quote:

ORIGINAL: vincentML

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ORIGINAL: NeedToUseYou

Slash the military budget use whatever amount that is for these social experiments. Not a penny more.

Deficits are not the solution, tax increases are not the solution. Shifting non-productive activities to productive ones would help, and the military is as unproductive as they get, what does a missile produce? what do 10000 ICBM's produce, what do 10's of thousand armed men in the prime of their life produce when shoved into a desert with guns.

All those things could be necessary but they aren't right now in the quantity we maintain.

It's crazy we are going broke, and still spending the largest fraction of our Federal dollars on the portion of the government devoted to destruction.

How about 300 Billion a year for defense. We still need defense of course, 300 billion would be about what Europe And Russia Spend combined. That's enough, that would free 300 billion a year, or 3 trillion over 10 years, that could be put towards more productive activities other than designing subsonic crowd control devices or jet fighters, or billions of rounds of ammo.

Jobs! Which puts money into people's pockets who then spend it on family essentials or invest it. The circulation of money (known as the Velocity) is quite important to reviving the economy. The stall in lending on the part of banks to new business ventures is a major drag on the revitalization of the economy. Instead they invest in non-productive shares of other banks and financial institutions. They run from one crap table to the next. Bummers.

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ORIGINAL: NeedToUseYou

quote:

ORIGINAL: vincentML

quote:

ORIGINAL: NeedToUseYou

Slash the military budget use whatever amount that is for these social experiments. Not a penny more.

Deficits are not the solution, tax increases are not the solution. Shifting non-productive activities to productive ones would help, and the military is as unproductive as they get, what does a missile produce? what do 10000 ICBM's produce, what do 10's of thousand armed men in the prime of their life produce when shoved into a desert with guns.

All those things could be necessary but they aren't right now in the quantity we maintain.

It's crazy we are going broke, and still spending the largest fraction of our Federal dollars on the portion of the government devoted to destruction.

How about 300 Billion a year for defense. We still need defense of course, 300 billion would be about what Europe And Russia Spend combined. That's enough, that would free 300 billion a year, or 3 trillion over 10 years, that could be put towards more productive activities other than designing subsonic crowd control devices or jet fighters, or billions of rounds of ammo.

Jobs! Which puts money into people's pockets who then spend it on family essentials or invest it. The circulation of money (known as the Velocity) is quite important to reviving the economy. The stall in lending on the part of banks to new business ventures is a major drag on the revitalization of the economy. Instead they invest in non-productive shares of other banks and financial institutions. They run from one crap table to the next. Bummers.

I guess welfare is a valid job to then, it puts money into the economy, and produces nothing of value in product. the net effect on the economy is the same.

So, you create a "job" to make an item that will be blown up. What's left afterward? Nothing but a deficit.

I'd really rather give the money away than build missiles with it. At least in that scenario something of value the missile hits is not destroyed in the pursuit of "velocity", or sometimes they simply sit until they have to be destroyed.

Anyway, I hope you don't believe the missile industry is the best or even a good place to support workfare programs when there are plenty of other endeavors that actually could increase the quality of life.

How about instead of paying for missiles to be built, we build half as many missiles and a trade the other half of the money for oh something useful like solar, wind, or whatever. Sometimes "velocity" can do nothing more than smash you into a wall, all the quicker, sometimes "velocity" gets you to a destination you actually want to arrive at.

The military is probably the worst method of stimulating a economy. It maybe an easy lazy way of doing it, but short sighted.

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ORIGINAL: vincentML


As to your complaint about welfare, it is easy to pick on the poor because they have few lobbiest in the Capitol.

You mean other than the entire Democrat party and 3/4 of the GOP of coure.


But, I posit that money given to the poor is a better economic stimulant than money given to you and me. We can save the money,
doesnt happen


thus taking it out of circulation. the poor must spend their money for necessities so it goes into circulation. It is a more efficient way for govt to get money into circulation than giving it to banks who padded their reserves and took it out of circulation.

As to the deficit, the way we will pay down the deficit is to increase productivity.

exactly which requires investments, which requires a political climate where the rules of the game are known and not stcked against buisness
much the same.

An expanding economy = more jobs = greater tax base = less deficit.

The Conservatives argue that the best way to stimulate business is through tax cuts. The problem with that is that govt never controls spending

so address that problem


Look at Title D, the Rx portion of Medicare from which I benefit and am happy to have. The pharmaceutical companies also benefit. But the Republican Congress never paid for the program. That along with the criminal war against Iraq created the deficit that Obama was left with.

