Newgrounds.com — Everything, By Everyone.

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At 2/12/09 02:24 AM, n64kid wrote:

At 2/12/09 01:28 AM, Dawnslayer wrote:

Fair enough. Let me rephrase the question: if you developed a recovery plan for use by the citizens and NOT the government, what would you recommend people do? How can WE get involved?

Well, I believe in wise administrative policy by the government, which is arguably government intervention, but does not include massive spending or changing the income tax rate.

As far what my plan would include, I would create new tax revenue without people realizing it (Clinton pulled this off with a deduction penalties). As much as I hate money in the hands of the government, the deficits we've seen for 23 out of the last 25 years is creating such a large debt and is a large part of our destroyed confidence in our nation's currency and markets. People pay more money to the government without the public outrage.

Devious. What are deduction penalties, exactly?

Then I'd have the government prioritize virtually every aspect of spending, make those tough choices, and cut the least important expenditures just to force a balanced budget. The economy will tank now, but it won't be forced to default on debt in the future, which would destory our currency and cause a real deep, prolonged depression worldwide.

Sort of like the Automatic Millionaire concept of "don't buy that latte every morning," right? That makes sense...I think.

I also believe that if the private sector is able and willing to perform duties by the government, then private entities should take over. This is because the private sector is inherently more efficient than the government. The extra revenue from private operations are also taxed, helping the deficit.

I keep hearing that "private sector" argument. Could you elaborate a bit on why that's true, just so I'm sure I understand (and for the sake of others as well)?

Example: Private IRAs are far more effective than social security, and as such, private retirement accounts should supplement social security, while phasing out some monetary benefits of S.S. which the US government cannot afford. That way citizens can receive more of their money when they retire without putting too much stress on the system. This benefits the financial industry, private investment boosting federal revenue, and would naturally reduce FICA tax paid by both the employer and employee, which is an earmark and doesn't go to the general spending budget anyways.

FICA, for anyone else who didn't know before.

Then there's debt consolidation. This is a grey area for me, but if the government can auction off Treasury bills at a certain rate, and thus be in debt to itself. I'm not sure how interest payments work here, but if the US can auction enough T-bills and other federal bonds to itself, at a floater rate equal to inflation, to effectively have enough money to buy back all outstanding bonds in the public and foreign hands, and thus reduce the 430 billion dollars we spent on interest alone in 2007.

Okay, looked up debt consolidation and treasury bills. Let me see if I got this right: The government loans itself money, to buy its own assets, and builds outstanding interest for itself on those assets, from its own funds, to buy back the assets other people are holding, so it doesn't have to pay as much interest on those, and thus reduces its spending on interest?

I rarely say this, but: WTF?!

During times of surplus, which would be forced under my plan, the government thus pays itself back, destroying the money, and getting that national debt off the record. This would theoretically restore faith in our government, our currency, and our markets.

So after the economy is restored, and a surplus of government funds is available, the US uses said surplus to pay off its outstanding interest to itself.

Kindly downgrade the "WTF?!" to just "Run that by me again?"

So my plan involves privatization, debt consolidation if possible, secret taxing, and a massive decrease in unnecessary spending.

This actually sounds plausible, and you explained it very thoroughly. The one major flaw I see is the secret taxing, which (although I still don't quite understand it) sounds like something easily abused by the wrong administration. Do I need to be corrected on this?

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When replying to Memorize, I have made some statements that have been inaccurate to say the least. I apologize, and move on to rectify them.

At 2/11/09 05:22 PM, n64kid wrote:

At 2/11/09 02:09 PM, Der-Lowe wrote: Fiscal policy (aka stimulus plan) has been intensively and successfully by every president that has faced a recession, from FDR to George W Bush.

Fiscal policy has successfully influenced the economy. The effect being for better, or for worse, is moot.

I was arguing that fiscal policy was not Obama's invention, and that had been used by basically every president who has faced a recessive scenario. Calling it successful, is an exaggeration, since it has been used with varying degrees of success.

Uhm, Bush lowered taxes across the board, and raised the tax burden even more so on the "elite".

You are correct, sir, I got carried away.

one did it under false premises (lowering taxes to the rich creates jobs),

So when we had full employment, that wasn't because of the increase in the private sector scope and size over Bush?

My objection was that income taxes have no direct effect on the job creation mechanism. The decision to hire, or not to hire, depends on the value of the Marginal Product, and not on the levels of personal income. Altering income taxes do not modify the dynamics of the labor market. The whole idea that the Bush Administration put through was fallacious.
Now, increased private consumption does alter prices, and what influences the goods market also influences factors market, but that was not what the Bush administration was saying.

The bail-outs were against "Bush policy", that's why he went to great lengths to explain why he was doing something that basically went against his free-market principles.

The bail-outs were with "Bush policy" in spending an excessive amount to help citizens from top to bottom. Banks with funds allows more borrowing, and helps keep them solvent, keeping bankers employed, restoring confidence to the stock market, and to help keep the ripple effect of bank failure slightly contained. However, the money was not free. It was a helping hand, but not without terms of repayment.

