Brendan Nyhan, of whom I am generally very fond, is attacking me on supply side economics. In his post, he does a brilliant job of proving that politicians make ludicrous claims for their policies. Stand by for the blistering expose of the shameless way that men pursue young, attractive women, and the follow-up report titled "Sometimes, when the people you have slept with say they are going to call, they don't mean it".
Once again, before I go any further, I think people should spend all the time they want refuting those claims. What I don't think is that supply-side economics is dominating Republican policy, which is what Chait, and now Matt, and for all I know everyone to the left of Lincoln Chafee, are now claiming. To release a book subtitled "How Washington Got Hoodwinked and Hijacked by Crackpot Economics" you need a little more than "sometimes, in the course of selling their policies, politicians make ludicrous claims based on discredited economic notions", because that is not exactly a unipartisan vice. To subtitle your book that way, you need the most extreme form of supply-sidism to be the driving force behind Republican tax policy. And it just isn't.
Supply-side claims are made in the course of selling tax cuts, but they are not the dominant reason that politicians pursue tax cuts. Nor are they the dominant means by which those tax cuts are sold to the public; Brendan or anyone else can find plenty of other arguments for tax cuts from all the politicians they cite as rabid supply-siders. Supply-side economists do not dominate Republican advisors--the only one I am aware of is Steve Forbes for Giuliani, which is another excellent reason not to vote for the man. And the supply side arguments which are generally made to me by the various Republican think-tank people I talk to are vastly more plausible arguments about increasing the size of the economy and keeping spending down, not implausible ones about tax cuts paying for themselves. That's why I said that Chait's claims were "overblown", not "wrong".
The people I would call "strong" supply-siders (the ones who claim that tax cuts raise revenue) are fun to refute, because they are so easy to refute, because they make such extravagant claims. But inflating the strong supply-siders into the driving force behind Republican tax policies is overblown, and it seems like a way to avoid engaging the more substantive arguments in favor of tax cuts. And to all the liberal commenters who are preparing to say "there aren't any substantive arguments in favor of tax cuts" . . . thanks for making my point for me.
Megan, will you address Matt's comment:
"Now maybe Megan's point is that neither the leading conservative weekly magazine nor the leading conservative biweekly magazine nor the leading conservative opinion daily nor the country's leading conservative politicians nor the country's leading conservative think tanks actually believe what they're all saying about taxes."
But if the Republicans were serious about incentive effects, they wouldn't be concentrating so much effort on tax cuts for billionaires. The incentive effects at the bottom of the income scale are severe. One of the few instruments that helps offset that is the EITC, which helps deal with the payroll tax issue, but there the Republicans are always muttering about waste, fraud, and abuse.
Consider the position of a poor household going from unemployment to work. Payroll taxes, childcare, transportation, and healthcare (which they will likely lose going from Medicaid into no benefits job) impose far more severe marginal effects than the tax rate does. Bush opposed making his tax cuts refundable, which would have helped those people. Remember that carefully crafted talking point "We've cut taxes for all those who pay taxes." Precisely because he had no interest in transfers for the low income people.
So there was a basic test of sincerity for these guys on the broader incentive issue, and they failed it.
Megan, you are also not addressing this, by Brendan:
"Prominent Republicans and movement conservatives constantly suggest that tax cuts increase revenue, including the Bush administration and at least two of the current presidential candidates. The Wall Street Journal even doctors graphs to do it."
He provides links. Is this true or not?
What I don't think is that supply-side economics is dominating Republican policy
And the point people are making in response to you, Megan, is that you are wrong in this opinion. Supply-side arguments are the constant justification for Republican tax cut proposals. This has been demonstrated to you.
But inflating the strong supply-siders into the driving force behind Republican tax policies is overblown, and it seems like a way to avoid engaging the more substantive arguments in favor of tax cuts. And to all the liberal commenters who are preparing to say "there aren't any substantive arguments in favor of tax cuts" . . . thanks for making my point for me.
Well, Megan, you mentioned exactly two non-supply-side arguments on taxes. Those were arguments about deadweight losses and about short-term fiscal stimulus. I already explained to you why you are wrong on both of these points. If you do not understand why you are wrong, the appropriate thing for you to do, since I am an economist with a Ph.D. in the field from a top-10 graduate program, and you are a non-economist, is not to ignore what I say. It is to ask me, respectfully, about whatever point you do not understand in my explanation.
