By the Numbers: Sorting Out Equality when the Debt Expands

By: FireTag
August 6, 2011

As an insulin-dependent diabetic for more than 47 years, I’ve had to become far more familiar with numbers measuring my medical condition than I’d ever wanted. By my teenage years, I knew what glucose readings meant in regard to how soon and what I had to eat, or how much insulin I needed to inject, or how much I had to tank up with extra carbs before I played sports.

I made mistakes, of course, but when I was young, my body was relatively forgiving of such mistakes, at least in the short term. I still remember going to the local clinic for a fasting blood sugar test one Saturday morning. A few hours later my mother got an urgent call from the doctor warning that my blood sugar was 600% of “normal” and that he feared I was on the verge of diabetic coma. Me? I was outside playing baseball with my friends, none the worse for wear.

By young adulthood, my body wasn’t quite that forgiving, but its lack of forgiveness was suppressed into things going on at the cellular or tissue level. They didn’t show up in new external symptoms, in how my body “felt”, or in the numbers I was able to measure with the standard tests then available. So I continued living the way I had.

I wasn’t intentionally being reckless; I just didn’t have a proper sense of my physical limits, even if the experts knew what the numbers predicted about the future. I had a family to start and prepare their future security. I had callings in small congregations where there were far too few members or priesthood to fulfill standard “tables of organization”, and so required double-hatting. And I was busy in a career trying to save the environment while supplying energy, too.

But that meant a lot of intense nights at the office in order to meet government client deadlines, when I might not start home much before dawn. I’d sleep irregularly, eat irregularly from whatever fast food place was quickest, and could seldom worry about more than guessing from how I felt what my glucose levels were. Regular schedules and diets are essential to keeping diabetes complications from developing, and I felt torn between what I needed to be able to do to fulfill my moral responsibilities and purposes, and what my long-term health required. I kept telling myself that things had to change, but later.

By the time I’d had the disease for twenty years or so,  complications were no longer ignorable, despite the nobility of my explanations/rationalizations. One by one, complications in eyesight, peripheral nerve sensitivity, kidney function, heart function, and central nervous system sleep apnea began to limit my capacity. I had to start prioritizing which responsibilities and goals were to be achieved first and which dreams might never be realized. (That’s a very human process for everyone, I know, but for me middle-age and the loss of a youthful sense of invulnerability came a little early.) You just can’t run blood glucose levels in imbalance indefinitely and not expect to pay the price.

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To me, our political system has entered a new regime in which the nasty consequences of trying to run our government spending in perpetual imbalance with our government revenue for decades can not be ignored any longer. We are caught between our hopes for doing good things now and the dawning realization that our future capabilities to do good are being crippled, whether we like it or not. We know things have to change, but we keep thinking things can change later.

Reuters columnist James Pethokoukis noted, in a July 19 post:

“Three liberal think tanks recently devised budgets to put the U.S. government on a sustainable fiscal path through 2035. Their plans, collectively, called for Washington to collect an average of 23.6 percent of GDP vs. the post-World War II average of 18.5 percent. To put that in further perspective, the highest level of tax revenue that Uncle Sam has ever taken is 20.9 percent in 1944…Even worse, all those tax hikes would still fail to balance the budget. And when you move past 2035, taxes would almost certainly need to go even higher…No wonder Obama rejected his own debt commission last December. It would limit the tax and spending burden to 21 percent of GDP…Just look at Obama’s budget from last February. Over a decade, it never reduces spending to less than 23 percent of GDP and spending is actually higher at the end of the ten-year span than in the middle.”

The inability to lift revenue above 20.9% of GDP in the last two-thirds of a century, despite wide variations in tax rates, is illustrative of our looming difficulties unless we cut spending — even if good things are going to go undone, and good people are not going to be saved. Our debt is rising so rapidly that our great debt debate in the past weeks has only been about how much above $20 trillion our national debt will be by the end of this decade. And even that debate presumes there will not be another recession during the coming decade.

Business Week reported on a June 2011 CBO study that even keeping the debt to GNP ratio of the US to current down-grade-threatening levels throughout the lifetimes of our youngest children would require a combination of spending cuts or revenue increases from the CBO baseline during the next decade on the same order as the entire current debt — or roughly seven times what our government was barely able to negotiate in the debt ceiling crisis. That is how fast our debt disease is eating away at our economy.

Indeed, when the debt ceiling was raised on August 2, the Treasury immediately unwound more than $200 billion in “bookkeeping” borrowing internal to the government and shifted it to external government debt. As a result, the US debt to GDP ratio exceeded 100% for the first time since 1947. Forget about the US rating agencies like S&P; the Chinese rating agency apparently downgraded the US from A+ to A-.

Our moral economic calculus in the United States has been dominated for a generation by considerations of economic efficiency versus economic fairness within the United States. These positions have not always corresponded to the positions of individual parties even when economic issues were the most salient points of public debate — there are economic interests and political interests represented in both major parties — although the Democratic party has more recently become seen the “party of government” and the Republican party as the “party of business”. (Does the GE CEO whose company pays no Federal income tax, but also pushes Obama’s “green agenda” through GE’s media empire and serves as an economic advisor to the President, count as a Republican or a Democrat?) So perhaps it is best to represent the major players (see figure) as “entrepreneurs” who try to get the American public (C) to buy their goods and services, but differ in whether they wish to be paid primarily in economic (A) or political (B) currencies. Within that approximation, the argument for economic equality revolves around the duty to give preference to the marginalized, so that differences which may remain must be justified according to the benefits of such differences to the marginalized.

However, as the debt grew, we gradually reached the point where that three-element approximation of reality is a major distraction from seeing who’s being marginalized and why. Two other players gradually became important, because they are really the people who make the loans possible: the next generation of voters (D), who guarantee either through paying taxes, or through foregoing benefits or consumption, that loans will be repaid; and international capital flows (E) that determine the volume and interest rates of those loans. As the total debt has grown to approach the size of American GDP, a new set of interactions has become critical: financial resources flow from both D and E to the political elites (B), who trade them to voters (C) for further political power in the hope of clearly jumping above (A) in the pre-existing competition between them. If that jump succeeds (and capital flows have long dwarfed the size of national economies, so success is doubtful), the distribution of power between B and C is less equitable, not more.

Further, today’s largest foreign creditor is China. In fact, based on International Monetary Fund data, Mark Steyn reported:

“If the IMF is correct (a big if), China will be the planet’s No. 1 economy by 2016. That means whoever’s elected in November next year will be the last president of the United States to preside over the world’s dominant economic power… The world’s economic superpower not only will be a communist dictatorship with a largely peasant population and legal, political and cultural traditions as alien to its predecessors as possible, but, even more civilizationally startling, it will be, unlike the U.S., Britain and the Dutch and Italians before them, a country that doesn’t even use the Roman alphabet.”

Notice that the new world economic power will not be so because of its high standard of living, but because of the sheer mass of its population. It is not a post modern society, or even a modern society outside of the urban growth centers. It is a rapidly industrializing country that builds bullet trains, but wrecks them because their workers are still trying to master reading the signal systems, and builds ghost cities because the infrastructure doesn’t yet exist for people to occupy them.

When an Asian nation’s population is still industrializing, it is not going to spend its power supporting the social programs of better off nations in the West. Nor is there a compelling egalitarian argument for them to do so. Should they pay for college degrees for American children instead of college degrees for Chinese children? Should they support unemployment or retirement benefits for Americans and Europeans, or lift their own workers into a middle class? They may perhaps follow an “eat European economies first” strategy, but they will get around to charging much higher interest for the American economy as well. And that means that our children and grandchildren will pay for my generation’s consumption.

Again, the egalitarian argument for that transfer is questionable. The social programs which drive government spending are overwhelmingly tilted toward the elderly. As Robert Samuelson wrote in the Washington Post on July 28:

“While 70 percent of respondents in a Pew Research Center poll judged budget deficits a ‘major problem,’ 64 percent rejected higher Medicare premiums and 58 percent opposed gradual increases in Social Security’s retirement age.

“What sustains these contradictions is a mythology holding that, once people hit 65, most become poor. This justifies political dogma among Democrats that resists Social Security or Medicare cuts of even one dollar.

“But the premise is wrong. True, some elderly live hand-to-mouth; many more are comfortable, and some are wealthy. The Kaiser Family Foundation reports the following for Medicare beneficiaries in 2010: 25 percent had savings and retirement accounts averaging $207,000 or more; among homeowners (four-fifths of those 65 and older), three-quarters had equity in their houses averaging $132,000; about 25 percent had incomes exceeding $47,000 (that’s for individuals, and couples would be higher).

….” We have a generation of politicians cowed and controlled by AARP. We need to ask how much today’s programs constitute a genuine “safety net” to protect the vulnerable (which is good) and how much they simply subsidize retirees’ private pleasures.”

Now, I wouldn’t personally make a purely egalitarian moral argument for what’s the right thing to do. I suspect the reason that Darwinian competition is so ubiquitous in the biological, economic, and intellectual realms is that God actually thinks it’s one of His better tools. I would be working harder to increase the size of the pie before I worried about distributing the pieces more equally. And any egalitarian argument I would use would give heavier weight to non-material measures of equality — like equal freedom, equal rights to personal development, equal rights to political power, etc.

But for those who do base their moral world view on the importance of material egalitarianism, I would ask you to consider that the “goodness” of the policies you have championed has been OBE. Just as my physical body could not sustain the mission goals I’d set for it because of the long-term complications building up from an inherent functional imperfection, the American political system also has to adjust its notion of what is good. America can no longer just focus on how economically equitable things are within American society today. Concern for the marginalized can’t stop at the US border; that’s normally the moral argument made in debating US immigration law and its enforcement. Concern for the marginalized must extend to the state of the world we leave to generations yet unborn; that’s normally the moral argument of the environmental movement.

Accordingly, material egalitarians are left with no credible moral or practical argument for converting the wealth of Asia and Africa or the future wealth of America’s poor and middle class children to sustain the political patronage of today’s American political elites. Those who wish to provide more material egalitarianism within America must now lead by example instead of by digging in. They must be willing to “share the sacrifice” by sacrificing the political patronage that goes with getting to spend 24% or more of the US GDP indefinitely instead of getting to spend only 18% of the US GDP indefinitely. They made the promises that they can not keep without taking very un-egalitarian actions and it becomes blindness or hypocrisy to carry on trying to make still more promises while blaming their failures on everyone but themselves.

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115 Responses to By the Numbers: Sorting Out Equality when the Debt Expands

  1. Andrew S. on August 6, 2011 at 10:51 AM

    Wow. What a poignant and personal metaphor. This is really great writing, although I will need to wait until I get to my computer before I even attempt to post more about the substantive matters.

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  2. Ray on August 6, 2011 at 10:58 AM

    My second son was diagnosed with Type I Juvenile Diabetes in 8th Grade, so this post really resonates with me. What an excellent analogy.

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  3. Ethesis (still mobile) on August 6, 2011 at 5:07 PM

    Very well said

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  4. Mormon Heretic on August 6, 2011 at 11:32 PM

    FireTag, great post. I think most people understand that we need to cut spending and raise taxes simultaneously. Supporting only 1 of the options is just bad policy.

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  5. FireTag on August 7, 2011 at 12:21 AM

    But MH, what do you make of the inelasticity of tax REVENUES with tax RATES? Money moves. And when that was tried at state levels in places like New York with millionaire taxes, the millionaires simply moved. That’s what happens on larger scales internationally.

    Also be aware that CBO baselines ASSUME current law. Current law includes the expiration of middle class AND top 2% tax levels at the end of 2012 as well as imposition of all taxes mandated by Obama care AND SO HAVE LARGE TAX INCREASES ALREADY BAKED INTO THE BASELINE. By contrast, about 70% of the spending slowdown (i.e., a slowing of the rise in Federal spending, not cuts in ANYTHING) have been timed to begin in 2017.

    In other words, all current Senators and the next President have insulated themselves from having to inflict any pain on any interest group until AFTER they run for another term of office.

    This is the kind of maneuvering by both political parties that convinces me (and apparently international investors) that they are simply stalling to hang onto patronage powers as long as possible.

    It’s like the supposed Arabian Nights story of the thief brought before the king for execution. The thief pleaded for a stay of execution for a year on the promise that he would teach the king’s favorite horse to sing. When the stay was granted and the thief was returned to prison, another prisoner told him he was crazy. The thief replied: “In a year the king may die, or I may die — or the horse may sing.”

    This post is my plea for sincere, idealistic egalitarians to grasp the patronage games being played in their names, and the moral costs hidden behind those games.

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  6. wonderdog on August 7, 2011 at 5:42 AM

    You fail to note that 51% of citizens pay NO TAXES. So the increasing burden falls on a small group of people who actually produce. They are the ones who should rise up and say “Enough!”

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  7. chanson on August 7, 2011 at 8:26 AM

    I’m amazed that you can write so much about how we need to cut spending without mentioning the elephant that’s eating the budget: the military. Maybe it’s time to start asking ourselves if waging so many wars and maintaining the world’s biggest military is a luxury we simply can’t afford anymore.

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  8. mh on August 7, 2011 at 8:55 AM

    firetag, under bill clinton and newt gingrich, we were running budget surpluses. surely that was helpful for the national debt. it was a combination of tax increases and spending cuts. then under gw bush, he cut taxes and passed the prescription drug benefit, pushing us in the wrong direction again. are you saying that the clinton-gingrich plan was a bad idea?

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  9. FireTag on August 7, 2011 at 9:40 AM

    Chanson:

    What fraction of the Federal budget do you think the military consumes? What fraction do you think it consumed during the cold war? It is often claimed that the wars in Iraq and Afghanistan consumed a trillion dollars over the last decade. OK. Accept that for the sake of argument.

    Federal outlays, depending on how recently the budget outlook has been updated by CBO, will total $3.7-$3.8 trillion in fiscal 2011 ending in September alone and be even LARGER in fiscal 2012. SO NOT HAVING FOUGHT IN EITHER IRAQ OR AFGHANISTAN AT ALL WOULD ONLY BUY US ABOUT 100 DAYS BEFORE WE’D HAVE HIT THE DEBT CEILING ANYWAY.

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  10. Andrew S on August 7, 2011 at 10:05 AM

    wonderdog,

    Federal income taxes aren’t the only taxes people pay.

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  11. FireTag on August 7, 2011 at 10:34 AM

    Chanson:

    Here is a pie chart that shows how entitlements, mostly for the elderly (and as I noted in the OP, not the elderly POOP) have dwarfed defense and other discretionary spending already.

    http://en.wikipedia.org/wiki/File:U.S._Federal_Spending_-_FY_2007.png

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  12. FireTag on August 7, 2011 at 11:53 AM

    MH:

    In the “one picture is worth a thousand words” category, here is a link with graphics showing the revenue as % of GNP that covers the Gingrich-Clinton period of surplus. It still doesn’t get above the revenue inelasticity ceiling. Indeed, as I noted in the OP, we’ve had income tax increases to the point of about 70% rates in the past without breaching that ceiling.

    http://online.wsj.com/article/SB10001424053111903341404576484124282885188.html

    Indeed, the chart shows two other things: spending and revenue are negatively correlated (because both are driven by, and largely do not drive, economic growth) and promises we’ve already made CAN NOT be redeemed by either the political entrepreneurs of the left or right.

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  13. Stan Beale on August 7, 2011 at 3:32 PM

    I have tremendous problems with two of the approaches to the debt situation: the “kill the safety net/make the rich richer” brand of deficit reform and the Why Worry (as performed by Dire Straits) school of economics.

    The second approach of doing nothing is untenable. No one can show a graph or plan where this works. The question then is what do you do

    unfortunately the first group, inhabited by club for growth and many tea party types have a number of ideas that should be anathema to any self respecting Christian, but are often not.
    1. The Gospel of Ealth (minus charity): The Bush tax cuts should be maintained and other taxes like the inheritance and capital gains taxes that effect the wealthy cut. These are the job creators in Asia. We need to give them more money so they can ship out more American jobs. The wealthy are gathering a greater percentage share of American wealth and the poor and middle class less and less,, if we keep it up we will be just another third world banana repubilic. True equality.

