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-8% here 
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United States22883 Posts
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On October 08 2008 22:16 Jibba wrote:
And yo union is fallin aparts
Don't worry Sarkozy is the president of the Union atm, he will save us, and probably the world at the same time.
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however why don't you detail your plan for the economy rather than criticize mine?
I'll suggest a reading of Man, Economy, and State. It's pretty much a 1500 page detail of such a plan. In discussion we draw on that base to make arguments against specific instances of public policy, but a complete reading of that book should provide an insight into the logical framework that drives that criticism.
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BAHHH. My 401k is now down 30%, and house down 9%.
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Britain's bailout is a little different in that they're directly injecting capital into banks by offering cheap loans and underwriting interbank loans.
the problem with europe is that their economies are very tightly integrated, but their financial oversight isn't.
anyway the world is pretty much ending, if i were you i'd call my loved ones and say goodbye before nuclear armageddon begins
BYE TL
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United States22883 Posts
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what we oughta do is PANICKKKKKKKKKKKKKKk
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United States22883 Posts
Kellogg and Campbell are fucking solid investments right now.
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I didn't read the hole post but it looks like you are missing the importance of Federal Reserve rate cuts and how it made all this sub-prime mess possible. It was Greenspan's mistake which he acknowledged.
Also the speclulator's activity is out of spectre. It were speculators who span the Hi-Tech boom in late 90s and early 2000's, after it broke out they switched to real estate, and after it to oil. They all crashed and now there is no market to switch and you can see the consequences. The speculators are normal thing. What's not normal is when economy has no recessions for 17 years (since 1991, the year 2001 recession doesn't really count). Such environment produces speculators en masse, and they produce overvalued economy, which will fall sooner or later. My opinion is that the drastic rate cuts by Fed back in 2001 were a mistake, it should have given economy the chance to cool off. It's like when the runner is injured and you inject him antidote and send him on track instead of healing the wound. It will be a disaster in the end. So the conclusion:
1) Recessions are necessary.
2) Fed should make them smoother but not try to eliminate them.
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On October 09 2008 03:22 Jibba wrote:
Kellogg and Campbell are fucking solid investments right now.
Hahahahaha i found that incredibly funny
Cheerio: Ya, definitely. I may update again later to reflect that, and also include some new developments over in Europe and Asia.
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On October 08 2008 10:28 Choros wrote:Show nested quote +On October 08 2008 08:03 theonemephisto wrote:On October 07 2008 15:45 Choros wrote:
One point I will make regarding this debate is that it is in the nature of economic debates that two economists will debate each other, both will leave believing they have won, and convinced the other is totally mad. It is only the impact that these policies have which can conclusively prove who is correct and who is not. I believe that the failure of the policies you advocate has already begun and has been progressing for some time now. In 12 to 16 months it will be more clear we will probably conclusively know just how bad it will get. At that time I expect I will be saying 'I told you so', but for now all we have are debates without any conclusive result. None of the policies that I advocate have been put into practice. The people who are saying that this crisis is a result of laissez faire and a failure of markets are retards, this crisis is a result of absolutely stupid monetary policy and government mandates/interference. Laissez-faire has never existed. It is true that a market based education system has never been tried, in my opinion this has more to do with the fact that only the United States are insane enough to consider such a diabolical and fundamentally flawed system. But I concede that such ideas are relatively new so it is not surprising that they are untried, but no other country would even consider suggesting such policies as the public outcry would be immense. Everything good about our education system was created in the public sector, if it aint broke don't fix it.
The American Education system however is broke, but the fundamental reason for this is the neglect of the public system and consistently deteriorating funding levels. Will a voucher system work? Only time will tell, but I have supreme confidence it will fail.
...
Microeconomics is the study of firms, because firms are profit maximising entities we can predict how they will act under certain conditions. If you do not have a genuine competitive market situation then you will have a monopoly or an oligopoly (among others). Under those conditions firms produce inferior product at a higher price. A voucher system effectively creates a monopolistic situation as the individuals have no buyer power. Rich people do have buyer power, but they already go to private schools so they do not count. The US education system is a government imposed monopoly. Monopolies are inefficient (by your own admission). Therefore, the government-run education systems must be inefficient, because they are just monopolies with little to no incentives to increase quality or decrease costs. A voucher system with for-profit schools would be absolutely the best following microeconomic principles. People will be able to choose from different schools competing for students. Therefore, people will flock to the absolute best schools in the area, and if there aren't any good schools in the area, someone will see a chance to make a lot of money and will come found one. I don't see how you see this as anything close to monopolistic, and I especially don't see how you think this is more monopolistic than government schools. Either way, how about we do this. Set up a voucher system alongside the current government schools. Give vouchers to students who request to go to private schools that are worth the same amount the government pays per student. Let people decide whether they want to go to private or public schools, and either way the government will be footing the bill (and the same bill). Let private schools keep any and all profits they make off the vouchers. And rather that giving individuals no buying power, it gives everyone the same buying power (depending on implementation). By the way, your argument about deteriorating funding is an absolute joke, funding per student in the US is astronomical, has been growing at an astonishing rate, and is much higher than pretty much all other countries. "So you'd rather all government run up massive deficits that they can't pay, inflate their way out of it, and create runs on the dollar that collapse our economy and destroy any international standing we have?"
At the start of the great depression nations cut expenses as their revenues contracted to minimize their deficits. You put a contractionary policy atop a contracting economy and it will contract even faster. One of the great lessons of the great depression experience is the realisation that increased budget deficits must be weathered in order to prevent the further deterioration of the economy. I am stunned how people consistently argue that policies which have been proven disastrous are appropriate. Whats more maintaining funding levels, in this context I'm not talking about increasing funding rather simply maintaining it, will have no significant inflationary impact, but if it did a higher rate of short run inflation is a small price to pay to prevent economic apocalypse.
