Employment, Debt, Deficit & Austerity

Discussion in 'Economy' started by zenguy, Oct 8, 2011.

  1. zenguy
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    zenguy Rookie

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    Before we get into the details, let me point out that when a government reduces spending, it has to fire people. If there is already high unemployment, this makes it worse. Furthermore, these fired people now stop paying taxes, and collect unemployment benefits instead, making the government's financial problems worse. And finally, these newly unemployed people don't have much money for shopping, so the retail industry suffers a hit, and they order less stuff from manufacturers, and so on. A policy like this, sometimes called austerity, just makes matters worse.

    Just to be clear, the debt I'll be talking about is the total amount of money that the U.S. government owes, and that it pays interest on. The deficit is the difference between total government spending and total government income, in one year. It should be clear that the debt is the result of having a deficit, year after year. In order to reduce the debt we need to have an annual surplus instead of a deficit.

    Deficit and debt are bad over the long haul. It's quite important to reduce the deficit, and reduce it a lot. But it does not have to be done immediately. It's a long term problem. The main reason to pay off the debt is because of the interest payments that have to be made. Those are a significant part of the government's total expenses, but in 2011 they are still manageable, still less than what we spend on the military, for example. But if the deficit remains high, the debt will rise, and the interest payment will eventually become unmanageable. As we approach that point, interest rates will rise, because lenders will worry about the safety of their investments. Fortunately, that point is still a few years away, but the danger must be taken seriously.

    Having 20% of the population under or un-employed is a very serious immediate problem. That is the principal cause of our large deficit, because unemployed people don't pay taxes! There is no doubt that stimulus works if it's the right kind. Giving money to wealthy people doesn't do it. Same for giving money to large corporations. What does work is either the government hiring people directly, like Roosevelt did, or letting contracts to private companies for goods or services that require workers immediately. Since the nation has thousands of roads and bridges that are in serious disrepair, this one is a no-brainer. Do you remember the bridge that collapsed in the midwest a couple of years ago? That's pretty serious. That should have been a wake-up call, but it was not heeded by our dysfunctional congress.

    But hiring people, or letting contracts, requires money. If the deficit is already a problem, how can the government spend more money, and where will it come from? The answer is that you have to go where the idle money is, and that location is well known today. It is in the financial accounts of large corporations and very wealthy individuals. If we were to simply return to the taxation policies of 1960's and 70's there would be plenty of money for hiring people and letting contracts. Our financial problems today are in large part due to a steady reduction of the tax rates on high incomes that began in the 1980's and continue today.

    What I'm saying is: Increase taxes on the rich and use the money to fix and build roads, bridges, railways, airports, high speed internet lines and hospitals. Also use it to train medical workers and technicians in industries with shortages of skilled labor.

    When you hire unemployed people you not only remove them from the unemployment lists, but they then have money to spend, which they do. This spending increases demand for goods and services, resulting in more hiring, to produce those goods and services. It's a positive feedback process. OTOH, if you give tax breaks to wealthy people, they invest most of that money, and so the economy is not stimulated very much. (This would be different if the nation had a shortage of capital, but that is not the case.) The newly employed people also begin paying taxes again.

    There are false myths being repeated endlessly by some in public life. One is that if you tax the "job creators" you will hurt the economy. Well, the evidence is clear: those job creators have been sitting on huge piles of cash for several years now, and they are not creating jobs. 30 years ago, when they WERE creating lots of jobs, they were paying MUCH HIGHER taxes than they are today.

    It's when the economy is strong, and growing, that governments can, and should, reduce spending.

    Mitchell Timin
     
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  2. CrusaderFrank
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    CrusaderFrank Gold Member

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    FDR was inaugurated in 1933, in what year did he policies lower US unemployment below today's horrific 10% level?
     
  3. expat_panama
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    expat_panama Senior Member

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    The poor don't hire. The rich hire. The rich pay the poor with the money the rich have. If the rich pay more taxes then they have less money to pay the poor, so the bottom line is that taxing the rich more equals less employment.

    This is not a matter of doctrine, this is historical record that we can see at irs.gov and bls.gov.
     
  4. zenguy
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    zenguy Rookie

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    You are repeating a myth. SOMETIMES the wealthy hire, but often they don't. They only hire when there is sufficient demand for their products & services so that more employees are required. When demand is low, and not growing, such as our current situation, they don't hire. It's well known that currently the wealthy and the giant corporations have huge quantities of cash, and they are using very little of it to hire new employees.

    If you want the wealthy to hire, you have to get money into the pockets of the consumers. Henry Ford knew that; he might have been the first well-known person to realize it.
     
  5. LOki
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    LOki The Yaweh of Mischief

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    The world just got dumber because of this.

    Thanks.
     
  6. uscitizen
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    uscitizen Senior Member

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    A strange thing here. The poor do hire thru spending their govt money on products and services sold to them.

