Questions to economics experts….

[ktlyon]

It was once thought that actions taken by government and or the Fed took years to have an effect on the economy.

Is this still true?
How long for, say tax cuts to impact?
Raising interest rates?
Government deficit spending?
Did Clinton’s influence end when Bush took office?

It seemed to me that Clinton had a positive effect before he took office and it ended when Bush was selected. Some of my co-workers believe we are still feeling the effect of Clinton's failed policies. They don’t believe that we were in surplus. They are in big denial.

[ret5hd]

1. there is a very simple formula...

1) any economic bad under a repub admin is a delayed effect of the disastrous economic policies of the preceding dem admin.

2) any economic bad under a dem admin is an immediate effect of the disastrous economic policies of the current dem admin.

3) any economic good under a dem admin is a delayed effect of the right and proper economic policies of the preceding repub admin.

4) any economic good under a repub admin is an immediate effect of the right and proper economic policies of the current repub admin.

[kikiek]

2. Face it Bush has failed..miserably. Here is a nice list for you of

Clinton's record. http://www.usembassy.it/file2001_01/alia/a1010913.htm

[ktlyon]

5. thanks for the fact sheet

The Clinton record is impressive, I wish he was still Pres. I think this fact sheet proves government policy can have an immediate effect. Thanks again for posting I'm printing copies for my co-workers.

[AX10]

15. Thanks. The truth is told.

Clinton was an asset for America!

:bounce:

[jody]

3. If you laid all economists head to foot, you couldn't reach a conclusion.

The correct answer is "maybe yes, maybe no."

:hi:

[ktlyon]

4. thanks

I was hoping for a little better answer like when you give tax cuts to the working people it has an immediate positive effect and if you give tax cuts to the rich it has no effect except to raise the stock market.

I was hoping to hear that the idea of economic effect from government policy is short term and that the old idea is no longer considered valid. (ie. the idea that economic policy takes a long time to see a change). Personally I think since we now live in the age of instant communications around the world, policy is instant or near to it now.

[unblock]

6. it's a good question, but there's no simple answer

in part because it depends on the nature of the action being contemplated.

one timing drawback with congressional action is that there usually is a long lead time to effect the legislation itself. budgets are annual and have their own pace, so if you're trying to stimulate the aggriculture sector, e.g., you probably have to wait until the aggriculture appropriations bill comes up, which may be up to a year.

the fed has about 8 meetings a year and can call emergency meetings, so they can act more swiftly, though their power is limited to affecting the amount of money in the economy and interest rates.

the president can act by executive order, but these usually don't have large affects on the economy, though an executive order could. for instance, the president could make dramatic changes in military procurement procedures by executive order, which might have quite an affect on the defence sector.


as to your specific example of tax cuts to the rich vs. the poor, again, there's no easy answer. it all depends on what's wrong with the economy in the first place. if an economy has plenty of demand but is suffering from a capital squeeze, then a tax cut for the rich would benefit the economy, and possibly, quite quickly. rich investors might start changing their strategies and hiring and building even before the legislation is passed, assuming they have confidence that it will. in such an environment, a tax cut for the poor might be good for other reasons, but it wouldn't immediately help the economy much, because demand is already strong.

on the other hand, if the economy is more like it has been for the last decade or so, where there's been a glut of capital chasing too few investments (leading to asset inflation, first stocks, then real estate) then a tax cut for the poor would have been a great boon to the economy as a surge in demand would have created new investment opportunities to match the excess capital. instead, the shrubbies gave the tax cut to the rich, which only gave them more capital that they didn't know what to do with. so the economy only slowly benefited, by gradually inflating real estate prices, to the point where people felt comfortable getting home equity loans to upgrade their houses and to increase demand. very slow and inefficient.

[ktlyon]

7. Thanks that makes sense

It is a dangerous choice to pick ideology over looking closely and doing what is necessary in individual situations, I would say. We can all learn from Georges mistakes.

[Freedom_from_Chains]

9. I have always found it humorous that all economic theories

start with the statement, "All things being equal," while at the same time a core concept of economics is that all things are never equal.

[ArmHayseed]

8. Link to Treasury Dept

Here is a link to the Treasury Department’s Monthly Treasury Statement of Receipts and Outlays of the United States Government.

http://www.fms.treas.gov/mts/MTS.xls

Take note that surpluses are entered as negative numbers. The fiscal year currently ends Sept 30th. The sum of the figures from October through September will give the deficit/surplus for the fiscal year. You should find a downtrend in the deficit for the four fiscal years ending September 1998 and a surplus in the following four years.

If your coworkers disagree with the Treasury Dept’s figures ask them to write the Treasury Secretary explaining where he has made mistakes in calculations. I’m sure Sec. Snow will be relieved to no longer have to publish these embarrassing figures.

Better advice would be: Don’t let these guys run you around on quixotic missions. If you bring back proof positive on one argument they will send you off on two more. Better you should send them. Ask them if the working class in America (or the economy in general) is better off, in total, under the Republican or Democratic Presidents over the last fifty or one hundred years and to prove it using empirical data from government sponsored web sites. Since Republicans are in charge of all parts of the government they should have no problem trusting their numbers. (Fox and Limbaugh don’t count.)

