Three years after bankruptcy of Lehman Brothers jolted the U.S. economy into economic turmoil, job creation has rebounded from post-collapse lows, but economic confidence and consumer spending remain within the ranges seen in 2009. Gallup finds underemployment and unemployment essentially where they were a year ago…
All the trillions of borrowed and printed dollars – what did they get us? Nowhere – in the larger sense, we’ve just marked time since 2008. Oh, sure – we did “stop” the crash. But we stopped it in mid-air; the crash still has to finish. And now after devaluing our currency and piling up $4 trillion in additional debt, we’re going to get the rest of the crash we should have had three years ago.
Congratulations, Keynsians! Heck of a job there, Barry! All you’ve managed to do is make things worse.
I’d like to make an observation and ask that any or all of our resident Lefties comment on it. It’s been my experience that the vast majority of Liberals subscribe to Keynesian economic theory, while, at the same time, openly criticize what they describe as “trickle-down” economics. It’s been my observation over the years that neither works very well as a stand-alone policy.
It’s been a while since I studied Keynesian theory, and, in fact, at the time I studied economics in college, Keynes was falling out of favor and Friedman was beginning to get a lot more attention. My recollection is that Keynes never favored massive deficit spending as an on-going policy because it results in just what we are experiencing: an overwhelming debt that will eventually bury us. Keynes was also highly critical of FDR for raising taxes in the middle of the Depression, extending the Depression by at least a couple more years. Conversely, I don’t believe that Reagan, or more appropriately, the economic advisers who worked for him envisioned that just cutting taxes would achieve nirvana. Even the Laffer Curve is predicated on finding the right mix and level of taxes to achieve maximum revenue. This is constantly misrepresented by Liberals with sarcastic statements like, “well, if we just reduced taxes to zero, the government would be swimming in revenue.” But then they turn around and make idiotic statements like “unemployment and food stamps are the most effective ways to stimulate the economy”, to which Conservatives respond, sarcastically, that we should all just quit working and go on unemployment and food stamps, and the economy will boom.”
What many of our Liberals either forget or never learned is that we did reach a middle ground in the 80’s and again in the late 90’s. Although he did so reluctantly, there were several pieces of “revenue-enhancing” legislation that Reagan signed onto, in 1984 and 1986 in particular. In exchange for lowering the top marginal rate from 70% to 28%, he agree to tighten up the tax code and reduce or eliminate a number of loop holes. The problem was that the Democrat-controlled Congress, via House Speaker, Tip O’Neill, also agreed to cut spending $3 for every $1 in tax increases, cuts that, as everyone knows, never materialized. In the late 90’s, Bill Clinton co-opted two Republican ideas, welfare reform and reducing the capital gains tax, that, when coupled with what became known as “the peace dividend”, resulted in a nearly-balanced budget at the end of his second term.
I’m kind of rambling on here, but I guess what I’d like to hear from our Liberals is what kinds of compromises you’d like to see from Congress, along with some historically perspective as to how/why those compromises will get us moving in the right direction.
balanced budget amendment
national sales tax ALL pay, ALL pay same percentage.
LIBS VOW PRIMARY CHALLENGE AGAINST OBAMA
Heeeeerre she comes the KKKlintoons are baaaaack!
Why Obama should withdraw
When Ronald Reagan ran for re-election in 1984, his slogan was “Morning in America.” For Barack Obama, it’s more like midnight in a coal mine.
The sputtering economy is about to stall out, unemployment is high, his jobs program may not pass, foreclosures are rampant and the poor guy can’t even sneak a cigarette.
His approval rating is at its lowest level ever. His party just lost two House elections — one in a district it had held for 88 consecutive years. He’s staked his future on the jobs bill, which most Americans don’t think would work.
The vultures are starting to circle. Former White House spokesman Bill Burton said that unless Obama can rally the Democratic base, which is disillusioned with him, “it’s going to be impossible for the president to win.” Democratic consultant James Carville had one word of advice for Obama: “Panic.”
