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  #1  
Old 03-29-2011, 02:09 AM
Bloggingheads Bloggingheads is offline
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Default Full-Frontal Geeky (Karl Smith & Megan McArdle)

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  #2  
Old 03-29-2011, 04:08 AM
Baz Baz is offline
 
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Default Karl Smith & Megan McArdle

Fiat money Megan, its all imaginary.

Just write off world debt and start again...too radical...God won't mind just this once.

Last edited by Baz; 03-29-2011 at 04:23 AM..
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  #3  
Old 03-29-2011, 08:46 AM
sugarkang sugarkang is offline
 
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Default Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)

Yay, discussion that matters.
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  #4  
Old 03-29-2011, 09:07 AM
conncarroll conncarroll is offline
 
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Default Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)

Just to put real numbers on Social Security's very current account deficits:
Social Security paid out $37 billion more then it took in last year.
Social Security will pay out $45 billion more then it will collect this year.
Over the next ten years Social Security will add more $600 billion to the national debt.
http://www.cbo.gov/budget/factsheets/2011/5-oasdi.pdf
The Social Security crisis is real and it arrived yesterday.
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  #5  
Old 03-29-2011, 09:51 AM
Don Zeko Don Zeko is offline
 
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Default Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)

Where are these numbers coming from, Conn? The chart you posted lists 2010's OASDI income as $788 Billion, with outgoing payments at $706 Billion. Also, wouldn't one want to distinguish the effects of the recession and the temporary payroll tax holiday that was part of last year's tax cut compromise from Social Security's long-run finances?
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  #6  
Old 03-29-2011, 10:29 AM
karlsmith karlsmith is offline
 
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Default Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)

Conn,

Doesn't that show exactly how trivial of an issue this is. Its a little bit less than total farm subsidies and 600B over ten years is out of 160,000B in ten year GDP. So thats about .38%

You could say that social security is a bad program and I don't like it but it isn't as if makes a notable strain on the US fiscal position in the short term.
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  #7  
Old 03-29-2011, 08:38 PM
badhatharry badhatharry is offline
 
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Default Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)

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Originally Posted by karlsmith View Post
Conn,

Doesn't that show exactly how trivial of an issue this is. Its a little bit less than total farm subsidies and 600B over ten years is out of 160,000B in ten year GDP. So thats about .38%

You could say that social security is a bad program and I don't like it but it isn't as if makes a notable strain on the US fiscal position in the short term.
Why does 600 billion all of a sudden become an insignificant amount? Doesn't it all add up?
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  #8  
Old 03-29-2011, 11:36 AM
DenvilleSteve DenvilleSteve is offline
 
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Default Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)

Quote:
Originally Posted by conncarroll View Post
Just to put real numbers on Social Security's very current account deficits:
Social Security paid out $37 billion more then it took in last year.
Social Security will pay out $45 billion more then it will collect this year.
Over the next ten years Social Security will add more $600 billion to the national debt.
http://www.cbo.gov/budget/factsheets/2011/5-oasdi.pdf
The Social Security crisis is real and it arrived yesterday.
we don't have to cut core social security. Maybe limit early retirement to people who do physical labor. Definitely limit SSDI to people with physical problems. There are so many programs that can be cut before old age retirement. No federal pension payouts until the recipient is 65. No student loans. Independence for Puerto Rico. Limit food stamps to rice, beans, milk, eggs and cheap chicken. Replace medicaid with government run health clinics.
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  #9  
Old 03-31-2011, 02:05 PM
rcocean rcocean is offline
 
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Default Conn is completely wrorng on Social Security

Quote:
Originally Posted by conncarroll View Post
Just to put real numbers on Social Security's very current account deficits:
Social Security paid out $37 billion more then it took in last year.
Social Security will pay out $45 billion more then it will collect this year.
Over the next ten years Social Security will add more $600 billion to the national debt.
http://www.cbo.gov/budget/factsheets/2011/5-oasdi.pdf
The Social Security crisis is real and it arrived yesterday.
Given that the Deficit is at LEAST 1,000 billion this year, 37B is a silly drop in the bucket. You also forgot to mention that Social Security has been reducing the deficit for over 30 years. So now the General Fund will have to transfer money to SS instead of other way round. The numbers aren't significant as percent of Projected GDP.

