Consumption Has Recovered, We've Got a Sub-Par Recovery Because of Weak Investment Spending
Robert Higgs makes an important point that "Consumption Spending HAS Already Recovered," and it's private investment spending that is lagging and holding the economy back:
"Commentators and pundits, some of whom ought to know better, continue to harp on the idea that the recession persists because consumers are not spending. Every Keynesian seems to believe that because consumers are in a dreadful funk, only government stimulus spending can rescue the moribund economy, given (to them, at least) that investors will not spend more because the Fed, having already driven interest rates to extraordinarily low levels, cannot use conventional policies to drive them any lower and thereby elicit more investment spending.
People, please look at the data. They are conveniently available to one and all at the website maintained by the Bureau of Economic Analysis. According to these data, real personal consumption expenditure recovered from its recession decline by the fourth quarter of 2010 (see chart above). Continuing to grow, it now stands (as of the most recent data, for the second quarter of 2011) even farther above its pre-recession peak.
The economy remains moribund not because consumption spending has failed to recover and not because government spending has failed to increase, but because the true driver of economic growth—private investment—remains deeply depressed. Gross private domestic fixed investment fell steeply after the second quarter of 2007, and in the second quarter of 2011 it remained 19 percent below its pre-recession peak (see chart above).
Here is the true reason for the recession’s persistence. Private investors, despite the full recovery of real consumer spending, remain apprehensive about the future of new investments, especially new long-term investments. I have argued repeatedly during the past three years that an important reason for this apprehension and the consequent reluctance to make new capital commitments is regime uncertainty—in this case, a widespread, serious fear that the government’s major policies in areas such as taxation, Obamacare, financial reform, environmental regulation, and other areas will have the effect of depriving investors of control over their capital or diminishing their ability to appropriate the income that the capital generates. President Obama’s harping on the desirability of making “the rich” pay their “fair share” of the government’s ever-rising costs only exacerbates regime uncertainty. Business leaders have spoken again and again of how the present political environment is discouraging risk-taking and entrepreneurship.
In any event, it should be crystal clear that the problem is not the failure of consumer spending to recover. Let us please have more respect for the facts than to continue singing that old, thoroughly worn-out tune."
Greg Mankiw makes a similar point in his Sunday NY Times article, "How to Make Business Want to Invest Again":
"Business investment has been weak. Over the last two years, nonresidential fixed investment has grown by only 12 percent, whereas during the two years after the 1982 recession, it grew by 27 percent. Similarly, the narrow category of spending on business equipment and software fell more than twice as much in this recession as it did in the 1982 recession, and it has been slower to recover."
"Business investment has been weak. Over the last two years, nonresidential fixed investment has grown by only 12 percent, whereas during the two years after the 1982 recession, it grew by 27 percent. Similarly, the narrow category of spending on business equipment and software fell more than twice as much in this recession as it did in the 1982 recession, and it has been slower to recover."
To stimulate investment spending Professor Mankiw recommends: a) lowering the income tax burden on corporations, b) promoting greater international trade by passing the free trade agreement with S. Korea (and I assume the FTAs with Colombia and Panama as well), and c) reducing the regulatory burden on business, e.g. reining in the National Labor Relations Board for trying to block Boeing's investment in a non-union plant in S. Carolina.
Bottom Line: Unfortunately, there's not much in the Obama jobs plan that will stimulate or increase private investment business spending, and as long as we have "an investment-less recovery," we'll probably also continue to have a "jobless recovery."
213 Comments:
Well, it is true that in any free exhange, both parties profit. So, basically, consumer spending (so-called) is a form of investment for profit.
The subtitles aside, the biggest difference is entire perceptual. Consumers broadly do not calculate risks versus rewards and investors do.
As Peter Bernstein pointed out in Against the Gods the ability to calculate risk was the engine that created and drove modern capitalism.
Indeed, all so-called "consumers" (or "housesholds") should run on a business model. That we do not is our downfall. We have been disempowered by public education. Every lawnmower, every box of soap for the automatic dishwasher, every microwave dinner, is in investment. We just do not perceive it that way.
Those who do clearly understand the nuances and textures of calculable risk are the foundation of (what remains of ) the general economy.
I accept your premise about investment spending, but the part about consumption recovering has a few problems. Might we take a look at the discretionary portion of it and perhaps put it in per capita terms. Populations grow and people eat, pay rent, and consume a certain amount of items such as electricity and gas in the worst of times. There is a reason why so many strip malls have vacant space.
Given the Obama rhetoric and approach towards business the lack of investment and capital formation is not a surprise. Bob Higgs showed that during the Great Depression, FDR’s policies prevented a robust recovery of long-term private investment by significantly reducing investors’ confidence in the durability of private property rights. Obama is playing the same role as FDR in today's little drama.
Thank you for your insigtht in this post. Is it possible that the fed policy with zero interest rates and T-Bills paying a small margin over that has sucked to many of our assests into unproductive government spending instead of having our financiers doing their jobs of finding firms that can provide a real return on investment?
Using 1987 chained dollars:
From the recession trough in Q41982, through eight quarters, investment in equipment & software rose 27% and investment in nonresidential structures rose by 11%. PCE rose by 11.2%.
Using 2005 chained dollars:
From the recession trough in Q22009, through eight quarters, investment in equipment and software rose 27% and investment in nonresidential structures declined by 16%. PCE rose 4.3%.
Mankiw and Higgs are flailing from left field. The issue is the subpar recovery in PCE and nonresidential structures not investment in equipment and software.
Oh, did you want to discuss residential structures. I didn't think so.
The economy remains moribund not because consumption spending has failed to recover. So rather than increasing the government spending , focus should be on increasing the private investments which can only be increased by gaining trust of the public.
To avoid the risks, I follow http://www.forecastfortomorrow.com/ they give an accurate predictions about the market and other happenings
Perry, you make nice charts. Mankiw and Higgs can't.
I suggest 2 charts normalized to the 1982 and 2009 quarterly recession troughs.
1. Real PCE and investment in residential structures.
2. Real investment in equipment and software and nonresidential structures.
If you are so inclined you could show government investment and net exports on a third chart.
The subpar recovery in PCE (the largest contributor to GDP) and residential investment in structures on chart 1 and nonresidential investment in structures on chart 2 is obvious.
Both consumption and investment are in sub-par recoveries, because GDP (income = output) is also in a sub-par recovery.
New regulations created new risks and costs, while lending remains too tight for most households and small businesses.
Not only is our current leadership NOT doing the things recommended to get private businesses to invest, they continue to do things to encourage private businesses NOT to invest- more regulations, more uncertanity regarding taxes, more protectionist talk, and more.
The leadership in Congress (Democrats in Senate and moderate GOPers in the House) and the President (Democrat) needs to go.
Hogwash.
The government borrows money from China, and Saudi Arabia. Gives it out to the population in the form of food stamps, unemployment benefits, Medicaid, etc, and the "persons" referenced in the PCE buy groceries, and gasoline.
Nobody here believes that money will ever be "repaid." You call it "spending" if you want, but I'd call it something quite different.
Like, the last hit on the credit card before bankruptcy, maybe.
Krugman, a far more famous and followed former economist, dismisses regime uncertainty as an important factor. He then goes on to recommend regulation to force companies to spend money. In what he calls a "topsy-turvy world" of the liquidity trap we're supposedly in where economic rules such as the broken window fallacy no longer hold, government should force companies to replace capital and to spend on vastly increased regulatory compliance to spur demand and increase employment.
Why would any company invest in capital knowing that at any time it can be destroyed by a malevolent government on the advice of a Nobel Laureate lunatic? Why would any industry suffering artificially increased costs attract new investors? Why would a lower expected after tax rate of return for a given level of risk attract more investment?
Krugman and other Keynesians will find that the laws of economics hold even when near zero interest rates fail to spur investment. Specifically, they will find that people still respond to incentives.
Greg Mankiw makes a similar point in his Sunday NY Times article, "How to Make Business Want to Invest Again":
The same Mankiw that got canned for advocating offshoring out in the open? I'm not surprised.
I've got an answer for that particular Benedict Arnold Harvardite - give business no other option except for a robust, US based recovery.
Create forceful certainty that has no hiding place. Then demonstrate that these people that hold back the recovery are no more almighty than the people they influence.
Any trade treaties must put in writing that:
1) Long-term(10+ years), full-time jobs will be created that employ the people we have, regardless of perceived skill level.
2) The agreement may not result in offshoring of labor to the other country.
As for what has happened with Boeing - the following must be proven in RTW states:
1) Voting yes or otherwise showing support for a labor union is as protected as voting no or not showing support for a labor union.
2) That a labor union can thrive despite RTW.
Private investors, despite the full recovery of real consumer spending, remain apprehensive about the future of new investments, especially new long-term investments. I have argued repeatedly during the past three years that an important reason for this apprehension and the consequent reluctance to make new capital commitments is regime uncertainty—in this case, a widespread, serious fear that the government’s major policies in areas such as taxation, Obamacare, financial reform, environmental regulation, and other areas will have the effect of depriving investors of control over their capital or diminishing their ability to appropriate the income that the capital generates. President Obama’s harping on the desirability of making “the rich” pay their “fair share” of the government’s ever-rising costs only exacerbates regime uncertainty. Business leaders have spoken again and again of how the present political environment is discouraging risk-taking and entrepreneurship.
Those people just want to scuttle the economy until they get their political danegeld. They can say uncertainty until the end of the day, but purposefully holding back a recovery does not do well for them.
The only thing they deserve is to have their efforts at withholding a recovery be thwarted.
There is a reason why so many strip malls have vacant space.
There are reasons, but there is never a single reason.
A general drop in demand because animal spirits are bummed is but one of many reasons. An incomplete list would include a drop in demand for the specific product because of changing consumer tastes, financial mismanagement by the owners, increased costs and fear of rising future costs.
We talk often about the housing bubble. However, people were taking loans against the inflated value of their houses to spend on fun stuff. Undoubtedly one bubble begat other, smaller bubbles as demand for products increased when people were able to borrow cheap money against fake increases in the value of their largest levered asset.
What reason have you to believe that this higher level of consumption resulting from asset price inflation and profligacy is the correct level?
Sethstorm,
According to your own logic, you are doing the most to hinder the recovery.
Unless you have invested your own capital and hired people at an above market wage, you are contributing to unemployment and you should be punished severely.
Jackson:
"There is a reason why so many strip malls have vacant space."
Online stores? Over supply of strip malls?
Methinks states:
"There are reasons, but there is never a single reason."
Methinks, who is often acerbic, has written some thoughtful commentary above.
Let's summarize some of the reasons for the investment malaise:
Chronic trade deficits (oil & goods) that ship out massive capital. Most of the trade deficit is with countries that the U.S. does not have Free Trade agreements with.
Mal-investment in the housing bubble.
Government guarantees for mal-investment in housing capital investment.
Government confiscation through high income tax of U.S. corporate funds -- funds that otherwise would be invested in U.S.
Strident new government regulation iniatives without concern for private sector impact.
-> There are probably more reasons, &/or these reasons stated differently.
emil says: "Online stores? Over supply of strip malls?"...
Interesting question online stores & strip malls, I wonder if there would possibly be a way to show a correlation between (assuming there is some) between the emptier malls and an increase in business for UPS, FedEx, and similer services?
Still I think there's more people today that have less disposable cash than even six years ago...
The cost of everday items that don't show up in the 'official' inflation reports might also be putting some of those mall stores out of business...
Good summary buddy...
remember that bubble in investment spending in the middle of the decade was mostly residential & commercial construction, & we've still got a surplus of both...
this is especially ignorant claptrap you're repeating:
Chronic trade deficits (oil & goods) that ship out massive capital.
exchanging little bits of paper for real resources and finished goods in no way ships capital to other countries.
However, if government continues to threaten me and my capital, I will divest in the united states and invest in a country not so aggressive toward its capitalists. Now, THAT would be a shipment of capital out of the country.
Low opportunities from low investment in the united states will spur another kind of capital flight - a brain drain. Human capital flight.
Thanks to U.S. aggressiveness toward its citizens, renunciations of U.S. citizenship, while still low, is on the rise.
That, my friend, is a capital drain.
Methinks writes that I am repeating "especially ignorant claptrap" on the trade deficit.
She goes on with: "exchanging little bits of paper for real resources and finished goods in no way ships capital to other countries."
Methinks, then how could these little bits of paper return to the U.S. as capital? -- an argument that eventually trade deficits don't matter.
Obama missed a historic opportunity--to reform the Dems into a pro-business party to stimulate job groeth.
Bush jr missed a historic opp: To radically reform and shrink the military to meet today's miniscule threat from from paltry numbers of terrorists.
These two boobs have set us back by trillions of dollars.
However, if government continues to threaten me and my capital, I will divest in the united states and invest in a country not so aggressive toward its capitalists. Now, THAT would be a shipment of capital out of the country.
Somehow you forget the lesson of Icarus. Fly too high and the wings that allow your capital to fly will melt.
Low opportunities from low investment in the united states will spur another kind of capital flight - a brain drain. Human capital flight.
The problem is squarely with those who wish (for strategic and tactical reasons) to avoid investing in the US. They're not there to be coddled and given status and protection usually given to royalty.
Thanks to U.S. aggressiveness toward its citizens, renunciations of U.S. citizenship, while still low, is on the rise.
Do what you wish, but remember that being on the wrong side of the US military is never a good thing.
Those who renounce US citizenship will find themselves in such a situation. Unfortunately it will be when they need the US military's protection the most.
Something about enemies foreign and domestic comes to mind about those who renounce.
Obama sapped strength from a weak economy to help the poor, unions, government workers, etc. rather than strengthen the economy first and then sap strength to help those groups.
PeakTrader said...
As opposed to a strengthening of business interests in this economy that continually send work offshore, thus sapping the US?
The current administration is one thing. Trying to punish the entire nation for its presence only makes things worse off.
"As opposed to a strengthening of business interests in this economy that continually send work offshore, thus sapping the US?"...
Well sethstorm without strong business interests where will the money come from to finances all those 'federal pander to parasites' programs you think are oh so important?
From you?
Well sethstorm without strong business interests where will the money come from to finances all those 'federal pander to parasites' programs you think are oh so important?
What are you talking about?
We use the term Depression to name the 1930-42 economic decline as if the eonomy was like a road, in a trough. But the term has a deeper meaning for those times.
Americans were depressed in a psychiatric sense. In that state you are impervious to the benefits of the future, you don't believe in remedies and as such you do not believe that progress can be made.
