Economic Growth: Blood Suckers v. Free Lunchers

You don’t seem to take very much away from the comments provided in earlier posts. I don’t see how you could do this same column again without addressing what Romer said about economic policy in the 60s and 70s. If you read it and understand it its more like playing with inflation that Kennedy/Johnson/Carter were the real free lunch crowd that gave us inflation by trying to keep their jobs numbers up with potemkin monetary policy. Kennedy/Johnson passed recession to Nixon. And Carter passed the need for one to Reagan. Ike gave Kennedy/Johnson a decent economy, same with Bush to Clinton. Clinton gave Bush an economy going into recession and Hoover give FDR and economy that had fallen so far rapid growth was almost assured.

Cantab,

Learn to at least pretend to be consistent. 

In 1968, inflation was 4.2%.  In 1976 it was 5.8%.  ( ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt)

So if LBJ passed inflation on to Nixon, what exactly was passed on to Carter?

As to recessions… 11 months after LBJ left office, he created a recession for Nixon?  How do you know that was LBJ then?  Might it not have been Clinton sending a recession back from the future? 

“Ike gave Kennedy/Johnson a decent economy” – you do know the economy was in recession from April of 1960 until after JFK took office, right?

“trying to keep their jobs numbers up with potemkin monetary policy” – I think I can speak for pretty much everyone else here when I say that thought JFK, LBJ and Carter were Presidents.  May I thank you on behalf of eveyrone else for clearing up the misconception by pointing out they really were chairmen of the Federal Reserve?

“Clinton gave Bush an economy going into recession” – and Bush’s promises to undo Clinton’s policies that had worked so well in the 90s had nothing to do with it. 

“Hoover give FDR and economy that had fallen so far rapid growth was almost assured”  – wait, didn’t you insist time and again over the past few weeks that growth was awful under FDR?  Do you even have any idea what your current position is?

I believe that last reference labeled “- NIPA Table 3.2, line 1” should actually read “Personal Income – NIPA Table 2.1, line 1”. 

The link itself goes to the right place, though.

Mike

you gotta be careful.  they are all liars.  even Buffet is probably wrong if he is counting Social Security as a “tax.”   yeah, i know that’s what it’s called.  but it’s really a savings and insurance plan. the difference is that while you arguably get your money’s worth when the government taxes you to build a new submarine, you get your money BACK with “interest” when the government “taxes” you for Social Security.

my point here is be careful about words.  it’s what things DO that counts.

as for FDR, he took money from the rich and spent it in ways that helped the poor …  and the rich.

the righteous rich are unable to see the connection.

Cactus,

Read this:

http://elsa.berkeley.edu/~cromer/MacroPolicy.pdf

An apology is optional.

Mike,

Here are answers to some of your questions.

Re. Buffet:

What he is talking about is the difference between being taxed on income and being taxed on capital gains.

Buffet’s secretary gets taxed on her income (Federal income tax + Social Security Tax + Medicare Tax + State Income Tax). Assuming she is single and makes $100k, she would be paying a MARGINAL tax rate of about 44%  (28% + 6.2% + 2.9% + 6.8%).

Conveniently enough, I believe the Oracle of Omaha only takes a $1 salary, prefering instead to accumulate wealth through the appreciation and sale of assets he owns. The long term capital gains rate for him is 15% and he pays no Social Security or Medicare Tax. Depending on the state, he may owe some tax on his capital gains.

As you can see, in a technical sense Buffet is correct. And if we are speaking about the fabulously welathy (like John Kerry’s wife) this rule generally holds true. For most of the “regular rich” however, this is not true because they earn their money as income. As a result, successful small business owners, doctors, lawyers, and even the reviled investment bankers are all paying the top federal rate of 35%. The Dems currently have various plans that will push this in to the mid to high 40’s. Adding to this the various “millionaire’s taxes in states like New Jeresey and city taxes in NYC, and plans to extend the SS and Medicare tax above the current income caps, and they are creating a situation where individuals with large incomes will be paying upwards of 60% in taxes.

Re. Social Security as an “investment”:

SS is not an investment vehicle. It is a generational ponzi scheme whereby young workers are taxed adn the money is used to provide payments to the retired. It works great when the population is young and people don’t live to be very old. It is unsustainable when the population ages and the average life expectency approaches 85. Countries like Japan are headed toward a situation where there will be 1 pensioner for every 2 workers.

Early generations of Americans got a great “return” on SS because they paid little into it over their working lifetime and they got a huge benefit. Current workers under the age of 35 will get very little. Most likely, for them they will pay a lot into it and get little out.

I hope this is helpful.

Therapist1,

1.  Rate of Return – Coberly and Bruce can tell you much better than I.  They’ve run the numbers. 
2.  Diverting – sure.  Check out Reagan’s budget to see how its done when the folks in charge are really, really, really cynical.

ilsm,

The trick is to get the right data.  I’ll have to have another post on this sometime son.

Cactus,

Do you have any first rate economist that will back up your analysis. If you don’t like Romer maybe you could see if Brad DeLong (no republican gun slinger) agrees with her funamental points or not.

Here focus was on two items, monetary policy and deficits. She blames Kennedy and LBJ for changing regimes causing inflation and unemployment. She goes on to blame Everyone that follows for deficits. She credits Reagan and Volker for turning around monetary policy but not deficits, and she credits this monetary policy for our economic success for 27 years of almost uninterupted growth for 27 years. Obama appointed Romer as his top economic advisor so I don’t see any reversal of this policy coming.

