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January 30, 2009

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At the end of the day, I think the strongest argument against Heritage/Pence-style policies is simply that they’ve proven very ineffective for most of the country. You don’t really even need accusations of bad faith.

you might not need them, but they sure come in handy.

if we accept your conclusion that trickle-down doesn't work (and looking at any historical wage inequality graph should prove that), then you can only conclude two things about people who push for trickle-down: they are stupid, or they are lying.

if we're to avoid calling all of them stupid, we need to be able to accuse them of bad faith.

QED!

try the veal.

That is, I should acknowledge that most Republicans favor policies because they think those policies will ultimately help people (regardless of their redistributive effects).

They do, publius, they do. They just have a different definition of who counts as "people" than you and me...

You have framed a scientific argument (based on facts and results) but you have not proven your side.


and have been proven by history not to work.

Ur doing it rong.

You can't prove anything using history. History isn't a system of mathematics or logic or anything like that. It is the stories we tell to ourselves to make sense out of our lives and the lives of those who came before us. Most really good historians are excellent storytellers.

But you can't tell a story if the audience is bored or hostile. The basic tribalism inherent in our political system almost guarantees that some significant segment of our population is not going to be receptive to whatever it is that you or I think is legitimate history (and visa-versa: quite frankly their accounts strike me as all too often not worth the time taken to listen, once the tale has been told. See "the South shall rise again" for example - Yawn, um yeah whatever).

So it isn't bad faith, or willfully failing to heed the lessons of history. They just aren't listening to the same set of stories.

"So it isn't bad faith, or willfully failing to heed the lessons of history. They just aren't listening to the same set of stories."

Well, that, and the stories they *are* listening to are false.

One theory is that Democratic administrations put a bigger emphasis on “trickle up” economics – i.e., strengthening wages and reducing inequality, which produces a positive ripple effect across the economy.

Maybe. But there have been 11 postwar recessions including the present one; 8 of those took place entirely during Republican administrations, 2 entirely during Democrat administrations, and 1 was split between Eisenhower and JFK. The most severe of those were the mid-70s under Nixon and early-80s under Reagan. Many of those recessions had causes (oil crisis, crippling inflation, dot-com collapse, etc.) not remotely related to trickle-down vs trickle-up policies.

But trickle down does work for a major group of people, particularly the big donors. And most Republican Congress Critters (and Dems too) are hardly about to need food stamps.

So they are neither stupid nor lying.

I agree with cleek. The two choices between us are "insane or lying" which might also be described as "ignorant or in bad faith." I'm afraid that after Stockman came clean, lo these many years ago, *history* has demonstrated as neatly as a mousetrap severing a mouse's tail, that "trickle down" and "cutting tax rates to raise revenue" are simply out and out lies. And even the Republicans once knew they were lies. They went to great lengths to hide that fact from the rubes but they eventually admitted it (however briefly). Anyone remember who first said "voodoo economics?" Hint: it wasn't Krugman.

aimai

Publius - "I mean, it’s hard to look at the history of the past 5 years and come away thinking “the real problem is that really rich people need more money to invest.”"

Pretty flip - but is it accurate? Shouldn't the folks that pay the most taxes, employ the most people and produce the most national wealth be allowed to pay more taxes, employ more people and produce more wealth? I realize that thumping your chest and playing with your banana gets your juices flowing, but are you right?

blogbudsman: Shouldn't the folks that pay the most taxes, employ the most people and produce the most national wealth be allowed to pay more taxes, employ more people and produce more wealth?

Sounds like a grand idea, blogbudsman. But I thought you were a Republican: this all sounds alarmingly like your standard left-of-center notion of good governance, especially the pay-more-taxes, employ-more-people part.

The Republican idea is that these folks should be allowed to pay less taxes, employ people at the lowest possible wages (cheap
labor conservatism), and produce more wealth for themselves and their families alone, without benefiting either the nation or their
employees or indeed anyone else at all. Those are the ideas that Republicans promote: those are the ideas that have been proven not to
do anything useful for the national economy, however well they work to make a tiny proportion of individuals very rich indeed.