In any case, just get rid of the Social Security Tax Wage cap and problem solved.

But never under-estimate stupidity of the Republicans - they'll probably listen to Conn. Their predicted 2012 campaign slogan

"Elect Romney, he'll bust unions, increase illegal immigration, and cut Social Security".
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  #10  
Old 03-29-2011, 09:15 AM
Stapler Malone Stapler Malone is offline
 
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Default Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)

It'd be cool if BH had Karl Smith on with an opposing economist named Adam Marx.
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  #11  
Old 03-29-2011, 11:36 AM
ohreally ohreally is offline
 
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Default Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)

Conn: OK, you hate SocSec. Fine. Just man up and say so. But this crap about the deficit is just too easy to debunk. SocSec operates a trust fund from which it issues bonds for the government to pay for such things as fighting all the wars you love to watch on your teevee (but not fight in person). So it's fine by you to let the government default on its bonds? That's what you're saying.

Funny how the government never hesitates to honor the bonds issued by private banks but, by your logic, should default on debt to the taxpayer. Why don't you worry instead about the government guaranteeing $8 trillion worth of bank loans? A trillion here, a trillion there, you know the rest.
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  #12  
Old 03-29-2011, 02:32 PM
Florian Florian is offline
 
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Default Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)

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Originally Posted by ohreally View Post
Funny how the government never hesitates to honor the bonds issued by private banks but, by your logic, should default on debt to the taxpayer. Why don't you worry instead about the government guaranteeing $8 trillion worth of bank loans? A trillion here, a trillion there, you know the rest.
That was precisely the question that I kept asking myself as I listened to this otherwise informative diavlog. Social security shortfalls are peanuts in comparison to the debts that have been racked up by the FED in its efforts to prop up the financial sector and to reinflate the stock market by bailouts and "quantitative easing," otherwise known as printing money. I am not an economist, but when leftwing French economists agree with rightwing American economists, I begin to worry.....seriously....about the state of the American and the world economy.
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  #13  
Old 03-29-2011, 07:30 PM
nw111 nw111 is offline
 
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Default Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)

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Originally Posted by Florian View Post
That was precisely the question that I kept asking myself as I listened to this otherwise informative diavlog. Social security shortfalls are peanuts in comparison to the debts that have been racked up by the FED in its efforts to prop up the financial sector and to reinflate the stock market by bailouts and "quantitative easing," otherwise known as printing money. I am not an economist, but when leftwing French economists agree with rightwing American economists, I begin to worry.....seriously....about the state of the American and the world economy.

I am confused by your statement. How does the Federal Reserve rack up debts? To my knowledge it has no mechanism for borrowing (unless I am totally ignorant of governments financial structure, which is a distinct possibility). It is THE lender (obviously, since it prints the money). Did you mean debts racked up to the Fed [from the Treasury]? If so, that makes more sense, my only quibble would be that many of those debts were not just for financial bailouts but for more general spending.
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  #14  
Old 03-30-2011, 05:28 AM
Florian Florian is offline
 
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Default Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)

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Originally Posted by nw111 View Post
I am confused by your statement. How does the Federal Reserve rack up debts? To my knowledge it has no mechanism for borrowing (unless I am totally ignorant of governments financial structure, which is a distinct possibility). It is THE lender (obviously, since it prints the money). Did you mean debts racked up to the Fed [from the Treasury]? If so, that makes more sense, my only quibble would be that many of those debts were not just for financial bailouts but for more general spending.
Maybe you or someone else can enlighten me. I said I am not an economist.

