Lazear posits:
The recent growth in spending has been camouflaged by a focus on deficits. Budgets and proposed legislation, like that on health care, are being judged not by their impact on spending and taxation, but by their projected effect on the deficit. Equal increases in spending and taxes reduce economic growth, even if they do not alter the deficit.
I added emphasis to the big lie he wants us to believe. This isn't even very good mathematical chicanery. I ripped it to shreds with nothing more than basic critical thinking skills, some Excel proficiency, and a little bit of math knowledge. Evidently right wingers - even those with teaching positions at highly regarded universities lack most of these.
Here is an afterthought. I've often said that Clinton was the best Republican president since Ike. I wonder though, if Ike might have actually been more economically liberal. With Barack Hoover Obama, there can be no doubt. He mainlines Reagan Koolaide. The sad result is that Democrat is the new Republican.
So, what we can expect going forward is Republican-like economic performance from the Obama administration.
Meanwhile, Republicans have divorced themselves from reality. Lazear is a prime example. Beyond him you have the genuine loons: the Religious Right who derive from Jesus a message of hate, teabaggers who generate hate from their own infernal confusion engines, and the Reich-Wing noise machine that constantly spews hate.
So, you see, on all fronts, we are pretty badly SCREWED.
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22 comments:
Well, jzb, I agree in principle , but you didn't really address his specific claim that tax cuts result in higher GDP, at least by examining the beginning of Reagan's era , or the BushCo bubble in 2002-03 or so. (The Reagan deficit is another matter: ugly, but Demos deficit spend as well).
Not that I think the Reagan GDP spike was "good": I object to the frat-boy macro idea itself that rising GDP means "good". Efficient, equitable are preferred terms--Economists deal with distribution (supposedly), not platonic forms or moralitay.... Same with rising GDP at beginning of WWII: looks good on paper, but it's occurring during a bloody awful world war. In "normal" period of history, a rising GDP might be good, at least for some people. But rarely for all. That's the old division fallacy issue again.
Does one look at long term 50 years or so, or 10 year business cycle? Certain periods do support his claim-- a statistical correlation--and others don't; on the whole I think you showed that his claim doesn't hold, but I imagine Lazear would point to Reagan and Bush II as support, and the numbers do show correlation (ah wager 70%+...maybe Ill run through my stats app...come here, lil SPSS).
Yet the same goes for any liberal who says tax raises lead to higher GDP. Even Cactus admitted his attempt to correlate GDP growth with higher tax rates was not statistically significant, but like 45% or so.
Actually his specific claim is that Taxes/GDP correlate negatively with GDP growth. Examining selected subsets of the entire 60 year data set would be cherry picking.
I might have a look, but, you know, even a retired guy only has so much time . . .
When you talk about GDP gowth being good, you have to make some assumptions. That's why I haven't dealth with the depression nor WWII here. They are outside of the norm. Not to mention the readily available data. Generally one assumes good is good for all. But when supply siders are in power, that's clearly not the case.
I think that phenomena that correlate occasionally are simply coincidental.
With tax increases leading to GDP growth, at least you have most of the empirical observation on your side. And if the Laffer curve is correct, it too supports this view, since we haven't been right of the hump for a loooong time, if ever.
Cheers!
JzB
So how, exactly, is this extra spending reducing economic growth, given that we show no signs of a shortage of capital either human or financial? Capital is the engine of the economy. Unless you can show that government spending is causing a shortage of capital, you cannot show that it's causing slower growth. At 0% Treasury rates and 10% unemployment, clearly there's no shortage of capital right now, just a shortage of demand to direct productive use of that capital. So if capital is not the mechanism via which this increased spending is "reducing economic growth", what is the mechanism? Magic? Rainbow pony poop? Unicorn kisses? Say wha?!
Magical thinking and fact-free talking points are all these people have. The problem is, we have NUMBERS saying that this nonsensical talking point is not true. I realize that Austrians prefer their magical thinking to numbers (their solution to any time you present them with actual facts and figures is to basically stamp their feet and say "numbers don't mean anything!"), but such a rejection of empirical reality, such a rejection of inconvenient facts that contradict their talking point, is astounding in its delusional nature.
