Deferring War Costs - Political Forum

CHUQ · 01-17-2007, 05:33 AM

NEW YORK - To pay for World War II, Americans bought savings bonds and put extra notches in their belts. President Harry Truman raised taxes and cut nonmilitary spending to pay for the Korean conflict. During Vietnam, the US raised taxes but still watched deficits soar.

But to pay for the ongoing wars in Iraq and Afghanistan, the US has used its credit card, counting on the Chinese and other foreign buyers of its debt to pay the bills.
(Photograph)
'Calling [the war] an emergency means the [war] spending does not get the scrutiny.'- Rep. John Spratt (D), chairman, House Budget Committee

Now, as President Bush is promising to boost the number of troops in Iraq, there is increased scrutiny over how the US is going to pay for it all.

How US is deferring war costs | csmonitor.com

Will this be good or will it be one of the contributors, if we have a recession?

Troianii · 01-17-2007, 05:43 PM

It's a good old mess. The administration moves to cut taxes (which in the long run increases revenue), and politicians pass the tax cuts. But when it comes to cutting spending, no one is willing to cut spending because they don't want to alienate special interests.

Daewoo · 01-18-2007, 12:34 AM

Quote:

Originally Posted by Troianii

It's a good old mess. The administration moves to cut taxes (which in the long run increases revenue), and politicians pass the tax cuts. But when it comes to cutting spending, no one is willing to cut spending because they don't want to alienate special interests.

Cutting taxes only increases revenues if taxation is high enough that it stifles the availability of expansion capitol. That is CERTAINLY not the case in the US.

What you are talking about here is the Laffer curve. Unfortuantly, you are giving the "Reagan version" of the laffer curve, which even his own economic advisors admit is completely and totally WRONG.

There is a quote form David Stockman (Reagans budget director) that is fairly famous in economic circles:

Quote:

The whole California gang had taken the Laffer curve literally (and primitively). The way they talked, they seemed to expect that once the supply-side tax cut was in effect, additional revenue would start to fall, manna-like, from the heavens. Since January, I had been explaining that there is no literal Laffer curve.

Studies that have been done re: the laffer curve that attempt to pinpout the peak of the curve based on historical revenues, tax rates, and GDP put the hypothetical peak at somewhere near 80%.

People point at the reagan tax cuts, and more recently the Bush tax cuts, as "proof" that cutting taxes will increase revenue. Unfortunatly, they fail to take into account that we KNOW for an absolute FACT that increased government spending, and especially deficit spending, will increase government tax revenue, though at a terrible price in the long run.

In one of my economic classes in college one of our projects was to research historical government spending and tax revenue fluctuations. It quickly became apparent that not only was there a relationship there, it was a predictable relationship, and once you factored in the excess spending during the reagan administration, the tax cuts without a question harmed revenue. In fact, based on the historic relationship between gvt spending and revenue intake, the reagan tax cuts reduced the benifits of that spending by nearly 20%.

Now we have a bunch of people running around who, like reagan, don't actually undeerstand the concept behind the laffer curve, flapping their arms and claiming that the Bush cuts were the cause of increased revenue. They apparently dismiss the idea that MAYBE the half trillion dollars in excess spending, nearly 20% of which has been facilitated by the moneterazation of bonds on the back side, have something to do with it. WAKE UP PEOPLE.

Troianii · 01-18-2007, 06:55 PM

The facts disagree with what you're saying.

Quote:

Economic Growth. The average annual growth rate of real gross domestic product (GDP) from 1981 to 1989 was 3.2 percent per year, compared with 2.8 percent from 1974 to 1981 and 2.1 percent from 1989 to 1995. The 3.2 percent growth rate for the Reagan years includes the recession of the early 1980s, which was a side effect of reversing Carter's high-inflation policies, and the seven expansion years, 1983-89. During the economic expansion alone, the economy grew by a robust annual rate of 3.8 percent. By the end of the Reagan years, the American economy was almost one-third larger than it was when they began. [13] Figure 1 shows the economic growth rate by president since World War II. That rate was higher in the 1980s than in the 1950s and 1970s but was substantially lower than the rapid economic growth rate of more than 4 percent per year in the 1960s. The Kennedy income tax rate cuts of 30 percent that were enacted in 1964 generated several years of 5 percent annual real growth.

Economic Growth per Working-Age Adult. When we adjust the economic growth rates to take account of demographic changes, we find that the expansion in the Reagan years looks even better and that the 1970s' performance looks worse. GDP growth per adult aged 20-64 in the Reagan years grew twice as rapidly, on average, as it did in the pre- and post-Reagan years.

