Pledge to America

[ERD50]

You are conflating long term and short term issues.

I thought I addressed the short term separately, perhaps I wasn't clear.

You can create any product you want, but unless people have the money to buy it IT HAS NO VALUE. You can't create value if buyers have no money.

We have a vast number of unemployed people who, if properly employed would create products. Similarly if those people had money they would buy other peoples products. You can't start a car without a battery.

True, and I don't think this is contrary to what I posted. But part of what I'm saying is we can't just create products for consumption - there has to be some real value-added there to be sustainable.

So let's say we give everyone a $500 debit card each month for a period of time. They can buy 'stuff', and some of that stuff will need to be replaced and that will create jobs. But take away the $500/month and doesn't it all go 'poof'? I don't see how you create more than $500 worth of jobs on $500 of sales of consumables. Using your battery/car analogy, where does the gasoline come from once the car is started? Sounds to me like you are saying you can charge the battery from turning the engine with the starting motor - perpetual motion machines don't work.

OTOH, if you are producing product that creates value (say tools that allow a business to make something of greater value out of lesser value base commodities), that seems like sustainable growth to me.

Hypothetical example for illustration: Say I develop a $20 widget that can save $50 on this seasons heating bill. Great payback, real value-added there. Sure, some people are living so paycheck-to-paycheck that they can't even afford the $20 to save $50. But (judging by the packed higher-end restaurants I've been to recently), many people can. That will create jobs for the widget makers. Maybe then they can afford the $20 to save $50? It seems to me that those are the kinds of products we need to be producing for sustainable growth.

This is what bothers me the most about both the Dem and GOP extension proposals -- they are permanent.
...

One thing that troubles me in the various discussion of 'tax those who can afford it' is it just seems so backwards to me. It's like going to the grocery store and having the checkout person decide your bill based on how much money you have in your wallet.

I don't think we should take more just because one group decides another group can afford it, we should have to justify the expenditures and then figure out a reasonably fair was to collect what we need. I won't comment beyond that, as I don't really know where we are on the Laffer curve - are taxes on the 'rich' hurting investment more than than they collect? I have no idea - it's an effect at any level of taxation, but I don't know where the inflection point is. If we knew that, we could decide if a flatter or steeper curve was in order. But the stats I've seen already seem very tilted to a small % of the upper levels paying a very high % of FIT already. Maybe that's how it should be, but maybe not?

-ERD50

 

[Emeritus]

Yes, military spending needs to be cut drastically. We have hundreds of military bases around the world and many of them just aren't needed anymore. And many have expensive golf courses, tennis courts, gyms, etc.

But spending really needs to be cut pretty much across the board in order for us to back away from the brink of bankruptcy. The Energy Dept was started in the 70's to reduce our dependence on foreign oil and has been a total failure. The Dept of Education is basically just a bunch fact gatherers and checkers. Dept of Agriculture seems to specialize in securing handouts for big agribusiness.

We all need to be pushing our Congresscritters to truly cut spending and start reducing our national debt otherwise we'll all be trying to figure out which dry dog food tastes best. The canned stuff will be too pricey for our budgets!

Other than Defense (including VA) the operational costs of the US government are relatively trivial.

The pledge did not describe a single government program it it suggests eliminating

 

[Emeritus]

So let's say we give everyone a $500 debit card each month for a period of time. They can buy 'stuff', and some of that stuff will need to be replaced and that will create jobs. But take away the $500/month and doesn't it all go 'poof'?
-ERD50

That is the question of the multiplier effect. If there is excess productive capacity in the economy, the stimulation works because the same $500 is spent over and over again

"To start out, we turned to testimony by Mark Zandi before the Senate Finance Committee on April 14, 2010. Zandi is the chief economist for Moody's Economy.com and a former adviser to Republican Sen. John McCain during his 2008 presidential campaign. Page 5 of the testimony contains a table that summarizes Zandi's calculated "bang for the buck" for various fiscal stimulus programs. Spending $1 on unemployment insurance benefits, for example, increases the GDP -- the value of goods and services that the economy produces -- by $1.61 a year later, according to Zandi. (We found some counter-arguments in a previous Truth-O-Meter item checking New Hampshire Sen. Jeanne Shaheen's use of Zandi's data.) A temporary increase in food stamps has the biggest stimulative effect. For each dollar spent, GDP grows by $1.74 one year later. For spending increases as a whole, the "bang for the buck" ranges from $1.13 for the Low-Income Home Energy Assistance Program to $1.74 for food stamps."
PolitiFact | Maddow claims spending is more stimulative than tax cuts

 

[Texarkandy]

...

