Comparing Presidents: Real GDP per capita Growth Rates and Changes in the Tax Burden
by cactus
Comparing Presidents: Real GDP per capita Growth Rates and Changes in the Tax Burden
In last week’s exciting episode I posted this graph:
A few quick comments… this is actually a correction – I screwed up the graph the last time by not following the same convention with Nixon and Ford that I did with the rest of the Preznits – namely, if a dude was in the Oval Office for more than half a year, he got attributed the year. I guess its Tricky Dicky to mess up the fact that Nixon resigned in August of ’74, and so should get “credit” for ’74.
BTW… the data for the graph comes from line 10 of the BEA’s National Income and Product Accounts Table 7.1 and the processing is shown in this google spreadsheet. The annualized change in the real GDP per capita is computed from the last full year before a President took office to his last full year in office.
While the BEA data begins in 1929, Hoover was left off the graph because I’ve been informed a zillion times that the Great Depression started under FDR, so it would be unfair to show Hoover considering that the effects of FDR’s perfidy worked their way backward in time producing a monster negative growth rate from 1929 to 1932. And speaking of FDR, for his term only the period through 1938 was used because I’ve been informed a zillion times a zillion times that the economy only started humming when the Germans saved us by bombing Pearl Harbor. I figured 1938, being in the middle of a recession (and prior to the war, Lend Lease, and even the Destroyers for Bases agreement) did a sufficient job of avoiding the effect of the war.
Unfortunately, the data refuses to show the truth, namely that superior Republican economic policies produced superior economic growth. But you know what, this ain’t about Democrats and Republicans – this is about the policies they followed. And to Republicans (and Libertarians, for that matter), “policy” means a number of things, but out of the top five, numbers one, two, three, four and five all seem to be “cutting taxes.” So let’s cut to the chase and focus on taxes that people pay. On second thought, make that everything that people pay the gubmint, because some Presidents
The graph below shows current federal receipts (line 1 from the BEA’s NIPA table 3.1) divided by everybody’s personal income (line 1 from the BEA’s NIPA table 2.1), sorted from top to bottom.
Now an interesting coincidence emerges… there are twelve Presidents represented in the two graphs. Five increased the amount the gubmint collected in taxes (in graph 2). All five are among the six that produced the fastest increases in real GDP per capita (in graph 1). The only tax cutter in the top half of performers also happens to the be the second smallest tax cutter in the sample.
The next graph combines the two previous one:
Anyway, none of this is definitive, but as I keep stating, looking at the data in a straightforward manner makes it very, very hard to see how one can argue that lower taxes = faster growth. I will look at this a bit more in depth in the coming weeks. Also… I hope to have time to extend this a bit further and look at what Obama has done during the Great Recession, not to mention commenting on Greg Mankiw’s recent piece in the Times.
________________________________
by cactus
What I like about our work is not that it shows
that democrats policies work.
Rather, it clearly shows that republican claims that
their policies work are just plain wrong.
I can make only this comment: Come back in 2012! We have a perfect case study in place to judge the EFFECTIVENSS of Dem Vs Repub economic policy. If this Prez shifts to implement traditional Repub policies, and the economy rises and jobs increase, then the premise is up for serious debate.
It goes along with my unending questions re: which policies made the difference in the past.
Spencer,
Really, how is that done? I don’t see it. How is the weight and inefficiency of FDRs programs shown causing 3 recessions during the Eisenhower administration. How do the charts show LBJ refusing to pay for the great society or the Vietnam War until his last year and then passing the bill along with inflation to Nixon. How do the charts show all the inflation that Carter’s FED caused being passed into the 1980s and forcing Volker with the full support of Reagan to deal. I don’t thik the charts appreciate the industrial restructuring that occured under Reagan, with some of weight having to carried by Bush #41 and then enabling Clinton to collect the dividends of an economy going up pretty much on auto pilot.
Cactus’s charts are devoid ideas and explanation.
An aside: This weekend I heard Romer say the recession would not really be over until unemployment came down to a reasonable level — defined as around 5 percent. Under FDR unemployment was still around 15 percent going into 1940. So FDR’s numbers according to the Romer criteria would indicate that FDR’s policies were a failure.
But cactus has FDR as top dog on his charts. So please excuse me if when FDR with his 15% plus unemployment is shown as the paradigm of democrat competence and efficiency I’m pretty glad Reagan shifted the paradigm. Since the first world war the way to divide the time is pre-FDR, FDR to Reagan, and Reagan to Present. Cactus’s division based on what president was in office is a vacuous exercise that is not informative to the decisions we are faced with today. Ike, Nixon, and Ford were all FDR style Keynesians. Reagan, Bush’s, and even Clinton were post Keynesians that believed free market capitalism (although Clinton needed the help of the Republican Congress to get him on the team).
Unemployment under FDR
http://www.fasttrackteaching.com/Unemployment_300g15.gif
Cactus will not be available to respond until late Monday nite.
CoRev
That’s MY unending question!!! We never get a why.
This next 4 years will be a perfect test case of cactus’s primary premise: The party of teh President is the only factor in determining economic growth.
And I wouldn’t trade Carter for Reagan in 1980.
JFK and LBJ got as close as we ever came to a nuclear exchange and involved us in a war we lost. But their GDP numbers look good!
As for Obama – Well after the “Worst President ever” crap from the left, it should be almost an effortless program for Obama and the Dems to bring us 5% unemployment and 4% GDP growth (plus a pony – I’m still waiting for mine). So what’s the hold up?
BTW, the Dems will be shortly raising taxes as Bush’s tax cuts expire. Will they be raising them more?
Explain to me one last time why every program the Dems push through increase the size of the nanny state and reduce individual freedom?
Islam will change
Oh, one more comment. I’m not sure that the axes in the last graph are in the correct orientation. I mean that I’m thinking that change in GDP should be on the x-axis. Under a progressive income tax system, when there is economic growth, the population ends up paying a larger percentage of their income as taxes as people are more likely to move up a tax bracket. The reverse is also true as during economic downturns, people move down the tax brackets and their marginal tax rate drops. Hence economic growth should drive the marginal tax rate for the population.
This effect could be accounted for by comparing tax rates under different Presidents with similar rates of economic growth. For instance, growth under Reagan was similar to JFK, Clinton and Carter, but Reagan saw a drop in your tax rate, while the other three saw an increase. Unfortuntately, that’s the only Republican vs Democrat tax comparison that is possible, but I suppose the remaining Republicans could be compared to each other 😀
I’m not sure if this effect invalidates the results, but it would be nice to account for this confounding factor if possible.
Cactus
you really shouldn’t use irony around these people. years from now you will see your own words quoted back at you as though they were “true.”
but, more interesting to me, you seem to show FDR raised taxes during the depression. I keep hearing liberals as well as Republicans saying “you can’t raise taxes during a recession.” I have always thought they are wrong about that. If FDR agrees with me, it will give me more confidence in saying so.
as for “user fees,” you have to understand that Republicans don’t visit National Parks, and Real Republicans don’t collect Social Security… the biggest user fee of them all. Of course they keep talking about Social Security as if it were a “tax” burden on the rich… but we, at least, should keep our facts straight.
Buff
would you please explain how your “individual freedom” has been reduced?
my individual freedom to throw my household garbage into the street was reducd by “government” a long time ago. i can’t remember if it was Republican or Democrats in the whilte house then.
kosta
economics is not “zero sum” there are countless feedbacks, positive and negative, and even a few chaos parameters. you are undoubtedly right about GDP driving tax brackets, but the point is to identify as much as we can those variables we can control that make us better off “on average.” gdp is usually considered a dependent variable, not always a good measure of “us better off” but the best one we have for now.
