Concord in Seattle, Part 2: How to ignore the needle in the haystack

Part 1 was about the doomsday-is-near message delivered in late November by Concord to a Seattle newspaper editorial staff.  It’s preserved in a podcast; while listening to it, I was surprised by the disappointing lack of hardball questions from the staff.  All I could picture was an audience of wide-eyed editors, agape in agreement, nodding their heads like compliant robots, for the entire 52-minute financial Armageddon sermon.   

The exception was the ten-second needle in the haystack, at 24:50 into the podcast.  It was just about the only positive message in the entire meeting—and it was easy to miss, because nobody from the newspaper staff pursued it with any follow-up questions.  It was a statement by Alison Fraser, Director of Economic Policy Studies at the Heritage Foundation:

It's one thing to raise taxes that make it harder on all Americans, and it's another thing to do fundamental tax reform that makes the economy grow faster and get more revenues.

What?  Did she say an economy that “grows faster” is an alternative to painful tax rate increases that hurt all Americans?  At the very least, I expected somebody to say, “Hey, if you really believe that, then I’ll have whatever you’ve been smoking!”  That would at least have started the ball rolling.  But the only thing that happened was an immediate change-of-subject.  Why didn’t anyone from the Seattle Post-Intelligencer ask her any follow-up questions? 

Even though close to half of the feedback I get comes from teachers, engineers, scientists, and financial people, I find it impossible to believe that nobody else—including journalists—can understand the irrefutable fact that higher tax revenues do not necessarily require higher tax rates.  Taking in 18% of a $20 trillion economy is more tax revenue than 18% of today’s $13 trillion economy.  Where are the questions or ideas about how to get to $20 trillion economy faster? 

Anyone who ever got a raise or promotion, then examined their paycheck afterwards, should understand it easily, because their tax withholding dollars and their take-home pay dollars both go up simultaneously.  That’s a big microeconomic hint about what happens to the whole economy when millions of people get raises and new jobs.  [That’s what economic growth is: millions of people get raises or promotions for becoming more productive, many get new jobs in new industries, new jobs keep replacing old jobs, and the median standard of living keeps increasing because of all that growing productivity.  Add it all up to a grand total; that’s what “economic growth” means.]

Has nobody at the Seattle Post-Intelligencer ever received a raise or promotion?  If they have, did they examine their subsequent paycheck and maybe think about the dynamics—maybe just a little?  If so, then why didn’t they ask Alison Fraser to explain in more detail why the economy would deliver “more revenues” when the economy “grows faster”?  Or how policy changes, such as tax reform, might help the economy “grow faster”?  Why didn’t they ask at least one of a million other possible growth-related questions? 

Alsion Fraser is a Director at the Heritage Foundation, one of the few think tanks that actually understands (and analyzes, and publicizes) the dynamic effects of economic growth.  Why does nobody raise questions along those lines?  Why is the false-dilemma doomsday message (cut spending or raise tax rates) so effective at overwhelming the audience’s imaginative powers?  I just don’t get it, even though I see it happen time and time again.  The meeting in Seattle was no exception. 

Please do not mistake this article as my tacit agreement with all of the Heritage Foundation’s conclusions about the future.  Let’s face it, when it comes to forecasting, any group of ten experts will yield at least twelve opinions, each with a plausible justification, about future outcomes.  (Heck, I can envision at least 540 different scenarios all by myself, as I wrote a year ago; see this link.) 

However, please do take this article as my 100% approval of the message Heritage attempted (unsuccessfully) to communicate to the editorial staff of the Seattle Post-Intelligencer: Tax reform would boost growth; and growth, all by itself, increases the government’s tax revenues.  All by itself, without tax rate increases.  (Sufficiently?  Maybe, maybe not; but why oh why aren’t we at least talking about it, for crying out loud?)

And if you know anyone who finds the growth story hard to swallow, tell them to take a look at the real-live demonstration the economy is giving us right now, right before our eyes: Growth is the reason federal tax receipts are trending towards a balanced budget within two years—just in time for the next big election. 

Growth is overwhelmingly important.  Nonetheless, with very few exceptions, it is universally ignored by our country’s talking heads, and by the gaping groupies of the doomsday stump speech. 

Comments

[Bob]

Steve,

Seattle is a liberal city and the newspaper leans far left. 'Course, most newspapers are left leaning these days. Why the surprise?

Don't expect much support from mainstream op-ed journalists. And, for the most part, the talking heads lean left as well. The exception is talk radio but there isn't any indepth discussion if this topic.

[Dave Justus]

I think that the real problem is that on an emotional, if not intellectual, level most people simply don't believe in growth.

The 'pie' is always the same size, and economic issues are only about how to change the size of the different slices. This sort of thinking is endemic in other areas besides the federal budget, one sees it in trying to combat poverty and anger over CEO pay for example. If the size of the economy is fixed, then all these arguments have some merit, that is the worldview that is in operation here.

The fact that it is patently false doesn't seem to change this worldview.

So that is really what you are fighting Steve, not the simple notion that growth could replace tax increase, but the entire worldview that denies the possibility of growth and is sure that the obvious growth we have all seen is just some sort of trick.

