Budget Surplus? Tax Cut! Budget Deficit? Tax Cut! High Energy Prices? Tax Cut! Deep Recession? More Tax Cuts!

I see a pattern. For some people, the answer to every question is…a tax cut! From WSJ on 29 January:

There’s a serious debate in this country as to how best to end the recession. The average recession will last five to 11 months; the average recovery will last six years. Recessions will end on their own if they’re left alone. What can make the recession worse is the wrong kind of government intervention.

Keynesian economists believe government spending on “shovel-ready” infrastructure projects — schools, roads, bridges — is the best way to stimulate our staggering economy. Supply-side economists make an equally persuasive case that tax cuts are the surest and quickest way to create permanent jobs and cause an economy to rebound. That happened under JFK, Ronald Reagan and George W. Bush. We know that when tax rates are cut in a recession, it brings an economy back.

The article is by Mr. Rush Limbaugh. Typically, I don’t pay heed to this sort of writing, but I make an exception here since apparently a lot of the opponents of the stimulus plan as currently proposed are taking their lead from Mr. Limbaugh (FoxNews WaPo).


I’ll pose a few of questions here.


  • How persuasive is it that tax cuts are the surest and quickest way to … cause the economy to rebound?
  • Is the average recession five to 11 months?
  • Is the average expansion 6 years?

I know that proof by repeated assertion without data is a time honored tradition by some individuals, but Mr. Limbaugh’s first assertion is truly an amazing. In terms of aggregate demand, while tax cuts might get to the individual households quickly, actual spending will be spread out over time. This is illustrated in the dynamic multipliers from the OECD’s macro model.


potgdp3.gif

Figure 1: Multipliers at horizons of N = {1,2,3,4,5} years after implementation, expressed as the ratio of change in GDP relative to baseline to one percentage point of GDP change in X, where X= {government consumption spending, wage/salary taxes}. Source: Dalsgard, Andre and Richardson (2001).

In addition, the magnitude of fiscal multipliers, as readers of Econbrowser know, differs substantially in favor of spending increases rather than tax cuts (see [1], [2]).


What about the assertion that the average recession lasts 5 to 11 months? Well, I guess this could be right, depending upon what your definition of average is. Inspection of NBER’s database on business cycles tells me the that the arithmetic average of recessions is 17.4 months and the median is 13.5. The interquartile range (if this is what Mr. Limbaugh means by the average is between “five to 11 months”) is 10 to 18 months. Perhaps, Mr. Limbaugh meant “post-War” recessions; nonetheless, I cannot match his numbers. The arithmetic average length of a post-War recession is 10.4 months, the median is 10, and the interquartile range (IQR) is 8 to 11 months. Note that in all these calculations, I have omitted the ongoing recession, which we know (at least I’m pretty sure) has lasted at least a year…so these measures of central tendency are biased downward.


nbercyc2.gif

Figure 2: Histogram of all contractions, 1854-2007; and histogram of post-War contractions. Source: NBER cycles webpage.

What about the characterization of expansion lengths? The NBER database indicates a mean of 38.7 months, the median of 30 months, a lot less than six years.
For the post-War period, the mean is 58.4 months and median 45 months — closer, but still not quite the six years (72 months) cited by Mr. Limbaugh.


The most amazing assertion of the oped is here:

I say, cut the U.S. corporate tax rate — at 35%, among the highest of all industrialized nations — in half. Suspend the capital gains tax for a year to incentivize new investment, after which it would be reimposed at 10%. Then get out of the way! Once Wall Street starts ticking up 500 points a day, the rest of the private sector will follow. …

I’ll admit to being irritated by the use of the term “incentivize”, but that is hardly the worst offense. As pointed out in other venues, the citation of the statutory corporate tax rate — instead of the effective — is incredibly misleading (see [1] which cites a CBO report on the subject). Finally, I do wonder about the capital gains tax cut proposal. Will the stock market rise 500 points per day on multiple contiguous days (that seems to be implied by the language), and whether output and the capital stock will rise strongly in response. If one recalls the Bush Treasury’s report, one would be a little skeptical, especially given the temporary nature of the tax cut. For some detail, see this post from 2006.


One last point. I do agree that the “wrong” kind of government intervention can make the recession worse (Limbaugh channeling Cole and Ohanian; see a critique here). But I think the “wrong” kind of interventions include a slavish devotion to tax cuts — especially when the MPC [3] could be argued to be low in the aggregate (although I still believe it would be relative high for liquidity constrained households). This last figure shows how the relationship between the growth rate of consumption and the growth rate of personal income (both in real terms) has changed in the last year, as compared to the entire 1967-08 period.


nbercyc3.gif

Figure 3: Quarter on quarter growth rate of consumption versus quarter on quarter growth rate of personal income, in Ch.2000$. Green line is regression line for 1967-08. Red dots are for 2008. Source: BEA, GDP advance release, 30 January 2009, and author’s calculations.

So it bears repeating: The multiplier on spending on goods and services, such as construction, or teachers, or for policemen, etc. will, under these conditions, be larger than that for tax cuts directed at nonliquidity constrained households.

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85 thoughts on “Budget Surplus? Tax Cut! Budget Deficit? Tax Cut! High Energy Prices? Tax Cut! Deep Recession? More Tax Cuts!

  1. MM

    It’s an interestingly and unfortunately common thing to see an idea degraded by linking it to a commonly disliked root, even if only in language. By claiming opponents of the stimulus bill are in this way being “lead” by Limbaugh you do a fantastic job of demonstrating an inability to control your partisan bias, but a poor job of writing intellectually honestly.

  2. brendon

    The media is somewhat to blame – they let Republicans spout discredited ideas or blatantly misconstrue ideas without comment( a la Romer on fiscal multipliers). Its simply more “Shape of Earth: Views differ” type reporting. Of course the WSJ Editorial Page is never credible, but I’m not sure why even they feel that Limbaugh is qualified to write about economics.
    The facts seem to be that nobody knows for sure what the fiscal multiplier is in a liquidity trap – and so a mix of spending and tax cuts isn’t such a bad plan. Why that is so hard to admit for some, I have no idea.

  3. calmo

    Well I thought this bit was honest, intellectually stimulating and poetic:
    tax cuts directed at nonliquidity constrained households.
    And this, rather bone-headed, clumsy and verbose:
    By claiming opponents of the stimulus bill are in this way being “lead” by Limbaugh you do a fantastic job of demonstrating an inability to control your partisan bias, but a poor job of writing intellectually honestly.
    in not recognizing that Limbaugh is an oaf not worth the trouble unless he happens to command the audience that he does…not the general public that prefers the distraction of real entertainment (football it seems), but those GOP members, who feel that this clown speaks for their constituencies, and on that account gave Obama exactly zero votes on the stimulus bill.
    I wonder how skewed the disparity has to go before these people come to their senses –recognize that the dissatisfied, the disgruntled, the angry,…the hungry mob! was cultivated by tax cuts?

  4. Anonymous

    Lol, “liquidity constrained households”.

