Monday, November 9, 2015

Tax Cut Mythology

Suppose the Republicans agree to stop touting tax cuts as a way to send growth soaring and the Democrats agree to stop saying that Clinton’s balanced budgets gave us the economic boom of the late 1990s. This deal might mean throwing out a lot of tired old campaign slogans, but it will lead to a much more honest debate on economic policy.


  1. Perhaps a new way of measuring GNP would be in order.

    Today GDP includes government spending from local to Federal Government.

    All government spending for 2016:
    $6.16 trillion, with federal $3.69 trillion; state $1.53 trillion; local $1.58 trillion.

    The interesting question, when government borrows money at any level and spends it, it's counted in the GDP. Should there be a line deleting all borrowed money from the GDP as it must be paid back?

    Consider this:
    The government borrows money and spends it, it's counted in the GDP. Government also borrows money to pay the interest and it's counted as GDP. There is no line in the GDP reflecting the future negative of repaying borrowed money.

    Makes your head spin when you think what is the real GDP.

    The question, is it better for government to borrow and spend creating debt or is it better to have less government spending and debt. Should the GDP be considered in the health of the economy as it represents the size of government spending and not the debt today?

    1. "The question, is it better for government to borrow and spend creating debt or is it better to have less government spending and debt. Should the GDP be considered in the health of the economy as it represents the size of government spending and not the debt today?"

      These are actually really fair questions to ask. Some time from now, I think we are going to see quite a few scholarly studies that compare the great depression to our recent blowup in 2008 when the housing scam blew up. In both cases, we had an enormous imbalance in wealth and income, at the start of the great depression, the government did nothing and let the whole thing blow up. This time around the government spent a shit ton of money, basically bailed out the people who caused it and a complete collapse seen in the great depression was averted. Arguably, perhaps it has only been forestalled for awhile longer because of all the government spending.

      The amount of money being spent by the government, to me, is a clear sign our current economy, built heavily on flipping things, shuffling paper and other service based jobs is not healthy. The spending though has been building for decades. The sequester, I think, was probably the biggest indicator of how dependent the economy is on government spending. It predictably caused pain, and then both parties basically found ways to work around the pain rather than truly make decisions on what to cut.

      To the initial point, I have to agree, there are plenty of very tired saws that people keep repeating. I believe Clinton gets way way too much credit for what happened under his watch. He just happened to be president at a time when there was ridiculous speculation and a perfect storm of boom bust. He signed off the start of many trade deals that de industrialized the country. Outwardly, we had this appearance of growth and abundance. Inwardly, we were finding as many creating ways as possible to sell off the intrinsic wealth of the country, basically like buying a company just to raid the pension fund.

    2. I often wonder what the real numbers would look like. Perhaps a subtraction from GDP for debt and interest paid especially if it's borrowed.

      The current method of calculating GDP seems to reward government spending by boosting GDP. As the money is recycled through the economy until it's shipped overseas there is some validity to government spending boosting GDP.

      The sequester was a bit of a joke. 88 billion in cuts in a 4 trillion dollar spending package. A rounding error yet the politicians had to get rid of it as it represented a CUT in spending. The impact to people, little if any. Did read that 1 government employee lost their job because of sequester.

    3. Well, it's not like no one works for the government spending, they aren't just handing out checks to people. People do actually build the ships and tanks and other military gadgets of death, and when they go home, they spend their money in grocery stores, just like the people with food stamps do, and in that regard, the money does circulate and create other jobs. And all those people do pay taxes, so it's not just pure borrowing. But it's almost like a reverse Kreb's cycle. Instead of expending two units of energy to create three, we are expending three units of energy to create two (ha, there might even be a tar sands analogy there! lol). I think the data you are asking for could be calculated, but I have to admit I don't know one way or the other would it would mean.

      I could pretty readily agree I think a lot of people are just getting by instead of living in tents because of direct or indirect gov spending and I don't think it's a good thing. I feel better that I don't see well dressed people standing on corners wearing a sandwich board that says, "Will work for food", but I also think that within the last ten to fifteen years, we have created one to two generations of individuals who are collectively not going to do well and that will touch the rest of us one way or another.

      the size of the sequester is admittedly a fair joke to be made. I do disagree on the perception it didn't hurt anything. It stopped a lot of projects, it started to close some small airports for lack of funding. It was going to mess with air travel and here and there, it hit something that affected more than one government employee. If it didn't affect anyone, they would not have worked to get around it like they have.