Wednesday, October 22, 2008
Supply-Side Economics
I am told that the correct name for trickle-down economics is supply-side economics, and that trickle-down is an insult. Very well, call it what you want. The question is, does it work?
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19 comments:
V.Reppert: "I am told that the correct name for trickle-down economics is supply-side economics, and that trickle-down is an insult."
It's not that "trickle-down economics" is an insult ... one cannot insult a concept, though one can studiously refuse to take it seriously or refuse to know what one is taking about when ostensibly criticising it. It's that the phrase "trickle-down economics" is just a leftist trope deliberately invented for the sole purpose of shutting down rational thought regarding "supply-side economics."
V.Reppert: "Very well, call it what you want."
As witness how well this trope has worked, and continues to work, and will continue to work, with a self-satisfied "intellectual," such as yourself, who fancies himself of so much more worth than the "anti-intellectual" Sarah Palin.
V.Reppert: "The question is, does it work?"
Much as there is no evidence or argument that will sway the typical 'atheist' (because his stance has nothing at all to do with a reasoned and logical evaluation of evidence), so too, there is nothing which will get you to admit that "supply-side economics" has been working *very* well at least since John Fitzgerald Obama the First made the astute observation that "a rising tide lifts all boats." I say, "at least," because, of course, "supply-side economics" has been generating the ever-increasing wealth of America and of the American people for about four hundred years.
Just as no evidence ... and I did try to present some way back when ... was suitable to get you to admit the vacuousness of your simplistic Democratic Party talking points about "tax cuts for the rich" versus the "overtaxed" middle-class, so too, there is no evidence about "supply-side economics" that you will admit to while your eyes are closed.
V.Reppert: "Very well, call it what you want."
Hell! You don't even know ... or care! ... what "supply-side economics" is. If you really were interested in knowing whether it works, and the evidence is all around you, would you not make an effort to find out what you're talking about?
Ilion: even for you, the ratio of vitriole to content was quite high. Excellent work!
Most mainstream economists dismiss supply-side economics as silly (e.g., based on strange misreadings of the speculative the Laffer Curve (basically not realizing it decreases monotonically, rather than in a parabolic shape). While it is still speculated that if we just kept the tax cuts for the wealthiest in the land in place long enough, the entire country would experience long-term growth, nobody thinks it helps in the short term (as we learned under Reagan), as government revenues drop drastically so programs must be cut (and because there is no way to make enough cuts, this means increasing the defecit by borrowing from other countries).
The question is, even assuming the supply-siders controversial claim that in the long run the policy works is correct, is that what we need right now? Are things stable enough right now to drastically cut government revenue? It seems clearly the answer is no.
I like the quote, "a rising tide lifts all boats." So, is the tide the corporations, or the people? Supply-side economics assumes it is the corporations. Critics of supply-side economics prefer to ease the tax burdens on those that aren't wealthy, so that they can then spend more and foster economic growth that way. The boats are the corporations. Joe Sixpack is the tide.
I forgot to mention, supply side economics also leads to a devaluation of the dollar in the short term, because of the lost government revenue and increase in budget deficit. Do we want that right now?
Crap. I said:
'(e.g., based on strange misreadings of the speculative the Laffer Curve (basically not realizing it decreases monotonically, rather than in a parabolic shape).'
Awful!
I meant to say:
based on strange misreadings of the speculative Laffer curve, not realizing it has a parabolic shape rather than being monotonically decreasing.
First, a question. Why don't you ban Ilíon? All he does is insult people and wallow in his own self-importance. He has no interest in contributing here.
As to your question, supply-siders are usually trickle-down proponents. They generally want to make the tax system regressive, shifting the tax burden to those with less ability to pay. So while the terms may not be identical, they are FAPP.
The supply-siders argued that if we cut taxes on the wealthy, the economy would speed up and tax revenues would actually climb. This has been proven false. Take (ex-?) neocon Francis Fukuyama's word for it.
However, there is a kernel of truth to the idea. It is possible to tax the wealthy to a degree that discourages investment. However, that level of taxation is not under consideration by the Democrats.
There are some myths out there. There's the idea that if you have a progressive tax rate, the rich will be less inclined to work/invest. So, if you pay 25% income tax on the first $75K, and 30% on the next 75K, they say you will naturally cut your hours/investments in half in order to avoid paying the extra 5% tax on the second $75K. Silly, but this is what they are claiming. Now, if the tax rate on the second $75K was 80%, you might cut back your hours/investments, but no one is advocating that high a rate.
The other argument I hear is that with capital gains (CG) taxes at $25%, the very wealthy (who are the only people who pay significant CG taxes) will not want to invest, and the economy will grind to a halt. Again, that's pretty silly. Where are they going to put their money? If they put it in a bank account, they won't earn as much as they would in alternative investments (assuming supply-siders and deregulators haven't already trashed the entire financial system). Even if the interest on bank accounts were high, they would pay income tax rates on interest, and income tax rates are higher than current CG tax rates. Basically, CG tax rates are fine as long as they are not significantly more than income tax rates. (One way to see this is to imagine income tax applied to all the money you money made, whether through work or investments. Would such a tax be unfair or discouraging to investment? No.) IMO, CG tax rates ought to be in the same ballpark as income tax rates, or else the investor class (=millionaires) will get off with minimal taxation (which isn't fair and won't work).
