Nouriel Roubini: The Exit Strategy

[Winehole23]

Nouriel Roubini

Desperately seeking an exit strategy (http://www.theglobeandmail.com/news/opinions/desperately-seeking-an-exit-strategy/article1288905/)

http://beta.images.theglobeandmail.com/archive/00229/jenk16co_229421gm-e.jpg Anthony Jenkins/The Globe and Mail

Getting the plan right is crucial. Errors would heighten the threat of a double-dip recession




Nouriel Roubini


From Wednesday's Globe and Mail Last updated on Friday, Sep. 18, 2009 03:23AM EDT



There's a general consensus that the massive monetary easing, fiscal stimulus and support of the financial system undertaken by governments and central banks around the world prevented the deep recession of 2008-2009 from devolving into the Second Great Depression.


Policy-makers were able to avoid a depression because they had learned from the policy mistakes made during the Great Depression of the 1930s and Japan's near depression of the 1990s. As a result, policy debates have shifted to arguments about what the recovery will look like: V-shaped (rapid return to potential growth), U-shaped (slow and anemic growth) or even W-shaped (a double dip). During the global economic free fall between last fall and this spring, an L-shaped economic and financial Armageddon was still firmly in the mix of plausible scenarios.


But the crucial policy issue ahead is how to time and sequence the exit strategy from this massive monetary and fiscal easing. Clearly, the current fiscal path being pursued in most advanced economies – the reliance of the United States, the euro zone, the United Kingdom, Japan and others on very large budget deficits and rapid accumulation of public debt – is unsustainable.


These deficits have been partly monetized by central banks, which, in many countries, have pushed their interest rates down to 0 per cent (in Sweden's case, to below that), and sharply increased the monetary base through unconventional quantitative and credit easing. In the United States, for example, the monetary base more than doubled in a year.


If not reversed, this combination of very loose fiscal and monetary policy will lead to a fiscal crisis and runaway inflation, together with another dangerous asset and credit bubble. So the key issue for policy-makers is to decide when to mop up the excess liquidity and normalize policy rates – and when to raise taxes and cut government spending, and in which combination.


The biggest policy risk is that the exit strategy from monetary and fiscal easing is somehow botched, because policy-makers are damned if they do and damned if they don't. If they have built up large, monetized fiscal deficits, they should raise taxes, reduce spending and mop up excess liquidity sooner rather than later.


The problem is that most economies are now barely bottoming out, so reversing the fiscal and monetary stimulus too soon – before private demand has recovered more robustly – could tip these economies back into deflation and recession. Japan made that mistake between 1998 and 2000, just as the United States did between 1937 and 1939.


But if governments maintain large budget deficits and continue to monetize them as they have been doing, at some point – after the current deflationary forces become more subdued – bond markets will revolt. When that happens, inflationary expectations will mount, long-term government bond yields will rise, mortgage rates and private market rates will increase, and one would end up with stagflation (inflation and recession).


So how should we square the policy circle?


First, different countries have different capacities to sustain public debt, depending on their initial deficit levels, existing debt burden, payment history and policy credibility. Smaller economies – like some in Europe – that have large deficits, growing public debt and banks that are too big to fail and too big to be saved may need fiscal adjustment sooner to avoid failed auctions, rating downgrades and risk of a public-finance crisis.


Second, if policy-makers credibly commit to raise taxes and reduce public spending (especially entitlement spending), say, in 2011 and beyond, when the economic recovery is more resilient, the gain in market confidence would allow a looser fiscal policy to support recovery in the short run.
Third, monetary policy authorities should specify the criteria they will use to decide when to reverse quantitative easing, and when and how fast to normalize policy rates. Even if monetary easing is phased out later rather than sooner – when the recovery is more robust – markets and investors need clarity in advance on the parameters that will determine the timing and speed of the exit. Preventing another asset and credit bubble by including the price of assets such as housing in determining monetary policy is also important.


Getting the exit strategy right is crucial: Serious policy mistakes would significantly heighten the threat of a double-dip recession. Moreover, the risk of such a mistake is high, because the political economy of countries such as the United States may lead officials to postpone tough choices about unsustainable fiscal deficits.


In particular, the temptation for governments to use inflation to reduce the real value of public and private debts may become overwhelming. In countries where asking a legislature for tax increases and spending cuts is politically difficult, monetization of deficits and eventual inflation may become the path of least resistance.

