If I could get one question posed to the candidates at the next debate (Tuesday night), which is to focus solely on the economy, it would be this:

“We repeatedly hear about taxes, regulations, and uncertainty standing in the way of job creation. However, the National Federation of Independent Business (“The Voice of Small Business”) surveys its members every month as to their “Single Biggest Problem.” Among the possible answers are both taxes and regulations, yet “Poor Sales” has, in fact, dominated for the past three years.  Additionally, as we see in the chart, “Poor Sales” and the Unemployment Rate correlate very strongly, at about 0.87.

Given these facts, is it disputable that our problem is one of aggregate demand and that, if we could improve demand we could lower the unemployment rate notwithstanding the tax or regulatory environment?”

>

Drop your own (serious, well-formulated) questions in comments and hopefully we might get one or two plucked for inclusion in the debate.

(Catch up with me @TBPInvictus)

Update (10/9 @ 3:20 ET): I have a critic here at Cafe Hayek.  Not sure yet whether to append a response here, over there, or make it another post entirely.  Thanks to Pantmaker and Jojo for the additional commentary here and here; had just about forgotten those citations.  I will ping Russ Roberts, my critic, to make him aware of them.

Category: Current Affairs, Data Analysis, Economy, Employment, Politics

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

70 Responses to “Demand Question for Charlie Rose/GOP Candidates”

  1. Apinak says:

    The U.S. spends ~$7,500 per person per year for health care and have 50 million uninsured, the rest of the OECD countries spend about $3,500 per person per year for universal coverage. For the 300 million people in U.S. this difference amounts to ~$1 Trillion per year in extra costs. What additional value do we get from our private health insurance system that justifies spending an extra $1 Trillion per year?

  2. Apinak says:

    Spending on infrastructure creates about 11,000 more jobs per $1 billion of government spending than military spending does. Given the fact that we already spend more on the military than the entire world combined, our infrastructure is crumbling and given a grade of D by engineers associations, and we have millions of unemployed Americans unable to find work, wouldn’t it make sense to shift $100 billion from military spending to infrastructure spending and create 1.1 million jobs?

  3. Pacioli says:

    Well duh – practically anyone can come to the correct conclusion that we have an aggregate demand problem. What eludes us is credible, practical proposals to enhance said AD.

    My guess is that significant modifications to both tax and regulatory framework would be an integral part of any pragmatic proposal.

    Invictus: If “anyone can come to the correct conclusion that we have an aggregate demand problem” (and therein you concede that it is, in fact, the problem), why have none of the Republican candidates been talking about anything but tax cuts and deregulation, neither of which will do nearly as much to stoke demand as putting more money in the hands of those who are most likely to spend it?

  4. Moss says:

    Why is demand for luxury goods at records?

    Invictus: I’m hard pressed to take this question seriously, but the short answer is that the wealthy are doing just fine, thank you.

  5. If there was a *Real, functioning, “Market”…Charlie Rose would have an ‘Autograph’-version of “Kneepads”, on the Shelf, right next to Monica Lewinsky’s…

  6. Apinak says:

    Here is a list of things Republicans say we can no longer afford-
    Social Security,
    Universal Health Care,
    Health care for 9/11 responders,
    small classrooms,
    teachers, police officers, and firefighters,
    libraries,
    Pell grants
    Alternative Energy Funding

    And here is a list of things Republicans say we can’t afford to do without-
    Tax cuts for rich,
    Military spending of $1.2 trillion per year,
    incarceration of millions of nonviolent drug offenders,
    subsidies for oil and gas,
    subsidies for agribusiness,
    hedge fund managers 15% tax rate,

    Please explain the underlying philosophy that defines these two lists?

  7. Poor Sales says:

    [...] Invictus over at The Big Picture wants Charlie Rose to ask this question of the GOP candidates: “We repeatedly hear about taxes, regulations, and uncertainty standing in the way of job creation. However, the National Federation of Independent Business (“The Voice of Small Business”) surveys its members every month as to their “Single Biggest Problem.” Among the possible answers are both taxes and regulations, yet “Poor Sales” has, in fact, dominated for the past three years.  Additionally, as we see in the chart, “Poor Sales” and the Unemployment Rate correlate very strongly, at about 0.87. [...]

  8. wsquared says:

    We have been losing the real middle class light industrial and heavy industrial jobs that were the core of our economy for a few decades now. We juiced the employment picture over the last decade via the now failed easy credit bubble that allowed purchasing without real wealth to back it up.
    We now find ourselves without real large scale and long term employment prospects, married to a huge amount of public and private debt.
    Just what jobs will be created if we deregulate, and de-tax?

  9. wsquared says:

    How are we going to afford ANY healthcare over the middle term when healthcare costs are rising exponentially, more and more people are opting out of private insurance, for healthcare by Emergency Room, median salaries are flat or declining nationwide, and hopitals are mostly all owned by profit seeking entities trying to wring an ever rising margin from an ever dwindling pool of paying customers?

  10. Casual Observer says:

    Apinak – VERY GOOD!!! Thank you for your thought-provoking post….
    I always love to see comments that deflect from accountability…your post is indeflectable.

  11. Pantmaker says:

    Relevant to the issue of aggregate demand. Bartlett is one smart guy and level headed.

    http://paul.kedrosky.com/archives/2011/10/bruce-bartlett-goes-rogue.html

  12. Francisco Bandres de Abarca says:

    Aggregate demand among the median consumer base will improve once debt servicing costs decrease and employment security increases.

