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Tilting at Windmills

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January 17, 2008
By: Kevin Drum

BERNANKE SPEAKS....Speaking of Ben Bernanke, note the following from the his congressional testimony today:

A fiscal initiative at this juncture could prove quite counterproductive, if (for example) it provided economic stimulus at the wrong time or compromised fiscal discipline in the longer term....To be useful, a fiscal stimulus package should be implemented quickly and structured so that its effects on aggregate spending are felt as much as possible within the next twelve months or so.

....Any fiscal package should also be efficient, in the sense of maximizing the amount of near-term stimulus per dollar of increased federal expenditure or lost revenue. Finally, any program should be explicitly temporary, both to avoid unwanted stimulus beyond the near-term horizon and, importantly, to preclude an increase in the federal government's structural budget deficit.

This is remarkably clear and direct, especially for those of us used to 18 years of impenetrable Greenspanese. Bernanke is saying, as clearly as he can, that a temporary economic downturn shouldn't be used as a cynical excuse to pass new long-term tax cuts or to make existing tax cuts permanent. Not only would that have no effect on the economy right now, but it would likely make future economic problems even more intractable.

In other words, Bernanke isn't nuts: he thinks tax cuts reduce revenue and make long-term deficits worse. What's more, unlike Alan Greenspan, he has the guts to say so in plain English instead of disingenuously tap dancing around the issue and then pretending later that he had done as much as he possibly could have to endorse fiscal discipline. That's progress.

Kevin Drum 12:22 PM Permalink | Trackbacks | Comments (68)

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At 7:12 am Saturday, 2008 will be 5% over.

Posted by: Cornelius on January 17, 2008 at 12:31 PM | PERMALINK

At this point, the only stimulus that would be appropriate is stealing from the rich and giving to the poor.

Posted by: Trypticon on January 17, 2008 at 12:37 PM | PERMALINK

Yes, but the Fed is still behind the curve. This crisis was entirely predictable years ago.

A slight turn of the wheel a few years ago would have sent us south of the iceberg zone.

When the grinding noise came last August, contact had been made. It was then too late. The people on the bridge did not yet recognize the damage that had been done.

Today, the lower decks are filling with water. The assumption of the bridge was that the water-tight compartments would confine flooding to one compartment. But the water over-topped the compartments and flowed through open passage hatches.

The ship is listing, but the bridge is thinking that maybe sending a few more men with buckets to the lower decks will remedy the leakage.

People are beginning to notice the list in the ship. The question is asked:

"Has anyone counted how many lifeboats there are?"

The reality is is that the real estate inflation of the past few years injected about 90 billion dollars a QUARTER through equity extraction into the US economy. This money was most often in the form of large lump sums that encouraged the maximum wealth effect and profligate consumer spending. In addition to the 90 billion direct to consumers, countless other billions were spinning through the financial system due to the leveraging of investment schemes. And, all of the people in the mortgage, banking, real estate and construction businesses benefited as well.

So, in the least, to bring back the good, old days of 2005, a stimulus package must replace $150 to $200 billion a quarter. All elese is a drop in the bucket.

No-one is talking at this point about anything at this scale yet.

Ben Bernanke should know better, but he is still behind the curve, still planning on docking in triumph in New York after his maiden vaoyage.

Posted by: Neal on January 17, 2008 at 12:38 PM | PERMALINK

Perhaps Mr. Bernanke can explain, in plain English, why he has so drastically increased the money supply. I don't think he has the guts to do that.

Posted by: Brojo on January 17, 2008 at 12:41 PM | PERMALINK

You can't mention Bernanke without thinking of this:

http://www.youtube.com/watch?v=ipJTqCbETog

Posted by: Alex on January 17, 2008 at 12:43 PM | PERMALINK

Well, yeah, but you should go further. Greenspan didn't just disingenuously tap dance around the issue of tax cuts. He came as close as he could to endorsing tax cuts as he could, short of being clear and explicit.

Greenspan was always a partisan hack who favored the GOP and their tax cut plans, as well as an Ayn Rand groupie.

Getting rid of a guy like Greenspan with those hidden agendas is already big progress, even if Greenspan had been clear, and even if Bernanke were now as obscure as Greenspan at his most Delphic.

