Azaran on 14/9/2011 at 22:46

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When the right wingers say they want to cut spending, they usually mean on social programs and services that are of benefit to society. They have no problem spending trillions on bombing and invading other countries.
I once saw an article that said that the amount of money the US spends in Iraq per year is enough to feed most of Africa for 20 years.

And you're telling me America can't afford to help its poor and needy...

theBlackman on 14/9/2011 at 23:41

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On topic Not if my vote counts.

Shug on 15/9/2011 at 00:00

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http://www.oecd.org/vgn/images/portal/cit_731/7/50/44765433G4G%20ch%205.gif

Social / economic mobility in the US is poor compared to other OECD countries. The 'land of opportunity' doesn't apply any longer.

Having recently plunged into this subject courtesy of debates elsewhere, I must ask - why wasn't this theory of not taxing the wealthy put to bed permanently after the failure of Reagonomics?

Rug Burn Junky on 15/9/2011 at 00:34

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And nobody is saying that it is. It is a way to offset the collateral damage to the debt caused by the actual solutions to improving the economy.

Please stay away from these discussions if your ability to understand economics is this limited. Because it seems that "what you know about economics" consists of conservative soundbites and talking points, rather than actual analysis. And quite frankly, simplistic ones at that. You're looking at it as algebra, like a 5th grader, when it's really multivariable calculus involving second order derivatives. Christ, it's like a tardweed in here, we finally get rid of one, and a new one sprouts in its place.

The idea that "Job creators need more money" is patently incorrect, and easily falsifiable. How come? Well, they HAVE plenty of money. Not just in the "oh, rich people are rich sense," but in a more real, tangible sense. Read the financial statements of any major corporation... profits are up, and they are sitting on piles of cash. Uninvested. As a percentage of their "assets," a higher ratio consists of cash than at any time in recent memory. So the problem isn't that there is no investment capital, or that taxes will prevent the utilization of that investment capital, it's that there's no incentive for that capital to be expended if nobody else out there can buy stuff.

We need demand.

Let me unpack it a bit. I'm going to do some deep, deep fundamental explication, a) because I'm writing it for another venue, and b) because it sets the stage beautifully. Bear with me.

The fundamental disconnect that inhibits most people from understanding economics is how they view "money." This is at the heart of Ron Paul's misconceptions, but pervades the thinking of most laypeople. At it's heart, money is a 'medium of exchange.' The disconnect is that people view it instead as a 'store of value,' ie. an asset. Paul is great for illuminating this fallacy, because that is what is at the root of goldbuggery.

Why is this a fallacy? Well, because we have plenty of other things that can serve as assets, and do a much better job of it; Things that you can own, that are worth something, in which you can 'store value' and trade later. But more importantly, the great thing about cash is that, as a medium of exchange, it is fungible. Cash untethers the exchange from the intrinsic value. It doesn't have any other purpose - you can't eat it, you can't drink it, you can't wear it, you can't breathe it. Why is this important? Well, if what you are exchanging is solely an "asset" you're bartering. And if that's the case, that asset may have more value to you, because of what it is used for, than it has for other people, which creates market impediments.

Cash suffers from no such limitation. It is worth the same thing to everybody. What gets up the goldbuggers' asses is that it is not worth the same thing at all times ("Grrr, in my day you could go to the movies for a nickel.") This is a feature, not a flaw. If you are truly using market functions in an economy, your medium of exchange needs to be able to fluctuate in response to market conditions. Otherwise, you're putting an artificial constraint that is, again, a market distortion. It's like driving by only making right turns.

So what does this all mean? Well, as a medium of exchange, the value of money is entirely dependent upon its circulation. Not sitting in a bank vault or under a mattress, but by changing hands, facilitating transactions. At the end of the day, you're still 'bartering,' by exchanging what you have of value for what other people have of value, but cash enables you to time-shift this exchange. This removes many of the artificial constraints, and lets one participate in transactions only when they are most advantageous. But this adds a new wrinkle.

what if everyone perceives that transactions are currently disadvantageous? Sellers who can will sit on inventory, will do so until the price rises sufficiently. Investors may park their cash until they can maximize its return. In this case, they are using cash to approximate a store of value, and removing it from its function as a medium of exchange.

Once market participants start to do this, it becomes a self fulfilling prophecy, and transactions dwindle, employment to follow. Those who are not resource constrained (ie. who do not need to spend a substantial portion of their income/wealth for their own subsistence), can sit on cash. This is a perfectly rational act - an individual investing in an environment where everyone else is instead saving will get creamed.

But those who do need to spend a substantial portion of their income see themselves getting less and less of it, and are increasingly unable to spend at all - why? BECAUSE THEY DON'T HAVE ANY. This is the fundamental problem with income inequality. As greater and greater wealth becomes concentrated in smaller and smaller circles of society, it removes liquidity. This can be overcome in the short term by allowing consumers to borrow, and letting investors trade in that debt, but even that reaches a breaking point and credit becomes tighter, consumers can no longer purchase, sellers can't sell, so investors don't invest.

That's the situation that we're in now. The medium of exchange is being tied up and that is preventing the economy as a whole from engaging to its full potential. THIS is why rising inequality and heavy concentrations of wealth are a bad thing, they inhibit the economy.

We need more transactions going on. We need demand.

How do you do that? Someone's got to buy stuff. Rank and file consumers can't - they have a decreasing share of the money supply. The people who have money can't be compelled to spend it, that would be patently problematic. But they can be encouraged to do so by making holding money less desirable, and you do that through inflation. That's one means, but a difficult one to accomplish efficiently.

