First, here is a close-up of GDP Growth, YoY from '76 on.
The snakey red and blue line is a 13 Yr. Exponential Average.
Yea Clinton, Meh Reagan, Boo Bushes. 'Nuff said?
I've also done the Lazear cloud plot for Reagan and Bush II. The results are not remarkable.
Red dots are Reagan data points, Orange squares, Bush II.
Green line is best fit to all points, slope is -0.93, correlation coefficient is -0.46. Meh! Slope is steeper than for the entire historical data set, due to Reagan's outliers. Correlation is weak at -0.46, and almost the same as for the entire set.
Blue line is best fit, after eliminating the two extreme Reagan outliers, which are probably flukes, anyway.
Red line is fit to St. Ronnie data only, orange line ditto for Shrub.
Average GDP Growth for each is shown in pink: 3.40% for St. R; 2.16% for the weed.
With the caveat that the data set is too small to be statistically robust, and the data are cherry picked out of a larger set, what does this suggest?
Some guesses:
1) Reagan was far better than Bush. He wasted money on star wars, mostly at home. Shrub wasted money spending it in Iraq, while simultaneously causing an oil price shock that badly harmed our economy.
2) The cumulative effect of Republican economic policies is making it ever more dificult to grow GDP.
3) The GDP growth trend line over time is grim. Barack Hoover Obama is not likely to make it any better any time soon.
And a speculation:
Those who call themselves "Conservatives" revere Reagan and old Goldwater (the OTHER Barry.) Each of them would be decried as flaming Librullz by today's whacked out wingnuts.
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13 comments:
You are crunching together the years,and using a small chart, but actually the real GDP growth (adjusted for inflation, and either per capita, or not) is not nearly that spikey. GDP consistently increases (tho' 2008 took a dump). There are slight differences in growth but it's usually a bit less than 5%. So by...skewing the graphs a bit it can look like big jumps, but it's not.
Most of the GDP growth charts look like this one:
http://www.forecast-chart.com/graph-gdp-inflation.html
"James" was not cherry picking. He's looking at a 60 year cycle, like Lazear. And note he does grant that Clinton did produce a bit of a bubble with slightly higher tax rates, but there are other factors (the dot com rush). But Reagan era GDP does correlate with lower taxes. AS I said, the GDP's hardly the only indicator however. GDP could rise with lower taxes, but deficit increases, and cost of living might increase: it's good for rich, not so good for poor. Some in Middle class benefit, some don't. That's not to say I approve of Reaganomics (hell no): but that wasn't really the claim; merely that at times, lower tax rates coincide with higher GDP (and so, Lazear's claim holds during Reagan, probably over a year or two with Bush II. "James" says it holds when averaged out over the 60 year cycle. You don't. But I don't see that you have dealt with the years where it does correlate vs the years when it doesn't).
Really the "post hoc ergo propter hoc" fallacy, if read as demanding something like inductive necessity, makes any statistical economics nearly impossible, unless the two variables coincided like at least 95% of the time. So any claims of Clintonomics or Keynesianism working would be negated as well, unless very strong correlation. Actually early Wittgenstein said something like that: induction was merely a sort of superstition. But then DeLong, Krugman , et al and nearly all the liberal econo-men who routinely use weak correlation would be out of f-ing business.
I have no idea where that guy's GDP growth numbers came from. My are from the Bureau of Economic Analysis National Economic Accounts, and can be found here.
http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=1&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=1930&LastYear=2009&3Place=N&Update=Update&JavaBox=no#Mid
My graphs are in no way skewed. Jesus, J, I specifically looked at the periods you were interested in. In 1984 GDP YoY was 7.2%, not 4%.
James may not be cherry picking, but he also seems to have conclusions (low taxes are great) first and data later.
His third world country analogy is a straw man.
The reason for using a log graph is to make a curve linear. Don't be impressed by that.
Lazear's claim holds over some years/periods and not others. I'm not impressed. Intermittent correlation is non-correlation. What is there to deal with?
He is drawing a causal relationship from a correlation that's not even valid. That is compuonding sloppy thinking with a god-damned lie. That is my objection.
