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Notes on Republican Economic Policy

There was time when Republicans were a welcomed change from Democratic overuse of government .  As DAVID LEONHARDT noted in NYT on Oct 6, 2009 (Bruce Bartlett’s Argument to Improve His Republican Party)

Successful economic ideas usually end up being taken too far.

Democrats dominated the middle part of the 20th century, thanks in part to their vigorous response to the Great Depression. They used the government to soften the effects of the Depression and to build the modern safety net. But they failed to see the limits of the government’s ability to manage the economy and helped usher in the stagflation of the 1970s.

Ronald Reagan then came to power promising to cut taxes and unleash the forces of the market. And the Democrats spent the next dozen years struggling to absorb the lessons of their failures.

More than a few people believe the Republican Party is in a similar place today.

But this is only a half of the story. The second part is a growing view that right wing republicans are simply authoritarian psychopaths (this view was pioneered by John Dean in Conservatives Without Conscience )  and dead-enders who will jump from the cliff just to uphold their favorite (stupid) doctrine. In pure form this view is too simplistic but there are some worrying correlations if we assume that not 100% but say 60% of  republicans (with higher percentage on the top ranks) belong to this category.

Extreme and unreasoning partisanship on behalf of a group to which one belongs, especially when the partisanship includes malice and hatred towards a rival group is usually called Chauvinism. We can call republicans "economic chauvinists"

Yes they are a new and dangerous breed of “tough, coldblooded, ruthless authoritarians” who have “co-opted” conservatism.  But at the same time they want your money poor Pinocchio and do not want to die for the idea (can you point out any prominent Republicans who have sons serving in Afghanistan?). They just want to enjoy and enhance their ill-gotten gains accumulated under Raigan-Bush-1-Clinton-Bush-II regimes wealth.

The core of Republican economic policy is protecting interest of big business. But was wrapped in the flag was a pretty sophisticated set of tools for manipulation of public opinion with the primary one being an ugly thing called victim blame. This set of  manipulations proved to be quite effective and  attracted a lot of people whom republican economic policy wants to harm (What's the matter with Kansas is a classic book that stated the obvious). They polished deception into an art form (Karl Rove, etc). 

Read more at: http://www.huffingtonpost.com/robert-scheer/obamas-presidency-isnt-to_b_288196.html

These interests are much more important than their "free market' propaganda and if necessary "free market" principles are easily sacrificed (like in case of bank bailouts by Bush administration). It is, essentially, socialism for the rich.

Also contrary to free market propaganda, mechanisms like tariff walls, public subsidies, monopolies, no-bid contracts or patent protections, will be adopted without any resistance if they enhance profits.

I would suggest Klein's "Shock Doctrine" if you want a well-structured, well-thought out analysis of the underlying motives and subsequent formulations of the post-war corporatist world order. If you're looking to keep poking the dead carcass of the Reagan Revolution with maniacal, childish  then Thomas Frank "wrecking Crew" is a good source. 

Some elements of Republican economic doctrine

• Approach to politics as a war (Mayberry Machiavellianism). They are always the crusaders. They elevate morals to a new low, and ethics might as well be a word that had never been invented. Karl Rove is the most typical but far from being uncommon example of this approach.

  McClellan: Rove Is ‘Pretty Disingenuous’ When He Talks About CIA Leak, He Should Have Been Fired

  In his explosive new memoir, former White House Press Secretary Scott McClellan claims that on Sept. 27, 2003 he asked Karl Rove “an unambiguous, unqualified catch-all question” about whether he was involved in “any way” with the leaking of CIA agent Valerie Plame’s identity. “Karl replied categorically, ‘No. Look, I didn’t even know about his wife,’” writes McClellan.

  But on Fox News this week, Rove disputed McClellan’s description of their conversation, claiming that “Scott’s questions to me were: did I leak Valerie Plame’s name, and the answer is no.”

  Thomas Frank in Wreking Crew demonstrated well that present day politics has truly become, to invert von Clausiwitz's famous maxim, "a continuation of war by other means." Regrettably, one side of the battle continues to play the game as politics, as elections won or lost and citizens swayed or not, while the other side approaches it as an act of war, a no-holds-barred contest in which the only goal is the complete and utter destruction of the other side.

• Shock doctrine. In a light form it is "Misgovernment By Design". The idea is to deliberately destroy people's confidence in government by filling it with incompetents and and crooks. Once the people turn against their own government, private "entrepreneurs" can come in and make huge profits "governing" us with private industry. Tthey don't care if the President (as in Bush) looks stupid. Makes it easier for Repubs to cheat, lie and make money.

   If you are someone who believes there is essentially no difference between the two major US political parties, then this book will change your mind.

  My personal preference is I want to vote for a political party whose approach is to govern by balancing the interests of all parties concerned. This approach, to me, is more likely to produce effective and efficient government. In other words, the party might have a preference for one group over another, but the party operates on the premise it will be more likely to be re-elected if it shows itself to be even handed.

  Republicans take an entirely different approach. According to Frank's book, Republicans govern only to benefit business and their supporters, not the public as a whole. More on this thought in a moment.

• Starve the beast policy. One of the main targets of the conservatives is so called "the Welfare State." A telling statistic is the percentage of the national debt just three Republican presidents are responsible for. Reagan, Bush I, and Bush II contributed 70% and rising. it's no accident. The bigger the national debt the more incompetent government looks and the more likely voters would agree to such conservative tenets as deregulating, privatizing, and cutting spending. Reagan blamed the democrats for his huge debt as well. John Maynard Keynes "pump priming" during the Depression was the first instance of deficit spending, but Keynes would hardly have gone as far as the conservatives. There are not against Welfare program as such (they understand that poverty feeds organized crime and they value their own life and life of immediate relatives). They try to ensure that the money flows of the welfare programs should be privately managed, thereby generating colossal commissions for a bunch of Wall Street managers, while in the meantime `defunding the left'.  It was all a calculated approach to defund the left. And the use of deficits to defund the left had the added advantage of letting conservatives spend wildly to keep well oiled the revolving door.

Prime elements of this approach include the following.

• Govern on behalf of business and your campaign contributors at the expense of the public at large, rather than balancing the interests of all.
• Hollow out and suppress the activities of regulatory agencies by putting political appointees in place who will to keep the agencies from doing their jobs.
• Reward your campaign contributors by outsourcing more and more government functions and awarding the contracts to your contributors.
• Incur excessive amounts of debt so the government will be forced to shrink and push off its welfare and education programs to churches (or at least that is the whispered plan with a wink. Whether such a plan was actually intended to be supported is debatable.)

• Lobbyism as a way of political life. Through lobbyism and pure propaganda for the agenda of the Right, conservatism itself became a business with monster fees for the preachers.  "Fully 43 percent of the senators and representatives who have left Congress since 1998 have become lobbyists . . . Up from 9 percent in the seventies."  Robert Reich in Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (Vintage) estimated that there are now around 37,000 registered lobbyists in Washington engaged in an "arms race of spending". This lavish spending by corporations to influence policy has transformed not only the politics but also the economy of the Beltway. It is no surprise that Loudoun County, a suburb of DC, is now the richest county in America. The second richest is Fairfax, right next to Loudoun. The third, sixth, and seventh richest are also in the greater DC area. The wages of lobbying have been good and show no sign of decline. It is the preferred career path of retired politicians.
   Here is quote from Amazon review

As I live in suburban DC, I know much of what he speaks. Frank insists that Loudon County, VA is one of the richest counties in the country. (My wife thought it was Fairfax County, VA--for which I used to work, in a regulatory capacity! Nope. It seems that county is second!) "Conservatives" insist that this is true because of the bloated federal bureaucrats, those overpaid sycophants who just drain you and me of our entrepenurial skills, right? Actually, among the wealthiest, Frank describes, are lobbyists, those overpaid lumps who influence the government at the expense of you and me, you know, those who can't afford people like my former Congressman who left for a lobbying firm after losing the primary to a far better person.

Frank brings up at several times during the text how much the "lobbying" organizations are making off their "causes." Now, truth be told, I've worked for some lefty groups that got on my nerves a little as they were not too much more than trendy fundraisers. But they made a living, and performed something. Some of the right wing groups make tens of millions, a small fraction of which ever gets to the causes the organizations allegedly endorse. And their founders are living in Washington suburbs...see above, Re: Loudon County, Fairfax County...

If there's a star of the book, that role probably goes to Jack Abramoff. We think of him as an abberation. Frank indicates that Abramoff is more typical of the lobbying realm than we'd like to think--and he's in jail now so the problem's been fixed, right? Wrong.

A partcicularly poignant portion of the book described a lobbying organization in Washington, the IFF, International Freedom Foundation. Frank was having trouble researching that organization, which warned us of evil, foreign influence, the terrible, Commie Sandinistas in Nicaragua, and on and on. The frosting on the cake of that group--and the reason its roots were difficult to find--is that it was a baby of Apartheid South Africa's military intelligence apparatus! (Leave it to them, though. After apartheid had dissolved, the IFF found some other causes to endear, and make $$$ money off of, some of them the opposite of those they'd endorsed in their ealier incarnation!)
Well, Frank's fine work was released before the deregulatory nightmare through which we're all suffering now. You might want to read it just to explain to yourself the roots of the nightmare.