Discussion in the context of issues affecting retirement is fine. Partisan bashing is not.

(emphasis added)

I agree. This is the standard that should be applied by all moderators.

 

[ERD50]

That is the question of the multiplier effect. If there is excess productive capacity in the economy, the stimulation works because the same $500 is spent over and over again

...

For each dollar spent, GDP grows by $1.74 one year later.

I gotta run, I'll read the link later, but I gotta say that on the face of it, I'm having as much trouble with this concept as I am with perpetual motion. If true, it seems the solution to all our woes is staring us right in the face, to the tune of 74% growth. Color me skeptical.

Maybe the key is that GDP might not be a good measure? I dunno, but if I pay my neighbor $10,000 to cut my lawn, and then he pays me $10,000 to cut his lawn and we do that for 26 weeks, did we just create $520,000 of economic activity? But zero wealth.

-ERD50

 

[Nick59]

A couple of points.

• The $200k/$250k (single/married) threshold in 2010 is roughly equivalent in constant dollars of $162k/$202k in 2000 dollars. Do people really consider such levels as "rich"?
• I've heard, though of course nothing is final until any legislation is final, that the $200k/$250k threshold being talked about is not taxable income, but adjusted gross income. Big difference.
• While I in general agree with the theory that the wealthy may not consume as much as the middle class, the issue arises when determining who is wealthy (see first two points). At "low levels" of the definition of "rich", I suspect many will reduce consumption as they have savings goals.
• One must remember that, as tax rates increase, the incentive to avoid taxes increases. This is especially true if one class of individuals feels that the result is not equitable.
• It's my belief that a tax system that has ~50% of households not paying income taxes is severely problematic. People need to have skin in the game.
• There are ways to immunize yourself from the effects of tax increases without reducing your consumer consumption.
• I find it interesting that the Democrats, who voted for the higher Clinton rates, and who voted against the Bush tax cuts, are now championing the Bush tax cuts, at least as far as the "middle class".
• I'm not sure which I believe more: that the decision to not have a vote on the tax cuts prior to the election are the result of a) believing that if both options are presented, the full Bush cuts will be maintained, and the Democrats can't stand the idea of the "rich" not having their taxes increased or b) they actually don't want to extend any tax cuts, but would rather 1) raise everyone's taxes but 2) be able to blame the Republicans for that happening.

 

[CuppaJoe]

Post 21:

What was that I was just saying about the appearance of Porky?

Discussion in the context of issues affecting retirement is fine. Partisan bashing is not.

Post 54:

...

I agree. This is the standard that should be applied by all moderators.

Hello again, Tex; its' been awhile but as usual you posted today and went offline. May I remind you, from the CRs:

This forum is largely self-policing, which means that moderators will respond and react to problems reported through the REPORT POST option, via the CONTACT FORM at the bottom of each page, or via PM. Do not hesitate to use these tools to report any problems regarding the forum.

Self-policing = we are all responsible and the success of the forum depends on its members, IMO.

 

[M Paquette]

I gotta run, I'll read the link later, but I gotta say that on the face of it, I'm having as much trouble with this concept as I am with perpetual motion. If true, it seems the solution to all our woes is staring us right in the face, to the tune of 74% growth. Color me skeptical.

Well, yeah, that is the big gotcha. That high multiplier effect is seen on things like local grocery purchases, where there is competitive pricing on goods, a large labor component to do the multiplying, and the economic activity from any spending propagates through several earning/spending cycles. (e.g., the grocer buys from farmers and pays his workers, who buy supplies in town and visit the pub, and the supply store workers and pub owner shop for groceries...)

