Debt Ceiling and the Tea Party

The debt ceiling debate has continued, and the Tea Party Patriots (TPP) are demanding no debt ceiling increase under any circumstances. Their website has a list of “Four Big Lies” that members of congress are telling people about the debt ceiling. I thought I'd check the accuracy of some of what they state.

The TPP claims that “Obama increased spending and the size of government more than all previous presidents (from George Washington through George Bush) COBMINED.” I'm not sure how they define size of government (they seem to imply that they define it differently from spending), but it seems that they are basically saying that federal spending has more than doubled since the time Obama took office. My assumptions here are that each budget can generally be assumed to be progressively larger than the last, and that George Washington started at essentially zero. According to the Department of the Treasury, 2010 federal outlays were $3.456 trillion. We don't know exactly how much outlays for 2011 will be, but Obama's budget request was for $3.819 trillion. Obama's presidency began in 2009, but the 2009 budget was based on the final request submitted by George Bush, moreover, the fiscal year ends on September 30. Despite this, we'll be conservative and concede that 2009 was the year that Obama's influence began. Outlays for 2008 were $2.978 trillion. So even by these conservative numbers, Obama only increased spending by 28%, and the TPP claim appears to be utterly false. I thought that the TPP claim might be based on projections of outlays for future years listed in Obama's budget proposal, but even for 2021, the latest year projected (and a year long after Obama will have left the White House), the figure is only $5.697 trillion- still less than twice 2008 spending.

“Don't let socialism win,” the Tea Party Patriots urge in a piece criticizing attempts to get spending cuts or other conservative demands in exchange for raising the debt ceiling. Ironically, some socialists have been demanding that the debt ceiling not be raised for years. Socialist Alternative formerly stated in it's program, “Cancel the national debt with no payment to the big investors. Use the money to rebuild the inner cities and the infrastructure under union conditions and wages.” Also see The Need for Socialist Policies. Of course, the more consistent Republicans have qualified their debt ceiling threats by saying that debt service should be prioritized, and the difference should be made up through other obligations (like social security and unemployment benefits).For now it seems that the Tea Party is living by the principle that you don't have to be responsible as long as you're not in power.

State Taxes and Change in Debt

In my last post, I showed that high tax rates at the state level, if anything, tend to improve growth as measured by gross state product (GSP). I wondered how debt might intercede in this phenomenon, so I charted change in debt to GSP ratio over a four year period as a function of the 2005 tax to GSP ratio. The result is the opposite of what is expected, and what has generally been observed at the federal level. The results imply that high tax rates correlate with more rapidly increasing debt to GSP ratios (despite the high tax rate states having GSPs that increase more rapidly). However, if the two outlier states, Mississippi and Arkansas (which both had debt/GSP increases more than twice that of any other state), are ignored, then the correlation is reversed. Moreover, the highest tax state (Vermont) experienced less than one third the debt increase than that of the lowest tax state (Texas).

Change in debt is important to consider when comparing the economic policies of the states. Sharp increases in debt may fund short term economic expansion but with negative long term consequences.

The second chart has the two outliers (Mississippi and Arkansas) excluded.

State Taxes and Economic Growth

The chart below shows the economic growth of states between 2005 and 2010 (as measured by gross state product (GSP)) as a function of the state's total tax to GSP ratio for the year 2005. Advocates of tax cuts often argue that tax cuts will result in more growth. The governments impact on the economy can generally be divided into five categories: regulation, taxation, spending, monetary policy, and debt. Analysis at the state level might somewhat isolate the impact of taxation, since all states use the same currency and are therefore subject to the same monetary policy of the federal government. Most empirical analysis of tax policy compares national growth rates over different periods in history during which different tax policy was in effect. Advocates of supply-side economics frequently point to the Reagan tax cuts and the growth that followed them as evidence in support of their theory. However, Reagan's policies also resulted in vastly increased national debt, thus the long term impact of Reagan's policies may have been much worse than supply-siders claim. The data in the chart indicates very little correlation between taxation and economic growth. To the extent that there is a correlation, it suggests that higher taxes yield more growth. This contradicts mainstream economic thinking. It should be noted that the the chart includes all types of taxes, not just income tax which supply-siders usually focus on.

On Placebos (and a tangential note about childbirth)

A day before my wife went into labor with our first baby, we found ourselves strolling through the Midtown Global Market (MGM) with our friend Manda. MGM serves somewhat like a mall but with all local as opposed to chain stores and restaurants. After eating some hamburgers from Andy's Garage, and perusing some merchandise, we were on our way out when we stopped to look at a bulletin board. Among the various advertisements and announcements was a poster pedaling Herbalife. Herbalife describes itself as a seller of nutrition, weight-management, and personal care products; but with a market capitalization of $6.6 billion, many might consider it the world's largest snake oil company. 

Upon investigation, I've learned that Herbalife is actually more controversial for its marketing techniques than the questionable efficacy of its products. It uses multi-level marketing, similar to Amway and Avon.

To be fair, Herbalife is far from a product line of sugar pills. Although in some cases, a sugar pill might be preferable. Until 2002, some of its supplements contained ephedrine alkaloids (supplements containing ephedra are now illegal). Its most popular product is the Formula 1 protein shake. I don't doubt that meal replacement shakes can be a part of an effective weight loss program, but I'm a little more skeptical of Formula 2, a multivitamin that contains 500% DV of vitamin B6 in addition to an herbal blend. I'm very skeptical of Formula 3 which claims to be a 'cell activator', whatever that means. Maybe we're too hard on placebos though. The Economist published an article about the research of Edzard Ernst into the efficacy of alternative medicine. Ernst studied “everything from acupuncture and crystal healing to Reiki channelling and herbal remedies,” and found that 95% of it was no more effective than placebos. Placebos, however, can be very effective. Some doctors are coming around to the idea that they should not be hesitant to prescribe placebos. Surprisingly, one study showed that placebo treatment for irritable-bowel syndrome was effective even when the patients were told that they were taking placebos. Sometimes the practitioner's job is just to do something, and then let the patient's body take care of the rest.

The amount of intervention involved in childbirth seems to be coming under more and more scrutiny over the years. Fortunately, the hospital we went to was a little less interventionist than most. My wife was never given an IV, an intervention that is routine at some hospitals. Artificial breaking of the water is still a common practice even though there is strong scientific evidence that, under most circumstances, it has no benefit. Is it done because the practitioners don't read research papers, or just because they want to do something, to feel like they are doing their job, even if (scientifically speaking) it is pointless.

My wife made it through labor without IVs or drugs or induction, but that doesn't mean that it was easy. It was long and painful and exhausting. Just when she finally considered opting for drugs, we found out that she was 9 cm dilated. Not long after that she began pushing. As she moved from one pushing position to another, a nurse came in with two small plastic tubs filled with liquid. She said that this was a special pushing juice, and that as soon as my wife drank it she would be able to push much stronger. I hadn't slept for 27 hours. Standing in the dimly lit room, the experience became surreal for me.

The day after the birth, I was carrying two cups of coffee from the hospital coffee shop back to our room when I ran into a former coworker. We talked briefly about what's changed at the company since he left. He told me that his wife was also in the birth center, but she got an operation, not a baby. “It's okay though, we have a lot of kids already,” he said. Naturally, this caused me to reflect on how lucky I was.

Standing at my wife's side during the final pushes, it was as though all of my life's failures were now insignificant. In a few moments, I would become a father, and my life would be redefined. Moments before my healthy son, Cedric, was born, I glanced at the label on the foil wrapper covering the special pushing juice: '100% Pure Apple Juice'.