The Benefits from Blogs

This is about all of you:

Blog!, by Bruce Bartlett, NRO [also here]: On April 6, I had an article in The New York Times arguing the term "supply-side economics" (SSE) had outlived its usefulness. ...

What was really interesting about my article ... was the reaction to it. A University of Oregon economics professor named Mark Thoma posted a long commentary on it on his blog. I posted a response, which led to many other comments, including a couple from Paul Krugman, a Princeton economics professor and New York Times columnist.

Subsequently, University of California-Berkeley economist Brad DeLong posted much of the discussion from Thoma's Website on his and offered additional commentary, which led to further comments from me and some of those who had also posted comments on Thoma's Website. Since then, Thoma has kept the conversation going by soliciting a commentary by James Galbraith, an economics professor at the University of Texas.

The point I am getting at is that blogging is finally maturing into a useful way for people to interact with each other to sort out differences. It's like being in a seminar room with some of the smartest people on the planet, where we are all searching for answers to the same questions, but coming at them with very different experiences and philosophical perspectives.

But it is really better than that -- because in a seminar room only one person can speak at a time, some people speak too long, others go off on tangents, while others effectively sabotage any effort to narrow differences by focusing only on those areas where agreement is impossible. With a blog discussion, these problems go away. There are no time constraints, people must write their comments, those that are off-topic can be skipped over, and those who abuse the forum can have their comments deleted by the host.

Also, in a seminar room people can sometimes get away with making outrageous claims or factual errors that cannot be responded to in that forum. In a blog discussion, no one can get away with such things. Fact-checkers will immediately swoop down on mistakes and often provide hyperlinks to original sources that can be checked by anyone for verification. The result is an automatic self-correction mechanism that helps keep everyone honest.

This is not to say that there is no downside to a blog discussion. Too often, those posting comments start arguing with each other about matters that have no relevance to the original post. ... And, of course, people sometimes get abusive and substitute name-calling for rational argument.

But these problems are really rather minor and result mainly from the blog host lacking the time or the inclination to police the comments, disciple abusers and delete their comments, and bar serial abusers from being allowed to post. Perhaps in the near future, some programmer will invent an effective method of deleting irrelevant, off-topic, and abusive comments automatically...

Nevertheless, the sort of back-and-forth that my original article stimulated is extraordinarily useful. I learned a lot from those who commented on my article. In particular, I learned that many things I took for granted in terms of my knowledge of the economic experience of the 1970s are not widely shared. It has motivated me to write something more detailed that will explain the atmosphere and context in which SSE was developed. ...

As it is, both supporters and opponents of SSE implicitly view it in the context of today, thus leading to errors in thinking that what was true at one time is still true today -- or, conversely, thinking that something that is wrong today was also wrong in the past. In terms of SSE, what was right then may be wrong now.

In terms of what SSE accomplished, I still think it was the right cure for the economic problems we were facing in the late 1970s. I also think it embodies some fundamental truths that are applicable at all times. But these fundamental truths, such as the idea that high marginal tax rates are bad for the economy, are now almost universally accepted. So I say to my fellow supply-siders, let's just declare victory and move on. Insisting on a separate identity only makes enemies out of potential allies.

Update: Here are links to the posts in the series:

• Bruce Bartlett: How Supply-Side Economics Trickled Down (this started it)
• What Did You Know, and When Did You Know It?
• Brad DeLong: How Supply-Side Economics Trickled Down...
• Supply-Side Economics: Paul Krugman Responds
• Jamie Galbraith Speaks for the "Vulgar Keynesians"
• Plonking, Type Two

And, related:

• Should We Abandon the Phrase “Supply-Side Economics”?
• The Gold Bug Variations

Update: Ezra Klein has more in "Converted."

Comments

[paine]

i as a serial abuser
its important i
be the first to comment

i'd have to go along with BB's
automatic scotching
mechanism
a nice polite exchange of memes
properly served in tea cups
with raised pinky fingers
would make all the big feet
more at ease
plunging into these waters

the groundling
---we brassy unpedigreed commenters
so poorly represent -----
would all be better served if onlt
accredired dignitary types
were allowed to toss the foorbal de jour
back and forth among themselves
un distracted by
bare foot sceptics
and bug eyed redemmers
panacea snake oil mongers
and
the nations near limitless train
of
lonely prophets without apostles

[Bruce Webb]

'So I say to my fellow supply-siders, let's just declare victory and move on."

Well not so fast. Do supply-siders still support additional cuts in the top rate and to what level? If so you have not moved on at all. Are you willing to make an numeric case for where the precise level of top marginal rates should be set to minimize the negative revenue effects and maximize the growth effects? Maybe you have such a number but the more vulgar supply-siders continually assert that we are still on the wrong side of the curve and further cuts are in order.

Over the next few years we will be in an active debate on whether or not to let some or all of the Bush tax cuts expire, one of those being the cut in the top marginal rate. Are supply-siders on the whole going to set on the sidelines? Or will they be out there in the trenches fighting to maintain the cut?

In this context "moving on" seems to mean "we pushed the envelope as far as we could in this cycle". What is your stand on extending Bush tax cuts? From the purely economic point of view of maximizing growth while actually paying for government services?

[chris]

Any time a conservative is willing to debate based on facts and reason is a victory for my side.

This liberal agrees -- let 'em declare victory if they cool it with the Laffer curve fantasies.

[paine]

bw

right on
notice he sez as much at the end

he's trying to slip the noose here
and save the bushco's tax cuts
the infamous "massive base pay back"
by rallying the forces of evil to one flag

[paine]

the bomb

"But these fundamental truths, such as the idea that high marginal tax rates are bad for the economy, are now almost universally accepted"

[robertdfeinman]

Notice how a conservative person gravitates to the idea of top-down control of conversation. Sometimes the side discussions turn out to be of more value that the original. DailyKos has this happen often.

I refer, once again, to the work of psychologist Robert Altemeyer about the "right wing authoritarian" personality type. His experimentation has found a high degree of correlation between those who believe in a hierarchical model of social organization. Read his free, online book here:
The Authoritarians

You can't deal with your opponents if you don't understand what makes them tick.

[anne]

Let me be perfectly clear, understanding Paul Krugman now perfectly, Bruce Bartlett has been and is playing redical conservative games which now mean that since they are losing sway to pretned they are not the radicals they really are. No; you are the radical you always have been. As Krugman said in the last couple of days, these cats do not change never ever ever. Bartlett is Wall Street Journal heavy only and always wishing to be taken under the right wing. Phooey with the "supply side" gibberish.

[anne]

This is the very same Bruce Bartlett who gave us Bush and a nutty Republican Congress, but who understood how self-destructive they had become and has been trying to appear to be another cat than the cat he always has been. But, I much prefer to be an enemy of the likes of Newt Gingrich wanna-bes, and will not take mildly to the pretense again.

This was all the Bartlett game, as Paul Krugman knew at once and remarked in his New York Times blog. This is American Enterprise and the like, see the name and sneer and pass on. Phooey, Bruce.

[donna]

"Let's just declare victory.."

Yeah, the rich won. What more do they want from us?

[Bruce Webb]

The bomb indeed.

"But these fundamental truths, such as the idea that high marginal tax rates are bad for the economy, are now almost universally accepted"

Define 'high' and don't forget to show your work. For extra credit identify 'optimal' likewise showing your work.

But they never do, not in the blogosphere anywhere, everything is qualitative and nothing quantitative. After awhile you begin to understand that this is not because they don't understand the numbers, they just don't like the logical results.

(Speaking of numbers, have you looked at the new ones for the 2007 Social Security Report? Me neither, because they are three weeks late in releasing the Report - for the second year in a row. And they just stuck the head of Cato's Social Security project in as deputy commissioner on a recess appointment. Coincidence? Come on this is the Bush Administration, the Fox is always in charge of the Chicken Coop. But this was pretty brazen and to me a sign of desperation.)

[Wayne Jett]

You don't get it. Obviously, the editors of NYT got it, or they wouldn't have published Bruce Bartlett's piece volunteering the burial of supply side economics (at least the phrase) on grounds of consensus that all now agree lower tax rates allow higher employment and stronger economic growth. Also obviously, few who post on this site are a part of that consensus.

Another benefit of blogging BB did not mention is its facility allowing comments to be ignored if you prefer not to confront them. BB did not respond on the merits of any of my comments, nor did Jamie Galbraith, Brad DeLong, Paul Krugman or Mark Thoma, except for his general disavowal of my views. Unfortunately, a hallmark of Keynesian professionals is avoidance of debate on the merits of issues except with other Keynesians. That does not evidence personal confidence or a robust theoretical model.

We even have remorse expressed now by one poster for being so foolish as to ask a few questions and think a little bit about analysis other than what is acceptable in Keynesian circles. Worse, Paul Krugman is praised for his use of vitriol and anger rather than debate on the merits. Those who sign on to that approach will be devoted partisans, but they will not learn and they will not achieve the benefits they promise for the downtrodden they claim to represent.

[anne]

No; Bruce Bartlett was playing a typical radical conservative game. Tell us we all agree and now we can all support radical conservatism, whether the nuttiness of supply-sidism or the nuttiness that would trash the New Deal legacy from Social Security to Medicare and beyond that made America the middle class country we became from the 1930s. What nonsense and pretense.

[anne]

Donna:

"Let's just declare victory.."

Yeah, the rich won. What more do they want from us?

Notice that Bruce Bartlett is back together again, yeah, with the National Reviewers, having atoned for whatever sins to be taken to the fold again. So then, the typical meanness returns. Was it mere days ago, that Bartlett was complaining about being snubbed by the Reviewers? Not to worry, though.

Paul Krugman again just made the point about how uniform and persisting the radical right is, made so by dependence of so-called think tanks. (Oh, forgive me for mentioning a person of "vitriol and anger" before the sensitive dear sweetie Wayne Jett.)

[James Killus]

Hmm. If we "just don't get it," then maybe there is some problem with that "almost universally accepted" part. Ah, I see, we're not part of the "almost universal." Well, I've always been a rebellious sort, not willing to be part of the "economically correct" crowd.

"Accepted" by whom? There's the rub, eh? As nearly as I have been able to tell, neither the rich nor the poor, nor those in between have ever had any problem with taxes increasing for someone other than themselves. And I must say that here I abandon my contrarian position, because I too allow for the desireability of increasing the taxes on other people. I'm particularly fond of taxing dead people, as they really have no need for their money anymore.

[calmo]

Mark marginalizes his huge contribution to this particular thread/issue when he writesThis is about all of you And the more I mull it over, it is more about this relatively new electronic forum that sometimes supersedes what intellectuals (not like donna and me) refer to as a symposium: The blog.
Not so formal (lookit paine and see what I mean), not so top-down (see Movie tellin Mark what to post next)[see calmo chiding rdf for overly authoritarian perspectives], not so death defyingly personal (I could be wrong, but making adjustments here is so easy compared to arguing SSE at the Sunday BBQ, no?)
Now if this were a more formal occasion I could thank all the participants and encourage lurkers to join us. But it's not as stuffy as the symposium where there is an obligation to declare something (beside 'Uncle Albert, we're so sorry...')[see, I'm not sure how straight faced BB is with 'declare victory and move on'] and socially mark the occasion as time well spent. Uncle Albert knows you aren't as sorry as all that --the work not done was not lost entirely, that some preparation was made, that some fun (joy even) was had sampling/tickling other's thoughts.
Twas a good thread..."educational" some said (plonkable do-gooders, pay them no mind); "informative" said others (who can deny that plonking type II is not informative...erasing so much of that previous education?).
Well, here's hoping we have more.

