The odds that I know more about Austrian economics than you is probably above 99%. Recall that I'm well-read in libertarian circles and held office in the local LP where I had to routinely interact with libertarians of all stripes, including your goldbug, Von Mises types.

Though, in fairness, one wouldn't need to know much of anything about it to be economically educated. It's not like the Austrians are part of any standard degree. But don't let writing for your audience get in the way of awkward attempts to seem learned that come off as anything but.

Selling the ‘Supply-Side’ Myth



January 27, 2012

Exclusive: Any rational assessment of America’s economic troubles would identify Ronald Reagan’s reckless “supply-side” economics as a chief culprit, but that hasn’t stopped Republican presidential hopefuls, led by Newt Gingrich, from selling this discredited theory to a gullible GOP base, reports Robert Parry.


By Robert Parry

Despite Newt Gingrich’s claim that “supply-side” economic theories have “worked,” the truth is that America’s three-decade experiment with low tax rates on the rich, lax regulation of corporations and “free trade” has been a catastrophic failure, creating massive federal debt, devastating the middle class and off-shoring millions of American jobs.

It has ”worked” almost exclusively for the very rich, yet the former House speaker and the three other Republican presidential hopefuls are urging the country to double-down on this losing gamble, often to the cheers of their audiences — like one Florida woman who said she had lost her job and medical insurance but still applauded the idea of more “free-market” solutions.


Former House Speaker Newt Gingrich posing with his third wife, Callista
Gingrich even boasts of his role in pioneering these theories of massive tax cuts favoring the rich, combined with sharp reductions in the role of government. That approach, once famously mocked by George H.W. Bush as “voodoo economics,” was supposed to spur businesses to expand production (the “supply side”), thus creating jobs and boosting revenues from all the commercial activity.

“I worked with Ronald Reagan to develop supply-side economics in the late ’70s, along with Jack Kemp and Art Laffer and Jude Wanniski and others,” Gingrich declared at a recent town hall event. “We ended up passing it into law in ’81. At the time it was very bold. People called it ‘voodoo economics.’ It had one great virtue: it worked.”

But that is not what the historical record really shows.

In 1980, I was working as an Associated Press correspondent covering budget and economic issues on Capitol Hill – and at the time, the “supply-siders” had two key arguments in their favor: first, the economy had stagnated in the 1970s largely due to oil price shocks, inflation and an aging industrial base.

Their second key advantage was that nobody could say for sure what the results of the “supply-side” experiment would be. There was little empirical data to assess how radical tax cuts would play out in the modern economy. One could make common-sense judgments, as George H.W. Bush had done with his “voodoo” remark, but you couldn’t see the future.

No More Mystery

Now, however, with three decades of experience with the experiment, the fallacies of “supply-side” economics are no longer a mystery. For instance, a major obstacle to today’s economic recovery has been the absence of “demand-side” consumers, not the availability of money to build more productive capacity.

And the reason that there are fewer consumers is that the Great American Middle Class, which the federal government helped build and nourish from the New Deal through the GI Bill to investments in infrastructure and technology in the Sixties and Seventies, has been savaged over the past three decades.

Though many Americans were able to cover up for their declining economic prospects with excessive borrowing for a while, the Wall Street crash of 2008 exposed the hollowing out of the middle class. So today, businesses are sitting on vast sums of cash – some estimates put the amount at about $2 trillion.

And the reasons for this dilemma are now well-known: first, when companies have expanded in recent years, the modern factories have relied on robotics with few humans required; second, the companies put many manufacturing sites offshore so they can exploit cheap labor; and third, the shrinking middle class has meant fewer customers, leaving corporations little motivation to build more factories.

For Americans, this has represented a downward spiral with no end in sight. American workers, whether blue- or white-collar, know that computers and other technological advancements have made many of their old jobs obsolete. And modern communications have allowed even expert service jobs, like computer tech advice, to go to places like India.

While painful to millions of Americans who find their talents treated as surplus, these developments do not by themselves have to be negative. After all, humans have dreamed for centuries about technology freeing them from the grind of tedious work and freeing up society to invest in a higher quality of life, for today’s citizens and for posterity.

The problem is that the only practical way for a democratic society to achieve that goal is to have a vibrant government using the tax structure to divert a significant amount of the super-profits from the rich into the public coffers for investments in everything from infrastructure to education to arts and sciences, including research and development for future generations, even possibly Gingrich’s “big idea” of a colony on the moon.

In fact, that kind of virtuous cycle was the experience of the United States from the 1930s through the 1970s, with the federal government taxing the top tranches of wealth at up to 90 percent and using those funds to build major electrification projects like the Hoover Dam and the Tennessee Valley Authority, to educate World War II veterans through the GI Bill, to connect the nation through the Interstate Highway system, to launch the Space Program, and to create today’s Internet.

Out of those efforts emerged robust economic growth as private corporations took advantage of the nation’s modern infrastructure and the technological advancements. Millions of good-paying jobs were created for the world’s best-trained work force, giving rise to the Great American Middle Class. The obvious answer was to keep this up, with the government investing in new productive areas, like renewable energy.

Demonizing ‘Guv-mint’

Instead, facing economic headwinds in the 1970s, caused in part by rising energy costs, Americans grew anxious about their futures, making them ripe for a new right-wing propaganda campaign demonizing “guv-mint” and telling white men, in particular, that the “free market” was their friend.

Blessed with a talented pitch man named Ronald Reagan, “supply-side” became the new product to sell. After taking office, Reagan pressed for a sharp reduction in the marginal tax rates, slashing the top rates for the wealthy from around 70 percent to 28 percent. Along with the tax cuts, Reagan also initiated an aggressive military buildup.

The results were devastating to the U.S. fiscal position. The federal debt soared, quadrupling during the 12 years of Reagan and Bush Sr. As a percentage of the gross domestic product, federal debt was actually declining in the 1970s, dropping to 26 percent of GDP, before exploding under Reagan, rising to 41 percent by the end of the 1980s. The shared wealth of the country also diverged, with the rich claiming a bigger and bigger piece of the national economic pie.