    Increasing the total amount of national and global debt will further decrease aggregate demand, as this inevitably increases debt servicing costs, particularly once the price of and threat to actual capital is more widely recognized (i.e., market-priced interest rates emerging from the wreckage of synthetic sovereign manipulations).

    If even more absurd levels of fiscal interventions are enacted after a manic appeal to fear is marketed so that previous asset (bubble) pricing can be preserved, and thus more ultimately unservicable debt is issued, I would expect even less aggregate demand.

    The best path is to maintain easy monetary policy, maintain current tax rates for the next five or so years, and reduce profligate spending.

  13. Transor Z says:

    For this kind of forum, you might want to frame the question as one that the National Federation for Independent Business (NFIB) and Bruce Bartlett, former official in the Reagan and George H.W. Bush administrations — and a noted voice for supply-side economics — has been saying that DEMAND is the problem right now for small business, not regulation or taxes:

    http://media.cnbc.com/i/CNBC/components/Syndicated%20Video%20Player/videomodule.swf?id=3000049447&pcode=cnbcplayershare&play=&base=http://plus.cnbc.com/stickers/partners/cnbcplayershare/

  14. Jojo says:

    McClatchy Washington Bureau
    Posted on Thu, Sep. 01, 2011
    Regulations, taxes aren’t killing small business, owners say

    WASHINGTON — Politicians and business groups often blame excessive regulation and fear of higher taxes for tepid hiring in the economy. However, little evidence of that emerged when McClatchy canvassed a random sample of small business owners across the nation.

    “Government regulations are not ‘choking’ our business, the hospitality business,” Bernard Wolfson, the president of Hospitality Operations in Miami, told The Miami Herald. “In order to do business in today’s environment, government regulations are necessary and we must deal with them. The health and safety of our guests depend on regulations. It is the government regulations that help keep things in order.”

    McClatchy reached out to owners of small businesses, many of them mom-and-pop operations, to find out whether they indeed were being choked by regulation, whether uncertainty over taxes affected their hiring plans and whether the health care overhaul was helping or hurting their business.

    Their response was surprising.

    None of the business owners complained about regulation in their particular industries, and most seemed to welcome it. Some pointed to the lack of regulation in mortgage lending as a principal cause of the financial crisis that brought about the Great Recession of 2007-09 and its grim aftermath.

    http://www.mcclatchydc.com/2011/09/01/v-print/122865/regulations-taxes-arent-killing.html

  15. johnnywalker says:

    Apinak re health costs: What you said!

    Add the fact that almost all measurable health outcomes rank the US near or at the bottom when compared to all other industrialized democracies. How in the world can the current US health care system be justified or defended?

  16. Molesworth says:

    ditto apinak.
    So many qs I don’t have time to clearly craft with the specifics but in brief and poorly written:

    Income inequality is at its highest since the 1930s. Do you believe that a strong middle class is important to a growing USA economy? If not, why not? If so, how would you go about restoring the vitality and strength of the middle class?

    Repeal of Glass-Steagall in 1998 began a long string of deregulation. The 2 Bush tax cuts have been in place for 8 and 10 years now. Yet the administration of GWB created fewer jobs than the previous 3 administrations and ended with the collapse of the financial system due to excessive risk taking resulting in massive layoffs of workers. If tax cuts create jobs, where are the jobs? If you want to repeal regulations to reduce ‘uncertainty’ to companies will create jobs, how would that not create the same environment that resulted in this Great Recession?

    An increasing number of economists are predicting another recession, especially if more jobs are not created. The CBO, a non partisan group, says that Obama’s jobs bill will create 1-2 million jobs and help fix our crumbling infrastructure. Why are you opposed to it? What would you do to create jobs?

    An increasing number of economists are predicting another recession. If you are elected President and a recession creates a situation where big bank’s impending failure threatens the banking system, how would you deal with the situation? How would you ensure credit could continues to move freely through the economy?
    Would you bail the banks out as GWB and BHO did, would you nationalize them and arrange a structured bankruptcy or would you do something else?

    Reps have stated that their number one goal is to defeat BHO. Washington is bogged down in partisan gridlock. If you are elected President, how would you go about changing the dynamic in Wash? How willing are you to compromise with Democrats to enact bi-partisan legislation?

  17. zcwotun says:

    What role do you think government has in encouraging science, scientific innovation and scientific literacy?

    As president, how will you encourage science and science education in the United States?

  18. paulie46 says:

    @Francisco Bandres de Abarca

    “Increasing the total amount of national and global debt will further decrease aggregate demand, as this inevitably increases debt servicing costs, particularly once the price of and threat to actual capital is more widely recognized (i.e., market-priced interest rates emerging from the wreckage of synthetic sovereign manipulations).”

    You seem to have a fundamental misunderstanding of the U.S monetary system. The only debt that matters is private debt.
    Public debt merely represents the quantity of financial assets that exist (net) in the economy plus dollars held by foreign entities i.e. total private-sector saving. Public debt must not be extinguished.
    One could write:

    Public debt=private sector savings. Savings is unconsumed income, therefore Savings=Income – Consumption.

