Tax Cut Ironies

By James Kwak

From The New York Times:

“Congressional Republicans in recent days have blocked efforts by Democrats to extend the jobless aid, saying they would insist on offsetting the $56 billion cost with spending cuts elsewhere.”

Instead, as it turns out, they agreed to offset the cost with tax cuts elsewhere.

Still, though, I place the blame for this one squarely on the White House. The Republicans are just doing what Republicans do: arguing for lower government spending and lower taxes. The fact that they justify the former by saying it will cut the deficit and the latter by saying it will stimulate the economy (when you could just as easily switch the arguments and make them point the other way) is just a detail.

As I’ve said before, the Bush tax cuts were always bad policy.* After the last election, President Obama will be able to accomplish precious little. But he could easily have killed the Bush tax cuts and thereby done more good for our nation’s fiscal situation than anyone will be in a position to do for many years to come. Killing the tax cuts would alone reduce the national debt by roughly as much as the deficit commission’s entire proposal. And killing the tax cuts was the path of least resistance. Obama could have done it by doing nothing. Or he could have done it by taking a strong negotiating position and being willing to walk away from the table.

(Note to Barack: If you want to win a negotiation, you have to be willing to walk away. Take my daughter. If I threaten her with a three-minute timeout, she says, “I want a timeout for eight hours!” If I threaten to take away an episode of Dinosaur Train, she says, “I don’t want to watch Dinosaur Train ever again!” You have two daughters, right?)

Instead, we got a two-year extension as part of an overall package that adds $900 billion to the debt.

Now, Ezra Klein, whom I agree with more often than not, says, “the White House and Congress are right to make the deficit less of a priority than economic recovery.” Well, sure, in principle. But this deal isn’t justified by that principle for two reasons. First, as Paul Krugman pointed out, a two-year extension will reduce the unemployment rate by 0.2 to 0.6 percentage points. Yes, that’s hundreds of thousands of jobs, but it’s at a cost of hundreds of billions of dollars. And at the current course and speed, those hundreds of billions of dollars will, in the long term, get taken away from the middle class in lower Social Security and Medicare benefits. The reason it’s just 0.2-0.6 percent is that tax cuts, once again, are a lousy form of stimulus. According to Mark Zandi (via Menzie Chinn), the multiplier for the Bush income tax cuts is 0.29 and the multiplier for accelerated depreciation is 0.27.

Second, this can no longer be considered a two-year tax cut. This year, the Democrats gave in to the framing that letting the cuts expire would be a tax increase. President Obama has already nailed himself to the cross of “stop[ping] middle-class taxes from going up.” With that on his resume, how is he going to flip-flop and let those taxes go up in 2012? He won’t win a vote to cut taxes just for the middle class with fewer Democrats in Congress than he has now. So if he wants to preserve the middle-class tax cuts, he’ll have to compromise again.

And Obama will no longer be able to say the tax cuts were a mistake made by President Bush that he was letting expire. Now he owns the mistake. This is a long way of saying that this isn’t a two-year tax cut to stimulate the economy (with a 0.29 multiplier, remember) in a recession. It’s a wedge of about 2 percent of GDP that is part of the structural deficit for the foreseeable future, just like the AMT patch that magically keeps getting extended.

Sure, they might not be extended in 2012. But I fail to see how the politics will be any different. “I protected you from a tax increase in 2010, but I’m raising your taxes now because . . . because . . . suddenly I care about the deficit . . . and we’re not in a recession anymore.” Yeah, right. By comparison, the message this time would have been easy: “I and the Democrats in Congress supported a bill to keep your taxes low. The Republicans blocked it because they insisted on tax cuts for the rich. Blame them.” So the tax cuts might not be extended, but you could also say that Congress will vote to raise taxes. Not likely in either case.

So finally, you have to ask, what does Barack Obama want? Does he really like most of the Bush tax cuts? Does he really think the bulk of the tax cuts are good for the country, and that going along with the tax cuts in the top brackets is a reasonable price to pay to keep them?

* How bad? Here’s one example. In order to pass the bill using reconciliation–the first time reconciliation was ever used to pass a deficit-increasing bill–they had to limit the ten-year cost of the bill. One way they did that was by adding a provision that allows upper-income taxpayers, in 2010, to convert their traditional IRAs to Roth IRAs. This is unambiguously good for upper-income taxpayers, because it’s optional, so you can decide if you want to do it. So in the long term, it will result in lower tax revenues. But it artificially juices tax revenues in 2010, because when you convert you have to pay tax on the conversion amount now. That increased the amount by which they could cut taxes elsewhere in the bill. So, as my tax casebook puts it, the bill uses tax cuts for the rich to fund more tax cuts for the rich.

117 responses to “Tax Cut Ironies

  1. Another great writeup James, but doesn’t ‘irony’ typically involve something unexpected? Heh.

  2. Keshav Srinivasan

    You have a strange way of thinking about the Bush tax cuts. Why is letting people keep more of what they earn considered a part of the structural deficit? The deficit consists of the spending the government does in excess of what it takes in. It’s true that cutting taxes adds to the deficit, but that doesn’t mean the tax cut is a part of the deficit. The way you’re talking about it one would assume the government is giving money to rich people, which I think is a misleading characterization.

    It’s the people’s money, not the government’s. Government is a necessary evil, so every time it takes money from the people it needs to be absolutely justified. Here’s a suggestion: why don’t we adopt a level of taxation that the public thinks is reasonable, and then adjust our spending to fit that tax level? Personally, I think we need a bigger welfare state and thus more government revenue, but that’s a debate we should all engage in openly.

    I’m a liberal, but I think your arguments are disingenuous.

  3. i’m in the top 1% (barely) and as a matter of principle i am going to spend every penny of the tax cut. let’s wage a campaign to get others to do the same. pump up that multiplier!

  4. going to put in an order for an ipad tonight

  5. When the Commission was still working and we got to learn the preliminaries, I posited about those:

    “I read these to mean, status qvo on taxes and cut spending! The conservative approach towards taxes is to keep the elites happy, cutting the federal budget to size is to say ‘swim or sink!’ to the rest. The risk here is for the most people to perceive that budget cuts are somewhat unjust. If the twin issue of taxes & budget splits the electorate along the same line, I am afraid, it’s time we reckon a Lincoln or Roosevelt moment in our nation.”

    http://imotion.blogspot.com/2010/11/lincoln-or-roosevelt-moment.html

  6. @Keshav, I guess I don’t get the funny part. You start with a balanced budget, or a small surplus. Revenue from each quintile has been set. The aggregate balances with expenses. And note- this is after 20+ years of the top quintile grabbing more and more of the national income stream, so by any measure ever taken, the top quintile is already in the best position they’ve been in since – wait for it – the last time the economy collapsed, in part from maldistribution of resources.

    Then you cut for everyone, but for the largest income quintile, you cut much, much more? And you cut no expenses?

    Tell me, if you did that at your job for your department”s budget, how long would you have your job?

  7. Would Harry Truman have done this? I understand that there always, in the end, has to be a compromise, and that liberals are never, ever going to get all that they want. That’s the nature of politics. The problem is that Obama is not pulling out all the stops to get the most progressive final deal possible. He’s not out there on the stump giving the Republicans heat for their unpopular positions. I think that both Carter and Clinton, moderates though they were on domestic policy, would have fought harder for, and achieved, a more progressive final settlement had they been faced with a situation like this.

