danivon wrote:Really? If only 100M Americans benefit by that amount on average, that is $2,885,000,000 dollars every two weeks of extra demand. Nearly $6Bn each month. An annual effect of $75Bn

Which is about 0.5% of GDP. This may not be huge, but even in a national context, a difference of 0.5% of GDP going into the real economy would be an increase in demand.

Your slip was perhaps Freudian.

Using math to make a large number is interesting and funn but let us talk reality. Nobody is going to say hey I got an extra $29 in my bank account, I can now make that new purchase I wanted but could get before.

What will happen is the money will sit in the bank. It is the same problem with the $500 stimulus payments under the Bush Administration. The intent was for them to be use to stimulate the economy by having people buy something. However, just about everybody either paid a bill or put the money in the bank.

steve

You raise some good points, but I think there are some holes. It took a lot more than a partial repeal of Glass-Steagal, some greedy bankers and low rates from the Fed to cause this. Without the government directly interfering and trying to put unqualified owners into homes, the bubble could not have been as big as it was, even if everything else was the same. The government artificially inflated the prices by putting Freddie and Fannie in the business of backing high-risk loans.

Fannie and freddie offered mortgages from their inception. And they offered some subprime. Prior to 2001 the percentage of subprime and other mortgages was about 6%. At that level they didn't poison the well. If F&F sub prime didn't cause a problem from 1980 thr 2001 ...they didn't cause the crisis.
Only when new actors got into the mortgage business, and used the CDS s to suppossedly off load risk, did the use of sub and other mortgages bacome excessive and dangerous. It was the private players who thought they were down loading risk that was the lynch pin. F&F played only a very minor role.
You keep expressing surprise and wonder about banks and other financial companies taking excessive risk? History has shown that they always end up doing so, when the rules allow them to do so... 1929? S&L ?

archduke

Nobody is going to say hey I got an extra $29 in my bank account, I can now make that new purchase I wanted but could get before.

But the economy will immediately tank if millionares see their marginal tax rate increase by 3%?

rickyp wrote:But the economy will immediately tank if millionares see their marginal tax rate increase by 3%?

Straw man not worth my time

Straw man not worth my time

took enough time to type this, but didn't respond to the point did you? And its no straw man. Its directly on point.
If the cumulative effect of millions of people getting an extra $29 isn't enough to nudge the economy (in your opinion) why is it correct to assume that the marginal increase on taxes for 1 to 2% of the populace is then going to have a negative effect? Thats been largely the arguement from the right to protect the rich from tax increases... (Perhaps it is not your personal position?)

rickyp wrote:

Straw man not worth my time

took enough time to type this, but didn't respond to the point did you? And its no straw man. Its directly on point.
If the cumulative effect of millions of people getting an extra $29 isn't enough to nudge the economy (in your opinion)

It's not opinion. We did this for the last year and the effect hasn't been too dramatic, has it? As was mentioned, Bush gave a tiny lump sum rebate to little effect as well. Maybe it's time for the government to stop trying to orchestrate economic change from Moscow, er, DC?

why is it correct to assume that the marginal increase on taxes for 1 to 2% of the populace is then going to have a negative effect? Thats been largely the arguement from the right to protect the rich from tax increases... (Perhaps it is not your personal position?)

It is a straw man--defeating an argument he didn't raise and then demanding he defend it, as in "didn't respond to the point, did you?"

Why not throw in a mature "neener, neener?"

No one has to defend a position they have not taken.

Archduke Russell John wrote:[Using math to make a large number is interesting and funn but let us talk reality. Nobody is going to say hey I got an extra $29 in my bank account, I can now make that new purchase I wanted but could get before.

No, they may well not do this.

What will happen is the money will sit in the bank. It is the same problem with the $500 stimulus payments under the Bush Administration. The intent was for them to be use to stimulate the economy by having people buy something. However, just about everybody either paid a bill or put the money in the bank.

Of course, it does depend on how such a tax break is manifested. Sending out an annual cheque may lead to one kind of behaviour, just taking less in payroll taxes each month would have a different effect.

'Paying a bill'. which means paying someone you owe. Either a company (helping it's cashflow) or the government (less of a fiscal drain and recouping part of the money). Putting it in the bank again would help banks who at the moment are finding it hard to lend to viable businesses.

