October 08, 2001
From the desk of Mindles H. Dreck:Laura Tyson solves my retirement savings problems
Laura D. Tyson fulminates on the tax cuts and the "lockbox" in today's New York Times. She asserts that tax cuts won't stimulate the economy and brings up the old "using social security funds to pay for..." arguments.
You'd think that someone who has worked directly for the president would bring up some evidence. But she doesn't. Look, tax revenues nearly doubled in the Reagan years after the tax cut. They increased after the Kennedy tax cut. They increased in the 20's after a tax cut. Now, that doesn't prove that tax cuts increase revenues by way of growth, but a strong correlation like that sure as heck doesn't disprove it, no matter what she, or Krugman, or any of these folks would have you believe.
This recession began with a capital spending bust. Capital spending is done by businesses, after hard calculations of the potential rewards of an investment. In a riskier world, businesses demand a greater risk premium for their investments. Tax relief on risk-taking helps motivate those expenditures. Monetary easing also does, although it only cheapens short-term borrowings and may not motivate longer term investments. That's why after nine rate cuts the Fed is pushing on a string.
On the social security lockbox question. Well, now that I understand her logic, I've figured out how to make sure I'm wealthy in my retirement: I wrote a check to myself for $1 billion and put it in a lockbox. So now I know I'll be a billionaire....Hmm, I don't really need $1 billion when I retire. I've got some pressing problems now, so I think I'll spend $100 million today. Good thing I've got that lockbox.
This is precisely the reasoning behind the lockbox argument. Wouldn't it be nice if this actually made sense?
Posted by Mindles H. Dreck at October 8, 2001 04:40 PM | Technorati inbound links