The New American Economy
I’ve been meaning to recommend Bruce Bartlett’s The New American Economy: The Failure of Reaganomics and a New Way Forward once it hit its official publication date. Consequently, I wound up letting weeks slip by after the publication date had arrived. But you should read this book, it’s a good one. His argument, in a sketch, is that conservatives should understand Ronald Reagan’s policies as a fix for a specific situation (stagflation) and not a Holy Writ to be followed at all times.
Here he is explaining why Europe isn’t a zero growth dystopia:
In America, people tend to think of their federal taxes as money down a rat hole and react accordingly. But in Europe, the people are more apt to feel they are simply paying for services with their taxes that Americans have to pay out of pocket.
This fact is best illustrated by health care. Most Americans get health insurance through their employers. The cost reduced their cash wages by 7.9 percent on average in 2008 according to the Bureau of Labor Statistics. If we had national health insurance and insurers were entirely relieved of this expense, they could afford to pay their workers 7.9 percent more and be no worse off. If the payroll tax went up by 7.9 percent to pay for health insurance, it would all be a wash, but both taxes and government spending would be higher. [...] The second reason why taxes have less of an impact on incentives in Europe than one might expect is because European countries raise much more of their revenue from consumption taxes than the United States does.
Read the whole thing.
14 Responses to “The New American Economy”
Register
RSSLogin
Topic Cloud
ArchivesBlog RollAbout Matt YglesiasContact Me
Donate
November 5th, 2009 at 1:06 pm
Careful now. You can argue for making the tax system as a whole more progressive, but if you approve of any element of regressive taxes at all, you’re a right-wing fascist pig.
November 5th, 2009 at 1:09 pm
Another reason:
Much of the taxes we pay, rather than paying for useful social services, go towards blowing up the brown-skinned people we have never met all around the world.
November 5th, 2009 at 1:13 pm
Don’t bother reading Bartlett’s book. He has always been wrong about most things.
Instead read Robert Kuttner’s “The Squandering of America”. It hits the high points and it is very readable.
Much better use of your time.
November 5th, 2009 at 1:18 pm
Much of the taxes we pay, rather than paying for useful social services, go towards blowing up the brown-skinned people we have never met all around the world.
Though it’s not on the same scale, the fact that France and the UK find the need to pay for any military forces other than, say, the Force de Frappe, some air defenses, and a beefed up gendarmie suggests that, for even former imperial powers, a little blowing-up-brown-people never goes completely outta style.
November 5th, 2009 at 1:22 pm
a little blowing-up-brown-people never goes completely outta style.
Meh, I think its more likely a lingering fear they may need to fight off blond people rather than brown people.
November 5th, 2009 at 1:24 pm
If the payroll tax went up by 7.9 percent to pay for health insurance, it would all be a wash,
To put it another way, a 7.9% payroll tax is about the same as the French “social charge”.
But universal coverage through a payroll tax is only a wash in terms of raw expense. It doesn’t factor in the benefits of not having to deal with the fucking mess that is the American way of healthcare: job lock, pre-approval, mystery billing, unexpected out-of-pocket costs, the use of the E.R. as primary care, etc.
November 5th, 2009 at 1:24 pm
Both Americans and Europeans are essentially correct. In America, taxes are collected and then used to pay off campaign contributors in the defense (Republicans) and financial (Democrats) industries. This does, indeed, send those funds down a rathole from which most people will never reap any benefit.
Europeans collect taxes and then use that money to provide a number of social services.
November 5th, 2009 at 1:33 pm
If the problem that Bartlett is pointing to is the only, or the primary, problem with distortionary taxes, it’s a little hard to see why you’d want taxes or government at all. After all, we’ve assumed away collective action problems, so if people value government services they’d be willing to provide them voluntarily, right?
On the other hand, if we were dealing with actually rational people (as opposed to agents that are only rational in those aspects of their lives and at those moments that would most support my preferred political policies) and a large population, it doesn’t matter at all whether I think the money goes down a rat hole or goes to kittens and saving the Earth from 2012-style catastrophe. It’s a little shocking that Bartlett doesn’t get that. It’s also kind of odd that he thinks there’s a big difference between consumption taxes & income taxes aside from the intertemporal distortion (that is, I agree that consumption taxes are less distortionary, but I don’t think it’s for the reason he seems to be saying).
November 5th, 2009 at 1:40 pm
Europeans collect taxes and then use that money to provide a number of social services.
You’re obviously not familiar with the intensely corporatist nature of mainstream European politics.
November 5th, 2009 at 1:56 pm
Um. Reagan’s tax cuts for the rich were in no way a remedy for stagflation. It was Volker’s Fed’s high interest rates and resulting recession that put an end to stagflation.
November 5th, 2009 at 2:03 pm
It was Volker’s Fed’s high interest rates and resulting recession that put an end to stagflation.
That and the deregulation of things like airlines that started under Carter.
November 5th, 2009 at 2:19 pm
That got rid of the ‘flation’ bit. Then it was good old government pork that got things going again.
November 5th, 2009 at 4:36 pm
I wouldn’t even call Reagan’s policies a solution for stagflation. Stagflation was a combination of high prices and high unemployment. The high prices were caused by a combination of oil shocks and an overheated economy originating with Nixon’s pressure on the Fed. The high unemployment was caused by the high interest rates the Fed imposed to bring down inflation. Once the inflation was under control, the Fed lowered interest rates and unemployment declined.
Reagan had very little to do with “morning in America.” He did have much to do with the recessions, poor economic performance and increased inequality that’s arisen since 1980.
November 5th, 2009 at 6:22 pm
Basically what brian, jmo, said.
I don’t see how Reaganomics helped with stagflation.
On jmo’s second point, I believe that the deregulation of airlines (and interstate trucking too) was completed under Carter. It is associated in many people’s minds with Reagan, but that is just not what happened.
European income taxes are higher than US income taxes. US income taxes were much higher under Roosevelt, Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, Carter, and Clinton than they are now. The case that higher taxes are OK only so long as they are VAT does not fit the facts.