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After yesterday's post I assumed someone would come up with a link showing which candidate has the most support from independent economists. Unless I missed it, no one came up with such a link.


But I am fascinated by the comments to yesterday's post that got the most up votes. The authors of those comments came up with what appear to be the best and simplest common sense answers to who would be the better president for growing the economy.


The most popular answer was that Obama would reduce the national debt by raising taxes while McCain would increase the debt by lowering them. No one wants debt, therefore Obama is better for the economy. Common sense, right?


First, if it were that easy, all the independent economists would be supporting Obama. It really would be that simple. But there is no evidence that independent economists are lining up with Obama. What do those experts know that the people with common sense don't?


For starters, the economy has grown for decades without a clear link to debt levels. The deficit went down during Clinton's term largely because the economy was hot by coincidence, thanks to the dot-com era.


Second, debt isn't bad per se. The best indicator of a healthy economy is that everyone who can repay a loan gets one. The whole point of debt, either personal or government, is that it stimulates the economy more than it puts a drag on it. Obviously there is a point where debt can be too much, but would McCain reach that point where Obama would not? I don't see the experts lining up behind that prediction.


And how much do you think the deficit will be reduced under Obama's plan of increasing taxes on the rich while reducing taxes on the poor? Isn't that largely shuffling things from one pocket to another? I don't know the answer to my own question, and the bigger point is that you don't either. But we both know Obama plans to increase spending in a number of social areas whereas McCain might be stingier. Or would McCain just spend more on the military so both candidates spend about the same in the end? I don't know. Neither do you.


Can Obama convince a bunch of rich law makers to increase taxes on themselves and their major donors? I doubt it. Can McCain convince a bunch of law makers who depend on pork to cut the pork out of the budget? I doubt it. So assume both candidates haven't made the math work and are over-promising on the debt. Common sense tells me I can't tell the difference between the candidates.


A comment from Real Live Girl was interesting. She noted that the economy is fueled by optimism, and Obama brings more of that. Those are two true statements. But is all optimism the same? Wall Street veterans believe the market would go up if McCain gets elected. Lower taxes make the titans of business the most optimistic. Raising their taxes and transferring the money to worthy social services might make lots of people feel optimistic, but that isn't the optimism that fuels economies. An unemployed guy can't get too optimistic until a rich guy gets optimistic first and builds a factory he can work in. McCain makes rich guys optimistic. Obama makes students optimistic. Which approach stimulates the economy more? Beats me. You don't know either.


Another comment noted that McCain's support of the gas tax holiday was criticized by almost all economists.  Therefore McCain is both clueless about economics and likely to ignore expert advice on the subject. That seems like a common sense way to look at it, until you consider that politicians do things in campaigns that are intended to be symbolic. McCain was sending a message that he's a tax cutter. The gas tax holiday was always intended to be temporary. Message received.

McCain's actual economic ideas - the ones that would matter - involve free trade, taxes, and keeping the homeland safe. Those are either good for the economy or bad, and overwhelm the importance of something like a campaign promise involving gas taxes for a few months. So if you make a decision based on the gas tax holiday, you are basing your decision on trivia.


So which candidate would be better for the economy? I don't know. But I do know that common sense doesn't tell me anything useful, and neither do the experts.

 
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+2 Rank Up Rank Down
Jun 18, 2008
I'm not mathematician, but Phantom II's comments regarding top earners and taxing millionaires at 100% seems contradictory.

Scott's right, nobody knows the future of the economy and neither politician has, what appears to be, the solution. I've always believed the President gets too much of the blame & the credit for the economy. Nevertheless, the one key variable that makes economic sense is to bring the troops home. This war has been an economic drain on this country and the sooner the majority of our troops are out of there, the better.
 
 
0 Rank Up Rank Down
Jun 18, 2008
In my opinion, the biggest domestic problem we have isn't precisely "the economy", it's the size and reach of our government. It has long since crossed the delicate line between "serving the people" and "controlling the people". Arguably, this is also our biggest international problem too.

I honestly don't know whether we should raise or lower taxes, but I don't think we can have a meaningful discussion about taxes until we truly examine the role we want our government to have, and have some kind of plan to set things right.

I would love to vote for the candidate that shows me that they understand this and has a plan to "right-size" our government. I haven't seen this yet from either candidate.
 
