Sayeth the NY Times:
The American economy grew at a revised annual rate of 3.1 percent in the second quarter, the government reported today, and the unexpected strength is leading economists to raise their forecasts for the rest of the year.
Among the positive signs are the continued strength of consumer spending, the bounce-back in business capital investment, the leanness of business inventories and a jump in corporate profits.
A surge in military spending connected with the war in Iraq was also a big contributor to second quarter growth.
Inflation as measured by the gross domestic product is still low, rising at an annual rate of 0.7 percent in the second quarter, a fact that analysts said would reinforce Wall Street’s belief that the Federal Reserve would keep short-term interest rates low for a long time.
What scares the hell out of me are the rising gas prices- high fuel costs could really slow the recovery.
Dodd
OTOH, gas prices are artifically high at the moment. For one thing, Bush has been refilling the Strategic Petroleum Reserve, adding, according to an estimate I saw (last week) US$1.50 to the price of a barrel. That will end before long. Second, it’s almost Labour Day and gas prices always go up right before a big driving weekend. Take those two things together and I’d be very surprised if they don’t fall noticably in a couple/three weeks.
Ricky
Good news?
Or, in the words of the left-side of the blogosphere: DAMMIT!
S-Train
We’re at $1.90/gallon here in Detroit. I guess that is good news but what always concerns me is how much MADE IN CHINA, or MADE IN SOMEWHERE else I see. Could we import ourselves into a hole?
dwight meredith
Good news indeed, even here on the left. Energy prices are worrisome. Any economists out there who can tell us how much a given rise in oil prices slows the economy?
John Cole
Dwight- I recall reading something somewhere (real helpful, hunh?) indicating that a drop of prices by x amount was more important for the economy than any of the recent tax cuts. I will try to dig it up.
Kimmitt
The economy continues to send out “good news/bad news” signals for the Bush Administration. On the one hand, GDP continues to rise. On the other hand, it’s rising slower than productivity growth, so unemployment is unlikely to change. On the one hand, there is significant support for Keynesian internvention in the economy. On the other hand, it has to do with increased government spending on consumed goods (i.e. military) and nothing to do with the tax cuts.
While everyone wants to make sure that people have jobs, most folks on the Left (not to mention the vast majority of economists) don’t want the inherent strength of the US economy’s capacity to overwhelm the obvious idiocy of the tax cuts to serve as evidence for the cuts’ efficacy. Oh, well; waddayagonnado? The good of the country comes before partisan politics.
David Perron
“[snip]…obvious idiocy of the tax cuts…[/snip]”
I guess history will tell who was right on that one, because neither side has been able to adequately support their opinion on the matter with fact. This includes you, Kimmitt. You keep on insisting that the tax cut was A Bad Thing and I’ll counter that it was A Good Thing, and neither of us will have actually backed opinion up with anything other than, perhaps, opinion of others who have a bit more authority. Me, I like to see proof. But I’m not above countering idiocy with a bit of my own. It’s a flaw, I know.
There’s another thing affecting gas prices, and that’s shortage of winter blend in the northern and western states. Yet another influence is the MTBE ban implemented in CA. A gasoline shortage in CA was forecast over a year ago. Now it appears we’re seeing shortages in Nevada and other states. Anyone who’s got the goods on this, please chime in.
Toren
Kimmitt, if the only way to improve the economy is for me to have my money taken away by taxes, then I fail to see the point of improving the economy because I’ll be poor anyway.
Why don’t we cut out the middleman and let me keep my own damn money?
apostropher
>Why don’t we cut out the middleman and let me keep my own damn money?
Okay, as you soon as you set up the automatic debit to pay off your own damn share of the 5 trillion dollar debt and agree not to use any government services.
Kimmitt
The ongoing belief that Libertarians have that they have made their money without any recourse to the public goods which government provides or protects, such as contract enforcement, law enforcement (and crime prevention), breathable air, national defense, roads railways and airports, safety standards, or any of the thousands of other essential and useful services which are provided is baffling to me.
Yes, one has to pay taxes. If one is uncomfortable with the tax levels or enforcement, one has recourse to democratic processes (not to mention judicial ones in egregious cases). In the meantime, one enjoys services and processes based on those taxes which are, by and large, worth far more than the money paid for them (though of course there will always be waste and disagreements as to appropriate allocations of resources). The alternative is, simply, Hobbesian.
some random person
“Okay, as you soon as you set up the automatic debit to pay off your own damn share of the 5 trillion dollar debt and agree not to use any government services.”
