Piezoe, since I am being lazy I will post here another critique of Romer and your claim here. This was written by my close friend Micheal Rulle, he is the former CEO of CIBC-Oppenhiemer and now runs his own hedge fund, he is a Quant guy and I defer to him on statistical analysis. He is also the author of his own Blog, "The Law of the Bad Premise, he also wrote for Brietbart's Big Holloywood and David Horowitz's "News Real. This comment was published both on his Law of the Bad Premise blog and David Horrowitz's Newsreel in August of 2011, I got it from him by email for comment: Idiomics and the Obama Adminstration by Mike Rulle 8/11/2010 "President Obamaâs Chief Economics Adviser, Christina Romer, resigned last week. Private sector jobs declined about 130,000 or so according to the July jobs report. Thatâs what she deserves for supporting political policies in stark contrast to her own research The Macroeconomic Effects of Tax Changes where she states in the abstract: ââ¦â¦.tax increases {designed} to reduce [an} inherited budget deficit or to promote long term growthâ¦..are highly contractionary. The effects are strongly significant {and} highly robustâ¦..The large effect stems in considerable part from a powerful negative effect of tax increases on investmentâ. As Reason Magazineâs Tim Cavavaugh noted re: Ms. Romer, âNow how will you get your soul backâ? Further, and as ludicrously, informal Obama economic advisers Mark Zandi and Allan Blinder also declared that the $800 billion stimulus âworkedâ even though its predictions failed. This is one reason Macroeconomic science is viewed with such disdain. For those interested in the statistical and logical errors inherent in this declaration please read economist Arnold Klingâs commentary How the Blinder-Zandi Study Was Done . In short, Zandi/Blinder âcorrected the modelâs past forecast errors, so that it would track the actual behavior of the economy over the past two years exactlyâ. This is generally called âdata fittingâ and has been the scourge of the macroeconomics profession for decades. Zandiâs studies are simply fitted mathematical âmodelsâ, not evidence empirically deduced as at least was the case in Romerâs tax study referenced above. In an idealized world, citizens disagree about political policy for one of three reasons; 1) core moral principles; 2) differences of opinion about utilitarian/practical outcomes relative to alternative policies; and, 3) the self interest of various constituencies, usually using oneof the two other reasons as rationales. Sometimes all 3 reasons can be in agreement or stark disagreement. For example, what if we could harvest body parts from convicted serial murderers to save the life of multiple children in need of transplants? (This was the theme of the television show âThe Closerâ this week). Closer to political reality perhaps, what if we could harvest âstem cellsâ from unborn children to save the lives of the âbornâ? Or, what if Steve Jobsâ self interested insatiable desire to be the global gadget king creates a secure life for millions of employees and vendors without taking away their liberty? In matters of economics, it is reasonable to believe all 3 of these reasons can generally be in harmony. This was assumed by our founding fathers to be possible under the right set of constitutional principles and laws. The moral principal of individual freedom, the âselfishâ pursuit of life, liberty and happiness, and the Adam Smith derived belief that competition by the many produce better utilitarian results than planned actions by the few, were all taken for granted by our founders. There were no Marxists or Socialists in their time, but there was Mercantilism, anti-free trade and government supported monopolists. For reasons known only to Obama, Pelosi and Reid they have rejected our foundersâ notion in favor of more central planning. My fellow New Jersey citizen, Michael Fleischer, a small business owner, details in a highly intuitive WSJ editorial on why business isnât hiring. Rather than summarize what he wrote, let me provide some evidence that Fleischerâs example is not merely an anecdote but a representative condition as predicted by Christina Romer in her own study. The following facts can be found here on the Small Business Administration website. We have all heard these kinds of statistics before, but it is worth focusing on them again as election time approaches. One half of all private sector jobs are provided by small business, defined as companies with less than 500 employees. More importantly, 64% of all net new jobs are created by small businesses. The word "net" is small but dense with meaning. "Net" means the sum of all people hired minus all people fired/quit/retired. The gross numbers hired and eliminated are multiples more. Each year approximately 600,000 new companies start up and 600,000 companies close down. Our economy is one gigantic pool of "business experiments" where extraordinary competition results in only the most effective and efficient surviving. How does any intelligent person believe that government, i.e., non business bureaucrats choosing who should receive the people's dollars, can possible create better outcomes than our competitive system? Does one really need a degree in economics to perceive this? Imagine if the government chose who got to play football for Notre Dame or who got drafted by the NFL? Or, for that matter, which sport or music Americans should prefer? Its obvious in these examples, but when applied to "economics" our eyes glaze over. Yet, under the Obama administration all marginal increases in "investment" has come from the federal government. Small business as a whole is successful despite the fact that our government's policies favor big business explicitly. This has always been true, but has reached new heights under the Obama administration. As Fleischer showed in his WSJ article, small business is especially burdened by regulation. On average it costs &15,000 to comply per worker versus large firms $10,000 per employee. This data is from 2005. Compliance, or feared future compliance, with the new health care mandate, potential CO2 mandates, potential increases in SS taxes, and higher marginal tax rates all lead to the lack of investment Romer predicted in her study and Fleischer sees in his business. But the Zandis, Krugmans and Obamas of the world just say lets do even more of what has not worked. The Federal Reserve produces a quarterly report called Flow of Funds - Z.1. Page 2 tells a remarkable story. Our average annual growth rate in total debt outstanding (public and private together) has been the lowest during the last 5 quarters than any of the last 10 years. But government debt growth has been the highest since WWII for such a sustained period. Business has had negative growth. Debt can be seen as a proxy for investment. Small Business in particular has declined approximately 9% while the government has increased over 20%--(see page 16). That is an enormous swing from the productive private sector to the self-evidently unproductive public sector. I suppose one should raise the question of which is the cause and which is the effect? Did Government have to step in and invest because the private sector would not? Or did the Obama Government announce its preference for increased spending, borrowing and taxation first, thus causing the uncertainty and decreased investment which Fleischer outlines? Given that Obama's own model failed in its prediction, I am going with Romer's study..." So, Piezoe, where are these facts that you say you presented and that I will not engage or that I am too closed minded to accept...I don't remember you ever proposing a fact....except the crap about 'overwhelming data shows'...did you think that because you wrote that unsupported claim that it was a fact? It is not a fact, it is a false statement.
