The ultimate vindication of Republican supply-side economics

[editec]

This nation is never ever going to really recover from the last bout of supply side economics.

The US middle class will never recover from the 9 trillion dollar rip off it just experienced.

Where we're headed I do not know, but I know that we're never going back to what we once were.

 

[Toddsterpatriot]

Like you say, it's close enough for government work. It was perfect at 1.63% and now "less" correct at 6.7%. But as you say, close enough for gov't work.

And the scaled unemployment rate is good enough. But I just cannot prove a significant change in GDP or unemployment due to a change in tax rates.

I've tried two ways so far, this and a linear regression against top marginal rate. So far, I've got nothing. And the Heritage Foundation's method didn't work.

It's gotta be there. It only make sense. If you punish business owners for making money, they aren't going to be motivated.

Perhaps you can do better. Any suggestions as to how to prove it?

No one talks about GDP growth without annualizing the numbers.
Scaled unemployment? Your chart shows about 4%.
How is that accurate in any way?

It puts the two curve on top of each other so that they can be more easily compared. When I had the graph with quarterly change, one was 1.6 and the other was 9. They weren't even close to each other.

There are a few ways to do it. One is to have two different scales on each side of the graph. I find it a pain in the ass to make graphs with multiple scales. Another is to subtract some constant from each data point which shifts the curve up or down. The third is to just multiply or divide by some constant. And none of it changes the meaning as its all just scaling.

The scale can be shifted or stretched and it doesn't change anything. It's no less accurate or precise when shifted or stretched. The values, relative to each other, are still the same. With a lot of data, the scale is changed to a log scale, it compresses really big numbers. And really big numbers are still bigger then just big numbers. The scale and the absolute numbers are arbitrarily chosen for some matter of convenience. At one time, the King's foot was the standard measure so now we have a rulers and yard sticks in feet. The King was the ruler. It's an arbitrary number created for reason of convenience.

If it's important to compare the quarterly GDP to the annual GDP, then expressing it in annual terms is useful. Then, if you really want to know if the quarter output is pretty good or not, you don't have to multiply by four in your head. Someone considered it important sometime. It was probably some president that didn't like to have to multiply by four. So that's what the BEA does. The "king" didn't like to have to multiply. It's the government, they do all sorts of things for some precedence that was set decades, even over a hundred years ago.

I happen to have the quarterly data in a database and find that a quarterly rate of 1.6% makes more sense then expressing it in an effective annual rate of 6.7% because that's what it really is.

And, as you point out, the GDP isn't 11+ Trillion in a quarter, it's more like 2-3 Trillion in a quarter. And I really haven't been interested in if the quarter is particularly high or low by comparison to the year.

Somewhere back about five years ago, that's what I decided to use. And why not, if I was going to do some fancy math thing like a regression, it wouldn't make sense to use the annualized number. And frankly, I'd rather set it up so I don't have to worry about adding one, taking the fourth root, then subtracting one again.

I downloaded the BEA xls file because they were nice enough to present a flat file. I don't care about all the individual accounts of the NIPA data that are included in the larger tables. And the Excel file link is right on the first BEA National page, not buried three pages deep. It's faster and can be automated, that's why they put it there.

And if you look at a graph of just the unemployment rate or a graph of just the GDP, the way the line wiggles up and down is exactly the same as the one I made, regardless of the scale. Look at one with the "correct scale" then compare it to the one I did, it wiggles the same. All you gotta do is look at the period of time of the Dec 2007 recession, and you know it's the right data set.

That's the important part, if they wiggle up and down together or not, not the what number we call it. The two have been stretched and shifted so the lines are on top of each other. It's easier to see if they wiggle at the same time or not. The scale is set up for the convenience. That is how it's done. That is how "everybody" does it.

What I really should have done was multiply the unemployment by three then subtract 20% to really expand it and put them on top of each other. That way the wiggle is really obvious. I should also move the horizontal scale to the bottom. But then, it's not like I'm getting paid or going to publish it in a scientific journal.

If the 4% really bothers you, multiply by two. And, while you're at it, you can white out the number "9" on the legend and write in "2" because, oops, I made a "mistake" and didn't change the legend. Like you said, it's close enough for government work.

Wow, that was a really useful chart you provided.
None of the numbers were correct, but it was really useful.

 

[stans]

This nation is never ever going to really recover from the last bout of supply side economics.

The US middle class will never recover from the 9 trillion dollar rip off it just experienced.

Where we're headed I do not know, but I know that we're never going back to what we once were.

We could if we induced businesses to expand by raising their taxes and simultaneously making them eligable for tax credits for expansion so they could get their tax losses back. Essentially the businesses are spending their own money to expand. Businesses have to expand since their competition will, outstripping them in the next recovery. Expansion requires hiring people who will create additional demand causing more hiring. See the last section of my article for a bit more detail. Reduce Unemployment with Little Price Increase

 

[itfitzme]

Wow, that was a really useful chart you provided.
None of the numbers were correct, but it was really useful. [/QUOTE]

You really are just dumb as a nut.