[anne]

Wayne Jett:

"We even have remorse expressed now by one poster for being so foolish as to ask a few questions and think a little bit about analysis other than what is acceptable in Keynesian circles. Worse, Paul Krugman is praised for his use of vitriol and anger rather than debate on the merits. Those who sign on to that approach will be devoted partisans, but they will not learn and they will not achieve the benefits they promise for the downtrodden they claim to represent."

Marvin, get me the smelling salts, I have a touch of the radical-right-downtrodden-representing vapors. Trod me not down, Marvin, for I am nothing if not uptrodden. Notice the nuttiness, and less and less masked meanness.

[anne]

No; not about us. I was puzzled for several days, not understanding what Bruce Bartlett was about and ready to compromise even though Paul Krugman got the game immediately. Brad DeLong, who reads with the clearest eye, evidently missed what was happening. This was Bartlett preparing to return to National Review form sneering at every social benefit program, playing at trickle-down justification and dragging all in after.

These people despise Democrats and any New Deal legacy, and that means inventing an economics where down is up to justify continuing to return to the days of Herbert Hoover. Ain't gonna happen. No chance.

[anne]

What bothers me so, and like Paul Krugman I am all "vitriol and anger," is being taken for a fool by these radical-rightists. The rule is they never change, they are persistent, they can never be trusted, they deserve no trust. Yes; I am all vitriol and anger with these folks.

[Bruce Webb]

Wayne - back at you.

'Unfortunately, a hallmark of Keynesian professionals is avoidance of debate on the merits of issues except with other Keynesians. That does not evidence personal confidence or a robust theoretical model."

Your post from top to bottom like most of your posts and most Right Economic posts generally is a series of assertions. Supply-siders don't argue at all, certainly not with testable numbers, the posit their conclusions and then ask why we don't get it.

To the extent that Paul Krugman is vitriolic, which personally I don't see but whatever, it is because the whole of his work over the last couple years coupled with events on the ground show that anyone who trusted this Administration on just about anything at all is an underinformed person who most likely tends to post from an assumed overinformed position. I can't tell you how many homework assignments I have received from people who frankly have not demonstrated to my satisfaction that they know what they are talking about or are driven by anything other than ideology. Like the one you handed out the other day.

And numbers are a nice start. Wayne if you are willing to enter into an honest, data driven discussion of where the optimal point of the Laffer Curve lies then fine. Some of the regular mid-level posters have plenty of time to mix it up with you. But this is just whining;
'BB did not respond on the merits of any of my comments, nor did Jamie Galbraith, Brad DeLong, Paul Krugman or Mark Thoma,"
Too bad, Brad and Mark rarely comment on anything I post, pretty much I am happy they just don't delete me and so let me have conversations with Anne and Calmo and Ken. You may think that your Supply Side credentials and association with Polyconomics qualifies you to mix it up with the big boys and automatically be taken seriously. But they don't cut any ice among the regular posters here.

Lay out an argument. And no your characterization of the typical level of discourse among Keynesians is not an argument. Until or unless you get the difference between assertion and argument you won't get far. This may not seem fair, all kinds of people make assertions here all the time, but for the most part they either have or have not shown that on the whole they don't make stuff up and can and will back those assertions with arguments on demand. Try it, you might like it.

[anne]

Mark and all....

Please note, there is a change in helath care structure in the offing that I consider quite destructive for policy formation, and am startled by though I should not be. AARP has decided to become a prime health care insurance company while remaining a lobbying agency. So, AARP can no longer even remotely be considered a lobbyist on behalf of perspective patients or patients.

[Movie Guy]

I find it honorable and important that Bruce Bartlett gave proper recognition to Dr. Mark Thoma's Economist's View web log for serving as the medium for the discussions that followed on a series of main posts regarding Supply-Side Political Economics.

The roles that Dr. Robert Mundell, Dr. Arthur Laffer, and Mr. Jude Wanniski undertook in developing and explaining the application of Supply-Side Political Economics are important to understanding how policy development was undertaken during the 1970s and ultimately applied during the 1980s.

That this blog was fortunate enough to have participants who were involved in the policy decisions of presidential administrations during the mid-1970s and beyond was an excellent addition to the commentary rendered on a variety of economic subjects and other issues of interest to Dr. Mark Thoma and his comment posters.

Perhaps most important were the contributions of Mr. Wayne Jett who knew and worked with Mr. Jude Wanniski in the last two years of his life. His comment posts offer a clarity of the meaning and application of Supply-Side Political Economics with regard to Federal policy outcomes unrivaled by any other posters, main or comment section. While it is the case that Bruce Bartlett worked with Jude Wanniski for a period, it is Wayne Jett who appears to have demonstrated and shared the best expertise in explaining Supply-Side Political Economics as well as clarifying Jude Wanniski's role and interpretation of Supply-Side Political Economics as spelled out in his 1978 book, The Way the World Works, which is now in its fourth edition.

My contribution was to recall the 1970s economic timeline and introduce Mr. Jude Wanniski, Dr. Mundell, and Dr. Laffer to the ongoing discussion under the first main post and to identify where to locate his historical materials related to Supply-Side Political Economics and the policy decisions or lack of such that supported or failed to support such political and economic thinking bonded together properly so under Wanniski's description of production-based economic growth mechanisms and policy implementations by identified administrations since the late 1970s.

I thank Dr. Mark Thoma for conducting this considerable discussion which is helping me better understand the pros and cons of not only Supply-Side Political Economics, but other economic theories and applications, including their failures.

This has been a worthy discussion. I thank everyone who offered comments of merit for participating. It has been a pleasure to read the dialogues under each main post that Dr. Thoma presented for his web log readership consideration.

Yes, Dr. Mark Thoma's Economist's View web log is an important educational and historical platform of knowledge for those willing to share the facts, understand and appreciate the merits of decisions, and evaluate honestly, without the presence of personal ego, the outcomes of U.S. policy decisions rendered by our nations leaders and supporting staff efforts necessary to guide the United States of America to a brighter, more productive, and secure economic future.

Thank you, Mark. Thanks for your exhaustive efforts of elevating web log discourse to new heights on the international stage of personal and professional communications in the study of economics and policy decisions.

I tried to bring the minds and voices of Dr. Mundell and Dr. Laffer directly to this discussion, but they were unavailable last week due to international travel by Dr. Mundell and Tennessee to California travel by Dr. Laffer. Though unsuccessful, I did enjoy speaking with Mrs. Mundell and Art Laffer, Jr., both brilliant in their own right, as well as numerous other economists and analysts. It was an outstanding week - filled with knowledge, perspectives, and endless differences of opinion from one telephone call to another. I could not have asked for a more colorful and pleasurable sharing of knowledge, patience, and inquiry. All because of you, Mark Thoma. I thank you for the journey.

An outstanding effort. As always.

Best,

Movie Guy

[paine]

anne

the master of show ing
down is really up....

my main man in a black hat

greg mankiw

unlike this tomato can bb

greg is the real deep dish mephisto
like martin feldstein his mentor

that breed of flying scorpion
is not
just a fast word juggler
like bb
but a maker of magic tricks
tight enough
to make you work like hell
just to find the trick

yup GM is a real match for any of us BW

[anne]

Notice then the change in status of AARP and consider what this may mean for support for a patient advocate on health care policy. We have lost a critical voice, though a voice that was already being lost in the advent of this Republican Administration and the former Republican Congress.

[Mark Thoma]

anne - I understand your point fully - wolf in sheep's clothing so to speak, i.e. what does it mean to drop a phrase if the philosophy is unchanged - but still I think it's important to separate the economics from the philosophy the economies is used to support. Saying that growth theory (supply-side) has merits, and it does, is not the same as agreeing with the philosophy known as supply-side economics.Take taxes. Taxes cause distortions. I don't see anything wrong with saying that inefficient taxes ought to eliminated, and I think some types of taxes do cause big distortions. But that doesn't say taxes should be eliminated, or that spending must be reduced to avoid distortions. It does say you might want to replace one kind of taxation with another to support a given level of spending or to do more without changing overall taxes.The problem is that in saying things like that (incentives matter), you give ammunition to the other side to misuse comments in support of their cause (tax cuts help to pay for themselves, taxes are bad, etc.). Still, I don't want my economics to be hemmed in by such constraints, but I've found myself hesitant to say certain things for fear they would be misconstrued. I'd prefer to do as Krugman suggests:Even so, why did you need a doctrine called supply-side economics, which purported to challenge the fundamentals of Keynesian economics? All you really needed was to bring policymakers up to date with the current state of Keynesianism!and incorporate what we have learned as part of the Keynesian model. That allows us to talk about growth without giving up the idea that short-run stabilization policy (government intervention) is necessary and useful.

[Mark Thoma]

Thanks anne.

Ezra Klein is not impressed with the AARP's effort:

AARP Goes For The Profits

[paine]

calmo
very fine epitome of optimal blog siting

[paine]

bw

"Brad ....rarely comment(s)
on anything I post
pretty much I am happy ..(he)... just...(doesn't)
delete me "

some times i think you'll agree

one brad delete
is worth thousand pass overs

i know the few times he zapped away
me bs over there
---b4 i left for flatter playing fields ---

only confirmed
my sense of a deeper validity

[Bruce Webb]

Movie Guy.

Wayne's position would have been advanced if he had introduced himself and maybe linked back to the website and organization he is associated with. And for what it is worth here it is. Jude Wanniski's Polyconomics: Deciphering the human forces that turn the gears that turn markets.

Perhaps he could even have linked to relevant parts of his A Supply-Side History And The Road Ahead or to any of the other of the dozens of posts on Supply Side at Polycomonics and given us a number on where the top marginal rate should be to minimize the now accepted hit on revenue while maximizing growth. On these matters if you can't talk in numbers then people will suspect that your agenda is ideological and not economic.

If an ideal world where would Wayne put the top marginal rate and why? A question I have posed a couple of times to Bartlett by the way.

[Wayne Jett]

Mark,

Supply side economics was never simply a doctrine relate to tax rates. As I previously posted, it was a new name given to classical economics. There are fundamental differences between classical economics and Keynesianism that ought to be reconciled.

The most fundamental difference is in monetary policy. Keynes recommended control of domestic interest rates, primarily by usury laws to keep interest rates down, but he did not foresee the highly destructive effects of inflation and deflation that flow from a policy of attempting to manage domestic interest rates through the central bank.

While Keynes invisioned a central bank free of the gold standard so as to keep domestic rates artificially low to subsidize domestic production and stimulate employment, he almost certainly did not foresee our present dilemma. His idea is now being used almost entirely to reduce employment in the name of fighting inflation; raising the overnight rate far higher than the long rate, thus enabling large corporate borrowers and the government to borrow at sharply lower rates than consumers and small business.

Leaving aside fiscal policy for the moment, Keynesians ought to reconsider their present support of Fed management of interest rates. Jude Wanniski's recollection of the 1971 Nixon decision to close the gold window (which he covered as a young reporter for the weekly National Observer) was that Keynesians did not strongly support the Nixon decision, but merely went along with the monetarist support for the move.

Who benefits presently from the Fed policy allowing the dollar's value to float so the overnight interest rate can be manipulated. Certainly not workers or the middle-class, who have great difficulty and long lag time in trying to catch price increases with their earning power. But there are many in the financial world who speculate on the foreign exchange market, with more funds invested by far in forex currency speculation than in stocks and bonds that produce jobs and pay wages.

Also, the money center banks earn billions by selling "derivative" securities designed to hedge the risk of currency losses. They like the floating dollar, too. The derivatives business would evaporate if we had a stable dollar.

