Asymmetrical Information

Over here in the states we spell the word l-a-b-o-r. I guess working for the Brits causes some people to pick up bad habits.

The improving overall economy without an increase
in jobs is "caused" by higher labour productivity.
As Jane suggests, if the economy keeps growing,
wage growth will inevitably follow. As a voter
one should ask, which party or candidate is most
likely to "make the pie higher"?

I guess you can figure who I'm supporting :-}

(btw - I've worked myself out of my current
contract. It expires in 4 months. Those
on the Left say I should whine. Instead,
I think I'll look for a better paying
gig elsewhere.)

I read that post of Kevin's and decided it wasn't even worth commenting on, it being such an obvious example of a non-sequitur wrapped in statistical analysis. Is it just me, or have the Republican and Democratic tribes become even more prone to this sort of "thinking" than they have in the past?

Maybe my disgust for the primitive tribalism that passes for political culture has simply become more acute through prolonged observation, as evidenced that there are fewer and fewer political commentators that I can stomach reading, so many being consistently prone to putting forth obviously disingenuous or poorly thought-out pieces. It seems that the trend is getting worse, although it may be that I don't read many Republican writers anymore, and the tribe that wants to re-take the White House always indulges in more of this crap; the Republican tribe pundits were pretty damn bad when Clinton was in office. At this rate, by November I expect the tribalists to be claiming that evil spirits are possessing their opponents.

Will - I'd like to direct you to the Heritage Foundation. Also, I'd like to know which conservative was "pretty damn bad when Clinton was in office" when writing about economics? (I limited it to economics because it is a matter of taste if you didn't like the harping on Clinton perjuring himself)

Jane - Sometimes people look at business cycles and think that they've come up with perceived pattern. Then it always seems that the next business cycle upends the thinking. I remember that Alan Greenspan in the late 70's or the year 1980 when mystified and asked by a reporter about inflation being high and interest rates being high at the same time his comment was something to the effect that the laws of supply and demand have temporarily suspended themselves (paraphrased heavily here).

No matter what data anyone comes up with, whether it's Clinton claiming he created 22 million new jobs or lefties claiming that Bush has a jobless (or now somewhat jobless... wait a minute is it a jobful recovery now? :) ), the point is that Presidents and Congresses and even the Fed have not as much impact on the economy as reporters/journalists think.

Yes, there is influences that can hurt or help the economy such as tax cuts or tax increases have known positive or negative effects and raising and lowering interest rates have known positive or negative effects, but nobody can say for sure what the rate of growth in the economy would or wouldn't have been before someone made the change. For instance, to help the economy taxes are lowered. Nobody can say for sure that there would have been minus 1% growth and then the tax cuts made 5% growth. The economy might have grown at the rate of 3% and the tax cuts might have only helped by 2%.

Here is an illustration of what I mean....

During the late 90's (many people seem to get it wrong) the economy grew and many jobs were created and it is pretty clear why. Most of the big companies and governments were spending a lot of money before Y2K on IT. I was there. I know it. I was working for Cal Fed Bank at the time. Every banking institution had a large amount of red ink going towards IT spending. General Motors was reported to have spent over 770 million on IT in a single year attributed to Y2K. Many corporations reported similiar percentages (to GM) spending on IT. The ripple effect was huge. The federal government and states raised tax rates but that did not hamper this ripple effect. The economy grew. I predicted to everyone in my circle around me in 1998 and 1999 that the economy would show big signs of going down in the second and third quarter of 2000 (after Y2K) as companies tried to tighten their belt and put a stop to the outrageous spending.

I was right. April 2000 valuations of consulting and .com's plummetted. Spending my companies plummetted on IT. By October of 2000 (before Bush was elected) it was pretty clear (because many economic indicators showed this) that we were either already in or almost in a recession (technical definition of recession means time has to pass)

It was neither due to Clinton that there was good economic times that States should have been able to sock money away for rainy days and it was not due to Bush that there was a recession.

It is irrefutable however that the act of cutting taxes twice by the Bush administration was:
1) Helpful to the economy - nobody knows by how much
2) Not the cause of the deficits. The cause was the recession. Only feeble minded static analysis propagandists can claim that the really small as a percentage of GDP cuts in taxes caused the deficits of 400 and 500 billion.... and those same people would now have to explain why revenues into the governments (under the same tax rates) are picking back up? Spending ballooned in late 2001 and the year 2002 as well (it doesn't help that a recession caused revenues into the government to go down at the same time that spending went up dramatically)

My own feeling about the "slow" rate of job growth is that our past recession had less to do with the business cycle and more to do with the bursting of the tech bubble. Just as the crash of the real estate market in the late 1980s left the country with a large oversupply of commercial real estate, we entered the last recession with too many assets (a/k/a people) allocated to the computer industry. As the economy improved in the 1990s, it took a long time for the commercial real estate glut to be worked through -- this meant it took a long time before new buildings needed to be built and a long time for the number of construction jobs to recover.

