Tax Burdens and Economic Growth – Answering the Objections
by Mike Kimel
Tax Burdens and Economic Growth – Answering the Objections
This piece is cross-posted with the Presimetrics Blog.
Consistent with findings in Presimetrics, the book I wrote with Michael Kanell which will be released in August, I’ve had some posts whose results contradict standard economic theory. In some cases, readers have insisted that the results must be some sort of anomaly. Perhaps the biggest offender is a graph which appeared in this post. The graph shows growth rates in real GDP per capita by Presidency, where each President is color coded by whether he increased the tax burden (in this case defined as federal government revenues as a share of GDP) or decreased it:
The graph shows that Presidents who cut the tax burden produced slower growth, on average, than Presidents who increased the tax burden. For many people, this doesn’t make sense at all. (An explanation for why these results show up is provided here. Now, I’ve already some of the objections that have been raised to this, mostly in private or in comments at the Angry Bear blog. In fact, the graph above by itself answers one of the objections – I was told many times that FDR only produced faster growth because the economy accelerated during World War 2. Thus, the graph only shows FDR’s results through 1938, which avoids the war, the build-up to the war, and even Lend Lease.
Another criticism is that somehow the fact that I’m assuming that Presidents have an effect on the economy is the problem, and that a better way to do this is to look at the business cycle. But I’ve had posts looking at the business cycle, and increasing tax burdens doesn’t look all that much better as an economic strategy across the business cycle either. For instance, consider the following graph, one of several fairly damning graphs I posted here and here:
Figure 2
If cutting the tax burdens is the right prescription during a recession, it isn’t evident from the above graph.
I’ve also been accused of cherry-picking, though I’ve gone as far back as the data allows, and on most posts on this subject, I’ve actually chucked the WW2 years. In addition, I’ve noted that throwing out outliers doesn’t change results materially. But what if the last eight decades have all been an anomaly? After all, shouldn’t we consider the “Roaring ‘20s,” a period which every textbook tells you was a period of rapid growth. After all, such intellectuals as Glenn Beck, Thomas Woods, and Amity Shlaes are quick to assure that the prosperity of the 1920s was due to tax cuts.
Unfortunately, the NIPA tables don’t go that far back, so we don’t have actual data on real GDP per capita (or the tax burden). But I’ve done my best to examine that claim; the following graph, which first appeared here, shows the top marginal tax rates and the periods (shown in gray) when the economy was in recession.
While the 1920s was, indeed, a period when marginal tax rates were reduced, it was a period of recession followed by recession followed by recession followed by the Great Depression. The longest consecutive months spent outside of recession during the 1920s was 27 months! Two years and a quarter. In fact, the economy was in recession (if not outright Depression) a full 44% of the time during the 1920s. If these were roaring years, those roars were extremely short-lived.
Which moves us to the next issue – I’ve been criticized for focusing on the tax burden rather than the marginal tax rate, the exception being in periods where the tax burden is not available. Frankly, of all the criticisms, that one seems especially weak. For those with enough income, the marginal tax rate is as much a fiction as the MSRP on a car; Warren Buffett’s offer of $1 million dollars to anyone on the Forbes 400 list who could prove they pay a higher share of their income in taxes than their secretary remains untaken.
Moving on to the next criticism… I’ve been told my interpretation of the above graph is wrong – it is not so much that higher tax burdens are correlated with faster economic growth, but rather that administrations that produced rapid economic growth tended to feel they could raise tax burdens, and that administrations suffering from poor growth kept tax burdens low to try to remedy a bad situation.
I dealt with that issue in recent posts by grouping the periods from 1929 to the present into eight year administrations, where possible. Those administrations were made up of the eight year terms of Presidents who served two terms (or in FDR’s case, the first two terms only). Added to those were eight year periods in which a Vice Presidents took over for a President who died or otherwise left office. For each of those eight year terms, I created the following graph . It shows the change in the tax burden in the first two years of each administration along one axis, and economic growth on the other axis:
Clearly, economic growth in years 3 through 8 cannot explain changes in the tax burden in earlier years unless one assumes time travel, clairvoyance, or one heck of a coincidence.
And speaking of coincidence, we arrive at another common complaint: there simply are not enough observations to reach a conclusion of any sort. Left unstated, of course, is that though the tax cutting Presidents had the lousiest economies, and that (as per graph 4) tax cutting led the economic growth, somehow a supposed lack observations validates the idea that lower taxes does produce faster economic growth.
Now, those who complain about the lack of observations generally insist that a) I don’t know the first thing about statistics and b) you need 30 or more observations to reach a conclusion. Now that critique dates back at least three years, having been made by an anonymous blogger for the Economist who I understand is now known as Megan McArdle, and my answer (to point b.) back then is as good of an answer as any:
Which is what degrees of freedom are for… Maybe there’s something wrong with the textbooks on my shelf, but the t distribution tables in the back of those textbooks have as few as 1 (one) degree of freedom. When the degrees of freedom are low, the t-statistics has to be really high in order in to reject H0. Or something like that – what do I know?
Allow me to explain. If there are a large enough number of observations to work with, it is possible to find a statistically significant difference between two things (events, peoples, outcomes, whatever) that at first glance or from a distance look very similar to the unaided eye. However, if there are a very small number of observations, then differences have to be larger and more obvious for them to be statistically significant. Consider three medications to extend the lives of patients with a specific type of cancer, where two have obtained FDA certification and the third was cooked up by the creepy guy who lives two houses down and uses cat puke as an active ingredient. It might take hundreds of observations to tell which of the first two medications is more effective, but it shouldn’t take very many to tell how well the third one compares.
And while in the past I sometimes decided to answer this question by running a t-test or some non-parametric test, it always seems to lead to questions about the assumptions by people who clearly never ran a hypothesis test in their lives but have one or another political point to defend to the death. So let me try something else – an argument by analogy. Consider the graph below.
If such a graph came from a study comparing outcomes of medications, where patients were assigned a medication but otherwise told to go about their daily business, there’d be no argument that, at least as a first approximation, there’s no reason whatsoever to assume that Medication 2 was more efficacious than Medication 1. And if the disease in question was a particularly rare one, and the graph above represented the testing performed on every known sufferer since 1929, most of us would be appalled if a doctor decided to treat the next sufferer with Medication 2. At the very least, we would assume that the burden of proof going forward should lie not with the proponents of Medication 1 but rather with the supporters of Medication 2, whether we understood the mechanisms by which either of these pharmaceuticals worked (or purported to work) or not.
And yet, this graph is identical to Figure 1, except that I changed the title and some labeling.
But there is another problem with the small sample objection. See, there are many ways to test whether there has been a negative correlation between tax burdens and economic growth, and looking at the national economy is only one of those ways. I’ve also had a number of posts at the Angry Bear blog looking at how states have fared over the years, and there are 50 of those. In fact, that was the topic of the first post I ever wrote four years ago next month. In that post, a comparison of the states, using data from 1990 to 2005 yielded the following conclusion:
Thus, the data doesn’t seem to support the idea that lower taxes are associated with faster growth rates. In fact, the opposite is true, especially for the fastest growing states. One way to interpret this is to conclude that taxes are actually below their optimal rates, and therefore, at the margin, the government is actually more efficient than individuals at converting its spending into growth. Society needs a certain amount of public goods (infrastructure, public health, confronting the Canadian menace, etc.) for businesses to thrive, and perhaps we currently have too little provision of public goods rather than too much.
And the other posts I’ve had using similar state level data have all led to the same findings.
Another problem frequently brought up is that growth is too complicated to be explained by a single variable. We agree, and in the book, we actually provide a model that uses several variables. But be that as it may, it isn’t reasonable to state that while cutting tax burdens produces faster economic growth, that effect gets swamped by opposing forces when you look at the data systematically, whether you’re looking at the performance of Presidents, at the growth during business cycles, or the performance of states. Clearly, if reducing the amount that people pay in taxes is so beneficial to the economy, somewhere that effect would show up. It shouldn’t be overwhelmed by other variables pushing in the opposite direction every time one tried to test it systematically and consistently.