The multiplier effect is a nice way to describe how an economy grows.

Now, if one spends money in a way that doesn't stimulate multiple earning/spending cycles then the multiplier is small, and can be less than 1.0. Stuffing money in a mattress, for example, doesn't produce much economic activity, and so has a low multiplier. It is also possible for some economic activity to 'crowd out' other activity and prevent a net increase in economic activity from occurring. (Consider a bank making a huge nonperforming loan, and then being unable to lend to local businesses to finance growth.)

The multiplier effect comes from work done by Alfred De Lissa, an Australian economist, along with Julius Wolff and Nicholas Johannsen. Keynes picked up on this and incorporated it in his general macroeconomic theory. Richard Kahn tried to expand this to model net national product as part of his "Principle of the Multiplier".

 

[tjscott0]

A different look at the multiplier effect.

Debt headache to keep throbbing | News for Dallas, Texas | Dallas Morning News | Scott Burns | Personal Finance | Business Columnist | Dallas Morning News


"Most of the modern period, Hunt explains, has been based on Keynesian economics – the idea that government could stimulate demand with deficit spending.

That spending, funded through larger government debt, was supposed to have a multiplier effect. For every dollar of deficit spending, according to the theory, there would be several dollars of new economic activity. The multiplier effect is an idea politicians love because it makes government the hero-spender of economic recoveries.

There's just one problem, Hunt says. "It's wrong."

"Deficit spending, rather than energizing the economy, is debilitating," he said. "Worse, after the spending is
done, the private sector has to service the new debt."

"Taxes have a negative multiplier," he said."

If Hunt is correct; we in for a long slog of P poor stock returns.

 

[M Paquette]

"Deficit spending, rather than energizing the economy, is debilitating," he said. "Worse, after the spending is
done, the private sector has to service the new debt."

"Taxes have a negative multiplier," he said."

If Hunt is correct; we in for a long slog of P poor stock returns.

Paying down debt, personal or otherwise, and taxes tend to move money out of the hands of people who would otherwise spend it in ways that produce economic activity. We're now going through what pundits are calling the Great Deleveraging, paying off personal debt instead of spending on goods, or at the very least not borrowing so much to spend on goods.

Of course, the gotcha here is that the Great Deleveraging isn't really so great. Consumer spending as a percentage of GDP is still above 70%, well above the 64% that was consistently run from 1950 to 1980. Still, I'm sure there are some really dark clouds out there somewhere that we can stay under.

 

[Emeritus]

A different look at the multiplier effect.

Debt headache to keep throbbing | News for Dallas, Texas | Dallas Morning News | Scott Burns | Personal Finance | Business Columnist | Dallas Morning News


"Most of the modern period, Hunt explains, has been based on Keynesian economics – the idea that government could stimulate demand with deficit spending.

That spending, funded through larger government debt, was supposed to have a multiplier effect. For every dollar of deficit spending, according to the theory, there would be several dollars of new economic activity. The multiplier effect is an idea politicians love because it makes government the hero-spender of economic recoveries.

There's just one problem, Hunt says. "It's wrong."

"Deficit spending, rather than energizing the economy, is debilitating," he said. "Worse, after the spending is
done, the private sector has to service the new debt."

.

If you give money from the deficit spending to low in come people , it can work If you reward your big campaign contributors with tax cuts for teh wealthy , it doesn't.

 

[Texarkandy]

Post 21:




Post 54:



Hello again, Tex; its' been awhile but as usual you posted today and went offline. May I remind you, from the CRs:



Self-policing = we are all responsible and the success of the forum depends on its members, IMO.

?

