The 'Tax Cut, For or Against' thread

[Kidicious]

Originally posted by Adam Smith
"Supply Side" has had two different meanings. Orignially it meant cutting taxes a la Arthur Laffer. But more recently both Democratic and Republican administrations have taken "Supply Side" to mean adopting policies which will make the economy more efficient and competitive. When these policies were adopted, prices fell. For example, deregulation of the US railroad inductry cut railroad rates by more than half. There are plenty of other examples.

Prices eventually fall a little, but not enough to prevent a recession. Profits fall and businesses then cutback. That is to say that, everytime supply is stimulated there is overproduction and a recession which follows.

[Adam Smith]

Originally posted by Kidicious
everytime supply is stimulated there is overproduction and a recession which follows.

And this statement includes cases of technical innovation which is, after all, an expansion of supply?????

[Kidicious]

Originally posted by Lawrence of Arabia
heres a comprehensive review of Reaganomics done by the Cato institute. http://www.cato.org/pubs/pas/pa-261.html

This part says its all on the accuracy of its analysis and predictions.

I've seen this. What is your point though. There was a lot more demand stimulus during the 80s than during the 90s. Even the tax cuts didn't work the way that Reagan thought they would. They didn't increase the savings rate. The tax cuts were spent and placed in the stock market.

[Adam Smith]

Originally posted by Kidicious
The tax cuts were spent and placed in the stock market.

Stock market = investment, right?

[Kidicious]

Originally posted by Adam Smith
And this statement includes cases of technical innovation which is, after all, an expansion of supply?????

Innovation is a different matter. Innovation creates new industries and increases profits. Supply side fiscal policy causes current industries to become too competitive which cuts into profits.

[Kidicious]

Originally posted by Adam Smith
Stock market = investment, right?

I think the theory claims to increase business investment.

[Lawrence of Arabia]

I've seen this. What is your point though. There was a lot more demand stimulus during the 80s than during the 90s. Even the tax cuts didn't work the way that Reagan thought they would. They didn't increase the savings rate. The tax cuts were spent and placed in the stock market.

Which is exactly why they didnt work. What I didnt understand was that he was cutting taxes to increase Aggregate supply, but then went into a huge deficit, which increases Aggregate demand, which wipes out any gain made my the tax cut. What an idiot.

[Kidicious]

Originally posted by Lawrence of Arabia


Which is exactly why they didnt work. What I didnt understand was that he was cutting taxes to increase Aggregate supply, but then went into a huge deficit, which increases Aggregate demand, which wipes out any gain made my the tax cut. What an idiot.

I think there was some crowding out that occured in the late 80s, but initially it worked. The deficits worked OK when the economy was weaker, but as the economy grew the deficits got bigger. It's suppose to work the opposite way.

[Imran Siddiqui]

I think the theory claims to increase business investment.

Investment is on the supply side, whether business investment or personal investment.

[Imran Siddiqui]

Demand does create its own supply. Even the neo-classicals admit that where ever there is an ability and a willingness to buy, the sale will be made. It's in the price. Prices go up just fine, but they don't go down so well. That's why demand-side stimulus works and supply-side stimulus doesn't.

If I recall the S-D graph, a rightward shift in Supply would decrease prices, while a rightward shift in Demand would increase prices. You say prices don't go down so well, but I'd disagree. When you increase technology (ie, on the supply side), real prices will fall. Nominal prices may not fall, but blame inflation for that.

[Kidicious]

Originally posted by Imran Siddiqui

Quote:

I think the theory claims to increase business investment.

Investment is on the supply side, whether business investment or personal investment.

You'll have to explain how a personal investment produces a good or service.

[Kidicious]

Originally posted by Imran Siddiqui

Quote:

Demand does create its own supply. Even the neo-classicals admit that where ever there is an ability and a willingness to buy, the sale will be made. It's in the price. Prices go up just fine, but they don't go down so well. That's why demand-side stimulus works and supply-side stimulus doesn't.

If I recall the S-D graph, a rightward shift in Supply would decrease prices, while a rightward shift in Demand would increase prices. You say prices don't go down so well, but I'd disagree. When you increase technology (ie, on the supply side), real prices will fall. Nominal prices may not fall, but blame inflation for that.

