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And I'm sure you would have written this article in December 2008 or earlier, right? Gotta love these deficit-hawk Republicans that supported Dubya's tax cuts, two wars and squandered budget surplus and now have found religion on the issue now that Obama is president. I suppose you also supported Clinton's deficit reduction plan in 1993 that resulted in historic budget surpluses, right? Of course not.

Patrick--I can't speak for Greg, but more generally there are a LOT of us who publicly challenged the G.W. Bush administration's spending levels as dangerous--and now the Obama's administration has done far more than double down from what it inherited.

Our nation finds itself facing choices so grievous that our political officials (it would be inaccurate to call them "leaders" in all but a few cases)tend to offer distraction rather than focused discussion.

Kotlikoff's analysis is backed by many others. The alluring temptation of officeholders is to inflate the currency rather than increase productivity, thrift, savings and investment.
The dangers of that approach are immense.

We've already glimpsed the beginning with the moral hazard unleashed in the wake of various federal government bailouts in the past few years--which is no small part of what kindled the fire underlying the Tea Parties.

Thanks to Expresso Pundit for helping keep our attention on this coming moment of truth.

Of course, I should have written "Espresso Pundit"... :-)

Oh, yes, the Omnibus Budget Reconciliation Act of 1993 where Al Gore broke a tie vote passing massive tax increases on people and corporations, eliminated the cap on Medicare taxes, raised the gas tax and various other tax increases. As I recall, 41 Democrats in the House joined Republicans, voting against Clinton's tax increases.

I love it when liberals tout budget surpluses gained through over-taxation and then cry foul when conservatives give people their money back.

The GOP lost control of the House and Senate because of their lack of fiscal restraint, and rightly so. Just as the Democrats will lose several seats in the Fall because of their lack of fiscal restraint.

As for the wars, I am all for pulling out and saving US taxpayers the cost of financing another round of nation building. Odd how you gloss over Obama's continuation of these two wars. What happened to his promise to pull out?

And I also love how you gloss over the largest budget deficit EVER!!! Let's talk about fiscal restraint, shall we? Here's a hint, it won't come from the Democrats.

Brian, get a clue. Back in 1993, the Clinton Administration set us on the road to the greatest post-war economic expansion in our history -- without a single, Republican vote. It's exhibit A in showing how supply-side economics is totally bunk. Also, Republicans wanted to give money back? What? I thought you were deficit hawks? Surely, you understand the difference between the budget deficit and the accumulated national debt...right? The budget surplus had only begun to pay that back - so why reverse course and give it all away? And for what? Do you really want to compare the Clinton economy with the Dubya one?

The GOP lost seats because of the unpopularity of Dubya and the economic collapse brought by lack of regulation of Wall Street banks, not because of the deficit.

Running a deficit in bad economic times is good policy; running a deficit in relatively good financial times is almost criminal.

This is still the Republicans' Recession.

Yes, entitlements are the problem.

Cat Food Commission to the rescue!

The truth of the matter is Congress has the power to tax and spend, not the President. No matter who is in power, democrats or republicans, they both spend on their pet projects, democrats on social programs and republicans on the industrial war machine. Both parties have created a federal government that is so large, it can no longer be controlled. What is needed is a shrinking of the federal government and more power and tax revenues returned to the states and municipalities, most of which have balanced budget requirements. Imagine if every dollar the Feds send to the states and municipalities through grants were in fact eliminated and the local goverments could decide if they would like to fund the same level of services through new local taxes. Nirvana.

[repost - typepad doesn't like links and therefore sucks]

Bush did nothing to help the situation, but Democrats (in charge of the purse for 4 years now, Exec. for 2) have managed to blow out the national fisc:

From 2007 - 2010, (Democrat) spending as a percentage of GDP has gone from 35% to 44%.

Their solution? Raise taxes on the most productive segment of the economy when private stimulus is most needed:

http://blogs.wsj.com/economics/2010/07/24/number-of-the-week-ending-tax-cuts-makes-only-small-dent-in-debt/

Pathetic.

And "supply-side" economics (whatever that is) isn't "bunk" at all, it's provided 30 years of unprecedented economic expansion, after the 50 years of economic catastrophe proffered by failed Keynesian amateurs (including Keynes).

Mesa Econoguy,
How much of the change is related to increase in spending vs. decrease in GDP. I think your comparison needs some context. Also, the 30 years of economic expansion is not quite accurate. The economy under Reagan did quite average and Bush I and II was quite bad. Under Clinton there was a significant expansion which was slightly longer than the one under Kennedy and Johnson. However, if one looks at the most impressive expansion over time periods you are talking about that would be post-WWII when taxes were higher on capital and the wealthy, we had robust labor unions, and Keynesian economics was still in vogue.

Todd,

Absolutely true, and when you combine the Democrat dictatorial equal outcome legislation, Democrat meddling financial requirements (consumer financial "protection" agency), and Democrat-led takeover of 1/6th of the economy (Obamalinicare), you get juuuuuuust a bit of negative future economic expectation.

That's why 1) you will see no significant mkt gains in the next year (incentive to move earnings to current year), and 2) unemployment will remain at or above 9% for an extended period. There's a 3) there as well, but I'll let you fish that one out.

Mind you, Republicans are minor role players as well, but this calamity is nearly entirely Bawney Fwank-party-driven.

Bush I recession was historically very mild, but he lost because he was inept.

As far as higher taxes = prosperity postwar, wrong.

Nobody paid those taxes. Reagan wrote those loopholes out (1982, 1986).

Go learn economic history, amateur.