Posted by: nemo on January 17, 2008 at 12:43 PM | PERMALINK

"Greenspan was always a partisan hack who favored the GOP and their tax cut plans, as well as an Ayn Rand groupie."

I should have said "a partisan hack who favored the GOP and their tax cut plans for the wealthiest elite." Neither Greenspan nor the GOP has ever cared much about how taxes affect the lower 90%.

Posted by: nemo on January 17, 2008 at 12:45 PM | PERMALINK

Maybe President Satan will spill into the water with the rest of us lost souls, and be last seen swimming into the dark like a gallant if failed Captain Smith, leaving room for one more person to be saved.

um. Na.

Posted by: Trypticon on January 17, 2008 at 12:46 PM | PERMALINK

We have been heading towards this cliff for years.

Nobody has had the balls to admit that the obscene tax-cuts to the wealthy, coupled with globalization sending jobs overseas, has steered us to this precipice. The high cost of energy has simply speeded up this economic disaster.

Now we are over the cliff,falling. There will be no soft landing (by padding everyone's mattress with extra bucks), nor will any parachute be of much help (since only a select few will be given one).

We have needed real jobs for years. Why wasn't Detroit investing in super hybrids and solar cars?

Why have we not built 100s of solar photovoltaic plants?

Where are the jobs?

"Hello, this is Rishi can I help you."

And don't forget the Iraqistan debacle that has bled us even before we fell off of the economical cliff.

The weakening dollar says it all.

Posted by: Tom Nicholson on January 17, 2008 at 1:02 PM | PERMALINK

Bernanke seems both competent and honest. How could Mr. Bush have appointed someone like him?

Posted by: ppk on January 17, 2008 at 1:04 PM | PERMALINK

Neal,

Are you fabulously wealthy right now? If you aren't, why? If this crisis was as predictable as you claim, you would've been able to handsomely profit from the current fallout. Otherwise, you're trying to sound smart Monday morning quarterbacking.

Posted by: Mo on January 17, 2008 at 1:05 PM | PERMALINK

Sounds like Bernanke has been reading the Op-Eds of his Princeton Colleague Paul Krugman. Economic stimulus should be quick, temporary and targeted towards consumption.

Posted by: troglodyte on January 17, 2008 at 1:07 PM | PERMALINK

Since Ronald Reagan Republicans have favored destroying the protections provided by government for the deprivations of the very rich. Since the election of Bush they have succeeded. Is anybody happy?

Posted by: corpus juris on January 17, 2008 at 1:13 PM | PERMALINK

Pretty much what Obama wants, and pretty much what Hillary and Edwards don't want.

Posted by: Dilbert on January 17, 2008 at 1:21 PM | PERMALINK

"Are you fabulously wealthy right now? If you aren't, why? If this crisis was as predictable as you claim, you would've been able to handsomely profit from the current fallout. Otherwise, you're trying to sound smart Monday morning quarterbacking."

Not everyone plays the stock market, even if they may know a lot about what is going on with the financial sector of our economy. Furthermore, not everyone is so morally bankrupt as to always look at situations like this as an oppportunity to make money off of the misery of others. Many people have seen this coming for some time, and have shouted it to anyone that would listen. The fact that no one listened or cared is not their fault.

The sooner this country stops thinking like you, the better of we'll be. You don't create real wealth by shorting stocks or moving money around. You create real wealth by producing things that actually improve our standard of living.

Posted by: OhNoNotAgain on January 17, 2008 at 1:28 PM | PERMALINK

while it's possible that his talk of "temporary" stimulus," like many Dems, is about not making Bush tax cuts permanent, I think he's mainly talking about not letting Dems propose any serious stimulus spending. While Bernanke is not Greenspan, he's not a progressive. So we'll have a small targeted stimulus package, the economy will continue sinking, and the Dems will have lost a great opportunity to make a case for progressive solutions to economic problems. Excellent!

Posted by: Jeremy on January 17, 2008 at 1:29 PM | PERMALINK

Aren't the Democrats making the same mistake that Bush made in 1999, 2000, 2001 ...?

Bush thought that his tax plan was just perfect for the massive surplus.

Then he thought it was perfect for the recession.

then he thought it was perfect for a war time economy

Now he thinks a tax cut will cure the common cold.

###########
So, whatever ideas that Clinton or Obama have now probably are pretty good ideas for right now.

however, the ideas that made sense in January 2008 will probably not be the best ideas for January 2009.

