Brad DeLong's Semi-Daily Journal (2004)

I wonder why DeLong always bashing "$300,000+ a year crowd"? What's wrong with $250,000 crowd? Or even $200,000 crowd?

My guess: DeLong's income is above $250K but less than $300K. So "$300,000+ a year crowd" are filthy rich bastards, while $275K/year folks are middle class working bees.

Prof D: The passage below is the third time in the column that R Samuelson called you and your ilk a liar:

"But no one considers it dishonorable to blame a president falsely for job loss (or to credit him falsely for job gains). The dishonesty is so routine that it's respectable."

Why was your response so meek and mild and overly polite?

Bright young macro economists should present some concrete evidence that RS's stuff is junk. Samuelson has published many fact-free or fact-massaged columns that say nothing other than "shit happens don't complain, things aren't so bad, no one's fault, you silly non-rich person, so get over it." A person learns nothing from his columns -nothing, and I mean nothing.

Aren't there some stats from previous recoveries that show where the money went and what the demand response was? Or are there any studies that show this? How does empirical work on income consumption curves match up with sectoral demand growth and distribution of spending by income class in recent recessions? OK, just a suggestion to get some ideas started. No one took me up the last time I made this suggestion, so maybe the idea stinks.

But my point is that this kind of nonsense needs to be very vigorously challenged. The EPI link is nice, but I think there needs to be a more direct response. People like R Samuelson are very dangerous because they hide behind a facade of avuncular and reasonable moderation and then peddle what is either nonsense, ignorance or bad analysis.

I wish some one would prepare a solid response to this stuff with lots of reliable stats, and then publicly ask newsweek why they allow this junk to be published. Maybe a famous and influential macro blog person could do it (hint hint). I am sure there are loyal blog readers who would love to contribute numbers and facts and figures and suggest arguments to help out.

Interesting that poster above could do no better than a sleazy personal insult in response. I make far less than $300 K -or $250K for that matter, but would gladly pay a little more in taxes in exchange for a better recovery.

Mik

Thanks for your post!

NOW I have a clearer understanding of why GWB will loose the 2004 election.

I want to strengthen my argument that you have not really answered R Samuelson. For example, you say:

"Was he asleep all of last winter when this debate was held--and when the Bush administration falsely asserted that its dividend tax cut was a powerful short-run stimulus to employment?"

Samuelson's point is that it makes no difference, we all might as well have been asleep because it was a completely fraudulent debate. R Samuelson would say, if he were honest enough to say it out explicitly: It didn't make any difference. Everyone honestly knew the policy wouldn't make any difference. We all know, when we're being honest, that all we know is that everything is just like it is supposed to be because, heck, it happened! So don't ask any embarrassing questions, or I'll have to make fun of you. Anyone who participated in that debate is a fraud.

(And this guy, who advertises himself as being qualified to write a column on economics, calls other people cynical. I think what he does is worse than he-said she-said reporting.)

Do you see what you are up against, here?

I admit that I am very bitter that I don't have R Samuelson's job. He prides himself on being clueless. Why, I can be just as clueless as he can be, any day. I can provide many lengthy personal testimonies from many people to that effect to Newsweek. Just like Samuelson, I can produce garbled cooked data that proves we just don't know much of anything, or fail to come up with any numbers or analysis at all and assure the readers that this demonstrates my expertise at the science of nothing, and proves stuff just happens. Except that, gosh, it just had to have happened that way, who knows why -heck, its them immutable laws of economics, all of which are completely incomprehensible to any and all mortals in terms of useful empirical prediction and control, except that, heck dang, what does happen has to happen and therefore should happen because otherwise something else would have happened, but it didn't, did it?

I want that job! I would be just as good at it.

I recall being instructed many times (mostly in connection with the elusive "development economics") that policies measures should aim as closely as possible at policy goals. A policy aimed at getting our citizens to stop ruining their lives through drug abuse, for instance, is probably not very well served by sending helicopters and weapons to countries thousands of miles away.

Dr. Pangloss is right to say that what Bush did was "mostly standard economics". Beggar thy neighbor fx policy has been around for a very long time - and is pretty disreputable. Tarrifs and subsidies (lost in the shuffle, I guess) are also standard, but not reputable, economic policies. Monetary policy is not under the control of the White House, so to the extent that we are talking about Bush policies, this is a side issue. He needs to craft policies that take monetary policy into account (Greenspan urged for some time that there be no additional fiscal response to the slowdown, all the while saying that the first round of tax cuts was timed fortuitiously), but deserves no credit for monetary accommodation.

It's really down to fiscal policy. Keeping in mind the principle that one ought to aim policy measures as directly at policy goals as practicable, the question is whether there is a better way to use the fiscal balance in creating jobs (the stated goal of each and every tax cut, at some point along the way) than what has been done. At roughly half a million bucks of deficit for each job Bush claimed his policies would create (those estimates didn't really worked out), I would guess there is a better way.

If Samuelson really believes that nothing much could be done about job growth, he needs to find a less suck-up way to say it.

I meant tariffs, of tafirrs, or something. Not tarrifs. Reely.

>>I wonder why DeLong always bashing "$300,000+ a year crowd"?>>

probably because it's the closest round number to the income breakpoint for the top tax bracket.

>>I wonder why DeLong always bashing "$300,000+ a year crowd"?>>

probably because it's the closest round number to the income breakpoint for the top tax bracket.

Anyone who listens to Samulson is an idiot. The Post has a whole bevy of blowhards who simply aren't worth the ink or pixels it takes to publish them. They also aren't worth the time it takes to read them. This makes taking the time to critique them a real waste of time, considering it means you had to 1: waste your time reading him. 2: waste your time thinking about what he said. 3: waste your time composing a response. 4: waste your readers time commenting on something that wasn't worth the time it took to read in the first place. The world is full of idiots like Samulson. They are like flies in the body politic. If you are worried about their health affects I suggest that we clean up the shit pile they come from.

Could you maybe give me a link to when Samuelson was actually a real journalist?

Hi! I'm going to make my very first attempt at making an economic insight without any experience at all. Maybe I can get hired by one of those fancy magazines or newspapers too! Here goes...

I am always curious about what the effect of tax cuts that would be targeted at the middle and working classes. Since I am well below those classes in terms of income (extreme poverty, I think they call it, except I own a computer and can afford to talk on the internet, so I guess that is a warped view of poverty, or what passes for poverty in the U.S., but still, I'm disabled and I prioritize on having a computer connected to the internet at the expense of other things, but still, it's not like I'm living in what would be considered poverty in some other parts of the world, but at the same time, I'm living in abject poverty compared to how I would be living if I were living in Norway, for instance.)

Anyway, where was I? Oh yes! So, if these middle and working class folk have as much credit card debt as I have (I wasn't always poor, and the bank just *loves* me for making that minimum payment every month that they made me sign an agreement that they wouldn't give me the card unless I allowed them to auto-withdrawal the money), most of that tax cut would just go straight into paying off credit card debt. Or at least a lot of it would. Or maybe they wouldn't bother and just count their lucky stars that they could finally afford that fancy new computer they wanted to buy, or purchase new clothing for the entire family instead of doing their shopping at the Salvation Army, or whatever consumables that people buy that they've probably put off buying because money is so tight. I guess my point is that a lot of that tax cut money would end up going towards paying off credit card debt. Which might *later* be used to buy consumer goods, but wouldn't give a instant boost to the economy.

So, maybe you'd have a small boost, followed by another small boost, depending on whether people decided to pay off some of the credit card debt or not.

Either way, it's not looking great for middle class, working class, working poor, or poor people. There might be some noticeable effect, but only if it was a *really big* tax cut. And it would be offset by the lowering of profits for banks (because they make most of their money now on credit card debt and overdraft fees).

I think the only choice at this point is infrastructure spending, that would directly create jobs which would then lower the employment rate and put pressure on wages to go up. Which would be inflationary, right? But inflation is the least of our problems now, isn't it, so that's not something to really worry about.

