Its the Deficit, Stupid!

It is unfortunate that the republicans have degenerated into their current level of denial of reality. They are doing the opposite of what the democrats did during the 1930s: taking from the poor to give to the rich. This is based on the junk science, and long-sense discredited, theory of Supply-Side Reaganomics. Supply-side doesn't work. If tax cuts helped the economy, the economy would have grown more than the 1% it actually did last quarter. If tax cuts helped the economy, and tax increases hurt it, Clinton's tax increases should have crippled the economy in the 1990s.

Why is supply-side wrong? Supply-side does not argue that taxes should be reduced across the board. It says that taxes should be cut where the supply of capital in the economy is: in other words, at the top. This is the key here. Capital is not spread in a uniform fashion across the economy. It is concentrated at the very top. Supply-side says that you cut taxes at the top, because this is where most of the capital is. This would release the maximum amount of capital, which would "trickle down" throughout the economy. This is why supply-side is bogus. Focusing tax cuts at the top doesn't affect the economy because there is no trickling down effect. This phenomenon does not exist.

The center of gravity in an economy is based on demand for goods, not supply of capital. You could call this Demand-Side economics. Countries in South America have a very rich upper class with a lot of capital. But there is stagnation because the rest of their economy is too poor to demand the goods that this capital could create. This is why there is no growth in these countries.

Raising taxes can hurt the economy. But Clinton did it and the economy was not hurt. Why? Clinton did not raise taxes across the board, but only on the top. You do this for two reasons. For one, the most tax revenues are raised where the most capital is located: large corporations and rich individuals (the same place supply-side says you cut taxes). Clinton's tax increases didn't hurt the economy, because they were focused on the top, which could absorb them. Clinton's tax increases didn't cripple this segment of the economy, as they were not large enough to. Likewise, Bush's tax cuts have not helped this segment of the economy for the exact same reason. Had Clinton raised taxes on the middle, he would not have raised much revenue, but would have crippled the source of demand. Demand in an economy is located at the middle and the bottom, as this is where most people are.

Cutting taxes on the middle does not have much of an impact on the economy. The amount of capital this releases is minimal. The argument only works due to its emotional qualities. What does have an impact, however, are policies that stimulate demand amongst the middle class. These are policies such as increased Corporate Average Fuel Economy (CAFÉ) standards to increase fuel efficiency in cars and thus allow people to spend less on gas. Any policy must have a multiplier effect. The size of the government and government taxing, spending, and tax cutting, is too small relative to the economy to have an extraordinary effect in and of itself.  

But the real way you stimulate demand amongst the middle class is you bring down the federal deficit. I believe that democrats will have to raise taxes when they return to power. This would lower the deficit, bring back surpluses, start paying down the national debt, and have effects that would resonate throughout the economy for a long time thereafter. I advocate this concept of "Demand-Side Economics." The federal government is running $400 billion yearly deficits. These are mostly due to the $2 trillion in tax cuts Bush has passed. The republicans are risking insolvency of the government, and literally, world financial chaos.

Clinton increased taxes, which raised revenues, which lowered the debt. Bush cut taxes, which lowered revenues, which increased the debt. The most ridiculous concept supply-siders believe, is that cutting taxes increases federal revenues. One must think that to believe this you must deny reality. Supply-siders point to the increase in federal revenues during the Reagan administration, and the current increases in federal revenues. But this is a logical fallacy. Two conditions that coexist do not necessarily cause each other. Yes federal tax revenues increased in the 1980s, and are increasing now. However, they also increased in the 1990s, 1970s, 1960s, 1950s, and every decade before then in which there were substantial income tax revenues. Tax revenues always increase during every decade, usually by the same proportion, because the income tax taxes income, or GDP to be more precise. GDP always increases, almost every year. When GDP is not increasing, by definition, you are in a recession.

If you raise taxes on the top, and leave them unchanged on everyone else, you would lower the deficit, start paying off the national debt, and decrease the amount the government has to pay in interest on the debt. Lowering the deficit lowers inflation, which lowers interest rates, which lowers the cost of borrowing, which stimulates the economy. An increase of the national debt requires extra federal borrowing, and thus more competition for capital to finance the debt on the global market. More US debt bonds issued, especially in foreign markets, does several things. For one, since US debt bonds are just about the safest investments on the planet, the rate on the bonds creates a floor on interest rates throughout world markets. It is about the lowest return one can get due to it being just about the safest. An increased supply of US debt bonds requires higher interest rates to attract investors to the increased number of bonds issued. This has the effect of driving interest rates up, across the board. It doesn't just drive up the Federal Funds Rate, but corporate, municipal and nonprofit bonds must also pay higher rates to compete with the federal rates on the bond markets. Corporate et. al. bonds, are, by their very nature, more risky than US government bonds, and thus must pay higher interest rates than federal bonds must. This causes a systemic increase in the cost of borrowing that affects the entire economy, from the top to the bottom. Higher costs of borrowing do exactly what supply-siders say tax increases will due: it takes money out from free circulation in the economy. Taxation is not the only "tax" on the economy. Only, unlike with tax increases, the amount taken out of the economy due to this higher cost of borrowing is enormous. It isn't the government that takes money out of the economy. It is the economy itself that restricts the free flow of its own capital. Thus you have again, this multiplier effect. In the end, all of this increases the price that taxpayers must pay to carry all of this debt, as higher interest rates mean that more interest must be paid. In addition, an increase in the cost of borrowing has the tendency to cause inflation. If a company has to pay more to borrow money, either from the bank or in financing their own debt instruments on the bond markets, it must charge more for its products. When this is happening throughout the economy, the effect is the potential for wide-ranging inflation. And when inflation starts creeping up, the Federal Reserve Bank (as it is doing right now) starts increasing the Federal Funds Rate to contain the inflation. This also causes the cost of borrowing to increase, as this Federal Funds Rate is the lending interest rate for banks. Finally, the deficit is also tied to the value of the dollar, which is tied to high oil prices. Increased national debt makes dollars more risky, which drives down the value of those dollars. Oil is traded in dollars, and a decrease in the value of the dollar means it takes more dollars to buy a barrel of oil. This decrease in the value of the dollar also acts as a tax, as imported goods increase in cost, a sort of inflation you could say.