I have grave doubts about the utility of comparing growth rates during a Presidency with the party or policies of that President. Growth or lack thereof is probably lagged, reflecting policies enacted ealier than the year involved, IF in fact it is all that much effected by policies. There are so many other factors, demographic, and social and long term economic, that feed into the growth rate that I think trying to make political points with it is probably useless.
The issue is NOT which political party was in power during any particualr period relative to what economic consequences may have ocurred. The correlation is between level of taxation and its apparent effect on economic activity. Does the economy suffer when individual taxes go up? Does reducing taxes have a beneficial effect on the economy? the data summarized by cactus is there to read. Interpret it in what ever way you will, but try hard to use the data that is present to justify your interpretation. That’s where poliltical party ideologies begin to interfer. The data appear to show that when taxes go up so too does the health of the economy. Many potential explanations may be considered, but the data show clearly that when taxes are reduced there is an adverse reaction on general economic conditions.
Maybe the problem is too much money residing in too few hands. That would be expected to reduce the amount of general economic activity. If too many people haven’t got enough then they can’t participate in economic activity, ie spending cash rather than taking on personal debt. If too few people have most of the purchasing power they can hardly be expected to be able to spend it all.
Coberly,
I keep hearing liberals as well as Republicans saying “you can’t raise taxes during a recession.” I have always thought they are wrong about that.
We would have less to argue about if the liberals told the truth and said they want to raise taxes for social justice; and high taxes will have a negative impact on economic growth but they want to do it anyway since they think the tradeoff is worth it according to their values.
The fact that they say you can’t raise taxes during a recession is an admission that taxes slow down the economy; which implies you can only do it when the economy is roaring along and nobody will really miss it when then the growth rate falls from 4.5 to 3.5 percent per year.
So where does this leave Cactus and his graphs — pretty much in nowheressville.
I did something similar where I looked for an inverse correlation between the top marginal tax rate and real gdp growth in the US since 1948. Turns out there isn’t any.
Jack said: “The issue is NOT which political party was in power during any particualr period relative to what economic consequences may have ocurred.” If that’s true why all the red and blue breakouts and the Prez’s name association?
Read Buff’s and my lips. WWHHYY? No real why answer, then it’s just a poke in the eye. I continuously ask Cactus why, and he alsowys (now get somewhat angrily) with some Doo Daa dance. If its just optimum taxes then show us!
There are also many variables and lag effects in play. In order to determine the effect of one variable, one needs to underststand and account for the other variables.
To name a few obvious variables, what about the behaviour of interest rates, deficit spending, overall level of debt and leverage, etc? Lag effects and interrelationships?
Ceterus Perabis? Where?
“There are also many variables and lag effects in play. In order to determine the effect of one variable, one needs to underststand and account for the other variables.” Ben
Yes, of course. And worse yet the data are so prone to measurement error as to be almost haphazard. That being the case we should worry less about the effect of taxation on future economic growth and more on the need to raise revenue to pay for the expenses of government activities. Argue if you will about the legitimacy, worthiness and appropriateness of those expenditures, the government still has a responsibility to carry out its activities. Like Phil Gramm said, “Stop the whinning.” Pay your taxes. Be happy that your government makes it possible for you to earn large quantities of money. Be happy that your government protects your investments all over the world. Be happy tha your government represents the interests of the wealthy over and above the interests of the other 95% of the working population. Just be a good American and pay your taxes and stop whinning about the rate and the fact that a higher rate is needed on the higher levels of income. Those who have been benefiting most from ouor economy owe the lion’s share of the cost of maintaining that economy, and its your government that does that maintanence.
Check the highest marginal rates of the ’50s and ’60s. The economy was flying high back then. Stop whinning about paying for a government that has the best interests of the income elite at heart.
Jack,
Check the highest marginal rates of the ’50s and ’60s. The economy was flying high back then. Stop whinning about paying for a government that has the best interests of the income elite at heart.
How about if we keep the size of the federal government below 18.5 percent of GDP. This is the number is associated with most of the periods of good times that you are pointing to.
I love the sputtering…and the claims about what cactus is claiming. Of course there are many variables and policies and such. God just doesn’t favor the Repubs no matter the combinations it appears. As if we can determine such even now with such surety. Good grief….think about your claims folks, and reflect on the state of theory now.
I am with spencer.
Jack,
The issue is NOT which political party was in power during any particualr period relative to what economic consequences may have ocurred.
I agree. The real issue is Keynesian versus supply side economics. We have three republican presidents that followed Keynesian policies and their numbers really don’t look that good. We have one democrat that although he raised taxes on other items he was really a supply sider.
Other then the Keynesian appologists like Krugman most professional economics would say that Keynesian stabilization policies failed in the 1970s. A period when we had both stagnation and inflation. The Keynesian models doesn’t handle this situation vary well — its not supposed to happen.
Interpret it in what ever way you will, but try hard to use the data that is present to justify your interpretation.
Data without explanation is like fool looking for a needle under an haystack.
The data appear to show that when taxes go up so too does the health of the economy.
I think it makes more sense to say the rising economy generated extra tax revenue.
but the data show clearly that when taxes are reduced there is an adverse reaction on general economic conditions.
This is not true. The economy took steps up when both Reagan and Bush #43 made permanent reductions in tax rates. It also made a short bump up in the spring of 2008.
Actually, to me what these graphs suggest (this time around…) is that people elect Democrats when times are about to get better (and the rising tide can then lift the government’s tax boat too). They elect Republicans when times are about to be tough. Now, it’s quite possible that Dems have the advantage when times are tough, so when the elections fall in the bottom of the cycle, and things are about to get better, the Dems have the advantage. And then things get better and the Dems take the credit? Meanwhile, when times are good, the masses are passive and the corporations are flush with profits, the Repubs have the advantage…
In the end, though, both sides of the Republicratic party have been co-opted and are generally either brainwashed, or downright bought-and-paid-for, agents of Taibbi’s Giant Vampire Squid…
Spencer,
It does not show that at all, it merely shows that more growth happend on average under Democratic President rather than Republican Presidents, and not becuase of anything they did.
Rdan,
Where is your evidence to believe that? Because Cactus has never provided any evidence to suggest such tripe. Cactus merely offers data, no analysis.
At best…….your belief is a guess!
“How about if we keep the size of the federal government below 18.5 percent of GDP.” Cantab
Now that sounds like a workable plan. The easiest and biggest cuts available are in military spending. Some sources make it appear that as much as 50% or more of the budget could be saved just be knocking out military spending. That is not to say that the entire military budget should be cut out, but its the most fertile filed to plow if we want to grow some real savings and spur growth in the general economy.
cantab,
“How is the weight and inefficiency of FDRs programs shown causing 3 recessions during the Eisenhower administration.”
If FDR is responsible for a recession 15 years after he died, is also responsible for the zooming economy in years 16, 17, and 18 after he died? After all, JFK’s policies more closely resembled FDR’s then Eisenhower’s did, right? Where does it stop? Are Bush 1 policies in 1992 responsible for the Great Recession which began in 2007? And do these rules apply to non-economic incidents? Is LBJ responsible for the Beirut Barracks Bombing?
Jimi,
And the tax thing is just a coincidence.
CoRev,
Come now – the post was pretty clear – tax policy was more highly correlated with growth than party affiliation.