The nation’s debt crisis only began to subside after tax increases were enacted under President George H.W. Bush and President Bill Clinton, with Clinton’s tax hike pushing the top marginal rate back up to 39.6 percent. At the time, Gingrich warned that the Clinton tax hike would lead to an economic catastrophe.

The actual result was a booming economy, spurred strongly by the federal government’s new “information super-highway,” the Internet. The Clinton years also saw low unemployment and a balanced budget by the late 1990s. The debt-to-GDP measure declined from about 43 percent to 33 percent and was on course toward zero within a decade.

Ironically Gingrich also claims credit for that because – as House speaker – he worked with Clinton on some cost-cutting measures, but Clinton credits the 1993 tax increase, which passed without a single Republican vote, as the key factor in the budget turnaround.

After George W. Bush claimed the White House in 2001, “supply-side” dogma was back in vogue. Bush pushed through more tax cuts mostly for the rich, reducing the top marginal rate to 35 percent and creating an even bigger tax break for investors, cutting the capital gains rate to 15 percent. Combined with Bush’s two wars and other policies, the surplus soon disappeared and was replaced by another yawning deficit.

Even as most Americans struggled to hold a job and pay their bills, America’s super-rich lived a life of unparalleled luxury. With this concentration of money also had come a concentration of power, as right-wing operatives were hired to build a sophisticated media apparatus and think tanks to push – often with populist rhetoric – the policies that were dividing the country along the lines of a pampered one percent and a pressured 99 percent.

Many Americans, especially white men, heard their personal grievances echoed in the angry voices of Rush Limbaugh, Sean Hannity, Michael Savage and Glenn Beck – all well-compensated propagandists for “the one percent.”

Lesson Unlearned

Now, looking back over the economic and fiscal history of the past three decades, you might think that few Americans would be fooled again by this sucker bet on “supply-side.” But the Tea Partiers and many rank-and-file Republicans seem ready to put what’s left of their money back down on the gambling table.

All four remaining Republican hopefuls – Mitt Romney, Rick Santorum, Ron Paul and Gingrich – have proposed lower tax rates especially on the rich with the same enduring but fanciful faith in “supply-side” economics.

Gingrich has gone so far as to advocate eliminating the capital gains tax entirely. It’s already down to 15 percent, meaning that many super-rich, from financier Warren Buffett to Mitt Romney, can live off their investments and pay a lower tax rate than what many middle-class Americans pay on their wages and salaries. In a recent Florida debate, Romney noted he would pay virtually no federal income tax under Gingrich’s plan.

The Republicans seem to be counting on the parallel propaganda campaign of demonizing “guv-mint.” They’re pinning their hopes on an ill-informed electorate (especially white men) siding with “the one percent” over their own working- and middle-class interests.

The GOP hopes also may hinge significantly on how determined some whites are to get the country’s first black president out of the White House. Historically, demagogic U.S. politicians have had great success in exploiting racial resentments, although these days often with coded language like Gingrich calling Barack Obama “the food-stamp president.”

The Right also has worked diligently to create false narratives to convince many Americans that their hatred of a strong federal government links them to the Founders. Many Tea Partiers have bought into the historical lie that the Founders wrote the Constitution to limit the power of the federal government and to promote “states’ rights” – the near opposite of what the framers actually were doing.

Led by Virginians Gen. George Washington and James Madison, the Constitutional Convention in 1787 threw out the Articles of Confederation, which had made the states supreme and the federal government a supplicant.

The Constitution reversed that situation, eliminating state “independence” and bestowing national sovereignty onto the federal Republic representing “we the people of the United States.” Contrary to the Tea Party’s false narrative, the Constitution represented the single biggest assertion of federal power in U.S. history.

When the Tea Partiers dress up in Revolutionary War costumes, they apparently don’t know that their notion of a weak central government and state “sovereignty” was anathema to the key framers of the Constitution, especially to Washington who had watched his soldiers suffer under the ineffectual Articles of Confederation.

And, when the Tea Partiers wave their “Don’t Tread on Me” flags of a coiled snake, they don’t seem to know that the warning was directed at the British Empire and that the banner aimed at fellow Americans was Benjamin Franklin’s image of a snake severed into various pieces representing the colonies/states with the admonishment “Join, or Die.”

Nevertheless, false narratives and false arguments can be as effective as real ones to a thoroughly misinformed population. Thus, many middle- and working-class Americans still cheer when Newt Gingrich references Ronald Reagan and his “supply-side” economics.

But the failure of Reagan’s economic strategy should be obvious to anyone who is not fully deluded by right-wing propaganda. Not only has the national debt skyrocketed over the past three decades, but whatever economic benefits that have been produced have gone overwhelmingly to the wealthy – while the nation as a whole has suffered.

From the Economic Policy Institute: http://www.epi.org/blog/supply-side-abject-failure/

The president aptly characterized conservative economic policy as a two-pronged approach of cutting regulations and cutting taxes for the wealthy. (Note conservatives’ glaring lack of enthusiasm for refundable tax cuts or even an across-the-board payroll tax cut – tax cuts that would be pretty broad-based.) This is, of course, exactly the economic nostrum being preached by the GOP presidential field and Republican leadership on Capitol Hill. See, for instance, how the tax plans of presidential candidate Rick Perry or House Budget Committee Chairman Paul Ryan (R-Wisc.) belie any concern about income inequality, or how regulatory uncertainty is used as a phony explanation for the jobs crisis.

This supply-side snake oil is peddled on the premise that when the wealthy do well, income gains trickle down to the middle class and everyone benefits from a growing economy. But that hasn’t happened—real median income has sharply decoupled from productivity gains in recent decades (particularly since 2000) and income gains have been incredibly concentrated at the top of the earnings distribution. The president made the following salient point on the supply-side experiment:



The record of the Bush-era tax cuts, also invoked by the president, indeed speaks volumes: “Remember in those years, in 2001 and 2003, Congress passed two of the most expensive tax cuts for the wealthy in history. And what did it get us? The slowest job growth in half a century.” That and the slowest economic growth, non-residential fixed investment growth, compensation growth, and wage and salary growth. Imagine if we had instead used the $2.6 trillion these tax cuts added to the public debt over 2001-2010 to undertake investments in areas like education, infrastructure, and scientific research—investments that would have produced much better job-growth and that have actually demonstrated high economic returns.