My point is that your analysis and focus on who was in the the whitehouse when you look at every president is useless and unrecognized by the economic profession as identifying turning point in economic policy.

Better splits are the 1920s before the depression. The depression under hoover. The slow recovery from the depression under Roosevelt. The WWII years. The years during the run down from WWII. The 50s (and late 40s) under Truman and IKE. The 60s and 70s. and the 1980s onward.

I can defend this with events and papers from the economic profession. On the other hand you waste our time with data mining and misrepresenting the economic policies during the periods the respective president were in office.

It is interesting that Roosevelt had a stimulus program going for most of 1933- 1938.

And European numbers are much higher with Sweden at about 50%.

http://www.oecd.org/dataoecd/48/27/41498733.pdf

Cactus, this is a telling comment.  “The trick is to get the right data. “  What it is telling me is the following: “I have a hypothesis, now let me find the data to confirm it.”  It should have been “I have a hypothesis, now does the data confirm it?”  Nope, falsified.  Yup, partially, modify the hypothesis and try again with the same data.  Yup, hypothesis confirmed.  Publish it!

So, I think one of the problems with your series is that we are unsuire of the hypothesis.  The reponses seem to be centered on one set of Presidents are better for US economics than another.  But, when pushed into a corner to confirm that hypothesis, only more questions arise.  Leading us to believe the hypothesis is wrong, poorly framed, or the data is less than 100% supportive.

Tell us clearly what you are trying to show!  Remember, proving a hypothesis is to tell us How and why something is happening.  Otherwise you are writing a history paper/book with a personal slant or selectivd support.  That is OK!  Just don’t make it appear more than it is.

I would sum up my personal view by saying that I don’t think politics is paramount in determining the growth rate. Other factors are more important. But one can make the certain statement that GOP tax policies have not had any demonstrable effect on the rate of growth. Nor has the % take of the federal government had much if any clear effect. One rather amazing figure is the drop in GDP after 1930 and the subsequent rapid rise under Roosevelt, even before WWII.

Cantab,

She blames Kennedy and LBJ for changing regimes causing inflation and unemployment.

This is actually a strange argument to make because the Kennedy/LBJ years were the highwater mark for the reality of the old style Phillip’s curve in which you could indeed trade off employment and inflation.  So it’s a little hard to see how you can blame Kennedy/LBJ policies for both unemployment and inflation.  One or the other, but not both at the same time.  A better way of stating the actual history would be to note that economists and policymakers continued to believe in the old style Phillip’s curve long after the old relationship had broken down.

Romer claims that the 1950s were a period of relatively random deficits while the 1960s saw regular deficits.  And she makes the point with Figure 2.  But note that Figure 2 doesn’t really demonstrate what she claims.  Look at it closely.  By and large the 1960s show a flattening of volatility in deficits as a percent of potential real GDP.  And also note that by using “potential” real GDP she has effectively taken out the cyclical effects, and even after doing that the 1960s show less fiscal volatility than the 1950s.  Now go to the OMB tables and look at the “on budget” surplus/deficit as a percent of GDP and look at the 1950s (all years, not just the Ike years) and you will see that the average deficit was almost 1.5 percent of GDP in the 1950s and not quite 1.0 percent of GDP in the 1960s.  It is true that there were slightly more deficit years in the 60s (9 vs 7), but the size of the deficits were usually trivial and amounted to rounding errors.  So I think Romer has simply misread the data.  She should take another look at it because her conclusions do not agree with the data she presented.

She credits Reagan and Volker for turning around monetary policy but not deficits,

It’s a little more than that.  She also says that the Reagan experiment with supply side economics was an unmitigated disaster and ultimately only had demand side effects.  I guess you missed that part of the paper.

Romer also makes another strange argument.  She seems to applaud the 1958 recession as a success story because it demonstrated the Fed’s commitment to fighting inflation.  Well, she must have been hungover when she wrote that little gem.  The good news is that Romer appears to be in recovery herself because her late 2008 prescription for the economy was dead right.  It’s been widely reported (and she hasn’t denied it even when asked directly) that she recommended a $1.3 trillion stimulus package…or almost double what was eventually passed.  I think that has it about right and is pretty much along the lines of what Krugman and others estimated.

Stock grants are taxed as income, i.e., highest tax rates. Capital gains taxes then apply if the stock is held for a period of time and later sold for a price that is higher than the price at which it was originally granted.

Private Equity managers, Hedge Fund managers and Venture Capital managers get a good deal. Most of their income comes from “carried interest” and is currently taxed as capital gains (like Buffet). Congress has plans to change this so that carried interest is taxed as income.

Re. taxing excess housing value, appart from being a political quagmire to administer, I don’t know what this would accomplish. Billionaires don’t buy $30 million dollar estates because they “need” them, but to show off. In a purely utilitarian sense it is wasteful to use so much resources for a home, but then the same behavioral instinct is responsible for creating an art market, which most people do not find offensive.

Certainly, Cantab, your efforts to avoid the implication of the data and to find one-off excuses for any good news under Democrats and bad news under Republicans do show that you favor hand-waving explanations over data.  The thing that one should keep in mind when evaluating cactus exercise is that he aims to allow the data to speak.  The need to let the data speak grows out of the constant dishonest story-telling of the tax-cut crowd.  The very thing that cactus means to see past is the thing you keep insisting on.  It is also worth noting that dismissing data and insisting that cactus has failed to address the issues you raise, however much he does, in fact address the issues you raise, puts you squarely among the devils in this debate.  The longer you carry on, the more obvious you dishonest intent becomes.

