Relevant and even prescient commentary on news, politics and the economy.

More Right Wing Lies – Now As In The Roaring 20’s

Amity Shlaes, the disinformation bunny, is still going.  In the latest issue of Imprimus, a publication of Hillsdale College, is a transcript adapted from a recent talk she gave there during a conference on the Income Tax, sponsored by Hillsdale’s own Center for Constructive Alternatives and the Ludwig von Mises Lecture Series.  Right away, you know this is going to be good.  The Title of her contribution is Calvin Coolidge and the Moral Case for Economy.  Of course, by economy, she means austerity.

There is so much wrong here it’s both impressive and depressing.  Rather than give her the full FJM treatment, which would take more time and energy than she deserves, I’ll just hit on a couple of the lowlights.  Here is her opening paragraph.

With the Federal debt spiraling out of control, many Americans sense an urgent need to find a political leader who is able to say “no” to spending.

Here we go. Her first sentence is an exercise in made-up right-wing talking point mythology.  I’ve already exploded the ‘Obama is a profligate spender” myth, here, here, and here. Further, we have just lived through three years when federal spending was close to flat line, as Graph 1 shows.  

 Graph 1 – Flat Federal Spending Under Obama 

There is only one comparable period in post WW II history, 1953-56, during Eisenhower’s first term, as shown in Graph 2.   Still, over Ike’s full term, spending grew by about 30%.

 Graph 2  Not So Flat Spending Growth Under Eisenhower (’53-’60)

To suggest that federal dept is now  “spiraling out of control” due to excessive spending is not merely disingenuous.  It is a sign that either Shlaes has no earthly idea what she’s talking about, which in an alleged journalist, is unforgivable, or it’s a bare-faced lie, which is unforgivable for anybody.  And if many Americans are feeling the urgent need to curtail government spending, it’s because they have been lied to so repeatedly and often that they have no idea what the truth is.  As Krugman recently put it: “And I have to say, it’s extremely telling that conservative Republicans don’t seem able to make their case without resorting, right from the beginning, to obviously dumb fallacies.”  The truth is that if we have a debt problem, it is due to a shortfall in revenues.

Yet they fear that finding such a leader is impossible.

Its not clear who made Shlaes the spokesperson for this sorry, disenfranchised segment of the population, nor that this is indeed what they fear.  Perhaps we should introduce Shlaes and the rest of these Real Americans to the real President B. Hoover Obama.

Conservatives long for another Ronald Reagan.

This is probably correct, though as Shlaes goes on to demonstrate, conservatives in this way – and, alas, right-wingers almost always – are rather badly disconnected from reality.

He was of course a tax cutter, reducing the top marginal rate from 70 to 28 percent.  But his tax cuts – which vindicated supply side economics by vastly increasing federal revenue – were bought partly through a bargain with Democrats who were eager to spend that revenue.

Wrong again.  The reality is that Revenue growth under Reagan was the worst of any 20th century President, post Eisenhower, except for the unfortunate Bush, Sr. under who’s recession plagued regime Reagan’s buzzards came home to roost. And was it really the Democrats who spent that anemic revenue stream, or did it go to Reagan’s Star Wars fantasy?

Reagan was no budget cutter.  In fact, the federal budget grew over a third during his administration.

Here, she finally gets something right, if by “federal budget” she means Total Outlays, and by “over a third” she means over 80%  [as measured from 1980 to 1988.]

Things get really egregious further on in the section titled “The Purpose of Tax Cuts.”  She informs us that President Coolidge and Treasury Secretary Andrew Mellon campaigned to lower top rates from the 50’s to the 20’s.

Mellon and Coolidge did not win all they sought.  The top rate of the final law was in the forties.  But even this reduction yielded results – more money flowing into the treasury – suggesting that “scientific taxation” worked.  By 1926, Coolidge was able to sign legislation that brought the top marginal rate down to 25%, and do so retroactively.

I was surprised to learn that Coolidge and Mellon had anticipated the Laffer curve by 6 decades.  Let’s have a look at how more money flowed into the treasury. In 1922 and ’23, with a top marginal rate of 56%, tax revenues were $2.23 and 1.69 billion respectively. [Per FRED, 1923 was a recession year]  In 1924, with a top rate of 46%, total revenues were $1.79 billion.  This is what Shleas calls “more money flowing into the treasury.”  Here’s a bigger picture look.  In 1920, when the top marginal rate was 73%, receipts were slightly over $4 billion.  In 1925, when the top marginal rate was 25%, receipts were $1.7 billion, less than half of the 1920 value, and by 1929 had only increased to 2.23 billion.  Graph 3 shows revenues per year [Coolidge’s term highlighted in red,] and belies Shlaes’ assertion.

 Graph 3 Income Tax Revenues, 1915-1930

Graph 4 shows a scatter plot of this same data, with revenues as a function of top marginal rate, Coolidge years are again highlighted in red.