Median Household Incomes. Real median household income rose by $4,000 in the Reagan years--from $37,868 in 1981 to $42,049 in 1989, as shown in Figure 2. This improvement was a stark reversal of the income trends in the late 1970s and the 1990s: median family income was unchanged in the eight pre-Reagan years, and incomes have fallen by $1,438 in the anti-supply-side 1990s, following the 1990 and 1993 tax hikes. [14] Most of the declines in take-home pay occurred on George Bush's watch. Under Bill Clinton's tenure, there has been zero income growth in median household income.

Employment. From 1981 through 1989 the U.S. economy produced 17 million new jobs, or roughly 2 million new jobs each year. Contrary to the Clinton administration's claims of vast job gains in the 1990s, the United States has averaged only 1.3 million new jobs per year in the post-Reagan years. The labor force United States has averaged only 1.3 million new jobs expanded by 1.7 percent per year between 1981 and 1989, but by just 1.2 percent per year between 1990 and 1995. [15]

Hours Worked. Table 1 confirms that hours worked per adult aged 20-64 grew much faster in the 1980s than in the pre -or post-Reagan years.

Unemployment Rate. When Reagan took office in 1981, the unemployment rate was 7.6 percent. In the recession of 1981-82, that rate peaked at 9.7 percent, but it fell continuously for the next seven years. When Reagan left office, the unemployment rate was 5.5 percent. This reduction in joblessness was a clear triumph of the Reagan program. Figure 3 shows that in the pre-Reagan years, the unemployment rate trended upward; in the Reagan years, the unemployment rate trended downward; and in the post-Reagan years, the unemployment rate has fluctuated up and down but today remains virtually unchanged from the 1989 rate.

Productivity. For real wages to rise, productivity must rise. Over the past 30 years there has been a secular downward trend in U.S. productivity growth. Under Reagan, productivity grew at a 1.5 percent annual rate, as shown in Figure 4. This was lower than in the 1950s, 1960s, and 1970s but much higher than in the post-Reagan years. Under Clinton, productivity has increased at an annual rate of just 0.3 percent per year--the worst presidential performance since that of Herbert Hoover.

Inflation. The central economic evil that Ronald Reagan inherited in 1981 from Jimmy Carter was three years of double-digit inflation. In 1980 the consumer price index (CPI) rose to 13.5 percent. By Reagan's second year in office, the inflation rate fell by more than half to 6.2 percent. In 1988, Reagan's last year in office, the CPI had fallen to 4.1 percent. Figure 5 shows the inflation and interest rate trend.

Interest Rates. In 1980 the interest rate on a 30-year mortgage was 15 percent; this rate rose to its all-time peak of 18.9 percent in 1981. The prime rate steadily fell over the subsequent six years to a low of 8.2 percent in 1987 as the inflationary expectation component of interest rates fell sharply. The prime rate hit its 20-year low in 1993 at 6.0 percent. The Treasury Bill rate also fell dramatically in the 1980s--from 14 percent in 1981 to 7 percent in 1988. In the 1990s, interest rates have continued to migrate gradually downward, as shown in Figure 5.

Savings. The savings rate did not rise in the 1980s, as supply-side advocates had predicted. In fact, in the 1980s the personal savings rate fell from 8 percent to 6.5 percent. [16]In the 1990s the average savings rate has fallen even further to an average of 4.9 percent [17]--although the rate of decline has slowed.

Are you denying that tax cuts help the economy?

Supply Tax Cuts And The Truth About The Reagan Economic Record

Quote:

On 8 of the 10 key economic variables examined, the American economy performed better during the Reagan years than during the pre- and post-Reagan years.

Daewoo · 01-18-2007, 07:38 PM

Quote:

Originally Posted by Troianii

The facts disagree with what you're saying.

Are you denying that tax cuts help the economy?

Supply Tax Cuts And The Truth About The Reagan Economic Record

In order to claim that the facts disagree, firt you are going to have to post those facts that disagree. What you posted was the incomplete bullshit lie that people use to claim that tax cuts will automatically boost the economy.

Read through the article you posted.

The Author claims, and correctly so, that economic growth, median family income, interest rates, inflation, and unemployment all improved under Reagan, but savings decreased. Then he goes on to try to tie it to the reagan tax cuts.

