Economics Quiz of the Day

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summers test.jpgMy colleague Sherle Schwenninger occasionally prods our team with a provocative “quiz of the day”. I thought I’d share this interesting one.

Gang:
Which brilliant economist in early 2008 wrote the following?
“Fiscal stimulus, to be maximally effective, must be clearly and credibly temporary–with no significant adverse impact on the deficit for more than a year or so after implementation. Otherwise it risks being counterproductive by raising the spectre of enlarged future deficits pushing up longer term interest rates and undermining confidence and longer term growth prospects…
How large should a program be? I depends on what else is done to help the economy…But a $50-$74bn package implemented over two to three quarters would provide about 1 percent of gross domestic product in stimulus over the period of its implementation….This seems large enough to take some burden off monetary policy and yet unlikely, if properly implemented, to risk substantial damage if the economy proves stronger than expected.”
The winner of the Quiz of the Day will be announced at 5 PM.
Sherle

Mankiw? Hubbard? Geithner?
No, Larry Summers.
The quote is from Lawrence Summers’ Financial Times piece on January 6, 2008, entitled “Why America Must Have A Fiscal Stimulus.”
A couple of things jump out at me. First of all, George Soros has often said that if he is right that a “super bubble” burst during the recent financial crisis then the tools and approach deployed by Summers and Geithner — who approached the problem conventionally — would fail.
Secondly, the level of stimulus to move the US economy now seems pathetically trivial compared to the low-economic multiplier drain of $100 billion per year spent on Afghanistan.
— Steve Clemons

Comments

40 comments on “Economics Quiz of the Day

  1. questions says:

    People on the right don’t like the pub plan either!
    http://tpmdc.talkingpointsmemo.com/2010/09/pledge-to-america-trashed-by-unlikely-gopers-top-5-critiques-of-new-republican-agenda.php?ref=fpa
    It just isn’t much of a hit, but it is taking hits! Can you see the deflation of the Republican balloon? At least for now, til the dems manage to re-inflate it somehow…..
    And why is it that the Republicans (and some posters here) are so logophobic? 21 pages and we’re supposed to have a national blueprint?!! Takes more words than that!

    Reply

  2. nadine says:

    “”Their policy agenda is detailed and specific — a decision they will almost certainly come to regret. Because when you get past the adjectives and soaring language, the talk of inalienable rights and constitutional guarantees, you’re left with a set of hard promises that will increase the deficit by trillions of dollars, take health-care insurance away from tens of millions of people, create a level of policy uncertainty businesses have never previously known, and suck demand out of an economy that’s already got too little of it.” (Ezra Klein)
    That’s unintentionally hilarious, questions. Does Ezra really not realize that it’s a trifle late in the day for the Democrats to pose as people who care about the Federal deficits or a climate of business uncertainty?

    Reply

  3. questions says:

    And here’s a WaPo play by play on the foolishness and uselessness of the Repub playbook….
    http://www.washingtonpost.com/wp-dyn/content/article/2010/09/22/AR2010092206707.html?hpid=topnews
    It does nothing to help, the pubs have no power to do much anyway, and what they might do makes things worse, not better.
    If the media would pick up on these points and run with them, if the candidates were asked very specific questions, that might actually help!!!
    Also, note to Mr. Zucker…whatever it is of Facebook fame — 100 million bucks to Newark schools looks nice in the face of the movie’s coming out, but what Newark and all public schools really need is dedicated funding over time that comes from sustainable communities and jobs and a generation or three of successful lives. A one-time gift, a new school building, a new principal here or there doesn’t cut it. Those are nice things, but what the schools really need is stable families. What families really need is jobs and stable institutions. The way we get stuff like that is to have fewer billionaires running around and a more even distribution of wealth.
    You want to help Newark, a city to which you have no connection? Do what Corey did — move into a crappy apartment, live with the people, set up some Facebook factories or whatever, hire people, pay them well enough that they can manage the kids they have. People will build this stuff if there are any resources in the community.
    But resources have to stream, they can’t be one-time only infusions. They need to be a stable part of the background noise.
    Come to think of it, Afgh. needs this kind of stability too!
    How much do we bet that Z’s money goes the way of cash infusions to Iraq and Afgh?
    Some showy and very incomplete shit….
    Philanthropy is problematic at best.

    Reply

  4. questions says:

    Ezra Klein on the Repub plan to do… well, something!
    http://voices.washingtonpost.com/ezra-klein/2010/09/the_gops_bad_idea.html?hpid=topnews
    “Their policy agenda is detailed and specific — a decision they will almost certainly come to regret. Because when you get past the adjectives and soaring language, the talk of inalienable rights and constitutional guarantees, you’re left with a set of hard promises that will increase the deficit by trillions of dollars, take health-care insurance away from tens of millions of people, create a level of policy uncertainty businesses have never previously known, and suck demand out of an economy that’s already got too little of it.
    You’re also left with a difficult question: What, exactly, does the Republican Party believe? The document speaks constantly and eloquently of the dangers of debt — but offers a raft of proposals that would sharply increase it. It says, in one paragraph, that the Republican Party will commit itself to “greater liberty” and then, in the next, that it will protect “traditional marriage.” It says that “small business must have certainty that the rules won’t change every few months” and then promises to change all the rules that the Obama administration has passed in recent months. It is a document with a clear theory of what has gone wrong — debt, policy uncertainty, and too much government — and a solid promise to make most of it worse.
    Take the deficit. Perhaps the two most consequential policies in the proposal are the full extension of the Bush tax cuts and the full repeal of the health-care law. The first would increase the deficit by more than $4 trillion over the next 10 years, and many trillions of dollars more after that. The second would increase the deficit by more than $100 billion over the next 10 years, and many trillions of dollars more after that. Nothing in the document comes close to paying for these two proposals, and the authors know it: The document never says that the policy proposals it offers will ultimately reduces the deficit.”
    ************
    The whole thing is worth a read.
    ALSO,
    from kos frontpage:
    “If Democrats do end up prevailing in November, holding onto both the House and the Senate, part of the reason will almost certainly be that the GOP peaked too early. Conventional wisdom is that people like a winner, and according to that wisdom, the GOP’s lead in August polling should have provided them a boost heading into September. But what may actually be happening is that as the possibility of GOP victory became plausible, voters began thinking about this election as a choice rather than a referendum.”
    http://www.dailykos.com/storyonly/2010/9/22/904266/-GOP-business-lobbyist-unsure-of-victory,-America-agrees
    Here’s kos picking up on the peaked-too-early thing I noted a couple of days ago or whenever it was.
    The dems aren’t out of it. The generic congr. ballot shows some signs of dem “dominance” in the 47-46 range! Individual races will be determined largely by individual and local issues.
    O’Donnell’s witchcraftery seems to be right up there with concern regarding Harry Potter!
    Rand Paul is being bought out by the neo-cons and is betraying his libertarian roots.
    There’s some seriously missing intellect on the right lately, and this candidate recruitment issue will plague them for a while. There are perhaps some smarter reasons for slices of conservatism, but kinda like the pissed off law prof guy, the right really doesn’t have much of a clue right now. What it really has is status anxiety.
    How long can you ride status anxiety before people see it for what it is?
    The answer to this question will determine much of the future of the pub party.

    Reply

  5. questions says:

    Not sure what you mean…..
    But here’s a little youtube thing….
    http://www.youtube.com/watch?v=8aRor905cCw
    “I wanna be a billionaire so fricking bad
    Buy all of the things I never had
    Uh, I wanna be on the cover of Forbes magazine
    Smiling next to Oprah and the Queen”
    Warning, hip hop — so if you can’t cope, don’t click!

    Reply

  6. nadine says:

    questions, now who is being Manichean?

    Reply

  7. questions says:

    drew, I am so glad you do such important things and you don’t need:
    currency regulation
    health and safety inspections
    SoSec or Medicare or Medicaid
    Unemployment insurance
    Utility regulation
    Banking regulation/deposit insurance
    Product safety
    Medical research
    Student loans
    Traffic laws
    or any of the other myriad things the government does for us all.
    Definitely it’s the case that non-regulated industry thrives all the way to the bailout!
    I, however, would be happier with higher taxes and better services. But I’ve never made or built or paid or done anything at all! I don’t direct or plan or decide. I sit in a basement all the day long.

    Reply

  8. questions says:

    Paul, no, not panicked at all. I have no power over US policy in the least, and without power to do or not do, there’s no point in panicking. As a matter of fact, there’s actually never a point in panicking. I’ve read lots of taoism, too!
    I am pretty well aware that the status quo is as much a policy choice as is action.
    And I’m well aware that changing the status quo can give us far more trouble than keeping it sometimes.
    And I’m well aware that I don’t actually make policy decisions for the US government. I post ramblings of one sort or another, domestic bits I find interesting or part of a pattern worth noting, something like “book reviews” of whatever has caught my eye that has some policy relevance or is just worth noting, items that seem to impact electoral or policy-making concerns. I link to things that seem worth clicking on.
    In general, the things I link to or post about seem to me at any rate to be connected to broader concerns. The lawyer guy for example seems to speak to the concerns Obama is facing as the US deals with tax rates. It’s actually a widely held set of views this guy has, and that he speaks for a particular slice of US political culture seems to me to be significant. He is an instantiation of a type we have to contend with.
    To the extent that I advocate action, or action through inaction, or status quo maintenance as action, I do so because there seems to me to be a valid argument for it.
    Occasionally my views seem to be in agreement with those of people whom I respect, and occasionally I get things way way wrong. It’s an average track record, I’m guessing, for an amateur anonymous poster on a small blog in the middle of Nowheretown, Cyberspace.
    So if I think there’s a serious issue with, say, defunding Israel, destabilizing alliances, immediate and full withdrawal from Afghanistan or whatever, it’s because I actually think that to be the case. If I don’t have an entirely concrete alternative for these issues, it might be because I don’t really know what to do, or because I haven’t taken it upon myself to lobby to become Secy of State or an adviser to the pres or whatever.
    If I argue that lobbying doesn’t work the way people around here claim, it’s because I’ve read scholarship that suggests this point. If I’m anti-CT, it’s because I’ve found what I take to be good arguments for the case I’m making.
    None of this seems so terrible to me.
    If you dislike the notebook stuff I post, you have two easy courses of action — don’t read it, or ask Steve to ask me to stop posting it. I will unfavorite the site the second Steve suggests I ought to find a different space. I don’t even need to be banned, I’d do it myself.
    If you want to make some kind of argument that what I post is just not worth the electrons, or that somehow I’m doing horrendous damage to the universe, then make that argument. I don’t think you have much of a case on either front. If it’s wasteful, don’t read it, and if it’s truly dangerous — well, what are the chances.
    If what you’re trying to do is analyze me, I’ll save you the labor. What I really care about is good public policy, and what I know of process and structure that intervenes with good public policy I write about.
    I seem to have very strong structuralist views, enough so that I think I need to sit down with some Levi-Strauss and get a handle on what seems automatic to me at this point. I have read a fair amount about process issues at this point, so that comes to the fore as well.
    Thus, I may well have a policy preference that I see no structural space for, or I may have a structural preference that I see no policy preference will ever match.
    My sense of structure and process makes me look very differently at lobbying, at IR, at just about everything in the political arena from how activists look at things and from how polemicists look at things and from how journalists look at things. Because I separate policy preferences from what I think is either possible or wise (given the structures of backlashes) I suppose you and others will continue with the “can’t make mind up” “wishy washy” meme that y’all have so much fun tossing around.
    Enjoy tossing!

