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Obama and Economics: Intellectually Clueless

Sandokan

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Obama and Economics: Intellectually Clueless
Townhall - Larry Elder - Obama and Economics: Intellectually Clueless

by Larry Elder

While in high school, I was standing at a bus stop next to a gas station. A kid tossed a candy wrapper on the station lot. Somebody yelled, "Hey, pick that up." The kid, with a straight face, defended himself. He said, "I just created a job." Someone would be hired, he explained, to pick up the trash, and this would be good for the economy.
Don't laugh. The kid probably works for the Obama administration.

Congress is now considering yet another "stimulus" package. But did the administration's previous one work? Of the $787 billion stimulus package, President Obama said it would "save or create" 3.5 million new jobs. Has it?

The National Association for Business Economics polled 68 private-sector members. Seventy-three percent said the employment at their companies was neither higher nor lower as a result of the stimulus package.

What about the nonpartisan Congressional Budget Office? A February 2009 Washington Times article said:

"President Obama's economic recovery package will actually hurt the economy more in the long run than if he were to do nothing, the nonpartisan Congressional Budget Office said Wednesday.
President Obama, as most Democrats, fallow the Keynesian theory with respect to the economy, which try to stimulate the economy with increased government spending.

Supply side economics argue that lower taxes and less regulation will create economic growth, since tax cut cost will be offset by increase in tax revenue. If the 787 million stimulus program would has been used in tax cuts, the economy would be sizzling, and new business and employment created.
 

Kushinator

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President Obama, as most Democrats, fallow the Keynesian theory with respect to the economy, which try to stimulate the economy with increased government spending.

Supply side economics argue that lower taxes and less regulation will create economic growth, since tax cut cost will be offset by increase in tax revenue. If the 787 million stimulus program would has been used in tax cuts, the economy would be sizzling, and new business and employment created.
Not at the zero bound, and not when tax cuts go to those who have rather large disposable incomes.
 

Teh Internets

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As long as the tax cuts go to the middle class then yeah you're right. Tax cuts on the rich don't do sh*t.
 

LaMidRighter

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As long as the tax cuts go to the middle class then yeah you're right. Tax cuts on the rich don't do sh*t.
False. When the very wealthy have more disposable income they purchase more, this means companies must keep up with production and they hire meaning more jobs, that equates to more tax payers which equates to more tax revenue after the multiplying factors take root. The wealthy are usually small businesses that hire dependant on budget, when they have more money they tend to expand which means more workers hired, this leads to more tax payers meaning more people paying less money has a multiplying factor leading to more revenue. When the upper middle class keep more money they shop more, they dine out more, etc. meaning the middle and lower middle class make more.....more taxpayers and so on. There is no middle class exclusive tax break that will accomplish what a broad spectrum one will in growth, rather taxing the wealthy and super wealthy will have a negative effect in the short term.
 

Lord Tammerlain

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False. When the very wealthy have more disposable income they purchase more, this means companies must keep up with production and they hire meaning more jobs, that equates to more tax payers which equates to more tax revenue after the multiplying factors take root. The wealthy are usually small businesses that hire dependant on budget, when they have more money they tend to expand which means more workers hired, this leads to more tax payers meaning more people paying less money has a multiplying factor leading to more revenue. When the upper middle class keep more money they shop more, they dine out more, etc. meaning the middle and lower middle class make more.....more taxpayers and so on. There is no middle class exclusive tax break that will accomplish what a broad spectrum one will in growth, rather taxing the wealthy and super wealthy will have a negative effect in the short term.
That only hold true if the wealthy are spending money at a similar rate to the increase in their wealth. As wealth has been concentrating in the US over the last few decades, they have not been increasing spending as much as they have been making, regardless of taxes. It is the middle class that are the main consumers, the middle class is the driving force of job creation in the US, or were, as they have been the drivers of consumption. Now that the middle class is deeply in debt and in the process of finally paying down debt, or saving for retirement, they can no longer consume like they used to. That is a primary reason for the high level of unemployement, demand for goods and services has dropped drastically
 

Kushinator

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I agree with much of your post, but there is structural turmoil in labor markets. People need to retool their skills, which i believe will come at the expense of low skilled manufacturing yet increase the labor force in health care. There is incredible pent up demand in the health care labor market.
 

