Semi-Daily Journal

The quest for offsets seems odd, as an economic effort anyhow. A blunt Keynesian stimulus view would see one set of fiscal policy changes resulting in a $350 bln rise in the deficit as pretty much like another - what's the point of all the scrambling? You gotta pick an ox or two to gore in the process, taking something away from somebody who already has it in order to give something to somebody who doesn't have it yet. A less blunt assessment might look at estimates of multipliers to find the optimal stimulus, but that seems an unlikely exercise for legislators. I noted elsewhere that the House Ways and Means chairman is touting a reduction in proposed small business investment tax abatement, which looks like an attempt to kill one of the few directly stimulative components of the Bush tax plan. Real sausage making going on here.

GOPers who side with the Democrats always enjoy outstanding press as a reward. This is one more clip for that file.

And Mr. Harris is, of course, dead right on the self-contradictory idiocy of the legislative sausage machine.

It will always be October 1978 when I think of Bucky Dent. But will I be able to persuade him that Dem iconoclasts like Zell Miller also get great press? Didn't think so...

http://www.sportingnews.com/baseball/25moments/14.html

Ah yes, the best way to get into the pages of the Wall Street Journal is to side with the Democrats. Another pearl of wisdom from Bucky Dent we should remember.

The only part of the WSJ that is archly and consistently conservative is its editorial page.

Al Hunt's DC bureau, and most of the regular reporting staff, are "mainstream" at best.

Yes most objective people would say that the WSJ has a terribly biased editorial page and a mainstream content section. No one I have ever read seems to think it leans left in any way, so why then would you say that this article in the WSJ is "one more clip" in support of the notion that siding with Democrats is the way to get good press?

>why then would you say that this article in the WSJ is "one more clip" in support of the notion that siding with Democrats is the way to get good press?

I thought it was self evident. The mainstreamy news pages of the WSJ single out a GOP "maverick" for praise, in line with the standard practice of the US press to, well, single out GOP "mavericks" for praise.

Sun rises in the East, sets in the West, etc.

Of course the supply side rubbish is not an "easy argument" in the logical sense. But if this nonsense was so easy to demolish, Paul Krugman wouldn't have to post Econ 101 lectures on his website to deal with his voodoo economics critics. Sensible economists have tried every level of debate to show how bad Bush's policies are. But they keep happening. It's a world where the earth revolves around the sun and the Vatican wants Krugman and his telescope locked up.

Speaking of Krugman:

http://www.poorandstupid.com/chronicle.asp

Molly Ivins once wrote: "With Bush, what you hear is not what you get. What you see is not what you get. What you get is all you get."

Dividend tax elimination is not about economic or fiscal policy. It is strictly about rewriting the tax code to remove taxes on dividends, but it is being sold under another political guise.

Voinovich complains about the effects of the tax cut on the deficit. However, the Bush administration will not engage in that debate. They shift the focus to economic stimulus. So instead of getting a constructive debate on rewriting the tax code and doing so in a manner that is fiscally responsible or getting a debate on how best to stimulate the economy, we get a bold assertion that the dividend tax cut will stimulate the economy and anyone who votes against it doesn't care about unemployment.

Barraged by a media consisting of Bush cheerleaders on Fox and talk radio and a mainstream media that relies on sound bites, there is no debate. With the GOP in control of both the House and the Senate, there is no debate. Those like Voinovich that try to debate find themselves under whithering political attack.

As for easy argument, perhaps Murray uses the term to describe an argument that people will accept without questioning. There are a lot of supply side fans that BELIEVE that supply side works, that Reagan supply side tax cuts stimulated the economy and paid for themselves in increased revenue generation.

Of course this overlooks the obvious $1.8 trillion in new debt that these same people BELIEVE was not due to the tax cut but due to spending by Democrats. Many people BELIEVE this to be true even if it is on another urban legend. This makes it an easy argument. It takes a lot of work to convince people otherwise.