• Political profiteers as analog of Middle Age mercenaries armies. Conservatism's recent triumphs began with the discovery of the enormous profits possible from business support for conservative activism, especially direct mail.
• Think tanks scam.
• Encoraging corruption of public official via the "revolving door" policy. Rotation from government worker to industry is another major problem. Republicans in 1995 discontinued record-keeping on the topic. However, one study found that 43% of Congress people leaving office since 1998 have become lobbyists, up from 9% in the 1970s.
• Minimal government scam (conveniently forgetting that huge military spending are nothing but misgovernment).

Am I getting the wrong impression, but it seems a majority of the commentators to this blog are devotees of the "minimal government" concept. Any dollar spent above the "minimal government" amount is necessarily a dollar not spent by free, always much more productive private agents.

Forgetting for a moment that few people can actually agree on what's minimal, I'd like somebody to explain to me why Europeans manage to spend less and get more health care? Is it just that we are all putzes on this side of the Atlantic?

I also notice that Europeans have higher taxes, or at least I am told they do. And they don't spend anywhere near what we do on the military either. Why aren't they rioting in the streets? Am I missing something here? Are they the putzes not us?

Finally, I consider my taxes a bill to be paid. You know, for some service or another. I may think I'm overpaying, but I notice that thought doesn't pop up when I need or use the service.

I wonder what a Dell would cost if it was made by a non profit?

by: beezer August 28, 2009

Old News

[Oct 6, 2009] Bruce Bartlett’s Argument to Improve His Republican Party By DAVID LEONHARDT

Oct 6, 2009 | NYTimes.com

Successful economic ideas usually end up being taken too far.

Democrats dominated the middle part of the 20th century, thanks in part to their vigorous response to the Great Depression. They used the government to soften the effects of the Depression and to build the modern safety net. But they failed to see the limits of the government’s ability to manage the economy and helped usher in the stagflation of the 1970s.

Ronald Reagan then came to power promising to cut taxes and unleash the forces of the market. And the Democrats spent the next dozen years struggling to absorb the lessons of their failures.

More than a few people believe the Republican Party is in a similar place today.

When I asked Dale Jorgenson, the eminent expert on productivity (and a Republican), what had been the positive aspects of President George W. Bush’s economic policy, Mr. Jorgenson said, “I don’t see any redeeming features, unfortunately.” After Republicans opposed the stimulus package this year, The Financial Times, not exactly a liberal organ, called the party’s ideology harebrained. When Olympia Snowe was recently explaining why she might be the only Republican senator to vote for health reform, she suggested it was because her party had moved so far to the right.

But perhaps the most persistent — and thought-provoking — conservative critic of the party has been Bruce Bartlett. Mr. Bartlett has worked for Jack Kemp and Presidents Reagan and George H. W. Bush. He has been a fellow at the Cato Institute and the Heritage Foundation. He wants the estate tax to be reduced, and he thinks that President Obama should not have taken on health reform or climate change this year.

Above all, however, he thinks that the Republican Party no longer has a credible economic policy. It continues to advocate tax cuts even though the recent Bush tax cuts led to only mediocre economic growth and huge deficits. (Numbers from the Congressional Budget Office show that Mr. Bush’s policies are responsible for far more of the projected deficits than Mr. Obama’s.)

On the spending side, Republican leaders criticize Mr. Obama, yet offer no serious spending cuts of their own. Indeed, when the White House has proposed cuts — to parts of Medicare, to an outdated fighter jet program and to subsidies for banks and agribusiness — most Republicans have opposed them.

How, Mr. Bartlett asks, is this conservative? How is it in keeping with a party that once prided itself on fiscal responsibility — the party of President Dwight Eisenhower (who refused to cut taxes because the budget wasn’t balanced) or of the first President Bush (whose tax increase helped create the 1990s surpluses)?

“So much of what passes for conservatism today is just pure partisan opposition,” Mr. Bartlett says. “It’s not conservative at all.”

He became well known several years ago for attacking the younger Mr. Bush, in a book called “Impostor.” But Mr. Bartlett has turned out to be more interesting than most people who publicly break from their own party. In a series of columns for Forbes and in a book that comes out next week, “The New American Economy,” he has started to describe a new conservatism. He is, in effect, laying intellectual groundwork for a Republican Bill Clinton — the politician who curbs his party’s excesses.

You can argue that this sort of reassessment should not make conservatives feel insecure. In many ways, they have won. Mr. Obama, like Mr. Clinton, has proposed raising the top marginal tax rate to a level that’s lower than it was for most of the Reagan administration. Most Democrats now acknowledge the central idea of supply-side economics: tax rates matter.

The best parts of supply-side economics have been “completely integrated into mainstream economics,” Mr. Bartlett writes. “What remains is a caricature — that there is no problem that more and bigger tax cuts won’t solve.”

His conservatism starts with the idea that high taxes are no longer the problem, even if complaining about them still makes for good politics. This year, federal taxes are on pace to equal just 15 percent of gross domestic product. It is the lowest share since 1950.

As the economy recovers, taxes will naturally return to about 18 percent of G.D.P., and Mr. Obama’s proposed rate increase on the affluent would take the level closer to 20 percent. But some basic arithmetic — the Medicare budget, projected to soar in coming decades — suggests taxes need to rise further, and history suggests that’s O.K.

For one thing, past tax increases have not choked off economic growth. The 1980s boom didn’t immediately follow the 1981 Reagan tax cut; it followed his 1982 tax increase to reduce the deficit. The 1990s boom followed the 1993 Clinton tax increase. Tax rates matter, but they’re nowhere near the main force affecting growth.

And taxes are supposed to rise as a country grows richer. This is Wagner’s Law, named for the 19th-century economist Adolf Wagner, who coined it. As societies become more affluent, people demand more services that governments tend to provide, like health care, education and a strong military. A century ago, federal taxes equaled just a few percent of G.D.P. The country wasn’t better off than it is today.

Modern conservatism, Mr. Bartlett says, should therefore have two main economic principles. One, it should prevent government from getting too big. There is no better opportunity than health reform, given that the current bills don’t do nearly enough to slow spending growth. Instead of pushing the White House to do better, however, Congressional Republicans are criticizing any effort to slow spending as an attack on Grandma. They’re evidently in favor of big Medicare, just not the taxes to pay for it.

The second goal should be to keep taxes from being increased in the wrong ways. Supply-side economics is based on the idea that higher tax rates discourage work and investment, two crucial ingredients for economic growth. But higher taxes on consumption don’t have nearly the same effect as taxes on incomes or companies. If anything, consumption taxes encourage savings, which lifts investment.

So Mr. Bartlett advocates a value-added tax — a federal sales tax — which most other rich countries have. Canada has a value-added tax that raises revenue equal to 2 percent of its G.D.P., and its economy has grown faster than this country’s over the last decade. Britain raises 6 percent of its G.D.P. through such a tax and Sweden raises 9 percent, and their economies have grown as fast as the American economy.

I don’t agree with everything Mr. Bartlett says, and you probably don’t either. Maybe you don’t like a national sales tax because you think it will inevitably hurt the poor. Maybe you have specific ideas for cutting hundreds of billions of dollars from the federal budget to keep taxes from rising much.

But you don’t have to agree with all the specifics to see that he has a larger point. One of the country’s two political parties has no answer to an enormous economic issue — the fact that the federal government cannot pay for its obligations. This lack of engagement is a problem, just as it was a problem when Democrats were saying that welfare was working, teachers’ unions were always right and stagflation couldn’t happen.

For now, there is little reason to think the Republicans are on the verge of a Clinton-like reform. But it is hard to see how they can ultimately stick to their current platform. At some point, the government will have to figure out how to pay for the baby boomers’ retirement. “Trends that can’t continue,” as Mr. Bartlett says, “don’t.”

E-mail: leonhardt@nytimes.com

The Wrecking Crew How Conservatives Rule

Amazon.com

The Rosetta Stone of the George W. Bush Administration , October 1, 2008

By R.G. Troxler MD,MPH - See all my reviews

This is a fascinating, extremely well referenced work about the neocon rule book. It explodes all the rumors that Bush is not smart. He has actually just been following this rule book.

Rule One: Government services are bad and business services are good. Attack big government.

Rule Two: Weaken government services so you can declare them incompetent and subcontract out the government services to private businesses.

Rule Three: Replace personnel in key government service positions with your friends, whether or not they are qualified to do the job.

Rule Four: Run up the debt, declare a crisis and cancel social services.

Rule Five: Demonize and demoralize the liberals. Blame them for whatever goes wrong.

Rule Six: Strengthen the ties between businesses and government by hiring only "business-friendly" people and by encouraging business to help write the bills to be passed by the congress.

A Depressingly Compelling Review of Conservatives' Philosophy of Government in Practice , August 15, 2008 By Steve Koss (New York, NY United States)

Following up on his masterly examination of the paradox under which Red Staters consistently vote Republican against their own economic self-interest (WHAT'S THE MATTER WITH KANSAS?), Thomas Frank sets out to trace the present-day conservative Republican approach to government in THE WRECKING CREW. What he demonstrates is deeply disturbing even though it has remained on display virtually every day of the entire Bush II administration.

