Tuesday, October 9, 2007

You Know What They Say About Opinions (Laffer Curve)

One thing I really enjoy about writing opinion pieces is that you don’t always need to do a lot of research. I know this because I do it – note the warning on your right!

That said opinion pieces are ripe for controversy for just that reason. For example, I was reading one today published in The Wall Street Journal Online Edition here http://online.wsj.com/article/SB119189497675953035.html?mod=opinion_main_review_and_outlooks (pg A16 in the print edition) that really caught my attention. In it, someone (no author noted) is opining on the shrinking deficit, noting that faster growth, not taxes, is the way out of deficits. Unfortunately, the piece goes on to say, this will be short lived because congress has its eye on lots of spending.

Well, I agree that Congress should spend less. I also like lower taxes, especially mine (see what I mean about opinion pieces?). In fact, if Congress could spend a lot less and lower my taxes by a lot, I think that would be great! Unfortunately, that doesn’t save this opinion piece. What gets lost is the connection between lower taxes and growth.

You know, I can earn less income and spend more. That would produce a really nice result, for a while. Things would be great, and for a time, I may even be able to spend more than I borrow. The numbers may even look good, at that point. That’s why the author of this article can point to a shrinking deficit and claim victory that tax cuts create growth, and the growth produces even more tax revenue. Hooray!

Maybe. But lets look at some of the facts here (darn those things). From the end of 2000 (the beginning of the Bush policies) to the end of 2006, GDP (current dollars) increased at a compound annual growth rate of 5.1% (I got my numbers here http://www.bea.gov/national/xls/gdplev.xls). Not Bad. What happened to the national debt over that time period? Well, from January 31, 2001 to January 31, 2007, the national debt grew at an annual compound rate of 7.3% (these numbers come from here http://www.treasurydirect.gov/NP/NPGateway). So, the shrinking deficits? These numbers do not appear to support the hypothesis that the writer claims. OK, so what if we look at just the past year? Well, GDP increased 6.12% while the national debt increased 6.24% (2005-2006, and January 2006 to January 2007, respectively). Better, but still not supportive of the writer’s conclusion. Now add the fact that Congress changed hands last year and the lower deficit numbers come into context. Is it possible that less is being spent this year because the Democratic Congress is limited by the Republican administration? Wouldn’t that be a surprise? I think the hypothesis needs a little more testing. Perhaps a good statistical analysis is in order. When the WSJ is ready, I think I know someone named Tom who can do that. Give me a call.

UPDATE: I found this link today at Paul Krugman's blog. Be sure to scroll down to the second table of numbers! Link to Paul's blog on your right.
http://www.cbo.gov/ftpdoc.cfm?index=8654&type=0

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2 comments:

greenpagan said...

Hello Polecolaw

I used to allow open comments but over time I started receiving so much bloody spam I had to use the screening function.

I finally got around to clearing comments for my blog ( http://greenpagan.blogspot.com/ ). Yours have been posted. Sorry for the delay.

When the ill-considered NY Times Select was in operation I spent more time updating--dragging the premium content out from behind the firewall for the benefit of the People. But since the wall came down I have to pretty much figure out a new identity and purpose for my blog. Where I used to get sometimes thousands of hits per day these days I'm lucky if I crack 100. But that's okay.

In fact I've been spending more and more time over at Newsvine.com ( http://www.newsvine.com/ ) to which I was turned on by one of my fellow NY Times Refugees as we called ourselves after the Gray Lady closed down the old political message boards. There was all sorts of craziness surrounding that including saboteurs running denial-of-access programs.

Good luck with your blog.

Best regards,

Greenpagan

PS -- Newsvine promotes a lot of interaction between users. You can post "seeds" (articles from newspapers, magazines, etc.) or your own original articles, essays, etc. You can also make a little bit of money from ads. There's no monetary remuneration for spreading the word or anything. Just thought you might find it interesting. It’s all free.

Furthermore you can also start your own group there. So if your interest is in Law, for example, you can set up a group focused on that subject matter.

It took me at least a few weeks to get the hang of things. I found it thoroughly disorienting at first but it's all second nature now--or mostly. Sometimes there are glitches.

The atmosphere is generally civil. But you don't have to put up with any nonsense.

There are moderators and others on site who you'll find very helpful if you run into any problems with the format.

I go by Greenpagan on Newsvine too, in case you want to reconnoiter.

-- GP

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Dan said...

Yes, a split government is good for cutting costs. But at what cost does that happen, nothing getting done? There has to be a better way.

Fine spending goes up with one party rules supreme, but at lest in those times that party moves the country in the direction it feels is the correct one (Hopefully it’s the direction you want).

A bottle neck is a good way to stem the tide when everything poring out of it is bad, but turn what is bad into something good.

Its time to forget about who’s spending what money, and start asking the questions about what is it being spent on.