[quote=“Dr. McCoy”]To me, the Keynesian ideas are:
Austerity measures during a recession are counter-productive.
Tax increases during a recession are counter-productive.
Spend during recessions, cut down when times are good.[/quote]
Isn’t #2 just a conservative talking point? I doubt any liberal agrees with this.
Concerning #3, if you never actually cut down when times are good but rather spend during recessions and then spend during good times does that mean Keynesianism has never actually be tried or is “cutting down when times are good” optional under Keynesianism?
[quote=“Winston Smith”]Eight pages of debate concerning the proposition “Keynesian Economics is Wrong or Right” and I can’t say I’m entirely sure what the neo-Keynesian proposition actually is. On the off chance I’m not the only one who is confused here’s my best shot at nailing down the core neo-Keynesian argument:
[i]Economies in the U.S. and EU have seized up because of widespread capitalist malfeasance which led to an unprecedented loss of consumer and business confidence. High levels of national debt, debt to GDP ratios or other structural phenomena are not contributory causes.[/quote]
Not to the current recession, no- it’s simply demand driven.
Well, not lack of confidence- it’s the Romneys of this world that believe in the Confidence Fairy- but lack of consumer demand.
There’s no illusion that the stimulus (which is over) didn’t work- there’s a combination of delusion and deception that wrongly claims it didn’t.
National debt matters in the long run; printing money to pay it off when the economy is running strongly causes inflation, and it has a crowding-out effect during peaks of the business cycle.
What you have to do then is to use the economic surplus generated during the boom and apply it to the debt. Unfortunately, the last time that situation happened (Clintonomics) conservatives looked at the surplus and screamed that the government was greedily too much taking money. So, they decided to use it on tax cuts for the wealthy instead of paying down the debt and setting aside money for future entitlements.
[quote=“MikeN”]A simple chart to explain it all for you.
en.wikipedia.org/wiki/File:USDebt.png
Of course the figure to watch is debt as a percentage of GDP- if I make $100 a week and owe you $90, I’m in trouble; if I make a $1000 and owe you $100, not so much.[/quote]
The U.S. debt to GDP ratio just passed 103% (ie. I make $100 a week and owe you $103) and is increasing currently at the rate of 1.5% per month. Is this an indictment of Keynesianism or does the fault lie elsewhere?
[quote=“Winston Smith”][quote=“Dr. McCoy”]To me, the Keynesian ideas are:
Austerity measures during a recession are counter-productive.
Tax increases during a recession are counter-productive.
Spend during recessions, cut down when times are good.[/quote]
Isn’t #2 just a conservative talking point? I doubt any liberal agrees with this.
Concerning #3, if you never actually cut down when times are good but rather spend during recessions and then spend during good times does that mean Keynesianism has never actually be tried or is “cutting down when times are good” optional under Keynesianism?[/quote]
#2- did you miss the part where Obama has actually cut taxes? About 40% of the stimulus went to tax cuts- too much, as they are less effective than direct spending- yes, especially targeted to low-income people.
#3 - don’t elect Republicans: see the Clinton surplus. If the Supreme’s hadn’t handed the election to Bush, a lot of that money would have gone toward future entitlement programs.
Of course, the pressure comes from liberal groups to spend the money on new programs, or expanding existing ones, but right now Democrats are far more financially prudent than Republicans.
[quote=“Winston Smith”][quote=“MikeN”]A simple chart to explain it all for you.
en.wikipedia.org/wiki/File:USDebt.png
Of course the figure to watch is debt as a percentage of GDP- if I make $100 a week and owe you $90, I’m in trouble; if I make a $1000 and owe you $100, not so much.[/quote]
The U.S. debt to GDP ratio just passed 103% (ie. I make $100 a week and owe you $103) and is increasing currently at the rate of 1.5% per month. Is this an indictment of Keynesianism or does the fault lie elsewhere?[/quote]
It’s an indictment of a bad economy, low growth, poor investment, failed free trade policies, and global changes.
[quote=“MikeN”][quote=“Winston Smith”][quote=“Dr. McCoy”]To me, the Keynesian ideas are:
Austerity measures during a recession are counter-productive.
Tax increases during a recession are counter-productive.
Spend during recessions, cut down when times are good.[/quote]
Isn’t #2 just a conservative talking point? I doubt any liberal agrees with this.
Concerning #3, if you never actually cut down when times are good but rather spend during recessions and then spend during good times does that mean Keynesianism has never actually be tried or is “cutting down when times are good” optional under Keynesianism?[/quote]
#2- did you miss the part where Obama has actually cut taxes? About 40% of the stimulus went to tax cuts- too much, as they are less effective than direct spending- yes, especially targeted to low-income people. . . .[/quote]
That “clarification” is a bit vague. So you agree that tax increases during a recession are counter-productive?
