A Dangerous Idea In The Deficit-Reduction Supercommittee

By Simon Johnson

Can tax cuts “pay for themselves” – inducing so much additional economic growth that government revenue actually increases, rather than decreases? The evidence clearly says no.

Nevertheless, a version of this idea, under the guise of “dynamic scoring,” has apparently surfaced in the supercommittee charged with deficit reduction – the joint congressional committee with 12 members. Dynamic scoring sounds technical or perhaps even scientific, but here the argument means simply that any pro-growth effect of tax cuts should be stressed when assessing potential policy changes (e.g., reforming the tax code). For anyone seriously concerned with fiscal responsibility, this is a dangerous notion.

Economists disagree about almost everything, of course, and the effect of tax cuts is no exception. One reasonable way to assess the evidence is to begin with the highest plausible effects, then see what happens if some of the more extreme assumptions are relaxed (this is a nice way of saying that we don’t believe everything the authors are trying to tell us).

I would start with a study by Gregory Mankiw, former chair of George W. Bush’s Council of Economic Advisers – and therefore presumably on the tax-cutting side of American politics – and Matthew Weinzierl that shows the economic growth caused by a tax cut can at best offset a portion of the revenues lost by that tax cut.  (Unfortunately, you need a subscription to the journal to read the study.)

Specifically, Profs. Mankiw and Weinzierl calculated that 32.4 percent of the “static” or direct revenue loss of a capital gains tax cut and 14.7 percent of the static revenue loss of a labor tax cut could be offset in present-value terms by additional growth, ignoring short-term Keynesian effects (i.e., any immediate stimulus provided to the economy).

Now 32.4 percent is a lot, but it is far less than 100 percent. And a critical assumption for Profs. Mankiw and Weinzierl is that government spending falls to keep the budget in balance.  In their framework that’s a good thing – as they are effectively assuming away any productive effects of government spending (e.g., what if less spending on schools means less education and this hurts “human capital” and therefore productivity down the road?)

Sticking for a moment with just with their view of the world, if instead the tax cuts are financed by additional debt – as was our collective experience during the 2000s – the ultimate effect of those cuts can be to lower economic growth in the long term, depending on whether the larger debt eventually leads to lower government transfers, lower government consumption, higher taxes on capital or higher taxes on labor. (See Eric M. Leeper and Shu-Chun Susan Yang, “Dynamic Scoring: Alternative Financing Schemes,” Journal of Public Economics 92 (2008): 159-82, pp. 166-69.  Again, a subscription is needed to read the article.)

More broadly, in 2005 the Congressional Budget Office – then headed by a Republican appointee, Douglas Holtz-Eakin – estimated that the economic effects of a 10 percent cut in income taxes would offset between 1 and 22 percent of the revenue loss in the first five years; in the following five years, the economic effects might offset up to 32 percent of the revenue loss — but might also add 5 percent to the revenue loss.

This is an entirely reasonable assessment – the C.B.O. exists in order to provide balanced analysis for the budget process. The bottom line is that betting that tax cuts will pay for themselves is a high-risk strategy – and not a good idea at our current levels of government debt relative to gross domestic product. We do not have a large margin for error.  (Disclosure: I’m on the Panel of Economic Advisers for the C.B.O, but I didn’t have anything to do with that study).

Of course, economic studies do not necessarily have a direct effect on political discourse. For example, President George W. Bush asserted in 2007, “It is also a fact that our tax cuts have fueled robust economic growth and record revenues.” But this is nothing more than an assertion. Growth during the 2001-7 expansion was only 2.7 percent compared, for example, with 3.7 percent during the 1990s expansion (when tax rates were higher).

And much of the growth during the Bush period turned out to be illusory; it was based on our corporate and national accounting system, which measures profits (an important part of G.D.P.) but not on a risk-adjusted basis. When the risks materialized in the financial crisis of 2008-9, we lost so much output that G.D.P. per capita in real terms today is only at about the level of 2005.

