The New Republic

I think it is rather clear at this point that tax cuts are not going to stimulate the economy. I fail to understand how said cuts, which enter an economy in the process of deleveraging, are going to "stimulate" growth in the near term? Are these funds not put toward paying down debt? Would it therefore not be rather counterproductive to cut taxes, i.e., provide more cannon fodder to Republicans by increasing the deficit without tangible results to show for it? Why not advocate for a national investment bank in an attempt to maneuver around conservatives instead? It seems to be lost on most people that the bulk of all "fiscal" stimulus to date has been tax "relief," i.e., cuts well in excess of $1 trillion (2008 Stimulus, 2009 Stimulus, 2010 "Stimulus" aspects of the Bush tax cut extension). I see this as the transfer of private debt into public debt.

- spmull06

August 6, 2011 at 12:15am

Why not offer Republicans what they really want, tax cut extensions for the wealthy, but only if unemployment falls below a defined level. Offering them spending cuts doesn't work, because they don't really care about the deficit. If reducing the unemployment level is the price for tax cuts for the wealthy, I'll bet Republicans will find a new religion, Keynesianism.

- rayward

August 6, 2011 at 7:04am

If Keynes were alive today, I expect these would be his thoughts: 1) Why did the Obama administration, arriving in office at a time of economic crisis, turn the details of their stimulus plan over to David Obey and the rest of the old liberal hacks in Congress? That resulted in the least possible stimulus for the buck. 2) The Obama administration now confesses that jobs were not as shovel-ready as they thought. Were they in a coma then? After 2 1/2 years, do they have shovel-ready plans available now in the --unlikely--event a second round of stimulus becomes politically feasible? If so, why are they keeping such plans a secret? 3) Why does the Obama administration keep pushing the kinds of jobs that are least likely to materialize in a long recessionary period triggered by a financial crisis? Would the unemployed somehow be soiled by having to return to the kinds of jobs they had before the crash? Is an administration still heavily populated by people who have never spent a nanosecond in the world of business, fixated on the color green. 4) I (Keynes) spent a lot of time investing/speculating in the financial markets of my time. I loved "animal spirits". Why does the Obama administration relentlessly recoil from seeking counsel from the leaders of main street and Wall Street of 2011? Do they think all successful businessmen have the mindset of Michelle Bachman? This Republican commenter could go on, and, of course, I could apply the hammer to my own party; but, what the heck, so many other commenters on this site are lined up for that task.

- lsernoff

August 6, 2011 at 1:15pm

Ed says: "while progressive claims that Republicans are deliberately trying to sabotage the economy are perhaps unfair..." The case for giving the Republicans the "benefit of the doubt" on this matter has dramatically diminished since last fall when using the debt ceiling as a tool for politico-economic extortion was not yet on the political horizon. Jon Chait has made heroic efforts to argue that Republicans are not consciously sitting around like cartoon villains giggling fiendishly as they plot the sabotage of the economy but are rather genuinely deluding themselves that their deflationary policies are intended to create jobs. But the entirely conscious willingness displayed by many House Republicans to actually provoke a default cannot be reconciled with any notion that they honestly believe this would really represent a job-creating course of action. We have to come to terms with the unpleasant reality that many Republicans are indeed "delibertely willing to sabotage the economy." Their rationalization is not that such an action would help to create jobs but rather that stopping Obama is a greater good for America that justifies even major collateral damage such as a default would or will produce. This is not an unprecedented political philosophy, It is essentially the Leninist approch to politics - the overriding goal is the destabilization of the existing government by all available means so as to make possible the conquest (or in this case the re-conquest) of power by the insurrectionary forces whose triumph is the only way to guarantee genuine progress.

- lev

August 6, 2011 at 1:36pm

Lev says: "We have to come to terms with the unpleasant reality that many Republicans are indeed "deliberately willing to sabotage the economy." Their rationalization is not that such an action would help to create jobs but rather that stopping Obama is a greater good for America that justifies even major collateral damage such as a default would or will produce. This is not an unprecedented political philosophy, It is essentially the Leninist approach to politics --the overriding goal is the destabilization of the existing government by all available means so as to make possible the conquest (or in this case the re-conquest) of power by the insurrectionary forces whose triumph is the only way to guarantee genuine progress." That sums it up quite nicely, lev. Unfortunately, we have Democratic mensheviks who find themselves constitutionally incapable of understanding that battle they are in. Chait, although a keen analyst, has been among them. When will he have his Lisa Simpson moment and start talking to us about how the left should respond to this?