But I think it's not likely that most people actually sit down and allocate that amount of money over a year if it's dribbles out implicity in a reduced deduction. Many people don't budget that way, they tend to see how much money they have in the bank and spend down to a level over a cycle. So, it won't be allocated overtly to a specific purchase, rather spent (or saved) in a more ad hoc fashion.

I think I was cautious in forming that 'big number' anyway. I assumed that the 'average' was only over 1/3 of the US population. I guess it may well be over a larger proportion than that, but without more information I didn't want to assume anything.

I agree that not all of it would go through the cash registers of stores (thence to suppliers, onward to manufacturers and to wages and some coming back to Federal and State government via taxes). But I was responding to your absolutist claim that it would have no effect at all:

Archduke Russell John wrote:There is no way giving the average person $28.85 extra every two weeks is going to increase demand.

It can increase demand, it's just ideologically inconvenient to consider that it could.

Archduke Russell John wrote:

rickyp wrote:But the economy will immediately tank if millionares see their marginal tax rate increase by 3%?

Straw man not worth my time

It was hyperbole, but you can't deny that there's a lot of resistance to small tax increases on the top earners.

When it comes to working out whether changes in tax on people effect their behaviours, both sides of the debate need to accept that taxing people more means they have less to spend, and taxing them less means they have more to spend. If you take a revenue neutral approach to a change, then the question is how people would behave depending on the circumstances if their income went up or down slightly.

To do that, we need to look at fixed costs (which make up a greater proportion of spending for people on low/middle income than the rich), disposable income, debt levels, spending patterns etc. It's not necessarily simple. And certainly it doesn't help if you have people on both sides taking absolutist and extreme positions. Anyone would think that the economy (and from it the livelihoods of millions of people) is less important than esoteric political debate...

WIth regard to Archduke's contention that a cut in payroll taxes would not significantlyincrease consumer demand how about the existence of the tax refund loans? These loans are highly disadvantageous and only speed up the time a taxpayer gets the refund, yet 8.4 million Ameicans in 2008 obtained these loans (paying 738 million in fees). I strongly suspect that recipients of these loans got the money early to spend it--not to put it in a bank. For those who live from paycheck to paycheck a little extra money means they have a little extra to spend. Maybe they go out to eat more, maybe they can go to the movies, etc. For those who have money in the bank a little extra money in their paycheck means little but for those on the edge a little extra money means a little more to spend.

One more comment on the Financial Crisis: I think one of the reasons that the causes of the Financial Crisis can be muddied (for those who wish to point away from Wallstreet) is a lack in most of us what philosopher/linguists call the background of experience with regard to the financial industry. I don't have any particular problems understanding derivatives, or securization and so forth, but I have never been involved in the actual practical workings of the industry. If you are involved in a particular profession you can use shorthand descriptions to convey information because the person you are talking to has a similar experiential background and can translate your shorthand descrptions. With regard to the Financial Crisis, if you do not know the industry you need to really delve into the the details to understand what is going on. Otherwise, whether you are liberal or conservative, you are simply relying on hearsay statements that fit into your world-view. General descriptions of what caused the crisis (even if they have superficial plausibility like Fannie Mae and Freddie Mac incentivizing sub-prime loan offerees because HUD wanted more loans going to go to poor people) have little explanatory value

danivon wrote:Of course, it does depend on how such a tax break is manifested. Sending out an annual cheque may lead to one kind of behaviour, just taking less in payroll taxes each month would have a different effect.

Thank you Owen. I have been trying to figure out how to introduce this article into the conversation. It is a basic repudiation of behaviorial economics which is what your argument is based on. The article includes a comparison of how people planned to spend Bush's tax refund and Obama's. The results were rather interesting.

“Just 13 percent of households,” they wrote, “said that the 2009 tax credit would lead them to mostly increase their spending.” The other households said they were going to save the tax-cut money or use it to pay off debts ... a similar survey of Bush’s 2008 lump-sum tax cut found that 25 percent planned to spend more in response to it.

This seems to refute the argument you are making. Besiees that, I can point to the fact that the tax break that Obama did in 2009, which was the taking less taxes, had little to no stimulative effect on the economy.

