The Lost Decade
The Wall Street Journal this morning is enough to send you back to bed. Oil prices are spiking on low supply, consumer confidence is at the lowest level since the 70's, Home prices have fallen 11% in the last year, the Clear Channel buyout is crashing and worst of all--we have just lived through a decade where the stock market has not made any gains. The Journal is kind enough to point out that we have been through this nightmare before from 1929-1942 and 1966-1982, but this is cold comfort.
Supply-side economists like Larry Kudlow will say they have just the solution, cut capital gains taxes on the rich and they will work harder and produce more wealth for the society. But I know a lot of very well off people and I never saw them go on strike when taxes were higher in the 90's. Louis Uchitelle shows the big lie of the Supply-siders, who claim that if you just cut taxes on the rich, tax revenues will grow because the benighted billionaires will work much harder.
The problem is the evidence doesn't support their claims.
In the 1980s, though, during the initial era of supply-side tax cuts, per capita revenue from personal income taxes, adjusted for inflation, rose an average of just 0.7 percent annually throughout the Reagan presidency, according to the White House Office of Management and Budget.That was far below what turned out to be an average annual increase of 6.5 percent in the eight years of the Clinton administration, when tax rates at the high end of the income ladder were raised.
This of course hasn't stopped John McCain, who once mocked the tax cuts of George Bush, into surrounding him self with "Voodoo Economists" (Bush Sr's term).
“What really happens is that the economy grows more vigorously when you lower tax rates,” said Kevin Hassett, an adviser to the presumptive Republican nominee, John McCain, and the director for economic policy studies at the conservative American Enterprise Institute. “It is beyond the reach of economic science to explain precisely why that happens, but it does.”Even with a growing economy, however, the promised boon in tax revenue never materialized. Arthur B. Laffer, the renowned proponent of supply-side economics, still holds that tax revenues “rise dramatically” when tax rates are cut.
Don't you just love it when "rational actors" like Mr. Hassett say that even though their theory "is beyond the reach of economic science", you just have to trust them that it's true. Faith-based economics.
Home prices have fallen 11% in the last year.
Woo Hoo!
It's bad for me, I guess, since I own a home. But this is great news for all those deserving younger people who have been priced out of an absurdly overinflated housing market. Keep the correction coming.
March 26, 2008 12:15 PM | Reply | Permalink
Supply side economics can be described as thus;
You feed a horse oats, which represent tax cuts for the wealthy, what comes out the back is the trickle down that the rest of the public gets.
March 26, 2008 1:16 PM | Reply | Permalink
Actually, Supply Side can work, just not the way it's supporters claim.
They claim that by making Wall Street more wealthy it will spur investment and create more jobs. What they neglect to mention is that the investment occurs in places like Chine, because American labor simply can't compete with slave labor in a developing economy. The result is China holding a lot of our wealth and decimating our manufacturing base and the middle class. All of which is not only eroding our economy, but also eroding our national security, social fabric, and long term quality of life and capacity to compete in the global market.
Functional "Supply Side" economics is targeted at the middle class and working people. That capital goes right back into the economy for services and consumption, which drives up consumption of quality goods, which enlarges markets and increases innovation, which creates additional demand for college grads and a post-industrial economy. It also directly produces a higher quality of life for millions of Americans, which directly improves social issues such as good parenting, HS graduation and higher education, lowers crime, etc.
March 26, 2008 1:53 PM | Reply | Permalink
Kozmik,
if people get a pay raise every year but not a tax increase, isn't that non government supply side economics?
March 26, 2008 2:37 PM | Reply | Permalink
That makes sense to me. The whole tax policy is upside down. We should tax investment-type income at 40% and tax salary-type income at 15%. ;-)
March 26, 2008 6:27 PM | Reply | Permalink
We don't want to kill investment in industries creating good jobs, making export products, and generating real wealth.
But we should more heavily regulate and tax practices that are basically rent seeking, predatory, market timing, and such.
the devils in the details and there's no easy way to summarize it that I'm aware of. But that has to be the fundamental goal.
Right now it's upside down all right. We're rewarding people for looting the economy and putting nothing back, while penalizing people who attempt to keep good jobs in the US or otherwise act in a socially conscious manner.
The market just isn't capable of addressing these issues. When you buy a car or a computer or groceries or whatever, you can't look into the entire supply chain and separate out the good from the bad. But when a factory is employing slave labor, or dumping carcinogens into the local drinking water, regulators should prevent any of their products from entering the US market.
March 26, 2008 7:56 PM | Reply | Permalink
Yeah right. This is just another version of the "communism really really really does work! It just hasn't been done properly yet!"
Ideology can't fail. It can only be failed. So we pick ourselves up, and try harder, on the understanding that it was a lack of faith or some missing nuance, and that greater sincerity will do the job. And we throw more billions of dollars and millions of lives on the bonfire.
