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Reaganomics

tylergraham95
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2/17/2014 10:17:32 AM
Posted: 2 years ago
I don't see the value of "Reaganomics." Specifically, how it is supposed to be beneficial. Perhaps someone could explain it to me? By Reaganomics, I mean the policy of low taxes for the rich and lowered trade regulations.

Also, why did so many people just accept Reaganomics? Is it because they like the sound of low taxes without considering consequences? I'm not saying Reagan was dumb, but he was an actor, not an economist, or even well versed in law/politics.
"we dig" - Jeanette Runquist (1943 - 2015)
HenryR
Posts: 14
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2/17/2014 9:43:55 PM
Posted: 2 years ago
At 2/17/2014 10:17:32 AM, tylergraham95 wrote:
I don't see the value of "Reaganomics." Specifically, how it is supposed to be beneficial. Perhaps someone could explain it to me? By Reaganomics, I mean the policy of low taxes for the rich and lowered trade regulations.

Also, why did so many people just accept Reaganomics? Is it because they like the sound of low taxes without considering consequences? I'm not saying Reagan was dumb, but he was an actor, not an economist, or even well versed in law/politics.

Firstly, reducing tax rates and closing loopholes led to less tax avoidance among the wealthy as well as encouraging more risk-taking investment in businesses. While many people state the tax cuts led to higher budget deficits, in fact this was mainly caused by increased military spending (which later was cut after the end of the Cold War, allowing budget surpluses in the 90s), as federal tax revenue as a % of GDP only fell slightly, from 19.6% in 1981 to 18.4% in 1989 (1) . But because of economic growth, real per capita tax revenues increased from $6,504 in 1981 to $7,467 in 1989. In terms of taxes on the rich, the share of of income taxes paid by the top 1% increased from 17.6% in 1981 to 27.5% in 1988 (2). The share of top 1% income taxes as a % of GDP also increased from 1.584% to 2.2%. (1981: income tax= 9.4% of GDP x (17.6%)= 1.584%) (1988: income tax= 8% of GDP x 27.5%= 2.2%). Thus, it appears that the tax cuts on the rich did have the effect of actually increasing revenue through reducing the incentive for tax avoidance strategies and encouraging investment and risk-taking. That more income was being taxed also speaks to the strength of the economic boom that is at least partially attributable to the tax rate cuts, in which real GDP per Capita increased from $33,186 in 1981 to $40,584 in 1989 (Maddison estimates). Unemployment was cut from 7.6% in 1981 to 5.3% in 1989, and inflation was reduced from 10.3% to 4.8%.

In terms of trade policy, the greater openness (Example: 1988 trade pact w/ Canada), and the emergence of China as a major exporter has led to cheaper products for consumers, which has disproportionately helped the poor and working class, even if it has led to some pain for relatively highly-paid manufacturing workers. Overall however, trade with the developing world has helped the US on net by allowing much cheaper prices for consumers, which helps the poor especially.

To address your second question, even if Reagan was not an economist, he did work in the real economy, which gave him the experiences and lessons that informed his policies, and also he was advised by economists. And why did people vote for it twice (with 49 states reelecting Reagan in 1984)? Perhaps it was because it reduced income taxes on the middle class and was producing real economic benefits.

1. http://www.taxpolicycenter.org...
2. http://www.heritage.org...
tylergraham95
Posts: 1,461
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2/17/2014 10:24:51 PM
Posted: 2 years ago
At 2/17/2014 9:43:55 PM, HenryR wrote:
At 2/17/2014 10:17:32 AM, tylergraham95 wrote:
I don't see the value of "Reaganomics." Specifically, how it is supposed to be beneficial. Perhaps someone could explain it to me? By Reaganomics, I mean the policy of low taxes for the rich and lowered trade regulations.

Also, why did so many people just accept Reaganomics? Is it because they like the sound of low taxes without considering consequences? I'm not saying Reagan was dumb, but he was an actor, not an economist, or even well versed in law/politics.

Firstly, reducing tax rates and closing loopholes led to less tax avoidance among the wealthy as well as encouraging more risk-taking investment in businesses. While many people state the tax cuts led to higher budget deficits, in fact this was mainly caused by increased military spending (which later was cut after the end of the Cold War, allowing budget surpluses in the 90s), as federal tax revenue as a % of GDP only fell slightly, from 19.6% in 1981 to 18.4% in 1989 (1) . But because of economic growth, real per capita tax revenues increased from $6,504 in 1981 to $7,467 in 1989. In terms of taxes on the rich, the share of of income taxes paid by the top 1% increased from 17.6% in 1981 to 27.5% in 1988 (2). The share of top 1% income taxes as a % of GDP also increased from 1.584% to 2.2%. (1981: income tax= 9.4% of GDP x (17.6%)= 1.584%) (1988: income tax= 8% of GDP x 27.5%= 2.2%). Thus, it appears that the tax cuts on the rich did have the effect of actually increasing revenue through reducing the incentive for tax avoidance strategies and encouraging investment and risk-taking. That more income was being taxed also speaks to the strength of the economic boom that is at least partially attributable to the tax rate cuts, in which real GDP per Capita increased from $33,186 in 1981 to $40,584 in 1989 (Maddison estimates). Unemployment was cut from 7.6% in 1981 to 5.3% in 1989, and inflation was reduced from 10.3% to 4.8%.

In terms of trade policy, the greater openness (Example: 1988 trade pact w/ Canada), and the emergence of China as a major exporter has led to cheaper products for consumers, which has disproportionately helped the poor and working class, even if it has led to some pain for relatively highly-paid manufacturing workers. Overall however, trade with the developing world has helped the US on net by allowing much cheaper prices for consumers, which helps the poor especially.

To address your second question, even if Reagan was not an economist, he did work in the real economy, which gave him the experiences and lessons that informed his policies, and also he was advised by economists. And why did people vote for it twice (with 49 states reelecting Reagan in 1984)? Perhaps it was because it reduced income taxes on the middle class and was producing real economic benefits.

1. http://www.taxpolicycenter.org...
2. http://www.heritage.org...

The only problem I see with this argument, is that there is data that indicates that lowering the taxes on the super wealthy does not significantly affect the GDP, Average income, average wage, or employment.

http://www.faireconomy.org...

Furthermore, the upward trends in GDP in the 90s were during the Clinton years, when taxes on the rich were raised.

Another problem is that we've been using reaganomics for about 40 or so years now, and although we did see one economic boom, we've now seen an incredible recession (that followed immediately after severe tax cuts to the rich). Althought a boom is always nice, if recession immediately follows, then why use that system?
"we dig" - Jeanette Runquist (1943 - 2015)
HenryR
Posts: 14
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2/17/2014 11:03:17 PM
Posted: 2 years ago
At 2/17/2014 10:24:51 PM, tylergraham95 wrote:
At 2/17/2014 9:43:55 PM, HenryR wrote:
At 2/17/2014 10:17:32 AM, tylergraham95 wrote:
I don't see the value of "Reaganomics." Specifically, how it is supposed to be beneficial. Perhaps someone could explain it to me? By Reaganomics, I mean the policy of low taxes for the rich and lowered trade regulations.

Also, why did so many people just accept Reaganomics? Is it because they like the sound of low taxes without considering consequences? I'm not saying Reagan was dumb, but he was an actor, not an economist, or even well versed in law/politics.

Firstly, reducing tax rates and closing loopholes led to less tax avoidance among the wealthy as well as encouraging more risk-taking investment in businesses. While many people state the tax cuts led to higher budget deficits, in fact this was mainly caused by increased military spending (which later was cut after the end of the Cold War, allowing budget surpluses in the 90s), as federal tax revenue as a % of GDP only fell slightly, from 19.6% in 1981 to 18.4% in 1989 (1) . But because of economic growth, real per capita tax revenues increased from $6,504 in 1981 to $7,467 in 1989. In terms of taxes on the rich, the share of of income taxes paid by the top 1% increased from 17.6% in 1981 to 27.5% in 1988 (2). The share of top 1% income taxes as a % of GDP also increased from 1.584% to 2.2%. (1981: income tax= 9.4% of GDP x (17.6%)= 1.584%) (1988: income tax= 8% of GDP x 27.5%= 2.2%). Thus, it appears that the tax cuts on the rich did have the effect of actually increasing revenue through reducing the incentive for tax avoidance strategies and encouraging investment and risk-taking. That more income was being taxed also speaks to the strength of the economic boom that is at least partially attributable to the tax rate cuts, in which real GDP per Capita increased from $33,186 in 1981 to $40,584 in 1989 (Maddison estimates). Unemployment was cut from 7.6% in 1981 to 5.3% in 1989, and inflation was reduced from 10.3% to 4.8%.

