Open thread 24, 2010 Dan Crawford | September 24, 2010 3:54 pm Comments (70) | Digg Facebook Twitter |
Bond traders can’t all be this obtuse, can they Coberly? Name starts with a B and ends with a K, I’ll bet. And, SS has been around 75 years, as you point out. That’s as close as forever as it gets in this hard, cold world. I wouldn’t have as much of a problem with this writer’s thinking if he just said it would benefit him materially if SS were dismantled and people bought bonds instead. It would at least be honest. Well, that’s out of the question, I guess. NO
I’ve been thinking that the public conversation on the TV news regarding politics, esp. the deficit, HCR, Social Security and Medicare, is a sort of puppet show. The people doing the talking are friends, neighbors and even kin who know each other both professionally and socially. Kids go to the same private schools. Went to the same schools themselves. Nice, comfy group of people who think everyone is rich and if not, it’s a case of mind over matter. They don’t mind and we don’t matter.
So, these folks work for such and such a lobbying firm or represent a particular corporation or trade or interest group. However, they appear on TV as a talking head, “author of BookXXX and commentator in Time Mag,” or former member of the House of Reps, or whatever. But, they are there on TV to sell a pitch for groups and ideas that are perfectly well known to their Washington peers, but are perfectly unknown to the ordinary viewer. So, Armey used to the in House of Reps, but now he works for a supposedly non-partisan foundation the Koch Brothers’ pour millions into every month. So, really, if you know whom he represents then you understand that he is putting the public face on private money in a very private fight. Who’s gonna get what from the federal governments tax revenues this election is nobody’s business but theirs, of course. But, if you have to invent the Tea Party, you do it to get the votes you need from the ignorant masses. The Republic is a dreadful inconvenience but there are ways around it.
PGP wants Congress to gut SS so he can capture its payroll tax stream, if not right away then sooner than he otherwise would. The Kochs want to blow off the top of every mountain in the Rockies and the Appalachians and burn that coal until the sky is black. So, the poor struggling people out there have no clue what is actually going on. They see Wolf Blitzer and don’t know he used to work for a pro-Israeli lobbying group, they think he’s dignified and got a medal from the Pope so he must know something about the Palestinian peace process. The multinationals are disinclined to employ Americans for even a fraction of what their labor is worth and really, really want to move their operations to Africa or China or Indonesia, or if none of those is cheap enough, how about Somalia where there is no government regulation because there is no government.
So, all these people are fighting over what they paid for. They paid the politicians to deliver and because they haven’t gotten paid soon enough, are bound and determined to get it now. Quite a fight–quite a spectacle and it’s no where near over yet. Nancy O.
I hesitate to offend and ruin our rapport, but suggest you read Bill Gross’s newsletter if you get a chance. His style is often whimsical, while at other times hard to understand. At least for me. He is harder still to refute. I don’t think he would agree with you.
please tell us something he says so i know whether i can refute it or not. i have better things to do that go look up newsletters by people who can fool you.
Can’t believe BK hasn’t given up yet. Besides, bond traders got much bigger problems to worry about. Like what if the Fed and the Chinese sell all theirs, or worse yet, what if one or both just keep buying all of them?
And future SS recipients have no guarantee goods and services will be priced in USD. We may have to come up with Somalian Dollars somehow to buy our iPods.
I am not sure they can’t all be this obtuse. There is a lot of obtuseness going around among Bond Traders, Presidential Advisors, non partisan Experts, and the reporters and columnists who cover them.
Even some guy that cursed knows who would disagree with simple arithmetic.
In 2009, GDP was 12.9 Trillion. At 4.94% growth Every Year, you can get to 50 Trillion in 2037. Does anybody in there right mind believe that is going to happend? Hell No!
The yearly average between 1945 and 2009 was 2.96% per year
The yearly average between 1965 and 2009 was 2.96% per year
The yearly average between 1985 and 2009 was 2.70% per year
The yearly average between 2005 and 2009 was 0.68% per year
The yearly average between 1992 and 2007 was 3.18% per year
If it is going to happend…..It is going to have to be something totally new and different than anything the United States has tried in the past.
Not to mention that by that time the Dept to GDP ratio will be well over 350%. There is an entire set of problems not even being adressed when pointing out these numbers, and most importantly of those problems is the United States giving away it’s Industrial Power and Trade Policies.
