What George Washington and Barack Obama have in Common


So what do these men have in common? Well, they are power-hungry communists hell-bent on achieving a complete government takeover. Wait. Hold on. That doesn’t sound right. I must be watching too much Fox News. What they both have in common is that they both put into law individual mandates. Or according to Fox News, power-hungry communists hell-bent on achieving a complete government takeover.

President Washington signed into law the Militia Act of 1792, which mandated all “able-bodied” males own a “good musket or firelock.”  So over two centuries, before President Obama decided to take over control of the government and destroy the Constitution with his health care bill, which requires an individual mandate, our first President had already beaten him to the punch.

I bring this up because next week the Supreme Court will decide on the Constitutionality of the Affordable Care Act, which in reality is, as Biden would say, “a big f***ing deal.” Health care is arguably the single biggest issue America faces (next to birth control and porn of course).  Health care affects every single person, the costs are skyrocketing, the programs already in place are running out of money and the future state of health care in this county is shaky at best. With that said, I hope partisan issues do not determine the outcome of this case. Supreme Court Justices serve life terms precisely to avoid partisan politics.

Now, I’m not here to say because Washington had a mandate that was Constitutional therefore the health care act is Constitutional.  However, they are very similar and our court system is based on precedent.  I just hope the extreme growing divide in our political parties does not bear the most weight on this decision.  Health care is too big of an issue to cater to political parties.

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Finding the Sweet Spot… in Tax-Rates


Among the anti-Keynesians there is a false belief that Keynes advocated for higher taxes.  This simply isn’t true.  Before the “Laffer Curve” became common language among economist Keynes already understood the concept decades before it received a proper name.

 

 

 

 

 

 

 

The Laffer Curve, seen above, shows the relationship between tax revenue and tax-rates.  If taxes are too low then government will not maximize revenue and if taxes become to high then revenue will begin to decline.  The Laffer Curve argues there is a ‘sweet-spot’ in the tax-rate.  Revenue will be maximized at this rate (represented by the top of the bell curve).

What this means for the Keynesian naysayer is that Keynes did not argue for higher or lower taxes.  He argued for a tax-rate that would maximize revenue, which means tax- rates may have to change depending on the state of the economy.

Conservatives and supply-siders argue the Laffer Curve is in favor of lowering taxes because they assume the tax-rate is always on the down-sloping side of the curve.  However, it seems conservatives fail to realize raising taxes may actually increase revenue as well.

I think the past two decades are useful to better understand the Laffer Curve.  In the 1990s the top marginal tax-rate was 39 percent.  Under those rates the economy boomed and the Country ran a surplus.  However, in the 2000s that top rate  dropped to 36 percent. Those lower rates are one of the main drivers of our national debt.  Also, there was not any massive boom in the economy to make up for the lost revenue.  So it could be argued the rate of 36 percent is on the left side of the curve and the 39 percent rate is closer to the ‘sweet spot’.

*Note: this example is oversimplified because the decrease in taxes in the 2000s was more than just for the top marginal rate. It was around a 3 percent decrease across the board.  I think the example is still useful for understanding the Laffer Curve. It still demonstrates how higher taxes can increase revenue.

Mr. Reagan Your Keynesianism is Showing


This graph has circulated around the blogosphere and I think it says a lot.  In a previous post I mentioned direct government consumption (not tax cuts) was most beneficial to the recovery.  Maybe you are wondering why after an $800 billion dollar stimulus bill there has not been a robust recovery.   The reason: A lot of that bill was in the form of tax cuts and not direct investment.

The graph, although a bit ‘wonkish’, shows the amount of government consumption through the first couple years of both the recession under President Reagan and the recession under President Obama.  Government consumption means actual investments made by the government, so not tax cuts or safety net expenditures.  We see at the beginning of each recession government consumption was similar.  Then a year-and-a-half later Reagan continued government consumption while the President, up against a Republican Party with one goal of pre-mature debt reduction, was forced to cut government consumption.  The result: “Morning in America” in the 1980s and now a slow recovery with unemployment above 8%. We see the validity of Keynesian economics at work here.  Increased government consumption leads to economic growth in a recession. It worked for Reagan in the 1980’s and our slow but positive recovery is attributable to the government consumption done by President Obama; it was just not sustained long enough.

