Daily Wisdom

June 11, 2009

Stimulus Spending And Job Growth

Barack Obama said that his stimulus package would create approximately 4 million jobs over two years...

In the campaign, Mr. Obama vowed to create one million jobs, and after winning election he put forth a plan to create up to three million. The report [from his economic advisers] now puts the figure at roughly 3.7 million, the midpoint of an estimated range of 3.3 million to 4.1 million jobs by the end of next year [2010]. --Obama Again Raises Estimate of Jobs His Stimulus Plan Will Create or Save, New York Times, 10 January 2009

I decided to give President Obama the benefit of the doubt, and was willing to give him 2 full years to create 4 million jobs. In order to create 4 million jobs in 24 months, the Obama administration would have to create approximately 166,667 jobs per month to reach this target -- assuming linear job growth. Of course, there is very little in the real world that is actually linear, but for the purposes of this exercise, let's assume linear job growth.

Considering that the stimulus package was not signed into law until February 17th, I decided to waive the second half of February, and start my analysis with the month of March. As you can see from the graph below, Obama's stimulus package apparently hasn't kicked in yet, because instead of job growth, nearly 1.6 million jobs have been lost since March 1st. This means that if Obama is to achieve his goal of 4 million jobs over 2 years, he now has to create 264,143 jobs per month to make up for the 1,574,000 jobs that were lost in the last 3 months.


Click to enlarge.

Of course, that is far from likely. If we consider the job loss trajectory that we are now on, it will be some time before job loss turns into job growth. As you can see in the graph, I have developed a curve for job loss/growth which follows the current trajectory, and which I have labelled as "Likely". It suggests that job losses will continue for at least another 5 months but at a declining pace. I have projected that job loss/growth will remain flat, or nearly so, for approximately 4 months before businesses decide that it is safe to start re-hiring. This is followed by gradually increasing job growth up to a rate of about 200,000 jobs per month.

If my scenario actually holds true, then it will mean that Obama's economic advisors not only completely missed the mark, but that after 2 years, stimulus spending will not have even brought us back to a point where we were before the stimulus was passed. Furthermore, considering the lack of "stimulus" in the stimulus package [huge amounts of money are allocated to health, education and pork barrel projects], there is no guarantee that any job growth we may enjoy will actually be a direct result of stimulus spending. Job loss/growth following my suggested trajectory could be the result of a "normal" economic recovery.

I should point out that I do not REALLY expect the job loss/growth curve to look exactly like the one I have projected here. For one thing, I could hardly expect it to be that smooth. More than likely, the job loss/growth numbers will jump somewhat erratically from month to month. And I have not considered here the expected GM and Chrysler plant closings. Job losses could actually be worse than I have shown. Job growth could also be somewhat higher in the later months if the stimulus spending does indeed "kick-in". In any event, I think Obama will have a hard time creating 4 million new jobs in 2 years.

27 Comments:

At 6/12/2009 3:53 AM , Blogger camojack said...

The jobs that are created will be in other countries...

 
At 6/12/2009 6:44 AM , Blogger Beerme said...

Insanity. Do the same things that didn't work in the past and expect a different result.

 
At 6/12/2009 8:03 AM , Blogger Hawkeye® said...

Camo,
There's a lot of truth in that. Some of Obama's policies are creating incentives to outsource jobs to other countries.

Best regards...

 
At 6/12/2009 8:05 AM , Blogger Hawkeye® said...

Beerme,
Correctomundo. Scholars are now saying FDR's actions actually exacerbated the Great Depression and stretched it out for 10 years while other countries were seeing signs of recovery much sooner.

Best regards...

 
At 6/12/2009 8:08 AM , Blogger boberin said...

It will, of course, be impossible to measure this in any meaningful way. That's what makes politics/promises so much fun!
Say GM lays off another 80,000 people...but the alleged stimulus (I'm not a big fan either) "creates" 60,000 jobs (even "pork" projects need people to do them) that'll be a loss of 20,000 so the "stimulus" will appear a dismal failure...and maybe it will be but again, no way to accurately measure it...
I hope it works...don't really expect it to...but hope is a decent thing to have going

 
At 6/12/2009 8:52 AM , Blogger Pat'sRick© said...

You realize of course that this is all the fault of GWB.
MOving on from that basic point, notice that Obama actually IS creating jobs - in the federal sector. As more and more people are either working for or dependent on the federal government, the consummate statist will have a victory speech.
In the new America, everyone is equal. It is just that the political class is more equal.

 
At 6/12/2009 8:56 AM , Blogger Hawkeye® said...

Bob,
That's an interesting way of looking at things. But to be fair, GWB was criticized for "NET" job losses and Obama should be measured by the same standard. Obama's economic advisers projected that with the stimulus plan, unemployment would not exceed 8%, but it's already at 9.4%. See HERE.

Will you give Obama a pass if he creates "or saves" 4 million jobs while the economy loses 6 million jobs for a NET loss of "only" 2 million jobs? You might, but I don't think the electorate will.

As for "hope"... it's a good thing to have. But it's a better thing to implement a well thought-out plan that addresses the issues. Obama's stimulus plan does not qualify as such. You can't spend your way into prosperity. You can't borrow your way out of debt. You can't railroad a plan through Congress without allowing anybody to read it, and expect it to work.