In the end, tax cuts are generally a no-win deal, no matter who they are for. The U.S., as a nation, isn't being overtaxed, at least not compared to other big economic countries. We do have other problems, but if I discussed what I thought they were, you'd write me off as a ultra-super-lefty-pinko. And you wouldn't be wrong. Which, I guess, is why I'd never get a job as an economist writer for a fancy magazine or newspaper. Alas, Robert Rubin, you were the last of the lefty economists. He's prolly too far left for even Brad, huh?

Samuleson is making the macro argument that deficit spending should stimulate the economy no matter how that money is spent or who gets more income. This is the same argument that GW Bush makes daily. It is not correct, but it is the policy this administration pursues and apparently believes. This opinion goes far beyond Samuleson. I think that it is close to the core reasons why Stiglitz disagrees with IMF policy, but Stiglitz does put it in those terms. Samuelson reflects the views of a number of macro economists that only quantity matters. Quality or where the money goes does not make a difference in their models, but it should. The multipliers are different depending on which income groups receive tax cuts/economic stimulus.

Ananna,

I think you are looking at the right issues, but may have reached the wrong conclusions about consumer behavior. There is a very strong coincidence between the timing of tax rebates in 2003 and the abnormal strength of Q3 spending. Other recent instances of putting money in consumer pockets have also resulted in spurts of spending. There is an argument to be made that "windfall spending" is different from the usual pattern of planned spending out of income. If that difference is large, then a modest increment of after-tax income to lower and middle income earners might not have the same impact as a largish check arriving all at once. Otherwise, the record is pretty good that working stiffs will lift demand if you let them.

Samuelson's main theme in his columns (perhaps not this one) is that the big threat is voters who pay little in taxes extracting large benefits from the government.

I agree with Brad about the Bush tax cuts, but it's depressing to see him more and more falling into the stance of treating as fools and liars anyone who doesn't share his own stance on macroeconomics, as if these issues were beyond controversy. Brad seems to hold to the old Keynesian faith that full employment is always achievable by the right mix and amount of fiscal and monetary policy. I'm not an economist but I read a lot of economic commentary and I know and Brad must know that many economists (e.g. Stephen Roach, who Brad often cites with respect) believe that a lot of our unemployment problem now is structural. Samuelson's article cites Mark Zandi's opinion that 900,000 manufacturing jobs have been lost to the higher trade deficit. Would Brad's preferred policies have averted those losses? Maybe Zandi isn't a real economist.

On the topic of lame reporting in general, it seems that the recent weak consumer confidence numbers are being heavily spun as all the fault of Democratic campaigners talking down the economy, and I've seen this spin echoed uncritically by more than a few journalists. So it was with great interest that I read the numbers in http://www.rockymountainnews.com/drmn/business/article/0,1299,DRMN_4_2683920,00.html on how many people in Colorado are finding it difficult or impossible to pay their gas bills.

R Samuelson must be a generation behind as the suggestion that long-term fiscal stimulus can lower aggregate demand via negative impacts on investment was being discussed in the early 1980's. And the best evidence for this thesis is how weak investment has been ever since it was clearly even before Bush took office that this was where we were heading.

This economic idiot muses:

Samuelson's notion that Bush employed standard economic measures is dazzling. Plenty of critics across the board said, before the latest round was ratified, that they wouldn't give much bang for the buck. And they didn't. How can Samuelson sit there and classify the Bush fiscal policy as "standard"? Oh! to be paid so well to be so foolish.

On a different topic: Ananna asks about infrastructure spending. I would appreciate some comments, if someone has a moment, regarding this. In my economic-idiot view, spending on domestic infrastructure, especially focusing on things like new, clean(er) energy infrastructure, is one of the only answers to the possibility of high-wage job loss due to free trade policies. It seems like the proper way to address such difficulties, rather than resorting to blaming foreigners. Can somebody explain to me problems with this analysis?

Thanks in advance.

Interesting post, and great comments by jml. Although coming from a different perspective, I rally around jml’s “but my point is that this kind of nonsense must be vigorously challenged”. Different pespective because I refuse the “nonsense” qualifier as a prior, so I’d change it to “that opinion must be vigorously challenged”. Why? Jml himself makes my point: he can’t prove that it’s nonsense, yet calls for a rebuttal. Come on: deal with the horses first before you hit the cart!

So what is that Samuelson’s “nonsense” DeLong and Jml denounce? That the current situation, to quote him, is due to the inexorability of boom-bust cycles, weak growth in Europe, business cautiousness. Samuelson specifically addresses a what-if scenario of a Gore or Kerry or Edwards: “Of course, democrats might have discarded some Bush policies: say, tax cuts for the rich”. But he concludes that it would not have made much difference citing the points above.

That conclusion, if true, is of course hard to accept. But the fact that it is hard to accept does not make it any less probable. To disagree with it, it must “vigourosly be challenged ”, as jml points out.

Problem so far: It is not.

Granted, Brad’s post is a better that Samuelson, who just states his conjecture, when Brad Delong does come up with some arguments. His cut at it is intuitively appealing to me, especially given the fact I am a democrat like him. But if I (try to) forget the partisan part, (both in him and me), if I somehow forget for a while my disagreements with the Bush administration’ past and current policies, I cannot honestly refute Samuelson’s point from Brad Delong’s post.

Why? Brad DeLong’s argument in his post is: Tax cuts as implemented by the Bush administration have resulted in savings for the rich, when what was needed was increased spending by the middle and working class, which could have been obtained by a different tax cut. Had such a tax cut been enacted, “ a good portion” of a 3% employment shortfall (3% number obtained from reasonable projections) would have been closed.

Great. Intuively appealling, I might add. Normatively sensical. But convincing? No. And therefore a shot in the dark when taking on R. Samuelson.

For how do you know that your proposed tax cut would have resulted in increased spending in turn resulting in less unemployment? Obvious? I don’t agree, and lets steer out of circular rethorics. Economics 101, you’ll reply? Well ... What model? Keynes IS-LM a la Hicks, a la Modigliani, or will it be good old modern neo-classical with intertemporal budget contraints, with maybe a little calibration? A touch or rational expectations? A pinch of post-Keynesianism? Show me one model that has worked, show me the econometrics, show me the empirical success ... (No, I am not asking a rebuttal of supply-side economics a la Luskin, Kudlow and other quacks, we are beyond that, and Paul Krugman has already taken care of it) Just looking for a convincing argument that a different tax cut “would have worked” in any significant kind of way. Show me hard evidence on propensities to consume, debt levels, direct links between tax cuts at the margin and employment.

Just on the issue of savings and consumption, to my knowledge (and please prove me wrong) neither the Fed, academics or others have come up with reasonable macro figures on savings, wealth effects, propensities to consume, by income, age cohorts, tax brackets and the like except in the crudest sense (I can think, just on savings and wealth effects, and just at the Fed, of Dynan, Maki, Kohn, Greenspan, ... ) let alone agree on any appropriate model and therefore on predictability. While the answer to the question “would tax cuts targeted to the middle and working class” result in increased spending, most economists would probably answer yes, to some degree, to then quickly add, when pressed on the actual amount and target of increase at the margin, “well it depends”. Fast forward to the link between that spending and employment, and then, well, it depends again.

On top of it, even assuming there was a conclusive answer, many bear economists would make the point that the American consumer has already spent too much, thanks to loose monetary policy leading to increased debt ratios, out of control refis, inflated asset and house prices, etc ... and therefore that you “ain’t gonna break that business cycle, just make it worse”.

Don’t get me wrong. I am not trying to make the administration’ s case: it “intuitively” does not make sense to me. But between this ackowledgement and a rebuttal of R. Samuelson’s point, which I see as a conjecture (not a fact) that effects of economic policy making are limited and in the current situation plain irrelevant when it comes to unemployment, there is a gap that even the other Samuelson may not have jumped.

So far, Brad, (hint, hint) you have not made a convincing case against Samuelson. Am I asking for the moon? For some impossible Popperian negative proof, some kind of “market efficiency” proof knowing Fama’s argument about the validity of models? If you remotely say yes, you post is just one more conjecture, no more (nor less) valid that Samuelson’s.

Challenge *on* !