According to Frank, the conservative worldview is totally committed to "the ideal of laissez faire, meaning minimal government interference in the marketplace, along with hostility to taxation, regulation, organized labor, state ownership, and all the business community's other enemies. "The conservative movement promotes the interests of business exclusively over all else in accordance with the motto, "More business in government, less government in business." So-called "big government," also tagged as the liberal state, is the enemy; in fact, virtually all government is the enemy, other than the national defense.

Mr. Frank follows the conservative movement from the turn of the Twentieth Century through the Depression and New Deal, focusing most heavily on the movement's rebirth under Ronald Reagan and on into the new millennium. Along the way, he discusses the growth of lobbying as a major force in converting the nation's capital into a massive feeding ground for corporate special interests. Frank also highlights the manner in which conservatives have repeatedly run the country into huge spending deficits in order to "defund the left" while simultaneously politicizing government management positions by favoring ideology over competence. The end result under Republican conservative stewardship is government that demonstrates itself as ineffectual and incompetent, offering but further proof that big government is inherently incapable of working and needs to be outsourced to private, professional concerns who can do the job correctly (and then inevitably failing to do so).

THE WRECKING CREW is filled with fascinating side observations, such as its note that the movement has always lionized bullies, from Joe McCarthy to Bill O'Reilly, from Jack Abramoff and Tom DeLay to George Allen and Michelle Malkin (whom Frank describes hilariously as "a pundit with the appearance of a Bratz doll but the soul of Chucky"). The book's most effective and outrage-generating section has to be its chapter on the Marianas Island of Saipan. Frank casts Saipan, with all its corruption, nepotism, income inequity, slave labor sweatshops, and local political control exercised in the name of big business as the perfect and ultimate model of the conservative movement ideal, a truly horrific prospect. He also notes, properly, that the morass that is today's Iraq is equally a product of the attempt to force fit these same free market ideals to a foreign country, implemented (so the Bush Administration hoped) by inexperienced, wet-behind-the-ears young idealogues, home-schooled ultra-Christians with college degrees from the likes of Patrick Henry College, Jerry Falwell's Liberty University, and Pat Robertson's Regent University. Saipan and Iraq constituted "laboratories of liberty," modern-day "capitalists' dreams" whose realizations are (or at least should be) shameful American nightmares.

There is little good news in THE WRECKING CREW. Author Frank shows that our national government has been hollowed out under Republican conservative control, savaged into an ineffectual husk. Furthermore, he illustrates clearly that this was no mistake, that it is part of a deliberate process not just to privatize government and eradicate government regulation but to make these changes permanent by destroying the liberal left (and with it, of course, the Democratic Party). Frank demonstrates well that present day politics has truly become, to invert von Clausiwitz's famous maxim, "a continuation of war by other means." Regrettably, one side of the battle continues to play the game as politics, as elections won or lost and citizens swayed or not, while the other side approaches it as an act of war, a no-holds-barred contest in which the only goal is the complete and utter destruction of the other side.

THE WRECKING CREW is compelling and informative even as it paints a bleak picture of an America being driven rightward and increasingly toward the excesses and inequities of the pre-New Deal era. We all know how that era ended in October, 1929.

An evangel for corruption, August 19, 2009

By	Luc REYNAERT (Beernem, Belgium) - See all my reviews

This review is from: The Wrecking Crew: How Conservatives Ruined Government, Enriched Themselves, and Beggared the Nation (Paperback)

Based principally on the DeLay-Abramoff affair with its muddy torrent of graft, Thomas Frank denounces highly emotionally but limpidly the agenda of the conservative right concerning the State and its government, as well as their ideology of selfishness and greed.

The core of US conservatism is the interests of business. These interests are mightily more important than their `free market' evangel. Mechanisms like tariff walls, public subsidies, monopolies, no-bid contracts or patent protections, will be adopted without any resistance if they enhance profits.

The conservative right sees the liberal State as a perversion, as a corruption of private interests (taxes), not as an instrument to service the population as a whole.

When they took power, they sabotaged the working of the government by appointing ferocious opponents of State agencies (EPA, FDA, SEC) at their head. They even created anti-agencies (OIRA, Council on Competitiveness).
For them, all public services should be subjected to the market system, because that is the most efficient way of ruling. In other words, those services have to be managed by private interests.
For Thomas Frank, the result of these policies was a rip-off. The institutions created for the protection of the population became institutions for the exploitation of the population (arms industry, anti-terrorism, administration of Iraq, recovery of hurricane Katrina ...).

One of the main targets of the conservatives is the Welfare State. The money flows of the welfare programs should be privately managed, thereby generating colossal commissions for a bunch of Wall Street managers, while in the meantime `defunding the left'.  For Thomas Frank, this is a sure way for turning US politics into a plutocracy and concomitantly a `bought' government.

Through lobbyism and pure propaganda for the agenda of the Right, conservatism itself became a business with monster fees for the preachers.

A US senator asked a few years ago: `Have you missed the government?'
If the government had not intervened heavily in the huge banking crisis of the last years, the whole capitalist system would have been turned into a desert, an enormous Great Depression for many years to come. The other side of the coin would have been an astonishing handover of all political, economic and financial world powers to the East (China).

This book is a must read for all those who want to understand the world we live in.

N.B. James K. Galbraith treated the same all important issues in a more theoretical way in his formidable book `The Predator State'.

 

Are Republican-Conservative economic policies as stupid as they appear

"Thanks, but no thanks" to Conservative Economics by Mary Bell Lockhart Page 1 of 1 page(s) www.opednews.com Conservative economic policies have us slip-sliding down that old rocky slo... "Thanks, but no thanks" to Conservative Economics

by Mary Bell Lockhart Page 1 of 1 page(s)

www.opednews.com

Conservative economic policies have us slip-sliding down that old rocky slope. The mantras of that vision are well known to us all, as we've heard them over and over for the last 2 or 3 decades:

• No free lunch
• What's good for business is good for the country
• Free trade
• Tax cuts
• Deregulation
• Starve and shrink government
• Outsource
• Bust unions
• Privatize government services

The fundamental problem with this vision is that it ignores one simple, indisputable fact: WE'RE ALL IN THIS TOGETHER. This is true whether we are talking about the economy, the environment, towns and cities, states and nations, social groups, or our overall existence in space and time. If, we're all in this together, then the "Golden Rule" that we care for others as we care for ourselves is our best strategy, not just for mere survival, but to thrive and live lives of purpose and meaning.

From the 1940s to the 1970s, based upon our collective understanding that we are all in this together, this country built up a social safety net, consisting of things such as disability insurance, retirement systems, minimal income support (welfare), health care access for the elderly and the poor, worker safety and benefit programs. In the 1980s, conservatives began efforts to systematically dismantle those. Remember when we heard the calls to "end welfare as we know it" because "there's no free lunch" and "everyone must work for their living?" Government was too big, they said, and was "redistributing wealth" by taxing the rich to spend it on the poor (especially poor people of color). It was that evil socialism!

Remember when conservatives demonized welfare as money down the drain, given to ne'er-do-wells who blew it on luxuries like the most famous nonexistent object in history, the "welfare Cadillac?" They refused to listen to those of us who warned that welfare money was not being given to the recipients alone, but to all of us, to our society in general. They refused to hear that the welfare "giveaway" went from hand to hand through the economy building jobs and income repeatedly and even generated tax income back for the government. They could not see that we are all in this together.

These were the same people who were telling us that the profit motive (ie., greed), unrestrained capitalism and free trade would solve all our problems. They proudly busted up unions so that working folk had no advocates and then they shipped the jobs overseas. These were the same folk who actually believed that the investment house Smith-Barney earned their money "the old-fashioned way" when, in fact, they never earned a single dime that way.

There were some voices in the wilderness who warned where all this was heading. But progressives didn't have many strong voices to present the alternative views and, most important, they did not have control of the government and the media. Some, who might have stood stronger against this madness, like Bill Clinton, were suppressed by a conservative Congress and by their own political missteps.

Over the years, middle class economic power, the engine that drives our economy, was eroded. Not surprisingly, people stopped saving. They didn't have any choice but to spend every dime they earned. As savings were exhausted, to keep them spending, the financial powers opened up credit available at exorbitant and rising interest rates. This soak-the-middle scheme could only go on so long. The Bush administration added to the burden by engaging in a war of aggression paired with further tax cuts for the wealthy. Those who benefited most of this war--the Haliburton profiteers, the oil companies who now have control of Iraqi oil--got this war booty at the expense of Middle America.

The coup de grace was deregulation that allowed rampant speculation in the oil market and creation of fictitious investments ("toxic assets") for rich people to swap among themselves. In recent years, as speculation drove gas prices up (which in turn drove up the price of just about everything else) who do you supposed was hurt the most? It wasn't the Wall Street wizards; it was the millions upon millions who were driving the trucks, growing the food, manufacturing the goods, driving to and from work and school. It was the small and mid-sized businesses where the bulk of our jobs are created and the majority of our real goods and services are produced.

