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Barney Frank: Hero


There've been some depressing forecasts coming out of Davos:

Harvard economist Kenneth Rogoff kicked off the Wednesday discussion with a simple, depressing argument: The banking collapse is morphing into a long-term crisis of government debt. Instead of financial panic, we now face an "illusion of normalcy," with governments stepping in to guarantee everything. They've succeeded in fending off another Great Depression -- great! -- but at the cost of skyrocketing debt. And if history is any guide, he said, financial crises are often followed precisely by a wave of sovereign debt crises a few years later. "In countries like the United States and Britain, I'm not talking about default, but we certainly may have to see very painful political crises," Rogoff predicted, "belt tightening, higher taxes, slower growth."

Rogoff, a former chief economist at the International Monetary Fund, believes we're fooling ourselves if we think otherwise: "We may tell ourselves we're better, we've figured things out … we’re different. I submit to you: We're not."

Barney Frank, who attended the session, thought he spied the answer in the wallets of the audience. "I think almost every American here pays much less in taxes than you ought to," he told the assemblage. "I'm going to go back and try to raise the taxes of most of the people who attended here."

And this is why people love Barney Frank.

Photo credit: By Virginia Mayo/Associated Press

By Ezra Klein  |  February 1, 2010; 12:02 PM ET
Categories:  Taxes  
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It's also why some people think he's an idiot. You could tax the rich 100% and still not even make a dent in the fiscal picture. If higher taxes are needed, they will have to come from the middle class because it's the only pool large enough to tap. Soaking the rich may make for great PR but it's a phony strategy.

Posted by: sjkonig | February 1, 2010 12:27 PM | Report abuse

Taxing the rich more isnt a panacea to solving all the problems of the country today, to be sure, but it needs to be done nonetheless. To argue otherwise is exactly how some argue for spending on every nonsensical item that comes along, "oh hell the deficit is already X, why dont we build another monument to Jefferson Davis" or what have you.

Having said all that, good luck to Barney Frank though I'm skeptical that all of these tax increases get out of the Senate. As always, the House is on the side of the angels and the Senate is where God's will goes to die.

Posted by: zeppelin003 | February 1, 2010 12:34 PM | Report abuse

See, there is a notion that Tea Party is the solution to this 'debt crisis'. When you have their patron saint Roger Allen throwing 'constitution' against any worthwhile bill; these guys are perpetuating myth that 'opposition' (in this case Republican) has the solution to this debt crisis.

That is false.

Moreover, Bush rein is a living proof of that - unfunded wars, tax cuts and entitlement expansion. Time for Eric Cantor to ‘walk the talk’ that GOP is not just party of NO.

Gullible (admittedly fool) folks like me want to punish Dems for their failure of governance, but we are raped. The other party is going to be equally bad or worse.

I guess that is how the 'classic route' to political crisis is paved. It is the same thing how people kept asking Tom Friedman about 'political instability in USA' at Davos.

It seems, country like USA and its politics have traded place with a country like India of past where the politics was totally destructive for around 2 decades till mid 1990s and only after losing 2 decades, things bottomed out. In USA, it seems we are probably only one third done on that route.

Posted by: umesh409 | February 1, 2010 12:39 PM | Report abuse

Barney Frank is honest about how he sees the world, and I applaud that.

I think he's 100% wrong when he says "I think almost every American here pays much less in taxes than you ought to" in almost every way. I could not disagree with him more profoundly than if he were a big Pharma CEO looking at how much it costs to develop a particular cancer treatment and he decided to tell the patients that he thought they were all paying ten times less than they ought to be.

I do love Barney Frank, though I would vote against him in a heartbeat. Good lord, "every American here pays much less in taxes that you ought to". So we're going to take that money, so you don't start new businesses, hire new people, contract for work that requires other businesses hire new people, etc., etc. Seriously.

But, then, most Republicans think that's what every Democrat thinks--raise taxes, spend recklessly, richly reward yourself and your cronies with said tax revenue, and life will be good. Barney pretty much says it straight out, and, for that, he is to be saluted.

Godspeed to you, Mr. Frank.

