Now that Republicans have won in November*

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The clash of Republican Economic Ideologies will happen.

It will be the Supply Siders vs the Deficit Hawks.

If the Supply Siders win, we will have anemic growth, but at least we will have growth.

If Deficit Hawks win, we will have another recession. Tip - short stocks.

I think the supply siders might win because Obama will still be president. But who knows.

*House only

If the Supply Siders win, we will have a continuation of the growing gap between the super rich and the rest of us. Wages will continue to stagnate and/or shrink in real terms. The tax burden will increasingly fall on the bottom 90% with an emphasis on folks between $100k and $250k of annual family income. The regressive tax will effectively destroy the middle class in 10 years.

If the "Deficit Hawks" win, we can expect wholesale recisions of the social safety net, but continued growth in foreign adventures and military spending. This is because there are no true Deficit Hawks -- just folks who don't like paying taxes for things that aren't lining the pockets of major defense contractors. If true deficit hawks existed, we would have a lot to look forward to since efficacious deficit reduction would necessarily include increasing taxes, drawing back military spending from 4.6% to 2.5% of GDP, as well as restructuring entitlement spending such that it is indexed forward for life expectancy and needs tested. Unfortunately, no such political animal exists.

Wow, that's awesome. What happens if the Democrats win?

Paleocon wrote:

If the Supply Siders win, we will have a continuation of the growing gap between the super rich and the rest of us. Wages will continue to stagnate and/or shrink in real terms. The tax burden will increasingly fall on the bottom 90% with an emphasis on folks between $100k and $250k of annual family income. The regressive tax will effectively destroy the middle class in 10 years.

If the "Deficit Hawks" win, we can expect wholesale recisions of the social safety net, but continued growth in foreign adventures and military spending. This is because there are no true Deficit Hawks -- just folks who don't like paying taxes for things that aren't lining the pockets of major defense contractors. If true deficit hawks existed, we would have a lot to look forward to since efficacious deficit reduction would necessarily include increasing taxes, drawing back military spending from 4.6% to 2.5% of GDP, as well as restructuring entitlement spending such that it is indexed forward for life expectancy and needs tested. Unfortunately, no such political animal exists.

I'm not sure that needs testing for entitlements is cost effective, since it would add an extra (very expensive) layer of bureaucracy to the process that would end up costing more than the savings from cutting people off the welfare rolls. Aside from that, I agree with all your above points.

Tanglebones wrote:
Paleocon wrote:

If the Supply Siders win, we will have a continuation of the growing gap between the super rich and the rest of us. Wages will continue to stagnate and/or shrink in real terms. The tax burden will increasingly fall on the bottom 90% with an emphasis on folks between $100k and $250k of annual family income. The regressive tax will effectively destroy the middle class in 10 years.

If the "Deficit Hawks" win, we can expect wholesale recisions of the social safety net, but continued growth in foreign adventures and military spending. This is because there are no true Deficit Hawks -- just folks who don't like paying taxes for things that aren't lining the pockets of major defense contractors. If true deficit hawks existed, we would have a lot to look forward to since efficacious deficit reduction would necessarily include increasing taxes, drawing back military spending from 4.6% to 2.5% of GDP, as well as restructuring entitlement spending such that it is indexed forward for life expectancy and needs tested. Unfortunately, no such political animal exists.

I'm not sure that needs testing for entitlements is cost effective, since it would add an extra (very expensive) layer of bureaucracy to the process that would end up costing more than the savings from cutting people off the welfare rolls. Aside from that, I agree with all your above points.

It isn't really the welfare rolls I'm concerned about. Clinton did most of that work back in the 1990's. It's the Social Security rolls. If you're making $250k/year off of stock dividends, you probably don't need the Social Security check.

Paleocon wrote:
Tanglebones wrote:
Paleocon wrote:

If the Supply Siders win, we will have a continuation of the growing gap between the super rich and the rest of us. Wages will continue to stagnate and/or shrink in real terms. The tax burden will increasingly fall on the bottom 90% with an emphasis on folks between $100k and $250k of annual family income. The regressive tax will effectively destroy the middle class in 10 years.