- roidubouloi

August 6, 2011 at 2:05pm

What we have is a situation in the US and world-wide where most politicians, pundits, and professionals (3P's)do not know, much less understand Keynesian economic theory. Including tnr. It is the equivalent of discovering a small asteroid that can easily be destroyed will hit earth in 6 months--- and then designing the intercept space shot on the theory (ideology) that F=mv, E=m/c, and gravity has no effect once you get above the stratosphere (call it the TP-theory). In the absense of knowledge of Newtonian physics, you could make a very believable argument for each component of the TP-theory. The only solution is advocacy of Keynesian economics by 3P's--- and at present the only fix to our economic problems will be by politicians who understand and support Keynresian economics. That excludes all Repubs, Blue-Dog-type Dems and BHO. In fact, BHO has so locked himself into Hooverian economics that Keynesian proposals from BHO must be small if at all-- and of little value. Unless he and other Hooverian Repubs and Blue-Dog-Dems are quickly challenged, your voting choice in 2012 will be between a Reagan Repub and a LaRouche Repub.

- drofnats1

August 6, 2011 at 4:02pm

Gnat: a) Keynesian theory has been dis-proven for decades. It is not taught in advanced economics courses anymore as anything more than economic history. Beyond making politicians and public sector parasites feel good -- it has no value. b) Empircal evidence on so called Keynesian stimulus is overwhelming negative. Essentially the Gov 'creates' a $50K job by spending $75K, and the job goes away when the Gov stimulus goes away. The empirical failure of Gov to create sustainable private sector jobs is well-documented. c) Civilian Gov = liberals. Private sector = conservatives. Wasn't always that way. But now incentives are diametrically opposed. And liberals need conservatives much more than conservatives need liberals (well, beyond the obvious entertainment value liberals possess).

- mr_rationale

August 6, 2011 at 4:37pm

Kilroy, Even the White House knows the Gov doesn't create jobs: ---The White House doesn't create jobs," Carney said, adding "the government, together — White House, Congress — creates policies that allow for greater job creation." --- Of course the policies pursued by the Obamanation so far have failed miserably.

- mr_rationale

August 6, 2011 at 6:10pm

08/06/2011 - 1:15pm EDT | lsernoff excellent points, especially #1 and #2. Alas, no do-overs now. Until the housing crisis is somehow stabilized, Federal Keynesianism will not work. GDP that is 70% personal consumption needs people to spend, preferably on all the durable goods and truly shovel-ready renovation/construction services that inevitably follow a house sale. Too bad the Pelosi House failed to understand that when designing the 2009 Stimulus. Should have listened to Sheila Bair (and Senator Isakson who, as a former realtor, tried to make the home-buyer tax credit more effective, but, the House Dems rejected his Senate-passed amendment in reconciliation)

- K2K

August 6, 2011 at 6:55pm

Rationale. Can't have it both ways, man. On one hand Obama can't do anything one way or another that has a measure of effective relevance. The other is he is responsible for failure. Which is it? By my lights he has done a decent job of accommodating the trust issues which were so grievously injured due to the bipartisan foolishness of unaccountable easy money. He met certain realities that the market was demanding in 2008-09. He learned fairly quickly that any casual utterance had very consequential effect. Essentially he was able to accept the reality that banks and other public companies first and foremost responsibility was and is to make their share holders money. That is their job. It is why the exist. Selling this concept to the Dems is not now nor was it then a very easy task. I think Obama has done a fine job under very trying circumstances. Of course he would like to have it both ways, too. But then that's what politicians do.

- jacko

August 6, 2011 at 7:00pm

But the fact that the first and foremost responsibility of public corporations is to make their shareholders (more) money is the prime reason why the first and foremost responsibility of government is to regulate and patrol such corporations to ensure that exercizing that first and foremost responsibility does not damage the larger economy at home or even the world economy. Unfortunately we have been living through an era where government has either waved through dangerous activities, for various reasons, some of them to do with corruption, or has been actively deprived of the tools to regulate. I wish Obama had matched some of this rhetoric -- in which he's shown he realizes this -- with somewhat more political focus on the political struggle.