To assess growth properly, you should look “over the cycle,” meaning roughly 10 years for the modern American economy. It is hard to argue that the last decade was any kind of growth success. Of course, other things happened during the 2000s – including further financial sector deregulation not directly related to the tax cuts.

That’s why we have the economic analysis, particularly by the C.B.O. – to disentangle what tax cuts can really do. If the supercommittee buys into dynamic scoring for tax cuts, at best this would be wishful thinking. At worst, it would represent yet another round of fiscal irresponsibility at the top of American politics.

And if anyone is seriously considering altering the rules under which the CBO operates, they should stop and think again.  Changing the scorekeeping guidelines at this stage would amount to undermining the credibility of the Congressional Budget Office – one of the few remaining impartial and well-informed observers.  Perhaps this strategy might yield some short-term political gains but the damage to our creditworthiness would be immense, and the consequences would be felt sooner rather than later.

The nightmare downward spiral and fiscal implosion in the eurozone began with a few countries cheating on their numbers – first to get into the currency union and then to avoid various forms of official criticism.  Do not start down the same path.

An edited version of this post appeared on the NYT.com’s Economix blog; it is used here with permission.  If you would like to reproduce the entire post, please contact the New York Times.

42 thoughts on “A Dangerous Idea In The Deficit-Reduction Supercommittee”

  1. Simon,
    FYI: Tax cuts also create jobs.

    We must have forgotten to send you the memo.
    Your friends,
    Dave and Charlie K.

  3. Moses,
    You won’t get an argument from me. Try focusing some brain cells on the signature of the post and you might catch the intended tongue-in-cheek.
    LucyLulu

  5. this comment for LucyLuLu
    Wow, kind of like signing the first names of the Kardashian sisters with the last initial K. That would be really clever as hell. Or maybe Brian, Dennis, and Carl W. would be a very clever way to refer to The Beach Boys. Yeah, I’m so sorry I didn’t get your clever way to communicate. I’ll have to focus more on extremely common first names together with last initials as a substitute for the way anyone else on planet earth would use refer to famous people.

    That would be a very useful way to make points to a broad audience, say for example, with tax policy.

  6. Wow, increase government spending and the increased economic activity will cover the cost, and now decrease taxes and it’ll pay for itself, running an economy would sure be easy if the world worked this way.

  7. Lucy and Moses – Thanks for an amusing exchange.

    Simon – It’s interesting to see the right in denial as the torches and pitchforks collect in city parks around the world. My family still has a hatchet- and hammer-scarred metal eagle from a gate to my great-grandfather’s home. Angry and unemployed laborers made their mark, and the family moved to the country for a generation. Republican tax policy reminds me of the way Pete Puma used to ask for sugar….

  8. Professor Johnson,

    While supply side tax cuts may not “fully” pay for themselves as some have suggested (even Art Laffer doesn’t make this suggestion), there does seem to be clear evidence of revenue feedback from tax cuts. While the rates of said feedback may be lower than you (or I) would like, it does show some positive effect of supply side tax cuts. Now compare that with what seems to be the most likely alternative – additional fiscal stimulus (i.e. Krugman’s theory). If that is the choice, I would argue most unbaised and non-political people would choose tax cuts. Why? Well mainly because supply side tax cuts have been shown to work. There is a good body of evidence that shows when Reagan reduced the top taxes rates (and the capital gain tax rates) – overall tax revenue inccreased.

    It also seems very clear that the reliance on Keynesian economics (i.e increase taxes and government intervention in the economy) has proven to be an utter failure. Whether it was the failures of Hoover and Roosevelt (as measured by GDP and unemployment), Ford’s Keynesian stimulus or even the failure of George Bush’s (Keynesian-oriented) rebate checks (no, this was not a supply side tax cut) – all of these episodes have proven the Keynesian model to be utter nonsense. It seems clear that you can’t grow aggregate demand by borrowing from one section of the economy to stimulate the other.

