[EconProf]

[quote=DomoArigato]For those of you upset about this relatively piddling amount, are you also concerned about the $16 trillion in secret loans to criminal banksters?

.[/quote]

Yes.

[EconProf]

So the taxpayers will pay for this “investment” in green jobs. This is the problem when the government tries to pick winners and losers instead of the private sector. They make choices based on faulty science and the whims of extreme environmentalists. Private investors, with their own money at stake, tend to weigh costs and benefits before allocating resources. They may not always get it right, but they suffer the consequences when wrong (absent government bailouts). I wonder if any politicians or bureaucrats will suffer from this boondogle. Also, had that government “investment” money stayed in taxpayers’ pockets and been spent on consumer items, how many real private sector jobs been created?

[EconProf]

I second your comment about increased government debt in the 2000 – 2010 era being an especially large burden when the future interest burden is factored in. And given that today’s 10-year bond interest rate is 1.99% and likely to rise some day, we could really get walloped when that happens. Our “short-termism”, whether practiced by HELOC’d consumers or governments at all levels is coming back to haunt us.
The word “investing” is much abused by politicians. It sounds good to invest in infrastructure, until we find out it is something like that bridge to nowhere in Alaska, or, equally foolish, high speed rail for California. (The latter, by the way, is doomed according to every outside analysis of the subject.) As for me, I am planning on investing in a steak dinner tomorrow.
We part ways when you suggest raising marginal tax rates on the highest earners. I am all for cutting certain loopholes and privileges, though some like the benefits to homeowners will elicit howls. But the top rates already exceed 60% when you factor in federal (about 39%) Ca (about 11%), FICA, and a bunch of miscellaneous taxes. It may feel good to sock it to the rich, but they include the creaters, inventors, and hirers. Right now 47% of Americans pay NO income taxes, and a good share of them actually get money back through the earned-income tax credit. That big part of the electorate is certainly not going to vote for a leaner government

[EconProf]

[quote=SK in CV][In the last 2 weeks I’ve spoken with 3 CFOs and CIOs for billion dollar companies. All had proposals in their hands for us to do work for them. All 3 said their plans had been put on hold despite issuing RFPs with immediate start dates within the last quarter. All 3 said their plans had been put on hold because of uncertain consumer demand. Not regulations. Not health care reform. Not tax uncertainty. Not political uncertainty. Businesses deal with government demands. It can eat into their margins. But it doesn’t keep them from doing business. Lack of customers does.

As to the high unemployment that remained in 1939, you conveniently didn’t mention Roosevelt’s mistake in ’37, which was instrumental in creating a new recession. Wasn’t very Keynesian of him.

.[/quote]

You are kind of making my point here, SK. The lack of consumer demand your clients cite is because of a lack of jobs, no confidence by consumers and businesses in the future, and a fear that the failed policies of the past few years will merely be increased. The very “stimulus” programs that have indeed pumped money into the economy–in great part to failed programs and wasteful bailouts–have cast a dark cloud over investors and consumers. The Keynesian multiplier that arguably worked somewhat during the Depression is now nearly nonexistent. But the negative incentive and confidence effects of this “stimulus” are very real and offset any multiplier benefits.
BTW, Republicans can be just as guilty of an over-reliance on Keynesian economics as Democrats. The regulatory burden of Sarbanes-Oxley was passed, I believe, during the Bush presidency, and we know much of the stimulus was begun in his last months in office before being continued and greatly increased under Obama.
As to the “mistake” of FDR that led to a second phase of the Great Depression, perhaps you are referring to his attempt to “pack” the Supreme Court by boosting its membership so as to make it more compliant with his more extreme proposals, which by then were getting quite alarming to the general public. In fact, his business bashing did a lot to sap employment throughout the 1930s, and even Keynes advised FDR and his Treasury Secretary to ease up on the rhetoric if the US wanted to see a recovery. As Keynes put it, you need to preserve “animal spirits” in order to keep capitalism going.
BTW, Keynes was generally for a balanced budget over the course of business cycles. He felt governments should maintain surpluses during good times and run deficits during recessions. His revolutionary thought at the onset of the Depression was to deliberately run an excess of government spending over tax revenues. IOW, deficits are OK. But he would be appalled at our current 40% of government outlays being borrowed now, with little hope of a balanced budget in the future.