[boutons_deux]

I read an article where the Fed essentially owns the US economics profession, employing 100s of economist directly, and putting out contracts and work to 1000s of other economists.

If you are a career economist in US, you will not contradict the Fed if you want to work, have recognition, advance your career.

Sorta answers how 1000s of econmists were silent or effete as the Fed lied about "no bubble" and all is cool, "banks are responsible and self-regulating", and didn't predict the casino/bankster economic disaster.

Roubini was one of the very few who got the predicted the bubble precisely.

[MannyIsGod]

There's a general consensus that the massive monetary easing, fiscal stimulus and support of the financial system undertaken by governments and central banks around the world prevented the deep recession of 2008-2009 from devolving into the Second Great Depression.


Policy-makers were able to avoid a depression because they had learned from the policy mistakes made during the Great Depression of the 1930s and Japan's near depression of the 1990s. As a result, policy debates have shifted to arguments about what the recovery will look like: V-shaped (rapid return to potential growth), U-shaped (slow and anemic growth) or even W-shaped (a double dip). During the global economic free fall between last fall and this spring, an L-shaped economic and financial Armageddon was still firmly in the mix of plausible scenarios.

Someone tell the opposition in DC (and around the country for that matter) because they're not part of this consensus. They still envision whats going on as the Obama led takeover of the world.

[Winehole23]

It could still lead to us being in hock to our financial masters forever.

Even supposing the specter of debt deflation has been decisively turned back (a big if, IMO), the ground has been prepared for oligarchic interests to become even more decisively too big to fail, and to take even bigger risks in the future.

We're not out of the woods yet.

[2centsworth]

I like Dr. Doom. If you read between the lines he's essentially stating destruction is inevitable.

[nuclearfm]

The best way to do this would just to flat out leave. Our interference in the region just has caused more problems. If their populations want change, they should rise up (likely toss Islam aside, just as the founding fathers creating a Church free state here) and do it themselves.

We could send a few food drops in, red cross, etc. But that's it. Let them live their lives without us.

[mogrovejo]

The best way to do this would just to flat out leave. Our interference in the region just has caused more problems. If their populations want change, they should rise up (likely toss Islam aside, just as the founding fathers creating a Church free state here) and do it themselves.

We could send a few food drops in, red cross, etc. But that's it. Let them live their lives without us.

You clearly didn't read the article, but I do agree with this exit strategy. The sooner the government exits, the better.

[Winehole23]

+1

[Nbadan]

The best way to do this would just to flat out leave. Our interference in the region just has caused more problems. If their populations want change, they should rise up (likely toss Islam aside, just as the founding fathers creating a Church free state here) and do it themselves.

We could send a few food drops in, red cross, etc. But that's it. Let them live their lives without us.

:lol I thought he was talking about leaving the country cause of debt....

[SouthernFried]

This guy is an idiot. Talks as if govt operates in a vacuum. "If govt just raises taxes and cuts spending...blah, blah, blah.."

Most "economists" I've talked to, or taken courses from were basically idiots. Put 10 of them in a room, and you get 10 different versions of whatever they're disussing. The ultimate..."If this happens, then this should happen, which should result in this." If "economists" knew what they were doing, Countries that use them (pretty much every country) would have no problems...but, they all do.

If you raise taxes on an over-taxed population already, will that bring in more money? Or will it reduce the activity that actually produces those taxes. I.E., tax anything...and people do less of it. Tax productivity, and you see less of it. Which is a main ingredient of why we're in the mess we're in.

The debt and deficits we have now, that affect so much, haven't resulted because people are taxed too little. It has resulted because people are taxed too much, and the resulting productivity flight away from areas that increase the burden of that productivity. Basically, the people dependent on producivity to fund themeselves (all govts), have de-insentivized that productivity...from being productive.

But all this idiot see's is..."if we can raise taxes and decrease spending...govt monetary and fiscal policies have a chance, and may stop, or not, recession/depression...blah, blah, blah."

He's got the cutting spending down right. But, the guy seems to know fuck all about how the true mechanisms of productivity and its relationship to govt funding and spending really take place. In fact...he ignores it completely. As if Govt operates in a vacuum outside of it. Typical of the morons I spent too many yrs listening to. They know shit about how real marketplaces and business's run...and live in books, politics, and academia.

