The Republicans Just won’t Trade in their Fairy Tales
Posted: November 11, 2012 Filed under: Economy, just because | Tags: fiscal cliff, joseph stiglitz, Mark Thoma, Paul Krugman, Trickle Down Economics, voodoo economics 23 CommentsThere’s a notable absence of economists on panels in the mainstream media that discuss the fiscal “ramp”. I’m refusing to call it a fiscal cliff because that’s a misnomer. I’m not sure why they won’t put research economists on these panels. Perhaps they think we’re not
photogenic or–despite the fact that a lot of us teach–we can’t explain ourselves. There’s an extremely strong consensus in the economics community on the s0-called budget crisis. Dragging out mainstream economists like Paul Krugman and Joseph Stiglitz and labeling them lefties because of their political leanings is rather disingenuous. It stops them from getting on panels where they could actually explain to people what’s what.
The corporate press would rather haul out a few journalists with real background in the field. There’s a difference between asking a journalist, a lawyer, or some self-anointed policy expert a question on economic theory. First, asking an economist to answer a question as an economist means they’ll stick to the theory and the empirical findings. Second, you can actually pull in almost any economist either trained after about 1980 or who has kept up with the dynamic business cycle models, the empirical findings, and theories and you won’t get much disagreement. You wouldn’t know that if you listen to the press, which seems to be made up a few folks with MBAs who have very little understanding of theory, models, or findings.
Deficit hawks tend be either Wall Street types, lawyers, or partisan right wing politicians. The folks that are screaming worst about dropping the tax cuts for the uber rich tend to have the most to lose personally and the least to lose professionally. Study-after-study-after-study shows that tax cuts to the middle, working, and lower classes and to young people tend to create completely different circumstances than they do for older people and the rich. First, there’s more folks in the first group. Second, they tend to spend a lot more of their current income. Third, their savings and investment opportunities are limited, so the assets they use stay in the country. None of this applies to the uber rich who tend to create jobs and wealth overseas these days and work hard to avoid taxes anyway. We’d do well to just simply let go of the idea that increasing the tax rates on the rich will either lead to unemployment, won’t pay down the deficit, or will suppress growth. These are tales of sound and fury signifying nothing but personal greed.
It is true that we are not on a sustainable spending path. This is because of the direct actions of the Bush administration. They lowered tax rates. Ran two huge wars with no tax increases. They oversaw and created two recessions. They created an asset bubble and then popped it. Growth, employment, and the value of taxable assets all decreased because of their actions. We simply have to reverse their trajectory. We have to do some work on Medicare and we need to walk away from the decaying, rotting corpse of Zombie Economics. The Republicans still won’t let that rotting corpse go.
Krugman talks about some of this on his blog in a post called “Squirming Hawks”. Paul Krugman may be a liberal but he’s certainly not going to risk his reputation in the economics community to spout crackpot hypothesis. Look at what happened to Arthur Laffer whose basically been expunged from any serious text, publishing deal, or institution. When you push crackpot hypotheses that do not stand up to empirical testing and you do not give them up and move on, the community of those who base their research on the scientific method will write you off. Those that follow Hayek and Von Mises have been similarly written off. Their ideological hypotheses do not stand up to any empirical testing.
Now, there’s a straightforward argument for why the fiscal cliff is bad but long-term deficit reduction is good — namely, that you really don’t want to cut deficits when the economy is depressed and you’re in a liquidity trap, so that monetary expansion can’t offset fiscal contraction. As Keynes said, the boom, not the slump, is the time for austerity. But the deficit hawks can’t make that argument, because they have in fact been arguing for austerity now now now.
So they’re left making a mostly incoherent case: it’s too abrupt (why?), it’s the wrong kind of deficit reduction (???), and then this:
a better approach would be to focus spending cuts on low-priority spending and on changes which can help to encourage growth and generate new revenue through comprehensive tax reform which broadens the base – ideally by enough to also lower tax rates.
Low-priority spending? I think that means spending on poor people and the middle class. And isn’t it amazing how people who claim to be horrified, horrified about deficits can’t stop talking about cutting tax rates?
