Split Thread Trickle-down economics

[McHrozni]

This thread was split from The Trump Presidency III as it discusses the issues of supply-side and trickle-down economics.

Posted By: Agatha

I guess that the Democrats don't want the additional deficit that tax cuts for the very richest seem to end up causing. Democrats tend to decrease the deficit (indeed in Clinton's case actually eliminating it), Republicans tend to increase it.

That's a bit simplistic and unfair. The Congress is the body who has the final say on the budget and Clinton reduced the deficit with a Republican Congress.

This is a part of the picture:
http://www.orangejuiceblog.com/wp-content/uploads/2013/01/National-Debt-Increases-by-President.gif

But so is this:
https://brentmarkus.files.wordpress.com/2011/04/congress-national-deficit-inflation-adjusted.png

Simply reducing this to Democrat vs Republican clouds the big picture. The combination of a Democrat President and Republican Congress tends to reduce the deficit the most.

You know what is the biggest driver of deficit? Recessions. The rises coincide with recessions (Bush 2001, Obama 2009) or the immediate aftermath of a recession (Regan 1982). You can't reduce that to an elephant vs donkey thing, because it's not just that. Trump may well increase the deficit because he's a reckless megalomaniac, but that doesn't make Democrats champions of fiscal responsibility any more than it shows Republicans as a whole are reckless big spenders.

McHrozni

 

[The Don]

You know what is the biggest driver of deficit? Recessions. The rises coincide with recessions (Bush 2001, Obama 2009) or the immediate aftermath of a recession (Regan 1982). You can't reduce that to an elephant vs donkey thing, because it's not just that. Trump may well increase the deficit because he's a reckless megalomaniac, but that doesn't make Democrats champions of fiscal responsibility any more than it shows Republicans as a whole are reckless big spenders.

McHrozni

Fact still stands that under Democratic Party Presidents, the deficits tend to fall. I agree that it's not because the Democratic Party is super fiscally responsible, it's just that both parties like to spend (on their own favourite things) but Democratic Party presidents are less likely to implement tax cuts for the very, very wealthy which means that there isn't all of a sudden a huge drop in the money coming in.

http://www.businessinsider.com/who-increased-the-debt-2012-9?IR=T

 

[The Don]

The party of faith-based policies and wishful thinking.

If I understand it correctly, if a bill has no net financial implications then it can get through the Senate far more easily and can be passed on a simple majority vote - and cannot be fillibustered.

The GOP/Trump "enormous tax cut for very rich people" would apparently result in a net reduction in tax revenues. The intention was that medicare savings would pay for it but the failure to repeal and/or replace has meant that they will not come.

Does this mean that the GOP has to claim that any tax shortfall due to a drop in rates will be made up for by increases in overall economic activity ? Can they just do this, or do they actually have to present some kind of evidence ?

 

[Stacko]

Well their public arguments seem to be based mostly on the power of hope and wishful thinking:



https://www.nytimes.com/2017/09/28/us/politics/trump-tax-cuts-deficit-republicans-congress.html

The party of faith-based policies and wishful thinking.

Even the National Review has given up on the myth that tax breaks pay for themselves.

Republicans want to cut taxes by $1.5 trillion — while the government already is running a deficit — and they propose to offset those cuts with wishful thinking.

In control of both houses of Congress with a nominally Republican president in the White House, they are pursuing the dead opposite of the immigration policy touted by Donald Trump on the campaign trail, and considering something close to the opposite of their longstanding promises on health care. They are embarrassed by their inability to execute any proposal of great consequence, and have retreated into that great Republican safe space: tax cuts, the more irresponsible the better.

 

[Trebuchet]

David Stockman strikes again. Trickle Down never has, never will. As Stockman himself admitted:

Stockman was quoted as referring to Reagan's tax act in these terms: "I mean, Kemp-Roth [Reagan's 1981 tax cut] was always a Trojan horse to bring down the top rate.... It's kind of hard to sell 'trickle down.' So the supply-side formula was the only way to get a tax policy that was really 'trickle down.' Supply-side is 'trickle-down' theory."[7] Of the budget process during his first year on the job, Stockman was quoted as saying, "None of us really understands what's going on with all these numbers," which was used as the subtitle of the article.[7]

 

[CapelDodger]

You know what is the biggest driver of deficit? Recessions.

Between which are booms, which would drive deficit reduction under the old Keynesian system. Under Reagan and the lesser Bush, of course, they drove tax-cuts for the rich. As did recessions, of course. Under Chicago School rules, tax cuts for the rich are the correct response to any circumstance.

