Patterico's Pontifications


Change: More Spending and Taxes, Fewer Jobs

Filed under: Economics,Obama — DRJ @ 11:56 am

[Guest post by DRJ]

The stock market had its worst 2nd quarter performance since 2002 and Americans will see it in their investments, pensions, and savings:

“The extent of the damage in the second quarter — and for the year — is clear.

The S&P 500 index fell 11.9% during the quarter, snapping its four-quarter winning streak. During those three months $1.6 trillion in shareholder wealth evaporated based on the Wilshire 5000 index — a loss reminiscent of that suffered in the bear market that started in 2007. And the S&P 500 lost 7.6% this year to set a new low for 2010. That means the market is off to its worst start since 2002, when it fell 13.8% in the first half.”

The 2002 sell-off followed the 9/11 attacks, and the Bush Administration’s solution was job growth through tax cuts. The Obama Administration thinks job growth comes from government spending and increased taxes, even though Obama’s hand-picked Democratic Deficit Commission co-chair Erskine Bowles says spending cuts are vital. Here’s what Bowles is looking at:

And today’s economic news shows unemployment claims rising.

No jobs, higher taxes, out-of-control government spending, and a double-dip recession. Obama meant it when he said things would change.


9 Responses to “Change: More Spending and Taxes, Fewer Jobs”

  1. Obama’s attempts to tour and talk up his brilliant economic policy resulted in one of his most dishonest speeches earlier this week.

    Which is saying something for the president that is setting records for misleading and false statements in speeches.

    SPQR (26be8b)

  2. What was Obama taking credit for saving us from yesterday again?

    Plus the old unprovable strawman of, hey, things would have been way worse without that wasteful, misdirected stimulus bill that didn’t create any permanent jobs.

    Hope and change fever. Catch it now!

    daleyrocks (1d0d98)

  3. SPQR – You gotta love it when even the Euroweenies are telling Obama to FOAD with his economic policies. That’ll leave a mark.

    daleyrocks (1d0d98)

  4. .

    Chart of the Day:

    The Effect of Taxes on Economic Growth

    The figure shows that the effect is consistently negative. In the quarter of the tax change and the next two quarters, the effect is small and not significant. It is then steadily and rapidly down for the next two years before rebounding slightly in the final two quarters. The maximum effect is a fall in output of 3.08% after ten quarters (t = -3.53). In short, tax increases appear to have a very large, sustained, and highly significant negative impact on output. Since most of our exogenous tax changes are in fact reductions, the more intuitive way to express this result is that tax cuts have very large and persistent positive output effects.

    Who said this?

    Christina RomerChairman of Obama’s Council of Economic Advisers

    Somehow, he still wants to push spendonomics on us.

    Funny how he only wants to listen to the “experts” when they tell him to do what he wants to do anyway.

    Whatever happened to that emphasis on “accountable executive action in line with expertise” we were promised, again?

    I sure Hope to see it in my lifetime.

    …got a strong feeling it won’t be showing up anytime during THIS admin, however. Clearly, we’re all looking for some Change.

    IgotBupkis, President, United Anarchist Society (79d71d)

  5. the Bush Administration’s solution was job growth through tax cuts. The Obama Administration thinks job growth comes from government spending and increased taxes

    Actually, both Administrations (and , by extension, DRJ) have it wrong, it isn’t tax cuts, tax hikes, spending cuts or spending increases that create growth, it is whether the actions taken increase business and consumer confidence. You can cut taxes all you want, lower interest rates to zero, add spending or cut spending… and unless the American people react positively, you’ve done nothing.

    Far more critical to the post 9/11 recovery than the specifics of the tax cuts was Bush instilling a sense of confidence that people, literally, took to the bank. That can be contrasted with Obama who has done nothing to project a sense of confidence in us and our economy. This is why Obama’s stimulus has failed, because no one saw it as something that would help make things better.

    And while some aspects of fiscal policy are more likely to be seen positively, the presentation is far more important. I dare say that Bush could have raised taxes and we would have had a recovery, just as Obama can propose to cut taxes and we would still be mired in a slump (Clinton raised taxes and we still had some rather nice growth – because the country had confidence).

    The sad fact is that Obama isn’t a leader, in that the first responsibility of a leader is to instill a sense of confidence in the people that things are going to work out. Without confidence, nothing works… teams don’t win, armies don’t win, businesses don’t hire, consumers don’t spend, economies don’t grow. And for all of his book smarts, Obama is remarkably tone deaf when it comes to knowing this all-so-important piece of information.

    steve (369bc6)

  6. steve, well said. But its even worse than you describe because the Democratic party policy in the Congress and White House has been to attack business, instill fear of greater burdens on economic growth, and actually show incompetence in the basic job of running the government ( the lack of a FY 2011 budget bill as an example of the latter, the “cap and trade” bill as the former ).

    SPQR (26be8b)

  7. steve,

    I agree, both in substance and with the way you said it. However, I think tax cuts inherently inspire confidence because they give people control of more of their own money. Consumer confidence matters when it’s the real confidence that comes from controlling your own money.

    DRJ (d43dcd)

  8. Remember, with the end of the “temporary” Bush tax-cuts coming at the end of this year, everyone is looking at an increased tax burden next year plus whatever new taxes and regulatory burdens that have been imposed via the “comprehensive” reforms that have been passed, or will be passed in the near future.
    The future is more unknown than at any time since the Cuban Missile Crisis, and Capital has gone On-Strike!

    AD - RtR/OS! (1ed577)

  9. DRJ: nice to see we agree on something, I would add that, while tax cuts generally provide more of a boost than other approaches, the way in which tax cuts are done matter almost as much.

    In order to maximize the confidence boost from tax cuts, they can’t be seen as temporary or as a one time boost (as is the case with rebates).

    Nor do they provide a boost if they’re seen as primarily going to business (more money in a business is better than less, but businesses don’t hire and spend based on how much money they have in the bank, they do so based on whether they think there is demand for what they’re selling).

    And contrary to conservative dogma, they don’t offer a huge punch if you cut the rates of those at the top – there are fewer of them and they save and invest more of what they make, so the trickle down effect is both minimal and delayed. And cutting taxes on the ‘poor’ (which amounts to writing them checks) doesn’t do much as, while they’re going to spend it, they do so in ways that doesn’t get picked up and noticed.

    The best stimulus comes from a permanent cutting of the amount the middle class pays in taxes. There are more of them than either rich or poor and they’re going to spend more of the tax cut and in ways that provide immediate evidence of an economic boost: cars, trips, toys, etc., all of which shows up in the monthly economic reports.

    steve (369bc6)

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