- ironyroad

August 6, 2011 at 7:23pm

"increasing shareholder value" is a post-1970's inflation American paradigm. Coincided with the rise of the MBAs. Shareholder needs to be changed to Stakeholder, as it is in Germany, to include everyone else also affected by corporate decisions. Interesting to watch Brazil's newest spate of economic reforms. almost protectionist, but meant to include all stakeholders. It's been at least two years since I read a Wall Streeter with gravitas/influence (Morgan Stanley's now semi-retired Stephen Roach) trying to change that shareholder value paradigm.

- K2K

August 7, 2011 at 8:18am

lev writes: "But the entirely conscious willingness displayed by many House Republicans to actually provoke a default cannot be reconciled with any notion that they honestly believe this would really represent a job-creating course of action." Provoke a default? S&P noted "especially" that entitlements is the root here. Bush tried to fix this. Ryan has proposed a plan. The right has proposed countless plans to address entitlements. All shot down as being too extreme. Obama's debt commission also had stern recommendations related to entitlements. Again, all punted by the left. Too extreme. And of course, Obama's budget which was rejected by both parties was paltry in deficit reductions compared to the other plans--just $1.1T over 10 years. And it didn't even address entitlements. And congress couldn't even be bothered to produce a budget in 2010, with Hoyer claiming they needed to see the deficit commissions report first. That came out. They ddin't like it. And still they didn't produce a budget. The S&P also noted that revenues were part of the problem. Obama had a deal with Boehner in which $800B in new revenues were agreed upon. And then Obama went for more, and Boehner walked. And then Obama got nothing. This is total amateur hour. The dems largely made this bed. What must happen--and what they reject--is a restructuring of entitlements. And it's not anything massive that must happen. Just slow the rate of growth. But because they are so ideologically driven here, they won't touch this.

- seattleeng

August 7, 2011 at 12:36pm

The only real solution that makes sense is for any future president to make signing a budget into law dependent upon a debt ceiling rider being passed by Congress at the same time if one is required. The current state of affairs is one of those little American anomalies that are cute and oh-so American so long as something close to normality reigns, but can turn into an unexploded hand-grenade very quickly if you get something like a 30-year shift to the loony right in the GOP.

- ironyroad

August 7, 2011 at 2:37pm

Contra seattle and the standard supply-side bullshit, entitlements are not "the problem." They are barely a problem. The problem is the refusal to collect sufficient tax revenue. It is indisputable that we have sufficient output to pay for entitlements because that consumption is part of our existing output. Thus, the idea that we cannot afford it is nonsense. Every dollar that the government borrows is an excess dollar in private hands that the government could tax. What we lack is the political will because the country remains in thrall to supply-side inanities despite 30 years of nothing but failure, of every stripe, from supply-side policy. Of course, having given us asset bubbles, epic busts, trade deficits, de-industrialization, huge and rising income inequality, asset bubbles, incredible deficits, huge unemployment, what do the supply-side maniacs prescribe? Why, even more of the same. No matter the magnitude of their failures, and the inability to point to even a single policy success for supply-side economics (still waiting seattle!), the insist on even more of the same. They will not be satisfied until we sail right off the edge of their flat earth. What we will not be able to afford is heath care as an ever increasing share of GDP, now 17.5% and rising. This is a REAL problem, not a financing problem. Among other things, the suppy side wackos do not understand the difference between consumption of real resources and having mismatches between income and expenditure that would be eliminated instantly by just netting out the surpluses and deficits through taxation. Of course, the same supply-side wackos who complain about entitlements refuse to countenance the only demonstrated solution to medical costs -- government monopsony fixing price and consumption with the rich paying for whatever additional nonsense they want. This is the practice in every other industrialized economy but ours. The supply-side strategy is to render any solution to our economic problems impossible for single purpose -- increasing the wealth of the already wealthy so that the lives of everyone here can be at their disposal. This is the dystopic vision of Ayn Rand to which these maniacs subscribe. The reactionary agenda is eternal.

- roidubouloi

August 7, 2011 at 9:16pm

Thank you, irony. If I have persuaded you, then it must be right. _______________________ Obama should have asked for $2 trillion of stimulus spending with no tax cuts and settled for something distinctly north of $1 trillion with no tax cuts. Then he should have made clear beyond peradventure that he had compromised only because of the urgent necessity to get something done and would continue to press Congress for more until unemployment was back to normal levels. Had even that much more realistic stimulus been inadequate, we would not have to listen to supply-side idiocy that Keynes is wrong and that the answer to insufficient private demand is vastly to compound the problem by reducing government demand (known colloquially as spending) so that we can turn recession into depression.

