The Goatee of the Overeager Left

by Will Wilkinson on July 11, 2008

From one of The Economist’s New York correspondents:

There seems to be a temptation lately to label anyone who even dares mention supply-side economics, without immediately deeming it the silliest idea born to a napkin, an economic heretic. That’s unfortunate. True, with the exception of very high marginal tax rates, a tax cut will generally not pay for itself. But there exists ample empirical evidence that cutting income taxes does increase growth. Thus, the long-run impact of a permanent tax cut is still up for debate. The effect of lower-income tax rates on labour supply is mixed. But it does seem, at the very least, lower tax rates decrease the amount of tax evasion. Writing off supply-side economics as a blatant fallacy is as much of a 1990s relic as wearing a goatee.

Nice.

Viewing 12 Comments

John V 4 months ago 1 point
Please login to rate.

Do you already have an account? Log in and claim this comment.

Yes. Nice. I'm not a "supply-sider". I don't like the term. I'm simply a classical liberal who acknowledges that we all do better individually as well as a group (insofar as "a group" even matters) when we operate, work and live under less tax burden. The $80K household, from OK and MI to NYC and DC does better when it keeps more than $50-55K of its income....as does the $130-150K household...who are not "rich" by any means when they live in an expensive metro area. I'm sure Will can vouch for that. Corporations and small businesses also do better with lower tax rates.

After all, it's about individuals minding their own business and providing for the welfare and happiness of their families.

The huge burdens placed on our government budgets are self-inflicted by those people...just as many of the high costs we have to endure are rooted in the same source.

Arsonists make poor fire fighters.

reply edit reblog flag record video comment

muirgeo 4 months ago 1 point
Please login to rate.

Do you already have an account? Log in and claim this comment.

"Today, there is a mismatch between social and private returns. Unless they are closely aligned, the market system cannot work well. "

From; The end of neo-liberalism?

By Joseph E. Stiglitz

http://www.dailystaregypt.com/article.aspx?Arti...

reply edit reblog flag record video comment

mk 4 months ago 1 point
Please login to rate.

Do you already have an account? Log in and claim this comment.

I asked Tyler Cowen about this a while ago. Doesn't it seem like tax cuts should always help in the long run? A slightly raised growth rate will eventually more than pay for the initial 2,5,10 years of reduced tax receipts.

Now I take it the financing aspect (borrowing so extensively from future revenues) is problematic if the projected gains are very far in the future. So running massive deficits today because taxes are at 1% is probably too theoretical to be workable.

Nevertheless at a minimum this line of argument does provide medium/long-term support, besides the usual short-term argument, that cutting taxes can be good even without immediate spending reductions.

Practically speaking, the problem is that an experiment or comparison along these lines takes a very long time to complete (maybe 50 years or more), because the primary mechanism is the compounding effect of growth. So it is hard to get a scientifically rigorous picture of the situation.

reply edit reblog flag record video comment

Jesse the grad student 4 months ago 1 point
Please login to rate.

Do you already have an account? Log in and claim this comment.

What would have been "nice" is if the author had cited somebody who thinks that tax cuts are always bad. This shouldn't be a difficult task, since the author seems to be claiming that such sentiments are becoming ubiquitous.

I am afraid that the author could be confused about the difference between people who think that all tax cuts are bad for the economy (these people are probably few and, if they exist, in need of mental help) and people who think that tax cuts are a bad idea when government debt is ridiculously high and growing faster than ever, our infrastructure is in dire need of maintenance, and fee-based services (such as publicly-provided higher education) are becoming more expensive.

reply edit reblog flag record video comment

1 /people/JesseZ/ /people/JesseZ/following/

muirgeo 4 months ago 1 point
Please login to rate.

Do you already have an account? Log in and claim this comment.

John V wrote,

"I'm simply a classical liberal who acknowledges that we all do better individually as well as a group (insofar as "a group" even matters) when we operate, work and live under less tax burden."

Well as I understand you got your wish and the marginal tax rates have successively been cut since Reagan. So how's that working out for the economy? Well, I mean for the other 99.9% of us?

http://www.visualizingeconomics.com/wp-content/...

reply edit reblog flag record video comment

muirgeo 4 months ago 1 point
Please login to rate.