Where do I sign up?
David Perron
One did exercise one’s recourse through the democratic system, and elected a president who would cut one’s egregiously high tax bill back a bit. Just a tad, though.
Kimmitt
Right, but one should then go ahead and tell us which governmental services you plan to cut, instead of making believe that we can borrow indefinitely. Tax and service cuts go hand in hand, and it is disingenuous to pretend otherwise.
David Perron
I’m prepared to do without The Farm Bill, for one.
Kimmitt, you haven’t shown that the tax cuts will negatively impact revenue at all. For all you know, they’ll cause revenues to increase.
I actually don’t know, and neither does anyone else. So stop beating this imaginary drum.
Kimmitt
Oh my God, we’re back to arguing that the Reagan tax cuts increased Federal revenue again?
Read the damn figures yourself at the Statistical Abstract of the United States. Reagan cuts taxes in ’81, tax receipts go down in ’82. Reagan raises taxes in ’82, tax receipts go up in ’83. It’s that simple. Within the ranges of tax rates practiced historically by US governments, tax cuts lead to decreased Federal revenue and tax increases lead to increased Federal revenue.
There’s no discussion to be had here. Tax receipts are extremely closely correlated to two things — tax rates and economic growth — and economic growth is essentially uncorrelated with Federal tax rates, at any lag period you care to choose.
Run the regressions yourself, if you’re not convinced. Excel will do it for you these days.
David Perron
Kimmitt, if there were anywhere near as much certainty about the relationship between tax rates and revenues, there would no longer be any debate at all on the matter. Sadly, that’s not the case.
Now, since you seem to be equipped with the data and arriving at conclusions that guys with Ph.D.s in economics are still arguing over, perhaps you can write a paper on the topic and save all this back-and-forth.
After all, according to you it’s pretty clear-cut. There’s no arguing with data, though.
David Perron
Oh, and I’m pretty sure I never mentioned Reagan. Look, you made me get straw all over the place.
Kimmitt
The guys with the Ph.D.’s in Economics aren’t arguing. Supply-side economic theories have been entirely discredited by rational expectations theory and empirical analysis; the Laffer curve just does not kick in until an income tax rate of 70% or so (if then), and you can’t have above-average years every year by fooling around with the money suppply. The only folks who are keeping this set of ideas alive are the economically uninformed who have an emotional or political investment in the theory.
David Perron
Ah. So there’s an information gap. Well, please do point out any authoritative papers that show that tax cuts at the levels currently being addressed absolutely result in a loss of revenue over the long term.
You say the Laffer curve only kicks in at 70% taxation rates. Given that you seem much more positive about this than anyone else I’ve encountered on the Internet, perhaps you can plot the Laffer curve for us. Since you seem to be so familiar with it, and all.
And with all this conversation, you haven’t yet presented any evidence whatever that demonstrates a tax cut in the upper brackets from 39% to 36% (roughly) results in a loss of revenue. I’d imagine an economist of your resources would have no trouble at all making that point. So…where’s the beef?
Kimmitt
Okay, found a discussion of the Laffer curve aimed at the layperson, in The Economist’s glossary: link.
The discussion is sufficient, but it does leave out the additional evidence provided by later Reagan, Bush I, and Clinton tax increases (all of which engendered increases in Federal tax receipts).
As for loss of revenue over the long-term, the supply-side thesis is that a low marginal tax rate will, after an undetermined lag period, produce economic growth in excess of what would otherwise have been possible. There really is no support for this position; the only thing which produces long-term growth is productivity growth, and said growth appears to be entirely independent of marginal tax rates of the time or any time beforehand (restricting our analysis to the post-WWII period, for obvious reasons). In particular, the Clinton boom years, which produced economic growth and employment levels not believed physically possible in the US economy, followed significant tax increases in 1991 and 1993. Since one cannot have the Fed run large budget deficits indefinitely (which could, I grant, provide fiscal stimulus), tax cuts come hand-in-hand with service cuts, which tends to balance everything out.
David Perron
Well, that was fairly worthless. You’ve claimed that the tax cuts are going to lead to loss of revenue, and your basis for this is a link to the definition of the Laffer curve. Somehow I’m not swayed by this non sequitur.