As noted above: it's a choice between bad faith (we know this will do nothing but make the top 5% very much wealthier, that's why we're advocating it) or stupidity (It'll work! Look at all these pundits saying it will!)

Shouldn't the folks that pay the most taxes, employ the most people and produce the most national wealth be allowed to pay more taxes, employ more people and produce more wealth?

Sure, but who suggested otherwise?

Shouldn't the folks that pay the most taxes, employ the most people and produce the most national wealth be allowed to pay more taxes, employ more people and produce more wealth?

Ooh, lemme try. How do the richest people employ the most people? The overwhelming number of people in this country are employed by incorporated businesses, not rich people, and most of the others are employed by small businesses whose sole proprietors or partners are hardly rich.

And how about that wealth production? In the last decade or so, the very richest people in this country have been chasing investment returns in a series of more and more leveraged, opaque, and speculative investments in more and more abstract financial instruments. Now these investments have totally collapsed, and the geniuses at the major banks that led this little party have successfully convinced the government that they need the better part of a trillion dollars of everyone's money or our country's economy will collapse. I didn't invest in overleveraged hedge funds, or CDS's, or CDO's, and I don't think a lot of other middle class people did, and we're getting stuck with the bill for the forseeable future.

You can make a very good argument that the wealthiest fraction of the population has managed to destroy trillions of dollars of everyone's wealth, and by doing so throw millions of people out of work.

The thee assertions by Butler do not even necessarily follow from the theory he worships. This, coupled with the fact that Heritage does little, if any, actual research...argues for a form of bad faith or simply the propaganda of entitlement for those already possessing wealth and power.

But I see your point. What did we think when arguing with Stalinist apparatchiks in 1951? Were they bad faith actors also? Or just bad actors?

The similarities are striking.

Yes we're all crazy, especially when you only pick the worst policies to talk about. Democrats look bad if I only talk about HUD and crime policy 1960-1990 too.

Semi-OT

I think we may have just had a Marie Antoinette moment - shorter Brad DeLong: Let them eat buttermilk-fried petrale sole with pickled vegetables and parsley mayonnaise.

His basic point (things are better now than back in the 18th Cen.) is both true and irrelevant, and his way of presenting it is tasteless and stupid. Nobody who is currently losing their job is going to give 2 sh*ts about what was in the diet of an 18th Cen. Scottsman.

Bad storyteller, no fish for you.

Yes we're all crazy, especially when you only pick the worst policies to talk about.

But these are the policies that the Republicans have chosen to define themselves. And that's largely because all of their other policies are even worse.

I think we may have just had a Marie Antoinette moment

yep. and here's another one.

it set off my swearing reflex, yesterday.

On a happier note, William Buiter says something (and explains it better) that I and a few other folks have been wondering about. Why waste our money recapitalizing zombie banks when we have enough money to start a good bank instead?

Hat-tip Nemo.

I love the smell of napalm on Wall St., it smells like recovery.

Actually, given legitimate concerns regarding capital flight, item 3 (cut the corporate tax rate) is not a terrible idea .... unless you're prepared to argue that low corporate taxes had nothing to do with Ireland's remarkable growth or that we're not losing some % of finance work to London and elsewhere based on tax considerations.

I'm not saying that item 3 is a good idea, necessarily; only that the case against it is much weaker than the case against your other two examples.

You have framed a scientific argument (based on facts and results) but you have not proven your side.

Actually, the onus should be the other way around.


TLTIABQ:

Brad DeLong's point (cleverly disguised) is that everyone should take a pay cut to avoid an unemployment spike (and that this is reasonable to do because our money buys so much more than it did in the 18th century.)

Thus, we will still be able to enjoy the buttermilk-fried sole, but will have to forgo the side of pickled vegetables, to do our share of sacrificing for the common good.

Actually, given legitimate concerns regarding capital flight, item 3 (cut the corporate tax rate) is not a terrible idea .... unless you're prepared to argue that low corporate taxes had nothing to do with Ireland's remarkable growth or that we're not losing some % of finance work to London and elsewhere based on tax considerations.

