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My guess is that he will deliver on some of his promises and some of what the country needs: an immediate infusion of cash to state & local governments in the form of massive public works projects, boosting us out of the recession by running deficits. The tax changes he's proposing are a net cut & change in distribution, but not very drastic (nothing compared to how "high" they were from 92-99, for the largest GDP expansion the world has ever seen).

Unfortunately, his fiscal policies state that he's a big "pay-go" guy. I hope not. We need government to keep charging up the card as it were, even though the current occupants used the plastic to buy rims and stereo systems rather than what we need (to kill a metaphor). I hope he waits till after we're well into recovery to start talking about higher taxes and/or less services.

I'm glad to see you're optimistic -- I am too (of course I'm a die-hard liberal). I was very pessimistic after both Bush elections, and unfortunately most of my pessimism paid off. I hope your optimism pays off for you (and me! and the nation!)

Steve,
Could you offer up a solution to dealing with dishonest rich people. Society knows how to deal with dishonest poor people. We put them in jail if they break the law or take away their job if incompetent. Both leaves them worse off. But greedy incompetent rich people who have their job taken away do not comparatively suffer. What is the incentive for them and the system to be self regulated?
How do you think class warfare started? Are the working class just as greedy or are they justified in being mad when they see their retirement savings cut in half while hedge fund managers make 8 figures and pay 15% in taxes and do not contribute to SS? Was the French Revolution justified and did we just witness the modern day version?

From my seat actions speak louder than words. Mind you, there wasn't much rhetoric from either candidate about growth during the campaign.

First things first and his first decisions will be on the cabinet. That should give us some early indications. I'll be very focussed on the energy front (my hot button)and health care.

And since the automakers are going to meet with Pelosi to wet their beak, I'm interested to see how he responds to that. I'm all for shoring up the banking and financial system, to a degree. But at some point Detroit is going to have to do a better job of managing their businesses and I'd let Chrysler die.

mark:

"Rich" includes power, not just wealth or income. One way to hang onto undeserved power, and the wealth that comes with it, is for government power brokers to get in bed with their counterparts in the private sector (eg, management and/or labor in big, established corporations and industries). Reason: Life is easier when one can eliminate the competition, whether that's in business or politics -- and the power brokers know it.

If you're a stockholder, manager, or worker at a steel mill, you want GW Bush to sign a steel import tariff bill. If your business is automobiles, you want Jimmy Carter to approve federal guarantees of loans to Chrysler. If agribusiness, you want every president since FDR to keep subsidies alive, to keep foreign competitors at bay. If it's financial derivatives, you prefer overseers, politicians, and rating agencies whose incompetence and dishonesty exceed your own. If it's the oil business, you want the Army Corps of Engineers to pay for dredging that keeps your supply lines clear. If it's windmills, you want bigger subsidies and consumer tax breaks than the oil, coal, nuclear, or solar businesses get from their friends in government.

Life is easier when there's no competition, and eliminating the competition is easier when government is your partner.

I prefer a system (producers + consumers + government) that makes it easier to punish the dishonest and incompetent. That includes firing or demoting federal employees for incompetence or performance failures -- something that I've heard has not happened in the financial regulatory agencies yet.

Nimble competitors are the fastest and most effective way to punish the dishonest and incompetent. I know of several ways to foster nimbler competitiveness in business, but have fewer ideas how to achieve that inside the federal government (the biggest, most sluggish monopoly of all). Suggestions are welcome.

The cynic in me says it'll be Opt 1, for no other reason than most politicians are averse to doing anything hard, and Opt 1 is clearly the easier of the two.

One thing I find interesting is all the credit for the late 90's that is given to the government. I can't help but believe that a lot of that GDP growth was due to a technology burst (with a bit of a bust later on...) which had nothing (or very little) to do with government policy. Mostly the gov't sat around and took the revenues and credit. Perhaps Steve has another take on this view.

Having spent some time in the government system, it's clear that the incompetence there can be tamed, but it takes true leadership from the top and empowerment to get the job done. I've seen it work before, but again, it takes effort and there is a lot of inertia involved.

I think you'd be hard pressed to find anyone serious on the left who would go for #1.

Or at least, that's not how they'd put it. They would probably say they're more interested in inequality than you, and they would say that in earnest, the same way you're earnestly concerned about growth. You look at inequality and don't see a real problem, vs growth, they think the opposite. There are reasonable arguments to be made in favor of paying attention to inequality - they may not sway you but they aren't transparently wrong (you could probably agree with some of the tactical arguments).

It's obvious to me that being too preoccupied with dividing up the pie is a bad idea, but I'm not sure I agree that being totally preoccupied with growing it - to the exclusion of all other concerns - is a good idea either.

If you're saying that making taxes "more progressive" than they are now is crossing some line into class warfare, then I think you should show that there is a line and talk about why it's important. Otherwise, we have two parties that are pretty comfortable with the status quo. Republicans are not running on a flat tax on principle - it's the drug legalization of the right: something generally thought to be a good idea, but doesn't get anyone excited enough to take seriously and run on (and come anywhere close to winning).

