Adults in the Room

It is an article of faith among Republicans that if you raise tax rates in an attempt to reduce government deficits, you end up lowering economic growth. It stands to reason then, that if you lower tax rates you end up increasing economic growth. Now have a look. This is a bit more than 20 years of GDP growth rates for the U.S. spanning both the Clinton Presidency and the Bush 2 Presidency. It encompasses several business cycles including 3 or 4 recessions, depending on how you count.

We had better growth in the 1990s than in the 2000s. Knowing this, how can anyone argue that the Bush Tax Cuts stimulated growth. Growth rates are determined mainly by the faster horses. How many of those do we have? How fast do they run? Tax rates have an impact on the marginal horses. And they clearly do have an impact on who keeps the profits from all the horses. It is hubris to think government can make fast horses run faster or that it can impact the number of fast horses we have in anything but the most general ways (such as by making sensible long term infrastructure investments and support of basic research). In the near term by altering tax policy government can influence the margin.

There is then the additional question - what's so great about growth rates of gdp or per capita gdp? Why not instead talk about growth rates at the 25 percentile, the 50th percentile, and the 75th percentile of the household income distribution? If the growth is captured almost exclusively by the top of the distribution, why should the majority care? For most of the country - Robin Hood policies would be beneficial even if growth did slow.

Of course the big deal issue that has everyone concerned is an age-based version of Robin Hood - rob from the young and give to the old. It is the youth who will rebel if sensible changes aren't made soon. However, it doesn't help the young if when they reach middle age they have to pay a good chunk of their parents' real and substantial health care bill. What will help the young is if their parents' health care bill is not so substantial. That's the problem we need to be solving.

It also is annoying to keep reading about the share of government spending in GDP. If the health care of those parents is paid by medicare, that share will be larger. If it is paid privately, it will be smaller. Unless the real cost changes, however, this is a distinction that matters not at all.

It would really help, if those commenting about adults in the room were adults themselves.