70% Marginal Tax Rate

President Obama has been using the debt-ceiling debate and bipartisan calls for deficit reduction to demand higher taxes. With unemployment stuck at 9.2% and a vigorous economic "recovery" appearing more and more elusive, his timing couldn't be worse.

Two problems arise when marginal tax rates are raised. First, as college students learn in Econ 101, higher marginal rates cause real economic harm. The combined marginal rate from all taxes is a vital metric, since it heavily influences incentives in the economy--workers and employers, savers and investors base decisions on after-tax returns. Thus tax rates need to be kept as low as possible, on the broadest possible base, consistent with financing necessary government spending.

Second, as tax rates rise, the tax base shrinks and ultimately, as Art Laffer has long argued, tax rates can become so prohibitive that raising them further reduces revenue--not to mention damaging the economy. That is where U.S. tax rates are headed if we do not control spending soon.

The current top federal rate of 35% is scheduled to rise to 39.6% in 2013 (plus one-to-two points from the phase-out of itemized deductions for singles making above $200,000 and couples earning above $250,000). The payroll tax is 12.4% for Social Security (capped at $106,000), and 2.9% for Medicare (no income cap). While the payroll tax is theoretically split between employers and employees, the employers' share is ultimately shifted to workers in the form of lower wages.

But there are also state income taxes that need to be kept in mind. They contribute to the burden. The top state personal rate in California, for example, is now about 10.5%. Thus the marginal tax rate paid on wages combining all these taxes is 44.1%. (This is a net figure because state income taxes paid are deducted from federal income.)

So, for a family in high-cost California taxed at the top federal rate, the expiration of the Bush tax cuts in 2013, the 0.9% increase in payroll taxes to fund ObamaCare, and the president's proposal to eventually uncap Social Security payroll taxes would lift its combined marginal tax rate to a stunning 58.4%.

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Martin Kozlowski
But wait, things get worse. As Milton Friedman taught decades ago, the true burden on taxpayers today is government spending; government borrowing requires future interest payments out of future taxes. To cover the Congressional Budget Office projection of Mr. Obama's $841 billion deficit in 2016 requires a 31.7% increase in all income tax rates (and that's assuming the Social Security income cap is removed). This raises the top rate to 52.2% and brings the total combined marginal tax rate to 68.8%. Government, in short, would take over two-thirds of any incremental earnings.

Many Democrats demand no changes to Social Security and Medicare spending. But these programs are projected to run ever-growing deficits totaling tens of trillions of dollars in coming decades, primarily from rising real benefits per beneficiary. To cover these projected deficits would require continually higher income and payroll taxes for Social Security and Medicare on all taxpayers that would drive the combined marginal tax rate on labor income to more than 70% by 2035 and 80% by 2050. And that's before accounting for the Laffer effect, likely future interest costs, state deficits and the rising ratio of voters receiving government payments to those paying income taxes.

It would be a huge mistake to imagine that the cumulative, cascading burden of many tax rates on the same income will leave the middle class untouched. Take a teacher in California earning $60,000. A current federal rate of 25%, a 9.5% California rate, and 15.3% payroll tax yield a combined income tax rate of 45%. The income tax increases to cover the CBO's projected federal deficit in 2016 raises that to 52%. Covering future Social Security and Medicare deficits brings the combined marginal tax rate on that middle-income taxpayer to an astounding 71%. That teacher working a summer job would keep just 29% of her wages. At the margin, virtually everyone would be working primarily for the government, reduced to a minority partner in their own labor.

Nobody--rich, middle-income or poor--can afford to have the economy so burdened. Higher tax rates are the major reason why European per-capita income, according to the Organization for Economic Cooperation and Development, is about 30% lower than in the United States--a permanent difference many times the temporary decline in the recent recession and anemic recovery.

Some argue the U.S. economy can easily bear higher pre-Reagan tax rates. They point to the 1930s-1950s, when top marginal rates were between 79% and 94%, or the Carter-era 1970s, when the top rate was about 70%. But those rates applied to a much smaller fraction of taxpayers and kicked in at much higher income levels relative to today.

There were also greater opportunities for sheltering income from the income tax. The lower marginal tax rates in the 1980s led to the best quarter-century of economic performance in American history. Large increases in tax rates are a recipe for economic stagnation, socioeconomic ossification, and the loss of American global competitiveness and leadership.

There is only one solution to this growth-destroying, confiscatory tax-rate future: Control spending growth, especially of entitlements. Meaningful tax reform--not with higher rates as Mr. Obama proposes, but with lower rates on a broader base of economic activity and people--can be an especially effective complement to spending control. But without increased spending discipline, even the best tax reforms are doomed to be undone.

Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.

Comments (144)

Jul 18, 2011

Its whatever man. I love working for the greater good. I hope they take more so I can buy LaShonda's kid his 6th pair of Jordans.

I mean, our lower class is so fucking brutalized I mean shit son, how the hell can they live like this!!!

* Forty-three percent of all poor households actually own their own homes. The average home owned by persons classified as poor by the Census Bureau is a three-bedroom house with one-and-a-half baths, a garage, and a porch or patio.
* Eighty percent of poor households have air conditioning. By contrast, in 1970, only 36 percent of the entire U.S. population enjoyed air conditioning.
* Only 6 percent of poor households are overcrowded. More than two-thirds have more than two rooms per person.
* The average poor American has more living space than the average individual living in Paris, London, Vienna, Athens, and other cities throughout Europe. (These comparisons are to the average citizens in foreign countries, not to those classified as poor.)
* Nearly three-quarters of poor households own a car; 31 percent own two or more cars.
* Ninety-seven percent of poor households have a color television; over half own two or more color televisions.
* Seventy-eight percent have a VCR or DVD player; 62 percent have cable or satellite TV reception.
* Eighty-nine percent own microwave ovens, more than half have a stereo, and more than a third have an automatic dishwasher.

Jul 19, 2011
Nobama88:

Its whatever man. I love working for the greater good. I hope they take more so I can buy LaShonda's kid his 6th pair of Jordans.

I mean, our lower class is so fucking brutalized I mean shit son, how the hell can they live like this!!!

* Forty-three percent of all poor households actually own their own homes. The average home owned by persons classified as poor by the Census Bureau is a three-bedroom house with one-and-a-half baths, a garage, and a porch or patio.
* Eighty percent of poor households have air conditioning. By contrast, in 1970, only 36 percent of the entire U.S. population enjoyed air conditioning.
* Only 6 percent of poor households are overcrowded. More than two-thirds have more than two rooms per person.
* The average poor American has more living space than the average individual living in Paris, London, Vienna, Athens, and other cities throughout Europe. (These comparisons are to the average citizens in foreign countries, not to those classified as poor.)
* Nearly three-quarters of poor households own a car; 31 percent own two or more cars.
* Ninety-seven percent of poor households have a color television; over half own two or more color televisions.
* Seventy-eight percent have a VCR or DVD player; 62 percent have cable or satellite TV reception.
* Eighty-nine percent own microwave ovens, more than half have a stereo, and more than a third have an automatic dishwasher.

[citation needed]

Jul 19, 2011
someotherguy:
Nobama88:

Its whatever man. I love working for the greater good. I hope they take more so I can buy LaShonda's kid his 6th pair of Jordans.

I mean, our lower class is so fucking brutalized I mean shit son, how the hell can they live like this!!!

* Forty-three percent of all poor households actually own their own homes. The average home owned by persons classified as poor by the Census Bureau is a three-bedroom house with one-and-a-half baths, a garage, and a porch or patio.
* Eighty percent of poor households have air conditioning. By contrast, in 1970, only 36 percent of the entire U.S. population enjoyed air conditioning.
* Only 6 percent of poor households are overcrowded. More than two-thirds have more than two rooms per person.
* The average poor American has more living space than the average individual living in Paris, London, Vienna, Athens, and other cities throughout Europe. (These comparisons are to the average citizens in foreign countries, not to those classified as poor.)
* Nearly three-quarters of poor households own a car; 31 percent own two or more cars.
* Ninety-seven percent of poor households have a color television; over half own two or more color televisions.
* Seventy-eight percent have a VCR or DVD player; 62 percent have cable or satellite TV reception.
* Eighty-nine percent own microwave ovens, more than half have a stereo, and more than a third have an automatic dishwasher.

[citation needed]

Read the posts... I already cited it.

Jul 19, 2011
someotherguy:
Nobama88:

Its whatever man. I love working for the greater good. I hope they take more so I can buy LaShonda's kid his 6th pair of Jordans.

I mean, our lower class is so fucking brutalized I mean shit son, how the hell can they live like this!!!

* Forty-three percent of all poor households actually own their own homes. The average home owned by persons classified as poor by the Census Bureau is a three-bedroom house with one-and-a-half baths, a garage, and a porch or patio.
* Eighty percent of poor households have air conditioning. By contrast, in 1970, only 36 percent of the entire U.S. population enjoyed air conditioning.
* Only 6 percent of poor households are overcrowded. More than two-thirds have more than two rooms per person.
* The average poor American has more living space than the average individual living in Paris, London, Vienna, Athens, and other cities throughout Europe. (These comparisons are to the average citizens in foreign countries, not to those classified as poor.)
* Nearly three-quarters of poor households own a car; 31 percent own two or more cars.
* Ninety-seven percent of poor households have a color television; over half own two or more color televisions.
* Seventy-eight percent have a VCR or DVD player; 62 percent have cable or satellite TV reception.
* Eighty-nine percent own microwave ovens, more than half have a stereo, and more than a third have an automatic dishwasher.

[citation needed]

I think he already cited the Heritage Foundation. I personally don't find any of those facts particularly persuasive of anything. The only thing I take from it is that Nobama stereotypes people with black sounding names and that since poor people don't have it as bad as they used to that we should stop providing them any assistance. How dare they have a microwave!? Or transportation to work!? Blasphemy.

Jul 18, 2011

NoBama, you just reminded me, again, why I hate liberals. Preach on!

Jul 18, 2011

i especially enjoyed walking to the movies and seeing a hood couple with 4 kids coming out the projects with the dad saying SHUT UP TYSHAUN to his 3 year old kid. epic parenting

Jul 18, 2011
shorttheworld:

i especially enjoyed walking to the movies and seeing a hood couple with 4 kids coming out the projects with the dad saying SHUT UP TYSHAUN to his 3 year old kid. epic parenting

Best movie experience I ever had was watching Drumline in theaters when i was a young lad. People were literally dancing in the aisles and went nuts over Nick Cannon. I unfortunately missed seeing Stomp the Yard in theaters, but i can only assume it would have been even more epic.

On topic a 70% marginal rate is a horrible idea. Spending is the issue not revenue.

Jul 18, 2011

Nobama,

I don't doubt a single thing you posted, but do you have a source? I only ask because if its reliable I'd like to use it.

My recent experience that got me enraged about welfare:

I just had a brick paver patio put it. I live in the west/south suburbs of Chicago (`45min from Indiana). My landscaper hires Mexican workers from Indiana to do his brick work because he says they're the best crew he can get his hands on. He was also complaining about how hard it is to get good help. He also said that because of his snowplow business he can keep them working year round so he does get better help than most landscaping companies.

The pay these guys get:
Brick workers: $25/hour
Landscapers/general laborers: $12-15/hour
SnowPlowers : $15-20/hour

Most of those hours are in cash and they are working WELL over 40 hours a week during peak snow and landscaping seasons. These guys should make $25-50k CASH per year and the only reliable people he can get drive in from Indiana. I can't imagine how many tens of thousands of people on welfare live closer to me than Indiana, yet none of them want that job. They'd rather hang out in the projects all day. fuckers

By the way I had to wait 4 weeks because this brick crew was so backed up and they working 60+ hours a week. Those guys are taking in over $1,500 per week in cash.

twitter: @CorpFin_Guy

Jul 18, 2011

I think Nobama is being sarcasatic.... ?

Jul 18, 2011

.

Jul 18, 2011

Saw a guy paying with his little food stamp card awhile back while talking on an iphone.

If I had asked people what they wanted, they would have said faster horses - Henry Ford

Jul 18, 2011
happypantsmcgee:

Saw a guy paying with his little food stamp card awhile back while talking on an iphone.

This happens all the time.

When I lived in the city (Chicago) I took a bus that continued on into the ghetto. The number of poor teenage girls with 2-3 kids was insane and all of them an iPhone or blackberry.

twitter: @CorpFin_Guy

Jul 18, 2011

he was being sarcastic on the former serious on the latter. and yeah idk why people dog certain immigration reform stuff esp because the majority of the jobs they 'take' are the ones no one wants and they work hard at them to do well -- maybe some dont but a lot put their time and effort in. and fwiw, blue collar jobs can easily outdo white collar jobs at certain levels. id much rather have a son who is a general contractor than an art major.

Jul 19, 2011
shorttheworld:

he was being sarcastic on the former serious on the latter. and yeah idk why people dog certain immigration reform stuff esp because the majority of the jobs they 'take' are the ones no one wants and they work hard at them to do well -- maybe some dont but a lot put their time and effort in. and fwiw, blue collar jobs can easily outdo white collar jobs at certain levels. id much rather have a son who is a general contractor than an art major.