LaMidRighter

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That only hold true if the wealthy are spending money at a similar rate to the increase in their wealth.
If that were true it would be due to the nature of taxes as is. First off the income tax is punitive so many who can hide money in capital gains will do so, because that is less stable than pure income the money will likely be held in limbo as a leverage thing. If the money were as fluid as say, pure income it would get spent. There is always a coorelation. As well, even after the earnings are taxed purchases then have their own taxes, this leads to a wait and see approach to spending. It's not as simple as A and B make C.
As wealth has been concentrating in the US over the last few decades, they have not been increasing spending as much as they have been making, regardless of taxes.
This is a fallacy. It requires one to believe that there is a finite amount of economic potential and was magically shifted towards a "class" of people. In capitalist economic models anyone has access to the supply of money if they have the desire, ideas, initiative and a little luck to get there. What they do with their money is really no one else's business as long as it's legitimate.
It is the middle class that are the main consumers, the middle class is the driving force of job creation in the US, or were, as they have been the drivers of consumption.
In bulk, yes. In theory, yes. In reality, no. The middle class are not the largest hiring class, the wealthy are; as well the wealthy buy the big items that require the higher salaried workers, it all functions as one large mechanism with many cogs. If one cog fails the whole system will suffer. When the wealthier among us have no confidence in hiring or buying the chain breaks down, thus the middle class shrinks.
Now that the middle class is deeply in debt and in the process of finally paying down debt, or saving for retirement, they can no longer consume like they used to.
This is not the function of tax breaks. Debt responsibility cannot be regulated, consumerism drives that but not necessarily because they were given more back in taxes. If nothing else the loss of taxes in income versus the very American desire to improve one's life are the culprit. If people knew how much they truly lost in taxes they'd hang their senators, that said the notion of being promoted but not gaining economic traction drives debt based consumerism IMHO.
That is a primary reason for the high level of unemployement, demand for goods and services has dropped drastically
But not due to tax cuts, due to an uncertain market. Which has become that way due to uncertainty over regulatory expansion and tax cut sunsets. There is no market confidence and it's political.
 
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Geo Patric

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well, your view of the different models of economics is one thing, largely subject to opinion and whether you support an economy that benefits the nation or one that benefits a few. The keynsian model has been the dominant model since at least WWII and has provide for the greatest periods of expansion we have ever seen.

SS is a 'model' in name only. the number of reputable economists that actually thinks this is an effective means or managing a national economy are few and far between. It has twice plunged this country into serious recession. but... as i say, it is arguable.

that you have the temerity to question m. Obama's intellectual capacity... well, that is simply idiotic. disagree with him, but he is easily one of the most intelligent men to ever occupy that office. his fiercest opponents do not question his intelligence, not those with much integrity, anyway.

geo.
 

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that you have the temerity to question m. Obama's intellectual capacity... well, that is simply idiotic. disagree with him, but he is easily one of the most intelligent men to ever occupy that office. his fiercest opponents do not question his intelligence, not those with much integrity, anyway.

geo.
He is intelligent and knows what he is doing. That's what makes him so frightening.
 

Korimyr the Rat

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Keynesian theories about deficit spending in recessions is based on the assumption that the government isn't running a deficit when the economy is good.
 

Korimyr the Rat

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Keynesian theories about deficit spending in recessions is based on the assumption that the government isn't running a deficit when the economy is good.
 

Geo Patric

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He is intelligent and knows what he is doing. That's what makes him so frightening.
that, barb, is a reasonable thing to say... considering that you and i have very different fears.

but... on the notion of Supply Side.... this from Kevin Williamson in an article titled "Goodbye, Supply Side" in The National Review, hardly a socialist, Obamaphile rag:
When the Reagan tax cuts were being designed, the original supply-side crew thought that subsequent growth might offset 30 percent of the revenue losses.. .

The Congressional Budget Office did a study in 2005 of the effects of a theoretical 10 percent cut in income-tax rates. . . The conclusion the CBO came to was that the growth effects of such a tax cut could be expected to offset between 1 percent and 22 percent of the revenue loss in the first five years.
that is, for every dollar you cut in taxes, you get a maximum of 32 cents in revenue.
In the second five years, the CBO calculated, feedback effects of tax-rate reductions might actually add 5 percent to the revenue loss . . .
ahem....
Tom DeLay and Dennis Hastert and Trent Lott and Bill Frist all know how to count, but, under their leadership, Republicans spent all the money the country had and then some. Deficits boomed. . .