 

[CapelDodger]

Fact still stands that under Democratic Party Presidents, the deficits tend to fall. I agree that it's not because the Democratic Party is super fiscally responsible, it's just that both parties like to spend (on their own favourite things) but Democratic Party presidents are less likely to implement tax cuts for the very, very wealthy which means that there isn't all of a sudden a huge drop in the money coming in.

The Democratic Party has to be more fiscally responsible than the GOP because it's not taken on trust - far from it, of course. The GOP can ramp up the deficit in the same way Nixon could go to China.

 

[CapelDodger]

I am really getting skeptical that the Republicans even believe this increases economic activity. I think it is more a long term strategic move so they can say that the government running even larger deficits and use it as an excuse to ram through massive cuts to everything but the military.

I think they still hold to the Chicago School faith : they ascribe its obvious failings to the intervention of Democrats. Done properly it will work, and now is the chance to do it properly. The elimination of inheritance tax, for instance. Enough slashing, now the burning.

I helps that the Chicago School faith was shaped to suit the rentier class which the Republican Party represents.

 

[McHrozni]

Fact still stands that under Democratic Party Presidents, the deficits tend to fall. I agree that it's not because the Democratic Party is super fiscally responsible, it's just that both parties like to spend (on their own favourite things) but Democratic Party presidents are less likely to implement tax cuts for the very, very wealthy which means that there isn't all of a sudden a huge drop in the money coming in.

http://www.businessinsider.com/who-increased-the-debt-2012-9?IR=T

That's one part of the story, yes. The other is also circumstance. Regan came to power after years of stagflation and his spending helped pull the nation out, plus it helped end the Cold war (not by much, but it helped). The second Bush had to deal with the aftermath of 9/11, some of it was of his own making (Iraq), but some of it was out of his hands (the economy was on the brink of recession in early 2001).

By contrast, Bill Clinton had quite calm waters in between, by and large not of his making.

To a fair extent it was a matter of luck. This does not explain all of the difference, Republican tax cuts also explain some of it. Some of it is also explained in the article, debt to GDP is much more relevant than the absolute increase in dollars the chart shows. It also says that a good deal of what happens early in a presidents' term should be laid at the feet of his predecesor. Not all of it of course, but it puts both Bushes, Clinton and Obama (the chart only shows his first term) into a markedly different perspective.

You're trying to extrapolate quite significant information from severely flawed data. That doesn't mean Republicans are the responsible ones and Democrats are tax and spend fanatics, I'm saying the information you're using does not allow you to reach the conclusions you're making. You don't need to look much wider than what I pointed out - control of Congress - to show your conclusion is a gross oversiplification. The article also has a useful link for that:

http://www.businessinsider.com/whos-responsible-for-budget-deficit-2012-8

McHrozni

 

[The Don]

That's one part of the story, yes. The other is also circumstance. Regan came to power after years of stagflation and his spending helped pull the nation out, plus it helped end the Cold war (not by much, but it helped). The second Bush had to deal with the aftermath of 9/11, some of it was of his own making (Iraq), but some of it was out of his hands (the economy was on the brink of recession in early 2001).

His response was of course to reduce taxes which increased the deficit not only for the year or years where economic stimulus was required, but for a decade or more afterwards (and arguably didn't provide the stimulus). OTOH Obama actually attempted to implement a stimulus package which only increased the deficit whilst it was in force, and actually had a stimulus effect.

Even if you claim that none of the cause is the GOP Presidents' fault, the response is their fault.

By contrast, Bill Clinton had quite calm waters in between, by and large not of his making.

To a fair extent it was a matter of luck. This does not explain all of the difference, Republican tax cuts also explain some of it. Some of it is also explained in the article, debt to GDP is much more relevant than the absolute increase in dollars the chart shows. It also says that a good deal of what happens early in a presidents' term should be laid at the feet of his predecesor. Not all of it of course, but it puts both Bushes, Clinton and Obama (the chart only shows his first term) into a markedly different perspective.

You're trying to extrapolate quite significant information from severely flawed data. That doesn't mean Republicans are the responsible ones and Democrats are tax and spend fanatics, I'm saying the information you're using does not allow you to reach the conclusions you're making. You don't need to look much wider than what I pointed out - control of Congress - to show your conclusion is a gross oversiplification. The article also has a useful link for that:

http://www.businessinsider.com/whos-responsible-for-budget-deficit-2012-8

McHrozni

...and yet here we are once again at a situation where the GOP are proposing reducing taxes - and increasing the deficit by $2tn whereas the last Democratic Party President tried to allow Bush era tax cuts for the very rich to expire and was prevented from doing so by the GOP - and yet still over the course of his Presidency managed to reduce the deficit by 50%.