 

[harley]

That is the question of the multiplier effect. If there is excess productive capacity in the economy, the stimulation works because the same $500 is spent over and over again

"To start out, we turned to testimony by Mark Zandi before the Senate Finance Committee on April 14, 2010. Zandi is the chief economist for Moody's Economy.com and a former adviser to Republican Sen. John McCain during his 2008 presidential campaign. Page 5 of the testimony contains a table that summarizes Zandi's calculated "bang for the buck" for various fiscal stimulus programs. Spending $1 on unemployment insurance benefits, for example, increases the GDP -- the value of goods and services that the economy produces -- by $1.61 a year later, according to Zandi. (We found some counter-arguments in a previous Truth-O-Meter item checking New Hampshire Sen. Jeanne Shaheen's use of Zandi's data.) A temporary increase in food stamps has the biggest stimulative effect. For each dollar spent, GDP grows by $1.74 one year later. For spending increases as a whole, the "bang for the buck" ranges from $1.13 for the Low-Income Home Energy Assistance Program to $1.74 for food stamps."
PolitiFact | Maddow claims spending is more stimulative than tax cuts

This multiplier effect has been used to justify all sorts of economic silliness recently. There is absolutely no justification for it that I can find. As far as Mark Zandi, he's got an incredibly horrible record for prognostication. Here's a quick look back at the record of the man you are using as a source for making an argument. The Abysmal Track Record of Moody

Christine Romer was a big one on the multiplier, back when she was head of the Council of Economic Advisors. Here's a good article debunking the concept. http://reason.com/archives/2009/10/19/the-myth-of-the-multiplier

 

[M Paquette]

Here's a good article debunking the concept. The Myth of the Multiplier - Reason Magazine

That article cites military spending and it's influence on GDP, probably from this paper: http://weber.ucsd.edu/~gramey/210B/VRamey%20UCSD%2009.pdf

The paper does not state that no multiplier effect exists, bur rather that defense spending has a lousy multiplier, courtesy of anticipated timing of the expenditure and the "crowding out" effect I mentioned in an earlier post.

Contrary to what various political economic commentators believe, the work actually demonstrates that the expected VAR-type Keynesian results do occur, but the timing model needs to be adjusted to allow for the marketplace's anticipation of expenditures.

I don't know of any mathematical economist who would insist that the multiplier effect does not exist. In macroeconomics, it's a way to measure growth of an economy over time. Keynesians like to model their favorite fiscal policy tweaks in terms of multipliers. Marxist economists like to use multipliers to measure the oppression of the proletariat.

 

[harley]

I don't know of any mathematical economist who would insist that the multiplier effect does not exist. In macroeconomics, it's a way to measure growth of an economy over time. Keynesians like to model their favorite fiscal policy tweaks in terms of multipliers. Marxist economists like to use multipliers to measure the oppression of the proletariat.

So you are saying I'm not capable of being a mathematical economist? Why, you sweet talker, you! That's the nicest thing anybody's said to me all month!

 

[M Paquette]

So you are saying I'm not capable of being a mathematical economist? Why, you sweet talker, you! That's the nicest thing anybody's said to me all month!

Nah. You can do it. It's just a bunch of mathification.

I'd beware of anyone trying to interpret data through ideological beer goggles, though.

 

[traineeinvestor]

That article cites military spending and it's influence on GDP, probably from this paper: http://weber.ucsd.edu/~gramey/210B/VRamey UCSD 09.pdf

The paper does not state that no multiplier effect exists, bur rather that defense spending has a lousy multiplier, courtesy of anticipated timing of the expenditure and the "crowding out" effect I mentioned in an earlier post.

Contrary to what various political economic commentators believe, the work actually demonstrates that the expected VAR-type Keynesian results do occur, but the timing model needs to be adjusted to allow for the marketplace's anticipation of expenditures.

I don't know of any mathematical economist who would insist that the multiplier effect does not exist. In macroeconomics, it's a way to measure growth of an economy over time. Keynesians like to model their favorite fiscal policy tweaks in terms of multipliers. Marxist economists like to use multipliers to measure the oppression of the proletariat.

+1 [-]on the non-political humour components.[/-]

One semi-related point that is often not mentioned in discussions on the effect of tax/stimulus on the economy is the velocity of money concept. If people simply sit on their money (or sit on more of it or sit on it for longer), then all or part of the multiplier effect is negated (or delayed).