[newyawker99]

13. Hi ArmHayseed!!

Welcome to DU!! :toast:

[ktlyon]

14. problem with sending them off to do research is

they don't need to do research, they already know the answers and any information I bring to the table must be inaccurate because they don't want to change their thinking. I give them commonsense answers to many dilemmas political and not, it is the political ones they won't except because they have been brain washed to disregard anything a liberal says. Many times they say they have proof but I never see it. How do get through to someone that thinks gays getting married is bad for marriage and they are divorced, living with someone and have a child out of wedlock from an affair while married. People like these are not thinking so reasoning is useless, I have given up and will nod and smile when they speak about killing deer and the fish that got away. If they spent one tenth as much time studying politics as they do planning their next kill, the republicans wouldn't stand a chance but they let someone else do their thinking and except without question what they say to them. Like they all had the same Intel or christmas is under attack and Dems will take away my guns. If their side says it is true, if our side says it, it is political. Maybe, just maybe when a few republican liars, con-men and extortionists go to jail then they will look around but I doubt it. They still don't believe Reagan traded arms for hostages or Nixon was a criminal or Vietnam was bad for America.

[On the Road]

10. I Agree with Unblock That it's Not a Simple Answer

It may help to think in terms of which economic activities are affected rather than what mechanisms are used.

Anything that puts cash in the pockets of lower or middle-class people has an immediate impact in consumer goods and services. It could be a tax rebate, a rise in the minimum wage, or an increase in cost-of-living adjustments for Social Security.

Putting cash in the pockets of the top 1% has a smaller impact which also takes longer to materialize because the upper class has less pent-up demand for day-to-day consumer services.

Putting cash in the pockets of businesses takes longer to have an impact. Ideally, increased profits are reinvested in the economy, higher profits are used to increase dividends to wealthy stockholders or pension plans, the effect is delayed and minimized.

Interest rate hikes have a small immediate effect, but the effect is a lot clearer long term over multiple rate hikes. Consumers and businesses borrow much more freely when interest rates are low. Greenspan's 11 rate increases in 2000 clearly had the effect of sending the country into a mild recession, which it was designed to do. Deficit spending can have a short-term stimulus. The effect is more immediate if lower taxes or higher benefits go directly to ordinary consumers. Over the long term, however, there is a gradual negative effect on economic activity due to the fact that government borrowing competes with business and consumer borrowing and drives up interest rates. But deficit spending is the net of what could be a wide variety of changes in taxes and spending, so the effect can vary greatly.

One of the reasons it's claimed that government policies take so long to have an effect is that both booms and recessions tend to snowball. Confidence breeds confidence and fear breeds fear. I used to buy into the claims of long-term effects, but have started to doubt it more recently. A lot of it is just CYA.

---

And as far as your coworkers discussing the lingering results of Clinton's "failed policies," ask them which policies those are exactly. Make them be specific. I can't think of anything that Republicans have done better than Democrats economically.

They might point to tax increases. Clinton's early tax increases, following on the heels of Bush Sr's tax increases, resulted in a long boom, not a crash as Republicans were predicting. Same with Reagan's first- and second-term tax increases.

[happyslug]

11. When I was in Collage in the late 1970s

I had an economic books that was showing that what Congress did to the budget had NO effect on the overall Economy. It was a great article, even including a Chart to illustrate its point. The Chart clearly showed no economic change in the year congress cut or increase taxes and this was used by the Author to show his point that what Congress did did not affect the over economy. The problem was if you looked at the Chart there was a clear collation between Congress cut or increase in taxes and what the economy did 18 months later. The author did not want to see the collation so he missed it, but it was there none the less.

Basically the same rule of thumb applies, roughly 18 months after Congress does something to the economy the economy reposes. Some time it is quicker, some time it is slower but roughly 18 months.

[ArmHayseed]

12. You have good company

in your opinion of the time frame.

From a speech given by Dr. Lawrence B. Lindsey at the Federal Reserve Bank of Philadelphia:

“Prompt Federal Reserve action beginning in January of this year will help stimulate final demand next year. The usual lag in monetary policy is 12 to 18 months. Thus, the interest rate cuts in the early portion of this year should have their maximum impact on the economy during 2002. “
http://www.whitehouse.gov/news/releases/2001/07/20010719-4.html

I would like to find a concise history of the major tax changes since the creation of the Federal Reserve. If anyone knows where that could be found please post it.

The problem I see in trying to gauge the affect on the economy is changes in tax laws are sometimes directed toward specific groups and sometimes are intended to modify spending patterns and may have unintended results.

I’ll have to cast my vote on the Fed as the major driver in the direction of the economy. They even announce their intentions. They promise to raise the rates to “curb inflation” or “slow the growth rate”, etc. and when they raise them the economy slows down. When it slows down to much they do the opposite and the opposite happens.

The current Washington Wisdom seems to be: “The Fed has to raise the rates in order to slow the growth of the economy but if it slows too much the only cure is a tax cut for the investor class.”