Pages: 1

 

2006-12-13 15:46:08
Turquoise
O Canada
+1,596|6830|North Carolina
In the past, I was totally opposed to the tax cut policies of Reagan and Bush because they favored the rich.  However, a lot of evidence suggests that tax cuts of this nature can create a lot more federal tax revenue in the long run.

The catch to all of this is that supply side economics seem to assume that federal spending will decrease shortly after the tax cuts are implemented, so that a balanced budget or budget surplus will result afterwards.  Unfortunately, both Reagan and Bush were caught up in heavy spending trends at the same time they implemented their tax cuts (the arms race for Reagan and the war with Iraq for Bush).

So, my question is the following....

Would supply side economics actually work as well as many conservatives assume, if the government chose to run budget surpluses after such tax cuts?

Personally, I think it would.  Think about it....  If we dramatically increase federal revenue through these kinds of tax cuts, but refrained from war or arms proliferation and cut spending enough to run a budget surplus, we could use the extra funds to start paying off the national debt.
2006-12-13 15:54:37
Doctor Strangelove
Real Battlefield Veterinarian.
+1,758|6893
It eventually might help get the government money but at a cost of making at large gap between economic classes, which would make the government need to spend money to repair the gap or have large amounts of poorly educated people who would drag the nation behind for whatever reason.
2006-12-13 15:58:56
Turquoise
O Canada
+1,596|6830|North Carolina
Why would it do that though?  A decrease in taxation doesn't necessarily mean more people enter poverty.  If business owners can keep more of their money, then they can afford to expand their businesses and hire more people, which would likely result in lower unemployment.
2006-12-13 16:03:27
Doctor Strangelove
Real Battlefield Veterinarian.
+1,758|6893

Turquoise wrote:

Why would it do that though?  A decrease in taxation doesn't necessarily mean more people enter poverty.  If business owners can keep more of their money, then they can afford to expand their businesses and hire more people, which would likely result in lower unemployment.
The thing about them having less money is because while the poor make the same money the rich will have more money, thus driving up prices so they would in relative terms be poorer.
2006-12-13 16:08:12
Turquoise
O Canada
+1,596|6830|North Carolina

doctastrangelove1964 wrote:

Turquoise wrote:

Why would it do that though?  A decrease in taxation doesn't necessarily mean more people enter poverty.  If business owners can keep more of their money, then they can afford to expand their businesses and hire more people, which would likely result in lower unemployment.
The thing about them having less money is because while the poor make the same money the rich will have more money, thus driving up prices so they would in relative terms be poorer.
Not necessarily.  Inflation mostly goes up when the government runs a large budget deficit or when the country runs a large trade deficit.  The previous example assumes a budget surplus, and while the trade deficit is definitely a problem for us right now, we can fix that through other means....
2006-12-13 16:29:22
Doctor Strangelove
Real Battlefield Veterinarian.
+1,758|6893
I see, but at the present time in the US it is a bad idea as we have a large deficit, and we would need to raise taxes, especially rich peoples' à la Clinton's policy to reverse that. So it seems like we are long off from benifiting from this economic strategy. But another country, one with a surplus may benefit in the long term.
2006-12-13 16:35:08
Turquoise
O Canada
+1,596|6830|North Carolina

doctastrangelove1964 wrote:

I see, but at the present time in the US it is a bad idea as we have a large deficit, and we would need to raise taxes, especially rich peoples' à la Clinton's policy to reverse that. So it seems like we are long off from benifiting from this economic strategy. But another country, one with a surplus may benefit in the long term.
Well, that's the thing...  we don't have to raise taxes.  Instead, we can decrease spending.  We can withdraw from Iraq, cut military spending by at least a quarter, and cut several other things.  If we cut enough spending, this will create a budget surplus we can work with towards paying off the debt.

After a few years of surplus, we can cut more spending and pass another tax cut.  With a larger surplus, we can pay off more debt and so on...

It's just a shame that neither party seems interested in even cutting spending, much less withdrawing from Iraq....
2006-12-13 16:50:04
Bertster7
Confused Pothead
+1,101|7006|SE London

Turquoise wrote:

doctastrangelove1964 wrote:

I see, but at the present time in the US it is a bad idea as we have a large deficit, and we would need to raise taxes, especially rich peoples' à la Clinton's policy to reverse that. So it seems like we are long off from benifiting from this economic strategy. But another country, one with a surplus may benefit in the long term.
Well, that's the thing...  we don't have to raise taxes.  Instead, we can decrease spending.  We can withdraw from Iraq, cut military spending by at least a quarter, and cut several other things.  If we cut enough spending, this will create a budget surplus we can work with towards paying off the debt.

After a few years of surplus, we can cut more spending and pass another tax cut.  With a larger surplus, we can pay off more debt and so on...