I am afraid that Europe is mentally depressed and the USA is getting periously close to that state as seen in consumer sentiment figures which of course belie the very generous Consumption Expenditures the graph presented. (Lets have our economists explain that paradox.)
Compare Obama's government job creation process with Reagan's 'A Shining City on a Hill' rheortic. Obama is a depressive character regardless of his smile whereas Reagan instilled a sense of our own ability to see better times. Obama's optimism is shrouded in 'we can do better' meaning we aren't doing well, now. Reagen's was a flat out 'we can do anything so lets get going on it'.
Obama is putting a pall over America and that's the problem our economic statistics notwithstanding.
VangelV said...
Wow, another attempt to revise the history of FDR.
Obama sapped strength from a weak economy to help the poor, unions, government workers, etc. rather than strengthen the economy first and then sap strength to help those groups.
So, you're okay with the theft, you just think it was poorly timed.
Do what you wish, but remember that being on the wrong side of the US military is never a good thing.
Yawn. I got that speech already from the Soviet Union (the other military super power) when we immigrated from there in the 1970's.
I'm still not scared and, apparently, neither are many americans.
"What are you talking about?"...
Well how typical of you sethstorm, first whine about how business is then second, pretend you don't know what is happening...
Read your previous comment...
"Wow, another attempt to revise the history of FDR"...
Are you now sethstorm going to disremember how you don't know about the 'revisionist history' of FDR on students for decades when you've been informed of it before?
FDR's policies prolonged Depression by 7 years, UCLA economists calculate
Buddy,
You're right. Since borders are quite arbitrary, I'm going to stop goods imported from other states.
No, wait. I'm going to stop importing goods from other towns.
No, wait. I'm going to stop importing goods from outside my neighbourhood.
No, wait. I'm going to stop importing goods from outside my household.
I'll be rich in no time.
Why would I ship my "capital" to Whole Foods if the grocery store never buys anything from me?
Methinks said...
The key word is that one can move freely. You could escape the Soviet Union, but there is nowhere beyond the reach of the US.
Another point is that the US will only spend certain resources on non-citizens. Should one run into trouble, assistance will end up coming from a lesser country.
FDR's policies prolonged Depression by 7 years, UCLA economists calculate
A revisionist's conclusion.
Methinks sez:
Sethstorm,
"According to your own logic, you are doing the most to hinder the recovery.
Unless you have invested your own capital and hired people at an above market wage, you are contributing to unemployment and you should be punished severely."
It's worse than you think. Sethstorm is also contributing to unemployment by BEING unemployed, last I heard.
In that Krugman topsy turvy world, he is currently being REWARDED for that behavior, rather than punished.
That is, unless you believe, as he does, that employers refusing to retrain him for a new career, at their expense, all the while paying him a good wage, is a form of punishment.
If anything, the Higgs article only affirms a further need to keep investors from becoming economic royalists, and to mitigate the harmful effects of their targeted disinvestment.
Trying to regain favor by taking out investment (and causing economic pain) only makes things worse.
"The same Mankiw that got canned for advocating offshoring out in the open? I'm not surprised.
I've got an answer for that particular Benedict Arnold Harvardite - give business no other option except for a robust, US based recovery. "
Gee, that could mean trouble if you have children in school. As Mankiw's textbooks are the most widely used in the US, you may want to make sure they follow in your footsteps, by refusing to learn any economics.
Should one run into trouble, assistance will end up coming from a lesser country.
You mean one that isn't seeking to turn me into its serf? I can live with that.
You could escape the Soviet Union, but there is nowhere beyond the reach of the US.
How? Did the United States suddenly acquire infinite resources that it's going to use to hunt me to the edge of the universe? You are very funny.
Methinks,
You have tried to evade my assertion that if little pieces of paper return to the U.S. as capital, then they left as capital.
Changing the narrative to trading with Whole Foods is willful dodging.
Please be direct because I know you ususally are.
Every lawnmower, every box of soap for the automatic dishwasher, every microwave dinner, is in investment.
Utter nonsense. Stop trying to redefine concepts.
Every lawnmower, every box of soap for the automatic dishwasher, every microwave dinner is consumption. That's all those purchases are meant to be: consumption.
Investment is intended to reproduce itself with a monetary benefit: profit. And this is not a matter of perception, it's a matter of definition.
You cannot conflate consumption with investment.
Buddy
"Methinks, then how could these little bits of paper return to the U.S. as capital? -- an argument that eventually trade deficits don't matter."
You didn't have to wait long for the return of "acerbic". :-)
As Methinks hasn't yet returned to give you the correct answer, allow me to provide something you can use in the meantime.
Those little pieces of paper are certificates redeemable for goods and services in the US. They may also be used to buy assets in the US.
They aren't capital themselves, but can be exchanged at the source for capital, so no physical capital actually leaves the US.
This seems a lot like a Starbucks gift card. You can exchange it for other things with anyone who is willing, but someone must present it to Starbucks for coffee to clear the transaction.
In the meantime, Starbucks has the free use of the money used to buy the gift card, just as we have the free use of the goods we import as long as those pieces of paper are outstanding.
So no, trade deficits don't matter.
"Somehow you forget the lesson of Icarus. Fly too high and the wings that allow your capital to fly will melt."
I knew Methinks' story sounded to good to be true. Thanks for reminding us of the catch.
It's the wax, Methinks, don't forget about the wax!!
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This comment has been removed by the author.
"Do what you wish, but remember that being on the wrong side of the US military is never a good thing.
Those who renounce US citizenship will find themselves in such a situation. Unfortunately it will be when they need the US military's protection the most."
I'm not sure where you think methinks will go if she leaves the US, but it probably isn't Libya or North Korea.
How? Did the United States suddenly acquire infinite resources that it's going to use to hunt me to the edge of the universe?
The US doesn't need infinite resources. It already has enough of them to throw its weight around in the world.
What is being asked is that investors don't think that they're entitled to be international royalty.
You mean one that isn't seeking to turn me into its serf? I can live with that.
Yet there is a problem with nations being serfs to investors.
"What are you talking about?"
You first: If you expect others to make sense, you need to do so yourself.
"I am afraid that Europe is mentally depressed and the USA is getting periously close to that state as seen in consumer sentiment figures which of course belie the very generous Consumption Expenditures the graph presented. (Lets have our economists explain that paradox.)"
Maybe that higher consumption is for alcohol and prescription drugs.
"Another point is that the US will only spend certain resources on non-citizens. Should one run into trouble, assistance will end up coming from a lesser country."
Yeah, you have to wonder how those 6.7 billion non-US citizens get by without US protection. I'll bet there are many in Afghanistan, Iraq, and Libya that would love to find out.
"Maybe that higher consumption is for alcohol and prescription drugs." -- Ron H.
I'm feeling the need after reading some of the gibberish that "sethstorm" has written.
"I'm feeling the need after reading some of the gibberish that "sethstorm" has written."
He's a barrel of laughs, ain't he? It's sometimes so hard to figure out what he's trying to say, I could swear he's using some kind of cheap language translation software.
"Yet there is a problem with nations being serfs to investors.
And what problem is that?
"You could escape the Soviet Union, but there is nowhere beyond the reach of the US."
North Korea comes to mind, perhaps Methinks IS considering moving there.
"A revisionist's conclusion"...
Well sethstorm I'm guessing due to your fathomless hubris you don't feel the least bit silly making that statement...
I'm also guessing you didn't dissect the work of Lee and Ohanian to see if the work the presented actually had some factual basis, right?
You don't want to upset your tender marxist preconceptions now, right?
By golly! Doesn't this sound familiar?!?!
"We found that a relapse isn't likely unless lawmakers gum up a recovery with ill-conceived stimulus policies."...
And what problem is that?
When these investors become someone that is immune to consequences while being able to threaten people, that is the problem.
What you accuse government of being, is something that does not belong in the private sector either.
Buddy,
I was waiting for Ron H. to come along so I didn't have to respond. He does an excellent job and I get bored repeating things that have been so often repeated.
Besides, I was kind of hoping you'd figure it out from my response to you. If I can run a huge trade deficit with Whole Foods and be richer for it, then you and I and everyone in this country can run a trade deficit with lots of other people in other countries and be richer for it.
Money, as Ron H. points out, is not capital. It is a medium of exchange, a store of value and a unit of account, but it is not capital.
"When these investors become someone that is immune to consequences while being able to threaten people, that is the problem.
What you accuse government of being, is something that does not belong in the private sector either."
Well, thanks for the clarification - I think.
Well, actually I still have no idea what you're trying to say, but that's OK, don't try to explain any further. I'll just continue my life without that particular bit of information.
He's a barrel of laughs, ain't he? It's sometimes so hard to figure out what he's trying to say, I could swear he's using some kind of cheap language translation software.
I need a language translator from Sehtstormdumbese to English. Or Russian. I'll even take Arabic. Anything spoken by earth creatures with a measurable IQ would do.
I can't figure out if he's warning me that if France is attacked (probably by Greek mobs) while I'm living there as a French citizen, the U.S. won't save me or if I'm "not beyond the reach of the U.S. military" as in I'll be hunted down and killed for trying to escape the motherland.
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When these investors become someone that is immune to consequences while being able to threaten people, that is the problem.
What you accuse government of being, is something that does not belong in the private sector either.
Investors are never 'immune' to the marketplace because it exists for the consumer. It is the consumers that decide which company is best able to serve their needs and which one is not deserving of their purchasing power. Businesses have no power other than to try to convince consumers to spend their cash by buying products from them.
This is not true of government. It can use force to compel certain actions and can confiscate earnings and profits as it wishes. And when it gets out of hand and increases the risks the investors head for the sideline and wait until a better regime comes around.
Ron H. said...
You do have an idea, just that it's easier for you to feign ignorance or attack the messenger.
Those "pieces of paper" from a country that contifues to run a Massive Trade Deficit, AS WELL AS a Massive Budget Deficit, eventually, won't be worth the toilet paper you try to buy with them.
It's not the "trade" deficit that kills you; it's the Trade, AND "budget" dificits, together, that you can't survive.
If, then, on top of everything else, you set up your Tax Code in such a way as to make it a case of idiocy for an American Multinational Corp to Invest in American Plants, you're just a "Dead Country Walking."
Methinks states:
"I was waiting for Ron H. to come along so I didn't have to respond. He does an excellent job and I get bored repeating things that have been so often repeated."
Methinks has an ego bigger than Red Square; all of them.
When dollars ultimately and theoretically return to the U.S., from trade deficits, they can be used for two purposes:
1. To buy Capital assets.
2. To purchase goods and services.
They are not worthless little pieces of paper and Whole Foods gladly accepts them from Methinks and many others.
They are not worthless little pieces of paper and Whole Foods gladly accepts them from Methinks and many others.
They are only valuable because someone will accept them in exchange for some good or service you want. That does not make them capital. Thus, when you send them abroad, you are not sending capital out of the country. Capice?
What is this, the third time you've been told the same thing on one thread?
You're boring.
"You're boring"
This could be the nicest expression by Methinks towards myself, ever!
So, we agree, those worthless little pieces of paper might be accepted to purchase capital assets. Logically then, these potential capital buying little pieces of paper left the U.S. as a trade deficit, but they might return as capital asset seekers.
Mark, I think this data is not necessarily showing you what you think it is showing you.
Efficiency improvements in our economy are constant. We are always able to do more with less. Consumption now is a bit ahead of 2008 levels. Given technological advancements this doesn't necessarily come with an increase in employment.
Imagine if consumption remained flat. What would happen? Employment would drop. Why? Because we're always improving our efficiency. So to sustain employment levels demand must increase. And modest increases are not necessarily enough. What this means is that even though consumption now exceeds 2008 consumption the problem still could be aggregate demand. In fact this is what business owners are telling us. Or at least they were in 2010. Consumption levels must remain large enough to provide employment to the net increase in workers available (young people entering minus older people leaving).
We have an economic arrangement that demands we consume more and more. This is a bad thing in my view. I think it would be better if consumption remained flat and working hours steadily dropped. This article makes the case for that. What do we do when jobs are obsolete? In our system that's a bad thing, but in fact it should be a good thing.
Buddy,
I rarely read your posts because you're an exceptionally sloppy thinker and you keep going round and round in pointless circles. Not as bad as Sethstorm, but that's not saying much.
Capital did not leave the country. We do not "ship out massive capital", as you put it, in exchange for goods from our trading partners.
If you can't understand that by now, then I can't help you. If you have something insightful to say besides inartfully changing your assertion from "shipping out massive capital" to our trading partners using dollars for FDI in the United States (where they provide a bid for our assets and employ Americans, incidentally), then make it. Otherwise get off the merry-go-round.
We have an economic arrangement that demands we consume more and more. This is a bad thing in my view. I think it would be better if consumption remained flat and working hours steadily dropped.
You are free to work less and choose your consumption level, but don't assume that you know what is best for
"we".
"We" all consume at different levels because we all have different incomes. Would you seriously arrest the poor at their current consumption levels?
Human beings in general seek to consume more because our wants and needs are unlimited.
"Our" economic arrangement is not special. The definition of economics in my first econ text many years ago was the study of human behaviour in an environment of unlimited wants and needs and limited resources. Unlimited wants and needs.
I wonder what that PCE Chart would look like if you took out the money spent on gasoline (Up 35% YOY, and 200% over 10 Yrs,
and mostly produced from Imported Oil, paid for with never-to-be-repaid, foreign loans?)
The reason most people are not spending money is that a few people have most of it. The reas that those that have money are not investing it is that there is little reason there will be any return on their investment, there being no customers left with money to spend.
Ive had enough of how the job creators are fearful of government. Lets be straight here. The last thing a company wants to do is hire someone. They would rather buy a machine, buy back stock, acquire another company, or invest in a super pac. Many of which are likely to have a higher return.
Connlsumpption is flustered land working hours are falling.
We call it a recession.
Jon
"Efficiency improvements in our economy are constant. We are always able to do more with less. "
And that's a good thing, right?
"So to sustain employment levels demand must increase. And modest increases are not necessarily enough. What this means is that even though consumption now exceeds 2008 consumption the problem still could be aggregate demand."
Jon, as long as you read Keynesian economists, you will have this concern about "aggregate demand", but that's not the problem.
Do yourself a favor, and quit reading that former economist, and now political hack, Krugman.
"Consumption levels must remain large enough to provide employment to the net increase in workers available (young people entering minus older people leaving)."
Do you think more jobs is the answer? I count at least 30 jobs in this video. They are doing the work of 3 or 4 people with a loader in the US. Do you think they live better than US construction workers?
