President Obama talks about the need for the large stimulus package working its way through Congress. The President hit upon some familiar themes about where the spending will go, as well as his efforts to insure that the stimulus is transparent. There is no question that he will get this package through Congress, and get it through quickly. But there are a lot of questions, and some of those are not as yet resolved. The Massachusetts Mayors Association met today with Congressman Michael Capuano, and with Senator John Kerry. They helped to shed some light on some of the items in the package, and how that will impact localities. I will try to post some more specifics on the stimulus bill shortly.
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Bill Manzi.com 
Your Honor,
There is no stimulus plan here to “jump start the economy”. He spent more time telling his constituents that he is going implement his campaign promises.
I see very little money going to change the recession/depression. Money needs to get into the hands of people who spend or invest (not Obama’s invest see below) to begin the flow of goods and services so people can be hired back to their jobs and companies can rebuild their businesses and confidence in the economy restored. Restoration of confidence is critical)
All that other campaign stuff will divert needed money from from actual stimulus itself. The effects if there are any, won’t be felt for years.
If I’m wrong, your honor, please point it out.
I did not see a state or town bailout here.
My definition of gov investment: TAX.
Jules
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1/20/13
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Thank you for pointing out the date of the second inaugural of Barack Obama. You must have been so excited and enthralled by the first that you just cannot wait for the second. By chance were you one of the two million friends of Barack that were in Washington to observe the historic event?
What would you say best describes your joy at his inaugural?
1) Enchanted
2) Enthralled
3) Embalmed
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Mr. Speaker:
Do you have a non-socialist, all-capitalist proposal for restoration of the economy? I know I’d love to hear it!
-FM
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Mr. Mayor:
You’re killin’ me.
-FM
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Good Morning Fred,
The myth of FDR’s resolution for the great depression was his spending plans. I have read reports that FDR’s spending actually prolonged the depression by several years.
The event that began to moved the country out of the depression was the war material orders from Great Britain at the beginning of WWII.
Industry ramped up, people were hired and the depression began to disappear.
We have no war material solution impending or at hand. What is needed is to provide people with immediate additional income through tax policy (government responsibility), reduce impediment to capital development through tax policy (government), give the Americans “hope” by not the talking down the economy (President Obama). All this is to prime the economy.
The president must work also loosen capital for investment and credit purposes to allow the recovery to exist. Put Barnie Frank in a lock box.
At this point, hopefully, the free market can begin to take us out of this problem.
The government is responsible for the supply of money and through fiscal and monetary policy. It was government interference that lead to the economic trouble we now face.
Resolution is a cooperative effort between the government and private sector.
Socialism is the ownership by the government of means of production. This may be happening in the banking system.
Take a look at Obama’s “stimulus plan” and tell me how much of this cornucopia of campaign promises actually goes immediately into consumer hands?
Keep in mind we are a consumer nation.
Jules
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At long last: a calm, reasoned post. Kudos!
Can you point me to the reports about FDR’s spending that prolonged the depression? I do believe you are right on in terms of WWII finally pulling us out. But in terms of putting people to work when capitalism utterly failed, it’s hard to argue that the WPA and CCC didn’t do their part.
Most of what you say is undoubtedly so. However, my greatest fear is not socialism, but of massive debt accumulated from years of tax cuts and higher spending, which saps the government’s ability to make proper long term research investments and strengthen the social safety net. The social safety net is necessary: I don’t think we as a culture are ready to see old people starving to death because global capitalism has made the world a much more volatile place to do business. And someday, people are going to decide not to fund that debt, and on that day, we’re in trouble.
That, and the notion that poor old Barney Frank is responsible for writing, packaging, and selling bad loans at inflated prices. It just doesn’t pass the sniff test, any more than it did in the 80’s. The cat was away, and the mice sure did play.
Peace, my friend.
-FM
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Oh, wait, one more thing: have you ever researched the effects of tax cuts on GDP growth? What did you find?
-FM
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Fred,
I am sorry. I’ll get on the Tax cuts vs GDP. I know Tax cuts increase tax revenue from resulting business growth.
You are kind of late for worrying about national debt. What used to be billions is now trillions. To ad fuel to the fire, many countries, including the US, are going to the world financial markets to borrow money which will drive up interest rates.
for centuries the social safety net was handled by churches and caring organizations. Once our government got into it whole heartedly it moved from helping the indigent to now providing the middle class with all types of benefits to the point that these entitlements consume a major portion of our budget. Entitlements should only be provided to those who are incapable through age or infirmity. This we will never agree on.
