December 28, 2004

Berkeley Provincialism Watch

Oh, Brad.

Bush administration policy in Iraq is driven by three "nots":

--They will not ask America for even the kind of low-level mobilization, the tax increases and the call-ups, necessary to support 300,000+ American troops--including many Arabic-speakers--in Iraq.

--They will not hand over enough of a share of control over Iraq policy to entice our allies to contribute the troops and the Arabic-speaking military police that we need.

--They will not acknowledge that people trained in development and competent at management are more qualified to run the U.S. operation in Iraq than are Republican loyalists and activists from DuPont Circle.

Brad thinks the world would be so much better if Simone Ledeen hadn't gotten a gig with the CPA, our taxes went up (always a splendid idea), and we "entice[d]" Jacques and Gerhard to play ball in Iraq (how exactly, mon cher Brad?). Toss in having varied potentates and satrapies of the Middle East send in their mukhabarat so as to better police restive Sunni areas like Tikrit and Fallujah. And, voila, all would be swell!

The good professor trots out all the predictable soundbites about how Republican loyalists are running Iraq (a quick look at the staff of Negroponte's Embassy would disprove such claptrap speedily), that France and Germany would have rushed to send in large contingents if we had played out Turtle Bay and hunkered down with Dominique and Joshka for a wee bit longer so as to "entice" (while, of course, 200,000 troops cooled their heels in Kuwait waiting for Dom to give us the all clear), and that more Arabic speakers in theater would prove some grand panacea. (Memo to Brad: We've been doing this last already--as the ICG report linked here makes clear).

His commenters obviously eat the slop he dishes out with alacrity. Bully for them. But they're shouting in an echo chamber going through ye olde talking points that get the crowds all chest-thumpy in precincts Berkeley and Cambridge. No one mentions, for instance, the good faith efforts to have NATO get more involved in Iraq. Not to mention the provision of greater authority to the U.N. in Iraq--witness the Brahimi-led electoral machinations. I agree with Brad, of course, that we never sent in enough troops to Iraq. The Pentagon's post-war assumptions proved risible indeed. And the lack of accountability for such abysmal misteps is just shy of FUBAR. But the Pentagon no longer control the process as much as they did before. Mid-course corrections have taken place with greater input from State and other agencies. More will doubtless follow.

Does De Long do any of us favors by resorting to Mooreian sound-bites to get his readers in an anti-Chimp-in-Chief frenzy? The reality is that we are beyond "enticing" Old Europe to send in divisions. This is our, and to a lesser extent, the U.K's problem for the foreseeable future. We are going to have to deal with it as best we can. Empty chatter about how all the plum CPA jobs have gone to Republican K Street meanies or how we flubbed the pre-war diplomacy (mostly untrue, in my view) doesn't really add much to the debate, does it?

CLARIFICATION and UPDATE: Some readers seems to have interpreted my mention of Simone Ledeen as a critique of her. For the record, and contra some of her cheap critics like Paul Krugman, let me state for the record that I respect her courage in serving her country under such dangerous conditions.

As for Brad's comment that my post is not "serious", let me say this. First, note I've agreed with Brad that we didn't send enough troops in theater. And, to be fair, my statement re: taxes was a tad flip (Brad has thrown some ribald epingles in my direction too of late). But all Brad's other points, and I say this with respect, display a sad lack of knowledge regarding the state of the European and Arab world's appetite to make real commitments in Iraq. Brad's notion of better 'enticements' to secure their participation is just shy of risible. To put all the blame on Bush for not having secured troop commitments from the likes of Germany and France misses the point. True, Cheney wanted to ditch the whole U.N. process surrounding Resolution 1441. But Bush, pursuant to Blair and Powell's advice, went down that road. And for real, not merely as theater. The French and Germans were more consumed by constraining U.S. power, at all costs, than any real judgement re: Iraq on the merits. Recall too, at that time, many of us believed Iraq did possess ("slam dunk"!) significant WMD stockpiles. Indeed, many smart people (Fareed Zakaria, Ken Pollack, Leon Wieseltier, Andrew Sullivan) thought that we had a valid casus belli in Iraq pursuant to a variety of U.N. resolutions, the changed strategic environment post 9/11, and Saddam's unique record of having used WMD against his own people and having consistently proven a more reckless strategic blunderer than, say, Kim Jong Il or the Iranian mullahs (witness his ill-fated Iranian and Kuwaiti adventures, the "Kurdish Hiroshima" of Halabja, to use Samantha Power's phrase, the genocidal-like rampages against Shi'a Marsh Arabs in the south). Brad, diplomat extraordinaire, perhaps can clue us in to how Powell might better have 'enticed' Old Europe to play ball in Iraq. I doubt he will come up with convincing fare, however. That's not too serious either. It's more by way of breezy carping from the sidelines.

Re: all this talk of military police coming from Arab countries, it's very much worth noting that it would be a terrible idea to have any states bordering Iraq provide troops. Regular readers know how vociferously I oppposed Turkish troops in theater. While non-Arab, and supposed to patrol Sunni areas, I was highly alarmed that a conflagration would result as they moved their troops through Kurdish areas. The Turks clearly would have been up to much mischief up and down their supply lines to consolidate Turkish influence, constrain Kurdish aspirations, protect the Turkomen. Ditto Saudis and Jordanians and Syrians would be highly distrusted by the Shi'a. Would non-neighboring Egyptian or, say, Morroccan or even Malaysian military police have been helpful? All told, the impact would have been minimal in my view. And it's not like the insurgents wouldn't have been just as happy to murder Egyptian 'collaborators' than U.S. or U.K. or Iraqi ones, of course.

Turning to Brad's contention that the CPA is being run by a bunch of mindless Republican loyalists, duds, cretins, and so on--sorry, but no sale. As even articles critical of the CPA on this score make clear:

The vast majority of the CPA's 2,500 employees are nonpartisan - mostly military personnel tasked to the operation, or ex-diplomats and civil service employees from a variety of countries.

The fact that Dan Senor worked at Carlyle for a spell or that Ari Fleischer's brother worked with the CPA doesn't make Brad's point. Besides, bodies were needed, weren't they? Should we have sent the Berkeley faculty in instead (only those with nation-building experience, bien sur)? Regardless, we Americans, always averse to talk of Empire, don't have a colonial administrative corps or such. Yes, regional experts at State should have gotten a bigger role from the get-go. But Garner got the heave-ho pretty quickly, and was replaced by a diplomat. And now Negroponte runs the show. Brad, please point me to the Republican loyalists in Negroponte's inner circle? Who are they?

Anyway, this is really all quibbling over spilt milk. My point, that Brad still hasn't deigned to address, was my contention that Bush was and remains, as compared to Kerry, more serious about seeing the Iraq project through. Kerry, throughout the campaign, displayed an, er, unseriousness about this monumental task that was extremely worrying. Bush might still eff it up; but at least he's giving it a real try. I was never convinced Kerry would; and Brad hasn't enlightened us to how he might have. After all, Joe Lockhart's comments that Allawi was a Bush "puppet" played right into the insurgent's handbook, as did all but announcing to the enemy that our troops would be pulled out within 4 years, or all the talk about "wrong war, wrong place, wrong time" (great for the morale of our troops on the front-lines, eh!) For more on why I had doubts about Kerry, be sure to go here and here.