Is it really more jobs you want, or more prosperity? Here's another job saving idea.
Technology has improved all our lives by allowing us to have more for less.
"What do we do when jobs are obsolete? In our system that's a bad thing, but in fact it should be a good thing."
That IS a good thing. We get more for less.
Keep in mind that the US unemployment rate, except during recessions including the current one, has been in a fairly narrow band between 4-6% since the 1960.
Where are all those people who lost jobs to technology? Where are the bank tellers who lost jobs to ATMs, that the POTUS recently lamented? I'll give you a hint, they are doing other things, and we are all better off for ATMs.
"I can't figure out if he's warning me that if France is attacked (probably by Greek mobs) while I'm living there as a French citizen, the U.S. won't save me or if I'm "not beyond the reach of the U.S. military" as in I'll be hunted down and killed for trying to escape the motherland."
It could be either or both. You probably already knew the first to be true, as it only makes sense.
The second isn't beyond the realm of possibility, since the Incompetent in Chief has authorized the assassination of US citizens, and that probably includes former citizens as well.
"and mostly produced from Imported Oil, paid for with never-to-be-repaid, foreign loans?)"
Wait! Am I reading this correctly? Are you complaining that US consumers are getting oil on credit from foreign countries that we never plan to repay?
"Ive had enough of how the job creators are fearful of government. Lets be straight here. The last thing a company wants to do is hire someone. They would rather buy a machine, buy back stock, acquire another company, or invest in a super pac. Many of which are likely to have a higher return.
*************
Okay then let's get back to blaming Obama and the Democrat congress for putting the fear of god and investment into business owners who will boost our economy.
"The reason most people are not spending money is that a few people have most of it. The reas that those that have money are not investing it is that there is little reason there will be any return on their investment, there being no customers left with money to spend."
Wow, That's a good one. do you mean money or wealth?
If money can't be spend or invested, it is worthless, and the wealthy have really been screwed.
All that hard work and risk taking to accumulate the filthy lucre, and it has turned to ashes in their hands. Serves them right, I suppose.
I guess you can see what a pickle they are in, as they would rather do ANYTHING than cause someone to become employed. They are unable to spend their wealth without someone producing what they want, and thereby creating jobs. Damn! That sucks!
Are you forgetting that the wealthy ARE the customers as well as the producers?
Learn some economics!
The reason most people are not spending money is that a few people have most of it. The reas that those that have money are not investing it is that there is little reason there will be any return on their investment, there being no customers left with money to spend.
But people are spending money. Consumption has recovered. The problem is weak investment because of regulatory uncertainty.
Jon: Imagine if consumption remained flat. What would happen? Employment would drop. Why? Because we're always improving our efficiency. So to sustain employment levels demand must increase. And modest increases are not necessarily enough. What this means is that even though consumption now exceeds 2008 consumption the problem still could be aggregate demand. In fact this is what business owners are telling us. Or at least they were in 2010. Consumption levels must remain large enough to provide employment to the net increase in workers available (young people entering minus older people leaving).
Plus immigration, though that will tend to equalize with the job market.
In any case, you make a good point about why the observed small increase in consumption is not sufficient to spur new investment.
Ron H: Jon, as long as you read Keynesian economists, you will have this concern about "aggregate demand", but that's not the problem.
Handwaving.
Ron H: Technology has improved all our lives by allowing us to have more for less.
Non sequitur. Jon did not say otherwise. The point is that the small increase in consumption over the period is insufficient to spur investment and create jobs. Take the trajectory of the consumption in the graph above and project it forward while ignoring the recession. Where would consumption be if growth had continued at its previous rate?
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Ive had enough of how the job creators are fearful of government. Lets be straight here. The last thing a company wants to do is hire someone. They would rather buy a machine, buy back stock, acquire another company, or invest in a super pac. Many of which are likely to have a higher return.
Their demands are danegeld - businesses will take more and economically threaten an area if they don't get what they want.
I find it interesting that you advocate everything except job creation, especially the "super pac" rentseeking. It only validates the need for government to act.
RonH, the efficiency improvements are good and bad. They are good in that we all get more for less work. But here's the bad side. To sustain employment we have to consume more always. We have to treat the earth like it's an infinite resource. But really it isn't.
But that's the fault of our system. Why should we even aspire to sustain employment? What's wrong with more leisure time? Nothing. Except in our society the way we distribute the produced goods is to give them pretty much only to working people. People that can't find work get a little, but very little. People that are working get the distribution in an extremely uneven way. Most of the gains in efficiency have gone to the top 10% while the remainder stays pretty much stagnant and the poor get a bit less then they did 30 years ago.
So we have poverty. It's pretty ridiculous that in our society where we make maybe 10x as much as Native Americans did when Europeans arrived and yet we can barely take care of the elderly and they could. People worry about Social Security. How can we afford to have young people take some of their earnings and give them to old people? Native Americans could do it. Why can't we?
We make so much stuff we could sustain a decent lifestyle for people and have everyone retire by the time they are 40. That's how much stuff we are able to make with technological advancement as compared to say the 60's. But we don't do that. Why shouldn't we?
Like Zachriel says the issue here is the trajectory of the consumption curve. It's way below what it would have been without the downturn, meaning it's probably way below what it needs to be just to sustain employment levels. And that's what we're seeing now with the gloomy jobs numbers. Mark is always talking about things like increase in freight, imports, steel use, etc. Yeah, it's up, but it's not where it needs to be just to find work for the young entering the workforce (and the immigrants).
I find it interesting that you advocate everything except job creation, especially the "super pac" rentseeking. It only validates the need for government to act.
Why are you whining about other people not creating a job for you? If you think businesses are missing an awesome opportunity to hire idle labour, then GO HIRE PEOPLE!
I'm sick and tired of you holding the country and economy hostage by refusing to hire people. You're threatening everyone by refusing to invest in a business and hiring people.
Ron H: Jon, as long as you read Keynesian economists, you will have this concern about "aggregate demand", but that's not the problem.
Handwaving.
Actually, it isn't. The fact that you are ignorant of anything outside of the Keynesian cult is your problem, not his.
Methinks said...
Continually trying to twist the words around? That must be exhausting if not dizzying.
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I'm not twisting words around, Sethstorm.
It's simple. You blame groups of other people you call "businesses" for holding the economy hostage by not creating jobs. But, businesses are just collections of people just like you. Many are sole proprietors.
So, if they're holding the economy hostage by refusing to create jobs, so are you.
Why are you not creating jobs? Why are you holding the economy hostage by refusing to create jobs?
Of course we're not going to repay those loans. We'll roll them over, and borrow more, just like we've always done.
That' the whole reason for having a fiat currency.
It's simple. You blame groups of other people you call "businesses" for holding the economy hostage by not creating jobs.
Well, these businesses are threatening to hold back if they don't get their way. They want to wait out the administration, and use the resultant economic damage as a weapon.
You shouldn't be surprised when people have problems with that.
But, businesses are just collections of people just like you. Many are sole proprietors.
That does not make their actions any more clean or unclean. If anything, it makes the honest ones look bad.
all the bickering over the correct government policy to "create jobs" and "jump start the economy" misses the point entirely.
there is no correct policy.
it's not that the last guys weren't smart enough and you are.
it's the fact that the bickering is going on that freezes investment.
everyone sits back and waits to see what the government is going to do.
the uncertainty IS the problem.
the proposed solutions ARE the problem.
they don't work and arguing about them and barracking for more kills business confidence.
this is exactly what happened in the 30's too.
the only policy that actually works is to step back and let the economy adjust by itself. all these attempts at steerage and job creation just make it worse.
for an excellent read on how this happened in the 30's, i recommend amity schlae's excellent book "the forgotten man" which is painstakingly researched.
business leaders in the 30's were frozen by FDR. the new deal created so much uncertainty about regulations, taxation, federal interference in markets, and federal usurpation of markets and property rights, that every new "solution" they mooted just made the depression worse.
obama is doing the exact same thing.
Is there a source that breaks out investment spending by size of firm? I wonder if the lower investment spending is due primarily to smaller or startup firms.
morganvich, government demand did end the Great Depression. Huge government involvement. Forcing Ford to make tanks instead of cars. Locking wage rates. Drafting soldiers. Rationing consumption. Basically a command economy. And unsurpassed economic performance. How do you convince yourself that government involvement and spurring of demand can't work when it has worked so spectacularly?
RonH, the efficiency improvements are good and bad. They are good in that we all get more for less work. But here's the bad side. To sustain employment we have to consume more always. We have to treat the earth like it's an infinite resource. But really it isn't.
This is Malthusianism at its finest. Improvements are supposedly bad because we will destroy the world. But your argument is simply not true. If your demand for prostitutes, foot massages, and port we do not need many resources to meet that demand in the way that you think of resources. And if technology can make more products with less material we could see the pressures on resources decline even if demand for goods goes up.
Of course, we do have a problem with energy at this time. But that is a problem that has been made worse by Keynesians and anti-capitalist greens who have stood in the way of viable substitutes while they promoted wind, solar, and other such nonsense.
But that's the fault of our system. Why should we even aspire to sustain employment? What's wrong with more leisure time? Nothing. Except in our society the way we distribute the produced goods is to give them pretty much only to working people. People that can't find work get a little, but very little. People that are working get the distribution in an extremely uneven way. Most of the gains in efficiency have gone to the top 10% while the remainder stays pretty much stagnant and the poor get a bit less then they did 30 years ago.
As someone who retired at 41 and has enjoyed plenty of leisure for the past decade I do not dispute some of what you say. Of course, I have some assets and a way to make very good returns by going long central bank and government stupidity. I don't have lots of debt and live well within my means. But I am not idiotic enough to believe that I am typical and that what I accomplished is the norm.
The problem is with the idea that we can tell poor people that they must do with less because we are worried about something that is not a real problem. You also know that the big problem is not an increased standard of living but poverty. Even though West Germany and South Korea were much wealthier than their Communist counterparts and had populations that consumed much more their environmental conditions were significantly better. It is poverty that is the big enemy of the environment, not wealth.
VangeIV, regarding using the earth as an infinite resource my point is this. If consumption is flat unemployment will rise. Do you agree with that? So to sustain employment consumption must continuously rise. Do you agree?
My claim is that this is a systemic reality. Free market capitalism produces precisely this outcome. A rational system can sustain itself without continuous increases in consumption. Our system is not rational.
jon-
"morganvich, government demand did end the Great Depression. Huge government involvement. "
that's an absurd statement. by your logic, the iraq was was a huge bonus for us too.
the war did nothing like end the depression.
it ran up down us savings and ran up big debt. we went from net creditor to net debtor and have never recovered.
what ended the depression was the post war period in which the whole rest of the world needed to be rebuilt and we had the only intact industrial base.
it was a spectacular time for the US.
europe and asia took a long time to get back to pre war levels though.
your whole premise that drafting everyone and going out to destroy assets is a recovery is preposterous.
i don't think i have ever heard such an outlandish defense of the broken window fallacy.
"Do you agree with that? So to sustain employment consumption must continuously rise. Do you agree?"
what do you think this demonstrates?
there is nothing unsustainable about increases in consumption.
a 10,000% increase in demand for backrubs or performance art impoverishes the earth not one iota.
also:
you do not always need consumption to rise to sustain employment. if populations decline, employment can stay high even with reduced consumption.
the middle UN estimates are for world population to peak at about 2070 and then start to decline.
there is nothing unsustainable about increases in consumption.
=================================
There is nothing unsustainable about increases in some kinds of consumption.
If we ever consume our existing inventory of nuclear weaons, for example.
There is also the issue of using substitute or synthetic materials when you run out of some nonrenewable or the price becomes prohibitive. But, having substituted, yu hae just admitted that the previous practice was unsustainable.
So we have poverty. It's pretty ridiculous that in our society where we make maybe 10x as much as Native Americans did when Europeans arrived and yet we can barely take care of the elderly and they could. People worry about Social Security. How can we afford to have young people take some of their earnings and give them to old people? Native Americans could do it. Why can't we?
You must be kidding. In their society, when times were tough the elderly was left behind when the tribe moved for the winter. It could not support very many elderly. Life expectancy was very poor and the percentage of the population that made it to sixty was a fraction of what we have today. If the lifestyle of primitive North American Indians is what you aspire to you have a serious problem with reality.
We make so much stuff we could sustain a decent lifestyle for people and have everyone retire by the time they are 40. That's how much stuff we are able to make with technological advancement as compared to say the 60's. But we don't do that. Why shouldn't we?
First of all, it is not your call to make. Second, people can't retire early because the state consumes so much of their income. After income taxes, social security taxes, capital gains taxes, interest and dividend taxes, sales taxes, property taxes, fees, charges, tariffs, regulatory compliance costs, and inflation your typical middle class worker loses around 85% of his earnings to the government. People can't retire because they are too busy trying to live off the little bit of cash they are allowed to keep.
Like Zachriel says the issue here is the trajectory of the consumption curve....
Keynesians say the silliest of things because they have no idea how the real economy works.
A rational system can sustain itself without continuous increases in consumption. Our system is not rational.
=============================
Maybe, but we do not have any examples of a system that worked this way.
South Pacific islands could easily be self sustaining, but they chose to make raids on neighboring islands.
Easter Island had no neighbors, and it basically perished, some claim from overconsumption.
The real problem is that some people cannot conceive of a world that is not continuously increasing. Therefore they rationaize themselves into believing that continuous expansion is possible: a kind of global ponzi scheme they would laugh at derisively if it was used as an argument in support of social security.
It is poverty that is the big enemy of the environment, not wealth.
===============================
True.
But that still does not mean we can sustain wealth and the environment through ever increasing consumption.
Anybody have and example of a rich country with a clean environment and lots of prodution and no government regs to keep the environment clean?
Well, these businesses are threatening to hold back if they don't get their way.
Threatening to hold back what? Businesses should be free not to invest if they do not see an opportunity that justifies the risks being taken. When they do not invest they are not 'threatening' anyone.
They want to wait out the administration, and use the resultant economic damage as a weapon.
No, they want to wait out the administration because they do not wished to take the huge risks of having their profits taxed away and their costs driven higher by harmful legislation.
You shouldn't be surprised when people have problems with that.
I can't speak for others but I am not. There are too many Keynesians out there and too many parasites who are mad that others are not volunteering to be their hosts.
Wow, That's a good one. do you mean money or wealth?
If money can't be spend or invested, it is worthless, and the wealthy have really been screwed.
==================================
Both money and wealth.
The wealthy are being screwed. Isn't that exaxtly what all the complaining is about?