I do not believe the bail out was in accordance of Bush's ideology, since in other circumstances, would have let all the entities fall. I specifically remember him explaining why he was going against his, "ethical code", if you can call it that.

Welfare spending doesn't really stimulate anything, it just provides a social safety net that is easily abused.

One would have to make a distinction between a welfare system, as those implemented in Nordic countries, and a welfare plan, as proposed by a stimulus package.
Simply giving those in need money so that they can cope with this hard times does act as a stimulus, since you're channeling money into hands that will readily spend it, feeding the economic cycle.
Now creating a welfare system (like the Negative Income tax) has a whole different purpose, that is, a more egalitarian income distribution.

and the other under proved economic laws (the multiplier).

Err, the multiplier is affected by tax cuts, change in the money supply, interest rates, individual behavior etc, is almost always overstated, and more or less, only casts a somewhat reasonable estimate of what additional government spending means.

Of course. I do not believe the multiplier to be just 1/(1-MPC). But with the interest rates set in 1%, and deflation on the horizon, I would not think that there would be a monetary counter-attack.

So perhaps a little reasoning from you might help me understand where you're coming from when you make these statements.

If you will,
1) Why don't you consider a reduction in taxes to every citizen as an increase in the multiplier effect?

I meant the expenditure multiplier, which is the most "popular" one, although the tax multiplier also exists. As has already been explained, the tax multiplier is smaller than the expenditure multipliers, since part of the money that is given back to the individuals is saved. Theoretically, it is MPC*expenditure multiplier.
The part of the tax cut that goes into saving can be quite large in depression times, since the negative economic outlook make individuals much more conservative in their budget administration.

2) Keynesian economics, as I understand, state that government involvement in the economy 90% of the time should be limited to administrative policy, and the core of the tax revenue should be spent on infrastructure. Do you agree with this?

Keynesian economics (more precisely, Keynes) does not actually care much about the role of the State. The point being made with fiscal policy was that the government should have a counter-cyclical fiscal policy, how, it was unimportant (paying people to dig a whole and fill it back). Public works seemed a good idea, since they also help the private sector in reducing costs, however, Keynes was not too worried about efficiency, that's why he praised the egyptians with their constant monumental public works policies.
Neither does keynes care about welfare, all his work is pragmatically focused in resolving the paradigms of his era, the Great Depression. I believe that many what you call "liberals" tend to "go Keynesian" mainly because he advocated that government should step in to resolve economic troubles. But that liberals are keynesians, does not mean that Keynes was a liberal.

3) Keynesian also states that the private sector is a favorable driver in economic growth over the public sector,

I have never read him saying explicitly that. He was no socialist, for sure.

and because of that, the government should use a fiscal stimulus on businesses to help increase output. If this statement is true, don't you believe that if the government directly hands money to businesses, or cuts taxes constitutes a stimulus under Keynes? (Keynes and supply-side do overlap in certain areas, just don't alert the press)

They are a stimulus, but as I have explained, a sub-optimal one. Indeed, tax-cuts can be considered a keynesian policy.
The first economics book I bought, when I was ten, was a book entitled "Economics for beginners" (that's what the for dummies series are called here). I remember a drawing of Reagan in his cowboy hat saying what his plan would be, and when he talked about the tax-cuts, he said, between parenthesis "Am I a Keynesian?".

At 2/12/09 11:48 AM, MortifiedPenguins wrote:

At 2/11/09 02:09 PM, Der-Lowe wrote:

At 2/11/09 03:32 AM, Memorize wrote:

At 2/11/09 01:44 AM, Bolo wrote:

Fiscal policy (aka stimulus plan) has been intensively and successfully by every president that has faced a recession, from FDR to George W Bush.

Yeah, it worked wonders for Carter.
Or hell, it's not like it didn't take the biggest war in human history to bring us out of the Great Depression.

WW2 is macroeconomically, the same as a stimulus plan.

G up
Multiplier in action
???
Profit!!!

Fiscal policy is great tool for helping to control inflation or unemployment, but is useless for large scale recessions based upon more pressing and critical flaws in th economy.

Au contraire, my friend, fiscal policy is the only tool left. The fed has already lost all ammo, especially since deflation has become a quite possible scenario.
Remember that the whole cause for the Keynesian revolution was the Great Depression, it was the only economic school that was able to explain it, and ultimately solve it.

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At 2/11/09 05:32 PM, Al6200 wrote:

At 2/11/09 05:17 PM, Der-Lowe wrote:

The reduction of marginal tax rates has no efficiency effects, it only affects income distribution. Don't try to steer it into an equality vs efficiency issue. You can't simply use tax cuts as the miracle solution, especially because it generally (99%) transforms itself into a debt nightmare.

I agree that in the United States today, raising taxes on the upper class would not reduce efficiency. That's probably because the rich people pay too few taxes as it stands.

The scientific explanation is an upward bending labor supply curve.

But there are specific cases where income inequality has had a relationship with efficiency, like in Zimbabwe (where Mugabe redistributed farmlands and single handedly crushed their economy) or China (where allowing people to accumulate wealth and capital was highly beneficial). Extreme wealth redistribution schemes can sink an economy, and likewise removing them can create a lot of growth.

