Friday, September 12, 2014

Straight From the Horse's Mouth


It's one thing when your opponents criticize you; it's quite another when the criticism is coming from your side of the aisle. Over the last couple of months two articles have appeared in Forbes that tore into the two most potent myths that the Right still clings to like a baby to a bottle: 1. tax cuts pay for themselves and 2. Ronald Reagan was the greatest president of all time.

Let's start with the first. In Kansas, Sam Brownback, the incumbent governor, is in hot water. Seems dear ole Sam has been strolling down the old yellow-brick road of supply-side economics and, surprise, surprise, it isn't working any better now than it did when Ronald Reagan trotted it out for a look see.

According to the Forbes' piece, in 2012, Kansas "cut individual tax rates by 25 percent and repealed the tax on sole proprietorships and other 'pass-through' businesses." The following year, it passed another round of tax cuts, which over five years will lower the top rate to 3.9 percent. As a result of these tax cuts, revenues fell dramatically. "Individual income taxes fell from $2.9 billion to $2.2 billion and all income tax collections plummeted from $3.3 billion to $2.6 billion, a drop of more than 20 percent."

In other words, just like the first failed attempt in the '80s, instead of revenues increasing, the tax cuts, as many predicted, led to decreasing revenues. To offset the mounting deficits, the state was forced to impose draconian budget cuts. This only made things worse. Not only hasn't the economy taken off, job growth in the state has "lagged behind the U.S. economy. While more small businesses were formed, many of them were merely individuals taking advantage of the newly tax-free status of those firms by redefining themselves as businesses."

But while the above stats certainly put to bed the ridiculous notion that trickle-down economics works, the pièce de résistance for me was the closing paragraph:
One can argue whether cutting taxes is a good thing. One can argue about whether government is too big. One can even argue about whether low taxes increase business activity. But one cannot credibly argue that tax cuts increase revenue or even pay for themselves. They didn’t for Ronald Reagan. They don’t for Sam Brownback. They won’t for the next politician who tries—whether he (or she) is in Washington, D.C. or in some state capital.
And then there's the second Forbes piece. For years all we've heard from the Right is that Barack Obama is the worst president of all time. Want to know who they think is the greatest? Yep, the Gipper, himself. Saint Ronald Reagan, the man for whom they worship at the alter. Not even George Washington is held in such regard.

Well do you know what Forbes had the nerve to say? After carefully reviewing ALL the data over the last six years, it concluded that on jobs, growth and investing, Obama out performed Ronald Reagan in all three. That's right, the heir apparent to Karl Marx, himself, outdid ole Captain Capitalism. Some socialist!

On jobs, unemployment in Obama's sixth year is 6.1 percent. Under Reagan, it was 7.1 percent. Indeed, Reagan didn't achieve Obama's current rate until his seventh year in office. To make matters worse for Reagan is the forecast that projects unemployment to likely fall to 5.4 percent by next summer, a rate Reagan never achieved at any point during his presidency.

On growth and investment, Obama's first 67 months in office have been far more successful than Reagan's. There have been "63 straight months of economic expansion, and 25 consecutive months of manufacturing expansion." The S&P 500 has been higher under Obama than it was under Reagan. And while investors certainly prospered under Reagan, they're prospering even more under Obama.

And, like the above piece, the closing paragraph sums things up rather nicely:
Economically, President Obama’s administration has outperformed President Reagan’s in all commonly watched categories.  Simultaneously the current administration has reduced the deficit, which skyrocketed under Reagan.  Additionally, Obama has reduced federal employment, which grew under Reagan (especially when including military personnel,) and truly delivered a “smaller government.”  Additionally, the current administration has kept inflation low, even during extreme international upheaval, failure of foreign economies (Greece) and a dramatic slowdown in the European economy.
Why did I choose to highlight the two Forbes' articles, when virtually every other news outlet from the Washington Post to the New York Times to the Huffington Post to the Daily Kos to the fortune cookies at your local Chinese restaurant have been saying pretty much the same thing all along? Because it's important to note that a large component of the Right's argument stems from an irrational belief that every main-stream publication out there is somehow all part of a giant liberal cabal that seeks to distort the facts and rewrite history.