Finally, you can be ironic as you wish about the word "velocity" but the quick exchange of the buck is what grows the economy. the faster it circulates through the hands of more consumers and businesses the more business we will have. When it comes to a screeching halt as it did in 2008 we are in deep muck.

the velocity of money has slowed for many more reasons than banks being unwilling to lend. Interest rates are artificially low, the tax and regulation environment is onerous stifling investment, the housing market is a long way from recovery in most areas with the only borrowing/lending in that sector refinances to lower interest costs, the falling value of the dollar and so on

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ORIGINAL: willbeurdaddy

Since 65% of FNC viewers are either liberal or independent, the "what they want to hear" line is bullshit.

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ORIGINAL: vincentML

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ORIGINAL: NeedToUseYou

Slash the military budget use whatever amount that is for these social experiments. Not a penny more.

Deficits are not the solution, tax increases are not the solution. Shifting non-productive activities to productive ones would help, and the military is as unproductive as they get, what does a missile produce? what do 10000 ICBM's produce, what do 10's of thousand armed men in the prime of their life produce when shoved into a desert with guns.

All those things could be necessary but they aren't right now in the quantity we maintain.

It's crazy we are going broke, and still spending the largest fraction of our Federal dollars on the portion of the government devoted to destruction.

How about 300 Billion a year for defense. We still need defense of course, 300 billion would be about what Europe And Russia Spend combined. That's enough, that would free 300 billion a year, or 3 trillion over 10 years, that could be put towards more productive activities other than designing subsonic crowd control devices or jet fighters, or billions of rounds of ammo.

Jobs! Which puts money into people's pockets who then spend it on family essentials or invest it. The circulation of money (known as the Velocity) is quite important to reviving the economy. The stall in lending on the part of banks to new business ventures is a major drag on the revitalization of the economy. Instead they invest in non-productive shares of other banks and financial institutions. They run from one crap table to the next. Bummers.

quote:

ORIGINAL: vincentML


I share your sentiments about the Military. In a peaceful and harmonious world there would be no need for a military.
True, but I didn't say no military, I suggested a smaller military, which would still be larger than any other military force.

You asked a question to which I gave a fairly valid answer. We may lament the need for a military with modern weapons but our lamenting will not change that reality. It was our missile capability that protected us during the Cold War. What needs to be changed imo is (1) how our govt uses the military, and (2) how govt is influenced in its decisions for making choices for mfg of weapons. We go to war too easily imo. We build weapons that may be more useful for massive warfare instead of insurgency due to lobbying from the Defense Industry.



On the other hand and somewhat contradicting myself it is essential, given the reality of competition for resources, that we anticipate future conditions. Prior to WW2 our enlisted troops were training with wooden "rifles" behind fake tanks. The central govt had to pretty much assume command of private industry to prepare. Make no mistake, private industry profited handsomely. Today, China is buying up massive quantities of commodity resources and may be a future foe. Another area of concern is near space as a battle field. Who knows the future?

Yes, but the question is do we trash our present and future economic security in an attempt to protect ourselves against a threat that may or may not materialize, or focus on rebuilding this country to better handle the challenges we know are coming.

It bears recalling when we cry out against military spending that this internet system you and I both enjoy was an outgrowth of spending on the needs of a communications infrastructure for the military.

Technically true, but it's like attributing the creation of the modern computer to the creator of the typewriter. At this point the "internet" is far removed from it's beginnings.

As to your complaint about welfare, it is easy to pick on the poor because they have few lobbiest in the Capitol.
I don't dislike the poor or welfare as a hard rule, I dislike the apathetic which is often a quality the poor adopt. Our system encourages that, I even said in the post I'd rather give the money away (welfare), than give it to the military.

But, I posit that money given to the poor is a better economic stimulant than money given to you and me.
In the short term...
We can save the money, thus taking it out of circulation. the poor must spend their money for necessities so it goes into circulation. It is a more efficient way for govt to get money into circulation than giving it to banks who padded their reserves and took it out of circulation.

I agree giving money to the poor would be better than giving it to the banks, however, those aren't the only options. I'd rather, give it to small businesses, if I had to select a benefactor.

As to the deficit, the way we will pay down the deficit is to increase productivity.
Yes, and that "productivity" is not a direct product of simply circulating dollars. It requires encouraging activities that produce things of value, in the short as well as medium and long term. Welfare does not do that, nor does the military.