Can I climb Mt. Everest - that is, put forth a reasonable economic argument that not taxing dividends and other forms of capital income might raise economic growth? Yes but I would need a lot of special equipment. David Altig et al. recently published in the AER an NBER paper that has gotten a lot of attention from those who would either switch to a consumption tax or exempt capital income from taxation. But let's take a careful look at what this careful paper really said. A fiscally neutral change in the way we tax income so as to defer the taxation of income until it is consumed would raise savings. But fiscally neutral is very different from Bush's fiscal stimulus. Altig et al. assumed no changed in government purchases - Bush is increasing government purchases. Altig et al. assumed the overall tax burden remains the same - Bush is giving us "our money back". The Altig model had consumption falling for the transitional period while Bush wants us to consume more. Altig et al. also noted many pro-savings plans redistribute income from the poor to the rich. Bush is claimining everyone benefits and eveyone benefits now. There is a huge difference between what Altig et al. really said and what the political hacks who support Bush's proposals are claiming. So can I climb Mt. Everest? Yes but not following Bush's path. And my Mt. Everest would have the rich better off and the poor worse off. Can one defend the prospect that tax cuts lead to more consumption now for all? I can't climb that mountain in my shorts or with all the special equipment in the world. And no one else can climb that mountain either.

http://www.wws.princeton.edu/~pkrugman/morejobs.html

http://www.wws.princeton.edu/~pkrugman/fiscal.html

http://www.wws.princeton.edu/~pkrugman/decade.html

Paul Krugman is precisely right in analysis and criticism of the President's fiscal policy. That "compassionate" radicals feel a desperate need to savage PK shows just how much they need to mask the intent of their policies.

Love you PK....

http://www.pkarchive.org/

SYNOPSIS: The opportunity cost of the Bush "job creation" tax cut measured in jobs forgone per dollar is too great. Considering the new Bush tax cut spends $500 thousand per new job created, isn't there a cheaper way of creating 1.4 million jobs -- like, say, aiding the states in their worst fiscal since the Great Depression so they don't have to cut more jobs.

Did you know that President Bush's economic plan will create 1.4 million jobs? Oh, and did I mention that the plan will create 1.4 million jobs? And don't forget, the plan will create 1.4 million jobs.

Republican politicians are obviously under instructions to push that job number.

Of course, there's no reason to take that number seriously. Basically, the job-creation estimate came from the same place where Joseph McCarthy learned that there were 57 card-carrying Communists in the State Department. Still, let's pretend that the Bush administration really thinks that its $726 billion tax-cut plan will create 1.4 million jobs. At what price would those jobs be created? ...

Ah I see. Bucky's statement that Republicans who side with Democrats always get favorable press is true because well... its true, just like the Sun rises in the East.

Democrats who side with Republicans, Republicans who side with Republicans and Democrats who side with Democrats must, in comparison, suffer from the barbs of a hostile press, just as the Sun must eventually set in the West.

Let's reverse Bucky Dent's crossover politician comment and consider Bush's favorite Democrat - Zell Miller. Zell gets a lot of press too for advocating any and all tax cuts. Zell claims he wants tax cuts to lower government spending, which is one step better than spend and spend Bush, I guess. But Zell isn't proposing any significant cuts in government spending. Rather he agrees with Bush that we should do more for education. He is also the main one pushing a prescription drug benefit that is larger than the one favored by the GOP. Excuse me but why is not the press hammering Sen. Miller on how he would pay for his drug beneift, his education agenda, and his large tax cut?

Hal, I think Zell Miller is one of the most irresponsible members of the Senate, and by far the most among Democrats. He's a "We can have it all" politician, who refuses to grow up and realize that these popular programs need to be paid for with taxes. Thank you for calling attention to him.

Zell Miller is precisely a "compassionate" Republican. When these guys say cut spending they mean Social Security, Medicare, Medicaid, all social programs. Yuch.

Folks, I like our social programs and do not mind paying for them in the least. These radical "compassionates" have no compassion other than for the rich.

Thanks Lise

We have to understand just how radical the social agendas of these Republicans are. This is not a conservative Administration, but a radical Administration bent on taking us back to the days of Herbert Hoover.