Well, the Right can't say that about Forbes. While certainly a conservative publication, Forbes is not ideologically driven. That means they know how to use a calculator and aren't beholden to any particular agenda. And, I'll admit it, it was a whole lot more fun reading the truth from Forbes than it would've been from Huff-Po.

Funny thing about facts. While they're often open to interpretation and misrepresentation (and sometimes even outright dismissal), they don't lie. Inevitably, one way or another, they have the final word.

5 comments:

Jerry Wyant said...

Great post! BTW, I have been creating some data tables on all kinds of numbers for the economy over the years. I can help you out with numbers in the future - just message me or post on TBR writer's page. I've got Cheri working on creating some great graphs using my data.

Prof. Walter Jameson said...

Sir:

Well, as they always say - especially about macroeconomics - the *complete* truth can usually be found in the details. Unfortunately, mainstream publications such as Forbes - yes, even Forbes - do not provide much beyond the surface. Making straight-up comparisons such as these are the stuff of bush league reporting.

Let me provide my points of agreement up front: Supply side economics is incredibly incomplete, of and by itself, to describe sustainable economic activity; tax cuts rarely provide for increased revenues. Sure, there are some examples where they have spurred economic activity in the short term, but nothing so great as to make it a general rule; and, lastly, President Reagan was not the greatest president there ever was. Does that really even need to be stated? (laughter)

There, with that out of the way, let me express some points of disagreement beyond your citation of Forbes magazine as an authoritative source. I'll first pose this question to you: Do you truly believe that the current state of the economy for most working families is anything to crow about? Forget the reported numbers for a moment. What do you see all around you? What do *feel* intuitively using your God-given common sense? Do you think that a less than 1% return on personal savings over several years connotes a good economy?

How about that 6.1% unemployment rate, huh? Hmmm ... well, what does that really mean? Has the unemployment rate decreased to this level because more people are actually finding work, or is it the result of many of the unemployed no longer being counted in the statistics? How about the quality and the quantity of the jobs, i.e.: the possibility that an individual may have, say, three lousy part-time jobs? Yes, has the venerable Forbes magazine dug into that aspect of things? Well, I sincerely doubt it. But you know what? Working and middle class Americans have because they LIVE IT each and every day. So, just citing unemployment numbers without this added analysis is not very enlightening.

With regard to the expansion, let's take a closer look. The question that immediately comes to mind is expansion from what levels? Expansion from near depression levels, right? If I have only one penny and I serendipitously find another on the ground, I will have increased my cash holdings 100% ... but I will still have only 2 cents. Statistics are a wonderful thing. And that manufacturing expansion? How much of it is due to increased productivity - you know, doing more with less (labor)? Does the esteemed Forbes magazine provide an answer?

Oh, the high and mighty S&P 500 index! The be all and end all of modern economic man. You said, "The S&P 500 has been higher under Obama than it was under Reagan." Well, gee, I really am glad that's the case. Let's see, Reagan's last full year in office was 1988, correct? It is now 2014. That would be 26 years ago. So, yes, it's no real surprise that the S&P 500 index is higher - a lot higher - now than it was in 1988. How has inflation-adjusted wages for the working and middle classes held up over that time, huh? Does the indispensable Forbes magazine have anything to say about that? You know, I understand the concept of rooting for the home team; honest, I do. But, c'mon!

Cont......

Pfor Walter Jameson said...

It's curious to me why you cite a passage from the magazine that contains the following: "Additionally, Obama has reduced federal employment, which grew under Reagan (especially when including military personnel,) and truly delivered a “smaller government.” " This is to be celebrated? .... By a progressive? Please realize that the federal civil service, along with the civil service of state and local governments, has been a gateway to the middle class for millions - yes, millions - of people over the years; people who, in all likelihood, would not be given the same opportunities in the private sector. As far as the rest of that passage is concerned, it's drivel....comparative nonsense. In matters as complex as macroeconomics, with all of its variables, one cannot make fair comparisons of this nature without the conditions being ceteris paribus. The magazine's "analysis" is woefully deficient, sloppy and intellectually dishonest.