    How many in the medical industry would lose their jobs if there was no medicare or medicaid?
    How many in the food production and distribution industry would lose their jobs if there were no?
    Food stamps?
    Welfare?
    unemployment?

    so yes the poor do hire people thru government spending.
    Many seem to forget that our economy is 70% based on consumer spending, and that includes the spending of the poor.

    How many in the defense industries would not have jobs if we had not invaded Afganistan and Iraq?
    And were not spending billions on reconstruction in the aforementioned country's?
     
    Last edited: Oct 8, 2011
  7. Wiseacre
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    Wiseacre Retired USAF Chief Supporting Member

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    This is really twisted logic. The poor hire people through gov't spending, except they don't pay federal income taxes? I think you know very well where most gov't revenue comes from, and it sure as hell isn't from poor people.

    Poor people hire folks because they spend somebody else's money on food stamps, welfare, and UE? If that were true, then why the hell are we still at 9.1% UE? For God's sake, we're spending more money than we ever have on those programs for the greatest number of people we ever have, by your logic we should be at full employment.
     
  8. Wiseacre
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    Wiseacre Retired USAF Chief Supporting Member

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    " If you want the wealthy to hire, you have to get money into the pockets of the consumers. Henry Ford knew that; he might have been the first well-known person to realize it.


    This right here is the crux of the problem I see with lib/dems that see redistribution of wealth from the rich guys to those at the low end of the income ladder as the solution to the problem. It isn't, never has been never will be. Why? BECAUSE IT'S TEMPORARY.

    You give somebody a thousand bucks, he spends it. Great, the economy gets a boost for maybe 6 months. Then what? You're back where you started except now you're a thousand bucks deeper in the hole than you were before.

    Say you give a guy a job fixing roads or a bridge somewhere. First of all, those jobs don't just happen right away, it takes quite awhile to get the bids out, award the contract, yada yada yada. So the guy finally starts work and life is good. Except the bridge gets fixed in a few months and now he's out of a job again like the guys at Solyndra.

    Here's the deal - there are no quick fixes, no easy solutions. And there's no way you can spend your way out of the hole we're in right now. The Japanese tried it for 20 years, and look where it got them. You've got to change the underlying problems, chief of which is the belief that we're headed in the wrong direction. Remember when Clinton raised taxes in 1993, but the economy took off anyway. Why? Because the mood of the country was different then, remember animal spirits and irrational exuberance? Well, a tax hike on the rich ain't going to fix that problem today.

    We need a sea change here, a change in course in our approaches to taxes, spending, regulations, housing, energy, education, a lot of stuff. I believe until that happens we just treading water and wasting time and money.
     
  9. Rozman
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    Rozman Gold Member Supporting Member

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    Rolling back the Bush tax cuts and then raising the taxes on them again to the effect of a 5% surcharge is Obama's way of keeping the economy in shambles...He wants this to happen.It has been his goal from the beginning. :eusa_shhh:
     
  10. Oldstyle
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    Oldstyle Gold Member

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    The "myth" that's being repeated endlessly by progressives, Zenguy is that we can continue to pay for Big Government by taking money from rich people and corporations.

    Instead of trying to punish those with capital for not creating jobs...instead of taking all of their money away and using it to prop up bloated and inefficient government programs...why don't you spend a moment examining WHY those wealthy people aren't investing? I ask you to do so because what you are proposing will not make the economy grow...it will in fact make it contract rather dramatically...which is the reason the Democrats didn't let the Bush tax cuts expire when they controlled Washington.

    You say that it is when the economy is strong that governments should reduce spending? You've actually got that backwards. When the economy is strong governments should increase taxation. When the economy is weak the worst possible thing to do is increase taxes. Even Christina Romer...President Obama's former Chief Economic Adviser and a dyed in the wool progressive has come out against raising taxes now.

    So instead of pursuing a course that will lead to fiscal ruin...why don't we fix the things that are keeping all of that private sector investment money sitting on the sidelines? Of course I'm guessing that you're not going to like what needs to occur to make that happen ...because private sector investors aren't going to take those gambles until they feel more confident with their future potential costs. If you REALLY want to turn the economy around you'll do simple common sense things like allowing corporations to repatriate profits made overseas back into the US without being hit with a heavy tax...repealing Obamacare so businesses aren't scared to death about what their costs are going to be for employee health care...telling the EPA to chill out with new regulations on fossil fuels that would drive our energy costs through the roof...let the drillers get back to work so we're not so dependent on places like the Middle East and Venezuela for our oil...lower corporate tax rates so ours aren't the third highest in the world. Now things like THAT would make people with capital WANT to invest.

    Or you could just steal their money and give it to the idiots in Washington. Your choice...
     
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  11. expat_panama
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    expat_panama Senior Member

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    That's a nice thing to say to keep the conversation going but it doesn't get anyone a job in real life.

    We both know that doctrine aside, spending welfare checks doesn't increase employment. We know that by looking at historical records of welfare payments and employment rolls, there's no correlation. If you were looking for a job you wouldn't go to the line at the welfare dept., you'd go to a rich person.
     