I beg to differ. A great many folks would love to work "lower class" jobs. The combination of illegal immigrants and big city affirmative action based collusion tactics used by unions have actually driven down the pay in many of these jobs to a point where the typical American cannot afford to take them. Personally, I would take a wood working gig over a suit and tie job any day of the week. The fact that the job in question could hardly feed me, let alone a family is the determining factor for most...not the presupposed "nobody wants that job" attitude that has been falsely spread among our generation.

When you travel through the richer cities in Europe and see 60+ year old (non illegal alien) men waiting tables and enjoying themselves you kind of get the other side of the picture. The tendency to transpose one's own views is always tempting but not always accurate.

Now go get me a fucking soda, jerk.

Jul 18, 2011

I was serious on the latter.

Here is the source:

http://www.heritage.org/research/reports/2007/08/h...
And lets not forget this beaut:

http://www.zerohedge.com/article/entitlement-ameri...

Jul 18, 2011

Sorry, that's what I meant, sarcastic on former not latter.

Jul 18, 2011

Taxes are LOWER (save 2 or 3 years) than they have ever been in 50 years. We had a pretty nice boom in the 90s wouldn't you say? http://www.taxpolicycenter.org/taxfacts/displayafa...
If the republicans' scare tactics were factually correct, wouldn't the Bush tax cuts have resulted in more jobs? No, it actually didn't. And the stimulus plan kept us out of a depression, as said by Bernake himself. Sure, the banks are suffering now with tighter regulation, but that also means more job security as they build back on a legitimate path. Even if GS cuts now, when they re-hire you will be safer thanks to Obama.

And, I am pretty sure poor people will spend money because they NEED it. Rich people don't need more money, I doubt an extra 10k will create any new jobs. Change the channel from Fox and the WSJ. Also, get your head out of the sand.

Jul 18, 2011
SmallUser:

Taxes are LOWER (save 2 or 3 years) than they have ever been in 50 years. We had a pretty nice boom in the 90s wouldn't you say? http://www.taxpolicycenter.org/taxfacts/displayafa...
If the republicans' scare tactics were factually correct, wouldn't the Bush tax cuts have resulted in more jobs? No, it actually didn't. And the stimulus plan kept us out of a depression, as said by Bernake himself. Sure, the banks are suffering now with tighter regulation, but that also means more job security as they build back on a legitimate path. Even if GS cuts now, when they re-hire you will be safer thanks to Obama.

And, I am pretty sure poor people will spend money because they NEED it. Rich people don't need more money, I doubt an extra 10k will create any new jobs. Change the channel from Fox and the WSJ. Also, get your head out of the sand.

Deciding how much of their own money rich people need or don't need is an egregious presumption. That 10k may or may not be used to create another job but if requisitioned by the govt., it likely will be misspent on some pet project or used to pay for past largess. Unlikely that it will be used to create a job.
The problem has less to do with revenues than it does with spending. I'd venture that more people would be willing to pay higher taxes if they thought they were gaining actual use form it not funding some fatcat union or welfare stipend.

Making money is art and working is art and good business is the best art - Andy Warhol

Jul 18, 2011
SmallUser:

Taxes are LOWER (save 2 or 3 years) than they have ever been in 50 years. We had a pretty nice boom in the 90s wouldn't you say? http://www.taxpolicycenter.org/taxfacts/displayafa...
If the republicans' scare tactics were factually correct, wouldn't the Bush tax cuts have resulted in more jobs? No, it actually didn't. And the stimulus plan kept us out of a depression, as said by Bernake himself. Sure, the banks are suffering now with tighter regulation, but that also means more job security as they build back on a legitimate path. Even if GS cuts now, when they re-hire you will be safer thanks to Obama.

And, I am pretty sure poor people will spend money because they NEED it. Rich people don't need more money, I doubt an extra 10k will create any new jobs. Change the channel from Fox and the WSJ. Also, get your head out of the sand.

Seems like flawless logic bro. You are on the wrong forum since you are clearly a raging Maddow-lover who doesn't care to actually engage in constructive debate. I fail to see the relevance of GS and tighter regulation on banks in this thread. Like dwight schrute said, who are you to judge people's relative "need" of money? How did you decide that Bush tax cuts did not create jobs while Obama's stimulus kept us out of a depression? On what factual or empirical basis? Get outta here

Jul 18, 2011
LeveragedFiend:
SmallUser:

Taxes are LOWER (save 2 or 3 years) than they have ever been in 50 years. We had a pretty nice boom in the 90s wouldn't you say? http://www.taxpolicycenter.org/taxfacts/displayafa...
If the republicans' scare tactics were factually correct, wouldn't the Bush tax cuts have resulted in more jobs? No, it actually didn't. And the stimulus plan kept us out of a depression, as said by Bernake himself. Sure, the banks are suffering now with tighter regulation, but that also means more job security as they build back on a legitimate path. Even if GS cuts now, when they re-hire you will be safer thanks to Obama.

And, I am pretty sure poor people will spend money because they NEED it. Rich people don't need more money, I doubt an extra 10k will create any new jobs. Change the channel from Fox and the WSJ. Also, get your head out of the sand.

Seems like flawless logic bro. You are on the wrong forum since you are clearly a raging Maddow-lover who doesn't care to actually engage in constructive debate. I fail to see the relevance of GS and tighter regulation on banks in this thread. Like dwight schrute said, who are you to judge people's relative "need" of money? How did you decide that Bush tax cuts did not create jobs while Obama's stimulus kept us out of a depression? On what factual or empirical basis? Get outta here

I want to have constructive arguments, but that isn't really possible on this forum, given its clearly conservative slant. I am not claiming to know everything, but it seems clear that giving tax breaks to richer Americans doesn't seem to help, and only decreases the middle class (which is a driver of the economy and jobs..) It is a pretty widely held sentiment that Obama kept us out of a major financial crisis and not many would have wanted to see that stimulus not happen. I don't really see Republicans harping on him for that (which is rare) so in my opinion that is confirmation. Economic policies, which I am sure you agree with, take time to develop and with a crisis like this will take even longer.

You are correct, GS isn't really relevant here, I was just adding an additional opinion about how we got to where we are now. Some of my best friends work at GS now, and the work they do is fantastic. I think you will find many people who would agree that tighter regulation would lead to larger growth through lending. That helps GS in the long run and the economy in the short run and long run. Problems aren't 4 years long, and neither are their solutions.

Jul 18, 2011
SmallUser:

Taxes are LOWER (save 2 or 3 years) than they have ever been in 50 years. We had a pretty nice boom in the 90s wouldn't you say? http://www.taxpolicycenter.org/taxfacts/displayafa...
If the republicans' scare tactics were factually correct, wouldn't the Bush tax cuts have resulted in more jobs? No, it actually didn't. And the stimulus plan kept us out of a depression, as said by Bernake himself. Sure, the banks are suffering now with tighter regulation, but that also means more job security as they build back on a legitimate path. Even if GS cuts now, when they re-hire you will be safer thanks to Obama.

And, I am pretty sure poor people will spend money because they NEED it. Rich people don't need more money, I doubt an extra 10k will create any new jobs. Change the channel from Fox and the WSJ. Also, get your head out of the sand.

From 2000 to early 2008 the US had its highest employment numbers in history. Job security has never been lower then it is now. Stated tax rates at the national level might be "lower" then they have ever been but that does not include state and local taxes, and new fees levied by the federal government. When you add it all up and add the inflation factor that the Treasury and FED Bank have created you get a net rise of taxes with out actually upping the rates. I'm sorry but if you believe the shit that comes out of Ben Bernake mouth, you need to reevaluate your life and your desire to go into finance. Sure the "depression" was averted but if you really dig down into economic numbers we are currently in a depression. GDP growth might be up but things that actually matter like wage growth, ballance sheets of the American public, ect ect a very different picture emerges. A picture that is actually sugar coated by the shit that spews out of this administrations mouth everyday.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Jul 18, 2011

Replace the income tax with a progressive VAT; tax food, housing, and healthcare at lowest rate and everything else at higher rates. This way everyone feels the burden of higher taxes not just the middle class. Next time govt. tries to raise taxes, Jesse Jackson and company march in the streets because making LaShonda pay more for that 6th pair of Jordans is racist. Govt. is forced to think logically about spending.

Making money is art and working is art and good business is the best art - Andy Warhol

Jul 18, 2011

come to gary indiana and say those people don't have it rough google gary indiana you havn't seen depression till you seen that city

Jul 19, 2011
blastoise:

come to gary indiana and say those people don't have it rough google gary indiana you havn't seen depression till you seen that city

As Heritage Foundation pointed out in their research I posted, there ARE people who are in dire need of assistance (according to Heritage only about 1/3rd of the people we consider to be 'poor'). Get rid of the other 2/3rds of worthless people on the government tit, help the 1/3rd a bit more and save all of ourselves some fucking money. And don't tell me that my 70% (or 35% or insert w/e tax bracket) snit going to buy LaQuishas kid his 6th pair of Jordans or Iphone because you are lying to yourself.

Go out on a Friday night to any Urban movie theater and most those kids will have nicer (and brand new) clothes, phones, shoes, earrings, etc. Shit, I am lucky to buy a new set of clothes once a year. I am STILL using my 4 year old blackberry. I don't even think I buy a new pair of shoes every year, probably every 2 + years. I will wear my tennis shoes down to the soles and my work shoes I will bring in and get fixed when they need to be.

Jul 19, 2011
Nobama88:

As Heritage Foundation pointed out in their research I posted, there ARE people who are in dire need of assistance (according to Heritage only about 1/3rd of the people we consider to be 'poor'). Get rid of the other 2/3rds of worthless people on the government tit, help the 1/3rd a bit more and save all of ourselves some fucking money. And don't tell me that my 70% (or 35% or insert w/e tax bracket) snit going to buy LaQuishas kid his 6th pair of Jordans or Iphone because you are lying to yourself.

But those people in Gary all live in (dilapidated) homes with two rooms per person, have (old) tvs, microwaves, etc. They just can't afford to buy groceries for their six person family since they only earn $7.50/hour working 30 hours/week. Like the average Egyptian who earns less than $2K/year, they can probably also afford some level of cell phone service.

Go out on a Friday night to any Urban movie theater and most those kids will have nicer (and brand new) clothes, phones, shoes, earrings, etc. Shit, I am lucky to buy a new set of clothes once a year. I am STILL using my 4 year old blackberry. I don't even think I buy a new pair of shoes every year, probably every 2 + years. I will wear my tennis shoes down to the soles and my work shoes I will bring in and get fixed when they need to be.

Sure, so do I. I also wear t-shirts with holes in them and take the PATH train from NJ to save money on top of that. But it doesn't mean the Heritage foundation isn't grandstanding on many of the facts. This isn't the '70s and most people who receive government assistance would have not necessarily have other places to go to get food and meet their basic needs.

The best argument for cutting spending on social programs is that we can't afford it. And you pitch your own tent first, then other members of the troop. That's at least a solid argument. We need less anger and talking points on both sides (CC Ed Schulz) and more stopping to think.

Jul 18, 2011

It's good that you care about the economy, but you don't understand what you are talking about. Every one of your opinions is just that - an opinion. You have made several faulty assumptions and your syntax shows that you have no background in even basic economics. It "seems clear" that tax breaks for richer Americans doesn't "seem to help"? And this somehow "decreases" the middle class? Where did you come up with that? Do you think higher taxes will spur our economy out of the gutter? I'm asking a lot of questions because I honestly don't understand where you come up with this shit.

By the way, Republicans absolutely harp on Obama for passing the stimulus and maintaining an unemployment rate above 9%.

Finally, I want to restate that you don't know what you're talking about. "Tighter regulation" will lead to "larger growth through lending"? Lending to people who aren't credit worthy is not a path to growth. That's what screwed us in the first place. Do you really think that banks would pass up those profitable opportunities for no reason?

Maybe those politicians will come up with some "economic policies, which I agree with."

Jul 18, 2011

[quote]I want to have constructive arguments, but that isn't really possible on this forum, given its clearly conservative slant.[quote]

So you can't have a constructive argument... unless the other person agrees with you... That makes no sense, it's about on par with raising taxes to create more jobs.

Jul 18, 2011

Obama "maintained" the rate above 9%? that implies he wanted to, which is not correct. In addition 9% unemployement now is a hell of a lot better than the financial destruction that occurs if we don't tighten regulations.

Jul 18, 2011

It is ok guys, past a certain amount of income and ethics no longer apply. If you make over $100K a year it is morally and ethically fine to steal from you.

Work ethic is dead in this country. The USA is now the "Gimmie" state.

Jul 19, 2011

I wish the feds would index government growth to inflation that would solve the issue. Ultimately we need to cut, here are some places where there is a lot of fat to cut: the military, defense spending is inefficient and we are fighting two (three counting Libya) wars; Social Security, means test; Medicare, make users shoulder more of the burden and end the drug benefit; DOE, just get rid of it.

Jul 19, 2011

How anyone can talk about raising the Fed tax rates when over 50% of this country pays ZERO in Federal tax is beyond me.

Beggars can't be choosers. NOT IN AMERICA. The people who get a free ride spend their time complaining about successful people instead of going out and seizing the day like we all did.

Jul 19, 2011

Look, we're already at 9.2% unemployment, so I am not sure how much economic harm going back to the Clinton tax schedule is actually going to do.