Posted by Gregory at December 28, 2004 05:50 PM
Comments

I'm unaware of any statements that Michael Moore has made along these lines.

Posted by: praktike at December 28, 2004 07:02 PM | Permalink to this comment Permalink

Brad's probably referring to the CPA, which was heavily staffed by well-connected Republican loyalists. (Check out this Dan Drezner entry from June.) Has the hiring process in Iraq become less crony-esque since then?

Posted by: Guy at December 28, 2004 07:13 PM | Permalink to this comment Permalink

Greg,

You yourself are a proponent of an increased military. Surely you understand that we are not meeting our current fiscal obligations as is, and thus if we are to meaningfully increase our military, portions of Bush's tax cuts may have to be sacrificed. Unless you have an alternate source of financing that I am unaware of. And if so, why aren't we tapping it already to eliminate deficits and pay down our debt? Or maybe you are in the camp that believes that deficits don't matter and the US can continue to borrow without repercussions.

As for Simone Ledeen, regardless of her MBA or background in finance, there were several inexperienced people put in positions of influence and decision making above their ability.

Here is "Brad Jackson, a lieutenant colonel in the Army Reserve who worked with the CPA." He said "the budget team regularly asked other ministries at the last minute to produce information that would take hundreds of people half a year to gather.

'There were a lot of people who, being political science majors, didn't know what an income statement was, who were asking the impossible. . . That was giving us ulcers, quite frankly,' he said."

This might partially explain this gripe by "retired U.S. Army Col. Charles Krohn [who] said many in the CPA regard the occupation 'as a political event,' always looking for a way to make the president look good."

And it wasn't just Krugman who pointed it out. This is from an article in the WaPo by Rajiv Chandrasekaran:

http://www.washingtonpost.com/wp-dyn/articles/A54294-2004Jun19.html

The CPA also lacked experienced staff. A few development specialists were recruited from the State Department and nongovernmental organizations. But most CPA hiring was done by the White House and Pentagon personnel offices, with posts going to people with connections to the Bush administration or the Republican Party. The job of reorganizing Baghdad's stock exchange, which has not reopened, was given in September to a 24-year-old who had sought a job at the White House. "It was loyalty over experience," a senior CPA official said.

And another article from the WaPo by Ariana Eunjung Cha:

As many top officials noted, "they represented everything that was wrong with the CPA: They were young, inexperienced, and regarded as ideologues." Given these facts, it is that much more surprising that, due to a combination of events, "six of the new young hires found themselves managing the country's $13 billion budget, making decisions affecting millions of Iraqis."

Simone Ledeen's refutation of the Krugman OpEd hardly erases all the evidence to the contrary, especially since she seems more concerned with Krugman's statements than the other more serious allegations.

Posted by: Eric Martin at December 28, 2004 07:14 PM | Permalink to this comment Permalink

Oh, you conservatives slay me. Stop already.....


On the one hand you want to describe a global war against Islamisisicistsimsistizing.....a war that threatens our very existence. Mushroom clouds in New York City, Bubonic plague outbreaks in 'frisco.

The war will take resolve, courage and sacrifice to win...oh wait... not too much sacrifice. Let's not get carried away and ask wealthy folks to kick in a little to the war effort - the war to preserve democracy and freedom against islamists barbarian hordes- by way of scaled back tax breaks.

Better to grow the deficit and allow Asian countries to own more of us.

The same Asian countries that are veying for the same oil deposits in the ME. The same Asians that are becoming pretty chummy with Axis of Evil member, Iran.

What a crazy idea. Citizens chipping in so their government -themselves really - can protect themselves and defend themselves against unspeakable enemies.

Posted by: avedis at December 28, 2004 08:54 PM | Permalink to this comment Permalink

One may not agree with Greg, but his potshots are clearly placed and equal opportunity.

Unfortunately of late, may posters on these pages are merely rehashing domestic politics in the guise of meaningful contribution.

Posted by: DaveK at December 28, 2004 09:45 PM | Permalink to this comment Permalink

Seems obvious to me that Greg's been targeted by a group because he seems wobbly on the war.

They're doing everything they can to knock him the rest of the way over.

Posted by: JackC at December 28, 2004 10:48 PM | Permalink to this comment Permalink

Hmmm, guys, JackC just blew our cover. Let's get out of here and stop bothering "wobbly" Greg before the authorities get here.

I guess JackC would point out that I have been cleverly, though duplicitously, going back and forth with Greg on a number of issues, including defending him in various fora, for several months in order to establish my credibility and lull him into trusting me. All the better so that our finely crafted team of clandestine rhetoricists could make the final push to convert the unsuspecting wobbly Greg - an effort which was to culminate....well, now, in this very comments section.

And if it wasn't for you meddling kids....

(please deposit tin foil hats on way out. thank you.)

Posted by: Eric Martin at December 28, 2004 11:22 PM | Permalink to this comment Permalink

"One may not agree with Greg, but his potshots are clearly placed and equal opportunity."

Sort of true - commendable as well, to a point.

However, Greg refuses to place a potshot in the one place that should be targeted; the white house.

Some how Greg refuses to accept that Bush, the "CEO/MBA President" is responsible for the failed policies and for poorly performing human resources.

He also refuses to target GOP platfoms, like massive tax cuts during war time, that contribute to what he sees as troubling in the world today.

Furthermore, he refuses to question basic assumptions of the Bush government, like the viability of spreading democracy to the Muslim world at the muzzle of a rifle while playing into the most tyrannical aspirations of the Likud party.

But mostly Greg will not question the validity or effectiveness of Bush regardless of how silly his arguements must become to avoid doing so.

And he advocated voting for Bush on the most flimsy of arguements- Kerry would be worse (no evidence or cogent arguement provided).

As far as being wobbly on the war, well who isn't? We're in a mess that is growing from a no win situation into a certain loss situation. There were no WMD in Iraq. We're torturing prisoners. We have lost all respect and legitimacy in the Muslim world. This spells doom for our secret reason for war; the spread of democracy.

Get out now or fight to maintain a colonial hold? Those are the choices and both stink. The former emboldens al qaeda and leaves the region open to Fundementalist control, perhaps ultimately control by China via Iran.

The later choice involves provoking more terrorist attacks overseas and at home as well as a steady prolonged expense in blood and treasure.

The CEO President took us there based on a lie (as acknowledged by Wolfowitz). The CEO Pres. didn't ask for contingency plans or aftermath plans - in fact I can't see where he involved himself at all in asking the tough questions.

Greg says he's better than Kerry, vote for him.

Then Greg complains about the Bush admin. performance after Bush is re-elected and never by including Bush in the criticism.

I think Greg deserves a little razzing.

Posted by: avedis at December 28, 2004 11:36 PM | Permalink to this comment Permalink

oops, sorry Eric....er um....I mean captain.

