Where is the US economy headed?

Cycloptichorn wrote:

Quote:
Cyclops, if you don't like the 1920's graph, that is why I said the JFK era may be the best argument for an example of lower tax rates stimulating higher tax revenues.

I don't like the 1920's graph, because it doesn't show the next five years - and what the eventual effects of the policies which lead to the growth brought about. That's just plain ignorant, to think something like that proves that we should be cutting taxes.

The JFK era doesn't prove your point either. You are making the mistake of non-corrollary statistics. There is no real evidence that the marginal tax rate cuts actually lead to greater growth in revenues than we would have had without the cuts.

This is what I've been saying all along- the idea of a 'laffer curve' is useless. It is only a theoretical construct with no actual predictive ability. And there's no way to check or prove it either, outside of modeling. It's not an economic theory, it's a way to try and justify/moralize giving the rich more money. Nothing more.

Av,

Quote:
The whole discussion's moot if we're going to spend more than we take in anyway...

True. We need to spend less, and take in more. Halfway measures aren't going to cut it with our level of problems.

Cycloptichorn

Cyclops, I think you keep ignoring the fact that I never assert which side of the peak of the Laffer curve we are on. I agree with you that some might contend that lowering tax rates always leads to higher revenues. I do not agree with that, and obviously Laffer did not. The important point to recognize here is that tax rates do affect the economy, there is a curve, and then we could have a fruitful discussion between all politicians and economists as to where we are. As it is, I think Democrats agree to this in the back room, but deny it in public, and to be fair, some Republicans may want to believe that lowering rates always leads to higher revenues, which of course cannot happen either.

The way it is now, politicians are either living in denial or they purposely obfuscate the truth to get votes, and therefore the truth is not imparted to the public, and the media never informs in a balanced manner either.

The other factor here is that yes, you might raise more tax monies by raising rates, but the economy will be affected adversely, at least eventually. There are short term consequences and there are longer term consequences. For example, if corporations pay higher taxes, such as energy companies, they are more likely not to plow money into more risk taking research into alternative energy sources. So the consequences may not always manifest themselves immediately.

0 Replies

okie wrote:

Cycloptichorn wrote:
Quote:
Cyclops, if you don't like the 1920's graph, that is why I said the JFK era may be the best argument for an example of lower tax rates stimulating higher tax revenues.

I don't like the 1920's graph, because it doesn't show the next five years - and what the eventual effects of the policies which lead to the growth brought about. That's just plain ignorant, to think something like that proves that we should be cutting taxes.

The JFK era doesn't prove your point either. You are making the mistake of non-corrollary statistics. There is no real evidence that the marginal tax rate cuts actually lead to greater growth in revenues than we would have had without the cuts.

This is what I've been saying all along- the idea of a 'laffer curve' is useless. It is only a theoretical construct with no actual predictive ability. And there's no way to check or prove it either, outside of modeling. It's not an economic theory, it's a way to try and justify/moralize giving the rich more money. Nothing more.

Av,

Quote:
The whole discussion's moot if we're going to spend more than we take in anyway...

True. We need to spend less, and take in more. Halfway measures aren't going to cut it with our level of problems.

Cycloptichorn

Cyclops, I think you keep ignoring the fact that I never assert which side of the peak of the Laffer curve we are on. I agree with you that some might contend that lowering tax rates always leads to higher revenues. I do not agree with that, and obviously Laffer did not. The important point to recognize here is that tax rates do affect the economy, there is a curve

Hard stop. There is not a 'curve.' There exists no such thing as a 'laffer curve' or a curve which can show in any way how taxes effect the economy. It's such a simplistic model as to be useless.

I have never claimed that raising or lowering taxes won't have an effect on the economy; just that this effect cannot be plotted according to a curve, cannot be predicted with any great accuracy. There is no Laffer Curve. You need to realize that you have gotten massively hung up on a theoretical construct, to the detriment of your arguments.

Quote:

and then we could have a fruitful discussion between all politicians and economists as to where we are. As it is, I think Democrats agree to this in the back room, but deny it in public, and to be fair, some Republicans may want to believe that lowering rates always leads to higher revenues, which of course cannot happen either.

The way it is now, politicians are either living in denial or they purposely obfuscate the truth to get votes, and therefore the truth is not imparted to the public, and the media never informs in a balanced manner either.

Ho hum, none of this actually means anything.