In terms of trade policy, the greater openness (Example: 1988 trade pact w/ Canada), and the emergence of China as a major exporter has led to cheaper products for consumers, which has disproportionately helped the poor and working class, even if it has led to some pain for relatively highly-paid manufacturing workers. Overall however, trade with the developing world has helped the US on net by allowing much cheaper prices for consumers, which helps the poor especially.

To address your second question, even if Reagan was not an economist, he did work in the real economy, which gave him the experiences and lessons that informed his policies, and also he was advised by economists. And why did people vote for it twice (with 49 states reelecting Reagan in 1984)? Perhaps it was because it reduced income taxes on the middle class and was producing real economic benefits.

1. http://www.taxpolicycenter.org...
2. http://www.heritage.org...

The only problem I see with this argument, is that there is data that indicates that lowering the taxes on the super wealthy does not significantly affect the GDP, Average income, average wage, or employment.

http://www.faireconomy.org...

Furthermore, the upward trends in GDP in the 90s were during the Clinton years, when taxes on the rich were raised.

Another problem is that we've been using reaganomics for about 40 or so years now, and although we did see one economic boom, we've now seen an incredible recession (that followed immediately after severe tax cuts to the rich). Althought a boom is always nice, if recession immediately follows, then why use that system?

I agree that it is unreasonable to expect the economy to grow or shrink solely on 1 variable (top MTR) and that there are many different factors at work in an economy . However, the income tax revenues from the top 1% did increase dramatically in the 1980s, and economic growth was also strong. For instance between 1981 and 1989 real per Capita GDP increased by 22.3%, which was actually slightly faster than the 20.3% increase between 1993 and 2001 (Clinton's presidency), and much faster than the near-stagnant GDP growth of the 1970s coupled with high inflation and escalating unemployment. Furthermore, the Clinton years saw extensive deregulation (such as in telecom) and the capital gains tax was cut from 28% to 20% in 1997. The U.S. economy also benefitted from globalization and the beginning of the commercial internet in the 90s.

In regards to the 2008 crisis, it is far from clear that tax cuts in the 1980s played a role. Rather, the blame should be assigned to many complex causes that have nothing to do with lower MTRs. These include the Federal Reserve creating an environment of excessively low interest rates in the early 2000s and by having created a bailout culture for big banks in the 90s (1994 Mexico Crisis, LTCM 1997, etc.). Also, there was the 1996 change to the Community Reinvestment Act which included lending in poor communities (where a large proportion of defaults on shaky mortgages have occurred) as a criteria for regulators in approving bank mergers (and following the 1999 repeal of Glass-Steagall there was an enormous push towards consolidation). The CRA was used by community activists to blackmail prospective megabanks into risky loans. Also, the GSEs, Freddie and Fannie subsidized risky, low down payment securitized loans, many of which would later explode. And finally, the capital requirements required for banks were too low and thus they were more fragile.

My point is that there were many causes for the 2008 global financial crisis, but most of them occurred under Clinton, Bush (promotion of GSE lending to risky households), and Greenspan, and had nothing to do with Reaganomics.
donald.keller
Posts: 3,709
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2/17/2014 11:15:24 PM
Posted: 2 years ago
At 2/17/2014 10:24:51 PM, tylergraham95 wrote:
At 2/17/2014 9:43:55 PM, HenryR wrote:
At 2/17/2014 10:17:32 AM, tylergraham95 wrote:
I don't see the value of "Reaganomics." Specifically, how it is supposed to be beneficial. Perhaps someone could explain it to me? By Reaganomics, I mean the policy of low taxes for the rich and lowered trade regulations.

Also, why did so many people just accept Reaganomics? Is it because they like the sound of low taxes without considering consequences? I'm not saying Reagan was dumb, but he was an actor, not an economist, or even well versed in law/politics.

Firstly, reducing tax rates and closing loopholes led to less tax avoidance among the wealthy as well as encouraging more risk-taking investment in businesses. While many people state the tax cuts led to higher budget deficits, in fact this was mainly caused by increased military spending (which later was cut after the end of the Cold War, allowing budget surpluses in the 90s), as federal tax revenue as a % of GDP only fell slightly, from 19.6% in 1981 to 18.4% in 1989 (1) . But because of economic growth, real per capita tax revenues increased from $6,504 in 1981 to $7,467 in 1989. In terms of taxes on the rich, the share of of income taxes paid by the top 1% increased from 17.6% in 1981 to 27.5% in 1988 (2). The share of top 1% income taxes as a % of GDP also increased from 1.584% to 2.2%. (1981: income tax= 9.4% of GDP x (17.6%)= 1.584%) (1988: income tax= 8% of GDP x 27.5%= 2.2%). Thus, it appears that the tax cuts on the rich did have the effect of actually increasing revenue through reducing the incentive for tax avoidance strategies and encouraging investment and risk-taking. That more income was being taxed also speaks to the strength of the economic boom that is at least partially attributable to the tax rate cuts, in which real GDP per Capita increased from $33,186 in 1981 to $40,584 in 1989 (Maddison estimates). Unemployment was cut from 7.6% in 1981 to 5.3% in 1989, and inflation was reduced from 10.3% to 4.8%.

In terms of trade policy, the greater openness (Example: 1988 trade pact w/ Canada), and the emergence of China as a major exporter has led to cheaper products for consumers, which has disproportionately helped the poor and working class, even if it has led to some pain for relatively highly-paid manufacturing workers. Overall however, trade with the developing world has helped the US on net by allowing much cheaper prices for consumers, which helps the poor especially.

To address your second question, even if Reagan was not an economist, he did work in the real economy, which gave him the experiences and lessons that informed his policies, and also he was advised by economists. And why did people vote for it twice (with 49 states reelecting Reagan in 1984)? Perhaps it was because it reduced income taxes on the middle class and was producing real economic benefits.

1. http://www.taxpolicycenter.org...
2. http://www.heritage.org...

The only problem I see with this argument, is that there is data that indicates that lowering the taxes on the super wealthy does not significantly affect the GDP, Average income, average wage, or employment.

http://www.faireconomy.org...

False Cause and Correlation. The graphs and data leave out every other detail of the economy.
For one, Lowering the tax rate did nothing in the first 60% of the chart because no one was rich enough to actually be in those tax brackets. Rockefeller was literally the other person in the early century who earned enough to pay the 90% tax bracket...

Furthermore, the upward trends in GDP in the 90s were during the Clinton years, when taxes on the rich were raised.

Post Hoc. It happened during Clinton's term... Not because of Clinton's term. The boost was a result of events during Reagan's year. No, I'm not saying they were because of Reagan... Higher taxes was a result of a stronger economy. People support higher taxes during economically strong eras. The high taxes came during the strong era, therefore not causing it. Some believe the taxes increasing slowed down the strong era.

Another problem is that we've been using reaganomics for about 40 or so years now, and although we did see one economic boom, we've now seen an incredible recession (that followed immediately after severe tax cuts to the rich). Althought a boom is always nice, if recession immediately follows, then why use that system?

The recession had literally nothing to do with the type of economics we follow.. The recession was caused by the Fed's lowering interest rates to boost house ownership, causing a load of bad loans to flood the economy. The economic recessions had nothing to do with Reaganomics.
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tylergraham95
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2/17/2014 11:43:24 PM
Posted: 2 years ago
At 2/17/2014 11:15:24 PM, donald.keller wrote:
At 2/17/2014 10:24:51 PM, tylergraham95 wrote:
At 2/17/2014 9:43:55 PM, HenryR wrote:
At 2/17/2014 10:17:32 AM, tylergraham95 wrote:
I don't see the value of "Reaganomics." Specifically, how it is supposed to be beneficial. Perhaps someone could explain it to me? By Reaganomics, I mean the policy of low taxes for the rich and lowered trade regulations.