If the "Deficit Hawks" win, we can expect wholesale recisions of the social safety net, but continued growth in foreign adventures and military spending. This is because there are no true Deficit Hawks -- just folks who don't like paying taxes for things that aren't lining the pockets of major defense contractors. If true deficit hawks existed, we would have a lot to look forward to since efficacious deficit reduction would necessarily include increasing taxes, drawing back military spending from 4.6% to 2.5% of GDP, as well as restructuring entitlement spending such that it is indexed forward for life expectancy and needs tested. Unfortunately, no such political animal exists.

I'm not sure that needs testing for entitlements is cost effective, since it would add an extra (very expensive) layer of bureaucracy to the process that would end up costing more than the savings from cutting people off the welfare rolls. Aside from that, I agree with all your above points.

It isn't really the welfare rolls I'm concerned about. Clinton did most of that work back in the 1990's. It's the Social Security rolls. If you're making $250k/year off of stock dividends, you probably don't need the Social Security check.

Agreed, and I was using welfare as a shorthand for all entitlement spending. Still, I think there was a study (totally unverified - I'll try to look this up later; it might have just been an economist being interviewed) that showed that putting the enforcement bureaucracy in place for SS means testing would be more expensive than the savings from taking wealthy people off the SS rolls. Also, one more fix to add to your list is removing the $100,000 cap for SS taxes.

Wow, that's awesome. What happens if the Democrats win?

Judging by recent history, a lot of good bills will be passed in the house only to be stonewalled in the Senate. After much gnashing of teeth, eventually the bills will be watered down to meaninglessness.

I think some return to a progressive taxation scheme is simply unavoidable in the future. It is simply impossible to spending cut our way back to a balanced budget and the middle class is no longer able to take on additional tax burdens to support the ultra rich. We need to increase tax revenue in concert with logical spending reductions AND tax relief for the middle class. That can not happen so long as the ultra rich are paying an average of 24 percentage points lower off annual income than the rest of the country.

Paleocon wrote:
Tanglebones wrote:
Paleocon wrote:

If the Supply Siders win, we will have a continuation of the growing gap between the super rich and the rest of us. Wages will continue to stagnate and/or shrink in real terms. The tax burden will increasingly fall on the bottom 90% with an emphasis on folks between $100k and $250k of annual family income. The regressive tax will effectively destroy the middle class in 10 years.

If the "Deficit Hawks" win, we can expect wholesale recisions of the social safety net, but continued growth in foreign adventures and military spending. This is because there are no true Deficit Hawks -- just folks who don't like paying taxes for things that aren't lining the pockets of major defense contractors. If true deficit hawks existed, we would have a lot to look forward to since efficacious deficit reduction would necessarily include increasing taxes, drawing back military spending from 4.6% to 2.5% of GDP, as well as restructuring entitlement spending such that it is indexed forward for life expectancy and needs tested. Unfortunately, no such political animal exists.

I'm not sure that needs testing for entitlements is cost effective, since it would add an extra (very expensive) layer of bureaucracy to the process that would end up costing more than the savings from cutting people off the welfare rolls. Aside from that, I agree with all your above points.

It isn't really the welfare rolls I'm concerned about. Clinton did most of that work back in the 1990's. It's the Social Security rolls. If you're making $250k/year off of stock dividends, you probably don't need the Social Security check.

Aha - so Paleocon is a deficit hawk. Actually this is worse than supply side economics. That is why Republicans are not really deficit hawks. Just the confused Tea Partiers.

Paleocon wrote:

I think some return to a progressive taxation scheme is simply unavoidable in the future. It is simply impossible to spending cut our way back to a balanced budget and the middle class is no longer able to take on additional tax burdens to support the ultra rich. We need to increase tax revenue in concert with logical spending reductions AND tax relief for the middle class. That can not happen so long as the ultra rich are paying an average of 24 percentage points lower off annual income than the rest of the country.

When Clinton balanced the budget and created a surplus, we had a recession a year later. This is not a fluke. In other words he taxed people too much.

The problem with supply side economics is that it is a blunt tool. It can and does create too much asset inflation. We saw that in the savings and loan crisis in the 80s and the current crisis now.

goman wrote:
Paleocon wrote:

I think some return to a progressive taxation scheme is simply unavoidable in the future. It is simply impossible to spending cut our way back to a balanced budget and the middle class is no longer able to take on additional tax burdens to support the ultra rich. We need to increase tax revenue in concert with logical spending reductions AND tax relief for the middle class. That can not happen so long as the ultra rich are paying an average of 24 percentage points lower off annual income than the rest of the country.

