Black Hole....errr The Political Roundtable

[Spence]

MONTESTEWART: I concur entirely. It is easy to assume the worst about another person's intentions, particularly if you are arguing with that person, when you cannot see or hear the expression, tone, etc. Leads to a lot of unnecessary drama on the Intertubes.

[nate33]

I'm not convinced by a school of thought that favors deduction over induction derived from empirical mathematical and statistical studies. You are. Fine with me, but don't confuse disagreement with hostility. I've worked on The Hill and in politics and long ago got over the idea that people who disagree with me are wicked. There is nobody on this board less hostile to you than I am.

And that's where we disagree. My problem with those "empirical mathematical studies" is that it's way to hard to isolate the independent variables well enough to provide satisfactory results with predictive value. Basically, the Keynesians (and other schools) dress up their thoeries is complex mathematical equations to give the impression of scholarly analysis, but those complex mathematical equations still do them no good.

[dobrojim]

leaving aside the issue (if any) of the messenger, what empirical evidence
supports or refutes what was written in the column, that significant
spending cuts during a recession are likely to make things worse rather
than better?

What empirical evidence supports the notion that tax cuts
biased towards the upper income levels is of greater stimulative
value than other forms of government action ie spending cuts
or tax increases?

I think the evidence that tax cuts don't work is pretty clear based
on the last 30 years of history.

[Severn Hoos]

Spence: I'll grant you all of that. The point is that Krugman himself wrote: "Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . The drawback to this generosity is that it reduces a worker's incentive to quickly find a new job."

John Kyl said: "(doesn’t create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work.”

Those two are in exact alignment.

So Krugman changed his views from 2008 to 2010. Great. Or he believes that the stimululative effect is more important than the unemployment rate. Fine. My issue is that he mocks someone for saying exactly what he had previously written without acknowledging his previous statement or rationale for holding a different view currently.

As a corollary, it's one of my biggest issues with Mitt Romney. It's OK to change positions on issues - I certainly have! All I ask is that one acknowledge the change and offer a rationale for it. Mocking the other side is bad enough. Doing it for a position you previously held is very poor form.

And Go Cavs! Now I can say that and mean it at the pro level as well.

[nate33]

The Crisis was also foretold by classical economists like Nouriel Roubini [aka Dr Doom].

It's interesting that you bring up Roubini. There's a soft spot for Roubini among many of the Austrians. They feel that he has a somewhat Austrian streak to his economic thinking, which may help to explain why he saw the collapse coming. Here's a blog from Mises.org in 2008, before the collapse:

NYU Economist Nouriel Roubini, is quoted at length the Naked Capitalism blog. While the entire article is fascinating, this passage in particular is of great interest:

Sixth, the existence of GSEs….is a major part of the overall U.S. subsidization of housing capital that will eventually lead to the bankruptcy of the U.S. economy. For the last 70 years investment in housing – the most unproductive form of accumulation of capital – has been heavily subsidized in 100 different ways in the U.S.: tax benefits, tax-deductibility of interest on mortgages, use of the FHA, massive role of Fannie and Freddie, role of the Federal Home Loan Bank system, and a host of other legislative and regulatory measures.

The reality is that the U.S. has invested too much – especially in the last eight years – in building its stock of wasteful housing capital (whose effect on the productivity of labor is zero) and has not invested enough in the accumulation of productive physical capital (equipment, machinery, etc.) that leads to an increase in the productivity of labor and increases long run economic growth. This financial crisis is a crisis of accumulation of too much debt – by the household sector, the government and the country – to finance the accumulation of the most useless and unproductive form of capital, housing, that provides only housing services to consumers and has zippo effect on the productivity of labor. So enough of subsidizing the accumulation of even bigger MacMansions through the tax system and the GSEs.

Mainstream economics has largely ignored capital, at least in terms of its role in macro-economic phenomenon. Roubini here takes what is essentially an Austrian view of capital. Capital must be funded by savings; the savings must be invested; the quantity and type of capital determines labor productivity; consumption goods do ont increase labor productivity; and increasing labor productivity is a consequence of economic growth.

Roubini is a very interesting thinker to Austrians in that he seems to have almost discovered many aspects of Austrian economics on his own by common sense and looking at what is going on in the world in a curious way.