Also, why did so many people just accept Reaganomics? Is it because they like the sound of low taxes without considering consequences? I'm not saying Reagan was dumb, but he was an actor, not an economist, or even well versed in law/politics.

Firstly, reducing tax rates and closing loopholes led to less tax avoidance among the wealthy as well as encouraging more risk-taking investment in businesses. While many people state the tax cuts led to higher budget deficits, in fact this was mainly caused by increased military spending (which later was cut after the end of the Cold War, allowing budget surpluses in the 90s), as federal tax revenue as a % of GDP only fell slightly, from 19.6% in 1981 to 18.4% in 1989 (1) . But because of economic growth, real per capita tax revenues increased from $6,504 in 1981 to $7,467 in 1989. In terms of taxes on the rich, the share of of income taxes paid by the top 1% increased from 17.6% in 1981 to 27.5% in 1988 (2). The share of top 1% income taxes as a % of GDP also increased from 1.584% to 2.2%. (1981: income tax= 9.4% of GDP x (17.6%)= 1.584%) (1988: income tax= 8% of GDP x 27.5%= 2.2%). Thus, it appears that the tax cuts on the rich did have the effect of actually increasing revenue through reducing the incentive for tax avoidance strategies and encouraging investment and risk-taking. That more income was being taxed also speaks to the strength of the economic boom that is at least partially attributable to the tax rate cuts, in which real GDP per Capita increased from $33,186 in 1981 to $40,584 in 1989 (Maddison estimates). Unemployment was cut from 7.6% in 1981 to 5.3% in 1989, and inflation was reduced from 10.3% to 4.8%.

In terms of trade policy, the greater openness (Example: 1988 trade pact w/ Canada), and the emergence of China as a major exporter has led to cheaper products for consumers, which has disproportionately helped the poor and working class, even if it has led to some pain for relatively highly-paid manufacturing workers. Overall however, trade with the developing world has helped the US on net by allowing much cheaper prices for consumers, which helps the poor especially.

To address your second question, even if Reagan was not an economist, he did work in the real economy, which gave him the experiences and lessons that informed his policies, and also he was advised by economists. And why did people vote for it twice (with 49 states reelecting Reagan in 1984)? Perhaps it was because it reduced income taxes on the middle class and was producing real economic benefits.

1. http://www.taxpolicycenter.org...
2. http://www.heritage.org...

The only problem I see with this argument, is that there is data that indicates that lowering the taxes on the super wealthy does not significantly affect the GDP, Average income, average wage, or employment.

http://www.faireconomy.org...

False Cause and Correlation. The graphs and data leave out every other detail of the economy.

True, but lack of correlation does cast doubt on causation.

For one, Lowering the tax rate did nothing in the first 60% of the chart because no one was rich enough to actually be in those tax brackets. Rockefeller was literally the other person in the early century who earned enough to pay the 90% tax bracket...

True.

Furthermore, the upward trends in GDP in the 90s were during the Clinton years, when taxes on the rich were raised.

Post Hoc. It happened during Clinton's term... Not because of Clinton's term. The boost was a result of events during Reagan's year. No, I'm not saying they were because of Reagan... Higher taxes was a result of a stronger economy. People support higher taxes during economically strong eras. The high taxes came during the strong era, therefore not causing it. Some believe the taxes increasing slowed down the strong era.

But the economic boom immediately followed after Clinton hiked up taxes on the wealthy.

Another problem is that we've been using reaganomics for about 40 or so years now, and although we did see one economic boom, we've now seen an incredible recession (that followed immediately after severe tax cuts to the rich). Althought a boom is always nice, if recession immediately follows, then why use that system?

The recession had literally nothing to do with the type of economics we follow.. The recession was caused by the Fed's lowering interest rates to boost house ownership, causing a load of bad loans to flood the economy. The economic recessions had nothing to do with Reaganomics.

Ah, I thought the low interest rates were an aspect of Reaganomics.
"we dig" - Jeanette Runquist (1943 - 2015)
donald.keller
Posts: 3,709
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2/17/2014 11:51:48 PM
Posted: 2 years ago
At 2/17/2014 11:43:24 PM, tylergraham95 wrote:
At 2/17/2014 11:15:24 PM, donald.keller wrote:
At 2/17/2014 10:24:51 PM, tylergraham95 wrote:
At 2/17/2014 9:43:55 PM, HenryR wrote:
At 2/17/2014 10:17:32 AM, tylergraham95 wrote:
I don't see the value of "Reaganomics." Specifically, how it is supposed to be beneficial. Perhaps someone could explain it to me? By Reaganomics, I mean the policy of low taxes for the rich and lowered trade regulations.

Also, why did so many people just accept Reaganomics? Is it because they like the sound of low taxes without considering consequences? I'm not saying Reagan was dumb, but he was an actor, not an economist, or even well versed in law/politics.

Firstly, reducing tax rates and closing loopholes led to less tax avoidance among the wealthy as well as encouraging more risk-taking investment in businesses. While many people state the tax cuts led to higher budget deficits, in fact this was mainly caused by increased military spending (which later was cut after the end of the Cold War, allowing budget surpluses in the 90s), as federal tax revenue as a % of GDP only fell slightly, from 19.6% in 1981 to 18.4% in 1989 (1) . But because of economic growth, real per capita tax revenues increased from $6,504 in 1981 to $7,467 in 1989. In terms of taxes on the rich, the share of of income taxes paid by the top 1% increased from 17.6% in 1981 to 27.5% in 1988 (2). The share of top 1% income taxes as a % of GDP also increased from 1.584% to 2.2%. (1981: income tax= 9.4% of GDP x (17.6%)= 1.584%) (1988: income tax= 8% of GDP x 27.5%= 2.2%). Thus, it appears that the tax cuts on the rich did have the effect of actually increasing revenue through reducing the incentive for tax avoidance strategies and encouraging investment and risk-taking. That more income was being taxed also speaks to the strength of the economic boom that is at least partially attributable to the tax rate cuts, in which real GDP per Capita increased from $33,186 in 1981 to $40,584 in 1989 (Maddison estimates). Unemployment was cut from 7.6% in 1981 to 5.3% in 1989, and inflation was reduced from 10.3% to 4.8%.

In terms of trade policy, the greater openness (Example: 1988 trade pact w/ Canada), and the emergence of China as a major exporter has led to cheaper products for consumers, which has disproportionately helped the poor and working class, even if it has led to some pain for relatively highly-paid manufacturing workers. Overall however, trade with the developing world has helped the US on net by allowing much cheaper prices for consumers, which helps the poor especially.

To address your second question, even if Reagan was not an economist, he did work in the real economy, which gave him the experiences and lessons that informed his policies, and also he was advised by economists. And why did people vote for it twice (with 49 states reelecting Reagan in 1984)? Perhaps it was because it reduced income taxes on the middle class and was producing real economic benefits.

1. http://www.taxpolicycenter.org...
2. http://www.heritage.org...

The only problem I see with this argument, is that there is data that indicates that lowering the taxes on the super wealthy does not significantly affect the GDP, Average income, average wage, or employment.

http://www.faireconomy.org...

False Cause and Correlation. The graphs and data leave out every other detail of the economy.

True, but lack of correlation does cast doubt on causation.

For one, Lowering the tax rate did nothing in the first 60% of the chart because no one was rich enough to actually be in those tax brackets. Rockefeller was literally the other person in the early century who earned enough to pay the 90% tax bracket...

True.

Furthermore, the upward trends in GDP in the 90s were during the Clinton years, when taxes on the rich were raised.

Post Hoc. It happened during Clinton's term... Not because of Clinton's term. The boost was a result of events during Reagan's year. No, I'm not saying they were because of Reagan... Higher taxes was a result of a stronger economy. People support higher taxes during economically strong eras. The high taxes came during the strong era, therefore not causing it. Some believe the taxes increasing slowed down the strong era.