  8. OK, so it was a pragmatic deal to get stimulus, now.

    But what scares me is the estate tax stuff. $5M exemption and 35% top rate means the estate tax revenue applies only above $10M for couples. So permanent upperclass is now the rule.

    And the revenue loss will be huge, above $50B/year forever.

    I guess Obama has pledged my 33 years of Social Security taxes to pay for it.

    Thanks, buddy! Looking for the next phone call form OFA!

  9. “Why is letting people keep more of what they earn considered a part of the structural deficit?”

    Keshav, your argument doesn’t qualify you as a liberal, except in the European sense of the word. This is not about all people, but the top 1 or 2%.

    “one would assume the government is giving money to rich people, which I think is a misleading characterization.”

    Not entirely. The Government represents the whole people, so unless we deal with Robinson Crusoe situations, we all get to say what everybody’s keep ought to be. For better or worse, we delegate our Government every 4 years to do so on our behalf, among other things.

    Now, to return to the top earners, the general feeling is that they are not paying their fair share. At the end of the day, up to a point, there is little the populace can do, but then, don’t complain when it’s all coming back even to those in denial. Indeed, the largest prison population, and several other diminished vital signs should point to the problem, for all to see.

  10. This is one of the most confused things I’ve ever read. Most of the public is utterly clueless when it comes to the budget, they think the deficit is caused by too much money being spent on foreign aid and earmarks.

  11. And now the upperclass rule permanently…

  12. Obama could do so much better for the average American.

  13. Two years from now, the President has an interesting choice: try to get reelected by opposing the extension of these tax cuts selectively (ignoring the fact that he agreed to them), or not really trying hard and benefiting from these cuts in his (traditionally comfortable) presidential retirement. Homo economicus in full flight.

  14. Hillbilly Daryl

    Can anyone please explain to me how it is possible to cut a NEGATIVE tax rate? It seems that a cut to a negative tax rate, by all rights, should result in a REDUCTION of said negative tax rate, thereby resulting in a smaller negative tax rate. But, alas, in left or “progressive” political speak, tax cuts for the middle class really means an increase in the negative amount of taxes paid by an ever increasingly large majority of the U.S. population.

    To wit, in 1979, the bottom 60% of U.S. taxpayers paid 14.8% of all federal income taxes. In 2001, the bottom 60% paid 3.2% of all federal income taxes paid. This scenario has continued, and increased in the intervening years, and is set to become even more skewed.

    Now, before I’m deluged with troll accusations, etc., lets deal with the myth of the massive payroll tax increases paid by the “middle class”. In 1979, the bottom 20% paid 4.5% of all social insurance liabilities, and in 2001 this same 20% paid the “increased” amount of 4.2%, and of course pays even less today, and even less tomorrow. The second 20% paid 12.5% of social insurance in 1979, and “increased” to 10.2% in 2001, also less today, and less tomorrow. The third, or middle 20% paid 19.8% in 1979, and their share “increased” to 16% in 2001, less today, even less tomorrow. The fourth 20% (60-80%) paid 27.4% in 1979, and then experienced an “increase” to 25.6% in 2001, also less today, even less tomorrow. And, it is very important to note that payroll or social insurance taxes do NOT pay for the entire cost of social insurance programs, which in reality require general fund contributions, of course paid by federal income taxes….thus further reducing/increasing/whatever the negative amount paid by the increasing majority of Americans.

    Meanwhile, while the bottom 80% experienced negative income and payroll tax increases of a substantial amount, the top 20% experienced negative decreases of an even larger amount. Specifically, in 1979, the top 20% paid 64.9% of the federal income taxes, and 35.9% of payroll taxes, and then, due to the aforementioned negative decrease, paid 82.5% of federal income taxes and 43.9% of the payroll taxes in 2001, MORE today, even MORE tomorrow.

    Now, I don’t care what one’s politics are. I am highly concerned that the U.S. has a vast majority of tax payers (in a purported democracy) that can democratically decide to continue to pay an increasingly negative amount of all taxes.

    Now, if you decide to unleash, consider that you will be unleashing on the CBO. The facts cited above can all be accessed on the CBO website, as can an immense amount of other facts if one is inclined to plink around: http://www.cbo.gov/ftpdocs/53xx/doc5324/04-02-TaxRates.htm

    Overlay this reality with the reality that the bottom 80% are clearly not making it now, regardless of paying virtually no, or negative taxes, and it should become quite apparent that we have a serious problem Houston….

    Baseline’s brilliant braintrust may consider “baselining” the U.S. effective tax rates against those of any other OECD country. How far down do on the spectrum do citizens in France for instance pay positive taxes? Germany? Are there VAT systems in these countries as well? As high as 20% or so?

    The current tax system in the U.S. is a farce, and is unsustainable, regardless of negative increases, positive decreases, increased ETI payment “cuts”, etc.

    On an economic forum blog, let’s stick to the facts, not political speak.

  15. James, why do you assume Obama’s rhetorical opposition to extending the tax cuts for the very wealthy represents his real position? More than any president I’m aware of, Obama has erected a strong firewall between his rhetoric and his actions. He praised the public option to the skies while he was covertly but energetically killing it, and he praised Paul Volcker to the skies, and so on. It’s been obvious for several months that he wasn’t going to actually oppose extending the cuts for the rich, and the negotiations, like the long discussions about Afghanistan last year, are sheer kabuki.

    The Tea Bagger and GOP gains seem to have convinced Obama that he needs to amass even more campaign funds for 2012 than in 2008, and he knows he’s alienated much of his former base, so there’s no way he wants to raise taxes on his main supporters and donors. He’s a reborn convert to almost all the Republican myths about the economy, and he seems to have decided that the rich are his new base. And since the GOP will control the House, he can now use them as cover and move steadily to the right. His body language shows he’s happy with extending tax cuts for the rich.

  16. This is right, except that Obama never had to be converted to anything. He always idolized the rich and big corporations and considered them his base. It’s clear that he’s always, throughout his career, been a neoliberal Reaganite thug. He’s a typical Republican at heart who became a Democrat out of nothing but cynical careerist calculation, and we see how well that’s worked.

    By now the “progressives” who still think Obama’s a progressive who’s too weak or a bad negotiator or something have already broken the old record of the “What’s the Matter With Kansas” people for ignorant, self-destructive cultist tribalism.

    So Obama, and the Dem party in general, will happily seize the opportunity to move further in the corporatist class war direction (let’s get rid of the terms “right” and “left”, which no longer have meaning) with cover from the Reps. But that’s the direction they always wanted to head, as all their actions of since at least 2007 have demonstrated.

  17. The Republicans are just doing what Republicans do: arguing for lower government spending and lower taxes.

    Where do Reps even pretend to want lower government spending?

    I’d say mouthing such words while voting for the Bailout, corporate wars, obscene Pentagon budgets, Big Ag subsidies, the radical bloating of the FDA and expansion of its powers, and all the other noxious forms of corporate welfare, is such a brazen lie as to not qualify as even a dishonest “argument”.

  18. Very good arguments. I honestly think your arguments are more convincing that Paul Krugman’s in arguing why Obama should simply do nothing.

    Also sprach Analyst

  19. Dear Mr. Kwak,

    In your post you write:

    “Instead, we got a two-year extension as part of an overall package that adds $900 billion to the debt.”

    That number is not correct. The CBO has projected that if Congress extends the existing tax rates for those earning more than $250k, the projected lose in tax revenue for the Federal Government over the next 10 years (not 2 years) is $700 billion.