“To me, this means it has features that are not unlike a ponzi scheme, which some of the articles you linked to state as well.”

As each of the articles I linked to acknowledged, there are features of SS that superficially seem to resemble a Ponzi scheme. Each article goes on to explain why such a superficial analysis is wrong and why claiming that SS is a Ponzi scheme, as you did, reflects a lack of understanding of both Ponzi schemes and SS.

” . . . that is what it has effectively become.”

Uh, no it is not. And simply saying it has doesn’t make it so, “Guest.”

interesting article on the performance of gold versus oil in 2009 and factors affecting this relationship in 2010:  http://www.goldalert.com/stories/Gold-Price-Versus-Oil-Will-Gold-Outperform-in-2010

Guest:

Andrew is that you peeking out from behind the  “guest” monicker? Since neither coberly or bruce have jumped on you yet for this:

“SS is not an investment vehicle. It is a generational ponzi scheme whereby young workers are taxed adn the money is used to provide payments to the retired. It works great when the population is young and people don’t live to be very old. It is unsustainable when the population ages and the average life expectency approaches 85. Countries like Japan are headed toward a situation where there will be 1 pensioner for every 2 workers.  
 
Early generations of Americans got a great “return” on SS because they paid little into it over their working lifetime and they got a huge benefit. Current workers under the age of 35 will get very little. Most likely, for them they will pay a lot into it and get little out.”

Your first sentence says that SS is not an investment vehicle, which is true and then you start your last paragraph with a statement on “return” in reference to a return on investment. SS is not an investment, it is an insurance plan.

Unless the gov wishes to renege on treasury notes, you can not call SS a “ponzi scheme either as those treasury notes are of a similar nature as what is sold to or invested in by China and Japan. Renege on those and the financial world will take a diom view of treasury bills.

Which brings me to my next point, SS Withholding Tax “still” generates a surplus revenue which is placed in the General Funds (like the Federal Employees retirement funds) and replaced by Treasury Notes to be redeemed at a later time. This has been going on since LBJ’s presidency. Ponzi schemes typically do not create surplus funds and neither are they invested, rolled over, to be drawn upon at a future time. The surplus funds are safe in Treasury Notes awaiting to be redeemed. The funds were used throughout the US in many different projects, expenses, and tax breaks such as the 2001/2003 breaks of which 31% were focused on ~1million taxpayers making > $500,000 in income. That the funds were spent by the US gov. does not negate the validity of the Treasury Notes.

Whatever happened to “productivity” in your explanation? You know that factor that makes the worker to retiree ratio needed to continue growth a positive. There is no validity to using the argument of number of retirees to worker as it is negated, and has been for decades now, with productivit growth. Furthermore, the US does not suffer from the same birth rate problems as Europe and Japan does. We still have a birthrate that replaces each and everyone of us http://www.smithsonianmag.com/people-places/presence-oct06.html. The median age for the US citizens in slightly over 35 which gives us one of the lowest amongst developed countries. I assume you will say next the increases in healthcare costs are completely the result of an aging population.

Current workers will continue see an increase in benefits, there is no reason to believe they will not see increases, and you haven’t supplied any detail as to why you believe they will not. That workers starting out in SS put little into SS and received more out is akin to arguing about sunk costs and has little bearing on what SS recipients will receive in the future other than to raise a generational argument which is disingenuous to the validity of SS. Perhaps a better question to ask would have been “what burden would these people who started out getting SS have been to the infrastructure if “SS” did not exist?” The same as healthcare costs, it would have surpassed SS costs on an individual versus group basis.

My $.02

run75441,

Yes, normality and all that other stuff would come under what I called the “whatever” part of hypothesis testing.  I was just throwing out t-statistics as an example of the kind of thing that hypothesis testing is concerned with.  Hypothesis testing does not require the exposition of an alternative theory to explain results, it only tests the validity of the proposed hypothesis. 

CoRev,

The problem is that you keep insisting that cactus is claiming something that he has said quite plainly he is not saying.  Cactus did not claim that Democratic policies were better than Republican policies.  What he tested was the REPUBLICAN claim that Republican policies led to economic growth and that Democratic policies led to ruin.  The data does not support that claim.  Hypothesis tested, hypothesis rejected.  Now as it happens the data suggested that Democratic policies were also associated with higher growth rates.  That is not by itself a complete argument for Democratic policies and if you wanted to press that kind of analysis, then it would require some kind of theory if you wanted to get beyond the facile “correlation is not causation” argument.  Cactus avoided that path.  He simply tested the claim that Republicans themselves make and he found that the claim is without merit. 

 in your response to my comment you have provided two different hypotheses.  Maybe even further making my point.  

Not sure where you got this.  I did not present any hypotheses in my comment to you.  I just didn’t.  I only made two points.  The first was that cactus did clearly state what the hypothesis was that he was testing.  The second was that hypothesis testing does not require the exposition of an alternative theory or explanation.  Hypothesis testing just gives you a thumbs up or thumbs down verdict to a specific theory.   

