Originally Posted by jduster
I do not believe in supply economics. I believe in supply and demand economics. Kennedy's tax cuts proved that the Laffer Curve is real. He reduced the top rate from 90% to 70%, claiming that the paradoxical truth is that when taxes are too high, they result in less revenue. Of course, his critics were complaining that it would result in large deficits. In reality, the tax cuts mostly paid for themselves and resulted in economic growth.
Raising taxes at a certain point results in less revenue; some on the left think there is no consequence in hiking taxes. Some conservatives misunderstand the Laffer Curve too (making the top rate anything lower than it is now will not increase revenue). I never claimed that Kennedy was a supply-sider, but my criticisms are not directed toward Kennedy. I have much respect for him; he was a good capitalist. My criticisms are directed toward Barack Obama (who is no Jack Kennedy).
You seem to give Clinton far too much credit for economic success, which was from the same free market capitalism that Democrats denounce. Clinton was not a bad president, but only deserves a small amount of credit. His tax increases contributed to the budget surplus, but the spending cuts did so as well. Clinton only considered as pro-limited government because Congress kept him on a spending leash and the government did not need to spend much money because the country was facing few challenges. But my criticisms aren't toward Clinton either.
I am a great admirer of Keynes. Keynes strongly supported free markets (though not laissez-faire), but advocated government intervention as a temporary measure until the economy improved. I admire the conservative Roosevelt who called continuous welfare as a narcotic and destroyer of the human spirit. He passed the Economy Act to get the government's budget under control. He considered the New Deal as a temporary stopgag to cure the depression rather than a basis for permanent federal control over the economy. He prematurely tried to cut spending in 1937, but was able to end many of the welfare programs in World War 2 after the depression ended. FDR was a heroic and it is truly an insult, in my view, for him to be compared to Obama, or any contemporary.
Does Obama plan to reduce the size of government after the recession? He certainly does not have any plans to do so. In economic contractions, I support government spending (as long as it is spent efficiently). Obama's stimulus package was waste laden and it took far too long to implement.
But I do not think taxes should be raised during a recession.
Alas Jduster, I am going to have to continue to quibble with you about the Kennedy tax cuts and the New Frontier, as well as FDR and the New Deal, and Bill Clinton and the New Covenant, before we can quibble about Barack Obama and the New Foundation.
I think that you continue to misunderstand the basic economic philosophy behind a Keynesian tax cut, and the reason that such tax cuts are successful. The reasoning behind Regressive/Reactionary Keynesianism in general, and for the benefit of this discussion the Revenue Act of 1964 in particular (as we will be discussing President Obama anyway, it is worth noting that a great part of his economic policies - "Obamanomics" - have thus far been built upon Keynesian tax cuts of the same brand as JFK's), is/was not
based upon the (often abused) economic principle that has come to be known in a number of circles as the Laffer Curve.
Contrary to what certain proponents of the Curve tend to believe/expound, the basic economic notion behind it has been commonly accepted by Keynesian economists well prior to the origination of Arthur Laffer's famous drawing, largely as a matter of financial common sense. It is a basic fact of economics that taxing elements of the socio-economic scene that cannot afford to be taxed,or taxed to an extent that will strain their economic resources, is a recipe for harming revenue collection rather than helping it - Keynesians (or rather proto-Keynesians first learned this lesson during the Great Depression), when they observed the differences between the economic philosophies and policies of Herbert Hoover and Franklin Roosevelt, and the failure of the former and the success of the latter. Hoover's disastrous economic policies from 1929 - 1932 are one of history's singular greatest demonstrations of just how much damage indiscriminate taxation can do economically: the tax increases that Hoover signed into law certainly did nothing to help the situation, and in fact their only effect was to ensure that what little money his tight-fisted administration was prepared to use to try and alleviate the problems with one hand, it promptly took back plus extra with the other hand - a natural recipe for disaster. FDR understood this, and that is why his administration made no particularly overt moves toward instituting the progressive tax system that he envisoned until years after he entered office, by which point the economic situation had recovered to the point that the structure of the economy was prepared for this.
However, simply because Keynesians accept the basic economic sense behind certain parts of the theory by the Laffer Curve, does not mean that they advocate employing it as a major tool of policy. On the contrary, one of the central tenants of Keynesianism remains the economic benefits of a highly progressive tax system - well proven during the period from the 1940s through to the 1970s, when such a system was in place.
To ascribe the success of the Kennedy Tax Cut to the principles of the Laffer Curve, or to regard the success as inherent proof of the Curve's validity (as opposed to the general consensus of the economic academia: that the curve simply illustrates in a crude fashion a few basic pieces of economic sense), is to ignore utterly the motivations behind settling upon it as a policy by Kennedy and his economic advisors, as well as the Keynesian interpretation of the reasons for its success, neither of which feature the Laffer Curve.
