Economics

[SEGsby]

Did you also plan for the devaluation of your currency next year, based on how much money the government has pumped into the economy to keep it from stalling?

Hyperinflation isn't pretty.

[paddler13]

There is no chance of hyperinflation, the economy's so depressed and we're at a zero-bound. Inflation fears are way overhyped. Another year or two won't do much to the currency.

If anything the government isn't pumping enough money, right now they are the only source since we're bumping the zero-bound limit.

[KarenRei]

Agreed. Inflation is a threat *after* the economy recovers if we don't make serious efforts to pay down our debt. Right now, not so much.

[paddler13]

And even the current debt is less of a problem than the sluggish economy. The government can afford debt right now because the gov't is the only entity that can make big investments given current credit conditions. The key is making those investments in the right ways, not tax cuts for example, that stimulate other activity and/or create jobs directly. Once the economy picks up the debt can be taken down over time, as long as Republicans don't see every uptick in the economy as an opportunity to cut rich people's taxes.

[jstdadd]

The key is making those investments in the right ways, not tax cuts for example, that stimulate other activity and/or create jobs directly.

Funny, I thought all this time that job creation was fundamental to breaking a recession.

What are the 'right ways', exactly. My dollar value is falling rapidly!

[paddler13]

Well, providing funds to companies like Aptera for one:happy0005: but also ensuring that unemployment is extended, so people can remain stable while looking for work, funding infrastructure projects which create jobs in regions that need it and also provide work to existing companies that may otherwise go under. That carries companies through the lean time so they are still around when things pick up.

Tax cuts, especially the foolishness of the last 8 years, inordinately go to the very wealthy who don't need it and who most assuredly don't invest it in the economy, especially in times like these. The best way to stimulate the economy is to get money into the hands of working people who are more likely to actually spend it locally and keep their local economies going.

None of this will happen right now through the private sector because cutting jobs is more profitable than investing in new equipment with little work available. The government is the only one able to invest right now and the bankers, damn them, are simply using the ridiculous stimulus money (from both bush and Obama) to float ever more risky investment schemes rather than putting it back into the working economy through expanded credit.

[jdbgn]

Funny, I thought all this time that job creation was fundamental to breaking a recession.

What are the 'right ways', exactly. My dollar value is falling rapidly!
Are you actually holding dollars?
A truly bad bet.

[jstdadd]

Well, providing funds to companies like Aptera for one:happy0005: but also ensuring that unemployment is extended, so people can remain stable while looking for work, funding infrastructure projects which create jobs in regions that need it and also provide work to existing companies that may otherwise go under. That carries companies through the lean time so they are still around when things pick up.

Tax cuts, especially the foolishness of the last 8 years, inordinately go to the very wealthy who don't need it and who most assuredly don't invest it in the economy, especially in times like these. The best way to stimulate the economy is to get money into the hands of working people who are more likely to actually spend it locally and keep their local economies going.

None of this will happen right now through the private sector because cutting jobs is more profitable than investing in new equipment with little work available. The government is the only one able to invest right now and the bankers, damn them, are simply using the ridiculous stimulus money (from both bush and Obama) to float ever more risky investment schemes rather than putting it back into the working economy through expanded credit.

Let me get this straight:

1) Cutting taxes, which adds jobs, is bad.
2) Extending unemployment, which drives government entities further off budget and further into debt, is good.
3) Funding infrastructure creates jobs in areas that need it... Have you heard of John Murtha airport (http://www.politico.com/news/stories/0909/27286.html)?
4) The government is the only one able to invest right now...Which gets all of its money by taxing working people, who then can not spend it to buy goods in the economy.
5) Tax cuts go to the 'very wealthy who don't need it'...who own the businesses and invest in the startup ventures. Just let the government take their money and let the lawmakers decide where to 'invest' it.

No doubt fixing infrastructure is a valuable thing...but large government giveaways with politicians looking to direct that money to friends and contributors, rather than methodically planned improvements, is hugely wasteful.

And, finally, I was always assuming that it was the wealthy who provided investment capital, accepting risk for the possibility of reward; I was unaware that Government's preferred direction of the taxes collected was to provide investment capital into the free market system. I always thought government was there to provide for the necessities of public protection, justice and defense. Imagine how enlightened I now feel.