The Republicans do have a point that we can't target just the wealthy with tax hikes. But the country got by with higher taxes in the past. China and the Middle East are going to implode if food prices keep going up, and rich people aren't dumb enough to expatriate there anymore. During a food crisis, you want to be in a country that produces its own food and has certain geographical advantages- like the US, Canada, Australia, New Zealand, or the UK. All of these countries have higher marginal personal tax rates than the US.

At a top marginal tax rate of 35%, we can increase revenues by raising taxes. Let's get our fiscal house in order now and worry about the economy once it's clear the federal government is running a sustainable budget. Yes, it's going to be tough, but I see a whole bunch of folks here who normally agree with me that Keynesianism doesn't work using Keynesianism to justify holding taxes down.

We need to raise taxes- on EVERYONE- and cut spending. That's the only solution. We will finish with unemployment at 11% and a balanced budget, but the alternative is looking over our fiscal shoulders all the time.

Jul 19, 2011
IlliniProgrammer:

Look, we're already at 9.2% unemployment, so I am not sure how much economic harm going back to the Clinton tax schedule is actually going to do.

The Republicans do have a point that we can't target just the wealthy with tax hikes. But the country got by with higher taxes in the past. China and the Middle East are going to implode if food prices keep going up, and rich people aren't dumb enough to expatriate there anymore. During a food crisis, you want to be in a country that produces its own food and has certain geographical advantages- like the US, Canada, Australia, New Zealand, or the UK. All of these countries have higher marginal personal tax rates than the US.

At a top marginal tax rate of 35%, we can increase revenues by raising taxes. Let's get our fiscal house in order now and worry about the economy once it's clear the federal government is running a sustainable budget. Yes, it's going to be tough, but I see a whole bunch of folks here who normally agree with me that Keynesianism doesn't work using Keynesianism to justify holding taxes down.

We need to raise taxes- on EVERYONE- and cut spending. That's the only solution. We will finish with unemployment at 11% and a balanced budget, but the alternative is looking over our fiscal shoulders all the time.

Well put. Anyone advocating the reduction of federal debt needs to be realistic about taxes- there has to be more revenue coming in for the equation to ever balance (and no, I don't think the debt level needs to reach zero). Forget about how we got where we are or who spent what- it's all sunk costs now. With that said, it is obviously impractical to only "tax the rich"- in reality, everyone's tax rates need to go up. To do that, I would personally like to see a simplified personal and corporate tax code. Reduce subsidies and tax breaks where possible, thus limiting the necessary increases in rates. On the other side of the equation, medicare spending needs to be reigned in, social security requires some tweaks to remain solvent in the near and distant future, military expenditures need to be slashed, and some discretionary expenditures need to be consolidated. In all honesty, if you remove the costs of the wars and if healthcare costs had been paced only by inflation for the past couple decades, we aren't in this mess. The budget really isn't that bloated with the excpetion of Medicare (+Medicaid) and the military.

Jul 19, 2011

On the general subject, let me tell a quick story of a "girl" I know personally in a major American city. Think GS/MS of urban metro bracket.

She is 29, single and unemployed (read: unemployable, since she's never had a job of any kind)...yet claims several of her cousins on her tax returns as having 6 kids.

She receives a little bit over $1,000/month in aid.

She has a fully subsidized apartment for which she pays the light bill (~$50/month)

She likes to drink expensive liquor and smoke good weed. This is taken care of by her live in boyfriend, who is in the "business" of providing one of the two aforementioned substances. On top of taking care of a variety of her "needs", he also pays her another $2,000 for (shall we say) "storage".

She spends her days shopping.

Now, I get that most WSO users wouldn't be happy with this type of life. $3K in cash and no expenses ain't great, though I bet it beats more than a few monkeys' bottom lines living in NYC. The issue is that this chick is ass raping the system and she is by no means an outlier. This is an extremely common scenario.

If in reading the previous story you have developed an image of the person I am talking about and feel a bit uneasy or unpleasant about it, you shouldn't. We are taught that stereotypes are wrong, but they do not exist because of lies... they exist because of truths like this one.

Practicality equals reality, and the practice of real life precludes any government or system (economic, social or political) from surviving when an active and sizable part of its populous lives to usurp the hard work of the rest.

This, in conclusion is why many (myself included) equate Democrats with Socialists. It is not because of policy or numbers, but because big liberal government not only endorses, but motivates this sort of behavior. Marginal tax rates mean jack shit while healthy capable working age people live like the subject of my all-too-true and everyday story.

Jul 19, 2011

Some thoughts:

The Regan Expansion came after a major recession, back in the good ol' days when we had "V" shaped recoveries. Its kind of like a new IB CEO taking credit for massive turnarounds after the 2008 crisis.

I do think we need higher tax rates on the really wealthy. I met a rich old guy a few years ago at a BBQ, and he was telling me stories of the "good old days" of business- liquid lunches, 5 star dinners and such. I asked him why he thought things changed, and he cited two main reasons- the rise of companies going public, but also tax rates and a relatively lax IRS. When tax rates are through the roof, there was more incentive to spend away as a "business expense" than it did to distribute the money as income. I am not really here to argue economic theory, but his argument made some sense- at some point higher tax rates encourage re-investment, since you can retain that "value" in your business as opposed to just having Uncle Sam take all of it. This may make less sense today though, as back in the 60's -80's heyday that he was generally talking about, you couldn't just send an email and move your business offshore like you can today.

That, and reduced spending. Particularly defense spending. The size of the defense budget is mind boggling. At 25% of the US Budget and roughly 700 billion dollars, we could halve it and still outspend the next 5 countries. We have nukes... do we really need this kind of a military? If we do, can we just drop the pretenses and occupy the damn middle east?

Jul 19, 2011
someotherguy:

Some thoughts:
That, and reduced spending. Particularly defense spending. The size of the defense budget is mind boggling. At 25% of the US Budget and roughly 700 billion dollars, we could halve it and still outspend the next 5 countries. We have nukes... do we really need this kind of a military? If we do, can we just drop the pretenses and occupy the damn middle east?

I agree that in order to bring the debt down, we will have to increase taxes (temporarily) and drastically reduce spending. There is a problem when 50% of people do not pay income tax, yet 1 out of 5 people are receiving government help. I think a fair tax is the correct option for taxes, but if not then increase taxes on the truly wealthy - not the $250K we are currently considering 'wealthy' ,

Decrease spending across the board - includes defense and entitlements - both of which NO PARTY will dare touch. But we have to cut to both of these. If we take those off the table then we will never get rid of this debt.

Jul 19, 2011
Nobama88:
someotherguy:

Some thoughts:
That, and reduced spending. Particularly defense spending. The size of the defense budget is mind boggling. At 25% of the US Budget and roughly 700 billion dollars, we could halve it and still outspend the next 5 countries. We have nukes... do we really need this kind of a military? If we do, can we just drop the pretenses and occupy the damn middle east?

I agree that in order to bring the debt down, we will have to increase taxes (temporarily) and drastically reduce spending. There is a problem when 50% of people do not pay income tax, yet 1 out of 5 people are receiving government help. I think a fair tax is the correct option for taxes, but if not then increase taxes on the truly wealthy - not the $250K we are currently considering 'wealthy' ,

Decrease spending across the board - includes defense and entitlements - both of which NO PARTY will dare touch. But we have to cut to both of these. If we take those off the table then we will never get rid of this debt.

Government cannot control TAX REVENUE. Government can only control TAX RATES.

"The American father is never seen in London. He passes his life entirely in Wall Street and communicates with his family once a month by means of a telegram in cipher." - Oscar Wilde

Jul 19, 2011
someotherguy:

Some thoughts:

The Regan Expansion came after a major recession, back in the good ol' days when we had "V" shaped recoveries. Its kind of like a new IB CEO taking credit for massive turnarounds after the 2008 crisis.

I do think we need higher tax rates on the really wealthy. I met a rich old guy a few years ago at a BBQ, and he was telling me stories of the "good old days" of business- liquid lunches, 5 star dinners and such. I asked him why he thought things changed, and he cited two main reasons- the rise of companies going public, but also tax rates and a relatively lax IRS. When tax rates are through the roof, there was more incentive to spend away as a "business expense" than it did to distribute the money as income. I am not really here to argue economic theory, but his argument made some sense- at some point higher tax rates encourage re-investment, since you can retain that "value" in your business as opposed to just having Uncle Sam take all of it. This may make less sense today though, as back in the 60's -80's heyday that he was generally talking about, you couldn't just send an email and move your business offshore like you can today.

That, and reduced spending. Particularly defense spending. The size of the defense budget is mind boggling. At 25% of the US Budget and roughly 700 billion dollars, we could halve it and still outspend the next 5 countries. We have nukes... do we really need this kind of a military? If we do, can we just drop the pretenses and occupy the damn middle east?

Reagan Expansion brought 19 million jobs to this country and enabled us to bankrupt the USSR.

How?

  • Lower marginal tax rates
  • Slashed federal regulations (only president in decades to actually REDUCE, not slow the growth of, the red tape in the Federal Register
  • Strong Dollar
  • Kemp-Roth ACt exploded stock ownership via IRA and ESOPs

His final goal was deficit reduction, which was delayed due to Cold War military spending. Bush/Clinton benefitted from this peace dividend when these TEMPORARY (not long term entitlements) military expenditures expired.

"The American father is never seen in London. He passes his life entirely in Wall Street and communicates with his family once a month by means of a telegram in cipher." - Oscar Wilde

Jul 19, 2011

Flat taxes are fair. An equal percent of my income and the same percent of your income is the only way to ensure equitability. When 40+% of the overall pop. isn't paying taxes there is a problem. Everyone must pay to play.

Congress is a spendthrift. Believes if they can sight some poor individual who would be adversely affected by cuts it justifies the rest of their wasted spending. GAO released a report showing 200B in duplicity. Start eliminating government programs, agencies, subsidies, tax loop holes and deductions, pet projects and bring it in line.

The idea that unemployment was maintained having gone from 8% to 9.5% AFTER stimulus breaks down to roughly $138,000.00 per job saved. That's purely wasteful and I would doubt any of the 2.4 million saved jobs actually earned 60k let alone 130+...

Jul 19, 2011

I agree Heritage is no doubt conservative. You cannot simply dismiss this research though.

Jul 19, 2011

The Heritage study was based on CENSUS DATA.

"The American father is never seen in London. He passes his life entirely in Wall Street and communicates with his family once a month by means of a telegram in cipher." - Oscar Wilde

Jul 19, 2011
veritas14:

The Heritage study was based on CENSUS DATA.

Yes, but it selects data to paint a skewed picture.

If you live in a trailer or a project and your mother earns minimum wage 30 hours/week and have no father, you might have a television or microwave at home. That's a one-time expense. You might even have a cell phone. It doesn't change the fact that you're dirt poor and need food stamps to get by.

In foreclosureland or in a project, real-estate is cheap. It doesn't tell you how rich or poor someone is. What's expensive is food. What's expensive is gasoline. What's (sometimes) expensive is household energy. What's expensive is education.

We need to cut spending, but let's use honest rhetoric as we do it. The answer isn't "you guys have been taking advantage of the feds." The answer is, "Sorry, we can't afford it. We're going bankrupt ourselves."

If we come from a position of honesty- talking about simple kitchen table economics and applying that to the federal budget rather than talking about kids' clothing and cell phone bills, voters will move into the fiscal conservative camp. Right now, Obama is winning the political game by talking about a balanced approach and in order to push back, Republicans have to talk about the fact that we're not sure revenues will go up if we raise taxes. What we can be sure of is costs going down if we cut spending.

Jul 19, 2011
IlliniProgrammer:
veritas14:

The Heritage study was based on CENSUS DATA.

If we come from a position of honesty- talking about simple kitchen table economics and applying that to the federal budget rather than talking about kids' clothing and cell phone bills, voters will move into the fiscal conservative camp. Right now, Obama is winning the political game by talking about a balanced approach and in order to push back, Republicans have to talk about the fact that we're not sure revenues will go up if we raise taxes. What we can be sure of is costs going down if we cut spending.

Isn't this the main argument that most conservatives spout on Sunday talk shows? That if we raise taxes, we are unlikely to get the revenues we need. And the talking heads come back that you simply want to hurt the little people and the middle class and give more money to the ultra wealthy and big corporations. How do you win?

I think we are at a point where I am not sure the American people know what is good for them, or at least they are not willing to do what it takes if it interferes with their bottom line. Look at the tea partiers who say cut everything, but don't touch Medicare/SS. Or the Unions who want more taxpayer money to fund one of their many pet projects for 'the people'. People have become used to what they have, and good luck trying to take that away from them. You see this happening in nanny state Europe - you can take their 40 day required vacation days and pensions over their dead bodies.

Its why I am so against taxes - I know that when I give my money to the government A) they will waste 90 cents out of every dollar and B) they will never decrease the amount they want to take from me but only increase it.

Jul 19, 2011

The U.S. is turning into Europe. I think sharing ideas about how to find opportunities outside this country would be much more worthwhile than going back and forth about these clowns called politicians. The country is in serious debt, and the only foreseeable future is higher taxes. Democrat or Republican...these guys would tax the shit out of everyone; be it through direct taxation or through currency manipulation.
The true problem is about controlling spending. Trust me, if taxes are raised, that revenue would be directed to more Pork, welfare and Shit that doesn't contribute value to the economy. So it's about being responsible, and holding these jokers called politicians accountable. These guys care more about keeping their jobs than solving problems.