President Obama's speech in Kansas likely resonated with middle-class Americans.

Since the 2001 and 2003 tax cuts didn’t generate much in the way of jobs or incomes, they failed (by miles – or should we say trillions of dollars) to fulfill the mendacious claim often made by conservatives that tax cuts pay for themselves. (Note that this assertion continues to surface despite being flatly rejected by the Bush administration’s own economists.)

Based on this abject policy failure and the clear dysfunction of a tax code that allows a quarter of millionaires to pay lower effective tax rates than middle class families, President Obama made the case for tax reform – including allowing the top individual income tax rate to revert from 35 percent to the 39.6 percent rate implemented by President Clinton (which would still be well below tax rates for most of the post-World War II era).

Since most Republicans will clearly scream about the onerousness of this proposal, it’s worth noting that the optimal taxation literature calls for a steeper schedule of marginal tax rates and a considerably higher top rate than 39.6 percent. In their recent paper on the case for progressive taxation, economists Peter Diamond and Emmanuel Saez peg the optimal top income tax rate at 73 percent, up from 42.5 percent today (taking into account Medicare payroll taxes and average state income and sales taxes). This would imply a top federal marginal income tax rate of 65.5 percent—more than 25 percentage points higher than that proposed by the president. The current top tax rate is “is optimal only if the marginal consumption of very high income earners is highly valued,” note Diamond and Saez.

Of course, the value that policymakers put on the happiness of the very rich is exactly what stands behind the failure to enact job creation measures that would be financed by a surtax on millionaires and the repeated collapse of long-term deficit reduction negotiations because of conservative intransigence over raising more revenue from upper-income households.

I applaud the president for making the case for the progressive alternative against regressive tax cuts as the lodestar of economic policy. America’s low- and moderate income families should, too. As a nation, we cannot afford to double down on the failed, plutocratic pipe dream that is trickle down economics. Another round of tax cuts for the highest-income households will not restore full employment but will exacerbate widening income inequality, blow a bigger hole in the budget deficit, and defund needed public investments and economic security programs. Any policymaker genuinely concerned with the fate of the middle class, inequality and immobility, or the budget deficit, should be focused on rolling back the last round of inequitable and ineffective tax cuts rather than digging us deeper and deeper into a new Gilded Age.

No, actually anyone with the barest speck of economic literacy and who does some serious reading now and then, understands current conditions:

http://www.americanthinker.com/blog/201 ... iring.html

http://www.forbes.com/sites/sageworks/2 ... ut-hiring/

http://articles.businessinsider.com/201 ... l-business

http://reason.com/blog/2012/07/02/linge ... ears-bette

http://www.murrayresources.com/if-the-e ... es-hiring/

Its simply basic political economy - another subject upon which your credibility is zero.


Actually, if one wishes to do some serious critical thinking and do a little serious reading, one finds that numerous layers of heavy taxation on the same dollars earned; the corporate income tax (among the highest in the world), dividend and capital gains tax (both of which are quite high and both of which are a direct tax on investment and entrepreneurial risk), personal income tax, the estate tax, a massive governmental theft of substantial quantities of earned income that restricts the passing on of productive business entities and financial wealth to heirs, the AMT, and a vast plethora of federal and state taxes on business and personal income, either directly or indirectly through countless products used and consumed, are consuming near 40% of national wealth. Federal taxation alone is now consuming some 16.3% of GDP, and is set to rise 30%, according to the CBO, over the next two years.

http://cnsnews.com/news/article/cbo-tax ... xt-2-years



You have no "empirical data." All you have is chicken fried psuedostatistics manipulated to create self interested propaganda. Propaganda, Kevin, is not empirical data. You have no conception of what you're talking about regarding taxation, nor political economy, nor the incentives and motives that govern economic action, nor what's going on in America in the business world. All you have is your tin foil hat Romper Room Marxism, your troglodyte ignorance, and your monolithic leftist superstitions.



Except...empirical evidence. The statistics are already out there, as I've shown above, and that's precisely what large numbers of small and medium sized business owners (the backbone of the economy) are saying when asked. It also makes perfect praxeological sense - human action; rational, self interested economic calculation which looks to the future and attempts to anticipate as best it can future economic conditions and environments, is scared to high hell by our neo-marxist, post-American "president" and his fixation on the destruction and/or annexation of the private sector through taxation, regulation, and bureaucratic fiat (EPA, etc.)



You and Krose know no more about how free markets work and how the laws of economics function than Godzilla knows about staying off the grass. Please...stop the comedy...you're killing me.



No, its about the long and well documented collapse of both the quality and availability of care that is the inevitable result of the nationalization, and hence rationing of scarce resources in an economically non-growing and non-economically self sufficient healthcare system. We already know, and have long known, from both the Canadian and British examples, as well as some others (including what happens when not only medicine but an entire economy is socialized - Cuba) what to expect.



Yes, particularly under Reagan, Bush 42, Clinton's second term under a economically at least semi-literate Republican Congress, and Bush's second term. The economic collapse, precipitated in the Democratic party/ACORN/"affordable housing" policy destroyed housing mortgage markets, and spreading throughout the economy as toxic mortgage backed securities, was at least 30 years in the making, and a 100% Democrat/leftist debacle that they, as well as George Bush and everyone else not stumbling around in a crack house or watching CNN, knew was coming.



Notice that Kevin flames and calls me names here, but makes no argument. He thinks his skills as a four-letter polemicist will hid his lack of intellectual substance. Well, in this place, he does have an audience for this kind of thing.



A subject which, like most others upon which you opine, you clearly have no substantive educational background at all. Rule of thumb: Graham is a textbook, cookie cutter tool leftist. Whatever he says about you, or claims about your intellect or education, is, in all likelihood what the actual truth is about him. He's a walking, living projection machine.



