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If tax cuts don't work .... (pg. 3)
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| DrummeRaver86 |
| quote: | Originally posted by fuct4less
condi rhymes with ghandi...:haha: :haha: :haha: |
pff...hehehe:p |
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| Galapidate |
| ok....moving along now! :o |
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| DrummeRaver86 |
| quote: | Originally posted by Galapidate
ok....moving along now! :o |
oy...you started it. |
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| Galapidate |
| Well, I thought we were done after the food joke, but then fuct said it rhymes with Gandhi LOL :D |
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| DrummeRaver86 |
| quote: | Originally posted by Galapidate
Well, I thought we were done after the food joke, but then fuct said it rhymes with Gandhi LOL :D |
:happy2: |
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| MisterOpus1 |
| quote: | Originally posted by occrider
Well if you can reduce the welfare of the economy to consist of tax rates and welfare programs then I suppose you could consider it a failure. However, one would like to think that there's more to the economy than that. The successes and failure of Reaganomics is highly debated and I'll try to cover both sides of the issue ... but in the end it's not a clear cut failure in much the same way that it's not a clear cut success. First, let me set the stage for you upon the economic situation with which Reagan inherited.
The economy at the start of Regean's term could easily be described as an unmitigated disaster. It makes our minor economic bump pale in comparison. We were suffering from stagflation and an economic "malaise". Inflation was in the double digits and was upwards of 13% when Reagan took office. Unemployment was at 7% which defied all economic expectations at the time when many economists still believed in the validity of the Phillips Curve (inverse relation between unemployment and inflation). The dollar was weak, with the gold standard at a whopping $900 (a confidence indicator of currency). "Bracket creep" had raised income taxes for middle class families to 49% in 1980, and to top all of this off, the US was at the height of Cold War spending against the Soviet Union. Now does this look like an easy scenario to fix?
Having set the stage, you're probably associating the economic recessions at the start of the 80's as being a fault of Reaganomics, and it's not. They were largely a fault of Volcker who was chairman of the federal reserve. In this case however, the recessions were NECESSARY to revitalize the economy by reducing inflation. By using tight monetary policy Volcker (a genious) lowered interest rates from 13% to only 2.5% by the end of Regean's term. If you're not amazed by that then you're not an economist. The recession ended in 1983 with a boom in the economy that lasted until 87. Well I droll on ... unless you want me to get into the nitty gritty of Reagan's economic policies and their effects over the years (which I doubt) I'll just summarize a few key economic points.
- In 1980 real GDP declined by one-half a percent
- By 1988 it was rising at 3.9 percent
- The prime rate was 15 percent in 80 down to 9 percent in 88.
- Unemployment declined from 7 percent in 80 down to 5.4 percent in 88.
- Real median income rose from $34,200 in 80 to $37,000 in 88.
- Real national wealth rose from $11.9 trillion to $14.2 trillion from 80-88.
On the negative side of things, budget deficits rose from $74 billion to $155 billion and the trade deficit tripled. However, I would like to see if you could come up with a better policy to not only rescue a stagflating economy AND conduct a cold war at the same time. Although Reaganomics were not as successful as was anticipated (and that is one of the main criticisms), they could hardly be considered a failure.
Btw: On a side note despite the fact that many welfare programs were cut, the portion of the population below the poverty line was 13% between 1980 and 1988. How is that possible? Well the Reagan tax cuts excluded income taxes completely for much of the poor, thereby nullifying the need for some of the welfare programs cut. |
There's a couple of points here that I would agree with you on. First of all, Paul Volker was a genius of sorts, and was seemingly the primary source of hope throughout the 80's during Reagonomics. Second, you mentioned that the negative side of things being the deficits - well that is THE HUGE negative side of things - and the reason why we tanked in the early '90's into another recession. You may very well know more than I do about economics and the history of, so correct my following interpretation of the '80's and Reagan's Supply Side economics:
1. The economy did grow under President Reagan’s watch. The Economy has grown under every administration in the last century with the exception of Republican Herbert Hoover.
