You may certainly drop out. But I’m going to respond to your nicely put points.

1) YOU CAN GROW THE ECONOMY OR CUT THE BUDGET. The assumption of this point is that government allocation is THE way to spur economic growth. I believe this is a false dichotomy. This article summarizes a number of studies on this and concludes something different: http://mercatus.org/publication/does-government-spending-affect-economic-growth Based on some of these studies, it may be that cutting government spending actually grows the economy.

2) MORE CITIZENS NEEDS TO PAY. I agree more Americans need a stake in public spending. But not because government allocation is the best way to get the economy going. They need a stake so they are not voting to spend other people’s money. We never spend our money as wastefully as we spend someone else’s.

3) RICH GETTING RICHER.
A. My argument was never that economic growth policy needed to focus on the rich getting richer. My argument is that government allocation is inefficient and puts an overall drag on the economy.

B. The numbers (see the links above) show that you could take all the money from the rich and it wouldn’t fix our spending issue, which may in fact be placing a drag on the economy (see point 1).

C. The “rich” aren’t a fixed set of people. Many of those in the lowest economic groups in the US find themselves in the “rich” group later in life. There’s a great deal of economic mobility in the US.

D. Depending on what number you’re using to describe income, you might be comparing apples to oranges. Household income increases, for example, are understated because households used to be MUCH larger in America. So income hasn’t grown as much per household, but the average household size has shrunk.

4) KRUGMAN’S CLAIM THAT “AUSTERITY ISN’T WORKING.” The article provides no supporting data or model, just his claim. What does this austerity actually mean? The graph displayed here shows very little “austerity”. Furthermore, did they cut taxes or raise them? Watch this: http://www.glennbeck.com/2012/05/21/from-gbtv-whats-really-happening-in-europe/ Of course, I want to fact check, but this paints a very different picture of that Greek “austerity.”

As far as Iceland goes, is it correlational or causational? We don’t know. It’s like the arguments for government run healthcare based on a country’s child mortality rate and life expectancy–are those correlational or causational? Did the government healthcare programs cause the numbers or did lifestyle factors like levels of obesity, smoking rates, levels of activity, and diet, as well as environmental factors like pollution?

5) INVESTMENTS DON’T HELP THE ECONOMY AS MUCH AS SPENDING. I’d like to see some stuides on this.

Money invested never just sits around as cash. John buys stocks from Bill who then takes the money and buys stocks from Mary who takes her money and buys bonds from Frank who takes the money and invests it in Joe’s start up company who uses the cash to purchase office equipment from Bill and pay for inventory from Sarah and pay his employee Jack, Jane, and Fred who then go purchase other things with the money they received.

It’s true some money goes round and round, purchasing stock and bonds over and over. But is that bad for growth? It’s true some of that money goes to foreign investments. But Foreign investors invest in US companies as well. What’s the net effect on the US economy?

The key thing question is: what happens to the economy when investment captial shrinks? And does taking the money from the rich and having government allocate it instead make the economy grow?

If you look at government spending in the US, you’ll see it grew during the Bush years and then exploded during Obama’s. And yet we still had a recession. Correlation? Causation? I don’t know.

But I do know that when you take on horrid amounts of debt, you will either have to (1) print money and devalue everything everyone has–reducing their real income rates–or (2) cut back government services in relation to the tax burden to pay for it, or (3) raise taxes out the wazoo to pay for it.

I understand the argument that if you grow the economy you can select option 2 and not have to cut back so much. And that because we don’t want to tax folks out the wazoo our government wants to borrow money to spur that growth. But I don’t see the evidence that government spending actually has that effect on growth. If someone can show me lots of good evidence, I’m happy to revise my opinion.

It was rather capped by me having other things to do, so sorry but it’s been a few weeks since I had a chance to look at this.

From the information I’ve been given, the problem is that a huge portion of that cash is just sitting as cash, i.e. not being invested. Further, when it is invested it is put overseas, and therefore the cash isn’t going to US families.

Secondly, by redistributing the money to poorer individuals, say teachers, it is spent on businesses owned by the wealthy. It is just a bigger bang for the buck before it ends up being invested again.

My only point with raising the Krugman article is that the austerity measures aren’t working. So a government with the plan of introducing austerity measures? The evidence is against such an approach.

So my argument is 1) you can grow your economy or cut your budget, but the evidence suggests you can’t do both; 2) an increasing number of Americans aren’t paying taxes, which may not be the whole problem but it does compound it; 3) if the rich getting richer is going to drive the economy so well, why have lower socioeconomic groups not seen anything approaching the income growth that the wealthiest have?

Look, this argument is old. It’s been fun, but I think we have to leave it as an amiable disagreement.

– david j.

Holy cow, man. I think we have to limit the discussion or this will spin way out of control. And since this is my blog, I get to be the facilitator

So, you brought up or tried to address the following questions:

TAXES
- Does cutting taxes spur economic growth?
- Does cutting taxes for the rich spur economic growth?
- What are the factors that led to America’s rise as an economic powerhouse?
- Which factors lead countries to become economic powerhouses?
- Is disparity in wealth a bad thing?
- What’s “fair”?