    As such, the estimated revenue cost for the proposed arrangement is roughly $320 billion, not $900 billion as you wrote above, of which $140 billion, or slightly less than half relates to the extension of existing tax rates for those earning over $250k per year.

    You may wish to correct your blog post accordingly such that it reads:

    “Instead, we got a two-year extension as part of an overall package that adds $320 billion to the debt.”

  20. If tax cuts aren’t part of the deficit, then the deficit is just another word for government spending, and the only thing to do is cut spending?

    The problem is if you ask people what level of taxation is reasonable, and what level of services is reasonable, you get two different answers.

  21. As far as deals go, a temporary two year extension of the Bush tax cuts in exchange for a 13 month unemployment extension and a 2 percentage point cut in FICA really isn’t that bad of a deal given where the economy is today.

    The estate tax rider is nonsense though and hopefully gets stripped out in the final version. How many families have >$10 million in taxable estates? We’re not even dealing with percentages of the population, but rather countable numbers, here.

  22. DakotabornKansan

    “We hang the petty thieves and appoint the great ones to public office.” — Aesop

  23. DakotabornKansan

    “Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.” – C. S. Lewis

  24. DakotabornKansan

    Democracy is two wolves and a sheep deciding what’s for supper.

  25. I don’t see the relevance of the quote. Obama and the Dems are criminals, every bit as malevolent and rapacious as the Reps. They’re equally cruel flunkeys of the same cruel robber barons. They most definitely do not intend “our good”.

  26. daryl, to complete your analysis you need to show the change in incomes of the various segments of the populations. The top 20% could be paying more share of income taxes because they are taking a lot more share of income.

  27. @ Hillbilly Daryl____What the hell are you trying to say…my dear man? Get on with it,…

  28. Why don’t they give the tax break back as one of those american express debit cards? Then people wouldn’t be able to deposit it and everybody would be forced to spend their entire refund :)

  29. theotherguydidit

    Hilly
    As the 2% own 80% of the economic pie it stands to reason they would pay more in tax as the toatal of all income remaining is 20% divided among the next 98% of the population.

    How do you tax someone without income? The lowest 20% are poor. The next 20% are working poor. The next 20% are civil servants of small business persons or low end of the corporate totem pole folks.

    Getting to the meat of the tax base requires being in the upper middle class. The reward is 25% in taxs or the ATM. Oh, the joy of living in high tax states with higher costs of living with higher salary bases.

    One size does not fit all.

  30. @ John.Frank___When has the CBO ever been correct? They lowball always to the tune of 100%’s to sell/push the parties in charge agenda. Just ask Orzak? James owes no one an explanation! Please read between the lines :-)

  31. 700 billion dollars for the very wealthy and 50 billion for the unemployed. Great deal? I don’t think so Mr. President!

  32. Dakota…,

    That is a brilliant quote, and well placed.

  33. Remember that “middle class” supporter saying she was tired of the President’s b.s. It seems as though from that town hall and other similar public forums, the President only offers his usual smirk at any question or line of inquiry that comes across more liberal or is appealing to his base. This smirk on the President’s face is and has been, perhaps, more telling – that is, giving away what really lies in his policy thinking – a truer Centrist or moderate Republican than what his liberal base of supported are willing to admit and had projected onto him during the presidential campaign – they don’t call it politics (lying) for nothing. Just research the President speeches and talking points leading up to and including the transition period leading to the White House: FISA, net neutrality, drug possession of marijuana, DADT, the Public Option, Bush-era tax cuts to name a few minor policy issues; combine that with knowing how much the voting public opposed public policies of the Bush Administration in 2008, we are where we are, says the POTUS.

    The establishment Democratic Party believe that their liberal base realistically have no where to go so, therefore, they really need to swallow everything for the sake “lesser of two evils”. Perhaps some day, the democratic electorate will prove the President wrong (liken to the Tea Party’s recent reactions to establishment Republican Party).

    With the President’s own lack of spine and “fighting” style, the Bush-era tax cuts seems to be the latest if not the last straw, for some of his supporters. Interestingly enough was some of President’s thoughts he shared in an interview with Steve Croft of 60 Minutes: when asked about the mid term election results, the President’s comments included the suggestion that he really does have enough of the right stuff (hubris) to stand up the Editorial Opinion sections of the New York Times, but apparently not enough to stand up to Fox cable news, Glenn Beck, and Sara Palin.

    Perhaps, the “professional Left” should listen more carefully, and take notes in 2012.

  34. Herbert Wetherby

    I agree, I didn’t even finish reading it, after you toss in the underground economy stats, his hair will look like it came out of a blender.

  35. Someone is getting 700 billion from the gov’t? Are they getting it the same way as those who are getting the 50 billion – in the mail?

  36. How about using the extra money to hire some new employees, rather than giving tech companies reason to think that their downsizing of the past several years hasn’t affected the quality of their products and services?

  37. JK said: “Sure, they might not be extended in 2012. But I fail to see how the politics will be any different.”.

    The politics will be very different two years from now. The election will be over and either Obama will have secured a final term or he will be on the way out. Either way, he is under no pressure to make a deal. Right now, it’s his fear of failing to win re-election that is giving all of the leverage to the Republicans.

  38. “The Government represents the whole people, so unless we deal with Robinson Crusoe situations, we all get to say what everybody’s keep ought to be.”
    Exactly, what form of government is that and how does personal freedom and liberty fit into this form of government? Is it possible this concept can be extended to cover such things as abortion or is that somehow a different logical argument? Could it be used to decide a certain group of people as “unfit” or does it only include economics? If so, who gets to decide where the limitations exist? Someone has to.

  39. “…a two-year extension will reduce the unemployment rate by 0.2 to 0.6 percentage points. Yes, that’s hundreds of thousands of jobs, but it’s at a cost of hundreds of billions of dollars.”

    The question which needs to be answered is: which is a stronger positive “function”? Extending the tax cuts, which Krugman et al admit will generate some number of jobs, or extending unemployment benefits. I would argue that extending benefits has a NEGATIVE function with regard to job creation because it discourages work.

  40. “Yes, that’s hundreds of thousands of jobs, but it’s at a cost of hundreds of billions of dollars.”

    Understood… but perhaps kindling costs more than firewood. A recovery will self-sustain – at some point – but you have to do what it takes to get to that point. If the first few jobs are expensive, so what?

  41. Hillbilly Daryl

    Very well. Here you go:

    http://www.cbo.gov/ftpdocs/88xx/doc8885/12-11-HistoricalTaxRates.pdf

    This particular table from the CBO, as in non-partisan Congressional Budget Office, details pre and post tax shares of income by quintile in both 2004 and 2005.

    As you can easily see, contrary to your concern, the top quintile is the only quintile which ends up with less post tax income than it had in pre tax income. Thus, graphically detailing the negative aggregate tax rate of the bottom 80% of U.S. taxpayers. Specifically, for 2004, the bottom 20% earned 4.1% of U.S. pretax income, and enjoyed 4.9% of U.S. post tax income, primarily due to the earned income tax credit. The second 20% earned 8.9% of the pre-tax income, and enjoyed 10% of the after tax income. The middle 20% earned 13.9%, and got 14.9%. The 4th 20% (60-80%’ers) earned 20.4% and got 21.2%.

    Thus, collectively, in 2004, the bottom 80% of U.S. taxpayers earned 46.3% of U.S. pre-tax income, and enjoyed 51% of U.S. after tax income.

