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I will start off saying I am on the left on most issues, just to get that out there but I have been thinking a lot about our economy lately and have looked at the view from both sides. Here is how I see it and why I don’t understand where the right is coming from. If I am missing something, please let me know what it is and how it is relevant.
The right want to cut the amount of money the govt is spending, and give tax cuts to large businesses. Now in theory I understand this, but when I think about it practically, here is what I come up with. Right now, the Govt is employing a lot of people. If we cut spending to the point that conservatives want it means cutting a lot of jobs. It also means reducing the assistance going out to people. Now, that will result in more people our of work and unable to spend money in the economy. It also means that people whose assistance is cute, will have less to spend in the economy. That is going to reduce tax revenue. (And I don’t mean just income tax, but also sales tax, etc.). So now we have people hurting, and not buying anything because they can’t afford it. Now on top of this, we cut taxes to large business. This means we have to cut even more from the budget, because that is less revenue from them, causing more unemployment, and more poverty. Business will now have more money, to spend on their business. Here is the thing though. If people aren’t buying, then why are these business going to hire more people. If they are making 1000 widget, and people lose their govt jobs, or assistance, and can only buy 800 widget, why would that company expand and make more of what it can’t sell now? Why would a person open up a restaurant when the people in town can’t afford to eat out. It seems like all this does to me is give large businesses more money to put in their profits. Profits that sit in bank accounts and doesn’t get spent. Now, before you say that these people will spend more and stimulate the economy, that just isn’t true. The top percentage earners already earn more than they can spend. All it does it fatten the coffers Even if they do spend more, there is no way that there are enough of them to stimulate the economy. A study released just recently show that the top 2% earners in this country, earn 50% of the country’s income. There is no way they will spend enough to put enough people back to work.
Lets look at the left. I know spending money is not popular, especially when you don’t have it, but the Govt is not a person. It is there to help in times just like this. If spending increases on things like infrastructure, investment in new technologies, social programs, that is going to put more money into the economy. As long as they do it right, it will put people back to work. Thank those people will go out any buy food and clothes, and in turn cause those business to do more business. Now those businesses will start to grow, now that the re is a market. They will use the money from increased sales to hire more people, because they will need to keep up with the demand. Then the people hired will spend money, etc. Now also the govt tax revenue will increase, from income tax, and sales tax, etc. Once we start seeing that upward trend, then the govt can start cutting back. After the bridges are fixed and the roads are built, we can end those job and the people who were doing them will now be able to find job in those expanding business, or building homes for the people that just went to work making widget, as the demand went up. Now as everything starts to grow again, the govt can go ahead and start paying back all that it took during the hard time.
To me it seems so clear, but if you see something I missed, let me know.
I essentially agree.
However one of the big problems is finding good infrastructure projects. In the 1930's if you wanted to build a highway that would employ hundreds, maybe thousands of people. These days it is done with 8 guys and a big machine or 16 and two big machines.
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Why would a person open up a restaurant when the people in town can’t afford to eat out. It seems like all this does to me is give large businesses more money to put in their profits. Profits that sit in bank accounts and doesn’t get spent.
Here's the disconnect. Is there only one Chili's? Target? Best Buy?
All of those large corporations started out as one store, owned by a small business owner. They expanded precisely because they were profitable. They hired more people which, in turn, created more consumers for all the other companies that make stuff or provide services. And, consequently, created more tax payers, which created more revenue for the government. They most certainly did not just let their profits sit in a bank. And, that argument about large corporations falls down every time a new Chili's, Target or Best Buy (or Exxon station, or new Windows, or new anything) is built.
Money that goes to government to expand government jobs and provide social programs comes at the expense of private business having more capital to expand. The private sector generates wealth, which increases the GDP. Government retards the generation of wealth by slowing the growth of businesses, thereby slowing (or stopping) the growth of the GDP.
The reason a lot of businesses are either not expanding or even being created right now is they are afraid that the cost of doing business will rise to a point that makes their success less probable. Fear that government will put too great a burden on them to profit is what causes the money that would normally go to reinvestment to be put in savings or other non-active places.
The top 2% doesn't spend, they invest. This is why they are the top 2%, they take a longer view of things. Quite a number of that top 2% weren't at one point in their lives. They worked and created something that succeeded and put them there. And right now, the government is creating a huge disincentive to invest. So, being people who take a long view, they aren't exposing their assets at a time when it isn't likely to create a return on that investment.
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Here's the disconnect. Is there only one Chili's? Target? Best Buy?All of those large corporations started out as one store, owned by a small business owner.
While this is true, these business did not start up in a time when people did not have the money to spend on them. There seems to be a misconception that if you do things better you will get the business but that is not true in this day and age. Price is what matters, and small innovative business do not prosper in a bad economy unless they have luck. Will one or two happen to be in the right place at the right time, sure, but most, even thoes with good ideas will not make it, because so few people have the extra money to spend on things they aren't sure about.
Money that goes to government to expand government jobs and provide social programs comes at the expense of private business having more capital to expand.
this is another misconception. Capital is not finite. Banks lend more than they can cover. So does the govt. Spending on social programs does not take from what business can get.
The reason a lot of businesses are either not expanding or even being created right now is they are afraid that the cost of doing business will rise to a point that makes their success less probable.
Here we disagree also, and that may be the reason I see it differently. I'm ok with that, we don’t have to see things the same. I don't know a single business that says, "I have more orders than I can keep up with, but I am not going to hire more people because the govt might raise my taxes" That would be just silly. At the same time, no business is going to expand just because they get a tax break if no one is buying their services. You don’t hire people to do nothing. It is basic economics. Growth of a business is based on the demand for their services.
The top 2% doesn't spend, they invest. This is why they are the top 2%, they take a longer view of things. Quite a number of that top 2% weren't at one point in their lives. They worked and created something that succeeded and put them there. And right now, the government is creating a huge disincentive to invest. So, being people who take a long view, they aren't...
Again, I don't agree with this. I work for a large bank. I work in their Private Wealth Management group. I work with clients everyday who have millions. A lot of them did not work at all to get what they have. A lot do not invest at all themselves. They don’t look at a business and say "hey let me put money there" That is what investment managers do. Yes, the top 2% do let others use their capital, but again, that capital right now in times like this isn't going out to people. It is going to cover balance sheets. Build up reserves for insurance companies and banks. Tax cuts to these 2% doesn’t go back into the economy. We had had low taxes for the past 6 years and all it has done is increase the income disparity.
Thanks houstonderek. I understand a little more of why you see thing a different way, even if I do not agree with it.
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Now we could increase employment by banning trucks on highways, and people can only transport goods by car. Now we have a lot more people employed as transporters of goods then before. Will the economy improve?No, because we are paying 100 people to do the work of what 1 used to do. We are wasting money.
Paying government employees to shuffle paperwork, harass citizens over regulations and count people for the census do nothing to increase wealth. They drain it, because no one is willing to pay for these things voluntarily with their own labor. They have to be paid with taxes.