How does putting downward pressure on a contracting economy increase your international standing? The United States is almost entirely out of respect at the moment and its respect is falling at a rapid pace. Economic collapse will put a nail in the coffin and in my opinion collapse is the only outcome from contracting a contracting economy. But only time will tell. Right, because FDR's New Deal was such a contractionary program. Look at all the good it did (aka lengthening the Great Depression by years). Creating inflation during times of depression is only okay if you cut back during times of plenty, which we didn't (Negative inflation-adjusted interest rates during the 2000's anyone?). You can't inflate during times of prosperity, and then inflate more during down-turns. I have no clue what I'm talking about hey? Such things can only happen if there is no alternative? Well indeed that is true, but when you say to a poor family here take your voucher and get some education what alternatives do they have. Pathetic school A or abysmal school B. There is no effective alternatives available to these people. Indeed it is the government which has allowed this situation to develop. You ever heard of market failure? I should've addressed this up there, but whatever. Markets would create choice. If the only choices in the are were schools A and B, entrepreneur C would go "Hey look, I can make a massive profit by creating decent school C." In fact, the worse the schools in the area, the easier it is to attract students at low cost and make huge profits, the more schools will come in to compete. Government monopolies destroy choice. The only choice in a government-run school system is to go to the school in the area, regardless of whether it's good, decent, horrible, or worse. It's not like a market system where it's self-correcting; instead of a battle of the fittest where only the schools that best serve the consumer at the lowest cost survive we get a system where inefficiency is rewarded and innovation and improvement are largely ignored. Ever hear of government failure? Either way, any positive externality would be accounted for by the fact that the government is still subsidizing education, just not controlling it directly. And I don't see any negative externalities either. "Inflation is a monetary phenomenon". Wrong. Have you ever heard of stagflation? 'Normal' inflation is a monetary phenomenon yes but it is far from the end of the story. The rising cost of oil increases inflation regardless of any monetary impact this is stagflation and it is affecting us right now. For decades economists believed stagflation impossible, ahh the wisdom of economists. I admit that I oversimplified it. But I have to note that only Keynesians thought that stagflation was impossible, and Keynes was an idiot who put economic thinking back decades. He's only popular because FDR liked him because his theories validated FDR's retarded government programs. And interestingly enough, Friedman predicted stagflation. I basically said that boosting the supply side of the economy is the key to prosperity and higher wages. You then say oh your wrong what we need to do is boost the supply side of the economy. Please. Of course productivity is important, this is largely why a good education system is so important. But productivity achieved by paying your workers 50c an hour is the wrong way to go about it. This is effectively what Friedman advocates, the man said many correct things, but he is largely delusional. They live in a fantasy world of economic models which simply do not hold true in the real world. And they use confusing maths and economic jargon to stifle genuine debate. Germany is a good example of how productivity can be immense yet the public sector large. American workers are the most 'productive' on the planet, and look what they have to show for it, the lowest standard of living in the western world. Right, Americans have the lowest standard of living in the western world. I'd like to see some data on that. Not only do we have more disposable income that almost any country, but we also don't have to wait in 3-month lines to get into hospitals. Gotta love that 12% German unemployment (is that it currently? I know it's up past 10). And you gotta love how American income per household is still one of the highest in the world. I think you're missing out of something called competition for labor. If every company is paying $1 wages, it's in every individual company's interest to charge $2 in order to get the best available talent. This continues up to productivity as long as there isn't an external factor affecting supply (like rampant immigration). Labor is fundamentally a product, and is driven by the same supply and demand forces that any other product is. And just as any product's price will approach marginal cost (or as close as information dispersion and ease of transition will let it), wages will approach marginal productivity. I never said that we need to boost the supply said (or I might've, but I don't believe it). We need to let the market find the stable equilibria. The government doesn't need to do anything, because almost anything the government does will distort the equilibria and bring on future price corrections. And if you've ever actually read lots of Friedman's work, it's very readable and understandable. Sure he has a bunch of work directed at the professional economist and backed up by mathematical models, but he also has a bunch of work directed at the layman, relatively easy readings filled with logic and reason. You are advocating policies that have been tried and have failed. And now we have come full circle, these policies were spawned in the United States and now they have returned to the land of their creation. The current economic downturn is no coincidence rather it is a continence of a long and depressing tale of economic vandalism. To risk beating a dead horse, these policies have not been tried, no matter how much people want to think that they have. Though I do have to say over world history, I'd like you to find an economic system that has worked better than relatively free capitalism. And Friedman and his fellow Chicagoans who tried to mold South American economies were retarded. Their fundamental failure was that the institutions and culture needed for market economies to thrive didn't exist and couldn't be created on a whim. And yes, I agree that it is the result of a "long and depression tale of economic vandalism". That vandalism has been the increasingly large role of government in the economy and it's desire to "do good" without looking at the consequences or worrying about the money it's spending. People suggest that the United States is too large to collapse many economies have done over the last 50 years (almost every single one had Friendman's economists behind it). The size of the United States makes collapse less likely but there is only so much beating any economic system can take and right now American economists are brutalizing their economy with a hatchet I doubt it can take much more punishment. Let's look at the two probably biggest economic collapses in the last 50 years. The Soviet Union and Communist China. Because these were so free-market and directed by Friedman, obviously state intervention and control are the only answers. At the end of the day only time will tell, but I remind you that the Bush administration has followed the policies you advocate and I will let the consequences speak for themselves. Not at all, and the "Bush administration" didn't do anything. "Administrations" aren't actors, and either way, Bush didn't control much of this, much was by the fed or previous administrations/Congress (though he might've enabled it). The consequences are from disastrous management by the federal reserve, bad government mandates on home ownership, and a good bit of overzealous government intervention and regulation. This bubble would've never happened if the government hadn't caused it to happen. What I get from you is that you're a pretty hardcore Keynesian that also believes that the government is perfect. Except that you're a classical Keynesian, which has been discredited time after time, and you haven't read up much on public choice theory. Either way, I won't be responding to you again, as it simply isn't worth my time or effort anymore. You're economic education is... lacking to say the least. And either way, this discussion has gotten way off-topic. I will respond to your response however why don't you detail your plan for the economy rather than criticize mine?
Why don't you please tell me at which point I advocated any of the policies you said I advocated, and tell me how exactly deficit spending and job creation will do a better job of revitalizing the economy than injecting capital into banks. Do you not understand how credit works?
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United States22883 Posts
On October 09 2008 06:40 ahrara_ wrote:Show nested quote +On October 09 2008 03:22 Jibba wrote:
Kellogg and Campbell are fucking solid investments right now. Hahahahaha i found that incredibly funny
They were actually doing really well until Monday. I'm not sure who's in good shape now.
What the fuck.
1 Euro = 1.3679 USD
1 ¥en = 0.009954 USD
That is shocking.
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On October 09 2008 12:19 ahrara_ wrote:Show nested quote +On October 08 2008 10:28 Choros wrote:On October 08 2008 08:03 theonemephisto wrote:On October 07 2008 15:45 Choros wrote:
One point I will make regarding this debate is that it is in the nature of economic debates that two economists will debate each other, both will leave believing they have won, and convinced the other is totally mad. It is only the impact that these policies have which can conclusively prove who is correct and who is not. I believe that the failure of the policies you advocate has already begun and has been progressing for some time now. In 12 to 16 months it will be more clear we will probably conclusively know just how bad it will get. At that time I expect I will be saying 'I told you so', but for now all we have are debates without any conclusive result. None of the policies that I advocate have been put into practice. The people who are saying that this crisis is a result of laissez faire and a failure of markets are retards, this crisis is a result of absolutely stupid monetary policy and government mandates/interference. Laissez-faire has never existed. It is true that a market based education system has never been tried, in my opinion this has more to do with the fact that only the United States are insane enough to consider such a diabolical and fundamentally flawed system. But I concede that such ideas are relatively new so it is not surprising that they are untried, but no other country would even consider suggesting such policies as the public outcry would be immense. Everything good about our education system was created in the public sector, if it aint broke don't fix it.
The American Education system however is broke, but the fundamental reason for this is the neglect of the public system and consistently deteriorating funding levels. Will a voucher system work? Only time will tell, but I have supreme confidence it will fail.
...
Microeconomics is the study of firms, because firms are profit maximising entities we can predict how they will act under certain conditions. If you do not have a genuine competitive market situation then you will have a monopoly or an oligopoly (among others). Under those conditions firms produce inferior product at a higher price. A voucher system effectively creates a monopolistic situation as the individuals have no buyer power. Rich people do have buyer power, but they already go to private schools so they do not count. The US education system is a government imposed monopoly. Monopolies are inefficient (by your own admission). Therefore, the government-run education systems must be inefficient, because they are just monopolies with little to no incentives to increase quality or decrease costs. A voucher system with for-profit schools would be absolutely the best following microeconomic principles. People will be able to choose from different schools competing for students. Therefore, people will flock to the absolute best schools in the area, and if there aren't any good schools in the area, someone will see a chance to make a lot of money and will come found one. I don't see how you see this as anything close to monopolistic, and I especially don't see how you think this is more monopolistic than government schools. Either way, how about we do this. Set up a voucher system alongside the current government schools. Give vouchers to students who request to go to private schools that are worth the same amount the government pays per student. Let people decide whether they want to go to private or public schools, and either way the government will be footing the bill (and the same bill). Let private schools keep any and all profits they make off the vouchers. And rather that giving individuals no buying power, it gives everyone the same buying power (depending on implementation). By the way, your argument about deteriorating funding is an absolute joke, funding per student in the US is astronomical, has been growing at an astonishing rate, and is much higher than pretty much all other countries. "So you'd rather all government run up massive deficits that they can't pay, inflate their way out of it, and create runs on the dollar that collapse our economy and destroy any international standing we have?"
