Saturday, July 28, 2012

Maybe Private Sector is Doing Fine? Growth in Post Recession "Private GDP" (3%) is Above Average

 The chart above shows annualized growth rates for: a) the quarterly, non-government, private-sector components of real GDP (personal consumption expenditures, gross private domestic investment, and net exports), see blue bars in chart, and b) the quarterly component of real GDP for "government consumption expenditures and gross investment" (brown bars).

First Trust Portfolios (Brian Wesbury et al.) is the only organization I know that calculates and reports "private real GDP" on a regular basis, here's their most recent commentary: "We’ve been tracking real “private” GDP (real GDP excluding government purchases), which grew at a 2.2% annual rate in Q2 and is up 3.3% in the past year."

For Q2, "public sector GDP" decreased -1.44%, and it was the eighth straight quarter of negative growth for total government spending, averaging -2.88% per quarter over the last two years. In contrast, there have been 12 consecutive quarters of positive growth for private sector GDP averaging 3.07% per quarter in the three years since the recession ended, which is slightly higher than the 2.8% average growth rate in private real GDP over the last 25 years.  Most of the decline in government spending over the last few years has come from cuts in defense spending at the federal level, and ongoing cuts in government spending by local and state governments.     

So maybe it's true that the "private sector is doing fine" and most of the sub-par economic growth measured by real GDP is simply reflecting the decreases in government spending, and not weakness in the private sector?  In that case, maybe the sub-par recovery has some positive effects of shrinking government?  And why don't more economists, analysts, and reporters calculate and report private- and public-sector economic growth separately?

Comments welcome.

Update: See related post by Catherine Rampell at Economix Blog, "‘Big Government’ Isn’t So Big by Historical Standards. It’s Also Shrinking."

189 Comments:

At 7/28/2012 10:15 AM, Blogger VangelV said...

The private sector seems to be doing fine because the government is adding massive amounts of debt each quarter. When that can no longer continue the malinvestments will become very visible even to the naive optimists who have yet to recognize a bubble.

 
At 7/28/2012 10:46 AM, Blogger Fritz said...

But how is the private sector doing relative to its potential, that is, in the absence of the massive "regime uncertainty" caused by Obamacare, Dodd-Frank, and Obama's hyperactive regulatory machine?

 
At 7/28/2012 10:50 AM, Blogger Mark J. Perry said...

Well, we do know that at least compared to its average over the last 25 years, the private sector has been expanding since 2009 at an above-average rate of growth.

 
At 7/28/2012 10:55 AM, Blogger VangelV said...

Well, we do know that at least compared to its average over the last 25 years, the private sector has been expanding since 2009 at an above-average rate of growth.

The system was flooded with money and credit to 'save' the economy from liquidating bad investments. Keeping those investments afloat does not make the real economy grow at above-average rates. It creates various illusions in the hands of able statisticians that can be used to give an impression that everything is OK even as the national economy is hurtling towards the abyss.

 
At 7/28/2012 11:20 AM, Blogger Jon Murphy said...

The private sector is doing much better than the government, that is for sure. I wish we could actually publish the Private Sector GDP, as my main complaint is that gov't purchases can be used to grow (or shrink) Real GDP, and it's not an accurate measure of economic activity.

What is pretty cool is the growth in Private Sector GDP is not being fueled by increasing debt, but my spending cash. While commercial and industrial loans are rising (up 9% year-over-year), they are still well below the pre-recession peak and 10 year average (after adjusting for inflation). We are starting to see companies spend down the hordes of cash they've collected. Business-investment activity (as measured by nondefense capital goods new orders) has surpassed pre-recession levels in inflation-adjusted dollars.

We're seeing a similar trend in consumer spending as well. Consumer credit card debt is down. We have seen increases in loans for homes and cars (what I like to call luxury loans), which indicates consumers are more comfortable with the state of the economy. While one could argue this is due to record low interest rates, I am less convinced. Sure, some loans may come from these rates, but rates have been at record levels for quite some time, so this is not the only factor.

Additionally, real consumer spending is rising. Measured by non-seasonally adjusted (as opposed to the seasonally-adjusted malarkey) retail sales (excluding automobiles, adjusted for deflation) is at 2008 levels. luxury item retail sales, from things like jewelry to high-end department sales are rising.

Total trade volume (the absolute value of exports plus imports) is up, too.

The private sector really is the driving force behind this recovery. When we strip away the government influence, we actually find stronger economic figures then the ones reported.

 
At 7/28/2012 11:22 AM, Blogger Mark J. Perry said...

Thanks Jon for your excellent comments.

 
At 7/28/2012 11:28 AM, Blogger Jon Murphy said...

This comment has been removed by the author.

 
At 7/28/2012 11:29 AM, Blogger VangelV said...

What is pretty cool is the growth in Private Sector GDP is not being fueled by increasing debt, but my spending cash. While commercial and industrial loans are rising (up 9% year-over-year), they are still well below the pre-recession peak and 10 year average (after adjusting for inflation). We are starting to see companies spend down the hordes of cash they've collected. Business-investment activity (as measured by nondefense capital goods new orders) has surpassed pre-recession levels in inflation-adjusted dollars.

Sorry but when the federal government has to add more than 2 dollars of debt for each collar of GDP you don't have a very healthy economy. The fact that the government can still borrow money to buy stuff from the private sector does not mean that what you have is stable or sustainable.

 
At 7/28/2012 11:37 AM, Blogger Larry G said...

I thought Jon's comments were pretty fair, myself.

In terms of Govt spending - that's a fair point also and much of it seems to be health care and DOD.

If we cut DOD and/or entitlements, it will result in job losses, right?

Virginia is one of those states worried about cutting the deficit as it gets a bunch of dollars from govt spending both in Nova and Hampton Roads.

 
At 7/28/2012 11:37 AM, Blogger Larry G said...

This comment has been removed by the author.

 
At 7/28/2012 11:48 AM, Blogger Buddy R Pacifico said...

Most of the countries in the world are cutting government budgets.

Private growth must be driving GDPs upward in the majority of the world's country economies.

 
At 7/28/2012 12:05 PM, Blogger Rufus II said...

The problem isn't GDP. The problem is "Median Family Income," which has been declining since 1999.

Median Family Income

 
At 7/28/2012 12:54 PM, Blogger Ron H. said...

Jon M:

"The private sector is doing much better than the government, that is for sure. I wish we could actually publish the Private Sector GDP, as my main complaint is that gov't purchases can be used to grow (or shrink) Real GDP, and it's not an accurate measure of economic activity."

GDP certainly isn't a good measure of peoples well being or standard of living. I too would love to see government GDP stripped out, but I can't imagine how that could be done. Do you have any ideas?

 
At 7/28/2012 1:00 PM, Blogger Buddy R Pacifico said...

"Rufus II said...
The problem isn't GDP. The problem is "Median Family Income," which has been declining since 1999."


Rufus, average income has been stagnant BUT...

your link is from the Household Survey and is dependant on family information. So...

from 2009 to 2010 "Among family households, the change in income
was not statistically significant for either those maintained by a married couple or those maintained by a male with no spouse present. The income of family households maintained by a female with no spouse present declined by 3.3 percent."


The growth of Baby Mama "family" households skews income downward.

The problem with family income is the plus-sized growth of Baby Mama headed households.

 
At 7/28/2012 1:08 PM, Blogger Jon Murphy said...

The problem is "Median Family Income," which has been declining since 1999.

True, but the number of households is up, especially when it comes to single-parent homes. That will skew the numbers.

Let me demonstrate what I mean:

Let's suppose we have an economy that just has one family in it: Mom, Dad, and kids. Both Mom and Dad make $50,000/year, so the household income is $100,000. Now, let's suppose Mom and Dad divorce. Now, household income has dropped by 50%, although no one has lost their job. The economy is just as healthy as before, but it is now spread among two households.

I don't like "median family income" exactly that reason. It misses a lot of the demographics.

Another example, when I was living at home, the 40,000 I was making at the time was part of the household income. Then, I moved out. Their household income fell. But was anyone made "worse off" in this situation? I'd argue everyone was made better off.

 
At 7/28/2012 1:16 PM, Blogger Jon Murphy said...

Sorry but when the federal government has to add more than 2 dollars of debt for each collar of GDP you don't have a very healthy economy. The fact that the government can still borrow money to buy stuff from the private sector does not mean that what you have is stable or sustainable.


Most of the gov't debt is going to pay for transfer payments, which does not show up in GDP anyway.

Also, when we strip out the gov't influence in the economy (which is what this whole post is about), we see that private interactions between individuals is growing strong. This does not account for gov't purchases. This is indeed sustainable.

Finally, I agree that the level of gov't debt is not good for the economy. That is a ticking time bomb, but it will not go off immediately. Keep in mind that the bonds we are selling now are 10-20 year bonds; ie, they will not come to maturity for 10-20 years. That is when we will run into debt problems (and likely be a major contributor to a depression sometime in the 2030's).

Look, all this data is private individual to individual data. it has nothing to do with the government.

 
At 7/28/2012 1:19 PM, Blogger Jon Murphy said...

I too would love to see government GDP stripped out, but I can't imagine how that could be done. Do you have any ideas?

Well, the easiest would be to subtract government spending out of GDP. The calculation for GDP is:

GDP=C+I+G+(Ex-Im)

Where

C is Consumption (personal spending)
I is Investment (business and individual)
G is Gov't Spending (excluding transfer payments such as Social Security)
Ex is Exports
Im is Imports

 
At 7/28/2012 1:20 PM, Blogger Mark J. Perry said...

Ron H: Isn't that what Total GDP MINUS Government Spending (Federal, state, local) measures?

 
At 7/28/2012 1:23 PM, Blogger Rufus II said...

No, Buddy, the figures are from the Census Bureau, and "Households of Couples" also fell.

In fact, the largest decline was "single men."

There's no lipstick for this pig. The Romneys are doing well (with their Cayman Islands/Swiss Accounts,) but mom and pop are losing ground.

Census Bureau Data

 
At 7/28/2012 1:32 PM, Blogger Ron H. said...

Rufus:

"The problem isn't GDP. The problem is "Median Family Income," which has been declining since 1999."

Without knowing changes in household size and number of households per population since 1999 among other things, Median Household Income may not be a good indicator of anyone's well-being.

One example would be that when times are tough grown children may move back in with their parents, decreasing the number of households, but increasing medium household income. The opposite may occur when times improve, decreasing medium household income. I those cases Median Household Income would appear to indicate exactly the opposite of what is actually happening to the people involved.

 
At 7/28/2012 1:34 PM, Blogger Buddy R Pacifico said...

Rufus,

I was quoting from your link, on the bottom of page 5. Again:

"Among family households, the change in income was not statistically significant for either those maintained by a married couple or those maintained by a male with no spouse present. The income of family households maintained by a female with no spouse present declined by 3.3 percent."

I don't pretend to be very proficient with statistics but these are the words of the Census Bureau study that you cite.

 
At 7/28/2012 1:39 PM, Blogger Ron H. said...

Jon, Mark:

Of course. What was I thinking? My only excuse is that it's still early in the day for me, and I haven't finished my coffee yet.

I'll try to do better next time.:)

 
At 7/28/2012 1:44 PM, Blogger Ron H. said...

Jon M:

"Another example, when I was living at home, the 40,000 I was making at the time was part of the household income. Then, I moved out. Their household income fell. But was anyone made "worse off" in this situation? I'd argue everyone was made better off."

I'll bet your parents would agree with that. :)

 
At 7/28/2012 1:57 PM, Blogger PeakTrader said...

Obama: "The private sector is doing fine."

It should be clear to everyone, Obama wanted to distribute wealth. Instead, he destroyed wealth.

He has lowered the economy a notch, which represents trillions of dollars of lost income and wealth.

There are massive idle resources, e.g. labor and capital. The country is underproducing by $1 trillion a year.

 
At 7/28/2012 1:58 PM, Blogger VangelV said...

Except that's not strictly true. The Federal Reserve bought the bad investments from the banks, and then purged the investments themselves.

How is this not supportive of my statement? The Fed printed up trillions and gave it to the banks to save them. You are now ecstatic that the private GDP is not collapsing without admitting that it was purchased by new liquidity that was added into the system.

So, what happened is the Federal Reserve took the hit as opposed to banks.

Took the hit? When did that happen? I did not see the Fed write down its assets. And let us note that mortgage paper held by the Fed is used to back Federal Reserve Notes. What happens to the value of the notes when that paper has to be written down?

While we can argue about whether the central bank should have done that or not (I believe they should not), those investments are no longer in the economy.

Sure they are. As I said above, they are backing those new Federal Reserve Notes that are printed.

Even then, this had all taken place in the end of 2008, early 2009, so if we were to adjust, then we would see lower growth in 4Q08 and 2009, but higher growth in 2010 and 2011.

You are grasping at straws. First, I don't see high growth. I see a contraction in the real economy and a lot of manipulation to hide the true picture from the voters until after the election is over.

