Well... I'll tell you why I'm whingeing and snivelling right now... It's not so much because Republicans control all three centers of power--the presidency, the house, and the senate... It's because I have a low opinion of *these* particular Republicans...
You see, it's not that I think America would be a better country if Republicans never had a majority in any house of congress and never held the presidency. I kind of think periods of Republican political dominance should be like abortions--safe, legal, and *rare*. You see, I believe that Republicans--in my particular issue areas, at least--were put on earth to take power occasionally and clean up the broken crockery dropped on the floor by the Democrats as they prepare the great social-democratic feast.
Specifically, I believe that on those (rare) occasions when it is appropriate for Republicans to hold power, it is their mission to:
But these people... these people who run our executive and now both legislative branches--they aren't doing their job:
So from my perspective--in my issue areas--this generation of Bushies are zero for four. Not only are they doing all the bad things that Republicans usually do, but they are doing none of the good things that Republicans are supposed to do...
Posted by DeLong at November 07, 2002 08:23 PM | TrackbackWhy is the mainstream media so silent on this? You laid out the case nicely in just over 1,000 words, but with the exception of Paul Krugman, nobody else is talking about it. That, in fact, seems to be one of the major dilemmas of the Democrats. They propose the rebate, Bush takes credit. They propose Homeland Security. Bush rewrites it with a poison pill and takes credit. Bush rams through a terrible fiscal plan, the economy tanks, unemployment soars, and nobody writes a thing about it. Can somebody explain the silence of the press? I think the press is guilty of economic reporting malfeasance, but I don't know what we can do about it. Any suggestions?
Posted by: Dave Roberts on November 7, 2002 09:23 PMExcellent post. Couldn't have said it better myself. It should be published as an article. Especially conservatives should read it to realize how much their president has betrayed several of their core principles. Where's the outrage from them?
Posted by: Bobby on November 7, 2002 09:40 PMCouldn't agree more, Brad.
'Long-run fiscal policy is a disaster in the making, as our surpluses melt away and are replaced by large long-run deficits (how large nobody knows yet). My biggest complaint about Reagan was always the deficit. A balanced budget during the 1980s would have freed up $200 billion a year that the government borrowed and made it available for investment. How much faster would the information technology revolution been taking place had that extra $200 billion a year of investment been there? And how much better could we have managed the end of the Cold War if budgets in the 1980s had been balanced?'
It appears to finally be mainstream thought on the right (the revenge of Stockman?) that deficits are good policy, as they box in democratic spending proposals. Of course, it's not like the GOP cuts spending themselves, but that's a different story.
Posted by: Jason McCullough on November 7, 2002 10:46 PMBobby,
The reason you don't see Republicans (or maybe see only a few) complain about the not-so-great stuff this administration has let go is because they certainly can't expect the Democrats to deal with the four problems outlined by Brad. There is hope that this adminstration can make some movement on its more questionable issues. And besides, even if they cannot get those issues addressed it doesn't make sense for them to let Democratic issues be addressed.
Posted by: JM on November 7, 2002 11:39 PM...and the GOP is good at war. They dare state deterrence as a goal,
a clearly effective if pragmatic policy (pity civII is so bad at
modelling deterrence!). And they dare take risks.
Like too many of us Democrats, you are letting yourself be a victim
of triangulation. You are grumbling at the Bush Administration for
doing much the same things as the Clinton Administration. You note
that both administrations did little to improve the tax burden of the
lower middle-class. Yes, Bush let steel tariffs resume, but let's
face it, there was no shortage of political exceptions to Clinton's
free trade policies; they simply got less press coverage because of lower
expectations. And wartime deficits are as bipartisan as filibusters
and demagoguery.
In the meantime, the US under the Bush Administration is as free as
the US would have been under a hypothetical Democratic administration
that went through 9/11. Indeed, Bush cares about privacy (except in
the immediate aftermath of the attack), while Clinton did not.
The Bush Administration has made plenty of real mistakes. Let's
grumble about those instead of for acting just like the Clinton
Administration
Brad, I ask a question:
You said:
Get big corporations' and agribusinesses' snouts out of the government trough by deploying free-market laissez-faire rugged-individualist ideology against receivers of government subsidies.
Take the extra pro-free trade steps that Democrats cannot take because they are hog-tied by the unions.
Be fiscally prudent: run large budget surpluses so that if we ever do get into a situation where the government has to undertake a huge mission (like a big war, or a major reconstruction of some failed foreign nation, or keep our soon-to-be-aged baby boomers from getting kicked out of their hospital rooms), it can do it.
Chant the supply-side mantra: broaden the base and lower the tax rates so that nobody faces confiscatory tax rates that will in the long run teach them that working harder is a fool's game.
When did the R's ever actually DO any of this?
THey've been talking about it since Nixon.
Those promises are part of why they keep winning elections.
They never actually deliver.
Gee, I've never seen Democrats pander to special interests. They're all saints, working for the little man.
Posted by: Glenn R. on November 8, 2002 06:10 AMGlen,
Answer this question honestly: who pandered more to special interests, Clinton or Bush? Clinton signed welfare reform, NAFTA, and took real political risks (which he paid for) on the Brady Bill, health care reform, and on raising taxes on the wealthy.
Bush does absolutely nothing that will anger his right wing, promises a free lunch for everybody, and hopes no one will notice that his math doesn't add up.
From a pure political point of view you can't blame him. The free lunch strategy worked great for Reagan, and the elder Bush suffered when he honestly tried to deal with the fiscal mess that was left behind. But the real tragedy is that if there was ever a time when Americans were ready to respond to a president who was willing to take political risks, and to acknowledge that sacrifices are sometimes necessary to acheive a greater good, it was after 9/11. Bush has just wasted the opportunity. The country will be worse off in the long run for it.
Note that Clinton had an economic summit where he listened to a lot of things that a populist did not really want to hear, and this consummate politician came out with a anti-political policy guaranteed to fire up those already ramping up against him and not help those that supported him. Tax the rich more but don't spend any more on the poor. Not a strategy for vote getting for sure, so why did he do it?
Bush's summit, however, was characterized by him not only hardly ever even being there but really just showing up to put his ass on the podium so the speakers could more easily kiss it. And yet people think he's going to do anything substantive for the country in general, get real.
There's the difference, Glen. You don't want to see it, and we can't seem to get it out to the general American populace, but it still exists.
Posted by: a different chris on November 8, 2002 07:31 AMTerrific post, with one qualification.
It may be part of the Republicans' job to
"Get big corporations' and agribusinesses' snouts out of the government trough by deploying free-market laissez-faire rugged-individualist ideology against receivers of government subsidies, "
but they've never actually done this. They expect rugged individualism and self-reliance from welfare recipients, but not from farmers or corporations.
real Americans don't use "whingeing". This demonstrates how out of touch pinko liberals are with the values of the mainstream. By a landslide, American people have rejected the values and message promoted by a few old, tired Clinton coat-holders like Brad Delong.
Posted by: roublen vesseau on November 8, 2002 08:20 AMI believe that Republicans--in my particular issue areas, at least--were put on earth to take power occasionally and clean up the broken crockery dropped on the floor by the Democrats as they prepare the great social-democratic feast.
Thanks for validating my perception of the central current of modern American politics: That the march to socialism is a given, merely slowed and adjusted by occasional and temporary "conservative" seizures of policy levers.
Posted by: George Zachar on November 8, 2002 08:37 AMYou laid out the case nicely in just over 1,000 words, but with the exception of Paul Krugman, nobody else is talking about it. That, in fact, seems to be one of the major dilemmas of the Democrats. They propose the rebate, Bush takes credit.
Was this the same Paul "Line 47" Krugman who denounced the rebate as a fraud? Or a different Paul Krugman?
Posted by: Paul Zrimsek on November 8, 2002 08:50 AMJason McCullough hit on the most economic point Brad made, but I think if you take his note even a bit further, and the confusion it shows over what to do about the economy, you'll see where the Democrats went wrong this election.
It's true the deficits are a sign of bad times, but the Ds response was what cost them the elections esepecially at the governors level. Everybody knows the economy is doing bad, and Bush cut the taxes and sent back the refunds two summers ago, and it didn't help. So the usual Keynesian medicine didn't work. What to do? The only thing some Democrats could recommend was: repeal the tax cuts. Raise taxes in a recession. Not saying it would hurt so much, but it would hurt some, and wouldn't help at all.
The Clinton mythology was that he raised tax rates in 1993, which spurred the boom. It's true that chicken little Republicans said the 93 tax rise would destroy America, and they were totally wrong. And Clinton was punished in 1994 for going back on his campaign pledge to cut middle class taxes. But Clinton's economic advisors took the turn of affairs and basically believed it, even though they know that their theoretical models cannot explain why reducing the deficit has any direct relation to improving an economy.
The Democrats this time took the position the Republicans took historically: balance the budget, tighten your belt, raise taxes. Sooner or later this weak idea was going to result in a blowout. The good part is that the Ds don't need to do a big re-alignment right or left, and don't need to go through some cultural agony; they just need to get the right policy.
Posted by: Eric M on November 8, 2002 08:59 AMPosted this at LeanLeft and he referred me here. So:
I’d like to see the basis of computation in these things and the assumptions made.
Because, per this website: http://www.dinkytown.net/java/TaxMargin.html
Mother of 2 earning $24K has an effective tax rate (the one that counts) of 0.19% and marginal is 15%. Plus any other entitlement programs she may receive increase her actual (not taxable) income. Seems to me she’s taxed just about right, if not 0.19% too high.
Assuming both these guys are single and take a standard deduction:
The Doc gets hit for 27.4% while his marginal is about 38%. This guy (to me) seems over taxed.
The exec gets hit for 36.04% and his marginal is 38.6%. This guy is under taxed, IMHO.
Curious for the basis of his figures.
Adieu!
Amen, Brad.