Have to agree with the earlier comment regarding the rag called the Post. As far as I can tell, other the occasional leaked statement by Greenspan to that Berry fellow, the Post has zero influence in the investment world.

I mean who takes seriously a paper whose economics editor James Glassman says that we will have a 30K Dow in short order?

The main difference betweent the current crop of Republican stenographers who infest the Post and Janet Cooke is that Janet Cooke was a much better writer and a greater devotion to reality.

Ethan your comments on infrastructure are spot on. Economic downturns are prime time for government to employ surplus workers for productive improvements in infrastructure. We are providing them with unemployment benefits anyway. Why not put in a little extra and get huge returns on investment? Why not? Because it goes against the GOP southern redneck plantation economics of shrinking state government and defunding public infrastructure.

The states can either help the unemployment situation or they can exacerbate it. If the states don't have money because of revenue loss then they will cancel projects (putting contractors and their employees out of work) institute hiring freezes, not bid new projects, lay off employees, cut general spending, etc. It is good fiscal policy for the Federal government to use its power to run deficits to help the states (most cannot run deficits) so that states help the employment situation, not make it worse. This is the worst failure of the Bush administration fiscal policy. They are deficit spending, but doing so in a way that creates few or no jobs and allows preventable job loss to happen.

Samuelson had a blow-hard column some weeks ago about all the selfish bastards who actually expected to be able to draw their $1200/mo from social security to keep them in food and heating oil after retirement. Hiss, hiss, selfish bastards, you're ruining our precious economy! The column was so annoying that I tried to email him. No go. His precious behind is sheltered behind Mama WaPo. Dispicable man!

If the "science of nothing" would be nihilology, then Samuelson would be a nihilologist.

In my view what is wrong with the economy is that the fundamental balance between labor and capital has broken down. Policies over the past couple of decades have tilted the playing field to favor capital over labor. The ideological zealots of the right have equated labor with communism looking at the fall of the Soviet Union as the triumph of capital over labor.

Of course we forget that straight up capitalism, the kind these yahoos long for failed in 1929. What has survived and triumphed since then are mixed economies. Regulated markets coupled with a robust social safety net.

The Reagan years, through the extremism of the baby Bush years, have seen the playing field tilted towards inherited wealth and finance to the detriment and devaluation of labor. Part of this problem is related to the fact that we define labor to narrowly. Anyone who works for a living is a laborer. The divide is between labor and capital, not labor and management. Even managers are laborers.

Our economy looks to me like a tapestry where the vertical threads are capital and the horizontal threads are labor. They are equally important because after all, the laborer is also the consumer. But where as the power of capital is invested in itself, the power of labor is invested in collectivism. A concept the right would have us believe has been discredited by the fall of the Soviet Empire!

But yes, as a non-economist, from my perspective, what is wrong with the economy is that the fundamental relationship between labor and capital has been destroyed.

I am much more disappointed in Greenspan, a man
who shows he is completely out of it; that, or
a shill for his moneyed, over $300K class.

No wonder people like Roach leave the Fed. Why
stay and have your advice ignored, when you can
leave and join that class and still tell the
truth?

I agree with SW. The right wing prefers to reward capital at the direct expense of labor. The concentration of wealth created by their policies will eventually choke off growth. The dividend tax cut is the clearest example. If I have $100,000 to invest in a dividend bearing stock, I can procure $5000 tax free without hitting a lick at a snake. If I have no capital, to get $5000 after taxes requires me to work hard enough to earn at least $6000. One thousand hours at $6 per hour. What is it about having money that justifies that disparity?

The press writes its stories to make that seem reasonable. No one writes or says anything that blunt.

I think we need to start taxing capital accumulations past a certain point.

Guy. One hates to see mixes of latin and greek roots.

Bakho, could you please tell me what infrastructure projects you would fund that would "get huge returns on investment". And while you're at it, evaluate how gov't would better choose capital projects than private investors. The same ones Brad wants to tax.

How will an economy truly grow without technological advancement? Less capital investment less tech. Its the same tradeoff we'll be making by capping Rx $. Cheaper drugs for sure but less new drugs. Brad's is a short term approach. His approach is a valid one just short sited.

SW, google gdp per capita by country and see if you want the economies of Sweden, France, Germany or UK(all of which benefit from US subsidized national defense). If you'd like we can break down 2000 Pres. Election voter demographics. Republicans are just as rational as clients of the welfare state. Republicans are educated and rational. Consider strategies that boost demand do it by standing on the shoulder of "standard of living". It may pain you to notice even while the rich poor gap may be getting larger the "poor's" standard of living is also getting better. Imagine that the extremely productive's SOL is growing faster than the SOL of the unproductive. If you want to reverse this quite natural trend you must constrain the economy which is exactly what Brad is advocating.

I blogged on precisely this topic yesterday at The Left Coaster.

I got a B in grad school Econ (MBA) but I don't fool myself into thinking I'm an econimist. It's extremely nice to know my thinking was on the right track. Thank you, Mr. DeLong.

Just to reiterate, RJS is a disgraceful, lying hack who depserately needs to be fired.

ojb, if i understood your drift (and perhaps i didn't, since you covered a lot of ground), you're saying the economy is big and complicated and what makes one perspective any better than another, especially since you reject any studies as overly "crude."

In that case, if i've understood you, your challenge doesn't mean much: we can't construct a parallel universe in which to prove out anything.

But here in this vale of tears, the studies i recall seeing aren't quite as "crude" as you think, particularly because they make logical sense: the unfilled needs of the roughly 80% of households with income less than $80K are such that marginal dollars are spent rapidly. Higher income households may well spend the money in the end (revolution of rising expectation driving needs for third houses or a new wardrobe or hand-made shoes or expensive vacations), but it's going to be slower (and the odds are, less than 100% of the increment will be spent).

A large number of economists agree with this perspective, which is why, as someone noted earlier, most economists predicted that the Bush "stimulus" package wasn't going to "stimulate" jobs (indeed, you may recall that they didn't initially call it "stimulus").

Whether that's sufficient for you, ojb, can't say, but for many of us, it's plenty fine....

Well, I guess I admire Brian for defending right wing orthodoxy in this forum without becoming a troll. However, I think that the examples he cited only make sense if an economy is measured by gdp alone. What is the purpose of an economy? I would suggest that it is to provide the best standard of living to the bulk of its citizens that is possible. By those standards we fail miserably.

Of course we get to hear about those lucky duckies. Those airconditioned color tv equiped ghettos. Once again you fall into the trap of equating the value of the economy to consumerism and churning dollars. We won't even begin to address the disparity in the way unemployment is measured in European states vs the way we habitually undercount the un-and-under employed.

As far as the security stuff goes, we throw a huge fraction of our national wealth into that rat hole. The fact that the Europeans aren't stupid enough to follow our example is faint praise for our system.

http://www.cbpp.org/2-25-04ui-pr.htm

760,000 Jobless Denied Aid — And Counting: Large Numbers of Unemployed Go Without Aid As Administration Remains Silent on Whether to Restart Federal Assistance Program - 2/25/04

Thus far, three-quarters of a million jobless workers have gone without aid due to the phase-out of the federal unemployment program, but the Administration still refuses to take a position on whether to resume the program.

http://www.cbpp.org/2-12-04hous.htm

Administration Seeks Deep Cuts in Housing Vouchers and Conversion of Program to a Block Grant - 2/24/04

The proposed cuts are deeper — and the policy changes more sweeping and threatening to the low-income people the voucher program serves — than any proposal advanced by any prior Administration during the voucher program's 30-year history.

http://www.cbpp.org/10-22-03sfp3.htm

Fiscal Crisis is Shrinking State Budgets - Revised 2/25/04

One way that state have balanced their budgets during the fiscal crisis is to cut spending dramatically; these actions are causing state government to shrink and are putting important state services at risk.

"Bakho, could you please tell me what infrastructure projects you would fund that would "get huge returns on investment". And while you're at it, evaluate how gov't would better choose capital projects than private investors. The same ones Brad wants to tax."

With two crashes in 4 years under their belts (on in 2000 and another in 2002) - private investors aren't looking very smart right now.

More over - after a certain point, all of the available investment supply is filled - and more money simply generates asset inflation.