Good luck to you and spenser; and I’ve pointed several items out the undermine Cactus’s approach to analysis — including crowning the king of all presidents the one with 15 percent unemployment until he took the country to war.
Buff:
Gee, how is letting the 2001/2003 tax breaks sunset, the DEMS raising taxes and why was 2010 chosen instead of 2008 for a sunset?
Jack,
I think during the 1960s we were in the 18.5 percent range for federal government spending versus GDP. I certainly don’t think the military needs to be bigger then it was during the 1960s, and as a matter of fact I thinks its quite a bit smaller (will look up data latter). But then non military entitlement spending is a different story. So why not whack what’s gone out of control?
Cactus,
“If you buy the 1-year-lag theory, something even more interesting pops out of the data. In looking at the trend over the last year of each term (the right-most column in the previous table), we see that every time an administration changed from Democrat to Republican, the trend was negative. That is, the Democrat left a decelerating economy for the Republican. Every single time: Truman to Eisenhower, LBJ to Nixon, Carter to Reagan, and Clinton to Bush 43.
Conversely, every time an administration changed from Republican to Democrat, the trend was positive. That is, the Republican left an accelerating economy for the Democrat. Every single time: Eisenhower to JFK, Ford to Carter, and Bush 41 to Clinton.”I asked you to respond to this article last time and you didn’t do it.http://www.americanthinker.com/2008/09/presidents_and_the_economy.html
coberly,
As to sarcasm…. what difference does it make what I write. Cantab looks at graph that shows low taxes correlated with slow growth, and he immediately claims the opposite.
cantab,
“… high taxes will have a negative impact on economic growth but they want to do it anyway since they think the tradeoff is worth it according to their values. “
You are making a statement that is contradicted directly by data presented in this post and you are making it without presenting any evidence at all. Zero. So either you have zero reading ability, zero reading comprehension, zero attention span, zero respect for the rest of us, or zero respect for your own reputation.
Show us some data because over here we don’t trade in silly unsubstantiated opinions, we discuss facts.
buff,
“We never get a why.” This post clearly shows the correlation between growth and taxes is stronger than between growth and party. There’s one why. There are others mentioned in my book.
As to Obama… that is the subject of my next post. I’ve downloaded the data already. I haven’t run the numbers yet, but I have a pretty good idea what they show. You’ve been reading this blog for a while… you probably can figure out what I think the numbers will show. We’ll find out very soon if I’m right… because as you know, I post the results whether they fit with my intuition or not.
Cantab,
Because what most of the pro-Statist (not saying that Jack is), want has nothing to do with economic growth, it is all centered around the redistribution of wealth. Just as long things are fair, at least fair in their eyes, then everything is fine, and when you walk the trend line out a couple of decades you’ll get a result of everybody being miserable, and I guess that fair in their eyes.
There are other variables. (My book has a simple model which includes a few other variables.) Nevertheless, there are things one can learn even from a simple look. Ceteris paribus or no ceteris paribus, it is very hard to argue that cutting the percentage of people’s income the government collects in revenue leads to faster growth based on the graphs above.
Assume, for instance, that reducing the tax burden really does lead to faster economic growth but is being masked by the absence of some other variable or variables which I have not considered in this post. Consider the properties that that variable or those variables would need to exhibit to produce graph 3. I can come up with a scenario by which that could happen, but it would require some heroic assumptions.
CoRev,
“If that’s true why all the red and blue breakouts and the Prez’s name association? “
That’s where I started… but as this post stated clearly, tax policy is actually what matters more. Now, in general, tax policy correlates with party, but not 100% (see Truman, and in my next post, I’ll discuss Obama).
cantab,
“We have three republican presidents that followed Keynesian policies and their numbers really don’t look that good.”
Yup. One of ‘m produced the second fastest growth among all Republicans. Are you saying only one Republican was capable of producing rapid growth?
“We have one democrat that although he raised taxes on other items he was really a supply sider. “
Yes, and he came in fourth among Democrats, following three Keynesians. Seriously, dude, your dancing sucks.
“Data without explanation is like fool looking for a needle under an haystack. “
Actually, it beats an explanation without data, which seems to be your approach. Ask any physicist about Tycho Brahe’s contribution to science one day. Compare that to some crackpot showing up with some crackpot theory that contradicts all known data.
cactus,
Never argued with your numbers – just the interpretation of them. As for Obama – I didn’t think we would have any good data for at least another year, probably two. But I think there is only one number that matters to getting Obama re-elected (assumming the Reps don’t send up a suicide candidate – which is by no means not unlikely to happen). That’s the unemployemnt number. My bet – we hit 12% by election day 2010 if not higher. And it will get even worse form that point on unless Obama does a major course change like Clinton did after 1994.
I will await with interest your data.
Islam will change
Ben,
Yes, lagged effects matter. Also, so do other nonlagged variables. I’ve discussed some of them in other posts, and will have other posts going forward plus I do it in my upcoming book.
But… as I stated upthread:
Assume, for instance, that reducing the tax burden really does lead to faster economic growth but is being masked by the absence of some other variable or variables which I have not considered in this post. Consider the properties that that variable or those variables would need to exhibit to produce graph 3. I can come up with a scenario by which that could happen, but it would require some heroic assumptions.
Run,
If my taxes go up from 30% to 39%, that is a tax increase regardless of whether it was 39% once before, PERIOD.
The reason 2010 was chosen is because the only way Democrats would allow a tax cut to oocur was to put a time limit on it.
“How about if we keep the size of the federal government below 18.5 percent of GDP.”
Earlier you were criticizing Nixonand Ike because they were insufficiently Republican. With this sentence, you are making it clear you don’t like Ford, Reagan, Bush 1, or Bush 2 either. (http://www.whitehouse.gov/omb/budget/fy2010/assets/hist01z3.xls)
Which leaves Herbert Hoover. Seriously, I’m getting embarassed for you.
Jack,
National defense spending as a percent of GDP
1930s…1.4
1940s..20.0
1950s…11.7
1960s…9.6
1970s…6.5
1980s…6.9
1990s…5.0
2000s…4.4
It looks like the number is falling. It would be nice to only have to spend on the military what we were spending back in the 1930s. We would be more like Europe.
http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=5&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=2007&LastYear=2009&3Place=N&AllYearsChk=YES&Update=Update&JavaBox=no
Jimi,
Cactus is offering data precisely because people are refusing to accept that. We have to start with everyone (at least the reasonable ones) agreeing on the same reality. And the reality that the data in this post shows is two-fold:
a. Republicans have underperformed Democrats
b. Tax cutters have underperformed tax hikers
Given these facts, feel free to build your theory. I have one, but I’m not about to put everything into one single post.
True, but I wish they would admit to it.
cantab,
Data is data. As you yourself keep pointing out, I’m not exactly doing an analysis. I’m stating what the data shows. You just don’t like what it shows and prefer to live in a fantasy world, and insist for some reason on trying to convince others to live the same fantasy.
Guest,
The problem with your theory…
1. GW lost the popular election… that is, according to your theory, times were about to get better.
2. Clinton did not get a majority of the vote in 1992. (Perot was a spoiler for GHW.) According to your theory, things should have been about to tank.
Cactus,
You are making a statement that is contradicted directly by data presented in this post and you are making it without presenting any evidence at all. Zero. So either you have zero reading ability, zero reading comprehension, zero attention span, zero respect for the rest of us, or zero respect for your own reputation.
You’re the one with the learning disability. Why do you think everyone both liberal and conservatives are saying now is not the time to raise taxes. Or why they say 1937 was the wrong time to raise taxes. The answer is that rising taxes lowers economic growth therefore according to the tax raisers you should only do it in times of strong economic growth so when it negatively effects the economy maybe it will take growth down from 4.5 percent to 3.5.