I agree that private growth was propped up early in the crisis through TARP, but TARP ended in 2009. To discount growth from 2010-present based on a program that hasn't been active in three years does a great discount to American businesses who have weathered the storm and come out stronger than ever.

It is not just TARP. It is QE, QE2, Operation Twist, the Libor fix, and all the crap that the FOMC does to prop up the economy on an ongoing basis. The US is not very different than Greece. The way I figure it, the US is where Greece was in 2010 to 2011. This is why we are likely to get another operation from the Fed that tries to drive stocks and real estate higher for a while as it tries to keep the bond market from imploding.

 
At 7/28/2012 2:01 PM, Blogger VangelV said...

If we cut DOD and/or entitlements, it will result in job losses, right?

Of course it will. But if you want to save the economy you have to eliminate jobs of people who live off the backs of the taxpayers.

 
At 7/28/2012 2:04 PM, Blogger Larry G said...

re: Greece, et al

My impression (and I admit it could be wrong) was that part of Europe's and Greeces problem is that there is no central bank that can print money like our Central Bank can.

Can someone comment on this?

 
At 7/28/2012 2:25 PM, Blogger VangelV said...

Most of the gov't debt is going to pay for transfer payments, which does not show up in GDP anyway.

Sure they do. You get a payment from the government and spend it. It shows up in GDP.

Also, when we strip out the gov't influence in the economy (which is what this whole post is about), we see that private interactions between individuals is growing strong. This does not account for gov't purchases. This is indeed sustainable.

When the government gives you money and you spend it it does show up in the private GDP category. That is not sustainable unless you think that debts can keep going up without consequences. Franky, I doubt that even Mark believes that.

Finally, I agree that the level of gov't debt is not good for the economy. That is a ticking time bomb, but it will not go off immediately.

It does not have to go off right away to damage the economy. Simply by diverting investment from where it should go the government is ensuring that malinvestments will have to be written off some time in the future. I imagine that many of the people who have made those malinvesments are getting worried and will either have to go all in or back off.

Keep in mind that the bonds we are selling now are 10-20 year bonds; ie, they will not come to maturity for 10-20 years. That is when we will run into debt problems (and likely be a major contributor to a depression sometime in the 2030's).

But the duration is lower now than it was under Clinton or Bush. That means that you have to sell 20 year bonds AND roll over all that short term paper that is coming due as you struggle to redeem the special purpose securities (IOUs) that are needed to pay off federal employee and SS/Medicare benefits.

Look, all this data is private individual to individual data. it has nothing to do with the government.

But it does. When those food stamp recipients use them to buy stuff it shows up as private GDP.

 
At 7/28/2012 2:48 PM, Blogger Ron H. said...

Class Warrior Rufus says:

"There's no lipstick for this pig. The Romneys are doing well (with their Cayman Islands/Swiss Accounts,) but mom and pop are losing ground."

Your point?

 
At 7/28/2012 3:40 PM, Blogger Ron H. said...

"My impression (and I admit it could be wrong) was that part of Europe's and Greeces problem is that there is no central bank that can print money like our Central Bank can."

Printing money isn't a fix for economic problems, it's just a way for governments to spend money they don't have.

Of interest in the linked chart above is the fact that at those times when currency was backed by a commodity, its value was fairly stable, as government printing - and spending - was very limited.

As Voltaire said: "Paper money eventually returns to its intrinsic value - zero."

Money must be able to represent something else, and need not have any value of its own. A larger number of dollars doesn't make you wealthier if everything costs more in dollars. A $10 hamburger that you work an hour for is exactly as valuable as a $100 hamburger you work an hour for.

If you think printing money is the answer, you should consider that during wartime counterfeiting an enemy's currency is a tactic commonly used to disrupt their economy.

If that's a bad thing, then why would a central bank counterfeiting money be considered a good thing?

 
At 7/28/2012 3:51 PM, Blogger Larry G said...

but printing money (and I'm not advocating that), generates transfer payments and Defense spending which in turn powers the private GDP... right?

again..I'm not advocating.. I'm asking .

it APPEARS that the govt can print money, give it to DOD to build aircraft carriers and what not.. and the workers get paid and spend it in the private economy...which shows as increased non-govt GDP.

right?

 
At 7/28/2012 4:03 PM, Blogger Ron H. said...

Jon M:

"Most of the gov't debt is going to pay for transfer payments, which does not show up in GDP anyway."

Are you sure about that? As a transfer there seems to be a piece or two missing. Please help me as I've been unable to get my brain started today.

 
At 7/28/2012 4:25 PM, Blogger Larry G said...

re: transfer payments

well folks who get social security and pensions from the govt spend it on goods and services... and at that point the GDP doesn't know or care where the money for goods and services came from...

Maybe, I missed something about how "Private GDP" is calculated...

 
At 7/28/2012 4:34 PM, Blogger Paul said...

Larry,

"it APPEARS that the govt can print money, give it to DOD to build aircraft carriers and what not.. and the workers get paid and spend it in the private economy...which shows as increased non-govt GDP."

Think of it this way: if it were that simple, there wouldn't be any poverty left anywhere on the planet.

 
At 7/28/2012 4:45 PM, Blogger Ron H. said...

"it APPEARS that the govt can print money, give it to DOD to build aircraft carriers and what not.. and the workers get paid and spend it in the private economy...which shows as increased non-govt GDP.

right?
"

Almost, but here's the problem: What will the workers spend those extra dollars on, as no additional consumer goods have been produced for them?

They find they have more dollars but the same amount of goods to buy, so everyone will have to bid more dollars to get the same things they got before but at higher prices.

This gimmick appears to work for a short time just because there's activity, but it's not productive activity, and soon enough everything is as bad as it was except the numbers are larger.

The private economy can't grow as nothing new or additional is being produced in the private economy.

I seriously recommend this book for anyone interested in the subject. Note that it's availabe free as a PDF or EPUB, and pretty cheap as a hardcopy. Amazon sellers have used ones even cheaper, and a Kindle edition is available for $2.80.

 
At 7/28/2012 4:47 PM, Blogger Larry G said...

Think of it this way: if it were that simple, there wouldn't be any poverty left anywhere on the planet.

hmmm...ya think so?


I'm betting there are some significant downsides but so far.. we're been at it for what, ten years, and no end in sight?

but we've got some of the biggest and baddest (but costly) weapon systems in the world.. and a crapload of people building them and getting paid with printed money.

right?

and that money seems to increase aggregate demand ... for goods and services so businesses spring up to meet that demand... hire more workers.

 
At 7/28/2012 4:59 PM, Blogger Ron H. said...

""it APPEARS that the govt can print money, give it to DOD to build aircraft carriers and what not.. and the workers get paid and spend it in the private economy...which shows as increased non-govt GDP.""

Geez. Paul covered it all in one sentence. :)

Another way to look at it:

Leaving aside the issue of national defense, there is no use in the private sector for aircraft carriers, so all the resources, labor and materials are wasted. It would be more efficient to hire people to dig holes and then fill them in. That way all the materials that went into building the carrier would still be available to manufacturers of consumer goods, and the costs of those materials would likely be less.

If you really prefer the idea of building aircraft carriers, then they could be scuttled soon after launch, thus increasing the demand for them. However, I still suspect the private sector would get little benefit from this activity.

 
At 7/28/2012 5:07 PM, Blogger PeakTrader said...

Yes, much of the additional $1 trillion a year in federal spending (compared to 2007 spending) is propping-up the private sector.

The additional $5 trillion in federal debt, over the past four years, was needed just to prevent living standards from declining.

 
At 7/28/2012 5:07 PM, Blogger Larry G said...

re: " no use in the private sector "

nor

evangelical preachers with million dollar chapels

ski doos and snow boards

beach rental cabins

pornographic material

toys for kids

etc, etc.

 
At 7/28/2012 5:13 PM, Blogger PeakTrader said...

That's why it doesn't seem like a depression, because federal debt increased $5 trillion.

 
At 7/28/2012 5:17 PM, Blogger Jon Murphy said...

Are you sure about that? As a transfer there seems to be a piece or two missing. Please help me as I've been unable to get my brain started today.

Considering all the objections and questions, I don't think I was clear in my statement.

When a dollar is spent on food stamps, it does not count towards government spending as calculated in GDP. When the BEA is making the calculations, they subtract out all these transfer payments, the reason being is that they do not generate any actual wealth in the economy. They are exactly what they sound like: a transfer from one party to another. Further, transfer payments effects are usually muted in the Consumption aspect of GDP: the increase in consumption from a person on food stamps means an equal decrease in someone else's consumption because their wealth was transferred out.

 
At 7/28/2012 5:27 PM, Blogger Jon Murphy said...

Larry-

Regarding your statement about aircraft carriers.

You're analysis is sound. In fact, that is the argument Keynesians use for government spending: the resources are idle, so why not put them to some use? They will spend their money in the economy, and it will spread out, etc etc.

We all accept this as a valid theory. However, there are a few questions Austrian economists ask:

1) What happens to those resources (ie labor), when the gov't stops spending?

2) Does the government spending and borrowing crowd out private spending, thus perpetuating the problem?

3) If resources are being used to make things that the public doesn't want to consume, then that means there is less resources for consumer demand. What then?

One thing we saw was during World War II, people were working again: men were in the Armed Forces and women manned the factories. However, the standard of living actually dropped. Why was that? All our resources were being used to make weapons of war. There was no oil, no butter, no nylon, plastic, or metal back home. In a cruel twist of fate (and one reason I am a reformed pacifist), American Industrial Production was at the highest level it had ever been, but people were poorer than during the Depression.

Now, we could argue about whether or not this was necessary to stop the Nazi and Japanese threat, but that is a discussion for another time.

The lesson of the story is this: we have scarce resources. When they are being used for unproductive purposes, they are (for lack of a better word) wasted.

So, government could boost GDP by printing money and building aircraft carriers and battleships. But would America really be better off?

 
At 7/28/2012 5:28 PM, Blogger Ron H. said...

"but we've got some of the biggest and baddest (but costly) weapon systems in the world.. and a crapload of people building them and getting paid with printed money."

They are getting paid with money taken from other people in the form of taxes, or borrowed against future taxes. The money they are paid out of thin air is pure inflation and no one is better off.

Carry that idea a bit further: What if EVERYBODY* worked building aircraft carriers and making $200k a year in government printed money? Would we all be rich? What would we spend all that money on if no one made hamburgers or built houses?

What if only a few people made hamburgers? Do you suppose they would be incredibly expensive?

What if you had to pay one hour of work ($100) for that hamburger? Would you still feel rich?

And of course for someone to make hamburgers they must feel they can earn more money than they currently earn making aircraft carriers. No? So $100 probably isn't unreasonable at all.

* (well not quite EVERYBODY - someone would have to work at the government printing office.)

 
At 7/28/2012 5:33 PM, Blogger Larry G said...

remember, I'm not advocating this.. I'm pointing out what seem to me to be contradictions or counter-indications which may well be my own lack of understanding.

I can see where spending money you don't have on aircraft carriers is going to come a cropper sooner or later but what if you don't have a deficit and the money is just from taxes - aka Ronald Reagan running the USSR broke by outspending them on defense?

the other aspect is - if the govt takes $200 from you to spend on an aircraft carrier - and you were going to spend it on a video game.... or 50 roller coaster rides....

why is the latter "better" than the "former"?

 
At 7/28/2012 5:33 PM, Blogger Ron H. said...

"and that money seems to increase aggregate demand ... for goods and services so businesses spring up to meet that demand... hire more workers."

Have you seen much evidence of businesses springing up and hiring more workers lately?

 
At 7/28/2012 5:35 PM, Blogger Larry G said...

Have you seen much evidence of businesses springing up and hiring more workers lately?

are you familiar with the Washington DC area and surround suburbs and places like Fort Belvoir and Quantico?

How about Fort Bragg in NC or Hampton Roads in NC?

 
At 7/28/2012 5:42 PM, Blogger Ron H. said...

"re: " no use in the private sector "

nor

evangelical preachers with million dollar chapels

ski doos and snow boards

beach rental cabins

pornographic material

toys for kids

etc, etc.
"

Well, "having use for" or "wanting" or "needing" are all subjective terms. All those things you listed are available to us because people want or need or have a use for them and are willing to pay for them. What you or think of them is irrelevant.

I don't think you can stretch any of those terms to cover aircraft carriers unless you think wanting a unicorn is also realistic.

 
At 7/28/2012 5:48 PM, Blogger Larry G said...

Well, "having use for" or "wanting" or "needing" are all subjective terms. All those things you listed are available to us because people want or need or have a use for them and are willing to pay for them. What you or think of them is irrelevant.


but I'm asking about it from an economics point of view where I hear folks saying that private sector spending is more economically productive than govt spending and that's why the govt is wrong to take it and spend it - that it would be better spent on non-govt things.


how is spending money to build a chapel for a shyster preacher a better economic use than govt spending on something like an interstate bridge or even a M6 carbine?

