Mick Jagger
Dedicated LVC Member
What are these "unstable conditions" that you claim are the cause of our present economic woes and how would abolishing the capital gains and/or corporate tax solve the problem?
Why Tax Rate Reductions Are More Stimulative Than Rebates: Lessons from 2001 and 2003
- Thread starter shagdrum
- Start date
What are these "unstable conditions" that you claim are the cause of our present economic woes and how would abolishing the capital gains and/or corporate tax solve the problem?
Sustainable Economic Stimulus: Repeal Capital Gains and Dividend Taxes
Sustainable Economic Stimulus: Repeal Capital Gains and Dividend Taxes
by Karen Campbell, Ph.D. and Guinevere Nell
Although policymakers are currently discussing an $825 billion economic stimulus package, completely eliminating capital gains and dividend taxes would be a cheaper and more effective means of sparking economic renewal.
Capable of producing a short-term stimulus, capital gains tax cuts are also a responsible pro-growth policy. Such cuts trigger an immediate stimulus because distortions on investors' behavior are eliminated. Yet there are also long-term benefits to cutting capital gains taxes cuts: a real reduction in the cost of investment.
Borrowing and spending may provide some immediate relief, but such policies reduce growth in the longer run and tend to expand government permanently. A policy of reducing tax rates allows the private sector to produce the stimulus instead, thereby avoiding such flaws.
When the financial sector and private investment are weak, as is currently the case, the best taxes to reduce are investment-related taxes. The elimination of capital gains and dividend taxes would encourage increased investment that puts more funds into the financial service sector so that the economic pipes can begin flowing again.
Not Just a Holiday--a Repeal
Because investors are burdened with paying capital gains taxes when the gain is realized through a sale of an asset, capital gains taxes are known to discourage sale of appreciated assets. The higher such taxes, the more the investor is discouraged--a consequence known as the "lock-in effect." Similarly, because losses can be deducted, the sale of underperforming assets is encouraged.
During troubled times, buying assets at low prices increases the capital gain in the recovery. Capital gains taxes create a wedge that prevents some asset purchases that could help further the economy recovery, because the cost of the tax is built in to long-term investment decisions.
Repeal of capital gains taxes will produce an immediate stimulus effect: As soon as the taxes are repealed, there will be a boost to the financial markets as beneficial transactions are made. Other stimulus policies take time to have an effect, but tax changes on investment transactions have an immediate impact.
A complete repeal of these taxes would lead to much greater short-term stimulus and, just as important, a recovery conducive to long-term growth. Investors make decisions based on long-term policies, not just short-term ones. A permanent elimination of these taxes would encourage new long-term investment. This is the only way to sustain a recovery and increase growth in the economy.
Simultaneous repeal of both capital gains and dividends taxes is also important because repealing only capital gains taxes would divert profits more toward internal investment than toward dividend payouts. Additionally, some of this diversion would only be for a tax purpose. Tax law should strive to facilitate--not direct--sound investment decisions.
Repeal Is Not Costly and Creates Jobs
The cost of a longer-term repeal of the capital gains and dividend taxes is not as expensive as some policymakers might imagine. Analysts at The Heritage Foundation simulated the effect of the repeal in terms of static revenue losses and macroeconomic growth. The Individual Income Tax Model shows that lost revenue in 2008 would be $74 billion if losses can still be deducted up to $3,000 for the current year.
This lost revenue would cost about $370 billion over five years--much less than the $850 billion over three years currently being debated in Congress. The repeal of the capital loss deduction could also be phased in over this time, reducing the total cost in subsequent years. Tax filers incurring losses in 2008 based on past decisions could deduct losses, but future losses and gains would not affect tax liability.
The Tax Policy Advisers Dynamic General Equilibrium Model projects that investment growth would jump to 3 percent per year for the first three years after a repeal of capital gains and dividend taxes before returning to the baseline growth of 2 percent per year. This growth would bring the economy to a new, higher level of investment. The static one-year revenue losses would be offset by increased investment, which leads to higher economic growth.
The model predicts that GDP would grow at a rate of 2.03 percent for the first three years compared to a baseline steady state of 2 percent growth. However, by year four, GDP growth reaches a new steady state growth rate of 2.1 percent per year as the increased growth in investment begins to pay off by expanding the economy's productive capacity.
Due to the power of compounding, even small increases in growth, if sustained, lead to large changes over time when applied to a $12 trillion economy. Increased investment that leads to a more productive economy would strengthen the U.S. economy, making its workforce more competitive in the global marketplace.
Small Business and the Capital Gains Tax
There are other ways that the capital gains and dividends tax elimination would help the economy. Certain individuals, for whom capital gains make up a large portion of reported income, would benefit significantly. About 50 percent of filers in this group are small businesses.
Using The Heritage Foundation Individual Income Tax Model, current tax treatment was compared with a repeal of capital gains and dividends taxes. Table 1 shows how average tax burdens would differ for small businesses with capital gains. In order not to punish past decisions during a time of hardship, the simulation assumes a loss deduction.
The results demonstrate that 3 million small business owners would receive a tax cut of about $370. Another nearly 800,000 small business owners have much more in capital gains to report each year, and would substantially benefit from the repeal.
Some small businesses may be saved from failing or from letting go of workers if their tax saving is substantial. Though fewer filers would be expected to report gains this year, there will mostly still be a significant number of filers who sold stocks at the beginning of the year for a net gain. Rather than needing to cut business operations or payroll to now afford the tax on these gains, these savings could keep some of these businesses afloat. Next year the gains should return to higher levels, and the significant savings could be transformed into greater investment, driving the demand for millions of new jobs.
Most importantly, these positive economic effects are created by reducing barriers to investment and returning money to the entrepreneurs who earned it--not through subsidies, government programs, or other market distortions.
The Key to Sustainable Growth
The goal of a stimulus policy should be sustained economic growth, not a temporary masking of some of the painful symptoms of a downturn. Repealing capital gains and dividends taxes not only produces a healthy short-term stimulus, which results from the elimination of distortions caused by government policy, but it also sets the economy on a sound long-term path to growth.
Entrepreneurial investments are the key to sustainable growth. The market for investment is the most flexible when there are no taxes that distort decision-making and increase the cost of investment. Repealing the tax on capital gains and dividends will send a strong signal that the United States is open for business.
Sustainable Economic Stimulus: Repeal Capital Gains and Dividend Taxes
by Karen Campbell, Ph.D. and Guinevere Nell
Although policymakers are currently discussing an $825 billion economic stimulus package, completely eliminating capital gains and dividend taxes would be a cheaper and more effective means of sparking economic renewal.
Capable of producing a short-term stimulus, capital gains tax cuts are also a responsible pro-growth policy. Such cuts trigger an immediate stimulus because distortions on investors' behavior are eliminated. Yet there are also long-term benefits to cutting capital gains taxes cuts: a real reduction in the cost of investment.
Borrowing and spending may provide some immediate relief, but such policies reduce growth in the longer run and tend to expand government permanently. A policy of reducing tax rates allows the private sector to produce the stimulus instead, thereby avoiding such flaws.
When the financial sector and private investment are weak, as is currently the case, the best taxes to reduce are investment-related taxes. The elimination of capital gains and dividend taxes would encourage increased investment that puts more funds into the financial service sector so that the economic pipes can begin flowing again.
Not Just a Holiday--a Repeal
Because investors are burdened with paying capital gains taxes when the gain is realized through a sale of an asset, capital gains taxes are known to discourage sale of appreciated assets. The higher such taxes, the more the investor is discouraged--a consequence known as the "lock-in effect." Similarly, because losses can be deducted, the sale of underperforming assets is encouraged.
During troubled times, buying assets at low prices increases the capital gain in the recovery. Capital gains taxes create a wedge that prevents some asset purchases that could help further the economy recovery, because the cost of the tax is built in to long-term investment decisions.
Repeal of capital gains taxes will produce an immediate stimulus effect: As soon as the taxes are repealed, there will be a boost to the financial markets as beneficial transactions are made. Other stimulus policies take time to have an effect, but tax changes on investment transactions have an immediate impact.
A complete repeal of these taxes would lead to much greater short-term stimulus and, just as important, a recovery conducive to long-term growth. Investors make decisions based on long-term policies, not just short-term ones. A permanent elimination of these taxes would encourage new long-term investment. This is the only way to sustain a recovery and increase growth in the economy.
Simultaneous repeal of both capital gains and dividends taxes is also important because repealing only capital gains taxes would divert profits more toward internal investment than toward dividend payouts. Additionally, some of this diversion would only be for a tax purpose. Tax law should strive to facilitate--not direct--sound investment decisions.
Repeal Is Not Costly and Creates Jobs
The cost of a longer-term repeal of the capital gains and dividend taxes is not as expensive as some policymakers might imagine. Analysts at The Heritage Foundation simulated the effect of the repeal in terms of static revenue losses and macroeconomic growth. The Individual Income Tax Model shows that lost revenue in 2008 would be $74 billion if losses can still be deducted up to $3,000 for the current year.
