Patterico's Pontifications

10/3/2017

Trump Budget Director: “We Need to Have New Deficits”

Filed under: General — Patterico @ 10:00 am

Bloomberg reports that Donald Trump’s budget director loves him some deficit spending:

White House Budget Director Mick Mulvaney is signaling similar flexibility, saying on CNN Sunday that decisions about deductions remain up in the air as “the bill is not finished yet.” He took it a step further, by adding that a tax plan that doesn’t add to the deficit won’t spur growth.

“I’ve been very candid about this. We need to have new deficits because of that. We need to have the growth,” Mulvaney said. “If we simply look at this as being deficit-neutral, you’re never going to get the type of tax reform and tax reductions that you need to get to sustain 3 percent economic growth.”

Our national debt recently hit $20 trillion. Of course the Trump administration doesn’t care about that. Remember, Trump hilariously promised a pack of gullible rubes that he would eliminate the debt (not the deficit, but the debt!!) without touching entitlements — which is laughably impossible. Now his budget director is praising deficits as necessary for economic growth.

But in addition to showing that Trump doesn’t care about the debt, Mulvaney’s comment reveals a flawed Keynesian economic mindset that pervades the intelligentsia.

It’s the same flawed mentality that leads Keynesian economists to argue that World War II, a time of privation and severe rationing, was actually a time of great prosperity — because there was a lot of economic activity involved in making weapons of war. (I debunked that claim here.)

It’s the mentality that leads people to argue, as the Los Angeles Times did recently, that an earthquake is an opportunity for economic growth — because there is a lot of economic activity involved in rebuilding.

Rocked by the quake, Mexico’s economy could get a boost from the rebuilding

The magnitude 7.1 earthquake that shook central Mexico will certainly damage, but not debilitate, the Mexican economy and might even give it a boost next year as reconstruction efforts get in full swing.

It’s the mentality that leads a Paul Krugman to argue that false reports of an alien invasion headed towards Earth could be great for the economy:

If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren’t any aliens, we’d be better [off].

(This claim is not just wrong, it is also insane.)

But — just as strange women lying in ponds distributing swords is no basis for a system of government — world war, destructive earthquakes, and phony space invasions are no basis for a system of economic growth. The reason is that we should not measure economic activity simply in terms of economic activity, but in terms of output — in other words, are we actually better off as a result of the activity? A fella named Frederic Bastiat explained all this with something called the “broken window fallacy.” Here’s how I explained this fallacy last November:

Imagine some kid throws a baseball through the window of a bakery and breaks it. The baker now has to repair the window. One could look at this as a great boon for employment in the community. After all: someone has to be paid to make a new window. Someone has to be paid to install it. When each of these workers is paid, they now go to other businesses and spend that money, and now other businesses do better through the magic of the Keynesian multiplier! If you’re a Keynesian, you could almost work yourself into believing that it was a good thing that the window was broken!

And yet, intuitively, you know this has to be wrong. Destruction is not good for the economy. What’s the flaw in the analysis? It has to do with the seen and the unseen.

The payments to the window maker and the window installer are what is seen. It doesn’t require imagination to see that people are being paid.

What is unseen is what the baker could have done with the money he had to use to fix the window. Maybe he was saving up for a new oven that he now can’t buy. With the new oven, he could have made his products more efficiently. The bread he sold would have been cheaper. That may mean more sales and profits for him (after all, he wouldn’t buy the oven if he didn’t think it would pay off eventually) and he can now spend the extra money elsewhere. What’s more, cheaper bread means the consumers buying the bread have more money in their pockets. Their standard of living goes up and they can spend money elsewhere. Or, as a commenter of mine points out: “perhaps the baker might have used the broken window money to pay a young apprentice who would then learn a valuable skill and perhaps one day own a bakery herself.”

But all of that is unseen. It requires imagination to realize that the money used to repair the window could have been used for other, more productive things.

The people who advocate for deficit spending are measuring prosperity simply in terms of GDP. They are asking: is there a lot of economic activity? They are not asking if we are actually better off.

This fallacious mindset is exacerbated by the fact that economists insist on including government activity in GDP — even though government activity does not necessarily improve people’s welfare the way private activity does. As economist Jeff Herbener explains: “The only way we can tell whether something in a net addition to human welfare is through voluntary purchase.” In a 2014 post on this topic, I quoted Herbener to this effect and said:

At this point, you’re either nodding your head in agreement, or an objection is popping up in your mind: “Wait, how do we know that only voluntary purchases satisfy preferences? Don’t government actions satisfy people’s preferences? Isn’t that why people vote?”

The short answer is: sure, government actions satisfy some people’s preferences, by taking money from one group and giving it to another. (Government’s economic action ultimately boils down to that.) When you take from Peter and give to Paul, Paul’s preferences are satisfied, to be sure! — but Peter’s may not be. We can’t know for sure, because Peter was not given a choice. His choice was: pay your taxes, or have men with guns take you to jail. That’s not much of a choice at all, for most people.