The preacher will spend the money to pay bricklayers and the govt will spend the money to pay gun builders.

right?

 
At 7/28/2012 6:10 PM, Blogger PeakTrader said...

Jon, did Austrian economists ever find answers to their questions?

In the U.S., the dominant form of economics is the scientific method of neoclassical economics.

Here's what I wrote on Feb 2, 2009 (although, a $5,000 tax cut per worker, or $750 billion for the 150 million workers at the time, would've been better):

How to prevent an economic contraction in 2009:

1. Obama should change his stimulus plan to a $2,000 tax cut per worker, along with increasing unemployment benefits by a similar amount. This will help households strengthen their balance sheets (i.e. catch-up on bills, pay-down debt, increase saving, spur consumption of assets and goods, etc.). This plan will have an immediate and powerful effect to stimulate the economy. When excess assets and goods clear the market, production will increase.

2. Shift "toxic" assets into a "bad bank." The government should pay premiums for toxic assets to recapitalize the banking industry and eliminate the systemic problem caused by global imbalances. The Fed has the power to create money out of thin air, to generate nominal growth, boost "animal spirits," and inflate toxic assets.

3. Government expenditures should play a small role in the economic recovery. For example, instead of loans for the auto industry, the government should buy autos and give them away to government employees (e.g. a fringe benefit). So, automakers can continue to produce, instead of shutting down their plants for a month. Auto producers should take advantage of lower costs for raw materials and energy, and generate a multiplier effect in related industries.

Also note, a large tax cut would've strengthened the banking system. Moreover, consumers would've paid-down or paid-off their highest interest rate debt first, to free up money for consumption.

Furthermore, Keynesian economics is not without value:

"Keynes intended government to play a much larger role in the economy. His vision was one of reformed capitalism, managed capitalism -- capitalism saved both from socialism and from itself...Fiscal policy would enable wise managers to stabilize the economy without resorting to actual controls. The bulk of decision making would remain with the decentralized market rather than with the central planner.

These tools could be used to manage aggregate demand and thus ensure full employment. As a corollary, the government would cut back its spending during times of recovery and expansion. This last precept, however, was all too often forgotten or overlooked."

 
At 7/28/2012 6:28 PM, Blogger Ron H. said...

Jon M: "When a dollar is spent on food stamps, it does not count towards government spending as calculated in GDP. When the BEA is making the calculations, they subtract out all these transfer payments, the reason being is that they do not generate any actual wealth in the economy. They are exactly what they sound like: a transfer from one party to another. Further, transfer payments effects are usually muted in the Consumption aspect of GDP: the increase in consumption from a person on food stamps means an equal decrease in someone else's consumption because their wealth was transferred out."

Thanks Jon, I think I got it finally. Duh... Someone invested in government debt rather than consuming, which allowed the transfer to the food stamp recipient.

 
At 7/28/2012 7:03 PM, Blogger Ron H. said...

"but I'm asking about it from an economics point of view where I hear folks saying that private sector spending is more economically productive than govt spending and that's why the govt is wrong to take it and spend it - that it would be better spent on non-govt things."

This is some distance OT from a discussion of inflation and money printing. Are we done with that subject?

Unless you seriously think you know better than they do what people should spend their money on, then it is preferable in every case to allow people to keep what they create and exchange it for what they want to exchange it for.

When each of us gets as much of what we want as is possible, we can each say we are better off.

When someone else decides we all need an aircraft carrier or holes in the ground that are dug and then filled in, and steals from us to pay for it, we are not as well off as we would be if we made our own choices. It doesn't matter that people are paid to dig the holes or build the carrier, they haven't made things we want, so we are worse off and so are they.

At the very least you must agree that someone else spending your money can't possibly be as careful and efficient with it as you are, so for that reason alone government can't spend as efficiently as you would.

"how is spending money to build a chapel for a shyster preacher a better economic use than govt spending on something like an interstate bridge or even a M6 carbine?"

Who is spending the money to build the chapel? Not you, not me, no one who doesn't want to. Only people who want it built. That's as it should be. It's not anyone else's concern, and whether or not we think the preacher is a shyster doesn't matter. We aren't hurt in any way, in fact if you are an unemployed bricklayer you could benefit.

"The preacher will spend the money to pay bricklayers and the govt will spend the money to pay gun builders."

Someone else's private money vs money stolen from my pocket by government. There's a world of difference. Someone else has decided for me that I need an interstate bridge or M6 carbines. I might have preferred a room addition on my house or a new car.

Whether or not we all need M6 carbines is a political decision, not an economic one, and the bridge may be one I never see. I get no use from my bridge money and someone who uses it every day gets a really great deal at my expense.

Are you satisfied with the inflation discussion or is there more?

 
At 7/28/2012 7:11 PM, Blogger Larry G said...

sorry about being OT... so go back to the other discussion if it's still not done.

 
At 7/28/2012 7:25 PM, Blogger Ron H. said...

"the other aspect is - if the govt takes $200 from you to spend on an aircraft carrier - and you were going to spend it on a video game.... or 50 roller coaster rides....

why is the latter "better" than the "former"?
"

The latter is better because it's what I want to spend MY money on. All value is subjective. In my view, my money that I own is better spent on things I want to spend it on.

Who can possibly say I'm better off buying an aircraft carrier? What arrogance!

If a lot of people want to buy an aircraft carrier, they should pool their money and buy one. Don't steal money from me to buy things I don't want.

No one else can decide for me that a video game or roller coaster rides is less important than something else.

 
At 7/28/2012 7:28 PM, Blogger Ron H. said...

"are you familiar with the Washington DC area and surround suburbs and places like Fort Belvoir and Quantico?

How about Fort Bragg in NC or Hampton Roads in NC?
"

No, but considering the locations, if I had to guess I'd say any increased business activity and hiring is a response to increased government spending.

 
At 7/28/2012 7:52 PM, Blogger Bruce Oksol - oksol@yahoo.com said...

This is rhetorical. I wonder how much of the private sector is growing because of unconventional shale oil and gas?

Direct effects in Ohio, Pennsylvania, Colorado, Wyoming, Texas (Eagle Ford), Montana, and North Dakota (the Bakken in the latter two).

Specialty steel.

Rail transportation/operation (with loss of coal would have been devastated without crude-by-rail).

Rail tank car manufacturing (ditto).

Pre-fabricated housing built out-of-state, shipped to North Dakota.

Road building in oil states.

Newer, bigger oil rigs being built in Texas, shipped to North Dakota, elsewhere.

Truck manufacturing.

Electric utilities expanding to support oil industry.

Just a start, but $1 billion/day into economy from oil and gas industry, or something like that reported here as a "real" stimulus.

I would agree that in at least one sector, private enterprise is doing well, despite the ideological obstacles.

Not proofread or edited; sent in on iPad. Errors likely.

 
At 7/28/2012 8:18 PM, Blogger PeakTrader said...

Real GDP revisions - July 27, 2012:

"The BEA revised GDP for 2009 to minus 3.1% instead of the previously reported minus 3.5%.

It revised 2010 growth to +3.0% instead of the previously reported +2.4%, and 2011 to +1.8% from the previously reported +1.7%.

Second quarter GDP slowed to 1.5%, and the first quarter was revised up from the previously reported 1.9% to 2.0%.

The 4th quarter was revised up significantly, from the previously reported 3.0% to 4.1% growth."

 
At 7/28/2012 8:19 PM, Blogger Ron H. said...

Peak

"Jon, did Austrian economists ever find answers to their questions?"

I can't answer for Jon, but I believe that in his typical gentle, non-confrontational manner Jon is informing that Austrians have already thought beyond the immediate effect of government spending and would pose those rhetorical questions to ask others to think beyond stage one also, and perhaps consider possible unintended consequences that are mostly negative. Consequenses which those who are insulated from reality by the mystery and magic of mathematical formulas and models might be oblivious to in their zeal to justify government spending.

 
At 7/28/2012 8:27 PM, Blogger Ron H. said...

"sorry about being OT... so go back to the other discussion if it's still not done."

I was done. Are you convinced that government printing money is a serious theft of purchasing power from individuals? If not you must ask yourself why the prices of everything go up and up over time, never down, and we marvel at 10 cent ice cream cones and 5 cent Cokes many years ago.

 
At 7/28/2012 8:34 PM, Blogger Larry G said...

The lesson of the story is this: we have scarce resources. When they are being used for unproductive purposes, they are (for lack of a better word) wasted.

So, government could boost GDP by printing money and building aircraft carriers and battleships. But would America really be better off?


I too appreciate Jon's easy going style.

re: wasted

in trying to appreciate this, could we stipulate that not all of private sector spending is "productive" also?

or.. is it "productive" because no matter how worthless the product or service really is - it still gives a job to someone?

and not sure in that context what "crowding out" means if...for instance...the govt wants to deploy a GPS satellite with its taxes but the taxpayer would rather keep his taxes and go to Vegas with them.

No everything the govt spends money on is worthless nor does it go down the proverbial rat hole... taxes end up being spent on goods and services also.

In the Washington Metro Area - we have a significant and robust economy that is primarily powered by govt spending for all manner of govt headquarters types from the Dept of Interior to DOD to the Dept of Agriculture, etc...as well as about a dozen govt R&D outfits.

That, in turn feeds an almost equal number of contractors who support the govt.

The average income on the Washington, Va,Md region is among the highest in the nation since quite a few of the govt workers are high level managers.

my point?

a significant regional economy is the direct result of govt spending.

the money is real. A crapload of just about any services or products is sold and in turn employs a crap-load of people who are not govt workers but whose jobs are because of govt spending also.

 
At 7/28/2012 8:35 PM, Blogger Larry G said...

I was done. Are you convinced that government printing money is a serious theft of purchasing power from individuals? If not you must ask yourself why the prices of everything go up and up over time, never down, and we marvel at 10 cent ice cream cones and 5 cent Cokes many years ago.

I'm convinced of the theory but I do not see iron-clad proof of it in practice.

 
At 7/28/2012 8:47 PM, Blogger Tamerlane said...

I'm trying to coordinate this report with some employment numbers I saw.
The private sector employs 3.5% fewer workers now than in 2007. State government was down 2% and the Federal government workforce was up over 11%.

So according to this report the private sector's productivity continues to perform wonders by producing this solid output with fewer workers. Government workers come off with poor comparative productivity.

Doesn't this make the basis for an argument that a dollar left in the private sector provides the overall economy much more growth for the buck than a dollar taxed out of the private sector and washed through the less productive government sector?

Great info as always Dr. Perry. You're the best.

 
At 7/28/2012 8:50 PM, Blogger Jon Murphy said...

I can't answer for Jon, but I believe that in his typical gentle, non-confrontational manner Jon is informing that Austrians have already thought beyond the immediate effect of government spending and would pose those rhetorical questions to ask others to think beyond stage one also, and perhaps consider possible unintended consequences that are mostly negative. Consequenses which those who are insulated from reality by the mystery and magic of mathematical formulas and models might be oblivious to in their zeal to justify government spending.

You are absolutely correct, Ron.

 
At 7/28/2012 8:54 PM, Blogger VangelV said...

but printing money (and I'm not advocating that), generates transfer payments and Defense spending which in turn powers the private GDP... right?

Right. Is shows up but is very bad for the economy and for taxpayers.

 
At 7/28/2012 8:58 PM, Blogger Jon Murphy said...

Larry-

A little while back, you asked why consumer goods (as a general term) is preferable to defense goods.

Well, the short answer is consumer goods are something that are valued. When I exchange my dollars for, say, a DVD, the benefit of that DVD to me was greater or equal to the cost. Same with the seller: the benefit of the money was greater or equal to the cost of the DVD. The economic pie, so to peak, gets larger.

It's not quite the same with defense goods. I do not benefit from an aircraft carrier in the same way I do from a DVD. Of course, there is an argument to be made that a powerful (at least well equipped) military provides the benefit of national defense. I can understand that, but that then brings us into a conversation about what the appropriate size of the military is, its proper role, etc.

Economically speaking, where the difference is is who bares the cost. In the DVD example, the costs are borne entirely by the two parties involved and enjoyed only by the two parties involved. In the cast of the military, the benefits are enjoyed by all, but no one person bares the full brunt of the cost. This will lead to a misallocation of resources.

I am trying to avoid an argument over what the appropriate size of a military should be and things like that.

I hope I have made this clearer to you, Larry. If not, I can try again.

 
At 7/28/2012 9:03 PM, Blogger juandos said...

"... the private sector has been expanding since 2009 at an above-average rate of growth"...

On what planet Mark?

When its all said and done the expansion of the private sector is being made with monopoly money...

 
At 7/28/2012 9:06 PM, Blogger VangelV said...

remember, I'm not advocating this.. I'm pointing out what seem to me to be contradictions or counter-indications which may well be my own lack of understanding.

