Stimulus Gone Bad

[ribozyme]

economistsview.typepad.com/economistsview/2008/01/paul-krugman-st.html
nytimes.com/2008/01/25/opinion/25krugman.html

House Democrats and the White House have reached an agreement on an economic stimulus plan. …Specifically, the Democrats appear to have buckled in the face of the Bush administration’s ideological rigidity, dropping demands for provisions that would have helped those most in need. And those happen to be the same provisions that might actually have made the stimulus plan effective.

Why would the administration want to do this? It has nothing to do with economic efficacy: no economic theory or evidence I know of says that upper-middle-class families are more likely to spend rebate checks than the poor and unemployed. Instead, what seems to be happening is that the Bush administration refuses to sign on to anything that it can’t call a “tax cut.” … The words of Franklin Delano Roosevelt come to mind: “We have always known that heedless self-interest was bad morals; we know now that it is bad economics.”

We don’t know for sure how deep the coming slump will be, oreven whether it will meet the technical definition of a recession. But there’s a real chance not just that it will be a major downturn, but that the usual response to recession — interest rate cuts by the Federal Reserve — won’t be sufficient to turn the economy around. (For more on this, see my blog at krugman.blogs.nytimes.com.)

I am not going to say his ineffable name. But I’ll sum it up with this graph from the Economic Policy Institute (I think the Brookings Institution is better for wonks however.)

http://www.epi.org/webfeatures/snapshots/archive/2008/0123/20080123snap600.gif

epi.org/content.cfm/webfeatures_snapshots_20080123

 

[Miles_Mariae]

Cutting taxes is a great idea. However, trimming government revenue while doing nothing about spending is unsound fiscal policy.

 

[rlg94086]

economistsview.typepad.com/economistsview/2008/01/paul-krugman-st.html
nytimes.com/2008/01/25/opinion/25krugman.html

I am not going to say his ineffable name. But I’ll sum it up with this graph from the Economic Policy Institute (I think the Brookings Institution is better for wonks however.)

http://www.epi.org/webfeatures/snapshots/archive/2008/0123/20080123snap600.gif

epi.org/content.cfm/webfeatures_snapshots_20080123

Of course the tax rebate is larger for those who pay more. Isn’t that simple math?

Payroll taxes = Social Security. I agree it needs to be reformed, but that is a separate issue. It should be privatized, so people can actually accumulate inheritable retirement dollars rather than going on the public dole in their retirement years.

 

[ribozyme]

Of course the tax rebate is larger for those who pay more. Isn’t that simple math?

Payroll taxes = Social Security. I agree it needs to be reformed, but that is a separate issue. It should be privatized, so people can actually accumulate inheritable retirement dollars rather than going on the public dole in their retirement years.

Do yourself a favor… go to www.brookings.edu and see the arguments for or against that. I’ll do that this evening.

 

[rlg94086]

Do yourself a favor… go to www.brookings.edu and see the arguments for or against that. I’ll do that this evening.

Why? Do you think my basic math skills are in error?

 

[ribozyme]

Why? Do you think my basic math skills are in error?

It’s referring to the proposal of Social Security privatization. It’s a merit good much like health care and I do not think people will act in a Milton Friedman fashion of Homo economicus to adequately provide for those needs. However, one can argue that Social Security is somewhat regressive since poor people have shorter lives thus acquire less benefits.

But if you want to increase aggregate demand, give it to people who are most likely to spend it. This is simply an insult to Keynes.

 

[rlg94086]

It’s referring to the proposal of Social Security privatization. It’s a merit good much like health care and I do not think people will act in a Milton Friedman fashion of Homo economicus to adequately provide for those needs. However, one can argue that Social Security is somewhat regressive since poor people have shorter lives thus acquire less benefits.

“Poor people” is not a fixed class of people. That is the fallacy of such thinking. In Holland, everyone has to pay 10% into a retirement program, regardless of income level. The difference, IIRC from conversations with my former colleagues, the money that is invested in this program belongs to the worker. Here in the US, Social Security (aka payroll tax, if you want to disguise its purpose) is our forced retirement deduction. The difference is, the money is not yours. If you die, your heirs receive zero dollars. It is unfair. There are some that even say it is racist, since some racial groups have a lower life expectancy.

Ribozyme:

But if you want to increase aggregate demand, give it to people who are most likely to spend it. This is simply an insult to Keynes.

Well, we certainly would want to insult Keynes.

