Dean supporters probably won’t like this website.
Also, via Drudge, we see that the “Issues” area of Clark’s website is empty. Hehe.
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What Do Moonbats Like for Breakfast?
Like Howard Dean? You won’t want to miss THIS.
Hat Tip: Balloon Juice
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Defending the Duck
TAM isn’t in the business of defending the Duck. He’s fully capable of bloviating about his record and policy statements.
Kimmitt
Somebody get that dude some conditioner. Those hairs are split all the way to the root.
John Cole
You have to admit it is funny, Kimmitt.
Kimmitt
Waffles are inherently funny.
David Perron — I owe you a discussion on supply-side economics. The note where it was died; will you accept a change of venue to my blog?
David Perron
Sure. I thought maybe you’d forgotten.
Actually, I wasn’t arguing the validity of supply-side economics. I was questioning the claim that tax cuts are certain to result in loss of revenue. Since I’ve never seen even a sketch of the Laffer curve, I’m still a bit leery of this claim. Any edification you could offer would be extremely welcome.
Ricky
I’ve done detailed charts of how ON BUDGET inlays rose above inflation or GDP after Reagan’s tax cuts went into effect, just like JFK’s did. Just e-mail me & I’ll provide the link (if interested), because there is no arguing that revenue rise after *some* tax cuts have been enacted (nothing is universal).
David Perron
Ricky, I’m thinking more in terms of this:
All other things being constant, what’s the relationship of long-term revenue to tax increase/decrease. Anecdotal or small-sample historical statistics are not going to cut it, as those only show what happened under those particular circumstances, without really giving the circumstances themselves any consideration.
Emperor Misha I
The problem with that, David, is that that’s not how the economy works.
Oh yes, I remember only too well the equations we had in micro- and macro-, but they were all based on the assumption of ceteris paribus, which is exactly why predictions based on the equations alone fail so often.
PJ O’Rourke put it nicely when he stated that the reason that the “Invisible Hand” is so impossible to describe and/or predict is that it is, indeed, invisible.
David Perron
If that’s true, Misha, aren’t both sides of the claim unprovable? Can’t I make equally compelling arguments for that tax cuts increase AND decrease revenues?
RW
One can logically claim to argue either instance with validity, as the economic paradigm has simply too many dynamic aspects to *legitimately* lay claim to a universal truth.
Since no one can say with scientific certainty that a tax cut of X will result in GDP growth of Y (because of cut x), we have these arguments.
However, there are a few million retail outlets & manufacturing corporations representing pretty much the full spectrum of goods/services that will tell you that running “sales” or “specials” will allow for a final gain that will outpace the perceived loss for the reduction in price due to greater activity in most cases.
And I’d say that the economic data since 1960 would represent more than “anecdotal” evidence, since that period contains the largest economic expansion in the history of mankind, taking off once the top marginal rate of 90% was slashed to 70% (which RWR dropped to 28%).
David Perron
I’d say maybe; maybe not. Forty-five years in which taxes were raised or lowered how many times? Under how many different economic conditions? Is it enough data to separate just the effect of the cut/rise from other variables? That’s what I’m talking about. BTW, this would fall under what I termed “small-sample historical statistics”. “Anecdotal” referred to some instance where someone tried to refute based on what happened in response to a single Reagan tax cut. Again, unless you can separate the economic effect of the cut from everything else, it proves nothing.
It should go without saying that I’m not an economist. I’m just curious as to how some quorum of economists can agree to an effect without being able to actually provide some science. I do admit to having a sneaking suspicion that economics isn’t a science, because you can’t really falsify theories in economics through experimentation. Could be utterly full of shit on that front, too; just waiting for someone to show me.
dave
Funny thing about that Waffle site, aside from its content: the introductory paragraph states
“Governor Howard Dean has positioned himself as the “straight-shooting” candidate in the ’04 Democratic Presidential race. While we don’t really have a preference (yet)…”
But if you go to the bottom of the page, you’ll see
“Paid for by ToughEnough.org”
which leads to a John Kerry site, indicating that they DO, in fact, have a preference. There seem to be plenty of waffles to go around.
Kimmitt
Looks like it’s here.
Okay — despite what you may say, we do have economic models which do a pretty good job of predicting economies, especially for incremental moves. The problem we have is trying to figure out how an extremely complicated alteration of a tax code translates into an average or marginal change in tax rates.
First, let me give you a link to the Laffer Curve. The concept is fairly straightforward and makes a lot of sense; if one taxes work a lot, people eventually start working less.
This shows up in our basic labor models and is more or less uncontestible.