Posted by: Greg Greene on November 8, 2002 09:25 AMYou lament that the deficits of the 1980s would have freed up billions for more productive uses by the government. Perhaps, but how much confidence do you have that the government would have spent the savings productively? History, I think you'll agree, suggests that Washington has, at best, a mixed record when it comes to intelligent spending. No doubt this is largely the byproduct of spending decisions by committee. It's the financial equivalent of intending to design a horse by committee and ending up with a mule. Government, of course, won't change when it comes to holding committee-based decisions to the higher level of what makes sense from an individual's perspective. The only variable is deciding how much to give Congress in terms of optimizing government spending. That, of course, is a decision for the voters. A decision, by the way, that seems to have taken a fairly decisive path on Tuesday.
Posted by: on November 8, 2002 10:15 AMYou lament that the deficits of the 1980s would have freed up billions for more productive uses by the government. Perhaps, but how much confidence do you have that the government would have spent the savings productively? History, I think you'll agree, suggests that Washington has, at best, a mixed record when it comes to intelligent spending. No doubt this is largely the byproduct of spending decisions by committee. It's the financial equivalent of intending to design a horse by committee and ending up with a mule. Government, of course, won't change when it comes to holding committee-based decisions to the higher level of what makes sense from an individual's perspective. The only variable is deciding how much to give Congress in terms of optimizing government spending. That, of course, is a decision for the voters. A decision, by the way, that seems to have taken a fairly decisive path on Tuesday.
Posted by: on November 8, 2002 10:16 AMYou lament that the deficits of the 1980s would have freed up billions for more productive uses by the government. Perhaps, but how much confidence do you have that the government would have spent the savings productively? History, I think you'll agree, suggests that Washington has, at best, a mixed record when it comes to intelligent spending. No doubt this is largely the byproduct of spending decisions by committee. It's the financial equivalent of intending to design a horse by committee and ending up with a mule. Government, of course, won't change when it comes to holding committee-based decisions to the higher level of what makes sense from an individual's perspective. The only variable is deciding how much to give Congress in terms of optimizing government spending. That, of course, is a decision for the voters. A decision, by the way, that seems to have taken a fairly decisive path on Tuesday.
Posted by: on November 8, 2002 10:16 AMOoops. Forget to add my info for the above comment starting with "You lamnet..." in case anyone's interested.
Posted by: James Picerno on November 8, 2002 10:22 AMThanks for validating my perception of the central current of modern American politics: That the march to socialism is a given, merely slowed and adjusted by occasional and temporary "conservative" seizures of policy levers.
Yes, you've discovered the awful truth: Brad DeLong, despite all his fancy talk about free trade and markets and such, really *is* a high Stalinist with Miltonian grandeur.
Posted by: Nick on November 8, 2002 10:43 AMCome on, Nick. Neither George (who I think was being sarcastic) nor anyone else is calling Brad a "Stalinist."
I think George's comment was very incisive. As a libertarian and an optimist, I believe we are waking up from a past in which the State exercised far-reaching control and travelling towards a future with much higher levels of autonomy and freedom. Brad's very interesting comments show a perhaps unexamined belief that is very different from this. Worth pointing out, no?
Posted by: JT on November 8, 2002 11:02 AMBravo. Now if we could just get a couple of reporters to care. Seriously - these are big freaking issues - some of the biggest of our day, and nobody's noticed. (Paging Gene Sperling - you've got some media calls to make.) Nos. 3 and 4, especially, should be at the top of the economic agenda, in my humble opinion.
Posted by: BJ on November 8, 2002 11:03 AMNot to be snarky, but I think I missed something here - which part of the Bush economic program was libertarian and optimistic? The subsidies for steel, agribusiness, and fossil fuels - or the borrow and spend budgeting?
Posted by: BJ on November 8, 2002 11:09 AMDis Eric M not read Brad's post? He identifies very clearly how big deficits hurt the economy; maybe Eric doesn't believe that that fact has a converse.
As Brad stated quite clearly, the Reagan deficit pulled hundreds of millions of dollars of potential investment out of the economy, putting it towrads nothing grander than interest. If conservatives don't believe that gov't spending is efficient, how can they think that paying interest to foreigners is? On top of that direct harm to the economy, large gov't debt forces up effective interest rates - harming investment and expansion again.
Obviously, all deficits are not equally bad, and a modest deficit has no measurable effect on the economy, but the massive debts brought to us by "small gov't" Republicans are, in fact, quite harmful to the economy.
Man, I've gotta proof-read these things for typos.
Posted by: JRoth on November 8, 2002 11:26 AMStalin? Invoking Stalin in what should be an economic debate is troubling, to say the least. Stalin's main crimes were murder and mayhem. The fact that he embraced failed economic ideas is beside the point. Let's stick the issues and maybe, just maybe, we can change some minds rather than call each other names.
Posted by: James Picerno on November 8, 2002 11:26 AMBrad's comment on marginal tax rates plays into a point that many are making in the wake of the election. The Democrats need positive economic policies, not just opposition. The Ds should push for a refiguring of the Bush tax cut, not a simple repeal. One point is that the tax cut should focus more on working folks, especially those who effectively face high marginal tax rates.
Brad's web site by the way, could help to play a role in divising more such strategies for the Democrats and Krugman needs to play a more positive (and not just oppositional role) in pushing for positive changes.
(As aside to the question about why the true tax rate on Brad's working Mother isn't 15%: that is just the marginal income tax rate, her earned income tax benefits and food stamps are being taxed away at a much greater rate. And, no, those programs don't "just add to her income", they also effect her *marginal* effective tax rate and therefore her incentives to work to earn more money; the web site you refer to isn't taking that into account.)
Posted by: Steve B. on November 8, 2002 12:25 PMI think people are missing the point as far as Brad Delong's alleged Stalinism. A long time ago, perhaps several years ago, he was talking about the relative bad-ness of Hitler and Stalin with someone. He claimed that Hitler, in spite of his lower gross body count, was worse, because his rate of killing was higher, and Stalin only killed as many as he did because he ruled for such a long time (I think that was his point). Anyway, there was some point where he got called a
"high Stalinist with Miltonian grandeur." Nick's post was a joke.
Anyway, as far as Brad Delong's comment about the U.S. moving toward the "great social-democratic feast," I'm not sure he exactly meant "social-democratic" as "state control of the commanding heights of the economy." I think he meant something more along the lines of "enough minimum wage, EITC, and safety net that everyone can (not just might) have a reasonably modern material standard of living if they desire it and are willing to work for it."
Julian Elson
Posted by: Julian Elson on November 8, 2002 12:53 PMQuite a few potential voters felt the Democrats were offering little alternative to the Republicans. Why vote then? I do not agree. There has been a great difference between the parties since the New Deal, and the Republicans are intent on continually cutting the social safeguards that were set in place as a New Deal legacy.
We are re-creating the wealth and income and influence concentrations of the 1920's. Middle class Americans are being slowly disadvantaged by the increasingly more dominant conservative Republican legislative agenda. Republicans are changing the nature of American capitalism in ways that are adverse to the middle class.
Posted by: on November 8, 2002 12:53 PMI think people are missing the point as far as Brad Delong's alleged Stalinism. A long time ago, perhaps several years ago, he was talking about the relative bad-ness of Hitler and Stalin with someone. He claimed that Hitler, in spite of his lower gross body count, was worse, because his rate of killing was higher, and Stalin only killed as many as he did because he ruled for such a long time (I think that was his point). Anyway, there was some point where he got called a
"high Stalinist with Miltonian grandeur." Nick's post was a joke.
Anyway, as far as Brad Delong's comment about the U.S. moving toward the "great social-democratic feast," I'm not sure he exactly meant "social-democratic" as "state control of the commanding heights of the economy." I think he meant something more along the lines of "enough minimum wage, EITC, and safety net that everyone can (not just might) have a reasonably modern material standard of living if they desire it and are willing to work for it."
Julian Elson
Posted by: Julian Elson on November 8, 2002 12:55 PMwhy do I have the sinking feeling that the proposed "solution" Lindsey will come up with for high marginal rates will be to cut food stamps and EITC?
Posted by: roublen vesseau on November 8, 2002 01:18 PMA writer noted that a father had been seriously ill and had found the drugs needed were quite expensive. Should Warren Buffett or Bill Gates have to pay for the drugs? the writer asked. I say we all should have to pay if the father can not afford the drugs. We are trying to assure a just capitalist society. That takes a balance between individualism and collective responsibility.
I am concerned that Republican ideology may take us too far from responsibility.
Posted by: on November 8, 2002 01:25 PMI believe we are waking up from a past in which the State exercised far-reaching control and travelling towards a future with much higher levels of autonomy and freedom
Apparently Ashcroft hasn't gotten around to confiscating JT's stash yet.
Posted by: a different chris on November 8, 2002 01:38 PM"I believe we are waking up from a past in which the State exercised far-reaching control and travelling towards a future with much higher levels of autonomy and freedom."
So, there will be no military, no police or fire fighters, no state schools, no social security, no medicare, no public hospitals, no red or green lights on corners. We shall be free and autonomous. Good grief.
I was the one who asked the question, and it should be noted that the father had a $54,000 year income (before taxes), so he was hardly destitute, particularly if he had no mortgage on his home, as is the case with many older Americans. Also, no society on earth will ever be able to supply the very best technology (and new drugs represent the very best technology) to every person who would benefit from having it. In anticipation of the straw-men being erected, let it be said that while it is quite pleasant to believe if all those evil drug companies would stop demanding such outrageous prices, everyone would get what they need, such a belief doesn't comport with reality. The rest of the world benefits mightily from drug companies receiving greater protection for their intellectual property in the U.S. than elsewhere, and there may be adjustments that can be made to patent law in the U.S. without greatly damaging innovation, but nobody should operate under the illusion that any regime can be adopted which will enable all that would benefit from access to the best technology to indeed obtain such technology. Scarcity is alive and well in this Vale of Tears, and no amount of central planning will change that. Nobody's getting out of here alive, and unless one wishes to re-visit the discarded pipe-dreams of the past century, it has to accepted that it is impossible to provide everything that everyone would benefit from having, particualrly in regards to cutting-edge technology. If you doubt this, go check out the waiting times for heart surgery in single-payer countries. Scarcity exists, even in supposed health-care Nirvanas.
Posted by: Will Allen on November 8, 2002 01:57 PMDear Will Allen
The matter is of degree. That is why Bill Gates does what he can to treat aids sufferers in Africa. That is why we treat some patients at no cost. Your points make much sense, but we do have various mutual responsibilities.
