The Best Graph Debunking Movement Conservative Economics

Paul Krugman posted this today to show the Reagan Non-Miracle.

As Krugman says, the highest rates of growth and the most sustained growth occurred under the high taxes and relatively highly unionized post-war era, and since Reagan growth has occurred in brief fits and starts.  (BTW, you see the same pattern in GDP, Productivity, or just about any economic index you choose to look at, except those heavily massaged and cherry picked ones from certain think tanks funded by coal billionaires.)  Since 1980, the highest and most sustained growth occurred just after Bill Clinton raised the top tax rate, and the since the GW Bush tax cuts the result was at first stagnation, and then catastrophe.

Reagan and other Movement Conservatives just know this isn't true, they don't need to check the actual data.  Reagan cut tax rates, therefore it must have made the economy do better, because taxing something (income) makes people do less of what leads to it.  I have never bought into the perverse logic of this with regards to taxing income. If I wish to have the same after-tax income to similarly impress my friends, or simply pay the food and rent bills, why wouldn't higher tax rates make me work harder?  Oh well.  And why wouldn't a CEO get up to work to make 40 times the after-tax income of an average worker, if that's the best he can do, just as much as he would get up to work 400 times the after-tax income of an average worker?  If he makes the larger amount, he might well be able to work much less, or retire at 30.

Here is a particularly good analysis posted today of why lower tax rates on the wealthy lead to worse economic outcomes overall.  I've seen many others.

Honest and well informed movement conservatives (if there are any) actually changed the argument from economics to moral justice.  George W said something like "It's their money, therefore they should get to keep it."  That's wrong on many levels.

1) By definition, "their money" is net income, what's left after taxes.

2) Income and wealth are made possible by a productive society, such a society depends on government for eductation, infrastructure, and many other services that make production efficient and even possible.

3) Income and wealth are protected by government.

4) Free markets are made possible by government regulation.

5) Production is actually done by workers.

6) (wonkish) Capitalist managers only provide some direction over the production (not the production itself), and not necessarily socially desireable direction.  Capital owners and rentiers only provide the capital, which is nothing more than direction at the top level (which enterprises to fund and how much to fund them).  If capital markets were perfectly efficient (as technically defined by economists), all this direction has zero net social benefit, that is, all the net benefits would accrue to the owners.  Therefore, to the degree that capital markets are completely efficient, capitalism deserves no social support, but gets it anyway (see 2).

7) Income is derived from socially created and valued production.  One personal alone on a planet does not create income.  A social process of production creates and then distributes the proceeds of the production.  Greater income simply results from greater power over this social process.  Why do we need to respect such thuggery?

Links for end of July 2011

Obama Fiddles while Debt Ceiling Fires Burn hits hard at Obama.  He has lots of options, but chooses to ignore them and instead offer cuts to Social Security.  He wasn't asked by Boehner or any other politician to do that. Quoting Yves Smith (and this is really making me distrust Obama):

And the Obama appears recklessly unwilling to circumvent the debt ceiling, since it would eliminate his leverage for pushing through entitlement cuts.

A commenter notes that:

 The American people aren’t confused or contradictory, they want these things and polling consistently shows they know how they want to pay for it all: Much higher taxes on the top quintile.

I've heard more and more polls to that effect (and I feel that way too).

And then, while our government representatives are using deception and extortion to take away our hard earned and 99% paid for Social Security benefits (a pocket change tax increase would have the program paying full benefits for the next seventy five years, but nobody wants to tell you that), Standard and Poors is using similar extortion tactics, threatening the rating (or something like that) of US bonds, to get out from their responsibility (major) in the financial collapse of 2008. 