    Whereas, in 2004, the top 20% earned 53.5% of pre-tax income, and enjoyed 50.1% of post tax income, after paying 67.2% of all federal taxes. In 2005, the top 20% earned 55.1% of pre-tax income, and enjoyed 51.6% of post tax income, after paying 68.7% of all federal taxes.

    Thus, contrary to the conventional wisdom you posit, the inverse is true and borne out by the facts.

  42. Hillbilly Daryl

    Thank you! That’s the point! And, it is not me, but rather the politicos. The point being it is impossible to cut a negative tax rate, without paying additional money to the group…..

  43. Hillbilly Daryl

    The CBO, as in the non-partisan Congressional Budget Office is the purveyor of “underground numbers”?

  44. Hillbilly Daryl

    First, in the U.S. we have an income tax, not an ownership tax, regardless of whether your unsubstantiated 80% ownership number is correct. Second, as detailed above, the bottom 80% of US taxpayers earned 46.3% of U.S. pre-tax income, and enjoyed 51% of U.S. after tax income in 2004. In 2005 the bottom 80% of U.S. taxpayers earned 43.6% of all U.S. pre-tax income, and enjoyed 49.4% of all U.S. after tax income. Check out the CBO facts:

    http://www.cbo.gov/ftpdocs/88xx/doc8885/12-11-HistoricalTaxRates.pdf

  45. The Bush tax cuts were made affordable by foreign inflows. Those inflows, dollar recycling through mostly t-bill purchases, kept interest-rates historically low and that made government borrowing costs low enough to warrant deficits. The Bush deficit was in fact a way of increasing private sector capital formation via the tax cuts, while keeping global savings tied-up so as to limit competition. The deficits were therefore an offset that allowed the US to control global savings, as a type of economic warfare.

    But now, selling t-bills through the primary market (auctions), is a dubious affair. By buying G-bonds in the secondary market, the Fed, with QEII hopes to replace foreign demand for t-bills with domestic demand by putting large banks in a position that encourages increased auction participation. This, by the Fed removing t-bills from balance sheets in exchange for keyboard cash, with hopes that banks will then have increased demand for t-bills with their excess of dollars. Clever stuff.

    So… the capital formation that was allowed by the Bush tax cuts has become something on an addiction. Like so much of the growth in the US economy, any slowdown, on any front, leads to write-downs due to debt levels. And of course write-downs lead to adverse feedback loops which are chomping at the heels of an economy that is far too dependent on its financial services sector. But this paradox is the same as all of the major economic choices being made over these past few years, the economy is in peril no matter which choice is made.

    The irony though is interesting, the Conservatives are in fact taking a sort of Keynesian-trickle-down position by extending tax cuts that will increase deficits at a time when those deficits are no longer being subsidized by foreigners. And of course as the supply of liquidity goes down, at some point the interest-rates must go up.

    Conversely, the Dems are feigning fiscal responsibility at a time when dubious t-bill auctions make that a sane choice, but… the Dems being overly optimistic about ‘their’ leadership thus far, and their inability to understand that the only economic progress that they have achieved, is that of minimizing the effects of the Paradox of Thrift, while hiding the rest with deficit spending, leaves their position vulnerable to the adverse feedback loops.

    What a confusing mess!

  46. Blunt Instrument

    “So finally, you have to ask, what does Barack Obama want?”

    The answer couldn’t be more obvious: He wants to get reelected.

    If the economy rebounds, he gets credit for pushing through the tax cuts. If the economy doesn’t recover (or gets worse), he blames the GOP and the 2010 elections for forcing his hand. It’s good political strategy and right out of Bill Clinton’s playbook.

    Politicians think short-term because voters think short-term and Politicians are in the business of getting and staying in power. They pay our philosophical predilections little heed unless there’s a big fat check or voting block attached to them.

  47. Back to Econ 1a, James. This whole farce has been like rearranging the deck chairs on the Titanic. The real problems are those addressed by the Bowles/Simpson proposals — structural issues. And any reduction in the payroll tax should have been on the part paid by employers, not the part paid by employees, so we could have a labor demand led recovery rather than a personal consumption (cum import) led recovery. Some guys never learn!!

  48. Herbert Wetherby

    ….I will say that if you are from St. Louie, just jump in the river. Its been toasty.

  49. @Hillbilly Daryl,

    Your logic is unsound, or misleading at best. If I make $100k one year and then $10k the next year, my taxes go down, but I don’t feel like I got a tax cut. If somebody makes ten million a year and pays 35% in taxes, but then makes 20 million and pays 28% in taxes (number for example only), they second year they paid more in taxes so, by your reasoning, they experience an increase in taxes.

    But as a percentage, or viewed in terms of the marginal tax rate, then your argument is invalid.

  50. Herbert Wetherby

    That just sounds to much like Bad guys-vs- Good guys. I hope your on the right side.

  51. Herbert,

    As I said at the end, it is all a bit confusing, but I don’t so much see it as a good and bad guy issue. It is more that neither side understands the circumstances due to decades of truth twisting. Perhaps ‘mislead’-vs-‘mislead’= lower standard of living sooner or later. Democracies depend on truth.

  52. Herbert Wetherby

    Democracies really can’t handle the truth.

  53. Buy gold. Several months ago James Kwak mentioned a good book explaining statistics in one of his blogs dated before August. Does anyone recall the author or title. Trying to find this book for a struggling college statistics student. Thanks. yar

  54. Shouldn’t that be tax cut ‘cronies’..

    And to all those ‘Obama’s playing chess’ delusionists-he’s playing RISK, and the corps have us backed-up to Kamatchka.

  55. Hillbilly Daryl

    My “logic” is merely to point out the idiocy of the concept of “tax cuts” for people who don’t actually pay ANY taxes. Logic would dictate that for a tax cut to be possible, SOME taxes must be paid. “Tax cuts” for people who don’t pay taxes amount to INCREASED hand outs/give aways. It is intellectually dishonest to call these “tax cuts” “tax cuts” when, as I have pointed out based on CBO facts, a very large and increasing majority of Americans historically, currently and in the future pay either no taxes, or negative taxes.

    I have no axe to grind as to the veracity of the situation. I merely am pointing out the facts which all too often are ignored or contradicted.

    With that said, I believe this issue should be a major concern for economists a la the baseline scenario. Because if such a large portion of the American population pays zero or negative taxes, and the government is running massive annual and aqggregate deficits, and the same non-tax paying Americans are drowning economically, there may be serious problems….

  56. These people who don’t have a federal tax liability are in that situation because they are already living paycheck-to-paycheck. Both parents working, including OT, missing school functions, scrambling to cover daycare, calling in sick when the kids are sick, assuming they even get sick time. Their average annual number of paid days off is 5 to 7.
    These people are already getting beat down. Add to this credit card, and bank fees, 20% interest, gasoline taxes, and just general bills.
    And you begrudge them a pass on federal taxes? That’s the problem in this country. The oligarchy just takes care of itself and doesn’t give a damn about the bottom half.
    Daryl, you can throw CBO numbers around all day. It don’t mean nuthin.

  57. Why not buy something manufactured in the US?

  58. The problem with this argument goes back to Locke. He conceived “perfect freedom” as existing only for the isolated individual who did not have to care about what others thought or did. But this “natural state” never existed. Humankind has always been much more collective and existing in groups with high levels of coorperation and interdependence. Freedom then exists in the way we treat others and our accepting of individual differences. Here Locke was correct in advocating tolerance. Taxes are a collective responsibility. This idea that I can spend my money more wisely than the government misses the point. Who will pay for roads? Who will pay for schools? These are collective responsibilities.

