Saturday, January 28, 2012

Alternet is an Idiot v2.0

Quite a while ago, I wrote a blog called "Alternet is an Idiot", discussing one of their writers' pieces explaining how people on "the right" are distorting reality on the economy.

Now... As most everybody knows, I have huge criticisms of "the right" on a lot of issues, but if we use the benchmark set out by politicians like Paul Ryan or proper conservative organizations like the Heritage Foundation, if anything they don't go nearly far enough in exposing the reality of our economic problems and particularly the state's role in creating and perpetuating them.

Paul Ryan's budget, just as one example, was called "draconian" by his detractors, yet all he did was propose a very slight decrease in the rate of growth in Federal spending & borrowing. Not only was this not even a "cut", it was barely even a fix.

Even Ron Paul's discussion of cutting a trillion dollars from the Federal Budget if he becomes president just puts us back at the levels of Federal spending we saw just 10 years ago. This doesn't even seem all that dramatic to me, and it would actually do some real good. Plus we got one of the most fun political ads I bet politics will ever see out of the deal:

In any case, you can read that whole post... But here Alternet is at it again, with a new article from Michael Lind, called: "Right-Wing Lunacy: The Shameless Lies Conservative Media Tell Their Audience", loquatiously subtitled: "From Social Security hysteria to "Obamacare" madness, right-wing propaganda is increasingly divorced from reality."

There are a ton of great LOL's here, and though I don't want to spend all day doing this, I'd like to go through a few examples.
"In the real world, of course, today’s national debt has nothing to do with Social Security, whose trust fund has a surplus that will last for decades, with the precise date of the trust fund’s exhaustion depending on the rate of general economic growth. True, the federal government has to raise the tax revenue to repay the money it borrowed from the trust fund — but then, the federal government has to repay all of its creditors, domestic and foreign. What’s wrong with that?"
I'm not really even sure where to begin with this. There is no "trust fund" dedicated to Social Security. The second half of Lind's own damn paragraph expresses this as clearly as I could. The money we pay in FICA and other payroll taxes was supposed to go to programs like Social Security - which were originally supposed to work basically like a forced savings account financially managed by the state (a remarkably stupid idea in any case) - but that's not how it works. In reality, politicians use those funds however they want, drawing from those revenue sources to fund other projects and returning IOUs.

Even people who don't mind this arrangement at least understand it (i.e. this Forbes piece by Steve Vernon).

For a writer like Lind to say that A. There's a "trust fund" that's all paid up and secure for decades, and B. Politicians have borrowed from that "trust fund" and will need to impose new taxes to pay back their IOUs is just really, spectacularly stupid.

Here's another thing:
"If Klein were honest with his readers, he would point out that the main causes of federal deficits in the last generation have been the Reagan and Bush tax cuts..."

Would those be the tax cuts after which Federal Revenues went up? I've just spent a ton of time reviewing tax data for a video I'm working on, so this one is particularly funny to me. I'll wait until that video is out to really talk about that, but seriously... The only way you can say that we lost a lot of revenue from the Reagan-era (or Bush, or Kennedy for that matter!) tax cuts is if you assume that real human beings simply pay whatever taxes you demand of them.

In reality, there's a somewhat obvious inverse correlation to tax rates (particularly marginal rates on incomes), and revenues. I wish there was a better way to talk about this besides the Laffer Curve, but I'm not sure that the theory behind this needs to be any more complicated than that.

If you have really high tax rates, say 70% as you had in 1980, and an accountant offers you a tax-free investment (say off-shore, or in some asset, or what-have-you) that costs you 50%... Then guess what, keeping 50% of your money is a better deal than paying income taxes and only keeping 30%. If you take the tax-shelter deal, the government gets 0% of your income.

And that's exactly what rich people were doing across the board, especially by the 1980s when international markets made even more of those kinds of options available. Sure the rates were high, but nobody actually paid anything close to 70%. Why would they? That's actually kind of insane to expect them to do that, and the fall-out was that Federal revenue was actually a lot lower than it would be when tax-rates dropped. Not that I'm supporting more money going to the state, but reality is what it is.

If you believe that rich people aren't - by and large - smart enough about their money (or greedy enough) to figure this out and avoid actually paying the high rates, then you might be Michael Lind.

I, however, assume that rich people are smart enough to figure out how to engage in tax planning, and thus I do not assume that merely by raising tax rates, you will get higher tax-revenue. And indeed..... Here are some charts you should have a look at to understand this a little better.

1. Top-Marginal Rates for Federal Income Taxes:

2. Federal Revenue from Income Taxes:

3. Share of Federal Income Tax Revenue by Income Bracket:

Take note, note-takers!

As rates have dropped since the 1960s, not only has Federal revenue from income receipts shot up, the richest Americans actually paid a larger and larger share of the overall revenue, particularly since the 1980s.