I am aware of the equality-efficiency scenario, but it is not what I was discussing. The tax cuts were not impregnated with this paradigm. The developed world has long ago (excepting agriculture) stopped interfering in the market mechanism. Could the market be altered in order to achieve a greater equality? Yes, but it is not desirable, because of the complexity doing such things creates, and the efficiency penalty inherent to it.

And since the Reagan tax reform, Income distribution in the US has been steering towards a 3rd world one constantly. It's on the verge of having the same income distribution of Mexico.

Just hypothetically, if you increased the marginal tax rate up to pre-Reagen levels, and distributed the wealth evenly, would the US have a significantly higher GNI?

Lower, 0 is perfect equality, since it means that the Lorenz curve of the nation is the same as the perfect equality straight line.
Distributing wealth equally would mean limiting private property, so I would never be in favor of such move. I am targeting income distribution, not wealth, taking a more "equal opportunities", not "equal result" position.
I believe that higher marginal tax rates should be imposed, maybe not 95%, but 60%, and I think that would help significantly.

I suspect that immigration, globalization, and technology have played a bigger role in the GNI change that tax reform.

Not really, since Europe still has a much better income distribution than you do

US Gini: 45
Mexican Gini : 47.9

This is true. But one thing you have to consider is that the US is considerably wealthier than the countries of Europe which score higher on the GINI index.

I am aware of this, the US beats in GDP per capita almost every country in Europe, and also has lower unemployment.
The European labor market is far from perfect, it has just chosen to hike labor costs favoring the already employed, and global equality, going against dynamism and the younger participants in the labor market. I believe reforms are to be had, yet they should not let go the pursuit of an egalitarian nation.

At 2/11/09 06:09 PM, Al6200 wrote: It's quite possible that the US has a low GINI index because we have so many jobs in the information and high technology sectors where people are paid based on their experience, and earn more money at different stages in their life.

True, but blaming the inequality situation on the high tech industry dynamics, is blaming the referee for a lost match. He might have been against you , but you lost simply because you didn't play well.

The high-tech industry is not accountable for a difference of 15 points in the Gini.

It would be interesting to see a GINI index of people at just a certain age, to control for factors like that.

Indeed.

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I will see to n64kid's proposal post later, if you'll excuse me.

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At 2/13/09 01:56 PM, Der-Lowe wrote:

Yeah, it worked wonders for Carter.
Or hell, it's not like it didn't take the biggest war in human history to bring us out of the Great Depression.

WW2 is macroeconomically, the same as a stimulus plan.

G up
Multiplier in action
???
Profit!!!

Profit is questionable, since this was the beginning of the US descent into a debt ridden nation.

Au contraire, my friend, fiscal policy is the only tool left. The fed has already lost all ammo, especially since deflation has become a quite possible scenario.
Remember that the whole cause for the Keynesian revolution was the Great Depression, it was the only economic school that was able to explain it, and ultimately solve it.

Yes because, like I said earlier, Roosevelt's alphabet soup of programs didn't seem to do much untill we needed rifles to kill the germans with.
If Keynesian economics is indeed correct, then how come Roosevelts New Deal programming had such a miniscule effect? If Keynesian economics is indeed correct, then what explains Japan's lost generation?

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At 2/13/09 01:35 AM, Dawnslayer wrote:

Devious. What are deduction penalties, exactly?

People can deduct certain items from to lowere there taxable income and thus reduce their total paid taxes. Deductions are fair, as they are reasonable allowances and expenses necessary to go through life. Clinton proposed a limit on deductions, with a 3% penalty if you go above the limit. It's a new tax base being exploited but around 95% of tax payers don't know this.

I keep hearing that "private sector" argument. Could you elaborate a bit on why that's true, just so I'm sure I understand (and for the sake of others as well)?

Economies of scale means that the larger you become, the more efficient you become because you can buy in bulk and spread out certain costs to create things for less. Diseconomies of scale is when an entity becomes too large and becomes too hard to control. This is where the government is.

Okay, looked up debt consolidation and treasury bills. Let me see if I got this right: The government loans itself money, to buy its own assets, and builds outstanding interest for itself on those assets, from its own funds, to buy back the assets other people are holding, so it doesn't have to pay as much interest on those, and thus reduces its spending on interest?

Sort of, the government can raise revenue two ways; taxes and issuing bonds. Say the government is short, and issue a 10 year 5% coupon $100,000 bond. They are responsible for that interest when it's due, say annually, and must pay 5000 dollars a year for 10 years and afterwards, pay the 100,000 back in full. Simple interest means that they pay 150,000 total for that 100,000 debt. What I don't get is why people want the government to spend more by adopting universal healthcare when we're already in such a huge amount of debt. Take a lookie.

I rarely say this, but: WTF?!

Welcome to my world.

So after the economy is restored, and a surplus of government funds is available, the US uses said surplus to pay off its outstanding interest to itself.

