Monday, November 28, 2005

Thinking 'Bout the Reality-Based Community

I was always struck a little weird by the leftist claim to inhabit "the reality-based community." Yesterday, I realized why. This is the same group of people who accept a basically Marxist methodology of economics and think that the solution to a recessed economy is to raise taxes. Reality-based community?

Listen, if you can't figure out why the Soviets failed and the socialism-lite nations of Western Europe have big problems with unemployment, reality is not the bottom line of your thought-life. Better to go back to the stoner thing.

28 comments:

tbmbuzz said...

One of my favorite bumper stickers:

Socialists help the poor... stay that way.

The Classic Liberal Anonymous said...

Better to go back to the stoner thing.

I always assumed they never left ... it helps explain the unexplainable.

:)

Tlaloc said...

"This is the same group of people who accept a basically Marxist methodology of economics and think that the solution to a recessed economy is to raise taxes."

Please Hunter, supply side is dead, has been ever since reganomics killed it off. You have three choices:

1) drive the economy further into debt by staying where we are or lowering taxes.
2) help the economy by helping the poor with social programs and making cuts to say our bloated military and corporate give away programs
3) drive the economy further into the ground by cutting social programs and keeping our wasteful spending on the pet projects of K street.

Somehow 2 seems kind of like the only one that actually helps the economy and also stays true to the spirit of the country. The first is inertia posing as governance and the second is the same failed plank the republicans have pushed for 20 years and that inevitably kills the economy whenever they try it.



"Listen, if you can't figure out why the Soviets failed and the socialism-lite nations of Western Europe have big problems with unemployment, reality is not the bottom line of your thought-life. Better to go back to the stoner thing."

The soviets failed in great degree due to their starting conditions. Had they been a capitalism they still would have gone under. Western Europe has high unemplotment true. Then again they get health care which a great many employed americans can't. Unemployment is not the end all and be all of a nation, Hunter. There are humanitarian concerns too.

Hunter Baker said...

Tlaloc, if you think supply-side is dead, you don't have a very good grip on the current state of economics. I think Alan and Ben could back me up in saying that supply side has become very prominent and has many new adherents. Like the former Soviet bloc, for instance.

In short, Reaganomics ain't dead and it won't be as long we're arguing about a top marginal rate of 39% vs. 36% instead of 90% versus 75% like in the pre-Reagan period.

You're a little out of your area on this one. But don't worry, I won't argue physics with you any time soon.

Tlaloc said...

"Tlaloc, if you think supply-side is dead, you don't have a very good grip on the current state of economics. I think Alan and Ben could back me up in saying that supply side has become very prominent and has many new adherents."

Okay maybe dead is an exaggeration but at the same time communism also has many new adherents but it's pretty universally recognized that it simply doesn't work. Ditto supply side.
The data simply speaks for itself.

Hunter Baker said...
This comment has been removed by a blog administrator.
Hunter Baker said...

Another commenter told me you were a master googler, T-man. I have to differ with the folks at CBBP. There is no question that a lower tax is entirely capable of taking in more revenue than a higher tax. Literally no question. We can quibble over whether a 36% rate will bring in more revenue than a 39% rate, but I think it is clear that a 32% rate will garner more than a 70% rate, particularly over the long run.

Tlaloc said...

"Another commenter told me you were a master googler, T-man."

I've certainly been called worse :)


"There is no question that a lower tax is entirely capable of taking in more revenue than a higher tax. Literally no question."

Absolutely as there is no question that all the air in the room could compress itself into the corner and leave us to asphyxiate. It absolutely could happen, but it doesn't so what difference does it make? Lower tax rates could lead to more revenue but they in pratice don't. They could lead to faster economic growth but again they don't.



"We can quibble over whether a 36% rate will bring in more revenue than a 39% rate, but I think it is clear that a 32% rate will garner more than a 70% rate, particularly over the long run."

depends on what you get in return for your 70% rate.

Hunter Baker said...

This is the part where I would normally start screaming and tearing out my chest hair because you refuse to observe reality, but I've been there before and the patch is just now back in place.

The Kennedy tax cuts of the 60's demonstrate what I'm saying. Ditto the Reagan cuts of the 80's. In both cases we got economic growth and increased revenues.

Jay D. Homnick said...

Which reminds me that I've been meaning for years to point out how Bill Clinton cleverly raised taxes just to the point where he figured that the Laffer Curve wouldn't kick in - namely 60 for you and 40 for Uncle Sam.

connie deady said...

Where do you get the term "reality based community from? As far as I can tell you are mixing up your leftists. Who uses that term. Any links would be appreciated.

Hunter Baker said...