  59. Warning: Obama has just given a “Hip Hip Hooray” to the markets to consolidate! We are going down, down, down. The guy never voted…he waffled and voted present most of the two years he was a US Senator, pathetic! Shame

  60. Hillbilly Daryl

    Agreed. And, obviously, you don’t see my larger point. I am not saying that these people should pay more taxes based on their current agreed to be inadequate income. I am making no politically motivated value judgments on the veracity of the factual reality of the situation. I am, in fact, pointing out that their incomes are inadequate, that they haven’t, don’t, and won’t pay taxes. AND that this STILL ISN’T enough!!! They are still sinking economically into the abyss!!! And, overlaid against the massive federal deficit(s) the situation is untenable, and unsustainable.

  61. Hilly Bill,
    Your dense and convoluted scenario partially describes the conditions hammering away at the two bottom quintiles, driving them either into the third world, revolution, or both. Would you feel better if they paid taxes? Probably not, you’re concern is evident.

    Bouncing back and forth from election to election in futile fury (or wearily dropping into apathy) between the Republicats and the Democants, the two wings of the US bidness party, they just can’t get no satisfaction. Their beat down at the hands of their much ballyhooed and prophesied savior, the efficient markets and then their apparent further betrayal when they turn belatedly to their only recourse, the corporate-captured government regulatory agencies, is delivering them, slap-happy and angry into the hands of the demagogues. Care for some tea?

    I would suggest you head for the hills but apparently you’re already there.

  62. CBS from the West

    Strictly within the economics/finance sphere, it is not always entirely clear what Obama really thinks and what he has been duped/cajoled/blackmailed into doing by others.

    But I think his true colors show through in his handling of the “war on terror.” Despite campaigning on a platform to close Guantanamo and ban the use of torture, etc., all of his actions in this area are simply continuations of Bush’s policies pure and simple, right up to having a Presidential assassination list. Nothing has changed. Nobody forces his hand in this arena: his authority in this sphere requires no cooperation from Congress, etc. In this area it is crystal clear that his campaign promises were all lies from the get go.

    So why should we not think the same in the financial/economic realm? The only dupes around here are people like me who voted for him. Never again!

  63. Herbert Wetherby

    That’s not completely true. A few of us have started the “pledge to America 2” and we will make it crystal clear to him of our intenetions.

  64. It seems like President Obama really wants to get the support of the Republicans to vote for the START treaty and that’s why he has been forced to that compromise on tax cuts.

  65. Last (straw) for me.

    Funny thing – I used to think I was a centrist, but then the nation took a hard turn right, and I was standing out in the field with a bunch of other (X-)”centrists”.

  66. I’m with that ol’ “communist” Ben Franklin:

    ” The Remissness of our People in Paying Taxes is highly blameable; the Unwillingness to pay them is still more so. I see, in some Resolutions of Town Meetings, a Remonstrance against giving Congress a Power to take, as they call it, the People’s Money out of their Pockets, tho’ only to pay the Interest and Principal of Debts duly contracted. They seem to mistake the Point. Money, justly due from the People, is their Creditors’ Money, and no longer the Money of the People, who, if they withold it, should be compell’d to pay by some Law.

    All Property, indeed, except the Savage’s temporary Cabin, his Bow, his Matchcoat, and other little Acquisitions, absolutely necessary for his Subsistence, seems to me to be the Creature of public Convention. Hence the Public has the Right of Regulating Descents, and all other Conveyances of Property, and even of limiting the Quantity and the Uses of it. All the Property that is necessary to a Man, for the Conservation of the Individual and the Propagation of the Species, is his natural Right, which none can justly deprive him of: But all Property superfluous to such purposes is the Property of the Publick, who, by their Laws, have created it, and who may therefore by other Laws dispose of it, whenever the Welfare of the Publick shall demand such Disposition. He that does not like civil Society on these Terms, let him retire and live among Savages. He can have no right to the benefits of Society, who will not pay his Club towards the Support of it.”

  67. The problem is, I’m not sure I’ve seen any attempt for Obama to hold to his so called “principles”. He just preemptively negotiates away his hand.

    At some point, you’ve got to think he’s not negotiating, he’s executing what he wanted in the first place.

  68. theotherguydidit

    Hilly
    Not all income is taxed the same. You already know that. There is a difference in salary/wages rates which are taxed on a progressive scale and investment income which is taxed at a flat rate for all. You know that too.

    So what’s your point? Tax credits for the lower economic strata bother you? Or is the disagreement
    the wealthy aren’t getting their fair share?

  69. theotherguydidit

    Dakota
    Great quote. Akin to doing “god’s work” by converting the heathen in past centuries.

  70. I can’t say with 100% certainty, but I think you’re misreading the table. For instance before tax the middle quintile represents 13.9% of all income, after tax it represents 14.9% of all income – but these are two separate pots, so the percentages change relative to the pre-tax totals and the post tax totals and do not indicate a net income gain.

    If you look at page 6 (Effective Federal Tax Rates), you see the middle quintile on up is actually paying a positive amount of tax since their post-tax $$$ are lower than pre-tax $$$.

    This chart is also adjusted for family size, and lower income families tend to be larger (though that may benefit your side of the argument).

    Finally, it factors in “corporate income taxes” as being part of individual taxes which if you’re trying to figure out who’s getting and paying for what seems a little wonky to me, though perhaps it’s standard procedure (it seems to me like if I were to compare incomes and taxes, I would be looking only at what owners we paid by the company, post corporate taxes – instead, if I’m reading it right, they sort of get a credit here for what the corporation paid in taxes as well).

    I could be wrong, I’m pulling this out of my backside, but I don’t think the charts say what you think they say…

  71. Yeah, I definitely think you’re looking at this wrong.

    Let’s just say for argument’s sake that the total of all taxable income “Pretax” was $1000 for all Americans (obviously off by an order of magnitude).

    So, if the middle quintile totaled $139 of that, you’d say “Pretax”, the middle quintile was paying 13.9% of all taxes.

    However lets say the total was $800 for all quintiles *after* tax. Then if $119 was from the middle quintile that would be 14.9% of “After-Tax” income per the chart.

    Using your logic, because after tax the percentage is 14.9% “After-Tax” as opposed to 13.9% “Pretax”, then the middle quintile “gained” money (ie: got more money out than they put in).

    However that’s not the case – they started with $139 Pretax and came out with $119 After-tax. They paid $20 in taxes, just in reference to the particular pre or post tax pot, the percentage changed.

    The chart to look at is the page before – “Federal Tax Rates”. There you see *all* quintiles pay in total a positive tax on average. No one is getting a free lunch.

  72. Actually I gummed up that reply:

    I said, “So, if the middle quintile totaled $139 of that, you’d say “Pretax”, the middle quintile was paying 13.9% of all taxes.”

    I meant, they middle quintile represented 13.9% of all pre-tax income (not taxes). Sorry.

    After tax they represent 14.9% of all after-tax income.

    The fact that they represented 13.9% before tax and then 14.9% after tax, does not mean they gained income (ie: got a rebate). It just means that in reference to the pre-tax pot they had a smaller interest (percentage) of that pot than the after tax pot. But since the after tax pot by virtue of being taxed has reduced its size, it’s all relative.

    This is in fact exactly what you’d expect out of a graduated tax system – in reference to the after-tax pot, the lower quintiles should end up with a bigger portion (even if they have a net minus of dollars in their pockets).