Quote:

The other factor here is that yes, you might raise more tax monies by raising rates,

Excuse me? Might? This is an area in which we do actually have evidence: raising tax rates increases the amount of revenues gained, during an expansionary period. Can you say '1990's?' Tax rates were up, receipts up, economy way up.

Quote:

but the economy will be affected adversely, at least eventually.

On the other hand, you really don't have any evidence this is true, at all. You can't point to anything other than theory to support this idea, and there are several historical examples which contradict it, not the least being the 90's, as mentioned above.

Quote:

There are short term consequences and there are longer term consequences. For example, if corporations pay higher taxes, such as energy companies, they are more likely not to plow money into more risk taking research into alternative energy sources.

They have two options: to pay out less to their investors, or to invest less in new technology. I propose they do the first, you say that they must do the second.

Perhaps it escaped your knowledge that ExxonMobil profited 40 billion dollars last year. They could have spent half that on re-investment and still been a top performing stock. To say that the inevitable effect of raising corporate taxes is less innovation is bullshit. It's a choice that the corporation makes independently of their rate of taxation - whether to focus on the future or the present.

Quote:

So the consequences may not always manifest themselves immediately.

This is a cute dodge, a way of saying 'I can't actually show these consequences, not the way that you can show increased and decreased revenues from tax cuts and rises, but boy they sure are there.' That's bullcrap.

Let's forget theory and talk policy for a while: inflation is becoming a huge problem and it isn't clear what to do about it. One thing is for sure - the Bush tax cuts are never going to be extended. You can count on your taxes going up soon, and it's about time - we need the money!

From Bonddad:

Quote:

So, here's the summation. Food prices are going up. The ethanol mandates are increasing demand. Although farmers planted more corn this year, supplies are still dwindling. Econ 101: increased demand plus decreased supply = increasing prices.

And here's the grand summation:

Prices are heading higher. Oil producers have cut supply at a time when demand is increasing. Farm prices are going up because of population increases and the ethanol market.

This places the Federal Reserve is a really difficult position. They can either:

1.) Raise rates to stop inflation and in the process probably send the economy into a recession, or

2.) Let inflation run its course and possible get out of control, and perhaps lead to a mild or major dose of stagflation.

Neither is a good option.

Cycloptichorn

0 Replies

Don't be an idiot, Cyc.

There isn't a Laffer curve in the sense that you can take numbers from the economy and plug them into one, correct. It's a theoretical instrument and not a predictive one - you can think of it as more of a visual aid to the theory than something we have a formula for.

That's economics for you. The whole thing is BUILT on crappy graphs like that. You ever charted a utility curve? It's a completely fictional, non-calculatable construct. They don't exist in real life. People aren't that rational even on their best days. Even if they WERE, you'd still never be able to chart one, because instead of two goods in two-d space, you have n goods in n-space.

But it's still an instructive construct to get an idea of how things like demand curves actually do work.

Laffer curve, same way. The curve itself is not special. All it is is a statement of an economic theory - that there is a rate of taxation that causes tax receipts to fall. Beyond that point, further increases in the tax rate will not increase receipts. This is OBVIOUSLY true. What rate that is, naturally, is a matter of some debate, no?

Where do you get the inflation argument? The Fed has a pretty good handle on things, generally - we vary the fed funds rate a little in order to keep it in check, and it stays in check. There aren't any short- or medium-term trends that point towards runaway inflation, and the long-term ones (basically, entitlement spending schedules we can't possibly maintain) will end up biting most of our trading partners way before they bite us.

Oil prices have a fairly soft limit to how much further they can increase. Once we're talking $100/barrel oil, we're talking Canadian tar shale exploitation, which means all of the sudden we have access to a Saudi Arabia that doesn't have an unfriendly religion. Yeah, owwie at the pump, but $10/gallon for gas is simply a fantasy, bar imminent nuclear war or something.

Food prices have a fairly strong limit in that there's a LOT of production. Sure, corn prices take a jump because people are (stupidly) putting it in their fuel tank and not their mouth. There's a lot of agricultural-exporting nations out there, and a lot of things we use corn for because we have tariffs and subsidies on alternatives; if corn gets too high, all of the sudden we'll be drinking our soda with sugar instead of corn syrup, and not only will that reduce the demand for corn, but our sodas will taste better. ;p Substitutes aren't necessarily inferior, right? At any rate, we're hardly facing a food shortage.