Maybe Mr. Bush is getting his advice on tax cuts from Grover Norquist and is passing it on to Donald Luskin?

http://www.nationalreview.com/nrof_luskin/luskin040803.asp

Mr. Bush seems convinced on the merits of dividend tax cuts and he seems to believe that such a tax cut would have a positive influence on the economy beyond the short term. Why am I reminded of the technologically illiterate Boss in Dilbert who has just emerged from a meeting with marketing?

A big selling point seems to be the belief that the stock market will go up by 15% if dividends are not taxed. Maybe this is an effort to pay back some of the money Enron stole?

Another article by Paul Krugman on jobs jobs jobs. This article from 1997. PK was right then, and right now.

http://slate.msn.com/id/1917/

I made this file of Krugman's latest piece so the entire thing can be followed. Krugman includes the link above.

http://www.pkarchive.org/economy/042203Follow3.html

The question has always been: is Bush pushing tax cuts out of a strong belief in the "stimulus" aspect - regardless of who really reaps the bulk of the benefits, or, is this just part of the Right's efforts to force privatization of major government entitlement programs by creating enormous deficits which can be relieved only by catastrophic cuts in spending and concomitant transfer of federal obligations to the private sector? Further Republican gains in the House and Senate would clearly solidify the latter position, and the re-election of Bush would signify the high-water mark of "neo-McKinley" reactionism in this country.

Today's Washpost has an article on the latest impossible-to-parody sales pitch for the Bush tax cut (perhaps "this one goes up to 11" would be a good line for it).

http://www.washingtonpost.com/wp-dyn/articles/A50898-2003Apr28.html

It mentions the 1.4 million jobs. Yes, those 1.4 million jobs. Right, the 1.4 million jobs.

Busky is always, cogent, astute, and, in some sense, penetrating.

I think I figured out how to get these god damn comments to load quickly. When I saw that I had misspelled Bucky I immediately pressed cancel.

Bush is an ideologue.
Bush truly believes that all tax cuts always stimulate the economy no matter how they are structured.
Bush believes in supporting those who support him.
Bush wants to return favors to those who helped them.
Bush is not concerned about debt, or deficits as long as they are under 1% of GDP.
Bush does not believe that deficits in 2003 will have an impact on social spending in 2020.
Bush truly believes that eliminating taxes on dividends will have long lasting positive effects.
Bush has the same moral certainty about economics as he does about his other policies.

Is there evidence for any of this? No. But Bush sincerely believes it to be true.

bakho

I really liked your latest. If the deficit were less than 1% of GDP right now - maybe that would not be so bad. But the general fund deficit is closer to 5% of GDP right now - and it will get larger as time goes by. And that still seems to be OK with Bush and his tax cut supporters.

bakho

I really liked your latest. If the deficit were less than 1% of GDP right now - maybe that would not be so bad. But the general fund deficit is closer to 5% of GDP right now - and it will get larger as time goes by. And that still seems to be OK with Bush and his tax cut supporters.

I hope achilles won't be too unhappy with my "hijacking" another thread by referencing what the Krugmaniacs (the ones who want to have his babies, or build shrines to him, achilles), but:

Paul Krugman in the NY TImes, April 22nd:

" Did you know that President Bush's economic plan will create 1.4 million
jobs? Oh, and did I mention that the plan will create 1.4 million jobs? And
don't forget, the plan will create 1.4 million jobs.

" Republican politicians are obviously under instructions to push that job
number. On the Sunday talk shows some of them said "1.4 million jobs" so
often that it sounded like an embarrassing nervous tic. "

Duck, here comes the "browbeating", achilles:

http://www.pkarchive.org/economy/ThisWeek042003.html

PAUL KRUGMAN: .... The right number to look at is job growth which has been
negative. You know, we've lost 2.2 million jobs since early 2001.

Are you going to follow up this devastating piece of information with more economic erudition Patrick?

Let me guess, let me guess: according to Patrick's economics the fact that the economy loses jobs when it falls below trend growth directly contradicts the claim that the economy can't operate above trend growth except in the short run?

Oh why spoil the fun. Let's hear how this devstating admission that jobs are lost during a recession is finally going to show us once and for all that Don Luskin is the man.