When the FED buys up US treasuries through "quantitative easing," i.e. by extending lines of credit to the NY Federal Reserve to buy bonds, is it not increasing the amount of debt on its books? True, the "money" is being lent to the government, but the money in question is nothing but a fiction. It is created out of thin air by virtue of the authority invested in the FED to make credit available to member banks, so that they can buy treasuries, i.e. lend money to the government! This is supposed to have the threefold effect of keeping bond yields low, freeing up credit for other purposes, and shifting money into the stock market, where it will be richly rewarded no doubt! Bernanke has said that this was the purpose of QE2.

And presto: the US economy is saved, until the next bubble.
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  #15  
Old 03-29-2011, 02:54 PM
chiwhisoxx chiwhisoxx is offline
 
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Default Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)

Quote:
Originally Posted by ohreally View Post
Conn: OK, you hate SocSec. Fine. Just man up and say so. But this crap about the deficit is just too easy to debunk. SocSec operates a trust fund from which it issues bonds for the government to pay for such things as fighting all the wars you love to watch on your teevee (but not fight in person). So it's fine by you to let the government default on its bonds? That's what you're saying.

Funny how the government never hesitates to honor the bonds issued by private banks but, by your logic, should default on debt to the taxpayer. Why don't you worry instead about the government guaranteeing $8 trillion worth of bank loans? A trillion here, a trillion there, you know the rest.
Let's not use the phrase "trust fund", because then it makes people think that there's actually a trust fund social security can fall back on, which of course doesn't exist.
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  #16  
Old 03-29-2011, 07:27 PM
ohreally ohreally is offline
 
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Default Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)

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Originally Posted by chiwhisoxx View Post
Let's not use the phrase "trust fund", because then it makes people think that there's actually a trust fund social security can fall back on, which of course doesn't exist.
The government uses the phrase "Trust Fund." I always go by what the government tells me.

The government should not default. That's all I am saying. Conn says it should. Methinks that's because Conn hates America.
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  #17  
Old 03-29-2011, 11:52 AM
DenvilleSteve DenvilleSteve is offline
 
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Default Karl assumes tax revenue can be increased

Listening to Karl, it sounded like he thinks the goverment can turn the dials at some point and bring in more revenue. As I heard Obama/Summers say this past december, raising taxes at this point would hurt the economy. So presumably, that principle applies in the future. The 2nd reason government can't raise more revenue thru taxes is that rich people are more and more able to move and keep their money off shore. When you open an investment account in another country, the income from that investment is not taxable in the US. correct? Esp if you only have debit card access to that investment account.

The government is going to fail. Karl and Megan are blocked by ideology from being aware of the tea party. We don't have the social cohesion necessary to balance the budget.
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  #18  
Old 03-29-2011, 02:35 PM
Don Zeko Don Zeko is offline
 
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Default Re: Karl assumes tax revenue can be increased

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Originally Posted by DenvilleSteve View Post
As I heard Obama/Summers say this past december, raising taxes at this point would hurt the economy. So presumably, that principle applies in the future.
The "presumably" in that sentence is being criminally overworked. The blindingly obvious reason that raising taxes this year is a bad idea is that we're still stuck in a liquidity trap: unemployment is at 9% and the Fed can't make interest rates any lower. When we're back in normal conditions, there's absolutely no reason to think that returning to Clinton-era tax rates will be an intolerable drag on the economy.
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  #19  
Old 03-29-2011, 02:58 PM
DenvilleSteve DenvilleSteve is offline
 
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Default Re: Karl assumes tax revenue can be increased

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Originally Posted by Don Zeko View Post
The "presumably" in that sentence is being criminally overworked. The blindingly obvious reason that raising taxes this year is a bad idea is that we're still stuck in a liquidity trap: unemployment is at 9% and the Fed can't make interest rates any lower. When we're back in normal conditions, there's absolutely no reason to think that returning to Clinton-era tax rates will be an intolerable drag on the economy.
by taxing investment income at a higher rate than investors in other countrys pay, increasing taxes in the US will discourage investment. An investor in China hires programmers in India to write a software application that is sold in the USA. The profits go to the investor and taxes are paid in the country where the enterprise is incorporated. The US based competing investor has to pay 40% or more of the profits to the feds. The overseas investor will have more to invest and will out compete the US investor in the global marketplace.
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  #20  
Old 03-29-2011, 03:13 PM
Don Zeko Don Zeko is offline
 