    In the end, it seems that one area that can truly have a major impact on the economy is innovation. President Clinton’s time in office was one of the greatest stretches of economic expansion the US has ever seen. And while I am sure President Clinton would like to take credit for all of it – the reality is he was fortunate to be in office during the great tech boom. I suggest that if we truly want to grow the economy, the government and regulators should get out of the way and let the smart and innovative people of this country do what they do best – innovate. Think of all the benefits that can acrue through new breakthroughs in pharmaceutical/biotech, technology/engineering, etc. Unfortunately, the government recently has chosen to be a hindrance in the area of innovations recently versus a help.

  9. Btw, I am in no way saying the “dynamic scoring” is 100% accurate. Actually, I don’t think anyone is saying that. But, “dynamic scoring” is far more accurate than the current usage of “static scoring” which is so outdated as to be truly laughable. I know some may disagree, but I would love to see empirical evidence that proves otherwise.

  10. @cmk011 – “Unfortunately, the government recently has chosen to be a hindrance in the area of innovations recently versus a help.”

    You are slick, no doubt about it. Corporate adopted a business model that increased profits at the expense of *innovation*. Recently, the government has allowed exponential increases in environmental un-sustain-ability to keep shareholders extracting pennies from tired old products. So what else do you want now form BOTH – corp and gov – that you aren’t getting as LAW in order to *create* jobs!!!????

    “There is a good body of evidence that shows when Reagan reduced the top taxes rates (and the capital gain tax rates) – overall tax revenue inccreased.”

    The methods – basically Vinnny Babutz coming to break your fingers via LAW – that the IRS engaged in against the LOWER middle-class, first generation USA citizens – the great unwashed WWII refugees from Europe – did increase tax collections, no doubt about it. Savage and vicious. And what did that accomplish? A very comfortable *middle class* that did millions is business off the books – drugs, weapons, loan-sharking, pornography, etc. etc. etc. You social-engineered HONEST LABOR into poverty while vile small-business criminals grew in economic power.

    I’d also like to see empirical evidence, even a definition of empirical evidence, since cities lying in waste doesn’t seem to be *evidence*.

  11. I still wonder how much of this problem all stems back to Free Trade in combination with owning the world’s reserve currency. Failure to deficit spend at sufficient quantities denies world monetary growth, but sustaining that monetary growth requires that money be injected. At some level, endogenous money injection failed (a lot of shadow banking was essentially money created and backed by housing assets – “hard” money in a sense), and governments needed to inject real currency. That currency gets bought, and the value of the dollar goes up, until demand for the currency declines due to fear of inflation/default risk which is created by the very debt which was in such high demand.

    The dollar share in world reserves continues to decline (now below 60%) – something strong dollar advocates scream about, but in truth a blessing.

  12. @stats guy, Seriously? *endogenous money* from housing assets?

    “…..In the beginning there was $$$$ and then came life….”

    “Economics and finance

    Main article: Endogeneity (economics)
    A variable is called endogenous if it is explained within the model in which it appears. For example, in a supply and demand model of an agricultural market, the price and quantity of trade would be the endogenous variables explained by the model; changes in the weather or in consumer tastes would be exogenous variables that might shift the supply and demand curves.”

    Like I keep saying, now that all the genius ideas have failed, let’s try really stupid ones – the bassackward ones where the husk of corn has a VALUE in the *model* of which money is printed as the symbol for the value and then reverse the definitions for endogenous and exogenous.

    “Captain, we’re breaking free of the gravitational pull of the black hole! We did it! We’re free!”

  13. THE FORMULA is for the Minority to dictate to the Majority via committee and bipartisan slight of hand to fool the public. Does anyone here truly believe this committee was set up to resolve an economic problem?

    This committee was set up to validate a process of deficit reduction (AKA entitlement claw back) that could not, and would not have been accomplished without the false front of more compromising covert policy dismantling set up and placed directly on the table by Obama and his Corporate crony consensus.

