Re: Refuting supply-side economics
From: Some Guy (bc76_at_midmaine.com)
Date: 09/20/04
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Date: 20 Sep 2004 12:37:02 -0700
[snip]
> > The only logic for cutting capital gains taxes as a supply side
> > measure rather than reducing the deficit, or even paying down the debt
> > is that reducing taxes means that there is less money for the
> > government to spend. The Republican thinking might be that this will
> > eventually reduce the size of government which is a stated goal of
> > Republicans.
>
> There is an element of the Republican party so bent on the destruction
> of representative democracy (due to the fact that true representative
> democracy results in a much greater degree of socialism (National
> Health Insurance for example)) that they hope to bankrupt government.
> They hope for and long for a private and public debt that cannot be
> repaid.
>
One problem with the 'starve the beast' strategy is that it leaves a
legacy of debt, leaving the country badly positioned to deal with
emergencies. Debt also limits growth by keeping interest rates high
for a given rate of inflation.
>
> But tax cuts for capital gains makes sense if you are cutting other
> taxes or if you are leaving other taxes unchanged. The objective
> of such cuts is to get people out of bonds and into stocks so as
> to revitalize the economy.
>
Another way to get people out of bonds is to retire those bonds. I
think paying down the national debt is a better use of funds than tax
breaks for the wealthy which goes against the interests of the vast
majority who are not wealthy, and who primarily own stocks via tax
deferred retirement mutual fund accounts like 401Ks
> > But what supply sided policies has Bush implemented? None that I know
> > of. His tax cut was for the middle class.
>
> No. Only the very first phase was for the middle class. All the rest
> went to the top.
I went reading about this.
http://www.smartmoney.com/taxmatters/index.cfm?story=20010531
According to that, you are right: while the tax began with $300.00
checks for the middle class, less and less progressive tax cuts are
phased in over time. By 2010,the estate tax is completely repealed.
I doubt these later phase tax cuts are economically motivated. I
don't think even Bush thinks he can predict what the economy will do
out to 2010. All he knows is that his (rich) parents are getting
older.. Probably, Bush is just looking out for his own inheritance.
But I stand by the fact that the tax cut ( at least the initial phase
) was meant to be Demand Sided, and that it probably kept the economy
from tanking even worse.
Although, the effect was probably psychological more than anything
else, Every dollar not collected ( or rebated ) in taxes must be
offset by either reduced spending or added borrowing. Reduced
spending? Yeah right! But added borrowing has the effect of placing
upward pressure on interest rates. This is also a good thing when the
Fed is trying to stave off Deflation.
>
> > If anything, it was demand
> > sided - which was precicely what was needed.
>
> The demand side stuff has been done by Greenspan and not by Bush. The
> decrease in the value of the dollar and the consumersism we have
> experienced are due to decreased interest rates even as we have had
> increased government spending and less taxation.
>
> > Clinton's economy had
> > tons of capital because of noexistant deficit,
>
> You have the cart before the horse I see. The Democratic government
> of 1992 through 1993 increased taxes on the wealthy and left capital
> gains rates alone. This, plus the knowledge that Democrats are more
> concerned and adept at managing the economy brought money back from
> bonds and into stocks thus financing economic growth. And it was
> this growth that reduced the defits and started the country on a
> new and better course.
>
Clinton left an economy that was already headed in the right direction
alone and it repaired itself. Bush the First wasn't so stupid as to
implement economically unsound policies late in his term. By then he
knew that 'it was the economy stupid'. But it was too late to save
him. I'm not saying Bush the First's economy troubles weren't at
least partially of his own making mind you.
>
> > and it was invested in
> > some rather hair brained schemes ( certain tech stocks for instance ).
>
> Then came Newt Gingrich and the prancing pigs with their "contract
> on America". The Pugs took both houses of congress and the goose
> was cooked. The very first piece of legislation passed by the
> thieves was the deregulation of business that allowed the officers
> of the company to overstate earnings and create the bubble. This
> bubble made the Pugs look good as they then fiddled around with the
> "contract". Clinton vetoed this bubble blowing piece of pig dung,
> but there were enough Republicans in the Democratic party (mostly
> from the south) to override the veto.
>
> > Many of these hair brained schemes didn't pan out and fell apart.
>
>
The cheapest labor rates will always be paid for making the most
transportable goods. Nike Shoes are made in third world sweatshops
because the labor there is cheaper than the cost of shoe factory
automation.
> H1B visas were a major part of this. The prancing pigs in the high
> towers saw a way to hire degreed computer science folks at a fraction
> of what had previously been. Of course they got a lot of dummies
> with degrees. A paper tiger.
>
Because Software is one of THE most transportable goods, outsourcing
it's creation is facile. This is especially true for 'canned
software'. Another kind of outsourcing of software is telecommuting.
An Urban company is able to pay a lower wage to someone in a rural
area where the cost of living is lower. That person could live in the
boonies. Or they could live in India, and work for a software
contracting company.
But telecommuting is still relatively rare. The ability to be on site
is responsible for a far larger percentage of most people's paycheck
than the skills or value they provide to their employers. A Janitor
in Newark probably earns three times or more than a Software Engineer
in Bombay. Newark companies must pay a premium to the Janitor to
retain him. Otherwise he would probably move somewhere where he could
afford to live without a long commute. If the Janitor could collect
the same paycheck in Bombay, that's where the Janitor would move to.