2. Although the economy did grow during the Reagan Administration the 1982 Recession was the worst since the 1930s.
3. The economy did grow at a healthy rate during Reagan's second term, but because the fiscal size of government grew by 250% the real growth in the private sector was only about 2.5%.
4. The Fed, under chairman Paul Volker, (a Carter appointee) held firm to a stringent anti-inflation policy in the early 1980's. The Discount Rate (the rate banks pay) remained extremely high well into the Reagan administration. This basically put the breaks on the economy, but it did result in inflation declining significantly.
5. Inflation did not lower as a result of tax cuts and if you believe tax cuts lower inflation then I must disagree with you here. Think about it: how in the world would massive tax cuts that should have resulted in an increase in consumer spending lower inflation? The only way to lower inflation is to lower demand thereby forcing producers of goods and services to lower their prices in an attempt to increase demand for the good or service they are selling or providing. Those high interest rates lowered demand and reduced inflation significantly as a result. So basically the drop in inflation in the 80s had nothing at to do with Reaganomics, but rather were the result of Carter’s Fed Reserve Chairman keeping the Prime and Discount interest rates extremely high.
6. Now Interest rates did eventually dramatically drop during the 80's. The reason though was the Federal Reserve began dramatically reducing rates at the end of the 1982 recession (after inflation had subsided) in order to stimulate economic growth.
7. Interest rates remained reasonable through the late 80's despite the growing deficits because the government was growing (as a proportion of GDP) at such a rate that it far exceeded the increases in Business Activity in the private sector. Foreign investment picked up the tab for a lot of the debt the Federal Government was incurring and since the Private Sector growth rate was nothing compared to the Governments fiscal growth rate their was not enough competition for revenue between the public and private sectors on the domestic open markets to justify increases in the Prime and Discount Interest Rates.
8. Problem though is with the massive increases Reagan's Budgets every year (11% a year) and the record deficits that resulted the national savings rate was dropping like a rock, which was the ticking time bomb of Reaganomics. This along with the economic growth during Reagan's second term (that was primarily on the public sector side "Big Government") resulted in inflation creeping up once again in the late 80s. Basically the Supply Side Economics "Time Bomb" was about to detonate.
9. Because of the massive reductions in the National Savings rates that resulted from the huge deficits of the Reagan and Bush Sr. years and the indications of inflationary economic conditions returning Fed Chairman Alan Greenspan (whom Reagan Appointed during his second term) had no choice but to significantly rise interest rates in 1990. This of course resulted in the 1990-1991 recession.
So basically to sum it up the Reaganomics Supply Side experiment was a failure - in fact several prominent economist have claimed that our standard of living would be higher today had Reagan not fell for the Supply Side crap in the first place. That's what I've interpreted so far. |
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| occrider |
| quote: | Originally posted by MisterOpus1
1. The economy did grow under President Reagan’s watch. The Economy has grown under every administration in the last century with the exception of Republican Herbert Hoover.
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True however, the economy made an amazing rebound from a period of high inflation and high unemployment. Would this have happened with such success with weak fiscal policy?
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2. Although the economy did grow during the Reagan Administration the 1982 Recession was the worst since the 1930s.
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As a result of Voclker's tight monetary policies to combat the levels of inflation left over from Carter's Presidancy. Reagonomics can hardly be blamed for the 81-82 recession since Reagan instituted his economic policies in 1981 ... far too late for it to have any effect on the economy before the recognition lag caught up.
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3. The economy did grow at a healthy rate during Reagan's second term, but because the fiscal size of government grew by 250% the real growth in the private sector was only about 2.5%.
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Certainly the fiscal size of the government grew because the size of the economy grew. Overall, fiscal spending as a size of GDP actually decreased from 22.9% to 22.1% in 1989. Yes it did increase slightly during the middle years but not excessively.
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4. The Fed, under chairman Paul Volker, (a Carter appointee) held firm to a stringent anti-inflation policy in the early 1980's. The Discount Rate (the rate banks pay) remained extremely high well into the Reagan administration. This basically put the breaks on the economy, but it did result in inflation declining significantly.
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Yup, smartest decision carter ever made. Good thing Reagan agreed with his desires to reduce inflation.
