Europe’s problem is Austerity?

[Koios]

They are not different.



A "unit" of output is something worth, say 10 dollars. Not 10 strawberries. Not 10 planes.

They are. What's a unit of anything service related? Say it's a busy hour and the cashier handles $1000 instead of $300. More productive cashier than the one who was at the other counter and serving bubble gum buying kids? Yes;

No -- that is not true. Not unless the first cashier did something that made its customers spending more than they would otherwise.

And may be you should google a bit. It was fun talking to you when I had to explain the difference between the convectional wisdom in how the world really works. And I think I gave you plenty to think about.

But arguing about commonly accepted definitions is not fun at all, so I better stop here

Hi @ilia25,

Sorry for dropping out; busy weekend due to a leaky shower in the master bath. Uhg.

Anyway, rather than get too mired in anecdotes (sorry, my bad for going there), let me explain how relative worker productivity is measured when comparing nations. It's worker cost vs. economic output. Truly that's how it's calculated, since knowing hours worked is simply too difficult to measure. Consider that in the US, our so-called "productivity" rose not because we make more widgets per hour, but because workers are working more hours on average, for roughly the same pay. About 15% more on average since 2000. So the pay, vs economic output, and not the hours worked, is what's affecting the "productivity" calculation.

In China, workers are producing plently of widgets, per hour. But the economic output is low since Chinese goods are sold so cheaply at the manufacturing level. It's not that they're dragging their behinds; in fact, quite the opposite. It's simply that what they produce generates so little value, comparatively.

And consider the point one person made in this thread, a few pages back: they lamented that China produces something for a penny that we pay a buck to buy. Well; not quite that lucrative, but it speaks to an economic dynamic that is very real: around 4 to 7 cents, typically, is what Chinese companies are paid for every dollar we spend buying the goods, here. But the buck isn't going to China, only the 4 to 7 cents. The other 93 to 96 cents goes to rest of the value-chain: Shippers, and the merchant marines, longshore, truckers and warehousing / distribution companies / workers. Wholesale, in most cases such as master distributors and product / clothing brands like Columbia, Helly Hansen, Drills/Saws/Whatever, etc. etc. And then the big chunk: retailers like REI, Nordstrom, Walmart, Macy's, Home Depot, you name it. And workers all the way along the value chain, spend their paychecks in our communities, and also are able to buy more goods since they're more attainable (much lower cost).

Thus consider if the shirts, jackets, shoes or drills were made here: Great; manufacturing jobs, albeit, at easily 4 to 5 times the cost to manufacture, which translates to a huge cost difference at the point-of-sale. Thus fewer of these good are purchased by consumers, generating less trucking work, warehouse work, retail workers, etc. etc. We'd actually lose more jobs throughout the remainder of the value-chain, in service of the manufacturing jobs, which increasingly in those types of US manufacturing, are low-paid, and not the sweetheart days of old, when union iron workers, etc, enjoyed nicely-paid living-wage jobs that bought cars, homes and college for thier kids, so they'd be better off, still. A worker who makes shirt, shoes or power drill in the US, today, is not earning at that level. Thus, "bring manufacuring back here" is smoke and mirrors, as if it will solve our problem, which it will not.

What will solve our problem is this: service workers, increasingly the bulk of our middle class workforce, must be better-paid ... by government mandate. (wage minimums, overtime pay regs, etc.) That makes 10s of millions of jobs better-paying, and removes the absurd contention that people need to compete for what few good-paying jobs are left, driving down the pay in those sectors, too. And it would be a boom to the economy, just as it was when slave wages were paid in manufacturing during the Industrial Revolution ... until unions formed, and demanded higher pay. Same work. Same work quality. Just more money, for doing the same thing, in service of a better quality of life. And it was economic nirvana, since suddenly those workers, with a better quality of life, (read: more to spend) were buying products like never before, making the business climate better than we could ever imagined.

 

[miami_thomas]

We can thank Boehner's Tea/Rep Congress for that. Upping the borrowing limit, prior, was never an issue. It passed with ease, since obviously, it funded what Congress had already appropriated. Stupid, and it hurt our credit rating, which has real effects, which are negative. But then they can blame Obama, and say he shouldn't be re-elected, in part because our lower credit rating is a sign of a bad economy, which it was not. It was because our full faith a credit was made less certain, by a lunatic Congress.