My view is that the Democratic Party would benefit by a change in its view of monetary policy. I think Barney Frank in the House is certainly suspicious of funds rate hikes that put workers out of a job. And well he should be, because job losses do nothing whatsoever to stem inflation. In fact, economic contraction causes inflation when the Fed adds liquidity rather than draining it, as it has been doing.

I am not arguing politics. I am arguing for economic policy that works. U. S. monetary policy does not work well at all presently, and we need to change it before it produces additional serious trouble. The dollar fell sharply again yesterday, near $700/oz, and it will fall further unless the Fed shows it understands how to strengthen it.

Here is a question to be answered by those who know the Keynesian model: Is the Fed deliberately weakening the dollar based on the belief that doing so will help resolve the current account deficit issue, or is the Fed trying to fight inflation as it says, but failing in the effort?

Surely the Fed is telling the truth IMO and is trying to fight inflation. Otherwise, Americans are certainly destined for a return of the 1970s or worse. Yet, the dollar's value is falling so badly, the Fed's policy is clearly not working. This returns me to my point that policy is in dire need of change, and I will close.

[Bruce Wilder]

Congratulations to our host, on the accomplishments of his blog. And, What Ezra Klein said, along those lines:
http://ezraklein.typepad.com/blog/2007/04/converted.html

[anne]

Mark Thoma:

"I'd prefer to do as Krugman suggests:

'Even so, why did you need a doctrine called supply-side economics, which purported to challenge the fundamentals of Keynesian economics? All you really needed was to bring policymakers up to date with the current state of Keynesianism!'

and incorporate what we have learned as part of the Keynesian model. That allows us to talk about growth without giving up the idea that short-run stabilization policy (government intervention) is necessary and useful."

Nice.

[James Killus]

Bruce Webb has asked a question about the most efficient marginal tax rate three times so far. It is clearly on-topic, since it was in response to a direct quote from the original Bartlett.

Not a single "supply sider" here has seen fit to attempt an answer, or even to aknowledge that the question has been asked, with the possible exception of one oblique swipe from Wayne Jett: "Supply side economics was never simply a doctrine relate to tax rates."

Perhaps not. But it surely had a tax rate component to it, and dodging the question is what Bartlett was saying isn't allowed on blogs. Well, I'm going to agree with Bartlett on this one and say, "Put up or shut up," because all this dodging around feels suspiciously like the con game that so many of us suspect it is.

[Wayne Jett]

Bruce Webb,

After its founder's passing on August 29, 2005, Polyconomics ended its operations in about June, 2006. My relationship with the firm ended sometime about February, 2006. I am delighted for anyone to read the writings you have cited. In that regard, I'll call attention to supplyside.forum, which is an economics discussion site organized by several of the participants who for years were involved in a wide-ranging online discussion forum called Talkshop organized by Jude Wanniski for those who studied classical economics through his Supply Side University, which allowed free enrollment for weekly written lectures.

As to your interest in determining the precise tax rate at which maximum tax revenues will be achieved, Arthur Laffer or Jude would tell you (as I do) that the the Laffer Curve illustrates generically a valid concept, but the curve cannot be drawn precisely without entry of all economic conditions at a moment in time. If that is done, the resulting curve would be accurate only for the moment and would be invalid as soon as conditions change, as they do constantly.

For example, Jude wrote about a scenario that an effective marginal tax rate of X (say 50%) may completely stultify productive activity during a period of peacetime. But the same economy might be willing to produce at full capacity despite much higher tax rates during a war in which the survival of their civilization is threatened. Thus, the precise shape of the conceptual Laffer Curve is always changing with economic conditions.

In addition, a different curve shape would be necessary for each tax, although a curve could be conceptualized as applicable to all taxes combined and to their combined marginal effective rate.

Economics deals with human behavior, and the Laffer Curve considers the effects of taxes on human behavior. It is a subject that does not lend itself to mathematical precision. The Laffer Curve has been a part of economic thinking since at least the time of Adam Smith and Alexander Hamilton, but it is by no means the fulcrum of classical economic theory. It is merely one concept or principle in the model.

A related principle that I find at least as interesting and beneficial is represented by a conceptual curve relating the level of employment to the tax rate. Near the zero rate of tax, employment approaches 100%. As the tax rate approaches 100%, employment approaches zero. The principle involved: every increase in the marginal tax rate costs jobs.

Put the two principles together and what do you get? In my opinion, you get the conclusion that public policy ought to be to choose the lowest tax rate possible to raise necessary revenues so that employment will flourish to the greatest extent possible.

But that is not the central premise of classical economics either. In my view, the central premise is that the economy must be built around a sound currency, meaning a currency with value that does not deteriorate either by increasing or decreasing. That is where current U. S. monetary policy is entirely deficient.

Since the U. S. economy is largest, the Fed's choice of theory dominates all other central banks. No other central bank can stabilize its currency without pricing its own producers out of the U. S. market. Martin Wolfe, the leading Keynesian in Europe, concluded in 2005 that the international monetary system ought to return to something like Bretton Woods. But the American economics community turned a deaf ear. This ought to be reconsidered urgently, and the move should be made in the near term.

[paine]

well folks we have our answer to the optimal marginal rate
if not also the revenue maximal rate too
and the abnswer is

"it depends "

well my question
can you give us a real existing marginal tax rate thats too low ??
or does the laffer curve only have a west slope ???

[paine]

sorry its me that thinks it has only a west slope
and bb that thinks it has only an east slpoe
and
its jett stream here
thinks labor supply has no income effect
sorry for the confusion
i'm bone headed that way

[James Killus]

I remember an argument from Fortune magazine, 'way back when, that suggested that the bend point in the Laffer Curve should be near 50%, because that is where it becomes more useful to save a dollar from taxes as to earn another dollar. Of course that was when the highest marginal tax rate was greater than 50%.

In fact, we had a perfectly reasonable test of the marginal tax rate hypothesis in 1993, when Clinton's proposed tax hikes were uniformly branded as being devastating to the economy by every supply sider from here to sundown.

The economy expanded and the federal budget went into surplus within 8 years.

Then, the Bush Administration greatly lowered marginal tax rates on high incomes and the federal budget immediately went into deficit.

Now here's where I'm going to demonstrate that I'm not a hard core ideologue (and by all means everyone observe the response, because it might be illuminating). Because I'm going to note that the U.S. economy had, in fact, gone into a recessionary slowdown and a deficit producing tax cut was entirely reasonable under those circumstances. I personally would have preferred it to be a less regressive tax cut; indeed, I would, just once, like some supply sider to consider the marginal tax inplications for lower income taxpayers that were created by the increase in payroll and self-employment taxes beginning in 1982.

But that is carping (though I do like to carp), and it may even suggest that when some folks say "marginal tax rates" they actually mean "progressivity of the tax code." In any case, whatever the counter-cyclical arguments that can be made for the early Bush tax cuts, they are long gone now, and all that remains, like the smile of the Chesire Cat, are the deficits, the growing income inequality, the refusal to fund a war of choice, and the ongoing patronage that stuffs federal money into the pockets of wealthy individuals and calls if "free enterprise."

Now imagine how I might have phrased that if I were a real ideologue.

[Movie Guy]

Bruce Webb says... (at Apr 17, 2007 1:36:05 PM):
"Movie Guy.

Wayne's position would have been advanced if he had introduced himself and maybe linked back to the website and organization he is associated with. And for what it is worth here it is. Jude Wanniski's Polyconomics: Deciphering the human forces that turn the gears that turn markets.

Perhaps he could even have linked to relevant parts of his A Supply-Side History And The Road Ahead or to any of the other of the dozens of posts on Supply Side at Polycomonics and given us a number on where the top marginal rate should be to minimize the now accepted hit on revenue while maximizing growth. On these matters if you can't talk in numbers then people will suspect that your agenda is ideological and not economic.

If an ideal world where would Wayne put the top marginal rate and why? A question I have posed a couple of times to Bartlett by the way."

Bruce,

Allow me to provide a few facts for you and other readers as you have directed your comment post to me.

Wayne Jett introduced himself to the comment posters of this blog on Saturday, Apr 14, 2007 at 12:14:28 PM with his first blog comment post under the main post, Plonking, Type Two, April 14, 2007. This occured a little over four hours after you made your post on that comment thread.

Separately, Mark Thoma created a new main post on April 14 titled Should We Abandon the Phrase "Supply-Side Economics" which he posted at 12:40 AM. This main post was an email from Wayne Jett which stated what he had said later in the comment thread on the other main post above. You made a comment post under this main post at 9:54:13 AM, Apr 14, 2007.

As such, there were two opportunities for blog readers to note Wayne Jett's introductory remarks and other thoughts which appear to have set the baseline for his subsequent communications on the blog.

There was no need for Wayne Jett to post links to materials that were already on the blog during this series of discussions.

I provided the background posts concerning Dr. Robert Mundell, Dr. Arthur Laffer, and Mr. Jude Wanniski under the main post, Brad DeLong: How Supply-Side Economics Trickled Down..., April 11, 2007. This was the third main post in the series of posts related to Bartlett's NYTimes op-ed piece as I recall.

My remarks began with a comment post titled Mundell, Wanniski, and Laffer, 7:42:04 AM, Apr 11, 2007.

I provided biography information for Dr. Mundell and Jude Wanniski and further identified Wanniski's web sites, Jude Wanniski's Polyconomics and Wanniski.com Supply-Side University. I would have provided biographical information for Dr. Laffer, but I didn't find a good biography at that time. I did, though, include Jude Wanniski's description of the Laffer Curve in a subsequent comment post on the same thread.

As explained in my first comment post, "I elected to concentrate first on the government policy decision history of the 1970s and beyond, then follow up with key elements of Supply-Side economics" as outlined by Jude Wanniski and Wayne Jett.

My first comment post on the thread is followed by another in which I provide the April 15, 2001 speech by President Nixon whereby he announced the elimination of the Gold Standard. In the same post, I provided the links for the six part series, A Gold Polaris, and also the paper, The Deflation Monster, written by Jude Wanniski.

I provided a link for Wayne Jett's paper, A Supply-Side History And The Road Ahead at 7:46:21 AM, Apr 11, 2007, two posts down from my first post on the above thread. That effort also included posting the links the three part paper written by Jude Wanniski on the origins of Supply-Side Political Economics.

I provided links to a number of other Supply-Side Political Economics papers and materials at Jude Wanniski's two web sites under three additional comment posts at 7:45:12 AM, Apr 11, 2007, 7:47:34 AM, Apr 11, 2007, and 7:48:45 AM, Apr 11, 2007. These comment posts included links for a three part series titled The Laffer Curve, and also a two part series titled Tax and Money Interaction.

I didn't add any more references from either of Wanniski's web sites because I was only interested in outlining some of the economic and monetary policy decison history of the 1970s and beyond, and providing a few references to some of the limited internet materials from any of the original three authors of Supply-Side Political Economics as introduced by Dr. Mandell, Dr. Laffer, and its chief spokesman, Mr. Jude Wanniski, among political and government circles in Washington, D.C. and elsewhere.

Far too many people try to bury modern era Supply-Side writings from the original authors, Dr. Mundell, Dr. Laffer, and Mr. Jude Wanniski. Too much mystery is involved as a result in my opinion.

Yes, I believe that your comments above explain why I chased down such elusive materials and posted the links for such.

That was the purpose of my posts.

I do not embrace either Supply-Side Political Economics nor Keynesian Economics as the magic answer to all economic conditions requiring corrective action or adjustment.

I am seeking a more balanced combination of workable concepts base on the level of government involved and the nature of the project and intended objectives and goals. Thus far, I have not found a single theory to fit my observations of needs and recognition of failures with various economic policy decisions. And I not sure that modern Supply-Side was every presented or written in such fashion as to explain the full range of possible applications from local to national government levels.

