The Democrats have it wrong

That the anti-Keynesian arguments reflect ideology inconsistent with the reality of capitalism is pretty much obvious. You may not appreciate that, but that doesn't interest me.

Most of the differences are illusionary, with consensus politics merely maintaining the status quo.

 

I don't disagree with this as most of the differencea are indeed illusionary.

I must also admit that my information was dated as it appears that the Democrats in Congress are not calling for tax increases but President Obama is.

http://news.yahoo.com/obama-congress-fail-break-debt-deadlock-004652744.html

So both are proposing an increase in the debt ceiling although through different approaches. The Democrats don't want to have to address more spending cuts over the next year for political reasons related to the 2012 elections but Republicans do.

Democrats also want to avoid dealing with the financial shortfalls of Social Security and Medicare although they must be addressed and everyone knows it. The Social Security/Medicare Trust fund is rapidly running out of money and when that happens these programs go bankrupt. These programs are funded with dedicated FICA/Payroll taxes and not with income taxes so even overhauling the tax codes will not specifically address the financial problems facing these programs.

Something I do find interesting in the same article is the following:

What this fails to address is that the American People, especially retirees, and the overall US economy would greatly benefit from increased interest rates for US securities. By the time a person retires they need to move their assets into very conservative investments which predominately involved investing in T-Bills. Higher interest rates translate into higher payments for the money they have invested. That produces more income for these retirees and with more money they purchase more resulting in more consumptions which improves the overall economy. One of the major drags to the economic recovery today are the artificially low interest rates being paid on T-Bills which has greatly reduced consumer spending by retirees which comprise about 1/6th of the entire US population.

 

Bureaucratic waste? This has nothing to do with economic modeling as politicized waste of money cannot be taken into account. The Senate Finance Committee has estimated at least $55 billion in pure waste, not including questionable uses of the money. Questionable projects include:

$200,000 for a study on why africans votes. American jobs created: 5
$2 million for a fire station in nevada that won't have any firefighters
$1.5 million for PSU to study fossils in Argentina. American jobs created: 3
$5 billion to weatherize homes at a cost of $78,000 per home. Savings for each homeowner: $500 a year
$1 million for Arizona Universities to study ants. Jobs created: 3
$50 million in tax credits to companies selling tropical fish, gators, catfish, shellfish
$4.4 million for NC schools to hire tutors to teach teachers literary and math skills.
$54 million to contract an eskimo run company in Alaska to build a bridge in Napa, CA. The eskimo company than hired another company to build the bridge at 5-7 times less the cost.
$6 million to a contractor who has a history of overcharging the govt
$13 million to Denver to fund senior homes. SInce then, the developer of these homes have been called "Slumlord" for his decrepit, rodent-infested homes.
$24 million in KY went to a contractor currently on trial for bribery
$15 million to an aerospace company to monitor pollution in a river it had polluted.
$6.9 million for repairs to a remote historical site in FL only accessible by seaplane or boat.
$2 million to CA for researchers to go to the Indian Ocean to study ants
$200,000 to send 3 Montana State U students to China to study fossils
$308 million to BP for a power plant that won't start construction until 2012.
$500,000 for window replacement on a closed-visitor center at Mt. St. Helens.
$1.8 million for a new highway in NJ that will mean the destruction of 25 homes.
$16 million to repair stretches of sidewalks. Many grants, including OK ($200k+) and Boston ($150k+), have not been projected to create any jobs (private sector had already funded it).
$4.7 million to develop supersonic corporate jets
$2 million for a water line to a CA golf course slated to be closed soon
$1.8 million to OK for river cruise boats
$54 million for "stimulus purposes" to CT's Mohegan Tribe (owner of one of America's most profitable casinoes)
$3.4 million for a turtle "ecopass" in FL
$ 6 million to a NY ad company to advertise switch from Analog to digital Tv. Jobs created:3

Those are some examples of waste that are bound to occur in huge government spending. I don't need to use a macroeconomic model because the money spent has often gone overseas, have not been cost-effective in creating jobs, and have been cost-effective in servicing Americans.

