But they are starting to be asked more and more often:
Moreover, will we have the guts to impose similarly large percentage
reductions in budgets when the stimulus is supposed to end in two
years? Or will we simply add to a long-term budget problem that is
already horrendous?
Here is more.
Nice job leading with the question. How about option B: We raise total government (fed, state and local) revenues by 25% to properly operations over the long term.
I think it’s funny that no one ever points out when they ask this question that our huge budget issues all came from the last eight years. That being said, I think Republicans taking over the house in 2010 is the worst thing that could ever happen to our long term budget.
I was under the impression that once we were out of this, we’d just out-grow the deficit this “stimulus” bill creates. That what we seem to do most of the time with other large one-off spending bills. The issue with the 10-years-from-now budget is entitlements, not stimulus spending.
    - James Galbraith, from the linked article
Is it just me, or do I see a dangerous amount of naivety in the last quoted sentence? Galbraith seems to be making the assumption that it will be just as easy to raise taxes as it will be to cut them, when all the political experience of the past twenty years has shown otherwise – that it is much, much easier to cut than to raise.
Damn, Bob Murphy beat me to it with that comment on the ‘similarly large percentage reductions’. I would be able to manage just fine with 20% increases and 17% reductions…
Do most politicians even realize that in general, x*(1+i)*(1-i) ≠x?
Questions which are rarely asked
Too much law school teaching, Tyler. It should be
Questions that are rarely asked
What makes you think that you can raise total government revenue by 25%, all easy like? You realize that a tax increase is not the same as a revenue increase, right? Increasing revenue by 25% is a lot easier said than done.
In the past have you asked similar questions re tax cuts?
The way some of the proposals in the bill look, significant bits of the stimulus will still be coming online two years from now. Certainly this whole multifarious revolution of healthcare/energy envisioned in the bill won’t be in place within two years.
As far as the future, my impression is that many just expect this to be either government growing to the “right” proportion of the national economy or the necessary step to growing the private economy the absorb the added cost. The decisions down the line will not be cuts across the board or raising taxes, but how to redistribute the funds within the total budget and more so individual agencies, given the exigencies of inflation, wars, etc.
Oh, and there’s that whole problem of the debt leftover from eternal deficits, but that presupposes a limit. What’s the debt limit? Currently, the only one on paper is legislated by Congress.
The lesson of 1937 is that you don’t want to end the stimulus before you are sure you have ended the problem.
That being said, though, of course stimulus should end sometime. At that time it will be necessary to sort out what spending and tax cuts should be kept long-term, what should be terminated or cut back until they are needed again in the next recession, and how to pay for whatever is kept.
For example, delaying the phase-out of the Bush tax cuts might have at least some stimulus effect; but they should definitely be ended once the stimulus effect is no longer needed, since they’re far too expensive to keep long-term. (Actually, possibly ditto some of the Reagan tax cuts; they haven’t been seriously examined since they were passed, since Clinton was a centrist and often saddled with a right-wing Congress. It may be time to retire them, or at least strike a middle ground between pre- and post-Reagan rates. The 50s and 60s look economically really, really good right now compared to even the good parts of the post-Reagan roller coaster.)
@Rex Rhino: If you are alluding to the Laffer curve, please present some evidence that any society in human history, ever, has been on the descending (negative-slope) part of the curve. The tax regime before Reagan took office had marginal tax rates up to, IIRC, 90%. When he cut those tax rates, tax revenue… fell, proving that 90% (marginal) tax rate is still on the *ascending* part of the curve. The (so far entirely theoretical) descending part of the curve is where your *entire economy* becomes part of the black market to avoid taxation – which notably did not happen under the Great Society.
If your argument is just that raising tax revenue by 25% may require raising tax rates by more than 25% because there is *some* contractionary effect, well, duh. That’s why we have an OMB to estimate those effects, and can continue to adjust tax policy over time to hit a moving target. But if the government needs to raise revenue during non-recession conditions it can, it’s just a matter of finding the political will and closing your ears to certain demagogues.
Here is an updated survey — set out in nifty, easy-to-read chart forms — of the US economy’s performance in different presidential eras since 1947. It’s posted at the macroblog of the Atlanta Federal Reserve site.
The site is worth visiting frequently, full of serious, date-driven analyses of our economy’s ongoing performance.
…..
Michael Gordon, AKA, the buggy professor
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