What is "fairness?"

[billvon 3,107]

>By just focusing on tax increases, you're missing out on the other ways
>revenue to the government can be increased, and in with proper policy,
>increased dramatically.

And again, by just focusing on cutting programs, too many people are completely missing out on other ways to reduce government spending.

And for the past, say, ten years we've had people who were gung-ho about decreasing spending without cutting programs, and who were all fired up about increasing revenue without increasing (in fact by decreasing) taxes.

It didn't work. It didn't work when we have a republican congress and a republican president, and it didn't work when we had a democratic congress and a democratic president. Why will it start to work now?

No one wants to talk about raising taxes, and no one wants to talk about cutting beloved programs. Both have to happen.

[billvon 3,107]

>Right, decrease tax rates and revenues increase. The obvious answer is to
>decrease tax rates to 0 and then tax revenues rise to ∞

That's pretty silly. The opposite is also silly (i.e. raise taxes to 100% and hope tax revenues rise.)

The concept here is the Laffer Curve. It's a curve showing (basically) how much money you can get out of people. Too little tax and revenue goes down because you're not charging much in tax. Increase the tax and your revenue goes up. Increase it too much and people start trying to come up with clever ways to avoid taxes; indeed, they even stop bothering to MAKE a lot of money because they lose it all.

The location of the peak is, of course, a subject of much debate. In general republicans think it's around 20% or whatever tax they want to be paying is. In genera democrats think it's around 90% - as long as it's applied to only the rich.

Historically maximum tax rates have varied between 25% and 91%, at least over the last 90 years. It's a safe bet it is between those two extremes. It is likely higher than it is now.*

That's the basic issue there. Both extremes are invalid but there's some interesting action in between the limits.

(* - and it should go without saying that simply because you CAN get more money out of people doesn't mean you should.)

[kallend 2,146]

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Right, decrease tax rates and revenues increase. The obvious answer is to decrease tax rates to 0 and then tax revenues rise to ∞

that's a faulty debate and logic tool - absurdum limit(something latin sounding) - I think

you can contrast to the opposite limit - "right, increase tax rates and revenues increase. The obvious answer is to increase tax rates to 100% and then tax revenues rise to _______"

it highlights your post as silly because if taxes were 100% and the government did everything then we'd either have a population that did nothing because they don't have to, or the population would be forced labor in slavery to the government - both extremes ignore economic and psychological variables.....





it's more like a curve - the debate is really which side of the maximum we are on - and whether than maximum can be moved also......

I believe that just about every independent economist believes we are currently on the low side of the maximum on the curve, and that cutting taxes decreases revenues. Laffer, of course, disagrees. Hearing him on TV the other evening I got the impression that he thinks you could go to 0% and still increase revenues.

...

The only sure way to survive a canopy collision is not to have one.

[mnealtx 0]

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Two points in response to this:

First, where is the evidence that lowering tax rates increases economic activity? The economy was growing at a much faster rate at times in the past when tax rates were also significantly higher (such as during the Clinton administration).

Growth increased MUCH faster after the capital gains tax cut.

If 'sin taxes' such as cig/booze taxes are supposed to discourage people from smoking/drinking, why do people think that higher taxes are going to stimulate the economy?

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On the other hand, lowering tax rates has historically not led to increased employment or manufacturing activity.

20 years of expansion after the Reagan cuts seem to disprove this line of reasoning.

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Anyway, although tax cuts for the already wealthy has risen to the level of dogma in Republican circles, it's inherently contradictory to the concept of supply and demand driving economic activity.

Which, of course, is why the millionaires stayed in NY/NJ after they enacted their 'soak the rich' taxes, right?

Oh wait...they didn't.

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Just putting more money into the end of the pipeline (profit to businesses due to lower costs) won't do anything to encourage growth if demand stays flat or shrinks, and stagnant or declining income to the middle and lower income classes (who make up the overwhelming majority of the consumer market) ensure that demand will stay flat.

Good thing that the tax cuts left them with more money in their pocket, then.

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Given what has happened following the Bush tax cuts, I think the evidence is that we are below the optimum now, and further cuts will just further ensure the government can't meet its obligations.

Unsupported theory, as both jobs and revenues increased prior to the housing bubble breaking.

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Obviously, those obligations will have to be re-examined and cut back quite a lot.

Agreed - going back to FY 2007 levels would be a start.

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Blind faith (i.e. belief without evidence) that tax cuts will stimulate the economy also has potential for great harm.

Blind faith (i.e. belief without evidence) that tax increases will stimulate the economy has even greater potiential for great harm.

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If welfare/social security/medicare is "bread and circuses" for the 99%, further cuts to capital gains tax rates (as one example) may well be "bread and circuses" for the 1%.

Which, of course, is why the economy increases even faster after the capital gains cut in the mid-90s...because it was just a giveaway for the 1%.

Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706

[ShcShc11 0]

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Valid point. But, there is a cost associated with printing money. The dynamics and timing of the cost can vary by country, but I think we can both agree it's not a sustainable long term approach to resolving debt issues.

The issue at the moment is for the United States to get out of the current liquidity trap. That is what the spending and the printing money purpose is. ONCE we have returned to a more adequate economy and out of the liquidity trap, then the debt issues should most definitely be handled.