When the banking freeze occurred in 2008 and still continues, it is very difficult for small businesses to borrow short term money to buy supplies and to pay employees. Businesses close. People become unemployed. Mortgages are defaulted and houses abandoned. So the poor can be you and me, you see. But more importantly, when all these things happen the tax base shrinks and the deficits of Federal, State and City accounts can only increase, throwing public employees out of work and reducing services. More unemployment then on the public employee side continues the downward spiral. So, the govt is the buyer of last resort. I haven't read the Jackson article but I imagine he is saying much the same.

There is no reason the government must stimulate directly via purchases or employment, when they could simply guarantee loans to small businesses on a large scale, if they wished. As you stated that is one of the problems, though I don't think it is the whole problem.

An expanding economy = more jobs = greater tax base = less deficit.
True enough but it doesn't require the spending such as it is directed.

The Conservatives argue that the best way to stimulate business is through tax cuts. The problem with that is that govt never controls spending and as the Bush tax cuts showed that strategy leads to deficit. Look at Title D, the Rx portion of Medicare from which I benefit and am happy to have. The pharmaceutical companies also benefit. But the Republican Congress never paid for the program. That along with the criminal war against Iraq created the deficit that Obama was left with.
Thus why this country is fucked. I am 100% for reduced taxes but unlike the repubs or democrats, I'm also for reducing spending, and the biggest chunk in my mind should come from defense spending, seeing it is outrageous in proportion to the rest of the budget. Men in caves surely don't require 600 billion dollars to combat.

Finally, you can be ironic as you wish about the word "velocity" but the quick exchange of the buck is what grows the economy.
That's not true, that is the quickest way to extract the most taxes from a dollar, but is not necessarily what grows an economy. It also requires less trully productive activity to keep the cards from collapsing but like you say in the following.

the faster it circulates through the hands of more consumers and businesses the more business we will have. When it comes to a screeching halt as it did in 2008 we are in deep muck.

That is because the businesses are structured on the concept of credit, and the system requires all money to be moving or active in order to maintain value. That is precisely what is wrong with the system.

As in the government steals x percent of a dollars worth every year, you realize this, thus ascertain that in order to just meet par on your held dollars, you must in order not to take a loss find a method of extracting a return on that money at least equal to the rate of theft, plus the taxes they will charge you for simply retaining the same purchasing power you had with the dollars at the second you earned it.  Thus you and everyone else stuff there excess cash into the markets, but the productive businesses can only absorb so much of that money before the price of the stock will no longer offset the proportional gains it requires to simply retain purchasing value, thus new forms of investment that achieve unrealistic levels of returns are developed and priced, the money flows into ever greater and greater abstracted forms of investment, until the amount of money into the investments that only touch reality on a tangent point and are solely valued by the aggregate psyche. They create these abstracted investment vehicles in order to increase the velocity of money flow precisely.

So, your argument that "velocity" of  money circulation is of supreme importance translates into a desire to create new vehicles to facilitate such, and that pursuit of "velocity" is exactly what chased money from the real, to those investments that only had value in the minds eye.

What do I mean, well, there is only so much "real" production required in the US. Beyond that there is not much left to expand upon if that was the sole goal(to produce for our needs). So, we create "theoritical" value by enhancing the psychological allure of a product well above it's material value or functional usefulness, via advertising. The advertiser would be viewed as a worthwhile means of increasing the money circulation potential of a ipod, since without the adventiser either the ipod would cost less, or less would be sold. The advertiser is a leech on the back of the actual productive activity of producing an ipod, and the advertiser in essence ads to the cost of production though technically not required at all. Well, we milked the advertising benefit of increasing money circulation long ago. Once the rate of return advertising had been balanced to the amount of money flow into that particular niche was saturated, it can't hold more, or it's ability to enhance money flow has been met. Thus, it's off to find a new store for these dollars, a new "industry" to inundate with these dollars that require a rate of return.  So, we create markets based on predicting the future, and betting on what happens to the few real products produced. These markets absorb money, and eventually eclipse the value of the of the items they are betting on. Well, that market eventaully peak in it's carrying capacity, but we must forever pursue increasing the rate of money circulation and returns. So, we create markets for betting on markets that bet on the outcome of actual products. So, then the players see that all this money that has been bet is hugely greater than the amount of money invested in the actual product (houses), thus they find if they can manipulate that side of the equation they can make money on the theoritical bets on the investments abstracted from that product and thus increase the velocity of money flow and thus earn a rate of return while the system is winding up. So, they need to keep the product moving, increase that velocity baby. Until the system finally is beyond additional saturation, the loan requirements even being non-existant can not feed the beast, the rate of influx of money is nuetral in real terms or the money flows reverse, people no longer care about returns but care about cutting losses. They look for another market to saturate it is not there. The theoritical value and circulation stops. The Velocity stops.

