StreetScooby

And that's where he becomes unelectable. I am all for taking our troops out of Europe, and letting them pay their own way for defense. But, the fact of the matter is, the world needs a clear winner at times, and that's where our military comes into play. We cannot eliminate that. Things would turn ugly within a generation if we did. We are all engines of karma

Just read through one of your replies to lawrocket. 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? 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. What is irresponsible is the government putting us into this mess to begin with. Depends upon your philosophy. I think lawrocket's point is valid. We are all engines of karma

Hate to tell you this, but you're unless you're a US Citizen you can't vote in the US Presidential election I'm sure Obama would be more than happy to accept a donation from you. You'll have to sign it "Mickey Mouse", but don't worry, you won't be setting any precedents. We are all engines of karma

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. 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. 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. 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. 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. 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

They've all been over-spending for too long. 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 . 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. My point, again, is that most western governments have been over-spending for too long. Their approach is not sustainable. 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! Thanks for posting the site. I have a new web site to check out So, his model is advocating inflating our way out of the problem? Is that a fair read on this? 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: 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. 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: Bottom line: Keynesian theory is not going to solve our problem for us. We are all engines of karma

Couldn't help myself here... Just trying to keep the discussion focused

Here's an article from today's WSJ that seems apropos for this thread: I've highlighted an entry regarding "short-term Keynesian actions".. Guess there is no such thing as a long term Keynesian action, because you'd be broke ======================================== Economics for the Long Run Individuals should be free to decide what to produce and consume, and their decisions should be made within a predictable policy framework based on the rule of law. By JOHN B. TAYLOR As this election year begins, a lot of people are wondering what we can do to restore America's prosperity and create more jobs. Republican presidential candidates are offering their ideas, and at his State of the Union message on Tuesday President Obama presented his. I believe the fundamental answer is simple: Government policies must adhere more closely to the principles of economic freedom upon which the country was founded. At their most basic level, these principles are that families, individuals and entrepreneurs must be free to decide what to produce, what to consume, what to buy and sell, and how to help others. Their decisions are to be made within a predictable government policy framework based on the rule of law, with strong incentives derived from the market system, and with a clearly limited role for government. The history of American economic policy displays major movements between more and less economic freedom, more and less emphasis on rules-based policy in fiscal and monetary affairs, more and less expansive roles for government, more and less reliance on markets and incentives. Each of these swings has had enormous consequences. Taken together, they make for a historical proving ground to determine which policy direction is better for restoring prosperity. A big move toward more interventionist policies started in the mid-1960s, after more activist Keynesian economists came to town in the Kennedy and Johnson administrations, and it lasted through the 1970s in the Nixon, Ford and Carter administrations. We saw short-term stimulus packages, temporary tax rebates or surcharges, go-stop monetary policy with inflationary overexpansion followed by severe contraction, wage-and-price guidelines and controls. The eventual result was high unemployment, high inflation and slow economic growth. This was followed by a shift toward more predictable policies and a more limited role for government starting in the Reagan