CHANGE?

[Guest mikedwood]

Enjoying the economics stuff. Hating the situation.

I don't know much. I don't know anything about economics. Not as much about history as I'd like to but it sure seems to me we are on a sinking ship.

Last time our GDP was over 100% was after WWII so people say we have been there before and it's OK to be there now. But then we had a huge and growing manufacturing base from the war, a trade surplus and huge growth as a result. Plus the farming.

Now we have, well we have, um we have people that can't even cook thier own food, wash their own cars or any of it. House hold, state and federal debt at crushing levels and everything we buy comes from somewhere else. I saw a cool looking America 1776 tee shirt tonight at Walmart for $3.00 I had to have it only I declined cause it was made in Nicaragua.

We are not making much of anything, growming much of anything. The wealth that was in the country is pretty much gone and is not credit and that's going too.

Am I wrong that when money goes out of the country for something, well it goes out of the country unless it comes back. So it seems to me that we spent the wealth we had at one time and now are buying junk on credit. So China is developing then wealth and we are spending money that is actually credit. Not leaving enough in this country to go around so people can't pay the bills.

And since the money created is created with debt then that money is owned plus interest then we pass the money off to mainly China Opec and keep the debt.

All these trade agreements have killed us.

[Guest Lester Weevils]

Hi Mike

I don't know anything about economics either. I agree that the current USA situation does not seem tidily explained in terms of typical macroeconomic factors. Full employment low-pay flipping burgers may be qualitatively different than full employment high-pay making durable goods.

Protectionism and tariffs are bad but open competition against low wage developing nations is not doing us any favors either. Ross Perot's giant sucking sound has vacuumed up nearly everything.

Reagan is revered a conservative economic saint. I don't know enough to say one way or t'other.

There were contermporary critics of Reagan's "unilateral disarmament" of trade barriers. Some critics maintained that average pay and standard of living had fallen. They argued that rather than try to raise pay, Reagan took the easy way out enabling offshoring to make people happy with low pay.

For instance low-pay workers could easier buy cheap import socks versus buy more-expensive USA socks with high pay. Six of one and half dozen of the other, except for all those jobless Alabama textile workers.

Am only recalling critics of the time. I don't know if the criticism was valid or whether something better could have been done. Those Reagan critics were most likely just commie protectionist union preverts.

====

One thing to clarify-- My riff that it appears impossible to effectively control the economy is just my wacky ideas. Not mainstream economic theory. Didn't want anyone to mistake my ravings for fact. Many mainstream economists seem to think we can and should control the economy.

Just seems that the economy may be many additional things but it seems plainly obvious that the economy is at the very least a beastly complicated chaotic multiple feedback system with numerous long time constants. Engineering territory. Dunno nothin about engineering either.

Was googling tonight and found a very good short paper by a fellow who has considered the economy in terms of control theory. He addresses every issue I mentioned and more.

http://www.assru.economia.unitn.it/files/DP_01_2011.pdf

This author concludes that it may be possible to successfully apply control theory to economic modulation though he fully recognizes the difficulties. Dunno if I agree but he's given the issue some thought.

Some of his statements are difficult to agree with. Ferinstance Mr. Hayes says--

With or without the aid of control theory, governments will continue to make their best efforts to ameliorate the suffering caused by business cycles. Doing so is a humanitarian as well as a political necessity. One might imagine a leader who would stand aside and say: "I have no idea what's the matter with the economy, and since I don't know how to fix it, I'm going to keep my mitts off it." That would be refreshingly honest, but inexcusable all the same.

I just don't see that as inexcusable. I see it as common sense.

Here is another great quote--

Could it be that governments and central banks lack the capacity to tame the business cycle? No cruisecontrol algorithm can keep a car up to speed if the engine cannot produce the torque needed to climb a hill. Likewise, agencies trying to correct a severe economic downturn may lack the resources to restore prosperity. It is a measure of our profound ignorance about the true present state of the economy that two diametrically opposite explanations|over- and under-correction|can plausibly be entertained at the same time.