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Default Re: Karl assumes tax revenue can be increased

I wasn't saying that higher tax rates have no negative effect on economic growth. Rather, what I was attempting to say was that we are in an unusual economic situation right now in which deficits and inflation are not things we need to worry about, but that once we get back to a more normal economic outlook then increased tax rates will be less economically damaging than continued high deficits.
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  #21  
Old 03-29-2011, 06:13 PM
DenvilleSteve DenvilleSteve is offline
 
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Default Re: Karl assumes tax revenue can be increased

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Originally Posted by Don Zeko View Post
I wasn't saying that higher tax rates have no negative effect on economic growth. Rather, what I was attempting to say was that we are in an unusual economic situation right now in which deficits and inflation are not things we need to worry about, but that once we get back to a more normal economic outlook then increased tax rates will be less economically damaging than continued high deficits.
ok, but I think it is a completely different ballgame now and for many years to come. Democrats have to accept that the government cannot raise the revenue needed to balance the budget at current spending levels.
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  #22  
Old 03-29-2011, 09:58 PM
Don Zeko Don Zeko is offline
 
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Default Re: Karl assumes tax revenue can be increased

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Originally Posted by DenvilleSteve View Post
ok, but I think it is a completely different ballgame now and for many years to come. Democrats have to accept that the government cannot raise the revenue needed to balance the budget at current spending levels.
Why not? I don't see any evidence that higher overall levels of taxation than we have today are unsustainable, given that we've run them with no problems in the recent past and that tons of other OECD countries manage to run them as well.
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  #23  
Old 03-29-2011, 08:34 PM
badhatharry badhatharry is offline
 
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Default Re: Karl assumes tax revenue can be increased

Quote:
Originally Posted by Don Zeko View Post
The "presumably" in that sentence is being criminally overworked. The blindingly obvious reason that raising taxes this year is a bad idea is that we're still stuck in a liquidity trap: unemployment is at 9% and the Fed can't make interest rates any lower. When we're back in normal conditions, there's absolutely no reason to think that returning to Clinton-era tax rates will be an intolerable drag on the economy.
The whole point of keeping taxes low is not to make the rich happy but to reduce the size of the government.
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  #24  
Old 03-29-2011, 08:53 PM
brucds brucds is offline
 
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Default Re: Karl assumes tax revenue can be increased

"The whole point of keeping taxes low is not to make the rich happy but to reduce the size of the government."

It's called "Starve the Beast" and it's responsible for the skyrocketing national debt since St. Ronald started pushing it. If fraudulent "conservatives" can't pass a political agenda that actually reduces the size of government, but have to go in the back door with a stealth program to destroy the country's fiscal integrity, they are as much "pro-American" as Gus Hall or some idiot Islamist shoe-bomber. Bad, dishonest people who've driven us into a ditch over decades with a big lie - not to mention snatching your Grandma's purse to finance their tax cutting BS. Don't ask me - ask a couple of actual fiscal conservatives (those who aren't pathological shills for the economic elite or near-insane ideologues) such as Bruce Bartlett and David Stockman, both of whom worked for Reagan and realized it was some combination of wrongheadedness and deliberate con. Or perhaps "Conn."

Last edited by brucds; 03-29-2011 at 09:01 PM..
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  #25  
Old 03-29-2011, 09:57 PM
Don Zeko Don Zeko is offline
 
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Default Re: Karl assumes tax revenue can be increased

Quote:
Originally Posted by brucds View Post
"The whole point of keeping taxes low is not to make the rich happy but to reduce the size of the government."

