Stop lying about the Budget

[Ravi]

No it shouldn't. Financial principles are that governments should borrow when the economy is in contraction and save when the economy is in expansion. Households and businesses often borrow or dip into savings when income falls in anticipation of growing income later. Government should do the same.

Oh my, that made me laugh. You have got some funny posts, Toro. You make a good Keynesian.

No. You've got it wrong. It's not Keynes. People decreasing net savings is Milton Friedman's Permanent Income Hypothesis.

The permanent income hypothesis (PIH) is a theory of consumption that was developed by the American economist Milton Friedman. In its simplest form, the hypothesis states that the choices made by consumers regarding their consumption patterns are determined not by current income but by their longer-term income expectations. The key conclusion of this theory is that transitory, short-term changes in income have little effect on consumer spending behavior.

Measured income and measured consumption contain a permanent (anticipated and planned) element and a transitory (windfall gain/unexpected) element. Friedman concluded that the individual will consume a constant proportion of his/her permanent income; and that low income earners have a higher propensity to consume; and high income earners have a higher transitory element to their income and a lower than average propensity to consume.

In Friedman's permanent income hypothesis model, the key determinant of consumption is an individual's real wealth, not his current real disposable income. Permanent income is determined by a consumer's assets; both physical (shares, bonds, property) and human (education and experience). These influence the consumer's ability to earn income. The consumer can then make an estimation of anticipated lifetime income.

Permanent income hypothesis - Wikipedia, the free encyclopedia

People alter their consumption if they believe their income is going to permanently change. If they do not believe that, they don't change their consumption. So if you lose your job and you think you will get a similar one within a few months, you don't change your consumption (much) and you draw down your net savings to support your life style. But if you think you can't get a new job that pays as much, then you change your consumption.

So if you use people and businesses as the yardstick to measure what governments should do, then according to the Permanent Income Hypothesis, since most people won't cut back unless they believe there has been a structural change in their incomes, governments shouldn't either. And that means funding consumption during a recession with debt. BUT it also means running surpluses during good times and paying off that debt.

Makes perfect sense. This is why many businesses have credit lines. There are times when you aren't bringing in enough to pay your expenses so you borrow to do so with the anticipation of paying off the loan when things pick up. That way you don't lose business or employees and are set to go when the economy strengthens.

 

[xsited1]

Oh my, that made me laugh. You have got some funny posts, Toro. You make a good Keynesian.

No. You've got it wrong. It's not Keynes. People decreasing net savings is Milton Friedman's Permanent Income Hypothesis.

The permanent income hypothesis (PIH) is a theory of consumption that was developed by the American economist Milton Friedman. In its simplest form, the hypothesis states that the choices made by consumers regarding their consumption patterns are determined not by current income but by their longer-term income expectations. The key conclusion of this theory is that transitory, short-term changes in income have little effect on consumer spending behavior.

Measured income and measured consumption contain a permanent (anticipated and planned) element and a transitory (windfall gain/unexpected) element. Friedman concluded that the individual will consume a constant proportion of his/her permanent income; and that low income earners have a higher propensity to consume; and high income earners have a higher transitory element to their income and a lower than average propensity to consume.

In Friedman's permanent income hypothesis model, the key determinant of consumption is an individual's real wealth, not his current real disposable income. Permanent income is determined by a consumer's assets; both physical (shares, bonds, property) and human (education and experience). These influence the consumer's ability to earn income. The consumer can then make an estimation of anticipated lifetime income.

Permanent income hypothesis - Wikipedia, the free encyclopedia

People alter their consumption if they believe their income is going to permanently change. If they do not believe that, they don't change their consumption. So if you lose your job and you think you will get a similar one within a few months, you don't change your consumption (much) and you draw down your net savings to support your life style. But if you think you can't get a new job that pays as much, then you change your consumption.

So if you use people and businesses as the yardstick to measure what governments should do, then according to the Permanent Income Hypothesis, since most people won't cut back unless they believe there has been a structural change in their incomes, governments shouldn't either. And that means funding consumption during a recession with debt. BUT it also means running surpluses during good times and paying off that debt.

