I want to bring a genuinely fascinating post from Sean Trende at RealClearPolitics to your attention. He posts on the actual economic history of the 1930s in the United States.
You most likely know that the federal government decreased spending from 1936 to 1937 and again from 1937 to 1938. You certainly know that if you’ve been reading Paul Krugman over the period of the last half dozen years. You most likely do not know that federal taxes increased from 1936 to 1937 and again from 1937 to 1938 and revenues increased substantially more than outlays did, three times as much from 1936 to 1937 and by roughly equal amounts from 1937 to 1938. A major offender in the tax increase was the newly-imposed FICA AKA “payroll taxes”.
Meanwhile, the Federal Reserve compounded the problems by doubling the reserve requirements for banks.
The simultaneous monetary contraction and fiscal contraction lead to the “depression within a depression” of 1937.
Read the whole thing.
1) I thought this was widely known. Guess not?
2) Tax increases can lead to increased revenues? Who knew? I thought it was tax cuts.
Steve
I thought this was widely known. Guess not?
Apparently Krugman doesn’t know it.
Tax increases can lead to increased revenues? Who knew? I thought it was tax cuts.
And lower economic growth, too. Who knew?
This is why I like your blog, Dave. While you hear about spending cuts and their negative effect on growth from Krugman et al, you will not hear about the negative impact of tax increases on the middle-class and poor because that doesn’t fit Krugman’s political narrative. Vice-versa on the right.
Perhas we should give more attention to economic schools which are descriptively neither of the left nor the right. I’m sure there’s at least one out there, what was it called again . . . ?
I’m sure there’s at least one out there, what was it called again . . . ?
Imaginary. 😉
Personally, I never understood why people had to be in “economic schools” in the first place. Of course I’m an anti-partisan kind of guy, so it’s probably just me.
I fbink your ixea is pretty important Andy. My guess is that it is the way it is taught. Most people never break out of that straightjacket.
I considered myself “on the left” in economic terms just a couple of years ago, guess I still do in a sense. Being exposed to the work of certain people in a certain School That Must Not Be Named eventually forced me to accept that the existence of government and taxation does in fact create unemployment, that tax cuts can be helpful and tax hikes can be harmful. I also gained a better appreciation that quality of spending matters more than the quantity, and that its sole purpose was to benefit the private sector without concern for its own balance sheet.
We can come to an agreement on how the system works if we make an effort, it’s the policies we adopt from there that are most divisive I think.