Please provide proof of aged dying from starvation. I keep hearing this stuff about old people and children. I have never seen proof.
“Global Capitalism made the world a volatile place to do business?” You got to explain. Many of those global companies are from socialistic states.
Barney Frank is a piece of work. He never sold loans. He did worse. He has driven down the bank standards for issuing loans resulting in a huge loan industry based on minimal credit requirements. It was these loans that the greedy corrupt bankers collected and packaged to sell world wide like a spreading disease. When the housing market collapsed, billions of dollars of assets disappeared. The rest you know.
Barney Frank is the mouse. He wasn’t the only one, though.
Jules
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I think you’re going to help me make my point when you get into how we got into that mountain of debt in the first place, but let’s get there independently.
Government got into the game during the Depression, when there wasn’t enough of anything to go around, and a majority of Americans was first exposed to a disastrous swing of the business cycle. Churches and charities are great, but they are not a responsible party.
My comment on aged dying in poverty is a future statement: the social safety net remains in place, but its long term outlook is up for negotiation. Once the new administration addresses the structural problem with Social Security (and then Medicare), I’ll comment further. I have no doubt, however, if I start to research the 1930’s, I’d find supporting evidence.
I’ve got this source bookmarked for poverty numbers:
http://www.cbpp.org/10-19-05pov.htm
That global capitalism is a much more volatile place cannot be denied: money is now free to move about the globe, and our jobs are going with it. And, surprisingly, it’s our desire for cheap goods and highest returns that’s driving our jobs overseas, to our eventual ruin, if we cannot figure out a way out of the spiral.
You may hate old Barney, but most sources put the actual blame on Phil Gramm, starting with the Gramm-Leach-Bliley Act back in May of 1999. Quoting an article:
“Gramm-Leach-Bliley effectively repealed the second Glass-Steagall Act which, among other things, barred investment banks and retail banks from merging. Gramm-Leach-Bliley effectively removed this restriction, allowing a single institution to both create a debt-based investment, and then facilitate its sale. Previously, with two institutions involved in that process (Three if you count the investment rating company – Moody’s for example), there would have to be a high degree of clarity involved. One institution (Investment bank) wouldn’t just buy, repackage, and re-sell another institution’s (Retail bank) products without first understanding exactly what it was. It would also be far less likely to hold those assets and count them as capital.
With a single institution operating on both the commercial and investment banking fronts, the motive for clarity was eliminated.”
-FM
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Fred,
I will address your last entry tomorrow. Right now I want you to see a video explaining the Laffer curve denoting the relation between Taxes and revenue.
The video is in three parts, so note the screen you are on for first video and go back for 2 and 3.
http://video.google.com/videosearch?q=laffer+curve&sourceid=navclient-ff&rls=GGGL,GGGL:2006-17,GGGL:en&um=1&ie=UTF-8&sa=X&oi=video_result_group&resnum=4&ct=title#
Jules
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Ok, I’ll agree to watch the video, and I’ll post what I’ve found so far, but see if you can find supporting evidence that the theory works.
Back to you in a day or so …
-FM
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Fred,
The best way to see if the theory works is to llook at actual applications. In this case the presidents I know who reduced taxes and enhanced revenue was John F. Kennedy, Ronald Reagen, George W. Bush the younger. Yhe elder Bush raised taxes after saying famously “Read my lips. No new taxes.” He lost.
See you back here.
Jules.
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Fred,
Barney is still the among those who drove banks to lower mortgage eligibility standards that started the accumulation of errant mortgages.
I am not familiar with the Graham legislation, but it sounds like it provided the back ground for accumulating these risky loans. No matter the risky loan has to come first. I have evidence the Obama participated in the crisis by successfully suing an Illinois bank. There were many others. Barney was the chair of the house finance committee. He also declared Freddy and Fanny a safe investment.
Be safe Fred,
Jules
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Fred,
This a study done on the Reagen tax cuts. Last paragraph sums the study.
http://www.house.gov/jec/fiscal/tx-grwth/reagtxct/reagtxct.htm
Jules
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Fred,
Addressing the entitlements I see a serious time coming. The population is aginging. The young to old ration is such that each retiree is funded by less than 2 working people.
Solution: future retirees will retiree later and later, and the workers will be paying more and more.
Got any ideas, Fred.
Jules.
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Mr. Speaker:
I’ve been away longer than I thought I would be. I’ve only got an hour or so, but will be back on your major points later.
