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The last round of tax cuts was supposed(25 posts)

The last round of tax cuts was supposedOldEdScott
Jan 31, 2003 6:16 AM
to stimulate the economy. Did it work?
maybe we need to agree on criteria, firstDougSloan
Jan 31, 2003 7:37 AM
What do we mean when we talk about the "economy" or "stimulating the economy" -- the stock market, inflation, unemployment, market growth vs. inflation, median income vs. CPI, poverty level, etc.?

Until we agree on the criteria, I doubt we'll get anywhere. I'm not sure we can do it, though, as no one seems to be able to. Everyone just cites numbers that demonstrate what they want to show, which can be just about anything.

OK, I'll just say thatOldEdScott
Jan 31, 2003 8:09 AM
in the wake of the tax cuts (and it's been a year and a half, so we should have seen the intended effect) unemployment has gone up instead of down, growth has been very modest(and even stalled badly the quarter just reported), and the stock market hasn't moved a bit. Those are three pretty key indicators, the sorts of things most people think tax cuts are designed to address.

Bush's answer to this seems to be "Well, maybe so, but it's because we didn't cut enough," and he's proposing some more. My take (to quote some grinning pundit on TV the other night) is "If you find yourself in a hole, stop digging."
so many variablesDougSloan
Jan 31, 2003 8:29 AM
I think we can agree things were getting worse before tax cuts, for reasons unrelated to tax cuts. It's quite possible that things would have been worse since if there were no tax cuts. There are just so many variable, it's hard to tell. Your "stop digging" analogy might not work if the tax cuts were not causing a worsening economy, but in fact help to stop the damage. You might just as effectively ask whether when you "find yourself bleeding, remove the band-aid"? Those little quippy sayings only make sense if some substantive assumptions are made (e.g., "tax cuts worsen the economy"), which may well be wrong.

So, to effectively analyze this, we must account for other variables -- what would have happened but for the tax cuts? What were the other variables? What is our yard stick for success or failure?

My opinion is that the economy is largely tanked now due to a correction in vastly over valued tech stocks, which swept along other sectors in the late 90's. There was no legitimate booming economy, but only a inflated one with little real value behind the gains. It was a house of cards, and someone yanked out a few of the base cards.

If the truth is unknowable. . .czardonic
Jan 31, 2003 11:54 AM
. . .Bush should stop asserting that tax cuts will all but certainly fix the economy. He couldn't know that.

Then again, why shouldn't he? We have decades of modern economic thought and history to inform our policies. If we don't have some reasonably sound idea of what makes the economy improve and what makes it falter (what puts money into more people's pockets and what puts it into fewer people's pockets), we should throw the pretense of theory out the window and do whatever the heck we want. Or, maybe that is what Bush is doing. . .
what's unknowable?tao
Jan 31, 2003 12:48 PM
Are you saying Economic theory isn't sound? Economists, along with Republicans and yes, even the Democrats, are all pretty unanimous in agreement that tax cuts are needed to stimulate the economy (best approximated by GDP). No one claims it's a guaranteed fix, but it's bound to help as certain as we know the Theory of Relativity and the Heisenberg Uncertainty Principle are true.
Economic theory is not sound. There, I said it. (nm)czardonic
Jan 31, 2003 2:03 PM
You're not the only one. It's called the "dismal science" ...Sintesi
Feb 1, 2003 6:01 AM
for a reason. As Doug said, "too many variables" kind of like predicting the weather. But with due regards to Moneyman and Tjeanloz, they got some good stuff. Obviously sometimes they get it right.
I think "science" is taking it a bit far. . .(nm)czardonic
Feb 3, 2003 10:23 AM
My takeJon Billheimer
Jan 31, 2003 12:57 PM
The stock market doesn't materially effect the economy. Production and consumption of goods and services do. Whether the market is up or down really only reflects peoples' psychology, i.e. their expectations, degrees of greed, fear, etc.

The long bull market of the nineties in my opinion was consumer driven. The advent of the personal computer and all that entails exaggerated and prolonged the boom. As it stands now, the consumer is totally tapped out, savings accounts have been exhausted and credit cards maxed out. So probably the only way the gov't can hasten recovery is to leave more money in people's pockets. In my unprofessional opinion that would probably better be done through a reduction in income taxes which would benefit everyone, not just those with investment income. The corollary to reduction in government revenues, however, is to reduce expenditures. And here is where ALL politicians are polyanna hypocrites. The left wants to continue to provide social benefits while the right wants to beef up the war machine. Either option ultimately creates inflation down the road, presuming that the Fed goes along by providing monetary stimulation. If it doesn't, the other equally nasty option is a deflation, better known as liquidation of unsustainable debt. The truth, boys and girls, is that one cannot have his cake and eat it too. The laws of economics are as immutable as those of physics. You can't eternally spend more than you make.
economics like weather predictionDougSloan
Jan 31, 2003 1:41 PM
I think economic forecasting is about like weather prediction. There are so many variables, that you can get a pretty good idea, but being precise is really hard. Accurate prediction depends upon having complete and accurate data now, plus good models of what will happen. I'd say, actually, that economic forecasting is probably much more difficult, as it deals not only with hard physical data, but psychology as well.