 
0 Rank Up Rank Down
Jun 18, 2008
Obama wants to levy a windfall profits tax on oil companies, because they have been making huge profits which supposedly are at the cost to the consumer.. Oil companies make ~8% profit on gasoline. He meanwhile scoffs at McCain for asking for a tax holiday saying that it would not be sufficient. Federal and state taxes are ~24% of the cost.

Obama says that drilling more now will take 7 years to get the oil into the market. Many reports that I have heard and read indicate that speculation on future supply and demand is driving much of the cost per barrel increase. Seems to little ol' me that if we start drilling, the speculation will be that in the future prices will drop. Shouldn't that result in a drop in the near term?

Can we have a do-over on the primaries? Please!?!?!?
 
 
Jun 18, 2008
Scott:

I think you are asking way too much of Economics and economists. It's less science and more voodoo. I'm surprised that they actually have a Nobel Prize category for it.

In most other sciences, there is a predictive aspect. I can tell you what to do, how to do it, and tell you what you'll see when your done. Mix two chemicals; time a ball falling from the roof; breed these two fruit flies.

But, like you said, Economics is more voodoo than science. Economists will argue that that's because there are too many variables, too many factors that go into something like "the Economy" to make any single contributor a reliable predictor. That's why economists have to rely on statistical modeling: "when this event happens, this result is the most likely". But just because two dice are more likely to roll a 7, it doesn't mean that snake eyes doesn't come up.

McCain or Obama could have a good or lousy economic policy, but if Scotty invents the Transporter, the change to the economy from that will overshadow any policy of theirs (or Congress).

<Aside>- !$%*!$%* party topic: Would the invention of the Star Trek Transporter be good for the economy (cheap transport of goods and people, among other benefits), or bad (who would employ all the laid-off auto workers, airline pilots, oil company execs, etc)? </Aside>

You are right. No one knows. Not me, not you. Not even "independent economists". They are just witch doctors, conning Universities and Think Tanks into believing that they actual can predict something. And neither candidate is proposing something so radical that the odds of success of one plan over another will be statistically significant. If someone favors one candiate's model over another, that's just personal bias.

For instance, lowering interest rates can stimulate the economy, _IF_ the cost of capital is the limiting factor to growth - if Mr. Moneybags can't afford to take out a loan to build a new widget factory. This was true in the Reagan years, so it worked.
But if credit is easy to come by (like it was in the early Bush 43 years), then cutting interest rates only really shifts investment from stocks to bonds, or real estate (bubble). In that situation, companies and people "feel rich" (high stock prices, high home equity), so they spend.
But now, with oil and food prices climbing, and credit tight regardless of the rate, interest rate cuts aren't stimulating, because people don't "feel rich", so don't spend. And the "news media" feeds the cycle with stories of "people are cutting back".

So therefore, each candidate's policy will both help and harm, depending on other !$%*!$%*!$%*! that won't exist until after they are elected.

If you're looking for guidance as to which candidate to back, I've got a Ouija board that's done pretty well in the stock market that I can let you borrow.
 
 
Jun 18, 2008
Common sense isn't so common it seems. Is it common sense to increase tax revenue by raising tax rates? Or is it common sense to increase tax revenue via a larger GDP that was created by lowering the tax rates? The truth lies in between a large number of intertwining factors, and it's all convoluted enough that any facts that may exist get washed out among the personal belief systems. You can't even use past performance these days. I once tried to find graphs that show how tax rate reductions led to increased revenue during Regan's and W's Presidencies. Most of the google hits I got were people purporting to disprove the notion. However I didn't even bother reading them because I would have just disregarded them as somehow twisting the data to reach wrong conclusions. See how that works?
 
 
Jun 18, 2008
When you try to cut the pie into more equal sizes, it gets smaller, and when the pie is smaller, the government has less to steal from.

What the hell are students doing in school.
 
 
+3 Rank Up Rank Down
Jun 18, 2008
In the mid-eighties Ireland started cutting their tax rates. From 36% income tax for an average family to 19% today. Since then, GDP/Cap has increased by 167% - by comparison, GDP in the UK increased by 53% (~european average). The national dept has in the same period been reduced from 111% of GDP to 30%.