Lots of good ideas, well worth a read.

Edited August 6, 2011 by Lester Weevils

[Guest HvyMtl]

Holding out on raising the debt ceiling soured the economy? Really?

Yes, it had a chilling effect on the starting recovery. Looking at the figures, people had started spending again, all be it gingerly, the job market was improving, all be it not fast enough for me. This political move stopped the forward progress, and probably just made it be a double dip recession... Not to mention screwing up the US Credit Rating. So, yes, it soured the economy...

[Mike.357]

Yes, it had a chilling effect on the starting recovery. Looking at the figures, people had started spending again, all be it gingerly, the job market was improving, all be it not fast enough for me. This political move stopped the forward progress, and probably just made it be a double dip recession... Not to mention screwing up the US Credit Rating. So, yes, it soured the economy...

Starting recovery? improving job market? Where are you from?

So inside a week this recovery is thwarted, jobs are lost again and all because the country argued over raising a debt limit.

heck if fixing it was so easy we should'a raised the limit by several trillions, borrowed a bunch more money and sent everyone a tax rebate. Oh and lets not forget those who pay no taxes, lets send them money too.

And so I am clear, all of this is George Bush's fault too?

[Guest Lester Weevils]

HvyMtl, the National Bureau of Economic Research decides when we are in a recession or not. They usually can't peg a date on it for up to a year after the fact. For instance if we entered a second recession last fall, then the NBER may not admit to it until this fall.

The NBER measurements are based on dollars. If we hadn't flooded the economy with several trillion then the measurements may have never shown us leaving the last recession. Growth has been incredibly weak. Weak enough that an ongoing recession could be masked by all those trillions of new money.

If you give the patient a transfusion and his blood pressure comes back up, then it isn't necessarily a sign of recovery if he is still bleeding like a stuck pig.

We've been shedding overall jobs since at least 2007 and it hasn't stopped. Only the method of measuring unemployment makes the numbers occasionally jiggle a little lower rather than consistently rise month to month since 2007.

Ain't been a recovery yet, regardless of what the NBER says. Ain't saying they's lying. It is just that the numbers are not necessarily telling the truth of the reality on the ground.

[Guest HvyMtl]

From what I gather, this debate over the Debt Ceiling was a bit longer than a week. And that large of impact (the media doom saying, and the politicians braying) did stop spending. Notice the job figures? Those were heading -slowly in the right direction. The reaction I expect, will show a "pause" if not a "freeze" in hiring.

Bush merely continued actions started in the 1980's (I think it started as early as the 1950's) (Even Reagan raised the debt ceiling...) Yes, his tax cuts while spending $ in two wars did contribute. And was unwise.

Continuing the tax cuts without cutting spending was unwise (note: during the present administration...)

NBER seems to be more political than its supposed to be...

Read This: http://fpc.state.gov/documents/organization/105193.pdf

Edited August 7, 2011 by HvyMtl

[Guest Lester Weevils]

Hi HvyMtl

The last time the debt limit was raised under GWB, all senate democrats (including Obama) protest-voted en masse against raising the debt limit. Just a political football. At that time they knew that the limit would be raised regardless of their vote, so it was a similar symbolic vote as which lead to John Kerry's earlier predicament of "I voted for it before I voted against it."

I am not a GWB fan. Only noting the political football nature of the issue.

You probably know this, but unemployment has several measures--

Unemployment - Wikipedia, the free encyclopedia

U1: Percentage of labour force unemployed 15 weeks or longer.

U2: Percentage of labour force who lost jobs or completed temporary work.

U3: Official unemployment rate per the ILO definition occurs when people are without jobs and they have actively looked for work within the past four weeks.[2]

U4: U3 + "discouraged workers", or those who have stopped looking for work because current economic conditions make them believe that no work is available for them.

U5: U4 + other "marginally attached workers", or "loosely attached workers", or those who "would like" and are able to work, but have not looked for work recently.