Here's another blog post from an Austrian

I have sometimes received the question of whether Nouriel Roubini should be regarded as an Austrian. I have generally answered to that he is primarily a Keynesian, even though he has some Austrian leanings. And I certainly stand by that assessment. Don't get me wrong here. I find Roubini and his RGE Monitor to be interesting to read, and while he remains more Keynesian than Austrian, he does display Austrian characteristics both in his approach (he skips much of the idiotic mathematical formalism prevalent in non-Austrian economics) and in part of his analysis ( he recognice that Fed monetary policy was too loose during the housing bubble and that this was a key factor behind the bubble). But while he has some Austrian leanings (and is therefore more accurate in his analysis than most economists), he remain mainly Keynesian.

[Zonkerbl]

I think the statement "doesn't create new jobs" is open to debate. It's true that one side effect of unemployment benefits is that it is a disincentive to take certain jobs. But forcing people into crappy jobs can be job destroying, so the one doesn't necessarily follow from the other. I wouldn't necessarily call someone who held that view insane but I wouldn't let it slide either.

[Zonkerbl]

[youtube]http://www.youtube.com/watch?v=d0nERTFo-Sk[/youtube]

Gettit? 'Cause Hayek's a founder of the Austrian Economics thingie?

[nate33]

leaving aside the issue (if any) of the messenger, what empirical evidence
supports or refutes what was written in the column, that significant
spending cuts during a recession are likely to make things worse rather
than better?

What empirical evidence supports the notion that tax cuts
biased towards the upper income levels is of greater stimulative
value than other forms of government action ie spending cuts
or tax increases?

I think the evidence that tax cuts don't work is pretty clear based
on the last 30 years of history.

I'm personally in favor of tax cuts (and more importantly, the elimination of loopholes) for corporations. I'm not opposed to tax increases for the rich.

The way I see it, tax rates are subject to competition just like anything else. With our high corporate tax rate (now the highest in the world once Japan enacts their tax cut), corporations are forced to set up shop overseas (or bribe a congressman to introduce a loophole) if they want to remain competitive on the global market. Reduce corporate taxes, and you will have more corporations move back here and pay taxes. That means more jobs and more revenue.

Individual tax rates are also subject to competition. Most developed nations have higher upper bracket rates than the U.S. So if we increase the tax rates on upper bracket earners, there is less incentive for them to go elsewhere, because there's no where else to go. As long as our competitors have high individual tax rates, we can manage to have high individual tax rates without much fear of capital flight.

[pineappleheadindc]

^

Re: part of Nate's post - about loopholes.

Every so often, I just get frustrated with - to be brutally honest - the complexity of tax policy and just want to throw up my hands and vote for a flat tax, no loopholes, for both individuals AND businesses.

Then I remember that one man's loophole is another man's incentive. States cut corporations deals to move jobs into the state. (Incentive vs loophole). etc. Also, I am conflicted about having individual flat tax not provide individuals with mortgage deduction benefits strictly based on my personal greed.

So, after my short visits to flat tax-land, I retreat in a confused state back to my shell.

One thing I'd really like to see on 100% of loopholes (incentives), is a mandatory sunset. These things shouldn't live forever, hidden in the confusion of the tax code, without a periodic debate and proactive vote to extend them.

[nate33]

[youtube]http://www.youtube.com/watch?v=d0nERTFo-Sk[/youtube]

Gettit? 'Cause Hayek's a founder of the Austrian Economics thingie?

That's brilliant!

[DCZards]

Reduce corporate taxes, and you will have more corporations move back here and pay taxes. That means more jobs and more revenue.

Corporations will stop shipping jobs overseas and move back here when you ELIMINATE corporate taxes, abolish labor laws and workplace safety rules, get rid of environmental protections and take away workers' rights to organize and demand good wages and decent benefits.

[Zonkerbl]

But I've always interpreted neoclassical economics to say "you never actually know if you're in a recession or not -- if you use a stimulus package in the middle of a recovery you'll just make a big mess." It's not a question of whether stimulating aggregate demand works to pull you out of a recession -- it's that it's too tempting to stimulate aggregate demand no matter what the actual economic situation is, and if you do that you'll just amplify the boom/bust cycle if you muck around too much (like Alan Greenspan).