Posted by: on November 8, 2002 02:10 PMDon't feel so bad about things, "there's a lot of ruin in a nation".
Think how the Republicans had to console themselves with that thought during all the years when the Democrats held a 30+ majority in the Senate, along with all the other levers in DC. But they were right, the nation survived and so did they.
Things change quickly. In 1978 the Democrats had a 28 seat majority in the Senate. Just three years later Ronald was running the table. So a two seat majority for the Republicans isn't so much. Both parties exaggerate the seismic importance of modest shifts in DC, as they have incentives to do. Of course there are real differences between the parties, but are the marginal differences all *that* dramatic?
E.g., the fiscal condition is deteriorating under the Repubs, yes. But considering that Al Gore's tax cut proposal wasn't so much smaller than Bush's in dollar terms (though targeted differently) would the financial situation be *very* different if he'd won?
As to free trade, the steel tariffs are bad -- but Bush got fast-track through, so Doha is alive. If Gore had won would he have been any more successful at getting fast-track passed than Clinton was?
Marginal incentives for people with income up to $24k can be terrible -- if you include public housing subsidies, they go over 100%. But you can hardly blame the Repubs for that -- the Democrats are the champions of means tested tax breaks and subsidies, which always mean big marginal disincentives as income rises. The only real remedy for that is a serious negative income tax like M. Friedman proposed to replace many of the subsidies, with a widely broadened tax base. Now we may have a snowball's chance of living to see it, but if anything like that is coming from anywhere it will be driven from the Repub side with their taste for systemic tax reform -- it will never come from the Democrat champions of targeted tax breaks.
And so on. Both sides have something to contribute through our messy democratic politics, and the wheel will continue to turn.
And it's one heck of a lot healthier for us all than a one-party system like the Japanese have.
Where our mutual responsibilities intersect with the morally legitimate limits to our ability to physically compel our fellow citizens to submit to our will, even if those fellow citizens are in the minority, is what is too often ignored by many who reflexively look to the state as the preeminent institution in managing human affairs. I had a dialogue with someone in this forum the other day who was unwilling to even concede that laws are coercive measures designed to physically compel people to do, or refrain from doing, that which they would or would not do by moral suasion alone. When faced with such deep-seated denial of the essential nature and purpose of the state, it is nearly impossible to have a good-faith exchange of political ideas. Unfortunately, I encounter such attitudes with some frequency, particularly in forums such as this.
Posted by: Will Allen on November 8, 2002 02:48 PMJim, the Dems are about to replace Gephardt with Nancy Pelosi. Their contributions (from the House anyway) may be a thing of the past.
Poor Paul Krugman never has been one to be careful for what he wishes.
Posted by: Patrick R. Sullivan on November 8, 2002 03:00 PMI am somewhat surprised you didn't list national security as one of the reasons why it's sometimes appropriate for Republicans to hold power.
Let's face it: in this election, the Democrats let Chomsky and Vidal speak for them on the subject of national security, something McDermott and Bonior's Baghdad interview emphasized.
Unless and until the Democrats confront the anti-american left wing in their ranks, they will become marginalized.
Posted by: Fredrik Nyman on November 8, 2002 03:03 PMGood and post and a number of interesting ideas in the comments. While I agree that the Dems need to articulate clearer alternatives to the GOP economic policy, I am not sure that emphasising a repeal of the tax cut is good politics.
How many of us would buy a car if the first thing the dealer told us was that he needed a check for $30k, and then he would show you a nice car?
Wouldn't voters be more interested in what they are going to get from this increase in taxes? Payroll tax relief or my personal favorite,which would be health care coverage for all children. It seems the message to sell is not the cost, but the benefit. Leave the tax cut repeal in the fine print --be prepared to defend it, but don't bring it up first. Sell the voters on what they get. "Health care for all children" "Bigger paychecks" "Better public transit"
Mondale 1984 mistake wasn't saying he was going to have to raise taxes, it was failing to clearly emphasize what new services would be provided.
Posted by: dan f. on November 8, 2002 03:06 PMLook, nothing is ever perfect in politics, but it is time for the free-market libertarians to wake up and smell the (fair-traded?) coffee. They've always voted Republican because of the supposed notion that the Democrats were worse. Probably they were worse one day, but not any longer: Note to libertarians re GOP: THESE GUYS ARE NOT YOUR FRIENDS. I would cheerfully trade the party that gave us Robert Rubin and Larry Summers for the party that gave us Larry Lindsey and Paul O'Neill, and who was that fellow who ran the SEC, back when there was an SEC? "Good for the old boys" is not "good for business," even if the old boys happen to be in business. THESE GUYS ARE NOT YOUR FRIENDS. As they say on West Wing, the GOP wants government small enough so it fits in your bedroom. Repeat, THESE GUYS ARE NOT YOUR FRIENDS.
Posted by: jda on November 8, 2002 03:09 PMI hate to pounce on a column self-described as "Whingeing and Snivelling". The mix of analysis and tongue-in-cheekery can be tricky.
However, I wonder if this point deserves a bit of clarification:
"My biggest complaint about Reagan was always the deficit. A balanced budget during the 1980s would have freed up $200 billion a year that the government borrowed and made it available for investment.
Well, over the decade that could only have been achieved through $2 Trillion in some combination of higher taxes and lower spending.
Now, I understand that economists are satisifed that some "crowding out" effect may make deficits less stimulative than Keynes might have predicted. But the Prof's comment seems to be saying that the net effect of the deficits was to slow growth, rather than to stimulate it. In other words, the crowding out effect more than wipes out any stimulative effect of a deficit.
I am surprised, and wonder if it follows that a tax increase now will boost the economy.
Secondly, as to a Marshall Plan for Russia (the "DeLong Plan"?), I am second to few in my admiration for the Russian sacrifice against the Nazis in WWII. Popular American history and culture is woefully inadequate on this score.
That said, I strongly doubt that if a bookkeeping miracle had produced an extra $50 Billion a year, that the money would have gone to aid Russia. It has been awile since I read The Agenda by Bob Woodward, but I recall that in 1993 lots of folks had ideas for spending money and were told no.
Clinton had to drop his middle class tax cut; he had to drop his $30 Bilion of stimulative "investment"; and the health care reform was financially strapped. Beyond that every Democrat House Chairman had a wish list that had been frustrated for twelve years of darkness under Reagan-Bush. Lots of ideas that someone thought was great went un-funded.
So, the Clinton team said no to lots of folks - far easier to blame it on Reagan. But politics, like economics is about making choices. Russians don't vote, and when Carville said "It's the economy, stupid", he did not mean the Russian economy. There would have had to have been a lot more than $50 Billion available before the Russians got that much.
Look, Clinton-Gore may have dropped the ball on Russia. But Harry Truman said "The buck stops here." He did not say "Ooops, I ran out of bucks".
Posted by: Tom Maguire on November 8, 2002 03:20 PMI would never think of the GOP as being my friend, and certainly there were elements of the Clinton ecnomic policy that were no less harmful to liberty that Bush's. That said, the Democrats can be reliably counted on to attempt to collect more in taxes than the Republicans, and since it is the amount of money that the state collects that is the primary limiting factor as to how abusive of liberty any political party can be (since, as Clinton discovered in '93, and Bush I prior, credits markets will also eventually act as a constraint), I prefer a party that will be less aggressive in collecting taxes.
Posted by: Will Allen on November 8, 2002 03:35 PM"THESE GUYS ARE NOT YOUR FRIENDS."
Correct, which is why I say a pox on both your houses! Though I rather hope to avoid the getting stabed part..
Rob Sperry
Posted by: Rob Sperry on November 8, 2002 03:38 PM"Let's face it: in this election, the Democrats let Chomsky and Vidal speak for them on the subject of national security, something McDermott and Bonior's Baghdad interview emphasized.
Unless and until the Democrats confront the anti-american left wing in their ranks, they will become marginalized."
Yup, and Brad DeLong should not ignore this awkward issue. The Democrat Party will even be in worse shape when Nancy Pelosi takes over one of their top leadership positions. The Republicans might have it made for many years into the future.
Tom has already brought this up, but it occured to me as well: exactly when did all the Keynsians become deficit hawks? Was it only when they became Republican deficits? I mean, my Macro is not the greatest, but didn't Keynesians used to believe in "functional finance", wherin deficits and surpluses were basically irrelevant except to as how they affected the money supply? Sop why am I always hearing about how "we need surpluses now in case we have to run deficits later"?
Posted by: Jimbo on November 8, 2002 04:18 PMhigh Stalinist with Miltonian grandeur.
The difference between Brad's "great social-democratic feast" and "Stalinism" is the gulf between, say, a smart muscular Sweden and Pol Pot's Cambodia.
I confess the reference to Milton goes right past this public-educated native Brooklynite.
If you want a real analysis of Stalin, et al, I recommend Rummel's "Death By Government", ISBN: 1560009276.
Posted by: George Zachar on November 8, 2002 04:32 PMRe: Deficits
Short term deficits = good stimulus
Long term deficits = bad stimulus
The Bush deficits start small, and grow immense as far as the eye can see. That's bad.
Posted by: Adam on November 8, 2002 04:48 PMLike Lt. Columbo, I have just one more thing: The first Reagan tax cut, that lead David Stockman to despair over budget deficits as far as the eye could see, lowered the top tax rate from 70% to 50%. How does that square with:
"Specifically, I believe that on those (rare) occasions when it is appropriate for Republicans to hold power, it is their mission to:
... Chant the supply-side mantra: broaden the base and lower the tax rates so that nobody faces confiscatory tax rates that will in the long run teach them that working harder is a fool's game."
Or, for a picture of Reagan as Canute, we have this unexpectedly pro-Bush explanation of why a tax-cutter's job is never done. No mention of the top tax rate, though. And here is a different perspective. Warning to readers from the Left - unfamiliar territory ahead!
Oh, why not? From the Heart of Darkness itself, a CBO table showing Reagan's give-away to the rich.
Q: when did all the Keynsians become deficit hawks?
A: When deficits arguably stem from tax cuts/contraction of state presence in the economy.