Am I nuts?

Posted by: neil wilson on January 17, 2008 at 1:39 PM | PERMALINK

Kevin, your analysis is off base. Ben wants a TEMPORARY stimulus, which won't exacerbate the deficit. He says nothing about the tax cuts, but implies further tax cuts would take too long to stimulate the economy. He also implies we need more fiscal discipline, which to me, means slowing government spending. Unlike the economic morons who show up here occasionally, he knows that lower taxes spur more productive economic activity than raising taxes. The morons who shill for taxing the rich more are warped by envy, oblivious to human nature and generally sound like they have room temperature IQ's.

Posted by: Pete on January 17, 2008 at 1:55 PM | PERMALINK

Mo: No, I'm not fabulously wealthy, but I'm doing fine. I don't have much debt, I didn't borrow against my house, I didn't max out my credit cards. I moved my retirement funds into energy, commodity, gold and foreign funds. For all of that, I'm still nervous.

I'm no genius about fiancial matters, but the years of people who seemed to earn less than me buying all of those things I didn't think I could afford raised the question-where did they get all of that money?

It was credit, credit that many seemed to think they would not have to repay.

It was rising house values, house values so high that I had no concept of how people were able to afford the payments because I knew I couldn'.

It was wondering about who was financing all of these would-be millionaires and who was benefitting from all of this apparent "wealth" creation.

It was listening to news and looking for sources beyond fiancial cable news and rah, rah, rah cheerleading by government and business.

So maybe I'm foolish by not shorting the market and buying double short bear funds, but I moved to protect my assets.

I have a question for you Mo--you and I know that cigarette smoking can lead to lung cancer. When someone you love that you've told for years to stop smoking because of the damage, gets lung cancer--is it a moment for celebration because you've been right in you belief of the dangers?

No, it's no pleasure see the death of someone that you care for.

Posted by: Neal on January 17, 2008 at 1:57 PM | PERMALINK

"any tendency of inflation expectations to become unmoored or for the Fed's inflation-fighting credibility to be eroded could greatly complicate the task of sustaining price stability and reduce the central bank's policy flexibility to counter shortfalls in growth in the future."

You're too late, Ben baby! The inflation genie's out of the bottle.

Posted by: Juanita de Talmas on January 17, 2008 at 1:59 PM | PERMALINK

Even today, many investment and trading publications continue to talk as though real world events - like Wall Street banks receiving billions from sovereign wealth funds to cover similar losses of investments backed by thousands of mortgages and credit cards - tell us nothing about the next major trend in worldwide capital markets. Yet, as we ponder what has transpired over the last several years, ask yourself, "Are most of the things unfolding today really that unpredictable? Could we really not see that unlimited amounts of debt and dollars would eventually create enough stress to have real world consequences?" Now, some reading this might be thinking, "Hey, we're about out of the woods," and you certainly have a right to your opinion, but do you really believe we can fix our current dilemma by papering over all of our problems with more short-term debt?

Posted by: Doug Wakefield on January 17, 2008 at 2:10 PM | PERMALINK

"..cynical excuse to pass new long-term tax cuts or to make existing tax cuts permanent.."

Nor, by extension, should we use this as an excuse for big complicated projects, as Hillary proposes.

Notice, Kevin always digs the Republicans to causing these recession cycles, but ignores the role of his favorite Dems.

Posted by: Matt on January 17, 2008 at 2:11 PM | PERMALINK

so, do i refinance my home now or wait for the end of the month to see what the rates are like?
I can get 20 yr mort. for 5.375% or a 15 yr for 5%. will those go down or stay?

Posted by: margaret on January 17, 2008 at 2:12 PM | PERMALINK

Classical Keynesian economics posits that this is EXACTLY the time to be running a deficit. The economy needs tax cuts (real ones, if the permanent income hypothesis is to be believed) as well as gov't spending to stimulate the US economy.

The problem is that we have been running deficits even though the economy was growing, leaving us little wiggle room now.

Posted by: gab on January 17, 2008 at 2:22 PM | PERMALINK

When a nation ignores economic fundamentals such as not spending more than it can afford, or incipient overpopulation problems from the exploding population, then there is trouble ahead.