It uses its surpluses to buy back debt (the principal paid), and thus isn't obligated to make interest on debts bought back. Say 10 trillion dollars means 500 billion in debt annually. Theres a surplus of 300 billion. We use that 300 billion to make the debt 9.7 trillion and then pay less in interest for the next year. Less interest paid means a larger surplus which means more debt being repaid for the next year.

This actually sounds plausible, and you explained it very thoroughly. The one major flaw I see is the secret taxing, which (although I still don't quite understand it) sounds like something easily abused by the wrong administration. Do I need to be corrected on this?

Well "secret taxing" is a way to collect extra revenue without destroying investor confidence and without pissing off the general population.

As Jack Kemp once eloquently put, "Surely, a tax code which is simple and fair must generate sufficient revenue so that the federal government may carry out its legitimate tasks. Second, it must not place a tax burden on those members of society least able to bear one. And perhaps most important of all, it must not restrict the innovative and entrepreneurial capacities of Americans upon which rising living standards and our general prosperity so greatly depend."

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At 2/13/09 01:56 PM, Der-Lowe wrote:

I was arguing that fiscal policy was not Obama's invention, and that had been used by basically every president who has faced a recessive scenario. Calling it successful, is an exaggeration, since it has been used with varying degrees of success.

Fair enough.

My objection was that income taxes have no direct effect on the job creation mechanism. The decision to hire, or not to hire, depends on the value of the Marginal Product, and not on the levels of personal income. Altering income taxes do not modify the dynamics of the labor market. The whole idea that the Bush Administration put through was fallacious.

Savings on income taxes aren't justified solely in creating jobs. It's been shown that tax savings are given to charitable based organizations.

Among developed nations, those with higher taxes and bigger social safety nets tend to have lower rates of giving.

I'm sure you know the logic behind supply-side economics. Businesses constantly seek growth to maximize profits and total value of the firm. It's natural for businesses to expand operations and entrepreneurs to start of small businesses when given additional cashflow. Tax breaks give necessary cashflow for investment. Under Reagan and Bush, unemployment and inflation dropped during their presidencies, but recessions hit towards the end when the "elite" hit problems. Under Reagan, it was TEFRA that eliminated some tax havens and a failure of congress to lower government spending. Under Bush, I blame the CRA and government sponsored entities like Freddy and Fannie for starting the subprime trend causing this ripple effect throughout most world banks, while destroying investor confidence.

I do not believe the bail out was in accordance of Bush's ideology, since in other circumstances, would have let all the entities fall. I specifically remember him explaining why he was going against his, "ethical code", if you can call it that.

The bailouts of the auto industry go against his "ethical code", then ones for the banks wouldn't be for the reasons I posted earlier, allowing for money funding to be given for entrepreneurs and keeping people in their homes.

One would have to make a distinction between a welfare system, as those implemented in Nordic countries, and a welfare plan, as proposed by a stimulus package.
Simply giving those in need money so that they can cope with this hard times does act as a stimulus, since you're channeling money into hands that will readily spend it, feeding the economic cycle.

I'll call it a safety net. Some things like food stamps I have no problem with. Some things like cold hard cash which almost never go to productive use is why I call this a waste. Lemme explain. I live in California, but I go to school in Wisconsin. The area where I live in Calif has an unemployment rate of over 9% because the people there are retarded and only spend their money on drugs. Around my school, we have one of the most livable cities, a 4.2% unemployment rate, and we are one of the most educated cities in America. Money for Madison citizens go to good use. Money for Angelenos just create federal debt that won't be repaid.

Now creating a welfare system (like the Negative Income tax) has a whole different purpose, that is, a more egalitarian income distribution.

Was that suggested by anyone besides Al?

I meant the expenditure multiplier

Ah, my bad. I thought you were just ignoring the tax multiplier all together.

The part of the tax cut that goes into saving can be quite large in depression times, since the negative economic outlook make individuals much more conservative in their budget administration.

But then there's deflation, which is a terrible thing but corrects itself when peoples confidence in purchasing money tap into savings and counter deflation. Looking in the long run, that is.

Keynesian economics (more precisely, Keynes) does not actually care much about the role of the State. The point being made with fiscal policy was that the government should have a counter-cyclical fiscal policy, how, it was unimportant (paying people to dig a whole and fill it back). Public works seemed a good idea, since they also help the private sector in reducing costs, however, Keynes was not too worried about efficiency, that's why he praised the egyptians with their constant monumental public works policies.

I understand the counter-cyclical policy to smooth out volatility, but I reject Keynes for the same reason. In times of economic growth or boom, fiscal policy should act as an enabler to maximize the effects as I believe this is where boosts in technology derives from. It forces sharper peaks and lows in the economy, but as far as standard of living goes and quality of life goes (as well as average real economic growth), I believe that it's much higher than it would be under a counter-cyclical approach. Just look at India before and after 1990. What if India had been growing at the Hindu rate instead of the sporadic but rapid growth rate it's been seeing for the past 20 years. The lows in Indias economy would still be higher than the highs of low but stable growth.