The poor have already been screwed, or screwed themselves by not being capitalists in the top 10%, depending on your point of view.
Just because you cannot do anything or very little with your wealth (at present) does not make it worthless.
That bulldozer in yur back yard my not have any work today, but if some work does appear, you will be in better shape that a dozen guys with shovels.
There is a lot of money sitting on the sidelines right now, one reason bond yields are so low.
Is there a source that breaks out investment spending by size of firm? I wonder if the lower investment spending is due primarily to smaller or startup firms.
==========================
How do really small firms start up? They use the equity in their homes.
Oops. Gues we need to fix the home problem.
morganvich, government demand did end the Great Depression. Huge government involvement. Forcing Ford to make tanks instead of cars. Locking wage rates. Drafting soldiers. Rationing consumption. Basically a command economy. And unsurpassed economic performance. How do you convince yourself that government involvement and spurring of demand can't work when it has worked so spectacularly?
This is the type of drivel that shows just how ignorant the education seems to be. There was no 'unsurpassed performance.' A large portion of the work force was overseas working as targets for Japanese and German soldiers. Production did not make workers wealthier and did not allow more people to purchase consumption goods, which is what production is supposed to do.
According to you geniuses what ails us can be fixed by starting a war and making stuff that can't be used for anything productive. But that is not how the real world works. In the real world consumers want to buy cars, health care, food, porn, and other items that bring them pleasure. Having a few connected companies make billions by selling nuclear weapons to the government does not create wealth.
I find it interesting that you advocate everything except job creation, especially the "super pac" rentseeking. It only validates the need for government to act.
=================================
I have not advocated anything. I am just pointing out arguments I think don't make sense or are simply untrue.
It seems to me that both sides have polarized themselves into zealotry and are arguing positions that are stupid and self defeating.
Your argument about Super Pac rent seeking being a case in point. The govt needs to do something about people who are willing to spend unlimited money to get the government to stop doing something?
You shouldn't be surprised when people have problems with that.
====================
I'm not surprised, merely pointing out what seems to be happening, and you seem to agree.
Hey, lets get a better economy later by destroying the economy now until our team comes up to bat. That way we will all be better off eventually.
Nice take on the socialist "we".
I get bored repeating things that have been so often repeated.
=============================
Repetition of a bad thought or theory or irrelevant data does not make the truth any more obvious.
If you keep having to repeat the same thing, maybe it is because you have not sold your idea.
VangeIV, regarding using the earth as an infinite resource my point is this. If consumption is flat unemployment will rise. Do you agree with that? So to sustain employment consumption must continuously rise. Do you agree?
But consumption does not have to require the type of resources that you are talking about. As I said, you can increase your demand for hookers and strippers exponentially. Those hookers will make a better living and GDP will go up. But the stress on resources will not go up. And if we buy smart phones as substitutes for PCs we can have an increase in total units while consuming a lot less in raw materials.
And I do not see shortages as a big problem. Yes, we will have trouble with many base metals mines as the good heap leach targets are depleted and the high grade underground deposits go too deep to be economical. But as we see some trouble ahead a new source of supplies may be just on the horizon. We now have methods to locate and develop high grade deposits before they are covered by sand and rock. There are companies that have outfitted ships that can bring up very high grade ore from the ocean bottom and provide large amounts of high quality deposits cheaply.
And if the government ever gets out of the way energy producers will figure out a way to develop methane hydrate deposits to produce liquid fuels and use nuclear power to produce cheap and safe electricity.
My claim is that this is a systemic reality. Free market capitalism produces precisely this outcome. A rational system can sustain itself without continuous increases in consumption. Our system is not rational.
Nonsense. Free market capitalism decreases the stress on the environment because it can produce a lot more with a lot less. There is no way for a command economy to support the number of people that we have on this planet.
No, they want to wait out the administration because they do not wished to take the huge risks of having their profits taxed away ....
====================
So they would rather do nothing than make money and have some of it taxed.
What was that again about "If money can't be spent or invested, it is worthless, and the wealthy have really been screwed."
Are they sitting on the sidelines screwing themselves, and all the while still retaining a greater and greater proportion of all wealth and income?
"But, having substituted, yu hae just admitted that the previous practice was unsustainable."
uh, no.
that's ridiculous.
you may have only demonstrated that a new alternative was cheaper or better.
calculators didn't replace abacuses because abacuses were unsustainable...
Listen, Sethy, if you think companies are just missing out awesome opportunities in order to stick it to the current regime, you have a golden opportunity!
Go! Start a business. HIRE people! Or are you waiting for the regime to give you something special.
With other companies not even willing to lift a finger to compete with you, you're golden.
Go hire people.
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morganovich
"i don't think i have ever heard such an outlandish defense of the broken window fallacy."
You haven't? Many Keynesians agree with Jon that destruction and death are a good thing. The bigger the better, and there haven't been any bigger than WW2.
sethstorm wails: "Well, these businesses are threatening to hold back if they don't get their way"...
Name a company that has come out and publically threaten to hold off on hiring if they don't get their way...
BTW why aren't you hiring sethstorm? What's your threat?
"Ron H: Technology has improved all our lives by allowing us to have more for less.
Non sequitur. Jon did not say otherwise."
Actually, Jon did say otherwise. Perhaps you are not reading carefully enough, or understanding what you read.
Although Jon begins by stating exactly what I did, he goes on to explain that "less" equals less labor but not less nature.
It's not clear whether Jon considers fewer jobs a good thing or a bad thing. My best guess is that Jon thinks we should all work less and be satisfied with a lot less. For many poor people, this would mean a life sentence to grinding poverty and misery.
Jon seems to believe that as consumption continually grows, more and more finite natural resources are required to satisfy that demand, when in fact, that's not the case. He appears to be the Right Reverend T. R. Malthus reincarnate.
"The point is that the small increase in consumption over the period is insufficient to spur investment and create jobs."
Perhaps this should tell you that consumption isn't a major driver of investment, but a response to it.
"Take the trajectory of the consumption in the graph above and project it forward while ignoring the recession. Where would consumption be if growth had continued at its previous rate?"
Oh boy! This is fun. Here we go.
Well, look at that. Consumption would be much higher than it is now if it hadn't been for that darn recession. I'm not sure there's a point to this, but I enjoyed drawing the line.
Actually I noticed something strange while I was looking at the graph. It looks like investment began drying up long before the recession, even as consumption continued to grow for almost 2 years. How is that possible if consumption is the driver of investment?
Why wasn't increasing "aggregate demand" doing its job then?
Was there possibly something else going on at that time, that you have missed because of your narrow focus on aggregate demand?
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"Of course we're not going to repay those loans. We'll roll them over, and borrow more, just like we've always done."
Gee, I think that's usually considered "paying them off". When you refinance your house, you "pay off" the old loan using proceeds from the new one.
"That' the whole reason for having a fiat currency."
The reason for having a fiat currency is so that government can inflate the money supply and spend large amounts it wouldn't be able to if the currency were actually based on something real.
"The poor have already been screwed, or screwed themselves by not being capitalists in the top 10%, depending on your point of view."
You do understand that not everyone can be in the top 10%, right?
"Just because you cannot do anything or very little with your wealth (at present) does not make it worthless.
That bulldozer in yur back yard my not have any work today, but if some work does appear, you will be in better shape that a dozen guys with shovels."
The scenario you painted included no customers and no hope for ever having any customers, including customers for my bulldozer. therefore, it is worthless as wealth or as a source of income.
You haven't? Many Keynesians agree with Jon that destruction and death are a good thing.
Come on, RonH. Be serious. Here's a simple fact. In an economy where you have underutilized resources, like our present condition, and you likewise have wealth concentrated at the top, then it's just true that if you break windows in mansions this would create employment. So in comes the right wing straw man. I guess Jon wants to break windows. No. Obviously I think it makes more sense to do something constructive. But this doesn't change the fact that breaking windows would produce employment. Not wealth. Employment. Employment isn't always the most important thing, but this would produce employment.
Or if you just had people dig ditches and re-fill them and you sent the bill to the rich. Would that reduce unemployment? Yeah, it would. It would also spur demand. The poor ditch diggers would spend their money, which would lead to more employment. Do you deny it? Obviously you could also just have people sit on their butts. Wealth transfers from those that have a bunch of money and don't spend it to the poor that would spend it would in fact raise demand.
It's still not clear to me that you've addressed my main point. I say if consumption is flat employment must fall. Do you agree with that or no?
Actually, Jon did say otherwise. Perhaps you are not reading carefully enough, or understanding what you read.
No I did not. Technology allows us to have more for less. That CAN mean, and does frequently mean we have use more natural resources, but sure, it doesn't have to mean that. What it does mean however is that technology obsoletes labor. Consumption must go up just to maintain the same level of employment.
And yeah, if I advocated that we just be satisfied with less and we sustain the present so called free market capitalistic system then this would consign many to grinding poverty. That's because in our present system goods are by and large allocated based on employment. So if there's no work the unemployed don't get much by way of allocation. But of course I have major objections to our present system. I say we should contrive a system that allows people to work less and still have the same allocation if that's what they wanted. That's not really in the cards right now. We have to work longer. We have to consume more. Otherwise our allocation actually drops.
"Your argument about Super Pac rent seeking being a case in point. The govt needs to do something about people who are willing to spend unlimited money to get the government to stop doing something?"
Wow! I've heard circular arguments before, but this one takes the cake. Maybe you were trying to make a joke.
Jon: We have to treat the earth like it's an infinite resource.
New consumption doesn't necessarily require new resources, and energy per unit of GDP is decreasing in the developed world.
Ron H: Jon, as long as you read Keynesian economists, you will have this concern about "aggregate demand", but that's not the problem.
Zachriel: Handwaving.
VangelV: Actually, it isn't.
Of course it's handwaving. It dispenses with the argument without having to address it. Just as you did when you said, "Keynesians say the silliest of things because they have no idea how the real economy works."
morganovich: by your logic, the iraq was was a huge bonus for us too.
Stimulus only works when there is excess capacity and excess capital. The tax cuts and additional government spending during the economic expansion during the Bush Administration only overheated the economy, fueling the bubble.
Ron H: Why wasn't increasing "aggregate demand" doing its job then?
Because a $0.8 trillion stimulus can't fill a $4 trillion hole in demand and a $10 trillion loss in equity.
New consumption doesn't necessarily require new resources,
Agreed. I meant "we have to use the earth as an infinite resource" in the sense of this is what we actually do presently. Technically we don't "have to" in the sense that we must and there's no possible way to do it otherwise.
"Come on, RonH. Be serious. "
I am serious. Did you watch the video and see what good company you are in?
Did you watch the whole video? are you familiar with Bastiat's broken window fallacy?
If not, there's no point in your continuing reading this comment. You can just skip down to the next one.
Breaking windows makes us all poorer. It's not just the shopkeeper who is out the price of the window, but the unseen benefit that might have accrued without the broken window.
"Here's a simple fact. In an economy where you have underutilized resources, like our present condition, and you likewise have wealth concentrated at the top, then it's just true that if you break windows in mansions this would create employment."
So, you have no problem with stealing from people who have mansions?
"So in comes the right wing straw man. I guess Jon wants to break windows."
Jon, you just said you are in favor of breaking windows in mansions. This certainly isn't a strawman. And, why would you label it a right-wing strawman? Are you assuming something not in evidence? Are right-wingers against breaking windows in mansions?
Besides, Jon, as has been previously pointed out, it's not your call. You can't decide what should be done with other peoples windows.
"No. Obviously I think it makes more sense to do something constructive. But this doesn't change the fact that breaking windows would produce employment. Not wealth. Employment. Employment isn't always the most important thing, but this would produce employment."
You must not understand Bastiat. Breaking windows creates employment for glass installers in exactly the same amount it reduces employment somewhere else. there is no gain. Higher demand by glass installers is exactly offset by lower demands from others who didn't get the money that was spent on glass instead. You must understand this to have a meaningful conversation in the subject.
"Or if you just had people dig ditches and re-fill them and you sent the bill to the rich. Would that reduce unemployment? Yeah, it would."
This is already being done by the Incompetent In Chief and those in Congress who hope to gain votes "doing something", even if it's wrong.
"It would also spur demand. The poor ditch diggers would spend their money, which would lead to more employment. Do you deny it?"
Nope, there's no denying it. This would increase employment.
The only problem, is that you could expect prices to rise as there would be no additional production to meet this higher demand. Wages would have to rise to entice workers away from their hole digging jobs, into actual productive work. No one would benefit directly from the hole digging and filling activity. The end result would be that no one would benefit.
To believe this is a good idea means you think that hole digging and refilling is of more value to society than whatever else the rich might have spent their money on, if they hadn't been forced to pay for hole digging.
"Obviously you could also just have people sit on their butts. Wealth transfers from those that have a bunch of money and don't spend it to the poor that would spend it would in fact raise demand."
That would be a better form of arbitrary wealth transfer than the digging holes plan, as it's much simpler and more direct.
Ron H: Breaking windows makes us all poorer.
Yes, it reduces overall wealth (though not necessarily everyone's wealth, of course). It can still act as a stimulus under certain circumstances. You seem confused by the concept of trading wealth for economic activity. (By the way, if it is vandalism, then you need to resolve that issue before replacing the windows.)
Ron H: Jon, you just said you are in favor of breaking windows in mansions.
Actually, any clear reading indicates that Jon does not favor breaking windows.
Ron H: Higher demand by glass installers is exactly offset by lower demands from others who didn't get the money that was spent on glass instead.
So that is one of the conditions for an effective stimulus, excess capital. So if the money was not being spent, but was gathering dust, then the broken window stimulates additional economic activity today at the expense of wealth (wealth that might have been spent tomorrow).
Ron H: The only problem, is that you could expect prices to rise as there would be no additional production to meet this higher demand.
Which brings up the second condition, excess capacity, that is, that the glazier needs the work. Otherwise, the cost of his service will increase as he can pick and choose whom he works for.
From the recession trough in Q22009, through eight quarters, investment in equipment and software rose 27% and investment in nonresidential structures declined by 16%. PCE rose 4.3%.
Nonsense. After Boskin investment in IT and software was 'adjusted' for quality and speed. There was a multiplier applied to the actual investment in computer and equipment. It was not unusual for hedonic adjustments to business spending on computers, which was around 1% of nominal GDP to be converted to 40% of real GDP growth. This was all fantasy and it is still fantasy today. If anything the collapse in pricing means that companies today are investing a lot less in computers and software and are certainly not wasting as much on the maintenance of legacy software as they used to.