Social Security is a nobel idea, but we can do better, and your just not being very realistic about the sitatuation. If Reagan had origianted this program that leads to a future we are seeing now……you would be shouting from the rooftops to “Fix It!”
I just read it. At the moment what Bill Gross worries about is F&F&FHA, their mortgage bonds, the housing market, private sector mortgage bonds, homeowners, home sellers, home foreclosures, home buyers, and a large number of PIMCO portfolios.
As you can probably imagine, there isn’t a solution to this one that makes the USG, homies, bond people and taxpayers all mutually happy. Bill Gross didn’t really have one either.
Ya know, Cedric, you gots a point there, judge. How do we know? Ummm, well, I can teach anyone who wishes to learn to weave can chair seats or do real rush seats and these two things are amazingly expensive now. You can actually earn a good deal of perfectly tax free money doing this. Or we can walk dogs or do all kinds of things like keep little neighborhood shops from our front porches. The English did it. We, too, can become a nation of shopkeepers. It could be preferrable to dealing with the people inside the beltway. NancyO
it should be noted that in the 2037 Bond Trader was worried about Social Security has nothing to do with the debt. As long as most people have jobs and are making enough money to save for their own retirement, Social Security will be able to do its job, which is to protect that savings from inflation and the markets by the miracle of pay as you go financing with wage indexing. The whole Point of Social Security is to protect people’s life savings from people like Bond Trader and Little Jimi from himself.
jimi, like too many people, has no idea what he is saying, he just repeats words he has found under the table with no, absolutely no, concept of what they mean… or would mean if they meant anything.
I wanna be mayor.
Dood, I’ll vote for ya. NancyO
when Alan Greenspan agrees with me, who am i to argue.
I studied the Social Security debate going on in Germany when Bismark implemented Germanys early version. I support the concept. I’m not willing to put all my eggs in that basket however.
Social Security was never meant to be your “one” basket. It is the basket you can count on when all your other baskets break. I don’t know if Bismark’s Soc Sec was “worker paid, pay as you go with wage indexing.” hell of a difference between that and state paid old age welfare.
Hard to argue with anything Greenspan said here.
Why argue when you can roll on the floor laughing?
Here’s what he thought the big problem was in 2001, 9 years ago:
“Indeed, we at the Fed actually had meetings, and, in fact, set up a committee which functioned and sent a report of what the Federal Reserve would do when the debt disappeared and we no longer had federal securities to do open market policy. So, it was a very serious issue.
Go into hybernation for 10 years and wake up to catfoodastrophy!!!!!!
The Fed doesn’t do it with a few T-Bills anymore, but pays interest to banks to sterilize the trillion or more in long term bonds it bought!
And Eisenhower must have known a thing or two even before he entered public office. Let’s see, planned out the interstate highway system connecting our east and west coasts, and head man in the strategic planning of all phases of the war in Europe. Remember it is Ike who is the last American General to actually win a war. So I’ll simply assume that Eisenhower is a better judge of a long term plan than are Goss or even jimi.
“Social Security was never meant to be your “one” basket.”
That’s the point that has changed. For too many people social security is now the ony basket they can count on. Outside of municipal employment how many corporations are offering their employees retirement plans? Even public employees have been seeing their retirement benefits systematically reduced each year so that the newest employees will have little more than their SS to retire on.
Personal savings you say? That’s what the country relied upon in 1933. Good plan, but what goes up also goes down. There were those who argued that the re-emergence of plans like 401K and IRA were the cause of the stock market inflation from the mid ’80s to 1999 when it took a serious nose dive. Of course by that time the Wall Street “advisers” to all those funds had racked in their fees and commissions. Imagine the thrill of taking home 1% + or – .5% of total work force savings for retirement every year.
That is a model for a lot of neighborhoods in the US in the depression.
What coberly’s guy is saying is: get ready for the thrid world Amerika with a return to broad based poverty, including among the aged and disabled.
The poverty OASDI minimized is his future view.
But no problem that 20% of USG outlays goes to the Imperial war machine.
And Petraeus’ long war brainwash the Afghans with drone enforced air-land battle new think.