It's just a shame that neither party seems interested in even cutting spending, much less withdrawing from Iraq....
All good options. But all need to be taken before it's too late to avoid massive economic disruption.
2006-12-13 18:19:44
jonsimon
Member
+224|6920

Turquoise wrote:

In the past, I was totally opposed to the tax cut policies of Reagan and Bush because they favored the rich.  However, a lot of evidence suggests that tax cuts of this nature can create a lot more federal tax revenue in the long run.

The catch to all of this is that supply side economics seem to assume that federal spending will decrease shortly after the tax cuts are implemented, so that a balanced budget or budget surplus will result afterwards.  Unfortunately, both Reagan and Bush were caught up in heavy spending trends at the same time they implemented their tax cuts (the arms race for Reagan and the war with Iraq for Bush).

So, my question is the following....

Would supply side economics actually work as well as many conservatives assume, if the government chose to run budget surpluses after such tax cuts?

Personally, I think it would.  Think about it....  If we dramatically increase federal revenue through these kinds of tax cuts, but refrained from war or arms proliferation and cut spending enough to run a budget surplus, we could use the extra funds to start paying off the national debt.
Depends what your goal is. Are you just trying to raise government revenues or are you trying to close a contractionary gap?

As a side note, being of the Passive or minimalist persuasion towards discretionary fiscal policy, I'd say no, it won't work whatever your goal. But I'm willing to entertain a hypothetical government that can interpret the economy accurately and act in a timely fashion.
2006-12-13 19:04:33
ATG
Banned
+5,233|6954|Global Command
Supply side economics FTW!

The problem in the U.S. is too many crooked people stealing everything, from the halls of congree, to haliburton, to the local courts system to the unions and prevailing wage jobs.
2006-12-13 20:51:33
Turquoise
O Canada
+1,596|6830|North Carolina

jonsimon wrote:

Depends what your goal is. Are you just trying to raise government revenues or are you trying to close a contractionary gap?

As a side note, being of the Passive or minimalist persuasion towards discretionary fiscal policy, I'd say no, it won't work whatever your goal. But I'm willing to entertain a hypothetical government that can interpret the economy accurately and act in a timely fashion.
The contractionary gap actually bothers me the most.  I just want us to pay off the national debt, abolish the fed reserve, and then switch to a modern gold standard.

Simply put...  fiat money sucks.
2006-12-14 00:11:25
GorillaTicTacs
Member
+231|6798|Kyiv, Ukraine
Try living in Romania which seems to be running on this "supply side economics" theory.

The thing about profits, especially huge profit margins, is that they are addictive to those that make them.  After a certain point, you no longer have any incentive to compete because no matter which way you fart, you make money as the business owner.  For example, the average skilled worker in Romania makes between $300 and $500 a month in the major cities.  The average price of housing is about 50% what it is in the US, but the price of any other goods is roughly the SAME.  You go to McDonalds, you pay about $5 for a meal, you buy a car, you pay the same as anywhere else, your grocery bill for 3 people for a month is about $400 - $500.   Labor is so cheap, everyone has a job here (unemployment about 1%), but jobs are so necessary to live month to month that nobody will complain about pay or working conditions, nor will they work to their potential in the least.  The saying goes, "We pretend to work while they pretend to pay us."  The secondary result is that any worker with any degree of competence attempts to leave the country at least just to work.

On the other side, you have business owners and their families (getting the original capital for their businesses raping the country after the fall of Communism) which live like Beverly Hills folks, spending their days trolling in high-end shopping centers, over-priced nightclubs, and tooling around in Lamborghinis.  They don't need to be the least bit careful about how their business makes money (it will), the health or safety or happiness of the employees (cheap to replace), or the general economic well-being of their nation (who cares, "I'm rich").

The final result, ZERO middle class and a Lord-Peasant work dynamic.  Sloppy and unmotivated workers on the bottom, resulting in poor infrastructure being built and poor customer service (and many related social problems like poor healthcare, horrific education standards, homeless kids, organ selling, etc.), and nonchalant fat cats at the top that keep getting richer without investing because they don't need to.  If "Reaganomics" worked at all, Romania would be better than Sweden right now and would be a world power to rival the US, but the proof is here that it doesn't.

Last edited by GorillaTicTacs (2006-12-14 00:17:27)

2006-12-14 11:48:53
jonsimon
Member
+224|6920

Turquoise wrote:

jonsimon wrote:

Depends what your goal is. Are you just trying to raise government revenues or are you trying to close a contractionary gap?

As a side note, being of the Passive or minimalist persuasion towards discretionary fiscal policy, I'd say no, it won't work whatever your goal. But I'm willing to entertain a hypothetical government that can interpret the economy accurately and act in a timely fashion.
The contractionary gap actually bothers me the most.  I just want us to pay off the national debt, abolish the fed reserve, and then switch to a modern gold standard.

