Lets make fun of Obama while he is still relevant.

[Warren Dew]

(12-03-2016, 11:57 PM)playwrite Wrote:

(12-02-2016, 02:05 AM)Warren Dew Wrote:

(12-01-2016, 08:30 PM)Eric the Green Wrote: Lowering taxes does not work; printing more money or government spending are better (especially the latter). That would mean interest on the debt would also rise, so in that case high debt would come back to bite us.

Actually government spending is the least effective way to try to stimulate the economy.  The problem is that spending stimulus is inflationary, which means that you have to cut back on monetary stimulus to avoid excessive inflation.  In addition, the multiplier on federal spending is less than 1 under all economic conditions, varying between 0.7 and 0.9:

http://www.aeaweb.org/aea/2013conference...?pdfid=373

Supply side stimulus such as cutting tax rates in concert with monetization of the debt is the best form of stimulus; supply side stimulus is deflationary, permitting application of additional monetary stimulus.  Tax rate cuts are especially good as they increase the incentive to work and thus increase the labor market participation rate, which is particularly critical when the economy has a lot of retirees to provide for.

But perhaps the most important issue is that government spending is generally in the form of payments to large corporations, so it adds to wealth inequality.  Across the board tax rate cuts, in contrast, benefit the workers, and thus tend to decrease inequality.

Whether govt spending mulitpilier is 1.0 or 1.5 (and its going to be different for transfers than it is for infrastructure; for bomb making than for school lunches, etc.) has credible economists on both sides of the issue; the ones who claim its less than 1.0 always have some weird political agenda they're trying to sell.

When the facts are against you, ignore them and stick to your prejudices, there's the ticket!

The truth is, it's the ones who claim the multiple is greater than 1.0 who have a political agenda - and it's always the same agenda, increasing the size and power of the government.

Quote:And if it's just 1.0, who cares from a standpoint of stimulating the economy?  That is if you're not one of those confused and believe that federal debt is ever paid back.  Spending a federal dollar is going to make the economy react just like it would for any non-federal dollar spending.

From both a stimulus and an inflation standpoint, spending is spending, whether it be government or non-government - unless you can show us how one decides a dollar is a non-government dollar rather than a government dollar- how would the economy know?

That's an easy one.  Private money is spent by the people who pay the money.  They have an incentive to get the most out of their money.  Government spending is spent by politicians who aren't the ones paying.  Their only incentive is to direct the money so as to enrich themselves and their cronies, no matter how inefficiently that money is spent.  As a result, much of that money is wasted from the standpoint of actually improving peoples' lives.

Quote:And how does stimulating supply in an oversupply world create economic stimulation rather than just bubbles?  Do you really think businesses are dying to invest in more supply but taxes are holding them back???  If so, explain this -



 They're swimming in cash.  They and every 0.1%er puts their cash, one way or another,eventually,  into T-bills which is essentially parking that money in completely non-productive interest-baring savings accounts, not investments.  And what the "eventually" means is a lot of scurrying around in stockand bond markets which are SECONDARY markets and have absolutely nothing to do with real investment.  That's why supply-side stimulus is deflationary for the real economy while causing financial asset inflation (see 2000 dot.com crisis and 2008 housing crisis).

If we were living in an "oversupply world" prices would be plummeting.  They're not.  There are plenty of things I would like to spend money on but that I can't afford.  Can't you say the same?

But you misunderstand supply side economics completely.  It's not about capital.  It's about the supply of goods and services.  It's about the supply of labor, so you can get a more competent plumber more quickly for less money, because he gets to keep more of that money instead of giving it to the government.  It's about the supply of energy, so people don't have to choose between paying for the gas for a vacation or buying their kids Christmas presents.  It's about the supply of food, of housing, of a myriad other things so ordinary people can afford to improve their lives.

Quote:And monetary policy does work when the concern is inflation that you want to moderate but it doesn't work when the concern is deflation from a lack of demand.  A bank can have zero interest rates but why would a businessman go get a loan (he still has to pay it back) when he has nothing to spend it on?

Monetary policy works fine against both inflation and deflation.  That's why we don't have deflation right now.  The only problem is that the fed is too enamored of their unemployment target - which monetary policy does not directly affect - that they haven't been willing to take the action needed to meet their inflation target.

Granted it would help if the government would cut taxes and increase the debt, so they could just monetize the government debt instead of having to chase after mortgage backed securities and other targeted instruments where fed purchases distort the economy.

Quote:And no, the biggest federal government spending isn't on corporations, it is on Social Security, Medicare and Medicaid and other safety net expenditures and that money gets spent in the economy, it doesn't go into T-bills and secondary equity markets.  And even the next biggest expenditure, defense, a lot of that goes to wages for the people working in those industries.

None of which is stimulus spending.  And Medicare and Medicaid is still spend largely on corporations:  corporate pharmaceutical companies, corporate hospitals, heck, even most doctors' offices are incorporated.  Give the money directly to the recipient, and it might not be spent on health care at all, so it's still the politicians deciding how it's spent.

Quote:Pure federal government spending, not some Trump giveaway for cherry-picked infrastructure asset privatization tax credits ...

It's amazing how the left thought "infrastructure spending" was such a great thing when Obama did it, but now that Trump wants to do it, it has all these problem.  Truth is, it had all these problems and was a bad policy all along.  The only difference is that Obama and Trump have different cronies to cherry pick the money for.

If we actually have public infrastructure that needs fixing, sure, fix it, but fix it as inexpensively as possible, don't just spend money for the sake of spending.

Quote:... IS the best way to stimulate the economy because that spending does not have to actually be paid for - it's called deficit spending.  And federal deficit spending's only non-political limitation is demand-based inflation at a level considered harmful (which would at least be above 5%  - something that you and I will never see in our lifetimes.

You could get effective federal deficit spending by cutting taxes if you cut taxes on lower incomes.  Obama did this perfectly by cutting payroll taxes.  That is the right strategy, not some horseshit supply-side tax cut for the top 1% so they can fatten up their T-bill holdings.

Don't assume that all tax cuts are supply side.  Tax cuts in the form of deductions, or worse, credits for specific forms of spending are closer to demand side, because it's the government making the decisions, directing the money toward favored interests.

It's only marginal tax rate cuts - cuts to tax rates, not just to taxes - that are supply side.  Payroll tax rate cuts are not bad, though their problem is that they aren't marginal tax rates for some recipients.  Getting rid of most or all deductions and cutting rates in all brackets would be the best  approach, especially if the structure could be simplified to very large personal and dependent exemptions and a flat rate on all income above that amount.

Quote:"Trickle down" use to be called "horse and sparrows" policy - the horese gets the oats and after the oats passed through, the sparrows got to pick through the road apples for the few seeds.

Exactly why Hoover style trickle down demand side government spending stimulus should never be used.