You were posting as I was.

We really do have to coordinate better.

Posted by: avedis at December 28, 2004 11:38 PM | Permalink to this comment Permalink

By the way --

Brad is right on the tax cut. Since a neo-Ba'athist or neo-Taliban state in Iraq would be a very bad thing, and complete anarchy even worse, wouldn't it be a good idea to take at least some of the government resources now being given to the rich as large tax cuts and redirect them toward Iraq?

And maybe looking a bit more broadly at the war on terror -- shouldn't we reallocating more money toward bolstering our port security and securing nuclear material from the Soviet Union?

The administration has been pretending that these tradeoffs don't exist.

Posted by: Guy at December 29, 2004 01:05 AM | Permalink to this comment Permalink

One of the many times Bush blew it in Iraq was not giving the UN as much control as it was willing to accept in return for significant military assistance. It's not Old Europe that matters (or would help), it's the Arab and Sunni Muslim nations that don't want another failed state in their region and could have found some Sunni domestic support in Iraq.

Bush continued to blow it this fall on the same issue:

http://www.washingtonpost.com/wp-dyn/articles/A43378-2004Oct18.html:

"A major increase in [the UN election presence in] Iraq is unlikely soon because of deteriorating security and the U.S. failure to quickly mobilize Georgian and Fijian troops for a protection force or provide an acceptable alternative, U.S. and U.N. officials said."

"A proposal by Saudi Arabia for a Muslim peacekeeping force in Iraq was quashed by both Iraqi and U.S. officials because of concerns about the chain of command, the White House said yesterday."

That "concern" meant a Muslim/Arab force would've had to be under US control, which is about as acceptable to their citizens as it would be in the US if the reverse were the case.

Bush did blow it, and continues to blow it.

Posted by: Brian S. at December 29, 2004 01:33 AM | Permalink to this comment Permalink

This is not serious. If you want to place as wide a gap as possible between yourself and reality, this is the way to do it.

Posted by: Brad DeLong at December 29, 2004 03:17 AM | Permalink to this comment Permalink

Deficits, Deficits, Deficits as far as the eye can see.
Deficits, Deficits, Deficits no need to bother me.
Deficits, Deficits, Deficits make tax cuts permanently.
Deficits, Deficits, Deficits so long Social Security.
Deficits, Deficits, Deficits no fiscal sanity.
Deficits, Deficits, Deficits no position that I see.
Deficits, Deficits, Deficits to win the War indeed.
Deficits, Deficits, Deficits who's to take them seriously?

Posted by: Ron Mashate at December 29, 2004 06:01 AM | Permalink to this comment Permalink

Brad thinks the world would be so much better if Simone Ledeen hadn't gotten a gig with the CPA

Well, yeah. I mean, of course.

(a quick look at the staff of Negroponte's Embassy would disprove such claptrap speedily)

He was referring to the CPA, but you already knew that. Though, you seem to insist on denying that damage resulted. I mean, what kind of rebuttal is 'Arab speakers won't solve much, and also we've been bring them in, so there'?

And frankly the point about NATO is ... well, not serious. Yes, eventually the admin turned around and went begging to other countries, which, having been actively dismissed for months, said 'no.' To no one's surprise. Particularly given the lack of incentives. And there was that rejected offer from other Middle Eastern countries to send in troops... etc.

Posted by: Toadmonster at December 29, 2004 10:29 AM | Permalink to this comment Permalink

Those commenting on the troops from other Middle Eastern countries are ignoring the core of Greg's criticism; the behavior of said troops, and therefore the importance of chain of command. If they were not going to be under our command we don't want them. For all the criticism of the behavior of our troops, I can only shudder at what abuses might ensue under Egyptian, Saudi, Syrian or other troops from the region, which is assuming they didn't work against us. That also goes for many of the other potential allies. Does anyone really want Russian troops in Iraq? Every time I read about French troops it seems they are shooting into crowds and they would want all kinds of input in return for 5000 troops or so. No, Greg is right on this point. Nobody we might want as an ally who actually might send troops had any significant numbers to contribute, or (see Poland and Australia) they already are. Could they be more helpful? Yes. Can we fault the Bush administration for that? Somewhat, but I don't see why it is always our fault if other countries don't go along with us. Sometimes our behavior or diplomatic ability is not the issue, they have their own reasons. However, major troop deployments from the rest of the world was not coming, are already there as much as they can, unavailable even if they wanted to help, or from sources and with conditions we would rightly consider unacceptable.

Throw in the problem of coordinating the actions, logistics and bureaucracies of even more allies and we have no unalloyed good to complain about.

On this point at least Greg is right. Brad is the one not being serious. Some time back Brad argued we should have marched into Iraq trailing a train of 150,000 Arabic fluent civil affairs police. Where from I asked? He had no answer other than from neighboring countries, which he claimed they had offered. Never mind the problem of Syrian, Saudi or Egyptian police running around answering to their own mukhabarat, no nation or group of nations offered or would have ever offered any such a large number of police. Brad just thinks up some fairy tale solution and presents it as devastating criticism that it hasn't taken place. Heck, why not just wish that Bush had gotten all the insurgents together and asked them to turn in their arms. I am sure if he said it nicely they would. Really, if we are just going to pretend wishing for something means it is possible let’s go for broke and wish for the whole enchilada.

Posted by: Lance at December 29, 2004 08:01 PM | Permalink to this comment Permalink

You're quite right that Superpower can hardly expect Old Europe to join in an misadventure it did everything in its power to prevent.
But turning the administration of Iraq over to lightweights whose parents have done the party favors? Doesn't that betray a certain lack of seriousness that might even to be said to undermine American security interests?
And again, it one wants to run a quasi-imperial foreign policy, does one continue to insist on reducing the fisc and relying on the services of forty-five-year-old motel managers from Green Bay?
Apparently, there's no more seriousness about the conduct of American foreign policy in Belgravia than there is across from Lafayette Park.

Posted by: Irked at December 29, 2004 08:04 PM | Permalink to this comment Permalink

If one truly believes that higher taxes slow growth in the long run and therefore negatively impact total revenues, then it makes absolutely no sense to turn around and raise taxes just because some ideologues think it's appropriate for the rich to finance this war.

I see no reason to doubt that the Bushies are convinced a lower and stable tax structure leads to growth and greater revenues.

You betray your true concerns when you qualify your proposed tax increases as reversing "tax cuts for the rich". If you really cared one whit about financing this war, your class envy wouldn't be on such blatant display.

You people aren't serious about this war. It's just another political football to you, and that's why no one trusts you people to win this thing. Now sit on your backbenches until you have something valid to offer.

That will be all.

Posted by: spongeworthy at December 29, 2004 08:34 PM | Permalink to this comment Permalink

Irked,

My point and Gregs is that we wouldn't be getting what Brad wants from europe no matter whether it was a misadventure or not. Your comment doesn't support Brad's comment either, which is what the thread is about. As you say they view it as a misadventure. So contra Brad, no matter what kind of diplomacy we used they wouldn't come. That is one of the points I made above.