Cactus,
You think you have data on your side? FDR had unemployment at 15 percent in 1940 and you have him at the top of your charts. FDRs performance stunk, and the fact that you show him on top shows how worthless your analysis is.
Cactus,
Data is data. As you yourself keep pointing out, I’m not exactly doing an analysis. I’m stating what the data shows.
That’s fine. And my take away is that Keynesian economic policy is not effective now and has become less effective over time culminating in its blatant failure in the 1970s. And given the 15 percent unemployment rate in 1940 when the Keynesians were at the top of their game they were doing a lousy job at that time too.
We are living in the Reagan supply side period and there is no compelling reason to go back to the failed economic polices of the Keynesians.
By the way, look at that silly Obama browbeating the banks to make more loans while others in his administration say the economic problem started with them making too many loans. This is like with his Afghanistan surge/withdrawl plan — policy that contradicts itself.
Cactus,
NO IT DOESN’T! This data takes no lagging into account. Nobody including you, knows what kind of lagging is the proper way to look at the data.
Also, the data does not include any kind of analysis of external events (ie 911, Katrina, Tech Bubble, Housing Bubble)
Also, the data does not reflect what kind of Congress was in place.
Also, the data does not consider “whether or not all Democrats act like Democrats, and whether or not all Republicans act like Republicans. John F. Kennedy, for example, was an enthusiastic supply-side tax cutter, and George H.W. Bush raised taxes. Bill Clinton promoted free trade, and Richard Nixon imposed wage and price controls.
If you assign those four presidents to the opposite party based on that — make the two Democrats into Republicans and the two Republicans into Democrats — the numbers completely reverse. Now stocks average 14.7% under Republicans and only 10.5% under Democrats.”
At best the data only shows a higher average growth under Democratic Presidents, but does not explain Why?
A lot of people say a lot of things. The question is, what does the #$^%ing data say? I told you several times, we try to focus on data here. I really don’t give a toot what “people are saying” whether they are liberal or conservative. I care what the data shows. Argue on the basis of facts, please.
The book’s copy edits are due next week, so I can’t promise that post this week, but I’ll try. Otherwise, expect it next weekend barring some emergency. Whatever it shows.
Remember what Coase said about torturing data. Get back there, and get out the thumbscrews, otherwise you’ll never be a good conservative, much less and Austrian.
cantab,
Good to see I’m not the only one you’ll misinterpret.
Cactus,
If you cared what the data showed us, then you would have only ONE solid conclusion to offer. The conclusion would be Real GDP per capita increases more during the time of Democratic Presidents than Republican Presidents, and that is it.
But, since you do not care what the data is showing us, you make outrageous claims like:
” All five are among the six that produced the fastest increases in real GDP per capita (in graph 1).”
Without any analysis or lagging or Congress considerations this data only tells a sliver of a much larger picture, and any sane person would never conclude that Tax Raisers produce better economic performance when looking at these graphs.
OK, Cactus, Repubs cut taxes to get us out of Dem recessions. Dems raise taxes to take advantage of Repub good economies, and, then we repeat the vicious cycle. Add in the various lag times and a pattern should become clear.
As I have been saying let’s see after three years of this administration’s efforts. Traditional Dem policies are now in effect. He is pivoting to implement several traditional Repub tax/incentive policies. By 2012 we should have a better picture of effectiveness.
Now, Cactus, correlation proves?????
We have just gone through huge debates around this very subject in the Climate Change discussion. With data as poor and a story to tell using this data, it is easy to go off track. That is why I still continue to ask the “why” question(s). Until they are fully answered there can be no acceptance of the causation, and without that correlation is nothing.
BTW, neat trick giving credit to those of us who commented on the early drafts of the book. At least it raises the chances of more sales. 😀
The link below shows GDP growth Rates. Try checking the United States, United Kingdom, France, and Germany. Its funny how they all trend together. Yet Cactus with his myopic view claims it all about political party in the United States — Regardless of economic policy.
http://www.google.com/publicdata?ds=wb-wdi&met=ny_gdp_mktp_kd_zg&idim=country:DEU&q=Germany+GDP+growth#met=ny_gdp_mktp_kd_zg&idim=country:USA
Cactus,
Good to see I’m not the only one you’ll misinterpret
Work on having a point. Nobody knows what you’re talking about here.
Cactus,
Cactus is offering data precisely because people are refusing to accept that. We have to start with everyone (at least the reasonable ones) agreeing on the same reality. And the reality that the data in this post shows is two-fold:
a. Republicans have underperformed Democrats
b. Tax cutters have underperformed tax hikers
This is nonesense. The data does not show this. No democrat was president during Eisenhower or Reagan’s presidency and no Republican was in office during Truman or Clintons term (although a republican congress helped Clinton — he did better playing cigars then with the economy). So you don’t have anything to do an all things being equal analysis.
The best thing about the post Keynesian democrats is unlike their predecessors they seem to manage without starting a new war. I consider Carter a transition figure between the failed Keynesian policies that of the past and the leaner supply side policies that have been the key to economic growth since 1980.
Here is the list of democrats and the wars they started:
Woodrow Wilson — World War I (thanks getting my grandfather mustard gassed).
Franklin D. Roosevelt — World War II
Harry Truman — Korean War
Kennedy/Johnson — Viet-Fricken-nam
Neither Carter or Clinton started a war. So they seem to have broken from the military industrial complex that FDR invented.
Cantab
your comment was addressed to me, so i suppose i should reply.
i imagine liberals want to raise taxes for social justice. and i have heard at least some liberals say you can’t raise taxes in a recession, so i suppose they agree with you. i don’t. i think you can raise taxes in a recession on accounta i don’t think “growth” is what gets you into heaven. and i don’t know that i believe in “social justice” at least not the way i have heard it described by some. but i do believe taxes are what it takes to build a strong country, and some of the things it takes to build a strong country look a lot like social justice. where your friends go wrong is they hate taxes so much they can’t think straight about what it takes to make a country strong.
as far as Cactus’ graphs, they seem to me to say what he says they say. no more. no less.
cactus
i wasn’t really thinking of cantab. we have already established that cantab thinks correlation implies non-causation, and no correlation implies causation. i was thinking about all the other members of the insane right who say seriously exactly what you said in jest.
Cantab
“we are living in a Reagan supply side period..”
look around you. worst recession since… 1930’s when another famous recession ended the last era of supply side policies.
regarding the contradiction between banks making too many loans and now not enough. you live in a very simple world. the too many loans arguably led to a crash when the loans went bad. scaring the banks from loaning more money putting the economy into a recession. so our boys… who turn out to be your boys… bailed out the banks so they would start lending again, but more responsibly. only the banks have better things to do with your money. it would have been better to give the money to workers for working. or to open a federal bank to make ordinary business loans while the big guys sorted out their own business. but all of this is just too complicated for you. you prefer to see a simple minded contradiction. because i tell people not to jump off the roof, you accuse me of contradicting myself when i tell them to go down the stairs.
aw heck Cactus
i was enjoying the 180 degrees out of phase theory of economics. proves we should always vote for the guy we don’t want.
not so true.
i don’t know where fed spending is today. but once you count “entitlements” as government spending you are telling a lie. they are no more government spending that it is bank spending when they cash your checks.
how many wars did reagan and bush I and bush II start? not to mention good old Abe Lincoln.
please note, however, you have changed the subject, which was i believe the correlation between party and growth of GDP, or tax policy and growth of GDP.
what you are demonstrating is a rabid partisanship that clouds.. hell, destroys… your thinking.
