I may or may not have more to say about this later, but for now I just thought I would call readers' attention to this article, which seeks to paint me as some sort of charlatan for having views today that are different from those I expressed in a book published 28 years ago.
In fact, my views haven't changed at all. What has changed are the facts, the circumstances, the actual economic conditions that policymakers must respond to. To erstwhile supply-siders like John Tamny it's always 1980--morning in America--and the exact same policies that were appropriate to deal with double digit inflation and interest rates are the exact same policies to deal with deflation and interest rates barely above zero. Moreover, they ascribe virtually magical power to every tax cut ever proposed because once upon a time Ronald Reagan reduced the top rate from 70% to 50% and got some pretty positive economic results. So if it worked once, then we must continue to do it again and again and again forever. (It's pretty absurd to think that temporarily lowering the top rate from 39.6% to 35% was going to yield anything close to the results from lowering the top rate from 70% to 50%, but many so-called supply-siders said it would; one even wrote a book called The Bush Boom, ascribing astonishing effects to this tax change.)
It's human nature to stick with what works and only change when there is strong evidence in favor of it. Normally, this serves people well. But this tendency is easily perverted into a foolish consistency that says we must never change our position on anything, regardless of the circumstances or the evidence in favor of a different position. If people like Tamny want to hold to such a foolish position, that's fine by me. But he and others who claim to be the true believers in supply side economics seem to feel compelled to label me a flip-flopper or an opportunist, rather than deal with the substance of my argument, because I threaten their position or perhaps just make them uncomfortable. (The last time I saw John, a few days ago, he could barely look me in the eye.)
I would welcome a substanive debate on the arguments I raise--which I have been raising for going on six years now. But until lately my enemies have refused to debate except behind closed doors. And then all of their arguments essentially boil down to the idea that there is one policy, tax cuts, that fits every single economic problem in every single economic circumstance. I believe their unwillingness to debate me publicly is because they know in their hearts that their position is intellectually untenable and can only sustain it by avoiding facts and arguments they cannot answer.
And so I had to be sacrificed for the greater good; fired from my think tank job--an action not one single solitary friend of my protested either publicly or privately--and exiled, figuratively speaking. Maybe if I was prevented from having a forum, maybe if the publications I used to write for would stop publishing me, and maybe if my old comrades stood together against me, attacking me for heresy and shaking their heads in sorrow over what I have become, then I would go away or at least turn my attention elsewhere. Perhaps, I would crumble under the pressure and renounce my heresy, in which case I would be welcomed back into the fold. Well, I'm made of sterner stuff and I don't need fair weather friends.
I just published a book, The New American Economy, going into much greater detail about what my views are today and why I hold them. Those that are curious as to who is right should read it and decide for themselves whether Tamny's characterization of me is remotely accurate or just a rationalization for policies he is paid by various organizations to represent. For the record, I don't work for any organization, have no clients or any other special interests paying me to say what I say.
Will Ambrosini ably makes a
Will Ambrosini ably makes a point I tried to make here before:
http://www.ambrosini.us/wordpress/2009/10/bad-economics-from-mcardle/
In times of high unemployment we do not throw out supply & demand thinking. Just because there are fewer job opportunities doesn't mean there are no job opportunities and just because there are fewer taxable profits doesn't mean there are no taxable profits. Lowering tax rates can still stimulate the economy.
I can understand your argument for how the Bush years were a more inappropriate time for Keynesian deficit spending than now, but how would you respond to Tamney's comparison of the present to past recessions in 1920 and 1980?
You might specifically refer
You might specifically refer to the article's description of Volcker's monetary policies from 1979-1982 as 'disastrous'; my understanding was that his anti-inflationary prescription, while painful in the short term, made much of the future prosperity possible. Otherwise, Reagan's deficit spending would have led to inflation more quickly.
I won't talk smack about Robert Bartley and Jude Wanninski here, but would only observe that surely there are rightish economists of greater stature and accomplishment that might have been cited if Bartley's and Wanninski's views about the Reagan era were widely shared.
Tamny is a strong, vocal
Tamny is a strong, vocal believer (or at least claimer) that "tax cuts increase revenues". Not only has he expressed that view in his columns, but in email correspondence with me last year he essentially said that he considered that supposed fact obvious and a view held by "everybody". And when I expressed concern about our long-term fiscal imbalance, and the views of experts that this imbalance presented a serious problem, his response was to scoff at "expert" views by remarking about how wrong the "experts" supposedly were about global warming, another supposed fact he seemed to be presenting as obvious to all. He insisted that low yields on long-term Treasuries mooted whatever the "experts" were saying, and refuted the views of "experts" asserting that the long-term fiscal imbalance was something with which we had to be concerned.
So when reading Tamny's writings, folks should consider the source.
As a side note, I've mentioned before that, unfortunately, Bruce's hyperbolic and puzzling line that (paraphrasing) "tax cuts can't help because there's no income to tax" leaves him wide open for criticism/ridicule, and I see that Tamny takes advantage of that opportunity. That kind of line make sound crisp and perhaps hyperbole is more effective with some people, but it's really a not-so-fastball right down the middle of the plate for anyone to knock out of the park, and thus diminishes one's credibility with many. It may be less entertaining to say something like "Tax cuts would not be nearly as effective at revenue or at stimulating the economy as proponents contend because income is down and tax rates are much lower than they were pre-Reagan" (if that's the argument), but hyperbole -- and puzzling hyperbole at that (since lower income hardly means that providing more incentive for income won't have a positive effect) -- ends up not worth its entertainment value.
tax cuts
Hayekian / anti-Keynesian free market economists were right to slam the tax cu cult of Kemp 30 years ago for pretty much the same reasons you are right to slam it today. That would be a truly consistent position.
Friedman was wrong about "starving government" -- and Kemp
never believed in it any way, as his time in the Bush 1 government proved.