0 Replies

Avatar ADV wrote:

Laffer curve, same way. The curve itself is not special. All it is is a statement of an economic theory - that there is a rate of taxation that causes tax receipts to fall. Beyond that point, further increases in the tax rate will not increase receipts. This is OBVIOUSLY true. What rate that is, naturally, is a matter of some debate, no?

Amen. Cyclops, you need to realize that the curve has never been drawn to demonstrate hard numbers. It is simply a recognition of a relationship, as roughly as described by Laffer, and roughly described by a curve, and this curve is not static through time and with all economic conditions. To my knowledge, nobody knows where the peak is, but the acknowledgement of the relationship, as I have said many, many times, would be very helpful to the formulation of tax policy.

Tax rates, gdp, and revenues are not a zero sum game. The first two do affect each other, and anyone that knows anything about mathematics, calculus should be able to recognize its obvious existence.

0 Replies

Avatar ADV wrote:

Don't be an idiot, Cyc.

There isn't a Laffer curve in the sense that you can take numbers from the economy and plug them into one, correct. It's a theoretical instrument and not a predictive one - you can think of it as more of a visual aid to the theory than something we have a formula for.

I understand, but Okie has a history of claiming the curve is a predictive and policy-making tool, not a theoretical construct. It has no actual utility when it comes to making predictions, at all, therefore it has little place in a discussion about where the economy is headed.

This, combined with the fact that the 'laffer curve' is used 99% of the time by Conservatives to try and justify lowering taxes, leads me to react quite negatively when it comes up in discussion. It isn't productive to discuss it at all, but merely an attempt to frame a discussion in a certain way to make black seem like white, using non-corrollary statistics and theory in the place of actual evidence. I don't like that.

Quote:

Where do you get the inflation argument? The Fed has a pretty good handle on things, generally - we vary the fed funds rate a little in order to keep it in check, and it stays in check. There aren't any short- or medium-term trends that point towards runaway inflation, and the long-term ones (basically, entitlement spending schedules we can't possibly maintain) will end up biting most of our trading partners way before they bite us.

CPI is rising, energy prices rising, food prices rising.

Here's the BLS news release:

ftp://ftp.bls.gov/pub/news.release/cpi.txt

Bonddad:

Quote:

*
*

Let's cut through all of this static.

1.) Everybody talks about the core rate, but almost no one explains why the Federal Reserve looks at the core rate. The Fed looks at the core rate to see if the more volatile price components of CPI (food and energy prices) are bleeding through to other areas prices. If core CPI is tame, it usually means the more volatile prices are not impacting other prices. This is what has given the Federal reserve the confidence to continually state price pressures should subside over time.

2.) All that being said, outside of this policy perspective, the core rate is practically useless. Everybody consumes gas and food so the overall rate is what is important from an individual's perspective. And this number is not good. It indicates prices are increasing at an uncomfortable rate.

3.) Notice the year-over-year number increased 2.8%. That is .8% above the Fed's preferred level of 1%-2%. Translation: the Fed isn't lowering rates anytime soon (barring clear signs the economy is tanking hard).

4.) There are some very scary 3-month compound growth rate numbers in this report. Food: +7.4%, Transportation, +8.3%, Energy +22.9%, Medical Care +5.6%.

So --- why is this happening?

snip

Quote:

If corn prices increase by ~ 55 percent, year over year, then will the corn used for hog, cattle, chicken, turkey and fish feed go up 55 %? Doesn't that increase the price of meat, poultry, fish, milk and eggs? If corn is used in corn meal, corn flakes, corn oil, and hundreds of other food items goes up 55%, doesn't that increase the price of all these foods? Maybe. Since 2000, the price of beef is up 31%, eggs up 50%, corn sweeteners up 33%, wet corn milling up 39%, and corn flakes are up 10%. Chicken prices haven't changed very much. Yet. Food producers are predicting higher prices.

You'll find a lot of stuff here:

bonddad.blogspot.com

Cycloptichorn

0 Replies

okie wrote:

Avatar ADV wrote:

Laffer curve, same way. The curve itself is not special. All it is is a statement of an economic theory - that there is a rate of taxation that causes tax receipts to fall. Beyond that point, further increases in the tax rate will not increase receipts. This is OBVIOUSLY true. What rate that is, naturally, is a matter of some debate, no?

Amen. Cyclops, you need to realize that the curve has never been drawn to demonstrate hard numbers. It is simply a recognition of a relationship, as roughly as described by Laffer, and roughly described by a curve, and this curve is not static through time and with all economic conditions. To my knowledge, nobody knows where the peak is, but the acknowledgement of the relationship, as I have said many, many times, would be very helpful to the formulation of tax policy.