In the free market, however, voluntary exchange satisfies the preferences on both sides of the transaction. When a car is sold, it’s because both the dealer and the purchaser think they are better off once the sale is finalized. Otherwise, the sale would not happen.

This is the type of activity that we want to maximize: transactions in which all parties benefit. But when we include government spending in GDP, we are including transactions that don’t necessarily benefit both sides — meaning that they don’t necessarily make consumers better off.

But in the mind of Mick Mulvaney, if we can borrow money and pump up that government number, we can add to the GDP number. Sure, government economic activity redirects resources away from productive private enterprise, but who cares about that? All that matters is that magic GDP number. What we care about is activity, not output. And borrowing money can lead to a lot of activity. That’s why we’re so much better off when we have war and earthquakes — because there’s activity!

Austrian economist Ludwig von Mises once said: “War prosperity is like the prosperity that an earthquake or a plague brings.” In a quote I just made up, Nobel-prize winning Keynesian economist Paul Krugman responds by saying: “That sounds like some pretty awesome prosperity to me!”

And Trump budget director Mick Mulvaney says: “Right on, Krugman!”

This is a ridiculous mindset. But it is very common in Washington D.C. — apparently even among the new people who have come in to turn everything upside down, etc. etc.

Meet the new boss. As inefficient and economically ignorant as the old boss.

[Cross-posted at RedState and The Jury Talks Back.]

106 Responses to “Trump Budget Director: “We Need to Have New Deficits””

  1. Speaking of “unseen”, Krugman’s snarky attack blaming Trump for cholera in Puerto Rico in the hurricane aftermath was amusing … since there hasn’t yet been cholera in Puerto Rico.

    SPQR (240837)

  2. By static scoring it raises the tax cut raises the deficit, the same cbo reindeer games

    narciso (d1f714)

  3. yes yes

    the crappy bloomberg fake news elides too much discussion to have any credibility

    Mr. Mulvaney means we have to disregard the phony math from the corrupt and sleazy CBO would be my guess.

    And there’s nothing cited in the bloomberg fake news article that argues otherwise.

    happyfeet (28a91b)

  4. Even Keynes did not advocate constant deficit spending. The idea was that you would spend in deficit during a recession, then recoup it in good times. This isn’t crazy talk, either.

    But politicians know that their constituents value a hamburger today more than they worry about paying for it next Tuesday. So they spend in deficit all the time. Now, one could establish a baseline of deficit spending and then perturb about that depending on the economy, but the constant deficit adds gain to the system — the gyrations are higher and deeper.

    Which requires greater deficits and the baseline invariably moves, and now we are paying for that hamburger Friday a week.

    Kevin M (752a26)

  5. Cruz Tax Plan Would Blow a Pentagon-Sized Hole in the Budget

    An analysis of Sen. Ted Cruz’s tax reform proposal finds that the plan would slash federal revenues so deeply that even if the entire Defense Department budget were eliminated, it would still increase the federal deficit and debt.

    guess we really dodged a fiscal bullet when the voters rejected harvardtrash ted huh

    happyfeet (28a91b)

  6. hrm that link is #5 should go here

    happyfeet (28a91b)

  7. Brookings and urban institute, just sit in the corner with the dunce cap.

    narciso (d1f714)

  8. here’s the full transcript not just the part bloomberg fake news edited out

    Mr. Mulvaney makes it very clear that they’ve shaped tax reform with the goal of achieving balanced budgets in mind, and he makes a very strong argument for this approach:

    WALLACE: All right, now let’s get to the other issue you were discussing, and I — I interrupted you and I — forgive me for that, and that is the issue of cost because the Senate Republican budget plan calls for a tax cut that is going to cost the Treasury $1.5 trillion over the next ten years. And some outside experts say that the plan that was unveiled this week actually will add $2 trillion to the debt over the next ten years.

    Now, back when you were in Congress, you were a deficit hawk. What happened, sir?

    MULVANEY: Yes, I think that $2 trillion number is coming from that same organization that did not score this dynamically, didn’t look at the potential for economic growth. But you’re right, the —

    WALLACE: That’s coming from a bunch of different groups.

    MULVANEY: It does, but let’s talk about this. I’ve been very candid about this. We need to have new deficits because of that. We need to have the growth, Chris. If we simply look at this as being deficit-neutral, you’re never going to get the type of tax reform and tax reductions that you need to get to sustain 3 percent economic growth. We really do believe that the tax code is what’s holding back the American economy.

    The reason we’ve been growing at 1.8 percent for the last eight, ten years, which is way below the historical average, is in large part because of our tax code. It is important to us to get the biggest, broadest tax reduction, tax cuts, tax reform that we can possibly get because it’s the only way we get back to 3 percent growth. That’s what’s driving all of this, how do you get the American economy back on that historical growth rate of 3 percent and out of these doldrums of 1.8, 1.9 that we had of the previous administration?

    WALLACE: I want to pick up on this because their — some of your fellow colleagues in the Trump administration are not just saying that it’s going to unleash massive growth, they are saying more than that. Here is Treasury Secretary Steve Mnuchin this week.

