Has modern macroeconomics failed us?

Honestly, I only know about a dash of salt's worth of economics between micro and macro, so I read and listen to everything while verifying the data by making my own charts to see what's actually happening.  And so, this post actually was going to be about the relationship between (nominal) GDP and the top marginal tax bracket, because contemporaneously, Bush's tax cuts are set to expire at the end of this year.  It was to be a simple review of what happens to GDP when the top marginal tax rate is increased or decreased, because according to supply-side economic arguments, a high top marginal tax rate would depress job creation and therefore GDP growth.

Well, it's quite obvious from the first diagram (years 1929 - 1949) that a sudden increase of the top marginal tax rate in 1932 did not have a negative effect on GDP growth.  Just look at the second diagram (years 1949 - 1969) when the top marginal tax rate floated between 91% and 92% from 1951 to 1963.  Hardly any of the wide fluctuations of GDP, but particularly, the economy remained relatively positive; it slowed periodically, but it did not show wildly negative growth in GDP from the previous 20 years.  Now, when you look at the third diagram (years 1969 - 1989), you can see that even as the top marginal tax rate plummeted from 77% in 1969 to 28% by 1989, GDP did not respond in any sort of fashion.  Finally, in the fourth chart (years 1989 - 2009), annual GDP growth remained positive, even if relatively flat, particularly if you exclude 2009.  If you look closely at the top marginal rate increase in 1993 from 31% to 39.6%, there is no corresponding ill-effect on GDP growth.  While some people will point to the Bush tax cuts and the subsequent rise in GDP, you can see that by 2005, the GDP growth rate had peaked, and began to fall precipitously thereafter, rendering any connection illegitimate.

Isn't that enough to show that there is no causal relationship between GDP and the top marginal tax rate?

Now step back for a moment and look at all four charts again.  This is where, the original intent of my looking at the data took a big turn.

The purple shaded areas reflect the upper and lower bounds of GDP change.  As expected, with modern macroeconomics, the fluctuations have been minimized, so we no longer see the wild swings of the first period (1929 - 1949).  Each subsequent period shows a smaller range of GDP change.  But it brings up a question we might want to look at.

Do we really want to limit the upper bounds of GDP growth this much?  I understand that the reason for limiting the upper bound is to prevent runaway inflation and the resulting crash of a bubble...but each of those 20 year periods had in fact, had 4 - 3 - 4 - 3 recessions, respectively.  And honestly, we've already seen that modern macroeconomics did not prevent the current massive recession that can only be compared to the Great Depression in terms of scale.

Let's put it this way, if you control GDP, how are we ever going to recover from the current economic malaise? Therein seems to exist the paradox of modern macroeconomics.  By worrying so much about inflation (if you read the predictions of many Conservatives over the past 1.5 years), are we not simply forcing the US to recover slowly?

That scares me a lot.

Oh yeah, and any pundit who says that the top marginal tax rate matters when it comes to job creation is a lying son of a bitch idiot.