U6: U5 + Part time workers who want to work full time, but cannot due to economic reasons (underemployment).

The parties tend to switch sides on which measure they hilite. When the economy was suffering in the latter part of Ford's admin, the republicans were fond of quoting U3 and the democrats were fond of quoting U4 or U6. Then when it got even worse in the latter Carter years, the democrats were suddenly fond of U3 and the republicans were enamored of U4 or U6. Then in the worst early Reagan years the democrats liked U6 again.

It goes that way to the present. Democrats are pushing U3 numbers because those numbers are kindest to the present admin, and republicans are very fond of U6.

The biggest problem with U6 is that it is more difficult to measure accurately, though they are all calculated using survey sampling techniques. But IMO U6 is the more telling measurement regardless which party is in power. I felt the same way from the early 1970's.

U6 does not look good and has not shown much improvement.

Every month we have jobs gained, jobs lost, and the additional factors of young people entering the job market and old people leaving the job market. Because of economic uncertainty, I expect that many geezers are too afraid to retire, so we have many more youngsters entering than geezers leaving.

We have to generate a certain number of jobs each month just to absorb the youngsters and "stay the same" in the employed percentage (which is a different measurement than the others above).

We have not been generating enough jobs to abosrb new youngsters, much less re-hire the millions who have lost jobs. That is why the youth unemployment rate is so crazy large. Regardless of what the U3 number shows, we are losing ground and have been consistently losing ground long before this debt ceiling debate.

We are creating X jobs which the admin can brag about, and losing Y jobs which the republicans can point to, but overall it is going the wrong direction. It is not a blame game. Merely recongizing the situation for what it is.

Another interesting factor-- This fellow calculates inflation and unemployment "the old way". Over the years the BLS has changed the way it measures inflation and unemployment. They have reasonable academic explanations for the changes, but we can't compare old measurements to new measurement any more than we can compare apples to oranges.

So it is interesting to see the numbers calculated "the old way"--

Alternate Unemployment Charts

Here is a July 26 2011 statement by the Secretary of Labor which explains the Admin position. Even the admin evaluation is rather dire--

http://help.senate.gov/imo/media/doc/Solis2.pdf

The payroll employment numbers

reported for May and June by the Bureau of Labor Statistics showed a slowing economic

recovery – job growth of 25,000 and 18,000 in each of the two months respectively—this

growth is nowhere near enough to keep up with regular population growth in the labor

force, let alone bring our unemployment rate down to pre-recession levels.

No one can deny that now is a difficult time for the American worker. We have all been

focused on the terrible recession that began in 2007. This recession, the deepest since the

Great Depression, destroyed almost 9 million jobs. But the precarious situation of the

middle class has been developing for a long time. When the 2001 recession began in

March 2001, 64.3 percent of Americans age 16 and over were working. Millions of

Americans lost their jobs and the rate fell to 62 percent by September 2003. But more

disturbingly, it hadn’t recovered very much by the time the current recession started. In

December 2007, only 62.7 percent of the working age population was employed. That

means we were still short nearly 4 million jobs at the start the 2007 recession.

Throughout the entire Bush Administration, total job growth averaged just 11,000 jobs

per month, meaning that we lost jobs from a per capita perspective for 8 years.

The weak labor market has been particularly tough on young workers. The 17.3 percent

unemployment rate for 16- to 24- year old workers in June 2011 is nearly 6 percentage

points higher than at the start of the recession in December 2007. While the

unemployment rate has declined by nearly one percent in the last year, the rate is still

unacceptably high.

[Mike.357]

there was never a moments doubt the debt ceiling would be raised. Of course it was going to happen at the last moment. Neither side was going to give up early.

I have serious doubts about the job situation easing up any. Heck they don't even count a huge segment of people who are out of work. Every day that segment grows larger.

Obama has no plan to fix anything. He offers buzzwords and continually attempts to point the finger at everyone else. He is a spineless leader who had no real world skills.

[Guest 6.8 AR]

There was no recovery unless you call a recovery raising the dropping line a little.

