OK, I'm all ears.

[Huckleburry]

Gang,
Please look up the marginal propensity to consume before arguing against it, I have tried to explain it numerous times to no avail, the reason it is so important is that it is the cornerstone of standard theory which is what our market is based on. This being true it is probably a good thing to understand.

All that aside I am going to try a different approach. Take out a pen and a piece of paper and draw a graph, put quantity of good x per period of time on the x axis and price on the per period of time on the Y axis. Now draw an upward sloping supply curve and a downward sloping demand curve. We have just made two important assumptions. In regards to supply we have assumed that as price increases suppliers will want to supply more. In regards to demand we have assumed that as price decreases we consumers will want to consume more.

Ok, Now Shift the demand curve outward and watch what happens to the quantity supplied. Notice that it increases this translates into growth throughout the economy; this is what I am talking about when I refer to an outward shift in the market demand curve. MPC is a measure of the spending behaviors of different demographics, it is a solid measure supported by empirical evidence which is why so many folks pay so much attention to it. Now return the demand curve to its original position, D, and instead shift the supply curve outward. Notice the increase in demand; this is what supply side is talking about on a macro level (which is really the only important thing in fiscal policy debates). Unfortunately for that shift to occur on the supply side we have to assume that firms behave like consumers which we know to be untrue. Firms are profit maximisers while consumers are utility maximisers the difference is an important one, and here is why. Consumers use additional income to jump to a new utility curve translating in to increased consumption and increased demand (outward shift in demand curve) Suppliers on the other hand have no other incentive than profit maximization (which is achieved where marginal revenue = marginal cost) if economic profits are realized because of tax cuts or government stimulation than that is terrific news. However there is still no incentive to increase production, because MR=MC. Those economic profits will be banked and the firm and its share holders will post an impressive year. The question of the market supply shift will go unanswered, some firms may increase supply, and some may not. The important thing though is that it will not automatically happen on the supply side where as it will automatically happen on the demand curve.
I know my argument takes a very theoretical stance and if you choose to disagree with the theory, fine, however in arguing for or against supply side it is important to know that it is a child of the same theoretical frame work, and it lives or (more accurately) dies by the same assumptions. The original writings on supply side were interesting, ideological even; however empirical evidence did not support the theory, a fact which was unfortunate. Standard theory has its flaws, however until something better comes along it is the most useful model we have.
Cheers
HUCK

 

[freeandfun1]

if economic profits are realized because of tax cuts or government stimulation than that is terrific news. However there is still no incentive to increase production, because MR=MC. Those economic profits will be banked and the firm and its share holders will post an impressive year.

Those profits will eventually trickle down to the consumers (shareholders) and they will spend the money. Which will in turn, increase demand. You are assuming that everybody saves any savings they receive. You and I and the entire world knows that America does not save enough, so apparently, we are spending that money some place......

Also, you are assuming that manufacturers are not consumers and I would argue otherwise. No manufacturer makes every part they use in their systems. As their suppliers' prices decrease, they will be able to manufacture more for lower costs and sell at a lower cost without any negative effects on their overall profits. If somebody sells $5 million a year at 5% profit or $1million a year at 25% profits, the actual profits are the same. Some believe in doing business based on turn and others on mark-up. It all depends on the products, etc.

 

[rtwngAvngr]

In regards to supply we have assumed that as price increases suppliers will want to supply more.

Distortion #1.
In reality, what occurs is that in a price competitive (free) market, an increase in price does not automatically mean an increase in profit, therefore not necessarily a desirable end in itself. Most suppliers prefer to keep their price low to be competitive in the market. Once again your academic viewpoint seems to be merely an conscious omission of the supplier mindset.

Suppliers on the other hand have no other incentive than profit maximization (which is achieved where marginal revenue = marginal cost) if economic profits are realized because of tax cuts or government stimulation than that is terrific news. However there is still no incentive to increase production, because MR=MC. Those economic profits will be banked and the firm and its share holders will post an impressive year. The question of the market supply shift will go unanswered, some firms may increase supply, and some may not.

