Economic Growth: Blood Suckers v. Free Lunchers
by cactus
Economic Growth: Blood Suckers v. Free Lunchers
Good evening, and welcome to another episode of Comparing Presidents: Tax Burden v. Economic Growth. But looking at things from a Democrat v. Republican perspective seems to be a step too far for some readers, so this time we’ll do something different. For the purpose of this post, I’m going to pretend there are two different parties… the blood suckers and the free lunchers. The blood suckers are those under whom the federal government’s revenue as a percentage of total income increased, and the free lunchers are those under whom the federal’s government revenue as a percentage of total income decreased.
Some housecleaning before we go on… links to all the data plus a handy google spreadsheet are provided below. As always, we compute the annualized growth in each series (real GDP per capita, gov’t revenue / personal income) from the last full year before a President took office to his last full year in office. For those who left office early, if they left in the second half of the year, we consider that to be their last full year in office. Otherwise, we consider the year before they left office to be their last year in office. Finally, due to objections from folks who insist that the Germans saved our economic behinds by bombing Pearl Harbor (and yes, some of the comments I get would make Belushi wince), I’m leaving out Hoover, and only looking at the worst six years of FDR’s term (i.e., only going through ’38).
So here’s what it looks like:
(BTW… for convenience, the numbers you see sitting above each bar are the annualized percentage change in the gov’t collections / personal income, by president)
A few quick notes:
1. Its easy to tell a story with the words “cutting taxes leads to faster growth” but very difficult to make any such story compatible with the graph above.
2. The relationship between changes in the tax burden and growth in real GDP per capita is not one to one… clearly other variables matter too.
3. If you truly believe that peeing in the gas tank is going to improve your mileage, sooner or later you’re going to end up broken down on the side of the road.
4. I’ve written one or another variation of this post for the past four or five weeks. I think its fairly obvious what the relationship between taxes and economic growth isn’t, even if some readers refuse to accept it. I’m tired of rewriting this same #$% post, so its time to move forward.
__________________________________________
by cactus
Data sources:
Real GDP per capita – NIPA Table 7.1, line 10
Federal gov’t’s current receipts – NIPA Table 3.2, line 1
Personal Income – NIPA Table 3.2, line 1
The above three BEA spreadsheets, plus my analysis, are all available in this google spreadsheet.
You don’t seem to take very much away from the comments provided in earlier posts. I don’t see how you could do this same column again without addressing what Romer said about economic policy in the 60s and 70s. If you read it and understand it its more like playing with inflation that Kennedy/Johnson/Carter were the real free lunch crowd that gave us inflation by trying to keep their jobs numbers up with potemkin monetary policy. Kennedy/Johnson passed recession to Nixon. And Carter passed the need for one to Reagan. Ike gave Kennedy/Johnson a decent economy, same with Bush to Clinton. Clinton gave Bush an economy going into recession and Hoover give FDR and economy that had fallen so far rapid growth was almost assured.
What would be interesting would be to look at the change in wealth over these presidents between the top and bottom rungs. Maybe it is unrelated, but has the disparity in wealth increased under presidents of one party or another? The issue I hear raised all the time is that Democrats want to take money away from the wealth to subsize everyone else, tax-and-spend. And I hear often that the top 10 percent only pays income vs payroll taxes. Is that true? On the other hand, I hear Warren Buffet say that as a percent of income, his secretary pays more than he does. I just do not know what to believe. But I did read both of your pieces, and I think they smash some commonly held beliefs about the impact of certain parties on creating wealth for all, which is what GDP per capita measures.
Cantab,
Learn to at least pretend to be consistent.
In 1968, inflation was 4.2%. In 1976 it was 5.8%. ( ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt)
So if LBJ passed inflation on to Nixon, what exactly was passed on to Carter?
As to recessions… 11 months after LBJ left office, he created a recession for Nixon? How do you know that was LBJ then? Might it not have been Clinton sending a recession back from the future?
“Ike gave Kennedy/Johnson a decent economy” – you do know the economy was in recession from April of 1960 until after JFK took office, right?
“trying to keep their jobs numbers up with potemkin monetary policy” – I think I can speak for pretty much everyone else here when I say that thought JFK, LBJ and Carter were Presidents. May I thank you on behalf of eveyrone else for clearing up the misconception by pointing out they really were chairmen of the Federal Reserve?
“Clinton gave Bush an economy going into recession” – and Bush’s promises to undo Clinton’s policies that had worked so well in the 90s had nothing to do with it.
“Hoover give FDR and economy that had fallen so far rapid growth was almost assured” – wait, didn’t you insist time and again over the past few weeks that growth was awful under FDR? Do you even have any idea what your current position is?
Mike,
A long time ago I had a couple pieces on wealth disparity, and I cover that in my upcoming book. Finding data that went back far enough was kind of a problem if I recall, but let me rummage around and see what I can find. Its certainly worth another look
I believe that last reference labeled “- NIPA Table 3.2, line 1” should actually read “Personal Income – NIPA Table 2.1, line 1”.
The link itself goes to the right place, though.
cactus,
Krugman has referred to a large increase in the concentration of wealth, networth or whatever measure I do not recall in the top 1% (cannot recall the exact percent, either) nor do I recall the length of the recent period he referred to.
Seems to me US wealth is more upwardly concentrated in the past 10 years or so.
However, the con is exposed: The free lunchers borrow the rish folks’ money which otherwise would be taxed so that the government buys from their stockholding companies, at unreasonable margins, trashy things like profitable endless wars and weapons of shoddy design and poor quality.
Great way to keep the serfs from any part of the largesse of their labor and God’s bounty.
Cheers
Mike
you gotta be careful. they are all liars. even Buffet is probably wrong if he is counting Social Security as a “tax.” yeah, i know that’s what it’s called. but it’s really a savings and insurance plan. the difference is that while you arguably get your money’s worth when the government taxes you to build a new submarine, you get your money BACK with “interest” when the government “taxes” you for Social Security.
my point here is be careful about words. it’s what things DO that counts.
as for FDR, he took money from the rich and spent it in ways that helped the poor … and the rich.
the righteous rich are unable to see the connection.
Cactus,
http://elsa.berkeley.edu/~cromer/MacroPolicy.pdf
Check out the title.
MACROECONOMIC POLICY IN THE 1960S
THE CAUSES AND CONSEQUENCES OF A MISTAKEN REVOLUTION
(I think your chances of winning this debate are far below average, since too much of the economic literature is lined up against you.)
This paper by Christina Romer, President Obama’s top economic advisor contradicts just about everything you have to say. Including showing that Kennedy/Johnson/Carter were the goats (with honorable mention to Nixon and Ford). Reagan and Volker are credited for turning around monetary policy and killing inflation leading to 25 + years of almost uninterrupted.
This is the economic history that I know. Its the one the Christina Romer knows. I’m pretty sure Brad DeLong would agree to the general gist of too. So where does this leave you and you’re screw ball analysis. All alone or maybe in the companyof kooks. Show me a first rate economist that agrees with your bozo-ish analysis.
Cactus,
Read this:
http://elsa.berkeley.edu/~cromer/MacroPolicy.pdf
An apology is optional.
What is the rate of return on Soc Sec and don’t they sometimes divert the money for Soc Sec to other projects?
Mike,
Here are answers to some of your questions.
Re. Buffet:
What he is talking about is the difference between being taxed on income and being taxed on capital gains.
Buffet’s secretary gets taxed on her income (Federal income tax + Social Security Tax + Medicare Tax + State Income Tax). Assuming she is single and makes $100k, she would be paying a MARGINAL tax rate of about 44% (28% + 6.2% + 2.9% + 6.8%).
Conveniently enough, I believe the Oracle of Omaha only takes a $1 salary, prefering instead to accumulate wealth through the appreciation and sale of assets he owns. The long term capital gains rate for him is 15% and he pays no Social Security or Medicare Tax. Depending on the state, he may owe some tax on his capital gains.
As you can see, in a technical sense Buffet is correct. And if we are speaking about the fabulously welathy (like John Kerry’s wife) this rule generally holds true. For most of the “regular rich” however, this is not true because they earn their money as income. As a result, successful small business owners, doctors, lawyers, and even the reviled investment bankers are all paying the top federal rate of 35%. The Dems currently have various plans that will push this in to the mid to high 40’s. Adding to this the various “millionaire’s taxes in states like New Jeresey and city taxes in NYC, and plans to extend the SS and Medicare tax above the current income caps, and they are creating a situation where individuals with large incomes will be paying upwards of 60% in taxes.
Re. Social Security as an “investment”:
SS is not an investment vehicle. It is a generational ponzi scheme whereby young workers are taxed adn the money is used to provide payments to the retired. It works great when the population is young and people don’t live to be very old. It is unsustainable when the population ages and the average life expectency approaches 85. Countries like Japan are headed toward a situation where there will be 1 pensioner for every 2 workers.
Early generations of Americans got a great “return” on SS because they paid little into it over their working lifetime and they got a huge benefit. Current workers under the age of 35 will get very little. Most likely, for them they will pay a lot into it and get little out.
I hope this is helpful.
Cantab,
As I noted before:
1. Here we look at data, not what the experts say it says. You can always find an “expert” who will say anything.
2. Romer has had some interesting (shall we call them Republican) relationships we data herself. Several of us here at Angry Bear have already commented at great length on several of her papers. As I myself noted when she was appointed, the mere fact that Greg Mankiw praised her appointment says something about that appointment.
3. This paper suffers some of the crazy-quilt peppering of random bull#$%& that you often see in Romer’s stuff. As an obvious example, given the paper’s focus on deficits, is the bit about Clinton on pages 23 and 24. She criticizes the only guy who ran a balanced budget in decades for not talking about having a long run balanced budget process! Reagan, a few pages earlier, gets props for talking the talk while at the same time producing the biggest budget deficits since 1946. What sort of nonsense is this?
4. All that said, I do agree that we’d have been better off without the (mostly) small deficits of the JFK and LBJ era. But that said, those two administrations produced the fastest growth rates since FDR. If small deficits are the cost of growth that high, maybe its not a bad thing. Beats the larger deficits and slower growth of the Bushes or Reagan, doesn’t it?