By the way, our credit was downgraded because they did not think we could get our deficit in order not because of the debt ceiling and they are right which is exactly why we are looking at another downgrade next year.

And why do you suppose that is? Hmmm? Maybe a GOP dedicated to blocking all attempts to raise the taxes needed to PAY FOR IT????

Raising taxes actually has a direct impact on revenues in a negative as well. Can we tax everyone at 100% and still have growth? I know there are idiot liberals out there that will claims a 91% tax rate in the 1950s but that was not the actual tax paid. The actual tax paid per rich person was around 23%. This and the fact that states are starting to tax more and more puts us in a position where taxes are becoming dangerously close to damaging growth. There is a sweet spot with taxes and we have no idea where that spot is and it is extremely difficult to find it since we have so many different tax systems to work within. We have local, county, state, and federal taxes and to get all of them in line to be the perfect rate is nearly impossible. The fact no one will ever tax enough to pay for everything we have and we will never cut the things we have made people dependent on. Even if we raise the tax on the wealth and let them pay a LITTLE bit more it would total only around 70 to 80 billion dollars this year. That still leaves us with a 1.2 trillion dollar deficit. And that is assuming that it has no negative impact on the economy and economic activity stays the same.

 

[miami_thomas]

Look, what you are doing is just listing the differences between the countries and claiming, w/o any evidence, that they are responsible for the differences in borrowing rates.

I mean how the euros earned by selling the best olive oil are somehow less credible than euros earned by selling best cars? The creditors would somehow refuse to accept the olive oil euros, and demand the car euros instead?

It just does not make sense.

Come on. You can do better than that. What have you got, that makes Spain's output potential look as rosy as Germany's? Anything?

I know what Germany always had and Spain sorely lacks -- it is support from European Central Bank (which conveniently has its headquarters in Frankfurt). Span and Greece and other troubled countries would be fine if ECB:
1) Stands ready to buy their debt in unlimited quantities
2) Actually do make some purchases to promote higher inflation in Eurozone.

Spain had high inflation for many years since it had joined euro. ECB did not mind that because it helped Germany to lower its labor costs relative to the rest of the Europe w/o falling into recession. After 10 years of that policy Spain labor costs are too high relative to Germany. The best way to reverse it is by allowing higher inflation in Germany.

But Germans object -- mainly because they are stupid and want to blame Spain problems on Spaniards (not unlike they were blaming everything Jews not long ago). So the only way for Spain to lower it labor costs is through years of depression. That makes it harder for Spain to service its debt, but that is not what makes buying Spanish debt so risky. The main reason is that there is a good chance that at some points Spaniards decide that they had suffered enough and leave the euro -- converting their euro debt into pesetas.

And if it wasn't bad enough, Germans and ECB demand more austerity from Spain, which further depress their economy. Are you still wondering why investors are running away from Spanish debt?

First Spain chose to join the Euro on its own. No one forced them to join and also no country is going to be able to borrow in unlimited quantities. How exactly was the ECB supposed to reduce inflation in only Spain and not affect the rest of the euro zone?

 

[miami_thomas]

Yes, but the interest rates do not move at random! Something has to happen to cause the rates increase. And that something will affect other things, not just rates. Other things like the government revenues.

You cannot compare the future rates with the current level of revenues -- that is a bogus approach.

Rates can also go up if there is fear that the US cannot afford to pay its debt and either will have to default or devalue its currency.

Why there would be such fears about the US, if investors are confident that a much smaller Japan will have no troubles servicing their 13 trillion debt?

There could be a point when the debt is too high -- but the US is far, very far from that point.

The only way the rates can go up is when they are drived up by the recovered economy -- which will fix the fiscal problems as well.

90% of Japans debt is held by investors in Japan. Japan also has a robust domestic savings as well. These things have helped Japan avoid the fate, so far, of the European countries. However, no one has said that Japan is not in debt trouble.

 

[miami_thomas]

Japan has higher median income, and a manufacturing sector the increases confidence they can sustain it.

Japan economy (and incomes) were growing much slower than those in the US in the past 20 years (partially because of shrinking population). That is the fact, and it puts Japan in worse position fiscally, its manufacturing sector notwithstanding.

Again, you are still thinking that money earned from making cars are somehow more valuable and credible. And that's simply not true.