Spongeworthy,

I feel the same way. It doesn't matter whether you agree with the Bush tax cuts, Bush obviously does. Of course his political opponents often refuse to acknowledge it is a disagreement, no, it has to be because of some evil, selfish intent.

You are also correct as I noticed the same tendency with the tax cuts for the rich meme. If you are serious then whether the rich pay or not isn't the issue. The issue is the most efficient way to raise the revenue with the least impact on the economy. That is a reasonable debate, but carping about the tax cuts for the rich is misleading and stifles discussion rather than enlarging the debate.

Posted by: Lance at December 29, 2004 09:51 PM | Permalink to this comment Permalink

spongeworthy said: I see no reason to doubt that the Bushies are convinced a lower and stable tax structure leads to growth and greater revenues.
-------------------------------

Here's a reason to doubt the Bushies are convinced that supply-side tax cuts lead to growth and greater revenues. This approach has failed twice spectacularly after one assesses the growth/deficit ratio; first when Reagan tried it in the early 80's and the second time around when George W. put it in place the last several years. In what then are the Bushies convinced? They believe that supply-side tax cuts will concentrate national wealth in the hands of the wealthiest, most deserving of Americans. George W. is unabashedly engaged in class warfare; that's why he was able to amass an unprecedented campaign war chest before the first primaries in 2000 and huge campaign war chests ever since that time. Read some of your own team's economic and political philosophy sometime.

Posted by: CMike at December 29, 2004 10:45 PM | Permalink to this comment Permalink

Lance and Sponge,

The Reagan years proved pretty definitively that the theory that lower taxes would result in a net increase in revenues through increased growth was just a myth. It is hard to find any serious economists who still support such unsupported conjecture at this point in time. In fact, Reagan himself realized this and proceeded to raise taxes approximately seven times throughout the rest of his two terms in order to ameliorate the budgetary shortfall. It should come as no surprise that when Bush was selling his tax cut scheme to the people, he had to trot out the few remaining voices from the Reagan years who had not yet conceded.

As for the class envy argument, allow me to state that as an attorney living in NYC I benefitted from Bush's tax cuts, but would gladly sacrifice my portion in order to improve the defenses, economic strength, and societal strength of this country. Similarly, I think it is better to stimulate consumption in order to spur growth by targeting tax cuts to the middle class. Initially, Bush's top-heavy tax cut was a wise move because there was a surplus and a slightly overheating economy. However, when the economy lagged, his tax policy should have adjusted, but it didn't. Empirical evidence is lining up behind this camp.

One other thought. Lance you made a good point when you said:

"Can we fault the Bush administration for that? Somewhat, but I don't see why it is always our fault if other countries don't go along with us. Sometimes our behavior or diplomatic ability is not the issue, they have their own reasons.

While I think you are right to point out that such positions from our allies are not always our fault, I have a few issues with this. First of all, because of the confrontational nature of Bush and his intellectual base in the PNAC and AEI camps, it is hard to know how Europe and the rest of the world would have reacted had we approached them in a more conciliatory and respectful manner.

We will never know because we instead approached them with disparaging remarks and insults, buttressed by myriad essays by neocon intellectuals on why we should abandon and denigrate old alliances and international organizations.

Perhaps you are right Lance, they would have never come because of their inherent opposition. But there could have been a better effort to include them in the postwar process, including opening up reconstruction contracts to their companies and other measures to make rebuilding Iraq an inclusive exercise. The Bush team has been slow to move in these directions, although as Greg points out, they have at last made such overtures. Perhaps too little, too late.

Posted by: Eric Martin at December 29, 2004 10:45 PM | Permalink to this comment Permalink

I benefitted from Bush's tax cuts, but would gladly sacrifice my portion in order to improve the defenses, economic strength, and societal strength of this country.

No one's stopping you or any of those who feel as you do. The fact that it seems to be other people's money you are really interested in is what betrays your agenda.

However, when the economy lagged, his tax policy should have adjusted...

So you feel the Bushies should have raised taxes when the economy weakened? Or cut spending? Now you're venturing into policy that even liberal economists won't advocate.

As far as Reagan's tax policies, you guys never engage in the real debate there. Reagan tweaked the tax code to encourage investment and growth. He cut marginal rates to incentivize Americans to invest and produce. His subsequent changes in the tax code did nothing to change this, and the economy was a third again larger when he left office.

Unless you believe that the subsequent tax increases grew the economy (which you may, since you folks seem to advocate raising taxes in recessions), pro-growth policies would hardly seem to have been discredited.

Posted by: spongeworthy at December 30, 2004 03:51 PM | Permalink to this comment Permalink

Eric has it right.

Tax cuts could be a beneficial stimulus if capital shortages and profit margins were a problem.

They are not. US firms are sitting on a lot of cash by historical measures.

There is plenty of excess capacity as well.

Productivity measures are showing great increases by historic measures; meaning that firms are not suffering from a lack of investment in productive capital due to lack of investment capital.

It is very hard to see how giving firms more cash will stimulate anything at this point.

Ditto for wealthy individuals. Measures of income disparity show the wealiest gaining significantly where the middle class slipped in median real income. Again, if they're so fat now, how can making them fatter help?

The problem is coming, to an important, extent from the demand side.

On the other hand, by running up a massive deficit - with little or no associated stimulus - at a time of greatly increased federal expenditures we are needlessly mortgaging our economy.

Now some say that one of the results of this policy is a weakened dollar (absolutely) that will cause an increase in US exports and stimulus will be achieved that way. I doubt it. It isn't happening and there are reasons to believe it won't.

But then that's not the arguement Spongey made, anyhow.

Posted by: avedis at December 30, 2004 04:48 PM | Permalink to this comment Permalink

I don't agree with much of what you claim--if the rich made up ground last year, it's just ground they lost in the first years of the downturn. And every time someone shows me numbers claiming the middle class slipped, it turns out that we simply added more poor, which can be attributed to immigration, making the median slip. It's not the same folks losing ground, it's importing more broke people. If you have different figures I'd like to see them.

But that isn't the point. What's important is what the Bushies believe. And they clearly believe we can grow the economy and raise revenues in the long run with stable, pro-growth tax policies. Take issue with these if you wish, but to claim they simply aren't willing to ask us to sacrifice for the war effort just defies reason.

The truth is that the Bushies don't believe taxing the rich will do much to help us in the short run and will damage us in the long run. When you address the policies you have a reasonable argument. When you attack their motives, you have delved into left-wing blather. Don't spend any time wondering why you're not being taken seriously about this war--you don't care about it. You care about the rich paying more taxes.

Posted by: spongeworthy at December 30, 2004 05:37 PM | Permalink to this comment Permalink

Regarding the updated argument, saying Turkish troops wouldn't help is a straw man - everyone knows that, and I don't think that was on the table. As for whether Sunni Arab peacekeepers would've been trouble in Shiite areas, first, we could've tried experimenting, second, they could've just been used in Sunni areas, which are currently going to hell.