Most seriously, your whole position seems to depend on vulgar Keynesianism -- stuff most Ph.D'ed macroeconomists now reject -- and stuff which runs contrary to a macroeconomics which includes capital, e.g. Hayek and Garrison.
The problem isn't your valid criticism of Bush 2, the problem is your failure to see how elements of these same failures existed in Reagan's program -- especially the gift pony in the poop magical thinking that expanded America' growing incapacity for dealing with reality as adults and living within our means in a non kleptocratic society.
Bruce, I just put your book
Bruce, I just put your book on my Amazon wish list.
You're a hero to me and, I suspect, many other moderates who desperately want to see thoughtful insight and deliberation on key issues rather than what passes for political and economic discourse in today's media.
We need more thinkers - economic and otherwise - who are reality-based problem solvers, not ideologues, rogues and fools.
Glad to hear you are made of "sterner stuff"!
Bravo
Thanks for your views and stern material! I also used to be a huge fan of the supply side theory. But you are correct in that evidence and assumptions must always be challenged and reexamined. Without that rigor we are doomed to fail in whatever we do.
Keep up the good work and you have a fan here!
Tamny is right.
Those looking for heavyweight academic backing for the supply-side era of the 1980s and 1990s should review Robert Mundell's work. His famous policy mix -- sound money and tax cuts -- rejected both Keynesian and monetarist demand-side economics in favor of classical, producer-focused economics, and formed the basis of two decades of low inflation and expansion.
Now we are in an era in which A) the neo-Keynesian preference for devalued currency to fix the trade deficit was enacted, leading to a hard asset bubble and financial disaster; B) the Fed is clearly pursuing a monetary policy aimed at stimulating employment rather than maintaining the dollar's declining value; C) The President and congressional majority have declared their preference for higher taxes, especially on capital; D) Clueless Republicans have reverted to balanced-budget economics, rather than pro-growth economics.
John Tamny is stuck in 1980? He should be -- the description above is very similar to the 1970s.
Meanwhile, Bruce Bartlett is stuck in 1998, when a strong-dollar, capital-gains-cutting Democrat ratified the supply-side consensus and the market soared. Today, that consensus is being rolled back in almost every particular, and we're poorer for it.
A strange moment for BB to declare victory and disband the supply-side movement.
Sean, Are you saying we
Sean,
Are you saying we should cut taxes? How much and which? (And wherever you'd stop cutting taxes, why not cut further?)
And how do you suppose we should solve the problem of our projected huge, unsustainable long-term fiscal imbalance? "Grow our way out"? "Tax cuts increase revenues"?
Tamny is right again. High
Tamny is right again. High taxes are not the current problem.
The central problem today is the dollar's 200 percent decline against gold since 2003, which acts like a tariff on trade partners, a tax on domestic workers and savers, and a penalty on lenders.
Currency devaluations violate a cardinal tenet of supply-side economics: sound currency.
BB surely knows this, which is why it is surprising to supply-siders that he omits the dollar from his analysis.
I wonder if he would be willing to explain.
Sean, I guess you're not into
Sean,
I guess you're not into answering questions.
Eh?
This is nonsensical to the point of being bizarre?
The slide against gold being a tariff to trading partners? I'm afraid this is a non-sequitor. We aren't on the gold standard, our competitors aren't on the gold standard, our trading partners aren't on the gold standard. So why gold? Why not pick aluminium, and say confidently, "The dollars slide against recycled soda cans is a tarrif to our trading partners?"
You've completely misidentified the mechanics of inflation and relative currency valuations. Which is probably why you made the bizarre assertation in your first post that a weak dollar is the root of our global trade imbalance. How is a weak dollar our problem when China is fixing their currency prices specifically to prevent the dollar from appreciating against the yuan? And if the dollar is an unsound currency, why are people still snapping up treasury bills?
Begorrah.
Gold
If the dollar fell 100% against gold then I guess it would have fallen to zero. I have no idea where the dollar would be if it fell 200%.
Responses.
Brooks: Sorry, I thought I did answer your questions.
To be clear, no, I am not saying tax cuts are the answer to our current problems. Though, if we were going to enact a dollar recovery agenda I would do it by A) credible strong dollar jawboning; B) commitment to a dollar-price rule around $600/oz gold; C) a cap gains tax cut. I believe these steps would raise dollar demand significantly and help quickly rebuild the wealth lost since 2007.
Regarding long-term fiscal imbalance, before the financial implosion and recession, the deficit as a percent of GDP was declining, below three percent, which was relatively good.
I would say that sound dollar policy combined with low taxes -- especially on capital -- would yield a small but significant increase in annual growth, that, compounded, would amount to many billions of dollars in added revenue to offset long-term liabilities. Of course, increasing spending at a level less than or equal to growth would help.
Scott: Yes, the dollar's slide against gold indicates its loss of real value. To the extent our trading partners have not devalued to an equivalent degree, U.S. exports become relatively cheap and foreign imports become relatively expensive, at least in the short run. It is a mercantilist policy little different than a straight out tariff, except it creates domestic problems associated with falling currency and encourages our trade partners to enact their own devaluations, which many have.
As Alan Greenspan once said, gold is so much more important than any other commodity because the stock of gold is so large relative to its flow. Meaning, the world inventory of gold (120,000 metric tons), is enormous relative to its annual consumption via new industrial gold use, jewelry and monetary reserves (about 3,000 metric tons). Its characteristics make it uniquely stable and uniquely accurate as a measure of currency. When it rises significantly, it indicates currency decline.
I didn't say the dollar's decline was the source of the trade imbalance. I said a weak dollar policy has been underway for six years because monetary authorities wanted to improve the trade deficit. This was a fundamental departure from the Reagan/Clinton years, in which the dollar-gold price stayed relatively stable at $350. The devaluation's unintended consequence, in my view, was spiking commodity prices and the hard asset boom/bust.