But do this too early, and you end up making the same mistakes in the 1930 U.S when America went into austerity too fast and contracted their economy far above any economists estimates at the time.

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I don't think that's a fair statement on your part. With continued discussion, I expect you'll change your view of this.

You previously wrote: “How's this working out for Greece, and the rest of the PIGs?”

Then do explain me how the Greece situation (+ PIG crises) is any way a good comparison to the current American situation? You’re taking countries whose currencies aren’t controlled by their respective Government and compare it to the United States.

What’s worse is that the PIG strategy is expansionary austerity (cut and slash their debts), which many institutions including the IMF and S&P, is impeding their growth. Austerity is actually contractionary after all.

If you want to compare countries, then bring examples that are more relevant to the situation.


Otherwise, I can’t take it that seriously. It comes down to the same league as Austrian economics where they keep predicting/predicted hyper-inflation of the likes of the 1920-1930 Weimar Republic and Zimbabwe.

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And why is that? It's not because where doing something right with respect to monetary policy. It's because the rest of the democratic world is in worse shape than us.

Why is US government debt considered riskless? It's because we have 10 aircraft carriers floating around the Earth's seas full of competent people who know how to use them. All other factors as to why US government debt is riskless are secondary to this. Any one who says otherwise simply does not know what they are talking about.

…so the military is responsible of scaring away the bond vigilantes!


Fed rates are near zero and it was previously announced that it will stay near zero up until 2014. Hopefully you’re not advocating to raise the rates in the hopes of “calming” and appeasing the market.

Remember when the ECB raised the rates in 2011…twice?
http://www.guardian.co.uk/business/2011/jul/07/ebc-raise-interest-rates-debt-crisis

I think we can both agree at how disastrous such a policy was to the EU and how the ECB backtracked from this decision. “The rest of the democratic world” (i.e: Europe) is in worse shape because of decisions like these… Germany and the EU is facing a possible catastrophic deflation yet Merkel is adamant in preventing hyper-inflation.

Fact is, the low rate is indicative of a stagnant American economy (i.e: lacking growth) and people are more than willing to park their money into the U.S.

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Because the effective yield on those trades was negative, and that's not supposed to happen in the bond world. Basically, people with money were locking in loses. That's how much uncertainty there was in the market. They deliberately put their money into trades where they knew how much they would lose, because putting it elsewhere had the potential to lose even more

Yes absolutely. The bond world currently regards the U.S as a safe haven due to its ability to control its money (which is a big contrast to Europe)…

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So, by definition a liquidity trap is one where you keep pouring money in, and nothing changes. How is continuing to pour money into this liquid trap going to get us out of the liquidity trap?

The Fed’s rate is at near 0 and is not sufficient to bring the economy running again. Open-market operations lost traction because short-term rate is at 0.

In normal recessions, lowering the rate should be enough. This is not the case for the Great Recession.

http://www.crossingwallstreet.com/wp-content/uploads/2012/01/fredgraph011012.png

This is from Professor Greg Mankiw’s interest rate model.

By his calculations, The Fed’s rate in late 2008-2009 should be at -5% if he wanted to bring U.S economy back to full employment. Of course, in real life, the Fed’s rate cannot go below zero. If it cannot restore normal employment at zero, then we have a classic case of liquidity trap. That is why events such as the 1930s are very relevant.

Spending should not be used in every recession, but most definitely so in a major recession involving liquidity trap.

In order to remedy the liquidity trap, the Federal Government is needed to make up from the fact that the Fed can’t go below zero.

The model given by Mankiw demonstrates that things have been better and that we’re getting out of the liquidity trap… but we’re still in it. If unemployment goes down to about 8.3%, the model can signify a positive rate (we’re at about 8.6%).



I understand the general public being worried about the debt… 785B$, 1T$, 14T$ are all scary numbers. I understand it sounds counter-intuitive to “add debt to solve debt”. But this is the situation we are living at the moment.

Having a half-assed stimulus in 2009 only made the public more confused. I remember when Ben Bernanke was looking down at Japan (back in his 2000 writings) because Japan was self-inflicting its own wounds.

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My point here is western governments have been spending too much for too long. That's go to stop.

Not necessarily. Greece most definitely outspent itself though a lot of other European countries should not be narrowly be categorized in this section.

I will bring out the stats once I'm at home.

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Will there be pain? Yes. Can't be avoided now.

This is the Merkozy stance at the moment (Germany + France).
We’l see where it will go…


Cheers

[ShcShc11 0]

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You are arguing from two sides. On the one hand, you are discussing the problems with short-term ambitions in the market and arguing that long-term solvency are necessary. On the other hand, you are pointing to the shocks that are caused by austerity and the short-term problems that they cause.

Here is the mistake people keep on making.
Austerity measures are not necessarily “short-term”. There is this false notion that the “pain is only temporary”.

There is an enormous waste of resources by not applying the ones we have now. By doing nothing (or worse, by contracting the economy), there is a sacrifice in the output where we could be producing in which we have the capacity, but are not due to a lack of demand.

See the attachment from CBO who tends to be conservative in their estimates. We’ve wasted about 2.8 trillion $ by not doing enough.

We think we are “saving money” like a normal household family do when in reality, we are wasting a good 1T$ or so every year by engaging in this austerity policy.