Tax rates, gdp, and revenues are not a zero sum game. The first two do affect each other, and anyone that knows anything about mathematics, calculus should be able to recognize its obvious existence.

Sure, but it doesn't allow any sort of predictive ability at all! This why it is inaccurate to describe it as a 'curve.' A curve would allow us to have some general predictions about how tax cuts will affect the economy. In reality, however, this isn't true at all.

I can come up with some great economic theories on paper, but if they don't match up to reality, then there is no utility to them at all. They are pointless.

The 'laffer curve,' which truly is a laugh, has no utility or purpose other than to say 'at some point tax increases will hurt the economy and lead to less overall reciepts.' But they can't say where that point is at all. Fantastic tool. You say that:

Quote:

acknowledgement of the relationship, as I have said many, many times, would be very helpful to the formulation of tax policy.

No, it would not. Explain exactly how it would be helpful, specifically, seeing as we have no way of plotting points on the 'curve' or finding the magic spot on the 'curve.' Don't bullshit.

Cycloptichorn

0 Replies

Er, the reason it's described as a curve is that, well, we DO know it's a curve and the general shape of the curve. That is to say, you get generally ascending tax receipts with higher taxation until you reach an inflection point, at which point further increases of taxes cause a decrease in receipts.

I'll grant that it's not necessarily true that we're at that apex, but it IS useful to keep in mind that increasing taxation does have a negative effect on growth, even at lower rates of taxation than that apex; it's just that the short-term increased revenue is greater than the short-term growth reduction until you hit that apex. And on a long-term horizon, it's shaped differently - you can EASILY tax your economy into a hole, though again, it's fair to say that it's quite difficult to isolate tax policy in such circumstances.

Naturally the short-term inflation numbers aren't great - energy's a good chunk of the equation and that's up a good bit. But that's not a "year after year" number, and trying to extrapolate it into a trend doesn't work. If a certain portion of my anatomy grew at 55% a year, I'd have a space elevator in my pants before I retired.

Specifically, corn is up a lot because of increased demand caused by a large increase in corn used for ethanol. That's a short-term effect, though; there's plenty of land that could be turned to corn cultivation that isn't currently growing corn, and that WILL be turned to growing corn if corn gets more expensive. (It's also quite stupid - cultivating corn is not a good way of reducing emissions, though it's great if you're attempting to buy Iowa votes!) Hardly any reason to panic - food is still, economically speaking, quite cheap.

0 Replies

Avatar ADV wrote:

Er, the reason it's described as a curve is that, well, we DO know it's a curve and the general shape of the curve. That is to say, you get generally ascending tax receipts with higher taxation until you reach an inflection point, at which point further increases of taxes cause a decrease in receipts.

I'll grant that it's not necessarily true that we're at that apex, but it IS useful to keep in mind that increasing taxation does have a negative effect on growth, even at lower rates of taxation than that apex; it's just that the short-term increased revenue is greater than the short-term growth reduction until you hit that apex. And on a long-term horizon, it's shaped differently - you can EASILY tax your economy into a hole, though again, it's fair to say that it's quite difficult to isolate tax policy in such circumstances.

Naturally the short-term inflation numbers aren't great - energy's a good chunk of the equation and that's up a good bit. But that's not a "year after year" number, and trying to extrapolate it into a trend doesn't work. If a certain portion of my anatomy grew at 55% a year, I'd have a space elevator in my pants before I retired.

Specifically, corn is up a lot because of increased demand caused by a large increase in corn used for ethanol. That's a short-term effect, though; there's plenty of land that could be turned to corn cultivation that isn't currently growing corn, and that WILL be turned to growing corn if corn gets more expensive. (It's also quite stupid - cultivating corn is not a good way of reducing emissions, though it's great if you're attempting to buy Iowa votes!) Hardly any reason to panic - food is still, economically speaking, quite cheap.

Who's panicking? Lol! Inflation doesn't look good at the moment, but it isn't to the level of panic yet.

I understand that the 'laffer curve' theory allows certain discussions of how taxation works - in theory. But it has nothing to do with reality, as we cannot actually plot any points on the curve at all which do not fall at either extreme end. Some help when it comes to predicting the future of our economy OR deciding upon taxation rates. It isn't a 'curve' in the traditionally used meaning of the word at all, because we can't plot any data points on it or use it to describe anything having to do with reality. The situation is simply too complex. It would need to be a six-dimensional curvy spiral fractal loop to accurately show the situation, and dammit, that's too hard to fit on a flip-chart and bloviate about in front of Congress. That's why you see the Laffer curve thrown about by politicians, but not ecnomists: it's a simple idea for simple minds.