You are confused a little as usual. Yes, if the government spends money on something useless like a nuclear sub the spending shows up as private GDP when the contractors and their employees get paid and when they in turn spend the cash to buy things from the private sector. But in the absence of producing more consumer goods you are not really wealthier. Now you could make importers and foreign producers wealthier for a while as they fill the demand but eventually the currency will lose its purchasing power and the ability to borrow forces many of the businesses and people who made those things for the government to reduce their activities. In the end you either have to pay back all that debt that was used for consumption or default by devaluing the currency. Either way workers and savers take a beating.

 
At 7/28/2012 9:07 PM, Blogger Jon Murphy said...

Juandos-

It really hasn't been fueled by monopoly money.

Inflation has been quite low for a long time (last month was 1.5%).

There is a lot of money in the system right now, but it's all at the Federal Reserve. It's not really in the economy because banks are not lending like they used to. Once that stuff makes its way into the economy, then you can complain about inflation and monopoly money, but right now, that's not really the case.

Probably next year.

 
At 7/28/2012 9:10 PM, Blogger VangelV said...

In the U.S., the dominant form of economics is the scientific method of neoclassical economics.

It depends what you mean by dominant. If you mean that governments employ economists who justify more government spending and putting up barriers to domestic competition you would be right. But if you mean economists who see what is going on and make the right predictions the Austrians are light years ahead.

http://www.youtube.com/watch?v=zGDisyWkIBM

 
At 7/28/2012 9:12 PM, Blogger VangelV said...

Furthermore, Keynesian economics is not without value:...

It depends what you mean by value and to whom you mean there is value. Clearly Keynesian economics is of value to those that get paid to tell the government to spend more and to those that get money. But it is of negative value to taxpayers and the productive class.

 
At 7/28/2012 9:25 PM, Blogger Ron H. said...

"re: wasted

in trying to appreciate this, could we stipulate that not all of private sector spending is "productive" also?
"

Of course! Much private sector spending is "wasted", but guess what? The money wasted isn't mine, it belonged to private individuals who were entirely welcome to spend their own money on anything they wished, which they did, and they lost it.

"Lost it" doesn't mean it's gone from the known universe, it just means they didn't get what they had hoped for. The money went to someone, but didn't produce the outcome the spender wanted.

Examples of this would be a magazine titled "Illiteracy Today" targeting people who can't read. It would be hard to imagine them making a go of it, but when the business failed their assets would be bought up someone who might make better use of them.

Perhaps an online store called "Extra Homework.com" for kids who feel cheated because they aren't assigned enough homework by their teachers.

In either case none of my money would be lost. That's the whole difference. Government takes then wastes lots of MY money. Why wouldn't I be upset? Government programs that fail don't go out of business, they get MORE of my money and continue in business forever.

"or.. is it "productive" because no matter how worthless the product or service really is - it still gives a job to someone?"

Not necessarily, same as above. Anyone who wants to spend their own money having holes dug and filled back in is welcome to do so. It's their money, and I have no say so about what they do with it. It doesn't cost ME anything.

"and not sure in that context what "crowding out" means if...for instance...the govt wants to deploy a GPS satellite with its taxes but the taxpayer would rather keep his taxes and go to Vegas with them."

That's essentially correct, if sort of extreme. The idea that a GPS satellite is more important than a trip to Vegas is totally subjective. Those who want a GPS satellite should be required to pay for it. Certainly most of us probably benefit from GPS, but who can decide for all of us that it's a better use of our money?

Crowding out refers to the fact that resources used by government aren't available for private use.

"No everything the govt spends money on is worthless nor does it go down the proverbial rat hole... taxes end up being spent on goods and services also."

No, of course not. But returns on government spending is mostly pretty bad. Do you really like being forced to pay farmers to not farm?

"In the Washington Metro Area - we have a significant and robust economy that is primarily government spending...

my point?

a significant regional economy is the direct result of govt spending.
"

Of course it is, and it's my money doing it. How much of that government spending benefits me in some way? It's not my intent to support a robust regional economy for no perceived benefit.

"the money is real. A crapload of just about any services or products is sold and in turn employs a crap-load of people who are not govt workers but whose jobs are because of govt spending also."

That sounds a lot like Silicon Valley. How would you compare the two areas as to how much benefit they have provided to the world in terms of higher living standard?

 
At 7/28/2012 9:26 PM, Blogger Jon Murphy said...

I mean, banks are holding on to some $1.5 trillion in cash and businesses are holding on to another $1.2 trillion. So, if you want to talk about the actual cash in the economy right now, it's really closer to $7.3 trillion, around 2006 levels.

 
At 7/28/2012 9:28 PM, Blogger juandos said...

"Inflation has been quite low for a long time (last month was 1.5%)"...

Please tell me you're not buying into this fabricated low inflation rate jm...

Our national debt and yearly deficits say different...

"There is a lot of money in the system right now, but it's all at the Federal Reserve. It's not really in the economy because banks are not lending like they used to"...

Really?

In Q2 America Added $2.33 In Debt For Every $1.00 In GDP

 
At 7/28/2012 9:35 PM, Blogger Jon Murphy said...

Please tell me you're not buying into this fabricated low inflation rate jm...

Juandos,

I have spent much of the past year studying inflation, looking at the CPI, again assuming the CPI is too low and another assuming the CPI is too high. For better or for worse, the only one that makes any logical sense is the CPI.

When tracking inflation against real (physical as opposed to monetary-based) output, we expect to see certain cycles. Well, in the two non-CPI scenarios, the behavior of inflation/deflation made no economic sense. There were cycles where there shouldn't have been, illogical peaks and toughs, impossible economic behavior. based on the evidence, I must reject my two alternative hypotheses (CPI to high and CPI to low), and conclude the CPI is the most accurate measure of prices we have. As much as it kills me to say this, the BLS has this one right.

 
At 7/28/2012 9:41 PM, Blogger Ron H. said...

"I'm convinced of the theory but I do not see iron-clad proof of it in practice."

Then you're not the least bit curious about what happened to the other 95 cents that's gone missing from your dollar since 1913?

Money is like any other commodity. When the supply of it increases the price of it drops. If the money supply is increased by more than the demand for money due to rising population, among other things, you will eventually have inflation.

An example that's good enough for our purposes here, is that if you double the money supply you have decreased the value of each dollar by 50%. In other words every thing you buy costs twice as many dollars.

Inflation has been an intentional and continual government policy that allows government to spend without taxes or borrowing.

 
At 7/28/2012 9:47 PM, Blogger juandos said...

"When tracking inflation against real (physical as opposed to monetary-based) output, we expect to see certain cycles. Well, in the two non-CPI scenarios, the behavior of inflation/deflation made no economic sense"...

jm I know this is going to sound insulting, inane, and maybe outright idiotic but you need to understand that its not my intent at all...

So who is this 'we' you're talking about and what does the manipulation of numbers have to do with the real world?

I can't help but wonder if at times if not all the time economists want to forget about the 900 pound gorilla in the room with them...

 
At 7/28/2012 9:47 PM, Blogger Ron H. said...

Jon M:

"You are absolutely correct, Ron."

Thank you. Does that help erase a little of the stupidity I showed earlier? :)

What's that ratio? 1000 attaboys = one aw-shit?

 
At 7/28/2012 9:52 PM, Blogger VangelV said...

This is rhetorical. I wonder how much of the private sector is growing because of unconventional shale oil and gas?

I imagine a great deal. But let us note that shale oil and gas production has yet to prove to be self financing and the shale gas sector shows a huge amount of capital destruction. That is not a basis for a sound economy.

 
At 7/28/2012 10:04 PM, Blogger Ron H. said...

"Economically speaking, where the difference is is who bares the cost."

Jon, please take this as the helpful hint it's meant to be and not as negative criticism, but as you have written it twice in one comment I wonder if you meant to write "bare the cost" or did you really mean "bear the cost"?

 
At 7/28/2012 10:12 PM, Blogger PeakTrader said...

VangelV says: "the Austrians are light years ahead."

I wouldn't say they're light years ahead, but I would say you're light years ahead in 19th century suboptimal growth.

 
At 7/28/2012 10:22 PM, Blogger PeakTrader said...

Ron says: "if you double the money supply you have decreased the value of each dollar by 50%. In other words every thing you buy costs twice as many dollars."

And your income can more than double, if the increased money supply spurs real growth through nominal growth.

 
At 7/28/2012 10:35 PM, Blogger PeakTrader said...

VangelV, it seems, squirrels have a better understanding of Keynesian economics than you.

 
At 7/28/2012 10:42 PM, Blogger PeakTrader said...

When Reagan ramped-up military spending to win the Cold War, the result was a "peace dividend" in the 1990s.

 
At 7/29/2012 1:56 AM, Blogger Ron H. said...

Peak:

"And your income can more than double, if the increased money supply spurs real growth through nominal growth."

What nonsense. Aren't we still waiting for that to happen? How long should we continue to wait before declaring "stimulus" a failure?

What if my income depends on dollar denominated investments? What if I have a lot of savings, or if I'm a lender?

 
At 7/29/2012 5:05 AM, Blogger Larry G said...

I am trying to avoid an argument over what the appropriate size of a military should be and things like that.

I hope I have made this clearer to you, Larry. If not, I can try again.

you have..partially but no argument is desired just dialog and further understanding.

If I swapped out the DVD to be a weekend at a water park or just pick anything totally frivolous without any real benefit or use or than pure giggles and grins verses something the government spends it on that generated economic benefit - not an aircraft carrier but say an airport or a port or interstate?

I understand the moral argument about being entitled to one's own money but what's the economic argument against the govt spending it rather than you?

doesn't it still go to pay salaries for goods and services and, in fact, provide jobs?

again, I'm not advocating that or claiming it's justified - just asking from a pure economics point of view how that is harmful.

 
At 7/29/2012 5:15 AM, Blogger Larry G said...

"I'm convinced of the theory but I do not see iron-clad proof of it in practice."

Then you're not the least bit curious about what happened to the other 95 cents that's gone missing from your dollar since 1913?

Money is like any other commodity. When the supply of it increases the price of it drops. If the money supply is increased by more than the demand for money due to rising population, among other things, you will eventually have inflation.

An example that's good enough for our purposes here, is that if you double the money supply you have decreased the value of each dollar by 50%. In other words every thing you buy costs twice as many dollars.

Inflation has been an intentional and continual government policy that allows government to spend without taxes or borrowing.


well sure I am but inflation seems to be more or less a permanent feature around the world except in recessions.

notice than in most savings calculators, they use a default number - an expected number.

this seems to be present no matter who is in charge of the govt no matter which govt.

I note also that most policy and economics types given a choice between inflation and deflation, pick the former not the latter.

As I said, I understand the theory, but trying to understand how it works in practice seems counter to the theory at times.

 
At 7/29/2012 8:01 AM, Blogger VangelV said...

I wouldn't say they're light years ahead, but I would say you're light years ahead in 19th century suboptimal growth.

I suggest that you do some reading. The US grew far faster in the 19th century than it is growing today. In fact, the post Bretton Woods era has been a total disaster that was even worse than the earlier part of Fed era.

And as I pointed out, the Austrians saw the bubbles that the baks were building and predicted disaster when the Keynesians, and Monetarists were oblivious to the coming dangers. And as I pointed out before, you can think of all of these empirical economists as just another version of the climate modellers who look at one or two things and use incomplete and corrupted data to spin a narrative. Like those fools the economic positivists can only try to explain why things happen after the fact and are totally incapable of making predictions that even approach the accuracy rate than a coin flip.

 
At 7/29/2012 8:13 AM, Blogger VangelV said...

Ron says: "if you double the money supply you have decreased the value of each dollar by 50%. In other words every thing you buy costs twice as many dollars."

And your income can more than double, if the increased money supply spurs real growth through nominal growth.


What people like you lose sight of is the destruction of savings, the incentive to borrow and spend, and the fact that some people live on fixed income because they are no longer working.

If you destroy savings by printing you will get fewer people saving. Since capital formation comes out of savings you have a steady deterioration of real wealth and a dependence on imports for as long as the currency holds out. Most countries that run steady and large trade deficits usually see their currency collapse. The US has been saved by the fact that the USD is a reserve currency but that can only go so far in protecting the system and will clearly make the fall much harder when the day of reckoning comes.

As more people rely on debt to finance their daily living the debt burden will make it more difficult to retire, particularly since there is no easy way to save as there used to be under a hard currency system. More older people staying in work longer puts pressure on the supply of labour and real wages go down even as total employment drops and goods prices rise.

At the same time those that are retired see a rise in the price of essentials as their pension income stays the same. Some see their pension income collapse as the pension liabilities can no longer be met by companies that see their plans destroyed by the central bank's manipulation of interest rates and the government finds that it cannot take in enough to pay off benefits.