Makes perfect sense. This is why many businesses have credit lines. There are times when you aren't bringing in enough to pay your expenses so you borrow to do so with the anticipation of paying off the loan when things pick up. That way you don't lose business or employees and are set to go when the economy strengthens.

And that's the way businesses operate most of the time. However, if you're in a recession if you're losing market share, if you try to grow your business too fast, etc., you have to make cuts. That's the argument here and the reason why people are so dissatisfied with our government's fiscal irresponsibility.

 

[Toro]

You're confusing consumers with businesses. Businesses can't operate that way and survive. Nice try though.

No, you're confusing the original argument.

The financial principles that apply to individuals and businesses are equally valid for the government: when income falls, spending should be cut back below the amount of cash coming in.

And like Ravi said, businesses draw down lines of credit when times aren't good.

But the original argument is a fallacy. Governments operate insurance pools - i.e. unemployment insurance, welfare - whereby individuals pay into pools when they are employed and drawdown on those pools when they are unemployed, which means governments spend relatively more when times are bad. These are automatic stabilizers built into the economy, which dampens volatility in the economy. Governments cutting back during bad times is pro-cyclical, and makes the economy more volatile. Volatility in the economy increases uncertainty, which leads to higher long-term costs. Lower volatility decreases costs because it increases certainty. And over the past 40 years, volatility in the economy has decreased, in part due to an increase in insurance offered by the government.

If one says "governments should operate like business and households," OK, fine. Debt averages about 45% of the capital structure of a typical large American company. Businesses borrow to fund capital expansion. So governments should too, because governments "should act like a business." Governments should borrow to fund expansion in the capital stock of the country in things like infrastructure and education. Households also borrow to fund capital expansions, i.e. mortgages to buy homes, to pay for university, etc. Households also borrow to fund consumption, i.e., when they are unemployed, for car loans, for credit card debt, etc. Governments should do that too. And they do. But the government should do it counter-cyclically. Governments should be running surpluses when the economy is expanding and deficits when the economy is contracting. And it should be paying for all spending over the cycle.

 

[xsited1]

You're confusing consumers with businesses. Businesses can't operate that way and survive. Nice try though.

No, you're confusing the original argument.

The financial principles that apply to individuals and businesses are equally valid for the government: when income falls, spending should be cut back below the amount of cash coming in.

And like Ravi said, businesses draw down lines of credit when times aren't good.

But the original argument is a fallacy. Governments operate insurance pools - i.e. unemployment insurance, welfare - whereby individuals pay into pools when they are employed and drawdown on those pools when they are unemployed, which means government spend relatively more when times are bad. These are automatic stabilizers built into the economy, which dampens volatility in the economy. Governments cutting back during bad times is pro-cyclical, and makes the economy more volatile. Volatility in the economy increases uncertainty, which leads to higher long-term costs. Lower volatility decreases costs because it increases certainty. And over the past 40 years, volatility in the economy has decreased, in part due to an increase in insurance offered by the government.

If one says "governments should operate like business and households," OK, fine. Debt averages about 45% of the capital structure of a typical large American company. Businesses borrow to fund capital expansion. So governments should too, because governments "should act like businesses." Governments should borrow to fund expansion in the capital stock of the country in things like infrastructure and education. Households also borrow to fund capital expansions, i.e. mortgages to buy homes, to pay for university, etc. Households also borrow to fund consumption, i.e., when they are unemployed, for car loans, for credit card debt, etc. Governments should do that too. And they do. But the government should do it counter-cyclically. Governments should be running surpluses when the economy is expanding and deficits when the economy is contracting. And it should be paying for all spending over the cycle.

Oh my. You're missing the point of the original argument, although you almost got it right with this post. The problem is that the government is spending way too much which would not work with corporations or individuals. Period. That's the argument.

 

[The Rabbi]

I heard an Obama mouth piece on TV last night say "the US is cash strapped"

Well now, that is not actually the truth. Saying it that way makes it sound like were just not taking in enough money.

The truth is were taking in more money every year than ever before. By a long shot. The Truth is the BUSH tax cuts caused an increase in revenues to record highs.

It is not that were not taking in enough money, WERE ******* SPENDING TO MUCH!!!