- roidubouloi

August 7, 2011 at 9:19pm

You've been making much sense recently, roid, and I find myself agreeing more than I used to on the issue of Obama's failure to understand the nature of the enemy.

- ironyroad

August 7, 2011 at 11:29pm

You're a level head if nothing else, irony. You'll come around. Either I'm channeling Paul Krugman or he's channeling me. I wrote above that our two bona fide fiscal problems are under-taxation and health care costs. Just saw Krugman's Op-Ed for tomorrow online. He says our two real fiscal problems are under-taxation and health care costs. Believe it. We have one way out of what by all accounts is threatening to become a double-dip recession much worse than the first recession: huge government spending, preferably on infra-structure, and printing money to get inflation going and depreciate the debt, thereby increasing consumer spending capacity. We do those things and we will pop up like a cork. Meanwhile, the Times laments that the government is out of tools because it cannot keep running big deficits. Even assuming that were the case, the answer is simply large high-end tax increases to accompany the government injection of demand. The money it prints together with the money it taxes can prevent deficits from increasing any further while the spending gets the economy moving. The inflation will depreciate our existing debt so that, together with real growth, it is a much smaller percentage of GDP. If we hang on to the tax increases, we can have our fiscal house in order in a pretty short time. The Chinese will weep about the value of their Treasuries. Perhaps they will then stop manipulating trade to run surpluses with us. Is there any chance that we will actually do these things? Sadly, given Republican and Tea party and supply-side nuttery and terrorism -- the affirmative act of damaging the economy in order to damage Obama -- the answer appears to be no, at least not before things become desperate. The whole thing is tragic because, fundamentally, we are wealthy and have the productive capacity we need for now and the tools and means to wrench ourselves out of recession. If we could increase output by 50% in a very short time to gear up for World War II, ending the Great Depression in the process, we could save ourselves right now, within months. But we are cursed, truly, by being saddled with a radical, reactionary right-wing, including its libertarian variant in evidence in these pages, that is determined to destroy us. I suppose they expect that they will be saved by prayer.

- roidubouloi

August 8, 2011 at 12:05am

Kilroy: "Indeed, a better bet is that conservatives will double down on their own conviction that the only way to bring back economic growth is through deregulation and tax cuts..." My understanding is that a belief that tax cuts stimulate growth is an application of Keynes: the government puts more money in people's pockets during a recession so that they will spend. So tax cut advocates are Keynesians too. They're just a less efficient form of Keynesian, since you can't make people spend the extra money they've got, and the wealthy are least likely to do so. http://www.economy.com/mark-zandi/documents/Senate-Finance-Committee-Unemployment%20Insurance-041410.pdf (see chart on page 5). Republicans are Keynesians. They're just not very good ones, since they're essentially using his theories as a tool to get more tax cuts which is really their primary objective.

- dsimon

August 8, 2011 at 8:38am

Damn TNR, screwing up posts/links again (they really need to fix this...) Here's the continuation of the post: http://www.economy.com/mark-zandi/documents/Senate-Finance-Committee-Unemployment%20Insurance-041410.pdf (see chart on page 5). Republicans are Keynesians. They're just not very good ones, since they're essentially using his theories as a tool to get more tax cuts which is really their primary objective.

- dsimon

August 8, 2011 at 8:42am

Not really, dsimon. Keynes certainly had notions about monetary policy. The IS-LM model that more or less gave concrete form to what Keynes said about interest rates gave pride of place to the interest rate and liquidity issues as dominant forces in the economy. But I think Keynes was quite clear that in a strong downturn, monetary policy would be ineffective. Even at a zero rate, people will not invest if there is no demand for the output. This was his singular contribution, the critical importance of demand. He was also quite clear that when we fall into a relatively stable equilibrium where demand is slack, it is going to take a very long time to get out unless some source of demand appears. The obvious one, the one that has the ability to act independently, is government. Among the other things that the supply-side claimants fail to note is that borrowing soaks up just as many dollars as taxes. The only explanation for why taking the same dollar from someone as a tax and giving them back a piece of paper does not have exactly the same negative impact on their spending is the wealth effect. All modern evidence is that the wealth effect is not very large. Wage earners pretty much spend whatever they take in. The wealthy moderate their consumption spending slightly based on wealth, in either direction. No one invests without prospective demand. Direct government spending puts money into the economy that will be spent. If combined with monetary policy -- in effect printing the money rather than borrowing it, although the mechanics are first to borrow then to have the Fed buy back the debt -- we have the best chance. The spending produces demand and injects money into the economy. Printing the money rather than taxing or borrowing leaves the new dollar in the economy to circulate rather than simultaneously withdrawing it.