Not only is the supposed connection between low corporate taxes and growth tenuous at best, it's difficult to see how we could lower them further:

Fact is, though our tax laws include statutory rates that are fairly high (35% for corporations earning about $18 million or more annually) but generally in the same ballpark as those of other developed western nations, the actual tax rates paid by US corporations are extraordinarily low, around 6%. Remember the latest GAO report (reported elsewhere on ataxingmatter) that shows that two-thirds of US corporations pay no federal income tax. That's not just the ones that are losing money, but also many corporations that have record high profits (including some Big Oil companies) that end up paying next to nothing in taxes.


Buiter's right.

The US banking system (taken as a whole) is insolvent.

Create a new one and be careful when the managers from Old Citi come applying for jobs at New Citi.

It's not that they're lying, stupid or acting in bad faith. They're believers. Believers are not going to be confused by facts.

Witness the Flat Earth Society, wmd in Iraq and trickle down supporters in this thread.

It's a waste of time talking to believers.

ericblair, great post!

"Yes we're all crazy, especially when you only pick the worst policies to talk about."

But these are the policies that the Republicans have chosen to define themselves. And that's largely because all of their other policies are even worse.

Right. You might have an argument, IF bad 1970s style housing policy was the cornerstone - or even a component - of the modern democratic platform.

But it ain't.

"Actually, given legitimate concerns regarding capital flight, item 3 (cut the corporate tax rate) is not a terrible idea ...."

Then why has it not all flown to Chad? Or Hungary (18%)? Or the economic wonder that is Iceland (30% about the same as Ireland)? Or how explain the prosperity of Germany with a rate 10-12% higher than ours (52% vs. 39%)?

Keynes likened investment to animal spirits, if I recall, and Krugman still has to remind folks that it is an exogenous variable.

TheWesson,

I've made more or less the same point myself at time - god forbid, the upper middle class may have to give up their iPods, broadband internet access from home, and cable TV (sorry SpongeBob!), but better that than having everybody below them starving in the dark.

What makes DeLong's post such a stunner is the mind-bogglingly tone-deaf manner he chose to try to get his point across. Let them eat cake, indeed.

"Yes we're all crazy"

Say it ain't so. Who says conservatives have no sense of irony!


Another interesting thing about Manzi's comments as well as DeLong's comments (besides being obnoxiously tone-deaf, I guess) is that it's as if the Collective Spirit of Deflation is speaking through them.

"Money buys more. Spend less, save more." &c.

Witnessing the birth of the deflationary Zeitgeist, we are.

Basic reminder: Deflation causes problems, too.

Publius, I tried to run down your stats and, quite frankly, they are suspect.

The most immediate methodological flaw is that it assumes that administrations, rather than Congress, drive government spending and, hence, the economy. I submit that Congress drives spending as much as any administration and that government spending is only one factor in driving the economy. The larger factors are tax policy and the private sector itself. A more interesting comparison would be the metrics you use when one party is in power, when power is split and when power is split between a Republican administration and a Democratic Congress and vice versa.

History may not teach everyone lessons, but it can be instructive: During one four year Democratic administration, Carter's, we had the highest unemployment, inflation and interest rates since I started voting in '72, and I suspect the highest since before WWII. Kennedy's brief administration cut taxes, and the economy responded. Johnson spent heavily domestically and in Vietnam, Nixon inherited both budgets. Ford and Nixon routinely proposed budget X and the Dem majorities in both houses forced X plus Y plus we had the '73 oil embargo. This happened pretty much every year during the Reagan administration as well. When Reagan took office, there was a broad based consensus that US conventional forces, and NATO forces as well, needed serious upgrading. Reagan did so, but the non-defense side of the budget did not shrink nor could Reagan have made it shrink with a Democratically controlled House. The lesson here is that party affiliation per se does not have a direct cause and effect on the economy.

I've seen conservative economists demonstrate how tax cuts drive economic growth--sometimes their point seem valid, others more like advocacy statistics. Yours seem like advocacy statistics, just from a different perspective.