To address your later point, the solution is easy and I believe what will be done. It is not fair to future generations (and I speak as a baby boomer) to fund our generation’s burden: our unnecessary wars, prolifigate spending habits without matching revenue to cover it, and our retirement too.
It is time for the adults in the room to step up and say the obvious: to live in the style to which we’ve become accustomed, we must increase revenue. And that means a combination of new taxes and growth.
Addressing Social Security is straightforward: FICA is only collected on the first 102K of income. This ceiling will be raised (or eliminated, possibly lowering the FICA rate in the bargain to match the expected revenue need). I believe Obama is on board with this plan.
And yes, this will increase my tax burden (for which I will take my relatively comfortable retirement).
But I don’t know how you look a child in the eye and take their future out from under them otherwise.
-FM
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Mr. Speaker:
In my opinion, though I didn’t think that George the Elder was the strongest president we’ve ever had, I actually think that his raising of taxes at the time he did was the responsible thing to do. Remember: he had a Reagan-era S&L bailout to contend with, and a war with Iraq to pay for. I’m sure that if he didn’t take the fall, Mr. Reagan might have had an entirely different legacy. He didn’t push his debts to the next generation. The buck stopped with him.
-FM
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Mr. Speaker:
I wanted to make the analysis easier, but the fact that I cannot post images of powerpoints on this site has made it difficult. Then, I thought I was turning into AlGore, and making this more complicated than it is. So, I’ll try and do the refutations in text, and leave links to the sources.
On the key tenets of supply side economics, that cutting taxes pays for itself in increased revenue from the oncoming growth, the record since Reagan seem clear: it has not at all worked.
And on a second, that higher taxes always harm growth, that is also refuted by the 1993 tax increase under Clinton, which resulted in both higher revenue and higher GDP (and a budget in surplus for the first time in over 30 years).
Quoted from the Center on Budget and Policy Priorities:
http://www.cbpp.org/3-3-03tax.htm
“Some advocates of large additional tax cuts do not directly claim that these tax cuts will pay for themselves but make the same claim indirectly, contending that economic growth will eliminate deficits over time, that the Administration’s tax cuts would facilitate this result by increasing economic growth, and that the tax cuts thus would help to address the deficit problem over the long term. Such assertions essentially state that the tax cuts will lessen rather than enlarge long-term deficits and that the tax cuts consequently will more than pay for themselves.
Whether stated directly or indirectly, the proposition that tax cuts can pay for themselves — like most claims of a “free lunch”— is too good to be true. It does not withstand scrutiny. An array of analyses — including analyses conducted within the Administration — produce the same result: the tax cuts are expensive and will add significantly to long-term deficits rather than reduce them.”
and
” Do Tax Cuts Pay for Themselves? The Historical Record
Large tax cuts were enacted in 1981, with the centerpiece of the 1981 tax cut being a large reduction in marginal tax rates. If such tax cuts really pay for themselves, income tax receipts should have grown as rapidly in the 1980s as they did in the 1990s.
Indeed, in the 1980s, supply-siders argued that the economy would grow more rapidly because of the 1981 tax cut. They contended that a lower tax rate applied to a larger economy would produce at least the same amount of revenue. Then, when marginal income tax rates at the top of the income spectrum were raised in 1990 and especially when these rates were raised further in 1993, a number of supply-side advocates insisted this would harm economic growth. Presumably, higher tax rates applied to a smaller economy would mean that income tax receipts would not grow as much in the 1990s as in the 1980s.
Yet this is not what occurred. Income tax receipts grew noticeably more slowly than usual in the 1980s, after the large cuts in individual and corporate income tax rates in 1981. And income tax collections grew much more rapidly in the 1990s than in the 1980s. The graph and table on the next page illustrate this fact.”
-FM
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PS: I think your outlook that people will retire later and later may be rosy. I think in the near term, those near retirement are going to find themselves in quite a squeeze, with recent market performance and loss of jobs, especially those that are life sustaining.
My personal outlook is that on the current economic path, more workers will be forced out or forced down (in wage) at successively earlier ages.
I was just speaking to one of my tech friends who just got through with a job search, and one of the things he felt was often hinted at was his age.
He’s 41.
A long way from 65.
-FM
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Jules:
I’ve now watched all three Laffer Curve videos. I made some notes:
Video I:
1) The most obvious is that A collects no revenue, and nor does C. But what appears to be left to the imagination is either the shape of the curve, or the location of point B. I also gather that Mr. Laffer did not carry out any statistical modeling around this point, only the observation that the curve rises to a point where increasing taxes increases revenue, then falls afterwards. This seems to me to be a major issue.