At the start of the great depression nations cut expenses as their revenues contracted to minimize their deficits. You put a contractionary policy atop a contracting economy and it will contract even faster. One of the great lessons of the great depression experience is the realisation that increased budget deficits must be weathered in order to prevent the further deterioration of the economy. I am stunned how people consistently argue that policies which have been proven disastrous are appropriate. Whats more maintaining funding levels, in this context I'm not talking about increasing funding rather simply maintaining it, will have no significant inflationary impact, but if it did a higher rate of short run inflation is a small price to pay to prevent economic apocalypse.
How does putting downward pressure on a contracting economy increase your international standing? The United States is almost entirely out of respect at the moment and its respect is falling at a rapid pace. Economic collapse will put a nail in the coffin and in my opinion collapse is the only outcome from contracting a contracting economy. But only time will tell. Right, because FDR's New Deal was such a contractionary program. Look at all the good it did (aka lengthening the Great Depression by years). Creating inflation during times of depression is only okay if you cut back during times of plenty, which we didn't (Negative inflation-adjusted interest rates during the 2000's anyone?). You can't inflate during times of prosperity, and then inflate more during down-turns. I have no clue what I'm talking about hey? Such things can only happen if there is no alternative? Well indeed that is true, but when you say to a poor family here take your voucher and get some education what alternatives do they have. Pathetic school A or abysmal school B. There is no effective alternatives available to these people. Indeed it is the government which has allowed this situation to develop. You ever heard of market failure? I should've addressed this up there, but whatever. Markets would create choice. If the only choices in the are were schools A and B, entrepreneur C would go "Hey look, I can make a massive profit by creating decent school C." In fact, the worse the schools in the area, the easier it is to attract students at low cost and make huge profits, the more schools will come in to compete. Government monopolies destroy choice. The only choice in a government-run school system is to go to the school in the area, regardless of whether it's good, decent, horrible, or worse. It's not like a market system where it's self-correcting; instead of a battle of the fittest where only the schools that best serve the consumer at the lowest cost survive we get a system where inefficiency is rewarded and innovation and improvement are largely ignored. Ever hear of government failure? Either way, any positive externality would be accounted for by the fact that the government is still subsidizing education, just not controlling it directly. And I don't see any negative externalities either. "Inflation is a monetary phenomenon". Wrong. Have you ever heard of stagflation? 'Normal' inflation is a monetary phenomenon yes but it is far from the end of the story. The rising cost of oil increases inflation regardless of any monetary impact this is stagflation and it is affecting us right now. For decades economists believed stagflation impossible, ahh the wisdom of economists. I admit that I oversimplified it. But I have to note that only Keynesians thought that stagflation was impossible, and Keynes was an idiot who put economic thinking back decades. He's only popular because FDR liked him because his theories validated FDR's retarded government programs. And interestingly enough, Friedman predicted stagflation. I basically said that boosting the supply side of the economy is the key to prosperity and higher wages. You then say oh your wrong what we need to do is boost the supply side of the economy. Please. Of course productivity is important, this is largely why a good education system is so important. But productivity achieved by paying your workers 50c an hour is the wrong way to go about it. This is effectively what Friedman advocates, the man said many correct things, but he is largely delusional. They live in a fantasy world of economic models which simply do not hold true in the real world. And they use confusing maths and economic jargon to stifle genuine debate. Germany is a good example of how productivity can be immense yet the public sector large. American workers are the most 'productive' on the planet, and look what they have to show for it, the lowest standard of living in the western world. Right, Americans have the lowest standard of living in the western world. I'd like to see some data on that. Not only do we have more disposable income that almost any country, but we also don't have to wait in 3-month lines to get into hospitals. Gotta love that 12% German unemployment (is that it currently? I know it's up past 10). And you gotta love how American income per household is still one of the highest in the world. I think you're missing out of something called competition for labor. If every company is paying $1 wages, it's in every individual company's interest to charge $2 in order to get the best available talent. This continues up to productivity as long as there isn't an external factor affecting supply (like rampant immigration). Labor is fundamentally a product, and is driven by the same supply and demand forces that any other product is. And just as any product's price will approach marginal cost (or as close as information dispersion and ease of transition will let it), wages will approach marginal productivity. I never said that we need to boost the supply said (or I might've, but I don't believe it). We need to let the market find the stable equilibria. The government doesn't need to do anything, because almost anything the government does will distort the equilibria and bring on future price corrections. And if you've ever actually read lots of Friedman's work, it's very readable and understandable. Sure he has a bunch of work directed at the professional economist and backed up by mathematical models, but he also has a bunch of work directed at the layman, relatively easy readings filled with logic and reason. You are advocating policies that have been tried and have failed. And now we have come full circle, these policies were spawned in the United States and now they have returned to the land of their creation. The current economic downturn is no coincidence rather it is a continence of a long and depressing tale of economic vandalism. To risk beating a dead horse, these policies have not been tried, no matter how much people want to think that they have. Though I do have to say over world history, I'd like you to find an economic system that has worked better than relatively free capitalism. And Friedman and his fellow Chicagoans who tried to mold South American economies were retarded. Their fundamental failure was that the institutions and culture needed for market economies to thrive didn't exist and couldn't be created on a whim. And yes, I agree that it is the result of a "long and depression tale of economic vandalism". That vandalism has been the increasingly large role of government in the economy and it's desire to "do good" without looking at the consequences or worrying about the money it's spending. People suggest that the United States is too large to collapse many economies have done over the last 50 years (almost every single one had Friendman's economists behind it). The size of the United States makes collapse less likely but there is only so much beating any economic system can take and right now American economists are brutalizing their economy with a hatchet I doubt it can take much more punishment. Let's look at the two probably biggest economic collapses in the last 50 years. The Soviet Union and Communist China. Because these were so free-market and directed by Friedman, obviously state intervention and control are the only answers. At the end of the day only time will tell, but I remind you that the Bush administration has followed the policies you advocate and I will let the consequences speak for themselves. Not at all, and the "Bush administration" didn't do anything. "Administrations" aren't actors, and either way, Bush didn't control much of this, much was by the fed or previous administrations/Congress (though he might've enabled it). The consequences are from disastrous management by the federal reserve, bad government mandates on home ownership, and a good bit of overzealous government intervention and regulation. This bubble would've never happened if the government hadn't caused it to happen. What I get from you is that you're a pretty hardcore Keynesian that also believes that the government is perfect. Except that you're a classical Keynesian, which has been discredited time after time, and you haven't read up much on public choice theory. Either way, I won't be responding to you again, as it simply isn't worth my time or effort anymore. You're economic education is... lacking to say the least. And either way, this discussion has gotten way off-topic. I will respond to your response however why don't you detail your plan for the economy rather than criticize mine? Why don't you please tell me at which point I advocated any of the policies you said I advocated, and tell me how exactly deficit spending and job creation will do a better job of revitalizing the economy than injecting capital into banks. Do you not understand how credit works?