Why bother with the opinions of your "independant economists" when you can let history speak the truth? http://workforall.net/EN_Tax_policy_for_growth_and_jobs.html
 
 
Jun 18, 2008
i have no horse in this race (I do vote - but since my wife has more time for analysis and has an infinite more amount of common sense than I do, I just let her pick a candidate and then she gets two votes - hers and mine), but I did hear something interesting on NPR today. McCain wants to increase off-shore drilling because oil is so expensive. Obama comes back with the fact that it will take 5 years for any drilling that starts today to affect oil prices. Geez.

So...McCain gets points for at least thinking about the problem. Maybe an extra point for thinking long term as opposed to looking out as far as next month. Obama gets a point for being correct. McCain loses a point because, since he is looking into the future, he could have at least talked a little about renewable energy. Isn't there a point system you economists can use? I think mathematicians (like me) and statisticians are polar opposites, aren't they?
 
 
Jun 18, 2008
Nobody knows what the future will be like after the election is over. All the armchair quarterbacking, politicizing and crystal ball gazing will not predict where the economy, the war and the social structure will fall or rise.

The new President will be faced with a future that is uncertain, dangerous and unpredictable and will have to make hard choices. One thing is certain, he will make mistakes as every President does. Let us just believe that what is over the horizon will be livable and life will continue. Hope we make our children and their children proud of us.
 
 
+1 Rank Up Rank Down
Jun 18, 2008
I'm going to have to agree with cweekly about the war. That by far is one of the largest outflows of our money, and only one of the candidates shows any interest in ending it.
 
 
Jun 18, 2008
An interesting and thoughtful post. However, there are a few flaws in your reasoning.

During the Kennedy tax cuts (instituted by Johnson after Kennedy's assassination), federal revenues went up. Following the Bush tax cuts, federal revenues went up. So to state that raising taxes would lower the national debt is not true.

Lowering taxes stimulates the economy. When the economy improves, federal tax revenues, although coming in at a lower rate, results in more total dollars to the treasury. This is the other side of that classic law that everyone learns in Economics 101: the law of supply and demand.

From an economic point of view, the best taxation rate is the one that results in the most dollars to the treasury. It would take a politician with less brains than the proverbial flea not to know that. So why then do politicians on both sides of the aisle try to raise taxes?

The reasons are many and complex, but it boils down to politicians wanting to keep their jobs. Taxation at the federal level in the US (as opposed to, say, Russia, which has gone to a flat tax, or Ireland, which greatly decreased their tax rate on business and is now undergoing massive economic growth) is extremely progressive. Right now, 86% of all federal income taxes are paid by the top 25% of income earners, while the bottom 50% of income earners pay only three percent.

Moreover, the top 1% of income earners pay more than 34%, while the top 5% pay more than 54%. Yet politicians tell us that the rich don't pay their "fair share." When 50% of the people pay virtually nothing, when a politician tells them that if they vote for him/ner, he'll "tax the rich" to give them things for free, they vote for him/her, and he/she keeps his/her job.

And you can't really tax the 'rich' much more and get benefit from it - if everyone in the US who earns $1M or more were taxed at 100% of their income, federal revenues would increase less than 10%. There's no such thing as a free lunch, folks. Taxing the rich is politicio-speak for getting the middle class to accept a tax increase because those rich bastards are getting socked a lot harder. Think it through.

Now, we're getting designer taxes proposed, rather than straight tax increases. These are taxes supposedly focused toward some particular PC cause. Social Security and Medicare were supposed to be such 'focused' taxes, but ended up just going to the general fund. Taxes to stave off the myth of anthropogenic global warming is another such proposal, but this one is going to really cost us a lot of money. According to a June 6 AP story, "The world needs to invest $45 trillion in energy in coming decades, build some 1,400 nuclear power plants and vastly expand wind power in order to halve greenhouse gas emissions by 2050, according to an energy study released Friday. "

That's $45 trillion, with a 'T'. The US budget is currently around $3 trillion, and you can guess who the 'world' is going to tap to pay this kind of price: yup, the evil, polluting, exploitative US. So all we have to do is divert 1/3 of our budget for 45 years - or raise taxes (on the evil rich, of course) by $1 trillion/year for 45 years, and we're there. Whoopee. That's what the cap and trade bill is supposed to start to do - but unfortunately, it would gut the US economy, and (if you were paying attention above) would result in federal revenues decreasing even though the marginal tax rate would increase.

