Questions, Questions …

Posted on February 20th, 2009

I have been pondering the current structure of the state government in Arkansas. This has led me to start asking questions. Alot of questions. I will share them and perhaps you will have a few to add in similar fashion. Hopefully, as this blog develops, I will be able to provide answers.

Questions that could help us determine where we are now:

• In 1996 the estimated number of state employees was 65,000. How many state employees does Arkansas now have?
• Is Arkansas’ state government still the largest single employer in the state?
• Besides the state government, how many people are employed in city, county, public school/college, and other local government entities?
• How many people in Arkansas are employed by the Federal government?
• What is the ratio of the remaining employees to the total of all government employees?
• What percentage of the remaining employees are involved in value-added goods and services contributing to the Gross State Product?
• Does a graph of the Arkansas inflation adjusted GSP compared to the growth in all goverment employees reflect an inverse correlation?
• How does the growth in state employees compare to the growth in overall population?
• How does the number of state employees per capita compare to other states?
• How many executive branch agencies now comprise the state government?
• How many boards and commissions are now part of the state government?
• How many distinct operational units are structured into state government’s various divisions and agencies?
• Does the state keep organizational charts of it’s agencies, divisions, operational divisions, boards, and commissions?
• What is the total state payroll for all state employees?
• What is total cost of payroll and benefits for all state employees
• Are public school and college employees included in the calculations of the payroll? If not, what are those values?
• How much does the total compensation of state employees (inclusive of public educational organizations) cost the taxpayers of Arkansas?
• How has the state government’s holding of acreage, buildings, vehicles, and airplanes changed over the last 50 or so years?
• What does a graph of state spending (inclusive of federal funds) over the last half century look like?

Questions that could help us reach a consensus of where we need to go:

• Is there sufficient data to marginally construct a Laffer Curve and a Rahn Curve for the Arkansas economy?
• Democrats typically favor a Laffer optimum, while Republicans prefer a Rahm optimum. Could a consensus be established at a point in between?
• Could Arkansas be on the left side of the Rahm optimum where additional state expenditures would produce additional economic growth?
• What if Arkansas is on the top side of the Laffer optimum where lower state expenditures would produce additional tax revenues for social services?
• Are we spending an insufficient amount in the proper segment of the Arkansas economy to reach the Rahm maximum thereby causing the Laffer curve to be flatter. (Smaller Laffer optimum = less tax revenues.)
• Does anybody really care that Republicans and Democrats could somewhat objectively work toward a consensus that would maximize economic growth AND maximize social spending with only a small window between the Laffer optimum and Rahm optimum for genuine debate? Will we work together to put that fence up around our playground?

Rahn Curve

Laffer Curve

Tags: economic policy
Filed under Uncategorized |

8 Responses to “Questions, Questions …”

1. eLwood Says:
   February 21st, 2009 at 2:26 am

   Thanks for the creative drawings. I can tell 3rd grade was good for you. Here’s the actual record.

   click here.

2. Mark Martin Says:
   February 21st, 2009 at 3:38 pm

   eLwood,

   Did you even read the post and then go learn what a Rahn and Laffer Curve is? Or did you just come on to insult and rant about a totally unrelated topic?

   I have suggested for “complex, nuanced, civil discussion” a way that the various economic ideologies could establish a “zone” of consensus. I am not trying to do the intellectually lazy thing, which is to link to someone elses data to prove a point. In fact, I have no point to prove, except perhaps that the best achievable answer lies in a consensus based upon objective parameters.

   Do you have any specific things to say about the either the Laffer or Rahn theories? Do you see the glaring inadequacies of these curves to really accomplish what I hope? I certainly see several, though not disqualifying, problems that would need refining.

   If on the other hand, you would rather not bother with all that stuff that might make you *think* just alittle bit, then be my guest here to use all the space you like to bash on Republicans for not living up to their own ideals. Hell, I might even join you.

   Mark

3. eLwood Says:
   February 22nd, 2009 at 2:24 am

   “Or did you just come on to insult and rant about a totally unrelated topic?”

