Tax Code That Encourages Manufacturing and Savings

[Wonkish1]

Simplifying the tax code (by which I mean eliminating most, if not all, of the various loopholes, deductions, and exceptions, not a flat rate on what does get taxed) needs to be the first priority.  Business income taxes need to shift from a tax on net income which can be easily fudged accounting wise by siphoning off income to various "expenses" to a tax on gross income for which such shenanigans are impossible.  Also the various IRA's, MSA's 527's and other special purpose savings accounts should just be merged into a single purpose ISA (Individual Savings Account) where it doesn't matter what or when you use the money.  It just gets deducted from income when it goes in, and gets counted as income when it comes out.

That would be a rough start.

Absolutely not!!! So as an average over the entire economy 35% net income tax equals about 1-2% of gross revenue tax. And you want to systematically kill the largest commodity based industries(a huge chunk of the economy) in the United States by making them bankrupt and watch as a very high margin company like Apple sees probably a 95% decrease in their tax liability. Yeah that makes a lot of sense.

Besides the obvious "Why tax employment, capital investment, etc.", the most valuable thing about taxing net income is unlike gross, units, etc. at least it standardizes down to exactly why businesses are formed. Their economic reason is to produce net income to owners/shareholders. Revenue is meaningless. If the tax on revenue outstrips their slim margins they shut down operations because it doesn't produce net income.

If your going to tax business you need to tax the value that keeps them existing otherwise you unnecessarily just kill a ton by taxing the value that doesn't keep them in existence.

[Wonkish1]

Sounds like Europe.

Not really. Europe has plenty of taxes on top of the VAT.... whereas I'd want to get rid of all other taxes(other then property taxes on a local and maybe state level, which I'd reform into Land Value taxes instead).

And my vision for a superior healthcare system is closer to Singapore's(the most efficient in the whole developed world at 4% of GDP) then Europe's.

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How could you start off with such a bad idea and end with such a good idea? A negative income tax would not eliminate poverty, but it would help alleviate it. I am not sure it would have much of an impact upon stimulating the economy, though.

By definition a NIT set at the poverty line or above it would eliminate poverty. Of course this ignores the fact that cost of living varies from place to place(so a NIT set at the poverty line wouldn't lift the poor in New York out of poverty, but it would push those in suburban Utah quite far beyond poverty)... but I consider this a good thing because it would trigger the revival of the cities as the lumpenproletariat would flee urban areas for low CoL suburbs, thus triggering white flight from the suburbs into what were previously urban ghettos.

As for stimulating the economy? I'm a believer that the present economic problems can substantially be explained as a problem of insufficient demand. You presumably reject Keynesianism, so I don't think theirs much point continuing this dispute since neither of us will convince the other.

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This is my ideal, but yes I have serious doubts that anyone other then a dictator could implement it.

While we're talking my ideal it would also involve the purging of various forms of rentseeking: professional licenses, agricultural subsidies and tariffs most obviously.

Of course with the corporate tax abolished the whole "corporate personhood" idea falls apart, thus they can be stripped of their capacity to coopt and corrupt politics. And with the corporations kicked out of politics the unions can be kicked out as well(their presence only justified as a counterbalance against corporations.

While we're at it it might not be a half bad idea to obliterate the unions altogether, since with NIT and UHC they're no longer needed as a safeguard against poverty. The unions dismantled should be a major boon to industry.

Then their's the matter of education... I'd try to reverse the shift towards university degrees for jobs/fields that don't really need them; thus ending the qualification inflation throughout the econony and it's attendant consequences of increased student debt, lost years of productivity and declining quality of students on campuses

I'd also make a serious move towards upgrading the nations infrastructure.
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How should I put this. I like the way you think, but you have a couple of (probably ideological) hold ups that seem to prevent you from just jumping both feet into the mindset I think your brain and research are telling is the right way to go.

To start I too think that the Singapore system is the greatest healthcare system in the world. By any objective measure its not even close and completely trounces the one we have in the US and even more so most of Europe, but... its most definitely not Medicare taking over our healthcare system. Actually its what I call Medicare inverted because they don't have an equivalent in Singapore. Older age health costs are paid almost 100% through private money. Its young 18-20s or 30s(depending on your wealth/income) that is paid for by the government.

I too share the same concerns about VAT/National Sales and the ability to keep the income tax from showing back up again(also the issue of how to transition) and so I've concluded that we've essentially gone to far in the income tax world for there to ever be a switch. But its not as big of an improvement as fair taxers think it is so I'm content with that.

The NIT is a good proposal and you've nailed all of the nice benefits that come with it. Unionization becomes less desirable. It also can kill the minimum wage allowing for people to develop advantageous work histories, experience, etc. for career choices that would otherwise not be available. Also, you cease to have much in the way of unemployment issues and the focus shifts to income. Also, currently the federal government is on the hook for all of cost of unemployed individual and a NIT allows the federal government to only be on the hook for some of it because the rest is picked up by real income. Essentially the end of the "either, or" system and allowance of partial support.

Agree with you on the end of *forced* professional licensing. Keep in mind they'll still exist though because people will choose to business with folks their carry various non forced professional designations. For example in my industry, CFA, CFP, CAIA, CLU, ChFC, MSFS, CRA, etc.

But the one that bothers me: you subscribe to Keynesian beliefs in regards to the lack of aggregate demand in the economy as always 100% of the problem no matter what. You are so close. Why not just drop that last bucket of water your carrying and jump all the way in. I mean you already proposed what is sacrosanct to Keynesians anyway... a shift from taxation of income to taxation of spending. Keynesianism is hell bent on making the case that the solution to every problem is just the lack of buying even if the individual/entity doesn't have the balance sheet to support it(cough new debt cough). Krugman and Stiglitz wouldn't even want a consumption taxer even calling himself a Keynesian anyway so its not like they would want you. Plus its the perfect time to give them them the finger and ditch given how their ideas and predictions are getting basically a daily beating in Europe. They told you there was no such thing as the "Keynesian endpoint" ever and now they got a whole mouth full of foot. You've got to at least admit that it is enticing to ditch the school that doesn't leave you out to dry to defend against things they said would never happen, right?