    We have two choices: move right or don’t move at all. The Obama syndrome and death by committee in action.

  15. @Annie,

    I would love to take “You are slick, no doubt about it” as a compliment, but I don’t think you really meant it that way. Btw, I have been called many various adjectives – but “slick” isn’t a very common one. Either way, thank you.

    I think I understand your challenge to my statements re: regulation, but I am not sure we are arguing the same thing. I am not talking about environmentally friendly or green laws that are designed to punish old and outdated industries. I am more talking about areas such as biotech and R&D for pharma (as a proxy). I won’t go into details here, but the FDA process to get a “drug” (I use that term loosely) tested, approved, and out the door is terribly long and complicated. Some of it is for good cause, some of it is out of sheer stupidity. It sounds like you are arguing that all government and regulation is good (I am not sure you are taking this position), but if so… well let’s just say that the facts are not on your side.

    As for what am I looking for. Again, I won’t go into that here. Not the appropriate forum to go into those details and unless you sit on certain legislative bodies – it would be a waste of your and my time.

    As for “There is a good body of evidence that shows when Reagan reduced the top taxes rates (and the capital gain tax rates) – overall tax revenue increased.”

    Again, I think I understand your challenge to my statements but we are talking apples and oranges. Actually, more like apples and meat. There is clear incontrovertible evidence from the IRS that the overall amount of taxes collected from the “rich” (not the poor or middle class – just the rich) once Reagan reduced the top marginal tax rate went up – and went up by a LOT! If you don’t believe, you can do some research and see for yourself via the IRS’ website. How you try and twist that into some blather about the “LOWER middle-class, first generation USA citizens – the great unwashed WWII refugees from Europe” I have no idea. And for good measure, you even threw in “drugs, weapons, loan-sharking, pornography, etc.” Well done!

    I have been following Professor Johnson’s blog for quite a while (very informative and somewhat entertaining) and even posted a few items. But in all my time reading comments to the entries (especially yours), I have noticed a real lack of facts with which the argumentation is based upon. Now that is entirely your prerogative, but you have very little chance of winning anyone not already aligned with you if you only argue via ad hominem attacks.

    Finally, while I think this will be waste of time I will still humor you (and myself) in an effort to raise the dialogue. This is a great definition of empirical evidence – please make sure you pay close attention and re-read if necessary (as there is no mention of “cities lying in waste doesn’t seem to be *evidence*”).

    “What Is Empirical Evidence?

    Empiricism is the basic practice of science. Science can be described as empirical because it relies on direct experience or observation in order to describe or explain phenomena. In other words, a scientific or empirical approach is inductive, and bases its explanations upon that which can be directly observed in a replicable or repeatable manner.

    The requirement concerning empirical observations being potentially replicable is key. This is what differentiates science from mystical or religious traditions. Science does not rely on dreams, or visions, or faith in the authority of sacred texts or spiritual beings as a basis for knowledge. That’s why science does not recognize the existence of the human soul, for example, since it cannot be observed. Similarly, science can neither prove nor disprove the existence of God, since God is generally believed to be transcendent (i.e. as existing beyond nature, and therefore potential observation).

    This is, once again, because empiricism is skeptical of anything which cannot be replicably observed. Empirical evidence is confined to only those phenomena which more than one person can observe. If someone claims that the tallest mountain in the world is in the Himalayas, for example, it must be possible for others to go there and confirm this contention. And if a taller mountain is found elsewhere, opinions must be revised based upon this new evidence….”

    Empiricism, however, is not equivalent to modern, Western science. This suggests a contrast between modern science and science as such. After all, all cultures rely on direct experience to a large degree in developing their technologies and patterns of subsistence. What makes modern Western science unique is that it has systematized its empiricism, especially through measurement and formal experimentation.

