NoaIzumiNew year, New blog!
January 6th 2009 03:33
Happy new year, all! I've been thinking about starting my own political blog for a long time now, and the first week of the new year seeming like perfect timing. Don't worry, this won't be just me spouting my opinions. I've been a political junkee for years now, and I like reading opinion pieces on any issue, but sometimes I can't help but notice that some of them (mostly on the right; there, I said it) play pretty fast and loose with the truth. What I intend to do with this blog is shine a little light on some of the claims people put forth in support of their opinions. Think of this as a poor man's Media Matters, with a focus on online material: blogs, online opinion pieces, newspaper editorials, etc.
Everyone's entitled to their own opinion, but not their own facts.
Our first subject, and, I'm sure, a frequent contributor-to-be of material for this blog, is the financial newspaper Investor's Business Daily. This Monday's edition had three opinion pieces that just begged for a spotlight. First up: A Real Stimulus, by the IBD staff:
Really Long Link
“Unemployment averaged 17% in the '30s, and it wasn't until 1941 — the start of World War II — that GDP returned to its 1929 level.”
Two points supposedly against government spending leading to the nation’s economic recovery from the Depression. Quick point of advice, readers. When someone says that a figure averaged some number over some period of time or over a person’s tenure, look closer. Rush Limbaugh used the same trick to try and claim that the country’s budget didn’t actually go down while Bill Clinton was president. The average isn’t very important, whether the figure decreased or increased over the time span is. And unemployment decreased, from 24.9% in 1933 to 14.6% in 1940 and 9.9% in 1941, according to Historical Statistics US.
Really Long Link (scroll down for the relevant chart)
As for the GDP argument, the article says that GDP had returned to its 1929 level by 1941; in other words, just as World War II began for us. So unless the Japanese dropped giant sacks of money at Pearl Harbor along with the bombs and torpedoes, by IBD’s own reckoning, there’s no way that increased military spending due to the war could have impacted the economy. BTW, apparently IBD thinks that military spending is not government spending.
Their timing is a little off, too. According the National Bureau of Economic Research,
Really Long Link
GDP (measured in 1929 dollars) had fully recovered by 1939, well before even the pre-war military build-up (such as it was by 1941) took place. In addition, World War II apparently didn’t help the economy much anyway, at least not at first. GDP actually contracted between 1941 and 1943.
“Japan followed the same Keynesian game plan after its real estate bust of 1989. To the applause of many American liberals, hundreds of trillions of yen were spent on infrastructure, … That didn't work either.”
No, it didn’t. Neither did the tax cuts that the Japanese Diet implemented (did IBD forget to mention those?).
Really Long Link
Japan actually reduced income taxes twice, a sizable upper class tax cut in 1989, followed by a large middle-class tax cut in 1995. Obviously they didn’t have much effect. (The first income tax cut was counteracted partially by the implementation of a consumption tax in the same year, but income taxes have a greater impact on economic growth than consumption taxes, so if IBD is correct, the tax cuts should still have worked.)
The study by Christina Romer appears to be this one:
Really Long Link (PDF file)
but the study doesn’t say that cutting taxes by 1% leads to a GDP increase of 3%, it says that raising taxes by 1% leads to a drop in GDP of 3% (actually a little less), all other factors being equal. It’s entirely possible that the opposite is true as well, but what IBD claims it says is not what it actually says. As for the figure about the impact of government spending, I don’t know where Mankiw got that; it’s not in the Romer paper. It’s worth pointing out also, that Mankiw himself is hardly a tax cut hawk. He advocates a higher gas tax, for example.
And Christina Romer’s is hardly the consensus opinion on the subject. Economists at Moody’s economy.com, for example, believe that an across the board tax cut would only yield $1.03 in GDP for every dollar cut, while spending on infrastructure would yield $1.59 in GDP for every dollar spent. (Source: Mother Jones magazine, February 2009)
Everyone's entitled to their own opinion, but not their own facts.
Our first subject, and, I'm sure, a frequent contributor-to-be of material for this blog, is the financial newspaper Investor's Business Daily. This Monday's edition had three opinion pieces that just begged for a spotlight. First up: A Real Stimulus, by the IBD staff:
Really Long Link
“Unemployment averaged 17% in the '30s, and it wasn't until 1941 — the start of World War II — that GDP returned to its 1929 level.”
Two points supposedly against government spending leading to the nation’s economic recovery from the Depression. Quick point of advice, readers. When someone says that a figure averaged some number over some period of time or over a person’s tenure, look closer. Rush Limbaugh used the same trick to try and claim that the country’s budget didn’t actually go down while Bill Clinton was president. The average isn’t very important, whether the figure decreased or increased over the time span is. And unemployment decreased, from 24.9% in 1933 to 14.6% in 1940 and 9.9% in 1941, according to Historical Statistics US.
Really Long Link (scroll down for the relevant chart)
As for the GDP argument, the article says that GDP had returned to its 1929 level by 1941; in other words, just as World War II began for us. So unless the Japanese dropped giant sacks of money at Pearl Harbor along with the bombs and torpedoes, by IBD’s own reckoning, there’s no way that increased military spending due to the war could have impacted the economy. BTW, apparently IBD thinks that military spending is not government spending.
Their timing is a little off, too. According the National Bureau of Economic Research,
Really Long Link
GDP (measured in 1929 dollars) had fully recovered by 1939, well before even the pre-war military build-up (such as it was by 1941) took place. In addition, World War II apparently didn’t help the economy much anyway, at least not at first. GDP actually contracted between 1941 and 1943.
“Japan followed the same Keynesian game plan after its real estate bust of 1989. To the applause of many American liberals, hundreds of trillions of yen were spent on infrastructure, … That didn't work either.”
No, it didn’t. Neither did the tax cuts that the Japanese Diet implemented (did IBD forget to mention those?).
Really Long Link
Japan actually reduced income taxes twice, a sizable upper class tax cut in 1989, followed by a large middle-class tax cut in 1995. Obviously they didn’t have much effect. (The first income tax cut was counteracted partially by the implementation of a consumption tax in the same year, but income taxes have a greater impact on economic growth than consumption taxes, so if IBD is correct, the tax cuts should still have worked.)
The study by Christina Romer appears to be this one:
Really Long Link (PDF file)
but the study doesn’t say that cutting taxes by 1% leads to a GDP increase of 3%, it says that raising taxes by 1% leads to a drop in GDP of 3% (actually a little less), all other factors being equal. It’s entirely possible that the opposite is true as well, but what IBD claims it says is not what it actually says. As for the figure about the impact of government spending, I don’t know where Mankiw got that; it’s not in the Romer paper. It’s worth pointing out also, that Mankiw himself is hardly a tax cut hawk. He advocates a higher gas tax, for example.
And Christina Romer’s is hardly the consensus opinion on the subject. Economists at Moody’s economy.com, for example, believe that an across the board tax cut would only yield $1.03 in GDP for every dollar cut, while spending on infrastructure would yield $1.59 in GDP for every dollar spent. (Source: Mother Jones magazine, February 2009)
| 29 |
| Vote |
subscribe to this blog