[Wonkish1]

To start I too think that the Singapore system is the greatest healthcare system in the world. By any objective measure its not even close and completely trounces the one we have in the US and even more so most of Europe, but... its most definitely not Medicare taking over our healthcare system. Actually its what I call Medicare inverted because they don't have an equivalent in Singapore. Older age health costs are paid almost 100% through private money. Its young 18-20s or 30s(depending on your wealth/income) that is paid for by the government.

I agree that Singapore has the greatest healthcare system in the world. My reason for specifying Medicare is that the Singaporean method isn't even on the radar anywhere in the West while the single payer health model is, and I think that single payer is at least better then what America has now.

Also if you have the impression that Singapore's system is laissez-faire you're quite wrong. Singapore's hospitals are predominantly "government-owned corporations"(they service 70/80% of Singaporean patients) and since Singapore tightly contains their costs they function as a "public option" thats keeps the private 20/30% lean through competition.

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Yes it is: "Bill Archer, former head of the House Ways and Means Committee, asked Princeton University econometricists to survey 500 European and Asian companies regarding the impact on their business decisions if the United States enacted the FairTax. Of these companies, 400 responded that they would build their next plant in the United States while the remaining 100 companies said they would move their corporate headquarters to the United States". A VAT would of course be even better then the "Fair tax"

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I'm not an ideological Keynesian, which is to say I don't think it's 100% or even 50% of the problem... I think the best strategy is a combination of supply side and demand side strategies(coupled with methods that don't fit in either category).

Are you suggesting that lack of demand isn't a negative impact on the economy? Polls taken of American businessmen show a substantial number(can't remember the exact number but it was something like 30% or 40%) consider the no 1 problem for the businesses the fallen demand for the goods and services.

 

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I wouldn't say they're getting a "daily beating" considering how Greece's austerity strategy seems to be making it's economy weaker... my general impression is that the austerity states are getting hurt badly, while Iceland(which didn't go down the austerity root) has more or less recovered.

Your focusing on the providing of healthcare at location. If you look at healthcare payment the Singapore system is more private than ours. I.E. a larger percentage of the population(and especially a larger percentage of cost--elderly) is paid by private insurance instead of a public plan. And single payer is worse than what we have now because what you don't get is that Americans will not tolerate the end of lavish benefits by fiat and the amount of supply shrinkage to transition to single payer makes it near impossible to do. You end up with the expense and the lower quality and system desperately trying to bankrupt some part of itself all at the same time. That is before you get into a conversation about it being bad policy in general.

Well no $hit European and Asian companies would move factories here if you implemented the fair tax here, but ask any company in retail for example who are reliant on American consumer spending and they'll tell you that it would be the single toughest challenge their company would ever see. Its of course a mix bag. I would prefer it, but the amount of political capital spent to get it and the risk of ending up with both income and sales taxes just points to me saying their are better things to spend that political capital on. For example private accounts in social security I think is the single greatest return on political capital you could ever see in government legislation today.

Well you do realize that demand in the absence of cost is near infinite right? People want to buy things and you don't have to stimulate the desire to do so they will eventually do it anyway. Plus the vast majority of consumption is ongoing regardless of how the economy is doing. So you have to eat. You have to have a place over your head. You can delay the fixing of a problem on your car or some maintenance, but eventually your stupid not to spend on it if you have the money. Same for replacing your roof. Same for eventually replacing broken appliances, cars, etc. The list goes on and on. So when a demand site Keynesian says he wants to stimulate demand what he is really saying is that he wants to accelerate the purchasing of luxury items when a normal individual/entity given their current balance sheet finds it not ideal yet. And how they do it is through the stimulation of debt...personal, corporate, and public. The problem is that encouraging of debt to purchase things that don't have an adequate return on capital either by lowering interest rates to an artificially low level or by directing public entities to spend more money just adds more risk into the system and (in the case of public spending) removes other capital from the system that would have been used on better risk vs. return spending that grew the economy more. I'm in a hurry so I made this short and sweet and come back later if you have comments or ?s.

Well keep in mind that Greece's austerity is almost entirely more taxation and has little spending cuts by comparison. Ireland on the other hand is doing the opposite. And I find it interesting to see the differences in success. Furthermore its the Keynesians that said Greece, Italy, Portugal, etc. would never be at risk of not making interest payments. People like Krugman and Stiglitz said this as little far back as even a 18 months ago. So yeah they ate foot. For them they always thought that the stimulation of government spending out performed the new debt so there was never a reason to be concerned about the burden of public debt. Well so much for that idea, right...?

[Wonkish1]

The reason that so many Americans have fallen prey to credit-driven consumption is because real wages have stagnated and have not kept pace with the rate of inflation. So I would look at a tax code that is most conducive, first and foremost, to higher real wage growth.

That is just incorrect. Credit driven consumption is almost entirely driven by low interest rates on debt and also low interest rates on time deposits. It removes the high incentive to save and gives a high incentive to borrow.

The financing of basic need consumption by credit wasn't an issue at all in the last decade. It was the homes, cars, computers, tvs, etc. that were all taken out on credit and all of which these people could have easily done with a much less expensive alternative or with exception of housing and transportation could have easily done without.

Interesting statistic prior to the crash. The average young graduate prior to 2008 took about 15 years to reach his parents income level, but it only took him about 5 years to reach his parents standard of living. Guess what made up the difference?

[Wonkish1]

Interesting statistic prior to the crash. The average young graduate prior to 2008 took about 15 years to reach his parents income level, but it only took him about 5 years to reach his parents standard of living. Guess what made up the difference?

Dubious right-wing definitions of 'standard of living'?

How about someone that doesn't live in some Robespierrean la la land?

[Wonkish1]

Interesting statistic prior to the crash. The average young graduate prior to 2008 took about 15 years to reach his parents income level, but it only took him about 5 years to reach his parents standard of living. Guess what made up the difference?

Dubious right-wing definitions of 'standard of living'?

Income level is a less dubious statistic than 'standard of living', Wonk, because the latter is terribly prone to funny business like overrating the importance of useless things like the internet, computer machines, or consumer electronics and underrating that a car is far more expensive as a percentage of income than it was in the better days (1970s).