2slugs, said: “What he tested was the REPUBLICAN claim that Republican policies led to economic growth and that Democratic policies led to ruin. ”  Now you have added even a third hypothesis.  You have placed it squarely on Cactus’s shoulders, but I suspect it is actually your interpretation and not necessarily entirely his.

He and I have had this policy discussion for a relatively long time.  Now you have iserted yourslef to make th calim that it was his goal/finding.  Let him clearly state the policies, (laws, regulations, and declarations) that make up those policies.  I have asked this of him on many occasions.  You seem to think he can and will answer that question.

This type of analysis is fatally flawed since it assumes that a single indvidual (the President) actually has complete and total control over the economic landscape. The same reasoning applies if replacing Congress with the President. What fails to be appreciated is the interplay and significance between parties. One can credit either Clinton or the Republican majority with the economic results, but it might just as well have been the resulting gridlock the tempered ambitions and forced more compromise.

Typically, more discussion and stretch for common ground results in better, more compact policy decisions that drive better more focused legislation.

These analyses have as much relevance as tying stock market performance to astrology.

I suspect that the U.S. role in globalization has changed velocity factors to such a degree that a comparison of administrations, based on timing, is , especially considering how much different the reserve currency relationships have slowed the pace, while also increasing the volume, of the dollar flows since the late 1930s, beyond complicated. At least some of the progress made globally, or the lack of progress (p.o.v.?), must be increasingly assigned to the U.S. economy over the past few decades. For instance, according  to Dr. Stiglitz, for every dollar the developed nations spend on aid, they receive a return of 3 dollars (2006); and U.S. citizens provide less aid on a per capita basis than the citizens of other developed nations; so, how is it possible to compare an economy with 2% of population as stockholders, to an economy with 40 or 50% of population benefiting from stock in multinational corporations?  Velocity factors have changed considerably and the time required for economic adjustments seems a prerequisite for the type of comparison being done here? ( there may be other examples of velocity issues but those offered were what came to mind )

guest

the cost of social security may go up a little… about 20 cents per week per year… because the cost of the insured event is going to go up because the next generation is going to be living longer than the last.

when they raised your auto insurance rates did you call it a Ponzi scheme?

Part 2.

Macroeconomic outcomes since 1979

The Volcker recession of 1981-82 was horrific, and the direct consequence of the largest monetary contraction since the Great Depression. But, it reduced inflation from nearly 10% to close to 3%. Since 1985, inflation has been below 4% every single year and has averaged just 2.5%. Real short-run macroeconomic performance has been similarly splendid. Since the Volcker recession, the U.S. economy has suffered only two recessions in 25 years: those in 1990 and 2001. And, in terms of the deviation of GDP from trend, both were quite mild.

So what whe have is a sea change in the 1980 the set the stage for future growth up to the start of the recent recession.

Romer

The overall record of output volatility shown in Figure 6 is also striking. As someone who started her careersaying there had not been a stabilization of the postwar economy, I now have to admit there mostcertainly has been , it just started in 1985, not 1947.

Now the challenge is to Cactus to find a well known economist to second his vacuous account of economic history.

Sammy,

Also the some of the key players contradict Cactus’s claims. Kennedy lowered taxes saying it would lead to growth and pay for itself. Johnson followed the same thinking and policy. And Carter wanted to cut tax for economic growth.

So now we have 3 democratic presidents directly contradicting Cactus in his claim that taxes and tax rates don’t matter. He credits democrat policy yet these democrats were following the opposite policy that Cactus implies there were following by use of his misleading data mining.

and it might be worth pointing out that those old timers who got such a good deal on Social Security had paid for their own old folks retirement without any help from anyone… at the same time they were paying for the education of their children (also known as the generation of vipers) and building the roads and fighting the wars and paying the taxes and…   trying to get buy on a real income less than half of what those future overburdened youth will have.

they are overburdened, you see, because they are too stoned to realize that their 20 cent increase in payroll tax is going to pay for their own longer retirement.  not us! they say.  we’ll never get old.  and when we do we’ll be rich.  and we’ll have such good jobs we will never want to retire.

kharris,

The need to let the data speak grows out of the constant dishonest story-telling of the tax-cut crowd.

Kennedy, Johnson, and Carter according to their own words are in the tax cutting crowd. Please ead Romer before you type anything else on this topic.

2slugbaits
 
The hypothesis that cactus tested with the previous set of charts was quite specific.

Can you state the exact hypothesis that was being tested.

How do you explain Kennedy, Johnson, and Carter all wanting to lower growth to achieve economic growth? How dows the Cactus assinine analysis include this as an independent variable?

mike

maybe in your mind.  but that’s because you are in denial.

Coberly,

Any comments from you on the Romer paper.  What do you think of the quotes in my post below?

CoRev: 
 
Actually, 2slugs was answering me. If you wish to argue with 2slugs, you need to test the data distribution for normality. 2slugs is telling you the data is a normal distribution (hypothesis test) and there is no need to go further, end of story. The assumptions made fit normality. He is correct in stating that is all he needs to do with the data as presented.
 
You have myriads of cactus’s data and you can test them yourself. His spread sheet offers everything he used. Run the mormality tests and see what turns up. Run differ assumptions and prove out your points. That is the only way you will get your points across.

Kennedy, Johnson, and Carter according to their own words are in the tax cutting crowd. Please read Romer before you type anything else on this topic.

Cactus does not even have a consistent coherent story to tell; thus I don’t know of a statistical test that could rescue his junky analysis.