The Government does indeed need to fix its long-term budget especially as 2030 is fast approaching (where entitlements are predicted to cause problems). However, doing this process now is highly irresponsible.



It’s all understandably counter-intuitive (The “how can saving money is irresponsible and spending responsible”?).


…
I want to point back to the U.K austerity measures

[[Deliberately cutting the deficit is not the best way for a government to balance its books. Deficit reduction in a depressed economy is the road not to recovery, but to contraction, because it means cutting the national income on which the government’s revenues depend. This will make it harder, not easier, for it to cut the deficit.


"The British government already must borrow £112 billion ($172 billion) more than it had planned when it announced its deficit-reduction plan in June 2010."]]
(look at BDO)

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I’ve compared it to a junkie getting off smack. Few people ever argue, “The pain of dt’s is not a good thing. We just can’t see how that would do anybody any good. The appropriate route is to take more heroin as your need for it increases, thus ensuring your long-term fitness.”

Yes, I (or we) heard them all. It makes sense on the outside, but its not how the economy works.


Cheers!

[mnealtx 0]

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We had the cuts. We were better off in the '90s.

10k single earner:
2000: 15% effective tax rate
2011: 10% effective tax rate -84% *less* tax paid.

50k single earner:
2000: 20.03% effective tax rate
2011: 15.45% effective tax rate - 26% *less* tax paid

100k single earner:
2000: 25.27% effective tax rate
2011: 20.96% effective tax rate - 16.79% *less* tax paid

The evidence doesn't support your claim....not that *WE* didn't already know that.

"The only person you're fooling is yourself."

Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706

[ShcShc11 0]

http://www.businessinsider.com/fed-balance-sheet-vs-cpi-2011-11

I also want to point out to that article about the EU situation and Germany's "cut & slash" austerity policies.

The summary being: Quantitive Easing is not necessarily inflationary.


Also: if spending is a politically impossible thing to do, then yes, tax cuts should be done. Its not as effective and it has a much lower multiplier effect (and it cost more)... but its better than nothing or slashing.

And I think we should all remember that the original 2009 stimulus had a significant amount of tax cuts and that recent "economic propositions" involved mainly tax cuts (since stimulus is now considered a dirty word).

Cheers

[kallend 2,146]

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We had the cuts. We were better off in the '90s.

10k single earner:
2000: 15% effective tax rate
2011: 10% effective tax rate -84% *less* tax paid.

50k single earner:
2000: 20.03% effective tax rate
2011: 15.45% effective tax rate - 26% *less* tax paid

100k single earner:
2000: 25.27% effective tax rate
2011: 20.96% effective tax rate - 16.79% *less* tax paid

The evidence doesn't support your claim....not that *WE* didn't already know that.

"The only person you're fooling is yourself."

Meaningless data, as expected from you. Is this in constant dollars? Doesn't even address the point made.

You REALLY think the economy is better now than it was in 1999? What was the debt then? Now? Unemployment then? Now?

We had Bush's cuts. Except for the very wealthy, are we as a country better off now?

...

The only sure way to survive a canopy collision is not to have one.

[mnealtx 0]

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We had the cuts. We were better off in the '90s.

10k single earner:
2000: 15% effective tax rate
2011: 10% effective tax rate -84% *less* tax paid.

50k single earner:
2000: 20.03% effective tax rate
2011: 15.45% effective tax rate - 26% *less* tax paid

100k single earner:
2000: 25.27% effective tax rate
2011: 20.96% effective tax rate - 16.79% *less* tax paid

The evidence doesn't support your claim....not that *WE* didn't already know that.

"The only person you're fooling is yourself."

Meaningless data, as expected from you. Is this in constant dollars? Doesn't even address the point made.

IRS data, and shows that people are better off (paying less tax) than in the 90's.

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You REALLY think the economy is better now than it was in 1999? What was the debt then? Now? Unemployment then? Now?

You were talking about Bush's tax cuts - moving the goalposts AGAIN when the numbers don't go your way?

Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706

[winsor 236]

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>I continue to be amazed at people who claim that the only way to get
>ourselves out of debt is to go deeper into debt.

Yep. And there are people who claim that the only way to get out of debt is to take less money in. Some nuts out there.

I suspect you have confused two distinct principles.

There is something of a "sweet spot" in taxation, where the rate is high enough to generate maximum revenues, but not high enough to stifle productivity. Go lower, and revenue suffers; go higher and you get a higher percentage of a much smaller amount, and revenue suffers. This is your basic point of diminishing returns.

You then have people spending in a fashion that would be an insult to drunken sailors if you compared it to the spending habits of drunken sailors - drunken sailors quit spending when they run out of money.

The spending patterns of those in power is more akin to a teenager with a no-limit credit card they do not have to pay for. Either that or a drunk in a casino with unlimited markers, who spends the night playing double-or-nothing.

In either case, there is no correlation between expenditure and either necessity or affordability.

The people who become legislators are often from the legal profession, whose knowledge of numbers is largely limited to working up a bill. There is no accountability for their excesses - beyond passing the tab to the taxpayers.

I never graduated high school, but would guess you did. By the time I dropped out of high school, however, I had picked up enough skill with numbers to be able to compare debt burden with income, and the problem here is that our inexorable slide into receivership is only hastened by the innumerate approach to governmental budgeting.