Also no Tea Party loons in their parliament hellbent on blocking the necessary tax increases needed to pay for stuff, like interest on their debt.

Yes, but loons are much more easy to fix than the economic fundamentals, which are much worse in Japan. BTW, Japan has lost its AAA credit rating way back in 2002.

Hardly. Try as I may to have all Tea Party folks "fixed," even with the more humane chemical castration method, I've yet to get any Congresspersons keen on my idea.

Not as easy as you think. But join me, and maybe we can make progress, godwilling.

You progressives have been trying that with everyone since the 30s. Of course it wasn’t tea partiers it was blacks and the poor. Funny how that is where the abortion and contraception movement began. Help the poor and minorities kill their babies and there will be less. Make them think it is a good idea. The fact is the tea party is a party of self motivated individuals and no matter if the government is capitalist or communist it needs those types of individuals to move forward. The funny thing is that the progressives are the ones that will most likely be persecuted at the end of it all.

 

[miami_thomas]

Japan economy (and incomes) were growing much slower than those in the US in the past 20 years (partially because of shrinking population). That is the fact, and it puts Japan in worse position fiscally, its manufacturing sector notwithstanding.

Again, you are still thinking that money earned from making cars are somehow more valuable and credible. And that's simply not true.



Yes, but loons are much more easy to fix than the economic fundamentals, which are much worse in Japan. BTW, Japan has lost its AAA credit rating way back in 2002.

Hardly. Try as I may to have all Tea Party folks "fixed," even with the more humane chemical castration method, I've yet to get any Congresspersons keen on my idea.

Not as easy as you think. But join me, and maybe we can make progress, godwilling.

Well, I won't argue that the US political system has everything to become deeply dysfunctional. Electing independent parliament and President creates two centers of power, which can (and does) lead to almost complete paralysis of the government. A much better system was the original British way -- when people elect only the parliament and it appoints the government. That is much more effective system and... don't get me started

You mean like the one in Germany that appointed Hitler?

 

[miami_thomas]

If the genocidal austerity forced on the Greeks is some magic bullet, why has the Greek economy continued to contract quarter after quarter for the last 5 years?

It is forced by them. They spent too much and there was a fear they could not pay their debts so Greece had to increase rates and that in turn increased their spending and caused even higher deficits causing even higher interest rates to the point of collapse. The rest of Europe is trying to prevent that from happening to save their own economies because Greece could cause a panic on bonds and then boom bubble bursts. This is not over trust me.

No. The bailout package they received came with strings attached. They had to institute severe, bone crushing austerity. Again, the more they cut, the further they go into a spiraling depression. Why should the average Greek suffer to bailout bond holders from France and Germany?

Greece needing a bailout in the first place is a sign they were in trouble. Because those bond holders loaned Greece the money in the first place to live the lavish lifestyles and Greece should have been wisely investing that money and instead bought votes and now the people are paying for them allowing their votes to be bought on borrowed money.

 

[Koios]

Raising taxes actually has a direct impact on revenues in a negative as well. Can we tax everyone at 100% and still have growth? I know there are idiot liberals out there that will claims a 91% tax rate in the 1950s but that was not the actual tax paid. The actual tax paid per rich person was around 23%. This and the fact that states are starting to tax more and more puts us in a position where taxes are becoming dangerously close to damaging growth. There is a sweet spot with taxes and we have no idea where that spot is and it is extremely difficult to find it since we have so many different tax systems to work within. We have local, county, state, and federal taxes and to get all of them in line to be the perfect rate is nearly impossible. The fact no one will ever tax enough to pay for everything we have and we will never cut the things we have made people dependent on. Even if we raise the tax on the wealth and let them pay a LITTLE bit more it would total only around 70 to 80 billion dollars this year. That still leaves us with a 1.2 trillion dollar deficit. And that is assuming that it has no negative impact on the economy and economic activity stays the same.

Only taxes that are inflationary can affect revenues in the negative. And the Federal Government has virtually none of them, save that of taxes on tabacco, gasoline, etc. Mostly it occurs at state level, where for example, taxes are severly raised on alcohol and tobacco, which lowers the use of both, to the detriment of revenue, but not the public health.