Really, you might as well put this guy into the same bucket as the Flat Earthers, the morons who think the Earth is 8,000 years old, and the cretins who believe in the healing power of crystals. I don't know why anybody even bothers listening to folks who are so obviously deranged. Well, other than the fact that their delusions are more convenient for various people in power and their lies seem more convincing to actual American taxpayers, who don't understand math and get a deer in the headlights look about them when you start talking numbers...
- Badtux the Economics Penguin
There you go conflating politics with economics, and bringing up your usual liberal morality, and thinking you're a leftist again, Penguin. Real progressives don't care for Sally Fields theatrics. Besides, Clinton's tax rates were hardly any higher than Reagan, and the Pelosicrats haven't done much either. During LBJ, taxes on upper brackets were at 80%. Clinton barely got up to 40% or so.
Lazear made a fairly modest claim about GDP and tax rates, not the economy as a whole (ie the deficit is another matter). Whether we like him or not, one avoids the ad hominem, and looks at the numbers--ie long term GDP growth as it relates to tax increases/hikes. Generally there's little or no correlation, regardless if taxes are hiked or cut: so if Lazear meant to say slashing taxes always means better GDP, he was wrong. Then so are lib-rawls who claim raising taxes coincides with better GDP.
My only point was with verifying the claim in regards to GDP growth coinciding with tax cuts. It seems that early Reagan, that happened (ie it shows a correlations. That doesn't mean it's necessary, or even good, but that's besides the point). I favor a tax raise on wealthy. But the Fed still spends far too much.
Excuse me, but a respect for the values of the Enlightenment and its call for a replacement of spiritualism with a new empiricism is hardly "loony lefty nonsense". It is the fundamental basis of modern civilization. Without it we'd all still be stuck in the Dark Ages, living short lives of flea-bitten misery in mud huts as we shivered in the cold.
Mr. Lazear made a blanket statement. I did not make any assertion about whether his blanket statement is true or not true for SOME instances of government spending -- for example, in the late 19th century when there was a shortage of both human and financial capital in this country, it is clear that any increase in government spending would have impaired the ability of the economy to finish building out the trans-continental railroads, which were highly capital-intensive, and thus would have harmed the economy by depriving it of critical infrastructure that was necessary for further economic growth. I made no assertion about that situation. My assertion was that his statement quite clearly did not/does not apply to *this* specific economic crisis given that we have a shortage of neither financial nor human capital at this point in time, and thus, as a blanket statement, was invalid since I could find a contraexample. Yet Lazear made that blanket statement.
This is a matter of mathematics, not of histrionics. Going off and beating a straw man over the head claiming that I made assertions that I did not make is utter nonsense, if typical of critiques of applying statistical techniques to economics. My general point is that if you are going to make blanket assertions, you must either specify a mechanism via which your assertion operates, or have data showing that data measuring the state of currently-identified mechanisms (capital, in the case of a capitalist economy) supports your assertion. If you are to do neither, if you are to state something as a bald fact as if it were handed down from upon Mount Hayek and thus is the Infallible Word of Hayek, which is heresy to question and therefore requires no data to support it, then you deserve to be blasted as either a cretin engaged in magical thinking or a dishonest liar -- which is what we're doing to Lazear.
- Badtux the Stuffy Mathematics Penguin
Who said anything about spirituality? Not I. Though your reading of politics and economics as a species of ethics seems sort of spiritual--I mean, a Darwinian could easily be a sort of cut-throat supply-side capitalist, as well as liberal (really, some might say Darwinism might lend itself to cut-throat capitalism). Or perhaps you're reacting to my allusion to Wittgenstein's Tractatus, and his critique of induction? Not that spiritual either, at least in the section I refer to. He's sort of saying something like "post hoc ergo propter hoc" (along with other things): the mere fact that two (or more) types of phenomena occur together does not mean there is some causal relation, though once it's like 90%+, an inference would seem justified.
Fingerprints left at a scene of a crime might not be sufficient to convict, but in most cases, does show guilt. Without allowing some inferences from data, evidentiary reasoning would be nearly impossible.
Anyway, it's a matter of examining historical data and whether certain statistical inferences follow from that data, as I said--not mathematics in the sense of your favorite linear algebra problem. Probability is not really...apodeictic. So I agree, actually, Penguin, that Lazear's wrong, if not a moron, if he meant his GDP/tax ratio claim as a blanket statement. I don't think he's that stupid, but meant "more often than not" or something like that. My point was that << at times >> his claim seems to hold, as with the beginning of Reagan era--when taxes were slashed, and GDP rose substantially--whether one agrees with Reaganomics or not.