With apologies to Everett Dirksen - a trillion here and a trillion there, pretty soon you're talking real money.


BSBD,

Winsor

[lawrocket 3]

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>Cutting Medicare and Social Security is the ONLY way to decrease outlays.

Akin to "increasing taxes is the ONLY way to increase income."

>You can cut EVERYTHING else out and leave only Social Security, Medicare,
>Welfare and debt servicing and the entirety of revenues will be eaten up by
>2020.

Without tax increases - agreed.

With tax increases, bill. Medicare UNDERFUNDED by $100 trillion by 2080.

My wife is hotter than your wife.

[rushmc 23]

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>Yes, but covering the hole does not mean increasing taxes

We must increase taxes and decrease spending. Period. Both sides have to abandon their political nonsense and do what it takes to fix the deficit problem.

Nope

we must slash spending while at the same time increasing revenue

Increasing taxes does not increase the monies coming is as fast as a growing private sector. And the private sector grows little or more slowly when taxed at rates needed to cover current gov spending

Period

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[billvon 3,107]

>we must slash spending while at the same time increasing revenue

Yes. And republicans claim that we can do that without increasing taxes. Democrats claim we can do that without cutting programs. They are both wrong.

[rehmwa 2]

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>The location of the peak is, of course, a subject of much debate. In general republicans think it's around 20% or whatever tax they want to be paying is. In genera democrats think it's around 90% - as long as it's applied to only the rich.

Historically maximum tax rates have varied between 25% and 91%, at least over the last 90 years. It's a safe bet it is between those two extremes

at best, finding the optimimum of a moving point that's likely close to it already (we've had a LOT of iterations and with the end goal for the last several decades being the government trying to soak out the maximum it can take........)

then - maximizing revenue via following the upslope of the curve is a minimal bang for the buck at best

the BIG dial remains dramatically cutting spending and encouraging a philosophy of minimal spending for the future

...
Driving is a one dimensional activity - a monkey can do it - being proud of your driving abilities is like being proud of being able to put on pants

[rehmwa 2]

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The issue at the moment is for the United States to get out of the current liquidity trap........

{{{{a whole lot of text and more text and more text for severely and critical devalue the currency}}}

do you expect to pitch this over and over again and get any serious response other than "holy crap, your only comment is to destroy the entire freaking world economy?"

the US can't print our way out of debt and expect to survive, or to even get out without seriously hurting the rest of the world's economies as well

you are in jeopardy of being made into Dreamdancer's roommate if you keep this up

...
Driving is a one dimensional activity - a monkey can do it - being proud of your driving abilities is like being proud of being able to put on pants

[ShcShc11 0]

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Quote

The issue at the moment is for the United States to get out of the current liquidity trap........

{{{{a whole lot of text and more text and more text for severely and critical devalue the currency}}}

do you expect to pitch this over and over again and get any serious response other than "holy crap, your only comment is to destroy the entire freaking world economy?"

the US can't print our way out of debt and expect to survive, or to even get out without seriously hurting the rest of the world's economies as well

you are in jeopardy of being made into Dreamdancer's roommate if you keep this up

har har.
The reason why I have to constantly re-explain the liquidity trap is because people need to understand that concept before understanding why it is important to spend.

In economics, everything DEPENDS on the situation.
-spending can be a good thing or an evil thing DEPENDING on the situation.
-raising or cutting taxes is nor a good thing or an evil thing DEPENDING on the situation.
-Inflation is neither a good thing or an evil thing DEPENDING on the situation.
etc...

A lot of you guys seem to bring old re-hashed stuff like the Reagan years, the Clinton years, the Bush years when CLEARLY, this isin't anything like any of those years.

We can, for example, compare the Clinton bubble vs let's say the Bush household bubble.

But a lot of the argument seems like: "Oh, Bush was bad therefore cutting tax is bad... or Reagan is good therefore cutting tax is good.. or Clinton didn't cut tax and we were fine". It just becomes an argument of "I remember the good old' time when it was..."

So why not go into the numbers more... See what's happening and why its happening.


I think it was Truman who said "Bloody hell, give me an economist that is one handed!"


Cheers!

[StreetScooby 5]

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Then do explain me how the Greece situation (+ PIG crises) is any way a good comparison to the current American situation?

They've all been over-spending for too long.

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Austerity is actually contractionary after all.

That depends upon how much of the economy is dependent on government spending. Granted, where we are now, government austerity is going to be contractionary .

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It comes down to the same league as Austrian economics where they keep predicting/predicted hyper-inflation of the likes of the 1920-1930 Weimar Republic and Zimbabwe.

I assume you're aware that Hayak and von Mises actually lived through this. It wasn't just a theory on their part. No doubt their personal experience with hyperinflation was significantly related to the Versailles treaty.

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I think we can both agree at how disastrous such a policy was to the EU and how the ECB backtracked from this decision. “The rest of the democratic world” (i.e: Europe) is in worse shape because of decisions like these… Germany and the EU is facing a possible catastrophic deflation yet Merkel is adamant in preventing hyper-inflation.

My point, again, is that most western governments have been over-spending for too long. Their approach is not sustainable.

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Fact is, the low rate is indicative of a stagnant American economy (i.e: lacking growth) and people are more than willing to park their money into the U.S.