But the economic boom immediately followed after Clinton hiked up taxes on the wealthy.

The boom was due to the Internet and technology, not Clinton. The boom was later found to be an economic bubble.

Another problem is that we've been using reaganomics for about 40 or so years now, and although we did see one economic boom, we've now seen an incredible recession (that followed immediately after severe tax cuts to the rich). Althought a boom is always nice, if recession immediately follows, then why use that system?

The recession had literally nothing to do with the type of economics we follow.. The recession was caused by the Fed's lowering interest rates to boost house ownership, causing a load of bad loans to flood the economy. The economic recessions had nothing to do with Reaganomics.

Ah, I thought the low interest rates were an aspect of Reaganomics.

No. Bush and most Republicans were heavily against them. Reaganomics is rather against the Feds and intervention from them.
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tylergraham95
Posts: 1,461
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2/18/2014 12:09:57 AM
Posted: 2 years ago
At 2/17/2014 11:51:48 PM, donald.keller wrote:
At 2/17/2014 11:43:24 PM, tylergraham95 wrote:
At 2/17/2014 11:15:24 PM, donald.keller wrote:
At 2/17/2014 10:24:51 PM, tylergraham95 wrote:
At 2/17/2014 9:43:55 PM, HenryR wrote:
At 2/17/2014 10:17:32 AM, tylergraham95 wrote:
I don't see the value of "Reaganomics." Specifically, how it is supposed to be beneficial. Perhaps someone could explain it to me? By Reaganomics, I mean the policy of low taxes for the rich and lowered trade regulations.

Also, why did so many people just accept Reaganomics? Is it because they like the sound of low taxes without considering consequences? I'm not saying Reagan was dumb, but he was an actor, not an economist, or even well versed in law/politics.

Firstly, reducing tax rates and closing loopholes led to less tax avoidance among the wealthy as well as encouraging more risk-taking investment in businesses. While many people state the tax cuts led to higher budget deficits, in fact this was mainly caused by increased military spending (which later was cut after the end of the Cold War, allowing budget surpluses in the 90s), as federal tax revenue as a % of GDP only fell slightly, from 19.6% in 1981 to 18.4% in 1989 (1) . But because of economic growth, real per capita tax revenues increased from $6,504 in 1981 to $7,467 in 1989. In terms of taxes on the rich, the share of of income taxes paid by the top 1% increased from 17.6% in 1981 to 27.5% in 1988 (2). The share of top 1% income taxes as a % of GDP also increased from 1.584% to 2.2%. (1981: income tax= 9.4% of GDP x (17.6%)= 1.584%) (1988: income tax= 8% of GDP x 27.5%= 2.2%). Thus, it appears that the tax cuts on the rich did have the effect of actually increasing revenue through reducing the incentive for tax avoidance strategies and encouraging investment and risk-taking. That more income was being taxed also speaks to the strength of the economic boom that is at least partially attributable to the tax rate cuts, in which real GDP per Capita increased from $33,186 in 1981 to $40,584 in 1989 (Maddison estimates). Unemployment was cut from 7.6% in 1981 to 5.3% in 1989, and inflation was reduced from 10.3% to 4.8%.

In terms of trade policy, the greater openness (Example: 1988 trade pact w/ Canada), and the emergence of China as a major exporter has led to cheaper products for consumers, which has disproportionately helped the poor and working class, even if it has led to some pain for relatively highly-paid manufacturing workers. Overall however, trade with the developing world has helped the US on net by allowing much cheaper prices for consumers, which helps the poor especially.

To address your second question, even if Reagan was not an economist, he did work in the real economy, which gave him the experiences and lessons that informed his policies, and also he was advised by economists. And why did people vote for it twice (with 49 states reelecting Reagan in 1984)? Perhaps it was because it reduced income taxes on the middle class and was producing real economic benefits.

1. http://www.taxpolicycenter.org...
2. http://www.heritage.org...

The only problem I see with this argument, is that there is data that indicates that lowering the taxes on the super wealthy does not significantly affect the GDP, Average income, average wage, or employment.

http://www.faireconomy.org...

False Cause and Correlation. The graphs and data leave out every other detail of the economy.

True, but lack of correlation does cast doubt on causation.

For one, Lowering the tax rate did nothing in the first 60% of the chart because no one was rich enough to actually be in those tax brackets. Rockefeller was literally the other person in the early century who earned enough to pay the 90% tax bracket...

True.

Furthermore, the upward trends in GDP in the 90s were during the Clinton years, when taxes on the rich were raised.

Post Hoc. It happened during Clinton's term... Not because of Clinton's term. The boost was a result of events during Reagan's year. No, I'm not saying they were because of Reagan... Higher taxes was a result of a stronger economy. People support higher taxes during economically strong eras. The high taxes came during the strong era, therefore not causing it. Some believe the taxes increasing slowed down the strong era.

But the economic boom immediately followed after Clinton hiked up taxes on the wealthy.

The boom was due to the Internet and technology, not Clinton. The boom was later found to be an economic bubble.

Another problem is that we've been using reaganomics for about 40 or so years now, and although we did see one economic boom, we've now seen an incredible recession (that followed immediately after severe tax cuts to the rich). Althought a boom is always nice, if recession immediately follows, then why use that system?

The recession had literally nothing to do with the type of economics we follow.. The recession was caused by the Fed's lowering interest rates to boost house ownership, causing a load of bad loans to flood the economy. The economic recessions had nothing to do with Reaganomics.

Ah, I thought the low interest rates were an aspect of Reaganomics.

No. Bush and most Republicans were heavily against them. Reaganomics is rather against the Feds and intervention from them.

Interesting points. I still think I prefer Keynesian economics thought.
I suppose I'm a bit of a hippie at heart.
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progressivedem22
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2/19/2014 12:54:08 PM
Posted: 2 years ago
The boom was due to the Internet and technology, not Clinton. The boom was later found to be an economic bubble.

No the surplus was due to the internet bubble. The booming economy has correctly been attributed to Clinton, in spite of the fact that he deregulated late in his term, which contributed heavily to the crisis in 2008.

No. Bush and most Republicans were heavily against them. Reaganomics is rather against the Feds and intervention from them.

I don't know what world you're living in, but George W. Bush supported low interest rates -- or, at least, he supported a Fed Chairman who supported low interest rates, and cited his (Bernanke's) acumen in handling the crisis.
donald.keller
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2/19/2014 2:12:36 PM
Posted: 2 years ago
At 2/19/2014 12:54:08 PM, progressivedem22 wrote:
The boom was due to the Internet and technology, not Clinton. The boom was later found to be an economic bubble.

No the surplus was due to the internet bubble. The booming economy has correctly been attributed to Clinton, in spite of the fact that he deregulated late in his term, which contributed heavily to the crisis in 2008.

Attributed to him by whom? Things are rarely, if ever, the attribution of the current Administration. The surplus was the internet bubble. What you said and what I said seem pretty much the same.

No. Bush and most Republicans were heavily against them. Reaganomics is rather against the Feds and intervention from them.

I don't know what world you're living in, but George W. Bush supported low interest rates -- or, at least, he supported a Fed Chairman who supported low interest rates, and cited his (Bernanke's) acumen in handling the crisis.

He supported the Fed Chairman, but not the low interests rates.
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progressivedem22
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2/19/2014 2:16:24 PM
Posted: 2 years ago
At 2/19/2014 2:12:36 PM, donald.keller wrote:
At 2/19/2014 12:54:08 PM, progressivedem22 wrote:
The boom was due to the Internet and technology, not Clinton. The boom was later found to be an economic bubble.

No the surplus was due to the internet bubble. The booming economy has correctly been attributed to Clinton, in spite of the fact that he deregulated late in his term, which contributed heavily to the crisis in 2008.

Attributed to him by whom? Things are rarely, if ever, the attribution of the current Administration. The surplus was the internet bubble. What you said and what I said seem pretty much the same.

Attributed by whom? Economists -- or anyone who has studied the 90s.

We're not saying the same thing; you're contending that the economic boom in the 90s was a result of the technology bubble. I'm arguing that it was largely by virtue of Clinton's policies -- which, yes, included tax hikes.