    2. The poor should pay taxes or more taxes so they have a greater stake in the economy. To make them really aware lets cut their income by getting rid of EIC, bust Unions, do away with the minimum wage, make them pay higher pension costs, make them buy their own medical insurance and eliminate any type of fair wage legislation. Why we might be able to film Slum Dog Millionaires II in an American city.

    3. The government should not provide help to the poor and needy. We should help them out only through personal charity. Why just think of all the Marriot Centers and Opera Houses that the poor could enjoy (seeing them from a distance, of course).

    4. We need to get rid of government regulation that is hidering economic revovery. Look at what deregulation and weakening regulation did for us: Savings and Loan Fiasco, Enron, mortgage backed securities abuse, Arthur Anderson Accounting and Ponzi schemes have brought us. The truly free market will rule!

    In reality if all that can be produced does not have all people share whatever pain is going to happen, the Why Worry people will win by default

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  14. FireTag on August 7, 2011 at 5:17 PM

    Stan:

    You define correctly a political elite that ignores egalitarian concerns. You lose me when you transpose that category on to a left-right axis.

    Replace “Marriot Centers and Opera Houses that the poor could enjoy (seeing them from a distance, of course)” with “bullet trains and national wildlife refuges that the poor could enjoy (viewing them on their cells phones, of course)” and you haven’t made the world more egalitarian.

    Different dynasties build different styles of pyramids, but the ruling class remains the ruling class.

    http://thefirestillburning.wordpress.com/2010/08/28/pyramids-r-us/

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  15. Mormon Heretic on August 7, 2011 at 7:38 PM

    FireTag, that article is written by Paul Ryan–hardly a non-partisan. I saw the graph showing revenues exceeded spending during the Clinton years, and Pres Bush’s subsequent dismantling of these surpluses. Mr Ryan’s projections of flat revenues seem to be Tea Party ideals, not projections. I’m not sure what this “inelasticity ceiling” you’re referring to, other than Tea Party attempts to only solve this problem through spending cuts.

    Just to be clear, are you saying the only solution is spending cuts? Is there no possibility of tax increases in your mind? Can you tell me why you think the Clinton surpluses were bad?

    I agree heartily with Stan’s analysis.

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  16. Andrew S on August 7, 2011 at 8:00 PM

    MH,

    The problem with tax increases (and this is coming from a guy who is generally in favor of them, but a guy who is studying to be a tax accountant) is that those in the highest tax brackets (the ones we would like to tax more) are most incentivized (and most able) to avoid those taxes. Either by changing the form of income (e.g., from earned income to capital gains) or shifting their income away completely (e.g., income permanently invested overseas by corporations to avoid US taxation). (I suspect that’s part of what FireTag refers to as the inelasticity ceiling.)

    So, raising tax RATES doesn’t necessarily lead to raising tax REVENUE, because income will be shifted to avoid the tax.

    I don’t think that this makes *any* kind of effective tax increase IMPOSSIBLE. But 1) I don’t know how to accomplish this (one of the frustrating things in my tax classes is how, with every talk of a tax increase, we then cover how we would help the client avoid triggering said tax in a *legal* way.) But even if we can come up with some tax increases, that won’t solve everything. Far from it.

    Medicare and Medicaid are the two programs that really aren’t sustainable. The Republicans are kinda funny…they want government cuts, but try to cut the big programs and they talk about “death panels.”

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  17. FireTag on August 7, 2011 at 9:51 PM

    MH:

    What goes into the historical sides of the graph is dead on, not partisan spin, and that was the side of the graph that was relevant to your point about the Clinton era.

    The position of the Tea Party that spending “should” be 18% is derived from the fact, not contested by either party, that historically tax revenues return to that 18% level and people tend to start rioting when debt to GNP ratios start reaching today’s European levels. Andrew just did a good job of explaining plausible reasons why, but even without a comprehensive theory, it sits there like the observation that human temperatures stay about 98.6 F. If you are going to avoid

    The spending projections just come from extending current law beyond the 10 year frame.

    A word about that 10 year frame; administrations of both parties used to game the system by proposing programs that were conveniently paid for only AFTER the next Presidential election, so Congress began insisting that budget projections go out 10 years. Since politicians are slippery, they simply began proposing things that wouldn’t begin to bite until more than 10 years down the road.

    As I mentioned in the comment section of Hawkgrrrl’s post on the debt earlier this week, I saw that entitlement tsunami on charts in the OMB DURING the Clinton administration; it was one of the reasons we were debating Hilarycare back then.

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  18. mh on August 7, 2011 at 10:07 PM

    ok andrew I get it, and I think you have a valid perspective. but please explain how that relates to the clinton surpluses.

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  19. mh on August 7, 2011 at 10:16 PM

    firetag, what is your proposed solution?

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  20. FireTag on August 7, 2011 at 10:27 PM

    MH:

    “Just to be clear, are you saying the only solution is spending cuts? Is there no possibility of tax increases in your mind? Can you tell me why you think the Clinton surpluses were bad?”

    To the contrary, normal Keynesian theory requires that you routinely run surpluses at the peak of each business cycle in order to recharge the government storehouses so they can be spent as countercyclical deficits. (I thought people got that back when Joseph told the Egyptians about the seven fat years to be followed by the seven lean years.)

    More advanced Keynesian treatments argue that the surpluses don’t have to EXACTLY balance the deficits over time because the economy grows during each business cycle, but we’ve let our economy slide into a kind of evil-mutant Keynesian system in which surpluses are about as rare as magnitude 9 earthquakes. We’ve now got experimental confirmation of how far we can get away from balance before things start to fall over, and the evidence comes from multiple nations and multiple states and cities within the US.

    Let me be clear that tax increases and military spending cuts (absent the Mideast blowing up into a war over the oil fields) ARE COMING. What I object to is the standard political handwaving-misdirection to keep us so distracted about HOW the political elites (both Republican and Democrat) spend our wealth that we don’t notice how much of it is being converted into the currency of political patronage power for the elites’ own use.

    We’re worrying about buying “less filling” or “tastes great” when we should be worrying about getting away from the bartenders doling out the drinks.

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  21. Ethesis (still mobile) on August 7, 2011 at 10:29 PM

    this was excellent. Solutions? I would set spending not in flat dollars but by b%tages of revenue. That way spending is always under control.

    The military could easily go to half of what it is. But the rate of griwth in entitlements is a huge issue we have to face without the current fear and other issues.

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  22. FireTag on August 7, 2011 at 10:49 PM

    There WAS no theoretical solution to the problem of depression before Keynes, even if Keynes, and not World War II, was actually what worked. Wars are very good at making people decide they need to spend now more than they’ll need their wealth later, but I don’t think going all Jaredite constitutes much of a solution.

    Having wasted the government’s ability to support demand, we may have to wait for the private sector to do the job — if it can. But we’d better let the private sector have its shot soon, or the “buyer of last resort” will be the Chinese middle class.

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  23. Andrew S on August 7, 2011 at 10:52 PM

    MH,

    The Clinton surpluses are actually an interesting issue. While I believe that most of the taxes in place for the Clinton era were sustainable (and so if we get rid of the Bush tax cuts, for example, then we probably won’t see so much income shifting as to lead to no tax revenue increase), there are definitely other issues at play there.

    As FireTag alluded to the point that government revenue is influenced by the economy…the thing to pay attention to in particular is Social Security holdings. When I mention in every discussion about taxes the fact that federal income tax isn’t the only tax people pay, the FICA taxes (of which social security is the largest percentage) are a big deal. if you’re making money, you’re paying FICA (although FICA is regressive, since there is an upper limit to the income that pays into the social security part of it.)

    So, normally, the contributions for social security are used to pay all the people who draw benefits from social security (that’s what people mean by “pay-as-you-go”). But whenever there are more contributions in the system than go out (which has been nearly every year of social security’s existence), the SS Administration is invests the surplus into the Social Security Trust Fund. You shouldn’t think of this trust fund as being a separate investment fund away from the government. Rather, all the money from Social Security is mixed with everything else — so this trust fund has been overwhelmingly successful in general, paying off many other governmental issues.

    The Clinton era economy was a boon for the SS Trust Fund (Baby Boomers were still working to contribute, not a whole lot of people [demographically speaking] were retiring to take out, and there was more money to be drawn from in general.) So, with the SSA surpluses, they could pay off loose ends so to speak in the rest of the budget.

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  24. roberto on August 8, 2011 at 1:02 AM

    1 Cut spending and waste
    2 Raise taxes on everyone and especially large corporations to paydown debt or default and give everyone a piece of the grand canyon and charge them HOA fees to come and see their property
    3 Tax incentives to return manufacturing here
    4 Tariffs are OK
    5 Flat tax or pay when you buy
    6 Abolish all special interest legislation
    7 True non profit healthcare for everyone
    8 Bye bye social security
    9 Hello self pay national pension plan
    10 War does not relieve economic depression
    11 Rebuild USA infrastructure
    12 Schools instead of prisons
    13 Stop shopping for junk, you have enough already!Save instead
    14 Make my ex-wife Queen of the world because apparently she knows everything and will tell you exactly what to do (aka: she who must be obeyed)

    None of which will happen because politicians care only for their re-election followed by their desire for power and wealth.

    Corporate America dominates those politicians (and you) with donations made possible by the political brothel previously known as the Supreme Court.

    I would lead the uprising but I have to go to work followed by sitting in front of my flat screen TV.

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  25. Andrew S on August 8, 2011 at 1:08 AM

    roberto,

    in point 2 you say “raise taxes on everyone and especially large corporations.”

    When you raise taxes on corporations, they move offshore to avoid those taxes. They “permanently reinvest” profits overseas to avoid US taxation (because even though we have a worldwide taxation system, we don’t touch income permanently reinvested).

    So, how can you ask for both 2 and 3?

    With number 4, enjoy counter tariffs as free trade gives way to a neomercantilism and prices rise for everyone.

    With respect to 5, enjoy implementing an effectively massively regressive tax that will hurt the poor disproportionately.

    With respect to 8, social security still is earning a surplus for the country. It turns out that when you have a special tax for a program, it fares a lot better than other programs your government has. The problems with social security are a demographic crisis.

    …let’s just be glad that you aren’t leading any uprisings any time soon, but feel free to play again next time!

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  26. Geoff - A on August 8, 2011 at 5:28 AM

    From my reading of the above it seems you can not achieve a ballanced budget because you can not expect you wealthy and corporations to pay their share of taxation. They have the resources to avoid it.
    Is it the American way that, you can so you will, and damm the rest-and the country they doubtless claim to love?
    I don’t suppose it would do any good to ask them to pay what they should as a moral/patriotic duty to get the country out of the mess its in, would it? WHY MUST IT BE ACCEPTED THAT THE WEALTHY AND THE CORPORATIONS HAVE NO MORAL/PATRIOTIC BACKBONE?

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  27. jmb275 on August 8, 2011 at 7:47 AM

    I have a couple of ideas.

    1. At the risk of putting Andrew S out of a job, I would support a flat tax rate. Simple, no loop holes, etc. To help the poor where appropriate, I would support tax credits to those making under a certain amount of money per year.

    2. I think helping people is important. I don’t think gov’t is the way to do it (or at least not our gov’t). I’ve seen the implementations of our goals to help the poor and they’re poorly executed generally. Further, I do think private charities COULD fill that need and would do a better job of it. Shoot, just get the “Biebs,” Katy Perry, Bruno Mars, and a few others together for ::fill in your favorite cause:: and you’d raise millions instantly!!

    3. Sorry, but we need engineers in Washington. Engineers are the world’s best problem solvers. The topic is generally irrelevant, engineers can figure out the details, optimize, and squeeze out just about every inefficiency. Plus they’re painfully honest and way too nerdy to care about power. Pay them with copies of Star Wars on Blu-Ray (coming out soon BTW) and they’ll be happy!

    4. I don’t understand how someone looks at the current situation and can think that more regulation will solve problems. I am convinced such people have never actually tried to control a real physical system. Guess what, when you push somewhere on a physical system, something else pops out! The trick is to push in the BEST places. But our current bickering, stagnant, and otherwise ridiculous system in Washington is clearly incapable of a frequency of execution anywhere near the appropriate rate to control something as dynamically changing as the economy. I think some regulation is appropriate (don’t want the wheels to fall off) but we have no mechanism for creating, enforcing, or adjusting appropriate regulation. One more reason to put engineers in Washington!

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  28. FireTag on August 8, 2011 at 8:40 AM

    jmb:

    Love 3, but even I understand that you can’t eat Blu-Rays.

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  29. Andrew S on August 8, 2011 at 9:28 AM

    26,

    Geoff – A, basically.

    I’m sure you could make a system where everything would be balanced, but it would be very very difficult.

    The thing to realize is that even though the Supreme Court has given corporations some “personhood” rights, corporations aren’t really citizens of the United States per se. When we talk about “transnational” or “multinational” corporations, that’s extremely important. It must be accepted that the corporations have no patriotic backbone because they were never particularly tied to this country to begin with. (For wealthy individuals, it’s a bit different. Most wealthy individuals don’t leave the country to avoid taxation…they just do other things. But for a corporation, that’s exactly what a lot of offshoring is about. It’s not just about cheaper labor. Tax is a huge item on the income statement, so reducing tax improves profits.)

    There are other issues. You talk about a “moral/patriotic” duty to get the country out of its shape. But the American public mostly doesn’t see higher taxes as its public duty. We aren’t Europe. Tax avoidance (as opposed to tax evasion…the two are very different) is legal and encouraged by the government (nominally to incentivize certain behaviors…it just is broken).

    I like to turn to a quote from appellate court judge Learned Hand (what an awesome name, BTW) on this issue:

    Anyone may arrange his affairs so that his taxes shall be as low as
    possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.

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  30. Andrew S on August 8, 2011 at 9:28 AM

    re 29

    jmb275,

    1) While it’s uncertain that any tax system would put tax accountants out of a job (just force us to be more creative with what appear to be less options), I really do agree that one thing that would have to be done is to eliminate loop holes. The flat tax system is a totally different issue.

    The major issues with a flat tax are: what should be counted as income? A lot of forms of money transferred can be redefined as a pass-through of otherwise taxed income. (This is the big argument for taxing stock dividends differently or whatever…it’s already been taxed before [as corporate profits], so taxing it again is “double taxation.”) But if you start putting in exceptions to the flat rule, then bam, there become preferential income types.

    The second problem is that taxes are not just used for revenue. They are used to encourage and discourage certain types of behavior. Most of our loopholes got that way because some tax incentive isn’t so tightly defined as not to be abused.

    Also, it’s really interesting that to make the flat tax desirable at all, you have to get rid of the flat tax. For example, by giving tax credits to people who make under a certain amount per year, you change their effective tax rate so that the flat tax once again seeks progressivity.

    2) Protip: there are many tax incentives and deductions designed solely around helping private groups do things exactly so the government doesn’t have to do it. Charitable contributions deductions is a big example of this. Charitable contributions systems are also one of the most easily abusable systems for rich folks to control their income tax, the estate tax when they die, etc., (This is a point that depresses me and intrigues me. There are really big projects that have developed using pretty neat trust systems…but they just *happen* to have the effect of shielding away a lot of wealth and income. What saints!)

    3) It’s actually interesting how the political class has developed…one of my professors had a lecture on how it happened, but I didn’t internalize it enough to repost it in a single comment. It’s interesting to compare a country like America (mostly lawyer legislators) with a country like China (who does have mostly engineers in their legislature…although the demographics are changing somewhat.) For whatever it’s worth, China’s engineers are more effective than America’s lawyers. Maybe we should just scrap this whole republican or democratic model of representation as well? ;)

    4) This is actually a bigger argument for scrapping our republican model of representation. People in Congress bicker because the system is designed for that. So if you want to get rid of “regulation” and particular the regulations on the “ridiculous system in Washington,” one regulation you can get rid of are the various checks and balances on the government.

