american economy Archives - Where Is The Outrage?

Why does anyone still listen to Arthur Laffer?

When I first started studying politics seriously, I read about Arthur Laffer. He is the economic guru behind supply-side economics. He was in fact the intellectual power behind Reagan’s plan to cut taxes for the wealthy so everybody will profit. To be honest, I don’t know that he has been wrong about everything. Nobody can be wrong about everything, but he has been wrong about most things. Look, as far as I’m concerned, Arthur Laffer may be a great guy. He has, however, led us on a 30-year misguided adventure which has drained our public coffers and has simply killed the middle class. Trickle down economics has now been proven not to work. It never worked. It never made sense.

Paul Krugman has more:

Jim Tankersley has a good article on Arthur Laffer’s never-stronger influence on the Republican party, with just one seriously misleading statement:

Laffer’s ideas have also grown out of fashion with much of the mainstream economic community. There is an entire branch of economic literature that uses detailed equations to show cutting top tax rates does not spark additional growth.

No, Laffer hasn’t “grown out of fashion” with mainstream economics — he was never in fashion. There was never any evidence to support strong supply-side claims about the marvels of tax cuts and the horrors of tax increases; even freshwater macroeconomists, despite their willingness to believe foolish things, never went down that road.

And nothing in the experience of the past 35 years has made Lafferism any more credible. Since the 1970s there have been four big changes in the effective tax rate on the top 1 percent: the Reagan cut, the Clinton hike, the Bush cut, and the Obama hike. Republicans are fixated on the boom that followed the 1981 tax cut (which had much more to do with monetary policy, but never mind). But they predicted dire effects from the Clinton hike; instead we had a boom that eclipsed Reagan’s. They predicted wonderful things from the Bush tax cuts; instead we got an unimpressive expansion followed by a devastating crash. And they predicted terrible things from the tax rise after Obama’s reelection; instead we got the best job growth since 1999.

And when I say “they predicted”, I especially mean Laffer himself, who has a truly extraordinary record of being wrong at crucial turning points. As Bruce Bartlett pointed out a few years ago, Laffer was even wrong during the Reagan years: he predicted that the Reagan tax hikes of 1982, which partially reversed earlier cuts, would cripple the economy; “morning in America” promptly followed. Oh, and let’s not forget his 2009 warnings about soaring interest rates and inflation.

The question you should ask, then, is why this always-wrong economic doctrine now has a stronger grip on the GOP than ever before.

It wasn’t always thus. George W. Bush’s inner circle clearly had little use for the likes of Laffer; they engaged in a lot of deceptive advertising about the economy (and a few other things), but they never made extravagant supply-side claims — and remember that Greg “charlatans and cranks” Mankiw served as chairman of the Council of Economic Advisers. But since 2009 the GOP has swerved hard right into fantasy land — and it has done so despite a remarkable string of dead-wrong predictions by the people peddling that fantasy. (more…)

By ecthompsonmd|2015-04-16T14:11:21-04:00April 16th, 2015|Economy|Comments Off

Good News and Bad News

It is nice to know that I am on the side of those who argued that a decrease in spending (government spending) was bad for the economy. It is nice to know that I was right. No, I’m not some high-powered economist. I would like to think that I’m someone who sits back and looks at most of the available data and tries to come to some logical conclusion. It would be nice to say that the economy of the United States, or that the world for that matter, is based on some grand moral play. When people do bad things, like overspending, they will get punished for it. Unfortunately, the economy doesn’t work like that. Sometimes those who make the most reckless and thoughtless economic gambles aren’t risking their own money. They’re risking yours.

This is a convoluted way of saying austerity has failed. There was that one academic study that conservatives waved around which turned out to be incredibly flawed. It was so flawed, in fact, that a grad student was easily able to show that their data didn’t make any sense. So, where does that leave us? Austerity doesn’t work. The American economy is stagnant secondary to the sequester (Austerity 2.0), many of the European countries that embraced austerity (Ireland, Spain, et al) are “enjoying” pain without gain. Where does that leave us? In my opinion, the answer is simple. We need government spending. This is the good news. The bad news is that US lawmakers haven’t figured out that they are punishing the American people for no good reason.