    Reply

  9. drew says:

    Well, there is an astonishing economic illiteracy at work here. If
    the government takes more money, private enterprise will grow?
    Anyway, just a small quiz: anyone here ever made a payroll and
    built a company?
    Anyone ever worked for someone who invented something,
    made a payroll, and built a company?
    In short, has anyone ever made something out of nothing, at the
    expense of every other pressing priority in his or her life, and
    been pleased that the government made it easier by taking more
    of their cash flow?
    Companies employ people. New companies employ more
    people, old companies just try to get rid of them.
    The worst destruction of financial capital in American history did
    not occur in 1929. It occurred in 1937. We are staring at a
    government that would emulate the strangulated conditions that
    gave us 1937, and say that opponents were “selfish.” It’s like a
    freshman dorm argument about whether Che was a hero or a
    murderous thug.
    Okay, back to work for me.

    Reply

  10. Paul Norheim says:

    Ok Questions,
    I guess my reaction (in my Sept 21, 1:24PM post) was a bit too
    harsh. But if you’d read my comment, it referred to much more
    than your take on Afghanistan.
    When you don’t use this blog as your personal note book, my
    impression is that you frequently go into panic mode and
    function as some sort of geopolitical or domestic alarm bell
    whenever someone suggests something that deviates
    significantly from the current state of affairs. For some reason
    you often react as if the unintended and unknown
    consequences of a significant change are ALWAYS worse then
    the visible horror-show often unfolding in some part of the
    world as a result of status quo.
    I have no idea why.
    You said in your response: “When there are compelling
    arguments on both sides of a horrible issue, I personally don’t
    think it’s my job to choose one side rather than another. I’d
    prefer to highlight the tensions and risks.”
    That sounds fine. But what often irritates me, Questions, is that
    on a functional level (i.e. by sounding as the shrill alarm bell
    warning against changes), most of the time you too actually
    *choose one side*: and that is the side of whatever may be the
    current status quo. Whether you intend to, or not.
    I would assume that the implications of your habitual attitude
    on these threads would concern you both on a philosophical
    and a political level. While those who explicitly choose one side
    on a given issue often tend to conceal the unintended
    consequences of their choices, you highlight the risks of every
    position to conceal that your “no-position”- position has the
    unintended consequence of being a de facto defense of status
    quo.
    Summa summarum: you too usually choose one side rather
    than another.
    And for your information: Status quo often happens to be
    dumb, un-bookish, and a result of brutish force and
    randomness – and not a result of delicate balance of power, or
    the unfathomably complex wisdom of myriads of individual
    choices wonderfully resulting in some equilibrium that no one
    should mess with.
    So I would suggest that you stop accusing those who explicitly
    choose one position instead of the opposite position, of being
    anti-intellectual or ignoring the consequences. Believe it or
    not, but occasionally those who concentrate their energies on
    answering questions – imperfect as those answers may be –
    are not less intelligent than those who pose the questions.
    Some of them may even have read Plato.

