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Economic Sense

RSS By: Matt Bogard, AgWeb.com

Matt's primary interest is in the biotech industry and ag policy.

Rush Was Right (According to Nation's Chief Economist)

Sep 07, 2010

By Matt Bogard

White house chief economist Christina Romer (former chair of the WH Council of Economic Advisers) is calling for more tax cuts and spending. This is odd given that some commentators have tried to link the tax cuts of the early 2000s with the financial crisis and incorrectly claim that they lead to budget deficits. (from 2003-2007 revenues increased 35% and deficits as % of GDP more than halved). Aside from that there is no accepted theory of business cycles (which would explain the financial crisis and the current recession) that hinges on marginal tax cuts. But most commentators and politicians could care less about economic evidence.

According to Romer's research $1 in tax cuts translates into about $3 in stimulus while many other economists estimate that $1 in spending translates into about $1.50 in stimulus.

Despite the evidence, the last stimulus package contained lots of spending, but made no attempt to further lower current marginal income taxes, or extend the tax cuts of the early 2000s. (note it did contain tax credits, but tax credits are in effect spending under a different name). Based on the evidence, it seems the thing to do now is extend or lower current marginal income taxes. Oddly enough, our nation's former Chief Economist is starting to sound a lot like Rush Limbaugh:

'Limbaugh Stimulus Plan of 2009: 54% of the $900 billion -- $486 billion -- will be spent on infrastructure and pork as defined by Mr. Obama and the Democrats; 46% -- $414 billion -- will be directed toward tax cuts, as determined by me...In this new era of responsibility, let's use both Keynesians and supply-siders to responsibly determine which theory best stimulates our economy -- and if elements of both work, so much the better." -Rush Limbaugh

With democrats like Florida Governor Sink supporting extension of these tax cuts, it looks like we may start to see the kind of bipratisan and independent embrace of evidence based policies that Mr. Limbaugh advocated long ago and head off a double dip recession.

References:

My Bipartisan Stimulus
Wall Street Journal January 29,2009
Rush Limbaugh

WH Economist Calls For More Spending, Less Taxes
AP/Yahoo News September 1, 2010

Tax Cuts: The Fruitful Multipliers
National Post
January 5, 2009
Greg Mankiw

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COMMENTS (4 Comments)

Matt Bogard - Woodburn, KY
@ Wody: My intention was looking at the evidence and finding a cooperative, bipartisan, common ground solution for our economy. I normally don't try to respond to every comment made on this blog, it's not about always being right . Lots of times people will disagree with me, and I will disagree with them, but the goal is open discussion.
Economists have often been disparaged by thier views, in fact, economics is known as the 'dismal science' because in the 1800's economists brought forward the theory and evidence showing that free labor is more profitable than slavery. (i.e. they argued against slavery, not just morally but scientifically as well)The establishment took offense to this and said economists were just being 'dismal.' With regard to swastikas, economists were the leading opponents to Fascism in Germany and Europe. Ludwiv von Mises and F.A. Hayek. are great examples. With regard to Rush Limbaugh, I admit, I don't get to listen to him on a regular basis, but I have never found an instance where he has been wrong regarding economic issues such as taxes, trade, or minimum wages etc. One of his primary substitute hosts, is one of my favorite economists, Walter E. Williams, who often invites another economist, Thomas Sowell on the show. It should be beside the point, but both are leading prominant African American economists. But to the point, I think they would largely agree with my analysis above, and would be hard pressed to find any hint of hatred or bigotry in the evidence I have presented in this or any of my blog posts.
8:30 AM Sep 9th
 
Wody - MD
Well Matt, I'll bet that asshole is your idol, huh. Why don't you use the picture of you in your KKK robe with the swastika on the back for your blog picture . Then there will be no doubt where you're coming from.
8:49 PM Sep 8th
 

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