Best regards...

 
At 6/12/2009 8:59 AM , Blogger Hawkeye® said...

Rick,
Of course! Everyone knows that EVERYTHING is GWB's fault. And yes, I heard that the Federal government is currently the single largest source of new jobs in the country. Gotta staff up those "czardoms"!

(:D) Best regards...

 
At 6/12/2009 9:28 AM , Blogger boberin said...

Don't misunerstand, I'm as skeptical of the "stimulus" as anyone (thus the quotation marks) I just believe that either/both sides can/will "spin" the results to say what they like and neither will have firm ground to argue with the other on conclusions.

 
At 6/14/2009 10:58 PM , Blogger Elroy said...

The quote said 'create OR SAVE.' Big difference.

And what is not stimulatory about health, education? And what are these 'pork barrel' items? And why would they not be stimulatory?

I'll say one thing for you, Hawkeye® _– you save me from having to watch FOX News.

Cheers

Elroy

 
At 6/15/2009 5:12 AM , Blogger Elroy said...

And there is no comparison between Bush and Obama because Bush inherited a surplus and Obama inherited ...that's right...the biggest economic collapse in 70 years!

No one actually knows what's going to happen – Paulson pulled the original $700 b bailout figure out of the air because 'we needed a number that sounded really big'. He didn't know much apart from the fact that his class needed to be protected and Bush agreed.

And by the way, there's a name for the 'scholars' who say that FDR extended the Great Depression by ten years, and that's...no, I couldn't.

The GD was at it's worst when Hoover's whistle and wait theory created misery throughout the land – it was only when FDR got to work that things improved. The dip around '36-37 was when he started to listen to conservative economists, but in the end the day was saved by that mother of all stimulus plans – WW2!

If you looked around you'd find that many lefties don't agree much with the Bush/Obama baliouts either, but you'd like the left's solutions even less. What I can't work out, however, is why the Right are not full of abject and groveling apology for the mess they made of everything.

Cheers

Elroy

 
At 6/15/2009 7:58 AM , Blogger Hawkeye® said...

Elroy,
For starters, forcing states to accept money to build schools where no schools are needed is pretty stupid. Wisconsin complained about that, among others.

Second, there are already plenty of job openings in the health care field but there are not enough people to fill them. Why allocate money to be spent in an area where jobs can't be filled?

Instead of allocating 70% for health and education, and 30% for infrastructure, why not let the states spend the money where they really need it? D'OH!

As for FDR and the Great Depression, you are no historian or economist my friend. There are others who are much more qualified.

 
At 6/15/2009 11:19 PM , Blogger Elroy said...

'For starters, forcing states to accept money to build schools where no schools are needed is pretty stupid. Wisconsin complained about that, among others.'

Huh? Not according to what I've read.


'In Wisconsin — as is the case in many states — the largest single share of state spending is in the form of grants to elementary and secondary school districts. This year, state aid to education totals $5.5 billion and makes up nearly 40 percent of all state general fund spending. The simple arithmetic of the state budget means that it would be impossible to balance the state’s budget without making substan­tial cuts in aid to education or precipitously raising taxes.

The stimulus package includes several large pots of money dedicated to elementary and secondary education. The largest amount of money comes from the State Fiscal Stabilization Fund, which includes about $40 billion that states can use to fund education. States are given great latitude in how they use those funds; however, states are not allowed to cut their own support for education below 2006 levels.'

http://www.spotlightonpoverty.org/ExclusiveCommentary.aspx?id=8fa93e8e-85c6-4961-8125-5ce308e2c075

What sayest thou?

'Second, there are already plenty of job openings in the health care field but there are not enough people to fill them. Why allocate money to be spent in an area where jobs can't be filled?'

What are you on about? Without knowing specifically what you are referring to I can't comment, but if there not enough people to fill the job openings then I suggest y'all EDUCATE them so there are. Savvy?



'Instead of allocating 70% for health and education, and 30% for infrastructure, why not let the states spend the money where they really need it? D'OH!'

Given the state of your education and health systems I should think they need as much help as they can get. What could be more important?

As for FDR and the Great Depression, you are no historian or economist my friend. There are others who are much more qualified.

Ah, the good ol' Argumentum ad verecundiam – argument or appeal to authority. Somehow I am unable to read and/or process information and so I must bow to your so called 'experts' – sorry, but no cigar.

What we have here is a disagreement – I disagree with you and there are many much more qualified historians who back up my view. Which revisionists have you been reading and when, exactly, did they come up with their thesis? The thing, Hawkeye®, is that history is subjective, but I'm happy to thrash through it all if you are.

Cheers

Elroy

 
At 6/16/2009 11:35 AM , Blogger Hawkeye® said...

Elroy,
My apologies. I could swear I read an article somewhere that said certain school districts (which I thought were in Wisconsin) had received stimulus money allocated only for school construction where no schools were needed, and in fact were being closed. But after doing some research, it appears that stimulus money for new school construction was actually eliminated from the stimulus package, and that Wisconsin officials were in fact disappointed by the move. My bad.