Even in that specific case of Ronald Reagan he is wrong if he uses that correlation to make a statement about that event without specifying a mechanism via which this happened. Was there a shortage of human or monetary capital at the beginning of the Reagan era? Which policies of Ronald Reagan affected that shortage, and to what extent?
Correlation is not causation, as we've well hashed out here. If you have no mechanism and no observations of that mechanism in action, all you have is a correlation -- which can be used to DISPROVE statements (clearly if you open an umbrella and it doesn't start raining, you've disproved the statement "umbrellas cause rain"), but cannot be used to PROVE statements (if you open your umbrella and it starts raining, it does NOT prove the statement "umbrellas cause rain"!). In the case of the economic recovery that occurred during the Reagan years, we would need some evidence showing that Reagan's combination of tax cuts and spending hikes affected some mechanism that caused economic growth. Otherwise all we have is a correlation, which, unless you believe opening an umbrella actually DOES cause it to rain, is useless for actually proving something is true.
And BTW, statistics *IS* math. Granted, it is fairly new as a mathematical field, 19th century economists were reliant upon magical thinking to formulate their economics because there simply did not exist the statistical tools back then to actually measure the phenomena they were speculating about, but we do have those tools today. Making a bald statement that can be easily disproven by simply looking at the underlying economic data cannot be justified by any hand-waving done by someone quoting a 19th century economics tome. To attempt to do so is either stupidity, ignorance, or mendacity. (Not accusing you of doing so, accusing Lazear of doing so).
- Badtux the Statistical Penguin
Under Carter upper bracket tax rates were high. Reagan cuts those rates. So more shekels in the hands of producers and capitalists, and even middle class. They have more cash to spend and invest--or to create businesses, boost production in various ways--and create more supply (isnt that the supply side motto?). One voodoo point seems to be that more supply will be consumed, and that's all profitable.
Krugman Im not, thank Osiris; I approach econ. more from historical perspective (some of the charts and econometrics helpful, but not generally conclusive). However much I dislike supply siders one should recall they were reacting to Keynesian failures (if not socialist failures. So Reaganism "worked" for a bit, or appeared to.
Another supply sider assumption is that "a rising tide lifts all boats" (ie helps the poor). I doubt that holds as a blanket statement. Nonetheless, what one infers from a rising GDP and tax cuts (which shows correlation) is sort of a separate issue.
Another weirdness of the Reagan years however: it was a Demo controlled House! And they are supposed to be in charge of taxation (per USCon). And tax rates were slashed from 70% to 20 or whatever.
Not really a precise mechanism, but for some (as James even mentioned) it could be good, ie profitable.
Oh boy, sooo many ASSumptions to shoot down, so little time.
1. You ASSume that government spending has less of a contributory effect towards GDP than private spending has. That is an ASSumption, you bring no data to support it.
2. You ASSume that Reagan reduced spending and thereby the portion of the economy that was contributed by government. He did not. He actually *increased* spending, and thus the portion of the economy that was sucked up by the government. Money doesn't come from nowhere. Reagan got the money from the same place Carter got the money -- from the investor class. The only difference is that Carter got the money in the form of income taxes, and Reagan got the money in the form of Treasuries purchases by the investor class -- except MORE.
3. You ASSume that Reagan cut taxes on the consumer class. He did not. He *raised* taxes on the consumer class by over 8%, thanks to his hike in the payroll taxes for Social Security and Medicaid. Yes, I remember those hikes hitting my paycheck. It was brutal.
In short, you ASSume that the share of the economy taken up by government during the Reagan years declined, thus leaving more of the assets of the economy in the hands of the private sector. But I would want to see some actual data on that before I consider it anything more than an unsubstantiated ASSumption, especially since it contradicts data that Jazz has already posted on this blog.
Yeah, I can be brutal on people who bring ASSumptions rather than data to the table. Welcome to the Internets ;).
- Badtux the ASSumption-pokin' Penguin
You ASSume you know something about my political views, butt you don't. And you again make some normative judgements, when you've claimed to be atheist or non-believer, thus overlooking my point on Darwinism as well. Even if one supported Reagan, so what? There's hardly any difference between the usual GOPer and Demo (at least Clintoncrats), except the Demos can't do stats.