Mankiw and Higgs are flailing from left field. The issue is the subpar recovery in PCE and nonresidential structures not investment in equipment and software.
Higgs has been on the money. His insights about the driver of the reduction in capital formation during the 1930s and the performance of the real economy during the 1940s have been a great contribution to economic history. Sadly, the Keyensians refuse to listen to anyone outside of their cult.
Anybody have and example of a rich country with a clean environment and lots of prodution and no government regs to keep the environment clean?
The better question is does the government matter? The evidence suggests that it does not because the pollution levels were falling long before the EPA was formed and did not fall any faster after the EPA was created.
So they would rather do nothing than make money and have some of it taxed.
They are not doing nothing. They simply refuse to take the risk of a loss of their capital when there is no upside because of changes in tax policies. Nobody wants to volunteer to be a victim.
What was that again about "If money can't be spent or invested, it is worthless, and the wealthy have really been screwed."
Real money can be invested or held because it maintains its purchasing power. The people who have it can choose where they want to invest their money. Given the risks and price levels some of us find places like Africa and Haiti far more attractive than the US. I actually have more money invested in Turkey and Haiti than I do in the US.
Man, you guys are way too easy to stir up.
You do understand that not everyone can be in the top 10%, right?
But most can get there. My father did by painting houses. I got there by building airplanes and investing my savings. A few of my friends did it by going to law school. Others opened their own businesses. Some married well. None of my examples started off in the top 10%. In fact most of us began in the bottom 20%. My family came to Canada with $200 in cash with nobody being able to speak the language. Three years later my mom and dad managed to buy and pay off a house by simply working long hours and saving most of what they earned. I was fourteen but chipped in a fence and some furniture with my earnings as a dishwasher and waiter.
In a country like the US or Canada it is not difficult to get to the top 10% in income or wealth if you are persistent, work hard, and set goals no matter where you start off. Most people do not make it there because they refuse to do what it takes to get there. But they have no problem with asking people who started off just as they did to chip in so that their own lives can be better than what they deserve.
They are not doing nothing. They simply refuse to take the risk of a loss of their capital when there is no up....
===============
At today's bond rates, that is pretty close to doing nothing.
I still have some upside after I pay my taxes, they must need a better accountant.
So, lets see. It is OK jig these clowns refuse to invest if there is no upside, but if someone refuses to work for substandard wages because there is no upside, then they are blood sucking leeches on society, right?
In an economy where you have underutilized resources, like our present condition, and you likewise have wealth concentrated at the top, then it's just true that if you break windows in mansions this would create employment.
You really are dim. I guess that is what you get form reading too much Krugman.
If the window is not broken you have both a window and capital. When I have savings that I do not use for consumption it does not mean that those savings are idle. My savings are building mines in Chile and Mexico and are drilling oil wells in Northern Iraq. They finance rare earth deposits in Kazakhstan, coal mines in China, potash mines in Canada, and gold deposits in Haiti. If I have to waste money to replace assets that were destroyed I will have less to invest in the next round of financing and those jobs in Haiti might be created later or not at all.
I suggest that you go back to the books and read up on your Bastiat or Hazlitt. If you actually learned something about economics you would be making fewer idiotic statements.
Of course it's handwaving. It dispenses with the argument without having to address it. Just as you did when you said, "Keynesians say the silliest of things because they have no idea how the real economy works."
Your argument has been addressed already. The fact that you do not understand it is not Ron's problem. It is yours.
At today's bond rates, that is pretty close to doing nothing.
Who says that investors are just buying bonds? And if they prefer bonds to risking their capital by investing in production that tells you that they are not very confident in Congress and the Administration doing the right thing. They would rather earn 2% than having regulations and taxes eat up their investment.
By the way, I am not saying that this is the right approach. Anyone who has confidence in the debt issued by a bankrupt nation has to be a damned fool and deserves the real losses that will come along when the bond bubble bursts.
So, lets see. It is OK jig these clowns refuse to invest if there is no upside, but if someone refuses to work for substandard wages because there is no upside, then they are blood sucking leeches on society, right?
Not at all. They have the right not to work. They only become blood sucking leeches when they demand that others give them money that they never earned.
u do understand that not everyone can be in the top 10%, right? But most can get there. My father did by painting houses. I got there by building airplanes......
==>===================
That is PFF.
Most people can get to the top 10%
Really? How does that work?
I attended a highly selective and highly homogeneous school, with a bunch of pretty smart guys. No matter how hard they tried or how skilled they were, most of them could not be In the top ten%.
Who says investors are just buying bonds?
Well, they are not investing, or many are not. At least not in anything that creates jobs.
Bond yields are way down because money is flooding there, basically doing nothing.
Sure there are still some investors, and they will do well investing in a down market.
Now, what happened to your argument that they are not investing because government interference has eliminated the reward?
They are just cheap cowards. Cheap, wealthy cowards.
t at all. They have the right not to work. They only become blood sucking leeches when they demand that others give them money that they never earned.
=============
Reasonably good answer. What I hear you saying is that people can choose not to work and not to invest, as long as they have plenty of money.
Most people can get to the top 10%
All you have to do is choose to get to the top 10% in income. It actually is not very much and anyone who starts to work at a young age, saves his/her money, lives below his/her mean and invests savings should be able to reach the top 10% in wealth or income by 50 at the latest. In the US $160K per year of household income gets you to the top 5%. That is not very much for someone who has worked very hard and saved.
Of course, not everyone can be in the top 10% at the same time. You start young earning very little and work your way up.
They would rather earn 2% than having regulations and taxes eat up their investment.
=======
Come on. These people earn so much they will pay the same tax rate against 2% gain as they will 20% gain.
What I hear you saying is they think the only safe place from govt regulatory interference is hiding in govt bonds, issued by a bankrupt incompetent government.
Bond yields are way down because money is flooding there, basically doing nothing.
A lot of the buying is central banks, their proxies, and hedge fund managers. Nobody would be stupid enough to buy a ten year bond at 3%.
Now, what happened to your argument that they are not investing because government interference has eliminated the reward?
You can go long government stupidity my friend and do not have to invest in the US. Like I said, I have more of my money in Turkey and Haiti than I do in the US. And if the price is right you can still buy assets in unstable jurisdictions. If a deposit that would be worth $1 billion in the US is going for $50 million in Morocco I have no problem buying into it.
They are just cheap cowards. Cheap, wealthy cowards.
It seems to me that they are smart not to volunteer to be victims.
Reasonably good answer. What I hear you saying is that people can choose not to work and not to invest, as long as they have plenty of money.
No. I chose to stop working for a while even though I did not have plenty of money. I made most of my money within a year of stopping working.
"Yes, it reduces overall wealth (though not necessarily everyone's wealth, of course). It can still act as a stimulus under certain circumstances. You seem confused by the concept of trading wealth for economic activity. (By the way, if it is vandalism, then you need to resolve that issue before replacing the windows.)"
What I'm confused by, is the concept of stealing wealth from the rightful owners to create economic activity for its own sake, in hope that some mythical multiplier effect will occur, causing the engines of prosperity to roar back to life.
Reducing overall wealth, means more people are poorer, not that more people are richer. This seems like the wrong direction to take.
And the broken windows former economist Krugman likes to discuss, were caused by people flying jet aircraft into tall buildings. I suppose you could call that vandalism.
Jon prefers WW2 as an example of an extremely large broken window. He thinks putting everyone to work making things that can then be quickly blown up is a sign of a robust economy, even though people are far worse off as they can't get enough of the consumer goods people usually equate with prosperity.
"Ron H: Jon, you just said you are in favor of breaking windows in mansions.
Actually, any clear reading indicates that Jon does not favor breaking windows."
Any clear reading indicates that Jon would prefer something else, but that breaking windows is better than nothing, as it creates employment. So if there isn't anything better at the moment, he recommends breaking windows as a last resort.
Maybe he will clear that up for you.
"Ron H: Higher demand by glass installers is exactly offset by lower demands from others who didn't get the money that was spent on glass instead.
So that is one of the conditions for an effective stimulus, excess capital. So if the money was not being spent, but was gathering dust, then the broken window stimulates additional economic activity today at the expense of wealth (wealth that might have been spent tomorrow)."
I have trouble picturing capital that could be used for stimulus gathering dust. This brings to mind a picture of someone stuffing hundred dollar bills into their mattress. I suspect that most capital is in use in some way, even if it isn't the use you would prefer, but as it doesn't belong to you, that doesn't really matter.
But in any case, it seems you advocate theft of something from it's rightful owner, because you know better how it should be used, even if the owner might have had future plans for it. Did I miss anything?
"Ron H: The only problem, is that you could expect prices to rise as there would be no additional production to meet this higher demand.
Which brings up the second condition, excess capacity, that is, that the glazier needs the work. Otherwise, the cost of his service will increase as he can pick and choose whom he works for."
Even if he is working at full capacity, more demand will allow him to raise his price, hire more installers, and buy more glass. If everyone is at full capacity, he can hire workers away from others by offering them a higher wage.
He can become wealthier by doing this, which is, after all, why he is in the glass business.
A rising price signals producers to increase output due to higher demand. It flows all the way back down the production chain. this is pretty basic stuff, Zachy.
"Reasonably good answer. What I hear you saying is that people can choose not to work and not to invest, as long as they have plenty of money."
No. You started off well, but went off the tracks.
People can choose to not work or not invest: Full stop. That is because it is their choice. You don't need to concern yourself about whether or not they have plenty of money.
"Ron H: Why wasn't increasing "aggregate demand" doing its job then?
Because a $0.8 trillion stimulus can't fill a $4 trillion hole in demand and a $10 trillion loss in equity."
Wait, wait. Read my comment again. I'm looking at the graph as you suggested, and between 2006 and 2008, consumption, aggregate demand if you will, increased as it had been. Investment decreased during that period. What caused it?
There was not yet a "stimulus", no "$4tn hole" in demand, and no $10tn loss in equity. Try again.
Jon
"What's wrong with more leisure time? Nothing."
There is nothing wrong with more leisure time. Everyone can decide for themselves how much they want of it. That's the beauty of a relatively free society. Leisure isn't free, however, it comes at the opportunity cost of other things we give up to get leisure. This is basic economics, Jon.
"Except in our society the way we distribute the produced goods is to give them pretty much only to working people.'
Well, how utterly unfair. Why should only people who work get paid?
You're kidding, right?
First of all, Jon, there are no produced goods for anyone, unless someone produces them. Those that do so, can trade with others who have also produced something.
And, "we" don't distribute goods, they are offered to us by those that produce them. They expect, and rightfully so, to be rewarded for the benefit they provide us.
Those that haven't produced, have nothing to trade, and can't reasonably expect others to produce for their benefit.
Now there are exceptions, to be sure: Our children, families, perhaps friends, and neighbors who need help may get something without trading from those of us that produce, but not those at a distance whom we don't even know exist.
"So we have poverty. It's pretty ridiculous that in our society where we make maybe 10x as much as Native Americans did when Europeans arrived and yet we can barely take care of the elderly and they could. People worry about Social Security. How can we afford to have young people take some of their earnings and give them to old people? Native Americans could do it. Why can't we?"
You are making an important point here, but it's not the one you think it is.
Let's put aside for a moment, the harsh reality VangelV reminded you of, that many Native Americans could not care for their elderly, but left them to their fate when the tribe moved on. let's instead picture a more pleasant scene.
I'm sure there were some tribes and family groups that were more prosperous, and did care for their elderly. These groups, just as families and groups everywhere, throughout history, have cared for those unable to care for themselves when they were able.
We humans, by nature, are generous and perhaps feel a duty toward those close to us, because it helps ensure the survival of the species. We do not extent this benevolence to outsiders.
Your vision of a tribe of 300 million people, all holding hands and singing Kumbaya, and seeing that everyone has the same amount to eat, just isn't possible.
Outside of our immediate circle, in what Hayek called the extended order, the rules of human behavior are different. This is neither good nor bad, it's just how it is, and you can't change it by wishing.
Those Native Americans you picture caring for their elderly are caring for their own. They weren't forced to contribute to a gigantic pot to be used to care for all elderly everywhere on the continent. They wouldn't have done it.
We will willingly care for our own, but object to being forced to do so for everyone else.
Government entitlement programs have made us less interested in caring for our own, because we can just allow big brother to do it.
to produce for their benefit. Now there are exceptions, to be sure: Our children, families, perhaps friends, and neighbors who need help may get something without trading from those of us that produce, but not those at a distance whom we don't even know exist.
=====================
Why does that make a difference?
Does government provided care for those who need it mean families care less, or does it just mean That those without families, or those with poor families still get some minimal level of support when needed?
The govt needs to do something about people who are willing to spend unlimited money to get the government to stop doing something?" Wow! I've heard circular arguments before, but this one takes the cake. Maybe you were trying to make a joke.
===========
The question was directed to sethstorm. It points out the irony of the situation that pacs can raise and spend unlimited money to get the government to stop taking our money.
To stop regulating businesses, when the regulations were basically put in place to prevent businesses from taking peoples money unfairly, or, were put in place at the request of business to enable them to get more money.
I think it is a joke, but nit a funny one.
VangelV: The evidence suggests that it does not because the pollution levels were falling long before the EPA was formed and did not fall any faster after the EPA was created.
Social action against pollution didn't start with the EPA. In 1954, there were 2000 auto accidents on a single day due to smog. Thousands died in London due to smog in 1952. Citizens began to organize as soon as the causes were known.
Ron H: You do understand that not everyone can be in the top 10%, right?
VangelV: But most can get there.
Heh.
VangelV: When I have savings that I do not use for consumption it does not mean that those savings are idle.
That's correct, but capital can idle.
Name a company that has come out and publically threaten to hold off on hiring if they don't get their way...
Any company willing to complain about regulations as the reason why they arent hiring. Emerson Electric being an example raised earlier in this blog.
Ron H: What I'm confused by, is the concept of stealing wealth from the rightful owners to create economic activity for its own sake, in hope that some mythical multiplier effect will occur, causing the engines of prosperity to roar back to life.
We can discuss that, but you still seem confused on the fundamental. If the sovereign has money sitting in a chest, and there are unemployed, then spending that money can stimulate the economy, at the expense of the sovereign's wealth.
Ron H: Reducing overall wealth, means more people are poorer, not that more people are richer.
If the sovereign spends on the money on improving the road, then the treasure has been converted into infrastructure, not lost, and that infrastructure may increase trade over the long run. Meanwhile, the unemployed find work and can feed their families. And helps build the ties of loyalty between the people and their sovereign.