When Clinton balanced the budget and created a surplus, we had a recession a year later. This is not a fluke. In other words he taxed people too much.

The problem with supply side economics is that it is a blunt tool. It can and does create too much asset inflation. We saw that in the savings and loan crisis in the 80s and the current crisis now.

I think a large part of the asset growth during the Clinton years had very much to do with the deficit reduction measures taken by Bush 41 (with the reduction of the military following the Gulf War and tax increases he said he wouldn't make) and the continuation of the same policies and the addition of entitlement reform under Clinton. In the words of my Tennessee dairy farmer friend "when the government competes with you for cash, it is always going to win".

What we're seeing today is a continuation of that. The problems we face right now with business liquidity have nothing to do with interest rates and the macro availability of capital. It has to do with the fact that banks can make more out of buying T-bills at lower risk than they can for lending you the money you need to expand your business and/or hire your brother in law. That is unlikely to change so long as we're taxing the top 2% of income earners an average of 16% of annual income AND spending 4.6% of our GDP on military and war funding.

The Clinton economic boom happened because the great big pile of money that was lying around when we cut spending had to go someplace to realize a return. Yes, a great deal of it ended up in questionable mortgages because the industry was improperly or inadequately regulated, but a great deal of it also went into funding innovative companies like Amazon, Google, and the expansion of the Internet.

When we soak up investor capital and send it off to crapholes like Iraq, everyone in America loses.

While I agree with you, the phrase "problems with business liquidity" surprised me; businesses are sitting on larger amounts of surplus cash now than they ever have in history, they're just refusing to spend it.

Paleocon wrote:

I think a large part of the asset growth during the Clinton years had very much to do with the deficit reduction measures taken by Bush 41 (with the reduction of the military following the Gulf War and tax increases he said he wouldn't make) and the continuation of the same policies and the addition of entitlement reform under Clinton. In the words of my Tennessee dairy farmer friend "when the government competes with you for cash, it is always going to win".

Cutting military spending created a recession which lead to Clinton winning. Clinton demand side policies such as the new Student Loan program and expanding EITC and letting automatic stabilizers work got us out of the recession, not the welfare reform. That was done when we were already out of the recession. It is not about cutting spending per se. It is about getting more bang for your buck.

Paleocon wrote:

What we're seeing today is a continuation of that. The problems we face right now with business liquidity have nothing to do with interest rates and the macro availability of capital. It has to do with the fact that banks can make more out of buying T-bills at lower risk than they can for lending you the money you need to expand your business and/or hire your brother in law. That is unlikely to change so long as we're taxing the top 2% of income earners an average of 16% of annual income AND spending 4.6% of our GDP on military and war funding.

The problems are exactly that. Too much supply or the inverse of that not enough demand.

The Clinton economic boom happened because the great big pile of money that was lying around when we cut spending had to go someplace to realize a return. Yes, a great deal of it ended up in questionable mortgages because the industry was improperly or inadequately regulated, but a great deal of it also went into funding innovative companies like Amazon, Google, and the expansion of the Internet.

It happened because he balanced supply and demand better. Cutting spending didn't do that but rather better more productive spending did.

When we soak up investor capital and send it off to crapholes like Iraq, everyone in America loses.

Agreed. That was unproductive spending for sure.

Budget will be in more balance if demand catches up to supply. Until then we will be in a malaise.

grobstein wrote:

Wow, that's awesome. What happens if the Democrats win?

If the Democrats win it is the Demand Siders vs the Deficit Hawks.

We will have what we have had the past two years. A watering down of demand side policies but just enough to get us over the hump. But not enough to sustain itself. Aka a malaise like Japan. I think Obama is a confused demand sider deficit hawk. I blame his economic team and himself for it.

Or if the demand siders win - Growth and modest inflation. But it matters what type of demand side policies they are. But I doubt they will win. They already lost

I am a demand sider with a caveat on what exactly our priorities are. Some military spending is productive, some of it a waste. I don't think enough is being spent on either present or the future infrastructure, so more should go there. I think working people are taxed too much and lowering taxes on workers and jobs will help the debt deleveraging problem. Trade personal income (equity) for personal debt.

Paleocon wrote:

The problems we face right now with business liquidity have nothing to do with interest rates and the macro availability of capital.