The truth is that Kennedy based his tax-cutting policy upon the textbook Keynesian principles of public consumption and the "multiplier effect". His idea was to spur economic growth in the short term through an effective infusion of extra money into the economy by means of a significant tax cut - placing extra money in the hands of people who would spend it, allowing for the beginning of the afore-mentioned multiplier effect that would result in a significant level of economic growth. The principle was that the extra money released into the economy via the temporary measure of the tax cut would act in a similar way to a more direct stimulus, and that the positive economic results would be sufficient to offset negative consequences of a tax-cutting plan entirely beyond revenue - such as diminished output-per-person-employed, which did in fact occur, effectively nullifying one of the key arguments of Laffer Curve proponents. Indeed, if someone had approached JFK with the idea that his tax cut would be beneficial for the reasons that form the basis of the Laffer Curve principle, he would have (rightly) regarded it as positively ludicrous.
Kennedy and his Irish Mafia (the nickname given to the circle of intellectuals and various members of the elite of American society that he gathered around himself, and who formed the spear-head of the New Frontier) saw the economic benefits of a tax cut purely in terms of investment, and the economic activity that this would produce. Revenue levels might benefit greatly from this surge of economic activity (and it truly was a surge - quite apart from continuing the boom until 1966, in the wake of its enactment the New York Stock Exchange broke the 800 Point mark for the first time in history), but that wasn't the point - even if revenue had been unaffected, Kennedy was not particularly worried about deficits at this point. The idea was to keep the growth happening, and maximise the benefits that this would have for the middle class and poor as part of a program for long-term economic development and the opening of the War on Poverty.
In the long run, JFK envisioned that taxes would gradually need to be brought back up again, as his economic policy shifted gears into a progressive Keynesian spending policy to replace the regressive Keynesian tax cutting policy. In all this he was of course precisely correct - the brilliant success of the New Froniter economic policy did not result from any kind of proto-Laffer Curve effect, but was instead simply an exercise in textbook Keynesian stimulus policy. This was good, because economic history teaches that Laffer-driven tax policies do not work. There is a reason why the Kennedy tax cut resulted in the second greatest peacetime economic expansion in American history, and the Reagan and Bush tax cuts had virtually no positive effect on the economy at all, and that reason my friend is a simple one: Keynesian tax cuts are not
based upon flawed Laffer principles, but are instead a regressive (but often highly effective) form of short-term economic stimulus. That is why any Keynesian economist will treat an economic policy based in the long term largely around tax cuts and the Laffer Curve, or the assertion that positive economic activity is in any way caused by such a policy, as absurd.
Moving on from Kennedy and the New Frontier of the 1960s, we come to Bill Clinton and the New Covenant of the 1990s.
Let me make it clear right now that I do not accord President Clinton anywhere near the level of credit for the economic successes of the period that he presided over anywhere near the same extent that I do Franklin Roosevelt and John F. Kennedy. There is a reason why I rank him only third after them as an economic president, and that reason is based on two things: first that the economic growth and performance that he presided over was not as impressive as the expansions that their policies produced, and second that his policies were not responsible for the increasing prosperity that he had the good fortune to preside over to nearly the same extent. The critical factor during that period was the dot-com boom, which would almost certainly have happened no matter who was president. However, that is no reason to not give Clinton the credit where credit is most certainly due. The boom may still have happened irrespective of his policies, but it is to the enduring credit of his presidency that when the boom did occur as he was coming into office, he formed a series of economic policies that were not perfect, but which certainly did not hinder the progress of the economy, and in fact did plenty to help it along.
Clinton's tax policies were on the whole admirable - seeking to raise taxes on the upper brackets, while also seeking to lower the taxes of the middle class income brackets, an excellent economic formula, and he accompanied them with a set of general fiscal policies that produced excellent results in a number of respects.
The people who think that Clinton's politico-economic tendancies for the bulk of his presidency were molded by the presence of a Republican Congress err, and show a lack of knowledge about Clinton himself. Both before, during, and after his presidency, Clinton has never made any secret of the fact that he is a progressive of the old style: socially liberal but fiscally conservative. From 1994 onwards, in the great political clash over policy between the most powerful Democratic political figure since Lyndon Johnson and the first Republican Congress since the 1950s, it was most assuredly Clinton's vision for the country that prevailed, and for the best part of his presidency he had a mastery of the political scene that surpassed that of Ronald Reagan, forcing the Republican Majority to work with him in adopting a number of key parts of his agenda.
It is very rare that a leader is as suited to his times as Bill Clinton was to his, and America was fortunate to have him, gigantic flaws and all. In regards to his economic policy, a number of the people who assert that it was driven only by political concerns forget that Clinton made the working towards the eventual achievement of a balanced budget a key item on his agenda in 1993 and 1994, before the crushing Republican victories in the '94 midterms which ironically turned out in some ways to be one of the best things that had happened for Clinton - allowing him to truly demonstrate his substance as one of the authentic political geniuses of the 20th Century.
Kennedy and Clinton dealt with, we move now to Franklin D. Roosevelt and the New Deal.