This lost revenue would cost about $370 billion over five years--much less than the $850 billion over three years currently being debated in Congress. The repeal of the capital loss deduction could also be phased in over this time, reducing the total cost in subsequent years. Tax filers incurring losses in 2008 based on past decisions could deduct losses, but future losses and gains would not affect tax liability.
The Tax Policy Advisers Dynamic General Equilibrium Model projects that investment growth would jump to 3 percent per year for the first three years after a repeal of capital gains and dividend taxes before returning to the baseline growth of 2 percent per year. This growth would bring the economy to a new, higher level of investment. The static one-year revenue losses would be offset by increased investment, which leads to higher economic growth.
The model predicts that GDP would grow at a rate of 2.03 percent for the first three years compared to a baseline steady state of 2 percent growth. However, by year four, GDP growth reaches a new steady state growth rate of 2.1 percent per year as the increased growth in investment begins to pay off by expanding the economy's productive capacity.
Due to the power of compounding, even small increases in growth, if sustained, lead to large changes over time when applied to a $12 trillion economy. Increased investment that leads to a more productive economy would strengthen the U.S. economy, making its workforce more competitive in the global marketplace.
Small Business and the Capital Gains Tax
There are other ways that the capital gains and dividends tax elimination would help the economy. Certain individuals, for whom capital gains make up a large portion of reported income, would benefit significantly. About 50 percent of filers in this group are small businesses.
Using The Heritage Foundation Individual Income Tax Model, current tax treatment was compared with a repeal of capital gains and dividends taxes. Table 1 shows how average tax burdens would differ for small businesses with capital gains. In order not to punish past decisions during a time of hardship, the simulation assumes a loss deduction.
The results demonstrate that 3 million small business owners would receive a tax cut of about $370. Another nearly 800,000 small business owners have much more in capital gains to report each year, and would substantially benefit from the repeal.
Some small businesses may be saved from failing or from letting go of workers if their tax saving is substantial. Though fewer filers would be expected to report gains this year, there will mostly still be a significant number of filers who sold stocks at the beginning of the year for a net gain. Rather than needing to cut business operations or payroll to now afford the tax on these gains, these savings could keep some of these businesses afloat. Next year the gains should return to higher levels, and the significant savings could be transformed into greater investment, driving the demand for millions of new jobs.
Most importantly, these positive economic effects are created by reducing barriers to investment and returning money to the entrepreneurs who earned it--not through subsidies, government programs, or other market distortions.
The Key to Sustainable Growth
The goal of a stimulus policy should be sustained economic growth, not a temporary masking of some of the painful symptoms of a downturn. Repealing capital gains and dividends taxes not only produces a healthy short-term stimulus, which results from the elimination of distortions caused by government policy, but it also sets the economy on a sound long-term path to growth.
Entrepreneurial investments are the key to sustainable growth. The market for investment is the most flexible when there are no taxes that distort decision-making and increase the cost of investment. Repealing the tax on capital gains and dividends will send a strong signal that the United States is open for business.
Mick Jagger
Dedicated LVC Member
Right now, the problem with our economy is not that people need more encouragement to work. The problem is that there are not enough jobs for those who are highly motivated to work.
How is lowering the tax rate of a person - who was just laid off by Macy's, and who wants desperately to work, but cannot find a job, because there are not enough jobs here in Dallas for those who want to work - going to motivate that person to want to work more than he is already motivated to work to support himself?
How is lowering the tax rate of rich dude like me going to motivate me to work more, when I already have so much money that I have enough income to do everything I want and still give more than half of my annual income to family members and "charitable causes."
I'm sure as hell not going to go back to work as a lawyer to make more money, when I have investments that generate more income than I know what to do with?
If something else, ANYONE else, other than Jagger-bot, would like to ask this question and have a discussion about it, I'd be happy to respond.
But I'm not going to further engage the Jagger-bot time-sink.
Mick Jagger
Dedicated LVC Member
That is a false statement.
The federal corporate tax rate is 35%. I think only Japan has a higher corporate tax rate (amongst the competitive industrial countries)
Mick Jagger
Dedicated LVC Member
If we cut taxes on Mobil Exxon, why would they invest more than they already do in the type of business they're in?
Why would U. S. corporations increase their investment in industrial production capacity at a time when there is presently a huge surplus of industrial production capacity which is getting larger as we speak?
But, Shag - you just used a 'guarantee' in post #65
I wasn't raising the burden of proof - I was just following your lead...
Easy to claim something when you know you never have to worry about that scenario ever coming to pass - huh?
I can guarantee we won't be invaded by missile bearing penguins too... just as meaningful (or less) as your guarantee
But, if there isn't any money? Capital gains are currently pretty nonexistent. Not much gain in the market right now, if any. No gains in real estate. Nothing is moving in the capital gain market - so removing taxes from something that doesn't exist isn't going help the economy any time soon.
Corporations are sitting. If they aren't losing money, they are making nominal amounts - and what they will make are going to have plenty of write-offs to offset any profits. They won't be paying any big corporate taxes in the near future.
So, we do have people socking money - into low-interest rate saving accounts. They aren't putting it in the market, they aren't buying anything. The economy won't move if people, and companies are just saving money. The car companies can't give cars away. New houses are sitting empty, even though the interest rate is lower than it has been in 60 years. There is money out there - no one is willing to take on the burden of debt right now.
Saving is good for the long term. But, you can't have both sides saving. With the current corporate climate of layoffs and 'holding off' they are saving too. No one is investing in 'improvements'. Either personal ones (cars, houses, boats) or corporate ones (factories, technology, personnel).
Ahhh, brilliant indeed...
Speculation is what drives the real estate market - will the speculators speculate more without capital gains tax? I don't quite see your logic there Shag. The Las Vegas condo thing makes no sense. So, people were speculating on getting gains on real estate in Vegas - a hot market. That market collapsed. Why would there be different outcomes without short term capital gains tax? The speculators would be able to keep up their payments on the 7 series for 2 more months before it was repossessed?
Because most people use capital gains as income you cannot remove capital gains taxes. Just because I am in a position to make money with my investments, and add to my income shouldn't mean I shouldn't pay taxes on those gains. Would it be fair to allow people who make 250,000 a year, on only capital gains to not pay any taxes on those gains?
Are you talking only about long term capital gains? Are short terms gains included? Gains on real property? Gains on overseas interests?
No I didn't 'miss it' shag - I don't believe in stimulus checks - they are silly. I said that earlier in a different thread, even giving examples on how the last stimulus check didn't do any 'stimulating' concerning the slow down.
I am fine with reducing taxes in this case - to help us get us out of this mess. But, as shown by the Reagan tax cuts - it will probably take 2 years for the tax cuts to show any bump in the economy. If you look at Hoover's example after the market crashed (same scenario as today) and after people lost about 1/3 of their worth (once again, much the same as today) it took only a few months for the economy to pretty much be in a death spiral. If we wait just for the tax cuts to kick in, history shows us it could be too little, too late...
Yes, because corporations are not at all competitive and would not at all be interested in getting a jump on their competitors.
No, because of the short sightedness of Wall Street those corporations can't show loss after loss after loss. They can't afford to invest millions into new factories and new technologies while they are paying zero dividends and losing ground everyday on the trading floor. Right now, they are retreating.
Well, 20th shag, but that includes things like Saudi Arabia. As far as OECD countries - we might be #1 - but how we allow business to function is different. Our write off structure is far more lenient and there are far more 'deductions' that are available to US corporations...
And from the CBO
The most common form of a general cut in business taxes
is a reduction in the corporate tax rate. This approach,
however, is not a particularly cost-effective method of
stimulating business spending: Increasing the after-tax
income of businesses typically does not create an incentive
for them to spend more on labor or to produce more,
because production depends on the ability to sell output.
But because taxes on business income essentially lower
the return that firms earn from capital investment, reducing
such taxes can increase firms’ willingness to acquire
more capital—that is, to invest. As a result, the principal
influence of taxes on a firm’s decision about investing
depends on the prospective profits from its new investments,
not on current profits made from old investments.
However, a substantial effect of reducing current corporate
tax rates is to increase the returns from past investments
rather than increase the attractiveness of new
investments.
is a reduction in the corporate tax rate. This approach,
however, is not a particularly cost-effective method of
stimulating business spending: Increasing the after-tax
income of businesses typically does not create an incentive
for them to spend more on labor or to produce more,
because production depends on the ability to sell output.
But because taxes on business income essentially lower
the return that firms earn from capital investment, reducing
such taxes can increase firms’ willingness to acquire
more capital—that is, to invest. As a result, the principal
influence of taxes on a firm’s decision about investing
depends on the prospective profits from its new investments,
not on current profits made from old investments.
However, a substantial effect of reducing current corporate
tax rates is to increase the returns from past investments
rather than increase the attractiveness of new
investments.
And I am talking tax cuts, not rebates. One has been shown to make a difference and one hasn't. To say that this is a tax refund is to mischaracterize what I said.
