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December 29, 2014

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Paul Krugman: The Obama Recovery

Posted: 29 Dec 2014 12:24 AM PST

The economy is doing better. Will it continue?:

The Obama Recovery, by Paul Krugman, Commentary, NY Times: ... As you may know, back in 2010 Britain's newly installed Conservative government declared that a sharp reduction in budget deficits was needed to keep Britain from turning into Greece. Over the next two years growth in the British economy, which had been recovering fairly well from the financial crisis, more or less stalled. In 2013, however, growth picked up again — and the British government claimed vindication for its policies. Was this claim justified?
No, not at all. What actually happened was that the Tories stopped tightening the screws — they didn't reverse the austerity that had already occurred, but they effectively put a hold on further cuts. ... And sure enough, the nation started feeling better.
To claim that this bounceback vindicated austerity is silly. ...
Meanwhile, back in America we haven't had an official, declared policy of fiscal austerity — but we've nonetheless had plenty of austerity in practice, thanks to the federal sequester and sharp cuts by state and local governments. The good news is that we, too, seem to have stopped tightening the screws: Public spending isn't surging, but at least it has stopped falling. And the economy is doing much better as a result. ...
What's the important lesson from this late Obama bounce? Mainly, I'd suggest, that everything you've heard about President Obama's economic policies is wrong.
You know the spiel: that the U.S. economy is ailing because Obamacare is a job-killer and the president is a redistributionist, that Mr. Obama's anti-business speeches (he hasn't actually made any, but never mind) have hurt entrepreneurs' feelings, inducing them to take their marbles and go home.
This story line never made much sense. The truth is that the private sector has done surprisingly well under Mr. Obama... What held us back was unprecedented public-sector austerity... Sure enough, now that this de facto austerity is easing, the economy is perking up.  ...
Will this improvement in our condition continue? Britain's government has declared its intention to ... engage in further austerity, which does not bode well. But here the picture looks brighter. Households are in much better financial shape than they were a few years ago; there's probably still a lot of pent-up demand, especially for housing. And falling oil prices will be good for most of the country...
So I'm fairly optimistic about 2015, and probably beyond, as long as we avoid any more self-inflicted damage. ...

Links for 12-29-14

Posted: 29 Dec 2014 12:06 AM PST

'Federal Tax Revenues During the 1980’s'

Posted: 28 Dec 2014 09:03 AM PST

PGL at Econospeak:

Federal Tax Revenues During the 1980's: Paul Krugman takes on another aspect with respect to the latest intellectual garbage from Stephen Moore by commenting on Moore's claim that Federal tax revenues soared from 1980 to 1989...

Paul is debunking a claim that has been made and debunked many times. The usual line is that Federal tax revenues almost doubled from $517.1 billion in 1980 to $1032.0 in 1990. The inflation-adjusted part comes from the fact that the GDP deflator rose by 50.3% over this period so in real terms revenues rose by 32.8% over the entire decade. But there is another serious problem with this that anyone who followed the various tax policy changes during the Reagan years should know. Yes income tax rates were cut in 1981 but there were various tax rate increases that followed including a significant increase in payroll tax rates in 1983. Table B.21 of the Economic Report of the President provides the details on Federal tax revenues. Payroll taxes rose from $157.8 billion in 1980 to $380 billion in 1990. Yes, a 140.8% nominal increase and a 60.3% increase in real terms when this tax rate was increased. All other Federal taxes therefore rose by only 20.8% in real terms over the decade. Since I'm not the first to point this out one would have to believe that Stephen Moore would have seen this often made point before. And yet he can't be bothered to tell his readers the whole story? ...

'The Obama Bounce'

Posted: 28 Dec 2014 09:03 AM PST

Paul Krugman:

The Obama Bounce: Dean Baker is, of course, right: this is not a boom, and comparisons to the 1990s are insane. Still, growth has clearly picked up, and the public seems to be noticing. So what can we say about the Obama non-boom?
I'd argue that much of what we're seeing reflects the tapering off of austerity. ... Spending hasn't rebounded yet, but at least it has stopped shrinking: ... And it's important to realize that, despite all the rhetoric about how Obamacare/antibusiness rhetoric/Kenyan Islamic atheism is destroying business, the private sector has actually been relatively strong under Obama. ...
The point is that relatively good private sector performance has been masked by public-sector cutbacks; this is the opposite of what you usually hear, but that's no surprise.
What about the prospects looking forward? ... Overall..., the next year and probably the next two years are likely to be pretty good. This doesn't mean that the overall track record of policy has been good — we've wasted trillions in foregone output, damaged the lives of millions if not tens of millions. But it will feel a lot better than the years before.

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