A thread for Democrats Only
POSTED BY: THGRRI
UPDATED: Sunday, September 6, 2026 15:36
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Taxpayers, You’ve Been Scammed
Paul Krugman, March 1, 2018
www.nytimes.com/2018/03/01/opinion/taxpayers-scammed-republicans.html
So you go out for dinner with a wealthy acquaintance. “I’ll take care of everything,” he says, and orders you a hamburger. Then he orders himself an expensive steak and a bottle of wine, which he doesn’t share. And when the waiter comes with the check, he points at you and says, “Charge it to his credit card.”
Now you understand the essence of the Trump tax cut, signed into law a little over two months ago.
The key thing you need to know is that right now the U.S. government has no business cutting taxes. We need more revenue, not less.
Why? The federal government, as an old line says, is a giant insurance company with an army. Most of its costs come from Social Security, Medicare and Medicaid — and all three programs are becoming more expensive as ever more baby boomers reach retirement age. This means that unless we cut back sharply on benefits that middle-class Americans count on, we will need to raise more revenue than in the past.
Yet even before the tax cut, federal tax receipts were looking weak for an economy with low unemployment and a rising stock market — for example, far lower as a percentage of G.D.P. than the tax take during the Clinton boom of the 1990s, and even a bit lower than they were at the end of the Bush-era expansion. The tax cut will push them lower still. Something will have to give.
And we already know what will give, if Republicans get their way: programs that benefit working Americans. In fact, the usual suspects like Paul Ryan were talking about the need for “entitlement reform” — meaning cuts in Medicare and Medicaid — to reduce deficits even as they were passing a huge tax cut that will make those deficits much worse.
Hence my analogy about the guy who “gives” you a hamburger, then bills it to your credit card. Ryan celebrated the tax cut with a tweet about a teacher saving $1.50 a week on her taxes; that’s like saying you should feel grateful for a “gift” that’s actually being charged to your own credit card. How’s that $75-a-year saving going to look when the teacher finds out that, partly because of that tax cut, her mother’s Medicare plan has been converted into an inadequate voucher system and Medicaid won’t pay for her father’s nursing home care?
Meanwhile, about your companion’s steak dinner: Most of the tax cut actually consisted of huge tax breaks for corporations, which is in effect a big tax cut for stockholders. And while many Americans own a bit of stock via their retirement accounts, even if you include these indirect holdings, more than 80 percent of stocks are owned by the wealthiest 10 percent of the population. So on the face of it, the wealthy are giving themselves a big gift, and sending the bill to the middle class.
Now, the tax cut’s defenders insist that it won’t really work that way, that the benefits of lower corporate taxes will trickle down to workers instead. How’s that supposed to happen?
Well, the theory is that lower corporate taxes will draw in lots of money from overseas, which corporations will invest in new plants and equipment, which will drive up the demand for labor, which will raise wages. And to be fair, there’s probably something to this theory — something, but not very much.
First of all, even if the process were to work as advertised, it would take a long time — probably decades. Even the most optimistic analyses suggest that there would be little effect on wages for the first few years, which means that for now what looks like a tax break for the wealthy is, in fact, a tax break for the wealthy.
Second, the story relies on a long chain of events with multiple weak links. For example, corporations with monopoly power won’t see lower taxes as a reason to invest more; they’ll just take the money. Meanwhile, there’s growing evidence that big employers are using their power to suppress wages; cutting their taxes won’t change that fact. So even in the long run we shou
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The financial crisis of 2008
https://bostonreview.net/politics/j-w-mason-austerity-design
Money is not just an accounting device because real productive activity is organized—and disorganized—by flows of money. The stable reproduction of an international economy requires flows of money across borders to balance. But when this has happened over any significant period, it has either been through dumb luck or else because some more or less conscious “surplus recycling mechanism” moves money from countries gaining it back to those losing. Otherwise, human labor and other real resources must be sacrificed to bring the money flows into line, or else the imbalance will eventually end with a crisis.
Since World War II, there have been two main global surplus recycling mechanisms. The first, in the twenty-five or thirty years after World War II, is the Bretton Woods system, or what Varoufakis calls the “global plan.” During this period, the United States ran trade surpluses, but recycled them—plus whatever additional dollars the world needed—through a mix of foreign aid, military spending and foreign investment. During this period, exchange rates were more or less fixed; the first resort for a country losing hard currency was expected to be not devaluation, but capital controls—restrictions on financial flows out of the country. This system worked well, says Varoufakis, as long as the United States accepted responsibility for running it, managing the U.S. economy to maintain a sufficient but not excessive outflow of dollars to the rest of the world.
By the 1970s, this responsibility came to seem like too much of a constraint on achieving domestic policy goals. After a chaotic period of experimentation, the recycling mechanism shifted toward what Varoufakis calls “the global minotaur" and what others, less creatively, sometimes call Bretton Woods II.
Under this system, the pattern of flows was reversed: the United States runs a trade deficit, financed by foreign investment from the rest of the world. Capital controls were now verboten, and exchange rates were supposed to float; countries losing foreign exchange would solve the problem by allowing their currency to depreciate until their exports were competitive enough to earn the hard currency they required.