Once again trying to mislead and obfuscate.
Sorry - I had typed 'relief' earlier in that paragraph and meant to type it again - relief in all forms - long term reductions, short term cuts, year by year incentives. Any sort of tax relief...
You keep assuming that you 'know' how the business community will react right now. They are sitting on inventory, watching factories fall idle, seeing merchandise discounted at huge rates. They are watching profit margins shrink and market segments disappear. What makes you think that they will invest right now? They are doing exactly what the American people are doing - they are waiting to see what will happen.
And once again - during Reagan's term the deficit did increase...
Raw numbers...
Deficit...
1981 federal debt - 997,855,000,000 dollars
1988 federal debt - 2,602,337,712,041 dollars
161% increase
GDP
1981 GDP - 3,128,400,000,000 dollars
1988 GDP - 5,103,800,000,000 dollars
75% increase
During Reagan's term the debt increased by 1,605,582,712,041 dollars.
Build a new car factory right now shag - are you nuts? Build a new tennis shoe factory when the 4 you have are cutting shifts and you are looking at closing one of them? Buy 150 new bagel machines when the old ones you have turn out 50% more than you can sell? Open 4 new locations to sell your couture clothing, when the 4 locations you have are hemorrhaging money?
Even, right now in the oil and gas business the exploration has come to a stand still. Now, if anything is in our future it is higher oil prices - right? $40 a barrel is an anomaly and won't last for long. But, even though the energy companies know that in the future, those wells that they dig now will provide huge profits when oil is back up to $80 a barrel or more, they aren't drilling. They are sitting.
And you don't seem to understand the psychological effect of the evening news. Every night we hear doom and gloom. Every night we eat our mac and cheese, because, unlike 9 months ago we aren't going to spring for a pork chop, let alone a dinner out, because we are afraid of losing our job.
Or the psychological effect of Wall Street. The corporations and shareholders watch their stock fall and their dividends fade. They watch their factories stockpile inventory, even after they lay off 1/2 their workforce. They see the investments they have made in property, technology, buildings lose ground, and sometimes become worth pennies on the dollar.
So, say I am working on a road project that will last 3-4 years (that is what the last major road project took in Denver). I know I have a good income for that time period. I have to have a car to get to and from work. I have to put gas in that car. I have to buy new boots. I have a chance to get my kids a great Christmas gift of a new TV. I can buy 20" wheels. I can take my husband out to a nice dinner a couple of times a month.
So, now all those industries can see a boost. They will all pay taxes. The corporations that sell boots will add a shift to the factory. The huge oil company will drill for new oil. The Japanese factory worker that made the TV will buy a pair of Levi's. The waitress at Applebees can buy a new backpack for her 5 year old. And Chip Foose can build another Hot Rod (obviously very expensive 20" wheels
)And, after 4 years, the road job will end. But, the oil company is needing rig maintenance workers, because they are drilling. I can get a job with them...
You treat someone with respect because it is the human thing to do. Especially when they never, ever treat you disrespectfully.
I will let the others who read what we write (sometimes rather stealthily
) judge my ability to honestly debate here. How you feel about me, Shag, honestly has very little bearing on why I do this. I get very tired of reading over and over again how bad the 'left' is here on this forum. I will try my best to show that there is another side, and that the other side (the left) is capable of understanding the issues and I will keep presenting another viewpoint.
I don't think you are dishonest or deceitful, or any of the other things that you and others on the right constantly label me as. We have differing viewpoints as well as different solutions to problems. I state mine, you state yours. I try to show how yours may not be the best solution, you do the same.
I hope I am honest in how I represent my solutions. I try really hard. I miss points sometimes, or accidentally type refund when I meant relief, but I think they are honest mistakes. I think you are doing the same thing as I am, trying the best way you can to state 'your side'. I don't agree with your views, but, I certainly don't need to lower myself to repeated character assassination.
You said it right here. "I believe that we were almost out of the Depression by 1940..." and that's as candid an answer as possible from you. You continue explaining how you believe he might have done so in a few more years. Fact is, he had failed to do despite two phases of New Deal and and seven years of Roosevelt Presidential policy by 1940.
I posted this elsewhere, but might as well include it here...
How Government Prolonged the Depression
Policies that decreased competition in product and labor markets were especially destructive.
By HAROLD L. COLE and LEE E. OHANIAN
The New Deal is widely perceived to have ended the Great Depression, and this has led many to support a "new" New Deal to address the current crisis. But the facts do not support the perception that FDR's policies shortened the Depression, or that similar policies will pull our nation out of its current economic downturn.
The goal of the New Deal was to get Americans back to work. But the New Deal didn't restore employment. In fact, there was even less work on average during the New Deal than before FDR took office. Total hours worked per adult, including government employees, were 18% below their 1929 level between 1930-32, but were 23% lower on average during the New Deal (1933-39). Private hours worked were even lower after FDR took office, averaging 27% below their 1929 level, compared to 18% lower between in 1930-32.
Even comparing hours worked at the end of 1930s to those at the beginning of FDR's presidency doesn't paint a picture of recovery. Total hours worked per adult in 1939 remained about 21% below their 1929 level, compared to a decline of 27% in 1933. And it wasn't just work that remained scarce during the New Deal. Per capita consumption did not recover at all, remaining 25% below its trend level throughout the New Deal, and per-capita nonresidential investment averaged about 60% below trend. The Great Depression clearly continued long after FDR took office.
Why wasn't the Depression followed by a vigorous recovery, like every other cycle? It should have been. The economic fundamentals that drive all expansions were very favorable during the New Deal. Productivity grew very rapidly after 1933, the price level was stable, real interest rates were low, and liquidity was plentiful. We have calculated on the basis of just productivity growth that employment and investment should have been back to normal levels by 1936. Similarly, Nobel Laureate Robert Lucas and Leonard Rapping calculated on the basis of just expansionary Federal Reserve policy that the economy should have been back to normal by 1935.
So what stopped a blockbuster recovery from ever starting? The New Deal. Some New Deal policies certainly benefited the economy by establishing a basic social safety net through Social Security and unemployment benefits, and by stabilizing the financial system through deposit insurance and the Securities Exchange Commission. But others violated the most basic economic principles by suppressing competition, and setting prices and wages in many sectors well above their normal levels. All told, these antimarket policies choked off powerful recovery forces that would have plausibly returned the economy back to trend by the mid-1930s.
The most damaging policies were those at the heart of the recovery plan, including The National Industrial Recovery Act (NIRA), which tossed aside the nation's antitrust acts and permitted industries to collusively raise prices provided that they shared their newfound monopoly rents with workers by substantially raising wages well above underlying productivity growth. The NIRA covered over 500 industries, ranging from autos and steel, to ladies hosiery and poultry production. Each industry created a code of "fair competition" which spelled out what producers could and could not do, and which were designed to eliminate "excessive competition" that FDR believed to be the source of the Depression.
These codes distorted the economy by artificially raising wages and prices, restricting output, and reducing productive capacity by placing quotas on industry investment in new plants and equipment. Following government approval of each industry code, industry prices and wages increased substantially, while prices and wages in sectors that weren't covered by the NIRA, such as agriculture, did not. We have calculated that manufacturing wages were as much as 25% above the level that would have prevailed without the New Deal. And while the artificially high wages created by the NIRA benefited the few that were fortunate to have a job in those industries, they significantly depressed production and employment, as the growth in wage costs far exceeded productivity growth.
These policies continued even after the NIRA was declared unconstitutional in 1935. There was no antitrust activity after the NIRA, despite overwhelming FTC evidence of price-fixing and production limits in many industries, and the National Labor Relations Act of 1935 gave unions substantial collective-bargaining power. While not permitted under federal law, the sit-down strike, in which workers were occupied factories and shut down production, was tolerated by governors in a number of states and was used with great success against major employers, including General Motors in 1937.
The downturn of 1937-38 was preceded by large wage hikes that pushed wages well above their NIRA levels, following the Supreme Court's 1937 decision that upheld the constitutionality of the National Labor Relations Act. These wage hikes led to further job loss, particularly in manufacturing. The "recession in a depression" thus was not the result of a reversal of New Deal policies, as argued by some, but rather a deepening of New Deal polices that raised wages even further above their competitive levels, and which further prevented the normal forces of supply and demand from restoring full employment. Our research indicates that New Deal labor and industrial policies prolonged the Depression by seven years.
By the late 1930s, New Deal policies did begin to reverse, which coincided with the beginning of the recovery. In a 1938 speech, FDR acknowledged that the American economy had become a "concealed cartel system like Europe," which led the Justice Department to reinitiate antitrust prosecution. And union bargaining power was significantly reduced, first by the Supreme Court's ruling that the sit-down strike was illegal, and further reduced during World War II by the National War Labor Board (NWLB), in which large union wage settlements were limited by the NWLB to cost-of-living increases. The wartime economic boom reflected not only the enormous resource drain of military spending, but also the erosion of New Deal labor and industrial policies.