You need to explain this. You are saying that this drains wealth, but how? Where is it draning to? Is there a hole somewhere wasted wealth goes? If it goes back into the economy, that it is draining right where we need it to go. Would a business be willing to pay 10 people to do the job of 1. No, so if the business did this, you are right, they would be wasting money, but the govt is not a business. At times of recession and slow growth it is there to get things back on track. It does not have to worry about making a profit, as that is not the goal of the govt. The goal is to help its citizens. If that means wasting some money to put the economy back on track, then that is what it should do.
The other flaw is the idea of people have to spend money to get the economy to improve. Now this idea would be true IF people took their savings and stuffed it in their mattresses. But 99.999999% of the people don't do that. Where do they put their money? In banks.What do banks do with the money? They lend it out. Contrary to what Keynesians say, saving money is good for the economy. The money is still getting out into circulation, because banks do lend money. The more money saved, the cheaper it is to borrow, because an increase in supply of savings is an increase in supply of the money available to lend, and when supply increases the cost drops(provided demand does not increase more than supply).
This is true, but as I asid in an earlier post it is true during good econimic times. Interest rate are low now, and there is still little lending. People yell at banks for making risky loans, and then when they stop they yell at banks for not lending money. Banks are vusy building back thier balance sheet and see my post about about businesses taking loans. When there in no demand for thier services/products, businesses are not going to exand and hire regardless of how low interest rates are.
The simple fact of the matter is people can no longer afford the government they have.
This is meaningless in this discussion. It is a catchphrase that dosen't mean anything. just like above about draining wealth. Just talking point with no substance unless you can explain how..
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Can you tell me with certainty that Chili's, for instance, didn't start in, say, 1975, when the economy wasn't in good shape? Or expand during Carter's recession? It did, by the way. It just happened to be lucky enough to exist in a city relatively unaffected by Carter's economy.
Considering that upwards of 80% of all millionaires in America right now were born into the middle class and made their own fortunes, the only thing I can draw from your work anecdote is they don't bank with you.
And you do understand that we are just now coming out of a severe lending crisis, so for the last couple of years there was no capital to lend, right? Also, lending money they didn't have is partially what put banks in the bind they were in until the government bailed them out.
Furthermore, just because the government can defer the cost of their bad policy on future tax payers doesn't mean they have unlimited capital to lend. Capital is, actually, finite. Just because you can pint money doesn't mean you can increase wealth. Inflation takes care of that quickly.
And eventually China is going to stop lending us money if they come to the conclusion that we cannot pay it back. Or start to suffer from the mismanagement of our economy, since we won't be able to afford their goods.
Actually, we've had low taxes since 2001, and we had 4.6% unemployment for most of that time, so someone was investing and keeping job growth going.
As to the "give people money to spend" idea. Well, we've had a few "stimulus" tax rebates in the last few years. Problem is, only short sighted people went and bought the flatscreen (made in Korea, Japan or China, btw, American workers decided to price themselves out of a lot of manufacturing jobs), the rest paid off some of the ridiculous debt they ran up by being consumers first, intelligent money managers second. Easy credit is a piss poor way to run an economy. It tends to go crash and boom when people forget or cannot pay the money they borrowed back. Having a credit balance may be good for you credit score, but it tends to really screw you up if something unforeseen happens.
That is, being a Keynesian in you private life is no wiser than running a government like that.
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I essentially agree.
However one of the big problems is finding good infrastructure projects. In the 1930's if you wanted to build a highway that would employ hundreds, maybe thousands of people. These days it is done with 8 guys and a big machine or 16 and two big machines.
Yes but Local Government is in a Position to return to the mass employment of its 5-10% unemployed rather than contract out to the 8 guys with the big machine. More importantly as a response, it ensures that the income they recieve remains in the local economy longer.
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Yes but Local Government is in a Position to return to the mass employment of its 5-10% unemployed rather than contract out to the 8 guys with the big machine. More importantly as a response, it ensures that the income they recieve remains in the local economy longer.I essentially agree.
However one of the big problems is finding good infrastructure projects. In the 1930's if you wanted to build a highway that would employ hundreds, maybe thousands of people. These days it is done with 8 guys and a big machine or 16 and two big machines.
Do you mean "isn't" in a position to return to mass employment? Because the last time I checked, local govt. contracts went to low bidders (or low-er bidders who still followed the law and didn't pay their workers under the table, or who weren't the recipients of graft or nepotism), in order to save the district/city/county money. 8 guys with one big machine can offer a lower bid than a ton of guys with shovels and buckets because of lower labor costs.
If govt. were altruistic, they could hire people to sweep streets with push-brooms. But Local Govt is totally into fiscal conservativism (unless you are the city of Bell, or any other place where govt. employees steal the money they're supposed to be using to better the community).I agree that Local Govt is capable of creating full employment, but only at a deficit and through inefficient means (unless the Feds bail them out), and I do like the idea of income remaining in the local economy (though there is no way to ensure that nowadays).
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You [noretoc] mentioned capital is not finite, but capital is wealth and wealth is finite. If you are talking about banks creating currency, currency is not wealth, but a means of exchange for two people with wealth to make a trade.
If currency was wealth, the Federal Reserve could solve everything...
Capital is not wealth. Capital is a means to profits - it is the capacity for production as embodied by the means of production and/or investment in such means of production. You are correct, however, that currency is a means of exchange.
I agree with noretoc that capital is not finite, because hypothetically the means of production can continue indefinitely provided with a continuous source of power/labor/material (only the last is finite, though I suppose people are also a finite commodity in the way dinosaurs were), and "capital as investment" (what capital is in the marketplace - an infusion of credit in the hopes of a return of profits/ a.k.a "capital assets" or "capital gains"). What I'm calling profits is also called capital gains.I'm not sure what wealth is. I suppose it is whatever we value, or some vague nebula of capital/profit/power. *Shrugs*
and by "vague nebula of capital/profit/pwr I mean capital+profit+power, but I'm not sure I like that definition. It isn't vague enough.
Taking money from your right pocket to your left does not make you more wealthy.
The government employees and and programs that you are concerned about being removed from the economy are not truly part of the economy, but just an extra cycle of baggage in the system.
The dollar that government employee spends in the economy first came out of the economy when it was taxed away from someone who produced it. Yes, the government paper pusher puts it back into the economy. But that is just moving the money from your left pocket to your right pocket.
If the money had not been confiscated from the earner, it still would have been in the economy.
Yes, there is a need for government workers. And to that extent those functions are just as much a part of the economy as anything else. But, because the working of the taxation system and the perception that taxing does no harm as long as someone else pays it persists, government can and does easily get away with greatly over-employing a large number of do nothing paper pushers. No value is added in these case and not only is the true economy not helped, it is stagnated because the necessity for these individuals to earn their living through providing goods and services of value to other people is removed and replaced with hollow busywork.
If this dead loss is cut out of the system, the value of goods and services produced is not reduced as the OP suggested, but is unaffected initially and ultimately is improved through added necessity.
