grad school conservative economists, those who would've been under Reagan or Bush1, argued that deficits do matter. My group, the other side, argued they don't;rather, it depends on where you are in the business cycle. In the current mess, when the private sector isn't borrowing, the government can borrow until the cows come home to suport spending. However, if we're in the middle of an expansion, then government borrowing competes with private borrowing. The impact will depend on whether the FED thinks it needs to constrain borrowing. Now that the right, the republicans, have borrowed so much, they HAVE to argue that deficits don't matter--they have no choice. Thier platform is borrow and spend. And the right wiing idiots here still support that crap.

[TPS]

The second Dr. Doom article claims that the AVERAGE american househould has around 9,800 dollars in credit card debit. Can that be right??? Do people really have that much debt on a CC?????

Yes.

[GG]

As I've stated quite often, the initial impact (first year or two) is lower revenues when you cut rates--simple math. And tax cuts will increase spending because you've increased after-tax income. The difference between us is that I believe they have a greater impact if you cut rates for those who spend, you believe they have a greater impact if you cut rates for those who save--true?. Of course as the economy eventually expands, from the expansionary fiscal policy tax cut, revenues increase as more people find jobs and incomes increase--that's why I said you need to compare years with similar unemployment rates. And, as you correctly point out, if one is lucky to have a bouyant stock market, you also get a nice cap gains impact on personal revenues. While that helped clinton, what helped even more was the fact that greenspan let the economy continue to grow, allowing unemployment to fall below 6%, what was believed to be the "natural rate of unemployment." Can you figure out what happens to tax revenues when an extra 2-3 million people are working?

 

I'm supposed to argue when you just described supply side economics?

 

btw, I'm still doing a victory lap that finally you don't talk about the deficit when discussing tax cuts. As for deficits, I love how you economists frame the argument. It's that kind of logic that gave the world lexicon - "deficit spending" What in the world is that? Either you spend more than you bring in, or you don't. I'm in the camp that doesn't think that deficits matter, as long as the deficit isn't structural and you can show GDP growth that exceeds the deficit. That's why these 1%-2% annual deficits are not really a big deal in the grand scheme. But, when you look a few years into the future and see the SS/Medicare abyss, then you should start getting worried.

[TPS]

I'm supposed to argue when you just described supply side economics?

 

btw, I'm still doing a victory lap that finally you don't talk about the deficit when discussing tax cuts. As for deficits, I love how you economists frame the argument. It's that kind of logic that gave the world lexicon - "deficit spending" What in the world is that? Either you spend more than you bring in, or you don't. I'm in the camp that doesn't think that deficits matter, as long as the deficit isn't structural and you can show GDP growth that exceeds the deficit. That's why these 1%-2% annual deficits are not really a big deal in the grand scheme. But, when you look a few years into the future and see the SS/Medicare abyss, then you should start getting worried.

I think I said something similar when you finally admitted that tax cuts would intially cause a decrease in tax revenues, only I substituted "keynesian" for s-s. Does this mean you agree the impact is from spending and not saving? Because that is the difference. Keynesian fiscal policy has always described the possibility of using increased spending or tax cuts to spark the economy, and the initial impact is an increase in the deficit--just as the evidence shows (better run a lap in reverse now...). The difference is we keynesians argue that the impact comes from increased spending by consumers, which has the secondary effect of increased spending by businesses as their sales increase.

 

As for deficits, if you look at the history of the debate, conservatives (and conservative economists) were the ones who argued deficits were bad. Since the republicans' supply-side borrow and spend policies have caused the largest deficits, conservatives now are in the "deficits don't matter camp." Your (and my) view on deficits is the standard keynesian view.