Posted by: Brian S. at December 30, 2004 06:43 PM | Permalink to this comment Permalink

No matter how good Greg's brain is on these issues, the whole post is lost to really childish, ad hominem attacks on Bran DeLong and his friends. Brad may be wrong on some points but -- and this is important -- he is a responsible grown-up and argues like one.

Posted by: PW at December 30, 2004 06:57 PM | Permalink to this comment Permalink

Sponge,


You wrote

"However, when the economy lagged, his tax policy should have adjusted..."

So you feel the Bushies should have raised taxes when the economy weakened? Or cut spending? Now you're venturing into policy that even liberal economists won't advocate.


Actually, what I was saying is that it is smarter to have tax CUTS targeted at the middle class in order to spur consumption in times of economic stagnation - not tax raises. Instead, Bush gave us more of the same - tax cuts targeted at the upper income brackets and at passive income in general.

This created the confounding situation that the Bush team was left saying:

In times of excess surplus and economic boom, cut taxes for the upper brackets and on passive income (not bad)

Furthermore, in times of economic downturn, also cut taxes for the upper brackets and on passive income, not instead, targeting them to the middle class to spur consumption (pretty bad)

As for your spurious argument that I alone send into the IRS my portion of the Bush tax cut, that is almost so inane it is beyond response. Let me say this though, in terms of overall numbers my singular portion of the tax cut is meaningless, so too would my contribution to the IRS.

Collectively, however, Bush's tax cut for people in my bracket, and with sources of passive and inheritance income, is quite substantial. So I am advocating a policy that impacts a lot of people, myself included. I am not asking anyone else to sacrifice anything I am not willing to part with myself. That really shouldn't be too difficult a concept to grasp, nor should you resort to silly arguments about one individual's contribution as if it could make a dent in the deficit. The point is not moral superiority, it is fiscal responsibility.

Posted by: Eric Martin at December 30, 2004 08:04 PM | Permalink to this comment Permalink

As for your comments re: Reagan's tax policy, you are shifting the debate.

The initial discussion was not about growth per se, but about whether the government can increase its revenue through tax cuts. The theory in the Reagan years, and currently in the Bush camp, is that the increased economic activity spurred by the tax cuts would result in such an increase in tax revenue that it would compensate for the lost revenue from tax cuts. In fact, these people say it will result in MORE revenue for the federal government.

The reality, however, was and is quite different. The revenue for the federal government was not made-up by the increased economic activity during the Reagan or Bush years, and the stimulus itself is somewhat dubious unless it is designed in the proper relation to the economic conditions (as I stated above).

Reagan's tax cuts did spur some economic growth (as an aside they were structurally superior to Bush's), but not enough to make up for the lost revenue so Reagan had to raise taxes - seven times. But that stil wasn't enough. It took an eighth tax hike from Bush Sr. in 1989, a ninth in 1990, a tenth from Bill Clinton in 1993, and then another economic boom to erase the deficit created in the Reagan years.

We can look forward to much of the same when fiscal sanity returns to the White House and Congress, and the already debunked theory that tax cuts increase revenue for the federal government dies a long overdue death. That is until the next wave of economists want to wage class warfare on the middle class and recast this ludicrous idea as sound economic policy.

In the words of the inimitable Warren Buffet: "If there's a class war being waged in America, my side is winning."

Posted by: Eric Martin at December 30, 2004 08:16 PM | Permalink to this comment Permalink

Reagan's tax cuts did spur some economic growth (as an aside they were structurally superior to Bush's), but not enough to make up for the lost revenue so Reagan had to raise taxes - seven times.

Sorry Eric, but you're just plain misinformed. You might have a point if the deficits during the Reagan years were caused by a drop in receipts, but that isn't the case and you know it--there was no significant "lost revenue". The deficits were caused by runaway spending, and subsequent tax increases addressed that.

And your belief that Bush's tax cuts were targeted to the rich simply repeats more Leftist cant. The rich are currently paying more than they did relative to other brackets. The middle class got a huge tax cut. What you're arguing is that the rich shouldn't have gotten any tax cut at all.

That's an argument one can put forth, and you guys certainly seem to harp on it. But the fact is that most people believe the rich are already paying more than enough--any tax cuts that didn't include the rich would only deepen the inequality in the tax code and move farther away from a flatter structure. You know the Bushies aren't going for that.

As far as Bush's tax cuts, will we raise more revenue in '05 than '03? If so, you don't have much of a case. Can you find me a source who thinks we'll take in less in '05 than '03?

I'm not going to address your point about your contribution--the point is not that you or me or Martha Stewart aren't contributing enough or too much anyway. It's the way you guys use this war to harp on tax increases. Before the war it was the environment, the deficit, the unemployed and outsourcing.

We all know the real issue for you guys is the class war. You couldn't care less about the war or how we finance it. You just use it as an issue to advance an agenda of collectivism. Sorry we couldn't jump onto the Kerry wagon and vote in some guy who thinks like you do, but to guys like me the stakes are too high to let people like you get anywhere near the White House.

Posted by: spongeworthy at December 30, 2004 09:09 PM | Permalink to this comment Permalink

Sponge you said:

Sorry Eric, but you're just plain misinformed. You might have a point if the deficits during the Reagan years were caused by a drop in receipts, but that isn't the case and you know it--there was no significant "lost revenue". The deficits were caused by runaway spending, and subsequent tax increases addressed that.

Sponge, I don't think I am misinformed. While the deficits were exacerbated by profligate spending, the real budgetary crunch came as a result of Reagan's massive 1981 tax cut, which he quickly modified with two increases in 1982, then 83, 84, 85, 86, and 87.

That was a direct result of lost revenues. But don't take my word for it, here is a working paper put out by the US Treasury Dept. analyzing the effects on tax cuts and raises in terms of tax revenues received by the treasury:

http://www.treas.gov/offices/tax-policy/library/ota81.pdf

In it, especially in the chart at the end, you will see that Reagan's 81 cut led to then unprecedented shortfalls in "revenue." Subsequently, Bush's tax cuts have rivalled the '81 law in effect on revenue.

As for your charge about the distribution of the tax cut, I don't think your numbers line up again.

"The CBO study, due to be released today, found that the wealthiest 20 percent, whose incomes averaged $182,700 in 2001, saw their share of federal taxes drop from 64.4 percent of total tax payments in 2001 to 63.5 percent this year. The top 1 percent, earning $1.1 million, saw their share fall to 20.1 percent of the total, from 22.2 percent.

Over that same period, taxpayers with incomes from around $51,500 to around $75,600 saw their share of federal tax payments increase. Households earning around $75,600 saw their tax burden jump the most, from 18.7 percent of all taxes to 19.5 percent.

The effective federal tax rate of the top 1 percent of taxpayers has fallen from 33.4 percent to 26.7 percent, a 20 percent drop. In contrast, the middle 20 percent of taxpayers -- whose incomes averaged $51,500 in 2001 -- saw their tax rates drop 9.3 percent. The poorest taxpayers saw their taxes fall 16 percent."

http://www.washingtonpost.com/wp-dyn/articles/A61178-2004Aug12.html

Do you have cites that counter this contention by the CBO? Similarly, could you explain what you mean by your 2003 vs. 2005 argument? How exactly does that disprove my point?