So wham! We hit that brick wall; now we ALL are waking up with the same headache. Once again we see clear evidence that we're ALL in this together. Well, some of us see that anyway. Some still don't get it; they're looking everywhere for someone to blame when the mirror would be the most logical place to look. When John Q. Public couldn't keep paying those "adjustable-rate-upward-only" mortgages because he'd lost his job or had a health care crisis (there's a whole other story), Mr. Moneybags in the loan industry turned to that former "enemy" he'd been busily trying to starve to death, the mean ole big US government. "Help us, please, or we'll stop making the loans everyone depends on now!" I guess they don't consider it socialism when they are the recipients of the "welfare."

The financial institutions got their money and continued merrily along on their same old ways in secrecy. There's little indication that they are using it to help out the folks who were really in distress. If that money had been directed to assist those in foreclosure, instead of their financial "captors" it would have benefited everyone including the big financials. Then here comes the auto industry asking for LOAN assistance of $15 billion--about the same as a few weeks of the war in Iraq. It was termed a bailout, but it was a very different kind of bailout that genuinely would help middle and lower income folk across the country. Conservative Republican Senators killed the deal unless the auto industry busted their unions and cut worker pay (when worker pay was not the problem). Better to hold to their ideology than, Heaven forbid, help middle America. They just don't get it that we're all in this together.

It's not only here in America that conservative economic principles have been wrecking havoc. Please read The Shock Doctrine by Naomi Klein in which she details how economic shock has been applied to countries all over the globe to force them into unregulated capitalism. And this recession now is worldwide.

Conservative economic myopia sees only what is right under its nose. There are voices out there right now who still attack the American safety net and are trying to blame our economic downturn on it. They denigrate as "entitlements" and "giveaways" Social Security, Medicare, and Medicaid, and hold them responsible for our budget deficits now and in the future. Yet, another word more accurately describes these programs: Investments! Unlike our spending on things like war, spending for social programs is a "rising tide that lifts all boats." No PhD in economics is necessary to follow the logic. If poor person A gets medical care they would not otherwise get, where does the money go? Doctors, hospitals, nurses, drugs--and right now too much also goes to the private corporations managing that money. If elderly person B has a minimal income support of Social Security, where does the money go? Those receiving those funds in turn spend them on their needs. These "investment" moneys get spent and re-spent and most of it right here in America. Jobs are generated and taxes on the earnings are paid back to the government. Most important, money is spent, not on death and destruction, but on positive social goals.

Furthermore, if we can keep from falling from deep recession into deep depression, we will have those pesky "entitlement" programs to thank for it. We'll remember why we created them in the first place.

There is more that we need to do to rebuild the economy via investment. Universal access to health care will benefit not just those who get the care, but also the American businesses who cover their employees and the providers of the care and all the people they support in the economy. Similarly, government spending to promote energy efficiency and environmental protection will build middle class jobs to replace the industrial base we've lost while saving costs throughout the economy that are now based on fossil fuels. Education produces both the wizards and the working folk who will take us into the future.

Progressive economics is based upon the understanding that we are all in this together and that our society is no richer than it's poorest member. It supports capitalism but not laissez-faire capitalism. It knows that there is no such thing as a pure economy and a mix of regulated capitalism and socialism seems best. It understands the difference between government spending and government investment and calls for progressive, not regressive, taxation. Yes, in fact that DOES mean that the rich pay more. They should; they benefit more! Progressive economics involves balancing the power of the employers and workers through unions, safety regulation and benefits. Instead of either the unrealistic isolationist stance against foreign trade or the promotion of free trade (which doesn't exist), progressive economics supports fair trade with environmental and worker safety controls and incentives to boost American businesses.

Obama appears to be getting ready to apply some of these principles. It can't come a moment too soon because, even if implemented on day one of his administration (which is unlikely) it will take months and years for this rebuilding of our economy to occur. We will have learned our lesson; let's hope that it sticks for a longer time than the previous learning did.

I'm a retired public health worker focused these days on supporting a variety of progressive issues, such as criminal justice reform, energy efficiency, environmental protection, universal health care, civil rights, and worldwide peace and respect.

[Sep 10, 2009] The Lasting Legacy of the Bush Tax Cuts

September 1, 2009 |  Econbrowser

From The 2009 Budget Deficit: How did we get here? by John Irons, Kathryn Edwards, and Anna Turner:

This Issue Brief examines the details and causes of the current budget deficit and the role the current recession has played. The years between 2001 and 2007 saw a large deterioration in the budget balance, which was driven chiefly by legislated policy changes. The Bush-era tax cuts are the largest contributors to this period of policy-induced increases to the federal budget deficit. . . .

Chart C: from Irons, Edwards and Turner (2009).

Posted by Menzie Chinn at August 31, 2009 07:38 PM

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Comments

Way to go, Menzie, show those hypocrite Republicans who is really responsible for the budget mess the Obama administration has to fix. Looks like some pretty awful management over the last 8 years, that's for sure. I see the GOP faithful still can't accept the truth by the first comments, but their failures will haunt this country for many more years, long enough time for everyone to realize without doubt who drove this country into the ground. We can thank Bush and his capital worshiping sheep who have no idea what fiscal management is (or fiscal responsibility or even ethical regulatory management-lots of failures in that bunch of fools). We'll never forget you.

Posted by: GOP failed at September 1, 2009 05:08 AM

algernon,

It is hardly an established fact that budget imbalances are only "pernicious" when induced by spending increases. The Bush tax cuts, in themselves, were enough to turn surplus into deficit. His spending increases made there on contribution to the structural deficit, but the tax cuts alone would have caused a structural deficit.

That, and the fact that they skewed after-tax income toward more heavily toward the rich, seems pernicious enough to me.

One reason to stay on the topic of Bush tax cuts is that there remains an effort to leave them in place, rather than allow them to expire. They are not just a bit of political history. Another reason is that, when we discuss the magnitude of budget effects, it is good to have a benchmark. There was plenty of cheering for tax cuts that have a larger negative budget consequence over time than any medical reform proposal currently receiving serious consideration, but the argument is made that the medical reform proposals are too expensive. If one asks "too expensive, compared to what?" a reasonable answer is "well, if the Bush tax cuts weren't too expensive, then why is health care?"

Posted by: kharris at September 1, 2009 06:01 AM

algernon,

I thought tax cuts were the be all end all, so why in the hell did we have a recession that began under Bush? Even a simpleton should understand guns AND butter. Bush pulled the same shit as Reagan and it didn't work, again. Zero private sector jobs created in a decade and the market lower as well.

Posted by: me at September 1, 2009 07:23 AM

B.B., just to start with the single most egregious mistake you make: social security is properly funded.

your second most egregious mistake is to assume that a householder and the US government are the same.

as for CoRev, i can't call them egregious mistakes on CoRev's part: it's simply CoRev's willful obtuseness. in 2000, bush insisted that we could "afford" his tax cuts and still maintain the "lockbox;" translated into english, that means that it's not acceptable to count the prepayment of social security against the deficit, since bush specifically promised that the social security surplus would be maintained. so the percentage of gdp numbers that CoRev provides us are...crap.

more broadly, given that the bush administration pushed through medicare D without a funding source and the war in iraq without a funding source (indeed, they proudly opposed funding the war), i have no idea what in the world CoRev is talking about here.

Posted by: howard at September 1, 2009 08:31 AM

heterosexual: Yes, capital gains tax cuts are widely viewed as positive.

Clinton bombed Iraq in 1998; his administration did not invade and occupy not one but two countries. Clinton could have tried to persuade the Israelis to unilaterally disarm their nuclear arsenal as well as respect the spirit of the failed Oslo Peace Accords (as opposed to continually expanded the illegal settlements) and perhaps the Sept. 11th terrorist attacks on NYC might have been avoided but he didn't.

Love the way you whip yourself into a partisan fury. Do you find learning easier in that state of mind or more difficult? Just curious.

 

Posted by: GNP at September 1, 2009 09:15 AM

Not being an economist, the way the piece was written it makes it sound like President Bush just enacted tax cuts to benefit the wealthy. They were enacted to bring us out of a recession he inherited. Where there no baseline projections based upon this and the 9-11 bombing?

President Clinton also balanced the budget on the backs of the military. The spending remained relatively flat for 8 years. Yes congress was involved and could have increased the spending, but his administration submitted the initial proposals.

Lastly the reports mentions the Freddie and Fannie debacle. President Bush requested congress reform the agencies, but was blocked. I am not sure why this did not play into the analysis.

Posted by: MikeMainello at September 1, 2009 09:55 AM

A bit of the attempted slippery reasoning here is to just claim that nothing matters but right now. If Bush created a very large structural deficit, we should ignore that, say the Bush apologists. The fact that Obama is undertaking a Keynesian policy response that partially addresses a recession is the bad thing.

No kids. Running a structural deficit is bad. Bush tax cuts assured that the US would have a structural deficit, no matter what else might have happened. That is simple fact. Will Obama worsen the structural deficit? Quite possibly, and that would be a bad thing, too. One way to reduce the odds of increasing the structural deficit is to allow Bush's "temporary" tax cuts to expire.