Maybe there's a good reason for that. Progressive taxation in itself doesn't seem to be especially destructive - we have tens of western democracies and decades of history worth of data (Scandanavian countries have monstrously high tax rates to pay for more elaborate government services, and while I don't think that model is inherently "better", they are highly functional societies, with educated populaces, vibrant economies, electricity, flushing toilets, etc) - and the moral argument that it's wrong for the rich to pay more than their share, proportionally, doesn't seem to move many people, many rich people included.

I'd guess that as long as there are people there will be this back-and-forth over inequality vs growth, just like there will probably always be some divide over tradition and progress.

Finally, could you go into what makes someone a class warrior these days (I haven't actually heard anyone claim they were a class warrior...ever, maybe? Got any examples of anyone aside from maybe Bob Reich [whipping boy of the center-left] who's a real class warrior?). Is it motive, rhetoric, or action? Am I a class warrior if I (a) hate the rich for being rich, but lower their taxes? Or (b) what if I love the rich, but raise their taxes (for other reasons)? How about if I (c) lower their taxes today, raise them back to where they were tomorrow, and really, truly, still love rich people (love all people equally)? Which of these is class warfare?

Steve C:

There are plenty of serious people on the left who get it, but choose to oversimplify the economic message anyway, for the millions who'd rather let others they trust do their economic thinking for them as they make their political choices. (The right oversimplifies in politics, too, but the left owns the class warfare card.)

It's difficult for a political message-crafter to identify all the dishonest incompetent people, let alone propose what to do about them; it's much easier to identify the rich people, turn all of them into demons by repeating the "inequality" mantra day after day, thereby bestowing victimhood onto everyone who doesn't feel "rich." It's a vote-seeker's bonanza.

It's also easier for a political message-crafter not to bother defining the level of equality (or "reduced inequality") that, if achieved, would be "just right." To repeat a question I asked earlier, what percentage of federal tax receipts would the top 5% have to pay in order for the left's message-crafters to say any more than that would be "unfair" to the rich? You and I both know we will never get an answer, because leaving "fairness" undefined is too politically lucrative.

What ever happened to the goal of helping the poor (as opposed to hurting the rich)? If we could get back to the subject of helping the poor, I've found a lot of scholarly literature that could help us shape some help-the-poor policies.

Here's a link to one of the most-cited papers ("Growth is Good for the Poor" -- and does not increase inequality -- based on a four-decade, 92-country study): http://tinyurl.com/5u3ow5

Gee, I bet the Democrats' message-crafters will be all over that one, don't you think? Growth is good for the poor, and doesn't increase inequality. What more could we ask for? (Unless, of course, the true motive is political outcomes instead of economic outcomes.)

"I know of several ways to foster nimbler competitiveness in business, but have fewer ideas how to achieve that inside the federal government (the biggest, most sluggish monopoly of all). Suggestions are welcome. "

I'm not sure what you mean by "inside" the government. Perhaps departments or agencies. Outsourcing comes immediately to mind though I wouldn't want to outsource the federal reserve or the armed forces.

What I would like to see is the government get out of areas that it should not be in in the first place and that is a long list. Heck, I'd outsource some parts of NASA or at least threaten to. Why we're still messing around with AMTRACK is beyond me.

I will be taking a real close look
at President Obama's first budget.
Real close.

Bob:

Government (agencies, departments, political staffs, you name it) are notorious for inefficiencies and ineffectiveness compared with the private sector (and the private sector could stand a whole lot of improvement). One way to reduce the bad effects of that is to reduce government's size; another way is to reduce the efficiency/effectiveness gap vs the private sector. When there's a huge pile of dirty laundry, we can make it smaller by throwing some of it away -- or we can wash the whole pile. I'd prefer a little of both, by the way.

Management science has been around since Peter Drucker started it 80 years ago. But even in the private sector, too many business managers are managing their own careers instead of their businesses. Drucker's books, starting with "Managing for Results," should be required reading for anyone managing any piece of an organization, including governmental entities.

"Hire slowly, fire quickly" is one general principle, for example. But how many federal employees or contractors have been fired at all, let alone quickly, for failing to properly oversee the financial sector? I haven't heard of any. [The only exception I know of is in the IRS, where "firing quickly" happens when certain rules are violated.] During a recession, thousands of private sector workers lose their jobs; seems to me, a few government organizations should be having their dismal performance and results audited, and their charters revoked. But that's not how government operates, largely because there is no competitor threatening to take away one's market share (the punishment for incompetence in the private sector).

steve,

why do republicans continue to mention cutting spending as a way to stimulate the economy. it seems to me the dems are the only ones who are sensible in trying to bring about a stimulus (and I hope its huge) and the resistance is coming from the GOP (in fear of tax hikes no one has yet proposed in this economic downturn). Don't we need a huge stimulus, provided we crack down on oil manipulation at the same time? If the GOP talking heads don't stop spouting their nonsense, this party is dead to me.

China just revealed their's and investors like it...

Robin:

You're right, spending cuts per se are *not* a way to stimulate the economy. I haven't heard any Republicans assert they are, but I may have missed it; there are plenty of Republicans who don't get it. If anyone has said so, I'd like to know who it was. Post a link if you have one.