Unless Democratic Party presidents are routinely "lucky" (and I'm sure that GOP diehards will insist that they are just mooching off the success of previous GOP Presidents) then they're doing something right.

 

[McHrozni]

His response was of course to reduce taxes which increased the deficit not only for the year or years where economic stimulus was required, but for a decade or more afterwards (and arguably didn't provide the stimulus). OTOH Obama actually attempted to implement a stimulus package which only increased the deficit whilst it was in force, and actually had a stimulus effect.

Even if you claim that none of the cause is the GOP Presidents' fault, the response is their fault.

I'm not saying neither of them bear any responsibility for the deficit, I'm saying it's a gross oversimplification. The best way to reduce the government deficit is to grow out of it, Bush did that for a time. In 2001 the bottleneck of the economy was a lack of investment, not consumer spending. The tax cuts made a fair amount of sense as a result. Reducing the taxes for longer than necessary wasn't a great idea, but remember Obama did the same thing.

Of course you'll now say that it was the Republican congress that forced him into it, but it was also the Republican congress that oversaw just about all of Clinton-era deficit reduction. The deficit started to come down in the same year as Republicans obtained control of the congress, but not before.

The picture is much more complex from what you're saying.

Unless Democratic Party presidents are routinely "lucky" (and I'm sure that GOP diehards will insist that they are just mooching off the success of previous GOP Presidents) then they're doing something right.

You're working with a sample size of five presidents, a grand total of whom two were Democrats and one of whom indeed had luck in the timing of when he became president.

If you conclude from this information that Democrat presidents are routinely "lucky" because half of them had good fortune in timing, I will lose all respect for you and punch you

McHrozni

 

[The Don]

I'm not saying neither of them bear any responsibility for the deficit, I'm saying it's a gross oversimplification. The best way to reduce the government deficit is to grow out of it, Bush did that for a time. In 2001 the bottleneck of the economy was a lack of investment, not consumer spending. The tax cuts made a fair amount of sense as a result. Reducing the taxes for longer than necessary wasn't a great idea, but remember Obama did the same thing.

Of course you'll now say that it was the Republican congress that forced him into it, but it was also the Republican congress that oversaw just about all of Clinton-era deficit reduction. The deficit started to come down in the same year as Republicans obtained control of the congress, but not before.

The picture is much more complex from what you're saying.



You're working with a sample size of five presidents, a grand total of whom two were Democrats and one of whom indeed had luck in the timing of when he became president.

If you conclude from this information that Democrat presidents are routinely "lucky" because half of them had good fortune in timing, I will lose all respect for you and punch you

McHrozni

Even comparing Truman to Eisenhower, Johnson to Nixon.

It goes at least as far back as WWII

 

[McHrozni]

Even comparing Truman to Eisenhower, Johnson to Nixon.

It goes at least as far back as WWII

If you include Truman, you must also include Roosvelt, who increased the debt humongusly. Granted it was for good cause and due to events outside of their control, but the same argument can be made for all other presidents to some extent.

https://www.usgovernmentdebt.us/include/usgs_chart4p04.png

If you're mentioning Nixon you must also mention Carter, who was more profligate than either Johnson or Nixon.

http://traxel.com/deficit/deficit-percentage.png

There was next to no deficit reduction in the US between 1949-1998. Regan expended the deficit by more than any other post-war US president until 2004 when the above graph ends, but Carter wasn't far behind him.

It's not nearly as simple as you think it is. If you remove Clinton and Regan from the argument you'll find that Democrat presidents were more fiscally irresponsible overall thanks to Carter. This means your rule falls apart. That doesn't mean many of the Republican policies aren't irresponsible, many are, but it's not that Republicans talk of decreasing deficit while increasing it and the Democrats do the opposite, that's an unfair and gross oversimplification of the issue. Clintons' deficit reduction coincides with the "End of History", which was probably the main reason it happened in the first place. You can't judge 70 years worth of policy based on four years, you can't judge the Democrat deficit reduction on 1995-1999 period any more than you can judge it on the 1941-45 period.

