Lib/dems have made a living boasting about the Clinton tax hikes in 1993, and how the economy took off as a result. Obama has made his pitch for raising taxes now almost soley based on that. But how true is it? Below is a snippet or 2 from a piece written by Joel Harris back in 2010, the last time Obama tried to get his tax hike on the rich. It presents a different picture from the one painted by Obama and the lib/dems. The thrust of the article is that
" it's worth taking a look at the actual engine of 1990s growth: improved productivity in information technology (IT) manufacturing and increased investment in IT equipment. The research examining the IT-led expansion from 1995-2000 shows it to be a unique and surprisingly unanticipated event that has no bearing on the tax decisions confronting Congress today.
First, it is important to recall the relatively poor performance of the U.S. economy in the early 1990s. From 1990-1995, real gross domestic product (GDP) grew at an average annual rate of just 2.4% per year (down from 4.3% real annual growth from 1983-1989), and multi-factor productivity gains the most comprehensive measure of productivity limped along at an average of 0.5% per year. (Productivity had slumped since the 1970s, despite the diffusion of personal computers. This led to Nobel laureate Robert Solows famous observation that you can see the computer age everywhere but in the productivity statistics). "
.
.
" After a slight dip in 1995, GDP growth took off averaging 4.3% a year in real terms from 1996-2000. Multi-factor productivity rose at an annual clip of 1.3% (over the 1995-2000 period), while labor productivity increased as well: a 2004 Brookings Institution study estimated that from 1995-2001 labor productivity grew at an average annual rate of 2.6% in services (a major source of overall improvements in workers efficiency) and 2.3% in manufacturing.
So what explains the productivity surge and the sharp rise in economic growth during the late 1990s? In a 2007 paper, a team of economists lead by Harvards Dale Jorgenson found the economic expansion was driven by efficiency increases in the production of IT, including computers, software and telecommunications components. Improvements in IT production resulted in higher rates of decline in IT prices, stimulating decisions by firms, households, and governments to invest in IT equipment and software.
.
.
" The story of the 1990s economy holds an important lesson for todays tax debate, but its not the one the Administration intends by invoking it. While the Clinton-era expansion did indeed take place under higher tax taxes, it was largely due to crucial changes in IT production and investment that led to growth and once-in-a generation productivity gains. The lesson here is a basic but important one: the past doesnt predict the future. If the Administration believes there are similar productivity gains on the horizon that will lift the U.S. economy out of its financial crisis-induced hangover, it should explicitly identify the source of these gains. Otherwise, the 1990s experience provides no guidance for what to do about the tax policy set to expire on January 1. "
The Story of the 1990s Economy | e21 - Economic Policies for the 21st Century
" it's worth taking a look at the actual engine of 1990s growth: improved productivity in information technology (IT) manufacturing and increased investment in IT equipment. The research examining the IT-led expansion from 1995-2000 shows it to be a unique and surprisingly unanticipated event that has no bearing on the tax decisions confronting Congress today.
First, it is important to recall the relatively poor performance of the U.S. economy in the early 1990s. From 1990-1995, real gross domestic product (GDP) grew at an average annual rate of just 2.4% per year (down from 4.3% real annual growth from 1983-1989), and multi-factor productivity gains the most comprehensive measure of productivity limped along at an average of 0.5% per year. (Productivity had slumped since the 1970s, despite the diffusion of personal computers. This led to Nobel laureate Robert Solows famous observation that you can see the computer age everywhere but in the productivity statistics). "
.
.
" After a slight dip in 1995, GDP growth took off averaging 4.3% a year in real terms from 1996-2000. Multi-factor productivity rose at an annual clip of 1.3% (over the 1995-2000 period), while labor productivity increased as well: a 2004 Brookings Institution study estimated that from 1995-2001 labor productivity grew at an average annual rate of 2.6% in services (a major source of overall improvements in workers efficiency) and 2.3% in manufacturing.
So what explains the productivity surge and the sharp rise in economic growth during the late 1990s? In a 2007 paper, a team of economists lead by Harvards Dale Jorgenson found the economic expansion was driven by efficiency increases in the production of IT, including computers, software and telecommunications components. Improvements in IT production resulted in higher rates of decline in IT prices, stimulating decisions by firms, households, and governments to invest in IT equipment and software.
.
.
" The story of the 1990s economy holds an important lesson for todays tax debate, but its not the one the Administration intends by invoking it. While the Clinton-era expansion did indeed take place under higher tax taxes, it was largely due to crucial changes in IT production and investment that led to growth and once-in-a generation productivity gains. The lesson here is a basic but important one: the past doesnt predict the future. If the Administration believes there are similar productivity gains on the horizon that will lift the U.S. economy out of its financial crisis-induced hangover, it should explicitly identify the source of these gains. Otherwise, the 1990s experience provides no guidance for what to do about the tax policy set to expire on January 1. "
The Story of the 1990s Economy | e21 - Economic Policies for the 21st Century