It's called "Starve the Beast" and it's responsible for the skyrocketing national debt since St. Ronald started pushing it. If fraudulent "conservatives" can't pass a political agenda that actually reduces the size of government, but have to go in the back door with a stealth program to destroy the country's fiscal integrity, they are as much "pro-American" as Gus Hall or some idiot Islamist shoe-bomber. Bad, dishonest people who've driven us into a ditch over decades with a big lie - not to mention snatching your Grandma's purse to finance their tax cutting BS. Don't ask me - ask a couple of actual fiscal conservatives (those who aren't pathological shills for the economic elite or near-insane ideologues) such as Bruce Bartlett and David Stockman, both of whom worked for Reagan and realized it was some combination of wrongheadedness and deliberate con. Or perhaps "Conn."
Exactly. Even if you agree with the contention that it's very important to dramatically reduce the size of government, Starve the Beast is an incredibly reckless way to do it, with very real risks that it will fail to achieve its stated ends while destroying the country's financial integrity. Republicans need to come clean on this point and distinguish between saying that we need to cut spending to balance the budget and saying that we need to cut spending to satisfy their pre-existing ideological interests.
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  #26  
Old 03-29-2011, 10:06 PM
brucds brucds is offline
 
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Default Re: Karl assumes tax revenue can be increased

Thank you Don Zeko for saying it without prejudice or emotional baggage. As for me, I hate these f..ks! Sometimes that comes through in my expression of evident truth and undermines the argument.
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  #27  
Old 03-30-2011, 12:20 AM
chiwhisoxx chiwhisoxx is offline
 
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Default Re: Karl assumes tax revenue can be increased

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Originally Posted by brucds View Post
Thank you Don Zeko for saying it without prejudice or emotional baggage. As for me, I hate these f..ks! Sometimes that comes through in my expression of evident truth and undermines the argument.
Your post didn't come across as emotional at all!
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  #28  
Old 03-29-2011, 10:01 PM
badhatharry badhatharry is offline
 
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Default Re: Karl assumes tax revenue can be increased

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Originally Posted by brucds View Post
"The whole point of keeping taxes low is not to make the rich happy but to reduce the size of the government."

It's called "Starve the Beast" and it's responsible for the skyrocketing national debt since St. Ronald started pushing it.
You posted something similiar a week or so ago and I responded with two links. Here and here. Just two dissenters you probably won't agree with but may at least find interesting. BTW, my grandmother is long gone. It's me I'm worried about.

From HotAir:
Quote:
Big Lie #2. Reagan nearly tripled the federal budget deficit by enacting a major tax cut his first year in office and government revenue dropped off precipitously” – Another flat-out lie. Before his 25 percent across-the-board cut in individual income-tax rates went into effect, government receipts from individual income taxes trickled in at $244.1 billion. The year Reagan left office, they totaled $445.7 billion — an 82 percent jump. As for the deficits, Democrats outspent every one of the nine budgets Reagan proposed but one. Further, Democrats refused to make corresponding cuts in wasteful domestic programs to offset the defense appropriations Reagan needed to combat the Soviet Union after the Carter administration’s foreign policy disasters (e.g., Iran, Afghanistan, et. al.).
From Larry Kudlow:
Quote:
We have a bipartisan spending problem, largely driven by entitlements over the long run and ineffectual stimulus in the short term. Stockman seems to want to solve the spending problem with higher taxes. Some recent estimates suggest the need for an 80 or 90 percent tax rate to do that. But what would it do to the economy? Or global competitiveness?
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  #29  
Old 03-29-2011, 10:13 PM
brucds brucds is offline
 
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Default Re: Karl assumes tax revenue can be increased

Deficits were driven up as % of GDP under Reagan and the Bushes.

http://thinkprogress.org/2010/11/28/...ams-gop-taxes/

http://www.forbes.com/2010/05/06/tax...-bartlett.html

Kudlow is a shill who has zero intellectual integrity and I don't want to say what I think of Hot Air because I'll never be allowed to post here again.