As for the other partisanship, let's just stick to the debate and not I trust your side, or you trust mine and other such name calling.

Posted by: Eric Martin at December 30, 2004 09:37 PM | Permalink to this comment Permalink

Avedis is right in that we are not funding our Military to the place it needs to be, and real sacrifice and taxes need to be in place. Particularly on those who have prospered the most in America.

Clinton's early 90's cuts are really hurting us now, remember the "Peace Dividend?" We need a much expanded Navy, particularly deep water resupply ships (to avoid another Cole disaster) and much spending on logistics.

That we don't have a hurry up replacement for the totally inadaquate Humvee in Iraq is criminal; real leadership would entail going to Congress and getting it done, getting an APC-like vehicle that offers more protection by design for our troops in urban combat. The Humvee was never designed for urban combat but like the jeep a behind the lines light truck.

Avedis is wrong, along with those who suggest we have either a bug-out or imperial choice in Iraq. We have local allies who will assume power; this isn't the clean democracy of say Denmark, but it's miles better than Saddam's savagery and offers roughly proportional power sharing.

As for NATO and the Europeans and the UN ... they are worse than useless. They offer ZERO military forces even if they wanted to help (note how the French sneer at requests they do more in Afghanistan) and have been disasters in any peacekeeping efforts they've been involved in. The UN ... sat on it's ass during Rwanda. By Kofi's direct orders, btw. Both the NATO and UN involvement offer political interference by orders of magnitude ... Dutch forces are under orders to minimize their own casualties regardless of the situation (see: Srebenica, Sarajevo) and answer only to their Parliament, mutliply THAT by a thousand and you'll see why US forces want no part of them.

More to the point, much of the Left clings to a fantasy that a bunch of International lawyers, the ICC, UN, and other non-military options are suited for confronting and stopping evil regimes in the world. While the work that say Judge Garzon in trying to bring to justice Pinochet, ETA, and Islamic terrorism is not to be denied (nor his bravery); he's not the solution. Saddam wasn't going to go away or stop what he was doing based on an indictment, and he wasn't vulnerable like Pinochet or Milosevic. Neither were the Taliban. Nor the gangs of West Africa.

Posted by: Jim Rockford at December 31, 2004 07:09 AM | Permalink to this comment Permalink

Reagan's tax cut caused a one-year drop in receipts, and a small one at that. By 1983, that had reversed. I don't even think TEFRA was effective by then so you can't place it on subsequent increases. That '81 tax bill was called the Economic Recovery Act for a reason--the economy was in the dumpster again and the stimulative effect of the cuts led to greater receipts within 2 years. See

http://www.taxpolicycenter.org/TaxFacts/Tfdb/TFTemplate.cfm?DocID=200&Topic2id=20&Topic3id=23

You can see for yourself how spending exploded even as taxes were being cut.

Yes, I have a cite that debunks that highly deceptive WP article and it's taken from the CBO report itself. The Post didn't think we could be trusted with the facts about the report but you can get them here.

http://www.poorandstupid.com/2004_08_15_chronArchive.asp#109267440494775082

The reason I cite '03 and '05 tax receipts is that if there's a trend of growing receipts without any tax increases, then the tax cuts must have had a stimulative effect. Or, at the very least, you cannot say the cuts resulted in lower receipts in the long term.

In order to evaluate the effects of any tax policy, you have to take in account the stimulative effects of the cuts. It's not an easy thing to do, but at the minimum, if '05 receipts come in higher than '03 receipts, we can say that the tax cuts did not lower revenue in the medium term.

I think you've lost sight of the original debate, which was not about what tax policy is acceptable to the Left or which CBO or Treasury report confirms our biases. The original debate is whether you on the Left are serious about the war and funding it or whether you are just using it as an issue to beat up on the Right and advocate more tax increases.

If you wonder why I am able to present sources which directly refute the sources and arguments you present, it's because I've heard them all before. It's all part and parcel of the "litany of complaints" the Left puts forward, each backed by deceptive reporting from the media and Leftist cant.

As long as that is the case, you are never going to convince anybody like me that you guys care one whit about the war, the soldiers or the deficit.

Posted by: spongeworthy at December 31, 2004 04:38 PM | Permalink to this comment Permalink

Avedis-

“Tax cuts could be a beneficial stimulus if capital shortages and profit margins were a problem. They are not. US firms are sitting on a lot of cash by historical measures.”

They are now. However, the tax cuts were put in place after and during the most severe profit recession since the thirties (You can check that as I don’t feel like it. If I am wrong it has been a long time and precedes the 1960’s.) That has led to cash hoarding by companies trying to protect them from another downturn. They are rebuilding their balance sheets. This was a recession characterized by a collapse in investment relative to spending that, while maybe not unprecedented, is something we haven’t seen since the thirties. Contrary to what you are implying the recession was so benign relative to others because consumer spending held up remarkably well. Whether the recovery was due to the tax cuts or not my guess is that whatever you believe I won’t change a matter of interpretation.


Eric,

I'll side with Spongeworthy in that it was asserted by sponge and I that Bush believes the tax cuts are long run beneficial. That you disagree with the policy is manifest. The point is Bush’s motivation.

“It is hard to find any serious economists who still support such unsupported conjecture at this point in time.”

As for the idea that economists deny the stimulative effects of tax cuts since the Reagan era, I cannot believe you are reading much from economists. Such beliefs are far more prevalent than in 1980 when it was economic heresy. Now it is a mainstream area of study. Our latest Nobel Prize winner is a good example. In fact I can cite a large number of Nobel Prize winners who to some extent or another recognize their effects. Say he is wrong, but you cannot deny that he or they exist.

Similarly the WAPO was rather tendentious here as spongeworthy points out. You can claim that the treasury study you cite supports your case, but note that their methodology explicitly rejects any analysis of tax bills effect on GNP. Thus since it excludes an investigation of the question at hand it is irrelevant. More to the point if you read the paper one notes that the tax increases under Reagan were relatively small and did not change marginal tax rates to any great extent. Since it is the effect of marginal rates that underlie the theoretical positive revenue possibilities of tax reduction they are also less relevant than you imply.

More to the point here is what sponge said,

“If one truly believes that higher taxes slow growth in the long run and therefore negatively impact total revenues, then it makes absolutely no sense to turn around and raise taxes just because some ideologues think it's appropriate for the rich to finance this war.

I see no reason to doubt that the Bushies are convinced a lower and stable tax structure leads to growth and greater revenues.”

That hardly is a claim that revenues instantly shoot up. It is pure math to point out that if rates are stable, and the lower rates cause the GNP to grow faster, even if only say 3.3% versus 3% on average that over some time frame the gains in revenues will eventually outstrip losses. Throw in the effect of increased compliance etc. and that outcome moves closer. And if we have a larger economy afterward then we not only have a revenue neutral or positive long term budget but are wealthier to boot. A balanced budget in the short term but poorer in the long term is not an equal trade. Of course that assumes that rates have a stimulative effect.