  19. Molesworth says:

    Last week, CA Representative Darrell Issa told reporters “It is reasonable to predict that we could have the collapse of the entire solar panel manufacturing business in America” citing competition from China as the primary reason. Do you agree that America has already lost to China?
    Or do you believe that we can surpass China in innovation and creativity? If so, other than ‘reduce regulations,’ would you do to spur innovation and increase manufacturing in USA?

  20. Francisco Bandres de Abarca says:

    @ paulie46

    “The only debt that matters is private debt.”

    Huh?!

    “Public debt = quantity of financial assests in the economy + held foreign dollars . . . and that is private sector savings.”

    WTF?!

    So, by your dazzling deployment of . . . whatever species of ‘logic’ you seem to be employing . . . all that needs to occur is that Secretary Geithner merely needs to issue an endless supply of public debt and, viola!, private sector savings blossom forth in magnificent splendor for all citizens! Wheeeee!

    Savings is not a debt which I must service in the future.

  21. dsawy says:

    Of course it is open to dispute.

    It matters greatly where the business activity happens that fills that demand. If consumer buying power were somehow increased by government spending, and the consumers spent that money (in aggregate) on products and goods that come in from other countries (eg, Chinese-made consumer crap, oil/gasoline from oil-exporting nations), then it stands to reason that increasing consumption won’t increase employment within the US all that much.

    There are many times when economists show that they’re not terribly bright. This aftermath of the “free trade” movement is one of those times.

  22. murrayv says:

    A recent issue of Business Week notes that small business creates not more than 20% of the jobs in the USA with very high turnover, and thaT LESS THAN 20% OF SMALL BUSINESSES ARE IN THE >$250K/YR bracket. Also it is well known (or should be), that most small businesses other than professionals like doctors and lawyers keep 2 sets of books to minimize their tax payments. Why do you keep on insisting that raising taxes on those making >$250k/yr will inhibit job creation?

  23. Transor Z says:

    30-year rates are now sub 4.00% and still no bottom, much less improvement, in the housing market.

    Consumer debt continues to decrease, now down to $11.4 trillion, but still with no sustained uptick in consumer confidence or spending.

    $8.5 trillion is mortgage debt, with 1/4 of mortgages underwater.

    But credit card debt, about $1 trillion worth, is rising… not good.

    Avg U.S. consumer debt-to-income ratio is 150%.

    Weekly new jobless claims have averaged ~400k or more for four years.

    The Eurozone is a basket case and is in danger of breaking up/systemic collapse.

    Manufacturing has gone soft again and we’re back in recession.

    Analysts have been asking for three years what industry will pull the U.S. economy out of the ditch. None have materialized.

    Many looked to emerging markets in China, India, and Brazil to pull the world out of the ditch. Hasn’t happened.

    There are indications that China is using its increasing economic influence to corner commodities markets in rare earths and oil by exerting strong influence over its trade partners around the world. In fact, it is not clear at all that China’s ascendency is making the world a more stable place in the short term as it jockeys for position vis a vis western economies and its Asian neighbors.

    But other than that, how was the play, Mrs. Lincoln?

    Seriously, who are these clowns pimping tax cuts and deregulation and why on God’s green earth are we paying them any attention?

  24. paulie46 says:

    @Francisco

    “So, by your dazzling deployment of . . . whatever species of ‘logic’ you seem to be employing . . . all that needs to occur is that Secretary Geithner merely needs to issue an endless supply of public debt and, viola!, private sector savings blossom forth in magnificent splendor for all citizens! Wheeeee!”

    Your response is typical – it ignores everything I said, none of which can be found in your statement. What I stated is the logic of simple arithmetic – an accounting view of the economy. One can say a lot of things about debt and spending, provided one follows the laws of arithmetic.

    Where do you think the dollars come from that ends up as unspent income (savings) on balance sheets. There is only one source of financial assets that in the aggregate private sector actors can accumulate on their balance sheets – net government spending or as we say deficits.
    Credit as provided through banks and by extension the Fed goes in one door of the economy as cash but leaves through another door as payments. The net growth in assets is zero unless borrowers default and banks are unable to cover the losses from interest income which, by the way, comes from direct government spending into the economy.

    As an exercise consider the following:

    (I-S)+(G-T)+(X-M)=0 This is the sectoral balances equation of the economy and is true by definition.
    It states:
    Net Savings plus Net Government Spending plus Net exports=0. If you ignore Net Exports for the moment (a deficit in Net Exports drains financial assets from the economy) the equation reduces to:

    (S-I)=(G-T) which is words states that Net Savings = Net Government Spending, i.e. Net Savings = Deficits.

    It follows that ∑Net Savings = ∑Deficits = National Debt™

    where:
    I=investment spending
    S=Savings (income not spent)
    G= government spending
    T=taxes
    X=exports
    M=imports

    The economy is defined in nominal dollars therefore nominal dollars must be added to the economy to support growth, i.e. profits and/or savings.

    So, not trying to be controversial but if you want to discredit what I stated you will have to use arithmetic.

  25. raven2422 says:

    Many, if not all candidates, repeatedly iterate that “Obamacare” should be repealed and marketplace competition should be allowed to regulate health care costs. Please explain how this can occur when the McCarran-Ferguson Act exempts the business of insurance from federal antitrust law. Which is to say that federal antitrust law applies only to the extent that the business of insurance is not regulated by state law. The Act goes so far as to permit price fixing — joint ratemaking — if permissible under state law.