The fact is that income for most people has been in a terrible relative downward spiral since Reagan took office - as is inevitable in any neoliberal economic regime.

Actually its quite simple really. How much do they spend! But to expect Opebo to get this is apparently asking way to much. I guess in Opebo's world a car should be "weighted" and carry a value 5 times its purchase price for calculating standard of living?

[Wonkish1]

Wonk are you referring to cheap junk from WalMart?

Wow you just keep on sinking lower and lower don't you? Its all spending combined. So food, clothes, cars, housing, interest/debt service, vacations, insurance, electronics, restaurants, etc. Add up all of the spending for the year and there you go. Damn you're bad!

[Wonkish1]

... So you have to eat. You have to have a place over your head. You can delay the fixing of a problem on your car or some maintenance, but eventually your stupid not to spend on it if you have the money. ...

Well thats the crux of it:  lack of money = lack of expenditure to meet demand; therefore stimulate system by getting money out there.

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Stagnant economies also have risks.  

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Maybe yes, maybe no.  I see why that is an attractive conclusion from models created in an econ class, but it seems to me that in the real world it is less clear cut.  Depends on where the capital is drawn from and how it is deployed.  

But the money you are referring to is debt, and if its a prudent investment like replacing a roof you'll take out the debt really regardless of the cost of capital. The only thing lowering the cost of capital does is encourage people to take out debt to spend on stupid investments or luxury spending. So the lack of money = lack of debt in our system. The creation of it for stupid spending isn't a good thing for the system.

Actually stagnation is associated with high debt burdens and inflationary environments. So the idea that putting more debt into the system to stimulate demand is a way to stave off stagflation is actually quite retarded.


Actually, its quite simple really. If an investment locks in a high return you will take out the debt regardless if the cost of capital is 3%, 5%, 8%, 20%, etc. For example, the ability to earn an income is the single highest return on capital you can get so taking out a loan to purchase a car even if its a 10% interest rate is a no brainer. By lowering the cost of capital you make less prudent investments more attractive. So if you are actually talking about "stimulating" the economy you are referring to those less prudent investments being made on credit and this goes for public spending as well. So then its a fact that there would be less capital and reserves left to make those more prudent investments. Keep in mind that any single moment in time there is a finite amount of capital to be lent out just the same as their is a finite amount of lumber, gasoline, or cases of beer. I sincerely hope that makes sense to you because its not "maybe yes, maybe no".



Look I get the reasons why you take the positions you do, but once you go into the detail I am  I find it hard to believe someone could stay objective and keep on taking those positions.

[Wonkish1]

...Its all spending combined. So food, clothes, cars, housing, interest/debt service, vacations, insurance, electronics, restaurants, etc. Add up all of the spending for the year and there you go. Damn you're bad!

But what's your point?  You claimed that 'standard of living' was going up even though income is going down.. how can this be other than 'technological advance' or cheaper junk from slave countries?

I asked the question and its clear you weren't able to figure out the answer. The answer is debt. The reason why graduates achieve a standard of living equal to their parents a whole 10 years prior to their income catching up to their parents is because prior to the crash these folks accomplished that by financing that lifestyle on credit.

So yeah instead of thinking about some obvious answers you instead looked for weird complicated answers that didn't have anything to do with the issue.

I hope the real answer makes a lot more sense for ya.

[Wonkish1]

But what's your point?  You claimed that 'standard of living' was going up even though income is going down.. how can this be other than 'technological advance' or cheaper junk from slave countries?

I asked the question and its clear you weren't able to figure out the answer. The answer is debt.

The reason why graduates achieve a standard of living equal to their parents a whole 10 years prior to their income catching up to their parents is because prior to the crash these folks accomplished that by financing that lifestyle on credit.

No it isn't!  It is because their income is too low.

Before my father started his own business, he was a unionized worker in the late 50s through the late 60s, and the rate of pay was equivalent to about $50-75/hour - this is what enabled the growth in the economy and the improvement in living standards back then.   The reason for the debt is simply the declining and unlivable incomes of the vast majority of americans nowadays (and after all debt is no problem if you have a livable and rising income, as you can simply pay it back).

Your veering off the topic. I don't know what the amount of time was in the 50s for a new adult to achieve his parents income. Prior to the crash it averaged 15 years. It may have been shorter in the 50s. The point being made was that new adults have been achieving the standard of living of their parents in only an average of 5 years. The difference is a higher proclivity towards debt and less saving than their parents.

So you are talking about something completely different. The point was this large spread being financed on credit nothing more, nothing less. Lets say you succeed in boosting the income of folks today that doesn't change the fact that a large spread between spending and income financed on credit is not a good thing for our society. It adds risk to those indebted and the system and it straddles long term burdens on average people and entities. So way to completely bumble the point of the little factoid.

So by posters above saying that they are supportive of Keynesian policy to stimulate demand what they are really saying is to further encourage people to forgo saving for spending even when its luxury spending or imprudent investment that will later cost them more in interest expense or even blow up in their face when people realize the only thing that "investment" is being driven by is borrowing with artificially low interest rates. They are saying they would further encourage this horrible spread in the name of "stimulating the economy" even though this cheap credit to buy a new TV from Wal Mart is doing nothing to help the average American and on the contrary making things worse for them.

Opebo if you truly are worried about the little guy its the perforation of debt to fund luxury spending that should give you cause for concern instead of being on the side of Keynesian bankers that love it when the demand for credit is high and can make obscene profits with a large spread between an extremely low FFR/deposit rates and the interest rate they are lending at.

[Wonkish1]

LOL, Link. First starting off a discussion by saying people are majority retarded shouldn't win you many friends. Its interesting to see that type of Bill Maher like contempt for the average American so willingly.