I have now learned so much about the progressive economics of big government, I think I'll go shake my head and laugh myself into a pool of jiggling gelatinous goo.:rolleye0003:

[jstdadd]

Are you actually holding dollars?
A truly bad bet.

Precisely my point (sarcastically made). I wish I could get my boss to pay me in Gold stocks. I wonder if I can get a gold indexed employment contract? You know, ask for pay in ounces of gold per pay period? Hmmm?

[cjcanet]

Did you also plan for the devaluation of your currency next year,


90% of my savings are not in US currency, so no I'm not planning on much devaluation :doublethumbs:

[jstdadd]

And even the current debt is less of a problem than the sluggish economy. The government can afford debt right now because the gov't is the only entity that can make big investments given current credit conditions. The key is making those investments in the right ways, not tax cuts for example, that stimulate other activity and/or create jobs directly. Once the economy picks up the debt can be taken down over time, as long as Republicans don't see every uptick in the economy as an opportunity to cut rich people's taxes.

You say that the government 'can afford debt'. When the government takes on debt, what does the government provide as surety? Because the federal government doesn't actually make anything or provide services for income.

[KarenRei]

What's more "surety" than taxation, apart from death?

[DonC]

Let me get this straight:

1) Cutting taxes, which adds jobs, is bad.
2) Extending unemployment, which drives government entities further off budget and further into debt, is good.
3) Funding infrastructure creates jobs in areas that need it... Have you heard of John Murtha airport (http://www.politico.com/news/stories/0909/27286.html)?
4) The government is the only one able to invest right now...Which gets all of its money by taxing working people, who then can not spend it to buy goods in the economy.
5) Tax cuts go to the 'very wealthy who don't need it'...who own the businesses and invest in the startup ventures. Just let the government take their money and let the lawmakers decide where to 'invest' it.

No doubt fixing infrastructure is a valuable thing...but large government giveaways with politicians looking to direct that money to friends and contributors, rather than methodically planned improvements, is hugely wasteful.

And, finally, I was always assuming that it was the wealthy who provided investment capital, accepting risk for the possibility of reward; I was unaware that Government's preferred direction of the taxes collected was to provide investment capital into the free market system. I always thought government was there to provide for the necessities of public protection, justice and defense. Imagine how enlightened I now feel.

I have now learned so much about the progressive economics of big government, I think I'll go shake my head and laugh myself into a pool of jiggling gelatinous goo.:rolleye0003:
Tax cuts do not create jobs. Companies create jobs. Whether a tax cut will cause the private sector to create more jobs depends on a number of factors, the two most important of which are aggregate demand and supply. When you're in a situation like we are currently, with demand falling short of productive capacity, tax cuts are just plain stupid, as demonstrated by the tax cuts in the stimulus package -- they ended up in savings accounts -- which was definitely not what we needed.

As for the idea of trickle down, at this point it's well established that the best way to ignite economic growth is through a flatter income distribution. It should be obvious why this is the case, but if it's not, just think how a growing middle class leads to more demand for goods and services, which leads to more production, which leads to more jobs, etc. etc. Basically Say's Law is something of a wet dream. In this environment, given the propensity to spend, the best fiscal policy would be to cut payroll taxes and raise marginal income tax rates and the capital gains rate (better for all time would be to simply eliminate capital gains, there is no economic justification for it).

Finally, before we get all teary eyed about the virtues of investment by the private sector, let's not forget the most recent debacle, brought to us by the great investments in residential and commercial real estate. Had all that stupid money been drained from circulation and "invested" by the government in research in any number of areas, we'd be far better off than we are now. Not only has the efficient market hypothesis proven to be the emperor with no clothes, the "Bad Government/Good Private Sector" dichotomy seems highly strained at the least.

No offense, but the uncritical acceptance of rank gibberish created daily by faux economists like Arthur Laffer, and then repeated by the WSJ Editorial Board and Fox News, makes my eyes roll involuntarily. :rolleye0018:

[NeilBlanchard]

Hi,

Let me get this straight:

1) Cutting taxes, which adds jobs, is bad.

So, are you advocating for more trickle down economics? Yeah, that worked so well when Reagan and Bush did it -- NOT! The rich get richer...and that's about it. And talk about deficits!