    (BEGIN VIDEO CLIP)

    STEVEN MNUCHIN, TREASURY SECRETARY: That’s $2 trillion of additional revenues. That’s $10 trillion of economic activity. And not only will this tax plan pay for itself, but it will pay down debt.

    WALLACE: But the fact is, there is no evidence the tax cuts pay for themselves. The Reagan tax cut, back in 1981, added — added, $208 billion to the deficit over four years. The Bush tax cuts in 2001 and 2003 added $1.5 trillion to the debt over ten years.

    Mr. Mulvaney, you can argue whether or not tax cuts spur economic growth. I think that’s a perfectly legitimate argument. There is no evidence that they pay for themselves.

    MULVANEY: Well, look — just look at the facts. And you can go back, Chris, and make an assumption and you can run some numbers. You have to make a couple of assumptions about growth rates and so forth. But if we had 3 percent growth, which is what we’re trying to get to, what we’re at, by the way, right now, we’re trying to maintain that 3 percent growth. If we had been at 3 percent growth over the last ten years, the budget very nearly would be balanced this year. That’s how big a difference it makes when you grow the American economy that additional 1 percent over ten years.

    Over the next ten years, if we can grow at 3 percent instead of the 1.8 percent that the non-partisan Congressional Budget Office says that we’re going to grow and has been the average under the previous administration, if we can get to that 3 percent, it is $2 trillion to $2.5 trillion worth of more government revenues. It’s 12 million additional jobs. And those are 12 million jobs paying into Medicare, 12 million jobs paying into Social Security. Growth really is what’s driving all of this and growth is what our focus is, which is why we’re willing to accept increased short-term deficits in exchange for that long-term payoff.

    happyfeet (28a91b)

  9. To be honest, Trump has been pushing his ‘penny plan’ but all those styles of penny plans require the Congress to make an actual cut in spending. I might consider God-Emperor Trump a miracle worker, but that’s still a long road to hoe.

    Ingot (e5bf64)

  10. Brookings and urban institute, just sit in the corner with the dunce cap.

    and their analysis is any worse than CBO numbers how?

    happyfeet (28a91b)

  11. Yes I don’t take people, whose calculations were 130% off the mark.

    narciso (d1f714)

  12. oops that link *in* #5 is what #6 should have said

    Trump’s first budget: Trillions in cuts

    pls to remember that President Trump has offered to sign into law a budget that cuts more net spending than any budget proposed in history.

    Certainly more cuts than a pervert like Mitt Romney or a filthy lying war hero like John McCain would have proposed.

    And we all know what a fiscal fiasco the Bushes were that’s for sure.

    happyfeet (28a91b)

  13. I’ve read Keynes’ book, The General Theory of Employment, Interest, and Money, and essentially he states his results, and illustrates them with examples, but he doesn’t show how he arrived at them or how he knows his postulates describe economies.

    It’s pretty trivial to show that when you, or I, or the government, spends an additional dollar, more than an additional dollar of exchange-of-goods-and-services results. (There is nothing magic about the government that creates a “multiplier”–the reason they talk about the “government” multiplier is that the government can force people to spend money they don’t wish to by taxation.) That being said, the government cannot spend a dollar that it did not

    a) tax away, so by the same logic more than an additional dollar of exchange-of-goods-and-services was first subtracted from the economy, or

    b) borrow, so by the same logic more than an additional dollar of exchange-of-goods-and-services will be later subtracted from the economy, or

    c) inflate away, which means the same thing as b but you have to correct for inflation first.

    Keynes told governments what they wanted to hear, I think.

    Frederick (64d4e1)

  14. If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren’t any aliens, we’d be better [off].

    It’s revealing that his is the usual crowd that dripped and moaned about Reagan’s defence spending and whinges about current US/NATO deployments abroad.

    As though today’s wars aren’t big enough to be economically felicitous or something.

    Mark this down. This is the frivolous (oh aren’t aliens a hoot) and deluded (war is great for the economy, assuming nothing else matters) mindset that gave you the vaunted Nuclear Deal.

    And rest assured will be the same people who complain when the US and its allies have to spend, spend, spend to deal with the fallout from granting the world’s scruffiest theocracy a free hand to further destabilise their neighbours when they aren’t blowing up embassies or holy places.

    JP (f1742c)

  15. but for the love of little fuzzy caterpillars Mr. Mulvaney’s only talking about statically scored deficits that derive from cutting taxes and leaving money in the economy

    and people are getting it all twisted

    sleazy propaganda slut Ed Morrissey at low-rent clickbait site “Hot Air” is licking up the bloomberg fake news like it was a yummy puddle of his own vomit

    no links for liars you have to go over to that sewer alone by yourself

    Mulvaney has become a fan of deficits, as long as they’re “new deficits,” which apparently means deficits run up by Republicans… is sleazy low-class Cap’n Ed’s tendentious chareacterization (dishonest).

    But contrast that to what Mr. Mulvaney actually said:

    And as the budget director, you asked me an opening question, what happened to me? Why am I — why am I now interested in deficits? The only way you balance the budget in this country long-term is through sustained economic growth.