Once again, actual real world markets motivate suppliers to always be growing market share through lowering prices through standard economies of scale achieved through increased production. They will create a loss leader just to get in the consumer's good graces. This is business 101. Deny it all you want, communist. This is reality.

 

[Huckleburry]

Those profits will eventually trickle down to the consumers (shareholders) and they will spend the money. Which will in turn, increase demand. You are assuming that everybody saves any savings they receive. You and I and the entire world knows that America does not save enough, so apparently, we are spending that money some place......

I am not assuming that everyone saves, infact spending behavior has been the core of my argument. I am arguing that our tax cuts are aimed at the wrong people. We are limiting the potential growth by targetting people who spend marginally less of an increase in real income. As for the trickle down of economic profit, that is not a nessacarly true. Shareholders and consumers are not the same thing. People who hold shares likley have low MPC's so boosting their income is not particularly helpfull to growing the economy.
Also, a quick word on the stock market (this I am sure will draw some response)....the stock market is not particullarly important to a disscussion of economic policy. True it gets lots of media attention but that is because the stock market is sexy, you can dress it up with graphs and bright colors and most people view it as a giant bet. In reality though the stock market is a small piece of the larger capital market, and while a robust capital market is vital to a free market economy it is not the driving force behind it. All of this talk of the stock market and its interaction with the larger economy is quite overblown. It is usefull in that it allows companies to expand, it is also usefull in that in a very macro sense and over the long run it is another tool for measuring economic performance, ultimatly though the stock market is a function of the greater economic machine, not the other way around.

Also, you are assuming that manufacturers are not consumers and I would argue otherwise. No manufacturer makes every part they use in their systems. As their suppliers' prices decrease, they will be able to manufacture more for lower costs and sell at a lower cost without any negative effects on their overall profits. If somebody sells $5 million a year at 5% profit or $1million a year at 25% profits, the actual profits are the same. Some believe in doing business based on turn and others on mark-up. It all depends on the products, etc.

What is making the suppliers' price decrease? A decrease in taxes? That is only increasing average revenue. The firm still has no incentive to lower prices. Again firms will produce where marginal cost=marginal revenue. An increase in profit will not automatically change prices. Remeber firms are out to turn a buck not look out for you and I. That is the strength of the our system, it is also the reality of our system and is one of the primary reasons that trickle down does not work to well, in many ways the theory is just too darn nice.

Oh and right wing. economies of scale does not always exist. There are numerous industries that are constant or even increasing cost industries. In those markets the firms either have no incentive to grow, or in the extreme to remain realitivly small. Next how are you going to argue that as the price of a good rises firms are not going to want to supply more of that good? That is basic supply and demand.

 

[rtwngAvngr]

Oh and right wing. economies of scale does not always exist. There are numerous industries that are constant or even increasing cost industries. In those markets the firms either have no incentive to grow, or in the extreme to remain realitivly small.

Good for those industries.

Next how are you going to argue that as the price of a good rises firms are not going to want to supply more of that good? That is basic supply and demand.

The savvy supplier recognizes that price competition is key and that a too high a price would leave room for new suppliers to enter a market. SO in REALITY they don't just sit there taking wild profits, counting their money, not for long. They will reinvest in ways to improve facilities, relationships, economies of scale, for price wars to come.

Your scholastic worldview denies the realities which result from the competitiveness of the free marketplace.

 

[Huckleburry]

Good for those industries.

your argument about firm behavior has now broken down.

The savvy supplier recognizes that price competition is key and that a too high a price would leave room for new suppliers to enter a market. SO in REALITY they don't just sit there taking wild profits, counting their money, not for long. They will reinvest in ways to improve facilities, relationships, economies of scale, for price wars to come.

Your scholastic worldview denies the realities which result from the competitiveness of the free marketplace.

Home work assignment of the day: Define macro and micro. because this mix and match shit has got to go

 

[rtwngAvngr]

your argument about firm behavior has now broken down.

I don't see how. Most have some form of economy of scale. Even if it's just a vendor discount for future promised business. I know, it's another supplier element; you hate it.

