Well, we’ve just got back to the city after a very long day’s drive, and things will be getting back to normal here shortly.
For tonight, just a couple of links:
First, as the debt-limit deadline looms, you might enjoy this series of essays by Arthur Laffer on taxation.
And here’s an item from Dennis Mangan informing us that the whole idea that antioxidants are good for you — which has been the prevailing view for an awfully long time, and which has made a lot of people a lot of money — might well be a bunch of hooey.
Last, something that might get you thinking about some of life’s persistent questions, or just leave you staring into your beer: a photo gallery from Tampa, Florida.
23 Comments
Why should anybody pay.any attention to.what Arthur Laffer has to say? The myth of supply side economics has no more validity than other right wing myths, like “intelligent design” or global warming being a “hoax.” His theories have been disproven time after time (apologies to Cindi Lauper). He is the wrong way Corrigan of economics.
Well, there you have it: a solid, closely reasoned refutation. No need to bother reading the articles, folks. They’re just full of bunch of boring numbers and graphs and stuff, anyway, like most myths.
Re: the Tampa photo gallery.
I didn’t trawl through them all, but what an astonishing collection of ghouls. It vindicates my theory that a revolting appearance usually signifies villainy.
That one may smile, and smile, and be a villain does not modify my theory one bit.
There is no need to go through Laffer’s economic theory, as it was put to a real world test for sixteen years and failed throughout. The core of supply side economics — that lowering marginal tax rates will both bring in more revenue and accelerate economic growth — is a myth.
Reagan was the first President to apply supply side economics, and had to raise taxes several times because the Laffer curve wasn’t working. Some of the needed revenue came from higher marginal rates, but most came from other sources (increasing the payroll tax, eliminating deductions, etc.) The economy was awful in the first few years of his Presidency, and middling for the remainder of his term.
Bush was the second President to apply supply side economics, and came to office with a budget surplus and left with an enormous structural deficit, leaving his successor with a trillion dollar deficit in the 2009 budget. Even though tax rates were reduced to the lowest level since the Truman administration, the economy stunk for the entirety of his time in office. There was more private sector job growth in Obama’s second year in office than all eight years of the Bush administration.
There is a reason why Laffer’s discredited theories are called voodoo economics. If you would like to read economic theory by someone who actually knows what he is talking about, you would be well advised to read works by Nobel Prize laureate Paul Krugman, whose economic predictions were found by a recent Hamilton College study to be the most accurate and prescient of the 26 media pundits they analyzed.
Peter:
First, you can’t just say things like “the Laffer curve wasn’t working”. All the Laffer curve points out is that, given that tax rates at 0% and 100% are obviously non-optimal for revenue generation, there is a “sweet spot” somewhere in the middle, above which raising taxes is counterproductive. Supply-side economics is simply an empirical approach that tries to understand where that sweet spot is. If you have to adjust rates in order to find it (which may even mean raising them), that is hardly a refutation of the underlying idea. What supply-side economics does say is that, all other things being equal, higher taxes put a damper on the economy by reducing the incentive for businesses to undertake risky and effortful initiatives. So to say that supply-side economics is just about “lowering taxes” is a straw man: it’s actually about finding the level of taxation that maximizes revenue, based on the understanding that above a certain tax rate, revenue actually falls as the rate increases. Even Keynes himself made this point (it certainly didn’t originate with Laffer):
Second, inflation fell, and the economy boomed, under the Reagan tax cuts.
Third, the Hamilton College study just talked about “predicictions”, and most of what Krugman makes in his column are not economic predictions. (I have to admit I was as stunned, however, as I would be to find Keith Olbermann listed as “most level-headed”.) Anyway, if you want to see a failed economic ideology, look no further than what Krugman is constantly shrieking for more of. There is no evidence whatsoever that governments faced with recessions can tax and spend themselves into prosperity.
Readers: even though the “One-Eyed Man”, due to a withering ideological antipathy, can’t even bestir himself to read the linked articles or to try understand their subject matter, you still might find them interesting and informative. Do have a look.
If supply side economics worked under Reagan, then the lower rates would have produced more tax revenue. That didn’t happen, and hence he raised taxes.
