Economic Policy

[johngalt1234]

Any nation which wants to progress has to follow sound economic policies to achieve its ends.

Sound economic policy dictates that saving be considered a virtue. Savings allows accumulation of capital which then can  be used for industrial production.

In America consumer activity is a figure that is used to judge economic activity. We have consumer confidence readings, Retail sales, New home sales and a bunch of other data.  What we are doing is missing out on the whole point that economic growth is not measured by how much consumers spend but rather the sum of the goods and services produced by the country.

Production always comes before consumption. Just as you cannot expect a paycheck if you dont work, so also you cannot expect to consume if you have not produced. It is precisely here that we have a problem.

With the decoupling of Dollar from Gold, we now have the capacity to print as many dollars we want so that we control the swings of the business cycle. Predicting the business cycle is no easy feat, so we have a few extra dollars floating around that causes inflation. Now inflation is not a bad thing in the mind of the Federal reserve.  Here is how it works.

Inflation allows the price of goods to rise. A financially prudent family would put aside money for a rainy day for emergencies. As far as possible they will save for the purchases of big ticket items. With inflation, it is possible to buy the item now, and pay for it with inflated dollars. So it makes sense for the consumer to borrow to buy things. The consumer is on a buying binge, because if he buys today, he knows it is going to be cheaper than tomorrow. The Government is also doing the same, take on debt and then pay back with inflated dollars. A wonderful racket.  However, all this comes with a little fine print called debt repayment.

In order for consumers to service debt they need jobs and for the Government to service its debt it needs tax revenues which again is dependent on jobs.

Consumers are so accustomed to looking for bargains that other countries are more than happy to supply us with cheaper goods. So now we start running trade deficits. Meaning we print a dollar and buy someone elses production. Trade deficits means loss of employment which means we are eroding our tax base, meaning the govt has to borrow more and more to keep afloat.

There are a lot people who buy Govt bond, because of safety of capital.  Those who export to us love to buy our bonds too. It keeps the price of the dollar up and because they hope we dont default, things can continue indefinitely or so they think.

What could go wrong?

1. The dollar declines in value so that no one wants to buy Govt. Debt.  If the dollar declines and since Govt debt is denominated in dollars we will pay back with a deflated dollar. Obviously a foreign nation would like to get interest and also be covered for the dollars decline. The demand for debt declines and so the coupon rate goes up.  We have to pay an even greater debt servicing cost so we have to borrow more and pay more interest. For the consumer that leaves them will less and less deiscretionary spending. Consumers will be less likely to take on more debt, because of their inability to repay.

2. We just do not create enough jobs so that existing debt taken on by consumers is defaulted upon. It is here that financial institutions will be hurt most. More and more capital that should be available for investment will now be used as a reseve for bad debts, leaving little room for the economy to grow.

Are we there yet...

We cannot borrow ourselves out of this situation. When things start to go bad the first sign will be the decline in the dollar. We have had a 20% decline in the dollar vs the Euro in the past 2 years.  Can it get worse? Gold is another indicator. For years it was languishing below the $ 400 level and now it it right there and is threatening to go higher.

Could we use our Military might to force others to buy our debt...We might have to given the way things are going. Ask any banker and they have people in China and India because that  is where the new growth story is.

It will surely be a sad day when someone retires and finds that there is no social security, because all the surplus money that is being pulled in for Social Security is being used to mask the real size of the deficit and our debt problems would be a whole lot bigger.

Can Bush or Kerry even begin to tackle this? Their parties have gotten us into this pickle. On the campaign trail no one wants to talk about this major issue that will affect the life of every American for years to come. Most Americans are in their naivete do not believe we have a problem. It is there?

The cure for this problem lies in reducing the size of the Government and getting back to sound economic basis. which means a return to the Gold standard and an end to the income tax as we know it. The income tax has been used to usher in this policy of consumer spending. A consumption tax will promote saving and be beneficial for all in the long run. For those of you who think immigration is a bad thing, I would suggest that you change your minds. The future of any country is determined by the ratio of its young to old population. A greater percentage of our people are older than a few years ago. It is the same reason why Corporations want to invest in China and India, because of better population demographics.  If we do there might be hope for Social Security yet.

I am voting Michael Badnarik Libertarian party candidate for president, because he is the only person whose platform allows this change to happen. And boy do we need the change

[johngalt1234]

Thanks for voting in the poll...Those not voting for Badnarik, I would much appreciate why you think otherwise.

[opebo]

Of course the Libertarian is going to have by far the best economic policy - laissez faire.

[Filuwaúrdjan]

Thanks for voting in the poll...Those not voting for Badnarik, I would much appreciate why you think otherwise.

How arrogant ARE you?

[johngalt1234]

why do you call it arrogance....

I posted the Libertarian view of Economic policy...

I am sure there are others that differ. Differing is not bad but I would like to know the reasons. The purpose is to have a discussion.

Do you vote for a person because you feel like it or because he offers some value to you?

[KEmperor]

Of course the Libertarian is going to have by far the best economic policy - laissez faire.

Yes, I agree totally.  If my vote were to be solely on economic policy, I would vote for Badnarik.  But foreign policy and electibility forces me to vote for Bush.

[johngalt1234]

I  thought people vote for people who they believe
I thought people voted their pocket book before anything else

Now I find that foreign policy and electability plays a part....what next?

[KEmperor]

I  thought people vote for people who they believe
I thought people voted their pocket book before anything else

Now I find that foreign policy and electability plays a part....what next?