Democrats claim they want to raise taxes to be “fiscally responsible”, but Republicans suspect all that will happen is the Govt will grow larger and the deficits will stay. This is what I always suspect. Clinton’s healthcare proposal in 1993 never had a funding source other then what he raised with his tax hikes. So he was raising taxes to plough the way for increased spending but he lost the Congress and that was the end of his big spending ways.

Cantab,

Your posts are rambling and all over the ballpark.  Let me help you out here.  No one disputes that economic policies in the 70s went off the rails.  There were lots of reasons for that including a series of supply shocks.  And one of the reasons was because policymakers tended to see every problem as one of weak aggregate demand, which wasn’t always the correct diagnosis.  Monetary policy was also all over the place.  In the early Volcker years the emphasis was on monetary aggregates, such as M2 growth.  By the end of the Volcker era the Fed had undergone a regime change and focused on interest rates after money velocity proved too unstable.  And it’s strange to criticize Carter for relatively small deficits and then praise Reagan and Bush 41 for huge deficits even when the economy was not in recession.  Just nuts.  As to Kennedy’s tax cut, remember that he was cutting taxes from a top marginal rate of 90 percent, which is clearly beyond the Mirrilee optimal revenue rate, so in that case we would expect a cut in the top rate to “pay for itself.”  That was a special case that doesn’t apply today because we are nowhere near a 90 percent top rate.

And Romer accepts the Great Moderation argument, but her timing couldn’t have been worse.  She wrote that in 2007, just as the economy started to unravel.  Today’s recession is the worst since the Great Depression, and one of the reasons is because the nominal interest rate was near zero when the recession began.  So if you want to credit the Great Moderation with economic stability since 1985, then you’ve also got to accept responsibility for the Great Recession.  As Krugman has pointed out, the 1990 and 2001 recessions saw us edging closer and closer towards a liquidity trap because of the low nominal interest rates and because of teetering deflation. 

But getting back to cactus’ post, he did not offer any theory about economic policies.  His only point was that growth rates in real per capita GDP were NOT higher than under Democrats, as the GOP likes to claim.  The issue is not Romer’s view of intellectual history; it’s just a matter of noting that Republican claims do not stand up to close scrutiny.  You are just desperate to avoid talking about that inconvient fact.

CoRev,

Here’s cactus in his own words:

…for those who think this somehow can be reconciled with a “Republicans know what they’re doing when it comes to the economy” story-line: if just about every data point is a special case, your model sucks.

http://angrybear.blogspot.com/2009/12/comparing-presidents-real-gdp-per.html#comments

In other words, he is testing the claim by Republicans that they are the grown-ups who understand the economy and the Democrats are just softhearted liberals who don’t understand real economics.  It’s the way Republicans like to flatter themselves.  Cactus was testing that hypothesis.  The responses from Republicans have consistently been that cactus didn’t include this or that special condition, or this or that lag factor, then onto flexible lags, yada yada yada.

cantab,

“Son? Are you related.”

Nope, its my “fetal flaw.”

CoRev,

I’m not aware of any science that you look at the data then make up a theory and say then say the data proves your theory.

Sammy,

The problem with causality going the other way is that revenues fell under Reagan but increased under Carter.  Growth was faster under Reagan. 

But the other problem exists when you look at the data on an annual basis…  as a for example, revenues / income increased every year under Clinton, even in the first two years when growth was anemic.  (Greenspan’s hypothesis – the fact that Clinton was responsible and paid down the debt is what put the economy on a growth path.)

Cantab,

You just love to throw in time travel, don’t you?  As I’ve pointed out to you before, the “Kennedy Tax Cuts” came in 1964.  JFK got shot in 1963, all of which makes it very hard for any of that to have anything to do with growth in 61 and 62.  Also, once again, none of that is remotely relevant because revenue collected as a percentage of income increased while JFK was in office.

Mike,

I’ve had that post before.  (http://angrybear.blogspot.com/2008/02/congress-or-president-who-affects.html)  Feel free to be the one to tell Newt Gingrich he’s responsible for tax hikes.

Cantie, nor do I know of any science that creates a hypothesis, then finds the appropriate supporting data.  We’ve seen what that leads us to with the AGW theory.  That is out and out cherry picking.

Slugs,  
 
Sorry, but I don’t really care what Jimmy Carter said about tax cuts stimulating economic growth.  Carter was just wrong.   
 
I’m not arguing right now what the correct policy was or should have been. I’m just stating the policies of the Kennedy, Johnson, and Carter administration based on major statement they made and were collected and quoted in the Romer paper. They all advocated tax cuts to achieve economic growth. This contradicts the story being told by Cactus. And you don’t get this from a model; or playing around with leads and lags. You have to go to the period and see what the policy actually was. Cactus does not do this so he gets the history wrong.  
 
Now if you want to salvage Romer’s position, then here’s the correct argument.  
 
That’s your job. She’s backing me up. I can take the critisism on deficits since its true (as is the disappearance of the old Soviet Union).  
 
One fo the great economic lessons was that economists should not try and use fiscal policy to fine tune the economy.  If you want to slam liberal economists coming out of the 60s, then blame them for thinking they could fine tune the economy.   
 
I believe this but Romer in crediting the economic management in the 1950s was actually saying that economists and policy makers did successfully fine tune the economy. She’s not a 100 percent traitor from your point of view. What she’s saying is that the new democrat policy starting in the 1960s was a disaster and what caused the run up in inflation.