This brands you publicly as nothing more than the uncouth, philistine, anti-intellectual demagogic simpleton you've always been known to be. keep talking, and increase the level of certitude here ever more.



Uh...yeah, we assume that your business is a source of income. Most are, Kevin. Now, what do you mean by "personal expenditures?" What is the source of income for your personal expenditures? Is it different from your business income? Is it derived from the same income? How would rising taxes on your business, and hence the ability of your business to expend funds in paying staff and maintaining infrastructure, not influence and determine the size, scope, and economic viability of that business? How, pray tell me, could rising taxes on your business income not influence business expenditure, since the same money taxed as gross profit is a portion of the same money expended in wages, benefits, supplies, and maintenance?[/i]

You can't pay wages and salaries, or buy a roll of toilet paper, with gross profits. You're net profit - after tax profit - is all you have to run your entire business and keep part of as personal income. Come no, Kevin. Focus...stay with me. There's only x dollars in your business at any time. y of it belongs preemptively to the state. The remainder -net profit - must be allocated to the business and as your personal income. Now, how do your incentives change, and how does your allocation of resources change, as taxes rise to higher, and higher, and higher levels?



Because, Ronald, at some point, the rate of taxation would make continuing that business at its present size, scope, and functioning economically unviable.

An organ grinder monkey, but one intellectually unencumbered by leftist ideology and moral messianism, could understand this Kevin. You're utterly delusional and at some level, unless you're completely and wholly insane at this point, you must know you are. You're conning yourself, you're conning me, and, like Korihor before you, you've prated on so long in this manner that you've come to actually believe your own self serving fantasies.



Yup, at a 99% tax rate on my gross receipts, my employees are still making me money. There is no possible argument against that, I admit. Unfortunately, at a 99% rate of taxation (or any given rate), 99% of the money your employees are making you will be confiscated. Therefore, in actual point of fact, they are not making you money at all: they are making money for the state. You get to keep 1%. At 1% your argument still holds, however. You're employees are making you money. Indeed, according to this logic, at a 100% marginal rate, your employees are making you money. You will just never get any of it.

In the real world, of course, whether or not your business is viable is completely dependent upon the costs of doing business and your ability to charge more for your services than it costs your to provide them - profit. Enter taxes. Long before taxes ever reached 90%, your business would be gone. When the cost of doing business is greater than your profit margin, you are out of business. You are "in the red."

That is what too high tax rates do to business.

Rather obviously.



Payroll is the single largest expenditure any business has to meet as to its overall cost of doing business before it sees a net profit. I grow weary of your Pleistocene attempts at sophistry.



You're so bloody dense and delusional at this point that rational argument is impossible. That's not what I've argued at all. But normally, I realize, you don't really read your opponents arguments at any depth. You scan them for polemical ammunition.

Enough.

I must point out again that the above is illustrative of just why Daniel Peterson and others simply gave up attempting discourse with you a number of years ago.

You're quite obviously not anything approaching as smart as you think yourself to be. You have a much more serious problem than that, however, in that you're quite clearly not aware of this state of affairs.

Which makes you, at all events, an insufferable bore, an admittedly unhappy attribute to overlay upon the high brow of an intellectual poseur.

This is now part of my siggy. The Apollo moon landing was also done on an interior Hollywood studio set, I'm told.

Can the deterioration continue even further, after this milestone?

I fear to answer that question.

And as expected, you provide a list of Right Wing blog entries from different people who simply regurgitate the same claims, but provide no evidence to back it up. This is their phony explanation that is designed to take attention away from the fact that their economic theories have been shattered. Always blame it on something else, preferably government regulations. When you cannot produce examples of regulations that have hindered job growth, you refer to this mysterious "fear" among business owners. How pathetic.

I on the other hand, can provide sound analysis refuting such fear mongering, from Economists in the know. Fair warning. What you are about to read (which you probably won't) is hazardous to your ignorance based assumptions.

http://www.epi.org/publication/regulato ... planation/

Regulatory uncertainty
A phony explanation for our jobs problem

By Lawrence Mishel | September 27, 2011

Republican politicians and business groups keep telling us that business investment and hiring is being held back by uncertainty over future regulations and taxation. For instance, Maine Senator Susan Collins said in introducing her bill to put a moratorium on all new regulations:

“Businesses, our nation’s job creators and the engine of any lasting economic growth, have been saying for some time that the lack of jobs is largely due to a climate of uncertainty, most notably the uncertainty and cost created by new Federal regulations.”

Her view has been repeated by others – like House Majority Leader Eric Cantor and the Chamber of Commerce. This story is also being told by some of the dissenters on the Federal Reserve Board’s Federal Open Market Committee, as Mike Konczal recently reported. Nobel Laureate Robert Lucas just made this argument in a Wall Street Journal interview, but he at least had the decency to note, “I have plenty of suspicions but little evidence.”

In a recently released paper, I present evidence that if you examine what employers are actually doing in terms of hiring and investment, this story about regulatory (or tax) uncertainty driving current job trends does not hold up. Private sector job growth has been weak in each of the last three recoveries and the current recovery’s private job growth matches up with the early 1990s recovery and is far better than that of the 2001 recovery. Investment in equipment and software has been stronger in this recovery than in the prior two recoveries. Last, weekly work hours are still substantially below those prior to the recession: uncertainty about future regulations cannot explain why employers do not increase work hours of currently employed workers to meet current demand for goods and services. A reasonable explanation for this work hours puzzle is that those sales opportunities do not actually exist, i.e., demand is lacking.

If you also examine what employers and their economists are saying in private surveys, you find that what businesses actually identify as their challenges does not fit this story either. In other words, what the heavily politicized trade associations in Washington (like the Chamber) are saying does not correspond to the real challenges facing both large and small businesses.

The National Federation of Independent Business (NFIB), which describes itself as “the leading small business association representing small and independent businesses,” does a regular survey of small businesses. One question that has been asked since 1973 is, “What is the single most important problem your business faces?” The answer choices are inflation, taxes, government regulation, poor sales, quality of labor, interest costs, health insurance costs, the cost of labor, and other matters. Interestingly, the single largest response is “poor sales,” the choice of 30 percent of respondents since President Obama was sworn in (averaging the 10 quarters between early 2009 and Spring 2011). That seems to accord with slack demand as the key concern of small businesses.