Home work assignment of the day: Define macro and micro. because this mix and match shit has got to go

I don't have to define shit. I know tax cuts for the rich incent them to grow their businesses and provide goods and jobs for the rest of society. Hate them if you must. I choose not to warp my mentality for the purposes of political villification, as you have.

 

[ajwps]

Gang,
Please look up the marginal propensity to consume before arguing against it, I have tried to explain it numerous times to no avail, the reason it is so important is that it is the cornerstone of standard theory which is what our market is based on. This being true it is probably a good thing to understand.

All that aside I am going to try a different approach. Take out a pen and a piece of paper and draw a graph, put quantity of good x per period of time on the x axis and price on the per period of time on the Y axis. Now draw an upward sloping supply curve and a downward sloping demand curve. We have just made two important assumptions. In regards to supply we have assumed that as price increases suppliers will want to supply more. In regards to demand we have assumed that as price decreases we consumers will want to consume more.

Ok, Now Shift the demand curve outward and watch what happens to the quantity supplied. Notice that it increases this translates into growth throughout the economy; this is what I am talking about when I refer to an outward shift in the market demand curve. MPC is a measure of the spending behaviors of different demographics, it is a solid measure supported by empirical evidence which is why so many folks pay so much attention to it. Now return the demand curve to its original position, D, and instead shift the supply curve outward. Notice the increase in demand; this is what supply side is talking about on a macro level (which is really the only important thing in fiscal policy debates). Unfortunately for that shift to occur on the supply side we have to assume that firms behave like consumers which we know to be untrue. Firms are profit maximisers while consumers are utility maximisers the difference is an important one, and here is why. Consumers use additional income to jump to a new utility curve translating in to increased consumption and increased demand (outward shift in demand curve) Suppliers on the other hand have no other incentive than profit maximization (which is achieved where marginal revenue = marginal cost) if economic profits are realized because of tax cuts or government stimulation than that is terrific news. However there is still no incentive to increase production, because MR=MC. Those economic profits will be banked and the firm and its share holders will post an impressive year. The question of the market supply shift will go unanswered, some firms may increase supply, and some may not. The important thing though is that it will not automatically happen on the supply side where as it will automatically happen on the demand curve.
I know my argument takes a very theoretical stance and if you choose to disagree with the theory, fine, however in arguing for or against supply side it is important to know that it is a child of the same theoretical frame work, and it lives or (more accurately) dies by the same assumptions. The original writings on supply side were interesting, ideological even; however empirical evidence did not support the theory, a fact which was unfortunate. Standard theory has its flaws, however until something better comes along it is the most useful model we have.
Cheers
HUCK

Huck there you go again. "Standard Economic Models and Theories have their flaws however until something better comes along it is the most useful model we have.

Scientists, institutionalized economist liberal professors, physicists, philosphers and just plain people who buy and sell things have tried forever to create a model that has anything at all to do with reality.

Like the giant computers that try to forecast the weather tomorrow or the ebb and flow of supply and demand, the outcome is always the same.

Just educated guesses that are no better than listening to crickets or watching cattle standing in one direction.

At this time in history, there is no valid theory or model that can determine with any accuracy the economy of the USA.

 

[Huckleburry]

Admittedly theories have there flaws, however how else do you suggest we formulate a fiscal policy? An educated guess is certainly better than a shot in dark

 

[ajwps]

Admittedly theories have there flaws, however how else do you suggest we formulate a fiscal policy? An educated guess is certainly better than a shot in dark

Unfortunately for us, formulating fiscal policies have little real effect and more often than not detremental to the economy.

Fiscal economy in a free market usually follows its own course based on so many variables that cannot be anticipated or taken into any formulated theory or model account.

The best thing the Feds have done with fiscal policy was the creation of the Federal Reserve with assurance that meddling governmental policy model disasters (like the great depression) guarantees up to 100 K to each FICA bank account holder.

Better than jumping off buildings....

