On January 28 2009 02:48 Jibba wrote: It's not just 5+ million jobs you're sacrificing, it's decades worth of prosperity for the sake of a liberalism ideal. This isn't Atlas Shrugged.
It's a problem that the money is held elsewhere because they can simply leave the market when it becomes too costly. When Japanese heavy industries start to fail (which they are, Nippon Steel just announced a massive production decrease) the companies will begin to contract and they won't be contracting towards the US. Free market? Yes, but the free market is a theory that isn't executed anywhere. Not in the US and not in Japan. Toyota and Honda offer excellent cars at an extremely competitive price in the US, meanwhile non-Japanese cars face enormous premiums on Nippon. Senators in Kentucky and Alabama hate the bailout because they want Toyota to do well in their states, but they don't realize they're going to get fucked if those companies go down as well.
Ford and GM go down -> Most domestic suppliers go out of business -> Toyota/Honda face massive supply shortage, and either cut production further (cutting more jobs) or start importing parts -> supply importation drives prices up and sales to go down, which means they'll halt expansion and probably remove domestic production since they'd be importing so many of the parts anyways, and it makes more sense to just import the car.
Plants that make diesel trucks are already starting to close, Honda just announced it's cutting production in US/Japan, Toyota is about to start cutting jobs in the US/Britain, Mitsubishi is suspending its plants in Illinois.
No prosperity is being sacrificed, it's for the good of the economy and of society as a whole for government (i.e the taxpayer) to not bail out these companies. Yes jobs will be lost and that's unfortunate, but their jobs are being cut for a reason. People don't want to buy cars right now; it isn't fair to force people to prop up failing companies. Bailing them out won't increase demand for cars, it just allows unproductive companies to leech off society when society is demonstrating through consumer choice that they don't want to buy from these businesses.
It's no different than when a restaurant goes out of business. If a restaurant is failing should the government bail them out? Afterall, if it goes under then everyone who worked there will lose their job. And of course no one likes to see people lose their jobs, but the restaurant is going out of business because people don't want to eat there. It doesn't make any moral or economic sense to take money from people so that this restaurant which is losing money can stay in business.
You might argue that a big company like Ford or GM going under would be alot more devastating to the economy since so many jobs are at stake, but economic principles do not change based on numbers.
Failing business are the consumers way of saying that the resources invested in such a business could be more effeciently allocated elsewhere.
I largely agree with you but I do think we have to seriously consider the short term cost of letting the Big 3 fail. The social safety net in America just isn't very effective. For many of the employees at these companies, retraining just isn't an option. And while in America it's comparatively easier to move from an economically depressed area like Michigan to somewhere more prosperous, this isn't an option for many due to economic and personal reasons. If we're going to just allow industries this size to collapse, it's important to bolster our ability to assist the unemployed in finding new jobs.
Also, Chapter 11 is no guarantee that the reorganized company is going to be effective. And it doesn't change the fact that thousands of jobs will be lost still.
It seems to me that supply side theories largely dismiss the psychological factor. In fact, what the US is suffering from right now is a self-fulfilling speculative attack whose effects are very real, even if the basis of its growth has been largely unaffected.
Actually, supply side does account for the psychological factor with the Lucas-Phelps-Friendman Supply curve. It's in the expected price E[P] component. The "psychological factor" is basically how well off individuals believe the economy and themselves will be in the future--thats E[P]. More specific to today in finance, this is witnessed by the CCAPM. Most of what is expected in the future of stock prices is already incorporated into today's prices. Thats why you don't see the insane volatility of last October nowadays.
In 1950 America's public debt was backed by the nation possessing half the world's manufacturing capacity and being the foremost creditor nation. There's nothing substantial to back American debt today. High debt levels can be maintained on the premise that the nation will eventually be able to repay it through its savings. Does anyone see America in that scenario for the next decade or two?
Well Americas public debt was not an issue because of the economic growth in the 50's 60's and 70's which reduced the quantity of debt relative to GDP. And yes this growth mainly came through manufacturing. It is true that the deindustralistation of the United States is a serious problem but there are simply no other options at this point than to invest at the federal level to try to get the economy ticking again in the short term but also you must carry out some more serious and diverse policies in the longer term to deal with this issue.
If the United States play their cards right they could theoretically generate genuine (i.e tangible production rather than illusionary things like artificially inflated housing prices) economic growth in the future and this can balance against and pay down the debt being created today. Look at Japan who has been borrowing like crazy for a decade, you can borrow even when there are no savings. (even though it is counter-intuitive)
Money in circulation isn't shrinking, quite the contrary. It's expanding at unprecedented rates.
You miss understand the issue. You are right that we are experiencing the most expansionary monetary policy in history, but is this money circulating? Clearly it is not, infact all that 'liquidity' they have been making has not entered the economy at all it is being horded by the banks, the answer to increase money circulating and thus increasing demand is to actually put money into peoples hands and NOT MAKE THEM PAY IT BACK WITH INTEREST. The notion that the economy can be resuscitated by making people start borrowing again is clearly flawed. Public spending is the only viable option to achieve this goal at this point.
