Stimulie, II

Martin,

Since spending bills originate in the House, it deserves the lion's share of the blame for runaway spending. In the case where the party that controls the House is the same as the President's, then I have no problem assigning extra blame to the President since as leader of his party he should be steering the agenda. Bush didn't veto a single spending bill while Republicans controlled congress, so while I'm pissed at them as a whole and think they all belong in the hall of shame of runaway spending, I think President Bush has to be at the head of the class.

All of that to get to this: I am a partisan.

The Constitution tends to make a two-party system the most efficient way for politics to work in this country. Unlike parliamentary systems, the factions form here before an election. So, since I choose to be a part of the political process, it makes sense to me to choose a party.

Because we're basically a two-party government, of the two parties that have had a reasonable chance of winning elections these past 150 years, the Republican party has best represented the factions I identify with.

Right now, my differences with the Republican and Libertarian Parties are pulling at me equally, so I'll stay in the Republican Party and try to reverse the leftward slide and move it closer to my philosophies (where it once was). However, if the Party keeps moving left, I'll move on.

Mesa Econoguy:

"They're "conservatives" and "neoconservatives", and they've taken far more as society grows wealthier than the Clintonistas, even more than Lyndon Johnson."

Posted by: Martin Brock

Incredibly stupid statement. Up there in the stratosphere of ignorance with muirgeo’s stupidity.

Yes, Bush has done a magnificent job of spending and destroying the Republican Party in the process, but nothing compares economically with LBJ and FDR.

You obviously haven't kept up.

http://www.cato.org/pubs/tbb/tbb-0510-26.pdf

"Revised data released during the summer by the Congressional Budget Office (CBO) provide analysts the ability to make side-by-side comparisons of the spending habits of each president during the last 40 years. All presidents presided over net increases in spending overall, though some were bigger spenders than others. As it turns out, George W. Bush is one of the biggest spenders of them all. In fact, he is an even bigger spender than Lyndon B. Johnson in terms of discretionary spending." [emphasis in the original]

Maybe the Cato Institute isn't libertarian enough for you. Be sure to follow the link. Bush's largess isn't only bigger than Johnson's. It's a lot bigger.

... the Libertarian Party may soon be seeing a flood of former Republicans, and I'll be one of them.

I'm not much of a partisan and don't think much of institutionalized political parties, but I've been one of them for most of my life. I backed Reagan and even backed Bush II in 2000, when he was talking more like Ron Paul. I've worked actively for Paul for months. I've never identified with the Democratic Party, but I'm not supporting anyone but Paul on the Republican ticket this year. I'd support Mussolini over Guiliani, but his star apparently has fallen, fortunately. I can't support McCain either. I won't support a Democratic alternative, but I won't have to, because no Republican is electable this year.

"They're "conservatives" and "neoconservatives", and they've taken far more as society grows wealthier than the Clintonistas, even more than Lyndon Johnson."

Posted by: Martin Brock

Incredibly stupid statement. Up there in the stratosphere of ignorance with muirgeo’s stupidity.

Yes, Bush has done a magnificent job of spending and destroying the Republican Party in the process, but nothing compares economically with LBJ and FDR.

Republicans are latecomers to the Enormous Voter Bribery Sweepstakes, but they did not initiate it – Democrats did.

Martin,

You and President Bush can call him a conservative all day long, and it won't make it so. 'Compassionate Conservatism' is a euphemism for liberal.

You said on another thread something along the line that I should give up because the days of "conservative" being synonymous with "small government" are over. I disagree.

The days where "Republican" and "small government" are synonymous may well be over, and if that's really true then the Libertarian Party may soon be seeing a flood of former Republicans, and I'll be one of them.

That's why they call themselves "progressives". They have every intention of taking more and more as society grows wealthier.

Face reality, Randy. Bushniks are not "progressives". They're "conservatives" and "neoconservatives", and they've taken far more as society grows wealthier than the Clintonistas, even more than Lyndon Johnson. "Conservatives" don't even have a "progressive" Congress to blame for it.

We're getting the "progressives" next, but they won't take less this time, because the "conservatives" set an incredibly low bar for fiscal restraint while doing nothing about all the bills coming due as baby boomers claim Social Security benefits, not to mention all those state employees expecting pensions.

For this reason, you have to look at total tax revenues, not just from income taxes.

Right. No payroll tax cut. Growing tax base. Rising payroll tax receipts. Cut in income tax rates. Growing tax base. Drop in income tax receipts followed by a rise, with no change in receipts over six years. Eventually the growing tax base catches up with the rate cut, but that's not Laffer's prediction at all. It's simply an inevitable result of cutting income tax rates without cutting payroll tax rates while the tax base continues to grow.

No. Russ included a table that shows outlays (expenditures) as a share of GDP but not revenues. The percentage would only be the same if we didn't have a budget deficit.

If the proceeds from selling a Treasury note is not "revenue", you're right. But you mean current tax revenue specifically. I get that.

Ahhh, Methinks to the rescue.

