Last night Chris Hayes ended "All In" with a discussion of the GOP Tax Plan. Economists David Cay Johnston and Stephanie Kelton agreed that if Republicans get their long-awaited wich and this budget-busting tax plan is enacted, the huge deficits it will create might not lead to the promised "growth" Steve Mnuchin insists will result.Stephanie Kelton explains how the GOP has set it up so they win even if they lose. They win if there is a big jump in growth, taxes pile in, and there is no increase of the deficit, hence, the debt (unlikely). They lose is there is a ballooning deficit and debt that voters perceive as a financial threat calling for increased taxes. But they also win since they can argue that taxes don't need to be raised but rather expenses cut, giving them a clear shot at Social Security and Medicare (likely).
What happens if Steve Mnuchin is wrong? Austerity budgets that cut into the heart of the biggest programs paid for out of the federal budget: Social Security and Medicare....
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“CHRIS HAYES (To Stephanie Kelton): You sort of lived through some intense austerity years. There was this push to impose austerity, the sequester, the budget control act, and a lot of people worry should this happen on this side, right? Like okay, you get tax cuts, that's the next move. As someone that worked on that committee, is that what you see happening? ”
ReplyDeleteWhaaaaaaatttt?????
“They win if there is a big jump in growth, taxes pile in, and there is no increase of the deficit,”
ReplyDeleteYes and then the big LOSERS will be the “deficit too small!” crowd ....
Yes and then the big LOSERS will be the “deficit too small!” crowd ....
ReplyDeleteNot really.
Stephanie has already been saying about the Trump tax cut that the increased deficit is not the issue —unless it grows to the degree that it sparks inflation. The issue is whether the tax cuts will be spent on either investment or consumption. To the degree the cut is saved, it will not be stimulative economically, although it might and probably would be stimulative financially is the saving involved were invested financially rather than productively.
Like most everything, "it depends."
Us deficit is currently controlled by foreign USD savings...
ReplyDeleteIf it goes up from here I don’t see how more imports is going to be inflationary... it will be more of the same race to the bottom ie who can sell it cheaper...
If Trump can eventually shame Xi into buying more US produced goods and services deficit is going to fall and we will get a small domestic pick up ...
Look at these zombies:
ReplyDeletehttps://www.google.com/amp/s/www.bloomberg.com/amp/news/articles/2017-11-20/toyota-puts-u-s-workers-on-alert-made-in-japan-camrys-cheaper
They have it going the wrong way as far as Trump is concerned...
I think trump is giving them a chance to voluntarily de-zombify but they don’t seem to get it....
ReplyDeleteTariffs down the road....
Hayes must be back on the ghanja....
ReplyDeleteTariffs down the road....
ReplyDeleteTwo way street.
Hard to tell where that will go once it gets started.
Tom, do we care if it is investment or consumption? They are both stimulative are they not?
ReplyDeleteTom, do we care if it is investment or consumption? They are both stimulative are they not?
ReplyDeleteWe don't care in the short run, since they are both stimulative economically. In the short run, the issue is chiefly maintaining effective demand at the level of full employment.
But capitalism runs on investment in new capital (capital formation). So, in the long run, the system will stagnate without adequate capital formation and in the right areas to promote economic growth at least commensurate with population growth and ideally to increase the living standard. In the developed countries of the West, stagnation is already setting in.
The keys to economic progress are productivity and technological innovation, which go hand in hand and also involve "human capital" in an age in which knowledge and information are the emerging opportunities — brains instead of bricks and brawn.
So a lot of factors are involved. Policy makers need to take them all into account in order to produce good deficits based on desirable outcomes rather than bad deficits that get forced on an economy owing non-discretionary factors like automatic stabilization.
The US badly needs public investment for infrastructure, R&D, education, healthcare, pensions, etc., the etc. being other public goods as well as common and club goods not being handled well by the private sector.
The private sector also needs to direct productive investment wisely toward innovation and training to keep up with other economies that are doing so. All productive investment is not the same in effect, although the effect of spending wrt to flow into the economy rather than toward increasing the stock of savings is essentially the same. So better to spend than save, and better to spend wisely rather than not.
(Of course, the conventional view is that saving causes investment, which is reversing the actual causality.)
Productivity gains need to be more equitably shared to bolster effective demand to achieve and maintain full employment. This also involves looking at education and training wrt formation of "human capital" as knowledge and skill.
There's a lot more to consider than GDP, CPI, and U3. Looking chiefly at these metrics without looking deeper paints a false picture.
I suspect that all of the tax cuts for the wealthy will go into financial engineering and none for tangible assets. Drop your pants and bend over.
ReplyDeletedo we care if its investment or consumption
ReplyDeleteIs it investment if it is used for stock buybacks, dividends, and executive bonuses?
The entire system is gamed. Back to Tom's post: The playbook since Raygun has been to cut taxes (for the rich) and then cry 'deficit' as a reason to cut 'services' (except war, of course).
I suspect that all of the tax cuts for the wealthy will go into financial engineering and none for tangible assets
ReplyDeleteA lot of what goes into tangible assets will be invested abroad. That is were the profit rate is highest now.
Is it investment if it is used for stock buybacks, dividends, and executive bonuses?
ReplyDeleteThe entire system is gamed.
This is good example of using the same sign for different symbols.
The same sign, "investment," is used to denote both productive investment, which is a spending flow, and financial investment, which is a saving flow.
The economic effects are opposite.
Spending adds to economic activity. Saving does not.
Productive investment results in capital formation, which is the driver of capitalism.
Financial investment just involves portfolio adjustments.
Double-speak.
This double-speak is used to dupe the rubes by arguing that "investment creates jobs," lumping productive and financial investment together, which is like adding apples and oranges. Grammar school mistake.
If they are called on this, they argue that saving causes investment and saving is required for future investment. Reverse causality.
Are the double-speakers fools or knaves?