Drying up credit is a signal to people that they are overspending, and need to recreate credit through saving. Saving, not printing, is the historically viable way to create credit, which is only possible if consumers retrench, and reduce their consumption.
You are touching on one of the real fundamental deficiencies in the American economy today (and most of the west for that matter). It is not so much that Americans are spending beyond theirs means it is more accurate to say that their means and receded bellow that they are spending. Wages in the United States for almost every worker have had negative growth for a decade now but really wages have been falling since the 1980's but instead of having lower wages people worked longer hours and took on second jobs and also women were forced into the labor force to make ends meet. It got to the point around a decade ago that people could not work any more and wages actually started to fall, the key to fixing the problem is not having people spending less rather it is having people be able to afford the consumption they are currently at.
The trend of overspending in the last decade was created by the appreciation of price bubbles, which created the illusion of economic growth, while that value was not backed by increased productive capacity.
This is an incredibly important piece of the puzzle, why and how have these artificial bubbles been created, well the answer is that they were created to artificially balance out perpetually falling wages and perpetually falling public sector investment in the economy. The United States has had expansionary monetary policy for a decade now trying to sustain the economy artificially above its natural level (a level which was in steady decile) this created huge amounts of private debt hence the financial crisis. The economic crisis is so bad today because the problems have been steadily growing worse whilst these bubbles cover them up.
By the way its not the Federal Reserves fault this happened they simply followed their guidelines. Reaganomics which caused the things I mention generated a Recession leading to the reserve automatically adopting an expansionary posture to counteract it, the problem was that the recession never went away.
wages fall > debt rises > debt becomes unsustainable > bank problems > problems in the economy which already existed rise to the surface > demand collapses > trade stops > jobs lost.
wages fall > debt rises > debt becomes unsustainable > bank problems > problems in the economy which already existed rise to the surface > demand collapses > trade stops > jobs lost.
I was thinking more along the lines of
hungry and angry -> military conscription -> martial law
The pattern I was trying to establish was that with each level, the effects hit closer and closer to home. There will be more of these guys:
wages fall > debt rises > debt becomes unsustainable > bank problems > problems in the economy which already existed rise to the surface > demand collapses > trade stops > jobs lost.
I was thinking more along the lines of
hungry and angry -> military conscription -> martial law
The pattern I was trying to establish was that with each level, the effects hit closer and closer to home. There will be more of these guys:
57,000 jobs lost, 45% trade decrease, another $2 trillion in bank bailouts all in one week.....not easy for these numbers to sink in.
I will tell you what must be done. You must start to hire workers into the public sector in epic proportions I estimate something on the order of one trillion dollars will be the minimum level of increased expenditure. I'm talking about hiring teachers and hiring nurses, you will be killing two birds with one stone, generate demand to deal with the immediate crisis and by helping fix the institutional problems at the same time.
You must also hire tradesmen to do general maintenance etc. Hiring workers by the millions and keeping them hired permanently would do alot to actually fix the problems at the heart of the economy. We are talking about jobs that did exist in the 1970's but were lost due to decreasing government and state expenditure.
Also you must increase unemployment benefits. In the United States there is a 5 year cap for every individual meaning that there are millions of permanently unemployed who basically earn no income, you pay these people money and they will spend it. The gradual reduction in the social security system has definitely played a part in the gradual fall in demand at the heart of the American economic troubles.
Edit: Yes a perpetual acceleration in the downward cycle is exactly what one would expect given the causes of the problems. The reason so many people were shocked at how bad it is is because they presume that it is a financial crisis, there is no way a financial crisis can cause the kind of carnage that has occurred this is the product of serious economic deficiencies. This also means that the recession can only grow worse until the policies I advocate are carried out in full. Tax cuts will do virtually nothing to actually fix the economy (America has been cutting taxes for 30 years has it achieved any economic benefit so far?). Unfortunately the bulk of Obama's rescue plan is tax cuts, I expect this to have very little real impact on the economy other than short (and I mean short) stimulus, but it will physically undermine the capacity of the state to carry out the policies I advocate.
wages fall > debt rises > debt becomes unsustainable > bank problems > problems in the economy which already existed rise to the surface > demand collapses > trade stops > jobs lost.
I was thinking more along the lines of
hungry and angry -> military conscription -> martial law
The pattern I was trying to establish was that with each level, the effects hit closer and closer to home. There will be more of these guys:
57,000 jobs lost, 45% trade decrease, another $2 trillion in bank bailouts all in one week.....not easy for these numbers to sink in.