Similarly, in the late 1990s, much of our computer hardware and software was replaced to be Y2K compliant. Many firms accelerated their technology purchases by several years. Is it any wonder firms have put off purchasing new computers? They are still amortizing their technology investments from 1999. Until this "glut of technology" has been consumed, job growth in this sector will be very slow.

Pat, look no further than Republicans who just "knew" that the tax increases in 1993 would throw the economy back into recession, or, more generally, that tax increases "caused" recessions. If I had a nickel for every time some member of the Democratic or Republican tribe claimed to "know" the cause and effect of various policies and phenomena, and "proved" it with disingenuous or ignorant use of statistics, well, I'd be sending this post from my lodge in Telluride, or from my cabana in Kauai.

Will - It is known that tax increases (taking more money from the private sector) decreases the amount of economic activity that would've occurred.

Coming out of the 1991 recession and then going into 1993, you can pretty well be assurred that the economy could've or would've been growing faster without the tax rate increases (because tax rate increases take more money from the private sector). The problem is that those tax increases might have been well timed because too much growth is not good either (hurts the elderly etc.). And then also, the Democrats and journalists were able to somehow claim that their 1993 tax increase gave us 22 million new jobs and a great economy. I want to pull their hair out when I hear the dimwits say this.

You are right that I remember Rush and others predicting a down turn in the economy. But to their credit, they actually understand the effects of taking more money from the private sector.

I give more credit to those who got it wrong because of timing (yet understanding the principles) vs. those who got it right due to timing (but don't understand the principles).

I hope you can understand. I don't judge the conservatives as "tribe pundits [that] were pretty damn bad when Clinton was in office" as you have. Maybe we can judge you as "inept" if you don't understand that the principle of taking money from the private sector is harmful to the economy.... :) I love playing with those who judge (applying the same standard back)

The improving overall economy without an increase
in jobs is "caused" by higher labour productivity.
Posted by pragmatist

In other words, people are working longer hours for the same pay, while their employers give themselves bonuses.

Orbo - You got it wrong again. :) Higher productivity is not defined that way. Working longer hours does not "increase" productivity. Getting more done in the same amount of time is what "increases" productivity.

That may because of automation or new processes or streamlining etc. But just to let you know... you got it wrong. :)

Bush has indeed favored tax policies providing incentives for buying new equipment over those promoting additional hiring. These incentives will expire next year, however, so it may be no coincidence that hiring is starting to pick up. Overall, the Bush tax policy has done a great deal to improve ecomomic conditions, but some specific provisions may have contributed to slower job growth.

Jervis - Assuming that the "judgement" by lefties that "Bush has indeed favored tax policies providing incentives for buying new equipment over those promoting additional hiring" is true, where do they think the equipment comes from? Thin air?

The equipment had to be produced by "employees" of a company who manufactured and sold the equipment. Ordering of equipment is positive for employees and positive for the economy and leads to more hiring.

Just to top it off. I don't believe the "judgement" is true and I always look out for journalism techniques that "ascribe" motives to Bush such as "favored tax policies". That's pretending to know what is in Bush's head.

New equipment typically enhances productivity, reducing the need for new workers. The second tax bill that Bush got through Congress had incentives for purchases of equipment, but none for hiring. Democrats in Congress had proposed wage tax reductions as an element of the bill, but Bush resisted this idea. Many economists think that productivity improvements lead to more hiring in the long run, so Bush's choice may have been a sound one, but at least in the short term his proposals favored equipment over workers.

Pat, people who claim to "know" things that they quite evidently do not "know", and then are unable to frankly acknowledge their errors, are not people to be listened to any longer. This comprises a large percentage of the pundits in both tribes.

If Republicans had simply stated that increased taxes tend to decrease economic activity (there are exceptions; taxes increased at the outset of WWII, while economic activity increased. Not that I'm recommending global war as a means of ending depressions.), and that the smaller the percentage change in either direction, the smaller the likely effect, I'd have no problem.

That isn't what they said, however, and no, it wasn't just Limbaugh. They claimed to "know" that the tax increases were going to cause a recession,or at least kill any chance of rapid economic growth. Of course, when one is committed to overselling supply-side effects through disingenuous argument, to the point that a change in marginal rates of 10% is represented as being as significant as one of 40%, there is no room left for honest examination. Don't even get me started on the false assertion, made by many Republican pundits, that any decrease in tax rates always raises more revenue through increased economic activity than is lost through the lowered rate. Jane, to her credit, has written much discrediting this notion in this forum.

Look, I'm not an anarcho-syndicalist, but I'm pretty darn strongly anti-statist, perhaps more so than you. That isn't any reason to not recognize disingenuous twaddle for what it is. Unless one's primary consideration is to defend the tribe, of course.

Pat in CA says--"It is known that tax increases (taking more money from the private sector) decreases the amount of economic activity that would've occurred."

Clearly you are joking, or at least engaging in extremely sloppy generalizing. Tax monies don't just disappear into a black hole--the Government spends it.

