Proof that Supply Side Economics Works

[DSGE]

So is your conclusion that we should raise corporate taxes to raise employment?

Also, can you say if you are liberal or conservative and why?

Why should that matter?

well it matters if we have liberals or conservatives in office

In other words, it doesn't matter. It's not at all relevant to the thread.

 

[EdwardBaiamonte]

If the math is solid, it holds no party ties.

odd the Krugman and Friedman are/were great a math??? Sorry.

 

[EdwardBaiamonte]

Why should that matter?

well it matters if we have liberals or conservatives in office

In other words, it doesn't matter. It's not at all relevant to the thread.

who was talking about the thread? He ask why it mattered. But, it does matter to the thread too since it tells you the basis of ones economics. For example, we know you are a liberal with a Nazi- like faith in the Fed despite the Fed having caused the Great Recession we are now in.

 

[DSGE]

Also, can you say if you are liberal or conservative and why?

What's the matter? Can't assess an argument on its own merits? Need to know their politics so you can regurgitate one of your preprogrammed responses? I'm seriously starting to believe that you're a trolling robot.

it is important to know ones politics since politics determines ones economics. Krugman and Friedman are perfect examples. Over your head??

Well that's bullshit. Positive economics has nothing to do with your politics. Krugman and Friedman's academic work stands on its own. They also happen to be economists who have political opinions. But their opinions don't determine the validity of their economics.

preprogramed? if thats what they are then you should not be so afraid
to pick the worst one you have defeated and show it here for all the world to see. What does your fear tell you? You can't defeat a preprogramed talking point??

Alright. Let's go with this: http://www.usmessageboard.com/economy/206373-the-justice-in-inequality.html#post4905724

A copy/paste you like to spit out which contains nothing but numbers you simply made up.

 

[DSGE]

If the math is solid, it holds no party ties.

odd the Krugman and Friedman are/were great a math??? Sorry.

What is that supposed to be? In your mind, what argument do you think you've just made?

 

[sealybobo]

No. We get money out there in circulation by taxing corporations and using that money to fund infrastructure projects. That puts money in people's pocket and lowers unemployment which increases wages.

Who knew it was so simple? Would you say that is a universal cure for high unemployment?

If infrastructure spending helps the economy doesn't infrastructure taxing (to fund the spending) slow down the economy?

If folks see and read about the spending won't they have rational expectations, see it as artifical mal investment, and not be faked out by the temporary churning of the economy.

Not at all. Or not enough to matter. Didn't in the 90's. Companies were making great profits back then and spending a lot of money. Don't get me started. Expense accounts, corporate jets, etc. All those manufacturing reps going out to Bennigens and their families were spending at the mall. The homes they bought. Lots of high paying jobs. As of today, all those jobs have not come back.

Today corporations are sitting on record amounts of cash. And when given free reign, Executive pay has gotten out of control. Hense the gap between the rich and poor has gotten too big. They didnt share the wealth with the workers.

There was a time back in history when after the Great Depression, corporations were sitting on capital and I think it was FDR and he had to get them to start spending again. Start investing in America again.

There is relationship between our government and corporations. Corporations are free but government is the ultimate boss. Letting free markets decide is why they are allowed to just sit on their money and send jobs overseas.

 

[DSGE]

well it matters if we have liberals or conservatives in office

In other words, it doesn't matter. It's not at all relevant to the thread.

who was talking about the thread? He ask why it mattered.

Mattered in the context of the thread.

But, it does matter to the thread too since it tells you the basis of ones economics.

No it doesn't. The factuality of economics doesn't depend on your political bias.

For example, we know you are a liberal with a Nazi- like faith in the Fed despite the Fed having caused the Great Recession we are now in.

Again, attacking an opponent you've simply made up. But I guess it's no fun actually reading other people's posts.