Graph 4 Top Marginal Rate and Tax Revenues, 1915-1930

A best fit straight line is included.  There’s lots of scatter, for a variety of reasons, but the upward trend – the exact opposite of Shleas’ assertion, is obvious.

So here’s the reality.  A decade of tax cutting and deregulation led us into the Great Depression, the worst economic collapse of the 20th century. [You might note that the following decades of high tax rates and robust regulation were free of these horrible events.]  And what happened most recently?  A decade of tax cuts and deregulation – the end game of three decades of this supply-side approach – led to the greatest economic collapse since the Great Depression.  Significantly, the major deregulations of big finance, including the repeal of Glass-Steagall came at the end of Clinton’s term, less than a decade prior to the financial melt down.  Last Friday on his radio show, Thom Hartmann pointed out that prior to the regulations put in place in the 30’s, the U.S. had never gone for more than 15 years without a major financial collapse.  So this result should have been expected.

The extraordinary thing isn’t that right wingers lie.  The simple reality is that they can’t make their case without lying, because it has no merit.  The extraordinary thing is that their lies are so easily rooted out and refuted, in the era of free and easily accessible information, but so few people will take the required few minutes to go ahead and do it. Sadly, whenever the truth comes up against a cascade of lies, the liars have a significant tactical advantage

Shlaes’ presentation is just one more manifestation of the right wing ploy of denying reality.   Sadly, it works, because you really can fool a lot of the people a lot of the time.

Tags: , , , , , , , Comments (34) | |

Mike Kimel at Angry Bear has several nice posts on the "Laffer Curve"

by Kenneth Thomas
(reposted from Middle Class Economist)
Mike Kimel at Angry Bear has several nice posts on the “Laffer Curve” that underlies much of conservative economic orthodoxy in this country. As you may know, Art Laffer famously claimed that at tax rates of 0 and 100%, you would get zero tax revenue, and that in between, there is an inverted U shaped curve, where taxes collected first increase as the tax rate goes up, then decrease as tax rates go higher still, back down to zero tax collected when the tax rate is 100%.
The Kimel post linked above was prompted by an economist at the American Enterprise Institute, Alan Viard, telling the New York Times that all economists know that when the top tax rate is 35%, cutting rates further will reduce tax revenue.

“The Reagan tax cuts, on the whole, reduced revenue,” he explains. “The Bush tax cuts clearly reduced revenue. There is no dispute among economists about that.”

Except, as Kimel points out, lots of conservative economists dispute this, including one who co-authored a paper with Viard! For his trouble, Kimel became the subject of a post at the AEI blog by James Pethokoukis, which started by completely misidentifying him and going downhill from there. For Kimel’s enjoyable takedown of this post, see here.
All this led me back to an earlier post of Kimel’s, where he makes an empirical estimate of the Laffer Curve, using U.S. data all the way back to 1929, the first year for which official U.S. data exists. I’ll spare you the technical details (see Kimel’s post), but here’s the bottom line: Laffer got it exactly backward, with tax revenue initially falling as tax rates increase, then rising after a further increase in rates. Here is Kimel’s estimate of the “true” Laffer curve:

Not only that, as one of Kimel’s commenters, Robert Waldmann points out, we actually have experience with a country having a top marginal rate over 100%, Sweden in the 1970s. Contrary to Laffer, not only was tax revenue not equal to zero, in 1975, Sweden’s tax revenue was 41.3% of gross domestic product! (OECD statistics, click on “data by theme,” then “public sector, taxation, and market regulation,” then “taxation,” then “revenue statistics – OECD member countries,” then “comparative tables”) 21.2% was central government revenue, i.e. excluding subnational government and social security. Either way, a long way from zero.
Not to belabor the point, but Viard was right about tax revenue after President Bush’s tax cuts. Here is the OECD data for the federal government, excluding Medicare, Medicaid and Social Security. First we see the effects of President Clinton’s tax increase, then President Bush’s tax cuts.
Year Tax/GDP
1992 10.7%
1993 11.0%
1994 11.3%
1995 11.7%
1996 12.2%
1997 12.7%
1998 13.1%
1999 13.2%
2000 13.5%
2001 12.5%
2002 10.4%
2003 9.8%
2004 10.0%
2005 11.2%
2006 11.9%
2007 11.9%
2008 10.4%
2009 8.4%
2010 9.1%
Source: OECD, directions as above for Sweden
Before you supply-siders get too excited about the increase in 2006 and 2007 to 11.9%, remember that the higher Clinton tax rates brought in more revenue for five straight years, 1996-2000.
Though many journalists get it wrong, chessplayers like myself know that “refute” means to conclusively disprove. And the Laffer Curve stands refuted.

crossposted with Middle Class Political Economist

Tags: , Comments (24) | |