- roidubouloi

August 8, 2011 at 9:21am

Consumer spending will not revive (to anything resembling robust) until people regain steady confidence in buying homes in all the markets that were NOT over-built. What would Keynes do about housing? I doubt he would NOT have granted a short-term tax credit that stopped, re-started, and stopped. Should have made that tax credit available to anyone buying a primary residence for three full years, January 2010 through December 2012. and revived that FDR program that bought and restructured mortgages. I would much rather be paying my mortgage interest to the US Gov than to BoA via Countrywide. Especially if they reduced my interest rate from 6.375% to 4.375% so I had extra money to spend on maintaining the structure. Instead, Making Homes Affordable only incentivizes BoA to capture the $1500 Fedreal incentive fee, not help me.

- K2K

August 8, 2011 at 9:53am

Roid writes: "The problem is the refusal to collect sufficient tax revenue" Yes, this is the same problem a gambler has. It's not the gambling. It's that he's not making enough money. Coke addicts too. The coke isn't interfering with their job. It's just that the job require 8 freaking hours of attention per day. Assume we all paid double in taxes what we pay today. That would give us a balanced budget. Do you believe in 10 years we'd still have a balanced budget? No. Spending would again be out of control, the debt would be growing uncontrollably. And then what? Double taxes again? And herein lies the problem, Roid. If a government cannot show the ability to live on what it has, then it cannot be trusted to live on more. The prudent thing to do here is for the government to survive on what it earns for a decade. And then, if everyone votes to increase government spending, we raise taxes and increase the spending. In lockstep. Aka a balanced budget amendment. Aka tea party 101 But you won't have any of this. Your goal is the government spending all of our money and making all decisions for us, in the name of "fairness". Today's government is almost 2X larger than Clinton's government. And what do we get for it? What is better today than under Clinton?