However, I was on a radio panel discussion with an economist from the Heritage Foundation who acknowledged this fact, but then highlighted that taxes and regulation were the next highest concerns identified in the NFIB surveys—evidence, he claimed, that tax and regulatory uncertainty were also preeminent. And, he correctly cited the data. In the Obama years, some 13.9 percent of small businesses identified government regulation and another 20.8 percent identified taxes as their primary problem, the leading answers after “poor sales.” I was fortunate enough to obtain the entire historical series (back to the fourth quarter of 1973) on this question from the NFIB so I could put this in historical perspective, constructing the averages for each presidential term as shown in the figure below:

(Go to link above for chart)

It turns out that small businesses have always complained about regulation and taxes and not especially so under Obama. For instance, the share concerned about regulation under Obama (13.9 percent) is not substantially higher than under George W. Bush (9.9 percent and 11.0 percent) or Ronald Reagan’s second term (12.8 percent). There is also less concern about regulation under Obama than under Bill Clinton or George H.W. Bush. Recall also that there was rapid employment growth in the second Clinton term, so high concerns about regulation (which rose steadily from Reagan’s first term to their highest level in Clinton’s first term) are not necessarily associated with poor employment growth.

There’s a similar story on taxes. Sure, there are 20.8 percent of respondents on average in the Obama years who see taxes as the primary problem facing their business. Yet, that intensity of concern about taxes is not all that different than under George W. Bush and is less than the presidential terms from the first Reagan term through Clinton’s second term. It is hard to find a recent spike in concern about regulations or taxes that supports a story of escalating uncertainty or fears of regulations holding back the economy.

============================

Your problem Droopy, is that you're out of your depth here. You're not going to be able to regurgitate Mises.org articles while copying everything from their rhetoric to their jargon, and then claim to be educated on economic matters. You're an uneducated hack striving to gain relevance in a realm where no one really cares what you have to say. That's sad.

Supply-side economics has been proven to be a catastrophic failure of epic proportions. I mean you really have to have your head stuck firmly in the sand not to see this. All recent economic history proves this to be the case. And I'm glad you cite me in your siggy. Your posts could use a dash of truth added to them.

The fact is empirical data proves that businesses do not blame regulations for unemployment today any more than they did under Reagan. So to use this as an excuse is stupid. The fact is consumer spending (demand) is down and so employment is down. Period. It is really that simple. But you refuse to accept it because you have this supply-side dogma branded into your psyche, you just hate to consider the possibility that it was all b***s***. Well, it was so you should just accept it.

Thank you for getting to the bottom of this mystery.

What is the flawed reasoning behind the “uncertainty” argument?

What is the logic behind the “uncertainty” argument for our poor job growth? Based on numerous media reports, we know that firms have substantial cash on hand to invest (Monga, Mattiloi, and Chasan 2011), but that they are not using it for new hires or investments. We also know that firms are making a third more profit than they did before the recession (Eisenbrey et al. 2011), so they are not being held back by current profitability or the ability to finance investments. There is no mention of any demand-side problems in the rhetoric coming from House leaders, so presumably they believe that businesses have ample customers.

Given all of this, the story must be—according to conservative policymakers—that employment growth is sluggish because firms are turning down, and will continue to turn down, opportunities to make goods and services that are profitable today (current sales are very profitable) because they fear regulations will not allow these sales opportunities to be as profitable in the future and they fear making the longer-term commitment of hiring permanent workers.

Actually, it’s not really “uncertainty” about these potential rules and regulations that is the complaint; the regulatory process is moving along, and the rules are becoming final and therefore certain. But the House Republicans and various business groups are actually trying to delay the rules, prolonging the sense of uncertainty. The bottom line is an old conservative story: that regulation will raise costs and make future business opportunities to sell goods and services insufficiently profitable. The new twist is that these fears are suppressing current investments and hiring, and are thus a major cause of our unemployment problem.

The underlying assumption that regulations inhibit job growth is questionable, of course. EPI’s Isaac Shapiro and John Irons have reviewed the available evidence on this and found that, taken in their entirety, neither studies on the economy as a whole or ones on particular sectors support the view that regulations cause substantial job losses. Following are excerpts from Shapiro and Irons (2011):

The most common general studies are of environmental regulations, and these have consistently failed to find significant negative employment effects. Moreover, studies suggesting that regulations have broad negative effects on the economy offer little persuasive evidence.

Some well-executed studies have found that certain regulations led to job losses in particular areas, but most studies of various industries suggest that regulations had either a close to neutral or small positive effect on employment levels.

It is worth mentioning that this “regulatory uncertainty” argument requires its proponents to have a particularly peculiar form of amnesia, given that the worldwide economic collapse we are now experiencing is due to a failure to sufficiently regulate financial markets.

What do economic trends and employer decisions indicate? The demand-side explanation

Instead of uncertainty about regulations, there is strong evidence that the absence of job creation reflects the continued unwinding of the financial collapse and the corresponding lack of demand. Firm investments and hiring are lower because they have ample capacity to produce the goods and services they are selling to a shrunken market, while firms are deleveraging at the same time. One can easily document (using National Income and Products Accounts (NIPA) Table 1.4.6 on GDP and mixing with population information from NIPA Table 2.1) that the final per person demand for domestically produced goods and service in the spring of 2011 (second quarter) was still 0.7 percent lower than it was before the recession, i.e., the last quarter of 2007 (U.S. Bureau of Economic Analysis 2011a and 2011b). Assuming that demand per person would have grown, absent the downturn, at a 1.5 percent rate for three-and-a-half years (a rate 20 percent lower than that of the 1979-2007 period), we find ourselves with demand 8.5 percent lower than we would expect.

The optimal response to shrunken demand when interest rates are as low as they can go and households and firms are still not spending is for government to step in to augment demand. The Obama administration’s recent jobs plan follows this logic, though it would be even better if it had more investment, fewer tax cuts—especially for businesses already overflowing with cash—and had set up a direct government hiring program. More on these actions can be found in proposals from Rep. Jan Schakowsky (2011) and William Darity (2010).