Is there anybody here who really doesn't understand the difference between a structural deficit and a stimulus-induced cyclical widening in the deficit? Cause if you don't you really need to be asking question, not making misguided statements. Anybody who does understand the difference, and writes comments which willfully ignore the difference, is simply being dishonest.

Posted by: kharris at September 1, 2009 09:57 AM

Professor, pull your hands from over your eyes and ears.

Obama is running things now, and into the ground.

Amping up the military presence in Afghanistan, still shipping out prisoners to terrible countries, Gitmo still open, turning a blind eye to outrageous pay and practices on taxpayer-saved Wall Street.

Quit using Bush as a bogeyman, and straighten out your President, sir.

Otherwise, you and the other Madisonites are in for a very long 3 1/2 years.

Posted by: jg at September 1, 2009 10:07 AM

Take a look at the Board of Directors for the EPI and who they represent - a who's who from the labor movement - wtih 29% of their funding from labor unions. But I'm sure that the policy analysis is strictly non-partisan, unlike anything from those ideologues at the Heritage Foundation.

I don't defend everything Bush did. But I fail to see how taking reckless fiscal policy and putting it on steroids is somehow going to save us.

Posted by: GWG at September 1, 2009 10:43 AM

There will be no peace dividend to save Obama's "_ss", the way Clinton's bacon was saved. Since we did not have the chance to finish the war by 4 more years of Republican governance and Obama has decided to fight in Afghanistan the way Johnson fought in Vietnam, we are going to deal with very high inflation and a loss in the Middle East. The good news is it only took 12 years to undo the mess Carter caused, so we should be good to go by 2024. It's deja vu all over again. The Bush tax cuts were and are wonderful, to bad they are going away. Remember 1931 went down hill after the interest rates went up, well 2010, as tax rates go up, equals 1931. Watch out, better get the wife and the baby in the house, the storms coming!!!

Posted by: Steve at September 1, 2009 10:52 AM

Johnson, "That was the point, the tax cuts create the revenue for that spending(wow, is it hard for some people)"
 

It takes many years, probably a couple decades, before economy grows enough for revenue to cover previous shortfalls from a cut. IIRC, a 2% tax cut (assuming taxes are about 20%) that result is about .25% one time bump in GDP growth converging to .125% higher gdp growth long term would take over 40 years for payback.

Posted by: aaron at September 1, 2009 10:56 AM

Revenues

2000 2,025.5
2001 1,991.4
2002 1,853.4 First Bush Tax Cut (Keynesian)
2003 1,782.5
2004 1,880.3 Second Bush Tax Cut (Supply Side)
2005 2,153.9
2006 2,407.3
2007 2,568.2
2008 2,523.6

Outlays

2000 1,789.2
2001 1,863.2
2002 2,011.2
2003 2,160.1
2004 2,293.0
2005 2,472.2
2006 2,655.4
2007 2,728.9
2008 2,978.5

Year 2000 was the highest tax receipts up to that time. Tax revenues started to decline the last two Clinton budgets. The first Bush tax cut, a Keynesian redistribution of wealth, was passed in 2001 becoming effective 2002. The second Bush tax cut, a supply side tax cut designed by Rep. Bill Thomas, passed in 2003 becoming effective in 2004. Tax receipts increased every year after the second Bush supply side tax cut.

Notice that, while revenues declined from 2001 through 2003, government outlays increased every year. So I will let you guess whether it was outlays or revenues that increased the deficit.

BTW, this foolish spending is why the Republicans lost the House and Senate.

Facts are stubborn things.
 

Posted by: DickF at September 1, 2009 11:34 AM

kharris,

We have a great experiment here. There is massive spending planned in 2010 (mid-year election bribes?). The Democrats are also planning to allow the Bush tax cuts to expire. Now if things go as anticipated if 2010-11 tax receipts increase it will be because of the stimulus, not taxes, but if tax receipts decline it will be because of tax increases (Bush taxes decline). Believe me I will remind you of this post.

Posted by: DickF at September 1, 2009 11:40 AM

Aaron,

Johnson is under the deranged assumption that we are on the right side of the "Laffer Curve". Unfortunately, as it has been shown time and again, we are now on the left side of the "Laffer Curve"...any tax cuts will result in lower revenue!

Keep praying to Reagan GnOPe'rs and maybe one day the country will have a 0% tax rate and the country will have revenue coming out of its ears!

Posted by: Gridlock at September 1, 2009 12:18 PM

Call the Bush tax cuts as evil and irresponsible as you want -- but Obama has said he's renewing the bulk of them ($2 trillion worth), and has explicitly promised
even more.

So they are the "Obama tax cuts" now. As has been pointed out repeatedly by Diane Lim Rogers...
~~~~
... left-leaning commentators are reiterating their disdain towards the Bush tax cuts ...
but are failing to recognize that almost all of the tax cuts that President Obama has proposed --and in fact all of the deficit-financed tax cuts President Obama has proposed -- are in fact the old Bush tax cuts, which will now become the Obama tax cuts as soon as President Obama signs the extension into law before the end of next year.

And while those who have hated the Bush tax cuts but love President Obama would like to believe that President Obama is letting the worst part of the Bush tax cuts (those "for the rich") expire, the truth is that the Obama tax cuts will still go disproportionately to the rich, even with the upper tax brackets expiring.

Yep. The Bush/Obama tax cuts are a sad truth that all of us (Reagan supply-siders, Clinton fiscal conservatives, and even the most liberal of Obama supporters) don't want to believe our new President who stood for "change" could let happen.
~~~~

The Democrats have the White House and 60% of both the Senate and House.

If they keep these tax cuts as they are planning to do, then say: "Obama tax cuts".

There will be nobody to blame for the damage they do going forward into the future from there but them.

There comes a time when those who are in full control have to take responsibility for what they do -- and stop pretending that those they ejected from the house are still running things.

Posted by: Jim Glass at September 1, 2009 12:26 PM

"B.B., just to start with the single most egregious mistake you make: social security is properly funded".

Social Security requires a near 2% of GDP revenue increase by 2030 to finance trust fund operations, via income taxes (as they are what finance T-bonds).

That's so the govt can repay itself, with money collected from taxpayers, for spending the Social Security payroll taxes previously collected from taxpayers on items other than Social Security.

This near 2% of GDP tax increase amounts to a 15% across-the-board income tax increase on everybody (individuals and businesses) at the same time when another revenue increase twice as large will be needed for Medicare and Medicaid.

If that sounds "properly funded" to you, fine.

Posted by: Jim Glass at September 1, 2009 12:34 PM

When dollar shock arrives, owing ten or twenty trillion bucks won't seem like such a big deal. Of course, the asians who subsidized this will be pretty pissed off, and the 20% U6 will be a bummer. But the federal debt will really seem like the gigantic scam perpetrated on foreign and domestic savers that it is.

Posted by: John Law at September 1, 2009 01:07 PM

jim glass, we'll start with you. yes, the bush tax cuts become the obama tax cuts if he keeps them in place. what's your point?

as for social security: i have no idea what you're talking about. presumably, it has something to do with the fact that bush claimeed that he could cut taxes and preserve the lockbox and didn't. what does that have to do with the funding of social security? (i mean, i get the game you're trying to play, but it doesn't wash: the problem you're discussing is a general fund problem, not a social security funding problem).

and then we have DickF, who also wants to play the game. to provide us an honest discussion, DickF, what you need to do is provide us a general fund discussion. i already know how that will come out, and it's not favorable to your perspective.

(let us also note that your so-called "supply side" tax cut spectacularly failed on it's primary justification: job creation. you do remember the 5M new jobs that tax cut was supposed to create between july 1, 2003 and december 30, 2004? you don't remember the jobs, of course, because no where close to that total was created in that span. but i digress.)

MikeMainello, it's fine not to be an economist, but at least you need to be informed. Bush did not "inherit" a recession; the short recession of 2001 took place entirely on his watch.

9/11 didn't create or contribute to a recession, for the simple reason that the recession was over a month later.

military spending under Clinton averaged, in real terms, higher than military spending throughout the cold war. perhaps you can explain to us how this amounts to balancing the budget on the back of the military; perhaps you can explain what it is in the post-cold war era that required cold war level spending.

and your understanding of bush's so-called reform of fannie and freddie is quite incomplete, my good man.

in short, you're not only not an economist, you're not an informed citizen.

Posted by: howard at September 1, 2009 02:11 PM

@DickF.
You wrote:
"We have a great experiment here. There is massive spending planned in 2010 (mid-year election bribes?). The Democrats are also planning to allow the Bush tax cuts to expire. Now if things go as anticipated if 2010-11 tax receipts increase it will be because of the stimulus, not taxes, but if tax receipts decline it will be because of tax increases (Bush taxes decline). Believe me I will remind you of this post."

We already ran that experiment. During the Korean War we increased both government spending and tax rates and the economy boomed (tax revenues soared):

http://econ.ucsd.edu/~vramey/research/IdentifyingGovt.pdf

Posted by: Mark A. Sadowski at September 1, 2009 03:30 PM

Menzie - A very useful and interesting graph. Puts things in perspective. Thanks.

Posted by: don at September 1, 2009 03:36 PM

Professor,

The EPI brief never gave any numbers to categorize the Bush tax cuts, nor did it specify where in the attached chart those were accounted for, so I have to assume that they were included in "other legislative revenue" changes.