Rinse and repeat as often as necessary.
In the end, a bad idea is a bad idea.
March 29, 2008 3:30 PM | Reply | Permalink
It's not really clear to me that the billionaires are beating the drum for lower taxes anyway. Some of them are on record as favoring tax hikes. Supply Side voodoo is mainly a cause or ideologues who use it as a way of co-opting middle and working class economic frustrations by telling them it's because tehir taxes are too high.
March 26, 2008 1:22 PM | Reply | Permalink
Here's the "vast right wing conspiracy" version of events. As Ripley used to say "believe it or not".
There is a core group of wealthy individuals who have spent the last 40 years funding and setting up an intellectual infrastructure which supports their self-interested ideology. Simply, it is that these heirs to inherited fortunes want to see their privilege maintained. This means low taxes on unearned income (capital gains and dividends) as well on estates. True entrepreneurs such as the founders of Google are too busy building businesses and innovating to focus on wealth preservation.
To do this they have set up a considerable number of pseudo-scholarly institutions. Among the best know are Heritage, Hoover, Cato, and in addition have funded groups such as the George Mason economics department. Many in the group are relatively unknown, and like it that way. This include members of the Coors, Scaife, Olin, Walton, Koch, Mars and DeVos families.
Their activities are tracked by several groups including Source Watch and Media Transparency. Both have web sites where you can see the interconnections between the donors and groups (to the extend that records are public).
Many people doubt that a group of under 100 families could really set the course of conservative economic thought for the past half century. They believe that the US is too democratic, and that a fair airing of all views will lead to the "truth". Liberals tend to look at their underfunded, chaotic efforts and think that the other side must be organized similarly. They are mistaken.
When your livelihood depends upon agreeing with those paying your salary, it is more than "faith" that is involved. Bad ideas like trickle-down never die because the conservative funders are getting good value for their investments. Totally nonsensical ideas continue to get noticed and debated time and again. Even the NY Times has given in to this propaganda barrage and now has three regular contributors who are dyed-in-the-wool libertarians: Alex Tabarrok, Tyler Cowan, and Ben Stein. The first two are affiliated with George Mason (funded by Charles Koch), and the latter with the circus clown college..
In addition they have ideological fellow travelers William Kristol and David Brooks. How is it that there is so much representation for a school of thought that doesn't even exist elsewhere in the world? One would think that if Laffer had discovered a great insight economists would be adopting his policies from Albania to Zaire. But it only gets traction when the ideas are kept on life support by the super wealthy backers.
A self-serving, economy destroying ideology keeps getting debated as if it had some serious scientific evidence. It like the undead in the horror movies, every night it gets a fresh supply of blood (money) from the "vast right wing conspiracy".
March 26, 2008 2:51 PM | Reply | Permalink
rdf,
excellent post. I read something similar about 5 years ago that also addressed that core group of wealthy individuals. Actually, a different word should be used to describe them; "wealthy" just doesn't describe the rarefied air these people exist in. They were probably among the first billionaires.
March 26, 2008 5:38 PM | Reply | Permalink
rdf,
You present the picture quite well. As for economists and the Laffer curve, no economist who has researched it has been able to get any results proving it. Since negative results are much less likely to get published that positive results, the utter failure of the Laffer Curve is not widely published.
Upcoming academic economic researchers have to have publications to survive and prosper academically. An idea like the Laffer curve does not lead to such publications, so economists simply ignore it.
March 26, 2008 5:44 PM | Reply | Permalink
"what really happens is that the economy grows more vigorously when you lower tax rates”.
Did he add that the economy then crashes more spectacularly?
Of course not.
Mr Hassett is also lying about economic science. A fellow called John Maynard Keynes addressed the relevant questions in the first half of the 20th century. That we have to relearn the lessons of Keynes is the fault of people like Kevin "Dow 36,000" Hassett. (Yes, he did in fact write Dow 36,000, probably the most patently anti-intellectual and demonstrably stupid book of the dotcom era.)
There's only one description for these people - dangerous idiots. What the Neocons are to geopolitics, so are the supply-siders to economic policy. Full of utopian visions, full of happy stories, but mostly full of shit.
March 26, 2008 3:25 PM | Reply | Permalink
Didn't you characterize Bill Clinton in your last 2 posts? Seems to me its you who has no character or principles.
However, you exist mostly to get partisans' blood boiling to here you go
Thievery
And this was written before JPMorgan raised its offer.
March 26, 2008 3:49 PM | Reply | Permalink
Another stunningly irrelevant post from a stunningly irrelevant poster.
Have your balls dropped yet?
March 29, 2008 3:32 PM | Reply | Permalink
HohnW1141,
No, making sure that consumers have more money to spend is called demand side economics.
