Good fact based WSJ article on who pays taxes in America

[livinincali]

[quote]
I’m just saying that right now might not be the best time to suddenly cut spending and taxes.
[/quote]

There’s never going to be a good time to cut spending. We’ve had plenty of opportunities during booms over the past 30 years like the late 1990’s and during the housing bubble of 2004-2006 and we didn’t do it. We had the opportunity to balance the budget in 2002 with a 10% cut in government spending, we had the opportunity again in 2008 with a 20% cut in government spending and now we’ve gotten ourselves to a 40% cut in government spending. Obviously cutting government spending and balancing the budget will produce a short severe recession in the best case and a long depression in the worst. I won’t argue that cutting spending isn’t going to cause an awful lot of hardship because it will.

The point in doing it now or very soon is as the debt and deficit grow the fallout becomes worse and worse. You have the real possibility of government/economic collapse the longer you wait. A 10% cut back in 2002 would have sucked but certainly would have been survivable. Right now we can’t rewind what already happened but we do have the choice of facing the music and attempting to resolve debt in an organized way or we can wait until the Greece day of reckoning shows up here.

If you’re running a failing small business there comes a point in which you must cut your loses. Another month in business another 2 months in business isn’t going to fix things, why lose your house over it. We keep thinking well just one more economic growth spurt and then we can fix it. I don’t think we’re going to get that opportunity. We already wasted our chances, time to accept it.

[davelj]

[quote=harvey][quote=davelj]
One of my issues with the reporting of GDP is that it’s only an income statement number. It should be reported alongside a balance sheet as well.[/quote]

Good idea, but the accounting for the government balance sheet would be difficult at best, especially when determining the value of assets.

Some examples of basic, but very difficult, accounting issues that would make a useful government balance sheet (using GAAP) almost impossible:

– What to we put down for the dollar value of all of the federally-owned land?

– Do we reduce the value of the land when we log or mine on that land? By how much?

– Many, many more, big accounting questions…

There is certainly room for improvement when measuring the financial health of our government, but using a traditional financial accounting balance sheet probably wouldn’t be very useful.[/quote]

Actually, I’m talking about a balance sheet for the whole US, not just the government (as the government is just one part of the economy). We have a good estimate of all debt (government, consumer, and nonfinancial), although the Fed’s figures lazily include the double-counting of securitized debt. And we have a pretty good idea of the aggregate asset values… it’s not that difficult to do. The government just chooses not to compile and publish the data.

If the PTB can estimate GDP growth then they can sure as hell estimate a balance sheet. They choose not to. And that’s a problem.

[livinincali]

[quote=harvey]
Why use government debt as the only measure of economic success? The US has seen very healthy economic growth in the past 30 years. There has been lots of wealth created. Many don’t see it, because we are generally bad at remembering the past (we’re talking 1982 here, the peak of the “rust-belt” industrial collapse), and most of of the wealth that was created has been accumulating at the top.[/quote]

Total debt including private debt has exploded as well during the same period. If we include that it makes it even worse (53 trillion in total debt versus a GDP of about 14 trillion) Think about what debt is to the other side of the balance sheet. Promises for future productivity are indeed somebody’s asset. So for everybody that goes into debt there’s somebody holding that debt as an asset. As debt expanded the other side of the balance sheet expands as well, so obviously there has to be somebody very rich holding those assets.

Forget about money for a second and realize the economy is the total goods and services available. We want to grow the total goods and services available and the government approach has typically been to take those goods and services, promise future payback, and give them to people that would otherwise be unable to afford them (manufacture demand that wouldn’t otherwise exist). Maybe we should try an approach that encourages those that cannot afford them to produce more goods and services so that they can afford them.

Most goods and services have a pretty short shelf life so it’s pretty difficult to store excess productivity in assets. You can store some but since most has to be consumed rather quickly or quickly depreciate you look for something else to store those assets in. A warehouse of walkmans isn’t very valuable today. We’ve gravitated to debt in the past 30-40 years.

How does a retired consumer get the productivity they need from a producer in the economy. The producer can voluntarily give it away (kids supporting parents). The consumer can trade some asset of value to the producer (I’ll sell my house and downsize) and either take payment right away or settle for a long term debt. The government can take it from the producer by force and give it to the consumer. Remember that the producer will likely put themselves first in any situation. They’ll provide for themselves and their family before anybody else. There’s only so much excess productivity available that consumers must compete for. Taking more from the producers by government force leaves less available for the sale of assets and as this has happened we’ve made increasing promises for our future productivity.

[briansd1]

What about debt service?