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Yes, there is a need for government workers. And to that extent those functions are just as much a part of the economy as anything else. But, because the working of the taxation system and the perception that taxing does no harm as long as someone else pays it persists, government can and does easily get away with greatly over-employing a large number of do nothing paper pushers. No value is added in these [case]s and not only is the true economy not helped, it is stagnated because the necessity for these individuals to earn their living through providing goods and services of value to other people is removed and replaced with hollow busywork.
If this dead loss is cut out of the system, the value of goods and services produced is not reduced as the OP suggested, but is unaffected initially and ultimately is improved through added necessity.
The problem with that equation is that labor is currently a surplus commodity. There is no way taking a man's job away from him will help him get another one, no matter his material need. If his neccessity is great enough, such "value added" jobs he may find could include "drug mule," "housebreaker" or "prostitute." Ah, so much more worthy than being a so-called "paper pusher"! [and by the way, are you including the underground economy in your "real economy" when GDP produced by the govt. is not included?]
Necessity alone has never been the creator of value. There are a million refugees in Darfur who can back me up.
Essentially the viewpoint you express is Keynesian. Keynes advocated government spending money to keep employment up and unemployment low. Despite conservative rhetoric, most conservatives in the government are Keynesian.
Here is the problem with Keynes theory though, and why it is failing and the economy continues to slump...people working is not enough. People have to be doing work of value. And what makes something of value? It is this...when someone else is voluntarily willing to pay or trade for it.
Now we could increase employment by banning trucks on highways, and people can only transport goods by car. Now we have a lot more people employed as transporters of goods then before. Will the economy improve?
No, because we are paying 100 people to do the work of what 1 used to do. We are wasting money.
If the economy is under performing from what its GDP has the capacity to be then this is a perfectly good way of increasing wealth. The 100 people driving cars go out and spend the money they got for it at Wal-Mart and the economy begins to recover.
This does become problematic if the economy is running at close to 100% capacity because, once the economy is running at full steam the only way to increase actual wealth becomes improvements in productivity.
To go back to the example say your choosing between 10 people transporting in cars or 1 person transporting things in a truck. The part of interest is what happens to the 9 people who would be transporting stuff if the truck does it instead? If the answer is they sit around doing nothing because there is no work, are getting angry and pass their idle time plotting revolution...well thats bad. If, on the other hand the economy is booming and they will immediately be snapped up to make and then sell designer brand honey to affluent baby boomers then you want to use the truck because because you'll get more products for the society out of the deal (trucks for transport and designer brand honey in this example) which makes the whole society richer.
And eventually China is going to stop lending us money if they come to the conclusion that we cannot pay it back. Or start to suffer from the mismanagement of our economy, since we won't be able to afford their goods.
China can't stop. They lend you the money so that you buy their stuff so that they can employ their vast population. Its an absurd cycle but they are just as addicted to it as you are, absurdity notwithstanding.
Actually, we've had low taxes since 2001, and we had 4.6% unemployment for most of that time, so someone was investing and keeping job growth going.
Part of the problem at this point is a lot of them just lost a big chunk of their investments. There are ways of hiding your money under the mattress without doing exactly that. Store your wealth in 'safe' investments - traditionally gold bars.
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Actually, we've had low taxes since 2001, and we had 4.6% unemployment for most of that time, so someone was investing and keeping job growth going.Part of the problem at this point is a lot of them just lost a big chunk of their investments. There are ways of hiding your money under the mattress without doing exactly that. Store your wealth in 'safe' investments - traditionally gold bars.
Of course they do. Conditions have changed. Same idea a lot of the "fat cats" had in the '30s. That is: if we're going to get blamed for everything, and have our wealth threatened by poor governance, we're going to sit on our dough until something we can make some money pops up."
In the '30s, it was Lend-Lease. I have no idea what the trigger would be now.
People don't invest in growth investments if they don't think there will be growth. People who earned (emphasis on earned, hedge fund managers, stock brokers and bankers are parasites, imo) a jack-load of money tend not to make foolish investments.
As to the safe investments: Gold has gone from $600 an ounce in 2006 (when Dems took over and gold speculation really took off) to over $1300 today. That's a heck of a return for people betting the economy would tank.
Again, with the current administration increasing the cost of doing business, investors who have already made theirs have zero incentive to invest in the economy. This is a point fiscal liberals never seem to get.
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And eventually China is going to stop lending us money if they come to the conclusion that we cannot pay it back. Or start to suffer from the mismanagement of our economy, since we won't be able to afford their goods.China can't stop. They lend you the money so that you buy their stuff so that they can employ their vast population. Its an absurd cycle but they are just as addicted to it as you are, absurdity notwithstanding.
The problem is, eventually they wont have enough money to keep loaning it to us. In spite of noretoc's thoughts on the subject, capital is limited.
noretoc wrote:
I don't know a single business that says, "I have more orders than I can keep up with, but I am not going to hire more people because the govt might raise my taxes" That would be just silly.
How about businesses that won't hire someone to fill orders because doing so incurs having to track expenses for them and add administrative overhead? Or businesses that don't expand because they have to:
1) Make an Americans with Disabilities Act compliant workplace at 10 employees.
2) Have to have a slush fund to cover EEOC complaints because, at 10 employees, they don't reflect the exact demographic mix of their community.
3) Have to hire an additional bookkeeper to handle payroll and paying federal taxes at about 5 employees.
4) Have to spend additional money to pay for environmental impact statements because the business that they were running before (assembling products in a warehouse) was reclassified from "office work" to "light manufacturing" by a regulation change.
5) Have to spend additional money (or face fines) to provide health insurance to employees.
I've worked at a business that deliberately stay at 9 employees and work out gray market deals for weekend work to avoid both conditions 1 and 2.
We currently aren't hiring because while we have the work for one part time employee, that employee would entail that another person work part time in addition to them just to handle their payroll burden...and we'd get our ass in a crack for not giving a health insurance option (#3 and #5)
We broke a lease and moved the business rather than deal with #4.
The fact of the matter is that right now, the banking industry (the segment you work in) has come to the conclusion that lending money to small businesses isn't worthwhile, compared to the profits they can make in other areas.
Why aren't you actively seeking out small businesses to make loans to?
Most small businesses are started in down economic times. A person loses their comfortable job, is hitting the streets on Unemployment Compensation, can't find work, and has harbored a dream all along to Do Something On Their Own. And now they have savings and free time and their idea.
It's estimated that about 1 in 200 people has the fondness for risk needed to start a small business. And it is a risk - six out of seven small businesses fail within five years.
However, more than 90% of Americans work for companies that have fewer than 25 employees. Regulatory burdens that are trivial for large businesses are enormous to smaller ones.
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Can you tell me with certainty that Chili's, for instance, didn't start in, say, 1975, when the economy wasn't in good shape? Or expand during Carter's recession? It did, by the way. It just happened to be lucky enough to exist in a city relatively unaffected by Carter's economy.
Rather than get into what business opened when I will just restate the point is that most people will not take chances to open a new business or expand, when there is no demand for what they will provide.
Furthermore, just because the government can defer the cost of their bad policy on future tax payers doesn't mean they have unlimited capital to lend. Capital is, actually, finite. Just because you can pint money doesn't mean you can increase wealth. Inflation takes care of that quickly.