However, upon further reflection, I stand by my earlier claim that the stimulus bill does not contain much "stimulus". Allow me to explain. The term "economic stimulus" refers to government fiscal policy. Fiscal policy can be implemented through either tax reduction or increased government spending. The purpose of economic stimulus is to increase aggregate consumer demand, and thus economic activity.

In the traditional sense, government is not a part of the economy because it derives its income from tax payers who ARE a part of the economy. The economy is composed of businesses that create wealth and jobs, which in turn supply the government with funding. That's why government suffers at all levels when there is a downturn in the economy. Yes, government workers have a job, pay taxes and therefore contribute in part to their own salaries. But without an economy, government cannot be self-sustaining. Government does not create wealth, it only takes it from others and spends it. (Printing money doesn't count of course, because that only dilutes the value of the currency.)

Therefore, when the government spends money on government, there is no economic stimulus. When the federal government gives money to its various departments, there is no economic stimulus. When the federal government gives money to state governments, or state governments give money to county and municipal governments, there is no stimulative effect on the economy -- UNLESS of course, that money is used to create jobs OUTSIDE of government.

When the federal government gives money to state and local governments to maintain ongoing operations or eliminate budget deficits, there is no economic stimulus. When the government gives money to public school employees who are government workers, there is no economic stimulus. When the federal government gives money to state governments to pay unemployment benefits, there is no economic "stimulus", it is merely "maintenance" as subsistence levels.

In order to stimulate the economy, government needs to give money to businesses. In order to stimulate the economy, government needs to put people to work who are in the economy, NOT in the government. When government gives money to government, it is not "stimulus", but "bailout". And the bigger government becomes, the bigger the drag it becomes on the economy. That is why I favor tax reduction over government spending for economic stimulus, because it puts money into the hands of people who spend it on everything EXCEPT government.

 
At 6/16/2009 11:49 AM , Blogger Hawkeye® said...

Elroy,
P.S.-- I'm not saying that it is wrong to spend money on unemployment benefits, or education, or to assist state and local governments that are in crisis. I'm merely saying that it is not "economic stimulus" because it does nothing to "increase" aggregate consumer demand. Remember what Obama said: "Words matter."

(:D) Cheers

 
At 6/17/2009 9:25 PM , Blogger Elroy said...

Thanks for the apology, Hawkeye®! I appreciate it! There, that didn't hurt, did it? Imagine what you could find out if you read even further! Inquiring minds want to know, Hawkeye®, and I'm sure yours is as inquiring as mine (!).

Now, the thing about stimulus is that you are, with respect, completely wrong. Giving money to business is a bailout – you are bailing out someone's inability to engage in commerce. Businesses have been bailed out for years with a never-ending of corporate welfare, but all it does it fatten their bottom line and allow CEOs to vote themselves absurd salaries, salaries not 'earned' but sucked out of you, the punter.

Witness the Bush/Paulson bank bailout. That was supposed to be money for the banks to lend, but that didn't happen – all the banks did was spend it on themselves on salaries, bonuses and acquisitions etc – it was NOT stimulatory.

What IS stimulatory – and NOT a bailout – is giving money to state governments to put into health, education and infrastructure, because it does NOT go into the pockets of the state Governor – well, it theory, anyway – as, unlike CEOs, there is a limit to how high Governors' salaries can be.

The money is spent on health, education and infrastructure, which mean hiring more nurses, teachers and builders, people who, unlike CEOs, tend to spend 100% of their wages, money which then percolates through the economy. Gets the wheels moving. Stimulates. Trickle-up economics.

And it is not merely as matter of digging holes and filling them in, a la Keynes – a society that is healthy and well educated is more productive, more prosperous, so the stimulus is an investment in well-being of future generations.

Furthermore, redistribution of wealth via a progressive tax system is stimulatory as it takes capital from where it is ineffective, like off-shore tax havens, and puts it back into the economy by giving it to people who spend it.

But Obama is funding the stimulus by borrowing because the US has no savings, because the economic system has been geared towards relieving the great unwashed of their spare cash by promoting usury.

Everyone is stretched and so, just as your neighbour might take out a loan to pay his college fees and medical insurance, so does the government, and as this is NOT money from taxes it is also stimulatory.

If the tax base has collapsed then the question 'Why?' must surely be asked. What is different now to fifty years ago? What did Eisenhower have in place that maintained the fundamentals of society? What changed?

Governments are not bottomless pits where cash disappears, never to be seen again. Governments are made up of people who employ other people who employ other people, and they all spend money.

The Federal Government is having to do this because the of the collapse of the private sector and the reluctance of banks to offer credit, which crushes small business like so many Graham crackers.

Tax relief for the middle and working classes are probably a good idea, but that money must be made up from the wealthier members of society – giving them a tax break is part of what got you into so much trouble as they didn't reinvest it in increased capacity or distribute it via conspicuous consumption – they either gambled it on the stock market or salted it away in the Caman Islands.

However, tax relief takes too long to take effect. If your house is on fire, do you wait until the neighbours have collected enough water in tea cups and cooking pots to put it out? Or do you want the fire brigade to come down immediately with a few gigalitres of H2O? Well, the house is burning down NOW and there is no time to wait.

