Where is the US economy headed?

Greenspan says he's in favor of raising taxes
Former Fed chief: U.S. needs to cut deficit to allow more private investment

NEW YORK — Taxes must rise while fiscal stimulus needs to be wound down in order to reduce the U.S. budget deficit and allow private investment to expand, said former Chairman of the Federal Reserve Alan Greenspan on Wednesday.

"I am in favor for the first time in my memory of raising taxes," Greenspan told an audience at the Council on Foreign Relations in New York.

He warned that the deficit, swollen by massive stimulus spending, was crowding out capital investment. We "must find a way to simmer down fiscal activism and allow the economy to heal," he said, adding that that stimulus spending had been far less successful than anticipated.

Bush era tax cuts are set to expire at the end of this year. President Obama says he wants to cap taxes on middle and lower income households but allow taxes rates to revert to higher levels for the wealthy.

The issue is key in the forthcoming mid-term elections in November, with the Republicans pushing for tax cuts to remain in place across the board, claiming that higher rates on the wealthy would hamper the recovery.

Greenspan said that the chances the U.S. economy would slide back into recession were receding but warned that "all bets were off" if house prices started to fall further due to high levels of unsold inventory.

Greenspan, who was the head of the Federal Reserve for almost 19 years until he retired in 2006, said new rules to impose capital increases on banks were unlikely to cause a credit crunch as bank rushed to raise capital as some have suggested.

Conservatives Still Don’t Care About the Deficit



Back earlier in the summer I did a series of posts on the theme about how conservatives don’t care about the deficit. Conservatives tried to push back on this in a number of ways, but you can really only generate the conclusion that conservatives care about the deficit if by “deficit” you mean “reducing the quantity of federal revenue.” It’s certainly true that conservatives care—a lot!—about reducing the quantity of federal revenue. But of course this is just redefinition.

Consider, for example, Lori Montgomery’s reporting for The Washington Post:

Quote:

Even as they hammer Democrats for running up record budget deficits, Senate Republicans are rolling out a plan to permanently extend an array of expiring tax breaks that would deprive the Treasury of more than $4 trillion over the next decade, nearly doubling projected deficits over that period unless dramatic spending cuts are made.

The point I would make here is that we don’t need to talk about blah blah unless spending cuts. The Affordable Care Act contained spending provisions that would dramatically increase the budget deficit unless paired with tax increases, and since the White House cared about the deficit those spending provisions were paired with tax increases, thus generating a bill that, unless repealed, will reduce the deficit.

Conservatives, by contrast, don’t care about the deficit so they’ve written a bill that will increase the deficit. By a lot. It’ll double it! It’s true that many conservatives say they separately favor spending cuts that would offset this affect. But if conservatives in the Senate wanted to pair tax cuts with spending offsets, they could have written a bill that does that. Conservative Senators are currently saying that they will filibuster a middle class tax cut unless that tax cut is paired with tax cuts that exclusively benefit rich people. That’s because they care—a lot—about reducing taxes on rich people. If they cared about reducing the deficit they could threaten to filibuster tax cuts unless paired with spending cuts. But they’re not doing that because they don’t care about the deficit.

What’s more, conservative columnists could urge them to do this. So could Fox News hosts and conservative talk radio stars. So could the Heritage Foundation, the American Action Network, the American Enterprise Institute, or the Cato Institute. But none of them are doing so. It’s true, again, that they separately say they favor cutting spending but none of them are urging members of congress to make tax cuts contingent on offsetting spending reductions. Because, again, conservatives don’t care about the deficit and not caring about the deficit is sufficiently foundational to their ideology that there’s essentially no dissent from this posture.

http://www.ncpa.org/sub/dpd/index.php?Article_ID=19818&utm_source=newsletter&utm_medium=email&utm_campaign=DPD
The Naked Stimulus: Why Savings Stimulate More Than Spending

Despite the struggling economy, President Obama argues that his stimulus package is producing gross domestic product (GDP) growth that is far better than the disaster that would have ensued without the $862 billion in emergency spending. The reason, he and his advisors maintain, is that what really counts is spending -- the more the better, at least for now, says Shawn Tully, Fortune Magazine's senior editor-at-large.