Posted by: Luther on January 17, 2008 at 2:26 PM | PERMALINK

As I type this the Dow is down over 200 points and a broker I know told me that it was precisely because ordinary, individual investors can understand Bernanke and are now scared no one's going to bail them out. Greenspan's unintelligble gibberish kept those people frozen in place.

Mike

Posted by: MBunge on January 17, 2008 at 2:34 PM | PERMALINK

The national debt increased over $500 billion last year, $574 billion the year before. That is fiscal stimuli so huge that 70-90 billion will be insignificant. If the government puts cash into the wallets of consumers, it probably will go to reduce their own debt, not for increased spending.
It's going to be extremely difficult to clean up the mess Greenspan and Bush made.

Posted by: Mike on January 17, 2008 at 2:35 PM | PERMALINK

Well every time they drop the rates, it *does* help cushion stocks, but it drops the dollar's value even further and oil prices simply increase in response, even further draining disposable income from ordinary people. I would propose leaving interest rates alone (don't get yet another interest-rate sensitive industry in bubble mode) and cut consumption of crude oil *sharply* and institute gasoline rationing. If you can get the demand for crude down, it's price will fall and if people are *forced* to spend LESS on fuel, they will have more money in their pockets to buy other things. This way the deficit doesn't worsen, lower interest rates don't worsen inflation, the value of the dollar is more stable, and we get reduced C02 emissions to boot.

I think we are all going to have to face the fact that sooner or later we're simply just not going to have enough oil to go around-it is going to be permanently scarce and expensive. If we don't get our consumption down, our economy is going to enter a permanent state of stagflation malaise. Resource wars aren't going to remedy this.

Posted by: Doc at the Radar Station on January 17, 2008 at 2:38 PM | PERMALINK

Mike, I agree. I was just thinking that the people who will get those $600 checks or whatever will just use that money to pay down some of their debt. Maybe they won't learn their lessons, though, and will then charge that money right back.

Posted by: margaret on January 17, 2008 at 2:38 PM | PERMALINK

Usually a recession is just an unfortunate coincidence, which sinks the prospects of the party holding the whitehouse. Today's is different, it can be directly attributed to the Republicans congenital inability to constrain the abuses of the capitalist system. Plenty of people were screaming about the ridiculously deterioting lending standards, but Republican ideology meant that trying to restrain such lending was off the table.

Posted by: bigTom on January 17, 2008 at 2:51 PM | PERMALINK

For more on Bernake : http://www.nytimes.com/2008/01/20/magazine/20Ben-Bernanke-t.html?pagewanted=1&_r=2&ei=5088&en=de87a683b38cbc15&ex=1358226000&partner=rssnyt&emc=rss

He believes in the "laws of arithmetic" (that tax cuts don't increase revenue), and he's devoted to communicating the Fed's intentions explicitly.

Posted by: Robert Duke on January 17, 2008 at 2:57 PM | PERMALINK

You're absolutely right! I've been ragging on DeLong about the stupidity and hypocrisy of economists that have supported increasing transparency everywhere BUT the Fed.

You should rag on DeLong too. There is no reason our economic professor elite's should not be calling on the Fed for more transparency.

Posted by: jerry on January 17, 2008 at 3:13 PM | PERMALINK

I think Bernanke's comments are really interesting -- and in light of Bush re-conviening (first quiety, then publicly) the old "Plunge Protection Team" (financial advisors recommending government action to avoid a 1987 or 1929-style 'plunge' in the markets).

After years of Greenspan's obfuscation and whoring for the Republicans and the Street; after years of bogus statistical methodologies (particularly in determining the Consumer Price and Job Creation indexes) used to help obscure the true state of America's economy... government economists and financial analysts are being forced to face the truth.

That by itself speaks volumes about how serious a situation we're actually in: The paid shills won't bet with the house any more.

When Ambac, MBIA, and the "Mark-to-Market" concept are all revealed to be bankrupt -- then the fun really begins.

Posted by: Franz Bieberkopf on January 17, 2008 at 3:14 PM | PERMALINK

Earth to Pete your tax cut nonsense hasn't led to the economic nirvana that you believe would take place. Riddle me this asshat? If the tax cuts are the end all of economic policy than why haven't Bushes worked?

Posted by: Gandalf on January 17, 2008 at 3:28 PM | PERMALINK

Kevin, you're right that Bernanke is being clear that permanent tax cuts shouldn't be considered. But he's also saying that permanent spending increases should also not be increased.