And don't forget the Pentagon and the military-industrial complex. Its too bad we didn't take heed of Eisenhower's warning. On 9/10/2001, Rumsfeld (defense secr) announced the pentagon could not account for 25% of total spending. In fact, they could not track a total of $2.3 trillion in transactions (bureaucratic waste/corruption). Its a pity 9/11 happened the next day to wipe this off the front page news.

"Bastardized keynesianism" does not have to refer to the monetary policies of the 1950s-1970s. I refer it as to any form of Keynesianism policy that has ignored vital tenets of Keynesianism.

The important part is that using the visible hand to actively take a role in the economy and society as a whole has degraded our political system to one where the government effectively buys electoral support with funding (Bush-Medicare Pt D, Obama-Stimulus, Johnson-Great Society, Obama-Autobailouts for unions, etc.) We've increased dependency on government by ordinary people, thus increasing the reluctance of those people to see funding cut. Thus, we've entered a society where gov't spending has been unchecked for too long due to the selfishness of the many constituent interest groups that have been receiving the funding.

I made my claims on the widely accepted causes of the 19th cent. recessions based on common historical consensus.

My "talking points" have consisted of me saying that I do not reject hysteresis in unemployment in economics in general. However, it is not possible in the American economy as of right now due to the advantages we have over other economies. If you want stats, a survey conducted by Robert Half technology found the 84-94% of CIOs do not outsource technological or specialized jobs. 60% of CIOs are discontinuing the practice of outsourcing due to management issues (thus jobs are returning to America).

You cannot deny that the educational the technological infrastructure in a country has an influence on the decision of a company to hire skilled workers there.

My whole point was that technical and educational infrastructure does play an important role in the labor market while you rejected as irrelevant. Thus, I've turned to the example of how Germany has retained many of its jobs despite higher wage costs.

I've shown you my reasons. Show me your reasons. In a civilized debate, both sides are supposed to present arguments and supporting reasoning. So far, I've presented my reasons while you've called them wrong without presenting your reasoning or any of your peer reviewed journals. Since you have yet to provide any evidence against my claims, I'm just going to assume I'm correct for the time being.

Thanks for changing the wording of your reasoning. What exactly is the "effective fiscal policy" you are referring to?

The US has a larger consumer industry, thus more low-paying service jobs. Don't forget the large agricultural industry in the US as well which Europe lacks.

We have perhaps the largest in terms of spending service industry. Also include manual jobs such as agriculture and you make up for most of the disparity.

Thats my point. Recessions have run their course during the 1960s, 70s, etc. but American economic uniqueness over other industrialized nations has continued to hold strong. I don't see any reason why it won't continue to for the time being. If it survived the stagflation, it can survive a simple recession. Prove me wrong.

 

I’d refer to military expenditure as ‘waste’ (as also applied by the analysis into the permanent arms economy), but I won’t be able to discount its macroeconomic influence. By ignoring macroeconomic modeling, you’ve merely decided not to support your comment. That makes the vocab ‘poor usage’ meaningless. If you can put that right then be my guest!

Bastardised Keynesianism has a very particular origin. You’ve merely used it inappropriately and dug your heels in rather than offering a correction.

You again completely ignore the point that you’re responding to. We have an increased need for macroeconomic stabilization policy because of the changes in the boundaries of the firm, with the invisible hand decreasing in importance and managerial decision-making (such as cost-plus pricing) increasing the risks of problems such as stagflation.

You’ve made your comments based on nothing but hot air. Here, you’ve merely ignored the important changes to the nature of the economy. That rise of the managerial class, with the visible hand becoming increasingly dominant, also increases the risk of economic crisis.

Again, you reply with nothing of note. Clearly you aren’t capable of rejecting hysteresis in unemployment. This “in general” stalling technique is of course low powered as I'll clearly accept US evidence. Why do you think you can get away with making remarks without evidence in support?