Another made up out of the blue comment on this main post.
Jimi:
Gee, it was my understanding the Repubs were in control http://uspolitics.about.com/od/usgovernment/l/bl_party_division_2.htm. The only sensible and fiscally sound manner to cut taxes before spending is to put a date on it sunseting. You got Bush’s tax increase in 2010 just as he planned it
The basic problem is that rich people don’t spend a large enough percentage of their income on consumption. You don’t need more investment during a recession you need more demand. Increase the tax rate on the rich and lower it on the poor and middle class. This will increase demand.
Jimi,
I thought I put up a response last night. OK. Let’s try this.
I had some posts (and I’ll try to redo ’em at some point, they relate to a chapter I started working on for my second book in which I lay out the information in far more detail than in this response) looking at the Fed’s behavior in the six months leading up to a Presidential election, and there seems to be a bias. (There’s some economic literature that looks at this as well.) Consider three consecutive elections in the Greenspan years… there was a monster increase in real M1 per capita leading up to the election in 1992 (intended to boost the economy which a cynic might think was intended to make the Republican incumbent look good) and monster decreases in 1996 and 2000 (intended to kill the economy which a cynic might interpret as intended to make the Democratic incumbent or the candidate associated with the Democratic incumbent look bad). But the ramifications of that manipulation continued past the election. (Think recession of 2001 – what exactly do you think is the textbook example of happens when the Fed strangles the money supply following a stock market crash.)
But even so, the “Thinker” is wrong. This is also a post I’ve had before, and will redo at some point (maybe in the coming weeks – its actually on my current to-do list so you won’t wait long). I don’t have the time to go over his fallacies, but I can point you to data from the BEA that is a lot closer to right. This file (http://www.bea.gov/national/xls/gdpchg.xls) shows the % change from year to year in real GDP and nominal GDP. Forget the nominal and focus on the inflation adjusted (i.e., real).
If the Thinker were correct, than leaving out the first year of Democratic administration that follows a Republican administration should lead to average growth in their term decreasing.
And yet…
1. The second worst year in FDR’s term was his first year in office. Thinker fails.
2. The single slowest year in JFK’s term was his first year in office. Thinker fails.
3. Carter… the Thinker’s rule kind of works. Not entirely, but OK.
4. Clinton. He had two years with growth in real GDP of less than 3%. 93 was one of those two years. Thinker fail.
Except for Carter, each of those Dems would see his av growth rate increase leaving out his first year.
The converse also doesn’t quite work:
1. The third best (out of eight) years in Ike’s term was his first
2. Nixon’s first year was his third worst… out of 6. So about par.
3. Kind of OK for Reagan – 81 was his second worst year, after 82.
4. Bush… Thinker gets a win on this one.
So among Reps following Dems, the Thinker is about half right. Among Dems following Reps, he’s easily wrong.
Jimi,
I look at Congress in the book. It isn’t congress, but you’ll have to wait for the book.
There are 12 presidents in the sample, five of whom are tax raisers. Explain how you would interpret the fact that all five appeared among the six fastest growing admins. Explain how the one tax cutter on the list of the six best in terms of growth (second from the bottom, I might add) also happens to be one of the smallest tax cutters.
Jimi,
Reps were in control until 07. They could easily have passed a “Renew the Tax Cuts Act of ’06” and we wouldn’t be talking about this until 2015.
CoRev,
I’ll try to produce a different color scheme for some upcoming posts. My guess is you won’t like it.
CoRev,
“Cactus, correlation proves?????”
Maybe nothing, but lack of correlation proves much, much less. For instance, this sentence stops working: “ Repubs cut taxes to get us out of Dem recessions.”
And this – you were there when we discussed this:
“Dems raise taxes to take advantage of Repub good economies, and, then we repeat the vicious cycle.”
Am I going to have to repeat every post I’ve written? And then again and again? There’s your vicious cycle.
Probably, color is obviously not the issue. 😀
Coberly,
Jimmy Carter was the first democrat since before Grover Cleveland that did not start a major war. FDR manuvered the United States to be part of WW2 and our entry into the war was how he saved his failed economic policy (15% unemployment equals failure according to Romer). So taking the country to war is a major aspect of democrat economic policy with 5 or the 7 democrats who held office in the 20th century starting one.
please note, however, you have changed the subject, which was i believe the correlation between party and growth of GDP, or tax policy and growth of GDP.
This is the third time in a short period of time the Cactus has made basically the same post. Its gotten plenty of attention.
I’ve think I’ve made some good point refuting this idiotic contention that raising taxes cause economic growth. Stay tuned. Next time around I’ll be looking at the experience and timing of other countries during the same time periods, but with different policies, and also the true drivers of spurts of economic growth such the convergence of internet technology in the 1990s. I’ll you behind with cactus and his idiotic charts.
And remember that your hero FDR had 15 percent unemployment as late as 1940.
Raising taxes causes economic growth is exactly the kind of idiotic statement that attempts to create the slogan lowering taxes causes economic growth. Neither is relevant.
guest or Cantab(?):
How did they count the unemployed pre-WWII and after WWII?
http://mediamatters.org/research/200812030014 “Conservatives Cherry Pick 1930s Uenmployment Numbers”
Rdan,
Sorry, but both positions are not equal. Why can’t you say taxes are to pay for public goods and help the poor and even though taxes lower growth somewhat it’s a price worth paying. The fact that liberals can’t say this clearly is a crisis in their confidence and conviction over what they are supposed to believe in.
Run,
There is no cherry picking going with me. That’s what Cactus does.
http://www.bls.gov/opub/cwc/cm20030124ar03p1.htm
Just because they had the majority doesn’t mean they didn’t have to wheel and deal to get legislation-HELLO?
Cantab
well, you call me a liberal and i do say that taxes are to pay for public goods even if they lower growth somewhat. or if they don’t.
i don’t know what to do about you. ignore you as a poor lost soul would be best, or keep trying to help you see stuff you have chosen to be blind to, especially your own desperate and looney twisting of “evidence” to support your near psychotic belief that D = bad, R = good. It’s long past any possibility of understanding your belief system as supported by any rational values or interests.
here is a reply to something you said to me upthread:
Cantab
your comment was addressed to me, so i suppose i should reply.
i imagine liberals want to raise taxes for social justice. and i have heard at least some liberals say you can’t raise taxes in a recession, so i suppose they agree with you. i don’t. i think you can raise taxes in a recession on accounta i don’t think “growth” is what gets you into heaven.[and there is some evidence that even during a recession some people are making money and can afford to pay taxes without hurting either their spending or investing… which they are not doing because of the recession.] and i don’t know that i believe in “social justice,” at least not the way i have heard it described by some. but i do believe taxes are what it takes to build a strong country, and some of the things it takes to build a strong country look a lot like social justice. where your friends go wrong is they hate taxes so much they can’t think straight about what it takes to make a country strong.
as far as Cactus’ graphs, they seem to me to say what he says they say. no more. no less.
Y
Coberly,
well, you call me a liberal and i do say that taxes are to pay for public goods even if they lower growth somewhat. or if they don’t.
You do say or indicate you believe this so this is one of your good qualities. Therefore, you might try spreading it around.
In your next paragraph you try to act superior, you’re not so no need to reply to your specific point.