If "normal" market forces were in play, I could agree with this statement. The fact of the matter is, "normal" market forces have not been in play for a while now. The Fed has been buying up every piece of paper in sight. They've actually turned into a profit center!

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http://www.crossingwallstreet.com/

Thanks for posting the site. I have a new web site to check out

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By his calculations, The Fed’s rate in late 2008-2009 should be at -5% if he wanted to bring U.S economy back to full employment. Of course, in real life, the Fed’s rate cannot go below zero. If it cannot restore normal employment at zero, then we have a classic case of liquidity trap. That is why events such as the 1930s are very relevant.

So, his model is advocating inflating our way out of the problem? Is that a fair read on this?

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Spending should not be used in every recession, but most definitely so in a major recession involving liquidity trap.

You're faith in Keynesian economics is noted.

==================================================================

For those following along in the conversation, googling some of the information found in ShcShc11's web links dredged up some very interesting stuff:

------------------------------------------------

1) Wikipedia's description of liquidity trap:
http://en.wikipedia.org/wiki/Liquidity_trap
This is a pretty good description, with links (as usual) to key words.

------------------------------------------------

2) A New York Fed in house article describing the theoretical justification for the Fed's policy of announcing future interest rates (...i.e., this is why they told everyone they're going to keep interest rates low). No where does it discuss the fact they don't have any choice in the matter because as soon as rates start going up US govt debt service requirements are going through the roof...

http://www.newyorkfed.org/research/economists/eggertsson/palgrave.pdf

Some fascinating stuff in here. Pure Keynesian thinking applied. Some points of note from this article:

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.....The aggregate demand relationship that underlies the model is usually expressed by a consumption Euler equation, derived from the maximization problem of a representative household(pt 1)....

The previous section illustrated, however, that shaping expectations(pt 2) in the correct way can be very important for minimizing the output contraction and deflation associated with deflationary shocks. This, however, may be difficult for a government that is expected to behave in a discretionary manner. How can the correct set of expectations be generated?

Perhaps the simplest solution is for the government to make clear announcements about its future policy through the appropriate ‘policy rule’. ... There is a large literature on the different policy rules that minimize the distortions associated with deflationary shocks. ... They show that, if the government follows a form of price level targeting(pt 3), ...

If the central bank, and the government as a whole, has a very low level of credibility(pt 4), a mere announcement of future policy intentions through a new ‘policy rule’ may not be sufficient.

I've taken liberties here in cutting and pasting. Hopefully, I haven't done so in such a way that skews the context. That's not my intent.. I quickly read through the article a few times. Several things jumped out at me, and stuck with me...

pt 1) The basic equation (the Euler equation) targets a "household". No where did I get the impression they were attempting to model how a company would maximize its utility, which is very different from how a household would maximize it's utility. That's a gaping hole because in a capitalistic society you must have companies to have households. I believe this is one of the major differences between Hayak and Keynes. Reading Hayak is way more difficult than reading Keynes. Keynes very much focuses on a macroeconomic view, while Hayak prefers a microeconomic view and all of the ensuing myriad details. Hayak does this by emphasizing "intermediate levels of production", which I'm now viewing as modeling how a company maximizes its utility, instead of just modeling "household" utility.

pt 2) The Fed has been reduced to managing expectations. On the street, there's a widely known phrase that says "perception is reality". It's a piss poor way to live your life, IMO. It's down right frightening the Fed is bringing that philosophy off the street and applying it to the economy as a whole. I'm taking some liberties in making this leap, but just wanted to share my "OMG, WTF!" shock at this.

pt 3) Uhm, government setting prices, or even thinking about that... never works. Properly functioning markets set prices.

pt 4) In managing expectations, the Fed is admitting that government credibility is an essential part of what they're dealing with. I've seen for some time now that Geithner and Bernanke are not truly independent of Obama, and now I understand why. The problem, and it's beyond their control, is that private capital is expecting Obama to continue to make a mess of things (he's gotten pretty much everything he's asked for in his time in office, and things are worse, not better). The Fed is facing a losing proposition.

I could be missing somethings here, but I have even less confidence in Geithner and Bernanke now.

------------------------------------------------

Philadelphia Research Intertemporal Stochastic Model (PRISM)

The Philadelphia Research Intertemporal Stochastic Model (PRISM) is a medium- scale economic model being developed by the Philadelphia Fed’s Research Department.

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About the PRISM Model

The PRISM model comprises about 40 equations and is estimated/simulated using the MATLAB programming language....

OMG!!! 40 equations??? MATLAB??? This is the best they can do?


------------------------------------------------

I'm going to close out this post with a quote from today's WSJ article that I posted earlier:

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Reagan appointed a large number of economic officials who also were firmly committed to moving away from interventionist policies. No members of the original Council of Economic Advisers under Reagan had come from the Keynesian school of thought...

Bottom line: Keynesian theory is not going to solve our problem for us.

We are all engines of karma

[StreetScooby 5]

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http://www.businessinsider.com/...sheet-vs-cpi-2011-11

I also want to point out to that article about the EU situation and Germany's "cut & slash" austerity policies.

Another good article that you've posted. I for one really appreciate that, and I thank you for taking the efforts you're making here to communicate your points.

