Question for supply siders

[jj]

Oh, I guess we're going back to insulting each other. I didn't lie, phlegmwad. If you want to continue to engage in selective amnesia to support your heroes, then I guess that's what you will do. How do you breathe with your nose stuck so far up Bush's arse?

He lives in symbiosys with methanobacter?

Sorry, just kidding. Obscure biology joke, I guess.

It does, I have to say, seem like a larger fraction of the right-wing bully squad here feels secure enough in their power now to relentlessly accuse people who they disagree with of lying. I guess it's the next step in the process of dehumanzing their opponents. Soon, I predict, all comments that are opposed to their ideals will be "lies". Thinking is lies. Facts are lies. We must obey big Rover.

 

[Meadmaker]

Again, have they examined lag? Even if you have a strong correlation in a system, by not knowing the system "phase" or "lag" you may well not be able to observe it.

Conversely, if there is a cycle of inputs, you may lock onto something caused by another one of the inputs, so this does cut both ways, but you didn't answer the question "did they attempt a lag analysis"?

I must admit, I haven't even read the original link. However, a year or so ago, in response to a similar thread, I did many hours of research as much as google would allow, and could find absolutely no correlation between tax policy and any macro-economic variable, with or without time lags. Not inflation. Not unemployment. Not GDP growth. Not nuttin'.

I don't think there is any. But, like all negative propositions, it's easy to disprove. Show me the unicorn, anyone.

 

[Meadmaker]

That's silly. Reduce fixed costs like taxes, and you free up capital for growth, hiring, etc. You don't need a PhD to figure that out.

Tell me, if you pay $1000 less in taxes, what do you wind up doing with that $1000? You buy something or upgrade something, or you save it in whcihc case it gets loaned out at a low rate (cuz you're saving more, funds are more available!) to someone else who buys something or upgrades something. It's a oversimplified example, but the theory is as simple as can be.

So yes, I strongly disagree with the conclusion, on the same grounds I would disagree with a report on rain that says it doesn't make the ground wet.

So let's demonstrate why this is wrong, with or without PhDs lying on wet ground.

Suppose the government cuts taxes, but doesn't cut spending. They take in 1000 dollars less. The consumer has 1000 dollars more. He might buy something, which helps stimulate the retail and manufacturing economy. Yay! He might invest something in a business. That helps build jobs. Yay!

But wait. Where else might he invest it? Well, the government has to make up the lost revenue. It didn't cut spending. So, to make up the revenue, it issues $1,000 in bonds. Before they did that, the investment options available were business oriented, which means they carried risk. Now, there's this nice, safe investment option available. To sell more bonds, they had to make them cheaper, right? Supply and demand and all that. And cheaper bonds = higher interest rates on those bonds. More money that would have flowed into the higher risk, higher reward, business related options will now flow into the more attractive government bonds. It is an investment, but it doesn't make capital available. The addition of new government bonds means more safe, non-capital producing investments. That takes away investment from those business oriented bonds. Boo!

In other words, for every dollar that the government pumped into the economy by deciding not to take it from the taxpayers, they sucked a dollar out of the economy by borrowing it from the taxpayers. It's a wash. You've been taken to the dry cleaners.

 

[WildCat]

So let's demonstrate why this is wrong, with or without PhDs lying on wet ground.

Suppose the government cuts taxes, but doesn't cut spending. They take in 1000 dollars less. The consumer has 1000 dollars more. He might buy something, which helps stimulate the retail and manufacturing economy. Yay! He might invest something in a business. That helps build jobs. Yay!

Those new jobs also generate new income tax revenue, more sales tax revenue, etc. And some on gov't aid would get off of the aid and paying taxes, amplifying the savings.

But wait. Where else might he invest it? Well, the government has to make up the lost revenue. It didn't cut spending. So, to make up the revenue, it issues $1,000 in bonds. Before they did that, the investment options available were business oriented, which means they carried risk. Now, there's this nice, safe investment option available. To sell more bonds, they had to make them cheaper, right? Supply and demand and all that. And cheaper bonds = higher interest rates on those bonds. More money that would have flowed into the higher risk, higher reward, business related options will now flow into the more attractive government bonds. It is an investment, but it doesn't make capital available. The addition of new government bonds means more safe, non-capital producing investments. That takes away investment from those business oriented bonds. Boo!

That's a lot of conjecture on zero evidence. You can start by showing that the risk premium on US gov't bonds has increased w/ the deficits. Then show that money has flowed from higher-risk bonds to gov't bonds. Then we can discuss the rest.

In other words, for every dollar that the government pumped into the economy by deciding not to take it from the taxpayers, they sucked a dollar out of the economy by borrowing it from the taxpayers. It's a wash. You've been taken to the dry cleaners.

Once again, please show your work.

 

[fishbob]

Sometimes, common sense is all you need. For example, who spends money more efficiently: private business with a profit motive, or government bureaucracy with a vested interest in self-preservation? Can you point to any government entity that competes with a private interest based on performance alone? Because I can't think of any, and most people would agree than the less the government does the better (and cheaper).

While the experimental data may seem to contradict common sense, history likewise contradicts the experimental data. I don't need to know every bolt in my car to know that it runs a certain way.

I frequently see the 'common sense' argument from ID supporters. I don't buy it then, and I don't buy it now.

 

[Meadmaker]

Those new jobs also generate new income tax revenue, more sales tax revenue, etc. And some on gov't aid would get off of the aid and paying taxes, amplifying the savings.


That's a lot of conjecture on zero evidence. You can start by showing that the risk premium on US gov't bonds has increased w/ the deficits. Then show that money has flowed from higher-risk bonds to gov't bonds. Then we can discuss the rest.


Once again, please show your work.