[EconProf]

You are making this much more complicated, and ideolgical, than it needs to be. Keynes advocated stimulating aggregate demand, whether consumption, investment, or government during the Great Depression, i.e., when output fell well short of potential. His theory was that to expand output when there was so much slack in the economy would not be inflationary–indeed deflation was the problem back then. There is increasing debate among economists now as to how well that really worked (See Amity Schales’ book, The Forgotten Man). After all, unemployment was still 17% in 1939.
Today’s politicians latch on to Keynesian theory as an excuse to expand government and give it a theoretical justification. But we are increasingly looking at the behavioral effects of government policies and discovering that they can be both large and harmful. Looking back at two years of TARP, cash for clunkers, subsidies for GM, green initiatives, proposed tax hikes, we can see that businesses and consumers are rightfully afraid of their future. Businesses can’t predict their future costs or regulatory environment, so they sit on their cash hoard. Yes, they are fraidy-cats.
From your comments we would agree that the boom of the Bush years was an artificial one–fueled by easy money, overleveraging by consumers, banks, businesses and other assorted culprits. Plenty of blame to go around. And our current problems are prolonged and deep because we are in the painful deleveraging process.
We’d also probably agree that capitalists want to do what it takes to maximize profits in the future–that’s what makes for hiring and spending if conditions are right. Which is why I don’t understand your statement that “…it has zero to do with government policies and regulations.” If you believe that then you probably have never started a business or hired a work force.

[EconProf]

Actually you are right, SK, tax cuts are Keynsian in the sense that they aim to spur aggregate demand by consumers. Conservatives would argue that if you must have demand stimulus, do it with tax cuts rather than new permanent government programs and handouts.
Tax cuts aimed at businesses are more aimed at stimulating investment in new plant and equipment.

[EconProf]

CAR: I agree with you about the importance of demographics in shaping economic outcomes. But I doubt the impact of the baby-boomers was as big as you suggest in boosting the economy during the Reagan years.
Reagan’s supply-side policies aimed to increase output by freeing up businesses and workers to produce more in a free market environment. In contrast, the Keynesian demand-side policies of the past ten years pump out monetary stimulus and government spending in hopes that the economy recovers. We now have great empirical evidence contrasting the two approaches. Reagan inherited a recession and inflation in some ways worse than Obama, with inflation peaking at about 13% in 1980, and unemployment peaking at 10.8% in November of 1982. Yes, that was two years after Reagan got elected, but supply-side policies were not fully in place yet, and Volcker’s harsh (and necessary) tight monetary policy was still wringing inflation out of the economy. But real GNP growth resumed as the economy bounced back like a coiled spring and unemployment steadily fell to 5.5% in 1988.
The demand-side policies of recent years have served to drive us deeper into debt and sapped our appetite to hire and expand production via the exact opposite of supply-side incentives. Businesses and entrepreneurs are afraid of the EPA, looming Obamacare costs, and Dodd-Frank compliance costs, among other job-killing laws. Of course they are moving jobs overseas! Worse yet, the new programs, handouts, and government agencies are entrenched now in our economy, and will be impossible to pare back, as demonstrated by the recent budget debate that achieved so little. The new recipients of the largesse, whether banks, car manufacturers, “green” companies, or those getting 99 weeks of unemployment will fight to keep the money coming.

The Reagan-Obama comparison above is imperfect in many ways, as nit-pickers will point out. But there are plenty of lessons we could learn from that era, and I suspect the coming months will give us a fuller debate about the contrast between supply-siders and Keynesian demand-siders. I
welcome it.

[EconProf]

[quote=temeculaguy]Macro Economics 101, try to ignore the rhetoric and look at the big picture because there are a lot of myths out there. Here are some facts:

1. The U.S. is the largest economy in the world, it’s 2010 Nominal GDP was 14.7 trillion, representing 25% of the global GDP (with 4.5% of the population).

2. The U.S. purchasing power is the largest in the world, representing 20% of the global purchasing power (with 4.5% of the population).

3. It has the 6th highest output per capita (the first five are small countries with populations of less than Los Angeles and half are smaller than San Diego)

4. The U.S. is the world’s largest manufacturer, representing 19% of the worlds manufacturing (with 4.5% of the population).

5. 1/3 of the worlds millionaire and 1/3 of the world’s billionaires. The largest stock exchange, the largest gold reserves and 60% of the world’s reserves are in the dollar, it’s nearest competitor (the euro) has 24%. 139 of the 500 largest companies in the world are American, that’s just under a third. (with 4.5% of the population)

6. More foreign money is invested in the U.S. by far at 2.2 trillion, double the second largest, but this will shock you, Americans own more of the rest of the world than anyone, 3.3 trillion. So it might look like like other countries own our stuff, but we own theirs, and more of it.[/quote]

A good recitation of where we stand in an absolute sense. My worry is that the trend in each of these categories is deteriorating of late. Our wealth and power are the result of democratic capitalism and (relatively) free markets for a couple of centuries. The past decade has seen an erosion of the forces that made us great. We must rediscover the importance of incentives in every sphere: taxes and regulation, public spending, unions and labor policy, and the moral hazard of handouts to both individuals and corporations.