Moving on, we have another little gem – that the performance of the two regimes (tax cutters and tax hikers) is not independent. The argument is this: tax hikers do well because they follow tax cutters who laid the foundation for growth. Tax cutters do poorly because they have the misfortune of following tax hikers who set up the economy for a fall.
This one is particularly easy to hit out of the park. First, note that there is only one tax hiker that is followed by another tax hiker: LBJ followed JFK. And LBJ produced the second fastest growth in our sample, which is to say that simply following a tax hiker is no guarantee of poor performance.
Now, look what happens when you consider only Presidents that followed their tax burden cutting peers:
Notice that following a tax cutting President doesn’t mean one will turn in a poor performance… unless one is also a tax cutting President. In fact, tax cutting Presidents that followed other tax cutting Presidents did worse than tax cutting Presidents who followed tax hikers. Imagine that. It’s almost as if the longer tax burdens are cut, the worse the outcome.
And yes, I included Hoover in the above graph though we don’t have the data to know with certainty that his predecessor, Calvin Coolidge cut the burden since Coolidge is renown as a small government guy. But leave out Hoover, and leave out Obama’s first year, and you still aren’t left with anything other than: In fact, tax cutting Presidents that followed other tax cutting Presidents did worse than tax cutting Presidents who followed tax hikers.
Which leads to the sorriest objection I’ve heard, namely that the American public, the constantly gulled American public, has the ability to reason out the outcome of economic policies on the macroeconomy to near-perfection, at least in 4 year increments. And the way it manifests itself here is this: when the economy is about to sour, we elect tax cutters, who, in turn, manage to limit the scale of the impending disaster.
This, ahem, theory (gurgle, choke) is the efficient market hypothesis on LSD. But it has the advantage of being able to explain pretty much anything. The problem is that it does so by breaking everything down to utter nonsense. For instance, it would indicate that the recent housing bubble and economic meltdown, rather than being a surprise, was actually anticipated on some unconscious level by the American public, and selected for as being much better than the alternative. Ditto the Great Depression. So what was this worse thing that was avoided? Locusts? Famine and pestilence? Billions of furious yetis descending on us from their Himalayan stronghold?
And yet, despite the fact that this story makes a virtue out of nonsense, it still isn’t internally consistent. For instance, if the American public understood that only a series of tax cuts were going to save us from something worse than the Great Recession, then wouldn’t GW have managed to have won the popular vote in 2000 and achieved a landslide in 2004. Conversely, does the fact GW received fewer votes than Al Gore indicate that perhaps the American public did not perceive that really big threat a few years in the future? It’s easy to knock down a story that is built on nonsense.
All of which brings us back to the point of this post. Michael Kanell and I have noted that lower tax burdens are not correlated with more rapid economic growth. In fact, from 1929 to the present (and in the book, we focus on the period from 1952 to the present) administrations that have cut the tax burden have performed worse than administrations that raised the tax burden.
And I think we, together and separately, have answered every reasonable objection that has come up, and even quite a few unreasonable objections to boot. And we’ve done so in a consistent and open manner. In our book and in my posts, we’ve been open and clear about our methods and data sources, and we’ve made an effort to treat the data as consistently and systematically as we were able. At some point, the burden of proof should no longer lie with us, but rather on those who cling to a story that simply is not consistent with the data we have observed in the U.S. over the past few decades. Frankly, I think we’re well past that point.
“One way to interpret this is to conclude that taxes are actually below their optimal rates, and therefore, at the margin, the government is actually more efficient than individuals at converting its spending into growth. Society needs a certain amount of public goods (infrastructure, public health, confronting the Canadian menace, etc.) for businesses to thrive, and perhaps we currently have too little provision of public goods rather than too much.”
Bing! Bing! Bing! Bing! Bing! Bing! Bing! Bing! Bing!
I think we have a winner!
If Obama extends part of the Bush tax cuts, does he come out as a hiker or a cutter?
Mike,
What tax burden are you refering to? Almost every President had a Tax cut, and a Tax increase over their terms, and Obama will end up being one the largest tax hikers in history, and you have him as a tax cutter?
Reagan raised taxes, so did Bush I.
Also the largest population decreases happend under Democrat Presidents.
Also, the GDP calculation does not decifer targeted spending, if spending increases so does the Real GDP per capita, and we are supposed to take full faith that just becuase more government spending is taking place that the standard of living is actually getting better, when we all know that you can’t punish behavior and expect more of that behavior.
It is good work, but your not there yet, quit telling everybody the debate is over!
“And the way it manifests itself here is this: when the economy is about to sour, we elect tax cutters, who, in turn, manage to limit the scale of the impending disaster.”
This kind of theoretical rationalization is after the fact. Not so much a posteriori, but more along the lines of an ex post facto explanation based upon a prima facie review of the evidence. If it could be tested as an hypothesis it might then be an example of a posteriori reasoning, but don’t hold your breath until that occurs. It’s nothing more than an effort to grasp at straws and build a house of canards.
Largest tax hiker in history…hmmm. So he needs to be listed as a tax hiker before he does….I have seen this at Seeking Alpha, and then author states that from his study of research on taxes this is bad, and ‘large’ was also used…none of this is defined or linked. I knew it sounded familiar.
Arne,
In this post I don’t get into the mechanics, but all the posts to which I link do mention… the tax burden shrinks if the share of income that gets taxed by the government rises. I haven’t mentioned that in this post, but another thing I’ve checked is whether using different measures of taxes and income makes a difference to the outcome. It doesn’t.
As to Obama… it depends on what happens to the tax burden. As noted in this post, the marginal tax rates don’t seem to affect the tax burden over the long run.
Please note this post: http://www.angrybearblog.com/2009/12/obama-bush-mankiw-look-taxes-spending.html
Jimi,
“What tax burden are you refering to? Almost every President had a Tax cut, and a Tax increase over their terms, and Obama will end up being one the largest tax hikers in history, and you have him as a tax cutter? “
http://www.angrybearblog.com/2009/12/obama-bush-mankiw-look-taxes-spending.html
“Also the largest population decreases happend under Democrat Presidents. “
Please point to the years where population in the U.S. decreased between 1929 and today.
“and we are supposed to take full faith that just becuase more government spending is taking place that the standard of living is actually getting better, when we all know that you can’t punish behavior and expect more of that behavior. “
What does this have to do with the post?
Rdan,
Well it seems quite ridiculous to assume that it is going to be left till 2012 for a Republican to raise taxes, not including the Bush Tax Sunset. If the only tax increase during the Obama Administration is the Bush Tax Sunset, I will be amazed. He already said it was coming.
The point being, that adding Obama into this type of post, is really not helpful.
Mike,
“Please point to the years where population in the U.S. decreased between 1929 and today.”
Yes your right, I did not state what I was trying to say correctly. It is not that population decreased ever, but lets take the FDR years, those years the population grew more slowly in consecutive years than anyone elses.
It happend again during Johnson. We are talking small numbers, but in terms of the GDP per Capita calculation……it matters!
“What does this have to do with the post?”
The Real GDP calcuation considers government spending…does it not? Your premise is that we are not spending enough, or that the government spends money better….is it not? The point is just because government spending increases which increases the Real GDP per Capita, does not mean that it is translated down the road into a higher standard of living. How, where and when the money is actually spent matters. If spending is not targeted (besides the needs of the basic infrastructure, and the needs layed out by the founding documents) then the burden is increased but may not be translated into paving the path of growth in the private sector.
During our country’s greatest growth period (1948-!980) we taxed ourselves at twice the rate we tax ourselves at now. The idea that higer taxes inhibit growth, is nonsense and not supported by the facts.
At that same time period we rebuilt Europe and Japan. We paid the WW II debt. Only one worker per household was needed to pay for the best lifestyly on Earth. We built hte Highway system. We went to the Moon. We built the best school system in the World. I could go on, but the point is we will not hurt ourselves if we raise taxes, and we need spending to maintain our (infrastructure, etc.) society.