    Rush Limbaugh doesn’t care about liquidity constrained households.

  5. Rod Richardson

    I love your blog, but your logic is a bit wobbly here.
    First problem: Rush is arguing for corporate and cap gains tax cuts, and you are presenting data about the superiority of spending to wage/salary tax cuts. So you fail to win your first point, because you are simply not addressing the correct tax cut proposal with that data. Not all tax cuts are alike, some will be far more effective than others.
    (I also think Rush is arguing historically, and you are responding with statistical models that are only as good as their underlying assumptions, so not determinative. Certainly, were you to consider history, the Carter era experience with stagflation should make any economist wary of spending stimulus.)
    Second problem: You are the one who is misleading when you suggest Rush is misleading us by talking about the statutory corporate tax rate, not the effective tax rate. Why? Because the statutory and effective tax rates are about the same right now. Why? Because credit markets have dried up. The difference between the statutory and effective corporate tax rates, according to the CBO report you cite, relies on a more favorable tax treatment for debt financed corporate investments. But in the present climate, credit is very tight, so corporations are forced to pay the statutory rate and use more equity financing — if they can get any financing at all. So most corporations are indeed paying the statutory rate now, and it is indeed much higher that OECD rates, and so should be cut.
    But even if that were not true, and the huge disparity between tax treatment of debt and equity were in play, then good economists should point out that this probably creates dangerous economic distortions by encouraging too much ill-advised debt financing. So corporate rates should be cut to treat debt and equity financing more equally.
    In general, I get the sense that you do not appreciate the differences between different kinds of tax cuts, or understand how corporate tax cuts could have an immediate impact on the economy. One ill-understood effect is to immediately stimulate the stock market, and so stimulate demand. Slashing corporate tax rates to 20% will immediately boost the markets by increasing after-tax earnings by about 23%, which should boost market valuations by a multiple determined by the current P/E ratio. In other words, that could help boost the DOW about 2000 points, to around 10,000. As personal net worth rises, so will consumption and demand and corporate investment, further boosting markets.
    The effect will be quite fast, and with no wait for tax time to roll around. Indeed this is an effect entirely independent of direct stimulus provided by the extra cash it puts in the hands of the corporations. However, since there is no better demand stimulus than a rising market, we can be sure the demand surge will encourage corporations to invest the money, rather than hoard it.
    Rush’s capital gains tax proposal is more problematic, however. It might encourage more selling than buying, as investors dump low basis stock for the tax break. We need to encourage more buying than selling. I would amend Rush’s cap gains proposal a bit: zero out future capital gains on any purchases made in 2009 to encourage buyers to come back into the market. Taxes on sales of currently held securities could be lowered a bit to lubricate the market, say to 10% for one year, then bring it back to 15% thereafter. That will stimulate buying and selling in the markets in 2009 (more buying than selling) and produce much needed cap gains tax revenues now for governments.
    Rod Richardson
    http://www.greenenergytaxcuts.com

  6. Rod Richardson

    BTW, as to the title of your post, while it seems ironic and maybe paradoxical, it is actually true that tax cuts usually always have at least SOME benefit in almost any situation. Every tax creates some deadweight loss, so if you cut a tax, you remove that economic drag and help the economy to that extent, regardless of the effect on tax revenues. Perhaps this sticks in your craw — apparently so. But in almost any situation of economic stress, the situation can be improved (at least in some respects) by cutting the highest, most non-optimal tax one can find. The higher and more non-optimal, the more likely the tax cut will be revenue positive or neutral. Now that may be a cheap trick, in that the underlying problem may require an entirely different solution (i.e. fixing the CDO mess) but at least it is a cheap trick that, if done judiciously, can help. That is probably the case with current corporate tax rates.

  7. Hal

    Face it: these people are simply stupid. They are the people who thought Palin was great. They are the people who believe in creationism. They are morons; they are uneducated morons; they are simply stupid. And there are lots and lots and lots of them, sadly enough for America.

  8. acerimusdux

    “Keynesian economists believe government spending on “shovel-ready” infrastructure projects — schools, roads, bridges — is the best way to stimulate our staggering economy”
    This isn’t exactly accurate either. In our current economy, yes. But Keynesians generally do favor tax cuts in other circumstances, mainly when there is an actual shortfall on the supply side (i.e., typically, when interest rates and inflation are high). It is only when the imbalance is in the other direction that Keynesians favor stimulating demand.
    Only “supply-siders” seem to have a one size fits all solution. When there is a savings shortfall, they favor reducing consumption to stimulate savings. And when there is a savings glut….they favor doing everything possible to make it worse.

  9. acerimusdux

    “Suspend the capital gains tax for a year to incentivize new investment, after which it would be reimposed at 10%.”
    Ouch. Talk about making it worse. Menzie, you let him off easy on this one. As capital investments, by definition, are “owned or used for more than a year”, this quite obviously would not reduce rates at all for any “new” investment. Therefore, it lowers rates only for disinvestment.
    Now, I suppose one way to help reduce the gap between output and demand is to provide incentives to disinvestment, in order to encourage a reduction in output. But somehow I suspect this will not be the best solution for the jobs market.

  10. AlladinsLamp

    There’s a reason Rush and his ilk are always demanding a cut in the capital gains tax.
    Does Rush recieve his $280M as a salary or hourly wage?
    I think not.

  11. beezer

    Bob Richardson writes:
    “In general, I get the sense that you do not appreciate the differences between different kinds of tax cuts, or understand how corporate tax cuts could have an immediate impact on the economy. One ill-understood effect is to immediately stimulate the stock market, and so stimulate demand. Slashing corporate tax rates to 20% will immediately boost the markets by increasing after-tax earnings by about 23%, which should boost market valuations by a multiple determined by the current P/E ratio. In other words, that could help boost the DOW about 2000 points, to around 10,000. As personal net worth rises, so will consumption and demand and corporate investment, further boosting markets.”
    In the current situation, the inclination of everyone, including corporations, is to deleverage rather than invest. I’m a little skeptical that the logic above holds right now.
    Even if it does have the effect of individuals feeling better off (primarily through some recovery of their retirement accounts), most of these accounts are not spendable and unlikely to boost demand much.
    The technique also ignores America’s underlying weakness: It is saddled with legacy infrastructures that must be removed and replaced. It does not address the reversal of decades of malinvestment.
    Demand isn’t going to be boosted until debt levels are reduced and investment money has productive, longterm projects in which to invest.
    Investors, both individual and institutional, have recently seen that security profits can be illusory.

  12. DickF

    Menzie wrote:
    The multiplier on spending on goods and services, such as construction, or teachers, or for policemen, etc. will, under these conditions, be larger than that for tax cuts directed at nonliquidity constrained households.
    Menzie,
    You often make me laugh. The contrast Limbaugh is drawing is between Keynesian and supply side analysis. You take numbers and give them a Keynesian twist and believe that because Keynesian analyse supports you that you have proven that Keynes is right.
    Keynesian economics gave us Hoover (I know the General Theory was written after Hoover, but it was a rationalization of Hoover’s interventionist policies) and the longest decline in US history in the 1930s and 40s. Then when Keynesian economics really came into prominence and Richard Nixon proclaimed that we were all Keynesians we received the gift of the Great Inflation.
    It appears that this time we are getting both at the same time as massive increases in liquidity bring down our economy and the as the contraction sets in producers are hindered as government intervention confiscates their wealth to send to the unemployed.
    What a wonderful country!