It will always end like it did. Because there is no market that can offer a "true" rate of return forever. There are not infinite markets either, at least we don't create them at the rate which could absorb the money that requires a rate of return beyond the base value it had before investment.


You advocate a boom bust cycle of economic thinking.

It's like everything, there is a balance, we are we out of balance, IMO, in that we view the "velocity" as being the goal, and ignore that everything is traced back to actual production eventually. When an economy values the knock off services more than the actual item that is being serviced, it is fucked.

Rant, Rant, Rant... if any of that made since. HEHE. 

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True, but I didn't say no military, I suggested a smaller military, which would still be larger than any other military force.

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Yes, but the question is do we trash our present and future economic security in an attempt to protect ourselves against a threat that may or may not materialize, or focus on rebuilding this country to better handle the challenges we know are coming.

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It bears recalling when we cry out against military spending that this internet system you and I both enjoy was an outgrowth of spending on the needs of a communications infrastructure for the military.

Technically true, but it's like attributing the creation of the modern computer to the creator of the typewriter. At this point the "internet" is far removed from it's beginnings.

quote:

As to your complaint about welfare, it is easy to pick on the poor because they have few lobbiest in the Capitol.
I don't dislike the poor or welfare as a hard rule, I dislike the apathetic which is often a quality the poor adopt. Our system encourages that, I even said in the post I'd rather give the money away (welfare), than give it to the military.

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I agree giving money to the poor would be better than giving it to the banks, however, those aren't the only options. I'd rather, give it to small businesses, if I had to select a benefactor.

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As to the deficit, the way we will pay down the deficit is to increase productivity.
Yes, and that "productivity" is not a direct product of simply circulating dollars. It requires encouraging activities that produce things of value, in the short as well as medium and long term. Welfare does not do that, nor does the military.

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There is no reason the government must stimulate directly via purchases or employment, when they could simply guarantee loans to small businesses on a large scale, if they wished. As you stated that is one of the problems, though I don't think it is the whole problem.

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An expanding economy = more jobs = greater tax base = less deficit.
True enough but it doesn't require the spending such as it is directed.

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Thus why this country is fucked. I am 100% for reduced taxes but unlike the repubs or democrats, I'm also for reducing spending, and the biggest chunk in my mind should come from defense spending, seeing it is outrageous in proportion to the rest of the budget. Men in caves surely don't require 600 billion dollars to combat.

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Finally, you can be ironic as you wish about the word "velocity" but the quick exchange of the buck is what grows the economy.
That's not true, that is the quickest way to extract the most taxes from a dollar, but is not necessarily what grows an economy. It also requires less trully productive activity to keep the cards from collapsing but like you say in the following.

the faster it circulates through the hands of more consumers and businesses the more business we will have. When it comes to a screeching halt as it did in 2008 we are in deep muck.

That is because the businesses are structured on the concept of credit, and the system requires all money to be moving or active in order to maintain value. That is precisely what is wrong with the system.

quote:

As in the government steals x percent of a dollars worth every year, you realize this, thus ascertain that in order to just meet par on your held dollars, you must in order not to take a loss find a method of extracting a return on that money at least equal to the rate of theft, plus the taxes they will charge you for simply retaining the same purchasing power you had with the dollars at the second you earned it.

quote:

Thus you and everyone else stuff there excess cash into the markets, but the productive businesses can only absorb so much of that money before the price of the stock will no longer offset the proportional gains it requires to simply retain purchasing value, thus new forms of investment that achieve unrealistic levels of returns are developed and priced, the money flows into ever greater and greater abstracted forms of investment, until the amount of money into the investments that only touch reality on a tangent point and are solely valued by the aggregate psyche. They create these abstracted investment vehicles in order to increase the velocity of money flow precisely.

