From: Zhang, Yangkun (Yangkun.Zhang@fmr.com)
Date: Tue Oct 10 2000 - 08:29:46 PDT
> Again, my point is that the Executive branch has very little control over
> the economy, and, except in rare cases (Roosevelt, Nixon), does not affect
> it much.
This is an utterly preposterous assertion.
Just two simple examples:
Income tax: during the Republican administration of William Howard Taft, and
only weeks before the inauguration of Democrat Woodrow Wilson in 1913,
passed the 16th Amendment permitting taxation of income. The first such tax
had a marginal rate of 7% and quickly brought about the recession of
1913-1914, but the marginal rate was never the less pushed to 75% (with
capital gains taxable as normal income) as the U.S. entered the First World
War in 1917. The Republicans won in a landslide in 1920 on a promise to
repeal the high margin rates. Other warring powers of WWI decided in effect
to leave their confiscatory tax rates to pay off war debt. The resulting
1920s boom was thus mostly a phenomenon of the United States.
The Great Depression: the crash of 1929 occurred because of the Smoot-Hawley
Tariff Act, which President Hoover signed into law in June 1930--an act
created by the legislative branch and signed into existence by the executive
branch. News of the impending passing of the act had filtered through Wall
Street by the fall of 1929, and "smart monies" such as E.F. Hutton had
already dumped their shares before October 1929. Yes, the crash and the
subsequent depression was exacerbated through the Federal Reserve's
unwillingness to create extra liquidity, but the problem was caused by
congress and the president.
War and Peace: the other interesting side effects of Smoot-Hawley Tariff Act
was that it pushed trade dependent nations such as Japan to the wall--whom
then embraced the "Greater East Asia Co-Prosperity Sphere." (Please note, as
an ethnic Chinese, I am in no way trying to be an apologist for Japan's war
crimes, I'm simply trying to point out that economic incentives can tend to
push events to very nasty results.)
The executive branch decides everything from war (which affects the economy
through, if nothing else, inflationary pressures), foreign policy (which
affects trade and tariffs), and environmental policy (which affects economic
behavior). Need I even add that the executive branch effectively controls
anti-trust policy, and appoints judges, whose activism (or the lack thereof)
has direct economic impacts?
Please explain to me again how the executive branch has "very little control
over the economy"?
> During this time period we also witnessed a widening between the rich and
> the poor in the US. These figures are consistent with that. The rich got
> richer, and hence still paid more taxes. Is wealth inequality something
> be proud of?
First, try reading the book Myths of Rich & Poor : Why We're Better Off Than
We Think by W. Michael Cox (Senior Vice President and Chief Economist of the
Federal Reserve Bank in Dallas) and Richard Alm (a Dallas Morning News
business reporter). To quote a review from Amazon.com:
"Popular wisdom holds that the years since 1973 - the end of the 'postwar
miracle' - have been a time of economic decline and stagnation: lackluster
productivity, falling real wages, and lost competitiveness. The rich have
gotten richer, the poor have gotten poorer, and most of us have barely held
on while watching all the best jobs disappear overseas.
As MYTHS OF RICH AND POOR demonstrates, this picture is not just wrong, it's
spectacularly wrong. Only by understanding the great success of the American
economy can we make intelligent decisions about preserving that success for
Dismantling dozens of firmly-held beliefs, Cox and Alm show that:
1) "Real income" is an unreliable measure of living standards. Real wealth -
the lifestyle Americans routinely enjoy - has skyrocketed.
2) The poor have not gotten poorer. In fact, the average family living below
the poverty line today is doing as well or better, in terms of material
possessions, as middle-class families in 1971.
3) Corporate downsizing creates jobs in the long run.
4) Income mobility is alive and well. Of people at the bottom fifth of the
income distribution in 1975, almost 3 in 10 were in the top fifth by 1991.
5) America's trade deficit is a sign of strength. We can afford to import
more than we export because America is such an attractive haven for overseas
In the sections you deleted, I also pointed out that the poor who were here
DID NOT GET POORER, but rather richer. Much of the inequality is DUE TO
IMMIGRATION FROM POORER NATIONS! Wealth inequality is inconsequential if
everyone is better off. Also, wealth is, in most cases, utterly different
from liquid, fungible assets which you can sell off and spend. In your
rantings, you sound like the typical politburo member who would (at least in
the Culture Revolution) rather that everyone be equally poor than some rich
and some richer still.