It’s simple Math. The Republicans have been cutting taxes since 1983, but have not cut spending.
Tom said: “The idea that higer taxes inhibit growth, is nonsense and not supported by the facts.
At that same time period we rebuilt Europe and Japan. We paid the WW II debt. Only one worker per household was needed to pay for the best lifestyly on Earth. We built hte Highway system. We went to the Moon. We built the best school system in the World. I could go on,…”
All through the 50s we had a series of slow growth and small recessions as the economy adjusted to the surplus workers returning from the war. While we helped EU and JP, Ch, etc grow, it was increasing competition. Competition lessened our position. While we were spending on the infrastructure and space we were also passing high dollar welfare, medicare, medicaid and education programs.
It is a given that Govt spends every dollar they receive in revenue, and more often than not they spend more than they receive. In good times that is OK as long as that spending can be dialed back. By implementing entitlement programs, which can not be dialed back, there is less and less annual budget flexibility.
So, now you call for that wonderful tax increase, and we start that whole cycle over. A few years of flexibility followed by the next round of calls for taxes. Whe does it end? How does it end? Do you really believe that it can go on forever?
Tom, just where do you want to cut? We are currently borrowing one of three dollars spent with just a little over 30% of the budget still ?discretionary?. In simple terms, the total discretionary part of the budget might as well be borrowed.
The Obama has chosen not to liberalize the economy with reduced regulation and making tax cuts permanent. And he plans to raise them in the near future.
… So how is the Obama recovery doing? It looks to me like its petering out, like with the Japanese with all their Keynesian stimulus in the 1990s. I hope we don’t have to wait to the end of his term to put pro growth people and policies in place.
It’s the economy stupid, not moratoriums that we need to be focusing on.
I understand that people dont like paying taxes, but if used properly, taxes help build the infrastructure of a particular country. Taxes are supposed to help fix roads, schools, and anything else that deals with the development of any community. The real issue dealing with taxes is greed. I can understand that if you’re not someone that makes a lot money, you shouldnt be taxed so much that you cant afford a loaf of bread, but if you’re someone that makes millions of dollars, why shouldn’t you be put in a higher tax bracket w/o any tax cuts given to you. It amazes me how someone who can make like a million dollars be taxed say like 40 percent and act like they are not able to live off off the 60 percent. also, those people making so much money are sometimes the ones that pay the least amount of taxes becaue of all the tax breaks given to them when it comes to business ownership. it only makes sense for those that make more pay a little more to help bring growth in a country. Right now the country is obviously struggling in the attempt to bring economic development, but the only way for it to turn around is spending. the only way people will spend is if they have money to spend. So giving those who have less a higher tax cut than those who already have enough makes sense, because history shows that people are willing to spend as long as they have something to spend. also people complain that their children in the future are the ones that will pay for all this spending, well its always been like that. the future is always paying for past mistakes, its called life. We just have to try and make it better than the way we found it.
Jimi,
As to pop, I believe the differences are so small as to be immaterial. Here’s real GDP, with no per capita – take a look yourself: http://www.bea.gov/national/xls/gdplev.xls.
Jimi,
“Your premise is that we are not spending enough, or that the government spends money better….is it not?”
That was the point of my original post. My current views are slightly more complicated… Given the relative sizes of he gov’t and private sector, I think paid for spending is more effective at the margin.
Tom & CoRev,
In the end, the marginal rates are a fiction that matter less than the tax burden. Marginal rates of 90% and up don’t mean a higher tax burden than marginal tax rates that less than half of that.
For example, from 1952 – 1960, the tax burden averaged 17.3%. It averaged 19.4% from 1992 – 2000.
Owl,
I believe you have a misimpression about what is happening under Obama. I talked about that here:
http://www.angrybearblog.com/2009/12/obama-bush-mankiw-look-taxes-spending.html
Mike more apples aand oranges comparison? “Marginal rates of 90% and up don’t mean a higher tax burden than marginal tax rates that less than half of that.” Higher marginal rates on a small subset of wages, versus a new set of taxes overall.
FICA in 1952 was 1.5% and in 2000 FICA was 7.65%. Now, that’s apples to apples.
Raloph Durand said: “So giving those who have less a higher tax cut than those who already have enough makes sense, because history shows that people are willing to spend as long as they have something to spend.” Which tax do you propose to cut? FICA, Dale will be happy to regale you with reasons that is a bad ides. Income taxes? ~47% do not even pay income tax, and of that 47% some are getting income via the Earned Income Tax Credit.
So, I’m not so sure you fully understand the reality of taxing versus the talking points you see in the media and left of center blogs like AB.
Talking points…Mike offers a thought out piece but others have the truth. Sheesh.
Mike, what does your previous article have to do with Owl’s comment that the stimulus is dying out or Obama’s liberalization of the economy? He has in fact added regs and is about to let the Bush tax cuts sunset.
Dan, you need to be a little more specific in your responses. Which talking points do you want to discuss? Too often I can not pin point your issue in order to respond or occasionally am not sure who was the target of the response.
As far as Mike’s analysis, I have looked for years at single variable analysis in the AGW world, and have found that there is much needing deeper analysis there and in Mike’s. It is easy to pick out biases and weak areas, so, I am waiting to read the book and especially the reviews before engaging with Mike.
jimi
as a matter of established laboratory fact, you CAN punish behavior and get more of the same behavior.
you persist in reporting the fairy tales of your favorite propagandists as if they were Revealed Truth.
” Income taxes? ~47% do not even pay income tax, and of that 47% some are getting income via the Earned Income Tax Credit.”
And why is that? Its been decided that all income below a certain level should not have anything other than payroll tyaxes removed. Do you disagree with that? Why?
Whatever that number is it means no one is paying taxes on that portion of their salary.
I believe the number is 40,000 dollars so all you’ve demonstrated is that almost half our population is making less than 40,000.
The guy who makes 50,000 and is in a 15% tax bracket (these numbers are for demonstration purposes only)only pays 15% of the 10,000 over and above the 40,000 , so he pays 1500 dollars on 50,000 of income or about 3%.
But both of these workers pay 7.5% of their FULL income into SS, so no one gets off tax free.
Why does it bother you that some lower income people pay no income taxes? They are already helping you out by working for a lower salary than you.
jimi
as to logic. Kimel’s finding that the government may not be spending enough is not his premise. it is his conclusion.
unlike you, where “growth in the private sector” is assumed to be “the good”, so that if half the country starves waiting for growth in the private sector, that is better than growth in the public sector.
you may have read a story about seven fat years and seven lean years. would you say Joseph was recommending private spending or public spending?
and i have to say it annoys me speechless (well, not quite) to hear people call taxes “punishment.”
if you feel so goddam punished by paying your taxes, quit working. stop all that punished behavior. desisit. i will find someone to take your place in about 13 seconds who will be grateful for the chance to pay some taxes.
you see all those people there at the fair, with their money in their hand, waiting in line to be punished so they can go on the ride.
CoRev
we may have “increased our competition” by rebuilding Japan and Germany, but we certainly did not lessen our position. you see the trick about economics is that the more money other people have the more they are able to buy what we have to sell.
CoREv
no. your comparison of FICA from 1952 to 2000 overlooks the fact that the program was being phased in. the number of beneficiaries per worker was much smaller in 1952.
unfortunately this has given the Big Liars a chance to come out and say that unless the tax remains the same as it was in ’52 the people are being robbed. that’s a little like saying that unless the price of microsoft stock stays the same as it was in 1980, its stockholders are being robbed.
Ralph
i am in general agreement with you. But you can see from CoRev’s reply that its not an argument that can be ‘won.’ People are incapable of reasoning beyond their very short term personal perceived advantage.