[Bruce Wilder]

We've had some discussions about economics as an engineering discipline, and one thing that struck me about this series of exchanges, was how far from an exercise in engineering, the making of national economic policy is.

Part of this is the weakness of economics as science. And, a large part is the bullying and obfuscation of intellectual mercenaries hired by the plutocracy.

Bruce Bartlett said something about lots of important people in the policy process being clueless, and it would seem like that is a necessary pre-condition as well as a consequence of the political contest over policy. In the circumstances, there are actually advantages to being stupid -- a stupid policymaker is immune to good arguments, while a stupid policy analyst can be a better, more effective bully.

In my shrill exasperation at the destructiveness of Bush, I have often wondered at what seemed to me the degeneracy of the Republican Party into the Party of the Stupid. On so many issues, the Right has put itself beyond the reach of rational debate, adopting a worldview stocked with fantasy facts, a rubbery, circumstantial logic and only one reliable principle (i.e. it's OK if you're a Republican).

A hundred years ago, pragmatism became the characteristic American philosophy, a philosophy of technologists, engineers and doers: "it's true, if it works". Now, we, apparently, are confronted with a farcical extension of that philosophy, a philosophy of actors and public relations executives: "If it fools anyone, it works, and it's true enough for the moment."

An argument is "true" if it polls well enough to prevail, even temporarily, in persuading politicians and the public to follow a certain course. And, what's true (in a more conventional or traditional sense) must be suppressed, because it might be "misconstrued."

I don't mean to fault our host for admitting that he hesitates to say things, which might be misconstrued. I just want to draw attention to that dynamic. A while back, Krugman was drawing attention to Friedman's willingness to make provocative statements, which he knew would be miscontrued by the gold bugs, with whom he was in partisan alliance. Such strategic considerations, whatever their motivations, shape the public debate.

But, what especially troubles me, are the special advantages of "stupid" as a strategy.

Prof. Thoma framed this exchange between Bartlett, Krugman, Galbraith, et alia, as what did we know, and when did we know it. But, the actual political dynamic was not one that turned on scientific knowledge or inquiry -- at least, not outside of the inner sanctum of Paul Volker's office -- rather it seems to have been a story of the triumph of stupidity and deceit, the selling of a policy by deliberately obscuring and mischaracterizing its predictable consequences. What did we learn to pretend to not-know, and when did we just give up and accept as truisms, ignorance and deception?

One of my favorite epigrams is "historians imagine the past and remember the future". I cannot help, but see the implications of the politics of supply-side economics in light of the catastrophic Bush Presidency.

The strategic value to the plutocracy of having stupid policymakers has been carried forward to a point at which the Republican side of the aisle is stocked full of delusional morons. George W. Bush has all the emotional and intellectual maturity of an 8th grader. And the Public Relations approach to policy analysis has been applied even to the grave decision to go to war (not to even mention staffing the Justice Department).

I'm sorry to say that I cannot help but view BB's desire to retire the term "supply-side economics" as similar to the Bush Administration's determination to avoid re-visiting the arguments, which got us into the Iraq War. When your truth criteria is the ability to manipulate the political theatrics of the moment to push forward a policy, and you cannot be honest about what the desired consequences of that policy actually are, then the past, as it actually happened, is of little use to you.

If "supply-side economics", as implemented, reduced economic growth, national savings and productive investment, while massively redistributing income and wealth to the richest fraction of 1%, oh well, let's just summarize the received wisdom as "high marginal tax rates are bad for the economy".

If occupying Iraq, instead of arresting Al Quaeda in Afganistan, destroys American prestige, breaks the Army, kills and maims tens of thousands, then, of course, we cannot consider either
1.) re-examining the original case for war and the judgement of those who made (or accepted) that case, or
2.) withdrawing from a hopeless, horrible, costly, pointless situation.

I tie together these two quite different policy choices, because I want to draw attention, not to what did we know and when did we know it, but to the corrosive power of stupidity, ignorance and prevarication in our national discourse -- to what we pretended to know, and what we were bullied into ignoring.

My complaint is not about the relative merits of conservativism or progressivism, or conservatives or progressives. Plenty of progressives engage in idealistic wishfulfillment, naive intentionalism and worse. Bruce Bartlett is clearly a smart guy, and a passably honest one. On the economic issue at hand, I actually think that the policy of combining a fiscal deficit with constrictive monetary policy was, arguably, the "right way" out of stagflation. Using or extending the Keynesian framework to explain, first, how we got to stagflation and, second, why the combination of fiscal deficit and very tight money, got us out, would be educational. (Heck, somebody might even notice that financing oil imports had something to do with both; that would be practically revolutionary insight.) But, instead, we all get distracted by the unfounded thesis that marginal tax rates were key to some policy consequence other than just redistributing income and wealth upward.

My complaint is about the way stupidity and ignorance take over the center of political debate. The temporary apotheosis of the Laffer curve in the early 1980s was bad enough, but its resurrection and life-everlasting as the dubious and unspecific principle that "high marginal tax rates are bad for the economy" is completely unacceptable to me.

To me, it is one with a whole series of examples of ignorance and determined stupidity triumphing over earnest good sense.

Yes, I know that some highly qualified, more fully specified version of the proposition that high marginal tax rates are bad for the economy, might even be true. But, we're not talking about a highly qualified, fully specified proposition; we are talking about an unsupported truism, whose main utility to its advocates is its deceptiveness and misdirection potential.

A ruthless, or possibly mad, dictator with nuclear weapons, control of one-quarter of the world's oil supply and ambitions to terrorize the American People would be a serious problem. Even if we only suspect that such a person might exist, we don't want the smoking gun to be a mushroom cloud over an American city.

The question is not what did we know, and when did we know it. The question should be, when did what we not-know become so decisively persuasive.

I think ignorance and stupidity began to gain the upper hand in the 1970's, and achieved a kind of hegemony under Reagan. There were limits, even for Reagan; it took some effort, but even Ron, aided by a partisan but at least marginally competent Attorney General, could see that Iran-Contra was insanely bad policy. Bush I and, then Clinton, actually did a lot to restore the integrity of the policy process in the executive branch. But, Gingrich and company were destroying it in the Congress. And, then, there was W: the genius of Iran-Contra took over the whole of American foreign policy, while the mania for tax-cuts and deficit spending returned, but this time, not as a possibly inspired response to stagflation, but as a response to . . . surpluses and a rising median wage.

We need to think long and hard about how we drag the political discourse away from the domination of reactionary stupidity and ignorance. (Hopefully, not toward the progressive stupidity and ignorance of a Robert Kuttner.) Maybe, the blogosphere is part of the solution. I actually harbor some hope that the analysis of narratives and frames will free some minds. See:
http://www.firedoglake.com/2007/04/15/feldman-frames-the-debate/

And, maybe the new internet journalism of TPMmuckraker and the like will be a good thing.

Anyway, sorry about the length of my rant. I am a bit disturbed from watching the Iraq documentary on PBS and by the VT events.

[cm]

That is one weird article. Bartlett starts out praising the merits of blogs, deliberates how those can be further enhanced by one-click censorship support, then seamlessly dovetails into congratulating himself on the universal validation of "SSE".

I guess his view of the merit of blogs is, after all, that persistent dissenters don't have to be dragged out by security thugs, but can be effectively dealt with by "moderating" their contributions, so as to preserve a transcript showing only the "relevant" stuff for future reference.

[Bruce Wilder]

Movie Guy draws attention to the links he provided to some important original materials on the original supply-side argument. His tireless service as a link meister should be more appreciated.

I am uneasy, though, with his declaration that he is "seeking a more balanced combination of workable concepts".

"Balance" is a singularly unreliable method of inquiry, when your intellectual guides are untrustworthy narrators and advocates. Jude Wanniski, for example, wasn't just wrong about almost everything, he was both brilliant and crazy, an often highly entertaining but scary combination. Ultimately, he functioned as a court jester and agent provocateur to the plutocracy, contributing more to their cover story, than to their policy purposes.

Better to throw away your scales -- balance is not an helpful indicator in American political discourse after 1978 -- and buy a really heavy-duty B.S.-detector and filter.

[save_the-rustbelt]

"But these fundamental truths, such as the idea that high marginal tax rates are bad for the economy, are now almost universally accepted"

I will toss in that high marginal rates tended to put a damper on entrepreneurship and thereby protect the entrenched larger corporations. Those of you who remember the 60s and 70s well will remember those as decades of mergers and ITT and GM and GE and etc.

If you doubt that run some simulated financials and play with the tax rates, same for capital budgeting.

[Bruce Wilder]

str: "I will toss in that high marginal rates tended to put a damper on entrepreneurship and thereby protect the entrenched larger corporations."

They protected corporations not just from independent entrepreneurs, but also against the rapacious behavior of their own greedy executives.

One of the consequences of lowering marginal tax rates has been to ratchet up executive compensation, and to set in motion frenzied tournaments for the top executive slots.

In the 1950's and 1960's, top executives were, perhaps, underpaid, but they remained in their positions for lengthy terms -- sometimes, 20 years or more. Consequently, the competition to replace them was pretty restricted. Today, the competition to grab even a couple of years in the CEO slot is nothing less than frenzied, because even a year or two at the top is like winning the lottery.

CEO's are short-timers, though, and their compensation packages put enormous pressure on them to take large risks with the company's capital.

I strongly suspect that low marginal rates at the top of the income scale has contributed significantly to corporate disinvestment in domestic manufacturing and employee training.

[Bruce Wilder]

In the days of monarchy, a long reign was often the occasion for great national achievement, as the competition for the pinnacle of honor and power was dampened and displaced to other ambitions.

Great periods of corporate achievement have also been associated with long "reigns". General Motors, in its period, of greatest achieved, was ruled by Alfred Sloan. Many top slots in the company went to men, who had no higher ambition than the job they were doing -- Harley Earl in design or Kettering in R&D. Microsoft has a similar history, with singular talents in some of the near-top slots.

Open up the CEO chair to competition, though, and many lower-ranking positions become mere stepping stones for general manager types engaging in the tournament -- the specialists disappear, and the tournament, itself, often becomes a single-elimination affair, destructive to creative risk-taking and responsibility. It is no accident that General Motors, in its degeneracy, was dominated by nealy faceless and completely talentless executives with names like, Smith and Johnston. Roger Smith ruined Flint and bought a satellite TV company, but he got his bonus.

[Wayne Jett]

Bruce Wilder,

Your earlier, long rant certainly deserved going unremarked, but after your entirely disrespectful and unwarranted attack on Jude Wanniski, I must describe both your posts as they are: perfect illustrations of "the corrosive power of stupidity, ignorance and prevarication in our national discourse...."

[Wayne Jett]

Milton Friedman and Anna Schwartz published The Monetary History of the United States, 1867–1960, in 1963. In it, the wrote: “Inflation is always and everywhere a monetary phenomenon."

I agree entirely, and spokesmen for the Fed have said this is a premise of actual consensus. So, what was Friedman's view of the historic changes in U. S. economic policy made by President Nixon on August 15, 1971? Two acts were taken that day. One was to close the Fed's gold window to European banks, effectively ending the Bretton Woods accord and the dollar's anchor in gold. The second was to establish wage and price controls.

Here is how a friend of Friedman's (Charles H. Brunie) recently remembered that date.