Speaker at Progressive Rally Suggests Urinating on Republicans as an Alternative to Pouring Beer on Them
I’d like to see that, too…just when, in the liberal mind, do we start to reduce the debt? Not just reduce the deficit, but reduce the debt…and how much additional debt do they think it wise for us to incur before they agree it is time to reduce spending?
that does not fit in the piven cloward strategy of destroying our nation from within.
You do it primarily during good economic times (like at the end of the Clinton presidency). You’ll note that one of the first things Bush did when he got to office was enact tax cuts that were not mirrored by spending cuts, which in turn meant that we were immediately back to deficit spending. In fact, if you look at a historical graph of the national debt, you’ll find on average that Republican presidents were an incredible amount worse for the debt than Democrats, Obama excluded. This is because, all rhetoric aside, Republicans are scared to actually cut services because their constituents still want to use most of them, but they cut taxes anyway.
Really, the main rule of thumb is that there are two main pieces that determine the health of an economy: how quickly money is flowing and how much value is produced.
In the short term, the primary concern is how quickly money is moving. The economy slows down if nobody is spending money which makes nobody hire which makes nobody spend money.
In the long term, however, just spinning money faster isn’t enough to keep the economy afloat. We need to produce goods and capital and not just move money around. You do, however, generally need money moving
Trickle-down economics doesn’t work because the more money you have, the more likely you are to either sit on it or tie it up in investment portfolios at least some portion of which don’t produce any value (like gold speculation). If the government takes the money in taxes, it spends roughly 100% of it, and a majority of it ends up in the hands of people that are middle class or lower, who are in turn going to immediately re-spend it, which keeps money flowing through the economy.
Keynesian economics are usually just a stopgap for trying to thwart economic downturns. The government spends during a depression/recession because in doing so, it causes additional money to start flowing through the economy. This does not, however, automatically do a lot for the long term health of the economy unless you take other steps, because more money moving does not automatically equate to value created.
I’d rate the stimulus packages that we’ve had so far as generally mixed bags. I think that we’d have been worse off without them (and economists tend to agree), but there were some mismanagements that also caused some portions of the stimulus packages to be spent in some ways that generated movement of money in the short term without a gain in value in the long term, and so the benefit ceased when the money ran out. That’s at least part of the reason we’re still in this mess.
Some portions have worked well, though, and I don’t think the right idea is to throw the baby out with the bath water. If we’re going to put out more stimulus money, it should be given out with strings that tie it to value-generating behavior from the recipient company. If you want to encourage home mortgage loans, don’t give banks money. Pay out money to the banks proportional to money earned from interest payments on home mortgages. If you want to get money into people’s hands so they can spend it, don’t just hand it out in the form of ever-lengthening unemployment benefits. Make the people collecting work at least part-time generating something of value.
Now that I’ve given my answer, I’d like an answer in return. Given that employment costs come out before any income tax at all, either corporate or personal, why do conservatives tend to jump on the bandwagon that higher taxes for the rich would hurt job creation?
It really isn’t so much an opposition to raising taxes, as such, but an understanding that no matter how much money we give to the welfare State, it will never be enough. Federal government receipts are expected to be $2.95 trillion in 2012 – expenditures in 2007 were $2.73 trillion. To have a surplus next year, we just need to return to 2007 spending levels. What is the debate really about? Democrats want to spend $3.75 trillion in 2012. That is why we’ll have a trillion dollar deficit next year.
Democrats want to keep the spending they piled up in 2009 and 2010…they just don’t want to give it up; not for anything. The nation can go bankrupt and Democrats won’t care…all they care about is keeping their spending levels as high as possible because that is how they obtain wealth for themselves and payoff their cronies and donors. We know that if we agree to a “tax on the rich” as Obama has proposed that he will just spend it…he won’t agree to spending cuts necessary to bring about debt reduction. You’re thinking in terms of Democrats actually believing that spending can help…they don’t care about that! That is the least of their concerns, in fact. Spending to get personally wealthy and stay in power…that is all they care about. We’re not kidding when we say we’ll agree to a return to Clinton-era taxation as soon as Democrats agree to a return to Clinton-era spending ($1.86 trillion in his last fiscal year…nearly two trillion less than Democrats want to spend next year…answer me honestly, do you really think that the needs of the American people have gone up by $2 trillion in just 11 years?).