True (cept the finite part), but we are not at a point where inflation is an issue. Truth be told will all the credit given already, we went through the inflation phase. There isn't much difference between the govt printing new bills, or credit card companies lending crazily, except for the fact that a lot of people won't be able to pay their debts after. The fed right now most likely needs to catch up to wealth with cash. If it does start going the other way they have tools to work with (increasing interest rates). They can't lower them any more now though.
As to the "give people money to spend" idea. Well, we've had a few "stimulus" tax rebates in the last few years. Problem is, only short sighted people went and bought the flatscreen (made in Korea, Japan or China, btw, American workers decided to price themselves out of a lot of manufacturing jobs), the rest paid off some of the ridiculous debt they ran up by being consumers first, intelligent money managers second. Easy credit is a piss poor way to run an economy. It tends to go crash and boom when people forget or cannot pay the money they borrowed back. Having a credit balance may be...
In a regular economy you are right, but not in times like these. The govt will not be giving people money to spend on stuff they don't need. They will be allowing they to pay their bills and buy the stuff they do need. That alone will keep the manufacturers building, the farmers farming, and restaurants cooking. Believe me, people who are hurting, are not buying iphones, they are saving up to replace the refrigerator that broke last year.
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Um, the government already gave the people money to spend on whatever they felt like. In a bad economy. There was no mandate to only spend that money how the government wanted them to.
As an aside, to all of the Keynesian economic philosophy folks out there, take a look at what's going on in Europe right now. The Guardian had a nice article on how the system there is unsustainable, but the regular folk still want to hold onto their dream of "cradle to grave" nanny economics. Riots in Belgium, Spain and Greece because the governments know they can't keep going on like this and the people are crying about it?
I still wonder at our politicians who keep citing the "European Model", even in the face of that model proving to be a mistake...
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Government can't do anything about this, except prolong the stagnation by allowing banks to put off booking their losses. It can't create demand by borrowing more money. Borrowing more money and spending it only creates more debt which will have to be paid off later. And banks are scared to death of making more loans with commercial and home real estate markets tanking.
You use the word stagnate, and it shows you are still thinking about this wrong. You are thinking this is normal economic times where higher growth is the goal. It isn't. The goal of the govt is to prevent another recession, and keep things running to get people back to work. You cant grow a business to get people back to work, when the demand for that business's services aren't there. You get people back to work, and then that creates the demand for those business services.
The mortgage tax credit expires, and home purchases are now falling like a stone. Car purchases are down after cash for clunkers. All the government did is pull demand forward, it did not create any new demand.
Maybe it didn't make new demand for houses, but it did help the economy, because all the people involved of that house sale got paid, and now they can go out and buy goods. If those houses didn't get sold because there was no credit, then the underwriters, the lawyers, the mortgage customer service people, etc, would be out looking for jobs increasing the drain on the market.
It is true that tax cuts don't help the debt problem. Tax cuts only work if the government makes significant spending cuts. With the government borrowing and spending less, more capital becomes available for private business, as Derek pointed out. But even with massive government spending cuts, it will take years to unwind all this debt and it will be very painful. As in riots.
Riots, ok, lets just say that is true, imagine if unemployment rises to 12% because of govt cutbacks. What do you think will happen then?
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Taking money from your right pocket to your left does not make you more wealthy.
The government employees and and programs that you are concerned about being removed from the economy are not truly part of the economy, but just an extra cycle of baggage in the system.
The dollar that government employee spends in the economy first came out of the economy when it was taxed away from someone who produced it. Yes, the government paper pusher puts it back into the economy. But that is just moving the money from your left pocket to your right pocket.
If the money had not been confiscated from the earner, it still would have been in the economy.
Yes, there is a need for government workers. And to that extent those functions are just as much a part of the economy as anything else. But, because the working of the taxation system and the perception that taxing does no harm as long as someone else pays it persists, government can and does easily get away with greatly over-employing a large number of do nothing paper pushers. No value is added in these case and not only is the true economy not helped, it is stagnated because the necessity for these individuals to earn their living through providing goods and services of value to other people is removed and replaced with hollow busywork.
If this dead loss is cut out of the system, the value of goods and services produced is not reduced as the OP suggested, but is unaffected initially and ultimately is improved through added necessity.
This is such a simplistic view, it isn't worth discussing. It hasn't touched upon anything I said earlier.
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Government can't do anything about this, except prolong the stagnation by allowing banks to put off booking their losses. It can't create demand by borrowing more money. Borrowing more money and spending it only creates more debt which will have to be paid off later. And banks are scared to death of making more loans with commercial and home real estate markets tanking.You use the word stagnate, and it shows you are still thinking about this wrong. You are thinking this is normal economic times where higher growth is the goal. It isn't. The goal of the govt is to prevent another recession, and keep things running to get people back to work. You cant grow a business to get people back to work, when the demand for that business's services aren't there. You get people back to work, and then that creates the demand for those business services.
The mortgage tax credit expires, and home purchases are now falling like a stone. Car purchases are down after cash for clunkers. All the government did is pull demand forward, it did not create any new demand.
Maybe it didn't make new demand for houses, but it did help the economy, because all the people involved of that house sale got paid, and now they can go out and buy goods. If those houses didn't get sold because there was no credit, then the underwriters, the lawyers, the mortgage customer service people, etc, would be out looking for jobs increasing the drain on the market.
It is true that tax cuts don't help the debt problem. Tax cuts only work if the government makes significant spending cuts. With the government borrowing and spending less, more capital becomes available for private business, as Derek pointed out. But even with massive government spending cuts, it will take years to unwind all this debt and it will be very painful. As in riots.
Riots, ok, lets just say that is true, imagine if unemployment rises to 12% because of govt cutbacks. What do you think will happen then?
Unemployment went from under eight percent to over ten percent (finally settling at 9.7%) after the government spent nearly a trillion dollars on a "stimulus" package our esteemed president said was needed to keep unemployment under 8%.
So, um, i have no idea what planet you're asking that question from. Government does not stimulate economic growth, the private sector does. Government can only retard growth.
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This is such a simplistic view, it isn't worth discussing. It hasn't touched upon anything I said earlier.Taking money from your right pocket to your left does not make you more wealthy.
The government employees and and programs that you are concerned about being removed from the economy are not truly part of the economy, but just an extra cycle of baggage in the system.
The dollar that government employee spends in the economy first came out of the economy when it was taxed away from someone who produced it. Yes, the government paper pusher puts it back into the economy. But that is just moving the money from your left pocket to your right pocket.
If the money had not been confiscated from the earner, it still would have been in the economy.
Yes, there is a need for government workers. And to that extent those functions are just as much a part of the economy as anything else. But, because the working of the taxation system and the perception that taxing does no harm as long as someone else pays it persists, government can and does easily get away with greatly over-employing a large number of do nothing paper pushers. No value is added in these case and not only is the true economy not helped, it is stagnated because the necessity for these individuals to earn their living through providing goods and services of value to other people is removed and replaced with hollow busywork.
If this dead loss is cut out of the system, the value of goods and services produced is not reduced as the OP suggested, but is unaffected initially and ultimately is improved through added necessity.