Still, I am at a loss to explain how the stimulus 'creates jobs in other countries' – would you mind, please, expounding on this?

Cheers

Elroy

 
At 6/18/2009 9:58 AM , Blogger Hawkeye® said...

Elroy,
Giving money to business is a bailout – you are bailing out someone's inability to engage in commerce. Granted, giving money to "failing" businesses is a bailout. GM was a failing business because it could not compete in a non-recessionary environment. I would also classify banks that employed bad lending policies resulting in their own demise as "failing". I am not in favor of bailouts. But giving money to normally successful businesses during a recession (which is beyond their control) is something else. It is "stimulus".

Witness the Bush/Paulson bank bailout. That was supposed to be money for the banks to lend, but that didn't happen... it was NOT stimulatory. Agreed. I opposed it.

What IS stimulatory – and NOT a bailout – is giving money to state government... Wrong. For the reasons I already cited. Government is not a part of the economy, hence it cannot be "stimulated" to increase aggregate consumer demand.

The money is spent on health, education and infrastructure, which mean hiring more nurses, teachers and builders... Wrong again. It means keeping nurses, teachers and bureaucrats from being laid off. During a recession there is not enough money to pay existing staff, let alone hiring more. And "builders" are assumed to be independent contractors, and not part of the government, so on that we agree.

redistribution of wealth via a progressive tax system is stimulatory as it takes capital from where it is ineffective, like off-shore tax havens, and puts it back into the economy by giving it to people who spend it. Presumptive and hypothetical. Again you assume that all rich people stash money in "off-shore" tax havens while ignoring that many (most?) rich people invest in the stock market (ie, businesses) which hire people and provide jobs. A lot of rich people and their foundations also make charitable donations to support such enterprises as NPR and ACORN, keeping good liberals working.

But Obama is funding the stimulus by borrowing... Obama is funding the so-called "stimulus" (which really isn't stimulus) by borrowing. There's a difference.

the great unwashed. You are so colorful in your metaphors. Your cynicism blinds you.

just as your neighbour might take out a loan... so does the government, and as this is NOT money from taxes... You must be kidding right? You are not serious. Is this your attempt at satire? If the government borrows money, it must pay back the principal and the interest on that loan. Where does the government get the money from to pay back the loan? It gets it from taxes. Fiscal policy assumes that the economy will improve resulting in greater tax revenues. Get it? It's all about taxes!

If the tax base has collapsed then the question 'Why?' It's called a recession. D'uh. The tax base has grown as the economy has grown. The problem is that government has also grown even faster. The government is becoming an increasingly larger percentage of GDP which is putting a drag on the economy.

Governments are not bottomless pits where cash disappears, never to be seen again. Hahahahaha! Another attempt at satire?

 
At 6/18/2009 9:58 AM , Blogger Hawkeye® said...

Governments are made up of people who employ other people who employ other people, and they all spend money. If all those people you refer to are in government, then all the money comes from taxes and is a drag on the economy. If only the first "people" are in government and everybody else is outside the government, then that is good. The logical conclusion then is that we should have smaller government with fewer people who hire boat-loads of people outside the government.

The Federal Government is having to do this because the of the collapse of the private sector and the reluctance of banks to offer credit. I agree. That's what Bush and Paulson started to do. I will grant you that they did it in a really sloppy way, without implementing appropriate accountability measures, but that was their goal.

Tax relief for the middle and working classes are probably a good idea, but that money must be made up from the wealthier members of society. No, it should be made up by reducing the size of government. Less government means less need for taxes which yields "tax relief". Simple. Smart. Effective. Also note that the states which have the largest, most bloated governments are also the ones that have the highest tax rates, the highest unemployment rates, and from which industries are running away. They are also the states that immediately go into crisis when a recession hits.

they either gambled it on the stock market or salted it away in the Caman Islands. There you go again. Forget all that Caman Island stuff... it's getting old. And as for the stock market, it is the most important source of capital for businesses to expand and grow. And you of all people should admire it. After all, in a privately-owned company the profits go completely to the owners. In a publicly-traded company, the "proletariat" gets to share in the profits of the company. If the company does well, the "proletariat" makes out. If the company does poorly, the stock owners have voting rights to kick out the management. What could be better?

The stock market is a method whereby successful companies attract capital and failing companies are allowed to wither and die. It is the perfect example of evolution -- survival of the fittest. Has the stock market been manipulated? Sure. But that's a criminal activity and the criminals should be prosecuted to the fullest extent of the law. There is no perfect economic system, but capitalism is by far the best.

I am at a loss to explain how the stimulus 'creates jobs in other countries' – would you mind, please, expounding on this? I assume you are referring to Camojack's comment: "The jobs that are created will be in other countries." Camo I believe, is referring to several things. First, the stimulus package contains a "buy American" provision. That is a protectionist policy which invites retaliation from other countries. Canadian mayors have already begun retaliating by passing an "anti-Buy American" resolution. See HERE. If more countries follow suit, the "stimulus" package will actually hurt jobs here and create jobs overseas.

I believe Camo also refers to other Obama policies which will outsource jobs, such as the takeover of GM. According to the Wall Street Journal (among others), GM intends to start importing cars from China. See HERE. If the goal of Obama's GM takeover was to save the company and its jobs, then how does importing cars from China support that goal? It doesn't.