Neither does keynes care about welfare, all his work is pragmatically focused in resolving the paradigms of his era, the Great Depression. I believe that many what you call "liberals" tend to "go Keynesian" mainly because he advocated that government should step in to resolve economic troubles. But that liberals are keynesians, does not mean that Keynes was a liberal.

My problem is that Keynes advocated for infrastructure to be constructed during tough times, and he argued that deficit spending should never be used on the military, yet most US liberals call welfare spending necessary for the government to get the economy out of recession while calling it Keynes.

I have never read him saying explicitly that. He was no socialist, for sure.

Tell that to some of my countrymen.

WW2 is macroeconomically, the same as a stimulus plan.

No arguements here but again, defecit spending to finance the military is violation to Keynes, and that's why I don't consider Keynesian economics as the economic school of thought that got us out of the great depression.

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At 2/13/09 01:57 PM, Der-Lowe wrote:

At 2/11/09 05:32 PM, Al6200 wrote:

But there are specific cases where income inequality has had a relationship with efficiency, like in Zimbabwe (where Mugabe redistributed farmlands and single handedly crushed their economy) or China (where allowing people to accumulate wealth and capital was highly beneficial). Extreme wealth redistribution schemes can sink an economy, and likewise removing them can create a lot of growth.

I am aware of the equality-efficiency scenario, but it is not what I was discussing. The tax cuts were not impregnated with this paradigm. The developed world has long ago (excepting agriculture) stopped interfering in the market mechanism. Could the market be altered in order to achieve a greater equality? Yes, but it is not desirable, because of the complexity doing such things creates, and the efficiency penalty inherent to it.

The tax cuts are typically sold like this: "The only way to create real economic growth is to increase the amount of production, and the best way to do that is to free up capital which will be invested appropriately. The stock market is better at allocating capital then the government".

Just hypothetically, if you increased the marginal tax rate up to pre-Reagen levels, and distributed the wealth evenly, would the US have a significantly higher GNI?

Lower, 0 is perfect equality, since it means that the Lorenz curve of the nation is the same as the perfect equality straight line.
Distributing wealth equally would mean limiting private property, so I would never be in favor of such move. I am targeting income distribution, not wealth, taking a more "equal opportunities", not "equal result" position.
I believe that higher marginal tax rates should be imposed, maybe not 95%, but 60%, and I think that would help significantly.

I don't disagree with that position. My rational is that a person should be taxed in proportion to their wealth, and not their income. A person who makes 100k a year is way more than twice as wealthy as a person who makes 50k a year, because the person with the extra 50k gets to spend money

I suspect that immigration, globalization, and technology have played a bigger role in the GNI change that tax reform.

Not really, since Europe still has a much better income distribution than you do

Well, maybe.

This is true. But one thing you have to consider is that the US is considerably wealthier than the countries of Europe which score higher on the GINI index.

I am aware of this, the US beats in GDP per capita almost every country in Europe, and also has lower unemployment.
The European labor market is far from perfect, it has just chosen to hike labor costs favoring the already employed, and global equality, going against dynamism and the younger participants in the labor market. I believe reforms are to be had, yet they should not let go the pursuit of an egalitarian nation.

I support a system of welfare and aid to the poor, even it means lower productivity. This is an unusual position in the US, especially for a person who identifies as a conservative. But it just seems more reasonable to me.

People in the upper middle class (and upper class) could spare 10-20 thousand dollars a year to support welfare programs.

At 2/11/09 06:09 PM, Al6200 wrote: It's quite possible that the US has a low GINI index because we have so many jobs in the information and high technology sectors where people are paid based on their experience, and earn more money at different stages in their life.

True, but blaming the inequality situation on the high tech industry dynamics, is blaming the referee for a lost match. He might have been against you , but you lost simply because you didn't play well.

No, what I'm saying is that if one earns 100k a year for the later half of their career, and 50k for the first half of their career - that's much more equal than one earning 50k for their entire life and another earning 100k for their entire life.

The high-tech industry is not accountable for a difference of 15 points in the Gini.

Okay, but what about someone who starts as a cashier and then works their way up to mid level management through their career. Surely their income doubles, maybe even triples over the course of their lifetime.

And it's not just high tech industry, but globalization in general. The way I see it, the US economy has transitioned from having a large industrial/commercial class, to having an upper middle class that works with high technology, and a large service class that supports them. But perhaps that is just because I'm from Maryland, where there is an exceptionally large amount of work in civil service.

It would be interesting to see a GINI index of people at just a certain age, to control for factors like that.

Indeed.

Yeah, I also have gotten the strange urge to calculate the GINI index of medieval England. The problem is that the income statistics of that time usually take the form of:

"If ye go to the harbor, ye see more homeless people then thy eye can count"

Which of course makes it very hard to calculate a GINI index : (

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At 2/13/09 01:57 PM, Der-Lowe wrote: Not really, since Europe still has a much better income distribution than you do

I'm not going to let you get away with that. Why is a more egalitarian income distribution better? Given that within any human population there's going to be a Gaussian distribution of natural attributes, some people are simply better apt to perform some jobs. Now, I don't mean to make this overly simplistic. Of course there are factors of education, training, experience, motivation, etc that will offset natural ability, but even within your own work place you can see a generally Gaussian distribution of proficiency. Wages that don't reflect that are less efficient.