The only simplistic view is the one that states a system that is failing in Europe right now, and that the current administration is mightily striving for, is the answer to our economic woes.
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Essentially the viewpoint you express is Keynesian. Keynes advocated government spending money to keep employment up and unemployment low. Despite conservative rhetoric, most conservatives in the government are Keynesian.
Here is the problem with Keynes theory though, and why it is failing and the economy continues to slump...people working is not enough. People have to be doing work of value. And what makes something of value? It is this...when someone else is voluntarily willing to pay or trade for it.
Now we could increase employment by banning trucks on highways, and people can only transport goods by car. Now we have a lot more people employed as transporters of goods then before. Will the economy improve?
No, because we are paying 100 people to do the work of what 1 used to do. We are wasting money.
If the economy is under performing from what its GDP has the capacity to be then this is a perfectly good way of increasing wealth. The 100 people driving cars go out and spend the money they got for it at Wal-Mart and the economy begins to recover.
This does become problematic if the economy is running at close to 100% capacity because, once the economy is running at full steam the only way to increase actual wealth becomes improvements in productivity.
To go back to the example say your choosing between 10 people transporting in cars or 1 person transporting things in a truck. The part of interest is what happens to the 9 people who would be transporting stuff if the truck does it instead? If the answer is they sit around doing nothing because there is no work, are getting angry and pass their idle time plotting revolution...well thats bad. If, on the other hand the economy is booming and they will immediately be snapped up to make and then sell designer brand honey to affluent baby boomers then you want to use the truck because because you'll get more products for the society out of the deal (trucks for transport and designer brand honey in this...
Let's see, one truck driver hauling a 40 foot trailer of good vs. the 100 cars it would take to haul the same amount of goods.
$50k a year for the truck driver vs (and I am being generous that the car drivers would work for minimum wage and mileage) two million dollars a year for the car drivers.
Now multiply that by the number of trucks that normally transport goods vs the number of cars that would be needed to do the same job.
Yeah, the economy would just be singing when all of those businesses went bankrupt paying for shipping...
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Unemployment went from under eight percent to over ten percent (finally settling at 9.7%) after the government spent nearly a trillion dollars on a "stimulus" package our esteemed president said was needed to keep unemployment under 8%.
So, um, i have no idea what planet you're asking that question from. Government does not stimulate economic growth, the private sector does. Government can only retard growth.
You have been doing a good job of discussing things so far, don't start being a jerk now. If you think that the stimulus package caused unemployment to rise you might want to take a look at how an economy works again. Unemployment was rising and it was in response to bad economic decisions made up to three years ago when the housing boom was going. Trying to blame it on stimulus because of the timing is a tactic of people like Rush an Hannity who spend their time making crap up rather than learn how things works. Listen to economists not radio hacks. Economies take a long time to show the effects of changes. That is why it took so long for the the bush cuts and war spending to catch up to us. That is why it took Clinton until the END of his two terms to finally balance the budget. What you see now is a result of things that happened a few years ago. without the stimulus the jobless rate would be a heck of a lot higher. Any economist will tell you that.
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Let's see, one truck driver hauling a 40 foot trailer of good vs. the 100 cars it would take to haul the same amount of goods.
$50k a year for the truck driver vs (and I am being generous that the car drivers would work for minimum wage and mileage) two million dollars a year for the car drivers.
Now multiply that by the number of trucks that normally transport goods vs the number of cars that would be needed to do the same job.
Yeah, the economy would just be singing when all of those businesses went bankrupt paying for shipping..
ok, you have obviously stopped discussing and are now resorting to taking things out of the context they were said just to be sarcastic. Thank for the discussion earlier but I am in no mood to play forum games. I'll drop out now.
Just because you can pint money doesn't mean you can increase wealth. Inflation takes care of that quickly.
My guess is that this is the answer to the US national debt. We won't pay it off, we won't pass it on to our great-grandkids ... we'll just stir up some old fashioned inflation, say a good 3 - 4 % a year and 'outgrow' it ... in about 20 years.
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Unemployment went from under eight percent to over ten percent (finally settling at 9.7%) after the government spent nearly a trillion dollars on a "stimulus" package our esteemed president said was needed to keep unemployment under 8%.
So, um, i have no idea what planet you're asking that question from. Government does not stimulate economic growth, the private sector does. Government can only retard growth.
You have been doing a good job of discussing things so far, don't start being a jerk now. If you think that the stimulus package caused unemployment to rise you might want to take a look at how an economy works again. Unemployment was rising and it was in response to bad economic decisions made up to three years ago when the housing boom was going. Trying to blame it on stimulus because of the timing is a tactic of people like Rush an Hannity who spend their time making crap up rather than learn how things works. Listen to economists not radio hacks. Economies take a long time to show the effects of changes. That is why it took so long for the the bush cuts and war spending to catch up to us. That is why it took Clinton until the END of his two terms to finally balance the budget. What you see now is a result of things that happened a few years ago. without the stimulus the jobless rate would be a heck of a lot higher. Any economist will tell you that.
Actually, only Keynesian economists will tell me that. There are a host of economists (who do not subscribe to Keynes principles) who will tell you quite a different story. Furthermore, the "stimulus" package costs something close to $3 million per (government) job created. And, how, exactly, does studying butterflies in Thailand, or the effect of dengue fever in Kenya (two of the things paid for by stimulus funds, and not nearly the only incredibly pointless things "stimulus" money was spent on) stimulate the US economy?
TARP (which is Bush's fault for signing) and the stimulus package (which didn't do anything to stimulate the real economy) are failures. Caterpillar, the company Obama said would benefit from the stimulus package (and that got exactly zero from the government and laid off 22,000 workers after the bill was passed), is building a plant in China, as the environment here is too hostile to even consider building here (they don't have cap and trade in China, for one).
The reality is, we have no idea what the economy would be like had the government done nothing. You can take the party line (we created jobs! - in congressional districts that don't exist), that's fine, but they dropped the ball.
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Let's see, one truck driver hauling a 40 foot trailer of good vs. the 100 cars it would take to haul the same amount of goods.
$50k a year for the truck driver vs (and I am being generous that the car drivers would work for minimum wage and mileage) two million dollars a year for the car drivers.
Now multiply that by the number of trucks that normally transport goods vs the number of cars that would be needed to do the same job.
Yeah, the economy would just be singing when all of those businesses went bankrupt paying for shipping..
ok, you have obviously stopped discussing and are now resorting to taking things out of the context they were said just to be sarcastic. Thank for the discussion earlier but I am in no mood to play forum games. I'll drop out now.
Nothing was "taken out of context". It was simplified to show how absurd Keynesian thought on the economy and how it works truly is.
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@houstonderek: your analogy about the trucks is kind of "off" because the part of our economy that comprises govt. spending doesn't always behave as the non-governmental part does. If the govt. hired private cars to ship goods, it would not be in the same market as a private company hiring cars to ship goods. They are separate markets, although they are the same overall national-political economy (NPE, and IPE for that matter, too, since that is the overriding, global system). Therefore, private companies would not be going broke because the govt. ships its material via a technologically less efficient means.