Truth about Federal Spending

Paul Krugman debunks the myth that federal spending has vastly increased under Obama.  He's done this about a dozen times before.

http://krugman.blogs.nytimes.com/2011/07/29/the-truth-about-federal-spending/

His argument is this, as a % of GDP, federal spending has indeed risen from 19.6% in 2007 to 23.8% in 2010.  About 1/3 of that change is from reduced GDP.  About half is a rise in safety net programs, because more people are in need or retired or past 65.  The remaining 1/6 is stimulus programs [which were deeply inadequate] which have now ended, and they were mainly money sent to states to temporarily somewhat maintain spending, not increase spending.

I believe Krugman is correct.  I am not aware of significant new federal programs, other then the temporary stimulus.  But it would be nice to see a clearer argument, such as breaking down the actual spending by dollars.  Here are some numbers provided by one commenter:

2002: $2.0 trillion
2003: $2.2 trillion
2004: $2.3 trillion
2005: $2.5 trillion
2006: $2.7 trillion
2007: $2.7 trillion
2008: $3.0 trillion
2009: $3.5 trillion
2010: $3.5 trillion
2011: $3.8 trillion (budgeted)

FY=Fiscal Year, FY 2008 began October 2007

These are nominal dollars (not adjusted for inflation):

FY 2008 (the last full FY under GWB): 3.0 trillion
FY 2009 (started under GWB): 3.5 trillion
FY 2010: 3.5 trillion
FY 2011: 3.8 trillion (budgeted)

The fairest comparison I can do with these data would be FY 2002-2003 for Bush, and 2010-2011 under Obama.  (Sorry there aren't many years).  In both cases, that starts with the first full fiscal year under each President.

2.2/2.0 = 1.1x increase for GWB
3.8/3.5 = 1.08x increase for Obama

The best comparison would start with 2001 and 2009, the previous fiscal years (largely set by previous president and congress).  Unfortunately, I can't do that comparison with these data, since 2001 was not provided.

I can easily pick years which make Bush look like far bigger spending increaser than Obama.

Anyway, even looking at these raw numbers, it appears that Krugman is correct.  There was a comparatively large jump from FY2008 to FY2009 of $0.5 trillion, but (1) that can't really be nailed on Obama, when he took office that FY was budgeted and 1/3 over, and (2) it includes the inadequate stimulus program, which should have been much bigger, as well as increased unemployment, social security, and medicare spending, which Obama had no control over.

Interesting Links

Time is running out for logging out of my computer, here are some more interesting links I have been looking at:

http://crookedtimber.org/2011/05/22/the-fragmenting-coalition-of-the-left-some-musings/#more-20113

http://jacobinmag.com/summer-2011/how-can-the-left-win/

http://www.thefiscaltimes.com/Columns/2011/07/22/Barack-Obama-The-Democrats-Richard-Nixon.aspx#page1 (This one is all the more important because the writer is a old style conservative.)

http://thinkprogress.org/yglesias/2011/07/26/279266/theres-still-more-to-life-than-the-president/

http://www.versobooks.com/authors/2-slavoj-zizek/?utm_source=jacobin&utm_medium=banner&utm_campaign=SZ

MMT'er says liquidity trap unimportant

Here's an MMT proponent claiming that the liquidity trap we are in now is unimportant.

http://bilbo.economicoutlook.net/blog/?p=15168

Unimportant in that we should always just deficit spend to meet all our needs, or something like that.  So a liquidity trap is, by this interpretation of MMT, not required to justify this.

I'm inclined to think, as Krugman does, that MMT goes a bit too far.  But much bigger deficits are called for now because of liquidity trap, unemployment, and so on.

Chance leads to ever greater inequality

This is something I've long argued, now borne out by a simulation.

http://www.eurekalert.org/pub_releases/2011-07/uom-cft072111.php

Debt Ceiling is Unconstitutional

There is no question in my mind that the Debt Ceiling is unconstitutional.

Congress does have the responsibility for determining how money is spent.  But once it is spent, it is out of their hands.

The 14th Ammendment makes that clear beyond doubt.

If Congress wishes to limit spending, they have the power and the responsibility to do that.  And they would have to make the hard choices too.

But holding the executive hostage over rolling over the debt, that is clearly unconstitutional.