I will tell you what must be done. You must start to hire workers into the public sector in epic proportions I estimate something on the order of one trillion dollars will be the minimum level of increased expenditure. I'm talking about hiring teachers and hiring nurses, you will be killing two birds with one stone, generate demand to deal with the immediate crisis and by helping fix the institutional problems at the same time. You must also hire tradesmen to do general maintenance etc. Hiring workers by the millions and keeping them hired permanently would do alot to actually fix the problems at the heart of the economy. We are talking about jobs that did exist in the 1970's but were lost due to decreasing government and state expenditure.
Also you must increase unemployment benefits. In the United States there is a 5 year cap for every individual meaning that there are millions of permanently unemployed who basically earn no income, you pay these people money and they will spend it. The gradual reduction in the social security system has definitely played a part in the gradual fall in demand at the heart of the American economic troubles.
Yes, this is the point of military conscription, or as Obama terms it, the "civilian national security force" which must be as powerful and as well funded as the military. The point of this conscription is primarily not to increase military force, it is to act as a welfare program to keep angry students off the streets and doing some type of work.
In 1950 America's public debt was backed by the nation possessing half the world's manufacturing capacity and being the foremost creditor nation. There's nothing substantial to back American debt today. High debt levels can be maintained on the premise that the nation will eventually be able to repay it through its savings. Does anyone see America in that scenario for the next decade or two?
Well Americas public debt was not an issue because of the economic growth in the 50's 60's and 70's which reduced the quantity of debt relative to GDP. And yes this growth mainly came through manufacturing. It is true that the deindustralistation of the United States is a serious problem but there are simply no other options at this point than to invest at the federal level to try to get the economy ticking again in the short term but also you must carry out some more serious and diverse policies in the longer term to deal with this issue.
If the United States play their cards right they could theoretically generate genuine (i.e tangible production rather than illusionary things like artificially inflated housing prices) economic growth in the future and this can balance against and pay down the debt being created today. Look at Japan who has been borrowing like crazy for a decade, you can borrow even when there are no savings. (even though it is counter-intuitive)
I don't see what the problem is with replacing a manufacturing economy with a service economy.
Anyway, I disagree with Moltke that it was simply a strong manufacturing base which made our war debt negligible. In fact, it was our comparative strength worldwide. Competition in the manufacturing sector from places like China and Japan but also in services from India means that the US economy has only so much room left to grow. Much of the productivity gains of the past decade have been due to technological advances which (I assume with no evidence whatsoever) are giving diminishing returns and because of our shift from a manufacturing to a service economy. The US has little room left to grow, and it's difficult to raise taxes.
But there are other reasons why we need to be concerned about the budget deficit. First, the Euro has lately become a gradually more viable alternative to the dollar as a reserve currency. It's demonstrated its stability throughout the current downturn and for a while has actually been rising against the dollar. One reason China invests largely in US bonds is because it's one of the few markets that can absorb the large quantity of demand it has to offer, but the Euro is fast becoming an equally good substitute.
Second, there is absolutely no chance whatsoever of balancing our budget during the next 4 to 8 years. Baby boomers are retiring, and Obama wants to spend more on social services.
I don't know how you can use the example of Japan with a straight face. It seems to me that the crowding out of private investment is one of the reasons their economy is in such shitters.
The point being, if the US wants to avoid having spending cuts/inflation forced upon it, we have to weigh the real benefits of something like the stimulus package with the long term risk of debt default.
This is an incredibly important piece of the puzzle, why and how have these artificial bubbles been created, well the answer is that they were created to artificially balance out perpetually falling wages and perpetually falling public sector investment in the economy. The United States has had expansionary monetary policy for a decade now trying to sustain the economy artificially above its natural level (a level which was in steady decile) this created huge amounts of private debt hence the financial crisis. The economic crisis is so bad today because the problems have been steadily growing worse whilst these bubbles cover them up.
I don't understand this. You're going to have to explain this to me. I would assume that lower wages (if that's a fact, I don't know) would be due to increasing global competition.
wages fall > debt rises > debt becomes unsustainable > bank problems > problems in the economy which already existed rise to the surface > demand collapses > trade stops > jobs lost.
I was thinking more along the lines of
hungry and angry -> military conscription -> martial law
The pattern I was trying to establish was that with each level, the effects hit closer and closer to home. There will be more of these guys:
57,000 jobs lost, 45% trade decrease, another $2 trillion in bank bailouts all in one week.....not easy for these numbers to sink in.
I will tell you what must be done. You must start to hire workers into the public sector in epic proportions I estimate something on the order of one trillion dollars will be the minimum level of increased expenditure. I'm talking about hiring teachers and hiring nurses, you will be killing two birds with one stone, generate demand to deal with the immediate crisis and by helping fix the institutional problems at the same time. You must also hire tradesmen to do general maintenance etc. Hiring workers by the millions and keeping them hired permanently would do alot to actually fix the problems at the heart of the economy. We are talking about jobs that did exist in the 1970's but were lost due to decreasing government and state expenditure.