On Sunday, August 15, 1971, President Nixon announced wage and price controls (and closed the gold window). I called Milton that night and asked what was going to happen. He replied, “We’re going to have more inflation.” I asked how—given that we now had the controls. In order to get reelected in 1972, he explained, Nixon will spend and spend to win voter loyalty, like most incumbents, and then, having created a huge deficit, he will print money to pay for it all. And he’ll print even more imprudently than most presidents, believing that the wage and price controls will mask some of the resulting inflation. And sure enough, in February 1972, the Treasury announced a $28 billion deficit—very big for that time, even as the real economy grew strongly at 7 percent that quarter and even faster during the next one. The ensuing double-digit inflation is legendary.

http://www.city-journal.org/html/eon2007-04-11cb.html

Friedman recognized the action taken to cut the dollar's ties to gold would unleash inflationary forces. Clearly, that is why wage/price controls were instituted at the same time. Why are we staying with such a defective monetary policy when we could return to price stability overnight? We could do so by adopting a money rule requiring the Fed to stabilize the dollar by targeting a specified price of gold, and to achieve the target by selling Treasury securities until the price was achieved. Then, as the economy expands, Treasury securities could be bought with new liquidity, maintaining the target value of the dollar rather than permitting deflation.

This would not raise unemployment as the price of "inflation fighting." Friedman, by the way, certainly did not subscribe to the idea that unemployment fights inflation. Here's another quote from that same article:

As the government increases the rate at which it prints money, the result is too much money chasing too few goods and services. As the Wall Street Journal put it in explaining Milton’s Nobel Prize: “In layman’s terms, the Swedish Academy credited Milton with nothing less than shredding the Keynesian consensus.”

And just as higher wages don’t cause inflation, the whopping oil price increases between 1973 and 1980 didn’t cause the “stagflation”—the stagnant economy with rising inflation—of the 1970s. Rather, the price hikes were the form inflation took.

The same can be said of price hikes in houses, food, you-name-it. So, why do we pretend that the Fed is fighting inflation when the Fed is the source of it?

[James Killus]

I loves me some Bruce Wilder rants I does.

But I find myself curiously entertained by Wayne Jett's ever increasing word count. I suspect it has something to do with my long association with science fiction and fantasy. Still, I'm bound to suggest that, failing a demolition of the Federal Reserve, the Bank of Japan has managed to actually create a decade long deflation, and perhaps those who fear inflation above all things should consider a permanent investment in yen.

For that matter, it's not illegal to own gold any more. I'm sure that if every Gold Bug in the country simply demanded that their contracts and services be paid in gold the Wisdom of the Market would justly reward them, provided enough people close their eyes real tight and wish and wish with all their might, and by the magic of poof, poof, oh wait a minute...wrong comic book.

[Movie Guy]

Bruce Wilder,

I was disappointed that you didn't say a word about Federal Reserve Chairman Miller or Federal Reserve Chairman Greenspan and the mistakes both made. And, as importantly, what almost happened under the guidance of Federal Reserve Chairman Volcker.

Really, now...

[Movie Guy]

Bruce Wilder,

There are numerous examples of different economic theories and concepts in play at the state, county, and municipal levels - in the same or different States that contribute to desired economic outcomes.

While I would like to discuss this at length, I will have to do so another time or via email later on. I still haven't responded to a related question from spencer on another economic blog.

I have worked with different sets of thinking in the course of economic development projects with various States, some of their counties, and municipalities. As such, I will stand by what I stated previously. One theory, standard or approach does not fit every situation. It depends on the goals and objectives, and the manner in which the leadership intends to achieve them.

Sales tax increases and decreases, user and assessment fees, income taxes and rates, and production-based economic growth models are all different techniques for increasing revenue streams, and in some cases, significant economic growth. The differences are not overlooked by economic developers. You use what works best for the project scope and intent, period under consideration, and with respect to the financing authority (means) available. There is plenty more...

Another time, perhaps.

[wjd123]

"This is not to say that there is no downside to a blog discussion. Too often, those posting comments start arguing with each other about matters that have no relevance to the original post. ... And, of course, people sometimes get abusive and substitute name-calling for rational argument.

"But these problems are really rather minor and result mainly from the blog host lacking the time or the inclination to police the comments, disciple abusers and delete their comments, and bar serial abusers from being allowed to post. Perhaps in the near future, some programmer will invent an effective method of deleting irrelevant, off-topic, and abusive comments automatically..." BB

Before I start with my criticism of the above, let me say that I was rather surprised by the civility of this conversation among economist. How cordial a tone everyone tried to take toward one another was refreshing. Why make enemies of people when there is no need to. Being civil helps people keep an open mind. Everyone fared well except the dead, that "nut case," "crackpot" Jude Wanniski.

Now for the quote above. I don't think policing comments is such an easy matter. Blogs censor comments for more reasons than those given above, and many times those reasons are very vague.

For instance, Brad DeLong's Semi-Daily Journal warns you in its header that you'll be censored if you're a troll. Who is a troll? Evidently, according to DeLong, I'm one. I know, because my comments have been censored many times on his blog. I asked him for a definition of a troll, but I never received one. I figure a troll is a name he pins on people when what they say doesn't fit his agenda.

When the church started burning the works of heretics it came up with the Nicene Creed an objective standard heretics could measure themselves against to find out what their opponents meant by calling them a heretic. A troll is a fuzzy catch-all appellation. Censors get to have their cake and eat it too since they don't have to be specific.

I don't pop up from under bridges and scare people. I don't pull bait through the water waiting for a fish to strike. No, when I go on a blog I comment on things that interest me. The bait is already there.

It's De Long's blog, and he can censor whomever he wishes. Justifying it by calling people trolls seems a little too easy to me.

Censoring isn't as easy a matter as Bruce Bartlett thinks.

[wjd123]

BTW, I've never been censored on Mark Thoma's blog.

[Lafayette]

BB: It's like being in a seminar room with some of the smartest people on the planet The one singular difference with conferencing that I would note, is that bloggers effectively adopted the idea of promoting one another with a sidebar listing of similar blogs. They are complementary and not competitive, which is goodness. Methinks.

So, yes, as a means to bring people together in the exchange of thought/opinion, it is a remarkable success. Is the software constructed such that it is the most effective way to exchange on a subject?

I think not. Conferencing software offers structured exchanges, which is more comfortable for some people. One can more easily follow a thread on a given side-track within a subject – or focus on an exchange with one individual in particular (which has both good and bad characteristics). These side-tracks that can develop are often more interesting than the subject itself, which is goodness.

Blogs offer “stream of consciousness” exchange, which develop unconstrained comment. It reminds me somewhat of unstructured communal mind-mapping or, even, brain storming.

Is one better than the other? Perhaps not. What is the greatest asset of either? Both are free, gratis and for nothing. Never was talk so cheap.

Regardless, if Google ever gets the idea of indexing blogs/forums and doing a key-word analysis that results in a meaningful track of exchanges on a given subject, it could develop a wealth of original thought. With all due respect to our “stars” (Bartlett, DeLong, Galbraith, Thoma, et al.), they don’t have a monopoly on original thought. The market for thought is open and global. The only impediment is the language barrier.

And, our stars have had the good sense to contribute to the blog “au pairs” (French for “as peers”), making their insight particularly interesting. Compared to others who are using blogs for patently commercial purposes.

[Lafayette]

No; you are the radical you always have been.

Oh, anne, not you too ... branding posters with labels?

What in heaven's name does it matter which side of the fence one sits on a subject? What matters is the intellectual content of the post, not the political geography of the poster.

If one does not like what a poster writes, either rebut or scroll-on by. But, classifying them politically is oh-so boring.

This is a public forum and free-speech prevails, or should prevail - even if one thinks a poster is a rascal. Let the forum moderator decide if a poster is abusive.

[Lafayette]

rdf: You can't deal with your opponents if you don't understand what makes them tick.

Which makes one wonder how you tick.

Why should anyone be dealing with posters? The evidence is obvious … it is contained in the post. Either one agrees with the content or not, and in the latter case one rebuts.

Your comment suggests that blogging is a “game” to be won - and, one must "strategize" the opponent in order to win. Nothing could be further from truth, even if blogging is one of the games that people play. When gaming occurs, it debases the debate.

An exchange on any given subject must stand (or fall) on the merits alone of the argument. Not second-guessing the poster’s political affiliation or “agenda” or any other characteristic irrelevant to the subject being discussed.

The polemics as regard politics on this blog is patently obvious. This forum is one that is center-left as opposed to center-right. If this sort of ticketing pleases people, then it must indicate that what they seek is alike minds. Frankly, such limits debate and renders it ... er, somewhat intellectually masturbatory.

Debate, at its base, is the confrontation of opposite opinions on a subject. It remains for each individual to decide which we prefer to believe is more true. Which is fundamental to freedom of thought.

[reason]

Lafeyette,
I have never found a shortage of debate at this particular blog center left or otherwise. Some posters are to the "left" of me, some to the "right" and some "right over my head". (I think a bit more multi-dimentional than left/right, however). I like to see things well argued as well, so I could well end up criticising the argument of someone whose conclusions I agree with. Yes the web is in general self-selecting, but hopefully it may well end up self-selecting according to quality and style of argument, as much as by ideological position. Look at crooked timber for instance.

[reason]

paine says...
the bomb

"But these fundamental truths, such as the idea that high marginal tax rates are bad for the economy, are now almost universally accepted"

What he says is of course absolutely true. Marginal rates of 100% are bad for the economy. (But who cares about the economy - it is the people in it that are important. It reminds me of somebody on another blog who says the earth will survive global warming. Absolutely true, but what about mankind?).

But there is some disagreement about at what point beneath 100% it starts becoming a significant factor.

[cm]

Lafayette: The concept of "structured exchange" is necessarily tied to an externally imposed agenda (which provides the structure), hence it is not a free exchange. And yes, freedom of speech/expression is mostly about other people expressing things you would prefer not to hear.

Another feature of blogs/newsgroups, as opposed to conferencing or IRC (?), is that (usually) there is a transcript of the conversation that is archived for an extended period, and that is accessible to automated search (which can also cut several ways).

[Bruce Webb]

Wayne.

In posting links to the website and so employer with which you were associated and linking to one of your articles there I was making an implicit apology. I am sorry that I was too subtle for you.

But the fundamental point stands: assertions are not arguments.

This I think is telling;
"Economics deals with human behavior, and the Laffer Curve considers the effects of taxes on human behavior. It is a subject that does not lend itself to mathematical precision. "

Boy howdy. Why not just admit that it is nonsense designed to sell tax cuts under any and all circumstances. If it can't be made precise to some degree then it is useless for setting policy, it becomes a simple act of faith.

There have been a series of posts over the last few weeks both attacking and defending economics as being science or not. You effectively surrendered to the attackers here or are making the implicit claim that "supply side economics" is not economics at all but instead some sort of applied sociology based on a particular psychological view of motivation. Which actually is my view and why a certain man once dubbed it "voodoo economics".

"does not lend itself to mathematical precision"

Somebody just gave away the store here.

[Wayne Jett]

OK, Bruce, go ahead and write me a couple of mathematical formulas.

In the first formula, define the rate of GDP growth and include in the variables the marginal tax rate.

In the second formula, compute the unit value of the dollar. See whether you can arrive at a formula that includes the funds rate as a variable. If you are able to include the funds rate as a variable, tell me if the manipulation of that variable can be handled in such a way as to move the dollar's value in a predetermined way.