5. Um, macro policy (which Romer discusses in her paper) does not equal monetary policy. Your comment up above about their monetary policy still makes assumptions that they controlled the money supply, which any idiot, well, almost any idiot, apparently, knows is a function of the Federal Reserve. (If you’re going to insist on quoting experts, see if you can remember who said this: “Inflation is always a monetary phenomenom.”)
So sure, I apologize for assuming for even a moment that you might have
Therapist1,
1. Rate of Return – Coberly and Bruce can tell you much better than I. They’ve run the numbers.
2. Diverting – sure. Check out Reagan’s budget to see how its done when the folks in charge are really, really, really cynical.
Thanks.
Dan or one of the Bears – can y’all make this change?
ilsm,
The trick is to get the right data. I’ll have to have another post on this sometime son.
“SS is not an investment vehicle. It is a generational ponzi scheme. . . “
There is something about the sound of a clock striking 13 that brings into doubt everything that came before.
http://money.cnn.com/2009/01/06/news/economy/social.security.fortune/index.htm
http://www.businessweek.com/the_thread/economicsunbound/archives/2008/12/is_social_secur.html
http://www.fool.com/retirement/general/2009/10/15/is-social-security-a-giant-ponzi-scheme.aspx
“I hope this is helpful.”
Not really.
Cactus,
Do you have any first rate economist that will back up your analysis. If you don’t like Romer maybe you could see if Brad DeLong (no republican gun slinger) agrees with her funamental points or not.
Here focus was on two items, monetary policy and deficits. She blames Kennedy and LBJ for changing regimes causing inflation and unemployment. She goes on to blame Everyone that follows for deficits. She credits Reagan and Volker for turning around monetary policy but not deficits, and she credits this monetary policy for our economic success for 27 years of almost uninterupted growth for 27 years. Obama appointed Romer as his top economic advisor so I don’t see any reversal of this policy coming.
My point is that your analysis and focus on who was in the the whitehouse when you look at every president is useless and unrecognized by the economic profession as identifying turning point in economic policy.
Better splits are the 1920s before the depression. The depression under hoover. The slow recovery from the depression under Roosevelt. The WWII years. The years during the run down from WWII. The 50s (and late 40s) under Truman and IKE. The 60s and 70s. and the 1980s onward.
I can defend this with events and papers from the economic profession. On the other hand you waste our time with data mining and misrepresenting the economic policies during the periods the respective president were in office.
Cactus,
The trick is to get the right data.
This is your fetal flaw. The trick is to explain the data and you have failed to identify the major trends or turning points in economic policy.
I’ll have to have another post on this sometime son.
Son? Are you related.
It is interesting that Roosevelt had a stimulus program going for most of 1933- 1938.
Here is a useful site.
http://www.usgovernmentrevenue.com/downchart_gr.php?year=1930_2010&view=1&expand=&units=p&fy=fy10&chart=F0-total&bar=0&stack=0&size=m&title=Revenue As Percent Of GDP&state=US&color=c&local=s
Actually the government “take” of the GDP has been 30% or somewhat above ever since 1969. It has risen to as high as 34% and occasionally dropped below 30 for a year or two. One can hardly say that there has been any dire increase for the last forty years.
And European numbers are much higher with Sweden at about 50%.
http://www.oecd.org/dataoecd/48/27/41498733.pdf
And growth rates in general are much higher in the 3rd world than in the 1st.
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(real)_growth_rate#South_and_East_Asia
Cactus, this is a telling comment. “The trick is to get the right data. “ What it is telling me is the following: “I have a hypothesis, now let me find the data to confirm it.” It should have been “I have a hypothesis, now does the data confirm it?” Nope, falsified. Yup, partially, modify the hypothesis and try again with the same data. Yup, hypothesis confirmed. Publish it!
So, I think one of the problems with your series is that we are unsuire of the hypothesis. The reponses seem to be centered on one set of Presidents are better for US economics than another. But, when pushed into a corner to confirm that hypothesis, only more questions arise. Leading us to believe the hypothesis is wrong, poorly framed, or the data is less than 100% supportive.
Tell us clearly what you are trying to show! Remember, proving a hypothesis is to tell us How and why something is happening. Otherwise you are writing a history paper/book with a personal slant or selectivd support. That is OK! Just don’t make it appear more than it is.
How are the stock grants made to Wall Streeters and their bonuses taxed? Before I wept over how rough it is for them, I’d take a look at some of their housing regularly exposed on realestalker.com. 30 million dollar homes are rather common in this crowd as well as in Hollywood. One new tax I would impose for sure is a tax on “excess housing value”. Nobody needs a 30 million dollar abode to live comfortably. I think almost everyone could manage on a million dollar place, perhaps a couple million in urban centers of wealth: LA, SF, NYC, Miami, etc.
I would sum up my personal view by saying that I don’t think politics is paramount in determining the growth rate. Other factors are more important. But one can make the certain statement that GOP tax policies have not had any demonstrable effect on the rate of growth. Nor has the % take of the federal government had much if any clear effect. One rather amazing figure is the drop in GDP after 1930 and the subsequent rapid rise under Roosevelt, even before WWII.
PS Another important figure is the one year drop in GDP around 1938 when Roosevelt was persuaded to cut back on the fiscal stimulus. A big mistake as Krugman has noted.
Cantab,
She blames Kennedy and LBJ for changing regimes causing inflation and unemployment.
This is actually a strange argument to make because the Kennedy/LBJ years were the highwater mark for the reality of the old style Phillip’s curve in which you could indeed trade off employment and inflation. So it’s a little hard to see how you can blame Kennedy/LBJ policies for both unemployment and inflation. One or the other, but not both at the same time. A better way of stating the actual history would be to note that economists and policymakers continued to believe in the old style Phillip’s curve long after the old relationship had broken down.
Romer claims that the 1950s were a period of relatively random deficits while the 1960s saw regular deficits. And she makes the point with Figure 2. But note that Figure 2 doesn’t really demonstrate what she claims. Look at it closely. By and large the 1960s show a flattening of volatility in deficits as a percent of potential real GDP. And also note that by using “potential” real GDP she has effectively taken out the cyclical effects, and even after doing that the 1960s show less fiscal volatility than the 1950s. Now go to the OMB tables and look at the “on budget” surplus/deficit as a percent of GDP and look at the 1950s (all years, not just the Ike years) and you will see that the average deficit was almost 1.5 percent of GDP in the 1950s and not quite 1.0 percent of GDP in the 1960s. It is true that there were slightly more deficit years in the 60s (9 vs 7), but the size of the deficits were usually trivial and amounted to rounding errors. So I think Romer has simply misread the data. She should take another look at it because her conclusions do not agree with the data she presented.
She credits Reagan and Volker for turning around monetary policy but not deficits,
It’s a little more than that. She also says that the Reagan experiment with supply side economics was an unmitigated disaster and ultimately only had demand side effects. I guess you missed that part of the paper.
Romer also makes another strange argument. She seems to applaud the 1958 recession as a success story because it demonstrated the Fed’s commitment to fighting inflation. Well, she must have been hungover when she wrote that little gem. The good news is that Romer appears to be in recovery herself because her late 2008 prescription for the economy was dead right. It’s been widely reported (and she hasn’t denied it even when asked directly) that she recommended a $1.3 trillion stimulus package…or almost double what was eventually passed. I think that has it about right and is pretty much along the lines of what Krugman and others estimated.
CoRev,
The hypothesis being that cactus tested with the previous set of charts was quite specific. It asked if it was true, as GOP politicians and apologists claim, that GOP policies lead to higher growth rates than Democratic policies. It did not ask for a theory or explanation…that’s what you wanted him to provide, but that’s not in the nature of simply hypothesis testing. Hypothesis testing simply asks if a claim is statistically true or not. Yes or no. Cactus then gave us a reasonable definition of “growth” (viz., real per capita GDP) and compared the growth rates to the political party of the President. The test showed that the GOP claims of superior economic outcomes were not true. Hypothesis rejected. In fact, the data seemed to suggest an alternative hypothesis…namely, that Democratic policies were associated with higher growth rates. You criticized cactus because he didn’t offer any explanation or theory as to why Democratic policies might be better. But note that wasn’t his claim. You were asking for an explanation or theory, which is not the same as a simple hypothesis test.
Remember, proving a hypothesis is to tell us How and why something is happening.
No. This is just wrong. That is NOT what hypothesis testing is about. If that’s how you understand hypothesis testing, then you need to get out of the business of data analysis because that is just wrong. Hypothesis testing does not offer explanations, only the results of t-tests or whatever.
This time cactus has extended the analysis and is looking at the claim by Republicans that higher federal revenues mean lower economic growth. That’s the claim that we hear from Reaganites, Newtsters, Palin, Boehner, Cantor, Pence, Romney (sometimes), and the Huckster. They claim that an increase in govt revenue means lower growth. In this piece cactus simply tests whether that claim is true or not. It isn’t. Higher federal revenues do not in-and-of-themselves result in less economic growth. The GOP claim fails the hypothesis test. Cactus does not need to provide a theory as to why the GOP claim failed…it just did. We can argue potential theories, but those theories will not change the bottom line result.
Stock grants are taxed as income, i.e., highest tax rates. Capital gains taxes then apply if the stock is held for a period of time and later sold for a price that is higher than the price at which it was originally granted.
Private Equity managers, Hedge Fund managers and Venture Capital managers get a good deal. Most of their income comes from “carried interest” and is currently taxed as capital gains (like Buffet). Congress has plans to change this so that carried interest is taxed as income.
Re. taxing excess housing value, appart from being a political quagmire to administer, I don’t know what this would accomplish. Billionaires don’t buy $30 million dollar estates because they “need” them, but to show off. In a purely utilitarian sense it is wasteful to use so much resources for a home, but then the same behavioral instinct is responsible for creating an art market, which most people do not find offensive.