CR, why ignore the prior lead up to your Greenspan quote? His lead up was:
“The Office of Management and Budget, Congressional Budget Office, and mainly, in my judgment, the very excellent staff at the Federal Reserve were all projecting surpluses as far as the eye could see, that there was a structural imbalance.“
What bothers me is when we get into economic discussions with Dems/Libs they believe that the structural imbalance was a good thing to continue forever.
Otherwise why do we forever hear the complaint that Bush wasted said structural imbalance? Of course today’s structural imbalance is just ducky for all of us. right? Otherwise, why do so few Dem/Libs comment about it?
Just sayin or maybe askin.
you are absolutely right. me, i predicted the inflation in stock prices. then said what the hell and took advantage of it, and got out before the crash. smart enough to be a bond trader. or lucky.
as for the other retirement plans. i can’t know for sure, but it sure looks to me like there is a world wide assault on “retirement” as a possibility for working people. SS is still “all you can rely on,” but they are working hard to “fix” that. and “we” are letting them.
i argued with Greenspan plenty when he was wrong. But now that he agrees with me….
would you explain to us exactly the ‘structural imbalance’ was?
i’d have been happy if it had continued just long enough to bring down the debt to manageable levels.
and i could have done without an unpaid for war to return us to structural balance… “deficits don’t matter”… said Cheney. But go ask a Republilibadem today and they’ll tell you the deficits is so bad we gotta keep granny working until she’s too old to stand up straight and that will solve the unemployment problem too.
but hands off my tax cuts.
Because it sounds like double talk to me. Just think of the scope of the problem. The gov taxed too much or spent too little, or both. How easy is it to fix that problem? Why ten years for tax breaks and war? Did they want to make sure that “structural imbalance” didn’t get out of hand? It’s all nonsense.
All pension plans, gov and corporate, are invested in stocks and bonds. So everyone is dependant on how that goes.
So, which one of the moderators deleted my “Republican Pledge” comment?
“And there is a political sensitivity in both parties. And I must say that the Republicans, I think, have been cutting taxes with borrowed money, and the Democrats have been spending with borrowed money. They agree only on the borrowed money.”
That seems to be the only salient comment in the entire piece. I would have disagreed the idea that only the Dems spend with borrowed money given that the Bush administration was running two expensive wars on borrowed money, but since Obama has done little to change that I think we can only say that all parties are the problem. But you have to borrow money if you’re going to refuse to collect sufficient tax revenue to cover the costs of preferred ideology.
Social Security is not invested in stocks and bonds as the main source of it’s “financing.” It really is pay as you go. The Trust Fund in its present enlarged form is not the way it was spozed to be. The money either “just grew” if you take one theory of history, or was intended to be a way for the boomers to prepay their own retirement beyond the generational inequity that their large cohort would have represented. In any even the Trust Fund doesn’t matter to SS, as I hope to show convincingly in an upcoming post. Not that it shouldn’t be paid back as promised, but that SS NOT dependent on “how that goes.”
Cedric Regula – “Why argue when you can roll on the floor laughing?”
I agree with Greenspan’s recommendation.
What better solution do you propose?
The Congress will have to undertake more than increase tax revenue. That alone won’t get the job done.
Greenspan’s concerns are likely to be realized this decade.
and in case jimi is the only one who didn’t notice, the point of the whole calculation was not to reach a 50T GDP, but to show how to get 3T in benefits out of a 50T GDP. the point would have been the same if you were trying to get 1.5T in benefits out of a 25T GDP. Fortunately no one is trying to get 3T in benefits out of a 25T GDP. that might present even me with a problem.
but not insurmountable. if the day ever came where we needed to save 30% of our earnings in order to support out old age, we would just make the best of it. no telling from here if that would leave us rich or poor. but the fact is that SS as the way to manage the savings would not be the CAUSE of our being rich or poor.
If we were going to live 40 years in retirement and still found it necessary to retire after 40 years of working, and we thought we could live in retirement on half as much as we needed when the kids were still young, we would take … we would have to take, .. we would have to take 33% of “present production” and devote it to “people no longer working.” but stock market or SS the proportion of present productioin spent by “the young” compared to that spent by “the old” would remain the same.
depends on how much you raise taxes.
the goddam babies that live in this country think they can have it all and not pay for any of it. well, if they want empire, they might have to give up one of their two lexuses. but there is no way that a sufficient tax raise is going to impoverish anyone, much less tank the economy. if the government is spending the money it collects in taxes, the same demand, and demand for investment is out there. and any capitalist too dumb to figure out how to get the money to invest in the face of that opportunity is not a capitalist, but a pig living on his daddy’s enterprise.