Second, your argument has absolutely nothing to do with the comments I just made. The line about someone being stupid if they put off car maintenance for example wasn't an assumption to the overall argument. So maybe this should be the moment where I should say, "I'm beginning to see the problem liberals can always find a piece of a statement that they will take to completely misunderstand a point and that is why they never learn anything." The point to the first 9 sentences is that most spending is reoccurring even in a bad economy. This is a key point that Buffett has made over the course of the recession and its a correct one. Nothing in those first 9 sentences has anything to do with people being ramming into the back of a person because they didn't change their breaks. Instead in aggregate this notion that demand falls off a cliff in a recession is incorrect. Most of things people spend money they still do during a recession(they may delay some, but they still do). The list provided is just examples its not a crux of the argument. People can be stupid during a recession or a boom, it doesn't change the fact that the vast majority of consumption is ongoing even during a recession.

In regards to "if they have the money" piece. First, I'm referring to liquidity here which means both the having of cash and the access to cash and its again not a condition of the argument, but instead a qualifier of the example. Now when I refer to Keynesian stimulating of Demand you are looking at basically two things(and I thought that the reader would get the difference when I was talking about one or the other, I guess I was wrong so allow me to break it down--hopefully you can now not confuse the effects of expansionary monetary policy with that of fiscal policy):
1) Is the lowering of base interest rates to encourage the demand of debt. That doesn't improve the average persons access to credit because their credit worthiness is a separate issue than interest rates. It instead just encourages people who otherwise wouldn't have taken out debt to finance investment or luxury spending. Since the making of a good investment(returns above the cost of capital) will be taken out or not(see your stupidity line is covered) regardless of the interest rate is 3% or 10% then again interest rates don't matter for this category(the high return category). Instead what you get out of artificially low interest rates is either a) bad investments that maybe only return slightly more than the current artificially low cost of capital that will blow up when interest rates rise later or b) more luxury spending that may have been avoided if interest rates were higher(any of this that can be avoided is a good thing not a bad thing regardless of what dip$hits like Krugman believe who actually root for as many people as possible to take out $2k TVs on a credit card. Remember kids if your a Keynesian saving is bad and luxury spending financed on credit is good). Whats actually quite funny is that this argument is what takes into account stupid people because if everybody was smart nobody would finance luxury spending on credit. It is our acknowledgement of stupid people that shows why the Keynesian notion of encouraging people to do this by artificially low interest rates is a bad thing and actually if everybody was really smart the effect of Keynesian monetary stimulus would be zero.
2) The debt spending of public entities to try to stimulate demand in the economy. First lets establish the fact that presence of number 1) makes them particularly reckless because as soon as the FFR has to rise or interest rates naturally move up these idiots(actually probably the biggest idiots of them all) are immediately in trouble(example Europe). But using up limited capital within the private sector to make public capital investments doesn't do anything more for the average person than that limited capital being used up by private enterprise/entities/individuals to make capital investments unless of course you are one that actually believes that the public sector is more efficient and makes more prudent and higher returning investments than the private sector does. So again you have accomplished nothing by doing this and likely made things worse by using up finite capital that would have otherwise been put to better use in the private sector. And so you don't "free up anything" quite the contrary.

In reference to this "So when a demand site Keynesian says he wants to stimulate demand what he is really saying is that he wants to accelerate the purchasing of luxury items" you completely shot and missed. Notice how I say "individual/entity" and you assumed I was talking about public right then. I'm instead talking about the desired outcome of Keynesian stimulus(monetary or fiscal) and that is to increase the amount of spending done by average people either by increasing their desire for credit or by giving them money to spend financed by government debt. Furthermore keep in mind that throughout this entire process I have been saying luxury items and bad investment(I wonder if you purposely left the second point out because you don't like difficulty in making your argument). Have you ever calculated the return of another bridge lets say 5 miles away from another bridge and determined whether that is a higher return than making an investment in a new gas station, a factory, and a shoe store for example? Because central planners don't think that way and yet that when we are talking about the economy that is what matters and if they even started calculating that it would at least be an improvement over their current stupid crap. What if the cost is more than the benefit? Instead liberals just assume that if its public spending its got to be worthwhile. Sorry, but if that was true the Soviet Union would have been an amazing success. Again the public sector is not as efficient as the private. Millions of private businesses and individuals are better at picking the highest returning investments than a couple people like you or some dip$hit "Tsar" is.



You do realize that a FFR of 0% is completely unnatural right? And that if the Fed was a private entity looking for a profit that level of stupidity and handouts to bankers would never happen, right? Only public entities offer giveaways like that because they don't actually personally pay for that level of stupid charity in the attempt to "stimulate the economy". So yeah if the US government paid down debt interest rates would fall and if you put the FFR back to anything close to what a private entity would charge and the Fed starting selling of their huge treasury and MBS portfolios then you would see interest rates move considerably higher that would completely dominate any yield pressure from the US government paying down debt(also even if the government starting paying down debt the lowering of *overall* interest rates wouldn't last long as other forms of new debt issuance, such as corporate, took its place).

[Wonkish1]

Nobody is railing against public funding of basic infrastructure such as bridges/highways at the state level, firefighters/police officers at the local level, and the military at the national level. Even Adam Smith spoke out in favor of public funding of basic infrastructure.

Put aside the improper allocation of resources (e.g., getting government into realms it has no business being in) and perverse incentives, as noted by Wonk, and here's the biggest problem with Keynesiansim: The deficit spending never seems to go away even after the business cycle is on the upswing again. You can look at the data of many nations, and from a strictly Keynesian, theoretical point-of-view you would think these nations have been in the midst of 30+ consecutive years of recessionary conditions! Eventually the enormous, non-stop deficit spending adds up to a situation like Japan where debt-to-GDP is over 200%, which is obviously a figure that can only end in default.

LOL that is the real funny part about liberals, social democrats, labour, etc. they aren't even good Keynesians. At least Keynesianism believes in cutting spending and running large surpluses in boom years, but in each and every case they demand more spending even then.

At least they could be honest as to what they really are. They aren't Keynesian technocrats instead they are statists without any economic school of thought behind them because no real economist would ever be caught dead advocating the sheer stupidity of their ideas.

[Wonkish1]

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Yeah, but you responded to my comment which wasn't talking about the public expenditure and was instead talking about the "stimulation" of private demand that is why I corrected you.