If you're smack dab in the middle of an enormous recession and everybody knows it the Austrian objection isn't as valid.

[Zonkerbl]

Reduce corporate taxes, and you will have more corporations move back here and pay taxes. That means more jobs and more revenue.

Corporations will stop shipping jobs overseas and move back here when you ELIMINATE corporate taxes, abolish labor laws and workplace safety rules, get rid of environmental protections and take away workers' rights to organize and demand good wages and decent benefits.

Yeah, there's good and bad competition. Jobs are great but you don't want to get in a race to the bottom either.

[Spence]

NATE, you know who else has said nice things about Dr Roubini? Paul Krugman. I've spoken to Dr Roubini about half a dozen times and though I can only understand about 75% of what he says when he really gets going, I can tell you he's definitely a very mainstream economist. His ability to predict the Crisis was out of the mainstream, but he arrived at that conclusion using methods that would be instantly recognizable to any economist from Monetarist to Keynesian. That's more or less what you'd expect of someone who served in the IMF, the Clinton administration and whose academic advisor was Jeffrey Sachs.

[Zonkerbl]

Ugh, Jeffrey Sachs. Ugh.

So there's a whole group of economists in the early nineties, not too many, who were serious economists still studying the planned economy and what was wrong with it. 1992 comes along, and Russia reaches out to ... Jeffrey Sachs, who admittedly is from Harvard and is a decent development economist, but knows absolutely NOTHING about the planned economy.

Sachs proceeds to recommend the standard imf company line on macro stabilization measures, and OF COURSE chaos ensues because what the economies in transition required in terms of reform was COMPLETELY DIFFERENT than in South America. COMPLETELY.

Sachs didn't even BOTHER asking any of the transition economists for advice. Later his wife got busted for insider trading on Russia's new stock market. [edit: Bah, that wasn't Sachs, that was Shleifer, who ironically wrote a paper on the economics of corruption. My bad.]

Jerk.

[Spence]

Sachs screwed up royally in post-communist eastern Europe and USSR. He fell in love with every neo-liberal trope I can name and several I can't recall. On the other hand, at least he admitted his mistakes and changed his advice. That's a bigger deal than you might think -- most economists will go to absurd lengths to avoid confessing an error.

[dobrojim]

re corp taxes - why should we operate under the assumption that
corps will take their business elsewhere if we make things too hard
on them. That's ignoring the fact that the US is a great market
to do business in because here is where the money is. If a corp
says no thanks to doing business here on We the People's terms,
another one will be too happy to fill the void. We have a highly
productive well educated work force and a ton of wealth.
Stop acting like corps are in the driver's seat. That's true
now only because of legalized bribery. It doesn't have
to be that way.

Stewart on the corp media BTW- I want a bumper sticker that
says I don't believe the CORPORATE media!

http://tinyurl.com/4mhkk9x

[dobrojim]

wave of populism forthcoming?

http://www.commondreams.org/view/2011/03/30-4

[nate33]

re corp taxes - why should we operate under the assumption that
corps will take their business elsewhere if we make things too hard
on them. That's ignoring the fact that the US is a great market
to do business in because here is where the money is. If a corp
says no thanks to doing business here on We the People's terms,
another one will be too happy to fill the void. We have a highly
productive well educated work force and a ton of wealth.
Stop acting like corps are in the driver's seat. That's true
now only because of legalized bribery. It doesn't have
to be that way.

That mindset only applies to industries where there is no competition from foreign imports. Sure, you can tax the bejesus out of homebuilders or restaurants, but you can't tax manufacturers like that.

[Zonkerbl]

Found it... dude, this will blow your mind:

In 2010 U.S. foreign liabilities were $20.9 trillion ($13.4 trillion in debt to foreigners, $7.5 trillion equity owned by foreigners)

U.S. foreign assets were $15 trillion ($6.3 trillion loans to foreigners, $8.7 trillion foreign equity owned by U.S. citizens)

The cost of servicing our $29.9 trillion in liabilities? $645 billion
The income from our foreign assets? $878 billion

So despite having $5.9 trillion more foreign liabilities than assets, we earn $233 billion a year more from our assets then we pay to service our liabilities!!!! And this was in 2010!!!

Do we live in the most powerful economy in the world or what?