CURRENT U.S. ECONOMIC WOES
- What’s the best way to help the US out of its slow growth and unemployment?
- More government spending financed with debt or taxes on the rich or less government spending? (The old Keynes vs Hayek debate.)
- Or does the solution lie elsewhere?

GOVERTNMENT SPENDING
- Do public health systems actually lead to better public health than private health care systems?
- Are there areas where it’s better to have government allocate the money than individuals? What are those areas?
- Are government subsidies useful?

Did I miss any?

These are all good questions. I think central questions. And each one deserves examination. But it’s too much at once. However, it seems the core of your argument is that:

a) GDP = private consumption + gross investment + government spending + net of exports?imports.

b) Cutting government spending will send shocks into the US economy, drastically reducing GDP, and that will only make things worse. So we shouldn’t cut spending.

c) We’re currently spending much more than we take in as a government.

d) There are only two sources of government income: taxes and borrowing.

e) This means we need to continue to add to the debt. If we want to decrease the amount of debt we take on, we need take more from the rich to make up for it.

Have I captured it?

Here’s my response.

TAXES DON’T INCREASE GDP

Taxing the rich doesn’t increase the money in the system. All it does is remove the ability to choose what to do with the money from those who are being taxed to folks in Washington.

I know you’ll say that the U.S. economy is driven mostly by consumption. And a lot of the money the rich have is NOT used to consume products and services, and so it’s sitting around doing nothing. But it’s not doing nothing. It’s not out of the system. It’s being invested in all sorts of ways, one of which is in providing capital for business ventures and lowering the cost of money. And it’s being used to fuel consumption.

For example, if I purchase original shares of stock in a company, I’m giving money to the company to conduct business. That money flows out to employees and vendors (who also have employees). Any extra that sits in a bank is lent out. We could get into the capital market, but the fact is that the money never sits. It goes round and round. The only time it sits is when I park it, not in a bank because they lend it out, but in my vault in the basement.

What this means is that if I raise taxes it doesn’t add money to the system. If I cut taxes it doesn’t take any money out of the system. Taxing and not taxing just shifts ownership. Cutting taxes allows people to allocate the funds as they see fit, which in most cases is much better than government allocation. I agree there are some things that can be allocated better by government, but I don’t want to go down that rabbit hole right now. I believe we both agree the vast majority of GDP is best allocated by individual consumers.

If this is true, cutting taxes will probably make the economy more efficient overall, allocating the $$ better to its most productive uses. And that might give the economy a boost because the money will move round faster. But I’ll admit that’s something that needs to be substantiated with more than I provide here. And we’d need to quantify the effect, i.e. cutting taxes by X dollars leads to Y boost in GDP.

Do you dispute either of these ideas:
- Taxing doesn’t increase GDP, it just shifts who spends what
- While government allocation can be more efficient at some things, it is less efficient for the vast majority of spending

TAXING THE RICH 100% WON’T COVER GOVERNMENT SPENDING

Walter Williams wrote an interesting article http://newworldorderreport.com/Default.aspx?tabid=266&ID=8265, which claims that if we were to tax ALL those who make above $250,000 at 100%, we could not pay for government spending. If we were then to make the billionaires sell ALL their assets, we still couldn’t pay for it. What if we add in corporations making $250k and force them to pay 100%. Same problem.

We’d have to verify the numbers, but this means that to maintain current government spending levels, we have to continue borrowing money.

BTW, here’s the Bill Whittle “Eat the Rich” video the Williams essay was based on: http://www.youtube.com/watch?v=661pi6K-8WQ

Do you dispute the numbers?

Once we see where we are on these two things, we can move to the next topic of whether debt spending is the way to move the economy. Because in the end the thing we want is a growing economy.

BTW, I read that Krugman thing. I heard him the other night as well. He brought up Iceland and Ireland, but he doesn’t make a compellion comparison. Were the two situations exactly the same, and the only difference was that one devalued it currency? I doubt it. And is he’s suggesting the U.S.A. create a huge tax on those of us with jobs and savings by devaluing our pay and bank accounts? That’s the solution? Taxes?! And talk about a regressive tax! We certainly can discuss this, but later. The point is that he leaves far too much out. And again, I’m not impressed with credentials. All I care about are the ideas and support for them. You have as much pull with me as Krugman.

Thanks for engaging in the conversation, I’m kinda used to hearing people on both sides screaming at each other without actually listening, and I was worried that joining in would mean I received more of the same. Very pleased that you are willing to talk rationally . You raise some good points, although I’m still going to disagree on the whole (respectfully, I hope). Sorry it’s taken a while to reply, but being a full-time and simultaneously trying to start up a business seems to involve a lot of work.

