Unemployment up to 9.2 percent. Ugly economic news.

"The point I am trying to make is that cutting taxes stimulates the economy far more than anything the government can do with stimulus spending."
That's a flawed premise.

Tax cuts are CONDITIONALLY the best way to stimulate the economy. Just like interest rates are at the zero bound and, as a result, cannot be lowered to spur a recovery, right now we are at a point where current tax rates are low enough were further cuts will do little to stimulate. I don't look at my pay check and think "man, if I could get my taxes cut in half, I'd trade in my Kia for a Lexus." I know that's exaggerated as an example, but it's true. Cutting HIGH taxes would stimulate, yes.

Now, there would be SOME stimulus. Maybe I'd go out to eat a little more. Maybe the drug store on the corner hires a new cashier. But those gains are more than offset by the losses.

Right now, cutting low taxes at a time when people are fearing out of work would make people squirrel away more, especially when they start hearing about the layoffs at the school board (because of a loss of federal funding), the elimination of some local bus routes and the road project that was on the drawing board that was eventually going to lead to their company's business expansion at some new freeway interchanges has been canned.

No, right now you think like a business and invest.


By the same token, the stimulus was so compromised and muted it was doomed to do nothing more than stop the bleeding a little bit.

 

I don't think I agree about the dot.com bubble being the sole source of a budget surplus and you don't address why deficits never went down to the levels of the Carter presidency after the Reagan tax cuts.

But I think the answer to my question is that the deficit does not matter. OK, I can buy that in the current situation. There are very low interest rates so an increased deficit does not crowd out the private sector borrowing. So why are Republicans worrying about the debt limit?

And second is that the economy grew two percent last quarter. Obviously dragged down a bit by high oil prices and the decline in government employment. While I understand the argument that private spending is more productive than government spending these people did have jobs and when people lose their jobs they spend less. And if we are not worrying about crowding out from tax cuts then government spending does not crowd out either.

So the economy is growing at 2-3% a year. That is basically the historical norm. So why is that a disaster. When Obama came into office the economy had just lost 1.9 million jobs in in Q4 2008. That was a disaster.

What makes this recovery different is that housing is on its butt and consumers can not borrow. What drives a boom is credit expansion in housing or something else. The country is overleveraged. So a slow recovery because credit does not expand.

So why do you expect the economy to start to boom if their is another tax cut. We just had a big tax cut when social security was cut. That doesn't seem to have done a lot for job growth. And if all we have to do is cut taxes and don't regulate anything then why didn't the economy boom in the Bush years, especially since the housing bubble was a hell of a lot bigger than the dot.com bubble though the economy never grew as fast.

 

BG and Lancey, you actually have changed my mind here (I know, that rarely happens on these boards). It was Lancey pointing out the interest rates that kind of opened my eyes...but we probably will disagree about the end game I am looking at.
First of all, with the interest rates at virtually nothing right now raising the debt limit might not be as bad an idea as myself and my fellow tea partiers might think. I am looking at it this way (a way that goes against a ton of my beliefs, by the way)...say a fictional company wants to open a new widget wing in Indiana. They have wanted to do this for years and it would add to the bottom line and add 500 new jobs, but have never been able to do so because it did not make sense to the company's bottom line to add X dollars to its balance sheet on the negative side. Now, however, with the interest rates as they are and, no doubt, headed upwards in the very near future because of the government's questionable economic policies (inflation, probably stagflation, is right around the corner) this company is never going to be able to get the loan to build the new plant this cheaply. So as opposed to borrowing to build the plant next year, when the rates might be 8 percent or more, they get the loan now.

Now the government...the federal government will probably never be able to get money this cheaply again. The debt limit is going to go up regardless of what either side is saying or doing, so they might as well just do it now when the hit to the deficit will not be nearly as bad as it will when the rates go up. This way the damage is limited. Now, at the same time there should be no more expansion of government. Raise the debt limit to keep things comfortable, avoit financial collapse, etc., but do not add new social programs and entitlements. At the same time responsibly make spending cuts to rid the government of all the waste and abuse you can. I still don't like the idea of tax increases at any level, but it is not necessary to cut taxes if you can add cheap debt and take advantage of the situation. So you guys have taken me out of the "do not raise the debt limit under any circumstances" camp.

Does this make any sense or am I just rambling?

 

Of course, they can't get the loan because the jackals at the banks won't lend it to them. But I think the point probably stands.

 

If inflation were a real issue, it would have shot through the roof during the monetary expansion of the bail-outs. Instead, it neared deflation and only has begun to rise because of an increase in commodity prices globally. But at 3.6 percent, it's still not high, as you can see here: http://inflationdata.com/inflation/Inflation_Rate/CurrentInflation.asp

You'll notice that since the monetary expansion, we've actually had several months of deflation and have been close to deflation in other months. Take away the increased commodity prices and we're still at the borderline of deflation.

On the link above, click on historic inflation rates and look at the Reagan years. He would have LOVED to have an inflation rate of 3.6, evein during his second term when inflation was generally more than four percent, often higher.

So inflation is an overrated concern, in my opinion.

 

We don't need more tax cuts; taxes are as low as they have ever been. Tax rates were many times higher in the 1950s, yet the economy thrived.

I agree that fewer regulations and red tape would help. But it needs to be done carefully. We still need basic regulations to ensure that our food and water are safe, for example. And what regulations are kept need to be more strictly enforced.

 

I've always felt the "tax cuts can raise revenue" principle flawed because there is a point where you can't stimulate the economy anymore. I haven't seen too many people with hard numbers, unless it's funky math like what's used to promote building stadiums with public money, on how much the economy would be stimulated by tax cuts.

 

I'd take that a step further and say that when you can't stimulate the economy through lower taxes or lower interest rates (as is apparently the case now) you do it through public investment. If there is new infrastructure, then business will want to take advantage of the infrastructure development (example being new freeway interchanges resulting in new businesses, but that's just one example). That can kick start a stagnant economy and encourage the private sector to take advantage of the other favorable conditions (low taxes and low interest rates).

Of course, right now we are doing just the opposite. We are slashing public investment, laying off government workers and making businesses say "man, if the school board is cutting 150 teachers and the bus system to the business district is cutting from seven days to five, maybe now is not a good time to open that new store we were thinking about."

Again, I go back to the original employment data. Is it a shock that private employment growth did not meet expectations when public employment was declining so sharply?