Connie, no links are needed. After the election, "reality-based community" became a highly popular catch phrase with the Daily Kos, Moveon.org, and Michael Moore crowd. They were the "reality-based community" standing bravely against the inhabitants of "Jesusland."

tbmbuzz said...

The Kennedy tax cuts of the 60's demonstrate what I'm saying. Ditto the Reagan cuts of the 80's. In both cases we got economic growth and increased revenues.


Not to mention the FACT that after the Bush tax cuts the federal government has taken in revenue at a record pace. But as has been so aptly demonstrated in this thread, to leftists "reality" is a four-letter word, just as "profit" is.

Tlaloc said...

"The Kennedy tax cuts of the 60's demonstrate what I'm saying. Ditto the Reagan cuts of the 80's. In both cases we got economic growth and increased revenues."

Look at the source I gave you Hunter, in the 80s with a tax cut we got SLOWER growth than in the 90s with tax raise. That directly contravenes the case if supply side worked.

Tlaloc said...

"Connie, no links are needed. After the election, "reality-based community" became a highly popular catch phrase with the Daily Kos, Moveon.org, and Michael Moore crowd. They were the "reality-based community" standing bravely against the inhabitants of "Jesusland." "

Hunter you left out the part that it was the Whitehouse that first called leftists the "reality based community." The context is found here.

Tlaloc said...

"Not to mention the FACT that after the Bush tax cuts the federal government has taken in revenue at a record pace. But as has been so aptly demonstrated in this thread, to leftists "reality" is a four-letter word, just as "profit" is."

Unfortunately that Fact is based on a distortion, namely that a number of deffered payments came in substantially but also temporarily raising tax revenue. In other words it had nothing to do with a low tax rate and everything to do with choosing to compare apples to oranges.

By the way here's another nice source that covers the Kennedy, Reagan, and Clinton changes and agaion shows a drop in revenues after each tax cut and a rise in revenues by each tax hike.

source


And the thing that really makes it obvious is that the GOP tries to take both positions at once. On the one hand they laud supply side economics which faultily predict a rise in revenue and at the same time they laud Grover Norquist who openly says that lowered tax rates will lead to the lower federal revenues he wants so he can "strangle the beast."

It doesn't take a logician to see that both cases cannot be true. The data then makes it perfectly clear that supply side economics is a fairy tale told to the socially conscious to keep them placated while the fiscally conservative kill gut social programs by making them impossible to pay for.

Hunter Baker said...

Tlaloc, you've got to be kidding me on that 80's versus 90's revenue growth comparison. The 80's didn't feature a freakish bull market largely based on speculations about the internet's effect on business. In other words, the internet didn't become a household word in the 80's. That has an impact about as large as inventing the automobile.

That would be a variable you might want to control for.

Tlaloc said...

Come on, Hunter, look at the numbers. Clinton's tax hike passed in 93 and took effect for 94. 1994 saw 7% rise in individual income tax revenue (using the second source I provided). The internet by comparison was in it's infancy with Mosaic coming out in 1994. I guarantee you that the internet was not making any significant change to individual income in 1994 and yet revenue increased.

Hunter Baker said...

Still easy, T. It's well documented the economy was in recovery prior to Clinton taking office. The increase in revenue you observe is accounted for by the fact that the economy was already growing. In addition, a higher tax does take in more money immediately before people begin to adjust their decisions and behavior accordingly. You also get more money right away when you kill the golden goose and take the egg she's sitting on, plus the one growing inside!

Finally, I already told you it's unclear to me that a 36% tax would necessarily take in more than a 38% one. What I was and am sure about is that a 36% tax will take in more revenue over time than a 70% one.

tbmbuzz said...

Unfortunately that Fact is based on a distortion, namely that a number of deffered payments came in substantially but also temporarily raising tax revenue.

True perhaps over one year immediately following a tax RATE cut, but not over 3+ years to the present day. Anyway, it is absurd to decry this phenomenon as insignificant and not count it in a (typically) statist analysis.


OMB numbers demonstrate a completely different picture of the 1980's when as a result of income tax RATE cuts and tight monetary policy, the economy recovered from the worst conditions since the Great Depression. TOTAL revenues are presented in this chart, not only income tax receipts, which is what Tlaloc's source relied on exclusively, with the exception of bogus "general revenue" numbers the source shoehorned into his statist analysis.

Tlaloc said...

"Still easy, T. It's well documented the economy was in recovery prior to Clinton taking office."

Interesting how the economy just happens to be doing the opposite of what you predict every time, huh? I mean it's not like maybe there is a pattern there right? Tell you what why don't you give me one iron clad example of a tax reduction leading to increased revenues? We already know that it isn't the case for Reagan's tax cuts or Kennedy's or Bush's. So lets find one example that supports your side to put against the four on mine, 'kay?