I understand how credit works, and I understand that when you already have unsustainable levels of debt the notion that the economy should be resuscitated using borrowings thus increasing your levels of debt is simple stupidity. It the the reliance upon expansionary monetary policy, increasing debt time and time again which has gotten the United States into this mess to a large extent, and monetary policy simply cannot get them out of this one. The levels of debt are too high and consumer confidence too low for people to seriously consider increasing their levels of debt any higher. And even if they did it would only postpone the problem and it would become even worse. Thus providing real economic stimulus through government spending is the ONLY option left available at this point, the state of the deficit creates serious problems in financing fiscal expansion but these problems can be dealt with.
The reason I asked you to detail your plan is so that i can know for sure if you do advocate these policies. When I said this previously it based off the assumption that you agree with the policies advocated by the McCain campaign, or Ron Paul's brand of economic management basically the economic right. My criticisms are based upon arguments against these policies in a broad sence. If you detail what you think should be done at present I will be better able to respond to that, right now i'm not sure what you do believe should be done with any real accuracy.
I will explain how job creation and deficit spending can resuscitate the economy however, now I have said that it is better than creating 'liquidity' or attempting to encourage debt spending earlier in this post. Job creation and deficit spending physically place money into the economic system which begins to filter up and begins to multiply, people get more money in the jobs there in and spend more, the level of unemployment falls which increases revenues from taxation and decreases social security cost but most importantly again it puts money in the economy where its needed. And this will put upward pressure on the stock market. The impact on demand of encouraging credit and through fiscal stimulus are similar, however fiscal stimulus does not increase upon an already unsustainable level of private sector debt which is destroying the economy.
The Federal deficit is out of control however but if you take back the Bush tax cuts and reduce defense spending by around 200billion dollars and you will not reduce the capacity of the defense forces because then though the Bush administration has poured much more than 200billion per year extra into defense the capacity of the military has declined. It is ridiculous and the levels of waste and corruption (i.e Halliburton) which are to blame. You can also remove these tax cuts and actually increase the levels of investment as the government will invest it even though under the current economic environment a positive return can not be guaranteed, the private sector cannot invest significantly in such an environment. Thus you can get about 650 billion extra dollars to throw around, and boy does the economy need it. The United States can have a quite decent balance sheet its just a matter of getting rid of the real waste, in defense, and in diabolical tax cuts to the rich which serve no real economic benefit. They have nifty buzz words and economic jingo to make them seem like good policies but in fact they are horrible policies which damage the economy and only benefit the rich. If the rich were truly wise even they would oppose them as it undermines the sustainability of the economic system they need just as much as everyone else.
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On October 09 2008 12:47 Choros wrote:Show nested quote +On October 09 2008 12:19 ahrara_ wrote:On October 08 2008 10:28 Choros wrote:On October 08 2008 08:03 theonemephisto wrote:On October 07 2008 15:45 Choros wrote:
One point I will make regarding this debate is that it is in the nature of economic debates that two economists will debate each other, both will leave believing they have won, and convinced the other is totally mad. It is only the impact that these policies have which can conclusively prove who is correct and who is not. I believe that the failure of the policies you advocate has already begun and has been progressing for some time now. In 12 to 16 months it will be more clear we will probably conclusively know just how bad it will get. At that time I expect I will be saying 'I told you so', but for now all we have are debates without any conclusive result. None of the policies that I advocate have been put into practice. The people who are saying that this crisis is a result of laissez faire and a failure of markets are retards, this crisis is a result of absolutely stupid monetary policy and government mandates/interference. Laissez-faire has never existed. It is true that a market based education system has never been tried, in my opinion this has more to do with the fact that only the United States are insane enough to consider such a diabolical and fundamentally flawed system. But I concede that such ideas are relatively new so it is not surprising that they are untried, but no other country would even consider suggesting such policies as the public outcry would be immense. Everything good about our education system was created in the public sector, if it aint broke don't fix it.
The American Education system however is broke, but the fundamental reason for this is the neglect of the public system and consistently deteriorating funding levels. Will a voucher system work? Only time will tell, but I have supreme confidence it will fail.
...
Microeconomics is the study of firms, because firms are profit maximising entities we can predict how they will act under certain conditions. If you do not have a genuine competitive market situation then you will have a monopoly or an oligopoly (among others). Under those conditions firms produce inferior product at a higher price. A voucher system effectively creates a monopolistic situation as the individuals have no buyer power. Rich people do have buyer power, but they already go to private schools so they do not count. The US education system is a government imposed monopoly. Monopolies are inefficient (by your own admission). Therefore, the government-run education systems must be inefficient, because they are just monopolies with little to no incentives to increase quality or decrease costs. A voucher system with for-profit schools would be absolutely the best following microeconomic principles. People will be able to choose from different schools competing for students. Therefore, people will flock to the absolute best schools in the area, and if there aren't any good schools in the area, someone will see a chance to make a lot of money and will come found one. I don't see how you see this as anything close to monopolistic, and I especially don't see how you think this is more monopolistic than government schools. Either way, how about we do this. Set up a voucher system alongside the current government schools. Give vouchers to students who request to go to private schools that are worth the same amount the government pays per student. Let people decide whether they want to go to private or public schools, and either way the government will be footing the bill (and the same bill). Let private schools keep any and all profits they make off the vouchers. And rather that giving individuals no buying power, it gives everyone the same buying power (depending on implementation). By the way, your argument about deteriorating funding is an absolute joke, funding per student in the US is astronomical, has been growing at an astonishing rate, and is much higher than pretty much all other countries. "So you'd rather all government run up massive deficits that they can't pay, inflate their way out of it, and create runs on the dollar that collapse our economy and destroy any international standing we have?"
At the start of the great depression nations cut expenses as their revenues contracted to minimize their deficits. You put a contractionary policy atop a contracting economy and it will contract even faster. One of the great lessons of the great depression experience is the realisation that increased budget deficits must be weathered in order to prevent the further deterioration of the economy. I am stunned how people consistently argue that policies which have been proven disastrous are appropriate. Whats more maintaining funding levels, in this context I'm not talking about increasing funding rather simply maintaining it, will have no significant inflationary impact, but if it did a higher rate of short run inflation is a small price to pay to prevent economic apocalypse.
