Rove made this claim yesterday, that the government stimulus was retarding the 'day of growth' and extending the recession.
(Now, given that you should generally take what he says and do the opposite - because he's a Republican hack, with an accuracy only surpassed in wrongness by Bill Kristol.)
But I'm wondering... What mechanism - a real one - would really work this way? Because in the real world, when the government spends money, this money is basically added to the economy. When you pay people to do things - even sit around and do nothing - they spend that money on either things they need like food and shelter (which reduces economic retraction) or things they want like tvs and movies (which increases economic activity).
The worst bang for the buck that the government could do is cut taxes, especially credits or top marginal rate, which wouldn't be spent now or might not even be spent later, if the rich never get around to it (marginal utility of a dollar). But even so, that'll raise some indicator in the economy, not reduce it.
So... I'm totally confused what sort of argument this makes, that spending money into the economy actually reduces the economy. I'm looking for a devil's advocate here, some sort of at least basis for this thinking.
-Crissa
How could Government spending retard economic growth?
Moderator: Moderators
Probably something like "where does the money come from?" In Republican economic theory, taxes are always bad for the economy, and government money always comes from taxes or debt (which also causes problems eventually if you don't manage it).
Now, of course, no real government actually does more damage overall by taking taxes out of the economy and then putting them back in as spending, to the point where the countries who did that to their entire economies had enormous growth of their standard of living. But that's Communism, and anything that suggest the Communism would be a good idea for anyone at any time has no place in Republican theories.
Now, of course, no real government actually does more damage overall by taking taxes out of the economy and then putting them back in as spending, to the point where the countries who did that to their entire economies had enormous growth of their standard of living. But that's Communism, and anything that suggest the Communism would be a good idea for anyone at any time has no place in Republican theories.
"No, you can't burn the inn down. It's made of solid fire."
Yeah, the theory is that all that money was taken from rich people, and we all know that rich people spend everything they have every second way better than poor people, like people the government gives money to.
Or he could be criticizing deficit spending, since we all know hypocrisy is his third specialty after being wrong and being an asshole.
Or he could be criticizing deficit spending, since we all know hypocrisy is his third specialty after being wrong and being an asshole.
Unrestricted Diplomat 5314 wrote:Accept this truth, as the wisdom of the Crafted: when the oppressors and abusers have won, when the boot of the callous has already trampled you flat, you should always, always take your swing."
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Sock Puppet
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Heath Robinson
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One could spend money on congressional committees investigating the possibility of spending money in manners that retard economic recovery, in concert with CEOs and Wall Street traders (experts on spending money to negative effect). Remunerated, of course. That'd almost certainly not help and would actively hinder recovery because it consumes budget and gives money to people that could just sit around on minimal expenditure until the economy recovers in the normal manner.
Face it. Today will be as bad a day as any other.
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Username17
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A real mechanism eh?
OK, a little backstory on Capitalist economics. It is a truism amongst capitalist economists that "savings equals investment" - an while that's not actually true, it is often usefully true. The idea is that financial investment actually comes from money that is being "saved" - either by being lent to people who will invest it or by being spent directly on investments by people who have put money aside from their expenses in order to do that. Now, that means that Investment is limited by Savings, not that it is always equal to Savings. Free market theorists will often handwave that interest rates will get pushed up and down by market forces until the number of dollars people want to save and the number of dollars people want to invest become equal, though this is manifestly not actually true. Markets in general almost never wholly clear despite economist claims, and financial markets are no exception.
But it is nonetheless true that government expenditures are a form of Investment. And when they are deficit expenditures they draw from the same pool of Savings as private investment does. So if you had a saturated borrowing market, then deficit spending would make it more difficult for companies an private individuals to borrow money. And that would reduce their ability to impact the GDP. If the government was spending that deficit money on something with a lower multiplier effect than what private interests were going to do with it, the net effect on economic growth would be negative.