The Chinese have made a rational decision to devalue the yuan in tandem with the dollar, therefore preventing our mercantilist dollar policy from undermining their export economy.
The supply-side answer to trade imbalances is that in an open economy, they are generally irrelevant as the money returns as capital account surpluses, so long as the U.S. remains a good place to invest due to sound currency and low taxes. The best long-run answer is to have the rest of the world adopt sound money and low taxes along with us, so they grow faster and can buy more expensive U.S. products such as pharmaceuticals and Apple products.
Treasury interest rates will rise in time; they are a lagging indicator.
Mr. Bartlett: With respect, maybe I don't understand your point. My argument is today it will take three times as many dollars to buy the same ounce of gold you could have bought for 1/3 the price through the 1980s and '90s. This means over the next two decades the general price level will need to rise by the same percentage to reflect the devalued dollar's value. Wages, of course, will likely lag the general price level, which means for years to come, Americans will be struggling to catch up to their previous living standards. From 1971-1982, the dollar declined 1000 percent against gold, right?
"Its characteristics make it
"Its characteristics make it uniquely stable and uniquely accurate as a measure of currency"
Except that currencies trade against each other. Why use gold as an intermediary for the value of the dollar to the pound, for example, when you could just observe the current dollar/pound exchange rate?
It's one thing to say gold is a commodity with unusual pricing characteristics - it's quite another to say that gold is the medium by which we should determine the value of currency. It's patently not and it hasn't been since we left the gold standard.
Luckily, you suggest a return to the gold standard in your first paragraph (price fixed at $600/per oz). There are many, many arguments against a return to the gold standard, but in my mind the best has always been this: a rough guess of M3 in the U.S. alone would be around $15 trillion, and the total value of all the gold ever mined, at $951/troy ounce, is around $4.78 trillion. How anyone thinks that the massive, immediate deflation caused by returning to that standard is desirable is beyond me.
Also, when you discuss that "it will take three times as many dollars to buy the same ounce of gold you could have bought for 1/3 the price through the 1980s and '90s", it would be astute to discuss in inflation-adjusted versus nominal pricing. Prices have increased, nominally, over thirty years or so, but the last time I checked wages did likewise. Again, the best measure of our ability to purchase goods (standard of living) isn't dollars v. gold - it's how much it costs to purchase goods. CPI, expenditures as a percentage of income, ect.
And as for China fixing the yuan against the dollar - there is, in my mind, a significant difference in the slide of a currency as a market correction (which in an orderly way is a net benefit for our exporters)and actively purchasing foreign currency reserves to prevent your currency from appreciating, thus making your exports artifically competative. I mean, come on - from your reading (let's keep the dollar strong against the yuan!) you're basically arguing for an expanded trade imbalance. That's odd.
Reply to Scott.
In the classical model, gold is regarded as uniquely stable and accurate as a barometer of currency value. Today we live in a universe of anchorless currencies, floating free on waves of central bank supply and market demand. It is useless to measure one floating value with another.
If my currency inflates at 20 percent and yours inflates at 30 percent, does that make my currency strong?
Because gold is highly stable, traded on global spot markets, and accepted internationally as a storehouse of wealth and unit of account, it functions as photo-negative for currency value. As a currency falls, its gold price rises; when it rises, gold falls. A sound currency policy means long-term price stability against gold.
In the 1970s, the gold standard’s end did not mean its monetary role was discontinued. To the contrary, it has been the most forward looking and reliable currency gauge ever since, and is used by many analysts to make policy and investment decisions.
From 1968-82,the dollar underwent a massive devaluation, and gold was the leading indicator, at one point rising more than 2000 percent, from $35 to over $800. Other commodities followed, with oil – black gold – rising in tandem with gold. Reagan's tax cut and strong-dollar preference pulled gold back from its highs, and it settled into relative stability around $350 for much of the low-inflation ‘80s and ‘90s, while the general price level adjusted upwards for many years.
Gold declined to $250 in the late ‘90s, indicating a Phillips Curve driven deflation, courtesy of the Federal Reserve, resulting in a weak economy from 2001-03. During this period gold reflated to a healthy $350, and, combined with the 2003 supply-side tax cuts, the economy expanded strongly and re-elected George W. Bush. However, the Bush Administration sent repeated, unambiguous signals it wanted to see the dollar weaken, and markets obliged, pushing gold up 200 percent, over $1000.
I wouldn’t recommend a return to a gold standard. Just a price rule whereby the Treasury defines the dollar in terms of gold, then adds or subtracts liquidity as necessary to maintain it. Gold stocks are irrelevant; no dramatic deflation would be required.
As you note, I suggest a target in the neighborhood of $600, which would be a substantial disinflation from today’s $1000+, but would accommodate a major inflation from $350. Some might argue $450 or $500 would be better. It’s really a question of how many contracts have been struck across the economy with gold at $1000. The longer we stay at $1000, the more painful it will be to lower it.
Again, in the classical model, gold’s price today is the same as in 1965. To the extent its dollar price is different, that reflects the greenback’s decline. Gold's price is always inflation-adjusted. When gold rose 1000 percent in the 1970s, it took two decades for the general price level -— wages included -– to fully adjust to the dollar’s debauched value, creating massive economic and cultural damage along the way. We’ve been rebuilding all that lost wealth ever since.
The dollar’s decline 2003-present was not a market correction. Currency supply and therefore value is entirely within the U.S. government’s power. The dollar declined because American monetary authorities told markets repeatedly that they wanted it to decline. Weak-dollar jawboning drove the dollar down against gold and forex, on the neo-Keynesian view that currency values should be lowered to balance trade.
