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June 11, 2011

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nato

Critics of supply-side economics have actually felt pretty vindicated recently, and I have to agree that the figures would tend to support them. By 'supply side economics' I don't refer to simply the idea of encouraging investment & etc, with which of course I agree, but rather to the 'voodoo economics' version in which our movement on the laffer curve means that lowering taxes increases/doesn't decrease revenues because it spurs extra economic activity. That was a plausible (if far-fetched) idea in the 80s when the federal tax rates were significantly higher than they are today, but certainly not now - especially given that periods of lower tax rates correlate* with periods of lower growth.

Of course, I think the Keynesian folks are thinking "well, their version didn't work out, so that means ours is proven!" which is also bogus. Still, I understand why they are just as confident in their construal of events as Nathan is in his.

*More or less accidentally, I'm sure

Nathan Smith

If Keynesians are feeling vindicated after stimulus left us with three years of 9% unemployment, after almost thirty years of low unemployment under non-Keynesians, I guess they're never going away. *sigh*

Nathan Smith

re: "especially given that periods of lower tax rates correlate* with periods of lower growth"

I don't quite understand the point of this claim. If spending is held constant (statistical tests should control for this), lower tax rates will tend to mean higher deficits. So what this says is that deficits are worse for growth than taxes, no? Keynes, by contrast, was in favor of deficit spending. So if this correlation is valid, it's just more evidence against Keynesianism.

nato

Keynes was never for deficit spending ceteris paribus, only to moderate the business cycle. Thus, deficit spending would only happen during short periods of relatively low/negative growth. Tax rates tend to stick around for longer bands of time that last through an entire cycle or more. It's by those bands of time that lower taxes have coincided with lower growth.

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feeling vindicated after stimulus left us with three years of 9% unemployment, after

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