Jul 19, 2011

Simply put, anyone receiving government aid needs to undergo a serious auditing every year. This process may cost money but it would cut back on otherwise useless gov't spending. Get rid of the mindset that you can 'play the game' and perhaps many of the poor will begin adding value to society, only in order to support themselves.

group think leads to mediocrity

Jul 19, 2011

Just found this. Funny that we are talking about it and a new article comes out yesterday with new data.

http://www.heritage.org/research/reports/2011/07/w...
http://www.nationalreview.com/corner/272081/modern...
Modern Poverty Includes A.C. and an Xbox
July 18, 2011 10:39 A.M.
By Ken McIntyre

When Americans think of poverty, we tend to picture people who can't adequately shelter, clothe, and feed themselves or their families.

When the Census Bureau defines "poverty," though, it winds up painting more than 40 million Americans -- one in seven -- as "poor."

Census officials continue to grossly exaggerate the numbers of the poor, creating a false picture in the public mind of widespread material deprivation, writes Heritage Foundation senior research fellow Robert Rector in a new paper.

"Most news stories on poverty feature homeless families, people living in crumbling shacks, or lines of the downtrodden eating in soup kitchens," Rector says. "The actual living conditions of America's poor are far different from these images."

Congress is tying itself in knots figuring out how to cut spending and bring down a $14 trillion national debt. Lawmakers might well take a much closer look at the nearly a trillion dollars spent each year on welfare even though many recipients aren't what the typical American would recognize as poor and in need of government assistance.

What is poverty? Americans might well be surprised to learn from other government data that the overwhelming majority of those defined as "poor" by the Census Bureau were well-housed and adequately fed even in the recession year 2009. About 4 percent of them did temporarily become homeless.

Data from the Department of Energy and other agencies show that the average poor family, as defined by Census officials:

* Lives in a home that is in good repair, not crowded, and equipped with air conditioning, clothes washer and dryer, and cable or satellite TV service.

* Prepares meals in a kitchen with a refrigerator, coffee maker and microwave as well as oven and stove.

* Enjoys two color TVs, a DVD player, VCR and -- if children are there -- an Xbox, PlayStation, or other video game system.

* Had enough money in the past year to meet essential needs, including adequate food and medical care.

Rather than report such detailed surveys, Rector and co-author Rachel Sheffield write, the media "amplified" the Census Bureau's annual misrepresentation of poverty over the past 40 years. News reports routinely suggest that poor Americans typically are homeless and hungry -- and U.S. foes and rivals such as Iran, China, and Russia are delighted to report the same.

"Regrettably, most discussions of poverty in the U.S. rely on sensationalism, exaggeration, and misinformation," Rector says. "But an effective anti-poverty policy must be based on an accurate assessment of actual living conditions and the causes of deprivation."

See the full Heritage Foundation paper, including downloadable charts, here: "Air Conditioning, Cable TV, and an Xbox: What Is Poverty in the United States Today?"

Jul 19, 2011
Nobama88:

Just found this. Funny that we are talking about it and a new article comes out yesterday with new data.

http://www.heritage.org/research/reports/2011/07/w...
http://www.nationalreview.com/corner/272081/modern...
Modern Poverty Includes A.C. and an Xbox
July 18, 2011 10:39 A.M.
By Ken McIntyre

When Americans think of poverty, we tend to picture people who can't adequately shelter, clothe, and feed themselves or their families.

When the Census Bureau defines "poverty," though, it winds up painting more than 40 million Americans -- one in seven -- as "poor."

Census officials continue to grossly exaggerate the numbers of the poor, creating a false picture in the public mind of widespread material deprivation, writes Heritage Foundation senior research fellow Robert Rector in a new paper.

"Most news stories on poverty feature homeless families, people living in crumbling shacks, or lines of the downtrodden eating in soup kitchens," Rector says. "The actual living conditions of America's poor are far different from these images."

Congress is tying itself in knots figuring out how to cut spending and bring down a $14 trillion national debt. Lawmakers might well take a much closer look at the nearly a trillion dollars spent each year on welfare even though many recipients aren't what the typical American would recognize as poor and in need of government assistance.

What is poverty? Americans might well be surprised to learn from other government data that the overwhelming majority of those defined as "poor" by the Census Bureau were well-housed and adequately fed even in the recession year 2009. About 4 percent of them did temporarily become homeless.

Data from the Department of Energy and other agencies show that the average poor family, as defined by Census officials:

* Lives in a home that is in good repair, not crowded, and equipped with air conditioning, clothes washer and dryer, and cable or satellite TV service.

* Prepares meals in a kitchen with a refrigerator, coffee maker and microwave as well as oven and stove.

* Enjoys two color TVs, a DVD player, VCR and -- if children are there -- an Xbox, PlayStation, or other video game system.

* Had enough money in the past year to meet essential needs, including adequate food and medical care.

Rather than report such detailed surveys, Rector and co-author Rachel Sheffield write, the media "amplified" the Census Bureau's annual misrepresentation of poverty over the past 40 years. News reports routinely suggest that poor Americans typically are homeless and hungry -- and U.S. foes and rivals such as Iran, China, and Russia are delighted to report the same.

"Regrettably, most discussions of poverty in the U.S. rely on sensationalism, exaggeration, and misinformation," Rector says. "But an effective anti-poverty policy must be based on an accurate assessment of actual living conditions and the causes of deprivation."

See the full Heritage Foundation paper, including downloadable charts, here: "Air Conditioning, Cable TV, and an Xbox: What Is Poverty in the United States Today?"

Anyone who argues against the USA's poor, let me quote you a phrase.

"We have the fattest homeless people in the world."

Jul 19, 2011

Exactly, but when it rains, you have to cover the xbox with a tarp.

Jul 19, 2011

Illini, I don't think many people have an issue with helping out people who are too old, too young, or too sick.

The big issue is that the system is so easy to abuse. I agree with the above poster that full scale regular audits should be preformed on these programs.

I know people who got food stamps and subsidized housing while still going on spring break trips. The system is set up so you just have to fill in the paperwork correctly and some bureaucrat rubber stamps the documents.

We need an organization with the same ruthlessness as the IRS goes after tax evasion to go after the fraud in the welfare system.

Jul 19, 2011
Cardinal:

Illini, I don't think many people have an issue with helping out people who are too old, too young, or too sick.

The big issue is that the system is so easy to abuse. I agree with the above poster that full scale regular audits should be preformed on these programs.

I know people who got food stamps and subsidized housing while still going on spring break trips. The system is set up so you just have to fill in the paperwork correctly and some bureaucrat rubber stamps the documents.

We need an organization with the same ruthlessness as the IRS goes after tax evasion to go after the fraud in the welfare system.

+1

Jul 19, 2011

I think people overstate how overly abused food stamp and related welfare programs are. If you're going to come in and make these claims, the onus is on you to back it up with some sources. Questionable anecdotal evidence doesn't work.

Jul 19, 2011
TheKing:

I think people overstate how overly abused food stamp and related welfare programs are. If you're going to come in and make these claims, the onus is on you to back it up with some sources. Questionable anecdotal evidence doesn't work.

I used to work at a "tote the note" auto business. (google that phrase)
I saw abuse of the stated programs daily, firsthand. I don't have a source to back it up versus what I've seen with my own eyes.

Jul 19, 2011
TheKing:

I think people overstate how overly abused food stamp and related welfare programs are. If you're going to come in and make these claims, the onus is on you to back it up with some sources. Questionable anecdotal evidence doesn't work.

This.

You guys seem to be obsessed with Reagan's mythical welfare queen.

http://en.wikipedia.org/wiki/Welfare_queen
The reality is that these stereotypes- and that is what they are- were largely taken care of with welfare reform.

Jul 19, 2011
duffmt6:
TheKing:

I think people overstate how overly abused food stamp and related welfare programs are. If you're going to come in and make these claims, the onus is on you to back it up with some sources. Questionable anecdotal evidence doesn't work.

This.

You guys seem to be obsessed with Reagan's mythical welfare queen.

http://en.wikipedia.org/wiki/Welfare_queen
The reality is that these stereotypes- and that is what they are- were largely taken care of with welfare reform.

Haha, good joke. You're right, I imagine majority of welfare recipients are honest citizens.

The fact is, for the past 60 years Democrats have been telling the poor that they are going to pull them out of doldrums they are in and move them to prosperity. Has this happened yet?

Jul 19, 2011
duffmt6:
TheKing:

I think people overstate how overly abused food stamp and related welfare programs are. If you're going to come in and make these claims, the onus is on you to back it up with some sources. Questionable anecdotal evidence doesn't work.

This.

You guys seem to be obsessed with Reagan's mythical welfare queen.

http://en.wikipedia.org/wiki/Welfare_queen
The reality is that these stereotypes- and that is what they are- were largely taken care of with welfare reform.

Yes, and those federal welfare dollars just flowed through 1000 new and different agencies at the state and federal level.

The names are different: community organizing, urban poverty prevention program, minority empowerment. My hometown had a program to give homeless people cell phones!

The effect is the same.

The cleanest solution was offered by Milton Friedman: a negative income tax. Every must file with the IRS and the gov't will progressively send you a cheque raising you up to some minimum level of income. It increases with your wages to a certain point as an incentive to get a job and work.

It eliminates all the special interest pandering, rent seeking and bribery that currently corrupts our system.

It eliminates miles of gov't bureaucracy and toxic agencies. Is there any doubt that places like ACORN were at best political front groups and at worst race baiting hate groups?

"The American father is never seen in London. He passes his life entirely in Wall Street and communicates with his family once a month by means of a telegram in cipher." - Oscar Wilde

Jul 19, 2011

Haters gonna hate

Jul 19, 2011

Anyone else find it a little ridiculous that someone can put on a couple hundred pounds and then quit their job on disability because their weight keeps them from working?

Jul 19, 2011

Just a quick note on Heritage: in their assessment of Paul Ryan's budget plan, they predicted the US would eventually reach 2.9% unemployment in 2020 thanks to the plan. After being called out on this being woefully unrealistic, they 'revised' the number to 4.27% with no changes in the other variables. If that's not intellectually dishonest, I don't know what is. Hence there is cause to be skeptical of any 'research' they put out.

As far as taxes go, we're kind of in a pickle. The single biggest cause of the ballooning of the deficit over the past ten years was the Bush tax cuts. The Reagan tax cuts undoubtedly had a stimulative effect but they were also matched by extremely profligate spending and a rapidly rising deficit. Same goes for the Bush tax cuts. Easy credit and massive government spending made the economy what it was. Seeing as we're are currently recovering from a credit crisis and experiencing a major deleveraging in the private sector, any measures to curb our deficit (cutting spending, raising taxes) will be likely to punish the economy beyond what the electorate can bear.

However in the long term, there are a lot of reforms that could improve the U.S.' situation. We're currently one standard deviation below the average top tax rate since 1913 (http://www.ritholtz.com/blog/2011/07/tax-rates-dev...). There is room to increase that rate (for a smaller subset of the population probably) as well as increasing the size of the tax base. Furthermore, a great deal could be done to simplify the tax code and lower the corporate tax rate. A system where GE pays no taxes is an abject failure. It would be far better to have a system where companies pay a reduced rate rather than do all in their power to avoid paying taxes at all.

In terms of spending, much needs to be done in order to allocate spending better. Absurd subsidies and misguided programs are the sad legacies of the K Street - Congress complex and we're simply spending way too much on stuff that doesn't translate into more jobs, better infrastructure and real benefits for the American people.

Jul 19, 2011
GoodBread:

Just a quick note on Heritage: in their assessment of Paul Ryan's budget plan, they predicted the US would eventually reach 2.9% unemployment in 2020 thanks to the plan. After being called out on this being woefully unrealistic, they 'revised' the number to 4.27% with no changes in the other variables. If that's not intellectually dishonest, I don't know what is. Hence there is cause to be skeptical of any 'research' they put out.

As far as taxes go, we're kind of in a pickle. The single biggest cause of the ballooning of the deficit over the past ten years was the Bush tax cuts. The Reagan tax cuts undoubtedly had a stimulative effect but they were also matched by extremely profligate spending and a rapidly rising deficit. Same goes for the Bush tax cuts. Easy credit and massive government spending made the economy what it was. Seeing as we're are currently recovering from a credit crisis and experiencing a major deleveraging in the private sector, any measures to curb our deficit (cutting spending, raising taxes) will be likely to punish the economy beyond what the electorate can bear.

However in the long term, there are a lot of reforms that could improve the U.S.' situation. We're currently one standard deviation below the average top tax rate since 1913 (http://www.ritholtz.com/blog/2011/07/tax-rates-dev...). There is room to increase that rate (for a smaller subset of the population probably) as well as increasing the size of the tax base. Furthermore, a great deal could be done to simplify the tax code and lower the corporate tax rate. A system where GE pays no taxes is an abject failure. It would be far better to have a system where companies pay a reduced rate rather than do all in their power to avoid paying taxes at all.

In terms of spending, much needs to be done in order to allocate spending better. Absurd subsidies and misguided programs are the sad legacies of the K Street - Congress complex and we're simply spending way too much on stuff that doesn't translate into more jobs, better infrastructure and real benefits for the American people.