And perhaps let's quote some of your praise of Ron Paultard and the gold standard? Yeah. In fact Ron Paul was a Reaganite. They were gold standard lovers, and mostly libertarians.
You simply don't know enough about politics, or even economics to take the issue on. I'm not defending Reagan (and that you think so shows your inability to read). At all. And I'm not defending Clinton either. As I said, the usual macro analysis (GDP, CPI, tax rates) does not adequately describe the problem. One has to take on the technostructure, and capitalist hierarchy itself, as Galbraith asserted. And deal with labor, wages, property and all the other ugly parts of classical econ.
Saint Keynes won't really do either--another quasi-liberal--at least as it has been applied. They tried the control of demand. At any rate, Keynes is not the only solution.
So, like don't make normative judgements when doing economics, or politics, unless you want to also say overcome Hume's fact-value distinction, if not Darwinism (or quote the Pope). You sound like just another DINO.
Anyway I strongly doubt the slight medicare hike offset the tax cuts, at least for middle class (in fact there's some stuff online about this). By '86 RR cut it again. Even if some working class type agrees Reaganomics sucks, he probably was thankful for the tax cuts and bigger paycheck. From one's individual perspective (of say middle class), Reaganomics was probably good. I recall Clinton's tax raises appearing on my check (not that large, but something) . And as a sometime Fed employee I also recall all the PC bullsh**t that Clinton brought about. And really, most of the union people preferred Reagan over Clinton and the Gore-bot
Uhm, dude. Combined Social Security tax rates (Social Security + Medicare) rose from 9.35% in 1980 to 15.3% in 1990. That's a 60% tax hike increase on the consumer class.
I have not made any statements on your political views because I do not know them and really don't care about them, all I care about is the data, which you have not brought to the table -- you've brought assumptions, things you read somewhere at some point in time but without any data to support them.
I have at no point in time praised Ron Paul and the gold standard. I've printed multiple articles on my blog criticizing the gold standard and Ron Paul's advocacy of such (those are just the two most recent, I go back literally *years* with such articles pointing out that the gold bugs' beloved gold standard cannot work in the presence of fractional reserve lending). I feel that my body of work in this area is sufficient to show that you're incorrect in this respect too ;).
Your descent into personal attacks is noted. I attacked the fact that you were making assumptions that in fact have no data to support them. You attacked me personally, claiming that I know nothing about economics (I believe my posts in that area belie that notion) or politics (see my whole friggin' blog). So it goes. The data remains the data, regardless of your whining and ranting and stamping your feet because the data does not agree with your ASSumptions.
- Badtux the Data Penguin
You missed the point: the slight medicare increase was offset, fairly substantially by income tax slashes (ie larger paycheck), for middle class as well as upper brackets. It's called subtraction
6% increase in Medicare, vs approv. 45% reduction in income taxes--like 70% to 26%, given 81 and 86 cuts. And Fed. income tax thus still took nearly double of medicare. Connect the dots, Penguin. I think that yr fave Ron Paulski site has an arithmetic primer.
Really, I detested Reagan, and the moral majority. Voted for Mondale in 84. Never been in or voted GOP--tho tax cuts at times helped us. But after the Clinton era, even Reaganomics doesn't seem so bad. The lending crisis of 2008 arguably due to Clinton (with help from Gramm/Gingrich) as much as BushCo incompetence. It's just that people don't read the fine print of the Clinton admin (ie his dismantling of New Deal ...)
And you appear to miss *my* point, which is that the amount of money in people's hands did NOT increase. For the investor class,Reagan simply shifted how he collected the money collected from the investor class (i.e., started collecting more money as Treasury notes rather than via taxes), not how much money he spent. And for the consumer class, especially after Reagan's tax hikes in 1982, 1984, 1986, and 1987, there were no effective declines in tax rates for consumers.
And the Reagan tax hike for the Social Security tax was a 60% tax hike, which, for the consumer class, more than offset any decrease in income tax rates. This is especially true because of one of the deductions that Reagan eliminated -- the deduction for credit card and auto loan interest. This in and of itself was a massive hidden tax hike on the consumer class and didn't affect the investor class at all, since they don't carry significant balances on credit cards or auto loans.
In short, you are spouting a lot of ideological talking points (perhaps unknowingly, since these talking points have become assumptions that "everybody knows"), but the data doesn't support you.