Thank you Cactus. Hypothesis a. seems to be unprovable as written.  From the top of my head it seems that you have not proven it in your writings.  Moreover, very time you use the term policy I look for the details, and as we both know they are not there.  Laws, regulations, etc. implementating said policy comparisons are not defined.  I have yet to see the policy base lines defined so that a comparison of changes can be made.

Hypothesis b. seems to be concisely enough written to be tested.

2slugs said: “But getting back to cactus’ post, he did not offer any theory about economic policies.“

Cactus actually says within this comment thread: “As to my hypothesis, its been stated a zillion times, but once again… they simple hypotheses here: 
 
a.  Republicans don’t have better economic policies than Democrats 
b.  Cutting taxes is not the way to get faster growth” 

I dunno but I do remember Cactus saying in the past that tax policy was the difference.

As I said earlier 2slugs, you are arguing with yourself.

Raising taxes changes the paradigm.

The republican way is to borrow money from the rich and pay them interest, instead of taxing them.

Interest payments will rise seriously once the fed stops keeping rates at ZERO.

That is money which was borrowed from the supporters of the senate rather than taxed.

And their discretionary spending buys with borrowed money things that increase the dividend of firms owned by the senates sponsors who are lenders when they must be tax payers.

This circular cluster is the republican CONservative way.

Fascism only differs from socialism by who gets the benefit of the resources and production.  Th first fascism is for the rich, the latter some time for the general masses.

Labor has always been forced to sacrifice for the rich, perpetual war, religious nuts against abortion andso forth……..

Tax policy coupled with borrowing what should have been taxed then whining about entitlements because entitlements don’t buy with borrowed money from the lenders……….

It includes contrived fiscal policy to spend money to profit only the lending classes.

The ownership class con!!

CoRev,

As I said earlier 2slugs, you are arguing with yourself.

I thought he was trying to make bricks without straw (or facts).

ilsm

Aflack!

Cantab,

Let me try one more time.  I am not providing a theory or an interpretation.  I am merely showing that by organizing data from the BEA (and a while back, I did the same thing with data from the IRS), taking into account starting and stopping points for presidential administration, there is a pattern.  No heroics or torture were necessary to show that pattern either.

Now, you tell me your theory doesn’t agree with this, or that Sargent’s theory doesn’t agree with this, or that Romer’s story doesn’t agree with this, and all that says is that those theories and explanations are wrong.  Because the only point of a theory is to explain data. 

Now, you’ve been trying to obfuscate data, and you keeping claiming things that aren’t true – that growth during FDR’s term was slow, or that growth from 1960 to 1963 was due to tax cuts in 1964.  What purpose does that even serve?  It makes you sound like some crackpot who insists on arguing that the Earth is shaped like a bottle of Coke.

CoRev,

 Hypothesis a. seems to be unprovable as written.

Huh?  Cactus is engaged in hypothesis testing.  The goal of hypothesis testing is to see if you can reject the null hypothesis; it is not to try and prove the hypothesis.  You’re misunderstanding how econmetricians go about the day to day business of hypothesis testing.  Cactus takes the null hypothesis as the proposition that GOP policies and Presidents yield better economic growth.  This proposition is falsifiable in principle.  And the data rejects the null hypothesis.  So Republicans are wrong when they say that their policies and Presidents lead to higher growth.

The second hypothesis is also falsifiable.  The null hypothesis is that cutting taxes leads to faster growth.  Cactus is not testing the hypothesis that higher taxes cause higher growth; he is testing the hypothesis that lower taxes lead to higher growth.  Again, the null hypothesis is rejected.  The data falisfies the claim.  That does not mean Democratic policies are better.  That does not mean higher taxes result in higher growth.  It does not prove any positive statement at all.  That’s not what hypothesis testing does.  The point is to see if you can reject the null.  In order to understand this it’s important that you also understand the difference between Type I and Type II errors.

Cantab,

You got this wrong too, she does not praise any administration for deficts. If you think otherwise then post a reference.  

Sorry, I wasn’t clear.  I was referring to your comment that policies after 1985 were just hunky dory and set up the Great Moderation.

Romer’s paper is one of many that were written in the summer of 2007 that pretended to give some grand perspective of macro history.  There were a lot of them that all came out at the the same time for various conferences and seminars.  The most famous paper like that was probably Blanchard’s, which came out at the same time as Romer’s….within a few days of one another.   And Feldstein had a similar paper at that time.  As things turned out I suspect that all of them probably wish that they had waited a few weeks before presenting those papers.  All of their papers look pretty silly today.  And as I said before, Romer’s late 2008 analysis runs against just about everything she wrote in this paper.

Part of Romer’s problem is that she had to write something about LBJ but the data she used didn’t actually say what she claimed it said.  Go check her facts on the deficits during the 60s.  Her claim that on budget deficits increased in the 60s over the deficits in the 50s is just factually wrong.   Deficits in the 50s were about 50% larger as a percent of GDP.  And a quick check of Figure 2 in her own paper confirms that what she claims in the narrative is just wrong.  The problem was not with policies in the 60s.  The problem came in the 70s when politicians tried to solve productivity and  supply shock problems with aggregate demand policies.  That is what led to inflation.  It took three recessions in less than 8 years (two of those recessions being very deep) to control inflation.  So the 80s were all about getting inflation under control.  The uncomfortable fact that Romer ignored was that the Fed may have overlearned the lessons of inflation.  Today’s problem is deflation and a liquidity trap, and it’s hard to deny that these twin evils are not an unintended byproduct of the Fed’s Great Moderation.  The Great Moderation looked like a spendid achievement back in Sep 2007, but today it looks a lot less attractive.  So if Romer had to write that paper today, I’m pretty sure it would sound a lot different.  In fact, her late 2008 analysis largely rejects a lot of what she said in 2007.  Afterall, Romer was calling for a $1.3 trillion fiscal stimulus package, which is something that you wouldn’t find in her 2007 paper.