Please don't get the impression that I think the US is really much better than Europe, however. While our income tax is comparatively low (the only reason an income tax exists in the first place is for the harmful redistribution of income), our government does spend and print a massive amount of money, and of course the politically connected will have artificially high wages because of that. But I think in general, the US is much better about not distorting natural incomes.

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At 2/13/09 05:23 PM, n64kid wrote: What I don't get is why people want the government to spend more by adopting universal healthcare when we're already in such a huge amount of debt.

I'm actually in a very good position to explain this. A proponent of universal health care is likely to be think of micro-economic needs. I myself am a type-I diabetic, and my medical costs are such that I can not afford to live independently. At the same time, my parents struggle to pay both medical and tuition; because my college uses block schedules, I don't have time for a job to even try and bear any of the cost. And of course, being a liability, my insurance costs are ridiculous.

From this perspective, universal health care doesn't sound like such a bad thing. Taxes increase, yes, but the distribution of cost across the populus eases the burden on those of us who really need the extra cash. Opponents of universal health care often seem to oppose it just because it's money out of their pocket, and they don't think they'll ever need paid-for health care services. (Let me tell you, this notion can invite disaster.)

But I can see how on a macro-economic scale, UHC can be a complication. I'm also aware of the social implications, which get argued so many times over it's almost not worth repeating: long waiting lists, understaffed facilities vs. underqualified doctors, and of course possible public abuse of the system. All this said, I'd like to have my health care paid-for, but knowing the drawbacks my opinion seems forced by my situation.

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So I just had this idea: instead of universal health care, what about conditional health coverage? This would be a compromise between the two ends of the spectrum, eliminating medication costs for people who will need them for most or all their life, and freeing their money to pay doctors and insurance bills; at the same time, doctors are still privately paid, and the "cruft" that would accumulate in hospitals under UHC is generally avoided, solving the understaffing problem. (I haven't figured out yet where major surgery fits into this.) It would still be a burden on the government, but not as much, and would still make life easier for the people who need the services most.

Thoughts?

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At 2/14/09 12:32 AM, Dawnslayer wrote:

Thoughts?

Problem is then you pick and choose what diseases and conditions are covered, people get excluded, then law suits develop and healthcare costs expand further and further. Also, remember the interest paid on debts? UHC alone stands to add 110 billion dollars-Hillary's figure just to cover 47 million people. Some more conservative estimates put the bill at around 500 billion a year. Seeing how we have 450 billion dollar deficits already (putting the stimulus plan aside), I don't see this type of spending anywhere helpful to the people who have to pay extra taxes and then pay for the interest debt. Play around with one of these to see how interest can kill us on an extra 500 billion in debt.

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Point taken on the lawsuit thing. (I knew there had to be something wrong with it; every plan has a flaw, after all.)

We'll head back on topic now. Pardon me for the digression.

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At 2/13/09 02:19 PM, MortifiedPenguins wrote:

At 2/13/09 01:56 PM, Der-Lowe wrote:

Yeah, it worked wonders for Carter.
Or hell, it's not like it didn't take the biggest war in human history to bring us out of the Great Depression.

WW2 is macroeconomically, the same as a stimulus plan.

G up
Multiplier in action
???
Profit!!!

Profit is questionable, since this was the beginning of the US descent into a debt ridden nation.

I would say that the US is debt-ridden, not because of its fiscal behavior during critical times, but because of its fiscal policy during prosperous times.

Au contraire, my friend, fiscal policy is the only tool left. The fed has already lost all ammo, especially since deflation has become a quite possible scenario.
Remember that the whole cause for the Keynesian revolution was the Great Depression, it was the only economic school that was able to explain it, and ultimately solve it.

Yes because, like I said earlier, Roosevelt's alphabet soup of programs didn't seem to do much untill we needed rifles to kill the germans with.
If Keynesian economics is indeed correct, then how come Roosevelts New Deal programming had such a miniscule effect?

Because it was minuscule in comparison of the depression the US faced (and it had some restriction of markets that also hindered recovery). What the US needed was a massive stimulus, a stimulus that took shape in the WW2 build-up, that increased debt to 120% of GDP.

If Keynesian economics is indeed correct, then what explains Japan's lost generation?

Fiscal stimulus in Japan was also positive, yet the complexity of Japan's crisis overwhelms a simplistic solution. However, the fiscal programs were positive, the proof being that when the Prime Minster Hashimoto tried to balance the budget in 1997, a recession took place.
Moreover, Japan's recovery in 2003 was caused through a pull in aggregate demand, in the shape of exports to China.

At 2/13/09 06:17 PM, n64kid wrote: Savings on income taxes aren't justified solely in creating jobs. It's been shown that tax savings are given to charitable based organizations.

Among developed nations, those with higher taxes and bigger social safety nets tend to have lower rates of giving.

Simply because the government is the charity system, therefore there is no need for giving.