There's no reason to panic, but 'year after year' numbers have to start somewhere.

Cycloptichorn

0 Replies

Cycloptichorn wrote:

...
The 'laffer curve,' which truly is a laugh, has no utility or purpose other than to say 'at some point tax increases will hurt the economy and lead to less overall reciepts.' But they can't say where that point is at all. Fantastic tool. You say that:

Finally, you made an admission I have not seen before this day.

Quote:

Quote:
acknowledgement of the relationship, as I have said many, many times, would be very helpful to the formulation of tax policy.

No, it would not. Explain exactly how it would be helpful, specifically, seeing as we have no way of plotting points on the 'curve' or finding the magic spot on the 'curve.' Don't bullshit.

Cycloptichorn

Come on, cyclops, acknowledgement that two factors have a relationship is often the first step in solving any problem. For example, if a person will not acknowledge that smoking will eventually probably kill them, then the doctor can begin to discuss what the research shows in terms of how many years on average people live as smokers. Admittedly, every person is unique, but some useful projections can be considered, so that reasonable decisions can be made.

Same thing with tax rates. If politicians refuse to acknowlege any relationship whatsoever, then it is much tougher to agree upon any policy. If both Democrats and Republicans could agree on the obvious, that there is a relationship between tax rates and tax revenues, then we could then have a dialog on where the best economic minds think we are at in that relationship. Denial is never healthy, and that is what I see. You are just beginning to poke your head out of total denial, and even that is a healthy sign, but you still have a ways to go.

0 Replies

Avatar ADV wrote:

Er, the reason it's described as a curve is that, well, we DO know it's a curve and the general shape of the curve. That is to say, you get generally ascending tax receipts with higher taxation until you reach an inflection point, at which point further increases of taxes cause a decrease in receipts.

I'll grant that it's not necessarily true that we're at that apex, but it IS useful to keep in mind that increasing taxation does have a negative effect on growth, even at lower rates of taxation than that apex; it's just that the short-term increased revenue is greater than the short-term growth reduction until you hit that apex. And on a long-term horizon, it's shaped differently - you can EASILY tax your economy into a hole, though again, it's fair to say that it's quite difficult to isolate tax policy in such circumstances.

Naturally the short-term inflation numbers aren't great - energy's a good chunk of the equation and that's up a good bit. But that's not a "year after year" number, and trying to extrapolate it into a trend doesn't work. If a certain portion of my anatomy grew at 55% a year, I'd have a space elevator in my pants before I retired.

Specifically, corn is up a lot because of increased demand caused by a large increase in corn used for ethanol. That's a short-term effect, though; there's plenty of land that could be turned to corn cultivation that isn't currently growing corn, and that WILL be turned to growing corn if corn gets more expensive. (It's also quite stupid - cultivating corn is not a good way of reducing emissions, though it's great if you're attempting to buy Iowa votes!) Hardly any reason to panic - food is still, economically speaking, quite cheap.

Excellent explanation of the curve. I could not have said it better. Your points about short term vs long term are also good points. I have often likened the economy to an oceanliner, which has an inertia and direction built into it, and it does not turn on a dime. Some effects, as caused by policy, may be fairly minor and immediate, while others will manifest themselves many years later, and may be more severe in the long term.

Unfortunately, because of the above, presidents often wrongly receive either blame or credit for the economy.

I agree with you about ethanol. I do not believe ethanol is going to solve our energy problems, because it is not efficiently produced. Now if more efficient methods or feedstocks are discovered to make ethanol, then it might have more potential.

0 Replies

Okie, I asked you for specifics, and you gave me bullshit.

Quote:

If both Democrats and Republicans could agree on the obvious, that there is a relationship between tax rates and tax revenues, then we could then have a dialog on where the best economic minds think we are at in that relationship.

The 'best economic minds?' Those are economists, not politicians. Surely I don't need to explain that to you, and surely you understand that economists don't need you to explain how taxation effects the economy to them.

Noone disagrees that taxes affect the economy. There just is no agreement that there is a direct relationship between the two, one in which you can make decisions and predictions based upon easy formulas - say, like a 'curve,' or basic calculus derived from plotting data points. It doesn't work like that in real-life situations. That's why the 'Laffer curve' is not taken seriously by the 'best economic minds.'