 

[Toddsterpatriot]

Wow, that was a really useful chart you provided.
None of the numbers were correct, but it was really useful.

You really are just dumb as a nut.[/QUOTE]

Hey, why don't you create some more charts with all incorrect numbers?
That'll help smarten me up.

 

[itfitzme]

 

[itfitzme]

There is a natural variability in GDP output. As the the GDP grows, it follows a medium range trend and the quarterly output, measured by the GDP, randomly varies about this trend. In order to best understand the growth of the GDP, recognizing the effect of these random fluctuations is necessary. Over the period of time, from 1993 through mid 2007, the quarterly GDP randomly varied by a standard deviation of 1.54% and a variation of twice this is easily expected.

The 2001 recession is one of the weakest recessions marked by the NBER. It is not marked by the typical two consecutive quarters of declining GDP. Rather, there are two quarters separated by a quarter of growth. The variability of the GDP, about the average medium range trend, for both declining quarters are not distinguishable from the natural variability.

The factors that precipitated the 2001 "recession" began much earlier, as early as the third quarter of 2000. Once growth had flattened out, the natural variability in quarter to quarter GDP easily caused the rate of growth to momentarily fall to negative. The two quarters of the 2001 recession are little more then natural variation about a zero growth period. We can see in the absolute measure of GDP, how it begins to flatten out in mid-2000, then simply wiggling about it's nearly flat trend.

One marker of declining GDP is the rate of consumer credit, both revolving and non-revolving. As the economy is a feedback system, a decline in the rate of change of consumer credit may lead or lag the rate of growth in GDP.

The change in the recession of Dec-07 is particularly interesting in providing a clearer indication of consumer credit leading the decline in GDP. The initial precipitating factor was the bursting of the housing bubble. Consumer credit began to fall off in November of '07 and the recession followed in December of 07. In this case, the recession was caused by the deceleration in consumer credit.

Once both declines have begun, whether the decline in growth lead or lag the change in credit, is no longer of particular concern. A decline in consumer credit pushes growth downward which then further restricts the accumulation of consumer credit. To the corollary, an acceleration of consumer credit presents an end to a recessionary period.

The factors that lead to the recession of 2001 began in the third quarter of 2000. At the same time as GDP growth fell off, non-revolving consumer credit began to fall off. This decline in consumer credit ended in the second quarter of 2001 and continued to climb. The second quarter of negative GDP growth is simply the natural variability of the % change in GDP about it's general trend.

The events of 9/11 were no less than horrific. New Yorkers who had no direct contact with the events of 9/11, except in the national new reports, suffered from PSTD. The knowledge that the Twin Tower attacks occurred in the city of their home and the understanding that they were connected to it's tragedy was enough. In fact, the entire nation was traumatized by the 9/11 attacks which many watched occur in real time as news crews reached the scene before a plane hit the second tower. It is the nature of being human that all events surrounding a tragedy, coincidental or otherwise, stand out as being a cause.

Never the less, the 9/11 attacks had no discernible effect on national growth. By the time 9/11 happened, consumer credit was already recovering. The second dip in GDP growth cannot be distinguished from the natural variability in GDP. While it might have been that it could have had an effect if not for something else, in the balance of things, it didn't. Nor would we necessarily expect that 9/11 would cause the nation to be effected in a deterious way in terms of output. During times of group tragedy, human beings are resilient. We don't just roll over and quit, rather the nation buckles down and works harder with more cooperation. This effect has been demonstrated time and time again.

What is far more significant are whatever events occurred in the years of 1999 to 2000. These years show an increase in the variability of GDP growth which preceded the eventual decline to near zero growth in 2001. The tendency for increased variability before a sudden change in an economic indicator is an interesting effect. The one clear example that occurred during the US debt limit crisis. In the days leading up to the change in the S&P downgrade of the US credit rating, the variability in the DJI suddenly jumped just before the market dropped.

This increased variability is coincident with the beginning of the decline that lead up to the "recession" of 2001. Alone, this increase in variability serves only to direct attention to period of time when factors "tipped the scales". It gives us some direction to look for the specific cause of the decline and the subsequent factors that arrested the decline in 2001.

What seems to be more accurate is to say that the GDP began to decline in 2000. By the beginning of the "recession" of 2001, output had begun to stabilized. Through the "recession", the dips below zero growth were the result of natural variability. And the GDP began to recover in the second quarter of 2001, finally showing measurable growth by the end of the year.

 

[alan1]

This nation is never ever going to really recover from the last bout of supply side economics.

The US middle class will never recover from the 9 trillion dollar rip off it just experienced.

Where we're headed I do not know, but I know that we're never going back to what we once were.

We could if we induced businesses to expand by raising their taxes and simultaneously making them eligable for tax credits for expansion so they could get their tax losses back. Essentially the businesses are spending their own money to expand. Businesses have to expand since their competition will, outstripping them in the next recovery. Expansion requires hiring people who will create additional demand causing more hiring. See the last section of my article for a bit more detail. Reduce Unemployment with Little Price Increase

I'm going to take money away from myself, then give it back to myself. With all the extra money I give myself, I'll be rich.