    Reply

  11. questions says:

    I’m obsessed today, I guess!
    My favorite comment thus far is this one:
    ” Tim B said…
    A reality check here. My family’s situation is apparently roughly analogous to the good professor’s. I won’t fudge the numbers through lack of precision. My wife any I gross $330K. Our deductions include mortgage interest of $45K/yr, property taxes of $12K/yr, state taxes of $6K/year, $20K/yr into our 401k’s and our two personal exemptions. That’s it, no fancy tax dodges, as basic as it gets. I ran the actual numbers based on the proposed end of the high income tax cuts. It will cost us $47 additional taxes. As for feeling the pressure? We 100% support my son and his daughter, including $8K tuition as well as provide my daughter, her husband and their son with housing in the D.C. suburbs. We are left with about $7K/month in disposable income. It is not a difficult life. The reality is that anyone that complains of the minimal tax pinch on $250K earning families is either so hopelessly financially incompetent that they need to turn they’re financial matters over to a guardian, are completely clueless as to life’s realities, are authoring a dishonest partisan screed, or (my best guess in the professor’s case) all three.”
    http://delong.typepad.com/sdj/2010/09/todd-henderson-we-are-the-super-rich.html
    9:22 a.m., 9/21/10 — no direct link

    Reply

  12. questions says:

    He claims his wife makes what a firefighter might make — I looked that up….
    40-90k per year in Chicago — top 10% only make the top end salary.
    She’s a pediatric oncologist at the U of C hospital.
    A quick google search suggests just under 200,000 for that job description. But that’s a median, and maybe she’s at a quarter to half the median for now.
    It’s all kind of interesting.

    Reply

  13. questions says:

    http://delong.typepad.com/sdj/2010/09/todd-henderson-we-are-the-super-rich.html
    Again, more commentary on this (and sorry for the double-posting — the site is acting up again and again….)
    We really do have to figure out what obligation there is.
    The way he defends himself in the back and forth needs to be thought through carefully.
    Worth reading and thinking about.

    Reply

  14. questions says:

    More on the angry law prof…
    http://www.businessinsider.com/todd-henderson-rich-salary
    The comments are really interesting, especially the 9/22 1:40 am comment that dug into public records regarding the deed for their house.
    We need so much more discussion about class, obligation, taxation, ownership, what “wealthy” means, who should do what for whom, why we’ve had so much divestment from public goods that people feel a deep need for private schools, private yards, insanely expensive housing.
    We need to deal with the loss of status issues — if a lawyer and a doctor marriage can’t make it, what does that say for a night watchman and a homemaker? And why would the nightwatchman vote for the lawyer/doctor couple’s good and against his own? And what does it say, all the more, for someone who works part time at Walmart?
    These people got caught up in the real estate bubble and the refinancing and it looks like they are underwater.
    Which means that they really are broke.
    Which means that there’s something really odd going on in our social meanings.
    Seriously, broke on 400 grand a year or so. Broke.
    And they are, in a sense.

    Reply

  15. nadine says:

    Summers jumped. If he stayed longer, he would have lost his tenured slot at Harvard. He had told Obama a year ago that he was likely to leave by this time.

    Reply

  16. nadine says:

    “But in this case, I am not talking about taxing the consumption of the wealthy. I am talking about transferring some of their income directly to a population that will spend an even higher percentage of it than the wealthy would.”
    No, you’re not. You’re talking about transfering their income to the FEDERAL GOVERNMENT, which will fund itself with it. You’re talking about jacking up the tax rates on dividends, estates, and top marginal rates. Poor people won’t see more income. More government doesn’t make poor people richer. As current poverty figures are already showing, poor people will see less income.
    “Rather, we should have laws that require or incentivize firms to readjust their salary structures, Rob Peter to pay Paul, and put more of their employment and bonus costs into hiring more people and paying higher salaries to people at the lower end of their salary scale in a way that doesn’t increase the overall level of those costs. This will not lead to any talent drain at the top if it is a national across-the-board policy. ”
    It seems to have escaped your notice that businesses and talent can move out of country to places that will not impose massive regulation on their salary structure and let them keep the fruit of their labor. I’m surprised we have any manufacturing at all left in this country. Our corporate tax rates are the highest in the developed world, and unlike the countries with a VAT, we force companies to add the taxes into the prices of their export goods.
    “What you say about the connection between personal wealth and company wealth in small businesses is true. But very few small business owners are in that top 1% of uber-wealthy that I was talking about.”
    We’re not talking about 1% for the tax hikes, but $250,000. This net will catch many, many small business owners who are far from rich, thus further destroying the engine of job creation. You claim to want more consumers? CREATE MORE JOBS

    Reply

  17. questions says:

    Here’s a (I hope) working link for the sad U of C law prof and dr. wife couple who seem to have a very hard time getting by on their over 250 grand combined salary (one poster figured it must be a 400,000.00 dollar income at least).
    http://teachers.net/mentors/politics/topic11503/9.20.10.21.53.45.html
    Kos has a diary up dealing with some of this.
    http://www.dailykos.com/story/2010/9/22/904136/-$455K-Law-Professor-Complains-About-Tax-Increase-Please.
    The way we spend whatever we have, the way we feel broke and vulnerable no matter what, the way that someone can be barely holding on at 400,000 while someone else does ok at 26,000 is pretty amazing.
    They have private schools, student loans, couple of cars, super pricey home they fixed up, day care, taxes…..
    Wow.

    Reply

  18. Dan Kervick says:

    Yes, questions, you’re right. It was actually reported back in April that Summers would leave around the time of the midterms.
    Summers was making a fortune in private investments in the years just prior to joining the executive branch. He’s bleeding money by working for the government.