At this point it's like kicking a puppy, but happy reading anyway:
http://www.google.com/search?hl=en&q=deficits+don%27t+matter
A common, in fact, overwhelmingly prominent, mistake that those of us who like to talk and think about politics make is that we forget that most people don't. How many people do you think have heard of supply-side economics? How many people would hazard even a guess as to a definition of it?
Now, how many people understand what will happen to the thickness of their wallets if there is a tax cut?
So why WOULD Rethuglicans, those mendacious bastards, cut off their noses to spite their faces by spending all their time making stupid arguments to the few of us who understand how stupid they are, when they can make simple, visceral, effective arguments to a vast crowd of people who will largely accept them?
But Brendan also provides links to what HE calls "adminstration economists" who dispute the supply-siderish idea that tax cuts increase revenues, along with the supply-siderish quotes from Bush, Cheney.
See here:
http://www.brendan-nyhan.com/blog/2006/10/bush_vs_his_eco.html
Who's more influencial in actually setting adminstration policy on these matters--the adminstration economists (Mankiw, Hubbard, etc.) or Cheney, GW Bush?
Isn't that the real point of contention?
"To subtitle your book that way, you need the most extreme form of supply-sidism to be the driving force behind Republican tax policy. And it just isn't."
How can you not see this? They may not, every time the argue for tax cuts, mention increased revenues, though they often do. But ANYTIME anyone challenges the propriety of those tax cuts, they almost ALWAYS cite the increased revenue argument.
Because if they didn't, they would need to be a) explaining what programs they would cut to pay for them, or b) explicitly advocating for deficit spending. Neither of which are as politically attractive as the supply-side hoax. And that is why it is such a driving force in Republican tax policy.
And to all the liberal commenters who are preparing to say "there aren't any substantive arguments in favor of tax cuts" . . . thanks for making my point for me.
You're welcome. Happy to be of service.
Nice co-option of the parameters of debate, there. If I don't accept the premise of your argument (which is that there ARE substantive arguments), I should just STFU. Got it. And wilco.
Megan,
If you wnat to regain any credibility in this argument at all how about providing a few examples of Republican politicians arguing for tax cuts with arguments other than Supply Side.
Matt, Exra, Chait, and Brendan have provided numerous example after example of Republican's touting supply arguments for tax cuts. All you keep saying, is "yeah, but there are lost fo other arguments for tax cuts" fine, but where are the numerous examples of republicans making these arguments?
Off the top of my head the only porminent example I can think of is Bush arguing that the surplous after the Clinton years should be refunded via a tax cut. Of course as soon as the surplous went away he shifted to Supply Side arguments.
When it comes to the modern republican party and taxes the old proverb about problems and tools and hammers and nails comes to mind...
But there are substantive arguments. You may think they're wrong--personally, I'm unconvinced that the effects of tax cuts on growth are large. But I can't dismiss the people who make them as loons; I have to argue with them.
Megan,
Do prominent Republicans utilize the 'substantive arguments' that you cite to further their policy aims? or do they use the spurious supply side arguments that Chait lampoons?
Isn't that the issue at hand? Chait, Yglesias, et. al., have evidence on their side. So far, you have supplied none.
every time i see your name, i think "Mc-Arglebargle." I'm just immature like that.
so... i am not so well-versed in economic-speak, but doesn't "supply-side economics" (as opposed to the more often derided "trickle-down economics") simply mean that cutting interest taxes and capital-gains taxes and business taxes is like an incentive for people/businesses to produce (supply) more? that is the essential substance of the arguments i'm always hearing from Republicans in favor of cutting tax rates. there's also the 'starve big wasteful government' argument and the 'dont touch my money cause it's mine' (a good one) and 'i know what to do with my money better than you do' or "it's the individual's own responsibility to wisely invest his/her own savings", but the idea that it encourages economic growth is the one I personally hear the most, in quotations from major Republican politicians and pundits in all the different media venues, as well as from Republicans I speak to personally. (whether cutting tax rates actually increases tax revenue is a different point.)
sorry to repeat stuff but i just wanted to add my voice.
That's the "weak" supply side argument, and as far as it goes it is true.
Mark, the reason that I did not ask for clarification is not that I didn't understand your argument; it's that I found it underwhelming. Spending and taxation levels aren't independent variables; they're decided by the same process.
Megan,
do you think there is a "driving force behind Republican tax policy"?
If there is, where would you look to find it?
"Spending and taxation levels aren't independent variables; they're decided by the same process."
