I Can Do That Voodoo That You Do Too

Jonathan Chait watches John McCain adopt the party line and faithfully assert that tax cuts increase government revenues even though there's no evidence to support that contention:

John McCain goes over to the dark side, by Jonathan Chait, Commentary, LA Times: 'This is not Luke Skywalker here," said Sen. Lindsey Graham (R-S.C.), discussing his friend and Senate colleague John McCain's second run for the presidency. "This is a totally different campaign." ...

Seven years ago, of course, McCain was likening himself in public to Luke Skywalker, waving light sabers on stage at rallies and comparing his party's establishment to the Death Star. He would say such things as, "My party has become captive to special interests." He would cite a bumper sticker that read "The Christian Right Is Neither."

And now? Well, let's just say that if John McCain circa 2007 was campaigning against John McCain circa 2000, he would call him a communist. The old McCain called President Bush's tax cuts fiscally and socially irresponsible, a giveaway to the rich in a time of rising inequality. The new McCain was recently interviewed by National Review's Ramesh Ponnuru and asked if there were any circumstances, including the guarantee of spending cuts, under which he'd consider repealing the tax cuts he denounced and voted against. He replied: "No. None. None. Tax cuts, starting with Kennedy, as we all know, increase revenues."

We all know that? In fact, economists know that this is not true. Conservative economists know this isn't true. Even conservative economists who work in the Bush administration have admitted this isn't true. ... There's really no dispute among economists about that."

How does McCain explain his conversion to voodoo economics? He doesn't. He says things like: "I haven't changed. My record is the same on all issues, which is that of a conservative Republican." Which is funny, because a few years ago one of his close advisors — someone who is now furiously insisting that McCain has always been a staunch conservative — told me, "Ideologically, we all changed."

What makes McCain's conversion all the more tragic is that it's plainly not working. ... His career ... has indeed resembled a certain famous Jedi. He began as a crusader for justice. Soon he realized that he needed to acquire more power in order to accomplish his noble goals. But over time, his pursuit of power became the goal itself, and by the end he lost his capacity to differentiate between right and wrong.

This is not Luke Skywalker here. This is Luke Skywalker's father. But at least Darth Vader attained his position before the Death Star exploded.

Given the vast amount that's been written concerning tax cuts and government revenue and the broad consensus on the topic, it's difficult to believe that any major candidate could be ignorant of the work showing that tax cuts do not increase revenue. If they are ignorant of this broad consensus, or if they choose to simply ignore the evidence and adopt the party line that tax cuts pay for themselves, then questions should be raised about their ability to lead the nation in economic policy. Will they understand enough economics to implement effective policy? If they do understand, will ideology or party loyalty get in the way?

Update: Vox Baby says:

More Laffer Curve Laughers: Via Greg Mankiw, we find this National Review interview of Senator McCain by Ramesh Ponnuru. Greg refers us to this part of the Q&A (by far the worst on economic issues):

...Sen. McCain: ...Tax cuts, starting with Kennedy, as we all know, increase revenues. So what’s the argument for increasing taxes? If you get the opposite effect out of tax cuts?

Greg suggests two appropriate follow-up questions for McCain:

1. If you think the 2001 and 2003 tax cuts increased revenue, why did you vote against them?

2. If you think tax cuts increase revenue, why advocate spending restraint? Can't we pay for new spending programs with more tax cuts?

As Greg has announced that he's an economic advisor to Governor Romney, I'll be very curious to hear Romney's response to a direct question about the circumstances under which he would be willing to increase taxes if he's elected President.

The question that I would like to have answered by any policy maker who voted for the tax cuts and believes that they have increased revenues is:

Why did you make them so small?

Comments

[Lafayette]

MT: "Given the vast amount that's been written concerning tax cuts and government revenue and the broad consensus on the topic"

I think this debate is not yet over.

And, I would like to contribute another item that the EIU put up some years ago, which showed the correlation between high state/government taxes and unemployment.

For instance, at the time, France's aggregate tax revenue of the state was nearly 45% of GDP and its unemployment at about 10%. Other European countries showed just about the same numbers, particularly Germany, but with total unemployment somewhat lower.