Reagan deficit was TEMPORARY and TARGETED: military spending to defeat the USSR. Bush I and Clinton experienced the benefit of this expiring 'peace divided'

Gov't cannot control tax revenues. Gov't only gets to change the tax RATES. You note that there is room to raise rates. Correct. But historically gov't revenues never exceed 18% due to behavior modification on the part of individuals.

Why does Obama want to give that mediocrity Elizebth Warren the ability ot abuse credit card companies when the Federal Government keeps rolling over its own balance.

Compound interest will fck your sht up. Take a look at our projected debt servicing requirements. The bald entitlement liabilities are only a sliver of that pie.

"The American father is never seen in London. He passes his life entirely in Wall Street and communicates with his family once a month by means of a telegram in cipher." - Oscar Wilde

Jul 19, 2011
veritas14:

Why does Obama want to give that mediocrity Elizebth Warren the ability ot abuse credit card companies when the Federal Government keeps rolling over its own balance.

The poor credit card companies!

You do know Obama appointed someone not named Elizabeth Warren to the Consumer Protection Agency? The CPA is a pretty benign organization- I don't undestand the uproar even a little bit.

Jul 19, 2011
GoodBread:

Just a quick note on Heritage: in their assessment of Paul Ryan's budget plan, they predicted the US would eventually reach 2.9% unemployment in 2020 thanks to the plan. After being called out on this being woefully unrealistic, they 'revised' the number to 4.27% with no changes in the other variables. If that's not intellectually dishonest, I don't know what is. Hence there is cause to be skeptical of any 'research' they put out.

As far as taxes go, we're kind of in a pickle. The single biggest cause of the ballooning of the deficit over the past ten years was the Bush tax cuts. The Reagan tax cuts undoubtedly had a stimulative effect but they were also matched by extremely profligate spending and a rapidly rising deficit. Same goes for the Bush tax cuts. Easy credit and massive government spending made the economy what it was. Seeing as we're are currently recovering from a credit crisis and experiencing a major deleveraging in the private sector, any measures to curb our deficit (cutting spending, raising taxes) will be likely to punish the economy beyond what the electorate can bear.

However in the long term, there are a lot of reforms that could improve the U.S.' situation. We're currently one standard deviation below the average top tax rate since 1913 (http://www.ritholtz.com/blog/2011/07/tax-rates-dev...). There is room to increase that rate (for a smaller subset of the population probably) as well as increasing the size of the tax base. Furthermore, a great deal could be done to simplify the tax code and lower the corporate tax rate. A system where GE pays no taxes is an abject failure. It would be far better to have a system where companies pay a reduced rate rather than do all in their power to avoid paying taxes at all.

In terms of spending, much needs to be done in order to allocate spending better. Absurd subsidies and misguided programs are the sad legacies of the K Street - Congress complex and we're simply spending way too much on stuff that doesn't translate into more jobs, better infrastructure and real benefits for the American people.

This was so logical and well-reasoned out that my dick got hard. No homo.

Jul 19, 2011
TheKing:

This was so logical and well-reasoned out that my dick got hard. No homo.

I'm quite flattered. No homo.

Veritas, Reagan's spending was temporary only in that he couldn't run for a third term. Bush Snr. paid for it when he raised taxes.

As far as not being able to control tax revenues, the Bush tax cuts certainly did reduce the government's take. 2004-2007 was absolutely epic in terms of wealth creation (albeit temporary) and that didn't stop us from racking up a major deficit. We would have added to the debt no matter the level of taxes, but a majority of it was due to the tax cuts. Can you imagine coming into the post-Lehman days with the the top rate at 39%? Our debt-to-GDP would have been lower and we could have resorted to more fiscal stimulus by both cutting taxes and spending more and still be in less of a hole than we are today.

Somewhat like investing, our country needs to move towards having a margin of safety when it comes to economic policies. If you cut taxes when things have been going great, it's much harder to do when things go poorly. Similarly, spending billions on wars of a dubious purpose makes it that much harder to spend on the things that matter once the private sector is hurting and won't pick up the slack.

Jul 19, 2011

I can certainly appreciate everyone's desire to reform welfare, but I really have to ask if you guys writing the "I hate liberals and welfare queens" rants can give us a ballpark dollar figure for the amount of ill-gained benefits extracted from the system?

Cutting the entire welfare system -- literally cutting all spending -- is not going to solve any problems by itself and any welfare spending reforms will constitute just a small part of an overall fiscal reform plan. Most "welfare" spending --federal employee pensions, disability insurance, and unemployment insurance-- is funded by the payroll and income taxes that workers pay into the system in order to reap the benefits later.

The other direct aid programs for the poor -- food stamps, direct payments, housing assistance, etc -- come out of everybody's taxes, but are a fraction of overall welfare spending. The fraction of benefits that are ill-gotten is even smaller still.

That doesn't excuse the poor structuring of the system, but to take a cynical view, it's cheaper and better to pay those who game the system than to cut them off, have those who don't get a job turn to petty crime to survive and then have to spend 90k a year in tax dollars imprisoning them. You may develop a sense of ideologically induced self-satisfaction, but that's not going to do you much good when you're getting jacked on the subway or at the ATM. And the budget will still be fucked unless you make other cuts.

The "poor" may not pay federal income taxes, but if they're employed they're contributing 6-12% + sales tax (state) on every dollar they earn.

Jul 19, 2011
Tracer:

I can certainly appreciate everyone's desire to reform welfare, but I really have to ask if you guys writing the "I hate liberals and welfare queens" rants can give us a ballpark dollar figure for the amount of ill-gained benefits extracted from the system?

This please.

Jul 19, 2011
whatwhatwhat:
Tracer:

I can certainly appreciate everyone's desire to reform welfare, but I really have to ask if you guys writing the "I hate liberals and welfare queens" rants can give us a ballpark dollar figure for the amount of ill-gained benefits extracted from the system?

This please.

Here is analysis from Washington State- $90 Million over 2 years: http://www.dshs.wa.gov/pdf/ms/rda/research/11/137.pdf
Orange County - $10 Million in 6 months:
http://taxdollars.ocregister.com/2010/05/21/grand-...
UI Benefits Fraud in 2001 - estimated at over $581,000,000:
http://waysandmeans.house.gov/legacy/humres/107con...
Daycare Fraud in 2006 estimated at over $500,000,000 for LA County:
http://articles.latimes.com/2006/jul/01/local/me-w...
These just touch the surface of the fraud going on and in a very few places. Just imagine the number estimated for the whole country on all govt benefits.

Jul 19, 2011

I'll be honest. I don't care that much about "welfare" outright. The stats quoted by Nobama are shocking, but there are also the facts that these people have many people to a room, AC isn't grandiose anymore, having a full kitchen probably decreases costs (because otherwise they'd be eating McDonalds- more expensive and heath-destroying than home cooked meals). The Xbox/TV thing is obviously over the top. The notion that we should tax the people we are giving aid is utterly retarded. So we are gonna tax the money we give them? Come on. We ned to cut back. Of course. Maybe audit the poor. People caught for dealing drugs have to go through rehab/long term probation so they can't misstate their income. Cut the amount of people covered to 1/3rd or 1/2 of what we have now. That is the best solution. The chance that the government enacts a common sense reform like the fair tax or negative income tax is small. What we need to do is cut spending in welfare...yes, but also Medicare, Medicaid, and SS. Privatize the latter and enact reforms that slowly draw down the first two. We now spend around 750bn/year on welfare programs up from around 250bn in 1992. The dollar has not been devalued that much. I would recommend that we at least go back to then (inflation adjusted ~ 383bn today). Cut spending in defense too....yeah definitely defense. I could go on ad nauseam about this. I have some links to my other comments about this below. I don't think we need to raise taxes...period. Balance the budget and do so by cutting spending. Why risk hurting America with tax increases when we see a solution right in front of us?

http://www.wallstreetoasis.com/forums/the-world-in...
http://www.wallstreetoasis.com/blog/will-moodys-do...
http://www.wallstreetoasis.com/forums/texas-plans-...
http://www.wallstreetoasis.com/blog/weekend-wars-i...
http://www.wallstreetoasis.com/blog/wisconsin-and-...
http://www.wallstreetoasis.com/forums/us-republica...
http://www.wallstreetoasis.com/forums/shorting-the...
http://www.wallstreetoasis.com/forums/shorting-the...
http://www.wallstreetoasis.com/forums/shorting-the...
That's going back only about a year. So many ways to cut debt, will it happen...no

Reality hits you hard, bro...

Jul 19, 2011

And I will call it now, someone will say that is chump change...

and that attitude is exactly why our country is in this situation we are today. Every pet project and handout is chump change, no big deal, just let it slide..

Jul 19, 2011

You are citing fraud for state-level projects funded with state-level income taxes as far as I can tell.

Moreover, none of the numbers are conclusive, and few are even indicative of welfare-queen style fraud. The people allegedly defrauding the CalWORKS daycare program aren't even on welfare.

And yes, these numbers are chump change. 500mil nationwide on UI benefits fraud? Just under $1.66 per person.

You know this already, but the budget shortfall is measured in the trillions. Even extrapolating the daycare fraud to the rest of the country (which is absurd, but I'll humor you - 10 mil population in LA county --> 300 mil US population = 30x multiplier), the total amount is 15 billion. It's a drop in a bucket.

Yes, reform of these programs should be included in any package. No, it will not by itself solve the budget crisis.

These numbers are drops in the bucket, but attract so much attention from WSO monkeys, to the exclusion of other excesses that actually matter, like the trillions we spend on wars in other countries including enormous handouts to the people we blew up. Cutting all the pet projects and fraud in government still won't solve the crisis. That doesn't mean it shouldn't be cut, but to get hysterical because some "hood rat", or whatever the epithet-du-jour is, used welfare money to buy a $200 Xbox is a tempest in a teapot.

Edit: And for the record, I am a registered Republican, but you guys seriously need some perspective.

    • 1
Jul 19, 2011
Tracer:

You are citing fraud for state-level projects funded with state-level income taxes as far as I can tell.

Moreover, none of the numbers are conclusive, and few are even indicative of welfare-queen style fraud. The people allegedly defrauding the CalWORKS daycare program aren't even on welfare.

And yes, these numbers are chump change. 500mil nationwide on UI benefits fraud? Just under $1.66 per person.

You know this already, but the budget shortfall is measured in the trillions. Even extrapolating the daycare fraud to the rest of the country (which is absurd, but I'll humor you - 10 mil population in LA county --> 300 mil US population = 30x multiplier), the total amount is 15 billion. It's a drop in a bucket.

Yes, reform of these programs should be included in any package. No, it will not by itself solve the budget crisis.

These numbers are drops in the bucket, but attract so much attention from WSO monkeys, to the exclusion of other excesses that actually matter, like the trillions we spend on wars in other countries including enormous handouts to the people we blew up. Cutting all the pet projects and fraud in government still won't solve the crisis. That doesn't mean it shouldn't be cut, but to get hysterical because some "hood rat", or whatever the epithet-du-jour is, used welfare money to buy a $200 Xbox is a tempest in a teapot.

Edit: And for the record, I am a registered Republican, but you guys seriously need some perspective.

Jul 19, 2011

I just think it's far more productive to attack the root of the problem (government policy) rather than go after poor and more than likely uneducated people who spent their rainy day money on an XBox. People are taking advantage of programs that were designed to buy votes and pacify. One of the biggest problems with welfare is that it is not received on a prorated level. Once your income rises above a certain level you are cut off and this acts as a disincentive to actually work. While all of us talk about boot strapping it and whatever the fuck, if you don't have any opportunities beyond minimum wage jobs but working more than x hours will cause your total income to drop, why would you work? Yes, people take advante of this but it is a fatal flaw in the system.

Also as sad as it is, finance is stereotyped the exact same way these poor people are; especially the last few years. You're not only going to look like a total fuckhead but also accomplish absolutely nothing when you're talking about some broke fuck with an XBox when everyone thinks your destroyed the economy and you're on some models and bottles bullshit. All of this shit perpetuates class warfare which allows the same fuckheads to stay in power and further doom our country's fate.

Jul 19, 2011

Personally I have gotten to the point where i honestly want to say fuck them. Im sorry if you do not have what I have, it sucks that you live in the ghetto, it sucks not having money. For fucks sake we get it. But its not my problem that your parents were dead beats, its not my problem that you decided to not pay attention in school, its not my problem that you decided to just give up on your life. That is the way it should be. However the government says I have to "care" by taking my money in the form of taxes and giving it to those who have less. The phrase moral obligation gets tossed around alot. I say fuck morals if I didnt have to pay all of these extra taxes I could use that money to start a business, or buy a 4th or 5th car, or what ever it may be that I want to do with that money. It however is not the governments job to regulate morality by forcing me to give money to poor people. All governments run into problems when they try to regulate morality by putting in social welfare programs.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Jul 19, 2011

You're gonna need to buy a 4th and 5th car after the people whom you just cut off of welfare payments jack your first 3...

Jul 19, 2011

^^^ Hence why Republicans believe in the 2nd amendment. If we didn't have a second amendment, only the criminals would have guns.

Jul 19, 2011

Guns won't do you much good when you're asleep in your house and your car is outside getting jacked. I certainly support the 2nd amendment, but short of turning everyone's home into a fucking garrison, you're better off stopping crime by not creating the need for it in the first place.