Reagan increased the federal deficit in six of his eight years in office. While it is an overstatement to write that the economy “boomed,” it did benefit from the stimulative effects of deficit spending. However, if you compare the Reagan years with the Clinton years, you will see that not only was GDP growth higher under Clinton, but the deficits which Reagan built up turned into a surplus when Clinton left office.
It is true that inflation rates fell during Reagan, although the rate of inflation has a lot more to do with commodity prices and monetary policy than tax rates and fiscal policy.
There is plenty of evidence that deficit spending can rescue a country from recession. It worked for Reagan and it worked for Obama. The economy lost 750,000 jobs in Obama’s first month in office. You can draw a straight line from Obama’s stimulus to the current run rate of 150-200 thousand new jobs per month, or a net increase of about 900,000 jobs. Alternately, you can look at countries like England and Ireland which are enforcing austerity programs in the midst of recession, and whose economies continue to wither.
Why did you post the old Laffer stuff? it’s like reading Greenspan pat him self on the back before the biggest financial crisis of all times.
Did you post it because you think taxes are too high? I like this data. It is just the facts. I’d argue we are undertaxed.
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200
I don’t know when people will realize this but lack of regulation and securitization (the deadly combination) was the cause of the financial crisis. You can’t mix the two. If you’re not going to be responsible for your loans, then you better have really good regulators.
Clinton raised taxes and the economy boomed. As Warren Buffett said, no one ever stopped working or stopped investing because of tax changes. My favorite perspective on taxes is that we are taxed when our government spends, regardless of how much they collect.
Chris,
I posted the Laffer stuff because I thought it worthwhile, in the current situation, to keep in mind two points he makes. The first is that raising taxes doesn’t always generate more revenue; the second is that rising income inequality doesn’t always mean that “the rich get richer and the poor get poorer”; it can mean that everyone’s getting richer, and the rich are just doing so faster. As Laffer says, the point is not to make the rich poorer, but the poor richer.
Are we under-taxed? I don’t know; perhaps we are. It’s an empirical question (well, partly, at least). But the message we’re getting from our chief executive at the moment, with its relentless demonization of “millionaires and billionaires” and “corporate-jet owners”, seems less about tuning the tax rates to maximize real revenue than Alinskyite class warfare. By all means, let’s reform and simplify the tax codes, and perhaps even raise rates some, if will really raise revenue, and it isn’t just a counterproductive political sop to the Democratic base.
I suppose Warren Buffet is right, but what he doesn’t mention is that although the wealthy may not be prevented from investing by higher tax rates, they may well be inclined to invest elsewhere. Also, given that the wealthy have the greatest flexibility when it comes to how to shelter themselves from taxes, you get the least bang for the buck when soaking the rich. Laffer mentions this also:
Peter,
There is nothing intrinsically wrong with deficits; it all has to do with the economic context. Laffer yet again:
The boom in the economy during the Reagan years was a result of tax policy, not deficit spending.
I completely agree. I think most economists would argue that governments should run deficits, provided their level is less than the growth rate in the economy. This creates a virtuous cycle where stimulus increases economic growth, which generates more tax revenue, etc. The problem arises, obviously, when deficits balloon above the growth rate, and instead you have a vicious cycle of increasing debt service, which constrains economic growth, etc.
I would not be in any hurry to contribute to a tax deferred account right now because I cannot see how taxes will be lower in the future. Which leads me to how I think we should be taxed…death taxes!
(1) you’re dead when you pay death taxes so it doesn’t hurt
(2) people who just inherit wealth never invest/spend that wealth well. They’re the only group of people that spend money worse than the government does.
(3) inheriting money makes you lazy and stupid, see Paris Hilton, etc.
(4) inbred family dynasties are unamercun
“Provided their level is less than the growth rate in the economy”.
Well, right.
As for that “worked for Obama”: the rate of job creation hasn’t even been sufficient to keep up with population growth (while we seem, utterly perversely, hell-bent on flooding the market with unskilled immigrants). We are stuck at over 9% unemployment even by the favorable calculations usually touted, and 16% real (U-6) unemployment.
Chris,
“doesn’t hurt”? For some reason the idea of handing over everything I’ve worked my whole life for (and have already paid taxes on at least once) to the insatiable Gummint, instead of leaving it to my kids, or to those charities that I consider deserving, or to whomever or whatever else I bloody well like, hurts me plenty.