I'm sure you know the logic behind supply-side economics. Businesses constantly seek growth to maximize profits and total value of the firm. It's natural for businesses to expand operations and entrepreneurs to start of small businesses when given additional cashflow. Tax breaks give necessary cashflow for investment. Under Reagan and Bush, unemployment and inflation dropped during their presidencies, but recessions hit towards the end when the "elite" hit problems. Under Reagan, it was TEFRA that eliminated some tax havens and a failure of congress to lower government spending. Under Bush, I blame the CRA and government sponsored entities like Freddy and Fannie for starting the subprime trend causing this ripple effect throughout most world banks, while destroying investor confidence.

If you want to give them money, just create a national bank, or better, have expansionary monetary policies. Supply side economics has hurt businesses in the long run, because of the political inconvenience of balancing the budget, which has lead to capital displacement.

I do not believe the bail out was in accordance of Bush's ideology, since in other circumstances, would have let all the entities fall. I specifically remember him explaining why he was going against his, "ethical code", if you can call it that.

The bailouts of the auto industry go against his "ethical code", then ones for the banks wouldn't be for the reasons I posted earlier, allowing for money funding to be given for entrepreneurs and keeping people in their homes.

Yes, I agree. But there's always lobbyist and political correctness to alter politicians' ethical code.

I'll call it a safety net. Some things like food stamps I have no problem with. Some things like cold hard cash which almost never go to productive use is why I call this a waste. Lemme explain. I live in California, but I go to school in Wisconsin. The area where I live in Calif has an unemployment rate of over 9% because the people there are retarded and only spend their money on drugs. Around my school, we have one of the most livable cities, a 4.2% unemployment rate, and we are one of the most educated cities in America. Money for Madison citizens go to good use. Money for Angelenos just create federal debt that won't be repaid.

Every govenment program is far from perfect. However, I believe that the drug issue is one to be addressed separately. The proportion of cash injections that would go to drug abuse is minimal, I believe, compared to that that will be channeled into consumption, and the repayment of debts, which will also help the financial system.

Now creating a welfare system (like the Negative Income tax) has a whole different purpose, that is, a more egalitarian income distribution.

Was that suggested by anyone besides Al?

Yeah, by an economist called Milton Friedman. You might have heard of him :)

The part of the tax cut that goes into saving can be quite large in depression times, since the negative economic outlook make individuals much more conservative in their budget administration.

But then there's deflation, which is a terrible thing but corrects itself when peoples confidence in purchasing money tap into savings and counter deflation. Looking in the long run, that is.

But in the meantime you can face a depression that takes a decade to overcome.

I understand the counter-cyclical policy to smooth out volatility, but I reject Keynes for the same reason. In times of economic growth or boom, fiscal policy should act as an enabler to maximize the effects as I believe this is where boosts in technology derives from. It forces sharper peaks and lows in the economy, but as far as standard of living goes and quality of life goes (as well as average real economic growth), I believe that it's much higher than it would be under a counter-cyclical approach. Just look at India before and after 1990. What if India had been growing at the Hindu rate instead of the sporadic but rapid growth rate it's been seeing for the past 20 years. The lows in Indias economy would still be higher than the highs of low but stable growth.

Well, that point of view I had never heard about.
Interesting.

My problem is that Keynes advocated for infrastructure to be constructed during tough times, and he argued that deficit spending should never be used on the military, yet most US liberals call welfare spending necessary for the government to get the economy out of recession while calling it Keynes.

I have never read anything about warfare spending from Keynes.

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At 2/13/09 06:39 PM, Al6200 wrote: The tax cuts are typically sold like this: "The only way to create real economic growth is to increase the amount of production, and the best way to do that is to free up capital which will be invested appropriately. The stock market is better at allocating capital then the government".

The idea is basically false, because deficit spending affects the capital market directly, through overcrowding, ie, the government displacing the private sector in the financial markets in order to finance its deficits.

Just hypothetically, if you increased the marginal tax rate up to pre-Reagen levels, and distributed the wealth evenly, would the US have a significantly higher GNI?

I don't disagree with that position. My rational is that a person should be taxed in proportion to their wealth, and not their income. A person who makes 100k a year is way more than twice as wealthy as a person who makes 50k a year, because the person with the extra 50k gets to spend money

The problem with wealth taxes is that they might transform into huge income tax. Let's say you have 100K investment and you get a 2% tax rate, if your profitability is 2%, you're getting a 100% tax income.
Personally, I like a mix of negative income tax, and a VAT on certain goods, so as to help savings rates.

The high-tech industry is not accountable for a difference of 15 points in the Gini.

Okay, but what about someone who starts as a cashier and then works their way up to mid level management through their career. Surely their income doubles, maybe even triples over the course of their lifetime.

And it's not just high tech industry, but globalization in general. The way I see it, the US economy has transitioned from having a large industrial/commercial class, to having an upper middle class that works with high technology, and a large service class that supports them. But perhaps that is just because I'm from Maryland, where there is an exceptionally large amount of work in civil service.

European countries have similar economies, yet they do not reach such level of inequality. The difference lyes in the tax system, which is the biggest redistribution scheme in every single country. All countries have the about the same underlying, pre-tax income distribution.

