Am I wrong?

What I meant was that reducing taxes on employers will help… and probably increase tax receipts in the bargain.

Oy.

I think that’s empirically provable. Don’t you? Who are these “many” who state otherwise?

“Many also believe that the Keynes approach brought us out of the depression (WWII, massive gov’t spending, 1950-60 boom)”

Hard to say how it would have gone without the “massive government spending”… but what is observable is that the massive spending of WW II DID actually produce goods (i.e., new wealth), it did not primarily fund entitlements. The huge productive capacity that was built up to produce war materiel was turned to consumer goods after the war, and the effect of the massive WWII spending WAS to concentrate large amounts of capital in relatively few hands, allowing efficient production for the war effort.

Your comparison of the Laffer Curve to the Keynesian model reveals the fundamental aim of statists: “to maximize revenue.” But supply-siders aren’t primarily interested in revenue to the government, per se, they are interested in economic growth, of which revenue to the government is a nice bonus.

You’re correct, it isn’t just as simple as “reducing taxes” indefinitely. There is a point of diminishing returns where government no longer has the funds to exercise its proper role. But it is a simple idea that when people are losing jobs because employers can’t afford them, reducing taxes on those employers will help… and increasing taxes on them will hurt…. and probably increase tax receipts in the bargain. We are nowhere near the “danger point” in tax reduction… Or do you think we are?

Much of this really boils down to a political argument, not an economic one. Statists want the government to control more. Freedom lovers don’t. Statists trust the government to spend the public’s money wisely in nearly any amount, freedom lovers don’t. And so on.

That’s why Friedman’s “Free to Choose” has the title it has.

Hmm… I had the impression from your first comment, when you quoted your MPC formula (a perfect example of something no one really knows), that you were implying that it WAS simple arithmetic.

Perhaps you trust the government more than I do.

I agree with you. There are experts on both sides, but to say that one side’s approach absolutely works, while the other side’s does not is empirically untrue. It is not that simple. I do not question that tax cuts stimulate the economy. Many do state that tax receipts did not go up under Reagan’s tax cuts, so these things can be argued in circles all day. Many also believe that the Keynes approach brought us out of the depression (WWII, massive gov’t spending, 1950-60 boom). Unfortunately, the Laffer Curve also requires us to trust the “experts” in the government to know exactly where to set taxes to bring in the most revenue. Set them too high, we bring in nothing. Set them too low, we bring in nothing. The Laffer Curve is an inverted U precisely because in that model there is one point that brings in the most revenue, and it lies somewhere between no taxation and 100% taxation. It is not as simple as just reducing taxes. Half the time the Laffer Curve calls for taxes to be raised. Again it is up to the “experts” and the government to set the taxes.

This is why some have deemed economics “the most complicated of the sciences.” It just isn’t that simple.

Blessings!

There are “experts” on both sides of this discussion, of course. You want to throw in with the statists. I don’t. You think that the government spending that results in a few more people able to spend a little more money can actually grow the economy. I don’t. What grows the economy is concentrations of capital that allow the production of things that would not exist without that concentration of resources. And those producers (who were able to create things with concentrated capital that would not have existed otherwise) are the people/corporations/businesses that create wealth.

The funny/sad thing about this: the young people of today, some of whom like Obama style economics, are the ones who are going to pay and pay and pay, when the bill comes due. And it will.

I’ll do you the courtesy of assuming that you know that there are experts who know a great deal more than you who radically disagree with everything you say. I’m aware the reverse is also true. So I won’t start quoting names/books… let me know if you’d like me to. I’ll just say that one side in this discussion, the Keynsian side, requires me to trust the “experts” and the government to know how much is too much, and how much is just enough, and just how the money should be spent, blah blah blah. Like Hayek, I don’t think there is ANYBODY who knows that much. I don’t think the twenty most brilliant economists in the world know that much.

I see no national track record anywhere that makes me believe that Keynsian approaches have worked to create and sustain wealth for a decent period of time.

I trust the market, in a system of laws to enforce contracts and prevent coercion, and the freedom of people to decide how to spend their own money. Of course, when government meddles in the market (as it did to create the housing bubble) then government typically blames the market when the correction occurs. Predictable behavior of statists everywhere, of course.

I note that tax receipts go UP when taxes are cut. And I note that the Reagan tax cuts produced exactly that effect, while a Democrat congress insisted on increasing social spending and so outpacing those receipts. But the result of the tax cuts in stimulating economic activity is just unquestionable. It has worked pretty much everywhere it’s been tried.