Posted by: George Zachar on November 8, 2002 05:02 PMI wasn't trying to place blame over the deficit/tax confusion. You can see why the Democrats are confused. The Republicans are confused, but they didn't take that extra step of looking at tax rate increases. If the Republicans are dumb enough to recommend shrinking services or cutting spending to run a surplus, then they might lose too.
Neither of these things will help the economy. In the end, helping the economy and helping the country ought to be the goal, whether the Republicans win next time or not. I can't emphasize this enough -- if the Democrats come forward with the right answer, and the Republicans steal it, and the economy grows, then everybody wins, especially the people Democrats care about. Union industrial workers, for instance are getting hit incredibly hard by this recession. Nobody buying their stuff and no bargaining power.
I've offered the idea that the problem is monetary and nobody took it up. But here goes again, with a twist that might jibe with the present democratic position in government. The problem comes from god-like executive power that is too far removed from the people, specifically the power of the Fed to cause inflations and deflations in opposition to what the people want. Tack the dollar onto a basket of something, be it commodities/gold or whatever, and take that power away from the Fed. Many Asian countries are much better at this, such as Singapore, but they can't have anything like the positive effect we can.
Posted by: Eric M on November 8, 2002 05:42 PMTom, the tax graph that you show shows the quantity of taxes paied by quintile or proportion of the calculation, not by real income. Increasing inequality would cause that as surely as increased progressivity in the tax system.
Let's say, for example, that we have a five-person economy: the first earns $4, the second $5, third $6, fourth $7, and fifth $8, and let's say that the tax rate is exactly proportion. In this economy, the top quintile pays 26.7%, the bottom quintile 13.3%, and so on, of taxes. If distribution shifts, so that incomes of the people are $0, $3, $6, $9, and $12 respectively, then you'll find the bottom person paying 0% of all total taxes and the top person paying 40%. That doesn't mean the tax system became more progressive, though. Concerning the Moore column... I didn't really get it. As far as I could tell, it said there was a tax cut in 1981, said that a bunch of positive things happened in the 1980s economy, and then assumed that readers would draw a causal relationship. Concerning the drop in inflation, I would think that the cause for the disinflation of 1980s was Volcker. I'm not going to say that the disinflation of the 1980s was thus done by Carter, but I don't see a plaubible way to link it to Reagan. As for the economy growing 1/3rd, during what decade didn't it grow by AT LEAST that much except the 1930s, i.e. the Great Depression. Yes, the economy grew by that much in the stagflationary 1970s. See http://www.economagic.com/
Will Allen, the libertarian line that the basic role of government should be only to protect freedom, safety, and property is a compelling one. My counterargument to say that government has a right -- though perhaps not a duty -- to do more than that is this: government is based on the concept of the social contract. Since, however, it isn't a literal contract which all parties have a choice, the basic question is "under what conditions WOULD all parties sign up with the social contract?" My answer is that they would sign up under conditions in which they are superior to not signing up. Not signing up isn't an option, but an approximation of it is societies without governments: anarchy. We can be fairly sure that in a state of anarchy, everyone would be poorer. The most talented, energetic, and diligent people would still probably be richer than those less so, but my guess is that the richest people are likely to be a LOT poorer than in a state of anarchy, whereas the poorest people would probably be signifcantly poorer, but not as much so (I wouldn't be surprised if Bill Gates would be 1/1000th as rich as he is now in a state of anarchy, if not poorer, whereas the poorest people might be, oh, 1/3rd as rich as they are now.). If I am right in saying that a super-rich person would lose 99.99% of his income in a state of anarchy, then even if tax rates were 99% at that level, then the metaphorical Bill Gates would still sign up.
Or, in short, a government can tax to the level that it's Pareto superior anarchy. If it taxes more, it violates the social contract. It can tax less, if that's the democratic consensus, so long as it enforces the rule of law.
Basically, if the government taxes less than the reservation price of the services government provides, it isn't violating economic human rights.
That is, for me, the philosophical justification of progressive taxation and the justification for government being allowed to do more than just protect safety and property. I find that most philosophical forays into economic justice tend to give an exact policy recommendation (Rawlsian: maximize the minimum income. Libertarian: let people trade among themselves and protect property & people, and that's all that's government can do. Utilitarian etc, etc...). I wanted something that was more flexible, and actually had room for democracy.
Julian Elson
Posted by: Julian Elson on November 8, 2002 07:04 PM"Basically, if the government taxes less than the reservation price of the services government provides, it isn't violating economic human rights."
This line of argumentation is meaningless. John Rawls' emphasis on "sharing" and "rights" misses the central point. His pathetic writings don't even address how best to grow the economic pie for everybody. Rawls is to be blunt, an economic illiterate. He is an excellent example of how one can get away with just about anything if they are associated with Harvard University. Rawls deserves to be ignored until he studies some economic theory. The excuse that he's only some sort of moral philosopher ain't cutting it. Adam Smith could do both. We should expect the same from Rawls.
We should restrict the role of government as much as possible. Every extra dime given over to the pubic sector is money wasted. Government is inherently far more incompetent than the private sector. Bureaucrats innately do everything in their power to advance and protect their interests. The problem is so severe that even Neo-Liberals Mickey Kaus and Charles Peters wonder if half of our federal government workers should be denied civil service job protection.
'Now, I understand that economists are satisifed that some "crowding out" effect may make deficits less stimulative than Keynes might have predicted. But the Prof's comment seems to be saying that the net effect of the deficits was to slow growth, rather than to stimulate it. In other words, the crowding out effect more than wipes out any stimulative effect of a deficit.
I am surprised, and wonder if it follows that a tax increase now will boost the economy.'
This is way off topic, but the shorthand answer pretty much *has* to be that deficits retard growth. I mean, otherwise, why bother collecting taxes at all? Note that this argument is independent of any government spending level.
Stephen Moore's comment from Tom Maguire's link:
'But what about the rise of the national debt that so many of Reagan's critics are so hyper-obsessed over? Tax cuts didn't cause the surge in debt. Spending did.'
Delong differs. And that webteamone link leaves out the even-faster rise in the income of the top percentiles.
'Q: when did all the Keynsians become deficit hawks?'
I don't recall a preference for structural deficits in Keynesiasm.
Posted by: Jason McCullough on November 8, 2002 08:43 PMThis is such incredible bulls__t that there's nothing more to say about it:
the Democrats let Chomsky and Vidal speak for them
This next snippet is simply dumb, and hysterically, laughably so since it's here on my computer due to the WWW that Tim Berners-Lee developed at CERN, which runs on top of binary protocols developed under the ARPANET program (and yes, nursed to adulthood by Al Gore):
Every extra dime given over to the pubic sector is money wasted.
Finally, some smarts (since his following clause shows that he didn't mean to put that "than" in there that I have removed):
my guess is that the richest people are likely to be a LOT poorer in a state of anarchy,
I wouldn't call it a guess, I'd call it historical fact.
Posted by: a different chris on November 8, 2002 08:51 PM>>>I am surprised, and wonder if it follows that a tax increase now will boost the economy.
Tom McGuire is right, he has seen the incongruity in the "crowding out" theory, especially as applied to our economy. And not just him, but the majority of voters. Not because they're dumb or greedy or uneducated. Deficit-hawkery is a loser, and it deserves to be dropped. Ask any poor country that's lived under an IMF inspired "austerity plan". Those poor blighters are usually squashed a little harder before they get to chuck their politicians out. Check Brazil. Check Turkey. This policy impoverishes people. It's evil, it doesn't work, and it sure doesn't win elections.
Posted by: Eric M on November 8, 2002 09:50 PMRe: Thomson. My line of argument was a moral approach to the issues of taxation because it was in response to a moral argument against taxation greater than the minimum needed for law enforcement. Rawls is not an economist, he is a philosopher. There's nothing wrong with growing the pie for everyone, but that's not Rawls' job: it's DeLong's et al. By the way, are you saying that everyone should be held to the same standard as Adam Smith? That's a high bar! He practically founded economics and was a moral philosopher. And to think that my aspiration was to become a reasonably proficient economist who toiled at obscure problems before dying obscure to all but a few experts in my field! As for the quality of Rawls' work, I don't really know how good it is: I'm not a philosopher. He's certainly famous, but then so are Stephen Hawking, Stephen Jay Gould, Jane Goodall, etc, but that doesn't make all of them respected among academics in their fields. It doesn't matter, though, since my argument is not Rawlsian, except in its belief that there IS such a thing as a social contract between governed and government, which is kinda the founding principle of the U.S. and not unique to Rawls' work.
What makes you think every dime into the public sector is wasted? Being uncharitable toward the efficiency of government, I might say that three pennies are wasted of every dime. Bureaucrats exist in private sector institutions as well, by the way. Oh, and if one says "the market prevents inefficiency and waste in the private sector," one might also respond that, considering voters at large don't benefit from waste, "democracy prevents inefficiency and waste in the public sector." Neither are true, really. In general, I'd say that if something can be done by the private sector or the public sector, the private sector will usually do it better. Not recognizing exceptions to this rule will only result in inefficiency and waste more severe, though.
Julian Elson
Will, you are making the exact same mistake that you accuse others of making. Why should the power of the state be used to prevent me from copying a drug and selling it? Why should the power of the state be used to protect the rights of corporations, which are totally fictitious entities? The answer is pragmatic, just like the answer of why people should be taxes for social services.
About deficits: running deficits year after year is bad not just because of the crowding out effect, but when the economy is not in recession the Fed has to keep monetary policy tight to prevent inflation. Keynesian macroeconomic stimulus is not a magic elixer: it only works when the economy is in recession.
Posted by: Walt on November 8, 2002 11:14 PMIt is always dangerous to expect a republican to do the right thing, even if its in line with their rhetoric. The last time I voted for a republican was when I voted for Tom Ridge for Governor of Pennsylvania, the first time he ran. I was a one issue voter. He promised to get rid of Pennsylvania's awful state run liquor stores and allow private entrepreneurs to sell wine and liquor. (I always have to drive to Delaware to to get a decent selection of wine). Of course, Ridge won, and the republicans ruled for EIGHT years, but they never dismantled the communistic liquor store system. Then, Mike Fisher runs for governor this year, and part of his platform is selling the state liquor stores. Yeah, right. Like I'd fall for that one again.