"In addition, a higher tax does take in more money immediately before people begin to adjust their decisions and behavior accordingly. You also get more money right away when you kill the golden goose and take the egg she's sitting on, plus the one growing inside!"

Except that it did continue to increase. 1995 was greater than 1994 in individual tax income revenue. Just how long do we give Supply side economics to kick into gear?



"Finally, I already told you it's unclear to me that a 36% tax would necessarily take in more than a 38% one. What I was and am sure about is that a 36% tax will take in more revenue over time than a 70% one."

Then you are admitting that for any practical purpose supply side is false. We aren't dealing with a 70% tax rate, we are dealing with a 30-40% rate. Since you admit Supply side fails to explain reality in that range why do you bother championing it? It is at worst false and at best irrelevent. And yet it underpins half of the republican reasoning for tax cuts.

Tlaloc said...

TBMBUZZ,
your link is 404 so I can't respond to it. But if it's really from the OMB why are you linking to it on the heritage foundation website?

Tlaloc said...

Out of curiousity TBMBUZZ and Hunter,
since tax cuts lead to increased revenues why is it that after Bush's tax cuts we went from a massive budget surplus to an equally massive budget defecit? Its almost as if cutting taxes led to the government having less money. But you said that wasn't the case, so please help me understand how to resolve this contradiction...

J-Deal said...

tlaloc

Just so you know, the numbers posted by the cbbp are way out of context, you cannot compare a recession period to a robust period. Comparing a time when the #1 priority was inflation control to a time when the #1 priority was revenue expansion makes no sense. To really figure this thing out, you need to look at the hard numbers, and come out with the stats yourself.

Here's a simple chart,

http://www.cbo.gov/showdoc.cfm?index=1821&sequence=0

- I'm getting my numbers from a more complex chart, will link that at the bottom, so they may differ.-

1980 586 billion in tax reciepts,
1990 1161 billion
2000 2206 billion

if you want to find the exact numbers, you can use this system to find them.

http://www.bea.gov/bea/dn/nipaweb/TableView.asp?SelectedTable=84&FirstYear=2003&LastYear=2005&Freq=Qtr

We also need to get some premises correct. You act as if Clinton - or the period between 1990 - 2000 - was not a supply sider, he was. You act as if Clinton did not lower taxes, he did. You say Supply Side economics is dead, yet it is actually accelerating - societal spending is also accelerating, however it is this societal spending that accounts for most of the worlds deficits right now, not a lack of revenue.

And if you look more closely at the numbers, you will see some more interesting occurrences. First 1980-1983 we were at the end of one of the worst recessions this country has experienced. To compare numbers from the early 80's to numbers in the early 90's is silly. -yet you will see by the numbers, even taking this into account, tax revenues skyrocketed after the Reagan tax cuts and the GDP affect was even greater. When Reagan raised taxes, revenues petered off once again - however this was a payroll increase, so that is not a fair comparison by me.

You will also see that when Bush Sr. Raised taxes, there was no upswing in revenues. You will see when Clinton raised taxes there was only a minor upswing, however, it hampered growth... When Clinton lowered taxes, revenues stayed as constant as at the higher rates, but GDP skyrocketed.

You will also see that after Bush Jr. lowered taxes, tax revenues skyrocketed.

If you do not believe any of this, you can look up just about any hard number you can imagine here.

http://www.bea.gov/bea/dn/nipaweb/SelectTable.asp?Selected=N#S1

You will need to have some basic knowledge on economics to know what you are reading but from reading your previous comments, I think you will get a knack for it pretty quickly.

Also while I am here, I should reply to these - I don’t comment or visit the site all that often.

“1) drive the economy further into debt by staying where we are or lowering taxes.”

Revenues are at record highs right now, it’s spending which has caused the debt we are experiencing.

“2) help the economy by helping the poor with social programs and making cuts to say our bloated military and corporate give away programs.”

I agree with what you state here, however the argument happens when we decide “how to help the poor.” Also this is really irrelevant to a supply side argument. Standard of living is up, real wages are up, government expenditures and revenue are at record levels, spending on social services is at a record level. We are at full employment right now and the unemployment level is at 5% - we most likely have between a 100k and 300k worker shortage as of this month, the new numbers comes out Friday at 5:30AM Pacific Time.

“3) drive the economy further into the ground by cutting social programs and keeping our wasteful spending on the pet projects of K street.”