So ironically, Karl Rove's deficit spending plan from a few years back actually did slow growth. A saturated borrowing market coupled with spending the deficit cash on low multiplier military contracts and foreign outsourcing really did displace potential investment by US firms that would have produced more jobs.
-Username17
OK, a little backstory on Capitalist economics. It is a truism amongst capitalist economists that "savings equals investment" - an while that's not actually true, it is often usefully true. The idea is that financial investment actually comes from money that is being "saved" - either by being lent to people who will invest it or by being spent directly on investments by people who have put money aside from their expenses in order to do that. Now, that means that Investment is limited by Savings, not that it is always equal to Savings. Free market theorists will often handwave that interest rates will get pushed up and down by market forces until the number of dollars people want to save and the number of dollars people want to invest become equal, though this is manifestly not actually true. Markets in general almost never wholly clear despite economist claims, and financial markets are no exception.
But it is nonetheless true that government expenditures are a form of Investment. And when they are deficit expenditures they draw from the same pool of Savings as private investment does. So if you had a saturated borrowing market, then deficit spending would make it more difficult for companies an private individuals to borrow money. And that would reduce their ability to impact the GDP. If the government was spending that deficit money on something with a lower multiplier effect than what private interests were going to do with it, the net effect on economic growth would be negative.
So ironically, Karl Rove's deficit spending plan from a few years back actually did slow growth. A saturated borrowing market coupled with spending the deficit cash on low multiplier military contracts and foreign outsourcing really did displace potential investment by US firms that would have produced more jobs.
-Username17
@.@ Too far above my head but let me (fail to) get this straight. So what is being said here (and this is probably horribly wrong) is that the generally held idea by the big wigs (or at least what they tell people) is that hording money (saving and investing) helps the economy and if you go around spending money then the economy doesn't grow. But in practicing that smaller businesses get snuffed out because of their inability to keep up with the flowing market lows while the bigger companies that can ride the waves get to decide where the market goes. So its all a trap in the end to get the companies you want (the big ones that you invested in) on top while any possible competition (private companies) sink to the bottom and go away.
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Titanium Dragon
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Government spending from taxes almost never hurts the economy. The exception is if you give the money to already wealthy people. How does that work?
Well, the reason that all Republican economic theories are wrong is because they favor the idea of trickle down economics - that is to say, if you make the people at the top wealthier, it will trickle down to the little guy via investments in business and luxury spending. Unfortunately, this isn't really the case. Why would this be?
The reason is that our economy is fundamentally driven from the bottom - that is to say, by consumption (though other things can drive the economy, such as building stuff). When consumption crashes, the economy dies. The theory behind trickle-down economics is that when you give the wealthy more money, they invest in their businesses, which causes them to expand, which creates more jobs.
The problem with this theory is that expansion is not driven by the desire to create more jobs, but rather by the desire to make more money. If there isn't an extant demand for expansion, then expanding will not generate more demand than it will cost you, personally. As such, wealthy people fundamentally are likely to invest it in imaginary money places - already successful businesses, investment in land and real estate, ect. This does us no good at all. While the occasional IPO to generate money for expansion occurs, and sometimes a wealthy person may expand their business because there already is the demand for it, when demand is SHRINKING giving money to the wealthy does you little to no good for obvious reasons.
Conversely, if you give money to the destitute, they are likely to spend 100% of it on "real things" - clothes, food, consumables, education, ect. They thus are consuming, and therefore generating demand, as well as giving money to other people, which causes them to give money to other people, ect. By their purchasing stuff, not only they got that money, but also the owner of the local market (especially if they purchase from small businesses, from business owners who are not wealthy, who will likely spike their purchasing in turn, ect.).
That's why giving the poor money is better than giving it to the wealthy.
The problem comes when you literally CREATE money (as the government is now doing) - fundamentally when you print money. The problem is that money is actually valueless - its value is entirely imaginary, and it is only worth what people feel it to be worth, as a dollar bill is itself useless unless others honor what it represents, and depending on their subjective valuation of your money, you will get more or less for it. While this is true of all substances (which is why a gold standard doesn't -really- work, as the price of gold is not fixed) there is some inherent value to those other substances, whereas there is little you can do with paper money. If you print money, you cause inflation, which is bad. However, depending on the amount of inflation, it may or may not be worth it.