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5. Inflation did not lower as a result of tax cuts and if you believe tax cuts lower inflation then I must disagree with you here. Think about it: how in the world would massive tax cuts that should have resulted in an increase in consumer spending lower inflation? The only way to lower inflation is to lower demand thereby forcing producers of goods and services to lower their prices in an attempt to increase demand for the good or service they are selling or providing. Those high interest rates lowered demand and reduced inflation significantly as a result. So basically the drop in inflation in the 80s had nothing at to do with Reaganomics, but rather were the result of Carter’s Fed Reserve Chairman keeping the Prime and Discount interest rates extremely high.
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I never said tax cuts lowered inflation did I? Tax cuts, if anything, would increase inflation. After the high interest rates lowered inflation, the tax cuts spurned job growth and an economic rebound. However, like I said before, Reagan supported the fed's committment to reduce inflation.
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6. Now Interest rates did eventually dramatically drop during the 80's. The reason though was the Federal Reserve began dramatically reducing rates at the end of the 1982 recession (after inflation had subsided) in order to stimulate economic growth.
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I don't think that the economic rebound can be attributed to interest rates alone. Otherwise what need would there be for anything besides the Fed? If this were the case then why wasn't growth arrested in 1984 when the federal funds rate spiked back up to 13%? I think that the upswing was in part caused by tax cuts spurning business growth as were the lower interest rates.
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7. Interest rates remained reasonable through the late 80's despite the growing deficits because the government was growing (as a proportion of GDP) at such a rate that it far exceeded the increases in Business Activity in the private sector. Foreign investment picked up the tab for a lot of the debt the Federal Government was incurring and since the Private Sector growth rate was nothing compared to the Governments fiscal growth rate their was not enough competition for revenue between the public and private sectors on the domestic open markets to justify increases in the Prime and Discount Interest Rates.
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Again despite the growth in fiscal spending, as a percentage of GDP it did increase. Furthermore, one could argue that fiscal spending crowded out private investment, however, federal revenue share of GDP actually fell from 20.2% to 19.2% by the end of his term.
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8. Problem though is with the massive increases Reagan's Budgets every year (11% a year) and the record deficits that resulted the national savings rate was dropping like a rock, which was the ticking time bomb of Reaganomics. This along with the economic growth during Reagan's second term (that was primarily on the public sector side "Big Government") resulted in inflation creeping up once again in the late 80s. Basically the Supply Side Economics "Time Bomb" was about to detonate.
9. Because of the massive reductions in the National Savings rates that resulted from the huge deficits of the Reagan and Bush Sr. years and the indications of inflationary economic conditions returning Fed Chairman Alan Greenspan (whom Reagan Appointed during his second term) had no choice but to significantly rise interest rates in 1990. This of course resulted in the 1990-1991 recession.
So basically to sum it up the Reaganomics Supply Side experiment was a failure - in fact several prominent economist have claimed that our standard of living would be higher today had Reagan not fell for the Supply Side crap in the first place. That's what I've interpreted so far. |
Yes the recession in the 90's was caused by rising inflation but I wouldn't necessarily classify it as a ticking time bomb as a result of reagonomics. Inflation only jumped to 5%. Ultimately, we're always going to be confused by the business cycle ... what's the presidant's fault and what isn't? What is the Fed's fault and what isn't? I can't quite say for sure how successful Reagonomics was in bettering the economy or if any other policy would have been any better. However, I would dismiss claims that it was a failure since it did cause a rebound in the economy with a 17% increase in job growth. Bear in mind that in no year following the tax cuts did revenue decline. As a matter of fact they rose by $375 billion. As for whether our standard of living would be higher today ... :conf: . |
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| MisterOpus1 |
| quote: | Originally posted by occrider
True however, the economy made an amazing rebound from a period of high inflation and high unemployment. Would this have happened with such success with weak fiscal policy? |
The amazing rebound had it's consequence - the '90's recession, due to Reagan's continual annual spending spree ave. of 11% coupled with increasing deficits. So to me it's how you look at it - I guess I'm a little pessimistic considering what it creates in the long term (and the effects it has on long-term interest rates which ultimately must go up).