Cutting Govt spending changes the paradigm too.

It forces thousands, if not millions, of non-productive govt employees to seek work in the productive private sector, and it would reduce the deficit, strenthen the dollar and attract capital investment to the US.

If the last 10 years have taught us nothing, I would think it is that you can’t run a successful economy on nothing but homebuilding and structured finance.

The US needs to produce something of value for the rest of the world. The govt sector has no value to our global trading partners.

I can see why taxes could be raised. I don’t see why almost no one on this site can imagine cutting govt spending as part of the solution to our impending national bankruptsy.

guest

glad you mentioned that.  i can never tell if “most economists agree” that it’s “really” the employees money.  or if it is a job killing tax.

CoRev

this is just silly.  all normal sciences look for data that support…or disprove…their hypotheses.

you are making the mistake of thinking that Cactus has presented a “statistical” argument here (and worse that he cherry picked his data or suffered some form of experimenter bias.

he has given you the data on the whole set.  this is not a statistical sample.  it IS the data.

guest

that’s bullshit.

you say govt workers are non productive because you are too stupid to value the product.

it’s easy enough to find examples of “government stupidity and waste”.  damned hard to figure out how to get what we need without the 2nd law losses.  your choice is not “efficient government”…  there is no such thing.  your choice is between one form of inefficient government and another.  given your ignorance you will choose the side that claims to offer less government, and when you get a police state you might understand the difference, but if you are like most people of your stripe you will just be so glad for “lawn order”  you won’t notice the disapperances.

Brad DeLong

http://econ161.berkeley.edu/pdf_files/peacetime_inflation.pdf

At a somewhat deeper level, the United States had a burst of inflation in the 1970s because economic policy makers during the 1960s dealt their successors a very bad hand. Lyndon Johnson,Arthur Okun, and William McChesney Martin left Richard Nixon, Paul McCracken, and Arthur Burns nothing but painful dilemmas with no attractive choices. And bad luck coupled with bad cards made the lack of success at inflation control in the 1970s worse than anyone had imagined ex ante.

Brad DeLong is also questioning the monetary policies of Kennedy & Johnson by saying the they dealth their successors (Nixon+) a very bad hand.

It seems the more I look the weaker Cactus’s claims become. I think now its up to Cactus to do some research to find papers the back up his claims. What I’m reading is that economic policy under democrats in the 1960s and mostly with Carter in the 1970s was sub standard. Cactus argues that their performance was exemplary. Yet doing even a small literature search shows this not to be the case.

Guest

i have no confidence in the government unless i can find a way to educate people like you to understand the program.

there is no reason for the money not to be paid back.  your analogy with the loan shark is wrong, and you got the roles reversed.  YOU are the loan shark who lent money to the government.  The “bipartisan commission” doesn’t want to pay the money back.  You need to break their knees.

we do not owe the money to ourselves.  “we” are 300 million people, and some of us lent money… under a legal agreement… to some others.  Now the others need to pay the money back.

Training you to think of the United States of America as a single person… hapless uncle sam with his two pockets…  is just the bad guys giving the stupid guys a cartoon to carry around in their empty heads to take the place of understanding reality.

paying back the money “we” borrowed from Social Security will not make “us” richer. but it will give the money back to the people who lent it.  kind of like if your kid brother pays you back the money he borrowed, it won’t make “the family” any richer.  but you’d be glad to get the money back anyway.

Slugs,

I’m showing that the conclusion that Cactus would have us take away from his charts are actually 180 degrees backwards. Its the democrats who were the ones that screwed things up in the 1960s and 1970s. I have Romer, and some more support form DeLong. If I have time I’ll look again a Milton Friedman’s interfview on PBS’s frontline production of Commanding Heights.

But the bottom line is that my list of know economists that i’m in agreement with is growing while Cactus has only his data mining to rest on. I’m winning the debate and you made a mistake by aligning yourself with his analysis.

Cantab,

I remember that DeLong paper… in it he indicates that the will to do something about inflation only showed up in 1978.   Which means (if I’m going to tell the story the way you would tell it if the shoe was on the other foot) that Nixon and Ford punted the inflation onto Carter, but Carter was willing to pay the price to kill it. 

“Cactus argues that their performance was exemplary.”

bull@%$&.  I don’t watch basktball, but even I know that being able to beat the Clippers doesn’t mean whatever team you’re rooting for is the best in the league.  

“Cactus to do some research to find papers the back up his claims.

What claims?  I’ve pointed out what the data shows.  You may be able to tell a story about a special case here or there, but the data shows a striking pattern.  Whether you or the Pope declare the data to be false (and both have happened before, numerous times) is irrelevant.  The data is the data.

Cactus, 
 
What claims?  
 
I guess you get to say this since you argue using the device of innuendo. 
 