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Okay, but we aren't talking about the "handling of tasks". We are talking about the economy and what causes growth. Keep in mind the whole start of this discussion began with another poster about the subject of the "lack of demand" and whether "stimulating" it was good for the economy. So for example obviously police needs to be a public function, but that has nothing to do with the topic. The topic is whether or not additional public spending on things like fire fighting, highways, bridges, etc. does more to benefit the economy than private sector investment. The real answer is it depends. Now even with a finance background I could probably never calculate these things close to perfectly, but I could probably give a better stab at it than you could given my background. For example another bridge probably has an economic return on capital equal to the amount of time it saves people daily and the economic worth of that time. So the first bridge for 200 miles probably has a huge return on capital and another bridge 2 miles from a different one could easily have a huge negative return on capital(and it will definitely have a lower return on capital than the average for the private sector at the time). An approximate idea to take a stab at doing this would be to bust out a financial calculator and estimate the amount of people that would be using the new bridge. Then estimate the amount of average time they would save. Then estimate an approximate value for that time. Then input the total cost of that investment into the calculator with the annual "savings" into it as the cash flows and discount it back by lets say 6% and boom out comes your IRR. If that IRR is lower than the average the private sector is getting on new capital investment than congratulations you just actually did damage to your economy by approving that appropriation. Since the private sector is much better at doing these things than the public sector I'm inclined to not rely on public sector capital investment to produce a better recovery than private hence why I don't agree with anything, but small ongoing infrastructure spending on as needed basis not some stupid here's a few hundred billion now go find a ton of projects regardless if it generates good public returns on capital or not because the goal is to employ people not actually fill to maximize growth.

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Obesity is just an example. You could go down a long list of glass half full and glass half empty stuff on the intelligence of the American people. Practically all of America can read and write. The amount of degrees among the population is very high. The amount of successful businesses started by Americans is very high. The wealth as a nation we have achieved makes us an envy of the world. I mean the list goes on and on. People are a mixed bag. The fact that you only choose to see only the negative in people is up to you, but that doesn't necessarily make it an accurate portrayal of them either. Keep in mind those same people occupy government positions as well and so don't expect any more magic from them either except when they make a mistake it screws everybody over(also I tend to be surprised by the relative idiocy of people that occupy public positions relative to their counter parts in private positions).

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Thank God anecdotal evidence isn't a substitute for anything. By the way speaking from a purely financial perspective that still was likely a bad investment. From a piece of mind "I got a luxury that gives me true joy" perspective that could have been the best investment in the world I can't comment on that part though. Today(and what should have been the case always) the investment in a home should have been entirely based on a rent vs. buy calculation. That means you find the minimum sized home for you to live comfortably in and you look at the rental price of such a place. Then you compare it to the cost to buy and input the length of time you estimate to live their. When doing this the principal value is the length of time because that points to the amount of principal pay down you get. **Any home bigger or nicer than what you can live comfortably in is technically an "investment" in luxury(calculated based on the spread in cost between the two). The housing boom skewed this traditional calculator because people started buying not because it booked some of what would have been rental payments into principal reduction, but instead because they assumed astronomically high appreciation rates...that was a new phenomenon caused by lots of other buying on a cheap credit.

[Wonkish1]

The deficit spending never seems to go away even after the business cycle is on the upswing again. You can look at the data of many nations, and from a strictly Keynesian, theoretical point-of-view you would think these nations have been in the midst of 30+ consecutive years of recessionary conditions!

I hear you dude...

Where's 2009-2012? Oh yeah...we would need Al Gore's forklift for those years.

FYI: I am registered Democrat. What the hell are you doing trying to turn this into a partisan issue, anyway? Both sides are guilty of deficit spending to no end. At least the Republicans do it to "starve the beast" in hopes it will lead to a smaller government down the road. Democrats in power do it because they don't care about the future. Well, at least Obama doesn't. Give him four more years, and we'll be lucky not to default by 2025.

This isn't about Democrats and Republicans.  This is about people that believe in absolutes and people like me who use logic and facts.  Like I have said multiple times before there are certain things government should be involved in and there are certain things the private sector should take the lead in.  There is a time for deficit spending and there is a time for making cuts and having a surplus.  The same is true on an individual and corporate level.  It's called balanced.  I am all for spending cuts when the economy improves or at least isn't in danger of sliding back into recession.  I am also for letting the Bush tax cuts expire for everyone eventually.  They can go up on $250K/yr net taxable income people now and the rest of the people when the economy improves.

As far as Obama vs Romeny is concerned.  Read Romney's plan.  Tax cuts for the rich are not going to improve the deficit situation.

But Link lets be honest though what is actually happening during those boom years? You see the Dems proposing a huge expansion of spending in their budget proposal and the Republicans proposing either a freeze or a small decrease in their budget proposal. If Clinton didn't have to negotiate with the GOP in the 90s there is no way you would have had a surplus in the 90s just going off the budget proposals he actually submitted. Furthermore, look at the state budgets in the US today. The blue states(even before you take into account off balance sheet liabilities like pension liabilities) are in far worse situation than red states.

Being honest and "using logic and facts" you have to at least admit that every time the budget proposals come out its the Dems that offer up more spending even when technically in boom years if they were true Keynesians they should be offering up decreases in government spending.

Can you at least give this one?

[Wonkish1]

Opebo if you truly are worried about the little guy its the perforation of debt to fund luxury spending that should give you cause for concern instead of being on the side of Keynesian bankers that love it when the demand for credit is high and can make obscene profits with a large spread between an extremely low FFR/deposit rates and the interest rate they are lending at.

Not at all wonk, there is no problem with heavy borrowing as long as incomes are legislated to go up rapidly every year, as was the case from the 30s through the 70s.

See that is where you just hopped on the crazy train. Add a new one to the list. Opebo's 50th idea for wanting to screw over the little guy: Get them very heavily indebted on crappy luxury consumption.

[Wonkish1]

No luxuries involved, wonk, just house and a car or two.

Well than what are you here disagreeing with me about?

If you need to get a car so that you can get to work then you'll do it regardless if interest rates are 3% or 10%.