 

[ribozyme]

“Poor people” is not a fixed class of people. That is the fallacy of such thinking. In Holland, everyone has to pay 10% into a retirement program, regardless of income level. The difference, IIRC from conversations with my former colleagues, the money that is invested in this program belongs to the worker. Here in the US, Social Security (aka payroll tax, if you want to disguise its purpose) is our forced retirement deduction. The difference is, the money is not yours. If you die, your heirs receive zero dollars. It is unfair. There are some that even say it is racist, since some racial groups have a lower life expectancy.

What if you do not have a high enough income?

EDIT:

eurofound.europa.eu/emire/NETHERLANDS/SOCIALSECURITY-NL.htm

Found that using google…

Social security in the Netherlands can be subdivided into social welfare benefits (sociale voorzieningen ) and social insurance benefits (sociale verzekeringen ). In addition, there are other arrangements which by tradition are not classed as social security but which provide financial assistance, such as the housing subsidy or statutory funding of higher secondary and university education. Social welfare benefits are financed from central government funds. They are intended as a basic provision and are means-tested. … National insurance applies to all residents of the Netherlands; benefits are not related to pay and comprise the state old-age pension , survivors’ pensions, child benefit , pensions received under the General Disablement Pensions Act and benefit under the General Act on Exceptional Medical Expenses.

 

[rlg94086]

What if you do not have a high enough income?

A high enough income for what? To pay 10%? I don’t know. At what point is 10% of your income impossible to pay?

 

[rlg94086]

(Please Note: This uploaded content is no longer available.)

 

[ribozyme]

Cutting taxes is a great idea. However, trimming government revenue while doing nothing about spending is unsound fiscal policy.

Let’s cut military spending first, Grover Norquist. Let’s starve the beast of our own military.

 

[rlg94086]

What if you do not have a high enough income?

EDIT:

eurofound.europa.eu/emire/NETHERLANDS/SOCIALSECURITY-NL.htm

Found that using google…

Ah…Google skills are good to have. Google their tax rates while you are at it. Check out their lowest tax rate. Their Social Security is better than ours, but it costs a large percentage…even for those with a lower income. You will see a 2.45% rate for the absolute lowest pay ranges, but that is only one of their taxes. The “effective” lowest rate is about 33.6%. I think this includes Social Security and a national health premium. When you consider that, here in the US, the lowest bracket is basically payroll taxes minus a tax credit and the poor qualify for Medicaid, we actually have much lower taxes for our lowest brackets.

The 10% forced retirement investment I cited is in addition to their Social Security. It may be employer-administered. All I remember is that it wasn’t a choice on the part of my colleague.

 

[rlg94086]

online.wsj.com/article/SB120122126173315299.html?mod=opinion_main_commentaries

Using recent data, in other words, it would appear on its face that the Democratic proposal to raise taxes on the upper-income earners, and lower taxes on the middle- and lower- income earners, will result in huge revenue losses on both accounts. But some academic advisers to Democratic candidates have a hard time understanding the obvious, devising outlandish theories as to why things are different now. Well they aren’t!

Here is a different viewpoint to that of ‘he who shall not be ineffably named.’ I’m sure that is who Laffer was referring to in his last paragraph.

Trained economists know all of this is true, but they try to rebut the facts nonetheless because they believe it will curry favor with their political benefactors.

 

[goofyjim]

I am a supply sider at heart and usually agree with tax cuts but even they approach the law of diminishing returns. If you slash them all and have nothing to help the poor then you are being selfish. They should have left the existing tax cuts in place but not reduced the rates any further.

For those who don’t understand, let’s take the example of a bridge toll. People will take an alternate bridge if the toll for one rises too high. Yet the operators of the bridge still have to cover expenses so there is a minimum toll to charge. Same idea works with taxes.

 

[Al_Masetti]

Here’s a stimulus that would work immediately.

Want to reduce energy costs? Abolish all taxes on gasoline.

Want to reduce energy costs? Increase supply by authorizing immediate drilling at ANWR and the other places that have been placed off limits. If previous presidential executive orders could take the oil, gas and coal deposits off limits, then a new executive order could put them in-limits.

Want to reduce energy costs? Authorize the immediate construction of new oil refineries to make gasoline. Instead of importing refined oil products such as gasoline. There is no reason why we can’t make the gasoline ourselves.

And stimulate the economy.

Big time.

 

[rlg94086]

I am a supply sider at heart and usually agree with tax cuts but even they approach the law of diminishing returns. If you slash them all and have nothing to help the poor then you are being selfish. They should have left the existing tax cuts in place but not reduced the rates any further.

For those who don’t understand, let’s take the example of a bridge toll. People will take an alternate bridge if the toll for one rises too high. Yet the operators of the bridge still have to cover expenses so there is a minimum toll to charge. Same idea works with taxes.