  13. Steven Kopits, Princeton, New Jersey

    US Recessions: 20 in the last century. During the ‘modern period’ (since the founding of the Fed in 1913), the average length of recession (contraction from peak to trough) has been 13.5 months; median, 11 months. There have been no recessions of less than 6 months. The current recession is likely to last at least 18 months (mid-year bottom), putting it in the top quintile in the last century.
    If, as Geithner claims, this is the worst recession since the Depression, then the duration will be 24 months or longer.
    Heaven helps us if he’s right.

  14. Steven Kopits, Princeton, New Jersey

    “The multiplier on spending on goods and services, such as construction, or teachers, or for policemen, etc. will, under these conditions, be larger than that for tax cuts directed at nonliquidity constrained households.”
    Exactly how many non-liquidity constrained households are there in the country? And how does the analysis change if we assume that, say, 80% of the tax cuts go to liquidity-constrained households?

  15. stunney

    Why can’t people understand the appallingly tragic and disastrous error made by the Bush Administration? Yes, I’m talking about its failure to abolish ALL taxes on everyone making more than 5 million a year.
    This astounding mistake is second only to the Bush Administration’s failure to abolish wages for hourly paid workers.
    Close behind is the Bush Administration’s laughably ‘compassionate’ decision not to make labor union membership a capital felony.
    The solution to the crisis? Execute low-income Blacks—they caused it through their depraved pursuit of home ownership. They should pay for their crimes. Well okay, maybe execution is a hasty step. To give them a second chance, however, all Black people should be forced into slavery, and the economic gains thereof should be applied equally to the estates of Richard Mellon Scaife and Margaret Thatcher.
    THIS MESSAGE IS BROUGHT TO YOU BY RUSH LIMBAUGH’S NEURON, AND BY DISGUSTING AMERICANS IN ALABAMA AND MISSISIPPI.

  16. ReformerRay

    Whether tax cuts or spending on projects, both are wrong at this writing.
    All spending will continue to go down the rat hole, just like the money given to banks, UNTIL the toxic assets are removed from the balance sheets of the big banks.
    I advocate allowing firms to fail – all firms that cannot raise money from the private sector.
    All these stimulus plans are trying to prvent the depression from getting worse. I say, stop adding to the national debt until such time as the banks have gone broke or whatever it takes to get rid of the toxic assets.
    Today we are following the example of Japan. A very bad model. When Japan refused to allow its banks to even acknowledge their debts, the result was a decade of underperformance.

  17. kharris

    Rod R.
    “I also think Rush is arguing historically, and you are responding with statistical models that are only as good as their underlying assumptions, so not determinative.”
    Arguing historically would include examining the data and extracting summary statistics. Extracting summary statistics does not rely on a model and is not sensitive to assumptions. Limbaugh simply has his figures wrong, for whatever reason.
    Your claim that Carter’s period necessarily tells us much about the current period partakes of the use of “underlying assumptions” that you warn of in Professor Chinn’s analysis. Your argument can be no stronger than its underlying assumptions, which seems to be that economic conditions in the Carter period are sufficiently similar to those today that we should take for granted a similar outcome is likely. In fact, underlying conditions are quite different. The notion that the Carter episode “should” make us wary of spending relies heavily on your own priors. Your “should” is more a rhetorical tool than a reality.
    Speaking of rhetorical tools — “Certainly, were you to consider history” carries the implicit assertion that Professor Chinn has not done so. Nice trick, but hollow. The data Professor Chinn offers is, after all, drawn from history.
    Your own “analysis” is largely analysis by assertion. Tax cuts will do this and will do that. You “get the sense” that Professor Chinn misunderstands whatever it is you need him to misunderstand in order to seem to have an intellectual advantage. I would urge you to take your own advice, and consider history. Much of what you assert “will” happen in response to cutting capital gains taxes failed to occur during the GW Bush administration. The stock market did not perform better than trend. Investment in capital did not increase as a share of GDP. Certainly consumption among the wealthy rose, but that is easily explained by their rise in income, relative to the populace as a whole. If the only demonstrable effect from tax cuts is more wealth and consumption for the wealthy, then we can easily engineer the same results by other means.
    Claiming the other guy’s conclusion is over-reliant on his assumptions is a standard debating tactic, and a pretty cheap one. In any situation beyond (as noted above) quoting summary stats, we are prone to indulge in assumptions in cobbling together our argument, and so one can always just claim the other guys assumptions are the problem. The useful, not to mention honest, thing is give up the easy trick and actually discuss each side’s assumptions to see which seem least fragile.
    Oh, and I wouldn’t go with “usually always have at least SOME” again if you can avoid it.

  18. Steven Kopits, Princeton, New Jersey

    On government spending and jump-starting the economy:
    As I understand it, we are in the midst of a financial crisis. The bank’s aren’t lending. Why not? It’s seems to me that for a bank to lend, there are three conditions:
    1. availability of capital
    2. confidence in the value of collateral (risk mgt)
    3. desire of a borrower to borrow
    The first looks like it will have to be addressed by some sort of ‘bad bank’ structure.
    The second can only occur when markets have bottomed and stabilized. Trying to prevent adjustment is therefore pointless and counter-productive. Banks will lend against homes when house value to rent and/or income ratios return to historic norms. When you need a top 3% income to purchase a median house, then the system is inherently unsustainable. We’ve come through much of this adjustment, but a residual adjustment remains.
    The third condition is the desire of the borrower to borrow. Borrowers may borrow against either wealth or income. Most people’s wealth is either in their houses or their financial securities, both of which are down and unlikely to fully recover for several years, in the best case. Therefore, a borrower must borrow against forecast “free cash flow”. His willingness to borrow is therefore affected by the absolute level of his debt, employment status, risk of job loss/pay cut, and future expected levels of taxation, among others.
    Let’s look at your proposed government spending on policemen and teachers. In what sense is giving them extra income different from a tax cut? You may wish to argue that extra spending here creates unusual value, ie, you are making an ROI argument. In general, we know that spending on education and educational achievement are largely uncorrelated. But in any event, you will have introduced ROI as a criteria for your government spending. As I recall from economics, you get the highest marginal utility from allowing people to make their own investment and consumption decisions. And as I recall from public choice theory (and many years of consulting practice), the government is terrible at this, because government is not a profit-maximizing entity. (Rather, it maximizes political acceptability.)
    So spending on teachers and policemen is really just bad targeting.
    Spending on construction can be worthwhile. Infrastructure has been starved for many years. However, will it be spent at appropriate cost in the right places, and will this spending end up where people are actually unemployed? For example, if you drive around the Wall Street area in Manhattan, the road surfaces are worthy of a civil war zone. Do you think the infrastructure funds will be spent here? I have my doubts. Once again, we are faced with public choice theory problems.
    At the same time, by your approach, you have not let indebted households de-lever, which is what they really need to do. Instead, you have blown money on low-valued added activities and in fact reduced forecast household free cash flow with the promise of higher taxes in the future.
    Is it therefore a good idea to resist recession? Or is it better to let it take its course, and try to soften the blow on some segments? Should we give the drunk more alcohol, build him a new school, or just put him to bed in a darkened room and wait for him to sleep it off?