McHrozni

 

[The Don]

It's not nearly as simple as you think it is. If you remove Clinton and Regan from the argument you'll find that Democrat presidents were more fiscally irresponsible overall thanks to Carter. This means your rule falls apart. That doesn't mean many of the Republican policies aren't irresponsible, many are, but it's not that Republicans talk of decreasing deficit while increasing it and the Democrats do the opposite, that's an unfair and gross oversimplification of the issue. Clintons' deficit reduction coincides with the "End of History", which was probably the main reason it happened in the first place. You can't judge 70 years worth of policy based on four years, you can't judge the Democrat deficit reduction on 1995-1999 period any more than you can judge it on the 1941-45 period.

McHrozni

The debt to GDP ratio decreased under Carter as opposed to increasing under the GOP president before (Ford) or after (Reagan). Looks like Carter did a good job compared to the GOP presidents who had similar circumstances.


edited to add.....

Given that the discussion is about whether the GOP is fiscally irresponsible reducing taxes for the very wealthy by $2tn, IMO it makes sense to me to discuss deficits since "tax reduction at all costs" became GOP policy under Reagan - after all Eisenhower was happy with very high marginal rates.

 

[McHrozni]

The debt to GDP ratio decreased under Carter as opposed to increasing under the GOP president before (Ford) or after (Reagan). Looks like Carter did a good job compared to the GOP presidents who had similar circumstances.

No, it stayed pretty much as it was, following a steady drop since the end of WW2, through the presidencies of Eisenhower, Kennedy, Johnson, Nixon and Ford.

https://qzprod.files.wordpress.com/2012/11/debt-and-gdp-main6.png?w=1024&h=603

You can't make an argument of how the Democrats are the fiscally responsible party while Republicans are the irresponsible party unless you fixate yourself on the era from 1980 onwards. Then it's true to some extent, but to a large extent because Clinton was lucky in when he was elected president.

Given that the discussion is about whether the GOP is fiscally irresponsible reducing taxes for the very wealthy by $2tn, IMO it makes sense to me to discuss deficits since "tax reduction at all costs" became GOP policy under Reagan - after all Eisenhower was happy with very high marginal rates.

Tax reduction is a major vote winner in the US. The primary guilty party for that are the American voters who reward politicians because they promise lower taxes. Not that low taxes are bad per se, lowering taxes can be a very good thing, if some conditions are met - namely that the country has low income inequality and is suffering from low investments. This is not the case in the US. Lowering taxes would benefit Slovenia and Hungary, but not the US and Singapore. Most people are unable to recognize that lowering taxes is a tool of policy and inherently neither good nor bad, just appropriate or inappropriate for the situation.

https://en.wikipedia.org/wiki/List_of_countries_by_income_equality

Of course that means the GOP ideology since 1990 (but not before) is inappropriate for the current needs of the US. The Democrats are unable to see and explain why though.

McHrozni

 

[The Don]

No, it stayed pretty much as it was, following a steady drop since the end of WW2, through the presidencies of Eisenhower, Kennedy, Johnson, Nixon and Ford.

https://qzprod.files.wordpress.com/2012/11/debt-and-gdp-main6.png?w=1024&h=603

You can't make an argument of how the Democrats are the fiscally responsible party while Republicans are the irresponsible party unless you fixate yourself on the era from 1980 onwards. Then it's true to some extent, but to a large extent because Clinton was lucky in when he was elected president.

The reason I "fixate" as you put on the Reagan-era it is that's the point at which trickle-down became GOP policy.

Trickle down hasn't worked nationally, it hasn't worked in Kansas and yet here we are again with the GOP promoting it and as usual all it will do is to increase the deficit.

Tax reduction is a major vote winner in the US. The primary guilty party for that are the American voters who reward politicians because they promise lower taxes. Not that low taxes are bad per se, lowering taxes can be a very good thing, if some conditions are met - namely that the country has low income inequality and is suffering from low investments. This is not the case in the US. Lowering taxes would benefit Slovenia and Hungary, but not the US and Singapore. Most people are unable to recognize that lowering taxes is a tool of policy and inherently neither good nor bad, just appropriate or inappropriate for the situation.

https://en.wikipedia.org/wiki/List_of_countries_by_income_equality

Of course that means the GOP ideology since 1990 (but not before) is inappropriate for the current needs of the US. The Democrats are unable to see and explain why though.

McHrozni

Trickle down dates back to the very early 80's.

The Democrats are unable to explain why it's not appropriate for the same reason why their message regarding coal jobs didn't get through:

• It's more complicated than a single sentence
• It's not what people want to hear

The GOP OTOH is very good at catch-phrases even if the policy isn't that great and/or they cannot deliver it.