Posted by: Kevin_Willis | February 1, 2010 12:49 PM | Report abuse

Kevin Willis- the trickle down theory that lower taxes on the rich ultimately benefit everybody has been disproven many times. I work in finance- I know a thing or two about this stuff. So I'm curious as to why you are pushing an idea that has been shown not to work? To me it just looks like a selective ability to deal with facts.

Posted by: Quant | February 1, 2010 1:06 PM | Report abuse

In 2009, this whole point about costs of stimulus was already taken into account in various blogs (both Krugman and my own for example). The next step in this thinking process on costs vs. benefits occurs to those who have thought along this line.

You do a stimulus on the expectation that the larger GDP (on net) from the stimulus 3 and 5 years out -- vs. not having a stimulus -- that this GDP delta is what pays for the stimulus. Ergo, the stimulus likely pays for itself over time.

That's if the stimulus is well designed enough to result in a larger GDP 3, 5 and 7 years out than would have been without the stimulus. Now, there are good reasons to expect exactly this result, especially for certain kinds of stimulus spending. It is not hard to pinpoint certain kinds of stimulus that are investment return types of spending, and have this property.

Which kinds of stimulus were best (for this precise reason) were one issue I addressed on my blog.

Rogoff is a top economist, but any economist can blunder into territory where he/she hasn't done enough thinking/reading.

Posted by: HalHorvath | February 1, 2010 1:06 PM | Report abuse

Re my post just above.

It's like we are doing a slow motion education of the general "policy" types.

They are proceeding, slowly, like a glacier, along the thinking process.

This is step 2.

Steps 3 and 4 are already thought out, but the general policy types are still just getting step 2.

Posted by: HalHorvath | February 1, 2010 1:10 PM | Report abuse

Ezra - I read the most depressing diary over on DKos this weekend
on Elizabeth Warren's analysis of the hollowing out of the middle class.
The changes in society since 1970 where families now with two children and two incomes are saving less, in much greater debt, more likely to file for bankruptcy, and in greater debt than one income families of the 1970s.
Her reason - the huge increase in the percent of income spent on fixed expenses (housing, taxes, healthcare) - in fact, price of food, clothing, appliances, cars, have all decreased significantly since 1970.

So - what is the solution? Is it higher taxes on the rich, per Barney Frank?
What on earth can we do to make housing a smaller portion of a family's expenses?

Posted by: KDID | February 1, 2010 1:14 PM | Report abuse


I'm afraid we'll have to agree to disagree. I'm not looking to convince you of anything.

I appreciate that you work in finance. I don't doubt there is a lot of earnest thought and study that's gone into your conclusion that "trickled-down" is disproven and discredited.

I've worked in small business. I've seen the negative impact of tax hikes and positive benefit of tax cuts. I've seen the burden of over-regulation lead to layoffs or a reduction of capital expenditures. I've seen reductions in capital expenditures lead to a reduction in investment. I've seen a reduction in investment lead to entire businesses folding, and everybody there losing their job.

I've heard the assertion that trickle down is discredited been made, but nothing has proved it to my satisfaction (and, perhaps due to my willful ignorance or rabid partisanship, nothing can ever convince me). Frankly, the arguments I've seen have seemed transparently selective in order to reach a clearly pre-determined conclusion.

The idea that people and businesses having money to spend isn't a positive factor in economic growth seems, um, counter-intutive to me. And letting people keep more of the money they earn simply means there is more money in the private sector to be spent on things such as employing folks, contracting for services, donating to charity, etc.

Tax cuts for everybody (or, "trickle down"--although, frankly, I think trickle down is an understatement for the growth that happens at every level when taxes are cut) puts more money in the private economy, and that leads to private sector growth that benefits everybody. And it also leads to an increase to gross tax revenues, just as over-taxation leads to a reduction in tax revenues as the economy is choked.

Of course, I understand that most people here are not receptive to that argument, and I do understand why.

And, frankly, the folks who disagree with me now run everything. If you can't get it done with those kinds of majorities, that ain't my fault. ;)

Posted by: Kevin_Willis | February 1, 2010 1:27 PM | Report abuse

Barney Frank: Villain

How are higher taxes going to help us to compete against other countries? We need to make it so that people want to make their profits here instead of places where there is a lower tax burden.