Please show a causal affect between the Bush tax cuts and higher revenues. Thanks. The empirical evidence suggests the opposite.

http://www.usmessageboard.com/economy/51527-tax-cuts-dont-pay-for-themselves-gop-economists.html
http://www.usmessageboard.com/economy/139720-bush-tax-cut-extensions-will-increase-deficit.html
http://www.usmessageboard.com/economy/144973-the-laffer-curve-bends-at-an-80-rate-of-income-tax.html
http://www.usmessageboard.com/econo...know-if-bush-tax-cuts-pay-for-themselves.html

Only because "tax cuts" are an amorphous thing. They are not all equal.
But if it was a bad idea, why did the Democrats and Obama rush to extend them?

 

[ClosedCaption]

I heard an Obama mouth piece on TV last night say "the US is cash strapped"

Well now, that is not actually the truth. Saying it that way makes it sound like were just not taking in enough money.

The truth is were taking in more money every year than ever before. By a long shot. The Truth is the BUSH tax cuts caused an increase in revenues to record highs.

It is not that were not taking in enough money, WERE ******* SPENDING TO MUCH!!!

Please show a causal affect between the Bush tax cuts and higher revenues. Thanks. The empirical evidence suggests the opposite.

http://www.usmessageboard.com/economy/51527-tax-cuts-dont-pay-for-themselves-gop-economists.html
http://www.usmessageboard.com/economy/139720-bush-tax-cut-extensions-will-increase-deficit.html
http://www.usmessageboard.com/economy/144973-the-laffer-curve-bends-at-an-80-rate-of-income-tax.html
http://www.usmessageboard.com/econo...know-if-bush-tax-cuts-pay-for-themselves.html

Only because "tax cuts" are an amorphous thing. They are not all equal.
But if it was a bad idea, why did the Democrats and Obama rush to extend them?

Thats like saying shit must taste good because millions of flies cant be wrong

 

[Polk]

Comparing the government to a household or business is pretty ridiculous comparison anyway, because money is a finite asset for households, but it's not for governments, due to the ability to print additional funds.

 

[Toro]

I heard an Obama mouth piece on TV last night say "the US is cash strapped"

Well now, that is not actually the truth. Saying it that way makes it sound like were just not taking in enough money.

The truth is were taking in more money every year than ever before. By a long shot. The Truth is the BUSH tax cuts caused an increase in revenues to record highs.

It is not that were not taking in enough money, WERE ******* SPENDING TO MUCH!!!

Please show a causal affect between the Bush tax cuts and higher revenues. Thanks. The empirical evidence suggests the opposite.

http://www.usmessageboard.com/economy/51527-tax-cuts-dont-pay-for-themselves-gop-economists.html
http://www.usmessageboard.com/economy/139720-bush-tax-cut-extensions-will-increase-deficit.html
http://www.usmessageboard.com/economy/144973-the-laffer-curve-bends-at-an-80-rate-of-income-tax.html
http://www.usmessageboard.com/econo...know-if-bush-tax-cuts-pay-for-themselves.html

Only because "tax cuts" are an amorphous thing. They are not all equal.
But if it was a bad idea, why did the Democrats and Obama rush to extend them?

I agree that tax cuts are not an amorphous thing. In some cases, cutting certain types of taxes does increase government revenues. But ALL of the empirical econometric evidence suggests that cutting income taxes in the United States does not increase government revenues.

As for why the Democrats extended the tax cuts - 1. its a bad idea to raise taxes in a recession, and 2. its good politics. The Dems are no less politically craven than the Republicans.

 

[Toro]

You're confusing consumers with businesses. Businesses can't operate that way and survive. Nice try though.

No, you're confusing the original argument.

The financial principles that apply to individuals and businesses are equally valid for the government: when income falls, spending should be cut back below the amount of cash coming in.

And like Ravi said, businesses draw down lines of credit when times aren't good.

But the original argument is a fallacy. Governments operate insurance pools - i.e. unemployment insurance, welfare - whereby individuals pay into pools when they are employed and drawdown on those pools when they are unemployed, which means government spend relatively more when times are bad. These are automatic stabilizers built into the economy, which dampens volatility in the economy. Governments cutting back during bad times is pro-cyclical, and makes the economy more volatile. Volatility in the economy increases uncertainty, which leads to higher long-term costs. Lower volatility decreases costs because it increases certainty. And over the past 40 years, volatility in the economy has decreased, in part due to an increase in insurance offered by the government.