Finally - the reason the government can invest differently from private investors is that, because it is able to tax - it does not have to worry about the single biggest problem facing a private investor - namely capturing value. Investors don't want to invest in the projects that create value - that isn't their role. They want to invest in those projects that allow them to recapture the value generated. Governments only have to prove that someone somewhere will make money - because the government will tax it, investors have to prove that someone will make money, *and* you can convince them that they should pay you for having given them the chance to make it *and* prove to others that this is going to work.

Much tougher.

Governments also have longer time horizons - they are going to be around longer - and, because they have so many pots on the stove - they can afford a failure rate which would kill even the largest corporations.

The tax cut question isn't really that complicated. Of about 880 billion in income taxes paid in 2001, about 35 billion of that came from the bottom 50 percent of income. The 50 percent dividing line is at about 28,500 of annual income. $300 billion of that 880 billion is from the "over $300,000" crowd. The Democratic idea of "tax cuts for the middle class" appeals to them because it doesn't make much of a dent in the flow of productive wealth into the Treasury.

Granted, this doesn't include payroll taxes, which are more evenly spread, but then socialized retirement programs with zero equity, forced on the entire population, weren't my idea. You want to cut those taxes too, go for it.

Then, there's the idea that tax cuts to the rich don't do anything for an economy because they "save" the money. Think about what "save" means to a wealthy person. Where do they put the money? Bonds. Stocks. Venture capital. Mutual funds. Investments. Does anyone actually stuff their money into a mattress? No. It goes into capital investment in companies, cities, and other places. Some of it goes into government paper, propping up the Treasury. Real created wealth invested in productive things, not just redistributed tax money passed around. I find it odd that this is not considered to be a contribution to a healthy economy.

Brian, my own view of the business investing class is based on my personal experience as a long-term bankruptcy lawyer. My first investment was in Allegheny Power, a nice little utility stock. In the last mania, they decided that they needed to expand into fiber optic cables, and energy brokering, the fads of the day. Hello, Chapter 11. One of the next choices was Tuscon Electric Power. They thought the S&L industry offered excellent investment opportunities. Hello, Chapter 11.

And here is the best part. Chapter 11 did not affect management one bit. The brilliant private sector left both in place, and gave them all kinds of money and new stock options. When Federated filed, I asked counsel for the Creditors Committee why they did not fire management for utter incompetence. Ha, Ha, they said. This is standard operating practice. Look at Donald Trump.

So, pardon me if I laugh myself silly, New Coke spilling out of my nose, at the notion that the the arrogant rich are somehow superior to the rest of the world.

At least in government, we get to throw out the real losers, if we can summon the political will.

tbrosz wrote, "Then, there's the idea that tax cuts to the rich don't do anything for an economy because they 'save' the money. Think about what 'save' means to a wealthy person. Where do they put the money? Bonds. Stocks. Venture capital. Mutual funds. Investments. Does anyone actually stuff their money into a mattress? No. It goes into capital investment in companies, cities, and other places. Some of it goes into government paper, propping up the Treasury. Real created wealth invested in productive things, not just redistributed tax money passed around. I find it odd that this is not considered to be a contribution to a healthy economy."

To the extent it goes back to the federal treasury---or state/local funds---in terms of bonds, the government could have gotten the same money much more cheaply---by not cutting taxes in the first place.

Where's your evidence that "the rich" are, by and large, making risky investments (like venture capital)?

Aside from government bonds, the rich also buy land, which is NOT a capital investment, but rather accumulating a scarce resource in order to charge the rest of us money to use it.
* Not a capital investment---economists as far back as Ricardo divide the economy into labor, capital, and land.
* Scarce resource---even if land speculators add nothing of value to land, its value tends to rise with GDP, because the supply of land available is finite.

For more details, see
http://members.aol.com/_ht_a/tma68/geo-faq.htm

A good chunk of capital investment comes from retained profits, which come from demand. (In aggregate, this chunk is much bigger than equity gained from new stock issuance, for example.) Thus shifting the tax burden onto labor can lead to lower investment.

Finally, as to risky investments: the government makes the biggest ones. Who financed the research that led to the Internet? Uncle Sam. Who financed the research that led to the molecular biology revolution (starting with the discovery of DNA)? Uncle Sam (with some help from the public purse in Britain).

In fact, the most striking example of tehnological progress in the 20th century that wasn't directly funded by the government was the creation of the transistor. But that research was funded by a government-recognized monopoly.

What if the entire amount of the tax cuts had instead been spent to hire unemployed people to work retrofitting government and commercial buildings to be more energy efficient? And when those are done, start on homes.

What short and long-term effects do you think that would have had on the economy? Short-term, full employment with all the resulting stimulus. Long-term, increased energy efficiency, lower energy imports.

"Its the same tradeoff we'll be making by capping Rx $. Cheaper drugs for sure but less new drugs."

THis is BS. You're saying that drug companies WON'T DO THEIR JOB unless guaranteed windfall profits! Well, maybe we the people ought to shut them down and charter OTHER companies to be drug companies instead, and get these crooks out, since they don't seem very interested in doing the job that we, the people, the government, chartered those corporations to do.

The drug companies only exist as drug companies because we allowed them to set up a certain legal structure with certain benefits to them, including limiting their individual liability. I say, if they won't develop new drugs then they aren't acting as drug companies and aren't competing, so shut them down, charter others WHO WANT TO BE IN THAT BUSINESS to fulfill this task for scoiety instead of just enriching a few hogs who have managed to manipulate themselves into control of these companies.

tbrosz, liberal has largely answered you, but just to pursue the point one step further: you're playing word games.

The discussion isn't what constitutes a "healthy" economy - that's an entirely different can of worms.

The discussion is what kind of policy mix would create the most jobs in the near-term, which is rather a different matter.

And speaking of infrastructure projects, the ones i favor are the shopping list that hart and rudman (two of the very few people to get the threat of terrorism right) have recommended for hardening targets and improving the ability of first responders to do their jobs, which came with a price tag of $94B (iirc).

I should think the returns on this investment are self-evident....

Brian can you please explain how you would get to work of government infrastructure did not exist?

Note also that the portion of federal debt held by the public was $3.3 Trillion in 2001 and is now $4.1 Trillion. That is $800 Billion dollars that could have been invested in the economy that now sits in Treasury bonds. If you don't generate jobs with deficit spending, it is just deferring taxes.

"Brian can you please explain how you would get to work of government infrastructure did not exist?"

I just want him to explain how he would post here if government infrastructure didn't exist - or investement happen.

Here's a simplistic explanation of why supply-side has never worked and will never work.

If you give builders a great deal of money, they will build more houses. This does not necessarily mean they will sell all the houses they build. Just that they will continue to do what they know and build as many houses as they have the money for.

Now, you put that income in consumers' (home-buyers) hands, they will buy the existing houses and create demand by requesting more houses to be built.

Why does it make sense to give the wealthy a cash infusion? They do not create jobs when there is no demand--or out of the goodness of their hearts. You need to increase demand. Giving a tax cut weighted towards the middle class increases consumer confidence and increases demand. Simple.

Maybe Brian can also explain how selling $800 Billion in new treasury bonds to wealthy investors is a bigger stimulus to the economy than collecting an additional $800 Billion in taxes from wealthy investors? Brian?

Reactionaries have a definition of risk:

A group of rich men wagering on when some poor sod goes belly up from debt.

"he tax cut question isn't really that complicated. Of about 880 billion in income taxes paid in 2001, about 35 billion of that came from the bottom 50 percent of income. The 50 percent dividing line is at about 28,500 of annual income. $300 billion of that 880 billion is from the "over $300,000" crowd. The Democratic idea of "tax cuts for the middle class" appeals to them because it doesn't make much of a dent in the flow of productive wealth into the Treasury."

Ooops, its the income tax lie again.

And people wonder why it's become obvious that you can't do business with Republicans.

Addendum: If cutting taxes on high income brackets is so important for growth, why did the economy go into overdrive *in the wake of* the 1993 (?) Clinton tax hikes?