Posted by: pj on November 9, 2002 05:16 AM"What makes you think every dime into the public sector is wasted? Being uncharitable toward the efficiency of government, I might say that three pennies are wasted of every dime. Bureaucrats exist in private sector institutions as well, by the way. Oh, and if one says "the market prevents inefficiency and waste in the private sector,"
You have a legitimate point. There is no doubt but that government spending greatly aided the development of the computer industry. Also, I believe that this might also be true regarding railroads and the post office. Yet, this is still no reason to willy-nilly throw money to the bureaucrats. It is the government's role to protect us from our nation's enemies. Sometimes we are fortunate to receive a few indirect benefits. However, let's not forget the horror stories concerning $600 toilet seats and other vastly overpriced items.
Are there people with the bureaucratic mentality in the private sector? Of course there are! Thankfully, though, companies that are forced to compete pay a severe price for acting stupid. Government bureaucrats, on the other hand, simply go back to our elected officials for more money. Inherently, there is far more accountability in private enterprise. It’s really as simple as that.
What should be the rule of thumb? Government should be the last resort. We should always ask ourselves: "Do we really need to get a less efficient entity such as the government involved in this instance? Isn't there a way to keep this in the hands of the private sector?" Have you ever heard of the principle of subsidiarity?
Posted by: David Thomson on November 9, 2002 05:25 AMChait or Beinart had a rather solid take on why this Republican Party is committed to cutting taxes for the very well off, and not the taxes of the hourly worker, and published it fairly early on, perhaps even in 2000. It is because lower taxes on those who encounter and benefit from the many run-of-the-mill services of government such as education, policing, consumer protection, medical care, services that they could not afford if the actual cost was returned to them in the form of a tax cut, since they are subsidized under a progressive system, make the services a better bargain. Making the progressive system even more so makes government far less expensive for those who actually use more of its most basic services. You might think that this action is, in fact, the whole point of progressive taxation, and you'd be right. It also makes more Democrats, by the way of Rovian thought. Shovelling money at the well-to-do is an investment in reliable power.
There is also an argument that a cash-strapped government is less likely to intervene in the affairs of the governed. This is a solid conservative political argument, only one that never gets made by neo-conservatives, because it's a dead-bang loser. Americans don't actually want a less-active government, except on a handful of social issues, if that. Someone who raises the old "no free lunch" mantra is questioned as to which menu items are going to disappear, so he either has to be principled, or lie. The Bush-Rove calculus has pinned the lower-risk choice as the latter one.
Posted by: Brian Broadus on November 9, 2002 06:03 AMWalt, intellectual property IS a creation of the state, and somewhat different than other property; my use of your idea doesn't prevent your use of your idea, while my use of your car does. As such, protection for intellectual property is largely a utilitarian function, and if it could be shown that not protecting patents in any way would have no deleterious effect on innovation, then I would have no objection to getting rid of patents. Of course this is not the case, although determining the exact optimum amount of protection to afford intellectual property, the amount that strikes the optimum balance between innovation and competition, is very difficult to determine. In contrast, even if it could be shown that ending all protection of private property would have no negative effect on prosperity, I would still object to such a policy.
My objection to taxes for social services is limited to the extent that such services are not needed for the prevention of anarchy or tyranny. The state is primarily a tool of violence; a means by which minorities (in the instance of a state governed by some form of democratic processes) can be forced to submit to majority will. Given that humans are not angels, violence will always be a needed component to human relations. However, it is a component that must be minimized, if people are to pursue virtue, however virtue is defined. Coerced behavior cannot be virtuous, for it is simply the residue of violence. Therefore any action of the state which cannot reasonably be defined as necessary to the prevention of greater violence, particularly violence in it's most pernicious forms, tyranny and anarchy, is itself an illegitimate use of violence. This, of course, leaves wide room for disagreement, and I suppose one might argue that patent protection is uneeded to prevent anarchy or tyranny. I disagree, since a society which does not innovate will stagnate, and stagnation is often the first ingredient for the promotion of tyranny or anarchy. I can forsee no reasonable argument however, as to why the recently passed Farm Bill, subsidized baseball stadiums, or social security payments to people who have already have greater than median wealth and income, is required to prevent still greater violence, thus such actions are wholly illegitimate use of force, regardless of majority support.
Julian, dissecting Rawls is lengthy work, and not amenable to this forum, but in response to your comments, Rawls is an erector of straw-men. Anarchy is bad. Therefore any action by the state supported by a majority is acceptable, as long as we assume that the minority being forced to submit would prefer submission to anarchy. The majority is under no obligation to draw a reasonable connection between their use of violence and the prevention of anarchy. This is simply a prescription for tyranny by mob. Also, under Rawls' materialist reasoning, it might also be argued that an African who was living is a state of subsistence would automatically agree that it was acceptable to be put in chains and transported overseas, and then being allowed to live comfortably as a butler/slave, since, by Rawls' logic, we can assume that African prefers material comfort as a house slave to the uncertainty of living in a state of substinence. Humans are seekers of materially optimum conditions, but that is not all that they are.
"Julian, dissecting Rawls is lengthy work, and not amenable to this forum, but in response to your comments, Rawls is an erector of straw-men."
John Rawls is famous for his "veil of ignorance" thesis. My immediate question is "what's the big deal?" There is absolutely nothing original in this idea. Haven't the religions emanating from the Judeo-Christian ethic been saying the same thing for centuries? Rawl's works have caused enormous harm because so many Liberals concluded after reading them that major government programs are justified to address the issues of social inequality. One is subtly, if not overtly, deemed immoral if they fail to see the light. Is Rawls directly responsible for this mess, or is he being taken out of context by his admirers? I quite frankly don't give a damn. It was Rawls responsibility to clarify matters and not leave them hanging.
Posted by: David Thomson on November 9, 2002 09:00 AMA Reaction from a Republican
Many thanks from a most interesting post that has generated some thoughts by a Republican.
First, you say that it is not control by Republicans in general that you find objectionable, but “these” Republicans. My first reaction to this is that in fact there are no Republicans that you would not find objectionable. The Democratic Party has for decades taken the position that Republicans are dumb and at best selfish, if not downright evil. Is there a Republican President in recent history you would not hold in low regard?
Both parties (to quote a Southern politician, "There ain't a dime's worth of difference between them") are guilty of all the abuses you cite. There are as many protectionists and farm protectors in the Democratic Party as in the Republican. The Democrats have their set of special interests and the Republicans have their set. You could not convince me that the trial lawyers are any better than the small business folk that the Republicans promote or the big business interests that both parties cater to. This is a wash, and, as you say, it probably is good to have periods where Democrats prevail and periods where Republicans prevail. Personally, I’m in favor of gridlock, where neither prevails.
Tariff questions are very important. But they are important only in the long-run. In general, existing tariff levels are sufficiently low so as to allow market forces to operate in a manner that “rationalizes” U.S. production to world production over the longer-term in almost all lines of activity that are important to efficiency, equity and growth. In the short-term, however, all countries face adjustment costs, and it is not unreasonable that they attempt to stem the tide of change to spread the adjustment over time and to be sure that the short-term changes we see really reflect longer-term trends. Add to this the fact that we should not be blind to the cultural and social costs of free markets (and, let me add, unfettered technology). I am a free-trader, but one that says free-trade must take place from a base rooted in our social and cultural preferences: Adjustment in industry should be more complete than adjustment in agriculture, and adjustment in services should be complete. Let me add that, in the case of steel, if world production is really significantly more efficient than U.S. steel production (as it may well be), the steel industry will soon be returning for another bailout. At that time, we can re-address this question and the high cost of the continued protection of steel will be obvious for all to see.
On taxes and the poor, I’m afraid we disagree completely. Because what I’m about to say is somewhat shocking (even to me), let me make a few preliminary comments. There are people in the U.S. that have “lost the game of life” or are elderly without means or handicapped in ways that preclude their full participation in our society. The comment below does not refer to them, and they should be supported more generously than at present. In the main, these are the youngest and oldest members of our communities.
It is my view that the poor do not pay enough in taxes. My reasoning has nothing to do with the economics of the situation, which I understand quite well, and regret the burden placed on all groups by an ever-expanding government. But taxes are almost completely political in a way that most people do not understand. The fact of the matter is that no group in society has any power that doesn't fund government and that doesn't stand independent against those groups that do. If the working poor do not pay taxes, even modestly, you may rest assured they will have no political power and they will have no standing in our communities. Here I am not talking about Social Security contributions, which are not a tax. I am talking about Federal and local income taxes and local property taxes, and I am talking about a sufficient burden of taxation so as to make a difference in their lives. That is the burden that the vast majority of Americans toil under.
In my view, the Democratic Party has done great damage to the working poor. Democrats have taken the position that the millionaires of the Party will "represent" the poor (Is there a Democratic Senator who is not a multi-millionaire?). Implicit in this is the assumption that the poor are incapable of protecting themselves and knowing their own interests, that their interests are immediate and not long-term, and that only the Democratic rich have their interests at heart. This is why Democrats constantly tell them that they and they alone can protect the poor from the greedy and nefarious Republicans and the big, bad corporations that are out to exploit them. They further isolate the poor from full participation in society by saying the churches and charities are demeaning them, and it is only welfare that comes from the government that provides them with what they are “entitled” to and that they need do nothing to get it.
Republicans reject this philosophy. To me, the working poor are perfectly capable of standing up for themselves and knowing their own interests. They do not need to be represented by millionaires. What they do need is to pay taxes in order to have a reason to participate fully in the debate about the policies (especially long-term policies) that shape their lives. One minor aside: If the poor paid taxes, they would be more incline to vote, and the country would be better off for their participation.
Republicans simply do not buy the Democratic argument that the public sector is underfunded and destitute while the private sector is rich and pampered. To me, this argument is so absurd that I am surprised anyone takes it seriously anymore.