  19. MikeR

    Menzie,
    This is the best post on multipliers I have seen from you recently, because it contains some analysis rather than just quoting Mark Zandi or the CBO.
    However, I still think the incentive effects of tax cuts are not easily quantified.
    It is impossible to conduct proper scientific experiments with social science, time series data. However, it is more difficult in political economics than it is for financial economics, since there is a wealth of stock market data. So people like Fama, Cochrane and Fischer Black are more humble in the face of rational behavior. The market humbles us every day.

  20. wally

    Aren’t you missing something? In either case the government is confiscating earnings to move them forward as a stimulus. Therefore in either case there is also a negative effect at a later date when either taxes must increase to eliminate the government borrowing or inflation will occur, to the same effect. I don’t see any way that you have addressed that.
    The argument that there is no limit to debt has been pretty much demolished by our current circumstance – which is a credit collapse and debt deflation due to excess debt. A lot of that has now been destroyed, but government re-escalation of debt should be done with extreme caution due to the obvious ignorance of economists about the levels of debt that induce collapse. Economists today are in the position of a doctor who has mis-diagnosed a patient and are now debating the short-term merits of applying a dubious treatment with unknown long term effects.

  21. Unsympathetic

    Rob:
    ” is actually true that tax cuts usually always have at least SOME benefit ”
    The onus is on you to prove it. Show data. Your assertion has zero value.

  22. acerimusdux

    “Keynesian economics gave us Hoover (I know the General Theory was written after Hoover, but it was a rationalization of Hoover’s interventionist policies) and the longest decline in US history in the 1930s and 40s.”
    That some major historical revisionism there. In the first place, the roots of the Great Depression go back to the laissez-faire (and essentially “supply-side”) policies of the Coolidge administration, which continued though most of the Hoover administration.
    Throughout the 1920s, you had:
    1. A generally laissez-faire approach to regulation and oversight of business
    2. Lower taxes, especially on the top income brackets
    3. Increasing inequality of wealth & income
    4. Very low inflation (and even deflation)
    5. No expansion of (and even contraction of) the monetary base
    6. Dramatically inflating asset values
    7. A dramatic expansion of consumer and business debt
    Hoover only took office 8 months before the market crash in 1929. The dramatic expansion of debt, inequality of income/wealth, and asset bubbles all grew through the Coolidge administration. And, economic policy during both administrations was greatly influenced by Andrew Mellon, who Hoover retained as Treasury secretary until early 1932.
    In the 1920s, under Mellon’s influence, the top marginal rate had gone from 73% in 1921 (too high) to 25% in 1925 (likely too low for that time). If you understand inflation for what it is, another tax on wealth, then you can also consider the tight monetary policy of the time another huge windfall for the wealthy. On top of all this, Coolidge vetoed Farm relief bills in 1926 & 1927 (with thinking similar to those today who mistakenly view farm bills as “pork”).
    If farmers and workers aren’t seeing their incomes rise too, at first they try to maintain their consumption by increasing debt, but eventually what happens is demand slows, and there is no reason for business to invest in increased production with slowing demand. You are at the end of the supply side rope.
    And this is what happened. Savings had to head elsewhere. And you started to get asset bubbles. And then, with not enough of the gains in income going to the middle, with many ordinary people ending up unable to pay their mortgages despite the supposed boom, came the financial collapse beginning with the decline in real estate as too many people ended up in foreclosure and default.
    And Hoover, through all this, did nothing constructive as far as government intervention in housing or credit markets, or as far as fiscal policy stimulus, until 1932, by which time unemployment was over 20%.
    Once stimulus was applied, as well as tax increases, in 1932-1933, you had a strong recovery from 1933-1937 (with stronger real GDP growth for that stretch than the boom of the 1920s).

  23. MikeR

    acerimusdux,
    The tax rates you quote are not comparable to the modern tax system. Back then, only about 3% of the population had to pay income tax and total tax revenue was a smaller percentage of GDP.
    So, if you think raising the top marginal tax rate to 73% helped in 1932, you might think it would be good for 2009. I would disagree.

  24. Bob Falfa

    It seems the tired, the poor huddling masses on non-liquidity constrained yearn for lower taxes if Geithner and Daschle (lol – sat on the ethics comittee) are any indication.

  25. DickF

    DWhite wrote:
    So the WSJ is publishing commentary by college drop outs?
    Yep, always has and always will.
    Consider the wisdom of Sam Walton and Bill Gates compared to Hank Paulson and Tim Geithner. If you look at the richest men in the world you will find that most are college dropouts or never went to college. Think about that when you take you final exams adn if you pass then think about whether you will be working for someone else or will they be working for you.

  26. acerimusdux

    MikeR:
    The 73% was the rate it had been in 1920. I think they raised it to 63% in 1932. I think that would be too high as well; anything over about 50% is probably too high.
    But the point is it’s possible to be too low as well. Yes, a smaller portion paid taxes, but then as now that top few percent controlled a large share of the wealth. The point is that taxes, as well as inflation, have some redistributive effect.
    Now, I’m not advocating increasing taxes at this point, just pointing out that tax increases certainly didn’t “cause” any of the depression and didn’t impede a strong recovery when they were passed to help finance more spending.
    And, I also meant to highlight the overall similarities right now, to which I’ll add, in the last year we have had:
    1. Inflation at the lowest since the GD.
    2. Interest rates at the lowest since the GD.
    3. The top 1% earning the highest portion of income since just before the GD.
    4. The personal savings rate (earlier this year) the lowest since just before the GD.
    5. We had a very tight monetary policy leading up to this (as far as the monetary base)
    6. We had very loose credit policy (credit was expanded instead of money).
    Monetarists tend to use M2, much of which is really a form of credit, as a measure of money. Bernanke, a follower of Friedman, went into this downturn honestly believing that you could fight this mess, caused by excessive credit, by further expanding credit (i.e. providing “liquidity”).
    There was little thought in Washington a year ago of using spending as a stimulus. There was likewise little thought at the Fed of using monetary policy. Instead, they wanted to focus on “credit” by buying “bad assets”. Thus we had the Fed doing fiscal policy, instead of monetary policy, but using that fiscal policy to buy bad assets, instead of good ones.
    We need government spending now to jump start demand, but the number one thing the Fed could do to help, would probably be to raise their long term target for inflation to something more reasonable, say 3%. Do that, do regulatory reform of the mortgage, credit, and derivative markets, and you won’t need any tax increases beyond those already scheduled to occur. But in the long run, we also do need to let unemployment eventually get down to a level where real wages start rising again.