    Reply

  19. Dan Kervick says:

    Well explain your mathematics to me, Nadine, because here’s how it looks to me. For any quantity of income X, if the current holders of X would save 10% of X and spend 90% of X; while the rest of the population, should they receive a transfer X, would save 5% of X and spend 95% of X; then transferring X from its current holders to the rest of the population will increase the total amount of national consumption by .05X. That follows no matter what percentage of national income X represents, and no matter what percentage of national consumption is produced by the current holders of X.
    What you are talking about with the luxury tax is a different issue. If you tax any kind of consumption, you can expect some drop in that form of consumption. And it is certainly possible that the losses in economic activity from the drop in consumption will exceed the tax revenues pulled in. Whether that is good policy or not depends on whether decreasing the consumption is more important than the tax revenue (cigarettes), or not.
    But in this case, I am not talking about taxing the consumption of the wealthy. I am talking about transferring some of their income directly to a population that will spend an even higher percentage of it than the wealthy would. Also note that I said we should target the top 1%, not the top 10% you used in your example.
    Personally, to the extent the annual increase in the wealth of the wealthy is due to income in the form of salaries, dividends, bonuses etc., I think it is inefficient to accomplish all of this transfer via taxation. Rather, we should have laws that require or incentivize firms to readjust their salary structures, Rob Peter to pay Paul, and put more of their employment and bonus costs into hiring more people and paying higher salaries to people at the lower end of their salary scale in a way that doesn’t increase the overall level of those costs. This will not lead to any talent drain at the top if it is a national across-the-board policy. Those at the top will have few other options, and will just have to suck it up and keep working.
    The credit-side approach to economic recovery that seems so in vogue these days is based on the notion that banks can eventually be induced to lend out lots of cheap money to businesses, who will then use that money to expand production, hire more workers, build up inventories and then sit around waiting in their shining and expanded new shops for the customers to appear. But the way I see it, the reason credit is tight is that it is very difficult for most businesses in the current environment to demonstrate to banks that they have solid plans for expanding their businesses, given that there are so few customers willing to spend money. Banks can do better with the money by investing it somewhere safer. And it turns out many businesses are also investing their extra cash in safe locations, rather than in more jobs and expanded capacity.
    Without divulging to much, it is part of my job to analyze and report on sales figures throughout a major vendor-wholesaler-customer chain in the book industry. And it is no mystery why sales throughout that chain have been hit: retail sales fell off a cliff at the end of 2008 and throughout 2009, and have bounced back only slightly. And now this year, purchases that are affected by state budgets have suffered the delayed reaction hit.
    Business is bad because there are no customers. The country needs more customers.
    And we know why there are no customers. Many people are out of work altogether; others have seen their hours slashed and their incomes stagnate or decline; many who have jobs have been unsure whether they will have a job next month or next week; many have seen a terrifying loss in personal wealth and retirement savings; many are digging out of debt. The best thing we could do for the economy is to pump money directly into their pockets.
    What you say about the connection between personal wealth and company wealth in small businesses is true. But very few small business owners are in that top 1% of uber-wealthy that I was talking about.

    Reply

  20. nadine says:

    Dan, as usual you are confusing percentages with absolute amounts. The poor do spend a far larger percentage of their income than do the wealthy.
    However, the top 10% of earners account for 37% of consumer spending in this country, which is why the last luxury tax that was passed in 1991 was repealed – the costs associated with the blue collar layoffs it engendered exceeded the additional revenue it brought in. (Remember? It single-handedly destroyed the market for private planes for a while)
    Moreover, the distinction between personal wealth and corporate assets may make sense for large businesses. However, it is far less distinct for the engine of job growth, small business, where owners generally self-fund business expansion, especially when credit is tight, as it is now.
    Moreover, all businesses, large and small, need predictability in their costs, which is precisely what this Congress has denied them. There’s not a business in this country that can predict next years taxes and labor costs. And you don’t get why businesses are not hiring.

    Reply

  21. questions says:

    http://www.latimes.com/business/la-fi-summers-20100922,0,6925925.story
    This piece makes it seem overdetermined and not related to things it’s unrelated to….
    He had already planned to leave after one year, was persuaded to stay on.
    Harvard has a 2-year leave policy.
    It’s common for people to leave admins at this point.

    Reply

  22. Don Bacon says:

    Quiz: When will Sherle drop the other shoe?

    Reply

  23. Dan Kervick says:

    Another scalp for Steve Clemons? Or just a coincidence? America, you be the judge!

    Reply

  24. Dan Kervick says:

    Excellent news about Summers. Jumped? Pushed? Half-and-half?

    Reply

  25. nadine says:

    Larry Summers is leaving at the end of the year. Any one care to give the over/under for how long Tim Geitner lasts?
    Last one out, please turn off the lights.