Correct! Except for a minor point. 1) I never even came close to saying you had no facts, but I certainly did indicate that I disagreed with your interpretation of facts. And here is a marvelous example of the drivel you sometimes post: You'll recall that I said, "one fact remains overwhelmingly supported by actual economic data and that is that increased spending is a far more effective means of stimulating the economy in times of recession than are tax cuts." To which you responded by saying that that was "simply wrong" . and then went on to cite Christina Romer, of all people, as someone to back you up. Frankly I had a good laugh over that! Ed, please understand that I agree with at least some, quite a bit actually, of what you write. It is just that every once in a while you seem to go completely bonkers, as in the above example. Also, Ed, I agree with Romer's earlier and very general statement that you quoted Re Tax cuts in general . She is a fine economist.
interesting and informative article, thanks. So we are both up. Not sure what time it is in your part of the world, but in mine it's the middle of the night. Couldn't sleep so got up to check my position. Short at the moment and will add just below 1332 if needed. It's a crazy market, and I just look on in amazement when these buy programs kick in and try to grab a ride if I can. Good trading to you.
Lack of demand, not regulations, holding businesses back It's 2012 and by now one would think even the right wing economists would realise reality. Why are small businesses citing demand? Because the US is in a balance sheet recession. Consumers are saving to pay down debt. Companies are doing the same or hoarding cash. The private sector isn't spending so the govt has to pick up the tab. You can't have the public and private sectors both saving at the same time; it's an accounting identity. Regarding my prior post and the drivel that followed, the cap gains tax is not a burden on the lower income groups. Even if the lower income group were to sell a business, it's a one time event that may not be overly skewing the data. The bottom line is that removing the cap gains tax will not dramatically, or even remotely, improve the economy as the rich will just save the gains. I think the only reason right wing economists exist is because the rich are paying them to write rubbish.
To continue on with the idea that taxes are somehow the end all, be all, cure all for a sluggish economy: From Krugman's blog, More Laffering He links âHigh Rateâ Income Tax States Are Outperforming No-Tax States I'm guessing if it doesn't come from Heritage, AEI, CATO or any one of the Kochtopus institutions, it must be left wing propaganda. I did get a laugh from Do State Fiscal Policies Affect State Economic Growth?, in the abstract: Of some interest, there is moderately strong evidence that a states political orientation has consistent and measurable effects on economic growth; perhaps surprisingly, a more conservative political orientation is associated with lower rates of economic growth. Is it really a surprise? All one has to do is drive through the southern states.
I can confirm this from personal experience. I live in the Deep South. Haley Barbour -- a man of impeccable 'Suthun' Credentials; a man who did rather well as a cigarette industry lobbyist, bless his heart, and a man who once led the entire Republican Party, can you just imagine! -- was my Governor. Now we have someone even more given to the wishes of the people, Phil Bryant of "Personhood" amendment fame -- he's done 'real good' so far. If only our Ole Miss boys could win a football game or two Aw reckon we'd be right on up there with Bama. "Mississippi GOP Gov. Nominee Tells Rape Victim âSatan Winsâ If Personhood Amendment Fails Mississippi voters head to the polls today to consider a radical anti-abortion measure that equates abortion with murder and would outlaw some forms of birth control, but Lt. Gov. Phil Bryant (R) warned yesterday that if the personhood amendment fails, âSatan wins.â âThis is a battle of good and evil of Biblical proportions,â Bryant, who is also the GOP nominee for governor, told a crowd in Tupelo, Mississippi." http://thinkprogress.org/health/201...tim-satan-wins-if-personhood-amendment-fails/ Somehow, that amendment failed at the polls. Obviously someone has let way to many of them socialist, lefty 'Libs' into the State. On a back road between my home and my former place of employment, two miles away, I passed seven baptist, or worse, churches every day. That "giant sucking sound" Ross Perot spoke of isn't coming from Mexico, it's the sound of all those federal dollars being sucked into Mississippi!
I guess that depends on who is doing the spending, whose money is being spent, and what it is being spent on. You don't think all spending is the same do you? The Greeks want the Germans to give them more money to spend on pensions and government jobs. How do you think that is going to work out? Do you think they will get something?
This is a chicken or the egg. California was a libertarian state. Business boomed. Now it is a nanny state and businesses are leaving. Liberals come into successful states and dismantle them slowly with govt give aways and poor policies. You can see it happening the the northeast and the migration to the south of businesses then liberals. liberals are political carpetbaggers.