And just so people understand the actual numbers involved, instead of guesstimates, here's a link to the itemized Federal budget. Welfare numbers are nowhere near the 750bil figure mentioned earlier. All welfare is lumped under "Income security" and most of that is comprised of unemployment insurance and federal employee benefits which are already paid for by payroll and income taxes. It's even in Excel!

http://www.gpoaccess.gov/usbudget/fy12/xls/BUDGET-...

Jul 19, 2011

The big money for welfare abuse at the federal level comes in the form of Medicare abuse which the CBO estimates is over 50B every year.

However at the state and local levels there are many programs set up to benefit "the poor" which are constantly being abused. These programs are designed so that as long as you can show on paper that you fit the criteria you get the money. Doesn't matter if your 18 able bodied and live at home as long as you write whatever on the forms no one is gonna check cause that would be racist.

The best part for the abusers is that the system will never change because any attempt to fix the system is racist and the libs will be out in force to prove they aren't racist by defending the system.

Jul 19, 2011

This actually turned into a good discussion. Good job guys.
I agree with tracer and IP that arguing over welfare is a moot point in terms of the whole budget and only serves to distract from the issue. It also makes the debate needlessly hostile.

Making money is art and working is art and good business is the best art - Andy Warhol

Jul 20, 2011

Interesting discussion.

What's important in determining the effectiveness of stimulus spending is the money multiplier - ie how many times a dollar is re-spent. The higher the money multiplier the better the stimulus was in creating GDP growth for the country.

So let's look at two different sources of spending - food stamps and unemployment versus government military spending. Food stamps and unemployment have a multiplier effect of 1.73 and 1.62 respectively (http://www.economist.com/node/18958475) and government military spending has a multiplier effect of 1 (Valerie Ramey, "Identifying Government Spending Shocks: It's All in the Timing" (unpublished, University of California-San Diego, October 2009).).

This should make at least intuitive sense - give the poor money and they increase their spending on necessities immediately, give Boeing money to make fighter jets and they do so at the cost of commercial airplanes.

So let's look at our military spending (http://en.wikipedia.org/wiki/List_of_countries_by_...).
We spent $687.1 billion in 2010 on military spending while our next biggest rival (China) spent 114.3. Let's say we cut military spending down to 228.6 billion (twice what the next biggest spender is spending) and use the rest for aid to the poor. We'll assume a paltry 1.6 money multiplier for the event that there is diminishing marginal returns to such a strategy as the poor might begin to save.

(687.1 - 228.6)*(1.6-1) = $275.1 Billion

Assuming a $14 trillion dollar GDP I've just increased GDP by .2 percent without doing anything but giving to the poor and ending unprofitable wars. No tax raises, nothing.

I think a Christian Republican would endorse my plan - it's fiscally sound and it does it by doing the Christian thing - helping the poor and not killing senselessly in third world countries.

Jul 20, 2011
monkeysama:

Interesting discussion.

What's important in determining the effectiveness of stimulus spending is the money multiplier - ie how many times a dollar is re-spent. The higher the money multiplier the better the stimulus was in creating GDP growth for the country.

So let's look at two different sources of spending - food stamps and unemployment versus government military spending. Food stamps and unemployment have a multiplier effect of 1.73 and 1.62 respectively (http://www.economist.com/node/18958475) and government military spending has a multiplier effect of 1 (Valerie Ramey, "Identifying Government Spending Shocks: It's All in the Timing" (unpublished, University of California-San Diego, October 2009).).

This should make at least intuitive sense - give the poor money and they increase their spending on necessities immediately, give Boeing money to make fighter jets and they do so at the cost of commercial airplanes.

So let's look at our military spending (http://en.wikipedia.org/wiki/List_of_countries_by_...).
We spent $687.1 billion in 2010 on military spending while our next biggest rival (China) spent 114.3. Let's say we cut military spending down to 228.6 billion (twice what the next biggest spender is spending) and use the rest for aid to the poor. We'll assume a paltry 1.6 money multiplier for the event that there is diminishing marginal returns to such a strategy as the poor might begin to save.

(687.1 - 228.6)*(1.6-1) = $275.1 Billion

Assuming a $14 trillion dollar GDP I've just increased GDP by .2 percent without doing anything but giving to the poor and ending unprofitable wars. No tax raises, nothing.

I think a Christian Republican would endorse my plan - it's fiscally sound and it does it by doing the Christian thing - helping the poor and not killing senselessly in third world countries.

Take from left pocket, give to right pocket.

Econometricians, they're ever so pious. Are they doing real science or confirming their bias?
Their Keynesian models are tidy and neat. But that top-down approach is a Fatal Conceit.

"The American father is never seen in London. He passes his life entirely in Wall Street and communicates with his family once a month by means of a telegram in cipher." - Oscar Wilde

Jul 20, 2011
veritas14:
monkeysama:

Interesting discussion.

What's important in determining the effectiveness of stimulus spending is the money multiplier - ie how many times a dollar is re-spent. The higher the money multiplier the better the stimulus was in creating GDP growth for the country.

So let's look at two different sources of spending - food stamps and unemployment versus government military spending. Food stamps and unemployment have a multiplier effect of 1.73 and 1.62 respectively (http://www.economist.com/node/18958475) and government military spending has a multiplier effect of 1 (Valerie Ramey, "Identifying Government Spending Shocks: It's All in the Timing" (unpublished, University of California-San Diego, October 2009).).

This should make at least intuitive sense - give the poor money and they increase their spending on necessities immediately, give Boeing money to make fighter jets and they do so at the cost of commercial airplanes.

So let's look at our military spending (http://en.wikipedia.org/wiki/List_of_countries_by_...).
We spent $687.1 billion in 2010 on military spending while our next biggest rival (China) spent 114.3. Let's say we cut military spending down to 228.6 billion (twice what the next biggest spender is spending) and use the rest for aid to the poor. We'll assume a paltry 1.6 money multiplier for the event that there is diminishing marginal returns to such a strategy as the poor might begin to save.

(687.1 - 228.6)*(1.6-1) = $275.1 Billion

Assuming a $14 trillion dollar GDP I've just increased GDP by .2 percent without doing anything but giving to the poor and ending unprofitable wars. No tax raises, nothing.

I think a Christian Republican would endorse my plan - it's fiscally sound and it does it by doing the Christian thing - helping the poor and not killing senselessly in third world countries.

Take from left pocket, give to right pocket.

Econometricians, they're ever so pious. Are they doing real science or confirming their bias?
Their Keynesian models are tidy and neat. But that top-down approach is a Fatal Conceit.

Cute, but is there anything about my methodology that is incorrect?

As far as the military numbers are concerned, it's probably actually higher than that once subcontracting (reconstruction in Iraq, police training, etc) are taken into account. And SIPRI is highly regarded and has been around for 40 years or so - they're also nonpartisan - they hate all military spending so they have little incentive to inflate one countries misdeeds relative to anothers'.

Jul 20, 2011

I am curious to how we know that the $228.6 Billion number for China's spending on Military is a good number? That number comes from SIPRI, which if I am not mistaken uses open source data to get these numbers. You can't even trust what Chinese companies put out there....

FYI: I dont disagree with you sama on the need to cut military spending, but I am just curious as to how they get these numbers and know that they are in the correct ballpark.

Jul 20, 2011

I will just state briefly that you are completely ignoring the effects of time-shifting through debt. Government stimulus is a reaction to a fall in private spending. If private companies cut back, as they have recently, the government is spending dollars that the private sector won't spend now and essentially making the private sector pay for it later, after an ostensible recovery. It's not a zero-sum single state system.

Just look at the tens of billions of cash that Apple is sitting on being put to no productive use.

Jul 20, 2011
Tracer:

I will just state briefly that you are completely ignoring the effects of time-shifting through debt. Government stimulus is a reaction to a fall in private spending. If private companies cut back, as they have recently, the government is spending dollars that the private sector won't spend now and essentially making the private sector pay for it later, after an ostensible recovery. It's not a zero-sum single state system.

Just look at the tens of billions of cash that Apple is sitting on being put to no productive use.

And YOU are completely ignoring the PRICE SYSTEM and the way that REAL market interest rates coordinate consumption vs. capital investment over time.

My guess is Apple isn't burying that cash in a mattress, or burning it. That cash is earning interest in TMMFs or short term bonds. (not as much interest as they SHOULD be getting, since the Fed is repressing rates)

That cash is also an ASSET on their balance sheet, stabilizing the company's balance sheet, providing a bulwark for Apple investors. Nothing I love more than Berkshire's big war chest. Same applies here.

Let's take the logic full circle:

  • You advocate gov't intervention to get firms to spend their cash
  • Firms don't spend their cash BECAUSE the gov't is royally f*cking things up
  • You now want the gov't to continue to manipulate markets to override the actions of investors who are rationally responding to previous gov't action.

"The American father is never seen in London. He passes his life entirely in Wall Street and communicates with his family once a month by means of a telegram in cipher." - Oscar Wilde

Jul 20, 2011
veritas14:

Let's take the logic full circle:

  • You advocate gov't intervention to get firms to spend their cash
  • Firms don't spend their cash BECAUSE the gov't is royally f*cking things up
  • You now want the gov't to continue to manipulate markets to override the actions of investors who are rationally responding to previous gov't action.

Where in the world are you getting this from? Governments spend money when individuals and the private sector don't in order to keep unemployment from rising to the moon.

Firms aren't holding back because of the government, they're holding back because consumers have been forced to deleverage by the credit crisis and aren't spending any more.

As for Apple, that cash isn't a bulwark. They have no debt, what in the world would they need to hold on to $50B for? Pay employees' severance if the government outlaws iPhones? They simply have no productive uses for it now, or you could say they have yet to find an opportunity with an attractive multiplier.

Jul 20, 2011

GoodBread and Monkeysama vs. Severus Snape

THE FINAL BATTLE FOR WSO'S ECONOMIC SOUL!

Jul 20, 2011

If anyone else wants to explain the "uncertainty caused by Obama" with specifics, please be my guest. Because I think a lack of demand, structural issues with the economy, and the fact that ~7 million American jobs were replaced by machines / efficiency in the last 2 years has more to do with the economic woes we now face than "uncertainty caused by Obama."

Jul 20, 2011

Yeah. I think it's structural issues too. The real question is "Where is this growth going to come from when we are running out of energy?" Malthus is striking back with a vengeance.

We need to have a conversation about what a more sustainable economy would look like. That conversation might involve nuclear fission or fusion, it might involve natural gas, or it might involve renewables. My money's on some form of nuclear, though. Renewables are impractical and a lobbyist's best friend and I'm not sure the planet can afford more fossil fuels.

Regardless, I think energy is going to be one of the biggest economic issues of the next decade. It's the foundation for the economy. We can run the economy without Apple, but if we lost Exxon Mobil's 5% share of global oil production, we'd see a global recession on the order of 2008.

//minor threadjack

For those who disagree with anthropogenic global warming/atmospheric change, can you please answer the following questions?

1.) What caused the dip in atmospheric CO2 concentrations in 1973-1974 when OPEC cut oil exports and global hydrocarbon consumption dropped significantly? Was that us or just a weird once-in-50-year CO2 concentration drop that just happened to coincide with a once-in-50-year drop in global energy consumption.

2.) What happened with the climate around the Aral Sea? Was this a natural or human phenomenon? If humans can cause climate change on a 100,000 square mile scale, where do we draw the line?

3.) Why is there a correlation in earth's geological history between higher CO2 concentrations in the atmosphere and warmer temperatures?

For those who agree with global warming, can you please explain this graph (from a pro-AGW website)?

https://www.planetseed.com/files/uploadedimages/Sc...
https://www.planetseed.com/node/15221
Why can't the recent spike in global temperatures be explained by a ~100,000 year cycle in global temperatures?

Jul 20, 2011

Deleveraging and mass layoffs started with Bush, well before the Obama victory was preordained.

I don't know how you can claim with a straight face that the stimulus act passed in Feb 2009 was crowding out private spending from Q2 2008 to Q1 2009. Moreover, almost all of the stimulus spending took the form of tax breaks, state budget aid, or entitlement spending, none of which are projects that private capital would be allocated toward. You can't just drop a crowding out bomb like it's an axiom in the face of a different context and overwhelming empirical evidence to the contrary.

As others have said, Apple's balance sheet requires no bolstering as it has no debt. Much of that cash is probably sitting in a bank somewhere as reserves not being loaned out for capital projects.

Jul 20, 2011

Well, having employees is effectively a certain degree of leverage in some ways. You have money going out every single month and it takes several extra months worth of payments (severance, decision costs, litigation, UI) to get rid of that employee. In return, you get work at a significant discount to contractors.

You can think of an employee kinda the same way as you think of a lease. An operating lease technically isn't a liability/asset but a capital lease is. In reality, the truth is somewhere in between and it really depends on how the accountants decide to designate it.

So Apple does have liabilities with regards to its employees on some level.

Jul 20, 2011

I don't think that the stimulus did anything really, and that is the problem.. Nothing bad, but nothing good. The "shovel-ready project" garbage is a huge waste of money. Those signs you see on the highway "Paid for by the American Recovery Act" or w/e. Those cost $10k a pop. There is one every 3-4 exits on I-40..... The money paid to banks stays in the banks because of uncertainty. That's the problem that isn't addressed by President Obama in any significant way. If it was, the recovery would be doing better at least. You can see by yesterday, because of the debt ceiling compromise, uncertainty is powerful. The stimulus has been an epic waste of money IMHO and the chance that the government can create jobs at a decent cost is infinitesimally tiny. Obama didn't get us into this mess, but his policies are keeping us there. Uncertainty doesn't have to take the form of I'm gonna jack up the taxes! Even though he has said that. The healthcare reform, the financial reform, any change really can be boiled down to uncertainty. Change has to be gradual. This President has rammed the change down our throats like a porn star does his c*ck in a hardcore porno. The American public has supported little of it, and the implications of the legislation are UNCERTAIN.