At the risk of revisiting the original post, as a US taxpayer I would take steps to reduce my spending if I thought that higher taxes were coming. The only reasons I haven't are that (i) our savings rate is sufficiently high that we will still have a decent savings rate even if the taxes go up and (ii) I am sufficiently close to FIREing that the higher taxes are unlikely to impact the timing by more than a year (if that). However, I bet there are plenty of people who are reacting to the possibility of higher taxes by cutting expenses. Enough to affect consumption trends? I don't know, but I do know that I am looking forward to ceasing to be a US taxpayer when I retire.

 

[chinaco]

Did someone say Contract with America?

It would be worthwhile to see how the last "Pledge" worked out.

Contract with America - Wikipedia, the free encyclopedia

Looks like the same issues being recycled. I wonder how it will turn out this time?

 

[donheff]

Did someone say Contract with America?


Looks like the same issues being recycled. I wonder how it will turn out this time?

Yup
Postcards From the Pledge - The Daily Show with Jon Stewart - 9/23/2010 - Video Clip | Comedy Central

 

[ERD50]

Did someone say Contract with America?

It would be worthwhile to see how the last "Pledge" worked out.

...

Looks like the same issues being recycled. I wonder how it will turn out this time?

Nothing new (I'm saying this in a non-partisan way). Politicians of all stripes have been saying the same things over and over for as long as I can remember. Illinois oughta be just squeaky clean by now.

Again, not to comment specifically on the pledge/contract (I want to keep it non-partisan), what's wrong with a consistent message? Now, if you don't like the message, don't vote for 'em. Simple.

-ERD50

 

[FinanceDude]

If you give money from the deficit spending to low in come people , it can work If you reward your big campaign contributors with tax cuts for teh wealthy , it doesn't.

There's $289 billion of the "Stimulus" bill yet unspent, maybe we can start there, instead of spending it on trains noone will ride and projects like that??

If the US economy is banking on folks maxing out their credit cards again and over-leaveraging their houses to stimulate the economy, the banks won't let that happen these days..........

 

[REWahoo]

There's $289 billion of the "Stimulus" bill yet unspent, maybe we can start there, instead of spending it on trains noone will ride and projects like that??

If the US economy is banking on folks maxing out their credit cards again and over-leaveraging their houses to stimulate the economy, the banks won't let that happen these days..........

Two questions: Who is this guy "noone" and why do you have an issue with him riding the train?

 

[harley]

Again, not to comment specifically on the pledge/contract (I want to keep it non-partisan), what's wrong with a consistent message? Now, if you don't like the message, don't vote for 'em. Simple.

-ERD50

It wouldn't be a problem if the politician's message existed in the some similar reality as their actions. And I'm saying this in the most non-partisan way possible too. [-]Bunch of lying assholes.[/-] Those darn politicians.

 

[MichaelB]

It wouldn't be a problem if the politician's message existed in the some similar reality as their actions. And I'm saying this in the most non-partisan way possible too. [-]Bunch of lying assholes.[/-] Those darn politicians.

Fallen on hard times --- but it feels good to know
that milk and honey's just around the bend.
Running on bad lines --- we'd better run as we go,
Tear up, tear up the overdraft again.

Oh, dear Prime Minister --- it's all such a mess.
Go right ahead and pull the rotten tooth.
Oh, Mr. President --- you've been put to the test.
Come clean, for once, and hit us with the truth.

Looking for sunshine --- oh but it's black and it's cold
Yet, you say that milk and honey's just round the bend.
Giving us a hard time, my friends
handing us the same line again.

Fallen on hard times --- and there's nowhere to hide
Now they've re-possessed the Rolls Royce and the mink.

Turning on the peace sign --- and it's back to the wood.
Soon there will be raised a holy stink.

Somebody wake me. I've been sleeping too long.
Oh, I don't have to take this lying down.
You can keep your promises. Shove `em where they belong.
Don't ask me to the party --- won't be around.

 

[RonBoyd]

Perfect! And a JT song I had never heard before... an unbelievable event in and of itself.