FDR did not oppose welfare so much as he believed that it would be far more productive for the numerous citizens who had been on welfare for years to be given work by federal relief (the "narcotic" reference came during his 1935 State of the Union, when he asked Congress for a number of such measures) until he could secure the level of spending that would be needed to stabilize the economic situation once and for all, enabling them to return to more conventional employment. It was by any measure a good deal for all concerned - by employing citizens on welfare through federal relief, those men and women who might otherwise have been inactive were able to do enormously beneficial work upon the country's infrastructure, and for their part recieved sustenance and a wage, as well as no doubt finding it far more satisfying to be working for the government than remaining on the welfare rolls.
To describe FDR as a "conservative" is true only insofar as he did not seek to abolish or do away with the basic system of capitalism, or America's traditional form of republican government, instead seeking to reform both. Beyond that however, he was a guided by what was most assuredly a liberal vision - indeed he was the first President who truly can be referred to as a "liberal" in the modern American sense of the word (previous Presidents hailing from the political left having been progressives, to use the correct terminology), and the progenitor of of much of what would come to be recognized as "liberal values". His goal was not merely to save the American socio-economic scene from the Great Depression, but to transform it into something better than it had been before, and by almost any measure he succeeded brilliantly in this.
A number of people mistakenly believe that the New Deal ended when America entered WWII. This is a misconception, as the "New Deal" was itself not a single contiguous agenda, but was in fact five seperate politico-socio-economic agendas: the five New Deals, in the plural. The entry of the United States into the Second World War marks the end of the Third New Deal, but the Fourth and Fifth New Deals remained to come, and in his role as America's Warlord from 1941-45, FDR would strike a balance in his time between prosecuting the war effort against the Axis and planning for the post-war world, and carrying out the new phases of the New Deal. Certainly, with the last vestiges of the Great Depression having finally been banished and full employment having returned, there were a number of programs that could be abandoned, having served their purpose, but this was merely a shifting of gears to adjust to the new situation, not an abandonment of the President's agenda. The Fourth New Deal was primarily economic in nature - employming military spending as substitute deficit spending, working to regulate the economy in new ways that had been beyond the President's powers previously, and also developing further his vision of a progressive tax system. The Fifth New Deal however, was FDR at his finest as a presidential legislator - a last round of virtuoso lawmking that would amongst other things lay the capstone on arguably the greatest achievement of his presidency: the creation of the middle class, its centerpiece being the G.I. Bill of Rights. The Fifth New Deal would culminate on what has been described as FDR's "Last Hundred Days", in which he was arguably at his most radical, and his most visionary, in the entire course of his presidency. It was at this point that he produced what would come to be recognized as perhaps the most important political document of the 20th Century: the Second, or Economic Bill of Rights, in which he articulated a liberal vision for the future of American Government and Society that remains an unfulfilled promise to this day, though it remains an historic beacon of American liberalism.
And now, having dealt with FDR, JFK, and Clinton, we can at last move to Barack Obama and his New Foundation.
Certainly, it is indeed ludicrous to compare Obama's presidency thus far to the greatness of Franklin Roosevelt. Indeed, he has not yet even gotten to the point where he could be compared with John F. Kennedy, Lyndon Johnson, or Richard Nixon. But Obama's achievement thus far has been genuine, all the same.
It is interesting the you should mention the subject of taxes in your last sentence, because one of Obama's undeniable accomplishments thus far (apart from having gotten a healthcare bill signed, as well as financial regulatory reform) has been to become to most successful tax cutter for the middle class that America has seen in decades. The middle class tax credits in the ARRA alone outdid everything that George W. Bush managed to do in this regard in his entire eight years as president, and Obama has added to that considerably since then. On the whole, over the last two years some 95% of Americans have had their taxes reduced thanks to Obamanomics, an achievement for which the president has recieved little credit. These are Keynesian tax cuts of the kind that were discussed above, in many ways largely similar to the Kennedy tax cut (although broken up into a number of smaller acts rather than one singular big tax cut).
This may surprise you, but the main reason why Obama may not have announced any plans for reducing the size of the government may well be that he has not yet actually increased it significantly. I suggest that you peruse again the Paul Krugman article that Paulinus posted a link to eralier in the thread. Although I for one am fully appreciative of his legislative accomplishments thus far, the presidents has not yet been able to engage in anywhere near the level of government activity that will be required to bring an end to this recession.
After a recession, it is inevitable that certain programs can be allowed to ease. On the whole however, we differ in that I personally believe that Big Government can be just as beneficial in times of relative economic prosperity as otherwise. The administrations of John F. Kennedy, Lyndon Johnson, and to an extent Richard Nixon, amongst others each offers a case in point. FDR too, ought to be cited as an example on this. His actions in 1937 over the budget-balancing debacle have been too often misinterpreted - he was motivated in that case more by political and coaltion-building concerns than anything else. Once America is out of the Great Recession, then I for one fully intend to be calling for a New War on Poverty.