I agree with his recommendation of allowing the Bush Tax Cuts to expire in their entirety. I had the idea here before Greenspan.
I laughing at his double-talk and feeble attempts at misdirection over trying to convince people we had no choice but follow policies for an entire decade that he was instrumental in forming.
We may even need tax loopholes closed and higher tax rates, but it is hard to do that without putting a big drag on the economy.
It’s all over the news and web. We’ve heard it for at least 30 years too. Made me vote Republican as soon as soon as I turned 18 and they ended the draft. Hasn’t been been updated for current events either.
However, there are some things that can be done on the revenue side, such as increasing air transport “user fees” which interesting are not charged on the new $25 per bag charge to customers. Possibly raise fuel taxes to pay for the empire that is supposedly keeping the oil cheap for China and India.
Then there is cutting the amount of expenditures for things that the Sustainable Defense Task Force Study recommend, even thoug I think they are off by a factor of 2 and should show reductions in force structure and getting the US to a level of warfare spending about equal to the Brits’ 7%.
Then there is nearly 20% of federal spending called discretionary ”non security’.
There is a lot of room for deficit reduction in the spending side and much can be cut that is not benefitting the broader population.
Alan’s concerned? Come on now. It takes more than one or two people to kill a superpower, but the two most responsible are Greenspan and Bush. Hard to tell which is more so. Alan is concerned what the history books will say someday.
Not really true actually. There were clear indications that the 1999 ‘surplus’ was disappeared, and reason to be cautious. I do find Greenspan rather unreliable about remembering when and such…better PR for him. Bruce Bartlett has a good take.
The Trust Fund is there so this generation is paying for their demographic. They told us that when they increased our payments in 1983 (and quietly pushed out the retirement date). That adds some pension fund dimension to it. That should be an enhancement to the concept not a failing. Sort of like states having a rainy day fund for a downturn in the economy.
yep. but it turns out to be too easy to demagogue it, so in retrospect i’d have skipped it.
in theory every generation pays for itself. it’s only an anomaly like a baby bulge or the coming plague that BK warns us about where an enhanced “trust fund” would arguably be needed to correct a “generational inequity.” from what i can see the “inequity” is so small compared to the other inequities in life (wars, recessions, ) it is past stupid to worry about it. take the baby booms and plagues as just part of the normal vicissitudes and keep it simple. pay as you go with wage indexing.
We would have a problem working 40 years and living 40 years in retirement, with or without SS. Show me how many people could save for that with personal savings and investing it.
well, i think you are agreeing with me, but just in case
i imagine if you invested 30% of your income and got a return equal to inflation and the growth in the economy, you could end up with enough for an annuity that would pay for 40 years of further life expectancy.
the difference with SS is that it can guarantee this. you wouldn’t do better, but at least you wouldn’t do worse.
so maybe your questions is “can you live on 70% of your nominal wage? month to month, dedicating the rest to see you through a very long retirement? i’d say hell yes.
We may even need tax loopholes closed and higher tax rates,
but it is hard to do that without putting a big drag on the economy.
NO! NO! and more NO!
That is right wing bull shit. There is not one shred of evidence that increasing taxes on the rich will put even the tiniest drag on the economy.
Question for those who know.
when the government taxes people to get the money to pay down the deficit…that money is used to buy things. This reduces the need to borrow money “from the public.” So what does “the public” do with the money they are not lending to the government?
(presumably some of the money the government gets from taxes is used to “buy back” the bonds, or just not sell new ones to replace those that have been cashed out. same question: what does the public do with the money?}
how does this affect the economy? the bond market? please try to explain the mechanics.
I meant raising rates on everyone. But progressively of course. We all know that poor people spend all there income, plus whatever they can borrow, but rich people have extreme difficulty spending all theirs.
“So what does “the public” do with the money they are not lending to the government?”
Pay taxes for government spending (G=T if no deficits).
If the taxes are not needed, spending it in the private economy (consume C) .