Also you must increase unemployment benefits. In the United States there is a 5 year cap for every individual meaning that there are millions of permanently unemployed who basically earn no income, you pay these people money and they will spend it. The gradual reduction in the social security system has definitely played a part in the gradual fall in demand at the heart of the American economic troubles.
Yes, this is the point of military conscription, or as Obama terms it, the "civilian national security force" which must be as powerful and as well funded as the military. The point of this conscription is primarily not to increase military force, it is to act as a welfare program to keep angry students off the streets and doing some type of work.
Well this could work but it would require two things to actually achieve what is necessary. 1) The people must remain within the United States and be encouraged to 'buy american 2) You need to keep these people hired permanently to achieve a permanent increase in demand. If you ask me hiring teachers and nurses is much more productive.
In 1950 America's public debt was backed by the nation possessing half the world's manufacturing capacity and being the foremost creditor nation. There's nothing substantial to back American debt today. High debt levels can be maintained on the premise that the nation will eventually be able to repay it through its savings. Does anyone see America in that scenario for the next decade or two?
Well Americas public debt was not an issue because of the economic growth in the 50's 60's and 70's which reduced the quantity of debt relative to GDP. And yes this growth mainly came through manufacturing. It is true that the deindustralistation of the United States is a serious problem but there are simply no other options at this point than to invest at the federal level to try to get the economy ticking again in the short term but also you must carry out some more serious and diverse policies in the longer term to deal with this issue.
If the United States play their cards right they could theoretically generate genuine (i.e tangible production rather than illusionary things like artificially inflated housing prices) economic growth in the future and this can balance against and pay down the debt being created today. Look at Japan who has been borrowing like crazy for a decade, you can borrow even when there are no savings. (even though it is counter-intuitive)[/QUOTE]
I don't see what the problem is with replacing a manufacturing economy with a service economy.
There is nothing wrong with transitioning into a service based economy but if you destroy your education system you will loose productivity and international competitiveness. The real problem though is that the demand does not exist as a consequence of policy to actually purchase the services being provided.
Anyway, I disagree with Moltke that it was simply a strong manufacturing base which made our war debt negligible. In fact, it was our comparative strength worldwide. Competition in the manufacturing sector from places like China and Japan but also in services from India means that the US economy has only so much room left to grow. Much of the productivity gains of the past decade have been due to technological advances which (I assume with no evidence whatsoever) are giving diminishing returns and because of our shift from a manufacturing to a service economy. The US has little room left to grow, and it's difficult to raise taxes.
Well it is certainly an oversimplification to say that it was manufacturing which lead to growth but the point is that it was economic growth that made the debt affordable alot of that growth came from manufacturing but it does not HAVE to come from this sector. Yes growth in the global economy helped increase American growth. The reason productivity is falling is the consequence of a chronic deficiency in public investment, in education, in health and in infrastructure in my opinion, and a service economy is far more vulnerable to this effect.
There are reasons to worry about the budget deficit but the reasons those problems exist is because governments have been constantly cutting its revenue for such a long time placing America in a vulnerable position. You don't need to worry so much about where the money comes from you can literally create it out of this air which they will.
The reason you should not worry about a budget deficit is that provided you are spending that money well by spending more money you create more demand which in turn creates higher revenue. Government spending can be thought of as a productive investment, by spending now you can create revenue in the future. If you do the opposite and cut spending which America has been doing for a long time, then you reduce demand in the economy leading to falling revenues leading to falling spending which leads to falling demand and revenues and so on this is a downward spiral and this is effectively what is happening in America today. You must do the exact opposite you must create an upward spiral.
It is possible that it is no longer within the physical capacity of the Government to achieve this but cutting taxes reduces revenue and can only make matters worse.
wages fall > debt rises > debt becomes unsustainable > bank problems > problems in the economy which already existed rise to the surface > demand collapses > trade stops > jobs lost.
I was thinking more along the lines of
hungry and angry -> military conscription -> martial law
The pattern I was trying to establish was that with each level, the effects hit closer and closer to home. There will be more of these guys:
57,000 jobs lost, 45% trade decrease, another $2 trillion in bank bailouts all in one week.....not easy for these numbers to sink in.
I will tell you what must be done. You must start to hire workers into the public sector in epic proportions I estimate something on the order of one trillion dollars will be the minimum level of increased expenditure. I'm talking about hiring teachers and hiring nurses, you will be killing two birds with one stone, generate demand to deal with the immediate crisis and by helping fix the institutional problems at the same time.
You must also hire tradesmen to do general maintenance etc. Hiring workers by the millions and keeping them hired permanently would do alot to actually fix the problems at the heart of the economy. We are talking about jobs that did exist in the 1970's but were lost due to decreasing government and state expenditure.
Economists say an important determinant of the long-term success of Obama's plan will be the degree to which he is able to follow these principles and prevent short-term stimulus from turning into massive long-term budgetary obligations.