Jude Wanniski progressed from being a penniless journalism graduate to become the most successful practicing economist in the financial world in the past 25 years by mastering the classical theoretical model. He assisted the design of the 1981 tax cuts; he alerted Paul Volcker of his too-tight liquidity policy in March 1982 before the Mexican debt crisis; he was first to forecast the surge in stock and bond prices in 1982, while mainstream economists saw unending doom; he warned Treasury secretary Baker of a run on the dollar in 1987 during the week before the Crash of 1987 that was caused by precisely that problem; he warned Greenspan and Treasury's Summers of insipient deflation and a commodities crash in 1997 before oil hit $11/bbl in 1998; in December 2000, he told his clients that the deflated dollar made the Dow worth 7500; in March 2001, he advised his clients to get out of equities until the Fed ended the deflation (the Dow was then above 11,000, and it fell to just below 7,500 in early October 2002 when the Fed finally began adding liquidity). I could go on.

The information and analysis I have been providing in my posts during the past few days on this site are of the nature given by Jude Wanniski to Polyconomics institutional investor clients over the years, and they paid reasonably well for it. Jude voluntarily taught his theoretical model to thousands of students through his Supply Side University, but he refused to spoonfeed them. He insisted they do their own studying and homework, and they should at least understand the basics of the subject before demanding an answer to a poorly framed question. His approach could be put to beneficial use here.

[anne]

Wayne Jett:

"Jude Wanniski progressed from being a penniless journalism graduate to become the most successful practicing economist in the financial world in the past 25 years by mastering the classical theoretical model. He assisted the design of the 1981 tax cuts; he alerted Paul Volcker of his too-tight liquidity policy in March 1982 before the Mexican debt crisis; he was first to forecast the surge in stock and bond prices in 1982, while mainstream economists saw unending doom; he warned Treasury secretary Baker of a run on the dollar in 1987 during the week before the Crash of 1987 that was caused by precisely that problem; he warned Greenspan and Treasury's Summers of insipient deflation and a commodities crash in 1997 before oil hit $11/bbl in 1998; in December 2000, he told his clients that the deflated dollar made the Dow worth 7500; in March 2001, he advised his clients to get out of equities until the Fed ended the deflation (the Dow was then above 11,000, and it fell to just below 7,500 in early October 2002 when the Fed finally began adding liquidity). I could go on."

But, even with every prediction being right, the reasoning simply makes no sense.

[James Killus]

I knew there was some reason why my subconscious started muttering about comic books.

In an old Scrooge McDuck comic, a tornado tears open his money bin and spreads cash throughout the countryside. Now everyone has money and Scrooge has none, but he still owns a farm in the country. He moves to it and continues to operate it, while everyone else, now being rich, has left.

Soon, eggs are $30 apiece, and soon thereafter, Scrooge has his money back.

An economist friend of mine loeved that comic. He thought it one of the best fables on the nature of inflation ever. I pointed out to him that it also underscored the difference between the real economy and the monetary economy, and he agreed.

My point here is that a comic book gives an example of a discourse in economics that is fundamentally more serious than what I've been seeing here from Wayne Jett. Asked for an estimate of the optimal tax rate and, after much prodding, he supplies the answer that...it depends. Besides, he later suggests, this isn't something that you can tie down with numbers or equations. Yet, oddly enough, the actual tax code has numbers in it, and folks like Mr. Jett have opinions about what those numbers should be i.e. always lower for their own particular class of people.

We also get a few sticks of lit incense, the invocation of Milton Friedman and the chant, “Inflation is always and everywhere a monetary phenomenon."

This is from someone who claims to believe in supply side economics. Really? There can be no such thing as a supply side inflation or deflation? An oil shock has no inflationary potential, while the vast increases in grain supply and transport in the 19th century were not factors in the commodity deflation that followed? Or is the Friedman quote merely a tautology, indicating that because inflation is about prices and prices are in money then it must, ipso facto be about money? God, how easy it is to win a Nobel if that is all it takes.

So we're left with the always applicable policy prescription of making the tax code more regressive, blaming the Fed for every bit of monetary instability that comes down the pike, prescribing a gold standard to clear up that problem, because, after all, there were never any problems with moentary policy when the country/world was on the gold standard, and then what? Nothing. Everything was apparently perfect in 1890, and we should never have changed a thing.

These are fundamentally unserious arguments that Wayne Jett has been making, masked in a fog of magical thinking and deliberate obfuscation. My only question would be to Bruce Wilder and Bruce Webb: How is it that guys this dumb have become so rich?

[calmo]

Mr Webb undoes me with:But the fundamental point stands: assertions are not arguments. I am very fond of the Python argument skit...which maybe splains why I am so easily disabled by this "fundamental point". One (not me, I B disabled and decide it's time to take the heat gun to the fridge to thwart its ambitions to become the New Ice Age) makes a statement, here it comes again: But the fundamental point stands: assertions are not arguments. that quiets the readership. Yes, the only sound heard is not the sound of Freedom (F16s) but some idiot blow drying...his front lawn maybe.
Tis a stunning remark really, on a par with "You can't touch that." (from the popular music genre...another field I am not familiar with, but I have my sources...I can jump, leap --even dance when threatened) which is...so enticing to those toddlers who have not yet learned... the fundamentals --only the fun.
It appears we are expected to pay attention, but not overtly, not contestably, not argumentatively, not even counter-assertively.
Nodding might be good or a renewed careful chewing of the gum, but sideways glances at your neighbors or scuffling of the feet --not recommended. If one were to risk a response, it would not be "You don't say..." or "Amen." And something like "Did you mean 'axiomatic' when you said 'fundamental'" is sure to get you harpooned as a scholar in need of attention, you know?

Assertions are not just the bleatings of linguistically capable speakers.(honks) They could be encapsulations of entire universes of sophisticated argumentations. (Narratives)[another story]

[voltaire]

Calmo,

'Doth thinks ye protest to much'

[Bruce Webb]

Wayne, a good place to start your model would be the Intermediate Cost alternative as used by the Social Security Trustees. It should supply most of the parameters you need and is the official government model within which we are debating Social Security and so a reasonable starting place for discussing income tax. The relevant tables are V.A1, V.B1 and V.B2

The Trustees seem to have been able to come up with a range of economic outcomes and projected them out 75 years, why can't Supply Siders?

http://www.ssa.gov/OACT/TR/TR06/trTOC.html

You asked for numbers, well there they are.

[Wayne Jett]

Anne, the reasoning makes a great deal of sense to those who understand the classical theoretical model. I have been trying to assist in that regard during the last few days. The abbreviated list of successes Jude Wanniski achieved did not happen by just dumb luck, or IMO because Jude was extraordinarily ingenius. His secret was the model and understanding it so well, and he shared his understanding voluntarily with anyone interested and with many who were not.

James Killus, the comic book does not illustrate the nature of inflation; it illustrates the price signals that come from supply and demand. When everyone left the farm, a shortage of eggs developed and Scrooge had the only eggs. The demand for eggs was high; otherwise, the price would have fallen to five cents a dozen. No inflation involved so far as we can tell, since there has been no change in monetary policy so far as we know. Besides, when Scrooge McDuck ruled the comic book world, we were still on the gold standard and inflation was unknown, except for the remnants of the 1934 devaluation.

As to the Laffer Curve and its conceptual nature, you could have learned more about it than is yet evident in an initial inquiry to Google. Its premise cannot be disproved by attempting to make it something it is not.

The "oil shock" following the dollar devaluation of 1971-73 had no "inflationary potential;" the oil shock itself was the result of inflation that had already occurred in the monetary unit - the dollar. The dollar lost 75% of its value relative to gold between August 1971 and December 31, 1972. OPEC was formed simply to quadruple the price of oil (from about $2.50/bbl to about $10/bbl) so they would receive the same value for their product they had been paid for years. This is simply another lesson in the principle that protectionist policy cannot change the terms of trade.

As to the problems of "... grain supply and transport in the 19th century ..." that you describe as being "... factors in the commodity deflation that followed ...," I call your attention again to consideration of supply and demand. The historic improvements in grain production and transportation of which you speak represented increase in supply. Prices declined to allow sale of the oversupply, and simultaneously signaled to reduce the overproduction. Deflation in the monetary unit was not involved. Your error comes from the common Keynesian practice of referring to inflation as rising prices. As Friedman said, inflation is a monetary phenomenon and it occurs in the monetary unit. That did not happen in the 1890s. However, it did happen in the 1870s, when the U. S. returned to the gold standard after the Civil War "greenback" interval had inflated gold to something above $40/oz. When the dollar was revalued at the pre-war price of $20.67/oz, severe deflation resulted as prices were adjusted downward, businesses failed and severe recession lasted the decade or thereabouts.

You cannot point to any support I have given to more regressive taxation. The Bush 2003 tax cuts were very beneficial because they returned every level of the economy to greater prosperity and, at the same time, the highest income taxpayers presently pay a higher proportion of total revenues than before. My view of the best fundamental tax reform is the Fair Tax Act (HR 25, S 1025), which would be more progressive than the system to be replaced. It involves a consumption tax on new goods and services for final consumption, but pays all households a "prebate" of taxes payable up to the poverty line of spending. So all those at or below the poverty line are completely "untaxed" as compared to their present obligations to pay payroll taxes before the obtain necessities.

You should give these concepts closer study. The errors I have pointed out are commonly made, but they are elementary when economic principles are applied.

[Wayne Jett]

Bruce Webb,

Current economic policy will not allow growth adequate to fund Social Security and Medicare. First, monetary policy stops or slows economic growth any time it rises to a rate that, if sustained, would be capable of funding at least SS. Thus, reducing marginal rates to permit higher growth rates are beneficial in the short term, but the Fed insists upon draining capital growth into the account of lenders based on the theory that economic growth is inflationary.

Second, proposals to raise tax rates will reduce economic growth and make the funding of those programs even more problematic. Those who tout the 1993 tax hikes as the key to the budget surplus that occurred briefly at the turn of the century should take a closer look. Those surpluses came after the capital gains tax rate was cut in 1997 from 28% to 20%. BTW that tax change alerted Jude Wanniski to the much improved prospects for economic growth and gave rise to his warning to Greenspan/Summers that more liquidity would be needed by the economy or deflation would result.

The Fair Tax Act I mentioned in an earlier post would spread the tax base supporting SS and Medicare from employees/employers to all consumers, a much broader and more stable base. In addition, the Fair Tax would enable a much improved rate of growth (estimated at above 10% in the first year).

Even with the Fair Tax in place, current Fed policy would stop growth in its tracks with funds rate hikes. Look at what the Fed has done to consumers and small business since June 2004. In October, 2006, I calculated the additional costs of credit imposed on consumers and small business alone (they have to borrow at the short end of the yield curve, while big business borrows at the long end); those additional costs were running at more than $250 billion annually.

The calculations that interest you will not be helpful in solving the problem you addres. The fundamentals must be reformed.

[Lafayette]

wj: grounds of consensus that all now agree lower tax rates allow higher employment and stronger economic growth.

Yes, growth, but for the sake of what? Income inequality? … as demonstrated in the following historical distribution of the US Gini index:

• 1970: 0.394
• 1980: 0.403
• 1990: 0.428
• 2000: 0.462
• 2005: 0.469

wj: few who post on this site are a part of that consensus.

Given the above, why should they be?

You need to give more cogent regions than simply repeating incessantly "growth, growth, growth", as if it were a magic wand for all the ills of a society.

When the benefits of growth are unfair, then growth is senseless … except for the winners. Or, is the economy a “game” where “winners take all”?

Gee, is that in the Constitution somewhere? I must have missed it.

[James Killus]

Wayne Jett:

Now this is what I mean by dumb. Not unintelligent or stupid--dumb, as in lacking the ability to say things that make sense. My economist friend died years ago, so I'll have to speak for him.

Moeny that is not in circulation, like gold-standard gold in the ground either unmined or stacked up in a cave, is not part of aggregate demand. Put that same money into the pockets of those who spend it (as, for example, the $50 tax rebate under Carter) and you get an increase in demand i.e. inflation. That was the first part of the Scrooge story, "demand side" inflation.