Better yet, is you have someone who isn't resource constrained commit to buying stuff. That would be the government through fiscal policy. Now, this is where the rightwingers' heads explode, because they hate government as a matter of course. More importantly, they freak out over the "debt" (see scariekitties, supra).

Now, let's tie some of this together. We have two major issues facing us as a country:

One is that we have massive unemployment and an output gap - our economy isn't performing up to potential. This is immediate, and pressing. It causes real current pain to wide swaths of the citizenry, and furthermore, it contributes to our second problem, the debt/deficit.

Our national debt is a long term issue, with a number of factors at play. But it is not an immediate issue. There is still time to fix it, and there are means to do so, what we can't afford to do is to make it worse. Having massive unemployment makes it worse. Every day that resources sit idle, that's long term productivity that we can't get back.

Now, to fix the debt, you can do two things, in general: decrease spending, increase taxes. Three, if you consider a combination of the two. The problem is that both of these solutions exacerbate problem number 1. The problem also is that neither solution is effective in this environment.

To fix unemployment, there are a number of potential solutions, but there is one magic bullet: government spending. Stimulus. When you have idle resources, getting them to work should be your number one priority. Of course, the downside to this is that, as an accounting matter, this exacerbates problem number 2, since the spending must be sufficient to cover the output gap, and current tax receipts are going to be inadequate for this purpose, which necessitates borrowing, increasing the debt.

These are not equal in weight. The extent to which the debt has been overstated and demagogued on the right as a problem can't possibly be exaggerated. It's a real issue, but it's not an iceberg just off the stern, it's far away and avoidable.

So you have to prioritize. And, given that immediacy, the prioritization of fixing unemployment first is a pretty easy call. Why? Well, think about it. If you borrow money, increasing current debt, but spend to increase current output, you're increasing future income. This serves the function of increasing debt short term, but minimizing damage to it in the long term because as the economy approaches full output, tax receipts rise.

Like I said, multivariable calculus - you change one variable, it affects the rates of change of other variables. Cutting spending won't work in this environment because when you decrease spending, you increase unemployment, decreasing future revenues, making the debt problem WORSE (like I said: ineffective).

But increased spending isn't entirely debt friendly, it's just a least bad solution. since we're in a situation where our debt started abnormally high to begin with (thanks for the tax cuts W!), it gives us less margin for error. So we want to minimize the effect on the debt even further, not just because the Teatards get their pretty little heads in a knot, but also because any rational adult can see that too heavy future debt can have bad consequences.

Since we're committed to increasing spending as a solution to unemployment, the only other way to mitigate is to increase taxes (or, runa larger deficit and live with it).

But you have to target the taxes correctly, and that means at places where it will do the least damage to overall demand. Taxes on the wealthy, who aren't spending their income to the same percentage anyway, do the least damage. Voila.

Now, a couple of other brutal fallacies our superstitious pediatric feline has chosen to share. For one, the inequity of higher taxes on the wealthy as a philosophical matter ("Wahhh, their money is hard-earned from good education and smart business practices"). This is a lovely canard, but it falls apart in a macro sense when dealing with the economy and the tax structure. As a practical matter, the ability to make money is dependent not just upon working hard and a good education. One of the largest contributing factors? How much money you already have. The more you have, the greater your ability to earn. Not through hard work, not through "smart" investments, but through the sheer nature of having money. For a number of reasons, one, the subsistence portion of your income/wealth decreases as your total volume increases, freeing more for investment purposes. Two, the portion of your income that is attributed to actual "income" and not "capital gains" is also reduced, exposing more of it to a lower tax rate.

Thus, once you reach a certain level of wealth, your ability to earn more accelerates. Now, if you understand mathematics, and understand the difference between arithmetic and exponential expansion, you'll see that this leads to greater concentrations of wealth over time. This is bad. See above.

But more importantly, and the frightened pussy hit on this (poorly) by drawing a badly analogized distinction between income and wealth, nobody's taking away the "wealth" of the rich. They are fully entitled to keep it. But their ability to earn more is dependent upon the rules of the game in which we all play, and over time, they've been tilting farther and farther in their favor, to the detriment the rest of society. As income inequality accelerates their share as a percentage of society increases - taking "wealth" from everyone else. You have a right to keep what you earn, you don't have a right to leep earning in a manner which is inequitable to everyone else.

That speaks to the estate tax as well. If you can tie up wealth and resources within one family for generations, that exacerbates the concentration of wealth. And bullshit if you think Lord Weathervane McHetherington III "earned" his trust fund. Sure, Grandpa weathervane may have some say in how his fortune is distributed, but not to the detriment of everyone else.

Finally, you COMPLETELY misunderstand the Eisenhower example. The example does not speak to the idea that "high taxes = improved economy," it merely discounts, nay, utterly destroys the notion that "high taxes = ruined economy." That's a difference, and your failure to grasp that bespeaks volumes about your ability to parse the higher level logic necessary to understand what's at play. Even more so, if you think that regulation or defense spending as a whole was LOWER under Eisenhower to any appreciable degree, you are just factually misinformed. (Yeah, sure, he warned about the military industrial complex, but he also executed the Korean War and contributed to the nuclear arms races. Never mind the fact that implying a causal connection between low defense spending and booming economy is, who shall we say, fucktarded?)

scarykitties on 15/9/2011 at 00:57

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Phew. Thanks for the explanation, Rug Burn.

I apologize to everyone for my misinformed (read: ignorant) argument. Hopefully I walk away a bit better-educated on the matter.

So, which political candidates, if any, understand the system to this degree? Isn't the Obama jobs plan supposed to do something similar to this? Why, then, do so many say that it won't work? Take note that I'm not challenging you with these questions, but rather asking out of curiosity.