By 1947, through a combination of NWLB wage restrictions and rapid productivity growth, we have calculated that the large gap between manufacturing wages and productivity that emerged during the New Deal had nearly been eliminated. And since that time, wages have never approached the severely distorted levels that prevailed under the New Deal, nor has the country suffered from such abysmally low employment.
The main lesson we have learned from the New Deal is that wholesale government intervention can -- and does -- deliver the most unintended of consequences. This was true in the 1930s, when artificially high wages and prices kept us depressed for more than a decade, it was true in the 1970s when price controls were used to combat inflation but just produced shortages. It is true today, when poorly designed regulation produced a banking system that took on too much risk.
President Barack Obama and Congress have a great opportunity to produce reforms that do return Americans to work, and that provide a foundation for sustained long-run economic growth and the opportunity for all Americans to succeed. These reforms should include very specific plans that update banking regulations and address a manufacturing sector in which several large industries -- including autos and steel -- are no longer internationally competitive. Tax reform that broadens rather than narrows the tax base and that increases incentives to work, save and invest is also needed. We must also confront an educational system that fails many of its constituents. A large fiscal stimulus plan that doesn't directly address the specific impediments that our economy faces is unlikely to achieve either the country's short-term or long-term goals.
Mr. Cole is professor of economics at the University of Pennsylvania. Mr. Ohanian is professor of economics and director of the Ettinger Family Program in Macroeconomic Research at UCLA.
How Government Prolonged the Depression
Policies that decreased competition in product and labor markets were especially destructive.
By HAROLD L. COLE and LEE E. OHANIAN
The New Deal is widely perceived to have ended the Great Depression, and this has led many to support a "new" New Deal to address the current crisis. But the facts do not support the perception that FDR's policies shortened the Depression, or that similar policies will pull our nation out of its current economic downturn.
The goal of the New Deal was to get Americans back to work. But the New Deal didn't restore employment. In fact, there was even less work on average during the New Deal than before FDR took office. Total hours worked per adult, including government employees, were 18% below their 1929 level between 1930-32, but were 23% lower on average during the New Deal (1933-39). Private hours worked were even lower after FDR took office, averaging 27% below their 1929 level, compared to 18% lower between in 1930-32.
Even comparing hours worked at the end of 1930s to those at the beginning of FDR's presidency doesn't paint a picture of recovery. Total hours worked per adult in 1939 remained about 21% below their 1929 level, compared to a decline of 27% in 1933. And it wasn't just work that remained scarce during the New Deal. Per capita consumption did not recover at all, remaining 25% below its trend level throughout the New Deal, and per-capita nonresidential investment averaged about 60% below trend. The Great Depression clearly continued long after FDR took office.
Why wasn't the Depression followed by a vigorous recovery, like every other cycle? It should have been. The economic fundamentals that drive all expansions were very favorable during the New Deal. Productivity grew very rapidly after 1933, the price level was stable, real interest rates were low, and liquidity was plentiful. We have calculated on the basis of just productivity growth that employment and investment should have been back to normal levels by 1936. Similarly, Nobel Laureate Robert Lucas and Leonard Rapping calculated on the basis of just expansionary Federal Reserve policy that the economy should have been back to normal by 1935.
So what stopped a blockbuster recovery from ever starting? The New Deal. Some New Deal policies certainly benefited the economy by establishing a basic social safety net through Social Security and unemployment benefits, and by stabilizing the financial system through deposit insurance and the Securities Exchange Commission. But others violated the most basic economic principles by suppressing competition, and setting prices and wages in many sectors well above their normal levels. All told, these antimarket policies choked off powerful recovery forces that would have plausibly returned the economy back to trend by the mid-1930s.
The most damaging policies were those at the heart of the recovery plan, including The National Industrial Recovery Act (NIRA), which tossed aside the nation's antitrust acts and permitted industries to collusively raise prices provided that they shared their newfound monopoly rents with workers by substantially raising wages well above underlying productivity growth. The NIRA covered over 500 industries, ranging from autos and steel, to ladies hosiery and poultry production. Each industry created a code of "fair competition" which spelled out what producers could and could not do, and which were designed to eliminate "excessive competition" that FDR believed to be the source of the Depression.
These codes distorted the economy by artificially raising wages and prices, restricting output, and reducing productive capacity by placing quotas on industry investment in new plants and equipment. Following government approval of each industry code, industry prices and wages increased substantially, while prices and wages in sectors that weren't covered by the NIRA, such as agriculture, did not. We have calculated that manufacturing wages were as much as 25% above the level that would have prevailed without the New Deal. And while the artificially high wages created by the NIRA benefited the few that were fortunate to have a job in those industries, they significantly depressed production and employment, as the growth in wage costs far exceeded productivity growth.
These policies continued even after the NIRA was declared unconstitutional in 1935. There was no antitrust activity after the NIRA, despite overwhelming FTC evidence of price-fixing and production limits in many industries, and the National Labor Relations Act of 1935 gave unions substantial collective-bargaining power. While not permitted under federal law, the sit-down strike, in which workers were occupied factories and shut down production, was tolerated by governors in a number of states and was used with great success against major employers, including General Motors in 1937.
The downturn of 1937-38 was preceded by large wage hikes that pushed wages well above their NIRA levels, following the Supreme Court's 1937 decision that upheld the constitutionality of the National Labor Relations Act. These wage hikes led to further job loss, particularly in manufacturing. The "recession in a depression" thus was not the result of a reversal of New Deal policies, as argued by some, but rather a deepening of New Deal polices that raised wages even further above their competitive levels, and which further prevented the normal forces of supply and demand from restoring full employment. Our research indicates that New Deal labor and industrial policies prolonged the Depression by seven years.
By the late 1930s, New Deal policies did begin to reverse, which coincided with the beginning of the recovery. In a 1938 speech, FDR acknowledged that the American economy had become a "concealed cartel system like Europe," which led the Justice Department to reinitiate antitrust prosecution. And union bargaining power was significantly reduced, first by the Supreme Court's ruling that the sit-down strike was illegal, and further reduced during World War II by the National War Labor Board (NWLB), in which large union wage settlements were limited by the NWLB to cost-of-living increases. The wartime economic boom reflected not only the enormous resource drain of military spending, but also the erosion of New Deal labor and industrial policies.
By 1947, through a combination of NWLB wage restrictions and rapid productivity growth, we have calculated that the large gap between manufacturing wages and productivity that emerged during the New Deal had nearly been eliminated. And since that time, wages have never approached the severely distorted levels that prevailed under the New Deal, nor has the country suffered from such abysmally low employment.
The main lesson we have learned from the New Deal is that wholesale government intervention can -- and does -- deliver the most unintended of consequences. This was true in the 1930s, when artificially high wages and prices kept us depressed for more than a decade, it was true in the 1970s when price controls were used to combat inflation but just produced shortages. It is true today, when poorly designed regulation produced a banking system that took on too much risk.
President Barack Obama and Congress have a great opportunity to produce reforms that do return Americans to work, and that provide a foundation for sustained long-run economic growth and the opportunity for all Americans to succeed. These reforms should include very specific plans that update banking regulations and address a manufacturing sector in which several large industries -- including autos and steel -- are no longer internationally competitive. Tax reform that broadens rather than narrows the tax base and that increases incentives to work, save and invest is also needed. We must also confront an educational system that fails many of its constituents. A large fiscal stimulus plan that doesn't directly address the specific impediments that our economy faces is unlikely to achieve either the country's short-term or long-term goals.
Mr. Cole is professor of economics at the University of Pennsylvania. Mr. Ohanian is professor of economics and director of the Ettinger Family Program in Macroeconomic Research at UCLA.
OK, he did get us out of the depression, starting in 1941. Throw aside the fact we were gearing up for a war. Because that is what you are doing, you are throwing aside that a huge event intervened and changed everything. No war, the depression may have ended in 2 years, if the economy continued to trend the way it was. The war intervened earlier than that.
He didn't 'fail' he was 'succeeding'. Just because no one finishes the race because they call if off 10 yards before the finish line doesn't mean you can't draw conclusions about what would have happened at the finish line if the runners had been allowed to finish.
There were 4 other depressions in this country before the 'great' depression' all of them less than 1/2 the size of this one when FDR was handed it by Hoover... 1/2 GDP in less than 5 years, 25% unemployment. All of them took at least 7 years to get out of from trough. All of them had government intervention of some type. FDR was probably within 2 years of getting us out (speculation, but trending)... which makes 9 years from trough. Not bad for a depression that was twice a big.
Let's establish the first point before you muddy things up on the second.
By 1940, FDR had failed to bring an end to the Great Depression. Despite the phases of New Deal and his aggressive use of executive powers (I would argue tyrantical, but you well may differ).
And in that statement, you recognize that it was the war time economy of World War 2 that ended the Great Depression, NOT the New Deal policies that FDR began to implement in 1933.
You are applying faith into think FDR "would have fixed it if he'd had more time". There's no rational reason to think that any of his policies accelerated the economic recovery. And you also fail to acknowledge that the war time preperations started in 1939.