[quote]According to a 2010 report from the congressional Joint Committee on Taxation (JCT) Obama’s earlier proposal to raise taxes on those making more than $250,000 per year would have impacted 50 percent of all independent business income.
"50 percent of the approximately $1 trillion of aggregate net positive business income will be reported on returns that have a marginal rate of 36 or 39.6 percent,” the JCT said of Obama’s 2010 tax increase proposal.
In 2010, Obama sought to raise taxes on people making more than $250,000 per year in 2011 while keeping rates the same for everyone else.
Currently, the top two income tax rates–the ones Obama plans to raise–are set at 33 and 35 percent. Obama’s proposal would increase them to 36 and 39.6 percent in 2013. In 2014, the remaining brackets would also reset to higher levels.
The JCT said that as many as 750,000 independent and small businesses owners could have been affected by Obama’s tax increase policy in 2011.[/quote]
The stimulative effect of tax cuts is a function of the recipient’s marginal propensity to consume (MPC), which is just a measurement of how much of the tax cut will be spent. An MPC rating of 1 means that 100% of the tax cut will be spent, an MPC of .5 means that 50% of the tax cut will be spent, etc. Lower income individuals typically have a high MPC, around .9. Unemployed individuals, as a group, have an MPC approaching a perfect 1. People with higher incomes typically have low MPCs, and end up saving or investing the tax cut. In the long term, high savings/investment helps to build a society’s capital base, but in the short term, the stimulative effect is low. The same logic applies to corporations. Small businesses tend to spend money, while larger companies are more likely to hoard cash.
Simply put, the higher the MPC, the higher the stimulative effect. The Obama Administration’s decision to allocate about 1/3 of the stimulus to tax cuts for lower income individuals and small businesses was based on sound economic theory. The political problem is that the administration foolishly spread the tax cut over each paycheck, to the tune of about 30 or 40 dollars. Even for working class folks, that’s not much money. The administration was too wonkish on this one, going by the economic principle that people are more likely to spend a windfall if they don’t know they’ve got one. The result is that the vast majority of Americans (I believe the poll number was around 80%), are unaware that any tax cuts were provided. The administration should have provided the tax cuts in the form of checks from the treasury. That would have been widely popular, and the MPC of the working and lower middle class (to whom the tax cuts were sent) would still have been extremely high. I am convinced that the Republicans would not have had as strong a showing in 2010 if the administration had used a little common sense in its policy.
In every major country, the central government is the biggest buyer in the domestic market. When consumer confidence is low and demand falls, the central government participates in the free market by immediately buying goods and services, thereby stimulating demand and reversing depressionary forces. This is not merely a “theory”, but the practice of left and right wing governments across the planet over the past 80 years.
My esteemed friend from Australia suggests he would have let the market correct itself naturally. He’s right that, if the world’s governments had done nothing, the market would have eventually corrected itself. That’s standard economic theory. But it would have taken years or even decades of pain, and none of the structural issues would be addressed without further legislative acts. I see no convincing reason for inaction. Neither did every major government in existence.
I can draw all manner of correlations and conclusions from random bits of information plucked from over several decades. So can anyone. I know you are sincere in your beliefs but that doesn’t make them true or well argued.[/quote]
I’m sorry if that post confused you. If you go back and read it again, you might find that I was in fact quoting and responding to MikeN, who had posted a list of random, unsupported facts, which I was attempting to point out and correct.
BTW MikeN. Please note that the Fed through all of those presidents you mentioned was still in the practice of buying government treasuries, which accounts for expanding government debt since 1913 onwards, pretty much without ceasing under all presidents since. BTW future debt obligations are still debt, so you can’t even include Clinton as a president which caused a surplus in this case. You can read more on that analysis here.
Sorry, it just saved me from retyping my version of things. I would have worded it this way.
I would agree with your friend. Yes, you are also right that this method of recovery is standard economic theory, and I would add that this is the only successful method available in this case, even though we are dealing with a very non standard system of government debt building, but still with standard reality. The structural issues you mention, I gather mean the issues with government debt issuance and central bank purchases, but again these are issues which will cause debt defaults on this grand scale for the rest of eternity, unless action is taken and affected. Now that action could be taken now and be dealt with, or pushed into the future. Either way, it will be dealt with, like it or not as eventually the bond market itself will collapse. Personally I would prefer to take action now by simply not acting to provide bailouts, by revoking government power in the issuance of debt and controlling interest rates, and to allow the market to reset. I’d much rather take this bitter pill now than have to deal with the issue of the entire heart of a nation stopping in the future when no pill on earth will be strong enough to keep it beating.
Nobody has to have to take my word for my type of thinking though, and this is also what I say to people. The ramifications of taking stimulus over correction, and not removing government top down economics from an otherwise free market will be very clear into the future.