BTW, I have a summary of an interesting _The New Republic_ article on the Democrats' tax plans here:
http://www.truthandpolitics.org/html_gen.php?entryId=80

What an informative site this is! Here's what I've learned from my brief visit:

1) There are some people who produce things regardless of whether people want to buy them, and some completely different people who buy things.

2) The job of the government is to take money away from the people who produce stuff and to give it to people who buy stuff. Otherwise, not all the stuff that is produced would be bought. Apperntly, despite the fact that a lot of the stuff that's produced has nothing to do with what buyers want, failing to find a home for all this stuff would be a bad thing.

3) There is a group of people, mostly those with incomes greater than $300,000 per year, who are so dedicated to the welfare of their fellow citizens that they produce stuff without any intention of spending the the proceeds of their exertions on themselves. These people must not be allowed to do this, apparently, because their selflessness does not create jobs. In fact, they appear to be destroying jobs by working so much themselves and causing the Jobless Recovery.

4) There is a remarkably shortsighted class of people, mostly those with incomes below the median, who spend every single dollar they receive, no matter how fleeting is the source of that income, on their own immediate gratification.
These people must be given as much money as possible, in order to create jobs.

5) Saving does not result in investment or other types of production if it is used to buy land or government bonds, because that money disappears and is never spent again. Therefore, presumably, investment would increase if the government stopped selling bonds and instead raised taxes, especially if it raised taxes on rich investors.

6) The way to stimulate innovation in the pharmaceuticals industry is to force out of work the people currently making new drugs and replace them with people who have no experience in this occupation. Just to make sure that the whole industry operates efficiently, it will operate under close government supervision, or possibly run directly by the government.

7) The fact that the Defense Department helped finance the internet proves that we need more Big Digs.

8) Berkeley is the capital of Cloud-Cuckoo Land.

Sandy, here's what i've learned while reading your posting: you have poor reading comprehension skills and superior distortion skills.

"And the next award is, "Most Gratuitous Exaggeration of Previous Comments to Support a Pre-Conceived Conservatarian Viewpoint"...

...and the winner is...

...the envelope, please...

...SANDY McHOOTS!!!"

OK jackass. The government is there to provide an army, provide infrastructure, and enforce the rule of law. If you did not provide these things, you would have anarchy. No one would have the security to build wealth. There would be no concept of real estate. No stability. Both political parties are to blame for the current bloated perversion of the original need for a centralized government.

Now, who benefits the most from a system that provides the stability? The wealthy--they have the most to lose if people ignored their fences and pieces of paper. They should shoulder most of the cost. The poor have no need for stability. If you don't believe this go to a poor neighborhood like Compton and wave some cash around. So boo-hoo, the wealthy pay more than they want to pay to the government--which would be nothing.

All I was saying, is that, to stimulate the economy, in the current reality, giving money to the wealthy in the absence of demand is stupid. Create demand instead. Obviously, you can't force people to buy things. But WalMart has made a hell of a lot of money off of the "remarkably shortsighted class of people" who buy their crap. And Japan has certainly made a lot of money selling gadgets no one really needs. What exactly is your elitist point?

"It is as if they were designed to reduce national savings as much as possible in the long run while providing little short-run boost to demand."

To the extent that tax cuts for the rich don't spur private consumption, they will cause private saving to offset the increase in the national debt. If, as you say, Bush wanted to reduce national savings as much as possible, he would need to raise taxes on the rich and give money to the poor, which is something you are most definitely not arguing.

"If you give builders a great deal of money, they will build more houses. This does not necessarily mean they will sell all the houses they build. Just that they will continue to do what they know and build as many houses as they have the money for."

Actually, they would say "THANK YOU," stash the cash in the Caymans, and then wait until there IS demand for those houses. And when there IS demand they would finance the construction through limited liability corporations to reduce the risk to themselves should the project fail. And the financing would be there BECAUSE there is clear demand for the product.

Gicing cash to the rich has nothing to do with creating jobs, etc. People woth money to buy things c=is what creates jobs, and when there is demand, you don't have to be rich to set up or grow a business to meet the demand.

Thanks, Dave. My point exactly.

http://www.dailykos.com/story/2004/2/26/215754/170#3

This is as good as it gets folks

Good post SW. I was waiting for someone to make those points about capitalism.

"Where's your evidence that "the rich" are, by and large, making risky investments (like venture capital)?"

Who the hell do you THINK is making multi-million dollar venture capital investments? The local McDonald's workers? For Pete's sake, use some common sense. I live in Silicon Valley, and I know where the money comes from.

Dave Johnson, you my friend have a great career in gov't ahead of you. My argument assumes you have a basic understanding of supply and demand.

D McGinty, go to same place Dave gets a job. You're employable.

Bakho, If only we could build more Amtraks we'd have transportation and infinite profits. I'm certainly not saying some projects are not appropriatly funded by gov't, but I also do not operate under the illusion business spending is a waste of the government's money. Make work programs can be beneficial, but pretending they're a miracle cure is quite naive. Hitler tried it and got wheelbarrow inflation( I've heard N. Korea's system works well). Jobs is a red herring. You don't tax jobs. I'd suggest reading Bastiat for a humorous look at the fallacies you propose.

Sandy, you forget those of egalitarian orientation make up for limited knowledge with unlimited intelligence. That is how they seemingly defy the gravity.

Masaccio, do ya think you might be jaded from constantly working with failure. The assets are still there for society to utilize if someone sees potential. I worked on the ASRM project in Mississippi where billions were spent on a solid rocket manufacturing facility that was totally built but gov't cancelled funding before it was made operational. I don't think I've seen anything comparable in private industry.

Liberal says "If cutting taxes on high income brackets is so important for growth, why did the economy go into overdrive *in the wake of* the 1993 (?) Clinton tax hikes?"

Liberal, in argumentation that statement is called a post hoc fallacy. There were other forces working in the '90s you know.

Stirling says " the reason the government can invest differently from private investors is that, because it is able to tax - it does not have to worry about the single biggest problem facing a private investor - namely capturing value"

Stirling you act as if gov't is some conscious rational actor. It is not. Gov't is merely a distribution of power amongst individuals with little or no real accountability. Gov't is necessary but there is no innate features of Gov't which drive efficiency like prices do for the market. Gov't has little or no reverence for risk. Indeed, Ted Kennedy sees educational funding as pure legacy for himself. Where is his risk/benefit calculation. Gov't bureaucrats have no concept of opportunity cost. Long time lines just means no accountability to the original decision makers. Why do you think politicians have raided SS so efficiently.

Look at how agencies have to bureaucratize just to try to create oversight all the while politicians tax and spend with little concience. I'm referring to both parties. In the end, gov't is a necessary evil but don't portray it as some good willed benign entity. It's power with little accountability. What is the re-election chances of any incumbent- 90-95% and the court still passed McCain-Feingold with a quite explicit 1st Amendment in black and white.

"The discussion isn't what constitutes a 'healthy' economy - that's an entirely different can of worms.

The discussion is what kind of policy mix would create the most jobs in the near-term, which is rather a different matter."

I can't believe someone would write something like this. Who cares if the economy is healthy, as long as people have jobs? Jobs doing what?

The assumption that the purpose of productive activity is to maximize the number of jobs is an odd one. If that were the case, why not get rid of all the farm machinery and get a couple of hundred field hands out there? More jobs, right? No, that's not it either, is it?

The Left sees a business as a job-creation machine. Nothing else. In point of fact, a business exists (to oversimplify) to provide a product or service, and sell enough of it to make a profit and stay in business against the competition. That people get jobs in the bargain is a side effect. No CEO sits down and agonizes that the company is operating well with twenty employees, but it really ought to have forty. That this offends some people's Joe Hill sensibilities doesn't change the facts.

I seriously weep for the economic education people are getting in this country. So few people have any idea how a market works, and how wealth is actually created. If we were talking chemistry, we'd be turning out doctorates in Phlogiston Theory.

Brian, i love your "other forces operating in the '90s" (magnetism? gravity?).