Here, we have Barney Frank, a deluded smart guy in charge of driving up the price of housing via risky taxpayer backed loans, which means we have a higher cost of living, which means we have to have wage inflation to support it, which means more jobs go to cheaper labor markets. No matter how much he wants to don his Robin Hood mask and tights and take my money to give to others to pay for overpriced, premium health services, he is no hero.

Frank has changed course recently, he has recognized the moral hazard caused by the implicit government backing of Fannie and Freddie, but he was so wrong before that his refusal to admit it is causing him to act in weird ways, given the current realities.

Posted by: staticvars | February 1, 2010 1:48 PM | Report abuse

Barney Frank's comment shows his fundamental ignorance of the way a modern economy functions. Taxes do NOT "fund," government spending in any way, shape, or form. Governments tax citizens in order to regulate aggregate demand and maintain the desired balance between public and private sector activity. Increasing or decreasing taxes are ways for the government to reduce or increase the purchasing power held by the non-government sector. Raising taxes can be best understood as a means to reduce the liquidity of individuals in the private sector. This is an appropriate course of action to take when the economy is close to full employment and utilization rates are near capacity. To imply that the United States is anywhere near that situation now is pure lunacy and merely shows how unfit Barney Frank is to be in a leadership position. For more on the way taxation actually works in a modern economy see here:

Posted by: nklein1553 | February 1, 2010 1:54 PM | Report abuse

Kevin Willis- the trickle down theory that lower taxes on the rich ultimately benefit everybody has been disproven many times. I work in finance- I know a thing or two about this stuff. So I'm curious as to why you are pushing an idea that has been shown not to work? To me it just looks like a selective ability to deal with facts.


Yes, since the only folks still shilling that snake oil are either hucksters or rubes, I'm curious which category Kevin Willis falls into. Funny how it's only the US that operates under these magical economic rules that have been debunked in every other system on the planet.

Posted by: antontuffnell | February 1, 2010 2:10 PM | Report abuse

"I've worked in small business."

Oh, boy. Here we go...

At least he's reading Klein. Maybe he'll learn something.

Posted by: antontuffnell | February 1, 2010 2:11 PM | Report abuse

Kevin Willis writes "Frankly, I think trickle down is an understatement for the growth that happens at every level when taxes are cut."

I think Willis falls into the "rube" category. How many times has Ezra pointed to evidence that middle class incomes have barely grown at all over the past 20 years? But Willis still desperately clings to the "growth at every level" fantasy sold to him by the hucksters.

Posted by: steveandshelley | February 1, 2010 2:19 PM | Report abuse

And as for Harvard economist Kenneth Rogoff pontificating about the possibility of a U.S. default; he really needs to get a grip. Insolvency is simply not possible for a country that is sovereign in its own currency. Full stop. Ezra, you need to stop giving these deficit terrorists a platform for their fear mongering and start educating yourself about the way a modern economy operates under a non-convertible, floating exchange rate fiat money system. I suggest starting here:

Posted by: nklein1553 | February 1, 2010 2:21 PM | Report abuse

I'm definitely a rube. But thanks for your earnest efforts to educate me.

Most interesting @antontuffnel:

"'I've worked in small business.'

Oh, boy. Here we go..."

I find it interesting that, having worked in numerous small businesses disqualifies me from having an opinion on the effect that taxation and regulation have on the private sector. Perhaps it does.

Certainly, I'm not so foolhardy as to make an attempt to convert anybody here to the virtues of supply side economics. And my main point, in the context of this article, as I admire Barney Frank's straightforwardness on the issue.

Posted by: Kevin_Willis | February 1, 2010 2:43 PM | Report abuse

I believe that the expiration of the 35% highest marginal tax rate and return to the 39.6% marginal tax rate should be coupled with a reduction of the corporate tax rate.

America now has the second highest corporate tax rate in the world and we are not competitive as other nations have reduced corporate taxes to draw companties to their jurisdictions. If we are going to increase some income taxes, scaring off some of the best and brightest from around the world, America should offset it with reductions on the corporate tax rate to draw employers from competitve nations around the world.

Posted by: lancediverson | February 1, 2010 3:14 PM | Report abuse

"And this is why people love Barney Frank."

Yep, pretty much. (I defy anyone to make it through a chapter of his bio w/o fits of appreciative laughter.)

Posted by: jes7 | February 2, 2010 8:13 PM | Report abuse

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