    It turns out authoritarian states get legislature passed very quickly. And China’s engineers tend to pass good laws (minus ones that have to deal with…you know…engineering safety. Because the cost/benefit analysis just didn’t pan out, y’know?)

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  31. jmb275 on August 8, 2011 at 11:50 AM

    Great comments Andrew.

    I really do agree that one thing that would have to be done is to eliminate loop holes.

    Yes, this would be the point, but I completely understand and agree with your assessment that it is more nuanced than it appears.

    They are used to encourage and discourage certain types of behavior. Most of our loopholes got that way because some tax incentive isn’t so tightly defined as not to be abused.

    Yeah, agreed. I think this gets into the role of the gov’t. Is it the gov’t's job to care about how much energy my furnace consumes? I can see arguments on both sides. At the end of the day, I think I would prefer a gov’t that was less involved in providing gov’t credits for pursuing ethically/morally upright behaviors (that it deems appropriate). Despite the financial benefits, corporations use their charity to win public favor – as it should be.

    compare a country like America (mostly lawyer legislators) with a country like China (who does have mostly engineers in their legislature…although the demographics are changing somewhat.) For whatever it’s worth, China’s engineers are more effective than America’s lawyers.

    The real frustration for me isn’t so much that America has lawyers (career politicians) as legislators, but the public distrust and lack of confidence in anyone who doesn’t have those particular, and yet clearly not totally effective, skills. This makes it impossible for an engineer to ever make it in a public vote.

    This is actually a bigger argument for scrapping our republican model of representation. People in Congress bicker because the system is designed for that. So if you want to get rid of “regulation” and particular the regulations on the “ridiculous system in Washington,” one regulation you can get rid of are the various checks and balances on the government.

    Well, sort of. You’re right, the system is designed to be slow to change. And this worked before we could tweet our speculations on the price of oil while enjoying a Starbucks morning mocha. I think, rather than scrapping the republican model of gov’t. it calls for a redefinition of the roles of gov’t (supporting my statement above). Perhaps republican gov’t is NOT the right tool for addressing regulation in our economy (hint: it’s not). But it is the right tool for many other things. The task is to find the right tool for the job. Once again, the main specialty of engineers worldwide :-) !!!! We could have an economic dictator of sorts, or we could rely more on real markets (not Wall street). As an example, we clearly have the technology to accept real-time feedback from the American people about virtually every aspect of their lives (even voluntarily). My point is, there are creative solutions to many of these problems but we’ll never get there while we believe that our current gov’t is needed to solve all our problems.

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  32. Andrew S. on August 8, 2011 at 1:01 PM

    Jmb,

    With respect to things like furnace energy consumption, the issue often plays onto other matters. For example, environmental externalities often aren’t handled well by the markets, so the gov’t gets caught with the bag. And any time any issue spills over into health –where the gov’t has a definite interest to maintain the health of its citizens for economic reasons, that’s going to create spillover interest for the gov’t. It’s not purely a moral or ethical case, then.

    As to engineers ot winning elections, it’s not because voters don’t trust any nonlawyers. There are always people pining for nonpolitical types to enter the system. It’s ore an issue of the lower connectedness of engineers elsewhere, so they don’t get the political and financial capital to run successful national campaigns. On local and state levels, where the political culture is weaker, you don’t see as much of a bias toward “career politicians. ”

    And I mean… Talkingabout public trust… It’s not that we trust the guys we currently have!

    Your idea of tweaking the republican form of gov’t to where it works best is dangerous (deciding where it’s good and where it isn’t is hairy enough.)

    But I also think ere is some naivete. Wall street IS a real market. Real markets ARE ugly. Real markets do come up with crafty dubious economic arrangements for the gain of particular groups. To be sure, currently, they work with gov’t to reach eir goals, but unrestricted they would do much and more of the same.

    This was typed on an onscreen keyboard, so apologies for weirdness.

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  33. jmb275 on August 8, 2011 at 2:13 PM

    I should have been more clear in my wording (I’ve gotten sloppy lately).

    Wall street IS a real market. Real markets ARE ugly.

    What I had in mind was markets that really utilize “the wisdom of the crowds.” That is to say, why would Apple stock be worth more/less than Microsoft stock? Currently, it’s because Wall street says so (via its market mechanisms which includes many factors). But this market doesn’t really incorporate all the information that it could. I think of Wall street like the electoral college of the economic system. It’s not actually a popular vote, more some pseudo-representation which really (at least to me given modern technology) feels out-dated.

    It’s not purely a moral or ethical case, then.

    Again, my sloppiness. I hope you got my drift. Are all the things our gov’t provides tax incentives for really in the proper domain in the gov’t? Is there nothing to be said for encouragement/discouragement without regulation or tax incentives? The point I’m trying to make is that I think there are some areas where we may have overstepped the bounds.

    To be sure, currently, they work with gov’t to reach eir goals, but unrestricted they would do much and more of the same.

    Ah, but how do you separate what Wall street does from the incentives or disincentives Washington provides? It’s not clear to me that “unrestricted they would do much and more of the same.” I do think many are greedy and would steal and plunder, but I also the market would be more authentic, harsher, and less flexible.

    As usual, I confess my ignorance on the full details of this topic. I’m interested in the views of someone who knows more about it.

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  34. Andrew S. on August 8, 2011 at 3:30 PM

    I’m kinda losing you here. (This will be a long comment…)

    Let’s parse out the idea of a “real market” being more like “the wisdom of the crowds.” Firstly, this seems counter to your idea of an “engineered political system” (although I am aware that your political position can be of different thrusts than your economic position…but still. One area, you want “wisdom of the crowds.” Another, you want a specialized elite to decide things.)

    However, the bigger issue is…how do you think Wall Street manages NOT to include the Wisdom of the Crowds (and in fact, it includes it to problematic extents, as history has shown)?

    Let me try to break it down. You ask why Apple stock would be worth more than Microsoft stock and say that it’s because “Wall Street” say so.

    BUT WHAT DOES THIS MEAN?

    Stock prices go up or down based on the demand and confidence in the company for which the stock represents. So the market (yes, the REAL market) affects the valuation of a company by voting with their wallets. That’s not separate from Wall Street; that IS Wall Street.

    What does Wall Street do that could perhaps be considered “distinct” from “the market”? Maybe you are talking about the people who streamline the information. Most people aren’t financially savvy. Most people aren’t investment brokers. Most people aren’t investment bankers. They work through intermediaries to engage the capital markets. Wall Street is just a glorified name for the American system of doing it…not some kind of privileged anti-democratic (???) group.

    So, I’d be very interested in what you think Wall Street’s “mechanisms which include many factors” are, because I just don’t see how you can talk about Wall Street and then ignore that the “real market” is critical in Wall Street.

    Maybe what you’re trying to get at is that the people who participate in stocks to begin with are a select number of people. After all, you have to have money to invest. If you don’t, you will probably be in the market indirectly through an institution (401K, or something similar.) Maybe you want to expand direct participation? That, however, still isn’t at odds with Wall Street, which is basically the process by which information is disseminated.

    Maybe you protest the super-huge investment banks. Yes, you could definitely argue they are more elite and less “wisdom-of-crowds.” but the fact is the “crowd” doesn’t have the money to become a crowdsourced investment bank. And if you dislike governmental gridlock, imagine how it would be to crowdsource those capital market decisions: who gets how much money?

    I think your electoral college example is good for a point of discussion in some ways (but bad in other ways), if we look at the philosophical basis of the EC…the idea is that the people are dumb, cannot totally be trusted, are prone to temporary crazes and manias, etc.,

    I would say that to the extent we can separate “the wisdom of the crowds” from “Wall Street” (which, as I’ve mentioned is already hard to do…this distinction just doesn’t really bear out in reality in the ways you might think it does), the problem is that in the economic sphere, the crowds *aren’t* that wise. And economic fads are what we call bubbles. They stink when they burst.

    Most people are NOT financially literate. The problem with Wall Street is not that Wall Street guys (whomever they are) are illiterate, but that with their literacy, they are writing great epics, that later crash under their own weight.

    This even spills over to the Electoral College. We could get rid of the electoral college. We have the technology, so to speak. But we don’t, because for the most part, we still recognize that the popular vote will lead to dangerous “tyrannies of the majority” that we find more politically inconvenient than the rare occasion when the popular candidate for president doesn’t win electorally. Maybe we’ll decide differently in the future…but maybe not.

    But I’ll move on.

    Are all the things our gov’t provides tax incentives for really in the proper domain in the gov’t?

    This is a political question. And consistently, our political system has answered: “yes.” You can’t look away from the political system to find some kind of “external, grown from the pure spring” answer as to what the “proper” domain of government is. You *can* support political candidates who have a different opinion…but most candidates, regardless of party, ACT to increase or maintain the expansion of the roles of government over time.

    Is there nothing to be said for encouragement/discouragement without regulation or tax incentives? The point I’m trying to make is that I think there are some areas where we may have overstepped the bounds.

    Tell me how you’d (qua government) do it effectively, and then maybe there’ll be something said about it. ;) You can make the point of overstepping bounds, but there isn’t an objective answer. You can’t appeal to the Constitution, or to political theory, or to economic theory, or to any thing and come with one consistent, solid, incorrigible argument as to the proper bounds here. All you can do is try to make a politically convincing argument, and hope you can build a coalition. Good luck with that, given most things in the system are against you and that.

    Now, coming back to Wall Street…

    …how do you separate what Wall street does from the incentives or disincentives Washington provides? It’s not clear to me that “unrestricted they would do much and more of the same.” I do think many are greedy and would steal and plunder, but I also the market would be more authentic, harsher, and less flexible.

    I think one thing to realize is that any economic agent has some motives from the get-go. So, “Wall Street,” from the get go has the motivation to “increase shareholder value” (and this is another reason why it doesn’t make a lot of sense to separate Wall Street from “the real market”…who do you think the shareholders are?) Put simply, Wall Street wants to make money. And they want to make money at the lowest cost, so they can keep more of it.

    What the incentives and disincentives that Washington provides do is temper how much money can be made, in what forms, from what activities, to whom, etc., etc., So, the basic goals of companies isn’t completely thwarted by government regulation, but it is tweaked in ways that the political system finds beneficial to society or whomever.

    So, if we get rid of regulations, what happens is Wall Street still tries to make money, but they do so with more options. But some of the options that increase shareholder value more harm other aspects…that’s what we mean by negative externalities. Since Wall Street is making money and these negative externalities don’t directly reflect into that (and that’s the problem with free markets — negative externalities don’t directly impact), they will do much and more of these things.

    You say that “many are greedy and would steal and plunder.” But I’m saying, without laws, there is no such idea as what stealing and plunder is. So to those people, they aren’t “greedy” or “stealing” or “plundering.” They are just getting what they can get most efficiently.

    You respond by saying the market would be more authentic, harsher, and less flexible. But what do these things mean? I think what these mean is that to the extent that an action increases shareholder value at the lowest cost, the market will pursue these things. That’s authentic, will punish those who do not pursue those ends (for example, people who pursue non-profit kinds of things don’t make as much money. The market would punish these things by not providing them additional capital [because hey, if I give you money, I want you to give me the best return on my investment!] if not for government to encourage these things instead.)

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  35. EmberRising on August 8, 2011 at 4:58 PM

    What an interesting discussion. As I have read the comments what comes to mind is that we (the government and people, not “we” as in the comment authors on this blog) aren’t arguing about the real issue. Both left and right wings of the debate are trying to get a better quality of life or to get more stuff. They differ on what stuff they want and what regulations they want and how they define better quality of life. In a system based on liberty, both sides should have avenues to pursue those things that improve their quality of life (the whole pursuit of happiness part of the nation’s history). Freedom means that you can live your life the way that you choose to and I can live my life differently if I choose to. If you want to spend most of your paycheck on shoes, but you can still cover your living expenses, that’s fine. Maybe I prefer to have a collection of stamps. We can all be asked to chip in to take care of things that are common. The problem is, how much should I be able to get you to chip in to what is common and then I be able to decide what happens to the money? Or, how much control should you have over the common money? We have to negotiate those things. As long as the system seeks to balance the power, then one side can’t change the rules so much as to keep the otherside continually disadvantaged.

    The problem is that in this situation the system is getting out of balance AND we’re making decisions now that bind future generations who aren’t able to participate in the discussion.

    If I want to take out a loan and get a friend to cosign to make a purchase on a car that we both want to share. No problem. But should I be able to take out that loan and have a child who I don’t know have to pay for the car? Doesn’t seem like freedom to me.

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  36. FireTag on August 8, 2011 at 10:40 PM

    I’ve been away all afternoon — ironically, in light of the post lead in, because the patient in front of me at the doc’s office was undergoing kidney failure and had to be sent to the hospital, throwing other appointments out of whack — and have really appreciated the depth and civility of the discussion in my absence.

    Andrew:

    I think the characterization you make about the economic system applies similarly to the government, at least as I’ve seen it operate up close. The difference I’m trying to highlight in this post is that the political entrepreneurs compete primarily to be paid in POLITICAL PATRONAGE POWER. To use your term, they are just getting what they can most efficiently. There is then no moral egalitarian argument that says getting paid in patronage is noble, but getting paid in money is not.

    The egalitarians are the ones who are NOT just compassionate if the actions put them farther above others. Nothing wrong with being an entrepreneur instead of an egalitarian IMO — but don’t claim to be the latter and behave like the former.

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  37. Mike S on August 9, 2011 at 8:27 AM

    The American people can rally. They have shown that in times of war, they can all embrace a sense of shared sacrifice to achieve a common good. But for this to work, it has to seem as if we are all in this together.

    - Rich aren’t going to pay more income tax when half of the country don’t pay any income tax. Yet the argument of the rich is lost when the people responsible for managing the capital are getting paid millions in bonuses for fixing the mess they created.

    - Just like rationing sugar or gas or anything else, health care necessarily must be rationed. People need to accept that some things just don’t make sense to a system as a whole: ie. fixing a fractured hip in grandma who has Alzheimers; spending $60,000 on a course of chemotherapy when it extends life, in average, 2 months; etc. Other countries don’t pay for many of the things that we expect in this country. If we don’t get them, we sue.

    - The average new house in the US in 2009 was 2700 sq ft. The average new house in England in 2009 was less than 1000. And the rest of Europe was between 1000-1400. Will we accept smaller houses?

    And so on. As long as someone else is “getting”, people want theirs. Until everyone sacrifices, no one will sacrifice. We all need to be willing to pay more and receive less. Until we are to that point, all this talk from our leaders means nothing.

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  38. jmb275 on August 9, 2011 at 2:45 PM

    Sorry Andrew S, I had to go home yesterday and didn’t have time to respond (you know, kids and all that).

    I think progress is being made even if it’s in understanding each other on this.

    One area, you want “wisdom of the crowds.” Another, you want a specialized elite to decide things.

    Perhaps, but not necessarily. I said our system didn’t have high enough frequency of decision making processes. In comment #30 you indicated that a dictatorship could make decisions fast enough. My whole entire point is that we are sufficiently advanced technologically that we could sample the “market” much quicker thereby enabling much faster rates on decision making. We DON’T need a dictator and we could still get things done quickly. But we would have to revamp some things. Also, keep in mind this is an academic exercise. I haven’t thought through the details or anything.

    Maybe what you’re trying to get at is that the people who participate in stocks to begin with are a select number of people.

    Yes, that’s exactly what I’m saying. What is the worth of a company? As you said, people vote with their money. Certainly this includes partial information about how much product a company moves (demand) and it may represent some sort of consensus about public perception of a company. But still, it’s a very small “crowd” to select wisdom from.

    That, however, still isn’t at odds with Wall Street, which is basically the process by which information is disseminated.