In fact, the single most important force operating in the '90s was the disappearance of the inflation-risk premium in the long bond, which was a direct outgrowth of the clinton tax hike. Right on schedule, just as people like our host predicted when forging the policy, private investment jumped (even over-jumped in certain areas, but that's a different story).

tbrosz, let's not get carried away here. Venture capital is a very, very small use of the money of the wealthy (by which i mean the top 1% of households by net worth). it's one thing to recognize that the wealthy don't store their money in mattresses; it's another to fetishize venture capital well beyond its actual role in the economy....

Oh, and Sterling, if you're going to refer to my numbers as the "income tax lie," better come up with some numbers of your own. Mine came from the IRS.

http://www.irs.ustreas.gov/pub/irs-soi/01in01ts.xls

(Excel file)

Sterling writes:

Finally - the reason the government can invest differently from private investors is that, because it is able to tax - it does not have to worry about the single biggest problem facing a private investor - namely capturing value. Investors don't want to invest in the projects that create value - that isn't their role. They want to invest in those projects that allow them to recapture the value generated. Governments only have to prove that someone somewhere will make money - because the government will tax it, investors have to prove that someone will make money, *and* you can convince them that they should pay you for having given them the chance to make it *and* prove to others that this is going to work.

Much tougher."

* * *

I toyed with just letting this beauty stand on its own. The reason governments can make crappy investments is because they can take as much more money out of the private sector as they need to make up for making crappy investments! Sure, and if the local startup could rob banks, it wouldn't have to worry so much either. Private companies do have to worry a lot more than the government about whether something is going to work. And when you compare most government projects with most private ones, believe me, it shows.

Howard: Whether someone invests in venture capital or not isn't that important. Buying stocks puts capital in the hands of productive companies, too. Even a rich person simply putting a million dollars into the local Savings and Loan adds capital to the economy. The word "investment" has a real meaning. It's putting wealth where is can create more wealth.

tbrosz, you're something else, all right.

in brief: a.) prof delong's post is about jobs. if you want to talk about something else, find another post, but don't get insulted when you get called on changing the subject; b.) i realize being a smug know-it-all in silicon valley (why you keep bringing that up is beyond me, but it obviously matters to you) takes a lot of time, but you still might bother to stir yourself and study a little history. When jobs aren't available, lots of bad things happen: protectionism, racial, ethnic, or religious hatred, and much more, which is why rational political actors concern themselves with the economy's ability to produce jobs; c.) yes, we all understand what businesses do - this is why the prof is calling robert samuelson on his pretending that there is no choice in terms of government policy about demand stimulation (because, remember this is about jobs, despite your protestations to the contrary); d.) yes, if you bothered to read what i wrote, you'd see that i agree that the wealthy don't put their money into mattresses. Of what relevance is that to the question of job creation? Private investment occurs when there is an anticipated return; in a low-demand environment, there isn't much anticipated return, which is the problem with relying entirely upon market mechanisms, sans any form of demand stimulus, which, in a circular way, takes us back to what brad wrote about in the first place.

Your argument appears to be that there is no role for demand stimulus, and that, therefore, you honestly don't care what the level of unemployment is. In that case, i suggest you spend your time fighting the intrusions upon the functioning of the marketplace that oligopoly and monopoly impose, not accusing people who think differently than you of not knowing anything....

PS. Buying IPOs or secondary offerings puts money into the hands of companies; buying stock puts money into the hands of the stock-sellers. Surely you know that much.

Whether someone invests in venture capital or not isn't that important. Buying stocks puts capital in the hands of productive companies, too. Even a rich person simply putting a million dollars into the local Savings and Loan adds capital to the economy. The word "investment" has a real meaning. It's putting wealth where is can create more wealth.

This is a nice theory, but it doesn't work in a global market when the goal is improving the local economy. Because if there is a local -- rather than global -- slowdown, the smart investor will put his additional money into foreign investments (right now, foreign currency, like the Euro, is particularly attractive) where it does nothing for the domestic economy.

OTOH, additional money in the hands of domestic consumers, particularly the least-rich kind, is far more likely to be spent in the domestic economy at least once.

So let's just follow this a little. In the 80s we had a massive increase in the payroll tax because of the fears of future insolvency. Because of this higher than required tax, the social security trust fund has been running a rather large surplus for years. So large indeed that it is thrown into general revenue and is essentially funding the government. So we are really getting much more in the way of defense spending, etc than we are paying for since we are using this trust fund.

George Bush and his merry band of reverse Robin Hoods decide that we need large tax cuts for the upper income earners because after all "they pay the lions share of income taxes" Income taxes that I must remind you are insufficient to pay for the government that we have. Since they must be supplemented by the most regressive tax imaginable (the payroll tax). Since the payroll tax cuts out at $85K or so, it is a tax on the poor and middle class. Now you could argue that this isn't a tax it is an insurance premium. OK fine, so how can we use these revenues to off set the loss of revenue from income tax cuts? And in the future when the money that was supposed to be in the trust fund is needed, and isn't available because it has been distributed in the form of income tax cuts the solution according to Mr. Greenspan is to cut the very benefits that this excessive payroll tax was designed to bankroll. Slick!

Enron writ large.

PS. Buying IPOs or secondary offerings puts money into the hands of companies; buying stock puts money into the hands of the stock-sellers. Surely you know that much.

Well, the stock seller could be the company selling treasury stock; or, alternatively, it could be another company.

Yes, it could, cmdicely, but it very rarely is: hundreds of millions of shares of stock are traded daily.

"Dave Johnson, you my friend have a great career in gov't ahead of you. My argument assumes you have a basic understanding of supply and demand."

I have a pretty good one in business behind me - CEO and VP Marketing... Actually MEETING A PAYROLL. Actually hiring and firing in response to the realities of the market -- customers with money to spend. What about you?

I'll say it again: If you give a business owner a bunch of money, that person will say thank you and stash the cash in the Caymans. If you give that business owner customers with money to spend that business owner will invest and hire and will find the money to do it.

"Make work programs can be beneficial, but pretending they're a miracle cure is quite naive." I never said it was. I said that hiring people to retrofit buildings to be energy efficient would be better stimulus for the economy and create more jobs than the same amount used for Bush's tax cuts for the rich.

To amplify my last point. The Social Security Trust Fund is thrown into general revenue. Look at the sum of income tax, corporate tax, and social security witholding as the sources of this revenue. Now, we are considering tax cuts to stimulate the economy. Consider, the social security trust fund is in surplus implying that the tax is higher than it should be. The budget is in deficit implying that the income tax is Lower than it should be. If you are convinced that we need to return cash to people to stimulate the economy, should the cuts come from where we are over-paying? Or should they come from where we are underpaying? A cut in witholding taxes that is revenue neutral with the Bush income tax cuts is the solution. This cut should be in the form of rebates that are tied to economic performance. This way we get the stimulus, we don't raise net taxes and it doesn't build in structural deficits.

in Wolf's article, last para. he uses the term, talking about China, 'a gigantic democracy.' is he serious?

Brian, I may be jaded, but the point is a simple observation. Not a single anecdotal piece of evidence, but a few of the many examples I have seen over the last 20 years. The private sector wastes money. No one punishes the people who made the stupid decisions. The occasional CEO who loses his job for utter failure walks out the door with head bowed, because he has to lug the boatload of money his director pals gave him. The underlings move up, or hold their places.

I tried to restrain myself, but I cannot help but point out that this kind of crony capitalism has been practiced in every Republican administration for the past 20 years. Crooks, charlatans and failures are not punished: they get pardons or promotions.

We ought to abolish the payroll tax entirely, adjust income taxes to compensate, and pay for SS benefits out of general revenue. The only justification for a separate, regressive payroll tax - one with no deductions or exemptions - is that the money was to be used for Social Security and only Social Security. The purpose of taking in more than was needed to pay current benefits (which Greenspan inaugurated in 1983) was to pay off debt so that the government would be in a better position to pay off the Boomers' benefits without soaking Generation X. But that never happened; instead the federal government embezzled the surplus and used it to fund other unrelated programs, so that they could hide expenditures off the budget. This means that for all intents and purposes, there is no difference between FICA and income tax from the government's standpoint. It all goes into the same pot. That being the case, the justification for this savage, regressive tax disappears. Abolishing the payroll tax and folding that cost into standard income taxes will not only produce a boost in the demand side of the economy, it will also make means testing politically easier, since it will destroy the illusion that SS is equivalent to private savings. (Of course, means testing would have to be phased in to avoid unfairnesses to people who have already factored in SS benefits to their retirement life style.) Costs would be more effectively controlled and would be spread out in a manner that the public considers politically fairer.