And if you want to buy a house instead of rent because it makes financial sense(your going to be there long enough) then you'll do it regardless if interest rates are 3% or 10%(keep in mind that housing prices fluctuate inversely to interest rates absent any other forces because housing is actually more of a financial product--**mortgage**--than a physical asset. I mean that in the sense that demand is determined substantially more on the monthly payment instead of the purchase price. So if interest rates rise housing prices come down leading to less of a change in monthly cost to the buyer than you think).

[Wonkish1]

No luxuries involved, wonk, just house and a car or two.

Well than what are you here disagreeing with me about?

Obviously I am disagreeing with your thesis that people have amassed debt due to spending on luxuries.  To the contrary they have largely amassed debt spending on basic necessities such as houses and cars, and the problem which caused the debt to be un-repayable is their inadequate and falling incomes - falling incomes caused by capitalism (neo-liberal policy).

First, you do realize that this is in the context of Keynesian monetary stimulus, right? That means we are talking about whether its a good idea to encourage additional spending with lower interest rates or not. If its a necessity they are going to take out the debt anyway. The only thing the lower interest rates does is to encourage people to go beyond necessity and prudent investments. So do you think its a good thing for the government to encourage people to take out debt to purchase luxuries they otherwise wouldn't have spent on.

Second, you are just simply wrong that most of the new debt was to pay for "basic necessities". Housing may be a "basic necessity", but that doesn't make all homes a necessity. A $600k home is likely at least 50% luxury spending just like a lobster is mostly a luxury(while food is a basic necessity). A 70k mile $8k car financed over 5 years may be mostly a need--for getting to work, but a brand new $40k car financed is mostly a luxury. The average American before the boom wasn't somebody earning less than $15k a year who couldn't afford to eat, have some form of housing(rent most likely), pay electricity, water, a car, and gasoline especially considering that government policy in the US pretty much makes sure you'll be able to afford those things assuming you even show up to get the benefits. Instead the average American household prior to the crash lived in a home valued at $230k, owned 2.5 cars, had a few TVs, had cable/satellite, had broadband internet of some type, spent $500 a month on food(almost half of which eating out), they likely took a vacation every year or 2, they probably were able to finance at least 2 semi expensive hobbies, likely spent more than 2 grand every year for Christmas, etc. But at the same time if you excluded their home and their 401k they likely had probably had no net worth courtesy of their high credit card debt and auto loans of which probably wouldn't have been an issue if they even cut their Christmas spending in half and lets say stopped eating out or just bought used cards. Now since the boom is over even absent them losing their job or taking a pay cut they still probably have a negative net worth even if you include the 401k because the house is so under water. But I guess we gave up on Opebo being accurate about anything long ago.

[Wonkish1]

Whenever feasible, the free market should take the lead. I agree that there should be some fiscal spending to help counteract downturns in the business cycle with regards to spending on building/fixing highways/bridges and other basic infrastructure projects with positive spillover effects that the market will not provide adequately. That does not mean throwing $500 million of taxpayers money at a pie-in-the-sky company that nobody else will lend to, to give an obvious example.

Let's not forget that the private sector ultimately funds the public sector.

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Romney will eliminate the deficit via spending cuts, and all future spending will not occur unless it makes sense from the standpoint of contributing to economic growth rather than being parasitic waste. We do not have a taxation problem; we have a spending problem. We are not only spending too much, we are not spending funds properly.

Sorry long day.  These posts are long as well.  Haven't had time to respond.  I will say a couple of things though real quick.  First this is a very flawed statement...

That does not mean throwing $500 million of taxpayers money at a pie-in-the-sky company that nobody else will lend to, to give an obvious example.

I assume you are referring to Solyndra.  I personally don't know whether it was, at the time, a smart idea or a dumb idea to support Solyndra.  Hindsight is 20/20.  What I can say is venture capital is a tough business or else we would all be doing it.  There is a reason you don't see me denigrating Mitt Romney's activities in private equity.  I am better equipped than most to do financial analysis on companies and I honestly don't have access to all the facts regarding Bain's dealings or Solyndra's.  They should both be looked into but for 99% of the people in America making a sweeping statement about either is foolhardy.  No business has zero failures.  If you do you either haven't been in business long enough or you aren't trying hard enough.  And in light of the $1trillion+ pointless war in Iraq that Bush ginned up I really don't think investing in an American renewable energy company was the worst thing in the world.  We literally had entire palettes of one hundred dollar bills disappear in Iraq.  Now that should be something people are fired up about.

As far as investment track records the government gave us the internet and the private sector used it for complete evil and gave us the tech wreck.  Sometimes the government gets it really right and sometimes the private sector gets it really wrong.

I simply do not share your unshakable faith in the private sector...



The government and private sector have both had some gigantic blunders.  Placing all your faith in either one doesn't seem like a smart strategy to me.

So you follow up billions wasted in Iraq with pets.com? Seriously?

Also keep in mind that government is essentially a single entity(i.e. a single budgeting authority) the private sector isn't. Instead its made up of millions of participants. And I'm sure you time at that bank taught you something about the concept of diversification. A mistake by a few people at a company rarely has much impact beyond their own shareholders, employees, and creditors and once it goes into bankruptcy and gets liquidated the mistake stops.

In the case of the government, blunders end up being absolutely massive because of the sheer size of dollars they handle. They affect everybody. And they are ongoing because unlike the private sector there is no mechanism that immediately stops the stupidity and blundering once it begins; what I mean is that if the government screws up and starts wasting a couple billion dollars on something there is no bankruptcy that ends the spending instead they keep on wasting it year after year after year.

Now tell me again why a private business of which my contribution of money(purchasing) is voluntary making a blunder and going bankrupt is equal to a government body of which my contribution of money(taxes) is mandatory making a blunder and costing me year after year after year because they can just cover their mistakes by the treasury in perpetuity(or more likely until sovereign default)?

Because any sane person should prefer that private business going bankrupt any day of week and twice on Sunday.