    Sorry, I’m not bashing Wall Street, just saying it’s a limited model of for determining the worth of our commodities. It’s also not a “free” market (which is also part of what I had in mind when I said it wasn’t “real”). It’s heavily regulated. I have a lot of confidence in free markets (including their cruelty as you mentioned). I DO NOT have a lot of confidence in markets masquerading as free but are really burdened with the wrong incentives. I’m not aware of any truly “free” markets (though some are close) so again it’s really an academic exercise. My solution is to propose a mechanism that uses a larger sampling population (crowd) to determine the “wisdom” from it at a much faster rate that can enable quick decision making. Now perhaps this would involve some sort of elite committee. But I think we could engineer some checks and balances for such a committee so as to avoid the pitfalls of an oligarchy.

    the idea is that the people are dumb, cannot totally be trusted, are prone to temporary crazes and manias, etc.

    And see, this I don’t buy. I don’t think people are dumb if the group is large enough and diverse enough – that’s the point of democracy. It’s a small, homogeneous group that one needs to worry about. I read a book on this by James Suroweiki. Very well done.

    And economic fads are what we call bubbles. They stink when they burst.

    Yes, and they’re usually not a function of the market itself (at least not the kind of big bubbles we get). For example, one can make a very strong case that it was gov’t incentives that created the housing bubble. If the wisdom a large diverse crowd was used to create legislation, and more appropriately allocate resources to various companies my hypothesis is that the system would be more stable and be less prone to the kinds of problems we currently have.

    This even spills over to the Electoral College. We could get rid of the electoral college. We have the technology, so to speak. But we don’t, because for the most part, we still recognize that the popular vote will lead to dangerous “tyrannies of the majority”

    Huh? Are you arguing that the EC prevents tyrannies of the majority when it is evenly split between the two largest factions in the U.S.? I find that hard to believe. The tyrannies of the majority are kept in check primarily by the judicial system – that’s the way it was designed and it has been very successful in that regard.

    Tell me how you’d (qua government) do it effectively, and then maybe there’ll be something said about it. You can make the point of overstepping bounds, but there isn’t an objective answer. You can’t appeal to the Constitution, or to political theory, or to economic theory, or to any thing and come with one consistent, solid, incorrigible argument as to the proper bounds here.

    Sure, you’re absolutely right. I was merely opining that we may have overstepped our bounds. HOWEVER, I still claim that with some engineering expertise we could creatively solve many of the problems we have that are currently in the domain of legislation. If every moral/ethical question NEEDS to be answered by gov’t the natural answer to your implication (qua gov’t) then what are we waiting for? Let’s just regulate everything. The reality is, people DON’T need everything regulated. We regulate as soon as things become a problem (that’s a natural reaction to any system). The problem is those things are never relinquished.

    We don’t have a dynamically adaptive controller that reinvents itself quickly to handle rapidly changing dynamics of our country. But we could invent one! But we won’t until we decide that the gov’t should relinquish some of its control (something no gov’t ever does well).

    What the incentives and disincentives that Washington provides do is temper how much money can be made…tweaked in ways that the political system finds beneficial to society or whomever.

    Exactly. I agree. My point is, they don’t execute it well, don’t plan it well, don’t have a mechanism of examining unintended consequences, and they don’t do it quick enough to have the regulation do more good than harm. My belief is that technology is not being utilized as it could be to solve these problems, and that the current model of –
    1. problem
    2. washington bickers and finally passes a law
    3. law may or may not work (does anyone track the consequences of each piece of legislation)?
    4. many years later we have serious problems often resulting from compounded years of neglect and legislation that doesn’t fit the current climate.
    is not a good model!

    So, if we get rid of regulations, what happens is Wall Street still tries to make money, but they do so with more options.

    Woah! hold on! I never ever implied or said we should do away with regulations. I have complained about them, their implementation, the unintended consequences, etc. but I don’t think we should get rid of them. But they should be more fluid, more dynamic, and frequently changed and updated. There is no system in place to do that – and that’s my whole point. In engineering parlance, we are asking a controller designed 200+ years ago to properly control a physical system that is orders of magnitude more complex.

    I hope something I’ve said made sense here. I typed this quickly so perhaps not.

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  39. Andrew S on August 9, 2011 at 3:42 PM

    jmb,

    I’ll try to reduce my comment by paraphasing my quotation of your points.

    Re: small “crowd” to select wisdom from.

    It seems the way to solve you problem would be to get more people to buy stocks. (P.S., many people indirectly have stock ownership through institutions…pensions, 401Ks, mutual funds. So the “crowd” still is quite large.)

    Re: Wall Street is a limited model.

    I still don’t think you really get the scope of Wall Street. Or maybe I just don’t understand what you think greater participation would be. Wall Street isn’t limited in information — that’s why literally ANY world event and ANY company event can cause stock prices to change. It’s not as if the profit numbers come out and that’s the only thing that can affect demand…so I don’t see how you can say things are limited.

    I don’t know what you’re trying to get at with the “free market,” either. Do you understand *why* Wall Street is regulated? Wall Street is regulated to prevent insider trading. Wall Street is regulated to prevent blatant misinformation within financial statements. Wall Street is regulated to prevent consumer panics from collapsing the entire system. (All of these things have happened…to disastrous effect…leading TO the regulations in place.) I don’t know why the hell you have confidence in the harshness of free markets when if you know even BASIC history, you should know that “harsh free markets” is the difference between a “great depression” and a mere dip in the stock market. WHY do you WANT a great depression??? Why do you idolize the forces that lead to these things (and the “harshness” that characterizes such)? Honestly, I don’t want to be mean, but it either sounds like you’re naive, so you just aren’t aware that we know exactly what free market harshness is like…or you’re sadistic, so you know exactly what it entails, but somehow want it anyway. I don’t know how to explain it.

    I’m not saying that the market is “correctly” incentivized. But I do know that the “free market” doesn’t lead to anything I would want to call “correct” incentivization.

    Re: People aren’t dumb if the group is large enough and diverse enough.

    I understand that yes, a diverse/larger group will avoid some of the pitfalls that homogeneous groups have (e.g., groupthink), but there are still problems with crowd wisdom (such as group polarization/risky shift. When you have heterogeneous groups competing against each other, they team up together and STILL polarize…so you have several strong factions.)

    The problem with democracy (at least our American) one is…we have really poor participation. Voter turnout is sad. And I mean, if you want to talk about regulation and information flow, think of all the misinformation that gets out in the political process.

    Re: Bubbles

    Tulip mania was not caused by the government. The Roaring Twenties and Black Tuesday were not caused by the government. The Dot Com Boom (and bust) were not caused by the government. There are a lot of reasons to speculate why bubbles happen, but government regulation vs. deregulation doesn’t eliminate them. I think that if a more diverse crowd were “in charge here” (this kinda impinges on the role of the Federal Reserve too), then we would face more extremes, not less. That’s how “harshness” plays out.

    Much of our regulation is about mitigation and smoothing. That’s why, even with the housing crisis, when it burst, people for free markets wanted us to let it go as far as it could. They didn’t want smoothness or stability, but more extremity (with the hope that once things “settled,” then it would happen again.)

    Re: EC

    Truly, something like the judiciary is the largest bulwark against tyrannies of the majority, but ECs certainly provide a middleman between raw popular vote and the presidency. The dominance of two parties is actually supported by our single-member districting (“winner takes all”) system.

    Re: Engineering Expertise.

    Again, you seem to be arguing quite against what you just were arguing. Engineering expertise is not democratic. In fact, one big weakness of crowds is their tendency to override expert opinion. Experts…like engineers. Also, talking about what the government NEEDS to do is still missing the point. America’s government is not defined by what it NEEDS to do. We don’t have a definition of what government NEEDS to do. (We have conjectures, but they don’t adequately explain what governments actually do.)

    Governments do what they (through however they get power) want to do. The people want the government to do more, it turns out. (Usually in response to a problem, as you point out.)

    I don’t see how you would invent a dynamically adaptive controller that would reinvent itself quickly. We are really good at a controller that grows and expands in spurts, but have never really figured out one that grows to meet the occasion, and then willingly gives up the extra power when the occasion is “over.”

    Re: they don’t execute it well, don’t plan it well, etc., etc.,

    I do not disagree here. Absolutely not. Even The cycle you describe is EXACTLY how accounting changes work, and so I’m very familiar with the brokenness there. The issue is the market doesn’t fix things either. I would love if there were market solutions to problems as quick and efficient as the market creates those problems. Would love it.

    But that doesn’t happen. The market tends overwhelmingly to one directly (creating and exploiting those problem points.) Because it’s more directly lucrative that way. Regulations aren’t fun. They aren’t profit-drivers.

    You want to engineer a better system. But no one in the entire planet has figured out how to do that. (And it’s not for lack of trying. We have over 190 national-level governments to be “labs” for this…not to mention thousands more state or sub-national governments as labs. No one has come up with a better solution, and in many ways, “better” is subjective anyway because it depends on what you value and what you’re measuring.)

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  40. Geoff - A on August 9, 2011 at 11:34 PM

    Andrew S 29 Seem to be arguing that no one will pay more than they are legally required and that American tax rates are lower than other places, especially europe.

    US has one of the highest corporate tax rates in the world at 39% doesn’t it compared to Germany And Australia at 30%, Switzerland at 21% etc.

    Germany has an interesting system where they send you a statement with a breakdown ie. 5% education, 10Social security, 5% defence etc. Tha benifit of this is that during an election or crisis the Government can say we need to rebuild these hospitals so we propose increasing the health section by 1% for 3 years do you agree to this. Australia has a medicare levy which helps pay for medicare.
    Would the American people agree to a get out of debt levy if the Gov presented a plan to get the country out of debt, showed where it would make savings and asked for support?

    This may require bypartisan support and after the last effort that doesn’t look likely.
    There seems to be a concept in American culture that free enterprise is more efficient than government. Do you realise you spend more per capita of GDP than any other country on health. And many of them provide universal healthcare.

    Mike S 37 again the agreement to reduce consumption would require some kind of concensus or political leadership/bipartisanship which doesn’t seem likely at present. But I agree it would be helpful.

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  41. Andrew S on August 9, 2011 at 11:39 PM

    re 40:

    Geoff – A,

    Remember that marginal tax rates aren’t the same as effective tax rates. Corporations with marginal tax rates of 35% do not pay nearly that much, because thy are also legally enabled to engage in whatever deductions and income shielding techniques are allowed by law.

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  42. Geoff - A on August 10, 2011 at 10:49 AM

    Andrew S The inference there is that although you have the highest corporate tax rate you also have more loop holes, which brings the effective rate down to compare or even better other countries.

    So to increase the effective tax rate the government doesn’t have to increase the tax rate, all it has to do is close off some of the loopholes which would be less problematic politically, wouldn’t it?

    Does the same apply to personal tax? Or is the general belief that US is a low tax country a delusion?

    How does this idea I see on LDS blogs that taxation is theft, rather than how democratic countries fund their activities, fit into the solution?

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  43. Andrew S on August 10, 2011 at 11:00 AM

    42:

    Geoff – A,

    Essentially, that’s right. However, there are some “loopholes” you can’t easily close. For example, permanently reinvesting income overseas is a loophole that you *could* close. But having companies simply relocate offshore and center their headquarters in foreign jurisdictions is not as easy a loophole to fix (and not a popular thing for legislators to encourage when instead we’re trying to keep jobs in the country.)

    Secondly, loopholes are politically popular. I mean, for all the bad parts of loopholes that I’m talking about, the fact is that these things came about because of what was well-intended legislation. So to say “close off some loopholes which would be less problematic politically” ignores the fact that if you tried to close off loopholes, you’d have tons of people screaming bloody murder against it.

    The same thing applies to personal taxation but to a lesser extent usually, and your suggestion would be more effective with personal tax (since fewer people are willing to abandon their citizenship to avoid taxation. There are more benefits for personal citizenship that keep people tied here that don’t necessarily apply to corporations.)

    The attitudinal issue (thinking tax is theft) doesn’t really help matters. It seems that people who think like that are more often in favor of reducing taxes and (nominally) reducing spending. (In actuality, that second part doesn’t happen.)

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  44. FireTag on August 10, 2011 at 3:01 PM

    Geoff:

    The American political system THRIVES on hiding the costs of things, rather than making them transparent. The link in comment 11 is about as close as we come to a breakdown, unless you want to watch whistleblower reports on an individual program basis.

    The Feds in particular are great at regulating mandates or supplying initial grants, that ultimately require state and local governments to pick up the operating costs that are not affordable at those levels of government. Similarly, taxes and fees are imposed on business, which COLLECTS them from customers. Similarly, personal income, SS, or medical taxes are withheld from paychecks in advance, and tax forms are so complex that anything other than a straight wage earner must hire an accountant to do the forms. (We had a minor scandal here a couple of years ago when it became apparent that the Secretary of the Treasury made an (we hope, innocent) error of $39,000 on his own return.

    There was a man-on-the-street interview the other day that captures the lack of understanding well:

    Interviewer: “What do you think of the national debt problem?”

    Man: “I know it’s about $14 billion dollars.” (And getting the 14 right showed the guy was one of the ones paying some attention.)

    Interviewer: “Fourteen trillion.”

    Man: “Damm!”

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  45. FireTag on August 10, 2011 at 3:12 PM

    JMB:

    I am a little doubtful about better engineering the market to absorb information more “correctly”. Part of the problem is that programmed trading in economies as large as ours can move markets a couple of percent in seconds, and being a small investor in that environment is like trying to go in hand-to-hand combat with a US Marine.

    If the problem is lack of confidence, we don’t want to turn over even more control to automated systems. We don’t understand economics as well as we understand aerodynamics, so we can’t really design an autopilot that won’t crash.

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  46. FireTag on August 10, 2011 at 3:24 PM

    Andrew:

    The EC hasn’t performed a function of mediation between the people and the actual election since about the 19th century. The function of the EC is to mediate between the people as a whole and the individual states that make up the country.

    In effect, its part of a “pre-nup” treaty that keeps less populated regions from being dominated by more heavily populated regions. The EU did the same kind of thing, or the smaller nations would not have joined Germany and France in the first place. The fact that there is still such a pronounced difference between “blue” states and “red” states, and that the difference is even more pronounced between urban and rural areas within states is a strong argument, IMO, for the EC’s continued value.

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  47. Geoff - A on August 10, 2011 at 11:34 PM

    No wonder the government cant fix it with the republicans undermining everything they try.

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  48. Andrew S. on August 10, 2011 at 11:44 PM

    This isn’t a Republican-only problem.

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  49. FireTag on August 11, 2011 at 11:18 AM

    Geoff:

    Having worked supporting Fed and State governments under both Rep and Dem admins, I agree with Andrew. Government HAS BECOME its own interest group in the US and Western Europe — which is why I drew my graphs in the OP as political vs. economic elites rather than simply left vs. right. The political elites are not trying to FIX it; they’re merely trying to grow it in too many cases.

    If that’s not yet the case in Australia, watch your back. :D

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  50. jmb275 on August 12, 2011 at 2:51 PM

    Re Andrew

    Well, I can see we are speaking past each other a bit here. Plus, I feel like it’s getting a bit personal. I don’t wanna go there.

    Wall Street isn’t limited in information — that’s why literally ANY world event and ANY company event can cause stock prices to change. It’s not as if the profit numbers come out and that’s the only thing that can affect demand…so I don’t see how you can say things are limited.

    The market (which is what we’re really talking about) is certainly limited by the information it has (not Wall Street). That information is filtered through the lenses of a relatively small crowd (Wall Street). Any time you have information flowing through a channel you get noise in the system and the probability of information loss goes up. In the case of Wall Street its awareness of world events does NOT constitute full information flowing freely into the market, rather, the filter (the size of the group) inherently injects noise into the information. The larger the group filtering the information the less probable that information will be contaminated at the other end. The information we’re talking about isn’t external information per se, it’s information that is taken into the market system as a whole, which is primarily dictated by a relatively small group. You might imagine if every person in America had to cast a vote into the net worth of a company, the result might be a lot different than it is now. Clearly that’s not possible currently – my point is is that it could be more possible than we like to think.