He may also be referring to a $198-million provision of the stimulus bill that was proposed by the Senate that would authorize payments to Filipino veterans of WWII, including those in the Philippines. But to be honest, I'm not sure if that provision actually made it into the final bill.

 
At 6/23/2009 12:47 AM , Blogger Elroy said...

'Giving money to normally successful businesses during a recession (which is beyond their control) is something else. It is "stimulus".


I'm sorry, but how is giving the money to businesses stimulatory? Please explain. If an economy is the exchange of goods ands services for an agreed sum of currency, how is that economy stimulated by circumnavigating that process?

If I give money to A he will buy something from B, make both A and B happy and thus stimulate the economy, but I just give the money to B...nada. B is happy but A is hungry. The economy is not stimulated. Or am I wrong?

'Agreed. I opposed it.'

I oppossed the way it was done. I understand that banks have to exist and that their complete collapse would have caused undue hardship to the least culpable and able to cope, but Paulson/Bush just looked after the top end of town. Why am I not surprised?

Paulson and the rest of them should be looking at the inside of a Supermax right about now, but they ain't. There were other ways to save the banks, but they would have meant that the ubermenches at GoldmanSachs et al going hungry and that was never going to happen.



'Wrong. For the reasons I already cited. Government is not a part of the economy, hence it cannot be "stimulated" to increase aggregate consumer demand.'

Government is part of the economy. It borrows, and builds, and trades. It distributes funds. It borrows money by selling bonds, which has been going on for centuries, then uses it to increase aggregate consumer demand by employing citizens.



'Wrong again. It means keeping nurses, teachers and bureaucrats from being laid off.'During a recession there is not enough money to pay existing staff, let alone hiring more.'

If all the stimulus is doing is maintaining the status quo then it isn't big enough. But even so, if all those nurses, teachers and bureacrats were laid off then the economy would be in even worse shape. Is that what you want?

'And "builders" are assumed to be independent contractors, and not part of the government, so on that we agree.'

Your logic baffles me. Independent contractors or not, builders are still the recipients of government largess, as are teachers and nurses, and policemen and firemen. They all spend money earned from services rendered.



'Presumptive and hypothetical.'

All economic theory is presumptive and hypothetical.

'Again you assume that all rich people stash money in "off-shore" tax havens while ignoring that many (most?) rich people invest in the stock market (ie, businesses) which hire people and provide jobs.'

Your faith in the elite is touching but misplaced, not to mention presumptive and hypothetical.The stock market is no longer about buying joint stock in a worthy enterprise in order to hire people and expand, it is about speculating for short term gain, and a favorite wa of making those gains is to 'downsize', to strip the workforce down to the barest minimum – the market loves this move, but it only leads to tears as the burden of the now unemployed falls to the taxpayer and the company is fatally wounded.

Ever hear of Al 'Chainsaw' Dunlap? He was a one-man corporate wrecking machine back in the 80s and 90s – shareholders loved him in the short term, but in long term, well...

The demand for instant, huge returns by shareholders is one of American industrys' biggest problems – if they don't come uo with the goods then their stock is dumped and snapped up cheap by corporate raiders who then asset strip them into oblivion, preventing them from doing any meaningful long-term planning.

Ever wonder why Volkswagen and Airbus outsell GM and Boeing? They maintain a well-paid, full unionized workforce because European laws and conventions prevent shareholders from selling out for short-term profit – they take a lower dividend over a longer time frame and thus ensure the continued viability of the company.

'A lot of rich people and their foundations also make charitable donations to support such enterprises as NPR and ACORN, keeping good liberals working.'

 
At 6/23/2009 12:50 AM , Blogger Elroy said...

And a lot of rich people and their foundations also make charitable donations to support such enterprises the Heritage Foundation and the Cato Institute, keeping good conservatives cooking up schemes to fleece the poletariat – at least NPR and ACORN serve the entire public.

The absurdly rich might make charitable donations, but what this amounts to is optional tax and why, pray, should tax be optional for them but not everyone else? I want to choose who gets my tax dollars too! The unemployed? Unwed single mothers? Yes! The Australian Defense Force? No! But if I’m not allowed that choice, then neither should they be. That’s not ‘the politics of envy’, that’s ‘all men are created equal’.


'But Obama is funding the stimulus by borrowing... Obama is funding the so-called "stimulus" (which really isn't stimulus) by borrowing. There's a difference.'

And the difference is?

'You are so colorful in your metaphors.'

I do try.

Your cynicism blinds you.'

Me? Never. A cynic is what an optimist calls a realist.

'You must be kidding right? You are not serious. Is this your attempt at satire?'

'Fraid not. Standby, Bucko...

'If the government borrows money, it must pay back the principal and the interest on that loan.'

If your neighbor borrows money, he must pay back the principal and the interest on that loan.

'Where does the government get the money from to pay back the loan? It gets it from taxes.'

'Where does your neighbour get the money from to pay back the loan? He gets it from income.'

'Fiscal policy assumes...'

There's that assumption thang ag'in...

'... that the economy will improve resulting in greater tax revenues. Get it? It's all about taxes!'