Markets are imperfect. Information is imperfect. Outcomes therefore can be undesirable & inefficient. Sometimes--granted, less than many leftists seem to think--state intervention is necessary to promote a better & more efficient outcome. Yes, the private sector is, generally, far, far better at that task, but it is not infallible.

There weren't exactly a glut of companies clamoring to construct toll roads in the 40s & 50s, but, lo & behold, some good ol' fashioned TAXES & public spending created the Interstate Highway System, which has radically transformed commerce in this country, largely for the better. Ditto for railroads.

You might argue nothing that Clinton designed or spent $$ was remotely similar, and that's a fair argument to make. But your statement is just unthinking party-line dogma, utterly unconnected to reality.

And, of course, we did experience a similar infrastructure revolution during Clinton's time in office, and his spending priorities helped to boost it--E-rate anyone? putting internet into poor public schools. Now, of course, you ought to chime back that the E-rate program was massively defrauded, and that is a big black eye, but the thought was good & the implementation bad.

If government could make more productive use of marginal resources, then raising taxes would be a beneficial policy. If the private sector made better use of marginal resources, then lower taxes would be beneficial. Through election choices, the voters express their desire for a certain mix of public and private goods. The optimal mix of public and private goods is an open question.

Jervis - What in the world is a "wage tax reduction"? Bush and the Congress passed "income tax rate reductions" so as far as I'm concerned people immediately were helped and that help translated to extra money that they could either spend or save. Whether it was $600 or $2000 to that family it was money that improved the economy because more goods and services were purchased. Seems the jibberish you are reading has seeped in to far. Yes. there were additions to what businesses could claim (concerning equipment)to lower their total tax bill. That was spun as "favoring" equipment over people by the writers of the jibberish you are reading. That is "ascribing" to know what Bush and Congress was thinking.

Will Allen - Conservatives/supply siders/Republicans (who believe in it) do simply state that increased taxes tend to decrease economic activity.

And it is true that when conservatives/supply siders/Republicans (who understand it) defend themselves from liberals who claim that a tax cut means lower revenues into the government, that they state that tax rate cuts don't translate into lower revenues all the time and that it is highly possible (as evidenced by history) that the lower tax rates actually spur more revenue into the government. YOU SPIN that DEFENSE into Republicans ALWAYS state that lowering tax rates raise revenue.

I don't know one conservative/supply sider/Republican (who understands it) who makes that ridiculous claim of ALWAYS. Time and time again I hear our side talking about the Laffer curve and finding that spot where tax rates translates into the most actual revenue into the government and raising tax rates doesn't necessarily translate into more revenue.

The actual knee-jerk response by the journalists/most people in the public to a deficit (whenever in CA or Federally speaking) is to raise tax rates. Fortunately, I think a majority of people in CA got it this time. You can't raise taxes out of a defecit problem especially when you are in a recession like CA was and maybe still is in.

You translate conservatives into letting CA's or Americans know that lowering taxes may be the "answer" to getting the state or country out of the recession and will actually help with the revenue situation into something that conservatives (or none that I know) were or are saying.

Seems like you are claiming to "know" something that isn't true either. :)

J - You are so badly misunderstanding about economics and private/public sector spending outcomes that I can't even begin to tell you. Suffice to say you need education..........

Now that job growth is picking up, wage growth wil almost certainlyl not be far behind. This will be true whether George W. Bush or John F. Kerry is president. And if the former, will those currently accusing him of opressing the worker be looking for conspiracy theories to explain why wages are growing faster than profits?

Maybe. What is certain is that those currently defending Bush will give him all the credit for improving the employment situation.

Bernard - And why must people defend Bush? Because there was an attack? Seems that a defense is a reactive response to someone else who took an action.

Pattern continues... :) What were the "tribalists" on the left accusing Bush of for the last 2 years?

Pat in CA writes: "You are so badly misunderstanding about economics..."

You construct sentences as inelegant & clumsy as that, and I'm the one who needs more education?

Seriously, that's a laughable reply. Way to raise the discourse. If I'm so obviously & clearly wrongheaded, it shouldn't be that difficult briefly to explain what, in your opinion, I seem to be misunderstanding.

Pat, is it truly your position that there were not many,many, Republicans who asserted that they "knew" that the tax increases in 1993 were going to prevent rapid economic growth, if not outright recession? Do the quotes really need to be posted here to dissuade you from saying such a thing? Is your loyalty to the tribe that absolute? Similarly, do the misleading statements about the power of tax cuts (and I generally favor almost all tax cuts) have to be reproduced? This is what my original post was about; this mindless tribalism which results in the nonsensical notion that honesty resides in one tribe while dishonesty in the other. It really chokes off any chance for useful debate.

J - Since it's my lunch hour I'll try.

To the extent that the government might be producing a good or providing a service (DOD spending somtimes) or purchasing goods and services from private companies, yes the amount spent might actually help the economy. But a large portion of the federal budget is not productive.