The most interesting part is that the entire behavioral economics argument is based primarily on one study. Interesting description of the study

The study most often cited by behavioralists was undertaken in 2007 and published in 2008. Two researchers at Texas A&M Corpus Christi decided to test the mental-accounting theory. They recruited 141 students and asked them to pretend that they had received a tax refund. Then the researchers​—​one an accounting professor, the other an economist​—​gave them all a questionnaire (or “the instrument,” as social scientists call it, sounding scientific). The questionnaire asked the students how they would use the rebate if it was given in a lump sum. Would they invest in stocks, pay off their credit cards, use it for monthly bills, buy furniture or some other durable good, or save it up so they could blow it on a vacation later?

Then the students were asked to pretend the refund had been given them in monthly increments. How would they spend the money then?

And there the experiment ended. The two researchers pored over the answers their students gave and concluded that they had established a truth about the behavior of the human animal

Seriously, that is a study that you base an economic system on? Asking 150 college students how they think they might spend money?

freeman2 wrote:WIth regard to Archduke's contention that a cut in payroll taxes would not significantlyincrease consumer demand how about the existence of the tax refund loans?

They use them to pay bills like mortgages, car payments and utiilities. They do not use it to buy stuff or go out to eat.

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AD

Besides that, I can point to the fact that the tax break that Obama did in 2009, which was the taking less taxes, had little to no stimulative effect on the economy.

The majority of economists think that the Stimulus did have an effect... Not the effect of ending the recession but certainly the effect of lessening the recession. (At the expense of 800 billion added to the debt.)

But I'm still struck by the use of the arguement that a tax reduction for the poor and middle classes, won't have an effect. Are you prepared to say that the same thing would happen if tax rates for the rich are changed? (Up or down...)
I'm struck by how suppossedly ideological stances on things like stimuluis spending have changed in 10 years...

It has become common for Republicans to deride the very concept of stimulus as absurd, to mock Keynesian economics as an ivory-tower fantasy, and to oppose temporary tax cuts as a recession-fighting measure. But during the Bush administration? All that was orthodox conservative policy.
In 2001, Grover Norquist called a national sales-tax holiday “exactly the kind of immediate stimulus our shell-shocked economy needs now.” Norquist went on to quote George W. Bush’s chief economist, Glenn Hubbard, saying we needed stimulus “sooner rather than later.” Sen. Olympia Snowe (R-Maine) introduced a bill to that effect

source[url]|;http://www.washingtonpost.com/blogs/ezra-klein/post/why-did-the-gop-turn-against-stimulus-ask-a-psychologist/2011/08/25/gIQADugV6J_blog.html[/url]

Ricky, if you want to make an argument that the Stimulus worked, you'll have to show that the impact was worth $800B in debt plus interest. If you want to make the argument that a payroll tax holiday of 2 to 3% for one year will have a big impact, then tell us what it will be.

I'm for tax cuts. I am not in favor of politically-motivated, temporary cuts that cannot possibly have long-term effect. I take that back, it will have long-term effect: it will take money out of the Social Security fund and accelerate the date it goes bankrupt.

Here's what you can't do: post a blog from a liberal (Klein) about the history of conservatives and tax cuts. This is a different time than 2001 Our national debt has TRIPLED since then. We can argue the cause of this, but to just blithely say, "Republicans supported tax cuts in the past, why not now? Is it because they only like rich people getting tax cuts?" is just dumb.

Most Americans are concerned about the economy AND the Debt. Democrats pretend like the Debt doesn't exist. Obama has proposed NOTHING in terms of cutting government spending or reducing the Debt. His plan is to continue building the Debt until the second he leaves office.

steve

"Republicans supported tax cuts in the past, why not now? Is it because they only like rich people getting tax cuts?" is just dumb.

The reason they supported the tax cuts, is that they thought they would stimulate the economy (see quote from Grover N) . Now, apparently only tax cuts for the most wealthy are said to have a stimulative effect. That requires explaining...
The economy needs to be expanding for anything substantial to be done about the debt. And i think if you check, jobs and the economy are ahead of concerns over the debt. After all, the enormity of the national debt is surreal compared to struggling to pay the mortgage and put food on the table for a lot of people.