For all the constant discussion of how "unfair" our tax system is - and the last chart makes an incredibly clear case for that being true - it's not unfair in the way most people want to believe it is. The income tax system is horrendously skewed towards the very richest individuals paying by far the most.

Consider that after the 2004 tax cuts, revenue from income taxes didn't disappear, nor did the rich suddenly pay a smaller share of the overall income tax revenue. Quite the opposite, in fact! Tax revenue continued its upward trajectory and the share of that revenue borne by the richest Americans grew... And grew a lot.

As you can see, from 1980-2007, "The 1%"'s share of income tax revenues went from a little under 20% all the way up to nearly 40% (I believe it's actually at about 39.6% today).

So Alternet's Michael Lind is clearly wrong. It's not tax-cuts of any kind, regardless of the President responsible, which have resulted in increasing Federal Deficits. What is? Well... That has a pretty darn clear answer as well. And I can show you in one more graph.

4. Federal Expenditures vs. Revenues (1980-2012):

Note how we have continued to balloon spending even when recessions have caused predictable drops in revenue. What's more, and this the chart doesn't show, our wild attempts to deal with recessions with huge government interventions into the economy (beginning in 2001-2002, by the way, not just in 2007-2008) are actually causing bigger problems with our revenue stream. As I show above, it's not an issue of tax-decreases.

Also... Holy crap, that chart is scary to me. We cannot simply tax our way into fixing that gap in spending vs. revenue. It seems pretty obvious to me that we'll be taking huge drops in our potential standard of living growth just to pay for what the Federal Government has put us on the hook for as it is.

And.... I have one more chart for you before I move on to some other stupidity from the Alternet idiot.

This is Federal spending as a percentage of GDP. This is to say, here's a chart showing how much government activities are in proportion to the rest of the economic activity in the US:

For my money, all of this is basically demonstrating that the Clinton years were pretty darn good in terms of the trajectory of the economy.

That, by the way, is not to say I credit Bill Clinton, Newt Gingrich or anyone else in politics in the 1990s for this... In general, I actually think people forget about how huge an explosion of economic growth the development of the internet in the early-mid 1990s actually created.

For the most part, I credit innovation and a near-unprecedented wave of creative destruction caused by new mass-communication tools for an exploding private sector during that time. As a result, government expenditures - which clearly continued their upward trajectory (albeit a little slower) in the 1990s - were out-paced by private economic growth.

And the future at that time was pretty darn bright.

Government-surpluses, the ability to afford social programs, a booming private sector (mostly, it would appear, for completely sustainable reasons with a handful of pocket-bubbles thrown in)... It all looks good to me, at least compared to today.

Next up!
"The only number that conceivably would matter would be the overall federal-state-local spending as a share of GDP, which in the U.S. is well below the average for industrial democracies that are just as competitive and prosperous."
Yeahhhhh.... Here's the thing about that.

Spending as a share of GDP matters - as I noted above - and it has exploded over the last 50 years. But there's another number Alternet omits that's kind of important: Revenue as a percentage of GDP.

We don't get nearly the kind of Revenue as a percent of GDP as many European nations do. In fact, we're pretty much historically capped at about 19%.

Sooooo......... yeah.

Here's that chart:

You may note the drop at the end of the chart here. Huge recessions will do that for ya, as will massive increases in government spending, and huge regulatory turn-over that is starting to seriously harm our economic success.

Honestly, I could go on with every single sentence in Michael Lind's piece. It's utter nonsense from beginning to end, largely built on ridiculous assumptions and ignorance of real history. He says not to worry about increases in entitlement spending as if it's ever been a linear problem. Just to take one example on entitlements, predictions for Medicare in 1966 were laughably wrong... From Reason Magazine way back in 1993:
"The cost of Medicare is a good place to begin. At its start, in 1966, Medicare cost $3 billion. The House Ways and Means Committee estimated that Medicare would cost only about $ 12 billion by 1990 (a figure that included an allowance for inflation). This was a supposedly "conservative" estimate. But in 1990 Medicare actually cost $107 billion."
The real cost was 10 times greater than the predicted cost. And it's like this for virtually every government program because that's how the incentives and the process by which government operates works.

And this is really the big problem with these kinds of idiots.

There's utterly no comprehension of the fundamental lessons of economics, particularly of the public choice variety. There is no consideration what-so-ever that perhaps politicians have the incentive not to be very good about reining in spending, or being frugal with other people's money (that they get by force). There's no consideration that perhaps the predictions politicians make for the cost of their programs aren't all that accurate... and there's always the assumption that people don't change their behavior based on new conditions.

Want more revenue? Raise taxes!
Want more health care? Force people to buy insurance or force them to pay for a government-provided system via taxation!
Want more _____? Make someone pay for it!

...or they go to jail.

It honestly shocks me sometimes when I think about it how simple-minded you actually have to be to believe that forcing people to do what you want even works the way you intend it to... much less is a morally good thing to do.

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