And, the countries with the highest employment rates? Yep, those with lowest total tax take, like the UK, Ireland and, of course, the US.

Perhaps politicians think that whether consumers spend or the state spends, there is no difference - after all, its all expenditure. But, there DOES seem to be a difference.

Maybe it is throughput. That is consumer expenditure leads to more sustained/immediate production of products/services, whereas government expenditure first goes down a black hole somewhere before resurfacing, but very much diminished. A shame there's been no study into the matter.

Or, has there been?

[anne]

When John McCain found that Charles Darwin never understood evolution, conveniently enough to run for President, I stopped paying the least attention. Curiously, conservatives are evidently too unforgiving to pay attention in any event.

[anne]

Not to worry though, there's always Newt-not-perfect-Gingrich when we want integral consistency. Welcome, Newt.

[bakho]

The problem is that much of the media is not-informed on this topic. Their corporate owners support any argument that will keep their own taxes low. The conservative media outlets like NRO and Fox News will say that McCain is correct. The "mainstream media" will say that Democrats and McCain have a difference of opinion on this matter. Who will bring forward the facts? We have a political climate where opinions count for more than serious scholarly study.

[bakho]

McCain is telling people what they want to hear and reinforcing beliefs. As long as there is no penalty from the "reality based community" he can get away with it. I should have added the editorial pages of the WSJ to the above. Our nations leading financial paper has an editorial page that consistently promotes the idea that tax cuts lead to higher revenues. This is an uphill battle.

[calmo]

Such a hiphop titleI Can Do That Voodoo That You Do Too ...maybe a little tight. How close to "Voodoo" doyoo need to get B4 you take the tie off...maybe mo? (Well shoot people I'm in my bare feet already.)
Variations on a theme that needs some emancipation:Medoo the Voodoo U do do
No squaredancin 4 Voodood me

Ok, the uphill, (one sided, ill-equipped and largely un-reported) battle referred to by bakho.

[calmo]

Ok, I put my socks back on again...talk about killing a thread early.
Will they understand enough economics to implement effective policy? If they do understand, will ideology or party loyalty get in the way?
Yes. Economics serves Ideology which can stand only so many 'self-negotiations' as our Commander puts it. [You figure a president who has to remind us that he is The Decider, that a press who has to remind us that he is Commander in Chief, means that there is some doubt about the performance?]
Ok, I see the socks are coming off again.
Dang.

[sk]

I am not really sure how tax rates affect government revenues for more than an immediate future.
BTW, I believe we(I am a permanent US resident, not a citizen.) had highter tax rates during Clinton era and less unemployemnt than in Bush era.
Lafayette seems to assert that higher tax rate leads to higher unemployment. Such assertion seems to contradict the facts, I guess. Hmm...I really need to study more on this topic. Being not an economist, I thought it's been always debated on the economic effects of tax rate changes among the econmists. Now Mark says there is a broad concensus that tax cuts do not increase government revenue. Can anybody provide some links to such topic?

[ctm]

"Such a hiphop title..."

I was thinking more like Cole Porter.

[bakho]

Fiscal policy can have a short term effect. However, fiscal policy will be balanced by monetary policy. The reason why tax cuts do not stimulate growth enough to pay for themselves is that too rapid economic growth is inflationary and will attract Fed measures to slow it down.

When Clinton was collecting a lot of revenue, the taxes were providing the brakes on the economy and the Fed maintained lower interest rates. With Bush deficit spending the Fed is maintaining higher interest rates to brake against inflation. Clinton could raise taxes and have the economy expand because his fiscal policy was balanced by monetary policy. Bush cut taxes which has harmed revenue collection. Bush runs deficits because the economy cannot expand fast enough to generate the revenue needed to pay for his programs at the current tax rates. Not only is the economy not expanding faster, the Fed will not let it expand faster.

[ken melvin]

John McCain and Jerry Falwell were a match made in heaven, then along came lothario Newt; and well you know the rest.

[MJS]

Government is not as efficient at allocating resources as the the free market.
Resources are spent toward or invested (i.e., saved) in areas which lead to increasing wealth.
Wealth has been increasing with relatively historically low inflation.

Why?