How does putting downward pressure on a contracting economy increase your international standing? The United States is almost entirely out of respect at the moment and its respect is falling at a rapid pace. Economic collapse will put a nail in the coffin and in my opinion collapse is the only outcome from contracting a contracting economy. But only time will tell. Right, because FDR's New Deal was such a contractionary program. Look at all the good it did (aka lengthening the Great Depression by years). Creating inflation during times of depression is only okay if you cut back during times of plenty, which we didn't (Negative inflation-adjusted interest rates during the 2000's anyone?). You can't inflate during times of prosperity, and then inflate more during down-turns. I have no clue what I'm talking about hey? Such things can only happen if there is no alternative? Well indeed that is true, but when you say to a poor family here take your voucher and get some education what alternatives do they have. Pathetic school A or abysmal school B. There is no effective alternatives available to these people. Indeed it is the government which has allowed this situation to develop. You ever heard of market failure? I should've addressed this up there, but whatever. Markets would create choice. If the only choices in the are were schools A and B, entrepreneur C would go "Hey look, I can make a massive profit by creating decent school C." In fact, the worse the schools in the area, the easier it is to attract students at low cost and make huge profits, the more schools will come in to compete. Government monopolies destroy choice. The only choice in a government-run school system is to go to the school in the area, regardless of whether it's good, decent, horrible, or worse. It's not like a market system where it's self-correcting; instead of a battle of the fittest where only the schools that best serve the consumer at the lowest cost survive we get a system where inefficiency is rewarded and innovation and improvement are largely ignored. Ever hear of government failure? Either way, any positive externality would be accounted for by the fact that the government is still subsidizing education, just not controlling it directly. And I don't see any negative externalities either. "Inflation is a monetary phenomenon". Wrong. Have you ever heard of stagflation? 'Normal' inflation is a monetary phenomenon yes but it is far from the end of the story. The rising cost of oil increases inflation regardless of any monetary impact this is stagflation and it is affecting us right now. For decades economists believed stagflation impossible, ahh the wisdom of economists. I admit that I oversimplified it. But I have to note that only Keynesians thought that stagflation was impossible, and Keynes was an idiot who put economic thinking back decades. He's only popular because FDR liked him because his theories validated FDR's retarded government programs. And interestingly enough, Friedman predicted stagflation. I basically said that boosting the supply side of the economy is the key to prosperity and higher wages. You then say oh your wrong what we need to do is boost the supply side of the economy. Please. Of course productivity is important, this is largely why a good education system is so important. But productivity achieved by paying your workers 50c an hour is the wrong way to go about it. This is effectively what Friedman advocates, the man said many correct things, but he is largely delusional. They live in a fantasy world of economic models which simply do not hold true in the real world. And they use confusing maths and economic jargon to stifle genuine debate. Germany is a good example of how productivity can be immense yet the public sector large. American workers are the most 'productive' on the planet, and look what they have to show for it, the lowest standard of living in the western world. Right, Americans have the lowest standard of living in the western world. I'd like to see some data on that. Not only do we have more disposable income that almost any country, but we also don't have to wait in 3-month lines to get into hospitals. Gotta love that 12% German unemployment (is that it currently? I know it's up past 10). And you gotta love how American income per household is still one of the highest in the world. I think you're missing out of something called competition for labor. If every company is paying $1 wages, it's in every individual company's interest to charge $2 in order to get the best available talent. This continues up to productivity as long as there isn't an external factor affecting supply (like rampant immigration). Labor is fundamentally a product, and is driven by the same supply and demand forces that any other product is. And just as any product's price will approach marginal cost (or as close as information dispersion and ease of transition will let it), wages will approach marginal productivity. I never said that we need to boost the supply said (or I might've, but I don't believe it). We need to let the market find the stable equilibria. The government doesn't need to do anything, because almost anything the government does will distort the equilibria and bring on future price corrections. And if you've ever actually read lots of Friedman's work, it's very readable and understandable. Sure he has a bunch of work directed at the professional economist and backed up by mathematical models, but he also has a bunch of work directed at the layman, relatively easy readings filled with logic and reason. You are advocating policies that have been tried and have failed. And now we have come full circle, these policies were spawned in the United States and now they have returned to the land of their creation. The current economic downturn is no coincidence rather it is a continence of a long and depressing tale of economic vandalism. To risk beating a dead horse, these policies have not been tried, no matter how much people want to think that they have. Though I do have to say over world history, I'd like you to find an economic system that has worked better than relatively free capitalism. And Friedman and his fellow Chicagoans who tried to mold South American economies were retarded. Their fundamental failure was that the institutions and culture needed for market economies to thrive didn't exist and couldn't be created on a whim. And yes, I agree that it is the result of a "long and depression tale of economic vandalism". That vandalism has been the increasingly large role of government in the economy and it's desire to "do good" without looking at the consequences or worrying about the money it's spending. People suggest that the United States is too large to collapse many economies have done over the last 50 years (almost every single one had Friendman's economists behind it). The size of the United States makes collapse less likely but there is only so much beating any economic system can take and right now American economists are brutalizing their economy with a hatchet I doubt it can take much more punishment. Let's look at the two probably biggest economic collapses in the last 50 years. The Soviet Union and Communist China. Because these were so free-market and directed by Friedman, obviously state intervention and control are the only answers. At the end of the day only time will tell, but I remind you that the Bush administration has followed the policies you advocate and I will let the consequences speak for themselves. Not at all, and the "Bush administration" didn't do anything. "Administrations" aren't actors, and either way, Bush didn't control much of this, much was by the fed or previous administrations/Congress (though he might've enabled it). The consequences are from disastrous management by the federal reserve, bad government mandates on home ownership, and a good bit of overzealous government intervention and regulation. This bubble would've never happened if the government hadn't caused it to happen. What I get from you is that you're a pretty hardcore Keynesian that also believes that the government is perfect. Except that you're a classical Keynesian, which has been discredited time after time, and you haven't read up much on public choice theory. Either way, I won't be responding to you again, as it simply isn't worth my time or effort anymore. You're economic education is... lacking to say the least. And either way, this discussion has gotten way off-topic. I will respond to your response however why don't you detail your plan for the economy rather than criticize mine? Why don't you please tell me at which point I advocated any of the policies you said I advocated, and tell me how exactly deficit spending and job creation will do a better job of revitalizing the economy than injecting capital into banks. Do you not understand how credit works? I understand how credit works, and I understand that when you already have unsustainable levels of debt the notion that the economy should be resuscitated using borrowings thus increasing your levels of debt is simple stupidity. It the the reliance upon expansionary monetary policy, increasing debt time and time again which has gotten the United States into this mess to a large extent, and monetary policy simply cannot get them out of this one. The levels of debt are too high and consumer confidence too low for people to seriously consider increasing their levels of debt any higher. And even if they did it would only postpone the problem and it would become even worse. Thus providing real economic stimulus through government spending is the ONLY option left available at this point, the state of the deficit creates serious problems in financing fiscal expansion but these problems can be dealt with.
Here we go again with the "all our problems are caused by the federal reserve and fractional reserve banking etc." Business cycles will always be a part of economic history. Admittedly, low fed rates contributed to the current crisis. Coupled (and i repeat, COUPLED) with the moral hazard enabled by federal deregulation and the secondary mortgage market, that was the cause of the housing bubble. But expansionary monetary policy in this case (both the bailout and today's rate cut) is a short run solution that works by staving off further losses. You work under the fallacy that market corrections are perfectly accurate. The more businesses we allow to fail, the less risk investors are willing to take, to the point that aversion to investment falls beneath the actual risk in the market presently. That in turn becomes a self-fulfilling prophecy where the lack of capital creates more risk, causing less investment. It's been noted that the bailouts do not even begin to cover the total value of the losses. Part of the reason behind the bailout and the rate cut is because these make headlines and restore confidence. This is key.
Stimulus does not repair this problem as effectively because an injection of capital from the ground up will a.) require exponentially more cash for enough of it to get to the right places because when consumers don't hoard, it's being spent everywhere, not targeted at businesses that need it the most b.) it happens over time. meanwhile, the crisis gets worse c.) for these reasons, it does not repair confidence. Also, how is economic stimulus NOT an increase in the money supply, except through different sources? The long run effect is the same. Your arguments against debt and for stimulus are self contradictory.
To put it more simply, the key problem is hoarding and targeting. The current fed solution is a sophisticated package that will ensure the money gets where it needs the fastest.
The reason I asked you to detail your plan is so that i can know for sure if you do advocate these policies. When I said this previously it based off the assumption that you agree with the policies advocated by the McCain campaign, or Ron Paul's brand of economic management basically the economic right. My criticisms are based upon arguments against these policies in a broad sence. If you detail what you think should be done at present I will be better able to respond to that, right now i'm not sure what you do believe should be done with any real accuracy.