Wages and profits from business activities are simply something we all like more of. No one ever turned down a raise for fear some of the raise might be taxed at a higher rate. Moreover, no business is going to miss a profit opportunity, for fear they'll pay taxes on the profit. And contentions that businesses will pass up profit opportunities for fear of being taxed, are pure nonsense, playing on the average person's ignorance of how businesses operate, in the hope of keeping taxes lower.

And the other contention: they'll take their business off-shore, is nonsense too. There's no magic number between a 35% top corporate rate, and 40% top corporate rate, where suddenly your local grocery store up and move to Sierra Leone, or Canada. If there's opportunity in Sierra Leone or Canada or wherever, they might go after that, too. But they WILL NOT leave this, the world's largest and most lucrative consumer market. And even if they do, others will gladly snag the market share they leave behind, were they so dumb as to do that.

And as for tax shelters, all who are so inclined, and fortunate enough to have sufficient gobs of dough laying around that they need to shelter it, are sheltering it already. Once again, there's no magic pain threshold. That's pure anti-tax "think" tank propoganda, which ironically, never advocates penalties for exploiting the tax shelters. Ironic, yeah?

And thus, in closing, 35% or something is less than 40% or 50% of something, in case you're mystified as to why deficts decrease when taxes are higher, as they have, always, without fail.

 

[miami_thomas]

Raising taxes actually has a direct impact on revenues in a negative as well. Can we tax everyone at 100% and still have growth? I know there are idiot liberals out there that will claims a 91% tax rate in the 1950s but that was not the actual tax paid. The actual tax paid per rich person was around 23%. This and the fact that states are starting to tax more and more puts us in a position where taxes are becoming dangerously close to damaging growth. There is a sweet spot with taxes and we have no idea where that spot is and it is extremely difficult to find it since we have so many different tax systems to work within. We have local, county, state, and federal taxes and to get all of them in line to be the perfect rate is nearly impossible. The fact no one will ever tax enough to pay for everything we have and we will never cut the things we have made people dependent on. Even if we raise the tax on the wealth and let them pay a LITTLE bit more it would total only around 70 to 80 billion dollars this year. That still leaves us with a 1.2 trillion dollar deficit. And that is assuming that it has no negative impact on the economy and economic activity stays the same.

Only taxes that are inflationary can affect revenues in the negative. And the Federal Government has virtually none of them, save that of taxes on tabacco, gasoline, etc. Mostly it occurs at state level, where for example, taxes are severly raised on alcohol and tobacco, lower the use of both, to the detriment of revenue, but not the public health.

Wages and profits from business activities are simply something we all like more of. No one ever turned down a raise for fear some of the raise might be taxed at a higher rate. Moreover, no business is going to miss a profit opportunity, for fear they'll pay taxes on the profit. And contentions that businesses to pass up opportunities for fear of being taxed, are pure nonsense, playing on the average person's ignorance of how businesses operate, in hope of keeping taxes lower.

And the other contention: they'll take their business off-shore, is nonsense too. There's no magic number between 35% top corporate rate, and 40% top corporate rate, where suddenly you local grocery store up and move to Sierra Leone, or Canada. If there's opportunity in Sierra Leone or Canada or wherever, they might go after that, too. But they WILL NOT leave this, the world's largest and most lucrative consumer market. And even if they do, others will gladly snag the market share they leave behind, were they so dumb as to do that.

And as for tax shelters, all who are so inclined, and fortunate enough to have sufficient gobs of dough laying around that they need to shelter it, are sheltering it already. Once again, there's no magic pain threshold. That's pure anti-tax "think" tank propoganda, which ironically, never advocates penalties for exploiting the tax shelters. Ironic, yeah?

And thus, in closing, 35% or something is less than 40% or 50% of something, in case you're mystified as to why deficts decrease when taxes are higher, as they have, always, without fail.

That is not true. All taxes are removing money from the private sector and can impact the economy negatively. Your next assumption is comparing taking a business RISK as being the same as someone getting a raise. The RISK part makes it different. There is no way to be certain that your RISK will be rewarded and higher taxes make that RISK of failure much higher. As for up and leaving, they have been doing so for the past 50 or so years. Sure the servicing departments are staying here to sell us stuff but the manufacturing of the goods have been continually relocating off shores. The British raised taxes to 50% and tax revenue fell.

On your last point, so you are saying we can tax at 100%?