Again, classical economists fundamentally reject this notion, and view trade imbalances between strong, developed economies and less developed nations as natural, appropriate and mutually beneficial. Most of all, classical thinkers believe currency devaluation is so destructive on so many levels it is like killing flies with hand grenades: it may work, but you make a hell of a mess. The Chinese, advised as they are by classical guru Robert Mundell, want no part of this mercantilist beggar-thy-neighbor strategy, and are acting appropriately to defend their interests. Strategic devaluations are dirty pool. There’s no reason the Chinese should hurt themselves in a misguided attempt to subsidize U.S. manufacturers and textile producers. Adam Smith had it right.
Sean, Your comment regarding
Sean,
Your comment regarding our fiscal outlook and potential solution reveals a lack of perspective -- i.e., a failure to appreciate the relative magnitudes of trends related to our projected long-term fiscal imbalance, the forces driving those trends, and the low probability of your supposed solution actually solving the problem. It won't, either because the magnitude of spending cuts you envision (if you have some sense of magnitude) would be inadequate or because you envision a correct magnitude of necessary cuts to solve the problem while reducing tax revenues (which a capital gains tax cut would do), which is a degree of cutting that is politically implausible. There is simply no way we are going to "increase spending at a level less than or equal to growth" over the next couple of decades. And there is simply no way (politically) to avoid increases in tax rates and/or new taxes, and in the overall effective tax rate (revenues as a percent of GDP). Check out this piece http://www.aei.org/article/100962 by a fiscal conservative now at (the very conservative) AEI.
Read at least some of the June, 2009 CBO Long-term Budget Outlook to get some perspective.
Brooks response.
Brooks,
I'm very familiar with future budget liabilities, but don't regard them as catastrophic -- if -- and it's a big if -- we keep focused on faster growth rates and higher productivity.
Thanks to the supply-side revolution in the U.S., the American economy grew over the '80s and '90s at a 50 percent faster pace than slow growth European nations such as France. Thus, even while free-riding on the U.S. for goods such as military protection, we've been in relatively good shape with regards to debt.
Here are two articles that make my points:
http://www.realclearmarkets.com/articles/2008/01/tax_cuts_will_solve_our...
http://www.realclearmarkets.com/articles/2008/01/tax_cuts_will_solve_our...
The answer is faster growth. Revenues increased significantly in the 1980s, and, after the cap gains cut of '97, the budget went into surplus.
Best,
Sean
hoo boy. Sean, you are
hoo boy. Sean, you are simply, massively confused, on multiple points. You point to two columns that clearly contradict your view of the sustainability of our long-term fiscal course, and which are filled with bogus argumentation as to why supposedly tax cuts are the answer and supposedly tax increases would only exacerbate the problem (but far be it for me to question the analysis of revenue feedback effects by someone with the boatload of credibility that comes with being "an engineer and software entrepreneur on the Leadership Council of the Club for Growth", merely on the basis of contradictory views expressed by these folks http://swordscrossed.org/diary/20081017/no-bush-tax-cuts-have-not-genera...).
Brooks response 2.
Brooks,
First, I accidentally input the same link twice. Since you didn't notice and referred to "two columns," I assume you weren't reading very closely.
The second column was meant to be this one:
http://online.wsj.com/article/SB1000142405297020448830457442943293543347...
Please explain how the Woodhill column contradicts my view. I don't see that.
You link to statements regarding the Bush era tax cuts, when I said nothing about that era. I did mention the Reagan era tax cuts, in response to which revenues did rise, from $600 billion in 1981 to $1 trillion on 1989, despite two rounds of deep tax cuts. To the extent Congress maintained a bloated budget, spending 24 percent of GDP even while taxes collected a constant 18 percent of a rapidly expanding economy, a sizable deficit developed.
Between the late 1980s and the mid-1990s, spending came down to a historically normal 18 percent of GDP.
When Clinton signed the 25 percent cap gains cut in 1997, alongside 12 years of sound dollar policy, the rapid expansion flooded the Treasury with revenue, leading to surplus. That particular tax cut may be said to have paid for itself and then some, though I am not saying all tax cuts do. Two of the three Bush 43 tax cuts were demand-side rebates, which supply-siders criticized as doing nothing to incentivize growth. The 2003 tax cuts did lead to a nice expansion which saw the deficit decline as a percentage of GDP from 20004-2008.
http://2.bp.blogspot.com/_CQyU4ayBifw/Stj9rNabXAI/AAAAAAAACc4/iSDD-rlMvB...
Very few serious supply-siders broadly claim that tax cuts pay for themselves, at least in the short run. So let's dispense with that chestnut.
Can we agree that properly constructed supply-side tax cuts will spur growth at the margin, which means they should be considered with a dynamic rather than a static analysis? In other words if a rate is cut ten percent, it may "cost" only 7 or 8 percent? Nobel laureate Robert Mundell has argued that in the short run, the revenue difference at least would have to be sufficient to pay the interest on the bonds the government would float to cover the temporary revenue short fall. If the rate cuts do produce permanent new growth, interest rates will decline even with increased deficits, and, if strong growth continues year after year, alongside modest spending restraint, the short term deficits will become surpluses.
Let's flip the debate around. In 1981, with massive dollar devaluation, tax rate bracket creep, and stifling stagflation, would you not have cut taxes? Do you deny the causal link between the supply-side policy mix of sound money/tax cuts and the low inflation, low interest rate expansion of the '80s and '90s?
Given the current environment -- weak dollar, high unemployment -- would you raise taxes? Do you see no negative incentive effects for entrepreneurs and investors under such a policy? If we don't return to 3.5-4 percent real growth, won't the deficits become a much bigger problem? Just wait until interest rates start rising...
Thanks,
Sean
Sean, See my reply
Sean,
See my reply downthread.
Tamny is a hack
http://www.sadlyno.com/archives/7195.html
http://economicsofcontempt.blogspot.com/2008/04/hackonomics-john-tamnys-...
The fact that he cannot wrap his mind around microeconomics issues like gas pricing or understand that the savings rate is different from savings level belies his credibility as a pundit.