Yeah, I also have gotten the strange urge to calculate the GINI index of medieval England. The problem is that the income statistics of that time usually take the form of:

"If ye go to the harbor, ye see more homeless people then thy eye can count"

Which of course makes it very hard to calculate a GINI index : (

I have GDP date of Argentina from 1935! =D
There are some estimations from before, but I haven't got to the rough numbers. The development of the economy prior to 1880 is based only on the level of exports.

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At 2/13/09 08:29 PM, Minarchist wrote:

At 2/13/09 01:57 PM, Der-Lowe wrote: Not really, since Europe still has a much better income distribution than you do

I'm not going to let you get away with that. Why is a more egalitarian income distribution better? Given that within any human population there's going to be a Gaussian distribution of natural attributes, some people are simply better apt to perform some jobs. Now, I don't mean to make this overly simplistic. Of course there are factors of education, training, experience, motivation, etc that will offset natural ability, but even within your own work place you can see a generally Gaussian distribution of proficiency. Wages that don't reflect that are less efficient.

I do not believe that income taxes distort efficiency. A CEO will work just as hard if he makes 2 million or 200K a year. What's most important (as originally noted by Marx) is relative income. If the government decides only to tax CEOs, then surely, through the opportunity cost principle, efficiency will be hindered. However, if taxes affect the whole population, then incentives are left unchanged.
Equal income distribution also helps the basic end of economic, ie, to increase the general living standards. An increase in income to an individual makes the other individuals feel diminished, lowering global happiness. A more equal distribution has the opposite effect.
And there is also the decreasing utility from income, ie, a dollar is worth more to those that have none than to those who have millions.

There is also a philosophical (ie, moral) justification for income distribution:

The Rawlasian Criticism of the Marginal Productivity System

The marginal productivity system is not without flaws, however. The most common criticism is that it often generates a high degree of inequality. Those who do well in the marketplace end up with a vastly more than they can spend while those who fail often cannot meet even their basic needs. Such inequality might be easier to accept if it were strictly the result of differences in effort. But it is not. Talent plays an important role in most endeavors, and though it can be nurtured and developed if you have it, whether you have it in the first place is essentially a matter of luck.
Even having abundant talent is no guarantee of doing well. It is also necessary to have the right talent. Being able to hit a baseball 400 feet with consistency will earn you millions annually, while being the best fourth-grade teacher in the nation will earn you little; and being the best handball player in the world will earn you virtually nothing. The baseball star earns so much more, not because he works harder or has more talent, but because he is lucky enough to be good at something people are willing to pay a lot for.
John Rawls, a Harvard moral philosopher, constructed a cogent ethical critique of the marginal productivity system, one based heavily on the microeconomic theory of choice itself. The question he asked was "What constitutes a just distribution of income?" To answer it, he proposed the following thought experiment. Imagine that you and the other citizens of some country have been thrown together in a meeting to choose the rules for distributing income. This meeting takes place behind a "veil of ignorance", which conceals from each person any knowledge of what talents and abilities he and others have. No individual knows whether he is smart or dull, strong or weak, fast or slow, and so on- which means that no one knows which particular rules of distribution would work to his own advantage. Rawls argued that the rules people would choose in such a state of ignorance would necessarily be fair; and if the rules are fair, it follows that the distribution to which they give rise will also be fair.
What rules would people choose from behind a veil of ignorance? If the national income to be distributed were a fixed amount every year, it is likely, Rawls argued, because most people are strongly risk averse. Since an unequal distribution of income would involve not only a chance of doing well, but also a chance of doing poorly, most people would prefer to eliminate the risk by choosing an equal distribution.
The difficulty, however, is that the total amount of income available for distribution is not a fixed amount every year. Rather, it depends on how hard people work, how much initiative and risk they take, and so on. If everyone were guaranteed an equal share of the national income, at the outset, why would anyone work hard or take risks? Without rewards for hard work and risk taking, national income would be dramatically smaller than if such rewards existed. Of course, material rewards for effort and risk taking necessarily lead to inequality. But Rawls argues that people would be willing to accept a certain degree of inequality as long as these rewards produced a sufficiently large increase in the total amount of output available for distribution.
How much inequality? Much less than the amount produced by purely competitive factor markets, Rawls argued. The idea is that each person behind the veil of ignorance would rationally fear being in a disadvantaged position, and so each would choose distributional rules that would maximize the income of the poorest citizen. That is, additional inequality would be considered justified as long as it had the effect of raising the income of each and every citizen. Rawls' own critics responded that his proposal was unrealistically conservative -- that most people would allow additional inequality if the effect, say, were to increase mostincomes. But Rawls' basic point was that people behind a veil of ignorance would choose rules that would produce a more equal distribution of income than we get under the marginal productivity system. And since this choices define what constitutes a just distribution of income, he argued, fairness requires at least some attempt to reduce the inequality produced by the marginal productivity system.

Frank, R., (2006). Microeconomics and Behavior. Boston: McGraw-Hill/Irwin. Chapter 18, pages 665-6