 

[McHrozni]

The reason I "fixate" as you put on the Reagan-era it is that's the point at which trickle-down became GOP policy.

Trickle down hasn't worked nationally, it hasn't worked in Kansas and yet here we are again with the GOP promoting it and as usual all it will do is to increase the deficit.

Tricke-down worked extremely well in China though. It's not that the policy is bad, it's that it's inappropriate for the US. I would furthermore argue implementing it in 1980 was a good idea, it's just that the US didn't know of when to stop (1986-ish would be good) and ran with it for too long.

Trickle down dates back to the very early 80's.

The Democrats are unable to explain why it's not appropriate for the same reason why their message regarding coal jobs didn't get through:

• It's more complicated than a single sentence
• It's not what people want to hear

The GOP OTOH is very good at catch-phrases even if the policy isn't that great and/or they cannot deliver it.

A good deal of the GOP base is the poor and the uneducated. To a fair extent it's the spirit of the times that is working against the Democrats, anyone anywhere may be heard and considered important, regardless of actual merit. That's why conspiracy theories and vaccine denialists are so prolific and that's why GOP tactics work so well at this time.

Perhaps Trump will ensure they will stop working. One can only hope.

McHrozni

 

[The Don]

Tricke-down worked extremely well in China though. It's not that the policy is bad, it's that it's inappropriate for the US. I would furthermore argue implementing it in 1980 was a good idea, it's just that the US didn't know of when to stop (1986-ish would be good) and ran with it for too long.

You may argue it, but then again you could argue that it wasn't a good idea.

On the positive side of the ledger, taxes were reduced (so the rich certainly felt better off) and there was significant growth in the economy (although government spending also increased significantly).

On the negative side, the deficit ballooned, income inequality really started to increase and of course the myth of trickle down got firmly implanted.

A good deal of the GOP base is the poor and the uneducated. To a fair extent it's the spirit of the times that is working against the Democrats, anyone anywhere may be heard and considered important, regardless of actual merit. That's why conspiracy theories and vaccine denialists are so prolific and that's why GOP tactics work so well at this time.

Perhaps Trump will ensure they will stop working. One can only hope.

McHrozni

Simple catch phrases have always worked - complicated ideas much less so. If FDR had to explain his policies in the early 30's in detail he'd have bored the electorate to death but "The New Deal" was a catchy piece of marketing and it was consistent with public sentiment.

IMO it just so happens that the current GOP message is perfectly tailored to today's society in the US (and the UK). People are selfish, and lazy the idea of me having to work for something or even worse have to do something for the common good is decades out of fashion. Instead the vast majority want the electoral equivalent of junk food - appealing in the short term but not necessarily good in the long term.

I think we can look forwards to years, if not decades, of the same until there is some kind of crisis so severe that we are compelled to pull together, work collectively, and be prepared to engage in a little self-sacrifice.

 

[McHrozni]

You may argue it, but then again you could argue that it wasn't a good idea.

On the positive side of the ledger, taxes were reduced (so the rich certainly felt better off) and there was significant growth in the economy (although government spending also increased significantly).

On the negative side, the deficit ballooned, income inequality really started to increase and of course the myth of trickle down got firmly implanted.

Tricke down is no myth, it works if the economy has significant levels of equality. It makes the rich richer faster than it makes the poor better off, that's a negative side effect and a reason why the policy must be discontinued at a certain point when the difference grows too large.

It's hardly unique in this regard, the same thing holds for policies that work to reduce inequality just as well. At a certain point they must be discontinued or else they will strangle the economy one way (high taxes strangle investment) or the other (no one wants to work in hard jobs, because they all pay about the same anyway). The only difference is this is clear to pretty much everyone involved whereas it is not clear in regards to trickle down economics.

Simple catch phrases have always worked - complicated ideas much less so. If FDR had to explain his policies in the early 30's in detail he'd have bored the electorate to death but "The New Deal" was a catchy piece of marketing and it was consistent with public sentiment.

There is no reason why it can't be replicated today. You can invesnt catchy phrases for any modern policy, if you don't when you need them that's your own incompetence.

I think we can look forwards to years, if not decades, of the same until there is some kind of crisis so severe that we are compelled to pull together, work collectively, and be prepared to engage in a little self-sacrifice.

I think Trump will produce the crisis in question. In fact I hope he does, the sooner it happens the less damage it will do.

McHrozni

 

[Belz...]

Tricke down is no myth, it works if the economy has significant levels of equality.

How does it work exactly?