I hear people talk about deregulating the post office. I shudder to think what would happen. Right now, we have a post person who goes out of her way to help you and makes good money. Can you imagine if they deregulated the post office what would happen to that service? You would have some poor person, who couldn't find their way out of a paper bag, working for $5 per hour and it would cost $5 to mail a letter. I have often wondered if the federal government had still been in control of airport security if our 911 hijackers would have had such an easy time of it.

Dave, I hope they have enough padding on the walls for ya. Something tells me you have an ax to grind with business owners. If business in general really worked the way you portray, this would be the Dominican Republic not the most powerful nation on Earth. I hope Brad appreciates the credible support from a former CEO and Marketing VP like yourself.

Howard says "the single most important force operating in the '90s was the disappearance of the inflation-risk premium in the long bond, which was a direct outgrowth of the clinton tax hike".

Howard don't forget the '94 mid-terms brought a hostile Gincrich house to restrict spending. I am not buying the direct tax hike-expanding economy relationship. I do think the budget coming into balance was a psychological boost to Wall Street. If its as you say do you also give appropriate credit to Reagan for squeezing inflation out of the economy of the '80s. He really set the table for the '90s. I think it was great leadership. Its not pleasant tightening the reigns, but someone had to do it and Carter did not have the stomach for it neither did Mondale.

Firebug, you may not believe this but some find such wholesale redistribution repugnant especially in a system that has moved way beyond safety net. Its a pension system and needs to be operated at least partially w/ personal accounts. To me the tragedy is the American public is so ignorant of SS and economics in general that we've been had by fiduciarily challenged politicians. I want my money in my account. Thrift saving worked so well for gov't employees it is a shame the public is gamed by the specious arguments of the left. A wealthy nation can change over.

Just a brief addition to Stirling Newberry's comment well above on public goods spending. While I believe he overstates the case a bit, concerning the long recuperation time and tolerance/affordability of failure,- government spending decisions should be well-deliberated and justified by criteria that include efficiency or cost-effectiveness and value-added- one doesn't want to build just two of everything as seemed to be the case of Japan in the 1990's-, I do get tired of hearing the endless mantra that the private sector will necessarily allocate investment far more efficiently and responsively than governments, which are deemed inevitably corrupt, ignorant and inefficient, just as I get tired of the mantra from corporatist/neo-classical types that government regulatory agencies must necessarily succumb to industry capture- surely a case of crocodile tears. Most all major industrial markets are dominated by giant oligopolistic firms, who will invest primarily to maintain their dominance in their markets and their lucrativeness, when they aren't investing in PACs and rent-seeking projects. Does anyone really think that oil and coal firms are interested in investing for the development of alternative cleaner and renewable energy sources? Sure they might invest a bit as a hedge, but they likely will invest much more politically and economically to stave off such development, which might displace them in some degree from their market dominance. Similarly, government investment in new or improved transport infrastructure may generate new business opportunities for others than may compete with established business interests and raise aggregate productivity levels. It is not clear that private investment, left to itself would optimalize productivity and distribution outcomes. And government investment in public goods can in some degree operate at a loss, if the aggregate gains generate enough profitability and employment, so as to be recouped in increased tax revenues. In fact, though rigorous decision making, strong public oversight and follow-through are required, and the role of private capital markets are by no means to be ignored, it seems to me that potentially the case for public investment exceeds the narrowly tailored neo-classical collective goods exception.

Re: "in Wolf's article, last para. he uses the term, talking about China, 'a gigantic democracy.' is he serious?"

He's talking about India...

Brian,

"Howard don't forget the '94 mid-terms brought a hostile Gincrich house to restrict spending."

The rate of spending INCREASED after 1994, FYI.

Mr. Halasz, you say "government spending decisions should be well-deliberated and justified by criteria that include efficiency or cost-effectiveness and value-added".

What force would drive such altruistic behavior? Certainly not pricing signals. We all know people have different moralities and world views. How often does gov't develop consensus on large projects- ANWR, Big Dig, Amtrak, TVA... It ultimately comes down to who controls power not on an objective measurement of "value".

You go on to say "giant oligopolistic firms, who will invest primarily to maintain their dominance in their markets and their lucrativeness, when they aren't investing in PACs and rent-seeking projects".

That is priceless. You claim gov't(politicians)is so value oriented and then go on to claim business spends its time bribing those same politicians with PAC money. We know that $ motivates both business and politicians, but you expect us to suspend disbelief in order to sanctify gov'ts ability to wisely and efficiently spend money. I'd also like to know how gov't can account for a project's effects on tax revenues and jobs as its consequences ripple through the economy. Come on do you really deep down believe such nonsense.

In reality strong inefficiencies exist in the distribution gov't largess , disproportionate power in the hands of a few politicians, lobby induced regulatory inequities and oh ya limited knowledge all seriously limits gov't ability to outperform the invisable hand. Gov't has a role but it should be limited.

Brian:

On what do you base your totalizing claims as to what is possible and what is not? Are they empirical generalizations or apodictic deductions?

No one doubts markets act to reduce inefficiencies, though to claim that they are perfectly efficient transcends the empirical realm. But are price signals the only sort of information that they process? And is such information processing exclusively the preserve of private firms? (Not also that of , e.g., professors of economics at public universities.) And is the only alternative to narrowly self-interested behavior, "altruistic" behavior. Doesn't human behavior more plausibly reflect the context and constraints of the institutional structures in which it occurs? I am not so naive about the current condition of our politics as to expect any immediate salutary results. I was merely suggesting that alternatives are, at least in theory, really possible. And if the corporatist GOP did not spend so much time and energy denouncing the evils of government, in order to capture government power and demonstrate the truth of their contention by governing with such massive ineptitude and corruption and with such utter contempt for the common sense and the aspirations of the public, all the while manipulating the authoritarian impulses of fundamentalist yahoos, then perhaps it would be possible to begin constructing some alternative policies and structures in the public sphere that might actually be in the public interest. Though there are those of us who have long since become disgusted with the spinelessness and venality of the Democrats, too.

Sandy McHoots wrote, "Saving does not result in investment or other types of production if it is used to buy land or government bonds, because that money disappears and is never spent again. Therefore, presumably, investment would increase if the government stopped selling bonds and instead raised taxes, especially if it raised taxes on rich investors."

The point regarding land is that land purchases do not increase the capital stock; the land is already there.

Where did I say that investment would increase if the government levied taxes instead of selling bonds?

"The job of the government is to take money away from the people who produce stuff and to give it to people who buy stuff."

Why do you think that people with extremely high incomes necessarily produce anything? Many don't, and many "produce" in overvalued ways (over-compensated CEOs, for example).

tbrosz wrote, " 'Where's your evidence that "the rich" are, by and large, making risky investments (like venture capital)?'

"Who the hell do you THINK is making multi-million dollar venture capital investments? The local McDonald's workers? For Pete's sake, use some common sense. I live in Silicon Valley, and I know where the money comes from."

You misunderstand. I'm claiming that "if one is rich, the likelihood that one is making many risky investments is small." You're arguing against the converse.

Brian wrote,
"Liberal says 'If cutting taxes on high income brackets is so important for growth, why did the economy go into overdrive *in the wake of* the 1993 (?) Clinton tax hikes?'

"Liberal, in argumentation that statement is called a post hoc fallacy. There were other forces working in the '90s you know."

I'm not making the post hoc fallacy; I'm making an *empirical* claim: that the empirical evidence for increasing economic growth by cutting taxes on higher incomes (from levels of taxation seen in the US in the past few decades) is weak to nonexistent.

Martin Feldstein, for one, predicted that the tax hikes would hurt the economy, and yet this failed to materialize. One suspects that with right-wingers, it's "tails I win, heads you don't win."

tbrosz wrote, "Oh, and Sterling, if you're going to refer to my numbers as the 'income tax lie,' better come up with some numbers of your own. Mine came from the IRS."