Meanwhile, the CRFB features on its home page an op-ed by Jim Jones declaring that
We are perilously close to trillion-dollar yearly interest payments, 7 percent yields on 10-year U.S. Treasury bonds, 10 percent home mortgage rates and 13 percent rates on car loans. For the good of the country, the parties must come together and not let this happen.
How does he know that we are “perilously close” to this outcome? Not from the markets; not from any kind of economic model. My guess is that Peggy Noonan told him.
Scaring people with large numbers that are not grounded to other large numbers is a mean and terrible thing to do. We have a huge tax base. We have more than enough ability to continue to borrow at low interest rates. We have the ability to print money. We have all kinds of options. We have a huge economy that is showing signs of coming out of a lot of trauma. We should get a double peace dividend shortly. These things point to a very good reason not to be crazy-go-nuts like the Europeans and fall on the austerity sword.
I think that Mark Thoma has some interesting things to add to this conversation. He asks rhetorically and then answers: Hasn’t Paul Krugman Heard about the Magic of Tax Cuts and Supply-Side Economics? No, and for Good Reason…
I guess Paul Krugman hasn’t heard about the magic of tax cuts and supply-side economics. Well, Cato-at-Liberty has, and it’s ticked at the CBO because “it assumes higher tax rates generate more money” when making budget projections. That’s right, despite all the evidence against the claim that tax cuts actually increased revenue — it’s a myth that won’t die because people who know better, or ought to, still promote it — we should discredit the CBO for making the claim that higher tax rates would help with the budget problem.
And that’s not all. The CBO should be further discredited because it says the stimulus package helped to ease the recession:
The CBO repeatedly claimed that Obama’s faux stimulus would boost growth. Heck, CBO even claimed Obama’s spending binge was successful after the fact, even though it was followed by record levels of unemployment.
I’ll pass over the “record levels of unemployment’ claim (but note that unemployment peaked at 10.0% in October 2009, but was 10.8% at the end of 1982, at best this is playing games with the word “levels” and ignoring population growth — and if duration is the argument, as Reinhart and Rogoff recently noted, conditional on the type of recession this recovery is actually a bit better than most).
On the main claim about fiscal policy, there’s plenty of emerging evidence supporting the contention that fiscal policy helped to ease the recession (and remember how much of the stimulus package was tax cuts — it’s amusing to listen to conservatives tell us how useless the tax cuts they fought for as part of the stimulus package turned out to be, especially when in the next breath they argue for more tax cuts). The CBO is dealing in actual evidence, the claims made by Cato-at-Liberty are backed by nothing more than the Republican noise machine that is so good at misleading followers.
Republicans just can’t help themselves from attacking anyone and anything that is inconvenient to their goals, and actual evidence has little to do with it. Apparently, they learned nothing from the election. This is part of a larger effort to discredit the CBO because it doesn’t agree with Republican views on the magic of tax cuts, and for other results the non-partisan agency has come up with that Republicans don’t want to hear (so they basically cover their ears and ignore them).
The Republicans aren’t the only ones doing this. I watch about 5 minutes of an Ali Velshi panel that really horrified me. No one there directly took on Stephen Moore of the WSJ on that same damn fairy tale about job creators and tax rates on the rich. Why doesn’t any one mention that his assertions have no basis in reality, theory, or empirical evidence and have been thoroughly trounced? Better yet, why is some one who spouts propaganda even on a news program that supposedly informs people about economics, finance, and policy? There was one truly knowledgeable person on the panel. The rest of them should have asked questions then listened to Mohamed A. El-Erian. Again, Stephen Moore should only be placed on panels where fairy tales are involved. His degrees in economics are obviously stale. Plus, he works with Laffer whose been laughed out of any organization that contains serious economists. He’s basically a tool of the plutocracy.
Fortunately, it looks like the Senate Democrats are having none of this.
Sen. Patty Murray (D-Wash.) on Sunday said Democrats were prepared to allow the expiration of all George W. Bush-era tax rates if Republican lawmakers objected to raising taxes on the wealthiest.
“We can’t accept an unfair deal that piles on the middle class and tell them they have to support it. We have to make sure that the wealthiest Americans pay their fair share,” said Murray on ABC”s “This Week.”
Murray said one option would be to let the lower rates expire across-the-board and then return to the table next year with new talks on a tax-cut package.
