June 29, 2004

Apanges? Orples?

Mandos (email) at 10:48 PM

First of all, after reading your rather condescending and unnecessary economics lesson, it occurs to me that we have been reading quite different articles. In the article that I am reading, David Frum is making the argument that the greater part of the growth in the economy is accounted for by an increase in the size of the government as opposed to an increase in the size of the total of personal incomes with respect to the GDP. He sets up this line of argument here:

Where did that extra production go? That's the question answered by the second number, 45%. The lion's share of Canadian economic growth in the 1990s was pocketed by government, especially the federal government. Between 1993 and 2003, federal revenues rose by 45%, or almost $60-billion.
He writes this in his article and posts it on his blog. Then he uses this number to justify it:
The third number in my series -- the number 31 -- suggests just how heavily Martin's tax program weighed on individual Canadians. Between 1993 and 2003, disposable after-tax income rose by only 31% per person in Canada.
So he is saying that the government's relative economic weight increased by 45%, and the relative economic weight of an individual increased by 31%, and thus the government must have "consumed" most of the economic growth. Both Brad DeLong and I dispute that his happy little numbers actually demonstrate this. I gave the example:
Let's take an extreme case: suppose Federal Revenues were only a dollar (against trillions going into people's pockets). Then suppose these percentages were still valid. Now the federal government is only getting $1.45. Now how can you say that government took "more of the economy's growth than people" or that "Martin held people's income down through taxation"? The fact is that these percentages themselves have no direct bearing on the distribution of growth between ordinary folks and the government! Which is what DeLong was pointing out.
So the point was never directly that taxes really didn't take larger shares out of individual people's incomes, just that it doesn't demonstrate that the government consumed the "lion's share" of economic growth, as Frum asserted, even if it really did.

Now as for taxes, well, Marc pointed out pretty much the other bit of missing information in Frum's argument. But not only that, note that it's just 45% vs 31% If we look at this in terms of what these percentages are growing from, it doesn't actually look like such a big gap—it could very well be accounted for by something else. We don't know. As Marc said, until we get a fuller accounting of where all these things are going (personal income vs. fed gov't revenues are not a closed system!), we don't really know much about how to compare these numbers, even if they were comparable.

You're right that he is using a lot of rhetoric; he is using incomplete numbers effectively to demonstrate that the government is gobbling up Canada. In other words, he is using a possibly valid (but very incomplete and jump-to-conclusionsy) argument to demonstrate in the mind of the reader something quite different. And my (and likely Brad DeLong's) objection is to this sort of dishonesty, which is the core of the article. By the way, I don't want to make it look like I necessarily approve of Martin's fiscal policy. But what is presented by Frum is worse than useless as a criticism on these grounds.

Now finally, Mustafa writes:

Finally, concerning your cheap shot of Frum's former role as a speechwriter to the President. First, he was an economic speechwriter and didn't deal with foreign affairs or military matters. Second, he had quit that job well before Bush even began talking about Iraq and it's likely non-existant WMDs. Third, he was a speechwriter, not a policy maker or policy advisor&mdas;he wrote what the President told him to write; he didn't make decisions or policies. And fourth, I don't see how his logic on this matter (which is, incidentallly correct) has anything to do with the stupid rationale of going to war in Iraq. If you want to make this claim, you'll need to explain the similarities in logic.
Oh, come now. Haven't you ever seen his and Perle's book An End To Evil in a bookstore? These theories on Iraq, btw, had been propounded well in advance of Bush's ascension to the White House. You're right that he's at best a minor henchman, though.

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