So, your argument that "velocity" of  money circulation is of supreme importance translates into a desire to create new vehicles to facilitate such, and that pursuit of "velocity" is exactly what chased money from the real, to those investments that only had value in the minds eye.

quote:

What do I mean, well, there is only so much "real" production required in the US. Beyond that there is not much left to expand upon if that was the sole goal(to produce for our needs). So, we create "theoritical" value by enhancing the psychological allure of a product well above it's material value or functional usefulness, via advertising. The advertiser would be viewed as a worthwhile means of increasing the money circulation potential of a ipod, since without the adventiser either the ipod would cost less, or less would be sold. The advertiser is a leech on the back of the actual productive activity of producing an ipod, and the advertiser in essence ads to the cost of production though technically not required at all. Well, we milked the advertising benefit of increasing money circulation long ago. Once the rate of return advertising had been balanced to the amount of money flow into that particular niche was saturated, it can't hold more, or it's ability to enhance money flow has been met. Thus, it's off to find a new store for these dollars, a new "industry" to inundate with these dollars that require a rate of return. So, we create markets based on predicting the future, and betting on what happens to the few real products produced. These markets absorb money, and eventually eclipse the value of the of the items they are betting on. Well, that market eventaully peak in it's carrying capacity, but we must forever pursue increasing the rate of money circulation and returns. So, we create markets for betting on markets that bet on the outcome of actual products. So, then the players see that all this money that has been bet is hugely greater than the amount of money invested in the actual product (houses), thus they find if they can manipulate that side of the equation they can make money on the theoritical bets on the investments abstracted from that product and thus increase the velocity of money flow and thus earn a rate of return while the system is winding up. So, they need to keep the product moving, increase that velocity baby. Until the system finally is beyond additional saturation, the loan requirements even being non-existant can not feed the beast, the rate of influx of money is nuetral in real terms or the money flows reverse, people no longer care about returns but care about cutting losses. They look for another market to saturate it is not there. The theoritical value and circulation stops. The Velocity stops.

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It will always end like it did. Because there is no market that can offer a "true" rate of return forever. There are not infinite markets either, at least we don't create them at the rate which could absorb the money that requires a rate of return beyond the base value it had before investment.

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You advocate a boom bust cycle of economic thinking.

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ORIGINAL: NeedToUseYou

Just to clarify when I said steal, I didn't mean via taxation, I meant via encouraging over expansion of new money into the system which causes price inflation.

As in this year you have 10.00 dollars, next year that 10 dollars you held can only buy 9.75 worth of stuff compared to last year, so on and so forth. It's not necessarily "taxes" that force investment, it's the clockwork policy of expanding the Money supply well above the rate of productive increases.

And yes some expansion will always be necessary if the economy is growing, but like everything the goal appears not to be to "protect" the value of the dollar, but rather to diminish the value of a dollar in a systematic way, thus forcing to much money into higher return investments. As in they over-expand as a rule.

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ORIGINAL: vincentML

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ORIGINAL: NeedToUseYou

Just to clarify when I said steal, I didn't mean via taxation, I meant via encouraging over expansion of new money into the system which causes price inflation.

As in this year you have 10.00 dollars, next year that 10 dollars you held can only buy 9.75 worth of stuff compared to last year, so on and so forth. It's not necessarily "taxes" that force investment, it's the clockwork policy of expanding the Money supply well above the rate of productive increases.

And yes some expansion will always be necessary if the economy is growing, but like everything the goal appears not to be to "protect" the value of the dollar, but rather to diminish the value of a dollar in a systematic way, thus forcing to much money into higher return investments. As in they over-expand as a rule.

It is not a recent phenomenon. Have a look at the chart linked below of the time value of the dollar vs the purchasing power of the 1980 Dollar. It is pretty shocking. The value of the buck reached a peak for the 20th Century in 1900. in 1910 it was worth $8.94 per 1980s $$ Today the purchasing value is $0.38. It correlates with the establishment of the Federal Reserve in 1913. I don't know if this demonstrates cause and effect.


http://en.wikipedia.org/wiki/United_States_dollar#Consumer_Price_Index

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ORIGINAL: NeedToUseYou

Just to clarify when I said steal, I didn't mean via taxation, I meant via encouraging over expansion of new money into the system which causes price inflation.

As in this year you have 10.00 dollars, next year that 10 dollars you held can only buy 9.75 worth of stuff compared to last year, so on and so forth. It's not necessarily "taxes" that force investment, it's the clockwork policy of expanding the Money supply well above the rate of productive increases.

And yes some expansion will always be necessary if the economy is growing, but like everything the goal appears not to be to "protect" the value of the dollar, but rather to diminish the value of a dollar in a systematic way, thus forcing to much money into higher return investments. As in they over-expand as a rule.