CoRev,
The hypothesis that cactus tested with the previous set of charts was quite specific. It asked if it was true, as GOP politicians and apologists claim, that GOP policies lead to higher growth rates than Democratic policies. It did not ask for a theory or explanation…that’s what you wanted him to provide, but that’s not in the nature of simple hypothesis testing. Hypothesis testing simply asks if a claim is statistically true or not. Yes or no. Cactus then gave us a reasonable definition of “growth” (viz., real per capita GDP) and compared the growth rates to the political party of the President. The test showed that the GOP claims of superior economic outcomes were not true. Hypothesis rejected. In fact, the data seemed to suggest an alternative hypothesis…namely, that Democratic policies were associated with higher growth rates. You criticized cactus because he didn’t offer any explanation or theory as to why Democratic policies might be better. But note that wasn’t his claim. You were asking for an explanation or theory, which is not the same as a simple hypothesis test.
Remember, proving a hypothesis is to tell us How and why something is happening.
No. This is just wrong. That is NOT what hypothesis testing is about. If that’s how you understand hypothesis testing, then you need to get out of the business of data analysis because that is just wrong. Hypothesis testing does not offer explanations, only the results of t-tests or whatever.
This time cactus has extended the analysis and is looking at the claim by Republicans that higher federal revenues mean lower economic growth. That’s the claim that we hear from Reaganites, Newtsters, Palinistas, Boehner, Cantor, Pence, Romney (sometimes), the Huckster and various teabaggers. They claim that an increase in govt revenue means lower growth. In this piece cactus simply tests whether that claim is true or not. It isn’t. Higher federal revenues do not in-and-of-themselves result in less economic growth. The GOP claim fails the hypothesis test. Cactus does not need to provide a theory as to why the GOP claim failed…it just did. We can argue potential theories, but those theories will not change the bottom line result.
Certainly, Cantab, your efforts to avoid the implication of the data and to find one-off excuses for any good news under Democrats and bad news under Republicans do show that you favor hand-waving explanations over data. The thing that one should keep in mind when evaluating cactus exercise is that he aims to allow the data to speak. The need to let the data speak grows out of the constant dishonest story-telling of the tax-cut crowd. The very thing that cactus means to see past is the thing you keep insisting on. It is also worth noting that dismissing data and insisting that cactus has failed to address the issues you raise, however much he does, in fact address the issues you raise, puts you squarely among the devils in this debate. The longer you carry on, the more obvious you dishonest intent becomes.
Joel,
I am not sure what you mean by “clock striking 13”, but if you don’t believe me just google it yourself. The only thing I did not look up was Buffet’s salary (Just did though, he makes $100k, not $1; my bad)
Thank you for taking the time to provide links to some articles.
I don’t think they refute my point of view, however. What I (and I presume others) are getting to about SS being a ponzi scheme is simply that, as practiced in the US, it promises returns that are dependent on an unrealistic growth in the tax revenue generated by productive workers. Based on current prospects, there are too few workers earning too little and being taxed too little to support promised SS payments. As a result, even with increased economic growth we can expect taxes to go up and benefits to be cut to prevent the program from collapsing. To me, this means it has features that are not unlike a ponzi scheme, which some of the articles you linked to state as well.
Please note: I am not saying that any form of SS must be a ponzi scheme, I am just saying that as our politicians have implemented it, that is what it has effectively become. Ultimately, for SS to be viable and serve a social purpose it will have to evolve from a “universal benefit” to a “welfare / social insurance / safety net” program.
“To me, this means it has features that are not unlike a ponzi scheme, which some of the articles you linked to state as well.”
As each of the articles I linked to acknowledged, there are features of SS that superficially seem to resemble a Ponzi scheme. Each article goes on to explain why such a superficial analysis is wrong and why claiming that SS is a Ponzi scheme, as you did, reflects a lack of understanding of both Ponzi schemes and SS.
” . . . that is what it has effectively become.”
Uh, no it is not. And simply saying it has doesn’t make it so, “Guest.”
Agreed, regarding revenue.
An interesting chart to consider, however, is total Govt spending vs. GDP, which shows a strong growth trend over the last 50 years. Things improved after the collapse of the Soviet Union, but we are now on a strong growth trend again.
I suspect the political argument about taxes is not really about taxes as much as it is about controlling the size of the govt sector overall.
Democrats claim they want to raise taxes to be “fiscally responsible”, but Republicans suspect all that will happen is the Govt will grow larger and the deficits will stay. Republicans therefore claim they want to cut taxes to “grow the economy”, but it is really more about increasing the deficit and thereby forcing the Govt sector to shrink. This is anathema to most Democrats, of course, who then claim the Republicans are just “helping out the rich”, and are “not being fiscally responsible”. Rinse and repeat until we all die of exhaustion…
The real issue to me, it seems, is not taxes but how big should the Govt sector be?
Right now we are on an unsustainable course where tax revenues stay flat relative to GDP while the Govt grows. Something has to give.
interesting article on the performance of gold versus oil in 2009 and factors affecting this relationship in 2010: http://www.goldalert.com/stories/Gold-Price-Versus-Oil-Will-Gold-Outperform-in-2010
2slugs, why all the vehemence? I am trying to apply a small level of science to Cactus’ materials. Without the science it can not be confirmed past being a Cactus view of “History” and will not be a treatise on economic theories.
I repeat what I asked of him (not you): “Tell us clearly what you are trying to show! Remember, proving a hypothesis is to tell us How and why something is happening. Otherwise you are writing a history paper/book with a personal slant or selectivd (sic) support. That is OK! Just don’t make it appear more than it is.”
In providing your response to me you have perhaps shown a weakness in how Cactus is presenting his findings/opinions. Clearly, there are multiple interpretations of what he is trying to show; therefore, his hypothesis may not be well stated.
BTW, in your response to my comment you have provided two different hypotheses. Maybe even further making my point.
As to my understanding of hypothesis testing, data analysis is only one approach. Observation and experimentation are just two of the others. Cactus is using two of those three. I have previously made the point that we are actually in an environment to derive the third method. It is interesting times.
Guest:
Andrew is that you peeking out from behind the “guest” monicker? Since neither coberly or bruce have jumped on you yet for this:
“SS is not an investment vehicle. It is a generational ponzi scheme whereby young workers are taxed adn the money is used to provide payments to the retired. It works great when the population is young and people don’t live to be very old. It is unsustainable when the population ages and the average life expectency approaches 85. Countries like Japan are headed toward a situation where there will be 1 pensioner for every 2 workers.
Early generations of Americans got a great “return” on SS because they paid little into it over their working lifetime and they got a huge benefit. Current workers under the age of 35 will get very little. Most likely, for them they will pay a lot into it and get little out.”
Your first sentence says that SS is not an investment vehicle, which is true and then you start your last paragraph with a statement on “return” in reference to a return on investment. SS is not an investment, it is an insurance plan.
Unless the gov wishes to renege on treasury notes, you can not call SS a “ponzi scheme either as those treasury notes are of a similar nature as what is sold to or invested in by China and Japan. Renege on those and the financial world will take a diom view of treasury bills.
Which brings me to my next point, SS Withholding Tax “still” generates a surplus revenue which is placed in the General Funds (like the Federal Employees retirement funds) and replaced by Treasury Notes to be redeemed at a later time. This has been going on since LBJ’s presidency. Ponzi schemes typically do not create surplus funds and neither are they invested, rolled over, to be drawn upon at a future time. The surplus funds are safe in Treasury Notes awaiting to be redeemed. The funds were used throughout the US in many different projects, expenses, and tax breaks such as the 2001/2003 breaks of which 31% were focused on ~1million taxpayers making > $500,000 in income. That the funds were spent by the US gov. does not negate the validity of the Treasury Notes.
Whatever happened to “productivity” in your explanation? You know that factor that makes the worker to retiree ratio needed to continue growth a positive. There is no validity to using the argument of number of retirees to worker as it is negated, and has been for decades now, with productivit growth. Furthermore, the US does not suffer from the same birth rate problems as Europe and Japan does. We still have a birthrate that replaces each and everyone of us http://www.smithsonianmag.com/people-places/presence-oct06.html. The median age for the US citizens in slightly over 35 which gives us one of the lowest amongst developed countries. I assume you will say next the increases in healthcare costs are completely the result of an aging population.
Current workers will continue see an increase in benefits, there is no reason to believe they will not see increases, and you haven’t supplied any detail as to why you believe they will not. That workers starting out in SS put little into SS and received more out is akin to arguing about sunk costs and has little bearing on what SS recipients will receive in the future other than to raise a generational argument which is disingenuous to the validity of SS. Perhaps a better question to ask would have been “what burden would these people who started out getting SS have been to the infrastructure if “SS” did not exist?” The same as healthcare costs, it would have surpassed SS costs on an individual versus group basis.
My $.02
2slugs:
If I may be of assistance? Graphical Summary will tell you whether the data distribution is normal with a P Value >.05. T-Values come a little farther down the process and are checking means and the difference between them. In any case, this doesn’t take away from your argument.
run75441,
Yes, normality and all that other stuff would come under what I called the “whatever” part of hypothesis testing. I was just throwing out t-statistics as an example of the kind of thing that hypothesis testing is concerned with. Hypothesis testing does not require the exposition of an alternative theory to explain results, it only tests the validity of the proposed hypothesis.
So…why not tax art too? Put a 50% tax on a Warhol every time it changes hands. That would be fine with me. The tax on houses would discourage the wasting of resources on lavish palaces. They offend on numerous levels. If people have so much money that they can build 40 room houses with 50 bathrooms, I think the government should take those funds away and use them for better purposes.
CoRev,
The problem is that you keep insisting that cactus is claiming something that he has said quite plainly he is not saying. Cactus did not claim that Democratic policies were better than Republican policies. What he tested was the REPUBLICAN claim that Republican policies led to economic growth and that Democratic policies led to ruin. The data does not support that claim. Hypothesis tested, hypothesis rejected. Now as it happens the data suggested that Democratic policies were also associated with higher growth rates. That is not by itself a complete argument for Democratic policies and if you wanted to press that kind of analysis, then it would require some kind of theory if you wanted to get beyond the facile “correlation is not causation” argument. Cactus avoided that path. He simply tested the claim that Republicans themselves make and he found that the claim is without merit.
in your response to my comment you have provided two different hypotheses. Maybe even further making my point.