“So if the Republicans will not agree with that, we will reach a point at the end of this year where all the tax cuts expire and we’ll start over next year. And whatever we do will be a tax cut for whatever package we put together. That may be the way to get past this,” said Murray.
The Washington senator is likely to become chairwoman of the Senate Budget Committee and previously served on the congressional “supercommitee,” which failed to finalize a deficit-reduction plan, which may trigger sequestration cuts in January 2013.
The evidence points to the recessionary impact of tax cuts on the middle class. There is nothing that shows allowing the Bush Tax cuts to expire will do the same. Republicans keep suppressing the evidence.
In particular, the CBO gave its most detailed look at how the expiration of the Bush-era tax cuts would affect the economy. Apparently, it would do little harm, the numbers show.
Just like the damn things did little good for the economy and most of us, letting them die would do little harm. I hope the Dems just hold to the facts and that the election has given them some resolve to do the people’s business.
Fuzzy Math and Beyond: Romney’s Tax Plan is Mission Impossible
Posted: October 13, 2012 Filed under: 2012 elections, Economy | Tags: Bad Math, Joint Committee on Taxation, Mark Zandi, Romney Tax Plan 27 CommentsThere’s more evidence that Romney’s promise to provide 20% across-the-board tax cuts coupled with deficit reduction just doesn’t add-up. There’s a new JCT study that shows this and there’s confirmation from Moody’s Economist Mark Zandi. Mark Zandi is a former McCain advisor so there’s not much room to argue that he’s got a liberal bias. He appeared on CNN and said the math did not add up.
What do you have to do to get it to add up?
Closing all the loopholes and ending all of the deductions currently given to the wealthy does not make up for the losses of giving everyone in the country, particularly the wealthy, another tax break. The only way Romney’s plan will not add to the deficit is if middle class families pay over $2,000 more in taxes annually.
Zandi wasn’t even subtle when he said the Romney Tax Plan is basically a muddle and won’t work.
ZANDI: Yeah, I think the Tax Policy Center study is the definitive study. They’re non-partisan, they’re very good. They say given the numbers that they’ve been provided by the Romney campaign, no, it will not add up. Now, the Romney campaign could adjust their plan. They could say okay I’m not going to lower tax rates as much as I’m saying right now and they could make the arithmetic work. But under the current plan, with the current numbers, no it doesn’t. I’ll say one other thing, though. I think it is important that we do focus on the so-called tax expenditures in the tax code. Those are the deductions, and credits, and loopholes in the code. We need to reduce those, because if we do we’re going to make the tax system fairer, easier to understand and ultimately lead to stronger growth. So that’s the right place to focus. But, no, the arithmetic doesn’t work as it is right now.
Here’s a good summary of the the JCT Study from Bloomberg that is the basis of Zandi’s comments. The bottom line is that repealing deductions only makes up for 4% of the across-the-board tax decrease suggested by Romney.
The analysis by the Joint Committee on Taxation emphasizes the difficult choices facing lawmakers as they balance the benefits of rate cuts against the consequences of changing or ending deductions, such as for mortgage interest and charitable contributions. Republican presidential nominee Mitt Romney proposes a 20 percent income-tax rate cut and says he would pay for it by limiting deductions, credits and exemptions.
While there are major differences between the assumptions underlying Romney’s plan and the JCT study, the findings emphasize shortcomings in Romney’s approach, said Daniel Shaviro, a tax law professor at New York University.
“There really is no serious dispute that the parameters of their plan can’t be met,” Shaviro said. “It’s like saying you’re going to drive from Boston to Los Angeles in 10 hours without speeding. There’s just no way to make the numbers add up.”
Ezra Klein published the JCT letter here and some analysis at his blog on WAPO.
The paper recounts an experiment conducted by the JCT. They supposed that all itemized deductions — things like the charitable deduction, the mortgage-interest break, etc. — were eliminated (though not non-deduction tax breaks — more on that later), along with the Alternative Minimum Tax. That mirrors Romney’s desire to cut tax breaks and eliminate the AMT. They also assumed that state and local bonds’ interest would start to be taxed, which, as AEI’s Matt Jensen has pointed out, makes it easier for the Romney plan to add up.