 

[Koios]

Only taxes that are inflationary can affect revenues in the negative. And the Federal Government has virtually none of them, save that of taxes on tabacco, gasoline, etc. Mostly it occurs at state level, where for example, taxes are severly raised on alcohol and tobacco, lower the use of both, to the detriment of revenue, but not the public health.

Wages and profits from business activities are simply something we all like more of. No one ever turned down a raise for fear some of the raise might be taxed at a higher rate. Moreover, no business is going to miss a profit opportunity, for fear they'll pay taxes on the profit. And contentions that businesses to pass up opportunities for fear of being taxed, are pure nonsense, playing on the average person's ignorance of how businesses operate, in hope of keeping taxes lower.

And the other contention: they'll take their business off-shore, is nonsense too. There's no magic number between 35% top corporate rate, and 40% top corporate rate, where suddenly you local grocery store up and move to Sierra Leone, or Canada. If there's opportunity in Sierra Leone or Canada or wherever, they might go after that, too. But they WILL NOT leave this, the world's largest and most lucrative consumer market. And even if they do, others will gladly snag the market share they leave behind, were they so dumb as to do that.

And as for tax shelters, all who are so inclined, and fortunate enough to have sufficient gobs of dough laying around that they need to shelter it, are sheltering it already. Once again, there's no magic pain threshold. That's pure anti-tax "think" tank propoganda, which ironically, never advocates penalties for exploiting the tax shelters. Ironic, yeah?

And thus, in closing, 35% or something is less than 40% or 50% of something, in case you're mystified as to why deficts decrease when taxes are higher, as they have, always, without fail.

That is not true. All taxes are removing money from the private sector and can impact the economy negatively. Your next assumption is comparing taking a business RISK as being the same as someone getting a raise. The RISK part makes it different. There is no way to be certain that your RISK will be rewarded and higher taxes make that RISK of failure much higher. As for up and leaving, they have been doing so for the past 50 or so years. Sure the servicing departments are staying here to sell us stuff but the manufacturing of the goods have been continually relocating off shores.

On your last point, so you are saying we can tax at 100%?

Yeah; it's true. Sorry if it sours the taste of the righty koolaid you've been enjoying. But it's true. No opinion, nor conjecture. True time and time again, to any who set down the tall frosty glass of koolaid, and simply look at past times taxes were higher.

In re: the last point, yes; we can raise taxes to 100% of everything. But it's stupid, since we'd effectively be the USSR, and that proved a failure. Thus it would be stupid.

What we did back in the so called Glory Days, post-WWII, was pay down oppressive debt, since the war and making the A-bomb proved a smidge spendy. And since they'd yet learned to fund "think" tanks to play off people's ignorance so they could kick the ball down the road to our kids and grandkids, they raised taxes, to pay for stuff, and reduce the debt. But they did it very mindfully, tickering with it almost yearly, at every level (bracket) so as to both raise revenue, but also not slow the economy, which didn;t slow. Once again, it was glory days.

Also, then, like now, we taxed progressively at the various levels. The top bracket applied to a very few, and only on income at that bracket and above. So even with a top rate above 90%, the effective tax rate was far less, for all earners and companies, and much much less for the overwhelming majority of Americans and businesses, who were driving the growth to a degree, we did and still do call it the Glory Days.

Does that help?

 

[Franticfrank]

The austerity is crippling and causing all the problems but what's the other solution? All of these lavishly paid civil servants doing nothing - they needed to be weeded out and taxes had to be raised. It would be nice if some of that bailout money was given directly to the populace upon condition it was spent within 3 months to help business and confidence recover. Also, its important to point out that the austerity isn't just imposed my Germany...the European stability mechanism is a pan-European effort, although Germany of course provides to strongest individual funding.

 

[Mac1958]

Europe’s problem is Austerity?

I don't think so. I think the Med Countries, greece, italy, etc. are the problem. They over-borrowed, in part due to the free-flowing capital vis a vis credit default swaps, which our banks cooked up after we gutted Glass-Steagall. It was easy money, and they over borrowed.

Germany, France, UK are still major players and having to carry the water for other EU member states who acted irresponsibly, albeit with some German, French, UK (and US) banks doing the lending willy-nilly.

Blame to go around. But restore Glass-Steagall seems like the no-brainer first step on the road to fixing the mess.

Bingo.

Unfortunately, "no-brainer" is clearly not a high priority for our "leaders". They've got their campaign contributors to consider.

.