I'll repeat the obvious: referring to distinctions between developed and developing countries isn’t going to be interesting.

You don’t seem to understand your original point. I made it clear:

I appreciate that you go with the standard 'self-correcting' optimism. That of course is completely reliant on an utopian understanding of the labour market which, with some irony (given its attack on individualism), assumes completely technical relations with regards labour

Crowing about Germany isn’t going to be helpful!

I support my arguments with evidence. I expect others to follow such good manners. You’ve given tabloidism, despite the vibrancy of research into economic history.

Stabilising the macroeconomy and minimizing the long term negative consequences created through supply side shocks. Bit obvious really.

You’re clearly rather ‘innocent’ of the nature of Europe. The suggestion that low wage abundance reflects agriculture or somehow Europe doesn’t bother to consume as much is nonsense. But hey, try and support it with some published evidence! You’ve given none so far so let’s see the trend ended!

You’ve again responded with nothing of note. I asked you to back up ‘slight effects’ with evidence. You haven’t. I said you would dodge and you have. I’ve also referred to a way that you can actually refer to uniqueness. A relative lack of upskilling!

 

It's not an ideology...it's common sense.

A check book is a check book...period...no matter who owns the check book.

Either it is balanced, or it runs a surplus, or a deficit.

Unfortunately, and unlike government, my check book cannot accumulate debt for years on end without a payback strategy. It's the tiny little issue about having funds to back up purchases!

At this time in the USA, my personal position is that it will be detrimental to the current economy to reduce spending or increase taxes. But this does not eliminate the need to establish a deficit reduction plan and down the road a decade or so have a plan to reduce debt to acceptable 'check book' levels...

 

I would also call it a waste. The United States could provide for the common Defence of the United States for a small fraction of the cost of current expendatures.

Yes, these expendatures do have macroeconomic impacts as the benefits of the expendatures are dwarfed by the cost to the overall economy from the taxation to support the expendatures.

What exacerbates this problem is that much of defense spending is based upon borrowing. This increases the long term cost of the expendature and we can use WW II that was a justifiable expendature as an example.

http://wiki.answers.com/Q/What_was_US_debt_from_World_War_2

Simple math would indicate that the deficit cost (not total cost) of WW II equaled $209 billion. That borrowing was never paid off so we are still paying the interest on that debt and it increases over time. That debt, with accured interest, is equal to about $2.5 trillion today.

 

Depends on your viewpoint. If you're supportive of capitalism with relatively low social expenditures, such waste is key. If you're not supportive of capitalism, such waste is unfortunate

 

Believing that the economy can be understood in the same way as a individual household's expenditure is an ideology completely alien to valid economic analysis

 

Then please explain your 'economic analysis' about the creation of $14.3 trillion in debt and $1 trillion+ deficits each year?

 

Don't like it? Shift your economy away from neo-liberal folly.

 

So...you never really addressed the point of waste in domestic spending. Poor usage simply refers to how the spending fails to create jobs in a cost-effective way.

Military expenditure is a waste as well. However, you fail to realize that while the spending initially does have an influence on the economy, it is paid for with tax money. The money we waste on both military and domestic spending are taken into debt, and the cumulative costs multiplied several times over with interest costs.

I did not intend to refer to that topic. I was just referring to today's policies as a bastardized form of the original keynesianism.

Stagflation can be caused by 2 main reasons: a supply side shock (oil prices in the 1970s), and very faulty monetary policy (excessive growth of money supply). However, you are assuming that the managerial decision-making process does not take into account the possible effects of their decisions. The supply-side shock in the 1970s stagflation was intended to cripple the US economy by OPEC. A normal company would not make changes radical enough to launch such a supply side shock without having studied the possible macroeconomic consequences of such an action.