Get some credible sources if you want me to spend a minute or two dealing with this in the future. I'm going back to reading Robert Reich's "Aftershock" which I would highly recommend...
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  #30  
Old 03-29-2011, 11:28 PM
TwinSwords TwinSwords is offline
 
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Default Re: Karl assumes tax revenue can be increased

Jane Hamsher says, Newsflash: Ronald Reagan Raised Taxes (You Idiots).
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  #31  
Old 03-29-2011, 11:28 PM
badhatharry badhatharry is offline
 
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Default Re: Karl assumes tax revenue can be increased

Quote:
Originally Posted by brucds View Post
Deficits were driven up as % of GDP under Reagan and the Bushes.

http://thinkprogress.org/2010/11/28/...ams-gop-taxes/

http://www.forbes.com/2010/05/06/tax...-bartlett.html

Kudlow is a shill who has zero intellectual integrity and I don't want to say what I think of Hot Air because I'll never be allowed to post here again.

Get some credible sources if you want me to spend a minute or two dealing with this in the future. I'm going back to reading Robert Reich's "Aftershock" which I would highly recommend...
I don't think either article claimed that deficits were't driven up during the bush reagan bush years.
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  #32  
Old 03-29-2011, 11:37 PM
AemJeff AemJeff is offline
 
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Default Re: Karl assumes tax revenue can be increased

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Originally Posted by badhatharry View Post
You posted something similiar a week or so ago and I responded with two links. Here and here. Just two dissenters you probably won't agree with but may at least find interesting. BTW, my grandmother is long gone. It's me I'm worried about.

From HotAir:


From Larry Kudlow:
harry, invoking Kudlow in an argument about economics is a lot like bringing a propeller beanie to gun fight.
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  #33  
Old 04-03-2011, 08:46 AM
rfrobison rfrobison is offline
 
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Default Re: Karl assumes tax revenue can be increased

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Originally Posted by AemJeff View Post
harry, invoking Kudlow in an argument about economics is a lot like bringing a propeller beanie to gun fight.
OK, then. What about a little fiction from a Harvard economist?

The problem, as I see it, is systemic. And much as her legion of detractors will find reasons to think otherwise, Ms. McArdle has it right. Our politicians keep promising us that everything is just fine with our nation's fisc. People on the left say: "Tax the rich," conveniently forgetting that the bottom half of income earners already pay basically no federal taxes.

Those on the right say, "Cut spending...but not defense, social security, medicare, corn subsidies..."

The U.S. absolutely depends on foreigners, particularly Asians, to buy our debt in the form of U.S. Treasuries. If, for whatever reason, they begin to doubt we're good for it, we'll see a spike in interest rates, the dollar will crash, inflation will take off and the 2008 meltdown will seem like the good ol' days.

Me, I'm planning on getting zero from Uncle Sam when I turn 65. Our spineless pols and deluded voters simply can't bring themselves to face unpleasant realities. Sooner or later, though, reality will win.
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Last edited by rfrobison; 04-03-2011 at 08:56 AM.. Reason: deleted extraneous comma
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  #34  
Old 03-29-2011, 04:29 PM
Tara Davis Tara Davis is offline
 
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Default Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)

The back-half of this blog in a nutshell: Two pro-stimulus Keynesians arguing about how much and how soon we need to brace ourselves for the inevitable collapse from the looming deficit.

That Hayek fellow just keeps looking smarter and smarter.
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  #35  
Old 03-29-2011, 06:10 PM
DenvilleSteve DenvilleSteve is offline
 
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Default Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)

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Originally Posted by Tara Davis View Post
The back-half of this blog in a nutshell: Two pro-stimulus Keynesians arguing about how much and how soon we need to brace ourselves for the inevitable collapse from the looming deficit.

That Hayek fellow just keeps looking smarter and smarter.
and the alarm and urgency of the tea party are being proved correct. Tea party activism is motivated by a great concern the country will fail if the deficit spending is not stopped. How smug and dumb do the democrats look in comparison?
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  #36  
Old 03-29-2011, 08:32 PM
badhatharry badhatharry is offline
 
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Default Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)

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Originally Posted by Tara Davis View Post
That Hayek fellow just keeps looking smarter and smarter.
At this point it's time for a little song.
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  #37  
Old 03-29-2011, 06:11 PM
bkjazfan bkjazfan is offline
 
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Default Re: Full-Frontal Geeky (Karl Smith & Megan McArdle)

Are multipliers and models helping the large number of under and unemployed or is it something for econ types to talk about in their spare time? I think it's the latter.