All is well…

Forgot to add that the 2003 cuts included dividend cuts. This was a step in the right direction, giving corporations one less incentive towards the misallocation of capital.

Adding to Stan Greer's point, the 2003 cuts were the only ones that mattered--marginal rate cuts in income and in cap gains. These increased the after tax return on activities such as work and investment.

For this reason, you have to look at total tax revenues, not just from income taxes.

Taking out the political biases, it's more confirmation that marginal rate cuts lead to increased economic activity that ultimately increase revenues. It turns out Dr. Laffer was right.

Niket,

Clinton didn't take office until 1993. I don't think that he gets credit for what the economy did in 1992.

Dan

Martin,

No. Russ included a table that shows outlays (expenditures) as a share of GDP but not revenues. The percentage would only be the same if we didn't have a budget deficit.

Jon,

That's why they call themselves "progressives". They have every intention of taking more and more as society grows wealthier. And they have so dominated the conversation that nearly everyone is convinced that those who ask questions such as yours should have to prove a case for why they shouldn't take more, rather than they having to prove why they should.

Methinks and Randy,

You both certainly seemed as stumped as I am regarding an answer to my question.

I think the implication--that no or little gov't spending ought to vary based on our wealth--should show how very modest most goals of fiscal conservatives are. Grover, for example, argues that if we shrink gov't *as a percentage of GDP* over time, then we'll be making progress. If we can't come up with good reasons why gov't spending ought to rise with our wealth, then this goal is unbelievably modest.

I am not an expert on this subject at all, and I am not a diehard defender of the Bush Administration by any means.

But, in fairness, I think Russell Roberts should have acknowledged that by far the bulk of the Bush tax cuts took effect in 2003, not 2001.

Just looking at the charts Dr. Roberts provides, it seems that changing the baseline to 2003 would substantially undermine, if not totally obliterate, the point he made about the tax cuts reducing revenue.

Of course, as other commenters have pointed out, just looking at revenues before and after the tax cuts is only a very crude measure of whether or not, or to what extent, they cut revenues -- even if you use the correct base year.

Methinks,

Exactly. Egalitarianism is the perfect propaganda. It taps into basic human desires like envy and greed, but it can never be achieved and thus never expires. And what's really funny (funny sad, not funny ha ha) is that the people who use egalitarianism don't really want it. They know that if it is actually achieved, or even if significant "progress" is actually made in that direction, the machine that produces their revenue will grind to a halt.

Jon,

you ask But what spending depends on our wealth?

Good question. I think the answer is in your question - our wealth. the wealthier we become, the more energized politicians and the likes of Gates and Buffet in "fixing" something that isn't a problem in the first place and cannot be eliminated by definition - relative poverty.

I think you should have included a table with total federal revenues collected as a share of GDP as well.

He did. Expenditures = Revenue. When the Treasury sells notes, it collects revenue, even if it sells the notes to a Fed creating money to buy them, even if it pays the interest on these notes back to itself.

The inflation is what we need to worry about, but as long it doesn't appear in the CPI, even the core CPI excluding nonessentials like food and energy, why worry? So real estate prices rise. So P/E ratios rise. So what? That's not inflation. We're all getting richer. Right?

Russ,

I think you should have included a table with total federal revenues collected as a share of GDP as well.

Those constraints--the handiwork of Phil Gramm--have expired. That's what allowed the ratio of spending to GDP to rise.

Right. It wasn't the guys enacting all the spending. They're "conservatives" after all. We already know what "conservatives" do, so we needn't bother with revenue numbers and such. The theory is right by God! Damn the observations!

I never thought I'd see the year 2000 being used as a baseline here. It couldn't be a more abnormal year.

Historically, 20.3% of GDP isn't high. It was something like 23.5% early in Reagan's presidency. The reason it dropped so dramatically during Clinton's is that the denominator (GDP) grew so fast--thanks to the dot com boom/bubble, while the numerator (Federal govt. spending) was constrained by the Budget Act of 1990.

Those constraints--the handiwork of Phil Gramm--have expired. That's what allowed the ratio of spending to GDP to rise.

I never thought I'd see the year 2000 being used as a baseline here. It couldn't be a more abnormal year.

Historically, 20.3% of GDP isn't high. It was something like 23.5% early in Reagan's presidency. The reason it dropped so dramatically during Clinton's is that the denominator (GDP) grew so fast--thanks to the dot com boom/bubble, while the numerator (Federal govt. spending) was constrained by the Budget Act of 1990.

Those constraints--the handiwork of Phil Gramm--have expired. That's what allowed the ratio of spending to GDP to rise.

Neocons do not have the same focus on keeping government spending down as do classical conservatives. I don't think people recognized that in the 2000 elections.

Bush in 2000, judging from his rhetoric then, was a classical conservative.

Some government spending logically depends on America's population--as long as government spends on educating children, we can see that there is a clear reason for that spending to increase with population increases.

Here, future wealth depends on current spending.

But what spending depends on our wealth?

What future wealth depends on current spending? Who is best positioned to decide?

Practically all of it. The people who possess it now.

