Wednesday, December 8, 2010

Supply-side Economics: Tea Party Style

Andrew Leonard covers the opposition to the Obama-McConnell tax deal coming from Tea Party star Michele Bachman. I’m tempted to say that her comments make me feel 30 years younger (with the hesitation that this is the 30-year anniversary of when some twit named Mark David Chapman murdered John Lennon). After all, 30 years ago we were mocking supply-siders and their Laugher Curve. Andrew notes:

And as for what the country can afford? The total cost of the tax cut package unveiled yesterday, counting the extension of all the Bush tax cuts, the new payroll tax cut, the unemployment benefit extension and the reinstated (at a historically low level) estate tax comes to around $800 billion-$900 billion over the next two years. The cost of extending unemployment benefits for 13 months is about $60 billion. If your worry is "massive spending" then there are more appropriate places to direct your ire than unemployment benefits ... we should looking very closely at which tax cuts or social welfare policies are most likely to give us the biggest bang for the buck, in terms of encouraging economic growth. And on that score, spending money on unemployment benefits gets a very high rating. Extending unemployment benefits is a sensible move for a government when it is stretched for funds when economic growth is slow and the goal is to increase demand.

In Michele Bachman’s world – is $60 billion much larger than $800 billion? Or does she really believe reducing taxes does not add to the deficit? The latter seems to be the world Art Laffer lives in. Of course, Laffer might argue that fiscal stimulus ala tax cuts will increase real GDP. The endorsement of the Obama-McConnell tax deal from the National Review certainly sounded very Keynesian:

But the deal is still worth taking: If it won’t do much good for the economy, it will avert a serious blow to it.

Of course, a temporary tax cut on the very well to do likely is not going to generate much in the way of additional consumption demand, which is why increase government spending has a bigger bang for the buck. While Tea Party types say they’d like to reduce unemployment, they oppose even modest increases in government spending. And while they say they abhor deficits, they want large tax cuts with little bang for the buck. Go figure!


Unknown said...

I truly believe that the reality is one of immense productivity increase and a distorted distribution of gains. One sees this even on a global scale. The Chinese producers (workers) are short changed by their government and the cohorts of their government just as the American workers are short changed. If the Chinese people were adequately compensated then the world wide lack of demand would end very quickly or the planet would end very quickly. By this I mean that the earth would become unsuitable for human habitation.

The macro cost of productivity is the browning of the air and the global temperature increase at current population levels. But the distribution problems of political power and rudimentary education prevent any rational address. When we "tax the rich" in order to resolve the problems it is seen as a reduction in prosperity without any gain; we are bringing the rich down to our level out of spite. The importance of committing tax revenue to energy problems cannot be overstated. "Help the poor" is not a political winner. "Help the middle class" is somewhat better, but still off the mark. "Enrich the entire body politic" is a lot better. Why is our government not pursuing Modular Liquid Fluoride Thorium Reactors for the purpose of stopping the burning of coal and for the purpose of fueling electric cars? The answer is that the political power of the owners of carbon and the vested interest in carbon infrastructure will not allow it. But perhaps the biggest push back is from current operators of the uranium fuel cycle that enjoy much revenue and profit from this cycle. Why do lefties not see that increasing demand destroys the planet. Many righties believe that the greedy rich are averting planetary disaster.

LFTR in 16 minutes

And what's going on

Unknown said...

It seems that higher levels of taxation on extreme individual ordinary income has no direct adverse effect at all on the real economy. The secondary effect would be to spread the income across more producers so as to improve economic performance in the economy as a whole. The primary is of no harm because income above two or three million a year is not necessary to retain an individual recipient in his/her current productive role. And if this is not the case then the individual will have seen better opportunities. And the individual exercise of these opportunities will have increased economic performance on the whole.