John Cochrane writes in his blog, The Grumpy Economist, Debate with Goolsbee, 11/1/12.

Excerpts:

And, by what economics is the central key to escaping sclerotic growth that we should sharply raise marginal tax rates on investment and business formation? When, ever, has a society experiencing sclerotic growth restored robust prosperity by a tax-based redistribution? The last time we tried it was 1937. Roosevelt raised taxes on “the rich” to 70% and sent his attorney general off on a “war on capital.” He got a “capital strike” and his big recession became the great depression. President Obama will follow his hero’s footsteps.

The utter chaos of our tax and spending is more important than the rates. The government has not passed a budget in years. Spain and Greece pass budgets! What serious country decides its taxes every year, in late-night sessions in the middle of January, with thousands of special deals up for grabs? 

For the first time ever, this administration doesn’t even pretend that it will balance the budget! Despite all the rosy scenario they can muster, they are proposing trillion dollar deficits forever. Forget the games of “scoring” various plans – does anyone really believe that the actual outcome of a Romney administration is going to be higher deficits than under a second Obama term?

Entitlements are the long-run budget catastrophe. Like it or not, at least Ryan and Romney are advocating a serious entitlement reform. The administration promises, not one penny cut from your Medicare and Social security. But we don’t have that money – this promise must be broken. The only question is how.

Rather than get the long-run right, the administration has indulged in a patchwork of short-run meddling. Stimulus. Cash for clunkers, which destroyed the market for used cars that low-income people depend on. Temporary tax breaks, with the constant threat of higher future taxes. 100 mortgage writedown programs that don’t work. Bankrupt solar panel factories, yet Al Gore walks away with $100 million bucks. 

I would not mind if any of this worked. It demonstrably did not.

HKO

Cochrane’s graphs paint a clear picture of an economy that is far from recovery, and is adjusting to a new slow growth path.  Without growth the government will be forced to make massive cuts in spending that many will find unacceptable   There is simply not enough money among the wealthy to begin to solve this problem, no matter how much they tax it. Growth is the only solution and this administration is blocking it.

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