No. Bush and most Republicans were heavily against them. Reaganomics is rather against the Feds and intervention from them.

I don't know what world you're living in, but George W. Bush supported low interest rates -- or, at least, he supported a Fed Chairman who supported low interest rates, and cited his (Bernanke's) acumen in handling the crisis.

He supported the Fed Chairman, but not the low interests rates.

Do you have any proof of that? There was quite a bit of praise for Bernanke following the crisis; if he oppose low interest rates, we would've heard it.

Also, are we honestly suggesting for a moment that any politician -- never mind that it's George W. bush -- actually had an intellectual opinion on an economic issue? I frankly don't care what Dubaya thought. If he was against low interest rates, which were a feeble yet tenable remedy to the crisis he himself brought on, then he's even dumber than I thought him to be.
donald.keller
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2/19/2014 2:41:34 PM
Posted: 2 years ago
At 2/19/2014 2:16:24 PM, progressivedem22 wrote:
At 2/19/2014 2:12:36 PM, donald.keller wrote:
At 2/19/2014 12:54:08 PM, progressivedem22 wrote:
The boom was due to the Internet and technology, not Clinton. The boom was later found to be an economic bubble.

No the surplus was due to the internet bubble. The booming economy has correctly been attributed to Clinton, in spite of the fact that he deregulated late in his term, which contributed heavily to the crisis in 2008.

Attributed to him by whom? Things are rarely, if ever, the attribution of the current Administration. The surplus was the internet bubble. What you said and what I said seem pretty much the same.

Attributed by whom? Economists -- or anyone who has studied the 90s.

Informative. Care to back up some names?

We're not saying the same thing; you're contending that the economic boom in the 90s was a result of the technology bubble. I'm arguing that it was largely by virtue of Clinton's policies -- which, yes, included tax hikes.

I didn't say that. I only brought up the Technological bubble. I referred to it as an Economic Bubble. Or that I referred to the economic boom from technology as a bubble, which ever translation worked, which is why I said it. Like I said, I think we are saying the same thing here.
And the Tax Hikes could have just as quickly hurt, if we wouldn't have seen the Dot.Com bubble get in the way of a clear assessment. Big side variables always makes economics hard to read. The tax hike didn't lead to a strong economy, but was caused by it. As I told Tyler, high taxes are often a result of a strong economy.

No. Bush and most Republicans were heavily against them. Reaganomics is rather against the Feds and intervention from them.

I don't know what world you're living in, but George W. Bush supported low interest rates -- or, at least, he supported a Fed Chairman who supported low interest rates, and cited his (Bernanke's) acumen in handling the crisis.

He supported the Fed Chairman, but not the low interests rates.

Do you have any proof of that? There was quite a bit of praise for Bernanke following the crisis; if he oppose low interest rates, we would've heard it.

My apologies. He supported Interest Rates. It was Fannie Mae and Freddie Mac's greedy abuse of them that Bush was against. Bush petitioned many times to have Fannie and Freddie stopped. The low Interest Rates could have worked, but it was a massive abuse of the loans that filled the economy with too many not-so-good ones.

Also, are we honestly suggesting for a moment that any politician -- never mind that it's George W. bush -- actually had an intellectual opinion on an economic issue? I frankly don't care what Dubaya thought. If he was against low interest rates, which were a feeble yet tenable remedy to the crisis he himself brought on, then he's even dumber than I thought him to be.

Politicians know a lot about economics. It's not that they don't know Economics. It's that even the best can only truly guess. Bush had decades of business experience under his belt, and knew Economics better than numerous other examples in Congress. The real issue comes from having to argue, and worse, compromise over the issues because they don't all interpret economics the same, but neither do Economists.
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bluesteel
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2/19/2014 3:02:59 PM
Posted: 2 years ago
At 2/17/2014 10:17:32 AM, tylergraham95 wrote:
I don't see the value of "Reaganomics." Specifically, how it is supposed to be beneficial. Perhaps someone could explain it to me? By Reaganomics, I mean the policy of low taxes for the rich and lowered trade regulations.

Also, why did so many people just accept Reaganomics? Is it because they like the sound of low taxes without considering consequences? I'm not saying Reagan was dumb, but he was an actor, not an economist, or even well versed in law/politics.

Reaganomics isn't accept by most economics. In my economics curriculum, we were taught the Laffer Curve and Reaganomics only in the context of why it is wrong: the wealthy have a much lower "marginal propensity to consumer" than the poor. If you give $1 back to a wealthy person, he might spend $0.00000001 of it - i.e., if you give a wealthy person $50 million back in tax cuts, he might decide to buy his son a new car, but he's going to simply save the rest. In contrast, the poor have a really high marginal propensity to consume. If you give them $1, they will spend basically all of it (on food and luxury items they have been wanting for a long time). Therefore, tax cuts to the *poor* are much more likely to stimulate economic growth than tax cuts to the rich because tax cuts to the poor increase consumer spending almost in a 1:1 ratio, whereas tax cuts to the risk - at best - lead to more savings which *might* lower interest rates and *might* lead to more risk taking, but only indirectly and it's a much smaller effect than tax cuts to the poor.

So Reaganomics isn't flawed, but you need to give the money to poor people not rich people.
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bluesteel
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2/19/2014 3:05:51 PM
Posted: 2 years ago
Romney is a classic example. He took his tax cuts and used them to buy a 7th home and to save up to run for office, not to start a new business.

Even giving tax cuts back to a Google executive isn't going to be a "job creator" because it's not like they are going to start a new company while still working at Google. The only example I can even think of of a person who has started more than one successful company concurrently is Elon Musk.
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BigDave80
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2/19/2014 6:18:28 PM
Posted: 2 years ago
Consider the late 1970s:

Inflation was over 10%, unemployment was rising, taxes were rising (and were already high), and the regulatory state was ever expanding.

All that "Reaganomics" was was parring back the policies that led to this state of affairs.

I'm not saying it was all good, but it's pretty clear that transportation deregulation, free trade, and cuts in marginal tax rates have been good policies.
storytimewithjesus
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2/22/2014 2:24:47 PM
Posted: 2 years ago
At 2/19/2014 3:05:51 PM, bluesteel wrote:
Even giving tax cuts back to a Google executive isn't going to be a "job creator" because it's not like they are going to start a new company while still working at Google. The only example I can even think of of a person who has started more than one successful company concurrently is Elon Musk.

Nolan Bushnell is another example.

My biggest problem with Reaganomics is it's too accepting of corporate subsidies. When the only method a business has to raise revenue is to satisfy customers enough to keep them buying their product, businesses are reliant on their low level employees to drive revenue and companies that invest in their employees will tend to succeed better. When businesses can receive money from the government, earning that money is much less dependent on their employees and more dependent on upper managers and lobbyists, so in an economy where subsidies are a significant portion of profits you will expect to see companies with higher paid executives, more lobbyists, and less investment in their employees succeed.
Khaos_Mage
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2/23/2014 10:12:33 AM
Posted: 2 years ago
At 2/19/2014 3:02:59 PM, bluesteel wrote:
At 2/17/2014 10:17:32 AM, tylergraham95 wrote:
I don't see the value of "Reaganomics." Specifically, how it is supposed to be beneficial. Perhaps someone could explain it to me? By Reaganomics, I mean the policy of low taxes for the rich and lowered trade regulations.

Also, why did so many people just accept Reaganomics? Is it because they like the sound of low taxes without considering consequences? I'm not saying Reagan was dumb, but he was an actor, not an economist, or even well versed in law/politics.

Reaganomics isn't accept by most economics. In my economics curriculum, we were taught the Laffer Curve and Reaganomics only in the context of why it is wrong: the wealthy have a much lower "marginal propensity to consumer" than the poor. If you give $1 back to a wealthy person, he might spend $0.00000001 of it - i.e., if you give a wealthy person $50 million back in tax cuts, he might decide to buy his son a new car, but he's going to simply save the rest. In contrast, the poor have a really high marginal propensity to consume. If you give them $1, they will spend basically all of it (on food and luxury items they have been wanting for a long time). Therefore, tax cuts to the *poor* are much more likely to stimulate economic growth than tax cuts to the rich because tax cuts to the poor increase consumer spending almost in a 1:1 ratio, whereas tax cuts to the risk - at best - lead to more savings which *might* lower interest rates and *might* lead to more risk taking, but only indirectly and it's a much smaller effect than tax cuts to the poor.