Increased productivity. This is the big factor that many leave out of their analysis -- not taking the dynamic nature of tax cuts effects on the economy, incentives, business and consumer reactions, etc. The pie can actually get bigger!

So long as monetary policy remains stable and neither too tight or loose, and so long as consumers and businesses are able to spend or put enough of their money into areas they feel will maximize wealth, the economy prospers, and...viola, government revenues go up. (Obviously, I skipped a few steps for brevity's sake.)

Markets allocate money better (ie, more efficiently) than government. More efficient allocations therefore go to both more productive enterprises and also frees up otherwise unavailable (inefficiently used) resources to go to more productive enterprises. Productivity increases faster via market based spending and saving than it would via government based spending. If productivity remains high enough, inflationary pressures will be mitigated. Why do so many see these models as static and leave out the significance of productivity?

Anyway, I am a bit perplexed by any assertion that there is a broad consensus on the issue when there are a large number of very reputable economists on both sides who present compelling theoretical and empirical data to sway either side. Clearly, I tend to favor the argument that tax cuts do help to stimulate the real growth of an economy and therefore increase gov't revenues. But, I grant that there are arguments on the other side. Why so dismissive as to denigrate those who go against your orthodoxy of the "consensus" when there is anything but?

[Mark Thoma]

If you can find the evidence, feel free to present it. But it's not there. See Mankiw, CBO, and the long, long list of others. As I said, there is a broad consensus that cuts across political lines.

You are confusing tax cuts increasing output with revenues themselves increasing. They are very different.

For example, let taxes be 25% and income be $100. Tax revenue is then $25. Now cut tax rates by 5% to 20%, not a big change. At the new tax rate of 20%, income must grow from $100 to $125, or 25%, so that taxes are unchanged [(20%)($125) = $25]. Thus, a tax cut from 25% to 20% requires a 25% increase in income to leave revenue unchanged. Yes, a tax cut will increase income, but nowhere near 25% and revenues will fall.

Oh, and the work I'm talking about considers the full dynamic impacts - productivity and all (you ought to read it, and while you're at it check out what's happened to US productivity since 2001 under the Bush tax cuts - not a pretty picture).

I'm a little surprised someone so critical is so unaware of the work on this issue. There are no "reputable" economists saying tax cuts increase revenues. There are a few hacks clinging to this notion however - and they seem to have snookered you.

[James Killus]

Mark,

Economists should be very gratified. The Right Wing now considers economics to be a science, to be ignored, distorted, and denied when it differs from ideology and the basic principle of grand scale larceny.

Kudos.

[calmo]

Snookered = ideologically robust.
A hack is a worthy opponent who will accept no other terms of endearment.

MJS complains:
But, I [eva so fair and balanced] grant [ yes, I grant, and you grovel: it is the speaker's advantage, like the serve in tennis. And this B my volley.] that there are arguments [ possibly dismissable ones ] on the other side. Why so dismissive as to denigrate those [worthy opponents like myself who can dismiss properly] who go against your ("the"?) orthodoxy of the "consensus" when there is anything but? and it is clear (and undismissable) that some (you know who you are, dismissables) have too narrow a view of consensus. Or orthodoxy. [FOX, yes but NPR? IHT? FT? not so fast pinko.]
Yes, there are many who still believe that "orthodoxy of consensus" includes statements like this:

"Government is not as efficient at allocating resources as the free market."

and any objection means you are not fit to be anything but dismissable.

But in tennis when the first serve doesn't quite clear the net, you get an opportunity to double fault, now that you know where the net is and you've warmed up.

[MJS]

Yep, you are right, I was way too facile when speaking of revenue v. output. And, ceteris paribus, you are right, revenue does not increase. But, and this is why the CBO projections are to taken with a heaping spoonful of salt, economics don't take place in in a vacuum. (Excuse my preaching to the choir.)

Also, using 2001 data is misleading for two reasons: (1) we were in the beginning of a recession and (2) those tax cuts were focused on C, not I, like the 2003 tax cuts -- which most who cite the benefits of tax cuts to economic growth are referring to when speaking of the current economic recovery (and increased revenue). (By the way, I don't have any problems with further consumer based tax cuts either!)