1) Pork projects to beautify this or that part of a state because a senator wanted it would've been money much better spent on something productive.
2) Spending money to give a benefit to seniors can be argued to be needed but taking it from the private sector does take money out of people's hands. Spending the money on health and prescription drugs does help health and drug companies but it would've been more efficiently spent some other way than by the federal government. The federal government traditionally only is able to give between 25 to 50 cents on the dollar in benefits and services because of the administrative costs associated with the government.
3) The most extreme example would be to tax at the rate of 100%. There would be no economy to speak of the next year. Business would have no incentive. The fact that the government had more money to spend that year is not going to help grow the GDP for the following years.

J - The Heritage Foundation has a very extensive .pdf file that ranks all of the countries economic growth and their amount of taxation. There is a strong correlation to the fact that the more a country taxes the less economic activity in the country.

To understand my statement that you put in quotes really is elementary....

Will - My loyalty is to my beliefs and understandings.

You can N E V E R tell me what the rate of growth would've been the following year after the tax rate increases. To proclaim to "know" what that rate of growth would've been would be to have a crystal ball.

Because you can't, you can no longer tell me or anyone that we got it wrong because we were saying what we understand and you don't understand it.

Tax rate increases do retard economic growth. Depending on timing, it could lead to a recession or it could just be a reduction in the amount of growth.

What chokes off meaningful debate is what you engaged in initially with the "mindless tribalism" of attacking. And then attacking when one defends what was truly being said.

No matter how many quotes you come up with, it is a misunderstanding on your part of what Walter Williams, Thomas Sowell, Heritage Foundation folks, National Review folks were saying in their entirety. Because you misunderstand you tend to engage in "mindless tribalism". Your tribe is the non-tribe.

I love it when "centrists" or "moderates" claim to be smarter yet they "misunderstand" or "misinform" people about those they are attacking.

Pat in CA--thanks for your response & trying to have a dialogue. However, I seriously think you ought to pause, and reflect for a moment, on some of your beliefs. You seem like you're an intelligent person, but many of your beliefs must not have been exposed to any serious reflection or debate.

You write "Pork projects to beautify this or that part of a state because a senator wanted it would've been money much better spent on something productive."

Well, somebody is doing the beautifying, and they're getting paid, and they'll pump that money back into the economy. That's productive.

I think what you mean to say is that the State's doing so inhibits individual liberty to do what one wants with one's own money. You can try to persuade me that we should leave more & more money with the individuals who earn it & let them persue their own self-interested ends & that'll result in the greatest good. And I do generally agree with that, but not absolutely.

Meanwhile, I'll be trying to persuade you that, sometimes--whether because of imperfect information, externalities or difficulties of properly assigning costs & ownership, etc--worthly goals & values are underserved in the market, and that securing those goals is worth a bit of state intervention.

As to your #2, I think you're wrong on that. If the Federal Government is so inefficient, why did all the private companies insist that the GOP packed the Medicare bill full of "extra assistance" & incentives for them to compete against the Government? See here.

As for #3, that's not serious argumentation. Nobody wants a 100% tax rate. I'm not accusing your fervor for tax cuts to mean that you're really arguing for 0% tax rates & no government. Come on.

I see you've written to Will Allen that "Tax rate increases do retard economic growth."

That's just not true. Certainly not absolutely--if you want to argue that generally, that's something else entirely.

But imposing a tax that creates a brand-spankin new infrastructure--which dramatically aids economic production across sectors--actually increases growth. Likewise, spending programs that send the money to research--and, say, creates something like the internet, or various drugs or inventions--is again, not a retardation of economic growth. The private sector doesn't always have the best incentives to conduct this kind of speculative research, and, in the case of infrastructure, it's simply preferable that it be standardized & performed by the Government.

When Congress under DDE enacted its tax on gasoline, that spending unarguably increased economic growth, thanks to its creation of a national, standardized system of transportation.

Pat - As I am a strong supporter of cutting marginal tax rates, this is hard for me to say: You are overstating your (our) position. In theory, higher taxes can lead to economic growth. While this theory sounds strange to our ears, it was once (and still is) a wildly accepted part of macro economic theory. It even has a name, which I am not sure I recall correctly, the Tax Multiplier -- so named for the fact economists had noticed that economic activity increased as taxes went up.

I am not much of a believer in the tax multiplier. It was developed in a day when our economy and our government were much different than they are today. Still, to understand how it (might have) worked, follow this simple example. Suppose you and a bunch of your friends had a few pennies in your pocket at the end of each week. There is not much you could do with that spare change, except, maybe, buy some chewing gum. On the other hand, if government were to collect those spare cents through taxation, and if government were to spend the money building a dam, economic activity would increase as a result of the tax. (Jobs building the dam are worth more than those making chewing gum and, after the dam is built, the economy would have a new asset that would make farming, power generation, etc. more efficient.) So, unless you know what government is going to do with the money and you can compare that with what the money otherwise would have been spent on, you cannot say that each and every tax increase will lead to a decreases in economic activity.