Tax cuts give Republicans an opportunity to distribute economic benefits through the tax code the way Democrats distribute them through appropriations, and the exaggeration of the supply-side effect gives them an opportunity to pretend like those benefits are cost-free.
THIS is the secret of Supply Side... it is easy to convince people (well, many, anyway) that simply reduing your taxes will somehow magically improve things. It doesn't. It usually makes things worse.
[California'a] Proposition 13 was all tax cuts. . . . But Proposition 13 can hardly be considered a real success in anything other than political terms: It did not produce fiscal discipline, and it did not provide a long-term solution to California’s budget problems.. . .the Golden State took only a few decades to degenerate into its presently bleak fiscal condition.
libraries, parks, schools, emergency services were devastated. Once... a University education in Ca was virtually free and the University System was considered one of the finest not only in this country, but in the world. and... we have millionaires living in homes which have appreciated in value 300, 400, 500 percent, still paying propery tax on the value of the home as it was determined over 30 years ago.
So, what should conservatives do? One, abjure magical thinking about tax cuts .... [and] get a load of those tea-party yokels, with their funny hats and dysgraphic signage, and keep this in mind: They are opposed to the Democrats, but what they are really looking for is an alternative to the establishment Republicans
i would say your fears are unfounded, barb, and probably just a regurgitation of all the partisan nonsense blasting out over the airwaves from the paleo-conservative blogoshpere.

feel free to correct me, though. what scares you.
geo.
 
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Kushinator

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Keynesian theories about deficit spending in recessions is based on the assumption that the government isn't running a deficit when the economy is good.
To a point, yes. Keynesian theories about deficit spending are based on the assumption that interest rates cannot technically go low enough to boost demand because the "demand for money" outweighs the demand for new goods or services. If monetary stimulus works, there is no need for fiscal stimulus.
 

Kushinator

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If that were true it would be due to the nature of taxes as is. First off the income tax is punitive so many who can hide money in capital gains will do so, because that is less stable than pure income the money will likely be held in limbo as a leverage thing.
I believe that is the point of tax differentials between income and investment gains; investing is not saving in the short run it is spending.

If the money were as fluid as say, pure income it would get spent.
Are you sure? In the US, savings is heavily income correlated.

There is always a correlation. As well, even after the earnings are taxed purchases then have their own taxes, this leads to a wait and see approach to spending. It's not as simple as A and B make C.
To a point. Autonomous consumption revolves around various elasticities. For example, increases in gasoline taxes do not marginally decrease sales.

This is a fallacy. It requires one to believe that there is a finite amount of economic potential and was magically shifted towards a "class" of people.
In the short run, production is limited based on time, resources, population, and opportunity costs.

In capitalist economic models anyone has access to the supply of money if they have the desire, ideas, initiative and a little luck to get there. What they do with their money is really no one else's business as long as it's legitimate.
You left out ability/talent:2razz: Remember, burgers do not serve themselves!

In bulk, yes. In theory, yes. In reality, no. The middle class are not the largest hiring class, the wealthy are; as well the wealthy buy the big items that require the higher salaried workers, it all functions as one large mechanism with many cogs. If one cog fails the whole system will suffer. When the wealthier among us have no confidence in hiring or buying the chain breaks down, thus the middle class shrinks.
The wealthy are going to maintain a relatively similar pattern of consumption regardless of economic contractions. At lower and lower incomes and wealth levels, consumption is far more sensitive to cyclical downturns. The wealthy are going to spend regardless of the economic climate, the same cannot be said for the entire spectrum. Which is why tax breaks to those who have low disposable incomes is more beneficial during downturns.

The Bush tax cuts combined with rebate checks induced deficits.

But not due to tax cuts, due to an uncertain market. Which has become that way due to uncertainty over regulatory expansion and tax cut sunsets. There is no market confidence and it's political.
The market is lacking demand due to cyclical and structure labor market imbalances. Demand drives confidence. Health care services will replace a great deal of lower skilled manufacturing in the coming years; until this transition there will be a slow recovery in labor markets.
 