It is a mathematical fact that the more taxes a business pays, the less money there is for growth, expansion, pay raises, bonuses and employee benefits. If you expect to stimulate the economy, don't raise taxes.

Economies with high tax burdens don't grow, or at least, if they do grow, they do so at a much slower pace than the US has experienced until just these last several months. None of the European high tax countries have economies that matched ours during the last 8 years and they have much higher unemployment rates and disastrous unfunded pension obligations looming with a work force that is demographically incapable of funding those obligations.

The one Democratic administration with the numbers to pump your stats was Clinton's. Let's review the bidding: massive defense cuts allow for reduced overall government spending (but only made possible by the end of the Cold War), the dot com boom, a Fed that consistently lowered interest rates to feed the need for cheap capital (which, in driving down interest rates, allowed for much lower debt service payments on the national debt) and widespread corporate accounting scandals that puffed up balance sheets and made the economy look a lot healthier than it was. Other than free trade and not jacking taxes through the roof (a mere 42.5% marginal rate on the self employed), what did Clinton do that was so economically profound? Welfare reform? Courtesy of the Repubs. Balanced budget? Ditto.

I am still waiting for the political party that, when in power across the board, doesn't abuse that power and screw things up. Maybe Obama is the one. Pelosi and Reid? Not a chance in hell.

"Who says conservatives have no sense of irony!"

No kidding.

[...] Rove said in an interview that despite his error on the past office space of the political team, he now sees Obama’s political operation ramping up from the Bush years when — despite allegations that the White House coordinated grants and cabinet visits with congressional campaigns — he said politics was rarely on his mind.

– Cut America’s high corporate tax rates for at least 10 years, and preferably permanently, to boost our international competitiveness. The rate needs to go down to 25 percent or lower.

Then they need to agree to end the deferral of U.S. taxes on income earned by overseas subsidiaries.


By the way here's a thought experiment suggested by TLTiABQ, radish, mikkel, and maybe others:

Would radically increased redistribution be as effective (or more effective) in this crisis than the current stimulus package?

E.g. negative income tax, guaranteed national income, of course universal health care, etc.

Example or counterexample: Are 'more socialist' EU countries faring worse or better (vs the USA)?

Too soon to tell, I suppose - but we'll see.

Right. You might have an argument, IF bad 1970s style housing policy was the cornerstone - or even a component - of the modern democratic platform.
But it ain't.

The GOP needs to go through the same process the Democrats went through during the 1980s/1990s - go back to basics and come up with something which both appeals to the public and actually addresses our current situation. Hanging on to the tattered shreds of past victories isn't going to bring you back from the wilderness. It isn't still 1980, and we're not in Nixonland any more, Toto.

Until they get that, they might as well be parading Ronald Reagan's mummified corpse through the streets as if is was a holy relic, like some sort of medieval festival. Problem is, it is a festival of fools.

Shouldn't the folks that pay the most taxes, employ the most people and produce the most national wealth be allowed to pay more taxes, employ more people and produce more wealth?

Who pays the most taxes? Relative to either income or personal wealth, it is not the richest.

Who employs the most people? Ditto.

Who produces the most wealth? Ditto.

"When Reagan took office, there was a broad based consensus that US conventional forces, and NATO forces as well, needed serious upgrading."

The increase in defense spending started under Gerald Ford and Jimmy Carter. I realize this contradicts firm myth, but facts are awkward like that.

[...] In his budget message in early 1975, President Ford announced that his appropriation request for fiscal year 1976 would reverse the decline in real national defense spending that had occurred over the preceding 7 years. Appropriations had declined in 2 years, and, in addition, increases in costs of defense programs had been largely offset by reductions in programs and strength. Presentation of a target in real terms reflected the enhanced awareness of inflation and more clearly focused debate on whether, and to what extent, to undertake a buildup.1 The administration targeted annual real increases of 4 percent for fiscal years 1976-81. For 1976, an increase in the appropriation request-- such requests are in current dollars-- of $17 billion, or 25 percent, to $103 billion, was designed to implement this target (table 1). The emphasis was on maintaining defense preparedness, modernization of strategic forces, and strengthening general purposes forces while reducing support staff. Much of the proposed increase was accepted by Congress; as enacted, the increase was 13 percent.