What would do most for the economy at this juncture would be to offer a $200 "filing bonus" to everyone who files a tax return. That would apply a direct, one-time, immediate stimulus of $27B to the economy. It would also be highly progressive -- and politically popular.

Posted by: Nils Gilman on January 17, 2008 at 3:34 PM | PERMALINK

Having a competent, honest, non-political person in a position of power is so refreshing. Its amazing how rare and surprising its become. Imagine what it will be like with a Democratic president in a year. We'll have a government that actualy works again.

Posted by: kahner on January 17, 2008 at 3:42 PM | PERMALINK

"The sooner this country stops thinking like you, the better of we'll be. You don't create real wealth by shorting stocks or moving money around. You create real wealth by producing things that actually improve our standard of living."
Posted by: OhNoNotAgain on January 17, 2008

Radical thinking like that may work in the university, but you'd better be careful to not end up in the wrong rendition program. Radical! :-)

Posted by: MarkH on January 17, 2008 at 4:03 PM | PERMALINK

Hey Gandalf. I run a small business. I was able to hire 3 more people cuz business improved and I saved taxes. Is that progress?

Posted by: Pete on January 17, 2008 at 4:09 PM | PERMALINK

Everyone is a bit had on poor old Alan Greenspan. After all, if he hadn’t warned W. about the dangers of paying off the deficit, who knows where we would be today.

Posted by: fafner1 on January 17, 2008 at 4:16 PM | PERMALINK

"Imagine what it will be like with a Democratic president in a year. We'll have a government that actually works again."
Posted by: kahner on January 17, 2008

If there's anything left of it by then.

The Rich have been squeezing the poorer by holding their wages steady, but slowly increasing prices. I think we need to shift some wealth from the rich to the poorer very quickly.

Second, companies have been increasing prices in part because they're incurring higher costs. We need to cut their tax rate a little to give them some breathing room. This might avoid having them layoff employees which would exacerbate the problem.

Third, we need to pinpoint which costs are rising fastest and causing the most wide-spread bad effects and do what we can to limit those cost increases. It's probably mostly oil, but there could be some other things too.

Government may need to act quicker, but ...
As we come up on tax return time it would behoove the government to pack a little bonus in everyone's return for an immediate impact.

Interest rate changes probably aren't the solution, though some change is probably good for p.r. effect in the very short-run.

I think the markets are getting anxious for government to institute some significant changes for the long run.

Posted by: MarkH on January 17, 2008 at 4:21 PM | PERMALINK

Bernanke is being savaged by the destructive children of Wall St. for not appreciating sooner the extent of their chicanery, irresponsibility, and cupidity.

Posted by: bob h on January 17, 2008 at 4:30 PM | PERMALINK

Hey Pete I'm sincerely glad that your doing well in your business endeavors but anecdotal evidence is a very poor way to measure anything. It's the same as making judgements on something like global warming based on the temperature fluctuations of the spot on the planet that your personally located at. Just because your business is doing well it doesn't follow that the majority of businesses and people are doing well.

Posted by: Gandalf on January 17, 2008 at 4:37 PM | PERMALINK

Hey Gandalf. Please show me the statistics to prove the tax cuts weren't helpful. Tax revenues increased like crazy, but since Washington spent like drunken sailors, including having to finance a war, the deficit remains, though it has been shrinking. If taxes hadn't been cut, I'd bet my business that the deficit would be three times as big as it is today. As for rich people getting tax breaks, they pay the majority of income taxes and their percentage of all income taxes paid did increase after the tax cuts. Why don't you look into the Fair Tax by buying the book and reading it?

Posted by: Pete on January 17, 2008 at 4:53 PM | PERMALINK

The Standard and Poor’s 500-stock index, a broad measure of the financial markets, tumbled below its low for last year, set in March. At the close, it was down 2.9 percent after giving up early morning gains, bringing its decline since Jan. 1 to 9.2 percent.

The Dow Jones industrial average ended down 306.95 points, or 2.5 percent, at 12,159.21, and the technology-heavy Nasdaq composite index was off 2 percent.