  73. “Democracies really can’t handle the truth.”

    How would we know? It hasn’t been tried.

  74. Carla,

    I thought about saying the same thing, then I thought about saying that the media was not always so ‘corporate’. Then I thought, this is more trouble than it is worth. And now I am back here agreeing with you. Good comment, but not because I almost said the same thing, but because it needed to be said, I was just lazy.

  75. Yeah, we have the usual smoke and mirrors. The government is in charge of stealing money from the vast majority of people (the sheep) in the name of restoring the economy. After an obscene and endless amount of welfare continues to be doled out to the rich, the next step is to slash and burn medicare, social security, and other parasitical drains on the treasury. Of course, the military budget will need to be preserved, if not expanded, in order to keep the world safe for kleptocracy, otherwise known as American-style democracy, incorporated. If anyone still believes in Obama at this point, they must be higher than high.

  76. Notorious P.A.T.

    Did you know that person you mentioned, who said she was tired of having to defend Obama, has been laid off?

  77. The conceit and vanity of kleptocrats embracing “meritocracy”…

    “make” money so that you can “make” poverty and slavery…

    Fiat $$$

  78. What is someone’s “fair share”? The top earners in this country pay all the income taxes and the bottom 60% I believe, pay none. Oh, and they are the one’s complaining the loudest about the Republicans heading off Obama’s tax increase. I am sorry that this “economist” is preaching Euro-economics now in America when Europe is proving beyond any doubt that his type economics do nothing but create welfare states that are now falling into bankruptcy. And I keep hearing that all of this is Bush’s fault when for the last two years Obama/Pelosi/Reid and they’re crowd have spent more deficit dollars to less effect than all the government spending in history to date.

  79. oops! sorry: “their”.

  80. Has anyone considered how hard it is to make the rich pay taxes? That was the problem before these tax cuts.

    There are better ways to fund the government, for instance a VAT, some more Pigovian effects etc. Income and corporate taxes are too hard.

    Likewise, US gvt spending is extraordinarily wasteful: much of it goes to doctors. lawyers, defense contractors and deductions privilege debt over equity, residential construction over productive assets. Lack of proper energy taxation feeds terrorism funding Arabs and US bashing Chavez. And the existing political duopoly just entrenches these perverse institutions, with any avenue for alternative policies relegated to sterile academic debates.

    The past decade saw several trillion wasted on futile wars (what did the US gain for all that effort?) and redundant residential construction, all loaded onto the narrow shoulders of the minority of the US population that cannot avoid the taxman and does not profit from gvt spending..

    Someday the US will pay the price for this (no one can antagonize the representative consumer forever) and maybe that price will be higher than Europe’s and Japan’s more public benefit focused approach (despite the welfare state and the bridges to nowhere, their socioeconomic outcomes are far superior).

  81. What Obama wants is for wealthy voters to continue making political contributions to his reelection campaign, period.

  82. Keshav Srinivasan

    “The Government represents the whole people, so unless we deal with Robinson Crusoe situations, we all get to say what everybody’s keep ought to be.” If you really believe that, then I think you’re a socialist. I’m not using that word pejoratively, but I think in a capitalist society it should NOT be the role of the government to completely determine “what everybody’s keep ought to be.” Of course there should be taxes, but individuals should have the most say over their keep.

    Having said that, let me reiterate that I’m a liberal, and I actually want to raise taxes on the rich above the Clinton-era levels. But I think that the way some liberals have been arguing lately is less than exemplary.

  83. Obama, Paris Hilton says thank you.

  84. Keshav Srinivasan

    Yes, humans have always cooperated, because cooperation is in everybody’s interest. People give up some of their freedoms in order to protect other freedoms. That’s called government.

    I suggest you read Common Sense by Thomas Paine. It’s really short, but it will allow you to understand the true purpose of government.

  85. Keshav Srinivasan

    That’s an awfully paternalistic view. “The people don’t know enough about the budget, so we compassionate technocrats are going to decide fiscal policy instead.” Why don’t you educate the people and then let them make the decision? Are you afraid that your policy won’t win in the marketplace of ideas?

  86. Keshav Srinivasan

    I think you misunderstood me. Of course you can close the deficit by raising taxes, which I am in fact in favor of doing. I was just complaining that treating tax cuts as part of the deficit misleadingly suggests that tax cuts are a form of government spending.

    As to your second point, if the public is not willing to pay for all the spending they want, then the government should be forced to cut spending, even if the people want to raise spending. That’s why I think a balanced budget amendment is a good idea. (Of course, you need an exception for deficit spending in economic downturns).

  87. Keshav Srinivasan

    To be clear, I support raising taxes on the rich. I was objecting to the arguments used, not the position argued for.

  88. Everyone has been framing this wrong when calling it “Obama’s tax increase.” Wasn’t the mechanism for taxes to go up at the end of 2010 put in place during Bush’s administration? Thus it is really Bush’s tax increase!

  89. I’m down with Ben. Thanks for that pertinent blast from the past.

  90. Tax cuts are a form of government spending because government is allocating what would be its future revenue, just as it does when it goes further in debt, which intails committing to paying priciple and interest from future revenue.

  91. Bayard Waterbury

    I’m going to throw in my two cents, even if I haven’t read every comment. First and foremost, this is what I expected. Why? Well, if you look at how BHO’s campaign promises have turned out, it’s remarkable. He still, verbally at least, or should I say publicly, somehow tries to sell us on the notion that he’s just doing what he promised. A list:

    Health Care: No public option even considered, and a massive caving to the vested interests at every level (please, someone, argue with this, I dare you!!)

    Financial Reform: Fuggedaboudit!! The only real meaningful thing was fairly minor in the grand scope, that is the CFPB, which doesn’t even go into effect until mid next year, and it may well fall prior to its inception (nice while it lasted?).

    Guantanamo: Still there.

    Don’t ask, Don’t tell: Huh, still under advisement.

    BP Spill: Screwed up pay for those who lost. No talk about any criminal penalties for anyone. Basic BS and it goes away. It’s now over the “Horizon” I guess.

    Middle Class Taxation: Preserved at massive cost for crumbs, while the overpaid exectutives in this country get to pay a pittance to keep their absurd earnings intact.

    Debt Commission: Wow, have you heard what they are proposing? Until the MIC is tamed (which won’t happen) we’ll continue to spend twice what the rest of the world spends on military, only to be ever more hated everywhere and support all of those countries who don’t have to bother. The proposals made sound like our Banana Republic status is assured for decades.

    Afghanistan and Iraq: Afghan War extended to “at least” 2014 (We all know that anything resembling real victory is completely out of the question), after doing a troop surge to enhance with drawdown in 2011 (the MIC is cheering). Iraq still has 50,000 “non-combat” troops and now ten perminent bases (but it’s over, although it is highly unstable, and unlikely to improve).

    Israel: Solutions are further away than ever.

    Morgage foreclosures: Fuggedaboudit. We gave lots of money to the big banks to incentivise their programs, and they are completely abdicating all responsibility, moral, financial, etc., while the FED, Fannie and Freddie continue to cover their butts, and they don’t have to account for their rotting “assets.”

    And so it goes.

    People, we live in the United Plutocracy in America.
    The oligarchs win, get richer and keep hiring the politically privileged to do their bidding. Oh, well, I’m not worried. I’ll be dead soon enough. Sadly, my kids and grandkids will be forced to learn Mandarin, Farci, or Hindi, to survive.