An increase in technology has nothing to do with the AS-AD graph. Technology is a assumed to be constant. It's not a determinent of AS. You have to remember that it is assumed that time is static.

[Zkribbler]

Originally posted by Imran Siddiqui
So now, correlation means causation?

It's certainly a much better indicator of causation than the lack of correlation.

Such as the supply-side policies of Reagan and the greatest one-day drop in the market of all time (when measure in Dow point) or the greatest one-day drop in the market since the great depression (when measured in percentage).

Or such as the supply-side policies of Bush 43 and a 20% drop in the Dow.

Supply-siders keep messing up the finances of this county and then taking credit for the upturn once demand-side policies are put into place to fix the problem.

A higher minimum wage tends to create more unemployment. Look at Europe, for instance.

Or look at what happened under Clinton.

[Adam Smith]

Originally posted by Kidicious
Innovation is a different matter. Innovation creates new industries and increases profits. Supply side fiscal policy causes current industries to become too competitive which cuts into profits.

Invention (new product), innovation (new way to produce and existing product), increased trade, and increased efficiency all have the same effect: they shift AS to the right, lowering prices. Income increases in any of these cases, since we have more goods and services available for the same number of people. Some industries and workers may have reduced income, but this is more than offset by gains in other sectors.

You'll have to explain how a personal investment produces a good or service.

When a firm sells stock to an investor it uses the proceedes to buy capital goods, which produce output. This is pretty basic stuff.

PS:
Are you DuncanK's DL?

[Imran Siddiqui]

Are you DuncanK's DL?

AS answered your queries. AS does shift with technology, and of course stock sales end up with output.

It's certainly a much better indicator of causation than the lack of correlation.

I'm glad to know that the stagflation of the 70s means demand-side economics is a failed policy .

Such as the supply-side policies of Reagan and the greatest one-day drop in the market of all time (when measure in Dow point) or the greatest one-day drop in the market since the great depression (when measured in percentage).

Remember the second greatest one day drop in the market? That's right, 1998, during Clinton's heydey. So is Clintonomics a failure too?

That big one day drop? It was reversed in about two weeks. It was nothing, a blip.

Supply-siders keep messing up the finances of this county and then taking credit for the upturn once demand-side policies are put into place to fix the problem.

I didn't know that that the upturn in 1983 was from a demand-sider!

Or such as the supply-side policies of Bush 43 and a 20% drop in the Dow.

You mean the drop which started during Clinton's last year? That damned supply-sider, Clinton, he's so evil .

I love how lefties blame supply-siders for everything that goes wrong with the economy, but don't even acknowledge what they do right. They think demand-side economics **** don't stink. Of course, then you look at the 70s and realize it does .

Like I said before, a combination of both is best. You just have to know when to use each (For example, I think now calls for some demand side policies).

[Kidicious]

Originally posted by Adam Smith
Are you DuncanK's DL?

I was wondering when Imran was going to figure it out, but you beat him to it. Actual this is my login now.

We are talking about the short run, right? Increasing the income available to make make business investments doesn't create new innovations. Technology effects the long run only. We should agree on that, but in the short run things are different.

Purchasing stock is not issuing stock. That is, just because a tax cut results in more demand for stock, it doesn't follow that more stock is issued.

[Imran Siddiqui]

I was wondering when Imran was going to figure it out, but you beat him to it. Actual this is my login now

God Damn! No wonder!



Only if you weren't actually who you are, 'Duncan' might look better today .

[Kidicious]

Originally posted by Imran Siddiqui

Quote:

Are you DuncanK's DL?

AS answered your queries. AS does shift with technology, and of course stock sales end up with output.

What you guys are talking about is not supply-side economics. We are talking about short run stimulus to get the economy back on track. Supply-side economics involves stimulating business investment.

Now, knowing you, you will still argue that supply-side economics is about stimulating innovation. If you are going to do that I just ask that you admit that stimulating business investment does not create growth in the short run. That's only fair since you seem to be abandoning that argument in favor of this argument that stimulating business innovation creates growth in the short run.

Btw, this is a new business cycle theory. Who should get the credit for it, you or Adam Smith? Or should we call it the Smith Siddiqui business cycle theory.