  26. RW says:

    I cannot think of a single question that any of the candidates would answer truthfully including the one or two who appear to have some basic understanding of economics but would still like to hear their take on why they think borrowing at zero percent interest to rebuild infrastructure — bridges, roads, schools, electrical grid, etc — while putting more people back to work while improving private balance sheets would be a bad thing even if it did increase the deficit.

    The discussion between Francisco and Pauli46 reminds me how badly that debate has damaged our ability to make rational short- and intermediate-term policy choices viz

    “…all that needs to occur is that Secretary Geithner merely needs to issue an endless supply of public debt and, viola!, private sector savings blossom forth …”

    Yes, in principle at least, that is quite true. Obviously a number of political and social barriers might intrude but the logic is impeccable if you take the accounting approach to macroeconomics seriously (I do not but those who typically make these arguments obviously do).

    The accounting identity is simply: govt surplus + private sector surplus = 0

    Paying off the govt deficit therefore would wipe out private financial assets by definition. The result of a worsening financial position in the private sector must always be recession and paying off government deficits can only amplify that recession. Period.

    Doing the opposite, increasing the deficit, would therefore serve to increase private sector savings.

    Stated bluntly the “we must reduce government deficits now, now, now” argument is completely incoherent in terms of the accounting approach proponents deploy — we have “too much debt, government is bankrupt, blah blah” — and the primary function of the debate (whether one is aware of it or not) as a practical matter is therefore the distraction of citizens from the continuing looting of America.

  27. Winston Munn says:

    With consumption being 72% of GDP, how could it be that taking a small percent from the top 5% of wealth, who save, and redistributing that amount to the bottom 50%, who save virtually nothing and consume almost 100% of salaries, not produce growth in GDP?

  28. leeward says:

    I’d ask the last one first if I only had one question:

    yes or no: Do you believe that you can implement any policies in your first four years in office that will produce measurable results in terms of private sector jobs (besides infrastructure spending)?

    What are your top 3 agenda priorities for the economy that you would be measured by later?

    would you support legislation that mandates exclusive use of federal appropriations for all federal campaigns? (with the specific intention of keeping special interests from deciding elections with money donations)

  29. paulie46 says:

    @Winston Munn

    Bingo – see the 1950′s.

    We must tax the rich in order to save them from themselves.

  30. hammerandtong2001 says:

    Gee, I dunno. And it may not matter.

    But I think I do know this:

    When the chosen Republican stands to debate Obama in the best of three for all the marbles and then asks this:

    “Are you better off than you were 4 years ago?” And I’d add: “Is your children’s future as bright as it should be? Will they have the same opportunities you’ve had?”

    I bet I know who the 2012 champeen will be.

    .

  31. gman says:

    Every candidate pays lipservice to “free market” and every candidate pays lipservice to controlling healthcare costs. Canadians live longer on average than Americans and their prescription drugs cost a fraction. That market inefficiency cost the US consumer and government billions/yr.

    In that context why is it ILLEGAL to import prescription drugs from Canada?

    Any reader on this blog must acknowledge a pure mkt based ARBITRAGE that has been systematiclly thwarted by Republicans.

  32. louiswi says:

    Apinak seems to have nailed it!!!!

  33. RW says:

    Winston Munn makes the clear case: You want an increase in money velocity, consumption and GDP then give those who have to spend now more to do so.

    More than 176 years ago, De Tocqueville made the broader case for society, democracy and capitalism: allowing great wealth to accumulate in a few hands inevitably must pose a threat to democracy because it creates privileges above and beyond individual citizenship, granting a select few the power to influence national affairs well beyond their individual vote.

    When he wrote Democracy in America he speculated that the United States could avoid this danger as long as it avoided the kind of inter-generational estates favored in Europe and other countries with a feudal past: He was referring to primogeniture and entail (fee tail).

    Unfortunately our current corporate and trust laws have evolved to accomplish the same task in the absence of those feudal traditions. This weakens democracy.

    De Tocqueville also argued that restricting the law of inheritance should result in the more rapid division of land and thus force landed people to seek wealth outside of the family estate in order to maintain their previous standard of living; a kind of creative destruction.

    It is clear that property rights are an integral aspect of capitalistic systems and essential to their success but undue respect for and protection of the inter-generational transfer and accumulation of property must lead to capitalism’s decay because it creates a ruling class devoted to its own forms of monopoly.

    In brief there is no sin against either democracy or capitalism by an individual’s accumulation of wealth. The sin is the inter-generational transfer of accumulated wealth because that leads to a plutonomic oligarchy: Whether that oligarchy is benign or tyrannical or recognized by a different name is irrelevant because, like all institutions, it will protect itself and strive to affect conditions conducive to its growth. That it must not be permitted to do because it inevitably weakens democracy and capitalism alike.

    Higher marginal tax rates for the wealthy are simply further incentive to work harder in order to maintain standard of living and heavy estate taxes are the incentive for their progeny to do the same. Both curtail the ability to suborn the systems that fostered the acquisition of wealth and its free use in the first place.

  34. Liminal Hack says:

    The question I’d like to see answered is this one:

    “Can anyone explain why we have an economy structured around lending money printed by a printing press back to the same institution that printed it in the first place?”