Not sure where you got this. I did not present any hypotheses in my comment to you. I just didn’t. I only made two points. The first was that cactus did clearly state what the hypothesis was that he was testing. The second was that hypothesis testing does not require the exposition of an alternative theory or explanation. Hypothesis testing just gives you a thumbs up or thumbs down verdict to a specific theory.
2slugs said: “ Hypothesis testing does not require the exposition of an alternative theory…” I have no idea where this kind of comment comes from. It was never a part of my commentary.
2slugs you are arguing with yourself again.
2slugs, said: “What he tested was the REPUBLICAN claim that Republican policies led to economic growth and that Democratic policies led to ruin. ” Now you have added even a third hypothesis. You have placed it squarely on Cactus’s shoulders, but I suspect it is actually your interpretation and not necessarily entirely his.
He and I have had this policy discussion for a relatively long time. Now you have iserted yourslef to make th calim that it was his goal/finding. Let him clearly state the policies, (laws, regulations, and declarations) that make up those policies. I have asked this of him on many occasions. You seem to think he can and will answer that question.
cactus,
Its easy to tell a story with the words “cutting taxes leads to faster growth” but very difficult to make any such story compatible with the graph above.
Your data does not test this. The average deviation from zero for 11 of your 12 data points is less than 1%. Too small for an independent variable. In fact it can’t be tested in this way as federal revenues as a percentage of GDP are remarkably stable at 19.5% over the last 50 years (“Hausers Law” http://en.wikipedia.org/wiki/Hauser's_Law). It should be more of a micro- rather than macro-economic test.
Also, federal revenues are very correlated with economic growth. Because of the progressivity of taxes, during growth periods govt revenues/income automatically increase, (http://angrybear.blogspot.com/2009/12/obama-bush-mankiw-look-taxes-spending.html) so the causality could well go the other way: economic growth causes govt revenues/personal income to increase.
This type of analysis is fatally flawed since it assumes that a single indvidual (the President) actually has complete and total control over the economic landscape. The same reasoning applies if replacing Congress with the President. What fails to be appreciated is the interplay and significance between parties. One can credit either Clinton or the Republican majority with the economic results, but it might just as well have been the resulting gridlock the tempered ambitions and forced more compromise.
Typically, more discussion and stretch for common ground results in better, more compact policy decisions that drive better more focused legislation.
These analyses have as much relevance as tying stock market performance to astrology.
Therapist
Social Security is insurance, so the rate of return depends on how badly you were hurt. For a person earning near the cap his entire working life the rate of return is something like 2% real. For a person earning near poverty his entire working life the rate of return is more like 10% real. There are variations depending on whether or not you had a working wife. And of course you can get really lucky and die or get disabled at an early age. Then your rate of return can be thousands of a percent.
The money has not been diverted exactly. It has been borrowed, which is what you do with money in the bank. Unfortunately the people who borrowed the money are working very hard to change the rules so they don’t have to pay it back. Funny thing is that one of their chief arguments against Social Security is that you can’t trust the government. They are trying to be the government we can’t trust.
I suspect that the U.S. role in globalization has changed velocity factors to such a degree that a comparison of administrations, based on timing, is , especially considering how much different the reserve currency relationships have slowed the pace, while also increasing the volume, of the dollar flows since the late 1930s, beyond complicated. At least some of the progress made globally, or the lack of progress (p.o.v.?), must be increasingly assigned to the U.S. economy over the past few decades. For instance, according to Dr. Stiglitz, for every dollar the developed nations spend on aid, they receive a return of 3 dollars (2006); and U.S. citizens provide less aid on a per capita basis than the citizens of other developed nations; so, how is it possible to compare an economy with 2% of population as stockholders, to an economy with 40 or 50% of population benefiting from stock in multinational corporations? Velocity factors have changed considerably and the time required for economic adjustments seems a prerequisite for the type of comparison being done here? ( there may be other examples of velocity issues but those offered were what came to mind )
guest
the first part was helpful. the last part was stupid.
early beneficiaries got a good deal for the same reason early buyers of microsoft got a good deal. doesn’t make either Social Security or microsoft a Ponzi Scheme. Social Security will pay you back every dime you contribute plus interest. There is no reaason this can’t go on forever.
guest
the cost of social security may go up a little… about 20 cents per week per year… because the cost of the insured event is going to go up because the next generation is going to be living longer than the last.
when they raised your auto insurance rates did you call it a Ponzi scheme?
Reply to slugs (2 parts),
I don’t blame you for not liking Romer. Her paper is Devastating to the spin you want to put on economic history.
Here she is showing that Kennedy was a tax cutter making the the Laffer promise.
Kennedy said:
Our present choice is not between a tax cut and a balanced budget. The choice, rather, is between chronic deficits arising out of a slow rate of economic growth, and temporary deficits stemming from a tax program designed to promote fuller use of our resources and more rapid economic growth. … Adoption of the tax program I am proposing will strengthen our Nation’s economic vitality, and by so doing, will provide the basis for sharply increased budget revenues in future years
And again in the 1963 Economic Report stated:
if we enlarge the deficit temporarily as the byproduct of our positive tax policy to expand our economy this will serve as a source of strength, not a sign of weakness. It will yield a large public gain in expanded budget revenues (pp.
XIV-XV).
Lyndon Johnson
repeatedly expressed the same view that deficits would take care of themselves. For example, in his first Budget Message, he said that the tax cut would stimulate growth and should hasten the achievement of a balanced budget in an economy of full prosperity (1965 Budget, p. 13).
Jimmy Carter
This year I have proposed budgets that call for a deficit of $62 billion in1978, and one only slightly smaller in 1979. Had I decided not to recommend a tax cut, the deficit in 1979 could have been $15 to $20 billion smaller. But I believe that tax reduction is essential to continued progress in an economy still characterized by substantial unemployment and idle plant capacity (pp. 12-13).
So all these democrats said cutting taxes would increase growth. The first even said the growth would offet the lost revenue. So apparently these democrats never got the Cactus memo.
Part 2.
Macroeconomic outcomes since 1979
The Volcker recession of 1981-82 was horrific, and the direct consequence of the largest monetary contraction since the Great Depression. But, it reduced inflation from nearly 10% to close to 3%. Since 1985, inflation has been below 4% every single year and has averaged just 2.5%. Real short-run macroeconomic performance has been similarly splendid. Since the Volcker recession, the U.S. economy has suffered only two recessions in 25 years: those in 1990 and 2001. And, in terms of the deviation of GDP from trend, both were quite mild.
So what whe have is a sea change in the 1980 the set the stage for future growth up to the start of the recent recession.
Romer
The overall record of output volatility shown in Figure 6 is also striking. As someone who started her careersaying there had not been a stabilization of the postwar economy, I now have to admit there mostcertainly has been , it just started in 1985, not 1947.
Now the challenge is to Cactus to find a well known economist to second his vacuous account of economic history.
run
even i have chores. but you are doing a helluva good job answering guest without my help.
worth noting that “2 workers for each pensioner” is exactly the same as 2 working years for each retirement year per retiree assuming stable population. so if you save ten percent of your income for forty years and your boss matches that, you can retire on 40% of your average real wage and have enough to laste for a life expectancy of 20 years… i.e. to age 85.
this is more or less the “stable state” or evey asumptote toward which retirement insurance is working, has always been working toward, and must reach, however you “fund” it. the argument that you can do better by investing the savings in the stock market is generally a bad bad argument for the kind of people who will end up needing their own money back. but you can never convince anyone who knows of a sure thing on wall street.
Sammy,
Also the some of the key players contradict Cactus’s claims. Kennedy lowered taxes saying it would lead to growth and pay for itself. Johnson followed the same thinking and policy. And Carter wanted to cut tax for economic growth.
So now we have 3 democratic presidents directly contradicting Cactus in his claim that taxes and tax rates don’t matter. He credits democrat policy yet these democrats were following the opposite policy that Cactus implies there were following by use of his misleading data mining.
Sammy,
Also some of the key players contradict Cactus’s claims. Kennedy lowered taxes saying it would lead to growth and pay for itself. Johnson followed the same thinking and policy. And Carter wanted to cut tax for economic growth.
So now we have 3 democratic presidents directly contradicting Cactus in his claim that taxes and tax rates don’t matter. He credits democrat policy yet these democrats were following the opposite policy that Cactus implies there were following by use of his misleading data mining.
and it might be worth pointing out that those old timers who got such a good deal on Social Security had paid for their own old folks retirement without any help from anyone… at the same time they were paying for the education of their children (also known as the generation of vipers) and building the roads and fighting the wars and paying the taxes and… trying to get buy on a real income less than half of what those future overburdened youth will have.
they are overburdened, you see, because they are too stoned to realize that their 20 cent increase in payroll tax is going to pay for their own longer retirement. not us! they say. we’ll never get old. and when we do we’ll be rich. and we’ll have such good jobs we will never want to retire.
cantab
you should be careful of criticizing someone else’s typo in a comment in which you make a doozy of your own.
kharris,
The need to let the data speak grows out of the constant dishonest story-telling of the tax-cut crowd.
Kennedy, Johnson, and Carter according to their own words are in the tax cutting crowd. Please ead Romer before you type anything else on this topic.
guest
the obvious answer is to raise taxes. if we decide we need less government, then we can lower taxes. it’s just that simple.
how much government do we need? that’s politics. (not economics).
2slugbaits
The hypothesis that cactus tested with the previous set of charts was quite specific.
Can you state the exact hypothesis that was being tested.
How do you explain Kennedy, Johnson, and Carter all wanting to lower growth to achieve economic growth? How dows the Cactus assinine analysis include this as an independent variable?
Mike,
Its worse than that since Kennedy, Johnson, and Carter all advocated tax cuts to achieve economic growth.
mike
maybe in your mind. but that’s because you are in denial.
Correction: Buffet’s secretary pays 1.45% medicare tax; her employer, Mr. Buffet pays the a “matching” 1.45% for a total of 2.9%.