| quote: | | As a result of Voclker's tight monetary policies to combat the levels of inflation left over from Carter's Presidancy. Reagonomics can hardly be blamed for the 81-82 recession since Reagan instituted his economic policies in 1981 ... far too late for it to have any effect on the economy before the recognition lag caught up. |
I haven't studied far back enough into Carter's economics, so I'll take your word on this. Your statement does seem reasonable.
| quote: | | Certainly the fiscal size of the government grew because the size of the economy grew. Overall, fiscal spending as a size of GDP actually decreased from 22.9% to 22.1% in 1989. Yes it did increase slightly during the middle years but not excessively. |
Sorry, it was Reagan and Bush combined having a fiscal growth of 250%.
Well I think you're right about this but the point I was making was the private sector wasn't really growing much, though it was growing.
Besides, in the 12 years with Reagan and Bush Sr. having a Federal Government net fiscal growth at 250%, debt service as a percentage of federal revenue grew all the way up to 22% which meant that 22 cents on every dollar paid in taxes during the Reagan and Bush years did nothing but pay debt and interest. Through fiscal restraint Clinton reduced the debt service as a percentage of federal revenue to 18%. Since Bush has taken office because of his first tax cut and his massive spending increases debt service has risen to 24% of federal revenue in just 2 years. That means that currently 24 cents on every tax dollar we pay the federal government does nothing but service debt. I know we weren't necessarily talking about Bush Jr. here, but I thought I'd bring up a point that scares me somewhat. So again, I guess it's how you look at things.
| quote: | | Yup, smartest decision carter ever made. Good thing Reagan agreed with his desires to reduce inflation. |
He had to agree with it. Inflation had to come down at this point.
| quote: | | I never said tax cuts lowered inflation did I? Tax cuts, if anything, would increase inflation. After the high interest rates lowered inflation, the tax cuts spurned job growth and an economic rebound. However, like I said before, Reagan supported the fed's committment to reduce inflation. |
Yeah, but you were thinking about tax cuts, weren't you? C'mon, admit it! Sorry, this wasn't really addressed to anything you said, just a point to be made about tax cuts which tend to follow supply-side theory.
| quote: | | I don't think that the economic rebound can be attributed to interest rates alone. Otherwise what need would there be for anything besides the Fed? If this were the case then why wasn't growth arrested in 1984 when the federal funds rate spiked back up to 13%? I think that the upswing was in part caused by tax cuts spurning business growth as were the lower interest rates. |
No, interest rates alone of course wouldn't do it. As I'm finding out, many factors are in play when it comes to economic ebb and flows. As for what happened in '84, you got me there. I haven't read much about specific years to counter that. I think your conclusion on tax cuts in this case are probably correct. As I mentioned in the past, tax cuts can serve a purpose and may very well increase people spending, but there's a time and place for tax cuts. This very well might have occured here as you mentioned.
| quote: | | Again despite the growth in fiscal spending, as a percentage of GDP it did increase. Furthermore, one could argue that fiscal spending crowded out private investment, however, federal revenue share of GDP actually fell from 20.2% to 19.2% by the end of his term. |
I've got to read more on GDP at that point in time here in order to respond better.
| quote: | | Yes the recession in the 90's was caused by rising inflation but I wouldn't necessarily classify it as a ticking time bomb as a result of reagonomics. Inflation only jumped to 5%. Ultimately, we're always going to be confused by the business cycle ... what's the presidant's fault and what isn't? What is the Fed's fault and what isn't? I can't quite say for sure how successful Reagonomics was in bettering the economy or if any other policy would have been any better. However, I would dismiss claims that it was a failure since it did cause a rebound in the economy with a 17% increase in job growth. Bear in mind that in no year following the tax cuts did revenue decline. As a matter of fact they rose by $375 billion. As for whether our standard of living would be higher today ... :conf: . |
Well I didn't necessarily say inflation was the ticking time bomb - the 11% ave. increase in annual budget spending by Reagan coupled with record deficits is the problem, which dwindled our national savings rate. As Jonathan Chait explains:
"The ultimate problem with deficits is that they reduce the national savings rate, which is the proportion of our annual income that is not consumed. The savings rate is important because it measures Americans' ownership of productive assets--such as companies--that can produce future income. When the government runs deficits, it dips into the pool of money that would otherwise be used for buying productive assets and instead ties it up in financing government debt. Now, if you assume that foreign investors will replace every lost dollar, then interest rates won't rise, but that still does nothing for our savings rate. It simply means that companies that would have been producing future income for Americans will instead be producing future income for overseas investors. "Instead of reducing the domestic capital stock," write William Gale and Peter Orszag of the Brookings Institution, "budget deficits would represent a mortgage of the income from that capital, with the mortgage owned by foreigners."
