T Nation

Liberalism & the Economy

Really interesting debate going on, sponsored by The New Republic and The National Review. It’s between Jonathan Chait and Jonah Goldberg (in case you know who they are), and it’s very interesting.

I won’t post the whole thing here, but here’s a link:

http://www.opinionduel.com/

I’ll comment a little later when I have more time.

i forget the name of the professor… but jonah goldberg was too afraid to debate this american university professor about iraqi politics/history.

the professor challenged him because he disagreed with joanh’s positions regarding the war in iraq, but jonah goldberg wouldn’t engage him.

can’t really blame him, though. you can’t go fight a professor in his own field when you’re just a pudit.

[quote]hueyOT wrote:
i forget the name of the professor… but jonah goldberg was too afraid to debate this american university professor about iraqi politics/history.

the professor challenged him because he disagreed with joanh’s positions regarding the war in iraq, but jonah goldberg wouldn’t engage him.

can’t really blame him, though. you can’t go fight a professor in his own field when you’re just a pudit.[/quote]

Juan Cole…

I’d say Jonah is the worst to argue the conservative side, but still the numbers on liberals vs. conservative aren’t ever going to favor conservatives, except in concentration of wealth, but hey that’s why you vote republican.

[quote]BostonBarrister wrote:
Really interesting debate going on, sponsored by The New Republic and The National Review. It’s between Jonathan Chait and Jonah Goldberg (in case you know who they are), and it’s very interesting.
[/quote]

Possibly the most interesting thing is how quickly it became purely ideological instead of actually analyzing the numbers… :slight_smile:

However, I do have to admit I like Chait’s position that the best solution for a given problem can change depending on several circumstances, and that the key to economical success includes being flexible and adapting to the changes in circumstances.

What I’d like to see is both sides actually presenting solutions, rather than just spending time with political attacks.

[quote]100meters wrote:
hueyOT wrote:
i forget the name of the professor… but jonah goldberg was too afraid to debate this american university professor about iraqi politics/history.

the professor challenged him because he disagreed with joanh’s positions regarding the war in iraq, but jonah goldberg wouldn’t engage him.

can’t really blame him, though. you can’t go fight a professor in his own field when you’re just a pudit.

Juan Cole…


[/quote]

That’s funny – from what I read on The Corner on The National Review, Jonah said he would debate Cole anytime, anywhere – and also offered to bet him a paycheck, with the money going to charity…

Seems they couldn’t agree on a time/place or wager I guess…

[quote]hspder wrote:
BostonBarrister wrote:
Really interesting debate going on, sponsored by The New Republic and The National Review. It’s between Jonathan Chait and Jonah Goldberg (in case you know who they are), and it’s very interesting.

Possibly the most interesting thing is how quickly it became purely ideological instead of actually analyzing the numbers… :slight_smile:

However, I do have to admit I like Chait’s position that the best solution for a given problem can change depending on several circumstances, and that the key to economical success includes being flexible and adapting to the changes in circumstances.

What I’d like to see is both sides actually presenting solutions, rather than just spending time with political attacks.

[/quote]

True, but the question wasn’t really set up for solutions like that. The framing of it was Chait’s initial position that liberals were more interested in solutions because they lacked a separate, ideological rationale for their positions, whereas conservatives had economic reasons and ideological reasons (an inherent preference for smaller government for other than economic reasons).

Also, I’d like to see some big-time economists get into it with a debate on solutions, but for now I’ll have to settle for Chait and Goldberg, with their inherent limitations.

Now, what I wouldn’t give to see Friedman vs. Krugman… =-)

[quote]BostonBarrister wrote:
True, but the question wasn’t really set up for solutions like that. [/quote]

I’m sorry, but I fail to see the interest in the discussion then. Trying to guess on what is the most accurate generalization for the positions of conservatives and liberals is just dumb.

There are no accurate generalizations. When you generalize the positions to two basic ones, you have a huge margin of error. That’s Statistics 101.

Unless they argue that the US should not be so polarized and that there should be at least a dozen different parties that had representation in Congress (like in Europe).

[quote]BostonBarrister wrote:
Also, I’d like to see some big-time economists get into it with a debate on solutions, but for now I’ll have to settle for Chait and Goldberg, with their inherent limitations.

