Tuesday, February 17, 2009

You Don't Need to be A Nobel Lauret in Economics

A friend points me to Time/CNN's "25 Best Blogs 2009". The Time's choices reflect the singularity that is the thought process of liberals in America. The evidence is that the Huffington Post is number one. With our current economic climate, I thought I'd highlight one of their picks that I found to be particularly partisan and they are proud of it.

Number Nine on their list is Paul Krugman, identified by Time as a "liberal economist" who, according to Time, predicted the economic meltdown.

Well not quite.

He predicted that the housing bubble would stop bubbling and that prices would go down in his editorial named "That Hissing Sound" back in 2002. But he never says when or why with any useful detail. To me, he is a typical liberal who has just enough knowledge to keep the paychecks coming in and doing talking head guest spots on "news" shows.

But, back the Time piece...

Time/CNN says,
You'd need a Nobel Prize in economics to figure out what went wrong with the economy and how to get it back on track. Paul Krugman has one.
They add these tidbits to ensnare your allegiance to Mr. Krugman's ideas.
Sample The Conscience of a Liberal post: The House has passed the stimulus bill with not a single Republican vote. Aren't you glad that Obama watered it down and added ineffective tax cuts, so as to win bipartisan support?
Entry you'll never see: With the gross domestic product declining at a rate not seen in half a century, our only hope in avoiding a full-blown depression lies in a return to the supply-side economics of Ronald Reagan.
This last remark is just sad for two reasons. One, it is the exact opposite of the real world's experience. And two, his expert status will make difficult to convince many that this is wrong. The watered down tax cuts mentioned are a happy circumstance for liberals in government and their admirers, but real working Americans are coming on hard times specifically because Congress is full of it's own power and are spending like witless fools. But real working Americans will be footing the bill.

We must look at a little history to sort out the linkage between tax cut and higher employment rates.

First: Tax cuts do counter the effects of recessions. It worked for Presidents John F Kennedy, William J. Clinton, Ronald W. Reagan and George W. Bush.

JFK's Revenue Act of 1964, signed by LBJ, reduced individual income tax rates and reduced the top corporate rate. Incomes top rate went from 91% to 70% and the top corporate rate from 52% to 48%. A minimum standard deduction of $300 plus $100 per exemption was created. In 1964 the unemployment rate was 5.2%. It went down to 3.8% by 1966 and was lower again to 3.6% in 1968. (Unemployment rates)

President Reagan's Economic Recovery Tax Act of 1981 lowered the top rate from 70% to 50% over 3 years and the bottom rate 14% to 11%. In 1982 the unemployment rate was 9.7%. It went down to 7.5% by 1984 and was lower again to 7.0% in 1986. By 1988 it was 5.5% and only went up over 6% after a small recession in 1991.

President Clinton lowered capital gains taxes with the Taxpayer Relief Act of 1997. The top rate fell from 28% to 20%, while the 15% bracket was brought down to 10%. The bill had $400 tax credit for children, capital gains exemptions for the sale of homes and encouraged savings with relief for education and retirement savings. The unemployment rate dropped from 4.9% in 1997 to 4.5% in 1998, 4.2% in 1999 and to 4.0% in 2000. As a bonus, President Clinton was also able to balance the budget with these lower taxes.

With a market slide in 2000, the "tech Bubble" bursting and the beginnings of a small recession in 2001, President George W. Bush pushed for lower taxes with Economic Growth and Tax Reform Reconciliation Act of 2001. While the terror attacks on 9/11 are credited with raising the jobless above 5.8%, it peaked at 6.0% in 2003. Then starting stepping down with 5.5% in 2004, 5.1% in 2005, and 4.6% in 2006 and 2007.

In contrast, President George H.W. Bush raised taxes and raised unemployment. In 1990 the unemployment rate was 5.6%. The following year it had jumped to 6.8%, then 7.5% in 1992 and tacked lower to 6.9% for 1993.

Of course there are other factors to consider when determining causes for employment rate changes, but this correlation is very clear.

Lower taxes, increase employment rates.

The President's economic stimulus package will have just the opposite effect as tax cuts. More unemployment, more debt, more lost opportunities. This recession will become a depression simply because there is no one in Washington DC that cares about the history of this great country. Mr Krugman does not have the answer and neither does Time/CNN, President Obama nor the US Congress.

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