Ron H: Jon prefers WW2 as an example of an extremely large broken window.
It shows the effect of a large stimulus, high production in trade for debt.
Roosevelt also instituted the GI Bill, which turned young soldiers into college graduates and home owners. Eisenhower built the superhighway system.
Ron H: I have trouble picturing capital that could be used for stimulus gathering dust.
There's plenty of capital idle today. Some was spent on stimulus. For instance, the Chinese spent about RMB¥ 4 trillion.
Ron H: But in any case, it seems you advocate theft of something from it's rightful owner, because you know better how it should be used, even if the owner might have had future plans for it.
There are all sorts of automatic stabilizers, such as FDIC. When the banks collapsed in 1929-1933, people lost their entire savings. Many were hard working people, who saved a bit every month. They did everything right, but were hurt by events outside their control. Worse, people stopped putting their money in the bank. Worse still, it contributed to the overall collapse, sending more institutions into bankruptcy. The classic downward spiral.
FDIC is an insurance plan. Covered institutions pay an insurance premium (which is effectually a tax on savings). When a bank fails, FDIC steps in and guarantees deposits. When banks failed after the 2008 financial meltdown, most people found their savings still secure.
You could rephrase this as theft. You can say that about any tax or mandatory fee. But if you want to put your money in any bank in any modern economy, you are paying a fee for the privilege.
Ron H: Even if he is working at full capacity, more demand will allow him to raise his price, hire more installers, and buy more glass. If everyone is at full capacity, he can hire workers away from others by offering them a higher wage.
Other glaziers also compete for the same business. If there is no excess capacity in the economy, the glazier may business expand, but it draws workers from other glaziers or industries. Instead of new economic activity, it causes inflation. The same glass costs you more, as well as other products as the glazier business draws off workers.
Ron H: He can become wealthier by doing this, which is, after all, why he is in the glass business.
He has more money, but the money is worth less. Again, if production is already running at maximum capacity, then government demand will only increase prices, not production (leaving aside increases in per unit productivity).
Ron H: this is pretty basic stuff,
Yes, it is.
Ron H: I'm looking at the graph as you suggested, and between 2006 and 2008, consumption, aggregate demand if you will, increased as it had been. Investment decreased during that period. What caused it?
Because key sectors were starting to show signs of problems, including the housing sector, resulting in a decline in wealth. This took a while to be felt in consumer demand, as many people assumed it was a temporary problem.
Ron H: We humans, by nature, are generous and perhaps feel a duty toward those close to us, because it helps ensure the survival of the species. We do not extent this benevolence to outsiders.
Even hostility to those in the out-group. But the history of human civilization is the extension of the in-group from tribe to town to city-state to nation to humanity. But there are always cheaters, your lazy uncle, so there is a balance between the forces of cooperation and competition and freeloading.
Interestingly, most people will help strangers with no thought of reciprocity. Game theory shows that even helping strangers can be an evolutionary advantage, as long as there is a possibility of meeting that person again. Help someone with a small thing, and they may save your life one day. And so the bonds between humans grow stronger. It's in their nature.
With the rise of democracy, people have banded together into social contracts, and those contracts include social insurance for the elderly and destitute, military defense, laws to regulate commerce and pollution, and the entire panoply of modern society.
RonH
Here's what I said with variables: Doing X would produce Y.
Here's what you claim I said: We should do X.
These are two different statements. Let's substitute for the variables.
1-Cutting off your legs would produce weight loss.
2-We should cut off our legs.
These are very different claims. It is a fact. If you cut off your legs you will lose weight. You have to acknowledge that.
As Zachriel has stated and as I have as well, there's a key condition that must apply for our claim that breaking windows would reduce unemployment. Resources must be underutilized. For instance construction workers would have to be underused. Is that the case in our present economy? Yes. So is it true that breaking windows would reduce unemployment? Yes, it is.
This does not mean I want to start breaking windows. I repeat. I DO NOT WANT PEOPLE TO START BREAKING WINDOWS!! I do not want more wars. I do not want an alien invasion. None of this changes the fact that if these things did happen unemployment would drop. The government can just as demand Ford build tanks as it can demand that research into solar power be expanded and that construction of solar fields be implemented. The government can demand that present fossil fuel producers meet tougher emissions requirements, which cleans the environment and puts people to work.
"I think it is a joke, but nit a funny one."
Ahh. Now I get it. You are responding in kind. Good idea.
Respond to nonsense with nonsense.
"Why does that make a difference?"
Because we are, I believe, genetically hard-wired to respond with help to those who are close to us, and are "familiar" to us. We call them family, friends, neighbors, tribe, and other such terms to describe our relationship to them.
Those who are not close to us, those we don't know on a personal level, don't elicit this type of response from us. They are "others".
You can prove this to yourself by thinking about your own circumstance: You might allow a needy family member to live with you temporarily after they suffered a misfortune that kept them from caring for themselves, but you wouldn't likely do the same for someone you had never seen in your life.
A neighbor being injured in an auto accident will make a much greater impression on you than learning that someone you had never heard of, in another state, had suffered a similar misfortune.
You are probably aware that several million people worldwide, mostly children, die needlessly each year from malaria. I doubt that you are rolling on the floor sobbing uncontrollably.
This isn't good or bad, it just is.
To suggest , as you do, that 300 million of us can all be pals and care for each other by allowing government to take money from us for that purpose is laughable.
"Does government provided care for those who need it mean families care less, or does it just mean That those without families, or those with poor families still get some minimal level of support when needed?"
What government provided care means is that families don't feel the urgency or the sense of personal responsibility as strongly as they otherwise might.
If you are the sole means of support for your mother, you may feel more strongly about your responsibility than if you have 4 siblings who can also help. If government will support her, your help becomes even less important.
"Grandma will do just fine in that rest home. She has Social Security, Medicare, and no doubt other government programs if needed. Big Brother will take good care of her. There's no need for us to contribute, or worry about her care. And besides, we certainly don't want here living here and getting underfoot. We'll make a point of going to visit her at least once a month so she will know we love her."
I think we have lost something with this type of arrangement.
Poor family? No family? Look around you. Homeless shelters, Salvation Army, churches, groups of people everywhere giving their lives purpose by volunteering to help those in need.
Think about it.
"VangelV: The evidence suggests that it does not because the pollution levels were falling long before the EPA was formed and did not fall any faster after the EPA was created.
Social action against pollution didn't start with the EPA. In 1954, there were 2000 auto accidents on a single day due to smog. Thousands died in London due to smog in 1952. Citizens began to organize as soon as the causes were known."
So, you are agreeing? The EPA is irrelevant and an unnecessary expense
"It shows the effect of a large stimulus, high production in trade for debt. "
Well, that's certainly a worthwhile goal, especially if most of that production was wasted. /sarcasm
People were likely worse off because of that stimulus than they would have been without it. Jobs aren't everything.
" Roosevelt also instituted the GI Bill, which turned young soldiers into college graduates and home owners. Eisenhower built the superhighway system."
More intrusive central planning. Why should we all want GIs to be college graduates and homeowners? Can't we allow them to make their own choices? What a boneheaded idea.
Highways: Not a bad deal, but is that what people desired most in their lives, at that time? What about the opportunity costs? What was given up for highways? Certainly some people's personal choices would have been different.
I will say, though, that the highway system is one of the least offensive collective projects ever undertaken in the US, as it was mostly paid for with user fees.
"We can discuss that, but you still seem confused on the fundamental. If the sovereign has money sitting in a chest, and there are unemployed, then spending that money can stimulate the economy, at the expense of the sovereign's wealth."
Yes, we could discuss that, that's why I brought it up, because I'm really curious how you will justify theft.
And yes, I'm confused by your claim that the sovereign has money sitting in a chest. The sovereign is spending 60% more each year than his income, and must borrow the difference.
To bestow garlands of infrastructure on his adoring subjects, means borrowing still more, so it doesn't make economic sense, but certainly benefits his few special friends who receive this largess initially.
You may be thinking of money that others have sitting in chests, but that is their money and their chest. If you are suggesting the sovereign should steal that money then shame on you.
"Ron H: Reducing overall wealth, means more people are poorer, not that more people are richer.
If the sovereign spends on the money on improving the road, then the treasure has been converted into infrastructure, not lost..."
Yes, but at a an overall loss of wealth as we agree.
"...and that infrastructure may increase trade over the long run..."
Or it may not. Sheer speculation.
If building or rebuilding infrastructure had a net positive effect, Dear Leader - I mean the sovereign - should be actively blowing up bridges and railroads to provide opportunities for construction companies and workers. Ensuring that no one was hurt in the process, of course.
It's probably not a big deal, and I wouldn't want to dampen your enthusiasm for putting people to work, but it occurred to me that workers, even construction workers, aren't generic.
Concrete finishers may not be of much use as bridge builders, and electricians may not be good at laying railroad track.
In fact when I think about it, as someone else said, we are all individual legos, not amorphous lumps of playdough.
Most grand job schemes I've heard lately seem to ignore that fact.
"Meanwhile, the unemployed find work and can feed their families..."
See above.
"And helps build the ties of loyalty between the people and their sovereign."
That's just silly. Why is it necessary that we, as sovereign individuals, have loyalty for our agent? The one we created to serve our needs, not the other way around.
Ron H: Because we are, I believe, genetically hard-wired to respond with help to those who are close to us, and are "familiar" to us.
There is clearly a learned aspect as to whom to included in the in-group. That's what nationalism is all about, with mandatory flag pins and whatnot.
Ron H: To suggest , as you do, that 300 million of us can all be pals and care for each other by allowing government to take money from us for that purpose is laughable.
Some people will die for their country, or for an ideal. Or fight over a football team. People form associations on many levels other than blood relations.
Ron H: The EPA is irrelevant and an unnecessary expense.
As pollution crosses state and even international boundaries, it requires coordinated action on those levels.
Ron H: Well, that's certainly a worthwhile goal, especially if most of that production was wasted.
The production wasn't wasted. It led to the defeat of fascism.
Ron H: More intrusive central planning. Why should we all want GIs to be college graduates and homeowners? Can't we allow them to make their own choices? What a boneheaded idea.
You call it "intrusive" and "boneheaded," yet it was highly successful and led to a surge in the middle classes and economic activity.
Ron H: Yes, we could discuss that, that's why I brought it up, because I'm really curious how you will justify theft.
If you don't recognize that, under appropriate conditions, government spending can stimulate economic activity, then it is not possible to discuss the justifications for doing so. By the way, taxes do not stimulate, but moderate growth.
Ron H: I'm confused by your claim that the sovereign has money sitting in a chest. The sovereign is spending 60% more each year than his income, and must borrow the difference.
It's an example so that you can understand the basic economic relationships. Baby steps.
Ron H: Why is it necessary that we, as sovereign individuals, have loyalty for our agent?
It isn't necessary, just characteristic.
"Other glaziers also compete for the same business. If there is no excess capacity in the economy, the glazier may business expand, but it draws workers from other glaziers or industries. Instead of new economic activity, it causes inflation. The same glass costs you more, as well as other products as the glazier business draws off workers."
It only causes inflation if meddlers increase the money supply, otherwise it must cause decreased prices somewhere else in the economy. Price changes indicate where the demand is, and producers and suppliers respond to them. If the glass business is seen as a lucrative opportunity, more will enter that business, increasing competition, and driving prices back down. The same is true of the price of glass. More will enter the business, and those who innovate to keep prices low will gain market share.
Over time, competition and innovation should cause all prices to decrease, and we see this clearly in some industries today. For some reason, Keynesians like to scare people by calling this deflation.
With the increase in incidence of window breakage, the "invisible hand" has directed more resources to a now larger glass business, and away from something else.
Creative destruction, supply and demand, capitalism at its finest. Something a command economy can never hope to duplicate.
As wonderful as this sounds, it's easy to forget that there's a big loser in all this, the person whose window was broken. As we have agreed, this method of stimulating economic activity causes an overall loss, just as hiring workers to dig, then refill holes does.
Just as importantly, stimulus only works as long as it is being applied. As soon as the Dept. of Vandalism stops breaking windows, the glass business will shrink to its former size, leaving those workers unemployed again, or looking for a job in their previous line of work, that is now done by a machine, because their innovative former employer was able to survive by cutting costs.
"Because key sectors were starting to show signs of problems, including the housing sector, resulting in a decline in wealth. This took a while to be felt in consumer demand, as many people assumed it was a temporary problem. "
I believe you have just agreed that investment is not primarily driven by consumption. Increasing demand in 2006 would not have increased investment.
Today, as then, investors see problems, and are reluctant to invest, irregardless of demand. One current problem is uncertainty about government actions. "Let's wait and see how this will affect us." or perhaps "Let's wait until this incompetent is out of office before we commit."
Stimulating artificial "aggregate demand" will not likely have any lasting positive effect, but will result in higher debt and/or high inflation.
"There are all sorts of automatic stabilizers, such as FDIC. When the banks collapsed in 1929-1933, people lost their entire savings...did everything right...hurt...bankruptcy...FDIC...
premium...steps..."
Thank you for the unnecessary lesson on FDIC.
"...after the 2008 financial meltdown, most people found their savings still secure."
Yes, at their own expense, as well as at a risk to others who neither got nor needed protection.
"You could rephrase this as theft. You can say that about any tax or mandatory fee.
And I do. Taxation is theft.
"But if you want to put your money in any bank in any modern economy, you are paying a fee for the privilege. "
I have no problem with the protection, but with the form in which it exists. Banks could as easily buy private insurance to protect depositers, most likely at lower cost, and their having such insurance could attract depositers to themselves, and away from banks without such insurance, who could offer higher interest rates instead. More consumer choice, and the poor unwitting taxpayers wouldn't be on the hook for excess losses.
"He has more money, but the money is worth less. Again, if production is already running at maximum capacity, then government demand will only increase prices, not production (leaving aside increases in per unit productivity). "
His money is only worth less if incompetents or willful crooks in government debase it by printing more money. All prices can't rise without an increase in money supply.
Increased prices, due to higher demand, including government demand, will attract resources from other parts of the economy, allowing increased production.
The trouble with government demand, is that it is arbitrary and artificial, and not necessarily a true indicator of people's real wants. It can, and does, draw resources away from legitimate production, as was the case during WW2, as an extreme example.
Ron H: It only causes inflation if meddlers increase the money supply, otherwise it must cause decreased prices somewhere else in the economy.