I've said before that I support the stimulus because I see the threat of prolonged economic stagnation as considerably worse and much costlier, but it's also important to recognize the cost of the stimulus. You're talking about locking in inefficient public sector jobs at a time when government debt is going up by 50%, from 40% or so of GDP to 60%. And that's just this year. I'll refer you to my previous post for why the national debt is a serious issue.
Moreover, I don't understand why you insist on government jobs. How is make-work policy that crowds out the private sector going to encourage the growth we'll need to maintain the massive expansion of our debt?
Edit: Yes a perpetual acceleration in the downward cycle is exactly what one would expect given the causes of the problems. The reason so many people were shocked at how bad it is is because they presume that it is a financial crisis, there is no way a financial crisis can cause the kind of carnage that has occurred this is the product of serious economic deficiencies. This also means that the recession can only grow worse until the policies I advocate are carried out in full. Tax cuts will do virtually nothing to actually fix the economy (America has been cutting taxes for 30 years has it achieved any economic benefit so far?). Unfortunately the bulk of Obama's rescue plan is tax cuts, I expect this to have very little real impact on the economy other than short (and I mean short) stimulus, but it will physically undermine the capacity of the state to carry out the policies I advocate.
This is so vague. What are the serious economic deficiencies? Are you arguing that lack of public sector work and a weak social safety net is the cause of our recent economic woes? This despite the fact unemployment was in very reasonable ranges prior to the housing bust? I have never heard of anyone making this argument.
Well it is certainly an oversimplification to say that it was manufacturing which lead to growth but the point is that it was economic growth that made the debt affordable alot of that growth came from manufacturing but it does not HAVE to come from this sector. Yes growth in the global economy helped increase American growth. The reason productivity is falling is the consequence of a chronic deficiency in public investment, in education, in health and in infrastructure in my opinion, and a service economy is far more vulnerable to this effect.
There are reasons to worry about the budget deficit but the reasons those problems exist is because governments have been constantly cutting its revenue for such a long time placing America in a vulnerable position. You don't need to worry so much about where the money comes from you can literally create it out of this air which they will.
The reason you should not worry about a budget deficit is that provided you are spending that money well by spending more money you create more demand which in turn creates higher revenue. Government spending can be thought of as a productive investment, by spending now you can create revenue in the future. If you do the opposite and cut spending which America has been doing for a long time, then you reduce demand in the economy leading to falling revenues leading to falling spending which leads to falling demand and revenues and so on this is a downward spiral and this is effectively what is happening in America today. You must do the exact opposite you must create an upward spiral.
It is possible that it is no longer within the physical capacity of the Government to achieve this but cutting taxes reduces revenue and can only make matters worse.
I just want to focus on the last paragraph since it's getting late over here but:
1.) Inflating away our debt will cause capital to retreat to the alternatives I've specified. If China is smart, they will unpeg their currency and revoke their capital controls so investors can bring their cash to it. The government can't perpetually print money.
2.) You can't assume perpetual growth, even if your theory that public investment will magically produce productivity gains that the private sector has failed to discover. Bad times will come, and eventually the cost of maintaining our debt will grow so great that if we so much as stumble economically, the US will be forced to default or begin inflating money.
3.) You continue to claim that the problem with the economy is a lack of demand, yet we carry an enormous trade deficit. America is THE consumer capital of the world. A nation where your argument carries weight could be China, where the lack of adequate social services, safety nets, and property rights result in a disproportionate reliance on foreign demand.
4.) It is basic economics that government can never handle resources as efficiently as the private sector. In isolated instances, government is required to resolve the free-rider problem, but it is not a magical pill that will induce growth. You are applying your theoretical models all wrong. They may apply to nations where there really is a dearth of savings and a lack of government spending, but in a world where the US is already heavily in debt and in serious decline, diminishing returns kick in and it becomes marginally harmful to increase spending. Once we've recovered from the current downturn, we need to tighten our ship by balancing the budget and encouraging global competitiveness through consolidation and lowering trade barriers.
Well the truth is that policies which do what I advocate investing in education infrastructure etc were extensively carried out during the 50's 60's and 70's and directly led to 'magically' increasing labor force productivity. Most of what is good about our economy today is the active consequence of the hard work of Governments of this era. The most important component of productivity is 'human capital' which basically means a healthy educated work force, its no secret that the health care and education system in the United States is in bad state, it is therefore predictable that falls in productivity will result.
China in my opinion needs to significantly change the way they carry out economic policy but this is because we will no longer buy the amount of consumer goods we have been recently and this will bring growth to a stand still but China is not the point here.
You talk about government spending as if it is 'inflation', and you hear this a lot from American economists 'Inflating our way out of the crisis', well this is a miss understanding inflation is caused when demand exceeds supply. Demand has fallen way below capacity meaning that increased Government spending will not create inflation at all. If the private sector was willing to provide the 'capital' needed for investment than it already would. The private sector has poured money into unproductive investment so they not as omnipotent as many economists would have you believe in fact far from it. It is through public sector investment that you can actually improve the economy at this point. It is not that private investment is bad but you need both.