Cycloptichorn

0 Replies

Cyc, you're missing the point. The Laffer curve exists because economists needed a way to communicate the interrelationship between tax rates and tax receipts to an audience not well-versed in the fine points of taxation.

Lots of economics works like that. Plenty of discoveries were made by one economist, but shelved for ten, twenty, thirty years until some other economist discovered the same thing but illustrated it clearly instead of burying the answer in an arcane formula.

Your attitude here is kind of like, "I don't trust any carpenter that comes up to me with a nail gun - he can't be a real carpenter if he has one of those." Bull - it's part of the standard toolbox. You can say "I don't trust supply-siders because I don't think they have a good idea about taxation, and they just want taxes cut because they're all rich bastards who don't wanna pay," okay, that's an opinion. (Except you make more than me, man!) But trying to say "anyone who even brings up the Laffer curve is an idiot" just makes you look like you don't know what you're talking about.

And hey, man, this is the economy - direct relationships? It is to laugh! A fairly easy-to-understand second-order effect is a lot less complicated than the workings of international finance...

0 Replies

Avatar ADV wrote:

Cyc, you're missing the point. The Laffer curve exists because economists needed a way to communicate the interrelationship between tax rates and tax receipts to an audience not well-versed in the fine points of taxation.

Lots of economics works like that. Plenty of discoveries were made by one economist, but shelved for ten, twenty, thirty years until some other economist discovered the same thing but illustrated it clearly instead of burying the answer in an arcane formula.

Your attitude here is kind of like, "I don't trust any carpenter that comes up to me with a nail gun - he can't be a real carpenter if he has one of those." Bull - it's part of the standard toolbox. You can say "I don't trust supply-siders because I don't think they have a good idea about taxation, and they just want taxes cut because they're all rich bastards who don't wanna pay," okay, that's an opinion. (Except you make more than me, man!) But trying to say "anyone who even brings up the Laffer curve is an idiot" just makes you look like you don't know what you're talking about.

And hey, man, this is the economy - direct relationships? It is to laugh! A fairly easy-to-understand second-order effect is a lot less complicated than the workings of international finance...

It isn't who is making the contention that...

Quote:

If both Democrats and Republicans could agree on the obvious, that there is a relationship between tax rates and tax revenues, then we could then have a dialog on where the best economic minds think we are at in that relationship.

But Okie. I understand what you are saying, that there are no direct relationships in economics; it isn't that 'anyone who brings up the laffer curve is an idiot.' Just that anyone who thinks it shows anything useful, does anything other than illustrate a theory, should be able to show evidence as to how it is useful, or how it is applicable to real-life. So far this has not been done.

I understand that it is an opinion that the laffer curve is used 99% of the time to argue for lower taxes, but it is one which is born out by years of experience, in which Republicans and the rich do exactly that. I have never, ever, ever seen anyone use the 'laffer curve' theory idea to support anything other than tax cuts, especially cuts on the marginal rates for the rich. Can you point to such a usage? Barring the ability for anyone to show me, I think it's safe to assume that the curve was invented for one reason and one reason only - the one in my sig line.

Cycloptichorn

0 Replies

Cycloptichorn wrote:

Okie, I asked you for specifics, and you gave me bullshit.

Quote:
If both Democrats and Republicans could agree on the obvious, that there is a relationship between tax rates and tax revenues, then we could then have a dialog on where the best economic minds think we are at in that relationship.

The 'best economic minds?' Those are economists, not politicians. Surely I don't need to explain that to you, and surely you understand that economists don't need you to explain how taxation effects the economy to them.

Noone disagrees that taxes affect the economy. There just is no agreement that there is a direct relationship between the two, one in which you can make decisions and predictions based upon easy formulas - say, like a 'curve,' or basic calculus derived from plotting data points. It doesn't work like that in real-life situations. That's why the 'Laffer curve' is not taken seriously by the 'best economic minds.'

Cycloptichorn

Cyclops, I think this really boils down to a very, very basic point of logic. I will try to explain it this way.

A person's health is determined by many factors, similar to economic health. If a person smokes, it has a relationship to the health, which is recognized and quantified in rough terms, just as taxes affect health, only difference being smoking is not necessary. I guess taxes would not be needed either in a perfect world. Now, a person's health is also determined by diet, exercise, inherited genes, location of residence, occupation, mental attitudes, the list goes on. Same with the economy. Now, if a person smokes, the doctor does not throw up his hands and say I cannot tell you what effect smoking has on the patient because there are numerous other factors that also affect the patient. He does not say I cannot quantify how many years you will be able to smoke before it kills you.