The problem is that people who govern capital now will secure their entitlement to consume in the future. They aren't really so disposed to create the future wealth. That only happens if creating future wealth is their only means of securing their future entitlement to consume.

So what? My panacea is a progressive consumption tax, essentially a progressive income tax with high marginal rates and an IRA with unlimited contributions. We should call it an IIA (Individual Investment Account) rather than an IRA, because for very wealthy people, some capital in the account would never be available for personal consumption. It would only be available for investment. The system decentralizes authority over expenditures organizing resources without simply entitling people to consume. It also lowers risk aversion, because very wealthy people who make ultimately unprofitable investments don't lose any personal entitlement to consume. They lose turf, and turf matters a lot to some people, but it probably matters less than a personal entitlement to consume.

Corporations are supposed to have this effect too, but I don't expect them to be much more effective than states beyond a certain size and scope. Basically, decision makers within a corporation will channel as much revenue as possible toward their personal entitlement to consume. They'll burn the furniture to fuel the corporate furnace if this charade allows them to channel a bit more toward their personal bottom line, as long as they think they don't lose more in the long run. Drive up the share price a bit, cash in some options, buy some Treasury notes. Sounds like a plan to me.

With all of these baby boomers struggling to retire from burgeoning middle management, you have to wonder how all of their creative energies are employed these days. Don't ask the shareholders in their corporations. They certainly don't know. Don't ask their bosses. They're playing the same game.

Chris,

There was a recession going on, sort of. I'll write on that issue soon, but real GDP grew every year between 2000 and 2006. It surprised me, too.

Looking at the tax revenue numbers brings up a good point: it was the people at the top of the income spectrum, and not at the bottom, were the most negatively affected by the popping of the Dot-Com bubble and the recession that followed. The volatility of the income of the top income earning individuals is why tax revenues dropped so much in the period from 2000 through 2005.

Randy,

That's completely true. But the question is more posed as a challenge to those who will try to justify those unlimited government wants. I predict their answers will make them sound foolish, to put it mildly. I wonder if any will try to pose sensible answers.

Jon,

Its a great question, but the unfortunate truth is that government will always find a way to justify the need to maximize revenue - because they can. The idea of "unlimited wants" applies to governments as well as individuals.

"But the revenue effect was negative...."

I don't think that conclusion necessarily follows from the facts. Sure, tax rates dropped as did tax revenue. But, there was also a recession going on -- tax revenue would have dropped even if the rates had stayed constant.

However, I agree with your end conclusion. The Bush Administration has done a horrible job of keeping spending down. Neocons do not have the same focus on keeping government spending down as do classical conservatives. I don't think people recognized that in the 2000 elections.

The Clinton years saw smaller government and more robust private sector growth. Crediting Clinton with it all is obviously too simplistic, but it's a fact. Federal spending as a fraction of GDP also rose before the Clinton years, during the Reagan/Bush II years.

Income tax revenue fell and never fully recovered, but overall Federal revenue rose. Since the income tax and the payroll tax account for most Federal revenue in roughly equal measure, I suppose payroll tax revenue accounts for much of the increase, though I don't find the figures online now. Of course, the Reagan administration is also credited with "tax cuts", but it raised the payroll tax rate.

Under recent projections, Social Security benefits will exceed payroll tax revenue in 2018. This date creeps forward in time, but I suppose we'll start spending the "trust fund" eventually, and of course, the "trust fund" is only a lot more taxpayer obligations, presumably to be funded from the income tax. Basically, Bush and the rest have cut income taxes and "borrowed" payroll taxes to finance discretionary spending like the war in Iraq.

So what happens when the Social Security bill comes due? We tax the Iraqis? I think not. We tax DOD employees? No. Taxpayers owe them even more than they owe Social Security beneficiaries. We tax the military industrial complex? Don't bet on it. We tax G. W. Bush and Dick Cheney? Haliburton? Fat chance.

Here's an interesting question to ponder: as America gets richer, what government services need to grow coincident with that increase in wealth?

For example, there's no immediately apparent reason for our military spending to double by the time our economy is twice as wealthy as it is today. When it protects a static border, it protects whatever is inside of it. There may be other reasons for increased military spending, but I'm suggesting that our wealth isn't one of them.

Some government spending logically depends on America's population--as long as government spends on educating children, we can see that there is a clear reason for that spending to increase with population increases.

But what spending depends on our wealth?

Niket,

Yes. That's why I posted the older numbers. Check out the link on partisanship.

Spending from taxes and spending from borrowing are not exactly the same. Future taxpayers may, and almost certainly will at some point, simply refuse to pay the debt and thereby force a cut in government provided services. Some would say the loss of government services is just another way of paying the debt, but they assume that the services have value. I do not.

Between 1992-94, government spending shrunk from 22.1 to 21. May be the numbers tell us that Clinton was more of a fiscal conservative than the two Bushes.

As a non American, I feel that the conservatives hate Clinton because he was able to achieve some of Democratic party goals while still reducing government spending??? (More likely is that I don't know much about Dem vs. Rep... but hey, these are your numbers.)