Simply put...  fiat money sucks.
The national debt will not be paid off through fiscal policy, but rather through budget surplusses. Supply side economics is meant to be an approach to fiscal policy designed to smooth economic fluctuations, not to reduce nationa debt or trade imbalances. So, short answer, no, supply side economics will not pay off the national debt.

And fiat money and the Fed are very important tools which reduce transaction costs and the risks of investment. They are very important to our economy. Commodity moneys and fiat moneys exchangable for commodities are dangerous to economic stability.
2006-12-14 13:24:50
Agent_Dung_Bomb
Member
+302|7161|Salt Lake City

The tax system would need a major overhaul before you could even consider a supply side economy.  As it stands their are already too many loopholes where money hides to allow tax cuts, without first shoring this up.
2006-12-14 17:02:53
Turquoise
O Canada
+1,596|6830|North Carolina

GorillaTicTacs wrote:

Try living in Romania which seems to be running on this "supply side economics" theory.

The thing about profits, especially huge profit margins, is that they are addictive to those that make them.  After a certain point, you no longer have any incentive to compete because no matter which way you fart, you make money as the business owner.  For example, the average skilled worker in Romania makes between $300 and $500 a month in the major cities.  The average price of housing is about 50% what it is in the US, but the price of any other goods is roughly the SAME.  You go to McDonalds, you pay about $5 for a meal, you buy a car, you pay the same as anywhere else, your grocery bill for 3 people for a month is about $400 - $500.   Labor is so cheap, everyone has a job here (unemployment about 1%), but jobs are so necessary to live month to month that nobody will complain about pay or working conditions, nor will they work to their potential in the least.  The saying goes, "We pretend to work while they pretend to pay us."  The secondary result is that any worker with any degree of competence attempts to leave the country at least just to work.

On the other side, you have business owners and their families (getting the original capital for their businesses raping the country after the fall of Communism) which live like Beverly Hills folks, spending their days trolling in high-end shopping centers, over-priced nightclubs, and tooling around in Lamborghinis.  They don't need to be the least bit careful about how their business makes money (it will), the health or safety or happiness of the employees (cheap to replace), or the general economic well-being of their nation (who cares, "I'm rich").

The final result, ZERO middle class and a Lord-Peasant work dynamic.  Sloppy and unmotivated workers on the bottom, resulting in poor infrastructure being built and poor customer service (and many related social problems like poor healthcare, horrific education standards, homeless kids, organ selling, etc.), and nonchalant fat cats at the top that keep getting richer without investing because they don't need to.  If "Reaganomics" worked at all, Romania would be better than Sweden right now and would be a world power to rival the US, but the proof is here that it doesn't.
Good points...  but isn't a lot of the reason for the situation in Romania related to how poor the people were in the beginning?  I don't recall there being any period of prosperity for the average Romanian in the last several centuries.  In America, since our standard of living is higher, and since our education is better, I think supply side economics would work slightly differently.  I can see certain tendencies that might arise, like the sloppy work quality thing, but I don't think it would be that desperate in nature.

The main thing that concerns me is living expenses, and supply side economics don't address the current American problem of stagnating wages.  Personally, I can't really think of what to do in respect to that.

Anyone have any ideas as to how to get wages to keep up better with inflation?...

Last edited by Turquoise (2006-12-14 17:04:08)

2006-12-14 17:33:45
jonsimon
Member
+224|6920

Turquoise wrote:

Anyone have any ideas as to how to get wages to keep up better with inflation?...
The only way to do that is to increase the predictability of inflation and force the Fed to announce whenever they increase the money supply faster than real GDP growth. (Inflation occurs exactly 3-6 months following increases in the money supply.)

If workers and firms know when to expect inflation they can take one of two actions, 1. Renegotiate contracts more often knowing that inflation will change more often or 2. Use a different currency.
2006-12-14 18:08:33
Commie Killer
Member
+192|6812

Turquoise wrote:

In the past, I was totally opposed to the tax cut policies of Reagan and Bush because they favored the rich.
Now Im not positive on this, but when you have a tax cut, it is done by percent, everyone has to pay "blank" percent less, now that would save everyone money but the rich get used by it because they will save the most because there "blank" percent savings are greater then those who make less money. Get the idea? There are probably other factors Im missing but well yea.
2006-12-14 18:10:22
jonsimon
Member
+224|6920

Commie Killer wrote:

Turquoise wrote:

In the past, I was totally opposed to the tax cut policies of Reagan and Bush because they favored the rich.
Now Im not positive on this, but when you have a tax cut, it is done by percent, everyone has to pay "blank" percent less, now that would save everyone money but the rich get used by it because they will save the most because there "blank" percent savings are greater then those who make less money. Get the idea? There are probably other factors Im missing but well yea.
You could implement a tax cut that reallocates money to different classes, simply graduate the percent for specific income brackets, just like the income tax is currently graduated.
2006-12-14 21:15:11
Turquoise
O Canada
+1,596|6830|North Carolina

jonsimon wrote:

Turquoise wrote:

Anyone have any ideas as to how to get wages to keep up better with inflation?...
The only way to do that is to increase the predictability of inflation and force the Fed to announce whenever they increase the money supply faster than real GDP growth. (Inflation occurs exactly 3-6 months following increases in the money supply.)