- seattleeng

August 9, 2011 at 12:39pm

More tendentious, and frankly ignorant, nonsense from you, seattle. Where shall we begin? First, the notion of "government living within its means" when applied to the Federal government is moronic, no other word for it, because the Federal government has whatever means it chooses to have. It commands whatever share of output it chooses to command. If it has spend a certain share of GDP, then by definition it has the means to do so. ______________________ Next, your macroeconomics lesson for the day, cross-posted from the Galbraith piece: Think of the economy as having two sectors, government and private. Everything the government buys/consumes is produced by the private sector (otherwise called people). Likewise what the people buy/consume. The sum of the expenditures of the two sectors is what is produced by the economy. Their total expenditure also equals their total income because income is likewise consists of that which is produced by the economy. However, it is possible for one of the two sectors to have more income than its share of expenditure as long as it lends the excess back to the other sector. If it didn't lend the excess back to the other sector, then the other sector could only spend its income. It would have no other source of funds. But, here is the paradox. If the sector with the ability to produce a surplus won't lend it back, then the sector with a deficit cannot have a deficit. It's share of income therefore equals its share of expenditure. But then the algebra does a funny thing. If one sector is in balance between income and expenditure, then the other is too. So, if one side runs a surplus, the other has to run a deficit. And if one refuses to run a deficit, the other cannot run a surplus. In my example, the government is buying a portion of its share of output by issuing paper, Treasury securities, to the private sector. If the government is denied the ability to borrow, this output just vanishes, unless the private sector can buy it. Can that happen in a recession when we are already suffering from insufficient demand? No, it cannot. That's but one reason why supply-side economics and the push to cut government spending now are sheer lunacy. Back to the example. One can assume that all the money starts out in the private sector. The government takes money from the private sector by taxing or borrowing. It buys stuff from the private sector so all the money ends up back in the private sector. This is because the government doesn't need to hoard cash to make payments the way we do. If the government runs a deficit, each sector consumes what it consumes, the money still ends up back in private hands, and the private sector receives and holds government securities for the difference between what the government spent and what it took in in taxes. If instead the government taxes enough to pay for the identical amount of consumption, each sector consumes what it consumes, the money ends up back in private hands (as the government doesn't run a surplus by piling up cash). The ONLY difference is that the government securities now do not exist in private hands. Same total output with fiscal balance or deficit, same consumption by each sector. The only difference is in the pieces of paper that exist at the end of the cycle. So, think about. What purpose is served by borrowing the money the government needs rather than taxing it from the private sector? Is there a reason for having this government debt outstanding? In the real world, it is of course not quite so simple as there are dynamic effects: People's spending behavior is influenced by their accounting income. But those dynamic effects are not that big when we are talking about the investor class, the class that can spend less than its income and run a surplus. They more or less can spend what they want and accumulate the rest. Everyone else is spending their income whether the government runs a deficit or not. Therefore, the simple way to end the deficit is just to tax enough to end it. Ideally, the new tax burden falls on the class that isn't spending its income anyway, the high income crowd, so that spending and consumption are not reduced. The alternative is to reduce government spending. But then we reduce income, because government spending is someone's income. If we are capacity constrained and have other more urgent spending needs then what the government is doing, fine. But we are not capacity constrained. We have excess capacity. Hence, any reduction in government spending will reduce someone's income dollar for dollar, and then whatever they don't spend will reduce someone else's. __________________ Let me put this in the simplest possible terms for you, seattle. The Federal deficit is 100% a political creation, the result of the political decision to given the wealthy debt securities rather than tax them sufficiently. It is not due to inadequate output. It is not due to excessive spending (whatever that would mean). It is not due to "lack of means." It is purely due to the decision of government not to tax to pay for what it spends. We know who made those decisions, don't we seattle? Until Reagan, post World War II the debt declined as a percent of GDP under every president. Then it rose as the result of Reagan/Bush actually putting into practice your voodoo economics, moronic, idiotic, fantastic, totally at odds with the real world so-called "supply-side economics." There is no such thing, seattle. Not in the real world. It bears as much relationship to reality as creationism or the belief that the earth is flat. Which is to say, none. Under Clinton the ratio of debt to GDP fell again. Then it started to soar under Bush, the Second Coming of Reagan and his ouiji board. For a combination of political and economic reasons, we remain saddled with the moronic fiscal policies of Reagan, Bush and Bush. Do we at least have collateral benefits to show for this fiscal insanity? No, we do not. What flat-earth supply-side idiocy has wrought as been slow growth, growing and now huge income inequality de-industrialization, repeated asset bubbles, epic busts, and now the worst downturn since the Great Depression teetering on the edge of getting much worse due to the application of yet more supply-side crapola due to Republican intransigence and economic terrorism. _____________________ Now, moving on past the fiscal deficit that is completely unnecessary and purely the product of lunatic decisions by supply-side maniacs, let's discuss government spending. As we have discussed in the past, the four major drivers of the increase in the Federal budget as a percentage of GDP are: 1. The Bush recession, directly due to supply-side stupidity, that both reduces the denominator, GDP, and increases automatic stabilizers such as unemployment insurance. 2. The increases in defense/security under Bush. 3. The long anticipated retirement of baby-boomers leading to their long-anticipated drawing down on social security and Medicare benefits; and 4. The absurd rate of increase in medical costs, both private and public. The increases in other discretionary spending are the trivial piece of the puzzle, on the order of $100 billion more today than they would be just through growth in population and inflation. And we might very well be better off for it if there were more. Let's start thenwith 4. As we have also discussed, the rate of increase of public medical care has been for decades slower than the rate of increase in the private sector. If the rate of increase in the private sector had been at the same level, as the public sector, we would be saving billions a year. True, we saw a spurt in public costs, but that is because Bush adopted two programs, Part D and Medicare Advantage, that were specifically designed to let the private market dictate public costs. So, of course, public costs started rising faster. The healthcare industry and the health insurance are out of control. If we don't get them under control and reduce our health care spending as a share of GDP to something closer to the rest of the industrialized world, they will break our economy. There is only one proven way to do this and that is some form of government monopsony regulating consumption and price, single-payer or a variant. There is no other means that has been used anywhere else in the world to solve this problem and strong theoretical reasons to believe that there cannot be any other. Yet, the same supply-side idiots also resist adopting the proven remedy. So, don't talk to me about what we cannot afford. You and yours are the immediate obstacle to solving the most important real economic problem we face. What do I need to say about 1? Supply-side voodoo caused this problem and until we wrest ourselves from the grip of your economic fantasy life, we will be stuck with it. As for 3, didn't you now that baby-boomers were going to retire? Should they not get a pension and medical care when we can in fact afford them? Besides, for years the Federal government ran a deficit operating budget because of the surplus in entitlements. In simple terms, seattle, that means that upper income taxes were artificially low because the payroll taxes of workers were being used to fund the operations of government. Now that the tab is coming due, you want to welsh on the deal. You want to deny benefits or force workers to bear the burden. YOU and yours took the money from workers in the form of lower taxes and now you don't want to pay it back in the form of higher taxes. We can afford it, seattle. You just don't want to pay the social debt. You want the rich to walk off with all the money they took from workers all those years. Pretty despicable, I would say, and on no account justified by our output capacity or the needs of a stable and efficient economy. Just theft, what the wealthy do best. That leaves us with no. 2, the huge growth in defense/security expenditures. Would you like to argue that we get no value for the increase and should get defense/security spending back to the same level of GDP as under Clinton, saving something like $400 billion to $500 billion per year? Well then, seattle, proceed. Just spare us the weeping and gnashing of teeth about what we cannot afford. It is pure nonsense. There is absolutely no reason in principle why public goods cannot be a considerably larger share of consumption than they are, if that is what we democratically choose to do. People will still work to obtain the private consumption goods they want. They will work to produce the public goods the government commands. I am not advocating at all for a larger share for government, apart from meeting our pension and medical care promises, but please, stop with the nonsense about how we couldn't afford more if that were our choice. Of course we can. The only objection is purely political. As a matter of your extremist ideology, you abhor any consumption that is collectively determined and believe that the only consumption that has value is that which is chosen by individuals. Go ahead and believe that if you want. Ignore all the evidence that public capital is in fact essential to economic growth if you must. But enough of the bullshit that your radical libertarian ideology has anything whatsoever to do with economics or any plausible economic theory or what we need for prosperity. It does not. Yours is a charade, you adopt the rhetoric of economics, claim the legitimacy of economics, in order to put lipstick on the pig of your extremist anti-social ideology. It is still a pig.