  27. MickeyHickey

    John Kenneth Galbraith said that conservatives continually search for a superior moral philosophy that justifies selfishness and greed. The howls for lower taxes is a never ending one and can be heard night and day in privileged circles around the world. The sense of entitlement is astounding and unfortunately self destructive in some circumstances.

  28. HatlessHessian

    What a remarkably unintelligent post from a blog I had expected more insightful commentary from.
    All “blaming the messenger” aside (WSJ, Limbaugh), tax cuts are evaluated at different points of economic cycles for different reasons. First of all, the commentary neglects to acknowledge that both taxation levels (especially corporate as well as AMT) are higher than ever before when evaluated per net impact. As taxes are not held constant, cuts are subsequently not referencing a static target. Indeed, the author of the misguided comment above would have you believe that a 100% tax increase followed by a 25% decrease would be a “cut.” This is clever trickery to confuse fools. While it appears to have worked on a few commentators here, many of us have the education to know otherwise.
    Secondly, tax cuts applied as a brake to governmental spending growth well in excess of economic growth can be validated in good economic times to keep Federal blot from burying the nation. The state of Iowa incurred this problem, running government growth at nearly double the rate of economic growth during the peak of the economic cycle. It now faces a nightmarish challenge of increasing taxes at the point where Laffer curve effect is likely (circumvention is nearly certain at mid to lower income levels, as we’ve seen in the upper circles of Obama administration appointees).
    Unfortunately, the original post’s author is likely to avoid introspection and continue to represent political advocacy as economic thought. If we’re to solve the extreme economic problems we face, more governmental bloat is not the solution.

  29. Buzzcut

    Nobody is arguing that we shouldn’t invest more in infrastructure. The argument is that very little of the “stimulus” is investment in infrastructure, and that infrastrucutre spending is not “timely, targeted, and temporary”.

  30. Buzzcut

    Menzie, if you are going to go after someone, could I request that you look over Arnold Kling’s writings? In fact, I’d love to see a blog that is just a back and forth between you and Arnold. You are the voice of conventional economic wisdom, and Arnold is something else altogether.

  31. Heterosexual

    Given that Democrat politicians, as a rule, evade their taxes (Geithner, Daschle, Rangel, Dodd), they are in no position to force higher taxes on the rest of us.
    I have found that the louder a leftist wails, the hypocritical that leftist turns out to be.

  32. Steve

    OK, let’s spill the beans here. This recession is not just a consumer demand recession, it was caused by very destructive practices in the financial, business and housing industries. We shipped all the jobs oversees to avoid high taxes, but in doing so we took away the jobs that provide the revenues to purchase the products that were produced by the workers hired in other countries. Meanwhile folks were given risky mortgages with all kinds of rate clauses. At the same time, the financial folks were using very risky packaging of long term paper and were caught when the notes were called. Did I mention consumer credit card debt of 800 billion.
    We are in uncharted water! We have destroyed our industrial base and with it the jobs it once produced.
    It is time to redeal the deck. There needs to be debt forgiveness to the middle class, say 50k or so per household, along with a tax holiday, and I mean all taxes, for one year.
    At the same time, I do think we need to go forward with developing the future energy products, wind, solar, electric and hydrogen to accomplish energy independence and to export our energy products to the world at large. If it takes federal dollars, then so be it. It is a national disgrace not be energy independent. This would remove the Middle East’s stranglehold on the developed worlds energy needs and begin to reassert American power.
    During the withholding tax holiday, a new tax on all purchases, could be used to offset the middle class stimulus costs. The first 25k of spending would be tax exempt across the board. The tax holiday would be for the first 100k of revenue.
    We are sick and tired of theories and bad cop good cop. Obama needs to bang some heads together, Pelosi and Reid for starters, to force action for the good of this nation. Knock off the staging and get something done!!! Have a plan and execute the plan!! No more talk, Obama had two years while running for office, he should off had a plan out of the box!!
    Were losing patience real quick out here in THE REAL WORLD!!!!!

  33. Heterosexual

    A society where working for the public sector is more profitable than trying to be an entrepreneur is not a society that can last very long.
    Leftists have already turned California into a socialist republic, under the idiotic belief that Silicon Valley is a bottomless supply of tax revenue. As a result, more and more of Silicon Valley is moving to Asia, never to return.

  34. Richard

    “I see a pattern. For some people, the answer to every question is…a tax cut!”
    I see a pattern too. For some people, the answer to every question is…a government program and more spending.
    Why is Keynes so oft cited? Because his ideas (at least in bastardized form) justify what our elected officials want to do anyway…spend money.
    Well, California and Madoff are the future. Perpetual budget crises, because the Ponzi scheme has gotten too big to be covered by new suckers.

  35. Heterosexual

    “Execute low-income Blacks—they caused it through their depraved pursuit of home ownership. ”
    That is something Democrats have historically done, given their history of slavery, and 100-year ties to the KKK (Sen. Robert Byrd was a KKK Kleagle).
    “the original post’s author is likely to avoid introspection and continue to represent political advocacy as economic thought. ”
    That is what happens when politics becomes a religion-substitute. It consumes everything, including economic knowledge. We see of Islamic rules of lending are just unviable relative to any economic theory, yet are still pursued. The same goes for leftism.

  36. Joe Calhoun

    I don’t know about the rest of you, but I am disgusted with the partisan political back and forth about the “stimulus”.
    It seems to me that both sides are missing the big issue in this debate. The big issue is debt and both sides are proposing deficit financing for their proposals. The empirical evidence for economic stimulus from deficit financed spending or tax cuts is limited. The academic research is pretty evenly split and I see no reason to believe either is more effective than the other.
    Was it the tax cuts or the growth of debt that fueled high growth in the 80s? Which had a greater effect in the 90s, Clinton’s early tax increases and reduced deficits or reductions in capital gains taxes later? Or was it the strong dollar? Was the debt buildup of the 00s a result of Fed policy or a weak dollar? I would submit that there is no way to seperate the causes and effects of these various policies.
    To me, both sides of this debate have failed because they both depend on ever increasing levels of debt. Rather than think short term, we should be addressing our long term problems and very high on that list has to be reducing our debt load at the government, corporate and individual levels. Any proposal that doesn’t address our debt load is a waste of limited resources.