If workers and firms know when to expect inflation they can take one of two actions, 1. Renegotiate contracts more often knowing that inflation will change more often or 2. Use a different currency.
Good to know...  Thanks for the info.  Although, the option of using a different currency is rather difficult in most cases....
2006-12-14 21:28:42
Ratzinger
Member
+43|6816|Wollongong, NSW, Australia
Ah, yes, the old trickle-down theory.

I'm glad someone mentioned Reaganomics, its still as funny today as it was then.

Since Australia has had a conservative govt for more than 10 years, we've had plenty of time to see how well it works.

Unemployment at all time low (let's not mentioned that we changed the way it is measured so that if you work 1 hour per fortnight you're not UE); inflation low and steady (workplace relations changes have meant the end of the "job for life" and welcome to 3 p/t jobs to make ends meet, on casual rates and no security); and CEO wages at around 200 times average wage as opposed to around 30 times 10 years ago.

If i was as rich as fuck, I'd be saying it was working....
2006-12-14 21:45:22
Pug
UR father's brother's nephew's former roommate
+652|6967|Texas - Bigger than France
I would think that running a budget surplus would accomplish the goal, regardless if its supply-side or not.
2006-12-15 00:18:35
GorillaTicTacs
Member
+231|6798|Kyiv, Ukraine
Good points...  but isn't a lot of the reason for the situation in Romania related to how poor the people were in the beginning?  I don't recall there being any period of prosperity for the average Romanian in the last several centuries.  In America, since our standard of living is higher, and since our education is better, I think supply side economics would work slightly differently.  I can see certain tendencies that might arise, like the sloppy work quality thing, but I don't think it would be that desperate in nature.
Definition of insanity - doing the same thing and expecting different results.

American education compared to Romanian is actually not better...I'd put the average American 4-year grad up against the average Romanian 4-year grad in any academic subject and wouldn't put my money on either one.  There actually was a nice period of prosperity in Romania, in fact when the US and western Europe was in a depression.  The "middle-class" growth was outpacing everything for a good 20 years between 1920-1940...until the communists shut it down, jailed the "free thinkers" and capitalists, and handed these new businesses and academic institutions to semi-retarded cronies.

Back to the debate though...since 1990 or so, Romania has been the near perfect picture of the Republican dream for America as far as economy.  Cheap and powerless labor caste, no environmental regulations, no (enforceable) workplace safety regulations, corporate welfare, unchecked corruption (bribe for anything you want to get done), a court system and judges that are "pro-money", no pesky consumer protection laws, tort laws that cap the value of human life at 5 years of their potential wages (only $10,000 per person killed average...but lawyers are easily bought off for far less), crappy state-run healthcare with only a tiny co-pay for the employer, minimum wage of $120/month, odd laws that favor specific industries (i.e. every worker must take his money as a bank deposit at a bank the employer chooses, the bank pays the employer and then charges each worker a fee/month).

After 15 years of this, the rich have gotten very rich and the poor have stayed the exact same.  The difference between the US and here is that in the US you can run your life on credit.  As Americans, we feel rich or middle-class, but if you deduct the current value of what you have minus your total debt, you will realize your actual situation.  Even if you own your things outright, take a look at how much you REALLY paid for them vs. the sticker price, between credit card interest, sales and property taxes, loan interest, finance fees, etc.  Somebody got that money, and it wasn't you.
2006-12-15 05:21:12
jonsimon
Member
+224|6920

Turquoise wrote:

jonsimon wrote:

Turquoise wrote:

Anyone have any ideas as to how to get wages to keep up better with inflation?...
The only way to do that is to increase the predictability of inflation and force the Fed to announce whenever they increase the money supply faster than real GDP growth. (Inflation occurs exactly 3-6 months following increases in the money supply.)

If workers and firms know when to expect inflation they can take one of two actions, 1. Renegotiate contracts more often knowing that inflation will change more often or 2. Use a different currency.
Good to know...  Thanks for the info.  Although, the option of using a different currency is rather difficult in most cases....
Not in the case of superinflation.

 

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