Perversely, the new recycling mechanism, and the U.S. position within it, benefited from the now-frequent currency crises. Safe assets—meaning dollar assets—were in great demand by anyone who wanted to protect themselves against the vicissitudes of international markets. The United States could comfortably finance its trade deficits with financial inflows from the foreign central banks that desperately needed reserves in the new regime of capital-flow and exchange-rate uncertainty. The United States was, in effect, selling insurance against the instability it had itself created when it abdicated responsibility for the international order.
One way of looking at the financial crisis of 2008 is as a breakdown in the post-Bretton Woods surplus recycling mechanism. Mortgage backed securities had played a key strategic role in the system in which dollars flowed out of the United States to pay for imports, and then back in as investment in the safe financial assets the United States was uniquely able to provide. So when the U.S. mortgage market blew up, so did the international payments system.
The Joss Whedon script for Serenity, where Wash lives, is Serenity-190pages.pdf at www.mediafire.com/folder/1uwh75oa407q8/Firefly
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The Fed won’t be able to save us during the next recession
The Federal Reserve won’t have the same influence in the next recession because there isn’t enough room to drop interest rates as much as has been required in the past.
Historically, the Fed has had to drop rates by 5-6 percentage points during recessions; it cut rates by 6 points in 1990, 5.25 points in 2005, and 5.25 points — down all the way to zero — during the Great Recession of 2008.
With rates forecast (by the Fed itself) to only go as high as 3.1% by 2020, there’s not much scope to stimulate the markets by cutting them significantly if another recession was around the corner. And many economists do expect a recession soon — as early as next year or 2020.
When the next recession happens, it’s unlikely that reducing the short-term interest rate will be enough to stabilize demand, simply because rates will almost certainly not be high enough for a big enough rate reduction to give the economy the boost it will need.
https://qz.com/1216187
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Quote:Sounds like you are admitting that Obamanomics screwed the economy big-time and long-term.
Originally posted by second:
The Fed won’t be able to save us during the next recession
The Federal Reserve won’t have the same influence in the next recession because there isn’t enough room to drop interest rates as much as has been required in the past.
Historically, the Fed has had to drop rates by 5-6 percentage points during recessions; it cut rates by 6 points in 1990, 5.25 points in 2005, and 5.25 points — down all the way to zero — during the Great Recession of 2008.
With rates forecast (by the Fed itself) to only go as high as 3.1% by 2020, there’s not much scope to stimulate the markets by cutting them significantly if another recession was around the corner. And many economists do expect a recession soon — as early as next year or 2020.
When the next recession happens, it’s unlikely that reducing the short-term interest rate will be enough to stabilize demand, simply because rates will almost certainly not be high enough for a big enough rate reduction to give the economy the boost it will need.
https://qz.com/1216187
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Quote:
Originally posted by second:
The Fed won’t be able to save us during the next recession
The Federal Reserve won’t have the same influence in the next recession because there isn’t enough room to drop interest rates as much as has been required in the past.
Well... yes and no. If the rates are raised in between recessions as they have in the past there will be wiggle room.
Quote:
Historically, the Fed has had to drop rates by 5-6 percentage points during recessions; it cut rates by 6 points in 1990,
FED rate in December of 1990: 7.0%
FED rate in December of 1991: 4.0%
3 percentage points.
Quote:
5.25 points in 2005,
FED rate, Feb 2, 2005: 2.5%
FED rate, Mar 22, 2005: 2.75%
FED rate, May 3, 2005: 3.0%
FED rate, Jun 30, 2005: 3.25%
FED rate, Aug 9, 2005: 3.5%
FED rate, Sep 20, 2005: 3.75%
FED rate, Nov 1, 2005: 4.0%
FED rate, Dec 13, 2005: 4.25%
?
Quote:
and 5.25 points — down all the way to zero — during the Great Recession of 2008.
FED rate, Sep 18, 2007 (Home market bubble burst): 4.75%
FED rate, Dec 16, 2008: 0.25% (Effectively zero. The lowest FED funds rate possible).
4.50% reduction in just over a year, with no more wiggle room.
Quote:
With rates forecast (by the Fed itself) to only go as high as 3.1% by 2020, there’s not much scope to stimulate the markets by cutting them significantly if another recession was around the corner. And many economists do expect a recession soon — as early as next year or 2020.
True, but the numbers of FED cuts presented in the argument above were largely inflated for the most part. 3.1% might not be enough wiggle room, depending on the scope of the situation, but at the same time it could be.
Quote:
When the next recession happens, it’s unlikely that reducing the short-term interest rate will be enough to stabilize demand, simply because rates will almost certainly not be high enough for a big enough rate reduction to give the economy the boost it will need.
As I said, there will be at least some wiggle room. In the mean time, the Government should be looking at ways to prevent a recession before it happens. I know we're constantly let down by the incompetence of our government, but I keep holding out hope that one day they might get it right.
Do Right, Be Right. :)
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It should also be noted that in 2006, new FED chair Ben Bernanke started raising the interest rates to cool the housing market bubble which resulted almost immediately in homeowners beginning to default on their mortgages.