I’ve heard some people on this forum argue that now is a good time to buy a house because of low debt service, even if you don’t have the cash to buy the house outright.

[Anonymous]

[quote=davelj]Actually, I’m talking about a balance sheet for the whole US, not just the government (as the government is just one part of the economy). We have a good estimate of all debt (government, consumer, and nonfinancial), although the Fed’s figures lazily include the double-counting of securitized debt. And we have a pretty good idea of the aggregate asset values… it’s not that difficult to do. The government just chooses not to compile and publish the data.

If the PTB can estimate GDP growth then they can sure as hell estimate a balance sheet. They choose not to. And that’s a problem.[/quote]

I’d be curious to see any attempt to calculate the asset values of the US. It is much harder than calculating GDP, because has to measure natural resources – stuff that’s always been there and is unknown in quantity and ultimate value.

The key reason a balance sheet is important for corporate reporting is that shareholders actually buy a portion of the entity. There is no such notion in government or for the country as a whole. I just don’t see how useful this (very coarse) data would be.

I think it would be fun so see some of these numbers and estimate, but I would be very dubious about the utility of such data.

[davelj]

[quote=harvey][quote=davelj]Actually, I’m talking about a balance sheet for the whole US, not just the government (as the government is just one part of the economy). We have a good estimate of all debt (government, consumer, and nonfinancial), although the Fed’s figures lazily include the double-counting of securitized debt. And we have a pretty good idea of the aggregate asset values… it’s not that difficult to do. The government just chooses not to compile and publish the data.

If the PTB can estimate GDP growth then they can sure as hell estimate a balance sheet. They choose not to. And that’s a problem.[/quote]

I’d be curious to see any attempt to calculate the asset values of the US. It is much harder than calculating GDP, because has to measure natural resources – stuff that’s always been there and is unknown in quantity and ultimate value.

The key reason a balance sheet is important for corporate reporting is that shareholders actually buy a portion of the entity. There is no such notion in government or for the country as a whole. I just don’t see how useful this (very coarse) data would be.

I think it would be fun so see some of these numbers and estimate, but I would be very dubious about the utility of such data.[/quote]

I found this after searching for less than 60 seconds (yeah, it’s a few years old)… it ain’t that hard. We lack the will…

http://rutledgecapital.com/2009/05/24/total-assets-of-the-us-economy-188-trillion-134xgdp/

[davelj]

[quote=harvey]
Although consumer debt and government debt are big problem in our current economy, corporate debt is not an issue.
[/quote]

This is true. Further, corporate debt over the last few years has been termed out into longer maturities such that low rates have been locked in for pretty long periods of time. This article is two years old and things have improved since then.

http://www.marketminder.com/c/fisher-investments-how-strong-is-corporate-americas-balance-sheet/b14e50c8-8ae3-42cb-b046-ee62a28051b

[davelj]

[quote=davelj][quote=harvey][quote=davelj]Actually, I’m talking about a balance sheet for the whole US, not just the government (as the government is just one part of the economy). We have a good estimate of all debt (government, consumer, and nonfinancial), although the Fed’s figures lazily include the double-counting of securitized debt. And we have a pretty good idea of the aggregate asset values… it’s not that difficult to do. The government just chooses not to compile and publish the data.

If the PTB can estimate GDP growth then they can sure as hell estimate a balance sheet. They choose not to. And that’s a problem.[/quote]

I’d be curious to see any attempt to calculate the asset values of the US. It is much harder than calculating GDP, because has to measure natural resources – stuff that’s always been there and is unknown in quantity and ultimate value.

The key reason a balance sheet is important for corporate reporting is that shareholders actually buy a portion of the entity. There is no such notion in government or for the country as a whole. I just don’t see how useful this (very coarse) data would be.

I think it would be fun so see some of these numbers and estimate, but I would be very dubious about the utility of such data.[/quote]

I found this after searching for less than 60 seconds (yeah, it’s a few years old)… it ain’t that hard. We lack the will… (the comments section addresses some interesting issues as well.)

http://rutledgecapital.com/2009/05/24/total-assets-of-the-us-economy-188-trillion-134xgdp/

[SK in CV]

This has been a pretty interesting discussion today, but I have to take exception to this one.

[quote=harvey][quote=davelj]
Actually, we have been engaging in stimulus spending for the past 30 years – the Powers That Be just didn’t realize it or label it with that name.[/quote]

I agree that it can be argued that all deficits are “stimulus.”