Now, what I wouldn’t give to see Friedman vs. Krugman… =-)[/quote]

We’ve had plenty of those debates over here in the Bay Area, both at Stanford and at Berkeley. I also to went to a couple in other places, including a couple of “think tanks”.

The problem – and possibly the reason the debates are not more public – is that it gets horribly complicated and rarely anyone clearly “wins” the debate. Why? Because the best solution depends on a) the objectives (i.e., what is the desired outcome) and b) the constraints (external and internal). So depending on the personal objectives and constraints of the economist speaking, the results are different.

The most interesting debate I ever had the pleasure of seeing involved several PhDs that worked together on an extremely complex model of the present-day US economy that used macro and micro-economic theory for the numbers and Game Theory, Cultural Anthropology and Biology for the constraints. It had some Chaos Theory equations thrown in the mix for some of the external interactions too. It is already brilliant but it already seems to be very reliable. However it’s still being worked on and I’ll be glad to post a link to the papers when they are published.

Of course, the variables that needed to be introduced in the model are the objectives and the proposed policies.

When running the simulation with the objective being an increase in GDP the results were interesting, because with most policies you introduced (including all the ones being proposed by both Republicans and Democrats) the increase either didn’t happen or was highly cyclical (with cycles ranging from 5 to 20 years).

The kicker was when they ran a more complex set of policies, that divided the US into two groups of “enterprises”: public-interest and market-interest.

In the public-interest group are mostly the companies that provide non-material (non-goods) services that everyone needs in order to have basic quality of life i.e., they put:

  • Health, including Hospitals, Clinics, and – yes – Pharmaceutical companies
  • Education, from High-Schools to Colleges
  • Transportation, i.e., Public Transit, including trains, buses, airplanes, etc.
  • Utilities - water, electricity, etc.
  • Banks
  • Insurance companies

In the other group they put everything else, i.e., stuff from food and industry to retail.

The group of public-interest stuff was funded with tax money and nominal fees (“co-pay”), and expected not to make profit (but not create budget deficit either – which is not easy). The other group – the majority of companies – was funded by the free market, of course, and expected to make profit.

The free market was highly de-regulated, except for a strong anti-trust policy that prevented the existance of monopoly and cartels. Specifically policies were put in place to incite heavy competition in those markets, both internal and external, and prevent consolidation of companies at all costs.

Federal + State tax was set in exponential brackets starting at 0% for people below minimum wage and increasting up to 60% (Fed + State) for people that earned over 10x minimum wage per head (benefitting people that have kids and/or housespouses).

Sales tax was non-existant – with education, health, transportation, power, banks and insurance companies in the hands of the Government there was no point in inciting savings. The incentive was given to people to spend all their net income in order to fuel the economy’s growth.

I’m describing this in some detail because it was the only policy that provided sustained increase over the period of confidence of the simulation (200 years). The increase in GDP was small - only 2% a year above inflation - but completely sustained, so after the 200 years the results were quite spectacular vs the more traditional policies that created a rollercoaster.

Of course this represented a set of policies that are so far left for the US political spectrum, there is a higher chance of hell freezing over than for them to ever be adopted. No president will get elected by promising 2% over inflation growth and saying “it’s the best for our grandkids”.

Of course, the conservatives argued that the simulation was biased towards the left-wing but this was a year ago and nobody has been able to prove that the simulation is not as accurate as they can be. Including many conservatives.

I’m still leaving out many, many details, but this is already a long post – I can share more details to anyone interested.

The bottom line is that the result of the studies were that bar hell freezing over, we’re essentially going to live in continuous economical cycles of contraction and expansion from here on, independently of who is in power, with our great-great-grandkids inhereting a country that is not much bigger (economically) than the current US, and will by then be the world’s third economical power, with only 2% of the world’s population.

But deep down we all already knew that, didn’t we? :slight_smile:

On a slightly different topic, Ann Coulter and Peter Beinart had a debate at my school which was supposed to concern which politcal party more accurately represented the American populace. There were three student responses in our school newspaper the next day, all of which complained that nothing was actually debated. In fact, each just espoused political rhetoric without actually saying anything, and the responses all lamented the waste of resources on getting those two. BTW, Coulter resorted to absurd generalizations of liberals and democrats, while Beinart just attacked Coulter herself.