Posted by: Michael M. Grynbaum on January 17, 2008 at 5:06 PM | PERMALINK

"I can get 20 yr mort. for 5.375% or a 15 yr for 5%. will those go down or stay"

The rates will go down as the economy tanks. The US dollar will also go down as rates decline. Will you be able to get a mortgage when there's blood on the streets? 5% for 15 years isn't a bad deal at all.

Posted by: Helicopter Ben on January 17, 2008 at 5:07 PM | PERMALINK
Please show me the statistics to prove the tax cuts weren't helpful….Pete at 4:53 PM

Here you go, chum.
…1971-1975: 17.0%
1976-1980: 18.3%
1981-1985: 18.2%
1986-1990: 15.1%
1991-1995: 14.6%
1996-2000: 21.9%
2001-2005: 14.5%…

Of course those cuts benefit the rich, that is the group that Bush calls his base: the haves and the have-mores. They are being drastically undertaxed in the US.

Posted by: Mike on January 17, 2008 at 5:13 PM | PERMALINK

Virtually every economics Ph.D. who has worked in a prominent role in the Bush Administration acknowledges that the tax cuts enacted during the past six years have not paid for themselves--and were never intended to. Harvard professor Greg Mankiw, chairman of Bush's Council of Economic Advisers from 2003 to 2005, even devotes a section of his best-selling economics textbook to debunking the claim that tax cuts increase revenues.

Posted by: Justin Fox on January 17, 2008 at 5:15 PM | PERMALINK

It used to be that when the economy thrived and productivity grew, pay for working people rose accordingly. Yet as the Times reported this past summer, the first seven years of the 21st century look to be “the first sustained period of economic growth since World War II that fails to offer a prolonged increase in real wages for most workers.”

People have put up with all this because it happened so quickly and for the same reason that the great mass of losers in casinos put up with odds that favor the house: The spectacle of a few ecstatic big winners encourages the losers to believe that, hey, they might get lucky and win, too. We have, in effect, turned the U.S. into a winner-take-all casino economy, substituting the gambling hall for the factory floor as our governing economic metaphor, an assembly of individual strangers whose fortunes depend overwhelmingly on random luck rather than collective hard work. And it’s been unwitting synergy, not unrelated coincidence, that actual casino gambling has become ubiquitous in America at the same time.

Posted by: Anon on January 17, 2008 at 5:21 PM | PERMALINK
bringing its decline since Jan. 1 to 9.2 percent….. Michael M. Grynbaum at 5:06 PM
Wait for the margin calls --- they ought to be hitting some pretty hard soon
…Maybe… charge that money right back. margaret at 2:38 PM
When times turn tough, people start to cut back 'just in case'. Those who take the hit will need the extra credit for essentials; others will try to keep paying on their debt until the future begins to look more secure.

Which have been more accurate: Greenspan's predictions or those from Nancy Reagan's astrologer?

Posted by: Mike on January 17, 2008 at 5:25 PM | PERMALINK

I will bet you Bush FIRES Bernanke.

He's a sock puppet, but every once in a while, you can hear him quietly whisper "help me! I've got a great big hand up my ass!"

Every time he says stuff like this, he brings himself closer to the day that BushCo can use him as a scapegoat for the bad economy, and replace him.

Posted by: osama_been_forgotten on January 17, 2008 at 5:29 PM | PERMALINK

but since Washington spent like drunken sailors, including having to finance a war,.....Posted by: Pete on January 17, 2008 at 4:53 PM | PERMALINK

Who said they HAD to finance the war?

Nobody FORCED them to do it. They did it because they were COWARDS. If they had paid attention to their OWN damn intelligence reports, they would have KNOWN that Saddam had no WMD, and no WMD programs, and there was no threat.

And the war is about 10 times more expensive than it had to be given the level of fraud, waste, and mismanagement - because they refused to do their duty and do OVERSIGHT.

Yes, it makes a huge difference when your congresscritters are IN BED with the defense industry.

This was not a WAR.

This was a feeding frenzy.

the deficit remains, though it has been shrinking. If taxes hadn't been cut, I'd bet my business that the deficit would be three times as big as it is today.

You HAVE bet your business. And this ride is not over yet. Let me know in two or three years whether that was a good bet. My guess? *NOT* (unless you're in the foreclosure business).

As for rich people getting tax breaks, they pay the majority of income taxes. . .