Actually, it is not the same goofyjim. We don’t pay percentages at a toll booth, and for your analogy to work, people would have to move to a different country due to the taxes.

The law of diminishing returns does not necessarily apply. You are right we can’t cut taxes to zero, but a cut in taxes usually results in an increase in revenue. That is what Laffer explains in the article I linked.

 

[Al_Masetti]

I am a supply sider at heart and usually agree with tax cuts but even they approach the law of diminishing returns. If you slash them all and have nothing to help the poor then you are being selfish. They should have left the existing tax cuts in place but not reduced the rates any further.

For those who don’t understand, let’s take the example of a bridge toll. People will take an alternate bridge if the toll for one rises too high. Yet the operators of the bridge still have to cover expenses so there is a minimum toll to charge. Same idea works with taxes.

Gotta make a distinction between “tax cuts” and “tax rate cuts”.

Big difference.

The government (all levels) now takes almost 40% of GDP.

Tax RATE cuts will increase economic activity at the private sector and will result in higher revenues to government. This has been the actual experience with the reduction, for example, in capital gains tax rates.

The only reason anyone will take a toll bridge is if the toll bridge offers a higher quality of service. Usually a toll bridge is part of a highway and usually (not always) the free bridges are connected to local congested roads. The reason for building the toll roads and toll bridges is to offer drivers a faster, less congested, higher-quality way to get from place to place.

In other countries, tolls are much higher than they are in the United States. Originally tolls on NYC bridges were 50 cents which was a huge amount of money in 1931 when the George Washington Bridge (and other bridges) were opened to traffic. And yet people took the Bridges because they were MUCH faster than the vehicle ferries.

 

[goofyjim]

Here’s a stimulus that would work immediately.

Want to reduce energy costs? Abolish all taxes on gasoline.

Want to reduce energy costs? Increase supply by authorizing immediate drilling at ANWR and the other places that have been placed off limits. If previous presidential executive orders could take the oil, gas and coal deposits off limits, then a new executive order could put them in-limits.

Want to reduce energy costs? Authorize the immediate construction of new oil refineries to make gasoline. Instead of importing refined oil products such as gasoline. There is no reason why we can’t make the gasoline ourselves.

And stimulate the economy.

Big time.

And why is this administration afraid of alternative sources of energy? While I agree this is a great short term stimulus it doesn’t solve the global warming problem, which there is one BTW. We should have been looking for alternates about thirty years ago but once again Big Money drives everything.

 

[goofyjim]

Gotta make a distinction between “tax cuts” and “tax rate cuts”.

Big difference.

The government (all levels) now takes almost 40% of GDP.

Tax RATE cuts will increase economic activity at the private sector and will result in higher revenues to government. This has been the actual experience with the reduction, for example, in capital gains tax rates.

The only reason anyone will take a toll bridge is if the toll bridge offers a higher quality of service. Usually a toll bridge is part of a highway and usually (not always) the free bridges are connected to local congested roads. The reason for building the toll roads and toll bridges is to offer drivers a faster, less congested, higher-quality way to get from place to place.

In other countries, tolls are much higher than they are in the United States. Originally tolls on NYC bridges were 50 cents which was a huge amount of money in 1931 when the George Washington Bridge (and other bridges) were opened to traffic. And yet people took the Bridges because they were MUCH faster than the vehicle ferries.

You obviously miss the point. It is true that competition forces an entity to drive it’s prices down but it still has to cover costs. The government still has an obligation to make sure its citizens have an education, are fed and are not homeless. If it fails to secure the revenue for these expenditures because of too severe tax cuts it has shot itself in the foot.

 

[Al_Masetti]

And why is this administration afraid of alternative sources of energy? While I agree this is a great short term stimulus it doesn’t solve the global warming problem, which there is one BTW. We should have been looking for alternates about thirty years ago but once again Big Money drives everything.

We may disagree on whether global warming is really a problem or not.

Alternative energy sources such as solar and wind are extremely unreliable and very expensive.

The only “alternative energy” source that I would support is methanol … which is a form of alcohol. Unlike ethanol, methanol can be made from many different basic materials.

Keep in mind that the reason for not developing more energy sources are lawsuits from environmentalists. For example, the United States has not built a nuclear power plant in decades. As a result, our electrical generation is only about 20% from nukes; whereas, France gets 80% of its electricity from nuclear power.

Environmentalists are campaigning actively to remove hydroelectric dams.

Strongly recommend reading “Energy Victory” by Robert Zubrin and Howard Hayden’s book “The Solar Fraud” available from www.energyadvocate.com And also a subscription to “The Energy Advocate” $35 per year.