  37. Rod Richardson

    Unsympathetic, kharris and beezer:
    No, I am not simply making assertions. I am however arguing a priori from certain assumptions. The idea that, in general, most tax cuts have at least some benefit is a consequence of the basic economic concept of deadweight loss. Here is a good description:
    http://www.econmodel.com/classic/terms/deadweight_loss.htm
    My argument that a corporate tax cut would lead to a rise in the value of securities is based on the notion of a P/E ratio: if after-tax earnings rise as a consequence of a tax cut, this should be reflected in a proportional price rise of the underlying stock, if standard valuation models hold. I also assume that rising stock markets boost demand, which seems reasonable.
    If you disagree with these a priori arguments, lay out your logic, but don’t tell me i am simply making assertions.
    kharris: My impression is that most economists and historians agree that fiscal stimulus played a large role, in combination with high taxes, in producing stagflation in the Carter era. Further, this seems to me like a relevant episode, as there are some clear parallels between Carter and Obama: Democrat Presidents, both inheriting recessions associated with an energy crisis, both pursuing fiscal stimulus as a solution. Now, your argument seems to be because i have an underlying assumption, my argument is therefore flawed. That is just silly. If you disagree with the widely perceived link between fiscal stimulus and stagflation in the Carter era, or think that the the laws of economics have changed in the last thirty years, please, make a coherent argument.
    Beezer: I agree that tax cuts do not address the underlying problems with CDOs and derivatives, which still need to be addressed — and I said as much. But please note: your argument here could also be used to argue against federal spending, that the situation simply won’t improve until the underlying problem is gone. Regardless, I believe people will begin to spend more when they see their assets start to recover (lots of deferred needs building up, you know) so the corporate tax cuts would still help to raise markets and stimulate demand.

  38. Joe

    MM: Do you have any actual argument with the reasoning in this post (aside from your unsupported claim of an association fallacy)?

  39. Mike

    I haven’t seen much about direct subsidization of investment and hiring of labor. Why not? It seems to me this would have a high multiplier and may draw more Republican support.

  40. Anonymous

    Tau Zero, an SF story by Poul Anderson was highly acclaimed as a story about relativity. It was however noted that at each plot twist, the answer was always, “Go faster!”

  41. stunney

    The longest and/or the biggest US economic expansions in living memory occurred during eras of the highest rates of, and/or increases in, corporate and personal taxation.
    Discuss.

  42. MikeR

    Stunney, I would argue that we have not had a sizable tax increase since the Reagan tax cuts.
    Also, you are suggesting a one factor model of the economy where taxes determine everything. What about technology, imigration, war, globalization, etc. The economy is more complex.

  43. Brian Quinn

    I find it interesting Limbaugh would consider the period after George W. Bush’s tax cuts a period of great economic success. The single best year we had under Bush, 2004, was a 3.6% growth year, the only year over 3%. The average growth rate under Bush was barely 2%, the weakest since the end of WWII. Limbaugh has a very poor grasp of facts and relies entirely on polemic notions.

  44. Stefan Karlsson

    Well, if you really believe that tax cuts promotes economic growth and if you favor solutions that increase economic growth both during cyclical booms and slumps, why not consistently favor tax cuts?

  45. Terry

    The size of multipliers using different stimulus approaches has remained a mystery to me. There seem to be as many views on this as their are economists, each using his/her own model and data.
    I appreciate your showing the comparative advantage over govt. spending over tax cuts/rebates. Still, I’d like to have a little firmer handle on which govt. spending would yield the fastest and ultimately the greatest results. We need both.

  46. Jim Glass

    “In the first place, the roots of the Great Depression go back to the laissez-faire (and essentially ‘supply-side’) policies of the Coolidge administration”
    Actually the roots of the Great Depression go back to World War I, its destruction of the gold standard, and the subsequent reinstatement of the gold standard in the 1920s at pre-war parities which no longer fit economic reality, causing systematic world-wide deflationary pressures.
    If you think World War I and governments reinstating the gold standard at the wrong parities are examples of “laissez faire in action”, then you have a point.

  47. Eduardo Guelman

    When you mean recession, do you mean peak to botton gdp or peak to recovery gdp?
    That could explain the difference… no?

  48. Lord

    Actually, I hear the GOP is now listening to Joe the Plumber for advice. Sort of places everything in context.

  49. Menzie Chinn

    Rod Richardson: Please consult the link to the blogpost on dynamic analysis of tax changes. There are tables there that relate to changes in capital gains. I did not link to other posts where I discussed the empirical literature relating to tax changes and investment behavior, primarily in a q-theoretic context. But you can find them here and here. I would welcome the addition of your citations of the empirical (read econometric) literature buttressing your case. In the absence of such citations, I remain unconvinced. By the way, I suspect that most readers do know what the concept of dead weight loss is.

    DickF: I am happy to provide amusement for you. Let me assure you that the feeling is reciprocal. I am indeed happy to have you contributing to the conversation on this blog as I always need a chuckle.

    Steven Kopits, Princeton, New Jersey: When I was in graduate school, and working with models of rule-of-thumb consumers, the number I cited from Campbell and Mankiw’s articles was about 30%.

    ReformerRay: Your advocacy of allowing the banks to fail is sometimes call the “liquidationist view”; or at least it was at the beginning of the Great Depression.

    Steven Kopits, Princeton, New Jersey: (ROI entry) No, I’m not arguing on a rate of return basis, I’m arguing on an aggregate demand basis, which makes sense when output is demand (rather than supply) determined. In other words, I’m assuming the aggregate supply curve is fairly flat. See this post.

    MikeR: I agree that the degree of uncertainty surrounding multipliers is great; but not so great that we have no idea of the ordering of effects. I have discussed the incentive — or supply side — effects in a number of posts, including the one linked to in this post. The general consensus from mainstream economists is that they exist, but are fairly small, with effects concentrated at the long horizon.

    taimyoboi: While I have great respect for Mankiw, I find his dismissal of Keynesian macroeconometric models unconvincing. When he critiques “empirically calibrated Keynesian models”, you should ask yourself, how are the “real business cycle models calibrated?” The answer would be very instructive.

    HatlessHessian: Since you are new to the blog, I’ll just point out that just about every point I’ve made I’ve previously written upon, linking to empirical studies or discussions thereof. Please follow the links in the post. I also see that you cite the “starve the beast” hypothesis in lauding tax cuts. I refer you to Jeff Frankel’s discussion of this empirically contentless hypothesis.

    Buzzcut: Some day, I’ll have time to do it. But I do agree with Kling’s point 18.

    Eduardo Guelman: No, I don’t think so. I’m using the standard NBER peak/trough durations. You can try to massage the data yourself, though, at NBER.

  50. G.E. Howard

    HatlessHessian: What a remarkably unintelligent response, especially from one who professes to believe it is offensive “to represent political advocacy as economic thought“.

    Your didactic response seems far more political at its base than does the author’s original post.

    Adherents of the so-called “Laffer Curve” as a predictive model of real economic results nowadays seem far more addicted to an “ism” than to sound fiscal policy.

    Is the Obama “Economic Surge” good policy? Will it be effective? No one knows yet, but no doubt it will be argued far into the future… which is when the final results will be thoroughly dissected.

    In the meantime, can we discuss economics without resorting to meaningless political insults?

    Thank you.