One error they keep makig re taxes is to assume that what works on the upswing is the right medicine for the downswing. You wait in vain for a glimmer of intelligence, it seems. Only the vast swings of history… changing enough people’s short term prospects to change their “opinions”… resuslts in any change. i don’t know about progress.
but for what it’s worth. at this stage of history, i think a tax increase would be the right medicine. i also think the tax increase should apply to the poor (FICA) as well as to the “rich”. You can see why I am not going to win the election.
Greg, simplest answer? Those who have no stake other than as a beneficiary, have no need to be reasonable about spending to themselves. Indeed, they and their supporters ask for ever more.
“What tax burden are you refering to? Almost every President had a Tax cut, and a Tax increase over their terms, and Obama will end up being one the largest tax hikers in history, and you have him as a tax cutter?”
Kimel already worked out a way around this difficulty, and explained how he did it. He uses federal revenue as a share of GDP as his measure of tax, so that a rise in the ratio is an increase in taxes, a decline in the ratio a decrease in taxes.
Reminds me of CEO behavior…evermore and more.
CoRev,
“…no stake other than as a beneficiary,….” so you say. And who is it that reaps the benefit of their low pay wages? CoRev again,”…..have no need to be reasonable about spending to(?) themselves.” Or did you mean “on themselves?” In either case one has no choice but to be reasonable when spending such a generous annual income as $40,000
may be. Once again, CoRev, “Indeed, they and their supporters ask for ever more.” No one asks anything more of the government than to collect taxes from those who can afford more because of their enormous wealth and because that wealth is indicative of the benefit they derive from the government.
You are indulged by others on this site far bveyond any value of the information that you bring. You are a talking points kind of guy with little use of references that might provide valid support of your comments and the so-called facts that you provide therein. Like the comment that you left the other day concerning the Gulf oil spill clean up efforts and leaving out the fact that the content originated with an article by Dick Morris and was published by David Horowitz. Very factual, I’m sure.
CoRev,
The tax burden is the percentage of income that goes to the government. So one percentage went up, and another down, etc., but in the end, on average,tax burdens were 2.1% higher from 1992 to 2000 than from 1952 to 1960. Period.
CoRev,
The post is about tax burdens. I focused on the piece of Owl’s response that had anything whatsoever to do with tax burdens:
“The Obama has chosen not to … making tax cuts permanent.”
Now, he is talking marginal rates, but still, it is worth making him aware that tax burdens are not doing what he thinks they are doing during Obama’s admin so far.
CoRev,
It’s not up to me, it’s up to the American people. The people have to decide what kind of society and government they want. What programs they are willing to pay for, and which ones they are not. But they cannot just not pay for what they spend.
We made that decision in the 1930′ and againg in the 1960’s. By a clear majority Americans agreed with and were willing to pay for these social programs. Possibly they understood the hardship and suffering of not having such programs.
The current baby boomer generation, is the most spoiled this country has ever produced. Most don’t understand real suffering, which is why they don’t see the need to pay to releive it.
We (as Americans) must decide what we want and then PAY for it.
Cutting taxes alone, only gives us deep debt and bankruptcy. It is failed, selfish, bad, leadership that makes that decision. It’s difficult for people to decide where to cut, because they want those programs, they are just not willing to pay for them. To bad, there is no free lunch to building and maintaining the best country in the World.
Mike, I just explained one of the reasons there was a difference. Indeed one of the taxes went up. I am agreeing with you.
Jack asks: “And who is it that reaps the benefit of their low pay wages?” Nearly everyone! Those who use their products and/or services are getting them at a fair competitive price. The employer is increasing or maintainng its competitive position. The employer’s creditors are recieving payments/dividends. Unless, of course, you wish for wage and price controls.
$40K wage = EITC recipient? Maybe!
$43,279 ($48,279 for married filing jointly) if you have three or more qualifying children;
$40,295 ($45,295 for married filing jointly) if you have two qualifying children,
$35,463 ($40,463 for married filing jointly) if you have one qualifying child,
or $13,440 ($18,440 for married filing jointly) if you do not have a qualifying child.
From here: http://www.taxgirl.com/ask-the-taxgirl-eitc-eligibility/
Jack said: “blah, blah…wealth and because that wealth is indicative of the benefit they derive from the government. “
Wealth can be obrained four ways: 1) Gifted 2) Earned 3) Stolen, 4) and in Jack’s world, provided by the Govt. as a benefit.
I can always tell when commenting is hitting home/making a difficult to accept point. Responses turn to ad hominems.
gee Owl
we had a liberalizer of the economy for eight years. look where it got us.
(by the way, when Clinton said “it’s the economy, stupid” he was talking to himself. he was not trying to insult anyone.)
greg
i pay income taxes on an income less than 20,000. Try not to believe everything you read in the papers.
CoRev
this is bullshit. the people asking for ever more are the banks and the defense contractors.
Arguing that something will necessarily happen, as CoRev does in saying that higher taxes would “start the cycle again” is always kinda fishy. However, what CoRev manages here is to argue that the stuff he sees as bad that happened in the 1960-1980 period will happen again, but the stuff previously mentioned as good is left out. So not only is CoRev basing his argument on nothing more than his own ability to see into the future, but doing so by leaving out inconvenient facts along the way. Not that this is new. But the point to Kimel’s effort has been to marshal facts. Countering those facts with by leaving out facts rather misses the whole spirit of a fact-based analysis.
Mike Kimel: “In the end, the marginal rates are a fiction that matter less than the tax burden. Marginal rates of 90% and up don’t mean a higher tax burden than marginal tax rates that less than half of that.”
So how do you manipulate the tax burden, Mike?
Whats the bottom line here?? If I and you give our “money-taxes” to someone else (government),who in turn, takes some of it,out – for their own pay,benefits, retirement,housing,transportation, and vacation funds, and then gives what is left to someone who may or may not need it at all.(I don’t know, for sure, who government is giving it all too.)…….Silly!
Why can’t I keep my taxes. I will give my money to people in need, that I know, or our neighbors know, and then I can spend it as I wish, and purchase from people that will do the same with “no one else deciding for us, and taking it away from us”
Lessee, KH, believes that when new revenue is achieved it is not spent (we start the cycle over.) If that is the case, then where do we put that excess? There is no rainy day fund. Bush chose to give it back. KH’s position is more than a little fishy, unless of course he is using 100% hind sight.
So what part of what I said happened in the 60-80s did not happen, and to what part of my observations do you disagree?
These great, gaping, roaring generalities that you too often cite, are not a sign of concise, scientific analysis. They do however, represent a political view point.
deductions
CoRev
it’s okay to spend the new revenue. that’s the point. the argument here (may be) that increased taxes and increased government spending have a positive effect on economic growth. the evidence would seem to support that, in spite of religious claims to the contrary.
thetruth2
but it doesn’t work that way.
the government uses the tax money to do things the people and private enterprise cannot do efficiently. it has to pay people to do that work. some of them private, some public employees. rather than taking money away from you on net, this actually increases your income. there is absolutely no doubt about this, except among some politicians who know they can win elections by promising you tax cuts, and actually delivering those tax cuts to their wealthy friends, but not to you.
to put it starkly, if it was not for government and taxes you would have NO money at all. you would be digging for your supper with a sharp stick, if you could keep some bigger guy from taking it away from you.
OK
Do you get all but FICA back?
If not then CoRevs argument faild even MORE!!
CoRev,
Excess pays down debt. It was done by every President from the end of WW2 until Ford. Since then, every Rep president has pushed the debt up. I guess Obama is taking a page from the Rep playbook and running up the debt too. Why not – look at Clinton – he got assailed for being fiscally irresponsible by the likes of GW’s supporters. So what is the gain to a Dem president to cutting the debt?
thetruth,
As the post points out, what you say is all good, but for some reason the data shows the opposite whether we’re looking at Presidents, business cycles, or state level comparisons.
So what would you have us do? Stick with what you know to be true or go where eight years of data point? Let’s be realistic – the world is full of people whose opinion contradicts the data on all sorts of matters. If we go with what you know, contrary to all evidence is true, what else must be also believe contrary to all evidence? How do we pick and choose?