It is easy to see what happens. What is not easy is figuring out how far down the road the desperate politicians can kick the can down the road and just how long naive people will buy into the mythology. Judging from your responses we still have a bit to go before people figure out the problem.

 
At 7/29/2012 8:17 AM, Blogger VangelV said...

VangelV, it seems, squirrels have a better understanding of Keynesian economics than you.

It is clear that they had a better understanding than Keynes did. General Theory is a perfect example of arrogant and muddled thinking by an empty suit who thinks that his high intellect makes him capable of understanding a subject that he is clearly ignorant of. This is why Keynesian economics had to be saved from Keynes. The problem was that the Keynesians who followed made things far worse and took the wrong path. Add to that naive people who are not as smart but think that they understand, and you can look in the mirror to see who I am referring to, and you get one big mess that society and individuals cannot deal with easily.

 
At 7/29/2012 8:17 AM, Blogger PeakTrader said...

VangelV says: "The US grew far faster in the 19th century than it is growing today. The post Bretton Woods era has been a total disaster that was even worse than the earlier part of Fed era."

Yes, and it's easier to double a dollar than a billion dollars.

After WWII, U.S. per capita GDP expanded faster than many smaller economies to become the world's only superpower.

 
At 7/29/2012 8:20 AM, Blogger VangelV said...

When Reagan ramped-up military spending to win the Cold War, the result was a "peace dividend" in the 1990s.

What dividend? The US still has military bases in more than 100 countries around the world and is involved in a number of conflicts. Military spending is still 90% higher than it should be.

And Ragan was a fool. He agreed to tax increases because he was naive enough to think that Congress would let him cut spending later. It never did and the great GOP hope turned out to be a total disaster for individual liberty and fiscal sanity.

 
At 7/29/2012 8:25 AM, Blogger PeakTrader said...

VangelV, in the post-WWII and pre-Obama U.S. economy, U.S. living standards improved, because economics improved.

Of course, improved economics was not always implemented, e.g. over the past few years.

 
At 7/29/2012 8:49 AM, Blogger VangelV said...

VangelV, in the post-WWII and pre-Obama U.S. economy, U.S. living standards improved, because economics improved.

I suspect that after a decade and a half of depression things will improve when government spending decreases and private industry is allowed to do what it does best. The Keynesians were predicting that once the soldiers went back home the depression would continue and were advising Ludwig Erhard to keep the price controls in West Germany in 1948. Fortunately, Erhard did not listen and the dismantling of the controls allowed the 'German miracle.'

Of course, improved economics was not always implemented, e.g. over the past few years.

As I pointed out above, you could be helped by doing some reading. Things are not and were not as your Keynesian and neo-Keynesian teachers have told you.

 
At 7/29/2012 8:53 AM, Blogger VangelV said...

Yes, and it's easier to double a dollar than a billion dollars.

After WWII, U.S. per capita GDP expanded faster than many smaller economies to become the world's only superpower.


It is easy to grow per capita GDP when you have the only working factories around and there is a huge demand from governments eager to rebuild infrastructure destroyed during the war. But even so that growth, which came after a period of demand destruction during the longest depression in your history, paled in comparison to that in the 19th century.

 
At 7/29/2012 8:54 AM, Blogger PeakTrader said...

Chart of U.S. per capita real GDP 1871-2009:

http://visualizingeconomics.com/2011/03/08/long-term-real-growth-in-us-gdp-per-capita-1871-2009/

 
At 7/29/2012 9:28 AM, Blogger PeakTrader said...

THE MYTHICAL COLLAPSE IN AMERICAN LIVING STANDARDS
10/20/2011

"A good example of our extraordinary increase in standard of living over the last 100 years is to imagine all the things we can accomplish in an hours time.

Last night at 7PM I put my laundry in the wash, I put the dishes in the dishwasher, ordered dinner from a local restaurant and went upstairs into my office where I did an hour of work.

At 8 PM my dinner arrived, my laundry was done, I ate dinner on a fresh clean plate and I had done an hour of work in this period.

Imagine trying to do all that 100 years ago? How long would it take you? Days? Perhaps even weeks? That is a remarkable increase in living standards.

This is why, when someone says the dollar has fallen 95% since 1913, you should remind yourself never to listen to that person’s opinion ever again as they are just misconstruing the reality of our living standards, most likely in an effort to push some personal agenda.

This country has achieved an incredible amount in just 235 years. In this brief period we went from a small group of colonies to the world’s superpower. We have grown from poor immigrants to the wealthiest country on earth. We have grown into the greatest innovation machine that man has ever witnessed."

 
At 7/29/2012 9:41 AM, Blogger Johnny Bee Dawg said...

VangeIV, where is your data to support your claim that "the national economy is hurtling towards the abyss"??? The data is showing the private economy is growing FASTER than average.

 
At 7/29/2012 9:43 AM, Blogger PeakTrader said...

This depression, since 2009, was unnecessary.

We could've achieved a shallow recession in 2009, a V-shaped recovery, or a stronger recovery.

Real per capita GDP could be much higher in 2012 than the 2007 peak (it remains below 2007) and the national debt could be much lower (by trillions of dollars).

 
At 7/29/2012 10:53 AM, Blogger juandos said...

"The data is showin g the private economy is growing FASTER than average"...

Really dawg, what credible (that is the operative word here) data would that be?

 
At 7/29/2012 11:02 AM, Blogger SteveH said...

The before tax cash earnings of individuals [which excludes government workers](classified as personal income: wages/salaries, propreitor income, rental income, dividends/interest is about $9 trillion per year in 2012. Subtract for the private economy (excluding government workers) about $1.2 trillion in personal taxes and we have $7.8 trillion in cash income or about 50% of GDP for those who are employed or receive some form of business or asset income. And it is the top 10% of this group that is supposed to now pay their fair share? What a joke. This group is the productive class who pays for most of government, the infrastructure, transfer payments and the net interest on the privately held portion of the public debt. And this is the group that is expected to pay more to enable more irresponsible spending in DC and state capitols? If the tax cuts expire for everyone then the middle class will see a $300 billion tax increase and the wealthy a $70 billion tax increase plus the Obamacare tax. This will further shrink the private economy's workers and investors disposable income to well below 50% of national income. Presumably the only thing that changes is that the deficit shrinks but the productive class has less to spend and invest. (This analysis did not include benefits or employer portion of payroll taxes or the present value of executive stock options, etc. nor did it include corporate profits or consider private domestic investment. But it gives an idea of the relative size of the private economy's disposable cash income flowing to individuals.)

 
At 7/29/2012 12:02 PM, Blogger morganovich said...

1. 3% is not fine. that's quite low for a recession recovery.

2. the reported real growth has more do do with preposterously low defaltors over the last year that have undershot cpi by an average of 133bp in the last 4 q's.

that would take this growth to more like 1.7%.

 
At 7/29/2012 12:04 PM, Blogger Larry G said...

FYI -

http://www.aei-ideas.org/2012/07/maybe-private-sector-is-doing-fine-growth-in-post-recession-private-gdp-3-is-above-average/

 
At 7/29/2012 12:12 PM, Blogger Larry G said...

oops, my bad!

 
At 7/29/2012 12:44 PM, Blogger morganovich said...

dawg-

"VangeIV, where is your data to support your claim that "the national economy is hurtling towards the abyss"??? The data is showing the private economy is growing FASTER than average."

no, it isn't.

the data is showing slow grwoth for this stage of a recovery.

worse, it is also predicated on wildly low deflators used by the bea.

if you deflate gdp using cpi roughly half the growth for the last 18 months disappears.

if you believe (as vangel and i do) that cpi understates inflation, then the picture gets even darker and the liklihood is that we are already in contraction but have fiddled the figures too much to see it.

based on the grim q3 guidance so far this earnings season, it appears that q3 might be a down quarter in terms of S+P earnings.

lots of companies have missed or barely made already low q2 guidance and most are guiding down for q3.

these are not signs of above average private growth.

they are signs that the private gdp figures are not deflated properly.

 
At 7/29/2012 12:56 PM, Blogger PeakTrader said...

"Update: "‘Big Government’ Isn’t So Big by Historical Standards. It’s Also Shrinking.""

This is misleading. Federal spending increased from $2.7 trillion in 2007 to $3.8 trillion in 2012, while nominal GDP increased from $14.5 trillion in Q2 2008 to $15.6 trillion in Q2 2012, i.e. federal spending increased faster than nominal GDP growth.

On state and local levels, there has likely been a shift in spending, e.g. from school teachers to entitlements, including unemployment and disability benefits.

Tax revenues are low, because there remains massive unemployment and underemployment, which has added to huge federal deficits and spending cuts at state & local levels.

 
At 7/29/2012 1:04 PM, Blogger PeakTrader said...

Morganovich says: "...preposterously low defaltors over the last year that have undershot cpi by an average of 133bp in the last 4 q's...that would take this growth to more like 1.7%."

You've never proven an inflation bias (I'm sure you and others believe you've proven it).

As more information is processed (e.g. through tax records), the BEA revises real GDP:

Real GDP revisions - July 27, 2012:

"The BEA revised GDP for 2009 to minus 3.1% instead of the previously reported minus 3.5%.

It revised 2010 growth to +3.0% instead of the previously reported +2.4%, and 2011 to +1.8% from the previously reported +1.7%.

Second quarter GDP slowed to 1.5%, and the first quarter was revised up from the previously reported 1.9% to 2.0%.

The 4th quarter was revised up significantly, from the previously reported 3.0% to 4.1% growth."

 
At 7/29/2012 1:07 PM, Blogger Ron H. said...

"Yes, and it's easier to double a dollar than a billion dollars."

And right on cue Peak speaks up to to provide an example of muddled thinking.

 
At 7/29/2012 1:12 PM, Blogger Ron H. said...

Peak:

"Of course, improved economics was not always implemented, e.g. over the past few years."

And right there is the entire problem. Your notion that "improved economics" can be "implemented".

 
At 7/29/2012 1:19 PM, Blogger PeakTrader said...

Ron, everything has improved, even economics, which was basically a fragmented collection of moral and social philosophy prior to the 20th century (for example, Adam Smith was a moral philosopher and Karl Marx was a social philosopher).

 
At 7/29/2012 1:54 PM, Blogger bart said...

Amazing - no one mentioned that "personal consumption expenditures" includes all transfer payments from the government.

 
At 7/29/2012 2:16 PM, Blogger Ron H. said...

"If I swapped out the DVD to be a weekend at a water park or just pick anything totally frivolous without any real benefit or use or than pure giggles and grins verses something the government spends it on that generated economic benefit - not an aircraft carrier but say an airport or a port or interstate?"

OK, first of all, all value is subjective. "Frivolous" and "real benefit" are relative terms and depend on individual viewpoints. You may consider my lobster dinner frivolous and I may consider your Italian leather shoes frivolous. You may see no "real benefit" to a lobster dinner and I may see no "real benefit" to Italian leather shoes.

In my list of wants ranked from most desirable to least desirable a lobster dinner is much higher than Italian shoes. On your list Italian shoes are higher than a lobster dinner. Neither of us is right or wrong.

Those differences incidentally, are the basis for all trade and commerce. we exchange something we want less for something we want more.

The moral argument is obvious. We should all be able to pursue our own ends without interference from others. The economic argument is that we are better off when we exchange something we want less for something we want more. If I trade my Italian leather shoes for your lobster dinner we are both better off ie. wealthier.

"I understand the moral argument about being entitled to one's own money but what's the economic argument against the govt spending it rather than you?"

The economic argument against government spending is that government can't possibly get it right every time, if ever, so that money is spent on my preferences. I have no use for a bridge in your area, so I shouldn't have to pay for it. You shouldn't have to pay for a magnificent statue of John Locke in my neighborhood even though I and all my neighbors want one.

If we all call our Congressman and promise him campaign funds he may agree to take some of your money to pay for our statue. Is that how you think it should work?

"doesn't it still go to pay salaries for goods and services and, in fact, provide jobs?"

It does, but those may not be what benefits the most people based on their individual wants.

In the market, individual consumers decide what providers of goods and services succeed by voting their preferences with their dollars. That's not true of government. Instead we all get what someone else thinks we want or what they believe is best for us. Their judgement can't possibly be correct.

"again, I'm not advocating that or claiming it's justified - just asking from a pure economics point of view how that is harmful."

First, ask yourself what the purpose of government really is. I don't believe it's to spend our money for us.

If you think all spending is equally valuable just look at the former Soviet Union where a very large percentage of GDP went to the military effort. Yes, that government spending went to salaries for goods and services and created jobs, but what was produced was most likely way down on most peoples list of priorities. Substitute "bridge" or "highway" or "statue" for "war effort" if you wish.

 
At 7/29/2012 3:11 PM, Blogger Ron H. said...

"well sure I am but inflation seems to be more or less a permanent feature around the world except in recessions."

Yes, inflation is a permanent feature in countries with fiat currencies controlled by government as it allows government to spend money before prices rise to reflect the greater supply of money.