And they didn't learn shit about the great depression either.

shit...;)

[Winehole23]

How do we pay off our massive public debt, or fulfill unfunded liabilities like medicare and social security without raising taxes and cutting spending?

Inflating our way out of it ain't gonna work.

[Winehole23]

There's also the matter of financial confidence. We can't get it back until we put our fiscal house back in order. That means tightening our belt and starting to pay down the debt.

[doobs]

The best way to do this would just to flat out leave. Our interference in the region just has caused more problems. If their populations want change, they should rise up (likely toss Islam aside, just as the founding fathers creating a Church free state here) and do it themselves.

We could send a few food drops in, red cross, etc. But that's it. Let them live their lives without us.

So . . . have you read the article since you posted this?

[nuclearfm]

So . . . have you read the article since you posted this?

Yeah my fault. Banish me.

[SouthernFried]

If govt wants to really raise revenue...if they are "REALLY" interested in paying off the debt. Then you do NOT raise taxes on the people your relying on to actually pay it...producers and productivity.

That is the surest way to decrease the activity you want to increase (if, in fact you really want to increase productivity.) Productivity and Producers are what pays for everything govt does.

If you want a business to come to San Antonio...you don't offer them tax increases...you offer them tax abatements, or decreases.

If you want business to flourish in the US, you don't increase their tax burdens...you decrease it. You'll get more activity and more business in both the San Antonio and US tax reduction scenarios and People making more money.

Tax 50% of nothing...you get nothing. Tax 10% of something...you get something ;)

That's how you increase revenue for govt crap. lol

[starboy]

This guy is an idiot. Talks as if govt operates in a vacuum. "If govt just raises taxes and cuts spending...blah, blah, blah.."

LOL you called Nouriel Roubini an idiot.




Most "economists" I've talked to, or taken courses from were basically idiots. Put 10 of them in a room, and you get 10 different versions of whatever they're disussing. The ultimate..."If this happens, then this should happen, which should result in this." If "economists" knew what they were doing, Countries that use them (pretty much every country) would have no problems...but, they all do.

ugh...okay I guess.



If you raise taxes on an over-taxed population already, will that bring in more money? Or will it reduce the activity that actually produces those taxes. I.E., tax anything...and people do less of it. Tax productivity, and you see less of it. Which is a main ingredient of why we're in the mess we're in.

Okay, who says we're over-taxed? Also, you really really REALLY simplify the effect tax has on people. It could just be me, but I'm 99% sure it's slightly more complicated than "tax producticity, and you see less of it".



The debt and deficits we have now, that affect so much, haven't resulted because people are taxed too little. It has resulted because people are taxed too much, and the resulting productivity flight away from areas that increase the burden of that productivity. Basically, the people dependent on producivity to fund themeselves (all govts), have de-insentivized that productivity...from being productive.

reading comprehension > you...seriously.

The article NEVER said the debt and deficits we have now resulted because people were taxed too little, in fact it never even discusses why/how this depression started.



But all this idiot see's is..."if we can raise taxes and decrease spending...govt monetary and fiscal policies have a chance, and may stop, or not, recession/depression...blah, blah, blah."


Once again...reading comprehension>you.

You seriously missed the point of the article, so I can help break it down:


The USA economy went into a shitstorm in 2007.
In 2009, the shitstorm is finally starting to slow.
However, in order to slow the shitstorm, the U.S. government had to A) spend fuckloads of money, B) lower tax and interest rates(near 0%) to get people spending again.

Because of A and B, the government is racking up debt and operating inefficiently. If it continues to operate by spending fucklaods of money and keep interest/tax rates retarded low, inflation will surely occur, and the U.S. economy may never start to grow again or go back into a recession.

ENTER THE ARTICLE!!!!!

Now, Noriel Roubini is talking about how/when the government should go back to it's normal operating self(i.e. not throwing money around and keeping interest rates near 0).



He's got the cutting spending down right. But, the guy seems to know fuck all about how the true mechanisms of productivity and its relationship to govt funding and spending really take place. In fact...he ignores it completely. As if Govt operates in a vacuum outside of it. Typical of the morons I spent too many yrs listening to. They know shit about how real marketplaces and business's run...and live in books, politics, and academia.

And they didn't learn shit about the great depression either.

shit...;)

You have it all figured out...

[SnakeBoy]

This guy is an idiot.

I think he probably got used to being called that a few years ago.


Dr. Doom
Published: August 15, 2008
On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.