  51. Heterosexual

    Hey, if I become a Democrat and work in the public sector, can I avoid paying income taxes too, while also demanding higher taxes on others? It seems like a good deal that Daschle, Geithner, and Rangel have going.
    As a Democrat, I’ll have to stop calling myself ‘heterosexual’, but that is the price to be paid for being free of taxes.
    Become a Democrat, stop paying taxes, and demand that Republicans pay my share! What’s not to like?
    There are still

  52. Heterosexual

    CK-Oregon Girl,
    Why are you on an economics blog?
    Now go run along. People with an IQ above 80 have important matters to discuss, so you don’t belong here.

  53. macquechoux

    Tax cuts may not be the answer to every question; then again, increased deficit spending may not be the answer to everything either.
    Budget Surplus? More spending! Budget Deficit? We need to keep the level of funding up! High Energy Prices? Tax Credits and more ! Deep Recession? More Spending!
    Hmm, I think I see a pattern here, too.

  54. Menzie Chinn

    macquechoux: I’m not certain who you are critiquing in this statement. In previous posts — during periods when output was perceived to be near full employment levels — I was certainly in favor of repealing the Bush tax cuts, and in favor of decreasing spending (agricultural subsidies, the $120-140 odd billions per year in Iraq). I don’t recall supporting tax credits for, e.g. ethanol. So, I’m not sure where you see the pattern. Please elaborate.

  55. Macquechoux

    Sorry,I wasn’t critiquing you in particular, sir. I was taking a little light hearted jab at many who do post here and elsewhere that seem to view any amount of spending on their preferred agenda is desirable and proper.(As compared to the tax cut crowd.) Your comments seemed to parrot their point of view, that’s all.

  56. GWG

    Menzie,
    Do you wish that we had not spent the 120 – 140 billion per year in Iraq for the last couple of years? Note that I am not asking if we should have never invaded Iraq, but rather should we have called it quits 3 years ago? Had we done so don’t you think that the situation there would have been much worse? Reasonable people can disagree but I believe the damage to our reputation and the instability that would have resulted (and might still result) justified the Iraq war expenditures over the last two years.

  57. Menzie Chinn

    GWG: Why put the decision node post-2003? I would have said (and said back then) that we shouldn’t have invaded, and that the White House estimate of total costs less than $50 billion was laughable.

  58. MikeR

    Menzie,
    Do you know any papers conducting an economic cost benefit of war? Do you think terrorism has a cost? (iraq was a big supporter of palestinian terrorism).
    What would world GDP look like today had we invaded Germany in 1939 instead of waiting for the death of all those innocents?
    Perhaps Abraham Lincoln could have save a lot of money had he not invaded the south in that sensless war of choice.

  59. Menzie Chinn

    MikeR: Why, yes, there have a been a number of benefit-cost analyses of the Iraq war, some of which were mentioned in my posts on that subject. In addition, there have been tabulations of costs, including the various analyses by Bilmes and Stiglitz. If you’re going to weigh in and say for certain that the benefit-cost ratio > 1, well, I look forward to seeing your spreadsheet.

    By the way, I thought the Civil War started with somebody shelling the Fort Sumter… Now do I have my facts right that that was the forces of one of the Southern states?

  60. Bill

    Here’s something to ponder:
    If we just let everything run it’s course, the problem takes care of itself.
    If we let the politicians craft a “plan” (go ahead, choose your side, it doesn’t matter), then those politicians will take credit for the fix.
    Once they take credit for the fix, it will legitimize their policies which will inevitably take us down another road to more problems.
    Rinse and Repeat

  61. MikeR

    Menzie, if you think the civil war started at Fort Sumter, you are missing the point.
    I will rephrase myself and hope you get it this time. What was the cost of not attacking germany in 1939?
    What was the cost of Sandy “burglar” decision not to strike al queda because of the potential loss of 60 or so civilians camped with Bin Laden? We will never know.

  62. Menzie Chinn

    MikeR: I think the opportunity cost of striking at Iraq, a country that had nothing to do with 9/11, and had no WMDs, nor even a program close at obtaining effective WMDs, was very high. In the meanwhile we are well on the way spending upward toward a trillion dollars in current dollars in a war that the latest (or second latest, can’t remember) NIE determined was improving our situation with respect to the global struggle against violent extremism, or GWOT in bureaucratic parlance.

  63. GWG

    Menzie
    The reason I ask the question that way is because of the way you answered macquechoux: “I was certainly in favor of … decreasing spending (agricultural subsidies, the $120-140 odd billions per year in Iraq)”.
    I was uncertain at the time, but with hindsight I agree that we should not have invaded (I am not altruistic to the point of sacrificing American lives and treasure so Iraqis don’t live under a brutal dictatorship UNLESS it benefits us). I don’t think it was worth it but I am also very glad that the surge appears to have worked.
    By your reply to macquechoux it sounds like you think what we achieved in the last two years was not worth the cost. I disagree. Once we did invade what is important to consider is the relevant costs and benefits of future actions, not sunk costs.

  64. Mike Laird

    The key thing to remember is that multiple problems have to be solved in an interacting economic system. The arguments about spending stimulus and time lags for multipliers misses that fact that people have recently discovered they don’t have enough savings. Hence the savings rate that was negative several months ago is now rising. So do we really care if tax cuts “get banked” and are not spent or very slowly spent. People are not going to spend much until they get their savings and investments in order. A tax cut would help this. When consumer spending is more than 65 percent of a 12 trillion GNP, a few hundred billion of government spending stimulus helps recovery, but not a lot.

    More generally, economic analysis is rarely done with a systems orientation. Economists look at the algebra of GNP and start arguing about lags and coefficients. In truth, it is a feedback system with multiple interacting objectives and actions. The actions fight each other for impact. Economics needs a system analysis to come up with prescriptions that have any meaningful impact. This is rarely seen from economists.

  65. molecule

    I propose a 100% tax(that’s when government takes all your income). If more is better why not go all the way?
    For professional economists make it hereditary. Let their children and grandchildren work for free forever and ever.

  66. Menzie Chinn

    Mike Laird: While I agree the debate in the general public has often devolved into what seem to be single equation (or sometimes, even bivariate single equation) analyses, serious economists do realize that the economy is a system. I would say that the fault of single-equation analysis is more often a fault of “interpreters” of economic analyses. I think if you consulted any top macro field journal (JME, JMCB, JPE, QJE), the key fault you would identify is not the failure to realize feedback exists.

    macquechoux: OK. I hope I’ve made clear that I’ve indicated some spending cuts in the past.

    Richard H. Serlin: Good catch!

  67. Frank Laraway

    February 5, 2009
    This morning’s questioiner to C. Farrow was asking the Conservative rhetorical question, if The New Deal had anything to do w/reducing the extent of the Great Depression. The Conservative answer is always “no, only WW II stoped it”. While this may be true, it could also merely be coincidental – it had about played itself out anyway. However, who can deny that the war was one big governmental/deficit-spending program? Some are now denying that such lavish spending should not now be done in this new context and will not be effective. Yet Conservatives lack the insight or memory for what the New Deal did for farmers, CCC boys, artists, actors, WPA workers/administrators (the likes of Reagan and his family) and the TVA states in the South. In this same Conservative Revionism of History, they would attempt to acquire the anointment of your free-marketer Chris Farrow. But even he could not deny the facts that The New Deal with its many regulative, anti-monopolistic, consumer protective laws (that guided us until 1980), protected us from another Hoover debacle, until Reagan/Bush policies brought us back to the Free Market anarchy that now prevails. This same people who deny the effacacy of the New Deal, are the same ones who brought us to where we are today. They would have us endure another eight years of Bush policy and thus continue the failed policies of free trade, heavy defense spending, military confrontations, taxing the Middle Class only, spend and borrow. Wny should you keep rehashing
    these failed policies of the last 28 years?