But they are independent. Bush's economic policies have been to cut taxes and increase spending. Clinton's were largely the opposite. Reagan cut, then increased taxes and increased spending. Whether taxes go down or up doesn't affect what happens to spending by the government unless Congress and the President decide it should.
If you title your book How Washington Got Hoodwinked and Hijacked by Crackpot Economics don't you have to demonstrate that the actual economic results are bad?
All I read from Chait and his defenders is that the administration is economically inept in its rhetoric.
Do you think a book titled How Washington Got Hoodwinked and Hijacked by Crackpot Politicans would sell any copies?
That's possibly true, though many Republicans would debate you; they think keeping taxes down ultimately forces spending to follow. More generally, what you say is only true within a very narrow band. Deficits greater than about 2% of GDP trigger increasing political and financial pushback, which means that ultimately, spending and taxation have to vary quite closely together. Mark is simply assuming that the government will spend what it will spend, and then declaring that this makes the deadweight loss irrelevant. This is hardly an economic fact, nor is his argument so complicated that only a PhD could follow it.
But I can't dismiss the people who make them as loons; I have to argue with them.
Posted by Megan McArdle | September 6, 2007 3:59 PM
After banging your head ineffectually on their know-nothing blockheaded walls for a while, I think you'll come to find it easier to dismiss them. Some of them really are loons.
I think you'll find Michael Boskin has slightly more influence in the Giuliani campaign than Steve Forbes.
Ok. Here's some quick and dirty research:
put "tax-cuts-pay-for-themselves" in google. You get 900+ results. Skim the pages. I don't see a single entry that isn't completely derisive. I'm sure there are one or two, but they are dwarfed by people who think it's ridiculous. Left, right and center, everyone seems to agree that the notion is laughable.
This is Megan's (rather modest) assertion: that the strong supply-side argument is not very influential.
Supply-side economists do not dominate Republican advisors--the only one I am aware of is Steve Forbes for Giuliani
When did Steve Forbes become an economist? It is discouraging enough that political scientists now frequently try to pretend they are economists, as do some lawyers (Robert Reich), and journalists have long done so (watching Fred Barnes and Eleanor Clift debate macroeconomic policy turned me off forever to Washington-based TV news shows), and there are even some putative economists who seem to be faking it (Larry Kudlow), but Megan really, Steve Forbes is a new low. If he is an economist then all the callers to sports talk radio shows are coaches.
"This is Megan's (rather modest) assertion: that the strong supply-side argument is not very influential."
Well, except that it helps elect a rather large number of US politicians, such as the President. You know, the people who actually make the tax and spending policies of the US government
A group slightly more influential that a bunch of bloggers and academics who debunk it on the internets.
He's one of Giuliani's economic advisors; I didn't mean to imply that he was an economist.
Megan, you seem to be doing this whole argument because you think there are good reasons to cut taxes. Fine. I agree, there are good reasons. (In fact most commenters seem to agree as well; very few deny that basic point and neither Chait nor Matt denies it either.) But as you know there are always tradeoffs. If you reduce taxes, even if there are some incentive effects or a loss in DWL, you still have less revenue--and maybe you need some of that revenue if you are going to fund politically popular programs. But Republicans, to sell their policies, and possibly because they half believe it, deny that there is a tradeoff. It should be ridiculed, but often isn't. Chait is doing a service to us all; let's hope journalists take note.
"That's possibly true, though many Republicans would debate you; they think keeping taxes down ultimately forces spending to follow."
I guess that depends on what they mean by "ultimately." It hasn't happened yet, anyhow.
"More generally, what you say is only true within a very narrow band. Deficits greater than about 2% of GDP trigger increasing political and financial pushback, which means that ultimately, spending and taxation have to vary quite closely together."
That seems reasonable to me (although the pushback you describe seems to me to be an incentive for government not to spend too much, rather than a hard and fast rule), but I wonder whether Dick Cheney would agree. After all, he said that "Deficits don't matter." If he were right, the political pushback wouldn't happen, or wouldn't be strong enough to force the government to cut spending or raise taxes.
Well, except that it helps elect a rather large number of US politicians, such as the President.
Exactamundo.
This is an open question - I feel pretty confused - isn't the President a "supply-sider"? Isn't his whole economic outlook premised on cutting taxes and boosting "incentives" in order to maximize growth?