    Reply

  26. John Waring says:

    Please read, “Fearing soaring deficits, many analysts favor letting Bush tax cuts expire.” We could not afford the cuts in the first place, and can’t afford them now.
    http://www.washingtonpost.com/wp-dyn/content/article/2010/09/20/AR2010092005699.html

    Reply

  27. questions says:

    Paul, I couldn’t even stomach reading your whole post.
    The level of parody or seriousness aside, fucking read some people who disagree with you regarding Afghanistan (Steve Coll) and some people who agree with you regarding Afghanistan (Steve Clemons) and realize that good smart thinkers with a lot of inside baseball knowledge actually disagree in significant ways about what to do regarding Afghanistan.
    When there are compelling arguments on both sides of a horrible issue, I personally don’t think it’s my job to choose one side rather than another. I’d prefer to highlight the tensions and risks.
    So, as I occasionally write here to people who bring up this incredibly crappy point, give me a fucking break.
    AND
    Were I the one in charge of advising Obama, I’d make a policy pronouncement. That would be my job. But since I’m anonymous set of electrons in cyberspace, I don’t mind showing the various sides of things and the lines of risk in pretty much everything we could do in Afgh.
    The fact is that we are in a fucking pickle barrel and we’re all drowning in brine, but getting out of the barrel just drops us down the waterfall with no protection.
    Choose as you like. Simplify as you need to. De-emphasize the set of risks you want so that you can soothe your soul by having the “right” point of view.
    Fine by me.
    *********
    And by the way, the record on tax structures is far clearer than that on what to do about Afghanistan. Plenty o’ data, plenty o’ good arguments for increasing rates at the top especially, but all the way through actually. And I have yet to read even one good argument on the other side.
    Even Mr. Greenspan himself wants to get rid of the Bush cuts.
    Find me that consensus on Afghanistan, find me a cogent set of arguments that has nothing on the other side, and I, too, will be there.
    What I’m not going to do, though, is take the easy, fake, conscience-soothing way out and say geez, it’s so easy to know what to do, and there ain’t nothing bad gonna happen when we do it.
    I don’t see any kind of consensus like that among some pretty smart people whose work I respect.

    Reply

  28. Paul Norheim says:

    Questions,
    am I mistaken, or are you really suggesting not to extend the
    Bush tax cut for the wealthy?
    Do I have to remind you, of all people, of the myriad of
    unintended consequences if that happened? Wouldn’t you
    agree that this stuff is way too complex to suggest a deviation
    from status quo? Wouldn’t it be wiser if everybody read up on a
    ton of books on this topic during the next decade, instead of
    messing with an already fragile and complex tax system?
    Oh yes, I know, the current distribution of wealth isn’t fair, and
    has a lot of nasty side effects. It may even be bad for the
    economy. But remember all the nasty side effects of changing
    it – on the whole spectrum from known knowns to unknown
    unknowns!
    This is scary stuff, Questions. The outcome of a change
    wouldn’t be fair for everybody either… all sorts of things could
    happen…
    Allow me to remind you, Questions, that you have been a
    staunch defender of status quo, complexity-paralysis, and
    perpetual read-up-ness on a large range of issues, from the
    war in Afghanistan, the oh so fragile Middle East power
    balance, US choice of allies in the ME, and how the oh so
    complex lobby system works in US politics, to issues like how
    to deal with the criminals in the Bush administration who
    mislead the American people into war with Iraq, legalized
    torture, etc. and a long list of other issues.
    I’m disappointed that you seem to sympathize with those
    simplistic and anti-intellectual nuts who suggest a change with
    so many unknown unknowns in the middle of an economic
    crisis.
    Why don’t you stick to your favorite recipe – the one you offer
    us on almost every single issue and every thread – of political
    inertia combined with vigorous data analysis, stream of
    consciousness reflexions, and read ups on the classics?
    Hopey changey? I can assure you that I am extremely hopey
    changey and exited too, Questions – ahem, sort of, in an
    incremental way. And my biggest hope is that you will realize
    that ending the tax cuts for the wealthiest 2% of Americans
    would be a really really dangerous path, and return to your
    habitual, admittedly uncomfortable, but temporarily risk-free
    state of paralysis.

    Reply

  29. JohnH says:

    Been there, done that–cutting taxes on the wealthy so that they can create jobs…in China. What an economic strategy!

    Reply

  30. Kathleen Grasso Andersen says:

    As usual, I disagree with the CW on tax cuts for the wealthy increasing jobs…just the opposite….when tax rates are high, it is an incentive for business to stay fully employed, equiped, modernized, etc. because it’s better to invest in your own company than send money to D.C. When tax rates are low, businesses become fixated on the bottom line and we get downsizing, outsourcing.
    Look at the economy under FDR and then under Reagan after he dismantled the qraduated income tax and lowered the top rate from 97% to 38%, while RAISING the bottom rate from 10% to 15%…that’s what brought us the new class of people called the homeless.
    I think the only way to stimulate the economy is to institute a “Trickle Up” policy…Tax cuts from the bottom up is the way to go.
    The standard deduction has not been raised since Reagan…no one can live on $5,500/year and no one should be required to pay taxes until they’ve earned a livalbe income. Further, just as Congress gives itself an annual automatic 10%cost of living increase, taxpayers should also get a COL increae by having the standard deduction be indexed to the COL…that will give minimum wage earners enough to cover their basic needs without needing public assitance.
    I think Demz missed the boat on this issue…they’ve allowed Repugs to commandeer the whole issue of tax cuts, so that they are synonymous with tax cuts for the rich only…Demz never propose lowering the bottom rate….why? This is stupid, unimaginative, tired shop worn memes, that get us nowhere but deeper in debt.