I thank you for all your contributions you have made to the blogosphere and the courage it takes to change your tact when the situation warrants it. In retrospect you could have made your retort to Tamny considerably shorter by merely invoking Keynes:
"When the facts change, I change my mind. What do you do, sir?"
Sighing for Bruce
Bruce's response to my column reveals that he didn't bother to read one that was for the most part laudatory of the man. All I can think is that too busy posting links on Facebook ("let's talk about me, me, me!!!") about himself, he didn't have time.
Had he, he would know that I don't buy into the argument that tax cuts are presently essential. My problem is that lacking Bruce's economic stature, readership and girth, my utterances on tax policy aren't as well known.
So to clarify, while I think tax cuts on income and investment are an undeniable good, my columns for the past two years have made plain that to cut taxes now wouldn't hurt as much as it would miss the point. Taxes ARE low relative to when Bruce claims to have saved the world, and what ails us more now is a government that feels it should intervene with all manner of bailouts (Bruce supported this) along with a dollar that is weak and unstable.
To know me and to know my thinking, I have made it very apparent that cutting taxes now would be somewhat mistaken. I don't base this on Bruce's new, left-friendly view that you can't tax incomes that don't exist, but because so bad is policy elsewhere that tax cuts might be discredited for not accomplishing much.
Bruce claims in his post that his arguments haven't been addressed, which proves yet again that he didn't read what I wrote. Indeed, I address each one of his arguments, all the while using simple history to disprove some of his other points; in particular those about monetary policy.
Bruce's post along with the others by his fans make the claim that my post is all about tax cuts and their revenue impact. It seems there that much as Bruce is an idea protectionist, so did his buddies fail to read what I wrote. Had they, they would know well that rather than make an argument about the revenue impact of taxes I asked why Bruce no longer believes that tax cuts frequently lead to more economic activity and more revenue. Indeed, as a libertarian my preference would be to starve the beast altogether by getting rates so low that revenues would actually decline.
But speaking of revenues, and assuming that Bruce now believes tax hikes would drive them up, I asked in my piece why he thinks the very Republicans and Democrats so eager to spend any and all revenues would suddenly discover their inner fiscal prudence assuming more came in. As with all of my points, Bruce didn't address this one either.
Lastly, Bruce did see me and I him at Cato last week, but much as his self-defense was dishonest, so was his account of events. Indeed, while a funny guy, Bruce is not the warmest person as I know well. To offer up but one example, at a dinner in Dallas a few years ago the night before BB addressed Cato supporters, Bruce lit into me with a fusillade of F-bombs in front of two of our largest supporters after I made the point that Hillary Clinton likely wouldn't get the Democrat nomination for president. Not eager to engage this most unhappy of persons, I sat in the back after giving him a cursory hello; Bruce grunting back to me something unintelligible.
But to address his suggestion that I would hardly look him in the eye last week, it should be made clear that I had my hand up ready to ask a question from the minute his talk ended. The problem there, however, was that so long-winded were Bruce's replies (the last refuge of an individual lacking strong evidence to support his claims) that eventually I gave up and left amid yet another of Bruce's interminable answers in which he mostly evaded the questions asked of him.
Just trying to set the record straight, as will my piece for those who bother to read it.
Cheers,
JET
John Tamny (if that's really
John Tamny (if that's really you),
First, your reference to "girth" is so junior-high-immature that I wonder if you really are John Tamny. Not because I know anything about your/John Tamny's personality, but because I find it surprising that anyone working in the public sphere addressing serious issues with an adult audience would publicly embarrass himself with such a childish insult.
As for your contentions (and assuming you are John Tamny), laypeople, if they/we are rational, rely to to a substantial extent on experts to help sort out related matters, since we generally lack the expertise (and the time) to fully and appropriately critique all the theory, raw data, etc., on which some expert (e.g., an economist) has based his conclusion and assertions. In relying on experts we must gauge their respective credibility, and credibility is a function of perceived expertise, objectivity, and sincerity. So when an expert seems to say something repeatedly and emphatically for years that clearly, fundamentally contradicts the consensus of experts, including those with much greater expertise than his, it makes sense to greatly discount his credibility. Yes, expert consensus is sometimes wrong, but probabilistically, that highly contrarian individual is most likely wrong and lacks sufficient expertise, objectivity and/or sincerity on that subject, and by extension on related subjects, particularly with similar/same audiences.
So it's hard to take you seriously when you keep insisting/implying that, at least in general, tax cuts from current tax rates would increase revenues, despite the consensus of economists to the contrary (See http://swordscrossed.org/node/1671 -- I sent you a link to a post with almost all those quotes in our email exchange of January, 2008), and when you even seem to consider the consensus to the opposite of what it is (I'm referring to your comment in our email correspondence that "everybody" agrees with you on that point), and when you repeatedly insist/imply that there is no need to worry about our unsustainable projected long-term fiscal imbalance because long-term Treasury yields are low, and for that matter when you scoff at what the consensus of experts are saying regarding the perils and problems of our long-term fiscal outlook by pointing out how supposedly obviously completely wrong the "experts" (your quotes) are regarding global warming (again, from our email correspondence). Basically, you come across as just a guy who simply adopts, mindlessly maintains and vocally expresses beliefs that he wants to hold and/or who makes a living telling his audience what it wants to hear, regardless of where a good-faith search for "truth" would lead him if he pursued such a path, including at least significant doubts about his conclusions he would probably have as a result.
Maybe you and Kudlow should get out more instead of repeating the same myths back and forth to each other on his radio program.
I guess you wish you knew enough about me to respond with some junior-high-level insult that you confuse with wit.