So I’ll see your Marginal Propensity to Consume and raise you one Laffer Curve.

http://www.amazon.com/Principles-Macroeconomics-N-Gregory-Mankiw/dp/0324589999/ref=sr_1_1?ie=UTF8&s=books&qid=1265493524&sr=1-1

Bill, see above for the limits on stimulus (and tax cuts). You are right in saying that the stimulus package has primarily gone to those who work for the government. You are wrong though in saying that that doesn’t move the economy. A teacher who now gets to keep her job can continue to pay rent, she can buy food at the grocery store, she can buy clothes at the department store, she pay her utilities. See what I am getting at? Nothing in our economy is isolated. Every job matters, whether they are employed by the government or not. If they have a job they can spend money at local businesses, which in aggregate allow the businesses to not only stay open, but not have to lay anyone else off, and as more people begin spending money they can start hiring again. So, yes. It is an investment.

And to speak highly of the Reagan tax cuts, but speak poorly of the “how much deficit can I leave to those trailing me” is a bit contradictory. Reagan’s tax cuts, while successful at stimulating the economy, left the country with one of, if not the largest deficits in U.S. history.

I think you mis-underestimate the effect that taxes – government spending and control has on the small business owner. We are stifling the economy by setting an unsure platform to the business owner. He understands paying back what you owe – unlike most in the government who live on “how much deficite can I leave to those trailing me”.

If anything you said was true, then the only proper response for a government that really cared about us would be to spend ten times more than they’re spending, so we can REALLY reap that “multiplier” effect. Matter of fact, if they spent a hundred times as much, we’d all be zillionaires.

Harmonicminor, the reason for the government spending money on jobs programs rather than cutting taxes for employers comes down to multiplier effect. The equation for the government expenditures multiplier is 1/1-mpc, while the tax multiplier is -mpc/1-mpc. Assuming that the MPC (marginal propensity to consume, aka the amount of money spent per dollar earned) is 0.7 (meaning 70 cents of each dollar earned is spent, while 30 cents is saved), the multiplier for this $154 billion jobs bill is $154 billion x 1/1-0.7, or $513.33 billion. If the government were to do a tax cut instead of the jobs bill with the same cost to them of $154 billion, it would create much less value in the economy. Here are the numbers: -$154 billion x -0.7/0.3 = $359.33 billion. So, for the same cost to the government, the jobs bill would create $153 billion more value than a tax cut. The quotes were correct in saying that this is not very significant in terms of the size of our economy, and that is precisely why many economists have been calling for a second, larger stimulus bill. You are right in saying that Reagan proved that large tax cuts can work well in lifting the country out of a recession, but $1 in government expenditures has been shown to make a much larger impact on the overall economy than $1 in tax cuts, and that is why congress is choosing to go this direction.

Bill, if we were to indeed take your advice and lay of 14% of government workers, that would add another 280,000 people to the ranks of the unemployed in America (14% of about 2,000,000 federal employees). That would surely send the economy back into a free fall. Also, if when you said “You can’t dig yourself out of a hole!” you were referring to a country not being able to spend-itself out of a recession, then you are incorrect. That is precisely what Reagan did with his tax cuts, and what can be more effectively done with government expenditures. If the economy is down, tax revenues are down, so if the government can do something that will stimulate the economy, then they can soon recover more than they spent due to the multiplier effect. So yes, in that sense you can “dig yourself out of a hole.”

Government is not a bad thing – it is a good thing. However, improperly sized and/or powered government is a bad thing. I look at government as overhead to the country. If you don’t reign in your overhead, you become top heavy – and the structure that creates wealth cannot sustain the burden.

In my opinion, if we went from 4% to 18% (probably conservative) unemployment – we should drop 14% of our government workers.

Noelle is exactly right – businesses are unsure of their financial platform, so they won’t add to their cost structure.

We need to get rid of income tax altogether. Go to a straight sales tax. That will equally tax everyone. Those who are rich – don’t have income – they have investments that don’t get taxed as they are being re-invested. Those earning wealth in the stock market aren’t taxed on income as it is reinvested. Those making money in real estate aren’t taxed as it is re-invested. Illegal money from non-documented workers (some), drugs, etc. is never taxed. These would all have proper taxation during spending. Additionally, it would take these high taxes OUT of domestically manufactured products making our products more competitive on the world market. Additionally, it would increase the cost to the consumer on the foreign manufactured products to US consumers incentivising domestic manufacturing.

We need to take expenses by non-citizens and charge back their country of origin. This would deter those countries from pushing their people over here for free care and education. If the country doesn’t pay, put a tariff on the goods entering our country from theirs.

If we come to a conclusion on health care, cost of toxic loans, cost of bailouts, cost of deficit, cost of cap and trade – then we can build businesses on a solid model. Entrepeneurs are risk takers by nature, but they are not irresponsible. Give them a platform to work on – cutting taxes and increasing expense write offs is an excellent start. They will get the economy going.

You can’t dig yourself out of a hole!