A top federal income tax rate of 35 percent along with state tax, property taxes, and sales taxes takes the top total income tax rate well above 40 percent. This should be enough to keep the government strong.
as far as Cactus’ graphs, they seem to me to say what he says they say. no more. no less.
You just said nothing with this line.
cantab,
Watching you try to wiggle away from objective evidence and toward spin has become, well, fascinating. My children make up stories, and I encourage it because I think fairly unfettered use of their imaginations is good for them. My first impulse when I see how unattached an adult (?) mind can become from objective reality is to reconsider my treatment of my children. But then, I realize that what I see in your thrashing around is not the result of imagination. Keynes had imagination, and it allowed him to see what others had denied themselves the ability to see. Piccaso had imagination. Salk did, too. Dogma involves a lack of imagination. Just insisting that your hide-bound belief about the world is true while events in the world are untrue because they conflict with your belief – that’s far short of what a flexible young mind can do.
So thanks for clearing that up for me. Sorry you’ve lost the ability to do anything but shout “no, it isn’t” when the world contradicts you beliefs, but at least your incapacity offers an object lesson in the cost of dogma.
Oh, let’s not forget that presidents and Congress do have the ability to goose the economy in the short run with a thumb covered in money. So I wouldn’t go around bragging that the party I favor always manages to goose the economy just in time for an election.
But if, as Jimi insists, growth is routinely better on the way to the end of Republican presidencies, and it is the result of policy through the course of each Republican presidency, then we have a miracle before us. Let’s call it Jimi’s miracle – that the lag in the impact of policy is always just that amount of time needed so policy “arrives” just at the end of each president’s term in office. Sometimes that’s 4 years, sometimes it’s 8, but never during the central part of a president’s time in office, regardless of how long that time may be.
So, let’s do a little Ocham and ask ourselves, is the most parsimonious explanation of what Jimi claim – Republican presidents preside over bad economic performance in all but the last bit of their terms, but then oversee good growth in the final bit – that good policy just by coincidence shows up in economic data at the end of 4 or 8 years – coinciding with the length of time the Republican is president – just by coincidence? Or is the more parsimonious explanation that Republicans spend their time in office attending to things other than good economic policy, things like enriching their cronies and their class, and then scramble to cover up bad economic performance as elections approach?
Same Ocham thingie applies to the really consistent pattern of Democrats presiding over markedly better economic performance that Republicans. Is the most parsimonious explanation that Republicans are better economic managers, but that lags – again either 4 or 8 years in length, or sometimes 12 Bush follows Reagan – always delay the results of their good policies until a Democrat takes office?
I think Ocham has uncovered a big ole pike of cowpies. Our clever pundits keep telling us that economic reactions have speeded up. But now, the Jimi/Cantab/Guest cabal wants us to believe that economic policy takes a long time to work, and that sometimes it takes longer than others and that the time it takes is magic – always arriving just in time to make some Democrat look good. I’m sure that’s what the folks at the Lincoln-Day dinners tell each other, but let’s not take them too seriously. Likewise, we hear that markets are forward looking, taking into account information available now that will lead to future outcomes. And somehow, the S&P does better under Democrats that Republicans. All that forward looking markety stuff does the same thing as that backward looking growth stuff. It says Democrats win.
So, what’s the simplest, least excuse-making explanation for the fact that growth is better under Democrats than Republicans, no matter how long the Democrat of the Republican is in office? Policy matters, has an effect in a reasonably short period of time, and Democrats have better policies than Republicans. There[‘s your razor, Mr. Ocham, nice and sharp the way you like it.
Lordy, you tried to do it again!
It may be true that “high” taxes slow growth, depending on what you mean by “high”. The evidence presented here, on the other hand, shows that taxes increases within the range of rates that commonly obtain in the US do not stifle growth.
It is also note useful to be ridiculously simple-minded in making arguments. The Keynesian prescription is for a widening of the fiscal deficit when monetary policy is likely to be ineffective because it is near the lower bound. Tax increases and spending cuts would both tend to reduce the deficit, so to be contractionary. That is the reason smart people – on the left, the right or in the middle – object to tax hikes during recession.
It is entirely another matter to impose a tax hike when the economy is running near trend or above. A structural deficit of the sort that Baby Bush created by cutting taxes left and right is bad policy. Tax hikes can be used to narrow the structural deficit, when the time comes that we want a narrower deficit, and that is, again, something of which smart people would approve. It is infantile to take a reasoned objection to tax hikes when the best policy is to run a deficit and claim it means tax hikes are bad, bad, bad.
Has anybody thought of:
a) Government’s raise taxes when things are good? And lower taxes when things are bad? Thus the tax rates are a result of the economy and not the cause?
b) How does this play out on a state level? Is a higher tax rate state doing better than a lower tax rate state, controlling for other factors?
Um, no, “taxes bad” is not the answer. It’s not honest to claim it’s the answer. I’ve reponded to this same assertion above, but will do so again.
The right policy during a period of inadequate demand and overnight rates near zero is to run a fiscal deficit. Tax hikes would narrow the deficit, so they are a bad idea – for good Keynesian reasons – during a recession. Oh, and by the way, thank you for your support for Lord Keynes.
Tax hikes are good policy when there is a structural deficit and when the economy is not in recession or just coming out of recession. We have a structural deficit, but are coming out of a very deep recession. So we need higher taxes at some point, but not now.
I realize that the variety of circumstances we face over time can be daunting to someone who wants life to be as simple as “tax cut good, regulation bad”, so here is what I suggest. Find something that doesn’t involve a level of complexity that makes you feel unhappy. You’ll spend less time degrading your reputation, less time devoting yourself to things that just aren’t true, and you might find that you can, in fact, make a useful contribution.
There is a program in my home town that takes people who have a hard time with complexity and finds them simple, useful, well-supervised jobs. There may be a similar program near you that would welcome your participation. Many of the people in these programs get a great deal of satisfaction from their simple, repetitive routine. Stacking things is very useful work, if you happen to be someplace where things need stacking. Is there a Wal-Mart near you? Ask one of the people who take care of you if there is a Wal-Mart in your town. Wal-Mart often needs healthy people who don’t think complex thoughts to tidy up piles of boxes. Sometimes, those same people take things out of boxes, lending variety to their daily tasks – if that’s not too much complexity, I mean. Just ask someone else to handle the box-cutter, OK? Even if all the boxes are stacked and all the shelves are stocked, you could help tidy up. Tidying up is always necessary, and can give a real sense of satisfaction. You can look around when you are done and enjoy the lack of clutter. You can think “I did this”. Unlike when you say “taxes bad”, saying “I did this” when you actually did will be true. Good boy!
Yeah let’s keep pounding this point home: conservative/supply-side/trickle-down policies don’t yield faster growth. It’s a myth. A faith-based belief.
This U.S.- only analysis is compelling, but it doesn’t really deal with the whole issue of lag times and long-term effects (which are what really matter). It’s a pretty weak natural experiment.
But the results from cross-country studies of prosperous countries support it in spades. There is no correlation between tax levels and long-term growth rates in those countries.
http://www.asymptosis.com/small-government-spurs-growth-economists-say-no.html
http://www.asymptosis.com/an-open-letter-to-robert-barro.html
http://www.asymptosis.com/europe-vs-us-who%e2%80%99s-winning.html
A remaining question is what factors contributed to the strong growth in the 60s and 90s. It certainly had nothing to do with raising taxes or imposing new regulations on business. Better places to look are with new technologies, new technological investment, and rising levels of education throughout the country. All three are functions of ambition and greed.
