Did Bush's Tax Cuts Work?

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I am not one that get overly invlovled with politics or economics. But I must say that it is impossible to provide for the poor, and improve their standard of living by a significant degree. The great majority of people(including me) are not willing to lower their standerd of living just to help a group of people that they may not even know personally.

 

Wow, I out-cynic'ed Laches! Write this day down!

Seriously, I agree with the basic premise that every politician is sincerely trying to do what he/she thinks is best for the country. If you can't start from that assumption - regarding EVERYTHING that EVERYONE ever does - what's the point of living? I have to believe that the vast majority of people really do spend their time trying to do the right things.

Call me Pollyanna.

 

Actually, according to basic principles of macroeconomics, the tax cuts have to get some credit for this growth spurt. I'll spare you the in-depth analysis, but people tend to spend a specified percentage of any change in income (tax cuts are changes in income, as the consumer has more to spend). That change in percentage is called the Marginal Propensity to Consume. So yes, the tax cuts (part of an expansionary fiscal policy) definitely deserve some credit.

Do they deserve all the credit? No. Increased government spending brought on by this fiscal policy, as well as a lowering of the prime interest rate, also deserve some credit. The outlook of business could have played a role.

While all this may be true, anyone that says that the tax cuts played no role in the GDP growth really needs to brush up on economic theories.

Chandos,
1. Quite a few, but socialistic economic policies prove to be counterproductive to economic success. While this may sound harsh, I'm unwilling to sacrifice the standard of living for the masses (most of America is not working poor, btw) to help the few.

2. I don't see it happening. Drugs are an inelastic item, and companies realize that they have customers who will pay regardless of cost. It costs a fortune to research drugs, so they have to charge a high amount to recoup their expenditures.

3. The unemployment rate is often misleading. To get the true number of people unemployed as a result of those 'corporate fat cats', take the current rate and subtract 6% from it. You'll find that the number is not as ridiculous as you seem to think.

I'm going to sound like an enemy to the blue-collar man here, but the truth is is that unions have screwed quite a few people over. Because they demand high wages, companies are going to contract out to other nations where they can get the same job done at a fraction of the cost.

Maybe not at the beginning, but there was significant economic growth toward the end of his first term as president.

Agreed, but if you have a workable solution to this problem then I'd like to hear it. Socialism does not work, and most of these people are stuck in a Catch-22 situation. They've got no education, so cannot get a halfway decent job, but to get a good education, you need to come from a fairly good background.

That's definitely a motivating factor, but let me combat your cynicism. What's the best way to get re-elected? Give a strong economy to the voters on Election Day. No president since FDR has served more than one term in poor economic conditions.

 

Rastor, actually a socialistic/capitalistic mix as has been used in most European nations work atleast just as good as the more purebred capitalism of the US and a lot better than the pure socialism of the Soviet Union. I just wanted to make that clear.

I would also like to say that according to my quite superficial studies in economics so have Keynes and the derivative theories you refer been pretty much debunked in the last decades. Many countries has tried to follow those principles to no avail, they tend to show some result in the short run but that is mostly due to the fact that they tend to "mask" reality. Give the appearance of what is not true. They are still used mostly for lack of anything else. As I stated before, the economy is a global thing, a bull you can try to prod as best you can but which in the end goes where it will in a rather whimsical way. It is governed by something but that something is a compound of so many variables that it is impossible to make any greater impact on where it is heading. All you can do is pretty much to hope.

But generally the bull is rushing in a direction which is mostly making what you Rastor like to say, making the cookie larger due to human development. The only real question is how to distribute that cookie and how you distribute that cookie has very little to do with how much it grows.

 

I'm not sure anyone has said otherwise. I think you'd get a lot of argument about what form those tax breaks should take and what the most efficient means of stimulating an economy via tax breaks may be.

However, speaking for myself, what I mean when I say that a Pres gets too much credit and too much blame for the economy is that I'm unaware of a President yet that put a tax cut into place on his own. He can ask Congress nicely. Greenspan is deeply entrenched. And ironically, public perception may play the biggest role in how an economy does. All these diminish the role of the Pres in controlling the economy in my opinion.

The Pres has little direct control over the economy; steel tariffs are an exception and have I mentioned how stupidly I think they have been used by Bush?

 

Laches - While I agree with you that both sides believe that they are engaged in what is best for the nation, I still think that large donations have corrupted the system. The drug companies, insurance and banks, energy companies - it's common knowledge that Cheney just about let them write the Bush energy policy - despite the big secret meeting - the NRA, and all the rest are engaged in short-circuiting the democratic system. On the other side, is the dems with the same problem with their special interest groups, trial lawyers, that donate heavily to their quest for power. There are only two I can think of immediately who ran against the Big Money - McCain and Nader - and looked what happended to them.

Those who are buying off the politcians with donations may claim that it is their right to buy the legislative system, but if that is the case than no one would believe that the Common Good of the People is being served by the current crop of so called "Lawmakers."

Nevertheless, I agree with the spirit of your comment. There are still some who believe that one day the trickle down theory may actually work. Of course, I'm not one of them.