Finally, JCT assumed that capital gains and other investment income would be taxed at the same rate as regular income, instead of the preferential rates they currently enjoy. That’s a big difference from Romney’s plan, which proposes eliminating capital gains and other investment taxes for people making less than $200,000, but mirrors the Bowles-Simpson, Domenici-Rivlin and Wyden-Coats tax reform plans, all of which remove the capital preference.
Then JCT asked how low you could cut tax rates under this scenario without increasing the deficit, on net. The answer: not much at all. To keep revenue the same as it’ll be next year, when the Bush tax cuts expire, you could only cut rates by 4 percent. Instead of brackets of 15 percent, 28 percent, 31 percent, 36 percent and 39.6 percent, you’d have brackets of 14.4 percent, 26.88 percent, 29.76 percent, 34.56 percent and 38.02 percent. That’s not exactly revolutionary, and it’s a far cry from the 20 percent cut that Romney wants.
That said, the change is very progressive. People making $10-20,000 a year get their taxes cut by 2.4 percent of income, a 61.4 percent cut relative to their previous burden. By contrast, millionaires see taxes go up 7.1 percent, or 5.5 percent of income …
Here’s a good paragraph from David Dayen at FDL who wrote on the study earlier today. It puts both the debt and tax cuts into perspective.
For those that care about the deficit, it’s worth noting that the last major cut to taxes, the Bush-era tax cuts, accounts for the majority of the deficit problem currently, particularly in the out years. The tax cuts and the two wars will account for $9 trillion in deficits between their inauguration and 2019, under current policy. So throwing another $5 trillion tax cut that cannot be plausibly offset on the pile makes even less sense, especially in the constrained, non-MMT environment of Washington.
AEI and Republican always seem to plug a canard that’s been so debunked that it’s laughable. They love to say that tax cuts to the rich stimulate the economy. There have been a number of academic studies that show this is not the case. Some of the most recent ones are even more definitive. Still, the meme exists.
A new study, however, indicates that tax cuts for the wealthiest earners fail to generate economic growth at the same pace as tax cuts aimed at low- and middle-income earners.
The study, conducted by Owen M. Zidar, a former staff economist on President Obama’s Council of Economic Advisers and a graduate student at California-Berkeley, examined economic growth in the states with the most high-income earners. Zidar reasoned that “states with a large share of high income taxpayers should grow faster following a tax cut for high income earners” if the tax cuts had the economic effect conservatives claim.
What he found, though, is that the effect of tax cuts for the rich was “insignificant statistically,” as Reuters’ David Cay Johnston reported:
“Almost all of the stimulative effect of tax cuts,” Zidar found, “results from tax cuts for the bottom 90%. A one percent of GDP tax cut for the bottom 90% results in 2.7 percentage points of GDP growth over a two-year period. The corresponding estimate for the top 10% is 0.13 percentage points and is insignificant statistically.”
Zidar’s study provides more empirical backing to what the U.S. has experienced over the last 30 years. Supply-side tax cutting policies have not led to the growth their Republican proponents promised. The Bush tax cuts, for instance, were followed by the weakest decade for economic expansion on record.
It’s really disheartening for any economist to see these canards continually trotted out to what seems like a really economic illiterate electorate. Why any one continues to buy anything Romney and Ryan say is beyond me. My guess is we’ll hear more about this. The next presidential debate will be on the town hall one and hopefully this Romney Tax Plan in Wonderland will get some airing. It really is a ridiculous set of lies. The most disturbing thing is that the loopholes that would be eliminated are ones that benefit middle and upper middle incomes. A lot of the rich get their incomes from sources that are taxed differently anyway. That’s why he’s peddling the elimination of capital gains taxes. He still gets to shelter his income no matter what happens to normal tax deductions.
Job Number Truthers
Posted: October 5, 2012 Filed under: Economy, jobs, unemployment | Tags: job numbers truthers, Romney screws up labor participation rates, unemployment numbers 67 CommentsI guess today is Tinfoil Friday. Allen West and Jack Welch think the BLS is manipulating unemployment number in response to some Chicago Mafia move to make Obama and the economy look better. Huhn? I would think if that was possible they would’ve been doing it all along instead of just suddenly producing a better but still anemic result at the last moment.
