Home > Austrian Economics, Deficit, Keynesian Economics, Obama, Public Choice, Taxes > Politicians will always try to have it both ways.

Politicians will always try to have it both ways.


“If we recklessly cut taxes for the wealthiest 2 percent, then Obamanomics will look an awful lot like Reaganomics,” Jackson said in a statement.

Jesse Jackson Jr. (D-Ill.) said this to appease his base. That should be obvious. So what happens when the tax extension starts to produce some growth, unsustainable but still some growth. Well he’ll just say it was because all that reckless spending of course, the good Keynesian answer.

This is the problem with economics in general. There is no controlled experiment. The Keynesian approach has been tried and failed to produce any significant results. The CBO’s most recent report says:

  • They raised real (inflation-adjusted) gross domestic product by between 1.4 percent and 4.1 percent,
  • Lowered the unemployment rate by between 0.8 percentage points and 2.0 percentage points,
  • Increased the number of people employed by between 1.4 million and 3.6 million, and
  • Increased the number of full-time-equivalent (FTE) jobs by 2.0 million to 5.2 million compared with what would have occurred otherwise. (Increases in FTE jobs include shifts from part-time to full-time work or overtime and are thus generally larger than increases in the number of employed workers)

No doubt the Keynesians will say told ya so….of course they won’t read the rest of the post that tells the limitations.

Those reports, however, do not provide a comprehensive estimate of the law’s impact on U.S. employment, which could be higher or lower than the number of FTE jobs reported, for several reasons (in addition to any issues concerning the quality of the reports’ data):

  • Some of the jobs included in the reports might have existed even without the stimulus package, with employees working on the same activities or other activities.
  • The reports cover employers that received ARRA funding directly and those employers’ immediate subcontractors (the so-called primary and secondary recipients of ARRA funding) but not lower-level subcontractors.
  • The reports do not attempt to measure the number of jobs that were created or retained indirectly as a result of recipients’ increased income, and the increased income of their employees, which could boost demand for other products and services as they spent their paychecks.
  • The recipients’ reports cover only certain ARRA appropriations, which encompass about one-fifth of the total either spent by the government or conveyed through tax reductions in ARRA; the reports do not measure the effects of other provisions of the stimulus package, such as tax cuts and transfer payments (including unemployment insurance payments) to individual people.

Consequently, estimating the law’s overall effects on employment requires a more comprehensive analysis than the recipients’ reports provide.

Hmmm I wonder if they are using the same models that failed to keep unemployment under 9% with the Stimulus. You know the reason for the Stimulus in the first place?

So now, Obama is going to cave into a non-sustainable tax extension that will produce some growth. Companies will at least know what their tax rates for the next two years and they will plan accordingly. Showing that Higgs’ Regime Uncertainty has some merit. If the economy grows it will be because of investment not consumption.

All that won’t matter to politicians like Jackson Jr. They will pick and choose what ever explanation fits better to their a priori ideals. They want the stimulus to work, it gives them a reason to spend money on things that no sane person would spend money on like Trains to Nowhere. It gives them reason to give out pork to the people who fund their campaigns. Both parties do it, Jackson Jr.  and Bush both really want/wanted stimulus to work.

The reason politicians can get away with all these shenanigans is because economists will never be able to prove one theory over the other. The economy is far too complex for even the most sophisticated mathematical model. With modern economist obsession with math, which I don’t see changing anytime soon. The state of modern economics is much the same as the state of politics, they’ll all just pick and choose which explanation fits their priors better. A Liberal economist will choose the Keynesian answer, because it fits their ideology better. A Conservative will pick a supply-side or monetarist answer and hopefully Independents will pick more of an Austrian answer.

It will be interesting to see that when grow and unemployment start to pick up, as companies start to invest again, what stories differing ideological camps choose to tell.

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  1. yttik
    December 11, 2010 at 06:30

    You can really see politicians trying to have it both ways in the political theater of President Obama calling in President Clinton to try and convince people to support President Bush’s tax cuts. Then Obama leaves Bill to hold the press conference because he has to go to a party. Good grief.

    The whole thing just strikes me as kind of funny because Obama is trying to use President Clinton to sell President Bush’s idea. President Obama has made this tax deal and he’s trying to rally support around it, but he also has to whine and complain about hostage takers and how powerless he is. Bill Clinton did a much, much better job selling the deal, but he too is trying to advocate for the tax deal while explaining to people why he is against it. It’s kind of funny to hear them say they believe this is the best thing for the country and the economy, and they don’t like it. How could you not like it if it’s the best thing for the country?

    Seriously, I have a head ache watching these politicians try to contort themselves into pretzels.

    • December 29, 2010 at 11:14

      They are only trying to appeal to their base. When politicians like Obama and Clinton go for the tax deals, they are basically telling their base that they (the Democratic base) are idiots. They are contorting themselves by trying to say that in as nice a way as possible.

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