There seems to be some differentiation here between moderates and radicals within this ideology, but it seems pretty clear to me that the President is motived by conviction/values/ideology ("its your money - not the government's...") rather than just some pragmatic calculus...am I wrong?
Please help - no speak econ.
P O'Neill - re: "Bush opposed making his tax cuts refundable, which would have helped those people. Remember that carefully crafted talking point "We've cut taxes for all those who pay taxes." Precisely because he had no interest in transfers for the low income people.
So there was a basic test of sincerity for these guys on the broader incentive issue, and they failed it."
Not at all. You can't give tax cuts to people when they have a tax rate of zero. You can give them subsidies, but not wanting to give out subsidies while arguing for tax cuts is hardly a sign of insincerity, either in general terms, or even in the context of the argument that tax cuts decrease disincentives to work or invest.
Aaron - Re: "Spending and taxation levels aren't independent variables; they're decided by the same process."
But they are independent."
They aren't entirely independent, changing one puts pressure on the other. But that pressure can easily be overwhelmed by other factors, so in many cases they may be close to independent than they are to directly and linearly dependent. In the long run dependence is more likely, but in the long run you have a new president and new policies.
Re: "Bush's economic policies have been to cut taxes and increase spending. Clinton's were largely the opposite."
No they weren't. Clinton did not cut spending. The government spent more in his last year than in his first.
Well, except that it helps elect a rather large number of US politicians, such as the President.
The promise to cut taxes helps elect a rather large number of US politicians. The claim that cutting taxes boosts government revenues does not.
Mark, the reason that I did not ask for clarification is not that I didn't understand your argument; it's that I found it underwhelming. Spending and taxation levels aren't independent variables; they're decided by the same process.
Simply using the adjective "underwhelming" is not a response to an argument, mine or anyone else's.
It sounds like what you are trying to do here, Megan, is sneak the "starve the beast" argument in here through the back door. I'd advise against it, as even honest supply-siders, or at least half of them, Bruce Bartlett, acknowledge that "one thing that is clearly missing from these starve-the-beast advocates is any empirical evidence supporting their position." (See Bartlett's Imposter, Chapter 9). Conservative economists outside the supply-side camp, like Bill Niskanen, also admit that the notion that cutting taxes will restrain spending is bogus.
And just to reiterate what I said before, the other arguments you have mentioned--deadweight losses or Keynesian stimulus arguments--are not arguments that can support Bush's tax policies or Republican tax policies in general. You may be able to dig up some Republican shill invoking them, but they are invalid. I have already explained why.
"Spending and taxation levels aren't independent variables; they're decided by the same process."
*cough, cough* Deficits?
I mean, c'mon. Taxation and spending aren't even set in the same process. Spending bills come up throughout the year, the government borrows money continuously, taxes can exceed or fail to meet expected receipts. Spending is determined through back deals, in strange ways you probably can't even imagine.
And no, you are just dead, stupid, wrong. Whether or not the Republican party and assorted backers actually believe what the say, they repeatedly sell tax cuts as being self-financing b/c they generate tax revenue.
How much longer are you going to keep babbling about stuff you know nothing about? I spent 6 years working for the Treasury Department. What do you know?
Enjoy your continued ignorance. It always brings me a chuckle.
I regularly listen to right-wing talk radio, and I can tell you, Arthur Laffer remains a virtual deity to Limbaugh et al. AM radio has been singing that tune for decades and shows no sign of tiring. These are the people who shape (or reflect) the opinions of the R base, and they're the ones who Romney et al pandering to (see Matt's recitation of Giuliani et al.'s statements). It shows a surprising level of denial to say that supply side economics isn't a core Republican policy.
"To subtitle your book that way, you need the most extreme form of supply-sidism to be the driving force behind Republican tax policy. And it just isn't."
hahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahaha
Seriously, who on gods green earth hired this woman? Exactly who's daughter/girlfriend/wife is she?
Laffer Curve arguments are not the same thing as supply-side arguments. I don't think conflating the two is helping make this discussion any clearer.
As to:
"Do you think there is a "driving force behind Republican tax policy"?
If there is, where would you look to find it?"
Umm, tax cuts tend to be popular. As do spending increases. I don't think you need to consult any econ texts to figure out why Congress often passes tax cuts and spending increases. Most voters and most politicians couldn't pass an econ 100 test.
Legislators (left, right, center) generally do what will get them elected. The ones that don't generally find they aren't legislators very long. Economists are consulted later when justifications are needed for the newspapers most voters don't read anyway.