Once again, I have no clue what this has to do with a supply side argument. Are you thinking we are running out of money in America? Do you think we have been cutting social programs? I’m really not sure where you are coming from on this. If you think either of the previous things I just stated, look up the fiscal budget for last year, you will see revenues are at record levels, and social spending are also at record levels.

If you think we are to deep in debt - I am a complete deficit hawk btw, I believe in a balanced budget amendment... But if you think this, you should know that the US debt burden is only about 60-70%, that’s not even historically high, we were at 150% in the 40's. Canada is at 100%, Italy at 110% Japan at 160%. As far as Westernized countries go, I actually can’t find a major country that has a lower burden then us - I only looked up about 10 off the top of my head though.

Most believe that America can handle a 300% debt burden, while most other major countries could handle a 200% burden. The difference is do to the strength of the American Dollar and the constant growth rate of the American economy. While most Western countries are experiencing stagnant growth, America just keeps on chugging away. We are at 11 straight quarters of 3% growth, one of the longest sustained periods of growth in our history.

Well that’s more than enough talk from me. Check out the bea, they have just about every macro economic number you could ask for.

The BLS is also good for employment numbers.

http://www.bls.gov/home.htm

well hope that helps some.

J-Deal

J-Deal said...

"Out of curiousity TBMBUZZ and Hunter,
since tax cuts lead to increased revenues why is it that after Bush's tax cuts we went from a massive budget surplus to an equally massive budget defecit?"

Your premise is wrong here. After the Bush tax cuts, revenues went down for one year - this was due to them being retroactive - then increased, the increased debt, came from increased spending.

To understand this argument, you should take it to extremes, and find the margins. If you believe that governments sole purpose is revenue expasion - something I do not beleieve - think of it this way.

Would the government collect more taxes at a 100% rate or a 10% rate. When you take it to extremes, it becomes obvious. the 10% rate is a no brainer.

Now you have to find the margins, this is a bit harder to do. But once you understand the premise you can start coming to conclusions.

Tlaloc said...

J-deal,
I appreciate the sources you give but there's a small problem in that they don't appear to use a constant dollar value and instead are reporting the revenues in the dollar values for that year. Consequently it looks like revenue increased from say 1981 to 1982 but when you calculate both using a fixed dollar amount the revenue actually dropped. Without using a fixed dollar value we can't make accurate year to year comparisons. For this reason I'm not going to address most of the rest of that post.



"If you think we are to deep in debt - I am a complete deficit hawk btw, I believe in a balanced budget amendment... But if you think this, you should know that the US debt burden is only about 60-70%, that’s not even historically high, we were at 150% in the 40's. Canada is at 100%, Italy at 110% Japan at 160%. As far as Westernized countries go, I actually can’t find a major country that has a lower burden then us - I only looked up about 10 off the top of my head though"

But is it the debt percentage or the actual number that matters? As I see it the percentage may be nice but given that we are such an enormous economy it hides the fact that our debt is astronomical. It might seem that our huge economy could handle the same percentage of debt as a smaller leaner economy but personally I have some severe doubts on that score. In the case of a severe financial collapse nobody is going to care that our debt burden used to be only 60%, they are going to care that it's in the multiple trillions of dollars.

(by the way I think the UK may have a substantially lower debt burden. These were the numbers I found:
our gdp is 12 trillion and our debt is 8 trillion
UK GDP is 1.8 trillion and their debt is ~800 million)

Tlaloc said...

"Your premise is wrong here. After the Bush tax cuts, revenues went down for one year - this was due to them being retroactive - then increased, the increased debt, came from increased spending."

Here's my problem with that argument: we went from a 236 billion dollar surplus in 2000 to a -375 billion deficit in 2003. In order for that to be due entirely to spending increases spedning would have had to increase by a good 600 billion in just 4 years. In fact more than 600 billion since you are saying revenue actually climbed during that period. But our spending climbed far less than that (370 billion). Somehow more than 230 billion dollars just vanished.

here's what I'm using for figures by the way:

http://www.gpoaccess.gov/usbudget/fy05/sheets/hist01z1.xls

(also according to that site revenues did not go up between 2000 and 2003). I can't tell for sure that they are using a constant dollar equivilency, if not we'd have to get one of those tables and do a bit of calculation.



"Would the government collect more taxes at a 100% rate or a 10% rate. When you take it to extremes, it becomes obvious. the 10% rate is a no brainer."

Well if you want to take it to extremes you'd say a 100% rate or a 0% rate. That's the most extreme right? And the 100% rate obviously wins.

tbmbuzz said...

This would be a nice place for Alan Reynolds to weigh in and give all of us econo-amateurs some lessons. (I have a feeling that he would object mostly to Tlaloc's analysis). :)