Read my lips. I will speak very slowly. The current Depression that no one dares admit is getting that bad as a demand Depression. There simply is not enough demand for anyone with any good sense to spend money as investments to meet.
That's why most companies have been awash with cash they could not spend since the dot.com bubble burst, and that's why Greenspan did every thing he could to pump up the housing bubble while letting mortgage lenders go off the rails extracting the fictitious real estate gains so that consumers could use them to pay off credit card debt. That's also why the banks made it a lot more difficult to get credit card debt relieved in bankruptcy.
So-called supply side economics is based on the fiction that there is a shortage of capital and that with more capital, more businesses will be created. That is a fantasy, and when told by people who know better, it's a lie. Businesses are built because there is a demand for their product. Capital is cheap and easy to get if you can do the hard part and find or create a demand to fill.
But people don't get rich building businesses to fill a demand. They get rich because they either have a monopoly and no effective competition or because they have a government contract.
So-called "supply-side' economics plays towards that idea of get the government to tax people and give he money to businessmen, and if they don't spend it all on $5,000 an hour hookers, maybe they will build a business with it. But if they were able to build a business, they wouldn't need to cry to the government for more money and lower taxes.
March 26, 2008 5:37 PM | Reply | Permalink
Richardxx,
anything that starts with the words "Supply side" should be burned at the stake before it leads to Reaganomics.
March 27, 2008 1:39 PM | Reply | Permalink
Americans keep falling for this nonsense. But RDF above has it right. Look up Club for Growth or Grover Norquist. For the most part they have gotten their way from both Bushes and Reagan. Inexplicably with help from the religious right. Oh, trillions in debt has been run up to support these 'tax cuts'.
March 26, 2008 9:26 PM | Reply | Permalink
In the April 7 Nation, Daniel Brook, commenting on an analysis of tax data by David Cay Johnston writes "It is not merely the poor and middle class who are being left behind. Even those in the 95th..... percentile.......... haven't realized outsized economic benefits over the past 25 years. The only people leaping ahead in winner-take-all America are in the top 1%".
March 26, 2008 9:29 PM | Reply | Permalink
I have to confess that my post is off topic, but I do not how else to respond to JohnW1141's March 8 post on his being in a place called Ludwigslust, Germany in May, 1945.
I apologize for the off topic comment, but I would like JohnW1141 to contact me - or if it were appropriate, to blog somewhere about what he did and saw there.
His comments came up during a google search I did yesterday.
jspeeder
Wobbelin researcher
jgoodspe@edzone.net
March 27, 2008 10:56 AM | Reply | Permalink
rdf-A spot on characterization of the supply side movement--invented btw on the back of a napkin by Arthur Laffer.
Morphy-Of course this nonsense could have never advanced this far without Grover and the Club for Growth, financed by the very fat cats who renamed the "death tax".
Richard-I was an entrepreneur in the 90's and even though taxes were higher, there was no dearth of venture capital. In fact, there was too much, leading to the tech bubble. That's why Kudlow et al are pushing a big lie
March 27, 2008 11:24 AM | Reply | Permalink
Eddie-george- I forgot that McCain's key economic advisor was responsible for "Dow 36,000". That is truly scary. How does a guy like Hassett even get a job after that prediction?
March 27, 2008 11:27 AM | Reply | Permalink
Excluding income earned on reinvestment of interest earned we know that a 20-year UST purchased last Thursday will "return" the buyer 83% of the purchase price over the next 20 years.
1. What will a purchase of the 30 DOW stocks weighted as per the index "return" in total dividends and capital appreciation over the next 20 years? (You may offer a range)
2. What discount rate(s) should be applied to that "return" to obtain present value?
3. Applying that (those) discount rate(s) what should the DOW sell for today (that is, what should its present value be)?
Unless you're prepared to answer those questions and explain your answers, kindly do not denigrate Hassett's work.
March 27, 2008 8:13 PM | Reply | Permalink
HummerGeddon??
Too many over intricated duplicitous market instruments/schemes/devices , gives control of Real Product in a Real Economy , over to a fickle set of chancy ungraspibble flow outs to who knows where (he he hee hmmm )
unlike 1930'S we wont go hungry ...the pumpkins still grow , and now we all know!
and when all the hubcaps and the wheelnuts all fall off the Jizzy Wizzy econonome....we'll just kiss the Jizzy Wizzy dolla off to history and re issue a new one without the clever vacuous promises of escapism required to suck it along
March 27, 2008 2:11 PM | Reply | Permalink
Don't forget that another very significant McCain economic adviser is ex-Senator Phil Gramm.
Gramm is a Libertarian Ph.D economist from a third rate school who was hired at Texas A&M. After he was hired there, A&M decided to become a research University, and Libertarians have found it almost impossible to get published. He was thus a disregarded Economist in the Economics Department of a research University. The members of the Department were delighted to see him leave to enter Congress.
