Monday (April 4, 2005) I blogged. about the Sunday NY Times article by Anna Bernasek that says Taxes Don’t Slow the Economy.
In response to Ms Bernasek, the Economics Editor of National Review Online Larry Kudlow has come back with a defense of the idea that lower taxes spur the economy. As evidence he provides the names of some right-wing politically motivated economists without telling what they actually said, then offers some historical vignettes that purport to demonstrate cases where tax reductions are followed by economic increases.
He leaves it to us, the readers, to assume that no other factors effected the economy in each case and that since in each vignette the tax cuts occurred prior to the economic increase he states that the tax cut must have been the cause of the economic increase. That is the logical fallacy known as "Post Hoc, Ergo Propter Hoc", or since the rooster crows before dawn, dawn was caused by the roosters' crow.
To debunk his argument more formally, Kudlow presents apparent associations of events over time and assumes that when one thing occurs first, it must cause the thing that occurs later. Then he does this without ruling out alternative possible causes for the later event. That's both bad logic and bad economics, so causation can’t be attributed to the tax cuts. Essentially Kudlow has no argument.
Kevin Drum of Washington Monthly promptly debunks him with better history. Here is one paragraph:
”As near as I can tell, Kudlow just cribbed this from an old Heritage Foundation memo, and it shows. Mellon mostly lowered taxes from World War I peaks, and in any case personal income taxes amounted to only about 1% of GDP in 1920. It's absurd to think that rate cuts at that level had any serious impact on economic growth. Pace Kudlow, the 50s did fine even with high marginal tax rates, and the 60s boom was due as much to garden variety Keynesian stimulation as it was to JFK's tax cuts. As for Reagan, he cut taxes once and then raised them every year after that ( details here ) — followed by increases from both Bush Sr. and Clinton. Despite the promises of the supply siders, federal tax receipts fell sharply in 1982 and didn't recover to their previous levels until 1998.”
Click through to Kevins discussion and see the neat chart he included to support his argument.
In short, Kudlow offers decent propaganda but rotten economics and bad logic. It is decent propaganda because if you just read his article, it seems to make sense. You have to bring quite a bit of outside knowledge to bear on it to realize that he is spewing utter crap.
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