The weather report is more accurate! (nm)Jon Billheimer
Jan 31, 2003 1:54 PM
Then when will we have "complete and accurate" data.czardonic
Jan 31, 2003 2:02 PM
Its not like there is a dearth of economic history from which to draw conclusions. Seems like just about every combination of supply and demand along with wildcards like war and psychology must have occurred to some degree or another.

So far, what politicians and economists have "learned" so far boils down to "what is good for me must be good for the country."
in several hundred yearsDougSloan
Jan 31, 2003 2:32 PM
I don't think we do have enough data. For example, when Reagan was cutting taxes, did we almost at the same time have a bust in the tech market (what tech market?), plus the country's worst exposing of corporate scandal and bankruptcies, all eroding or destroying investor confidence? Maybe people had more confidence in one president than another. Maybe oil prices are lower in real dollars at one time versus another.

I don't think leaders look at these things selfishly. I think they for the most part look at them either pragmatically or ideologically. Sure, many want to be re-elected, and you can take that as being selfish, but then they can't be elected unless voters vote for them. If over half the voters want tax cuts, then by all means give it to them. Right or wrong, that does appear to be the majority of voters' desires these days, isn't it? I think leaders largely try to give voters what they want. We have no one to blame but ourselves.

Seems that for some, all roads lead back to the status quo.czardonic
Jan 31, 2003 3:09 PM
Several hundred years? You may as well say: some point perpetually too far off to be worth seriously discussing. Either way what I hear is a de facto admission that tax cuts don't have a leg to stand on.

I don't suppose you'd like to draw a distinction between a hypothetical person's selfishness and what appears to that person to be "pragmatic". If over half the people want slavery, should we give that to them too? Mob rule for everyone! Fortunately, that is patently false. Leaders don't want to give people what they want, they want to give people what they think people need.
Jan 31, 2003 3:19 PM
Slavery (staw man argument) is unconstitutional. Tax cuts aren't. The majority really does rule, within the confines of the Constitution.

Not saying that because there is unsufficient data to predict with any certainty, that nothing should be tried. There is at least good theory as to why tax cuts should work. You may not agree with it, but at least it has a well supported basis.

Jan 31, 2003 4:26 PM
Slavery has only been "unconstitutional" since 1865, and only due to an amendment to the Constitution. The sale of alcohol was also "unconstitutional". Then it wasn't. How did these matters of unalterable law become altered? The majority changed the rules that "confine" it. (Strawman, indeed. You're really getting to be the boy who cried wolf on this strawman issue.)

And that basis is "well supported" by what? The only thing I can figure is that tax cut proponents are opting for the policy that will benefit them personally regardless of whether they help anyone else.
Jan 31, 2003 4:33 PM
I don't understand your first paragraph. I never said anything about unalterable law. Plus, it takes more than a simple majority to change the Constitution. Beyond that, you lost me.

I agree with your second paragraph.

Then define "confines"czardonic
Jan 31, 2003 4:55 PM
You seemed (to me) to be arguing that the confines of the Constitution represented some kind of barrier to mob rule. A barrirer isn't really a barrier if it can be moved. If the Constitution isn't unalterable, it isn't a protection from mob rule, even if a "simple majority" (and that represents what. . .%15 among those even eligible to vote) is not sufficient.
Feb 3, 2003 2:52 PM
I think if you understood the process of amending the Constitution, you'd not think of it as "mob rule." It is very difficult. The 18th Amendment was an anomoly, I'd say.

Exactly, because the Founding Fathers knew. . .czardonic
Feb 3, 2003 5:41 PM
. . .that basing policy on the simple fact that more than half of the voters wanted something was a lousy idea.
Feb 4, 2003 7:33 AM
I think they recognized that you need some fundamental important governing principles that are hard to change, and not subject to the whims of the day. Other, less important, policies are ok to have a majority change. The easy to change policies must conform to the "supermajority" principles.

Hey that's what I said.Sintesi
Feb 1, 2003 6:03 AM
I thought I was first to link weather and economics. I guess I'll have to read the whole thread in the future.
you can have the creditDougSloan
Feb 1, 2003 3:44 PM
I jump in the middle sometimes, not having time to read everything. :-)

re: No....jrm
Feb 3, 2003 12:58 PM
And when we put ourselves in deficit from military build up, tax loop holes, tax breaks and subsidies it didnt work either. So i for one wonder how GW "thinks" he can do it better than anyone who tried it before he stold the election...

Its not Economic theory thats messed up here its its intrepretation. The republicans read it as adams...lasse faire. whereas the progressive see it more for its behavioral base. The republicans see breaks to those who can investment back into the economy as the way where as the progreesive see breaks as a means toward an equalitrian econmony.