The whole tax as a % of GDP is a straw man, and damned convoluted. Both numbers are resultants of several other things, some in common, and some not. For 2009, Tax/GDP is somewhere in the 15% range, and GDP is -2.4%, the first negative number in 20 years. That single data point destroys the argument.
Why don't these people use effective tax rates if their point is to find a determinative relationship? My guess - it's too straightforward, and doesn't show what they want it to. Cactus blew that up for them back in '07. And he didn't conclude first and then go make shit up later.
Taxes/GDP obfuscates, and that is what the bullshitter wants to do.
I'm pretty much done with this topic.
JzB
Intermittent correlation is non-correlation.
I'm tempted to agree--tho' Keynesians and liberals are then in the same boat: the USS Non-Correlation. Perhaps post your claim on some of DeLong & Co's blogs full of economic prognostications (some re GDP) and analyses based on weak correlation (or rules of thumb, hunches, guestimates, etc).
The log curve's not that far from raw GDP. Here's another presentation of the real GDP (and other indicators). Fairly regular, "arithmetical" and non volatile
http://zimor.com/chart/Real_GDP
or
http://www.measuringworth.org/datasets/usgdp/result.php
Really, note that during Reagan, Clinton and Bush I/II all had fairly similar GDP rates of growth (in Carter years had flattened, and it was quite higher tax rates). Mutha-f-ing Demopublicans (and Clinton era taxes not significantly higher than RR, compared to Carter, or LBJ's 80% on upper brackets).
I don't think Lazear's 18% GDP/tax ratio figure was that important: better to have compared with much higher like LBJ--even during LBJ ocracy days, there were increases in GDP. Whatever. Enough econo-talk for a few months.
I would say that spending as a percent of GDP, not taxes as a percent of GDP, is the most important factor to consider here. Saint Ronny Raygun did not decrease spending. He never submitted a balanced budget to Congress -- ever. In fact, he *increased* spending.
So, where did that money come from? Why, the same people that Carter got the money from -- from the investor class. Because as Willie Sutton said about banks, "that's where the money is." Except Carter got it as taxes, and Reagan got it as Treasury bond purchases. But it was still money that was taken away from the pool of investment funds available for the economy either way.
I see no real reason to prefer financing government spending via borrowing rather than taxing. Either way, it's money that's not in investors' pockets. The only real issue is that Treasuries are purchased with the thought that they'll have to be paid back at some point in time... i.e., you're just moving the taxation out into the future. You're not changing the actual money flows in the economy as a whole.
BTW, if you're wondering what my school of economics is, I'd call it "monetary Keynesianism", or "New Keynesian". We're not subject to some of the limitations of classical Keynesianism -- for example, New Keynesians admit flat out that there are situations where government spending can crowd out private investment and therefore cause economic damage due to a mismatch between supply and demand. We simply state that flow of funds data shows that such a thing has not happened within the past forty years -- after Carter created 401(k)'s in 1978, in particular, available investment funding skyrocketed as people who'd had no previous access to retirement pension plans poured money into the system.
- Badtux the Money Flow Penguin
Well Reaganomics established the supply siders' idea that tax revenues would increase even with tax cuts.
jzb's attempt at correlation is not really accurate (for one GDP growth continues to increase slightly, not oscillate as his data suggests). The tax cuts happen once, '81...and the GDP rise then occurred over next few years: the tax rate doesn't continue to fall. So, statistically it would probably only match for a year or so, even though GDP spiked in '84, and stayed up for the most part until
'89; so at some point one makes comparisons of performance (avg. GDP growth over a pres.'s term), and the inference that tax cuts played a part in the "better" economy. The comparison should not be just to Clinton (who was really sort of a Reagonomics dude anyway;--), but to Carter, Nixon, LBJ-- . Note the GDP growth rate had nearly flattened (stagnation as James said), and tax rates high. In terms of Carter vs Reagan, Lazear's point appears to be verified.
The deficit in RR's last year was only 2.9 of GDP compared to 2.8 in 1980. Not that crucial.
So if you want to criticize Reagan and supply side, I don't think GDP helps. You would need other measurements.