   Just practicing a little decorum for which you have now become a bit infamous in the General Assembly.

   The Laffer curve, or supply siders’ curve, holds that increases in taxation do not necessarily produce increases in revenue. It seeks an optimum taxation rate. However the real difficulty in applying a Laffer curve is determining related factors such as mpc, or marginal propensity to consume. The economic model which Laffer analysis must use assumes “a rational economic person.” Advertising and social imperatives negate such an assumption.

   There is also no way to determine the size of the black market or ‘off the record’ economy for Ark or the U.S. There are estimates which vary widely.
   .
   “Did you even read the post and then go learn what a Rahn and Laffer Curve is?”

   I had no need to “go learn.” When studying for my MBA at UA thirty years ago I had to understand the Laffer curve. It was theoretical then and it’s theoretical now.

   The facts are contrary to assumptions regarding the Laffer curve. I posted and linked the outcomes (graph) in my very first post. You didn’t seem able to link the two together or you would not have made such a foolish statement or accusation as you did above.

   No, Ark does not have the information necessary to prove that a pedagogical device or concept such as Laffer is effective as an economic management tool or even for simple analysis.

   The Mayor of Greenland, AR recently remarked that he cannot get revenue figures for his city from the Dept of F&A.

   .

4. The Statesman Says:
   February 22nd, 2009 at 8:06 pm

   The placement of the Republican and Democrat points on those graphs are as theoretical as the curves themselves. In practice, both sides spend like wildmen when they are in control, the main difference being whose friends get the loot.

   I am not sure that the Laffer curve takes into account the use of debt instead of higher taxes to increase spending and what that will do to tax revenues over time regardless of where rates are set. In other words Democrats tax and spend while Republicans borrow and spend. Either is going to choke the economy and reduce tax inflows eventually.

   The second graph might factor that in better. It is hard to tell the way it is labeled. Is it just tax rates on the bottom or is it spending as a percent of GDP? If the latter, there in no justification for placing the Republicans where they are on the graph.

5. Mark Martin Says:
   February 23rd, 2009 at 1:05 am

   The discussion is getting better here, even from eLwood. Hopefully, I will have some time to respond Monday afternoon / evening. Because I failed to check on this quickly enough “The Statesman” didn’t have the benefit of reading eLwood’s comments.

6. eLwood Says:
   February 25th, 2009 at 11:12 pm

   .

   The Statesman wrote:
   “I am not sure that the Laffer curve takes into account the use of debt instead of higher taxes to increase spending…”

   Fair enough. For your further enlightenment here’s a graph showing you which administration used debt to create huge deficits…

   click here.

   If you want to see the actual effects of government’s fiscal policy done by Moody’s then go here.

   The graph is simple. For each dollar spent or given up in tax cuts the graph reveals the economic outcome.

7. Mark Martin Says:
   February 26th, 2009 at 3:42 am

   eLwood,

   You will not get any defense of the spending habits of Republican presidents who claim to be for smaller government here. I will say that Democrat controlled Congresses contributed their fair share of the situation (particularly under Reagan). It is a different story under Bush, the Republican’s were pork hounds with a pork hound Republican President and the typical pork hound Democrats riding right along with no opposition. I explained my thoughts on that more fully in the Milton Friedman post.

   Republican’s were clearly to blame for abandoning their claimed principles and deserved to be thrown out for it. They were.

   Now, I hope we can end the blame game for now. I am sure you will want to beat “us” over the head with it around election time. That is fine, we made the bed… we’re going to have to sleep in it. But for now, I’d like to stay on topic of the various methods of modeling the economy.

   The Statesman seems to completely enjoy beating up on both Rs and Ds. You on the Rs. Me? I don’t much enjoy beating up on anything except the problem to be solved. Perhaps that is the engineer in me, but it does give us a good balance here.

   I think I addressed your “decorum” snipe in the civility post. I hope that was at least sufficient enough to let you know where I am coming from and where my heart is on all that.