  12. expat_panama
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    expat_panama Senior Member

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    Your statement is mindless Marxist doctrine, but that's not only irrelevant, it's a snarky rejoinder that's getting in our way.

    What's important is virtually all hiring is done by the wealthy and the government, and gov't never hires more than a fraction of the total for very long. While it's true that hiring is for providing goods and services for consumption, most consuming is done by the wealthy. There are good reasons for giving welfare checks to the poor. Increasing consumption and employment are not among the valid reasons.
     
  13. editec
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    editec Mr. Forgot-it-All

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    I think that's the wrong approach, personally.

    That storehouse of dough in corporate accounts is not really subject to taxation now, because it is the residual AFTER TAX cash they set aside for future endeavors.

    To motivate those corporations to WANT TO invest in new hires, new plants and equipment, seems a more logical approach.

    I might even be persuaded to offer them additional tax encentives to do that, if anything.

    But then holding their feet to the fire on investing in new hires, plants and wequipment is also something that must follow.

    Too often we see corporations given tax encentives to invest but their promises to hire people then fail to materialize.

    I still think that the medium run solution involves making it more expensive to IMPORT than it is to manufacture here.

    And yes I understand that will cause some problems with our trade partners who now enjoy such largess as we've given them over the last 40 years.

    I think we can do this sensibly without causing trade wars.

    And even if we do find ourselves in a trade war, the trade imbalance we currently have suggests that we'd win more than we'd lose.

    Of course some industries, particularly high tech industries would take it on the neck, just as low tech industries have been taking it on the neck for the last 40 years.

    NO change in policies this vast is not going to come with some blowback, at least for SOME of us.
     
  14. expat_panama
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    expat_panama Senior Member

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    Owners already want to expand, so it's not a matter of motivation but rather one of removing obstacles such as taxes and oppressive gov't.
    --which is like the old office joke "THE BEATINGS WILL CONTINUE UNTIL MORALE IMPROVES". Gov't controls such as tax incentives or force promises under duress don't work, becuase like you said--
    The recessions of '60, '82, and '01 were all ended by tax-cuts; a solution of policy over politics.
    --by raising taxes again, this time on imports. Problem there is that manufacturing depends on imports as well as exports, so import tax-hikes are like any other tax-hike, they raise costs and end up cutting production and forcing layoffs.
     
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  15. zenguy
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    zenguy Rookie

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    The economy is a very complex system. There is no one formula that works in all circumstances. My essay, above, is about our present situation, in which most large corporations have large quantities of idle cash, or cash-equivalent. They have the funds to hire with if they wanted to, or if it made sense to do so. But there is a lack of demand. The lack of demand for their goods and services is the reason why corporations, and other businesses are not hiring. To start an upward spiral of employment-consumption-production requires that demand for goods and services increases.
     
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  17. likeabird03
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  18. Money
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    This is a fair statement grounded in reality. The government is in the situation of needing to resort to austerity to make up for the lack of revenue caused by a depressed economy. The issue being the government operates on fixed costs but has a proportionate source of income.

    There is always the proposal to have the government expand and contract expenditure to match the volume of the economy, but then that presents exacerbating effect of shrinkage in effective demand. On the flip side, you've got the military and the welfare state profiteering when the economy's good.

    The trick is to have economic support activity actually support economic activity in the first place. That's where the welfare state is largely cockeyed and why deployment of our military is counterproductive, economically speaking.
     
  19. expat_panama
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    expat_panama Senior Member

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    If that were true then you would have found it out by having seen both the amount of corporate cash and the evidence of the demand, and you'd be able to present the actual dollar amounts with links to BEA, BLS, and Federal Reserve numbers. My guess is you haven't because you can't and that you got those beliefs from leftist political rants bearing no connection to reality.

    Here's reality: total market capitalization (how much money investors put in) is still more than a trillion dollars below the pre-crisis peak, and it's been continuing to fall this year (from page 94 of Flow of Funds Accounts of the United States). Even if your premise were valid then your solution--
    --would only produce more of the same disastrous results we've gotten with other tax'n'spending fiascos we've tried in recent years. The reason is that the rich won't use their money for hiring if the gov't takes it.
     
  20. editec
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    editec Mr. Forgot-it-All

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    We've all been over this countless times in various posts on this board.

    The national debt did not cause this economic problem.

    The gradual erosion of worker incomes in comparison to the GDP certainly has.

    Throwing the poor and the working class under the bus isn't going to solve a damned thing.

    Giving the uberwealthy still more tax breaks isn't going to help either UNLESS we insured that the extra dough they got went directly back into this nations PRODUCTIVE economy.

    And no creating more complex debt instruments is NOT part of the nation's productive economy.

    If we change nothing except the tax burden the wealthy have, they'd put their money in what appears to be the safest investment around.

    T-BILLS.

    In other words they would not invest much in any JOB creating investments.

    PRIME the pump, folks.

    That is what is needed.
     
    Last edited: Oct 11, 2011

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