The audience seemed skeptical, even dismissive. As Roubini stepped down from the lectern after his talk, the moderator of the event quipped, “I think perhaps we will need a stiff drink after that.” People laughed — and not without reason. At the time, unemployment and inflation remained low, and the economy, while weak, was still growing, despite rising oil prices and a softening housing market. And then there was the espouser of doom himself: Roubini was known to be a perpetual pessimist, what economists call a “permabear.” When the economist Anirvan Banerji delivered his response to Roubini’s talk, he noted that Roubini’s predictions did not make use of mathematical models and dismissed his hunches as those of a career naysayer....
http://www.nytimes.com/2008/08/17/magazine/17pessimist-t.html

[SouthernFried]

lol...gee, he figured a "crisis was brewing in 2007"...too funny.

Any idiot could see exactly this scenario coming 30 yrs ago. And many...many did. Doesn't take an "economist" to figure out that spending more than your taking in is going to cause a problem that will catch up with you. It's been coming a very long time. Glad he finally figured it out in 2007.

And the following stupidity is the type of thinking that has gotten the US govt into this "shithole."

I quote:

However, in order to slow the shitstorm, the U.S. government had to A) spend fuckloads of money, B) lower tax and interest rates(near 0%) to get people spending again.

Because of A and B, the government is racking up debt and operating inefficiently. If it continues to operate by spending fucklaods of money and keep interest/tax rates retarded low

Christ, what moron get's himself into more debt than he can ever possibly hope to pay off in 2 lifetimes, and then decides that to get himself out of this debt, he's gotta "spend fuckloads of money?" Which is also the stupidity that prolonged the FDR's depression.

Govt isn't the source of productivity in this country...it's the producers who fund govt. Govt spending doesn't promote productivity, it hurts it.

The best way govt can help producers, produce...is to quit spending and taxing them so much. The more govt spends, the more it has to take from producers. The whole thinking that govt has to spend to promote production in this country..is ass backwards thinking that prolonged the Depression (until ww2) came around...and is hurting recovery right now.

GOVT slowing spending and taking less from producers, is what enables productivity...not the opposite. This guy in the article is an idiot.

However, the real stupidity in your statement is underlined in your quote. Who the hell has lowered tax rates to near 0%?

But, then you completely trump the stupidity of that statement, with this one....

Okay, who says we're over-taxed?

lol.

No one, son. No one.

[starboy]

Govt isn't the source of productivity in this country...it's the producers who fund govt. Govt spending doesn't promote productivity, it hurts it.

Okay, you obviously haven't been paying attention to ANYTHING that has happened in the last 3 years.


The best way govt can help producers, produce...is to quit spending and taxing them so much.

Why do youu still insist on making the problem soooooooo simple?:bang

I'm done with you, I can already see your next response:

"But you don't understand, the gov't just needs to make tax 0%, it also needs to have interest rates at 0%. In fact, why even have a government? The absolutely only thing the government does is fuck things up by taxing us producers. We produce, and the government takes takes takes. SOOOO SIIIIMMMPPLLLEEEEE"!

[Shastafarian]

lol...gee, he figured a "crisis was brewing in 2007"...too funny.

Any idiot could see exactly this scenario coming 30 yrs ago. And many...many did. Doesn't take an "economist" to figure out that spending more than your taking in is going to cause a problem that will catch up with you. It's been coming a very long time. Glad he finally figured it out in 2007.Did you start warning people before 2007? And if so many people knew, why did they allow it to happen? You're obviously so smart you can enlighten us.

[SouthernFried]

Did you start warning people before 2007? And if so many people knew, why did they allow it to happen? You're obviously so smart you can enlighten us.

Your right...

Nobody warned anyone about govt spending too much, govt debt and deficits and its affect on the economy... before this genius did in 2007.

[Shastafarian]

Your right...I guess you're not that much of a genius.


Nobody warned anyone about govt spending too much, govt debt and deficits and its affect on the economy... before this genius did in 2007.He laid out specific of what would happen. It wasn't generic republican regurgitated bullshit. Oh wait, it was a Republican administration that was spending too much. Lawlerskates.

[SouthernFried]

Ayup...govt spent too much, deficits rose, debt rose, productivity went down, unemployment goes up, housing markets slump...

and this genius predicted it all!

truely amazing.