[/quote]

First, I don’t think davelj said anything like all deficits are stimulus. Stimulus (at least in the keynesian sense) is an increase in overall and targeted spending, irrespective of the budget. Increasing of an annual budget deficit is NOT stimulative all by itself. (It can be solely the result of lower revenues, and nothing to do with increased spending.) There can be a shrinking deficit AND stimulus at the same time (though it’s unlikely that would fit into any Keynesian model).

And I would have to agree with davelj, with minor exception, spending has increased significantly almost every year for the last 30. Much of that increase has been stimulative. (Sorry, I have to repeat something here. Spending is NOT stimulative. Increases in spending are stimulative.)

[briansd1]

[quote=SK in CV] (Sorry, I have to repeat something here. Spending is NOT stimulative. Increases in spending are stimulative.)[/quote]

It’s a point well worth stressing.

When there is lack of demand, it’s often well-advised for the government to increase spending to stimulate the economy.

[scaredyclassic]

what happens if we reorganize in this direction:

Happiness index is key, Ben Bernanke says
THIS STORY APPEARED INAugust 07, 2012
WASHINGTON — Ben Bernanke wants to know if you’re happy.

The Federal Reserve chairman on Monday said that gauging happiness can be as important for measuring economic progress as determining whether inflation is low or unemployment is high. Economics isn’t just about money and material benefits, he said; it is also about promoting ‘‘the enhancement of well-being.’’

Bernanke and Fed policy makers rely on reports about hiring, consumer spending, and other economic data when making high-stakes decisions about the $15 trillion US economy. The Fed’s dual mandate is to maintain low inflation and full employment.

‘‘We should seek better and more-direct measurements of economic well-being,’’ Bernanke said Monday in a videotaped speech shown to a conference of economists and statisticians in Cambridge, Mass. After all, promoting well-being is ‘‘the ultimate objective of our policy decisions.’’

[Arraya]

http://www.theeconomicsofhappiness.org/

[mike92104]

[quote=briansd1][quote=harvey]
I’m just saying that right now might not be the best time to suddenly cut spending and taxes.
[/quote]

The consensus among economists is that, right now, is the time for government to spend and invest.

It all depends on the economic cycle, just like in your own life, it depends what age you are.

The key here is that economists (and Harvey and I) are advocating being flexible, looking at the data, and coming up with solutions that work for our current economic situation.

Ideological orthodoxy is just plain stupid when the context is completely ignored. A certain side is parroting the same arguments, no matter whether the economy is booming or in stagnation. It’s the same thing as saying “buy real estate no matter when.”[/quote]

Ideological orthodoxy such as “The rich don’t pay their fair share”? You and Harvy have been yammering on about that for weeks now without ever bothering to admit that the real problem is the spending that has been out of control for decades, and has ramped up considerably since 2008. The two of you have absolutely no flexibility unless Obama tells you to.

[SK in CV]

[quote=mike92104]
Ideological orthodoxy such as “The rich don’t pay their fair share”? You and Harvy have been yammering on about that for weeks now without ever bothering to admit that the real problem is the spending that has been out of control for decades, and has ramped up considerably since 2008. The two of you have absolutely no flexibility unless Obama tells you to.[/quote]

That’s not exactly true. Spending ramped up considerably in the fiscal year beginning in 2008. But since then, it has remained at elevated levels, but the rate of increase is the lowest in the last 5 administrations, save for the Clinton administration.

[livinincali]

[quote=SK in CV]First, I don’t think davelj said anything like all deficits are stimulus. Stimulus (at least in the keynesian sense) is an increase in overall and targeted spending, irrespective of the budget. Increasing of an annual budget deficit is NOT stimulative all by itself. (It can be solely the result of lower revenues, and nothing to do with increased spending.) There can be a shrinking deficit AND stimulus at the same time (though it’s unlikely that would fit into any Keynesian model).

And I would have to agree with davelj, with minor exception, spending has increased significantly almost every year for the last 30. Much of that increase has been stimulative. (Sorry, I have to repeat something here. Spending is NOT stimulative. Increases in spending are stimulative.)[/quote]

I might be inclined to agree to a somewhat more limited definition of stimulus spending. The problem becomes what do we call an increase in spending under the premise of stimulus that become permanent. We increased deficit spending massively about 3-4 years ago and it has remained at those very elevated levels. The tax base has remained roughly the same over that time period and now we’re just about at that point where the 1.2 trillion deficit isn’t stimulus spending anymore and we need a new stimulus program. We never really ended the previous one so what do we call the 1.2 trillion of deficit spending we have now if it’s not stimulus. It started that way, when did it stop being stimulus and what do we call it now?

[Author]

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