It still drops.

[Guest HvyMtl]

Lester, I agree they play political football with the Debt Ceiling. In one of my previous posts, I linked to a letter written by then President Reagan, to the Speaker of the House, about what damage not raising the Debt Ceiling would do to the US. Both sides have known for a long time what damage this could do.

This time they pushed it to the brink, and did damage...

And now we get to reap what they sow with a hidden tax, by the losses to our retirements, our 401k, our inevitable rate increases on credit cards, car loans, home loans, and school loans, increased costs for food, shelter, and any other commodity, as the value of the dollar wanes.

Again, I am amazed at how a NON-Governmental Entity (S&P) has enough power to put our economy into a tail spin. Why this has ever been allowed... boggles the mind.

Here: As I said before, this started in the 1980's and perhaps as early as the 1950's. Here is a look at the debt, and when it was created:

Edited August 8, 2011 by HvyMtl

[greenego]

Don't know how much more "change" the country can handle.

[Guest HvyMtl]

Yup, the profiteers are already pushing... God bless em. (and their boon to the economy, we need it)

[mcurrier]

The Zombies that you guys are always looking for are in Washington, so look no further.

[kieefer]

Bush Deficit vs. Obama Deficit in Pictures

[mcurrier]

Bush Deficit vs. Obama Deficit in Pictures

That chart needs to be updated. It is now WAYYYY off since it was first put together.

[Guest lostpass]

We have to keep in mind (and most people don't) that tax cuts do not mean less revenue. It has been proven time and time again that reducing taxes can stimulate growth and actually increase revenue.

Cutting spending always means more available revenue. Always.

Are you really sure about that? Cause I'm pretty sure you're mistaken.

I realize that there is this notion that if people are taxed less they'll work harder because they keep more of the dough they earn. That is called the Laffer curve, but maximization of the curve is problematic.

Okay, fine we've done away with the grade school economics of cutting taxes always raises revenue. Which brings up a more serious question. What is the ideal tax rate? If you listen to one group of people you might think that the ideal tax rate is one wherein the government maximizes income while minimizing the detrimental effects of taxes on the economy (which is suspect and saved for a different day)

If you listen to another group of people you will find that they are proponents of the Starve the Beast philosophy. These people want the government to do less by starving the government of money. It is a clever idea and one with merit. If the government can't pay the government does less. Except the government borrows money. SO the beast isn't ll that hungry.

Which, somehow, improbably, brings up redistribution of wealth. Everyone is scared of this for some reason but Americas golden years, the fifties, were defined by a massive redistribution of wealth. Wealth from the rich to the middle class. How is this possible? More importantly how did the rich stay rich?

Good question and glad you asked. The thing everyone has heard of is the the trickle down effect: If the rich keep more of their money it will trickle down to everyone. Quite possibly the stupidest all time argument. They are already rich, why would it trickle down to everyone else? People, I think most everyone would agree, would like to preserve wealth. So they'll find ways to safely store their monies.

What really drives an economy is demand. Demand isn't rich people buying bonds, demand is poor people buying PCs. The money will eventually get back to the rich folks, it will trickle up. How long is the line to hand money to bill gates or steve jobs. Well, pretty long for Steve Jobs.

I'm not sure how much control the gov really has over all this stuff but I am pretty sure that the the solution to every problem is not tax cuts.

[kieefer]

That chart needs to be updated. It is now WAYYYY off since it was first put together.

done

The Truth about Obama's Budget Deficits, in Pictures

[Guest nicemac]

Are you really sure about that? Cause I'm pretty sure you're mistaken.

I realize that there is this notion that if people are taxed less they'll work harder because they keep more of the dough they earn. That is called the Laffer curve, but maximization of the curve is problematic.

