Fox Opinion Article - Does President Obama Understand Economics?

[ponycar17]

Does President Obama Understand Economics?

By John Lott
Published December 07, 2010

Neither government spending nor tax cuts automatically provide an economic stimulus. But President Obama has continued to make this mistake. Take a look at much of what he insisted be included in his tax cut deal with congressional Republicans.

So what makes the economic pie bigger? There are two sides to this. The supply side: lower marginal tax rates mean the more that people get to keep from each additional dollar that they earn, the harder that they will work and the more that they will produce.

The other view, the Keynesian view, also often called "the demand side view" or "the multiplier," is that giving the money to the right people to spend which will create wealth. Democratic House Speaker Nancy Pelosi made this claim earlier this year when she advocated more unemployment insurance benefits: "it injects demand into the economy and is job creating. It creates jobs faster than almost any other initiative you can name. Because again it is money that is needed for families to survive and it is spent."

We see this line of reasoning in the proposed 13-month extension of unemployment insurance benefits to continue paying out benefits for up to 99 weeks.

It is also the basis for the president's proposed expansion of the earn income tax credit and items such as the college-tuition tax credit for relatively lower-income families.


The problem with this multiplier claim is pretty simple. First, the money has to come from some place.

Second, everyone spends their money one way or another. This claim of some people "spending" their money while others are "saving" it really assumes that saving is the equivalent of burying one's money in a hole in the backyard. In reality, if you don't spend your money, you are putting it in the bank or you are putting it in stocks or bonds, which means you are giving it to someone else to spend.

Even when a poor person spends his money at the local grocery store, that business is going to either spend it or put it in the bank. Taking money from wealthy people and giving it to poor people doesn't create more spending. It just alters who gets to choose where the money is spent.

President Obama keeps pointing to the tax cuts that he supports, but his tax cuts actually discourage work for one simple reason: they increase marginal tax rates. Obama's tax cuts increase marginal tax rates because they are phased out as people make more income. You get the earned income tax credit or the college tuition credit but as you earn more money more of those credits are taken away from you. Those lost tax benefits are on top of the unchanged official marginal tax brackets.

There is never a good time for the country to have increased penalties resulting from harder work but surely this is not the time for it, when so many people are already hurting.

Of course, far from stimulating the economy, the increased unemployment insurance benefits also discourage people from working. People only receive the unemployment insurance as well as assistance paying their mortgages and health insurance as long as they are unemployed. -- There is a real dollar penalty as soon as they take a job.

Disappointingly, so many members of the media measure the stimulus by just counting up the money that is spent. Take the New York Times’ David Leonhardt, who writes the paper's "Economix" column. On Monday, he wrote about the stimulus in terms of "the amount of money pumped into the ailing economy," not in terms of the incentives created for work. And how about last Friday, December 3, when he included an extension of unemployment insurance benefits are among the measures "that are more likely to create jobs."

All that said, there is one new proposal pushed by President Obama that does lower marginal tax rates, that is the one-year, 2 percentage point reduction in Social Security taxes. But it lowers the marginal tax rates for most people by much less than his proposal to phase out the different tax credits will raise the rates.

Increased marginal tax rates will clearly be bad for the economy. But President Obama just can't let go of the old Keynesian arguments that have failed so spectacularly over the last two years.

John R. Lott, Jr. is a FoxNews.com contributor. He is an economist and author of "More Guns, Less Crime."(University of Chicago Press, 2010), the third edition of which was published in May.

From http://www.foxnews.com/opinion/2010/...nd-economics/#

This has been a nagging question for me for the last two years. Obama either doesn't fundamentally understand ANYTHING about economics, through theory or historical precedent... OR he's attempting to destroy the US economy.

Which is it? It's hard for me to fathom how people with the educational background of our current government cannot or will not understand simple economics and well-founded history... Do they think that the Keynesian economic model just hasn't been implemented correctly yet, or do they KNOW that it delays recovery and destroys economies?

[Marlin T]

Beings that he has never ran anything even the size of a one employee business, it isn't a big surprise that he doesn't understand.

Then on the flip side, maybe he really does understand Alinski's rules. After all he did teach that in Chicago.

[Old Grump]

"I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle." - - Winston Churchill

Nuff said

[Gun Geezer]

Originally Posted by Marlin T

Beings that he has never ran anything even the size of a one employee business, it isn't a big surprise that he doesn't understand.

Then on the flip side, maybe he really does understand Alinski's rules. After all he did teach that in Chicago.

I think I'm inclined to go with this!

[obxned]

Obama hates our way of life and is doing everything he can to destroy us.

[armedandsafe]

This is the Bingo:

Taking money from wealthy people and giving it to poor people doesn't create more spending. It just alters who gets to choose where the money is spent.

Pops

[ponycar17]

Originally Posted by armedandsafe

This is the Bingo:

Quote:
Taking money from wealthy people and giving it to poor people doesn't create more spending. It just alters who gets to choose where the money is spent.

Pops

Oh, you're dirty... I'm going to have to repost the last response here too.

It is Pops! Absolutely!

The wealthy take money and produce more wealth through job creation and much-needed capital investment. We saw this in 2000-2007 when the wealthiest earners got respectable tax breaks under Bush but increased their overall responsibility of total tax take. The top 5% of earners went from a total tax responsibility for the nation of 56.47% in 2000 to 60.63% in 2007. The top 1% of earners saw their tax responsibility increase from 37.42% in 2000 to 40.42% in 2007. From http://www.ntu.org/tax-basics/who-pa...ome-taxes.html

The wealthy know how to take money and produce a return on investment (ROI). Giving the equivalent amount of money as a distribution to the other 99% of the country will not produce a noticeable ROI alone. Increasing taxes on the wealthy will NOT lessen the burden on the other 95-99% of the population without decreasing the total tax take every year. That decrease will necessitate knee-jerk tax increases which will compound the problem even further.

As Mr. Lott suggests, there can't just be a demand-side or a supply-side effect. There has to be a push-pull relationship. The Bush cuts of 2001 produced that effect by creating a supply-side stimulus in the form of lower-to-middle class tax rebates and rate reductions along with demand-side stimulus tax rate reductions simultaneously. It should be noted that the first measure of recession occurred in the 3rd quarter of 2000, in Clinton's last year of office. I'll post my infamous chart again to show how the middle class were helped below... Note that the chart doesn't include the effect of extending the child tax credit upwards to $1K for qualifying dependent children. That credit helped the poor and middle class greatly!

So tell me again, who's for the poor and middle class Mr. Dumbama?

It's hard for me to fathom that they just "don't get this". I think there's much more at work...

[Carne Frio]

He understands the economics of marxism.

[ponycar17]

Originally Posted by Carne Frio

He understands the economics of marxism.

Understand is a strong word. It implies intelligence.

Does he "understand" or simply repeat the economics of Marxism from a higher handler?... Think about that for a while...

[Marlin T]

Originally Posted by ponycar17

Understand is a strong word. It implies intelligence.

Does he "understand" or simply repeat the economics of Marxism from a higher handler?... Think about that for a while...

If by higher handler you mean all those self admitted card carrying communists, terrorists and Black Liberation people that he grew up with I'll go with ya on that.

Thanks for posting that chart again. It really is as simple as that.

[henry77]

He and his gang of thieves have no understanding of basic economics. They want to stick it to us.