    Another central empirical concept which all science makes use is the concept of the hypothesis, and the method of testing hypotheses against the empirical evidence. An hypothesis is a statement about relationships which can possibly be shown to be /untrue/. Hypotheses are basically if/then statements, which are intended to be predictive (eg. if Theory X is correct, then we would expect to observe Y)….

    Cheers

  16. There is clear incontrovertible evidence from the IRS that the overall amount of taxes collected from the “rich” (not the poor or middle class – just the rich) once Reagan reduced the top marginal tax rate went up – and went up by a LOT!

    I LOVE empirical evidence, so let’s look at some. Yes, revenues went up on the top marginal tax rate after Reagan reduced tax rates. Because you referenced the IRS site, I’m assuming you are referring to the tax rates that went into effect in 1987 (not that it really matters if you choose 1983 or 1987, from looking at other sources, but the table I found at irs.gov only went back to 1986.). In the following two years, no let’s go out four years, until Bush’s tax hikes went into effect, in 1991, partially repealing Reagan’s tax cuts. Revenues from the top 1% increased by a total of 18% over a four year period. Then, Bush came in, raised the marginal rate modestly in 1991, followed by another increase by Clinton. In the years from 1991-2000, revenues on the top 1% increased by over 300%. If we want to look at the top 5% or 10% instead, the differences are a little less striking, ~25% vs. 260%-300%, but the results are similar. The first year after Reagan lowered taxes, 1987, revenues actually decreased on the top 1%, though showed modest increases on the top 5 and 10%. Granted, we are comparing a 4 year period to a 10 year period, but the difference is large enough to far more than compensate, approx five times the rate of annual gain. However, if you look at revenues historically, they have climbed irrespective of tax rates. But based on cherry picked empirical evidence such as this, one would have to assume that raising taxes, not lowering them, increase revenues.

    Statistics, they are so much fun! I had a professor who used to throw candy at the person who came up with the right answer. He knew how to motivate me!

  17. OOps. I meant to put a closing italics tag at the end of the first paragraph in post above. It is a quote from cmk01’s post.

    Sorry for any confusion. Oh, for an edit feature……

  18. Full disclosure: I’m a recovering lawyer, not an economist. But if deregulation and tax cuts created jobs, we should have record unemployment by now. What tax cuts have done is contribute substantially to the redistribution of income from working folks to so-called financial wizards–can you say Mitt Romney? Sure you can!–who ultimately brought us near financial collapse and record unemployment. “Dynamic scoring”? Give us a break! Increase taxes by 30 to 40% on the wealthiest until we can strengthen institutions–and create new ones–to help the working folks (blue collar and white) in this country obtain a decent percentage of the wealth they help create. Look to the streets folks! This country (and many others that try to balance their budgets on the backs of the middle class) will not survive many more years with the income and opportunity distribution that has been imposed on working folks over the past 40-some years. The sleeping giant is waking up. Contribute ideas and direction now, before it is too late. That may be the ultimate “dynamic scoring”.

  19. @Simon Johnson “The bottom line is that betting that tax cuts will pay for themselves is a high-risk strategy”

    When push comes to shove, the reality is that there is no such thing as an overall low-risk strategy to take us out of that hole where bank regulators placed the US and Europe, and which they seem intent on digging even deeper and deeper.

    That said, a fairly risk-free but still utterly important component of any plan to get us out of the hole, should include eliminating those odious and arbitrary regulatory taxes which are levied on any bank lending to those who are ex-ante perceived as “risky”. That would, first, be a no risk-strategy, as the lending to those perceived as risky does not carry in it the potential of growing into a systemic threat, and second, it would increase the productivity of whatever other economic measure you would want put in effect… since, again, when the going gets to be extremely risky, as it is now, we all need the not-truly risky risk-takers to get going.