The fact is that if you're a millionaire, you have it made under the Clinton/Obama tax rates. As long as the financial system doesn't collapse, you're all but guaranteed to get richer. So I really can't feel sad for the poor millionaires who will get taxed at around 40% in the top bracket. They'll be getting richer at a good clip in any case.
I'll just toss in this bonus item. McCain keeps saying that many small businesses earn more than $250K will end up paying higher taxes under the more progressive Obama plan. Incorrect. The tax rate applies to taxable income. A business with $250K of revenue won't pay any extra because the increase is on revenue above $250K. Salaries and expenses are not taxable revenue as far as the business is concerned. Of course, if your business makes $300K annually, and you have no expenses, and you're S-corp, then your taxes will go up. But guess what? That's exactly like having a salary of $300K, and would have an income in the top percentile.
I supposed if you asked the John McCain of 2001, he'd say 'No'. And, if you said in the presence of the John McCain of 2001 that we ought to see to it that those at the top aren't taxed at a higher rate, he'd give you an earful:
8. “During the debate on the Senate version of the tax reconciliation bill, I had urged my colleagues that substantial tax relief to middle-income Americans should be our top priority. While I regret that my amendment to cut the top rate by one percent to 38.6% so millions more middle-class Americans would fall into the 15% tax bracket failed on a tie vote, Sen. Grassley did move in that direction in the Senate bill by insisting that the top rate should be cut to only 36%. As a result, I reluctantly voted for the bill but pledged to vote against the conference report should further reductions in the top tax rate be made at the expense of the majority of Americans who are in much greater need of tax relief.
“Unfortunately, the conference report did just that by jettisoning the commendable work both Senators Grassley and Baucus did in crafting a Senate reconciliation bill that provided more tax relief to middle-income Americans. This conference report lowers the top rate cut to 35%, at the cost of delaying, for several years, much needed tax relief for married couples unfairly penalized by our tax code. …
“We had an opportunity to provide much more tax relief to millions of hard-working Americans. . . . I cannot in good conscience support a tax cut in which so many of the benefits go to the most fortunate among us, at the expense of middle-class Americans who most need tax relief.”
—Senate floor statement before voting against President Bush’s tax cut, May 26, 2001.
See more here.
I guess the John McCain of 2001 was a socialist.
__clayton
Liars do often find truth to be "insulting," do they not?
I'll add my voice to that chorus, Vic. I generally enjoy reading your blog even if I don't participate much, but parsing noise is tiresome and if you have a situation where the signal to noise ratio approaches zero, as you do in Ilion, banning is certainly warranted...
Yes, please ban Ilion. He never argues for anything he says. He also brings out the bitch in me and others here with his constant character assassinations and hostility. He makes it impossible to have calm, reasoned disagreements. It's a serious inconvenience to the rest of the readers when Ilion stumbles into each thread and turns it into a flame war.
Unfortunately, I think it is impossible to ban people on blogger. The best you can do is turn on comment moderation.
Roll with it baby, he's like Yucko the Clown.
Picture of Yucko (caution obscene gesture).
Just to play devil's advocate here, many a conservative pundit claims that tax revenues went up after the Bush tax cuts, and that this was because the tax cuts worked and expanded the economy. Is this true?
Also, I'd vote for banning ilion. He's be much happier at triablogue, anyway.
Anonymous,
FactCheck.org has the details here.
The impact of the tax cuts on economic growth is a matter of debate among economists. We're not voicing a view on whether the tax cuts should have been enacted; that, too, is a separate discussion. But it is clear they did not "increase revenues."
Of course it works--free markets have delivered unprecedented prosperity, and still may deliver even more wealth. Governmental paternalism prompts income redistribution and collectivism leaves wealth on the table. By contrast, the people in (properly measured) lower quintile in the present system are less unequal than claimed and are getting richer even now, thanks to high income mobility.
The greatest danger comes when policymakers fail to recognize that only commerce and trade create wealth; government merely redistributes it--perhaps to the point where the system breaks down.
That factcheck.org article was as clear as mud. Seems like it's saying the tax cuts caused growth, but they didn't, so they did, yet they didn't.
In the short run, tax cuts do not increase government revenues. That is uncontroversial, empirically established. Long-term, things get very murky and your opinion will depend to some degree on your biases an an economist.
Economics is a weird social science. It is just as full of crap as the rest of the social sciences, but their predictions are often treated as gospel (until they are shown wrong, which is par).
But the graphs that economists use infallibly show that free markets are the world's solution.
Not only is The One not his brother's keeper (you know, his half-brother in Kenya who gets by on just a few dollars per month) -- though he would impose upon all US taxpayers the obligation to be the vicarious keepers of persons they don't even know -- but he also is not the keeper of his aunt, so affectionately described in his best-selling memoir-of-nothing Dreams from My Father:
TimesOnline: Found in a rundown Boston estate: Barack Obama’s aunt Zeituni Onyango 'Auntie Zeituni', who, with Uncle Omar, dropped out of sight after moving to the US, is backing the presidential candidate from her modest flat
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