If the govt., in order to pay for the cars, chose to increase taxes to the point where the private company could not afford to do business, or if the govt. enforced a monopoly, then yes, the companies would be going broke. But we have not reached that point yet, and at any rate your analogy did not specify that hypothetical case.
Would the govt. itself be going broke? No. Because foreign investment would still be there for us. Furthermore, we'd increase our debt load whether or not we'd see gains in govt. efficiency through using trucks instead of cars because efficiency is not a component of GDP, which (I'm assuming) is what investors look for in the govt. bonds market - an increase in GDP/the potential for such increase, wrapped in a somewhat stable political structure. Investors don't care, ultimately, about efficiency - only if the efficiency increases GDP more than it would otherwise increase.
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Yes but Local Government is in a Position to return to the mass employment of its 5-10% unemployed rather than contract out to the 8 guys with the big machine. More importantly as a response, it ensures that the income they recieve remains in the local economy longer.I essentially agree.
However one of the big problems is finding good infrastructure projects. In the 1930's if you wanted to build a highway that would employ hundreds, maybe thousands of people. These days it is done with 8 guys and a big machine or 16 and two big machines.
Do you mean "isn't" in a position to return to mass employment? Because the last time I checked, local govt. contracts went to low bidders (or low-er bidders who still followed the law and didn't pay their workers under the table, or who weren't the recipients of graft or nepotism), in order to save the district/city/county money. 8 guys with one big machine can offer a lower bid than a ton of guys with shovels and buckets because of lower labor costs.
If govt. were altruistic, they could hire people to sweep streets with push-brooms. But Local Govt is totally into fiscal conservativism (unless you are the city of Bell, or any other place where govt. employees steal the money they're supposed to be using to better the community).
I agree that Local Govt is capable of creating full employment, but only at a deficit and through inefficient means (unless the Feds bail them out), and I do like the idea of income remaining in the local economy (though there is no way to ensure that nowadays).
They use Economic models that undervalue local labour. If your economy is in deficit with full employment, then the resource of labour is being misused. Everyone has the right to an equal share so for companies and governments they are restricted to the use of the resource share of the owners and not the respource share of non owners.
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They use Economic models that undervalue local labour.
I agree.
If your economy is in deficit with full employment, then the resource of labour is being misused.
I agree, but only as a hypothetical case (Soviet Russia in the '80s can serve as a test case). With conditions as they are right now, in the USA of 2010, we don't have full employment. Is it different where you are?
Everyone has the right to an equal share so for companies and governments they are restricted to the use of the resource share of the owners and not the [sic]respource share of non owners.
I am not sure I understand you here. Govt. and companies own capital, whereas I don't (except for being a small shareholder in a company, which makes me a very, very minor capitalist?) What is the "resource share" of the non-owners? Their use of company or govt. property? Their wages - which are currency and not capital?
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@houstonderek: your analogy about the trucks is kind of "off" because the part of our economy that comprises govt. spending doesn't always behave as the non-governmental part does. If the govt. hired private cars to ship goods, it would not be in the same market as a private company hiring cars to ship goods. They are separate markets, although they are the same overall national-political economy (NPE, and IPE for that matter, too, since that is the overriding, global system). Therefore, private companies would not be going broke because the govt. ships its material via a technologically less efficient means.
If the govt., in order to pay for the cars, chose to increase taxes to the point where the private company could not afford to do business, or if the govt. enforced a monopoly, then yes, the companies would be going broke. But we have not reached that point yet, and at any rate your analogy did not specify that hypothetical case.
Would the govt. itself be going broke? No. Because foreign investment would still be there for us. Furthermore, we'd increase our debt load whether or not we'd see gains in govt. efficiency through using trucks instead of cars because efficiency is not a component of GDP, which (I'm assuming) is what investors look for in the govt. bonds market - an increase in GDP/the potential for such increase, wrapped in a somewhat stable political structure. Investors don't care, ultimately, about efficiency - only if the efficiency increases GDP more than it would otherwise increase.
The issue was government outlawing trucking, thus forcing private industry to use smaller vehicles for shipping. Not government itself doing the shipping. Or that's how I understood the hypothesis, anyway.
I find it telling that there was no reply by the OP to my post.
I am largely of the opinion that a visit from TARP officials ladling out money should have been followed up by a visit from the DoJ. If your business is too big to fail, it should merit scrutiny under the Sherman Anti-Trust Act.
Nothing was "taken out of context". It was simplified to show how absurd Keynesian thought on the economy and how it works truly is.Let's see, one truck driver hauling a 40 foot trailer of good vs. the 100 cars it would take to haul the same amount of goods.
$50k a year for the truck driver vs (and I am being generous that the car drivers would work for minimum wage and mileage) two million dollars a year for the car drivers.
Now multiply that by the number of trucks that normally transport goods vs the number of cars that would be needed to do the same job.
Yeah, the economy would just be singing when all of those businesses went bankrupt paying for shipping..
ok, you have obviously stopped discussing and are now resorting to taking things out of the context they were said just to be sarcastic. Thank for the discussion earlier but I am in no mood to play forum games. I'll drop out now.
It was out of context. NPC Dave delved into productivity pointing out that an economy needs to use trucks not cars to generate wealth. I used his example to argue that this is only true if you have an economy running running at 100%.
Your response has nothing to do with wealth generation or productivity at all. Its a meaningless post that just muddies the waters.
I find it telling that there was no reply by the OP to my post.
I am largely of the opinion that a visit from TARP officials ladling out money should have been followed up by a visit from the DoJ. If your business is too big to fail, it should merit scrutiny under the Sherman Anti-Trust Act.
Probably because the OP has no experience with regulation of small businesses. I mean I actually run a small business myself but mine has never been beyond 5 people and I'm Canadian so I don't recognize most of what your talking about.
That said I'll give it a shot...
1) Make an Americans with Disabilities Act compliant workplace at 10 employees.
2) Have to have a slush fund to cover EEOC complaints because, at 10 employees, they don't reflect the exact demographic mix of their community.
3) Have to hire an additional bookkeeper to handle payroll and paying federal taxes at about 5 employees.
4) Have to spend additional money to pay for environmental impact statements because the business that they were running before (assembling products in a warehouse) was reclassified from "office work" to "light manufacturing" by a regulation change.
5) Have to spend additional money (or face fines) to provide health insurance to employees.
1) I'm sure Canada has such regulation but am unclear when it kicks in. On the other hand I believe is a carrot approach - can you write this off or get grants?
2) I don't believe this exists in Canada.3) Never noticed this myself...That said there are a good two weeks of the year that are just a wash for one person as they figure out the taxes. Add roughly a day for every employee. Payroll is about an hour and a half to start and add half an hour per employee per two week period.
4) Thats rough...I have no doubt that any random small business in Canada could have some unfortunate events befall them regarding zoning or other such events. I once had the city come in and replace the street - for months that murdered walk in sales. But this is random 'bad stuff' and not really specific to anything.
5) Universal Healthcare takes care of that in Canada, I'm a bookstore not a healthcare provider.