  92. Bayard Waterbury

    Along with most major celebrities and half of our professional athletes.

  93. Patricia Craven

    Ohhh no…seriously, she must be so pissed!!! What a bummer! She said what so many of us were thinking…

  94. Patricia Craven

    It looks like Bush designed this tax cut expiration (or not) to be someone else’s problem. If it was a Republican president who succeeded him, Bush was confident that the tax cuts would continue or be made permanent. If it was a Democrat that succeeded him, Bush knew that letting the cuts expire would be seen as (and framed as) a tax increase, which would make the Democrat president look bad if he didn’t extend the tax cuts. So, either way, Bush continues to run the country even from the BBQ grill.

  95. Patricia Craven

    That’s a good one! LOL!!!

  96. Patricia Craven

    hmmm…my bs detector went off here…if you’re “in the top 1% barely”…my intuition tells me that you probably already have an iPad…so maybe you’re messing with us…?

  97. Good article, James.

  98. OK, I’ll bite. You clowns think Obama means well, and what you’d no doubt call his “failures” proves we should surrender 100% to “the market”? ‘Cause that’s how I took the quote.

  99. You believe incorrectly. See the following chart:
    http://blogs.reuters.com/felix-salmon/2010/12/06/chart-of-the-day-u-s-taxes/
    In particular: “Employment taxes, by contrast—the regressive bit of the fiscal structure—are bearing a large and increasing share of the brunt. Any time that somebody starts complaining about how the poor don’t pay income tax, point them to this chart. Income taxes are just one part of the pie, and everybody with a job pays employment taxes.”

  100. Keshav, thank you for replying. I suggest one think of the truth value of the opening statement: ““The Government represents the whole people.”

    If you agree, then business goes on as usual. If you don’t, change the government–being in a democracy, at least in theory, that’s a possibility.

    You see, I disagree with the Tea Party, but I cannot ignore them for they may well carry as much as half the vote in the country…

    The above may show the difficulty of the situation, hence my prediction a Lincoln/Roosevelt moment.

  101. Keshav, I take your words at face value when you write, “To be clear, I support raising taxes on the rich.”

    However, when I read “I was objecting to the arguments used, not the position argued for,” I couldn’t help but wonder, How would Keshav motivate “raising taxes on the rich”?

  102. @ Heather___The “Start Treaty” is a no brainer, period! Both parties want this – as a matter of fact their falling over each other to make it happen and the Russian’s know this. They (Russian’s) will be playing “the-hard-to-get damsel in distress for a quick fast-track approval into the “World Trade Organization (WTO)” (Elitist Membership), pronto! Oh,…and let us not forget the various financial incentives to the maximus (similar to North Korea?). If President Obama fails to get “Dem’s” to go along his fate will be sealed? He will join the company of a certain President George H.W.Bush (#41/ 1989-93), and President James E. Carter (#39/ 1977-81) as one-term presidents. Why? Let’s just say the middle-east has alot to say about it,…? JMHO
    Thankyou Simon and James for your great digging and plaese never stop digging for America’s Sake :-)

  103. Clowns? A couple of weeks ago I took the time to explain to you that money being created ‘out of thin air’ was not part of some sort of dubious conspiracy, and now you call me a ‘clown’. What a pretentious and hyperbolic jerk you are. It comes as no surprise that you find the Lewis quote difficult to understand, your thinking is dull.

    The Lewis quote means that those who are able to convince themselves that they doing good deeds are potentially more oppressive, than those who are more overtly oppressive. You did not recognize that subtle distinction between Dems and Repubs and so the quote adds a needed distinction for those whose thinking is more elevated than what yours seems to be.

    If you would stop pretending to know more than what you evidently do, you will most likely benefit more from offerings like the Lewis quote, it was presumably provided as a refining of your comment, but in support, without refuting your position.

    You though have convinced yourself that the Dems are no different than the Repubs, when in fact the justifications given for policy decisions from the Dems are frequently presented as ‘compassionate’. When they feign humanitarian concern for illegal immigrants for example, when it is obvious that they need the Latino vote, they show a penchant for convincing themselves that they truly care about migrant workers. Conversely though, the Repubs rarely play the compassion card and so there ‘are’ differences. But you said:

    “(let’s get rid of the terms “right” and “left”, which no longer have meaning)”

    Dull.

  104. Ray, what you were doing a few weeks ago is the exact same thing you’re doing here: Being apologetic on behalf of criminal liars.

    A few weeks ago you said they’re being sincere about their deficit hysteria-mongering. Now you think Dems are sincere in all their pseudo-compassionate garbage.

    BTW, since you seem not to have been paying attention, even the Dems don’t really bother anymore with that. Even their talking points are indistinguishable from those of the Reps. It’s all deficits and spending cuts and national security all the time.

    As for the Lewis quote, it’s you who seem to be completely ignorant about it. I’ve seen it enough times, and it’s always deployed in the same way: By conservatives who want to smear liberals, but especially who want to smear any motivation for doing anything other than total surrender to “the market”.

    Your reading comprehension isn’t very good if you can’t see that the quote isn’t attacking insincerity, as I do, but sincerity itself.

    That’s why I rejected the quote. Because I reject the market.

    You, of course, couldn’t be bothered to explain why you thought it was apropos.

    On second thought, this does seem to be your pattern – a surface dissent from establishment deeds, but at the same time apologetics for them. Your M.O. is to object to anyone’s clearly calling them criminals. The pattern seems to be that you claim to believe them to be sincere in all things.

    So why is that?

  105. BTW, what is the 2nd part of your statement supposed to mean?

    “If you really believe that, then I think you’re a socialist.”

    That you are a simpleton or liberal-impersonator?

  106. Russ,

    As for this:”Why is that?” Because you twist what I say around to suit the needs of your sophmoric arguments, that’s why.

    I’m the one taking on the Marginal Utility Theory and etc., but because I don’t subscribe to the name-calling tactics that you hold so dear, I get this nonsense:”a surface dissent from establishment deeds, but at the same time apologetics for them.”

    Here is the most recent comment I’ve made on this site:

    “In a global-fiat-financial system, the demand for cross-border capital is compromised by the ease in which capital is created. So the problem is not just that some banks have become too large, it is that demand for exogenous investment capital is diminishing as an ever increasing number of nations develop their own lending capacities. Nations simply have no reason to allow usury from outside of their borders in a system that has only risk pricing as a constraint on the creation of capital.”

    “What we are most likely experiencing now are the nascent stages of a new era made necessary by the evolution of the global financial system. It seems we have a choice between continuing to believe that wealth itself has more value than it actually does as investment capital, or… freeing ourselves from the long standing tyranny of plutocrats. The hard way, or the easy way? And it can all be improved with nothing more than understanding, and… the financial system itself is trying to show us the way.”

    (this is not an MMT argument)

    rayllove

    December 8, 2010 at 1:38 pm
    ==============================

    Does that seem like “surface dissent” to you? Or is it not more likely that someone who didn’t so much as understand the basics of fractional reserve banking a couple of weeks ago, is unable to recognize ‘meaningful’ dissent when he sees it?

    What your vanity does not allow you see, is that some of us have been at this for decades. And most of us were shrill and uninformed once too, so we know folly when we see it, immediately in fact.

    Your arguments need a lot of work and you would receive more help if you would learn some humility.

  107. Done with Obama. I’ll vote for Romney in 2012 since Obama is Mitt Romney. Might as well get the real thing. If Palin or another nut is the candidate, I’ll vote for the Green Party. Obama is dead to me.