    Reply

  31. questions says:

    “For the investor class so fond of perpetuating the myth of Republicans’ superior economic stewardship, the collapse of the stock marketing during the Bush recession must be particularly galling. The Standard & Poor’s 500 spiraled down at annual rate of 5.6% during Bush’s time in the Oval Office, a disaster even worse than Richard Nixon’s abysmal 4.0% yearly decline. (Only Herbert Hoover’s cataclysmic 31% plunge makes Bush look good in comparison.)
    As it turns out, as the New York Times also showed in October, the Democratic Party “has been better for American pocketbooks and capitalism as a whole.” To make its case, the New York Times asked readers to imagine having put their money where its mouth is. Contrary to Republican mythology, Americans fare better – much, much better – under Democratic administrations:
    As of Friday, a $10,000 investment in the S.& P. stock market index would have grown to $11,733 if invested under Republican presidents only, although that would be $51,211 if we exclude Herbert Hoover’s presidency during the Great Depression. Invested under Democratic presidents only, $10,000 would have grown to $300,671 at a compound rate of 8.9 percent over nearly 40 years.
    (For the eye-popping chart of the S&P’s performance under each of the presidents from Hoover through Bush 43, visit here.)
    As the broader record shows, the best path to prosperity is to elect Democratic presidents.”
    http://www.perrspectives.com/blog/archives/001367.htm
    *****
    Broader prosperity, broader redistribution turn out to be good policy, so it would seem.

    Reply

  32. questions says:

    http://www.perrspectives.com/blog/archives/001411.htm
    This would seem to provide some of the self-regarding justification for higher tax rates?
    There actually does seem to be a selfish motive for coordination, assurance, and coercion.
    It’s not all charitable, this taxation thing.
    Link via Krugman via C and L.

    Reply

  33. Dan Kervick says:

    “Dan, my memory from the “late Kervacious” is that very few poor people hire employees, so that if you want to create any JOBS, you have to let the wealthy keep a PREDICTABLE amount of their own money.”
    Well Nadine, if by “poor people”, you mean everyone who is not inside that top 1% I want to target, you are wrong.
    But even genuinely poor people, who don’t hire any employees, do nevertheless buy stuff. Indeed the poor, whose needs constantly outpace their income, tend to spend almost all of what they make. And increasing the amount of stuff that is bought requires expanding production, sales and marketing, and thus requires hiring more workers. Economic output and the work that is needed to produce it continue to sag and lag because there aren’t enough customers, and the customers don’t have enough money.
    State and local governments also buy stuff, and will buy even more stuff if their former revenue levels return, something that will happen if their unemployed taxpayers are put back to work, and the employed ones buy more stuff and pay sales taxes on what they buy.
    Most jobs are created by firms, by businesses large and small, not by individuals. Going after some of the personal wealth of the very wealthy need not affect the after-tax bottom lines of businesses. Microsoft won’t do any worse just because we tax more of Bill Gates’s personal wealth – not unless he decides to increase his company’s costs and pay himself a lot more to make up for the personal losses. And we can prevent that kind of thing too.
    Predictability? Who has that? The unpredictability of personal fortunes can have a salutary economic effect, even on the rich. At my company, a lot of people have been laid off during the recession. What has been the effect of that unpredictability on everyone else? They all work harder and generate herculean productivity, knowing that if they don’t the axe might fall on them next.
    The immediate economic impact of redistributing the personal wealth of of the very wealthy will be a net shift from savings to consumption, something this economy sorely needs. The wealthy will buy a bit less, but everyone else will buy a lot more. And if the wealthy then have their delicate and extraordinary pleasures disturbed by the pain of sudden loss and anxiety of greater unpredictability, so much the better. They will then work harder and smarter with the remaining mountains of money that haven’t been taken away from them.

    Reply

  34. questions says:

    Fundamental conceptual difference here that Aristotle figured out a while ago….
    Do the wealthy owe more flat dollars (drachmas?) because they are wealthy, or do they owe the same number of dollars because we are all equal….
    Aristotle hit on this regarding common meals and how much food any one person should supply.
    It’s the same argument.
    Do the wealthy use more government services, and so they should pay more?
    Do the wealthy simply have an obligation to fork over money?
    Is labor more deserving of reward than is capital? Which risk do we pay for?
    Is the crony system so removed from market controls that there’s good cause for the government to step in because in fact what the wealthy call “market” returns isn’t really “market” but rather is corruption?
    When we answer these basic questions, we derive the ideological underpinnings of the left and the right.
    There are also a number of fantasy issues that play in to whether or not tax rates should go up. The fantasies include the sense that one might at any moment become a billionaire, and since one might be a billionaire, one ought to keep taxes on same low, for one is potentially taxing oneself.
    Fantasy 2: Those billions might trickle down!
    Fantasy 3: The deity-itself has rewarded the billionaires with the billions, and so going against that is anti-deitific.
    Of course there are political facts playing into the mix — most people actually do want to tax the rich at this point. But the political system is slanted towards the interests of the rich for many reasons, so it’s hard to get tax hikes through.
    *****
    Since it’s not likely to get tax hikes through, the second best thing would be to incent the money to start flowing again. It doesn’t really matter who “owns” the wealth anyway. What matters is if it flows through the economy. As long as the flow keeps up, as long as money gets spent, reinvested, used to build or make or do, the “ownership” side is meaningless.
    How do we get that private equity to flow through the public troughs if we can’t tax it? Rate of return on special gov’t bonds through the infrastructure bank should be set high enough to make the money flow.
    We have well developed investor systems and we can put them to work doing basically what taxation does, but instead of calling it “taxation” we call it “investment” and instead of services as the only ROI, we have dividend payments or tax-free returns or whatever.
    It might even work.

