http://www.dailykos.com/storyonly/2007/7/23/216/12372

Bush Economy Exposed
by cpa1
Sun Jul 22, 2007 at 11:01:06 PM PDT

Leave it to the Republicans to find a pyramid scheme to make the economy look good.

As a basic premise for this essay I want to talk about investments and what affects their prices. There are some major factors and they are safety, available money and yield. Let’s start with yield. Obviously, the higher the yield, the more the investor will pay. For example, Pfizer was selling for $25.98 on July 13, 2007 and the expected dividend for the next 12 month I s $1.20, that gives a pre-tax yield of 4.62%. Under Clinton, that would have been taxed at 39.4 % and the after tax yield would be $2.80. Under George W. Bush it is taxed at only 15% and if sold after holding it for more than 1 year, the capital gain would be taxed at only 15% or an after tax yield of $3.93 or 40% higher.

So, the investor realizes that he can pay more for that stock and because of the special tax treatment, takes his money out of corporate bonds, which have no special tax rate, and buys stock. Every company’s stock has a 40% higher after tax yield, which means investors will pay more for all stocks, including those on the very visible Dow, S&P500 and the NASDAQ. Keep in mind, nothing got better about these companies to instigate an investor to pay more. The only thing that made him choose to pay more is the special tax treatment.

Now, throw in that there will be extra money lying around from these reduced tax rates, that too will up the prices of everything and it will also affect the Dow, S&P500 and the NASDAQ, with a true increase of the individual companies’ net worth. To the Republicans, the success of the Dow, S&P500 and the Nasdaq, means the success of the economy, but it’s not true.

What do you think happens if the Democrats bring the tax rates back to 39.4%, as they were under Clinton? Each investor will now get less of an after tax yield, so they will pay less causing the Dow, S&P500 and the Nasdaq to plummet downwards, without any lessening of the individual company values, other than stock price. In September 08 I will buy corporate bonds and get out of the market. It would be a good idea that Democrats get this out now so they aren’t blamed for the indexes going down when they take over.

It is so simple that it is sick that nobody has written about this. I can’t believe it took me this long to figure it out.

This "Bush Economy" is one of the worst in history. However, they have disguised their incompetence with tax decreases that are throwing us so deep in debt that we will be paying that interest forever. So, in effect, the minor and temporary increase in the Dow, S&P500 and the Nasdaq will not only go away when the tax laws are changed but the debt created to fund the tax decreases will need to be paid back or we will be paying interest forever. Since we can’t pay it back...you know the rest.

The Bush economy has really gone nowhere. Look at last Friday’s Dow at 13,851. So, let’s take off the tax effect of the 15% bracket. $13,851 less 40%=$13,851-$5,540=$8,311. The Dow on the day George W. Bush took office was $10,700. So, where have we gone?

Even if the tax effect was only half of the increase in yield or 20%, you would have a Dow at $11,081 or a piddling 381 points higher after 6 1/2 years with more money to the wealthiest individuals. So we have gone; nowhere but we’ve created trillions more in Debt. It’s voodoo economics again, and we didn’t see it coming. Because of the fluctuations in the indexes, American companies are no better equipped to make money than they were before the tax decreases and when the tax rate for dividends goes back up to 40% under the Democrats, the indexes will go down but who cares? It will also mean we have stopped the bleeding in the race for the highest National Debt, ever.

With regards to unemployment being an economic indicator, you have to realize from where it is coming. I don’t think for a second that our unemployment rate is 4.5%. I’d believe those figures as much as I believed there were weapons of mass destruction, we will be greeted in the streets of Baghdad with flowers and Dick Cheney has integrity and a conscience. With Bush, Cheney and Rove, there is nothing you can believe.

Welcome back to trickle down, to disguise their inability to think and do what is right and necessary. And do not buy the lower cost of capital bullshit because capital under Old Man Bush was as cheap as could be, with interest rates at 2 and 3% and still there was no investment, which ultimately threw him out of office.

Another temporary stimulus is the Defense spending for the War. That also ups the exchanges and when it is over will cause them to go down.

These are very important concepts that we all need to know and I hope this gets recommended and discussed for days and weeks and right up to the election.


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So, any of you economists want to debunk this?

Yeah, taking on debt that you are never going to pay off in order to get a better return on your money is a great deal. It makes the money basically free.