I thought we were talking about 19th century recessions. I was not aware of the increasing dominance of the visible hand until at least the beginning of the 20th century and the Progressive Era. Federal attempts to manipulate the economy really had no real effect until the late 1890s and the 1900s. However, that had no bearing on the causes of the recession in the previous 90-100 years. The effects of the rise of the middle class were not really seen clearly until the Progressive Era as well. Those 2 factors are irrelevant in our previous discussion on the causes of 19th century recessions. This isn't any better than my "hot air."

If you read my first comment, you would have seen that I never rejected hysteresis in economics. I simply rejected it in the American economy. I haven't been stalling, I've been trying to get my point across so you can drop this misunderstanding. I did say in post #188 and #190 in this thread

Note how I never mentioned the possibility of hysteresis in economics in general. I focused entirely on the US economy. Hopefully you've now seen that I haven't been "stalling" and have been merely trying to get you to see past your own words.

Ignore my point if you will, but you still cannot deny the advantages that developed countries have in specialized and skilled jobs.

I looked back at why you said that, and it was in response to how I said "supply side shocks did cause brief disruptions." Now why did I say that? it was because you wrote in post #187

You've been disputing my comment, which was agreeing with one of your earlier statements. I fail to see why you made a big argument out of this.

What is one piece of evidence you've given? You ask me to provide an economic journal/study. You have yet to do the same. I've simply used common knowledge as well as widely accepted historical causes for the 19th century recessions. I don't see you giving any more evidence than me.

I originally said in post #186:

And you responded post #187

I have referred only to deficit spending originally, yet you try to turn the debate into a debate over monetary policy as a whole. Considering how the government did not indulge in deficit spending in the economy before the 20th century during peacetime, and yet maintained reasonable unemployment figures, I fail to see how you've addressed my original point. You've instead tried to shift the debate over to fiscal policy as a whole instead of purely deficit spending. You realize that in our current economy, without deficit spending, tax deductions, low interest rates, etc can all be employed to help recover?

The author concludes that the the wage polarization can be attributed to "slow productivity growth and the shift of employment out of manufacturing." The author also considers outsourcing (which you've mentioned as a non-issue in the macroeconomic scale) as a possible factor in low wages.

Additionally, don't forget that while Europe has fewer low-wage workers, they have more people unemployed than the US (pre-recession too). That means more people dependent on state money for welfare.

http://www.jstor.org/stable/1818109?seq=5

I don't need to prove slight effects. It was you in the first place who mentioned the negative effects on human capital. Why should I prove what you said? I've used historical precedent to show that the American labor market is capable of surviving a recession (long or short).

 

If they were legislators as opposed to politicans they would but since they are politicans first and foremost they won't. They will be concerned about re-election and they will throw America under the bus to be re-elected just as they've always done.

No statement was more true. My proposition has always been that the members of Congress be required to physically transport all of their appropriations from the Capital to the White House in $100 bills. They can put the money in backpacks or suitcases but no wheeled or powered transportation. They should be limited to spending that which they can physically carry in a year. I believe it would be great physical exercise for them and would reduce government spending to a fraction of what is being spent today.

Eliminate all of the Bush era tax cuts that were unwisely retained during the Bush adminstration while spending was being increased dramatically. Liberals love to talk about the Clinton years and how the Bush tax cuts are the cause of current deficits so eliminate them all. Give the liberals what they want BUT before doing that also require that expendatures be cut by $2 for every $1 in increased revenues. That would give us a combined expendature decrease and revenue increase of $1.11 trillion per year and lets make that effective for 2013. That's almost enough to totally eliminate the deficits.

 

No, I referred to the problems associated with using the vocab ‘waste’ and asked you to refer me to some macroeconomic evidence to back up your post. Like my other requests for evidence, you’ve decided to ignore it.

You’d have to adopt some Marxist analysis, such as Luxembourg’s analysis into the redistribution effects from military expenditure (where, due to take effects, we see a shift from the worker to the ex-peasant. If you don’t you’re left with a simple misunderstanding of Keynesian effects and the benefits from demand management.