There are two components to the simplified equation; production and the money supply. Price inflation can have a number of causes. If you increase the money supply, then each buck purchases less production. But if there is less production, then each buck also purchases less production. A simple example, in a glaze-based economy, if there is a shortage of sand, there is less production, and prices rise. Conversely, as you point out, if there is innovation resulting in increased production, it can lead to deflation.
Ron H: If the glass business is seen as a lucrative opportunity, more will enter that business, increasing competition, and driving prices back down.
In our example, the economy is working at capacity. You can only draw workers into glazing by taking them from other business. There is competition for workers, so workers can demand more salary.
Ron H: It only causes inflation if meddlers increase the money supply, otherwise it must cause decreased prices somewhere else in the economy.
But in this case, the money supply *did* increase. Don't you remember, the sovereign pulled money out of a chest.
Ron H: Something a command economy can never hope to duplicate.
Of course you do realize that Keynesianism is a market-based theory?
Ron H: Just as importantly, stimulus only works as long as it is being applied.
Of course. It should be countercyclical.
"Even hostility to those in the out-group."
That's a fact. This too is a means of protecting your own group.
"But the history of human civilization is the extension of the in-group from tribe to town to city-state to nation to humanity. "
No, the size of the in-group doesn't change much, only the level of tolerance of others with who we can mutually benefit through division of labor and trade. This may include people we never see, and never know, but who are part of the chain of supply and production of things we want.
I don't think you can honestly say that all humanity is part of your in-group. If they were, there would be no need for government at all. Your instincts would be all the law you needed.
"Interestingly, most people will help strangers with no thought of reciprocity. Game theory shows that even helping strangers can be an evolutionary advantage, as long as there is a possibility of meeting that person again. Help someone with a small thing, and they may save your life one day. And so the bonds between humans grow stronger. It's in their nature."
That, and the hostility you mentioned.
"With the rise of democracy, people have banded together into social contracts..."
Democracy has nothing to do with it, and banding together implies voluntary action. If you meant something else, coercion perhaps, you should describe your social contract differently.
Ron H: I believe you have just agreed that investment is not primarily driven by consumption. Increasing demand in 2006 would not have increased investment.
Of course it's driven by demand, but there's a lag.
Ron H: Today, as then, investors see problems, and are reluctant to invest, irregardless of demand.
Investors will invest if there is demand for products. Demand is still lagging.
Ron H: Thank you for the unnecessary lesson on FDIC.
It was an example of what you have referred to as "theft," yet is considered intrinsic to modern banking and acts as an automatic stabilizer.
Ron H: Taxation is theft.
http://en.wikipedia.org/wiki/Whiskey_Rebellion
Ron H: Banks could as easily buy private insurance to protect depositers, most likely at lower cost, and their having such insurance could attract depositers to themselves, and away from banks without such insurance, who could offer higher interest rates instead.
But they didn't until it was mandated. And because they didn't, it led to a run on banks, the collapse of the banking system, and the ruination of people who had worked hard and played by the rules. The evaporation of those savings contributed to the collapse known as the Great Depression.
Ron H: All prices can't rise without an increase in money supply.
Sure they can, if there are less things to buy. Consider an economy working at full capacity. The sovereign taxes to raise money, then hires half the workers to be spearholders. This will result in fewer products in the market. The same money is in circulation, but there are fewer fields planted, fewer apprentice glazers, fewer things to buy.
Ron H: No, the size of the in-group doesn't change much, only the level of tolerance of others with who we can mutually benefit through division of labor and trade.
Everyone knows from their own experiences that people form loyalties to all sorts of groups beyond the family. Nationalism is a very powerful force in human culture. People will fight over a football team, or the color of your skin, or die for a flag, or argue about whether someone really belongs in the in-group because he doesn't wear a flag pin and has a funny name.
Ron H: I don't think you can honestly say that all humanity is part of your in-group. If they were, there would be no need for government at all.
As if Jacob in the Bible never had troubles with his children. In the tribe, there are rules in the tribe, rules of behavior, and rules of identity. And don't forget your lazy uncle.
Ron H: That, and the hostility you mentioned.
That's right.
Ron H: Democracy has nothing to do with it, and banding together implies voluntary action.
"We the People of the United States, in Order to form a more perfect Union ... The Congress shall have Power To lay and collect Taxes"
Jon
"Here's what I said with variables: Doing X would produce Y.
Here's what you claim I said: We should do X."
OK, I give up. I'll concede that you don't want to break windows, so we can move on.
I find zachriels arguments generally convincing.
I particularly concur with his comment "Heh."
The argument that anyone If everyone can ( eventually) be in the top 10% is pretty silly.
Social action against pollution didn't start with the EPA. In 1954, there were 2000 auto accidents on a single day due to smog. Thousands died in London due to smog in 1952. Citizens began to organize as soon as the causes were known.
That is my point. No national body was required to improve the environment. Companies and individuals made changes without the federal government. In the case of London citizens figured out that they could no longer use dirty coal to heat their homes or for fueling industrial boilers. They made changes and the problem went away. When it came to particulates the air in London became cleaner than it had been at any time over the past 400 years even though its density increased substantially.
The same is true of all government agencies. They show graphs in which whatever activity they are measuring declines after they were created. But they do not show that the trend did not really improve if you go back further. In fact, the fastest improvements usually had nothing to do with any government activity and government regulations followed the direction that the market had already chosen.
Ron H: You do understand that not everyone can be in the top 10%, right?
VangelV: But most can get there.
Heh.
At any time only 10% can be in the top 10%. But most individuals who chooses to get into the top 10% of income earners can get there if they are willing to set goals, work hard, and act correctly. As I said above, only $160K gets a household into the top 5%. That is easy for anyone who starts early, saves, invests, marries reasonably, and lives below his/her mean. The path is very simple.
"The government can just as demand Ford build tanks as it can demand that research into solar power be expanded and that construction of solar fields be implemented."
You like that command economy stuff, don't you.
What is the purpose of government, again?
You must be aware that most innovations and improvements in technology result from individuals having a bright idea and pursuing that idea in hopes of becoming incredibly wealthy. Few sit for long periods trying to dredge up thoughts about things that will help them save the planet.
You can spend government money to hire tens of thousands of people to sit around thinking all day about solar energy, but no one can direct their thoughts to brilliant ideas. It just can't be done.
A breakthrough is just as likely to come from someone not even trying to solve anything, while they are sitting on the crapper.
Mind you, you will get plenty of people and businesses willing to accept government gravy for trying, but the reality is that technical progress just doesn't happen that way.
The reason that the market is so much better than government at doing these things, is that the market will direct resources and wealth to good ideas that people actually want, not what Jon thinks government should force them to have.
"The government can demand that present fossil fuel producers meet tougher emissions requirements, which cleans the environment and puts people to work."
Well government can certainly demand almost anything, but when costs go up, you will get less of whatever it is, including fossil fuel. You may like this idea, but there isn't anything that can replace even a fraction it except nuclear, and that buildout would take decades.
Wind won't ever do it, this has been demonstrated repeatedly, and solar won't ever do it except as a supplimental source on your house, as there are soon to be reached physical limits to the amount of solar electricity available per square meter.
And, puts people to work? No, Jon, just the opposite. You are recommending putting more people out of work by making everything more expensive.
We can discuss that, but you still seem confused on the fundamental. If the sovereign has money sitting in a chest, and there are unemployed, then spending that money can stimulate the economy, at the expense of the sovereign's wealth.
Who do you know who keeps money sitting in a chest? The funds that are held by companies are invested by someone else. Had the companies chosen to use the cash themselves to build plants or just to spend it on hookers and booze the other people who are using that money would not be able to finance their activities.
If the sovereign spends on the money on improving the road, then the treasure has been converted into infrastructure, not lost, and that infrastructure may increase trade over the long run. Meanwhile, the unemployed find work and can feed their families. And helps build the ties of loyalty between the people and their sovereign.
This is not true. Roads to nowhere do not create wealth even if they do manage to create a few unsustainable jobs. Capital has to be integrated into the web of production but the government is unable to do that properly because it acts for political rather than economic reasons.
It shows the effect of a large stimulus, high production in trade for debt.
It does? You could not buy cars or tires. You could not buy candy. There were shortages of meat, bread, eggs, and cheese. Working age men were overseas acting as targets for Japanese and German soldiers. No consumer goods, lots of destruction and death. Is that what your solution looks like?
Roosevelt also instituted the GI Bill, which turned young soldiers into college graduates and home owners. Eisenhower built the superhighway system.
Do you mean to say that without the GI bill people would not have been working in factories and offices? Or that there were no roads or interstates without Eisenhower?
"There are two components to the simplified equation; production and the money supply. Price inflation can have a number of causes. If you increase the money supply, then each buck purchases less production."
Correct.
"But if there is less production, then each buck also purchases less production."
Only if less production is due to supply constraints. If less production is a result of lower demand, each buck could buy more production as producers lower their prices.
This isn't likely to occur universally across the entire economy.
"A simple example, in a glaze-based economy, if there is a shortage of sand, there is less production, and prices rise. Conversely, as you point out, if there is innovation resulting in increased production, it can lead to deflation. "
If glass is the one and only product, then the same people who make the glass also consume the glass, and prices wouldn't exist.
To have any economic meaning, there must be other products that are exchanged with each other, which means the price of glass, in bucks, can increase against the price in bucks of some other product only if demand for the other product decreases. For all prices to rise and stay high requires an increase in the money supply, unless the population decreases, which is equivalent.
I wouldn't call lower prices deflation, unless all prices decrease, an unlikely event.
"Ron H: Democracy has nothing to do with it, and banding together implies voluntary action.
"We the People of the United States, in Order to form a more perfect Union ... The Congress shall have Power To lay and collect Taxes""
Look closely to see if you can find my signature on that document.
That is people making decisions for those who can't speak for themselves, as they weren't yet born.
My parents didn't bind me to an agreement just by selecting the location of my birth.
All those who wrote and signed that document are now dead. How can they bind me from the grave?
For some truly fascinating reading on this subject, I recommend Lysander Spooner.
Despite such protestations, shrinking the US government back into that original package would be wonderful.
"Ron H: If the glass business is seen as a lucrative opportunity, more will enter that business, increasing competition, and driving prices back down.
In our example, the economy is working at capacity. You can only draw workers into glazing by taking them from other business. There is competition for workers, so workers can demand more salary."
Like any other resource, labor is scarce. When demand for labor increases, the price will increase until additional supplies can be found, or until labor is replaced by capital.
"Ron H: It only causes inflation if meddlers increase the money supply, otherwise it must cause decreased prices somewhere else in the economy.
But in this case, the money supply *did* increase. Don't you remember, the sovereign pulled money out of a chest."
Allow me to quote you:
"If the sovereign has money sitting in a chest, and there are unemployed, then spending that money can stimulate the economy, at the expense of the sovereign's wealth."
Reading that more carefully this time, I realize that you used both the word money, and the word wealth. Money is not wealth. The sovereign had one or the other in his chest. If existing wealth, and no new money is involved, then leaving it in the chest or taking it out makes no difference. There is no inflation. If he had money, and introduced this new money into the economy, then there is inflation.
"Ron H: Something a command economy can never hope to duplicate.
Of course you do realize that Keynesianism is a market-based theory?"
Yes, but with so much reliance on government intervention, as to make it failure prone, and as the theory doesn't quite describe the real world, it leaves government planners unable to understand the markets they are tasked with regulating. It is extremely popular with politicians, obviously, as it requires them to "do something" rather than just "leave it alone and it will correct itself". I prefer the Austrians.
So, you are agreeing? The EPA is irrelevant and an unnecessary expense
Absolutely. Pollution mitigation trends did not improve when the EPA was created. Emission reductions just followed the same line that they were on before the EPA was funded.
By not opposing the EDF suit against the use of DDT vigorously the EPA was part of an action that wound up killing millions of innocent people around the globe. Its stance on global warming and the regulation of CO2 is criminal. The faster the EPA loses 99% of its budget the better.
And yes, I'm confused by your claim that the sovereign has money sitting in a chest. The sovereign is spending 60% more each year than his income, and must borrow the difference.
I was confused too but assumed that the discussion was about a hypothetical in the make believe world where Keynesianism apparently works. It certainly does not work in this one. Here the sovereign is broke and resorts to borrowing and devaluation of the money. And here the money held by corporations is hardly idle. It goes to the CP and other debt markets.
Some people will die for their country, or for an ideal. Or fight over a football team. People form associations on many levels other than blood relations.
But they cannot be compelled to die for country or to support a particular football team. And if you look at the data, very few are wiling to die for their country. WWII is a perfect example. During the first three months after Pearl, when emotions were running high and the patriotism propaganda was deafening, only 2.4% of the individuals eligible to fight actually volunteered. It seems to me that the real world data does not support your imagined scenarios.
As pollution crosses state and even international boundaries, it requires coordinated action on those levels.
It does not require a federal agency that permits harmful pollution to cross property boundaries and regulates levels that are not harmful. The fact that the EPA claimed that CO2 was a pollutant raises serious credibility issues.
The production wasn't wasted. It led to the defeat of fascism.
It was wasted. Let us not forget that without all that WWI activity by Wilson there would have been no fascism to fight in the first place.
You call it "intrusive" and "boneheaded," yet it was highly successful and led to a surge in the middle classes and economic activity.
But it didn't. What made the middle class was private investment in the means of production after a decade and a half of a command economy. Learning English History in college did not help GI Joe to become a better assembly line worker, machinist or accountant. The GI bill was no more successful than the Marshall Plan. As I pointed out, the countries that got the most money from the Marshall Plan grew a lot slower than those that got the least.
If you don't recognize that, under appropriate conditions, government spending can stimulate economic activity, then it is not possible to discuss the justifications for doing so. By the way, taxes do not stimulate, but moderate growth.
He asked how you can justify theft. You have failed to answer.
It's an example so that you can understand the basic economic relationships. Baby steps.
No, it is an example that shows that you do not live in the real world. Here the government is bankrupt and needs to steal, borrow, or print money.
Hydra: The argument that anyone If everyone can ( eventually) be in the top 10% is pretty silly.
Lake Wobegon where "all the women are strong, all the men are good looking, and all the children are above average."
VangelV: In the case of London citizens figured out that they could no longer use dirty coal to heat their homes or for fueling industrial boilers.
They passed laws. What did you think they did? Auto manufacturers and plant operators have almost universally resisted pollution controls.
Ron H: You must be aware that most innovations and improvements in technology result from individuals having a bright idea and pursuing that idea in hopes of becoming incredibly wealthy.
Yet many of the greatest innovations are created by people without regard to "hopes of becoming incredibly wealthy," such as Jonas Salk.