If don’t spending it save it (S/I).
CoRev is better here.
i assume “saving” it means “investing” it, that is buying capital goods.
in other words taxing people to pay down the deficit should have no effect on “the economy.” the money gets spent either way, creating jobs and investment opportunities.
or are they saying it is necessary for the government to run a deficit,borrow money, because there is no demand for private investment to absorb the money the purchasers of bonds don’t want to spend on consumption.
it true, and apart from the limits to how much debt the tax payers want to pay interest on, they seem to be saying that the debt/deficit is going to kill the economy, but not running up a debt/deficit is going to kill the economy.
no doubt there are nuances i am missing.
ILSM, the difference is building wealth. If it goes to the Govt, for every dollar collected, wealth is removed from the economy.
In the case of a balanced budget GR=GS borrowing is stopped and over time the deficit is removed. This should not be the goal. There is a special balance, where treasuries are beneficial. We are at the opposite extreme today.
When GR < GS but spending is below the rate of inflation, and both are below the rate of inflation. Borrowing is reduced at a rate faster than inflation and over time the deficit is removed. When GR remains below the rate of inflation we are still in that wealth growth zone. That is what was happening under the Bush administration. When GR remains above the rate of inflation we are in that wealth destruction zone.
If GR < GS but spending is well above the rate of inflation, and both are above the rate of inflation. Borrowing is increased. There is no chance to payoff/down the deficit, and eventually the debt becomes so burdensome we are economically hindered or destroyed. Wealth destruction is catastrophic. IMO that is today's path.
The basic difference between conservatives and liberals is which side believes Government knows best. That differs depending on the area of concern, but economically we are tending to reach a common ground. The next few years will be formative in reaching that common ground. The EU is ahead of us.
please explain how wealth is removed from the economy if for every dollar govt collects, it spends a dollar.
or explain the opposite…if the gov’t pays down the deficit, how does that remove money from the economy since, i suppose, the money the gov’t does not borrow remains in the hands of the would be lender.. who would be free to invest or spend the money somewhere else.
i am not trying to make a political point. just asking for a mechanical explanation of what happens.
………… My Prediction for the 2012 election ………
Even though the economy will be barreling along at increased growth than today, Obama will lose the election because he will be unable to take credit for the growth.
republicans after taking the House can propose modest changes to economic stimulus, znd in so doing will be able to take near complete credit for any economic growth. As the Dems are now doing, blaming Bush, the republicans will blame Dems and especially Obama for the four and two years under their control.
No matter how many times Dems claim credit for the growth the feelings raised by the pain and suffering under their control will over ride logic. The result is a blood bath election in 2010 and a closer election but still loss of the WH in 2012.
okay. seems you have something against “redistribution.” maybe you are right. but if the government taxes you and gives the money to a poor person who spends it, how is that money lost to the economy. don’t relatively rich people get the money the poor spend?
i will grant that in the short run when the government taxes YOU, you have less money to spend… but the economy still has the same money to spend… unless the goverment is spending the money on foreign cars and prostitutes in haiti.
this is still a question, not a statement of values. i would like the mechancis of the multiplier made a little more clear.
If the USG is running a fiscal deficit, they are no longer taxing to spend, they are net borrowing to spend.
If the US is running a trade deficit, money for goods is leaving the country. There is also a Balance of Payments Identity that shows this amount of money outflow must be matched at macro level by the same amount of foreign financing. Then interest is paid on that financing to foreigners.
That’s the top level macro, and states nothing about details of how wealth is made or distributed internally within the country.
Also, I think multipliers are confusing, and I think economist make them up to prove whatever point they want to prove. But I haven’t studied it that much so I could be the only one that’s confused.
well, i am trying to understand this myself, so hang in here.
if the US is running a deficit, it is borrowing money from people who would otherwise spend it or lend it to someone else. no different than “taxing” them… except for the promise to give it back to them personally, with interest. i don’t see how this affects the economy at all in principle. there is some question about just HOW the money flows through the economy and who benefits… but i don’t see any effect on “the economy” at all. unless there is some mechanism i am missing. and i insist upon the mechanism. just words, or arm waving, or appeal to some economics “principle,” is not going to explain it to me.
as for the trade deficit… at first blush, it seems to me that Americans are trading pieces of paper for “real” goods. That ought to be to their benefit. But not if it means that they are giving up jobs, infrastructure… the capacity to produce, and the knowledge of how to produce. at the other end of the trade, the chinese, say, have lots of pieces of paper that at some time they are going to want to trade for something they can use. buy our cars, or buy our factories, or buy our real estate?
could be problematic. but unless we were willing to sell those things, they run the risk of just having a big pile of paper to admire.
so i am not sure i see the problem for us. at least not “in principle.” i can see lots of problems when you look at where the jobs are going if it means that americans no longer have the means to “earn” the fruits of production… or the skills to produce for themselves.