You made an error and, after been informed of that, continued with that error.

Nonsense. To acquire the risk of stagflation we only need for cost-plus pricing to become significant, as one expects with firms that acquire market power. You’ve ignored how the firm has evolved and how that then impacts on the importance of macroeconomic stabilization policy

The manager is motivated by their firm’s profit. To assume that he/she is akin to a macroeconomic planner is naïve

You therefore need to brush up on your economic history. The Chandlerian firm can be traced back to the 19th century, reflecting how power, distribution and communication innovations sparked off an organizational revolution needed to exploit the available economies of scale.

I’ve asked for evidence to show that hysteresis effects can be rejected for the US economy. As per norm, you’ve provided zilch. Clearly you cannot support your argument with empirical evidence. You can’t hide from that, especially with the complete cobblers over service sector outsourcing (which has no bearing at all on the hysteresis hypothesis)

You haven’t got a point. You continue to make uninteresting remark over the distinction between developed and developing country

And I’ve referred directly to why ‘brief disruptions’ is nonsense. I did that by referring directly to the complexities of the labour market and how to acquire some notion of self-correction there has to be a technical understanding of labour that directly attacks notions of individualism.

I’ve mainly responded to your argument, repeatedly asking you to defend it with evidence. Don’t get forgetful on me!

Read up on Chandler’s visible hand. That might be a good place for you to start, given your earlier errors.

This is nonsense. I’ve only referred to monetary policy when describing the folly of monetarism and that bastardised Keynesianism you used incorrectly.

And as the visible hand increased in importance so did the need for fiscal policy.

We just get multiple factors consistent with how perceived labour market flexibility leads to creation of ‘poor jobs’. There’s nothing in it to support your arguments over the effects of unemployment. I also asked you to support your suggestion that low wage abundance reflected agriculture or somehow how Europe doesn’t bother to consume as much. Where in that article did you achieve that objective?

Note that they also exhibit greater social mobility. We’d expect that, for example, in countries with lower levels of underemployment (a hidden form of unemployment that tends to have significantly negative effects on the age-income profile)

We both know that you cannot prove it.

Which you can’t reject! You should at least be referring to research by the likes of Sephton (2009, Persistence in U.S. State Unemployment Rates, Southern Economic Journal, Vol. 76 Issue 2, pp 458-466). Then you can refer to how persistence isn’t found in some states. Of course I’d respond that, given the blunt time series approaches being adopted, we’d expect variation. I’d also note that he doesn’t reject hysteresis effects for the US economy.

You’ve of course ignored US economic history and how, given the changes to the firm and the rise of the managerial class, the need for interventionism has increased.

 

Here's where a big chunk of the deficit comes from:

Year - Revenue - GDP - Rev. % GDP
2000 2025.2 9,951.5 20.4%
2010 2,161.7 14,660.2 14.7%

You are smart enough to do the math and figure out how many billions that lower collections percentage equates to.

 

No doubt about it as there was a great reduction in revenues predominately from middle and low income households which received about 81% of the tax reductions.

The other major component of the deficits were the massive increases is spending by the US government where funding was not provided. As noted we had two major wars (and a minor one in Lybia today) plus the addition of a drug prescription benefit for Medicare (FICA/Payroll taxes were "not increased to cover this expendature) as well as the creation of the Department of Homeland Security, the TSA and other "national security measures" that are very expensive and only provides "smoke and mirrors" protections for America. On top of that we have "Obamacare" that is projected to cost over one trillion by 2018 that isn't actually funded but depended upon "smoke and mirrors" financing that will never come to pass.

So for me the answer is simple. Let's go back to the "good ol' days" of Clinton that the liberals so often refer to. Repeal the Bush era tax cuts and all new expendatures that were passed starting in 2001. Get out of Iraq and Afghanistan, end the Medicare prescription drug coverage, disband the TSA, eliminate the Dept of Homeland Security, and repeal Obamacare as well as any other "new" expendatures that were implemented between 2001 and today.