Having said that, since most of what government does with our money is fund transfer payments (which produce little, if anything, in the way of assets or jobs), and since increases in the marginal rates create an incentive for the rich to work less, it's fair to say that MOST tax increases are unlikely to grow the economy.

The equipment had to be produced by "employees" of a company who manufactured and sold the equipment.

True, but that then begs the question, what percentage of that equipment was produced stateside and what percentage was imported? In the latter case the capital purchase itself will have no immediate impact on US employment (though the equipment may have also brought revenue here sometime previous if the R&D for it took place stateside). Note all those keyworkds.

Furthermore, even in the case of stateside production, if e.g. ten people produce a machine that replaces the work of ten other people, the result is not equilibrium if two (or more) companies implement the machine.

If either or both should be the case, then a "lag" effect on job creation is plausible and there is nothing insidious about the mere observation.

David and J and Will. You guys are WRONG. No matter how much you argue. I see the problem though. I hope I can convey it. Here goes...

Tax rate increases reduces economic activity.

Government spending increases economic activity.

You guys are mixing and matching. My statement is absolute. What you guys are doing is mixing the 2 issues.

Of course if the government taxes at the rate of 1% but spends all that money on computers then nothing really was lost in economic activity or growth.

And of course if the government taxes at the rate of 1% but spends all that money as a transfer payment like Welfare (which by the way gets 28 cents on the dollar to the recipient because of administrative costs) there is no equal give back to the economy that helps the economy in the long run.

The tax of 1% is a drag on economic activity. The spending is a whole separate issue that I realize that you guys are bringing up now. But you guys were saying that I was getting it wrong and I wasn't.

Here was a quote that helped, "But imposing a tax that creates a brand-spankin new infrastructure". SPENDING by the government created the brand spankin new infrastructure.

It isn't semantics either.

Tax rates can go up or down and yet revenue might be the same whether or not they went up or down. Supply siders (not leftists) recognize that there is often times a tax rate reduction and YET an increase of revenue into the government. This is not an always and I don't know anyone who has said this.

Spending by the government is a tool that can be used DURING recessions to help get us out of a recession. But to raise tax rates to try to get more money to spend is the EXACT WRONG THING to do during a recession. YOU can't tie them together.

I hope you guys are straight now.

Anonymous - Do you know what percentage of goods and services are imported/exported. Less than 10% of GDP. Which means there is a 90% chance that the capital improvement is helping employees across America.

Your furthermore case just doesn't hold water. People for generations have said that their job is going to be replaced by a machine. What ends up happening is we start having jobs as "computer techs" or "copier repairers" or "software developers" or "sterilizing processor technician" as opposed to "horse groomer" or "blacksmith" or "typewriter repairer" or "horse manure pickeruper".

We have more people employed in America now then at any point in history. The 5.6% unemployment rate is lower than the average unemployment during Clinton's years.

Pat, I'll simply note that you declined to answer my questions to what many Republican were asserting , regarding what they "knew" the economic effects of the 1993 tax increases were going to be, and then you erected a straw man in which it was falsely imputed that I had made specific assertions regarding Walter Williams and Thomas Sowell, among others. Next, another false imputation was made regarding my alleged self-identification as a "centrist" or "moderate". Nope, when the tribalists can't go a few paragraphs without misrepresentations and other shenannigans, there isn't much use in having a dialogue.

Will. I'll simply note that you continue to try to "smear", "attack". I didn't say you made attacks against Walter Williams. You just want to attack others as "tribalists" and "attribute" messages to a side when nobody I know said the things you are asserting (attacking and smearing).

Why do I defend ourselves from you idiots?

American style capitalism is the most wide-open style of competition on the planet and the standard of living is a reflection of it. God bless America!

Having said that, there are two dirty little secrets that we should all keep in the back of their minds:

One, the system allows the smart to prey upon the stupid, by definition. Proof of this? Sub-prime lending or maybe "buy here, pay here" car lots.

Two, the greatest barrier to productivity is in the executive suite, not the shop floor. It is the human characteristic of unbridled arrogance and is usually seen in the older, white males of the species. Since I fit this profile, I must plead guilt by association (in recovery, though).

I beleive John Galt is the next defense witness.

Pat in CA said: Tax rate increases reduces [sic] economic activity.

Government spending increases economic activity.

You guys are mixing and matching. My statement is absolute. What you guys are doing is mixing the 2 issues."

We're not mixing the two issues--they're inextricably linked. You can't just say a tax reduces economic activity, because you have to consider the use to which that tax money is directed.

It'd be like saying "A one hour visit to the doctor decreases the amount of life you have to live by one hour." Literally true, but maybe that one hour visit will detect a heart condition, which, corrected by surgery, allows you to live years longer.

And when you say "SPENDING by the government created the brand spankin new infrastructure. It isn't semantics either." I wonder if you're really serious.

How did that spending occur? Taxation. To be specific, a tax increase (on gasoline, as it were in my example).

