This Year's US Economics Nobel Winner: Bush Tax Cuts Too Small

[Ned]

STILL no comment on Kerry wanting to balance the budget during a recession?

I give you Martin van Buren and Herbert Hoover. What do they have in common with Kerry?

[Jaguar]

They were silenced by their own goal.

[Imran Siddiqui]

Herbert Hoover expanded the deficit to a level not seen in peace time. His Reconstruction Finance Corporation was criticized by FDR, who originally said he'd cut the massive increases in government spending that Hoover started. Once in office, Roosevelt reversed his position.

Oh, and btw, we've been out of a recession for a while.

[Drachasor]

Well, seems that perhaps the economics professor found that the tax break on the middle-class and lower was far too little.

It really does make sense. I remember back when I was making minimum wage (about $5 an hour). I really felt like the work I put in wasn't worth the time, and I didn't try to work a lot more. Now that I make quite a bit more (different job), spending time working produces a more noticeable benefit, so I am encouraged to work even more.

This isn't the much derided trickle-down economics. This is about directly reducing the taxes on the middle-class and lower classes (I'll refer to this as the sub 200k range). This makes sense in so many more ways. For one, the sub 200k range spends money much more easily; if you give them a tax break, that money is going to go directly into the economy and businesses will benefit. They will also be encouraged to work more, which helps the economy too.

Makes a lot of sense to me.

In other news, I did some research and apparently Keynsian Economics was descredited in the 70s or so. It seems economies are too dynamic and random for it to really work. (The more you know.). Interesting, eh?

-Drachasor

PS. Hard to believe the communists are against tax breaks for labor. Are they pro tax breaks for business? Do they think there should never be tax breaks? What is going on?

[Imran Siddiqui]

Yeah, the Monetarists (led by Friedman) helped to bring down the Keynesian grip on American economic politics. Fun guys to read.

[el freako]

Originally posted by Imran Siddiqui
Oh, and btw, we've been out of a recession for a while.

Indeed,

According to the OECD and IMF the US is likely to be at around it's trend level of GDP this year.

This seems to have been masked from the public at large by the large changes that are going on in the US labour market; it appears to have moved to a low employment growth/high productivity growth model - much like Europe had before the mid 1990s or the US had before the mid 1960s

So if you want to have a balanced budget over the economic cycle it should be in balance now - not in deficit to the tune of 5% of GDP!

[Lawrence of Arabia]

Re: Yes, but ....

Originally posted by Adam Smith
Prescott's work is part of the continuing effort to integrate microeconomics (behavior of individual consumers and firms) with macroeconomics (study of the economy as a whole). Part of Prescott's contribution is the observation that just as lower taxes on capital result in more savings and less consumption, boosting the longrun growth of the economy, lower taxes on labor result in more labor and less leisure, again boosting the longrun growth of the economy. http://research.mpls.frb.fed.us/research/qr/qr1042.pdf , p. 1

This labor substitution effect is larger than the capital substitution effect because labor's share of income in the US economy is about twice the size of capital's share.
http://research.mpls.frb.fed.us/research/qr/qr1421.pdf , p. 10

Moreover, Prescott also observes that "hours of less skilled workers are much more variable" than those of higher skilled workers. (same link, p. 11)

In other words, tax cuts for lower income workers have a greater long-run effect on the growth of the economy through increased labor supply than those for higher income workers through increased savings. Prescott's work therefore appears to indicate that the "too small" comments as applying to the lower and middle class, exactly the opposite of what most people in this thread seem to have their knickers in a twist about.

Now that this lynch mob has given Professor Prescott a "fair" trial, you may procede with the hanging.

Thanks to DanS for the great links from the other Nobel thread. http://apolyton.net/forums/showthrea...9&pagenumber=2

haha, this is almost exactled what i was gonna say (the part thats bolded)

[Dinner]

Originally posted by Zkribbler
Sure...capital gains, inheritance, stock dividends. It's called "unearned income" and surprisingly enough, it's taxed at a lower rather than "earned income."