 

[itfitzme]

This nation is never ever going to really recover from the last bout of supply side economics.

The US middle class will never recover from the 9 trillion dollar rip off it just experienced.

Where we're headed I do not know, but I know that we're never going back to what we once were.

We could if we induced businesses to expand by raising their taxes and simultaneously making them eligable for tax credits for expansion so they could get their tax losses back. Essentially the businesses are spending their own money to expand. Businesses have to expand since their competition will, outstripping them in the next recovery. Expansion requires hiring people who will create additional demand causing more hiring. See the last section of my article for a bit more detail. Reduce Unemployment with Little Price Increase

I'm going to take money away from myself, then give it back to myself. With all the extra money I give myself, I'll be rich.

There are over 320 million people in the US. There are over 160 million workers in over 7 million businesses that average about 16 workers per business, ranging from single person contractors to companies with a quarter of a million employees. The US is 4000 miles across, from sea to shiny sea.

And while all these individuals are working and purchasing in hundreds of markets, prices and quantities are adjusting according to the laws of supply and demand. With each day, new individuals are added to an ever growing population. The Federal Reserve is constantly increasing the money supply to account for inflation, population, and, hopefully, increased standard of living.

It's hard to see how a single person exchanging money with themselves works as an analogy. Nothing simpler and less meaningless could be produced as an analogy.

The most basic functioning of an economy is based on the circular flow diagram.

A better, simplified, analogy would need to include some sort of business, a central bank for creating money, and a couple of households.

 

[alan1]

We could if we induced businesses to expand by raising their taxes and simultaneously making them eligable for tax credits for expansion so they could get their tax losses back. Essentially the businesses are spending their own money to expand. Businesses have to expand since their competition will, outstripping them in the next recovery. Expansion requires hiring people who will create additional demand causing more hiring. See the last section of my article for a bit more detail. Reduce Unemployment with Little Price Increase

I'm going to take money away from myself, then give it back to myself. With all the extra money I give myself, I'll be rich.

There are over 320 million people in the US. There are over 160 million workers in over 7 million businesses that average about 16 workers per business, ranging from single person contractors to companies with a quarter of a million employees. The US is 4000 miles across, from sea to shiny sea.

And while all these individuals are working and purchasing in hundreds of markets, prices and quantities are adjusting according to the laws of supply and demand. With each day, new individuals are added to an ever growing population. The Federal Reserve is constantly increasing the money supply to account for inflation, population, and, hopefully, increased standard of living.

It's hard to see how a single person exchanging money with themselves works as an analogy. Nothing simpler and less meaningless could be produced as an analogy.

The most basic functioning of an economy is based on the circular flow diagram.

A better, simplified, analogy would need to include some sort of business, a central bank for creating money, and a couple of households.

I merely pointed out how stans idea of taking money away simply to give it back was a ridiculous idea.

 

[itfitzme]

I'm going to take money away from myself, then give it back to myself. With all the extra money I give myself, I'll be rich.

There are over 320 million people in the US. There are over 160 million workers in over 7 million businesses that average about 16 workers per business, ranging from single person contractors to companies with a quarter of a million employees. The US is 4000 miles across, from sea to shiny sea.

And while all these individuals are working and purchasing in hundreds of markets, prices and quantities are adjusting according to the laws of supply and demand. With each day, new individuals are added to an ever growing population. The Federal Reserve is constantly increasing the money supply to account for inflation, population, and, hopefully, increased standard of living.

It's hard to see how a single person exchanging money with themselves works as an analogy. Nothing simpler and less meaningless could be produced as an analogy.

The most basic functioning of an economy is based on the circular flow diagram.

A better, simplified, analogy would need to include some sort of business, a central bank for creating money, and a couple of households.

I merely pointed out how stans idea of taking money away simply to give it back was a ridiculous idea.

Except the example doesn't point this out. A better example would be that you decide to lose 50 pounds. As an incentive, your wife agrees to help. You give your wife $200 out of each weekly paycheck. If, at the end of six months, you have lost 50 pounds, she gives you back the $200 * 2 * 6 = $2400 that you get to use to put towards a down payment of a new ski boat.

Your example leaves out all sorts of things. It leaves out the hiring of new employees. It leaves out the incentive part and the participation of a secondary part in that participation. It leaves out the part where the business expands it's revenue stream by producing and selling more product. Your example has just you sitting in your room doing nothing but taking money out of your wallet and putting it back. It leaves out absolutely everything.

 

[itfitzme]

Since 1947, there have been fifty quarters that have had annualized quarterly growth in excess of 6.7%.

The average growth has been 3.3%. The standard deviation has been 4.1%. We expect the growth rate to exceed +/- 4.1% a third of the time. That is, whit just happens a third of the time. We would then expect some 5% of the quarters to exceed twice that, or 8.2%. As a first order consideration, we can easily expect a 6.7% annualized quarterly growth out of pure randomness or for fifty other reasons then simply tax changes. Really, to conclude that one quarter of growth at 6.7% is important, we need to explain why it is somehow significant compared to the other fifty times that is also went well beyond that. Or, we are left to conclude, it's just the way the dice roll sometimes.