You also write: "And of course if the government taxes at the rate of 1% but spends all that money as a transfer payment like Welfare (which by the way gets 28 cents on the dollar to the recipient because of administrative costs) there is no equal give back to the economy that helps the economy in the long run."

First of all, I hope you are aware that welfare constitutes a tiny, tiny portion of the budge, i believe below 1% of the budget. You'd say Social Security or Medicare is another transfer payment, and those are, indeed, much larger portions of the budget.

Secondly, take some welfare recipient. Without that transfer payment, perhaps this jobless woman resorts to prostitution or drug use & is jailed. Instead, maybe she uses that transfer payment to buy a suit, go to Kinko's, make a resume & apply for a secretarial job. She gets it. Society is better off, & the long run economic picture is far better because of it.

Now, again, you're free to argue with me & say that doesn't happen very often. That's cool--that's a substantive issue we can disagree on. But you keep spouting unexamined & thoughtless dogma.

You should really sit down & think about your positions. Challenge them & the assumptions they rely on. Read opposing viewpoints with an open mind, and really try to understand them.

Until you do, I'm afraid there's little point in continuing a dialogue with you.

No, Pat, I didn't smear anyone. I stated that many Republicans had asserted that they "knew" that the tax increases in 1993 woud prevent rapid economic growth, if not asserting that a recession would ensue. This happens to be true, and it is telling that you won't answer a simple question pertaining to this issue, an issue which illustrates that Republicans, like Democrats, engage in nonsensical statements regarding economics. For you defending the tribe is everything; under no cricumstances can it be acknowledged that many members of the tribe have been less than forthright. This is what also produces the ridiculous assertion that no Republicans have oversold supply side theory.

Finally, you misrepresent (sigh) yet again, by writing that I had asserted that you had stated I had "made attacks" against Walter Williams. In reality (a wonderful thing, try to engage it sometime), I said you "falsely imputed that I had made specific assertions regarding Walter Williams". This is true, as evidenced when you write....

"No matter how many quotes you come up with, it is a misunderstanding on your part of what Walter Williams..."

....a statement which was preceded by exactly no statements of mine which specifically referenced Walter Williams. Thus, you have falsely imputed what my position is on Walter Williams' opinions. It may have escaped you, but Walter Williams and Thomas Sowell do not completely comprise the set known as the Republican Party (hell, is Prof. Williams really a Republican?), but are at most a sub-set.

I believe Walter Williams is a Libertarian, but don't hold me to it...

J - Learn how to listen. You're lost.

Will - Sorry. But, I was talking about a concept and understanding that people like I and Walter Williams have. I'll leave him out for now and just say that you just want to continue to attack. Your statement ,"For you defending the tribe is everything; under no cricumstances can it be acknowledged that many members of the tribe have been less than forthright is evidence of that.

I keep saying that nobody I know or read has said what you assert . Nice try. Keep asserting to others as I'm sure you will.

J - One last sentence. A government can borrow and spend and spur economic activity (it is the spending that adds to economic activity - taxing reduces econmic activity - if you can't understand, it is you with the problem).

Good luck with your belief.

I'm sorry to be a nit pick here, but I think people may be getting a little confused in their reasoning here. Specifically, lets be sure not to confuse government spending with taxation. While the two must equal out over the very long term, they can differ quite drastically over time, especially over the course of the business cycle. In the short-term, inasmuch as taxation takes money out of the economy, it does retard growth and inasmuch as government spending puts money into the economy, it encourages growth.

Regards,
Bill

Pat,

That would be "anony-mouse." I don't take misspellings personally, since (among other things) that's not even my real name, but it doesn't say much for your reading comprehension skills if you can't pick up on details like hyphens and additional letters that physically change a word. Slow down and take time to breathe.

Your furthermore case just doesn't hold water.

Probably not, else I would call it a "bucket" instead of a "debate point."

People for generations have said that their job is going to be replaced by a machine. What ends up happening is we start having jobs as "computer techs" or "copier repairers" or "software developers" or "sterilizing processor technician" as opposed to "horse groomer" or "blacksmith" or "typewriter repairer" or "horse manure pickeruper".

Well, see, it's your above response that doesn't "hold water," not because it's inaccurate, but because it again demonstrates that you're not reading things very carefully, or if you are, you're discovering a lot of convenient prose in between the lines. Lay off the diet of haste and strawman and carefully review my post: I said nothing about the long-term impact of such purchases. I merely pointed out that the short-term observation -- a policy promoting capital investment may cause a lag in employment -- is plausible.

What are you arguing against, anyway? I actually rather appreciate many of Bush's positions. Unlike evidently yourself, though, I do not elevate him to the status of God. He is merely a man in a position of responsibility.

Pat, what's with the blue-on blue fire? (Or maybe I mean "red-on-red"?) You're attacking Will as if he were a closed-minded liberal, when he's neither. And I notice you won't engage J, who is offering an extremely reasonable defense of his position. If you're not prepared to discuss this stuff rationally, without ad hominems like "Why do I defend ourselves from you idiots?", why are you here?