Further, I just don't get how you can say that productivity doesn't affect even revenues, as opposed to output, eventually. I'm out of school now and the opportunity cost of fishing citations out to back me that even revenue (admittedly in the more medium-term) is benefitted by tax cuts outweighs the costs of not finishing a memo I have to get done by tomorrow. :-) But, since I would not be demonstrating much good faith otherwise, I'll give you Thomas Sowell and M. Friedman as two fairly reputable sources who agree that revenue, once economic growth directly attributable to tax cuts and productivity gains has set in, will increase enough to more than offset the immediate, short-term loss of revenue, including future value, from the tax cuts.

Finally, not that it changes your calculations, and not saying you did this on purpose, but it would seem less extreme were you to say that a 20% reduction in tax rate needs a 25% increase in income to maintain the same revenue levels (vs. "cut tax rates by 5%"...needs 25% increase in income - btw, technically, you mean cut tax rates by 5 Percentage points).

I am only an amateur economist (though I play a real one on TV), so I'm sure I have made a number of sloppy assertions/conflations and that you can point out my errors. But, I must admit that I have snookered very well by some rather experienced snookerers, so it will be tough to undue their damage. Thanks for indulging, though. Enjoy your blog and insight.

[2slugbaits]

Mark,

Maybe you should pretend this is one of your econ classes and challenge your students to play with the some fairly simple version of the fiscal multiplier. A prize for creative math goes to anyone who can demonstrate that an aggregate demand tax cut can generate more revenue than is lost. Yes, it is possible to show that absolute revenue can increase, but it can never increase enough to pay itself. Hmmm, come to think of it, this sounds like a good exercise for one of those Schaum's Outline Series problems.

Note, a supply side cut can pay for itself; however, no one seriously believes that US tax rates are anywhere to the right of that revenue maximizing rate. Back in 1963 maybe, but not today.

[calmo]

I dunno MJS. Don't think you can just be polite with us!
We are beyond appearances (Do not be misled by appealing photos of host portraits --they are meant to distract you and make you reconsider the toupee option.) and, ceteris paribus, statements that include "ceteris paribus" have quite a different effect than you might imagine.
We are beyond the appearance of the distinction between professional and amateur economists, in particular. Occasionally one sees the tag *ABC PhD*, in an effort to buy some respect over and above the performance. It is a desperate cry for recognition, not usually warranted.
It might sound humble, but the idea is to aspire to be a recreational economist. Trust me, ceteris paribus, it is more than a respectable pursuit.
Should you accept the terms of this civil-but-not-polite engagement, your next volley could be refining that general statement of orthodoxy:"Government is not as efficient at allocating resources as the free market."down to a particular economic activity (delivering the mail? fighting a war? collecting the garbage?) and determining how best to measure those competing efficiencies.

[Bruce Webb]

MJS says: "(Obviously, I skipped a few steps for brevity's sake.)"

Yes the steps that back the Voodoo out of the Voodoo Economics.

MJS says: "I'll give you Thomas Sowell and M. Friedman as two fairly reputable sources"

Thanks for the "fairly". Sowell is a hack and Friedman while undeniably brilliant was hobbled by a pre-supposed ideology. As Calmo pointed out appeals to authority don't go far here, logical arguments and actual numbers are the ticket.

MJS says: "Markets allocate money better (ie, more efficiently) than government"

That is a statement of faith, not an economic argument.

Lots of people know lots of things about economics that turn out not to be true at all in practice. Smart people, PhD's, even Nobel Prize winners. None of that is self-validating.

[Dan Drechsel]

Written, not researched. Do you research. If you do it outside of opinion columns you'll find a broad consnensus of economits agreed with Regan 10 years ago after his tax cuts proved out. See the top 10 items from a straight Google search I posted below. 2 of 10 claim it is false. 8 of 10, including the NYTimes support.

False: "Given the vast amount that's been written concerning tax cuts and government revenue and the broad consensus on the topic, it's difficult to believe that any major candidate could be ignorant of the work showing that tax cuts do not increase revenue."