So look behind the fluff when evaluating what politicians say about taxes. Rethink what you consider to be 'fair' in our tax system. Think about things like the flat tax, and read up on some innovative ideas to change the social welfare system, such as Charles Murray's "In Our Hands - A Plan to Replace the Welfare State," or some of the ideas coming out of Newt Gingrich's American Solutions group.

We need innovation, not the failed policies of the past. Obama's saying that he wants to double the capital gains tax tells me he either doesn't understand economics or is pandering - you choose. That's a very old Democrat political idea, from someone who is telling us he's all about 'change.'

McCain, on the other hand, has said he doesn't understand economics, which his support for the cap-and-trade bill shows. So to me, neither of them is going to be economically sound in their policies, unless they surround themselves with good advisors. As McCain is admitting ignorance and Obama isn't, I'd say McCain has the better chance of getting some good economic advisors and following their policies. But everyone needs to make an informed decision on this, not just go with whomever makes you feel all warm and fuzzy inside.
 
 
+1 Rank Up Rank Down
Jun 18, 2008
Your point that McCain's gas tax holiday was just sending a message may be correct, but was the message "I'm for lower taxes" or "I'm willing to lower taxes even when every economist says that it's not a good idea"? You put out the question for "who is supported by most economists", and that gas tax was the one example where economists almost universally stood against one of them, and McCain didn't back down. I think that has to make the score 1-0 for Obama.

I view are economy like a car about to plunge over the edge of a bridge to certain (perhaps exploding-on-impact) doom. The common sense answer to me is that we have to turn the wheel and do something differently. It might be that we over correct and go plummeting off the other side of the bridge to an equally less pleasant result, but it seems like a higher % play to me. I'm voting for whoever offers the biggest change - if one of them says "I'm going to double the marginal tax rate and give you free bananas for life", he gets my vote.

And I don't even like bananas.

I think a more interesting question is how the population of the US is going to react to our "economic loss of empire" phase. My guess, is that we're on a path to turn into Europeans (small cars, accepting of high taxes if they come with high benefits/reduced worry, etc...)




 
 
+2 Rank Up Rank Down
Jun 18, 2008
I can't believe this entire thread omits a single mention of the astonishingly expensive WAR going on, which absolutely dwarfs any of the other governmental expenditures about which either candidate would argue. Three TRILLION dollars is a commonly cited figure. Obama wants to end the war ASAP, whereas McCain wants to establish a permanent presence at unforetold, unbudgeted and nearly unlimited cost. Long-term, differences in energy policy [Obama: investment in alternative energy R&D vs. McCain: increased drilling] might have a bigger net impact but to my view that's less blindingly obvious than the incredible waste of our treasure (and blood) which we continue to pour into the desert sand. This is not intended as flamebait, I can respect opinions other than my own if they're well-conceived and factually grounded, but I'm a little disappointed to see the elephant in the room ignored here.
 
 
+4 Rank Up Rank Down
Jun 18, 2008
Scott,

What, exactly, is an "independent economist?"

Seriously. Some economists are Republican, some Democrat, some Libertarian, some are probably Socialist. It'd be nice, I guess, if economics were the "hard science" that you seem to think it is; that you could just input numbers, and logical, mathematical equations would spit out unbiased, unvarnished, truth.

But that doesn't seem to be the way that it works.
 
 
Jun 18, 2008
Two quick points

1. A lot of the work that brought about Clinton's balanced-budget was done by George Bush (the elder). But Democrats aren't going to tell you that and since he is a pariah to his own party ("no new taxes" pledge broken) no one really cares to bring that up.

2. When McCain says he doesn't understand economics, people seem to infer he must be an idiot. In fact economics (real economics, not the nonsense you get on talk shows and business hours) is very, very difficult and involves a great deal of complex math. They don't hand out Nobel Prizes for knitting after all.
 
 
Jun 18, 2008
I was insulted that McCain could even consider the gas tax idea.

Now he is advocating drilling off the US coast.

Obama thought it was a bad idea because it won't have an effect for 5 years or so, but what does Obama have that would be a better idea? I don't understand how Obama can critizise a long-term fix to this problem when he doesn't have a better option. McCain seems to have the better plan, therefore I would say McCain would be more favorable.

Alternatively, if you think about "peak oil," drilling restrictions will have the effect of allowing the US to have the last of the oil when world oil reserves run low. Then the US will be at a distinct advantage because there will become a point where drilling will resume.
 