The government spending money on (useful) infrastructure, however, is the ultimate way to spend money. This is because the government creates artificial demand for labor, which employs more people, AND the government ends up with something valuable in the end (roads, museums, schools, ect.). Thus you are basically doing the whole "Give money to the destitute" thing (though not as efficiently as literally handing out cash to bums) AND you end up with a net value increase in your country. Education is another valuable place to invest money, assuming you do so in a wise manner which improves educational results. Investing in scientific endeavors can also be valuable, assuming this investment will result in more jobs. You can also invest in things like weapons (if they're needed; we have too much military spending as-is, though, so increasing military spending actually has deleterious effects), space travel, and some services (health care, but only to a point). Obviously new equipment for your infrastructure is valuable spending if it is outdated. And you can always just build tourist attractions if all else fails (we have the biggest phallic symbol in the world! Take that, Egypt!), though obviously as you go down the list returns get smaller and smaller.
Notably, getting the populace to invest in infrastructure with that same money is more or less the same thing, so if you, say, get everyone to buy solar panels for their roofs, its as if you yourself built a giant solar plant. However, you have to make sure that they're actually doing so, otherwise you aren't getting the boons of your investment, and you also have to make sure that they aren't doing it anyway because it is cash-effective - if it is already economically more wise to purchase, say, a hybrid vehicle, incentivizing it is not wise because you're not getting your money's worth.
Economics are very complicated, though, so no one strategy is necessarily a cure all.
Incidentally, one of the WORST things you can do is what the government did by bailing out Wall Street (or the American automakers). Wall Street mostly deals with imaginary money, so a great deal of it was basically set on fire; moreover, for capitalism to function in a manner superior to communism, you have to allow it to function as a meritocracy, which means that you let bad companies (like AIG, GM, Goldman-Sachs, ect.) fail, as it gets rid of them and what is left is more efficient. Some people claimed that this would destroy the economy, but it wouldn't have. Even assuming there was literally no credit to be had, the government could have backed loans itself - it already does so to large banks, and if the banks are so incompetent at financing stuff (as they are) then the government will do a better job of it, and you also have the added benefit of punishing people who caused the mess in the first place.
Well, the reason that all Republican economic theories are wrong is because they favor the idea of trickle down economics - that is to say, if you make the people at the top wealthier, it will trickle down to the little guy via investments in business and luxury spending. Unfortunately, this isn't really the case. Why would this be?
The reason is that our economy is fundamentally driven from the bottom - that is to say, by consumption (though other things can drive the economy, such as building stuff). When consumption crashes, the economy dies. The theory behind trickle-down economics is that when you give the wealthy more money, they invest in their businesses, which causes them to expand, which creates more jobs.
The problem with this theory is that expansion is not driven by the desire to create more jobs, but rather by the desire to make more money. If there isn't an extant demand for expansion, then expanding will not generate more demand than it will cost you, personally. As such, wealthy people fundamentally are likely to invest it in imaginary money places - already successful businesses, investment in land and real estate, ect. This does us no good at all. While the occasional IPO to generate money for expansion occurs, and sometimes a wealthy person may expand their business because there already is the demand for it, when demand is SHRINKING giving money to the wealthy does you little to no good for obvious reasons.
Conversely, if you give money to the destitute, they are likely to spend 100% of it on "real things" - clothes, food, consumables, education, ect. They thus are consuming, and therefore generating demand, as well as giving money to other people, which causes them to give money to other people, ect. By their purchasing stuff, not only they got that money, but also the owner of the local market (especially if they purchase from small businesses, from business owners who are not wealthy, who will likely spike their purchasing in turn, ect.).
That's why giving the poor money is better than giving it to the wealthy.