The second part was that if production slows but the stock of money doesn't shrink, you will also create a "supply side" inflation.

This was the "supply side" argument for the causes of "stagflation" in the late 1970s! And now you're claiming that even that was bogus?

I've seen your posts on the anti-trust entry, so I know you're neither stupid nor ignorant. But this sort of argument is distilled dumbness.

Now Milton Friedman, as I'm sure you will recall, argued that the political purpose of inflation was to reduce debt and effect a transfer of wealth from lenders to debtors. However, as inflation rose, the interest rates that lenders would demand would also increase, so inflation must always accelerate to achieve its purpose, thus leading to hyperinflation in the extreme, or recession/depression when monetary policy (however managed) eventually shut off the inflationary spiral.

We'll leave aside the more recent arguments (I say more recent, although Keynes did make qualitatively the same case) that a low level of inflation makes commodity price adjustments (including commodity labor) easier, because first order price targeting is usually to nominal, not inflation-adjusted prices.

It occurs to me (and thanks for bringing it up) that the effects of "supply side" tax cuts on "human behavior" are similar to the effects that Friedman noted on human behavior. When taxes are cut on upper income groups there is a brief flurry of actvity while they try to find some place for this new wealth to be protected and grown. The extra income burns a hole in the investment pocket, as it were, and bragging rights go to those who manage to make the most of it.

But this "new wealth effect" wears off, leading to the demand for more tax cuts (to say nothing of more stock options and political patronage money), etc. Thus, Lafferian tax cuts lead inevitably to ever expanding Federal deficits, which, by the way, according to Friedman, inevitably lead to inflation farther down the road ("spending is the same as taxation").

Thanks for the insight. I know it isn't your insight, but then I wouldn't expect it from someone who has redefined inflation in such a fashion as to eliminate both supply and demand.

[Wayne Jett]

James,

Show me someone who keeps his cash in a locked vault room at home as Scrooge did, and I'll show you one strange duck. Currency with value measured by a quantity of gold is not stored away, out of the economy; it is used. Regardless of what is done with it, currency anchored in gold does not change value, so there is neither inflation nor deflation.

The second part was that if production slows but the stock of money doesn't shrink, you will also create a "supply side" inflation.

This was the "supply side" argument for the causes of "stagflation" in the late 1970s! And now you're claiming that even that was bogus?

Hmmm... So your friend was reading Scrooge McDuck in the late '70s rather than in the '50s. I thought Scrooge must have passed on by then, but maybe I just wasn't reading him any longer. So we're talking about late '70s when the Fed was managing interest rates or, after October, 1979, trying to manage money quantities. Yes, when economic growth slows due to funds rate hikes and the Fed doesn't drain the excess liquidity, inflation results.

During the early attempt to manage money quantities (before the 1980 presidential election), the Fed added far more liquidity than needed, interest rates soared, production shrank, and inflation soared.

However, the most insightful explanation of stagflation was first made by Robert A. Mundell of Columbia. He noted early in the '70s that this was the first time in history an inflating currency had been experienced within a "progressive" tax regime. In that combination, inflation had the effect of moving taxpayers at the margin into higher tax brackets each year without the need for Congressional action. These yearly tax increases produced the stagflation, meaning inflation without economic growth - and high unemployment.

Your discussion of "Lafferian" tax cuts misses the point I have made previously that incentives do count in human behaviour, but a very practical influence on what humans do is how much money they have in the capital account after they pay their taxes. Perhaps you have in mind the hedge fund managers and highly paid CEOs. You should consider that the great majority of those affected by the top tax brackets today are small business proprietors, who must look in the till to see how much money is available to buy another production machine or hire another employee. That is the reality of what produces economic growth, which translates into a combination of increased production and higher standard of living for both owners and employees.

So far, I have responded at length to you and others to promote understanding. My reality is that I cannot spend the time to do so on a continuing basis. I hope those who read wiil benefit by it.

[Lafayette]

WJ: My view of the best fundamental tax reform is the Fair Tax Act (HR 25, S 1025), which would be more progressive than the system to be replaced. It involves a consumption tax on new goods and services for final consumption, but pays all households a "prebate" of taxes payable up to the poverty line of spending. So all those at or below the poverty line are completely "untaxed" as compared to their present obligations to pay payroll taxes before the obtain necessities.

The FTA will do nothing to correct inherent inequality in the US tax system that was brought about by idiot Reagonomics, political pap for a Republican constituency.

You fail to understand the inherent danger of wealth accumulation. Your discourse is academic triviality – one part history, one part economic theory and a dash of Lafferism; making for a cocktail of irrelevance.

The fact of the matter remains that less progressiveness in income taxation skews income distribution to the upper end in a dismally unfair manner. (The evolution of America’s Gini Index proves the point.) Your arguments are bereft of any sense of social justice in the matter of income distribution and your insistence at “growth at any price” (that price being income fairness) simply does not hold water.

Do come back when you have more cogent arguments justifying a massive shift in income to the upper class, buttressed by a simplistic misconception of trickle-down economics, for which the obvious result in America is that the “poor have got poorer and the rich richer”.

To add salt to the wound, a plutocrat Republican administration has exploited the resources of this country in a useless foreign war that furthers the wealth of a few Daddy Warbucks and takes the lives of those whose naive error was to believe in a promise of an education with which to exit poverty.

This sad tale of moral vacuity is one of the most indecent in American history. Unfortunately, it is neither the first nor will it be the last.

Quote of the day: There a lies, damns lies and Laffer curves.

[reason]

WJ...
I happen to have started working in the 1970s. Don't tell me (a baby boomer) that demographic effects didn't play a big part in what happened. Yes, income tax system was highly progressive and there was an issue with bracket creep, but I can remember treasuries proudly announcing tax decreases (and spending increases) every year. And I can remember the Shah of Iran lecturing us about how we were wasting the oil by burning in large, noisy and terrible inefficient status symbols. And I can remember small groups of unionists in "key industries" regularly holding the rest of us to ransom, regardless of the consequences to everybody else.
Tell me, am I missing something, or do you simply answer every tricky problem by redefining it.

[reason]

WJ...
By the way - don't get me wrong, I think every school of thought can make its contribution. It is just that I am bit suspicious of those who think they own the truth and everybody else is just ignorant. I seem to remember something about blind men and elephants.

[anne]

Wayne Jett,

Thank you for comments; I understand your fiscal or tax policy proposal, but would you describe your monetary policy proposal again. I am still not sure I completely understand your take on monetary and relatedly exchange rate policy, though I understand your wish for a fixed exchange rate. Would the Federal Reserve focus then be to keep short term interest rates at constant levels or to increase some money suppy measure at a constant rate?

[anne]

So the classical position is flat tax with possible subsidies for low income, fixed exchange rate, but what sort of monetary policy, constant short term interest rates or a constant rate of money supply expansion?

[reason]

WJ...
I actually believe in something similar to what you are proposing by way of tax, except that like Lafayette, I am wary of large accumulations of wealth. I don't particularly like income taxes (because income is of its nature difficult to define and loop holes become inevitable) and are inclined to go either for inheritance taxes, georgian land taxes or some sort of progressive consumption tax as an antidote to the excessive power of accumulated wealth.
Question: if you like the classical model, what do you think of the Henry George folks?

[Wayne Jett]

Lafayette,

Your remarks protesting an existing plutocracy are quite remarkable when the Federal Reserve is dominated by your own economic theory, by which it undertakes to control the entire economy right down to the pricing of assets (see the separate threads on this site on this last point). If you are referring to the Fair Tax Act, it is not the plutocracy that supports the FTA; it is ordinary people all over the country: farmers, small business, retirees, anyone who is looking for better chances for their children. Hardly a plutocracy represented there. I've seen little support for it (so far) from the money centers such as New York, and the establishment media seem sanguine about the current system.

You argue with the standard positions that oppose reform in every circumstance. I've already said that the Fair Tax would provide greater progressivity than the repealed taxes. At the poverty level of consumption (all necessities obtained), the tax rate would be zero, meaning a reduction of taxes in the entire amount of current payroll taxes. Below the poverty line of spending, the effective tax rate would be negative because the prebate would actually put money into the pockets of the household.

I don't have time to engage in class warfare debate. Recall that Keynes advised FDR in an "open letter" published in the NYT in December, 1933, that he should be sure to assign a higher priority to economic recovery than to social reform, and Keynes noted that had not been done in the NIRA. FDR never changed his approach. I contend economic progress ought to rank ahead of social management in public policy.

[Wayne Jett]

I am still not sure I completely understand your take on monetary and relatedly exchange rate policy, though I understand your wish for a fixed exchange rate. Would the Federal Reserve focus then be to keep short term interest rates at constant levels or to increase some money suppy measure at a constant rate?

Anne,

Neither managing interest rates nor the money supply will work. I've explained that focusing on the funds rate eliminates the Fed's ability to focus on the dollar's value; in fact, the acts performed by the Fed to hit the funds rate target cause the dollar's value to change. At the same time, the funds rate is not a controlling variable in the dollar's value, so is incapable of stabilizing the dollar.

The money quantity theory is equally bad, or worse, as it proved to be during October 1979 through mid-1982, when it was entirely abandoned. Volcker didn't know what quantity to measure, the data were lagging, and he didn't know whether to add liquidity or subtract it. He didn't know because he refused to look at the price of gold as a guide. If he had done so, he could have kept the dollar at $250/oz indefinitely. But he wouldn't use that guide, so he guessed more liquidity was needed and the dollar fell to $892/oz within nine months. Again during the sharp deflation that occurred after the Reagan tax cuts increased demand for dollars, Volcker still refused to be guided by gold's signal of the dollar's value. Thus, the deflation ran headlong into the Mexican debt default to NY banks, who insisted Volcker write the check for their interest receivables, and that liquidity allowed the economic boom to proceed with strong gains in both the bond and stock markets.

The prompt and simple approach to stabilizing the dollar is to target a specific value for the dollar expressed in gold. The target should be at or somewhat above $400/oz if we wish to avoid future price escalation that is now in the pipeline of the dollar's weak current value. The higher value for the dollar would be quickly achieved by announcing the target, allowing the market to operate, and by selling Treasury securities to drain any remaining excess liquidity. By opinion is that the amount of liquidity required to be drained would become minimal, because the prospect of stable currency would greatly enhance prospects for economic growth without interference from the Fed in the form of interest rate increases. At the same time, short interest rates would drop to provide a normal yield curve while long rates would decline below 4% as was common when the dollar was stable.

You will note that the dollar value targeting practice I describe is very near the methods used by the Volcker Fed during 1979-82, with certain distinguishing factors. The proper practice does not involve managing money quantities, so does not need to measure such quantities or their rate of growth. Also, the practice I describe has a specific target to achieve that guides every day's activity to the desired goal: a dollar that does not change value. Yet, as under Volcker, the practice and policy I describe involves directly injecting or draining liquidity by buying or selling Treasury securities as was done to effect the attempt at monetarism.

Notice I did not propose an actual mechanism to exchange gold for dollars. After the Fed demonstrates it can and will keep the dollar's value at $400/oz (or whatever equilibrium value is chosen), then with currency of that trustworthy value no one will wish to exchange it for gold.

[Wayne Jett]

So the classical position is flat tax with possible subsidies for low income ....?

Anne, I think my comments above, particularly the recent one to Lafayette, state that as one who respects the classical theoretical model (as I have related it) I view the Fair Tax Act as having much to recommend it. It is not a flat tax; it has a very definite progressive design and effect. The prebate is not just a subsidy for the poor; it bends the effective rate curve downward more and more sharply towards the lower end of the curve.