Coberly,
Any comments from you on the Romer paper. What do you think of the quotes in my post below?
CoRev:
Actually, 2slugs was answering me. Actually if you wish to argue with 2slugs, you need to test the data distribution for normality. 2slugs is telling you the data is a normal distribution (hypothesis test) and there is no need to go further, end of story. The assumptions made fit normality.
You have myriads of cactus’s data and you can test them yourself. His spread sheet offers everything he used. Run the mormality tests and see what turns up. Run differ assumptions and prove out your points. That is the only way you will get your points across.
CoRev:
Actually, 2slugs was answering me. If you wish to argue with 2slugs, you need to test the data distribution for normality. 2slugs is telling you the data is a normal distribution (hypothesis test) and there is no need to go further, end of story. The assumptions made fit normality. He is correct in stating that is all he needs to do with the data as presented.
You have myriads of cactus’s data and you can test them yourself. His spread sheet offers everything he used. Run the mormality tests and see what turns up. Run differ assumptions and prove out your points. That is the only way you will get your points across.
Some hilarious stuff here; that is, if it wasn’t the same old stupid c@p that ‘The Maestro’ & posse and others have used to bamboozle the serfs. Any one care to know that ‘classical economists’ are using mathematical tools from 1860? Yeah, and that’s worked out sooooo well.
And by the way, you are a serf if yer not in the top .1 of 1%.
Keep at it Cactus. Someday…someday the lightbulb in many folks head will go from dim to full on….
…or maybe not.
Kennedy, Johnson, and Carter according to their own words are in the tax cutting crowd. Please read Romer before you type anything else on this topic.
coberly,
you should be careful of criticizing someone else’s typo in a comment in which you make a doozy of your own.
Please be specific. I’m aware that my writing stinks.
Cactus does not even have a consistent coherent story to tell; thus I don’t know of a statistical test that could rescue his junky analysis.
As is the fact that unemployment hit 19 percent at the end of this period. At what point would you say the approach did not work very well? 19 percent unemployment or 15 percent going into 1940 is past the point I would say he was failing.
Democrats claim they want to raise taxes to be “fiscally responsible”, but Republicans suspect all that will happen is the Govt will grow larger and the deficits will stay. This is what I always suspect. Clinton’s healthcare proposal in 1993 never had a funding source other then what he raised with his tax hikes. So he was raising taxes to plough the way for increased spending but he lost the Congress and that was the end of his big spending ways.
Indeed. If you look at any of the long-term CBO forecasts, or even the less optimistic trustee forecasts, SS expenditures in the long term are quite stable in the neighborhood of 6.2% of GDP. Interestingly, if you look at the situation in 1983 when the last major overhaul of the system was done, the long-term expectation for the portion of GDP that would be collected as revenue was… just about 6.2% of GDP (essentially, a 12.4% total tax on 50% of GDP). What has changed since 1983 is that the share of GDP going to wages and salaries below the cap has decreased.
IIRC, in 1983 the SS cap was such that about 80% of wages and salaries were taxed. The formula for increasing the cap was based on increases in wages at the 50th percentile. If the formula had, instead, used increases at the 80th percentile, the current cap would be somewhat higher (about $125K, I believe) and the trustee forecasts would be “no problems, the system is solvent as far as we can see”.
On the days when I believe in conspiracy theories (odd-numbered Tuesdays), I take the position that the Greenspan Commission knew darned good and well that they were pegging the formula to the wrong number.
Cantab,
Your posts are rambling and all over the ballpark. Let me help you out here. No one disputes that economic policies in the 70s went off the rails. There were lots of reasons for that including a series of supply shocks. And one of the reasons was because policymakers tended to see every problem as one of weak aggregate demand, which wasn’t always the correct diagnosis. Monetary policy was also all over the place. In the early Volcker years the emphasis was on monetary aggregates, such as M2 growth. By the end of the Volcker era the Fed had undergone a regime change and focused on interest rates after money velocity proved too unstable. And it’s strange to criticize Carter for relatively small deficits and then praise Reagan and Bush 41 for huge deficits even when the economy was not in recession. Just nuts. As to Kennedy’s tax cut, remember that he was cutting taxes from a top marginal rate of 90 percent, which is clearly beyond the Mirrilee optimal revenue rate, so in that case we would expect a cut in the top rate to “pay for itself.” That was a special case that doesn’t apply today because we are nowhere near a 90 percent top rate.
And Romer accepts the Great Moderation argument, but her timing couldn’t have been worse. She wrote that in 2007, just as the economy started to unravel. Today’s recession is the worst since the Great Depression, and one of the reasons is because the nominal interest rate was near zero when the recession began. So if you want to credit the Great Moderation with economic stability since 1985, then you’ve also got to accept responsibility for the Great Recession. As Krugman has pointed out, the 1990 and 2001 recessions saw us edging closer and closer towards a liquidity trap because of the low nominal interest rates and because of teetering deflation.
But getting back to cactus’ post, he did not offer any theory about economic policies. His only point was that growth rates in real per capita GDP were NOT higher than under Democrats, as the GOP likes to claim. The issue is not Romer’s view of intellectual history; it’s just a matter of noting that Republican claims do not stand up to close scrutiny. You are just desperate to avoid talking about that inconvient fact.
Cantab,
Sorry, but I don’t really care what Jimmy Carter said about tax cuts stimulating economic growth. Carter was just wrong. The problem in the late 70s was not weak aggregate demand; it was too much aggregate demand. The economy was overheating.
Now if you want to salvage Romer’s position, then here’s the correct argument. In 1977 we did not know that the economy was out of recession, so fiscal policies and the accompanying lags were likely to kick in at just the wrong time. And that’s exactly what happened. One fo the great economic lessons was that economists should not try and use fiscal policy to fine tune the economy. If you want to slam liberal economists coming out of the 60s, then blame them for thinking they could fine tune the economy. That’s a legitimate critique and I believe that’s actually Romer’s real point. I think you just missed it.
CoRev,
Here’s cactus in his own words:
…for those who think this somehow can be reconciled with a “Republicans know what they’re doing when it comes to the economy” story-line: if just about every data point is a special case, your model sucks.
http://angrybear.blogspot.com/2009/12/comparing-presidents-real-gdp-per.html#comments
In other words, he is testing the claim by Republicans that they are the grown-ups who understand the economy and the Democrats are just softhearted liberals who don’t understand real economics. It’s the way Republicans like to flatter themselves. Cactus was testing that hypothesis. The responses from Republicans have consistently been that cactus didn’t include this or that special condition, or this or that lag factor, then onto flexible lags, yada yada yada.
CoRev,
If you’re going to put my words in bold, then you really ought to get the emphasis right. The emphasis should be on “Republican claims” and not “policies.”
cantab,
“Son? Are you related.”
Nope, its my “fetal flaw.”
CoRev,
Come on… you were here when I started all these posts. When people would say… do this series or that series, and I did every one that was requested. I’m not cherrypicking unless you think I’m picking the audience.
As to picking the right data for looking at inequality, what I was trying to say was that I don’t think you’re going to see differences if you’re talking about, say, the top 10% of the pop and everyone else, but you might see it for the top 1%.
As to my hypothesis, its been stated a zillion times, but once again… they simple hypotheses here:
a. Republicans don’t have better economic policies than Democrats
b. Cutting taxes is not the way to get faster growth
CoRev,
I’m not aware of any science that you look at the data then make up a theory and say then say the data proves your theory.
Sammy,
Also some of the key players contradict Cactus’s claims. Kennedy lowered taxes saying it would lead to growth and pay for itself. Johnson followed the same thinking and policy. And Carter wanted to cut tax for economic growth.
So now we have 3 democratic presidents directly contradicting Cactus in his claim that taxes and tax rates don’t matter. He credits democrat policy yet these democrats were following the opposite policy that Cactus implies they were following by use of his misleading data mining.
Sammy,
The problem with causality going the other way is that revenues fell under Reagan but increased under Carter. Growth was faster under Reagan.
But the other problem exists when you look at the data on an annual basis… as a for example, revenues / income increased every year under Clinton, even in the first two years when growth was anemic. (Greenspan’s hypothesis – the fact that Clinton was responsible and paid down the debt is what put the economy on a growth path.)
Cantab,
You just love to throw in time travel, don’t you? As I’ve pointed out to you before, the “Kennedy Tax Cuts” came in 1964. JFK got shot in 1963, all of which makes it very hard for any of that to have anything to do with growth in 61 and 62. Also, once again, none of that is remotely relevant because revenue collected as a percentage of income increased while JFK was in office.
Part 2.
Macroeconomic outcomes since 1979
The Volcker recession of 1981-82 was horrific, and the direct consequence of the largest monetary contraction since the Great Depression. But, it reduced inflation from nearly 10% to close to 3%. Since 1985, inflation has been below 4% every single year and has averaged just 2.5%. Real short-run macroeconomic performance has been similarly splendid. Since the Volcker recession, the U.S. economy has suffered only two recessions in 25 years: those in 1990 and 2001. And, in terms of the deviation of GDP from trend, both were quite mild.
So what have is a sea change in the 1980s that set the stage for future growth up to the start of the recent recession.
Romer
The overall record of output volatility shown in Figure 6 is also striking. As someone who started her careersaying there had not been a stabilization of the postwar economy, I now have to admit there mostcertainly has been , it just started in 1985, not 1947.
Now the challenge to Cactus is to find a well known economist to second his original account of economic history.
Mike,
I’ve had that post before. (http://angrybear.blogspot.com/2008/02/congress-or-president-who-affects.html) Feel free to be the one to tell Newt Gingrich he’s responsible for tax hikes.
2slugs, I was making my point re: policies using your own words. This is how my next paragraph started: “He and I have had this policy discussion for a relatively long time.” So my emphasis is correct. Even you fall into the trap of talking about policies when discussing Cactus’ works.
Cantie, nor do I know of any science that creates a hypothesis, then finds the appropriate supporting data. We’ve seen what that leads us to with the AGW theory. That is out and out cherry picking.
Slugs,
Sorry, but I don’t really care what Jimmy Carter said about tax cuts stimulating economic growth. Carter was just wrong.