You are delusional if you think that foreign policy is not important after the terrorist attacks a few years ago.

[johngalt1234]

A foreign policy of non interventionism is far better than one  of sticking our fingers in everyones business and trying to be policemen to the world. We would never have gotten attacked had we that foreign policy.

I have other tell me we have a moral right to defend the helpless when they are victims of governmental abuse. If that were the case we would be trying to help out in Sudan, where genocide rages but that country has no strategic interests for us.

Our Foreign policy has been shambles, We supported Iraq in it war against Iran. Now they are our enemy.

Do you think any of that is gonna change under Bush or Kerry?

[Defarge]

Libretarians scare the bejesus out of me.  I agree with them on social issues, but on everything else they're even more crazy than Republicans.

[johngalt1234]

Libertarians scare you because they have radical measures for the issues facing our nation.

If you want tinkering at the edges and hope that things will improve, you have your choice of Candidates...Bush and Kerry. Just a note you will get exactly what you voted for little or no change and a worsening of the economic climate. I would like to know what would you do when your time came to collect social security and you couldnt collect because the treasury was bankrupt.

Waiting for that moment will be too late. Libertarians take us back to what was successful in the first place laissez faire capitalism and individual responsibility for the social agenda.  That is what you will get by voting Libertarian. It is the cure for all the ills

[MN-Troy]

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You sound very much like one Pat Buchanan when you say the trade deficit cost jobs. This is simply not true. Economic growth tends to rise and unemployment tends to fall when the trade deficit increases. The United States being a high consumption, low savings nation, needs a trade deficit. Along with increasing the purchasing power of the American consumer, the excess dollars stemming from a trade deficit is invested back into the United States as capital. This much-needed capital is used to grow the economy and, in most cases, lowers the unemployment rate.

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If you look at things in perspective, the dollar price of an Euro has increased 6 percent since its conception in early 2000.  In comparison the dollar fell 65% against the deutschmark from 85 to 95 and the deutschmark fell 40% from 95 to 01. The steep fluctuations in either of those currencies did not destroy the U.S. or German economies, the economies simply adjusted. There is nothing to fret about when the dollar had a modest drop against the Euro.

Johngalt , I don't disagree with everything you are trying to say. I do agree that the government needs to gets its financial disorder into financial discipline. Short-term deficits can be good and can be weathered. It?s the long-term deficits that can cause problems. Futhermore I do agree the country needs a consumption tax to help spur investment and savings, but the regressivity of the tax needs to be dealt with. Any ideas?

[John Dibble]

Futhermore I do agree the country needs a consumption tax to help spur investment and savings, but the regressivity of the tax needs to be dealt with. Any ideas?

I can deal with this one. Well, part of the regressivity problem is that we are currently spending too much, so the effects of the regressivity would be greater. Cutting unnecessary programs and spending money more efficiently on the ones we keep would effectively lower the need for taxes, so the consumption tax would be lower(or, any tax for that matter) than it would be at our current level of spending, as would the effects of the regressivity.

Also, the consumption tax could be lower on basic goods like food in grocery stores.

[CARLHAYDEN]

I  thought people vote for people who they believe
I thought people voted their pocket book before anything else

Now I find that foreign policy and electability plays a part....what next?

Some political scientists worked out a formula for predicting both whether a person would vote, and how that person would vote.

The basic formulation was:  R = PB-C+D

The P in the formula is Probability of election.  Lets suppose we have an election in which there are five candidates on the ballot.

Now, lets suppose that the voter prefers the policies of the candidates in the following order (and presume the voter disregards other matters such as the capabilities of the individual candidate to function well in the office).

Highest preference                    Candidate A

Second highest                          Candidate B

Third highest                              Candidate C

Fourth highest                            Candidate D

Fifth highest                               Candidate E

Now lets suppose the same voter evaluates the probability of the five candidates of being elected in the following order:

Candidate C                                2 in 5

Candidate D                                2 in 5

Candidate A                                 1 in 1,0000

Candidate B                                 1 in 100,000

Candidate E                                 1 in 10,000

If the perceived differences between candidates C and  D are substantial, the voter will be loathe to vote for their most prefered candidate, and will instead vote for the best candidate with a realistic possibility of being elected.

Now, if the voter perceives that one candidate is highly likely to be elected (i.e. a blow out election), then he can freely cast his ballot for his actual preference since his vote would not make a difference in deciding the actual election.

[muon2]

Futhermore I do agree the country needs a consumption tax to help spur investment and savings, but the regressivity of the tax needs to be dealt with. Any ideas?

I can deal with this one. Well, part of the regressivity problem is that we are currently spending too much, so the effects of the regressivity would be greater. Cutting unnecessary programs and spending money more efficiently on the ones we keep would effectively lower the need for taxes, so the consumption tax would be lower(or, any tax for that matter) than it would be at our current level of spending, as would the effects of the regressivity.

Also, the consumption tax could be lower on basic goods like food in grocery stores.

In fact many states already use differing sales tax rates (including exemptions) for different categories of items. Some of those categories include medical supplies, food (but not dining out), and clothes below a certain dollar amount. These tend to address the regressivity complaint. They are also much easier to implement than 20 years ago, since electronic point-of-sale keeps track of the different rates automatically.

Historically, income was easier to tax because the nature of employment made it easier to track payroll rather than consumption transactions. As the economy becomes more electronic, the difference in ease of assessing a tax disappears. And since consumption tax does not require the same amount of paperwork, in the long run it will be easier to administer than income tax.