Besides the absurdly high levels of defense spending and spending on foreign wars and occupations, the only true spending problem is related to Medicare and is due to the out of control increases in medical costs in the US. IF the US had the same rate of increase as other Western nations we would actual not be in trouble. From the recent debate it is clear that neither party is actually interested in doing anything about it. Democrats can't even get tepid reforms like a public option through the Congress they control and the GOP has been running around screaming about Obama gutting Medicare.

As to the comparison with Greece, I think it is important to point out that 1/3 of the Greek economy grey/black market and so they have some serious revenue problems. But the real problem is that they ran deficits even when the economy was strong. Greece has such a structural deficit that even when the economy picks up the government would have huge deficits. In the US if/when the economy picks up this will have a substantial impact on reducing the deficit.

Dear IMF:

Since the recent US debt downgrade due to our massive welfare overhang, and subsequent second recession, we're in a bit of a pinch. We've been good neighbors, supportive of poor countries and all, and we're wondering if you'd be able to float us a short recap loan, before the Chinese give Iran the ok to nuke Israel.

See, when we default, they [the Chinese] have no incentive to listen to us any more.

That's not on the 2012 election strategy, so any help you can provide would be greatly appreciated.

Signed,

Obamalini

If the US spent $0 on national defense next year, the deficit would still be nearly $700 billion. And we might have a problem or two.

Bush's budgets never crossed above about 4 percent of GDP -- high, but not endangering the economy.

With the nation's fiscal policymakers now "hoping" to limit deficits to "only" ten percent of GDP, we now have a serious problem and threat of eventual default.

It's time to get serious. What is this nation going to do?

Mesa Econoguy-

I'm with you on this issue, but why resort to name-calling? You could have easily left "idiot" off the end of your post, and it would have been just fine.

Leave the name calling to Robert Woodman.

Mesa Econoguy,
You claim no one paid those taxes (post-WWII to Reagan) and it is certainly true that there were many loopholes and that this is why having a high marginal rate at some point likely causes less taxes to be collected (exactly at what point is open to question). Also my argument is certainly not that high taxes caused the postwar boom, but rather that a strong economy is not necessarily discordant with high taxes on wealthy, strong unions, etc.

I may be an amateur, but I have looked into this question and I know that both effective tax rates on corporations and top 10% of income earners have dropped considerably during last 40 years. The fact that you have several economics degrees and I have zero would only be important if one could not find well-established economists with multiple degrees who would make the same point I make. Since there are plenty who do, then the issue here is not degrees but how one is choosing to understand the data.

Todd (amateur):

Your economic nonsense is spewed all over left wing chat rooms and Kos. Correlation is not causation. And you either conflate or simply ignore cause and effect ("structural imbalance" see above).

You have about 1/30th of the full economic picture from your short attention span left wing sources. It is precisely left wing economic policies which have put us in the position we find ourselves in today (with a lot of Republican help, I should add). This massive selective ignorance on the left's (your) part only serves to perpetuate the negative stereotype - you lefties are completely economically clueless.

You are seriously mistaken if you think that the threat of insanely onerous regulation, threat of legal action, and higher taxes constitute economic stimulus. That's what we in the econ and financial world call a Krugman (i.e. completely wrong).

This economy will continue to go nowhere as long as this president and congress are present. Complete rank amateurs which likely explains your affinity for them.

"Correlation is not causation."

Yes I know, however, you seem to be the one suffering from this fallacy in your own reasoning. I also notice you simply make assertion with no actual arguments or data. Is that what 'experts' do?

The lack of growth and positive news in unemployment doesn't need to be attributed to vague bad feelings about predicted future regulation or taxes that the financial world has, when there is a much more mundane cause. 70% of the economy is tied to consumer spending and consumers have just seen the value of their homes and retirements drop several trillions of dollars. People have no money and were already overextended on credit and until this changes we are in for a sluggish economy.

Mesa Econoguy is an a-hole. And wrong on just about everything. Think you know more than Krugman? Guess what -- you show your Nobel Prize and he'll show you his. Oh that's right, you are the arm-chair amateur and he is the world-renowned economist that has one. Glad we got that settled.

Yeah, ok, whatever Patrick. Krugman can have a party with Al Gore, and maybe get some action.


Just to beat this to death, this is exactly what I'm talking about:

http://online.wsj.com/video/opinion-journal-the-obama-pelosi-gdp/F411DE47-08C5-4013-BBEB-EEA42212A652.html

Today's paltry 2.4% Q2 GDP number is evidence of incentives taking form: software & tech capital investment has done well so far in the recovery, because businesses would rather invest in automation than hire people, since people are now entitlement magnets (thanks to mandatory healthcare: http://www.bloomberg.com/news/2010-07-30/health-law-needs-repeal-commentary-by-douglas-holtz-eakin-michael-ramlet.html ), and significantly more expensive than they used to be (thanks to mandatory healthcare, and several other factors).

Regime uncertainty coupled with regulatory and operational impediments is killing this recovery.

No member of this administration, or the left, understands this.

Finally, todd, your example of (abnormally) high tax rates "coexisting with" or "creating" prosperity is flimsy because it ignores the loopholes and substitution effects present during that period. There is no economic evidence that high taxes and burdensome regulation promote growth.

There is economic evidence that high taxes inhibit and reduce growth [see, e.g. Christina Romer, David Romer, The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks, http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.3.763 ].

It's a shame Obamalini doesn't consult his own chief economic advisor.

Mesa Econoguy,
How many times to I need to repeat myself that I never said high taxes lead to growth before you stop beating the straw man to death. You keep pointing to the loopholes that you claim I am not accounting for but you produce no actual data indicating that effective tax rates were lower than now because they were not. Not on the wealthy and not on corporations.

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