This is the first order of business when examining aggregate economic activity. It is the first order of business when looking for the effect of anything, even under the control of laboratory conditions. Randomness results in the appearance of a cause when, in fact, no simple cause actually happened.

The simple magnitude of the quarter change is insufficient in determining if a particular event was important. This is the thing that really sucks about trying to evaluate all aggregate economic indicators. There is a natural variability in the underlying economy that is purely random. The aggregate output is dependent on the day to day, month to month, and quarter to quarter behaviors of a population of over 360 million individuals. There are 7+ million businesses. There are 160+ million workers. And while we expect all of the randomness of these individual economic agents tend to cancel each other out, it isn't necessarily so. The economy is a feedback system and behaviors also tend to follow each other. As a result, there is systematic variability in the behaviors as well. Unemployment, GDP, credit, and other aggregate variable vary for no other reason then the collective nation had a bad month.

Even while the national aggregate behavior varies randomly about some average, there is a random error in the survey itself. Over the long run and in large sample, this error tends to cancel out but can still contribute to the overall variability in the indicator. One can only imagine, given the number of sources for NIPA data, the methods used to estimate that error, how many ways error can be introduced. These two add up to a variability in the final measure. And while error cannot be directly measure, that is it's nature, it is unknown, it's general effect can seen.

A simple histogram of the quarterly GDP growth since 1947 shows that is tends to follow a random distribution centered about the average rate of growth .

It trends in a particular direction, over the medium and long term. Over the short term, from quarter to quarter, the trend is buried in the noise. If there is anything to be seen, it's like trying to listen to a radio with very bad reception.

Unfortunately, the trend of the GDP isn't entirely random.

Examining a graph of the % change in RGDP, growth tends to be restricted by the previous quarters. When the economy is growing slowly, it tends to not change in growth dramatically. So quarters of low growth are followed by quarters of low growth. This makes sense, output doesn't tend to jump suddenly, it just goes up or down from where it was. It goes up, it goes up a little more, it goes down a little bit, then it goes up twice more. This process is referred to as a random walk. It is like taking a walk and with each step, randomly choosing to go right or left. Over the long run, the path is straight. Over the short run, it meanders about, sometimes even going all the way around in a circle.

A better measure is to smooth the %CHG in RGDP, to get the natural trend. The variability from this natural trend can then be determined. The random variability is then the difference between the smoothed value and the actual value. As a check, we can compare this variability against a normal distribution.

A normal distribution is the natural measure of randomness. Like gravity and other natural phenomena, it is based on the fundamental nature of the natural universe. The process of discovery for the normal distribution, and all random processes, begins with the simple coin flip. In economic processes, there are decisions of "shall I buy this or not", "should I go to the store today", and millions of little decisions that, while based on individual rational behavior, is random in the bigger process of millions of individuals all make similar decisions.

A simple test of randomness is to sort and plot the data. A random distribution of error presents itself as a sort of "S" shape. In the case of simply sorting and plotting the % change in RGDP, it does not show show an "S" shape. (it depends on the time span) On the other hand, when we subtract the smoothed values from the RGDP, the result shows as an "S" shape when sorted and plotted. This is nice because it tell us that the smoothed trend line does follow growth trend. The variance about it is just randomness in the variability of the RGDP. This "S" shaped curve is shown.

The variance off of the trend is a standard deviation of 2.55%. That means that 60% of the time, the RGDP can be expected to just randomly increase or decrease by 2.55%. Whatever reasons that cause the GDP to change, it happens by 2.55% "all the time".

Any change within this range is simply indistinguishable from the random noise. If we are lucky, the randomness and the event will be additive and the swing will be much larger. If we are unlucky, the randomness and the event will cancel out or the event could result in a minor swing with no random change. In these cases, we can determine nothing. When a process has inherent noise, the affect of an event has to be much larger then the noise itself, otherwise, it cannot be seen and, for all intents and purpose, is meaningless.

Below is the RGDP with the noise level shown. Also, the tax changes of 2003 have been marked. Any effect that the tax changes might have had is simply to small to be seen below the random noise.

If there is anything to be found with regard to the tax changes of 2001 and 2003, it isn't going to be found by simply looking at the absolute values of the GDP. If anything is accountable for the general trend in national output over years since 2000, it is in the slowly changing nature of the economy as it functions with over 7 million businesses and nearly 300 million consumers.

 

[itfitzme]

This nation is never ever going to really recover from the last bout of supply side economics.

The US middle class will never recover from the 9 trillion dollar rip off it just experienced.

Where we're headed I do not know, but I know that we're never going back to what we once were.

We could if we induced businesses to expand by raising their taxes and simultaneously making them eligable for tax credits for expansion so they could get their tax losses back. Essentially the businesses are spending their own money to expand. Businesses have to expand since their competition will, outstripping them in the next recovery. Expansion requires hiring people who will create additional demand causing more hiring. See the last section of my article for a bit more detail. Reduce Unemployment with Little Price Increase

I'm going to take money away from myself, then give it back to myself. With all the extra money I give myself, I'll be rich.