At a glance, it would appear that this is the 3rd largest contributor to the current deficit, behind economic/technical (puzzilingly including the Fannie/Freddie support as a "technical" change?) and legislative spending.

I think the intent behind those words is to say "the largest single contributor," but surely it's inconsistent to lump a number of tax cuts together as one item (the "Bush Tax Cuts") to call it the largest contributor, but to look at spending increases (which together were a larger contributor to the deficit) as separate line-items.

If all tax cuts are to be lumped together, why not lump all spending items together? Clearly they aren't, as [All Spending] > [All Tax Cuts] while the opposite point is made in the quote you cite above. Is there a functional reason for this disparate treatment, or is it simply to create a talking point?

Posted by: renowiggum at September 1, 2009 03:39 PM

Howard. Yes, the 2001 recession happened entirely during Bush's term. To be exact, it began in March of 2001. So you are suggesting with less than two months in office Bush caused the recession? I suppose the fact that the NASDAQ was down almost 29% in December of 2000 had nothing to do with it. Perhaps you should be a little more careful about calling others uninformed. Of course I do not really expect civility from those blinded by hatred.
 

Posted by: GWG at September 1, 2009 03:53 PM

DickF, look at tax receipts as a percentage of GDP.

Receipts in 2005 were 17.6% of GDP. outlays were 20.2% of GDP. In 2000, outlays were 18.4% of GDP and revenue was 20.9% of GDP.

We would have had a surplus in 2005 under Clinton's rates.

Facts are stubborn, I agree.

Posted by: Joe at September 1, 2009 04:46 PM

Howard, I'll forever remember your excellent people skills. Now to quote from About.com

A good example was the stock market crash and subsequent economic downturn in 2000. This was not a recession in technical terms because GDP growth was negative in Q3 2000, Q1 2001, and Q3 2001, none of which were consecutive. However, anyone who lived through it knows that it felt like a recession during all that time. And in fact, GDP growth did not reach over 3% until Q3 2003.

So the market crashed and the economy slowed down, but technically it was Bush's fault that the economy went into a recession. Do you teach at a college? Just wondering.

Now as pointed out by others, revenues continued to grow and congress continued to spend even more. Yes the republicans were voted out by there base because they didn't listen.

At least President O and his Obamascare plan is exposing his party as the worse of both evils. Who knows hopefully the republicans have learned and will listen to the tax payers.

Posted by: MikeMainello at September 1, 2009 04:50 PM

Bush is not remembered fondly by fiscal conservatives. Not a few take exception to the expansion of health benefits and the Iraq war and the return to deficit financing.

On the other hand, Clinton looks a resounding success in terms of fiscal policy: he reformed welfare, stuck to pay-go, reducing govt's share of GDP by 3-4%, and balanced the budget.

If Clinton is the template for the Obama administration, a lot of us would support it. But for the Obama administration to propose a deficit projection of what--6% of GDP--as far as they eye can see? This is well into banana republic territory: Italy, Hungary, or Argentina.

If you are arguing that deficit reduction should be the primary goal of the current administration, say so. If not, why are you bashing Bush for a fiscal policy that makes him look like a fiscal hawk compared to the Obama administration?

I have been scathing in my criticisms of economists in the run up to this crisis. I have been so because I have had opportunity to do some of the analysis ex-post and been appalled by the lack of 'sentries', of professional public servants guarding the public interest. One of the key causes of this absence is an increasingly politicized bureaucracy with tendency for information to be processed through a political lens. It's not what is said, it's who says it. If a Republican president proposed a $9 trillion deficit for 10 years, you would be all over it. But if a Democrat proposes it, I have to read about it from Jim Hamilton. And yet the outcome will be the same: it will end badly, regardless of ideology. Economists need to say that.

Posted by: Steve Kopits at September 1, 2009 05:46 PM

Howard, I would like an explanation of how that Ole "Lock Box" would work. Please inform us which laws would need to be changed to make it even legally possible. BTW, once the lock box was started to be filled, where would that money go? Invested? If invested, in what safe investment? US treasuries, perhaps?

Posted by: CoRev at September 1, 2009 05:57 PM

@Steve Kopits,
You wrote:
"If a Republican president proposed a $9 trillion deficit for 10 years, you would be all over it. But if a Democrat proposes it, I have to read about it from Jim Hamilton. And yet the outcome will be the same: it will end badly, regardless of ideology. Economists need to say that."

Separate the standardized (acyclical) budget deficit from the rest. (That is to say perhaps at least $4 trillion is due to the fact we are in a very serious recession.) Then you might understand our situation. Then you might start questioning why Bush only only added to the problem, by adding trillions to the deficit when unemployment was very low, and in so doing did absolutely nothing to further our long term solvency.

Posted by: Mark A. Sadowski at September 1, 2009 06:38 PM

Menzie, great post as always.

Too bad about the freak show that is your commenters these days.

Some of the people should learn something about economics. They might enjoy it.

Posted by: RN at September 1, 2009 06:39 PM

MikeMainello, revenues did not "continue to grow." Real revenue increased 500 billion between 96-2000. Real revenue decreased 50 billion between 2001-2005.

According to treasury, under Clinton's rates, tax revenue would have exceeded 2.5 trillion dollars in 2005. We would have had a surplus even with the increased spending.

Bush's tax cuts caused the deficits. Facts are stubborn.

Posted by: Joe at September 1, 2009 07:22 PM

Mark A. Sadowski on September 1, 2009 03:30 PM

"We already ran that experiment. During the Korean War we increased both government spending and tax rates and the economy boomed (tax revenues soared)"

This is the 21st Century. The world is an entirely a different place with different inputs and stimulus than existed in the mid 20th Century.

Posted by: Babinich at September 2, 2009 02:42 AM

Just for my education...

What's the law as of right this second? The Bush tax cuts expire next year, right? And there has been no Congressional movement to prevent that from happening, right?

So, being betting men, what's the chances that those tax cuts expire?

Posted by: Buzzcut at September 2, 2009 05:59 AM

@Babinich,

I really don't think there's any merit to that argument. No one in the research community has ever criticized Ramie's paper on those grounds.

Ramie's paper focused on the spending side and so when estimating the effects of a spending change failed to take into account the large tax increase that took place. This probably understated the effects of the spending increase, and it's worth noting that the spending increase exceeded the tax increase.

There is a recent paper by David and Christina Romer that focuses on tax changes. Nevertheless it effectively corroborates what Ramie found.

Their paper identified all significant legislated tax changes in the period 1947 to 2006 (is that recent enough for you?). What was revolutionary about the paper was that it classified tax changes according to their intended purpose. A tax cut was classified as "endogenous" if it spending driven (done to accomodate a change in spending) or countercyclical (designed to be stimulative in a downturn, and so a tax cut). All other tax changes were classified as "exogenous." Here is a passage that I think is relevant (page 22 of the March 2007 version):

"Following a spending-driven tax increase, real GDP on average rises moderately, reaching a maximum of 0.7 percent after two quarters (t = 1.5). Thereafter the effect fluctuates irregularly around zero and is always far from significant. Thus looking at how the economy behaves after tax changes driven by spending changes yields estimates of the effects of tax changes that are starkly different from those based on exogenous tax changes."

http://elsa.berkeley.edu/~cromer/RomerDraft307.pdf

In short tax increases coupled with spending increases (fully one for one) yielded no statistically significant effect on the economy, and in fact, on average, at least temporarily, they increased GDP.

In the final analysis, Romer's working paper found that, with the exception of countercyclical tax changes (possibly because there were too few, or because the economic downturn obscured their effect), the only tax change that had a statistically significant effect on GDP were those that reduced the federal budget balance. (And in fact, in most cases, this increased an existing budget deficit.)

Theoretically, it is possible that the methods employed in Romer's paper could be applied to spending policy changes. The implication is of course that "exogenous" spending changes would have a much larger multiplier than the value estimated by Valerie Ramey for example.

Posted by: Anonymous at September 2, 2009 06:38 AM

@Babinich,
That last anonymous would be me (I'm still drinking my morning coffee).

Posted by: Mark A. Sadowski at September 2, 2009 06:55 AM

By contrast, the CBO says it is the recession that is responsible: (August 2009 Budget Update, available at www.cbo.gov).

"The dramatic expansion of the deficit in 2009 (up from 3.2 percent of GDP in 2008) results from a projected rise in outlays of 24 percent (the largest percentage increase since 1952) and a drop in revenues of 17 percent from last year's levels (the largest percentage drop since 1932).
Those changes have largely been the result of the severe economic downturn and the fiscal impact of federal policies enacted in response."

Roger

Posted by: RogerClemens at September 2, 2009 07:21 AM

Mark A. Sadowski wrote:

"We already ran that experiment. During the Korean War we increased both government spending and tax rates and the economy boomed (tax revenues soared):"

Mark,

I don't normally question data presented here because usually it is accurate. Your statement is simply wrong.

A tax cut was passed in 1947 but vetoed by Truman and the veto was upheld. In 1948 the tax cut was reintroduced and passed into law. Economic growth in the 6 years following the tax cut averaged 4.6% (1947-1953). From 1953 through 1960 growth averaged 2.4%.