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I know, I wasn't suggesting it was a recent phenomenon. The Federal Reserve has failed in its stated objective, of promoting Stable prices as stated on their website, by embracing a policy of cheap money for a long time.

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Yet, they apparently just sent Bernanke back again, and its doubtful any thing will change.

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IMO, this country would have been screwed a long time ago if not for WWII, and the economic destruction of most of our competitors, we'd be a joke already. It's not that our policies are so great, or the government is filled with genius enlightened men. It was a good 20-30 years of advantage we had over the rest of the relevant world. The current wars aren't going to help though because none of our relevant competitors factories are being destroyed, nor are they going broke as fast as we are.

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ORIGINAL: NeedToUseYou

I guess welfare is a valid job to then, it puts money into the economy, and produces nothing of value in product. the net effect on the economy is the same.

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ORIGINAL: willbeurdaddy

Vincent, to some of your points and questions:

Military as a job producer and economic stimulant: Yes it provides jobs, no its not an economic stimulant in the long run. That can be seen if you take the world to one extreme...total peace and harmony. In that case having a military is a nearly pure example of the broken window fallacy. While it produces jobs, every dollar spent is a dollar that cant be spent somewhere else, and it produces no direct economic value.

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In the real world where there are threats, the military is a drag on the economy, but that is the price that has to be paid for being able to continue the remaining parts of the economy. And as pointed out there are some ancillary economic values that are produced that might not be absent the military. Same with the space program.

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Tax credits to small business for hiring: No, they don't generally work. Why? Because the small businesses that most need financial support arent paying taxes because they have not yet begun to turn a profit. It creates little incentive to start up a business, because Ive yet to see a business plan that is projected to be profitable in the short term, before the tax credits expire. Those that are able to use the tax credits because they are profitable either can expand their market with the new employees without the tax credit, or cannot expand their market and the tax credits have no return at all to the economy. So its only those companies on the margin where the tax credits are really a stimulus. There is some small stimulus from the spending of the new employee of those companies on the margin, and that is offset (see the welfare comment below).

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Depreciation isnt all that hard to understand. (In fact I may misunderstand your comment on not understanding and this is too basic a response. If so, apologies). A company buys a computer. The IRS doesnt allow you to deduct the entire cost the year you buy it, because it has a useful life producing income in the future. It can only reduce profits pro-rata over its useful lifetime. The proposed changes accelerate that tax deduction. It has all of the same drawbacks as the tax credits, although its stimulus effect is a little bit greater, because a computer gets bought that would otherwise not get produced, helping to pay the salary of someone at Dell.

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A far more effective stimulus for small business than either of those would be to loosen the rules on loss carryforwards. Let a company that loses money now deduct 100% of this years losses in the future when it becomes profitable. That creates far more incentive to start up a business or expand more businesses, not just the ones already turning a profit.

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Lending to small businesses: I dont think Need was talking about banks lending, but direct lending from the government. The problem with that is the government is horrible at evaluating what businesses deserve loans and which dont. Let the banks do the lending, they have the experience and people to do it. Let the government give some (but not 100%) guarantees for loans that go bad. There is plenty of money to lend, the problem is that the risks of both borrowing and lending are high in the current environment. No one knows the rules of the game, and that strangles any game plan.

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The stimulus value of welfare: Its actually a negative stimulus. Any money you give to a welfare recipient to spend takes it away from someone elses spending (for a zero gain of stimulus) or someone elses investing (for a net loss of stimulus). The only gain is money spent that would have been put under the mattress. Like military spending, the drag on the economy is the price you pay, in this case for humanitarian purposes.

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Theft via price inflation: There are still no good statistics on TRUE ECONOMIC inflation. The problem with simply looking at prices vs wages is that it ignores improvements in quality and availability. If you think the average American has a lower standard of living because of some charts of prices, you need to look at some pictures of what life was like in 1900.

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ORIGINAL: vincentML

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ORIGINAL: willbeurdaddy

Vincent, to some of your points and questions:

Military as a job producer and economic stimulant: Yes it provides jobs, no its not an economic stimulant in the long run. That can be seen if you take the world to one extreme...total peace and harmony. In that case having a military is a nearly pure example of the broken window fallacy. While it produces jobs, every dollar spent is a dollar that cant be spent somewhere else, and it produces no direct economic value.