[EconProf]

[quote=CA renter]The financial crisis has its roots in the trickle-down economic policies that began in the early 80s. The notion that we could reward speculation over labor, and somehow create a thriving economy from buying and selling things at greater prices and with higher debt levels was and is absurd. The idea that we could impoverish the majority of our population (by outsourcing their jobs) so that the capitalists who produce nothing could become wealthier and wealthier is completely ignorant and totally dismisses psychology and human behavior, not to mention simple math. A healthy economy will ALWAYS require us to actually MAKE things that can be sold here and abroad. A healthy economy requires JOBS for people so they can continue to buy goods and services from one another. There is no other way.

.”[/quote]

CAR, not sure what you mean by the trickle-down policies of the 1980s, but assume it is the supply-side, incentive-based policies of the Reagan years: cutting marginal tax rates drastically, closing tax loopholes, and deregulation. The result, once the policies fully took hold in about 1984, was a rapidly expanding economy (7 & 8% YOY in some quarters, compared to 1% so far this year), a rapidly falling unemployment rate, and a steadily falling rate of inflation. American living standards and consumption increased accordingly, as we freely chose to buy more foreign-made cars, clothes, tools, and appliances made in factories where no American unions dictated work rules and pay. From your post, it appears you would like to limit American consumers to US made goods in the above categories. I wonder what prices we would pay, and what quality we would get. Do you really want to let Detroit have that kind of power over our car-buying public?
Free (or freer) trade is always disruptive. There are winners and losers. The losers are easily identified, vocal, and elicit our sympathy and that of the superficial mainstream media. The winners are the broader consuming public, who are far more numerous but not organized into a lobby with any clout.
Another winner is the US exporters, who capitalize on American advantages in certain goods with higher labor skills and costs than the rest of the world. Let the Indonesians and Indians do the drudgery of making shoes and shirts–our workers won’t go back to that job.

[EconProf]

Good farmland in Iowa is going for over $8000 per acre. Two years ago it was $5000.
Many of these farmers owe little on their land, so a 600 acre farm is worth $3 million. And we give them subsidies such as the ethanol program and crop price supports to “save the family farm”. Time to take a hatchet to the Ag Department.

[EconProf]

Good farmland in Iowa is going for over $8000 per acre. Two years ago it was $5000.
Many of these farmers owe little on their land, so a 600 acre farm is worth $3 million. And we give them subsidies such as the ethanol program and crop price supports to “save the family farm”. Time to take a hatchet to the Ag Department.

[EconProf]

Good farmland in Iowa is going for over $8000 per acre. Two years ago it was $5000.
Many of these farmers owe little on their land, so a 600 acre farm is worth $3 million. And we give them subsidies such as the ethanol program and crop price supports to “save the family farm”. Time to take a hatchet to the Ag Department.

[EconProf]

Good farmland in Iowa is going for over $8000 per acre. Two years ago it was $5000.
Many of these farmers owe little on their land, so a 600 acre farm is worth $3 million. And we give them subsidies such as the ethanol program and crop price supports to “save the family farm”. Time to take a hatchet to the Ag Department.

[EconProf]

Good farmland in Iowa is going for over $8000 per acre. Two years ago it was $5000.
Many of these farmers owe little on their land, so a 600 acre farm is worth $3 million. And we give them subsidies such as the ethanol program and crop price supports to “save the family farm”. Time to take a hatchet to the Ag Department.

[EconProf]

As big coupon-clipping comparison shoppers, my wife and I have learned to largely ignor the unionized chains like Von’s, Ralphs, and Albertson’s, and gravitated toward the Trader Joe’s, Fresh & Easy’s, and WalMart. The price differences are huge.
Again, I’d put the unionized stores into the same category as the UAW-dominated automakers compared to the nonunionized foreign-owned US auto plants over recent decades. We all know how that worked out for the shrunken UAW and their shrunken companies, and to the benefit of the non-unionized companies, the states they located in, and the consumer. Union work rules, pay scales, fringe benefits, and seniority rules are a burden on the employer that must be passed on to the consumer (or taxpayer, in the case of public employees).
Accordingly, consumers will vote with their feet and we should see a continuation of the shift toward nonunion stores. Consumer sovereignty still rules, thankfully.

[Author]

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