If I believed in the rapture, I'd have like 5 more credit cards than I do and they'd all be maxed out.

I'm 42, any money the government owes is not being paid back in my lifetime. If it takes the government running up a big debt to ensure my investments do well so be it. I'll make sure I leave enought ot ensure my kid gets off to a good start.

too complicated

I have no idea what he's getting at here. Does he think that the White House has some absolute control over the study of unemployment rates? I just pulled one article off the bat that would indicate otherwise:

http://labor.idaho.gov/news/PressReleas ... fault.aspx

I have no problem with the complaints about debt, but he obviously has it out against capital gains, which I'd disagree with him on. Also, saying that "nothing got better about these companies to instigate an investor to pay more." is quite the assumption.

Also, the other thing we have to keep in mind is how much control the President really has over the economy.

That's not really an excuse for using it as an economic indicator. If the info is bad, and you can't change how it's collected, then don't use it to brag about your shit.

Well, deficit is never good.

It is an assumption, and in some cases it is true, others false. I think his point was that, all things remaining equal, all of the growth in the stock market can be attributed to a simple shift in investments from bonds to stocks, in the same companies, with nothing significant changing in the overall objective health of the companies warranting a higher stock price. The fact, if you take away the tax implications and that explanation for the rise in stock prices, that the stock market has actually DROPPED about 15% under Bush would seem to indicate that even if his assumptions are pretty strong, they would have to be so strong (and wrong) to overcome that 15% number.

The economy is obviously a complicated thing, but this was very educational, IMO, about why the stock market is a shit poor indicator of the overall health of the economy, and yet it is the most well-known indicator among the public, and the proponents of Bush's economic policies tout the growth of the stock market as evidence of the success of those policies.

Also, I'm no economist, and it's one area in this forum where I consistently feel that I learn more than I could ever teach, but it seems to me that the idea of borrowing money that one can never repay in order to realize short-term growth (that may in fact be artificial), is extremely short-sighted.

So what does this mean in the long term then? A lot of people think they have a lot of money that isn't there?

Whether or not it's a good economic indicator (although I tend to think everybody having jobs is at least a positive thing, whether or not it paints the whole picture) is not really as much an issue as, what is he basing his refutation on besides "Bush lied about WMDs and the Iraq War, so he must be making this up too!" Sorry, but "I don't believe this for a second" is not a valid refutation. Most of that article reads like the opinion of any schmuck posting on a message board, though I wouldn't be surprised if the current Republican leadership has destroyed the economy.

I think it's just like selling a $300k house for $200k and saying you're now $200k more wealthy.

Haven't all politicians touted the stock market when it's doing good? I sure recall some Democrats being happy during the dot-com boom.

The stock market alone is not a good factor to rely on, but any single factor rarely is--it's just a piece of the puzzle.



Well, deficit spending is one of the bases of Keynesian fiscal policy, which has dominated the federal gov't since the days of FDR. Of course, Reagan and Bush took it a step further by combining that with the principles of the Laffer curve, hence the rise in the national debt.

EDIT: Sorry, that graph was a lot bigger than I thought.

Here is the graph.

I was reading the implied argument that those statistics are drawn from people applying for unemployment, not actual unemployeed individuals.

Not really. It's more like taking a $200K advance that will be paid off with $300K in the future. But you know you are going to be dead long before the $300K is due so you most definitely are ahead by $200K.

Deficits are good when used wisely. Any year I buy property is a deficit year for me. But there's a plan to pay off the debt that that year's deficit brought.

Governments in general don't worry too much about deficits but rather about debt as a % of GDP. I'm a little hungover and lazy at the moment but I don't think the US's debt to GDP is insanely out of control yet.

That was how I read it as well. There are a lot of people who have been unemployed too long to apply for unemployment benefits, but that doesn't magically make them employed again. Not really a fault of the administration in this case, but still inaccurate statistics nonetheless.

wait a minute, though. I thought the republican party line was to say that all the economic problems we've been experiencing are fallout from the Clinton administration?

so which is it then? good "Bush economy" based on info above etc or bad "Clinton fallout economy" due to Clinton getting blowjobs in the oval office (or whatever equally ludicrous reasoning is behind these ideas)?

It depends. What time is it?

time for a new president, I'm thinking.