    The facial expression at the moment of asking will be priceless and in those expressions true beliefs will be revealed.

  35. paulie46 says:

    “Can anyone explain why we have an economy structured around lending money printed by a printing press back to the same institution that printed it in the first place?”

    Well, for one thing the lending step is unnecessary, but mandated by law. The value that accrues to our printed (fiat) money is the productive capacity of the American worker.

    It appears that we can only consume 70% of what 90% of the workforce can produce, so it seems that we are creating money and spending it on the wrong people. To reduce the amount of new money created, reinstate huge inheritance taxes and higher marginal and capital gains tax rates.

  36. Pacioli says:

    @ Invictus –

    When you ask “…why have none of the Republican candidates been talking about anything but tax cuts and deregulation, neither of which will do nearly as much to stoke demand as putting more money in the hands of those who are most likely to spend it…” you are making the unsupported assumption that these two items would NOT put more money into the hands of those likely to spend it. I would first implore you to support that notion, since that is what you are implying.

    Secondly, pursuant to my original comment, if cutting tax rates and removing regulatory encumbrances would not “put more money into the hands…etc” (as I presume you would argue), then I beseech you to provide details as to exactly what you would implement in order to “stoke demand”.

    Invictus: I have heard every single night from Sean Hannity that 1/2 the country pays no taxes. Please explain how, since they already pay no taxes, cutting their taxes would work. Or do you believe Mr. Hannity does not have his facts straight? It’s also well documented that tax cuts do not have the multiplier impact that more direct stimulus has. It’s also well known that tax rates are not high by historical standards. And I would simply ask you how deregulation would put more money than, say, infrastructure projects in the hands of people who would spend it.

    What would I do? I’d spend money on much needed infrastructure. I’d work much harder than Team Obama has to help those in need of mortgage modifications. I’d try to improve an educational system that’s failing our children, perhaps by hiring more teachers and reducing class size.

  37. gman says:

    Since the Bush tax cuts have been enacted capital gains tax rates have been at post depression lows and job creation over the same period has been lack luster. Explain why correlation does not equal causation over the past 10years?

  38. Pacioli says:

    @ Invictus -

    “…Or do you believe Mr. Hannity does not have his facts straight?…”

    I do not really follow politics (mainly due to the nausea it induces), and I especially do not follow professional political commentators. But if I had to guess, I would certainly wager that ‘facts’ are probably not the highest item on someone like Mr. Hannity’s priority list. Moving on to items actually worth discussing:

    You postulate that “tax cuts do not have the multiplier impact that more direct stimulus has…” This has potential. Please elaborate on exactly what you envision when you say “more direct stimulus”.

    Next, you ask “how deregulation would put more money than, say, infrastructure projects in the hands of people who would spend it…” This also seems worth getting down to specifics on exactly how you would implement “infrastructure projects”. I would hypothesize that significant removal of regulatory encumbrances would directly lead to more infrastructure projects being undertaken. So, these two do not seem mutually exclusive to me.

    On your last point re: improvement of the educational system – I agree that this is probably the most glaring horrific deficiency in our country. But I have not been able pin down what items can be eliminated from state budgets in order to pay for the hiring of more and better teachers. What would you cut in order to pay for this incremental expenditure at the state/muni level?

  39. RW says:

    Nice of Invictus to waste time on folks who either have not, or pretend to have not, noticed that four decades of deregulation and tax cutting — the grand supply-side economic experiment — has arrived at its inevitable conclusion: Increasingly wild cycles of crash and boom, ever slower recoveries and greater income inequalities in step with rampant corruption and cronyism.

    Asking what the alternative solution might be in this context is a red herring since there is no longer any alternative in supply-side terms — cutting tax rates and removing regulatory encumbrances have clearly NOT “put more money into the hands…etc” of the average American — and the evidence of debacle everywhere demonstrates that fact so clearly that the better question must be, what is the point of debating with someone who has already refused to see the nose in front of their face?

  40. wunsacon says:

    @ Apinak @ 2:38 pm

    “Pro-life”? ;-)

  41. wunsacon says:

    Er, that was @ 12:38 pm.

  42. wunsacon says:

    Agree, RW. At this point, propertarians are demonstrating a considerable blindness.

  43. Pacioli says:

    @ RW –

    “…since there is no longer any alternative in supply-side terms…”

    Who said that solutions must be sourced from the confines of so-called “supply-side” economics. (I am not sure what all is connoted with that term – but it sounds like one of the loaded, politically slanted colloquialisms that are too often thrown around in otherwise rational discussions.) Again, I am interested in pragmatism, not politics.

    If you disagree with my hypotheses, fine – but let’s at least see if you have an argument, much less a good one.

    Starting with the topic of lowering tax rates – I agree w/ Invictus that the highest marginal rates currently are not all that high by historical standards. But neither you nor Invictus provides evidence that lowering them from here would not still provide considerable benefit.

    Next, on the point of removing some of the regulatory encumbrances that have piled up over time, I would challenge you to demonstrate how this would NOT lead to the undertaking of more infrastructure projects.

  44. mock turtle says:

    You advocate lower taxes on the wealthy and corporations to create jobs. Taxes on corporations and the top 1% richest americans, as a percent of GDP, are at, or near, the record low since world war II. yet we have the worst under-employment an unemployment since world war II. So where are the jobs?