administration and largely continuing into the George H.W. Bush and Clinton administrations. The result was lower unemployment and higher economic growth with long expansions and few recessions. More recently—beginning during the George W. Bush administration but really taking wings in the current Obama administration—policy has returned toward more and more government intervention, with results we are all experiencing. How to move the country back toward the policies that sustain economic freedom and prosperity? To start, much can be learned from the stories of the politicians and economic officials who got us in and out of these messes, and remembering that the cast is bipartisan. Most pertinent to our current predicament is the story of how we got out of the economic mess of the late 1970s. It's difficult to recall now the seriousness of the U.S. economic slump at that time. Unemployment was high and persistent. Inflation had increased past the creeping stage to a trot. Confidence in U.S. economic leadership was plunging at home and abroad. That changed when Ronald Reagan became president in 1981. Temporary, short-term Keynesian actions and interventions were out. Stable, permanent policy was in. Reagan proposed and Congress passed critical long-term reforms, especially across-the-board tax rate reductions. Related Video The president was a firm believer in economic freedom, an avid reader and follower of economists like Milton Friedman and Friedrich Hayek. Between the time he failed to unseat President Gerald Ford in the 1976 Republican primaries and his announcement to run again in 1980, Reagan gave innumerable radio addresses putting forth his principles. He used down-home stories of economic freedom that he could tell in three minutes or less. There were no ghost writers—he wrote his stories in long hand on lined yellow paper as he traveled around the country. The failed policies of the 1970s made Reagan's case appealing across the political spectrum. He based his winning election campaign on these principles. 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, and most of them during the Reagan administrations were influenced by Milton Friedman. In addition, the president appointed a group of outside economic advisers—originally including George Shultz, Milton Friedman, Alan Greenspan, Arthur Laffer, William Simon and Thomas Sowell—who helped him and others in the administration implement policies to move the country toward economic freedom and then stay the course. As an example of Reagan's firm commitment to principle, consider monetary policy. When he became president, Federal Reserve Chairman Paul Volcker, a Democrat appointed by President Carter, was determined to reduce inflation and end the go-stop interventions of the 1970s. That meant temporarily high interest rates, which contract the economy. One might have expected Reagan to pressure the Fed to lower interest rates to give a short-term boost to the economy. He did not, despite the political costs. In comparison with the political pressure put on Fed Chairman William McChesney Martin by the Johnson administration and on Arthur Burns by the Nixon administration to follow easy money policies, Reagan's decision to support Mr. Volcker was remarkable. The president's economic strategy was ready to go as soon as the votes were counted in November 1980. That same month, George Shultz, along with many of the economists who had worked in the campaign, wrote an extraordinary memo to Reagan entitled "Economic Strategy for the Reagan Administration." It began with a call for action: "Sharp change in present economic policy is an absolute necessity. The problems . . . an almost endless litany of economic ills, large and small, are severe. But they are not intractable. Having been produced by government policy, they can be redressed by a change in policy. . . . The need for a long-term point of view is essential to allow for the time, the coherence and the predictability so necessary for success." That predictable, long-term view continued well beyond the Reagan presidency, but it is no longer with us. The clear lesson is to find and select those leaders, regardless of political party, who along with their advisers are most firmly committed to the principles of economic freedom and who know how to implement and maintain them. Mr. Taylor is a professor of economics at Stanford and a senior fellow at Stanford's Hoover Institution. This op-ed is adapted from "First Principles: Five Keys to Restoring American Prosperity," published this week by W.W. Norton. We are all engines of karma