There he could live like a king.
Construction Jobs are tied to a location because buildings are
immovable. Service jobs, like Doctors, Janitors, Lawyers, Plumbers,
Auto Repair Technicians are also tied to locations. Shoe
manufacturing is not. But to the extent that Software Engineering is
tied to the location it is performed at, Software Engineering will
continue to be performed in the US. Basically to the extent that
Software Engineering is a service job requiring interfacing with
immovable entities, it will stay in the US. To the extent that
Software Engineers create a transportable commodity, the jobs will
leave.
Granting anyone from outside entry, gives everyone access to their
skills and labor. That lowers the price for the type of services and
labor they provide. It is a kind of 'progressive tax' to allow only
skilled foreigners into your country. Importing Doctors from Sri
Lanka lowers the price of medical care to those living here. It hurts
Doctors already living in the US. The benefit accrues to everyone who
is not a Doctor, who have more votes than the Doctor Voting Bloc. To
the extent that people's skills allow them to charge the unskilled
more for their labor, the unskilled will vote to import more
competition. To the extent that the poor think they can vote to
transfer wealth from the rich to the poor without unemployment, they
will vote that way.
Only international competition for capital keeps The US from becoming
the Great Socialist Bureaucracy. The European nations have an even
greater desire for rule by Social Bureaucracy.
Imagine if there were no international competition for capital?
Resources would have nowhere to run. They'd all be squandered by
inneficient officials. With no legitimate way to attain wealth
without it being confiscated by those who don't have it, corruption,
patronage and graft would run rampant in government. I picture a
cross between France, Russia, Sweden, China, and Bangladesh all rolled
into one and ruled by Kofi Annan or Jimmy Carter until it was finally
taken over by whichever Kim Jong Il - type mastered the art of
government corruption first and took the whole shebang over from
within. ( preceding paragraph is pure sci-fi doom mongering for fun
only )
>
> > People lost their jobs, and spending decreased. The Fed barely
> > avoided having do fight deflation.
>
> The Fed started cranking the interest rate upward in mid 99 and did
> not stop until the bubble burst. Most high tech people lost their
> jobs to H1B visa people. Republicans HATE anything new. Technology
> scares the hell out of em.
>
> > If anything the economy of the last few recession years resembled a
> > very mild version of The Great Depression more than another late 1970s
> > / early 1980s stagflation. The recessions may be two sides of the
> > same coin - supply sided recessions and demand sided recessions. But
> > that is just talking out of my ass.
>
> The current recession is hidden by falsified GDP data. These data
> are falsified by understating inflation and the understatement is
> accomplished by cherry picking which costs are considered in the
> "infaltion" calculation.
>
> > I'm not sure if the War in Iraq helped employment - ammo was already
> > stockpiled, and there was no draft. But if the war had blown up, it
> > would have probably provided a bigger economic boost. War would have
> > made the economy of the 1980s worse because it would divert capital
> > resources from needed civilian investments.
>
> When a nation spends its productive output on guns as opposed to
> spending such output on infrastructure then the nation is poorer
> for it.
Very insightful. The stuff, soldier labor, steel, lead for bullets,
chemicals for bombs and jet fuel, comes OUT of the economy.
But government borrowing, and spending - even on economically
unproductive items like cutting stone stairs into trails in national
parks ( which was one sort of thing FDR did during the Great
Depression ) can force money to move when people are too afraid to
spend it. Inflationary government spending can instigate change the
behavior of individuals in an economy. It's a use it or lose it
impetus to invest. The investment drives growth which hopefully
compensates for the loss of resources to war or whatever.
However, only when fear is a problem, could taking resources out of
the economy boost it. When lack of resources is the problem, taking
more resources out would only exacerbate things.
One exception about spending on bombs etc making the country poorer:
If those bombs are used to make oil or other resource supplies
saver/more stable and most importantly cheaper, or to substantially
improve national safety, or even if those tanks and planes and boats
and bombs are used to loot resources and exact tribute or unfair taxes
from other countries ala ancient Rome or colonial Britain, there can
be a return on the investment in war. But war had better have a damn
handsome return because it's very risky, and expensive to wage.
>
> > One thing I didn't see Bush do was to implement government run
> > infrastructure programs like road repair etc. Really, we are getting
> > back on track, and it was probably not neccessary.
>
> As I said: The numbers are misrepresented and cooked.
>
Time will tell. I doubt we're getting worse anyway.
> > IMHO, Bush has actually done well on the economy.
>
> This is amazing!!!!!!!!
>
> How can anyone compare the economy under Clinton with that under Bush
> ans come to such a conclusion?
>
Clinton didn't implement policy to fix the economy. Clinton left it
alone and it did fine on it's own. I think the business cycle cycled
on it's own by chance coinciding very roughly with Bush's entering
office. I think that until there was a problem, Bush left the
economy alone too. When the business cycle reared it's ugly head he
passed a middle class tax cut. Too bad he used that good idea to
bundle other delayed and phased in cuts for the wealthy as you have
mentioned. Hopefully those delayed tax cuts will be repealed before
they take effect.
[big snip]
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