[spursncowboys]

WjVpr3zIr8E

[Shastafarian]

Ayup...govt spent too much, deficits rose, debt rose, productivity went down, unemployment goes up, housing markets slump...

and this genius predicted it all!

truely amazing.

"He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt."

Can you find anyone else who predicted this?

[spursncowboys]

If govt wants to really raise revenue...if they are "REALLY" interested in paying off the debt. Then you do NOT raise taxes on the people your relying on to actually pay it...producers and productivity.
Bush proved that by his tax cuts. No one could predict the increase in taxes we got for his tax cuts.


That is the surest way to decrease the activity you want to increase (if, in fact you really want to increase productivity.) Productivity and Producers are what pays for everything govt does.

If you want a business to come to San Antonio...you don't offer them tax increases...you offer them tax abatements, or decreases. Or you get the government out of the way entirely.


If you want business to flourish in the US, you don't increase their tax burdens...you decrease it. You'll get more activity and more business in both the San Antonio and US tax reduction scenarios and People making more money.

Tax 50% of nothing...you get nothing. Tax 10% of something...you get something ;)

That's how you increase revenue for govt crap. lol
You make so much sense that all people can do is belittle your idea like it is stupid. Don't forget us Liberals operate on Alinskey's rules. Notice all of your detractors responding to you- what percent is just an attack on you and your writing? How much of it is actually challanging what you wrote? Actually discussing what you wrote and debating the points you make.

[spursncowboys]

If govt wants to really raise revenue...if they are "REALLY" interested in paying off the debt. Then you do NOT raise taxes on the people your relying on to actually pay it...producers and productivity.

That is the surest way to decrease the activity you want to increase (if, in fact you really want to increase productivity.) Productivity and Producers are what pays for everything govt does.

If you want a business to come to San Antonio...you don't offer them tax increases...you offer them tax abatements, or decreases.

If you want business to flourish in the US, you don't increase their tax burdens...you decrease it. You'll get more activity and more business in both the San Antonio and US tax reduction scenarios and People making more money.

Tax 50% of nothing...you get nothing. Tax 10% of something...you get something ;)

That's how you increase revenue for govt crap. lol


"He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt."

Can you find anyone else who predicted this?
Ron Paul, Jonh McCain, Bush, Thomas Sowell, George Will, Rush Limbaugh all predicted what would happen to Fannie and Freddie. By giving govt backed loans to ppl who couldn't afford them.

[mogrovejo]

"He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt."

Can you find anyone else who predicted this?

In all fairness, Roubini has been "predicting" that for decades. So, at some point he'd get it right. It's kind of bizarre to dismiss all his failed predictions.

And yeah, Austrian guys have also been "predicting" the same stuff (for decades as well).

If you want to be the next Roubini, just start making a similar prediction now (or a different one, say, a hyper-inflation crisis or whatever). If you live long enough, you'll end up being right.

[Shastafarian]

Ron Paul, Jonh McCain, Bush, Thomas Sowell, George Will, Rush Limbaugh all predicted what would happen to Fannie and Freddie. By giving govt backed loans to ppl who couldn't afford them.

Any documentation of these savants?

[SouthernFried]

"He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt."

Can you find anyone else who predicted this?

Nope...nobody else figured out how under capitalized mortgage speculation could pose a problem. Not even after Japan lost their ass's in the late 80's and 90's doing the exact same thing. Nobody could have figured that packaging and trading bundles of bad mortgages and selling them as legitimate investments was probably not a good idea....not even when McCain and others started questioning Fannie Mai's practice of backing billions of dollars of loans to people who couldn't really afford them, but was blocked in congress from doing so, could they figure out this probably WAS a bad idea...

nope...not until this genius in 2007 told us, did anyone have a clue what could happen in the mortgage industry.

[Winehole23]

Bush proved that by his tax cuts. No one could predict the increase in taxes we got for his tax cuts. Wrong. As a percentage of GDP, tax revenues have declined since 2001.


http://www.heritage.org/Research/Taxes/images/chart4_lg_1.gif

http://www.heritage.org/Research/Taxes/images/chart4_lg_1.gifb

In fact the cuts have been deficit-financed, and have worsened the fiscal condition of our government.


Or you get the government out of the way entirely.Very easy to say. The historical trend runs in the other direction: the government is getting us out of the way.