Backing up what Seth said, there was an article in the NY Times the other day that said interest rates are so low that corporations are issuing bonds like crazy and then just sitting on the money to deploy when business conditions improve. Meanwhile, retirees and other people who depend on interest payments for income are getting squat to spend from their investments.

One more thing. Taxing the rich is not about balancing the budget but rather getting more demand. Instead of getting taxed more where the money is just shredded by the US government, a smart businessman would spread the profits to his employees or company investments. But the only way to make this work is to raise the top tax bracket from 250,000 to something higher. I haven't done the math but I am sure this would work.

It's also worth noting that since the rich have been left in control of an increasing share of national capital, they've done some very stupid things with it. Buying shares in internet companies without revenue, investing in mortgages that had no hope of being paid back. Bubble crazy, those folks.

Plus, hand a rich person a check for $100,000 these days, chances are he's going to invest the money in Asia or the commodity markets or gold shares.

Funkenpants wrote:
Paleocon wrote:

The problems we face right now with business liquidity have nothing to do with interest rates and the macro availability of capital.

Backing up what Seth said, there was an article in the NY Times the other day that said interest rates are so low that corporations are issuing bonds like crazy and then just sitting on the money to deploy when business conditions improve. Meanwhile, retirees and other people who depend on interest payments for income are getting squat to spend from their investments.

I read that article.

http://www.nytimes.com/2010/09/09/bu...

If they are interest bearing accounts they no longer are investments but savings. Perhaps their savings are high because of their good investments in the past. Or not and they just depend on Social Security or working income.

Anyway - Inflation is really low right now so it is not the interest rate that matters so much but rather the difference between the interest rate and inflation.

Take the money out of CDs. Obviously, the banks don't need it. Put it into something that bears more interest like high yield bonds. Or if you are young still buy stocks.

Funkenpants wrote:

Buying shares in internet companies without revenue, investing in mortgages that had no hope of being paid back. Bubble crazy, those folks.

Which would be due to the desire for a quick return. Everyone wants the 200% return on investment that 1 in 1,000 high risk investments might return. They then act shocked when 999 of those investments tank and they lose their money. Low risk, low return investments seem to have only recently come back in fashion.

How are Republicans going to propose economic policy when they will be investigating burning topics such as abuses of the Obama administration or ACORN or the new black panther party?

Funkenpants wrote:

Plus, hand a rich person a check for $100,000 these days, chances are he's going to invest the money in Asia or the commodity markets or gold shares.

Exactly, time to cut taxes for the middle-class, the vast majority of which will spend it in the USA.

If the politicians win, we all lose!

I agree in principle that good spending is infinitely better than bad spending and that no amount of fiscal discipline is ever going to allow us to make economic sense out of the debacle of the Iraq War or the Bush era tax cuts for the very wealthy. That said, I think there is still great importance in recognizing the mechanism involved in the purchasing of T-bills. The banks are make more money by lending to the government than they do lending to families and innovative businesses that need the capital to expand.

I can see where you are coming from regarding the imbalance between supply and demand being the issue though, but think that how we create the demand is even more important than creating it at all. We can create all manner of demand by throwing it at contractors that are going to piss it all away in corrupt crapholes like Iraq and Afghanistan (all the while creating shadow private armies that threaten global stability and American sovereign interests), but that doesn't help us at all.

In the end, we need to pull the plug on about $250 billion/year of military spending, tax the upper 2% at a rate more in line with the rest of the country, and restructure entitlement spending to reflect a needs test and index it forward for life expectancy. Should we direct the freed capital toward productive projects or let the market handle that is an entirely different question and I'm willing to admit I don't have all those answers.

goman wrote:

Take the money out of CDs. Obviously, the banks don't need it. Put it into something that bears more interest like high yield bonds. Or if you are young still buy stocks.

Oh, I'm not looking for investment advice for me. I'm talking about the fact that you have a huge number of people who are used to making X income, and who are now making X-(a lot) income. They will not be happy when they go to the polls, which retirees usually do at a higher rate than the young. You can tell them they're wrong, or that they should be putting their money into high yield bonds, or that they should go out and get jobs- but that doesn't change the fact that they're pissed off and can vote their anger in November.

If we simply let the Bush tax cuts expire - all of them - we'll have a balanced budget within 5 years. Food for thought. If the deficit is a big concern, that's the easiest policy to fix it.