In response to 2) I do not assume perpetual growth (though many politicians seem too) I advocate increasing incomes such that they meet with supply capacity and have a good standard of living to go with it. Growth will end at such time growth is no longer needed, and were not there yet rather we are moving in the opposite direction.
3) I claim that the problem is lack of demand yet there is a trade deficit etc. The point is where is the demand coming from? In recent times this demand has come through debt, as wages have fallen, debt has risen as a result to make up the difference. I will not increase demand is absolute terms but I will change where the demand comes from, through wages not through debt. This is the only way to sustain a good standard of living permanently.
China will not go down because they don't have social safety nets etc because they never had them to begin with. We used to have it and it brought us up, we have eroded it and that will and is sending us down.
4) It is basic economics that the government can never handle resources as efficiently as the private sector, and this is why we are in such a mess. Mainstream economics gives out a perverse and distorted perception of the economy. They effectively argue that cutting spending on education will improve the quality of your education system, clearly this is nonsense and the consequences are clear for everyone.
The truth is that the Private sector can and does allocate resources more efficiently than the public sector depending on market structure. The Private sector provides consumer goods efficiently it provides agriculture more efficiently etc, but the Private sector simply does not provide investment into some fundamental ways the economy requires. The private sector invests to benefit their own business, the government invests to improve the entire economy.
It is cutting Government spending which has generated diminishing returns, the government invests less and the output in the economy falls, the private sector cannot provide wealth inflows into the economy in the ways that the Government can. Without Government the unemployed create no demand, with Government these people are able to carry on spending and this creates opportunities for the private sector to capitalise upon.
If you get out of the current crisis and then start to cut spending again then you will experience the same crisis all over again because it is the chronic lack of government investment that is at the heart of the problems that exist and the only way to get rid of these problems is to permanently increase government spending, but it is important that you do it in the right way.
The reason wages are falling in my opinion is the consequence of two things, one reduced government demand but most importantly two, regressive wage policies. Deunionisation puts downward pressure on wages, reducing the minimum wage puts downward pressure on wages, it is clear, this downward pressure multiplies in on its self. It is because of deunionisation that wages in America are falling in my opinion. Business owners like the idea of paying their workers less, it reduces costs and increases profits, but when all businesses pay their workers less then all businesses earn less money. It is a self defeating policy that leads to a perpetual downward spiral.
Remember the Public sector does not crowd out the Private sector rather by paying workers their wages it creates opportunities for the Private sector to take advantage of.
This is so vague. What are the serious economic deficiencies? Are you arguing that lack of public sector work and a weak social safety net is the cause of our recent economic woes? This despite the fact unemployment was in very reasonable ranges prior to the housing bust? I have never heard of anyone making this argument.
Well basically this is what I am arguing in combination with regressive wages policy. The reason we have not had bad unemployment rates etc is because of the artificially created debt demand which has counter acted it but it can only do so for a limited time. Really the most impressive thing is that they put this crisis off as long as they did. The levels of debt have been constantly rising ever since Reaganomics lead to economic decay. You have never heard anyone making this argument before becasue sadly so few economists seem to really understand what is happening. But I am not the only economist who is sane.
On January 28 2009 02:48 Jibba wrote: It's not just 5+ million jobs you're sacrificing, it's decades worth of prosperity for the sake of a liberalism ideal. This isn't Atlas Shrugged.
It's a problem that the money is held elsewhere because they can simply leave the market when it becomes too costly. When Japanese heavy industries start to fail (which they are, Nippon Steel just announced a massive production decrease) the companies will begin to contract and they won't be contracting towards the US. Free market? Yes, but the free market is a theory that isn't executed anywhere. Not in the US and not in Japan. Toyota and Honda offer excellent cars at an extremely competitive price in the US, meanwhile non-Japanese cars face enormous premiums on Nippon. Senators in Kentucky and Alabama hate the bailout because they want Toyota to do well in their states, but they don't realize they're going to get fucked if those companies go down as well.
Ford and GM go down -> Most domestic suppliers go out of business -> Toyota/Honda face massive supply shortage, and either cut production further (cutting more jobs) or start importing parts -> supply importation drives prices up and sales to go down, which means they'll halt expansion and probably remove domestic production since they'd be importing so many of the parts anyways, and it makes more sense to just import the car.
Plants that make diesel trucks are already starting to close, Honda just announced it's cutting production in US/Japan, Toyota is about to start cutting jobs in the US/Britain, Mitsubishi is suspending its plants in Illinois.
You might argue that a big company like Ford or GM going under would be alot more devastating to the economy since so many jobs are at stake, but economic principles do not change based on numbers.