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First, politically, an ECB bailout would be a disaster for German politicians. German voters are appalled by the idea that industrious Germans will be bailing out lazy Italians and Greeks, and they would likely vote accordingly.

The article does not even attempt to address this point, and it's the crux of what most conservative and Republican members of this forum are saying.

Keynesian economics, the Obama administration, et. al., do not account for the utility of hard work and risk taking by the individual. That, ultimately, is what this is all about, IMO. In real life, we are NOT all equal. Some folks work hard and take risks in their lives to achieve their standard of living. Others don't. Those that don't do not have a RIGHT to that same standard of living as those that do. A RIGHT is how you're allowed to conduct yourself. As soon as it starts costing some one's money other than your own, it reasonable to view that as a PRIVILEGE.

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Also: if spending is a politically impossible thing to do, then yes, tax cuts should be done. Its not as effective and it has a much lower multiplier effect (and it cost more)... but its better than nothing or slashing.

This whole idea of the Keynesian multiplier's asymmetric application to government spending vs private spending is bogus, IMO. Why is it government spending is "more effective" than corporate spending, or in general the directed spending that markets produce when they're functioning properly? I would love to hear the rationale behind that.

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In economics, everything DEPENDS on the situation.
-spending can be a good thing or an evil thing DEPENDING on the situation.
-raising or cutting taxes is nor a good thing or an evil thing DEPENDING on the situation.
-Inflation is neither a good thing or an evil thing DEPENDING on the situation.
etc...

Even more important is the philosophy with which you view the situation. That philosophy has a direct impact on those things that are viewed as "self evident". These "self evident" things are then used as the basis for axioms, from which any theory follows.

Our fore fathers understood the importance of imposing a limited role on the federal government. That's why America is the greatest country in the world. The synergy of the seething chaos of a free market (as seen by Keynesians) where individuals pursue their own self interest in a civilized society is far more beneficial to man and his standard of living than any central plan put together by "smart people" acting on behalf of a government. I think its fair to consider that as a fact.

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A lot of you guys seem to bring old re-hashed stuff like the Reagan years, the Clinton years, the Bush years when CLEARLY, this isin't anything like any of those years.

I for one, and I'm sure there are others here, can appreciate your point that the structure of these time periods was different. What you're failing to see is the impact of the philosophy chosen by folks like Reagan (...I refuse to support Bush, he spent like a drunken sailor, amongst other things). That, more than anything else, produced the results achieved in those time periods.

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So why not go into the numbers more... See what's happening and why its happening.

Sounds reasonable to me. Unlike Dreamdancer, you do attempt to put up outside literature to back your points. The problem we're going to bump into with these charts is the philosophy of the causation used to produce the correlations being discussed.

We are all engines of karma

[StreetScooby 5]

Just read through one of your replies to lawrocket.

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There is an enormous waste of resources by not applying the ones we have now. By doing nothing (or worse, by contracting the economy), there is a sacrifice in the output where we could be producing in which we have the capacity, but are not due to a lack of demand.

Who is we? The government? Maybe you could help us out a bit by giving us some audience definition. Are you trained as an economist?

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See the attachment from CBO who tends to be conservative in their estimates. We’ve wasted about 2.8 trillion $ by not doing enough.

We think we are “saving money” like a normal household family do when in reality, we are wasting a good 1T$ or so every year by engaging in this austerity policy.

Again, by "we" do you mean the government?

There is much more to the US economy than government spending and household spending. As mentioned previously, corporate utility functions and household utility functions are very different animals. Corporations are an essential part of capitalism, and the American way of life.

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The Government does indeed need to fix its long-term budget especially as 2030 is fast approaching (where entitlements are predicted to cause problems). However, doing this process now is highly irresponsible.

What is irresponsible is the government putting us into this mess to begin with.

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Yes, I (or we) heard them all. It makes sense on the outside, but its not how the economy works.

Depends upon your philosophy. I think lawrocket's point is valid.

We are all engines of karma

[StreetScooby 5]

This topic really boils down to what Mitch Daniels said in his "rebutal" to Obama's State of the Union address last night:

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"In word and deed, the President and his allies tell us that we just cannot handle ourselves in this complex, perilous world without their benevolent protection. Left to ourselves, we might pick the wrong health insurance, the wrong mortgage, the wrong school for our kids; why, unless they stop us, we might pick the wrong light bulb!

One side in this argument doesn't see the average person as being able to take care of themselves, and thus the government must fill in the details. The other side sees that as flawed, and expects the average person to take care of themselves.

In order for a civilized society to function well, each and every member has an obligation to take care of themselves, and their family, to the best of their ability. That ability is directly proportional to your willingness to work hard and better yourself.

We are all engines of karma

[CanuckInUSA 0]

The Republicans have tons of baggage. It is easy to understand why many people do NOT trust them. GWB was not a good leader and only the highly partisan Elephants would deny that Obama inherited a giant shit sandwich thanks to GWB. However, Obama has only made an existing shit sandwich even shittier with his never been seen before massive government spending. Obama is trying to mask his pathetic performance these last three years with his partisan class warfare message. It makes for good politics towards the 47% or so who pay no income tax to say "Tax the rich, make the rich pay more". Problem is you can seize all the assets from anyone earning 100k or more, seize all the assets from the corporations and it would only barely pay for one year of Obama's spending. Problem is what do you do next year and the year after, and the year after, etc, etc, etc? You have already taken everything you can from the hated rich and hated corporations. Raising taxes will not have the effect Obama tells you it will. The only thing that will turn the tide is to stop the massive government spending (this includes the military spending). Problem is, while Obama goes down in the history books as the highest spending president in the history of the USA (until the next clown comes around), the Republicans themselves haven't exactly shown they know how to stop this massive spending.