  20. @cmk011

    I stopped hanging out with a good friend of mine after she started to date a Brit who went to great lengths never to cough up his share of the bill – especially considering that we always divided the share evenly (ie, 100 bucks, 5 of us, everyone puts down a 20) – which he exploited by downing the most drinks. Of course, he had the highest net worth of us all – mostly family wealth from the oil industry. Your long post reminded me of some of his antics….who knows, maybe you are him :-))

    Still, we are talking about FIAT money based on a fractional reserve banking scheme. Empirical *facts*, yes or no?

    I doubt biotech and big pharma are even looking for a cure for the Merchant of Venice syndrome….but the idea that the Merchants of Venice intend to use a deregulated biotech to extract the flesh they believe they deserve….really? That’s *innovation*?

    Back to FIAT $$$$, what empirical evidence was used to create FIAT $$$$ and then the fractional reserve banking scheme to distribute it?

  21. @JamesTCoffman

    Can you please help me understand a few points. I am struggling to follow the consitency of your logic…

    1) How have tax cuts help to “contribute substantially to the redistribution of income from working folks to so-called financial wizards”? How have letting people keep more of the money they earned “redistributed” income? If anything, one could argue it has been a counter to formalized resditribution (aka taxes)

    2) Why are you so bothered by a financial wizard such as Mitt Romney (who worked private equity – not Wall Street), but not by other financial wizards (aka Wall Street banking guys) such as William Daley (WH Chief of Staff), Rahm Emanuel (former WH Chief of Staff), Paul Pelosi (Investment Banker husband of Rep Nancy Pelosi), etc, etc. etc.? Seems you don’t mind some “financial wizards – as long as they have a certain political point of view. Inconsitency and hypocrisy are not well tolerated.

    3) How would increasing “taxes by 30 to 40% on the wealthiest until we can strengthen institutions–and create new ones” be effective? Why should the wealthiest be forced to fund existing and/or new institutions? Who chooses what institutions are worthy? Do the wealthy get a say in how THEIR money is used? Do they even have a RIGHT to their money? And if you are so interested in existing and/or new institutions – why aren’t you donating ALL of your money to help that cause. Again, Inconsitency and hypocrisy are not well tolerated.

    4) Why does a few thousand folks protesting in the streets mean so much today, yet when many tens of thousands (maybe even as much as 100 thousand) protested in the past those protests didn’t matter much (read as Tea Party). If people in the street protesting matters, it should matter across the board – no? Again, Inconsitency and hypocrisy are not well tolerated.

  22. I say let the GOP have their “dynamic scoring” fantasies for tax cuts – just as soon as they apply the same methodology to spending cuts, analyzing the lost tax revenue due to slashing federal employment and all the accompanying knock-on effects as demand is pulled out of the economy, second-order effects like the connection between poor childhood nutrition and adult criminal behavior, etc.

    One suspects that doesn’t quite fit into their “all government (except for defense and infrastructure spending in MY district) is bad” philosophy, though…

  23. This strategy is straight out of the Friedmaniac playbook. All the tax cutting since Reagan has done is to move the wealth more to the top, and gradually erode the middle class, such that the only way in which the economy has been fueled over the past thirty years is by smoke and mirrors (i.e. messing with regulation to enable the growth of massive credit). The total public and private debt in the US is now more than 200 TRILLION DOLLARS!! That’s what all of the tax cuts and regulatory reform have gotten us. These are facts. And, this morning out of Germany, we are hearing that Angela (and this surprises no one) has said that a really massive solution (which would have to be supported by the only really strong European economy, that of Germany) is not going to happen, but only more stopgap stuff. The light at the end of the global economic tunnel is the train of Europe, about to crush the rest of the world. And, in it’s presently weakened state, the US economy will not be able to counter the effects. This time, our globally linked banks won’t make it. But then, of course, we have Herman Cain’s 9-9-9 plan which, it now comes to light, is a part of the Koch Brothers plan to put the final touches on American poverty.