[Wonkish1]

Link, allow me to point a few reasons why the private sector and capitalism will always have a huge advantage over the public sector in the allocation of capital in an economy, and I'll even avoid the much cliche'ed rationale of incentives(most liberal teachers/professors will say the failure of the Soviet Union was because people didn't have an incentive to do a good job while true it goes much further than that):

1) Decision making in the private sector is much more diversified. I.E. of course stupid decisions get made, but there are also much more correct decisions made in the millions of participants that more than compensate for the ones that make stupid decisions. In the public sector decisions are made by a handful that can make smart ones, but more likely because they are few in number to be far from ideal decisions causing missed opportunities and outright losses.

2) Putting your own money at stake invites substantially more caution than putting other peoples money at stake. While the private sector frequently involves the investing of other peoples money, key decision makers(boards, CEOs, owners, investors, portfolio managers, etc.) almost always have substantial portions of their wealth at stake as well. That is a huge improvement to state operatives who 100% of the time have 0 of their own money at stake so they don't have any sense of caution and careful risk taking/spending because they aren't footing really any of the bill if they are wrong

3) Profit is actually a very efficient mover of capital allocation. If someone makes oversized profits then (with the rare exception of key government or natural barriers to entry) other participants are quick to move in and price them down benefiting the consumers that wanted that good or service. Profit is derived from high demand so allocating capital based on what people *actually* want is huge improvement to either a) what a central planner wants it to be allocated to or b) what a central planner thinks people want(but he lacks the most straightforward indicator of them all--what is profiting the most).

4) The private sector has a self correcting mechanisms unlike the public sector. So even if you believe the majority of people will make stupid decisions in a society it still functions perfectly. The reason being of course is that lets say a lot of blind squirrels make a bad decision, they go out of business, fail, etc. The few blind squirrels that find the nut even if by complete accident succeed and the key point is that their business stays around year after year after year. So even if I were to take the absolutely most grotesque assumptions(of which I'm not agreeing to, but will use for the sake of example) involving everybody in the private sector being idiots and everybody in the public sector being geniuses the private sector will still out perform. Lets give a math example to illustrate the point self correction with many bad decisions is superior to many good decisions with no self correction.

We have to groups here we'll call public and private that have two different bags of marbles. Private has a bag with 5 marbles only 1 of which equals success and 4 of which equal failure. Public has 5 marbles with 3 successes and 2 failures. If a a success is pulled out of the bag you get $1,000 of monopoly money annually in cash flow. But if a bad marble is chosen out of a bag there is a difference between the two bags. In public they pick up $1,000 of negative cash flow(they have to give up $1,000 a year). In private since its self correcting they just have to give up a one time payment of $1,000 for each negative marble marble they draw, but its not ongoing like in public(this is to represent the self correcting function). Both groups start out with $500,000 of monopoly money. Lets say 50 draws in each represent a year. Now I dare you to run that simulation once and look at lets say year 50.

In that small simulation I just demonstrated to you that even if the public sector was far superior in capability than the private sector(which its not instead the opposite is true) the lack of even a self correcting mechanism makes it still far, far, far, far worse than the private sector just on that basis alone.

**5) *My personal favorite* The one thing the private sector is amazingly good at is allowing the people that are closest to what is going on in a particular area of the economy and who have the most expertise in that particular area to be the ones that handle it and make decisions in regards to it. Capitalism is amazingly decentralized. The public sector has to appropriate everything so decisions have to be passed down from central planners all the way down to the average person like a military chain of command on practically everything and there is absolutely no mechanism for fixing a persistent mismatch of information between people an authority and on the ground. What I mean by that is lets say someone on the ground who has all of the information pertaining to that particular issue, but little of the authority isn't able to filter the appropriate information back to people higher up to allow him to change course address the problem more appropriately with what he or she sees because they are closest to the issue. In the public sector that just continues to go on and can go on forever or at least for a very long time. In the private sector, even with a large corporation with  a several levels of management(keep in mind most business in the private sector is conducted only a couple degrees or less away from management because of how much small and medium sized businesses dominate the American economy. Also keep in mind that even a CEO of automaker is closer to addressing the need that a bureaucrat central planner in Washington is) if the people that are closest to the customer are getting information that would point to doing things differently(and they don't have that authority) there is the ability of other competitors that are more agile and have a better idea of that information to come in and better fill that need.

The reason why this is important is because it so clearly demonstrates that private sector under a capitalist system is the only system in existence that allows for enough decentralization to make the trillions of small corrections everywhere all of the time because customers, the need, information, and expertise are so close together which is so far away from central planners. To give you an idea the knowledge that a particular unit has a major defect in a small tiny industry probably only takes anywhere from a few hours to a couple months(in the worst of companies) to get to decision makers at a decent sized company. For that same information to get back to a central planner it would probably take customers shouting as hard as they could for years before maybe some central planner with budgetary power and decision authority takes notice.

Idk, I thought you may enjoy some of these and be some food for thought.

[Wonkish1]

As far as investment track records the government gave us the internet and the private sector used it for complete evil and gave us the tech wreck.  Sometimes the government gets it really right and sometimes the private sector gets it really wrong.

I simply do not share your unshakable faith in the private sector...



The government and private sector have both had some gigantic blunders.  Placing all your faith in either one doesn't seem like a smart strategy to me.

So you follow up billions wasted in Iraq with pets.com? Seriously?

In my post I mentioned the gigantic pallets of hard currency that dissappeared in Iraq.  That was by no means the only way money was wasted in Iraq.  The dissappearing pallets of hundered dollar bills was just a symbol of what went on during Bush's fake war.  I do not have the time to detail the cost and ultimate fate of every bullet that was sent over there.  Like wise I do not have the time nor inclination to detail the ultimate fate of every dumb private sector "investment" during the turn of the century.  Pets.com was just an easily recognizable symbol of the massive private sector incompitence.  And just to be clear it wasn't billions that were wasted in Iraq.  The final cost of the war will be over a TRILLION.  To further clarify Pets.com's bankruptcy wasn't the only one.  There were others...



My posts assume a certain amount of general knowledge from the reader.  When I mention Pets.com I assume the reader is aware of JDSU, Nortel, Toys.com, Enron, MCI/Worldcom, etc.