Web Results 1 - 10 of about 1,150,000 for tax cuts increase government revenue. (0.15 seconds)

Claim That Tax Cuts “Pay For Themselves” Is Too Good To Be True ...Proponents of the tax cuts might argue that the stronger revenue growth in ... extending the tax cuts could eventually increase long-run economic output by ...
www.cbpp.org/3-8-06tax.htm - 44k - Cached - Similar pages

Tax Cut Revenue Rewards -- FreedomWorks.orgTax Cut Revenue Rewards The Bush tax cuts continue to bring in more revenue. ... The increase in tax revenues, as in the previous two experiments, ...
www.freedomworks.org/informed/issues_template.php?issue_id=2685 - 33k - Cached - Similar pages

ask dr. dollar | Dollars & Sense... huge new tax cuts will actually produce more revenue than the government would ... They extend business tax write-offs and increase the child tax credit ...
www.dollarsandsense.org/archives/2003/1103dollar.html - 13k - Cached - Similar pages

Tax cuts increase tax collectionsA liberal essay rebutting the myth that tax cuts increase tax collections. ... President Years # Prev yr Last yr Increase Inflation Adjusted Revenue Revenue ...
www.huppi.com/kangaroo/L-taxcollections.htm - 16k - Cached - Similar pages

[PDF] Do Tax Cuts Increase Government Revenue?File Format: PDF/Adobe Acrobat - View as HTML
Do Tax Cuts Increase Government Revenue? Many (Arthur) Laffer curve proponents will argue until their last breath that the George W. Bush ...
austrianenginomics.com/DoTaxCutsIncreaseGovernmentRevenueRevA.pdf - Similar pages

Donald Luskin on the Bush Tax-Cut Package on NRO FinancialSomewhere in between is a tax rate at which government revenue is maximized. ... a given tax cut is likely to lead to a supply-side revenue increase. ...
www.nationalreview.com/nrof_luskin/luskin032803.asp - 44k - Cached - Similar pages

Economist's View: I Can Do That Voodoo That You Do TooTax cuts, starting with Kennedy, as we all know, increase revenues." ... concerning tax cuts and government revenue and the broad consensus on the topic, ...
economistsview.typepad.com/economistsview/2007/03/i_can_do_that_v.html - 69k - Mar 10, 2007 - Cached - Similar pages

Surprising Jump in Tax Revenues Is Curbing Deficit - New York Times... the revenue jump proves that their tax cuts, especially the 2003 tax cut on stock dividends, would spur the economy and ultimately increase revenues. ...
www.nytimes.com/2006/07/09/washington/09econ.html?ei=5088&en=ec2d242da8699725&ex=1310097600&p... - Mar 10, 2007 - Similar pages

Sharp Rise in Tax Revenue to Pare U.S. Deficit - New York TimesIn addition, while a lot of the increase in tax revenue flows from the ... Mr. Bush's intention to extend his tax cuts indefinitely, and to add new ones, ...
www.nytimes.com/2005/07/13/business/13deficit.html?ex=1278907200&en=a410f8c74d4700a5&ei=5090 - Similar pages

Laffer curve - Wikipedia, the free encyclopediaAt one extreme, a 0% tax rate means the government's revenue is, of course, zero. ... tax cuts can cause the economy to grow and thus increase tax revenue. ...
en.wikipedia.org/wiki/Laffer_curve - 41k - Cached - Similar pages

[Mark Thoma]

Greg Mankiw and Andrew Samwick (both worked in the CEA under Republican administrations) are making fun of McCain for saying this. See the update to the post.

Those references aren't very helpful. Just because you can Google someone saying something, and find many people like yourself parroting it, doesn't make it true (and several of the references, e.g. to this post, don't even support your position).

[James Killus]

And there you go. If Dan Drechsel used the same "methodology" on global warming, he would say that it is a hoax, because the top sites on Google are mostly global warming denial sites.

As I say, Mark, welcome to the club. Maybe it was the introduction of the Nobel for Economics, but you guys now count as scientists.

By the by, Dan, if the Reagan tax cuts "proved out," why were they followed by the largest tax hike un U.S. history. Oh wait, never mind, the question was rhetorical. Really.

[Lafayette]

The Reagan and Thatcher tax cutes were a gift to the upper-class rich who has no need whatsoever for them.

The Laugher Curve was a sop to the masses, an attempt to make them think that the tax relief was for THEIR benefit. Of course it wasn't.