The problem comes when you literally CREATE money (as the government is now doing) - fundamentally when you print money. The problem is that money is actually valueless - its value is entirely imaginary, and it is only worth what people feel it to be worth, as a dollar bill is itself useless unless others honor what it represents, and depending on their subjective valuation of your money, you will get more or less for it. While this is true of all substances (which is why a gold standard doesn't -really- work, as the price of gold is not fixed) there is some inherent value to those other substances, whereas there is little you can do with paper money. If you print money, you cause inflation, which is bad. However, depending on the amount of inflation, it may or may not be worth it.
The government spending money on (useful) infrastructure, however, is the ultimate way to spend money. This is because the government creates artificial demand for labor, which employs more people, AND the government ends up with something valuable in the end (roads, museums, schools, ect.). Thus you are basically doing the whole "Give money to the destitute" thing (though not as efficiently as literally handing out cash to bums) AND you end up with a net value increase in your country. Education is another valuable place to invest money, assuming you do so in a wise manner which improves educational results. Investing in scientific endeavors can also be valuable, assuming this investment will result in more jobs. You can also invest in things like weapons (if they're needed; we have too much military spending as-is, though, so increasing military spending actually has deleterious effects), space travel, and some services (health care, but only to a point). Obviously new equipment for your infrastructure is valuable spending if it is outdated. And you can always just build tourist attractions if all else fails (we have the biggest phallic symbol in the world! Take that, Egypt!), though obviously as you go down the list returns get smaller and smaller.
Notably, getting the populace to invest in infrastructure with that same money is more or less the same thing, so if you, say, get everyone to buy solar panels for their roofs, its as if you yourself built a giant solar plant. However, you have to make sure that they're actually doing so, otherwise you aren't getting the boons of your investment, and you also have to make sure that they aren't doing it anyway because it is cash-effective - if it is already economically more wise to purchase, say, a hybrid vehicle, incentivizing it is not wise because you're not getting your money's worth.
Economics are very complicated, though, so no one strategy is necessarily a cure all.
Incidentally, one of the WORST things you can do is what the government did by bailing out Wall Street (or the American automakers). Wall Street mostly deals with imaginary money, so a great deal of it was basically set on fire; moreover, for capitalism to function in a manner superior to communism, you have to allow it to function as a meritocracy, which means that you let bad companies (like AIG, GM, Goldman-Sachs, ect.) fail, as it gets rid of them and what is left is more efficient. Some people claimed that this would destroy the economy, but it wouldn't have. Even assuming there was literally no credit to be had, the government could have backed loans itself - it already does so to large banks, and if the banks are so incompetent at financing stuff (as they are) then the government will do a better job of it, and you also have the added benefit of punishing people who caused the mess in the first place.
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Username17
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I would like to report that everyone would agree that the total value of an economy is measured in is consumption. That is, an economy exists as a means to distribute goods and services as well as a set of incentives for people to produce goods and services. So to a first approximation, it is a fairly accurate assessment to say that the sum total of the value of the goods and services purchased is the value of the economy. That analysis falls down a bit in that purely financial services as well as futile cycles of selling objects around without actually using them for anything cost money but have no real value. It is in this way that for the last ten years, the US has enjoyed a false productivity advantage over Europe a statistical anomaly brought upon by very expensive financial circle jerks.MGuy wrote:@.@ Too far above my head but let me (fail to) get this straight. So what is being said here (and this is probably horribly wrong) is that the generally held idea by the big wigs (or at least what they tell people) is that hording money (saving and investing) helps the economy and if you go around spending money then the economy doesn't grow.
But alas, even that flawed but defensible approach to things is not universal in the economics world. The Austrian School seriously does count growth as the amount of wealth earned and not spent. That's insane, but no matter how often or forcefully I attempt to hate them to death, they continue to exist. I blame my lack of force powers.