Cutting out waste is always a good idea, but the savings can be (1) used to fund productive projects, or (2) returned to the taxpayers in the form of tax cuts. In either case, the deficit stays the same, but the economy's future growth rate is probably boosted by a small amount. Both choices fall under the heading of "supply side economics" because boosted growth potential is the consequence of a successful increase in the aggregate supply curve.

Interestingly, the infrastructure portion of Obamanomics is supply-side economics (increasing aggregate supply by increasing the capacity of the economy). I get a chuckle out of the fact that he will never be able to call it that, because the term "supply-side" has been successfully demonized for political purposes. Nonetheless, successful "infrastructure investment" is supply-side economics.

I don't know S.O. I thought highly-skilled migrants tend to be 'head-hunted' and are invited to migrate. Hence the opposite country complains of the 'brain drain' that's going on.

"What ever happened to the goal of helping the poor (as opposed to hurting the rich)? If we could get back to the subject of helping the poor, I've found a lot of scholarly literature that could help us shape some help-the-poor policies."

I don't see anyone seriously wanting to help the poor - the exception might be John Edwards. Obama didn't campaign on that.

I guess I'm still wondering what constitutes class warfare. Who should be defined as a class warrior, and what policies should be associated with class warfare? I'm trying to square the diagrams above with anything I've seen or heard out of the Obama campaign.

The only relevant things on the table would seem to be the rescinding of the Bush tax cuts and a tax cut for the middle class. Are those examples of "class warfare" in 2008?

"I don't see anyone seriously wanting to help the poor..."

I do. Many economists, such as William Easterly, are *very* serious about helping the world's poor escape from their poverty (see http://tinyurl.com/69zfsf or http://tinyurl.com/5qqu6u ). Economists like Easterly have studied the problem, continue to do so, and their evidence and analuyses keep confirming, time and again, that aggregate growth in an economy is more strongly correlated with improving the poor's standard of living than any other factor, including policies designed to emphasize redistribution over growth. And their findings are not limited to the developing nations; "growth is good for the poor" also applies to the rich nations. They are serious about wanting to help the poor -- moreso, in my judgment, than John Edwards, whose motive, again in my judgment, is more about which rhetoric will "help me get elected" than about which economic policies are truly the most effective at "helping the poor."

"I guess I'm still wondering what constitutes class warfare."

Okay, let's take it one step at a time. First I'll lay out some facts, then show two different ways a politician could choose to communicate those facts to likely voters. Then you tell me which of those two ways is (a) less than the whole truth, but also (b) more effective at exploiting the nearly-universal human emotion of class envy.

Facts: Income tax rates were reduced for all taxpayers in 2001; in fact, tax rates of the non-rich taxpayers were reduced more than those for the rich taxpayers -- so much so that some of the non-rich taxpayers rates were reduced to zero percent, completely dropping them off the income tax rolls.

A rich-taxpayer fact: A rate reduction of 4 percentage points on a person who used to pay $2,500,000 income taxes comes to a $100,000 reduction in his taxes.

A non-rich taxpayer fact: A rate reduction of 15 percentage points (from 15% to 0%) on a person who used to pay $1000 income taxes comes to a $1000 reduction in his taxes.

Two ways a politician could craft a political message from those facts:

Method 1:
"Although the 2001 tax cuts reduced income tax rates for every single person who paid taxes, it reduced them more for the non-rich taxpayers; in fact, many of the non-rich taxpayers were relieved from having to pay any income tax whatsoever."

Method 2:
"Tax cuts for the wealthy gave $100,000 to the rich person above; that was *one thousand times more* than the non-rich guy got. Can we come up with a tax system that's fairer than that? YES, WE CAN!"

Now, you tell me: Which message is (a) less than the whole truth, but (b) more effective at exploiting the nearly-universal human emotion of class envy: Method 1, or Method 2?

After you choose, we can continue the analysis of Obama's economic message.

Typo above. Change the Method 2 wording to read "*one hundred times more*". The question remains the same.

Steve,
Obama is a compelling speaker and was able to effectively sell the Robin Hood "steal from the rich and give to the poor" mantra to the majority of the voting public. However, what he's proposed is not new. In fact, that is how the current tax system already works.

A cursory review of the most recent IRS data will show that those who made (AGI)over $100K in 2006 represented 12% of all tax returns filed. Those 12% of returns provided 74% of the slightly more than $1 trillion of taxes collected by the IRS. Will further tipping the scales against the 12% make us a stronger economy and nation? I doubt it.

Separately, the current economic crisis has been decades in the making and there are three root causes: The Fed, fractional reserve lending and out of control congressional spending. The latter two are a dynamic of the first, The Fed. Their practice of printing money decreases the purchasing power of our savings (i.e., inflation), allows government spending to grow unchecked and creates assets bubbles (i.e., stocks, real estate, commodities).

One of my personal favorite solutions to this whole mess comes from Warren Buffet's father, Howard Buffet, who was a congressman from Nebraska. Please read if you're so inclined: http://www.fame.org/PDF/buffet3.pdf. Thanks.

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