[Imran Siddiqui]

We are talking about short run stimulus to get the economy back on track.

Supply-side economics isn't a short term theory. It doesn't care about short run stimulus, it merely concerns itself with long run goals.

In the short-run some supply-side actions (like fiddling with interest rate) DOES help in the short run. Monetarism isn't 'supply-side economics' (at least the Laffer-Say version... which is what we consider that term to be).

[Kidicious]

Originally posted by Imran Siddiqui

Quote:

We are talking about short run stimulus to get the economy back on track.

Supply-side economics isn't a short term theory. It doesn't care about short run stimulus, it merely concerns itself with long run goals.

In the short-run some supply-side actions (like fiddling with interest rate) DOES help in the short run. Monetarism isn't 'supply-side economics' (at least the Laffer-Say version... which is what we consider that term to be).

So we agree that increasing supply in the short run does not create economic growth. Then we agree that Say's so called law is bullshit, because there will be no market clearing when AS is increased. And the Laffer theory must also be bullshit, because a cut in the tax rate will not be able to increase tax revenue, since there is no growth in the short run.

[Kidicious]

We need to agree to forget about the long run. We agree that advances in technology will create economic growth in the long run. However, if the economy colapses in the short run we will all be 'dead in the long run.' So if an increase in AS creates a depression like in did in the 20s there will be no innovation in the long run. Just like there was no innovation in the 30s.

[Imran Siddiqui]

You don't understand (or learn much) do you? When I said supply-side economics was normally long run, saying those long run theories are 'bullshit' because they don't work the way you want them too in the short run is not only dumb, but intellectually dishonest.

Laffer's Theory was ALWAYS a long-term solution. A cut in the tax rate leads to increased tax revenue in the LONG RUN!

And, btw, decreasing the interest rate does lead to economic growth within, say, 6 months. Is that considered long run to you?

And when AS increases, at some point AD will probably catch up. The question is when. Say's Law may be correct, but it may not apply every time.

[Kidicious]

Originally posted by Imran Siddiqui
Laffer's Theory was ALWAYS a long-term solution. A cut in the tax rate leads to increased tax revenue in the LONG RUN!

That's not true, but even if it were true you still have to deal with the short run consequences.

Originally posted by Imran Siddiqui
And, btw, decreasing the interest rate does lead to economic growth within, say, 6 months. Is that considered long run to you?

According to neo-classical theory no. There is no way you can get instantaneous stimulus. So we have to consider the short run to be within a year or so.

Originally posted by Imran Siddiqui
And when AS increases, at some point AD will probably catch up. The question is when. Say's Law may be correct, but it may not apply every time.

No, increases in AS cause market glut and system failure. Then everything is broken. There is no catching up. Either there has to be new innovations or demand stimulus for the economy to recover. There is no automatic creation of AD from and increase in AS.

[Imran Siddiqui]

No, increases in AS cause market glut and system failure. Then everything is broken. There is no catching up. Either there has to be [b]new innovations[b]

What do you think causes shifts in AS? Technology, more efficient production techniques. What else do you think shifts the curve?

[Kidicious]

Originally posted by Imran Siddiqui

Quote:

No, increases in AS cause market glut and system failure. Then everything is broken. There is no catching up. Either there has to be [b]new innovations[b]

What do you think causes shifts in AS? Technology, more efficient production techniques. What else do you think shifts the curve?

Again. That is the long run. Short run shifts in supply are caused by changes costs, expectations, and number of sellers. Long run shifts are caused by changes in technology and changes in the labor force.

[Imran Siddiqui]

[Kidicious]

Go buy a used textbook Imran. Good night.

[Kidicious]

Here's an internet poll on this subject in case anyone hasn't seen it.


Do you think the president's tax-cut plan will...

Create jobs by year-end? 19%

Worsen the federal budget deficit? 55%

Both? 15%

Neither? 11%

total responses to this question: 10777


It seems like the proposed tax cuts are about as popular with cnn.com viewers as poly posters.

[Sava]

The benefits of tax cuts would only really them useful during surpluses. The negative effects of monsterous deficits far outweigh any possible rewards of tax cuts.

[Caligastia]

Originally posted by Jon Miller
I would prefer a tax increase to 100%

If you give me all your money I promise to spend it wisely.