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Money Board economists - History and our debt
Posted on 5/21/12 at 9:51 am
Posted on 5/21/12 at 9:51 am
Paul Krugman article
I'm a lowly engineer, so my knowledge of economics is quite limited. However, I've become more interested in learning of the differing views on debt. This has been spurred by the accelerated increase of US debt in the past five or so years and the current situation in Europe and the rejection of austerity.
The above article was intriguing to me and one particular idea caught my attention:
So his point is that since our tax rate is low compared to other countries, our debt/GDP ratio shouldn't be as alarming?
Does he assume that GDP will not be affected by increased taxes? If so, is that a fair assumption?
I'm a lowly engineer, so my knowledge of economics is quite limited. However, I've become more interested in learning of the differing views on debt. This has been spurred by the accelerated increase of US debt in the past five or so years and the current situation in Europe and the rejection of austerity.
The above article was intriguing to me and one particular idea caught my attention:
quote:
In the specific case of the United States, the obvious point is that we start from much lower taxation than many other advanced countries; so we really shouldn’t be worried about the slightly higher share of GDP that we will have to collect to service the debt run up during the crisis.
So his point is that since our tax rate is low compared to other countries, our debt/GDP ratio shouldn't be as alarming?
Does he assume that GDP will not be affected by increased taxes? If so, is that a fair assumption?
This post was edited on 5/21/12 at 11:04 am
3
Posted on 5/21/12 at 10:11 am to CoolHand
quote:
I'm a lowly engineer, so my knowledge of economics is quite limited.
Let me get you started:
Anything Paul Krugman has written lately is a pure hack job and utter shite.
He did win a Nobel Prize in economics, but that was for his much more legitimate early work. He's basically Ottothewise/Rex of the economics world now.
Posted on 5/21/12 at 10:34 am to CoolHand
I will second what THF wrote, and therefore refuse to read the article itself.
Pertaining to the particular question you ask, however, I will say that it does make sense in this way: a country with a lower tax rate has a little bit of breathing room to increase taxation without completely bringing economic growth to a halt, thus meaning that it can carry a higher debt-to-GDP ratio.
I would also add, however, that just because something isn't alarming from a purely technical chance-of-default point of view, that doesn't mean that it shouldn't be alarming from a wider macroeconomic (and even geopolitical) point of view.
Finally, the U.S. is gradually creeping much closer to European rates of taxation and spending. Switzerland, for example, already spends less than the U.S.
Pertaining to the particular question you ask, however, I will say that it does make sense in this way: a country with a lower tax rate has a little bit of breathing room to increase taxation without completely bringing economic growth to a halt, thus meaning that it can carry a higher debt-to-GDP ratio.
I would also add, however, that just because something isn't alarming from a purely technical chance-of-default point of view, that doesn't mean that it shouldn't be alarming from a wider macroeconomic (and even geopolitical) point of view.
Finally, the U.S. is gradually creeping much closer to European rates of taxation and spending. Switzerland, for example, already spends less than the U.S.
Posted on 5/21/12 at 10:40 am to TheHiddenFlask
quote:
Anything Paul Krugman has written lately is a pure hack job and utter shite.
I understand what you are saying, and have read his opinion pieces over the years with much skepticism. However, I'm trying to understand the logic of both sides if the argument. I'm not doing very well.
Posted on 5/21/12 at 10:44 am to CoolHand
About what argument? If you are confused about a particular issue, ask about that issue. For heaven's sake, don't try to introduce it to others using a Krugman article as the vehicle for a legitimate discussion.
Posted on 5/21/12 at 10:44 am to Doc Fenton
quote:
Finally, the U.S. is gradually creeping much closer to European rates of taxation and spending.
I read something years ago that made the case that taxation in the US is already at European levels, once you consider all taxes. Federal income, social security, medicare, capital gains, etc. Then state income taxes, sales taxes, gas taxes, vehicle registration fees (if you count that as taxes), etc. Then down to the county level with property taxes, etc.
What do you think?
This post was edited on 5/21/12 at 10:44 am
Posted on 5/21/12 at 10:49 am to WikiTiger
We're not there yet. Even if you add up all levels, it's still lower than the 50%-or-higher benchmark for most "Old Europe" EU countries like the U.K., France, Belgium, etc.