  45. arbitrage789 says:

    “…is it disputable that our problem is one of aggregate demand…?”

    ^^^^^^^^^^^^^^^^^^^^^^^^^

    Response:

    Time frame, time frame, time frame.

    If the time frame under consideration is the next 12 months, then I would say that, the bigger the deficit, the better.

    But for the small handful of people who are willing to take a much longer term view, I would say that it is NOT true that the bigger the deficit is, the better off we are.

  46. RW says:

    @Pacioli, (1) I do not disagree with your hypothesis because you have none that I can perceive; (2) I do not argue with you because you either do not or will not understand economic argument; (3) in that vein, your reference to the dominant economic policy paradigm of the past four decades as one that “sounds like one of the loaded, politically slanted colloquialisms” reveals a lack of knowledge regarding economic history that would need to be fully amended before useful discussion on the topic could proceed; (4) I do not provide evidence that lowering taxes further will have any effect because the evidence they did not and cannot is everywhere and I am not a magician to cure the blindness of the blind; (5) there is no point in accepting a challenge WRT regulatory ‘encumbrance’ where that is (a) undefined, (b) evidence that it has “piled up over time” is absent and (c) no model of said ‘encumbrance’ in relationship to economic activity has been presented; and so we return, circularly, to where we started at (1): you have no testable hypothesis and I have no interest in playing guessing games regarding what your hypothesis might actually be much less attempt to guess what evidence would be sufficient to the task of accepting it or rejecting it.

    When you present a model of taxes and ‘regulatory encumbrance’ in relationship to economic activity along with evidence demonstrating the model is valid we might get somewhere but, now that I think of it, we probably wouldn’t have time for discussion because if you actually did manage to do that you would have accomplished what conservatives have not and the Republican party would snap you up in a hurry; just think, you could be the next Art Laffer.

  47. Transor Z says:

    I was going to be nice and respond with something about velocity of money arguing in favor of stimulus and continued G spending at AT LEAST current levels to support aggregate demand, but pacioli didn’t really bring much to the table, did he.

    The deregulation part was also completely absent of content re: quantifying alleged burden or the particular industries being regulated, which is kinda essential to be able to engage intelligently.

    Top marks for your first par., RW. I’m going to have to steal that format!

  48. mathman says:

    from http://www.financialarmageddon.com/

    “Bartering to Pay for Items Is Trending Again” (KYTX)

    “Community Currencies Aim to Aid Merchants” (Wall Street Journal)

    “Utah Girl Scout Raises Thousands of Dollars for Community Garden” (Salt Lake Tribune)

    “West Jordan Saves Money Using Resident Labor on Parks” (Salt Lake Tribune)

    “Getting By: Driving the Cheaper Route” (HomeTownAnnapolis.com)

    “Pawning Goes High-Tech with Pantique” (SeacoastOnline.com)

    Ordinary people and common communities are starting to do things differently due to the current “non-recovery,” lack of cash, availability of labor due to high unemployment, and even to the cash strapped faux wealthy.

  49. Pacioli says:

    @ RW -

    regarding 1) You are incorrect (or did not read). My hypotheses were that less regulation could lead to more infrastructure projects being undertaken, and that lower tax rates could stimulate aggregate demand.

    regarding 2) How so?

    regarding 3) It is fair to say I am not an economic historian. But I would strenuously disagree that any one concept could be described as the “dominant economic policy paradigm of the past four decades”. That would imply that there has been a homogenous, coherent theme. There has not.

    regarding 4) This is a very tired talking point.

    regarding 5) It is fair to say that my points (like yours, and Invictus’) were not supported by hard evidence. I am working on this. However, your refusal to attempt to support your own point significantly weakens your assertions. My challenge was for you to attempt to support your points, not to attempt to discredit mine. For it is beyond easy to simply point (aptly) that I do not currently have evidence. I was merely pointing out that neither you nor Invictus does either, and if it exists, we would all be enlightened to see it.

  50. Transor Z says:

    Pacioli, there’s plenty out there in support of gov’t stimulus having a higher multiplier (~1.5 vs. ~1.29, see e.g., Krugman’s writings) AND having a more immediate macro impact. Invictus alludes to these studies in his post.

    Tax cuts generally work against gov’t spending, which is the “G” in the Aggregate Demand formula. So you get a more immediate effect with a higher multiplier.

    So you’re wrong to be saying people aren’t supporting their positions. And countering that with your own purely speculative, data-free position is … silly.

  51. Pacioli says:

    @ Transor Z –

    I have no doubt that gov’t stimulus is needed in order to stimulate aggregate demand (although I do not see Invictus’ allusions that you purport to be in the post).

    What I still have not seen is anyone explaining why marginal tax rate cuts (or more radical tax reform) should not comprise one aspect of said gov’t stimulus.

    Finally, please explain how “tax cuts generally work against gov’t spending”.

  52. Transor Z says:

    Finally, please explain how “tax cuts generally work against gov’t spending”.

    Because non-deficit gov’t spending is funded by taxes? Just throwing that out there.

  53. Pacioli says:

    “Because non-deficit gov’t spending is funded by taxes? Just throwing that out there.”

    Why impose the constraint of ‘non-deficit’? That does not seem to the prudent course of action when the private sector is contracting violently.