- roidubouloi

August 9, 2011 at 11:57pm

Roid, So, if I rob a store owner of $300 cash, and then use that money to buy $300 of stuff from the store owner, it's like he wasn't robbed? Of course he was. Because his profit on $300 of merchandise would only be $30. So he's short $270 from this 'transaction.' And this is the the flaw in your argument. You assume if the government collects $1 in taxes, then they deliver $1 in benefit. They do not. It takes $2-$3 in taxes collected for the government to deliver $1 in benefit. So, if they tax me $1000, at best they will "buy" just $400 worth of "stuff" back from me. And I'm out $600. If your manifesto were correct, then taxing everyone at 100% and doubling the size of government would make a lot of sense. We'd all live like kings. But there's a reason that hasn't happened. How about you cite a few leading economists that share your thoughts.

- seattleeng

August 10, 2011 at 1:21am

Every actual economist, which excludes self-proclaimed "supply-side" economists who bear as much relationship to economics as alchemy does to chemistry or astrology to to astronomy, agrees, seattle. I am giving you only the most basic macro-economics, the kindergarten version of national income accounting. It shocks you because you have been stewing in right-wing extremist drivel for so long that you don't even know there is a real discipline of economics. National income accounting is not controversial except for the nuts. I love this post by you. It is so revealing. First, we see clearly on view your radical libertarian view that taxation is theft. This really goes to the heart of the matter, seattle. Because you believe this, because you believe both that public capital provides little value, rather than external benefits vastly in excess of its costs, and that any consumption that is determined communally, by democratic decision, is of necessity wasteful compared to private consumption, you and your radical ideology are fundamentally opposed to taxes as unjust. That is a purely political point of view, however. It has nothing to do with economics, nothing to do with the reality of how the economy functions any more than communist claims about how things will "work" under central planning. Communism dresses a radical commitment to income equality up in false claims about economics in order to obscure and legitimize a purely political objective. Of course, in the event, the economics don't work. Right-wing libertarianism is the mirror image of communism. It dresses up as economics a radical opposition to anything that might produce an income distribution other than that created by an unfettered market. Like communist economics, libertarian economics don't actually work, because they are not a description of the actual world, and would leave us somewhere in the dark ages Indeed, the attempt over the last 30 years actually to implement libertarian economics has been an unremitting disaster. You cannot point to a single policy success. The string of disasters was only relieved during the brief period, under Clinton, when we reversed course, whereas there is ample evidence, from our own history and from the rest of the world, that public capital and spending have a powerful role to play in economic prosperity. Your silly hypothetical about 100% taxation shows how little you understand, seattle. Government spending does not crowd out private spending until the economy is supply-constrained, not demand constrained. If the government stopped spending, stopped taking your $1,000, the result would not be that you would have $1,000 to spend instead of whatever you imagine the government leaves you. The result would be that the economy would collapse and you would have no job and nothing at all to spend. Government spending is essential to the creation of our income in the first place, but you imagine your income comes purely from the private sector and then the government takes it. You think you are some sort of peasant living on a manor in feudal income and the lord is taking a share of your crops. But we live in a modern market economy. Your pseudo-economics is not only appropriate for a feudal economy, it would return us to one.

