It’s the Uncertainty, Stupid

[hypocritexposer]

It's the Uncertainty, Stupid
Posted By Tom Blumer On July 25, 2010 @ 12:00 am In . Feature 01, Culture, Elections 2010, History, Money, US News, economy | 18 Comments

In testimony before Congress last Wednesday, Federal Reserve Chairman Ben Bernanke sounded as downbeat [1] as someone in his position is probably allowed to be. That's not surprising. The economy is not performing at as it should at this stage of a "recovery."

The most visible reason why Ben is a borderline bear is because the Obama administration attempted to turn things around with an FDR-like "stimulus" instead of what has historically worked in both Democratic and Republican administrations when tried: tax cuts, tax simplification, and regulatory reform.

After tax cuts first proposed [2] by John F. Kennedy in 1961 became law in early 196 [3]4, the economy boomed. Annual growth averaged over 6% during the next three years [4].

In 1984, the first year when Ronald Reagan's tax cuts of 25% went into full effect, the economy grew by 7.2% [5]. Growth averaged 3.7% during the rest of the decade, helped along in 1986 when the tax code was simplified down to a very few marginal rates.

In the third quarter of 2003, after George W. Bush's relatively small tax cuts on income and investments became law, the economy grew at an annualized 6.9% [6]. Despite being hampered by the unproductive busywork mandated by Sarbanes Oxley — a handicap still holding us back that no one seems willing to talk about — economic growth averaged 2.8% during the next dozen quarters.

But despite the steepest four-quarter contraction [7] since the Great Depression, after which one would reasonably expect a brisk uptick, the Obama economy's rebound, if it's even fair to call it that [8], has been disappointing. The high-water mark for growth since the recession as normal people define it [9] ended was the annualized 5.6% in the final quarter of last year. That's not bad, but no one expects anything resembling a repeat of this performance while this administration's current economic policies and postures remain in place. Even if growth somehow remains nominally impressive, employment is barely growing. The talk of the town both on Main Street and Wall Street is whether we're heading into a double-dip recession. Some legitimately smart people think it has already started [10].

History should have told Team Obama that its statist stimulus strategy was doomed to failure. The Roosevelt administration's continued stimulus during the 1930s failed to bring the unemployment rate below 12% [11]. Meanwhile, Europe's unemployment rate during that decade was actually lower [12]. Japan tried a decade of aggressive stimulus during the 1990s. By the end of the "lost decade [13]," a former Asian powerhouse had morphed into a zombie economy [14].

But the pseudo-smarties [15] at Team Obama thought they could defy history. They couldn't. The administration can trot out its otherworldly "Recovery Summer" and "jobs created or saved" rhetoric all it wants, but the fact that their stimulus strategy has failed to adequately revive the economy is no longer arguable.

The seasonally adjusted unemployment rate has been over 9% for fourteen consecutive months, and seems certain to break the record for the longest such string (18) since the government began reporting monthly results in 1948. On a population-adjusted basis, the actual number of housing starts in June (i.e., before seasonal adjustment) was the lowest on record for any June since such records have been kept — by over 50% [16]. Foreclosures are on track to break another annual record [17]. Factory output fell in June [18]. Retail sales went negative [19] during May and June. Federal tax collections are still plummeting [20]; only remittances from the Fed are keeping year-over-year receipts from diving further. Do I really need to go on?

Getting back to Ben Bernanke, it's important to remember that the Fed chairman has extensively studied the Great Depression and understands its monetary lessons. He agrees with the late Milton Friedman [21] that serious Fed policy blunders added to its depth, telling the Nobel laureate in 2002: "You're right, we did it. We're very sorry. But thanks to you, we won't do it again."

But there's only so much Ben and the Fed can do. In Congressional testimony, Bernanke essentially admitted [22] that he has done virtually all he can:

[E}ven as the Federal Reserve continues prudent planning for the ultimate withdrawal of extraordinary monetary policy accommodation, we also recognize that the economic outlook remains unusually uncertain.

That, friends, is a de facto admission of impotence.

Ben really can't do anything about our atmosphere of "unusual uncertainty," because he didn't create it. Nancy Pelosi, Barack Obama, and Harry Reid did that just over two years ago by establishing what I have been calling the POR (Pelosi-Obama-Reid) economy [23] ever since. It was in June of 2008 that these three demonstrated that they would act as ruthless redistributionist statists if they achieved monopoly power over the presidency and Congress. Their energy-starving environmental proposals, their near giddiness over the prospect of massive tax increases, and their fundamental hostility towards capitalism, free markets, wealth creation, and even the rule of law became all too apparent to those not wearing Beltway blinders. Entrepreneurs, investors, and businesspeople began pulling to the sidelines. Their expansion and hiring plans began to go on hold. They began stripping ongoing operations down to bare essentials.

The pullback by the productive accelerated two months later. The frauds by design [24] known as Fannie Mae and Freddie Mac imploded, while Congress got stampeded into setting up the $750 billion slush fund we now know as TARP. Obama's funny money-aided [25] election convinced all but the snookered (I'm talking to you, Mort Zuckerman [26]) that unacceptable uncertainty was about to become a permanent part of the economic landscape.

If you think the uncertainty is bad now, look at what's coming. How many yet to be discovered daggers to personal and economic freedom lie in the thousands of pages of signed but largely unread legislation? How much more damage will be done when unelected, job security-conscious technocrats add tens of thousands of pages of regulations into the mix?

I don't see how the uncertain business environment can improve as long as the current bunch is in charge. Ben Bernanke can't make things better. Only voters can — maybe.

http://pajamasmedia.com/blog/it%e2%80%99s-the-uncertainty-stupid/?print=1

 

[don]

no it isn't. it's decades of overspending and pretending tax cuts have some sort of magical elixir effect. the usa is broke and will have to clean up its act. consider this: what if what the right considers to be the ills afflicting the usa are wrong? they spout the same old propaganda that has gotten the country where it is.

 

[hypocritexposer]

no it isn't. it's decades of overspending and pretending tax cuts have some sort of magical elixir effect. the usa is broke and will have to clean up its act. consider this: what if what the right considers to be the ills afflicting the usa are wrong? they spout the same old propaganda that has gotten the country where it is.

You say it is the spending and conservatives also say it is the spending. Are you spouting conservative propaganda?

 

[don]

who said i'm a liberal? other people but certainly not me. you guys like to hang labels because you think it sets you on the correct side. if anything i'm a pragmatist.

 

[hypocritexposer]

who said i'm a liberal? other people but certainly not me. you guys like to hang labels because you think it sets you on the correct side. if anything i'm a pragmatist.

and if you read my post again, I did not call you a liberal. I asked if what you are spouting is conservative propaganda?

 

[don]

i don't spout anything. i observe and comment. if all american governments for the past thirty (some say forty) years have been overspending i guess there aren't many fiscal conservatives in america.

 

[redrobin]

no it isn't. it's decades of overspending and pretending tax cuts have some sort of magical elixir effect. the usa is broke and will have to clean up its act. consider this: what if what the right considers to be the ills afflicting the usa are wrong? they spout the same old propaganda that has gotten the country where it is.

In a lot of ways your right don. We're the largest economy in the world.
We have the most millionaires in the world.
The U.S. is the most Bible literate nation in all the world.
The U.S. is among the top in almost any category that's good and decent.

I guess the conservative (I'd say Christian) way hasn't been all bad. As far as our debt problems, they are mostly incurred by liberal principals in my opinion.

 

[Steve]

no it isn't. it's decades of overspending and pretending tax cuts have some sort of magical elixir effect. the usa is broke and will have to clean up its act. consider this: what if what the right considers to be the ills afflicting the usa are wrong? they spout the same old propaganda that has gotten the country where it is.

consider this... most conservatives (right) think overspending is a problem as well... and should be solved first...

so how does increasing taxes solve "overspending"???

 

[don]

only cutting spending solves overspending. cutting taxes is not a cure. every tax cut has the immediate effect of lower revenues in the hope of increasing revenues down the road. sometimes it happens; sometimes it doesn't but in the meantime the budget shortfall gets bigger.

 

[Mike]

only cutting spending solves overspending. cutting taxes is not a cure. every tax cut has the immediate effect of lower revenues in the hope of increasing revenues down the road. sometimes it happens; sometimes it doesn't but in the meantime the budget shortfall gets bigger.

The Historical Lessons of Lower Tax RatesPublished on August 13, 2003 by Daniel Mitchell, Ph.D.

There is a distinct pattern throughout American history: When tax rates are reduced, the economy's growth rate improves and living standards increase. Good tax policy has a number of interesting side effects. For instance, history tells us that tax revenues grow and "rich" taxpayers pay more tax when marginal tax rates are slashed. This means lower income citizens bear a lower share of the tax burden - a consequence that should lead class-warfare politicians to support lower tax rates.

Conversely, periods of higher tax rates are associated with sub par economic performance and stagnant tax revenues. In other words, when politicians attempt to "soak the rich," the rest of us take a bath. Examining the three major United States episodes of tax rate reductions can prove useful lessons.

1) Lower tax rates do not mean less tax revenue.

The tax cuts of the 1920s
Tax rates were slashed dramatically during the 1920s, dropping from over 70 percent to less than 25 percent. What happened? Personal income tax revenues increased substantially during the 1920s, despite the reduction in rates. Revenues rose from $719 million in 1921 to $1164 million in 1928, an increase of more than 61 percent.

According to then-Treasury Secretary Andrew Mellon:

The history of taxation shows that taxes which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business and invest it in tax-exempt securities or to find other lawful methods of avoiding the realization of taxable income. The result is that the sources of taxation are drying up; wealth is failing to carry its share of the tax burden; and capital is being diverted into channels which yield neither revenue to the Government nor profit to the people.

The Kennedy tax cuts
President Hoover dramatically increased tax rates in the 1930s and President Roosevelt compounded the damage by pushing marginal tax rates to more than 90 percent. Recognizing that high tax rates were hindering the economy, President Kennedy proposed across-the-board tax rate reductions that reduced the top tax rate from more than 90 percent down to 70 percent. What happened? Tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62 percent (33 percent after adjusting for inflation).

According to President John F. Kennedy:

Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits… In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.

The Reagan tax cuts
Thanks to "bracket creep," the inflation of the 1970s pushed millions of taxpayers into higher tax brackets even though their inflation-adjusted incomes were not rising. To help offset this tax increase and also to improve incentives to work, save, and invest, President Reagan proposed sweeping tax rate reductions during the 1980s. What happened? Total tax revenues climbed by 99.4 percent during the 1980s, and the results are even more impressive when looking at what happened to personal income tax revenues. Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).

According to then-U.S. Representative Jack Kemp (R-NY), one of the chief architects of the Reagan tax cuts:

At some point, additional taxes so discourage the activity being taxed, such as working or investing, that they yield less revenue rather than more. There are, after all, two rates that yield the same amount of revenue: high tax rates on low production, or low rates on high production.

2) The rich pay more when incentives to hide income are reduced.

The tax cuts of the 1920s
The share of the tax burden paid by the rich rose dramatically as tax rates were reduced. The share of the tax burden borne by the rich (those making $50,000 and up in those days) climbed from 44.2 percent in 1921 to 78.4 percent in 1928.

The Kennedy tax cuts
Just as happened in the 1920s, the share of the income tax burden borne by the rich increased following the tax cuts. Tax collections from those making over $50,000 per year climbed by 57 percent between 1963 and 1966, while tax collections from those earning below $50,000 rose 11 percent. As a result, the rich saw their portion of the income tax burden climb from 11.6 percent to 15.1 percent.

The Reagan tax cuts
The share of income taxes paid by the top 10 percent of earners jumped significantly, climbing from 48.0 percent in 1981 to 57.2 percent in 1988. The top 1 percent saw their share of the income tax bill climb even more dramatically, from 17.6 percent in 1981 to 27.5 percent in 1988.

Harmful Spending & Complexity
Lower tax rates are important, but they are not the only critical issue. Both the level of government spending and where that money goes are very important. And even when looking only at tax policy, tax rates are just one piece of the puzzle. If certain types of income are subject to multiple layers of tax, as occurs in the current system, that problem cannot be solved by low rates. Similarly, a tax system with needless levels of complexity will impose heavy costs on the productive sector of the economy.

This WebMemo is excerpted from the author's, Daniel J. Mitchell's, Backgrounder, The Historical Lessons of Lower Tax Rates, published July 19, 1996. The original publication, found here, contains footnotes and numerous charts.

 

[don]

of course tax increases have a chilling effect on economic activity and also make the economy less efficient but inequitably low tax rates for higher income brackets only serve to concentrate wealth and that is also economically inefficient. in the end the money for government spending has to come from somewhere besides china and japan.

 

[redrobin]

of course tax increases have a chilling effect on economic activity and also make the economy less efficient but inequitably low tax rates for higher income brackets only serve to concentrate wealth and that is also economically inefficient. in the end the money for government spending has to come from somewhere besides china and japan.

Ah-ha there's the truth. It's not fair for all those evil rich folks to have the money even if it means we'll have more. Real bright there don.

 

[hopalong]

of course tax increases have a chilling effect on economic activity and also make the economy less efficient but inequitably low tax rates for higher income brackets only serve to concentrate wealth and that is also economically inefficient. in the end the money for government spending has to come from somewhere besides china and japan.

Ah-ha there's the truth. It's not fair for all those evil rich folks to have the money even if it means we'll have more. Real bright there don.

Where did you get your degree in economics don, ?? :wink: :wink: :wink:
Must have been in the same class as obabbbma

 

[hypocritexposer]

of course tax increases have a chilling effect on economic activity and also make the economy less efficient but inequitably low tax rates for higher income brackets only serve to concentrate wealth and that is also economically inefficient. in the end the money for government spending has to come from somewhere besides china and japan.

don, can you explain what you mean by "inequitably low tax rates for higher income brackets"?

Higher income brackets already pay a higher rate of tax than the lower brackets, which results in the top 10% paying 90% of all tax revenues.

what would be more equitable?

 

[don]

read it - inequitably low would mean the tax system is redistributing wealth. i've said before you need some socialism to make capitalism work i.e. roads, fire depts, infrastructure, etc. if someone is getting more benefit they should be paying more taxes. taxes redistrubute wealth or benefits, get over it. the secret is to have a fair system which is completely subjective. this simplistic mantra that capitalism is pure virtue and anything else is evil is laughable.

 

[hypocritexposer]

read it - inequitably low would mean the tax system is redistributing wealth. i've said before you need some socialism to make capitalism work i.e. roads, fire depts, infrastructure, etc. if someone is getting more benefit they should be paying more taxes. taxes redistrubute wealth or benefits, get over it. the secret is to have a fair system which is completely subjective. this simplistic mantra that capitalism is pure virtue and anything else is evil is laughable.

and I conceded that point that some socialism is warranted, but how much wealth redistribution is needed?

if someone is getting more benefit they should be paying more taxes.

As far as I know the 40% that don't pay any Federal tax have as much access to the "benefits" as the rich. If they are receiving welfare or subsidized housing etc. then to certain extent they are receiving more than what they contribute.

 

[Big Muddy rancher]

read it - inequitably low would mean the tax system is redistributing wealth. i've said before you need some socialism to make capitalism work i.e. roads, fire depts, infrastructure, etc. if someone is getting more benefit they should be paying more taxes. taxes redistrubute wealth or benefits, get over it. the secret is to have a fair system which is completely subjective. this simplistic mantra that capitalism is pure virtue and anything else is evil is laughable.

Wouldn't "Inequitably "High be redistributing more wealth?

 

[Anonymous]

read it - inequitably low would mean the tax system is redistributing wealth. i've said before you need some socialism to make capitalism work i.e. roads, fire depts, infrastructure, etc. if someone is getting more benefit they should be paying more taxes. taxes redistrubute wealth or benefits, get over it. the secret is to have a fair system which is completely subjective. this simplistic mantra that capitalism is pure virtue and anything else is evil is laughable.

You are correct don-- there is no such thing as a true capitalism system in the US... And since 1789 and the levying of the first taxes on whiskey makers and carriage makers to pay back our Revolutionary War costs- government has had to decide who or which part of the citizenry will pay to make the country run...

And these folks that stand on the streetcorners and Beech and Moan crying for no taxes become farcical because they are so out of touch with the operation of the real world...

 

[Big Muddy rancher]

read it - inequitably low would mean the tax system is redistributing wealth. i've said before you need some socialism to make capitalism work i.e. roads, fire depts, infrastructure, etc. if someone is getting more benefit they should be paying more taxes. taxes redistrubute wealth or benefits, get over it. the secret is to have a fair system which is completely subjective. this simplistic mantra that capitalism is pure virtue and anything else is evil is laughable.

You are correct don-- there is no such thing as a true capitalism system in the US... And since 1789 and the levying of the first taxes on whiskey makers and carriage makers to pay back our Revolutionary War costs- government has had to decide who or which part of the citizenry will pay to make the country run...

And these folks that stand on the streetcorners and Beech and Moan crying for no taxes become farcical because they are so out of touch with the operation of the real world...

Say OT how many times have you told us your a Libertarian?



The political platform of the Libertarian Party reflects its brand of libertarianism, favoring minimally regulated, laissez-faire markets, strong civil liberties, minimally regulated migration across borders, and non-interventionism in foreign policy that respects freedom of trade and travel to all foreign countries.[3]

 

[Big Muddy rancher]

Or it this branch? http://www.lp.org/

Which slogan do you like most for the Libertarian Party?
More Freedom, Less Government
38%
Smaller Government, Lower Taxes, More Freedom
21%
Minimum Government, Maximum Freedom
41%