Also, you aren’t the only one to have this particular belief about taxes contra the known facts. Now, it is easy to find another individual who has the same beliefs as you, but odds are, you will disagree on certain particulars. Whose particulars should we follow if you disagree on particulars? How do we judge between your beliefs that contradict the facts and somebody else’s?
With all due respect, its just easier to stick to what the facts tell us and move on to the next issue. Lord knows there are a lot of things to figure out.
Mike said: “Excess pays down debt.” Yup! Nothing wrong with paying down the debt. That’s one of the pckets for spending the excess.
Even in apying down the debt there is a limit. It doesn’t take too long before we are taking back those bonds held by Granma and Grandpa leaving them to find less safe investments. Plus there are many laws that would need to be changed because they require precentages of investment in safe Fed Treasuries.
AnyHoo, the excess revenue is spent. Oh, ans while we are paying down the debt why don’t we just take a porion of that excess and expand, Medicare, medicaid, welfare, education, Ag subsidies, and add a handful of new weapon systems. Y’ano, that ole we have so lets make it count!
Thencomes in evitable swlow down, and the only thing availabe to cut is the Weps, but for the jobs lost in key Congress critters districts, umh, err, maybe next budget.
I just would like to address the canard so often presented by our GOP friends that punishing a behavior leads to less of it. They use this statement as evidence of higher taxation punishing workers and therefore leading to less work. Lets flesh this out a bit from a few angles.
How many other behaviors that we punish actually give us less of that behavior? Murder rates are seemingly not affected by type of punishment. I would posit that virtually none of our serious crimes are affected to a significant level by our punishment.
When a story is told to support this tax=punishment of work= less work thesis, we are regaled with the “guy” who when offered an opportunity for more work says no because taxes will just eat up the extra money. This is presented as a terrible bain on our economy and as something to be perpetually avoided. “One day”, the story goes, “NO ONE will do the work because of the taxes”…….. REALLY??
This story only works if “the guy” is the only one who can do the work. How many guys are like that (I know plenty of guys who THINK only they can do their job , but we should not cater to deluded people)
and the counter fact is that if that guy actually was the only one he’d get paid whatever he wanted/needed to do this much needed thing. Taking this obviously extreme example out though, even on the margins the worker that says no to paid work is only creating an OPPORTUNITY for someone else to earn that money he cant be bothered with working for. There is no loss of production from this scenario. There may be a few pouters but it doesnt hurt GDP or productivity. All paid work that needs to be done will find the price to get it done. If the work doesnt need to be done……GREAT, less waste!
Dale, your $20K is gross or adjusted?
Greg, it’s not my argument it is the IRS stats.
Coberly,
(by the way, when Clinton said “it’s the economy, stupid” he was talking to himself. he was not trying to insult anyone.)
He was talking to the liberals in the democratic party. I guess Obama never paid attention to him.
Greg, huh!!! Care to find some quotes for your contention? “…higher taxation punishing workers and therefore leading to less work.” It’s not something I have seen.
CoRev
not saying you haven’t described the way its done, has been done. but what is the solution then…leave taxes low and run up the deficit and cut social security… which has nothing to do with the deficit?
oh, and meanwhile all those people out of work because the unregulated banking industry made bad bets and now everyone is afraid to buy or invest?
Owl
no. the sign was to remind him to talk about the economy and not other stuff during his election campaign.
Greg
no. i was talking about what i paid, not got back. income tax. FICA is not a tax.
CoRev, gross. look at the numbers in your own post.
Regarding the statistical significance argument you make:
I have, in fact, pointed out the same thing in other contexts (nothing to do with your work here). I’m very familiar with the argument which has been forcefully made by McCloskey and Ziliak.
They make many points in their work on this subject, but the points relevant to this discussion are that one should not be held hostage to an abitrary p-value (e.g. 0.05) and that statistical significance is a sample size issue, economic significance is not.
Interestingly, they have some harsh things to say about “sign econometrics” as well. And you’re doing “sign econometrics” in a lot of these posts. Just sayin’.
But I don’t think that you can just wave the statistical vs. economic significance argument around and feel like all is well. As we have established, this is not a well-controlled experiment. You will surely grant that FDR, at least, is an outlier in the sense that tax burdens or rates probably had less to do with economic performance than other things. So you’re left with a small number of observations and a rather weak relationship among those few non-outliers. Even medical statisticians would remove participants from the study if protocols were not followed (another way of saying that they were not controlled observations).
One thing does occur to me now that has not occurred to me so far in our discussions, though. What happens if you fit a quadratic to the data throwing out FDR? A peak around zero?
I might actually buy that, believe it or not. (If you know me well enough, you shouldn’t really be surprised.) In other words, maybe the best thing for presidents to do is to not change the tax burden as either an increase or a decrease could have negative effects.
While this may have some validity, I certainly maintain that it is proper for the president and congress to adjust fiscal policy when necessary. But any change, up or down, should be made carefully.
CoRev,
” It doesn’t take too long before we are taking back those bonds held by Granma and Grandpa leaving them to find less safe investments.”
I’m sorry. Is the point of government borrowing to provide people an opportunity to loan money to the government?
I mean really, you could find any problem in the world and show that someone is benefiting from it. That doesn’t mean you don’t try to do something about the problem.
Shorter version: I don’t think a p-value of 0.05 is your problem. The economic significance is debatable, but I think, weak. And throwing out FDR, those who did nothing did the best.
CoRev,
” Care to find some quotes for your contention? “…higher taxation punishing workers and therefore leading to less work.” It’s not something I have seen.”
http://www.google.com/search?hl=en&source=hp&q=going+galt&aq=f&aqi=g7g-m3&aql=&oq=&gs_rfai=CoU5uElc1TOeTJZHuzASm9qyBBgAAAKoEBU_QeRkZ
Shorter version: I don’t think a p-value of 0.05 is your problem. The economic significance is debatable, but I think, weak. And throwing out FDR, those who did nothing did the best. (I’m referring to Figure 4 here… if you look at tax rates [Figure 2] instead, it is perhaps a bit more complicated, but still looks like a reasonable hypothesis, all things considered.)
In fact, the period where FDR did the best was at the end when marginal rates were unchanged, according to your Figure 2.
Worth considering.
Willliam Polley,
As we discussed last week, for a lot of the ways I looked at data, the relationship actually gets stronger if you leave out four Presidents who could be considered “special cases”- Hoover, FDR, Truman (war’s end) and Obama (just one year of data). What happens is that these guys change the slope of the line but decrease the correlation. The slope of the line is steeper with these four characters, but the correlation is weaker because the 1952 to 2008 administrations are more in line with each other.
As to McCloskey and Ziliak… call me someone wandering a path that is kind of similar to theirs, but not the same path. I learned of their existence long after I started doing what I was doing. I was doing some work for a company that did a lot of nonparametric work at about the time I started thinking along these lines (Presidents, growth, etc.) and its definitely influenced my thinking. But ultimately, if I have an influence (though he wouldn’t recognize it, I imagine) its my old advisor to whom I was assigned when I arrived at UCLA, and who was on my committee when I left – Arnold Harberger.
Long story short… I wrote a more or less standard dissertation, except that instead of being a lot of mathematical theory or a lot of fancy statistical tools, it was both a lot of mathematical theory and a lot of fancy statistical tools so I was pretty proud of my skills. For Harberger’s saek, I had a chapter made up of triangles.
Anyway, I thought talking to Harberger about these things was a formality given he doesn’t have the math or stats skills, but along the way Harberger would look at my work as it progressed. And he would spot the errors nobody else did. I eventually realized that he intuited what each line meant, even if he didn’t have the training and skills to do that line. And when the intuition didn’t work… there was an error.
Between that, and being forced to do nothing but triangles on one chapter, the seeds were sown – and over time, as my arrogance at my own brilliance given everything I had managed to master diminished, I started to conclude that the intuition is the most important thing. And the easiest way to get there is to simplify, simplify, simplify. And I still have a long way to go before I manage to simplify the way Harberger used to do when I sat there thinking he was a relic.