I just felt it was some sort of reflection of the debate being discussed, and I didn’t want to make a new topic.

hspder –

Very interesting. Leaving aside my layman’s doubts about any models actually being able to incorporate ALL the possible factors that would affect an economy over a 200-year period, I wonder why you think that it would only be right-wing resistance to the proposals?

While obviously it would be the right-wing that would object to the nationalization of certain parts of the economy, I think the left-wing would be fairly adamant in its opposition to the large-scale deregulation of the rest of the economy. Anti-trust regulations definitely wouldn’t satisfy unions, racial activists, or environmental activists, to name a few interests off the top of my head.

BTW, I actually like that proposed tax scheme (if not the precise numbers) better than what we currently have, and would support it if it had political traction. It’s not a head tax, but that’s never going to happen…

[quote]hspder wrote:

The bottom line is that the result of the studies were that bar hell freezing over, we’re essentially going to live in continuous economical cycles of contraction and expansion from here on, independently of who is in power, with our great-great-grandkids inhereting a country that is not much bigger (economically) than the current US, and will by then be the world’s third economical power, with only 2% of the world’s population.

But deep down we all already knew that, didn’t we? :slight_smile:

[/quote]

Exactly! Barring getting hit by a comet and inspite of the rhetoric spewed by politicians on both sides I think with our political system the economy is relatively immune to tampering.

[quote]BostonBarrister wrote:
While obviously it would be the right-wing that would object to the nationalization of certain parts of the economy, I think the left-wing would be fairly adamant in its opposition to the large-scale deregulation of the rest of the economy. Anti-trust regulations definitely wouldn’t satisfy unions, racial activists, or environmental activists, to name a few interests off the top of my head.[/quote]

Well, a lot of the areas that are today under a lot of influence of that activism would be nationalized, so that would keep a lot of left-wing people happy. Possibly the problem would be the primary and secondary sectors – mostly the latter – however I don’t think those guys would be the biggest problem. We’ve had to deal with them before, they’d bend eventually. The nationalizations would encounter MUCH more resistance.

[quote]BostonBarrister wrote:
BTW, I actually like that proposed tax scheme (if not the precise numbers) better than what we currently have, and would support it if it had political traction. It’s not a head tax, but that’s never going to happen…[/quote]

Yes, it’s simple, fair and effective. I’ve always wondered why the heck tax laws have to be so complicated. There’s beauty in simplicity.

[quote]Zap Branigan wrote:
Exactly! Barring getting hit by a comet and inspite of the rhetoric spewed by politicians on both sides I think with our political system the economy is relatively immune to tampering.[/quote]

Long-term, no doubt. It’s always been that way and it always will – politicians do not have a visible effect on this country’s economy long-term behavior – at least if you limit your analysis to the economical indicators, or, say, the stock market.

However do note that I also said that current politics causes cyles in the economy – and how those cycles “feel” depends on those same politicians.

It’s like making a road trip with a bunch of friends:

Assuming you follow the speed limit, and the same decent freeway outside rush hour, all cars will get there safely, and more or less at the same time.

Now imagine that you are buying cars before the trip and have a limited collective budget. You can choose to give everybody a Honda Accord, or your can give yourself a MB SL65 AMG and stick everybody else in a 50-yr old VW Van – same total price. You’re all still getting there, at the same time, and alive, but the trip will feel very different depending on which car you’re stuck with… :slight_smile:

Conservative Bartlett gives up on starving the beast:

http://www.nytimes.com/2005/04/06/opinion/05bartlett.html?

…Yet many conservatives continue to delude themselves that all we have to do is cut foreign aid and get rid of pork barrel projects to rein in the budget. But unless health spending is confronted head on, even the most draconian cuts in discretionary spending won’t be enough to restore fiscal balance.

I am no deficit hawk. For decades I have argued that the negative effects of deficits are generally exaggerated. But unless spending is checked or revenue raised, we are facing deficits of historic proportions. It is simply unrealistic to think we can finance a 50 percent increase in spending as a share of gross domestic product - which is what is in the pipeline - just by running ever-larger deficits. Sooner or later, that bubble is going to burst and there will be overwhelming political support for deficit reduction, as there was in the 1980’s and early 1990’s.

When that day comes, huge tax increases are inevitable because no one has the guts to seriously cut health spending. Therefore, the only question is how will the revenue be raised: in a smart way that preserves incentives and reduces growth as little as possible, or stupidly by raising marginal tax rates and making everything bad in our tax code worse?

If the first route is chosen, the value-added tax is by far the best option available to deal with an unpalatable situation. Absent any evidence that the White House and Congress are prepared to restrain out-of-control health spending, I see no alternative.

Perhaps hspder and B.B. would note that he has joined the value added tax camp at the begining of the op-ed. Your takes?
I think it would be too regressive, but here’s some details on v.a.t.
http://ezraklein.typepad.com/blog/2005/04/the_vat_and_why.html

He didn’t give up on “starving the beast” – he said he didn’t like the idea of growing the beast with spending increases while at the same time cutting taxes.

As to your question, the VAT would be one of my least favorite alternatives simply because of its stealthy nature – it’s like the gas tax. You don’t know how much it is and you don’t feel the pain. People should always feel the pain of their taxes and have a precise idea of how much they are paying on top of the cost of the good. It’s also much too easy to raise without people realizing it.

I would rather have a sales tax, but I’m not a fan of that either. In both the case of the VAT and the sales tax, you’re turning businesses into effectual government tax collectors, and imposing liability and record-keeping responsibilities on them that will harm their efficiency. I think our lack of inflicting this burden on business is a small part of our competitive advantage.

All in all, I favor a flat income tax ahead of either a VAT or a sales tax.

[quote]100meters wrote:
Perhaps hspder and B.B. would note that he has joined the value added tax camp at the begining of the op-ed. Your takes?
I think it would be too regressive, but here’s some details on v.a.t.
http://ezraklein.typepad.com/blog/2005/04/the_vat_and_why.html
[/quote]

The VAT is omnipresent in Europe, I lived with it (at a whopping 19%) and I am whole-heartedly, positively, completely, no-holds-barred, heads-first… against it.

Why? For the same reasons I’m against a Sales tax altogether.

I’ll start from the conclusion: it’s an asinine idea, especially in a Capitalist economy. The only reason it exists is, as BB says, to hide taxes: somehow it’s less unpopular for a government to introduce a Sales tax or VAT than to increase income taxes.

The problem with both VAT and Sales Tax (the differences are insignificant for the purpose of this discussion) is that they are, in essence, double-taxation; you pay tax on your income, and then again when you spend it. The rationale behind it was that it’s supposed to provide an incentive to save: if you save, you’ll only pay tax once; if you spend, you pay twice.

In a Capitalist economy that survives by having people buy stuff (and keeping the money moving), it’s not only idiosyncratic – it hurts our economy.

The problem is that the politicians don’t have the balls to do actually decrease public spending and, if necessary, increase income taxes – preferably to the $100k+ crowd, who is getting it very easy these days, and could easy take the brunt of the tax increase, rather than the little people who just want to be able to buy a small car or maybe a nice TV without having to pay tax twice.

Politicians resort to stealth tactics like Sales taxes or VAT because they’re wimps…

[quote]hspder wrote:
100meters wrote:
Perhaps hspder and B.B. would note that he has joined the value added tax camp at the begining of the op-ed. Your takes?
I think it would be too regressive, but here’s some details on v.a.t.
http://ezraklein.typepad.com/blog/2005/04/the_vat_and_why.html

The VAT is omnipresent in Europe, I lived with it (at a whopping 19%) and I am whole-heartedly, positively, completely, no-holds-barred, heads-first… against it.

Why? For the same reasons I’m against a Sales tax altogether.

I’ll start from the conclusion: it’s an asinine idea, especially in a Capitalist economy. The only reason it exists is, as BB says, to hide taxes: somehow it’s less unpopular for a government to introduce a Sales tax or VAT than to increase income taxes.

The problem with both VAT and Sales Tax (the differences are insignificant for the purpose of this discussion) is that they are, in essence, double-taxation; you pay tax on your income, and then again when you spend it. The rationale behind it was that it’s supposed to provide an incentive to save: if you save, you’ll only pay tax once; if you spend, you pay twice.

In a Capitalist economy that survives by having people buy stuff (and keeping the money moving), it’s not only idiosyncratic – it hurts our economy.

The problem is that the politicians don’t have the balls to do actually decrease public spending and, if necessary, increase income taxes – preferably to the $100k+ crowd, who is getting it very easy these days, and could easy take the brunt of the tax increase, rather than the little people who just want to be able to buy a small car or maybe a nice TV without having to pay tax twice.

Politicians resort to stealth tactics like Sales taxes or VAT because they’re wimps…
[/quote]

well we all hate VAT–yeah!

I read about the VAT years ago, with descriptions as to how it was negatively affecting the countries it was imposed in, and it scared the hell out of me. If I understand right, and this is from memory of years ago, you are taxed at every single step of development.

In other words you are taxed on the production of electronics that go into a radio, and the radio is taxed as it is put into a car, which is also taxed. Not to mention every single nut and bolt has its own tax. So you are taxed on adding value to an item, and this can build exponentially.

What people seem to be missing in the equation are two things. Living within a budget. I have to, so why doesn’t the government. Second tax slows down economic development, so reducing taxes, especially during times of economic downturn, can boost the economy, create jobs, and stimulate increased economic growth which can, and has, resulted in increases in tax revenue.

While some call this voodoo economics, it is better understood if the word investing is used. Less taxes means more money invested in the economy.

Now Social Security needs to be dealt with. I know those AARP advertisements talk about not tearing down the house to change the system, yet I ask where is the house? There isn’t one. The money from social security is used like a giant government credit card, and I am sure many of you know how smart living beyond your means because you have a large credit card is.

In the mid 90’s, the Republican controlled congress enacted a 3% annual limit on budget increases, and they cut the long term capitol gains tax. The budget growth was under control, and the tax cut resulted in tons of money dropping into the government coffers. (At which point Bill Clinton took full credit.)

The economy was booming, and everybody got stupid. And I mean everybody. Suddenly Congress decided they could spend the deficits, and not just their current deficits, but the future deficits, and make it look like they were balancing the budget. Same old shit.

We need to quit listening to the word cut. A cut in spending is actually a reduction in the amount they were planning on increasing. This makes it look like the Republicans are actually cutting spending with they are not, and is used by both parties for political gain. But it is a complete lie.

Now about the previous theoretical liberal idea of a new economy, I just don’t believe it. Computer models are nice, but economics is a social science. You have to take human psychology into account, and I don’t think a computer model has ever been successfully programmed to do that.

The idea of government run (if that is a proper understanding of it) health care system has failure written all over it. The government cannot do very much right. Excessive regulation is a big mistake. Just look at the FDA. Has their involvement in the development of drugs been of benefit? Are they helping keep prices down?

I am beginning to see more success in treatments coming from the deregulated supplement industry, and that is scarring the drug companies. I believe this is why they are pushing to get rid of things like ephedra and pro-hormones.

Some have brought up the Codex out of fear of the regulation of supplements. While there is not too much to be afraid of right now, if you think that is a bad idea, then why is increasing regulation of the entire medical field good?

Ok, I think I went all over the place here. But I hope the last paragraph puts things into perspective.

Taxes don’t slow economic growth, that’s conventional wisdom , not factual information. It took about 10 tax raises to get the “clinton” boom with the first tax raise in 1982 after the 1981 tax cut. And liberals have a much better economy record than conservatives, its not even close in any category, except perhaps inflation, and thats if you start in 1982(cato trickery). As for universal healthcare, its just a matter of time.

Taxes definitely slow economic growth.

If something costs more to produce or buy, people will produce or buy less of it, ceteris paribus. Taxes simply add to the cost side of the equation.

Just because other factors can be stronger doesn’t mean there’s not a negative effect.

Obviously, some taxes are worse than others, and it’s the change to marginal cost that creates the most powerful effect, but it’s still true. About the only thing that taxing can’t slow down is death (though I imagine that at some level it would cut down on reports of death…).