Face it, there's no economic success to point to. You're strongest argument consists of "if he'd only had more time."
I think 11 years of Depression was enough.
I don't see any reason why we should try that again.
But, Shag - you just used a 'guarantee' in post #65
I wasn't raising the burden of proof - I was just following your lead...
Easy to claim something when you know you never have to worry about that scenario ever coming to pass - huh?
I can guarantee we won't be invaded by missile bearing penguins too... just as meaningful (or less) as your guarantee
You are once again mischaracterizing me.
I never said anything about a guarantee for job creation, I was talking about getting out of the recession. Two different things.
Did you even read the article I posted?
Because investors are burdened with paying capital gains taxes when the gain is realized through a sale of an asset, capital gains taxes are known to discourage sale of appreciated assets. The higher such taxes, the more the investor is discouraged--a consequence known as the "lock-in effect." Similarly, because losses can be deducted, the sale of underperforming assets is encouraged.
During troubled times, buying assets at low prices increases the capital gain in the recovery. Capital gains taxes create a wedge that prevents some asset purchases that could help further the economy recovery, because the cost of the tax is built in to long-term investment decisions.
Repeal of capital gains taxes will produce an immediate stimulus effect: As soon as the taxes are repealed, there will be a boost to the financial markets as beneficial transactions are made. Other stimulus policies take time to have an effect, but tax changes on investment transactions have an immediate impact.
A complete repeal of these taxes would lead to much greater short-term stimulus and, just as important, a recovery conducive to long-term growth. Investors make decisions based on long-term policies, not just short-term ones. A permanent elimination of these taxes would encourage new long-term investment. This is the only way to sustain a recovery and increase growth in the economy.
Simultaneous repeal of both capital gains and dividends taxes is also important because repealing only capital gains taxes would divert profits more toward internal investment than toward dividend payouts. Additionally, some of this diversion would only be for a tax purpose. Tax law should strive to facilitate--not direct--sound investment decisions.
During troubled times, buying assets at low prices increases the capital gain in the recovery. Capital gains taxes create a wedge that prevents some asset purchases that could help further the economy recovery, because the cost of the tax is built in to long-term investment decisions.
Repeal of capital gains taxes will produce an immediate stimulus effect: As soon as the taxes are repealed, there will be a boost to the financial markets as beneficial transactions are made. Other stimulus policies take time to have an effect, but tax changes on investment transactions have an immediate impact.
A complete repeal of these taxes would lead to much greater short-term stimulus and, just as important, a recovery conducive to long-term growth. Investors make decisions based on long-term policies, not just short-term ones. A permanent elimination of these taxes would encourage new long-term investment. This is the only way to sustain a recovery and increase growth in the economy.
Simultaneous repeal of both capital gains and dividends taxes is also important because repealing only capital gains taxes would divert profits more toward internal investment than toward dividend payouts. Additionally, some of this diversion would only be for a tax purpose. Tax law should strive to facilitate--not direct--sound investment decisions.
Businesses look for the long term as well. There would be a psychological effect on the economy from abolishing the corporate tax. We would go from having the highest tax to having the lowest tax. Many businesses would come to the US and/or expand their opperations because profits here would not be taxed. That would turn the economy around.
You seem to be putting the cart before the horse and assume that the economy has to turn around before businesses will start expanding. If that is what you expect then no economy would ever come out of a recession. All economies are dragged out of a recession by businesses (at least in certian areas) expanding first.
History has shown this to be true. Your theoretical (distorted Keynsian) views don't jive with reality here. When that happens, the theory is wrong.
Again, perpetuating ignorance on the assumption that comsumption drives income growth which drives the economy. Keynes had it the other way around; consumption depends on income. Again from another article I have posted and quoted numerous times and that you seem to be constantly ignoring:
How many times have we read the demand-side fallacy — namely, that economic growth “depends on” consumption, because consumption accounts for 70 percent of GDP? To say that income growth depends on consumption would be absurdly circular even in Keynesian terms, because Keynes argues that consumption depends on income. In reality, Keynes attributed sudden gyrations in income to changes in investment. This is a real theory of the business cycle, which may be both the best and least understood part of Keynes’s work. Recessions arise, he said, “where investment is being made in conditions which are unstable and cannot endure, because it is prompted by expectations which are destined to disappointment.” Think of highly leveraged investments in Las Vegas condos a few years ago by those who thought they could resell at a higher price before the teaser rate on the mortgage went higher.
Any money not stored in a mattress or house or something like that is in the economy. even if it is in "low-interest rate saving accounts" it is still in the market and is helping the economy.
You keep asserting otherwise and ignoring the arguments against your (at this point) ignorant claim.
Yes. It. Will.
Why can't you see that?
Companies will look for the first opportunity to expand and get a jump on the competition. All they need if a sign that there is a good chance to make a profit. You can see how the economy reacts to the stimulus and more government spending. Before any new spending/stimulus program takes effect the markets drop due to the psychological effect that has on the market. The investors know that there is no (or very little) opportunity. It doesn't help that the president is intentionally talking down the economy and fearmongering to get his pork bill passed (can you say "irresponsible"?).
You abolish the corporate and/or capital gains taxes, and the investors and businesses would jump at that opportunity that presents. They would lay the groundwork for more profits by slowly expanding their businesses. It would all snowball from there.
Because things are unstable and Obama is perpetuating that with his irresponsible fearmongering.
You need to provide stability, which the cutting of those taxes would do.
It wasn't my logic. It was Keynes own logic. The guy whose theories you buy into. How about you actually read the article.
You are once again mischaracterizing what I posted. I don't see how any of what you posted in that quote reflects what I was saying. The Las Vegas thing is an example of why things go wrong. The quote was not showing it in a positive light. It was an example of Keynes own logic; that Recessions arise, “where investment is being made in conditions which are unstable and cannot endure, because it is prompted by expectations which are destined to disappointment.” Market bubbles, like the housing bubble and the credit bubble.
Since you won't read the article, I see I have to walk you through the relevant parts. Here:
If such wrongheaded private investment collapsed, Keynes worried, fear could keep investment depressed for a long time. So he proposed offsetting the drop in private investment with government purchases. When it came to public works, the more wasteful the better — because unproductive investments would not crowd out private investment: “If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coal mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again . . . there need be no more unemployment.”
Such reasoning lay behind the infamous “multiplier,” which the late Harry Johnson described as an “inexhaustibly versatile mechanical toy.” Because people employed in burying and digging up bottles will supposedly employ other people by spending their paychecks, the initial increase in government spending was thought to have a multiple effect on total spending. And that, said Keynes, will lead to an “increase in employment and hence in real income.” But checks received for producing nothing are not real income. Real income per worker depends on real output per worker — incentives to produce, not incentives to spend.
If there is no multiplier effect, the multiplier is one — a billion dollars of government spending adds a billion to national income, but no more. Keynes offered a hypothetical example suggesting the multiplier could be ten if people promptly spent 90 percent of added income on consumer goods. That is how he came to imagine that “public works even of doubtful utility may pay for themselves over and over again at a time of severe unemployment if only from the diminished cost of relief expenditure.”
Recent research finds multipliers to be very small at best, if not negative. In 2002, the IMF published “The Effectiveness of Fiscal Policy in Stimulating Economic Activity — a Review of the Literature” by Richard Hemming, Michael Kell, and Selma Mahfouz. They found that “short-term multipliers average around a half for taxes and one for spending, with only modest variation across countries and models.”
The C+I+G rubric is a tautology — true by definition. Yet it seduces people into confusing the uses of income (spending) with the sources of income (production). One person’s spending is another person’s income, but that does not mean the mere act of spending money creates real income. If that were true, then every poor country could become rich by simply dropping money from helicopters.
Such reasoning lay behind the infamous “multiplier,” which the late Harry Johnson described as an “inexhaustibly versatile mechanical toy.” Because people employed in burying and digging up bottles will supposedly employ other people by spending their paychecks, the initial increase in government spending was thought to have a multiple effect on total spending. And that, said Keynes, will lead to an “increase in employment and hence in real income.” But checks received for producing nothing are not real income. Real income per worker depends on real output per worker — incentives to produce, not incentives to spend.
If there is no multiplier effect, the multiplier is one — a billion dollars of government spending adds a billion to national income, but no more. Keynes offered a hypothetical example suggesting the multiplier could be ten if people promptly spent 90 percent of added income on consumer goods. That is how he came to imagine that “public works even of doubtful utility may pay for themselves over and over again at a time of severe unemployment if only from the diminished cost of relief expenditure.”
Recent research finds multipliers to be very small at best, if not negative. In 2002, the IMF published “The Effectiveness of Fiscal Policy in Stimulating Economic Activity — a Review of the Literature” by Richard Hemming, Michael Kell, and Selma Mahfouz. They found that “short-term multipliers average around a half for taxes and one for spending, with only modest variation across countries and models.”
