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 Platinum 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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