That's where you're wrong. It is possible to be too big to fail. I know it dashes the dreams of libertarians everywhere, but it can't happen and it's not going to happen. This isn't a new dilemma, the problem arose in the 1980s and some would say in the 1950s as well. We've never let it happen and we probably never will.
And you're ignoring the fact that in the long run, the cost for parts will reach equilibrium and any effect the collapse of the American auto industry has on foreign manufacturers will disappear. In fact, the money that was going into the auto industry before will now go somewhere more efficient, fueling long term growth. Finally, the collapse of the American industry creates opportunities for more foreign manufacturers to sell here, lowering prices because of competition.
This is so wrong, it's unbelievable. It's not difficult to sell in the US, not like it's difficult to sell in Japan or China or France. Other companies don't sell here because they make substantially worse cars, and trying to meet our standards is a waste of money. By the time Toyota and Honda contract within the US, who is going to be buying new cars?
You, along with most other people in the country, are ignorant of the actual spread of the auto industry. Here's one part: if the big 3 go under, the green revolution in the US is dead. We automatically lose the next stage of big industry/technology to other countries. The transportation industry relies on the same part makers, who are currently receiving upwards of 40% of their business through the big 3.
Not to mention as far as economic stimulus goes, it's far cheaper to retain these jobs than to pump another 1.4 trillion into creating new jobs, which will take a while to happen. The middle class needs to stay afloat, and this is a large part of that.
Not to mention you're ignoring the human side of the problem. The entire fucking state of Michigan is in a full blown depression and Pelosi is fucking us in the ass any way she can, meanwhile every other industry like agriculture (yeah, Iowa and Nebraska have no problem when the government spends 10 billion dollars per year for a decade on retarded ethanol), chemicals, airlines gets plenty of government propping. The big 3 did make shittier cars in the 80s and 90s, but they've also been competing on an unfair playing ground with Toyota and Honda, who not only are protected by the government and are allowed to keep handpuppet unions but also don't have to worry about health insurance and pension so much. This is both a failure of management, and a product of circumstances.
Stop thinking like an economist and start thinking like poli sci. Figure out all the indirect consequences.
On January 28 2009 02:48 Jibba wrote: It's not just 5+ million jobs you're sacrificing, it's decades worth of prosperity for the sake of a liberalism ideal. This isn't Atlas Shrugged.
It's a problem that the money is held elsewhere because they can simply leave the market when it becomes too costly. When Japanese heavy industries start to fail (which they are, Nippon Steel just announced a massive production decrease) the companies will begin to contract and they won't be contracting towards the US. Free market? Yes, but the free market is a theory that isn't executed anywhere. Not in the US and not in Japan. Toyota and Honda offer excellent cars at an extremely competitive price in the US, meanwhile non-Japanese cars face enormous premiums on Nippon. Senators in Kentucky and Alabama hate the bailout because they want Toyota to do well in their states, but they don't realize they're going to get fucked if those companies go down as well.
Ford and GM go down -> Most domestic suppliers go out of business -> Toyota/Honda face massive supply shortage, and either cut production further (cutting more jobs) or start importing parts -> supply importation drives prices up and sales to go down, which means they'll halt expansion and probably remove domestic production since they'd be importing so many of the parts anyways, and it makes more sense to just import the car.
Plants that make diesel trucks are already starting to close, Honda just announced it's cutting production in US/Japan, Toyota is about to start cutting jobs in the US/Britain, Mitsubishi is suspending its plants in Illinois.
No prosperity is being sacrificed, it's for the good of the economy and of society as a whole for government (i.e the taxpayer) to not bail out these companies. Yes jobs will be lost and that's unfortunate, but their jobs are being cut for a reason. People don't want to buy cars right now; it isn't fair to force people to prop up failing companies. Bailing them out won't increase demand for cars, it just allows unproductive companies to leech off society when society is demonstrating through consumer choice that they don't want to buy from these businesses.
It's no different than when a restaurant goes out of business. If a restaurant is failing should the government bail them out? Afterall, if it goes under then everyone who worked there will lose their job. And of course no one likes to see people lose their jobs, but the restaurant is going out of business because people don't want to eat there. It doesn't make any moral or economic sense to take money from people so that this restaurant which is losing money can stay in business.
You might argue that a big company like Ford or GM going under would be alot more devastating to the economy since so many jobs are at stake, but economic principles do not change based on numbers.
Failing business are the consumers way of saying that the resources invested in such a business could be more effeciently allocated elsewhere.
I largely agree with you but I do think we have to seriously consider the short term cost of letting the Big 3 fail. The social safety net in America just isn't very effective. For many of the employees at these companies, retraining just isn't an option. And while in America it's comparatively easier to move from an economically depressed area like Michigan to somewhere more prosperous, this isn't an option for many due to economic and personal reasons. If we're going to just allow industries this size to collapse, it's important to bolster our ability to assist the unemployed in finding new jobs.