It is a shame the Republicans who praise Ronald Reagan do not follow in his footsteps.  Ronald Reagan may be known for Reaganomics but by all accounts he is “in effect much more Keynesian than Obama.

Refutation of the “Republican Revolution” – Part 5


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Okay this is actually true; Germany did experience hyperinflation in the 1920s.  However, the reason it is on the Republican Revolution page is because conservatives are under the impression that America is experiencing inflation due to the increased government spending.  That just isn’t true – take a look.

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One more note – Germany experienced hyperinflation because they were forced to print more money to pay back reparations from World War I.   Conservative’s favorite economist, John Maynard Keynes, warned Europe not too impose such harsh measures precisely to avoid hyperinflation.  One Smart Guy.

Carter Gets a Bad Rap


The Reagan revolution that began in the 1980s came to fruition due to the recession of the 1970s. The recession was caused by stagflation, which is when both unemployment and inflation rise simultaneously. (Just as an aside this temporarily ended the Keynesian revolution, which did not think rising unemployment and inflation was possible.)  For whatever reason President Carter is usually cited as responsible for the economic woes of the 1970s. In reality it was not his policies that caused the stagflation nor did it begin under his watch.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

These two graphs show both inflation and unemployment spiked at the same time, around 1974 and 1975, over a year before Mr. Carter even set foot in office. Further the stagflation was caused by policies put in place by President Nixon.  It was caused by too much expansionary monetary policy; in other words practicing too much Keynesian economics when it is not necessary.   Although Mr. Carter did not greatly improve the economy he tends to receive undeserved credit for causing the problem in the first place.

A Little Recession History


One more post on the extension of the payroll tax cut; as I mentioned before I thought it was smart to extend the tax cut without paying for it to further increase demand. This is good policy for our economic recovery.  The President and Congress cannot ease up on this recovery.  Although we have had positive economic news in the past couple months, unemployment is still too high and consumer confidence is still too low.  We need to learn from our past and realize some good news does not mean government should stop helping.

In 1937, the country was on the right track and the economy was improving.  The improvement was due to FDR adhering to the advice of John Maynard Keynes to increase government expenditures and invest in public works programs. These programs worked, which gave Roosevelt a false sense of economic stability.  Keynes warned the economy was not fully recovered and cutting back on government spending would deepen the recession.  Despite the warning by Keynes, the President decided to ease up on spending. Unfortunately, Keynes was correct and in 1938 America was thrown back into a recession.

Let’s hope our politicians do not switch to austerity policies too quickly. This will only move our economy in the wrong direction.

One Nation, Under some Creator, Who has no effect on our lives…


With Santorum now leading in multiple polls and his strong Christian beliefs I feel it is time to dispel one of the common myths that circulates within conservative circles: America was founded on Christian principles.  The fact is the country was not founded on Christian principles, but throughout the twentieth century Christianity has worked its way into our political system.  Some argue our currency says “In God We Trust” and our Pledge says “one nation under God” as proof that Christianity is a staple of our country.  The problem is  “under God” wasn’t added to the Pledge until 1954 and “In God We Trust” wasn’t added to currency until 1957.

Also, the Constitution , whom Republicans claim to strictly adhere to is void of any mention of God, Lord, Creator or Jesus. So the document on which our entire political and legal system is based lacks any reference to Christian principles.  It would seem if a country was truly born from Christian ideals then God would be mentioned somewhere in the country’s most important document.  Besides that, the Treaty of Tripoli, which was ratified by the Senate in 1797 says, “The government of the United States of America is not, in any sense, founded on Christian religion”. Here we have, early in America’s history, Congress explicitly stating Christianity is not a part of the U.S. government.

Many times conservatives refer to the Declaration of Independence, which says, “We are endowed by our Creator” as proof that America is a Christian nation.  The problem is the Declaration of Independence, although an important document in our history has no bearing on our government or our political system.

Finally many of the founders, like Jefferson, were not Christians but Deists. Deism believes there is a creator but he has no affect on people and does not intervene with human affairs.  This is in stark contrast to the Christian God.  So not only do many of our founding documents make no mention of Christianity, many of our founders did not even consider themselves Christians.