I think you misunderstand Sterling's allusion: the "income tax lie" is a Republican Party talking point that's come out in the last year or two that you only pay federal taxes if you pay federal *income taxes*, neglecting the fact that people also pay *payroll taxes*.

Addendum:

I wrote:
"You misunderstand. I'm claiming that 'if one is rich, the likelihood that one is making many risky investments is small.' You're arguing against the converse."

I should have written:
"You're arguing against the proposition 'If one is making large, risky investments, then one is not rich.' "

Brian wrote, "Howard don't forget the '94 mid-terms brought a hostile Gincrich house to restrict spending. I am not buying the direct tax hike-expanding economy relationship. I do think the budget coming into balance was a psychological boost to Wall Street. If its as you say do you also give appropriate credit to Reagan for squeezing inflation out of the economy of the '80s. He really set the table for the '90s. I think it was great leadership. Its not pleasant tightening the reigns, but someone had to do it and Carter did not have the stomach for it neither did Mondale."

(1) Aside: In the past couple of decades, there is an empirical correlation between higher taxes and lower spending (or lower taxes and higher spending).

(2) Volcker is the person most directly responsible for wringing out inflation, and he was appointed by Carter, not Reagan.

Sorry, that should be "revenues," not taxes.

From
http://www.tnr.com/doc.mhtml?pt=WfZ%2Fu%2F1O7sMky9ixjW%2BcFR%3D%3D

"In 2002, Richard Kogan, an analyst at the Center on Budget and Policy Priorities, examined federal budgets since 1976. He found that when revenue rises, spending tends to fall, and, when revenue falls, spending tends to rise. (Economy geeks take note: He also found that this strong correlation held even if you control for the state of the economy.)"

Wow, 87 posts and counting ... 12 pages printed ... Nothing like it for neural stimulation at breakfast....
Brad Delong and R. Samuelson sure got things going, didn’t they ...

Howard: thanks for your answer. My challenge to Brad DeLong is simply this: Please provide additional back up to the assertion, from the back of the enveloppe calculation, that the “right” tax cut would have made a significant difference.
Your point that the marginal dollars at the lower income level are spent quicker is well taken, but to conclude from there that significant job creations would have resulted? My doubt is not that it would have made no difference, rather that it would have made the kind of difference Brad is alluding to –job growth in the *million* range. (“certainly a good portion of ... [4.2 million jobs]”

Out of the (fascinating, for me) debate so far, the only post providing some kind of numbers was that of tbrosz, whose back of the enveloppe figures suggest ... this entire discussion is about more or less $35 billion per year tax cuts that would or would not have made any difference. (And his conclusion is opposite to that of DeLongs!)

Back to Brad DeLong’s original post where his calculation suggest a current 4.2 million jobs shortfall. Assuming it’s right (big if, that 2 million “over-employment” in 2000- why not 1 million, or 3 million?) can anyone here show how a $35 billion “good standard economics” tax cut could have made anything else than a statistical blip in unemployment numbers? How could it have “created” even a 5%-200 thousand jobs in a 12 Trillion economy? In a economy with a national stock market cap of 17T, a real estate market of roughly 12T, this in a world bond market of 25 T (?) , where a 5% SP500, house price, or dollar move will induce changes in the trillion dollar ranges, which by themselves, through wealth effects at anywhere beween 3 to 7 cents on the dollar (pick your model/study/research, pick your number, that’s what I meant by crude), may result in consumption (or lack thereof) orders of magnitude higher?

To summarize I was hoping to get Brad Delong (dream on) or his supporters to either:

- Admit “well, quantitatively, we don’t really know, it was just a wild, wild guess” in which case his dismissal of Samuelson’s main point (no difference) is shaky on economics grounds, and over-emotional at best: in short a proxy for general Bush discontent, that somehow found the wrong outlet.
Or
- Come up or point to more convincing back of the enveloppe numbers, or research, etc ...in the spirit of jml’s first post.

* - About that 35 Billion number. A more than "best case" scenario number, I should have added, since it assumes the corresponding tax cut would have plain cancelled taxes for the bottom 50% tax payers.

The reason why spending falls when tax receipts go up is related to employment. More people working drives revenue up (note the late 1990s). Fewer unemployed means that the government is paying less unemployment and welfare benefits and health care costs are shifted slightly from government to industry.

Conversely, when unemployment rises, revenue declines, the government pays out more in unemployment and welfare benefits and has to cover the cost of health care for increased numbers of unemployed and underemployed.

This is exacerbated at the State level where many of the benefits are provided. During low unemployment, the states run surplusses. During high unemployment, states dip into rainy day funds, cut projects, lay off workers, etc in order to cover the increased social costs. This is why the states need help during economic downturns and why doing so will help the states not make the situation worse.

Brian complains about "make work" spending. That went out with the 60s. What we are seeing is state government canceling necessary projects due to lack of revenue.

As for criticism of Amtrak, yes it is not well run or making money on routes that pass through sparsely inhabited areas of the US. However, in dense urban east coast corridor, Amtrak is an essential component of the transportation mix. It makes money and is a bargain compared to building and maintaining new highways for commuters that would otherwise be forced to drive. Then there is the whole issue of lack of space to park cars in urban downtowns such as NYC, Boston, DC etc. Amtrak is an important component of the national transportation mix. Montana does not benefit much from Amtrak you say. Well Montana pays less federal taxes than it receives back in Federal spending. East coast states all pay more in taxes than they get returned. In the mix of Federal projects there are going to be some that benefit some regions more than others. Rather than people in Montana compaining about Amtrak, people on the east coast should complain that they are subsidizing people who live in Montana.

The same goes for the big dig. While I think it has been poorly managed, the result will be a vast improvement over the old SouthEast Expressway. The old road was dangerous and caused a lot of accidents and gridlock with its numerous crossovers. There is a large cost to society from people maimed and killed in traffic accidents. I suspect that the improved safety of the big dig will more than recover the costs over the lifetime of the road. This is what investments in infrastructure do. They spend a lot of money today, but over the long term, save money. What better time for government to invest in infrastructure when hiring workers does not compete with industry, drive up wages or interest rates? If Mr Bush would have invested in infrastructure and embraced a true jobs strategy like many economists and Democrats suggested, his re-election would be less in doubt.

The bottom line:
The public debt increased by $370 billion during FY03.
Assume average job costs $50,000
If all deficit spending is used just to create jobs (make work or whatever) that is 7.4 million jobs.
From 02 to 03, GDP increased by $450 Billion, over 4%.

Realistically, not all deficit spending can go to directly produce jobs. However, the potential is there. If one compares the potential of deficit spending to create jobs to the actual number of jobs that have been created under the fiscal programs of Mr Bush, we can only conclude that:

IF JOBS PRODUCED IS THE METRIC
BUSH FISCAL POLICY IS A FAILURE

Now, you can argue as some have, that the Federal government should not be in the business of creating jobs and you can argue that the deficit spending is responsible for all or most of the GDP growth. However, we also have to ask, "Is the deficit sustainable?" and should people who want jobs, or worry that they will be laid off and not find jobs vote for someone with a performance record that is woefully short of the potential? The only argument that seems plausible to me is that Mr Bush has traded in some short term pain in job loss for greater job gains in the future. I don't buy that argument because I don't see the necessary investments being made in infrastructure and education.

Bakho, we just can't do it without the gov't can we. Individual ingenuity, hard work and risk taking has nothing to do with this country's success. Liberals and Conservatives are much farther apart than I thought. Two polar opposite views of reality- its too bad all those swing voters don't get a clear picture of these world views in order to take an ecucated choice.

If you're right Bakho why are free economies wealthier and socialist economies poorer. The Gdp per capita numbers are quite clear. In fact, countries that have much higher education and taxation levels fall well below the USA in GDP per Capita.

No Bakho, leftist notions of economy do not jive with the numbers. Please be honest. Just say free markets and limited gov't make a country wealthier but we prefer more gov't and a lower standard of living.

Brian,
So, we're going by s