Investment and hiring trends inconsistent with “uncertainty” story

A simple review of investment and employment trends—what businesses are actually doing— reveals that employers are not behaving according to the narrative described in the uncertainty story: Employment and investment trends are what one would expect (or better) given the trends in the overall growth of the economy (i.e., the actual growth or shrinkage of gross domestic product).

Let us start by comparing investment, specifically investment in equipment and software, in the first two years (which is where we are now) of each of the last four recoveries. Figure A does so by examining the changes in the investment (equipment and software) share of GDP from the beginning of each recovery. The data show that investment has increased more in this recovery than in the prior two recoveries and roughly the same as that of the 1980s recovery. It is interesting to note that there was no growth in investments (as a share of GDP) in the George W. Bush recovery. That means that this recovery, with Obama regulations pending, is far more investment-led than the recovery under the deregulatory Bush administration. So, investment does not look like it is being held back, at least relative to other recoveries and the size of the market (i.e., GDP). To be transparent, this analysis leaves out investments in business “structures” because that type of investment is clearly faltering as a result of the bursting of the residential and commercial real estate bubble (and not because of regulatory uncertainty).



Private-sector job growth has also been better in this recovery than in the last recovery, as shown in Figure B, which looks at the growth over the first 25 months of the last four recoveries. The three recoveries since 1991, however, had very little job growth, at least at first, and all have been referred to as “jobless” recoveries. There was much faster employment growth in the 1980s recovery—mostly because the Federal Reserve had much more room to support this recovery through lower interest rates than it has had during the post-1980s recessions (and the 2000s recoveries in particular). There is certainly nothing special about job growth in the current recovery that stands out from the 1991 and 2001 recoveries to indicate a special regulatory-caused job problem.

The most unusual aspect of this recovery is that government jobs have declined by roughly 600,000 (2.6 percent), whereas government jobs grew in the prior recoveries. Obviously, the loss of government jobs is not the consequence of fears of regulation. Despite the loss of government jobs in this recovery but not the last one, there has been more job growth overall (public- and private-sector) in the first 25 months of this recovery (up 0.5 percent) than in the corresponding period in the 2001 recovery (when jobs fell 0.4 percent).



Perhaps a better test is to look at employment growth relative to growth of the economy, an analysis that corresponds to our treatment of investment. One way to do that is to examine whether the historic relationship between GDP growth and unemployment—referred to as Okun’s law—has changed in this downturn and recovery. It has not: Employment growth is what we would expect given the growth of the economy. For instance, the Goldman Sachs economics team recently wrote, “the link between the growth rate of real GDP and the change in the unemployment rate, known as Okun’s law, continues to be very tight” (Goldman Sachs 2011).

Other analysts, such as Jared Bernstein (2011) and Menzie Chinn (2011), also find that the unemployment/employment growth we are experiencing is very much in line with the GDP we have seen, and no new factor—such as fear of regulation—is present.

Trends in weekly hours inconsistent with “uncertainty” argument

Another set of data also calls into question the “regulatory uncertainty” argument. If firms were nervous about hiring new employees but had immediate profitable sales opportunities (say, before new regulations are established), then they could readily increase the weekly work hours of current employees to produce more goods and services. The Center for Economic and Policy Research’s Dean Baker (2011) and EPI’s Heidi Shierholz frequently point out that weekly hours are still far below their pre-recession level. Figure C depicts recent analysis by Shierholz (2011) of hours data through August 2011. It shows that weekly work hours for private-sector workers averaged 34.6 in 2007 but had fallen to 33.7 by June 2009 (the start of the recovery). Since then, weekly hours have recovered about half that loss and were at 34.2 in August. If employers restored working hours to their pre-recession level, that would be the equivalent of adding 1.2 million jobs, suggesting that a lot more staffing is readily available (without making permanent new hires) to produce output of goods and services if employers so desired. It is hard to believe that regulatory uncertainty is what is preventing employers from adding work hours to current employees to fulfill current profitable opportunities to sell goods or services. Something else must be going on: Customers and sales opportunities are simply not there.



If one looks at what employers are doing rather than what the trade associations and their allies on Capitol Hill are saying, then recent employment and investment behavior is easy to explain—investment and employment/unemployment are what we would expect in a severe downturn followed by a slow growing economy in the recovery. There is no shift from historic patterns, and there does not seem to be any evidence that fears of future regulation are shaping the slow growth and weak employment gains we have seen.

What do employers say in surveys?

What businesses (and business economists) say in private surveys also does not support the “regulatory uncertainty” mantra one hears from the D.C.-based business trade associations.

The National Federation of Independent Business (NFIB), which describes itself as “the leading small business association representing small and independent businesses,” does a regular survey of small businesses. One question that has been asked since 1973, is “what is the single most important problem your business faces?” The answer choices are inflation, taxes, government regulation, poor sales, quality of labor, interest costs, health insurance costs, the cost of labor, and other matters. Interestingly, the single largest response is “poor sales,” the choice of 30 percent of respondents since President Obama was sworn in (averaging the 10 quarters between early 2009 and spring 2011). In other words, slack demand appears to be the key concern of small businesses (Figure D).



Some conservative analysts acknowledge this fact but then point out that taxes and regulation were the next highest concerns identified in the NFIB surveys—evidence, they claim, that tax and regulatory uncertainty are also preeminent. In the Obama years, some 13.9 percent of small businesses identified government regulation and another 20.8 percent identified taxes as their primary problem, the leading answers after “poor sales.” Fortunately, one can obtain the NFIB’s entire historical series (back to the fourth quarter of 1973) on this survey question and put the question in historical perspective, constructing the averages for each presidential term (NFIB 2011).