[Bret]

Steve asked: "Has nobody at the Seattle Post-Intelligencer ever received a raise or promotion?"

Maybe not. The dead tree media hasn't been doing so hot lately. Have you seen what the NY Times stock has done? It's brutal!

[Steve]

Dave:

Good point. Maybe what's needed is a concerted effort to define "growth" so that at least a key plurality understands it.

Steve

[John in IL]

Steve,

I agree. But it goes beyond informing the general public. How do you overcome this attitude from an economist:

"First, get the budget deficit under control. That includes increasing tax receipts, cutting government spending, reining in entitlements -- these are all going to be necessary first steps to redressing the profligacy of the last six years. Doing so will reduce aggregate demand and hence imports. It'll also reduce the necessity for issuing so much federal debt, and at the same time make us less vulnerable to the whims of the PBOC and other state actors in the international economy."

This is a quote from Menzie Chinn on the WSJ online site (12/19/06).

If some economists are playing the same game, I'm worried that the general public will be more than happy to play along with them.

Here is the link to the WSJ site(which won't work unless you do a lot of cuts and pastes)

http://online.wsj.com/public/article/SB116610894240550248-M3OgKUL4be8ke5gU7jI6YmFU4zI_20070117.html?mod=tff_main_tff_top

[Dave Justus]

I wish I knew how to explain growth so that people understood it. It is patently obvious to me that economic growth is real, and mostly the manifestation of intelligence rather than simple extraction of resources. I have friends who are not morons though that simply don't believe that. Either we are exploiting the third world or all growth is simply an artifact of inflation or some other equally spurious but deeply held belief.

I have no idea how to combat that, even when I explain things and convince someone for a time, their emotional belief that growth doesn't happen quickly overcomes that knowledge.

I think it is related to a very human tendency to romantacize the past, which results in 'the good old days' being percieved as being better than the present. If 'the good old days' actually were better, then growth either doesn't exist or isn't beneficial. How to beat out that sort of thinking though takes a smarter person than me I am afraid.

[Jess Curtis]

Steve,
You should check out this article:
http://www.financialsense.com/fsu/editorials/martenson/2006/1217.html

What's the flaw in his doomsday analysis? (He focuses on numbers for the total debt which include SS IOUs, but I was surprised that the totals seemed to be getting worse even in a time of robust economic growth.)

[muirgeo]

Dave,

Who's against growth? I just think it's hard to call it real growth when the debt is simply going higher and higher. And indeed there ARE a lot of "extenal debts" that aren't factored in.

Nothing I've seen or read here proves to me that tax cuts are paying for themselves and likewise nothing I've seen or read suggest tax increases always retard economic growth.

Logically/practically it seems the tax cuts have mostly went into greater accumulated wealth at the top, overseas investments and off-shore accounts.

I'd much rather they were paying for programs to make our country stronger .....things like roads and schools and the middle class...rather then bomb makers, lobbyists, their firms and infrastructure of other countries.

It's easy to tought tax cuts and increase spending as the republicans consistantly and irresponsible do...It's much harder to raise taxes and cut spending which while advancng the economy...something the democrats have seemed to be far more successful and honest about.

[muirgeo]

Jess,

That's a devastating article. The URL gets cut off on this blog for some reason...I tiny URL'd your link.

http://tinyurl.com/ybk7fe

Here's aother....

http://tinyurl.com/skzo6

But still I really want to be like Steve...an Optimist...I just don't know how he does it. Especially if he's truly being skeptical as well.

[Dave Justus]

muirgeo,

I never contended that anyone is against growth, I contended that many people don't believe in growth at all. Not the same thing.

As far as I can tell Steve has never contended that tax cuts 'pay for themselves' necessarily or that any given tax cuts have. He certainly doesn't contend that taxes always retard growth, quite the opposite actually.

What Steve contends is that a) our financial picture isn't all that bad and b) we should focus more on growth, both ways to incentivize growth through sensible tax policy and government programs, paid for by a combination of taxes and borrowing that will promote growth.

[muirgeo]

What Steve contends is that a) our financial picture isn't all that bad and b) we should focus more on growth, both ways to incentivize growth through sensible tax policy and government programs, paid for by a combination of taxes and borrowing that will promote growth.
Dave

Dave ,

Come on now. A big hunk of our "growth" is a result of both public and private deficit spending. What was the recent trade deficit? $800 million. Our dollar is so weak the Europeans think of us as we used to think of Mexico.

Almost all of the profits from our increased productivity have gone to an elite already wealthy class while starving out/ stagnating the middle class.

Our financial picture is HORRIBLE IMO. Unless you are someone who is already wealthy enough to be living off of your dividends.

Where's the best place to invest now days...Gold? Silver ? or Overseas markets? Certainly not in American companies. We don't make anything anymore.

I'm all for growth if its being shared by all those working to make it so. Now its growth at all cost and America and American workers be dammed if you can't compete with communist workers who have no regulations on their environment and working conditions.

A "free-market" capitalist has to be wondering now a days if free markets don't work better for Communist dictators like China or Autocracies like Saudi Arabia....because the trend in this so called democracy is saying they don't work for most Americans.