US politics is FUBARed ...

Try not to worry about the things you have no control over

[StreetScooby 5]

I agree with everything you said. Personally, I'm looking forward to the day when Marco Rubio runs. With what I know of him at this point in time, I'd vote for him in a heartbeat.

We are all engines of karma

[GeorgiaDon 379]

First off, I want to thank you and almost everybody else for the civil and highly informative discussion. I'm learning some things, and have a better appreciation for the rational arguments behind some positions, and I greatly appreciate that.

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NIH funding is the key to driving down healthcare costs and improving productivity and quality of life of US citizens

If the government is funding it, there's a side of me that feels is should be public domain. Question concerning this - "Bayh-Dole requires that NIH grant recipients: (a) patent and (b) favor small, USA companies when they license". I appreciate people need to make money in life, and that those that work hard and produce should be able to make alot of money. What's being patented by Bayh-Dole? The basic research, or the process by which that research is delivered to consumers?

Great questions. Most of the research funded by NIH is published in peer-reviewed journals and is public domain. This is especially true of the basic research, concentrating on basic biology and the factors causing disease. An example would be the human genome, where all the data is available to any researcher, or even to you. The idea is (1) in order to know what is causing a disease, you have to know how the system functions when it is healthy (hence the support for basic biology research), and (2) once causes of specific diseases are released to the public domain, private corporations compete to develop and patent/produce treatments. This way we get a variety of drugs or other therapies and can choose the best for the patient's circumstances. In the alternative model, where corporations patent the gene/virus/whatever that causes a disease, that corporation can prevent anyone else from marketing a treatment, so the consumer ends up with only one treatment and there is no opportunity to develop alternatives without infringing the first corporations patent.

Now it sometimes happens that in the course of doing basic research you will discover something that has obvious practical applications. Here there is the problem that the road from discovery to FDA registered drug is long (cell culture assays, then animal studies, then small and finally large scale clinical trials), takes years, and costs as much as $500 million dollars according to the pharmaceutical industry. No corporation will undertake this without patent protection, as without protection the day a drug goes on the market it will be reverse engineered by generic drug manufacturers and the corporation that ponied up the $500 million will not be able to earn back their R&D costs. So, Bahy-Dole removed some regulatory impediments and also put the onus on NIH-funded researchers to patent such discoveries before disclosing them, so they could potentially be available for commercial development. I have personally patented a couple of discoveries that could lead directly to new drugs for treating bleeding disorders, inflammation, and Lyme disease, though none have been licensed by a pharmaceutical company yet (still hoping!). Since Bahy-Dole there has been a lot more translation of NIH-funded research into US-produced commercial products.

The intent of the law is to make NIH-funded discoveries available for commercial development, but there also has to be some incentive to the university researchers to go through their side of the process. For example, as the inventor I had to spend weeks working on the patent narrative, and I was unable to publish or discuss my work until the patent was filed, a delay of about a year in each case. There is a cost/risk to this in the publish-or-perish environment of academia today. To make it worthwhile for researchers to take on this burden, all universities (who actually hold the patents) have royalty-sharing arrangements in their faculty contracts. Should anyone license my patents, I would receive the first $10,000 in royalties, and after that royalties would be spit between myself and the university on a sliding scale. A researcher at my university patented the drug Ristacin, and her share of the royalties amounted to over $30 million over the lifetime of the patent (now expired).

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Return:
– $2.21 per NIH-dollar spent in additional economic output
– 350,000 directly funded jobs + 800,000 supporting jobs created in private sector

It would be interesting to see who came up with those numbers, and how they came up with them. I'm not disputing it, just interested to see how they come up with these numbers.

Agreed, but I don't know right off hand.

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“What a strange business this is: We stay in school forever. We have to battle the system with only a one in eight or one in ten chance of getting funded. We give up making a living until our forties. And we do it because we want to help the world. What kind of crazy person would go for that?”

My son is a junior in high school, and very much wants to be a doctor or pursue medical research. He's very motivated to make a difference in people's lives, and I think he'll be great at it. I've forwarded him this document. Having gone through graduate school, the above quote statement is disturbing. Not sure how that part of the system could be improved upon. Any suggestions you could offer him?

The system is discouraging, and not getting any better, but it's still possible to make a reasonable living. Most importantly, if you have to work for a living it might as well be at something you really love, find challenging, and can believe makes a difference. In the sciences you should get paid a stipend or be able to TA as a grad student; it's not much but you can live off it. Postdocs used to be slave labor (it was when I was a postdoc) but postdoctoral salaries have improved and now you can expect $30-40,000 depending of years of experience post PhD. Although permanent jobs are scarce, the most productive researchers seem to land on their feet and I don't know anyone who is unemployed after grad school, though some are working as sales reps for the pharmaceutical industry and not directly in research. More disturbing is the trend in research funding, and so availability of grad student and postdoctoral positions. The document I linked showed the funding rate for NIH proposals as 20% in 2009, but by the end of 2011 the rate is down to 10% and a lot of university researchers have no grant support for their work. Anyway if it's what he wants to do I think he should go for it. If you want to PM me I'll give you my email and I'll be glad to "talk" to him.