You make so much sense that all people can do is belittle your idea like it is stupid. Don't forget us Liberals operate on Alinskey's rules. Notice all of your detractors responding to you- what percent is just an attack on you and your writing? How much of it is actually challanging what you wrote? Actually discussing what you wrote and debating the points you make.Looks like a good description of what you do, spursncowboys. You ignore contradicting points and belittle posters, mainly.

Too bad you don't practice what you preach.

[mogrovejo]

In fact the cuts have been deficit-financed, and have worsened the fiscal condition of our government.

Yeps. The GOP should definitely forget the over-simplistic "tax cuts promote growth and higher tax revenues" rhetoric. I understand the need for simplification in the realm of politics, but to add that income tax cuts are only virtuous when not financed by additional revenue but by spending caps and that the increase on revenues depends on which side of the Laffer curve you are seems very feasible.

Tax cuts are overrated. Most of Bush tax cuts weren't true tax cuts but just a financial operation of borrowing money from the future generations. The true level of taxation is given by the amount of government spending, not tax rates.

[SouthernFried]

Winehole, you trying to make my case for me?

The first thing I noticed about the "chart," is how taxes didn't seem to be all that affected by those sharp decreases in tax rates.

Then, I looked at the chart a little closer, and noticed you only showed the "top" tax rates and their respective lowering of tax rates...and correlated to "overall tax revenue." Which seemed to make my point as well, tax revenue wasn't all that affected by a DRAMATIC decrease in taxes. If increasing tax rates will bring in more money for govt crap, correspondently...shouldn't lowering tax rates bring in less?

So, I decided to invest some of my precious time on this nonesense...and look at the numbers more relevantly.

If decreasing tax rates on the TOP % didn't affect overall tax revenue all that much...what did it do to the revenue recieved from the TOP % ? I mean, if we're looking at the TOP % tax rates...let's look at the TOP % tax revenues from those tax rate decreases.

Apples to apples...so to speak.

While those tax rates for the TOP 1% were being decreased from 70% to 30%...here's what their tax "revenues" were doing.

http://www.house.gov/jec/fiscal/tx-grwth/reagtxct/fig-1.gif

Not sure I could have done a better job of showing how decreasing tax rates, increase tax revenues.

Thanks

[SouthernFried]

But, this is just a digression...

The point is...economists are idiots, lol.

Just kidding.

The point is, economists and genius's like this look at everything from a govt vacuum perspective. It is "sensible" to them that they get more money if they raise taxes. So, if they need more money, they want to raise taxes. Their views of how such actions affect productivity is almost negligible. Laffer came out with his curve..and it was like...whoa, what's this?

When any fool could have told them, "Hey, you can only tax us so much before you kill the goose that is funding you pricks."

They live in books, and confined spaces...not in the real world. Which is why very few business actually employ these guys as economists ("you've got an economics degree? Great, can you sell insurance?")...but, so many govts do.

I don't despise economists, I actually have freinds who are them. The younger ones, or the ones still in school don't have much of sense of humor about their profession. The older ones, that have been around 20-30 yrs (almost exclusively in Academia)...well, they can laugh at themeselves a little more.

I respect that in an economist :)

[mogrovejo]

Not sure I could have done a better job of showing how decreasing tax rates, increase tax revenues.

It's very easy to show, theoretically or empirically, that it's possible to decrease tax rates and increase tax revenues (although I'm not sure you did that). However, that doesn't make your sentence an universal truth. For example, what do you think it would happen if the tax rate was cut to 0.1%? Would the revenues grow? Of course not.

There are some more or less consensual findings about tax reductions. A very important one to keep in mind is that not all tax cuts are created equal. Some tax reductions lead to growth increases, but others are neutral on growth or can even reduce it; and the way the tax cuts are financed is essential to define their long-term economical impact.

This paper about the long-term effects of the "Bush tax cuts" is very good:
http://www.treasury.gov/press/releases/reports/treasurydynamicanalysisreporjjuly252006.pdf

p.s. - and what's so great about increasing the government revenues? The lesser they have to spend, the better.

[SouthernFried]

It's very easy to show, theoretically or empirically, that it's possible to decrease tax rates and increase tax revenues (although I'm not sure you did that). However, that doesn't make your sentence an universal truth. For example, what do you think it would happen if the tax rate was cut to 0.1%? Would the revenues grow? Of course not.