Part of government borrowing is from foreigners, so the interest and principal flows back to them increasing their wealth. If government was spending the money on something wealth producing in the country, then that still could be a good deal. It is of course a subject of much controversy whether the government spends money on something wealth producing. The strict definition is it would be something with a definable ROI, then there are less strict purposes like infrastructure, education and all the way thru safety nets, which are supposed to get us to some level of society that we expect to be at. At any rate, it needs to be paid back in real money with interest.
You’re right that spending the money makes the economy go round, and if this happens with profitable businesses, gainfully employed people, and everyone paying the entire tax overhead, then we get sustained or increasing standards of living and perhaps wealth creation, provided we have assets we can use for our wealth scorekeeping and preservation.
So if we have trade and fiscal deficits, we are borrowing from the future to finance today’s level of GDP. We are borrowing to prop up the government component of GDP. We are borrowing to reduce the consumption component of GDP, because the trade deficit subtracts from that component. The investment component doesn’t seem to be happening at the moment due to overcapacity. Then of course we have greatly expanded consumer credit to buy anything, foreign or domestic, in order to pump up GDP.
So this doesn’t look good at top level, and looks even worse when you pop the hood and look at the internals.
you point at a number of the moving parts. still, i am not convinced that when we examine them more closely we will find any real difference between government spending and private spending, taxing or borrowing on the final economy… could be we will, but i don’t see it yet.
I think CoRev’s concern with “redistribution” comes down to “taking money away from people who did something productive to earn it, and giving it to people who didn’t do anything productive to earn it.”
and that would certainly make a difference if the alternative was to require those people getting the transfer payments to do productive work in return.
but there are several cases:
some of those people are physically or mentally unable to do productive work.
some of those people are able and willing to do productive work but can’t find jobs.
some of those people will be needed to do productive work when “the economy” picks up.
some of those people paid in advance for their “benefits.”
so it is not just clear to me, how co-rev, or anyone, intends to avoid those transfer payments, or what the ultimate effect on the economy would be.
we could i suppose just euthanize the disabled, but we have reason to suspect that might be not a good idea.
we could let those who can’t find jobs just starve and “reduce the surplus population.” but they might not be wiling to go quietly.
we could let our workforce starve during recessions and then wonder where they went when business picks up and we need to start hiring again.
or we could insist that the government play no role in “saving,” either because we need the savers’ money for productive investment (hard to argue in an economy awash in cash looking for something productive to invest in), or because private “savings” systems are so much more “efficient” (hard to argue in an economy awash in cash looking for something productive to invest in) or because we don’t like the idea of the poor saving enough to quit working when we can make so much profit out of their labor… but it’s not clear how that differs from the “forced labor” we used to accuse the evil empire of practicing.
I have not touched on some of the moving parts that Cedric cites… mostly because i don’t know enough about them. but i do think the mechanics need to be explained in a little more detail if we are going to be able to claim that we understand them.
“taking money away from people who did something productive to earn it, and giving it to people who didn’t do anything productive to earn it.”
Hmm. What about the NIH, the NSF, the CDC, the USDA? All of these federal agencies do extremely important things, creating new knowledge that the pharma and ag industries have eagerly exploited and would never have done themselves.
What about federal contracts with Raytheon, General Dynamics, Lockheed? Does CoRev believe that these contracts have done nothing productive in the service of national defense?
What about federal support for residency training? Does CoRev believe that physicians in the US do nothing productive? Does he believe that some private foundation will take responsibility for funding residency training in the US?
What about federal support for the Veterans Administration? Does CoRev believe that federal funding of veterans care gives money to people who did nothing to earn it? Who would those deadbeat folks be? The physicians who care for our vets? Or the injured vets themselves?