Hi Will. Let me try to respond to you comments. I thank you in advance for the schooling but I continue to have some questions.

The more I look into this the more complicated I find the issue. Apparently, there is a lot of disagreement. The greater portion of the Military budget is spent on capital goods (ships, planes, technology, etc) These manufactured goods require a pipeline of supplies back to the raw materials. So, there are jobs all along the way. These employed folks go out and buy needs and wants. That consumerism supports non-defense related businesses and employees, which in turn support others, etc, and the money goes round and round, keeping people employed and boosting demand for non-military goods. There is an indirect ecomomic value imo. Now, I won’t argue that the military-industrial complex is not infamously inefficient in its planning and notoriously reaping higher margins than non-military businesses. In the short run they keep the money in circulation, however. And that is important in a downturn in the economy, is it not?

Yes, there is indirect economic value (which is why my post specified no direct value). You are also correct that in a slow economy where money would not otherwise be spent there is a more direct value. However, most of the time in the past the US has been experiencing economic growth. In those times (and at the end of recessions but before recovery) investment has a much bigger multiplier effect than direct spending. If we could only fund the military during recessions that would be awesome, lol.

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In the real world where there are threats, the military is a drag on the economy, but that is the price that has to be paid for being able to continue the remaining parts of the economy. And as pointed out there are some ancillary economic values that are produced that might not be absent the military. Same with the space program.

I am of two minds on this. I guess I have to agree with you it would be a benefit for the economy to downsize the Military spending programs if (a) we could somehow come together and decide we do not need to be the leading Military nation and (b) if there were some way to redirect that money into production of economic value, but I suspect the real outcome would be that there would be a demand for more tax cuts or to buy back our outstanding debt. I have no faith in (a) ever happening. We always seem to find a threat to be wary of and to prepare for, and (b) there is no certainty the money would not go into non-productive securities or into savings, and so be taken out of circulation.

I may have given the impression that im in favor of downsizing the military. Im not, but not because of economic considerations. It is other spending that needs to be reduced, and if it were done with offsetting tax cuts so that the static net is revenue neutral then the growth in the economy would lead to reductions in debt.

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Tax credits to small business for hiring: No, they don't generally work. Why? Because the small businesses that most need financial support arent paying taxes because they have not yet begun to turn a profit. It creates little incentive to start up a business, because Ive yet to see a business plan that is projected to be profitable in the short term, before the tax credits expire. Those that are able to use the tax credits because they are profitable either can expand their market with the new employees without the tax credit, or cannot expand their market and the tax credits have no return at all to the economy. So its only those companies on the margin where the tax credits are really a stimulus. There is some small stimulus from the spending of the new employee of those companies on the margin, and that is offset (see the welfare comment below).

Nicely explained and accepted.

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Depreciation isnt all that hard to understand. (In fact I may misunderstand your comment on not understanding and this is too basic a response. If so, apologies). A company buys a computer. The IRS doesnt allow you to deduct the entire cost the year you buy it, because it has a useful life producing income in the future. It can only reduce profits pro-rata over its useful lifetime. The proposed changes accelerate that tax deduction. It has all of the same drawbacks as the tax credits, although its stimulus effect is a little bit greater, because a computer gets bought that would otherwise not get produced, helping to pay the salary of someone at Dell.

Yes, I guess I did understand that better than I thought. But can’t you make a parallel argument for Military spending? i.e. a capital good gets bought and pays the salary for someone at Dell or wherever?

Yes, with the caveats above.

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A far more effective stimulus for small business than either of those would be to loosen the rules on loss carryforwards. Let a company that loses money now deduct 100% of this years losses in the future when it becomes profitable. That creates far more incentive to start up a business or expand more businesses, not just the ones already turning a profit.

Doesn’t this create a problem of new businesses being started with smaller amounts of capital reserves such as lead to the dotcom bubble? Isn’t the capital risk being passed on to the govt and the taxpayer?

Whether its through tax credits or loss carryforwards there is capital risk being passed on to the taxpayer. The issue is where is that risk going to be most productive. Its somewhat parallel to cash for clunkers..giving people money to do something they were going to do anyway is wasted, even if accelerates their decision a few months. Tax credits to companies that would have hired anyway is wasted, and tax credits dont provide stimulus for projects that are nowhere near profitability. It is a pretty narrow sector, especially in small business, where a tax credit makes a non-profitable decision profitable, which is how stimuli stimulate!