. . . and derive BY FAR the majority of the benefits. There is infrastructure built that benefits the rich disproportionately, there are wars fought that benefit the rich disproportionately, there are trade agreements that are made with foreign countries that benefit the rich disproportionately.

When the government drops interest rates, and inflates the currency - the poor effectively pay a higher tax, because their incomes do not increase - only their expenses increase.

Yet those are fixed expenses, so the rich do not suffer from this "hidden tax increase". The rich don't have to curtail their shopping, or drive less, or move to a smaller house, or drop out of school.

And when a rich CEO makes a bad business decision, and drives a multibillion dollar company into the ground, the rich CEO gets a multi-hundred-million-dollar package, and "retires" - while the workers get shafted, and their pensions evaporate. That's their reward for working hard, showing up every day, doing their small part, providing small individual innovations - the shaft.


... Why don't you look into the Fair Tax by buying the book and reading it?

I'm not sure what you're talking about, but if you are calling Huckabee's plan "Fair" then you've got an awful screwed up definition of Fair.

Posted by: osama_been_forgotten on January 17, 2008 at 6:18 PM | PERMALINK

...especially for those of us used to 18 years of impenetrable Greenspanese.

Sometime last fall Greenspan, on his book tour, was interviewed on the BBC news hour (radio on the local NPR) and when asked about Greenspanese, basically said that they decided early in his tenure that obfuscation about Federal Reserve board opinions about the economy was overall a good for some unsaid theoretic reason. That he had to develop the Greenspanese speaking method.

I've looked around and haven't found the transcript. Is this story in his book?

Posted by: Bill Arnold on January 17, 2008 at 7:23 PM | PERMALINK

Osama, don't you want to be rich someday? And if so, do you want to earn it or have the Democrats GIVE it to you?

Posted by: Pete on January 17, 2008 at 7:27 PM | PERMALINK

I heard that interview, too. FedSpeak was the term he used. It was on the BBC World Service, I believe.

Posted by: Blue Girl, Red State (aka G.C.) on January 17, 2008 at 7:29 PM | PERMALINK

And for those of you who think the tax cuts don't work, watch what happens when they are raised. Guess you'll feel better then cuz all the rich fat cats will be feeling some pain while you are looking for jobs

Posted by: Pete on January 17, 2008 at 7:37 PM | PERMALINK

Mike what do those numbers represent?

Posted by: Pete on January 17, 2008 at 7:40 PM | PERMALINK

Kevin - thanks for interpreting Ben. It isn't obvious to me but your comments seem dead on.

Posted by: sunsetdawg on January 17, 2008 at 9:52 PM | PERMALINK

The best economic stimulus package? Opening the strategic petroleum reserve to dampen oil prices AND providing direct grants for start-up alternative energy industries. The future of the American industry and prosperity lies in exploiting new energy technologies. That is the next wave. End of story. End of recession--except these reasonable ideas will fall on deaf ears on the present administration. Impeachment is thus, also a great stimulus. Most of the world can't wait to see the end of this administration.

Posted by: Sparko on January 17, 2008 at 10:13 PM | PERMALINK

Supply side (think oil here) only works when there is a means to increase the supply to reduce costs and inflation. If something fundamentally essential to an economy truly becomes scarce and finite and becomes dear then the only rational response is to develop alternatives or to reduce demand. We've already done the supply-side globalist oil trip; we're going to need to focus on controlling *demand* in the old Keynesian way in the future, if we don't create new supplies with alternatives.

Posted by: Doc at the Radar Station on January 17, 2008 at 10:47 PM | PERMALINK

Democrats have no business introducing or supporting a stimulus package -- primarily because it won't work. And when the economy tanks, as it must, it is the Dems who will be blamed for not introducing the right package or including enough tax cuts.

Instead, the majority in Congress should be conducting hearings and investigations to reveal how the Treasury Dept., the Fed, and the Republican Congress (2000-2006) supported the policy of easy money with no oversight (of financial institutions, mortgage brokers, rating agencies, etc.) and encouraged the lax lending standards that brought us to this sorry state.

Why won't the majority party do everything in its power to make sure voters know who is responsible for the mess? Unfortunately, the Dems can't resist pandering and helping out those who lied to get loans on houses they couldn't afford and are now losing them in foreclosures. What happend to the concept of "moral hazard"?