 

Believing that the economy can be understood by getting a Ph.D in economics is also invalid.

What is also invalid is thinking that we need to spending over 1 Trillion year in total military spending to keep the country safe.

Equally invalid is the idea that economic hegemony can be secured with military power the same way as it could be 100 years ago.

 

We go back to is the issue spending or a lack of revenue. Both certainly contribute to the deficits but which has changed the most?

http://mercatus.org/publication/rapid-expansion-federal-spending-household

This represents a 36% increase in federal spending per household with almost all of it related to spending increases since 2001. Currently the federal spending equals over $30,000 per household and that is unjustifiable by any standard. Sadly with new programs such as "Obamacare" that average cost per household is going to increase. The burden of foreign interventionism by the US military also drives that cost up. Increased expendatures in Social Security and Medicare are driving that cost up. All of these are generating unfunded expendatures.

Returning to the "good ol' days" of Clinton by returning to the Clinton era tax rates will not address these spiraling costs of government. Only expendature cuts equal to about 1/3rd of the total cost of government plus returning to the Clinton era tax rates will balance the budget.

 

A PhD provides for research skills, a useful result when assessing the validity of complex theory. There's always aggressive debate in political economy, but there will be agreement on one thing: comparing the government with a single household makes absolutely no sense.

 

It's also invalid to think we can balance the budget without reducing both:

A: Entitlements (42% of the budget)

B: Military (20% of the budget)

Out of our $3.69 trillion dollar budget, we have to cut $1.5 trillion just to balance it.

 

Entitlements need to be split into whether they are Social Security/Medicare which are funded by FICA/Payroll taxes or other entitlements funded by general taxation.

Social Security/Medicare shortfalls need to be addressed as their own special problem because of the dedicated taxation to fund them.

About 16% of the federal budget relates to unemployment/welfare/other mandatory spending which is paid for with general tax revenues. Additionally we have health and human services expendatures which equal about 8% and this is also paid for with general revenues.

Mathmatically we require about $1.1 trillion/yr in spending cuts if we assume that the Bush era tax cuts will expire at the end of next year. We cannot afford these tax cuts and couldn't afford them under the Bush adminstration where unfunded expendatures soared. Those unfunded expendatures have continued to soar under Obama and we simply can't afford the loss of revenue.

 

A Ph.D does indeed. What is also true is that you are better off flipping a coin then following a central bankers prediction on the direction of the Economy.

I can name 4 books off the top of my head that I have read over the last year written by economists that use "household metaphors" .. Soros, Ferguson, Roubini, Prechter.

I do agree that there are differences, but there are some comparisons that are valid.

Predicting which direction the raging masses are going to run tomorrow is probably more suited to a the study of investor Psychology than Economics.

One analogy that, in its simplified form, has held true:

As the ratio of interest owed to income increases .. chances of default increase.

The IMF number is 33%. This is when alarm bells go off.

When the interest on your debt exceeds 33% of income, the water is said to be coming into the ship faster than it can be bailed out. The ship is in danger of sinking.

 

An interesting relationship. As most of us are aware the Federal Reserve is currently suppressing the interest rates on federal debt. Instead of a fair market value of money related to borrowing that is traditionally about 5% the Fed has kept the interest rates on government debt to about 1%. If we assume that the market value of money will return to its natural balance of about 5% then the interest on $15 trillion will soon be $750 billion/yr or about 30% of gross federal revenues or roughly 50% of general revenues that service the national debt. FICA/Payroll taxes are dedicated revenues that are unrelated to the servicing of the national debt and would justifiable be omitted from consideration.

It appears that our boat is leaking and in danger of sinking no matter how we address it.

 

That would, however, be twaddle (you could though make a comment over the evidence into investors and their expertise though). The issue would be what comes first, the chicken or the egg, given comments by central bankers or Presidents can have significant economic effects in themselves.

Let's not forget Keynes' original analysis was very much an analysis into economic psychology.