Your neighbour also assumes that the economy will improve, resulting in greater income and, yes, pay tax.

Tax, tax, tax. There. Say it loud. Taxes that go to pay for a myriad of services enjoyed by citizens from sea to shining sea, services that are going to be even more important now that the private sector has gone belly up.

Much as you might dislike them, taxes are a crucial component of modern life.I truly do not understand the Rights' antipathy towards taxes and the common good and, to be quite frank, sometimes I don't think the Right understands it either – the same people who complain about the collapse of family and community values are the ones who complain about contributing to it. Bizzare.

Sometimes, Hawkeye®, what is advantageous to all is not advantageous to one and what is advantageous to one is not advantageous to all. Taxes are the price we all pay for a civil society. There will never, ever, ever, be a society without taxes so just get over it and move on.

'It's called a recession. D'uh. The tax base has grown as the economy has grown.'

Huh? The tax base hasn't grown – the tax base has shrunk, and now that recession is upon us all the chickens have come home.

The tax base has disappeared due to modern capitalist economics. I don't know why you can't understand this. Here it is, again, just in case you missed it – Friedman was wrong, Thatcher was wrong, Reagan was wrong, Greenspan was entirely wrong, Gramm was utterly wrong and GWB...so, so, soooooo wrong.

Reagan et al cut the top tax rate to the bone in the insane assumption that the now even richer will spend their extra wealth and that the Great Unwashed™ willl feed from the crumbs that fall from the table – the now infamous 'trickle-down' effect.

 
At 6/23/2009 12:52 AM , Blogger Elroy said...

But it didn't work, Hawkeye® – Reaganomics swung the US into recession lickety-split, and so how did the Great Communicator attempt to fix he mess? By upping the tax burden on the working and middle classes. Thanks, Ron!

Sadly, GWB paid his financiers off by reducing their tax burden, even further and then, THEN, started two wars! Incredible! How he ever thought America was going to pay for them I don't know, but there you go – as that Bush White House aid once said, 'We create our own reality.'

'The problem is that government has also grown even faster. The government is becoming an increasingly larger percentage of GDP which is putting a drag on the economy.'

Don't get me wrong, Hawkeye® – I don't think that governments can, or should, do everything, but these are extraordinary times. However, it was GWB who grew the government faster than any president before him, paid for it and everything else with debt, and continued to allow the actual hardware of the economy be abandoned in favour of the virtual software of financial markets.

However, you should think yourself lucky that the USA is not being given the same treatment as the world’s other debtor nations by having IMF ‘austerity measures’ and ‘restructural programs’ inflicted upon you. These really sting, but I guess you can avoid it because the IMF is a wholly owned subsidiary of USA Inc – not so fortunate, say, Latvia or Hungary.

‘Governments are not bottomless pits where cash disappears, never to be seen again. Hahahahaha! Another attempt at satire?’

What I meant is that the monies collected by governments do not vanish on holidays to the Bahamas, they are eventually spent on matters which supposedly ameliorate the state and it citizens.

‘If all those people you refer to are in government, then all the money comes from taxes and is a drag on the economy. If only the first "people" are in government and everybody else is outside the government, then that is good. The logical conclusion then is that we should have smaller government with fewer people who hire boat-loads of people outside the government.’

‘Fraid not. Economies of scale suggest that outsourcing work to private contractors is far more expensive that in-house workers, and thus a much bigger drag on the economy. Take Blackwater and Hallburton/KBR for example – privatized war is cleaning out your treasury.

Maybe I wrong, or slightly wrong – the bottomless pit where cash disappears, never to be seen again is not the government – it’s the Pentagon.

‘I agree. That's what Bush and Paulson started to do. I will grant you that they did it in a really sloppy way, without implementing appropriate accountability measures, but that was their goal.’

I’m not sure that it was their goal. It was OBSTENSIVELY their goal but the fact that Paulson originally demanded absolutely no oversight and total immunity from any liabilities point toward the notion that Paulson/Bush were merely trying to loot the treasury of what was left on behalf of the Wall Street classes.

Paulson’s 3-page gun-to-the-head-of-Congress was not an emergency document drawn up in haste in the heat of the moment, as GWB suggested – it had actually been ready for months, waiting for the moment that Wall Street collapsed.

‘No, it should be made up by reducing the size of government. Less government means less need for taxes which yields "tax relief". Simple. Smart. Effective.’

No – complicated, stupid and inefficient. What you don’t seem to understand is that the private sector has collapsed and that, to avoid a depression worse than 1929-1934, the government must step into the breach.

To shrink the government now, when so many are becoming more and more dependent on its services, would be to inflict even more pain, poverty, hunger and death on your fellow Americans.

 
At 6/23/2009 12:53 AM , Blogger Elroy said...

So, what would you shrink? What parts would disappear? What would you get rid of? The Republican Party had eight years to put their ‘small government’ fetish into action, yet they managed to grow it, which suggests that ‘small government’ is just a ploy to keep their base loyal, like promising to wind back Roe Vs. Wade.

‘Also note that the states which have the largest, most bloated governments are also the ones that have the highest tax rates, the highest unemployment rates, and from which industries are running away. They are also the states that immediately go into crisis when a recession hits.’