But the administration's policy has a fundamental flaw. It's impossible to raise GDP by borrowing from one group of people, who would otherwise save that money, and transfer it to another group of people (and the government) to spend. Savings, in the short term, have precisely the same impact on national income as spending, says Tully.

GDP measures all spending on all the goods and services that America produces.

Savings translate, dollar for dollar, into a major component of that total spending: investment.

All the money that the administration successfully moves from savings to consumption simply channels one type of spending to another, in precisely offsetting amounts.

The GDP does not change when the government drains investment to lift consumption.

Over long periods, savings -- not consumer spending -- finance the investments in mainframes, robots and other capital equipment that enhance productivity and drive economic growth.

So what would have happened if we'd had no stimulus at all?

First, private investment would be higher, because of the bigger pool of savings -- a positive sign for the future.

Second, the United States wouldn't have to borrow nearly as much from abroad.

Source: Shawn Tully, "The Naked Stimulus: Why Savings Stimulate More than Spending," Fortune, September 9, 2010.

First, private investment would be higher, because of the bigger pool of savings -- a positive sign for the future.

A typical dollar spent by the feds helps the economy--total employment in particular--far less than a typical dollar spent by the private economy.

Consequently, it's irresponsible to suggest a tax INCREASE--ON ANYONE--with a price tag of 4 trillion dollars over 10 years, when we are deeply in debt and deficit SPENDING. Right?

I would add that every single thing Obama has done - every proposal, including the CONTINUATION OF TARP, Stim bill, Financial reform, the auto bailouts and HC bill - all those things, combined, add MUCH MORE to the debt than the Republican tax plan. Much MORE. So I AM going to argue against OBAMA'S TAX INCREASE PLAN with the same vehemence that I HAVE argued against everything else Obama has done.

The Stim bill LOWERED the amount that is saved by any citizen MANY DOLLARS

and in fact, it REDUCED the amount saved considerably, because it CAUSED many to LOSE their jobs instead of GAINING THEM.

and those people are continuing to SAVE LESS, BECAUSE THEY ARE tapping their savings to pay for short-term costs.

You're just full of ****. Provide evidence.

http://www.whitehouse.gov/omb/budget/fy2009/pdf/hist.pdf
Year.......FEDERAL RECEIPTS FINAL FULL YEAR OF TERM
1980......$0.517 trillion [CARTER]
1988….…$0.909 trillion [REAGAN]
1992.......$1.091 trillion [BUSH41]
2000......$2.025 trillion [CLINTON]
2008......$2.521 trillion [BUSH43]
2010.......$2,931[OBAMA] (current estimate for year not end of term)

Year.......FEDERAL OUTLAYS FINAL FULL YEAR OF TERM
1980.......$0.591 trillion [CARTER]
1988….….$1.064 trillion [REAGAN]
1992........$1,.382 trillion [BUSH41]
2000.......$1.789 trillion [CLINTON]
2008.......$2,931 trillion [BUSH43]
2010........$3,399 trillion [OBAMA] (current estimate for year not end of term)

Year………FEDERAL DEFICITS
1980.......$0.074 trillion [CARTER]
1988….….$0.155 trillion [REAGAN]
1992........$0.291 trillion [BUSH41]
2000.......SURPLUS $0.236 trillion [CLINTON]
2008.......$0.410 trillion [BUSH43]
2010........$0.160 trillion [OBAMA] (current estimate for year not end of term)

Year………GROSS FEDERAL DEBT
1980.......$0.909 trillion [CARTER]
1988….….$2.601 trillion [REAGAN]
1992........$4.002 trillion [BUSH41]
2000.......$5.629 trillion [CLINTON]
2008.......$9.654 trillion [BUSH43]
2010.......$10.954 trillion [OBAMA] (current estimate for year not end of term)

ftp://ftp.bls.gov/pub/suppl/empsit.cpseea1.txt
Year……TOTAL US CIVIL EMPLOYMENT
1980……………..99 million [CARTER]
1988…………… 115 million [REAGAN]
1992…………….118 million [BUSH41]
2000……………137 million [CLINTON]
2008………….. 145 million [BUSH43]
2010.……………139 million [OBAMA] (as of August 2010 and not final year of term)