Income disparity since has become worse both in America and Britain. Google that.

[Lafayette]

3s: "A prize for creative math goes to anyone who can demonstrate that an aggregate demand tax cut can generate more revenue than is lost."

A suggest that a better exercise would be in "creative budget cutting", by which students look closely at the American budget and decide where items can be cut and justify the axing with good arguments - in order to compensate for the tax cuts.

The budget of the US is a nightmare in complexity and anyone understanding it deserves a medal. Anyone knowing how to master it deserves a Nobel Prize.

[anne]

http://www.nytimes.com/2006/07/09/washington/09econ.html?ex=1310097600&en=ec2f2425a9899725&ei=5090&partner=rssuserland&emc=rss

July 9, 2006

Surprising Jump in Tax Revenues Curbs U.S. Deficit
By EDMUND L. ANDREWS

WASHINGTON — An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year, even though spending has climbed sharply because of the war in Iraq and the cost of hurricane relief.

On Tuesday, White House officials are expected to announce that the tax receipts will be about $250 billion above last year's levels and that the deficit will be about $100 billion less than what they projected six months ago. The rising tide in tax payments has been building for months, but the increased scale is surprising even seasoned budget analysts and making it easier for both the administration and Congress to finesse the big run-up in spending over the past year.

Tax revenues are climbing twice as fast as the administration predicted in February, so fast that the budget deficit could actually decline this year.

The main reason is a big spike in corporate tax receipts, which have nearly tripled since 2003, as well as what appears to be a big rise in individual taxes on stock market profits and executive bonuses.

On Friday, the Congressional Budget Office reported that corporate tax receipts for the nine months ending in June hit $250 billion — nearly 26 percent higher than the same time last year — and that overall revenues were $206 billion higher than at this point in 2005.

Congressional analysts say the surprise windfall could shrink the deficit this year to $300 billion, from $318 billion in 2005 and an all-time high of $412 billion in 2004.

Republicans are already arguing that the revenue jump proves that their tax cuts, especially the 2003 tax cut on stock dividends, would spur the economy and ultimately increase revenues.

"The tax relief we delivered has helped unleash the entrepreneurial spirit of America and kept our economy the envy of the world," President Bush said in his weekly radio address on Saturday.

Democrats and many independent budget analysts note that overall revenues have barely climbed back to the levels reached in 2000....

One reason the run-up in taxes looks good is because the past five years looked so bad. Revenues are up, but they have lagged well behind economic growth.

The surge could also evaporate as quickly as it appeared. Over the past decade, tax revenues have become much more volatile, alternately soaring and plunging in the wake of swings in the stock market and repeatedly defying government projections.

Nevertheless, the short-term change has been striking....

[Mark Thoma is of course right, read closely....]

[anne]

We have been passing through a period of both record or near record corporate profits, the finest 5 years period of international growth since 1945 and what I would argue is the finest international bull market in assets since 1945. Corporate and individual tax receipts should have increased dramatically. That does not change the surety that tax structure changes will lead to weaker collections in future.

I am only surprised that the series of tax cuts and military spending increases were not more growth stimulating.

[anne]

http://www.nytimes.com/2005/07/13/business/13deficit.html?ex=1278907200&en=a410f8c74d4700a5&ei=5090&partner=rssuserland&emc=rss

July 13, 2005

Sharp Rise in Tax Revenue to Pare U.S. Deficit
By EDMUND L. ANDREWS

WASHINGTON - For the first time since President Bush took office, an unexpected leap in tax revenue is about to shrink the federal budget deficit this year, by nearly $100 billion....

[Again, the article in no way counters Mark Thoma observation that we have limited our ability to gain revenue in future.]

[Jim]

If we had a function for how tax rates affect economic growth, we could maximize the net present value of taxes. High sustained economic growth and low inflation are, very likely, necessary parts of that optimization. Both the left and the right win if this is done by the numbers.

[Tin Woodman]

"MJS says: "(Obviously, I skipped a few steps for brevity's sake.)""

Anyone else thinking of that cartoon showing two white-coated types looking at a blackboard covered with equations and, in the middle, a box saying "and then a miracle happens?" In which one of the men is pointing to the box and saying "We need some more detail in here."