Supply-side doesn't work due to a law of proportionality. Bush's tax cuts, the largest in all of history, have amounted to more or less $2 trillion over a period of time (10 years or so) in which the combined GDP would add up to $100 trillion or more. The tax cuts are massive, but do not pump a relatively large enough amount of capital into the economy. Demand-Side deficit reduction involves a little centralized government work, which causes the economy to free up more of its own money back into free circulation. The effect of a little federal investment multiplies many-fold throughout the economy. This is why Bush's $2 trillion tax cuts have little to show for other than a 1% increase in GDP last quarter, and why Clinton passed the largest tax increase in history, and the result was the largest economic expansion of the 20th century.

There's more...

Bush Gallup Approval: 40% (Disapproval 56%)

Cindy Sheehan may be destroying what was left of Bush's presidency. The prior Bush Gallup low was 44% just a month ago. The last time Gallup measured any president at 40% was Clinton in January 1996. And Gallup tends to overstate Bush's approval relative to other polls. I noticed something by watching the Freepers squirm. All polls, across the board, seem to show a growing number of people identifing themselves as democrats. Bush is even losing support among reps, with whom his approval is only 82%, after being above 90% for most of the last 5 years. We may yet be heading towards a landslide in 2006 and 2008

WashPost: US Policy Against Axis of Evil Foundering

Looks like Bush has opened the gates of hell and hasn't realized it yet. His entire presidency is collapsing.

Harris to run for FL senate (YAAAA looks like we will keep the seat)

Lets look at the polls

Strategic Vision (rep poll): Nelson is ahead of Harris by 8%

Quinnipac: Nelson leads Harris by 12%

Mason-Dixon: Nelson leads Harris by 17%

This was a potentialy vulnerable seat, but it looks like it is safe. Interestingly enough there were others who could beat Nelson, but Harris crushes them all in the primary polls and no one other than Harris wants to run. No poll has the race even remotely close between Harris and Nelson.

Freepers trashing Cindy Sheehan (mother of dead soldier)

The mother of the dead soldier who is protesting Bush is being savaged by the members of, one of the large conservative message boards. They called her so many things in the first 20 posts that I was too disgusted to keep reading. Among what they called her was "terrorist supporter,""traitor,""leftist,""unpatriotic," and accused her of spitting on dead soldiers. These people are amoral.

Does a Byrd challenger mean a US House pickup?

Apparently Byrd's possible senate challenger (Representative Capito I think) comes from a democratic leaning house district. If she challenged Byrd and thus couldn't seek reelection to the House, it would be a likely pickup. And Byrd is 10% ahead of her in the polls anyway.

Bush's approval is erroding everywhere

Newsweek: 42% approval, AP 42%, CBS 45%, Zogby 45%, Gallup 44%.

State by state, his approval is above 50% in 9 states, and he has higher approval than disapproval in 16 states. His disapproval is higher than his approval in 30 states, and in 20 of those states the net disapproval is in double digits. Kerry only won 19 states. In OH his approval is 40%, disapproval 57%. In NV his approval is 37%, disapproval 57%. In TX his approval is 50%, disapproval 47%. In Arizona 46% approval, 49% disapproval. Florida 46% approval, 50% disapproval. North Carolina 45% approval, 50% disapproval. Missouri 46% approval, 52% disapproval. Colorado 45% approval, 52% disapproval. Arkansas 44% approval, 52% disapproval. You get the picture.

This is all because of Iraq. We might be heading towards a very good year in 2006. These are horrible numbers.

We need someone from Arkansas as VP in 2008

Florida would work also, but I believe Arkansas is best. The reasoning is this:

Both senators are dems. Both are very popular, and one (Linclon) was reelected in 2004 by a very large margin.

3 of the 4 US House members are dems.

Most statewide officials are dems.

The state legislature is the 4th most dem dominated in the state, behind MA, CT and HI.