The C+I+G rubric is a tautology — true by definition. Yet it seduces people into confusing the uses of income (spending) with the sources of income (production). One person’s spending is another person’s income, but that does not mean the mere act of spending money creates real income. If that were true, then every poor country could become rich by simply dropping money from helicopters.
What? That isn't a justification. It is an assertion.
"Fairness" is completely arbitrary in this case. You don't dictate tax policy based on what is fair. In this instance "fairness" is just a spin for "envy" driving policy.
So we should ignore what is best for the economy to appease the envy a lot of people have toward those that make more then that do? ultimately, this argument is an appeal to emotion.
If you can't look past the mindless class warfare crap, you can't grasp the argument.
It is immoral to justify taxes based on envy disguised as arbitrary "fairness".
Does it matter? Either way, less taxes are more motive to invest and expand production.
probably closer to a year; maybe a year and a half.
And the only potential benefit any government stimulus can have in the short term is the same as a tax cut/private business driven stimulus would have in the short term; purely psychological.
None of the programs in the stimulus are going to be enacted fast enough to have any direct effect on the economy for about the first year; they can't even if they were all enacted in the first year (which most of them are not).
What history? Where are you getting that?
History has shown that private enterprise is the only thing to ever get us out of a recession and any government policy that works against private enterprise only prolongs recession.
It depends on how you calculate it.
There is a reason I never said simply federal corporate tax. Look at the combined state and federal taxes. When you combine the federal tax with Iowa's state tax, it is 41.6% which is higher then Japan's 40.9%.
Yes, more flawed keynsian thinking that has been shown to be wrong.
As that same article points out:
One reason Keynesian theorizing never quite disappears is that our national-income model deliberately incorporates Keynesian concepts. Keynes described the overall economy in terms of how money is spent rather than how it is earned. He divided national income into a few arbitrary accounting categories, describing income (denoted by the letter “Y”) as being spent for consumption (“C”), investment (“I”), government (“G”), and net imports (“X”). Ignoring foreign trade, as Keynes usually did, this yields the famous equation: Y=C+I+G. “The decisions to consume and the decisions to invest,” he wrote, “between them determine incomes.”
Not too suprising that they would still assume Keynsian theories even though history has proven them wrong.
The economy is not driven by consumption, but by production. Keynes had it backwards.
Look to history. This has happened before (and it will happen again). What has historically gotten us out of this type of rut? It has never been the government, it has always been driven by private enterprise. They are always the first to turn around in certian areas. Government responses always take time and are usually too little to late. The best government has ever been able to do is spur businesses to act sooner by giving them incentive to do so; tax cuts. This has held true around the world.
Show me where it hasn't.
I never said it didn't. But Reagan's tax cuts saw an increase in tax reciepts, so they helped reduce the deficit from what it could have been.
To you not know how unemployment is calculated? People working in government busywork projects are not considered employed, but still unemployed.
This article (which I already linked to in this thread) explains why people on work relief still count as unemployed:
Moreover, it's quite reasonable to count people on work-relief as unemployed. Notice that if we counted people on work-relief as employed then eliminating unemployment would be very easy - just require everyone on any kind of unemployment relief to lick stamps. Of course if we made this change, politicians would immediately conspire to hide as much unemployment as possible behind the fig leaf of workfare/work-relief.
There is a second reason we may not want to count people on work-relief as employed and that is if we are interested in the effect of the New Deal on the private economy. In other words, did the fiscal stimulus work to restore the economy and get people back to work? Well, we can't answer that question using unemployment statistics if we count people on work-relief as employed.
There is a second reason we may not want to count people on work-relief as employed and that is if we are interested in the effect of the New Deal on the private economy. In other words, did the fiscal stimulus work to restore the economy and get people back to work? Well, we can't answer that question using unemployment statistics if we count people on work-relief as employed.
So putting people on work relief does not reduce unemployment and does not help restore the economy. Instead, all it does is keep people on unemployment longer and help keep a recession going longer.
Here is another good article worth reading.
So, now all those industries can see a boost. They will all pay taxes. The corporations that sell boots will add a shift to the factory. The huge oil company will drill for new oil. The Japanese factory worker that made the TV will buy a pair of Levi's. The waitress at Applebees can buy a new backpack for her 5 year old. And Chip Foose can build another Hot Rod (obviously very expensive 20" wheels
And, after 4 years, the road job will end. But, the oil company is needing rig maintenance workers, because they are drilling. I can get a job with them...
Now you are talking about the "multiplier effect" from keynsian theory which is another joke. From that brilliant article that you won't read:
he [Keynes] proposed offsetting the drop in private investment with government purchases. When it came to public works, the more wasteful the better — because unproductive investments would not crowd out private investment: “If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coal mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again . . . there need be no more unemployment.”
Such reasoning lay behind the infamous “multiplier,” which the late Harry Johnson described as an “inexhaustibly versatile mechanical toy.” Because people employed in burying and digging up bottles will supposedly employ other people by spending their paychecks, the initial increase in government spending was thought to have a multiple effect on total spending. And that, said Keynes, will lead to an “increase in employment and hence in real income.” But checks received for producing nothing are not real income. Real income per worker depends on real output per worker — incentives to produce, not incentives to spend.
If there is no multiplier effect, the multiplier is one — a billion dollars of government spending adds a billion to national income, but no more. Keynes offered a hypothetical example suggesting the multiplier could be ten if people promptly spent 90 percent of added income on consumer goods. That is how he came to imagine that “public works even of doubtful utility may pay for themselves over and over again at a time of severe unemployment if only from the diminished cost of relief expenditure.”
Recent research finds multipliers to be very small at best, if not negative. In 2002, the IMF published “The Effectiveness of Fiscal Policy in Stimulating Economic Activity — a Review of the Literature” by Richard Hemming, Michael Kell, and Selma Mahfouz. They found that “short-term multipliers average around a half for taxes and one for spending, with only modest variation across countries and models.”
Such reasoning lay behind the infamous “multiplier,” which the late Harry Johnson described as an “inexhaustibly versatile mechanical toy.” Because people employed in burying and digging up bottles will supposedly employ other people by spending their paychecks, the initial increase in government spending was thought to have a multiple effect on total spending. And that, said Keynes, will lead to an “increase in employment and hence in real income.” But checks received for producing nothing are not real income. Real income per worker depends on real output per worker — incentives to produce, not incentives to spend.
If there is no multiplier effect, the multiplier is one — a billion dollars of government spending adds a billion to national income, but no more. Keynes offered a hypothetical example suggesting the multiplier could be ten if people promptly spent 90 percent of added income on consumer goods. That is how he came to imagine that “public works even of doubtful utility may pay for themselves over and over again at a time of severe unemployment if only from the diminished cost of relief expenditure.”
Recent research finds multipliers to be very small at best, if not negative. In 2002, the IMF published “The Effectiveness of Fiscal Policy in Stimulating Economic Activity — a Review of the Literature” by Richard Hemming, Michael Kell, and Selma Mahfouz. They found that “short-term multipliers average around a half for taxes and one for spending, with only modest variation across countries and models.”
Yes, it is so respectful to intentionally mischaracterize someones arguments, smear, demonize and illogically marginalize their sources, ignore parts of their argument that counter your claims (while you continue to assert your claims as fact) and generally obfuscate the issues here.
I am sorry, but I tried playing nice on here for quite a while and all it got me was smears, mischaracterizations and insults. While you don't get so much into the insults (at least not directly) you are a master of mischaracterization, marginalization and obfuscation.
When you demonstrate those disrespectful and flat out rude habits, I don't see any reason to treat you with the respect you cannot extend to me.
You are more then smart enough to know that you are mischaracterizing. While some of it may very well be unintentional, you would have to be an idiot to not realize you are doing it as much as you are. I know you are not an idiot.
You are very intelligent, but your whole thought process in any argument here seems to be aimed at finding clever ways to distort things to allow for your argument to be true (or at least not be provably false). That seems to be a habit for you and something you would have a very hard time changing even if you truely wanted to. It is rationalization of your passions (which is what seem to dictate your political principles and/or views), by any means necessary. Someone doing that is incapable of an honest debate, IMO.
Whew!! That was a long post!! sorry about the length.
well, first cal...
Yes, the war got to us first, as far as ending the depression. The depression was ending with FDRs policies, but the war intervened. I can't change that. And there is every reason to say that his policies changed the outcome of the depression. If the depression had followed the 'footprint' of our other depressions... it should have taken 14 years to recover. Roosevelt was on the road to recovery and if the trends continued we would have seen recovery in 9 years from trough. It is speculation, who knows what else could have happened during that time frame.
But to say that he failed to bring an end to the Great Depression is misleading. He was ending the great depression. The war economy started up before he finished the job. That isn't his fault. He was getting the job done. Just because you are 2 girders short of finishing the bridge before someone blows it up doesn't mean you aren't almost done building the bridge.
