Wednesday, August 27, 2008
Is Tax-and-Spend Worse than Borrow-and-Spend?
Larry Kudlow interviewed Rudy Giuliani (transcript here), and they naturally started bashing Obama. Here's Kudlow's question:
Kudlow: [O]ne of the big topics of this program tonight for investors is, are we going to return to a real tax-and-spend approach to economic policy, which was used in the 1970s? As you well know, it caused -- it caused sluggish economic growth, it spurred inflation. Stock markets did very badly.
Hmm let's see: High government spending, sluggish economic growth, high inflation, and poor stock market performance. Does that sound like an exclusively Democratic description?
As the chart below indicates, the S&P 500 is lower in nominal terms today than it was when George Bush assumed office.
In that same period, prices in general have risen (even according to the bogus official measures) by about 25 percent. Check out the chart below and compare the inflation record of the two Bushes against the Clinton years. (Of course the worst is Carter.)
Finally, let's check out government spending. It's a good thing W. won and kept out those big-spending Democrats!
In conclusion, YES I realize there are extenuating circumstances. Clinton would have spent more were it not for the Republican Congress, and George W. Bush would have spent less were it not for 9/11. And as far as the stock market, it's not Bush's fault that the dot-com bubble burst right when he took over.
Even so, there's much to be said for the cranky old man's wisdom who claims there's not a dime's worth of difference between the two parties. Going the other way, I also can't get worked up when Democrats try to scare me with references to the police state under McCain. The Democrats in 2006 had a clear mandate to oppose Bush on these matters, and they just rolled over on wiretapping, war funding, etc.
Kudlow: [O]ne of the big topics of this program tonight for investors is, are we going to return to a real tax-and-spend approach to economic policy, which was used in the 1970s? As you well know, it caused -- it caused sluggish economic growth, it spurred inflation. Stock markets did very badly.
Hmm let's see: High government spending, sluggish economic growth, high inflation, and poor stock market performance. Does that sound like an exclusively Democratic description?
As the chart below indicates, the S&P 500 is lower in nominal terms today than it was when George Bush assumed office.
In that same period, prices in general have risen (even according to the bogus official measures) by about 25 percent. Check out the chart below and compare the inflation record of the two Bushes against the Clinton years. (Of course the worst is Carter.)
Finally, let's check out government spending. It's a good thing W. won and kept out those big-spending Democrats!
In conclusion, YES I realize there are extenuating circumstances. Clinton would have spent more were it not for the Republican Congress, and George W. Bush would have spent less were it not for 9/11. And as far as the stock market, it's not Bush's fault that the dot-com bubble burst right when he took over.
Even so, there's much to be said for the cranky old man's wisdom who claims there's not a dime's worth of difference between the two parties. Going the other way, I also can't get worked up when Democrats try to scare me with references to the police state under McCain. The Democrats in 2006 had a clear mandate to oppose Bush on these matters, and they just rolled over on wiretapping, war funding, etc.
Comments:
Re Carter's inflation: Yikes! No wonder they had to change the way CPI is calculated!
# posted by 
: August 27, 2008 at 4:55 PM
: August 27, 2008 at 4:55 PM 
Great blog. It amazes me to hear Republicans still talking about "tax & spend liberals" every day, with the national debt out of control, even as they are seemingly itching to start military action against Iran and now Russia...
# posted by : August 27, 2008 at 6:54 PM
: August 27, 2008 at 6:54 PM
"The Democrats in 2006 had a clear mandate to oppose Bush on these matters, and they just rolled over on wiretapping, war funding, etc."
I'm disgusted with Dems too, but Congresscritters have all taken to rolling over for the Pres and his enforcers, preferring to focus on reelection and who handles the pork spigots.
The Dems just saw no upside to being principled, defending prerogatives or disturbing the rent-seeking game (the telcoms were being good corporate citizens after all, right? Who wants to let them bear any criminal responsibility when no one has any stomach to fight Bush/Cheney?)
I'm disgusted with Dems too, but Congresscritters have all taken to rolling over for the Pres and his enforcers, preferring to focus on reelection and who handles the pork spigots.
The Dems just saw no upside to being principled, defending prerogatives or disturbing the rent-seeking game (the telcoms were being good corporate citizens after all, right? Who wants to let them bear any criminal responsibility when no one has any stomach to fight Bush/Cheney?)
For me, seperating myself from my macroeconomist role, tax-and-spend is worse. The calculation is so complicated (thousands of variables moving like slower GDP in the future due to higher future taxes under borrow-and-spend) that I definetly find myself wanting lower taxes today. Perhaps I am saying that 5% lower taxes today, I take that money and I have the confidence that I can make 10% on that money and pay the 5% higher taxes in the future. Something to do with time preference I suppose...but I usually outsource such analysis.
As best I can tell Obama's taxes will cost me over $100,000 additional over the next four years so I fing myself 'rooting' for the borrow-and-spender.
As best I can tell Obama's taxes will cost me over $100,000 additional over the next four years so I fing myself 'rooting' for the borrow-and-spender.
# posted by : August 28, 2008 at 8:41 AM
: August 28, 2008 at 8:41 AM
Von Pepe,
I was being somewhat flippant in that post title. Obviously tax-and-X is worse than borrow-and-X, for the simple reason that taxation is involuntary.
In the limit, if no politician ever raised marginal income tax rates, then eventually all government revenues would go to funding interest payments on the debt, and the government would have to lay off all its employees, including military personnel. Sorta like anarchy-lite.
But the problem, of course, is that (as you note) future Republicans--remember George H.W. Bush?--will raise tax rates rather than seriously cut government programs.
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I was being somewhat flippant in that post title. Obviously tax-and-X is worse than borrow-and-X, for the simple reason that taxation is involuntary.
In the limit, if no politician ever raised marginal income tax rates, then eventually all government revenues would go to funding interest payments on the debt, and the government would have to lay off all its employees, including military personnel. Sorta like anarchy-lite.
But the problem, of course, is that (as you note) future Republicans--remember George H.W. Bush?--will raise tax rates rather than seriously cut government programs.
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