Obviously, the medical profession and researchers have ample data to identify the relationship between smoking and peoples health. No two patients are alike, just like no two points in economic history or conditions are alike. Nevertheless, we do know a relationship exists between tax rates and the economy and tax revenues. We cannot say for sure at what point or level of taxes that will turn out to be the straw that breaks the camels back, but if we are honest and intelligent as politicians have a tough time doing, we would be admitting and recognizing the relationship and attempting to make prudent decisions in regard to it, of course balanced with other factors as well.

There is in fact a direct relationship between tax rates and the economy and tax revenues, just as there is between smoking and health. As you say, there are many other factors as well, so some smokers live to be 90, although most die much younger, so yes, there are also many other factors that affect the economy, however just as the doctor does not ignore the effects of smoking because it is difficult to pin down for every patient, neither should we ignore the relationship between tax rates and the economy / tax revenues.

This is so frustrating, cyclops, because politicians should be smart enough to figure some of these most basic things out, but so many are just plain ignorant.

0 Replies

Cycloptichorn wrote:

But Okie. I understand what you are saying, that there are no direct relationships in economics; it isn't that 'anyone who brings up the laffer curve is an idiot.' Just that anyone who thinks it shows anything useful, does anything other than illustrate a theory, should be able to show evidence as to how it is useful, or how it is applicable to real-life. So far this has not been done.

I understand that it is an opinion that the laffer curve is used 99% of the time to argue for lower taxes, but it is one which is born out by years of experience, in which Republicans and the rich do exactly that. I have never, ever, ever seen anyone use the 'laffer curve' theory idea to support anything other than tax cuts, especially cuts on the marginal rates for the rich. Can you point to such a usage? Barring the ability for anyone to show me, I think it's safe to assume that the curve was invented for one reason and one reason only - the one in my sig line.

Cycloptichorn

I was working on the last post, then got interruption, but now that I see this, your last post, I can respond to it.

I will agree with you that we cannot always assert we are beyond the peak of the Laffer curve, and that raising rates would now lead to lower revenues, and you may be correct that some wrongfully claim this. As Avatar points out however, there may be a short term Laffer curve and a longer term one, we may be able to raise rates and see much higher revenues short term, but down the road, economic expansion and innovation suffers, which may affect revenues negatively on a more long term basis.

The curve was not invented to benefit rich people. That is preposterous and shows your built in bias and class envy. I do not personally care how rich other people are, or how much tax they pay, and I fail to see why so many people obsess over it. Karl Marx obsessed over a similar thing. You will love that comment, as others will, but I throw it in to needle you guys, and also because it is a fact. The curve was instead invented for one reason and one reason only, to explain a very, very important principle of economics and tax policy.

In regard to whether tax rates have a "direct" relationship or "indirect" relationship, word usage here is a matter of semantics in attempts to explain it. It is direct, but since there are also other direct factors, all the factors add up to a collection of factors, so you could also say that each one is indirect. Each one would be direct, if all others remain static, but of course they do not. Just as smoking has a direct impact on health, when added to all other factors, then it could be considered to be indirect. Just a matter of semantics.

0 Replies

You are 100% wrong.

Quote:

There is in fact a direct relationship between tax rates and the economy and tax revenues, just as there is between smoking and health.

No, there is not in fact a 'direct relationship' between tax rates and the economy. And certainly not as there is between smoking cigarettes and health. For example, it can easily be said that smoking cigarettes never makes you 'healthier.' On the other hand, you cannot predict the outcome of tax raises or cuts with any degree of accuracy - except to say that tax cuts most definitely take away from revenues in the short run and might lead to bigger ones in the long run, though no actual historical data can show this and there are never any specifics given as to how this actually works, or data showing how it actually worked.

You have failed to answer a simple question: in what ways will it 'help' politicians to accept your incorrect premise? Specifically. What do you propose they do?

Quote:

however just as the doctor does not ignore the effects of smoking because it is difficult to pin down for every patient, neither should we ignore the relationship between tax rates and the economy / tax revenues.

Your metaphor is terrible. It doesn't work at all. Because we do understand the effects of smoking to a great degree, and none of them are positive. We do not understand this to the same degree with taxation, not even close. Ridiculous!