> No, the poor have gotten relatively poorer under every President since
> Carter, and this includes Clinton.
Again, you ignored a full two paragraphs that point out that WHEN PROPERLY
CONTROLLED FOR POPULATION, statistics show that THE POOR IN THIS COUNTRY GOT
MUCH RICHER UNDER REAGAN (no data were available for the Bush or Clinton
years), and much of the income inequality is due to the influx of poorer
still immigrants. You claim that I create and destroy straw men, and yet you
ignore valid criticism of statistics behind the EXACT "fact" you posit. Your
complete ignorance of statistical evidence is appalling to say the least.
>> Yet another statistical error that the left propagate is the
>> whole matter of inequality. Let's use an simple example of five people
>> who makes $100,000 a year. *snip*
> I have a better idea. Let's consider the people who cannot afford
> and who are hungry. Yes, finally, after many years of strong economic
> performance in the US, poverty in this country does seem to be abating.
> Slightly. But it is an abomination that we still have hungry and homeless
> people who wish to be otherwise. If they're moving up, great. But why is
> this problem there at all? The resources of this country are
> incomprehensibly vast; it is just a lack of willpower and focus that
> these problems to persist.
Again, you choose to ignore mountains of statistical evidence. If you're
going to attack my statements, attack the data upon which it is based. Don't
just come back to snappy remarks without supporting evidence.
Also the resources of this country are NOT "incomprehensibly vast"--what
wealth exists does not simply exist in an vacuum, but are created through
labor. And what would this "willpower" actually do to solve these problems?
Forced wealth redistribution? That simply robs Peter to pay Paul, and simply
reduces incentive to create additional wealth. The fact is, this "willpower"
you speak off has existed in every place from Social Democracies such as
France (who is suffering a near 20% unemployment rate for those in the
twenties) and other nations of the EU (whose economic failings are
dramatically demonstrated by the long term ills of the Euro and its
component currencies) as well as more authoritarian regimes such as the
former USSR, North Korea, and the PRC. It takes more than "willpower" to
solve economic ills. If you are serious about solving the problems of the
poor in this world, try fighting for the repeal of all tariffs, the repeal
of the capital gains tax, support a flat tax, kill wasteful governmental
programs such--hell, entire departments like the Energy Department, the
Education Department, ad nausea.
> My limited understanding of economics tells me that the reason the economy
> is doing so well today is because the US has been experiencing an
> long period of productivity growth. From what I read, there is still a
And exactly how does productivity growth occur? It occurs because of capital
investment in productivity enhancing tools and technologies. Where does that
capital come from? How can be increase the rate of capital formation? Cuts
in marginal rates of taxation! Who controls the marginal rates? Congress and
the president (who mostly sells ideas and signs the resultant bill).
> Again, I will assert that the Federal Reserve, a non-partisan institution,
> has had far greater impact on the economy over the past 20 years than
> the Executive or Legislative branches. As a result, I tend not to focus
> heavily on economic issues in elections, and instead focus on their
> environmental records, and their intentions for foreign policy, areas
> the Executive does have significant power.
Look, even the Federal Reserve is under the control of the legislative
branch. When the Federal Reserve Act was passed in 1913, it originally
provided for a gold peg at $20.67 per ounce until 1934, then $35 per ounce
until 1971--at which time Nixon promptly killed the entire Bretton Woods
agreement and took us off the gold standard. The fed back then monetized
commercial, and now it monetizes government debt. All these basic Federal
Reserve operations are necessarily dictated by the executive and legislative
branch. The Federal Reserve is politically independent in so far as it can
inject or remove liquidity into monetary markets without political
intervention, but the tools of its intervention are all invented and given
to it by the congress and the presidency. Need I also mention that the
chairman of the Federal Reserve is appointed by the president?
Here are some suggested readings:
Economics in One Lesson by Henry Hazlitt
The Armchair Economist : Economics and Everyday Life by Steven E. Landsburg
The Road to Serfdom by Friedrich Hayek, with Milton Friedman(Introduction)
Capitalism and Freedom by Milton Friedman
and Jude Wanniski's Polyconomics site at
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