No, no, no. By assuming I endorsed these policies you completely ignored my arguments, but whatever now. I feel what needs to be done at present is what is being done: a.) injections of capital to banks and businesses b.) as part of that capital injection, take the bad mortgage assets off the hands of banks, allowing them to restore stability to their balance sheets.
I will explain how job creation and deficit spending can resuscitate the economy however, now I have said that it is better than creating 'liquidity' or attempting to encourage debt spending earlier in this post. Job creation and deficit spending physically place money into the economic system which begins to filter up and begins to multiply, people get more money in the jobs there in and spend more, the level of unemployment falls which increases revenues from taxation and decreases social security cost but most importantly again it puts money in the economy where its needed. And this will put upward pressure on the stock market. The impact on demand of encouraging credit and through fiscal stimulus are similar, however fiscal stimulus does not increase upon an already unsustainable level of private sector debt which is destroying the economy.
i think we are in agreement here except that I believe propping up credit is more effective, and is now as hazardous as you claim. However:
I stand in the middle of McCain's tax policies and yours, but my view is that where we can increase incentives for capital to enter the states at minimum cost elsewhere, we should do so. Otherwise, we cease to be competitive in the world market for investor capital. Hong Kong, which is #1 in the index of economic freedom, is an excellent empirical example of how low government intervention has generated unbelievably rapid growth (7.5%). Admittedly, these policies tends to create large income equality, which is the drawback. A simple survey of the CIA World Factbook in relation with the index of economic freedom's rankings, in particular their ranking of "freedom from government (ie low capital gains taxes etc)" will find that low intervention -> more growth. (China has a 90% rating in that category, although a 50% rating overall) Which pretty much refutes your claim that trickle up is equally effective for growth.
The Federal deficit is out of control however but if you take back the Bush tax cuts and reduce defense spending by around 200billion dollars and you will not reduce the capacity of the defense forces because then though the Bush administration has poured much more than 200billion per year extra into defense the capacity of the military has declined. It is ridiculous and the levels of waste and corruption (i.e Halliburton) which are to blame. You can also remove these tax cuts and actually increase the levels of investment as the government will invest it even though under the current economic environment a positive return can not be guaranteed, the private sector cannot invest significantly in such an environment. Thus you can get about 650 billion extra dollars to throw around, and boy does the economy need it. The United States can have a quite decent balance sheet its just a matter of getting rid of the real waste, in defense, and in diabolical tax cuts to the rich which serve no real economic benefit. They have nifty buzz words and economic jingo to make them seem like good policies but in fact they are horrible policies which damage the economy and only benefit the rich. If the rich were truly wise even they would oppose them as it undermines the sustainability of the economic system they need just as much as everyone else.
The federal deficit is 5% of GDP, compared with 60% in Germany and similar numbers across Europe.
Anyway, this is another debate altogether.
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http://www.brookings.edu/speeches/2008/1006_crisis_lessons_baily.aspx?rssid=LatestFromBrookings
worthwhile (and easy and quick) read about the causes of the problem. casts a more diverse view than what's been mentioned here
regarding the above post i forgot to mention:
we are in the middle of a market correction w/r/t bad debt. at the end of it, enough debt will have defaulted that even borrowers in otherwise good standing will have foreclosed. the market, has overcorrected, which is what i meant that market corrections are not perfect. this is the argument i've been making for much of this thread. a temporary expansionary policy is required to bring the credit market to a reasonable level. we cannot put ourselves in more "debt slavery" when we much of that debt has been defaulted on.
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On October 09 2008 13:29 ahrara_ wrote:Show nested quote +On October 09 2008 12:47 Choros wrote:On October 09 2008 12:19 ahrara_ wrote:On October 08 2008 10:28 Choros wrote:On October 08 2008 08:03 theonemephisto wrote:On October 07 2008 15:45 Choros wrote:
One point I will make regarding this debate is that it is in the nature of economic debates that two economists will debate each other, both will leave believing they have won, and convinced the other is totally mad. It is only the impact that these policies have which can conclusively prove who is correct and who is not. I believe that the failure of the policies you advocate has already begun and has been progressing for some time now. In 12 to 16 months it will be more clear we will probably conclusively know just how bad it will get. At that time I expect I will be saying 'I told you so', but for now all we have are debates without any conclusive result. None of the policies that I advocate have been put into practice. The people who are saying that this crisis is a result of laissez faire and a failure of markets are retards, this crisis is a result of absolutely stupid monetary policy and government mandates/interference. Laissez-faire has never existed. It is true that a market based education system has never been tried, in my opinion this has more to do with the fact that only the United States are insane enough to consider such a diabolical and fundamentally flawed system. But I concede that such ideas are relatively new so it is not surprising that they are untried, but no other country would even consider suggesting such policies as the public outcry would be immense. Everything good about our education system was created in the public sector, if it aint broke don't fix it.
The American Education system however is broke, but the fundamental reason for this is the neglect of the public system and consistently deteriorating funding levels. Will a voucher system work? Only time will tell, but I have supreme confidence it will fail.
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Microeconomics is the study of firms, because firms are profit maximising entities we can predict how they will act under certain conditions. If you do not have a genuine competitive market situation then you will have a monopoly or an oligopoly (among others). Under those conditions firms produce inferior product at a higher price. A voucher system effectively creates a monopolistic situation as the individuals have no buyer power. Rich people do have buyer power, but they already go to private schools so they do not count. The US education system is a government imposed monopoly. Monopolies are inefficient (by your own admission). Therefore, the government-run education systems must be inefficient, because they are just monopolies with little to no incentives to increase quality or decrease costs. A voucher system with for-profit schools would be absolutely the best following microeconomic principles. People will be able to choose from different schools competing for students. Therefore, people will flock to the absolute best schools in the area, and if there aren't any good schools in the area, someone will see a chance to make a lot of money and will come found one. I don't see how you see this as anything close to monopolistic, and I especially don't see how you think this is more monopolistic than government schools. Either way, how about we do this. Set up a voucher system alongside the current government schools. Give vouchers to students who request to go to private schools that are worth the same amount the government pays per student. Let people decide whether they want to go to private or public schools, and either way the government will be footing the bill (and the same bill). Let private schools keep any and all profits they make off the vouchers. And rather that giving individuals no buying power, it gives everyone the same buying power (depending on implementation). By the way, your argument about deteriorating funding is an absolute joke, funding per student in the US is astronomical, has been growing at an astonishing rate, and is much higher than pretty much all other countries. "So you'd rather all government run up massive deficits that they can't pay, inflate their way out of it, and create runs on the dollar that collapse our economy and destroy any international standing we have?"
At the start of the great depression nations cut expenses as their revenues contracted to minimize their deficits. You put a contractionary policy atop a contracting economy and it will contract even faster. One of the great lessons of the great depression experience is the realisation that increased budget deficits must be weathered in order to prevent the further deterioration of the economy. I am stunned how people consistently argue that policies which have been proven disastrous are appropriate. Whats more maintaining funding levels, in this context I'm not talking about increasing funding rather simply maintaining it, will have no significant inflationary impact, but if it did a higher rate of short run inflation is a small price to pay to prevent economic apocalypse.