Drive around an American city and pay close attention to the quality of the neighborhoods and buildings and working areas. Walker's Law: The best buildings and the best working areas are those of the local municipal government. They're even better than the public schools, which are far better than the average private workplace or commercial establishment. Local government offices are better, the buildings are better, the lawns around the buildings are better, and the working conditions of even the lowest paid clerk inside the buildings are better. The only exception is Liberal-controlled large cities, where government tends to be biggest and the inefficiency and utter incompetence of government has been taken to it logical conclusion: Grinding poverty in the midst of huge expenditures.
Let me close by saying that while Bush and the rest of the Republicans may be dumb to many Democrats, Democrats are even dumber for continually underestimating this man. He has focused, as he has to, on foreign policy. But what Democrats must understand it that he would be as successful if he were concentrating on domestic matters. That is because he knows what he wants to do, and it is by no means as bad as Democrats make it out to be. The Democrats, on the other hand, remain without a clue about what they want to do beyond more entitlements for more groups. In a sense, it is not even a fair fight.
I honestly hope the Democrats get their act together, as I believe they eventually will. The country needs a counterweight in every area of life, especially politics. I could see myself turning into a Democrat. All they have to do is come up with a program superior to that of the Republicans. The key element must be reducing the role of government in our lives, an area where Republicans are better but far from good. Unfortunately, that is a difficult pill for most Democrats to swallow.
Julian Elson wrote:
>> Concerning the drop in inflation, I would think that the cause for the disinflation of 1980s was Volcker. I'm not going to say that the disinflation of the 1980s was thus done by Carter, but I don't see a plaubible way to link it to Reagan. <<
Well, Volcker himself (in "Changing Fortunes") says Reagan was The Man.
Volcker tells about the first meeting he had with Reagan (shortly after his inauguration,
and at Reagan's initiative), that he was "delighted" with what Reagan said
while the press was present.
He later compares Reagan quite favorably to his predecessors, for his "visceral aversion to inflation", and his, "instinct that...it wasn't a good idea to tamper with the independence of the Federal Reserve....".
As a friend of mine put it:
" Volcker didn't get serious about crushing inflation until after Reagan had come into office, as can be seen as the spread
between the monthly prime rate and the cumulative 12-month log growth of the CPI, hence the real interest rate. These high rates caused the deepest recession since the 1930s, for which Reagan was widely blamed, and cost the Republican's during the 1982 election."
Which bolsters Volcker's claim that Reagan supported him. Again in "Changing Fortunes", he specifically notes the problem of the recession and the resulting 11% unemployment
coming just before the 82 election, and seems quite grateful for Reagan's
response:
"President Reagan must have received lots of advice to take on the Fed himself, but he never really did despite plenty of invitations at press
conferences or otherwise."
And the Republicans campaigned on the slogan: "Stay the course".
I find Julian Elson's version of the Rawlsian argument baffling. His rationale for taking as a baseline the income the rich would have under anarchy rather than the income they would have under a minimal (or at least smaller) state is that the rest of us supposedly would not sign the hypothetical social contract for the smaller state-- even though that state, by Elson's own admission, is likewise Pareto-superior to anarchy for everyone. So why wouldn't we?
Even ignoring this objection, the argument depends on the assumption that the government is enttitled, in theory, to charge whatever the traffic will bear. Is this something Elson thinks true of monopolists in general?
Posted by: Paul Zrimsek on November 9, 2002 12:42 PMHas there ever been any evidence of any kind, anywhere, showing that higher taxes cause people to work less?
Didn't think so.
Posted by: IssuesGuy on November 9, 2002 02:25 PMBy the way, I know my comment here was kinda off topic as far as the issue of Brad's Whingeing and Snivelling, but thank you for dissecting it anyway. I've been thinking about test-driving it and trying to get some people an interest in economic justice/morality to think about it. Of course, being a first year college kid, I think it'd be pretty pretentious to present it to serious people in the area. This blog is a nice place to test it and have the holes in it exposed.
I never meant to imply that the state SHOULD tax to the highest possible degree that still keeps people in a state of Pareto superiority to anarchy. My view is that the exact level of taxation should be in a range, where the level of taxes needed for security and rule of law =< the range of "just" taxation < the level at which at least one person is as poor as in a state of anarchy (of course, some people who'd get rich in anarchy, such as warlords and thieves, might be worse off in a state with a rule of law, but I suppose I'm considering productive jobs only. Just an assumption, I suppose.). Where SPECIFICALLY in that range should it be? Since they're all justifiable according to the that justification I pulled out of my ass, I say democracy is the best method of choice.
After all, all of the "potential social contracts" within the zone I described, from libertarian to taxation almost to the level that people are as poor as they probably would be in anarchy, are one for which everyone would presumably sign up (excluding people who are very unamenable to authority, and would prefere material poverty and absolute freedom to being subject to laws. Unfortunately, while those peoples' views must be considered, I can't think of any way of making them prefer government to anarchy, so they'll be made worse off by government's existence.). Even if no one is economically oppressed by the state, though, there still has to be some method of generating the range of taxation, distribution, and provision of services. I say that it should be democracy, though I really don't have any solid justification for saying so. I don't see any justification for claiming that the distribution of benefits from the state's enforcement of private property and the rule of law should be distributed according to libertarian rules, either, though. A libertarian state, of course, would be Pareto superior to anarchy, as I admit, but it's one of MANY states that is. I think it is a viable option, but not the only one.
As for the argument about monopolists: that's an interesting argument that I really don't have any answer to. I suppose the answer is that government can't be anything but a monopoly. Moreover, monopolies in most cases clearly do social harm relative to the competitive price/quantity equilibrium. In the case of government, the comparison to competitve markets isn't really meaningful, since prices don't make sense in that case. Really, though, that's a lame evasion upon my part. I don't really have an answer at the moment. I'll have to think about it.
Oh, and I know it seems like a Rawlsian argument, but it isn't I swear! *foams at the mouth* IT ISN'T A RAWLSIAN ARGUMENT, I TELL YOU!!!! *randomly breaks furniture in rage*
Err... at least, it doesn't strike me as one, though there may be many similar arguments in them.
Julian Elson
Has there ever been any evidence of any kind, anywhere, showing that higher taxes cause people to work less? Didn't think so.
In fact it makes them worker harder - to hide income from the taxman.
Posted by: George Zachar on November 9, 2002 03:38 PM“Has there ever been any evidence of any kind, anywhere, showing that higher taxes cause people to work less?”
One need not embrace the supply side arguments of Arthur Laffer to concede that nobody would work if taxed at 100% It’s merely commonsensical to acknowledge that somewhere alone the line a higher tax rate discourages people from going to work. the only legitimate question is whether the line should be drawn at 10%, 30%, 60%, or 99%? Alas, I don’t pretend to know the exact percentage.
Posted by: David Thomson on November 9, 2002 03:38 PMJulian, within the last 60 years an ethnic group in this country was stripped of their property and incarcerated in camps, with majority acquiesence, if not outright support. Since their existence within those camps was materially more comfortable than it would have been in a state of anarchy, are we to suppose that such an imposition of will by the majority was morally legitimate? The fetishtization of democracy that has taken place in the last 100 years is quite dangerous to morally legitimate governance. Democracy is a tool, not an end unto itself, and like any tool, it can be put to evil purposes. Democratic processes are the beginning of morally legitimate governance, and not even close to being the end.
Posted by: Will Allen on November 9, 2002 10:36 PMDemocracy is a tool, not an end unto itself, and like any tool, it can be put to evil purposes.
This is the old libertarian argument, to wit, Democracy is three wolves and two sheep voting on what to have for dinner.
Posted by: George Zachar on November 10, 2002 06:16 AM"As for the argument about monopolists: that's an interesting argument that I really don't have any answer to. I suppose the answer is that government can't be anything but a monopoly. Moreover, monopolies in most cases clearly do social harm relative to the competitive price/quantity equilibrium."
We do not need to overcomplicate the obvious. Government is inherently less competent than the private sector. However, there are functions best left to this entity. I’m adamantly sure, for instance, that a criminal trial should not be held under the auspices of a for-profit company. So let me make this real simple: we should hesitate to grant further powers and responsibilities to the government unless we have no other choice. Our attitude should be one of utter reluctance. We must find a middle ground between outright hostility towards government and looking upon it as our savior.
Posted by: David Thomson on November 10, 2002 06:23 AMActually, I don't believe that existence in concentration camps is better than in a state of anarchy. In fact, I'm almost sure it's worse.
After all, spending less than five years in concentration camp, the mortality rate was something like 80%. Clearly, people survived much better than that in a state of anarchy, or the species wouldn't be around today. Come on, Will -- do you really think that if Jews had a choice between living in a state like Somalia or 1990-1997 Afghanistan and going to the concentration camps, they would have choosen the latter? I know I wouldn't have!
Also, I wasn't talking purely about material existence: I was trying to talk about general preference. Freedom is almost certainly an aspect of that preference. I don't think a person who makes $100,000 and pays a 50% tax is fundamentally freer than a person who makes $40,000 and pays no taxes. Of course, the $100,000 person COULD be freer: if, for example there's a secret police agency that has proscribed certain thoughts from the richer, more taxed one's mind, then he's less free than the poorer one.
Julian Elson
Posted by: Julian Elson on November 10, 2002 08:27 AM"I don't think a person who makes $100,000 and pays a 50% tax is fundamentally freer than a person who makes $40,000 and pays no taxes."
The hypothetical person who earns $100,000 and pays a 50% tax is a sucker if the gals who earns $40,000 pays no taxes whatsoever. Why put in the extra work to achieve so little?
Also, what is the point of debating whether anarchy is better than being incarcerated in a concentration camp? This line of argumentation is analogous to counting the number of angels able to sit on the head of a pin. Don't we have better things to do?
Posted by: David Thomson on November 10, 2002 09:43 AMOf course, in the case I was speaking of, the person making less money would presumably be working just as hard, because of much lower productivity, because of the lack of property rights or basic personal security.
I know *I* have much better things to do than debate concentration camps and anarchy, like my French homework, but hey, how can I live without procrastinating a little?