    Wall Street is regulated to prevent blatant misinformation within financial statements.

    A direct result of the fact that it’s a small group. There would be very low probability of misinformation, insider trading, etc. in a large enough group. This is my point. You’re explaining all the reasons Wall Street has regulation by looking at the problems themselves, rather than what caused the problems. This is what Keynesian economics has taught us to do. Correct problems without examining the causes.

    I don’t know why the hell you have confidence in the harshness of free markets when if you know even BASIC history, you should know that “harsh free markets” is the difference between a “great depression” and a mere dip in the stock market. WHY do you WANT a great depression???

    I’m ignoring the personal jab here. I assume you know there are economic theories besides the Keynesian one. The book isn’t closed on what causes depressions, but you suggest it is. Austrian, monetarist (chicago) economic theory blames the depression on gov’t regulation and actions from the Central bank, and the “New Deal” as what extended the depression/recession beyond what it would have otherwise been had the gov’t (also the central bank) not interfered with the market. In the business cycle of Austrian economic theory, the harshness of the market is what enables it to quickly correct itself. It’s the interventions that prevent it from working as designed.

    Engineering expertise is not democratic. In fact, one big weakness of crowds is their tendency to override expert opinion. Experts…like engineers.

    I think here we’re just speaking past each other entirely. Engineers can design a democratic solution. This doesn’t necessarily suggest an expert based decision making policy. I would absolutely prefer a crowd to override expert opinion. Expert opinion isn’t worth a damn if not taken into account along with many other opinions. To be clear, my point is that we could perhaps engineer a system that could dynamically respond and quickly take in information from a great number of sources. Perhaps this is merely in the gathering of and presentation of correct information from a large group presented to a small number of people (would be better than what we have), but I think we could potentially design a system that incorporates “votes” from many people in addition to expert opinion, perhaps bypassing “perceptions” of those in Wall Street. Again, this is an academic exercise as I haven’t thought through the details.

    I do not disagree here. Absolutely not. Even The cycle you describe is EXACTLY how accounting changes work, and so I’m very familiar with the brokenness there. The issue is the market doesn’t fix things either.

    Phew, I’m glad we agree on something so we can salvage the relationship ;-) !! In Austrian economics the market doesn’t fix things because it’s not allowed to. It’s constantly prevented from being able to fix things. Keep in mind I’m not completely sold on this, so I don’t accept it as fact, but it is an alternate theory with A LOT of thought, theory, and evidence behind it.

    I hope we can still be friends even if you think I’m an idiot :-) !! Disclaimer: I’m an engineer, so economics is merely a hobby, not a profession. I’m sure you know more about it than I do, so I defer to your expertise ultimately.

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  51. jmb275 on August 12, 2011 at 2:56 PM

    Re Firetag

    The EC hasn’t performed a function of mediation between the people and the actual election since about the 19th century. The function of the EC is to mediate between the people as a whole and the individual states that make up the country.

    That’s how I see it too. And probably not really needed anymore. We could have a popular vote that would be more indicative of “what the people want” and I feel there are sufficient checks and balances in today’s society to not allow the majority to suppress the minority any worse than it already does. Furthermore, the lines between states have become very blurred with the federal gov’t ever expanding it’s power (as it has since Lincoln).

    BTW, I’m still torn on the two party system idea. I think we’re seeing the worst of what it has to offer right now. Too bad we can’t try out the alternative for a bit to see if it’s any better. I certainly see the benefits of it though.

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  52. Andrew S on August 12, 2011 at 4:15 PM

    re: 50

    You might imagine if every person in America had to cast a vote into the net worth of a company, the result might be a lot different than it is now. Clearly that’s not possible currently – my point is is that it could be more possible than we like to think.

    No, I really don’t imagine that. The only possible way I could imagine that is if you’re talking about giving people who have no “ownership” of companies a vote into those companies’ value. But then, that’s not saying that “the market” has limited information filtered to it by “Wall Street.” That’s saying you don’t want the market to determine it but a larger group of people.

    A direct result of the fact that it’s a small group. There would be very low probability of misinformation, insider trading, etc. in a large enough group. This is my point. You’re explaining all the reasons Wall Street has regulation by looking at the problems themselves, rather than what caused the problems. This is what Keynesian economics has taught us to do. Correct problems without examining the causes.

    What this is saying to me is that you believe individual corporations should be run by large groups of people, rather than by professional managers, boards of directors, etc., as is current.

    To this extent, I can maybe see where you’re going with the undemocratic nature of the market (the agency theory of corporate governance that allegedly binds management to shareholders is simply broken), but I think the reason that we have a principal-agent relationship (or why the owners of a company are different from the managers they hire) is because a diverse group of people (owners…or even more broadly, “the people”) are unable to be responsive to the needs of a company (either because of their number or because of their lack of expertise.)

    I’m ignoring the personal jab here. I assume you know there are economic theories besides the Keynesian one.

    It’s not a personal jab to point out that one’s economic perspective makes fundamentally incorrect assumptions about (insert squishy part of human society here). I mean, Austrian economics in particular has this huge elephant in praxeology which makes fundamental errors about individual human nature. I’m not saying that any system (Keynesianism) is perfect, but I can point out some huge flaws in some of the others.

    I think here we’re just speaking past each other entirely. Engineers can design a democratic solution. This doesn’t necessarily suggest an expert based decision making policy. I would absolutely prefer a crowd to override expert opinion. Expert opinion isn’t worth a damn if not taken into account along with many other opinions. To be clear, my point is that we could perhaps engineer a system that could dynamically respond and quickly take in information from a great number of sources. Perhaps this is merely in the gathering of and presentation of correct information from a large group presented to a small number of people (would be better than what we have), but I think we could potentially design a system that incorporates “votes” from many people in addition to expert opinion, perhaps bypassing “perceptions” of those in Wall Street. Again, this is an academic exercise as I haven’t thought through the details.

    My point was that “crowds” are known to introduce error by overriding *correct* expert opinion. So maybe we need a system that can dynamically respond in the “wrong” way” ;)

    I hope we can still be friends even if you think I’m an idiot!! Disclaimer: I’m an engineer, so economics is merely a hobby, not a profession. I’m sure you know more about it than I do, so I defer to your expertise ultimately.

    I don’t think you’re an idiot. Just uneducated about economics and unaware of it. I think too many people view economics as a hobby, which is part of the problem, but oh well. I mean, no one treats engineering as a hobby that they can just dabble in and pose alternative theories as if they will solve things. (aww, I’m getting snarkalicious again, and I really tried to cut out most of the snark from this comment.)

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  53. Andrew S on August 12, 2011 at 4:22 PM

    re 51:

    That’s how I see it too. And probably not really needed anymore. We could have a popular vote that would be more indicative of “what the people want” and I feel there are sufficient checks and balances in today’s society to not allow the majority to suppress the minority any worse than it already does. Furthermore, the lines between states have become very blurred with the federal gov’t ever expanding it’s power (as it has since Lincoln).

    BTW, I’m still torn on the two party system idea. I think we’re seeing the worst of what it has to offer right now. Too bad we can’t try out the alternative for a bit to see if it’s any better. I certainly see the benefits of it though.

    FWIW, I do think we can get rid of the electoral college, easily. I think we could get rid of the two-party dominated system, easily. Unlike in our economics debate, we have clear evidence of how to produce alternative systems that still seem to work pretty swell. I mean, EUROPE.

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  54. Glass Ceiling on August 15, 2011 at 1:12 AM

    Off the subject, but why exactly do we still have military bases in Europe? Couldn’t we save a bit by closing them down?

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  55. jmb275 on August 15, 2011 at 10:22 AM

    Re Andrew S

    No, I really don’t imagine that. The only possible way I could imagine that is if you’re talking about giving people who have no “ownership” of companies a vote into those companies’ value. But then, that’s not saying that “the market” has limited information filtered to it by “Wall Street.” That’s saying you don’t want the market to determine it but a larger group of people.

    Perhaps we’re just not understanding. I really do want to understand your point of view, because I’m not completely sold on mine. Here’s the way I see it, please correct me. Wall Street consists of a relatively small number of people. Those people buy/sell shares of a company with their money (or even someone else’s money) at some price. Generally speaking, the price of a share is an indication of the company’s value as perceived by the “market.” Is this reasonable? If so, also note that if I put all my money into company x it indicates I highly value that company. But also note that it constitutes a “no” vote for the other companies, that is, I value this company more than the others. Now consider my situation. I don’t trade on Wall Street. The only way I really influence the market is by my patronage at various companies. In theory, the people trading stocks perceive about how much demand there is for company x’s services. Supposedly they know this by company profit reports, the news, etc. But they don’t really know how much demand there is, only that a company reported some amount of profit which is indicative of demand.

    Now consider an elaborate system in which somehow my patronage of a company actually constituted a “vote” on the worth of that company (bypassing the accounting process, and profit reports). Perhaps this wouldn’t be in the form of buying real “stock” in a company, but some abstract theoretical “stock” that serves as direct information to those actually buying the stock. I’m not saying this is the right solution just one I made up on the spur of the moment.

    I mean, Austrian economics in particular has this huge elephant in praxeology which makes fundamental errors about individual human nature. I’m not saying that any system (Keynesianism) is perfect, but I can point out some huge flaws in some of the others.

    Could you please enlighten me? Actually, as near I can tell it makes the fewest assumptions of any economic theory. It is based on the idea that you can’t determine what people will do outside of pursuing whatever makes them happy. It doesn’t assume people won’t be greedy, dishonest, etc.

    My point was that “crowds” are known to introduce error by overriding *correct* expert opinion.

    Well, I’d like to know more about this. What you’re saying is that the odds of biases/incorrect information and assumptions of an expert affecting outcomes are statistically less significant even when he/she is the only one voting than the biases/incorrect information of a very large group. Sorry, mathematically doesn’t make sense! This isn’t to say that experts are wrong, or are worthless, just that they are STATISTICALLY more prone to error than a large group. So, when in doubt, putting stock (no pun intended) into a larger group is a more probabilistically sound choice (that is, maximizes expectation). If you want to reduce problems in the market, make the voting group larger as an alternative to passing regulation.

    Just uneducated about economics and unaware of it. I think too many people view economics as a hobby, which is part of the problem, but oh well. I mean, no one treats engineering as a hobby that they can just dabble in and pose alternative theories as if they will solve things.

    Well, to be fair, I actually acknowledged I was uneducated about it, so I think I’m aware. Besides, there’s a huge difference. You don’t get to vote on how I engineer an airplane. But I have to vote on the people who govern our economic system. I certainly can’t be a professional economist, so it remains a hobby. As near I can tell, being mildly informed is better than most people do.

    Unlike in our economics debate, we have clear evidence of how to produce alternative systems that still seem to work pretty swell.

    BTW, I think this is an important point. I acknowledge there isn’t much evidence on the behavior of free markets to regulate an economy, primarily because free markets are squashed quickly. However, I also think there is plenty of damning evidence for Keynesianism, primarily because gov’t cannot be counted on to reduce spending in times of consumer spending surplus.

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  56. Andrew S on August 15, 2011 at 11:26 AM

    re 54,

    Glass Ceiling,

    In short, to defend our military interests around Europe. We could save “a bit” by closing them down, but as has been mentioned, the military isn’t the brunt of spending anyway

    re 55:

    jmb,

    I’ll try to break this into a few comments, since this is going to get kinda long.

    Wall Street consists of a relatively small number of people. Those people buy/sell shares of a company with their money (or even someone else’s money) at some price. Generally speaking, the price of a share is an indication of the company’s value as perceived by the “market.” Is this reasonable?

    My counter would be: “Wall Street” is an inconsistent sort of concept. It’s trying to reify something that doesn’t really cleanly exist. I think what you’re trying to refer to is a subset of Wall Street (one that’s very popular to demonize, but still.)

    Wall Street includes (but is not limited to) large investment banking firms that draft/underwrite/negotiate deals between corporations. Wall Street also includes brokerage firms that work with a lot of people to buy/sell stock. Wall Street also includes every company who engages with Wall Street, both because they provide stock but also because they provide “official” information about their company. In relation to that, Wall Street also includes auditing firms, who “vet” that information for the stock-holding public. As a consequence of that, Wall Street includes millions that comprise the stockholding public, because they quite literally are the owners of all the companies on the stock market, and the sine qua non of the capital market. These include most white collar workers (if you have a pension or 401k or IRA or whatever, you have exposure in the market), people who invest independently (by talking with a broker or by using an online service themselves), and institutional buyers (all those people who are indirectly involved in the market…because of their pensions, etc. don’t need to worry about what stocks are doing well because the managers of the pension funds do it for them. In addition, universities, etc., invest funds and endowments into the market to grow them.)

    All of these people are Wall Street, IMO. Even if you want to limit Wall Street to people physically huddled around the New York Stock Exchange, the problem is that if you want to say the rest of what you want to say, you very quickly have to start including other actors. It’s not like a small group of investment bankers (who just happen to work physically on Wall street) decide all, or even most of this stuff on their own.

    But continuing with what you wrote: the value of a stock is a distillation of future cash flows expected from it. Stock prices go up and down in response to any predicted change in those expected future cash flows. As you say, “indication of a company’s value as perceived by the “market.”" Just realize that the market is hugely expansive. Because you don’t want to have some factor that you didn’t consider tank your investment because you were too narrow-sighted. (This does not mean that valuation is unflawed or incapable of being gamed. But problems of information flow have existed in economics, accounting, and finance for a loooooong time without being resolved.) and I haven’t even gotten into risk yet (I am willing to accept a lower rate of return from less risky investments. If that means the “price” of those investments is lower, does that mean the investment is less valuable?)

    If so, also note that if I put all my money into company x it indicates I highly value that company.

    Perhaps it indicates that YOU highly value that company. But it does NOT indicate that the company is highly valued. I think this is an important distinction. I might put all my money into a junk bond or penny stock not because it has high valuation, but for a number of other reasons (maybe I think information is incomplete and the stock is undervalued. Maybe I only have money for a loooot of junk stocks and even if they only increase a few cents, I’ll make stacks.)

    If so, also note that if I put all my money into company x it indicates I highly value that company. But also note that it constitutes a “no” vote for the other companies, that is, I value this company more than the others.

    This isn’t necessarily the case any more it is the case that spreading your money indicates a “yes” value. Spreading your money is good for diversifying your stocks (and this gets more into risk), because even if you think company X is the best company in the world, it has various risks that you try to mitigate in various ways (and the risks that company X has that company Y doesn’t, you risk by investing in Y to address X’s risk.)

    I think the confusion here is in thinking that when you buy a stock, you’re personally saying, “I value this stock,” rather than saying that you purchase stocks trying to seek after an allegedly objective measure of the stocks value. If you view it from the former, it does seem kinda personal like choosing one company means “rejecting” the other. But if you view it from the latter, then this perspective doesn’t make as much sense.

    (I’ll note that different investors do have different incentives and perspectives on the market. The institutional investor just wants to minimize risk, because wouldn’t it suck if its pension fund plummeted? So to an institutional investor, your thought process would seem even more foreign or naive. [I don't say that in a mean way. It's just, diversification is pretty well established in finance. So to talk about putting all your money in one stock -- even hypothetically -- seems naive.])

    So, continuing on:

    Now consider my situation. I don’t trade on Wall Street. The only way I really influence the market is by my patronage at various companies. In theory, the people trading stocks perceive about how much demand there is for company x’s services. Supposedly they know this by company profit reports, the news, etc. But they don’t really know how much demand there is, only that a company reported some amount of profit which is indicative of demand.

    Well, the first question would be whether you have any kind of retirement fund. If you do, it’s not really true that you don’t trade on Wall Street.

    But assuming you don’t…

    What you would say would have some merit, but you have to also consider that people don’t just look at historic data (which is what annual reports and profits statements are.) They make forward-looking analyses. They make predictions. They base these predictions based on real-world actions. While it is true that no one can perfectly predict the future, and so it’s true that “they don’t really know how much demand there is,” but it’s not true that that all they are working with is “that a company reported some amount of profit which is indicative of demand.”