Well, Forbes is a business magazine and, therefore, they must know what they're talking about on this topic, right? This crapola magazine has been sending me solicitations forever to subscribe for $10 per year. If THEY think of their product as being that low in value to, essentially, give it away, what should anyone else think? Quite frankly, it's not worth even that amount. You'd be better offer spending your time reading Harper's Index. It'll tell you a helluva lot more about the real state of the economy than any mainstream business publication.

Thank you for the opportunity to respond.

Peter Fegan said...

Some points to consider.
1. I never said Forbes was an authoritative source. Only that it is a business and right-leaning publication.
2. I never said Reagan was the greatest president of all time; neither did I say Obama was. But let's be fair, he is far from the worst. I was merely citing what the Forbes piece said. And it said that Obama outperformed Reagan in those three metrics.
3. As far as the current state of the economy being something to crow about, I never spoke to that in the piece. But, if you must know, both presidents were handed tough hands. Obama has done a far better job growing this economy than Reagan did his. And, yes, I'm well aware of the S&P point, but I was citing what the piece reported. I get it that the '80s are thirty years ago.
4. Regarding earning only 1% on savings, that is owed directly to the rate of inflation. In the '80s you would've earned between 7 and 8 percent, but then you would've had to contend with double-digit inflation. Pick your poison.
5. Your point about why would a progressive celebrate smaller government is superfluous. Again, the piece had nothing to do with progressive values, but was intended to explode the two great myths that the Right clings to. And BTW, a leaner, more efficient government isn't necessarily a bad thing. I think the next president is going to have to do something with respect to the size of government, regardless of whether it is a Dem or Republican.

Prof. Walter Jameson said...

Sir:

With regard to your response, yes, it is true that you did not explicitly state that Forbes magazine is an authoritative source. However, you repeatedly cited it. If you did not think that it was an authoritative source (of some degree), why bother to cite it?

I understand that *you* didn't say that President Reagan was the greatest president of all time. In fact, my response was in agreement with your strongly implied position that he wasn't. With regard to the comparison metrics by the magazine, I maintain that they're silly for the reasons I expressed previously.

No, you didn't explicitly state that the economy was in great shape. But you didn't really have to. Everything in your essay would lead even a casual reader to conclude that things are going along just fine. You stated in your response, "And, yes, I'm well aware of the S&P point, but I was citing what the piece reported. " Well, why? It's a ridiculous statement (by the magazine) on its face.

Your point about the savings rate (at less than 1%) being owed directly to the rate of inflation doesn't tell the whole story by far. A policy of Quantitative Easing was employed by the Federal Reserve to artificially keep rates low to elevate both the stock and housing markets. How has that grand strategy been working, by the way? I'll tell you what the effect has been. It has depressed the returns on savings for risk averse investors/savers and forced others to seek higher returns in a stock market they may otherwise have avoided. Your point about double digit inflation in the 80s is incomplete. It was indeed double digits in '80 and '81. But from about '82 through the rest of the decade, the inflation rate was in single digits - and not high single digits, either. So, actually, that 7 and 8 percent return on savings (that you mentioned) would've been quite nice - and WAS quite nice - from about '83 onward.

No, you have it wrong. My point (question) was why would a person who writes a column called "Spirit of a Progressive" cite a passage from a business publication extolling the reduction of the federal workforce (under President Obama), given all the many opportunities that the civil service has provided for ordinary folks to enter the ranks of the middle class over the years. I found it a bit curious, that's all. We can certainly talk about smart reduction in some parts of government. After all, the federal budget is vast. But let's not create other problems by putting it on the backs of the people who are trying to make a living.

Thank you for the opportunity to respond.