 

[EdwardBaiamonte]

No it doesn't. The factuality of economics doesn't depend on your political bias.

well it seems to; even at the Nobel level. Sorry

 

[DSGE]

No it doesn't. The factuality of economics doesn't depend on your political bias.

well it seems to; even at the Nobel level. Sorry

What do you mean "it seems to"? Do you want to actually justify the things you say? Just saying something assertively doesn't make it true.

 

[EdwardBaiamonte]

No it doesn't. The factuality of economics doesn't depend on your political bias.

well it seems to; even at the Nobel level. Sorry

What do you mean "it seems to"? Do you want to actually justify the things you say? Just saying something assertively doesn't make it true.

Krugman and Friedman disagree despite having Nobel level math skills.

 

[DSGE]

well it seems to; even at the Nobel level. Sorry

What do you mean "it seems to"? Do you want to actually justify the things you say? Just saying something assertively doesn't make it true.

Krugman and Friedman disagree despite having Nobel level math skills.

With each other? Yes, they have differing opinions on what policies should be pursued. But they don't disagree on the underlying economic theory. The fact that Nobel prizes get given to both liberals and conservatives should tell you that political opinion doesn't affect the validity of the economic theory.

 

[itfitzme]

...since politics determines ones economics.

Well that's bullshit. Positive economics has nothing to do with your politics. ...

"...since politics determines ones economics. "

No response could have been better. It is a statement of self concept projected onto others. If we listen to others carefully and long enough, they tell us about themselves by how they interpret others. What could be more revealing?

 

[itfitzme]

Hmm... See I get the feeling this is clearly a joke, but I guess I'll respond normally...

Well, it's funny, for sure. But what makes it really funny is because it's rational as well. I didn't set out to be funny, I just followed the process.

I just decided I wanted to see if there is a correlation between the two. And what would you do first? What would any statistician or econometrician do? A scatter plot.

And Excel makes is so darned easy to shift the lag. It sure beats writing a SAS program. We can get so involved in the technicalities, we don't realize how important the simple things really are.

It is so easy, a secretary can do it. Every person working at a desk and every kid in high school can do it. At this point in history, you'd think than every one would. It is, after all, the simplest of statistics to do.

And lo and behold, it gives a R^2 of more than zero. It gives a beta greater than zero. Yes, the slope is really slight, so it does make the regression a bit questionable. It might actually be zero. I haven't decide what the next best test is. I would like to pick the one that has the most bang.

If it was completely random, you'd just dump the idea and go on to something else. It's questionably random. The error terms are just stocked full of stuff, aren't they?

But there is some "intuitive" validity in it. After all, Keynes did say, bury government notes in a mine and then auction off the rights to private companies to dig them up. That is just as much paying companies to hire people with negative corporate tax as it is in direct stimulus checks. Keynes didn't say "pay people to dig holes." Auctioning off the rights to private companies us just as supply side and it is demand side. It's not any side. It's all sides. It is fiscal-monetary-supply-and-demand-side all at once. Auctioning off rights to the air waves is fiscal policy, isn't it? It's not specifically taxes. It's not strictly regulatory. What is cap-and-trade? Well it sure isn't monetary policy. Still, printing and burying money is monetary policy, better not bury too much. Whatever it is, clearly, he was being facetious to make a point.

When you step way back and look at things, the gov't is just another not-for-profit company with a particular pricing strategy. The rest of the world, the exports and import markets, is just another huge company. And then you have the national private economy.

In truth, the whole Ireland thing works, in the race to the bottom, in the same way Japan did by floating Sony for a decade as long as they showed an increase in market share. That isn't a vindication of supply side economics, it's a "countries as a global business" thing. The world economy is just a bunch of huge businesses called "nations". OPEC knows that. None of it will save any economy from a global recession.

The economy, and economics, is just about redistributing scarce resources, be them natural resources or the money we use to account for them. The resources are in one place, and the economy redistributes it. Money is in one place, and the economy redistributes it.