Achilles:

Krugman's mini-seminar did consider the fact that we are below full employment. Yes - a little short-term stimulus can increase employment. That was already considered in Krugman's odd calculation. But the problem with the Bush plan is that is short on short-term stimulus but long on long-term fiscal stimulus (aka crowding-out of investment, which provides capital for future workers). I have read a lot of Don Luskin's stuff. It's both mean spirited and quite stupid (not to be mean). But what would you expect from someone who dropped out of college his freshman year to pursue a career as a partisan hack.

Might have Greg Mankiw be co-opted into a Baghdad bob spin machine already. Lawrence Kudlow is praising the new dynamic scoring model from the White House in his latest spin over at:

http://www.nationalreview.com/

Could somebody please clarify on the dividend tax cut? Would it go to the corporation or the individual?

I'm not an economist, but if the Republicans are really going to push this, I would rather see this (no taxes on amount paid as dividends) go to the corporation and not the stockholder. Wouldn't that remove the advantage of borrowing over stock investment, and possibly have prevented the leveraged buyout mess of the 80's?

In a perfect world, if the tax savings of the corporation were all passed on to the stockholders as dividends, then, assuming that the average rate of taxation on that income is equal to what the government used to collect from the corporations, wouldn't it be the same amount of taxes collected?

If it is less, it may be offset by the money multiplier effect of retirees spending more on services.

If the corporation chooses to keep the dividend bonus, then maybe they could afford to keep a few more people employed (and paying taxes).

Would this also have a positive effect on p/e ratios and increase confidence in the stock market?

Dividend tax cut would go to the investor not the corporation. This is a sop to people with lots of taxable dividends, ie. very wealthy people who own LOTS of stock. People with a little bit of stock can (and do) shelter dividend income from taxation by using a Roth account. What is not clear is what would happen to dividends paid on stock in 401Ks. That money is taxed when it is paid out upon retirement. To exempt dividends paid into 401Ks from taxation would require a lot of extra accounting.

When I catch the ragged sign of a PS post, I laugh and skip past. Grrrrr. Rotten Paul Krugman. Grrrrr. Rotten wretches who are not as radicall right as me. Grrrrr. PS is a sweetie pie.

"What is not clear is what would happen to dividends paid on stock in 401Ks."

Sadly, it is absolutely clear. There will be no tax cut on dividends paid to any retirement accounts. No cut at all at any time. Also, preferred stock and REIT and convertible bonds will not be part of the tax cut plan. Of course, interest payments on bonds will not be part of the tax cut.

The tax cut on stock dividends is for the wealthy who holds hundreds of thousands of dollars of stocks at least in taxable accounts.

An S&P index fund account with $100,000 would have paid about $1,600 to $1,700 in dividends last year.

Again, NO dividends collected in retirement accounts will be part of the tax cut. This cut is for the rich folks.

The dividend tax cut is for the stock holder. Corporations do however hold stock in all sorts of ways. ONLY stock in taxable account will be included in the tax cut.

Anne

Why does it seem that the Fed is simply cheer leading a recovery? My reading of the data tells me that there is no reason to anticipate a GDP growth recovery in the coming few months. What could I be missing? Earnings are about all that is decent now, but that is because of corporate cost cutting that will not soon lead to more employment or more capital investment.

My guess is the jobs picture will be ugly this week.

Jd

I have not seen Dr. Greenspan's latest comments but his testimony back in Feb. gave his reasons for believing investment demand might recover. He noted profits were up etc. Now many economists were less optimistic back then but my understanding is that the forecasting model of Macroeconomic Advisors was at least as optimistic back then. You say current earnings are up only because of cost cutting but do we have any idea about what companies are forecasting as far as future earnings? Isn't that the key to investment (along with interest rates which some folks are saying will rise but then I'm undermining the Greenspan optimism).

JD

Agreed. I thought 1% GDP growth for the last quarter, with a minor boost from military spending. Same for this quarter. Jobs, jobs, jobs is the point. I see no reaosn to expect an improving jobs market for at least several months.

Bobby

Please please be very proud of what you have done with the PKarchive. The archive is simply wonderful and we could not be more grateful to you. PK and you are wonderful, the critics are fearful loons.