Really, I think leftist econ. should focus on something like optimization: the rich were better off, and some middle class as well, but were the poor? Again, it's assumed that everyone benefitted (the supply sider's maxim) but not really proven---
Note that JFK cut Eisenhower era tax rates, and produced economic growth.
http://spectator.org/archives/2009/04/08/kennedy-reagan-v-bush-obama/print
In 1984, the economy grew by 6.8% in real terms, the highest in 50 years. Nearly 20 million new jobs were created during the next 7 years, increasing U.S. civilian employment by almost 20%. Unemployment fell to 5.3% by 1989. Even with the Reagan tax cuts, total federal revenues doubled from 1980 to 1990, growing from $517.1 billion to $1,031 billion, or just over $1 trillion. In Reagan's last budget year, fiscal 1989, the widely overballyhooed federal deficit had declined to $152.5 billion, about the same as a percent of GDP as in 1980, 2.9% compared to 2.8%.
Let me clarify a couple things.
First, I am not trying to establish correlation. That is Lazear's canard. I am exploring for correlations, and find that they are weak.
Second, GDP growth YoY is highly volatile, and does not steadily increase. I've ited the actual govenrment figures and link to the sources more than once.
Third, I have NOT set out in these posts to prove anything, re: Clinton, Keynes, Mickey Mouse, or even criticize Reagan. I set out to demonstrate that Lazear is full of shit.
Mission accomplished, QED.
Cheers!
JzB
Uhm, except tax revenues did NOT increase even with tax cuts during the Reagan Administration. Income tax revenues collapsed after the Reagan tax cuts, and recovered only because of the tax hikes Reagan instituted starting in 1984, and didn't even reach 1980 levels until 1985! See Cactus's posting on this at Angry Bear (sorry, I don't care enough this morning to go dig it up for you, but it's there, I promise you, and I checked his numbers against actual IRS tax collections data and they matched).
So where did this "tax revenues increased when tax rates were cut!" silliness come from? Basically, because vicious liars did not count the increase in the Social Security tax to be a tax for purposes of counting "tax cuts" -- but DID count it as a tax for purposes of "measuring revenue"! Cactus over at Angry Bear has the details in one of his prior posts, I checked it out against the IRS site and he was *right* -- the Reagan tax cuts did exactly what we would expect, i.e., reduced income tax revenues by the amounts of the cuts.
In short, you are repeating a myth that has been mendaciously created by liars who deliberately excluded Social Security tax hikes as tax hikes, yet included the collections from the hiked Social Security taxes as tax income. Sorry, dude. You've been duped.
The simple fact is that we're nowhere near the point on the Laffer Curve where tax cuts can result in increased revenues -- evidence from overseas appears to show that point being at around 45% of GDP flowing to government as taxes, which is why most of Europe sits at around 40% of GDP as taxes (the U.S. pays 26% of GDP as taxes). In short, we know, from looking at the overseas data and at the Reagan tax cut data that we could hike taxes by 14% of GDP (i.e., raise the top rate from 39% to 58.5%) and get exactly the results that we would expect -- more revenue.
- Badtux the Numbers Penguin
GDP growth fluctuations over the long term tend to be average 3-4%. At times (under Carter) it 's bit more (whether up or down). Bit it's not highly volatile compared to say stock or futures prices, or even the tax rates.
And again, I'm only agreeing with Lazear & CO (see the spectator article) in so far that the supply siders can point to certain bubbles which follow from the tax cuts (like 84, and slightly in 2003-04. Some moderates might say Clinton's bubble was supply-side (taxes still fairly low, regs also cut). That doesn't mean one agrees to Reaganomics, but we were dealing with the claim.
Bad researchers tend to mix in bias and normativity (whether that bias is right or left); really, I think you should include Carter/Nixon years, if not 60s in your analysis for more objectivity (and larger sample).
It's not going to correlate in the sort of sociological sense that you want: that's not really the right stat. model. It's comparative (ie GDP/tax ratio of GOP vs. Demo admins), not an absolute.
No, Cactus doesn't run the numbers over the entire Reagan admin, and also errored with the deficit (not even a 1% rise), and then also says (correctly) that at best he can show only like 50% correlation between tax hikes and GDP increase (during Clinton)--and the tax raises were hardly large, compared to Carter or LBJ.