I understand that many jobs will be lost, but they are being lost for a reason. The companies these people are employed at are no longer profitable and should be liquidated. It's unfortunate that some people get hurt in the process but we don't live in a world of infinite resources. We live in a world of scarcity and if resources are to be invested in productive sectors of society, they must be taken from somewhere else. As another poster mentioned somehwere, competition works precisely *because* failing business models are allowed to sink.
On January 28 2009 02:48 Jibba wrote: It's not just 5+ million jobs you're sacrificing, it's decades worth of prosperity for the sake of a liberalism ideal. This isn't Atlas Shrugged.
It's a problem that the money is held elsewhere because they can simply leave the market when it becomes too costly. When Japanese heavy industries start to fail (which they are, Nippon Steel just announced a massive production decrease) the companies will begin to contract and they won't be contracting towards the US. Free market? Yes, but the free market is a theory that isn't executed anywhere. Not in the US and not in Japan. Toyota and Honda offer excellent cars at an extremely competitive price in the US, meanwhile non-Japanese cars face enormous premiums on Nippon. Senators in Kentucky and Alabama hate the bailout because they want Toyota to do well in their states, but they don't realize they're going to get fucked if those companies go down as well.
Ford and GM go down -> Most domestic suppliers go out of business -> Toyota/Honda face massive supply shortage, and either cut production further (cutting more jobs) or start importing parts -> supply importation drives prices up and sales to go down, which means they'll halt expansion and probably remove domestic production since they'd be importing so many of the parts anyways, and it makes more sense to just import the car.
Plants that make diesel trucks are already starting to close, Honda just announced it's cutting production in US/Japan, Toyota is about to start cutting jobs in the US/Britain, Mitsubishi is suspending its plants in Illinois.
No prosperity is being sacrificed, it's for the good of the economy and of society as a whole for government (i.e the taxpayer) to not bail out these companies. Yes jobs will be lost and that's unfortunate, but their jobs are being cut for a reason. People don't want to buy cars right now; it isn't fair to force people to prop up failing companies. Bailing them out won't increase demand for cars, it just allows unproductive companies to leech off society when society is demonstrating through consumer choice that they don't want to buy from these businesses.
It's no different than when a restaurant goes out of business. If a restaurant is failing should the government bail them out? Afterall, if it goes under then everyone who worked there will lose their job. And of course no one likes to see people lose their jobs, but the restaurant is going out of business because people don't want to eat there. It doesn't make any moral or economic sense to take money from people so that this restaurant which is losing money can stay in business.
You might argue that a big company like Ford or GM going under would be alot more devastating to the economy since so many jobs are at stake, but economic principles do not change based on numbers.
Failing business are the consumers way of saying that the resources invested in such a business could be more effeciently allocated elsewhere.
I largely agree with you but I do think we have to seriously consider the short term cost of letting the Big 3 fail. The social safety net in America just isn't very effective. For many of the employees at these companies, retraining just isn't an option. And while in America it's comparatively easier to move from an economically depressed area like Michigan to somewhere more prosperous, this isn't an option for many due to economic and personal reasons. If we're going to just allow industries this size to collapse, it's important to bolster our ability to assist the unemployed in finding new jobs.
I understand that many jobs will be lost, but they are being lost for a reason. The companies these people are employed at are no longer profitable and should be liquidated. It's unfortunate that some people get hurt in the process but we don't live in a world of infinite resources. We live in a world of scarcity and if resources are to be invested in productive sectors of society, they must be taken from somewhere else. As another poster mentioned somehwere, competition works precisely *because* failing business models are allowed to sink.
The presumption underlying this argument is that it is impossible for American car companies to compete. The reason they are doing so badly is because they were making fuel guzzling cars and all of a sudden, almost overnight demand for their product collapsed back when oil was at incredible highs. This coupled with the fundamental weakness of the American economy which is certainly the most important market for American made cars has put the car companies suddenly in terrible trouble.
They saw the change in demand patterns for cars but they were reacting not preempting but reactionary so now they have come up with good fuel efficient and electric cars but there is no demand in the current economic environment for this and whats more the price of oil has dropped. Basically they got unlucky, you help them out now and I see every prospect that they will do well in the future.
One important reason people have not mentioned is the fact that if you have a war it is very important that you have existing heavy industry so you can rapidly gear up and increase production, it was because of Ford that America had such a huge economy in world war two to a large extent. You simply cannot assume there will not be war, you must be in a position to engage in total war if needed, this consideration outweighs loss of benefit due to protectionist policies around heavy industry.
Ron Paul is god but this wasnt his best interview, he focused on bashing the mistakes of the past and current administration instead of purposing an interesting solution.
His posture is too defensive like in the final question if he would acept double digits unemployment, he briefly says "better than 20", and then gets into defensive mode "but ask Greenspan what he thinks... bla bla bla".
I mean its good to smear shit over Greenspan and the other douchebags but he shouldnt put all of his speech there imo.
EPT
