Presidential election, 2016

[pbrower2a]

(11-14-2016, 12:14 AM)Galen Wrote:

(11-13-2016, 11:45 PM)Warren Dew Wrote:

(11-13-2016, 10:11 PM)Kinser79 Wrote: In the case of borrowing and taxing the state is taking capital that could be put to work elsewhere and using it it for whatever.  I will grant that not all spending is equal.  A tax cut for the extremely wealthy (and I mean on their take home income, low corporate and capital gains taxes push money into investment and re-investment given a higher personal income tax rate) is a poor way to spend that capital.  The same would be true of a tax cut for the poor.  Or welfare.  Or subsidies for insurance.

Spending that same capital on public infrastructure, either new construction or refurbishing existing infrastructure, while not glamorous has a rate of return much much higher than a mere tax cut or a welfare check.

But even if you don't believe in keynesian deficits, massive government spending on infrastructure is not the way to go.

This is pretty much what happened in the Great Depression.  Obozo did much the same thing that Hoover and FDR did and got the same results.  Not surprising when you think about it and this is perfectly in line with Hayek's business cycle theory.  If Trump is smart he will do what Harding did and I expect that he will get similar results which were a short nasty recession followed by real growth in the economy.

Let people keep and spend their money and the aggregate demand problem, along with some others, will fix themselves.

There's a big problem with the Harding-Coolidge 'miracle' of maintaining Gilded-Age norms of politics and economics. It was the Hoover crash.

...We need remember what Friedrich Hayek says of economic bubbles as in the 1920s and the Double-Zero decade: they devour capital without transforming it into productivity, which is the cause of the subsequent crash. The bubble is the real disaster, and the panic is the mass realization that the investment in the bubble is worthless.

The 2007.3-2009.1 (the number after the decimal point is the quarter of the year) is very close to the first half of the meltdown of 1929.3-1932.2 in severity, suggesting that the economy was not going to return to the pre-Crash pattern. In 2009 the recovery was at a lower level than a projection from 2002-2007.

For an analogy: suppose that you have $500K in assets in a brokerage account and then take $100K out to pay nursing-home bills for a loved one. You will not return quickly to the level of asset growth that you had before the big withdrawal of money. You will see a gap. Asset growth is usually logarithmic and not linear.

So what was so bad about the bubble of the Double-Zero decade? It created an illusion of prosperity as it took capital that might as well have been spent elsewhere, as in public infrastructure and plant-and-equipment. We would have been better off with slow real growth instead of McMansions that have often been demolished.