 
Jun 18, 2008
The main thing that you're forgetting is that Presidents can only have a negative impact on the economy. If people don't like the president or anything he is doing/has done then the economy seems to suffer. If people like the president the economy could still suffer.

Congress on the other hand affects the economy greatly. They are the ones that actually increase or decrease the taxes. Sure the president can propose one or the other but it is up to congress to actually debate about it and either enact it or not. Congress has the power of the purse and therefore direct influence on the economy.

The other major player on the economy is the Federal Reserve. A private bank, not a government entity dispite the name, that is charged with setting the interest rates used to loan money to the banks. They are also charged with controlling how much money is in the system. This has a much greater affect on the economy than any president, senator or representative could ever dream to have. The Federal Reserve is the one responsible for the houseing bubble artificially propping up the economy for a number of years. They are the ones responsible for the bubble bursting and the economy taking a dive. They are the ones who have injected billions of dollars into the system in the hopes of preventing a recession but what is likely to happen now is a huge jump in inflation due to the declining value of the dollar (which has also caused oil to skyrocket by the way). They are the ones who seem to have the most impact on the economy.

The one major place where the President can actually affect the economy is on who he appoints to run the federal reserve. However, if memory serves, both major candidates are likely to keep the board of governors at the Federal Reserve as is.

The bottom line here is that the economy is likely to do whatever the economy is likely to do and there is little to nothing that our elected officials can do to change it. They will hem and haw about the other party holding back reforms that could better the economy but in the end neither party will actually do anything. Whatever party is currently in control of things when the economy is in the tank is blamed for it and tends to lose control in next election. Then the other party is in power until the economy hits another downturn.
 
 
-2 Rank Up Rank Down
Jun 18, 2008
c4chaos what color is the sky in your world? Media playing fair...please, give me a break. they have been carrying water big time for Obama. Have you actually listened to the man when he's doing Q and A? He can't get a coherant sentance out to save his life. The media takes sound bites that make him sound half way intelligent and then rapsodize over what a great speaker he his UGH. When he did the Q and A after leaving his church I actually felt sorry for him. It was painful to listen to him!
 
 
Jun 18, 2008
1. I loved this post.

2. More interaction and reaction to our posts (see point #1). It makes us feel important to have a "minor" celebrity comment on them. I wish we could have threaded posts so that other anonomous posters could inflate my sense of self-worth as well.

3. Your trivia comment is VERY astute. Most of what politicians talk about has very little to do with how the government it run. The best you can hope for it that is sends a signal about how they will handle those things you never see or thing about.
 
 
Jun 18, 2008
Higher taxes are complete ****. People who support Barack Obama are either crazy or stupid, or possibly both. Obama wants higher taxes to pay for their huge government healthcare programs and other social programs. The effect of raising taxes, however, is devastating. 70% of people employed in this country are employed by small businesses, privately held by one or a few people. The effect on higher taxes for the rich is these business owners fall in that category. The reason people start small businesses is to make money and hopefully grow their businesses into larger businesses for the sake of getting further ahead in life. When small business owners make money, they many times reinvest that money into their businesses by expanding and hiring new workers. This helps the economy by reducing unemployment and indirectly raising average wages through higher competition for workers. However, not all business owners reinvest all they make into their businesses, although the other things they do with the money can be equally helpful to the economy. Another option for the earnings from a small business is that these people can save it in banks, bonds, stocks, etc. This provides a money supply to lending instituitions to give to people who want to borrow to either start businesses, or get mortgages for homes. A higher money supply means lower rates, which ultimately leads to more prosperity. A third option for small business owners is to spend their money on goods and services. This adds directly to GDP and increases the demand for goods which increases workforces and overall economic health. Rich people getting richer allows everyone else to get richer.

However, when taxes are increased, investment spending dips, consumption dips, and jobs are destroyed. The additional money collected by the government goes directly into low income earner's pockets and further destroys their desire to want to work or suppor themselves. This increases the size of the poor class, while decreasing per capita productivity, which in turn decreases relative wealth as productivity levels of society are directly tied to living standard. When rich people get poorer everyone suffers in a free market.

Additionally higher taxes weaken the economy which decreases profits, which directly lowers collected taxes, which means larger budget deficits and fewer real dollars for the poor who have become dependent on the government for livelihood.

McCain is much better for the economy as he'd stay out of the way and let things work as a capitalism and not try to impose non-fuctional socialism on the country.
 
 
 
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