My assertion that neither side has proven their case still stands, and your attempts to shore up your case with examples where other effects far outweigh the taxation/revenue relationship aren’t convincing. Clinton rode the wave of an economic expansion that began nearly two years before he took the oath of office. Reagan inherited an economy already in trouble; recovery didn’t even begin until November 1982. You’re not going to make your case using a couple of very different historical circumstances.
The result is that perhaps Bush is full of shit on tax rate cuts and revenues, but so are you. Next?
Kimmitt
Let me be absolutely clear:
There is no disagreement among economists that tax cuts lead to decreases in revenue when tax rates are at current US levels. Short-term, long-term, doesn’t matter. You will not be able to locate a single journal article advocating this view after 1993 or so (and I’m just saying 1993 to be safe).
I don’t have the capacity to impart a graduate-level macro course which is what would be necessary to truly support my thesis. Either you accept the consensus of the profession, or you do not.
David Perron
Well, in my profession, if you make a claim you’d best be prepared to back it with data AND theory. I guess economics is different. Or maybe a lot more circumlocution is acceptable. I know if I tried the “trust me, experts agree” on any of my colleagues, I’d get laughed out of the room. And there’s some sort of logical fallacy connected with that too…something about appeal to authority.
Face it, if it’s as glaringly obvious as you claim it is, you ought to be able to substantiate, and do so with minimal effort. At which point I’d happily concede that you’re right and drop the subject, and perhaps even participate in some activism toward the end of getting the idea that tax cuts are beneficial killed. But I’m thinking that in order to do that, you’re going to have to plot that Laffer curve for me.
Oh, and one last thing: if all your theory says that the tax cuts as implemented result in a long-term reduction of revenue that’s laughably small, I’m not sure I’ll be able to contain myself.
Kimmitt
Look, it’s like this:
When my friend the physicist tells me that there are these subatomic particles called “quarks” which have bizarre qualities like “spin” which require them to turn around twice before the original side is facing me, I don’t demand that he somehow condense graduate-level physics into a blog post to prove it to me. Instead, I accept the consensus of the profession on what is true. This is no different. I have no idea if you have the math and econ background necessary to find the arguments meaningful, and few academic journals have free net access, so I doubt you’d be able to look up any references I post anyway. So I’m asking you to accept that there are no economists who are presenting the position that tax cuts increase Federal revenue or that tax increases decrease Federal revenue in the short or long-term in the current scholarly literature. At that point, the onus is on you to either demonstrate that you do have the background and access to go further into the conversation or to accept the overwhelming scientific consensus.
David Perron
Econ:
Undergrad micro and macro only. Sorry.
Math:
4 semesters college calc, first year honors calc. Differential equations. Graduate level: complex variables, abstract algebra, advanced multivariate calculus, special functions, numerical methods, perturbations, partial differential equations. I may have left out one or two course. Basically I’ve got about half an MS in applied math. I hope that’s enough. Oh, and I basically use applied calc and perturbations every day at my job. You’re going to have to take my word for it, still. If the seed falls on barren soil, you can blame me.
That said, likening the relationship of revenue/taxation to subatomic particle spin seems like a poor analogy. Maybe that’s ignorance speaking, though. Still, it seems like the former is more “Newtonian” economics, if you will, while the latter is quantum physics. IOW you’ve compared a large-scale phenomenon to a quantum-scale phenomenon.
Kimmitt
“On the Internet, no one knows you’ve got the background.”
I’ll dig up what I can; this should be a good research project. Hope you’ve got some good stat background or a friend who does; a lot of the discussion of these sorts of things centers around the utility of various statistical approaches.
David Perron
Fair to middling, Kimmitt. Depends on what breed of stats you’re speaking of. I do Kalman Filters (see: least-squares estimation) for a living, but I may need to brush up on regression.
It’s possible (perhaps likely) that whatever you may dig up will be over my head. If it is, I can practically guarantee that it’s over Bush’s head too. And Gore’s, and Clinton’s.
I know economics can involve quite a bit of higher math. I once sat next to an economics professor from Northwestern on a hop from South Bend to Chicago, and what he was working on was way the beyond the ability of my puny BSEE to decipher. I’ve learned a bit since then, but I’ve also seen that the higher maths of economics are somewhat less firmly connected with reality than are the mathematics of physics.