You will hear politicos talk of inflation as if it were some alien monster outside of human control, and they are somehow able to keep straight faces as they do so, but it is always due to an increase in the money supply above and beyond the demand for money. When government controls the money supply it is always and everywhere due to government policy.


"notice than in most savings calculators, they use a default number - an expected number."

That's is merely a guess as no one can possibly predict future rates of inflation. Many calculators allow you to plug in your own "guess" of the inflation rate. Obviously there is no constant rate of inflation that can be projected into the future.

"this seems to be present no matter who is in charge of the govt no matter which govt."

That's correct. It's not limited to any political view.

"I note also that most policy and economics types given a choice between inflation and deflation, pick the former not the latter."

That is either a response to uninformed public sentiment or a true indication of economic ignorance. There is no either-or choice to be made.

 
At 7/29/2012 3:39 PM, Blogger Ron H. said...

Peak:

"This is why, when someone says the dollar has fallen 95% since 1913, you should remind yourself never to listen to that person’s opinion ever again as they are just misconstruing the reality of our living standards, most likely in an effort to push some personal agenda."

Oh wow. Where to begin? It should be quite obvious to anyone that it takes $20 today to buy what $1 bought in 1913. That could be for a meal that by your own argument should now cost LESS than a dollar due to improved technology and productivity. What possible personal agenda could make anyone argue that position?

"This country has achieved an incredible amount in just 235 years. In this brief period we went from a small group of colonies to the world’s superpower. We have grown from poor immigrants to the wealthiest country on earth. We have grown into the greatest innovation machine that man has ever witnessed."

Yes, and all that DESPITE the theft of 95% of the value of the dollar.

All else being equal, wouldn't you expect almost everything to cost much less than before due to the innovations you just bragged about?

Asking the question in terms of gold coins, why do our $20 gold coins which used to contain 1oz of gold now contain only 1/20 ounce of gold? Where did it go? I think you know the answer. Government has been shaving them since 1913 when the Fed was given the power to declare an ounce to be whatever they wished it to be.

Today I only weigh 9 pounds because I say so, and I can eat whatever I want. What a great weight loss program!

 
At 7/29/2012 3:41 PM, Blogger juandos said...

"Update: "‘Big Government’ Isn’t So Big by Historical Standards. It’s Also Shrinking."...

Good one pt, you go to the wikipedia of newspapers...

 
At 7/29/2012 3:50 PM, Blogger Ron H. said...

Peak says: "You've never proven an inflation bias (I'm sure you and others believe you've proven it)."

Yes he has, you just don't like it so you have ignored it.

 
At 7/29/2012 4:01 PM, Blogger Larry G said...

re: inflation and govt influence

well if you listen to Mr. Bernanke, he seems quite confident that that he can influence it, no?

and he can do things to keep it on the inflation side and prevent deflation.

 
At 7/29/2012 4:05 PM, Blogger VangelV said...

Chart of U.S. per capita real GDP 1871-2009:

http://visualizingeconomics.com/2011/03/08/long-term-real-growth-in-us-gdp-per-capita-1871-2009/


There are a few problems. First, you are not using an accurate GDP deflator for the past 25 years or so. Second, you need to have a log graph. Third, you are not looking at the growth of debt that is financing GDP increases.

 
At 7/29/2012 4:09 PM, Blogger bart said...

You've never proven an inflation bias (I'm sure you and others believe you've proven it).

ROFL, good one.

The main issues with CPI and why it is incorrect (beta)


Cool how you've never addressed how reverse hedonics isn't part of the BLS BS, while crowing about an F-150 price and at the same time ignoring the total price, including insurance, gas and especially maintenance repair bills.


That said, OF COURSE many living standards are up since 1900. Productivity and creativity do exist, but even just the CPI corrected minimum wage is down substantially since 1973 or so. Even hourly earnings are down when just the CPI-U is used for apples-to-apples comparisons.


When one compares the majority of actual living standards today against the 70s, today loses on a human values basis. Anyone enough of a geezer to personally remember doctor visits where it meant he or she came to you, let alone crud like smaller airline seats and plastic furniture?





And by the way, velocity has likely bottomed. Even the Fed's money multiplier bottomed last year.

Velocity

 
At 7/29/2012 4:11 PM, Blogger VangelV said...

THE MYTHICAL COLLAPSE IN AMERICAN LIVING STANDARDS
10/20/2011...


Why would anyone be citing proponents of MMT as support for their views and expect to be seen as credible?

 
At 7/29/2012 4:13 PM, Blogger bart said...

Larry G said...

FYI -

http://www.aei-ideas.org/2012/07/maybe-private-sector-is-doing-fine-growth-in-post-recession-private-gdp-3-is-above-average/



Just subtracting transfer payments from the government from personal income (they're included, which most don't know) makes that chart present a very different picture, and the article conclusion incorrect.

 
At 7/29/2012 4:16 PM, Blogger VangelV said...

VangeIV, where is your data to support your claim that "the national economy is hurtling towards the abyss"??? The data is showing the private economy is growing FASTER than average.

You are kidding, right? The US is growing unfunded liabilities at 30% of GDP per year. Those liabilities stand at more than $100 trillion as we discuss this issue. We have one in seven households receiving food stamps. The bottom 50% pay nothing in taxes. The true unemployment rate, if we count those who have given up is over 22%. The GDP deflator is underestimated to make the economic numbers look better but even with the massive addition of new debt the economy is growing less than 2% a year. (It is actually shrinking if you use the right numbers.) We have more than 10 million home owners who owe more on their homes than the homes are worth and the average retiree is going in with less than $25 in savings.

The way I see it everything is screaming disaster but nobody wants to look and see reality for what it is.

 
At 7/29/2012 4:19 PM, Blogger VangelV said...

This depression, since 2009, was unnecessary.

Sure it was. Thanks to the Fed the US was drowning in debt and had allocated capital foolishly. What was needed was a correction and liquidation.

We could've achieved a shallow recession in 2009, a V-shaped recovery, or a stronger recovery.

No chance. Without an actual liquidation nothing really changes in a material way. To get a sustained recovery you need to let the correction take place.

Real per capita GDP could be much higher in 2012 than the 2007 peak (it remains below 2007) and the national debt could be much lower (by trillions of dollars).

The answer is simple. Default on the unfunded liabilities, cut spending by 90%, fire most federal government employees, and have a limited government republic again. But I do not think that is what you are calling for.

 
At 7/29/2012 4:20 PM, Blogger bart said...

Why would anyone be citing proponents of MMT as support for their views and expect to be seen as credible?

MMT is fine, if one doesn't care about inflation. Even Keynes is likely rolling over in his grave.


And as far as his allegation about the US being the wealthiest:

Median wealth, various countries in 2011

 
At 7/29/2012 4:21 PM, Blogger Larry G said...

thinking about transfer payments

taxes given to people to spend...

taxes collected from people then given back to them to spend (social security).

then we have - taxes given to people to provide services to the govt - like a soldier or a Bureau of Land Management public lands lease manager.

but the path of all of these is taxes from people - provided to other people.

Is the premise that BECAUSE they are transfer payments or govt payroll, both derived from taxes, that they cannot be counted as "productive" therefore not a legitimate component of GDP?

 
At 7/29/2012 4:35 PM, Blogger juandos said...

"but the path of all of these is taxes from people - provided to other people"...

Yes larry g your boyfriend apparently is going to try it again if this guy knows what he's talking about...

The Community Reinvestment Act is back, as if 2008 never happened

 
At 7/29/2012 4:40 PM, Blogger bart said...

thinking about transfer payments

The simple fact is that personal income was used without subtracting out transfer payments, and then it was portrayed as representing private sector.

It just plain badly misrepresents the actual facts and full picture. Subtracting transfer payments makes the private sector data much worse.

 
At 7/29/2012 4:42 PM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 7/29/2012 4:43 PM, Blogger Larry G said...

re: " The Community Reinvestment Act is back, as if 2008 never happened"

Jundos, do you know how many of the sub-prime mortgages were handled by banks subject to the CRA?

that data is available you know - from credible sources...

 
At 7/29/2012 4:46 PM, Blogger Larry G said...

re: Mr. Bernanke

and all who are like him in other countries and all those who proceeded him like Mr. Greenspan and Volker, right?

Mr. Bernanke did not invent the Central Bank concept....

 
At 7/29/2012 4:47 PM, Blogger Ron H. said...

"well if you listen to Mr. Bernanke, he seems quite confident that that he can influence it, no?"

Well of course he does. His career depends on saying he has things under control, but it should be obvious by now that he is clueless. I don't think he understands why the flood of money he has created is still held in bank reserves instead of swirling through the economy fixing all that is wrong like so many scrubbing bubbles.

"and he can do things to keep it on the inflation side and prevent deflation."

Yes. He can control the money supply among just a few other things. A very dangerous tool. After the flood of counterfeit money created in the last few years and real interest rates at 0% or negative, it should be obvious that the Fed is out of gas. There are no more room to "stimulate" the economy.

Deflation should be about as scary as the horrible thought of paying less for your next smart phone. There are obvious lower limits to a real deflation, that is a decrease in the money supply below demand that causes hoarding as people anticipate lower future prices. At some point money must be spent to buy basic necessities.

 
At 7/29/2012 5:01 PM, Blogger juandos said...

"Jundos, do you know how many of the sub-prime mortgages were handled by banks subject to the CRA?"...

Well larry g are you now pretending that I didn't give YOU that information on several previous occassions?

 
At 7/29/2012 5:04 PM, Blogger Larry G said...

" Well larry g are you now pretending that I didn't give YOU that information on several previous occassions? "

no, no.. you're confusing propaganda with information my boy.

got a CREDIBLE source?

 
At 7/29/2012 5:21 PM, Blogger Ron H. said...

"Is the premise that BECAUSE they are transfer payments or govt payroll, both derived from taxes, that they cannot be counted as "productive" therefore not a legitimate component of GDP?"

If you earn $100 with your left hand and put it in your left pocket and $100 with your right hand and put it in your right pocket, later transferring some of it from your left to your right pocket doesn't increase the $200 total you have earned. there is no gain from transfer payments. It has already been counted once.

 
At 7/29/2012 5:33 PM, Blogger Ron H. said...

"re: Mr. Bernanke

and all who are like him in other countries and all those who proceeded him like Mr. Greenspan and Volker, right?
"

Yes. All who are like him everywhere in all countries with government control of the money supply. Volcker was somewhat different. He jacked up interest rates to curb inflation until we all screamed, but he held the line and it worked. Do you remember runaway inflation in the '70s?

Please don't start using that "they all do it" argument. It isn't relevant, and will end any meaningful discussion.

"Mr. Bernanke did not invent the Central Bank concept...."

What? Are you going to contend that he is no more guilty than some other clowns who have done similar things? That's not your best choice of responses.

 
At 7/29/2012 5:34 PM, Blogger Larry G said...

re: left hand - right hand

If I take 100 from you than you were going to spend on a TV and give it to someone else and they spend it on a TV....

setting aside the morality of it and looking at it from a simple economics perspective...

doesn't that money spend the same either way?

 
At 7/29/2012 5:36 PM, Blogger PeakTrader said...

Bart says: "you've never addressed how reverse hedonics isn't part of the BLS BS, while crowing about an F-150 price and at the same time ignoring the total price, including insurance, gas and especially maintenance repair bills."

For the fourth or fifth time:

BLS - Common Misconceptions about the Consumer Price Index: Questions and Answers

http://www.bls.gov/cpi/cpiqa.htm#Question_4

Also, I stated before, a larger percentage of Americans can afford a 2012 Ford F-150 today than a new Ford Pinto in 1980.

It should be noted, you can get much more mileage with the 2012 than the 1980 without major repairs, e.g. 50,000 to 100,000 more miles. Also, the 2012 gets better gas mileage and pollutes much less.

 
At 7/29/2012 5:38 PM, Blogger Larry G said...

re: Mr. Bernanke

just doing a job that's already been defined....and performed by others.. I just don't see personalizing him in particular. That's part of what is wrong with our politics now days.

 
At 7/29/2012 5:41 PM, Blogger Ron H. said...

Peak:

"Ron, everything has improved, even economics, which was basically a fragmented collection of moral and social philosophy prior to the 20th century (for example, Adam Smith was a moral philosopher and Karl Marx was a social philosopher)."

Yes, and still other philosophies are praxeological in nature, and have been more accurate in predicting future economic events than any other system. Deductions from observations of human actions seem to be more useful than mathematical formulas and models.

 
At 7/29/2012 5:51 PM, Blogger Ron H. said...

"re: left hand - right hand
If I take 100 from you than you were going to spend on a TV and give it to someone else and they spend it on a TV....

setting aside the morality of it and looking at it from a simple economics perspective...

doesn't that money spend the same either way?
"

In that limited context, yes, but hopefully you'll explain the point you're trying to make, as it's missing.