There is plenty of success to point to - in 8 years he increased the GDP by almost 2 times from the time he took office, no other president has done that. He lowered unemployment by a full 10 points, again, something no other president has done, heck no other president has had to deal with 10% unemployment since FDR. He increased private investment by 8 times. He kept government spending flat as related to GDP. Put his numbers against any president, and see what you get. Once again, you can say that after 8 years unemployment was at 14% which seems terrible - but, when you start out at 25 percent - it is an amazing improvement. No other president has been handed such a mess. None.
And since this is something that has been touted on this forum. I can, with the same logic that others have used to state that GWBush has kept us safe from additional terrorist attacks because we haven't had any since 9/11, state that FDRs policies have kept us safe from further depressions. The US had depressions that started in 1807, 1837, 1873, 1893, and of course 1929. Sort of a 20 some to 30 some year cycle. Since 1929 we have not had a depression. According to the previous cycle we should have had one in the late 50s to early 60s, and another one in the 80s or 90s. We didn't. You could therefore conclude that FDRs policies and programs that live on today are protecting us from entering further depressions. (I don't know if I would really believe that - I would need far more research into that).
Well, Cal, even Heritage states that the war economy started in 1940, you can check Shags post #24 which has the Heritage chart...
Yes, the war got to us first, as far as ending the depression. The depression was ending with FDRs policies, but the war intervened. I can't change that. And there is every reason to say that his policies changed the outcome of the depression. If the depression had followed the 'footprint' of our other depressions... it should have taken 14 years to recover. Roosevelt was on the road to recovery and if the trends continued we would have seen recovery in 9 years from trough. It is speculation, who knows what else could have happened during that time frame.
But to say that he failed to bring an end to the Great Depression is misleading. He was ending the great depression. The war economy started up before he finished the job. That isn't his fault. He was getting the job done. Just because you are 2 girders short of finishing the bridge before someone blows it up doesn't mean you aren't almost done building the bridge.
There is plenty of success to point to - in 8 years he increased the GDP by almost 2 times from the time he took office, no other president has done that. He lowered unemployment by a full 10 points, again, something no other president has done, heck no other president has had to deal with 10% unemployment since FDR. He increased private investment by 8 times. He kept government spending flat as related to GDP. Put his numbers against any president, and see what you get. Once again, you can say that after 8 years unemployment was at 14% which seems terrible - but, when you start out at 25 percent - it is an amazing improvement. No other president has been handed such a mess. None.
And since this is something that has been touted on this forum. I can, with the same logic that others have used to state that GWBush has kept us safe from additional terrorist attacks because we haven't had any since 9/11, state that FDRs policies have kept us safe from further depressions. The US had depressions that started in 1807, 1837, 1873, 1893, and of course 1929. Sort of a 20 some to 30 some year cycle. Since 1929 we have not had a depression. According to the previous cycle we should have had one in the late 50s to early 60s, and another one in the 80s or 90s. We didn't. You could therefore conclude that FDRs policies and programs that live on today are protecting us from entering further depressions. (I don't know if I would really believe that - I would need far more research into that).
It is considered the start of he "war economy", however, I just think it's worth pointing out that the military spending started climbing in '39. It's worth note.
100% correct!
It made it longer and more painful.
Well, first Shag, I will get into the 'meat' of the argument soon (no kidding that is long - it is going to take 2 margaritas just to finish reading it ) - but I have a trade show to pack...
I assume that here you are speaking of Heritage, and their unemployment chart. I never said anything bad about Heritage, I never stated that they lied or were dishonest. I merely said that I didn't think it was fair that they left out a whole industry when they looked at FDRs unemployment numbers. I still think it is unfair. That is a judgment call, and not a 'smear'. I gave good reasons why I thought it was unfair, and you gave reasons of why you thought that it was a good representation of the figures. Then, it is up for others to decide if they agree or disagree with the figures presented to them.
And, my gosh Shag - look at the length of that last post - I can't rationally respond to every little point - it would take way too long. Maybe if you have points that you really want me to tackle you should do what Cal has resorted to doing - bold them and make them in question form. Then I have a better chance of seeing what you believe is important. Right now, I have to edit myself. I am one mere liberal in a cage of snarling lions - I defend myself the best I can, but I don't know which set of teeth I should be most concerned with.
Aren't you mis-characterizing me when you say I am that entire litany of bad things? I present another side of the issue, I back it with what facts I have, I almost always leave out biased source. I play very, very nice. Once in a blue moon I will question your source, but usually as a 'look, here are the real figures, maybe they left something out' but more often than not I point out that here are the numbers that are available, and here is another conclusion that could be drawn from those numbers. I don't like to go to biased source because you can then fall into bad habits. It is easier to rely on biased source that matches your ideology than to take the small amount of time to look at raw data or raw facts. Almost always when I look at biased source I click on the footnotes and see where they got their numbers. Many times on both sides there are parts of the story being left out, often so they can more directly bring the point home. They are being persuasive. That is their job.
In Heritage's case with the unemployment numbers. It is far more dramatic to say that in FDRs first 2 terms unemployment never got below 20%. A nice round number. Something people understand. If you use the 14.6% number it doesn't sound as bad - harder to get a quick reference. No longer one in 5, but now one in ???. Most people won't do the math.
You give me far too much credit, I am not that smart. I may be tenacious, and certainly not dumb. But very intelligent - nope. I just like to point out what I see are holes or omissions in your stories that you post here. There are 2 sides to every story. I know that you believe that the right is always 'right' shag - but, to me they aren't. Sometimes they are right, but not 'always'. I leave alone many posts that either 1) I just don't have the energy or 'passion' to tackle or 2) I happen to agree with. Heck, believe me the left isn't always right. They are wrong too.
So, everyone here can continue to berate me - go ahead, I know in some odd way it is fun for you.
) - but I have a trade show to pack...I assume that here you are speaking of Heritage, and their unemployment chart. I never said anything bad about Heritage, I never stated that they lied or were dishonest. I merely said that I didn't think it was fair that they left out a whole industry when they looked at FDRs unemployment numbers. I still think it is unfair. That is a judgment call, and not a 'smear'. I gave good reasons why I thought it was unfair, and you gave reasons of why you thought that it was a good representation of the figures. Then, it is up for others to decide if they agree or disagree with the figures presented to them.
And, my gosh Shag - look at the length of that last post - I can't rationally respond to every little point - it would take way too long. Maybe if you have points that you really want me to tackle you should do what Cal has resorted to doing - bold them and make them in question form. Then I have a better chance of seeing what you believe is important. Right now, I have to edit myself. I am one mere liberal in a cage of snarling lions - I defend myself the best I can, but I don't know which set of teeth I should be most concerned with.
Aren't you mis-characterizing me when you say I am that entire litany of bad things? I present another side of the issue, I back it with what facts I have, I almost always leave out biased source. I play very, very nice. Once in a blue moon I will question your source, but usually as a 'look, here are the real figures, maybe they left something out' but more often than not I point out that here are the numbers that are available, and here is another conclusion that could be drawn from those numbers. I don't like to go to biased source because you can then fall into bad habits. It is easier to rely on biased source that matches your ideology than to take the small amount of time to look at raw data or raw facts. Almost always when I look at biased source I click on the footnotes and see where they got their numbers. Many times on both sides there are parts of the story being left out, often so they can more directly bring the point home. They are being persuasive. That is their job.
In Heritage's case with the unemployment numbers. It is far more dramatic to say that in FDRs first 2 terms unemployment never got below 20%. A nice round number. Something people understand. If you use the 14.6% number it doesn't sound as bad - harder to get a quick reference. No longer one in 5, but now one in ???. Most people won't do the math.
I sort of have gotten that. If I continue to show the other side in a calm, rational manner here I will be characterized as such. It has now become routine. If others read it, so be it, I don't really care. I will let my arguments stand, and I can do so without belittling anyone, or demean them.
You give me far too much credit, I am not that smart. I may be tenacious, and certainly not dumb. But very intelligent - nope. I just like to point out what I see are holes or omissions in your stories that you post here. There are 2 sides to every story. I know that you believe that the right is always 'right' shag - but, to me they aren't. Sometimes they are right, but not 'always'. I leave alone many posts that either 1) I just don't have the energy or 'passion' to tackle or 2) I happen to agree with. Heck, believe me the left isn't always right. They are wrong too.
So, everyone here can continue to berate me - go ahead, I know in some odd way it is fun for you.
No it's not,it's wild speculation based on your faith based economics.
And, it goes without saying that EVENTUALLY the economy would recover, DESPITE the policies of FDR. So, by merely delaying the hand of death, FDR would have eventually been there for a recovery to take credit for it.
That's not an argument..."if he'd just had more time...if he'd just had more time." 11 years of depression was more than enough. You fail to acknowledge that the lack of significant improvement in the economy for those 7 years. There was no gradual improvement as your absurd rationalization relies upon. it was bad, really bad, bad, horribly bad, bad, and then war economy.
Just give it a couple more years... and you "believe." You "have faith" it would have FINALLY improved.
And if we just do it again, you're sure, this time, eventually, if we just have HOPE and faith... it'll work. I'm sure you can feel it in your heart.
I actually ‘know’ we are a consumer based society at this point and not a production based society.