The Laffer curve crap is actually more insidious. While still destructively wrong, it holds up better under examination. The idea is that rich people getting money in big piles and not spending it is consumption. See, the money they save in banks actually gets lent to entrepreneurs (at interest), and they invest that money into business ventures and they hire people to produce goods and services and those people have money to have goods and services distributed to them and so on and so forth. At least, that's the trickle down claim. Empirically it has been demonstrated time and time again that such tactics don't work, but there are wildly disparate claims as to why.
Personally, I am well convinced that the reasons the trickle down strategies fail are:
- Tying up wealth in people who aren't spending it drives up inflation and discourages investment.
- Charging interest on the money the entrepreneurs are using is a lot like increasing taxes only you don't get any government services out of the deal. Firms spend money servicing their debt, which is money that could have been spent on R&D, capital investment, hiring or training labor, or even just purchasing goods and services from other firms that isn't.
Government money would in almost every case be better spent ether purchasing infrastructure or hiring firms to produce infrastructure than it would be to give it away to people who will put it in banks to potentially be lent to firms that want to produce infrastructure.
-Username17
Not having seen Roy's original claim, I can only say that your characterization of it seems to indicate it was incorrect. The stimulus package is almost sure to show up as economic growth long enough for the recession to end, especially since we're not just spending money, we're spending China's money, at no immediate cost to us. The negative impact of this ridiculous and offensive pile of government handouts and partisan pork shoved down the collective gullet of the taxpayers under claims of "urgency" and "crisis-solving" won't be felt until they're lost in the data, spread out over years.
The government reports that 77.1 billion dollars of the stimulus have been paid out. And since people are starting to tentatively claim that the recession is ending, that makes only about 90% of the stimulus package totally irrelevant to the stated claim of being a stimulus package. Don't get me wrong, some of the investments in that steaming pile are valuable and necessary, just not most of them.
The government reports that 77.1 billion dollars of the stimulus have been paid out. And since people are starting to tentatively claim that the recession is ending, that makes only about 90% of the stimulus package totally irrelevant to the stated claim of being a stimulus package. Don't get me wrong, some of the investments in that steaming pile are valuable and necessary, just not most of them.
I am a little confused by your pissing on the Laffer curve. From what I understand it had little to do with rich / poor and does not depend on supply side economics but instead provides it with an excuse to lower taxes.
The basic argument is that the higher the tax rate, the more incentive there is to either downright cheat or to move into an untracable shadow economy. In the worst case situation, 100% tax, no one would "work" but instead they would probably find ways to barter their services to each other under the table. (This isn't exactly true, any idiot that would impose a 100% tax would also impose vitual slavery and minimum work quotas so revenue would actually come into the system at 100%)
That's all said and good but since this is all based on touchy feely human emotions, the whole equation is not only multi-dimensional but also a differential equation. In other words it's like the lobster pot; raise (or lower) taxes slowly enough and no one will notice; sudden increases and decreases will have a "shock" effect on the system.
The basic argument is that the higher the tax rate, the more incentive there is to either downright cheat or to move into an untracable shadow economy. In the worst case situation, 100% tax, no one would "work" but instead they would probably find ways to barter their services to each other under the table. (This isn't exactly true, any idiot that would impose a 100% tax would also impose vitual slavery and minimum work quotas so revenue would actually come into the system at 100%)
That's all said and good but since this is all based on touchy feely human emotions, the whole equation is not only multi-dimensional but also a differential equation. In other words it's like the lobster pot; raise (or lower) taxes slowly enough and no one will notice; sudden increases and decreases will have a "shock" effect on the system.
The problem with the Laffer Curve isn't that the principle is wrong, it's that it's applied completely incorrectly. It's used to claim lowering taxes will raise government revenue, which it would if you hit a certain point in the taxation scale. The problem is, that point is higher than the taxes of any Western country by a large amount, so using to Laffer Curve anything but a theoretical exercise is ill-conceived at best and down right dishonest in most cases.tzor wrote:I am a little confused by your pissing on the Laffer curve. From what I understand it had little to do with rich / poor and does not depend on supply side economics but instead provides it with an excuse to lower taxes.