Oh, for a killfile feature on comment threads...

Another nit to pick--J wrote:

There weren't exactly a glut of companies clamoring to construct toll roads in the 40s & 50s,

Ahh, I can't speak for the whole country, but here in Washington State there wasn't a glut of companies wanting to build toll roads because toll roads are prohibited by law! (Bridges are a special-case exception to this.)

Similarly, whereas Way Back Then there was quite a large amount of private passenger and ferry traffic on Puget Sound, today it's illegal to run such a service without the explicit approval of the State Ferry system--in other words, your competition. No one should be astonished to learn that the number of private ferry companies operating under this regimin is a pretty close approximation of zero.

No, Pat, you wrote...

"Conservatives/supply siders/Republicans (who believe in it) do simply state that increased taxes tend to decrease economic activity."

This statement is false, as evidenced by those Republicans, many of whom "believe in" suppy side economics, who went much further in 1993, in purporting to "know" what the effect of the tax increases would be. Many Republicans, believers in supply side economics manifestly did not simply state that increased taxes tend to decrease economic activity. They stated much more than that. That you cannot acknowledge this, and in fact now deny your own words, by stating that you only asserted "...that nobody I know or read has said what you assert", is typical ofthe sort of word-games that tribe members pursue.

Once and for all, and not for the first time, is it your position that many Republican did not assert that the '93 tax increases would prevent rapid economic growth, if not cause an outright recession? To avoid contradicting yourself again, keep in mind that you have already stated that Limbaugh and others did make that argument. So, which is it, has nobody that you know or read has said what I assert, or did many Republicans did make a false assertion regarding the '93 tax cuts?

Mr. Allen,

No offense but " false assertion regarding the '93 tax cuts"???

On a more substantive note, you're asking something that, in a way, is a little unfair here. The question you're asking implicitly assumes that the '93 tax hike didn't impede economic growth. We can't really be sure that that was the case (its ultimately impossible to prove counterfactuals in any case). Its certainly possible that growth in the mid-1990's might have been more robust if the tax hike hadn't been passed.

Bill - Thank you.

I've stated to Mr. Allen that to know that the economic growth would've been the same or even higher after the 93 tax increase would mean that he had a crystal ball.

The principle I'm stating is sound. Just my tone is off.

Secondly, tax rate increases or decreases and government expenditures ARE two separate things.

During a time of recession it would be wise for a government to lower taxes and spend more (two separate actions that would help the economy).

During a time of prosperity a government might be able to raise tax rates and lower spending (to prepare for that next rainy day and/or pay down debts)

That should clear it up.

Bill, please read the thread. I am stating that many Republicans asserted that the 93 tax increase would prevent strong economic growth, and even cause a recession. These assertions were proven false, even if the premise is accepted that the growth would have been better absent the tax increase, since growth in the subsequent years was not stagnant. By the way, I am in no way claiming that the increases caused the growth, which is the silliness that Democrats engage in. You'll notice that after the misrepresentations, contradictions, and other silliness, Pat still hasn't answered a very simple question that would clarify his actual position regarding what assertions Republicans have made in the past, which is the source of our contention. All to defend the tribe.

Let's face it, George Bush inherited an economic mess from Bill Clinton. The Y2K scare created an enormous misallocation of resources with way too much investment and employment in the high tech sector. Government and business leaders, lead by Clinton himself, lacked integrity and thereby created an "anything goes" environment in which phony businesses with phony financial statements and phony stock valuations could thrive. And 9/11 crushed the airline, travel and leisure industies, among others.

Nearly all of the job losses the Democrats blame Bush for creating actually occurred during the first year of the Bush presidency. If we are to blame any President for these loses it should be Bill Clinton, who did nothing to eliminate the conditions that lead to the job losses. If we are to credit any President for the jobs recovery it should be George Bush, who wisely reduced taxes and maintained high levels of federal spending. This aggressive fiscal medicine coupled with easy money may have saved us from a decade of deflation a la Japan.

In this context, Pat is surely right. Tax and spending policies were not and should not have been inextricably intertwined. The combination of lower taxes and higher federal spending increased economic activity and probably saved us.

At some point lowering tax rates could inhibit economic activity - by enlarging federal deficits that squeeze capital markets (thus increasing interest rates) or by making the affluent so wealthy that they lose some of their desire to work. There are, however, good reasons not to fear either of these possibilities.

As for deficits causing upward pressure on interest rates, the current U.S. deficit as a percentage of GDP is not especially high as measured by historical standards. Moreover, the working population in the developed world is aging, so that savings rates and the supply of capital are increasing. And in the developing world, governments such as China are pursuing export-led growth policies that dramatically reduce the U.S. need for capital. The upshot is a low inflation and low interest rate environment notwithstanding the relatively modest U.S. deficits.

As to the incentive to work, the recent tax cuts have been relatively modest and the U.S. tax system still has tax rates high enough to discourage work and investment.