Doesn't this assume the poor pay taxes, though?
Currently, anyone single, non-married, non-dependent with no dependents is not taxed on $10,000 of earned income.
Throw in kids and social security, and you have many people not paying taxes at all. What good does a tax cut do them?

So Reaganomics isn't flawed, but you need to give the money to poor people not rich people.

If rich people have it, they would likely save it, which means the banks can lend it, which lowers interest rates (I would assume) and allows for the poorer among us to try to "create jobs", which I mean start a business and have no jobs.
My work here is, finally, done.
BigDave80
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2/24/2014 1:16:26 AM
Posted: 2 years ago
At 2/19/2014 3:02:59 PM, bluesteel wrote:
At 2/17/2014 10:17:32 AM, tylergraham95 wrote:
I don't see the value of "Reaganomics." Specifically, how it is supposed to be beneficial. Perhaps someone could explain it to me? By Reaganomics, I mean the policy of low taxes for the rich and lowered trade regulations.

Also, why did so many people just accept Reaganomics? Is it because they like the sound of low taxes without considering consequences? I'm not saying Reagan was dumb, but he was an actor, not an economist, or even well versed in law/politics.

Reaganomics isn't accept by most economics. In my economics curriculum, we were taught the Laffer Curve and Reaganomics only in the context of why it is wrong: the wealthy have a much lower "marginal propensity to consumer" than the poor. If you give $1 back to a wealthy person, he might spend $0.00000001 of it - i.e., if you give a wealthy person $50 million back in tax cuts, he might decide to buy his son a new car, but he's going to simply save the rest. In contrast, the poor have a really high marginal propensity to consume. If you give them $1, they will spend basically all of it (on food and luxury items they have been wanting for a long time). Therefore, tax cuts to the *poor* are much more likely to stimulate economic growth than tax cuts to the rich because tax cuts to the poor increase consumer spending almost in a 1:1 ratio, whereas tax cuts to the risk - at best - lead to more savings which *might* lower interest rates and *might* lead to more risk taking, but only indirectly and it's a much smaller effect than tax cuts to the poor.

So Reaganomics isn't flawed, but you need to give the money to poor people not rich people.

Your econ professor is... terrible.

I say this because he or she entirely missed the centerpiece of both Reaganomics and the Laffer Curve: supply side incentives.

The laffer curve has nothing to do with how tax cuts affect consumption. It has to do with how they affect incentives.

In the long run, it is production that determines economic output. Not consumption (although that matters in the short run).

Tax cuts boost productivity by increasing the after tax reward for productive behavior.

You are free to disagree with Reaganomics and the Laffer Curve (though I am a supporter of both), but you should at least understand them before you criticize.
VaLoR
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3/1/2014 7:40:58 PM
Posted: 2 years ago
At 2/17/2014 11:51:48 PM, donald.keller wrote:

The boom was due to the Internet and technology, not Clinton. The boom was later found to be an economic bubble.

Not likely. Though correlation does not equal correlation, it is quite telling to observe that, based on historical Bureau of Labor Statistics numbers, uninterrupted republican presidential era's have raised both annual average unemployment rates and durations 100% of the time relative to the preceding uninterrupted democratic era, and democratic era's have lowered both 100% of the time. Likewise, according to numbers collected by the National Bureau of Economic Research, when we use the same criteria, there is a dramatic disparity in recession numbers and average GDP growth again favoring democrats.
donald.keller
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3/1/2014 7:48:29 PM
Posted: 2 years ago
At 3/1/2014 7:40:58 PM, VaLoR wrote:
At 2/17/2014 11:51:48 PM, donald.keller wrote:

The boom was due to the Internet and technology, not Clinton. The boom was later found to be an economic bubble.

Not likely. Though correlation does not equal correlation, it is quite telling to observe that, based on historical Bureau of Labor Statistics numbers, uninterrupted republican presidential era's have raised both annual average unemployment rates and durations 100% of the time relative to the preceding uninterrupted democratic era, and democratic era's have lowered both 100% of the time. Likewise, according to numbers collected by the National Bureau of Economic Research, when we use the same criteria, there is a dramatic disparity in recession numbers and average GDP growth again favoring democrats.

What do you mean, not likely? It's already been established long ago that the mass increase in technology was an Economic Bubble. It was the .com bubble.

Republican =/= Reaganomics. Besides, it could more likely be the cause of high taxation from the Democrats that came before. Like I told Tyler, things that happen during one's presidency is often the effect of the prior presidency.
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VaLoR
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3/1/2014 7:59:33 PM
Posted: 2 years ago
Supply side economics is essentially a belief system that makes sense to some on paper, but fails in practice. Just because something makes sense logically does not mean it is true. Take competition and extrinsic incentives, for example. Surely they both encourage hard work. So, by extension they should increase innovation. Well, we now have decades of peer reviewed experiments to reflect on, and the results are startlingly one sided -- competition and incentives work great for straight forward or mechanical tasks, but actually typically undermine creative and critical thinking in direct proportion to the level of stakes involved. Our conventional wisdom has largely ignored these findings (albeit passively, by not seeking experimental verification for the assumption).

Another classic example of the failures of a priori assumptions is Aristotelian gravity. Aristotle reasoned that larger objects fall to earth faster than smaller objects -- all things being equal. It sounds perfectly logical. For centuries this conventional wisdom was never questioned, until one curious scientist (Galileo) decided to test it out. Aristotle was wrong.

We need to be more careful in avoiding confirmation bias, i.e. seeking only that information which conforms to our preexisting world view. Especially in matters such as politics/economics with such high stakes.
VaLoR
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3/1/2014 8:16:01 PM
Posted: 2 years ago
At 3/1/2014 7:48:29 PM, donald.keller wrote:
At 3/1/2014 7:40:58 PM, VaLoR wrote:
At 2/17/2014 11:51:48 PM, donald.keller wrote:

The boom was due to the Internet and technology, not Clinton. The boom was later found to be an economic bubble.

Not likely. Though correlation does not equal correlation, it is quite telling to observe that, based on historical Bureau of Labor Statistics numbers, uninterrupted republican presidential era's have raised both annual average unemployment rates and durations 100% of the time relative to the preceding uninterrupted democratic era, and democratic era's have lowered both 100% of the time. Likewise, according to numbers collected by the National Bureau of Economic Research, when we use the same criteria, there is a dramatic disparity in recession numbers and average GDP growth again favoring democrats.

What do you mean, not likely? It's already been established long ago that the mass increase in technology was an Economic Bubble. It was the .com bubble.

Republican =/= Reaganomics. Besides, it could more likely be the cause of high taxation from the Democrats that came before. Like I told Tyler, things that happen during one's presidency is often the effect of the prior presidency.

So, you discount this correlation and proclaim that Republican's never accomplished anything in aggregate because of the liberal policies that preceded them that crippled their chances?

Statistically, the probability that the disparity in recessions per party since 1900 occurred by chance is 1 in 10,000. Even when we adjust for number of years in office (to account for the fact that Republicans have held office for more years than Democrats), Republicans still had 2.3 times as many months of recession.

Worse still, since 1900, Republicans were 4 times as likely to pass a recession on to Democrats and these inherited months accounted for a whopping 27 out of the 86 total months of recession under Democratic rule (31% as opposed to the 1.6% of the Republican total inherited from Democrats).

Republican recessions not only occurred 3 times as often but lasted 45% longer and led to 4 times as many years of recession. And there is a 20% difference in historical GDP growth since 1900 that favors Democrats.

So, somehow the Democrats got lucky every time because of preceding polices and the additional recessions inherited were also caused by preceding liberal policies crippling conservatives? Keep in mind, the unemployment data I referred to compared annual average national rates for the LAST year of a party era. They had their entire tenure to right the ship compared to the last year of the previous party era, but failed to do so universally despite varying durations of tenure.
VaLoR
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3/1/2014 9:15:53 PM
Posted: 2 years ago
At 3/1/2014 7:48:29 PM, donald.keller wrote:

Republican =/= Reaganomics.