John Tamny is a Data Free Ideologue
John Tamny, along with a small number of similar silopsistic thinkers, lives in a bubble devoid of any contact with the empirical evidence. His title may be "Chief Economist" but in reality it's obvious he prides himself on his having no formal education in economics. In his world the only important experts are Say, Bastiat, Smith and Schumpeter (living people need not apply), and any reference to economic research would constitute a defilement of his own deductive purism and, worse, entail tacit acceptance that formal education in the subject might actually have some merit. In short it is unlikely that the facts or the circumstances would ever topple his foolish consistency because he has absolutely no interest in either, and stopping to see what they are would probably intefere with the incessant consultation of his own navel for opinions (despite his lack of girth).
I found his rambling diatribe against Bruce to be nothing more than a long list of stale disjointed glibertarian talking points unfettered by normal reality, historical or otherwise. It's hardly worth my time to criticize (although I have wasted considerable time doing so in the past). However I look foreward to reading Bruce's rebuttal, if any.
That being said, I have no problem with John Tamny as an individual (although I did find his evocation of Las Vegas as the epitome of an economically optimum community, and his defense of insider trading to be somewhat bizarre). I just can't take most of his economic opinions very seriously.
Re: living people need not
Re: living people need not apply
Aw, come on, I'm sure Tamny regularly spends days on end in a room with esteemed economists Stephen Moore and Larry Kudlow, voicing the same fundamental myths -- e.g., "tax cuts increase revenues" -- until they have clearly established those ideology-based talking points as unquestionable fact. They then emerge from the room invigorated, supremely confident in their "conclusions" and immensely proud of themselves for their rigorous research and superior insights.
Re: Tamny
You're being incredibly generous. Having argued with the man at length for ridiculous amounts of time I can tell you if he takes anything's opinion seriously it is one of his own bodyparts.
Desperately seeking- me?
Bruce nailed it. The supplysiders are interested in tax cuts for themselves and nothing else. If anyone dare to question the old Reaganomics wisdom then they are to be excommunicated from their covey of nonsensical has-beens. Supplysiders! Data free ideologues, every last one of them who still survive.
Addressing my Stalkers
Brooks developed a desire to harass me a ways back when I wouldn't agree with him about unfunded liabilities spelling our doom. Mark Sadowski still does.
Brooks: Once again, read what I wrote. NOWHERE in my piece about Bruce do I argue that tax cuts would lead to higher revenues. What I DO ask is why Bruce used to think so, but now does't. There's a big difference. Once again, I'm a libertarian. I want to starve the federal government of revenues as in I want to go well below the revenue-maximizing rate. Do you get that? I don't like Washington receiving a lot of revenues, so try to refrain from putting words and arguments into my piece about BB that don't exist. My piece has nothing to do with the Laffer Curve. Read it and you'll see.
And since you don't know Bruce (some would say you're lucky), you wouldn't get the girth comment. I'm happy to say I don't know him well either.
Mark: You're great. At least you try to address my arguments however poor your logic is. Keep it up, though I hope all the time you spend on me doesn't detract from your other work.
JET
John Tamny, Re: "Addressing
John Tamny,
Re: "Addressing my stalkers" and "Brooks developed a desire to harass me a ways back when I wouldn't agree with him about unfunded liabilities spelling our doom."
LOL, wow, you really, really need to get over yourself and get a grip on reality. Since you've made the bizarre charge that I "developed a desire to harrass" you, and since the only way I can show the utter ridiculousness of that charge is to show people our actual exchange, I'll do so even though I normally would not. Anyone wishing to see it can do so at http://brooksstuff.blogspot.com/2009/10/my-email-exchange-with-john-tamn... As anyone can see, what you are calling "harassment" -- and what you bizarrely called "harassment" in your last email in that exchange -- was an exchange of emails that we had over three days, 1/18/2008 - 1/21/2008, in which we went back and forth, exchanging emails in turn, one-for-one, with each of your emails filled with arguments related to our disagreement (including the last one) and with none requesting that I not reply until you suddenly and strangely say "PLEASE erase my e-mail and stop harassing me."
As can be seen at the link above, I replied to that last email of yours. And that was it. I haven't emailed or contacted you in any way since. And I had not emailed you or contacted you in any way prior to that email exchange. Yet you outrageously (and somewhat humorously) claim that I "developed a desire to harass" you. Which begs the question: Do you have memory issues, do you suffer from paranoid delusions of grandeur, or are you deliberately disingenuous and thus dishonest and unethical?
Re: I want to starve the federal government of revenues as in I want to go well below the revenue-maximizing rate. Do you get that?
Are you actually thick or just pretending to be thick. Based on what you've written, you believe that current tax rates are generally higher than the revenue-maximizing rate, such that, in general, cutting current tax rates to some substantial extent would yield higher revenues, and only after some substantial degree of tax cutting would further tax cuts yield less revenue (and then supposedly "starve the beast"). In other words, you firmly believe that current tax rates are generally significantly to the right of the revenue-maximizing point on the Laffer Curve (with tax rates as the X axis and revenues as the Y axis). And I'm telling you that the consensus among well credentialed, even conservative economists (including W Bush's own top economists) is the opposite of your contention. Get it? And what makes you so sure that you are right and they are all wrong?
As for "starve the beast", the strong version of "starve the beast" (a dollar less of revenues causing a dollar less of spending, or even close to it) is considered thoroughly discredited by most economists. There is even debate over whether or not weaker versions are valid. See http://www.capitalgainsandgames.com/blog/andrew-samwick/1144/bruce-bartl... and related links if you want to educate yourself (as opposed to staying in that room with Kudlow and Stephen Moore and just taking turns repeating your cherished myths). Of course, Bruce also has a paper on "starve the beast", but I guess you reflexively reject whatever Bruce says these days.
Re: My piece has nothing to do with the Laffer Curve. Read it and you'll see.
Yeah, I did read your piece, and again, stop being thick (or pretending to be thick). I don't know how much clearer I can possibly be that I am commenting on your general credibility. See my prior comments on this thread. If your repeated, emphatic assertions on some other fundamental aspects of tax policy and more generally fiscal policy are way, way off and seem to reflect ideology/partisanship more than objective, sincere expertise, then your credibility is pretty much shot on the general subject. Get it?