LaMidRighter

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I believe that is the point of tax differentials between income and investment gains; investing is not saving in the short run it is spending.
Investing is not saving, that is true. The point though is that investments allow for others to get a piece of the action and then they in turn have money to save/spend as they see fit.



Are you sure? In the US, savings is heavily income correlated.
Yes, but only slightly. Consumers with more money have money to spend and savings capital left over, this puts money in banks for lending which allows those with less income to borrow towards aguiring their own needs. When you take off the top those under it will have necessarily less to aquire as investing/saving are adjusted to changes in disposable income.



To a point. Autonomous consumption revolves around various elasticities. For example, increases in gasoline taxes do not marginally decrease sales.
Necessity. Necessities are always met first, gasoline is a necessity for most businesses when you factor sales forces driving to meet clients, distribution, meetings, etc. So of course that demand is inelastic, however elastic demands such as luxuries will suffer when the costs of inelastic demands become burdensome so those sectors see a dropoff in demand. In essence, it is one cog affecting the other.



In the short run, production is limited based on time, resources, population, and opportunity costs.
Which has nothing to do whatsoever with the potential inherent in capitalist models. The resources are finite but opportunities to gain access to such are not.



You left out ability/talent:2razz: Remember, burgers do not serve themselves!
Actually, no I didn't. Ability/Talent likewise can be altered and gained. **** jobs such as flipping burgers and other MW jobs should be considered as starting points, there are always those who will be there to replace others promoted or otherwise advancing in their personal careers........the idea is to advance and not settle for that job in perpetuity.



The wealthy are going to maintain a relatively similar pattern of consumption regardless of economic contractions. At lower and lower incomes and wealth levels, consumption is far more sensitive to cyclical downturns. The wealthy are going to spend regardless of the economic climate, the same cannot be said for the entire spectrum. Which is why tax breaks to those who have low disposable incomes is more beneficial during downturns.
Completely untrue. The wealthy have the most to lose in a risk adverse market and at a much higher percentage, they are the most likely to curb spending while those at the very bottom are the most likely to have no lattitude as they are making every dollar stretch to meet necessities, if anything they would be the most likely to have static expenditure ratios and almost no savings.

The Bush tax cuts combined with rebate checks induced deficits.
No, the inability to curb spending did that. Revenues to the government increased but so did spending. Both must be done for the rebates to have been effective.



The market is lacking demand due to cyclical and structure labor market imbalances.
Incorrect, the market lacks demand due to lack of confidence, labor market imbalances have zero to do with it as the labor market is a contractually agreed upon pay scale. No one is forced into "low" paying jobs, they accept it. Not the market's fault.
Demand drives confidence.
Other way around, Keynes was completely wrong on that. Without confidence demand drops because there is no way of knowing if the ability to obtain will be met. It is human nature afterall that drives markets and not the theoretical math models of Keynsian economics.
Health care services will replace a great deal of lower skilled manufacturing in the coming years; until this transition there will be a slow recovery in labor markets.
This is false. Health jobs on all end of the spectrum are high paying models, under the current climate they will pay less, yet another cog in the wheel broken by Washington. The above was a complete fallacy.
 

Kushinator

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Which has nothing to do whatsoever with the potential inherent in capitalist models. The resources are finite but opportunities to gain access to such are not.
In the short run, we are under time constraints, which limits access.

Completely untrue. The wealthy have the most to lose in a risk adverse market and at a much higher percentage, they are the most likely to curb spending while those at the very bottom are the most likely to have no lattitude as they are making every dollar stretch to meet necessities, if anything they would be the most likely to have static expenditure ratios and almost no savings.
The empirical literature dictates an entirely different tune:
For a more general specification of the utility function and/or binding borrowing constraints it is possible to show that individual consumption responds to income fluctuations (because of partial insurance) and that on average it responds more to income increases than income declines. The two features that generate this asymmetry are that households optimal consumption functions are concave in cash at hand and that the income process is mean adverting. Note that households with low income have, on average, low cash at hand because mean reversion in income, high income growth. Similarly, high income households tend to have high cash at hand and negative income growth. The concavity of the consumption function then insures that the consumption increases associated with income increases of the low income households are larger than the consumption declines associated with the income declines of the high income households.
Dirk Krueger, Fabrizio Perri. Understanding Consumption smoothing: Evidence From US Consumer Expenditure Data. November 2004. Page 3

No, the inability to curb spending did that. Revenues to the government increased but so did spending. Both must be done for the rebates to have been effective.
Revenues tend to average 19.5% of GDP no matter the tax policy, no matter the status of growth. This includes the post WWII era with the highest marginal tax rates in US history. Given the political pressure of cutting spending, it is safe to say the tax cuts were nowhere near deficit neutral.
 