Paleocon wrote:

I agree in principle that good spending is infinitely better than bad spending and that no amount of fiscal discipline is ever going to allow us to make economic sense out of the debacle of the Iraq War or the Bush era tax cuts for the very wealthy. That said, I think there is still great importance in recognizing the mechanism involved in the purchasing of T-bills. The banks are make more money by lending to the government than they do lending to families and innovative businesses that need the capital to expand.

I can see where you are coming from regarding the imbalance between supply and demand being the issue though, but think that how we create the demand is even more important than creating it at all. We can create all manner of demand by throwing it at contractors that are going to piss it all away in corrupt crapholes like Iraq and Afghanistan (all the while creating shadow private armies that threaten global stability and American sovereign interests), but that doesn't help us at all.

In the end, we need to pull the plug on about $250 billion/year of military spending, tax the upper 2% at a rate more in line with the rest of the country, and restructure entitlement spending to reflect a needs test and index it forward for life expectancy. Should we direct the freed capital toward productive projects or let the market handle that is an entirely different question and I'm willing to admit I don't have all those answers.

I don't understand you putting "entitlement" aka minimum social security spending in the same category as tax cuts for the rich or military spending or bailouts of banks.

As you should know entitlement spending is in the black. It is the rest of the stuff that is in the red. Why not restructure that now and worry about restructuring "entitlement" spending once it turns from black to red.

Interest rates also matter. Did you know that the government is paying less in interest payments now than they did 10 years ago when Clinton was running surpluses?

Robear wrote:

If we simply let the Bush tax cuts expire - all of them - we'll have a balanced budget within 5 years. Food for thought. If the deficit is a big concern, that's the easiest policy to fix it.

But if we did that then taxes for the working class goes up. Terrible idea. Trying to balance the budget for having a balanced budget sake will worsen the recession.

True prosperity will only happen if we get rid of that idea.

But if we did that then taxes for the working class goes up. Terrible idea.

Back to what it was what, less than 10 years ago? That's terrible? Is there ever a reason to *raise* taxes? Some argue that we should have done that going into the war in Iraq.

Or we could reverse the tax cuts on the rich of the last 30 years, take that back up to 60% and ease the take from the middle class and poor. IE, buy into progressive taxation again.

The doctrine of "lower taxes are always better" seems to me to be foolish.

goman wrote:
Robear wrote:

If we simply let the Bush tax cuts expire - all of them - we'll have a balanced budget within 5 years. Food for thought. If the deficit is a big concern, that's the easiest policy to fix it.

But if we did that then taxes for the working class goes up. Terrible idea. Trying to balance the budget for having a balanced budget sake will worsen the recession.

True prosperity will only happen if we get rid of that idea.

Let the tax cuts on those making $250,000 and more expire now, gaining us back about $600 billion in revenue immediately.

Adjust the tax code so that there are brackets above the top bracket of $375,000 or so and tax the ever-living bejesus out of them because it's been those folks who have gained the most in recent years. That way we can honestly address the obscenely wealthy, the top .1% of the population that earns as much as the bottom 30%, without having things get side tracked about how raising taxes on those people will screw small business owners or have to listen to people who make four or five times the median income whine about how precarious their financial position is.

My family is a not in the magical rich category. If the Bush tax cuts expired I would lose from $300 to $400 a month in take home pay. Largely because we have 4 children ($2,000 tax increase right there).

With that said, let them all expire. We need to pay our fair share. I think that if the middle class had their rates jacked up, it would do two things. The first is that people would demand that the wealthy pay their fair share because they would feel the pain and really pay attention to how little the wealthy actually pay.

Second people would demand fiscal restraint because they would be fearful that taxes would continue to rapidly rise. This happens at the local level with school taxes. When my property taxes jump, my community is all over the school board with regard to the budget.

OG_slinger wrote:

Let the tax cuts on those making $250,000 and more expire now, gaining us back about $600 billion in revenue immediately.

Agreed. I hear the complaint every day on CNBC that raising taxes on the wealthy will result in lower growth. But it's one of those arguments that seems to me to be disingenuous in a time of nearly frictionless international capital flows. If the economy here is tepid or anemic, and the one in Asia is considered growing, where will the wealthy deploy their capital in search of return? Hedge funds and banks tend to be short term oriented. They aren't going to invest in the U.S. when the outlook for this country calls for anemic growth for another year or two during a slow recovery.

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