Overtaxed?

Taxes are the revenue that the government uses to cover the expenditures that the duly elected representatives of the people (this is a representative democracy, after all) have decided to spend on the "common space" of the condo building that is our Republic.

If I were a member of the condo board (US government) I would say that condo fees -- er, taxes -- were too low if we were running a chronic deficit. We started running a chronic deficit as soon as Reagan became President of the condo board (I tried to warn the residents); his successor on the board, George HW Bush,  just continued to increase the deficit. The condo residents didn't think that anything was wrong during this period because the board went into hock borrowing money in order to keep the condo common areas looking like they did when the responsible Presidents (the one's before Reagan) were in office.

The next President, Clinton, raised condo fees (despite vigorous protests from the richest tenants) and not only did the deficit eventually turn into a surplus but overall things were getting better in the condo building as a whole. Then, because Clinton fiddled with a maid, the rich meanies in the condo building got one of their simple children elected to be President of the condo board, knowing that he would follow orders and cut fees (taxes). He did and the condo went right back into deficit.

When all the borrowing and financial shenanigans that were being done to keep the condo afloat finally led to financial collapse, the condo residents elected a new, responsible, wise and good person to be President: Barack Obama. This enraged the rich meanies who immediately demagogued the torch and pitchfork crowd into revolutionary fervor by framing the new President's responsible approach to condo maintenance as "socialism","command economy" etc.

Anyway, I've attached a visual picture of what I described above. Note that  from 1947 until 1981 the deficit rarely got larger than 1% of GDP (the little spike down to 2.5% in 1975 is clearly a result of the Vietnam War ending). The deficit was brought back to zero by the time Reagan took office (1981). Reagan reduced taxes and, I think not coincidentally, increased the deficit to nearly 3% of GDP by 1983. The deficit stayed large until 1993, when Clinton increased the condo fee (by a very small amount) and the deficit started to turn into a surplus (it's at that point that one could have argued that taxes were too high; but I'm very conservative financially and like to have a surplus on hand in case of emergencies so I would have said that the taxes were probably just right). When Bush II entered office, in 2001, he immediately lowered taxes considerably (on the upper bracket mainly) and the surplus just as immediately started to plunge into deficit. Despite this, many residents of the condo building still believe that condo fees are too high. Go figure.

A Critique of Pure Garbage

Comments on  Charles Krauthammer - A Better Plan for Health-Care Reform - washingtonpost.com

The problem with so-called conservatives like Krauthammer¹ is that they base their policy suggestions on anecdotes rather than data. And when they do try to use data they get it wrong (on purpose or not, I don’t know). For example, Krauthammer begins his article by suggesting that the data show that there was a “20-year economic boom” following the implementation of Reagan’s tax policies. If, however, one looks at the actual data (analyzable by anyone with a handy spreadsheet: go to http://research.stlouisfed.org/fred2/) there is no evidence of such a “boom”. The average annual rate of growth in GDP between 1933 (when FDR came into office) and 1980 (just before Reagan came in) was 7.6%. The average annual rate of growth in GDP in the 20 years following Reagan’s inauguration (1981-2001) was 6.1%.  That doesn’t look like much of a “boom” to me.²

But perhaps Krauthammer meant something else by “economic boom”. Perhaps the “boom” was the sound of the middle class being destroyed. Reagan’s policies resulted in a huge shift in wealth from middle to upper income families. At the time Reagan came into office the top 1% controlled 20% of the wealth in the US; 20 years after Reagan the top 1% had increased their share to 35%. This is almost as big a “boom” as there was just before FDR came into office; at that time the top 1% controlled 45% of the wealth.

The Reagan “boom” in wealth inequality was supposed to “trickle down” and make the economy grow faster, to everyone’s benefit. But, as I noted above, growth was anemic during the low-tax Reagan years (1980 – present) as compared to the “high tax” progressive era (1933-1979) years. That’s not supposed to happen according to “free market” economics, of course, so conservatives either have to lie about the data (as Krauthammer does) or resort to anecdote (“Well, I know a guy whose business was doing really badly until Reagan came in and lowered his taxes and the minimum wage.”).

This same approach to data and anecdote is happening in the healthcare debate. The data show overwhelmingly that single payer health insurance systems (like Medicare, the VA, the health insurance systems in virtually all industrial democracies) cost less (often by a factor of 2) and produce as good or better outcomes as does the for-profit, free market system in the US. It’s difficult to dispute this data so conservatives will sometimes lie about it (as Krauthammer did about the post-Reagan boom) but more often they will turn to anecdote.  We see this anecdotal approach in one of the anti- “Obamacare” comments in a recent discussion with some opponents of health reform, noting that George Harrison came to the US for cancer treatment rather then getting it in England. I think the only way to rebut these anecdotes is with more anecdotes. For every anecdote about waiting lines, poor treatment or denied treatment with universal healthcare system, one could easily comeback with 100 anecdotes about waiting lines, poor treatment, denied treatment, denied coverage, bankruptcies, depletion of inheritance, etc. that happen everyday in our for-profit system.

Indeed, data is just aggregated anecdotes. The data, for example, show that 92% of Canadians would not exchange their healthcare system for the one we have in the US. But that means that 8% would. Since the population of Canada is ~33,000,000 then about 2,540,000 people in Canada would prefer the US system. That’s a lot of Canadians who would be happy to provide anecdotes about how bad their system is. I would prefer, however, to base healthcare policy on the data, which means 30,360,000 positive anecdotes against 2,540,000 negative ones.

¹ So-called” because they are actually economic reactionaries; an economic conservative would, I presume, want to conserve what has worked economically and what has worked is the generally progressive economic policies that started with FDR; what has failed is the “free market” economic policies that existed prior to FDR and that were reinstituted by the reactionary Reagan.

²  Indeed, this is an example of the well known “liberal bias” of reality. Even more embarrassing to the “free market” crowd is the fact that average annual growth during the roundly panned 4 years of the Carter administration was 10.6%. During the subsequent 8 years of Reagan, average growth was 7.3%. And growth was probably that high during the Reagan years thanks to the huge increase in defense spending (welfare for engineers) to combat the Evil Empire.  

Initial Thoughts

I've decided to start keeping a public inventory of my thoughts on a "blog". I call it "Mental Notes" because I am a psychologist by profession and most of these notes will probably focus on my specialty, which is the study of the mental processes that underlie purposeful behavior. But I will also discuss economics, politics, religion and other topics that interest me. My goal is to maintain an archive of my ideas on these topics. But I also welcome thoughtful comments.