[Lafayette]

Jim: "If we had a function for how tax rates affect economic growth,"

More so, if a country would have a budget law that required budget equilibrium (expenses = receipts), then there would be no PotUS/Congressional tendency to dip hands in the pork-barrel for one pet-project or another - without a justification of the extra-budget expenses.

Such a discipline is extra-political - it is simply a financial discipline that both families and nations must adopt. Somehow, government escapes that discipline as it lurches from budget year to budget according to the prevailing winds of expenditure.

Aren't we focusing on the wrong end? Shouldn't we be looking at expenditures and not receipts? After all, it is the former that wags the latter.

In electoral debates, don't we want to know just what areas in which the candidate will focus expenditures in order to address problems/issues of the day ... instead of lurching from one budget to the next (while fixating our attention on some matter that is totally irrelevant to national/state governance, that is, budget expenditures)?

Citizens could discuss the needs of the collective (nation, states, and communities) towards understanding how to distribute the funds collected.

Put the budget up for a referendum vote and watch how amazingly quickly political attention shifts to its construction, its unfairness, its imbalance, etc., etc., etc. Watch politicians debate to and fro the expenditures for education versus that of the military. With budget discipline, a PotUS cannot blithely convince the nation that it can have both "guns and butter". Optional choices must be made. Why aren't citizens involved in those choices? Whose money is it, anyway?

What’s the MOST important factor in our lives, if not personal/family budgets? Why isn’t that so as well for the nation? As a nation of consumers, we consume government services. But, that is one consumption over which we have NO SAY whatsoever - except maybe a wee bit every four years or so.

[reason]

Lafeyette...
in my lighter moments I like to think of a national dividend - every citizen gets what is left over from Government revenue after expenditure. Imagine what that would do to politics!

(I know, I know the business cycle - there is always a hitch).

[reason]

(But of course you could use a moving average)!

[Lafayette]

reason: "in my lighter moments I like to think of a national dividend"

Me too. I think of it as "well being". For fear of expecting too much, however, I would not qualify it as "happiness".

Anyway, it is unlikely that either you or I will "profit" from government for some time to come. ; ^ )

[MJS]

Calmo says...

"Should you accept the terms of this civil-but-not-polite engagement, your next volley could be refining that general statement of orthodoxy:

"Government is not as efficient at allocating resources as the free market."

down to a particular economic activity (delivering the mail? fighting a war? collecting the garbage?) and determining how best to measure those competing efficiencies."

I accept the terms of the engagement. First, I must admit that I do mostly read items of fellow-supply side travelers, and was not aware of the den of anti-supply-side thought that I had entered! That said, I came to my pro-supply-side conclusions after considerations of the other side. Suffice to say, I was more swayed by the pro-side. But, supply-side economics is not dogma to me, though it does seem able to withstand (in some areas much better than others) rigorous scrutiny by demonstrating its applicability both theoretically and empirically.

Ok, enough with my abstract philosophizing. A starting point of measuring those competing efficiencies would be: When the damage to a necessary institution or right is greater than the benefits achieved by government regulation of that institution or right, I would say that is when market based principles win out. Measuring this is tough in many respects, easier in others. I'd stipulate military should be a government enterprise. This is no grand concession - protecting us is the sine non qua of government function. Further, the reason is that economic efficiency (ie, allocating resources) is not the primary goal in running our military.

Delivering the mail would be much better done should the government monopoly on such be removed. (See Fedex and UPS in delivering packages and freight vs the USPO.) Admittedly, the Constitution would need to be amended for this monopoly to cease. But, that same Constitution would probably address the biggest problem with private enterprise managing the postal service: discrimination. Not racial discrimination, but economic discrimination, such as slower or no response to poorer neighborhoods, for example. Fortunately, the Constitution provides interstate commerce may be regulated as necessary and proper. Unlike much of the modern interpretation of the Commerce and Necc. and Prop. Clause, this is one form of government regulation which, though not as economically efficient as otherwise the postal service would be, accrues non-economic benefits clearly within the purview of the Constitution. In a nutshell, it would be rationally related to a governmental purpose, making sure everyone has equal access to the postal system. Again, this consideration of the negatives incurred by private run postal serivce is all hypothetical - the C vests postal services in government.