  24. @cmk011
    Since when have I defended financial wizards of the Democratic Party? You won’t find it in anything I wrote. They are all a problem, no matter their politics. By turning our markets, our engine of growth for ingenuity and invention, into a casino, where investments are replaced by bets, they have weakened the economy and job creation more than any financial regulatory scheme. Money placed on gambling tables does not build this economy.

    How have tax cuts resulted in increased wealth for the best off? Come on! Tax cuts do two things: limit the benefits and increase the burden on those less fortunate and further enrich those who have already benefited substantially from a system, supported by all, that protects their wealth and enhances their opportunities. Folks who achieve great wealth do so, too often, for reasons unrelated to hard work and personal brilliance.

    And don’t get me started on “private equity” folks like Romney somehow being different from or superior to investment bankers. Both exist in a symbiotic relationship whereby the bust-up artists rely on the bankers to finance their activities and the bankers rely on private equity to pay their fees and provide them investment opportunities. Both profit from stripping pension benefits, busting unions, reducing wages and producing unemployment–strip out cash, sell assets, lay off workers, burden the enterprise, often times with unsustainable debt, the cash from which they dividend back to themselves all at the expense of the folks who built and sustained the enterprise and the communities that supported the business. Another means by which wealth has been transferred from working folk to finance over the years.

    Don’t equate the Occupy movement with the Tea Party, which is little more than a subsidiary of Koch Industries. I know you and the WSJ love to try to discredit the movement by referring to the myth you all created concerning grooming habits. But the fact is that Occupy is a spontaneous response to the redistribution of wealth and the dominance of capital over democratic values. Look, I’m really on your side. We need to reform the system to save it. If that means tax rates approximating those under Reagan’s predecessors, when the country and the workers middle class flourished, so be it.

    Don’t preach to me about hypocrisy! I spent my career saving capitalism, and investors, from its excesses–the very practices you seem to admire and seek to protect. Inconsistency is criticizing and defunding government while, at the same time, insisting that it protect and defend practices which benefit only the smallest minority of citizens. If you are one of that tiny minority of super-rich, so be it. I understand the concept of self-interest. But if you are merely a shill for those folks, wake up.

  25. @Coffmann, “Both profit from stripping pension benefits, busting unions, reducing wages and producing unemployment–strip out cash, sell assets, lay off workers, burden the enterprise, often times with unsustainable debt, the cash from which they dividend back to themselves all at the expense of the folks who built and sustained the enterprise and the communities that supported the business. Another means by which wealth has been transferred from working folk to finance over the years.”

    Is it legal?

  26. This one of those issues that never seems to die — and never will, until the last supply sider no longer roams the earth. But my recollection (from covering the same story as a journalist in the mid ’90s) is of the CBO telling me it DID take growth effects into account in its revenue estimates, but the supply siders didn’t like the answers they were getting (i.e. the CBO wasn’t feverent enough in its belief in the magical growth properties of reductions in the top marginal rate.)

    In other words, the “static” scoring complaint was (and presumably still is) a canard. Is that not true, professor Johnson?

  27. @Annie. If it weren’t legal, Romney and thousands of his ilk would be in jail. Sure it’s legal and it has been in vogue, under various monikers, since at least the 1980s.

  28. jail is for poor people, especially poor people of color.

    the real crooks (white collar criminals) hardly ever get bagged.

    romney is another slick republican crook. whether what he did goes outside legal boundaries is unclear, since so many of his ventures remain shrouded in non-publicity….but it’s clear this is parasitism, and few are better at it than catcher-mitt.

    he’s pretty and glib, but he is certainly not a friend of the worker, nor the USA, and if he mentions or someone says he’s “good on economic issues”…..i only can suggest a hearty laugh, so you don’t barf one up.

  29. @Coffman – well, once what is immoral and unethical is *legal*, you have a situation.

    I suggest you review the *Just War* discussion on Wikipedia. Your easy breezy response to me – “the world is unfair, suck it up” – indicates a lack of reality response to the situation.