I’m not arguing right now what the correct policy was or should have been. I just stating the policies of the Kennedy, Johnson, and Carter administration based on major statement them made and collected and quoted in the Romer paper. They all advocated tax cuts to achieve economic growth. This contradicts the story being told by Cactus. And you don’t get this from a model or playing around with leads and lags. You have to go to the period and see what the policy actually was. Cactus does not do this so he gets the history wrong.
Now if you want to salvage Romer’s position, then here’s the correct argument.
That’s your job. She’s backing me up. I can take the critisism on deficits since its true (as is the Disappearance of the old Soviet Union).
One fo the great economic lessons was that economists should not try and use fiscal policy to fine tune the economy. If you want to slam liberal economists coming out of the 60s, then blame them for thinking they could fine tune the economy.
I believe this but Romer in crediting the economic management in the 1950s was actually saying that economists and policy makers did successfully fine tune the economy. She’s not a 100 percent traitor from your point of view. What she is saying is the the new democrat policy starting in the 1960 was a disaster largely that caused the run up in inflation.
Slugs,
Sorry, but I don’t really care what Jimmy Carter said about tax cuts stimulating economic growth. Carter was just wrong.
I’m not arguing right now what the correct policy was or should have been. I’m just stating the policies of the Kennedy, Johnson, and Carter administration based on major statement they made and were collected and quoted in the Romer paper. They all advocated tax cuts to achieve economic growth. This contradicts the story being told by Cactus. And you don’t get this from a model; or playing around with leads and lags. You have to go to the period and see what the policy actually was. Cactus does not do this so he gets the history wrong.
Now if you want to salvage Romer’s position, then here’s the correct argument.
That’s your job. She’s backing me up. I can take the critisism on deficits since its true (as is the disappearance of the old Soviet Union).
One fo the great economic lessons was that economists should not try and use fiscal policy to fine tune the economy. If you want to slam liberal economists coming out of the 60s, then blame them for thinking they could fine tune the economy.
I believe this but Romer in crediting the economic management in the 1950s was actually saying that economists and policy makers did successfully fine tune the economy. She’s not a 100 percent traitor from your point of view. What she’s saying is that the new democrat policy starting in the 1960s was a disaster and what caused the run up in inflation.
If I may ask two questions without provoking an annoyed reply:
1) Since there is a very high likelihood that much of the money will not be paid back, why is it inaccurate to say that as SS is being run it is effectively like a ponzi scheme? I understand the explanation that SS has a “trust fund” that contains “investments in treasuries”, but the fact is that we owe those liabilities to ourselves. If I owed a loan shark $100 and my kid brother $100, those debts are not really the same even if the IOUs are both written on the same kind of paper.
2) Why do you have any confidence in “the govt”, i.e., elected politicians, not to screw things up? Perhaps I am naiive, but I don’t see what evidence one could point to that our govt can be trusted to do things competently, whether that be run a war, invest for the future, manage the economy, or manage enormous entitlement programs.
Thank you Cactus. Hypothesis a. seems to be unprovable as written. From the top of my head it seems that you have not proven it in your writings. Moreover, very time you use the term policy I look for the details, and as we both know they are not there. Laws, regulations, etc. implementating said policy comparisons are not defined. I have yet to see the policy base lines defined so that a comparison of changes can be made.
Hypothesis b. seems to be concisely enough written to be tested.
Margery
Three quick points in response:
1) There is already a hefty sales tax for art in many places and the seller pays tax on any capital gains they have realized. Furthermore, the tax is as a “collectible” which I believe is at the income tax rate, so your millionaire art seller is paying 35% + on the capital gains
2) Who decides what is offensive and should be taxed? Is a $500 painting OK, but a $500,000 painting not OK? How about a $5,000 painting? I am sure I could find some things you do that offend me and vice versa. Your proposal would invite politics into every aspect of your life. It is bad enough listening to people on Fox and MSNBC antagonize each other about Obama, Gitmo and the bailouts. Just imagine if they were arguing over whether this or that item offends the eye and should be taxed. Ivy League universities have engaged in an orgy of spending for the last 25 years, and in so doing have built magnificent campuses. They also charge an obscene fortune for tuition, and that is offensive to some people. Should we tax “excessive university constrution projects”?
3) What makes you think the govt would put the money to better use? More likely your local Congressman would like to see his name on a new building or has a friend in the construction business that would like to build a new road.
2slugs said: “But getting back to cactus’ post, he did not offer any theory about economic policies.“
Cactus actually says within this comment thread: “As to my hypothesis, its been stated a zillion times, but once again… they simple hypotheses here:
a. Republicans don’t have better economic policies than Democrats
b. Cutting taxes is not the way to get faster growth”
I dunno but I do remember Cactus saying in the past that tax policy was the difference.
As I said earlier 2slugs, you are arguing with yourself.
coberly
Or cut govt spending. Either would help solve the economic problem.
Somehow raising taxes is always the prefered option on this board
I am quite sure that I could cut 25% of the budget at our local elementry school and it would have no impact whatsoever on education. (My mother was a teacher there for 25 years)
Politics is not “how big should govt be”, that is policy.
Politics is how do the more-Govt and less-Govt people fight the battle. (Which, as it happens, is usually with lies, distortions, half truths, and any other form of manipulation they can dream up)
Raising taxes changes the paradigm.
The republican way is to borrow money from the rich and pay them interest, instead of taxing them.
Interest payments will rise seriously once the fed stops keeping rates at ZERO.
That is money which was borrowed from the supporters of the senate rather than taxed.
And their discretionary spending buys with borrowed money things that increase the dividend of firms owned by the senates sponsors who are lenders when they must be tax payers.
This circular cluster is the republican CONservative way.
Fascism only differs from socialism by who gets the benefit of the resources and production. Th first fascism is for the rich, the latter some time for the general masses.
Labor has always been forced to sacrifice for the rich, perpetual war, religious nuts against abortion andso forth……..
This lesser depression is rooted in Reagan and Milton Friedman.
Their policy was cut taxes, increase spending and borrow from those who they cut the taxes on.
Then buy trashy militarism and Mars rockets which are the antithesis of investments but sent the borrowed money back to the wrongful lenders at unjust margins.
It is a CON sold by Milton on PBS and jelly beans in the oval office.
The unravelling is just beginning.
The US will be fortunate if this indeed is a lesser depression.
This has been building since the pillaging started in 1980.
Tax policy coupled with borrowing what should have been taxed then whining about entitlements because entitlements don’t buy with borrowed money from the lenders……….
It includes contrived fiscal policy to spend money to profit only the lending classes.
The ownership class con!!
Your posts are rambling and all over the ballpark.
That’s because democrat policy sucks all over the ballpark.
This is good though.
http://www.youtube.com/watch?v=0WGVW7byRCA
No one disputes that economic policies in the 70s went off the rails.
You got your time line wrong. Look at the title of the article:
Macroeconomic Policy In The 1960S:
The Causes And Consequences Of A Mistaken Revolution
So we are talking about policies that started with Kennedy and Johnson in 1960s. It appears that this self proclaimed Camelot period of democrat policy making screwed up the economy (along with the fricken war in Vietnam war)
There were lots of reasons for that including a series of supply shocks.
Were there a lot of supply shocks in the 1960s. I seem to remember the oil prices falling for most of the decade.
And it’s strange to criticize Carter for relatively small deficits and then praise Reagan and Bush 41 for huge deficits even when the economy was not in recession.
You got this wrong too, she does not praise any administration for deficts. If you think otherwise then post a reference.
As to Kennedy’s tax cut, remember that he was cutting taxes from a top marginal rate of 90 percent, which is clearly beyond the Mirrilee optimal revenue rate, so in that case we would expect a cut in the top rate to “pay for itself.” That was a special case that doesn’t apply today because we are nowhere near a 90 percent top rate.
Cactus does not make this distinction.
But getting back to cactus’ post, he did not offer any theory about economic policies.
Making his analysis worthless.
CoRev,
As I said earlier 2slugs, you are arguing with yourself.
I thought he was trying to make bricks without straw (or facts).
Aflack!
ilsm
Aflack!
ilsm,
What do you think about Romer in the Whitehouse?
Cantab,
Let me try one more time. I am not providing a theory or an interpretation. I am merely showing that by organizing data from the BEA (and a while back, I did the same thing with data from the IRS), taking into account starting and stopping points for presidential administration, there is a pattern. No heroics or torture were necessary to show that pattern either.
Now, you tell me your theory doesn’t agree with this, or that Sargent’s theory doesn’t agree with this, or that Romer’s story doesn’t agree with this, and all that says is that those theories and explanations are wrong. Because the only point of a theory is to explain data.
Now, you’ve been trying to obfuscate data, and you keeping claiming things that aren’t true – that growth during FDR’s term was slow, or that growth from 1960 to 1963 was due to tax cuts in 1964. What purpose does that even serve? It makes you sound like some crackpot who insists on arguing that the Earth is shaped like a bottle of Coke.
Cactus said: “the Earth is shaped like a bottle of Coke.” It’s not?????? My MaMa was wrong? 😀
CoRev,
Hypothesis a. seems to be unprovable as written.
Huh? Cactus is engaged in hypothesis testing. The goal of hypothesis testing is to see if you can reject the null hypothesis; it is not to try and prove the hypothesis. You’re misunderstanding how econmetricians go about the day to day business of hypothesis testing. Cactus takes the null hypothesis as the proposition that GOP policies and Presidents yield better economic growth. This proposition is falsifiable in principle. And the data rejects the null hypothesis. So Republicans are wrong when they say that their policies and Presidents lead to higher growth.
The second hypothesis is also falsifiable. The null hypothesis is that cutting taxes leads to faster growth. Cactus is not testing the hypothesis that higher taxes cause higher growth; he is testing the hypothesis that lower taxes lead to higher growth. Again, the null hypothesis is rejected. The data falisfies the claim. That does not mean Democratic policies are better. That does not mean higher taxes result in higher growth. It does not prove any positive statement at all. That’s not what hypothesis testing does. The point is to see if you can reject the null. In order to understand this it’s important that you also understand the difference between Type I and Type II errors.