It turns out that small businesses have always complained about regulation and taxes and not especially so under Obama. For instance, the share concerned about regulation under Obama (13.9 percent) is not substantially higher than under George W. Bush (9.9 percent and 11.0 percent) or Ronald Reagan’s second term (12.8 percent). There is also less concern about regulation under Obama than under Bill Clinton or George H. W. Bush. Recall also that there was rapid employment growth in the second Clinton term, so high concerns about regulation (which rose steadily from Reagan’s first term to their highest level in Clinton’s first term) are not necessarily associated with poor employment growth.

There is a similar story on taxes. Sure, there are 20.8 percent of respondents, on average, in the Obama years who see taxes as the primary problem facing their business. Yet, that intensity of concern about taxes is not all that different than under George W. Bush and is less than that reported during the first Reagan term through Clinton’s second term. It is hard to find a recent spike in concern about regulations or taxes that supports the story of escalating uncertainty or fears of regulations holding back the economy.

Besides the NFIB survey of small businesses, there are two recent surveys of economists that also indicate the “uncertainty” story is baseless. First, the Wall Street Journal’s recent survey of economists (Hollander 2011) showed that “U.S. companies are reluctant to hire—but not because of uncertainty over government policies…. A majority of the 53 economists surveyed (Izzo 2011) from July 8-13…say it is the lack of demand that is keeping hiring down.” EPI’s Isaac Shapiro wrote a blog post about the National Association for Business Economics’ recent survey of 250 of its members, who include both academic business economists and practicing business economists (i.e., those who use economics in the workplace). According to Shapiro (2011), the survey contains the following results:

The vast majority (80 percent) of those surveyed believe the current regulatory environment is good for American businesses and the overall economy.

The large majority of business economists believe concerns about economic uncertainty are a proxy for generalized concerns about the bad economy. (That is, the concerns do not reflect business worries about regulation.) Few believe economic uncertainty is a major concern that is holding back economic progress.

In conclusion, when looking at both what employers are doing in terms of hiring and investing and what they (and their economists) are saying in private surveys, it’s nearly impossible to make the argument that uncertainty about regulations is holding back the economy. A Bloomberg News (2011) editorial makes the point even more broadly:

“There is no doubt that certainty is generally preferable to uncertainty, in the economy as in most aspects of life….But there is no evidence that uncertainty has increased during the Obama presidency, or that, if it has, the president’s policies are responsible for it…The charge of ‘creating uncertainty’ is a way to blame Obama for the U.S.’s economic trials without having to explain the connection.”

And, as expected, you project onto me (and the economics PhDs at the Von Mises Institute, Heritage, AEI, Hoover etc. from where I get my knowledge of economic matters, not to mention my massive personal library) your own longstanding, traditional confusion regarding the difference between serious, critical thought and ideological evangelism.

As is also traditionally your won't, you choose as exhibit 'A' of "economists in the know," not intellectually credible economic scholars but a deeply ideological left-wing activist site who's board of directors reads like a rogue's gallery of the contemporary anti-American, anti-capitalist Left.

Let's take a little look at the "economists in the know," shall we? Let's take a look at the Board of Directors of the Economic Policy Institute. We will easily be able, given your choice, to use the most comprehensive clearinghouse of historical and critical information on the Left on the Internet, David Horowitz' Discoverthenetworks for most of them.

We start, not with an economist, but a lawyer, the utterly corrupt union political warlord and radical leftist labor agitator Richard L. Trumka, head of the notorious and thuggish AFL-CIO.

http://www.discoverthenetworks.org/indi ... indid=1630

Our next economist "in the know" is Juilann Malveaux, Useful idiot and Fidelista, race, class, and gender ideologue, and multicultural racialist. Oh, and she's an economist too.

http://www.discoverthenetworks.org/indi ... indid=2515

Next, we have Ernesto J. Cortes, Jr. a key figure in one of the original anti-American, anti-capitalist revolutionary subversive groups of the modern era, Saul Alinsky's original Industrial Areas Foundation.

http://www.discoverthenetworks.org/prin ... grpid=7493

This is worth posting in its entirety, just so we may see, yet again, who Kevin thinks represents intellectually credible research and serious, critical thought:



As to Saul Alinsky's (a key ideological mentor and role model to both Barack Obama and Hillary Clinton) agenda and beliefs:

http://www.discoverthenetworks.org/indi ... indid=2314

Phaedra Ellis-Lamkins is also a leftist union ideologue as well as eco-extremist. She appears to have no economics background. Green for all is a radical leftist environmental NGO who's main interest appears to be supporting the entire global green energy fraud.

Then there's Keith Ellison? Yup. The notorious Keith Ellison:

http://www.discoverthenetworks.org/indi ... indid=2158

Need I go on delineating any more "economists in the know?" EPI is also not unknown to those who keep a watchful eye on the Left:

http://activistcash.com/organization_ov ... -institute

Lawrence Mishel, the author of the piece Graham quotes, is a DSA (Democratic Socialists of America) co-founder and anti-capitalist, leftist labor researcher. He's also an economist. This may give you a working understanding of his credbility as an "economist in the know."

http://www.google.com/url?sa=t&rct=j&q= ... jQ&cad=rja

Utterly unable to refute the empirical data provided by economist Lawrence Mishel, Droopy does his usual evasion by drawing our attention to one of his favorite Right Wing fanatical "hit piece" websites that categorizes every expert who disagrees with him as some evil communist. But the funny thing here is that nowhere does Droopy attack the credentials of the economist who wrote the article above. Instead, he attacked the institute because it has members that can be found on Horowitz's McCarthyistic website. Obviously they present an intellectual threat to these half-wits. Just look at how Droopy revs up the rheotric in attacking these people, based on nothing more than Horowitz's say-so.

How exactly does attacking this person, whoever he is, in any way respond to the thorough refutation of droopy's idiotic "taxes and regulations" excuse for low employment? Lawrence Mishel is the economist who wrote this article, and he is a credentialed economist who received his degrees from:

Ph.D. Economics, University of Wisconsin
M.A. Economics, American University
B.S. Pennsylvania State University

That's three more degrees than Loran Blood and David Horowitz have combined. Given Horowitz's reputation as the arch nemesis to formal education, it should be little wonder Loran adores him so much.