What I’ve tried to add to simplify, simplify, simplify is one other thing – use every way to simplify at your disposal. Look at it the problem from 30 different angles. Sometimes surprising things come out after the umpteenth time.
William Polley,
A follow-up to this: “ and over time, as my arrogance at my own brilliance given everything I had managed to master diminished, I started to conclude that the intuition is the most important thing.”
These days, I’m still arrogant, of course. Its just that my arrogance is now over my brilliance at having learned to find things using simple tools.
Mike, RE: the point of Govt borrowing, yes, some laws and many regs will need to be changed. Because there are Fed bond investment floors out there.
Mike, said: “I mean really, you could find any problem in the world and show that someone is benefiting from it.” I’m just pointing out that there are always two sides to the argument, countervailing forces. The problem then is one side sees it as a problem and the other as a benefit.
Dale, I just wanted to see if you were a member of the tax payere subset referenced by the IRS numbers. IIRC, they are for the family of four.
With your comment it shows you to probably be single, and unable to itemize.
BTW, in the future I will include the phrase “the average family of four” when citing the numbers.
Dale, I just wanted to see if you were a member of the tax payer subset referenced by the IRS numbers. IIRC, they are for the family of four.
BTW, in the future I will include the phrase “the average family of four” when citing the numbers.
Mike, referencing some fictional character or finding references to said character? Just what does that prove?
Mike, I hope you are not flying in the face of this: “I eventually realized that he intuited what each line meant, even if he didn’t have the training and skills to do that line.“
From this professional intuit, yes I am reassured by 45+ years of experience of successfully using it as an analyst, that you have not backed up your findings.
Are you contending that you have never characterized income tax as a tax on work, taxes as a form of punishment and punishment of work as a disincentive to work?
You may not have specifically used those terms but MANY conservatives do on a daily basis. The story I told is one a coworker has used FREQUENTLY! I am regaled daily with people saying they arent going to stay and do extra work cuz taxes will eat up all their efforts. Its quite a common theme amongst the Hannity/Rush crowd. I know those guys had to have said it cuz none of their listeners come up with stuff on their own.
As I thought, couldn’t find the quote, espeically not from me. Finding one ignorant conservative is easy. Just as easy as finding an ignorant liberal/Dem. Caught out again!
As I thought, couldn’t find the quote, espeically not from me. Finding one ignorant conservative is easy. Just as easy as finding an ignorant liberal/Dem. Caught out again!
BTW, a recent poll found that tea Partiers were far more knowledgable about economics/Fed spending than Dems. Whoda thunk?
CoRev
fair enough. but you seem to make the mistake that the choices are always “either – or.” a tax increase, for example, on the people who got the benefit of the last tax cut… which has not delivered the growth we were promised would pay for it… would not bring down the deficit to the point where we had to stop selling government bonds. but it might bring it down to where the shouting about it had less resonance. and maybe new borrowing could do something more useful than paying compound interest on old borrowing.
CoRev
actually it was you who brought up “talking points.” you are the one who needs to be a little more specific.
CoRev
I think that would be better.
And while it’s been some time since i’ve been there, but I suspect a family of 4 making 40 thousand these days would have trouble just buying groceries, paying the rent, and maintaining two cars for mom and dad to get to work.
so please be careful when you exclaim about folks not paying taxes to remember that they are not making any money either.
CoRev
I think one of those ignorant consrvatives used that expression right here in this very thread.
and “more knowledgeable about economics” means “believes the fairy tales of the right wing version of economics promulgated by the people who ran the poll.” no one thunka.
Mike
with all due respect to Mr Polley, and to your own statistical expertise, you have not done an “experiment” and you are not reasoning from a sample to a population. you have looked at the entire population and reported what you found.
there are too many brain damaged statisticians around who want to apply fancy statistics without bothering to understand the problem. you may have to play their game, but between you and me, you should know better.
you (and I) cannot say with certainty that the next democrat, or the next tax raiser, will get better results than the next republican or the next tax cutter, but in the real world, no one who has seen your data would conclude that “tax cutting republicans grow the economy.”
meanwhile, again with deference to those whose statistics is fresher than mine, when you flip a coin twelve times and it comes up heads all twelve times, the odds of it coming up tails next time are not even even.
CoRev
intuition needs to be checked. but those who fly without it, crash. in my work i got to watch too many experts rely on a formula they learned in school, with no intuition… formed by looking at the problem 30 ways?.. and they would be off by orders of magnitude and not even suspect.
Dale, you are also challenged to find that quote.
Here it is:
Jimi
Mike,
What tax burden are you refering to? Almost every President had a Tax cut, and a Tax increase over their terms, and Obama will end up being one the largest tax hikers in history, and you have him as a tax cutter?
Reagan raised taxes, so did Bush I.
Also the largest population decreases happend under Democrat Presidents.
Also, the GDP calculation does not decifer targeted spending, if spending increases so does the Real GDP per capita, and we are supposed to take full faith that just becuase more government spending is taking place that the standard of living is actually getting better, when we all know that you can’t punish behavior and expect more of that behavior.
It is good work, but your not there yet, quit telling everybody the debate is over!
2 days ago, 15:51:43 – Flag – Like – Reply – Delete – Edit – Moderate
Coberly,
The sign actually had the following three lines:
1. Change vs. more of the same
2. The economy, stupid
3. Don’t forget health care
Coberly,
we had a liberalizer of the economy for eight years. look where it got us.
What 8 year period are you talking about? It seems to me the liberalization period was more like 30 years covering administrations and legislative bodies from both parties. Obama and the current democrats in congress now seem like the odd duck in the story of our recent economic history.
Dale, this is the quote: “…higher taxation punishing workers and therefore leading to less work.” And your reference: “you can’t punish behavior and expect more of that behavior.”
They seem somewhat similar. It might be a stretch to say they are the same meaning.
Jimi, care to coment?
Its not a STRETCH at all! What do you contend he was referring to Obama punishing people with? What behavior do you think he was saying you will disincentivize (OOPS I used a synonym… I hope its not too confusing for you!!) by the previous behavior he characterized as punishment.
Once again;
1) Do YOU view income tax as a tax on work?
2) Do YOU view taxes as a form of punishment?
3) Do YOU think punishing work will lead to less of it?
Oh, Coberly… I do appreciate your comments as well. You are indeed correct that this is the population and not the sample. Now, since Mike is the one posting graphs with R^2 and slope coefficients on them, I’m trying to answer in that language. I could certainly say that statistical significance really doesn’t have a lot of meaning in that setting. But I’m sure I would hear objections to that as well. Suffice to say that there are things one can learn from applying various techniques, even to a population, and there may be nothing wrong with that as long as you are very clear about what your limitations are.
While I never explicitly mentioned the population vs. sample issue, my point all along has been consistent with that. While I have referenced the notion of statistical significance, I think my message has been that statistical significance in these results is dubious (and perhaps irrelevant), and economic significance even more dubious (but very relevant).
I think that the economic (substantive) significance of a relationship is much more important than statistical significance. And that’s true of a sample or a population. The response by a commenter, presumably sympathetic to Mike’s position, to that was “the issue is not econ 101 as much as statistical.” Yet I’m sure that Mike would acknowledge that there are important structrual, economic relationships here that he’s not picking up. I happen to think those relationships are the real story, and his exercises are the footnote–not the other way around. But finding out the real story is hard.
I think that the presence of obvious outliers adds force to my argument. The economy under FDR was very different from that under any other president. How can you be sure that the factors that affected his performance were the same as those that affected the others? You can’t. And to those who would counter that by that logic you can’t say anything because each president faces different factors–that’s simply not the case. The investigator must use his or her own good judgment (and use evidence) in determining what criteria should be met for excluding an outlier.