- roidubouloi

August 10, 2011 at 9:30am

"in a feudal economy"

- roidubouloi

August 10, 2011 at 9:32am

So, how about a link, a book, anything, where a leading economist will walk me through this? I'm happy to learn more. I mean even a Christina Romer I'd expect might be thinking as you, but she's come nowhere near saying what you are saying. And absent that, your just a cranky guy with spreadsheets. :) PS. I"m just an engineer. I'm not sure what you mean by libertarian economics. But when I read Friedman's books, when I read Sowell's books, those fellas make a lot of sense to me. So, I'll assume that the phrase "libertarian economics" is capitalism. Your pleading for an example that shows a success--any success--over the last 30 years is a bit silly, isn't it, since the US federal government has been fairly small compared to governments in the rest of the world, and the last 30 years have shown the US economic expansion to be phenomenal. So, I'd flip it around and ask: Where is your example of a big government country handily beating the US in economic performance (say, GDP per capita) in the last 30 years?

- seattleeng

August 10, 2011 at 11:13am

I cannot teach you all of macroeconomics here, seattle. What is it in particular about national income accounting as I have explained it to you that you think is not of the mainstream? Considering that government spending keeps increasing as an income share and, according to you, US expansion in the last 30 years has been "phenomenal," what is your criticism of government spending based on? It would seem that expansion of government spending is the handmaiden of growth, and indeed it is. The particular policy failure of supply side is the crackpot notion that insufficient taxation leads to growth. No, it leads to financial and economic instability of various kinds, and ALL the evidence of the post-war economy is to that effect. So, why do you continue to plump for low taxes? The spending is good, the failure to tax to pay for it is bad. Very simple. The impact of supply-side was purely on cutting taxes which has been an unmitigated disaster of financial instability. Until very recently, it had no impact on spending. Now under the influence of this crack-pottery, we are cutting spending in a recession. How's that working out? Policy success? Look at job creation over the last 100 years based on whether a Democrat or a Republican was in office. The overwhelming share of jobs created have come under Democratic presidents. Clinton raised taxes and we briefly had surplus. Federal highways, GI bill, good for you? I don't think government spending is the be-all and end-all. Depends on what you are buying and on the point in the business cycle. The boom is the time to restrain government spending. The bust is the time to increase it. That is the exact opposite of supply-side economics. And growth does depend on a slow expansion of government spending because it is a feature of market capitalism that it cannot generate sufficient demand to sustain itself reliably. Are you able to distinguish between the questions of the size of government and whether we finance the government we have with debt or taxes? Friedman was a monetarist, coming out of a Keynesian tradition, not a "supply-side" economist. Supply-side economics is a political invention with no empirical support. The libertarian, anti-tax and extremist right needed to justify its tax-cutting mania and so invented, out of whole cloth, supply-side economics. It is creationism. Of course you like Sowell as he is a self-described libertarian. I haven't read him. His work does not turn up in economics academia, unlike Friedman.

- roidubouloi

August 10, 2011 at 11:57am

Read something by Lance Taylor if you want some instruction. Or even Paul Samuelson.

- roidubouloi

August 10, 2011 at 11:58am

Our productivity, generally measured in per-capita GDP, has been phenomenal. Government size, measured in % of GDP, has (until recently) been fairly flat. Roid writes: "The boom is the time to restrain government spending. The bust is the time to increase it. If it could be believed that it'd be constrained in the good times, then wonderful. But doubtful anyone could muster the discipline to do so.

- seattleeng

August 11, 2011 at 12:03pm