Also, it is attractive from a classical view because it minimizes the burden and footprint of the tax collection system on private enterprise and private affairs. Compliance costs are completely removed from the private sector, or at least minimized in the sense that the costs are paid from the taxes collected. Right now, those costs are estimated at about $300 billion/yr, so it is no small matter. Add the privacy advantage that no person must report financial affairs to the government or submit to audits.

Then consider the increased fairness that those who now escape taxes by being an "uncollectible" in the "tax gap" will have to pay the Fair Tax at the register. Also, the underground cash economy will have to pay. Those are very large items that will reduce the burden on existing taxpayers.

[anne]

Wayne, thank you for the kind and careful response. Now I will think this through carefully again, as deserved, though to begin with the rationale makes little sense.

[Lafayette]

wiki: The FairTax (H.R.25/S.1025) is a proposal in the United States Congress for changing tax laws to replace the Internal Revenue Service (IRS) and all federal income taxes (including AMT), payroll taxes (including Social Security and Medicare taxes), corporate taxes, capital gains taxes, gift taxes, and estate taxes with a national retail sales tax, to be levied once at the point of purchase on all new goods and services

The FTA, WJ, is an abysmal proposal to move the tax base from income to consumption. It is regressive, since consumption is an exceedingly large part of the poor's income and represents a comparatively small part of upper class income.

That should please the hell out of any plutocrat.

Given that income tax provides a very minor percentage of state revenues in Europe, and Value Added Tax (a sales tax) on all consumption obtains about 60% of state revenue, then it is not difficult to see where the idea of the FTA comes from.

However, what would happen is that, in adopting the unique sales tax in the US, the FTA would revoke all other taxes including, as the cherry on top of your nut cake, inheritance taxes as well - wouldn't it.

What a blow for freedom! Of the rich.

You obviously take us for fools.

[Wayne Jett]

Anne,

I was interrupted in my last post on tax policy, and I need to add further comment on a significant facet of the Fair Tax design. It applies only to purchases for final consumption, so it completely untaxes business. This achieves complete transparency of taxes paid, because the consumer sees all the taxes being paid, with no embedded taxes in the cost of the product. I believe I have already mentioned this enables American production to compete on a level playing field with foreign production both domestically and abroad, instead of carrying the present 22-24% embedded tax burden.

The point I really want to emphasize, however, is that the untaxing of business enables working capital to grow much more rapidly than our present system. I mentioned before in discussion of tax rates that the small busines person has to look in the till after paying taxes to see whether there is money to buy new production capacity or hire employees. A cut in the marginal tax rate can make the rate of growth of that capital account growth much more sharply. The Fair Tax would allow it to grow at the maximum rate. From the view of classical economic theory, it is the ideal foundation for growth in production. Its twin sister is growth in wages and standard of living.

One more thing. The Fair Tax applies to spending for final consumption from any source of funds: inherited wealth, accumulated wealth, you name it. So the golden days of ingeniusly designed tax avoidance plans would be over.

[reason]

WJ...
Just to be absolutely clear, I have myself argued for similar tax arrangements from a pragmatic point of view, much to the concern of some fellow liberals. I think it provides a better deal for the poor and struggling middle class than the current system and that is to be supported.

I do however have misgivings about it from the same direction as Lafayette (which you haven't really answered). Do you favour very strong anti-trust activity, want to ban leveraged takeovers or even more dramatically joint-stock corporations in order to avoid excessive concentration of economic power? Or have heavy inheritance taxes and gift duties? You havn't answered my queries about Henry George style land taxes (and you haven't mentioned pollution or resource rental taxes either).

As for the argument about entrepeneurs and investment from retained earnings, I thought the combination of credit and depreciation covers this quite nicely.

I could go further and question you as to why you favour a classical model in modern times, you haven't exactly explained what is wrong with other models and why you think a perfect competition model is relevant to a world of giant international corporations - but I think that is further OT.

I always have the suspicion, that behind the curtain with these sort of proposals, hides a fundamentally anti-democratic elitism. The world of the "classical" economists was hardly a modern liberal democratic world.

[Lafayette]

wj: I mentioned before in discussion of tax rates that the small busines person has to look in the till after paying taxes to see whether there is money to buy new production capacity or hire employees.

Very dramatic allusion, but off base.

The "small business person" can also decide to pocket the money and make NO expansion plans or, better yet, offshore production to get a cheaper price - which they will probably do anyway, if possible.

As for your "level playing field", much income from abroad by multinationals is left to accumulate abroad by multinationals. Only a tax amnesty will bring it all back to America.

I also don't understand where your basis for the “level-playing-field” comes from. European companies are exonerated from paying the Value-Added-Tax when exporting, yes, so the Fair Tax (since it would not be collected on export sales) would seem to place American exports at the same competitive position. But, when imported to Europe, American products are resold with the VAT added, so as regards sales taxes there is no particular advantage. However, there is disadvantage as regards other taxes because European products competing would bear the full costing of European taxes (corporate/payroll/etc.) that would have been done away with by the FTA in the states.

I doubt this sort of argument would sit well at the WTO, and America could be accused of unfair competition. Nobody but Americans can decide on their internal taxation, true enough. But to do away with all taxes on production places them at an unfair advantage as regards other companies globally who must assume those taxes. That seems like a bona fide argument to me before the WTO.

American companies are selling well enough abroad, taking advantage of the favourable dollar exchange rate (over-valued by about 13%) that allows them to compete marvellously well with European businesses globally.

Of course, like good corporate citizens, multinationals could also pay tax on foreign profits returned stateside, thereby contributing to the fact that such taxes help pay for the societal/national infrastructure from which it benefits.

Where business is failing its duty is its inability to generate durable employment in America. That is due to an outflow of low-skilled manufacturing work, dislocated elsewhere. So, business can help alleviate this problem, since it is increasing profits by dislocating production, by investing in "human capital". That is, by financing employee training/skill enhancement and re-employing personnel elsewhere - instead of dumping them on welfare (that is, increasing the income-taxpayer's burden).

[reason]

Lafayette...
I have often argued this case in the past when people ask what could quickly be done to increase American competitiveness. The correct neo-classical answer to this, is that such a tax difference would be exactly offset by exchange rate movements. Of course in the real world today, exchange rates do NOT adjust to trade imbalances as I have also often argued.

There is a huge difference in the implied exchange from naive PPP between a country with all VAT (exports NOT taxed and imports taxed) versus a country running all income taxes (exports taxed and imports NOT taxed).

[Wayne Jett]

reason,

I favor effective anti-trust action against monopolistic actions and anti-competitive conspiracies. I do not favor direct obstruction of takeovers such as leveraged buyouts, but I do favor honest and effective enforcement of the securities laws prohibiting fraud and trading manipulation. The LBOs are being greatly assisted by manipulative practices that drive down the price of publicly traded shares, making the companies easy targets and bargains for the buyout artists. Liberals and conservatives ought to join together to demand investigation and reform of the SEC; the laws are in place, but the SEC is not doing its job due to influence of Wall Street.

The Fair Tax would eliminate estate and gift taxes, and I fully support that objective. Accumulation of capital is necessary for productive activity. If all resources were spread equally per capita worldwide, human progress would be set back immeasurably until accumulations again enable undertakings that are commonplace now. I favor transparent taxes (not hidden), as few and low as possible, and only those required to fund necessary functions of government. Private use of capital directed by individual decision-making is much more productive and efficient than central planning and allocation of resources.

I have explained why the existing monetary policy is irrational and incapable of succeeding in either of its objectives (employment and economic growth) on several occasions in recent days on this site. Most recently, I summarized on the Thomas Palley thread. On that thread, Mark Thoma says my analysis is incorrect even under the classical model, but he refuses to be specific.

As to the world of classical economists, remove his politics and Marx was classical. In 1848, he wrote of the absolutely phenomenal progress "in scarce 100 years" as compared to all of human history due to capitalism and, yes, classical economic theory. Classical theory could only have come into use in democratic society, because the enlightened masses see its benefits in their own shops and homes.

Lafayette, the Fair Tax would strip out (by repealing income and payroll taxes) presently embedded taxes of 22-24% of U. S. made products and services. The WTO does not permit the U. S. government to return these embedded taxes presently.

Improve the capital investment tax environment here in the U. S. and capital will return here to produce jobs and higher wages. The Fair Tax would do that.

[reason]

WJ
The Fair Tax would eliminate estate and gift taxes, and I fully support that objective. Accumulation of capital is necessary for productive activity. If all resources were spread equally per capita worldwide, human progress would be set back immeasurably until accumulations again enable undertakings that are commonplace now.

Funny, I could have sworn there was such a thing as a joint stock company. What year is this again? -)

[Lafayette]

From the NYT:
Democratic strategists said the candidates were all keenly aware that Republicans are eager to attack them over tax increases. Vice President Dick Cheney accused Congressional Democrats last week of already planning “the biggest tax increase in American history.”

“The result would be a staggering tax increase on the middle class, on families and small businesses, and a return of the federal death tax from zero back up to a confiscatory 55 percent,” Mr. Cheney said.

But Democratic campaign officials have not shied away from the conflict, asserting that the Bush tax cuts were tilted in favor the rich and need to be rebalanced.
“Americans know there is a difference between keeping taxes as low as possible on the middle class, and giving away the bank to the wealthiest Americans,” said Bill Burton, a spokesman for Mr. Obama. “If President Bush’s tax cuts are extended, the wealthiest 1 percent will save more than the bottom 80 percent combined, at a cost of $1 trillion over 10 years.”

The Democratic candidates would be trying to recapture a big chunk of the revenues that were allocated to tax cuts during the Bush years. And they would be challenging one of the main arguments offered by conservatives in favor of tax cuts, that reducing rates on upper-income people spurs more investment and job creation.

To keep in place the entire package of tax cuts passed during Mr. Bush’s presidency would cost the government about $1.8 trillion over the next decade, according to Congressional budget analysts, a period when the nation will also begin confronting the costs of an aging population to the Medicare and Social Security systems.
Simply extending Mr. Bush’s tax cuts for families that earn less than $200,000, and most of the reduction in estate taxes on inherited wealth, could cost about $900 billion over the next decade, according to new estimates by the Tax Policy Center, a nonprofit research group whose tax estimates are considered reliable by most analysts.

For people with incomes of more than $200,000 a year, roughly the top 3 percent of earners, the Democratic candidates would essentially revert to the tax regime under President Bill Clinton in the 1990s. The top marginal tax rate would return to 39.6 percent, up from 35 percent currently, for people with taxable incomes of more than $336,550.

People with incomes between $200,000 and $336,550 would see their top rate climb to 36 percent from 33 percent today.

Mr. Bush’s signature tax cuts for capital gains and stock dividends would all but disappear, because people earning more than $200,000 receive the vast bulk of such earnings.

None of the Democratic candidates would eliminate the estate tax on inherited wealth, long one of the Republican Party’s top goals. Under current law, the estate tax becomes smaller each year until it disappears in 2010 — only to bounce back in full when the tax cut expires at the end of that year.

Oh dear, most of Bush’s signature tax cuts would disappear. Would he only disappear with them, the joy would be complete.

[Lafayette]

WJ: The Fair Tax would eliminate estate and gift taxes, and I fully support that objective. Accumulation of capital is necessary for productive activity.

Bollocks. You could not find justifiable proof of this idiocy if you read all the economics works written over the past two centuries - in any language.

Accumulation of capital is just cupidity - a game that boys like to play with money. Some people call it “Monopoly”. Others, “Plutocracy”. Whichever - both are dangerous to “Democracy”.

You actually do believe we are fools.