What he fails to mention is that increased government spending has ALWAYS...EVERY SINGLE TIME in history, resulted in improvements in interest rates, inflation, median income, growth, and unemployment.

So, we had massive increases in government spending, and we had the predictable results of that spending. Therefore it must have been the tax cuts.

At the end of the depression, taxes INCREASED. We had improvement ins all the same areas (though in many cases the "improvment" was movement opposite to what we need today). Was that improvement due to the tax increases? Can we infer from that improvement that raising taxes is good for the economy? Hell no. Everybody knows that what dragged us out of the depression was WWII and the massive governemtn spending that came with it.

However, somehow we are supposed to believe that years later, when the exact same thing happens....increased government spending results in improved economic fundamentals....it was due to tax cuts.

They must think we are all a bunch of idiots.

No article that fails to include discussion of the deficit spending during the reagan years in an analysis of the economic fundamentals is even worth considering since in the past, tax cuts have never, ever had the claimed effect, but increased government spending always has. Essentially, in order to argue the "tax cuts increase revenue and help the economy unconditionally" somebody is going ot have to explain why recent tax custs are different from past tax cuts and why recent government spending is different than past government spending and it just isn't going to happen.

Ultimatly, the only thing that the Bush and Reagan tax cuts proved is that government spending still has a psotive short term effect on your fundamentals. The Bush I presidency showed that if you stop that government spending, you get a nasty recession, and that if you change the way you calculate those fundamentals, you can make it less nasty. The clinton presidency showed that if you change those calculations even more (lie harder) you can actually make those negative fundamentals go away, and if you can build a nice, shiny equity bubble, you can shove the problems created by reagan off on somebody else.

george.d · 01-18-2007, 09:22 PM

I think the post is displaying some fundamental differences in opinion on the specifics of what constitutes economic growth with regard to capital input. If GDP improves from injected capital, that requires a cost of capital calculation to increase/reduce by sources.

The two positions, expansion derived from trade gleaning new wealth and modest inflation is ideal. Expended public capital bearing interest identifying a new world tax and debt service with decreasing capital value not, IMO, a long-term plan.

Neocons argue that US capital expansion is unlimited if USD remains the only medium of exchange for oil and other commodities and signed trade agreements, achievable with the world's strongest military if US domestic economic circumstances remain stable. A new equity expansion economic bubble, considering we haven't yet felt the big blowout from the housing bubble, looks to me like a real challenge in the US.

I feel that's short term thinking and planning due to escalations of military power and actions required to keep those we intimidate in line. We, the US, can't afford to reduce military spending or we tank. Printing more money based on debt bolstered by military aggressiveness expanding national and personal debt is now the government side of capital injection; Reagan's legacy. Spend to make America prosperous even if you don't have it but can charge it sounds, to me, very stupid.

Daewoo · 01-18-2007, 10:48 PM

What gets me is that we still people arguing for the sustainability of infinite debt growth. People, especially the neocons, are still saying that the rest of the world will gladly support our debt and monetary policies. Nations are actively moving away from dollar assets. Central banks are openly talking capitulation, and the neocons are still wandering around going "no problems here...we will just borrow some more".

It is downright depressing. During the Reagan era, they invented a whole BS line of economic thought to justify their policies and worked very hard to cover up the realities of the situation (that they were just dumping money into the economy to make it boom). Today, they don't even have to bother with the BS theories. They just cut taxes and say "cutting taxes will restore the economy" without any explanation as to how exactly that is going to work given the lack of demand for expansion capital. Then they borrow hundreds of billions to dump into the economy and say "look...it worked" and even without the obfucation from experts filling the publics heads with nonsense that they later recant and apologize for, the american public actually buys this crap.

This kind of thing almost makes me hope that right now AQ operatives are setting up extremely large nuclear weapons in americas major cities. Being remembered as the country that failed after a surprise nuclear attack is not that bad. To have the history remember that your nation failed because you pissed away the greatest fortune the world has ever seen in the course of a half a century is just downright embaressing.

You and I both know that what is going to end up in the history books is the apologists crap like "Deficits are GOOD because they allow you to buy more crap" and "Debt does not actually matter" and "the trade deficit is meaningless" and mt personal favorite, "You do not actually have to PRODUCE anything to generate new wealth". People are going to read that stuff in the future and say "No wonder the US failed....it was populated entirely by idiots".

Its insulting.

george.d · 01-19-2007, 12:02 PM

What's insulting is the way the general public keeps bending over for more.