This is an excellent example of emotional based reasoning compared to objective (object) based reasoning. In objective based reasoning, the external objects take precedence. In emotional based reasoning, the feeling takes precedence and the connections are made based on those feelings.

In Stan's idea, the objects included; a business, money, flow of money out, the government, flow of money back, a qualification for that flow, new employees, and growth of business. Stan's feeling was "reasonable".

Alan's feeling was "ridiculous" and with this, he filtered out all the objects except; a business, money, flow of money in and out. He removed Stan's feeling of "reasonable" along with the objects of the government, a qualification for that flow, new employees, and growth of business.

In his example, he then presented an "analogy" in which he replaced himself for the business, changing it from objective to subjective. He retained the objects of money and flow. He retained his feeling of "ridiculous".

This is diagrammed below.

This is an excellent example of how discussions in economics fails. The economy does affect us personally. And it is not easy to examine the economy with dispassionate objectivity. But there is positive economics, which examines the functioning of the economy as an objective natural process. And, it turns out, it isn't a zero sum game.

At it's very basis, it turns out, the very nature of a monetary system is that the social use of money increases the efficiency of aggregate transactions. There is nothing in the nature of human endeavors that is more social then money. Money is entirely unnecessary until we interact outside of our home.

The first failing that guarantees coming to the wrong conclusions in economics, whether positive or normative, is thinking about it from the exclusively emotional and subjective position of the self.

 

[stans]

This nation is never ever going to really recover from the last bout of supply side economics.

The US middle class will never recover from the 9 trillion dollar rip off it just experienced.

Where we're headed I do not know, but I know that we're never going back to what we once were.

We could if we induced businesses to expand by raising their taxes and simultaneously making them eligable for tax credits for expansion so they could get their tax losses back. Essentially the businesses are spending their own money to expand. Businesses have to expand since their competition will, outstripping them in the next recovery. Expansion requires hiring people who will create additional demand causing more hiring. See the last section of my article for a bit more detail. Reduce Unemployment with Little Price Increase

I'm going to take money away from myself, then give it back to myself. With all the extra money I give myself, I'll be rich.

Perhaps you forgot that expanding businesses causes economic expansion. Since business will be expanding using their own money rather than government supplied Keynesian money the National Debt (ND) should nominally remain the same. So in addition to reducing unemployment this activity will increase GDP, lower ND to GDP ratio, and stabilize prices over the long run since business expansion will increase future supply to meet future expanded demand. More detail of the mechanics and benefits are delineated in my article. Try reading the last section to evaluate it fully. Reduce Unemployment with Little Price Increase

I hope that you will take the time to read more than the first sentence of my posting this time.

 

[Foxfyre]

We could if we induced businesses to expand by raising their taxes and simultaneously making them eligable for tax credits for expansion so they could get their tax losses back. Essentially the businesses are spending their own money to expand. Businesses have to expand since their competition will, outstripping them in the next recovery. Expansion requires hiring people who will create additional demand causing more hiring. See the last section of my article for a bit more detail. Reduce Unemployment with Little Price Increase

I'm going to take money away from myself, then give it back to myself. With all the extra money I give myself, I'll be rich.

Perhaps you forgot that expanding businesses causes economic expansion. Since business will be expanding using their own money rather than government supplied Keynesian money the National Debt (ND) should nominally remain the same. So in addition to reducing unemployment this activity will increase GDP, lower ND to GDP ratio, and stabilize prices over the long run since business expansion will increase future supply to meet future expanded demand. More detail of the mechanics and benefits are delineated in my article. Try reading the last section to evaluate it fully. Reduce Unemployment with Little Price Increase

I hope that you will take the time to read more than the first sentence of my posting this time.

Again you guys can post all the graphs and charts and statistics you want, but you won't be able to disprove the simplest truths of the matter.

Raising taxes in the right way can add money to treasury and, unless Congress and the President spend it, will reduce the national debt. Raising taxes in the wrong way can inhibit economic activity and net no difference to the national treasury or actually reduce the amount paid in. Raising taxes on the 'rich' in 1990 initially raised about 50 billion for the national treasury. But, it not only cost George HW Bush re-election, but it decimated the country's boat and private plane building industries at the cost of 50,000 jobs and drove large segments of our high end jewelry and metals industry off shore to places like Grand Cayman.

The resulting costs in unemployment payments and reduction in economic activity so that less money was generated for the national treasury no doubt wiped out that 50 billion and then some. PLUS, the Congress never produced promised spending cuts in return for the tax hike and spending actually increased.

There are so many such variables on all of these concepts and theories that making hard, fast suppositions on any one factor is almost impossible.

Yes a tax hike can generate treasury revenues and reduce the deficit IF there is no corresponding economic slow down, and IF there is no effect on employment, wages, benefits, and IF there is no significant reduction in disposable income circulated in the economy, and IF there is no hindrance to new business start ups, and IF there is no increase in spending justified by the increase in revenues.