Which states are these?

‘There you go again. Forget all that Caman Island stuff... it's getting old.’

Oh, it’s getting ‘old’, huh? How come this isn’t an issue for you? Are you really OK with billions of dollars owed to your country being salted away? Or don’t you think it’s happening? That it’s all made up? Here, read this for a brief insight into the size of the problem from the UK point of view:

http://www.monbiot.com/archives/2008/12/16/pin-striped-pirates/

‘And as for the stock market, it is the most important source of capital for businesses to expand and grow.’

The basic notion of it sounds quite reasonable, but it has been perverted out of all recognition. The stock market is no longer a means to an end but a means in itself, and supplying ‘capital for businesses to expand and grow’ is the least of its concerns.

‘And you of all people should admire it. After all, in a privately-owned company the profits go completely to the owners. In a publicly-traded company, the "proletariat" gets to share in the profits of the company. If the company does well, the "proletariat" makes out. If the company does poorly, the stock owners have voting rights to kick out the management. What could be better?’



You are kidding yourself if you believe that the proletariat owns shares in any substantial quantities. Here, from The American Prospect in 2001

‘Despite the overall gains in stock ownership, fewer than half of all U.S. households had any stake in the stock market by 1998--and many of those had only a minor stake. In 1998, while 48 percent of households owned some stock, only 36 percent had total stock holdings worth $5,000 or more and only 32 percent owned stock worth $10,000 or more.'

'Moreover, the top 1 percent of households accounted for 42 percent of the value of all stock owned in the United States; the top 5 percent accounted for about two-thirds; the top 10 percent for more than three-quarters; and the top 20 percent for almost 90 percent.’

If the percentage of worker’s stockholdings increased through the ‘noughties then they will have been hit even harder now – the wealthy can absorb these losses, but the workers – not so much.

Share ownership, like home ownership, was encouraged by conservative administrations as such behaviors promulgate conservative behavior. Of course, said administrations were always quiet about the downside, that the stockmarket is a casino and that bubbles burst, but hey! Read the fine print, suckers!

 
At 6/23/2009 12:56 AM , Blogger Elroy said...

‘The stock market is a method whereby successful companies attract capital and failing companies are allowed to wither and die. It is the perfect example of evolution -- survival of the fittest.’

Ho ho! Ironic, isn’t it, that as a creationist you must be unaware that Darwin never wrote, or spoke, of ‘the survival of the fittest’ – that is down to conservative favorite Herbert Spencer and his doctrine of Social Darwinism which says, basically, that the rich elites are that way through having evolved into superior beings and were the only ones capable of being rich and to be trusted with extreme wealth.

So it is not ‘the perfect example of evolution’ – in evolution, species do not simply collapse and die unless they are subjected to undue outside pressures – humans, for instance – they evolve, change, adapt.

But again, your analysis is hopelessly simplistic and fails to take into account such dastardly practices as shorting, which can wipe out a lowly shareowners’ holdings, asset-stripping raids, merger-madness and all the rest.

Then there is the culture of immediate gratification which sees shareholders demand ever-increasing dividends, and Wall Street’s habit of rewarding traders annual performance, both lead to short-termism which actively discourages the kind of long-term planning that has helped keep man European enterprises profitable while US ones flounder.

‘Has the stock market been manipulated? Sure. But that's a criminal activity and the criminals should be prosecuted to the fullest extent of the law.’

They should? Then why aren’t they? White collar crime goes virtually ignored. But most Wall Street traders don’t need to break the law because the laws are that lax they don’t need to – they can act as immorally as they wish because it is legal for them to do so. One’s law is another man’s regulation, and so Reagan et al’s deregulation mania has led to lawlessness.

‘There is no perfect economic system, but capitalism is by far the best.’

Is it? Is the current nightmare the best we can do? I hope not. The truth is that any economic system that is ideologically pure is doomed to failure, from the communist experiment of controlled socialism or the fascist experiment of controlled capitalism.

That much we know, but what is also apparent is the failure of uncontrolled capitalism. The more deregulated the free market became the more inequitable the outcomes, and that must we should have known as the result was the same 100 years ago, and so we should look at what more successful countries have done, mixed-market economies like Denmark, Norway, Sweden et al who have tempered the excesses of capitalism with a proper, decent safety net for their citizens.

That’s what the ‘perfect’ economic system is, Hawkeye® – a system which makes sure that ideas and innovation and trade occurs without sacrificing the well-being of the Great Unwashed™.

‘I assume you are referring to Camojack's comment: "The jobs that are created will be in other countries." Camo I believe, is referring to several things’

You assume correcty.

 
At 6/23/2009 12:56 AM , Blogger Elroy said...

‘First, the stimulus package contains a "buy American" provision. That is a protectionist policy which invites retaliation from other countries. Canadian mayors have already begun retaliating by passing an "anti-Buy American" resolution. See HERE. If more countries follow suit, the "stimulus" package will actually hurt jobs here and create jobs overseas.’ 



Righto, you are anti-protectionist. Got it.

‘I believe Camo also refers to other Obama policies which will outsource jobs, such as the takeover of GM. According to the Wall Street Journal (among others), GM intends to start importing cars from China. See HERE. If the goal of Obama's GM takeover was to save the company and its jobs, then how does importing cars from China support that goal? It doesn't.’