Okay, fine we've done away with the grade school economics of cutting taxes always raises revenue. Which brings up a more serious question. What is the ideal tax rate? If you listen to one group of people you might think that the ideal tax rate is one wherein the government maximizes income while minimizing the detrimental effects of taxes on the economy (which is suspect and saved for a different day)

If you listen to another group of people you will find that they are proponents of the Starve the Beast philosophy. These people want the government to do less by starving the government of money. It is a clever idea and one with merit. If the government can't pay the government does less. Except the government borrows money. SO the beast isn't ll that hungry.

Which, somehow, improbably, brings up redistribution of wealth. Everyone is scared of this for some reason but Americas golden years, the fifties, were defined by a massive redistribution of wealth. Wealth from the rich to the middle class. How is this possible? More importantly how did the rich stay rich?

Good question and glad you asked. The thing everyone has heard of is the the trickle down effect: If the rich keep more of their money it will trickle down to everyone. Quite possibly the stupidest all time argument. They are already rich, why would it trickle down to everyone else? People, I think most everyone would agree, would like to preserve wealth. So they'll find ways to safely store their monies.

What really drives an economy is demand. Demand isn't rich people buying bonds, demand is poor people buying PCs. The money will eventually get back to the rich folks, it will trickle up. How long is the line to hand money to bill gates or steve jobs. Well, pretty long for Steve Jobs.

I'm not sure how much control the gov really has over all this stuff but I am pretty sure that the the solution to every problem is not tax cuts.

Obviously you are incredibly wise and I only rely on grade school economics, so I will not enter a debate with you. However, I would ask anyone who believes this fantasy to go and try to get a job from one of the poor you mention that drive the economy by buying a Wal-Mart pc.

National Review

Cato

Edited August 11, 2011 by nicemac

[Guest 6.8 AR]

Are you really sure about that? Cause I'm pretty sure you're mistaken.

I realize that there is this notion that if people are taxed less they'll work harder because they keep more of the dough they earn. That is called the Laffer curve, but maximization of the curve is problematic.

Okay, fine we've done away with the grade school economics of cutting taxes always raises revenue. Which brings up a more serious question. What is the ideal tax rate? If you listen to one group of people you might think that the ideal tax rate is one wherein the government maximizes income while minimizing the detrimental effects of taxes on the economy (which is suspect and saved for a different day)

If you listen to another group of people you will find that they are proponents of the Starve the Beast philosophy. These people want the government to do less by starving the government of money. It is a clever idea and one with merit. If the government can't pay the government does less. Except the government borrows money. SO the beast isn't ll that hungry.

Which, somehow, improbably, brings up redistribution of wealth. Everyone is scared of this for some reason but Americas golden years, the fifties, were defined by a massive redistribution of wealth. Wealth from the rich to the middle class. How is this possible? More importantly how did the rich stay rich?

Good question and glad you asked. The thing everyone has heard of is the the trickle down effect: If the rich keep more of their money it will trickle down to everyone. Quite possibly the stupidest all time argument. They are already rich, why would it trickle down to everyone else? People, I think most everyone would agree, would like to preserve wealth. So they'll find ways to safely store their monies.

What really drives an economy is demand. Demand isn't rich people buying bonds, demand is poor people buying PCs. The money will eventually get back to the rich folks, it will trickle up. How long is the line to hand money to bill gates or steve jobs. Well, pretty long for Steve Jobs.

I'm not sure how much control the gov really has over all this stuff but I am pretty sure that the the solution to every problem is not tax cuts.

Taxes are too high when it inhibits the growth of commerce and encourages wealth to seek

lower cost to increase wealth. If it is cheaper to build a widget somewhere else, why do you

think I should stay here to build that widget, when I can make more wealth somewhere else?

Taxes have a profound effect on our economy.

Wealth redistribution is "Robin Hooding"; stealing money by way of taxation and giving it,unearned,

to someone else. Do you consider that right? That's not what happened during the 50's. The

"Great society" programs of Lyndon Johnson turned us upside down. FDR had the same idea earlier,

but LBJ and successive presidents put the icing on the cake. It was never right, but it was done.

Carter signed the bill that started mass redistribution of wealth in the mortgage market, which

eventually led to the destruction of wealth by legally robbing banks.