Though I feel empathy for all of those that lost their houses because of the housing market bubble eventually bursting, I think this was a smart move on Bernanke's part. The speculation in homes had driven up prices so artificially high that your average person couldn't even afford one without signing a ridiculous mortgage, which isn't a smart thing to do in a good economy, let alone the one we've been mired in since the mid 2000's.
FED rate as of December 13, 2005 was 4.25%
Rates were steadily raised to cool the housing market bubble all year of 2006 (Jan 31 to 4.5%, Mar 28 to 4.75%, May 10 to 5.0%, and Jun 29 to 5.25%).
By Sep 18 of 2007 they had been lowered back down to 4.75%, and that is the month the home bubble burst.
So although it could be argued that the rates were dropped 5% to "fix" that recession because they did top out at 5.25% in June of 2006, they were actually only at 4.25% in December of 2005 and were only increased to 5.25% in a failed effort to "fix" the housing market bubble before it burst.
On the flip side, it could also be argued that the actual FED reduction in rates was only 4% during this recession. (The 4.25% rate from December 13, 2005, to the 0.25% rate on December 16 of 2008).
Do Right, Be Right. :)
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Quote:I see that 6ixStringJack has almost perfect understanding. In stark contrast, JewelStaiteFan understands nothing, nothing at all.
Originally posted by JEWELSTAITEFAN:
Sounds like you are admitting that Obamanomics screwed the economy big-time and long-term.
All 3 of the following ways can be used simultaneously to end a recession, but typically the Federal government only uses a little bit of each. And that is why it is never very successful.
There are 3 ways to get the American economy out of a recession:
1) The Federal Reserve lowers the short-term interest rate 5 to 6%. By law, the President cannot do it. If the interest rate is already less than 5%, even the Federal Reserve cannot do it, no matter what the law says. But every little bit helps a little.
2) Congress increases spending by 2% more than the previous month, for month after month, until the economy is out of recession. By law, the President cannot do it. If the tax rate has already been cut, as it was in January, Congress cannot do it, either, even if it wants to. And Congress doesn’t always want to when it is in the mood for nationwide austerity.
3) The President waits for the American economy to naturally heal itself and come out of a recession. This happened many times in the 19th Century. This is much slower than #1 and #2. If you don’t believe me, please look at the following list of recessions:
https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States
#3 will not heal the economy if the President blunders by starting a war in the Middle East (you’ve heard of the Iraq War and the Afghanistan War, right?).
Or the President starts a trade war with the entire world.
Or the President’s men crash the mortgage backed securities market. This crash was not caused by the Federal Reserve, but rather by regulators working for Bush not doing their job of regulating. (See the movie The Big Short for how that happened in 2008 www.metacritic.com/movie/the-big-short ).
Obama used the #3 way as many previous Presidents have been forced to. Trump can use #3. But Trump better not make huge mistakes, as did Bush, or else the American economy will not come out of recession, if it should accidentally fall into one.
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Quote:You mean Obama did #2. Adding a $Trillion of Deficit spending to a $3 Trillion annual Budget is more like spending 33% more each month, instead of just 2%. That's what Quantitative Easing was, the way to prolong the recession for 10 years. This Fake suppression of interest rates has left too little wiggle room to deal with the consequences of Obamanomics.
Originally posted by second:Quote:I see that 6ixStringJack has almost perfect understanding. In stark contrast, JewelStaiteFan understands nothing, nothing at all.
Originally posted by JEWELSTAITEFAN:
Sounds like you are admitting that Obamanomics screwed the economy big-time and long-term.
All 3 of the following ways can be used simultaneously to end a recession, but typically the Federal government only uses a little bit of each. And that is why it is never very successful.
There are 3 ways to get the American economy out of a recession:
1) The Federal Reserve lowers the short-term interest rate 5 to 6%. By law, the President cannot do it. If the interest rate is already less than 5%, even the Federal Reserve cannot do it, no matter what the law says. But every little bit helps a little.
2) Congress increases spending by 2% more than the previous month, for month after month, until the economy is out of recession. By law, the President cannot do it. If the tax rate has already been cut, as it was in January, Congress cannot do it, either, even if it wants to. And Congress doesn’t always want to when it is in the mood for nationwide austerity.
3) The President waits for the American economy to naturally heal itself and come out of a recession. This happened many times in the 19th Century. This is much slower than #1 and #2. If you don’t believe me, please look at the following list of recessions:
https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States
#3 will not heal the economy if the President blunders by starting a war in the Middle East (you’ve heard of the Iraq War and the Afghanistan War, right?).
Or the President starts a trade war with the entire world.
Obama used the #3 way as many previous Presidents have been forced to. Trump can use #3. But Trump better not make huge mistakes, as did Bush, or else the American economy will not come out of recession, if it should accidentally fall into one.
And you are claiming that the economy under Bush43 did not recover from 2001 to 2007, after Clinton left his War with Al-Queda in our lap, with the resultant Recession?
Whatever you are smoking, it must be illegal.
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