How does putting downward pressure on a contracting economy increase your international standing? The United States is almost entirely out of respect at the moment and its respect is falling at a rapid pace. Economic collapse will put a nail in the coffin and in my opinion collapse is the only outcome from contracting a contracting economy. But only time will tell. Right, because FDR's New Deal was such a contractionary program. Look at all the good it did (aka lengthening the Great Depression by years). Creating inflation during times of depression is only okay if you cut back during times of plenty, which we didn't (Negative inflation-adjusted interest rates during the 2000's anyone?). You can't inflate during times of prosperity, and then inflate more during down-turns. I have no clue what I'm talking about hey? Such things can only happen if there is no alternative? Well indeed that is true, but when you say to a poor family here take your voucher and get some education what alternatives do they have. Pathetic school A or abysmal school B. There is no effective alternatives available to these people. Indeed it is the government which has allowed this situation to develop. You ever heard of market failure? I should've addressed this up there, but whatever. Markets would create choice. If the only choices in the are were schools A and B, entrepreneur C would go "Hey look, I can make a massive profit by creating decent school C." In fact, the worse the schools in the area, the easier it is to attract students at low cost and make huge profits, the more schools will come in to compete. Government monopolies destroy choice. The only choice in a government-run school system is to go to the school in the area, regardless of whether it's good, decent, horrible, or worse. It's not like a market system where it's self-correcting; instead of a battle of the fittest where only the schools that best serve the consumer at the lowest cost survive we get a system where inefficiency is rewarded and innovation and improvement are largely ignored. Ever hear of government failure? Either way, any positive externality would be accounted for by the fact that the government is still subsidizing education, just not controlling it directly. And I don't see any negative externalities either. "Inflation is a monetary phenomenon". Wrong. Have you ever heard of stagflation? 'Normal' inflation is a monetary phenomenon yes but it is far from the end of the story. The rising cost of oil increases inflation regardless of any monetary impact this is stagflation and it is affecting us right now. For decades economists believed stagflation impossible, ahh the wisdom of economists. I admit that I oversimplified it. But I have to note that only Keynesians thought that stagflation was impossible, and Keynes was an idiot who put economic thinking back decades. He's only popular because FDR liked him because his theories validated FDR's retarded government programs. And interestingly enough, Friedman predicted stagflation. I basically said that boosting the supply side of the economy is the key to prosperity and higher wages. You then say oh your wrong what we need to do is boost the supply side of the economy. Please. Of course productivity is important, this is largely why a good education system is so important. But productivity achieved by paying your workers 50c an hour is the wrong way to go about it. This is effectively what Friedman advocates, the man said many correct things, but he is largely delusional. They live in a fantasy world of economic models which simply do not hold true in the real world. And they use confusing maths and economic jargon to stifle genuine debate. Germany is a good example of how productivity can be immense yet the public sector large. American workers are the most 'productive' on the planet, and look what they have to show for it, the lowest standard of living in the western world. Right, Americans have the lowest standard of living in the western world. I'd like to see some data on that. Not only do we have more disposable income that almost any country, but we also don't have to wait in 3-month lines to get into hospitals. Gotta love that 12% German unemployment (is that it currently? I know it's up past 10). And you gotta love how American income per household is still one of the highest in the world. I think you're missing out of something called competition for labor. If every company is paying $1 wages, it's in every individual company's interest to charge $2 in order to get the best available talent. This continues up to productivity as long as there isn't an external factor affecting supply (like rampant immigration). Labor is fundamentally a product, and is driven by the same supply and demand forces that any other product is. And just as any product's price will approach marginal cost (or as close as information dispersion and ease of transition will let it), wages will approach marginal productivity. I never said that we need to boost the supply said (or I might've, but I don't believe it). We need to let the market find the stable equilibria. The government doesn't need to do anything, because almost anything the government does will distort the equilibria and bring on future price corrections. And if you've ever actually read lots of Friedman's work, it's very readable and understandable. Sure he has a bunch of work directed at the professional economist and backed up by mathematical models, but he also has a bunch of work directed at the layman, relatively easy readings filled with logic and reason. You are advocating policies that have been tried and have failed. And now we have come full circle, these policies were spawned in the United States and now they have returned to the land of their creation. The current economic downturn is no coincidence rather it is a continence of a long and depressing tale of economic vandalism. To risk beating a dead horse, these policies have not been tried, no matter how much people want to think that they have. Though I do have to say over world history, I'd like you to find an economic system that has worked better than relatively free capitalism. And Friedman and his fellow Chicagoans who tried to mold South American economies were retarded. Their fundamental failure was that the institutions and culture needed for market economies to thrive didn't exist and couldn't be created on a whim. And yes, I agree that it is the result of a "long and depression tale of economic vandalism". That vandalism has been the increasingly large role of government in the economy and it's desire to "do good" without looking at the consequences or worrying about the money it's spending. People suggest that the United States is too large to collapse many economies have done over the last 50 years (almost every single one had Friendman's economists behind it). The size of the United States makes collapse less likely but there is only so much beating any economic system can take and right now American economists are brutalizing their economy with a hatchet I doubt it can take much more punishment. Let's look at the two probably biggest economic collapses in the last 50 years. The Soviet Union and Communist China. Because these were so free-market and directed by Friedman, obviously state intervention and control are the only answers. At the end of the day only time will tell, but I remind you that the Bush administration has followed the policies you advocate and I will let the consequences speak for themselves. Not at all, and the "Bush administration" didn't do anything. "Administrations" aren't actors, and either way, Bush didn't control much of this, much was by the fed or previous administrations/Congress (though he might've enabled it). The consequences are from disastrous management by the federal reserve, bad government mandates on home ownership, and a good bit of overzealous government intervention and regulation. This bubble would've never happened if the government hadn't caused it to happen. What I get from you is that you're a pretty hardcore Keynesian that also believes that the government is perfect. Except that you're a classical Keynesian, which has been discredited time after time, and you haven't read up much on public choice theory. Either way, I won't be responding to you again, as it simply isn't worth my time or effort anymore. You're economic education is... lacking to say the least. And either way, this discussion has gotten way off-topic. I will respond to your response however why don't you detail your plan for the economy rather than criticize mine? Why don't you please tell me at which point I advocated any of the policies you said I advocated, and tell me how exactly deficit spending and job creation will do a better job of revitalizing the economy than injecting capital into banks. Do you not understand how credit works? I understand how credit works, and I understand that when you already have unsustainable levels of debt the notion that the economy should be resuscitated using borrowings thus increasing your levels of debt is simple stupidity. It the the reliance upon expansionary monetary policy, increasing debt time and time again which has gotten the United States into this mess to a large extent, and monetary policy simply cannot get them out of this one. The levels of debt are too high and consumer confidence too low for people to seriously consider increasing their levels of debt any higher. And even if they did it would only postpone the problem and it would become even worse. Thus providing real economic stimulus through government spending is the ONLY option left available at this point, the state of the deficit creates serious problems in financing fiscal expansion but these problems can be dealt with.
Here we go again with the "all our problems are caused by the federal reserve and fractional reserve banking etc."
Well actually ilm not criticising the federal reserve, and I think the fractional reserve banking system is irrelevant in this context. What I mean to say is that as a consequence of poor macro economic policies a long run decline in real (i.e not funded through debt) demand has occurred. The business cycle plays its part but by applying expansionary monetary policy to speed up it does nothing to fix the underlying problem but it effectively covers it up. If you look at a graph of interest rates over the course of 20 odd years they go up and down but there is a downward trend as every time you apply expansionary monetary policy the level of debt rises meaning you need a lower interest rate next time round to have the same impact, thus over successive rounds the rate gets slowly lower and the debt bubble grows ever larger. You will inevitably get to a point where you cannot increase your debt any further and this is the point the United States MAY be at today. This is basically why I believe fiscal policy is the only option.