Cactus,
Now, you’ve been trying to obfuscate data
You lie, i’m done done with you for the next 10 minutes.
Cantab,
You got this wrong too, she does not praise any administration for deficts. If you think otherwise then post a reference.
Sorry, I wasn’t clear. I was referring to your comment that policies after 1985 were just hunky dory and set up the Great Moderation.
Romer’s paper is one of many that were written in the summer of 2007 that pretended to give some grand perspective of macro history. There were a lot of them that all came out at the the same time for various conferences and seminars. The most famous paper like that was probably Blanchard’s, which came out at the same time as Romer’s….within a few days of one another. And Feldstein had a similar paper at that time. As things turned out I suspect that all of them probably wish that they had waited a few weeks before presenting those papers. All of their papers look pretty silly today. And as I said before, Romer’s late 2008 analysis runs against just about everything she wrote in this paper.
Part of Romer’s problem is that she had to write something about LBJ but the data she used didn’t actually say what she claimed it said. Go check her facts on the deficits during the 60s. Her claim that on budget deficits increased in the 60s over the deficits in the 50s is just factually wrong. Deficits in the 50s were about 50% larger as a percent of GDP. And a quick check of Figure 2 in her own paper confirms that what she claims in the narrative is just wrong. The problem was not with policies in the 60s. The problem came in the 70s when politicians tried to solve productivity and supply shock problems with aggregate demand policies. That is what led to inflation. It took three recessions in less than 8 years (two of those recessions being very deep) to control inflation. So the 80s were all about getting inflation under control. The uncomfortable fact that Romer ignored was that the Fed may have overlearned the lessons of inflation. Today’s problem is deflation and a liquidity trap, and it’s hard to deny that these twin evils are not an unintended byproduct of the Fed’s Great Moderation. The Great Moderation looked like a spendid achievement back in Sep 2007, but today it looks a lot less attractive. So if Romer had to write that paper today, I’m pretty sure it would sound a lot different. In fact, her late 2008 analysis largely rejects a lot of what she said in 2007. Afterall, Romer was calling for a $1.3 trillion fiscal stimulus package, which is something that you wouldn’t find in her 2007 paper.
Obama chose Romer to be his number one economic advisor. Deal with it.
Cutting Govt spending changes the paradigm too.
It forces thousands, if not millions, of non-productive govt employees to seek work in the productive private sector, and it would reduce the deficit, strenthen the dollar and attract capital investment to the US.
If the last 10 years have taught us nothing, I would think it is that you can’t run a successful economy on nothing but homebuilding and structured finance.
The US needs to produce something of value for the rest of the world. The govt sector has no value to our global trading partners.
I can see why taxes could be raised. I don’t see why almost no one on this site can imagine cutting govt spending as part of the solution to our impending national bankruptsy.
michael cain
actually the Trustees expect the share of GDP that comes in as revenue to Social Security to fall from 5% to 4.4% as a result of shifting wages to non taxed benefits. in other words, half of the expected shortfall is due to a tax cut.
so far as I know, only me and the Trustees know this. they printed it on page 12 of the 2009 report, but of course none of the non partisan experts read it. much less the bi partisan experts.
guest
glad you mentioned that. i can never tell if “most economists agree” that it’s “really” the employees money. or if it is a job killing tax.
cantab
cactus makes it clearer below… if the comments don’t get shuffled. your writing is probably not worse than anybody else’s here, including mine. unless, of course one is reading for content.
CoRev
this is just silly. all normal sciences look for data that support…or disprove…their hypotheses.
you are making the mistake of thinking that Cactus has presented a “statistical” argument here (and worse that he cherry picked his data or suffered some form of experimenter bias.
he has given you the data on the whole set. this is not a statistical sample. it IS the data.
Guest
or cut spending. but right now we have spending and not enough taxes to pay for it. so first raise taxes and pay for what you bought.
and when you go to cutting, well, i hope someone who can see further than the nickel in his hand has that job.
and “policy” is what you get from politics. you are trying too hard.
guest
that’s bullshit.
you say govt workers are non productive because you are too stupid to value the product.
it’s easy enough to find examples of “government stupidity and waste”. damned hard to figure out how to get what we need without the 2nd law losses. your choice is not “efficient government”… there is no such thing. your choice is between one form of inefficient government and another. given your ignorance you will choose the side that claims to offer less government, and when you get a police state you might understand the difference, but if you are like most people of your stripe you will just be so glad for “lawn order” you won’t notice the disapperances.
cantab
sorry. i don’t do chases.
Brad DeLong
http://econ161.berkeley.edu/pdf_files/peacetime_inflation.pdf
At a somewhat deeper level, the United States had a burst of inflation in the 1970s because economic policy makers during the 1960s dealt their successors a very bad hand. Lyndon Johnson,Arthur Okun, and William McChesney Martin left Richard Nixon, Paul McCracken, and Arthur Burns nothing but painful dilemmas with no attractive choices. And bad luck coupled with bad cards made the lack of success at inflation control in the 1970s worse than anyone had imagined ex ante.
Brad DeLong is also questioning the monetary policies of Kennedy & Johnson by saying the they dealth their successors (Nixon+) a very bad hand.
It seems the more I look the weaker Cactus’s claims become. I think now its up to Cactus to do some research to find papers the back up his claims. What I’m reading is that economic policy under democrats in the 1960s and mostly with Carter in the 1970s was sub standard. Cactus argues that their performance was exemplary. Yet doing even a small literature search shows this not to be the case.
Brad DeLong
http://econ161.berkeley.edu/pdf_files/peacetime_inflation.pdf
At a somewhat deeper level, the United States had a burst of inflation in the 1970s because economic policy makers during the 1960s dealt their successors a very bad hand. Lyndon Johnson,Arthur Okun, and William McChesney Martin left Richard Nixon, Paul McCracken, and Arthur Burns nothing but painful dilemmas with no attractive choices. And bad luck coupled with bad cards made the lack of success at inflation control in the 1970s worse than anyone had imagined ex ante.
Brad DeLong is also questioning the monetary policies of Kennedy & Johnson by saying that they dealth their successors (Nixon+) a very bad hand.
It seems the more I look the weaker Cactus’s claims become. I think now its up to Cactus to do some research to find papers the back up his claims. What I’m reading is that economic policy under democrats in the 1960s and mostly with Carter in the 1970s was sub standard. Cactus argues that their performance was exemplary. Yet doing even a small literature search shows this not to be the case.
Guest
i have no confidence in the government unless i can find a way to educate people like you to understand the program.
there is no reason for the money not to be paid back. your analogy with the loan shark is wrong, and you got the roles reversed. YOU are the loan shark who lent money to the government. The “bipartisan commission” doesn’t want to pay the money back. You need to break their knees.
we do not owe the money to ourselves. “we” are 300 million people, and some of us lent money… under a legal agreement… to some others. Now the others need to pay the money back.
Training you to think of the United States of America as a single person… hapless uncle sam with his two pockets… is just the bad guys giving the stupid guys a cartoon to carry around in their empty heads to take the place of understanding reality.
paying back the money “we” borrowed from Social Security will not make “us” richer. but it will give the money back to the people who lent it. kind of like if your kid brother pays you back the money he borrowed, it won’t make “the family” any richer. but you’d be glad to get the money back anyway.
Cantab,
Then you all should go back and check your facts. LBJ left Nixon with a small budget surplus and Carter had the deficit on a downward track, roughly cutting it in half every year. Now it is true that the Fed reacted wrongly. The last time I checked “monetary” policies were the domain of the Fed, not the President.
Slugs,
I’m showing that the conclusion that Cactus would have us take away from his charts are actually 180 degrees backwards. Its the democrats who were the ones that screwed things up in the 1960s and 1970s. I have Romer, and some more support form DeLong. If I have time I’ll look again a Milton Friedman’s interfview on PBS’s frontline production of Commanding Heights.
But the bottom line is that my list of know economists that i’m in agreement with is growing while Cactus has only his data mining to rest on. I’m winning the debate and you made a mistake by aligning yourself with his analysis.
Slugs,
I’m showing that the conclusion that Cactus would have us take away from his charts are actually 180 degrees backwards. Its the democrats who were the ones that screwed things up in the 1960s and 1970s. I have Romer, and some more support form DeLong. If I have time I’ll look again a Milton Friedman’s interfview on PBS’s frontline production of Commanding Heights.
But the bottom line is that my list of known economists that i’m in agreement with is growing while Cactus has only his data mining to rest on. I’m winning the debate and you made a mistake by aligning yourself with his analysis.
Cantab,
I remember that DeLong paper… in it he indicates that the will to do something about inflation only showed up in 1978. Which means (if I’m going to tell the story the way you would tell it if the shoe was on the other foot) that Nixon and Ford punted the inflation onto Carter, but Carter was willing to pay the price to kill it.
“Cactus argues that their performance was exemplary.”
bull@%$&. I don’t watch basktball, but even I know that being able to beat the Clippers doesn’t mean whatever team you’re rooting for is the best in the league.
“Cactus to do some research to find papers the back up his claims.
What claims? I’ve pointed out what the data shows. You may be able to tell a story about a special case here or there, but the data shows a striking pattern. Whether you or the Pope declare the data to be false (and both have happened before, numerous times) is irrelevant. The data is the data.
Cactus,
What claims?
I guess you get to say this since you argue using the device of innuendo.
You may be able to tell a story about a special case here or there, but the data shows a striking pattern.
The stories explain the data and it it looks like some democrat economic policy was really very bad, and they are worse than republicans. Kennedy, Johnson, and Carter all ran up inflation to boost their economic numbers on growth and unemployment. Both Romer and DeLong say their policy was especially bad. The historians have spoken and they analysis is more incitful than looking at data without the analysis. One can only reason that you leave out their analysis since it wrecks your implied case.
Cactus,
What claims?
I guess you get to say this since you argue using the device of innuendo.
You may be able to tell a story about a special case here or there, but the data shows a striking pattern.