   Now about those curves, the subject this post was intended to generate discussion about:

   eLwood said:
   “However the real difficulty in applying a Laffer curve is determining related factors such as mpc, or marginal propensity to consume. The economic model which Laffer analysis must use assumes “a rational economic person.” Advertising and social imperatives negate such an assumption.“

   The comment about the MPC creating “difficulty” in applying the Laffer curve is fair enough. Noted. But do you really think it is completedly “negated” by the assumption, or could this problem also be modeled by distorting or shifting the Laffer curve accordingly?

   eLwood said, “There is also no way to determine the size of the black market or ‘off the record’ economy for Ark or the U.S. There are estimates which vary widely.“

   Do you really think the black market is statistically significant enough to effect what you yourself called a “pedagogical device”? (Which, by the way, I agree that these curves are teaching devices that simply concepts. But I also see them as foundations for building numerical/computational models that have the potential to provide predictive results of variational inputs resulting from legislative policy decisions.) If the black market were really that large, don’t you think DFA would be knocking down doors and pitching a fit to get “theirs”? Also, if the black market really was THAT large, don’t you think that says something about the inappropriateness of the level of taxation in and of itself?

   eLwood said, “The facts are contrary to assumptions regarding the Laffer curve. I posted and linked the outcomes (graph) in my very first post. You didn’t seem able to link the two together or you would not have made such a foolish statement or accusation as you did above.“

   I think we were talking past each other here. You posted empirical data of outcomes resulting from REAL inputs. You assumed that I considered those REAL inputs as true representations of the assumptions. I do not. You seem to be attempting invalidate the model on what Republican’s CLAIM to be their principle rather than what they actually DID. Additionally, in the case of the Laffer curve you are pointing to empirical results indicating an increase in national debt as a percentage of GDP as somehow the Laffer model is incorrect. The Laffer model predicts increase or decrease in tax revenues as a funtion of tax rate which, as far as the Laffer model is concerned, has nothing to with national debt or spending. You were comparing apples to oranges. But you did seem to sense the tremendous failing of the Laffer curve, which is that it is woefully inadequate for making economic policy decisions in isolation of other factors. I am sure that is why you posted the links you did and I understand the point you were making better now that you explained it.

   To be fair to the Laffer theory, we would need to compare the total federal tax revenues vs. the tax rate as a percentage of GDP. I would be willing to bet that if you created the graph of those factors over the same time period you would generate a portion of the Laffer curve. In fact, I would be willing to bet that Republican TAX POLICY would have been shown to be correct as far as increasing tax revenues by lowering taxes.

   However, it is my opinion that Republicans failed to consider the implications of the fact that spending nor debt are in the Laffer curve’s controlling inputs that got them in this trouble in the first place. That is part of the reason that I presented the Rahn curve as part of this discussion. It could be a tool to keep us from making the same mistakes again.

   More later, I look forward to more discussion along these lines. I am getting good input from both of you. I intend to talk a bit more about eLwood’s closing comments and address the comment by The Statesman.

8. The Statesman Says:
   March 1st, 2009 at 11:04 am

   “The Statesman seems to completely enjoy beating up on both Rs and Ds”- Rep. Mark Martin.

   Both political gangs have looted the public of trillions of dollars of their past and future earnings and sent the money to their friends. In the Constitution that they all swore to uphold there is absolutely no authorization to make these expenditures.

   It is the Rs and Ds who are beating up on the general public in order to shovel money to their “friends”. I don’t think it is proper to phrase it in a way that makes me the heavy just for speaking the truth in plain words.

   Joe and his friends steal 2 trillion dollars from Louise and her friends. Louise complains about it, and Joe accuses her of “beating up” on him and his friends.

   I am sorry if those comments were painful, both Louise and I will retract them if you give us our 2 trillion dollars back!

   (The above is in reference to the national Democratic and Republican parties. I understand that there are individuals within these groups that don’t approve, such as Ron Paul on the national level and Mark Martin on the state level).