No individual company produces losses like the Federal government does and its not even close. And if they even produce a loss that is a fraction of 1% of many of the ones the Federal government takes after a couple years they would be bankrupt. As your two examples point out the disparity in the size of the money we are talking about between the Federal government and a company is staggeringly large.

Your quote from the dot com bubble just shows you don't understand how capital markets work. Equities may have lost $5 trillion in market value between 2000 and 2002, but the economy didn't. What you don't get is that the vast majority of those losses were dollar holders and fixed income owners gains. So the net loss was much, much, much smaller. I can guarantee you that if I added up all of the losing industries stock losses even in a boom year and posted it as a singular number it would look big too, but it wouldn't take into account all of the winning equities that more than compensated for it. There are other assets, holdings, etc. in capital markets not just equities and some of those do well during down turns(like cash which suddenly is able to buy a lot more) so the real capital market losses were much smaller. Look at the GDP losses for a much more useful metric.

[Wonkish1]

1) Decision making in the private sector is much more diversified...

Again, Moody's and S&P.

Capitalism is amazingly decentralized.

And again... Moody's and S&P.

Would you rather have a government body that is responsible for everything from payday loans to derivatives setting the ratings for securities and determining investment grade or companies that specialize in it. (also there are more ratings agencies than the big 3 including a couple up and comers).


Market prices are set by millions upon millions of market participants and not by credit rating agencies.

[Wonkish1]

Now tell me again why a private business of which my contribution of money(purchasing) is voluntary making a blunder and going bankrupt is equal to a government body of which my contribution of money(taxes) is mandatory making a blunder...

Moody's and S&P.

'nuff said.

You do know that both of those companies have limited impact on market prices right? Like the typical European sovereign bond or CDS trades at a price that is implicitly 2-8 notches below the current S&P or Moody's rating.

They aren't God's of markets. The only real power that has been given to them is by the government; many pensions, insurance companies, etc. have regulations based on the concept of "investment grade" and the government has granted these companies exclusive power to determine what is investment grade or not. So that is just one cutoff and that doesn't affect most fixed income products because they are either clearly in one category or clearly in the other, but that issue does come up when its more difficult to assess.

Moody's and S&P are not the cause of the crisis. It would have happened even if these assets were given junk status.

[Wonkish1]

4) The private sector has a self correcting mechanisms unlike the public sector.

The example of Moody's and S&P would seem to indicate otherwise.  They are still in business and seem to have emerged from the devastation they caused unscathed.

Well first of all in terms of self correction if creates large losses *for your company* you go out of business. If it hurts *your customers* you change. CRA's are in the latter category. I can guarantee you that they aren't rating mezzanine tranches of CDO's AAA today.

[Wonkish1]

Capitalism is amazingly decentralized.

Not if you look at the banking sector...

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All these right wing statements sound nice until you actually look at real world data.  The real world is not a simple model from Econ 101.  In the real world power in certain areas of the private sector is concentrated in the hands of a few players who answer to a comparitavely small number of share holders.  Further compounding the problem is most share holders are comatose.  I do not attend the meetings of the thousands of companies I own in my index funds and I'm going to go out on a limb and guess neither do most people.  On the other hand over one hundred million people turned out in 2008 and ultimately elected Obama.

I guess you don't understand much about even the concept of decentralization. First, once you actually are decentralized to the point where a company is in a one or only a handful of industries its already very decentralized. If we were talking about the federal government they are involved in thousands of industries. So on that mark alone its public sector 0, private sector 1,000,000.

Furthermore, even JP Morgan itself is very decentralized. There are several divisions within JP that act very autonomous from the overall company. JP Morgan I-Banking, JP Morgan C-Banking, JP Morgan Mortgage Division, JP Morgan Wealth Management, etc. and when you get down to JP Chase branches they are very autonomous entities as well where the bank manager has substantial authority. But this is just a minor point.

Lastly, lets just point out that if it wasn't for the Federal government...Paulson, E-Harmony(Geitner's nick name), etc. many of these banks would never be this big. And that goes for both the aftermath of the crash and the run up because they got preferential treatment through the NY Fed on their capital requirements.

When you are a customer of a company you have anywhere between 100 to 1,000,000 times the voting power you do when you cast a vote for President. Lets face it when you vote for President (while its a good civic thing to vote) your vote really doesn't matter. It has little impact. When you vote with your money for a company by being a customer your 'voting power' could be significant enough to be the difference of that small company surviving or dying. The distinction isn't even close.

[Wonkish1]

As far as investment track records the government gave us the internet and the private sector used it for complete evil and gave us the tech wreck.  Sometimes the government gets it really right and sometimes the private sector gets it really wrong.

I simply do not share your unshakable faith in the private sector...



The government and private sector have both had some gigantic blunders.  Placing all your faith in either one doesn't seem like a smart strategy to me.

So you follow up billions wasted in Iraq with pets.com? Seriously?

In my post I mentioned the gigantic pallets of hard currency that dissappeared in Iraq.  That was by no means the only way money was wasted in Iraq.  The dissappearing pallets of hundered dollar bills was just a symbol of what went on during Bush's fake war.  I do not have the time to detail the cost and ultimate fate of every bullet that was sent over there.  Like wise I do not have the time nor inclination to detail the ultimate fate of every dumb private sector "investment" during the turn of the century.  Pets.com was just an easily recognizable symbol of the massive private sector incompitence.  And just to be clear it wasn't billions that were wasted in Iraq.  The final cost of the war will be over a TRILLION.  To further clarify Pets.com's bankruptcy wasn't the only one.  There were others...



My posts assume a certain amount of general knowledge from the reader.  When I mention Pets.com I assume the reader is aware of JDSU, Nortel, Toys.com, Enron, MCI/Worldcom, etc.

No individual company produces losses like the Federal government does and its not even close.

Well two companies working in tandum caused global devistation through one simple decision, Moody's and S&P.  The only governmental semi-equivalent in recent history was Bush's war.  Well actually he made two decisions.  First the tax cuts and then the war.

They didn't cause it the Fed was 90% of the problem.

Something is seriously wrong with you think that the only money the government has ever wasted was during the Iraq War. Why am I even talking to you if you are that out of it?