If Bush wins a second term, and I hope he will, he should continue to reduce taxes while also gradually reducing federal spending as the economic recovery matures. I think this is what he will do.

bwub: "Let's face it, George Bush inherited an economic mess from Bill Clinton. The Y2K scare created an enormous misallocation of resources with way too much investment and employment in the high tech sector."

Not just the Y2K situation. The telecom industry spent many billions putting in long-distance fiber that may NEVER get lit. People who should have known much better loaned all that money to firms, all on the basis that (a) Internet traffic would double every 3-4 months forever (a forecast that is now attributed to a single individual who MADE IT UP) and (b) that 20 different firms could each capture 20% of that market. The Denver area was hit particularly hard when those businesses started to implode.

Working longer hours does not "increase" productivity. Getting more done in the same amount of time is what "increases" productivity.

That may because of automation or new processes or streamlining etc. But just to let you know... you got it wrong. :)
Posted by Pat in CA

You know as well as I do that from a manager's POV, more cost is the issue, not hours worked. He couldn't care less how many unpaid hours his subordinates work overtime.

This time stolen from the employees is never reported so never measured. More magically gets done. Productivity is up!

Believe it or not folks, the President of the United States lacks the ability to regulate the animal spirits of crowds. Also, the Republicans who controlled Congress had a great deal to do with the regulatory environment of financial markets in the late 90s, not that I am asserting that any regulatory action taken would necessarily done more good than harm.

Dire predictions of economic disaster were par for the course in Republican circles when discussing the the '93 tax increases. Tax money does not magically disappear from the economy as some of these posts seem to imply. They are always just reallocated. Otherwise where the heck do you think it goes? Yes, even government employees of every level have to go out and buy things just like the rest of us. The feds don't manufacture their own office supplies and computers.

What struck me is this: "It is known that tax increases (taking more money from the private sector) decreases the amount of economic activity that would've occurred.". Actually it's just assumed as an article of faith. It's never been absolutely proven. It's also too absolutist as others have pointed out because it really does matter what's done with the money.

Ah, the joys of evaluating fiscal policy based on empirical evidence. The problem is that the economy is so large and complex, that no substantial macroeconomic event can be attributed to a government policy. So, the discussion invariably reverts to ideologically motivated tit-for-tat.

Here's a thought about private spending vs. public spending. The tax-funded public sector simply does not have the same incentive structure as the private sector for spending money. Private entities, in general (yes, they are imperfect), have a motivation to control costs, spend only what is necessary, and invest resources wisely. This motivation is the result of ownership, which does not exist in the public sector.

Government agencies are motivated to spend as much as possible in order to prove that "demand" exists for their services, and therefore increase their next budget. Public spending, therefore, is not the same as private spending, because the motivation is not of economic efficiency, but of political efficiency. In fact, public spending causes further economic distortions by sending out wrong signals about what is and is not demanded.

Public spending is necessarily more inefficient than private spending. This does not mean that all public spending is bad. Some public spending is necessary (defense) or wise (infrastructure), but it has to be balanced against its inherently inefficient nature.

Thank you, Mr. Taggart. The inherent problem with public spending is that entities can obtain additional capital by force, and when capital can be obtained by force, without actually having to please the people who are supplying the capital, the number of people served by the capital tends to narrow. Private entities, whatever their flaws, and assuming they are not receiving transfer payments (a major caveat) , must actually please the people who are supplying the capital, and, in turn, the people who use the goods and services produced with the capital. When private entities fail to do this, the capital flows dry up,and the private entity ceases to exist. Enron was only able to perpetuate their fraud for so long, while the Bureau of Indian Affairs goes on and on, decade after decade.

The inherent problem with public spending is that entities can obtain additional capital by force, and when capital can be obtained by force, without actually having to please the people who are supplying the capital

...within limits. Only in an authoritarian state can that process continue indefinitely. Of course, a political democracy can still support that behavior past one or more unpleasant breaking points before significant reform takes place.

Wages are growing faster than profits? How come I haven't seen any of this? I mean, I'm in the major growth industry in the US (computer systems support) but our wages haven't grown for 4 years, at least...

Thank you Jane. I've come to the conclusion that Kevin is out of his league when it comes to anything but his cats.

Pat in C A writes:

Jervis - What in the world is a "wage tax reduction"? Bush and the Congress passed "income tax rate reductions" so as far as I'm concerned people immediately were helped and that help translated to extra money that they could either spend or save.

Workers in the US pay income tax on their wages, but they also pay taxes to support the Medicare and Social Security programs. Supporting these entitlement programs costs workers around 15% of their wages. These are the taxes termed "wage taxes", and they are separate from income taxes. Gains from investments are subject to income taxes, but not to wage taxes.

Reduction in the income tax rates undoubtedly helped the economy and was a sound policy. My point concerned the second round of tax relief, which lowered the rate on dividends and gave businesses accelerated depreciation on plant and equipment.

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