Clinton won the state by 20% in 1996. In 2004 it was the 2nd closest southern state after FL.

Basicaly it is just about the most winnable southern state. If say we ran Mark Warner, who won VA, and we ran someone from AR and won AR, we would sweep the election. We would also win FL, OH, NV, and MO at the least. They were all closer than AR in 2004.

The best ones to run would be one of the popular senators, Pryor or Lincoln. Pryor was the only democrat to beat an incumbent republican senator in 2002. I think he would be better than Lincoln only because running a woman introduces a lot of unknown variables. The only problem is that he will be up for reelection in 2008, although there are ways to make it work (ask Lieberman about his 2000 senate reelection). Gov Huckabee is not going to run for reelection next year, and if the democrats pick the seat up, that person might be a good one to run. Clark would be a bad idea. He did poorly in 2004, and is somewhat uncompelling.  

Warner v Allen for president?

>>Well, sure, but how deep does it go? Picture, now, fast-forwarding three years. It's 2008. National Republicans decide to nominate tobacco-chewing, bolo-tie-wearing Allen, a pro-lifer who spouts endless sports analogies, for president. Democrats, meanwhile, pick big-bucks, high-tech, NASCAR-loving Warner to compete for the nation's highest elected office. Suddenly, the two back-slapping Virginia pols are locked in a do-or-die battle for the presidency -- and the Old Dominion, with its 13 electoral votes, is at the center of the battle.<<

I think Mark Warner would make the single strongest candidate in 2008 for president. Besides the fact that Mark Warner beats Allen for Senate or President in VA, he is simply one of the most appealing candidates. A southern governor, extremely popular in VA (74% approval), and a young and telogenic former entrepuner. He turned a $6 billion deficit into a surplus via tax reform that the GOP controlled state legislature approved, and the vast majority of VA supports, which resulted in responsible spending on sensible programs, from child day care to education, and the state being labeled the best managed state. He has signed every pro-gun bill that has reached his deck. The state legislature is one of the most anit-abortion in the union, and Warner also signed every abortion bill they pumped out.

GOP Goes After Blacks (maybe dems should go after another small, unwinnable group also)

>>Asked about the southern strategy that used race as an issue to build GOP dominance in the once Democratic South, Mehlman acknowledged that Republican candidates often have prospered by ignoring black voters and even by exploiting racial tensions. But he pledged that such neglect is a thing of the past. "Our plan for 2006 and 2008 is to increase African American turnout," he said crisply.<<

Interesting. Given Bush's errosion across the board, this seems rather elective. Maybe if they want to win the black vote, they should stop opposing the renewal of the Voting Rights Act, or get Rove to apologize for accusing Mccain in SC of fathering an illegitimet black child. This is crazy. They cite Bush's gains in OH in 2004. Bush increased his black numbers from 9% to 16% in OH in 2004. Because the black vote is so small just about anywhere you go, this accounted for about 0.7% in OH, and Kerry lost OH by 5%. It was a similar situation in FL. This is insane. This is like Dean going after NASCAR dads. Both groups are small, and very inelasitic. Neither really needs them to win, and both can afford to lose them.
I can only imagine what they want is a fundemental shift in black attitudes. This makes little sense, because these fundemental shifts are the rarest of the rare, and unlikely in such an inelastic group. What kind of luck do you think we would have in turning NASCAR dads into dem voters? How about evangelical Christians? The key for both sides is the same, and for the same reason. White married parents in the suburbs and urban areas. This is the key target because A)it is a HUGE group B)it voted for Clinton twice and Bush twice and handed them both their elections and C) they are one of the most persuadable groups of all. Even if the GOP can chip away at the black vote, say, get 25% (which will never happen anyway), which is 15% higher than they are getting already, it is very small segment of the electorate. If they could do it, then great, but they are wasting their time appealing to such a small, unmovable group. The dem who did the best of all with blacks was Walter Mondale. He did better with them than Clinton or just about anyone else. Bush has big and bold visions, with this, and Iraq, SS ect. The problem is he tends to make poor decisions.

>>The goal is to broaden the base of the Republican Party and forge a new GOP majority that can win elections well into the future. Even a relatively small shift in black voting patterns could boost Republicans and cripple Democrats for years, strategists on both sides say.<<

Interesting. Maybe a very small shift nationally would amphlify in key states. Unlikely. Even though Bush's black margin increased about 7% in both OH and FL, his black vote margin decreased in VA, AR, and MO, didn't change in WV and TN, and increased by the same amount (3%) in NC and LA that it did nationaly. This is where most blacks live. NC, VA, MO, and LA all have between 20-30% of the voters being black. FL has about 12% of the voters being black, and OH 10%. The changes in OH and FL may have been the result of GOTV efforts and all of the ads. However, there was a black shift from dems to reps between Mondale and Clinton, and that shift was completely independent of the actual results of the elections. Sucking away 15% of the black vote is what? 1.5% of the entire electorate? That is great if you can do it, I don't question that. But my main point is this: factoring in the risk of wasting time on something that probably wont happen, in combination with the actualy likely result that would occur if it did happen makes this seem like the subject of poor reasoning.


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