    And that’s what everything we are doing in this administration is aimed at that end goal.

    i try so hard to help people be honest but it feels like i’m swimming uphill with my fancypants on

    happyfeet (28a91b)

  16. again, people need to read the full transcript

    happyfeet (28a91b)

  17. There is of course a large difference between running a deficit because you are collecting less in taxes than you used to, as Mulvaney is talking about, and running a deficit because you are spending more money than you used to.

    A deficit now does mean taxes or inflation later of course. The optimum would be to lower taxes and spending. But fundamentally our government runs deficits because it will not control spending. But at least lower taxes means more freedom for the taxpayers in the short run. It’s the least worst of the options we’ll ever be presented with in the next few years.

    Frederick (64d4e1)

  18. Trump Budget Director: “We Need to Have New Deficits”

    Trump to Puerto Rico: “You’ve thrown our budget out of whack.”

    Make it rain, Puerto Rico. Do make it rain. Trickle down economics…

    “Don’t piss down my back and tell me it’s raining.” – Fletcher [John Vernon] ‘The Outlaw Josey Wales’ 1976

    DCSCA (797bc0)

  19. Comandante Krugman who was taken in by a fake enron reading desk, when he was a consultant there, flat head Friedman wanted s war tax like the one for the Spanish American war, that look a hundred years to go away.

    narciso (c70a1c)

  20. Speaker Paul Ryan last week urged the White House to reconsider ousting Health and Human Services Secretary Tom Price, his longtime friend who had come under fire for often using a taxpayer-funded private jet for travel, according to two people with knowledge of the call.

    the first rule of swampslut club is you do whatever you can to keep your swampslut friends installed in cabinet positions

    so if you had any doubts about whether President Trump was right about kicking Dr. pricey-pants to the curb, you can let those go

    happyfeet (28a91b)

  21. Trump should retire, his cabinet sucks.

    mg (31009b)

  22. Republicans need to brand the democrats as the world leader in killing babies and selling their parts. Everyday all day, thats all they should be talking about. They won’t because they love them parts and they have no balls.

    mg (31009b)

  23. All the ammunition the republicans need is right here. They won’t say or do a damn thing about these baby killers. I have given up on all republican slugs. Trump included. Me against the world. Bring it on you abortion killing freaks. Imagine cutting up babies for parts. This is sick, somebody please stop it.

    mg (31009b)

  24. Here is the info. I’m a losing it sideways.-http://dailycaller.com/2017/10/03/federalist-co-founder-uses-basic-math-to-put-planned-parenthood-in-its-place/

    mg (31009b)

  25. daca donald needs to be impeached, I was dead wrong thinking this country had a chance with daca donny. How ever many lashes I deserve I will take them. Should have trusted Patterico.

    mg (31009b)

  26. @8 It’s all rainbows and unicorns. We didn’t grow out of Reagan’s tax cuts, and we didn’t grow out of Bush’s. Kansas is the most recent example where magical thinking resulted in increased deficits.

    Davethulhu (fab944)

  27. this post is saying the economy is worse off if the government lets you keep more of your money

    i do not believe this is true

    tax cuts should not be held hostage by phony static analysis

    poor pitiful failmerica doesn’t have a revenue problem

    it has a spending problem

    happyfeet (28a91b)

  28. I agree with Patterico that the broken window fallacy is indeed a fallacy. However, not al (or even a majority) of government spending is on broken windows. Ironically, the most popular (among conservatives) government spending – the military – is largely broken windows, something that was addressed by Eisenhower’s famous speech.

    Davethulhu (fab944)

  29. the broken window fallacy’s no good except it’s gonna be awesome for them puerto ricans cause it won’t cost them a dime and – BONUS – they’ll still get to hate america’s filthy guts after we rebuild everything for them

    happyfeet (28a91b)

  30. Ironically, the most popular government spending among spendthrift liberals (essentially all of them) is on everything BUT the military.

    Colonel Haiku (43fb26)

  31. Fire people
    Cut grants
    Cut salaries
    Disallow a bunch of medical procedures in Medicare and certain prescriptions.
    Savage medicaid for those under 55.
    Cut the weapons programs
    Freeze spending at nominal levels for another 15 years.

    … deficit solved.

    Growing your way out of it is impossible b/c minute too much money comes in, they decide to jack up spending the second it does.

    Just a liars game the way it is played now and no one wants to see their pocket book attacked..

    Poor Biggie (987b85)

  32. #28 Dropping knowledge.

    People keeping their money is not the problem.

    Govt taking their money is.

    Poor Biggie (987b85)

  33. Cut spending, then. Republicans have both houses and the Presidency. But don’t cut taxes and say spending cuts come later because we all know that’s a lie.

    Davethulhu (fab944)

  34. republicans do not control the senate

    happyfeet (28a91b)

  35. I think the OP mis-reads Mulvaney’s comment.

    He’s saying that if you wait until you have a tax-cut plan that is deficit-neutral, you will never have a tax-cut plan. You cannot off-set lost revenue from tax cuts with tax increases in other places so as to be revenue-neutral, and still have the kind of economic stimulus FROM TAX CUTS that gets you 3% growth.