And how does Droopy respond to his thorough refutation of this popular Right Wing lie? By randomly attacking other people who happen to belong to the organization. Only those who deserved a spot on David Horowitz's pathetic website of course.

Brilliant Droopy, just brilliant!

Take note that the Horowitz website has absolutely nothing negative to say about Mishel, the man responsible for the article I posted. And of course since Droopy's thinking is limited to whatever he can google, I guess that means droopy can't say anything negative about him either. He sure as hell can't refute the information therein. This is why he is taking this tactic of diversion.

Biography
Lawrence Mishel, a nationally-recognized economist, is President of the Economic Policy Institute, a role he assumed in 2002. Dr. Mishel first joined EPI in 1987 as Research Director. In the more than two decades he has been with EPI, Dr. Mishel has helped build it into the nation’s premier research organization focused on U.S. living standards and labor markets.

Dr. Mishel has co-authored 11 editions of The State of Working America, a book which former U.S. Labor Secretary Robert Reich says “remains unrivaled as the most-trusted source for a comprehensive understanding of how working Americans and their families are faring in today’s economy.” The State of Working America has been an invaluable resource in newsrooms, classrooms, and halls of power since 1988.

Dr. Mishel’s primary research interests include labor markets and education. He has written extensively on wage and job quality trends in the United States. He co-edited a research volume on emerging labor market institutions for the National Bureau of Economic Research. His 1988 research on manufacturing data led the U.S. Commerce Department to revise the way it measures U.S. manufacturing output. This new measure helped accurately document the long decline in U.S. manufacturing, a trend which is now widely understood.

Dr. Mishel leads EPI’s education research program. He has written extensively on charter schools, teacher pay and high school graduation rates. His research with Joydeep Roy has shown that high school graduation rates are significantly higher than the rates that are often cited by education analysts. This work has enabled policymakers to more accurately assess the state of public education in the United States.

Dr. Mishel has testified before Congress on the importance of promoting policies that reduce inequality, improve the lives of American workers and their families, and strengthen the middle class. He also serves frequently as a commentator in the print, broadcast, and online media.

Prior to joining EPI, Dr. Mishel held a number of research roles, including a fellowship at the U.S. Department of Labor. He also served as a faculty member at Cornell University’s School of Industrial and Labor Relations. Dr. Mishel holds a Ph.D. in economics from the University of Wisconsin at Madison. Originally from Philadelphia, he lives with his wife and two dogs in Washington, D.C.

I found your pun to be wholly asinine.

What in the world are you talking about? Since Adam Smith, "demand" simply means what people want. It can be measured by utility functions or whatever, but it always goes back to what people want. Talk to any economist, and they'll say there is a demand for food because people want to eat--they are hungry and they want food.

Saying things like, "production creates demand" implies that nobody wants food until it is produced. Pure gibberish. Either you are extremely confused about economics, or you’ve hijacked the word “demand” to means something totally different than what economists mean by the term.

Indeed. This notion that production creates demand is quite idiotic but it is a key element behind supply-side economic theory which, as recent history has shown, was a failure.

Bueller?





Bueller?



...

Now, here's what I can't get my head round.
How can you, as a Republican, be FOR individual rights yet AGAINST individual rights?

To my knowledge, supply siders don't argue that production creates demand. Rather they emphasize the fact that products are paid for ultimately with other products, so production drives demand to the extent it has value. Supply drives demand, in other words. That's all based in classical econ that I dimly recall from high school, but Droopy's wording skirts over that.

That is a fair point. Like I said, "demand" is how much you want something, but it is measured in terms of what you'd be willing to trade in order to get it. If you "want" something really really bad, yet you have little to trade for it, you still aren't expressing that much demand.

However, if you produce more and thus have more money to spend, your demand for goods and services isn't necessarily going to rise. Some people maximize their utility spending $100,000 a year, even if they produce $500,000 a year. A lack of production can limit demand, but other things can limit it too.

Hello!!!



Okay, Droopy. So you don't want to answer that question. (It's a mystery why not.)

Maybe you meant to say that it's those people known as corporations that have to pay their new employees using after-tax profits, not mythical high-income "job creators." After all, the right is constantly spouting some nonsense about "high corporate taxes" killing jobs, or preventing corporations from hiring. (Of course that's a lie, because employee wages are deducted before paying taxes. That's also true for health insurance premiums, by the way.)

Well, below you will find a link to Form 1120, the corporate tax form. My challenge to you is to point out on this form anything that does not allow a corporation to deduct employee expenses, including wages, commissions and benefits, before paying taxes.

http://www.irs.gov/pub/irs-pdf/f1120.pdf

Oh, and here are the instructions. Knock yourself out.

http://www.irs.gov/pub/irs-pdf/i1120.pdf

You're really hedging your bets here, Analytics, and the arguments become more strained and more elastic as the thread moves on.

I'm not speaking of things such as food; fundamental aspects of bare subsistence. I'm speaking of the vast plethora of things that have increased human temporal felicity, comfort, longevity, health, well-being, opportunity, personal development, and aesthetic enjoyment - prosperity - over generations of time.

There is no reason whatsoever, within a production-for-use-not-for-profit framework, or from the perspective of nothing more than what people need, for any more than one, basic, standardized car (a Volkswagon) used for transportation and utility, for the average citizen. There might, as well, be one basic pick-up truck, or similar vehicle. In reality, however, there are numerous sizes, styles, colors, shapes, and classes of vehicles, all created, marketed, and sold by competing automotive companies, to a welcoming populace, not to mention motercycles, two and three-wheeled touring cycles, three and four wheeled off-road vehicles, hot rod kit cares, self-produced dune buggies, and more.

In similar vain, all we need is bread, butter, some meat, some dairy products, and a few basic vegetables to survive and be reasonably healthy. And yet, you go to any bookstore and you see countless cookbook titles covering and endless variety of tasty, colorful, and aesthetically creative foods.

I could go on and on with this but the point should be obvious.

The socialist argument was lost in the 19th century. It only remains alive today within the academy and among the various elements of the Ruling Class because of who is, overwhelmingly, in control of the major institutions of society, not because of any truth to be found in the Mordorian philosophy or Korihorism.