The second contention of the supply-siders is that since taxes inherently generate distortion of the labor market, reduction of taxes will increase efficiency and thereby generate increased economic growth in the long term. This contention is unsupported. A few theoretical models have been put forward, but empirical analysis shows that people simply do not significantly change their labor market decisions based on movement within the marginal tax rate range of 20-40%.
As for the Reagan tax cuts — please keep in mind that Reagan got his tax cuts passed in 1981 (which would produce results in 1982), then repealed/changed some of them in 1982 (which would produce results in 1983).
Kimmitt
That said — the basic mathematical technology used in the economic literature to generate predictions is Optimal Control Theory (which I imagine you’re familiar with, David). Economists set up their Hamiltonians with their control and their costate variables and try to figure out what the optimal interest rate or investment rate should be now, then how it should change over the course of the next ten years or so.
There is a huge amount of literature on optimal amounts of capital, education, or other what have yous. There is nothing — nothing — on optimal debt rates. That is, no one has taken supply-side economics seriously enough to construct a model which takes as given that initial tax cuts will produce debt but that later economic growth will erase it.
That is what I mean by “unsupported in the literature.” The basic supposition — taxes significantly distort labor markets — is not empirically valid, and the theory itself is so poorly regarded that no one has taken the time to flesh it out.
HH
A report on Fox showed Kerry and his supporters setting up a rally at “Dean’s House of Waffles” (wondering if Waffle House will sue for using their logo) and implied the site came from Kerry supporters if not Kerry’s camp itself.
David Perron
Interesting, Kimmitt.
So I guess the Laffer curve is not really a fixed curve at all, but perhaps a family of functions or a multidimensional surface. That actually makes a bit of sense.
If your claim about supply-side theory is a valid one, then I’m a little disappointed. Not having seen any ammo from the opposition (actually, none from anyone at all), it looks to me like unsupported claim vs. unsupported counterclaim. Still, the burden of proof lies on hee hoo made the claim. If there’s been no proof beyond a little arm-waving, I’m a little unhappy about the whole thing. Is the lack of body-of-work on the part of the supply-siders the reason for the sneering I see so much when supply-side economics is mentioned? Just curious.
I am wondering, though, what is considered an “optimal” tax structure (as deviation from the current or even pre-Bush rate structure). Guess I need to do a lot more reading.
And of course it’s highly possible that the entire supply-side movement is simply a front for what they call “starving the beast”. If you pretend you have a valid reason for reducing taxes, yet your covert reason for doing so is getting Congress to slash spending to keep the debt from ballooning, you’re going to stand a much better chance at getting tax rate reductions passed than if you’re straightforward about it.
Thanks, Kimmitt. I was hoping for some sound refutation of the whole supply-side idea, but if there’s nothing there to refute, I hope in vain.
Kimmitt
Is the lack of body-of-work on the part of the supply-siders the reason for the sneering I see so much when supply-side economics is mentioned?
A big part of it. Before I go on, let’s make a distinction:
There is a significant amount of literature discussing the Aggregate Supply Curve in economics. This is also called Supply-Side economics, for obvious reasons, but it can leave one confused, as it does not generally reference the orthodoxy and talks instead about wage movements and long-term shifts in supply.
In addition, most economists tend to think that Reagan ran a pretty good ceteris parebus experiment and gave us fairly conclusive results regarding the location of the US on the Laffer curve (well to the left of the maximum point). So between that and the empirical research on worker decisions regarding marginal tax rates, the matter is considered more or less closed.
(If you’ve got a background, the idea is that the substitution effect and the income effect of additional taxation on wages is near enough to equal that it is less than the transaction costs of changing from full to part-time work, so folks just don’t change their plans. In addition, higher tax rates tend to be for higher levels of service, so people’s consumption patterns simply shift to consuming slightly more publicly-provided goods and slightly fewer privately-provided goods (i.e. we pay more in taxes, but the school gets better, so it works out in the end).
One can most certainly enroll in a graduate-level economics course (especially microeconomics) with no background other than a mathematical one, if this is something which is a major interest for you. I recommend against taking an undergrad course, except for possibly one: intermediate macroeconomics. You’ve got the math, so you may as well get the fully rigorous treatment, but intermediate macro has a huge number of interesting concepts which don’t require a lot of math to explain, and is therefore worth a layperson’s time.
David Perron
Thanks again, Kimmitt. As evidenced by the second welfare theorem, or some such, the amount of qualitative things I know about economics is far outstripped by the things that I don’t know.
Kimmitt
You may rest confident that the same is true for me. It’s a large field.
(By the way, the Second Welfare Theorem states that under certain circumstances, one can generate any given efficient outcome from a market by rejiggering the initial conditions — i.e. redistributing wealth. It only works in a one-time-period framework, but it’s a useful result for other work.)
hisham
Can anyone help me with a mathematical proof for the Laffer curve.