All of that has to be factored into the process. And there is absolutely no way that government collecting taxes, swallowing up a great deal of the revenue into the bloated bureaucracy, and then returning a portion is going to have anything but a negative effect in the long run and probably the short run.

 

[stans]

Gentlemen, I've been watching this battle of the cut and paste with some interest and I while I applaud the detail in the debate, I think you may be spinning your wheels or comparing apples to oranges or pick your metaphor.

There are so many factors involved such as dropping large numbers of people off the rolls entirely when the rates were reduced as happened in the Bush Administration to the phenomenon of the rise of the S Corp and LLCs as American business has tried to cope with the tax code--the number of C Corps have been declining for some time now--as well to the changing formulas for how the GDP is calculated.

And different kinds of taxes will not have the same effect as other kinds of taxes. Reducing payroll taxes for employees, for instance, has almost negligible effect on the GDP while reducing capital gains taxes with a guarantee of the rate for a reasonable period could show a considerable surge in economic activity that would likely show up in the GDP.
To really assess cause and effect of taxes, you almost have to look at each separate income generating group and their specific activity. There is a good discussion here with the summary posted:

• The U.S. has a low average effective corporate rate when measured incorrectly as a share of GDP, as Bruce does. The low rate results from the relative decline in C corporation business activity, the high U.S. statutory rate driving profits offshore, and the high U.S. marginal effective rate suppressing real investment.

• The U.S. has one of the highest statutory corporate tax rates in the world. The high statutory rate drives reported income offshore, and it is also an important component of the marginal effective tax rate faced by companies.

• The U.S. has one of the highest marginal effective corporate tax rates in the world according to some calculations, which likely reduces U.S. capital investment substantially. After all, “corporate taxes are the most harmful type of tax for economic growth,” according to the OECD.
Are U.S. Corporate Taxes Low? | Cato @ Liberty

If you go here http://www.irs.gov/pub/irs-soi/05in01aan.xls
and do a little arithmatic you will see that from 1980 through 2004 salaries and wages taxed averaged 22.3 times as much as capital gains taxed. So you're saying that less than 5% of the taxed money could account for significant gains in the GDP while 95% of the taxed money accounted for no gains. Dream on! Everything that you post is your biased personal opinion with absolutely nothing to back it up. When you reference something you don't give page or paragraph numbers so that what your referencing is easily identifiable. I won't try to convince you of anything anymore.

 

[Foxfyre]

Gentlemen, I've been watching this battle of the cut and paste with some interest and I while I applaud the detail in the debate, I think you may be spinning your wheels or comparing apples to oranges or pick your metaphor.

There are so many factors involved such as dropping large numbers of people off the rolls entirely when the rates were reduced as happened in the Bush Administration to the phenomenon of the rise of the S Corp and LLCs as American business has tried to cope with the tax code--the number of C Corps have been declining for some time now--as well to the changing formulas for how the GDP is calculated.

And different kinds of taxes will not have the same effect as other kinds of taxes. Reducing payroll taxes for employees, for instance, has almost negligible effect on the GDP while reducing capital gains taxes with a guarantee of the rate for a reasonable period could show a considerable surge in economic activity that would likely show up in the GDP.
To really assess cause and effect of taxes, you almost have to look at each separate income generating group and their specific activity. There is a good discussion here with the summary posted:

• The U.S. has a low average effective corporate rate when measured incorrectly as a share of GDP, as Bruce does. The low rate results from the relative decline in C corporation business activity, the high U.S. statutory rate driving profits offshore, and the high U.S. marginal effective rate suppressing real investment.

• The U.S. has one of the highest statutory corporate tax rates in the world. The high statutory rate drives reported income offshore, and it is also an important component of the marginal effective tax rate faced by companies.

• The U.S. has one of the highest marginal effective corporate tax rates in the world according to some calculations, which likely reduces U.S. capital investment substantially. After all, “corporate taxes are the most harmful type of tax for economic growth,” according to the OECD.
Are U.S. Corporate Taxes Low? | Cato @ Liberty

If you go here http://www.irs.gov/pub/irs-soi/05in01aan.xls
and do a little arithmatic you will see that from 1980 through 2004 salaries and wages taxed averaged 22.3 times as much as capital gains taxed. So you're saying that less than 5% of the taxed money could account for significant gains in the GDP while 95% of the taxed money accounted for no gains. Dream on! Everything that you post is your biased personal opinion with absolutely nothing to back it up. When you reference something you don't give page or paragraph numbers so that what your referencing is easily identifiable. I won't try to convince you of anything anymore.

That isn't what I said at all, and if that is what you got out of my post, you probably need a remedial reading refresher. If you can just take it out of the microeconomic mentality and look at the larger picture of cause and effect, how various tax policy affects short term and long term behavior, and all the other variables involved, you come to much different conclusions than what you have seemed to be promoting here. Much more has to be considered than just figuring how much immediate revenue can be generated by increasing X tax on X.

 

[itfitzme]

Again you guys can post all the graphs and charts and statistics you want, but you won't be able to disprove the simplest truths of the matter.