    When a store sells out of a product, you can believe the market understands that.

    Not only that, but advances in technology allow us to make more up-to-date accounting information. So instead of having a sales figure for the year, we can get a sales figure for the day…which will tell us exactly how many people (in $ revenue) are patronizing our product. The bottom line isn’t the only line. (This will be important to address your next point.)

    Now consider an elaborate system in which somehow my patronage of a company actually constituted a “vote” on the worth of that company (bypassing the accounting process, and profit reports). Perhaps this wouldn’t be in the form of buying real “stock” in a company, but some abstract theoretical “stock” that serves as direct information to those actually buying the stock.

    Well, for one, it would be incredibly skewed. For example, maybe this would work for twitter, or for Google, or for any company that derives its worth from publicly consumed goods. But how would this work for a company that serves a few (but still very lucrative and wealthy clients)? How would this work for a company with whom you interact with every day without realizing it?

    In fact, what you’re proposing would not bypass accounting. It would require even more accounting. (And wouldn’t that involve more of the Wall Street you oppose)? It would involve more auditors to keep track of the numbers and make sure they were not gamed by corporate management, etc., (You might say: but if we as clients/consumers “voted” directly, how could that be gamed. Think fake voters. Vote early and vote often. This happens in the corporate world too, in terms of sales figures, etc.,)

    But I have no doubt that that’s where things are turning too. After all, it’s relevant and timely data. It just doesn’t oppose “Wall Street” — it empowers it.

    …actually, I’ll go off on a tangent and say that what you’re suggesting DOES raise a good point. And maybe I can see the distinction between Wall Street and “everyone else.”

    So, if you ask a business student what the goal of a corporation is…they will probably say, “to improve shareholder value.” And this is a huge controversial point. As you point out, “shareholder value” is not the totality of who corporations engage with and who they serve. There are many *stakeholders* who are not *shareholders* and it is true that the system is biased toward the stockholding percentage of the stakeholders.

    …but you aren’t offering a complete solution. You suggest we rebalance by catering to customers more directly. But why not also include a “pseudo-stock” value for employees (if employees appreciate the company more, then the value of the stock improves.) Why not include suppliers upstream and purchasers downstream in the supply chain?

    All of these alternative measurements redefine what stocks are all about. Remember: they are about how owners get value from their investments (where the companies themselves are the investment, although they are represented through currencies that we call stock shares.) As a customer, you may have quite a stake in what the company does, but you don’t own it, as you mentioned. So, you’re proposing a kind of theft from the company owners by taking some of their voting power for yourself.

    I’ll end this post here.

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  57. Andrew S on August 15, 2011 at 12:35 PM

    jmb

    (part 2)

    Could you please enlighten me? Actually, as near I can tell it makes the fewest assumptions of any economic theory. It is based on the idea that you can’t determine what people will do outside of pursuing whatever makes them happy. It doesn’t assume people won’t be greedy, dishonest, etc.

    Austrian economics rejects empirical data. It’s based around logical analysis with a Kantian (which is already a troubling assumption to begin with) focus on a priori/deductive reasoning. So everything relies upon theories of what humans do/are even more than empirical economic theories do. For whatever it’s worth, Von Mises et al. did start with different assumptions than many popular (yet incorrect) economic assumptions are based, but these assumptions are axiomatic. They literally are not falsifiable (or verifiable.) Other economic schools modify assumptions as data falsify them.

    You can’t really do anything with Austrian Economics to improve the system. It basically asserts, “Bah, people, they are too complex. So don’t try to study them and just leave them be.” But just leaving them be doesn’t resolve issues.

    Well, I’d like to know more about this. What you’re saying is that the odds of biases/incorrect information and assumptions of an expert affecting outcomes are statistically less significant even when he/she is the only one voting than the biases/incorrect information of a very large group.

    Actually, I am saying that in part. Most because empirical data supports it. Experts are more likely than non-experts to anticipate the limitations of their knowledge (see: Dunning-Kruger Effect. While there was a study that countered Dunning and Kruger’s original research, it really just added nuance about what happens when tasks are made more or less difficult rather than completely smashing everything).

    From a different perspective, look at issues of unintuitive truths. The matter of an unintuitive truth (like say, the proper solution to the Monty Hall Problem, about which I’ve written in the past) is such that common sense…or the general consensus among non-experts will never come to the right answer…meanwhile, the expert will struggle even to convince the non-experts of the right answer. So if it’s up to a vote, say, the non-experts will win, voting an intuitive falsehood over any counterintuitive or unintuitive truth.

    Sorry, mathematically doesn’t make sense! This isn’t to say that experts are wrong, or are worthless, just that they are STATISTICALLY more prone to error than a large group. So, when in doubt, putting stock (no pun intended) into a larger group is a more probabilistically sound choice (that is, maximizes expectation). If you want to reduce problems in the market, make the voting group larger as an alternative to passing regulation.

    I’m not a mathematician, but it seems like in order to say something like this, you would have to rely upon some assumptions, and the case is that in many situations, the assumptions have proven to be incorrect.

    For example, one assumption that I’m supposing you have is something like, “everyone has an equal (or comparable) level of bias” or “together, people mitigate each other’s bias.” And if I look at it in terms of stock risk, I can see that the first is clearly incorrect and the second is only sometimes correct. Different kinds of stocks can mitigate other stocks, but there are many instances where just having more diversity of stocks won’t do you any good (because say, you’re buying from the same industry.)

    I think this metaphor should work surprisingly well for people. The only question is: what are the reliable measures for variety and diversity that makes a difference in a voting public or a voting “market”? Do we have that kind of diversity, just because we have diversity in other areas?

    And of course, I’m not saying that legislators are “experts.” So it could be that the “small group” or “individuals” we are trusting are less informed than a large public.

    Well, to be fair, I actually acknowledged I was uneducated about it, so I think I’m aware. Besides, there’s a huge difference. You don’t get to vote on how I engineer an airplane. But I have to vote on the people who govern our economic system. I certainly can’t be a professional economist, so it remains a hobby. As near I can tell, being mildly informed is better than most people do.

    I think this gets back into what I was saying before — about non-experts not realizing the boundaries of their limitations. For example, I am aware that I am uneducated about engineering, but I cannot imagine how much I could be uneducated about. But even though I’ve studied a LOT of accounting and finance issues, what that has done is given me a feel for exactly how BIG the field is, so I can visualize my ignorance even better.

    Now, as per this difference…the issue is: why do we have differences in the system? We ASSUME we’ll come up with better economic decisions if we vote on the people who will make those decisions, but we would never ASSUME that for engineering. So, there is a difference there, but the difference is based in an arbitrary distinction. (Namely, we have a tradition of voting for one and not the other, but there’s no reason that it couldn’t have happened the other way.)

    This actually gets into some problems with our system of governance. Like states…states love having people vote for everything…many states have elections for judges. Like, wtf. How do you vote for a judge? Does the electorate have the capacity to know who would make a better judge than another? And how would a judge campaign?

    So, actually, you’re kinda wrong. We DO sometimes vote for engineers — it’s just more likely to happen in a local context, in a city councilman position for some kind of public works and admin position. Isn’t that a bit scary? Isn’t it better that we don’t vote on who should engineer at Boeing? Why would we assume a national or international economy is any different? hmm.

    I don’t know where I read it, but I think there was research showing the relative effects of knowledge. Absolutely ignorant vs. as you say, mildly informed vs. etc., I don’t remember if it justified the phrase, “A little knowledge is a dangerous thing.”

    Unlike in our economics debate, we have clear evidence of how to produce alternative systems that still seem to work pretty swell.

    BTW, I think this is an important point. I acknowledge there isn’t much evidence on the behavior of free markets to regulate an economy, primarily because free markets are squashed quickly. However, I also think there is plenty of damning evidence for Keynesianism, primarily because gov’t cannot be counted on to reduce spending in times of consumer spending surplus.

    I guess one question would be something like, if free markets are squashed quickly (what a loaded idea, but let’s go with it), then is the free market an ideal that can even be accomplished, much less be sought? I mean, it’s like looking at the “State of Nature” concept in social contract theories…it sounds nice, but there is no anthropological evidence to suggest that there ever was or is a “state of nature.” So, the question arises: should we use that to frame our political discussion if it’s just a political fiction?

    I admit very much that the same question would apply for any Keynesian admonitions to reduce government spending.

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  58. bewarethechicken on August 16, 2011 at 8:24 AM

    Firetag, while it’s always difficult to do analysis with a conclusion firmly in mind, I much prefer reading your posts on subjects about which you are a little better versed.

    If I want to hear some lay-person rant about how we need to cut spending and try to explain economics and politics without really understanding it, I’ll listen to a Republican presidential debate.

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  59. FireTag on August 16, 2011 at 11:15 AM

    BTC:

    Thank you for your well-researched refutation of my thesis. What was your egalitarian argument for lowering the standard of living of your kids to expand present consumption again? I missed it. :D

    Welcome back anyway.

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  60. bewarethechicken on August 16, 2011 at 11:56 AM

    Thanks FT. I’m around, I just don’t say much. My point is not to insult, only to say that life is complicated, which is why we attain high degrees of education and experience. If you want a refutation of your thesis, go read the work of professional economists.

    From a lay perspective, I only need to refute a couple of your initial premises: like saying that we are trying to run a perpetual deficit. This just has no basis in fact. To the contrary, we had surpluses only a decade ago.

    Saying we hit a debt/GDP ratio greater than 100% since 1947 may seem extraordinary, but 1947 is also the last time we had a global economic event as serious as this most recent one – and more to the point, upon hitting that point in 1947, the USA began a period of growth, becoming an economic superpower, and, rather than burdening future generations, paid that down to 30%-ish of GDP within 50 years.

    I could site these two things to say that we need more debt and raise taxes in order to get back to prosperity, but that would provide a poor lack of the complexities and context that true analysis requires.

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  61. bewarethechicken on August 16, 2011 at 12:48 PM

    Just out of curiosity though – what is an egalitarian idealist?

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  62. FireTag on August 16, 2011 at 1:11 PM

    BTC:

    I believe I used the example of surpluses being as rare as 9+ magnitude earthquakes. Look it up. How many years has the US Federal budget been in surplus since Keynes wrote about the problems of the business cycle? How many 9+ earthquakes have there been in the same time? How many since the Clinton administration, for that matter?

    What fraction of the time that countries hit 100% debt/GDP ratios does that turn into wonderful periods of growth? I mean, other than when we have to rebuild the continents we just destroyed in a world war? Not out of the question this time either, I suppose, but I’d rather not set up the experimental conditions for the test if I can help it.

    An egalitarian idealist is one who honestly believes that material egalitarianism is a major moral principle — and not just a good slogan to grab power for those who wish to rule. I prefer to use “egalitarian idealist” to distinguish them from what the power grabbers have been known to call them in private, which is not at all complimentary.

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  63. bewarethechicken on August 16, 2011 at 2:13 PM

    Not sure what the point of your first paragraph is.

    I know the answer re. the US. 100% of the time prior to this that debt/GDP hit 100%+ we had wonderful periods of growth. But yes, WWII proves Keynes point, you pay to destroy stuff and then pay to rebuild it and economies flourish.

    So material egalitarianism is Communism, is that right? Your post is arguing against Communism? Are there alot of Communists out there to argue with these days?

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  64. FireTag on August 16, 2011 at 3:40 PM

    The point of the first paragraph is that Keynes, as pointed out by several comments above, requires that governments run surpluses far more often than the US government EVER HAS since Keynes wrote. We claim Keynes justifies spending when we want to buy votes, and ignore Keynes when he repudiates spending — because politicians still want to buy votes.

    Your basis for using one US example from the past and ignoring all others from the modern world is certainly a testimony of doing “analysis with a conclusion firmly in mind”, as you put it.

    “But yes, WWII proves Keynes point, you pay to destroy stuff and then pay to rebuild it and economies flourish.” Ah, yes, the “broken window” theory of economic growth, which can’t tell how to include destructive losses in models of economic growth.

    Since environmentalists have been dealing with those issues for a couple of decades, perhaps I’ll have to save that for a separate post, but for the moment, lets not try to test your interpretation of Keynes by tripling the defense budget and blowing the smithereens out of Europe, shall we? :D

    Many communists are material egalitarians, of course, but a lot of material egalitarians aren’t communists. Several of the writers on this blog are unashamedly material egalitarians and can quote scriptures from most of the Standard Books in support of their position. But then, I don’t think you or they are planning on imposing that egalitarianism on everyone BUT themselves.

    Power seekers don’t fit in that category. You tell the difference by what people choose when the flows of wealth and political power reverse. The egalitarians are willing to diminish themselves; the power seekers find themselves indispensable to lead the new order.

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  65. bewarethechicken on August 16, 2011 at 3:56 PM

    FT: “We claim Keynes justifies spending when we want to buy votes, and ignore Keynes when he repudiates spending — because politicians still want to buy votes.” I don’t know who “we” is here. I know of noone who claims this. Keynes says to spend or not spend based on the economic scenario, not politics. No one ever says in a period of sufficient demand and economic growth that Keynes says to spend, and if they do, they’re wrong about what he says. This sounds like a strawman argument.

    You seem to decrie Keynes in one instance and tell us to listen in the other.

    It’s not my theory – it’s Keynes. And I agree we shouldn’t blow up Europe and triple defense – but it would certainly work.

    I don’t know what material egalitarians are – so I had to google it. I found Communism. If it means something else, please define.

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  66. FireTag on August 16, 2011 at 4:37 PM

    An egalitarian is one who believes people should be equal. A material egalitarian is one who believes in equality in material things. Simple enough.

    The political class is the one that spouts Keynes to justify spending when demand is low, but ignores Keynes after demand is restored, which is when Keynes says you run surpluses to restore the government to fiscal health.

    The politicians have tried to turn Keynes into an economic perpetual motion machine. Keynes would probably be offended if he didn’t laugh himself silly.

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  67. bewarethechicken on August 17, 2011 at 6:06 AM

    Got it. Material egalitarianism is communism. Or communalism. You know these people? I have never actually met one. Seems like you are arguing against a very small subset of people.

    You may have noticed that people in the politcal class are not of one mind. In the US particularly, they are such polar opposites that we have near gridlock – so I’m not sure what this “political class” is that you’re talking about. I’m quite young so only have recollection of 3 Dem presidents and 4 Repubilcan presidents. I have not seen a Dem president do what you say the “political class” do. Rather, they have done surplus in low demand and decreased spending, paid off debt during strong economy.

    Doesn’t that defeat your notion of a unified “political class” and “perpetual” motion?

    What I see is Dems who try to follow Keynes at all times and Repubs who deny Keynes at all times. If you want a “political class” that follows Keynes, vote Democrat. Simple solution.

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  68. bewarethechicken on August 17, 2011 at 10:43 AM

    Looking again at your conclusion – you seem to be saying that we need to limit spending to some random percentage or GDP. Even if economically sensible, which it isn’t – it just can’t work. GDP is not a static number, it rises and falls, and we don’t now exact numbers until after they have occurred. Budgets and economic commitments happen in advance.

    So if Year 1 budget is set at 18% of anticipated GDP and GDP falls due to a natural disaster, business cycle, European debt crisis, whatver – how do you respond? You can’t unspend money. Do you reneg on committed obligations? This wouldn’t bode well for the credit-worthiness of the country.

    If you tried to compensate in the budget fo Year 2, you are now talking about drastic cuts in the face of economic downturn. Morevoer, you need to eliminate essentially 2/3rds of current government programs because these are not programs you can cut in one year.

    If you like Keynes, then you need to increase spending to GDP in recessions, and decrease spending to GDP in times of prosperity. If you commit to a target, you are undermining a primary purpose of government, which is to provide economic stability through fiscal and monetary policy and force it to take action detrimental to the economy, even in the eyes of the most conservative economists.