There are some more or less consensual findings about tax reductions. A very important one to keep in mind is that not all tax cuts are created equal. Some tax reductions lead to growth increases, but others are neutral on growth or can even reduce it; and the way the tax cuts are financed is essential to define their long-term economical impact.

This paper about the long-term effects of the "Bush tax cuts" is very good:
http://www.treasury.gov/press/releases/reports/treasurydynamicanalysisreporjjuly252006.pdf

p.s. - and what's so great about increasing the government revenues? The lesser they have to spend, the better.

Oh, I know your right. The govt does need some money to do the stuff that they do. And I guess that was what Laffer was all about, tho he couldn't find exact percentages or numbers to fit into his stuff ("at some point increasing taxes are not going to increase revenues...what that point is, I dunno... ;) )

But, I do generally take issue with the "how are we going to finance tax cuts." When the more important question to me is..."How are we going to finance tax increases."

One looks at the problem from the vacuum of the governmental standpoint...one looks at the problem from the producers standpoint. Since it's the producers that are actually making the money and financing the govt, I prefer to look at it from their standpoint.

Methinks if govt would do the same, and pose the question to themeselves..."ok, how are the producers going to finance our increased spending" it might change how they view their spending in the first place. They are not financing us...we are financing them.

I've never liked this subtle shift in the last decade at govt looking at producers money as the govts, and how will the govt pay for letting the producers keep more of their own money. It's subtlely changed the perspective of taxes.

But, yeah...not all tax cuts affect govt revenue the same.

[coyotes_geek]

Any documentation of these savants?




The connection between the GSEs and the government helps isolate the GSE management from market discipline. This isolation from market discipline is the root cause of the recent reports of mismanagement occurring at Fannie and Freddie. After all, if Fannie and Freddie were not underwritten by the federal government, investors would demand Fannie and Freddie provide assurance that they follow accepted management and accounting practices.

Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

http://www.lewrockwell.com/paul/paul128.html




The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

http://www.nytimes.com/2003/09/11/business/new-agency-proposed-to-oversee-freddie-mac-and-fannie-mae.html?sec=&spon=&pagewanted=print

A bonus quote from the article above.

'These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''




I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

I urge my colleagues to support swift action on this GSE reform legislation.

http://www.govtrack.us/congress/record.xpd?id=109-s20060525-16&bill=s109-190#sMonofilemx003Ammx002Fmmx002Fmmx002Fmhomemx002 Fmgovtrackmx002Fmdatamx002Fmusmx002Fm109mx002Fmcrm x002Fms20060525-16.xmlElementm0m0m0m

[MannyIsGod]

So we're still pushing the meme that Frannie and Freddie were the cause?

[Winehole23]

Freddie and Fannie will be significant sinkholes well into the future, and the perverse incentives that led to their bust remain.

I personally think Fannie and Freddie are more symptom than cause. The cause was a massive credit bubble, aggravated by implicit (and now, more or less explicit) public guarantees for the GSEs.

[Winehole23]

But, I do generally take issue with the "how are we going to finance tax cuts." When the more important question to me is..."How are we going to finance tax increases."By cutting spending til it hurts, then cutting some more.

[Nbadan]

If we were truly in growth periods during the Bush years then Dubya should have cut spending, of course, that didn't happen.... for many months, Bush relied on the growth of the federal govt to insure economic growth that business couldn't support, so Dubya couldn't cut spending....now when we need the govt to keep business from going into a tailspin by spending, the costs are much higher...

[Bender]

blah blah
jeez, top tax rate used to be over 90% ?

[spursncowboys]

If we were truly in growth periods during the Bush years then Dubya should have cut spending, of course, that didn't happen.... for many months, Bush relied on the growth of the federal govt to insure economic growth that business couldn't support, so Dubya couldn't cut spending....now when we need the govt to keep business from going into a tailspin by spending, the costs are much higher...
Did the big W cut spending if you take out Defense spending? Also do you believe it is the governments role to keep business from going down?

[angrydude]

How much revenue the govt. takes in really doesn't matter because whatever they don't raise through taxes they just borrow and tax us through the long term with the problems that causes.

the tax rate really only matters when it comes to shifting sectors of the economy around.

[Nbadan]

Did the big W cut spending if you take out Defense spending? Also do you believe it is the governments role to keep business from going down?

No....non-discretionary spending went way up under Dubya....

[Nbadan]

Also do you believe it is the governments role to keep business from going down?