    So, if you want to get a tax cut plan now which will get 3% growth, then you have to accept that the plan is going to raise deficits in the short term based on the static scoring applied by the CBO.

    He’s not advocating deficit spending as a policy — only recognizing the reality in Congress that if you want a tax cut play to stimulate growth, you aren’t going to get spending cuts to make it revenue neutral.

    shipwreckedcrew (56b591)

  36. Mulvaney described himself as a deficit hawk in June, but he also said it was necessary to repeal and replace ObamaCare in order to cut taxes without raising the deficit. Maybe he decided that raising the deficit is the price to pay to cut taxes, now that repeal and replace failed.

    DRJ (d35869)

  37. Mr. Mulvaney’s the number one deficit hawk he wants to balance those gosh darn budgets

    for the children

    happyfeet (28a91b)

  38. b.s. happyfeet. He has no love for work boot wearing individuals, only big money lying hacks.
    I’m done.

    mg (31009b)

  39. if we were talking about gary cohn i’d agree with you

    happyfeet (28a91b)

  40. DRJ sees what I see at 37.

    He’s advocating what Patrick wants — tax cuts which leave money with the people rather than sending it to Washington — but he can’t couple it with gov’t spending cuts because there isn’t the political will in Congress to reduce spending. So you end up with greater deficits in the short term.

    But the goal is greater economic activity which will generate greater revenue with the same tax rates in the future.

    shipwreckedcrew (56b591)

  41. Robertscare involved about a 100 different taxes, as our vice president used to say, it was a bfd

    narciso (d1f714)

  42. Olympia Snowe for letting Obolacare out of Committee. She has never been vilified and denigrated for that.

    Roberts, Harvardtrash. And a lawyer. Enuff said.

    Poor Biggie (987b85)

  43. There is no bottom to the former Swamp, known as Washington D.C.

    Ben burn (c2b66f)

  44. The middle class which gets up every day and goes to work and comes back home ten hours later is not getting a tax. It’s getting a tax increase.

    nk (dbc370)

  45. Its not a swamp, its a minefield with barbed wire.

    narciso (d1f714)

  46. is not getting a tax *cut*

    nk (dbc370)

  47. Frederick (#13):

    I’m betting you favor a gold standard because your analysis assumes that there is no new wealth ever.

    “Money” is commodity that corresponds to wealth. Ideally it balances wealth in some fashion. If you print money faster than wealth is created, you inflate. If wealth is increasing and you refuse to add money to the system, you deflate; something that they discovered in the 1880s. Money by itself is meaningless, only its usefulness in transferring/obtaining wealth matters.

    Kevin M (752a26)

  48. The barbed wire is there for Trump. He thinks land mines are vaginas.

    nk (dbc370)

  49. Trump should retire, his cabinet sucks.

    Trump should announce that he will step down after his wall gets built.

    Kevin M (752a26)

  50. I settled on this metaphor, after the mild travel ban and the necessary removal of comfy, met with such resistance.

    narciso (d1f714)

  51. You know when I call them molochs minions:
    https://mobile.twitter.com/Alexruoff/status/915320003888664582

    narciso (d1f714)

  52. You are not going to stimulate the economy by taxing the productive part of it — the middle class — while lowering the taxes of the parasites at the top and leaving the parasites at the bottom as is.

    nk (dbc370)

  53. Kevin M, at 50: who would believe him? It’s not like he keeps his promises.

    aphrael (e0cdc9)

  54. I’ll be a little more at ease if he announces what day of the week it is.

    nk (dbc370)

  55. Correctly.

    nk (dbc370)

  56. There is of course a large difference between running a deficit because you are collecting less in taxes than you used to, as Mulvaney is talking about, and running a deficit because you are spending more money than you used to.

    A deficit now does mean taxes or inflation later of course. The optimum would be to lower taxes and spending. But fundamentally our government runs deficits because it will not control spending. But at least lower taxes means more freedom for the taxpayers in the short run. It’s the least worst of the options we’ll ever be presented with in the next few years.

    Oh, I agree. But Mulvaney is extolling deficits for their own sake, in a clearly Keynesian way. He is not saying: “tax cuts are good for the economy even if we can’t manage spending cuts.” He is saying deficits are good for the economy. “We need to have new deficits because of that.” That is a very Keynesian way of expressing the issue and it is depressing to see that he has bought in to the Keynesian nonsense.

    Patterico (115b1f)

  57. If wealth is increasing and you refuse to add money to the system, you deflate; something that they discovered in the 1880s.

    I continue to maintain that this sort of deflation is not a problem, and that the 1880s had one of the greatest economic expansions in U.S. history.

    Patterico (115b1f)

  58. Mulvaney is extolling deficits for their own sake, in a clearly Keynesian way.

    no if you read the transcript that is clearly not what he is saying

    happyfeet (28a91b)

  59. here it is

    happyfeet (28a91b)

  60. 57 — I think you are doubling down on your mistake. Go read the transcript. He’s saying that he cannot make the tax-cut plan revenue-neutral. The debate going on is if you want to cut tax “A”, in order to make it revenue neutral, you have to pay for it by raising tax “B”. The Dems approach is always to simply raise the top marginal rate.