The Bureau of Labor Statistics released an unexpectedly strong monthly jobs report on Friday, finding a dramatic drop in unemployment to 7.8 percent and revised the number of jobs added in July and August up from initial estimates. While for most Americans, the growing economy is good news, conservatives immediately expressed their skepticism in the jobs report’s credibility.
1) Minutes after the report was released, Jack Welch, who famously cooked General Electric’s accounting books when he was CEO, accused President Obama of manipulating the numbers to distract from his debate performance.
This is pretty weird. The jobs report was straightforward this month.
The controversy, if it’s worth using that word, is over the unemployment rate, which dropped from 8.1 percent to 7.8 percent. That’s three-tenths of one percent. That’s what all the fuss is about.
Let’s get one thing out of the way: The data was not, as Jack Welch suggested in a now-infamous tweet, manipulated. The Bureau of Labor Statistics is set up to ensure the White House has no ability to influence it. As labor economist Betsey Stevenson wrote, “anyone who thinks that political folks can manipulate the unemployment data are completely ignorant of how the BLS works and how the data are compiled.” Plus, if the White House somehow was manipulating the data, don’t you think they would have made the payroll number look a bit better than 114,000? No one would have batted an eye at 160,000.
The fact is that there’s not much that needs to be explained here. We’ve seen drops like this — and even drops bigger than this — before. Between July and August the unemployment rate dropped from 8.3 percent to 8.1 percent — two-tenths of one percent. November-December of 2011 also saw a .2 percent drop. November-December of 2010 saw a .4 percent drop. This isn’t some incredible aberration. The fact that the unemployment rate broke under the psychologically important 8 percent line is making this number feel bigger to people than it really is.
What’s even odder is that Romney said the report wasn’t “realistic” and actually misstated the reasons for the change in numbers.
Mitt Romney challenged the significance of the drop in the unemployment rate today, arguing that the “real reality” is that the figure declined because “more and more people have just stopped looking for work.”
“There was a report that just came out this morning on job creation this last month,” said Romney at a rally in the battleground state of Virginia. “There were fewer new jobs created this month than last month. And the unemployment rate as you noted this year has come down very, very slowly, but it’s come down nonetheless.”
“The reason it’s come down this year is primarily due to the fact that more and more people have just stopped looking for work,” Romney said. “And if you just dropped out of the work force, if you just give up and say look I can’t go back to work I’m just going to stay home, if you just drop out all together why you’re not longer part of the employment statistics.”
“So it looks like unemployment is getting better, but the truth is, if the same share of people were participating in the workforce today as on the day the president got elected, our unemployment rate would be around 11 percent,” said Romney. “That’s the real reality of what’s happening out there.”
This morning’s jobs report released by the Bureau of Labor Statistics found that the nation’s unemployment rate dropped from 8.1 percent to 7.8 percent, the first time it’s been below 8 percent in four years. September saw the addition of 114,000 jobs, according to the report, a decrease from the 142,000 that were added in August, and statistic that Romney emphasized on the trail today.
Yes, random variation is quite suspicious and unrealistic. Here’s the labor force numbers straight from the report. Romney told an audience the exact opposite had happened. There is no way he actually read the report. Well, that or he was lying again.
The civilian labor force rose by 418,000 to 155.1 million in September, while the labor force participation rate was little changed at 63.6 percent. (See table A-1
The best article I’ve seen today explaining the job situation and the Welch Tin Foil hat theory is here at The Atlantic.
A number of conservatives have suggested the 873,000 household figure is wildly implausible, if not an outright conspiracy to help Obama on the part of the BLS. This is nonsense. As Greg Ip of The Economist points out, the employer and household numbers often diverge over the short-term, but they mostly match up over the long-term. And they still do if we look at the past three months. The employer survey showed job gains of 181,000 in July, 141,000 in August and 114,00 in September, for an average gain of 146,000. The household survey showed job losses of 195,000 in July, 119,000 in August, and job gains of 873,000 in September, for an average gain of 186,000. If you can’t see the conspiracy there, well, you just might be mathematically literate.
Wow. Is this the silly season or what?










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