2) The presenter seemed to imply that tax cheating is rampant, and that the higher the rate, the more cheating occurs (check the quotes on what taxpayers are “willing to report”). I don’t know how true this is, but I wouldn’t base my economic theory on it without testing (and if it is true, it seems like an argument for stepping up enforcement to me).
3) At 2:48, a subject curve is drawn, with the B inflection point at about 30%. This is interesting to me, because the CBO data from 1979 to present suggest that the total effective tax rate (income, corporate, excise, and FICA) fluctuating between 20 and 24 percent. In other words, all to the left of point B. The graph may be incorrectly drawn, it may not illustrate the point, or it may be false. Or, I may be misinterpreting the data.
4) At 3:56: finally, truth: “Not All Tax Cuts Pay For Themselves”. My assertion is that we have not yet seen one, so I cannot prove they don’t exist. But, this statement is in stark contrast to what I’ve heard from conservatives, that tax cuts pay for themselves.
4) At 4:21: A number of people in the dot.com boom learned the fallacy of holding on to stocks until optimum tax times … just ask (including me).
5) At 6:46: I loved the quote from Keynes, reinforcing only the second half of the quote. That was a little obvious.
6)At 6:58: “vast majority of tax cuts do not pay for themselves”. Ok, so, why are we here, again?
Video II:
1) At 2:00: The presenter makes a point of comparing tax revenues of 1980 with 1988, saying that after the Laffer-inspired tax cuts of 1983, tax revenues increased. What he seems to conveniently leave out is that in 1980, we were mired in a deep recession, which began to improve after 1983 to a peak in 1990. In other words, he ignores the business cycle and tries to make tax policy the only dependent variable. This latter point, i’m now realizing, is the one deeply rooted in current conservatism. Even Reagan’s budget director (David Stockman) disagrees:
“There was nothing new, revolutionary, or sustainable about [the growth of 1983-89]. The cycle of boom and bust had been going on for decades and …its oscillations had reached the high end of the charts. That was all.”
(fred the editor: I’m now deeply suspicious of everything that follows …)
2)At 2:28: “the rich paid 5x as much tax in 1988 as in 1980”: again, conveniently ignoring the business cycle. Effective tax rates in every income quintile during this period fell no more than 5%, so I’m not sure how large the tax rate effect was on this statement. I haven’t thought this through enough.
3) At 2:45: oh. The 5x number also does not take into account a 7% population increase, a 44% inflation increase … suspicion meter rising …
4) At 3:05: Ah, bull**** meter just went off.
After all that was not included in the numbers, ignoring business cycles, “can anyone deny that this tax cut paid for itself?”. Um, yeah, I think I can take a whack at it … a better question might have been “did the tax cut have any effect on GDP growth?”, or “how much revenue did Reagan leave on the table by cutting taxes”?
5) At 3:56: I’m wondering about the Irish example, given the amount of “evidence” I’ve seen up to now. I’d have to do more research into the Irish economy to understand what other variables are in play.
6)At 4:32: Ok, now I’m getting it. The Cato institute are the flat earth … i mean, tax guys. It’s getting clearer now ….
7)At 4:53: Presenter admits that Laffer curve effects are “rare”. Again, I’m not sure I’d base my economic theory on rare events, would anyone? I’d expect theory to predict normal, everyday events, not outliers that have other dependent variables.
8) The yacht example as a strong Laffer curve effect? Now we’re going to base economic theory on the rich’s purchase of yachts? My brain hurts. And this is a half an hour of my life I’m never going to get back … 😉
Video III
1) From the git-go: “we want a flat tax”. OK, sales pitch noted. Shields up, it’s going to get messy.
2) Everything up to 1:49: sales pitch.
3) Alright, so is everything after. I’m guessing the answer that the presenter doesn’t want to hear, that dynamic scoring is not used to Cato’s satisfaction is actually mentioned: “that it’s too complicated”.
Thank you, Jules, for providing the link. I think I’ve given due diligence, and it’s certainly given me better insight into the arguments proposed. As a result, though, I think I remain unconvinced of this tenet of supply side economics. Perhaps this was a bad presentation of the theory, or I do not understand the finer points, but I just do not see how proponents get from point A to B (or more correctly, from A through B to C).
-FM
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By the way, here is some thinking on Reagan’s (or anyone’s) tax cuts may be the major dependent variable in economic growth:
http://www.bsherman.org/rushmore.html
It looks like the beginnings of someone’s master’s thesis, but illustrative of why simple theories do not always explain complicated events.
-FM
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