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In the short run, we are under time constraints, which limits access.
Completely untrue. Time constraints do not limit the ability to invest, nor the ability to earn interest from safer accounts such as savings and high yield bonds. Again, there is plenty of capital available to anyone willing to make the right decisions.



The empirical literature dictates an entirely different tune:
That was opinion, not "empirical evidence". Sorry, you'll have to do better.



Revenues tend to average 19.5% of GDP no matter the tax policy, no matter the status of growth. This includes the post WWII era with the highest marginal tax rates in US history. Given the political pressure of cutting spending, it is safe to say the tax cuts were nowhere near deficit neutral.
Average over what time period considering during tax periods that had a lower marginal rate those years showed larger gains.
 

Deuce

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Anybody else notice the sample size in the poll cited in the OP?
 

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You can't change anything until you address monetary policy and foreign policy.
When you have a central banking system that prints the money out of thin air at interest and a global presence that is unaffordable the country is doomed.
Lower taxes and free markets work.
But we need to change policy.
 

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Completely untrue. Time constraints do not limit the ability to invest, nor the ability to earn interest from safer accounts such as savings and high yield bonds. Again, there is plenty of capital available to anyone willing to make the right decisions.
I am speaking in terms of production (which of course drives investment).

That was opinion, not "empirical evidence". Sorry, you'll have to do better.
LOL, have you even read the entire paper?

Average over what time period considering during tax periods that had a lower marginal rate those years showed larger gains.
Tax revenue (as far as i remember) never eclipses 20% from 1946 to the present.
 

LaMidRighter

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I am speaking in terms of production (which of course drives investment).
Both consumption and production actually dependant on what end of the spectrum. Raw materials are driven by production while goods are driven by consumption, necessarily so as the bottom line is selling for a profit.



LOL, have you even read the entire paper?
No need, it's based on pure theory with no actual empirical evidence. It's intellectual wankery at it's finest.



Tax revenue (as far as i remember) never eclipses 20% from 1946 to the present.
Again, you stated it averages 19.5% GDP without a timeframe. Given the proper timeframe averages can change greatly. Do you have anything with year to year analysis?
 

Kushinator

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No need, it's based on pure theory with no actual empirical evidence. It's intellectual wankery at it's finest.
Wouldn't you need to read the study to make such a determination? It was an empiracal study based on CES data sets.

Again, you stated it averages 19.5% GDP without a timeframe. Given the proper timeframe averages can change greatly. Do you have anything with year to year analysis?
Revenue behaves linearly to the 19.5% figure, but you are welcome to do the computation yourself for individual years. I actually had a few posts in this sub forum pertaining to revenues as a percentage of GDP during Reagan, Clinton, and Bush administrations.
 

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I don't think deficit spending works for the economy whether its a stimulus plan or tax cuts. I think the best policy is to balance the budget which will reduce inflation and preserve a strong currency. I think tax cuts, personally, are just money out the door, and I also think the stimulus plan is the same. They don't help the economy significantly, but they add to the deficit.
 

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President Obama, as most Democrats, fallow the Keynesian theory with respect to the economy, which try to stimulate the economy with increased government spending.

Supply side economics argue that lower taxes and less regulation will create economic growth, since tax cut cost will be offset by increase in tax revenue. If the 787 million stimulus program would has been used in tax cuts, the economy would be sizzling, and new business and employment created.
in fact, the bush tax cuts never did pay for themselves. in fact, bush 1 had to raise taxes after reagan cut them.
 

LaMidRighter

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Wouldn't you need to read the study to make such a determination? It was an empiracal study based on CES data sets.
I read enough. It was wordy and self aggrandizing crap.



Revenue behaves linearly to the 19.5% figure, but you are welcome to do the computation yourself for individual years. I actually had a few posts in this sub forum pertaining to revenues as a percentage of GDP during Reagan, Clinton, and Bush administrations.
Then you have no problem showing data to prove it.
 
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