If you think we shouldn't cut taxes, then you must think those pols in DC are worthy of our tax

dollars. That's where I think you are mistaken. We somehow allowed this to happen. Actually it

usually was thrown at us by adding political correctness, a mix of socialism and power hungry

pols. All that is still there. That's what will cause a war on our own land if we don't rid ourselves

of the critters in DC. Taxes are the problem. A good understanding of the Constitution helps, also.

You don't really need a degree in economics to understand what's going on. It's called theft by

altruism and political correctness, with a dose of pure socialism added to flavor it.

[kieefer]

Satisfying rant, warning on language. This is the hope and change I've been looking for.

http://www.youtube.com/watch?v=tRmZ9zH-mYM?version=3

[Guest 6.8 AR]

That guy(stopitb) was hilarious! Thanks for that video.

[Guest Lester Weevils]

Hi lostpass

Okay, fine we've done away with the grade school economics of cutting taxes always raises revenue. Which brings up a more serious question. What is the ideal tax rate? If you listen to one group of people you might think that the ideal tax rate is one wherein the government maximizes income while minimizing the detrimental effects of taxes on the economy (which is suspect and saved for a different day)

If you listen to another group of people you will find that they are proponents of the Starve the Beast philosophy. These people want the government to do less by starving the government of money. It is a clever idea and one with merit. If the government can't pay the government does less. Except the government borrows money. SO the beast isn't ll that hungry.

Which, somehow, improbably, brings up redistribution of wealth. Everyone is scared of this for some reason but Americas golden years, the fifties, were defined by a massive redistribution of wealth. Wealth from the rich to the middle class. How is this possible? More importantly how did the rich stay rich?

Good question and glad you asked. The thing everyone has heard of is the the trickle down effect: If the rich keep more of their money it will trickle down to everyone. Quite possibly the stupidest all time argument. They are already rich, why would it trickle down to everyone else? People, I think most everyone would agree, would like to preserve wealth. So they'll find ways to safely store their monies.

What really drives an economy is demand. Demand isn't rich people buying bonds, demand is poor people buying PCs. The money will eventually get back to the rich folks, it will trickle up. How long is the line to hand money to bill gates or steve jobs. Well, pretty long for Steve Jobs.

I'm not sure how much control the gov really has over all this stuff but I am pretty sure that the the solution to every problem is not tax cuts.

I'm not even at the grade-school level of economics.

Yep many were "starve the beast" proponents including myself. Many including wonks, libertarians, and right-wing political insiders were naive on the issue. They misunderestimated the insanity that is congress. Dunno if that was forgivable foolishness or evidence of criminal naivete.

My rude awakening was in late 2008 and early 2009. Finally realized that congress are truly incurable compulsive spendaholics. Many assumed that congress would be rational enough to eventually live within its means. Not realizing that congress is so irrational that it spends what it can tax, then borrows what it can't tax, and then prints what it can't borrow (with Fed Reserve complicity).

The gov may have no power to improve the economy but seems able to damage the economy.

The current situation appears to lay equal waste to both simplistic tax cut theories and simplistic demand theories. The Bush across-the-board tax cuts were only good for an anemic 5 year bubble. Would another across-the-board tax cut be good for another short anemic bubble? Seems doubtful.

Attempting to prevent the slide, several targeted tax rebate cuts should have raised demand from the bottom and middle exactly as you describe, with no apparent benefit except to help the po and middles buy more chinese goods from walmart.

We are currently running a 16 percent tax cut on SS which should raise demand in the echelons you recommend, again with no apparent benefit. We are also running numerous welfare and unemployment benefits which should theoretically have big associated keynsian multiplier effects.

The results may indicate that both trickle down and trickle up are failing, thereby ruining perfectly good long-held pet theories?

Back in the stone age, shortly after the invention of fire, when I took economics-- The bathtub analogy was a popular keynsian teaching tool. Maybe that analogy is not so popular anymore because I can't google a good graphic to post.

Wonder if the bathtub is leaking?