All I’m trying to do here is provide a heads-up to anyone out there, as I firmly believe that governments are not going to do the right thing because they don’t want to appear unpopular. I also think that most people are in favour of present government action. I really think that this future bomb has had its primer set and is presently counting down to zero. I really don’t think there will be much left after it explodes either.
I’m fairly confident that whatever I say will fall on deaf ears regarding the economic failings of the past few decades, and that the general public will still continue to practice the art of drunk, blind driving until at some point they meet the wall.
It’s a shame, but that’s the reality I see. I also think we’re going to see another slew of “But how did it all go so horribly wrong?” newscasts, uninformed, semi lucid ramblings of central bankers, and government buck passing, and that the public will still be none the wiser after it all.
I think people forget really how close to the abyss we were in 2008. The stimulus was already small and in a significant way offset by cuts at the state and local level.
Sulavaca pretty much wrote everything I would have written about the free market and bailouts with the exception of a few points I will make below. The main difference between the two of us is he likes gold whereas I like things that produce things.
The “Clinton was Gandhi” thing that those on the left like to bring up is a bit of a meme. During the last six years of his presidency, the Republicans controlled both the House and the Senate. You can’t just look at the executive branch, you need to look at the legislative branch too. Has anyone done a breakdown, by both the executive and legislative branches, over the past sixty odd years and compared that to economic indicators?
Gao Bohan: The government throwing people’s own money back at them (or rather, some people’s money back at other people) has had some rather unintended consequences. First home buyers’ grants actually inflated the housing market for years in Australia. Various nebulous bonuses both right and left governments have thrown out have been simply become the “let’s go and buy more crap from China that we don’t need” bonuses or “let’s go and get shit-faced in Bali” bonuses. The two best I think were how for many years, it was illegal to have a rainwater tank in your yard in my state, and then after the drought had been in full force for years, the state government decided it would be a good idea to not only allow people to have rain water tanks, but gave them subsidies to do so. I wonder how many people had rainwater tanks, got rid of them, and then were paid to get new ones. The real ripper though was a bonus by the current federal government for people to install insulation in their roofs. Everyone wanted a piece of that action, which led to all sorts of dodgy contractors, followed by several houses catching fire and people dying! Not even a Hollywood screenwriter could come up with this stuff. Only the ninkumpoops in government could think these things up.
Then again, this is what you get when your minister concerned’s great claim to fame is that he was once front man of a mediocre rock band not known outside of Australia.
Oh, actually I see gold as the currency or the ‘tracks’, but production of course is the engine which drives the economy.
I don’t know if that fits with your statement perhaps?
Cuts at the local level would be reducing debt and spending. Providing a stimulus is increasing debt and spending. These are two opposites, which only an insane government would be practicing, thinking at the same time that this would somehow lead to success. It was people like me that even then were saying that it wouldn’t work, that QEs or whatever other name they come by would only compound the problem and that they would create even more debt into the future, which indeed they have and which is why now the government’s laughable solution is to print money at ever more increasing a rate into infinity. And to make matters worse, we presently see two American popular presidential campaign runners which basically have the same belief that this needs to continue. The only hope the economy had is now out and that was Ron Paul.
Oh, actually I see gold as the currency or the ‘tracks’, but production of course is the engine which drives the economy.
I don’t know if that fits with your statement perhaps?[/quote]
I meant that you like to buy gold. I like to buy companies. Maybe that’s not even accurate anymore.
Oh, actually I see gold as the currency or the ‘tracks’, but production of course is the engine which drives the economy.
I don’t know if that fits with your statement perhaps?[/quote]
I meant that you like to buy gold. I like to buy companies. Maybe that’s not even accurate anymore.[/quote]
Okay. See your point. Well the reason I don’t buy companies, is that I can’t see what will happen to even solvent companies once their prospective value in dollars is whittled down to a pin, and if at all that happens. Much of a company’s worth these days the way I see it is actually which actions they might or might not take over the coming years. As I cannot control what even some highly successful companies might do in terms of capital allocation over the coming months or years, I tend to stick to what I do know, or what I’m most confident in, which is precious metals.
Now if the markets were priced in something other than fiat currency, then I’d very likely be taking a stab at what you are doing. One reason I prefer to actually work in the motor industry is that I see it as a necessity, regardless of the future, economically speaking. Perhaps it isn’t a necessity as much as farming however, which will do very well as a profitable business in the very real sense.
It’s such a shame that many otherwise strong companies and banks at the minute are suffering in terms of value depreciation due to the weak environment which is being extended way into the future.
I believe that there are many companies out there with perhaps high morals about how they conduct business, but which can’t capitalise on their own fiscal policies because the weak and failing competition is being pumped up by government stimulus.
I’d love to see what could happen to business, and how many more efficient products and systems we would see in the future once the ‘dead wood’ was burned off. I’d certainly be buying into businesses then.