The stories explain the data and it it looks like some democrat economic policy was really very bad, and they are worse than republicans. Kennedy, Johnson, and Carter all ran up inflation to boost their economic numbers on growth and unemployment. Both Romer and DeLong say their policy was especially bad. The historians have spoken and they analysis is more incitful than looking at data without the analysis. One can only reason that you leave out their analysis since it wrecks your implied case.
Cantab,
“I guess you get to say this since you argue using the device of innuendo”
What innuendo? I put up a graph that shows the growth rate of real GDP per capita by Presidential administration and whether they increased or decreased the tax burden. This was about as flat a presentation of data as you can find. You just don’t like what the data shows, so you keep dancing around – you tell one story, and when that doesn’t work, you tell another.
“The stories explain the data and it it looks like some democrat economic policy was really very bad, and they are worse than republicans. Kennedy, Johnson, and Carter all ran up inflation to boost their economic numbers on growth and unemployment.”
Since you like to quote experts, remember, Milton Friedman pointed out (correctly, I might add): Inflation is always and everywhere a monetary phenomenon. Because it doesn’t sink in, I’ll state once more: in this country, the President does not have the ability to increase or decrease the money supply.
In the paper you cite, DeLong pointed out that it wasn’t until Carter put the right team together, the country did not have the willpower to face inflation.
Cactus,
What innuendo?
Your innuendo is that economic policy under democrats working with the Fed was better than under republicans. I’ve shown by quoting expert opinion that this is opposite of the truth. Kennedy and Johnson set the country on the wrong path by creating rapidly accelerating inflation and budget deficits until they finally enacted a surtax which they passed to their successor. They are held up by the experts by having a bad economic policy. Nixon after being urged by his FED chief enacted wage and price controls which were stupid but was at least a try at combating inflation. Carter threw caution to the wind and bought decent unemployment at the price of rapidly accelerating an unsustainable inflation. Then the Reagan people came in understanding what needed to be done and worked hand in hand with Volker at the FED and giving him complete support to raise interest rates which drove the economy into recession and finally beat inflation. We benefitted from this sea change ever since.
And by the way, it bugs me that you can say this was not your innuendo since it obviously is.
Because it doesn’t sink in, I’ll state once more: in this country, the President does not have the ability to increase or decrease the money supply.
According to Friedman and Romer the FED chiefs and worked with the economic teams at the Whitehouse and Volker never could have fought inflation without the support of the administration. Moreover, it was the lack of support from the Carter administration that kept Volker from doing it earlier.
In the paper you cite, DeLong pointed out that it wasn’t until Carter put the right team together, the country did not have the willpower to face inflation.
I put Carter in the transitional camp. Late in his single term he started dismantling FDR’s industrial policy with deregulation, put Volker in place, and started to beef up our nuclear deterrent (I voted for Cater in 1980 – goes with growing up in Massachusetts)
Cactus,
What innuendo?
Your innuendo is that economic policy under democrats working with the Fed was better than under republicans. I’ve shown by quoting expert opinion that this is opposite of the truth. Kennedy and Johnson set the country on the wrong path by creating rapidly accelerating inflation and budget deficits until they finally enacted a surtax which they passed to their successor. They are held up by the experts by having a bad economic policy. Nixon after being urged by his FED chief enacted wage and price controls which were stupid but was at least a try at combating inflation. Carter threw caution to the wind and bought decent unemployment at the price of rapidly accelerating an unsustainable inflation. Then the Reagan people came in understanding what needed to be done and worked hand in hand with Volker at the FED and giving him complete support to raise interest rates which drove the economy into recession and finally beat inflation. We benefitted from this sea change ever since.
And by the way, it bugs me that you can say this was not your innuendo since it obviously is.
Because it doesn’t sink in, I’ll state once more: in this country, the President does not have the ability to increase or decrease the money supply.
According to Friedman and Romer the FED chiefs worked with the economic teams at the Whitehouse and Volker never could have fought inflation without the complete support of the Reagan administration. Moreover, it was the lack of support from the Carter administration that kept Volker from doing it earlier.
In the paper you cite, DeLong pointed out that it wasn’t until Carter put the right team together, the country did not have the willpower to face inflation.
I put Carter in the transitional camp. Late in his single term he started dismantling FDR’s industrial policy with deregulation, put Volker in place, and started to beef up our nuclear deterrent (I voted for Cater in 1980 – goes with growing up in Massachusetts). But Carter did drive up inflation and bought lower unemployment numbers at the expense of having to put the country into recession early in the Reagan administration. Remember Reaganomic — that term worked for the benefit of democats until 1983.
Cactus,
What innuendo?
Your innuendo is that economic policy under democrats working with the Fed was better than under republicans. I’ve shown by quoting expert opinion that this is opposite of the truth. Kennedy and Johnson set the country on the wrong path by creating rapidly accelerating inflation and budget deficits until they finally enacted a surtax which they passed to their successor. They are held up by the experts by having a bad economic policy. Nixon after being urged by his FED chief enacted wage and price controls which were stupid but was at least a try at combating inflation. Carter threw caution to the wind and bought decent unemployment at the price of rapidly accelerating an unsustainable inflation. Then the Reagan people came in understanding what needed to be done and worked hand in hand with Volker at the FED and giving him complete support to raise interest rates which drove the economy into recession and finally beat inflation. We benefitted from this sea change ever since.
And by the way, it bugs me that you can say this was not your innuendo since it obviously is.
Because it doesn’t sink in, I’ll state once more: in this country, the President does not have the ability to increase or decrease the money supply.
According to Friedman and Romer the FED chiefs worked with the economic teams at the Whitehouse and Volker never could have fought inflation without the complete support of the Reagan administration. Moreover, it was the lack of support from the Carter administration that kept Volker from doing it earlier.
In the paper you cite, DeLong pointed out that it wasn’t until Carter put the right team together, the country did not have the willpower to face inflation.
I put Carter in the transitional camp. Late in his single term he started dismantling FDR’s industrial policy with deregulation, put Volker in place, and started to beef up our nuclear deterrent (I voted for Cater in 1980 – goes with growing up in Massachusetts). But Carter did drive up inflation and bought lower unemployment numbers at the expense of having to put the country into recession early in the Reagan administration. Remember Reaganomic — that term worked for the benefit of democats until 1983.
OK. I’ll bite. Please explain, in four sentences or less, how JFK/LBJ/Carter produced inflation. Be sure your explanation involves things under their (i.e., not the Fed’s) control and does not involve time travel or leprechauns. Also, be sure the same set of activities did not magically lead to lower inflation during other administrations.
It often takes a while, sometimes a few years, before Presidential policies affect the economic data. In some cases, monetary policy completely mitigates Presidential policies (in the case of Reagan, for example) or amplifies it (Clinton in the late 90s or Bush in the 2000s). You also can’t judge economic data from President to President accurately because Presidential terms don’t line up with the business cycle. LIke someone else posted, George W saw all of Clinton’s recession and Carter and Clinton both entered office when the economy was fully recovering from previous recessions (Ford and Bush I). Also note that Kennedy was a supply sider, much like Reagan. The booms of the early 50s under Truman and mid to late 60s under LBJ were largely influenced by war production and abnormally low unemployment rates because so many Americans were drafted into the military (it was under 2% in late 60s at some point).
Over the past few years, people have brought up the b-cycle before.
There are a few problems…
1. It assumes that Presidents are to a large extent bystanders. For a month before GW took office, everyone knew that the new President was going to immediately dismantle many of the policies that over half of the electorate felt had contributed to the past eight years of prosperity… somewhere along the line that has to matter.
2. How do you compare same point in the b-cycle when there is no such thing. For instance, since the BEA started keeping track in 1929, I don’t think you’ll find a time that the economy went into a recession within less than four years after exiting the previous recession when a blood sucker (to use the parlance of this post) was in office. But it happened in 29, 48, 53, 57, 60, 73, and 81. Put another way… rapid returns to recession tend to occur during administrations of Presidents following one tax policy, and do not occur at all under administrations following the opposite tax policy. Even if you assume that this is a shear coincidence (which I don’t accept) – how do you compare? You have an event that is common in one group and doesn’t occur at all in the other. What is the “equivalent point” in the business cycle?
3. “Also note that Kennedy was a supply sider, much like Reagan” I keep pointing out, JFK was no such thing. The “Kennedy Tax Cuts” came under LBJ.
Cactus,
The independence of the FED is a legal distinction and not a practical one. In reality the FED and the executive branch form economic policy together. This was true in the 1960s and 1970s (and also in the 80s, 90s, and 00s); and commented by Romer and Friedman in their interviews and writings. Recently we’ve witnessed Bernanke and the FED working closely with the executive branch and specifically with Paulson and Geithner.
cantab,
Now and again the administration coordinates policy with the Japanese government too. That doesn’t mean the American and Japanese administrations are not independent of each other.
If you want to make a statement like that, on which apparently everything you’ve been stating hinges, provide some evidence.
Counter-evidence is easy to find. For instance, the biggest percentage decrease in real M1 per capita over a May to November period in the Fed’s entire history occurred in 1996, the year Clinton was running for re-election. There was no particular reason for a decrease at all, much less one of that magnitude.
How exactly do you think that coordination worked? You think Clinton called Greenspan and said – “would you do me a favor and strangle the money supply in the six months leading up to November’s election please? Pretty please?”
Just one more example of the kind of crazy things you find Romer saying:
“The persistent budget deficits that began in the 1960s have not only remained,
but grown over time.”
Look at the picture (the red line is the one that really matters):
http://home.att.net/~rdavis2/debt10.jpg
The inflection point is–surprise–1981.
In the course of the sixties, debt/GDP dropped from 56% to 39%. It dropped another several points in the 80s.
How can she look at that same picture we’re looking at, and make the statement she makes above?
Steve,
Several of us here at Angry Bear had major criticisms of Romer long before she became head of the CEA. The supply siders well and truly won once prominent members of the “opposition” started paying more attention to what Reagan and Kemp said than the actual data.
Because of people like Romer, economics is not in as bad a shape as it was in 1982, its in worse shape. In 1982,we only had to deal with folks with Cantab’s aversion to data and love of talk in one party. Now you have folks like Cantab setting policy for the Democrats too.