Do you already have an account? Log in and claim this comment.

"A week ago, Bridgewater Associates, a research firm, estimated that losses from the credit crisis we’re now mired in might amount to $1.6 trillion when all is said and done.

We’ll have to wait years to see if this is accurate. But whatever the number is, it will also represent, in stunning red ink, the cost to society of financiers who are shortsighted and greedy and regulators who don’t regulate. "

From;

http://www.nytimes.com/2008/07/13/business/13gr...

So what explains the current market failure? Well at least the total failure that was preempted by government intervention. Taxes have been cut and so have regulations. How does the libertarian keep his ideology alive in such a hostile environment?

I know the likely answer is we haven't really cut taxes and regulation enough. But the practical question begs an answer. Every time we seem to take even baby steps toward liberaltopia we get our asses kicked. So what gives?

reply edit reblog flag record video comment

WilsonF 4 months ago 1 point
Please login to rate.

Do you already have an account? Log in and claim this comment.

Muirgeo: Pretty freaking well I'd say.

Median Income in 1980 (2006 dollars): $41,258
Median Income in 2006: $48,201

17% growth. . .what a disaster since Reagan.

Pithy yes, but no more so than your own reply. My data is certainly more meaningful for the well being of the 'rest of us' than your data.

reply edit reblog flag record video comment

1 /people/WilsonF/ /people/WilsonF/following/

muirgeo 4 months ago 1 point
Please login to rate.

Do you already have an account? Log in and claim this comment.

Wilson,

Productivity increased 70% and individual and family work hours went up significantly to compensate.

http://www.stateofworkingamerica.org/tabfig/01/...

http://www.hartford-hwp.com/archives/26/077.html

And Reagan, yeah he was a disaster. And a criminal selling arms illegally to the Iranians. And he massively/ regressively increased social security taxes. He started amnesty for illegals. He set us back on the path to oil dependency. The economy we are seeing now is pretty much the long term results of his vodoo economics.

http://zfacts.com/p/318.html

reply edit reblog flag record video comment

Micha Ghertner 4 months ago 1 point
Please login to rate.

Do you already have an account? Log in and claim this comment.

He started amnesty for illegals.

Wait, you consider this a bad thing? What a fucking hypocrite you are, muirgeo. Your professed concern for income inequality is a complete joke now that you have admitted you really only care about people lucky enough to be born in America.

And for the record, you still have not done your econ homework, muirgeo. Until you understand what Hayek means by central planning, you have no room to talk about anything resembling the subject.

reply edit reblog flag record video comment

http://www.distributedrepublic.net

Pithlord 4 months ago 1 point
Please login to rate.

Do you already have an account? Log in and claim this comment.

Dynamic scoring is pretty mainstream now, so if "supply side economics" just means that tax rate increases do not result in proportional increases in revenue, no one economically literate denies it. Nor would anyone disagree that there must be some peak to the Laffer curve -- at some point increasing tax rates decreases revenue. Unfortunately, "supply side" is irreversibly associated with the idea that the contemporary US is at that point, so that tax cuts pay for themselves. So there's no tradeoff between taxes and expenditures -- just party like it's 1999. Cheney's "Reagan proved deficits don't matter" comes to mind. That's what people mean by "supply side economics" and it really is discredited.

reply edit reblog flag record video comment

Jason Armstrong 4 months ago 1 point
Please login to rate.

Do you already have an account? Log in and claim this comment.

I agree with Pithlord. The phrase "supply side economics" has become taboo, and its use distracts otherwise reasonable people from giving your arguments a fair shake. We should abandon the term, but continue to honor the credible ideas associated with it.

reply edit reblog flag record video comment

mk 4 months ago 1 point
Please login to rate.

Do you already have an account? Log in and claim this comment.

But if we agree that we can raise the growth rate by some delta by lowering taxes, doesn't it straightforwardly follow that all tax cuts ultimately pay for themselves?

The argument is simple math; it may be wrong for some reason but I don't see how.

reply edit reblog flag record video comment