I ask you; what sort of moron could have written these words: “taking money away from people who did something productive to earn it, and giving it to people who didn’t do anything productive to earn it.”
How is this not simpleminded trolling?
to be fair, I was the moron who wrote those words. I was putting words in CoRev’s mouth because I thought they made his position re “redistribution” clearer. And I thought I answered his position by making the picture even more clearer yet.
But you bring up a point I didn’t… those vets who went off and got shot at, or just wasted a year or two of their lives “they also serve who stand and wait” would be less likely to do that for us if they knew they were not going to get decent medical care…” so yes, more of that “useless redistribution” turning out to be not quite so useless as it looks at first glance.
but i’m still not arguing with CoRev. I am just trying to make the picture clear, and, as I keep saying, understand the mechanics. Because I do get tired of words that don’t quite mean anything.
Given your predilection for prognostication I’m wondering what it is that you foresee as the result of these Republican routes of their Democratic foes. Do you foresee some sea change,
(not climate change), in the operations of our government that will some how benefit the masses of the public that you suggest are about to vote their emotions hoping to assure their futures?
coupla more questions [and just to be sure, i think i am on your side here, just playing Socrates, and we know what happened to him.]
do we mind if the “principle and interest go back to foreigners.” when a company borrows money from me, it doesn’t care if i am a foreigner or a good guy or a bad guy. it borrows the money because it can use it to make money. presumably if we borrow from foreigners we expect the same return on our investment… and the principle (and interest) belong to the foreigner so their is no reason for it not to go back to them. perhaps with the interest they earned they will buy the product we made by using their money.
as for “real money,” i am not just sure yet that any money is “real.” money is the means of exchange, it ain’t anything real in itself.
as for the government investing in something wealth producing… well, you could argue that building bombs is wealth producing if it keeps your enemies from taking away your farm. and it’s not so certain that private investment always builds anything wealth producing. no doubt budweiser would argue that they are creating wealth. but some would argue they are just creating expensive ways to feel stupid and increase demand for public water treatment systems.
but yes, one needs to keep in mind education, the courts, the roads, and just “order” itself if one is to talk sensibly about “wealth” and not just “roi.”
not sure what you mean about the trade deficit subracting from the consumption component… seems to me it adds to it. we borrow for government spending arguably because we have decided that letting the taxpayer “consume” while the bond buyer “invests” now, and later the taxpayer pays for the investment returning the money so the bondbuyer can consume.. is a better deal. i don’t see any reason why it is a loss to anyone, least of all “the economy.”
and really, its the same with consumer credit… except that you get yourself into a situation where the consumer ‘spends’ driving production up to levels that cannot be sustained when the consumer decides he has to stop spending for awhile. this may well lead to destructive cycling of the economy… but it’s not consumer borrowing as such that causes the “worse”…
but still trying to understand the internals… moving parts.
which leaves me thinking it is a question of how the money is spent, not the “category” of “private” or “government” spending, or even borrowing or taxing.
Jack, what I see is “O” screwed by whatever happens. It is clear that the Republicans will take the House. Anything they pass to “stimulate” the economy they can claim as the di.fference that made the economy grow. Every time “O” tries to take some credit, he will be met with howls of derision. May sound familiar, as it is a frequent political ploy.
Thank you for sharing your insights.
Government spending (GS as CoRev put it) is justified by the public good resulting from the things the spending buys/provides. If government revenues (GR as CoRev put it) are not put to good use then citizens don’t want to pay taxes. Which is the case for defense spending, no one sees it as a good use of GR, so they want to borrow to provide for defense and the grandkids will get the bill they did not vote to pay.
What do you know about “defense”?
Do you know about opportunity costs? Do you know what public good is provided by General Dynamics building armored vehicles, or Raytheon selling Patriot missiles, or Lockheed $330M a pop F-22’s?
What public good is provided by “defense”?
And what public goods would be lost if instead of spending $800B next year the pentagon spent $240B.
I selected $240B because that level of providing defense related public goods is what the United Kingdom spends before it applies austerity to it Ministry of Defence.
What public good are lost to the Brits?
I suggest none and the answer to the US cuts is none as well.