The Korean war marked the beginning of an economic decline that continued through the Eisenhower administration and up until the Kennedy-Johnson tax cuts. Eisenhower took the conservative Keynesian position that is still common in the Republican party that we must first balance the budget before tax cuts. The result was economic malaise during the Eisenhower administration.

Posted by: DickF at September 2, 2009 08:34 AM

$9 trillion-- what, me worry

Econbrowser

During the Reagan years it was tax cuts for the rich and rising deficits. The conservatives said that deficits don't matter. Then during the Clinton years they demanded PayGo and fiscal discipline. Suddenly they again reversed track during the GW Bush years with more tax cuts for the rich and an unnecessary, off-budget war, doubling the debt in just 8 years. Cheney's famous quote was "Reagan proved that deficits don't matter." But with Obama in the White House, the deficit scolds are again demanding PayGo.

Where was JDH's deficit scolding during the Bush administration? If Bush hadn't frittered away those trillions in tax cuts and wars in the last few years we wouldn't be in the difficult position we are now. Where was JDH's voice then?

Truth be told, conservatives are fine with deficits if it means transforming social security taxes on workers into tax cuts for the rich. Deficits only seem to be a problem when liberals try to reverse the process. Funny how that works.

Posted by: Joseph at August 28, 2009 02:34 PM

Matt Young:

Were the last two paragraphs in your post written by Will Wilkinson?

Interesting. Maybe American conseratives just have more trouble than others saying "NO" to special interests. Canada's "Trust me I'm an economist" Prime Minister Stephen Harper cut the value-added federal sales tax (GST) twice during the height of this last out-of-control commodity-driven bull cycle, and put Canada on the road to a structural deficit.

Posted by: GNP at August 28, 2009 03:47 PM

spencer:

For over a decade we have known that social security and health care spending was going to create large budget problems in the future.

The responsible fiscal policy was to run surpluses over the past to prepare for those problems and to be able to use deficit spending in case of a severe recession.

But Republicans did not do that, they supported the deficits creation under Bush.

Now, all of a sudden you have discovered that we have a deficit problem.

I'm sorry, I can not take your crocodile tears seriously now.

You supported fiscal irresponsibility under Bush,
so do not expect me to be fooled by your suddenly getting religion about fiscal responsibility.

Posted by: at August 28, 2009 02:18 PM

spencer

The dollar fell sharply under the Nixon, Reagan and Bush deficits.

I do not remember republicans complaining about the falling dollar under these regimes.

So why are you worried about it now?

Actually, a weak dollar may be exactly what we need to revive manufacturing and generate solid growth.

Posted by: spencer at August 28, 2009 02:06 PM

 Mike25

I'm tired of these Partisan attacks on Keynesian policy.

Here's a new rule, next time you bring up Keynesian policy, also bring up Your Solution to Depression Economics, and how it has No track record of success. Unlike this year with a successful avoidance of a Depression.

Also, these Bank Bailouts were caused by Republicans and Republican sellouts to UBS. Corporate takeover of Democracy. You solve that first. Corporate Deregulation or Unregulation, and Management Capitalism where Short Term Profit came before all else. The Management Paycheck comes first ahead of shareholders, workers and the Nation. That's the primary problem.

Posted by:  Mike25 at August 30, 2009 07:22 PM

ZackAttack

With $27.3 trillion in overall federal backing for the US financial system (via TARP, PPIP, monetization of Frannie debt, commercial paper facility, etc), the distinction between public and private debt is almost meaningless.

Posted by: ZackAttack at August 31, 2009 11:17 AM

IdahoSpud

The situation of the US vis-a-vis its economic competitors is vastly different now than it was following WWII.

After WWII most of the US trading partners had no factories. All the major european and asian countries had remaining was ragged, war-ravaged economies and depleted populations.

The fact that the US was able to climb out of the WWII debt is probably attributable to being the only intact industrial base at the end.

That is not the case right now. We are in a post-industrial economy and what industry remains is in deep deep trouble. We will never be able to repay this debt in a FIRE economy. Too much of the FED's liquidity is concentrated in to few hands, and US wages are dropping. This is precisely the opposite of the post-WWII situation.

Posted by: IdahoSpud at August 29, 2009 10:46 AM

Albert

I like how people keep saying world war II spending was coming to an end. How many bases do we have in Europe still? How many bases did we have in the Pacific after the war? If you count that spending as Cold War spending, then you can add in The Marshall Plan spending. World War II has been done for a while but I am sure there are many ways to count that we are still paying for it, including the many veterans of WWII

Posted by: Albert at August 29, 2009 09:03 AM

antoniusb

In bringing the 1950's into the discussion, Krugman fails to mention the tax increases during the Korean War (after tax decreases in the immediate aftermath of WWII).

Tax receipts as a percent of GDP went from 14.5% in 1949 all the way up to 19% at the height of the war and averaged 17.8% for the period of 1952-1960.

If Krugman had said the $900 trillion was not that big a deal because we will also increase the tax burden by 23% like we did during the 1950's (without any impact to GDP or employment) then it would be a fair argument.

It seems odd that he leaves this part out since I cant recall very many articles over the past 9 years where he hasnt mentioned increasing taxes as our only way out of avoiding fiscal catastrophe.

Posted by: antoniusb at August 29, 2009 05:30 AM

Seth

The real problem with Krugman's argument -- though I generally agree with him -- is that our post-WWII prosperity was in major part the result of that military conflict. The war destroyed all of the industrial competition. We (the US) then began to collect rents from the rest of the world.

These rents are steadily diminishing as (for example) China climbs the value chain. They have been eroding for a long time of course. But now that world transportation and communication networks have made it so easy for developing nations to bring their vast labor pools to world markets, the pace of erosion is accelerating.

The US is in a continuing process of *relative* (NOT yet absolute) decline. Our economic ruling class are profiting mightily from the labor arbitrage and simply treating globalization as a big "portfolio rotation". No sweat, really. What's the fuss about? Unfortunately for the average American making a living from not-really-so-world class skills, this is a bit like trying to make ends meet in the rich folks' neighborhood. You might not be *poor* in absolute terms, but you sure feel shabby and deprived in comparison to your wealthy neighbors.

In this we're not dissimilar to post-WWII Britain. But there's this important difference: our political culture hesitates to cushion the decline with social spending. Where a Churchill could enthusiastically support the creation of the NHS, an Obama feels he has to apologize -- over SIXTY YEARS LATER -- for any minor resemblance between his soft-soap reform proposals and the NHS.

Posted by: Seth at August 29, 2009 12:04 AM

q

> A quarter trillion dollars worth of those loans we've guaranteed are currently nonperforming. That's just Fannie and Freddie

Why bring this up? It's negligible.

Ok, so $250B of loans are non-performing. Pessimistically, half of them will default. The loans the GSE have are 80% LTV or better so it would be quite extraordinary if they suffered loss rates greater than 50%. So we are down to $62.5B. That's under .5% of GDP, ie noise.

The GSEs have or soon will have reserves which could cover this. These reserves include the money lent them by the govt (at 10% interest -- govt making about $10B/year on interest alone here), but there is absolutely no reason to believe that absent a large collapse (say another 20% leg down) the losses will exceed what the govt has already lent to the GSEs.

On the other hand, the government now owns the GSEs (ie has warrants which could be exercised to get 80% of the stock) and the GSEs own the US prime mortgage market. This is a very profitable market in normal times. Given time, if the government wants these entities on its books, it will make money for taxpayers. Alternatively in time the GSEs can repay the government and then be sold off to private stockholders.

The implicit government guarantee on GSE issued debt is another issue but this guarantee holds equally for all large financial institutions (lesson of this crisis for sure) so that is no reason to shut them down.

Posted by: q at August 28, 2009 06:05 PM

Recommended Books

Conservatives Without Conscience

4.0 out of 5 stars

Read It in Good Conscience,

August 1, 2006 By  !Edwin C. Pauzer (New York City)

In "Conservatives Without Conscience," author John Dean makes the observation that seemingly good people will do unconscionable even criminal acts, and put their consciences aside without guilt. Dean wants to know why, and he provides a hypothesis to explain why some will lead people in this direction, and explain why others are willing to follow them.

The author may be well-suited for such a task. As White House Counsel to President Richard M. Nixon, and an admitted Barry Goldwater conservative, he was surrounded by the Watergate Investigation, in which White House staffers conducted burglary, perjury, obstruction of justice, and other crimes, or knew of them, or concealed them, all in the name of their leader, Richard Nixon.

John Dean relies heavily on the work of a social psychologist, Dr. Altemeyer of the University of Manitoba, who has done much work on the theory of authoritarianism. According to Dean, Altemeyer's work in this area has been officially recognized, and he is considered an expert in the field.

Dr Altemeyer categorizes authoritarians as followers and leaders to varying degrees. What he also found was that authoritarians are likely to maintain certain beliefs about themselves which include a deep belief in God, patriotic, conservative, and see themselves as being more moral, ethical, honest, and better people than others in general. Their behavior however, is likely to be less honest, loyal or ethical than others.