    If you think that USA citizens who played by the rules – rules put in place to protect HONEST WORK – are going to tolerate being put at a disadvantage by an insane cabal of global War Lords and Drug Lords against out-of-control breeders in foreign cultures and lands who did nothing but trash the planet with slave labor – guess again.

    Riddle me this – based on your definition of *legal* and the *character* of persons running for Commander in Chief position, which *army* will be *for* somebody who belongs in jail?

  30. @Annie. Don’t confuse the messenger with the message. I said it is legal. I didn’t say it was right and I certainly didn’t say or imply that folks should suck it up and accept it. I’m opposed to these practices and their results, but they have been going on for decades in plain sight and few have spoken out against it. The 99%ers need to learn about the practices that helped create this situation so we can begin to take steps to change them and improve our future. Right now, no one in either party will address fundamental issues such as the unfair distribution wealth and the practices which promote and protect it.

    Everything I post here is intended to educate and inspire folks to take action to change things for the better. But I learned long ago that the message will be better understood if it is delivered in a measured, fact-based, civil manner. But you have reminded me that such is not always the case.

  31. @Coffman – ” I’m opposed to these practices and their results, but they have been going on for decades in plain sight and few have spoken out against it.”

    This is absolutely not true, and you know it. The silence was induced by brutal censorship and worse – ruined reputations, black-listing, set-ups to fail, and very often even murder – the predators were hardly practicing genteel miss manners.

    Facts are facts.

  32. @Annie. Believe what you wish. But you can look at WSJ and other business publications at least as early as the ’80s and you will find multiple examples of stories of “raiders” and bust-up artists, financed by the like of Drexel Burnham and others, who did exactly what I described. They have continued to do it to this day. No censorship, blacklists or murders occurred, to my knowledge, to keep it secret. The victims sure knew about it as did the business press and communities impacted by the practices. The folks who do these things are bad folks, in my book, but not quite as you portray them. But, as I said, believe what you think and keep howling at the moon.

  33. Per Kurowski said – where bank regulators placed the US and Europe
    Regulators undoubtedly were asleep at the switch, but make no mistake, the investment banks drove the subprime lending bubble through the shadow banking industry, which was for all intents and purposes, unregulated, and that dug the pit that the bankers and rich of the world have cast us all into.

  34. Had it not been for the fact that the securities collateralized with mortgages to the subprime sector, if they obtained an AAA rating, could be held by banks against only 1.6 percent capital, leverage of 62 to 1, there would never have been the kind of extraordinary buying interest that caused to securities backed with reasonable mortgages (pre-2004) to change into securities backed with criminally unreasonable mortgages.

    If you want to call regulations by which arrogant bank regulators, believing them to be the self appointed risk-managers for the world, micro-manage the risk exposure by setting different capital requirements for holding different assets, that’s your right. I instead view it as one of the mots intrusive and distortive bank regulations ever.

  35. @Coffman – you wrote “Full disclosure: I’m a recovering lawyer, not an economist. But if deregulation and tax cuts created jobs, we should have record unemployment by now. What tax cuts have done is contribute substantially to the redistribution of income from working folks to so-called financial wizards–can you say Mitt Romney?”

    So how is it a deficiency of my character that YOU, as a lawyer, could not keep up with the mangling of the law through amendments…?

    http://en.wikipedia.org/wiki/Employment_Act_of_1946

  36. As for murders – two Kennedy brothers, MLK, attempt on Pope John Paul II…and who knows who else….?

    It’s okay now to just send a drone…

  39. Tax cuts should be used as a stimulus for accelerating growth. When they are revoked is as important as when they are introduced. It often happens that an industry that benefits by tax cuts, resists the enforcement of tax by the government, thereby the government has to forego a rightful share of income. Once the stimulus is provided, the focus of the industry should be on operational efficiency for increasing profits.

  41. Will this work, for every one dollar increase in taxes, there needs to be four dollars decrease in spending.

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