Category Archives: Economics

Thinking About Presidential Democracies

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It’s one of the most important things in my mental life to challenge what I believe, to double check, test, and try new things and ways in my life. So the second big USA government shutdown in my lifetime had me reading the following Washington Post articles:

The Shutdown Is The Constitution’s Fault
Thirteen Reasons Washington Is Failing
Is America A Bubble

The gist of these suggest presidential democracies, such as the USA has, do not have high survival rates. It’s claimed the US and Chile were the only long term survivors and Chile gave up on it a couple decades ago. The final article is about how US bonds, and the country in general may be in a bubble. Given my experience of 2008, I’m feeling even less comfortable the way our government is going.

The “Maker” States Win 2012 Election (Generously Giving to Red States)

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Two Color Map That Leads On Astray

Two Color Map That Leads Astray

Today I saw the 2012 election map like the one above1. It looks overwhelmingly red and the tagline that came with it was something like “Look how much red is required to support the little blue”. If I might rephrase this to express what I think is the implication, “Look how many ‘makers’ it takes to support the ‘takers’.”

How we present data is hugely important and all too often I think the geeks don’t think enough about the message and graphics to help humans understand the data, not just read the numbers. And of course bad presentation choices can be deliberate to make a point.

The right question is very important and here’s what I think it the right question: ¿Do we elect a president by population or acres? I know, it seems stupid, but doesn’t the tagline with the mailing raise that question? I believe we should approach it not by acres but by people (yes I know, the Electoral College (and 2000 Bush vs Gore decision where it came down to 5 justices to 4) distort this some).

If you check out Maps of the 2008 Presidential Election Results (2012 results don’t seem to be complete yet) you can see many variations. My favorite follows. Rather than two colors which overemphasizes differences they use a more graduated scale. And they distort the map so that equal populations take equal areas.

2008 Election Map Showing Shades of Red v Blue and Equal Populations Adjusted to Equal Areas

2008 Election Map Showing Shades of Red v Blue and Equal Populations Adjusted to Equal Areas

Doesn’t look so dramatically out of line does it? And of course this is a Homer Simpson “D’OH!” moment. The 2008 election split 53% to 46% so it should be pretty evenly split.

You say: But the implication was about Makers and Takers. What about that?!?! Continue reading →

Do Tax Cuts Lead to Economic Growth?

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The economic growth that actually followed [tax cuts]— indeed, the whole history of the last 20 years — offers one of the most serious challenges to modern conservatism.—

Daily, it seems, I hear Republicans advocate tax cuts as the answer to significantly improving the economy. It’s the basis for saying let’s reduce taxes in order to reduce the deficit, because the economy will get so much better tax revenues will be more than made up.

Check out this New York Times 15 September 2012 article: “Do Tax Cut Lead to Economic Growth?“, especially the graph. To know if a theory, like tax cuts, is meaningful we have to see if its predictions are working. As my post about Keynesian Paul Krugman indicates, his predictions have been pretty close to right (that unemployment would remain high), while these tax cuts are showing little correlation with improved economic conditions. Nor does the Congressional Research Service conclude tax cuts improve the economy, only that it seems to make the wealthy wealthier.

Trickle Down Takes Down Middle Class

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Why isn’t this report from the Congressional Research Service entitled Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945 making bigger headlines? The Congressional Research Service, known as “Congress’s think tank”, is a branch of the Library of Congress. Since their bosses are a mix of conservative to liberal members of congress it is non partisan, so its reports should carry great weight,

This report’s conclusion (highlighting added by me):

Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The real GDP growth rate averaged 4.2% and real per capita GDP increased annually by 2.4% in the 1950s. In the 2000s, the average real GDP growth rate was 1.7% and real per capita GDP increased annually by less than 1%. There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth. Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. The share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. The evidence does not suggest necessarily a relationship between tax policy with regard to the top tax rates and the size of the economic pie, but there may be a relationship to how the economic pie is sliced.

Let me further distill this: tax breaks for wealthy have no discernible affect on the economy, however they do redistribute wealth making the wealthy even more wealthy.

Since at least Reagan Republicans have strongly advocated for this type of tax policy and thus they have advanced a wealth redistribution to the wealthy. Voter’s need to ask if this is the policy direction they wish to continue.

Update: check out this post by the NYT: Do Tax Cuts Lead to Economic Growth?

Obama’s Stimulus Predicted to Underwhelm 14 Days Before He Became President

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Paul Krugman, winner of the Nobel Prize in Economics and op-ed writer for the New York Times, which gives him some (Wall)street cred, predicted the Obama stimulus plan that was emerging after his election would be judged a failure. This in a January 6th, 2009 New York Times article, a full 14 days before he was even president.

He wrote a wonkish article with a lot of economic theory and lingo. But a couple excerpts give the outcomes of that wonkishness:

The bottom line is this: we’re probably looking at a plan that will shave less than 2 percentage points off the average unemployment rate for the next two years, and possibly quite a lot less. This raises real concerns about whether the incoming administration is lowballing its plans in an attempt to get bipartisan consensus….

And that gets us to politics. This really does look like a plan that falls well short of what advocates of strong stimulus were hoping for — and it seems as if that was done in order to win Republican votes. Yet even if the plan gets the hoped-for 80 votes in the Senate, which seems doubtful, responsibility for the plan’s perceived failure, if it’s spun that way, will be placed on Democrats.

I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.”

Let’s hope I’ve got this wrong.

To summarize what he was getting at, the Great Recession took out a lot more money, mostly in stock and housing values, than the emerging stimulus was going to put in. Krugman’s model, based on Keynesian economics, suggested this would stop the plunge but do little to bring us back to full employment; and that the Republicans, who turned the budget surplus they inherited from the Clinton administration, into such a major deficit the USA was hemmed in from borrowing the sums it needed to fully stimulate the economy, these same Republicans would blame Obama and Keynesian economics for the failure.

In fact looking back at that old prediction we can see it has come pretty much true with one caveat: Krugman, Obama, and the country were unaware at the time that the recession was much worse than they thought. More recent analysis published Continue reading →