    The debate yesterday broke into the open because of opposition from high tax states like Calif, New York, and New Jersey to the idea to eliminate the federal deduction for state and local taxes.

    The Trump admin signaled “softness” on the repeal – meaning reduced tax rates will not be offset by eliminating deductions. So you get a bigger deficit.

    To Mulvaney, the most important feature of tax reform is getting marginal rates down, even if it means higher deficits.

    He’s not promoting “deficits cause growth”. He’s saying to get tax rate reductions, we might have to live with larger deficits now.

    He’s advocating rate cuts — deficits are a consequence when there are no spending offsets.

    shipwreckedcrew (56b591)

  61. 57 – I think he said exactly what you say he didn’t say.

    He’s talking about how to get to 3% growth, and he says tax cuts are the way to get to 3% growth.

    Deficits result without off-setting spending cuts, but that’s a price worth paying in the short run in an economy that has grown under 2% for 8 years.

    shipwreckedcrew (56b591)

  62. the magic of compounded growth

    this used to be a real thing in America

    happyfeet (28a91b)

  63. He was responding to Chris Wallace’s insistence that the tax cuts be “paid for” in some manner — increasing other taxes or reducing spending — and he wasn’t going for it.

    Basic journo ignorance.

    shipwreckedcrew (56b591)

  64. 57 – I think he said exactly what you say he didn’t say.

    He’s talking about how to get to 3% growth, and he says tax cuts are the way to get to 3% growth.

    Deficits result without off-setting spending cuts, but that’s a price worth paying in the short run in an economy that has grown under 2% for 8 years.

    The thing he said that I object to is this:

    We need to have new deficits because of that.

    You claim:

    He’s not promoting “deficits cause growth”. He’s saying to get tax rate reductions, we might have to live with larger deficits now.

    It’s pretty bad communication if you say you “need” something when you really mean you “might have to live with” that same something.

    I think it’s nice that you’re trying to put a charitable spin on his comments, but the actual words he used deserve exactly the criticism I have leveled, in my view. We do not “need” deficits. Mulvaney said we do. But we do not.

    Patterico (115b1f)

  65. Deficits result without off-setting spending cuts

    Deficits result with them too. They could “pay for” these tax cuts all day long, and we would still have a giant spending problem. One that President Trump doesn’t give two sh!ts about.

    Patterico (115b1f)

  66. Mulvaney described himself as a deficit hawk in June, but he also said it was necessary to repeal and replace ObamaCare in order to cut taxes without raising the deficit. Maybe he decided that raising the deficit is the price to pay to cut taxes, now that repeal and replace failed.

    That may be, DRJ, but Keynesians typically say we “need” deficits — just read Paul Krugman for a month or so — and so it gets my antennae up when a Trump administration official says the same thing.

    Keynesian fallacies need to be batted down whenever they are encountered.

    Patterico (115b1f)

  67. Even if the CBO says the lower rates will increase nominal tax revenues do we really believe the CBO?

    Poor Biggie (987b85)

  68. Under static analysis, the tax cuts come up snake eyes, but mulvaney was talking of the trade offs re economic growth, just like the rate of interest needed to curb inflation, after the Phillips curve was found inadequate

    narciso (d1f714)

  69. I agree that tax cuts will spur growth and that the extent of the deficit is exaggerated under a static analysis. That said, the amount of growth is very unlikely to cause the tax cuts to “pay for themselves” and historically that does not happen, even though politicians sometimes falsely claim it does.

    Patterico (115b1f)

  70. And as I said, I agree with Frederick that an increase in the deficit caused by tax cuts is preferable to an increase in the deficit caused by spending increases.

    Patterico (115b1f)

  71. READ THE TRANSCRIPT rather than take one cherry picked poor use of words from a reporter’s account of what he said.

    The entire exchange was about getting 3% growth, and why tax rate cuts are necessary to free up capital needed to do that.

    Its EXACTLY the position you advocate.

    shipwreckedcrew (56b591)

  72. Pretty soon “read the transcript” will qualify for moderation.

    BuDuh (fc15db)

  73. i read the transcript

    sure looks like Mr. shipwrecked has the better part of the argument to me

    happyfeet (28a91b)

  74. The problem with what passes for ‘austerity economics’ on the continent Luke that recommended by the IMF, re Greece as tax increase and spending cuts, is contractionary.

    narciso (d1f714)

  75. shipwreckedcrew: I read it. No need to shout. I am not going to convince you and you are not going to convince me. I’m glad you see it’s a poor choice of words. Sometimes a poor choice of words causes people to interpret people’s words according to what they actually say. If what he actually said is not what he meant, join with me in calling on him to correct himself.

    Patterico (115b1f)

  76. And, by the way, this is false:

    And as the budget director, you asked me an opening question, what happened to me? Why am I — why am I now interested in deficits? The only way you balance the budget in this country long-term is through sustained economic growth.