And this also gets a little bit into this from Shag’s way long post…. And I really will get back to the rest of it - it just fit in with Cal's here...
We consume, things from all over the world. We love to consume. It is very ‘American’.
So, we are left with how do you stimulate a society that consumes – you make more consumers.
That is what the stimulus plan is suppose to do. Create jobs which in turn creates consumers.
I love how the Republicans have fought (and rightfully so) the ‘buy American’ clauses in the bill. Those shouldn’t be in there. They are right. One of the reasons they ‘state’ is we need to remain friends with the ‘world’ and continue to purchase their goods, so they in turn will continue to purchase ours. But, another great reason is because we don’t produce. We don’t produce enough steel to build cars. We don’t produce enough chips to build computers. And often when we do produce we aren‘t competitive on the world market. We don’t produce enough goods to fill our department stores. We don’t produce enough produce to fill the bins at the grocery store. We allow the rest of the world to do that for us. And then we consume.
You are basing your ‘turn around’ strategy on the false ideal that we are a producing nation. We are not. We haven’t been for many years. What you state may have worked in the past, but, in the past we produced goods for ourselves and the world. Now, the world produces goods for us.
How many things do you think are in your house that are ‘American’? Few and far between. Things that can be uniquely American – the actual construction of that house. The actual maintenance of your car (labor). Maybe the building of your car, however, often with foreign parts. We don’t produce.
Should we turn that scenario around – maybe. But, that turn-around couldn’t happen for many, many years. Maybe decades.
So, we are stuck with moving a consuming society.
MonsterMark
Dedicated LVC Member
Not according to Nancy Pelosi...you have to kill off any new consumer before they are born.
Heck Bryan, we aren't even making those little consumers - birth rate is way down as couples are delaying having children because of the uncertainty in the economy. They are afraid that they might get laid off, and then still have to provide for a baby. The 'baby' industry is hurting... because even our tiniest consumers aren't being born and consuming.
...you're kidding right.
You're saying that calculated birth rates (collected, calculated, and published) which are the result of conceptions 9 months prior are down because of the weak economy now?
You'll print anything so long as you like the way it sounds, won't you.
No, you simply implied it.
But it is still hasn't been shown that they left out a whole industry. In fact, looking at the numbers reported at the time, what we had about farmers was clearly very scarce. I don't see any way they could have found the numbers. There was never and "farmer unemployment statistic" reported or really anything they could derive and estimate from, that I can tell.
But you still claim that Heritage left out the numbers; with no proof and evidence that contradicts your claim. You are perpetuating a falsehood; by definition, a smear.
And I wasn't just talking about Heritage. I was talking about your approach to anyone and any argument you disagree with on here.
You don't take the direct, agressive approach that most liberals do and try and insult/smear the person or persons making the argument. You are decidely passive agressive and use implication a lot more then others here. But it is ultimately still rude and disrespectful of the person and their arguments (usually an implied through the smear attempt on their source or mischaracterization of their argument).
Nope. So you ignore most all of it, take one or two things andrun with it. You then keep repeating of your argument that I challenged as if it has not been challenged. Most of that post is going back and making an even bigger deal of crap that I have countered numberous times in this post and you have ignored and keep talking as if it was fact when it is not. That makes any argument you base on those assumptions a loaded argument and fallacious.
Not if they are accurate.
You know I could care less if a source simply has a bias. It is if that source can be shown to be mischaracterizing things to fit their agenda through dishonest/deceptive arguements that I take issue.
And often times the facts you cite are either cherry picked (probably not by you), irrelevant red herrings, or otherwise don't lead to a conclusion.
You can site as many facts as you want, but if they don't logically lead to the conclusion that you make, then they are irrelevant. That is your problem, you don't seem to concern yourself with if the conclusion logically follows from the premise and the facts given. So you end up making fallacious (but usually convincing) arguments.
Just because and argument is convincing, doesn't mean it is logical or reasonable. Arguements that are convincing but not reasonable are, by definition, deceptive; they seem reasonable at first glance.
so you have two sets of numbers; one is right one is wrong. Just because one comes from a source with an admitted bias and one seems not to doesn't mean that the source with the admitted bias is wrong. Most sources with a liberal bias work to mask their bias (the MSM, for example). They lie and claim they don't have a bias, automatically shooting their credibility in the foot because, before they are even reporting, they are being deceptive.
Just because a source claims to not have a bias doesn't mean that they don't have a bias. In this day and age, most every source has a bias.
But you seem to accept sources that claim to have no bias as more credible then sources that admit to having a bias; an unjustifiable double standard.
Like what? As long as you make sure that the arguments they make are logical and the facts check out, then you should be ok as those are the only areas where any "bad habits" could develop.
You have to rely on a secondary source with this type of thing. I have posted the raw data twice in this forum, and you haven't gone through it. I wouldn't expect you to, but don't try and criticism me for not doing it either.
That info is too long and complex to go through unless you have the time and training to do so. So you have to rely on secondary sources.
The sources I cite admit to having a bias, while the sources you cite claim not to have a bias, when they clearly do. Based on that fact alone, who's sources seem more credible?
Actually, no. That type of deception tends to occur on the left, but not the right, and for two good reason.
- The biggest reason is that the right cannot get away with that even if they wanted to. If were found that a conservative source was provabley mischaracterizing and distorting, other, liberal sources (including the MSM) would have a field day with it. The liberal media and closet liberal sources act as a watch dog to keep conservative stories honest.
- When you actually look at the info and who is or is not mischaracterizing it; conservative sources have a great track record, where as liberals do not.
Just because one side mischaracterizes things doesn't mean the other side is too. If one side has a history of mischaracterizing things (liberals) and claims the other side is mischaracterizing things (conservatives) then it is probably not a good idea to trust the source with the history of mischaracterizing when they claim the other side is mischaracterizing. Instead you should check out what both sides have to say about the story in question and which story (or parts of the stories) check out, and if anything is being left out.
When you do that, conservatives are usually vidicated and liberals are shown to be mischaracterizing to smear a source.
Left wing sources (including the MSM) act as a watch dog, even if what they report is fallacious and dishonest, because they have such a broad reach and go over every nuance of a conservative argument with a magnifying glass. So conservatives have to be very careful in the arguments they make.
The excessive scrutiny and bias of the left and it's dominance in academia and the media has forced the conservatives to improve their game because they can't get away with dishonesty.
The inverse is also true; so much scrutiny on all things non-liberal (and mainly conservative) has led to the left becoming very sloppy in their arguments and relying mostly on dishonesty, deciet and smears.
You are ignoring the fact that the numbers Heritage uses are the most accurate availible! The original numbers reported at the time of FDR's administration are what Heritage used to make their claim. The left is choosing estimates from 1967 based on those original numbers.
You are implying that Heritage is cherry picking their numbers when it is the left doing so and then claiming Heritage is cherry picking when they come up with different numbers.
Of the two sets of numbers one is more accurate and one isn't. The Heritage numbers, being the original numbers, are by definition, more accurate (less margin of error).
So, Heritage is being honest and the left is being dishonest in their attempt to discredit.
And I have no problem with that if it is honestly done. However, most of the "holes" you point out are ones manufactured by the left through deception and dishonesty and perpetuated as a talking point. Yet you come in and assume they are right even when proven wrong.
Then you work to muddy the waters so your point cannot be proven wrong.
There are two sides to every story (and many more), but both cannot be equally right (at least most of the time). One is right and one is wrong (or at least less right).
And if you could have an honest argument and not mischaracterize my arguments all the time (when you are not ignoring them), smear my sources (and ignore their defense) and obfuscate things, then we would have no problem. You have a definate pattern of doing all those disrespectful things (and more) here. I am just the most blunt and agressive in pointing them out, but others have commented ad nausium on those bad habits of yours (and you know it).
You are very smart, but seem to be rather uninformed by comparison to the conservatives you argue with. As I pointed out earlier, most conservatives are former liberals, that is simply how humans work. You are liberal in your youth and as you get older, you get more conservative. As such, the conservatives have examined these issues very closely and (often) rejected liberal assumptions. You clearly have not examined them that closely but when we point out why we rejected those views, you are hostile to us (in your uniquely passive agressive manner). What we have to say is not something to be considered (by you), but something to be disproven by any means necessary (including dishonest, decietful and slanderous tactics). You don't seem to consider it, but only look to disprove it or discredit it in some fashion to allow for your argument.
luxuryrules
Dedicated LVC Member
Not necessarily. The economy has been weakening since early last year - we all saw the signs, though nobody really thought it would get this bad. More importantly, it starts to add up, now that we have had a little over a year of weakening economy that leaves plenty of time for that 9 month lead time.
And, unsurprisingly enough, our local hospitals (here in Central PA) are all recording double-digit decreases (vs prior year numbers) in child births for the past two months, plus reduced attendance at birthing classes and similar pregnancy-assistance programs which would indicate the trend of fewer babies will continue. The signs are there, just gotta look. And have friends in the hospital billing industry