I've become what I hate
I've become my own worst enemy - someone who wanders around, days later, posting on what is essentially a dead thread.
But can I just say that it drives me crazy that Tamny spends a good half-page saying the stimulus won't work because government spending crowds out private demand, which is long debunked Ricardian equivilance AND wrong on several grounds I can think of off the top of my head?
1) It assumes government investment and private spending are perfect subsitutes. They aren't - public funds tend to be invested in public works projects, public land maintenance, ect.
2) It assumes a closed system for U.S. debt purchases. Hey! The Chinese are still major buyers. So we're crowding out . . . private Chinese investments? Pity.
3) It assumes the existence of a desired savings rate. But when the savings rate is unusually high due to an intolerence of market risk, private dollars remain stationary, not invested.
4) It assumes 'the doctrine of immaculate transfer" - GDP and investment and taxes magically move to equalize against each other, rather than do so by market forces (in this case, government investment raises depressed GDP, which in turn has a positive effect on future revenues, ect.)
But apparently none of this matters.
Starve The Beast
Bruce, what about the view that the stimulus, rather the large deficits the stimulus produces, makes Americans spend less and save more in anticipation of higher taxes? Maybe it's not just the stimulus or any one factor, but does the looming outlays for Social Security and Medicare/Medicaid that are projected, will that have any effect on spending/saving?
Does it matter if the stimulus is spent well or not? That is if the entire stimulus were spent to hire people to dig holes and fill them up again, would that still be better than not spending the money or perhaps sending everyone a "gift" card that expires in one year to force everyone to spend that money?
It just seems to me that we're not getting much value from the stimulus. A read through some of the bill and there are a lot of subsidies for agriculture and all sorts of other grants for industries that aren't viable without continued government support (like ethanol, etc.). I had hoped government would use the stimulus for large scale public works to reduce the congestion on our roads which would directly impact our lives and have long term benefits, that means discarding political biases and double decking our freeways or building new ones, something practical instead of intellectual like the car pool lanes that take up a lot of space but haven't made an impact.
I understand Tamny's point of "starving the beast" and I agree. It seems government will usually spend up to a point where total debt and/or deficit is perceived as unsustainable or dangerous to the long term economic health of the country. Only then will expenditures be scaled back. The late 1990's aside, this seems to be the formula no matter how taxes are raised or lowered, although income taxes are lower due to Bush, we're seeing new taxes in areas that were never taxed and increasing taxes in all other areas so it feels like I'm paying more in taxes and fees. I just have no faith whatsoever that any tax increases will be used toward deficit reduction. There always will be someone somewhere who needs something and so the need for spending is limitless. Just like to hear your thoughts on this.
Digging and filling holes
Does it matter if the stimulus is spent well or not? That is if the entire stimulus were spent to hire people to dig holes and fill them up again, would that still be better than not spending the money ...
That would be identical to just handing the people the money though a tax cut or other transfer of some sort, maybe an extra round of COLA checks for seniors, whatever, except:
1) It would carry the extra cost of wasting the "workers" time and labor, which they otherwise might have spent in some productive manner (even if not counted in GDP) such as with family, on household work, getting an education, whatever.
2) As a government expenditure the cost would be counted in GDP, while tax cuts and transfers are not -- so many people would say, "see how much better govt spending on hole-digging-and-filling is than tax cuts and transfers! It boosts GDP just when we need it most, while they don't."
In the end the cost gets added to the national debt and has to be carried from future taxes -- but compared to the cost of everything else we're larding onto the debt, who cares?
I notice that the Administration, now that it is done with Fox News, is vociferously attacking Edmunds.com for criticizing "Cash for Clunkers", that recent exercise in the Broken Window Fallacy that wound up costing $13,000 per car sale by the Administration's numbers, $24,000 per car according to Edmunds, while spending billions to move a lot of car sales from one quarter all the way to an adjacent one.
(It's actually bragging that C-for-C increased the cost of used cars for dealers. Killing livestock raised the price of food during the Depression too. Good ideas never die in politics!)
If they are proud of the price of all that and of dropping it on the debt for others to pay ever afterwards, why wouldn't we all be happy with paying folks to dig-and-fill holes and drop that on the national debt too?
Sean, I quickly read the
Sean,
I quickly read the column at the first link (not every single word, but more than a glance), and glanced at what I thought was a second column by the same writer that seemed to make the same arguments.
Re: Please explain how the Woodhill column contradicts my view. I don't see that.
Woodhill -- who, again, is not an economist nor apparently have any remotely related expertise and who is with a rigidly ideological advocacy group -- is saying that, per our current fiscal course (long-term projected fiscal imbalance), "the Federal Government is effectively bankrupt" and he calls our explicit and implicit debt (the latter representing "unfunded liabilities) "financially unbearable". You wrote:
I'm very familiar with future budget liabilities, but don't regard them as catastrophic -- if -- and it's a big if -- we keep focused on faster growth rates and higher productivity.
In re-reading the above I see that, while your assumption that we can cut taxes and (to use the expression) "grow our way out of the problem" contradicts strong expert consensus (even among experts on the right) and is therefore is very unlikely to be valid, you were indeed making a conditional statement ("if" we don't reduce the projected deficits through this supposed increased growth) and therefore I was wrong to assert a clear contradiction between you and this guy Woodhill, so I stand corrected, with apologies to you.
Re: You link to statements regarding the Bush era tax cuts
First, that isn't true about the statements at my link. Take another look. Second you are missing the point. The statements at that link, as a whole, apply generally to cuts in tax rates on individual labor and investment income (not corporate income tax cuts, the revenue feedback effect and GDP impact of which I'm told is much more difficult to gauge) from anywhere near current tax rates or rates existing prior to the Bush cuts. Therefore, they would apply to cuts from current tax rates, as well as (generally) to tax increases within a politically plausible range (for now).