That, and the fact the capital stayed in the country after FDR was gone. We are all engines of karma

There's alot of literature that debunks the myth that FDR saved us. FDR caused a massive capital flight from this country. His own treasury secretary said, "We're spending more than ever, and it's not working". The economy turned after FDR had died. For most of his time in office, it was in the doldrums. We are all engines of karma

We're all in agreement that revenues into the government need to be increased. Raising taxes is not necessarily the best way to do that. We are all engines of karma

Agreed. Thanks for posting this article. Good stuff. I for one believe this is a valid and vital role for our government to play, particularly using quotes from the article: 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? 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. 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? 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. Personally, I think Clinton had found a reasonable balance in his policies (not just tax policies). 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. 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. 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. Agreed. Agreed. The material I read (e.g. WSJ) shows this all of the time. What are you reading? You can't measure just this. You also must account for the fact that Bush kept spending like a drunken sailor. 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. Thanks for the reasoned reply. I learned somethings from your material. Much appreciated. We are all engines of karma

First, let me thank you for the considered replies you've made here. I do come to this site to learn, and it's nice when that happens. Second, let me give you some audience definition regarding me. I work in the bond industry. The desk I support moves $500B/month in just MBS. The issues we're discussing are very relevant, IMO. How so? 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. I don't think that's a fair statement on your part. With continued discussion, I expect you'll change your view of this. 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. Most people have no idea what that means. A few months back, when this first happened, we had a slew of trades come in that broke our system. Why? 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. This is not a good place to be. Bankruptcy is not the issue, in my mind, at this point in time. The US government has an incredible spending problem. That's the issue. Even if they took all of the millionaires and billionaires money, and all corporate profit, we still would have a deficit. Do you want to know the real reason why the Fed is doing everything it can to keep interest rates low? Because we are so deep in debt, especially short term debt that keeps getting rolled over, that if the interest rates start rising our debt service costs will approach $1T/year. This is a horrible place to be. To continue policies that got us here is sheer insanity. Obama shows no connection whatsoever with this reality. 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? That's well said. You may find these of interest: Previous 12 Months Volume for Mortgage-Backed Securities Previous 12 Months Volume for Government Securities Fails Data Chart You seem to be contradicting yourself a bit here. I watched this happen. Bear and Lehman had loaded up on shit paper, then leveraged the hell out of it. No repo desk would touch the paper or them as counterparties. They have only themselves to blame for getting into that situation. The Fed is lender of last resort. They fulfilled that obligation. The bigger questions are how did we get into a situation where they had to do that, and what's going to stop it from happening again? Dodd-Frank is not the answer, nor is SOX. Repealing Glass-Steagall was a mistake that needs to be addressed (...why not just bring it back? It worked well for 50+ years). My point here is western governments have been spending too much for too long. That's go to stop. Will there be pain? Yes. Can't be avoided now. Again, thanks for the considered replies. I hope that's typical for your responses, because I'm sure I'll learn something. We are all engines of karma

I'm curious. Being from Canada, what do you think happened? We are all engines of karma

Pure Keynes... It doesn't work... I bought Keynes "General Theory" a few months ago. He is very precise in his language, and what he lays out in the first chapter sounds really good. Considering it's a critique of classical economics as they existed at that time, the book quickly starts using a language that I'm not well versed in. The impression that I'm left with is Keynes doesn't seem to account for the cost of government action. We are all engines of karma

That's a bogus argument, pushed by economists who have their head in a place that doesn't provide sufficient vitamin D (e.g. Krugman). How's this working out for Greece, and the rest of the PIGs? The fallacy of the argument is it's used to justify short term actions without fully considering the consequences in the long term. As long as there is private capital in the world, debt will be debt, period. Once private investors see governments thinking they can somehow short change their obligations, the cost of capital will increase for that government. If we ever get to the point where we no longer have private capital, then bonds simply become pieces of paper, and the system will collapse. And how did we get here? By governments spending too much in the first place, for a very long time. Now, they're between a rock and a hard place. The only solution is to reduce the size of government. Is it going to be painful? Yes it is. Western democratic governments cannot continue spending more than they have. We are all engines of karma

What is this in your opinion? At least a similar proportion to the wages earned, but even that is being pretty generous since a dollar absolutely means more to a poor person than it does to a rich one. $100 dollars to a poor person might mean the difference between living in a house or living in a cardboard box next month. The same can not be said about the rich. My question was - what is "their fair share", in your opinion? This doesn't answer my question. We are all engines of karma

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. Yet, these same people, who have such incredible "skill" at math, can't understand that decreasing tax rates will actually increase the size of the economy (i.e., the pie gets bigger), and thereby increase the tax revenues. They insist on viewing the size of the pie as fixed, independent of any actions the government may take. In chemical engineering speak, this is an inverse response, and it's fairly common, so common that there's a well defined word for it. Granted, in order for this to work the government can't increase spending to boot. We are all engines of karma

No, it's not fair. To boot, Obama and people like him think they can cover the hole being produced by his policies simply by taking even more. They clearly haven't done the math. Even if they take ALL of the rich people's money, and all corporate profits, there still won't be enough to cover Obama's deficit. We are all engines of karma

What is this in your opinion? We are all engines of karma

This is a really good, recent speech by Rubio: http://www.nationalreview.com/corner/286044/rubio-wheres-sense-urgency-kathryn-jean-lopez May not be totally in line with this thread, but he's spot on with his comments We are all engines of karma

I've been on the fence about Kagan. You've proven yourself to be a thoughtful, reasonable man. I'm happy to go with this opinion. We are all engines of karma

Whoa, what a can of worms...

Several years back, a friend gave me an expensive bottle of Single Malt Whiskey. I was planning a short trip to a friends house, and thought I would bring it along. TSA stopped me when and confiscated it. I'm sure they enjoyed it tremendously. We are all engines of karma

The upside potential is Congress would have to get its act together. We are all engines of karma

Those must be some good newts you're chewing on... Freshly harvested? We are all engines of karma