    Entitlements absolutely must be reformed and taking any other position is dishonest.

    Patterico (115b1f)

  77. Agreed there is only so much patience, even mulvaney has with a blackhead like Chris Wallace. I would say that the prospect of higher growthrates are worth a nominal increase innthe deficit, as cibventionally scored.

    narciso (d1f714)

  78. That opens up a whole other can of worms, which entitlements are you going to cut, and how much, in return for tax cuts forvthe rich?

    narciso (d1f714)

  79. And as the budget director, you asked me an opening question, what happened to me? Why am I — why am I now interested in deficits? The only way you balance the budget in this country long-term is through sustained economic growth. And that’s what everything we are doing in this administration is aimed at that end goal.

    oh i get it

    he’s saying we need to have growth-oriented tax policies to balance the budget in this country long-term

    happyfeet (28a91b)

  80. Essentially, I would phrased it another way, Wallace was trying a grieder trap*

    *what grieder did to David stickman, in the Atlantic.

    narciso (d1f714)

  81. I apologize. I thought my last comment was clear that I think Mulvaney has completely changed his tune on deficits, but now I see it wasn’t clear. Let me put it this way: A deficit hawk would not agree to raise the deficit in order to cut taxes.

    DRJ (15874d)

  82. by that logic a deficit hawk should want to raise taxes a LOT cause omg deficits

    happyfeet (28a91b)

  83. I wouldnt go on Wallace NYC less Wallace, but because the braintrust if the inc chose to favor them with debates they are considered authorities. The only things they want to hear is how much can oh raise spending (sans military if course) and taxes, because Keynes is the hymn book.

    narciso (d1f714)

  84. Well, yes, a deficit hawk would impose a flat 5% tax per annum on net worth over $5 million until the budget was balanced. That’s what I would do. Then watch spending being reduced by 50% within one year because that’s what all the rich would order their lackeys in Congress to do, in order to put an end to the tax.

    Of course, you see the flaw in that.

    nk (dbc370)

  85. no that works

    happyfeet (28a91b)

  86. It ought to be obvious. A deficit hawk believes cutting the deficit is priority number one, using whatever spending cuts and tax increases are possible. Of course, the more of one, the less of the other. But cutting taxes without caring about spending cuts that at a minimum would balance the decreased tax revenue is essentially the opposite.

    Mukvaney

    kishnevi (d097a6)

  87. You need to start that passage with ‘once upon a time’ what impact did the yacht tax forvinstance have. Personally some of these rich fat cats need to get rinsed, this is something cannon suggested, the cry was heresy.
    ts

    narciso (d1f714)

  88. Hit the wrong button

    Mukvaney/Mulvaney is saying that tax cuts will in the long run produce growth that will produce more tax revenue, and in the meantime we just need to let the economy grow. A deficit dove?

    kishnevi (d097a6)

  89. Bannon suggested, so which programs are you going to cut. The suggestion is entitlements, which ones and his much. Conversely considering what the sequester wrought how much mire would you cut out of defense. Don’t tell you can’t anticipate those three moves.

    narciso (d1f714)

  90. What entitlements do is buy our votes with our money. Now which is the safer way for me to get your vote?
    1) I take your money and give some of it back to you if you vote for me?
    2) I promise not to take your money if you vote for me?

    nk (dbc370)

  91. Fine go tell your patents and grandparents and their neighbors bring a helmet.

    narciso (d1f714)

  92. @Kevin M:I’m betting you favor a gold standard because your analysis assumes that there is no new wealth ever.

    There is nothing I said that amounts to that. I think you must be confusing my comment with someone else’s.

    I actually said the opposite of what you claim I said: “no new wealth is created ever”. Explicitly said the opposite:

    It’s pretty trivial to show that when you, or I, or the government, spends an additional dollar, more than an additional dollar of exchange-of-goods-and-services results.

    Same money, but increase in wealth, because that single additional dollar help goods and services get rearranged to produce more than one dollar of value. That’s economic growth.

    Frederick (63491b)

  93. @nk: What entitlements do is buy our votes with our money. Now which is the safer way for me to get your vote?

    3) I promise to take other people’s money and give it to you. That money might come from people you resent, or future taxpayers.

    Frederick (63491b)

  94. I don’t exempt Social Security. Ida May Fuller was the first to collect; during her lifetime she collected a total of $22,888.92 in Social Security benefits and paid in $24.75. It was other people’s money paid to her, even after accounting for inflation.

    Frederick (63491b)

  95. But in the mind of Mick Mulvaney, if we can borrow money and pump up that government number, we can add to the GDP number.

    Actually, the theory Mulvaney is operating on is that private economic activity would rise.

    He’s not advocating government spending; he’s advocating less government income.

    This is not Keynesian at all, where it is the deficit itself that stimulates the economy, and it doesn’t matter how you get a deficit, (or more of a deficit.) Whther it’s from more government spending or from less government revenue.

    Mulvaney is not at all saying every kind of deficit creates economic growth. He’s saying lower taxes does, regardless of what happens to spending. This is not like Obama’s stimulus in 2009.

    Now this theory is wrong too, and disproven by history.