 
At 7/29/2012 5:52 PM, Blogger Larry G said...

" In that limited context, yes, but hopefully you'll explain the point you're trying to make, as it's missing. "

what's the economic argument against doing that?

 
At 7/29/2012 6:12 PM, Blogger Ron H. said...

"what's the economic argument against doing that?"

There is no economic argument either for or against that action as it isn't an economic action. Stealing is a separate issue. The Purchase of a TV - in your limited example - is the same no matter who does it.

The trouble with the transfer payment argument is that I might start a new business with my $100 and create jobs and new products that make life better for many people. The recipient of my stolen $100 will not likely do that. All jobs and all goods aren't equivalent in value to others.

 
At 7/29/2012 6:15 PM, Blogger PeakTrader said...

Ron says: "Deductions from observations of human actions seem to be more useful than mathematical formulas and models."

Perhaps, in a simple model. However, there are hundreds of major forces pushing and pulling a large macroeconomy.

People don't have the capacity to think beyond seven or eight dimensions (i.e. vectors in n-space).

That's why mathematical and empirical models are useful and often prove conventional wisdom wrong.

There is no general equilibrium model of a large economy. However, you can tie-together partial equilibrium models, input-output models, contemporaneous models, optimization models, etc. for a crude understanding.

 
At 7/29/2012 6:18 PM, Blogger PeakTrader said...

How many people can accurately predict the stock market, which is a small part of an economy?

 
At 7/29/2012 6:19 PM, Blogger Larry G said...

" The trouble with the transfer payment argument is that I might start a new business with my $100 and create jobs and new products that make life better for many people. The recipient of my stolen $100 will not likely do that. All jobs and all goods aren't equivalent in value to others. "

you can make that argument against any/all taxes, right -that any/all taxes are "stealing".

and you can make that argument even if only 1% would actually be used to start a business and the rest was actually spent on roller coaster rides or equivalent.

but I was more curious about the classification distinction between taxes as transfer payments verses taxes to pay for govt employees.

in both cases - taxes are given to others to spend... and the money spends the same way so why are taxes used to pay soldiers not also classified as transfers payments?

economically it's the same, right?

 
At 7/29/2012 6:21 PM, Blogger Ron H. said...

"just doing a job that's already been defined....and performed by others.. I just don't see personalizing him in particular. That's part of what is wrong with our politics now days."

You probably didn't invent the job you have or had either, but you can probably understand that if you don't do a good job of it you will be criticized.

If someone accepts a job they are expected to be competent and do it well.

It doesn't matter what his predecessors or counterparts in other countries did, he is in the hot-seat now just as Obama is in the hot-seat now - because they both worked very hard to get in those hot-seats - and they are expected to do the job they signed up for.

Do you feel sorry for poor little Benny the Bernank?

 
At 7/29/2012 6:21 PM, Blogger PeakTrader said...

Also, I may add, most economists are highly specialized. They may be able to explain the bark on a tree, but cannot really explain the forest.

 
At 7/29/2012 6:22 PM, Blogger Ron H. said...

"There is no general equilibrium model of a large economy. However, you can tie-together partial equilibrium models, input-output models, contemporaneous models, optimization models, etc. for a crude understanding."

Thanks for making my point for me.

 
At 7/29/2012 6:26 PM, Blogger Ron H. said...

"How many people can accurately predict the stock market, which is a small part of an economy?"

No one can. Nor can any models predict the stock market as they rely on human inputs and assumptions. Same problem with climate models.

 
At 7/29/2012 6:32 PM, Blogger Larry G said...

" Do you feel sorry for poor little Benny the Bernank?"

well no...but I don't think all the fire and fury directed at him personally makes much sense,

I strongly suspect whoever does that job given the current situation would likely do a similar job.

Would you expect a very different kind of person from Romney?

 
At 7/29/2012 6:48 PM, Blogger PeakTrader said...

Ron says "Thanks for making my point for me."

You changed your point 180 degrees?

Also, some people can predict the stock market more accurately than others, e.g. Keynes, while Greenspan predicted the economy better than others.

 
At 7/29/2012 6:52 PM, Blogger PeakTrader said...

It seems, Friedman believed Greenspan was an excellent Fed chairman:

AN INTERVIEW WITH
MILTON FRIEDMAN
Interviewed by John B. Taylor
Stanford University
May 2, 2000

Taylor: Well, whatever the break point is, why do you think things have changed? Why, as you put it, does the Fed seem to be operating the monetary-policy thermostatic regulator so much better now? What do you think the reason is?

Friedman: I’m baffled. I find it hard to believe. They haven’t learned anything they didn’t know before. There’s no additional knowledge. Literally, I’m baffled.

Taylor: What about the idea that they have learned that inflation was really much worse than they thought in the late 1970’s, and they therefore put in place an interest-rate policy that kept inflation in check and reduced the boom/bust cycle?

Friedman: I believe that there are two different changes. One is a change in the relative value put on inflation control and economic stability and that did come in the eighties. The other is the breakdown in the relation between money and GDP. That came in the early nineties, when there was a dramatic reduction in the variability of GDP. What I’m puzzled about is whether, and if so how, they suddenly learned how to regulate the economy. Does Alan Greenspan have an insight into the movements in the economy and the shocks that other people don’t have?

 
At 7/29/2012 6:54 PM, Blogger Ron H. said...

"you can make that argument against any/all taxes, right -that any/all taxes are "stealing"."

And I have. Taxation is theft Larry.

"and you can make that argument even if only 1% would actually be used to start a business and the rest was actually spent on roller coaster rides or equivalent."

You are now reintroducing the moral and subjective value argument.

"but I was more curious about the classification distinction between taxes as transfer payments verses taxes to pay for govt employees.

in both cases - taxes are given to others to spend... and the money spends the same way so why are taxes used to pay soldiers not also classified as transfers payments?
"

You are wandering away from an economic discussion and entering the realm of advocacy and confrontation. Is this where you want to go?

I can't explain why different government spending has different names. Maybe you should check with the Bureau of Government Activity Naming.

Paying a soldier is nothing like handing my money to someone who hasn't done anything productive to earn it. While it's similar in that it's stolen in either case, the soldier is paid for a service whether or not I want that service. He has produced something for that money just as you and I are paid for whatever it is we do for a living.

The transfer payment recipient hasn't produced anything, but is handed money to spend anyway.

"economically it's the same, right?"

No. All spending is not the same. There is more to economics that numbers in a bookkeeping ledger.

 
At 7/29/2012 6:55 PM, Blogger Ron H. said...

"Also, I may add, most economists are highly specialized. They may be able to explain the bark on a tree, but cannot really explain the forest."

Does that mean they have limited value?

 
At 7/29/2012 7:03 PM, Blogger Larry G said...

You are wandering away from an economic discussion and entering the realm of advocacy and confrontation. Is this where you want to go?

not my intention

I can't explain why different government spending has different names. Maybe you should check with the Bureau of Government Activity Naming.

but it has an impact on how GDP is calculated, right?

Paying a soldier is nothing like handing my money to someone who hasn't done anything productive to earn it. While it's similar in that it's stolen in either case, the soldier is paid for a service whether or not I want that service. He has produced something for that money just as you and I are paid for whatever it is we do for a living.

then there is an assumed productivity of some kind or level for employees of the govt apparently the same as private sector spending, correct?

The transfer payment recipient hasn't produced anything, but is handed money to spend anyway.

"economically it's the same, right?"

No. All spending is not the same. There is more to economics that numbers in a bookkeeping ledger.


but both the recipient of the transfer payment and the soldier buy bread, milk and "stuff" so somehow there is some kind of assumption that the soldier is doing productive work - even if it's digging holes and filling them in.

and to keep it fair. It's also assumed that the guy that runs the private sector roller coaster is ALSO doing productive work.

 
At 7/29/2012 7:33 PM, Blogger Ron H. said...

"Would you expect a very different kind of person from Romney?"

Do you mean a different appointee from Romney? No, not at all. I would expect Romney to appoint someone Who has earned his patronage.

There isn't enough difference between Romney and Obama to matter.

They pretend to have different principals but there's not enough to matter. If anything, Obama has been more obvious about being a fraud and a liar than Romney has been to this point.

"I strongly suspect whoever does that job given the current situation would likely do a similar job."

Given that the "current situation" is partly his fault, I would hope not.

The best thing Bernanke could do is give a public speech in which he admits that the Federal Reserve System was a bad idea from the very beginning, designed to enrich bankers at the expense of everyone else, and even at that he has failed to manage the simple job of stabilizing prices he was tasked with, and has instead followed idiotic economic policies whispered to him by J. M. Keynes from his grave, and has thereby cost millions of people and their unborn grandchildren trillions of dollars, and has therefore decided to resign from office.

He would then leave his office, turn out the light and lock the door, and then go jump off the T. R. Memorial Bridge.

 
At 7/29/2012 7:35 PM, Blogger Larry G said...

geeze Ron.. Greenspan?

 
At 7/29/2012 7:44 PM, Blogger Ron H. said...

"It seems, Friedman believed Greenspan was an excellent Fed chairman:"

That's funny. Friedman said he had no idea how they were doing it, IF they were doing it, as they (Greenspan and co.) were as clueless as they had always been, and there was just no explaining why the economy was doing well in terms of Fed policy.

Talk about faint praise!

 
At 7/29/2012 7:54 PM, Blogger juandos said...

"no, no.. you're confusing propaganda with information my boy.

got a CREDIBLE source?
"....

Hmmm, that's what I thought, since it didn't fit your wikipedia primed narrative you didn't even bother to check it out...

So somehow you think play the classroom dunce is still a good thing...

Hilarious!

Still I think you owe the taxpayers in your school district a lot of money...

 
At 7/29/2012 7:59 PM, Blogger Larry G said...

Hmmm, that's what I thought, since it didn't fit your wikipedia primed narrative you didn't even bother to check it out...

So somehow you think play the classroom dunce is still a good thing...

Hilarious!

Still I think you owe the taxpayers in your school district a lot of money....


actually it was not wiki:

http://www.businessweek.com/investing/insights/blog/archives/2008/09/community_reinv.html

http://themortgageinsider.net/banks/blair-explains-causes-of-the-mortgage-crisis.html

there are many others....

the stuff that Juandos cites is so blatantly biased, it's comical.

when ya'll do this, you're obviously feeding your own bias and clearly not interested in facts.

 
At 7/29/2012 8:07 PM, Blogger bart said...

Peak said:
BLS - Common Misconceptions about the Consumer Price Index: Questions and Answers

http://www.bls.gov/cpi/cpiqa.htm#Question_4


For perhaps the 10th time, if hedonics is so good, why doesn't the BLS do reverse hedonics like adjusting for smaller airline seats, etc etc. etc.? And the two cancel out and then some.

In other words, not only won't you deal with that but you won't deal with substitution bias, geometric averaging, OER proven problems, the huge difference in total medical care with & without Medicare & Medicaid (which Consumers use), why taxes aren't part of an index that the BLS says measures inflation and is about 30% of the averasge person's "expenses" etc.



Also, I stated before, a larger percentage of Americans can afford a 2012 Ford F-150 today than a new Ford Pinto in 1980.
It should be noted, you can get much more mileage with the 2012 than the 1980 without major repairs, e.g. 50,000 to 100,000 more miles. Also, the 2012 gets better gas mileage and pollutes much less.


You conveniently avoid any models of cars and how much worse their records are than trucks.

You also, oddly enough, don't compare high end models and their prices and affordability. In other words, cherry picking.

And you're comparing a truck against a car - apples-to-apples comparison failure. OF COURSE the Pinto didn't last like a truck. I also question whether a 2012 Ford truck would last as long as a 1980 one.

Neglecting productivity gains, while ignoring proven higher CPPI inflation rates, and then trying to divert from them just plain doesn't work.


You also conveniently forgot to note how much more expensive gas & oil are today, warranty lengths... and totally ignored how much more expensive maintenance and repairs are now. Priced any repairs from damage from a 5mph bumper crash on most vehicles today?

Many of those are covered in my reverse hedonics adjustment CPPI work.

 
At 7/29/2012 8:14 PM, Blogger Ron H. said...

"but it has an impact on how GDP is calculated, right? "

Government spending adds to GDP, transfer payments do not.

"then there is an assumed productivity of some kind or level for employees of the govt apparently the same as private sector spending, correct?"

Assumed by whom? Activity can be considered productive if it benefits the activity doer and others. Note that productive is another subjective term, although it is often measured in dollars.

"but both the recipient of the transfer payment and the soldier buy bread, milk and "stuff" so somehow there is some kind of assumption that the soldier is doing productive work - even if it's digging holes and filling them in."

Only government could consider digging holes and filling them in to be productive. A company that hired workers to perform that activity and offered that service to the public would be out of business real soon, indicating that it probably wasn't something people wanted and were willing to pay for. Those resources including the workers and shovels could then be acquired by some other company that could use them for purposes that customers DID want and were willing to pay for. the more public benefit produced the more the company would profit. That continual voting by consumers is the determinant of value of every business.