In sports economics, one might report regression results with and without the Yankees, for example, because good expert judgment tells you that the factors that influence the Yankees performance may not be the same as those that affect all other teams. The judgment of the investigator is important.
I get what you’re saying in your last paragraph. I’d take that up further but this is getting long enough.
William Polley,
You are correct, in general. But I’ve made an effort to look at this more ways than one. Presidents are one way, and its been the way we selected for the book for various reasons. But as noted in this post, we get similar conclusions doing things if we look at it without involving Presidents at all.
Strikes me as funny that the first thing Polley wants to do is muck with the data and remove the points he deems “outliers.” We had a word for that kind of statistics.
Polley
thanks. i hadn’t noticed you replied to me before i posted my last comment. i don’t know what’s left of the argument after you are finished with it. but it still seems to me that you are looking at a world series where the Yankees win four games straight, and you are saying that’s too small a sample to prove anything. Lets make it six out of ten.
i noticed that MIke took up the statistics argument against my advice. All I could think is that he has to satisfy the academic crowd who would feel lost without it, even though it doesn’t mean anything.
Here you go CoRev from the mouth of Rush Limbaugh
“ Because, folks, it’s axiomatic: when you raise taxes on an activity, you reduce that activity. People start doing that activity less. In this case: working”
http://www.huffingtonpost.com/2009/03/30/rush-limbaugh-to-new-york_n_181005.html
from elsewhere in the article
“’cause this is just absurd, and it’s ridiculous — and it isn’t going to work. It’s punishing the achievers for the mistakes and the lack of discipline on the part of a bunch of corrupt politicians…..”
So the voice of the republican party whose words are parroted every day thousands of times has claimed raising taxes reduces work, and that its a punishment of high achievers.
Now my original statement was not directed at you CoRev, Jimi wrote the post that provoked my response but you jumped in acting as if my contentions were absurd, that no one has ever argued that, certainly not you. I admitted I could not quote you directly but I still contend you support the logic of the argument, so why dont you address the logic (or lack thereof of the argument) rather than claiming I’m making shit up? I made my argument for why I think that contention is specious and simply un supported not only by logic, but no evidence has ever shown people work less (in aggregate) when taxes are high. Yes some may decide not to work extra but the work gets done that needs to get done.
actually
if anything makes people work less, it’s having ENOUGH money.
you can be sure the right wing crazies remember this when someone suggests raising wages, or providing unemployment benefits.
Greg, you asked a series of questions earlier. I did not know to whom they were directed, but my answers are:
1) No
2) No
3) Depends on the type and severity of punishment.
CoRev,
The problem is when do you decide your intuition is wrong. If my analysis had only been about Presidents, maybe there’s a point. But I was told – look at the business cycle, and again, taxes don’t have the expected effect. And I looked at state level data… and the same thing.
At what point do you conclude your rule is wrong?
Coberly also said:
“thanks. i hadn’t noticed you replied to me before i posted my last comment. i don’t know what’s left of the argument after you are finished with it. but it still seems to me that you are looking at a world series where the Yankees win four games straight, and you are saying that’s too small a sample to prove anything. Lets make it six out of ten. “
“i noticed that MIke took up the statistics argument against my advice. All I could think is that he has to satisfy the academic crowd who would feel lost without it, even though it doesn’t mean anything.”
First of all, by “outlier” I don’t only mean that the result is outside the usual realm, but more importantly, that a reasonable person might (should?) conclude that the factors affecting that outcome were very different than those that affected the rest of the results. I guess one could argue that the environment in which FDR operated was about the same as the environment for Truman through Bush (43). One could. I wouldn’t. You can call that whatever you want. And when push comes to shove, FDR is probably the only one that I would call an outlier in that sense, so I think your above comment is a little over the top since I could probably find a lot of people who would agree about FDR.
As for the Yankees, you missed the point completely. What I’m saying is that there are economic relationships that influence decisions made by and the performance of sports teams, but the particular case of the Yankees may not exhibit the regularities you see among the other teams. In a lot of ways, the Yankees are, economically, a special case. I wouldn’t try to use the case of the Yankees to try to infer much about economic relationships that affect other teams, nor would the Yankees case be a particularly useful guide as to how to manage your average team. It’s a subtle analogy, so don’t take it out of context.
Likewise, I can say that FDR did a lot of things that made sense at the time (and some that didn’t), but even the good things that FDR did might not be sensible for other presidents to do. Again, I think that’s a fairly common opinion, even if some might disagree.
Now, I think Mike has said that he doesn’t intend for people to draw broad policy conclusions from this work. I don’t buy that. Economics is almost never purely descriptive. Economics is, among many other things, a conversation. More often than not, that conversation has policy implications. The descriptive side is seldom divorced from the policy implications–at least not for very long.
And the policy implications may be subtle. For example, I pointed out that if you do take out FDR (for reasons that I think a lot of people could understand), then in Figure 4, the ones who did the best were the ones under whom the tax burden was essentially unchanged. This would be consistent with the notion that sudden changes in tax policy in either direction could be harmful for growth. I think that’s a reaonable notion, but I don’t suspect that Mike is going to be putting that on a headline any time soon.
My point is that I don’t think he has justified his narrative by looking at these two-dimensional relationships. True, I may not have much of an argument in the sense that I’m less willing to present similar statistics in as heroic a fashion. A really good refutation (or confirmation) of his conclusions would be a scholarly paper worth reading, but would prove to be a multi-year project for someone willing to take it on. And my comments are long enough as it is.
Ultimately, what concerns me the most is that he seems to think this is merely descriptive and stands on its own. I don’t think so. […]
Polley
we seem to have gone to different schools. taking the “outliers” out for any reason is called fudging the data. there are times when it could make sense… a measurement far outside the range of “normal” errors, and identifiable as a probable “blunder” of a common type. I believe even in a case like this, fudging is frowned upon.
but to throw away data because it is “stronger” than other members of the set which tend toward the same conclusion is simply … well, bad practice. especially suspect if you favor another conclusion.
To my eye, what you are doing is throwing away Mike’s strongest data, where large differences in the independent vatiable produce large differences in the dependent variable, and then observing triumphantly that the “effect” is by no means as obvious among the data near the middle of the range. In effect making your random errors swamp the main effect by refusing to look at the cases where the effect is strongest.
my yankees example had nothing to do with your yankees example. i was making an entirely different point. namely that “sample size” is irrelevant when you have the whole population measured. and if you don’t like the results, changing the rules ex post is… bad practice.
i rather don’t think my comment is over the top. i think your calling in “experts” who agree with you about the politics to support your dubious use of statistics would be… bad practice.
in life we usually only get “small samples” to base our behavior. if i have led a life in which the last eight occurences of something yellow and black in the bushes turned out to be a banana, i am likely to have a different reaction to the next occurence than if my last experience turned out to be a tiger. though i suppose you could call that an outlier.
so while i would not support a claim by Mike, if he made such a claim, that his data is proof that the next democrat, or raising taxes, will produce better results that the next republican or cutting taxes… i would certainly bet that way if the choice came down to that. but to be perfectly honest with you, there are other issues i take far more seriously than a percent more or less of “growth.”
coberly,
“so while i would not support a claim by Mike, if he made such a claim, that his data is proof that the next democrat, or raising taxes, will produce better results that the next republican or cutting taxes… “
Coberly, that is EXACTLY what Mike is claiming.
I find the most interesting part of this is the trend of placing Obama using the same colors as Reps rather than Dems (yes I know how you did this).
Very interesting
Buff
you’d have to show me where Mike makes that claim. I think there is a difference between saying: this is what the data show, and this is what the data “prove.”
The data show what they show. Now me, a simple country boy, would take that data as evidence that cutting taxes does not grow the economy, or at least has not done so to date.
I would not claim to predict that it will never do so. But I would not mindlessly vote for the next person who claims that it will.