The government — our government, which exists only at our pleasure, in service to us, is supposed to operate on what we, the free citizens of the United States, decide to give it, so that it can execute its carefully enumerated responsibilities. Instead the idea seems to have become that we should be happy to scrape by on what it deigns to let us keep, and on those blessings that it is willing to provide us (paid for, of course, by the wealth we created in the first place, minus the enormous and ever-growing administrative cost of government itself).
Now obviously I understand the need for government, and I am perfectly willing to pay my fair share of necessary expenses. But just as any responsible householder must do: when it comes to government we should decide, first, what we we can afford to pay, and then buy however much government that will cover. Instead, we now just say “oooh, let’s have this and this and this and this” — and send the bill to our kids. (And don’t think I’m just blaming Democrats for this; it’s been the Republicans too, and most of all the voters themselves.)
If we were trying to do the very best job we could, in every way we could come up with, of destroying what was once a virile and vigorous and prosperous and confident nation, we couldn’t be doing much better than we are. We are headed for one hell of a rude awakening.
John Derbyshire said, a couple of weeks ago:
True, “hurts less” would be better words.
We, as a society, paid a lot of taxes but we didn’t pay enough taxes. We got some nice government pleasure (internet, space shuttle, televised wars, food stamps, cheese, stimulus checks with GW’s face on them, cash for our clunkers, etc.) that we didn’t pay for. So now they’re coming for our friggin’ lear jets. They won’t get mine. But it’s time for the rest of you to pay the bond holders, and fly coach.
I also think taxing oil companies would be good. Oil companies have the most pricing power. They will pass on the tax directly to the consumer. Not only are we undertaxed in the U.S. (for the level of gov’t pleasure we receive) but we also do not pay enough for gasoline. USAGE taxes are my second favorite form of taxes.
Cheese? Where do I get my government cheese?
I could really go for some Stilton right about now.
No, we paid a lot of taxes — plenty of taxes — but then decided to spend vastly more than we had: far more than we could reasonably expect to cover with any imaginable expansion of prosperity.
We grossly violated the rule Peter described: deficits are fine, “provided their level is less than the growth rate in the economy”.
Pete, cheese is probably in here somewhere.
We don’t pay a lot of taxes, either compared with other industrialized countries or with our own historical standards.
Taxes are at the lowest level in our lifetimes.
Again: I am not arguing that we are over- or under-taxed. The two important points I’ve tried to make here are:
1) That raising taxes on the wealthy does not always increase revenue;
2) That the level of goodies the government provides should be determined by what we are willing to pay. If by a democratic process we decide we are all entitled to Jacuzzis, Hennessy V.S.O.P and Lady Gaga tickets, while working 30-hour weeks and enjoying full retirement benefits at 27, well, fine — if we can figure out how to pay for it.
When an increasing majority of the population begins to demand such “rights”, however, and expects an ever-dwindling productive minority to pay for them, there is going to be trouble.
It’s worth noting that chief among the “goodies” the government purchased was the war in Iraq, which added over one trillion dollars to the national debt (and still counting). Ditto for the war in Afghanistan, the security apparatus constructed after 9/11, and military bases around the world. So the inference that our parlous state is the result of government largesse aimed at its citizens is not entirely accurate.
No argument there; we have frittered away an awful lot of our money, and the lives of many of our finest citizens, in the foolish hope of bringing Western secular democracy to benighted Muslim snake-pits. We also squander vast sums in foreign aid to nations that despise us. And for decades we have propped up Europe’s otiose socialist leisure-clubs by sparing them the cost of providing for their own national defense.
Even those titanic expenses, however, pale in comparison to what we’re doing here at home.
Here’s a great series of graphs regarding taxes and debt … be sure to click on the tabs at the top for the different perspectives:
http://advisorperspectives.com/dshort/charts/policy/debt-to-gdp.html?federal-debt-tax-brackets.gif
Thanks Chris — that does look like a very good resource. It shows clearly how we are in stratospheric territory as regards debt vs. GDP.
We were there once before, during WWII – but the difference is that we had just massively geared up manufacturing for the war effort, and as a result entered the postwar era with two enormous advantages: first, that there was no other manufacturing nation on Earth that could come anywhere close to our capacity, and second, that Japan and Europe lay in rubble, and their rebuilding meant that we had customers for everything we could make, just as fast as we could make it, without any competition at all.
In short, we ruled the world.