 

[Huckleburry]

Assuming the market will simply work its self out is pretty dangerous. Empirical evidence has shown that the invisible hand is not quite as effective as we hope it would be. The great depression was a function of this. Ambition, greed, and bad luck all coluded to bring functioning markets to thier knees. The same thing happend in asia during their fiscal crisis and in Argentina in 1890, 1930, and again in 1980. I agree that government intervention should be limited, however, I disagree that we should simply let the market roam. It has proven to be far more fragile than we would like it to be. The creation of the Fed and the legistlation that accompanied it did a great deal more than simply insure bank accounts. The feds managment of the money supply and the oversight, and regulation in place are largely to thank for the absence of another major depression. Yet all of these programs, including the fed have their roots in standard theory, moreover they are a recgonition of the theories shortcomings. Before discrediting economic theory and likening economists to weathermen it may be worth while to reflecty on the major contributions that theory and those economists have made to the stability of the global economic system
HUCK

 

[rtwngAvngr]

Assuming the market will simply work its self out is pretty dangerous. Empirical evidence has shown that the invisible hand is not quite as effective as we hope it would be. The great depression was a function of this. Ambition, greed, and bad luck all coluded to bring functioning markets to thier knees. The same thing happend in asia during their fiscal crisis and in Argentina in 1890, 1930, and again in 1980. I agree that government intervention should be limited, however, I disagree that we should simply let the market roam. It has proven to be far more fragile than we would like it to be. The creation of the Fed and the legistlation that accompanied it did a great deal more than simply insure bank accounts. The feds managment of the money supply and the oversight, and regulation in place are largely to thank for the absence of another major depression. Yet all of these programs, including the fed have their roots in standard theory, moreover they are a recgonition of the theories shortcomings. Before discrediting economic theory and likening economists to weathermen it may be worth while to reflecty on the major contributions that theory and those economists have made to the stability of the global economic system
HUCK

No one's arguing for a completely unregulated economy in all ways. We just know that tax cuts for the investor class stimulates real growth in the economy. So after all this, your parting shot is a straw man argument. Sad.

 

[rtwngAvngr]

The reason for lowering prices is to be competitive in the market. Are you sure you study business, Huck?

 

[Huckleburry]

I don't study business. I study economics even worse I study macro economics and am much more concerned with global economic structure than any individual firm. Once again (I am not sure how many times I have to say this) No one is arguing against tax cuts, tax cuts for investors will certainly grow the economy but it will grow it less than a tax cut that is aimed at the middle class. Especially when we recognize the stock market for what it really is a capital market. Think about what the research that investors do. They look at PE ratios, quarterly earnings reports, equipment orders etc. In viewing the stock market not has a horse race or giant casino (as many Americans do) but instead as a giant capital market changes ones approach to fiscal policy. Stimulation of capital markets relies on firm expansion (a scarcity of capital drives them to the market) to this end target those groups that spend tons (debt indicators among the middle class are good indication of who is spending) because they will create the most stimulus and in turn create higher use in capital markets. In terms of the stock market this will drive the entire market up. This is what happened during the 90's stock increase; it was the expanded need for capital markets that made the stock market boom.

On a more personall note, you can still support Bush while advocating for a different fiscal policy, I wont tell him.

 

[rtwngAvngr]

I don't study business. I study economics even worse I study macro economics and am much more concerned with global economic structure than any individual firm. Once again (I am not sure how many times I have to say this) No one is arguing against tax cuts, tax cuts for investors will certainly grow the economy but it will grow it less than a tax cut that is aimed at the middle class. Especially when we recognize the stock market for what it really is a capital market. Think about what the research that investors do. They look at PE ratios, quarterly earnings reports, equipment orders etc. In viewing the stock market not has a horse race or giant casino (as many Americans do) but instead as a giant capital market changes ones approach to fiscal policy. Stimulation of capital markets relies on firm expansion (a scarcity of capital drives them to the market) to this end target those groups that spend tons (debt indicators among the middle class are good indication of who is spending) because they will create the most stimulus and in turn create higher use in capital markets. In terms of the stock market this will drive the entire market up. This is what happened during the 90's stock increase; it was the expanded need for capital markets that made the stock market boom.

On a more personall note, you can still support Bush while advocating for a different fiscal policy, I wont tell him.

Hey, arrogant jerk. Yes, you're totally out of touch. Your university is creating little socialists who don't even know it.