And this is what I understand occurred as a result of Reagan's fiscal policies, though again, I may be off a little bit. And as for our standard of living, again, things may not necessarily been so bad during the Reagan years, but what they ultimately led up to in the '90-'91 recession is what some economists wonder about our current standard of living. Sadly, I see Bush Jr. following the similar path in economic policy - only much deeper. This deficit combined with increased budget spending is beginning to bite us in the ass - the states are hurting (combined 100 bill. debt) and are beginning to shy away from the linkage of State and Fed. taxes, because Bush is basically bending them over with more and more burden that was once Federal responsibility. We are pushing so close to deflation, and the Fed Governent sector will no longer be able to compete with the Private sector which will force Greenspan to increase long-term interest rates (provided things don't change). Then of course Social Security is going to the dumps and run dry (or as Bush would like it - privatize it, which ultimately pays big corp. and his back-pocket with more lobbyist groups - like he needs any more). And sorry, but I don't believe his Medicare package is worth spit, especially with a lovely donut loophole in it - what the hell is that all about? So I'm not terribly optimistic about things to come, and I see some similarities to Reagonomics that scare me a little bit. |
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| occrider |
| You raised a lot of good points and some points that I'd like to comment on ... I'll try to address some issues when I'm bored at work tomorrow ;) |
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| Dj Smitty20 |
wow......you really do love to try to pump up that Republican party down south don't you?
The wonders of propaganda...... |
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| rupert |
| quote: | | So I'm not terribly optimistic about things to come, and I see some similarities to Reagonomics that scare me a little bit. |
Indeed, the situation now is infinitely worse than the early 90's or 80's because now it is post asset stock market bubble. The biggest bubble in a lifetime.
And now the low interest rates create another bubble in property and maybe even bonds. The Fed is only really interested in propping up asset prices.
All this talk of a recovery is merely hype and there wont be any sustained recovery until the debt is worked out of the system. There is no good news in the global economy and most definitely not in the USA. I would run the ruler very carefully over any asset denominated in US dollars. |
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| occrider |
| quote: | Originally posted by Dj Smitty20
wow......you really do love to try to pump up that Republican party down south don't you?
The wonders of propaganda...... |
Main Entry: pro·pa·gan·da
Pronunciation: "prä-p&-'gan-d&, "prO-
Function: noun
Etymology: New Latin, from Congregatio de propaganda fide Congregation for propagating the faith, organization established by Pope Gregory XV died 1623
Date: 1718
1 capitalized : a congregation of the Roman curia having jurisdiction over missionary territories and related institutions
2 : the spreading of ideas, information, or rumor for the purpose of helping or injuring an institution, a cause, or a person
3 : ideas, facts, or allegations spread deliberately to further one's cause or to damage an opposing cause; also : a public action having such an effect
We're all propogandist here buddy. However, unlike you, I actually back up arguments with with something we like to call discussion. So if you would like to contribute to the actual discussion at hand ... tax cuts ... then please do so. Otherwise please limit your inane babble.
At any rate, I'm not affiliated with either party and I never will be. I simply happen to believe in a laissez-faire system of economic management which is closer in line with the republican party. Perhaps if you had simply read previous threads you would realize that I'm merely arguing about the use of tax cuts as an effective tool for fiscal policy which is evident by the fact that it is used globally, and is, in my opinion effective as evidenced by Reagan. |
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