Compounding this, as my friend "N" keeps reminding me in our email correspondence, is the reality of confirmation bias. It is built into our nature to look for evidence to support our preconceptions, rather than to follow the evidence wherever it leads. When I'm surfing the net looking for politics articles to read, I am much quicker to click on headlines that confirm something I already believe than on a headline that challenges that belief. Now I believe some people are more hung up on confirmation bias than others, and as a seeker of Truth it is the duty of all of us to fight against our tendencies in this area.
Anyway, when it comes to macroeconomics during modern times, the questions that are asked are these:
- Does Keynesian stimulus work?
- Do tax cuts make a significant difference in growth?
- When a central bank can't reduce interest rates any more, will "printing money" help the economy or will it cause inflation?
Does Stimulus Work?
We had a recent financial crisis and bad recession, which turned out to be worldwide. In response in the US, the Obama administration pushed through stimulus measures in 2009 to save the economy from a bigger collapse. Conservatives, who had previously loved stimulus, have grown much more conservative of late, and now pushed hard for Hooverite budget balance in the face of the recession. As a result, a stimulus package (including spending hikes as well as tax cuts- both of those are stimulus measures) was passed in 2009, but it was smaller than liberal economists calculated was needed. We then proceeded to get out of the recession in due time, but haven't had the kind of job growth we need to return to previous trends. In other words, we've had a recovery (so it worked!) but the recovery has been disappoining (so it failed!). We did stimulus (we tried it and it failed!), but that stimulus was too small to get us back to speed (we never really tried it!).
So how to measure whether stimulus worked? I think what makes the most sense, since the crisis was worldwide, is to look at similar places to ours and compare policy and outcomes. That makes a good case for stimulus: in Europe they did much less stimulus than we did in the US and their continent-wide problems are much worse than the US right now. Of course, those problems are really bad in particular countries (Greece, Spain, Ireland, Italy), while in Germany things are going much better even though not much stimulus happened. I think this is still a good case for stimulus though, as looking at Germany in isolation is kind of like looking at Massachusetts in isolation- they're part of a large monetary union, with stronger parts and weaker parts. But others will point out that Euro area countries set lots of their own policies, and are separate entities much more than US states are, which is certainly true.
So there's still enough doubt about stimulus that sceptics won't be convinced. BUT there's one thing I think you can say: US-style stimulus did not do any harm. Interest rates remain low so borrowing is easy. The stimulus program is over now, so there are not ongoing costs. There was no double-dip recession. European countries that stopped stimulus and tried to balance budgets earlier than us (like the UK) are doing much worse. Maybe we can't prove the positive value of stimlus to a scepic's liking, but we certainly proved that their forecasts of doom from overspending was wrong.
Are high taxes stifling the economy?
I find the Republican fetish for tax cuts almost comical at this point. It seems like their answer to any question is "tax cuts!". But look at recent history:
- Taxes were cut way back by Reagan in his first term. The economy did well, perhaps as a result of this, but the federal deficit ballooned.
- In his second term and in the term of George HW Bush, taxes were increased (though never to the level they were in the 1970s). The economy boomed in the 1990s.
- Under Clinton taxes were increased again; the economy boomed and the federal budget was in surplus by 2000.
- Under George W Bush, taxes were cut precipitously. The economy performed sort-of OK from 2002 to 2007, growing but producing fewer jobs than most recoveries in the modern era. Then a financial crisis completely destroyed what little growth there had been (I blame the financial crisis on banking policy, not on tax rates; but those low taxes obviously didn't do much to push back against the crisis).
- In 2013 taxes were finally increased again, after a five year period of historically low taxes (the Bush tax cuts plus the stimulus tax cuts including social security tax cuts, passed by Obama). So far in '13, the economy as a whole seems unaffected, continuing its recent growth. Still growing, but not really fast enough.
So I guess in economics it's easier to prove negatives than positives.
It goes on and on in this blog. The Liberal analysis, the attempt to demonize the rich, the attacks on Capitalism. All the while the Liberal White House and the Liberal U.S. Senate are making the rich richer and the poor poorer. How did they do the opposite of what you wanted,,without you even realizing it? Amazing isn't it? You're not all stupid,,are you?
ReplyDeleteMany in the "Progressive" "Liberal" "Socialist" movements in America may wake up from their Utopian dream and see the damage they're doing to the next generation and America. Supporting failure has a short life span with the more intelligent and those with children in these movements. For those who hate America and those who don't like to work for a living,,,they will remain Democrat voters.
ReplyDeleteLets agree that most of the "generosity and compassion" in dollars spent to help people in America is coming from Governments these days. I think we can all agree on that.
ReplyDeleteWhere does the money come from?
From the half that is touted as the most generous who pay no taxes? Impossible, if they contribute nothing.
Then we have to conclude that every dollar that goes to a Food Stamp recipient is from the paycheck of a tax payer.
Of course one could make the argument that the money we borrow from China to cover our Deficits helps also.
When you try to make the case for the poor being more generous than the rich it has to be based on removing the Government from the equation.
That's like saying my children are more generous than me,,with my money.
Demonizing the rich is like demonizing Dad,,the breadwinner. It's nothing more than a ploy used by Democrats to get votes.
Even some tax paying Democrats fall for it,,I know a few. We all find it very easy to be generous with other peoples money.
CBO Budget update
ReplyDeleteFor the 2014–2023 period, deficits in CBO’s baseline projections total $6.3 trillion. With such deficits, federal debt held by the public is projected to remain above 70 percent of GDP—far higher than the 39 percent average seen over the past four decades. (As recently as the end of 2007, federal debt equaled 36 percent of GDP.) Under current law, the debt is projected to decline from about 76 percent of GDP in 2014 to slightly below 71 percent in 2018 but then to start rising again; by 2023, if current laws remain in place, debt will equal 74 percent of GDP and continue to be on an upward path.
Such high and rising debt later in the coming decade would have serious negative consequences: When interest rates return to higher (more typical) levels, federal spending on interest payments would increase substantially. Moreover, because federal borrowing reduces national saving, over time the capital stock would be smaller and total wages would be lower than they would be if the debt was reduced. In addition, lawmakers would have less flexibility than they would have if debt levels were lower to use tax and spending policy to respond to unexpected challenges.
Finally, a large debt increases the risk of a fiscal crisis, during which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates.
Who said this?
ReplyDelete“Driving up our national debt from $5 trillion dollars to $9 trillion is irresponsible. It’s unpatriotic.”
"The fact that we are here today to debate raising America's debt limit is a sign of leadership failure ... Leadership means that ‘the buck stops here.' Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren."