Krugman's take on Age of Greed

[Raz]

Re: Krugman's take on Age of Greed

You forgot to mention they could raise taxes on the super rich, particularly capital gains and FICA, and SS/Medicare/Medicaid would all be paid off probably until the end of the century. Your chart is quite explicit that it assumes current tax levels.


You spend nearly all your time on the boards complaining about Democrat this, socialization that, bla bla entitlements and very little to no time complaining about how the Repub's claim to be the party of financial responsibility but then keep blowing up spending on the military, favor super rich corps with sweet heart no bid contracts, and deregulate industries which seem to have corruption scandals (ie. Enron, banking) like clockwork a few years later. In short if you come off sounding like a typical conservative regardless of whatever you consider yourself to be.

In case you missed it, I'm reposting the chart on tax revenues and entitlement spending. The chart doesn't mention tax rates, but uses the average percentile of revenues as a percent of GDP for the past 30 years.



Even the Johnson years through the Carter years tax revenues didn't exceed 19.2% of GDP, and the highest personal bracket was 70%! There is a limit to how much tax revenue the government can extract from the economy without causing or adding to the imbalances already present. Even an idiot like Arthur Laffer was right when he said that under an income tax rate of 100% you would collect the exact same amount of revenue as you would if the income tax rate was 0%.

You must not read my posts very often. I spend the vast majority of my time on iTulip posting information and articles on various markets. You can go to my profile and read dozens and dozens of my postings for the past year or two and I'm confident you will agree. I also post research on gold (mostly technical) and even some individual stock research reports.

I don't think it's any secret that I'm a Paleoconservative and an ardent supporter of Ron Paul. I've made that quite clear on more than a few occasions since I joined iTulip in early 2008. And while I don't agree with much of anything the Democratic Party proposes, I do have real respect for the thinking Liberals on iTulip, one or two of them have actually changed my opinion on some issues, healthcare for one.

Thoughtful is preferable in most all respects than emotional. I hope you'll join them.

[Starving Steve]

Re: Krugman's take on Age of Greed

About the lunacy of Keynsian economics, deficit spending, and the Laffer Curve:

Naturally, as the government de-values and inflates-away its currency, the deficit is easier to pay for. The trillions of dollars in deficit become paid for in pesos. This is an olde trick by governments.

Several problems with this de-valuation/ inflation game:

a.) The savers are cheated out of their savings because they deposit 100-cent dollars and end-up with a few pennies of purchasing power, after making the sacrifice to save and scrimp;

b.) Wages negotiated in dollars go down to pennies (pesos);

c.) Profits and capital gains become artificial due to inflation, but they are taxed, nevertheless;

d.) The next generation has to pay for kick-the-can budget deficits. One recalls Keyne's "cute" remark that deficits don't matter because in the end, we are all dead.... But the fact of the matter is that the next generation picks-up the bill for the insanity of kick-the-can budget deficits of past generations.

e.) As the de-valuation/inflation game continues, money and people flee to other lands, into other currencies, gold, commodities, and real assets and real things.

f.) As the de-valuation/inflation game continues, the process of de-basing the currency accelerates. In the end, everyone ends-up with nothing, except for the government which engineered the de-basement of the currency and defined that de-basement as economic recovery, economic growth, and prosperity;

g.) In the next stage, the government's credibility is entirely lost, interest rates soar, and ultimately a new currency is issued, usually called a "re-valuation of the old currency". In the process of re-valuation, the old currency is exchanged for new currency at 10:1 new, or 100:1 new, or 1000 old to 1 new. The re-valuation coincides with a brief period of hyper-inflation, as people have to become accustomed to what the "re-valuation" means in purchasing power and real worth.... And the government will pronounce that a new era has begun; policies will change; this would never happen again, etc.

What Arthur Laffer discovered in his Laffer Curve is that inflation caused by deficit-spending forces tax revenues upward, as the value of the currency declines. This is more of a fact of arithmetic than it is of economics. Or to state this another way, the economic effect is a knock-on effect of the original accounting-arithmetic. As the dollar shrinks in value to the purchasing power of a few pennies, the quantity of dollars brought into the revenue flow to government ( from taxation ) increases accordingly. Thus, as prices go up with inflation, there are more dollars to tax.

Spending causes deficits, and deficits cause printing, and printing causes inflation, and inflation forces de-basement of the currency, and de-basement creates more currency, and more currency ( of de-based value ) creates more government revenue. The knock-on effect of deficit-spending is therefore more government tax revenue, hence the Laffer Curve.

Naturally, as the de-basement of the currency accelerates, the flow of tax revenue to government coffers accelerates. Maybe reduce one-dollar to one-cent in purchasing power, then the flow of tax revenue to government coffers might increase 100 times. The arithmetic might be the inverse of 1/100 equals 100/1. So, 1/0.01 = 100. Hence, the inverse of a cent is one dollar, or 100 times the penny..... Let's call this the magic of inflation, and this magic was re-discovered by Laffer with his Laffer Curve.

The only reason why Laffer's curve is exponential and not linear is because inflation accelerates as it continues. The public wakes-up to the process of de-basement of the currency; hence the acceleration of the inflation as the velocity of money increases, and the tax revenues to government coffers also increase exponentially as the velocity of money increases.

Re-stating what happens: The public wakes-up to the de-basement and tries to unload the de-valuing currency. The public increases its spending and decreases its saving. The velocity of money increases, and correspondingly, there are more transactions to tax. The revenue stream to government increases exponentially.

Legacy effects of the print-a-thon by government: Heaps of de-based money, printed days before, end-up back in the coffers of government in the form of revenues. These revenues then pay-down the deficits and create a surplus. This is then squandered, and more printing is required to keep this process going. Thus, printing>>>de-basement>>>spending>>> tax flows to government coffers>>>new spending >>> new printing>>> new de-basement of money >>> new spending, and so on....

[bpr]

Re: Krugman's take on Age of Greed

In case you missed it, I'm reposting the chart on tax revenues and entitlement spending. The chart doesn't mention tax rates, but uses the average percentile of revenues as a percent of GDP for the past 30 years.



Even the Johnson years through the Carter years tax revenues didn't exceed 19.2% of GDP, and the highest personal bracket was 70%! There is a limit to how much tax revenue the government can extract from the economy without causing or adding to the imbalances already present. Even an idiot like Arthur Laffer was right when he said that under an income tax rate of 100% you would collect the exact same amount of revenue as you would if the income tax rate was 0%.

I'm not sure, but I was under the impression that the so-called entitlement expenses are funded by payroll taxes, not personal income taxes. As such, assuming that the projections are correct, what we have here is a failure of the payroll tax system, which is notably regressive, capping SS taxes right around $100k.

I'm no economist, and you certainly know more about this than I, but aren't we comparing apples to oranges when pointing out the failure of payroll taxes to meet liabilities while attributing that failure to personal income tax rates? Wasn't it under the Reagan administration (specifically the Greenspan Commission) that the payroll tax system was revised and made more regressive (I think that's when the SS payroll tax was capped, not sure though)?

EDIT: Looking at that chart, it seems to me that they are only including personal income tax revenues, not payroll tax revenues, which would be a major omission on the part of the Heritage Foundation. Lots of well-paid smart folks work there, and if they missed that, well...

[dcarrigg]

Re: Krugman's take on Age of Greed

I'm not sure, but I was under the impression that the so-called entitlement expenses are funded by payroll taxes, not personal income taxes. As such, assuming that the projections are correct, what we have here is a failure of the payroll tax system, which is notably regressive, capping SS taxes right around $100k.

I'm no economist, and you certainly know more about this than I, but aren't we comparing apples to oranges when pointing out the failure of payroll taxes to meet liabilities while attributing that failure to personal income tax rates? Wasn't it under the Reagan administration (specifically the Greenspan Commission) that the payroll tax system was revised and made more regressive (I think that's when the SS payroll tax was capped, not sure though)?

EDIT: Looking at that chart, it seems to me that they are only including personal income tax revenues, not payroll tax revenues, which would be a major omission on the part of the Heritage Foundation. Lots of well-paid smart folks work there, and if they missed that, well...

They didn't miss anything here - the red line represents total tax revenue - inclusive of payroll tax. I've seen the line so often that it's easily recognizable. The relative stability of tax revenue over the last 50 years does stand out.

In any event, below is a breakdown by tax source - notice that corporate and misc. taxes drop and payroll taxes pick up the gap to maintain an historical relative constant at around 18% of GDP:

[BK]

Re: Krugman's take on Age of Greed

Lets look at what was happening in 1993-1994 when President Bill Clinton decided to push for expanding HomeOwnership -
Home Ownership in 93-94 was approximately 68%.
The Key for a Housing boom lay in expanding "Ownership" to the marginal-potential homebuyer, the home buyer who hadn't qualified in past booms because of employment record and lack of available loans for their poor part of town.

Expanding the Community Redevelopment Act allowed the expansion of potential home buyers - this expansion provided lots of additional capital for Banks that the could lend out in McMansion neighborhoods while helping out the disadvantaged in the Poor parts of town (that historically were too risky for banks to make loans in).
CRA was Not the cause - but, the housing bubble may have been muted some what without the extra capital that flowed in to lots of rotten (historically very poor) parts of towns that Banks would never invest in because the return on capital was so low.

[Munger]

Re: Krugman's take on Age of Greed

I've never been able to have a real conversation with anyone who denies the obvious.

You may have noticed this, but pay attention that Social Security is not the problem in your graph. Its percentage holds steady through the entire graph, but is grouped in with Medicare as one of the evil "entitlements." Also note that it gets BY FAR the most blame by Very Serious People, because talk of cutting Medicare is political suicide.

No one really cares about the deficit (except the tea party). The modern GOP only use it to get what they want for their rentier-owners.

[Raz]

Re: Krugman's take on Age of Greed

You may have noticed this, but pay attention that Social Security is not the problem in your graph. Its percentage holds steady through the entire graph, but is grouped in with Medicare as one of the evil "entitlements." Also note that it gets BY FAR the most blame by Very Serious People, because talk of cutting Medicare is political suicide.

No one really cares about the deficit (except the tea party). The modern GOP only use it to get what they want for their rentier-owners.

If "no one" includes the Democrats then we are in agreement. They've never had a problem with deficits because their entire modus operandi has been "tax and spend - spend and elect".

Once upon a time there was a Republican Party that actually did care about deficits (think Everett Dirksen), but that was before Nixon. Since that time they've proven themselves just as fiscally irresponsible as the Democrats. And in the case of George W. Dumbass perhaps even more so.
At least LBJ didn't cut taxes when he took us into unnecessary war.

[lektrode]

Re: Krugman's take on Age of Greed

I'm not sure, but I was under the impression that the so-called entitlement expenses are funded by payroll taxes, not personal income taxes. As such, assuming that the projections are correct, what we have here is a failure of the payroll tax system, which is notably regressive, capping SS taxes right around $100k.

right - this also seems to be where the most GLARINGLY OBVIOUS LOOPHOLE is, to boot!

They didn't miss anything here - the red line represents total tax revenue - inclusive of payroll tax. I've seen the line so often that it's easily recognizable. The relative stability of tax revenue over the last 50 years does stand out.

In any event, below is a breakdown by tax source - notice that corporate and misc. taxes drop and payroll taxes pick up the gap to maintain an historical relative constant at around 18% of GDP:

so it would appear that since corp tax take etc has dropped, cap gains tax take dropped (which i agree with, at the most basic argument that a: the corps dont pay the taxes, the consumer of their products does and its debateable the soundness of depending on capital gains to fund an ever increasing entitlement load - see california - since what happens when this source goes south??)

so as i see it, since the big entitlements are basically funded by payroll taxes, its absurd beyond discussion that the working class be made to suffer while the expanding millionaire-class gets away with a 106k limit on fica?

especially since congress - in its 'infinite wizdom' saw fit to not only blow the 14trillion over the years, but all of the socsec 'trustfunds' as well ?

BS i say!

levy the fica ON EVERY LAST DOLLAR OF INCOME UNTIL THE SOCSEC ACCOUNT IS BALANCED!

sez the kinda-rightwing/semi-conservative, formerly from The Live Free or Die State workin-stiff

[Munger]

Re: Krugman's take on Age of Greed

If "no one" includes the Democrats then we are in agreement. They've never had a problem with deficits because their entire modus operandi has been "tax and spend - spend and elect".

Once upon a time there was a Republican Party that actually did care about deficits (think Everett Dirksen), but that was before Nixon. Since that time they've proven themselves just as fiscally irresponsible as the Democrats. And in the case of George W. Dumbass perhaps even more so.
At least LBJ didn't cut taxes when he took us into unnecessary war.

When I say no one, I mean no one -- democrats included. They aren't quite as hypocritical as the GOP though, who presided over massively soaring deficits for years before grabbing onto the "deficits!!!" bandwagon.

This sums it up pretty well:

"The Republicans, who control the House and now have greater control of the Senate, have now decided — having tripled the debt in the 12 years before I took office and doubled it since I left — that it’s all of a sudden the biggest problem in the world."

- Bill Clinton

[dcarrigg]

Re: Krugman's take on Age of Greed

right - this also seems to be where the most GLARINGLY OBVIOUS LOOPHOLE is, to boot!

so it would appear that since corp tax take etc has dropped, cap gains tax take dropped (which i agree with, at the most basic argument that a: the corps dont pay the taxes, the consumer of their products does and its debateable the soundness of depending on capital gains to fund an ever increasing entitlement load - see california - since what happens when this source goes south??)

so as i see it, since the big entitlements are basically funded by payroll taxes, its absurd beyond discussion that the working class be made to suffer while the expanding millionaire-class gets away with a 106k limit on fica?

especially since congress - in its 'infinite wizdom' saw fit to not only blow the 14trillion over the years, but all of the socsec 'trustfunds' as well ?

BS i say!

levy the fica ON EVERY LAST DOLLAR OF INCOME UNTIL THE SOCSEC ACCOUNT IS BALANCED!

sez the kinda-rightwing/semi-conservative, formerly from The Live Free or Die State workin-stiff

+1

From another formerly from the Live Free or Die State workin-stiff.

[flintlock]

Re: Krugman's take on Age of Greed

Only it wasn't just mortgages that became so easy to get. Pretty much any fool could get EZ credit and walk out of a store with a big screen TV, hot tub, etc, with zero down. Upside down on your car? No problem, they just rolled it into the new loan. Its hard to blame CRA for that. What we had was a concerted effort to expand credit in general. Partly fueled by the notion that things would always get better, the economy would always grow, and the day of reckoning would never come. Basic human nature is as much a part of this as anything. Its the Wimpey principle. Most people will gladly pay you Tuesday for a Hamburger today.

Its the lenders responsibility to vet the borrowers and decide who is and is not a good credit risk. They failed in this. Partly due to fear that since their competition was doing this, another bank might "miss out" if they didn't also. Some of this goes back to the corporate system where higher numbers must always be posted, year after year. A bonus system that rewards this while ignoring future risk doesn't help either. We have a system based on the infinite growth model. Think about it. Is this wise? What we are seeing now is the law of averages swinging back hard. TBTF short circuits the normal leveling out process of the economy. It rewards the risk takers without punishing those who go too far. Why shouldn't they behave irresponsibly? They've already cashed the bonus checks and left the tax payers holding the bag.

[Raz]

Re: Krugman's take on Age of Greed

When I say no one, I mean no one -- democrats included. They aren't quite as hypocritical as the GOP though, who presided over massively soaring deficits for years before grabbing onto the "deficits!!!" bandwagon.

This sums it up pretty well:

This is a fair criticism and one the Republicans richly deserve. And thanks to Dumbya, Trent Lott, Denny Hastert and the rest of the NeoCon Nitwits we now have an empty suit asshat in the Oval Office.

We need a Third Party ..., you're welcome, and "keep the change".

[mesyn191]

Re: Krugman's take on Age of Greed

In case you missed it, I'm reposting the chart on tax revenues and entitlement spending. The chart doesn't mention tax rates, but uses the average percentile of revenues as a percent of GDP for the past 30 years.

Because revenue can never be changed ever since the avg. hasn't changed? Come on that is BS.

There is a limit to how much tax revenue the government can extract from the economy without causing or adding to the imbalances already present.

Sure but we're no where near it so why bother bringing this up.

Even an idiot like Arthur Laffer was right when he said that under an income tax rate of 100% you would collect the exact same amount of revenue as you would if the income tax rate was 0%.

No Laffer was full of BS about everything. He was a convienent economic shill for FIRE back in the 80's and most everything he has said since then has been shown to be either flat out wrong or such a generalized statement as to be near useless.

You must not read my posts very often. I spend the vast majority of my time on iTulip posting information and articles on various markets.

Whenever one of these topics pops up you sure sound the same as always.

[Raz]

Re: Krugman's take on Age of Greed

"The Republicans, who control the House and now have greater control of the Senate, have now decided — having tripled the debt in the 12 years before I took office and doubled it since I left — that it’s all of a sudden the biggest problem in the world."

- Bill Clinton

Billy forgot to mention that in the 12 years before he took office his very own Democratic Party controlled the power of the purse - during all 12 years. I'm sure it was only a memory lapse and not a political shot that led him to forget these guys.

[dcarrigg]

Re: Krugman's take on Age of Greed

Because revenue can never be changed ever since the avg. hasn't changed? Come on that is BS.


Sure but we're no where near it so why bother bringing this up.


No Laffer was full of BS about everything. He was a convienent economic shill for FIRE back in the 80's and most everything he has said since then has been shown to be either flat out wrong or such a generalized statement as to be near useless.


Whenever one of these topics pops up you sure sound the same as always.

I don't know Mesyn - I'm quite a bit left of Raz on many issues, but I think his post was fair and I find him to be quite reasonable. He will often post about the failures of conservative individuals - especially self-proclaimed neo-conservatives.

You should give him and his posts more of a chance before you write him off as a bought-and-sold right-wing ideologue. I find him to be insightful, even if we do not see eye to eye from time to time.