I apologize for not addressing this point directly.

You are right. Reaganomics varies slightly from the typical conservative economic policy. However, Republican economic policies overwhelmingly tend to favor the rich via tax cuts and deregulation significantly more than Democratic economic policies. Therefore, there should be a dose response of some sort if indeed either variable is involved in more or less economic success.

The fact that a milder form of Reaganomics performed so decisively poor compared to far more liberal Democratic economic policy era's leads me to conclude that leaning even further to the right could be disastrous.

Moreover, it is interesting to me that in spite of social programs such as welfare (typically attributed to Democrats that conservatives criticize for the a priori assumed tendency to incentivize lazy dependence and lack of interest in work) that the duration of unemployment under Democratic presidential party era's UNIVERSALLY lowered average weeks unemployed (comparing the average for the last year in office to the last year in office of the preceding party) and Republican presidential party era's universally increased average weeks unemployed while at the same time being more likely to reduce welfare-type social safety nets.
BigDave80
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3/2/2014 3:56:07 PM
Posted: 2 years ago
At 3/1/2014 7:59:33 PM, VaLoR wrote:
Supply side economics is essentially a belief system that makes sense to some on paper, but fails in practice. Just because something makes sense logically does not mean it is true. Take competition and extrinsic incentives, for example. Surely they both encourage hard work. So, by extension they should increase innovation. Well, we now have decades of peer reviewed experiments to reflect on, and the results are startlingly one sided -- competition and incentives work great for straight forward or mechanical tasks, but actually typically undermine creative and critical thinking in direct proportion to the level of stakes involved. Our conventional wisdom has largely ignored these findings (albeit passively, by not seeking experimental verification for the assumption).

Another classic example of the failures of a priori assumptions is Aristotelian gravity. Aristotle reasoned that larger objects fall to earth faster than smaller objects -- all things being equal. It sounds perfectly logical. For centuries this conventional wisdom was never questioned, until one curious scientist (Galileo) decided to test it out. Aristotle was wrong.

We need to be more careful in avoiding confirmation bias, i.e. seeking only that information which conforms to our preexisting world view. Especially in matters such as politics/economics with such high stakes.

First off, the academic literature is not as one sided as you say. There is some pretty good evidence that external incentives do improve creativity:

http://mitsloan.mit.edu...

But, even if you were right about the research, that doesn't change the fact that free market economies are overwhelmingly more innovative than non free market economies.

For inventors and creative types, motivation may be largely intrinsic. But, all sorts of people are needed to turn creativity and innovative ideas into successful businesses. These include entrepreneurs, investors, managers, etc. Its pretty clear that these individuals are largely extrinsically motivated.

Plus, only in a free market economy would inventors have the freedom and resources to invent.
blaze8
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3/2/2014 6:40:08 PM
Posted: 2 years ago
At 2/19/2014 3:02:59 PM, bluesteel wrote:

Reaganomics isn't accept by most economics. In my economics curriculum, we were taught the Laffer Curve and Reaganomics only in the context of why it is wrong: the wealthy have a much lower "marginal propensity to consumer" than the poor. If you give $1 back to a wealthy person, he might spend $0.00000001 of it - i.e., if you give a wealthy person $50 million back in tax cuts, he might decide to buy his son a new car, but he's going to simply save the rest. In contrast, the poor have a really high marginal propensity to consume. If you give them $1, they will spend basically all of it (on food and luxury items they have been wanting for a long time). Therefore, tax cuts to the *poor* are much more likely to stimulate economic growth than tax cuts to the rich because tax cuts to the poor increase consumer spending almost in a 1:1 ratio, whereas tax cuts to the risk - at best - lead to more savings which *might* lower interest rates and *might* lead to more risk taking, but only indirectly and it's a much smaller effect than tax cuts to the poor.

So Reaganomics isn't flawed, but you need to give the money to poor people not rich people.

There's a fundamental flaw in this reasoning. Yes, MPC for the upper incomes is higher than for the poor. But the dollar consumption for higher incomes is exponentially higher than that of the poor. They may not spend as much of their income as the poor do (for example, thanks to government welfare programs, it's possible for the lower class to have an MPC >1), but they have considerably less income with which to spend that extra dollar. Consumption generated by the upper class and middle classes, on the other hand, is often 1.5x or 2x more than the lower class. As such, if you wish to generate economic growth, doing so by putting money in the hands of people who make $19,000 a year and spend $20,000 a year won't do anywhere near as much good as putting more money in the hands of people who make $70,000 a year and spend $35,000 of it. I'm actually presenting a paper I wrote on the effects of progressive taxation on consumption in April, and my result show that overall dollar consumption in the economy, if extrapolated outward under a flat-rate taxation system, would be billions of dollars more than it is now.
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bluesteel
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3/2/2014 7:17:18 PM
Posted: 2 years ago
At 3/2/2014 6:40:08 PM, blaze8 wrote:
At 2/19/2014 3:02:59 PM, bluesteel wrote:

Reaganomics isn't accept by most economics. In my economics curriculum, we were taught the Laffer Curve and Reaganomics only in the context of why it is wrong: the wealthy have a much lower "marginal propensity to consumer" than the poor. If you give $1 back to a wealthy person, he might spend $0.00000001 of it - i.e., if you give a wealthy person $50 million back in tax cuts, he might decide to buy his son a new car, but he's going to simply save the rest. In contrast, the poor have a really high marginal propensity to consume. If you give them $1, they will spend basically all of it (on food and luxury items they have been wanting for a long time). Therefore, tax cuts to the *poor* are much more likely to stimulate economic growth than tax cuts to the rich because tax cuts to the poor increase consumer spending almost in a 1:1 ratio, whereas tax cuts to the risk - at best - lead to more savings which *might* lower interest rates and *might* lead to more risk taking, but only indirectly and it's a much smaller effect than tax cuts to the poor.

So Reaganomics isn't flawed, but you need to give the money to poor people not rich people.

There's a fundamental flaw in this reasoning. Yes, MPC for the upper incomes is higher than for the poor. But the dollar consumption for higher incomes is exponentially higher than that of the poor. They may not spend as much of their income as the poor do (for example, thanks to government welfare programs, it's possible for the lower class to have an MPC >1), but they have considerably less income with which to spend that extra dollar.

This makes no sense to me. Why do you need money to spend money? This argument only makes sense if you are somehow taking account of a psychological phenomenon (i.e. poor people save windfalls, rich people always spend them).

Consumption generated by the upper class and middle classes, on the other hand, is often 1.5x or 2x more than the lower class. As such, if you wish to generate economic growth, doing so by putting money in the hands of people who make $19,000 a year and spend $20,000 a year won't do anywhere near as much good as putting more money in the hands of people who make $70,000 a year and spend $35,000 of it. I'm actually presenting a paper I wrote on the effects of progressive taxation on consumption in April, and my result show that overall dollar consumption in the economy, if extrapolated outward under a flat-rate taxation system, would be billions of dollars more than it is now.

I don't know what the term dollar consumption means.
You can't reason someone out of a position they didn't reason themselves into - Jonathan Swift (paraphrase)
blaze8
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3/2/2014 7:33:33 PM
Posted: 2 years ago
At 3/2/2014 7:17:18 PM, bluesteel wrote:

This makes no sense to me. Why do you need money to spend money? This argument only makes sense if you are somehow taking account of a psychological phenomenon (i.e. poor people save windfalls, rich people always spend them).

Not really. If you don't have money, you can't spend it, can you? Of course, we're ignoring credit cards and other debt mechanisms, but not loans, for loans give you the money to spend.

Consumption generated by the upper class and middle classes, on the other hand, is often 1.5x or 2x more than the lower class. As such, if you wish to generate economic growth, doing so by putting money in the hands of people who make $19,000 a year and spend $20,000 a year won't do anywhere near as much good as putting more money in the hands of people who make $70,000 a year and spend $35,000 of it. I'm actually presenting a paper I wrote on the effects of progressive taxation on consumption in April, and my result show that overall dollar consumption in the economy, if extrapolated outward under a flat-rate taxation system, would be billions of dollars more than it is now.