If one says "governments should operate like business and households," OK, fine. Debt averages about 45% of the capital structure of a typical large American company. Businesses borrow to fund capital expansion. So governments should too, because governments "should act like businesses." Governments should borrow to fund expansion in the capital stock of the country in things like infrastructure and education. Households also borrow to fund capital expansions, i.e. mortgages to buy homes, to pay for university, etc. Households also borrow to fund consumption, i.e., when they are unemployed, for car loans, for credit card debt, etc. Governments should do that too. And they do. But the government should do it counter-cyclically. Governments should be running surpluses when the economy is expanding and deficits when the economy is contracting. And it should be paying for all spending over the cycle.

Oh my. You're missing the point of the original argument, although you almost got it right with this post. The problem is that the government is spending way too much which would not work with corporations or individuals. Period. That's the argument.

First, I did get it right. Second, I wasn't arguing that we weren't spending too much. I addressed this nonsense that the Bush tax cuts caused government revenues to rise, which was in the OP, and that "governments should act like businesses and individuals."

 

[Big Fitz]

It seems that most rational people believe the government is spending too much but want to protect their own private slice of the pie at all cost.

that is why nothing gets done. Everyone needs a cut, equal across the board and a budgetary freeze for the next decade or so and let inflation and economic growth take care of the rest.

 

[Toro]

It seems that most rational people believe the government is spending too much but want to protect their own private slice of the pie at all cost.

that is why nothing gets done. Everyone needs a cut, equal across the board and a budgetary freeze for the next decade or so and let inflation and economic growth take care of the rest.

I agree. Cuts have to be broad based. Everyone has to feel it.

 

[Ravi]

No. You've got it wrong. It's not Keynes. People decreasing net savings is Milton Friedman's Permanent Income Hypothesis.

Permanent income hypothesis - Wikipedia, the free encyclopedia

People alter their consumption if they believe their income is going to permanently change. If they do not believe that, they don't change their consumption. So if you lose your job and you think you will get a similar one within a few months, you don't change your consumption (much) and you draw down your net savings to support your life style. But if you think you can't get a new job that pays as much, then you change your consumption.

So if you use people and businesses as the yardstick to measure what governments should do, then according to the Permanent Income Hypothesis, since most people won't cut back unless they believe there has been a structural change in their incomes, governments shouldn't either. And that means funding consumption during a recession with debt. BUT it also means running surpluses during good times and paying off that debt.

Makes perfect sense. This is why many businesses have credit lines. There are times when you aren't bringing in enough to pay your expenses so you borrow to do so with the anticipation of paying off the loan when things pick up. That way you don't lose business or employees and are set to go when the economy strengthens.

And that's the way businesses operate most of the time. However, if you're in a recession if you're losing market share, if you try to grow your business too fast, etc., you have to make cuts. That's the argument here and the reason why people are so dissatisfied with our government's fiscal irresponsibility.

But we aren't talking about "if you try to grow your business too fast" we are talking about, at least I was, keeping your business healthy while you wait out the recession. Often the only way to do that is to borrow to keep your business on an even keel and operating smoothly until business picks up again.

 

[kaz]

It seems that most rational people believe the government is spending too much but want to protect their own private slice of the pie at all cost.

that is why nothing gets done. Everyone needs a cut, equal across the board and a budgetary freeze for the next decade or so and let inflation and economic growth take care of the rest.

I agree. Cuts have to be broad based. Everyone has to feel it.

Other then people who are just getting government checks of other people's money, Do you really think people will "feel" cuts in government? I don't.

 

[snjmom]

Do you really think people will "feel" cuts in government? I don't.

Without a doubt. Even if the cuts are only to entitlement programs, every store, landlord and medical establishment is going to feel that pain. The economy isn't just going to magically offer full employment.

 

[kaz]

Do you really think people will "feel" cuts in government? I don't.

Without a doubt. Even if the cuts are only to entitlement programs, every store, landlord and medical establishment is going to feel that pain. The economy isn't just going to magically offer full employment.