I applaud you continuing to try and dig your way out of the hole, but honestly, you are going to have to do better than theoretical situations and poor analogies if you wish to further your argument.

Cycloptichorn

0 Replies

Taxes never make the economy healthier, even at 1%. All we are doing here with taxes, is to pay for the government the citizens demand. If people demand to smoke, then how much can they smoke before it kills them? How high can we dare to raise taxes before it kills the economy? That is the question. I think the analogy is not bad.

I am not even near a hole, cyclops. My posts are based on proven and logical economic principles and thinking. I am on very solid ground.

As I've said before, if politicians would all admit the obvious, then they could argue over what is the healthiest tax rate to support expenditures. This argument would be far better than accusing tax cuts for the rich and all that garbage, which is what it is. Class envy raises my blood pressure, and frankly I am sick of hearing it. I am not rich, and I don't care if others are.

0 Replies

okie wrote:

Taxes never make the economy healthier, even at 1%. All we are doing here with taxes, is to pay for the government the citizens demand. If people demand to smoke, then how much can they smoke before it kills them? How high can we dare to raise taxes before it kills the economy? That is the question. I think the analogy is not bad.

I am not even near a hole, cyclops. My posts are based on proven and logical economic principles and thinking. I am on very solid ground.

Are you kidding?

With statments such as:

Quote:

Taxes never make the economy healthier, even at 1%.

The economy relies upon the stability of the gov't to survive. Without the stability of the US gov't, there is no economy. Without taxes, there is no stability. You have a fundamental problem understanding how the world works if you can't see this.

Your posts are based on no data. I can come up with a great theory to explain anything I like; that doesn't make it true. Without data to back it up, the theories are worthless in a discussion about where the economy is headed or what our leaders should do.

Why don't you cowboy up and answer a simple question:

Quote:

in what ways will it 'help' politicians to accept your incorrect premise? Specifically. What do you propose they do?

The Laffer Curve is used by folks like you who don't understand the relationship between taxation and the gov't and the economy one bit, to try and justify cutting taxes - and nothing else. Prove me wrong.

Cycloptichorn

0 Replies

I knew you would attack me on that statement. In a perfect world, we would not need police protection or armies, or all the rest. But we don't live in a perfect world, so we need some minimal government, a necessary inefficiency. Government, by definition, is inefficient, so any segment, even 1%, siphons away the resources that could be used more efficiently if we did not have to have it. So in that respect, my smoking analogy is not perfect, as nobody needs to smoke.

So my statement that taxes never make the economy healthier was wrong, given the imperfect world we live in. In a perfect world, we would perhaps not need government, so given the imperfect world we have, we have to accept some inefficiency to protect ourselves and stabilaze society.

All of this supports conservative philosophy of minimal government. Cyclops, I recognize the necessity of some government, but that does not change the fact that it is more inefficient than private enterprise.

0 Replies

okie wrote:

I knew you would attack me on that statement. In a perfect world, we would not need police protection or armies, or all the rest. But we don't live in a perfect world, so we need some minimal government, a necessary inefficiency. Government, by definition, is inefficient, so any segment, even 1%, siphons away the resources that could be used more efficiently if we did not have to have it. So in that respect, my smoking analogy is not perfect, as nobody needs to smoke.

Your analogy sucks. Smoking never makes a patient's health better. Tax raises do make the 'economic health' of the US better. The 90's are a perfect example, we balanced budgets and were actually paying down our debts.

You do realize that we can't just repudiate our national debt? That it has to be paid, and that the debt service payments take up an ever-increasing chunk of tax revenues?

Your paragraph is nothing but throwaway phrases. Government is not by definition 'inefficient.' I have no idea where this came from, other than the bowels of your mind.

Quote:

All of this supports conservative philosophy of minimal government. Cyclops, I recognize the necessity of some government, but that does not change the fact that it is more inefficient than private enterprise.

There's a reason that conservatives have turned out to be poor stewards of our government, Okie, and that's because Conservatism isn't a theory of how to govern well. All it is is a criticism of others who are trying to get the job done.

You consistent and cowardly failure to answer a simple question is bemusing to me, so I will repost it here:

Quote:

in what ways will it 'help' politicians to accept your incorrect premise? Specifically. What do you propose they do?

Prove to me that the 'laffer curve' is useful in any way other than trying to justify lowering taxes - at a time when we are almost 10 trillion in debt. Please! At least make the attempt.

Cycloptichorn

0 Replies

Where is the US economy headed?

Related Topics

Quick Links

My Account

able2know