Anne

Referring to Don Luskin as a "fearful loon" is actually being too kind. This dropout goes around and dishonestly slams real economics with all sorts of mean spirited nonsense. My favorite was when he attacked the decision of the FTC to enforce the anti-trust laws in regards super premium ice cream. After all, he saw no problem with a duopoly in this sector because who cares about those of us who enjoy ice cream. Luskin cares only about lining his pocket but hasn't a clue about what constitutes desirable economic policies.

"Do we have any idea about what companies are forecasting as far as future earnings? Isn't that the key to investment (along with interest rates which some folks are saying will rise)."

Interesting. The need is not for earnings to be decent, but for demand to increase to spur more investment or a push for jobs. The is no reason to think demand will increase say before autumn. The Fed will be late in raising interest rates as they were in 1994. This is a very dangerous downturn we have experienced. The Fed wants to assure lots of low cost liquidity to spur asset prices at least. I just see no reason for near term optimism. With GDP growth below 2% and productivity growth above 2%, why hire workers? We are shedding jobs, and wages are a problem, so whence demand?

Darn.

Hal

Thanks

By the way. Media ownership concentration needs to be thought about along with yummy ice cream. Oh dear, read the deli article in the NYTimes today. Corned beef on rye. Oh dear.
Anne

>what would you expect from someone who dropped out of college his freshman year to pursue a career as a partisan hack.

What would you expect from someone who dropped out of college his freshman year to found a software company? Likely the firm whose software you're using right now?

I think there's a big difference between success in business and analysis in economic science. You should at least be able to show that you have skills at the graduate economics level if you are going to call yourself an economist. This is a necessary but not a sufficient condition to calling yourself an economist. Yet Luskin doesn't even understand simple IS-LM. Of course, if you point this out to him, he'll take refuge by accusing you of "intellectual bullying."

> You should at least be able to show that you have skills at the graduate economics level if you are going to call yourself an economist. This is a necessary but not a sufficient condition to calling yourself an economist.

Some of the best economists I know lack the formal credential you cite, but "beat the market" with some regularity.

That skill is far more difficult to acquire than a sheepskin, given that in order to invest/trade profitably, one's forecasts must by definition be more accurate than the norm.

It's actually almost impossible to acquire without (1) insider info (2) dumb luck (Read Bob Shiller for more on this).

I would say that neither of these qualifies you to comment on economic policy.

Let me repeat again: Luskin doesn't even understand simple IS-LM. He doesn't even understand the arguments that economists are making. He just replies to them by calling them things like "hilariously complicated" and "abstruse."

http://www.nationalreview.com/nrof_luskin/luskin042503.asp

Please correct me if I am wrong as I am not an economist. To keep it simplistic, it seems to me that under our current taxable dividend policy a corporation faces two choices on what to do with profits. First, the corp. can distribute the after corporate tax earnings to shareholders in the form of dividends. Secondly, the corp. can choose to re-invest the profits back into its business- (tax free in the case of R&D?). Wouldn't growth best be served by business investing in themselves, growing and hiring? Does the current tax serve as a disincentive to pass on profits and instead derive returns from growth? Are not there sufficient alternatives for investors desiring income, tax free or otherwise? Should corporations choose to pay more dividends, wouldn't stocks now compete with the fixed income markets- especially municipals? Wouldn't that excerbate the fiscal problems of state and local governments?

Please correct me if I am wrong as I am not an economist. To keep it simplistic, it seems to me that under our current taxable dividend policy a corporation faces two choices on what to do with profits. First, the corp. can distribute the after corporate tax earnings to shareholders in the form of dividends. Secondly, the corp. can choose to re-invest the profits back into its business- (tax free in the case of R&D?). Wouldn't growth best be served by business investing in themselves, growing and hiring? Does the current tax serve as a disincentive to pass on profits and instead derive returns from growth? Are not there sufficient alternatives for investors desiring income, tax free or otherwise? Should corporations choose to pay more dividends, wouldn't stocks now compete with the fixed income markets- especially municipals? Wouldn't that excerbate the fiscal problems of state and local governments?