It makes no difference, from Keynes perspective, if the government stimulates it by creating some new public company, pays private companies, or provided unemployment checks. The only question is which is more efficient and at what point in the business cycle and how.

Keynes wasn't even "Keynsian" the way it is used in today's public discussion. Neither was Laffer. Each was an economist in general and for the policy that worked for the economics of the time.

So first off, the specification hasn't been justified. For an OLS estimator to be unbiased, we need a very special assumption: the error term is uncorrelated with the regressors. So basically, if there's something which impacts the employment-population ratio which may be correlated with changes in the top marginal tax rate, then the model is misspecified and OLS doesn't work. So is there anything like that left out?

Absolutely all of it, these would be important refinements. We can spend all day coming with reasons why it isn't right. That isn't the point. The point is to come up with what will make it right.

And, for our purposes, we are actually better off if there is some correlation. It's all about framing. The real shame of it is that assisting private companies can be important. Circus Ole, or whatever they are called, was floated by the Canadian government for years. They they took off and became a world wide phenomena.

How about changes in all the other tax rates? Does supply side theory tell us that only changes in the top marginal tax rate affects economic activity? If other tax cuts affect employment (eg, payroll tax cuts), and they're correlated with the regressor (maybe because tax cuts are all given out at once rather than exogenously and individually), then they need to be included.

The problem is that the further away we get from the simplistics of physics, (like how much gun powder will launch a cannon ball through the wall of a castle a half mile away without blowing up the cannon,) the harder it gets. But, as Einstein said, the trick is to make it as simple as possible, without making it too simple.

If the top marginal rate alone won't produce enough, then what will?

So the question is really about what rates to change. I have only found the top marginal rates. I don't know why only the top marginal rate is readily available. I haven't looked more since I found what I found.

In 2000, there were 7 million businesses with an average of 16.7 employees. B of A employs a quarter of a million. Most businesses are sole professorships ( I think). That minimum alternative tax just screwed a whole bunch of people when it changed. And if it changed in 2003, that may explain a few things. The top marginal rate is a bit meaningless compared to the lower rates. It is really the rates for the millions of medium and small businesses, obviously. If anything, it is obviously that.

Small companies are far more likely to have more use for a rate change. They pay a new hire two weeks after they start, after they have built and sold the product. But, they have to pay for materials ahead of time. The difference that a change in the marginal rate would make for them could mean the difference between being able to purchase materials so that the new hire has something to build.

Doesn't it make more sense to determine what the exact effect is for all the rates and change those that are best? Do we really need the CBO to figure it out for us?

Surely, the top marginal rate effect can't be better then my little regression? And if it could be, if it was at best .05, how would it frame the idea of changing the top marginal rate for the majority of moderates? If is was, under better analysis, 1%/0.05 = a 20% rate change of the top marginal rate, for 35% - 100% = -65%, would the argument be less funny? Would it frame it differently?

And, if the best it could be is a beta of .01 for the top rate while the middle rate give us a beta of 1, isn't it a better argument to say, "Yes, supply side will give us a .5% increase in employment for a 50% cut in the top rate but if we cut the middle rate, we get a one to one change"?

And, what about spending on the other side? It's hard to say what Reagan did. Was it the massive expansion of the military, the tax cuts, or the doubling in deficit spending? It is really hard to ferret them out.

What about GDP growth? If top marginal rate cuts are given out when the economy is booming, since the deficit shrinks and the government wants to be reelected, or in slumps to "stimulate" the economy, then it's correlated and needs to be included.

And, what about temporary blips. My initial impression is that a tax rebate and a tax cut is just a temporary bump. Maybe it's not. Maybe it's a spike that bumps up high, then settle into something that is lower than the spike, but higher then it was. Maybe it depends on when. When output it a full trying to stimulate the economy, in any way, just causes an increase in prices. At that point, tax cuts won't get more out of it. On the other hand, when the economy just sucks, tax cuts on income, direct stimulus, and small corporations will bump it. They all will do something.