So, again, by using the GDP he doesn't really show anything, though suggests Clintonomics worked for a year or two.
And the tax revenues did increase, according to official numbers (see the links on the Reagan wiki). OK, if you want to dispute that, we can dispute everything. Spending's another matter, separate from tax/GDP. Reagan did increase defense. But that sounds like your usual libertarian-nut point (ie all govt. spending is wrong), not a leftist point per se. I think the popularity ratios say something as well. Working class, even unionist Dems approved of Reagan. When the cuts hit the middle class paychecks (twice--in 81, and 86) people, even Democrats, listened, even if the rich were raking it in, defense was increasing,e tc.
So, as I said a few posts again, most rational people vote their pocketbook. One might detest a Reagan, or Scott Brown, and yet vote for em, because you wager your taxes will be cut. Party lines don't hold like they once did. There are no political or economic obligations,like one must support Dems--unless you care to prove them. Really, I consider Reagan closer to trad. demo policies than a Clinton, pals with Gingrich, and anti-New Deal.
Uhm, here's the actual numbers. The OMB numbers match what MediaMatters points out. Again, tax revenues during the Reagan years collapsed after the tax cuts -- it was not until 1985 that tax revenues reached 1981's levels again, and increases in tax revenues by the time that Reagan left office were modest and attributable to GDP growth and tax hikes that Reagan signed into law in 1984 and 1987. Note that this is the tax revenue numbers *WITHOUT* the Social Security tax revenues included.
Again, the talking point that "Reagan's tax cuts increased revenues" is inoperative. The data simply doesn't support it.
- Badtux the "Facts are facts, dude" Penguin
Here's another article by that notorious left-wing journal, The National Review, about Reagan's tax hikes, with the actual numbers (not inflation-adjusted, but you can do that yourself using the inflation calculator at the Fed's site). Yes, Reagan cut tax rates drastically in 1981, but almost immediately started hiking them again. Federal tax collections, as I previously pointed out, did not recover to 1981 levels until 1985, when the Deficit Reduction Act of 1984 kicked in.
- Badtux the Numbers Penguin
Yes, you allude to numbers; alas,
they're the wrong ones. The were two big tax cuts during Reagan--81, and '86.
As even the Fed govt. site establishes (and quoted favorably by Clinton):
http://www.house.gov/jec/fiscal/tx-grwth/reagtxct/reagtxct.htm
During the 1980s ERTA had reduced personal tax rates by about 25 percent, while the Tax Reform Act of 1986 chopped them yet again.
The Reagan tax cuts, like similar measures enacted in the 1920s and 1960s, showed that reducing excessive tax rates stimulates growth, reduces tax avoidance, and can increase the amount and share of tax payments generated by the rich. High top tax rates can induce counterproductive behavior and suppress revenues, factors that are usually missed or understated in government static revenue analysis...
That's on Wiki as well, other sites. Actually I object to the tax cuts, at least on upper brackets and capital gains. I'm against Reaganomics, and supply siders, while recognizing that some, even many middle class citizens benefitted from it (tho poor did not). The growth may help the upper class, even the investor class, but it doesn't do much for lower income. Yet most people would approve of the bigger check from the tax cut, even if you're a dem. But that's another matter.
You're the one opposed to taxation, and now you sound like you're objecting to Medicare or any govt. health care.
Penguin...the Teabagger?? Say it ain't so.
Actually I agree my points are somewhat ideological, Penguin (and that also follows from the problems of pure macro-economics, which jzb has amply demonstrated. There are no high correlations or even one might say "economic laws").
Better an honest Toryish-opportunist like Reagan than a phony liberal-bureaucrat like Clinton (mocker of 60s visions as well): that's one of my ideological assumptions, and I say that even as ....leftist (and ex-marxist, really). Reaganomics was on the whole better for most middle class, even working class than Clintonomics, I believe. Even his hike on medicare and SS indicates that (RR wasn't a BushCo or libertarian opposed to any and all state programs).
I should check my Brumaire, but I pretty convinced Marx at times gave his blessing to some fairly retrograde politicians, even aristocrats, over the whig-liberal reformer types.
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