  68. Frank Laraway

    Does it make “fair sense” for a program under the auspices of publically-funded Public Radio to present such a vast amount of commentary from such erudite, fair minded, scholarly members of the Cato Institute, the Heritage Foundation, the American Enterprise Institute et al, infinitum, who are funded solely for the purpose of promoting free enterprize, free markets, globalization, foreign labor & out soucing; and on the other side: anti-labor, anti-consumer laws, anti-public spending on parks, schools, mass transit, etc. etc? Then to add to this regular “liberal mix” of Market Place regulars that you bring in for commentary from the Wall Street Journal and Economist as if they are some sort of authority on every subject other than Conservative economics. Get fair Market Place! An occational essay by Robert Reich will not do it! How about the antiquated idea of “Equal Time”? Would that be so unfair to ask of a public system of broadcasting?

  69. JoshG

    How about this instead of all this BS and tax cuts and deficit spending how about a new tax, oh my god what is he thinking I can hear all you saying. Yes I propose a national universal tax increase on literally anything that can be taxed, not a lot mind you at most a tenth of a percent, but enough that it would make a difference with the sheer numbers involved. I see it that if we introduce a bill to Congress that enacts this plan that all the funds will be funneled into a single pot that can only be spent after the bill ends, say 2 to 4 years with no chance of an extension. Then that money will be immediately used to pay down/off the national debt, last check $11.7 trillion not including the $7 trillion in all the bail out money and back-ups. If there is any money left, I doubt but you never know, it should be used for either public works, build roads/bridges, or given away, “stimulus checks”.
    What do you think? I don’t know about the rest of you but the scary notion that we are creeping along to a government debt of $20 trillion scares the crap out of me.

  70. Piqued

    I find amusing the request that any “tax cuts are beneficial” be buttressed by research to prove so. If effect, the request is on another plane, that of the individual vs. the state. Tax cuts are always beneficial to the individual at the expense of the state. It is therefore an argument (in one aspect) of individual freedom vs. state defined welfare (or choose language of your choosing). Taxes are collected at, literally, the point of a gun. Taxes are redistributed by people who have not earned it, but are elected by us. And they have a vested interest, regardless of the cognitive dissonance of both populus and politician, to spend beyond their means (until the world no longer allows it).
    I am not defending the WSJ, or attacking the economic and scholarly viewpoints of those more learned than I. Nor do I assert that anything can be taken in a vacuum (I live in this society and benefit to a certain point of the collective taxation of the populus; nor do I forget that I have a job resulting from a functioning society). But in the end, from an individualist standpoint, less taxes are always better for the individual. The tension therefore seems to be, how much individualism vs. welfare do we want, or will we put up with. Which is to say, this is a timeless debate about how much socialism is good?

  71. ejw

    I am not an economist, nor do I aspire to be one.

    I have concluded in my reading this past six months, that whatever economic theory you are biased towards will not “fix” the economic crisis without debt reduction (personal, government and business) and U.S. capital investment. The question then becomes how best to do this in terms of amounts and timing utilizing both targeted tax cuts and investment spending (as opposed to just spending to put dollars into the economy).

    In my view, consumers must be relieved of their onerous debt burden before demand will come back. I am not advocating buying everyone’s bad debt (mortgages, credit cards etc.) or forgiving those who were irresponsible. I am just making a statement, that as long as consumer debt loads continue at this level in a climate of decreasing equity positions (housing, retirement accounts, savings), there can not be any significant demand generated.

    Businesses must be supported in capital investments in the U.S. going forward and allowed to either discharge their debt at decent rates or for those in better positions, given opportunities for U.S. capital investment loans at low interest rates or via tax vehicles.

    As for the banks, I still do not understand why the insolvent banks are not allowed to fail. I would prefer to see a bottom up approach in this crisis which focuses on re-balancing the equity/debt ratios for businesses and consumers. I just do not understand how more lending by banks is going to fix what ails the economy.

    It seems that for too long the U.S. has not adhered to any long-term comprehensive plan to encourage economic growth and investment within its borders. The switches between political parties (in Congress) over 30 years have brought about a patchwork of government programs and tax code to address short-term issues and attempt to adapt the U.S to new global economic realities. Moving beyond this crisis, I think it is long past time for this overly complex patchwork of ideologies to be re-examined and, even, dismantled in some cases. Just my two cents.

  72. James

    Limbaugh’s numbers on the recessions and expansions are straight out of Mankiw’s EC 10 Macro textbook. If you have a problem with that, talk to Mankiw. Besides there’s plenty of more important things to criticize Limbaugh than these two numbers.

  73. kait

    Why on earth is there ANY response to what Limbaugh promotes? He isn’t an economist, he isn’t a financial expect, he isn’t a member of our elected political membership. He isn’t even a reporter. He was a radio DJ (and still is in my opinion), who now has his own talk show. That is all he has. Why not attempt to educate people about his lack of expertise and education? Stop taking this man seriously, and explain why this purported Fox News isn’t a news show at all, but rather a forum for minority opinions. Why give this poor excuse for a citizen any further coverage a/o promotion.

  74. AnnS

    Giving money to cops and teachers is an awful idea.
    Public employees make 33% more money than private sector workers, and their benefits are scandalous.
    So… if we’re going to bash Limbaugh because he is benefiting from the policies he advocates (no argument there), we should do the same thing with public employees like Menzie.
    Posted by: Buzzcut at February 3, 2009 09:14 AM
    _________
    I’ll be sure to tell our local deputies that in your extremely expert opinion that the $30,000 a year they make, they are earning MORE than Wall St bankers. (And our local department requires at least an Associates degree so they have student loans too.) Personally I find it extremely bad manners to expect someone to take a bullet to protect yyou for a lousy $14 or 15 an hour.
    And the teachrs in the local system who make around $30,000 with a BA and $40,000 with an MA will be thrilled to learn that they too are overpaid as compared to what? Retail store stockers? They too have all those pesky students loans.

  75. HalB

    Tax cuts were beneficial in stimulating growth when JFK came into office, but he proposed a reduction from 91% to 70% for the top marginal rate between 1963 and 1965! Obama’s goal of eventually raising income taxes from 35 to 39% for those earning more than $250K per year would have a negligible effect on ambition to earn more $$. That is myth as is the assertion that earnings are somehow determined by meritocratic principles. Let’s admit the truth, the rick simply love money more than the average Joe and will do whatever is necessary to keep more of it. Does that seem counterintuitive?

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