On the other hand, if you think of "taxation" in a broader sense, where regulation is itself a form of taxation (which in a broad theoretical sense, it is), then you might have an argument for corporations in various industries, due to minimum wage laws, Sarbanes-Oxley, Dodd-Frank, etc.
But even that would be a weird argument. If I had to guess, I would say that the article you read probably indicated that the implied future taxation for the U.S. was already as bad as Europe, because our future liability problem from entitlement programs are on less sound footing than in other EU countries.
On the other hand, if you think of "taxation" in a broader sense, where regulation is itself a form of taxation (which in a broad theoretical sense, it is), then you might have an argument for corporations in various industries, due to minimum wage laws, Sarbanes-Oxley, Dodd-Frank, etc.
But even that would be a weird argument. If I had to guess, I would say that the article you read probably indicated that the implied future taxation for the U.S. was already as bad as Europe, because our future liability problem from entitlement programs are on less sound footing than in other EU countries.
Posted on 5/21/12 at 10:51 am to Doc Fenton
quote:
About what argument? If you are confused about a particular issue, ask about that issue. For heaven's sake, don't try to introduce it to others using a Krugman article as the vehicle for a legitimate discussion.
I apologize, I thought I had posed a question:
quote:
So his point is that since our tax rate is low compared to other countries, our debt/GDP ratio shouldn't be as alarming? Does he assume that GDP will not be affected by increased taxes? If so, is that a fair assumption?
ETA: If you object to me using the Krugman piece as a prerequisite for understanding my my question, then I understand your objection. However, I did give warning that it was Krugman, and you have every right to decline addressing my question.
This post was edited on 5/21/12 at 10:57 am
Posted on 5/21/12 at 11:03 am to CoolHand
You posed 3 questions.
I answered the first.
The second question is about his own personal opinion.
The third is a legitimate question and part of a bitter decades-long political debate, but would probably deserve its own thread.
For the record, I do think lower taxes lead to increased economic growth, as do economists within the Obama administration such as Christina Romer.
Be warned about getting into this debate, however, there are all kinds of caveats and contingencies to everything. You have to be careful to distinguish between marginal tax rates and tax revenues as a % of GDP, which taxes you are changing the marginal rates on, and above all, be careful about what your time parameters are.
TD.com (not necessarily this board) gets arguments about the related--and infamously controversial-- Laffer Curve all the time, for example, but it usually goes nowhere, because the Laffer Curve is just a conceptual framework, and usually doesn't specify things like what timeframes are being considered.
I answered the first.
The second question is about his own personal opinion.
The third is a legitimate question and part of a bitter decades-long political debate, but would probably deserve its own thread.
For the record, I do think lower taxes lead to increased economic growth, as do economists within the Obama administration such as Christina Romer.
Be warned about getting into this debate, however, there are all kinds of caveats and contingencies to everything. You have to be careful to distinguish between marginal tax rates and tax revenues as a % of GDP, which taxes you are changing the marginal rates on, and above all, be careful about what your time parameters are.
TD.com (not necessarily this board) gets arguments about the related--and infamously controversial-- Laffer Curve all the time, for example, but it usually goes nowhere, because the Laffer Curve is just a conceptual framework, and usually doesn't specify things like what timeframes are being considered.
Posted on 5/21/12 at 11:09 am to CoolHand
quote:
ETA:
Yeah, that's alright, man. I was just saying, you seemed to be pointing to his article and asking, "what is he thinking here?", rather than identifying a particular question in isolation to ask about on its own merits.
If you're genuinely new to these arguments and ideas, I guess Krugman will work as an entry point, but for the MT board, you should try to whittle your questions down to a more cut-and-dry question of fact. If you don't, you risk turning the thread into a Political Talk thread, which is generally frowned upon around here. Note that Krugman is acting as a political commentator and not as an investment advisor. There's nothing wrong with that per se, but it tends to clutter the issues that are generally relevant to Money Talk board discussions.
Posted on 5/21/12 at 11:12 am to Doc Fenton
Point taken and I appreciate your informative response.
Posted on 5/21/12 at 11:14 am to CoolHand
From somebody who has gone down that road before... 
Posted on 5/21/12 at 12:10 pm to CoolHand
quote:
This has been spurred by the accelerated increase of US debt in the past five or so years
Might want to expand your timeline a bit.
This post was edited on 5/21/12 at 12:18 pm
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