I don't criticize the federal reserve because they ultimately are not at fault. They are a simplistic entity who basically just sits there and changes monetary policy. They have virtually no freedom of action it is the structure of the system its self which is at fault.
expansionary monetary policy in this case (both the bailout and today's rate cut) is a short run solution that works by staving off further losses. Indeed this is the case but only as a short run solution and only assuming that increased borrowing can even occur. Japan has a cash rate of 0% during their recession in the late 90's sounds unbelievable but is true. Under dire circumstances monetary policy may not work.
The more businesses we allow to fail, the less risk investors are willing to take, to the point that aversion to investment falls beneath the actual risk in the market presently. That in turn becomes a self-fulfilling prophecy where the lack of capital creates more risk, causing less investment. It's been noted that the bailouts do not even begin to cover the total value of the losses. Part of the reason behind the bailout and the rate cut is because these make headlines and restore confidence. This is key. Indeed it is but confidence can only take you so far, and as you note it may not be within our physical capacity to actually deal with this problem effectively using monetary policy. Good long run policies today can save a whole world of hurt in the long term and make this nothing more than a painful but short memory. Expansionary monetary policy may help in the short run and I do not object to trying it although debt must be lowered in the long run.
Stimulus does not repair this problem as effectively because an injection of capital from the ground up will a.) require exponentially more cash for enough of it to get to the right places because when consumers don't hoard, it's being spent everywhere, not targeted at businesses that need it the most It will not require exponentially more spending for example increasing education funding can be a set figure and increasing welfare payments will actually decline as the unemployment rate falls. Although it is possible to apply fiscal policy more like a scalpel, as apposed to the monetary policy hammer, this doesn't really matter in this case as this is a general problem and generalised stimulus should be sufficient.
b.) it happens over time. meanwhile, the crisis gets worse
On this point for one thing we better hope is that our short run policies can stop the crisis getting worse, but the crisis will continue without end in sight unless the long run policies I advocate are implemented. There is significant delay even if we decided to do this today it would take months to get the budget in order and months more before the money is spend, then perhaps a month before you feel the impact. On the current time line I would not expect genuine fiscal stimuls until assuming Obama is elected, McCain advocated freezing spending an incredibly stupid policy, It will be 16 month at the earliest before we feel the impact. Could this be too long, we had better hope for the best on that count.
c.) for these reasons, it does not repair confidence.
I think it a solid long term economic policy the likes of which I advocate it will increase confidence far more than shambolic attempts to fix the short run problem.
Also, how is economic stimulus NOT an increase in the money supply, except through different sources? It is exactly that, in fact far more of 'my' money will actually become 'real' money and thus its inflationary impact will be greater but inflation is not what we need to be concerned with at the moment. But also if the demand side of the economy is contracting then firms levels of stocks increase. And right now they are increasing quickly if you stimulate demand back up to where it was at before then it will not prove too inflationary. Price are set by supply = demand. Inflation will only result if you increase demand above it previous level this is not an issue at present.
Your arguments against debt and for stimulus are self contradictory.
Well I pointed out that cutting wasteful spending is important because the deficit is a serious problem which must be dealt with but if you have two options, either increase public sector debt, or private sector debt, then the public sector is your better option as it can lend on longer term loans at lower interest rates plus you have far lower levels of risk overall and a greater capacity to meet repayments. Stimulus no.1 debt reduction no.2. We wont get anywhere without the stimulus first.
To put it more simply, the key problem is hoarding and targeting. The current fed solution is a sophisticated package that will ensure the money gets where it needs the fastest.
The key problem is hoarding in terms of the money lenders yes but it is not the problem in terms of demand in the economy which is the source of this problem, the demand contraction happened first, the poor grew poorer quickly and defaulted on their sub prime mortgages and then the financial markets got hit which then sped up the whole process rapidly and stole the headlines. As consumers have a very low propensity to save the multiplier effect of my brand of stimulation is made greater. What will happen from this fed solution we cannot predict, what would happen if we didn't do it we cannot know either but it is possible that this solution will not work but will prove so costly it undermines the capacity of the state to carry out fiscal stimulus.
The reason I asked you to detail your plan is so that i can know for sure if you do advocate these policies. When I said this previously it based off the assumption that you agree with the policies advocated by the McCain campaign, or Ron Paul's brand of economic management basically the economic right. My criticisms are based upon arguments against these policies in a broad sence. If you detail what you think should be done at present I will be better able to respond to that, right now i'm not sure what you do believe should be done with any real accuracy.
No, no, no. By assuming I endorsed these policies you completely ignored my arguments, but whatever now. I feel what needs to be done at present is what is being done: a.) injections of capital to banks and businesses b.) as part of that capital injection, take the bad mortgage assets off the hands of banks, allowing them to restore stability to their balance sheets.
This is all fine but I was talking about long run economic policies, small government vs big government etc.
I will explain how job creation and deficit spending can resuscitate the economy however, now I have said that it is better than creating 'liquidity' or attempting to encourage debt spending earlier in this post. Job creation and deficit spending physically place money into the economic system which begins to filter up and begins to multiply, people get more money in the jobs there in and spend more, the level of unemployment falls which increases revenues from taxation and decreases social security cost but most importantly again it puts money in the economy where its needed. And this will put upward pressure on the stock market. The impact on demand of encouraging credit and through fiscal stimulus are similar, however fiscal stimulus does not increase upon an already unsustainable level of private sector debt which is destroying the economy.
i think we are in agreement here except that I believe propping up credit is more effective, and is now as hazardous as you claim. However:
I stand in the middle of McCain's tax policies and yours, but my view is that where we can increase incentives for capital to enter the states at minimum cost elsewhere, we should do so. Otherwise, we cease to be competitive in the world market for investor capital. Hong Kong, which is #1 in the index of economic freedom, is an excellent empirical example of how low government intervention has generated unbelievably rapid growth (7.5%). Admittedly, these policies tends to create large income equality, which is the drawback. A simple survey of the CIA World Factbook in relation with the index of economic freedom's rankings, in particular their ranking of "freedom from government (ie low capital gains taxes etc)" will find that low intervention -> more growth. (China has a 90% rating in that category, although a 50% rating overall) Which pretty much refutes your claim that trickle up is equally effective for growth.
Absolutely it is true that nations can grow enourmously under private investment. Similar success stories exist for Public sector investment also but this income equality issue is key. If income inequality is really bad then it you can have your growth index's looking great, your gdp and gdp per capita looking good too, but the real level of consumption in the economy is far lower as what people buy changes with income. The poorer you are the most benefit is achieved per dollar. The capacity of the economy to provide a good life to the people is lower as well. Income inequality is an incredibly important issue and if the United States equality was better today this whole problem may not have occurred in the first place. I remind you that sub prime loans are simply lending to the poor. They grew too poor and the system became unsustainable.
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ok u just got this up as i was editing my last post
anyway
i think we have gotten to the point in this debate where my experience tells me we are pretty much rehashing the same points, so ill keep my response shorter tomorrow and focus on what us forensicators call a closing rebuttal.
i may also think i owe you an apology. i'll consider that for a few.
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On October 08 2008 23:07 jgad wrote:Show nested quote +however why don't you detail your plan for the economy rather than criticize mine?
I'll suggest a reading of Man, Economy, and State. It's pretty much a 1500 page detail of such a plan. In discussion we draw on that base to make arguments against specific instances of public policy, but a complete reading of that book should provide an insight into the logical framework that drives that criticism.
Ill try and have a look through this but its soooo long.
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EPT![[image loading]](http://pix.nofrag.com/7/a/b/777b192f5af6b4e588bba2c12beab.gif)