You may be able to tell a story about a special case here or there, but the data shows a striking pattern. 
 
The stories explain the data and it it looks like some democrat economic policy was really very bad, and they are worse than republicans. Kennedy, Johnson, and Carter all ran up inflation to boost their economic numbers on growth and unemployment. Both Romer and DeLong say their policy was especially bad. The historians have spoken and they analysis is more incitful than looking at data without the analysis. One can only reason that you leave out their analysis since it wrecks your implied case.

Cactus,

What innuendo?

Your innuendo is that economic policy under democrats working with the Fed was better than under republicans. I’ve shown by quoting expert opinion that this is opposite of the truth. Kennedy and Johnson set the country on the wrong path by creating rapidly accelerating inflation and budget deficits until they finally enacted a surtax which they passed to their successor. They are held up by the experts by having a bad economic policy. Nixon after being urged by his FED chief enacted wage and price controls which were stupid but was at least a try at combating inflation. Carter threw caution to the wind and bought decent unemployment at the price of rapidly accelerating an unsustainable inflation. Then the Reagan people came in understanding what needed to be done and worked hand in hand with Volker at the FED and giving him complete support to raise interest rates which drove the economy into recession and finally beat inflation. We benefitted from this sea change ever since.

And by the way, it bugs me that you can say this was not your innuendo since it obviously is.

Because it doesn’t sink in, I’ll state once more:  in this country, the President does not have the ability to increase or decrease the money supply.   

According to Friedman and Romer the FED chiefs and worked with the economic teams at the Whitehouse and Volker never could have fought inflation without the support of the administration. Moreover, it was the lack of support from the Carter administration that kept Volker from doing it earlier.

In the paper you cite, DeLong pointed out that it wasn’t until Carter put the right team together, the country did not have the willpower to face inflation.

I put Carter in the transitional camp. Late in his single term he started dismantling FDR’s industrial policy with deregulation, put Volker in place, and started to beef up our nuclear deterrent (I voted for Cater in 1980 – goes with growing up in Massachusetts)

Cactus,    
   
What innuendo?    
 
Your innuendo is that economic policy under democrats working with the Fed was better than under republicans. I’ve shown by quoting expert opinion that this is opposite of the truth. Kennedy and Johnson set the country on the wrong path by creating rapidly accelerating inflation and budget deficits until they finally enacted a surtax which they passed to their successor. They are held up by the experts by having a bad economic policy. Nixon after being urged by his FED chief enacted wage and price controls which were stupid but was at least a try at combating inflation. Carter threw caution to the wind and bought decent unemployment at the price of rapidly accelerating an unsustainable inflation. Then the Reagan people came in understanding what needed to be done and worked hand in hand with Volker at the FED and giving him complete support to raise interest rates which drove the economy into recession and finally beat inflation. We benefitted from this sea change ever since.    
And by the way, it bugs me that you can say this was not your innuendo since it obviously is.    
 
Because it doesn’t sink in, I’ll state once more:  in this country, the President does not have the ability to increase or decrease the money supply.       
 
According to Friedman and Romer the FED chiefs worked with the economic teams at the Whitehouse and Volker never could have fought inflation without the complete support of the Reagan administration. Moreover, it was the lack of support from the Carter administration that kept Volker from doing it earlier.    
 
In the paper you cite, DeLong pointed out that it wasn’t until Carter put the right team together, the country did not have the willpower to face inflation.    
 
I put Carter in the transitional camp. Late in his single term he started dismantling FDR’s industrial policy with deregulation, put Volker in place, and started to beef up our nuclear deterrent (I voted for Cater in 1980 – goes with growing up in Massachusetts). But Carter did drive up inflation and bought lower unemployment numbers at the expense of having to put the country into recession early in the Reagan administration. Remember Reaganomic — that term worked for the benefit of democats until 1983.

It often takes a while, sometimes a few years, before Presidential policies affect the economic data.   In some cases, monetary policy completely mitigates Presidential policies (in the case of Reagan, for example) or amplifies it (Clinton in the late 90s or Bush in the 2000s).  You also can’t judge economic data from President to President accurately because Presidential terms don’t line up with the business cycle.  LIke someone else posted, George W saw all of Clinton’s recession and Carter and Clinton both entered office when the economy was fully recovering from previous recessions (Ford and Bush I). Also note that Kennedy was a supply sider, much like Reagan. The booms of the early 50s under Truman and mid to late 60s under LBJ were largely influenced by war production and abnormally low unemployment rates because so many Americans were drafted into the military (it was under 2% in late 60s at some point). 

Cactus,

The independence of the FED is a legal distinction and not a practical one. In reality the FED and the executive branch form economic policy together.  This was true in the 1960s and 1970s (and also in the 80s, 90s, and 00s); and commented by Romer and Friedman in their interviews and writings. Recently we’ve witnessed Bernanke and the FED working closely with the executive branch and specifically with Paulson and Geithner.

Just one more example of the kind of crazy things you find Romer saying:

“The persistent budget deficits that began in the 1960s have not only remained,
but grown over time.”

Look at the picture (the red line is the one that really matters):

http://home.att.net/~rdavis2/debt10.jpg

The inflection point is–surprise–1981. 

In the course of the sixties, debt/GDP dropped from 56% to 39%. It dropped another several points in the 80s.

How can she look at that same picture we’re looking at, and make the statement she makes above?