But now you pro-protectionist. What the…? So Obama is stuffed both ways, huh? Or do you not the glaring contradiction here?

‘He may also be referring to a $198-million provision of the stimulus bill that was proposed by the Senate that would authorize payments to Filipino veterans of WWII, including those in the Philippines. But to be honest, I'm not sure if that provision actually made it into the final bill.’

Why would Filipino veterans who fought for the US and are US citizens not be entitled to payments? I will admit that it s not overly stimulatory, it seems to be a bizarre function of the US political system that all sorts of stuff gets nailed to bills that have zero relevance.

What, for instance, does carrying a gun a national park have to do credit card finance reform? Nothing. Are you upset about this? I doubt it.

Cheers

Elroy

 
At 6/23/2009 7:48 AM , Blogger Hawkeye® said...

Elroy,
Thanks for your comments. I will not argue with you though. You are starting to sound contrarian -- if I say it, you disagree with it (unless of course, I agree with you).

Please educate yourself...

Spending as % of GDP

Deficits and Debt

Federal spending unsustainable

Govt spending hurts GDP

GDP "growth" vs. govt spending

The case for limited govt

Govt spending and economic growth

 
At 6/24/2009 10:31 PM , Blogger Elroy said...

‘Thanks for your comments. I will not argue with you though. You are starting to sound contrarian -- if I say it, you disagree with it (unless of course, I agree with you)’

Let’s consider this statement: “If I say it you disagree with it unless, of course, I agree with you.’

Dur! That’s right! I disagree with you! That’s why I’m here! I don’t do it on purpose, or to be difficult, or just for the hell of it – I genuinely disagree with 95% of what you are saying.

I am trying to get to the truth. Maybe you have it. May I am closer to it. Is it subjective or objective? What is ‘truth’ anyway? Can it be ever be found? Or are our biases insurmountable? Reality may be objective but our interpretations of that reality are not, so that’s why I come here – to thrash through our interpretations until a consensus appears, an agreement that might be closer to the truth than we previously were. What’s wrong with that?

With regards to those links, I note that a certain amount arrogance and righteousness is present when you say ‘educate yourself’ – its not a matter of being uneducated it is, as I say, a matter of interpretation, so let’s have a look.

1. The CBO document is fatally flawed because it is dated from 2002, which is like reviewing a 1924 economic forecast dealing in figures from 1873 to 2023 in 1930. This CBO document was written on the cusp of the worst presidency in your nation’s history, a presidency whose ramifications will echo down the ages as the world deals with two wars and the destruction of the economic system, and so bears no relation to the reality on the ground right now. The world changed, but not on 9/11/2001 – the world changed on 9/14/2008. Year zero.

2. A gentleman named Keith Hennessy says there will be a large deficit. Hold the front page! He is obviously a genius, but his interpretation of reality is biased by a genuine belief in the neo-conservative economic orthodoxy which precludes him from fingering that orthodoxy as the source of the problem.

3. The worthy Mr Keith ‘I’m a low tax guy’ Hennessy shows that the tax rate is flat while spending goes nuts. He believes that the cure is to reduce the tax take and slash spending causing the private sector to miraculously spring into action but the problem is that it won’t happen. The private sector is moribund, not to mention wildly inefficient, and cannot take up the slack, hence the government’s current extreme borrowings!

 
At 6/24/2009 10:31 PM , Blogger Elroy said...

What is left of private sector will merely cherry-pick the more lucrative of services, which they will deliver both badly and expensively, and the rest can go to the wall. Do you really want your children’s education left to monopolist rent-seekers like Wal*Mart?

4. This one is pretty funny. It is pure, orthodox Reaganomics and foretells of unmitigated doom from the incoming Clinton administration, a regime that managed to, um, balance the budget and deliver a surplus! Oh well – there’s always the next guy!

5 & 6. The Center for Freedom and Prosperity™, obviously a level headed, non-partisan organization with no pre-conceived agenda, introduces…ladies and gentlemen…the Rahn Curve! This is as scientific as that other popular piece of voodoo the Laffer Curve, which ust goes to show how elastic statistics can be given plenty of Shiraz and a long enough lunch. The words ‘

7. The Joint Economic Committee’s 1995 historical hoodad shows typical pre-9/08 thinking. I could cheerfully argue with every point, but I don’t know if you would be up for it. What do you think?

OK, so having read through these, um, opinions, I know you are going to show me the same respect and trawl through these:

For a quick history lesson about where neo-classical economics came from:

http://www.paecon.net/StrangeHistory.htm

The problems with Friedman et al:

http://www.paecon.net/PolicyImplications.htm

Socialism for the rich:

http://www.guardian.co.uk/commentisfree/2008/sep/18/marketturmoil.creditcrunch

Enlightening:

http://www.guardian.co.uk/business/2009/jun/14/economics-globalrecession

And whatever you do, don’t miss this:

http://www.guardian.co.uk/business/2009/jun/14/economics-globalrecession

Have fun!

Cheers

 

Post a Comment

Subscribe to Post Comments [Atom]

<< Home