>I think you're a bit mistaken about what helps the economy. Government
>spending helps the economy more than cutting taxes. It's a staple of
>economic theory that the velocity of a dollar (the speed with which it moves
>from entity to entity) is much greater when it comes from the government,
>because the government does not save the money but people do. The economy
>is slowly recovering from a bubble, and this is certainly helped by the
>spending. However, the bankroll for this spending of this current
>administration is not covered by anything in the bank, and this spending
>does is not helping the people who live in the US as much as is it some very
>high-profile corporations. I think that people generally realize this -
>money is flowing out of the government but not back in - this also happens
>to be recipe for inflation (think Reagan years). People are hoarding the
>money they have as much as possible. Corporations who got big tax cuts do
>not need to hire more people because people are 1) hoarding their money 2)
>will work for less to keep their jobs and 3) are becoming more productive
>using things that are bought to make them more productive with the money
>that is saved from corporate taxes. Jobs are not climbing in a meaningful
>way, they have little rises and then fall back down. Taxes need to be
>increased - spending needs to happen - the money needs to circulate rather
>than sit in somebody's (or some corporation's) bank account. Everybody gets
>richer when the money flows.
I'm going to address a lot of things in a big mess...
This is a very generalized, and often miss-applied, derivative of Keynesian
economics. We let the Government spend our way out of troubles. I'm not
too familiar with the whole concept but the basis is that is everything
else stays the same but the government increases spending that overall
output will increase and this will lift the overall economy. My
understanding is that this may or may not be true in a more global
economy. A clear example of this is that we can no longer control
everything else. We can't stop China from consuming oil and increasing the
cost of crude oil. So increase spending by the government may not increase
output if the cost to produce can't be controlled. Like I said, I'm not
too familiar with it but this was what I was told.
If you want corporations to spend then uncertainty has to be removed. The
largest single uncertainty right now is our presence in Iraq. We don't
know how long we are going to commit troops there. Some of the price
increase has to be due to the our presence in Iraq. Some will argue that
not capturing all the terrorist leaves us vulnerable to unknown risk in the
future. And they do have a point. But everything is a risk vs reward
proposition. And the risks of troops committed is more immediate and more
quantifiable. That said, the well being of corporations shouldn't be the
single factor that decides if we should partake in a military conflict or
not. But it is something the administration should strongly take into
account as economic prosperity has to be a very important goal.
I have read reports that several noble prize winners have opposed Bush's
tax cuts. And in the long run they are probably right. But I do agree
with the administration on what they have done so far. They addressed a
very pressing issue and fixed it. Because if you can't fix the short term
then there will be no longer to fix. The classic example is, you have a
chicken. You can either eat the chicken and live for another 30days or die
within 3 days. Or you can wait 4 days and wait for the chicken the lay an
egg. This is obviously an exaggeration. It's like those people that go
on hyper-diets for a week. Their goal is to get into that dress or
bikini. Dieting on water and vitamins for a life-time can't be too
healthy. But doing it for a week isn't too bad. Damage can be controlled
and long term effects can be avoided if done correctly. So they do that
for a week. They get into that dress and then after that they can eat
grilled chicken and a salad.
There aren't may economists worth their BA PLUS financial calculator that
will disagree that Bush's tax cuts stimulated the economic recovery. We
obviously have a problem with Social Security, Medicare, and other things
but we also had a very pressing problem with a recession. How about we
find people some jobs and then fix them when we aren't in a recession? The
only positive, and I use the term very loosely, I can see for addressing
some of these issues now is that everyone understands and feels the impact
of how great of a problem they are. But me, I can't do that. I see these
people without job; worrying how they are going to put food on the table
for their families. Unfortunately, the tax hasn't really help to create
jobs. I would have liked to have seen some unnecessary programs cut to
justify the tax cut. Maybe non-essential military spending. Maybe less
government bail outs of poorly run airline and rail roads. But if we are
going to borrow to fund the government while we cut taxes might as well do
it when money is so cheap to borrow.
Gruss also mentioned the borrowing. We should be borrowing. Lock in low
rates. At the core of any business is taking calculated risk for
rewards. As long as we don't keep borrowing when rates start to go up we
should be fine. Deficits are not bad. That is like saying every person
with a 5% body fat BMI is flawed. Some deficit is healthy. Personally, I
don't know how much is too much. As a side note, Gruss and I have pretty
similar politics but we come to some very different conclusions. He's
social liberal and fiscally conservative too. I believe Bush and his
administration did a good job. He doesn't. But I think we both have our
doubts if he is the right man for the future.
PS I have no idea how Reaganomics caught such a bad rap in revisionist
history. I haven't studied the fiscal side of the 80s at all so I can't
comment. But reading about the capital markets during that time is very
exciting. You had revolutionary ideas and cut throat financing. Companies
were forced to adapt as they were being assaulted by foreign countries. I
remember in the 80s everyone was so certain that the Japanese were going to
buy the US out. Maybe Reaganomics adverted that? Doubt it, but it had to
have played some part.
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