    Reply

  35. nadine says:

    erichwwk, tax REVENUES rose after tax RATES were cut.

    Reply

  36. erichwwk says:

    “it was not a cut in taxes, but a cut in TAX RATES
    What nonsense!

    Reply

  37. nadine says:

    “Even Democrats don’t want to repeal the treasury raid tax breaks”
    I love the underlying assumption that all the money belongs to the Treasury, so it’s a “treasury raid” to ever cut tax rates. Thanks for the truth in advertising! BTW, since Treasury revenues went UP after the Bush tax cuts, it was not a cut in taxes, but a cut in TAX RATES, a difference that Democrats can never seem to understand.
    Dan, my memory from the “late Kervacious” is that very few poor people hire employees, so that if you want to create any JOBS, you have to let the wealthy keep a PREDICTABLE amount of their own money. This administration is doing just the opposite.

    Reply

  38. John Waring says:

    Dan,
    We don’t have an FDR. We have BHO as President, remember? We’re getting nowhere fast. Even Democrats don’t want to repeal the treasury raid tax breaks Bush gave the upper 1%, a fact that never ceases to astonish me.

    Reply

  39. Dan Kervick says:

    I know that the entire science of Economics has been radically transformed beyond recognition since those ancient days in the late 70’s when I studied it in college. But one thing that stuck with me from those classes in the Late Kervacious era is this: rich people save a lot more of their money than not-so-rich people. So if you want to stimulate consumer spending by tapping into the money locked up in savings, what you have to do is take money away from the very rich and give it to everybody else.
    Back in those days, you had mainstream politicians running for office on frank promises to redistribute wealth and give ordinary Americans a larger piece of the pie. And they weren’t embarrassed about making these promises.
    But it’s amazing what contortions and gyrations our rulers in the Republicon and Conservacrat parties will go through these day to avoid engaging in straightforward redistribution of wealth, or even so much as allude to the concept. Even relatively liberal Democrats have been cowed into believing “redistribution” is a swear word denoting the filthy, gulag-ridden hellholes of Marxist evil. The only way you can get a classic Keynesian depression-killer stimulus out of our rulers these days is if you allow them to bill future middle class generations.
    The top 1% of American households account for about 1/3rd of our nation’s private wealth. I believe that private wealth total is somewhere around $50 trillion. So the top 1% have about $17 trillion. If we take just 10% of that superfulity, we could pay off the entire bill for the first stimulus and also fund another handsome stimulus on top of it.
    Our rulers have so far been desperate to avoid this common-sense step, perhaps frightened that Americans will lose their superstitious taboos forever and develop an unwholesome taste for moral and mental clarity, and for serving their own self-interest. The rulers are convinced that if they only make money cheap enough, eventually the banks will lend out great gobs of it, and then companies will use those gobs to hire lots and lots of workers and boost production to sell lots and lots of new products to their currently non-existent consumers. All without having to scratch the wallets of the rich; all without having to directly transfer cash to the millions of American consumers whose insecurity and penury is strangling demand in this country.
    Americans of just about all economic levels have dramatically increased their productivity over the past several decades. Most are extremely hard-working, especially when compared to those living the more relaxed lifestyles in other wealthy, developed countries. And yet only a minority portion of these hard-working folk have seen their incomes move upward as a result of their harder and better work.
    Some of the people with ample cash in this country are lazy bubbleheads. But some are very clever go-getters indeed. They took their privileged educations and trained themselves to become “quants”, so they could go into the finance houses and develop mathematically sophisticated rackets for liberating even more imprisoned cash from the strapped bank accounts of their still too-solvent social inferiors, or else they focused on rewarding themselves with orgasmically generousness fat slabs of cash in compensation plans for managing the money of the unfathomably loaded.
    We are still paying a draining fortune for health care in this country, because the government is terrified of tackling the golden goose rackets in medical care and supply, the ambitiously greedy and special few are permitted to make fortunes off the diseases and drawn-out deaths of the nation’s sick and ordinary.
    I think its payback time now for a couple of hundred million Americans who have been working harder and longer for smaller cuts.

    Reply

  40. nadine says:

    “Secondly, the level of stimulus to move the US economy now seems pathetically trivial compared to the low-economic multiplier drain of $100 billion per year spent on Afghanistan.”
    Since the stimulus was a 900 billion per ONE year low-economic multiplier collection of pork, which, contrary to Summer’s definition, has definitely added hugely to the baseline of the Federal budget, I don’t know why you or any rational observer should think that.

    Reply

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