  108. President Obama is simply not a negotiator. As James says he should have been willing to walk away. The repubs would not have allowed unemployement to go unfunded. I hope Congress does NOT pass this bill.

  109. So you’re silently dropping your support of the quote, which is what started this? You don’t rebut my charge regarding it.

    Ray, you’re the one twisting things to suit your needs, though again I confess to not seeing what your needs are, since I don’t understand your disagreement.

    I understand fractional reserve banking perfectly well, thanks. Please detail where I misunderstood it. You failed to do so the first time.

    All you did was disagree when I said that most people think the bank takes deposits and then lends a multiple of them, and are surprised to learn that it does no such thing, but simply credits accounts at will, therefore creating the money out of thin air. It may then seek to build up reserves accordingly after the fact.

    Whatever your beef is there, it’s not just with me but with many econobloggers like Chris Martenson and the MMTers.

    And for someone who’s researched so much, I’m surprised that you’re unaware of this basic chicken and egg difference, and how it gives the lie to the notion that banks create loans, when in fact they are always debtors themselves.

    Like I said, I don’t understand the basis of the disagreement here. Unfortunately, based on what you say, it sounds like you’re still carrying a torch for the Democrats. (Although then I still don’t get the support for the quote: “I do think they mean well, and yet that’s even worse….”)

    If it’s “shrill” (nice parroting of the MSM there) to cut through all the obfuscatory fog, to call a spade a spade and call a criminal a criminal, then Hallelujah I’m shrill.

    But if you actually disagree with that substantively, then I’m afraid it’s you who are woefully uninformed indeed.

    And as for my lack of humility, I’m afraid your kind of passive-aggressiveness, like directly contradicting me above on the quote without giving an explanation, or accusations of lack of humility in themselves, aren’t very humble either. They simply lack the virtue of directness.

    Which, as I said, seems to be your pattern. What do the kleptocrats have to do for you to be willing to state the clear and obvious: That this is nothing but organized crime?

    Evidently, there’s no level of crime they could undertake which would cause you to call them criminals. That’s too shrill, and lacks humility, and we all know how important that is. Next time don’t forget to tell me I also lack “civility”. That’s a typical corporate media put-down as well.

  110. When America speaks about Democracy, the world LAUGHS!!!

    The fact that the world’s leading democracies have called for Assange’s head is proof enough. It seems the world’s leading democracies know exactly what truth is ok for the people to know. China and Russia get lectured about free speech and human rights all the time, but at the end of the day, all governments look the same: Might Makes Right.

  111. Russ,

    I don’t have time to waste on defending myself against all of your foolish accusations, but I do have a couple of things to say.

    First, your thinking is dependent on stereotyping, generalizations, hyperbole, and distortions, and these are in lieu of substance. Instead of showing evidence of a crime for example, you merely call public officials and bankers “criminals”, as if, they are all guilty of some crime in common, a crime which in most instances you fail to even mention. And it just doesn’t get much more sophmoric than that. But of course without your unsupported claims, what would you actually have to say? For example, take the following sentence:

    “It’s clear that he’s always, throughout his career, been a neoliberal Reaganite thug.”

    That is nothing more than cheap-shot name-calling because there is no support for what is far short of an axiomatic claim. But of course without the labeling (neoliberal Reaganite thug), the reader is left with nothing. What you dishonestly present as “clear”, is in fact you presenting an opinion as factual, that is dishonest writing, plain and simple. A high-school English teacher would most probably give you a ‘D’ or ask for a rewrite.

    As for your claim of understanding fractional reserve banking, here is what you said originally:

    “For the sake of anybody reading this who isn’t familiar with Modern Monetary Theory (MMT), the fact is that banks don’t create money as a multiple of deposits, the way the propaganda has it. They simply create it out of thin air.”

    And here is my response to that:

    “What you are claiming in regards to ex nihilo money creation is also flawed. The fact that money is created ‘out of thin air’ as ‘keyboard capital’ has never been a secret. The process of enlarging the economy via loans is openly stated and there is nothing wrong with the method, nor is there any reason to hide it.”

    Then, in all fairness, and to have it all on the table, here is today’s distortion:

    “I understand fractional reserve banking perfectly well, thanks. Please detail where I misunderstood it. You failed to do so the first time.”

    “All you did was disagree when I said that most people think the bank takes deposits and then lends a multiple of them, and are surprised to learn that it does no such thing, but simply credits accounts at will, therefore creating the money out of thin air. It may then seek to build up reserves accordingly after the fact.”

    So, there is some truth in what you said today, I did fail to explain why your lack of understanding was laid bare by the initial comment. Which explains why you still think you know what you obviously do not, and that is this: money is created ‘out of thin air’ whether the money multiplier is adhered to or not. The multiplier merely determines how much, not how.

    And so, in stringing unsupported claims together, combined with a less than full understanding of the basics of banking, you implied with this: “the way the propaganda has it”, that something which is a standard practice, is in some undisclosed but ‘propagandist’ way, underhanded. Which is just another example of low-integrity tactics. And, so as to support my claim regarding ‘stringing unsupported claims together’, here is all of what you said along with some context amplification:

    “You sure know it’s true. As your hero Cheney said, “everybody knows deficits don’t matter.””

    “He meant the elites know this, though they’re now trying to keep it a secret.”

    “For the sake of anybody reading this who isn’t familiar with Modern Monetary Theory (MMT), the fact is that banks don’t create money as a multiple of deposits, the way the propaganda has it. They simply create it out of thin air.”

    “They of course do so for the sake of rent-seeking. Money creation and management was artificially put in the hands of the banksters in the first place by a corrupt government.”

    As if the “secret” of “banksters” is only understood by the MMTers! What a lot of distorted nonsense!

  112. OK, I’m not going to waste any more time with this.

    If the crimes of land enclosure, neoliberalism, globalization, imperial war, torture, the assault on civil liberties, the assault on access to the courts, corporatism, and the Bailout aren’t overwhelmingly clear to you by now, you truly are beyond hope.

    Today’s elites are history’s worst criminals by any measure. You might as well be asking, “Why call the Nazis criminals? What were their crimes?”

    The same goes for Obama’s policy record, which is straight Reagan conservatism, except where he exceeds it. How many times have I challenged Obama supporters to name just one significant piece of non-corporatist policy advocacy from him? Not once has anyone even tried to respond. (So now I challenge you directly, and I’m sure you’ll have quite the list, given your claims above.) Again, if that’s not obvious to you by now, I can’t help you.

  113. Russ,

    This conversation is surreal. I’ve never supported either political party in any way. I’m 55 years old and I’ve never voted but I’ve traveled to third world nations to witness elections. I’ve been close enough to actual revolutions to have seen and smelled the carnage and yet I am now being accused of being too cozy with Democrats. Wow, the human mind is capable of distorting just about anything under the right conditions.

  114. It is the “people’s money”? This just goes to show you that the Right’s big lie, told often enough, becomes the truth.

    The dollar bill is owned by the U.S. Government. If the U.S. hadn’t created it, it wouldn’t exist, so I don’t know where the notion that it’s the people’s money comes from.
    The usual meme is that “people earned it”. However, most wealth is actually inherited, so in fact, the individual who possesses it, did not in fact earn it.
    So, it isn’ t the people’s money and most of the rich didn’t earn their money.
    Let’s spend it on reducing infant mortality, which is higher in the U.S. than All other industrialized nations. Or, is that a communist plot too?