"and to keep it fair. It's also assumed that the guy that runs the private sector roller coaster is ALSO doing productive work."

If he generates income for his employer then he is productive. If not, the company will be out of business or at least give up operating a roller coaster. That's how it's measured.

In the public sector there is no such voting and no such measurements. A government roller coaster operator could spend his entire career with out ever producing a nickel of value to anyone. He could even do it without a roller coaster.

That's the difference between private and public employment. Although some public employment has value, it's difficult to measure and is almost certainly less efficient and more costly than an equivalent private job.

 
At 7/29/2012 8:17 PM, Blogger juandos said...

"the stuff that Juandos cites is so blatantly biased, it's comical"...

What's comical is that you larry g have shown keen inability to learn from your mistakes and keep repeating them as if you expected a different result each time...

Oh those biased sites are so terrible!

Shame on the Cato Institute, AEI, TNR, and the Manhattan Institute just to name a few of them!

Yeah, shame on them for outting larry g and his like minded travelers in thinking this was all merely a minor inconvience...

LMAO!

Meanwhile you try to forget what part your boyfriend and his ilk played in this fiasco...

larry g you're not much for useful information but you're sure entertaining...

 
At 7/29/2012 8:17 PM, Blogger bart said...

PeakTrader said...

...

Friedman: I believe that there are two different changes. One is a change in the relative value put on inflation control and economic stability and that did come in the eighties. The other is the breakdown in the relation between money and GDP. That came in the early nineties, when there was a dramatic reduction in the variability of GDP.


Friedman didn't have the benefit of clearly seeing and knowing about the effects of the errors in CPI that some were beginning to see in the early 90s, with both OER and the doofus exclusion of Medicare effects on CPI.

He also never saw the problem with hedonics without reverse hedonics, nor the huge gap in OER during the housing bubble. I don't believe, or at least I think he never saw, the inevitable terribly negative results of moving away from a market basket methodology which much more fairly reflected a level standard of living.

 
At 7/29/2012 8:27 PM, Blogger bart said...

Ron H. said:

No one can. Nor can any models predict the stock market as they rely on human inputs and assumptions.


I have seen proprietary models that can correctly predict the stock market well over half the time.



OT, but did you see that I addressed all your issues about velocity on the other thread? Sorry about the delay, but I was pretty sick for a few days.

 
At 7/29/2012 9:07 PM, Blogger VangelV said...

Government spending adds to GDP, transfer payments do not.

No, but as soon as the payments are spent by those that receive them they show up in the GDP number.

 
At 7/30/2012 12:25 AM, Blogger Ron H. said...

"No, but as soon as the payments are spent by those that receive them they show up in the GDP number."

As they would have when I spent those amounts had they not been stolen from me. :)

 
At 7/30/2012 12:29 AM, Blogger Ron H. said...

"OT, but did you see that I addressed all your issues about velocity on the other thread? Sorry about the delay, but I was pretty sick for a few days."

No, I didn't see your follow up comments, and sorry to hear you were sick. I will check back on the other thread.

 
At 7/30/2012 12:36 AM, Blogger PeakTrader said...

Bart says: ...cherry picking..."

That's one reason why inflation is overstated, because consumers cherry pick. Also, they buy less when prices are high and buy more (and stock-up) when prices are low.

You can continue to ignore the economics and appropriate BLS adjustments in a dynamic economy (although they've been too little and too late) to come up with a higher inflation rate, which implies the economy contracts at full employment or nominal income (output = GDP = income) is actually much higher.

 
At 7/30/2012 12:46 AM, Blogger PeakTrader said...

There's really a lot more "value" today compared to the 1970s, for example.

 
At 7/30/2012 12:48 AM, Blogger PeakTrader said...

I think, you're confusing greater income inequality and greater value.

 
At 7/30/2012 7:02 AM, Blogger VangelV said...

"No, but as soon as the payments are spent by those that receive them they show up in the GDP number."

As they would have when I spent those amounts had they not been stolen from me. :)


All taxes go into a pool that is spent by government. But as you well know the government does not have enough money to finance all its activities. Some of those transfer payments are only made possible by the issuance of new debt that is purchased by newly created money or credit by the Fed and the financial system. That shows up as part of private GDP.

 
At 7/30/2012 9:18 AM, Blogger Jet Beagle said...

Shouldn't we expect private sector growth during a recovery to exceed the average growth over the past 25 years?

I'd like to compare the private sector growth in this recovery with the same growth following other recovery periods. Can someone tell me what table contains the private sector GDP data?

 
At 7/30/2012 9:35 AM, Blogger Mark J. Perry said...

Note: I've provided links in the post now to the data for: a) real GDP and b) real government component of GDP.

Private GDP is calculated separately as: Real GDP - Real Government GDP.

That is, private GDP does not appear in any of the tables provided by the BEA, but can easily be calculated with the data provided by the BEA.

 
At 7/30/2012 9:38 AM, Blogger Jet Beagle said...

I took a stab at measuring private sector growth during the past five recovery periods. For private sector GDP, I used:

Gross domestic product

from

Table 1.1.6. Real Gross Domestic Product, Chained Dollars

and subtracted out

Government consumption expenditures and gross investment

Would that give me GDP for the private sector?

 
At 7/30/2012 9:50 AM, Blogger Jet Beagle said...

Here's the 12 quarter growth in private GDP following each of the last 5 recessions (eliminating 1980 recession, which was not followed by 12 qtrs of growth):

Recession
End QTR ......... 12 qtr real growth

1Q1975 .............18.2%

4Q1982 .............18.1%

1Q1991 .............13.2%

4Q2001 .............9.6%

2Q2009 .............9.6%

Remember that the 1990-1991 and 2001 recessions were much less severe than the 2008-2009 recession. So there was much more room for expansion.

As I see it, the current recovery of the private sector so far has fallen short by historical measures.

 
At 7/30/2012 9:52 AM, Blogger Jet Beagle said...

In the previous comment, I meant that there was much more room for expansion in the current recovery than in the recoveries of 2002-2004 and 1991-1993.

 
At 7/30/2012 10:25 AM, Blogger bart said...

PeakTrader said...
That's one reason why inflation is overstated, because consumers cherry pick.


In other words, you continue to fail to directly address the actual facts, and the rest of my points like the false F150 comparison, reverse hedonics, the Orwellian chicken=beef, OER problems etc.

Vangel calls doing that having nothing but a narrative, and I agree.

 
At 7/30/2012 11:02 AM, Blogger givemefreedom said...

"PeakTrader said...
Bart says: ...cherry picking..."
That's one reason why inflation is overstated, because consumers cherry pick. Also, they buy less when prices are high and buy more (and stock-up) when prices are low."



Hey hold on a second, does PT actually agree with S/D law? So people really do modify their buying in response to price changes?

Or do you believe in the law only when it suits you?

 
At 7/30/2012 11:52 AM, Blogger Ron H. said...

Vangel: "All taxes go into a pool that is spent by government. But as you well know the government does not have enough money to finance all its activities. Some of those transfer payments are only made possible by the issuance of new debt that is purchased by newly created money or credit by the Fed and the financial system. That shows up as part of private GDP."

You are correct and I see my problem. I stand corrected.

Hopefully Larry sees this and understands that I misinformed him on this point.

 
At 7/30/2012 1:22 PM, Blogger Larry G said...

re: deficit spending

You are correct and I see my problem. I stand corrected.

Hopefully Larry sees this and understands that I misinformed him on this point.


it's certainly a worse proposition when you're spending more than you take in in taxes... no question.

Isn't there a theory that you can cut taxes and increase revenues so you don't have deficits?

 
At 7/30/2012 1:41 PM, Blogger Jet Beagle said...

Larry G: "Isn't there a theory that you can cut taxes and increase revenues so you don't have deficits?"

Are you referring to supply-side economics? If so, you do not understand that theory.

Supply side economics has three main policy components:

1. reduction in marginal tax rates
2. reduction in government growth and government interference in free markets;
3. rejection of money policy as a tool for solving economic problems.

The goal of supply side economics is not to increase tax revenues or to reduce deficits. Rather, the goal is economic growth through removing of government impediments to growth.

Every time marginal tax rates have been reduced in the past, the economy has subsequently grown. As the economy grew, total tax revenus have also increased. But growing the economy and increasing total government revenues really has nothing to do with deficits.

Deficit growth is the result of increased goverment speding. Both Reagan and W. Bush got the first part of supply side economics right. After reducing marginal tax rates, the U.S. economy did grow both times. But they both missed the second part, and allowed government to grow faster than tax revenus grew.

Until Washington cuts spending, we will have deficits regadless of what tax policy they implement.

 
At 7/30/2012 2:47 PM, Blogger PeakTrader said...

Bart, we've gone through this four or five times before.

You're in denial.

Givemefreedom, there's actually more than one economic model. Here's one:

http://en.wikipedia.org/wiki/File:Labour_supply_small.png

 
At 7/30/2012 2:50 PM, Blogger VangelV said...


Isn't there a theory that you can cut taxes and increase revenues so you don't have deficits?


It is true that you can cut taxes and increase revenues if you tax too much as we do today. But that does not mean that we don't have deficits because deficits come from government spending. If you want to eliminate deficits you need to cut government spending.

 
At 7/30/2012 3:04 PM, Blogger bart said...

PeakTrader said...

Bart, we've gone through this four or five times before.

You're in denial.


That's truly *special*, given that you have nothing but narratives and assertions w/o facts, all of which have been proven incorrect dozens of times.

It's truly surprising and amazing to me that some still believe Orwellian items like chicken=beef, even after the truth has been pointed out.

 
At 7/30/2012 4:26 PM, Blogger Ron H. said...

"Isn't there a theory that you can cut taxes and increase revenues so you don't have deficits?"

Well there is a theory that deficits - and debt - can be reduced by reducing spending. This is theory only, however, and there don't appear to be any real world examples at a national budget level.

Of course almost everybody understands the correctness of the theory at a household level: If I earn $60k/yr and spend $100k/yr there will be trouble. If I borrow the money - trouble. If I counterfeit the money - big trouble. Somehow that thinking is never applied to the national budget by those who have some control of it, or at best it's assumed to be the next guy's problem.

Larry says: "Well I understand the theory, but see no iron clad evidence for it in the real world. I'm a pragmatist and go with what works."

"Name the top three countries that actually practice this "balanced budget" thing that aren't third world countries." Larry demands. "If you can't, it must not be a workable idea. I view the reality, not the propaganda from right wing blather-butt sites."

"All developed countries in the world run deficits so it must be the correct course of action."

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

The problem with my previous statement about transfer payments is that it was incomplete. I only considered transfers of actual money from me to someone else, in which case the books would balance. Less spending by me would equal more spending by someone else resulting in a balance.

Borrowing money and creating money out of thin air to "transfer" to someone result in an entry on only one side of the balance sheet, and private GDP numbers that are higher than they should be. The money gets spent but never earned - until perhaps your grandchildren earn it in the future - but that's not part of current GDP.

 
At 7/30/2012 4:27 PM, Blogger Larry G said...

don't folks go into debt for 30 years on a fairly routine basis?

 
At 7/30/2012 4:37 PM, Blogger Larry G said...

re: balanced budgets

Sweden?

then we have countries with low debt and deficits:

Switzerland
Hong Kong
Singapore
Australia
Norway
New Zealand

and all of these countries have that nasty socialized health care too!

 
At 7/30/2012 4:47 PM, Blogger Ron H. said...

"don't folks go into debt for 30 years on a fairly routine basis?"

Yes they do. Going into debt isn't the problem if your budget allows you to cover the payments. A home loan is just an alternate way to pay rent. You will pay for shelter in one way or another all your life unless you live under a bridge or in the bushes near the gas station.

Never paying on the debt and allowing interest to accrue then refinancing it every year while pulling out more cash to cover the difference between your earnings and your spending isn't what most prudent people do, as sooner or later the S will hit the F.

 
At 7/30/2012 5:41 PM, Blogger Jet Beagle said...

ry g: "don't folks go into debt for 30 years on a fairly routine basis?"

Yes, of course. They have to put up their homes as collateral.

The government equivalent to mortgage loans:

Washington uses Yellowstone and Yosemite as collateral for $20 billion.

Not sure what the feds could offer for the remaining $11 trillion public debt.

 
At 7/30/2012 5:48 PM, Blogger Larry G said...

Not sure what the feds could offer for the remaining $11 trillion public debt.


looks like they can almost charge folks for treasury notes these days....

not good for cutting the debt for sure.

We've got a plan for cutting the deficit.... but the folks that have been saying "cut spending", "cut spending" have gotten cold feet...fiscal cliff and all that rot....

so when the folks who have been saying "cut, cut cut" now are saying "no no no", you KNOW we are in trouble, eh?

 

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