No...when we try and buffer the effects of small down-turns we wind up making the problems much worse....that's what the Bush administration was doing...it was putting this recession off by any means possible, hoping to make it till Dubya was out of office and they almost made it...

[spursncowboys]

No...when we try and buffer the effects of small down-turns we wind up making the problems much worse....that's what the Bush administration was doing...it was putting this recession off by any means possible, hoping to make it till Dubya was out of office and they almost made it...
So, is Obama bailing out companies wrong? Is becoming a shareholder wrong. Is it because they are only bailing out the big companies?
When you say Bush, what policies? Do you mean what Greenspan was doing?

[spursncowboys]

Wrong. As a percentage of GDP, tax revenues have declined since 2001.


http://www.heritage.org/Research/Taxes/images/chart4_lg_1.gif

http://www.heritage.org/Research/Taxes/images/chart4_lg_1.gifb

In fact the cuts have been deficit-financed, and have worsened the fiscal condition of our government.

Very easy to say. The historical trend runs in the other direction: the government is getting us out of the way.


Looks like a good description of what you do, spursncowboys. You ignore contradicting points and belittle posters, mainly.

Too bad you don't practice what you preach.


http://www.heritage.org/Research/Taxes/wm1891.cfmSummary:Higher (http://www.heritage.org/Research/Taxes/wm1891.cfmSummary:Higher) taxes on capital will hinder the growth of investment and capital stock. The decrease in capital will reduce economic growth, which will lead to higher unemployment and reduced personal income. Tax rates should not be a determining factor in allocating investment dollars, and lower tax rates mitigate the lock-in effect.
Investment is a forward-looking enterprise, and companies are already making decisions about their future. Making permanent the lower tax rates on capital gains and dividends will make future investment more attractive to businesses and investors. This will ensure more capital stock and economic growth. Congress should therefore make permanent these reductions on the cost of capital.

This is just the summary and is a good research paper.

[Winehole23]

jeez, top tax rate used to be over 90% ?During Eisenhower, yeah.

[Winehole23]

[url="http://www.heritage.org/Research/Taxes/wm1891.cfmSummary:Higher"]

This is just the summary and is a good research paper.Did you notice the graph refutes your point about enhanced tax receipts since 2001? The Bush tax cuts? Deficit financed?

Hello?

[Winehole23]

I personally think Fannie and Freddie are more symptom than cause. The cause was a massive credit bubble, aggravated by implicit (and now, more or less explicit) public guarantees for the GSEsOne particularly keen illustration of this was the accelerated commitment of the GSEs to subprime mortgages after August of 2007.

The credit crunch was on, because of cratering subprime and the derivatives knock on. The percentage of the GSE's subprime exposure went from like 30% to over 60% in about one year. That can't be a mistake. We started fencing the bad risk well before the official bailout. Banks parked their crappy risk with Fannie and Freddie like crazy and the GSEs were willing buyers, well after it was already clear the market was going teats up.

[coyotes_geek]

I personally think Fannie and Freddie are more symptom than cause. The cause was a massive credit bubble, aggravated by implicit (and now, more or less explicit) public guarantees for the GSEs.

Agreed that they're a symptom, but still one that should have been treated. Had the risk at F&F been managed more responsibly the credit bubble wouldn't have been nearly so big.

[coyotes_geek]

No...when we try and buffer the effects of small down-turns we wind up making the problems much worse....that's what the Bush administration was doing...it was putting this recession off by any means possible, hoping to make it till Dubya was out of office and they almost made it...

Can't put it all on Bush. Congressional democrats went along with it all, and Obama's response to the crisis has been one of simply continuing the policies Bush enacted in the last few months of his term.

[angrydude]

To be fair, it wasn't really clear what was happening until it all fell apart. The economics profession really failed us. I do blame Bush for Tarp though.

[coyotes_geek]

To be fair, it wasn't really clear what was happening until it all fell apart. The economics profession really failed us. I do blame Bush for Tarp though.

Since we're being fair let's recognize that there's plenty of blame to go around for tarp as well. Obama was out there on the campaign trail saying how important it was to pass it and telling people how involved in the whole process he was.

[angrydude]

Since we're being fair let's recognize that there's plenty of blame to go around for tarp as well. Obama was out there on the campaign trail saying how important it was to pass it and telling people how involved in the whole process he was.

I agree. As I remember the dems in congress overwhelmingly voted for it.