Point is, economics considerations should not be the main function for all endeavors. Though characterized as thinking this way, most supply-siders do not. WRT to taxes, they should be high enough to cover those functions which government must provide for them to function or that are important enough to function in a way providing equal access to all.

But, none of this takes away from my earlier statement that government simply cannot allocate resources as effectively and efficiently as the free market can. Whether those functions they do regulate are important enough for this lack of efficiency to have non-economic value is an argument for a more political discussion blog. But, markets react via aggregate mechanisms to more quickly and accurately peg supply-and-demand and adjust to it than do non-market based entities.

Therefore, wealth in the "invisible hands" of non-government institutions will be allocated in a manner more economically beneficial than government institutions. Not saying government doesn't need revenue to function, not saying government doesn't have important and necessary functions. Just saying that, ceteris paribus (couldnt resist), markets do better with utilizing wealth more productively than governments, in terms of simple supply and demand.

When wealth is used more productively, output increases. When output increases, there is more to tax. If output increases enough to enable more revenue from lower tax rates, and this increase is a result of the tax rate cuts, then lower tax rates do lead to greater revenue.

Admittedly, there are a lot of "ifs" in that last paragraph, which is why it's not "settled" by any measure. Further, economic concerns should not and do not always outweigh other concerns. But, markets ARE more efficient at ECONOMICALLY allocating resources. Whether it's worth it or not is another argument.

[MJS]

Bruce Webb says...

MJS says: "(Obviously, I skipped a few steps for brevity's sake.)"

Yes the steps that back the Voodoo out of the Voodoo Economics.

See above post.

MJS says: "I'll give you Thomas Sowell and M. Friedman as two fairly reputable sources"

Thanks for the "fairly". Sowell is a hack and Friedman while undeniably brilliant was hobbled by a pre-supposed ideology. As Calmo pointed out appeals to authority don't go far here, logical arguments and actual numbers are the ticket."

Well, ok, at the time I didnt have the time to fully explicate my point. But "appealing" to Milton Friedman, on of the economic giants of our time whose influence is felt on nearly on makers of economic policy, and more specifically to his name in regard to economic issues with which he had the most profound effects, takes the appealing to authority idea to an absurd level. It wouldnt fly in a scholarly article's bibliography, but on an economics blog, I need more than his name to espouse one of his major ideas? I suppose on a blog discussing evolution, citing Darwin would not be enough? Would I need to link to specific citations, pages, and other references? Further acknowledge contemporary scientists who are not persuaded by his theory? Or would you understand that my saying his name has influenced my thoughts on evolution to indicate where I stand on the subject and what my reasoning is?

As for Sowell, he has not broken any new economic ground, if that's what you mean by "hack," but he has done a superb job of explaining to "amateurs" like myself the principles of supply-side economics and Friedman's work, as well. After reading some of his stuff, I read "weightier" subjects, both pro and con. But just because he merely articulates the arguments for supply-side economics in a more clear, concise, and readable manner, doesnt mean he is a hack.

MJS says: "Markets allocate money better (ie, more efficiently) than government"

That is a statement of faith, not an economic argument.

Again, see post above.

[Bruce Webb]

"But "appealing" to Milton Friedman, on of the economic giants of our time whose influence is felt on nearly on makers of economic policy,"

But "appealing" to Karl Marx, on of the economic giants of our time whose influence is felt on nearly on makers of economic policy,

Yep. Plenty of important thinkers back in the twenties appealed to that 'economic giant' whose influence was felt on nearly all makers of economic policy. Then.

Doesn't convince me to be a Marxist. Or a follower of the Chicago School.

"but he has done a superb job of explaining to "amateurs" like myself the principles of supply-side economics and Friedman's work, as well"

Yes and Sowell and like-minders did a superb job of explaining to "amateurs" like yourself the existence of WMDs in Iraq. I'll certainly concede that Sowell is an excellent sheep herder. Baaah.

The current President's father summarized supply-side in simple and accurate fashion. Bush 41 said it was "Voodoo Economics". He got that right in real time. Too bad you and Sowell are so behind the curve (we are not Laffering with you, we are Laffering at you)