1. The real spending estimates that are included in the budget documents are usually in terms of dollars of the current year, and thus cannot be used to create a consistent time series.

President Carter, in the budget submitted in early 1978, sought to continue real growth. He targeted 3-percent annual real increases for the next several years, within an emphasis on increases consistent with strengthening the North Atlantic Treaty Organization (NATO). The appropriation request for fiscal year 1979 was $128 billion, up $10 billion, or 9 percent, from the preceding year. It was designed to improve the readiness and sustainability of general purpose forces, accelerate the rebuilding of the fleet, initiate development of a new intercontinental ballistic missile, and otherwise continue the modernization of the strategic forces.

[...]

For fiscal year 1981, the [Carter] administration requested $162 billion; $182 billion was finally appropriated. The $20 billion increase was largely aimed at increasing production rates for most kinds of ships and combat arcraft and at substantially increasing military pay and benefits.

In the last budget prepared by the Carter administration, it was noted that the United States had exceeded the NATO allies' commitment to increase real national defense spending by 3 percent a year. Real appropriations were estimated to have increased more than 5 percent in fiscal years 1980 and 1981. The request for 1982, and the 5-year plan for 1982-86, continued that rate.

Then why has it not all flown to Chad? Or Hungary (18%)? Or the economic wonder that is Iceland (30% about the same as Ireland)? Or how explain the prosperity of Germany with a rate 10-12% higher than ours (52% vs. 39%)?

Because the corporate tax rate is one, but not the only, reason for doing business in a country.

Lacau, it's actually very easy to reduce the corporate tax rate. And I didn't say reduce the corporate tax rate but keep all existing tax breaks in place. (See http://taxprof.typepad.com/taxprof_blog/2008/10/cppp-us-corporate-tax-burden-not-rate-is-key-metric.html)

Because the corporate tax rate is one, but not the only, reason for doing business in a country.

No kidding.

But again, the US corporate tax rate is very low.

(There are almost certainly some efficiency gains to be made with reform, of course, but lowering it further - not so much.)

von,

From your link:

The U.S. corporate tax burden is smaller than average for developed countries. Corporations in the 19 member states of the OECD paid 16.1% of their profits in taxes between 2000 and 2005, on average, while corporations in the United States paid 13.4%.

Doesn't that mean that Butler's third point is utter BS (just like his other two)? He's not arguing for revenue-neutral simplification, but for a reduction in the actual tax burden, it seems to me.

By the way, as for the argument that the rich are so heavily burdened with taxes that they are discouraged from investing, tipping their shoeshine boys, etc., consider this from today's NYT:

The income of the 400 wealthiest Americans swelled in 2006, soaring nearly 23 percent from the previous year, to an average of $263 million, according to data released Thursday by the Internal Revenue Service. Since 1996, this group has nearly doubled its share of all income earned in the United States.

The top 400 paid just more than $18 billion in federal income taxes in 2006, or an average of $45 million, on a record $105 billion in total income— the lowest effective tax rate in the 15 years since the agency began releasing such data.

Gee, getting that tax rate down to 17% really has done wonders for the economy.

"It is a mathematical fact that the more taxes a business pays, the less money there is for growth, expansion, pay raises, bonuses and employee benefits."

In the absence of some assumed constraints (say, flat revenues for example), this is absolutely and utterly false.

Further comment is thus unecessary.

"Because the corporate tax rate is one, but not the only, reason for doing business in a country."

Precisely my point, sir! Or did you misunderstand?

Bernard,

If one assumes a backward bending supply curve for labor, lowering the price from very high levels actually results in more labor supplied, c.p.

The conclusion is obvious: Income for millionaires should be reduced to increase their output!

"...Bush years have radicalized me on that front."