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  69. FireTag on August 17, 2011 at 11:35 AM

    So BTC, you remember back to Gerald Ford.

    The attached CBO historical tables:

    http://www.cbo.gov/ftpdocs/120xx/doc12039/HistoricalTables%5B1%5D.pdf

    don’t take long to load, and you and other readers can ponder them to your hearts content.

    Government spending increases regardless of whether Administrations are Republican or Democratic. Tax revenues do not vary much above the long term 18% post WW2 average, regardless of the tax law in effect, or how “progressive” or “regressive” it is. And no matter what party is in power, no one ever cuts spending to reduce the debt any longer than it takes to find something new to sell.

    You’re still not grasping that whether someone is trying to sell you coke or pepsi, they are both encouraging you to drink more soda. That’s what unites the “political class”.

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  70. FireTag on August 17, 2011 at 1:05 PM

    BTC:

    There are practical difficulties to balancing budgets. That’s supposedly why we pay managers bigger bucks than workers in the first place.

    But that’s no different for a national government than for a state or city government or a corporation or a family. For that matter, it’s no different than managing blood sugar. (And this, JMB, is where your engineering to design how a system with balanced budget requirements would function so it could overcome BTC’s concerns; e.g., what are the best lessons from states or companies?)

    But we aren’t even at the “design stage” yet. We still have almost half the country just coming out of denial that we have a spending problem, and politicians (even in the EU) can no longer prosper by promising, in the immortal words of Popeye’s friend Wimpy, “I will gladly pay you tomorrow for a hamburger today.”

    (I wish I’d thought to put a Wimpy cartoon in the OP.)

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  71. FireTag on August 17, 2011 at 1:43 PM

    JMB:

    Here’s something current on the ability of math modeling to grasp the markets:

    http://www.scientificamerican.com/article.cfm?id=can-math-beat-financial-markets

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  72. Andrew S on August 17, 2011 at 1:47 PM

    I hate when computer scientists get CS in my economics.

    Or maybe I’m getting economics in their comp sci?

    http://www.aleph.se/andart/archives/2011/08/if_computer_scientists_are_right_you_can_make_money_on_the_market_if_economists_are_right_you_can_compute_fast.html

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  73. bewarethechicken on August 17, 2011 at 2:18 PM

    FT, I appreciate your efforts, but again, you are oversimplfying.

    Yes, government spending increases each year. (resisting the urge to say “duh”). This is for several reasons (a) population increases each year, (b) the bulk of what the government does is provide security as we get older, as the boomers get older, this amount increases and (c) inflation.

    Also, as I’m sure you’re aware, inflation causes the cost of things to go up – so even if nothing else happened, government spending would increase.

    So in order to properly judge government spending, you have to look at per capital numbers based on a fixed point in time (to eliminate inflation). You can do that here:

    http://www.usgovernmentspending.com/downchart_gs.php?year=1940_2010&view=1&expand=&units=d&log=linear&fy=fy12&chart=F0-xfer_F0-fed_F0-state_F0-local&bar=0&stack=1&size=m&title=&state=US&color=c&local=s

    But even acknowledging that any particular administration or congress can only adjust a small percentage of the budget (ie. discretionary) on any kind of short-term basis, it’s still obvious that spending goes up, down and remains static over certain periods of time.

    Because the federal budget is really only composed of 3 large components, defense, SS/Medicare/Medicade, and other – it’s easy to see why expenses go up, down or stay the same.

    In the 80s under Reagan/Bush I, defense budget skyrocketed. In the 90s expenses stayed the same or fell under Clinton. In the 00s, they skyrocketed again based on defense and the new prescription drug program. There was a blip of Surplus under Obama and they have started down again.

    I don’t see how this supports a thesis that a “political class” is constantly trying to increase spending.

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  74. bewarethechicken on August 17, 2011 at 2:22 PM

    And the “we have a spending problem” is a tired cliche.

    Spending in a vacuum is meaningless, it must be judged in context of revenues. A political flourish does not an argument make.

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  75. FireTag on August 17, 2011 at 3:35 PM

    BTC:

    No (he patiently explains). The tables come in pairs so that you can see them in terms of GDP percentage as well. Inflation corrections (whatever they used — for which you’d have to download the entire report; be my guest) are the same for both GDP and budget. CBO analysts are not idiots, even if their political masters try hard to make them analyze nonsense.

    You are absolutely correct that as the population gets older, keeping our promises require that we spend more. WHICH IS THE WHOLE SOURCE OF THE PROBLEM HIGHLIGHTED IN THE OP. There is no egalitarian way to fund the promises. Your children and grandchildren, let alone the Chinese children and grandchildren, will not keep paying off those promises.

    I AM arguing spending in the context of revenues; the penchant for promising goodies to buy votes has outrun our means to generate revenues.

    THE PROMISES WILL NOT BE KEPT unless you are among the few who will be politically favored. And favoring “the few”, by definition, is NOT consistent with egalitarian morality. But leaders won’t accept any responsibility for making (and expanding) promises they can’t keep; just blame it on the other guy, promise a solution later, and keep the circus going as long as possible.

    Has Obama visited the palace of Louis XIV yet? Apres moi…

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  76. bewarethechicken on August 17, 2011 at 5:03 PM

    FT – perhaps you misread me. I didn’t complain that the tables didn’t show expenses “in terms of GDP percentage” I complained that your assertion was innaccurate if you looked at the numbers per-capita and adjusted for inlfation. The fact that downloading another report can demonstrate the innaccuracy of your assertion makes it no less innaccurate.

    I don’t know what you mean by “egalitarian” way to fund promises. I didn’t propose one and don’t think we should be “egalitarian” in funding promises.

    We have the lowest taxes in 50 years – why do you say we have “outrun our means to generate revenues?”

    The CBO has projected that if we eliminate the Bush tax cuts – ie. go back to the Clinton tax rates – we would be right back on track. Why can’t we do that?

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  77. bewarethechicken on August 17, 2011 at 8:16 PM

    Ironically, if we continue to keep taxes low on the wealthy, we will go back to a Louis XIV era. Until the US perfected democracy, unregulated economies naturally lead to wealth inequality which meant a constant cycle of prosperity, wealth concentration, revolt (ie. Louis). What the US demonstrated is that a strong middle class, where the upper earners have their income redistributed via taxes and regulation, creates for a stronger, more stable and lasting economy.

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  78. FireTag on August 17, 2011 at 8:34 PM

    BTC:

    “The CBO has projected that if we eliminate the Bush tax cuts – ie. go back to the Clinton tax rates – we would be right back on track. Why can’t we do that?”

    This is the point of my previous note about “CBO analysts are not idiots, even if their political masters try hard to make them analyze nonsense.” They are REQUIRED to use the assumptions embedded in law, even when the assumptions have little to do with reality. That’s why I linked the tables.

    I know you well enough to believe you are writing in good faith, but I don’t know why you can’t get the concept that revenues are MATHEMATICALLY INSENSITIVE to attempts to raise them above a certain level, NO MATTER HOW MUCH YOU RAISE TAX RATES.

    Look at page 2 of the tables again. Show me one year in which revenue reached the 21% level of even the Simpson-Bowles bipartisan committee that Obama convened and then ignored because it didn’t provide enough for all his transformational utopian ideals.

    Not in 5 Republican Administrations. Not in 3 Democratic Administrations. Not in peace. Not in war. Not in boom. Not in bust. Not with a Democratic Congress. Not with a Republican Congress. Not with split government. Not with new entitlements. Not with welfare reform. Not with population growth. Not with rain, storm, sleet, or gloom of night, to say nothing of earthquakes or the collapse of the Soviet Union.

    You can promise all you want, and try to explain away 40 yearly data points as 40 “special cases”, but I say all you’ve got is wishful thinking, and to the terrestrial kingdom with it. 24% of GNP or higher indefinitely into the future? That way is the way to catastrophe.

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  79. bewarethechicken on August 18, 2011 at 5:57 AM

    “I know you well enough to believe you are writing in good faith, but I don’t know why you can’t get the concept that revenues are MATHEMATICALLY INSENSITIVE to attempts to raise them above a certain level, NO MATTER HOW MUCH YOU RAISE TAX RATES.”

    It seems as you’ve settled on this point as your other points have been refuted. Unfortunately, I can’t figure out what it means. It is the unfortunate problem of “fiscal conservatives” – their arguments don’t work, so you have to keep coming up with new ones.

    So we’ve determined that expenses don’t always go up and at least one party is in fact pretty consistent about sticking to Keynesian principals. We’ve also learned that debt exceeding 100% GDP isn’t necessarily bad and can be economically positive given certain conditions.

    So now lets address this argument. But first, you’re going to have to explain it to me. What do you mean by “mathematically insensitive?”

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  80. FireTag on August 18, 2011 at 11:41 AM

    BTC:

    I haven’t given up on refuting MOST of the things you said here. I try to address only one thing at a time to avoid overwhelming you.

    You misunderstand Keynes, but clearly don’t realize you do. Keynes says you can continue to stimulate only if you recover the stimulus through surpluses BEFORE YOU TRY STIMULUS AGAIN. BOTH parties misused Keynes by IGNORING the SURPLUS part. An occasional surplus in decades of deficits doesn’t fit Keynes OWN requirements for the theory to work. THE LEFT WASTED ITS NUKE ON A POLITICAL PAYOFF WISHLIST WHEN OBAMA CAME TO OFFICE, so it is no longer available.

    Keynes SAYS NOTHING about how large a share of the economy can be in the hands of the government without other feedbacks becoming important. There is in the tables that you do not seem to understand experimental confirmation that feedbacks become important enough to prevent revenue from rising to about 21% of GNP in even the short term and that they tend to go back to 18-19% of GNP in the long term. That’s the meaning of “mathematically insensitive”.

    You keep proposing to redeem past promises, and keep expanding new ones, on the basis of an unsupported premise that 24% or higher of GNP will magically appear as revenue, and you are going to continue to destroy the very people you are trying to help.

    Room for one more; the notion that government spending should grow AS A PERCENTAGE OF GNP as population grows because per capita spending isn’t any higher is seductive stupidity. If the population of the US reaches that of China, would that mean that the Government share of GNP could somehow grow from 24% to greater than 100% of GNP, and the private sector share could be LESS THAN ZERO?

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  81. bewarethechicken on August 18, 2011 at 12:29 PM

    “I haven’t given up on refuting MOST of the things you said here. I try to address only one thing at a time to avoid overwhelming you.”

    Good. Then let’s try one thing at a time.

    1. Keynes. I’m not sure what I said to make you think I don’t understand Keynes, or that I think I do. I didn’t think I made any statement one way or the other. Instead, I merely responded to your innaccurate statement that the government always spent more and used Keynes as their excuse. If you want to talk about what Keynsian economics says, that’s cool. But as you are not an economist and neither am I, it would really be just an effort in who’s a better Googler. In either event it’s not relevant to the discussion so far.

    All that’s happened so far is that you based your conclusion in your post, in part at least, on the false statement that governments have increased spending. If you would like to show some evidence that’s better than mine on this, I’m happy to look at it, but changing the subject to Keynes doesn’t really get us anywhere.

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  82. bewarethechicken on August 18, 2011 at 12:37 PM

    2. Mathematically insensitive. “There is in the tables that you do not seem to understand experimental confirmation that feedbacks become important enough to prevent revenue from rising to about 21% of GNP in even the short term and that they tend to go back to 18-19% of GNP in the long term.”

    You keep telling me what I do or do not understand. You posted those tables to demonstrate the government spending always goes up. Now you are saying there is something in there that says that 18-19% of GDP is mathematically the highest revenue level we can achieve.

    I don’t know what this has to do with the arguments in you post or since, but rather than being based on math, it seems it’s based on a conclusion drawn by looking at historical data. There is nothing mathematical here – it’s just policy. The US has, of all industrialized nations, by far the smallest Rev/GDP ratio. Others are up in the 30s and 40s. Clearly math is not the issue here, rather policies.

    I’d be interested to hear why you think this is mathematical, in light of other countries doing it. I’d also be intereted in hearing what this has to do with your recommendation that we need to cut spending rather than increase revenues – especially because revenues/GDP is less than 15% now such that, even if your mathematical impossiblity were true, we can really get somemore revenue before hitting your hypothetical ceiling.

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  83. bewarethechicken on August 18, 2011 at 12:39 PM

    3. Things I’m not doing: “You keep proposing to redeem past promises, and keep expanding new ones, on the basis of an unsupported premise that 24% or higher of GNP will magically appear as revenue, and you are going to continue to destroy the very people you are trying to help.”

    I’m not trying to help anyone and I haven’t proposed anything. I just refuted the assumptions in your post above by showing them to be innaccurate. If you can show me where I advocated for, well, anything, I’ll happily apoligize.

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  84. bewarethechicken on August 18, 2011 at 12:43 PM

    4. More things I didn’t say: “Room for one more; the notion that government spending should grow AS A PERCENTAGE OF GNP as population grows because per capita spending isn’t any higher is seductive stupidity.”

    As far as I can tell, the only person to discuss spending as a percentage of GDP (or GNP now) is you. I also haven’t said anything should, or should not happen – least of all this. And in this case, I don’t believe this. If you can show me where I said it, I’ll happily apologize.

    Perhaps your confusing where I refuted your assumption that government always increases spending (not spending relative to GDP) by saying that one cannot judge policies concerning spending withou looking at population growth. For without policy change, spending will necessarily increase with population.

    As your tables didn’t take into account per capita data, I pointed this out. But I didn’t say anything about spending/GDP ratio.

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  85. Andrew S on August 18, 2011 at 12:53 PM

    bewarethechicken (82)

    Now you are saying there is something in there that says that 18-19% of GDP is mathematically the highest revenue level we can achieve.

    I don’t know what this has to do with the arguments in you post or since, but rather than being based on math, it seems it’s based on a conclusion drawn by looking at historical data. There is nothing mathematical here – it’s just policy. The US has, of all industrialized nations, by far the smallest Rev/GDP ratio. Others are up in the 30s and 40s. Clearly math is not the issue here, rather policies.

    Suppose that the policies are to have the highest marginal tax rate be 90% or higher, as it was in 1944-45, and throughout the 50s and the early 60s. Why then would American tax revenue as percentage of GDP still not exceed 21% of GDP?

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  86. FireTag on August 18, 2011 at 1:21 PM

    Your last posts simply say that you believe that the US can control revenue by policy and assert that my statements to the contrary are false. As evidence of the falsehood, you cite information that has no relevance to the discussion; specifically, you attribute policy as the cause of international differences, which is circular. Policies are different, along with thousands of other things, in other nations, but you attribute different results to policies regardless of any other factor. On the other hand, when results in the United States historical data show NO correlation to policy on tax rates, you argue that anything or everything else is overwhelming policy, and if we just raise tax rates, magically the revenue will appear. There’s a better chance that capital and labor and technology and economic activity will simply flee.

    The fact that you don’t grasp that it is as a percentage of GNP, not per capita, which is the important measure, makes it terribly frustrating to talk to you, as is the fact that per capita spending has NOTHING to do with getting more revenue. If you don’t think per capita spending contributes to your argument, why cite the link in the first place? If you have triplets, and you don’t CUT your family’s per capita spending, you are going to be in financial trouble, because your revenue isn’t going to grow to compensate.

    It is a conceit of the governing class that they can actually make the world work the way they wish by executive fiat — not a fact. The US and Europe are paying dearly for indulging that conceit.

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  87. bewarethechicken on August 18, 2011 at 1:25 PM

    Andrew, good question. I’m not sure why you would think I’d know the answer to this and I certainly never made this claim but I can sure give the explanation a shot.

    Highest marginal tax rate doesn’t mean a whole lot in this context. If the highest marginal tax rate were 100% but it only affected 1 guy, then it wouldn’t make that much difference to revenue. But even if we assumed we raised all taxes “really really high” – we still couldn’t predict revenues to GDP without knowing what GDP was. That’s the thing about ratios.