You're right and this is my main grip with the Republican version of tax cuts. The Republicans want to eliminate the inheritance tax, slash the capital gains tax, and kill the alternate minimum tax while creating a new national sales tax. The problem is this means the ultra wealthy that make their money from stocks and capital investment will end up paying almost no taxes plus since there won't be an inheritance tax we will see the creation of a rigid, permanent upper class.

The national sales tax will shift the tax burden even more to wage earners and away from people who make their living off of unearned income. I like to think of America as a meritocracy where people get ahead based upon their hard work and good ideas not because of who their grandfathers were. A well designed inheritance tax does that by letting the family farm go to the next generation but not letting the Rockefellers or the Gates' become a permanent aristocracy.

[Dinner]

Originally posted by St Leo
Uh, sane people don't work more than 40 hours a week voluntarily as long as they already earn enough for the necessities.

I know lots of sane people who voluntarily work more then 40 hours per week. Most of them have families and they believe that by putting in long hours now they'll be able to save up a nest egg and then let compound interest do the work for them.

[The Mad Monk]

Originally posted by chegitz guevara


This isn't really true. When you make less, each dollar you make becomes more precious. When you make more, you can afford to take more time off.

But more money makes for higher quality time off -- better toys, more travel, etc. So for me, it really does matter if the money I'll make working an extra hour is worth the extra hour I'll lose for playtime. More money per hour worked = better toys in less time.

[Dinner]

Originally posted by chegitz guevara
I don't know about you, but fear of homelessness and losing all my stuff is what motivates me to work. All a tax cut means is I don't have to work as much, because I'll take home the same pay for less work. Tax cuts promote laziness. If you want to promote work, you should take away enough money in taxes that people have to work three jobs just to stay in a freezing shack.

Che: I think you might be a minority here. Most people I know don't want to just maintain their standard of living; they want to increase it. They want a bigger car, a bigger house in a better neighborhood, they want their kids to go to better schools (which means private schools), they want to finally buy the wife that diamond necklace, and to take that trip to Europe.

Most people work hard to improve their standard of living and by making work more financially rewarding, i.e. letting people keep more of what they earn, we create an incentive to work.

[Ogie Oglethorpe]

Originally posted by Shi Huangdi
Oerdin: I didn't mean critiques such as yours, I meant people who bashed the entire field of Economics over Dr.Prescott's comments.

Especially when any number of them are willing to quote Krugman. Another hypocracy revealed.

[Ned]

Originally posted by Oerdin


You're right and this is my main grip with the Republican version of tax cuts. The Republicans want to eliminate the inheritance tax, slash the capital gains tax, and kill the alternate minimum tax while creating a new national sales tax. The problem is this means the ultra wealthy that make their money from stocks and capital investment will end up paying almost no taxes plus since there won't be an inheritance tax we will see the creation of a rigid, permanent upper class.

The national sales tax will shift the tax burden even more to wage earners and away from people who make their living off of unearned income. I like to think of America as a meritocracy where people get ahead based upon their hard work and good ideas not because of who their grandfathers were. A well designed inheritance tax does that by letting the family farm go to the next generation but not letting the Rockefellers or the Gates' become a permanent aristocracy.

Oerdin, what is better, having a flatter tax with no loopholes or a steep progressive rate with plenty of loopholes? IIRC, Kerry made $7 million last year and paid only 12.5% tax.

This class warfare crap is pure envy. The only thing people should be concerned about is what tax structure is best for the economy. When one introduces socialism into the mix, one gets far from ideal economic performance. Look at Cuba.

[Kidlicious]

Originally posted by Imran Siddiqui
Yeah, the Monetarists (led by Friedman) helped to bring down the Keynesian grip on American economic politics. Fun guys to read.

That's why we still target the money supply with monetary policy and balance the budget during recessions?

[Kidlicious]

Originally posted by Oerdin


Che: I think you might be a minority here. Most people I know don't want to just maintain their standard of living; they want to increase it. They want a bigger car, a bigger house in a better neighborhood, they want their kids to go to better schools (which means private schools), they want to finally buy the wife that diamond necklace, and to take that trip to Europe.

Most people work hard to improve their standard of living and by making work more financially rewarding, i.e. letting people keep more of what they earn, we create an incentive to work.

So taxing people encourages them to quit working as much.

What the hell makes people fall for this nonsense I will never know.