From: thompson@atlas.socsci.umn.edu (T. Scott Thompson)
Subject: Re: Supply-side economics
Reply-To: thompson@atlas.socsci.umn.edu
Organization: Economics Department, University of Minnesota
Date: Tue, 1 Sep 1992 19:46:36 GMT

demon@desire.wright.edu (Stupendous Man) writes:

>	I've been away from the net for a few days, so I'll try to answer all
>the questions in this post. :)

>	A) 'Evidence' for supply-side/boom/tax cuts in anecdotal.

>	Far from it.  There are numbers galore.  From the Mellon tax cuts in
>the 20s, to the Kennedy cuts in the 60s and the Reagan cuts in the 80s.

I think you have verified my previous comments about "antecdotal
evidence."  If this is the best you can do then little more needs to
be said.

>	Tax cuts have a variety of positive influences:

[itemization of positive influences deleted]

Your previous posts went beyond this.  You previously were asserting

         (a)  Booms were _caused_ by tax cuts
         (b)  Busts were _caused_ by various other "bad" policies

Simply describing how tax cuts might exert positive influences on the
economy hardly proves either (a) or (b).

>        B) Where's your model?

>	Right, if I (or anyone) had a foolproof model, we'd be selling the
>house and family to leverage ourselves in the futures markets.

Precisely.  No one has a foolproof model of business cycles.  This is
why claims that the underlying causal mechanisms are understood are
unconvincing.

>	What I (and others) have been doing is looking at past economic
>expansions and looking for common elements.  Because the economic situation is
>not static, and never will be exactly the same in the future, the best you can
>do is look for elements that have worked in the past and apply them to the
>current situtation.

The problem of course, is using data and deduction to sort out what
"worked in the past."  When the data are inconclusive about causality,
then conclusions that one policy worked and another one did not are
simply assertions of belief.  They are not scientifically verifiable.

>	C) taxes...

>	Tax cuts, for example, are not problem.  Despite the cries of 'debt' and
>'deficit' tax cuts enable the economy to grow, providing more revenue.  Only
>cutting spending will get rid of the debt.  You could increase the revenues
>exponentially, but as long as spending is greater than intake, you'll have
>deficits and a debt.  So the problem is not taxes, but spending.

Let me get this straight.  Deficits = spending - revenues.  But the
only way to lower the deficit is to lower spending?

>	D) Oil caused inflation.

>	Not true.  Inflation, coupled with the abandonement of Bretton Woods
>caused the devaluation of the dollar.  Since the oil trade uses the dollar, the
>OPEC nations were now getting less for their oil.  The "oil shock" was simply
>the OPEC nations restoring the value of their oil to the pre-August 1971 value. 
>August 15, 1971 is when Nixon abandoned Bretton Woods.  Right after that the
>OPEC nations stated that declines in the dollar would result in price
>adjustments.  The 1973 price rises can harldy be called "shocking" since there
>was two years warning.

In other words, it wasn't inflation, it was "simply the OPEC nations
restoring the value of their oil" by running up the USD denominated
price.  Inflation by any other name...

The earlier posts never claimed that OPEC was _the_ source of all
inflation.  They simply asserted that OPEC was _one_ of the possible
explanations for the inflation of the mid-late '70s.

>	E) It's not that simple.

>	Of course not.  But cutting taxes is a start.  As is reducing
spending.
[remainder of post deleted]

Without more solid evidence that tax cuts actually do what you claim
these are simply assertions of belief.  The advise might be good,
since there are certainly good theoretical reasons for using economic
incentives to achieve economic (and even noneconomic) goals.  But the
evidence that other forces are unimportant or counterproductive simply
isn't there.  And clearly some disagree with the implicit goal of
stable economic growth.  Scientific inquiry can not tell us what our
goals should be.

Since we seem to be going in circles this will be my last post (for at
least a while) on the evidence for causality of business cycles.

If economics is ever to achieve any kind of scientific respectability
then those claiming to be economic experts must resist the temptation
to overinterpret the available data.  Sadly, the public perception of
economists is largely dominated by the media-happy few who are willing
to do just that.  The public hears little from those of us who feel
that the profession has a long ways to go before we develop real
understanding, but who never-the-less feel that slow and steady
progress (with numerous setbacks and dead ends, of course) is
possible, and even that some has already been made.
--
T. Scott Thompson              email:  thompson@atlas.socsci.umn.edu
Department of Economics        phone:  (612) 625-0119
University of Minnesota        fax:    (612) 624-0209
Xref: sparky talk.politics.misc:42084 alt.rush-limbaugh:3988