Sunday, June 26, 2011

A Tongue-in-Cheek Review of Recent American Political History

From A plain blog about politics there is this humourous review of "politically correct" history of tax cuts and GDP growth. Talk about getting ducks in a row! This guy has lined up cats and mice and has them tap dancing to "Happy Days are Here Again!"

This is a great caricature of American "politics" and how it bends and twists economic facts:
Silly Liberals and Their So-Called "Facts"

Jonathan Chait is sadly misinformed about economic history and taxation levels over the last thirty years.

He writes that conservatives opposed tax hikes in 1982 and claimed they would derail recovery; that conservatives opposed Bill Clinton's tax hikes in 1993 and claimed they would tank the economy; and supported George W. Bush's tax cuts in 2001 and 2003, claiming that they would spur economic growth -- but that each time, the opposite happened.

This is obviously wrong.

Bill Clinton's tax hikes in 1993 pretty clearly caused the 2001 recession, and despite the heroic efforts of Republicans, the hangover from those tax hikes moderated the otherwise exceptional growth rates of the Bush years. I mean, the Bush years between recession and even bigger recession. Which we'll get to later.

So why did the economy grow so fast in the 1990s? No question about that -- it grew because of the Reagan tax cuts of 1981. Now, granted, those tax cuts couldn't prevent a recession in 1990-1991, which was caused by Clinton's tax increases in 1993, but the effects of the Reagan tax cuts kicked back in again around 1994 and resulted in several years of excellent growth.

Now, what about that 1982 tax increase? That's easy: if we never speak about it, then it didn't really happen, and it can't really affect economic growth. Indeed, Chait risks contributing to the current economic tough times by mentioning it now, and potentially risking the economic confidence about taxes that is the only reason employers ever hire anyone.

If you've understood everything so far, it should be pretty easy to deduce why the economy fell into another recession in late 2007. George W. Bush was term-limited, and the odds were high that Barack Obama would soon be president and usher in an era of unprecedented tax increases. Faced with that inevitability, no wonder the economy collapsed! The Obama tax increases were devastating, and businesses in 2007 were helpless in their wake, rippling backwards through time.

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