At a guess I suspect you guys are facing a lot of sticks. In Canada I think its usually more carrots. My store became environmentally compliant because the government gave me a really good deal to do so. That said the state can use carrots because we pay higher taxes. So the state extorts our money off us (in income taxes - business tax is pretty low) and then gets people to follow desired regulations by dangling a carrot in front of us - paid for with our taxes.
Still I'm guessing. I usually only have four people and could be way off as there really is a difference between running a small business with your three employee's and having 10 or 12 people. The dynamic and therefore the setup really changes.
So if the government banned trucks and this in turn required 10X to 100X the number of drivers for transporting goods...here is what happens.1) The cost of transporting goods shoots way up.
2) Everyone now pays much more for goods then they used to.
3) Everyone gets poorer, and has less wealth than before, because they now must spend more of their own wealth and labor/time than they did before in order to get the same amount of goods as before.
4) The people previously unemployed and now employed as transporters of goods using their cars see an increase in their personal wealth, albeit most of that increase will be lost by the much higher costs.This scenario makes all of society disproportionately poorer, in order to increase the relative wealth of a few.
Its not that easy to destroy wealth. Wealth is fundamentally the value of all the goods in a country and future wealth all the goods that will be made. Money is just a means to facilitate barter. This does not destroy wealth - its a wealth transfer.
It can destroy future wealth only by making it uneconomical to create goods in the first place because shipping them is to expensive. Now I agree that take things to an extreme and you have a problem at this level. If everyone has to transport goods in punch buggy's then you'll eventually see businesses close and others will not start new ones. Current wealth remains the same but you stunt future wealth. If its just moving vans instead of 16 wheelers and its likely that transport still happens for almost all goods and we see a wealth transfer from consumers to transporters. A good example of this would be shipping things to Alaska.
So shipping things to Alaska is expensive. The people of Alaska spend more of their money on this transport because of this but the wealth does not vanish - its given to people who do the transporting things to Alaska. If they all happened to live in Alaska (highly doubtful) then Alaska itself would not actually be poorer.
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I love how these discussions give Derek a forum for bashing Europe. ;-)
I will start off saying I am on the left on most issues, just to get that out there but I have been thinking a lot about our economy lately and have looked at the view from both sides. Here is how I see it and why I don’t understand where the right is coming from. If I am missing something, please let me know what it is and how it is relevant.
The right want to cut the amount of money the govt is spending, and give tax cuts to large businesses. Now in theory I understand this, but when I think about it practically, here is what I come up with. Right now, the Govt is employing a lot of people. If we cut spending to the point that conservatives want it means cutting a lot of jobs. It also means reducing the assistance going out to people. Now, that will result in more people our of work and unable to spend money in the economy. It also means that people whose assistance is cute, will have less to spend in the economy. That is going to reduce tax revenue. (And I don’t mean just income tax, but also sales tax, etc.). So now we have people hurting, and not buying anything because they can’t afford it. Now on top of this, we cut taxes to large business. This means we have to cut even more from the budget, because that is less revenue from them, causing more unemployment, and more poverty. Business will now have more money, to spend on their business. Here is the thing though. If people aren’t buying, then why are these business going to hire more people. If they are making 1000 widget, and people lose their govt jobs, or assistance, and can only buy 800 widget, why would that company expand and make more of what it can’t sell now? Why would a person open up a restaurant when the people in town can’t afford to eat out. It seems like all this does to me is give large businesses more money to put in their profits. Profits that sit in bank accounts and doesn’t get spent. Now, before you say that these people will spend more and stimulate the economy, that just isn’t true. The top percentage earners already earn more than they can spend. All it does it fatten the coffers Even if they do spend more, there is no way that there are enough of them to stimulate the economy. A study released just recently show that the top 2% earners in this country, earn 50% of the country’s income. There is no way they will spend enough to put enough people back to work.
Lets look at the left. I know spending money is not popular, especially when you don’t have it, but the Govt is not a person. It is there to help in times just like this. If spending increases on things like infrastructure, investment in new technologies, social programs, that is going to put more money into the economy. As long as they do it right, it will put people back to work. Thank those people will go out any buy food and clothes, and in turn cause those business to do more business. Now those businesses will start to grow, now that the re is a market. They will use the money from increased sales to hire more people, because they will need to keep up with the demand. Then the people hired will spend money, etc. Now also the govt tax revenue will increase, from income tax, and sales tax, etc. Once we start seeing that upward trend, then the govt can start cutting back. After the bridges are fixed and the roads are built, we can end those job and the people who were doing them will now be able to find job in those expanding business, or building homes for the people that just went to work making widget, as the demand went up. Now as everything starts to grow again, the govt can go ahead and start paying back all that it took during the hard time.
To me it seems so clear, but if you see something I missed, let me know.
I am far from an expert in these areas, but it seems to me that the analysis is probably reasonable in the short term but leads to problems in the longer term. In particular, the issue of productivity hasn't really been raised - i.e. how much bang do you get for your buck. If we take the theoretical example of banning trucks, moving freight about the country by car is inefficient - you tie up more capital in cars than you would do in trucks to move the same amount of freight. That's not very clever, since you could invest in trucks, move the same amount of freight, and use some of the resulting excess capital elsewhere to do something else, and thereby increase the value added to the economy through that particular lump of capital.
Government spending (i.e. its use of capital,and indeed other factors of production like labour) tends to be less efficient than in the private sector. The public sector is often more unionised with restrictive practices, or public works are down for reasons of politics rather economics (i.e. pork-barrel). So while that airport in the middle of nowhere might generate a few jobs (and votes), maybe the money could have been better spent elsewhere where they have a greater need to travel infrastructure spending, like crowded urban areas with too few roads, for example. A very good example of wasteful infrastructure spending is Japan, with its "bridges to nowhere" built to please the rural heartlands of the LDP and the construction businesses that rely upon it.
The Japanese construction businesses are also a good example of a vested interest that can be generated through excessive government spending - complexes of private business that attach themselves and become dependant upon government spending, which then spawns lobbyists and all of the issues with campaign finance and so on which can be corrosive to clean politics. And once vested interests are there, what might have been "emergency stimulus" spending might actually never stop for political reasons, leading to yet more unproductive use of capital. It is notoriously difficult to sack civil servants in virtually all countries, for example.
I also think that the notion that capital is not finite is odd. Sure, you can generate capital from profits, so it's not finite in the sense that it can't increase. But it cannot simply be "magicked" out of nowhere. There is a phenomenon known as "crowding out" which suggests that excessive government borrowing increases the cost of borrowing for everyone, since the bedrock of credit pricing is the "risk free rate" of interest represented by government bonds (with private borrowing, at least in wholesale markets, being priced at an amount above that risk free rate). So the more a government borrows and spends, the greater the risk free rate will be (simple supply and demand) and so greater the cost of private borrowing. This will affect investment decisions and some private projects which might not happen as a result, with knock-on effects to employment, wealth-generation and so on.