  54. DeDude says:

    To get them to accept the reality that lack of demand is the real problem you would have to convince them that wealth should be channeled to poor people, not rich. But the conclusion and answer for GOPsters is always: more money to the white rich guys and less to them lazy minorities. So any fundament or reality that does not lead to a question that can be answered by “mo money to the rich” will simply be rejected no matter how much evidence is presented to them. They will reject reality all the way down until we have become like Argentina and Brazil in the 70’ies with a small extremely rich upper class and the 99% living below the poverty line. Even as the GDP slowly shrinks they will refuse to understand that a first world economy can only be sustained with a large vibrant consumer middle class, and that incomes must be distributed fairly to sustain such a middle class.

  55. Pacioli says:

    I meant: “…to BE* the prudent course of action …”

    So the question remains, why would tax cuts work against gov’t spending?

  56. dougbb says:

    RW, your comments and references to De Tocqueville seem to suggest that the US should look toward the current European model (ex. Switz) for how our economy should be structured. That is, heavy taxation of anyone who makes over some undefined (but higher than me!) level, philosophy that all earnings belong to the government and wealth can only be held as long as the government allows it, as evidenced by your inheritance tax policy. Let me ask the obvious question, how’s that going for Europe right now?

    Invictus, I was with you until you brought out the old, tired saw about how we’re just not spending enough on our kids’ education. Please see linked graph – http://www.cato-at-liberty.org/a-picture-is-worth-300-billion/ Is your argument that we just haven’t reached the tipping point yet?!?! Does every child need his/her own tutor?

    Transor Z – can we get a citation other than Krugman for the fantasy that gov’t spending has a high multiplier? Haven’t the last 30 years given enough lie to the Supply Side mantra? Some reading from the other side of the fence: http://www.americanthinker.com/2010/02/multiplier_effect_defect.html Or are we calling all the government waste “good” because it employs bureaucrats?

    Paulie alludes to one other part of the problem – the drive for a higher standard of living pushed production of goods out of the US. It’s had a short-term positive effect, in terms of individual satisfaction, but a long-term negative, as there is a smaller number of medium-pay jobs for unskilled labor. It will take considerable time for the economy to adjust to more service-oriented production, and that’s creating some of our short-term jobs problem. This one, ain’t real fixable. In-shoring production will drive up costs, driving up inflation, requiring increased government payouts, requiring higher taxes or more debt…and the cycle rolls on.

    I think arbitrage789 is about the only one who has a clear view. Short-term, increased debt-spending (but only on direct stimulus like infrastructure) is a useful, if undesirable, tool. Once the economy works its way out of its problems though, it must be curtailed, lest debt service continues to eat up larger and larger portions of the government inflow.

  57. Transor Z says:

    Gov’t borrowing at 0% to fund infrastructure projects at a deficit to boost demand is not a bad option IMO. I think they should have started in earnest 3 years ago but the whole lack of “shovel ready” projects thing derailed it.

    Further tax cuts necessitate additional deficit spending. The U.S. is currently ~101% Debt-to-GDP. If you want to continue this conversation, tell me what you think China’s likely attitude would be to the U.S. further increasing that ratio and discuss the relationship between debtor and creditor nations and pegging of the renminbi against the USD.

  58. RW says:

    @dougbb, you either seriously misread and/or misrepresent both my comments and De Tocqueville if you think there was an argument in there for the “European” democratic socialist model — Switzerland would hardly be a good representative of that given how much the individual cantons prize their independence from the state — much less “heavy taxation of anyone who makes over some undefined (but higher than me!) level.” Quite the contrary.

    Read my summary of De Tocqueville again, a little more slowly and with a little less bias this time: The argument, greatly simplified, is that the intergenerational transfer of accumulated wealth follows a European feudal tradition and would threaten both democracy and capitalism alike if allowed to take root in America (which it now has).

    It is that perpetuation and concentration of great wealth that, very specifically, must be counteracted if America is to escape the plutonomic trap it has fallen into and the most straightforward way to do that is to tax the bloody hell out of wealth at the time an estate passes to heirs.

    There are of course excellent economic reasons as well as sociopolitical reasons for doing that too.

  59. dougbb says:

    RW – your quote, “Higher marginal tax rates for the wealthy are simply further incentive to work harder in order to maintain standard of living and heavy estate taxes are the incentive for their progeny to do the same. Both curtail the ability to suborn the systems that fostered the acquisition of wealth and its free use in the first place.”

    So, you advocate high taxation of the wealthy, and high inheritance taxes, but it’s not to redistribute it elsewhere? It’s only to prevent abuses in the democratic process? So, what, the moneythe government brings in from this will just sit there? Just like all the other times our government has gotten it’s grubby little paws on some extra cash? Come on, you can dress that pig up any ol’ way you like, but it’s still bacon.

    It’s cute how it’s OK to tell the wealthy that they should have to work harder to keep what their skills bring them. But dare to suggest that the bottom of the pyramid should work harder to get something that’s not handed to them and the flames come from everywhere.

  60. RW says:

    @dougbb, pretty weak snark there so I’ll take pity and give you one more shot at understanding what the real issue is.

    Your comments WRT government “sitting on” or getting “it’s grubby little paws on some extra” cash reveals that you do not understand what money is so this will probably go over your head but, in a nutshell, the primary purpose of taxation is not to collect revenue (the government can create and destroy money/cash at will) nor is it necessary to pay off government debt (ditto) — all that is a set of accounting transactions mandated by law — the real purpose of taxation in a fiat system is to destroy excess cash/money in circulation to prevent a glut of money from destroying value.