Coberly,
Meh…..When your getting this stuff Cactus it just turns to a food fight:
a. Republicans have underperformed Democrats
b. Tax cutters have underperformed tax hikers
Cantab, Buff, Corev, & Teh Great Jimi aren’t throwing around the answer without evidence, were just saying that this data series and all the other from Cactus is too simpleton. I actually bellieve that it is so complex, and the American people are so inventive that not much of the economic growth has anything to do with Party Affliation or the President, although they are a variable.
K,
I am not insisting anything. I simply wanted Cactus’ input about the article. The only thing I am saying the data determines is that more growth happends under Democratic Presidents than Republicans, but the data not only does not point to why or how.
K,
This comment has nothing to do with anything??????????
The issue is:
1.) does this data tell us that Democratic or Republican Presidents cause growth?
2.) does this data point to a trend between Democratic and Republican Presidents?
3.) does this data prove that tax hikes cause growth, and tax cuts hamper growth or other way around.
The only statements that have been made by those who do not share your demand for Ideological Purity is that the answer to the questions is “No” This data can not tell us the answers to those questions…Tha’s it!
So all the B.S. above about us not knowing what we actually support is that…B.S.!
cantab,
I’m going to ignore the fact that the unemployment data you cite is not official – the BLS wasn’t tracking it at the time, and most of the estimates of unemployment from the 30s are for something that looks more like U6 than U3. (After all, those who put in their 40 hours a week for the WPA were considered unemployed, kinda like considering the folks who build roads today unemployed.)
But if we use your numbers, aren’t we seeing FDR drop unemployment rates by over a percent a year through 1940, on average? Can you name another President who did anything remotely comparable?
Steve:
On the side, I have been discussing the same . . . that, being the distribution may not be normal in which case it has to be analyzed in a different fashion.
“It is then easily calculated that the 95 percent confidence interval for the proportion of studies that support the null hypothesis is (0.15, 0.43). This interval lies far away from unity. Consequently, we conclude by means of our sample that the relative distribution of economic activity between the private and public sectors across countries and regions appears to have no clear impact on long-run growth at the macro level.”
Loved the graph: http://www.asymptosis.com/wp-content/uploads/2009/10/growth-and-inequality–
Hertz did a study on Poverty and how it impacts minorities. He posted similar details that Egland’s Gini Ratio was higher than the US.
scattergood,
a. doesn’t work. FDR started raising taxes in the teeth of the Great Depression. JFK did the same when he walked into office… and into a recession.
b. I had that post a long time ago… will rewrite it some day soon I hope…
cantab,
I’m going to ignore the fact that the unemployment data you cite is not official – the BLS wasn’t tracking it at the time (that’s why they call them estimates in the article you cite), and most of the estimates of unemployment from the 30s are for something that looks more like U6 than U3. (After all, those who put in their 40 hours a week for the WPA were considered unemployed, kinda like considering the folks who build roads today unemployed.)
But if we use those numbers, aren’t we seeing FDR drop unemployment rates by over a percent a year through 1940, on average? Can you name another President who did anything remotely comparable?
Also, how is it cherry picking to look at the growth of real GDP per capita as a measure of economic growth rather than unemployment?
Jimi,
“a. Republicans have underperformed Democrats
b. Tax cutters have underperformed tax hikers “
That is simply stating what the data shows. I’m deliberately not providing an explanation. If you have any other way of stating what the graphs in the post say other than a and b, I’d love to hear it. Your problem is you don’t like what the data, untortured and unmassaged, shows.
Steve:
On the side, I have been discussing the same . . . that, being the distribution may not be normal in which case it has to be analyzed in a different fashion.
“It is then easily calculated that the 95 percent confidence interval for the proportion of studies that support the null hypothesis is (0.15, 0.43). This interval lies far away from unity. Consequently, we conclude by means of our sample that the relative distribution of economic activity between the private and public sectors across countries and regions appears to have no clear impact on long-run growth at the macro level.”
Loved the Fig 2 graphs: http://www.asymptosis.com/an-open-letter-to-robert-barro.html “Open Letter . . .”
Hertz (2006) did a study on Poverty and how it impacts minorities. He posted similar details that England’s Gini Ratio was higher than the US.
“In nine countries (including the US), 7.6% of households live on less than 32% of the US median. In the US, 12.4% live below that level.
Kenworthy has shown that transfer payments and social support are the primary reason for less inequality and poverty in developed countries.
Market-driven inequality/poverty is about the same, US versus Europe. Europe corrects for it with transfer payments and social support programs (health care, child care, etc.)
And they continue to grow as fast as we do. Go figger.”
Thanks, I argue this quite a bit. You have been bookmarked
Well, since the equation of gdp is:
…you should probably back out G (gov’t spending) to really understand what is going on, no? I mean if all you did was raise tax rates, rapidly increased spending, and borrowed money, things would ‘look’ like GDP was doing great as the G portion of the equation might balance out or overwhelm the other falling components of gdp.
From the following source comes some interesting info: http://home.netcom.com/~rdavis2/recsrc05.html
1) Corporate Income taxes have moved from a high of 7% of gdp in the mid 1940’s to about 2% of gdp now.
2) FICA and SS taxes have risen from about 1-2% to about 7% of gdp in that time.
3) The top marginal tax rate dropped from around 90% down to the mid 30’s, but individual income taxes collected have fluctuated between a low of 6 and a high of 10% of of gdp during that time. It seems this sort of indicates that the highest rate has at best an indeterminate effect of total taxes collected.
An interesting question is how much corporate earnings have been as a % of gdp. If they have fallen in rough proportion as the amt collected in taxes, that’d be one thing. If not, that’s interesting too. It seems that FICA and SS taxes have been the offsetting factor for Corporate taxes over the last 50 years.
scattergood,
Off topic, but did you attend the Scattergood Friends School?
CoRev asked why cactus’ data shows that Democratic policies seem to be associated with growth while Republican policies show much weaker growth. Fair question. I don’t think it’s just a statistical aberration. Here’s my take. The bottom line is that Democrats tend to learn from past mistakes and Republicans don’t. It’s really something that’s deep down in the psychology of conservatives that they are always looking for one eternal policy that is true for all times and will answer all problems. Being a conservative means never having to say your sorry for carrying around ideological baggage. For Republicans that one true guiding star is the mantra “Cut Taxes!” No matter what the economic disease, the cure is always the same: Cut Taxes. And like a stopped clock, sometimes that policy is appropriate, but usually it’s not. But Democrats are tempermentally more open to new ideas. They are not so hidebound to only one policy prescription. They learned in the 1930s that the Treasury View advocated by conservatives was the wrong policy in a depression. And they had a book that explained why. The Democrats learned that managing aggregate demand was useful policy. They also overlearned the lesson and tried to apply that approach towards the problems of the 1970s. But in the 1970s the problem was weak productivity, not weak aggregate demand. Democrats learned from their mistakes and eventually developed a New Keynesian approach that takes into account microeconomic foundations…i.e., it takes into account supply side issues as well as aggregate demand issues. Meanwhile Republicans are still preaching that old time religion. Just listen to Cantor and Boehner and Pence and McConnnell and Romney and all the rest. They don’t learn from their mistakes. They are still recommending “supply side” policies when the malady is clearing not due to a supply side problem. In fact, pushing out the supply curve would almost certainly make the problem worse because in a liquidity trap the aggregate demand curve slopes positively.
So that’s my answer. Democrats learn from their mistakes and Republicans don’t.
Cactus,
No! Your wrong! I have no problem with what the data is saying because a.) & b.) is not what the data says.