    So if your question isn’t really about the 90% highest marginal tax rate, and instead is, why didn’t rev/GDP exceed 21% even when taxes were higher? I’d say – because GDP was also very high during this time (not coincidentally – GPD also got really high when Clinton raised taxes).

    But if you’re going to claim that it’s mathematically impossible to achieve a ratio of Rev/GDP higher than this (as Firetag seems to), then you’ll have to explain how every other country does it.

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  88. FireTag on August 18, 2011 at 1:28 PM

    Thank you, Andrew. BTC is a good guy, but he sees some true things I can’t, and can’t see things that are obvious to me in the data.

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  89. bewarethechicken on August 18, 2011 at 1:31 PM

    FT: “Your last posts simply say that you believe that the US can control revenue by policy and assert that my statements to the contrary are false.”

    I don’t think any objective reading of any of my comments would lead the reader to conclude as you have done here. If you have even said that US can’t control revenue by policy, then I missed it, let alone said it was a false statement.

    The only statmement of yours I said was false, was the one where you said that we perpetually increased spending. (well, and then all the statement you attribute to me which are demonstrably false).

    Period.

    I advodate no position. I have made no proposition. And yet, you continue to criticize the positions I didn’t advocate and the propositions I didn’t make. Talk about frustrating.

    You made a post, based on a misleading claim. When I pointed out the misleading claim, you pounced on me for misunderstanding Keynes and for advocating overthrow of Rhodesia – or something. Tought to follow.

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  90. bewarethechicken on August 18, 2011 at 1:35 PM

    “If you don’t think per capita spending contributes to your argument, why cite the link in the first place?”

    It does contribute to my argument, I never said it didn’t. My argument is that you can’t show spending data (as you did) without accounting for population growth (as you didn’t).

    When you adjust for inflation and population growth, you see that spending has increased or decreased based on policy over time, consistent with the political ideology of leadership. Which refutes your claim of a common ideology of a “politial class” that constantly increases spending.

    Period. No Keynes. No GDP ratios. No policy arguments about what anyone should or shouldnt’ do.

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  91. bewarethechicken on August 18, 2011 at 1:37 PM

    “BTC is a good guy, but he sees some true things I can’t, and can’t see things that are obvious to me in the data.”

    If someone can actually quote where I say something is true or where I see something, other than merely making up what I said, I’d love to see it.

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  92. FireTag on August 18, 2011 at 1:43 PM

    Again, a circular argument for the perpetual motion machine. Since you believe raising tax RATES must raise tax REVENUE, independently of any other changes in behavior or any externalities which may occur as a result of high tax rates, a near-constant revenue to GNP with high tax rates MUST imply an explosion of GNP growth. Voila; our problem is solved, so let’s raise tax rates even more so we can all get rich.

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  93. jmb275 on August 18, 2011 at 1:47 PM

    For the record, the proceeding discussion between BTC and FT is precisely why I have suspicions that an entire area of study has gone completely insane. I suspect this has happened to economics primarily because of its (far too close) ties to politics. As a result, we just keep repeating the well worn tracks of spending more than we should, hoping that if we just get those greedy money whores to pony up to the 90% or so they ought to be paying that all our problems would be solved.

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  94. bewarethechicken on August 18, 2011 at 1:53 PM

    “Again, a circular argument for the perpetual motion machine.” FT – you honestly read my posts and thought I made an argument? Can you quote my argument? Please stop attributing positions and beliefs to me that I am not making. Not only do I not believe raising tax rates MUST raise revenues, I didn’t say it – or anything close to it.

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  95. bewarethechicken on August 18, 2011 at 1:54 PM

    jmb275 – maybe I’m the crazy one. I don’t feel like I’m advocating for increased spending, or for raising taxes, or anything else for that matter.

    Please help me out- can you show me where I said any of these things? And no fair quoting what FT says that I’m saying.

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  96. jmb275 on August 18, 2011 at 2:41 PM

    Re BTC

    But yes, WWII proves Keynes point, you pay to destroy stuff and then pay to rebuild it and economies flourish.

    You pay to do this, then pay to do this, and look then you get rich! It’s brilliant! Keynes was right! I’m reminded of this cool sketch on
    SNL about not buying stuff you can’t afford.

    Keynes says to spend or not spend based on the economic scenario, not politics. No one ever says in a period of sufficient demand and economic growth that Keynes says to spend, and if they do

    But politics controls the money. As FT has pointed out, surpluses are as rare magnitude 9+ earthquakes. So either we have politicians who cite Keynes but don’t really understand it (or it’s just plain wrong), or damn, we gots ourselves a lot of economic turmoil over the past 80 years and gotta spend our way out!

    If you like Keynes, then you need to increase spending to GDP in recessions, and decrease spending to GDP in times of prosperity.

    Fair enough, but it’s not reality. And that’s my problem with Keynes. Gov’t doesn’t sufficiently decrease spending to GDP in times of prosperity.

    This is for several reasons (a) population increases each year, (b) the bulk of what the government does is provide security as we get older, as the boomers get older, this amount increases and (c) inflation.

    Doesn’t have anything to do with waging war every few years? Spending insane amounts of money on the military, as well as making completely unrealistic promises to people the gov’t could in no way actually keep?
    (For the record, I think our economy is also closely tied to war, in a perpetually self-reinforcing cycle. We’ve learned that war stimulates the economy. We spend billions on a professional military in peacetime. How does one justify that unless one goes to war frequently? So we go to war. Prompting more spending on the military. Rinse, wash, repeat.)

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  97. jmb275 on August 18, 2011 at 2:43 PM

    Dang. Link didn’t work. I’ll try again:
    SNL skit about not buying stuff you can’t afford

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  98. FireTag on August 18, 2011 at 2:58 PM

    “When you adjust for inflation and population growth, you see that spending has increased or decreased based on policy over time, consistent with the political ideology of leadership. Which refutes your claim of a common ideology of a “politial class” that constantly increases spending.”

    I’ve beaten the issue of population and inflation to death already, so let me return to the increased spending. What I see is spending that is, over the time of a single business cycle, negatively correlated with economic growth and revenue that is positively correlated with economic growth. What I also see is that revenue averages 18% (17.8 – 1970s; 18.3 – 1980′s; 18.5 – 1990′s; 17.5 – 2000′s) over the period, with little residual correlation with the ideology of the Administrations. I also see that immediate spending averages 21% (20.1 – 1970′s; 22.1 – 1980′s; 20.6 – 1990′s; 21.0 – 2000′s). That 3% per year of GNP, along with the entitlements promised and UNFUNDED for the future, and the unfunded mandates passed to states and private sector entities, constitutes the perpetually increasing spending of both political parties.

    Then we have the 2010′s — for which the economy has gotten so bad that the President’s budget (when last he presented one) says we never get below 23% in spending before beginning to climb again, and is generating so little growth that revenue is only about 15% of GNP as revenue.

    See the link discussed back about comment 12 if you want to see a picture of what’s coming.

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  99. Andrew S on August 18, 2011 at 3:04 PM

    I think BTC has one decent counterpoint…namely, what explains why Europeans don’t have the same 21% “ceiling” that the US does?

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  100. bewarethechicken on August 18, 2011 at 3:42 PM

    jmb275 – I didn’t see anything in there where I adovcated for higher taxes of increased spending, so I’ll assume you didn’t find anything. I concur that we can’t run perpetual deficits and that wars and other non-entitlement spending make a difference, but that didn’t go to the point I was making in the part you quote.

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  101. bewarethechicken on August 18, 2011 at 3:45 PM

    FT – you took a quote of mine and then proceeded not to discuss what my quote says. Thank you at least for not falsely attributing any beliefs or positions to me at least.

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  102. bewarethechicken on August 18, 2011 at 3:48 PM

    Andrew – I don’t recall any other counterpoints so I guess it’s a good thing that you think the one I made is a good one. If I were a cynic, I’d worry that the reason FT ignored it was because he didn’t have a good answer.

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  103. bewarethechicken on August 18, 2011 at 4:05 PM

    FT- you sure use alot of things to get to your conclusion of “perpetually increasing spending of both political parties.” Rather than looking at averaging and business cycles (where do you get business cycle data?) why not just look at federal spending based on the political parties in power like I did? Isn’t what each party spends a better indication of spending than averaging revenues and growth and gdp and the average rainfall?

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  104. FireTag on August 18, 2011 at 4:23 PM

    I ignored it, BTC, because there are too many possible hypotheses to falsify — and no reason to believe the correct one involves any policy decision, let alone one that is applicable in the American context.

    If you can’t explain WHY we haven’t been able to raise American revenues above 21%, or EVEN WHY THAT WOULD BE A GOOD THING FROM AN EGALITARIAN VIEW, why should I bother to address the separate problem of raising European revenues to higher fractions of GNP?

    “Which refutes your claim of a common ideology of a “politial class” that constantly increases spending.”

    Seems to me I responded to the common ideology and increased spending extensively.

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  105. bewarethechicken on August 18, 2011 at 4:30 PM

    If you want to look at actual spending based on Presidential budgets, per capita federal spending, adujsted for inflation:

    1981 (last Carter budget) $5,679
    1993 (last Bush I budget) $7,004

    So Republican presidents increased spending by a little over $108/year per capita

    2001 (last Clinton budget) $7,210

    So a Democrat increased spending by $25/year.

    2009 (las Bush II budget) $10,486

    So the next Republican increased spending by $409/year per capita.

    Now, take into account that Clinton also had huge revenue increases that, rather than spend, he used to pay down the debt, and how do you say that it doesn’t matter who is in power, the government just increases spending and giving more money just means they will spend more?

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  106. bewarethechicken on August 18, 2011 at 4:33 PM

    “If you can’t explain WHY we haven’t been able to raise American revenues above 21%, or EVEN WHY THAT WOULD BE A GOOD THING FROM AN EGALITARIAN VIEW, why should I bother to address the separate problem of raising European revenues to higher fractions of GNP?”

    Because I made no claim that it was mathematially impossible. As far as explaining anything from an egalitarian point of view, I can’t do it because I don’t know what it is.

    “Seems to me I responded to the common ideology and increased spending extensively.”

    You responded to it – but you responded to it by making up things I was arguing for and shooting them down. There’s responding, and then there’s responding on point.

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  107. FireTag on August 18, 2011 at 4:34 PM

    BTC #103

    Because I didn’t want to create 40 special cases, and the decades, except for the 1970′s DO correspond fairly well to administrations. Carter’s 1 term interrupted 20 years of Republican presidencies. Clinton had most of the 90′s, and Bush had most of the 2000′s.

    Now, do you see any trend toward lesser spending for Republican admins than Dems in #98? I don’t.

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  108. bewarethechicken on August 18, 2011 at 4:52 PM

    I don’t have to look to #98 and wonder if they “correspond fairly well” when I can look at #105 and see “precisely” what spending was under each administration. The only reason to look at generalities over specifics is if the specifics refute one’s claim.

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  109. FireTag on August 21, 2011 at 12:27 PM

    Now that the RLDS Fundamentalism post is up, let me get back to this, since it is apparent that we still do not agree about the relevance of the inflation-corrected per capita statistic as the measure of spending from YOUR linked site. (It contains the same spending per GDP data I cited, so I’m not hiding any specifics.)

    So let’s go there. You make the independent variable the last year of a presidential term in which the presidency changes parties. You don’t cite ALL such events in the table, but just three. NEVERTHELESS, RATHER THAN REFUTING MY CLAIM THAT SPENDING IS CONTINUALLY INCREASING, YOUR THREE EXAMPLES SUPPORT IT. Every example of this, IMO, invalid measure of the issue STILL shows increasing spending.

    So why do I object to the measure? For starters, by making the identity of the president the independent variable, one internalizes the assumption that it is policy on spending that determines economic outcomes (i.e., that GOVERNMENT must have the solution) rather than the economic effectiveness of policies and economic externalities that drive spending. But, then, to avoid having to provide any statistical test of that hypothesis, the measure corrects for one, but only one, “externality”: population changes. Next, it “corrects” for inflation, as if an administration’s economic policies toward spending and inflation could be separated. How would you tell stagflation from fiscal restraint using a correction for inflation?

    Nevertheless, I repeat, the inflation adjusted, per capita number STILL shows that Federal spending by that measure increases over time, and there is NO statistically significant correlation with party as to the direction.

    Look at the years of the presidential elections themselves, when any president’s policies will have had maximum time to take effect. Thus, we have had 17 presidential elections since the 1940 beginning of your table (18, really, since we already know the rough spending for 2012). So looking at 1944, 1948, 1952, etc., we see that 15 of the 18 data points are higher in inflation adjusted per capita spending than the preceding data point. I don’t even need to waste time calculating the least squares fit of the slope; that’s a secular increase.

    Actually, you’d be better off using the GDP measure I advocated if you wished to argue against increased spending being present. Using that measure, the trend shows rises in only 11 of the 18 data points. Again, the presidents who bucked the trend are random by party: 3 Republicans (Ike, Nixon, Reagan) and 4 Democrats (Truman, Johnson, and Clinton, twice).

    So I don’t see what claim of mine you’ve refuted.

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  110. bewarethechicken on August 21, 2011 at 12:54 PM

    Thank you for taking the time to make a reasoned response. Continually debating points I didn’t make was getting frustrating.

    I’ll take some time tomorrow to respond.

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  111. bewarethechicken on August 22, 2011 at 1:01 PM

    Ok, if you need to go back to 1940 to illustrate your “new regime” and you contend that there is no statistical difference between hundreds of dollars/person increase under Republicans and $25/per person increase under democrats – then I have no response. If you go back far enough, dems look like republicans and vice versa.

    But in the last few decades, Republicans have a proven track record of dramatically increasing the size of government and federal expenses, deficit and debt. Over the same period, Democrats have stated policies of reducing these same things, even going so far as implementing congressional rules to prohibit increased expenses without corresponding cuts/revenues.

    And this is proved in the numbers. As I said, without comprehensive entitlement reform, the bulk of expenses will go up naturally with an aging population. Clinton still managed to limit expenses notwithstanding this natural increase.

    But, if you see no difference between the two (and, like all republicans, only notice this trend during Democratic presidencies) then I guess you win.

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  112. FireTag on August 22, 2011 at 5:39 PM

    BTC:

    You PICKED the Table to use, and I even did the analysis in terms of the measure you picked. What I didn’t do was allow you to CHERRY-PICK the parts of the Table you wanted to use, by, for example, picking no democratic president before Carter, or including the NEXT democratic president after Clinton — Obama.

    Since the last Republican president who actually decreased spending by your per capita inflation-adjusted measure, you have exactly one Democratic president to do so, and one subsequent counter-example in Obama.

    One data point followed by one counter-example does NOT constitute a new secular trend. A promise isn’t performance, or my wife could own the moon.

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  113. bewarethechicken on August 23, 2011 at 6:22 AM

    You said it was a “new” regime. If you want to do a practical critique of economic policies by looking at what policies were 70 years ago, that is your perogative. Again, I thought your argument was about practical solutions to real problems, not a political piece touting “we’re better than them.”

    Ok, I didn’t really – which is why I said initially – if I want to read a Republican talking point, I’ll watch a press conference.

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  114. FireTag on August 23, 2011 at 11:45 AM

    “You said it was a “new” regime.”

    What are you talking about now? The “new regime” in the OP means that the economy starts to behave differently when debt reaches tens of trillions than when they’re in hundreds of billions. That shouldn’t surprise anyone.

    Comment #112 specifically rejects the idea that your table contains ANY evidence that Democrats have changed the long term behavior of both parties toward increased spending. AND THAT IS THE PROBLEM THAT REQUIRES PRACTICAL SOLUTION.

    People are indeed getting older and becoming increasingly reliant on promises that politicians keep making without having any means to fulfill them that doesn’t produce more inequality than the inequality they are promising to solve.

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  115. bewarethechicken on August 24, 2011 at 8:16 AM

    Ok.

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