Instead, the profit motive (generally absent in public policy-making) is often a good motivator to getting improving productivity, and that means private business - the more you sweat your assets, the more profits you make which can be reinvested or returned to investors. That's not to say that private companies cannot make mistakes too - after all, the recent crash was precitipated by private companies getting over-excited about how much money they could make (effectively) from real estate, and before that money was pissed away on dotcom stocks. But by and large, the profit motive is the best way (if not perfect) for allocating resources to ensure that they are most effectively and efficiently put to use.
Consequently, I would suggest that anyone on the Right who proposes the cuts to spending and taxation are using these arguments.
However....
It is hard for anyone who wasn't close to it to realise how close the banking system in several countries (including the US and the UK) came to utter collapse. We are talking about people not being able to take out money or access their savings, and companies being unable to pay their payrolls. Anyone who thinks that shovelling money into the banks in order to prevent their collapse was a bad idea simply has no idea about the potential consequences. The payment of that basically prevented a very, very serious collapse in economic activity that makes the current recession look like a cakewalk. And, of course, things still are bad - a lot of economic activity that was going on has now stopped, with the knock-on effects that have rippled through the international economy.
Under these circumstances, it is not unreasonable for governments to engage in stimulus spending. A government that stands by while its citizens suffer massively in a slump is probably not doing its duty and, as a corollory, would probably be punished at the polls. It simply isn't true that the US stimulus has caused job losses - if the spending hadn't been done, unemployment would be far worse.
The issue is less around whether it should happen, but how and when you stop, because the necessary cuts and tax increases to rebalance the public accounts are painful. If it goes on longer, the more painful and protacted it will be. High taxes to pay down long term goverment debt will reduce long term growth and could be bad (depending on the circumstances, which are currently not clear) for the economy's long term health and all those that work in it. And, of course, in many countries (like then US and the UK) the fiscal and governmental borrowing positions was already pretty dire, which means that a bad situation is made worse by incontinent spending when things were good. (Interestingly, the Right in the US doesn't tend to mention much about Bush and his massive deficit spending programmes, especially on the military.)
So the issue is not very clear cut - continue to stimulate the economy through deficit spending, but rack up such a huge debt that through high interest rates, high taxation and massive debt the long term health of the economy is compromised. Or cut now and suffer massive depression, unemployment and destruction of value that could also damage the economy for years. Or try and get it just right by pursuing a happy medium between the two, but without knowing until it is far too late whether you did the right or the wrong thing.
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I love how these discussions give Derek a forum for bashing Europe. ;-)
I'm not "bashing Europe" as much as I am stating it isn't the Shangri-La the American Left makes it out to be. I am bashing the American Left for completely ignoring what is going on in quite a few parts of Europe, and completely ignoring what European leaders told Obama at the conference in Toronto. Europe is moving towards a somewhat more austere attitude towards government spending, and it's creating some problems with a population not used to having to tighten the belt, hence the issues in Greece, Spain and Belgium recently.
Under these circumstances, it is not unreasonable for governments to engage in stimulus spending. A government that stands by while its citizens suffer massively in a slump is probably not doing its duty and, as a corollory, would probably be punished at the polls. It simply isn't true that the US stimulus has caused job losses - if the spending hadn't been done, unemployment would be far worse.
First of all, you cannot prove a negative. Europe did not engage in a rash of unwise "stimulus" spending, and Europe pulled out of the recession much more quickly than we did, so there is an ample argument that had we done less it may have not hurt.
Second, if you follow the money, not much was actually spent on projects that actually created jobs, nor was much of it spent on growing private business, the engine of economic recovery. Hundreds of the projects weren't even for issues relating to the U.S. economy, unless the breeding habits of butterflies in Thailand somehow created private sector jobs in Nebraska (to use one $1.2 million example of money used from the bill). You can use Google to find more examples of billions of dollars being spent as research grants that do not have anything to do with addressing the causes or relieving the stresses of the economic slump.
Heck, they even touted job creation in congressional districts that do not exist.
And how do you quantify a "saved" job? Considering the private sector has lost nearly four million jobs in the last two years, and unemployment is nearly three points higher than the day the "stimulus package" was passed, allowing some school districts and police forces to continue a scheduled raise does not count as "saving jobs". And when the American people are flat out told that if a bill isn't passed, unemployment will go above 8%, and if it is passed, it won't, it is perfectly acceptable to declare the bill a failure when it does not do what we were promised it would. At a cost of nearly a trillion dollars.
Its worth pointing out that a large country like the United States hurts a great deal less from the government borrowing money then does a small country like Croatia. The reason is that the government borrows money - but from who? Well investors of course - but those investors are often citizens of the USA (and rarely citizens of Croatia). Hence, once the US has to raise taxes and pay off the debt its paying off mostly its own citizens who cash out their profits and then spend them...mainly by reinvesting in America.
So a country like Germany, America or the UK is capable of going far deeper down the rabbit whole of debt then is one like Croatia or Greece because the wealth mainly stays in the actual country.
Sure no one wants to pay their taxes to some fat cat investor...but then its mainly the fat cat investor that pays the most taxes in the first place.
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Its worth pointing out that a large country like the United States hurts a great deal less from the government borrowing money then does a small country like Croatia. The reason is that the government borrows money - but from who? Well investors of course - but those investors are often citizens of the USA (and rarely citizens of Croatia). Hence, once the US has to raise taxes and pay off the debt its paying off mostly its own citizens who cash out their profits and then spend them...mainly by reinvesting in America.
So a country like Germany, America or the UK is capable of going far deeper down the rabbit whole of debt then is one like Croatia or Greece because the wealth mainly stays in the actual country.
Sure no one wants to pay their taxes to some fat cat investor...but then its mainly the fat cat investor that pays the most taxes in the first place.
We're borrowing heavily from China right now. Domestic T-Bonds aren't covering a nearly trillion dollar deficit. Domestic investors aren't going to lend money at those anemic rates, and there aren't enough kids getting a $50 T-bill from grandma to keep the machine oiled.
First of all, you cannot prove a negative. Europe did not engage in a rash of unwise "stimulus" spending, and Europe pulled out of the recession much more quickly than we did, so there is an ample argument that had we done less it may have not hurt.
I don't think they are really all that comparable. A lot of big banks got drunk on the American housing boom. There was some pretty bad hangovers after that binge and many nation states will be dealing with this for a long time. But for most nation states this whole thing is a banking sector crisis followed by the economic downturn of Americans not buying as much as they used too.
For America itself there is the bank crisis, but its much deeper because it represented a higher percentage of their business activity - everything was going on in their back yard after all. But there is also the actual physical problem of massively slumping housing markets and the fact that huge numbers of average Americans are deep in personal debt and can't spend like they used too because they need to unwind that debt.
Sure the crisis ignited fire storms in a few places - Iceland, Ireland and Greece probably more significantly then other areas but these are places where either the banking crisis was completely out of proportion to the population (Ireland, Iceland) or where the rising cost of debt unveiled a completely unsustainable system (Greece).
Germany can come out pretty easily - once they deal with a banking crisis they are on to business as usual except that Americans can't afford to buy really well made German cars. Americans need to unwind a lot of personal debt before things get back toward normal.