Re: the Reagan era tax cuts, in response to which revenues did rise
and
Re: The 2003 tax cuts did lead to a nice expansion which saw the deficit decline as a percentage of GDP from 20004-2008
and
Re: hen Clinton signed the 25 percent cap gains cut in 1997, alongside 12 years of sound dollar policy, the rapid expansion flooded the Treasury with revenue
You are falling prey to a common (on the hyperpartisan right), fundamental, and obvious (or so one would think) mistake -- cherry-picking data, seeing a supposed correlation, and implying causation based on that specious apparent correlation. You observe that revenues generally increase in years following a tax cut. But you don't do what one should do when doing correlation analysis: looking at what happens -- directionally and in terms of magnitude -- to the hypothesized dependent variable when the independent variable varies. In other words, what happens to revenues in the absence of a tax cut and in the years following a tax increase? For example, what happened to revenues following the (Clinton) 1993 tax increases? Wanna see? Take a look at this chart http://www.heritage.org/research/features/BudgetChartBook/Federal-Govern... -- look at what happens to revenues after 1993 (oh, and tell me why you focus only on the capital gains tax cuts of 1997).
If you had asked this very basic, Correlation 101 type question, you'd learn that revenues tend to rise regardless of tax policy, even in real (inflation-adjusted) terms, because the economy is more often in expansion than recession (and there are other timing factors affecting correlation and causation, such as tax cuts coming amid recession as stimulus, and recessions being followed by recovery). And even as a percent of GDP, the effective tax rate (revenues as a percent of GDP) tends to increase due to "bracket creep".
As CG&G's own Bruce Bartlett can tell you (and does tell you if you read the quotes at that link), NO, the Reagan tax cuts did not have a net positive impact on revenues. Yes, revenues increased in the years following the Reagan tax cuts. No, that doesn't mean that the Reagan tax cuts had a net positive impact on revenues. They didn't.
There's a reason the folks with the PhDs and other experts -- the kind of folks quoted at that link of economists/budget experts quotes I provided -- are all saying something that contradicts crude, anecdotal, cherry-picked observations, even though they'd love to reach the conclusions one would draw via the latter (since the folks I quote are almost all conservatives and strong advocates of low/lower taxes and thus would rather it were the case that tax cuts from current levels would increase revenues or at least come close to paying for themselves). They generally apply much more rational and appropriate analytical methodology, and they generally don't cherry-pick the data, and so they -- sometimes/often reluctantly -- acknowledge that tax cuts from anywhere near current levels generally would not come anywhere close to revenue-neutrality. Not by a long shot. (An exception is the very short-term impact of a capital gains tax cut due to a temporary "unlocking effect", but that's essentially a timing issue, and see the Mankiw quotes about capital gains tax cuts at my link)
Re: Very few serious supply-siders broadly claim that tax cuts pay for themselves, at least in the short run. So let's dispense with that chestnut.
It's not a "chestnut" because it's not what I'm referring to, nor (more importantly) to what all those conservative economists at my link are referring. They are including the long-term, presumably in present value terms. In other words, they are saying that tax cuts don't pay for themselves even over the long term.
Re: Can we agree that properly constructed supply-side tax cuts will spur growth at the margin, which means they should be considered with a dynamic rather than a static analysis?
Of course. Although, as is always pointed out by economists/experts, the direction and magnitude over time is greatly affected by whether or not (or the degree to which) the tax cuts are "financed" by cuts in spending vs. incremental debt. If the latter, it is not clear that the long-term GDP impact would be positive (they may even say that it would likely be negative, but I'm not sure, and it would probably relate to the particulars of the tax cut and of the economic and fiscal context).
Regarding your question regarding monetary and tax policy in 1981, first of all, you are, of course, combining different elements (monetary policy and fiscal policy). Second, tax rates -- particularly the top marginal federal income tax rate on labor -- prior to the Reagan cuts were much higher than today. Third, I don't know if you're aware of the subsequent Reagan tax increases in the 1980s. Fourth, our projected fiscal imbalance for the coming two or three decades was markedly in 1981 than it is today. But if you're asking me I think the 1981 Reagan tax cuts were good policy, I haven't sufficiently studied the matter to have an opinion, all things considered. For what it's worth, Bruce Bartlett seems to still consider the Reagan tax cuts a good thing, yet seems to oppose tax cuts in general today.
As for a link to low interest rates, I would think that tight monetary policy would be much more a factor than tax cuts (and my guess would be that, in general, tax cuts would, if anything, cause upward pressure on nominal interest rates due to inflationary effect, and perhaps on real interest rates insofar as the tax cuts increase deficits ["crowding out"]).
Re: Given the current environment -- weak dollar, high unemployment -- would you raise taxes?
Probably not right now, but once we seem to be out of the woods of the recession, yes. The longer we wait to start reducing deficits -- and to signal to markets/creditors that we are serious about it -- the more harm and risk we incur.
Re: Do you see no negative incentive effects for entrepreneurs and investors under such a policy?
Of course there would be such negative effects. But obviously we need to consider relative magnitudes of effects, in short, medium, and long-term, and seek the optimal balance. Following the projected course of deficits obviously has negative effects, too. So clearly it's not enough just to point to one isolated negative effect and imply that this individual negative effect is a rationale for rejecting some policy that mitigates other negative effects (i.e., that has benefits). (If we tried to maintain our current course for a
Re: If we don't return to 3.5-4 percent real growth, won't the deficits become a much bigger problem?
Obviously other things equal, higher growth -- as well as lower spending and higher tax rates -- all mean lower deficits. But the question is what would be the overall net effect of some set of fiscal policies, or of some tax policy in the context of everything else. There seems to be a strong consensus among the experts that if we cut taxes now and tried to maintain the lower rates in the coming years, we'd find a net adverse effect on deficits (higher deficits, ceteris paribus).