So have we all! How can we ever believe the Republicans have good intentions? After all the lies and veils of deception during
the last eight years, I for one, cannot believe anything that comes out of their mouths. Ever again.

Gee, getting that tax rate down to 17% really has done wonders for the economy.

BY - I've got links to the original IRS report (pdf) on both the open threads if you're interested.

(sorry, SpongeBob!)

You'd better be sorry: I hear the poor guy is having trouble making payments on his pineapple house.

Also, I hear Mr. Crab is taking offense with publius' portrayal of Republicans.

Income of the super-rich in 2005.

Lacau, it's actually very easy to reduce the corporate tax rate. And I didn't say reduce the corporate tax rate but keep all existing tax breaks in place. (See http://taxprof.typepad.com/taxprof_blog/2008/10/cppp-us-corporate-tax-burden-not-rate-is-key-metric.html)

Just realized this was probably directed at me.

Since we cross posted the same link, it seems we're roughly on the same page about corporate tax reform.

However, the comment I was responding to originally was the one where you suggested, like Butler, that our corporate tax rate might be losing us business to Ireland, etc.

And if your concern is our supposed lack of international tax competitiveness, that actually implies that you think the tax rate should be lower, and not just the nominal top line rate as part of a revenue-neutral reform: You'd have to mean the effective rate, because reform that is revenue neutral doesn't actually change our position with Ireland much.

(What it does do is increase the efficiency of the economy by removing the tax distortions that favor one domestic industry over another. Obviously this relative change in certain industries might cause a shuffle from country to country in those industries, but that's a two-way flow, and in the aggregate the benefit is really from the efficiency gains.)

You can make a very good argument that the wealthiest fraction of the population has managed to destroy trillions of dollars of everyone's wealth, and by doing so throw millions of people out of work.

The last 25 years is the story of (among other things of course) a large wealth transfer up the income scale. You can argue that that's a good thing, but you can't argue that it didn't happen. The TARP, etc is just the last chapter in a long book: S&L bailout; ever-more tax cuts; payroll tax *increases* on working people, the surplus from which...uh, either doesn't exist anymore or was spent; tax cuts specifically on investment income and inheritance; etc etc. And now the TARP(s). The Movement does argue that this is good policy, but they do it sotto voce at best, because stated plainly, it sounds like what it actually is: a skimming off of the wealth of the country. It is a swindle superior to any other because a.) it's legal, and b.) it's slow/long term - a few hundred billion here, a few hundred billion there, and pretty soon you're talking about real money.

But naturally there's lots of people whose believe in such policies is sincere. So? It's an unfortunate feature of our culture that sincere belief in something - regardless of what it is - is magically exculpatory (at least partially). Tinkerbell Epistemology was hardly invented by Saint Ronnie of Dixon, but he elevated it to a national politics, and I'm sure it's a hard thing for modern GOPers to shake. Too bad it's such an ominous sign of cultural decline.

What's important about the Heritage guy's plan is that it is against standard economic theory for a stimulus (which should be immediate as feasible, short-term and targeted to lower income people). And by 'against' I mean 100% against; it's like he ran standard economics through an inverter.

The corporate tax thing he claimed is, of course, incorrect, as has been pointed out above.

This leads to the idea that a spokesman for a major right-wing think tank and its economic policy is either (a) bat-sh*t ignorant or (b) flat-out lying. Now, if you assume that his goal (and the goal of his employer) is to obtain policy shifts which primarily help the economic elite, regardless of impact on the economy, his words are quite reasonable.


This is why a lot of people, after seeing this for decades, have come to the conclusion that many on the right are simply stone liars.

Why is it that public policy discussions of changes to tax policy never discuss the immediate impact of the change on the proposer thereof?

The dirty little secret of the Republican crusade for tax reform is that it's primary effect, by design and intention, is to put money in the pockets of the crusaders. Yet we never see any mention of how much, for example, the Bush tax cuts put into the Bush pocket.

"Yet we never see any mention of how much, for example, the Bush tax cuts put into the Bush pocket."

Probably because it's a trivial amount of money compared to what an ex-President can earn, so it's a stupid point.

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