Libertarians don't research to learn new theories. They research to prove their Libertarian ideology is true, and there is no successful thread of research that supports them. Dick Armey had the same problem as head of the Economics Department of the University of North Texas - previously North Texas State Teachers College. Both Universities were delighted to get rid of them when they each ran for Congress.
Gramm is famous primarily for shepherding the elimination of Glass-Steagall through the Republican Senate and for his irrational belief that he could run for President. His reputation in Texas - besides for his conservative economics - was for taking credit for the efforts of other Texas Congressmen when something actually got signed.
He and his wife, Wendy were directly responsible for removing SEC regulation and oversight over Enron, leading to Enron's criminality and collapse. Wendy (also a Ph.D Economist) was at the SEC and wrote the regulations that exempted Enron's operations from SEC supervision.
After her husband got the elimination of Glass-Stegall through congress (and idiotically signed by Clinton) Wendy left the SEC and joined the Enron Board of Directors where she was a key member of the Audit Committee which approved Enron's criminal accounting and the behavior of Jeff Skilling and Kenneth Lay.
Between the irrational extremists Hasset and Gramm, McCain has chosen the least competent well-known economics advisers in America.
That tells you a lot about McCain.
March 27, 2008 8:32 PM | Reply | Permalink
I'm not opposed to "supply side" if that is truly what it is, but lets not pretend. Bringing tort law into some reasonable control, removing or reducing regulations when their costs are shown to outweigh their benefits might increase supply of goods and at the same time reduce costs and improve the amount of jobs and their pay. Simply to reduce taxes on the rich doesn't mean they will invest their tax savings in our country if the gain is perceived to be better elsewhere. I understand that it is more likely that investors will invest in our country if they can put of profits back in their profit, but lets not fool ourselves that such is the whole equation. Labor costs, regulatory and liability costs are among many of the factors that affect the return on investment. It should not all about tax breaks. I disagree with government bailouts of individuals and investors that made unwise decisions in our ballooning housing market. It is not fair then to tax conservative lending institutions or conservative individuals to bail out those who made poor decisions. As much as possible the Fed should regulate money supply so as to keep it stable, not bail out these institutions, investors or individuals that share part of the blame.
March 28, 2008 2:35 PM | Reply | Permalink
rdf probably exact
i know you are not scared of being tagged a conspiracy theorist ?
your country is getting done by its secular executive - 30cents in the dollar at least
to the middle east
you know this i blog for those less confident
a conspiracy theory is not something that is wanted or hunted by a rational thinking patriotic person
on the contrary a conspiracy 'theory' is usually an unwanted awareness - a scary pattern of reasonable relates and knowns that clicks to a vex for further investigation
its also an explanation that (if correct) can identify entire viruses of cause which if removed cannot re offend on the same macro template
dont be fooled by incumbents and press dumbimg ya all down to believe conspiracies are all impossible paranoia
conspiracy!!
we all conspire successfully in large groups everyday in business for profitable outcomes
the press propagates the 'conspiracy theorist' ridicule and thus fends off the first line of enquiry into macro deeper unrevealed anomolies in systems
actually most journos probably are fearful of their own loss of credibility amongst their lot by not regularly disparaging 'the' tedious conspiracy theorists
the press for the most part are hooked pathetically to party lines
looking well away from awareness of macro conspiracy patterns
the lesser self speaks loudest these days
saying dont be a conspiracy theorist it'll kill your credibility
just ignore - pretend
lee did it
lee who - who cares - i've still got a job.
spurious nedia application of the term'conspiracy theorist'has the term dictionaried into the mockable pejoritave and those who seek to quesrion 'up' as nuisance only
blogs are going to change that significantly
mccain knows it.. letterman must have told him
we all know it
obama knows it
and the warren commission missed it
and now because everyone knows it - bullshit doesnt cut it anymore no matter how slick or steeped in tradion its tapestry is spun
thats why obama will win the next u.s election
by keeping a third of american workers salaries away from the middle east
conflict of interest is so rife in business affairs today that dismissing 'conspiracy theorist' into contempt is almost an admission that everyone knows and accepts a new norm
but nobody wants to stall the shaky but moving existing american way of life
to reconfigure for a better future.
its all too hard
ironically a serious national economic collapse will probably degenerate some of these smooth running trogan conspiracies
but they will need finishing off
these trojans are parasitic to true american decency and ingenuity
they would be anathema to jefferson and franklin
and we all know it
and we nearly all know it's for the better
and sadly
heres a conspiracy theory that should never have become a fact perhaps a grave reply to a continuing conspiracy at the highest executive ? level
a group of men conspire to conceal their collective intentions and inevitable actions from the public and from the highest echelons of all u.s govt authorities for some years
911
March 28, 2008 3:07 PM | Reply | Permalink