Julan Elson
Posted by: Julian Elson on November 10, 2002 09:52 AMRe: Brian Broadus and the idea that progressive taxation makes government services a better bargain for poor and middle class folks, who thus get to use more government than they “buy.” This process indeed creates more Democrats. But the temptation to get carried away when spending other people’s money is always a risk in a democracy. (Thinking of government as a societal-resource-allocation-device analagous to the marketplace but with different feedback mechanisms and different ways to decide who gets to “buy” what, can be a good theory discussion. But I don’t know how to explore it in a few sentences, so I’ll return to where I started.)
What keeps non-rich Americans from voting for ever-more-progressive taxes? At least part of it is our economic-class mobility. We, almost all of us, plan to be better off some day. In anticipation of that, we use caution in setting the rules for those “better off.” We tend to love, or at least admire, the rich if we think we might one day join their ranks. We hate them if we think economic-class barriers are such that we never will.
So if Brians's right and the Republican Rovians believe that “Shovelling money at the well-to-do is an investment in reliable power,” they should think again. On the other hand, the poor and middle class need a free and capital-rich marketplace if they're going to improve their economic position, and the Dems would be wise to keep that in mind.
Posted by: Robin R on November 10, 2002 10:36 AM“Shovelling money at the well-to-do...”
...is the same as productive people being allowed to retain more than 1/2 of their earnings?
Do I have that correct?
Posted by: George Zachar on November 10, 2002 11:37 AMActually, Julian, I was referring to Americans of Japanese descent, and yes, I think it is a reasonable trade-off, or at least a close one: Would one rather be stripped of property and forced to live in an American run camp for the duration of WWII, or be reduced to living in a state of anarchy? Under your formulation, the incarceration of a Japanese minority by majority diktat was morally legitimate, because the incarcerated were better off than they would have been under anarchy. Again, this simply a prescription for mob tyranny. The only legitimate rationale for such an act by the majority, was recently put forth by Posner, in which he justified the action on the basis of the danger of not incarcerating the minority in that time of war. I think Posner is wrong on the facts, that the Japanese minority did not pose such a threat, but at least he draws a connection between the violent exercise of majority will and the need to thwart tyranny. Posner doesn't adopt the position that concludes that because those being stripped of their property and incarcerated are better off than they would be in a state of anarchy, the application of violence to the minority is legitimate.
Posted by: Will Allen on November 10, 2002 12:20 PMRE: George. As to whether people should "retain more than 1/2 of their earnings", I'd vote for yes. I'm basically for less government. But I was addressing the question of how "society" decides what relative tax burden is fair for which groups: who leans which way and why.
As I understand it, Brian's argument was that the Repubs think favoring the rich is good for staying in power. I was saying that it's not, nor is it even good for the rich, long term.
Posted by: Robin R on November 10, 2002 12:30 PMThanks you, Julian, for your thoughtful reply. I stand corrected on the issue of your theory's relationship to Rawls; though there is a family resemblance there, since both rely on the idea of a hypothetical social contract, I can see more clearly now where you differ.
I agree that democracy is the best method of choice between different possible social arrangements regarding property; unfortunately, that alone doesn't get us any closer to deciding whether the majority would be justified in choosing a redistributive arrangement. Even if we grant that a hypothetical social contract has something like the normative force an actual contract would have (a point on which I'm skeptical), that force seems to me to be lost completely when the contract is only one of a large number of mutually incompatible contracts which we could imaging people agreeing to.
My point about the government's monopoly, incidentally, was not that the monopoly itself is necessarily bad, but rather that state's using its position to extract all wealth over and above what people could earn for themselves under anarchy would be an abuse of its position.
Posted by: Paul Zrimsek on November 10, 2002 12:52 PMTo Robin R.: I was merely pointing out the rhetorical baseness of characherizing a sub-50% tax rate as “Shovelling money at the well-to-do..."
Posted by: George Zachar on November 10, 2002 01:02 PM"I know *I* have much better things to do than debate concentration camps and anarchy, like my French homework..."
Are you studying French? Does this mean that you might eventually become a missionary of secular salvation to our hopeless French allies? Alas, France is a rapidly declining nation needing all the help it can get. May God bless your endeavors.
Posted by: David Thomson on November 10, 2002 01:42 PMGeorge:
It's been ahile since I read the General Theory, but I don't remember it saying anything about some optimum government share of the economy - deficits are needed to make up for shortfalls in aggregate demand, but that could just as well be done under a low tax/low spending regime as a high tax/high spending regime - the crucial part after all, is the difference between money created through spending and destroyed through taxation, not the absolute value of spending itself.
This seems to be a point that was lost to the postwar Keynesians, who used Keynes's monetary ideas to push a lot of dubious socialist programs the man himself (I believe) would have disapproved of.
In fact, maybe that's why all the "Keynesians" have now become deficit hawks - they never really got it in the first place...
Posted by: Jimbo on November 10, 2002 02:01 PMI think we can call them "opportunistic Keynsians" -- those who supported his notions when convenient to the political agenda du jour, abandoning them later.
Posted by: George Zachar on November 10, 2002 02:25 PMPaul Zrimsek, thank you very much for pointing out a MAJOR hole in my idea! I was totally oblivious to it. Yeah, I thought about it: the whole idea of my idea was that a government is just if people would live underneath its power voluntarily rather than not have it if they had the choice, but then you bring the image to me of the soon-to-be-incarnated souls given the choice of living in a Somalia-type state or living in a marginally comfortable concentration camp. If they all choose the concentration camp, the policy's just by my conception of it!
That just can't be right... thank you for pointing it out.
Julian Elson
Posted by: Julian Elson on November 10, 2002 10:34 PMAs regards the Elson/Thomson exchange. I’m just a dumb Midwestern kid, so I don’t know no Rawls. However, it had occurred to me all by myself that progressive taxation is justified because those who benefit most from any arrangement can arguably be called on to pay more of the cost than those who benefit less. One benefit of government is that property rights are enforced and public services are provided, which allow a faster expansion of wealth than if government did not do these things. The biggest beneficiary from the existence of government is those who thrive most under that government, not the recipients of transfers of wealth (except when they are the same people). If some fancy Harvard professor has thoughts that get us to a similar point by a different route, taking potshots at the economic credentials of said professor doesn’t make the idea wrong. I didn’t notice Elson invoking Rawls to make his case, and sure enough, Elson (in a subsequent post) didn’t either.
Similarly, as regards Thomson’s second paragraph, flatly asserting that government’s role should be restricted as much as possible, that government revenues are wasted and so on, makes those views no more than personal opinion. If you happen to think those things, good for you. They do not, however, constitute a contribution to the debate. They are your assertions, nothing more. Bringing Kaus and Peters along wins cute points, but again, doesn’t constitute an reasoned argument. Guilt by association is about as far as you get by including Kaus.
As regards Elson’s response on the point of government revenues being wasted on bureaucrats, it is surprisingly similar to something I read elsewhere. I can’t recall where, because it was so many years ago. The Reagan era hobby of tarring all bureaucrats happened to coincide, for a time, with the massive cutting back of mid-level managers, some problems with financial institutions that interrupted activity in the housing sector and required (OK, some may not think it was required – ask Takenaka what he thinks) public sector intervention to get things functioning again. There was a bunch of guys who once decided to quit squandering money on the private sector. They were wrong, too. Bad-mouthing bureaucrats is not new, but you’d think some progress would have been made toward proving the point.
"To Robin R.: I was merely pointing out the rhetorical baseness of characherizing a sub-50% tax rate as “Shovelling money at the well-to-do...""
Heh, heh, heh! And another question is, "Exactly *whose* money is being 'shovelled'?" If your answer is, "the federal government's"...you're a Democrat (or a Green).
If your answer is, "the money belongs to the person earned it...unless he somehow stole it"...you're a Libertarian or a Republican.
Posted by: Mark Bahner on November 12, 2002 03:32 PM"Look, nothing is ever perfect in politics, but it is time for the free-market libertarians to wake up and smell the (fair-traded?) coffee. They've always voted Republican because of the supposed notion that the Democrats were worse."
No *real* libertarian votes for a Republican, if there is a Libertarian (i.e., a *real* libertarian) in the same political contest. (Unless the honorable Ron Paul is the Republican in question.)
Mark Bahner (Libertarian)
Posted by: Mark Bahner on November 12, 2002 03:40 PMGeorge Zachar writes, "Thanks for validating my perception of the central current of modern American politics: That the march to socialism is a given, merely slowed and adjusted by occasional and temporary "conservative" seizures of policy levers."
But that's the beauty of globalization. People and their capital are no longer limited to the USA, the socialist states of Europe, and the occasional Asian Tiger.
Russia--Russia, for G@d's sake--now has a 15% flat income tax! (Still a bit too early to invest or move there, though, until the Rule of Law and basic freedoms are more firmly established.)
Costa Rica has elected Libertarians in more than 10% of their Congress.
The world trend isn't to the Port, it's to the Starboard. And I don't mean the Portly Republicans. The world trend is towards Libertarianism. (Of course, the trend is slow...because such a large ship needs time to turn.)
Posted by: Mark Bahner on November 12, 2002 04:04 PM"It's been ahile since I read the General Theory, but I don't remember it saying anything about some optimum government share of the economy -..."
Well, there have been empirical studies. From them, the optimal total government size is less than 25% of GDP. U.S. total government size, as I recall, now stands at a bit over 35% of GDP (consisting of federal spending at 19% of GDP, and state and local government spending of 16% of GDP):
http://www.house.gov/jec/growth/govtsize/govtsize.htm
http://www.house.gov/jec/growth/function/function.htm
Posted by: Mark Bahner on November 12, 2002 04:30 PMHmm, let's see if I can cover all the bases on this one:
Argument 1:
Point out that an "Armey Curve" that "empirically determines" the general relationship of government spending to economic growth without referring to productivity/technical innovation at all is highly stupid.
Argument 2:
Point out that you can save lots of time by just ignoring anything Armey's involved in, since he's an economist-in-name-only, with a history full of ideologically-driven lies.
Obvious rejoinder to #1: Arguments from authority, ad hominem, fuzzy math, and statistical sins.
Obvious rejoinder to #2: Krugman's gotten stuff wrong before (White's memo! Yargggh!), blah blah blah, socialist running pigdog for whom hanging's too good, clearly Armey is a saint by comparision.