The real question in economics is how big is the effect, what levels of taxation produce what effects, and how long before the revenue effect turns positive. The vast majority of economists would accept that formulation. If the effect is small then cuts in services or interest on debt could overwhelm the benefit. What tax level is key because while contra what you claim, few economists would argue that we should go back to the 70% marginal tax rates we had in 1980. In that sense Reagan won that argument. No major politician would argue for that either, not just because Clinton (for example) doesn’t want to lose, but because he didn’t believe it would be a good idea. Few economists would argue anymore that dropping tax rates from 70% to 50% is a revenue loser. If you really looked at the data you would see that. Revenue from the top tax brackets exploded under Reagan. It was all those damned poor and middle class taxpayers (like me) with their cuts who caused the drag on revenues which did increase. Might they have increased faster without the tax cuts? That is a matter of interpretation. It is hard however to argue the top tax rate reduction caused revenues to decline as opposed to the lower brackets.

What is more questionable is the effect of tax cuts from the lower brackets and whether they are truly stimulative. Needless to say people argue this all the time. There is no clear consensus.

The other big controversy is about how low rates go before the effect is so long run and so small as to be a loser, maybe a large loser in the short run. That is a big argument. Lowering from 90% to 70% as Kennedy did was a definite winner ( I am always amazed that many who loved Kennedy loath Reagan’s tax cuts even though he was inspired by Kennedy a hero of his.) 70% to 50% proved to be very effective. Whether 50% to 28% or 36% to 28% accomplish much from a revenue standpoint is a better question, especially in the short run. Still, if the real economy grows faster the loss in revenues may be worth it. That is a very complex question and a claim of some false consensus of “serious economists” is either uninformed or dishonest. I’ll give you credit for the first and assume you read only particular economists. What is interesting is that whatever their rhetoric, Democratic politicians as a group know this. Who out there besides maybe Bernie Sanders is campaigning actively for 70% or 90% marginal tax rates? How many think that it is wise or would actually raise revenues over the long run?

Posted by: Lance at December 31, 2004 09:16 PM | Permalink to this comment Permalink

It's funny how conservatives all talk about Laffer Curve concepts while refusing to give it that name. What are you guys scared of?

If your concept is at all meaningful, then tax cuts would increase tax revenues over time above what would otherwise have been the case over time. Just looking at net revenue figures is only a partial answer, because other factors like economic growth have partially or completely independent effects on those figures.

Sponge's first cite shows a four year decline in revenue in the Reagan years (use the inflation-adjusted dollars, unless you're an inflation supporter), which does not at all help his case. There was a recession during that time however, complicating matters. Conversely, the economy should grow between '03 and '05, and unless you believe that growth is solely due to the Bush tax cuts, the growth will increase revenues, and so that increase will not prove Sponge's point.

Sponge's second cite does not deny anything in the Post article, and aside from a minor error misidentifying capital gains cuts as part of income taxes, it doesn't deny anything said by the Commie Pinkos at The Wall Street Journal.

This "percentage of income tax burden" thing is a joke - what the hell is that (nice dodge on avoiding discussion of payroll tax burden, btw), and who the hell cares? Show me the money - it's going to the rich. It's like the "weapons of mass destruction program-related activities." Makes Clinton look like a straight shooter.

Posted by: Brian S. at December 31, 2004 10:13 PM | Permalink to this comment Permalink

So Brian, are you saying raising marginal tax rates back to 70% would raise revenues over time? If not then Sponge is right. Bill Clinton certainly knew that, but of course he wasn't a straight shooter and never admitted it. John Kennedy knew that rates that were too high not only hurt the economy but cost the treasury revenues over time, he admitted it. I'll let you tell me if he is a straight shooter.

"This "percentage of income tax burden" thing is a joke - what the hell is that."

Hmmm. So if I cut tax rates across the board and after I am finished the top brackets are responsible for a higher percentage of total tax receipts, that doesn't mean anything? Look, there are all kind of reasons to oppose the tax cuts, but claiming that the income tax burden hasn't shifted more toward the rich over the last thirty years is a loser. It has. The rates may be lower, but the gross percentage raised from the rich has risen also.

As for the quip on the payroll tax, I know in my case and I suspect in Sponges case you are preaching to the choir. Who really needs to hear that are the people fighting the rear guard on entitlement reform in both parties. Funny, since you are attacking sponge on its unfairness, are you under the impression that conservatives and libertarians ( I figure he probably falls roughly in that camp somewhere) are who designed the payroll tax?

Posted by: Lance at December 31, 2004 11:34 PM | Permalink to this comment Permalink

Lance, I don't know anything about John Kennedy's tax policies, but from what I know about him in general I'd say he's not a straight shooter. The last straight shooter president was Truman, and before him, Teddy Rooseveldt.

Laffer Curve is a "curve", and whether conservatives are right depends on the shape of the curve and our placement on the curve. Noone denies that shifting from 99% tax rate to a 50% tax rate would increase revenues. Note that we don't have a 99% tax rate. I think there's no question that Kerry's proposed reversion to the pre-2001 tax rate for people earning over 200k would increase revenues.

Personally, I would support an intelligently-done, partial privatization of Social Security that was not financed by increased deficit spending. I don't think Bush is capable of doing that. Brad DeLong has some interesting, intermediary ideas on the subject.

Posted by: Brian S. at January 1, 2005 02:28 AM | Permalink to this comment Permalink

Brian,

Well Noone denies it. I guess that settles things. As I said before, the question was whether it actually costs revenues over time. Maybe it is two years, maybe it is twenty. That is the debate. That tax rates effect economic growth rates and therefore stimulate at least some off setting revenue gains is the issue. Not, as Eric Martin claimed, that no serious economist believes such things. In fact the work (as your citation shows) is what effect and over what time frame, and what brackets have what effects.

In the case of the Reagan era cuts and the first supply side cuts (Kennedy's) the top tax rate cuts (as opposed to cutting lower brackets which were either debateable in their benefit or losers) did show an increase in revenue over his administration. Noone or others might argue there were other factors, there always are, but the original issue was whether it was a theory which economists could support.

As for Kerry's tax raise, it certainly might help some in the short run at increasing revenues, though likely at some cost to general prosperity. Its long term result would be less clear and has to take into account the worth of increased (relative) prosperity versus increased resources for government spending, when the additional GDP would have a significant enough size to generate more revenues at a lower rate than the revenues lost due to those same rates and other factors.