In the meantime I don’t have much hope for even sustainable growth in strong business models as they are having to compete on an uneven playing field.
We can see this in the markets when priced into precious metals. But then again, we are perhaps taking two different approaches to the same challenge.
I am trying to protect my own savings value in precious metals. I believe that if one is investing in certain stocks, then you are perhaps trying to profit from a poor scenario.
Where as one might be investing into farmland and food production for example, knowing that these commodities can and will only gain in value into the future because of the inevitability of real hyper inflation, I am basically trying to save as much precious metals as I can, knowing that once farmland and food prices reach ultra high prices, then only gold and silver will maintain enough value that they might be usefully convertible in order to then purchase those commodities.
My logic is also due to the fact that markets priced in precious metals are actually dropping in value.
Trying to chase a speeding train in my opinion is much tougher a challenge than already having prepared in advance by waiting at the next station.
I’m afraid I’m not smart or fit enough to chase trains. That takes time and energy which I haven’t always got.
I think most liberals forget that the economic stimulus package in 2008 was proposed by President Bush and signed into law by him with bipartisan support:
I also think most liberals fail to understand now that the question isn’t whether economic stimulus was necessary in the face of the worst recession since the great depression but whether it’s sufficient. In other words, will Keynesianism alone turn the U.S. economy around or will real structural changes also be necessary to accomplish the job?
I think most liberals forget that the economic stimulus package in 2008 was proposed by President Bush and signed into law by him with bipartisan support:[/quote]
I think it’s the right wingers who forget that when they bash Obama for the debt and deficit.
[quote=“Winston Smith”]
I also think most liberals fail to understand now that the question isn’t whether economic stimulus was necessary in the face of the worst recession since the great depression but whether it’s sufficient. In other words, will Keynesianism alone turn the U.S. economy around or will real structural changes also be necessary to accomplish the job?[/quote]
You mean eliminating the deficit and reducing debt? Of course. But too many right wingers use this as a party-call to gut social services. A balanced, moderate yet consistent approach is all that is needed, in my view.
= Decrease spending a bit. 10%? Efficiencies would certainly help.
= Reduce long term entitlement liabilities a bit. 10%?
= Get rid of Bush-era tax loopholes. Mo money.
= Announce a plan to eliminate the Federal deficit by such and such a time. 2020?
[quote=“BigJohn”]. . . You mean eliminating the deficit and reducing debt? . . .
= Get rid of Bush-era tax loopholes. Mo money.[/quote]
You may just have hit on a way to answer the question that stumped Dr. McCoy and MikeN without appearing self-contradictory. How you can be for tax increases in the midst of a recession while proclaiming that “tax increases in the midst of a recession are counter-productive”. Just label the tax increases “eliminating loopholes” instead. Who cares if the “mo money” is actually tax revenue?
[quote=“BigJohn”]
= Decrease spending a bit. 10%? Efficiencies would certainly help.
= Reduce long term entitlement liabilities a bit. 10%?
= Get rid of Bush-era tax loopholes. Mo money.
= Announce a plan to eliminate the Federal deficit by such and such a time. 2020?[/quote]
BigJohn, do you know how much these figures equate to and how much of a dent they would make in the total U.S., including obligations? Do you realise that those reductions you are talking about would make almost no difference to the outcome?
And yes, getting rid of tax-loopholes is doublespeak for raising taxes. I’m sure even wealthy businessmen and women aren’t even fooled by that way of putting it, and will still prefer to escape those taxes, no matter by what means. This just equates to sending even more investment and more wealth to other countries which are more profitable and taking it out of the economy’s recovery.
There are presently a few main factors which are preventing economic recovery in the U.S. the way I see it.:
Inflation and taxes. These are both high enough to the extent that they both rob businesses and private earners of their earnings and savings, both in the short term and long term.
Overregulation. This is basically making it more difficult than ever to set up an SME in the U.S. for fear of either breaking the law, or not paying enough dues.
Consistent policy building and bailouts, enforcing the already backwards path to recovery, which is helping to put off foreign investment to the U.S.
Poor foreign policy, which is causing very poor relationships with the U.S. and other countries, making the U.S. unstable and so less desirable for investors. Inflationary, unsustainable empire building is not grounds for a sound currency and markets.
Sulavaca: I don’t think I’m really chasing a speeding train, for two reasons. Firstly, I’m a value investor. Secondly, I think good businesses will generally do well regardless of the macro-economic situation (with exceptions, of course). I think your points about the decreasing value of precious metals (I think you mean price, not value), farmland and automobiles are actually not really different to my own philosophy. We’re probably a lot closer than I previously thought.
With regard to your post preceding this one, and specifically about scaring off businessmen and/or investors, I agree entirely and offer the following:
