The Complete and utter failure of Keynesian economics exposed.

great post.

I would also note that the govt is taking on 2.3 dollars in debt for a dollar of GDP.

Which is economic terrorism on our kids.

 

Ouch, this is gonna hurt. Laffer's piece is being destroyed by professional economists. Sorry, Max, keep digging.

 

Will it be the usually cast of pinkos who hate the private sector?

 

Ad hominem, so in that spirit, Laffer is the "usual cast" who hates the American working man.

 

It was not an ad hom. it was a classification of those who spend like mad and support ideas like the mandate. It is those ideas which are devaluing the dollar and destroying the economy. I was arguing with the core of the idea... not creating and ad hom.

lets compare ... all of us who want to see lower taxes and a balanced budget hate the working man..

and all those who deficit spend with its systematic destruction of the the value of the dollar and consequently the value of the working mans pay check... love the working man.

 

LMAO.

 

Professional Economists or Professional Keynesians?

 

I was looking for the big critique of laffer did not see it... but I
I thought this was interesting by laffer..

http://www.city-journal.org/2012/22_2_california-taxes.html
...The upcoming fifth edition of Rich States, Poor States, a publication that I coauthor annually with Stephen Moore and Jonathan Williams, will show just how antigrowth California’s business environment is. Our study uses 15 pro-growth attributes to rank the states’ economic competitiveness. In the first four years of the index, California never ranked outside the bottom ten states; this year, it will probably manage that feat—just barely—thanks to the expiration of numerous temporary tax increases (several of which Democrats want voters to reinstate in November).

Taxes are indeed a big part of California’s economic problem. At 10.30 percent, the state’s top marginal personal income-tax rate is the fourth-highest in the country, and its top marginal corporate income-tax rate of 8.84 percent is 25 percent above the national average. Excessive taxation is an equal-opportunity tormentor, afflicting labor and capital, poor and rich, men and women, old and young. In the short run, higher taxes on labor or capital will reduce after-tax earnings. Some people will violate the law and fail to report taxable income; others will use legal options, including tax deductions and credits, to reduce their payments. In the long run, residents—those who can afford to, anyway—will vote with their feet and leave the state, shifting the tax burden to lower-wage workers, as well as to immobile land and property.

California’s income-tax system is also the nation’s most progressive—and that’s not a good thing. Progressive tax systems magnify tax-revenue volatility, with lots of money pouring in during periods of growth and the till running dry during downturns. This volatility occurs because wealthy people, who pay more taxes in a progressive system, experience sharp income swings from boom to bust. Depending disproportionately on the wealthy for its own revenues, the state experiences the same swings. This dynamic has a bad effect on politicians, who go on spending sprees during booms and then raise taxes during busts, harming competitiveness.

Worse, a highly progressive tax structure means that the most productive California residents and businesses—the primary employers of others—wind up taxed the most on the margin. State government figures show that in 2008, 61.3 percent of all personal income taxes—by far the state’s most important source of revenue—were paid by filers with adjusted gross incomes of over $200,000, who constituted just 4.1 percent of the population and earned 34.5 percent of all income. It’s a wonder that California has any entrepreneurs or venture capitalists left.

It seems obama and his team wish to do the same on a Federal level.

 

that last sentence was mine...

 

The IMF's World-Changing U-Turn

(The Business Spectator – Alan Kohler)

The annual meeting of the International Monetary Fund that finished on Saturday may have been a turning point for the global economy. It certainly was a big moment for economics.

That’s because it was at this meeting in Tokyo that the IMF admitted it had got the fiscal multiplier wrong. It is twice to three times what was previously thought, and certainly more than 1. As a result, the IMF is now arguing for an end to fiscal austerity in Europe.

The fiscal multiplier measures the impact on economic growth of a given change in the government budget balance. If it’s 1, then a 1% reduction in the deficit will cut growth by 1%.

In 2010, the IMF concluded that: “Fiscal consolidation typically lowers growth in the short term. Using a new data set, we find that after two years, a budget deficit cut of 1% of GDP tends to lower output by about ½ per cent and raise the unemployment rate by ? percentage point.” But in a special box in last week’s annual report for the Tokyo conference, the fund reported that it had been doing further research, and concluded that: “…our results indicate that multipliers have actually been in the 0.9 to 1.7 range since the Great Recession.”

In 2010, as a result of the IMF’s insouciance, European economies moved decisively towards austerity, pushed by Germany with the support of the IMF, which was then under the leadership of managing director Dominique Strauss-Kahn. Now, with Christine Lagarde in charge following Strauss-Kahn’s resignation, as a result of rape charges in New York in May 2011 that were later dropped, the IMF and Germany are at odds.

It has been a full intellectual U-turn by the IMF from its habitual pushing of fiscal austerity since it was set up in 1944 at the Bretton Woods conference to reconstruct the world’s payments system after World War II and stabilise exchange rates. At the same time as lowering its forecasts for global growth, the IMF is now pushing for debt forgiveness for Greece and more time for other European countries to get their debt down. The IMF and Germany are now at odds.

In Tokyo, Lagarde said that countries should not blindly stick to budget deficit targets if growth weakens more than expected – they should instead allow “automatic stabilisers” (increases in welfare and reductions in tax revenue) to work if growth falls short.

Also in Tokyo, the German finance minister Wolfgang Schauble accused the IMF of contradicting its own stance on fiscal austerity, saying that the fund had “time and again” warned that high debt levels threatened economic growth.

Keynesian economists the world over, led by Princeton University’s Paul Krugman, are crowing. Krugman wrote in his blog on Saturday: “It wasn’t just a contrast between the wishful thinking of the expansionary austerity types and those who didn’t buy it.

“There was also a distinction between those who looked at the historical record and concluded that fiscal contraction would have only modest contractionary effects, and those – including Martin Wolf, Wren-Lewis, Brad DeLong, and me – who argued that historical experience from countries that were not up against the zero lower bound, had flexible exchange rates, and were pursuing austerity amidst a strong global economy was likely to greatly understate the effects of austerity in the current environment.

“Our position was, if you like, that times like this are different.

“At some level…the vindication of this position is also a vindication for the whole enterprise of Keynes/Hicks macroeconomic theory…”

The Financial Times’ Lex column joined in yesterday with a column headed: “Austerity in Europe – enough already”.

The IMF is now squarely in this camp. It is significant because the fund is not just a spectator on the sidelines like those economists, but a player in the European drama – a member of the so-called rescue troika with the EU and the ECB, as a lender to Greece and other debtor countries.

The EU has already shown some flexibility, giving Spain and Portugal another year to hit their deficit reduction targets. And now that it has won the Nobel Peace Prize it might suddenly be overcome by finer feelings and start to dispense even more philanthropy.

The ECB, meanwhile, has announced its latest plan for Outright Monetary Transaction, or its version of quantitative easing in which it will buy sovereign bonds as long as the country concerned applies for help and agrees to the European Stability Mechanism rules on deficit reduction.

No one has asked for some OMT yet, which is getting to be a bit embarrassing, especially since it is clear that Spain will have to do so eventually. It’s also clear that Greece is not going to meet its debt reduction target of 120% of GDP, with debt now at 181.8%, and blowing out.

In fact Societe Generale’s economists argue that for Greece the fiscal multiplier is more than 2, which means deficit reduction at this point is entirely self-defeating.

More broadly, the basic reason that the fiscal multiplier is now thought to be above 1 rather than below 1 is because interest rates are “zero bound”, as Paul Krugman says. That means monetary policy can’t offset the fall in confidence that results from the cut in government spending or the increase in taxes.

And by the way, it’s worth noting that The Australian reports this morning on a report from the head of investment market research at Perpetual, Matthew Sherwood, who says that the Reserve Bank of Australia might soon hit its own version of zero bound if the cash rate is cut much more. That’s because the banks will not cut deposit rates to below inflation. "After this, banks may not pass on any further stimulus to borrowers, regardless of how low official interest rates go," he says.

That’s important because while the Australian Government might not be in the same sort of fiscal mess as Greece, there is a political consensus around the need for fiscal austerity to get the budget back into surplus. SIf monetary policy in Australia is effectively “zero bound” and therefore not working, the fiscal multiplier in this is likely to be more than 1 as well.