As for Obama… well, that data is not in yet. But he looks like he’s a bit to the right of Ike to me. His putting Social Security at risk… if that’s what he is up to. His health insurance plan that looks like a bail out of the health insurance industry that does nothing for consumers except force them to pay the premiums set by the industry, his ballout of the banks and stimulus that favors tax cuts over jobs…
now, i don’t know how this will all turn out, and i don’t even know the for-sure facts about his “tax cuts” yet. But he looks to me like more evidence, if we needed it, that there is only one Party in this country, and that is the party of the rich, and the dems and republicans are just playing good cop bad cop. and all the people are no more thoughtful about what is going on than when they wear their school colors and go cheer for their team at the big game.
polley
if you come back.
i don’t want to fight with you. and certainly don’t want to hurt your feelings. just saying that your approach to statistics would have raised eyebrows where i had it all ‘splained to me.
I think an interesting case could be made for “leaving things unchanged,” if unchanged took care of the country’s needs withut running up a problematic debt.
If you wanted to make that case carefully, I am sure the people here would welcome a chance to read your argument.
coberly,
I wish there was an easy way to respond line-by-line. Anyway, here goes.
What did you mean by “if you come back”? Not sure what you’re trying to imply there.
You think this hurts my feelings? No. Certainly not. Perhaps slightly offended that you would make a comment like that to try to imply something. But that’s hardly something I’d worry about. Mike and others know me better than that. I thought you did too. Hurt feelings? No. Not in the slightest. People can raise their voices in an intellectual debate without hurting feelings. In fact, it happens a lot in academia.
Now, if you want to talk about “outliers,” as I have, let’s remember one thing. I’m not saying to hide the fact that you might take that out. I’m saying that there is a strong case to be made that the conditions under which FDR operated were different enough from the others to justify examining what the relationship would look like without including FDR. Good practice would be to report it both ways.
(I may not have explicitly said this in the previous comment. I trusted that I didn’t have to explain chapter and verse of how I would deal with it without someone assuming that I would just try to hide it.)
Of course, most macro data implicitly excludes FDR anyway since some of our best data sets begin in 1947. But, hey, if you want to use data back to 1933 (and you have it), then go ahead and see what it looks like both ways. If the results are very different with and without FDR and there is good reason to believe that circumstances peculiar to his time made a difference in those results, then the only responsible thing to do is to report it both ways, be honest about why you’re doing it, draw your conclusions, and let the reader decide.
Outliers are interesting. They do happen in nature, and you can learn a lot from them. But if you want to learn the most about them, you have to take a stand on how you will deal with them. Blindly leaving them in could be just as bad as dishonestly taking them out. Honest investigation of them seems the best course.
You say that FDR is Mike’s strongest data. Yes and no. It has a large effect on the result, yes. But what it is evidence of? You see, what is a little troubling is that FDR represents Mike’s strongest result on a lot of things because GDP growth was tremendous coming out of the trough of the Depression. But was FDR’s success because of this? That? Or the other thing that we missed altogether? Mike’s analysis brings us no closer to the answer. That’s important because if the reason for FDR’s success is something that he hasn’t effectively controlled for, then it casts doubt on all his results that critically depend on the inclusion of FDR. This is a much harder question than you or he seem to acknowledge. Maybe he does in the book. I haven’t seen the book yet.
It may surprise you that I don’t care a whit about the politics here. The fact that I question Mike’s results doesn’t make me a Republican or a tax-cutting supply sider.
As for making a case for keeping things unchanged… you are entirely correct that one would have to consider the effect on debt and ensuring public services are provided, etc. I’ve never said anything to the contrary. None of these statistical relationships should be interpreted as an imperative to do anything that for other reasons would be stupid. But it does look like in the post-WWII era, presidents who saw the tax burden remain relatively stable saw the best growth. It’s right there in Figure 4. I don’t have to make that case carefully. Mike already has. Even so, I’m willing to acknowledge that it’s more complicated than that. More complicated than could […]
Postscript: In a previous comment, I did say, “The investigator must use his or her own good judgment (and use evidence) in determining what criteria should be met for excluding an outlier.”
I stand by that. It goes without saying that if the investigator uses good judgment and evidence to justify excluding something, they must explain how they arrived at that conclusion. I thought it also went without saying that this explanation would imply giving the result both ways to show just how much the potential outlier affected the result.
If you can make a strong case that one of these things is really different from the others (in a way that is relevant to the investigation at hand), and if inclusion or exclusion of that observation affects your results in a big way, and if you didn’t have many observations to begin with…. then I do think you have a problem that needs to be acknowledged.
polley
all i meant by “if you come back” is that lots of times folks start a conversation on a blog then they go away and don’t come back. it makes me uncomfortable to feel i am talking to thin air, so intro my comment… more for my benefit than for yours.
reply to the rest of your last comments coming up.
polley
re what happens a lot in academia.
i know. i went to a pretty robust graduate school. been rather surprised to find how easy it is to hurt feelings out in the real world. don’t mean to. just better to make a “strong” case than a timid one. and sometimes its fun to have fun.
for example…
it seemed to me that you began by complaining that Mike’s conclusion was based on too small a sample, then you suggested making the sample even smaller by exculding the data you did not like.
yes, you can argue that FDR was a special case… but then it turns out they are all special cases. i didn’t think you were proposing hiding the data. but you were proposing to “ignore” it. i don’t think that is good practice. BUT if you have another hypothesis, you should feel free to develop a careful model and test it and be prepared to “defend” it.
there is no religious feeling about either the politics or the statistics here on my part. all i am saying is that i don’t find your argument very convincing. that’s not a put down. just the only way i know how to say “no sale.” at least not yet.
now it’s me who may not be back for a while. on the other hand, don’t feel you need to keep this going if it seems to have run its course for now.
Depends on what you mean by “ignore” I guess. If presenting it “with” and “without” and noting how and why they might differ, that’s not my definition of ignore.
“but then it turns out they are all special cases”
Sorry… I addressed that, figuring that someone would say that. That’s a straw man. If you asked 100 economists or historians which 20th century president faced the most fundamentally different economic conditions from any other, I suspect there would be a lot of agreement and a lot of willingness to explain why. Each case might be different, but one of these is REALLY different from the others–for identifiable reasons that Mike isn’t capturing. That’s the problem.
And please, it’s not that I don’t “like” what including FDR does. It’s that including it or not changes the result quite a bit. So if the reason for FDR’s growth is something other than what’s on the right hand side of his regression, and if that something is correlated with what is on the right hand side (and given where FDR is on the right hand side compared to the others, well…), then he’s potentially got a specification problem. I’m speaking of Figure 4 again.
True, I do have to argue that the remarkable growth rate FDR saw later in his term had to do with something other than changes in the tax burden.
Seriously?
polley
what remains is that mike tookl ALL of the data available and compared “raises tax or lowers taxes” vs “rise in GDP.” and published the numbers.
you may think some of that data should be excluded. i can’t tell you strongly enough that what you are proposing is bad statistics. if you have an argument that leads to a different conclusion than what seems to be suggested by the data, by all means present the argument. but don’t suggest doing a little post facto data sophistication.
if i were to examine the claim that tall people weigh more than short people, and presented, not just a sample, but the actual weghts and heights of the whole population, and found that yes indeed there appears to be evidence that tall people weigh more than short people, then you come along and say, well these people over six ft six are clearly a special case, so lets exclude them, and these people less than five ft five are another special case, so lets exclude them, and then exclaim.. ta ta! the correlation between weight and height for people between five five and six six isn’t very strong after all… well, all i can say is that you would be asking a different question from the one i asked.
but if there was money on the outcome, i’d say you were cheating.
Ok… this may have run its course. I think there is reason to believe that the model is misspecified and the inclusion of FDR provides a clue as to how. I think that the possibility that you might have something to worry about with respect to misspecification is obvious. You apparently don’t. If I can get some free time to demonstrate it more rigorously I will.
Until then, I will let my previous comments stand. I have nothing more to add until I show you the numbers.
Comparing job growth or economic growth with which party controlled the White House is bad history and worse economics. For perspective see this balanced blog.