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First, where is the evidence that lowering tax rates increases economic activity?

I've attached a chart taken from today's WSJ. Granted, it's not a complete comparison of apples to apples, but I believe it illustrates the point we're discussing. Folks like to throw out results from "the Bush tax cuts". Bush didn't just cut taxes, he kept spending like a drunken sailor, also.

Thanks, I'll look at that. I agree that increasing spending while cutting taxes is a bad combination.

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The economy was growing at a much faster rate at times in the past when tax rates were also significantly higher (such as during the Clinton administration).

Personally, I think Clinton had found a reasonable balance in his policies (not just tax policies).

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On the other hand, lowering tax rates has historically not led to increased employment or manufacturing activity.

Not sure where you're getting that. If you consider that most new employment is driven by entrepreneurs in the US, lowering tax rates absolutely helps them in their business.

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Anyway, although tax cuts for the already wealthy has risen to the level of dogma in Republican circles, it's inherently contradictory to the concept of supply and demand driving economic activity.

If you look at my voter registration, you'll see "NONE". Really wealthy people live off capital gains. That's an incredibly small portion of our population. Even it you took all of their money, we'd still have a deficit.

My voter registration is the same. I agree that we can't get out of this mess only by taxing the wealthy. Perhaps there is data (as opposed to anecdote or intuition) to support the idea that people won't invest their money if taxed at a higher rate than the current 15%, but it seems to me people still invested when tax rates were significantly higher. Still, maybe a case can be made to tax investments at a lower rate, as long as those profits are plowed back into further investments. What I think is corrosive, though, is taxing the profits that are taken out to cover living expenses at a lower rate than people pay on income from wages, especially if one considers that investment income is not subject to payroll taxes. I like Rehmwa's idea that income is income, the government shouldn't be pushing the idea that some types of income (from investments) is somehow special and "better" than income from wages. Of course I also think we need to get more of the bottom 50% to ante in as well. As long as it's easy for everybody to point to segments of society who get (or who are perceived to get) a free ride, it'll be difficult to convince people to take a share of the pain (either as increased taxes or as decreased government services) that will be needed to get us out of this mess.

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Just putting more money into the end of the pipeline (profit to businesses due to lower costs) won't do anything to encourage growth if demand stays flat or shrinks, and stagnant or declining income to the middle and lower income classes (who make up the overwhelming majority of the consumer market) ensure that demand will stay flat.

People need jobs, which requires companies, and entrepreneurs to start those companies. There's alot that can be done to minimize the hurdles being faced here. Our government should expect a work ethic from our citizens. It should be expected that if you are a father, you get up in the morning and go to work, and provide for your family. End of story. If you need to better yourself to make more money, then you do so.

No disagreement from me.

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Secondly, chemical engineers should know that even inverse responses only happen over a defined range of variables (such as concentrations of reactants) and conditions. There is always an optimum set of conditions where the reaction is most efficient.

Agreed.

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WRT to taxes, obviously if the government taxed at 100% there would be no private sector investment and eventually tax revenues would go to 0. Similarly, if the tax rate was 0%, revenues to the government would be 0. There must be a non-zero tax rate that optimizes revenues.

Agreed.

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The assumption that lowing tax rates will increase revenues assumes we are currently above that optimum rate, but there is no evidence for that being the case.

The material I read (e.g. WSJ) shows this all of the time. What are you reading?

I try to sample lots of different sources with varying perspectives, can't think of any one that predominates right now. The WSJ is one, but it has a definite slant on things. Regarding the statement, it's largely based on the fact that the Bush tax cuts (for one example) did not produce the promised increase in economic activity and government revenue, in fact revenue went down, suggesting we are on the wrong side of the optimum.

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Given what has happened following the Bush tax cuts,

You can't measure just this. You also must account for the fact that Bush kept spending like a drunken sailor.

Agreed that complicates things, but you still look at revenues and not just the deficit.

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I think the evidence is that we are below the optimum now, and further cuts will just further ensure the government can't meet its obligations.

The government has so many "obligations" now that it couldn't meet them even if they took all the money from millionaires and billionaires, and all corporate profits.

True enough, which is why we need to prioritize and greatly trim those obligations. Lawrocket makes a good case that entitlement spending will soon consume the entire budget, and changing population demographics makes it certain the situation will just get worse. Clearly those programs will have to be refocused and downsized, but I wonder where we will find the political will to do it. Even the Tea Party says "hands off my medicare".


Thanks for the reasoned reply. I learned somethings from your material. Much appreciated.

[mnealtx 0]

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Bush didn't just cut taxes, he kept spending like a drunken sailor, also.

At first, yes... but by FY 2007 the deficit was down to ~160B.

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Perhaps there is data (as opposed to anecdote or intuition) to support the idea that people won't invest their money if taxed at a higher rate than the current 15%, but it seems to me people still invested when tax rates were significantly higher.

Try this.

Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706