The American Spectator

bill| 12.1.08 @ 7:39PM

It seems we humans never learn and are, therefore, destined to relive past mistakes - as serious as they may be. Hold on to your wallets and jobs. The New Deal II is just around the corner.

Ken Mueller| 12.1.08 @ 8:18PM

Has anyone checked on ice skating condition in H_ll?

Bob| 12.2.08 @ 6:37AM

While the blog you posted on monetarism was precisely right, this simplistic view of tax policy is not. It is a far more complicated conjoint analysis where you have an optimization curve. You are assuming a straight line analysis which no economic theorist would agree with. Furthermore, the historic analysis assumes a job creation/destruction ratio similar to decades ago. With increases in productivity and offshore manufacturing, you don't get the same amount of job creation for lower tax rates. Instead of dealing with the manufacturing economy we had decades ago, you are now dealing with much more of a service economy. In fact, recent analyses by the CBO show that lowering of taxes does not necessarily have a positive economic impact.

Trying to simplify these types of analyses for anti-intellectual minds may make good copy, but they have the problem of not being entirely true. For example, Limbaugh made the argument that the current recession was due to Obama because the economy seemingly went down when he was elected. We know from the information yesterday, that the recession actually started in December of 2007 long before anyone thought that Obama had a chance of being elected.

It would be nice to see the Republican party drop its anti-intellectual bias and embrace analytical truth. Perhaps if we could nominate a presidential candidate who was smart enough to understand economic theory, we'd have a chance.

TennesseeVolunteer| 12.2.08 @ 8:21AM

If you think the lack of confidence in the market has to do with the announcement of the recession, you must be smoking crack. We all knew that months ago.
The market has tanked because everybody with money realizes the follwing:
- Obama is not going to be good for our business and short to long term business prospects
- his moderate moves are mostly for show and because of absolute necessity
- it is going to be a long, hard winter
- anyone with any money left is going to get to keep less of it
- most major investors, with realmoney, for long term business investment are staying on the sideline, probably for a good, long while
I may not be an Ivy Leaguer but I'll take Midwesterner common sense over an Ivy League, never had a real job kind of leader that we are about to have. They propose to give my business a $3000 tax credit for every new employee that I have? Tens of thousands of small businesses like mine are holding on by our fingernails and dreading having to layoff employees after Jan. 1 if the business climate doesn't turn quickly.
Lower capital gains taxes and commit to no new taxes so the investors will get back in the investment of businesses, projects etc!

Bob| 12.2.08 @ 9:21AM

Tennessee -- you represent precisely what I've been talking about. You simplify economics to the point where it makes little sense. This recession was primarily induced by the housing bubble and increased budget deficits. We've had lower cap gains taxes and it has not helped. In the current market, a reduction in cap gains will not increase investment. You're right about the capital on the sidelines, but capital will only be invested if investors believe they can make a gain. Remember, you have to make a gain in order for cap gains to be applied. Since 2/3rds of the economy is consumption, we must solve two issues first -- stabilizing housing values and increasing jobs. A current reduction in cap gains will actually have the reverse effect, and decrease revenues since that is not the primary factor affecting the economy. Increases in taxes are a conjoint analysis. You must give the largest breaks to those who contribute most to consumption. Today, that is the middle class, not the upper class who invest primarily outside of the country, or in this environment, do not invest at all.

This is exactly where knowledge and education are important. Even conservative economists understand the current situation and are not calling for significant tax cuts. You find that only simpletons and politicians (and people like Limbaugh) bring this issue forward. One of the most rapid supporters of a middle class tax cut, as Obama has promised, is Larry Summers, his primary economic adviser. Summers is one of the only macro-economic theorists that predicted the current bubble as long as 6 years ago.

Small businessman| 12.2.08 @ 11:31AM

Bob-

I would bet you are a college professor. Please give me one example where raising income and capital gains taxes on any economic class, has led to private sector economic growth.

Bob| 12.2.08 @ 4:04PM

Small -- I am not a college professor but a person who has spent his entire career developing new businesses for large corporations.

You ask the wrong question that is far too simplistic. I wish economics were as simple as you portray it to be. The fact is that income taxes and capital gains are marginal factors in private sector economic growth. If you ask any venture capitalist, they would tell you that having a good concept and managing it properly are the two key factors. There is almost always capital available for high return ventures no matter what the tax rates are. I know, I've created a number of businesses and getting capital has never been a problem even in higher tax rate environments.

One of the big problems today is size of the national debt. Not only does 8% of our federal budget go to pay interest costs (and it will increase over the next two years), but this debt is held by other countries like China. If marginally raising tax rates lowers the debt/interest costs, then it helps the economy by strengthening the dollar, i.e., your business has more purchasing power. The trick here is that no one knows the optimal tax rate. In mathematics, we call this an optimization curve. Look at it this way, if we didn't charge you any taxes, the revenues to the government would be zero and if we took all of your income in taxes, you'd go out of business and the government revenue would also be zero. Somewhere inbetween, there's an optimum point at which there is a balance that maximizes both growth in GDP and revenue intake. The question is exactly where that is. You don't know if that point is higher or lower unless you marginally change the tax rate up and down and test the limits. The assumption that you can continue to lower tax rates and have a functioning federal government is specious.

One of the contributing factors to this recession, is that the disposable income of the middle class is lower than it was in the 90's thus lowering consumption which is 2/3 of the economy. If you take the last 8 years as a timeframe, you'd come to the conclusions that the lower tax rates of the Bush administration helped cause this recession and negative private sector growth.

What I'm arguing against is using a simplistic argument. The business mix is constantly changing and the optimum tax rate may well be higher for some socioeconomic classes and lower for others. This is sound economic policy.

I am also arguing for a President who understands the economy well enough to understand the principles I have just discussed.