On another note, the weakness of Democrats sometimes makes me want to vomit, right here, right on my keyboard. The Democrats made their argument over how bad the sequester was going to be. They rained all of this negativity about the sequester and what an absolutely terrible idea it was. They were right. Yet, the Republicans talked nothing but happy talk. Conservatives said that we would notice nothing with the sequester. Slashing government spending would be no big deal. No one would notice. So, for the first several weeks/months of the sequester, Republicans looked like they were right. There appeared to be no specific bad side effects to these massive government spending cuts. We then started seeing long lines at airports because of furloughed air-traffic controllers. Suddenly, Congress sprung into action. The Democrats caved. Instead of standing strong and clearly articulating to the American people that this is exactly what they were talking about, the Democrats allowed the Republicans to craft legislation to carve out an exception to the sequester. What the hell? All the Democrats had to do, in my opinion, was to stand up and point out that this is a perfect example of the consequences we warned the American people about. This is the sequester. The Democrats should have proposed only two options, repeal the sequester totally or continue to embrace it. Instead, they’ve allowed to carve it out. This is an excellent example of how to lose an argument even when you’re right.

The good news is that I was right on austerity. Austerity doesn’t work in this situation. The bad news is that the Democrats caved on the sequester.

By ecthompsonmd|2013-04-30T21:44:33-04:00April 30th, 2013|Economy|Comments Off

Closing arguments – Why I Continue to Support Barack Obama, Economy

I continue to be amazed at how some Americans will believe just about anything. Barack Obama was born in Kenya. Barack Obama was born in Indonesia. Barack Obama is a Muslim. Barack Obama is a communist. Over the last five years, I have heard it all. I’m sure somewhere I read that Barack Obama is really a space alien from the planet Alpha Centurai.

President Barack Obama has led the country in truly trying times. It’s only been over the last 15 years or so in which our political discourse has deteriorated so much that it doesn’t matter what you say or how you say it. Fierce opposition will arise. Take, for example, a truly simple problem – the collapse of Chrysler and GM. This should have been an easy bipartisan fix. Sure, there are some folks on Capitol Hill who are the ultimate idealists and believe that government intervention is never the right answer. But there only a few of those true ideologues. There are some these idealists on both sides of the aisle. President Bush started the process of helping the auto industry by giving them a bridge loan until the new administration could take office. Barack Obama took this initiative and ran with it. Almost instantaneously Republicans were against it. From a truly economic standpoint, the collapse of GM and Chrysler would’ve been catastrophic to an ailing American economy. Instead of Americans being able to rally around one of our signature industries, this quickly dissolved into a huge fight. Suddenly we had the great big, huge government takeover of an industry. Barack Obama was painted by his opponents as a Marxist or a socialist because he did the sensible thing. GM, Chrysler and Ford are now back on the right track. Their loans are paid back. They’re more competitive than ever. Millions of Americans now have jobs because our government stepped up and stood up for the American people.

When Barack Obama took office our economy was shedding over 700,000 jobs per month. It was the worst economic nosedive since the Great Depression. For many Americans, the Great Recession came out of the blue. Most of us were unaware that our economic boom in 2005 and 2006 was standing on a very precarious foundation. The housing market collapsed. Millions were laid off. Great Wall Street firms were folding like a deck of cheap cards. First Bear Stearns. Then Lehman Brothers. Merrill Lynch, a household name, was pulled from the brink of extinction by Bank of America. The stock market was tanking. It was ugly. It’s only with 20/20 hindsight that can we step back and look at how close we came to a real, honest to goodness depression. In my opinion, we were this close to unemployment rates of 15%, 18% or even 20%.

Barack Obama decided we needed an economic stimulus. Many economists were talking about a stimulus that was somewhere in the neighborhood of 10% of GDP. That would’ve been $1.5 trillion. Christine Romer, chairman of the President’s Council of Economic Advisers, had $1.2 trillion as her starting point. By the time the plan bounced around the administration and before it got to Capitol Hill, the plan was trimmed to $800 billion. This price tag was simply too much for many conservatives in Congress. They went crazy. There’s no other way to describe their response. In order to win bipartisan support, the president and his advisers removed some of the stimulative projects and inserted tax cuts. They continued to insert tax cuts until they were able to get enough Republicans on board to pass the stimulus package. Let’s remember that not all government spending is going to stimulate the economy in the same way. In spite of the wrangling, the administration was able to get an economic stimulus passed. It wasn’t the best package, but it appeared to be enough to stop the economic free fall that we were in.

Over the last two years, our economy has been the little engine that could. Slowly but surely gaining momentum. Wages remain stagnant but we’ve seen an economy that has gained private sector jobs for 31 straight months. We’ve seen an economy that has gained over 100,000 jobs per month for the last eight months. Things are getting better. Consumer confidence is up. Home prices have stabilized and they are beginning to rise. New-home construction is improving. Things are getting better.

The reason I voted for Barack Obama (I voted early) is that, he has guided our economy from the depths of despair to today when all Americans can see that things are getting better.

By ecthompsonmd|2012-11-04T21:42:08-04:00November 3rd, 2012|Congress, Economy, Elections, Party Politics|Comments Off