Then you can check your specification by running a Ramsey RESET test or other diagnostic.

You had me at "Ols estimator" you smooth talker you....

But seriously, there is a level of statistics and analysis that is appropriate for doing drug studies. It's like calculus. If your going to send someone to the moon, then you better use calculus. But if all your trying to do is figure out the volume of a box for your stereo speakers, maybe you should build a simpler box. There is a level of statistics that is appropriate for the situation. If we run the same basic statistics on ten different things, they all suffer from the same faults of analysis. And, if anyone stands out, it is likely because it is better. And when there is a strong effect, even crappy statistics will show it.

The question is, can we show a better effect from a cut to the top marginal rate, at what point in the cycle, and to what maximum extent? Was the 2001 cuts just the right amount but the 2003 was too much? You remember Goldilocks and the Three Bears? I thought that was the point, one tax cut is too soft, one tax cut is too hard, and one tax cut is just right.

When I decided to do the scatter plot, I surely didn't expect a correlation of any sort. But, there it is. It may be very very weak. It may be "caused" by something else. Maybe it's even just random chance. But what I generally find when I go after something is failure to find anything, not something.

And if you think about it, however funny it may be that a -200% rate will lower employment by 5% (sure it will, it misses some conflagrating effects). A tax corporate tax change, (a fiscal, not monetary thing) at the right point in the business cycle, at the right marginal rates, will do something.

And as hypothesis testing goes, if I want to prove that something isn't, I have to exhaust all possibilities, to a 95%-99% level of confidence in trying to prove it is. That is the foundation of it. That is how drug testing work. We prove that it won't kill anyone by seeing if it will kill rats first, then we try it on pigs. Then a human trial is done. After that, the entire medical community gets involved. If, god forbid, someone does die or get sick, the lawyers get involved. If it get's past the lawyer stage, then it is proven to a 99.9999% level of confidence.

My point is, if it has to be perfect from the start, we get nowhere. This isn't drug testing. However we get there, if we follow the process, it is what it is. The argument takes care of itself.

So personally, my position follows from the economics, not the other way around. Right now, I'm stuck at what I've got. And what I've got is an R^2 of 2% and a coefficient of -.02. Like I use to tell my stats instructor, "If I didn't have my anecdotes, I wouldn't have anything at all."

Thank you for your list of what the next choices are in doing the analysis. It makes it a heck of a lot easier then having to dig through my closet to find my texts. And god knows, Wikipedia just sucks unless you already remember what your looking for.

 

[DSGE]

And Excel makes is so darned easy to shift the lag. It sure beats writing a SAS program. We can get so involved in the technicalities, we don't realize how important the simple things really are.

Eviews is an excellent program for this stuff. Uses a common sense way to deal with leads and lags. Just variablename(-1), to lag one period. And it's got everything.

It is so easy, a secretary can do it. Every person working at a desk and every kid in high school can do it. At this point in history, you'd think than every one would. It is, after all, the simplest of statistics to do.

And lo and behold, it gives a R^2 of more than zero. It gives a beta greater than zero. Yes, the slope is really slight, so it does make the regression a bit questionable. It might actually be zero. I haven't decide what the next best test is. I would like to pick the one that has the most bang.

Sure. But the problem is it's not like using 22/7 as a rough approximation for pi. If the assumption that the regressors are uncorrelated with the errors doesn't hold, the whole thing just plain doesn't work. At bare minimum an estimator has to be consistent, and next we'd like it to be unbiased. If the assumption is violated, neither of those are true.

It's like, we know that if |p|<1, the sum Sum(n=0,inf) r^n converges to 1/(1-r). If we have p = 2, we can't just say "well we're aiming for simplicity. Let's go ahead and use the formula anyway". It just doesn't apply. A critical assumption has been violated.