    As I have attempted to point out via De Tocqueville’ it can also serve as a mechanism to prevent large concentrations of wealth and power from corrupting the social and economic system that made the (potential) acquisition of wealth more widely available to citizens.

    And, as pauli46 observes above, when a country is only consuming roughly 70% of what 90% of the workforce can produce money is probably being created and spent on the wrong people (the wealthy) and when unused money cannot be ‘destroyed’ we can now add destabilization of the monetary system itself to the corruption of democracy and weakening of capitalism fostered by those controlling highly concentrated, accumulated wealth.

    As to the snark at the end, anyone is free to suggest anything they like but the trope that poor people are basically shiftless has gotten to stale as to be useless but I have noticed any mention rich people might be shiftless and the flames come from everywhere (lol)

    Now take that silly dress off the pig and go make some bacon …if it will let you.

  61. Pacioli says:

    @ RW –

    Your notion of “the real purpose of taxation” seems quite peculiar.

    The purpose you outline (“to destroy excess cash/money in circulation to prevent a glut of money from destroying value”) actually describes that of the central bank – not taxation.

    I would argue that taxation in a fiat system exists for the purpose of establishing legitimacy for said fiat currency, by virtue of making it the only medium of exchange through which a participant in the system can satisfy his tax obligations.

    While it certainly can be (and indeed IS being) used in the manner you describe, that certainly is not its innate purpose.

  62. RW says:

    “I would argue that taxation in a fiat system exists for the purpose of establishing legitimacy for said fiat currency, by virtue of making it the only medium of exchange through which a participant in the system can satisfy his tax obligations.”

    You have accurately described tail-side of the coin but this fails to explain why establishing legitimacy is essential …now flip the coin over and look and look at the heads side …

  63. Pacioli says:

    Flipping the coin over to explain “why establishing legitimacy is essential”…

    …to enable participants to efficiently transact via a known medium of exchange.

    Nope, still nothing remotely resembling “to destroy excess cash/money in circulation to prevent a glut of money from destroying value”.

  64. paulie46 says:

    @dougbb…

    “So, what, the money the government brings in from this will just sit there? Just like all the other times our government has gotten it’s grubby little paws on some extra cash?”

    The government created every dollar that exists in the world from thin air. The government has no need for “cash”, why would the government have to “store” tax money? The space that the entire national debt is stored in is so small it would take an electron microscope to see it. It’s just a number sitting in memory in a computer.

    All finances on the government side of the ledger exist in their own universe and have no real relationship to the real world, other than keeping track of numbers of which they have an infinite supply. Government accounting has no effect on the greater economy other than net spending. Using language that describes government budget operations in comparison to a household budget is pointless because there are no similarities other than they both use numbers to keep track of things.

  65. DeDude says:

    Pacioli;

    Cutting taxes for the rich investor class does not increase aggregate demand because the rich are much more inclined to invest their increased wealth than to increase their spending with it. That is why huge gains in the stock market (= huge increase in investor class wealth) are not followed by similar increases in consumption (look up consumer spending and stock market values if you doubt this statement). The wealth of the rich does not respond 1:1 with changes in consumption, it actually barely responds at all. In contrast the increased wealth (income) of poor people is almost immediately and 100% converted to increased consumption. So refundable child tax credits or cuts in social security taxes are much better than marginal tax rate cuts at increasing demand. However, in a down economy with debt ridden consumers the poor and middle class are less inclined to use additional money. Therefore, the best stimulus is the direct spending by government (rather than the indirect government spending by giving money to people via tax cuts).

  66. Pacioli says:

    @ DeDude –

    Where did I say anything at all about “cutting taxes for the rich investor class”?

    My contention is that the marginal tax rate should be cut for ALL.

    I have no reason to doubt about your claims of poorer people converting their incremental income into consumption at a higher rate than wealthier folks. I also agree with your specific tax-related proposals that could improve aggregate demand (you mentioned child tax credits and social security taxes). Certainly you realize that such measures simply amount to reducing the effective marginal tax rate paid by anyone affected by these benefits? So we are advocating similar strategies in this area, it seems to me.

    With regard to “the direct spending by government”, this exact phrase is thrown around so much without any clear definition. What exactly do you mean by this? (i.e. what agency is paying out, who is managing it, who is providing oversight, who are the recipients, and what are the logistical mediums?)

  67. HarleyHoward says:

    Medicine, insurance, education and banking are all the highest regulated industries. They also have totally out of control costs and cost increases. Could there be a correlation between government intervention in the free markets and out of control riches and costs?

  68. [...] organizations and media outlets have attempted to refute the notion that government policy is creating uncertainty and hindering [...]

  69. [...] Invictus over at The Big Picture wants Charlie Rose to ask this question of the GOP candidates: “We repeatedly hear about taxes, regulations, and uncertainty standing in the way of job creation. However, the National Federation of Independent Business (“The Voice of Small Business”) surveys its members every month as to their “Single Biggest Problem.” Among the possible answers are both taxes and regulations, yet “Poor Sales” has, in fact, dominated for the past three years.  Additionally, as we see in the chart, “Poor Sales” and the Unemployment Rate correlate very strongly, at about 0.87. [...]