Reality hits you hard, bro...

Jul 20, 2011

@IP:

Certainly there are liabilities on the balance sheet, but we're only talking debt.

If the devil came after Steve Jobs tomorrow to finally fulfill his end of the Faustian bargain that has clearly been made, Apple could close down, fire it's remaining 50k employees, paying out an average of 100k in severance/benefits to each and still only be down 5 billion dollars. After paying off all liabilities and writing down to zero all non-liquid assets, Apple would still have 34b in cash left over (presumably to be distributed to shareholders at $36 per share).

If you were Steve Jobs, what realistic actions could the Federal Government take to get you to create jobs with that cash?

Edit: I wouldn't necessarily say that the stimulus was a waste of money, 10k road signs and other excesses aside, but it was certainly a waste of an opportunity.

Jul 20, 2011

I saw Wynn's comments and what you guys are saying is completely nonsensical. How is government spending crowding out private spending? Is the government hitting up the tables at Encore?

The uncertainty we're facing has a whole lot more to do with the debt ceiling and Congress than the administration.

Jul 20, 2011
GoodBread:

I saw Wynn's comments and what you guys are saying is completely nonsensical. How is government spending crowding out private spending? Is the government hitting up the tables at Encore?

The uncertainty we're facing has a whole lot more to do with the debt ceiling and Congress than the administration.

Well, it's really all about the debt- both government and consumer. And there's plenty of blame to throw around. Bush didn't help; neither did Obama. Neither did Clinton or Reagan.

The consumer can't spend money- they are bankrupt. The country can't spend money- with 35% taxes, we are bankrupt. Corporations have boatloads of cash on their balance sheets.

So long run, the only outcome for the economy- if we want it to grow- is for some of that cash to find its way back into the pockets of consumers and government. We can talk about all the socialist ways to do this, or we can come up with an idea that investors and business can get excited about- raising taxes some and funneling that money back into technology. Perhaps start working on a space elevator or on nuclear fusion. In turn, money gets handed over from corporations to researchers, who then go out and buy more.

It's a huge risk, but if we manage to get nuclear fusion to work, it would be a bigger boom for the US economy than the internet. Incidentally, it would also return Iran to a desert. Technology (specifically the government-funded kind on a large scale that addresses the US's strategic interests) is the way to go.

Now, the best way to fund a lot of cheap, quality research and also give money to people who are going to spend it is to write grants to land grant state engineering schools. If we were to move NASA to Berkeley and UW Seattle, give it $100 Billion to build a space elevator, and have the DOE fund a Fusion Research Program at Michigan and UW Madison and fund it with $100 Billion, I think there's a 50-50 chance we come up with at least one of those two technologies in a decade. This would cost 0.1% of the national GDP over the next 10 years but give us a 50-50 shot of boosting growth by 2-3% for two decades.

The Chicago school of economics is correct that the economy generally knows how to most efficiently allocate resources over a five year horizon on the scale of up to billions of dollars. But it doesn't have a long-term plan and it doesn't necessarily know how to develop big, expensive technologies. That's where Malthus needs to come in. If we want to put in place the mechanisms that will allow our economy to expand, we need to grow our resource carrying capacity. That means a new energy technology like fusion or space-based solar.

Low taxes make a lot of sense, but if the economy is running out of investment ideas and there are huge all-or-nothing technology opportunities out there that no company could reasonably be expected to pursue on its own, we need to give some serious thought to raising taxes to fund some R&D that will eventually pay massive dividends to investors- given about 10-15 years.

Jul 20, 2011

Sure, but what if Apple's next hit isn't a blockbuster? It needs to be able to get back up and swing for the fences.

A tech company has few barriers to entry and few capital assets. So it needs all the cash it can get. It's the exact opposite of a utility. When a utility builds a power plant, it's probably going to be in use for the next fifty years. Apple's next IPhone will only be top-of-the-line for a couple years at best. If it falls on hard times, it has no properties to mortgage, no assets to fall back on but its cash. Employees get nervous and the smartest ones start leaving before the layoffs hit, creating a vicious cycle. The last thing Google wants its employees to worry about is layoffs.

I've always liked the idea of a company having a stable/variable dividend system. This would work really well for oil companies- who can say that we have a 2% dividend every year that we've always raised. And then we have a variable dividend that depends on oil market conditions and if the company's profits track oil prices, can be expected to vary between 0 and 4% every year and help investors at the gas pump.

Tech companies can use the same concept- but only having a variable dividend, say 30% of net OCF as reported.

Jul 20, 2011

A lot of Apple's R&D, manufacturing, and infrastructure costs are foisted off onto the component manufacturers and other contractors and passed onto the consumer so it doesn't really need that much cash to make its next product and the company will not have unused capacity if demand falls.

To put it another way, the Manhattan project only cost ~$25-30 billion in current dollars, and I'd submit that designing and building an atomic bomb is on an entirely different plane than designing a flashy consumer electronic device...

You raise some interesting ideas, but I think we're straying somewhat off topic. I think it would be difficult to dispute the argument that Apple is holding cash far in excess of any realistic and forseeable need, and that its reason for doing so extends beyond "uncertainty" caused by the current administration.

Jul 20, 2011

Agreed on R&D. I think infrastructure projects are also a good use of tax dollars and their effect on employment can tide us over until new technologies hit the block.

Jul 21, 2011

I am genuinely interested in hearing the argument about this whole idea that the top earners in the economy generate wealth and income that trickles down to everyone else. This is the central idea that you guys scream from the mountain tops, but there is absolutely no evidence to back this up, none. In fact, middle class incomes have (largely) not budged since the 50's. I am not trying to stoke any fires, I am genuinely interested in where you get this idea that is not backed up by any factual evidence. Please don't turn this into a flame war.

http://money.cnn.com/2011/02/16/news/economy/middl...
http://www.foxbusiness.com/personal-finance/2011/0...

Jul 21, 2011

Who cares? What does it matter if billionaires light all of their money on fire and dance around naked. Taking from someone simply because you think you can do better with it is wrong. What you work for you deserve to keep. This bullshit justification for state sponsored theft makes me sick.

We pay plenty in taxes. We pay a myriad of fines, fees, levy's, direct taxes and indirect taxes. Everything is taxed from cable, cell phones, tolls roads, water, property, income, investment income, consumption, cigarettes, lottery, alcohol, on and on and on.

We, as part of a first world nation, need to pay taxes to support a safety net for those who fail and a well run nation. Our government oozes cash, pisses it away in a never ending stream of wasteful spending, pork barrel bullshit and entitlements. Government spending is misdirected and inefficient. Taxation, beyond the point of providing for basics and normal society, is stealing, fact.

Cut the defense budget, cut Federal agencies, lay off government workers, raise the retirement age for social security, provide less services and pay down the debt. The government is getting in the way, not solving anything.

Jul 21, 2011
ANT:

Who cares? What does it matter if billionaires light all of their money on fire and dance around naked. Taking from someone simply because you think you can do better with it is wrong. What you work for you deserve to keep. This bullshit justification for state sponsored theft makes me sick.

No Anthony. The fact is that without the state, all of the billionaires would have nothing. That doesn't mean we should go out and send poor kids to summer camp with Bill Gates' money, but it does mean that to some extent, tax rates are relative to history and the alternatives. And historically, US tax rates are low. Top marginal tax rates and spending as a percentage of GDP is also fairly low relative to most other countries.

The pendulum has swung as far in the low tax direction as it's going to swing. I'd be saying the exact reverse if we were sitting at 60% marginal tax rates. Raising taxes doesn't mean we have to fund consumption- we can fund technology research that winds up benefitting everyone. Figuring out ways to make cars more efficient would be a low-risk way, but the high-risk gamble is a new energy technology. As mentioned above, the Manhattan Project cost about $60 Billion inflation-adjusted. I think that for $100 Billion, we can make a good run at nuclear fusion and have maybe a 30-40% shot at commercializing it in 10 years. This would allow us to send the middle east back to the stone age and leapfrog China's focus on renewables.

We pay plenty in taxes. We pay a myriad of fines, fees, levy's, direct taxes and indirect taxes. Everything is taxed from cable, cell phones, tolls roads, water, property, income, investment income, consumption, cigarettes, lottery, alcohol, on and on and on.

Sure, and government spending makes up about 24% of GDP.

We, as part of a first world nation, need to pay taxes to support a safety net for those who fail and a well run nation. Our government oozes cash, pisses it away in a never ending stream of wasteful spending, pork barrel bullshit and entitlements. Government spending is misdirected and inefficient. Taxation, beyond the point of providing for basics and normal society, is stealing, fact.

What about providing for stuff that the private sector can't provide? The internet was born from a government project. Same with nuclear energy. Same with computers. Many of our country's billionaires would not have gotten rich had it not been for government research. Expensive, high-risk, high-reward research projects are the one place where Austrian Economics breaks down. In general, I prefer another classical economist- Malthus- to Mises. They agree about 80% of the time, but Malthus generally does a much better job of accounting for natural resources- something we really need to think about with billions of people trying to enter the middle-class.

Cut the defense budget, cut Federal agencies, lay off government workers, raise the retirement age for social security, provide less services and pay down the debt. The government is getting in the way, not solving anything.

Absolutely. But the one place we shouldn't cut- or at least be very selective about our cuts- is R&D. A space elevator or nuclear fusion would make the dot-com era look like a five-year-old's birthday party.

Jul 21, 2011

The American middle class might be losing out, but global workers are benefiting. We have been shifting from a manufacturing society into an information/service society since the 70's. I think 40 years is plenty for people to get their shit together.

Jul 21, 2011

Trickle down economics works on the idea that money that is in the private sector will be used for growth and expansion, while money given to the government will be wasted and never seen again. Which for the most part is exactly what happens. However in the given economy the private sector is holding over a trillion dollars in cash that it is afraid to put to work for fear of new regulations that will make their investment turn sour. There is no simple solution to the problem, however the answer to this question shoul be easy for any sane person that does not live of the government tit.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Jul 21, 2011
heister:

Trickle down economics works on the idea that money that is in the private sector will be used for growth and expansion, while money given to the government will be wasted and never seen again. Which for the most part is exactly what happens. However in the given economy the private sector is holding over a trillion dollars in cash that it is afraid to put to work for fear of new regulations that will make their investment turn sour. There is no simple solution to the problem, however the answer to this question shoul be easy for any sane person that does not live of the government tit.

I understand how its supposed to work, it works beautifully in theory. The issue is in reality it just doesn't work the way its supposed to, the facts just don't back it up.

Jul 21, 2011
awm55:
heister:

Trickle down economics works on the idea that money that is in the private sector will be used for growth and expansion, while money given to the government will be wasted and never seen again. Which for the most part is exactly what happens. However in the given economy the private sector is holding over a trillion dollars in cash that it is afraid to put to work for fear of new regulations that will make their investment turn sour. There is no simple solution to the problem, however the answer to this question shoul be easy for any sane person that does not live of the government tit.

I understand how its supposed to work, it works beautifully in theory. The issue is in reality it just doesn't work the way its supposed to, the facts just don't back it up.

STOP STOP STOP! There is no such thing as "trickle down" economics. "Trickle down" is a straw man mischaracterization of supply-side economics.

How have so many people on here taken economics and never grasped the price system?

How have so many people missed the way REAL market interest rates coordinate investment vs. spending over time?

The economy CANNOT be run from the Fed. The repression of REAL market interest rates is the royally misallocating scarce resources right now.

Reject central planning in every form.

"The American father is never seen in London. He passes his life entirely in Wall Street and communicates with his family once a month by means of a telegram in cipher." - Oscar Wilde

Jul 21, 2011

This thread has disappeared down a rabbit hole:

Too much emphasis on spending and consumption.

Too much conflation of money and wealth.

"The American father is never seen in London. He passes his life entirely in Wall Street and communicates with his family once a month by means of a telegram in cipher." - Oscar Wilde

Jul 21, 2011

Maybe veritas, but R&D spending is limited by how big the largest R&D company in the economy is. GE can afford to spend about $5-$10 Billion on R&D for a risky project. In contrast, the federal government can probably pony up $200 Billion- maybe $500 Billion if we're at war.

The free market's ability to get resources to where they need to go is well known. What isn't as well known is planning for long periods of time and very large projects that generate significant positive externalities.

Ludwig von Mises's view on the markets is Newtonian Physics. It's generally the best model outside of the extrema. But Malthus deals with the long-term physical and environmental realities that Mises can't deal with. If you want growth, you have to increase carrying capacity. That requires better technology and long-term planning on a larger scale than GE can come up with.

Honestly, how are we going to run the economy when we run out of ability to pump CO2 into the atmosphere or run out of oil? The world oil market is already hitting the wall in terms of trying to meet demand. It's only going to get worse. The economy will be good at improving efficiency, but it will not be able to get us to fusion technology. It will not build space elevators. The patent on that requires hundreds of billions of dollars worth of investment- something no company has- and you'd be five years of construction into your 17 years before you can start getting revenues.