Define service of the national defense, I suggest it is the service the national defense provides that needs defending. At the burden to the GR.
i would suggest that to some people that huge defense bill is what discourages the rest of the world from even thinking about building a competetive army. and that 800B buys jobs. even interesting jobs for good engineers who would otherwise be selling shoes at Macy’s.
now, I am not one of those people, but I think it is fair to start with what they believe.
On the other hand, co-rev dropped out because of emotionalism. mine? i was trying pretty hard to avoid it. someone else’s? maybe, but if you are going to run away every time someone gets a little emotional you are not going to contribute much to their, or our, understanding.
or maybe what we’re all here for is a chance to vent, and this “rational” stuff is just a bore.
I was out by the pool working on my suntan while you were pondering the economy, but I’m back now.
1) Right. Companies don’t care where they borrow money as long as they can make money with it, and show that they did, in dollars, on their books.
2) Money is real if you can buy something with it or receive a real rate of return on it. This means the dollar is sort of translucent at the moment.
From the standpoint of total wealth of a nation however, if you have persistent trade and fiscal deficits dependant on foreign financing, that means wealth is declining in aggregate.
3) Budweiser has an advantage over most government spending programs because they can mark up beer and sell it at a profit, and show ROI in dollars. So obviously we have to come up with less tangible ways to justify government spending. Then decide is it enough, or to much, and is it in the areas we need it. But then again, they tax the hell out of beer, so it is probably putting our kids thru k-12 school.
But at any rate, the private sector is charged with generating real dollars to pay for government spending and borrowing, including that created by the trade deficit, otherwise some foreign company could come along and buy Budweiser.
As far as the trade deficit subtracting, it is subtracted from GDP.
This is the “flow” identity everyone always talks about.
GDP= (Consumption+Net Trade) + Gov Spending + Investment
Note this is just annual dollar flows and says nothing about debt going up or down and whether it’s government or consumer or business debt. That’s how they can juice up the GDP number, and the bad news about paying it off comes in the future.
So now we have the case where the consumer is tapped out, biz doesn’t see investment opportunity, and the gov is the last one left, but we are now worried about debt levels there because the Gov didn’t adhere to Keynes counter-cycle policy.
And I think it does matter very much what the government spends it on.
Now it’s off to the gym to work on those 6-pack abs and other muskles.
I understand quite well the idea of opportunity costs. The world is full of choices, and as a 55 yo, I’ve made my share of choices, including embracing the oppourtunity costs of college and grad school.
My point was not to defend defense spending. My point was to falsify the claim that the federal government takes money away from people who did something productive to earn it, and giving it to people who didn’t do anything productive to earn it. Even defense spending gives money to people who earn it, even they aren’t the people who would give the most benefit to society by their production.
six pack abs have an entirely different conotation up here in couch country.
you are working at a much higher level of abstraction that i am. not sure we can bridge the gap. i am disposed to agree with your analysis… to the extent i understand it, but i often get the impression that in economics people are just throwing words at each other and no one slows down enough to really understand what the words mean in the real world.
for sure it matters what the government “invests” in. but the great gulf between gummint spending bad private spending good does not appear to this observer.
as for the tapped out consumer… isn’t that the point? oops.. i was about to say “people only want so much after all” but what is probably more true is that people buy while their credit is good then have to take a time out, while the economy can’t stop to wait for them on accounta when they aren’t buying, business lays off workers and the workers hurt. to me that sounds like it needs a whole different kind of fix than another “stimulus.” trading government debt for consumer debt may work once in awhile, but it can’t work every day in all seasons, it’s like having to have a drink before you go to work. after awhile it takes two drinks. and then…
thing about debt i wish you would think about is the flow of goods and services… the money is not the thing.
It is interesting to me that your response addresses only the personal credit garnered by one faction or the other. You do not even attempt to explain what good will result from a Republican take over of the Congress. Maybe you could be a little more focused on results rather than who takes credit for what. Do you see that there is some credit to be taken? Tell me how I will benefit from a Republican controlled Congress. Convince me that I would be better off if such a change is to happen.
please correct my statement about productive/not productive. i believe you were saying that the multiplier for private spending was greater than for public spending. i may not remember that right. and i certainly don’t understand what it means in cause and effect real world terms.
i would agree with you about the emoting of others, but i am trying to avoid that.