Map of life expectancy at birth from Global Education Project.

Thursday, September 28, 2017

Economics 101

Bruce Bartlett is not exactly Leon Trotsky. He was a senior policy advisor to Saint Ronald Reagan, and an architect of Reagan's famous tax cut. Bartlett states clearly and simply what economists now know to be true, at least those who try to practice an empirical science rather than a branch of theology.

In reality, there’s no evidence that a tax cut now would spur growth. . . . Strenuous efforts by economists to find any growth effect from the 1986 act have failed to find much. The most thorough analysis, by economists Alan Auerbach and Joel Slemrod, found only a shifting of income due to tax reform, no growth effects: “The aggregate values of labor supply and saving apparently responded very little,” they concluded. . . . We saw another test of the Republican tax myth in 2013, after President Barack Obama allowed some of the Bush tax cuts to expire, raising the top income tax rate to its current 39.6 percent from 35 percent. The economy grew nicely afterward and the stock market has boomed — up around 10,000 points over the past five years.
One class of people who haven't gotten the message is journalists who work for the corporate media. When Republicans say that cutting rich people's taxes will cause economic growth, they just take it for granted. This has become a truism in American political discourse, like, oh, saluting the flag. It is not true.

Marginal tax rates are much higher in most of Europe than in the U.S., and their economies grow just as fast, or faster, than ours. Cutting rich people's taxes does not cause capitalists to create jobs or raise wages. It just let's them keep more of their money and starves government of money it needs to solve problems and invest in our future.

The reason for this I have explained before. Investors only start enterprises or build up existing ones when there are potential customers out there with the money to buy their crap. And that is not rich people, who already spend all they want to. The way to stimulate growth is to put money in the pockets of low and moderate income people who will spend it, and the best way to do that is to invest in projects that will put them to work, such as health care, education, renewable energy development, research and public infrastructure. Mass transit is a good one! In times of recession, government can borrow the money. Right now, borrowing is cheap, but rich people also have far more money than they can possibly use and we can raise their taxes and put the money to work, thereby employing people and raising their wages. We could also cut taxes on low and moderate income people and yes, they would spend most of the difference.

Somebody please explain this to Chuck Todd.


Don Quixote said...

It's hard to conceive of meaningful change in a country where TV "journalists" are nothing more than corporate toadies. Sure, I can find out what's really happening--and time has proven this--in The Nation magazine. But most people aren't reading The Nation.

I figure Fox Propaganda Network is basically a state propaganda tool when the Republicans are in power, and it tries to bring down whatever administration is in power when it's Democratic. But with the lies it propagates, why is Fox allowed to exist? Free speech doesn't cover libel. That principle goes all the way back to the 1600s and John Peter Zenger.

It is the echo chamber of lies--Fox, other conservative media--that is allowing Republicans to get away with blatant lies about economics. Their "health care bills," for instance, are only there to REPEAL health care. So they should be called "health care repeal bills." Their tax plans should be called "debt augmentation" plans. "Pro-lifers" should be called "Pro-birthers."

Republicans obfuscate and just plain lie. When they--or any other politicians lie blatantly--they should be prosecuted. But the other branches of our government are also controlled by Republicans.

Anonymous said...

I haven't yet heard of any pearl twisting by the 39.6% tax bracket crowd over the fact that the application fee to Trump's Mar-A-Lago club has doubled, from $100,000 to $200,000. Perhaps because it apparently held the line on its annual $14,000 membership fee and the requirement to spend at least $2000 annually at its restaurants and bars.

For this you get the privilege of eating and drinking at said facilities, priority reserving tee times, and a reasonable cost to play a round of golf.

I can see how far this eclipses the paltry services provided to your class by the Federal Government: Things like a stable currency, a court system where you can send the claims made by your subcontractors to honor your promises to die, and protection of your assets from invaders, and mobs with pitchforks. I'm comfortable with the idea that I've missed a sea of other perks that are wrapped in enough legal jargon to hide them from the "little people".

Did I forget the Medicaid and food stamps that the govenment gives to your employees so that you can keep your labor expenses down? Shame on me!

Bitterness aside, I suspect that the total benefits that the Platinum members get from belonging to the U-S-Amerigo club more than compensate them for the membership "fees" they actually pay.

Mark P said...

Paul Krugman's NYT blog has a plot of debt vs GDP going back before 1970, so it shows the effect of the Reagan and Bush 2 tax cuts for the wealthy. The debt ratio goes up fairly significantly with each tax cut. Who could possibly have known such a thing? I mean besides rational economists and anyone else who thought about it seriously.

Anonymous said...

It'd be interesting to see Krugman also plot spending during those same periods.

Cervantes said...

I'd prefer for people to use a handle -- we don't want to mix up our anonymouses.

Gay Boy Bob said...

OK, I'm the original "anonymous" and will honor your request and use this handle from now on.

As for anonymous' comment on the Trump country club and their fees, these are all voluntary...and that makes all the difference in the world. Taxation is a forced extraction with the full force of the power of the state behind it.

I've had discussions about taxation with many of my more liberal friends who clutch their pearls citing the skyrocketing debt and the need for more taxes.

Until you get control of spending, higher taxes will not help. Any increase in receipts will be promptly spent by politicians to buy votes.

We're collecting record receipts now and it hasn't helped.

Gay Boy Bob said...

So far, you've limited your discussion of tax to personal income tax.

I would posit that regardless of what the corporate tax rate is, corporations (and all business regardless of form) does not pay tax.

Instead, it's just another cost of doing business like labor, materials and administrative overhead.

It's goofy to think that business will pass all of these through to the consumer in higher prices *except* tax expense. Of course they pass it on.

They don't pay. YOU pay, especially the poor.