I think Wildcat's previous message reads even better with my stuff removed.

 

[WildCat]

Hmm who owns your air traffic control system?

The Federal Aviation Administration.

 

[geni]

The Federal Aviation Administration.

It is certianly posible for such a system to turn a profit. The UK one did before the private sector got involved.

 

[Meadmaker]

Once again, please show your work.

I realized how trivial it was to "show my work".

The argument was about what happened when the government cut taxes without cutting spending.

Let's imagine that every single person who got a tax cut decided that the best thing to do with the money was to buy savings bonds. What would be the net result on the economy? Nothing. No stimulus. No additional capital. Nothing. All that would happen would be the government loaned money to the taxpayers, and would have to pay it back with money they got from the taxpayers.

Well that is what happens, except that instead of everyone buying bonds, some people buy all the bonds and other people spend all the money.

 

[RichardR]

And, that's the point, isn't it? Has anyone done a lag analysis as well? Since changes in economic policy don't "take" immediately, one might also want to check the correlation over a variety of lag times, as well. If the paper has done that I'm sorry, but the link isn't loading right here and now.

That’s a good point (and thanks for contributing something relevant to my original question btw).

The graph (figure 7) of GDP shows fairly steady growth from 1948 to 2003, with only a slight blip between 78 to 83 (and a smaller blip 73-75). The “tax decrease” bars are shown at 1968 and 1988. To me it doesn’t look as though there is much o fa “lag” effect, although I don’t claim to be an expert in looking at these things.

 

[RichardR]

You are looking at 5 data points, with a large one, the 1981 tax code change -- which might or might not impact the trend -- being eliminated by the author's criteria. The choice of time periods and the elimination of the 1981 data may or may not be reasonable, but it is a small number of sets to be looking at, especially given all of the extra variables that have to be controlled. These would presumably include national savings and investment rates, trade deficits and dollar strangth, inflation, and government regulation regarding minimum wage and benefits (just as a start).

The period after that tax cut seems to be one of the few periods in the 55 years where GDP actually reduced. Although it seems to pick up 2 years later (could this be jj's "lag"?). anyway, it doesn't seem to matter much that this data point was left out.

Without going back to the original data (and having a couple of free weeks to look it over carefully), I cannot really comment on the methodology, but the main author (from past reading) is agenda-driven, and so I do not immediately trust it/him. I cannot say from a brief review whether the study is valid, or not - but I would like to see the takes of other economists who *do* have access to the data and free time before coming to any conclusions.

I would like that too.

 

[Vagabond]

In other words, for every dollar that the government pumped into the economy by deciding not to take it from the taxpayers, they sucked a dollar out of the economy by borrowing it from the taxpayers. It's a wash. You've been taken to the dry cleaners.

Well put. There is more to it than that. One reason why I am not a fan of supply side economics is because there might be company that takes in 20 million a year and it might have 200 employees. You have a high end jewelry store that takes in that much and it might have ten. Some of the companies that make those multimillion dollar pleasure boats have like 20 employees.

A grand spent doesn't automatically translate into a grand into the economy. If I buy a used car for 5 grand and the person I buy it from uses the 5 grand to buy a new car ten grand got spent but it's really just the same 5 grand getting moved around.

 

[luchog]

Well put. There is more to it than that. One reason why I am not a fan of supply side economics is because there might be company that takes in 20 million a year and it might have 200 employees. You have a high end jewelry store that takes in that much and it might have ten. Some of the companies that make those multimillion dollar pleasure boats have like 20 employees.

A grand spent doesn't automatically translate into a grand into the economy. If I buy a used car for 5 grand and the person I buy it from uses the 5 grand to buy a new car ten grand got spent but it's really just the same 5 grand getting moved around.

Except that that's complete crap. In the boat manufacturer example, yes, they only have a few employees; but they don't conjure the stuff they build boats wout out of the aether. The money goes for fibreglass and metal parts, epoxy glues and paints, employee salary and benefits, electricity, building space in which to construct the boats, and various other expenses.

All of those items are taxed at least once, sometimes more than once.

As for the car example, that's just nonsense. Only $5000 is being spent, not $10,000. And it's being taxed twice -- first when the used car is bought, and second when the new car is bought. And as for "just the same [money] being moved around, that's effectively a semantically null statement. It means nothing.

 

[DavidJames]

So no one is able to refute the data in the original post?

 

[NoZed Avenger]

So no one is able to refute the data in the original post?

Give me a grant, access to their original data and some time off from work and I'll take a look. Their data may be valid, or may not.

 

[DavidJames]

Give me a grant, access to their original data and some time off from work and I'll take a look. Their data may be valid, or may not.

Sorry, my grant funds are already allocated this year .

I really don't expect anyone to actually personally pick through the data, but I would think there must be tons of independent studies extolling the virtues of this theory.

 

[Meadmaker]

, but I would think there must be tons of independent studies extolling the virtues of this theory.

I've looked for them. They don't exist.


And if anyone thinks they do, please direct me to one.

 

[Meadmaker]

Just for fun, let's also consider what happens when you raise taxes. Republicans say that just makes the economy dry up like a prune. Does it? Let's assume we raise taxes, but keep spending constant.

The amount of money availble for consumer purchases and investment goes down by the amount of the tax increase. Right? The government takes that money, but what does it do with it? It pays off bonds. Paying off a bond occurse when money transfers from the government to the private sector (i.e. the bondholder). So, the tax increase didn't drain any money at all from the private sector.

That's why there's no correlation between tax policy and the economy. It just doesn't matter.

But surely, there must be some significance to all this. Surely, with the government taking up all that money, it must have some impact, doesn't it? Yes. It does, but not because of taxes. To paraphrase the first Bill Clinton campaign, "It's the spending, stupid."