PEOPLE NOT PAYING TAXES
From the sources you gave me:
“As of 2009, more than 20,000 filers making more than $200,000 a year — 1,470 of whom had adjusted gross income of more than $1 million — owed no income tax”
Ergo, a large and growing number of people who really are rich paid no income tax. Over 1,000 millionaires not paying a cent of income tax. That’s equivalent to many, many times that number of middle class people not paying a cent, and they’re people whose propensity to spend their money is quite low – their propensity to store it in a foreign bank is much, much higher, though.

I agree that everyone should pay their fair share, middle class or higher. What concerns me is that many groups want to extend tax breaks for the rich, according to the disproved fantasy that this will boost your economy, while focusing on increasing tax for the middle class.

DEBT SPENDING

Please link me an economist on the other side, as I’ve only heard it from politicians and their employees. If you look at history, though, it’s apparent that the rich have regularly held unbelievable amounts of wealth. That’s how it worked for thousands of years. It didn’t trickle down and create widespread economic growth. That occurred when nations started taxing the rich and the middle class started to grow.

Yes, debt is bad, but if it’s a choice between a collapsing economy (and therefore even less government revenue) and spending on things which boost your economy, then would it be better to have people with jobs and debt, or people with no jobs and an almost-as-big-debt?

Greece got to where it is through stupid deficit spending. But then they vastly cut their costs, putting thousands of people out of work – and their economy fell hard, making the problem even worse. The USA’s situation isn’t that much different from Greece’s a few years ago, and if you use the same strategies, I see no evidence that your outcomes would be any better: you’d still end up with your already-huge debt, but no economy to pay it off.

Please link one of those economists, too, because I’ll need a lot of convincing to believe that employing thousands upon thousands of people somehow hurt the economy. And it wasn’t just the USA, it was nations around the world like Australia. The resultant growth was quite consistent.

Anyway, we both agree deficit is bad. I’ve never said it wasn’t. But there is a solution other than cutting costs: increasing revenues. I’d say removing the loopholes letting those millionaires not pay income tax would go a long way.

Also, please check up on the legislation Obama has been pushing in recent years. Last time I looked at a list, it was quite extensive.

BAD ALLOCATION

The trick with consumer allocation is that while it’s more efficient, consumers are self-interested. If your kids are going to a private school, you get no direct benefit from supporting a public school. If you aren’t sick right now, you get no benefit from private health insurance. If you’re an employer and employees are a dime a dozen, insuring your employees is just unwanted paperwork. If you want a reference, go back to the guy who developed economic theory in the first place: Adam Smith. He wrote that these things should not be entrusted to consumers.

What you need to be doing is looking at nations that are more efficient with their spending. For example, “Comparing the USA, UK and 17 Western countries’ efficienty and effectiveness in reducing mortality”, published in the Journal of the Royal Society of Medicine, found countries with an emphasis on public health care are vastly more efficient in their health spending than nations with a heavy emphasis on private care, like the USA.

So government spending can outperform the private sector in multiple areas. I absolutely agree with you that giving money to banks to provide loans to people with no chance of paying them off was idiotic (I’ll note that the more tightly regulated Australian banks lost a lot of their overseas money, but kept up business as usual while USA banks were imploding).

What the government needs to invest its money in, then, is more efficient places like education and healthcare. It also needs to be in lasting assets, such as the roads and railways by which goods are transported. Costs go down for everyone, people building roads get paid: everyone wins. By contrast, see how locally maintained roads worked for pre-Industrial Europe.

TAXING THE RICH
Of course, the cash for these long-term investments needs to come from somewhere. If it isn’t deficit spending, someone has to foot the bill.

Firstly, leaving the rich with all that money doesn’t boost your economy. If they were positively linked, the immense increases in incomes for the richest Americans would have seen your economy booming for the last few decades. And income growth of the lower income classes would be growing in real terms, which it hasn’t been for quite a while.

As your links established for me, many millionaires *aren’t* paying 31-34% income tax, but 0%. I’m sorry, but I hear people claiming these figures, but I’ve never seen evidence of their veracity.

The same is true for corporations. Oil companies, for example, are getting taxed at an average of 9%:
http://www.nytimes.com/2010/07/04/business/04bptax.html?_r=1&pagewanted=all
This article also points out that these companies are making use of foreign tax havens, so that’s even more tax that the USA deserves, but isn’t receiving. Worst of all, the subsidies that profitable companies are receiving actually outweighs the taxes they are paying.

Also check out:
http://www.heritage.org/research/reports/2007/06/how-farm-subsidies-harm-taxpayers-consumers-and-farmers-too
It’s old, but it illustrates the misallocation of government subsidies. For a nation that is supposedly so against welfare, why is so much welfare going to people with millions to spare? And Romney wants to increase this, if you check out his tax policies.

So it isn’t about soaking the rich, it’s about paying a fair share, it’s about not propping up companies and individuals who can stand on their own, and about putting that fair share into things which will set the USA on a track for long-term growth.

I’m all for the USA making spending more efficient, but simply cutting costs won’t do anything more than put Americans out of jobs.