Government doesn't create anything. Companies spend to create value. Government taking money out of the economy and giving it to people who spending it without creating value can't possibly hurt any of those people you listed. In fact, the money will stay with companies who will spend it actually creating value and those people will get jobs and spend it themselves. Socialism is a religion and arguing this nonsense doesn't turn fantasy into reality.

 

[snjmom]

Do you really think people will "feel" cuts in government? I don't.

Without a doubt. Even if the cuts are only to entitlement programs, every store, landlord and medical establishment is going to feel that pain. The economy isn't just going to magically offer full employment.

Government doesn't create anything. Companies spend to create value. Government taking money out of the economy and giving it to people who spending it without creating value can't possibly hurt any of those people you listed. In fact, the money will stay with companies who will spend it actually creating value and those people will get jobs and spend it themselves. Socialism is a religion and arguing this nonsense doesn't turn fantasy into reality.

Or they may not spend it and sit on it till demand increases or pass it around to the upper tier, where it gets invested in strictly financial instruments, like derivative sidebets.

Government creates order, law, certainty. After this last frenzy of so-called "entrepreneurs" that almost killed the world's economy by trying to off-load risks, I don't see why you can't see the value that government creates. Just cause you can't buy it off the shelf doesn't mean it has no value.

 

[kaz]

Without a doubt. Even if the cuts are only to entitlement programs, every store, landlord and medical establishment is going to feel that pain. The economy isn't just going to magically offer full employment.

Government doesn't create anything. Companies spend to create value. Government taking money out of the economy and giving it to people who spending it without creating value can't possibly hurt any of those people you listed. In fact, the money will stay with companies who will spend it actually creating value and those people will get jobs and spend it themselves. Socialism is a religion and arguing this nonsense doesn't turn fantasy into reality.

Or they may not spend it and sit on it till demand increases or pass it around to the upper tier, where it gets invested in strictly financial instruments, like derivative sidebets.

Actually they don't sit on it, they invest it, which actually keeps it in the economy.

Government creates order, law, certainty. After this last frenzy of so-called "entrepreneurs" that almost killed the world's economy by trying to off-load risks, I don't see why you can't see the value that government creates. Just cause you can't buy it off the shelf doesn't mean it has no value.

My point you challenged was on economics, not your love of government. That you want what government offers doesn't make government confiscation and spending stimulate the economy. Try to stick to the topic. We can discuss how useless government is somewhere else.

 

[Toro]

It seems that most rational people believe the government is spending too much but want to protect their own private slice of the pie at all cost.

that is why nothing gets done. Everyone needs a cut, equal across the board and a budgetary freeze for the next decade or so and let inflation and economic growth take care of the rest.

I agree. Cuts have to be broad based. Everyone has to feel it.

Other then people who are just getting government checks of other people's money, Do you really think people will "feel" cuts in government? I don't.

We also have to raise taxes. This can't be done alone with spending cuts. The majority should come from spending cuts, but everyone must feel the pain. So we can't just raise taxes on "the rich."

 

[kaz]

I agree. Cuts have to be broad based. Everyone has to feel it.

Other then people who are just getting government checks of other people's money, Do you really think people will "feel" cuts in government? I don't.

We also have to raise taxes. This can't be done alone with spending cuts. The majority should come from spending cuts, but everyone must feel the pain. So we can't just raise taxes on "the rich."

No, no we don't. Taxes reduce the economy and drive people to work harder to avoid them. We need to lower and simplify taxes and cut spending.

 

[Toro]

Other then people who are just getting government checks of other people's money, Do you really think people will "feel" cuts in government? I don't.

We also have to raise taxes. This can't be done alone with spending cuts. The majority should come from spending cuts, but everyone must feel the pain. So we can't just raise taxes on "the rich."

No, no we don't. Taxes reduce the economy and drive people to work harder to avoid them. We need to lower and simplify taxes and cut spending.

It won't work. Everybody wants someone else to pay. They don't want to share the burden themselves. Let the other guy take the pain. But the only way this will work is if everyone has buy in. And that includes raising taxes. If people's attitude is "only spending cuts" or "only tax increases," this problem will not get solved.