It's not a "truth of the matter" unless it actually has a real effect. There is nothing else but data, graphs of that data, and statistics that summarize the data. There isn't anything else.

I see no point in reading a table of data when we have such nice visualization tools at our fingertips. And obviously, a single data point is meaningless. It's always relative to the rest of it.

The measures of effects is an accounting of money, production, and employment (wages too.) If those change, it's a truth. If they don't change, it's not a truth. In the end, it's really that simple.

It's not a matter of disproving that tax changes cause changes in GDP. There is seldom such thing as disproving something.

Thankfully, we don't live in France and the burden of proof is on the prosecution. No one is found innocent in court. They are found "not guilty". The prosecution fails to prove guilt.

It's really a matter of failing to be able to prove it. It takes only one good piece of evidence to prove an effect. The problem is finding it.

Then we have to make sure it wasn't just random noise of caused by something else. That's why we like to have multiple instances. It makes it easier because the other effects tend to cancel out.

If we exhaust all possible manner of evidence for it, then we reject it on a high degree of confidence. That is how the scientific method works.

We could go with the "belief" method, which is that any random event proves it. That is how we do many things, personally. If I can accomplish something once, I can do it again. A single event proves it's possible.

It isn't, though, a "truth" if it doesn't actually happen. There are lots of things that seem as if they ought to be true, then in reality the magnitude of the effect is so little as to be meaningless. A "simple truth" based on no evidence is a belief.

The "simple truth" was that the earth was flat and was the center of the universe.

The problem with economics is that it isn't simple. There is no "simple economics". It's not rocket science, but isn't simple either.

Raising taxes in the right way can add money to treasury and, unless Congress and the President spend it, will reduce the national debt. Raising taxes in the wrong way can inhibit economic activity and net no difference to the national treasury or actually reduce the amount paid in.

Well, that's the hypothesis. That is actually two hypothesis, really, though they are tied together. One is that the right tax level maximizes output. The second is that it increases revenue.

That first one has like 32 possibilities of five sets of factors, raising and lowering taxes, the right way and the wrong way, increasing and decreasing economic activity, increasing and decreasing revenue, increasing and decreasing spending.

I think I will stick with just one at a time. I was following the thread of lowering taxes the right way raises economic activity. There are actually numerous taxes. The top marginal corporate rate is but one. There are all the other marginal rates, of which I've found up through 2002. Then there is income, estate, and capital gains. All this gets conflagrated by deductions and credits (loopholes?).

The Laffer curve is the second, that there is an optimal level of taxes that maximizes revenue. This isn't much different then the simple profit maximization for a company where [Profit] = [Quantity] * [Price] - [Total Cost]. And because quantity isn't inversely proportional to price, there is a peak.

And then, what really messes it up is that lowering taxes while increasing government spending is supply side and demand side at the same time. So if something does happen, we can't tell if it was one or both. It seems that is what Congress ends up doing in the end, both. I have to wonder why spend so much time fighting over it when, in the end, that's where it ends up anyways.

Raising taxes on the 'rich' in 1990 initially raised about 50 billion for the national treasury. But, it not only cost George HW Bush re-election, but it decimated the country's boat and private plane building industries at the cost of 50,000 jobs and drove large segments of our high end jewelry and metals industry off shore to places like Grand Cayman.

Oh, goody, now I have 1990 to add to 1998, 2001 and 2003.

In theory, tariffs help keep the price of domestic sugar up. Except it drove candy manufacturing to outside of the US. Yep, that's often a problem, in theory is should, if it wasn't for the secondary effects. That's why price caps and floors are generally a bad idea. It's like trying to squeeze Silly Putty in the palm of your hand, it leaks out between the fingers.

Sure, adding to the money supply should increase employment, unless unemployment is already at it's natural level in which case it just drives up prices. Sure, lowering taxes should raise GDP, except if the economy is already at full output in which case there is no place to go. Sure, increasing gov't revenue should lower the deficit, unless Congress decides, to spend more.

The resulting costs in unemployment payments and reduction in economic activity so that less money was generated for the national treasury no doubt wiped out that 50 billion and then some. PLUS, the Congress never produced promised spending cuts in return for the tax hike and spending actually increased.

Yeah, there's a problem. In the end, though, it becomes a real bitch of an issue when something would work. Then, in practice, it turns out that it doesn't because it causes some secondary issue that cancels it out. If everyone followed all the rules of driving a car then we wouldn't need car insurance. But that's a whole other problem.

There are so many such variables on all of these concepts and theories that making hard, fast suppositions on any one factor is almost impossible.

Absolutely agree. But it isn't infinite. And, all the inputs go towards one output or two output, increased economic activity and higher employment.

Yes a tax hike can generate treasury revenues and reduce the deficit IF there is no corresponding economic slow down, and IF there is no effect on employment, wages, benefits, and IF there is no significant reduction in disposable income circulated in the economy, and IF there is no hindrance to new business start ups, and IF there is no increase in spending justified by the increase in revenues.

Absolutely agree. Those damned conflagrating factors make it a tough issue. If it was easy, we wouldn't be asking the question. Still comes down to that final output. In the end, whatever the factors are, either GDP increases or it doesn't.