The data has no reflection on performace of Democrats or Republicans, it is a reflection of the economy. You know that, but you want it to say something else, and are merely projecting to me.
My opinion is that the best why to describe the data is to say:
The economy has higher growth during Democratic Presidencies, but it can’t be determined what is the cause of that performance from this data.
Jimi,
The data has no reflection on performace of Democrats or Republicans, it is a reflection of the economy.
So are you claiming that it doesn’t matter who is in charge? That Democratic policies are just as bad (or just as good) as Republican policies?
“you just said nothing with this line”
that’s the way i used to feel after an hour of trying to teach undergraduates something.
Scattergood,
just for the record Social Security isn’t exactly a tax. It’s a way for workers to save for their own retirement. it’s called a tax for legal reasons, but to think of it as “a tax” is to be word bound.
it’s effect on the economy might be about zero (at a first level of analysis) because all it does is transfer about 10% (I’m rounding) of a workers earnings from “today” to “tomorrow” through the interesting medium of spending it “today” on someone whose earnings were transferred “yesterday.”
at a second level of analysis, by ending terrible poverty in old age, or the fear of workers that they could face terrible poverty in old age, Social Security may well give the economy a boost.
it’s certainly nonsense to say, as some have, that Social Security “reduces savings.” it IS savings. and it’s effect on investment may be positive… as people who have a safety net might be willng to “invest” … put at risk… more.
oh, and you might need to check your source for numbers. last time i looked SS was 4% of GDP. I don’t think Medicare adds more than about a percent and a half to that.
cantab
education is largely a matter of public spending. and investment follows market opportunity. where the people have no money there is no market opportunity.
Slugs,
Democrats make fundamental blunders of principal, same with the lame pre-supply side republicans. Guy like Mitt Romney are right so the ought not change.
Let’s face it, you love your buddy Clinton and everything you say is designed to set your bro up on a pedestal. You circle round and round but bubba is always at the center.
By the way, too bad you can’t use the Rubinomics myth since its sort of hard to give credit on interest rates given his two predecessors have the better numbers.
And on learning from their mistakes you’re wrong on that, the democrats don’t lean. Government directed stimulous has never done as well as when the government gives incentives to private individual. The problems with the simple models you use to dervive multiers is they don’t model the effects from increasing incentives to private individuals. Barro has wrtten about this.
Slubs,
Democrats make fundamental blunders of principal, same with the lame pre-supply side republicans. Guys like Mitt Romney are right so they shouldn’t change.
Let’s face it, you love your buddy Clinton and everything you say is designed to set your bro up on a pedestal. You circle round and round but bubba is always at the center.
By the way, too bad you can’t use the Rubinomics myth since its sort of hard to give credit on interest rates given his two predecessors have the better numbers.
And on learning from their mistakes you’re wrong on that, the democrats don’t lean. Government directed stimulous has never done as well as when the government gives incentives to private individual. The problem with the simple models you use to dervive multiers is they don’t model the effects from increasing incentives to private individuals. Barro has wrtten about this.
Slugs,
Democrats make fundamental blunders of principal, same with the lame pre-supply side republicans. Guys like Mitt Romney are right so they shouldn’t change.
Let’s face it, you love your buddy Clinton and everything you say is designed to set your bro up on a pedestal. You circle round and round but bubba is always at the center.
By the way, too bad you can’t use the Rubinomics myth since its sort of hard to give credit on interest rates given his two predecessors have the better numbers.
And on learning from their mistakes you’re wrong on that, the democrats don’t lean. Government directed stimulous has never done as well as when the government gives incentives to private individual. The problem with the simple models you use to dervive multiers is they don’t model the effects from increasing incentives to private individuals. Barro has wrtten about this.
Most republican support public funding for education but not the teachers mafia union.
Cantab,
Mitt Romney was on one of those talking head shows Sunday morning, blathering some nonsense. He’s clueless. Another Republican that doesn’t know the difference between a demand curve and a supply curve.
I don’t think you understand interest rates either. The NAIRU interest rate is strongly negative, meaning the real interest rate that businesses face is high…about as high as it was during the depths of the ’82 recession. The negative NAIRU interest rate is exactly why we need fiscal policy. Again, talking about Rubinomics in the current economic environment just proves my point that conservatives are completely oblivious to the facts on the ground and are always in search of some universally true nostrums. When you’re in a liquidity trap the rules of the game are very different than when you’re in a strong recovery. Facts on the ground matter. You have to be intellectually capable of understanding when a given policy is appropriate and when it isn’t. Republicans tend to be tone deaf.
Your comment about government directed stimulus is especially bizarre given that several posts up you claimed that FDR’s recovery depended upon fighting a war. So there you seemed to accept that government policies could be effective in reviving the economy. Here you claim that government policies are ineffective. You’re confused.
Barro has written a lot of nonsense lately. Really embarrassing stuff. And true to form, Barro manages to confuse aggregate demand effects and aggregate supply effects. And Barro is irrelevant here because the essence of today’s problem is that the private sector is in retrenchment mode, so talking about letting loose the private sector is pretty much detached from reality. If the government doesn’t soak up excess savings, then no one will.
Go back and reread your macro. You used to actually know better than this.
What I haven’t seen mentioned (mighta missed it tho) is the mechanism by which higher taxes cause growth. When the bush tax cuts went into effect, business investment *dropped*, and speculation rose massively. So, how do taxes funnel money into business? With business deductions. For years now, American business (and lots of self-employed) has pretty much managed to avoid paying taxes no matter what..but the flow of money into business to avoid those taxes suddenly ceased when the tax was no longer there. The gummint wasn’t actually *getting* the money either way. All the taxes do is act as a valve.
scattergood,
Two weeks ago and three weeks ago I did essentially the same post as this week, but looking at real (GDP less G) which I refered to as the private component of GDP.
As noted in this post…. I think misattributed 74 to Ford rather than Nixon in those posts, but it won’t change much… Ford looks worse, Nixon looks a bit better.
cantab,
Boy, this is the second tacit attack on Reagan you’ve made this week. You really don’t like Ronnie much, do you?
cantab,
You keep arguing that growth rates don’t matter, and that Clinton did worse than Reagan, Bush Sr., and Bush Jr. because interest rates were, on average, higher in his term. I’m guessing you really like the economy in the past two years, when interest rates dropped to essentially zero. Either that or you are once again simply stating the first thing that comes to mind without giving it any thought whatsoever.
zapster,
I had a series of posts on that way back, and I’ll come back to them. Also, there’s some discussion in my book coming out next year.
Long story very very short…
1. Collection of taxes as a percentage of income is uncorrelated with marginal rates; that is to say, collection is more a function of enforcement than anything else. (I come to this having worked at a Big 4 (then Big 6) accounting firm in my first job out of grad school.) Poor enforcement in one area is correlated with poor enforcement in other areas.
2. Gubmint services are necessary for economic growth; stop building roads, fighting epidemics, and keeping the Canadian hordes at bay and where would we be? There is, of course, a trade-off (i.e., private sector v. public), and thus an optimal size of gubmint. But the numbers indicate we’re probably below that. (And btw… in my career I’ve dealt with plenty of Fortune 500 companies, plus some marquee firms. Also, the military and NASA. And I have yet to see much evidence that the private sector is more efficient than the folks in the gubmint. For every line at the DMV, there’s Verizon or Time Warner not showing for up for their third appointment to hook up the lines.)
Awesome, why isnt things like these the basic stuff for social sciences and political discussion.
Awesome statistics, things like these should be the core of social sciences and political discussion.