Ron H: The reason that the market is so much better than government at doing these things, is that the market will direct resources and wealth to good ideas that people actually want, not what Jon thinks government should force them to have.
Generally, markets are much better at allocating resources and innovating new products. But it is important to keep in mind that unregulated markets inherently unstable, and there are some things that markets are just not good at doing.
For example, if a business institutes pollution controls, it will generally entail a cost, making the business uncompetitive with those businesses who dump their wastes in the water and air. However, if the government regulates pollution, then those businesses that innovate cost-effective means of pollution control will have the competitive advantage.
VangelV: But they cannot be compelled to die for country ...
Of course they can. It's called the draft. But many people will risk their lives willingly.
VangelV: During the first three months after Pearl, when emotions were running high and the patriotism propaganda was deafening, only 2.4% of the individuals eligible to fight actually volunteered.
Many people had families to support. In any case, ~39% were volunteers, and many of the draftees, if not most, considered it their duty.
http://www.nationalww2museum.org/learn/education/for-students/ww2-history/ww2-by-the-numbers/us-military.html
VangelV: He asked how you can justify theft. You have failed to answer.
One can't have a reasonable discussion of the pluses and minuses of taxation while not having an understanding of the pluses. So, we have to start with that. Baby steps.
Hydra: The argument that anyone If everyone can ( eventually) be in the top 10% is pretty silly.
Lake Wobegon where "all the women are strong, all the men are good looking, and all the children are above average."
You losers are missing the point. I am claiming that most people can get to the top 10% if they set goals and have the right habits. Getting to the the top 10% of income earners is far easier than being in the top 10% of your math class. One reason is time. In your math class you only have one chance to be in the top 10% because it is only the final mark that really counts. When it comes to earnings you get a lifetime to get there. Nobody expects you to be in the top 10% when you are a kid. But if you start working early, learn how to save and find multiple streams of income getting to the top 10% by the time you are an adult and have some experience is fairly easy.
Most people don't make it because they are ignorant of what it takes, do not want to do what it takes, or have bad habits that make them piss away the opportunities.
The left loves to talk about the 'rich' and take on 'millionaires'. But it is very silent on the fact that most of the 'rich' started off in the bottom half and worked their way up. They love to pretend that misfortune and discrimination are the reason why there are poor people but tend to forget that the poor have bad habits and are usually responsible for their own misfortune.
Of course they can. It's called the draft.
You wrote, "Some people will die for their country, or for an ideal.
Or fight over a football team. People form associations on many levels other than blood relations." This implies that people will die for their country voluntarily, not that they will be enslaved by the government by a draft. They did not die voluntarily for country or ideal but were forced to die by someone else. There is a big difference.
But many people will risk their lives willingly.
As the example I gave showed, that is not the case. In the first three months after Pearl only 2.4% of the eligible fighting men volunteered to fight. I don't know about you but I don't consider that to be many.
Many people had families to support. In any case, ~39% were volunteers, and many of the draftees, if not most, considered it their duty.
The reference hides some of the facts. First, in 1941 there were 17.4 million men of fighting age. As Brian Caplan argues in his post, A Nation of Cowards, only 2.4% of eligible men signed up in the three months after Pearl. And once it was clear that the draft would force them to fight it is likely that many men chose to 'volunteer.'
But even your 'optimistic' numbers show that most men had to be drafted because they had no interest in volunteering to fight.
One can't have a reasonable discussion of the pluses and minuses of taxation while not having an understanding of the pluses. So, we have to start with that. Baby steps.
Start with justifying theft. If I steal my neighbour's TV and donate it to Goodwill I am supposedly on the 'plus' side of your equation but that still cannot justify my actions. You know that you have no moral leg to stand on so you avoid the question that Ron asked you. You have no knowledge of real world economics so you hide the fact by pretending that everything that you say is just a 'step'. Sadly, my ten year old knows more about economics than you do. And he knows that it is not a good idea to steal.
VangelV: I am claiming that most people can get to the top 10% if they set goals and have the right habits.
Most (which means over 50%) cannot all be in the top 10%.
VangelV: This implies that people will die for their country voluntarily, not that they will be enslaved by the government by a draft.
Some people will. They are often commemorated as heros.
VangelV: But even your 'optimistic' numbers show that most men had to be drafted because they had no interest in volunteering to fight.
We never said that everyone joined the military. Read again what we said:
Zachriel: Everyone knows from their own experiences that people form loyalties to all sorts of groups beyond the family. Nationalism is a very powerful force in human culture. People will fight over a football team, or the color of your skin, or die for a flag, or argue about whether someone really belongs in the in-group because he doesn't wear a flag pin and has a funny name.
Not everyone is nationalist, or likes football. But it is a fact that people often form strong associations with groups other than their immediate families.
Zachriel: But if there is less production, then each buck also purchases less production.
Ron H: Only if less production is due to supply constraints.
We're assuming money stays in circulation, not money drawn out of the market, as for savings. If production drops, such as due to shortages, and all else being equal, then the same number of dollars chases fewer goods.
Ron H: For all prices to rise and stay high requires an increase in the money supply, unless the population decreases, which is equivalent.
Or if there is a decrease in production, such as due to shortages. When there are shortages, there is lower production, and the same dollars chase fewer goods. Prices rise.
Ron H: Look closely to see if you can find my signature on that document.
Nope, no Ron's on the document. our mistake.
As you may or may not be a U.S. citizen, it was meant as an aspirational document. We might have quoted the Magna Carta, "TO ALL FREE MEN OF OUR KINGDOM we have also granted, for us and our heirs for ever, all the liberties written out below, to have and to keep for them and their heirs, of us and our heirs:"
For a thousand years, people have struggled to ensure that taxation would be in the hands of a parliament rather than a king. Perhaps you reject the fruits of this long struggle. Most people understand that taxes are required for government, and that people have a right to band together to make policy concerning the relationship of a people to its government.
You reject taxation as thievery, and all laws as non-binding, even under an elected body of representatives. That is your privilge, but it's hard to take such a view seriously, or as anything more than a vacuous position detached from real human concerns.
Zachriel: If the sovereign has money sitting in a chest, and there are unemployed, then spending that money can stimulate the economy, at the expense of the sovereign's wealth.
Ron H: Reading that more carefully this time, I realize that you used both the word money, and the word wealth. Money is not wealth.
Of course it's wealth. In this case, the sovereign's balance sheet has a castle (old and crumbly), rich farmlands, a suit of armor (somewhat rusty), a sword (well-oiled), and a chest full of money (displaying the sovereign's picture).
Ron H: If he had money, and introduced this new money into the economy, then there is inflation.
Baby step! So injecting money into a system working at full capacity creates inflation, not additional production. Obviously! As the system is already producing at much as it can!
But what happens when there are idle workers?
VangelV: Pollution mitigation trends did not improve when the EPA was created.
States and localities started the process of reining in pollution, then the federal government organized a national policy, which further reduced pollution.
VangelV: By not opposing the EDF suit against the use of DDT vigorously the EPA was part of an action that wound up killing millions of innocent people around the globe.
Vector control with DDT was never banned in malarial regions, but was restricted for agriculture as overuse was evolving resistant insect strains.
"Auto manufacturers and plant operators have almost universally resisted pollution controls. "
Of course they have, because they're evil, and don't even care if their own families are poisoned or injured as long as they can make more profit.
Meanwhile, in the real world, they object loudly because regulations, such as pollution controls, will cost money and necessitate higher prices. They want customers to understand why the price of their new car or their electric bill, or whatever else costs more.
In reality, they welcome regulations, as they can charge all customers for something without having to sell it, and it affects all producers equally.
Can you imagine an auto manufacturer trying to sell pollution controls as an option for an additional price? Or seat belts? Or air bags?
How many customers would choose airbags for the addition $2-3k price tag?
"Some people will die for their country, or for an ideal. Or fight over a football team. People form associations on many levels other than blood relations. "
Yes some will. Leaders with good understanding of human nature can direct people's instincts for loyalty to and protection of, their own in-group, into hostility toward others at many levels, even to the point of sacrificing their own lives. Us against them is a powerful rallying cry for those adept at using it.
You are sort of making my point for me, through the back door.
Ron H: Of course they have, because they're evil, and don't even care if their own families are poisoned or injured as long as they can make more profit.
Nope. Auto manufacturers and plant operators are responsible for returning the highest possible returns to their shareholders.
Ron H: Meanwhile, in the real world, they object loudly because regulations, such as pollution controls, will cost money and necessitate higher prices.
Well, they more than object loudly. They lobby against such laws. What was once a new-fangled technology, such as catalytic converters is now standard equipment.
Ron H: Can you imagine an auto manufacturer trying to sell pollution controls as an option for an additional price? Or seat belts? Or air bags?
Auto manufacturers resisted laws mandating seat belts and air bags. While seat belts were often resisted by consumers, some people actually buy particular models because of additional air bags beyond the minimum requirement.
"Ron H: Taxation is theft.
http://en.wikipedia.org/wiki/Whiskey_Rebellion"
Theft by taxation requires the use of force, or the threat of force.
Ron H: You are sort of making my point for me, through the back door.
What's odd is that once again, after dozens of responses, you finally have allowed a very basic point that nearly everyone understands. People form loyalties to all sorts of groups beyond their immediate family.
Ron H: Us against them is a powerful rallying cry for those adept at using it.
That's right. Jets v. Sharks. People tend to form in-groups and out-groups. And historically, the size of these groupings has increased, from tribe to village to city-state to nation to race to humanity. But these relationships are complex, and people have loyalties across many groupings at many levels.
You may personally reject this, but most people form these associations.
"Of course it's driven by demand, but there's a lag. "
Of course it's driven by carbon dioxide, but there's a lag.
A two year lag? Give me a break.
Ron H: Theft by taxation requires the use of force, or the threat of force.
Taxation requires the use of force, or the threat of force, as that great thief, George Washington, proved over the whiskey tax. Of course, in real life, taxes are necessary to government, including government of the people.
"Yet many of the greatest innovations are created by people without regard to "hopes of becoming incredibly wealthy," such as Jonas Salk. "
Many? That's one. Salk was determined to find a polio vaccine from the very start, before ever attracting any government funding. Despite his motivation being other than wealth, this may provide better support for my point than yours.
A government initiative didn't lead to Salk's discoveries.
Please don't provide other examples of people making important discoveries without wealth being the motivator. That's not the point I'm making.
"Investors will invest if there is demand for products. Demand is still lagging. "
But if you are correct about the lag, then current increased consumption will cause investment in the future. No more artificial stimulus is needed, and nothing more need be done. Government can remove its tentacles from the market.
Ron H: Many? That's one.
You seem determined to argue. It's a fact that many of the greatest dicoveries and innovations were not motivated by money. Some people are motivated by love of country or love of knowledge or love of humanity or love of football. It shouldn't be necessary to provide an exhaustive list.
Ron H: A government initiative didn't lead to Salk's discoveries.
Nor did market incentives.
Ron H: That's not the point I'm making.
What's your point? It seems that you do not believe yourself bound by the social contract and that taxation is thievery. As we said above, that seems to be a vacuous position that speaks little to the human condition. Of course, that may not be your concern.
"One can't have a reasonable discussion of the pluses and minuses of taxation while not having an understanding of the pluses. So, we have to start with that. Baby steps."
It's pretty easy to understand the benefits of theft, they are pretty obvious. What's elusive is the justification.
"Some people will. They are often commemorated as heros."
Yes. There are fascinating parallels to those willing to blow themselves up for the benefit of the in-group.
"We're assuming money stays in circulation, not money drawn out of the market, as for savings. If production drops, such as due to shortages, and all else being equal, then the same number of dollars chases fewer goods. "
You are confused about savings. This is one of the most common failings of Keynesians. read Hazlitt on the subject, and it will become clear to you.
Unlike some others, I suspect you can read and comprehend what you read. Perhaps you just haven't had the opportunity.
Or, maybe it has just never occurred to you that anything about your world view could be wrong.
Most (which means over 50%) cannot all be in the top 10%.
Of course they can. Pick a young man and woman who is poor because he/she has no earnings and lives at home. Have that young man and woman learn good habits and start working early. Initially most earnings would not be taxed very much, if at all, because of the US tax rate. Cash earnings are not taxed at all. Have that young man or woman go to school and graduate as early as possible. Given the resources available there is no reason why you can't graduate with a BA at age 19 or 20. Enter the work force by taking a relatively low paying job that requires long hours but gives a lot of opportunities to learn. Work your butt off and save most of what is earned.
Look for advancement opportunities as well as other sources of income. Invest the saved money in high quality dividend paying companies that have strong cash flows and conservative management. Marry someone who also works hard and has the same attitude towards savings. After a decade and a half you should be in the top 10% of after-tax income. You don't have to be a doctor or lawyer. You don't have to be a hedge fund manager. Just a normal degree that provides you with marketable skills will get you there.
Of course, you could do as my cousin did. He apprenticed as a pipe fitter, got some experience, and pestered the HR department for one of the oil companies in the tar sands until they hired him. Conditions are harsh but the pay puts him in the top 10%. And the company pays him to improve his skill sets by covering any tuition expenses. I talk to energy company managers who are crying for level headed workers who are willing to take jobs openings on drill rig crews or miners looking for competent individuals who are willing to spend time in isolated work camps. The pay and tax breaks would put them in the top 10%.
Yours seems to be the philosophy of losers. You think that just because at any one time only 10% of working people can be in the top 10% of earners and you are not there you can never get there. But that is not the case. There are many people like my parents who come off a boat not being able to speak the language and within a decade wind up in the top 10% simply because they worked hard.
Ron H: There are fascinating parallels to those willing to blow themselves up for the benefit of the in-group.
Another good example of people being loyal to something other than their immediate family, in this case, to their concept of God.
Ron H: It's pretty easy to understand the benefits of theft, they are pretty obvious. What's elusive is the justification.
We presume you have revoked your citizenship from any country that taxes.
Ron H: You are confused about savings.
Of course there is a complex relationship between demand, investment and savings. We are using a simplified model.
You have agreed that injecting money into a system working at full capacity creates inflation, not additional production. Obviously! As the system is already producing at much as it can!
But what happens when there are idle workers? And say the sovereign uses his treasury to hire a few of these workers to help plant crops to apprentice with the glazier. What happens to production?
Zachriel: Most (which means over 50%) cannot all be in the top 10%.
VangelV: Of course they can... Yours seems to be the philosophy of losers.
Thought it was the philosophy of arithmetic.
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