Dean attempts to apply this to our modern day politicians of whom he is very selective. He finds a match between Altemeyer's theories and list of traits in people like Dick Cheney whom he contends is the real president, George W. Bush, Newt Gingrich, Bill Frist, Tom Delay and others.

The author provides plenty of anecdotal evidence to support his hypothesis: the president's signing statements, the secret meetings that are withheld from the public because of national security, George Bush's comments: "A dictatorship wouldn't be bad, just so long as I'm the dictator," or "I'm the decider." Newt Gingrich's ability to discard friends once he no longer finds them useful, and of course, Tom Delay who changed the rules of congress, where subterfuge and heavy-handed tactics have replaced debate, discussion, and compromise.

Because of the abiding belief in their leaders, authoritarian followers will put their scruples aside, for the greater good. Examples of these followers were: Attorney General, John Mitchell, G. Gordon Liddy, Paul Ehrichman, H.R. Haldeman, and Charles Colson during the Nixon administration. According to Dean, their modern day counterparts are members of Congress, cabinet secretaries who serve at the pleasure of the president, and millions of others who believe that patriotic Americans are leading them.

The reader should keep in mind that the author is attempting to prove a thesis here but offers no scientific evidence. It does not prove that all the people described earlier fit neatly in this authoritarian theory, nor can it explain their behavior with any certainty.

The one part of this book that is unquestionable is Dean's assertion that Americans must participate in their democratic form of government if it is to succeed. It cannot be simply observed or ignored. If it is, authoritarians will pick it up and take it away. Dean warns that we haven't lost it yet, but we are losing it day by day.

I recommend this book (after the first chapter) because it provided another way for me to look at family members and acquaintances whose rabid or knee-jerk loyalty for anything conservative I could not explain.

At least, now I have an explanation.

Cool, analytical and devastating,

November 17, 2008
By Jean E. Pouliot (Newburyport, MA United States) - See all my reviews

This review is from: Conservatives Without Conscience (Hardcover)

John Dean, the conscience of Watergate, continues to chronicle the strange turns the Republican party has taken since his days in power in the Nixon Administration. "Conservative Without Conscience" is not an indictment of all conservatives. Indeed, Dean is still fond of his days as a Goldwater Republican and his friendship with Barry Goldwater, godfather of what seems like a long-dead sector of that party. Dean turns his lawyerly, analytical mind to understand where his party has gone wrong. He provides a history of American conservatism, from the monarchial leanings of Alexander Hamilton to the more recent shenanigans of Newt Gingrich, Jack Abramoff and Pat Robertson. He distinguishes the various branches of conservatism -- from libertarian to cultural, social, economic and neocon conservatisms. Dean also goes to lengths to try to define conservatism, a surprisingly difficult task.

His most devastating and worrying chapters center on the work of social psychologist Robert Altemeyer, who has made a career studying authoritarian personalities. Altemeyer identifies people using two scales, classifying them as RWAs or SDOs. RWAs, or Right Wing Authoritarians, tend to be followers -- they are politically conservative and religious. People with a Social Domination Orientation (SDO) are the natural leaders that RWAs and others looks up to. SDOs seek personal power, are self-righteous and amoral, despite whatever religious affiliation they might have. God help us from the double high scorers, who are both RWAs and SDOs. Dean sees some of our more troubling conservatives -- Tom Delay, Dick Cheney, Gingrich, Robertson and Abramoff as exhibiting the traits of double highs. Neocons and religious conservative groups seems especially attractive to authoritarian personalities.

In spite of his wariness and bluntness about some of the right's leading lights, in "Conservatives without a Conscience" Dean seems to retain and even take pride in his conservative credentials. Dean hopes to bring a measure of reflection to a crowd not naturally good at it. Written just prior to the 2006 election, which resulted a slim majority of Democrats in Congress, it is a plea for Americans to be more careful about the leaders they pick. A fine book that helped this old liberal look at conservatives more clearly and even sympathetically.

 An interesting dissection of some of our nation's leaders,

October 26, 2008
By Newton Ooi (Phoenix, Arizona United States) - See all my reviews

This review is from: Conservatives Without Conscience (Hardcover)

This book serves four purposes. First, it provides a short, but well-referenced history of political conservatism in the Anglo-American conscious over the past 500 years with major emphasis on the 20th century. Second, the book examines how Watergate was a watershed movement in conservatism, and how the reaction to it helped lead to the neoconservatives of the early 21st century. Third, the book shows how certain ideas and ideals of the conservative movement have attracted a certain personality type into its ranks, specifically an authoritorian personality.

Last, the book examines the lives and careers of key authoritarian individuals, all Republicans, in positions of authority or influence. The latter include Pat Robertson, Senator Bill Frist, ex-Congressmen Newt Gingrich and Tom Delay, and G. Gordon Liddy.

The portrait painted by the author is of a bunch of spoiled white boys with strong streaks of egotism, sexism and cunning. Overall, quite a scary picture of some of the leaders of the Republican party, and how they have changed the culture of Washington for the worse.

The author also places himself in context, showing how he was part of the authoritarian Nixon White House. All in all, a good book to read that provides a unique angle on the past 2 decades.

No Kid Glove Treatment for Authoritarian Conservatives,

March 28, 2008
By Obi "Obi wan liberali" (SLC, UT) - See all my reviews

This review is from: Conservatives Without Conscience (Hardcover)

Former Watergate figure John Dean wrote a compelling critique of the conservative movement in the United States in his book "Conservatives Without Conscience". The author starts out explaining why the book was necessary and how it had been his hope to refrain from serious political commentary. He then discussed events where conservative hacks made attacks against him and his wife that were unfounded, and that he became the victim of slanders from former Nixon henchmen, G. Gordon Libby and Charles Colson. These events led him back into the public spotlight and convinced him that there had been a fundamental, and authoritarian change in conservatism from the Goldwater conservatism that had initially inspired John Dean.

Dean also mentions that this book was inspired by Barry Goldwater and was intended to be a collaboration with him, had he lived.

In the book, John Dean looks at various efforts to define conservatism within the United States and the disparate ideologies that have somehow been embraced and coalesced into modern conservatism. Dean analysis the modern conservative movement and very pointedly takes aim at the authoritarian evolution of that movement and psychological efforts to understand both "authoritarian followers" and "social dominators" within conservative authoritarianism. He also defines different factions within the conservative movement and outlines their differences and their commonalities.

Dean pulls no punches in his examination of "social dominant authoritarians." Guys like Tom Delay, Newt Gingrich, Pat Robertson, and particularly, Dick Cheney are hammered with a searing white hot examination of their careers and characteristics. Cheney, as our nation's most dominant Vice President to a weak-minded and shallow President, is seen in the book as deliberately fundamentally changing the United States towards more central control within the Executive Branch.

Though Dean's book is a couple of years old, what he wrote makes sense of alot of what has happened since he first published it, and in this regard, Dean's analysis is helpful in predicting future administration actions and why they will engage in their behavior. The constant cries of "executive privilege" to hide administration misdeeds will not go away in an era dominated by "conservatives without conscience."

Authoritarians, driven by power, rather than principle, will do anything they can get away with to keep that power. Democrats and libertarian leaning Republicans should take heed and warning, that these authoritarians will not be going away any time soon. Even if they receive temporary setbacks, they see their role as permanent and fore-ordained.

If you could criticize Dean's book, it would be the harshness and anger that seethes under the surface in his analyses. However, Dean seems to have a real sense of just how dangerous, "conservatives without conscience" are to our Republic and seems to, through a bit of "shock and awe", trying to awaken us from our slumber, to let us know exactly what is at stake.

The extreme Right.,

February 2, 2008 By Scripture Studier (WI,USA)

"Conservatives Without Conscience" was written after "Worse Than Watergate". I prefer the first book over this one. This book had some boring material about the different factions in conservatism.

John Dean educates the reader on the neo-conservative ideas. They moved from the Left in the 60s and 70s. They differ from other conservatives with these ideas;an American empire is plausible,promotion of American values around the globe by military force if necessary,the U.S. should enforce peace around the world,and military-imposed nation building.

Another interesting topic was the mixing of religion and politics. This grew from the Carter election sparking the birth of Jerry Falwell's Moral Majority and eventually giving way to Pat Robertson's Christian Coalition.
Cal Thomas is quoted saying "the marriage of religion and politics almost always compromises the Gospel,for politics is all about compromise."page 98.

"While authoritarian conservatism was growing in force in Washington for a decade before Bush and Cheney arrived at the White House,their administration has taken it to it's highest and most dangerous level in American history."-page 117.

"Conservatives Without Conscience" is an indictment of the Republican party's corruption like the K-Street Project and Jack Abramoff. Dean's criticism of Cheney is followed by a particular quote that validates concern. "....given the world that we live in, that the president needs to have unimpaired executive authority"-Dick Cheney.

I believe that John Dean has accurately depicted both the president and vice-president's relationship and their personalities.

The author goes a little too far when he validates the Clintons' claim of a "vast Right Wing conspiracy" though. That's a well known Clinton cop-out that gets trotted out whenever they back themselves into a corner.

Overall "Conservatives Without Conscience" is a good source for understanding the many facets of conservatism in the Republican party, some of the Figures, and the history and changes of the movement.