Last edited by bkjazfan; 03-29-2011 at 06:17 PM..
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Old 03-29-2011, 06:23 PM
BornAgainDemocrat BornAgainDemocrat is offline
 
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Default Inflation and unemployment

It's been said that economics never has and never will produce an iota of knowledge that is both true and non-obvious to laymen. The laws of supply and demand for instance: the idea that a fall in price will generally increase the demand for something. In the case of labor that means a fall in real hourly wages will cause employers to demand more labor, thereby increasing the total volume of employment. [Notice: volume of employment is measured in man hours not jobs, jobs being an ill-defined term.] Inflation makes it easier to reduce real hourly wages (and thus increase the total volume of employment) because it does not require employers to actually do anything. They go down automatically as prices go up.

See, what was so hard about that?
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Old 03-29-2011, 08:29 PM
badhatharry badhatharry is offline
 
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Default Re: Inflation and unemployment

Quote:
Originally Posted by BornAgainDemocrat View Post
It's been said that economics never has and never will produce an iota of knowledge that is both true and non-obvious to laymen. The laws of supply and demand for instance: the idea that a fall in price will generally increase the demand for something. In the case of labor that means a fall in real hourly wages will cause employers to demand more labor, thereby increasing the total volume of employment. [Notice: volume of employment is measured in man hours not jobs, jobs being an ill-defined term.] Inflation makes it easier to reduce real hourly wages (and thus increase the total volume of employment) because it does not require employers to actually do anything. They go down automatically as prices go up.

See, what was so hard about that?
You had me until here:Inflation makes it easier to reduce real hourly wages (and thus increase the total volume of employment) because it does not require employers to actually do anything. They go down automatically as prices go up.

So are you saying that because prices are going up the buying power of wages is reduced? If so, why does that have an effect on the total volume of employment? In your scenario it seems the total volume of employment would stay the same. What am I not seeing?
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Last edited by badhatharry; 03-29-2011 at 10:02 PM..
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Old 03-29-2011, 10:02 PM
BornAgainDemocrat BornAgainDemocrat is offline
 
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Default Re: Inflation and unemployment

Quote:
Originally Posted by badhatharry View Post
You had me until here:Inflation makes it easier to reduce real hourly wages (and thus increase the total volume of employment) because it does not require employers to actually do anything. They go down automatically as prices go up.

So are you saying that because prices are going up the buying power of wages is reduced? If so, why does that have an effect on the total volume of employment? In your scenario it seems the total volume of employment would stay the same. Please enlighten me.
The purchasing power of wages -- how much groceries, etc., an hour's pay will buy -- is the price of labor. In the 19th century it was thought that if wages were free to move up and down in a competitive market for labor then unemployment should take care of itself. But then it was found that workers didn't take kindly to announcements from management that their nominal hourly pay would have to be cut, the unemployed be damned. Often as not they would go out on strike. As a way around this problem Keynes (and others, including Friedman) allowed that expanding the money supply would have an equivalent effect, which would happen whether the workers liked it or not. By the 1960's, however, powerful labor unions got wise to this ploy and negotiated automatic cost-of-living adjustments (COLA's), which negated the effect that an inflationary monetary policy was supposed to have. This led to a period of "stag-flation" (remember the 1970's?) in which inflation and high unemployment went hand-in-hand. But now the unions are gone and inflation should be able to work its magic again, at least in so far as the problem of mass unemployment is concerned. I have no doubt that Bernanke & Co. are thinking in these terms, though of course they are too politic to come right out and say so. But if you listen carefully . . .

Last edited by BornAgainDemocrat; 03-29-2011 at 10:11 PM..
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