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Lending to small businesses: I dont think Need was talking about banks lending, but direct lending from the government. The problem with that is the government is horrible at evaluating what businesses deserve loans and which dont. Let the banks do the lending, they have the experience and people to do it. Let the government give some (but not 100%) guarantees for loans that go bad. There is plenty of money to lend, the problem is that the risks of both borrowing and lending are high in the current environment. No one knows the rules of the game, and that strangles any game plan.

I believe Need was talking about govt guarantees for loans that go bad. But again is there not the risk of moral hazard? We have already seen a populist outcry against pouring money into the too-big-to-fail banks, and probably justified. I am mystified that people seem to want deregulated capitalism with govt socialism to protect banks against business failures. Furthermore, this seems similar to home mortgage loans guaranteed by the govt and deregulated. How would you insure the banks would not loan to high risk start-ups if the govt is the lender of last resort?

Thats why i specified that you cant guarantee the loans 100%. The banks need to be substantially at risk to avoid moral hazard, and the precedent of bailouts a huge mistake.

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The stimulus value of welfare: Its actually a negative stimulus. Any money you give to a welfare recipient to spend takes it away from someone elses spending (for a zero gain of stimulus) or someone elses investing (for a net loss of stimulus). The only gain is money spent that would have been put under the mattress. Like military spending, the drag on the economy is the price you pay, in this case for humanitarian purposes.

I suppose that would be true if you assume a static zero-sum economy. However, in an expanding economy there is a multiplier effect according to Keynes. By increasing aggregate demand you increase jobs along the supply line. Please, don’t ask me to explain Keynes.

The problem is that Keynes ignores the supply side. There is a multiplier effect from spending, but there is a larger multiplier effect from investment. That should be obvious, if not I'll explain why. Therefore shifting money from investors to spenders has to dampen the economy. Achieving the right balance between economic and humanitarian considerations is at the core of liberal vs conservative social debate.

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Theft via price inflation: There are still no good statistics on TRUE ECONOMIC inflation. The problem with simply looking at prices vs wages is that it ignores improvements in quality and availability. If you think the average American has a lower standard of living because of some charts of prices, you need to look at some pictures of what life was like in 1900.

One of my friends made this argument and it is a good one if your income keeps pace. Seems to me that argument favors select groups over others. Doubtful retirees or many middle class families whose supporters have limited labor skills or people over fifty years of age whose jobs have been outsourced would agree with you. Seems to me there was a great disparity of wealth in 1900 and from what I have heard that disparity has grown since 1980 as low wage manufacturing jobs and many back office jobs have been outsourced or lost to new technology. Perhaps the pictures are misleading. Depends on where you aim your camera.

The increase in disparity of wealth is nowhere near enough to offset the overall increases in quality and availability of goods. In a market society there will always be sectors of an economy is "winning" and others that are "losing", and the government can be of help by providing re-education and short term support for those sectors that find themselves out of favor. It can also be helpful by ensuring a level international playing field.

You gave me some good information and I always appreciate the education. Many thanks, Will.

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ORIGINAL: willbeurdaddy

Yes, there is indirect economic value (which is why my post specified no direct value). You are also correct that in a slow economy where money would not otherwise be spent there is a more direct value. However, most of the time in the past the US has been experiencing economic growth. In those times (and at the end of recessions but before recovery) investment has a much bigger multiplier effect than direct spending. If we could only fund the military during recessions that would be awesome, lol.

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I may have given the impression that im in favor of downsizing the military. Im not, but not because of economic considerations. It is other spending that needs to be reduced, and if it were done with offsetting tax cuts so that the static net is revenue neutral then the growth in the economy would lead to reductions in debt.

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Thats why i specified that you cant guarantee the loans 100%. The banks need to be substantially at risk to avoid moral hazard, and the precedent of bailouts a huge mistake.

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The problem is that Keynes ignores the supply side. There is a multiplier effect from spending, but there is a larger multiplier effect from investment. That should be obvious, if not I'll explain why. Therefore shifting money from investors to spenders has to dampen the economy. Achieving the right balance between economic and humanitarian considerations is at the core of liberal vs conservative social debate.

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The increase in disparity of wealth is nowhere near enough to offset the overall increases in quality and availability of goods. In a market society there will always be sectors of an economy is "winning" and others that are "losing", and the government can be of help by providing re-education and short term support for those sectors that find themselves out of favor. It can also be helpful by ensuring a level international playing field.

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ORIGINAL: MrMister

The same applies to government jobs. They produce nothing.