You've still not demonstrated how tax cuts targettet toward investors don't stimulate the economy, they do and in a more meaningful way. You "saw my point" several posts ago, since then you've been digging your grave deeper.

using debt indicator as an equivalent to investment and using that to say that therefore the middle class creates more stimulus is boneheaded and spurious thinking. More meaningful growth occurs when firms create more jobs than when when joe six pack has an extra five spot.

I think bush agrees that investor class focused tax cuts are superior, especially when the taxes are already heavily skewed to the wealthier citizens.

 

[Huckleburry]

Actually I refuted your point in my first post on this thread. Curios you have yet to adress to the economic data, and, choose instead to focus on what is possible...Sounds pretty liberal to me. Moreover, the debt was not an indication of investment but rather an indicator of spending. Afterall the M2 money supply considers investments because and debt indication is usually measured in M3 terms which are way more lenient. The reason you have not adressed the core of my argument is because you can't, at least not without some research, just saying the ivestor class is good and i did not adress your argument does it not make it so. Keep up the good work right wing.
Cheers
HUCK

 

[rtwngAvngr]

Actually I refuted your point in my first post on this thread. Curios you have yet to adress to the economic data, and, choose instead to focus on what is possible...Sounds pretty liberal to me. Moreover, the debt was not an indication of investment but rather an indicator of spending. Afterall the M2 money supply considers investments because and debt indication is usually measured in M3 terms which are way more lenient. The reason you have not adressed the core of my argument is because you can't, at least not without some research, just saying the ivestor class is good and i did not adress your argument does it not make it so. Keep up the good work right wing.
Cheers
HUCK

You never successfully refuted anything. You saw my point.


Ok. It's an indicator of spending. A short term fix. When investors GROW business and create jobs the effects are more beneficial than a short term spending hit.

You've convinced noone with your deluded assertions of success on this thread.

 

[ciplexian]

I see capitalism as the engine, but believe somone needs to be steering the car, and that "someone" is a benign, secular government that promotes the general public good. I don't mind paying for it (and I'm in a moderately high tax bracket, so I do pay). I prefer that to the Brazil-like rich/poor, gated community, private school divide that we seem to be headed towards.

Good points, Mariner. Throughout history there has been a back-and-forth between populism and conservativism. Unlike the Populist era or the Depression era however, today's poor don't make up a majority. Modern wealth inequality is the difference between the middle class and the upper class, not between the lower class and upper class, for the most part.

Does absolute increase in wealth lead to a greater tolerance of wealth inequality by society? If the answer is yes, then the Democrats are truly in trouble, because we already tolerated massive wealth inequality in 1890-1930, even though most people were quite poor.

People can always try to achieve a better standard of living no matter what the status quo. That is the progressive ideal, and it all depends on what kind of dialogue society has with itself. There are two problems though.

First is social security. More and more people in our economy are not working. Every year as the percentage of the elderly increase, the economy is supporting more non-workers. Hence natural demographics simulate a growing welfare state even if laws are being revised to cut welfare. But this social security benefit doesn't contribute to wealth equality because it deals with retirement and not income. Suppose in a society there is a rich man and a poor man who live to 70 years each, and both retire at 65. Each gets a utility x from their income for 45 years and a utility y from not having to work for 5 years. During the 5 years they are not workign there is no difference between the rich and poor: their incomes are both zero. While the rich is enjoying a more comfortable retirement, this comfort is being drawn from his original income x, hence the 5 years of retirement are not contributing to inequality. Thus the poor man's utility as a percentage of the rich is

(x1 + y) / (x2 + y), where the difference comes in the poor's income x1 being smaller than the rich's income x2.

Now suppose their life expectancy increases to 80. The equation is still
(x1 + y) / (x2 + y), but now y is much bigger than it was before. When both the numerator and denominator of a quotient increase by the same constant, the quotient increases.

In other word's the poor man's utility increased as a percentage of the rich man's, leading to a decrease in inequality without either a change in the law or a decrease in wealth inequality.

Thus, social security acts naturally to grow the welfare state even in the face of a hostile government.