That last one is an interesting issue. Like OPEC should be able to control prices, and has tried, then someone goes and cheats. And there is, sometimes, how it comes to a balance. We could employ a ton of people in the military to audit the military expenditures for every outfit, but at some point, the cost of auditing just doesn't have the return. A balance gets struck where there are just enough auditors such that what they find offsets the cost of the auditors.

All of that has to be factored into the process.

Not really, either it does or it does not. A person exposed to a virus may get sick or not get sick depending on whether they were eating right, were not over-stressed, had been getting a little exercise, how much exposure they had, and if they were sleeping well, whether they were wearing a mask, if they washed their hands regularly, etc.. But in the final measure, they either got sick or they didn't get sick.

And there is absolutely no way that government collecting taxes, swallowing up a great deal of the revenue into the bloated bureaucracy, and then returning a portion is going to have anything but a negative effect in the long run and probably the short run.

That's the "theory", correctly called a hypothesis.

Still, it remains a hypothesis until 1) it can be proven deductively and 2) demonstrated empirically.

In the end, it is whether unemployment goes down while RGDP goes up.

And we can say we have a "theory"(hypothesis) of how lowering taxes increases output but it means nothing if it doesn't actually happen.

Obviously, if we reduced the government to zero, we have no contract enforcement, no money supply at all, and we are back to bartering and anarchy. Efficiency goes to shits and we've got nothing. So there is some level above zero where it is just right. And, it's reasonably apparent that if we ran all taxes up to 100%, all other things being equal, there wouldn't be any demand.

That is more like "the simple truth".


Some information on sampling error in the GDP survey. It's really low in the final estimate, about .03 for 1983.

Reliability and Accuracy of the Quarterly Estimates of GDP
Table 5.—Bias in the Quarterly Changes in GDP and Its Components
EconPapers: Measurement Error in U.S. National Income and Product Accounts: Its Nature and Impact on Forecasts

 

[itfitzme]

Again you guys can post all the graphs and charts and statistics you want, but you won't be able to disprove the simplest truths of the matter.

--
The simple theory is that tax cuts increase GDP. And, the 2003 Bush Tax cuts demonstrate it in causing the annualized quarterly percent change in RGDP to be 6.7%. 6.7% is a statistic.

That's great. 6.7% sure seems like a big number. But we should compare it to something.

In quarter two of 1978 is was 16.7%. In quarter 4 of 1980 is was 7.6% followed by 8.6% in quarter 1 of 1981. The quarters from 1983 quarter 2 through 1984 quarter 2 were 7.1% to 9.3%. Quarter 2 of 2000 was 8%.

2003q3 isn't so big by comparison. The question is, why was the 2003 Bush Tax so low?

Why start with a "simple theory" then go find something that looks like it supports it? Why not start with something that is really big, then figure out what happened then and do it again?

Maybe we should do whatever we did in those quarters.

Here is a full list.

Quarter %Chg
1971q1 11.50%
1972q1 7.30%
1972q2 9.80%
1972q4 6.80%
1973q1 10.60%
1975q3 6.90%
1976q1 9.40%
1977q2 8.20%
1977q3 7.40%
1978q2 16.70%
1980q4 7.60%
1981q1 8.60%
1983q2 9.30%
1983q3 8.10%
1983q4 8.50%
1984q1 8.00%
1984q2 7.10%
1987q4 7.00%
1996q2 7.10%
1998q4 7.10%
1999q4 7.40%
2000q2 8.00%

Why not do these?

 

[alan1]

We could if we induced businesses to expand by raising their taxes and simultaneously making them eligable for tax credits for expansion so they could get their tax losses back. Essentially the businesses are spending their own money to expand. Businesses have to expand since their competition will, outstripping them in the next recovery. Expansion requires hiring people who will create additional demand causing more hiring. See the last section of my article for a bit more detail. Reduce Unemployment with Little Price Increase

I'm going to take money away from myself, then give it back to myself. With all the extra money I give myself, I'll be rich.

Perhaps you forgot that expanding businesses causes economic expansion. Since business will be expanding using their own money rather than government supplied Keynesian money the National Debt (ND) should nominally remain the same. So in addition to reducing unemployment this activity will increase GDP, lower ND to GDP ratio, and stabilize prices over the long run since business expansion will increase future supply to meet future expanded demand. More detail of the mechanics and benefits are delineated in my article. Try reading the last section to evaluate it fully. Reduce Unemployment with Little Price Increase

I hope that you will take the time to read more than the first sentence of my posting this time.

Interestingly enough, you admit that raising taxes on them is a loss to them. You even indicated that taxing them might induce them to expand (really?). then you say to give them their own money back. Why not just let them keep the money to begin with so that they can use it as capitol for whatever their business needs? I fail to see how taking it from them in the first place, only to give it back to them, does anybody any good. the initial taking of the tax money means that money isn't in the business owners hands to use. That's like telling me you are going to take my vacuum cleaner from me, but right after I vacuum my house, you'll give it back to me.