None of us are going to buy it – we know that the money we give won’t be used properly by liberal Democrats. Even if Keynesianism worked, we still wouldn’t hand over the money…because we know the Democrats would just blow it.
why do conservatives tend to jump on the bandwagon that higher taxes for the rich would hurt job creation?
this is one of those if you have to ask….you wouldnt understand.
Given that employment costs come out before any income tax at all, either corporate or personal, why do conservatives tend to jump on the bandwagon that higher taxes for the rich would hurt job creation?
Last December 8th Obama said in a speech that allowing the Bush tax cuts to expire would result in the loss of “at least a million jobs”, so he apparently knew then what effect raising taxes would have on existing jobs.
This article from last December is a pretty concise explanation of why raising taxes hurts job creation.
An argument can be made both ways, and to a great extent it depends on where the economy is in the business cycle as is shown in this historical U.S. unemployment chart. Look at what happened to the unemployment rate following the Revenue Reconciliation Act of 1990 and following the Revenue Reconciliation Act of 1993, both of which raised the top marginal rate. Following the former, the unemployment rate went up, and following the latter, it went down. As I mentioned earlier, even Keynes was not a proponent of raising taxes in the middle of a recession.
And my question back to you is, could you explain why the order in which employment costs and taxes “come out” makes any difference in terms of available capital within any given business?
I expected nothing less (or more). Cory acts like someone who thinks that the primary purpose of a business is to provide jobs instead of make a profit. I just don’t know too many business owners who hire someone because they need a job.
Your entire explanation does not account for the causes of the budget increase over that same timeline. One of our larger budget increases over time has been health care spending, but I seem to remember Republicans ripping Obama to shreds when he tried to enact comprehensive health care reform.
You also make huge, blanket statements about liberal spending, but the only president to substantially decrease the federal budget as a percentage of the GDP in the last 20 years was Clinton. Reagan barely got it back to the level it was when he took office in 81 and it went up during the terms of both Bush presidents. We would not have had a surplus in 2000 if spending rates matched what they were under any of the three Republican presidents I listed. So you an allege that the Democrats are tax and spend liberals, but Republicans have proven time and time again that they are the don’t tax but still spend party.
Sorry, sometimes I have more important things to do with my life than argue with people on blogs, so getting around to formulating a response to any particular post might take a while (or never happen).
You quote Obama as saying things like that and then you wonder why some of us keep saying Obama is fairly conservative. If you want to cite a modern, liberal, Keynesian economist, your best bet is usually going to be Paul Krugman.
I’d also note that the chart if taken without context also has a less than consistent view on tax cuts. The Economic Recovery Tax Act of 1981 was one of the largest cuts to the to marginal income tax rates in the history of this country, and in the following year and a half, unemployment jumped 3.5%.
The reason that expenditures being untaxed is important for the discussion of employment incentives is that it means that money spent on employment can’t be directly affected by the tax rate. An employee costs the same amount to hire whether income taxes are 0% or 100%. In fact, higher income tax seems likely to reward taking lower pay and investing more in the business so that the owner gains net worth through higher valuation of the company rather than a higher paycheck.
The only argument you can make is that either higher income tax prevents people from becoming business owners or that if they are already a business owner, they will raise their salaries to compensate for the additional tax burden. The former seems ludicrous, as raising the tax rate on people making $250,000 a year only starts affecting people’s taxes in a big way over $300,000 income (as the tax rate increase is purely marginal), and that’s plenty to put someone in the top 1% or so of earners in this country, many times over the median and mean income in this country. The latter implies somehow that business owners are not already currently trying to run their businesses in a way that is optimal for their personal gain, which seems like a dubious prospect.