Saturday, July 25, 2009

Economic Illiterate: Fred Barnes v. Barack Obama

Fred Barnes tries to attack the intelligence of the President in his Know-Nothing-in-Chief. This single line should tell the reader that the rest of this Weekly Standard op-ed was a waste of time:

Demonstrating a passing acquaintance with free market ideas and how they might be used to fight the recession--that's not too much to ask.

Recessions are often seen as a gigantic market failure – letting the market decide is not a recipe for restoring full employment anytime soon. Barnes next goes onto confuse long-term issues with Keynesian remedies for the current shortfall of aggregate demand:

Obama endorsed a surtax on families earning more than $1 million a year to pay for his health care initiative. This is no way to get the country out of a recession. Like them or not, millionaires are the folks whose investments create growth and jobs--which are, after all, exactly what the president is hoping for. Another tax hike--especially on top of the increased taxes on individual income, capital gains, dividends, and inheritances that Obama intends to go into effect in 2011--is sure to impede investment.

Yes – another one of these pseudo-supply-side rants that we cannot tax high income folks lest investment will just dry up. I guess Mr. Barnes is not aware of the role of real interest rates on investment in those full employment models that free market types think rule the world. And maybe he is not aware that the current Federal Reserve is currently keeping interest rates low in the hope that investment demand will eventually regain its footing.

Steve Benen has more criticism.


wellbasically said...

The question would be, what share of total investment comes from people who will see their taxes rise in 2011.

TheTrucker said...

What question? The question has been answered. The facts speak:


Married Filing Jointly
Tax Rate Over But Not Over
15.0% $0 $35,800
28.0% $35,800 $86,500
31.0% $86,500 -

15.0% $0 $43,050
28.0% $43,050 $104,050
31.0% $104,050 $158,550
36.0% $158,550 $283,150
39.6% $283,150 -

10.0% $0 $12,000
15.0% $12,000 $46,700
27.0% $46,700 $112,850
30.0% $112,850 $171,950
35.0% $171,950 $307,050
38.6% $307,050 -

In 1993 the Democratic Congress raised taxes by 28% on top income recipients from 31% to 39.6%

The GDP never went negative in any quarter theafter until 2001 even though the Fed jacked interest rates from 4.5% in 93 to 8% in 94 helping to remove the Democrats from the congress. The monetary action was instrumental in flattening GDP growth but it did not cause a recession.

The additional tax revenue allowed deficit reductionand in 2000 there was actually a reduction in real debt.

This factual data tells us that heavier taxation of ECONOMIC_RENT/PRODUCER_SURPLUS/UNEARNED_INCOME does not hamper real economic growth assuming the proceeds of the tax are NOT used for military spending or as handouts to cronies.