Posted by: DevilDog on January 18, 2008 at 2:14 AM | PERMALINK

From a study several years back, I understand that the best fiscal stimulus for the government is in construction. It has a high multiplier effect and can be specifically targeted to geographic areas.

It also, often, has the side effect of improving the infrastructure which leads to long-term gains for the economy.

Posted by: McDruid on January 18, 2008 at 3:28 AM | PERMALINK

Make no mistake: Extending the Bush tax cuts will be the final nails in government's coffin, a la Grover. It would make it impossible for the next president to act, given the growing national debt and future budetary obligations for Medicare, etc.

Posted by: Rula Lenska on January 18, 2008 at 7:13 AM | PERMALINK

I suppose in the rush to get the economy stimulated soon, whatever comes out of Congress will be a short-sighted, lobbyist-written stew of business tax breaks and "middle-class" (if you consider anyone earning between $200K and $1M as middle class) income tax cuts.

I don't have any real problem with giving business at least a temporary reprieve IF the savings are used to create new jobs here. Can anyone show evidence that, absent specific restrictions written into the legislation, most companies won't take the money and run--shelter it offshore, pay for more outsourcing, or increase the CEO's bonus, for instance?

And it has been said I don't know how many times before, the reason the rich pay a higher percentage of income tax is because they have higher incomes. But much of their income is tax sheltered or already reduced (e.g., capital gains). Increasing their money in pocket may mean a new BMW in the yard, or another trip to Gstaad, or more boodle in the Cayman's untaxed bank account, or another bundle of tax-free munis in Jr.'s name, but it probably won't do much for the economy here. A cut in or rebate of payroll taxes, on the other hand, might actually put some cash in my hand, which will allow me to pay the light bill, the car insurance, the grocery bill, and other expenses all in one month without having to worry about bouncing a check if I don't play the float right.

Posted by: Dano on January 18, 2008 at 9:06 AM | PERMALINK

"And for those of you who think the tax cuts don't work"

Dear heart, we know they don't "work", other than to make the extremely rich extremely richer.

"watch what happens when they are raised. Guess you'll feel better then cuz all the rich fat cats will be feeling some pain while you are looking for jobs"

Gee, that's just what people said about the tax hikes passed in the early years of the Clinton administration. How did that work out for you, dear?

Posted by: PaulB on January 18, 2008 at 10:39 AM | PERMALINK

"If taxes hadn't been cut, I'd bet my business that the deficit would be three times as big as it is today."

ROFL.... You'd lose. When can we expect you to turn over your business?

Posted by: PaulB on January 18, 2008 at 10:40 AM | PERMALINK

PaulB >"...When can we expect you to turn over your business?"

Since he doesn`t actually have one the answer is never. Just another poser babbling away after reading yet another fantasy novel by Ms. Rand.

Where ARE all the adults these days ?

"There are three kinds of men:
1. The ones that learn by reading.
2. The few who learn by observation.
3. The rest of them have to pee on the electric fence for themselves." - Will Rogers

Posted by: daCascadian on January 18, 2008 at 12:15 PM | PERMALINK

Pete,

"As for rich people getting tax breaks, they pay the majority of income taxes"

This is true. In fact, the percentage of the national income that is earned by the top 20% is very close to the share of the federal income tax burden shouldered by the same group. Now THAT is fair.

"and their percentage of all income taxes paid did increase after the tax cuts."

This well-worn conservative assertion is false.

From the nonpartisan Congressional Budget Office:
http://www.cbo.gov/ftpdoc.cfm?index=5746&type=0&sequence=1

Percentage Change in Share of Federal Tax Liabilities-

Bottom Quintile 0%
Second Quintile +.2%
Middle Quintile +.3%
Fourth Quintile +.6%

Highest Quintile -1.2%
Top 10% -1.4%
Top 5% -1.4%
Top 1% -1.6%

So, no, the percentage of the budget contributed by the richest Americans has FALLEN under Bush, and RISEN for all other groups, i.e. the Bottom 80%.

Posted by: Piper on January 18, 2008 at 12:19 PM | PERMALINK

Looks like extending unemployment benefits and increasing Food Stamps have the best value as a stimulus. Look at how poor tax cuts do:

http://www.cbo.gov//ftpdocs/88xx/doc8893/blog-econstimulustable.htm

Posted by: McDruid on January 18, 2008 at 2:27 PM | PERMALINK




 

 

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