Jul 21, 2011
IlliniProgrammer:

Maybe veritas, but R&D spending is limited by how big the largest R&D company in the economy is. GE can afford to spend about $5-$10 Billion on R&D for a risky project. In contrast, the federal government can probably pony up $200 Billion- maybe $500 Billion if we're at war.

The free market's ability to get resources to where they need to go is well known. What isn't as well known is planning for long periods of time and very large projects that generate significant positive externalities.

Ludwig von Mises's view on the markets is Newtonian Physics. It's generally the best model outside of the extrema. But Malthus deals with the long-term physical and environmental realities that Mises can't deal with. If you want growth, you have to increase carrying capacity. That requires better technology and long-term planning on a larger scale than GE can come up with.

Honestly, how are we going to run the economy when we run out of ability to pump CO2 into the atmosphere or run out of oil? The world oil market is already hitting the wall in terms of trying to meet demand. It's only going to get worse. The economy will be good at improving efficiency, but it will not be able to get us to fusion technology. It will not build space elevators. The patent on that requires hundreds of billions of dollars worth of investment- something no company has- and you'd be five years of construction into your 17 years before you can start getting revenues.

Just off the top of my head:

2009 Corporate R&D expenditures: $532 billion (+5% in a recession!)

This number does NOT include guys working on the next Google in their basement in Santa Barbara.

"The American father is never seen in London. He passes his life entirely in Wall Street and communicates with his family once a month by means of a telegram in cipher." - Oscar Wilde

Jul 21, 2011
veritas14:
IlliniProgrammer:

Maybe veritas, but R&D spending is limited by how big the largest R&D company in the economy is. GE can afford to spend about $5-$10 Billion on R&D for a risky project. In contrast, the federal government can probably pony up $200 Billion- maybe $500 Billion if we're at war.

The free market's ability to get resources to where they need to go is well known. What isn't as well known is planning for long periods of time and very large projects that generate significant positive externalities.

Ludwig von Mises's view on the markets is Newtonian Physics. It's generally the best model outside of the extrema. But Malthus deals with the long-term physical and environmental realities that Mises can't deal with. If you want growth, you have to increase carrying capacity. That requires better technology and long-term planning on a larger scale than GE can come up with.

Honestly, how are we going to run the economy when we run out of ability to pump CO2 into the atmosphere or run out of oil? The world oil market is already hitting the wall in terms of trying to meet demand. It's only going to get worse. The economy will be good at improving efficiency, but it will not be able to get us to fusion technology. It will not build space elevators. The patent on that requires hundreds of billions of dollars worth of investment- something no company has- and you'd be five years of construction into your 17 years before you can start getting revenues.

Just off the top of my head:

2009 Corporate R&D expenditures: $532 billion (+5% in a recession!)

This number does NOT include guys working on the next Google in their basement in Santa Barbara.

Wtf does the total R&D expenditures have to do with anything? Those dollars are spread across a huge spectrum. The entire point was that the government is able to concentrate huge sums of money for specific issues, where the private sector cannot.

Jul 21, 2011
duffmt6:
veritas14:
IlliniProgrammer:

Maybe veritas, but R&D spending is limited by how big the largest R&D company in the economy is. GE can afford to spend about $5-$10 Billion on R&D for a risky project. In contrast, the federal government can probably pony up $200 Billion- maybe $500 Billion if we're at war.

The free market's ability to get resources to where they need to go is well known. What isn't as well known is planning for long periods of time and very large projects that generate significant positive externalities.

Ludwig von Mises's view on the markets is Newtonian Physics. It's generally the best model outside of the extrema. But Malthus deals with the long-term physical and environmental realities that Mises can't deal with. If you want growth, you have to increase carrying capacity. That requires better technology and long-term planning on a larger scale than GE can come up with.

Honestly, how are we going to run the economy when we run out of ability to pump CO2 into the atmosphere or run out of oil? The world oil market is already hitting the wall in terms of trying to meet demand. It's only going to get worse. The economy will be good at improving efficiency, but it will not be able to get us to fusion technology. It will not build space elevators. The patent on that requires hundreds of billions of dollars worth of investment- something no company has- and you'd be five years of construction into your 17 years before you can start getting revenues.

Just off the top of my head:

2009 Corporate R&D expenditures: $532 billion (+5% in a recession!)

This number does NOT include guys working on the next Google in their basement in Santa Barbara.

Wtf does the total R&D expenditures have to do with anything? Those dollars are spread across a huge spectrum. The entire point was that the government is able to concentrate huge sums of money for specific issues, where the private sector cannot.

Yummy... government concentrating huge sums of money.... sounds like a Stalin 5 Year Plan... how'd that work out?

I would love to live in the fantasy land you inhabit. Haven't we seen enough examples of government claiming huge sums of $$$ to spend "where the private sector cannot" only to end up enriching special interest groups and rent-seekers?

I'm sure this time will be different!

"The American father is never seen in London. He passes his life entirely in Wall Street and communicates with his family once a month by means of a telegram in cipher." - Oscar Wilde

Best Response
Jul 21, 2011
veritas14:

Yummy... government concentrating huge sums of money.... sounds like a Stalin 5 Year Plan... how'd that work out?

Actually, it sounds like NASA or the Manhattan Project. One of those projects cost $40 Billion and gave us a technology that meets 10% of the US's energy needs without any air pollution. The other one gave us the integrated circuit, which allowed for Apple's, Microsoft's, Dell's, and Google's existence. Easily well over $1 Trillion in capital gains tax revenues- not to mention corporate income tax revenue- started with a $25 Billion inflation-adjusted project 45 years ago. An ROI of CPI + 8% ain't that bad.

Well-placed strategic government R&D projects tend to be make of the best major investments that the global economy has to offer. It's just that they have a 20-30 year time horizon and get a lot of their returns vis-a-vis positive externalities. Hence why it's a great investment for a taxing authority that plans on being around for another 100 years.

The only major single-line item expenditures the US government has made over the past 80 years on research and infrastructure have been the Manhattan Project/USS Nautilus/Hydrogen Bomb, NASA, and the US Highway System. All of them have outperformed any sustainable market return by 2% over a period of fifty years in terms of the derivative businesses from the technology developed. They also advanced strategic US interests at a fairly reasonable cost.

I am all for being frugal on social spending and consumption. R&D- if it's managed as well as most major US government projects in the past have been managed- is investment rather than consumption.

Jul 21, 2011
veritas14:

Just off the top of my head:

2009 Corporate R&D expenditures: $532 billion (+5% in a recession!)

This number does NOT include guys working on the next Google in their basement in Santa Barbara.

Yes, Veritas, but what was the largest project?

Nuclear fusion is (pardon the pun) a project with a great deal of atomicity. You either devote $100 Billion to it and get it done or you don't. Do you have any suggestions for how Corporate America could get together and devote 20% of their R&D expenditures to one project?

In reality, the largest project in that $532 Billion worth of R&D was probably ~$5 Billion and constituted a major $100 Billion+ market-cap blue-chip corporation's entire R&D budget for the year (probably a pharma or infrastructure conglomerate). It would take more like twenty companies getting together and pouring their entire R&D budgets for the year into nuclear fusion to make this work.

Or, we could have the federal government do this. High-risk high-reward R&D is ironically one of the few things that government does very well relative to industry. (CC Manhattan Project, USS Nautilus, NASA, cheap cheap state schools).

Jul 21, 2011

^^^

And to follow up on that, interest rates are currently at historical lows. If private companies aren't going to make these huge R&D investments now when debt is cheap, they certainly won't in the future when rates go up and the costs of borrowing increase.

To be honest, I think the situation we're in now defies many of the axioms that Austrians hold to be true.

The principal Austrian objection to artificially low interest rates as we have now is that they will induce excessive consumer spending in tandem with excess investment leading to malinvestment leading to perceived prosperity now, but trending towards a bigger collapse in the future. Borrowing costs are dirt cheap now and yet as far as I can tell we haven't seen a surge in consumption or investment.

That's not to discount the value of price and interest rate signaling or some of the other contributions from the Austrian School, but I don't think they are axiomatic truths, and they certainly don't seem to hold true now.

Jul 21, 2011
Tracer:

^^^

And to follow up on that, interest rates are currently at historical lows. If private companies aren't going to make these huge R&D investments now when debt is cheap, they certainly won't in the future when rates go up and the costs of borrowing increase.

To be honest, I think the situation we're in now defies many of the axioms that Austrians hold to be true.

The principal Austrian objection to artificially low interest rates as we have now is that they will induce excessive consumer spending in tandem with excess investment leading to malinvestment leading to perceived prosperity now, but trending towards a bigger collapse in the future. Borrowing costs are dirt cheap now and yet as far as I can tell we haven't seen a surge in consumption or investment.

That's not to discount the value of price and interest rate signaling or some of the other contributions from the Austrian School, but I don't think they are axiomatic truths, and they certainly don't seem to hold true now.

An Austrian might counter with:

  • the price of gold indicates a depreciating dollar.
  • massive regulatory, central bank and political regime uncertainty
  • it was Keynes, not Hayek, who advocated the use of low interest rates to induce consumer spending. Austrians don't assume consumers to be stupid; they will see beyond the near term and aren't wholly susceptible to central bank manipulations.

"The American father is never seen in London. He passes his life entirely in Wall Street and communicates with his family once a month by means of a telegram in cipher." - Oscar Wilde

Jul 21, 2011

I'm glad you weren't the one asked to sign off on the Manhattan Project, Apollo Project, DARPA, NIH, and NSF.

Support for government funding of certain technology projects isn't blanket support for nationalization of US industry and price controls.

Jul 21, 2011
Tracer:

I'm glad you weren't the one asked to sign off on the Manhattan Project, Apollo Project, DARPA, NIH, and NSF.

Support for government funding of certain technology projects isn't blanket support for nationalization of US industry and price controls.

The question is never: What can we accomplish?

Rather: What can we accomplish at what cost?

There are no solutions, only trade-offs.

(I'm curious.... what special quality do those projects possess that make them unsuitable for private enterprise/funding? Surely science is well suited for academia. Certainly weapons are capably developed by defense firms. Haven't we seen recent private space projects?)

"The American father is never seen in London. He passes his life entirely in Wall Street and communicates with his family once a month by means of a telegram in cipher." - Oscar Wilde

Jul 21, 2011
veritas14:
Tracer:

I'm glad you weren't the one asked to sign off on the Manhattan Project, Apollo Project, DARPA, NIH, and NSF.

Support for government funding of certain technology projects isn't blanket support for nationalization of US industry and price controls.

The question is never: What can we accomplish?

Rather: What can we accomplish at what cost?

There are no solutions, only trade-offs.

(I'm curious.... what special quality do those projects possess that make them unsuitable for private enterprise/funding? Surely science is well suited for academia. Certainly weapons are capably developed by defense firms. Haven't we seen recent private space projects?)

As everyone else has said, they require enormous investment budgets and coordination well beyond the capability of private companies. The Manhattan project cost $25 billion dollars in today's money. The Apollo program in the hundreds of billions. No company can float the cash let alone take out a loan for that kind of project.

Much of academia is funded by government grants. JHU receives $600m in grants every year from the NIH for medical research. A university's only other recourse is to have an enormous endowment to support this research.

The private space projects you've seen are built on the shoulders of the decades of research and work done by NASA. Without the Apollo Project, private efforts like the Ansari X-Prize would not have been feasible.

Jul 21, 2011

- the price of gold indicates a depreciating dollar.

All the more reason to invest that dollar.

- massive regulatory, central bank and political regime uncertainty

I still don't buy this. All central bank uncertainty is related to a rise in interest rates. All the more reason to invest now. There are no major regulatory reforms being considered now. Corporate taxes are likely to remain the same or decrease.

- it was Keynes, not Hayek, who advocated the use of low interest rates to induce consumer spending. Austrians don't assume consumers to be stupid; they will see beyond the near term and aren't wholly susceptible to central bank manipulations.

Advocation isn't observation. Consumers spend excessively when rates are low. The build up to the housing/financial crisis is perfect evidence of this.

Jul 21, 2011

Logical fallacy: seen vs. the unseen

Government takes a heckuva lot of cash in excess of those R&D projects you mention.

For the sake of continuing the conversation, I will grant that it was prudent to spend R&D dollars on those projects.

But the total cost of those projects isn't just the line-item expenditures. It's all part of a seamless garment of government largesse. For the sake of debate, I will grant that it is good to spend on R&D. But then it is impossible to reject other gov't spending. To politically justify those R&D allocations, you have to approve trillions of dollars in other government garbage. Why R&D and not Social Security? Why not defense contracts for new helicopters? Why not extra pension benefits?

The return on investment looks good if it's based on $40 billion. What if the cost is greater than that? The return on $14 trillion doesn't look so great. (US Public Debt)

"The American father is never seen in London. He passes his life entirely in Wall Street and communicates with his family once a month by means of a telegram in cipher." - Oscar Wilde

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"The American father is never seen in London. He passes his life entirely in Wall Street and communicates with his family once a month by means of a telegram in cipher." - Oscar Wilde

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"The American father is never seen in London. He passes his life entirely in Wall Street and communicates with his family once a month by means of a telegram in cipher." - Oscar Wilde

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