And as I've previously pointed out, Ron Paul is a pediatrician, not an economist. 'Nuff said on that.
- Badtux the Data Penguin
So, you oppose social security, and Medicare now, Penguin? Holy Aynnie Rand-o-nomics batman. A is A, dewd
You still didn't deal with the offset. The net result of Reagan's tax acts by the end of his term, was a substantial lowering of income and capital gains rates on wealthy and middle class: approx. 45%. His last tax cut was '86. So even tho' one might oppose "trickle down," the tax cuts did apparently benefit the middle class. I would think you would approve. Adjusted for inflation the deficit was not so bad.
Even some of the libertarian whack jobs approve of Reagan, like at Cato Inst.
http://en.wikipedia.org/wiki/Reaganomics
I think it was a disaster, though a period of "robust economic growth", and most middle class 'bots came out ahead--.
Excuse me, where do you get that notion from?
The fact of the matter is that Reagan's Social Security and Medicare tax hikes were tax hikes -- the money did not go into a "lockbox" or savings account, but, rather, were used to finance the current accounts deficit (i.e., were used to purchase Treasuries). The net result was to increase taxes on the consumer class -- the middle and lower classes -- while simultaneously decreasing taxes on the invester class -- the upper 10% of the middle class and the wealthy.
Your numbers about how the Reagan tax cuts+hikes benefitted the investor class actually support that statement. I'm unclear what point you're trying to make otherwise?
- Badtux the Baffled Penguin
What do think comes out of a paycheck?? The biggest part is FICA, unless you choose to pay at end of year. So, Reagan 86 to like 92 it was 26% FICA, down from 70% for middle /upper brackets. Only 6-7% SS/Medicare. A bit for the state .
I don't care for Reagonomics, but obviously that means most people got bigger paychecks. Clinton '93 it was back up to about 40% on middle class. Ergo, middle class (say 30- 70 grand per year or so) did better financially under Reagan, assuming they held job, and all things being equal.
Clinton however did not really do the progressive thing and kick up the marginal tax rates on the wealthy to say Nixon levels. His 40% doesn't even match Reagan's first term of 50%. Then Bush slashed taxes again. No wonder the Gub-mint is going broke, and into record deficits .
Your point on t-bills misleading as well. No one forces people to invest.
Do you or don't you support a Flat Tax or Gold Standard, Penguin the Randian?
Actually I misspoke. FICA is not the Fed income. FICA is social security/payroll. Either way the point holds: Fed income tax the largest portion.
(now, don't bother with the proof-correcting. Instead...let's hear your Gold Standard pitch, pilgrim! yeahh)
Uhm, perhaps you might try looking at some actual data? (The first link is more readable, it is to the right-wing organization The Tax Foundation, the second link is to the CBO document from which TTF got that information).
What this basically shows is that Reagan increased taxes on the lowest quintile, left them unchanged for the 2nd quintile, very slightly lowered them for the 3rd and 4th quintile (by less than 1%), and significantly lowered them for the top quintile (by 2%). Especially significant was the Reagan tax cut for the top 1% of taxpayers -- their effective tax rate plummeted from 37% to 29.7%.
I don't know where you got that "Reagan cut taxes from 70% to 26%" nonsense. It simply isn't true. You are entitled to your own opinion. But you are not entitled to your own reality.
- Badtux the "Facts are Facts" Penguin
Let's bet on the two major Reagan marginal tax cuts. 81, and 86. 70% to 50%, and then 50% to like 26% for middle and upper brackets.
It's all over the Net. It's an undisputed fact. Did you bother reading the Wiki on Reaganomics? Kemp actually wanted more cuts, but they finally held up at 50% (with Dem house approving). How about the govt's own charts on history of tax brackets?? You actually seem to read Reagan as a liberal. Nyet. He cut taxes--drastically.
Maybe just stick with the Fountainhead, dewdies
You are entitled to your own opinion. But you are not entitled to your own reality. I posted the links to the actual effective tax rates (that is, the rate at which people were actually taxed after deductions, including both social security and income taxes) from two different sources. Your stamping your feet and saying "It's not so! It's not so!" just makes you look silly. Unless you are claiming that the Congressional Budget Office is part of some conspiracy to white-wash the reputation of Ronald Reagan? If that's what you're claiming, well, please adjust your tin foil hat, thank you!
- Badtux the Unsilly Penguin
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