As for the Laffer curve, Laffer never claimed that tax cuts are necessarily self financing or over what time frame when people decided to attach his name to an idea which was hardly unknown, though in the time between 1935 and 1960 it became ignored. Laffer was just a man who brought the concept back into the discussion in the 1970's. As I noted above Kennedy had called for his tax cuts using rhetoric drawn straight out of the supply side handbook. So your talk of 'straight shooting" is an attempt to act as if those who advocate taking into account the trade offs of higher versus lower rates are attached to some discredited figure (Arthur Laffer) and by not mentioning him we are trying to avoid his taint. However, Arthur Laffer has never been tainted except by those in the press who have misrepresented his work, professionals are still working on his ideas as your citation of Noone shows, but fantastic and important work in the area has been done by the latest Nobel Prize winner Prescott as well. Moreover the Laffer Curve was never his curve and he didn't ever claim it was. as I pointed out above, it has been standard theory for a long time, just ignored as inconvenient for a long time by those who wished to ignore it for ideological reasons. As for Noone, let me just say that I would love to read his analysis on 99% to 50%. That would fly in the face of almost all the research I have seen. Less drastic revisions show heavy debate. That kind of change seems awfully difficult to support, but I am willng to be persuaded.

Posted by: lance at January 2, 2005 07:32 PM | Permalink to this comment Permalink

Lance,

You said:

“It is hard to find any serious economists who still support such unsupported conjecture at this point in time.”

As for the idea that economists deny the stimulative effects of tax cuts since the Reagan era, I cannot believe you are reading much from economists. Such beliefs are far more prevalent than in 1980 when it was economic heresy. Now it is a mainstream area of study. Our latest Nobel Prize winner is a good example. In fact I can cite a large number of Nobel Prize winners who to some extent or another recognize their effects. Say he is wrong, but you cannot deny that he or they exist.


Allow me to clarify. I was not saying that no economists claim that tax cuts are stimulative. I myself believe that the right mixture of targeted tax cuts can lead to positive growth. What I was saying is that such growth does not make up for the lost revenues caused by the cuts themselves, or at least Reagan's 81 tax cut did not and neither have Bush's. One thing that Sponge and you seem to have ignored is the series of revenue-replacing tax cuts that ensued in the Reagan, Bush Sr. and Clinton years.

There is merit to the argument that 70% was too high pre-1981, but that was certainly not the case in Bush's case where no such 70% rate was in place. Perhaps that accounts for the lack of revenue replacement in all three years under Bush. That and the fact that, unlike Reagan, Bush has offered no tax increasing tweaks to the system.

Overall economic health is a factor, and may account for increased revenues in 2005, but that may only be part of the story. Surely those revenues will not keep pace with the deficits.

Posted by: Eric Martin at January 3, 2005 07:52 PM | Permalink to this comment Permalink

Eric,

If you note I never claimed Bush's cuts finance themselves either. However many economists claim the '81 cuts did over a 10 to 15 year period, whatever the subsequent tax increases, and that the top rates showed positive results almost immediately. In fact I deny that, as you claim, Reagan realized the cuts were a mistake. The tax increases were in areas that didn't affect marginal rates specifically because they felt the lowering of rates had been successful. Maybe they were wrong, but they did not accept your interpretation, nor did many economists.

As for Bush's cuts, the debate from the Kerry campaign (Not necessarily you, but I want to address the point anyway as that was the debate we were faced with) was over the top brackets. Many economists believe that in the long run the lower top marginal rates will pay for themselves. Especially given the low interest rates the initial shortfall is being financed at. They may be wrong (at least over any reasonable time frame) but they do believe it. Of course the initial post by sponge you were responding to said over the long run. Once again, in some sense that has to be true as long as the lower rates effect long term growth positively. Kerry of course never advocated ending, and in fact wanted to expand, tax breaks which did not affect marginal rates. It is hard to see how (except as a short term fiscal stimulus during a recession) that that pays for itself. Not necessarily wrong (Bush wanted them too) on equity or many other grounds, but definitely money losers over any time frame.

"Overall economic health is a factor, and may account for increased revenues in 2005, but that may only be part of the story. Surely those revenues will not keep pace with the deficits."

True, but it is certainly arguable that economic health has been improved by the cuts and reforms. Especially given how mild the recession was given the many negative factors Bush faced. That doesn't mean you are wrong, but your statement begs the question, and it is a question we cannot answer in so limited a forum as this comments page. What can be said is many people hold that view in the economic community.


So in evaluating the top rate reductions under Bush there are two positive cases for them that many economists do accept. They may be wrongheaded, but the men and women do exist:

First: The top cuts may pay for themselves over a ten to twenty year period even accounting for interest expense. I find this possible, but unlikely. Still it cannot be dismissed out of hand. Coupled with the dividend cuts and reforms however it becomes a stronger case. Not because the reforms are stimulative in the common sense, but because the negative fashion in which dividends are treated led to a large misallocation of capital. Over time a more rational and less tax code influenced allocation of capital should raise growth and productivity. I think this factor will be larger than expected over the next twenty years. Still overall I’ll call this the weak case.

Second: The top rate cuts don’t pay for themselves, but add to economic growth enough to offset a large percentage of the revenue loss a static accounting might imply. The economic growth leads to an economy that in nominal terms has a larger debt than otherwise would have existed, but also has grown enough that the debt is smaller as a percentage of GNP than otherwise would have existed and therefore in real terms we are still better off fiscally. This is a stronger case.

Additional outcomes:

Third: The extra growth does not generate enough extra revenues to either finance the tax cuts or reduce the debt as a percentage of GNP over what would have existed under the prior tax regime. We are essentially no better off fiscally.

Fourth:

The tax cuts due to rising finance costs slow growth or at least cancel out the positive effects of the tax cuts on revenues and we have deficits larger than we would have had otherwise both absolutely and as a percentage of GNP.

All of these outcomes have supporters in the field of professional economists, contra some faux consensus you have asserted. What is interesting is that we are better off in three of them. I don’t mean to imply that that means we have a ¾ chance of a positive outcome. That is very debatable. I only mean to point out that even under a mild version of number four, we are better off. Why? Because the government accounts are not the only issue. If the rest of the economy is better off it is reasonable to say we have a slightly worse or neutral fiscal situation (relative to GNP, not in nominal terms) but the citizens are more prosperous, especially when you consider the prosperity is accompanied by lower tax obligations. That is a tradeoff many people would gladly make. An imperfect exaggerated analogy for illustration purposes only. Please no long screeds about its inadequacies, all analogies are inadequate. I am making $40,000 a year with a debt service of $2000/yr. I borrow enough money to buy equipment to make $100,000 but my debt service is $30,000. My debt ratio in the second case is far higher. 15 times higher. My net income hasn’t even doubled. A disaster? No! I now net $70,000 compared to $38,000 previously. I would say that is a much better situation. Now, does that make it right, or the best course for a nation, not necessarily. However, the increased prosperity over an alternative arrangement derived from either tax cuts or spending has to be factored in any evaluation of policy. Often I find discussions of taxes and deficits being conducted as if the effect on the citizens is not to be factored in.

So should we keep the tax cuts? I don’t know, but you have tried to obscure the debate with not only the logical fallacy of an appeal to authority, but the authority to which you appeal is of many minds, coupled with evidence compiled which does not address the question asked. You owe sponge an apology. Maybe he is wrong (assuming he even agrees with Bush) but his belief that the administration can hold the view he originally posited is not only likely, but within the mainstream of economic discussion.


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