    Also wrong is the idea that wars create prosperity. In the past, wars really did create economic growth, and real growth, but not for the kind of reason you give, which you correctly say is wrong.

    It was because wars and other emergencies tend to cause governments to shake off all fiscal restraints.

    The key thing is monetary policy which is usually too tight.

    Sammy Finkelman (f1bb90)

  96. 69. narciso (d1f714) — 10/3/2017 @ 6:32 pm

    69 …like the rate of interest needed to curb inflation,

    raising interest rates doesn’t curb inflation, it causes it.

    But when someone controls the rate of interest, it’s not so difficult to get cause and effect reversed, and then to think they should have acted just a bit sooner to fight inflation.

    And economic growth, if sustined long enough, will put an end to inflation, like it did in 1948.

    after the Phillips curve was found inadequate

    The Phillips curve is untrue. And in an earlier period of time, and the last time was the Great Depression of he 1930s, and it took quite a bit for this to work even in 1920, it worked by causing a breakdown in inventory control, which doesn’t happen in a contraction any more, but can happen in an expansion as production finally gets ahead of demand.

    Sammy Finkelman (f1bb90)

  97. I continue to maintain that this sort of deflation is not a problem, and that the 1880s had one of the greatest economic expansions in U.S. history.

    The 1880’s had THE greatest wealth expansion in our history. with the opening of the West. A bazillion acres of new land and new ways to get there and exploit it. But with a gold standard, there was no way to account for it properly and you had massive increases in the value of existing money. Great if you have some, but MONEY is not supposed to be an investment in itself.

    Producers in a deflation economy are chasing too few dollars with too much product and some of them fail, not because they’re inefficient but because no one is buying at any reasonable price. With money growing in value, consumers stop spending and start hording money. Vicious circle results.

    But we’ve had this argument before.

    Kevin M (752a26)

  98. ME: I’m betting you favor a gold standard because your analysis assumes that there is no new wealth ever.

    Frederick: There is nothing I said that amounts to that. I think you must be confusing my comment with someone else’s.

    Well…

    Frederick (#13): That being said, the government cannot spend a dollar that it did not….

    c) inflate away, which means the same thing as b but you have to correct for inflation first.

    Why does government printing money and spending it cause inflation? It didn’t over the last 8 years.

    (I also don’t see the idea of “goods/services added or subtracted from the economy” as an unnecessary correction for any tax or borrowing, or money-printing operation. It MAY be, but not necessarily. You can also do nothing and need to add/subtract. There is no zero-sum, not even locally.)

    Kevin M (752a26)

  99. * unnecessary

    Kevin M (752a26)

  100. 99. Kevin M (752a26) — 10/4/2017 @ 1:23 am

    Why does government printing money and spending it cause inflation? It didn’t over the last 8 years.

    he can give you a logical reason why it should. Which ignores the fact that it doesn’t really happen.

    There are two things that sustain this dogma.

    1. Overlooking the fact that the supply of goods and services is not dfixed. Well, they think it is not fixed but the growth rate is, and the unemployment rate tells you how much the economy can expand. They would never know exactly they would say, but surely when the unemoloyment rate is lwo the potential growth rate must be also.

    2. The fact that the reverse is true. While the government printing money does not cause inflation, inflation causes the government to print money!!

    (I also don’t see the idea of “goods/services added or subtracted from the economy” as an unnecessary correction for any tax or borrowing, or money-printing operation. It MAY be, but not necessarily. You can also do nothing and need to add/subtract. There is no zero-sum, not even locally.)

    Sammy Finkelman (02a146)

  101. (I also don’t see the idea of “goods/services added or subtracted from the economy” as an unnecessary correction for any tax or borrowing, or money-printing operation. It MAY be, but not necessarily. You can also do nothing and need to add/subtract. There is no zero-sum, not even locally.)

    He assumes zero sum.

    A lot of economic thinking is not only wrong, but obviously wrong.

    Sammy Finkelman (02a146)

  102. @Kevin M:Why does government printing money and spending it cause inflation? It didn’t over the last 8 years.

    Not according to the CPI calculator, which has 16% total inflation from January 2008 to August 2017. That’s not zero inflation, though it is small.

    There is no zero-sum, not even locally.)

    I never said or assumed that there was, and explicitly said there was not.

    You are somehow assuming tons of things I believe based on some word I used that you’ve associated with this idea, that’s the only thing I can think of.

    @Sammy:He assumes zero sum.

    I don’t understand how you can say that I am assuming something that I explicitly denied, in the original comment and in my follow-up.

    Would you like to know my assumptions? Then ask me.

    Frederick (64d4e1)

  103. “You need to start that passage with ‘once upon a time’ what impact did the yacht tax forvinstance have. Personally some of these rich fat cats need to get rinsed, this is something cannon suggested, the cry was heresy.
    ts”

    I must be losing it, narco. You actually made a coherent point I can agree with.

    Ben burn (c770f4)

  104. In fact it sounds like non-fascism almost to the point of redistribution of wealth waking nightmares.

    Ben burn (c770f4)


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