If it was completely random, you'd just dump the idea and go on to something else. It's questionably random. The error terms are just stocked full of stuff, aren't they?

It doesn't matter that the error terms are stocked full of stuff. For linear regression to work, it just has to be that there's nothing in the error term which is correlated with a regressor.

Absolutely all of it, these would be important refinements. We can spend all day coming with reasons why it isn't right. That isn't the point. The point is to come up with what will make it right.

If you don't believe there's anything that impacts the employment-population ratio which is also correlated with top marginal tax rate changes, then it's all good (and you just need to include the t-statistics!). But if not, you've got to think of as much stuff as you can which fits that criteria and include it in the model. If you omit it, the coefficient you get is just completely useless. It may as well be a made up number.

And, for our purposes, we are actually better off if there is some correlation. It's all about framing.

Not entirely sure what this means.

The problem is that the further away we get from the simplistics of physics, (like how much gun powder will launch a cannon ball through the wall of a castle a half mile away without blowing up the cannon,) the harder it gets. But, as Einstein said, the trick is to make it as simple as possible, without making it too simple.

As above.

So the question is really about what rates to change. I have only found the top marginal rates. I don't know why only the top marginal rate is readily available. I haven't looked more since I found what I found.

Yeah it's a bit of an issue if you don't have the data. I had a look on FRED and couldn't find much. Here looks alright: Historical Payroll Tax Rates

When output is at full trying to stimulate the economy, in any way, just causes an increase in prices.

Ah not quite. When at full employment any stimulus to aggregate demand results mostly in price increases. The entire point of "supply side" is that it increases potential output. It's not "stimulus", it's (supposedly) increasing total economic capacity.

 

[editec]

Of COURSE one cannot separate political issues from economic issues.

If you don't understand why economic and politics are inseperable, you seriously don't understand what economics even is.

 

[EdwardBaiamonte]

The fact that Nobel prizes get given to both liberals and conservatives should tell you that political opinion doesn't affect the validity of the economic theory.

Why not finish HS first? That is typical of a liberal with a Nazi-like faith in the Fed even in the middle of a Fed induced great recession.
Krugman wanted a $2.5 trillion stimulus to restore the economy while Friedman would have said it would merely cause a mal-investment depression. Are both of the economic theories valid, dear?

 

[DSGE]

Of COURSE one cannot separate political issues from economic issues.

If you don't understand why economic and politics are inseperable, you seriously don't understand what economics even is.

Well why don't you enlighten us?

 

[DSGE]

The fact that Nobel prizes get given to both liberals and conservatives should tell you that political opinion doesn't affect the validity of the economic theory.

Krugman wanted a $2.5 trillion stimulus to restore the economy while Friedman would have said it would merely cause a mal-investment depression. Are both of the economic theories valid, dear?

They're not economic theories. Those are normative positions. Different economists can have different opinions on what should be done based on the same model.

And please find me a reference to where Friedman talks about how either monetary or fiscal expansion causes "mal-investment". I think it's pretty clear you've never read any Friedman. Maybe wait until you finish primary school so that you can actually read.

 

[EdwardBaiamonte]

They're not economic theories. Those are normative positions. Different economists can have different opinions on what should be done based on the same model.

and are their fundamentally different opinions on the most significant aspect of economics based on their conservatism or liberalism or on the position of the stars?????? Isn't thinking fun?

which opinion gets the Nobel???

 

[DSGE]

They're not economic theories. Those are normative positions. Different economists can have different opinions on what should be done based on the same model.

and are their fundamentally different opinions on the most significant aspect of economics based on their conservatism or liberalism or on the position of the stars?????? Isn't thinking fun?

What's that supposed to mean? That sentence isn't coherent.

which opinion gets the Nobel???

Are you a ******* moron? They don't give out prizes to people whose opinion they like. They give out prizes to people who have made important contributions to economic theory. Why don't you get off your arse and actually read an academic paper once in a while.