"Trickle Down" from "You've Never Seen Everything":

Picture on magazine boardroom pop star
Pinstripe prophet of peckerhead greed
You say 'Trust me with the money -- the keys to the universe'
Trickle down will give us everything we need

Brand new century private penitentiary
bank vault utopia padded for the few
And it's tumours for the masses coughing for the masses
Earphones for the masses and they all serve you

Trickle down give /em the business
Trickle down supposed to give us the goods
Cups held out to catch a bit of the bounty
Trickle down everywhere trickle down blood

What used to pass for education now looks more like ignoration
Take the peoples money and slip it to the corporation
Yellow rain golden shower pesticide firepower
Summon feudal demons of sweatshop subjugation

Workfare foul air homeless beggars everywhere
Picturephone aristocrats lounge around the pool
Captains of industry smiling beneficently
Leaking hole supertanker ship of fools

Trickle down give me the business
Trickle down supposed to give us the goods
Cups held out to catch a bit of the bounty
Trickle down everywhere trickle down blood

Take over takedown big bucks shakedown
Schoolyard pusher offer anything-for-profit
First got to privatize then you get to piratize
Hooked on avarice- how do we get off it?

Trickle down give me the business
Trickle down supposed to give us the goods
Cups held out to catch a bit of the bounty
Trickle down everywhere trickle down blood

Trickle down give me the business
Trickle down supposed to give us the goods
Cups held out to catch a bit of the bounty
Trickle down everywhere trickle down blood

Trickle down

Edit: Listen here: http://mog.com/music/Bruce_Cockburn/You%27ve_Never_Seen_Everything/Trickle_Down

[chijayhawker]

Here here NeilBlanchard! Like the poem/song as well. Supply-side economics continues to prove that it just doesn't work. Walk into any superstore, like an Ikea, and look at the shelves full of stuff, such as a red and white stripped placemat or whatever. How many people want that? Do people want to have what others have? Don' get to be unique that way. Don't have a job to buy a basket full of the same item of which you only need one? Imagine that. It sits in the basket, and then maybe eventually it is put on sale so you can't even make a profit on it, since you have too many. Doesn't make sense to me. Since there are so few (ridicoulously few) weatlhy people, can they buy that basketfull of stuff? Why should they? They only need one too. They have so much money they just let sit in some investment, which is wise. But it sure doesn't create a single job, except for some other rich guy who's investing it for them in some scam of an investment, like a Bernie Madoff. The rich eating off the riches of the rich. It never trickles down.

[DonC]

Since there are so few (ridicoulously few) weatlhy people, can they buy that basketfull of stuff? Why should they? They only need one too.
That about sums up the theory of marginal propensity to consume. The lower the income level the more likely someone is to spend all new income because they don't have a basketful of stuff at home.

The nature of the tax cut is also important even for lower income individuals. One time checks -- like the tax rebates from last year -- are considered windfalls and generally are saved. Other cuts are considered permanent and are spent.

But the important point is that the "tax cuts create jobs" mantra is justified by neither theory nor evidence.

[KarenRei]

Actually, it is. The problem is that there's a poor multiplier on it. And early in this downturn, it was an especially poor multiplier because of the propensity to save. If I remember the figures right, the CBO pegged the multiplier on tax cuts at 0.8x, where as directly hiring the poor and middle class was about 2.3x.

[DonC]

Actually, it is. The problem is that there's a poor multiplier on it. And early in this downturn, it was an especially poor multiplier because of the propensity to save. If I remember the figures right, the CBO pegged the multiplier on tax cuts at 0.8x, where as directly hiring the poor and middle class was about 2.3x.
In the long run it all gets spent. However, as Keynes observed, in the long run we're all dead. About 20% of the 2008 rebate was spent in 2008.

I don't think the CBO was willing to sign off on estimated multipliers. Too squishy. The estimated multiplier for the Bush tax cuts was .23 or something, but that was estimated by Moody's.

When you're in a liquidity trap any spending is a good thing. But in the longer term it makes a huge difference how the money was spent. Private investment is usually superior but that's not a given. The cash for clunkers program worked but we would have gotten a much larger multiplier if the money had been spent on research as originally envisioned.