 

The average growth rate of the European Union in terms of GDP is 0.4% annually. The U.S. averages 3%-4% annually. Care to rephrase how well it works?

BTW, if you think that either the U.S. or the Soviet Union are pure capitalism and pure-socialism respectively, then you really need to do a lot of research on the economies of either.

I've been making my stand on the mixed economy of the US clear for a long time now. I wish we were a pure capitalism, but we aren't. We aren't as much of a mix as Europe, but the United States is a far cry from being a pure capitalism.

 

I know little about economics so I will refrain from becoming too involved, but such growth rate figures mean little with such an unbelievable debt, and when most of that money is owned by a very small populaion of billionaires - the country in effect is not really better off than anyone, also with a larger percentage of the population worse than their counterparts in countrys with a "worse" economy -and money isn't evreything you know.

Perhaps pure capitalism would be better than the current mix, even though I oppose it's ideals, at least then people could live their own lives and have nothing to do with the government and corporations- but who then is going to stop such corporations from making the jump to millitant dictators? Their influence upon the law (or lack thereof) is allready well noted, and their disrespect for the world around them is obvious.

 

Pure capitalism? How would you define that? Tell us how it would work better than the current econmic mix of programs we have now. I think the closest we've had to that was before the Great Depression. That fixed any idea of that. Although there were a number of reform programs during the early part of the last century. Nevertheless, they were nothing on the scale of what FDR accomplished. Good thing too - someone had to save capitalism.

 

I would have to say that prior to the Great Depression was an example of "reckless Capitalism", but not "pure Capitalism". How can the unrestricted issue of margin to the Butcher, the Baker and the Candlestick Maker equate to Capitalism.

I think that the closest thing to pure Capitalism that the US has ever experienced would be the boom years of the late 80's and early 90's (20th century ) The pre-depression era was really just a post-war era and should be viewed accordingly.

 

HS - That period also saw an expansion of the federal government and its role in providing welfare for large corporations. And a still growing political commitment to entitlement programs such as Medicare and Social Security. If that's your idea of capitalism then we need to rewrite the dictionaries. Keep in mind that anytime the government spends money to create jobs it is a move away from pure capitalism.

 

Nope I dont care to rephrase that. First off I dont know where you got those numbers and what it deals with and when. Secondly so what I mostly meant was that people have roughly the same standard of living in the US and western Europe. I am sure you could come up with many many examples to prove it otherwise but you can agree on that Western Europe and the US have it a lot better than for example Eastern Europe and South America?

I can admit that I was a bit reckless with my wording, but I never said the US was a pure capitalism, I said it was a more purebred one compared to what I had previously talked about. I did however make the mistake of calling the Soviet socialism pure, which was a mistake of course, but it was as close as anyone has got so I think it still is ok to use it as an example.

 

See the Nov 4 one, second down:

http://www.usatoday.com/news/opinion/cartoons.htm

 

Let's see, welfare programs, social security, and Medicare existed in those periods, so no, it was not pure capitalism.

Chandos was correct when he said that the closest the US has ever been to pure capitalism was prior to the depression, but even then there were laws restraining business actions, so it wasn't.

Anyone that even brings the national debt into a discussion about poor economies is either ignorant or off topic. The national debt, created by selling government securities, is an important aspect of monetary policy. A $7 trillion debt means nothing in terms of economic growth.

The numbers are direct from an economics report in the Wall Street Journal. I can't link to their online site, it's only accessible to consumers.

I won't argue that the lifestyle of Western Europe and the US are comparable. Given the current information, though, I challenge you to say that a generation from now.

 

To clarify my point...the closest we have come to practicing capitalism in the era of a GLOBAL ECONOMY was in the period that I mentioned. The social programs that you mentioned had existed since the depression period or at least the 1960's. When you compare spending on social programs, adjusted dollars, it was less in 1988 than in 1968. Stretch that period to 1992 and the gap is even larger.

If you consider what social security and medicare were defined as at their conception, they don't even belong in the arguement.

I understand the point that both Rastor and Chandos make, it's just unrealistic to consider anything prior to WW2 as representative of anything equivalent today. There is no way to have any sort of Democracitic efficacy debate, and hold up the functions of a system that is 80 years removed if we are making any sort of comparative arguement.

If you wished to seek a period of true, isolated democracy you would not choose pre-depression, but instead view the Industrial revolution.

 

I have a problem saying that actually Rastor. I think that the general living situation in the US is going to drop quite a bit (actually it will most certainly in the EU too but that is due to the joining of new members from Eastern Europe). Concerning the US I think they might have a future problem simply because they do not seem to utilize its greatest natural resource, the people. As it stands today in my knowledge only people from quite well off families are able to study further than high school unless they are exceedingly bright and well disciplined and can get scholarships. In a world where knowledge is the most valuable commodity I think that is going to show itself in the general economy sooner or later. Jobs where you dont need any higher education is getting scarcer and scarcer and pay less and less. Staff intensive industries have been relocating their factories to other places in the world for a long time, both in the US and in Europe and I am quite convinced that investment into making it easier for people to study past highschool benefits everyone.