I don't know what the term dollar consumption means.

Simple. Someone who makes 75K a year has more disposable income to spend on consumption, and actually consumes more than someone who makes 19k a year and receives welfare payments. The dollar value of the middle and upper class's consumption is higher than the dollar value of the lower class's consumption. Thus, most of the consumption in the economy comes not from the lower-class, but from the middle class and the upper class. By extension, most of the growth comes not from the lower-class, but from the upper class. What happens when you tax that consumption more? It goes down. And what happens when people move from poor to middle class? Their MPC goes down as well, but their consumption itself increases. But it doesn't increase enough to offset the losses experienced by tearing down the income of the upper and middle classes.
"For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."-Sterling Archer
bluesteel
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3/2/2014 8:27:58 PM
Posted: 2 years ago
At 3/2/2014 7:33:33 PM, blaze8 wrote:
At 3/2/2014 7:17:18 PM, bluesteel wrote:

This makes no sense to me. Why do you need money to spend money? This argument only makes sense if you are somehow taking account of a psychological phenomenon (i.e. poor people save windfalls, rich people always spend them).

Not really. If you don't have money, you can't spend it, can you? Of course, we're ignoring credit cards and other debt mechanisms, but not loans, for loans give you the money to spend.

Consumption generated by the upper class and middle classes, on the other hand, is often 1.5x or 2x more than the lower class. As such, if you wish to generate economic growth, doing so by putting money in the hands of people who make $19,000 a year and spend $20,000 a year won't do anywhere near as much good as putting more money in the hands of people who make $70,000 a year and spend $35,000 of it. I'm actually presenting a paper I wrote on the effects of progressive taxation on consumption in April, and my result show that overall dollar consumption in the economy, if extrapolated outward under a flat-rate taxation system, would be billions of dollars more than it is now.

I don't know what the term dollar consumption means.

Simple. Someone who makes 75K a year has more disposable income to spend on consumption, and actually consumes more than someone who makes 19k a year and receives welfare payments. The dollar value of the middle and upper class's consumption is higher than the dollar value of the lower class's consumption. Thus, most of the consumption in the economy comes not from the lower-class, but from the middle class and the upper class. By extension, most of the growth comes not from the lower-class, but from the upper class. What happens when you tax that consumption more? It goes down. And what happens when people move from poor to middle class? Their MPC goes down as well, but their consumption itself increases. But it doesn't increase enough to offset the losses experienced by tearing down the income of the upper and middle classes.

I'm sorry, but you don't seem to understand what the MPC is or what Reagonomics even asserts. MPC = if you give a person one more dollar, how much of it do they spend? Reagonomics = tax cuts to the wealthy generate new business which increases total tax revenue as compared to no tax cuts.

Food stamps would probably be factored into GDP under "G" not "C," but that doesn't mean they don't have an affect on the economy. The producers of the food people are buying get paid either way. Your other premise - that there is a difference between buying basic necessities and "consumption" is also wrong. Consumption or "C" in the GDP equation includes both necessities and luxury goods.

Yes, rich people consumer *more* as an aggregate because they have more total money. That has nothing to do with MPC, which asks if you increase their wealth by one dollar, how much of that *increased* wealth do they spend. The MPC is indisputably higher for poor people which is why tax cuts to the poor do more to stimulate GDP (through C). GDP = C + I + G + NX

Good luck with the paper. My personal opinion is that it is based on a faulty economic premise, but maybe you'll prove me wrong.
You can't reason someone out of a position they didn't reason themselves into - Jonathan Swift (paraphrase)
blaze8
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3/2/2014 8:54:45 PM
Posted: 2 years ago
At 3/2/2014 8:27:58 PM, bluesteel wrote:

I'm sorry, but you don't seem to understand what the MPC is or what Reagonomics even asserts. MPC = if you give a person one more dollar, how much of it do they spend? Reagonomics = tax cuts to the wealthy generate new business which increases total tax revenue as compared to no tax cuts.

I know exactly what it is, and my paper has been accepted for presentation at NCUR 2014 at the University of Kentucky. MPC is definitely correlated with income, and my results show that as income increases, MPC does decrease, but it approaches a limit. Tax cuts to the wealthy increase their disposable income, generating new options for them to invest. We are discussing the same topic here.

Food stamps would probably be factored into GDP under "G" not "C," but that doesn't mean they don't have an affect on the economy. The producers of the food people are buying get paid either way. Your other premise - that there is a difference between buying basic necessities and "consumption" is also wrong. Consumption or "C" in the GDP equation includes both necessities and luxury goods.

There is no other premise. My consumption data comes from all consumption as published in the CEX. My income data come from the IRS figures for tax brackets. The IRS data allows me to establish average adjusted gross income (as in, gross income after tax-rebates, less deficits, etc) in each tax bracket. The CEX allows me to establish average consumption levels (both necessities and luxury goods) within each tax bracket. This allows me to calculate MPC. Then, using matlab's fitting program, I fit a curve to the data points, and thus have an equation for calculating the change in MPC as income levels change.

Yes, rich people consumer *more* as an aggregate because they have more total money. That has nothing to do with MPC, which asks if you increase their wealth by one dollar, how much of that *increased* wealth do they spend. The MPC is indisputably higher for poor people which is why tax cuts to the poor do more to stimulate GDP (through C). GDP = C + I + G + NX

It has everything to do with MPC. My equation allows me to estimate how consumption changes as income changes, aka, MPC. Besides, my equation is sound because the IRS data allows me to calculate total national adjusted gross income less deficit, and the CEX data allows me to calculate total national consumption expenditures as well. I can, therefore, observe and comment on MPC as it changes with income levels.
"For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."-Sterling Archer
bluesteel
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3/2/2014 9:55:01 PM
Posted: 2 years ago
At 3/2/2014 8:54:45 PM, blaze8 wrote:
At 3/2/2014 8:27:58 PM, bluesteel wrote:

I'm sorry, but you don't seem to understand what the MPC is or what Reagonomics even asserts. MPC = if you give a person one more dollar, how much of it do they spend? Reagonomics = tax cuts to the wealthy generate new business which increases total tax revenue as compared to no tax cuts.

I know exactly what it is, and my paper has been accepted for presentation at NCUR 2014 at the University of Kentucky. MPC is definitely correlated with income, and my results show that as income increases, MPC does decrease, but it approaches a limit. Tax cuts to the wealthy increase their disposable income, generating new options for them to invest. We are discussing the same topic here.

Food stamps would probably be factored into GDP under "G" not "C," but that doesn't mean they don't have an affect on the economy. The producers of the food people are buying get paid either way. Your other premise - that there is a difference between buying basic necessities and "consumption" is also wrong. Consumption or "C" in the GDP equation includes both necessities and luxury goods.

There is no other premise. My consumption data comes from all consumption as published in the CEX. My income data come from the IRS figures for tax brackets. The IRS data allows me to establish average adjusted gross income (as in, gross income after tax-rebates, less deficits, etc) in each tax bracket. The CEX allows me to establish average consumption levels (both necessities and luxury goods) within each tax bracket. This allows me to calculate MPC. Then, using matlab's fitting program, I fit a curve to the data points, and thus have an equation for calculating the change in MPC as income levels change.

Yes, rich people consumer *more* as an aggregate because they have more total money. That has nothing to do with MPC, which asks if you increase their wealth by one dollar, how much of that *increased* wealth do they spend. The MPC is indisputably higher for poor people which is why tax cuts to the poor do more to stimulate GDP (through C). GDP = C + I + G + NX

It has everything to do with MPC. My equation allows me to estimate how consumption changes as income changes, aka, MPC. Besides, my equation is sound because the IRS data allows me to calculate total national adjusted gross income less deficit, and the CEX data allows me to calculate total national consumption expenditures as well. I can, therefore, observe and comment on MPC as it changes with income levels.

Okay, so you take current consumption patterns from the CEX right. So if someone spends 20% of their income on consumption, you assume their MPC is .2, right?
You can't reason someone out of a position they didn't reason themselves into - Jonathan Swift (paraphrase)