Counterassertion to #2: Krugman's errors are all in good faith. Armey's are flat-out, filthy misstatements of fact.
Posted by: Jason McCullough on November 12, 2002 08:42 PM>> Similarly, as regards Thomson’s second paragraph, flatly asserting that government’s role should be restricted as much as possible, that government revenues are wasted and so on, makes those views no more than personal opinion....
Bad-mouthing bureaucrats is not new, but you’d think some progress would have been made toward proving the point.<<
Maybe more has than some are eager to recognize. E.g., we have Nobel winner Ronald Coase's conclusions after 18 years editing empiricial studies in the Journal of Law and Economics..
"When I was editor of The Journal of Law and Economics, we published a whole series of studies of regulation and its effects. Almost all the studies -- perhaps all the studies -- suggested that the results of regulation had been bad, that the prices were higher, that the product was worse adapted to the needs of consumers, than it otherwise would have been.
"I was not willing to accept the view that all regulation was bound to produce these results. Therefore, what was my explanation for the results we had?
"I argued that the most probable explanation was that the government now operates on such a massive scale that it had reached the stage of what economists call negative marginal returns. ..."
http://reason.com/9701/int.coase.shtml
Does 18 years of peer-reviewed empirical work constitute any progress towards proving the point?
You don't need Armey, try something like...
"Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects", by Alberto Alesina and Roberto Perotti, NBER Working Paper No. W5730. http://www.nber.org/
This is a study of OECD economies from 1960 to 1994 which found that nations that significantly reduced their budget deficits subsequently generally experienced significantly faster
economic growth rates. However, this relationship was largely dependent on deficit/debt reduction resulting from (a) government spending cuts, rather than tax increases, and (b) the spending cuts being concentrated in government wages and transfers, rather than public investment. Fiscal adjustments that relied primarily on tax increases and/or cuts in public investment tended to be contractionary and/or unsustainable.
This is all consistent with the problem being not deficits per se (or reducing them through tax increases would be effective) but government spending levels being too high, sustained by deficits.
The paper discusses various countries as case studies. The most dramatic example being Ireland, which doubled-to-tripled its growth rate since the 1980s while reducing government receipts by 10% of GDP, reducing government expenditures by more than 30%, accordingly moving to a budget surplus, and cutting its national debt in half.
And this is all consistent with the "crowding out effect" being more meaningful in regard to real resources (when the government draws on them by increasing spending) than in regard to financial resources (when the government draws on them by borrowing).
Posted by: Jim Glass on November 12, 2002 09:40 PMJim, "deficit reduction causes growth," the point of the OECD study, is not equivalent to "spending cuts causes growth," the point of the Armey "study."
Also, in that artilce Coase is referring to government *regulation* producing negative marginal returns, not government spending. He seems to be talking about the size of government in terms of regulatory incidence, not outlays.
Posted by: Jason McCullough on November 12, 2002 11:00 PM>> Jim, "deficit reduction causes growth," the point of the OECD study, is not equivalent to "spending cuts causes growth ..."<<
Again, the study found that deficit reduction from cutting spending caused growth, while that from raising taxes didn't. The greatest success story being Ireland where the government reduced its claim on GDP by the most, 18 percentage points.
Of course, there are no controlled studies on nations so all this is infinitely arguable, one working paper doesn't settle it all.
But the point is that this isn't just some crank idea that comes only from ideologues. The notion that government has grown "too big" is entirely consistent with the very basic economic realities of diminishing returns and the fact that politicians who act in their own self interest are not disciplined as private market actors are by the need to have their spending recover their cost of capital. There's nothing stopping them from spending *way* down into negative returns if it is politically rewarding. As there are too many examples of, on both national and local scales, to need to bother to list any.
So the fact that modern developed nations have governments that are systematically too large is *plausible* at least, and there are studies to back the notion. Does anyone argue that modern developed nations have governments that are systematically too small?
>> Also, in that artilce Coase is referring to government *regulation* producing negative marginal returns, not government spending. <<
Yes. And the reason for believing politicians are wiser at spending than regulating would be...?
Posted by: Jim Glass on November 13, 2002 06:27 AM>>Argument 1: Point out that an "Armey Curve" that "empirically determines" the general relationship of government spending to economic growth without referring to productivity/technical innovation at all is highly stupid.<<
Well, since Representative Armey isn't around to address this argument, I'll do it for him: Add to the report, the following postscript: "...blah, blah, blah, productivity/technical innovation."
As I understand the study, it was an attempt to empirically determine which government spending level produced the highest rate of ecomomic growth. Now, you might say that "productivity/technical innovation" are *more* important than government spending in determining economic growth rate. In which case, you'd have to do or find a study that looked at the effect of "productivity/technical innovation" on economic growth.
But then, there would STILL be the question that I was originally addressing, "What is the 'optimum' government 'share' of the economy?"
In other words, if the study you perform or find shows that "productivity/technical innovation" is very important to economic growth, the question would still be, "Is there some optimum government 'share' of the economy that most improves 'productivity/technical innovation'"?
So, to switch metaphors, the ball is back in your court: Even if you perform or find some study that shows that "productivity/technical innovation" is important to economic growth, is there some government "share" of the economy that produces the most "productivity/technical innovation"?
>>Argument 2: Point out that you can save lots of time by just ignoring anything Armey's involved in, since he's an economist-in-name-only, with a history full of ideologically-driven lies.<<
As noted by Tom Cruise in "A Few Good Men"...this would be the "Liar, liar, pants on fire" argument? You simply ignore everyone who has "a history of ideologically-driven lies?"
As noted in the movie, the "Liar, liar, pants on fire" argument isn't much of an argument at all.
In summary, I don't thinks you've made any persuasive arguments against the "Armey" study. ("Armey" is in quotation marks, because he is merely referred to, for a figure that I assume would be simple common sense.) (Surely EVERYONE would agree that "zero" government "100 percent" government, as a fraction of the economy, would both produce lower growth than some other values in the middle?)
Perhaps this one is more to your liking? (I doubt it. Even though Dick Armey's name is nowhere to be found in the report, I'm sure you won't like the results.)
Figure 5, from the study, seems to address the question at hand, which is "What is the optimum share of government in an economy?" If the goal is ecomomic growth, the answer seems to be "The optimum size of total government is probably much LESS than the 25% of GDP obtained by the 'Armey' study."
http://www.house.gov/jec/growth/function/function.htm#VIII
Note, in particular, Figure 5 from this report:
http://www.house.gov/jec/growth/function/exh-5.gif
There are very few data points for government involvement at less than 20% of GDP...let alone the less-than-10%-of-GDP that I think would probably show peak growth rates.
The great thing about Google is that virtually every paper you should be paying for escapes from the admission-charging zoo; try this URL to get a copy of w5730.
The paper's entirely about which method of closing a deficit gap is the most effective. For instance:
We identify two different types of fiscal adjustments. “Type 1“ relies primarily on expenditure cuts, and, in particular, on cuts in transfers, social security and government wages and employment. Tax increases are a small fraction of the total adjustment and, in particular, taxes on households are not raised at all or are even reduced. On the contrary, “Type 2“ adjustments rely mostly on broad based tax increases, and often the largest increases are on taxes on households and social security contribu-tions. On the expenditure side almost all the cuts are on public investment, while government wages, employment, and transfers are completely
untouched, or only slightly affected.
We find that even when the two types of adjustments have the same size, in terms of reduction of primary deficits, Type 1 adjustments induce a more lasting consolidation of the budget and are expansionary, while Type 2 adjustments are soon reversed by further deteriorations of the budget and have contractionary consequences on the economy.
The reason why type 1 adjustments are more permanent is that they tackle the two items of the budget, government wages and welfare programs which have the strongest tendency to automatically increase, and, in fact, have been increasing in the last three decades as a share of total government spending.
'So the fact that modern developed nations have governments that are systematically too large is *plausible* at least, and there are studies to back the notion. Does anyone argue that modern developed nations have governments that are systematically too small?'
Of course it's plausible, I just really don't see either study as an especially illuminating data point; the NBER thing raises more questions than it answers when applied to the question. A study determining whether spending cuts increase growth rates in general is a completely different chicken.
Interesting data point: the 50s-on size of the government has varied between 15.6% and 23.5% of GDP, with the peak occurring (ironically ) in Reagan's first term. It's fallen about 4% from 1992 to its current level of 18.4%. This is slightly higher than in the 1950s and about the same as the 1960s.
'Yes. And the reason for believing politicians are wiser at spending than regulating would be...?'
You're arguing from Coase's authority that spending has reached decreasing marginal returns, when he says no such thing about spending.
'But the point is that this isn't just some crank idea that comes only from ideologues. The notion that government has grown "too big" is entirely consistent with the very basic economic realities of diminishing returns and the fact that politicians who act in their own self interest are not disciplined as private market actors are by the need to have their spending recover their cost of capital. There's nothing stopping them from spending *way* down into negative returns if it is politically rewarding. As there are too many examples of, on both national and local scales, to need to bother to list any.'
This appears to have the underlying assumption that people don't notice political rent-seeking spending the country into oblivion. According to that GDP spreadsheet, voters have kept government under pretty tight control.
Posted by: Jason McCullough on November 13, 2002 01:27 PMFigure 5 is interesting, as it seems to show a clear link between growth rates and size of government (although no causal link is established). I've got to wonder, though, why the government share of GDP is fixed at the beginning of the decade, but the growth rate is averaged of the following decade.
It's from this paper; unfortunately, you actually have to pay to get your hands on OECD data. I'm curious what GDP vs. growth rate would look like for the same year and a variety of time lags (5 years, 10 years).
Posted by: Jason McCullough on November 13, 2002 01:54 PMJason McCollough writes, "Interesting data point: the 50s-on size of the government has varied between 15.6% and 23.5% of GDP, with the peak occurring (ironically ) in Reagan's first term. It's fallen about 4% from 1992 to its current level of 18.4%. This is slightly higher than in the 1950s and about the same as the 1960s."
But it's only the *federal* government that is currently at 18-19% of GDP. STATE and local governments have expanded dramatically since the 1950s and 60s. State and local governments now represent almost 16% of the GDP:
http://www.house.gov/jec/growth/govtsize