I can also see some trends in the US today, and in the whole world to be honest but it is clearer in the US that the chasm between those that have and those that dont is getting wider again after having lessened during the last century. What good is general economic growth when it doesnt benefit 85% of the people. The trickle down theory has yet to show any validity anywhere except in the minds of some financial theorists and politicians.

These are just thoughts though, he who lives shall see.

 

Well, this is the exact opposite of what is happening. Actually, the percentage of population which has a college degree is at an all time high in this nation. This is true for the overall population and each ethnic group in the US as well. Kiplinger had a story about the myths of college expenses:

Also, from anecdotal evidence, it is increasingly easy to get scholarship assistance. For example, states like Georgia are moving toward providing any in state resident a free college education to any student graduating high school with a B average. UNC, an influential University, is part of the growing trend to do away with all loans and replace them with grants; initiating a program where in exchange for full scholarship aid students work 10 hours a week for the University.

I know I paid my way through undergraduate and post-graduate school. I know that many of my friends did the same. I got out without owing anything in student loans. Others have student loans. Either way though, it is becoming easier in the US to go through college. What may be becoming more difficult is going through certain colleges without help as certain colleges prices are high but overall, it's easier.

This is one of those ideas I reject. I personally don't think it matters one iota what the gap in wealth between Bill Gates and me is from an economic standpoint. Bill Gates having more money doesn't mean that I have less. It is not a zero sum game. Indeed, because of the way the multiplier principle works Bill Gates being wealthier means that there is an increase of wealth to the system greater than the increase to Bill Gates. His wealth doesn't sit in a Scrooge McDuck type vault which he swims in; it is loaned out for house buyers, car buyers, small business loans etc.

Which leads to another point - the average income in the US is at an all time high according to the latest census figures. The median income in the US is also at an all time high according to the latest census figures. This is when adjusted for inflation etc. So, the idea that only a small minority of the US is benefiting when the economy does well and the rest is a mass of down-trodden folks wearing burlap sacks simply isn't the case. Things are, historically, getting better for all economic groups and not just the rich; the numbers support this.

I would also say there is a change in the type of work being done in the US but change =!= necessarily have to be bad. Manufacturing is down but meanwhile new types of industries, whether it be pharmaceuticals or software or service industries etc, are replacing them.

 

Your last quote of me was commented quite out of context. I statet explicitly that the trickle down theory which was what you were refering too has yet to show any noticeable results anywhere, atleast to my knowledge.
It may not be a zero sum game but if the economy grows with 5% in general and none of that increase goes to you but to a very small part of the populace which is what I said, it doesnt matter that the general economy is growing. Ok if Bill Gates had earned 5m$ more that year and you 500$ more but if Gates instead would earn 10m$ more that year and you nothing the financial growth hasnt really benefited the majority of the population.

Your comments on college actually doesnt go against what I said. I didnt state it explicitly but when I talked about the changing world and knowledge as the greatest commodity I did take in account that more people would study more in the US well. The mere fact that there is such a thing as tuiton is still stopping many though. You say you worked your way through college, I bet that was quite tough and not something that it is easy to do. Not everyone is able to combine both full time studies and to work to pay for it, they may not be as fit for college as you were but in the future even those people may need to get an education. My point really is that the average Joe with an average intelligence and motivation may also need to have a college education to be able to contribute in the future. There will always be people who absolutely not are fit for higher education of course but most are.

Lastly, dont you think you would have been able to learn more and in a better way if you didnt have to work your ass off while in college? Wouldnt it be nicer and in the end lead to a better knowledge of the subject on your part if you had been able to devote all your attention to your studies instead of juggling work and studies at the same time?

 

The problem is that the average income is up. The median income is up. So, the economic gains aren't just going up for one small group or the median income would not be up. You set up a hypothetical, "if all the growth goes to a small part of the populace" but that hypothetical isn't what is happening according to the census figures regarding average and median income.

Regarding college, the point is that scholarships are becoming more and more plentiful and easier to qualify for. Loans are being replaced by grants. It is becoming easier and that's why there is an increase in the number of people attending college and the number of people with degrees. It wouldn't make sense to think it was becoming harder at the same time the number of scholarships and graduates is up - there is a causal relationship in there somewhere.

No. I absolutely do not. In fact, I think the opposite is true. I think working and going to school prepared me for life in a much better way than I would have been prepared otherwise. Let me ask you: do people generally appreciate something more if they work for it or get it for free and it comes cheap? And one need not 'work [their] ass off' either. My girlfriend in undergrad was on a need based scholarship that required her to work for the school - she worked 10-20 hours a week at the library. Hardly working your ass off.

Tangential rant time: the West is becoming a bunch of sissies. Thinking they're entitled to retire at early ages and work 30 hours a week and...blah. There is nothing wrong with retiring early, or working as few hours as possible, or being generally lazy if you want to be but nobody is entitled to that.