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ORIGINAL: subrob1967

The government needs to cut the budget 20% across the board, including salaries and benefits.

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ORIGINAL: vincentML

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ORIGINAL: subrob1967

The government needs to cut the budget 20% across the board, including salaries and benefits.

wtf? why?

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ORIGINAL: vincentML

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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.

I do not understand your definition of direct economic value. When an auto is produced from an assembly line it goes through a dealer to an end user. The owner drives the car for ten years for example by which time it has little if any resale or trade in value. Eventually it ends up as junk for parts.

By similar circumstance a military tank is manufactured and purchased by an end user, in this case the Military. The tank is used for whatever purposes and until it is obsolete. Then it or its parts are recycled.

Why is the purchase of an auto of direct economic value while the purchase of a tank is not?

The distinction is that when the government purchases a tank, it is doing so with dollars that it has taken away from the taxpayers ability to spend. There is no net gain in spending when the government spends (other than the rare case where money would sit on the sidelines and not be invested, loaned or spent). Thus there is no direct economic gain, no real increase in demand.

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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.

What other spending do you have in mind, by what amount, and starting when?

a 5% across the board reduction in staffing of every non-defense/discretionary department effective immediately. A real spending freeze in non-personnel budget items for every department (not a delayed freeze after Obamas pet projects get increases >100% this year, so he can talk the talk but not walk the walk)

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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.

I believe I favor Volker’s idea more.... a resolution trust type of organization for mega banks similar to FDIC to resolve their failure without systemic risk, a separation of depositors’ money from bank brokerage activities, and strictly supervised and higher reserve requirements. And then on the brokerage side regulation and transparency of derivative trading and structure. The Federal Reserve was criminally negligent imo.

This addresses a different issue than future loans/loan guarantees/credit. I agree a RTC approach would have been much better than the bailouts. Ie an organized sale of the assets of the companies that should have been allowed to fail.

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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.

As I understand it the problem was a bank freeze both in 1931 and 2008. The issue was to create demand as quickly as possible as well as the humanitarian consideration. Banks would not lend to companies to meet payrolls and restock merchandise because they had low reserves and were afraid to take risk on companies when jobs and demand had fallen low. So, it was essential to stimulate demand in the short run. Banks should be in the business of using depositors' money as a reserve so they can borrow from the Fed and lend at a higher vig.

How do you define investment?

contributions of capital to expand or start revenue producing business or products, in this context anyway

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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.

The quality and availability of goods compared to income disparity is a bit of a mirage brought about by excessive household debt. The average household has a credit card debt of $8000 and is paying a vig of 23%, I understand. That was not true of the 1900 household. For the most part they were a pay then do society.

This goes well beyond the point I was trying to make that you cant simply take the prices of a limited basket of goods, measure their price inflation, and compare it to wage increases. There are improvements in the quality and availability of (some) of the goods in that basket that are not reflected in an "adjusted price", and there are goods not in the CPI basket and other innovations that improve quality of life that arent factored in at all.I don't disagree that household deficit spending offsets some of those gains.

If you campare 1900 to 2010 on the basis of needs rather than wants the story might be different. There is a lot of junk being purchase on credit I would think. Besides shelter, food, medical care, transportation and some forms of entertainment what did a middle income family of 1900 lack compared to a similar family of today? I grant you that lifestyles have been changed because of advances in transportation and communications, but that is not to say adequate methods were not available to the middle income family of 1900.

A case might be made that ready credit and the availability of contemporary transportation and communications have contributed to the breakdown of the larger, more closely knit family unit. Today’s consumer society is based largely on excess credit spent on “wants’ rather than “needs.”

I dont know that credit plays much of a role here. Certainly transportation and communications have extended the geographic boundaries of families. That doesnt necessarily lead to a breakdown of familial responsibility and bonds though. I think that deterioration is in many respects the byproduct of no longer needing the evolutionary protections of family bonding, because survival without those family bonds is nowhere near the issue it once was. And though it will raise a firestorm here, the welfare state greatly contributes to that.

Have a good day, Will.

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ORIGINAL: ServeYourMaster1
We have to cut across the board.  That means Social Security, Medicare, Medicaid and everything else.  Cut everything by 30%, hold your breath and weather the storm.