Year.…….PERCENT OF CIVILIAN POPULATION EMPLOYED
1980…………………………………….59.2 [CARTER]
1988…………………………………….62.3 [REAGAN]
1992…………………………………….61.5 [BUSH41]
2000…………………………………….64.4 [CLINTON]
2008…………………………………….62.2 [BUSH43]
2010…………………………………….58.5 [OBAMA] (as of August 2010 and not final year of term)

Economists agree: Stimulus created nearly 3 million jobs

...But to estimate the answers to such questions, economists rely on models based on historical relationships between various policies and real-world results. Earlier this month, Zandi and co-author Alan Blinder, former vice chairman of the Federal Reserve, released the most detailed assessment of the government's efforts to combat the so-called Great Recession. Neither economist is regarded as a partisan firebrand. Zandi, for example, backed John McCain in the 2008 presidential campaign and has advised members of both parties.

Their conclusion: The fiscal stimulus created 2.7 million jobs and added $460 billion to gross domestic product. Unemployment would be 11% today if the stimulus hadn't been passed and 16.5% if neither the fiscal stimulus nor the banks' rescue had been enacted, according to Zandi and Blinder. "It's pretty hard to deny that it had a measurable impact," Zandi said.

http://www.whitehouse.gov/omb/budget/fy2009/pdf/hist.pdf
Year.......FEDERAL RECEIPTS FINAL FULL YEAR OF TERM
1980......$0.517 trillion [CARTER]
1988….…$0.909 trillion [REAGAN]
1992.......$1.091 trillion [BUSH41]
2000......$2.025 trillion [CLINTON]
2008......$2.521 trillion [BUSH43]
2010.......$2,931[OBAMA] (current estimate for year not end of term)

Year.......FEDERAL OUTLAYS FINAL FULL YEAR OF TERM
1980.......$0.591 trillion [CARTER]
1988….….$1.064 trillion [REAGAN]
1992........$1,.382 trillion [BUSH41]
2000.......$1.789 trillion [CLINTON]
2008.......$2,931 trillion [BUSH43]
2010........$3,399 trillion [OBAMA] (current estimate for year not end of term)

Year………FEDERAL DEFICITS
1980.......$0.074 trillion [CARTER]
1988….….$0.155 trillion [REAGAN]
1992........$0.291 trillion [BUSH41]
2000.......SURPLUS $0.236 trillion [CLINTON]
2008.......$0.410 trillion [BUSH43]
2010........$0.160 trillion [OBAMA] (current estimate for year not end of term)

Year………GROSS FEDERAL DEBT
1980.......$0.909 trillion [CARTER]
1988….….$2.601 trillion [REAGAN]
1992........$4.002 trillion [BUSH41]
2000.......$5.629 trillion [CLINTON]
2008.......$9.654 trillion [BUSH43]
2010.......$10.954 trillion [OBAMA] (current estimate for year not end of term)

ftp://ftp.bls.gov/pub/suppl/empsit.cpseea1.txt
Year……TOTAL US CIVIL EMPLOYMENT
1980……………..99 million [CARTER]
1988…………… 115 million [REAGAN]
1992…………….118 million [BUSH41]
2000……………137 million [CLINTON]
2008………….. 145 million [BUSH43]
2010.……………139 million [OBAMA] (as of August 2010 and not final year of term)

Year.…….PERCENT OF CIVILIAN POPULATION EMPLOYED
1980…………………………………….59.2 [CARTER]
1988…………………………………….62.3 [REAGAN]
1992…………………………………….61.5 [BUSH41]
2000…………………………………….64.4 [CLINTON]
2008…………………………………….62.2 [BUSH43]
2010…………………………………….58.5 [OBAMA] (as of August 2010 and not final year of term)